<<<<<<There is one other thing that keeps stock price down. Some analysts fear (look at big head at DMG), that royalties won't come in because Incyte would never be able to prove that a drug is based on Incyte's databases.>>>>>>
First, who is big head at DMG? This is such BS! What you do with the data insilico (on computers) is not subject to royalty. But, when you want to get a clone from INCY of the actual DNA of interest, you must sign a royalty bearing license to get the material. Must not be too much of an issue as the Pharmas have signed up for over 8000 of them. It isn't like it is a mystery to INCY what the Pharmas are up to. You can make this same argument about any kind of royalty or intellectual property licensing deal. GEE, they might not honor our contract, therefore the contract must be worthless. Well, that is what courts are for, to shove contract enforcement down throats. And, if that is really reality, then this entire industry sector is in deep trouble as biotech is rife with licensing deals. Part of what makes this scenario unlikely is that INCY is only asking for a small royalty (1% I believe). This makes it so reasonable, that I can't believe the pharmas would violate their deals, risking litigation, big damages, and a loss of access to any further INCY stuff. Buy hey, there ARE idiots out there running companies, so this might happen on occasion, but I doubt it would occur with any frequency.
I covered Licensing deals June 15th in post #659, which is an extensive coverage of the INCY annual meeting, and a must read if you are really interested in this company. Here is an excerpt on this:
<<<<<<
RE: Licensing deals:
Licenses are for experimental use of genes, or if they ship a gene to the customer. No license for just computerized dbase manipulations. Nearly 8000 licenses have been issued to Pharmas (almost all in the last two years).
Licenses divided into fields of use: Research: for example a receptor used to find a small molecule therapeutic, they only will license out non-exclusively. For therapeutic molecules, they will license exclusively. Also have diagnostic and antisense fields of use.
>>>>>>>>
I do concur with the view stated earlier on this thread that INCY's future royalty stream is not valued in the stock price. I think these royalties are so nebulous and far off that it is hard to conceive of the value, but it is real. Plus, now that INCY has a PE (a rarity in biotech), this is how it is valued, not based on that future stuff or research premium, but on quarterly revs and EPS. This became readily apparent in March of 97 when INCY lost $150M (like 20-25%) in market cap because they missed their projected earnings in their first profitable Q by 3 cents a share, earning only 2 cents instead of 5 cents (ie. a total shortfall of $250,000 in profits). This was just a massive shortsighted overreaction by the markets and was a great buying opportunity.
Keep in mind that once INCY is collecting royalties it could become a virtual company. The work the royalities are based on has already been done and payed for. INCY could stop doing R&D, layoff everyone except one person, and become a royalty check cashing company with no overhead. While this will never happen, it illustrates that the cost of goods for the royalty is virtually nothing. It was all expensed in the past. The royalties will be pure profit and fall directly to the bottom line.
Well, enough rant on this topic.
Tough day for INCY in the markets today. Anyone have any idea what hit them so badly (down $2) most of the day? Well, at least it recovered most of the way by the close. Couldn't find anything that drove the drop except maybe low volume, or the Visible Genetics announcement of a new long read sequencing system (which should be a plus for INCY, because if it is better, they will adopt it).
Later,
Rman
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