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Momenta shift to new drugs pays off with $6.5B buyout by J&J

Johnson & Johnson will pay $6.5 billion to buy Momenta Pharmaceuticals, acquiring the Cambridge, Massachusetts-based biotech less than two years after the company shifted away from developing biosimilars and toward testing experimental drugs for autoimmune diseases.With the deal, J&J gains access to an experimental drug for myasthenia gravis, a disease that is now treated with drugs from Roche and Alexion Pharmaceuticals. If successful, Momenta’s drug would join autoimmune mainstays like Remicade and Simponi in J&J’s immunology business.J&J is offering $52.50 in cash for each Momenta share, a 70% premium over the company’s closing price Tuesday. The deal helps to validate the executive team’s pivot away from biosimilars in 2018.

Momenta gained recognition a decade ago by leading what was then a nascent field for biosimilar drugs. The company’s work yielded an early low-cost entrant, the Copaxone copycat Glatopa.

Since then, however, biosimilar drug development has been dominated by larger companies like Pfizer and Amgen, making it difficult for smaller biotechs to find success.

Momenta’s shift away from biosimilars was accompanied by layoffs for half of the company’s employees and a raft of C-suite departures.

For investors who held shares through that period, the refocus proved positive as Momenta’s pipeline, particularly its lead drug nipocalimab, began delivering promising data in autoimmune diseases. Nipocalimab targets a protein on immune cells that responds to signaling from antibodies. Blocking it, therefore, could turn off unwanted immune activity in patients with disorders like hemolytic anemia and myasthenia gravis.

On the latter, Momenta recently reported interim data from a Phase 2 trial, showing treatment reduced disability scores in 52% of myasthenia gravis patients taking nipocalimab, versus 15% of those who got a placebo.

J&J, along with Wall Street analysts, said the drug could have sales potential greater than $1 billion if it succeeds. Nipocalimab gives J&J “the opportunity to reach significantly more patients by pursuing indications across many autoimmune diseases,” Cantor Fitzgerald analyst Louise Chen wrote in a note to clients.

Treatment for myasthenia gravis includes steroids, more invasive therapies that involve filtering antibodies from the blood and the Roche drug Rituxan. Three years ago, Alexion won approval for Soliris to treat myasthenia gravis.

J&J needs to deliver on those blockbuster hopes for the acquisition to pay off. The transaction will “modestly” cut into profits, the company said in a statement, although it is not changing its annual adjusted per-share earnings guidance range for 2020.

Next year, increased investment in the Momenta pipeline could result in a per-share earnings hit of between 10 cents and 15 cents, the company said.