Lilly Falls After Rheumatoid Arthritis Drug Rejected by FDA

  • Biggest intraday drop since Nov. 23; partner Incyte also falls
  • Drug could be delayed until 2019 or later, analysts say
Photographer: Victor J. Blue/Bloomberg

Shares of Eli Lilly & Co. and Incyte Corp. dropped after their experimental rheumatoid arthritis pill was rejected by U.S. regulators, prompting concerns that the potential blockbuster product will be delayed for years.

More information is needed on baricitinib’s safety and effectiveness before it is widely used by Americans, the U.S. Food and Drug Administration said Friday, when the markets were closed. Lilly, based in Indianapolis, fell 4.4 percent to $82.07 at 10:40 a.m. on Monday, while Incyte slumped 12 percent to $124.64.

The decision is a blow that will probably postpone the introduction of the treatment until 2019 or later, analysts say. Even though the FDA had extended its review in January, many expected the medicine to get the nod. The drug was projected to generate more than $1 billion in annual sales by 2020, but analysts are now trimming their forecasts as the drug will face stiffer competition in the coming years -- if it gets approved at all.

The FDA’s delay is a “significant disappointment,” Steve Scala, a Cowen & Co. analyst, wrote in a note to investors. “There is uncertainty around the questions FDA is asking and Lilly’s ability to answer them with existing data,” said the analyst, who rates Lilly’s stock outperform. He now anticipates a 2019 launch for the treatment.

‘Reads Ominously’

The FDA asked for additional evidence about the best dose for treating patients with moderate-to-severe disease, the companies said Friday in a statement. The regulator also wants more data on potential safety concerns seen at different dose levels. 

It’s also unclear whether the drugmaker can finalize approval for baricitinib with existing data or whether it will need to do new trials, which is both costly and time consuming.

“The press release reads ominously to us,” Credit Suisse analyst Vamil Divan said in a research note, adding the drug introduction could be pushed out to 2019 or beyond. “It will likely also limit the peak potential of the product given the competitive nature of the rheumatoid arthritis market.”

Divan expects that Pfizer Inc.’s rheumatoid arthritis treatment Xeljanz will lose its U.S.  patent exclusivity by 2025, opening the door for competing generic versions.

Lilly is also facing challenges in its diabetes business, according to BMO Capital Markets analyst Alex Arfaei, who cut his recommendation on the stock to a sell. In addition, the analyst said he’s concerned about a key cancer drug.

Uncertain Timing

The timing for any resubmission of baricitinib’s marketing application will depend on future discussions with the FDA. The drug was first submitted to the FDA in January 2016. It was targeted to be sold under the brand name Olumiant.

Incyte is evaluating how the agency’s decision will affect its 2017 guidance for milestone payments and research and development expenses, and will issue an update on its first-quarter earnings conference call. Lilly, which bought the worldwide rights to baricitinib from Incyte in 2009, reaffirmed its financial guidance for 2017 and the remainder of the decade.

European regulators cleared the drug for sale in February for patients who don’t respond to other treatments.

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