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Companies in Focus

publication date: Nov 22, 2015


Incyte (INCY, $113.13)

One of the highlights of our investment philosophy is a degree of concentration in selected stocks.  This has worked well with 50 bagger Pharmacyclics for example.

Currently we feature Incyte (INCY) with a degree of concentration and we have not been disappointed in the +700% performance of the stock despite some overall volatility in biotech this year. 

The impact of the arrival of Baricitinib in RA is underestimated

Incyte is partnered with Lilly in the development of Baricitinib for the treatment of Rheumatoid Arthritis (RA).  The drug has fared quite well in multiple late stage clinical trials and is now poised to seek regulatory approval.  We expect early 2017 to be a marketed date for the drug. 

Like Incyte’s flagship marketed drug Jakafi, Baricitinib is a JAK inhibitor.  It inhibits Jak1 and 2.  This provides a better safety profile than a “dirtier” Pan-Jak inhibitor (1/2/3) which has been shown to cause gastrointestinal perforations especially when taken with NSAIDs and/or methotrexate.  The trouble with that is RA patients are routinely on NSAIDs and methotrexate is specifically prescribed as a standard of care therapy.

Jak inhibitor Xeljanz has already been approved in the RA market since 2012. This drug has actually done only so-so ($500 million in sales in a multibillion opportunity) versus the anti-TNF-alpha therapies (AbbVie Inc.'s anti-TNF-alpha blockbuster Humira) in part due to the aforementioned safety issues.  Xeljanz does compare favorably in joint preservation to the disease-modifying anti-rheumatic drugs (DMARD) methotrexate used alone.

The market for RA therapies is somewhat slow to evolve in the physician space.  That is it takes longer than in oncology to switch to new treatment regimens generally.  But to be clear, the market uptake trouble with Xeljanz, despite being a pill versus an injection therapy like Humira, is that it poses serious issues in gastrointestinal perforations.  Safety issues are not really worth the price of admission versus a treatment option that provides similar to better benefits without gastrointestinal perforation.  Of course biologics have their own set of issues to deal with that makes targeting a market controlled by an injectable biologic an attractive target for an oral drug like Baricitinib.

The final thing that worked against Xeljanz is that its management of joint damage was not seen as robust when launched.  It later was able to add radiological scan data in the label and that has helped boost sales some.  Xeljanz does not get a second chance at a first impression however; and Baricitinib is ready to come in and steal the oral Jak space with much more of a vengeance as an alternative to Humira.

In the end the relief from joint damage and loss of additional cartilage is very important to rheumatologists as regardless of what patients are reporting in some of the pain measurement scales, modifying the disease ideally means controlling joint damage as well.

So heading to a readout of the Baricitinib versus Humira (RA-BEAM) and Methotrexate (RA-BEGIN) trials we were looking for several confirmatory observations.   The trial versus Humira is most important as the Methotrexate trial is probably a low hurdle for joint damage considerations as well as market awareness of an oral Jak’s potential to best methotrexate used alone. 

What would have been really nice to see is the following:

  • Is the top line performance better than Humira along multiple RA disease control measures?
  • Is this yet another late stage trial free from gastrointestinal perforation?  Is the performance in combination with methotrexate in particular clear of gastrointestinal perforation? (an issue Xeljanz had to contend with in clinical trials)
  • Are joint control measures superior or on par with Humira?
  • Do we get expected clear superiority to methotrexate in joint damage?
  • Is this more than a me-too Jak inhibitor in RA or does it appear superior to Xeljanz?

Positive answers to these questions should up analysts “Xeljanz-like” estimates for Baricitinib higher.  Instead of forecasting $500 to $800 million in sales we could see Baricitinib do closer to a $1.75 billion (conservatively) or even $3 billion number depending on the dynamics of the biosimilar market coming for Humira. 

It is worth noting that Humira is the world’s top selling drug topping $12 billion annually with the lion’s share of the prescribing coming from RA.  It is also worth noting that Wall Street estimates for peak Xeljanz sales were originally near $3 billion.   In our view Baricitinib is poised to be what Xeljanz hoped it would be not what it turned out to be.


So how did Baricitinib do?

BEAMing!... the RA-BEAM study versus Humira

“The study met its primary objective of demonstrating superiority compared to placebo after 12 weeks of treatment based on ACR20 response - a standard clinical measure that represents at least a 20 percent improvement in RA disease activity. Baricitinib was also superior to adalimumab on key secondary objectives of ACR20 response and improvement in DAS28-hsCRP score after 12 weeks of treatment. Following 24 weeks of treatment, baricitinib was superior to placebo in preventing progressive radiographic structural joint damage. These treatment benefits with baricitinib observed at 12 and 24 weeks were maintained through 52 weeks of therapy.”

