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Eli Lilly's Rheumatoid Arthritis Drug Gets CRL in the U.S.

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Eli Lilly and Company (LLY - Free Report) and its partner Incyte Corporation (INCY - Free Report) recently announced that they have received a Complete Response Letter (CRL) from the FDA regarding the new drug application (NDA) for baricitinib. Lilly was seeking approval of baricitinib for the treatment of moderate-to-severe rheumatoid arthritis (RA) in the U.S.

We remind investors that baricitinib was approved in EU in Feb 2017 for the given indication. The drug is to be marketed by the trade name of Olumiant in EU. It was the first JAK inhibitor to receive approval to treat RA in the EU.

Lilly’s shares declined more than 4% and Incyte’s shares lost more than 13% in pre-market trading on Monday, in response to this news. However, Lilly’s shares have outperformed the Zacks classified Large-Cap Pharma industry so far this year. Shares of the company gained 16.7% while the industry registered an increase of 5.4%.

Coming back to the latest news, the letter states that the FDA is unable to approve the application in its present form. The agency has asked for additional information to determine the most appropriate doses of baricitinib. Moreover, additional data is required to further characterize safety concerns across treatment arms.

We remind investors that Lilly had submitted a regulatory application for baricitinib in the U.S., last January. Subsequently, this January, Lilly and its partner Incyte announced that the FDA has extended the time to review the NDA for baricitinib. Previously, the FDA was expected to give a decision early this year. However, Lilly submitted additional information on the regulatory agency’s behest, which the latter deemed a Major Amendment to the NDA. In order to review the additional data, the FDA extended the Prescription Drug User Fee Act (PDUFA) date by three months.

We note that the NDA of baricitinib was supported by four pivotal phase III clinical trials in patients with moderate-to-severe active RA. An additional phase III study was initiated to support clinical development in China.

Baricitinib is being co-developed by Lilly and Incyte under an exclusive global license and collaboration agreement inked in Dec 2009.

Meanwhile, baricitinib is being evaluated in phase II studies for the treatment of atopic dermatitis and systemic lupus erythematosus. A phase III study evaluating the candidate for the treatment of psoriatic arthritis is expected to be initiated this year.

According to the company, more than 23 million individuals in the world suffer from RA. The disease affects about three times more women than men. Hence, the potential market opportunity for the drug is huge across the globe.

Zacks Rank & Key Picks

Lilly currently carries a Zacks Rank #2 (Buy). Some better-ranked stocks in the health care sector are Heska Corporation (HSKA - Free Report) and Galena Biopharma, Inc. . Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Heska’s earnings per share estimates increased from $1.53 to $1.65 for 2017 and from $1.90 to $2.01 for 2018 over the last 30 days. The company posted a positive surprise in three of the four trailing quarters with an average beat of 291.54%.

Galena’s loss per share estimates narrowed from $1.12 to 58 cents for 2017 and over the last 30 days. The company posted positive earnings surprises in two of the four trailing quarters, with an average beat of 53.83%.

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