<<see I told you it looked to be heading higher! >>
You da man! What will I ever do without you! -g-
A take-under possible?
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May 4, 1999
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J&J Considers Purchase of Centocor;
All-Stock Deal Could Top $3 Billion
By PAUL M. SHERER and ROBERT LANGRETH
Staff Reporters of THE WALL STREET JOURNAL
Johnson & Johnson is in talks to acquire biotechnology firm Centocor Inc. in an all-stock deal that could be valued well above $3 billion, people familiar with the situation said.
If a handful of remaining issues are resolved, a deal could be struck within a week. The transaction would give J&J, the New Brunswick, N.J., health-care company, a much needed new presence in the cardiovascular-drug market.
The company, which makes products ranging from baby oil to Tylenol to surgical devices, needs hot-new drugs to remain competitive with other top drug companies. J&J is recovering from a difficult 1998, when several experimental drugs fell through and the company's coronary-stent products lost most of their market to rival devices.
The deal would give J&J access to Centocor's hot-selling ReoPro anticlotting medicine as well as another type of anticlotting medicine, Retavase. Centocor sold $365 million of ReoPro last year, and analysts say ReoPro sales could soar to around $700 million in a couple of years.
The drug would nicely complement J&J's existing stent business, as ReoPro is often used in conjunction with coronary stents by heart doctors. J&J's Cordis unit, which sells stents, is trying to build back its market share.
Spokesmen for Centocor, based in Malvern, Pa., and J&J wouldn't comment on the talks.
A deal could still fall apart if a few issues aren't resolved, people familiar with the situation said. But one of the most difficult issues in any acquisition -- price -- isn't among the major outstanding issues, they said. One matter that may have to be dealt with is Centocor's existing co-marketing agreement with Eli Lilly & Co. to sell ReoPro; under this agreement, the two companies split the profit from the drug. Eli Lilly officials didn't return calls for comment.
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Centocor at a Glance Headquarters Malvern, Pa.
CEO David Holveck
1998 revenue $316.7 million
1998 net income $192.3 million*
Employees 1,200
Main business Biotechnology concern making the drugs ReoPro, used during angioplasty, and Remicade, which treats Crohn's disease, among others.
*Includes gain of $297 million and various charges
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Centocor's market capitalization is $3.8 billion, using the fully diluted number of shares outstanding. That valuation already reflects a substantial takeover premium, as Centocor shares have soared recently -- rising 21% on April 21 alone -- as rumors spread about a pending deal. In Nasdaq Stock Market trading Monday, Centocor shares rose $2.50, or 5.6%, to $46.875. J&J shares rose 25 cents to $97.75 in New York Stock Exchange composite trading.
"The deal makes sense for what J&J wants to do," said drug-industry analyst Neil Sweig of Southeast Research Partners. "J&J has routinely said it is interested in making a few $1 billion to $5 billion acquisitions, and Centocor would give good biotechnology insights to J&J. You can never have too many cardiovascular devices and medicines."
Centocor may be interested in a deal because its stock price, before the deal rumors, was stuck in a holding pattern. While its products have done fairly well, the company has sometimes had trouble meeting high Wall Street expectations, analysts said.
Centocor's "stock has struggled for years. Pain is the driver of transactions and maybe they are tired of their stock price," Eric Hecht, a biotechnology analyst at Merrill Lynch, said.
He noted that ReoPro and Centocor's Crohn's disease drug Remicade "may benefit from some additional capital and marketing muscle." If the company had deeper pockets to market and rapidly test new uses for the drugs, "they would probably be bigger products," Mr. Hecht said. Remicade is currently under regulatory review for treating rheumatoid arthritis, a bigger market than Crohn's disease; however, the drug, if approved for this use, would have to compete with Immunex Corp.'s hot-selling Enbrel medication.
Acquiring Centocor would put J&J "in a potentially strong position to facilitate a comeback" from its big losses in stent market share during the past 18 months, said Eric J. Topol, head of cardiology at the Cleveland Clinic.
Dr. Topol headed up a recent study that found ReoPro used in combination with stents significantly reduced death and heart attacks when compared with stents alone. For patients and physicians alike, he said, combining the two technologies under one company "may be especially attractive."
Stents and ReoPro are the two leading innovations in interventional cardiology during the past few years, but they are also expensive. Stents cost about $1,600 each -- and patients often get more than one -- while ReoPro goes for about $1,400 a patient. "If [J&J] could come up with attractive package pricing," Dr. Topol said, "it would give them a competitive edge and reduce the economic burden, which is sizable for these big-ticket items." Dr. Topol has been a vocal critic of stent pricing, particularly during the three years when J&J controlled the U.S. stent market.
Adding Centocor to its huge corporate roster would also mark J&J's first significant presence in the market for cardiovascular drugs -- especially for treating heart attacks and strokes, an area of rapid change and increasing competition. Researchers are beginning to test platelet inhibitors such as ReoPro in combination with clot busters tPA and Retavase in hopes of improving results over use of clot busters alone.
The deal, if it goes through, would be the latest in a long-term trend of giant drug companies gobbling up midsize biotech companies in order to boost their pipelines. Most recently, Warner-Lambert Co., Morris Plains, N.J. agreed to acquire Agouron Pharmaceuticals Inc., a biotechnology company in La Jolla, Calif., for $2.1 billion.
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