“Compared to placebo, serious adverse events rates were similar for baricitinib and lower for adalimumab; serious infection rates were similar across groups. There were no cases of gastrointestinal perforations. One event of tuberculosis was reported in each of the baricitinib and adalimumab groups. Rates of treatment-emergent adverse events, including infections, were higher for baricitinib and adalimumab compared to placebo. The most common adverse events observed with baricitinib were nasopharyngitis and bronchitis. Discontinuations due to adverse events occurred with similar frequency across treatment groups. A large majority of patients completing this trial opted to participate in a long-term extension study.”

Lilly Press Release on RA-BEAM study


The ACR results are actually even better than the press release indicates.  The requisite study 12-week endpoints relative to placebo (i.e. methotrexate background) were easily met.  But Baricitinib also showed statistical significance over Humira at multiple additional readouts including 12-week ACR20/50/70, 24-week ACR20/70 and 52-week ACR20/50. 

Overall performance over Humira was present at all readouts though statistical significance was deemed at the readouts highlighted.  This overall data view is hugely important data for rheumatologists to consider as it demonstrated in general the patients will score and feel better on Baricitinib than on Humira across the time spectrum.

Highlighting Gastro

The lack of gastrointestinal perorations achieved in the BEAM study was consistent the other late stage studies completed (note: the BEAM study includes the confounding methotrexate as background therapy). 

 Note the methotrexate and gastro issue with Xeljanz label:

It is import that Baricitinib has now repeatedly had no issues of gastrointestinal perforation in multiple late stage studies.  The assumption that as a Jak inhibitor in RA (not accounting or the fact that Baricitinib is a more selective inhibitor than Xeljanz) the drug would have these issues is being overlooked in importance.  Every study that dispels this similarity to Xeljanz will allow Baricitinib to hit the ground running when marketed. 

Xeljanz having this safety concern, specifically in combination with standard of care methotrexate, has held the penetration of that drug back.  Xeljanz penetration is probably a poor model for Baricitinib penetration yet we believe it is the fundamental underestimated underpinning analysts are using for their conservative estimates on Baricitinib sales.

Secondary measures also bested Humira

Secondary superiority to Humira was demonstrated on many measures.  One very interesting bit of data was in the SDAI and CDAI indictors.  These are scales used to measure low disease activity and remission.  Ultimately, the physicians want to achieve these low disease activity and remission statuses for patients.  Baricitinib was superior and statistically significant against Humira in this analysis.  The taller bar represents low disease activity and the shorter bar represents remission.  The fact that the trials were insightfully (pun unintended) powered to show this potentially quite distinguishing set of label claims is potentially huge for rapid market penetration.

In a nutshell, Lilly and Incyte have a lot of ammunition to hit the ground running with an overall superiority story for Baricitinib over Humira.  That is a big deal as Humira is likely to be at about $14 billion in sales when Baricitinib gets approval.

Joint damage… solid data over Methotrexate but basically on par versus Humira


As expected, Baricitinib, used alone or in combination, showed statistically significant improvement in joint space narrowing (JNS) and joint erosion versus methotrexate.

Baricitinib showed statistically significant improvement in joint space narrowing and joint erosion versus placebo (methotrexate background) with erosion score virtually on par but slightly inferior to Humira.

Powerful results in both trials

Over all the data is very favorable.  The least favorable piece of the data was the inability to best Humira in joint erosion data.  However, with the joint differences with Humira being minimal, outperformance over Humira on multiple measures relevant to physicians, and with such strong performance versus the standard of care methotrexate in joint damage, the joint erosion data is quite good and should not hinder market uptake. 

With several clinical advantages shown in the RA-BEAM study and the advantage of being an oral formulation versus a biologic injectable like Humira, we believe Baricitinib (unlike Xeljanz) is “data ready” to take on the largest drug on the planet and could get some powerful label claims also.  Of course landscape changes with biosimilars to Humira coming to market somewhat temper the overall upside.  Still we expect to see analyst peak sales estimates rise well above $2 billion before the approval.

We will follow-up on overall Incyte views including the IDO program and strong Jakafi performance.  We remain bullish on shares and look at $150 as a sound target.  The market seemed to take a bear raid swipe at the stock on early IDO data.  But coming right before this excellent detailed presentation of Baricitinib in RA, (not to mention the fact that the IDO data is actually not a big disappointment) Incyte shares may have gotten into some key hands prior to coming upgrades.