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The Market Response to the FDA’s Approval of Darzalex

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FDA approval

The US Food and Drug Administration approved Darzalex (daratumumab) on November 16, 2015, for multiple myeloma (or MM) patients who have been treated at least with three prior lines of treatment. This approval is considered to be a major milestone for Johnson & Johnson (JNJ) as well as the Danish biotechnology firm Genmab.

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Market response

The above graph shows that after the FDA approval of Darzalex, Johnson & Johnson’s share price increased by about 1.3% from $99.90 on November 13, 2015, to $101.20 on November 16, 2015. This approval has added another promising drug in the MM market, which is already occupied by players such as Celgene (CELG), Amgen (AMGN), and Novartis (NVS).

On August 30, 2012, Janssen Biotech, a subsidiary of Johnson & Johnson, entered into a licensing and development agreement for Darzalex (daratumumab) with Genmab. The total deal value was about $1.1 billion, which included upfront payments, equity investments, and milestone payments to Genmab.

After the first commercial sale of Darzalex, Janssen Biotech will pay $45 million as a milestone payment to Genmab. This was reflected in Genmab’s updated financial guidance for 2015. Genmab has projected its 2015 revenue to be in the range of 1,025 million–1,100 million Danish krone as estimates for milestone payments have increased. Having granted orphan drug designation, Darzalex should also be priced at a substantial premium to existing MM drugs and should enjoy greater pricing-related flexibility from regulatory authorities.

Investors can invest in the future prospects of Darzalex through Johnson & Johnson (JNJ), or they can gain broad-based exposure to the industry through the Vanguard Dividend Appreciation ETF (VIG). Johnson & Johnson accounts for ~4.2% of VIG’s total holdings.

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