Incyte Corporation (NASDAQ: INCY) is a $12 billion pharmaceutical company that is expected to finally turn a profit next year on the success of its drug Jakafi, the only FDA-approved treatment for myelofibrosis (MF).

Incyte was formerly called Incyte Genomics in the 1990s when it was a pioneer in that groundbreaking research and a key provider of database information on the human genome to the world’s top pharmaceutical companies.

Jakafi (ruxolitinib) has been used to treat more than 9,800 patients with MF worldwide and will represent over $350 million of the company’s $500 million in revenues for 2014.

As physician uptake and approval in other countries accelerates, analysts have been raising estimates for INCY with FY14 EPS climbing from a loss of $0.36 to a loss of $0.18 in the last 90 days while 2015’s EPS projections swing from a profit of $0.23 to a profit of $0.32.

How Jakafi Works

Myelofibrosis is a complex condition, and researchers are still trying to discover its exact cause. Researchers now think one cause is that JAK proteins, which communicate within blood cells, send too many signals. When JAKs send too many signals, they cause the body to make the wrong number of blood cells. This chain of events is called overactive JAK signaling.

JAK signaling may become overactive in many ways. One way is by a JAK mutation. A mutation is a small change in the DNA that causes proteins to act differently than normally intended. All people with myelofibrosis are believed to have overactive JAK signaling even if they do not have a JAK mutation.

Jakafi works by targeting JAKs, which control the production of blood cells. In doing so, Jakafi reduces overactive JAK signaling. In early December, the Jakafi label was expanded for polycythemia vera (PV), a disorder of the bone marrow which causes too many red blood cells to be produced. This approval is expected to open up meaningful new indications for revenue growth.

The Incyte Pipeline

Incyte’s pipeline has three fully-staffed drug discovery programs underway focused primarily on the identification of new small molecule drugs for cancer and inflammation. The company is applying its expertise in genomics, medicinal chemistry and molecular, cellular and in vivo biology to discover and develop novel therapeutics, particularly in oncology.

From the company website…

The field of oncology is evolving rapidly and transforming how cancer is and will be treated. With a growing pipeline that includes innovative compounds in three major oncology areas — onco-inflammation, immuno-oncology and targeted therapies — we believe Incyte is at the center of this transformation in cancer care.

Our lead JAK inhibitor, Jakafi (ruxolitinib), is approved for use in patients with intermediate or high-risk myelofibrosis. We are also pursuing FDA approval in a second related myeloproliferative neoplasm, polycythemia vera. Further, we are evaluating JAK inhibitors in multiple new indications and in combinations targeting solid tumors such as pancreatic, breast, colorectal and non-small cell lung cancer.

Phase III Success with Lilly

In early December, Incyte and partner Eli Lilly (LLY) announced encouraging results from the phase III RA-BEACON study on baricitinib. The study evaluated baricitinib in patients suffering from moderately-to-severely active rheumatoid arthritis (RA) having previously failed one or more tumor necrosis factor (TNF) inhibitors and who were on stable doses of conventional disease-modifying anti-rheumatic drug (cDMARD) therapy.

The company expects to present detail data from the study in 2015 and three other phase III trials with baricitinib are underway. Lilly and Incyte are also expecting results from additional phase III studies in 2015 on baricitinib in RA patients including those who have inadequately responded to conventional DMARDs and those with earlier stage disease.

Incyte and Lilly are also developing baricitinib for the treatment of psoriasis and diabetic nephropathy in phase II studies. While the positive results from the RA-BEACON study are encouraging, the successful development of its pipeline candidates is crucial for Incyte which is primarily dependent on Jakafi. However, competition is stiff in the RA market given the presence of treatments likeAbbVie‘s (NYSE: ABBV) Humira among others.

Another Baker Brothers Grand Slam

I bought INCY for the Zacks FTM Trader portfolio in April of 2013 around $22 as I followed a couple of highly-successful biotech investors known to the investing world as Baker Brothers Advisors. Unfortunately, I lacked the vision and conviction of the brothers to hold on past $25.

Felix and Julian Baker hold 14.8 million shares, most of which they acquired at an average price in the low teens in Q4 of 2011 when they plunked down $242 million. That stake is now worth over $1 billion.

Brother Julian studied at Harvard and has a business background, and Brother Felix holds a PhD. in Immunology from Stanford University. Typically, the fund buys into companies at the lows, basing their decision on a fundamental analysis of the opportunity.

Recent Baker Bros successes include Pharmacyclics (NASDAQ: PCYC),Agios Pharmaceuticals (NASDAQ: AGIO), and the grand slam when Gilead Sciences (NASDAQ: GILD) paid a massive premium for their shares of Pharmasett.

And recent fresh buying by the boys has shown up in Seattle Genetics (NASDAQ: SGEN) where they have scooped up over 5 million shares in the past 5 weeks as that stock hits new 52-week lows.

In full disclosure, I own shares of SGEN for the Zacks FTM Trader. Let’s see if I can hang on this time for the potential home run.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money (FTM) portfolio.

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