Johnson & Johnson's CFO Talks M&A Strategy, Doesn’t Rule Out Acquisitions
July 20, 2016
By Mark Terry, BioSpace.com Breaking News Staff
In October 2015, Johnson & Johnson announced a $10 billion share buyback program, which was right around the same time it required third-quarter financial sales of $17.1 billion. Despite some pushback from the company, analysts and investors began to speculate on whether the company would spend some of that money on acquisitions. Nine months later, analysts are still wondering, and the company’s chief financial officer, Dominic Caruso, isn’t ruling out acquisitions.
Caruso, in an interview with Bloomberg News, indicated that all three main J&J business units are interested in deals, but the pharmaceuticals division focuses more on less-risky licensing deals.
“We’re equally interested in all three of our businesses,” Caruso said. “We’re agnostic whether it’s big or small.” Although he did indicate that the company isn’t interested in a mega-merger with another pharmaceutical company.
Each division has different priorities, however. For example, Caruso indicated that its consumer unit, which has lower risks in terms of regulations or the market, can make acquisitions relatively easily that can have a good return on investment. However, each unit is so large that each one could be a stand-alone company, a concept championed by CNBC Mad Money’s Jim Cramer in July of last year.
The company’s three different businesses, pharmaceuticals, consumer healthcare products, and mechanical devices, are all diverse with very little overlap. At that time, Cramer said, “As we’ve seen so often in the past, I think these divisions could do much better separately than as one combined company that is confusing to manage or even to understand. To me, JNJ is a textbook example of the parts being worth more than the whole.”
Caruso spoke shortly after the company reported its second-quarter financials Tuesday. Second-quarter profits exceeded analysts’ estimates. Revenue was driven by the pharmaceutical division, riding on the profits of arthritis drug Remicade and psoriasis drug Stelara.
Bloomberg wrote, “One factor boosting sales was that J&J over-estimated rebates to insurers and pharmacy benefit managers. When the actual, smaller rebates were calculated, there was a $140 million increase in J&J’s drug sales.”
In terms of mergers and acquisitions, Caruso said, “Our strategy in pharma is licensing and collaborations and not major acquisitions. That doesn’t mean we’re not going to do one.”
In that case, The Motley Fool’s Sean Williams had two recommendations a few months ago, offering Menlo Park, California-based Geron and New Haven, Connecticut-based Achillion Pharmaceuticals . Geron focuses on developing its telomerase inhibitor, imetelstat, in hematologic myeloid malignancies, such as myelofibrosis, myelodysplastic syndromes and essential thrombocythemia.
Geron has a development deal with J&J, where it paid the company $35 million upfront with a possible $900 million in various milestones at stake.
Achillion focuses on infectious diseases and immune disorders. The company’s NS5A inhibitor, ACH-3102, combined with Gilead ’s Sovaldi, has resulted in 100 percent cure rates in treatment-naïve hepatitis C patients within six to eight weeks of treatment. Achillion has a partnership with J&J in HCV research.