Image source: Incyte Corporation.

What: After reporting that it is pulling the plug on a key trial for its cancer drug Jakafi, shares in Incyte Corporation (NASDAQ:INCY) tumbled by 12.4% at 1:30 p.m. ET. 

So what: Jakafi is Incyte's only FDA-approved drug on the market and it's used to treat myelofibrosis and polycthemia vera.

In Q3, Incyte reported that Jakafi's net product sales totaled $161 million, up 65% from a year ago, and that it had received an additional $18 million in royalties from co-marketer Novartis (NYSE:NVS) thanks to Jakafi's international sales.

Investors have been hoping that Jakafi's success in these other indications would carry over in ongoing trials designed to expand its use to more patients and, in turn, drive additional future sales growth. Therefore, shuttering the midstage combination trial of Jakafi in relapsed/refractory metastatic colorectal cancer patients with high C-reactive protein is disappointing. 

The company's decision to abandon the study came after an interim look at trial data showed that Jakafi didn't work as well as management hoped.

Now what: Today's decision puts pressure on Jakafi's remaining cancer trials, including those exploring its use in pancreatic cancer, lung cancer, and breast cancer. It also increases the focus on other needle-moving drugs at Incyte, including baricitinib, a JAK1/JAK2 inhibitor targeting rheumatoid arthritis patients.

Last year, Incyte and co-developer Eli Lilly & Co. (NYSE:LLY) reported positive late-stage trial results showing that baricitinib works better than AbbVie's (NYSE:ABBV) Humira in RA patients that don't respond to disease-modifying drugs, and earlier this month, Eli Lilly & Co. filed for FDA approval of baricitinib.

Despite Jakafi coming up short in this one trial, the potential to earn meaningful royalties and milestones from Eli Lilly & Co. makes shares in this company intriguing on the sell-off, and for that reason, I think investors ought to add this one to their wish list.