It's Finally Happening: Johnson & Johnson Pays $30 Billion for Actelion, Will Spin Off R&D Unit With $1 Billion Cash

It's Finally Happening: Johnson & Johnson Pays $30 Billion for Actelion, Will Spin Off R&D Unit With $1 Billion Cash January 26, 2017
By Mark Terry, Breaking News Staff

U.S.-based Johnson & Johnson announced today it will acquire Switzerland-based Actelion for $30 billion in cash. As part of the deal, Actelion will spin off its research-and-development pipeline into a new standalone company.

The deal has been pending for a few months with a few twists and turns. Around the end of November 2016, J&J was reported to be in talks with Actelion. Shortly afterwards, J&J walked away from the deal over price. Then Paris-based Sanofi stepped in and was in talks with Actelion.

On December 22, 2016, Actelion and J&J officially announced they were in talks about what they were calling a “strategic transaction.”

Actelion focuses on rare drugs. It recently brought two new drugs on the market, both of which have the potential to become blockbusters over the next two or three years. About 50 percent of its revenue derives from sales of Tracleer, used to treat a form of high blood pressure that affects arteries in the lungs, pulmonary arterial hypertension (PAH). Tracleer is facing generic competition this year.

The two new drugs are Opsumit and Uptravi. Both drugs are used to treat PAH, and Opsumit is expected to replace Tracleer.

Originally, J&J balked at Actelion’s asking price. There was also talk that the deal had a complicated structure that would require J&J to lose control of some of its own portfolio, which does not appear to be part of the final deal. J&J reportedly offered $260 per share, or more than $28 billion. Actelion was asking for as much as $285 per share. Sanofi was believed to have offered a contingent value right (CVR) of about $20 as part of the $275 per share price being negotiated.

The new deal is a 23 percent premium on Actelion’s closing price yesterday, and more than 80 percent on its November 23 closing price.

“The structure is very attractive,” said Eleanor Taylor Jolidon, a fund manager at Union Bancaire Privee in Geneva, to Reuters.

J&J is paying for Actelion with cash outside the U.S. The new standalone R&D company will be based and listed in Switzerland and led by Actelion’s co-founder and chief executive officer Jean-Paul Clozel.

The new company’s shares will be distributed to Actelion shareholders as a stock dividend. It will be launched with 1 billion francs in cash.

“J&J is a good partner with a huge distribution network,” Urs Beck, a fund manager at EFG Asset Management, told Reuters. “For Actelion’s founders that is certainly a good solution. Mr. and Ms. Clozel (Martine Clozel is chief science officer) can do research for another 20 years and J&J has gained an interesting indication.”

J&J will hold a 16 percent stake in the new R&D company, and also have rights to another 16 percent of its equity through a convertible note. In addition, it will have an option on ACT-132577, a drug Actelion—but now the new company—is developing for resistant hypertension. It is currently in Phase II clinical development.

An unidentified Zurich-based trader told Reuters, “The price is quite high at around 30 times price to estimated 2018 earnings. J&J is paying a lot and R&D is not even included, just a substantial minority stake. But it represents only 10 percent of (J&J’s) market capitalization and they are finally investing the cash they hold in Europe.”

The deal gives J&J Actelion’s portfolio of high-price, high-margin rare disease drugs, and helps it diversify its drug portfolio. Its top drug, Remicade for arthritis, is currently facing less expensive competition.

The deal is expected to close by the end of the second quarter.

“We believe this transaction offers compelling value to both Johnson & Johnson and Actelion shareholders,” said Alex Gorsky, J&J’s chairman and chief executive officer, in a statement.

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