What happened

Shares of Incyte (NASDAQ:INCY), a large-cap biotech company primarily focused on developing therapies to treat cancer and inflammatory diseases, tacked on more than $4 per share, or $850 million in total market cap, during the month of August, according to S&P Global Market Intelligence. The reason? Look no further than a favorable update regarding baricitinib.

So what

As the saying goes, good things come to those who wait -- and those who waited until the end of August received a welcome update from Incyte and licensing partner Eli Lilly (NYSE:LLY) regarding once-daily oral JAK inhibitor baricitinib as a treatment for moderate-to-severe rheumatoid arthritis. The duo of Incyte and Eli Lilly announced that they'll be resubmitting a new drug application (NDA) with the Food and Drug Administration (FDA) for baricitinib before the end of Jan. 2018. This new submission will contain new safety and efficacy data, and it's believed the NDA will be reviewed within a six-month period.

Two lab researchers examining a blood sample and making notes.

Image source: Getty Images.

As a backdrop, the FDA issued a complete response letter (essentially a rejection until outlined changes are made) on April 14, 2017, denying baricitinib's entrance onto pharmacy shelves. At the time, the FDA requested additional data regarding dosing, and the regulatory body expressed safety concerns across various treatment arms. Originally, Incyte and Eli Lilly had expected this snafu to delay baricitinib's NDA by 18 months, but the news last week demonstrates that the duo shored things up in less than five months. Considering that baricitinib has peak annual sales potential of $2 billion, the quicker it can get into a crowded rheumatoid arthritis market, the better.

Now what

In addition to positive developments surrounding baricitinib, Incyte has been delivering good news with its IDO1 enzyme inhibitor epacadostat, which has been paired in combination with Merck's (NYSE:MRK) cancer immunotherapy Keytruda in a handful of studies. Incyte recently announced new data on an epacadostat/Keytruda combo for the European Society for Medical Oncology meeting, being held in the coming days. The data showed a median progression-free survival (PFS) of 12.4 months among all advanced melanoma patients, with landmark PFS rates of 68%, 52%, and 52% at the six-, 12-, and 18-month marks for treatment-naïve advanced disease patients. 

A doctor pondering what he's just read on a clipboard.

Image source: Getty Images.

All signs would appear to be pointing up for Incyte, but there is one real concern. Right now a vast majority of its sales are derived from Jakafi, a JAK inhibitor designed to treat the symptoms associated with myelofibrosis. A competing therapy in midstage studies (imetelstat) is being developed by Geron (NASDAQ:GERN) and its licensing partner Johnson & Johnson (NYSE:JNJ). Imetelstat, in early stage studies before Johnson & Johnson latched on as Geron's licensing partner, wound up generating partial and complete responses in myelofibrosis patients, which is something never before seen in clinical studies. If all goes well with imetelstat's development, Geron and J&J could gobble up Incyte's roughly $1.1 billion in expected Jakafi sales beginning in 2019.

Considering the high failure rate of cancer drugs and this impending concern, this writer believes Incyte is more than fairly valued right here. If we were to get eye-popping late-stage data on epacadostat, or terrible data on imetelstat, my tune might change. For now, though, Incyte looks pricey.