JnJ buys Actelion for $30 billion

JNJ shelled out a sizeable amount of money last week to acquire a business called Actelion, the presentation casts it as a Unique & Compelling Value Proposition. In short, JNJ are buying the Actelion business for 30 billion Dollars, to "Expands and complement (the) Janssen portfolio with leading, differentiated in-market medicines for pulmonary arterial hypertension."

PAH (pulmonary arterial hypertension) should be read simply as a type of high blood pressure that occurs on the right side of the heart. In the arteries that supply blood to your lungs. As my readings reveal, this is very different from having "normal" high blood pressure. To read more about it, check the piece: Pulmonary hypertension (PH) or pulmonary arterial hypertension (PAH).

As the presentation puts forward, 65 thousand patients are currently being treated with these Actelion therapies, and those generated 2 billion Dollars of annual sales in 2015. Quite quickly you can see at 15 times annual revenues that this isn't a cheap acquisition, and in fact, since the news of the potential acquisition broke (last year October), the stock has been lit. Actelion is up (in Switzerland) 103 percent over the last 12 months. And the founder of the business (Jean-Paul Clozel), has hit serious money, 1.5 billion Dollars to be exact.

Even 6th grade math will tell you that he owned 5 percent of the business. Wait, there is more, however. Clozel is going to run an R&D business that will be spun out from the acquisition, a business that could be worth 1 to 2 billion Dollars. That business, call it "Actelion risky" will hold all the experimental treatments (not yet approved) of the existing business. That business, the riskier one will have an initial 16 percent shareholder ship by JNJ, with an option to acquire another 16 percent (to lift it to 32) through a convertible note. i.e. they are going to fund the business in different manners. The former Actelion shareholders will hold 84 percent of the R&D business, which is why it is compelling for them. I have seen others suggest that the pipeline of the R&D business is pretty pedestrian at best, which is why it was good not to tag that whole lot along. Everyone gets want they want?

JNJ suggests that this will add 35 to 40 cents EPS immediately. And it will "use" a lot of external US cash, this company is in Switzerland. The expectations are for growth rates to be 1.5 to 2 percent above the long term consensus. I think that this is good for JNJ, which is the only reason we really "care" to pay attention here, even though they paid a lot. Expectations are for this year that earnings are likely to be 7 Dollars a share, at 16x forward earnings, the stock is well priced and we continue to accumulate on weakness.