[Free Report] JNJ Aquires Alios: What This Means For Achillion

Johnson & Johnson announced today it will acquire privately held Alios BioPharma for $1.75 Billion in cash, gaining rights to the mid-stage treatment for infants with respiratory syncytial virus (RSV), AL-8176, and early stage nuc AL-335 for HCV.

“We are excited that this acquisition will enable us to explore treatment options for a number of viral infections, including RSV, the last of the major pediatric diseases with no available preventive therapy,” said William N. Hait, M.D., Ph.D., Global Head, Research & Development, Janssen Pharmaceutical Companies of Johnson & Johnson.

Johnson & Johnson has a history of developing anti-infectives, making Alios a perfect fit. The Big Pharma is actively working on drugs for diseases including HIV, HCV, TB, as well as vaccines.

There is potential for considerable upside from the HCV asset. J&J’s newly developed HCV drug, Olysio is already a blockbuster with $354 million in first quarter sales and $725 million in the second quarter. However, competition is expected to increase dramatically. So far, Olysio has only gone up against Sovaldi from Gilead. Both drugs must be used with at least one or two other treatments to be effective.

By the end of this year, a two drug, fixed dose combination of Sovaldi and ledipasvir is expected to be approved. Another combo from Abbvie should come along early next year. Olysio may soon find itself losing market share and seeing drastic sales declines.

The move comes late, but Johnson & Johnson now has a chance to create its own fixed dose combo if the nuc from Alios turns out safe and effective. Should this be the case, JNJ would not be far back from its competitor Merck, who purchased Idenix for a whopping $3.85 Billion this past June to get their hands on the company’s nucs.

It would be a grand disappointment if Johnson & Johnson fails to develop Olysio to the fullest. This would be the second time the company successfully developed an HCV drug (previously Incivek) only to see it quickly eclipsed by competitors on the market.

For the small biotech Achillion, the deal means another potential buyer has exited the market. Achillion’s stock doubled in sympathy with Merck’s acquisition of Idenix in June and was anointed by analysts as the next HCV drug developer to be bought. So far, that has not been the case. This jack-of-all trades HCV company has the potential capability to produce a 3-drug fixed-dose combination due to the various mechanisms it is working on. But without a large partner, it won’t be going anywhere fast.

Not to say Achillion will not eventually be acquired, but as the number of interested parties decline, the offering price will likely follow the same path downward.

Disclosure: Author is Long GILD

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