Johnson & Johnson (JNJ) recently entered into definitive agreements for the acquisition of the over-the-counter (OTC) brands of J B Chemicals & Pharmaceuticals Limited for about $260 million in cash.

The brands that will be acquired under the deal include Rinza and Doktor Mom. While Rinza is Russia’s leading multi-symptom cough and cold brand, Doktor Mom is Russia’s number two selling cough brand.

With this deal, Johnson & Johnson is looking to expand its presence in Russia, which is the eighth largest OTC market in the world. The deal, which is scheduled to close in mid-2011, is in-line with the company’s goal of expanding its presence in emerging markets.

Johnson & Johnson’s OTC segment has been in the news over the past few quarters due to several back-to-back product recalls. Frequent product recalls adversely affected sales of Johnson & Johnson’s Consumer Healthcare segment in 2010. Consumer segment sales declined 7.7% in 2010 to $14.6 billion with OTC/nutritional sales declining 19.2%. The product recall and the suspension of manufacturing at McNeil’s Fort Washington plant resulted in a $900 million negative impact on 2010 revenues.

Neutral on Johnson & Johnson

We currently have a Neutral recommendation on Johnson & Johnson. Even though Johnson & Johnson has been facing challenges in the form of OTC product recalls, pricing austerity in the EU and generic competition, we believe that the company’s diversified business model, lack of cyclicality and strong financial position will help it in tough situations.

Other catalysts could be regulatory approval for important pipeline candidates. While Johnson & Johnson recently gained US Food and Drug Administration (FDA) approval for its prostate cancer therapy, Zytiga, another important candidate, Incivek (telaprevir), is currently under regulatory review in the EU. Incivek has been developed in collaboration with Vertex Pharmaceuticals, Inc. (VRTX) for the treatment of hepatitis C virus infection. EU approval for Incivek could come in the fourth quarter of 2011.

 
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