J&J Strengthens Pipeline With Momenta Acquisition

Johnson & Johnson’s JNJ announced acquisition of Momenta Pharmaceuticals MNTA for close to $52.50 per share doesn’t have a major impact on our J&J fair value estimate, but we plan to raise our Momenta fair value estimate to the offer price as the deal looks likely to close later in 2020. While the purchase price is higher than our stand-alone valuation of Momenta (but in line with our takeover price estimate of $52), the premium price doesn’t have a material impact on J&J’s valuation. Additionally, the acquisition strengthens J&J’s pipeline by bringing in a robust pipeline focused on immune-mediated diseases, which should help reinforce the intangible assets supporting the firm’s wide moat.

We believe Momenta’s pipeline drug nipocalimab (FcRn antibody targeting several diseases) was a core driver of the acquisition. We assume a 50% probability of approval for nipocalimab, which had positive phase 2 data in myasthenia gravis (muscle weakness) in June; a phase 3 study should start in the first quarter of 2021 following final data readouts and Food and Drug Administration meetings later this year. Momenta expects proof of concept data in two other indications: hemolytic disease of the fetus and newborn (2021) and warm hemolytic anemia (end of 2022). However, the FcRn class is a competitive field, and Argenx expects to file for approval of efgartigimod in myasthenia gravis by the end of 2020, putting it perhaps two years ahead of nipocalimab. Efgartigimod's once-weekly infusion appears to have similar efficacy to but less convenient dosing than nipocalimab's once-monthly (or potentially less frequent) dosing.

Momenta also provides J&J an early-stage pipeline of several novel drugs as well as a biosimilar platform. While we don’t expect J&J to aggressively develop biosimilars, the early-stage novel drugs look encouraging, led by M254. We expect updated M254 data from a phase 1/phase 2 study in ITP in the third quarter, following strong initial data in January 2020.

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