Johnson & Johnson (JNJ) recently announced that its subsidiary Janssen Pharmaceuticals NV entered into an agreement with an affiliate of Belgium’s Galapagos NV. The companies are looking to discover and develop anti-cancer treatments under the agreement.
 
As per the terms of the alliance, Galapagos’ subsidiary, Argenta, will be providing medicinal chemistry and biology for Janssen’s drug candidates. In return, Argenta stands to receive more than €33.5 million. Argenta will receive this amount over a period of five years on the achievement of certain milestones.
 
The terms of the deal hold Argenta responsible for all activities up to pre-clinical candidate selection of Janssen’s compounds. However, Janssen can extend Argenta’s services beyond the initial set of targets. The alliance can be extended to include up to a total of 15 targets.
 
Galapagos is a mid-sized biotechnology company, which specializes in the discovery and development of small molecule and antibody therapies. The company has alliances with market leaders like GlaxoSmithKline plc (GSK), Eli Lilly & Co. (LLY), Merck & Co. Inc. (MRK) and Roche Holdings Ltd. (RHHBY).
 
We currently have a Neutral recommendation on Johnson & Johnson, which is supported by a Zacks #3 Rank (short-term ‘Hold’ rating).  Though we remain concerned about Johnson & Johnson’s over-the-counter product recall, we believe the company is also taking measures to counter falling sales of key products through in-licensing deals and acquisitions that would bring new products to market. The current deal is one such instance of the company’s sustained efforts in this area. The diversity and strength of the company’s businesses should ensure strong growth ahead.
 
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