Johnson & Johnson Acquires Intra-Cellular Therapies for $14.6 Billion to Secure Blockbuster CNS Drug Caplyta

On January 13, Johnson & Johnson announced that it had reached a definitive agreement with Intra-Cellular to acquire all outstanding shares of the latter for a total valuation of $14.6 billion (approximately 107 billion RMB). This will be the largest M&A deal in the biotech sector in nearly two years.

Johnson & Johnson Spares No Expense to Complete This Acquisition. Intra-Cellular, currently listed on NASDAQ, had a stock price of $83 per share before the acquisition announcement, while Johnson & Johnson offered $132 per share, representing a premium of 39%. Following the announcement of the deal, Intra-Cellular's stock price surged by 34% in a single day.

Looking at Intra-Cellular's performance again, the valuation of $14.6 billion seems somewhat outrageous. According to financial reports, in the first three quarters of 2024, Intra-Cellular’s sales revenue was only $482 million, with a net profit of -$57.791 million. In 2023, Intra-Cellular’s sales revenue was $464 million, and the net profit was -$140 million. For a company that has yet to turn a profit, Johnson & Johnson offered a valuation close to 30 times the P/S ratio.

The reason behind this is that Intra-Cellular has a miracle drug in its possession.

Nobel Laureate Entrepreneurship, 18 Years Without Income

Intra-Cellular was founded in 2002, focusing on the development of innovative drugs for the treatment of central nervous system diseases. Its founder is Paul Greengard, a former professor at Rockefeller University in the United States. Paul Greengard is a neuroscientist engaged in research on the molecular and cellular functions of neurons.

In 2000, Paul Greengard won the Nobel Prize in Physiology or Medicine for his discoveries concerning signal transduction in the nervous system. His research demonstrated that complex psychiatric and neurological disorders could be treated by influencing intracellular signaling pathways, laying the theoretical foundation for the development of novel drugs to treat mental illnesses.

The establishment of Intra-Cellular represents Paul Greengard's attempt to apply his Nobel Prize-winning research into practical use. However, despite the Nobel laureate’s reputation, Intra-Cellular remained largely unknown after its founding. It wasn’t until 2010 that Intra-Cellular completed its Series A financing round, followed by Series B and C rounds in the subsequent two years.

In 2014, Intra-Cellular successfully went public on NASDAQ with a market value of only 5.25 billion US dollars at the issue price. At that time, a "first in class" new drug in its pipeline, with the R&D code ITI-007, had just passed the phase II clinical trial.

ITI-007, later named lumateperone, is a drug used to treat neurodegenerative diseases such as schizophrenia and depression. Intra-Cellular acquired the original patent for lumateperone from the renowned pharmaceutical company Bristol-Myers Squibb in 2005 and has since been focused on advancing its development. Lumateperone is considered highly promising, offering several advantages over traditional antipsychotic drugs, including a broad range of indications, significant efficacy, and good safety and tolerability.

As an innovative pharmaceutical company, Intra-Cellular's fate almost entirely hinges on the progress of lumateperone. However, the development of lumateperone has been extremely time-consuming, leading to a prolonged period of low stock prices for Intra-Cellular.

By October 2019, Intra-Cellular's stock price had dropped to $6.75, hitting its lowest point since going public—half of its IPO price. Prior to this, lumateperone had performed poorly in a Phase III clinical trial for the treatment of bipolar depression, showing no significant difference from the placebo group, which led to a sharp decline in the stock price.

But this was only the darkness before dawn. Just two months later, on December 20, 2019, lumateperone was approved by the U.S. FDA for the treatment of schizophrenia under the brand name Caplyta. Since then, Intra-Cellular has skyrocketed, with its stock price increasing by more than 250% within a week.

The Birth of a Miracle Drug

In February 2020, Caplyta finally began its market sales, marking Intra-Cellular's first-ever revenue in its 18th year since establishment and six years after its IPO.

As a new drug, Caplyta is well-tolerated, with lower incidence rates of common adverse reactions such as drowsiness and sedation compared to other traditional antipsychotic drugs. It also poses a smaller risk of causing weight gain, metabolic disorders, and increased prolactin levels, making it more suitable for long-term use. Additionally, Caplyta is convenient to use, as it can be taken with or without food at any time of the day, and treatment can be initiated at an effective dose without the need for dose titration.

Therefore, since its approval and market launch, Caplyta has been highly favored by doctors, with sales growing very rapidly—$22.81 million in 2020, $83.80 million in 2021, $250 million in 2022, and $464 million in 2023. Intra-Cellular forecasts that its sales in 2024 will continue to grow to between $665 million and $685 million. In four years, sales have increased more than 30-fold.

