Digging Deeper on Why Johnson & Johnson Abandoned the Actelion Acquisition
December 15, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Rumors and speculation continue to swirl around a possible acquisition of Switzerland-based Actelion Pharmaceuticals .
What is known is that in late November, Johnson & Johnson was in talks with Actelion over a possible acquisition, or, a more complicated, structured transaction. Actelion focuses on rare diseases, primarily pulmonary arterial hypertension (PAH), a type of high blood pressure that affects arteries in the lungs. About half the company’s revenue comes from Tracleer, for PAH. It has two new drugs, Opsumit and Uptravi, both for PAH, and are likely to replace Tracleer, which faces generic competition in early 2017.
J&J has walked away from the deal, saying that it would not create “adequate value” for its shareholders. Some sources suggest that the collapse came about because of problems with both price and deal structure. The Financial Times reported that insiders say it was mostly over price, not the deal structure.
J&J apparently offered about $260 per share, or more than $28 billion for the company. Actelion is looking for as much as $285 per share. In terms of the structure, although details are few, early reports indicated that J&J would have created a biotech company that united Actelion with relevant parts of its own pharmaceutical business. J&J would have been a major shareholder in the new entity, and would have invested cash into the deal. Since this would have required J&J to give up control of some of its assets, many analysts were skeptical, apparently with good reason, as J&J appears to have officially abandoned the deal.
J&J has about $40 billion in cash, so it would have been manageable, but the company is notoriously cautious and disciplined about mergers and acquisitions. Damien Conover, an analyst with Morningstar, told TheStreet that J&J doesn’t have a history of mega-mergers and its traditional cap is around $20 billion. He added, however, “They need to make an acquisition, especially because their growth is not as fast as it could be. They’re motivated to do it. There’s a huge range of acquisition options out there.”
But Paris-based Sanofi is believed to be filling the void. However, the company dismissed those suggestions yesterday, calling them “market rumors.”
It would make sense, although whether at the price that Actelion is asking remains a topic of debate. Bloomberg wrote yesterday, “Buying Actelion would bolster Sanofi’s rare disease portfolio as the French drugmaker seeks to offset declines for its best-selling product, the insulin Lantus. The company has signaled interest in deals as big as its $20.1 billion purchase of Genzyme Corp. in 2011 and said it wants to use acquisitions to strengthen its key areas.”
If J&J passed and Sanofi isn’t interested, will there be others? Jean-Paul Clozel, Actelion’s chief executive officer and founder, has repeatedly said he wants the company to remain independent, even when pressured five years ago by activist hedge fund Elliott Management to place the company on the auction block.
There is some speculation that Roche might be interested if Sanofi bails out, but that appears based mostly on Clozel’s history with Roche. Prior to founding Actelion with his wife, chief scientific officer Martine Clozel, he worked for Roche for 12 years.
Jim Cramer, host of CNBC’s Mad Money and co-founder of TheStreet, noted J&J’s discipline, but also said, “Is it really wise to make a big acquisition when you’ve got a new president coming who is saying, ‘Listen, I don’t like high drug prices.’ And the highest drug prices tend to be from these companies that have orphan drugs. Orphan drugs, we know, save the system a lot of money because they tend to make it so patients can do things they couldn’t do otherwise, so the HMOs support it. But I think this is just J&J being disciplined again, which is why they have that great balance sheet.”