“Baker Bros. Advisors, the hedge fund I wrote about in a recent issue, is obligated to make a filing to the U.S. Securities and Exchange Commission every quarter to detail its stock holdings. A recent filing showed a huge block of shares in Incyte Corp. (INCY). As of the Dec. 31, 2011 filing, the $255 million Incyte position is one of the fund’s largest, accounting for 10% of its total holdings and 12.3% of Incyte’s outstanding shares. No number on Wall Street is worth anything unless it can be compared to another number, and the most important number in this case can be found not in the Dec. 31, 2011 filing, but in the previous one, which covered the period ended Sept. 30, 2011. That filing showed a position of 11 million Incyte shares. Baker Bros. increased its stake by more than 40%. I don’t know about you, but when smart people who control billions of dollars make that kind of move, I want to try to understand why. That is what we are going to do today.
“And the answer is simple. The cure for cancer. Well, a cancer, at any rate. ... It is a type of blood cancer, indeed, called myelofibrosis, that Incyte seeks to treat. In fact, the company received U.S. Food and Drug Administration approval for one of its drugs, Jakafi, last November. The drug is known as a ‘Janus-associated kinase inhibitor.’ A kinase is a type of bodily enzyme that signals the body to carry out cellular functions. The kinase is expressed when a certain segment of the DNA strand, called a gene, makes a copy of itself. This so-called messenger-RNA is the biological instructions for the body to make a kinase that will carry out some sort of task, such as cell division.
“The Janus-associated family of kinases were originally called JAK-1 and JAK-2, etc. The JAK stood for—believe it or not—‘just another kinase.’ ... As scientists studied these kinases a little closer and started to figure out what they did, they renamed them the Janus kinases (after the two-faced Roman god, as the kinases carry two sort of ‘opposite’ substances.) ... The basic point to keep in mind is that these kinases, if your body has the genes for them, lead to certain medical conditions when expressed. These include blood cancers such as myelofibrosis, which affects about 18,000 Americans, as well as far more common pancreatic cancer and solid-mass tumors, for which the drug is also tested and could win FDA approval. Jakafi looks like the way to stop all of these from happening (or continuing) at the cellular level. The drug is like a smart bomb or guided missile, and it is a pretty dang good reason to buy these shares.
“We know this drug works. It was approved by the FDA for myelofibrosis and two other types of cancerous neoplasms, for which it was granted orphan drug status, and is currently being marketed as such. Before that, the only treatment for patients suffering from this condition, which is a bone-marrow problem, was a stem-cell transplant to try to replace the marrow. And soon the drug could address much larger markets.
“But Jakafi is not the only reason to buy the company, and in my view it is not even the best reason. ...”
This free excerpt is only a portion of Andy Obermueller’s recommendation of Incyte Corp. For the full article, consider subscribing.
Andy Obermueller, Fast-Track Millionaire, March 10, 2012
