There wasn't much acquisition activity last year from the major drugmakers. One of the notable exceptions, however, was Johnson & Johnson's (JNJ -1.82%) $30 billion purchase of Actelion. That turned out to be by far the largest deal of the year in the biopharmaceutical industry. 

With a lot of assimilation and integration to be done as a result of the Actelion buyout, it wouldn't have been surprising if J&J took a while before making another significant acquisition. But two things happened over the past few days that could cause the healthcare giant to shift into high gear in finding another company to buy. 

Airport sign with dollar symbol, the word "acquisition", and an arrow pointing right

Image source: Getty Images.

Going after Stelara

Aside from the Actelion acquisition, one of the most important reasons behind Johnson & Johnson's success in 2017 was the performance of Stelara. While J&J's top-selling drug, Remicade, experienced a drop in sales due to tougher competition, sales for Stelara, the company's No. 2 drug, jumped nearly 25% year over year.

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 (NVS -0.57%) from a late-stage study of Cosentyx in treating psoriasis were bad news for J&J.

Novartis reported findings from the study that showed Cosentyx was significantly superior at treating plaque psoriasis compared with Stelara. After 12 weeks of treatment, nearly two-thirds of patients taking Cosentyx experienced skin improvement of 90%. Less than half of patients taking Stelara had the same level of skin improvement.

You can bet that dermatologists will take note of the latest study results. This wasn't the first time Cosentyx has beaten Stelara in a head-to-head match-up. Now there's even more evidence of Cosentyx's superiority over J&J's blockbuster drug.

Another top-five drug in the crosshairs

Just two days after Novartis announced its results for Cosentyx, J&J received more bad news. the U.S. Patent Trial and Appeal Board (PTAB) invalidated an important patent protecting prostate cancer drug Zytiga. Sales for Zytiga for 2017 will probably come in around $2.5 billion, making it J&J's fifth biggest revenue-generator. 

All of the patents for Zytiga listed in the FDA's Orange Book have expired -- except for what is known as the '438 patent, which is scheduled to expire in 2027. However, it's this sole remaining Zytiga patent that the PTAB invalidated. If the ruling stands, it could open the floodgates for generic competition for what remains J&J's top cancer drug. 

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. 

Johnson & Johnson issued a statement in response to the patent ruling stating that the company was "disappointed in and strongly disagree with" the decision. The company said that it was evaluating options for either requesting a rehearing or appealing the decision in court. J&J added that the company continues to "believe the '438 patent is valid and will continue to vigorously defend it."

Acquisition acceleration?

You could argue that there's no need for Johnson & Johnson to worry about either of these recent developments. The company has another psoriasis drug on the market, IL-23 inhibitor Tremfya, which won FDA approval in July 2017. J&J is evaluating Tremfya in a late-stage study comparing it directly against Cosentyx. If those results are positive, it's possible that more of any market share potentially lost by Stelara could go to another J&J product instead of to a rival.

J&J also has a potential successor to Zytiga waiting in the wings. Market research firm EvaluatePharma ranked apalutamide as the second most valuable pipeline candidate in the biopharmaceutical industry. An FDA approval decision on the prostate cancer drug is expected by April. 

Still, J&J is looking at possibly significant new threats to two of its top five drugs. Its No. 1 drug, Remicade, is already under attack. Johnson & Johnson CEO Alex Gorsky recently stated that the company should be "creating a crisis" to be ready for disruptive competition. Although the Novartis results and patent invalidation don't represent crises at this point, they could combine with other factors to present real causes of concern for J&J.

That's where another acquisition could come into play. J&J's buyout of Actelion was a key reason the company returned to solid growth in the third quarter of 2017. With lower corporate tax rates now in effect, along with an attractive option for repatriating cash parked overseas, 2018 could be the best time in quite a while to make a sizable deal.

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. The one thing that Johnson & Johnson can't afford to do is to wait until a full-blown crisis occurs. Making the right deal or two is probably the easiest way to ensure that doesn't happen.