Scios deal expands J&J's biotech presence
By Paul Jacobs
Mercury News
Posted on Mon, Feb. 10, 2003
At least three large pharmaceutical companies were in hot pursuit of Scios when the highest bidder, Johnson & Johnson, offered $2.4 billion in cash for the Sunnyvale biotech company, said its chief executive.
The acquisition gives Johnson & Johnson an expanded presence in California, where it already operates two Bay Area subsidiaries -- Alza in Mountain View and LifeScan in Milpitas.
Although executives from Scios and Johnson & Johnson were full of praise for one another at an early morning analysts' call, Scios Chief Executive Richard B. Brewer made it clear Monday that the final choice of suitor depended on a single factor: the size of the bid.
``Don't forget, this is an all-cash deal,'' Brewer said.
Brewer declined to name the other large pharmaceutical companies that were under consideration.
The deal is the latest in a series of mergers and acquisitions that have swept through the area's biotech industry in recent years. In the past two years, Johnson & Johnson bought out Alza, Millennium Pharmaceuticals in Massachusetts acquired South San Francisco's COR Therapeutics, and MedImmune in Maryland acquired Aviron of Mountain View.
Like several other companies acquired by Johnson & Johnson, the world's fifth-largest pharmaceutical company, Scios will retain its own name. Brewer said he anticipates no changes at Scios other than accelerated expansion.
``This is an example of what can happen when a small biotech company becomes a real success,'' Brewer said. ``It's kind of bittersweet. Our plan was to remain independent and continue to grow the business. But in some ways you look too well and all of a sudden you attract the attention of big guys and they can't live without you.''
Just five years ago, the company's shares were selling at $2.50 and Scios had a market valuation of $120 million, Brewer said -- one-twentieth of the price that Johnson & Johnson paid for the company.
Heart drug
Scios' reversal of fortune was capped by the Food and Drug Administration marketing approval of Natrecor in 2001. The drug is a genetically engineered copy of a natural human hormone that boosts the heart muscle in patients suffering from congestive heart failure, a condition that affects an estimated 5 million Americans.
Sales of the drug have been building slowly. The Scios sales force already reaches the nation's major medical centers where a majority of these severely ill patients show up for treatment. But Johnson & Johnson's larger marketing operation can reach smaller hospitals and a variety of specialists, accelerating sales, said Christine Poon, chairman of J & J's worldwide pharmaceuticals group.
Executives from both companies were dismissive of a study, reported Monday in the Wall Street Journal, suggesting that there was a higher risk of death in patients using the drug compared with other treatments.
They noted that the data used in the study was part of the package submitted for FDA approval two years ago. And there was no sign from the 100,000 patients who have used the drug to date of such an unexpected effect.
``This is the second-fastest-selling cardiovascular drug introduced in the hospital,'' said Dr. Mark Monane, an analyst at Needham, who argued that the acceptance of the product by physicians shows that the benefits exceed any risks associated with the use of the drug. Monane holds no stock in either company; Needham has done investment banking for Scios.
The fastest-selling new product for hospitalized heart patients, Monane noted, was ReoPro, a Johnson & Johnson drug.
Promising compounds
Scios also is developing a series of promising compounds for treating inflammatory diseases like rheumatoid arthritis and psoriasis.
The most advanced of these experimental compounds is SCIO-469, a pill still undergoing tests, that would compete in a multibillion-dollar market, which now includes a drug developed at the Johnson & Johnson subsidiary Centocor.
The deal is just the latest acquisition for Johnson & Johnson, the health care giant perhaps best known for Band-Aids, baby oil and Tylenol. The New Jersey company has invested heavily in biotechnology. Among its relatively recent acquisitions is Centocor in Pennsylvania.
The acquisition of Alza, a company best known for its skin patches and other drug-delivery technology, was a deal initially valued at $10.5 billion.
Poon said the merged companies would pursue applying Alza technology to the delivery of Scios' Natrecor -- one example of how joining Johnson & Johnson might advance Scios' products.
Brewer, Scios' CEO, noted that Johnson & Johnson's agreed-on price for Scios -- $45 a share -- and the resulting leap in Scios stock price would hurt short sellers who late last week held a position on an estimated 10 million shares. That's about a fourth of the stock outstanding. ``Those shorts are pretty unhappy,'' Brewer said.
The deal, which is expected to close in the second quarter of this year, requires the approval of regulators and Scios shareholders.
Scios shares closed Monday at $43.92, up $1.72.
Contact Paul Jacobs at pjacobs@sjmercury.com or (530) 756-0236. |
