Yahoo Finance Can Johnson & Johnson Replace Remicade for $100 Million Upfront?
As huge piles of overseas cash make their way back to big U.S. drugmakers, biotech buyouts dominate the headlines. While most of us were watching the big money, Johnson & Johnson (NYSE: JNJ) inked a tiny little deal with Theravance Biopharma (NASDAQ: TBPH) that could help the world's largest healthcare company solve a $6 billion problem.
Johnson & Johnson has one of the most diverse revenue streams in healthcare, but its top-selling product is under competitive pressure. Remicade sales fell 9% to $6.3 billion last year, largely due to a loss of patent protected exclusivity. Patients with inflammatory bowel disease can probably be persuaded to switch to a safer, more convenient therapy. Let's see if the candidate Johnson & Johnson licensed from Theravance fits the bill.
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Ready for a replacement
Ulcerative colitis and its cousin Crohn's disease lead to an estimated 700,000 doctor visits, and 100,000 hospitalizations every year in the U.S. alone. This huge patient population has made Johnson & Johnson's Remicade a megablockbuster, despite some significant drawbacks.
The popular therapy effectively prevents the immune system from attacking intestinal walls, but it also limits its ability to do other jobs. That's why Remicade has a black box on its drug label that warns of increased risk of deadly opportunistic infections and requires prescribing physicians to routinely monitor patients for tuberculosis.
Remicade is inconveniently delivered as an intravenous infusion, and it stands to reason that an easy-to-swallow pill with a clean safety profile might outperform Remicade in the commercial setting. That's why Johnson & Johnson recently handed Theravance Biopharma $100 million upfront for rights to TD-1473, an oral Janus kinase (JAK) inhibitor that might have an important advantage over existing treatment options.
Theravance designed TD-1473 to act directly against the intestinal wall, as opposed to existing drugs that involve systemwide exposure. An early study involving just 13 ulcerative colitis patients suggests this interesting approach works with a very low dose. Seven of 10 patients reported an improved rectal bleeding score after just 28 days of treatment, versus just one of three patients in the placebo group.
It's hard to draw big conclusions from such a small study, but I'll bet Johnson & Johnson's dealmaking radar started blinking when Theravance reported no evidence of the systemwide immune suppression that hounds existing IBD treatments. It might be early, but adding convenience and safety to efficacy is a recipe for blockbuster sales.
Image source: Getty Images.
Next steps
This year, Theravance Biopharma will begin two mid-stage clinical trials with TD-1473, one for treatment of Crohn's disease and another for ulcerative colitis. In return for a $100 upfront payment, Johnson & Johnson can elect to enter an exclusive license arrangement with Theravance for another $200 million, or walk away. It all depends on the mid-stage data.
If Johnson & Johnson likes what it sees from the mid-stage trials, it will pick up the tab for a registrational Crohn's disease study, while Theravance will retain U.S. rights to develop TD-1473 for ulcerative colitis. If approved, Johnson & Johnson's industry-leading global salesforce will handle commercialization efforts, leaving Theravance eligible for 33% of U.S. profits and double-digit royalties on ex-U.S. sales.
Another Imbruvica?
Back in 2011, Johnson & Johnson gave Pharmacyclics $150 million upfront for rights to a candidate we now know as Imbruvica. Although AbbVie owns rights to a portion of the revenue this popular leukemia drug generates, J&J's portion of Imbruvica sales bounded 51% higher in 2017 to $1.9 billion and could go much further. While the healthcare giant needs new drug launches of this size just to keep moving the needle forward, a successful launch of TD-1473 could create an enormous windfall for Theravance.
Theravance's only marketed product generated just $10.7 million in sales during the first nine months of 2017, and heavy clinical trial activity led to a $198.5 million loss during the period. Theravance can probably look forward to significant royalty revenues from GlaxoSmithKline for its contribution to Trelegy Ellipta, a once-daily inhaler for COPD patients. The company can also look forward to an FDA action date on November 13, 2018, concerning its new drug application for revenacin, a bronchodilator for COPD patients to be marketed in partnership with Mylan.
At recent prices, Theravance sports a $1.6 billion market cap that could swell to several times its size if TD-1473 really can fill the holes Remicade losses keep poking into J&J's income statements. Right now, we're peering through a keyhole, but we'll get a better look at the bigger picture when Theravance reports data from the remaining two cohorts of the ongoing early-stage trial. Johnson & Johnson inked their deal after seeing impressive results from the 80 mg cohort. Analysts will be looking for signs of potency from the 10 patients in the 20 mg group.
Most of all, investors we want to see a lack of safety issues among the group receiving the big 270 mg daily dosage. If these patients show a similar lack of systemwide immune suppression, Theravance stock could soar.
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Cory Renauer owns shares of Johnson & Johnson. The Motley Fool owns shares of and recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
