What happened

Shares of Incyte (NASDAQ:INCY) leapt 13% last month, according to data provided by S&P Global Market Intelligence. The pharmaceutical company reported strong third-quarter 2019 operating results powered by sales of Jakafi, a drug used to treat a rare type of bone marrow cancer called myelofibrosis. As a result, the company increased full-year 2019 revenue guidance for the drug to a new range of $1.65 billion to $1.68 billion. That's up from a previous expectation for at least $1.61 billion in annual product revenue.

More important, a 21% year-over-year increase in Jakafi revenue through the first nine months of 2019 allowed the business to generate an operating profit of $307 million in that span. That should solidify the idea that Incyte can comfortably fund ongoing research and development (R&D) from operations alone, although investors will still be closely monitoring major pipeline programs to determine the trajectory of the pharma stock.

A businessman drawing an ascending yellow step chart.

Image source: Getty Images.

So what

In the first nine months of 2019, Jakafi generated $1.22 billion in product revenue and another $161 million in royalty revenue. The drug was responsible for nearly 92% of total revenue in that span. While that makes Incyte a one-trick pony in the eyes of many investors, the business is now churning out significant profits despite hefty investments in R&D.

Investors are hoping the commitment to innovation pays off, which is certainly not guaranteed after high-profile failures in recent years. But there are reasons for optimism. Incyte expects to achieve major milestones for seven different pipeline assets and clinical programs by the end of 2020, including five milestones expected before the end of this year.

That includes data readouts for Jakafi as a treatment for both chronic and acute graft-versus-host disease (GVHD) and the start of a phase 3 trial for ruxolitinib cream as a treatment for vitiligo. Ruxolitinib is the active pharmaceutical ingredient branded as Jakafi, but the cream will not be included in the Jakafi portfolio if approved.

That should be fine with investors. After all, Morningstar analyst Karen Andersen thinks the product has a 60% probability of achieving $1 billion in annual revenue by its 10th year on the market, although that presumably includes an approval for treating atopic dermatitis, too.

Now what

Incyte will be reliant on Jakafi for the next decade at least. But that may not matter if the drug lives up to expectations and generates $2.5 billion in annual sales within the next few years. It would certainly help if other drug candidates in the pipeline deliver successful results in the clinic and earn regulatory approval -- and investors will learn quite a bit about the commercial potential of those assets by the end of 2020.