Concluding weeks of speculation, overnight Johnson & Johnson announced it agreed to acquire Actelion Pharmaceuticals, Europe’s biggest biotech company, for $30 billion, or CHF280 per share, expanding the U.S. pharma giant’s portfolio of rare-disease treatments as its top-selling drug faces new competition.
The deal, announced and agreed on Thursday by both companies, ends weeks of seesaw negotiations. J&J initially abandoned talks over price, only to resume them about a week later after the companies entered into exclusive negotiations. The deal is expected to close by Q2 2017. Shares in Swiss company Actelion surged 21% following the announcement.
“We believe this transaction offers compelling value to both Johnson & Johnson and Actelion shareholders,” said J&J Chairman and Chief Executive Alex Gorsky in a statement.
J&J wil retain Actellion’s commercially available treatments for rare diseases such as an artery disorder known as pulmonary arterial hypertension. Actelion will spin off its drug-discovery R&D operations into a separate company designated for now as R&D NewCo, and J&J will initially hold 16% of the shares of the new company, with an option to acquire another 16%.
As the WSJ notes, the deal comes as J&J’s autoimmune therapy drug Remicade, which generated $4.5 billion in U.S. sales in 2015 and is the company’s top-selling drug, faces new competition from the U.S. launch of Pfizer’s copy drug, Inflectra. J&J has said that it has several new drugs in development that could offset any revenue loss from this rivalry, but the Actelion acquisition would more quickly help plug that hole.
Actelion, founded in 1997 by husband-and-wife team Jean-Paul and Martine Clozel along with other former Roche Holding Ltd. employees, has resisted past takeover overtures. Under the J&J deal, Mr. Clozel will remain involved in the operation, overseeing R&D NewCo.
Summary of key terms from BBG:
- All-cash tender offer in Switzerland for Actelion at $280/share, payable in U.S. dollars, equates to CHF280.08/share as of Jan. 25
- Conditional upon at least 67% of all Actelion shares that are issued and outstanding at the end of the offer period, which may be extended, tendering into the offer
- Approval of Actelion shareholders of distribution of the shares of R&D NewCo at the EGM called for this purpose
- Regulatory approvals
- Tax clearances for spin-off of R&D NewCo received from Swiss Federal and the Basel-Landschaft cantonal tax authorities
- Actelion prepared to pay price per tendered share to retail shareholders in CHF and therefore provide a wholesale exchange facility
- Jean-Paul Clozel committed to tender all Actelion shares he owns into the offer and vote his shares in favor of the transaction at the EGM
Spin-Out:
- Immediately prior to completion of acquisition, Actelion will spin out its drug discovery operations and early-stage clinical development assets into a newly created Swiss biopharmaceutical company (R&D NewCo)
- Shares of R&D NewCo, which will be listed on SIX, will be distributed to Actelion’s shareholders as a stock dividend upon closing of tender
- J&J will initially hold 16% of shares of R&D NewCo and have rights to an additional 16% of R&D NewCo equity through a convertible note
- J&J will also receive an option on ACT-132577, a product within R&D NewCo being developed for resistant hypertension currently in phase 2 clinical development
- R&D NewCo will be led by Actelion’s current scientific team with Jean-Paul Clozel, MD, Chief Executive Officer and founding member of Actelion, as CEO
- Jean Pierre Garnier, chairman of Actelion board, will be chairman of board of R&D NewCo.
Financing:
- J&J will fund the transaction with cash held outside the U.S.
Rationale/Synergies:
- Transaction expected to be immediately accretive to J&J EPS, accelerate revenue and earnings growth rates, while enhancing long-term growth and value creation of the Janssen Pharmaceuticals business
- Post-transaction close, J&J expects transaction to increase long-term revenue growth rate by at least 1% and long-term earnings growth rate by 1.5% – 2.0% above current analyst consensus
- J&J estimates EPS accretion in first full year of $0.35 to $0.40
- Johnson & Johnson shareholders are also expected to realize additional value from the Johnson & Johnson ownership interest in R&D NewCo.
Key Dates:
- J&J to file a prospectus and commence tender offer by mid-Feb.
- EGM is expected to be held in 2Q of 2017
- Transaction expected to close by end of 2Q of 2017
- Feb. 14: Actelion FY results
- Feb. 16: J&J expected at Leerink Partners Global Health Care Conference
- Feb. 22: J&J expected at CAGNY Investor Conference
- March 3: Tender offer opens (assumes prospectus published on Feb. 16 among other things)
- March 30: Tender offer expected to close
- April 6: Additional acceptance period expected start
- April 18: J&J 1Q results due
- April 20: Actelion 1Q results
- April 21: Additional acceptance period expected close
- May 4: Expected Actelion AGM
Advisors:
- Lazar lead financial advisor to J&J with Citibank also providing financial advice on certain matters; Cravath, Swaine & Moore LLP, Homburger AG and SextonRiley LLP are serving as legal advisors
- BofAML is Actelion’s lead financial advisor, with Credit Suisse also providing financial advice; Niederer Kraft & Frey, Wachtell, Lipton, Rosen & Katz, and Slaughter & May are legal advisors
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