Things have been a bit rough for Incyte (NASDAQ:INCY) over the past month. The biotech company's stock is down by 14% since Dec. 1. In particular, Incyte's shares recently fell by 12% after the company announced disappointing results for a pivotal phase 3 trial. The trial in question, called Gravitas-301, investigated the efficacy of the combination of two drugs -- Itacitinib and corticosteroids -- as a treatment for acute graft-versus-host disease (GVHD), a condition that sometimes develops in a patient following a stem-cell transplant.

The trial failed to meet its primary or secondary endpoints. Despite these recent losses on the stock market, though, Incyte's shares aren't cheap: The company is currently trading at 40 times past and 25 times future earnings. Is Incyte worth its rich valuation metrics? And given its recent slump on the stock market, is now a good time to buy its shares?

Man standing on declining graph and looking down.

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Jakafi is doing most of the heavy lifting

Incyte's crown jewel is a drug called Jakafi. This product was first approved by the U.S. Food and Drug Administration in 2011 for a bone marrow disease called myelofibrosis. Since then, Jakafi has received two more approvals, one in late 2014 for another bone marrow disease called polycythemia vera and another in May of last year for the treatment of steroid-refractory acute GVHD.

Jakafi has been performing well recently. During the third quarter, Jakafi's net product revenue was $433 million, a 21% year-over-year increase, while Incyte recorded $58.4 million in royalty revenue for Jakafi, 15% higher than the prior-year quarter. Incyte collects royalty fees from Novartis (NYSE:NVS), which holds the rights to license Jakafi in Europe (where it goes by the name of Jakavi).

Incyte is hoping that its top-selling drug will see even better days ahead as it continues to make headway with its addressable market. During the third quarter, Jakafi's penetration into the market for patients with myelofibrosis (16,000 patients) exceeded 50% and increased by 5% year over year. Similarly, Jakafi's penetration into the market for patients with polycythemia vera (25,000 patients) was more than 20% during the third quarter and increased 15% compared to the year-ago period.

There's still room for Jakafi to grow in both of these markets, and with its latest approval coming less than a year ago, the drug could keep on racking up strong sales for Incyte. While Incyte does have other products -- such as rheumatoid arthritis treatment Olumiant, which it out-licensed to Eli Lilly (NYSE:LLY) -- the company generated 89% of its total revenue from Jakafi during the third quarter.

Incyte's pipeline

Incyte boats a rich pipeline with well over two dozen new products (or existing drugs that could be granted new approvals). The company's late-stage pipeline includes several potential new indications for Jakafi, including as a treatment for chronic GVHD, as well as for a rare blood disease called essential thrombocytosis.

Also, Incyte's drug Pemigatinib -- a potential treatment for a rare type of cancer called cholangiocarcinoma -- made it to the FDA's desk for review in November of last year. Considering Incyte's heavy reliance on Jakafi, it would be helpful for the company to have more products on the market and decrease its top-line exposure to its best-selling drug.

Worth the premium?

Jakafi's revenue will likely keep increasing, especially if it earns new approvals from the FDA. Also, Incyte's pipeline boasts several interesting candidates, including Pemigatinib, which could receive approval from the FDA sometime this year. That being said, Incyte could run into regulatory roadblocks, or its experimental drugs could fail to prove effective in clinical trials. While those are risks all biotech stocks have to deal with, Incyte's overreliance on one product puts the company even more at risk. For those reasons -- not to mention Incyte's rich valuation metrics -- investing in the company would be a risky move, but for those comfortable with the risk, Incyte is an interesting biotech stock to consider buying.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.