After performing well on the stock market last year -- with shares climbing by 37.3% -- Incyte's (INCY -0.53%) stock is down by 11% year to date. And while it would be easy to attribute this poor performance to the COVID-19 epidemic -- which has now spread to more than 50 countries and is hurting the stock market -- the fact is, Incyte's struggles predate these developments. In early January, before most of us had even heard of the coronavirus, Incyte's shares dropped by about 12% after the company reported disappointing results from a pivotal phase 3 clinical trial.

The clinical trial investigated the efficacy of itacitinib and corticosteroids as a combination treatment for treatment-naive acute graft-versus-host disease (GVHD), a condition that can develop in a patient following a stem cell transplant. The treatment failed to meet its primary or secondary endpoints. Despite this setback, Incyte has a plan to get back on the right track, and here are two things that could help the company do just that. 

Doctor wearing a lab coat giving a thumbs-up.

Image source: Getty Images.

1. Its crown jewel still has room to grow

Incyte's top selling-product is Jakafi, which treats several conditions, including a rare bone marrow cancer called myelofibrosis. Jakafi also treats patients with polycythemia vera, a condition that leads to an abnormal increase in the production of red blood cells. Lastly, in May 2019, the U.S. Food and Drug Administration (FDA) approved Jakafi for the treatment of steroid-refractory acute GVHD, a condition that occurs when a patient receives a stem cell transplant and the donor's cells trigger an immune response and attack the recipient's organs. Incidences of this condition number about 5,700 cases a year. 

Also, steroid-refractory acute GVHD has a one-year mortality rate of about 70%. Jakafi is the first and only FDA-approved treatment for steroid-refractory acute GVHD. Thanks to this relatively new indication, sales of Jakafi could continue growing, as they have been doing for the past few years. During the fourth quarter, Jakafi's net product revenue was $466.5 million, 23% higher than the year-ago period. For the full year, Jakafi's net product revenue was $1.7 billion, a 21% increase compared to 2018. According to Incyte's executive vice president, Barry P. Flannelly, "Patient demand continued to drive the uptake of Jakafi and growth was strong across all three indications."

Furthermore, Incyte collects royalty revenues from Novartis (NVS 1.07%), which holds the rights to Jakafi outside the U.S. Incyte's royalty revenue for Jakafi for the fourth quarter and the full year were $65 million and $225.9 million, respectively, which represented an increase of 17% for the fourth quarter and 16% for the full year. 

According to Incyte, Jakafi has been growing its revenue at a compound annual growth rate of 29% since 2016. And the company hopes its crown jewel will continue performing well in the future. Incyte's CEO Herve Hoppenot said, "On the commercial side, we will work to drive continued Jakafi growth in all three indications."  

2. More products on the way

While Jakafi is performing well, Incyte does rely heavily on this product. During the fourth quarter, Jakafi's net product revenue accounted for about 80.5% of the company's total revenue. Fortunately, Incyte is trying to decrease its top-line exposure to its top-selling drug. In February, Incyte submitted capmatinib to the FDA as a potential treatment for an aggressive type of non-small cell lung cancer (NSCLC) called metastatic MET exon 14 skipping (METex14) mutated NSCLC. 

There are currently no approved therapies that specifically target this type of NSCLC, which occurs in 3% to 4% of advanced NSCLC cases. Lung cancer is the most common type of cancer in the world, and NSCLC is the most common form of lung cancer. The FDA granted capmatinib a priority review designation, which means the review process for this drug will go faster than usual. 

Also, in November 2019, Incyte submitted a New Drug Application to the FDA for pemigatinib as a potential treatment for cholangiocarcinoma, a rare cancer that affects about 0.3 to 3.4 per 100,000 people in North America and Europe. The FDA also granted pemigatinib priority review. In addition to those products that are currently being reviewed by regulatory authorities, Incyte boasts several more pipeline candidates for a variety of other conditions. This could help the company become less reliant on Jakafi in the future. 

Should you buy?

Incyte's heavy reliance on Jakafi remains a concern, and for that reason, Incyte probably isn't a strong buy. However, Jakafi's revenue should continue climbing, and unless Incyte runs into regulatory roadblocks, it should have several more products to drive its sales even higher. In short, investors should keep an eye on this biotech company