The end of last week was a break in the markets in the US, and a holiday for the vast majority of companies and individuals in Europe and the US alike. However, a number of publicly traded entities remained open in the US (because the holiday isn’t a Federal one in the states) and this resulted in some against the grain news hitting press in the biotech sector.

Specifically, we got word from biotech giant Eli Lilly and Co (NYSE:LLY) and its smaller, but still multi billion dollar collaborator, Incyte Corporation (NASDAQ:INCY), on an FDA action regarding a rheumatoid arthritis asset.

The news wasn’t good, and has hit both companies proportionately – with Incyte taking the brunt of the decision from a market capitalization perspective (as is to be expected, given the size of the company relative to the proportionate market for the drug in question, and the implications of this market (or loss thereof, as is the case here, at least temporarily) for Incyte.

So, in light of the development, here’s a look at what’s happened, and what it means for the two companies (with a particular focus on the smaller of the two, Incyte).

As mentioned, it’s an RA drug, and it’s called baricitinib, more commonly (these days) referred to as Olumiant. It’s part of a family of drugs called JAK inhibitors. In our bodies we’ve got what are called JAK enzymes, and these enzymes play a key role in inflammation in various parts of the body. This is fine, when the inflammation is healthy and required. When it’s not healthy, however, as is the case in the lead up to, and driving mechanism behind, RA, he inhibition of the JAK enzymes can lead to the reducing of the inflammation, and an easing of the symptoms of conditions in which this inflammation is an issue (read: RA).

There’s a pretty large demand for drugs like this at the moment. Current SOCs aren’t all that effective (especially after a period of time) and the JAK inhibition MOA is a novel approach that could have served, in this instance, as a valuable alternative for physicians as a prescribing option, and for patients as a relief asset. Of note is the fact that there are a few of these types of drugs on the market already, in the RA indication, but the data that underpinned the application looked to present as having a better safety profile than some of these assets – one of which, and probably the most important from a competition perspective, is Pfizer Inc. (NYSE:PFE)’s Xelijanz.

So, what happened?

Well the FDA has issued a CRL to Pfizer (and by proxy, Incyte), citing certain concerns over dosing and safety attributes for Olumiant. We’ve not got too much detail on exactly what the concerns are, but the major concern (from an investor perspective) is that the FDA is looking to get some more data from the two companies regarding the above two noted elements of the application.

In the biotech space, probably more so than in any other, time is money. When a company has to revise a new drug application, but doesn’t need to conduct any more trials (so just add information), then it’s not too much of a problem. It takes a month or two to revise, and then resubmission takes place. When the application needs shoring up with fresh data, however, the company that is submitting needs to carry out fresh trials to collect said data, and this takes time. This time (and the trials) generally require funding from cash reserves (which can often necessitate a dilutive raise) and therein lies the issue, and the reason that these companies have taken a hit on the back of this news.

So what’s the bottom line?

It looks as though the request for extra data is going to add twelve months or more onto the development pathway, and against a backdrop of what many saw as an almost certain approval, this is a real setback for both the two companies, their shareholders and – of course – sufferers in the RA population.

We’re waiting on some degree of official update this month from Incyte and/or Pfizer as to the forward pathway.

As things stand (premarket on Monday), Pfizer is down around 5%, while Incyte is sitting on the wrong end of a 10% move.