Story Stocks®
Updated: 13-Jan-25 14:32 ET
Johnson & Johnson taps M&A market to provide welcomed boost for Innovative Medicines segment (JNJ)
In a bid to provide its Innovative Medicines segment with a much-welcomed boost, Johnson & Johnson (JNJ) has turned to the M&A market, making a big slash with a $14.6 bln acquisition of Intra-Cellular Therapies (ITCI). At $132/share, JNJ is paying a 39% premium to last Friday's closing price for ITCI, which closed the day with a 15% gain after the company entered into a settlement agreement with Sandoz that resolved patent litigation related to ITCI's CAPLYTA product.
With that litigation uncertainty now out of the picture, the path may have been cleared for this transaction to unfold. While the agreement permits Sandoz to begin selling a generic version of Sandoz -- ITCI's FDA-approved treatment for schizophrenia -- the Swiss pharmaceutical company may have to wait until July 1, 2040 to bring its drug to market (depending on certain conditions). That ruling was more favorable for ITCI than analysts were anticipating, explaining why shares soared higher last Friday.
With that litigation uncertainty now out of the picture, the path may have been cleared for this transaction to unfold. While the agreement permits Sandoz to begin selling a generic version of Sandoz -- ITCI's FDA-approved treatment for schizophrenia -- the Swiss pharmaceutical company may have to wait until July 1, 2040 to bring its drug to market (depending on certain conditions). That ruling was more favorable for ITCI than analysts were anticipating, explaining why shares soared higher last Friday.
- The crown jewel of JNJ's acquisition of ITCI is CAPLYTA, a once-daily oral therapy that's not only approved to treat adults with schizophrenia but is also approved to treat depressive episodes associated with bipolar I or II disorder as a monotherapy and adjunctive therapy. In Q3, sales of CAPLYTA jumped by 39% yr/yr to $175.2 mln and ITCI raised its FY25 sales forecast to $665-$685 mln from its prior guidance of $650-$680 mln.
- For a pharmaceutical giant like JNJ -- the company did nearly $22.5 bln in sales in Q3 alone -- this may seem like a drop in the bucket. However, CAPLYTA may only be scratching the surface in terms of its revenue-generating potential. On December 3, 2024, ITCI submitted a supplemental new drug application (sNDA) to the FDA for CAPLYTA as an adjunctive treatment for adults with major depressive disorder (MDD), a psychiatric disorder that affects an estimated 21 mln adults in the U.S. About one week later, the company issued positive data from the Phase 3 trial for CAPLYTA for MDD, showing that the treatment displayed a statistically significant and clinically meaningful improvement in depressive symptoms.
- ITCI has been preparing for a potential commercial launch of CAPLYTA for MDD this year. If approved, the drug could ultimately become the standard of care for most depressive disorders, resulting in peak sales in the $4-$5 bln per year range.
If all goes well, CAPLYTA could really move the needle for JNJ's Innovative Medicines segment, which generated fairly tepid revenue growth of 4.9% in Q3 to $14.6 bln. The cherry on top is that JNJ is also adding ITI-1284 to its pipeline, a compound ITCI has been testing for generalized anxiety disorder and Alzheimer's disease. Overall, we believe the addition of ITCI is a good fit for JNJ, especially since some of the risk has been taken off the table with last Friday's patent litigation resolution.
