Source: Incyte Corporation

What: After updating investors on results from its ongoing proof-of-concept phase 1/2 study of its drug epacadostat in combination with Merck & Co.'s (MRK 0.61%) Keytruda, shares in Incyte Corporation (INCY -0.95%) tumbled by as much as 22% earlier today before rebounding slightly.

So what: On November 3, Incyte Corporation outlined its intention to advance studies of its wholly owned epacadostat and Merck's Keytruda into phase 3 trials for the first line treatment of advanced metastatic melanoma. Incyte also announced that it would present the first data from the combination therapy at the Society for Immunotherapy of Cancer conference, which it did today.

As of November 3, safety data was available on 28 patients and efficacy data was available on 19 patients. Based on that information, the couplet appeared safe and demonstrated an encouraging trend toward "promising clinical efficacy", particularly in melanoma.

Specifically, four of seven melanoma patients had an overall response to the therapy, or 57%, and disease control was seen in six of seven patients, or 86%.

In today's presentation, insight was offered up on safety in 56 patients and efficacy in 47 patients, including 19 melanoma patients. Of those 19 melanoma patients, 10 had an overall response rate, or 53%, and disease control was seen in 14 patients, or 74%.

Now what: Although the efficacy data in the larger patient pool wasn't as robust as what was touted during Incyte's conference call, investors ought to remember that there is a significant need for new melanoma therapies and that the phase 3 trial set to begin next year will definitively determine whether or not Incyte could have a winner on its hands.

If the combination therapy does pan out, then epacadostat could reshape first-line treatment in advanced melanoma and give Incyte another revenue-generating product to market alongside Jakafi, a drug that treats myelofibrosis and polycythemia vera and that posted Q3 sales of $161 million, up 65% year over year.

Because Jakafi is kicking off cash flow to finance Incyte's R&D programs and epacadostat gives Incyte a late stage product that could conceivably hit the market one day, it may be worth buying Incyte shares on this drop, especially since Incyte is expected to become profitable next year.