Johnson & Johnson JNJ) confirmed that it approached Swiss biotechnology company, Actelion Ltd. ALIOF, with a takeover offer. J&J stated in a press release that it is “engaged in preliminary discussions” with Actelion regarding a possible transaction. However, both J&J and Actelion warned that there is no certainty that the discussions will culminate into any transaction. J&J said it will make additional comments on the topic only when a formal agreement is reached or when it is appropriate to do so.
Actelion’s shares surged nearly 20% on Friday, while J&J’s shares rose 1% on the news. In fact, while the Zacks classified Drugs industry declined 15.8% over the past one-year period, the stock of J&J’s climbed 12.7% while that of Actelion shot up almost 32%.
Last week, Bloomberg reported that the companies were holding initial talks. (Read More: J&J Reportedly Approaches Actelion for Acquisition).
Actelion is a leader in the pulmonary arterial hypertension (PAH) market with key drugs like Opsumit, Tracleer, Ventavis, Veletri and Uptravi. The newer drugs – Opsumit and Uptravi –have been well received and are poised to become blockbuster drugs. These should make up for the lost revenues from Actelion’s older PAH medicine, Tracleer, which is facing competitive pressure.
Tracleer lost patent protection in the U.S. last year and will also lose exclusivity in the EU in early 2017. Sales of Tracleer declined 18% in constant exchange rates in the first nine months of 2016, while that of Opsumit surged 63%. Uptravi, which was launched earlier this year, recorded sales of CHF 160 million in the first nine months of 2016. Actelion’s strong sales performance enabled it to increase its 2016 guidance.
A deal with Actelion will diversify J&J’s revenues and can pull up its top line as its largest product, the arthritis drug Remicade (partner: Merck & Co., Inc. MRK), is facing biosimilar competition in EU. Also, Pfizer, Inc. PFE will soon launch a biosimilar version of Remicade in the U.S.
On the third-quarter conference call, when asked about its acquisition plans, J&J mentioned that as far as pharmaceuticals are concerned, it will most likely use an “acquisition type” strategy instead of a licensing strategy if it decides to add another major therapeutic area to its existing five major therapeutic areas.
J&J also said it has specific areas of focus in the Consumer segment, mainly international growth in emerging markets, over-the-counter medications and the beauty space in Asia. Within the Medical Devices segment, J&J continues to look for bolt-on acquisitions in orthopedics and general surgery. Although certain areas like structural heart look attractive in the cardiovascular segment, the company was pretty clear about being disciplined from a valuation aspect.
While J&J has a Zacks Rank #3 (Hold), Actelion has a Zacks Rank #4 (Sell).
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