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J&J (JNJ) Ends Deal Talks with Actelion: Will Sanofi Gain?

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On Tuesday, Johnson & Johnson (JNJ - Free Report) announced that it has ended talks regarding a possible transaction with Swiss biotechnology company, Actelion Ltd. , reportedly for a disagreement over the purchase price.

Last month, J&J confirmed that it had approached Actelion with a takeover offer, soon after Bloomberg mentioned in a report that the companies were holding initial talks. (Read More: J&J Confirms it Approached Actelion for Possible Deal)

J&J had then issued in a press release, saying that it is “engaged in preliminary discussions” with Actelion regarding a possible merger. Reportedly, J&J had even raised its bid for after Actelion expressed dissatisfaction over the earlier price.

Since the announcement, J&J’s shares gained 1.0%, which was almost in line with the return of 0.9% for the Zacks categorized Large Cap Pharma industry.

Coming back to the latest news, on the same day, Actelion came out with a press release stating that the company was in talks for a “strategic transaction’’ with another party, which investors assumed is the French pharma giant, Sanofi (SNY - Free Report) . Rumors were Sanofi was also interested in buying Actelion. In fact, according to reports, the company had been considering a bid for Actelion, but was unsure of making a formal offer.

We note that Actelion has been a popular takeover target mainly because of its rare disease portfolio. It’s a leader in the pulmonary arterial hypertension (PAH) market with key drugs like Opsumit, Tracleer, Ventavis, Veletri and Uptravi. The newer drugs – Opsumit and Uptravi – have been well received and are even poised to become blockbuster drugs. These could compensate for lost revenues from its older PAH medicine, Tracleer, which is facing competitive pressure.

Note that Actelion has consistently outperformed the Zacks categorized Medical-Biomedical/Genetics industry year to date (YTD), with the stock gaining 48.8% in stark contrast to the Zacks categorized Medical-Biomedical/Genetics industry’s decline of 26.2%.

A deal with Actelion will diversify Sanofi’s revenues and drive top-line growth, which is under pressure due to a struggling Diabetes franchise, generic competition and slower-than-expected uptake of new products like Praluent. Having lost out on the Medivation acquisition to Pfizer, Inc. (PFE - Free Report) this year, a deal with Actelion could definitely be a boon for Sanofi.

While J&J has a Zacks Rank #3 (Hold), Actelion has a Zacks Rank #4 (Sell).

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