Johnson and Johnson’s Janssen Biotech has agreed to pay Astellas Pharma $65 million upfront for its experimental oral small molecule JAK inhibitor. Astellas is currently testing the drug, ASP015K, in a mid-stage trial as a once-daily oral treatment for moderate-to-severe rheumatoid arthritis, following a successful trial demonstrating its potential in the treatment of moderate-to-severe plaque psoriasis.

Under the terms of their agreement, Janssen gains exclusive worldwide rights to develop and commercialize ASP015K, except in Japan, as an oral treatment for immune-mediated inflammatory diseases. Besides the upfront payment, Astellas is eligible to receive development and commercialization milestone payments, plus royalties.

Astellas will be responsible for completing ongoing mid-stage studies of the drug and Janssen will be responsible for all other development, clinical, and regulatory filing activities in its territories. Astellas will continue development and commercialization of ASP015K in Japan. Further terms of the deal were not disclosed.

ASP015K could be a potential blockbuster for J&J, which currently markets Remicade, an anti-TNF monoclonal antibody, along with Merck and Mitsubishi. Rheumatoid arthritis affects more than 1.3 million people in the United States. Currently available treatments that target TNF are biologics that must be injected. Global sales of the top three drugs in the class—Humira, Enbrel, and Remicade—together were more than $20 billion in 2010, according to EvaluatePharma.

JAK inhibitors, on the other hand, can be taken orally and are expected to offer stiff competition to the current treatments. They are a novel class of small molecules that block critical components of signaling mechanisms used by a number of inflammatory cytokines, including those that are believed to be important to mediating disease in people with immune-mediated inflammatory diseases.

Many companies are developing JAK inhibitors for a wide range of immune-mediated conditions and inflammation. Incyte Pharmaceuticals’ Jakafi was the first in the class to be approved by the U.S. Food and Drug Administration in November 2011 to treat myelofibrosis, a bone marrow disorder that causes inflammation of the spleen.

Pfizer’s tofacitinib is likely to be the first of the JAK inhibitor approved to treat rheumatoid arthritis, with a decision date set for November 2012. Incyte has two JAK inhibitors in development in partnership with Eli Lilly. Vertex and Rigel Pharmaceuticals also have JAK inhibitors in mid- to late-stage development that have shown promise in clinical trials.