Johnson & Johnson Gives Vertex Upfront Cash to Stop Paying Royalty on Hepatitis C Drug Incivo

Vertex Pharmaceuticals (NASDAQ: VRTX  ) sold the royalty it receives on hepatitis C drug Incivo to its longtime partner Janssen Pharmaceutical, a subsidiary of Johnson & Johnson (NYSE: JNJ  ) , for $152 million, the company announced today.

Starting next year, Johnson & Johnson will no longer have to pay the royalty it owes Vertex on sales in Europe and other regions. Vertex, which developed the drug and partnered with Johnson & Johnson to sell the drug in those regions in 2006, will continue to sell the drug on its own in the U.S., where it's marketed as Incivek.

Through the first three quarters of 2013, Vertex received $104 million in royalties from Johnson & Johnson, which makes it look like a good deal for Johnson & Johnson, but the sales have dropped precipitously. The royalty was just $21 million in the third quarter, down from $44 million in the second quarter. Vertex blamed both seasonal changes in treatments and the fact that patients are waiting for newer hepatitis C medications from Gilead Sciences and AbbVie.

Vertex is having similar problems selling Incivek in the U.S., leading to a 15% reduction in its workforce as it continues to shift focus to its cystic fibrosis program, the company's ticket to regain profitability.

With the added cash from Johnson & Johnson, Vertex has the means to get there. The biotech expects to end the year with more than $1.4 billion in cash, cash equivalents and marketable securities.

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