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Johnson & Johnson (JNJ - Analyst Report) recently completed its previously announced acquisition of privately-held, pharmaceutical discovery and development company Aragon Pharmaceuticals, Inc.

With the acquisition going through, Aragon’s lead pipeline candidate, ARN-509, has now become a part of Johnson & Johnson’s pipeline. ARN-509 is currently in phase II development for castration resistant prostate cancer (CRPC) and will be managed by Janssen Research & Development.

The $1 billion payout for the acquisition includes a $650 million upfront cash payment and up to $350 million on the achievement of milestones.

Prior to the closing of the acquisition, Aragon transferred all assets apart from the androgen receptor antagonist program to a newly formed company - Seragon Pharmaceuticals Inc., which was spun out of Aragon. Johnson & Johnson will neither have an ownership stake in Seragon nor will it retain any rights to the products or programs transferred to the company.

Our Take

This acquisition signifies Johnson & Johnson’s attempt to strengthen its prostate cancer franchise especially once Zytiga loses exclusivity. Zytiga, which became a part of Johnson & Johnson’s portfolio following its acquisition of Cougar Biotechnology, is one of the company’s most successful launches in recent times. Zytiga sales in the recently reported second quarter of 2013 were $395 million, up 70.3% year over year. The successful development of ARN-509 will consolidate the company’s position in the prostate cancer market.

Johnson & Johnson currently carries a Zacks Rank #3 (Hold). While we expect the company to continue facing headwinds in the form of pricing pressure, manufacturing issues, and U.S. healthcare reform, we believe the diversified business model, lack of cyclicality and strong financial position will continue helping the company pave its way through tough situations.

Companies that currently look well positioned include Actelion Ltd. (ALIOF), Biospecifics Technologies Corp. and Questcor Pharmaceuticals among others with all three being Zacks Rank #1 (Strong Buy) stocks.

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