In May 2009, Johnson & Johnson (JNJ) signed a definitive agreement to acquire Cougar Biotechnology Inc. for $43 per share, or about $893 million. Recently, the acquisition was completed following expiration of the tender offer (20.149 billion shares tendered, representing approximately 95.9% of Cougar stock). J&J expects this deal to dilute 2009 EPS by $0.02-$0.03.
Cougar Biotechnology has no products currently in the market but is developing oncology compounds for the treatment of advanced prostate cancer, breast cancer and multiple myeloma. The company’s lead candidate, abiraterone acetate (CB7630), recently entered the second of two phase III trials for the treatment of advanced prostate cancer.
Phase II efficacy and safety data in both chemotherapy-naïve and chemotherapy-experienced patients with hormone refractory prostate cancer looked compelling. We believe sales of abiraterone acetate could ramp very quickly upon FDA approval, expected as early as late-2010. Cougar is also testing abiraterone acetate for advanced breast cancer.
J&J’s pharmaceutical business has been struggling of late, with a number of its blockbuster drugs experiencing declining sales due to generic competition or safety concerns. In this scenario, we believe the Cougar acquisition would add value. It helps grow J&J relatively small oncology platform, an area of greater focus for the company in recent times as it offers high potential. CB7630, if approved by FDA, could see peak annual sales of $1 billion and would be an excellent complement to Velcade and Yondelis.
We believe J&J’s diverse and deep product mix, lack of cyclicality, strong financial position and consistent record of earnings growth will insulate it from a prolonged economic downturn. We have a Buy recommendation on the stock as we believe the company will offer long-term value with low risk in form of stable earnings and a diverse product portfolio.
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