J&J’s $15 bln depression deal eases pharma blues

Intra-Cellular Therapies

14/01/2025 13:00

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Robert Cyran
       NEW YORK, Jan 13 (Reuters Breakingviews) - Dealmaking
might be the cure for the pharmaceutical industry’s blues.
Johnson & Johnson  JNJ.N , the $344 billion healthcare giant,
has spent years grappling with a slew of lawsuits over sales of
talc, opioids and other goods, while also ditching its consumer
goods business. Meanwhile, stocks of novel drug developers have
largely been stuck in purgatory for a decade. Thing is, that
makes their valuations look pretty reasonable. For pharma giants
in need of a refresh, an M&A solution, like J&J’s agreement on
Monday to pay some $15 billion for Intra-Cellular Therapies
 ITCI.O , is obvious.
    Big pharma companies need to continually restock their
catalogs with new drugs as patents on - and therefore exclusive
sales of - older ones expire. For example, J&J’s Stelara, a
treatment for autoimmune diseases, reaped nearly $11 billion of
revenue last year. That’s under threat after its patent
protection ended in 2023 and cut-price competition begins to
enter the market.
    Fortunately, J&J is ready to go shopping. Its disposal of
consumer business Kenvue  KVUE.N  in 2023 firmed up the
company’s balance sheet, reaping over $16 billion through a
series of transactions. Boss Joaquin Duato has already begun
spending, shelling out $13 billion last year to acquire device
maker Shockwave Medical. Monday’s deal more than uses up the
remaining pot. Still, J&J looks to be getting a decent price.
    Intra-Cellular said in last quarter’s conference call that
peak sales for its star treatment, Caplyta, should exceed $5
billion. That’s not unreasonable, as long as various clinical
trials deliver. The drug is already approved for treating
schizophrenia and depressive disorder associated with bipolar
disease. Sales are expected to reach nearly $1 billion this
year, according to LSEG data. Tests underway to use Caplyta to
treat major depressive disorder could win it an even bigger
potential market.
    Peers like Amgen  AMGN.O  are valued at five times estimated
revenue. A similar multiple would imply Intracellular should
eventually be worth $25 billion, much more than J&J is paying,
if everything goes right. Drugs aside from Caplyta coming along
as part of the deal add potential upside.
    Other pharma giants will be sharpening their M&A pencils.
The biotechnology sector’s returns over the past decade have
been dire. Investors and executives may be ready to sell without
demanding giant premiums.
    J&J is not alone in needing new blockbusters, and the
incoming U.S. presidential administration of Donald Trump seems
likely to be more amenable to consolidation. This deal likely
presages many more.
    
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    CONTEXT NEWS
    Johnson & Johnson said on Jan. 13 it had agreed to buy
Intra-Cellular Therapies for $132 a share, or approximately
$14.6 billion, in cash. That is a 39% premium compared to
closing stock prices on Jan. 10, the last day of trading before
the announcement.
    Intra-Cellular’s drug Caplyta, which has been approved to
treat depressive disorder associated with bipolar disease and
schizophrenia, had $481 million of sales in the first nine
months of 2024. The company said in its third-quarter conference
call that the drug represents at least a $5 billion annual
opportunity within ten years.

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Biotech stock prices have spent a decade in purgatory    https://reut.rs/4aeaWTu
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 (Editing by Jonathan Guilford and Pranav Kiran)
 ((For previous columns by the author, Reuters customers can
click on  CYRAN/ 
robert.cyran@thomsonreuters.com))