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Stock Analyst Update

Despite News, Incyte's Competitive Advantage Intact

Olumiant’s limited U.S. approval won’t dent the drug maker’s narrow moat.

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We are marginally lowering our fair value estimate for Incyte to $97 per share from $98 to incorporate the U.S. Food and Drug Administration's approval of Olumiant (baracitinib) at a 2 mg dose but not the 4 mg dose proposed by  Eli Lilly (LLY) and its partner  Incyte (INCY) amid safety concerns. The limited approval is on par with the advisory committee recommendation released earlier in April but is at odds with the approved dose found elsewhere in the world, namely Europe and Japan. Our narrow moat rating remains intact, as we believe Incyte's competitive advantage rests on its Jakafi franchise in rare blood disorders, which is unrelated to its Olumiant woes.

We slightly lowered our top-line estimates for Olumiant in the U.S. market, as the smaller dose could limit the usage of the drug among severe treatment-refractory patients, who could have benefited from a more potent 4 mg dose. Olumiant's additional black box warning of thrombocytosis, which is not found in the label of incumbent JAK inhibitor Xeljanz, could also temper enthusiasm for the drug, though lower relative serious infections and malignancies seen in trials could provide a small window of opportunity for Incyte and Lilly. Based on positive phase 3 results in the rheumatoid arthritis population, competitor AbbVie plans to file another oral JAK inhibitor upadacitinib with the FDA in the second half of 2018, which would position the drug for a regulatory decision in 2019. Most notably, upadacitinib has shown high efficacy among rheumatoid arthritis patients with no sign of thrombotic events like Olumiant. Other up-and-coming pipeline candidates targeting different disease mechanisms are expected to further intensify the competition.

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Kelsey Tsai does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.