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Johnson & Johnson's Foolishness Is on Full Display

Blood Test Clinical Trial Biotech Pharma Drug Lab Getty
Blood Test Clinical Trial Biotech Pharma Drug Lab Getty

Before the opening bell this past Monday, Actelion announced that a 226-patient phase 3 trial involving Opsumit as a treatment for Eisenmenger syndrome failed to reach its primary endpoint of a statistically significant improvement in exercise capacity as measured by the six-minute walk test. Though success in the study would merely have expanded Opsumit's label and added somewhere in the neighborhood of $100 million to $200 million in peak annual sales, it nonetheless represents a reduction in peak annual projections for Opsumit's annual sales of between 5% and 10%. Considering the premium J&J has been offering Actelion, we're talking about perhaps $1 billion in lost valuation on this deal (assuming a multiple of five times peak sales), if not a hair more.

But, this is far from the only question mark in J&J's pursuit of Actelion.

For example, Tracleer, which was approved in 2001 and is Actelion's best-selling PAH drug, has lost its patent protection and is about to face generic competition. Generally, generic drugs can wipe out around half, if not more, of branded drug sales within a year since they're considerably cheaper than branded therapies. This would mean Tracleer's more than $1 billion in annual sales could dwindle to less than $500 million relatively quickly. Considering that Tracleer's sales in the first-half of the fiscal year comprised close to half of Actelion's total revenue, J&J could be in for an unpleasant surprise.

Lab Technician With Clipboard And Test Tube Getty

Image source: Getty Images.

There's also an ongoing phase 3 study examining ponesimod as a treatment for relapsing multiple sclerosis. Not only is it unknown if ponesimod will meet its primary endpoint in pivotal late-stage trials, but even if it does, will it offer any differentiation from current market share leader Gilenya? If ponesimod just winds up being par for the course, it may not move the needle much at all.

Here's the thing about Actelion: if J&J had waited 12 months, we'd have had a much clearer picture of what Actelion's pipeline and product portfolio are worth. Executing a transaction now, though, risks overpaying for Actelion and essentially wasting much of J&J's $40 billion-plus in cash on hand.

It's rare that J&J's often top-notch management team is directed criticism, but its blind pursuit of Actelion without understanding the variables that could be at work here isn't of any benefit to its shareholders.

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Sean Williams has no position in any stocks mentioned. The Motley Fool recommends Johnson and Johnson. The Motley Fool has a disclosure policy .

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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