The Opportunity







As mentioned before, Ruxolitinib is already marketed for the treatment of Myelofibrosis and Polycythemia vera, proving it already is effective at targeting JAK1/2, this is very good news for the ongoing GVHD trials that also target JAK1/2. If the drug was to pass these Phase III clinical trials for GVHD, there could be a huge upside for Incyte.











It took a bit of time to work out the correct percentages but I think I've got it.



Estimated annual number of HCTs performed in the United States. There are roughly 8400 allogeneic HCTs performed in the US per year.

Allogeneic HCTs in the United States by donor type. Of these HCTs, roughly 4000 are unrelated and 3700 are related. The 700 remaining are from cord blood, which we can say is unrelated.

4700/8400 = 55% unrelated HCTs and 3700/8400 = 45% related HCTs.



Bone Marrow transplants or HCTs are performed an estimated 55,000-60,000 times a year. There is a bit of ambiguity regarding the percentage of patients that are likely to develop GVHD however. 30-40% of patients who are transplanted with cells from a related donor develop acute GVHD and roughly 50% develop GVHD if the donor is unrelated.It took a bit of time to work out the correct percentages but I think I've got it.4700/8400 = 55% unrelated HCTs and 3700/8400 = 45% related HCTs.

If we say the likelihood of GVHD is 35% of related donors and 50% in unrelated donors.



( 35% / 100 ) * 55% = 19.25%

( 50% / 100 ) * 45% = 22.5%





Add these together and we get an overall percentage chance of developing GVHD of 41.75%.

The Conclusion









Ruxolitinib is a Janus-associated Kinase inhibitor with selectivity for JAK1 and JAK2 proteins, these are proteins that regulate the number of blood cells the body makes. It has been developed and marketed by Incyte Corporation for the treatment of Myelofibrosis (Bone Marrow cancer) and a condition called Polycythemia Vera (uncontrolled production of blood cells). However it is currently undergoing investigation for the treatment of graft versus host disease (GVHD) in patients following bone marrow transplant.GVHD accounts for almost a third of deaths associated with bone marrow transplants. For patients with GVHD, there is almost no standard treatment, with currents treatments showing limited activity and response rates of 20-40%. There is a clear unmet need for a novel active treatment for GVHD.Patients with cancers that affect the blood or lymph nodes will often have bone marrow transplants as part of their treatment. Malignant cells need to be removed and donor stem cells added so they can replicate and produce new non malignant blood cells.GVHD is an immune condition in which immune cells from the donor (known as the graft cells) attack the recipient patient host's tissues. The chance of developing GVHD is around 30%-40% when the donor and recipient are related and around 60%-80% when the donor and recipient are not related.JAK protein signalling is very important in GVHD as the JAK proteins are key regulators of the progression of the disease. A variety of cytokines (small signalling molecules) that signal through JAK proteins play a role in the proliferation of immune cells, which are needed for the progression of GVHD. Without JAK proteins, these cytokines could not influence the proliferation of the immune cells that are needed for the progression of GVHD.Also interestingly JAK inhibition preserves GVL activity (the ability of the graft cells to fight the host blood cancer cells).Ruxolitinib is a JAK inhibitor, thus directly stops the pathways that are needed for the progression of GVHD.Ruxolitinib is taken orally at varying doses between 5mg and 25mg depending on platelet counts.41.75% of the estimated 57,500 patients having HCTs worldwide each year is 24,000 patients. And that is just for acute GVHD.My calculations for Chronic GVHD will be a tad shorter, but 46% of patients having HCTs develop chronic GVHD. Of course the main risk factor for chronic GVHD is acute GVHD, so by taking the average percentage chance of developing cGVHD across all grades of aGVHD (G0 28%, GI 49%, GII 59%, GIII 80%, GIV 85%), which is 60%, we can work out how many patients will develop cGVHD without having aGVHD.46% of 57,500 patients is 26,450, however 60% of these could have developed chronic GVHD after having acute GVHD. So if we take 40% of 26,450 we get 10,580 patients that could develop chronic GVHD without having acute GVHD.Thus the total number of patients worldwide that have acute or chronic GVHD and are treatable with Ruxolitinib would be around 34,580.After a quick google for the price of Ruxolitinb, I was able to find out that it costs £3,600 for a 60 tablet pack, this would last 1 month as patients need to take 2 tablets daily.£3,600 multiplied by 12 months is £43,200 a year. Take this figure and multiply it by 34,580 patients a year and we get £1,493,856,000 or $1,954,180,257 a year in sales.Now I am going to use this figure for any further calculations as currently there are no available treatments for GVHD and I also saw that Incyte has another drug called Itacitinib in Phase III trials for GVHD. If one or even both of these drugs are approved, a large percentage of the market share would go to Incyte.Pharmaceutical companies generally profit 20% from the revenue of sales. 20% of $1,954,180,257 is $390,836,051 a year of extra profit.Using Incyte's current Share Price of $84.15, if we take the EPS from Q4 2018 which is 0.40. We can work out the PE ratio by dividing the share price by EPS, in this case 210.38.If Incyte were making $390,836,051 extra a year in profit, then that would be roughly $97,709,012 extra income per quarter. If we take this figure and add it to the $69,060,000 Net Income that Incyte made in Q4 2018, we get $166,769,012.By multiplying this figure by the PE ratio, it would give us the Market Cap of Incyte if Ruxolitinib was approved and had reached peak sales. This is $35,084,864,740. If we divide the market cap by the 212,808,000 outstanding shares, we get a share price of $164.87. This is a 96% upside to the share price as of 16th February 2019.These calculations are based off assumptions that Ruxolitinib will be approved worldwide for the treatment of Graft vs Host Disease, whether Chronic or Acute. Obviously there is still a long way to go before this happens. As mentioned before, I do think the fact that Incyte has another treatment for GVHD in Itacitinib is a major positive. The current treatment for GVHD is steroids, thus I believe the need for a more specialised treatment is high. With both of these drugs on the horizon, Incyte may be able to command a large chunk of the market, especially as there are no real competitors out there.Current results from the Phase II REACH study which evaluates Ruxlitinib as a treatment for patients with GVHD are promising. The study reached its primary endpoint, meaning it can progress into Phase III. The Overall Response Rate (ORR) was 55% at Day 28 and the Best Overall Response Rate (BORR)(Patients achieving a response at any point during the study) was 73%. Given my background, I would be very hopeful that Ruxolitinib would pass Phase III. After a bit of refinement in trial processes in which patients would be more suitably targeted from a real world point of view, I would expect good phase II results and hopefully approval.The other plus side is that Incyte looks to be an attractive takeover opportunity in the Biotech space. The company has an extremely strong oncology pipeline, which is perhaps the hottest commodity in the space. Goldman Sach's analyst Salveen Richter sees $148 as a potential buyout price tag. This is a 76% upside to the Share Price on 16th February 2019 and in my opinion not an unlikely probability. I will be watching Incyte over the coming months to see if it experiences a drop on news. If so I would consider initiating a position.I am long $INCY-OCDisclaimer:I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company who is mentioned in this article. This article is not investment advice, and can't be relied upon by anyone for any reason except, arguably, entertainment purposes. I am not an investment advisor.