The Market Reaction Towards the FDA Complete Response Letter Offers a Unique Investment Opportunity In Incyte

Eli Lilly (LLY) and Incyte (INCY) announced that the FDA has issued a complete response letter for the New Drug Application (NDA) of baricitinib for moderate-to-severe rheumatoid arthritis (RA).

The FDA letter indicated that additional clinical data are required to determine the most appropriate doses. The FDA also stated that additional data are necessary for further characterization of safety concerns across treatment arms.

The timing of a resubmission will be based on further discussions with the FDA.

Eli Lilly and Incyte disagreed with the Agency’s conclusions. Christi Shaw, president of Lilly Bio-Medicines said, “We are disappointed with this action. We remain confident in the benefit/risk of baricitinib as a new treatment option for adults with moderate-to-severe RA. We will continue to work with the FDA to determine a path forward and ultimately bring baricitinib to patients in the U.S.”

Lilly and Incyte submitted the NDA for baricitinib to the FDA in January 2016, and in January 2017 announced the FDA’s three-month extension to allow time for review of additional data analyses.

A moth later, i.e., in February this year, Europe approved bericetinib for arthritis.

Prohost Observations

Baricitinib was submitted for regulatory review in the U.S., European Union and Japan in 2016. Europe approved it in February 2017. Almost one month before the EU approval of baricitinib,    though, the FDA had asked for the three-months extension to review additional data.

Our question is: Why the approval in Europe and the postponement of the approval in the U.S.?

Regarding to European approval: The CHMP positive opinion was based on five phase 3 clinical trials of baricitinib in adult patients with moderate to severe active rheumatoid arthritis to support regulatory submission in most countries. (Read about RA-BEGIN, RA-BEAM, RA-BUILD, RA-BEACON and RA-BEYOND). Two of the studies included pre-specified comparisons to the approved DMARDs: one to methotrexate (RA-BEGIN) and one to adalimumab (RA-BEAM). An additional phase 3 study was initiated to support clinical development in China.

A wide range of patients participated in the clinical trial program, including those who are inadequate responders to methotrexate, inadequate responders to conventional synthetic disease modifying anti rheumatic drugs (csDMARDs), or inadequate responders to biological disease modifying anti rheumatic drugs (bDMARDs) including TNF inhibitors.

To summarize the results, the several Phase 3 tests confirmed baricitinib’s non-inferiority to methotrexate, Enbrel and Humira in the treatment of inflammatory diseases.

The large trials’ results were amply sufficient to convince the European authorities to approve the baricitinib.

Regarding the FDA reasons for postponing the approval: All we know now is that the FDA believes that some data are still missing. According to the agency, the missing data are required to determine the most appropriate doses for treatment, in addition to data that would enable further characterization of safety concerns across treatment arms.

We see no FDA rejection of the drug as some articles claimed, but a rejection of the NDA, asking for the required missing data.

Bottom line, we believe baricitinib will be approved for arthritis in the U.S. as it was approved in Europe. This is especially true for patients who have not improved on current drugs used for the treatment of this disease, or could not tolerate them. As a matter of fact, we expect approvals of the drug for many other inflammatory diseases.

Incyte has lots of catalysts, in addition of being targeted for acquisition by firms it would help complement their pipelines including, Amgen (AMGN), Gilead (GILD), Bristol-Myers Squibb (BMY) and others. The sales of Incyte’s approved drug Jakafi for chronic myeloid leukemia and acute lymphoblastic leukemia are growing and many believe that the drug could reach potential peak sales of $3 billion.

Incyte’s pipeline is impressive, especially its investigational drug epacadostat — a selective oral inhibitor of the IDO1 enzyme that reverses tumor-associated immune response. The immunotherapy drug is promising and is currently in combination trial with Merck’s checkpoint inhibitor immunotherapy product Keytruda (pembrolizumab) for malignant melanoma.  

Baricitinib is a once-daily oral, selective and reversible JAK1 and JAK2 inhibitor currently in clinical studies for inflammatory and autoimmune diseases. Four known JAK enzymes: JAK1, JAK2, JAK3 and TYK2. JAK-dependent cytokines have been implicated in the pathogenesis of a number of inflammatory and autoimmune diseases, suggesting that JAK inhibitors may be useful for the treatment of a broad range of inflammatory conditions. Bericetinib is also being evaluated in Phase 2 trials for atopic dermatitis and systemic lupus erythematosus and a Phase 3 trial for psoriatic arthritis is expected to launch sometime this year.

Prohost Final Word:

We do not believe one should abandon INCY as a result of the FDA complete response letter. We also believe that the negative market reaction towards the stock was extremely exaggerated in view of the previous approval of the drug in Europe; of the results of large successful conducted clinical trials and the very promising pipeline.

That makes us believe that the exaggerated selloff is offering a unique opportunity to buy or accumulate the stock at a bargain price.

We made a decision to postpone Prohost Letter #407 following some good and bad news announced unexpectedly last Friday. We also believe in the conviction that most people will not read the Letter during the Easter and Passover celebrations.

We Hope You Enjoyed Your Families’ Spiritual Gatherings.

Prohost Forward-Looking: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

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