With the intention of strengthening its prostate cancer
Johnson & Johnson
) recently announced its intention to acquire privately-held,
pharmaceutical discovery and development company Aragon
The $1 billion deal will see Aragon's lead pipeline candidate,
ARN-509, becoming a part of Johnson & Johnson's pipeline.
ARN-509 is currently in phase II development for castration
resistant prostate cancer (CRPC).
The $1 billion payout includes a $650 million upfront cash
payment and up to $350 million on the achievement of
Before the deal closes in the third quarter of 2013, Aragon
will transfer all assets apart from the androgen receptor
antagonist program to a new company that will be spun-off.
Johnson & Johnson will neither have an ownership stake in
this company nor will it retain any rights to the products or
programs transferred to the new company.
The deal, which is scheduled to close in the third quarter of
2013, has been approved by the boards of both companies.
This deal signifies Johnson & Johnson's attempt to
strengthen its prostate cancer franchise especially once Zytiga
loses exclusivity. Zytiga, which became a part of Johnson &
Johnson's portfolio following its acquisition of Cougar
Biotechnology, is one of the company's most successful launches
in recent times. The successful development of ARN-509 will
consolidate the company's position in the prostate cancer
While Johnson & Johnson shareholders reacted positively to
the news (shares were up 0.85%), biopharma company
) shares fell 6.78%.
Medivation has a presence in the prostate cancer market in the
form of Xtandi. The problem is that ARN-509 is a close structural
analog of Xtandi and was developed in the same academic
laboratory as Xtandi and was allegedly licensed by the University
of California (UCLA) to Aragon. Medivation had filed a lawsuit
against UCLA and one of its professors claiming that it has
exclusive commercial rights to ARN-509. So far, the court rulings
have been in favor of UCLA and litigation continues with
Medivation filing an appeal.
We believe the decline in Medivation's share price reflects
concerns regarding the company's legal standing in the ARN-509
litigation as well as future competition. Medivation's legal
standing may be considered to be weak as Johnson & Johnson
will have done its homework regarding the legal situation before
deciding to acquire Aragon.
Moreover, Johnson & Johnson's financial position ensures
that any financial risks associated with the development of
ARN-509 no longer exist.
However, in our view, Medivation should not be affected by
this acquisition. ARN-509 is in mid-stage development and
therefore, several years from commercialization. Moreover,
ARN-509 needs to be shown to be superior on efficacy and/or
safety to Xtandi in order to gain market share. This is a
long-term concern for Medivation and should not affect Xtandi's
sales potential or near-term performance. Xtandi is already off
to a strong start with first quarter 2013 sales coming in at
Both Medivation and Johnson & Johnson are Zacks Rank #3
(Hold) stocks. Companies that currently look well-positioned
). While Biogen is a Zacks Rank #1 (Strong Buy) stock, Novo
Nordisk is a Zacks Rank #2 (Buy) stock.
BIOGEN IDEC INC (BIIB): Free Stock Analysis
JOHNSON & JOHNS (JNJ): Free Stock Analysis
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