By Aron Adamski, BSc Economics @LSE
OVERVIEW OF THE DEAL:
- Acquirer: Johnson & Johnson
- Target: Momenta Pharmaceuticals
- Industry: Biotechnology
- Estimated value: $6.5B
- Financing: All-cash
- Announcement Date: 19/08/2020
- Acquirer Advisors: Cravath, Swaine & Moore (legal)
- Target advisors: Goldman Sachs and Centerview Partners (financial); Latham & Watkins (legal)
Johnson & Johnson agreed to acquire biotech group Momenta Pharmaceuticals for $6.3B in an all-cash deal. Under the terms of the transaction, Johnson & Johnson will purchase all outstanding shares of Momenta Pharmaceuticals for $52.5 per share, an 80% premium to share price 5 days before the announcement. Following completion of the merger, Momenta’s common stock will no longer be listed on NASDAQ.
The agreement was unanimously approved by the Boards of Directors of both Momenta Pharmaceuticals and Johnson & Johnson. The deal is subject to customary closing conditions, antitrust and government approvals. In case of termination, Momenta Pharmaceuticals may be required to pay a termination fee of $205M to Johnson & Johnson.
The deal is expected to close in the second half of 2020.
COMPANY DETAILS (Johnson & Johnson):
Johnson & Johnson researches, develops, manufactures and sells various products in the health care field worldwide. It operates in three segments: Consumer, Pharmaceutical and Medical Devices.
- Founded in: 1886
- Headquartered in: New Brunswick, New Jersey, United States
- CEO: Alex Gorsky
- Number of Employees: 132,200
- Market Cap: $398.93B
- EV: $410.18B
- LTM Revenue: $80.5B
- LTM EBITDA: $27.21B
- EV/ LTM Revenue: 5.1x
- EV/ LTM EBITDA: 15.07x
Consumer segment offers baby care products under the Johnson’s brand; oral care products under the Listerine brand; beauty products under the Aveeno, Clean & Clear, Dr.Ci:Labo and Neutrogena brands; over-the-counter medicines; cold, flu, and allergy products. This segment also provides women’s health products, such as sanitary pads and tampons.
Pharmaceutical segment offers products in various therapeutic areas, including immunology, infectious diseases, neuroscience, oncology, pulmonary hypertension, cardiovascular and metabolic diseases.
Medical Devices segment provides orthopedic products, general surgery, biosurgical, electrophysiology products to treat cardiovascular diseases; vision care products, such as disposable contact lenses.
COMPANY DETAILS (Momenta Pharmaceuticals):
Momenta Pharmaceuticals is a biotechnology company which discovers and develops biologic therapies for the treatment of rare immune-mediated diseases. Its novel therapeutic programs include Nipocalimab, a promising treatment for the rare muscular disease myasthenia gravis that is also being tested against other autoimmune disorders, such as anemia. Myasthenia gravis is a disease which affects skeletal muscles that are responsible for eye movements, breathing, and moving parts of the body, resulting in muscle weakness and fatigue.
- Founded in: 2001
- Headquartered in: Cambridge, Massachusetts, United States
- CEO: Craig A. Wheeler
- Number of Employees: 130
- Market Cap: $6.07B
- EV: $5.67B
- LTM Revenue: $30.07M
- LTM EBITDA: -$240.91M
- EV/ LTM Revenue: 188.56x
- EV/ LTM EBITDA: −23.54x
STRATEGIC RATIONALE
JANSSEN’S LEADERSHIP IN AUTOIMMUNE DISEASE TREATMENT
Janseen Pharmaceutica is a pharmaceutical company owned by Johnson & Johnson. It handles the pharmaceutical segment of J&J’s portfolio. Around 195M people, or 2.5% of the world, suffer from some sort of autoantibody-driven disease worldwide. The acquisition represents a unique opportunity for Janssen to broaden its leadership and impact in immunology and enhance breadth of its portfolio. Scientists and employees of Momenta will undoubtedly be a significant addition to Janssen’s team.
LONG-TERM PROSPECTS
As result of the deal J&J will gain full global rights to Momenta’s lead treatment, Nipocalimab. It will be the firm’s first immune counter-regulator and the analysis by J&J indicates that potential peak year sales of Nipocalimab could be as high as $1B.
“The acquisition was driven by the significant opportunity seen in nipocalimab, along with the scientific capability Janssen is acquiring with the Momenta team”~ Johnson & Johnson
BIOTECH FOCUS
It is the largest deal struck by J&J since it acquired Actelion, the European biotech group, for around $30B in 2017. Actelion develops treatments for pulmonary arterial hypertension, a rare disorder.
J&J’s recent deal also follows a similar move by the French pharmaceutical group Sanofi, which has agreed to buy San Francisco-based Principia Biopharma in a $3.4B deal. This perhaps indicates a broader trend in the industry, with big pharma seeking to bolster their rare diseases portfolio as they realise its strategic potential.
The transaction is expected to have accretive EPS impact in 2021 of roughly $0.10 to $0.15.
RISKS AND UNCERTAINTIES
The only uncertainty that faces Principia is the question over whether treatments for autoimmune disorders which slow down a patient’s immune system in order to fight the disease are a right thing to do. After all, if someone is ill then weakening their immune system seems as a counterintuitive thing to do. However, if the body’s immune system does the harm, then that’s perhaps the only way to save someone. There’s a contentious debate over what’s right and wrong.
For J&J there’s a threat of huge legal costs. It is involved in lawsuits alleging that its products played a role in the US opioid crisis. It is also the subject of lawsuits claiming that J&J’s talcum baby powder caused cancer. J&J already stopped selling the powder in US and Canada. Hence, it would seem odd that with a threat of the firm having to pay large sums of money as result of the lawsuits it makes an all-cash deal worth billions. However, as of Q2 2020 J&J had more than $19B in cash and short term investments, so perhaps acquiring Principia wouldn’t inhibit its ability to make pay-outs in case it lost in court.
