Please ensure Javascript is enabled for purposes of website accessibility

Can Johnson & Johnson Replace Remicade for $100 Million Upfront?

By Cory Renauer - Feb 21, 2018 at 8:03AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Johnson & Johnson has had huge success with small deals in the past. Here's a look at the latest bet.

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 (JNJ 1.46%) inked a tiny little deal with Theravance Biopharma (TBPH 1.81%) 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.

Hundred dollar bill hiding under tablets.

Image source: Getty Images.

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.

Smiling lab worker with a clipboard.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
$182.29 (1.46%) $2.63
Viatris Inc. Stock Quote
Viatris Inc.
GSK Stock Quote
$43.69 (2.20%) $0.94
AbbVie Inc. Stock Quote
AbbVie Inc.
$152.34 (1.93%) $2.89
Theravance Biopharma, Inc. Stock Quote
Theravance Biopharma, Inc.
$8.99 (1.81%) $0.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.