Johnson & Johnson has entered a partnership with Geron to develop its blood cancer treatment candidate, Imetelstat. The news sent the shares of Geron up by 40%, which means that for Geron’s investors this is a big deal. As far as J&J is concerned, it is yet another investment that may or may not pay off. For now, the company has agreed to infuse only $35 million upfront, with additional potential investment of up to $900 million contingent on some research and regulatory milestones. The initial investment is not big by any standards and may be indicative of how confident J&J is about the drug, which doesn’t seem like a lot. But the potential still exists, and J&J has a track record of forming such partnerships and helping smaller companies launch drugs successfully. The company has collaborated with Pharmacyclics in the past, which led to the FDA approval of Ibrutinib which is a drug used for the treatment of blood cancer. It has other promising on going partnerships with Genmab and Aragon Pharmaceuticals.
Our price estimate for Johnson & Johnson stands at $101, implying a discount of about 5% to the market price.
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Blood cancer is the cancer of white blood cells. The disease originates in the bone marrow and spreads to other parts of the body. There are currently over 1.1 million patients living with different types of blood cancers in the U.S., including leukemia, Hodgkin’s and non-Hodgkin’s lymphoma and myeloma. While leukemia is the leading cause of deaths among cancers in young adults and children under the age of 20, non-Hodgkin’s lymphoma is the sixth most common cancer in the U.S. There is a lot of value in a drug that can successfully treat these conditions, although it is unlikely that a single drug would do the job for different varieties of blood cancer. The essence is that cancer treatment, in general, is attracting a lot of attention from research and development wings of pharmaceutical firms and there is a reason for that. The field is growing, and has an immense potential due to lack of effective treatments. Moreover, with patent expiries around the corner and growing competition in cardiovascular and Hepatitis C segment, investing in cancer treatment can help J&J diversify its risk.
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