April 1, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Back in October 2015, Johnson & Johnson announced a $10 billion share buyback program at about the same time it reported its third-quarter financial sales of $17.1 billion. That has provided plenty of incentive for analysts to speculate on what the company should do with all its cash.
The company itself hasn’t acted like it’s in much of a hurry to buy anything. “I wouldn’t interpret the $10 billion share buyback as impacting our appetite for scale of any size in M&A at all,” said Dominic Caruso, J&J’s chief financial officer in an October conference call. “Our appetite for M&A of any scale has entirely to do with whether or not the acquisition is going to create value for shareholders.”
Nonetheless, The Motley Fool’s Sean Williams offers two suggestions to J&J: Geron and Achillion Pharmaceuticals .
Menlo Park, Calif.-based Geron is a clinical stage biopharmaceutical company that is focused on collaborative development of its telomerase inhibitor, imetelstat, in hematologic myeloid malignancies. It is being evaluated as a potential treatment for a rare bone marrow cancer, myelofibrosis, as well as myelodysplastic syndromes and essential thrombocythemia.
The company partnered with J&J based on the drug’s potential for myelofibrosis (MF). The Phase II/III clinical trial began on Jan. 14 in patients with myelodysplastic syndromes, which is the second study being conducted with the drug by Janssen Research & Development, a J&J company.
J&J paid Geron $35 million upfront with the possibility of a whopping $900 million in various development, regulatory, and sales milestones. Williams writes, “While it may not be cheap for J&J to acquire Geron if imetelstat breezes through its ongoing clinical studies, scooping up Geron would internalize these payments and allow J&J to reap what would be very high margins if approved. With few other MF treatments on the horizon, J&J would have a very likely blockbuster on its hands.
New Haven, Conn.-based Achillion Pharmaceuticals focuses on infectious diseases and immune disorders. Its NS5A inhibitor, ACH-3102, when combined with Gilead (GILD)’s Sovaldi, has shown 100 percent cure rates in treatment-naïve hepatitis C patients within six to eight weeks of treatment. Achillion has a partnership with J&J in HCV research.
J&J briefly had a hit hepatitis C drug, Olysio, which in 2014 generated $2.3 billion worldwide, but it had a number of adverse side effects like rashes, anemia and flu-like symptoms. Then in 2015, when Gilead launched Harvoni, which didn’t need interferon and ribavirin like Olysio did, Olysio became essentially obsolete. In 2015, sales of Olysio were $621 million, and discontinued in the U.S. by the fourth quarter.
It’s not really clear if Achillion’s drugs are that much better than Gilead’s, which are dominating the market, although as-effective drugs with lower prices might stand a chance in the market, or as-effective drugs that require less frequent doses or that have a quicker response rate. Achillion’s drug seems to be faster than Harvoni and possibly just as effective.
Williams writes, “J&J’s deal with Achillion involved a $225 million equity stake in the company, as well as up to $1.1 billion in development, regulatory, and sales-based milestones. Thus, buying Achillion, assuming its pipeline performs as expected, would in effect put money right back into J&J’s pockets as a sizable shareholder if it purchased the company for a premium.”
Johnson & Johnson took a short-lived dip in early February when the U.S. Food and Drug Administration (FDA) indicated that South Korea-based Celltrion Inc. (068270.KQ)’s biosimilar version of J&J’s Remicade was “highly similar” to the brand name drug. Shares traded on Jan. 29 for $104.44, then dropped on the news on Friday, Feb. 5 to $100.54. Shares are currently trading for $108.02.
