It's only April, but we may have already witnessed the most costly clinical trial flop of 2018. Evaluate Pharma listed Incyte Corporation's (NASDAQ:INCY) epacadostat as the third largest potential drug launch this year, and the first two are already on pharmacy shelves.

A failure in the first of a long slate of pivotal trials puts the future of this Merck & Co. (NYSE:MRK) partnered program on shaky ground. Luckily, the once-failed candidate isn't the only iron Incyte has in the fire. Here's a look at why this stock is a lot more attractive now than you might think.

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The first failure of seven?

Incyte Corporation started the year with Epacadostat in five pivotal combination trials with Merck's Keytruda, plus two more with Opdivo from Bristol-Myers Squibb (NYSE:BMY). AstraZeneca (NYSE:AZN) had planned on initiating a similar combination lung cancer study later this year, but it will probably hold off following the upsetting news. Investors can learn a valuable investing lesson from AstraZeneca's patience, whether intended or accidental.  

During an earlier melanoma study in which everybody received the combo treatment, 56% of patients treated with a combination of epacadostat and Keytruda showed durable tumor responses. Unfortunately, epacadostat's contribution doesn't seem to amount to much. During the 700-patient Echo-301 trial, the combination didn't provide a significant survival benefit compared to Keytruda on its own.

The failure casts a dark cloud over similar ongoing studies in other tumor types that weren't looking so bright to begin with. During an early lung cancer study, the same combination helped shrink tumors among just 35% of advanced-stage lung cancer patients. That's not necessarily bad, but it won't go anywhere without evidence of a strong survival benefit.

We really shouldn't criticize Incyte for investing heavily into epacadostat's development after viewing melanoma data that looked pretty good on the surface. As individual cancer stock investors, though, it doesn't cost anything to let a good-looking opportunity pass you by while you wait for more convincing evidence. 

Slimmed-down and looking better

It might not be game over for epacadostat, but you wouldn't know that by looking at the stock's performance. Incyte's market cap fell around $4 billion after announcing the awful news. With a recent market cap of around $13.6 billion, the stock might be a bargain.

Incyte's partnership with Eli Lilly (NYSE:LLY) is beginning to bear fruit in the EU, and it's getting back on track at the FDA. It's been a year since European regulators approved Olumiant as a new rheumatoid arthritis tablet, and it's crossed some important hurdles. In particular, Britan's notoriously stingy healthcare spending watchdog now recommends Olumiant for certain patients despite a list price of around $15,000 per year.

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Today's FDA is arguably more lenient than it was when it rejected the application package Lilly submitted in January 2016. There were some relatively minor safety concerns that incited the FDA to request additional studies. The regulator has since softened its stance and will ask a panel of independent advisors if the partners need to run another safety trial. The FDA isn't required to follow their recommendations, but it usually does.

During studies underpinning its applications, Olumiant outperformed the world's best-selling drug, Humira, on several metrics. Global sales achieved an annualized $92 million run rate in the fourth quarter, and a U.S. approval could drive annual sales of the drug past $2.5 billion several years from now. Under the terms of their agreement, Lilly is using its enormous global sales force to market the drug on its own dime while Incyte's responsible for just 30% of development costs for most big indications. In return, Incyte remains eligible for a royalty percentage that tops out in the high 20s.

A buy now?

Since earning approval for Jakafi as a myelofibrosis treatment in 2011, Incyte has deftly expanded the drug's addressable patient population. Sales of the tablets surged 33% to $1.13 billion in 2017, and Incyte thinks it will achieve at least $1.35 billion this year.

That won't be enough to cover 2018 operating expenses expected to include a $1.25 billion research and development outlay, but a potential U.S. launch for Olumiant later this year means there's a good chance the company will become dependably profitable in just a few years. 

Even if epacadostat goes nowhere, and the FDA delays Olumiant again, Jakafi revenues give Incyte powder to fire at the next opportunity that comes along. With early clinical-stage cancer candidates aimed at 10 separate targets, the next big thing could be in the pipeline already. At recent prices, Incyte shares look like one of the best bargains in biotech right now.