Johnson & Johnson (NYSE:JNJ) struck an approximately $1.1 billion deal with Genmab to gain rights of the latter’s cancer agent, Daratumumab.  In a separate event, the U.S. FDA has given a priority review status to the company’s application for expanded use of its prostate cancer drug, Zytiga.  All of these events can help Johnson & Johnson strengthen its position in the oncology drug market where it presently has a very modest position.
More About the Genmab Deal
Daratumumab is in an experimental drug for a type of bone marrow cancer multiple myeloma. It has the potential for many other bone marrow cancer indications, including acute myeloid leukemia. Following the deal, Janssen, a Johnson & Johnson unit, will get exclusive worldwide rights to develop and commercialize Daratumumab. JNJ will pay upfront fee of $55 million to Genmab in addition to the $80 million investment in Genmab’s common stock. In addition, Genmab stands to receive certain payments to the tune of $1 billion after reaching certain milestones.
While the upfront payments will certainly hit the company’s cash flow this year, the long-term benefits from the deal may surpass the hit due to the payments. With promising drugs like Daratumumab, we expect the company to perform better in the oncology drug market, going forward. If the drug shows good progress in clinical trials, it could provide a significant upside to our current price estimate.
Zytiga Holds Promise
Zytiga is used in the treatment of prostate cancer, one of the most prevalent cancers in men, with around 218,000 Americans diagnosed with the cancer each year. Currently, the drug is approved for patients who have been diagnosed with both hormone treatment as well as chemotherapy. After demonstrating encouraging results in its clinical trials recently, the company filed applications with the U.S. FDA and the EU’s European Medicines Agency (EMA) to extend the use of its metastatic prostate cancer drug, Zytiga, to patients who have not yet been treated with chemotherapy but have failed hormone treatment.
A priority review status means the drug could be approved in about six months. The FDA usually grants this status for drugs that either show strong efficacy in treatment or where no treatment exists currently.
The drug also showed strong results in eliminating early stage tumors in metastatic prostate cancer patients. Zytiga grossed around $200 million in 2011 in sales, and many are already seeing a $1 billion sales potential for the drug.
We are in the process of updating our $74 price estimate for JNJ to reflect the earnings and recent developments.Notes:
- Genmab, Johnson & Johnson agree $1.1 billion cancer deal, Reuters, August 30 2012 [↩]
- J&J’s Zytiga to be reviewed faster by FDA for additional use, Reuters, August 29 2012 [↩]