Since the launch of the first direct-acting antivirals against hepatitis C, Johnson & Johnson has been a major player, yet one that has struggled to sustain sales. Its deal announced yesterday with Achillion Pharmaceuticals has to be seen as a marriage arranged by circumstances as the New Jersey-based group tries to catch up with Gilead Sciences and Merck & Co in pursuit of a triple combination.
To its credit, Achillion finally delivered a deal for long-suffering investors, albeit one with which they were disappointed as shares fell 15% to $9.10 in morning trade. J&J’s $225m equity investment at a 15% premium to Tuesday’s closing price and assumption of development costs did not appear to be enough to offset the lack of up-front cash, and the deal more broadly wipes away acquisition from the investment case.
With most late-stage assets in the hands of Merck, Gilead, AbbVie and Bristol-Myers Squibb, there were no other logical partners for either J&J or Achillion. Thus it is not too surprising that the two have linked up on a triplet therapy.
J&J brings to the collaboration Olysio, the potent two-year-old protease inhibitor that sold $2.3bn last year but will fade to just $25m by 2020. Achillion most importantly brings ACH-3102, the NS5A inhibitor that in combination with Gilead’s Sovaldi has shown encouraging signs in a six-week regimen, half the duration of the current hep C state of the art.
Achillion to the fore?
In a conference call, Achillion executives said the only certainty of the triple combination would be the lead position of ACH-3102, with its home-grown protease inhibitor sovaprevir possibly taking the place of Olysio and a choice between two NS5B agents, Achillion’s ACH-3422 or J&J’s AL-335. The Achillion executives were quick to add that royalties, ranging from the mid teen to the low 20% range, would not vary based on the number of its agents in the final combination, as long as at least one was.
From a regulatory standpoint, the route to market could be quicker if the partnership retains Olysio in the combination as this is an approved product with a known safety profile. ACH-3102 has been in phase II trials for two years, while ACH-3422 and AL-335 are both in phase I.
The search for combination therapies has been on for some time as drugmakers seek to eliminate interferon and ribavirin from the backbone of treatment while preventing the development of resistant strains of disease. Gilead’s Harvoni has two mechanisms of action, and AbbVie’s Viekira Pak three, but both are effective only on genotype 1 of the virus, and the latter requires a boost of ribavirin in most cases.
An ideal treatment for hep C would be a single once-daily pill that achieved a 90% cure rate in all genotypes with four weeks of treatment, requiring only one prescription to be filled.
Gilead’s triplet therapy built around a Sovaldi backbone is in phase II; Merck & Co, meanwhile, has a number of options to follow up its dual therapy of grazoprevir and elbasvir, and AbbVie likewise has some cards to play thanks partly to its collaboration with Enanta Pharmaceuticals.
Thrown into each other’s arms
That leaves few assets that could be plugged into combination treatments in the hands of an unencumbered biotech; this reality made many bulls view Achillion as a likely M&A target. As a hep C player that has seen hopes rise twice, first with Incivo and then with Olysio, J&J had to be a presumed suitor.
So there is no question that this deal – modest by hep C standards – fell flat. Even analysts like Leerink, who “view the deal positively” from a development standpoint, had to acknowledge its meagre returns; the firm downgraded Achillion significantly, from a $25 price target to $16.
Should J&J get squeezed out a third time it would raise the question of whether it should have waved the white flag a while ago. Boehringer Ingelheim and Vertex Pharmaceuticals are two companies that have done so. The market might already be saturated.