Lowering Our Incyte FVE to $116 Despite Solid Q2 on Potential U.S. Drug Pricing and Tax Reform

We're lowering our fair value estimate for Incyte to $116 from $120 following second-quarter results that were in line with our expectations, as pandemic-related pressure on U.S. sales of hematology drug Jakafi appear to be abating (U.S. sales were up 12% to $529 million). We think Incyte's differentiated therapy Jakafi as well as a growing portfolio in hematology and immunology continue to support a narrow moat. That said, we're making adjustments across our coverage for potential U.S. tax reform and a 26% probability-adjusted tax rate effective in 2022, and we raised our assumed tax rate for Incyte to 22% beginning next year. In addition, we think that Incyte is more exposed than many biopharma firms to potential U.S. drug pricing policy reform, so we’ve included a 50% probability of a 2% step-down in sales for U.S. Jakafi in 2023 due to potential Medicare Part D redesign, as well as an additional 6% step-down for drug price inflation caps in Medicare in our bear-case scenario.