6 Questions Investors May Have About Johnson & Johnson's Acquisition of Actelion
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Johnson & Johnson recently announced it was making a significant business move: the acquisition of Actelion, a biopharmaceutical company based in Switzerland.
The all-cash, $30 billion deal—which is immediately preceded by the demerger of Actelion's R&D organization and early-stage compounds into a standalone company—will expand Johnson & Johnson's portfolio into pulmonary arterial hypertension (PAH) treatments.
The transaction is set to close in the second quarter of this year, so we sat down with, Johnson & Johnson’s Executive Vice President and Worldwide Chairman, Pharmaceuticals, to share what the two companies have in common—and what goals Johnson & Johnson has for the acquisition.
What makes Actelion such a natural fit for a Johnson & Johnson acquisition?
Actelion brings to Johnson & Johnson a best-in-class, paradigm-shifting portfolio of medicines that can help address an important medical need: pulmonary arterial hypertension.
PAH is a disease that primarily affects people who are middle-aged and, disproportionately, women. Once you are diagnosed, you have a high five-year mortality rate.
Identifying medicines that are going to help slow down the progression of the disease, improve patient quality of life—including fewer hospitalizations—and hopefully extend life is a very important mission. It’s consistent with the focus we have in the pharmaceutical group on medicines that are differentiated, innovative and that can help address areas of high unmet need.
How will this acquisition help expand Janssen’s portfolio of therapies?
The Janssen pharmaceutical companies of Johnson & Johnson have been working in five therapeutic areas—neuroscience; infectious diseases and vaccines; immunology; oncology; and cardiovascular and metabolic diseases—and this acquisition will provide our sixth.
Johnson & Johnson and Actelion will combine our individual capabilities and expertise to further identify opportunities to reach more patients with PAH, as well as identify new geographies in which Actelion has not had a footprint to extend the medicines to those areas.
We will also work with the global medical PAH community to further enhance the scope of available treatment strategies and develop next generation therapies that could potentially help patients five to 10 years from now.
How will it impact Johnson & Johnson’s revenue and earnings growth rates?
Upon close, Actelion will become a new growth engine for Johnson & Johnson, immediately improving our sales growth, operating margins and earnings per share (EPS).
As a result of the expected closing of the Actelion acquisition in the second quarter, we raised our full-year guidance in April from $75.4 billion to $76.1 billion reported, and our growth rate from 4.8% to 5.8%—a clear illustration of how the Actelion acquisition has the unique ability to accelerate growth and be accretive to our income from the very beginning.
Our strategy has always been to create growth through organic and inorganic—that is, external—sources. The source of our growth has been a 50-50 split between these two. Actelion is part of this strategy of finding unique external opportunities that can bring high-quality therapeutic areas consistent with our focus to our portfolio.
The business press was bullish on the announcement, but at least one commentator said Johnson & Johnson paid too much. How would you respond to that?
It’s difficult for the broader market to have an appreciation of how the market for pulmonary arterial hypertension medicines is going to evolve because it was a relatively static market. It’s not an area that many have heavily focused on, or one that they have truly analyzed and studied.
We both clearly put the patient at the center of everything we do. And we are both R&D companies looking for transformation and innovation.Share
We fully appreciate the potential of the market—and the potential for these medications to make a difference for patients. As the market learns more about pulmonary arterial hypertension, the number of patients affected and the benefit these medicines could potentially bring, they may better understand the price we were ready to pay for Actelion and get a better appreciation for its potential.
How is the acquisition proceeding?
All activities related to the closing are proceeding very well. I’m perhaps even more pleased to see that there are more similarities between Actelion and Johnson & Johnson than we knew, particularly on the cultural side.
Both companies are patient-focused; we both clearly put the patient at the center of everything we do. And we are both science-based—we are R&D companies looking for transformation and innovation, and we are using a disproportionate amount of our resources to invest in that.
Our shared values and principles are a good predictor of a successful transition.
Did you look at this acquisition differently than you might have five or 10 years ago?
Fundamentally, we looked at these elements of value creation for this acquisition: first, to what extent the new company would bring differentiated platforms or medicines; and to what extent would we be able to reach more patients, be competitive and achieve a stronger portfolio.
Those drivers are no different from five or 10 years ago. The type of company we look at may change at times, but we’re always looking for companies that can create value and are complementary to Johnson & Johnson. We believe we can create more value together, than if we remained alone.
We look forward to welcoming all our Actelion colleagues with open arms upon closing.