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J&J pounces on Cougar
June 2009
by David Hutton  |  Email the author
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NEW BRUNSWICK, N.J.—On May 22, Johnson & Johnson made a $1 billion cash tender offer for Cougar Biotechnology, a Los Angeles-based biopharmaceutical company that focuses on oncology drugs.

As a result of the deal, Johnson & Johnson will pick up a potential treatment for advanced prostate cancer now in late-stage testing. Cougar, which also has compounds in earlier development for breast cancer and multiple myeloma, will work with Ortho Biotech Oncology Research & Development, a unit of Centocor Research & Development Inc., a Johnson & Johnson company.

The closing is conditioned on clearance under the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions. The $970 million estimated net value of the transaction is based on Cougar's 20.8 million shares outstanding, net of estimated cash on hand at closing.

The boards of directors of both Johnson & Johnson and Cougar have approved the transaction.

Under the terms of the agreement, Johnson & Johnson will initiate a tender offer, through a new wholly owned subsidiary, to purchase all outstanding shares of Cougar at $43 per share. The tender offer is conditioned on the tender of a majority of the outstanding shares of Cougar's common stock. 

According to Dr. William N. Hait, global therapeutic head of oncology at Ortho Biotech, the acquisition of Cougar and its team strengthens his company's growing capabilities toward a leadership position in the global oncology market.

"We are developing new treatments that we anticipate will change the course of cancer treatment by targeting the tumor and its microenvironment and thereby will provide a meaningful difference in the lives of millions of patients worldwide," Hait said in a statement.

Cougar is currently conducting two Phase III trials for abiraterone acetate, a late-stage compound to be used in the treatment of prostate cancer.

Alan H. Auerbach, CEO, president and founder of Cougar, said that since his company's founding six years ago, employees have exhibited a dedication to the development of "innovative oncology drugs and the creation of shareholder value." 

"We believe that this transaction strongly positions abiraterone acetate for future success with a leading healthcare company that has the expertise, resources, dedication and motivation to deliver it to the cancer patients who need it," Auerbach said in a statement.
 
The agreement was greeted with positive reviews from analysts who cover J&J, many noting it will add to Johnson & Johnson's quiver of experimental drugs in the late stages of development. The patent expiration of top sellers like the antipsychotic Risperdal and controversies over the company's Procrit anemia drug have made J&J's giant pharma division a relatively weak performer, according to analysts.

"It is nice to see J&J use their cash to acquire late-stage assets that may be able to support growth in its pharmaceutical business and continue the company's move into the oncology arena," wrote Catherine Arnold, a pharmaceuticals analyst at Credit Suisse, which has a neutral rating on J&J shares, in a research note.

The purchase marks a different tactic in combating patent and pipeline pressures by Johnson & Johnson from its rival drug makers Pfizer Inc. and Merck & Co., which both have pursued mega deals with planned combinations with Wyeth and Schering-Plough Corp., respectively.

According to some analysts, because Johnson & Johnson is balanced by medical-device and consumer-products businesses, it doesn't face the same pressures in the pharmaceutical markets as big competitors and may not to pursue dramatic changes.

"We continue to see J&J pursuing 'tuck-in' rather than transformative deals," Morgan Stanley analyst David Lewis wrote.

There still could be potential hurdles to clear before the deal is completed, according to one analyst.

Rodman & Renshaw analyst Simos Simeonidis told CNNMoney.com that he sees the potential for a competing offer. He noted that Eli Lilly & Co., sanofi-aventis or Takeda Pharmaceutical Co.—which have all anted up in oncology deals in the past—as potential suitors for Cougar, and added that Johnson & Johnson may not be the most obvious landing spot for Cougar. No additional offers had been made as DDN went to press.
 
 
Code: E060901

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