J&J in Oncology Deal - Analyst Blog

Johnson & Johnson ( JNJ ) recently entered into an agreement which should strengthen its oncology pipeline. Johnson & Johnson's Janssen Biotech, Inc. signed an agreement with Pharmacyclics, Inc. ( PCYC ) for the development and marketing of a mid-stage oncology candidate, PCI-32765. The deal covers the development of PCI-32765 for oncology and other indications, excluding inflammation and immune mediated conditions.

The Candidate

The agreement is focused on anti-cancer compound, PCI-32765, which is currently in phase I and phase II studies for hematologic cancers like chronic lymphocytic leukemia, mantle cell lymphoma, and diffuse large B-cell lymphoma.

Posters on the efficacy and safety of PCI-32765 in chronic lymphocytic leukemia, mantle cell lymphoma, and activated B-cell subtype diffuse large B-cell lymphoma will be presented at the American Society of Hematology in December.

Deal Valued at $975 Million

Per the terms of the agreement, Janssen will make an upfront payment of $150 million. Additional payments of $825 million will depend on the achievement of certain development and regulatory milestones. Janssen will be responsible for 60% of the development costs. The $150 million upfront payment is expected to impact Johnson & Johnson's 2011 earnings by 4-5 cents per share.

Once PCI-32765 is approved, Pharmacyclics and Janssen will book sales and co-promote the drug with the companies splitting equally the profits and losses from the commercialization activities. While US sales will be booked by Pharmacyclics, ex-US sales will be booked by Janssen. US commercialization activities will be shared by the companies. Outside the US, Janssen will spearhead commercialization activities.

Neutral on Johnson & Johnson

We currently have a Neutral recommendation on Johnson & Johnson, which carries a Zacks #3 Rank. Even though we expect the company to continue facing headwinds in the form of pricing pressure, manufacturing issues and US healthcare reform, we believe Johnson & Johnson's diversified business model, lack of cyclicality, and strong financial position will continue helping the company pave its way through tough situations.

JOHNSON & JOHNS ( JNJ ): Free Stock Analysis Report

PHARMACYCLICS ( PCYC ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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