J&J Beefs Up Oncology Portfolio

Following the market close on Thursday, Johnson & Johnson (JNJ - Analyst Report) announced that it had signed a definitive agreement to acquire Cougar Biotechnology, Inc. (CGRB). J&J will initiate a tender offer to purchase all of the outstanding stock of Cougar at $43 per share ($893 million), a 16% premium over Thursday’s closing price.

The boards of both companies have approved the transaction, which is expected to close in the third quarter. J&J expects the deal to be dilutive to 2009 EPS by $0.02 - $0.03.

As mentioned in our recent reports and blogs on Cougar Biotechnology, based on the significant potential of the company’s lead candidate, we expected the company to attract a partner or suitor in the near-term. JNJ’s pharmaceutical business has struggled lately due to a number of the company’s blockbuster drugs experiencing declining sales due to generic competition or safety concerns.

While the company currently has a relatively minor presence in oncology research, it is an area the company has recently dedicated a stronger focus, and the addition of Cougar should significantly strengthen it. Cougar will become part of J&J’s Ortho Biotech Oncology Research & Development. J&J currently markets Velcade for multiple myeloma and in November 2008 filed for FDA approval of Yondelis for ovarian cancer.

Cougar Biotechnology currently has no marketed products, but is developing oncology compounds for the treatment of advanced prostate cancer, breast cancer and multiple myeloma. The company’s lead candidate, abiraterone acetate (CB7630), recently entered the second of two phase III trials for the treatment of advanced prostate cancer.

Advanced prostate cancer can be extremely aggressive, with few treatment options. Phase II efficacy and safety data in both chemotherapy-naïve and chemotherapy-experienced patients with hormone refractory prostate cancer looked to be very compelling.

The company initiated the phase III study in chemo-experienced patients in April 2008, which should be completed in 2010. The second phase III study, in chemo-naïve patients, began enrollment in April 2009. We believe top-line data for this trial could be available later in 2009 with full results in 2010. As we outlined in our latest report on Cougar Biotechnology, we believe sales of abiraterone acetate could ramp very quickly upon FDA approval, which we believe could come as early as late-2010.

Cougar, through the Institute of Cancer Research in London , is also testing abiraterone acetate for the treatment of advanced breast cancer.  Phase I/II testing in breast cancer commenced in November 2008.

Cougar also has a multiple myeloma candidate (noscapine) in phase I testing. The phase I data could be available later in 2009 and, depending on the results, we believe Cougar could begin phase II testing before year-end.