J&J makes a splash in hep C with a $1.75B deal for Alios

Johnson & Johnson ($JNJ) is taking a deep dive into antivirals, trading $1.75 billion for private biotech Alios BioPharma to get its hands on a midstage treatment and some early assets that could expand its share of the blockbuster hepatitis C market.

The handsome deal is an all-cash transaction that will bring J&J a wide pipeline of nucleotide analogs, or nucs, oral treatments that stop viral infections by blocking their ability to reproduce.

The biotech's lead candidate is AL-8176, a Phase II treatment for respiratory syncytial virus (RSV) that J&J believes can complement its own early work in the field. RSV, which is the leading cause of acute lower respiratory infection in children under 5, is the last major pediatric disease with no preventive treatment, the company said.

But Alios' most valuable assets may the two early-stage nucs it has in development for hepatitis C. Earlier this month, the biotech touted the preclinical profile of its lead hep C candidate, AL-335, announcing plans to roll it into Phase I in the fourth quarter of this year. Alios' second hep C prospect, AL-516, is on schedule to begin human trials in 2015, the company said.

For J&J, owner of an FDA-approved hep C drug in Olysio (simeprevir), those treatments could be of particular use. Olysio is a NS3/4A protease inhibitor often prescribed in tandem with Sovaldi, Gilead Sciences' ($GILD) blockbuster nuc. If Alios' early-stage candidates come to fruition, J&J could be sitting on a fixed-dose hep C cure of its own, elbowing its way into the race to cash in on all-in-one treatments for the virus that cut out the need for unpleasant doses of interferon and ribavirin.

"Alios BioPharma's pipeline is closely aligned with our vision to continue to address important unmet medical needs through scientific innovation," J&J Infectious Disease Head Johan Van Hoof said in a statement. "This acquisition will allow us to combine their innovative compounds with our vast experience in viral diseases to deliver novel medicines and treatment options for patients worldwide."

Despite its success with Olysio, in-licensed from Medivir ($MVIR), J&J lags behind its rivals in the world of next-generation hep C treatments.

Gilead is expecting FDA approval this year for its fixed-dose combination of Sovaldi and the NS5A inhibitor ledipasvir, while AbbVie ($ABBV) is just a few months behind with a three-treatment cocktail of its own. Then there's Merck ($MRK), which has a two-drug combo and hopes of fleshing out a four-week regimen, and Bristol-Myers Squibb ($BMY), at work on an in-house combination that has shown promise for speedy cures.

Despite its multibillion-dollar value, J&J's deal for Alios, expected to close by year's end, comes in at the low end of recent hep C buyouts. Over the summer, Merck paid $3.9 billion for Idenix Pharmaceuticals and its nuc stockpile, while Gilead traded more than $11 billion for Pharmasset in 2011 to pick up what would become Sovaldi.

That said, the buyout will likely spell a sizable return for Alios' venture backers, a list that includes Novo Ventures ($NVO), GlaxoSmithKline's ($GSK) SR One, Roche Venture Fund ($RHHBY) and Novartis Ventures ($NVS). The company has raised about $74 million across two funding rounds since its 2008 foundation.

- read the release