Moreover, the potential of Caplyta has yet to be fully unleashed. Caplyta is currently in the introductory phase for new drugs, and it will take time for its market share to increase. On the other hand, since receiving approval in 2019 for the treatment of schizophrenia, Intra-Cellular has been working hard to expand Caplyta’s therapeutic scope to include more psychiatric disorders.

In December 2021, Caplyta was approved by the FDA for the treatment of adult bipolar depression.

In December 2024, Intra-Cellular submitted an application to the FDA for the use of Caplyta as an adjunctive treatment for adults with major depressive disorder. Caplyta had previously passed the Phase III clinical trial for this indication, with results showing that CAPLYTA significantly improved depressive symptoms without revealing any new safety concerns. If approved, Caplyta would become the first new drug in 15 years to be approved for treating major depressive disorder and bipolar I and II depression.

The number of patients with these indications is increasing. The number of patients with bipolar depression is about three times that of schizophrenia, and the number of patients with major depressive disorder is more than three times that of bipolar depression.

In addition, Caplyta is conducting more Phase III clinical trials for additional indications, including the treatment of bipolar disorder with manic episodes. Moreover, Intra-Cellular is also exploring the efficacy of Caplyta on behavioral symptoms associated with Alzheimer's disease and dementia.

As the number of approved indications for Caplyta continues to increase, its future market potential is undoubtedly astronomical.

Huge potential, can sell 5 billion US dollars a year

As is known to all, multinational pharmaceutical companies like Johnson & Johnson have always used mergers and acquisitions as a routine means of expansion. Only in 2024, Johnson & Johnson completed up to 75 acquisitions, with new deals almost every week. However, an acquisition at the level of Intra-Cellular is a first for Johnson & Johnson. In terms of amount, this is the largest acquisition in Johnson & Johnson's history. Joaquin Duato, Chief Executive Officer of Johnson & Johnson, said of Intra-Cellular, "This kind of deal is not something we see every day."

Typically, Johnson & Johnson prefers smaller-scale acquisitions, buying promising new drugs first and then developing their value. In a way, the acquisition of Intra-Cellular fits this model, except that Caplyta was just too dazzling, starting off with an astronomical price.

Caplyta is a "wonder drug" that has the potential to make history, becoming one of the most profitable neurological drugs of all time.

Johnson & Johnson stated in the press release announcing the acquisition that Caplyta is expected to become a benchmark for the treatment of schizophrenia, bipolar disorder, and major depressive disorder. John Reed, Executive Vice President of Johnson & Johnson Innovative Medicine R&D, said: "CAPLYTA has the potential to become the standard therapy for treating some of the most common and severe mental illnesses today."

With the surge in mental health crises and the aging of the global population, more than 1 billion people worldwide (1 in every 8 individuals) suffer from neuropsychiatric or neurodegenerative diseases. In the United States alone, approximately 2.4 million adults have schizophrenia, 6.1 million adults have bipolar disorder, 21 million adults have major depressive disorder, and 6 million adults have Alzheimer’s disease.

In 2021, EvaluatePharma, a pharmaceutical market research firm, predicted that Caplyta's sales would reach $2 billion by 2026, with half coming from schizophrenia and the other half from bipolar depression. If the indication for major depressive disorder is approved, Caplyta's sales will certainly far exceed that figure.

Johnson & Johnson's forecast is that Caplyta's annual sales peak will exceed $5 billion. This means Caplyta could rank at least in the top three of the neuroscience drug sales leaderboard. The current "blockbuster drug" in the neuroscience field is Roche's Ocrevus, used to treat multiple sclerosis, with sales of $7.1 billion in 2023.

It is worth mentioning that Caplyta has an exceptionally long patent life. Just a few days ago, Intra-Cellular disclosed a patent settlement agreement showing that the expiration date of Caplyta’s patent had been successfully extended from 2034 to 2040. This means that, for at least the next 15 years, Caplyta will not face any competition from generic drugs.

The fate of Intra-Cellular vividly illustrates the decade-long challenge of innovative drug development. This inevitably brings to mind the wave of entrepreneurship that swept through China's innovative drug sector after 2018. However, when the IPO pathway for unprofitable companies was shut down and financing conditions deteriorated rapidly, the entire industry was thrown into panic.

However, the development of innovative drugs has always been a long-term endeavor, and it is worthwhile to be more patient with them. Having no revenue for 18 years does not necessarily mean that it is not a great company.