J&J to Acquire Actelion for $30B: Is It a Strategic Fit?

After months of negotiations, healthcare giant Johnson & JohnsonJNJ has finally entered into a definitive agreement to acquire Swiss biotech Actelion Ltd ALIOF for $280 per share in an all-cash transaction. This amounts to an aggregate value of $30 billion.

While Actelion's shares surged nearly 20% on Thursday, J&J's shares dipped almost 1% on the news. In fact, over the past one-year period, while the Zacks classified Drugs industry declined 6.8%, shares of J&J's climbed 9.5% and that of Actelion shot up almost 102%.

Creation of R&D NewCo

Following the transaction, Actelion will spin off its drug discovery operations and early-stage clinical development assets into a new biopharmaceutical company - R&D NewCo - with cash of CHF 1 billion. The new entity will be listed on the SIX Swiss Exchange (SIX).

The transaction is slated to close by the end of the second quarter of 2017, upon certain customary offer conditions.

How the Acquisition Benefits J&J

Actelion has often been considered an attractive takeover target for long mainly due to its rare disease portfolio. In addition to holding a strong position in the PAH market, Actelion's portfolio has treatments approved in certain countries for specialist diseases like type I Gaucher disease, Niemann-Pick type C disease, digital ulcers in patients suffering from systemic sclerosis, and mycosis fungoides type cutaneous T-cell lymphoma.

The Actelion buyout will diversify J&J's revenues and boost its top line. The deal will expand its pharma subsidiary, Janssen's portfolio with Actelion's established pulmonary arterial hypertension (PAH) franchise which comprises key drugs like Opsumit, Tracleer, Ventavis, Veletri and Uptravi.

J&J will also acquire Actelion's other marketed products, including Valchlor and Zavesca as well as global rights to the latter's two late-stage candidates - ponesimod (multiple sclerosis) and cadazolid (for Clostridium difficile -associated diarrhea).

Moreover, J&J will initially own 16% of the shares of R&D NewCo, with rights to an additional 16% through convertible notes. J&J will also receive an option to acquire rights to ACT-132577, currently in phase II development for the treatment of resistant hypertension.

The healthcare giant expects the deal to boost its long-term revenue and earnings growth rates by at least 1% and 1.5-2.0%, respectively, above the current analyst consensus. Also, EPS accretion in the first full year is expected in the range of 35 cents to 40 cents.

The addition of Actelion's specialty in-market medicines and late-stage products is consistent with J&J's efforts to grow in attractive and complementary therapeutic areas, and serve patients with serious illnesses and significant unmet medical need.

Zacks Rank & Key Picks

Both J&J and Actelion carry a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the health care sector include Sunesis Pharmaceuticals, Inc. SNSS and Anika Therapeutics Inc. ANIK . While Sunesis sports a Zacks Rank #1 (Strong Buy), Anika is a Zacks Rank #2 (Buy) stock. You can see the complete list of today's Zacks #1 Rank stocks here .

Sunesis' loss estimates narrowed 5.06% and 8.80% for 2016 and 2017, respectively, over the past 60 days. The company recorded a positive earnings surprise in three of the last four quarters, the average being 0.54%.

Anika's earnings estimates for 2016 and 2017 were up 3.9% and 0.5%, respectively, over the last 60 days. The company recorded a positive earnings surprise in each of the last four quarters, the average being 33.14%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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