Incyte: Bad News Buy?

04/26/2017 2:50 am EST

Focus: HEALTHCARE

John McCamant

Editor, Medical Technology Stock Letter

Incyte (INCY) and their partner Eli Lilly (LLY) have received a Complete Response Letter (CRL) from the FDA delaying their approval of Bari for the treatment of rheumatoid arthritis (RA), explains John McCamant, biotech expert and editor of The Medical Technology Stock Letter.

Specifically, the FDA indicated that additional clinical data are needed to determine the most appropriate doses.The FDA also stated that additional data are necessary to further characterize safety concerns across treatment arms.

The concern appears to be around the difference between the 2mg and 4mg dose. While there be slightly more safety concerns with 4 mg does, this is the dose that showed the greatest benefit, equal to or better that Humira.

The 4mg was the dose approved by the EMA and has also shown better benefits in reducing structurally damage not just inflammation. The EMA did recommend the 2mg dose in subgroups of RA patients.

In our view, bari is still an approvable drug in the U.S. based on the data accumulated to date, four positive Phase III trials, and the recent EU approval. The big question is will the FDA require a new trial or can the data the FDA requested be delivered from the current datasets?

The $3 billion in lost valuation today for INCY almost completely discounts Bari from most valuations. While disappointing news and clearly a setback, it now leaves some upside for any positive Bari news which is not out of the question given the fact that the drug is already approved in the EU.

The news also increases the odds of a buyout as the lower valuation may be all it takes for someone like Gilead Sciences (GILD) to finally pull the trigger.

Bari has never been a huge portion of our INCY valuation and the recent good news for IDO, in our view, is more important for the company going forward. INCY is a BUY under $120 with a target price of $140.

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