What happened

Shares of Incyte (NASDAQ:INCY) rose more than 19% in the first six months of the year, according to data provided by S&P Global Market Intelligence. That easily bested the 4% decline of the S&P 500 in that span.

After struggling to commercialize pipeline assets in recent years and diversify revenue away from Jakafi, Incyte appears to be making tangible progress with its late-stage pipeline. Wall Street appears a little more willing to buy into the company's growth pitch, which rests on a solid foundation provided by the Jakafi franchise. Full-year 2020 guidance expects at least $1.88 billion in product revenue from Jafaki.

Can the pharma stock maintain its momentum in the second half of the year?

A man holding a white arrow pointing up.

Image source: Getty Images.

So what

Incyte began the year on a sour note. On the first trading day of January, the company announced that a combination of itacitinib and corticosteroids failed to meet the primary and secondary endpoints in a phase 3 trial in treatment-naive acute graft-versus-host disease (GVHD). Wall Street thought the company's GVHD pipeline could generate peak annual sales of $925 million, so the disappointing results in the study took a large bite out of the potential opportunity (itacitinib wasn't the only drug candidate being explored in GVHD, nor is treatment-naive GVHD the only indication being studied). 

But shares have gradually recovered. That's likely because Incyte has a relatively deep late-stage pipeline and other major opportunities. In February, investors learned ruxolitinib cream breezed through a phase 3 trial in atopic dermatitis, which suggests it will earn regulatory approval in the near future. Wall Street analysts estimate the drug candidate could generate peak annual sales of $1 billion in various skin disorders.

And although Wall Street has pressured Incyte to diversify its product portfolio away from Jakafi, the myelofibrosis treatment continues to be a cash cow. In the first quarter of 2020, Jakafi generated $459 million in net product revenue and $56 million in royalty revenue. Management expects the drug to deliver roughly $1.9 billion in product revenue for the year -- more than enough to fund research and development and generate operating income. 

Now what

Shares of Incyte are now trading at their highest level since 2017. That's a clear sign of the momentum behind the pharma stock and, importantly, the company's late-stage pipeline. In addition to clinical trial readouts, investors will be eagerly watching the pace of regulatory submissions and approvals for ruxolitinib cream in skin indications. If the product earns marketing approval and lives up to expectations after launch, then it should exert a hefty influence on the trajectory of shares.