IHS Global Insight Perspective | |
Significance | The House Committee on Oversight and Government Reform's next hearing is scheduled for the end of this month and will focus on emails from a Johnson & Johnson (J&J; U.S.) contractor indicating that secret withdrawals of Motrin 8 (ibuprofen) and paediatric Tylenol (paracetamol) took place in 2009. Separately, the move to acquire Crucell will include a pay out of US$2.3 billion. |
Implications | The developments reflect J&J's mixed fortunes of late. The Crucell (Netherlands) acquisition will no doubt bolster the firm's diversified portfolio, allowing entry into the vaccines market where it has had little focus so far. It also underpins confidence in Crucell's commercial prospects given that the firm already owns 17.9% of the biotech firm. |
Outlook | J&J will look to resolve the product recall issue in the near term. However, the latest revelations could have implications for litigations surrounding the recall. The acquisition of Crucell, meanwhile, is expected to face some resistance from the biotech firm's existing shareholders, who will look for an increased bid price. |
U.S. Congress Probe Into J&J
U.S. pharma major Johnson & Johnson (J&J) is facing increasing questions over the manner in which it executed the withdrawal of certain consumer health products from the U.S. market. The House Committee on Oversight and Government Reform has outlined new information emerging from its investigation which indicates that the pharma major embarked on a "soft withdrawal" of Motrin 8 (ibuprofen) from 5,000 stores. Emails also show that the company employed contractor WIS International (U.S.) to initiate a large product recall of paediatric Tylenol (paracetamol) in July 2009. It is unclear if the recall took place. Reuters quoted committee chairman Edolphus Towns (Democratic–New York) as stating that the facts uncovered are "extremely troubling". J&J's unit McNeil issued a mass recall of 136 million bottles of 40 paediatric over-the-counter (OTC) liquid medicines in May 2010 following a series of quality issues found in manufacturing facilities.
Crucell Acquisition
Separately, it has emerged that J&J is intensifying negotiations with Netherlands biotech firm Crucell with a view to a potential acquisition. The offer, according to Crucell, is an all-cash deal of 24.75 euro (US$32.28) per ordinary share, which will put the price tag for ownership of Crucell shares not already owned by J&J at 1.75 billion euro (US$2.3 billion). It is important to note here that J&J already owns a significant 17.9% stake in the Dutch firm. The move is designed to provide a platform for J&J to eventually make a plunge into the vaccines market. The completion of the deal will see J&J maintaining Crucell's facilities and current employment levels, including retaining senior management. With due diligence almost complete, internal approvals and terms of a definitive agreement are still under negotiation. Crucell reported total revenues of 128.6 million euro, up 63.4% year-on-year for the second quarter of 2010, and registered net profits of 9.2 million euro in the second quarter of 2010, compared to a net loss of 1.8 million euro in the year ago period.
Outlook and Implications
The House Committee held its hearing on J&J's product recalls in May 2010 after the company announced a mass withdrawal of OTC paediatric products. The latest revelations will put the firm in a tight spot over the methods it has used in recalling its products. This will be a major issue at the next House Committee hearing, scheduled for 30 September, where the company's consumer health head, Colleen Goggins, has been invited to testify. However, Goggins has since announced her retirement from the company, and it is unclear if she will appear at the hearing. The firm, which had earlier said that it was not aware of the activities of its contractors or sub-contractors in the "phantom recalls" of products—will be under increasing pressure given that the emails specify that J&J potentially knew of the recalls. The revelations could also cast a shadow on ongoing litigations related to the recall.
The decision to acquire Crucell is a strategic move to enter into the global vaccines space. The initiative further underscores J&J's intent to maintain a diversified portfolio of businesses in an attempt to minimise risk in a highly competitive healthcare and pharmaceutical market. Crucell fits into J&J's plan, primarily since it would involve extending the existing nearly 18% stake J&J already holds in the biotech firm. This also reflects on the business operations of Crucell, which will be familiar to J&J as a minority stakeholder, while the confidence of being able to expand its vaccine business to a wider global market using J&J's marketing and distribution muscle will be a key driver behind the deal. For Crucell, the offer, if approved, provides a strong exposure for its pipeline of products to not only the European market, but also emerging market economies where J&J has lately increased penetration. But, given the valuations of recent merger and acquisition deals in the pharmaceutical and biotechnology space, it is likely that some shareholders of Crucell will look to up the bid price. Already Reuters is reporting that the Van Herk Group, which owns 9.6% of Crucell, has indicated that the offer price is "meagre and too early". This latest acquisition attempt bid for Crucell underpins the overall trend in the global pharma market of Big Pharma firms seeking to expand their operations in the biotechnology industry, where higher market growth is expected in the medium-to-long term.
Related Articles
- Netherlands: 17 August 2010: Crucell's Revenues Jump 63% Y/Y in Q2 on Strong Sales of Quinvaxem
- United States: 13 July 2010: J&J Faces U.S. Court Battle on Drug Recall, Acquires Micrus Endovascular
- United States: 12 July 2010: Latest J&J Recall Reaches 3 Mil. Bottles
- United States: 28 May 2010: House Committee Holds Hearing over J&J Drug Recall, FDA May Take Heavy Action