Incyte Corporation INCY and partner Eli Lilly and Company LLY announced that Japan's Ministry of Health, Labor and Welfare (MHLW) granted marketing approval for Olumiant (baricitinib) 2-mg and 4-mg tablets. The drug will be used for treating rheumatoid arthritis (RA) (including the prevention of structural injury of joints) in patients with inadequate response to standard-of-care therapies.

Olumiant demonstrated significant improvement in the signs and symptoms of RA compared to standard-of-care therapies.

The approval triggers a $15 million milestone payment from Eli Lilly to Incyte, which the latter expects to recognize in the third quarter of 2017.

The move is likely to boost sales of Olumiant. Approximately 700,000–800,000 people suffer from RA and women are three times more likely to be affected than men.Thus, there is substantial demand for such drugs.

The approval provides Incyte with a valuable source of revenues, given the potential for milestones and royalties under the company’s license agreement with Eli Lilly. Olumiant is being studied for additional indications as well – atopic dermatitis (phase IIa) and systemic lupus erythematosus (phase II). We remind investors that both Lilly and Incyte announced an exclusive worldwide license and collaboration agreement in Dec 2009 for the development and commercialization of Olumiant and certain follow-on compounds for patients with inflammatory and autoimmune diseases. The drug was approved in the EU in Feb 2017.

However, in Apr 2017, Incyte received a Complete Response Letter (CRL) from the FDA for Olumiant. The FDA requires additional clinical data, which will delay the approval of the drug. The FDA had earlier extended the review period as well. The company suffered a major setback due to the delay.

Incyte’s shares have rallied 25.5% year to date, while the Zacks classified Medical - Biomedical and Genetics industry gained 6.4%.

Incyte’s growth driver Jakafi continues to drive growth. The increase in Jakafi sales is driven by patient demand and is expected to boost revenues. While most of the demand is due to a larger established patient base in myelofibrosis, polycythemia vera is also expected to be a major long-term driver of Jakafi growth. While Incyte markets the drug in the U.S., it is marketed by Novartis NVS as Jakavi outside the U.S. An approval of Olumiant in other countries will boost Incyte's top line.

We note that Incyte has collaborated with Merck MRK among others for another candidate in its pipeline –epacadostat.