It’s raining good news for Incyte (INCY), which entered into a deal with Eli Lilly (LLY) regarding one of its pipeline candidates. The two companies have entered into a worldwide license and collaboration agreement related to the development and commercialization of Incyte’s oral JAK1/JAK2 inhibitor, INCB28050, and certain other follow on drugs for inflammatory and autoimmune diseases. INCB28050 is currently being studied in a phase II trial for the treatment of rheumatoid arthritis (RA).

As per the agreement, while Lilly will receive worldwide rights to the compound, Incyte has retained its co-development and co-promotion rights. Under the deal, Incyte will receive an initial payment of $90 million as well as another $665 million in the form of milestone payments. In addition, the company is also eligible to receive tiered, double-digit royalty payments on global sales of the drug on successful commercialization. Following the transaction, Lilly’s fourth quarter earnings will be impacted by 5 cents.

This is the second deal for Incyte within a span of one month. Back in November, Incyte entered into a collaboration and license agreement with Novartis (NVS) regarding two of its pipeline candidates — INCB18424, an oral JAK1/JAK2 inhibitor and INCB28060, an oral cMET inhibitor. While the former is currently being studied in a phase III clinical trial for myelofibrosis (MF), the latter has yet to enter its phase I trial as a potential treatment for multiple cancers. Along with MF, INCB18424 is in phase II trial for patients with advanced polycythemia vera (PV) and essential thrombocythemia (ET).

We believe the recent deals with big pharma players prove the huge underlying potential of Incyte’s compounds. RA is an autoimmune disease affecting about 1% of the world’s population. None of the current available treatment is curative and there is a significant unmet clinical need in this area.

Additionally, the MF drug holds immense potential as there are currently no approved specific therapies for MF, PV or ET which collectively constitute the major myloproliferative diseases. These disorders are estimated to affect more than 200,000 patients in the US and over twice that worldwide.

Incyte, being in a tight liquidity position decided earlier this year to prioritize its pipeline development. Successful commercialization of these compounds with the aid of Incyte’s collaborating partners should enable Incyte to improve its financial position considerably. We have a Neutral recommendation on the stock.

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