Big Pharma and Big Biotech sometimes live and die by actions out of the U.S. Food and Drug Administration (FDA). For Eli Lilly and Co. (NYSE: LLY) and Incyte Corp. (NASDAQ: INCY), it turns out that the Good Friday holiday wasn’t so good for their companies after all. News out of the FDA over the weekend showed that the regulatory agency did not approve their new drug application for a key rheumatoid arthritis drug called baricitinib.

When drugs are expected to get FDA approval and show positive data but don’t, the underlying stocks of drug and biotech companies can see harsh punishment. That is the case on Monday, with Eli Lilly shares were down over 5% for almost $5 billion erased in market cap, and Incyte shares were down almost 11% for about $3 billion erosion in market cap.

The FDA rejected the arthritis drug over safety concerns in treatment arms that will require more data. Some analysts were projecting ultimately have $2 billion or more in annual sales. Eli Lilly and Incyte submitted the new drug application for baricitinib to the FDA in January 2016, and in January 2017 announced the FDA’s three-month extension to allow time for review of additional data.

It is also quite common for analysts to chime in with lower expectations and to outright downgrade ratings after bad news. That is what we saw on Monday.

Morgan Stanley downgraded  Eli Lilly to Equal Weight from Overweight. BMO Capital Markets downgraded it to Underperform from Market Perform, with a $71 price target.

Jefferies actually maintained Incyte as Buy, but the firm cut its target price to $148 from $165, which compares with a $140.84 prior closing price. Jefferies expects downside, as a complete response letter requires more data, but the firm continues to see the cancer franchise remaining attractive. Piper Jaffray downgraded Incyte to Neutral from Overweight on Monday.

Expect to see more analyst calls on Eli Lilly and Incyte on Monday. They likely will come with key downgrades in target prices and in upside expectations.

Lilly shares were indicated down 5% at $80.93 before the opening bell on Monday and down about 4% to $82.48 afterward. The 52-week range is $64.18 to $86.72. Eli Lilly’s market cap before the news was about $90 billion.

Incyte shares were indicated to open down almost 11% at $125.40 after a $140.84 prior closing price. They were at $125.53 after about a half hour of trading and already nearing an average day’s trading volume. Incyte’s 52-week range is $68.03 to $153.15, and its previous market cap was $28.7 billion.

As you might expect, the companies were disappointed. Christi Shaw, president of Eli Lilly Bio-Medicines, said?

We are disappointed with this action. We remain confident in the benefit/risk of baricitinib as a new treatment option for adults with moderate-to-severe RA. We will continue to work with the FDA to determine a path forward and ultimately bring baricitinib to patients in the U.S.

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