LONDON – Janssen Biotech Inc. is buying Xbiotech Inc.’s interleukin-1a (IL-1a) inhibitor bermekimab for $750 million up front and will pay a further $600 million in potential milestones as the product advances in development for the treatment of atopic dermatitis and the chronic immune-mediated skin disease, hidradenitis suppurativa (HS).

In addition, the Johnson & Johnson company will pay Austin, Texas-based Xbiotech for clinical trial services and to manufacture bermekimab to complete two ongoing phase II studies.

The deal is a ringing endorsement of XBiotech’s True Antibody platform technology, through which it identifies naturally occurring antibodies from patients with immunity to certain diseases.

It also provides further validation of the targeting of IL-1a to block inflammation. There is a body of clinical and preclinical research indicating that in addition to dermatological disease, this could be effective in chronic and acute inflammatory conditions, including heart disease, stroke, rheumatological disease, gastrointestinal diseases, and cancer.

Bermekimab, also known as Mabp1, currently is the only IL-1a inhibitor in clinical development. It completed phase III development in colorectal cancer but the marketing approval application was turned down by the EMA.

It is being tested in a number of combination cancer trials and also an open label trial in lung, pancreatic and ovarian cancer.

The deal with Janssen involves rights to take bermekimab forward in dermatology indications only. If Janssen chooses to go after other indications, Xbiotech may be eligible for additional payments.

Xbiotech recently recruited the first patient in a phase II of bermekimab in moderate to severe atopic dermatitis and previously turned in positive results in a blinded 20-patient phase II in HS, with 60% of patients responding to the antibody vs. 10% in the placebo arm (P=0.035.)

At the end of October, Xbiotech started a further phase II in HS, to which it will enroll 150 patients.

Armed with the cash, John Simard, Xbiotech president and CEO, said the company will embark on the discovery and development of another IL-1a inhibitor. The transaction provides the opportunity, “to purse next generation anti-IL-1a antibody therapeutics to treat multiple areas of unmet need outside of dermatology,” Simard said.

Xbiotech shareholders are promised an immediate payday, with the company planning to use part of the proceeds for a stock repurchase, or similar transaction. That will be subject to approval from the board of directors.

Simard said he wanted to “provide a non-dilutive liquidity event for our valued shareholders, who have supported Xbiotech’s pioneering work.”

The deal was announced on Dec. 7, when the markets were closed. Shares in Xbiotech (NASDAQ:XBIT) closed at $11.12 on Friday. A year ago, on Dec.10, 2018, the price was $4.14.