Last week, Incyte Corporation (INCY) received a milestone payment of $60 million from Novartis (NVS) pertaining to the reimbursement of Jakavi in Europe. The drug has been approved by the European Commission to treat adults suffering from primary myelofibrosis (MF), post-polycythemia vera MF or post-essential thrombocythemia MF.

It is a common practice of small pharma companies to enter into agreements with larger pharma companies for the development and commercialization of products. Such deals fetch milestone payments and royalties for the smaller pharma companies.

Incyte has an agreement with Novartis to market Jakafi (U.S. trade name of Jakavi) outside the U.S. for all hematologic and oncologic indications. Jakafi was launched in the U.S. in Nov 2011 for treating patients suffering from intermediate or high-risk MF.

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The milestone payment will be recorded as contract revenue in Incyte’s third quarter 2014 results. Incyte will be paying tiered, low-single digit royalties to Novartis on all future sales of Jakafi in the U.S.

Presently, the drug is under review in the U.S. for the treatment of patients suffering from polycythemia vera who have had an inadequate response to or are intolerant of hydroxyurea. A final decision is expected by Dec 5, 2014.

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Jakafi contributed around $84 million to Incyte’s top line in the second quarter of 2014, representing an increase of over 55% from the year-ago quarter. We are encouraged by Incyte’s progress with Jakafi. Successful label expansion of the drug will boost sales.

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