J&J Thinks Small In Effort To Bolster Drug Pipeline
May 22 2009 - 12:17PM
Dow Jones News
Johnson & Johnson's (JNJ) agreement to buy cancer
drug-developer Cougar Biotechnology Inc. (CGCB) for $1 billion
suggests the healthcare giant plans smaller moves, for now, to
counterbalance expiring patents, as opposed to the more
transformative deals done by Big Pharma peers.
The cash tender offer announced late Thursday will give J&J
a potential treatment for advanced prostate cancer now in
late-stage testing, along with other drugs in earlier development.
Rival drug makers Pfizer Inc. (PFE) and Merck & Co. (MRK) have
taken a different approach, seeking mega deals through planned
combinations with Wyeth (WYE) and Schering-Plough Corp. (SGP),
respectively, as they combat similar patent and pipeline
pressures.
But J&J, which is balanced by huge medical-device and
consumer-products businesses, isn't as exposed to pressures in the
pharmaceutical markets as big competitors, and may not need
dramatic changes.
"We continue to see J&J pursuing 'tuck-in' rather than
transformative deals," Morgan Stanley analyst David Lewis said.
Not to say J&J is against big moves. Sources familiar with
the matter say J&J had expressed interest in combining with
Schering-Plough, but eventually decided against the move, and then
the Merck deal followed. J&J declined to comment on the
matter.
Plus, there remains the possibility that J&J may need to
increase its Cougar offer, should another company indicate
interest. Cougar shares are trading above the offer price of $43 a
share.
Nonetheless, for J&J - which posted $63.7 billion in sales
last year and had $12.59 billion in cash and cash equivalents at
the end of March - the deal for development-stage Cougar doesn't
rank as major.
But the company's drug business, which posted a 10.1% slide in
first-quarter sales, could use a lift. J&J has been pinched by
sales declines for some key products such as the antipsychotic drug
Risperdal - which was hit by a U.S. patent expiration last year -
and sliding sales of two anemia drugs.
"It is nice to see JNJ use their cash to acquire late-stage
assets that may be able to support growth in its pharmaceutical
business and continue the company's move into the oncology arena,"
Credit Suisse analyst Catherine Arnold said.
J&J's purchase price of $43 a share is a 16% premium to
Cougar's closing price on Thursday. While that premium is
relatively modest, Cougar shares had risen 48% between the end of
February and Thursday, likely reflecting investor speculation about
a potential buyout. J&J's planned purchase price is nearly
double a low Cougar's stock price touched in early March.
Cougar shares jumped early Friday, recently gaining 16% to
$43.03. Shares of J&J, a component of the Dow Jones Industrial
Average, added 34 cents to $55.33.
Rodman & Renshaw analyst Simos Simeonidis sees potential for
a competing offer. He suggested Eli Lilly & Co. (LLY),
Sanofi-Aventis SA (SNY) or Takeda Pharmaceutical Co. (4502.TO) -
which have paid up in previous cancer deals - as potential rival
bidders, and said J&J isn't the most obvious Cougar
acquirer.
Those companies could easily add $100 million to the deal and
raise the buyout price to $48 a share, a price that JNJ might not
be willing to match, he said.
Cougar's key product, called abiraterone acetate, is for
prostate cancer, a promising field given the aging population.
J&J noted that one in six men will be diagnosed with prostate
cancer in their lifetimes, and that it accounts for 10% of U.S.
cancer deaths.
Risks remain, however, because Cougar has no late-stage data yet
or overall survival data in a field that can be risky. The company
is currently conducting two late-stage trials for the oncology
drug, and Wachovia analyst Larry Biegelsen said data from both
trials are expected next year.
Meantime, analyst Arnold said the Cougar deal looks worthwhile
for JNJ - and also "inexpensive and reasonable" - given the
potential for Cougar's lead product should key studies prove
successful.
J&J said deal, expected to close in the third quarter, would
dilute its per-share earnings by 2 cents to 3 cents this year.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728;
jon.kamp@dowjones.com
(Thomas Gryta and Peter Loftus contributed to this report.)