Most investors and analysts are expecting 2018 to be a big year for mergers and acquisitions.
Most investors and analysts are expecting 2018 to be a big year for mergers and acquisitions. It’s mostly a combination of corporate tax cuts and a lower tax rate for repatriating overseas cash that’s driving the speculation. Today’s announcement that Sanofi was buying Bioverativ for $11.6 billion is a good start. So is the news that Celgene is buying Juno for $9 billion.
Last year, the biggest deal in the biopharma sector was Johnson & Johnson’s acquisition of Actelion for about $30 billion. One would think J&J might focus on integrating Actelion into its operations this year, but Keith Speights, writing for The Motley Fool, considers why J&J might continue shopping.
1. Stelara
Johnson & Johnson’s top-selling drug is Remicade (infliximab) for a variety of immuno-inflammatory disorders, including Crohn’s disease, ulcerative colitis, rheumatoid arthritis, psoriatic arthritis ankylosing spondylitis and plaque psoriasis. However, Remicade sales dropped this year because of hot competition. But Stelara (ustekinumab), the company’s second best-selling drug, for Crohn’s disease had sales climb 25 percent year over year.
Speights writes, “The autoimmune-disease drug market is already crowded. Any perceived advantage for one drug over another could make a significant difference financially. That’s why results announced last week by Novartis from a late-stage study of Cosentyx in treating psoriasis were bad news for J&J.”
With its top drugs facing increasingly stiff competition, J&J has incentive to expand its pipeline by buying.
2. Zytiga
Zytga (enzalutamide), for prostate cancer, is probably J&J’s fifth-best-selling drug. But only two days after Novartis’ Cosentyx study was announced, the U.S. Patent Trial and Appeal Board (PTAB) invalided one of Zytiga’s patents. The drug brought in around $2.5 billion last year, and all of the patents have expired except for the ‘438 patent, which will expire in 2027. And that’s the one the PTAB invalidated. Which means J&J could suddenly be hit with generic competition for the drug. J&J indicates it may request a rehearing or appeal the decision.
Speights writes, “For now, the PTAB decision represents a huge win for Argentum Pharmaceuticals, the generic drugmaker that filed the challenge to the ‘438 patent. A total of 12 drugmakers have submitted for approval of generic versions of Zytiga, but J&J has held them off so far with patent infringement litigation.”
Bottom Line
Johnson and Johnson’s Tremfya was approved by the U.S. Food and Drug Administration (FDA) for psoriasis in July 2017, and is evaluating the drug in a comparison study against Cosentyx. So it’s possible that if the results are good, sales lost by Stelara could be picked up by Temfya. J&J also has a possible replacement for Zytiga in its pipeline, apalutamide. The FDA is slotted to decide on the prostate cancer drug in April.
It all leads to the possibility that with two out of its top five drugs under fire, J&J might be in a buying mood, especially with more cash in hand due to the tax bill. Speights writes, “Targeting a biotech specializing in oncology would probably be a smart move for Johnson & Johnson, Incyte and Exelixis are just a couple of candidates that are likely to be on the radar screens for larger companies this year, potentially including J&J.”
