Johnson & Johnson to buy Actelion for $30 billion, spin out R&D unit

Johnson & Johnson announced Thursday an agreement to acquire Actelion for $280 per share in cash, or $30 billion, under a deal that will include the spin out of the Swiss drugmaker's R&D unit into a standalone company. The transaction, which represents a premium of 23 percent to Actelion's closing share price on January 25, has been unanimously approved by the boards of both companies and 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," remarked Johnson & Johnson CEO Alex Gorsky. "Adding Actelion's portfolio to our already strong Janssen Pharmaceuticals business is a unique opportunity for us to expand our portfolio with leading, differentiated in-market medicines and promising late-stage products," Gorsky added.

In November, Johnson & Johnson and Actelion confirmed rumours regarding merger talks between the companies, although the following month the discussions ended without an agreement being reached. At the time, sources suggested that Sanofi was in advanced discussions to buy Actelion for about $275 per share, with the deal including a contingent value right linked to the future performance of drugs in the Swiss company's pipeline. However, later in December, Actelion said that it re-entered exclusive talks with Johnson & Johnson regarding a possible strategic transaction.

Through the acquisition, Johnson & Johnson will gain Actelion's pulmonary arterial hypertension product franchise, including Opsumit (macitentan), Uptravi (selexipag) and Tracleer (bosentan), as well as rights to ponesimod, an S1P1 receptor modulator in Phase III development for multiple sclerosis, and cadazolid, an antibiotic in late-stage development for Clostridium difficile-associated diarrhoea. "We expect to leverage our established global presence and commercial strength to accelerate growth and patient access to these important therapies," Gorsky said.

As part of the transaction, Actelion will spin out its drug discovery operations and early-stage clinical development assets into a newly created company, in which Johnson & Johnson will initially hold a 16-percent stake, with rights to another 16 percent. Johnson & Johnson will also receive an option on the mid-stage drug ACT-132577, which Actelion is developing for resistant hypertension. The new firm, which will have 1 billion Swiss francs ($1 billion) of cash, will be led by Actelion's current CEO Jean-Paul Clozel, with the Swiss drugmaker's chairman Jean Pierre Garnier assuming the same role at the spin out.

Commenting on the deal, Clozel said "the newly created R&D company allows us to continue with our successful culture of innovation," adding that the "unique" structure of it "will be a model for this type of acquisition." Clozel suggested that if Actelion had been integrated fully into Johnson & Johnson "there would have been redundancies, there would be some projects that didn’t fit with [Johnson & Johnson's] strategy." Meanwhile, Garnier noted that both executives "have high expectations for this new, well-funded biotech company with a significant portfolio of drugs in the clinic." Jefferies analyst Peter Welford suggested that the spin out company's cash and more advanced drugs in development could be worth about 14 francs ($14) to 20 francs ($20) a share.

For further analysis, read Spotlight On: A new biotech is born - what Actelion's CEO did next.

According to Johnson & Johnson, the purchase of Actelion is expected to be immediately accretive to earnings per share and accelerate the company's revenue and earnings growth rates. The drugmaker suggested that after closing, the deal is forecast to boost its long-term revenue growth rate by at least 1 percent and its long-term earnings growth rate by 1.5 percent to 2 percent above current analyst consensus.

In response to the announcement, Bloomberg Intelligence analyst Sam Fazeli noted that Johnson & Johnson is paying more than 21 times Actelion’s estimated 2020 earnings per share, which "shows how hard it is to find an asset that actually makes a difference in your earnings." Meanwhile, Jefferies analysts said they did not expect any counterbids or competition concerns to derail the deal.

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