Eli Lilly and Co (NYSE:LLY) (and partner INCY) announced on Friday that the FDA has issued a complete response letter (CRL) for the pipeline drug baricitinib. While Credit Suisse likes Eli Lilly for its diversified new product story, baricitinib is a key component of the story and the press release reads ominously to the firm. The FDA is requesting additional clinical data to determine the most appropriate doses and also to characterize safety concerns across various treatment arms.
The timing of a resubmission is still to be determined but for now the firm assumes it will take at least 12 months, pushing back a US launch to potentially 2019 or later. It will likely also limit the peak potential of the product given the competitive nature of the rheumatoid arthritis market and the fact that Credit Suisse expects PFE’s Xeljanz will lose it US patent exclusivity by 2025, opening the door for generic oral JAK inhibitors to enter the US market. The firm's updated baricitinib estimates, including a 2019 US launch and peak 2025 sales of $1.2Bn in the US and $2.1Bn globally, led to its Eli Lilly target price reduction to $87 (from $88), based on a 75%/25% blend of DCF ($90) and relative ($78 based on 19.0x its 2017 EPS of $4.10).
Eli Lilly guidance reaffirmed but drivers of upside may come more into question. In the press release Eli Lilly reaffirmed its guidance for both 2017 and through 2020. Credit Suisse now estimates a 4.5% sales CAGR for 2015-2020 (slightly below the 5% level that the company has guided to) and look to find areas of potential upside as the firm goes through earnings next week and towards important Phase 3 data readouts later this year, including full abemaciclib MONARCH 2 data, topline data for Alimta in combination with Keytruda and platinum in 1L NSCLC and topline data for galcanezumab (anti-CGRP) for migraine prevention.