Image Source: Johnson & Johnson – Second Quarter of Fiscal 2020 IR Earnings Presentation
By Callum Turcan
On August 19, Johnson & Johnson (JNJ) announced it was acquiring Momenta Pharmaceuticals Inc (MNTA) for $52.50 per share in cash through a deal worth $6.5 billion (or $6.1 billion when including Momenta Pharmaceuticals’ net cash position). At the end of June 2020, Momenta Pharmaceuticals had ~$0.45 billion in cash and cash equivalents on hand with no debt on the books. We include shares of JNJ as a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios.
Overview
This deal will give Johnson & Johnson’s Janssen pharmaceutical unit access to Momenta Pharmaceutical’s drug pipeline portfolio which focuses on therapeutics that treat immune-mediated diseases, including nipocalimab or M281 (which has not yet been approved by regulators though clinical trials are underway). Nipocalimab is an anti-FcRn antibody that has been clinically-tested in treating myasthenia gravis, a neuromuscular disease, and other diseases that involve the immune system attacking the body.
By the third quarter of this year, Momenta Pharmaceuticals plans to complete a Phase 2 clinical study covering nipocalimab (initial results have been promising and the firm plans to release the full results from that study by the end of this year) and by the first quarter of 2021, the goal is to launch a Phase 3 study. Here is what the press release announcing the deal had to say:
The transaction will include full global rights to nipocalimab (M281), a clinically validated, potentially best-in-class anti-FcRn antibody. Nipocalimab gives Janssen the opportunity to reach significantly more patients by pursuing indications across many autoimmune diseases with substantial unmet medical need in maternal-fetal disorders, neuro-inflammatory disorders, rheumatology, dermatology and autoimmune hematology. Nipocalimab recently received a rare pediatric disease designation from the U.S. Food and Drug Administration… Janssen expects nipocalimab to contribute to its goals of achieving above-market growth over the mid and long term.
Autoimmune diseases driven partially or completely by autoantibodies represent a novel area where Janssen can significantly improve health outcomes for patients. In autoantibody-driven diseases, the body’s antibodies attack or damage its own proteins, cells and tissues, often with devastating consequences. Autoantibody-driven diseases include Myasthenia Gravis, Hemolytic Diseases of the Fetus and Newborn, warm Autoimmune Hemolytic Anemia, and other serious dermatologic, rheumatic, neurologic, hematologic and renal diseases.
Johnson & Johnson estimates that 195 million people worldwide suffer from autoantibody-driven diseases, and additionally, many of those are orphan (not being pursued in a meaningful way by many in the pharmaceutical industry) and rare (effects less than 200,000 people according to US criteria) diseases. According to Momenta Pharmaceuticals, the drug is currently involved in several Phase 2 clinical trials and one Phase 2/3 trial that cover several different diseases. According to the press release announcing the deal:
With competitively differentiated, parallel development programs and full worldwide commercial rights for nipocalimab, Janssen will have the potential to introduce multiple launches, many as first-in-class indications with potential for significant peak year sales, some of which could exceed $1 billion, supporting Janssen’s goal of continuing to deliver above-market performance over the long term.
Without a doubt, gaining access to nipocalimab was Johnson & Johnson’s top priority. The deal to acquire Momenta Pharmaceuticals is expected to close during the second half of 2020. Momenta Pharmaceuticals currently generates revenue primarily by selling generic versions of existing drugs, but those revenue streams are paltry. The goal appears to be to secure regulatory approval that would allow nipocalimab to be prescribed to treat multiple different autoimmune-related diseases, which in turn would likely allow Johnson & Johnson to generate meaningful reoccurring revenue streams for years to come. The rare disease space is one where the pharmaceutical industry can generate quite decent margins.
Other Potential Therapeutics
Other than nipocalimab, Johnson & Johnson will gain access to Momenta Pharmaceuticals’ necuparanib therapy, which was formerly a novel oncology treatment though Momenta Pharmaceuticals is now testing to see if necuparanib would be effective in treating the coronavirus (‘COVID-19’). More information on those efforts could soon be made publicly available as initial cell infection studies are expected to be completed within a few weeks. Another one of Momenta Pharmaceuticals’ potential therapies currently being evaluated is M230, “a recombinant Fc multimer candidate” that is being developed with Australia’s CSL Limited (CSLLY). The plan is to have CSL “introduce a subcutaneous formulation into the Phase 1 program later this year.”
M267, “a SIFbody candidate targeting CD38,” is currently undergoing Investigational New Drug-enabling (‘IND’) studies with plans to submit an IND in 2021. For reference, an IND effectively allows a pharmaceutical company to transport potential therapeutics over state lines for testing in the US (as only drugs that have an approved marketing application can be transported over state lines, unless the company in question receives the appropriate approval through different avenues such as the IND).
Furthermore, M254, “a hypersialylated immunoglobulin candidate designed as a high potency alternative for intravenous immunoglobulin,” recently competed patient enrollment in Part B in a Phase 1/2 trial with results due by the third quarter of this year. Patient enrollment in Part C of this trial is underway. In 2021, a Phase 2 trial for M254 is expected to begin, and please note the aforementioned Phase 1/2 trial and potential Phase 2 trial are testing out different applications of M254.
Concluding Thoughts
Johnson & Johnson is bulking up its drug pipeline to support the long-term growth runway of its Janssen pharmaceutical unit. We are intrigued by the deal and await additional information from management as it relates to nipocalimab potentially eventually getting approved by regulators and ultimately commercialized. Shares of Momenta Pharmaceuticals are currently trading near Johnson & Johnson’s acquisition offer as of this writing. If the deal closes, Johnson & Johnson plans to maintain Momenta Pharmaceuticals’ existing presence in Cambridge, Massachusetts. In the meantime, we encourage our members to check out our thoughts on the race to discover a COVID-19 vaccine (link here), which Johnson & Johnson is actively participating in.
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Callum Turcan does not own shares in any of the securities mentioned above. The Health Care Select Sector SPDR ETF (XLV) and Johnson & Johnson (JNJ) are both included in Valuentum’s simulated Best Ideas Newsletter and Dividend Growth Newsletter portfolios. Vanguard Consumer Staples ETF (VDC) is included in Valuentum’s simulated High Yield Dividend Newsletter portfolio. Some of the other companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.