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Pharmacyclics Scores Big With Janssen Biotech Deal

Includes: JNJ, PCYC
by: The Burrill Report

By Marie Daghlian

Janssen Biotech, a unit of Johnson & Johnson (NYSE:JNJ), is paying Pharmacyclics (NASDAQ:PCYC) $150 million upfront for rights to co-develop and market its lead anti-cancer compound PCI-32765. The first-in-class oral Btk inhibitor blocks signaling in a critical pathway needed for tumor growth and proliferation. It is currently in early- and mid-stage studies across a variety of blood cancers, including non-Hodgkin’s lymphoma.

In addition to the upfront payment of $150 million, Sunnyvale, California-based Pharmacyclics will be entitled to receive up to $825 million in development and regulatory milestone payments. The companies have agreed to share development costs for oncology and other indications, excluding inflammation and immune-mediated conditions, with Pharmacyclics paying for 40 percent of the costs and Janssen picking up the rest. The partners will share profits equally in a 50/50 profit-loss agreement. Both companies will book revenue, Pharmacyclics in the United States and Janssen in the rest of the world.

The deal is expected to be slightly dilutive to Johnson & Johnson's 2011 earnings per share on the order of approximately 4 to 5 cents. William Hait, global head of cancer therapeutics for Janssen, said in a statement that PCI-32765 has broad applicability and the partnership is an “opportunity to bring a new form of oral therapy to patients with B-cell malignancies.”

Pharmacyclics has no marketed products. Its first product candidate, an injectable cancer drug, was rejected by U.S. regulators in 2007. Although the deal gives Pharmacyclics a hefty upfront payment, investors were not thrilled by the deal. Several analysts issued downgrades for the company citing its lack of revenues, and a market cap almost equal to the potential deal size.

Janssen Biotech also entered into an expanded strategic research collaboration with Swiss biotech Molecular Partners that includes an option to license products arising from the research. The deal could be worth as much as $800 million to Molecular Partners in upfront fees, license payments, research funding, and milestone payments.

Under their agreement, the companies will apply Molecular Partners’ DARPin technology to selected targets. During the research phase, Janssen has the right to exercise four options, each worth up to $200 million, to exclusively license products developed with the technology and take over all development and commercialization activities. Molecular Partners has the option to co-develop one product on a global basis. The biotech will also be entitled to royalties on worldwide net sales of any commercialized product arising from the collaboration.

“The strategic value of this deal is the collaborative approach with a multi-disciplinary team of world-class scientists, under which Molecular Partners expands its position of strength as a biopharmaceutical company pioneering innovative protein therapeutics, while retaining rights to develop novel assets not optioned by Janssen Biotech during the research collaboration,” says Christian Zahnd, CEO of Molecular Partners.

On the digital health front, GE and Microsoft took steps to position themselves at the forefront of improving healthcare outcomes and reducing healthcare costs through technology. The companies announced a planned joint venture that will marry Microsoft’s enterprise and data management expertise with GE’s electronic health records system into an integrated open platform which Microsoft says “will give healthcare providers and independent software vendors the ability to develop a new generation of clinical applications.”

The venture will develop healthcare applications on the platform using in-house developers and the platform will connect with a wide range of healthcare IT products. GE Healthcare IT will be able to connect its existing products to the platform. Michael Simpson, vice president and general manager at GE Healthcare IT, will serve as the company’s CEO.