Analysts, investors weigh in on Johnson & Johnson acquisition of Crucell

If the deal goes through as currently planned, J&J will spend $2.3 billion to make Crucell a vaccine division of the company

Jeffrey Bouley
NEW BRUNSWICK, N.J., and LEIDEN, the Netherlands—As we reported online at our website recently, Johnson & Johnson and Crucell N.V.  announced Sept. 17 that "advanced negotiations" are underway for J&J, which already holds approximately 17.9 percent of the outstanding shares of Crucell, to buy out the remaining stake for $32.30 per share, or a total of about $2.3 billion. Both companies seem content with the deal, and analysts seem generally upbeat about the prospects and the likelihood of the deal going through, but there has been some mixed reaction among some of the major investors in Crucell.

The transaction would value Crucell at about 57 times this year's estimated earnings, notes Bloomberg, compared with a median multiple of about 36 times profit in biotechnology deals in the past year.

On our ddn Online blog, we noted that right on the heels of the announcement, Crucell's second-largest shareholder, private investment company Van Herk Groep, expressed some serious reservations, with Gertjan van der Baan, a director of Van Herk, saying that the offer to buy the rest of the Dutch company is too low and has come too early.

In fact, he called the $32.30-per-share offer "meager," and told Dow Jones Newswires that he thinks Crucell is in a transition phase and has the revenue potential of a biotech company along with the low risk profile one tends to see in other pharma companies. However, he declined to say whether Van Herk will tender its shares, indicating that Van Herk will wait for the formal offer. Van Herk Groep has a 9.6 percent stake in Crucell.

On the other hand, one of the other big investors in Crucell, Delta Lloyd Asset Management, with somewhere between 4 percent and 5 percent of the outstanding stocks, is more upbeat. Shortly after the deal was announced, Jack Jonk, head of equities at Delta Lloyd, said the proposal seems to be a move "in the right direction" and one that makes sense strategically, adding, "But it's to early now to assess [the bid] so we're going to take our time to study it."

Noting that the vaccine market has just about tripled over the past half-decade, and noting that "vaccines are increasingly regarded as a key revenue generator for Big Pharma, as they are generics-proof," Giles Somers, a senior healthcare analyst at Datamonitor, says, "Strategically, J&J has already made a number of acquisitions in infectious diseases, so the fit is very good."

"Furthermore, backed by J&J's global sales and marketing capabilities, Crucell could compete more effectively with the Big Pharma players already in the vaccines space," Somers adds.

Looking at the genesis of the current proposed deal, Somers notes that the acquisition talks come approximately a year after J&J signed an early-stage collaboration agreement with Crucell and also bought the 17.9 percent stake in the company.

"J&J paid an equivalent of €20.67 per share for the stake, reducing the likelihood of Crucell being acquired by another competitor," Somers explains. "Wyeth, for example, had been in negotiations to buy the company in 2009. Interestingly, a three-year standstill agreement meant that J&J could not raise its interest in the company without Crucell's consent, preventing a hostile takeover. However, it now appears that the companies are close to agreeing a deal for the remainder of the company. Under the terms of the negotiations, J&J would pay €24.75 cash per share, representing almost a 20 percent premium to the earlier purchase."

There really hasn't been much talk of other companies entering into a bidding war over Crucell, in large part because of J&J's large stake in the company, analysts have been noting, and Tom Muller of Theodoor Gilissen Bankiers says the price J&J is offering was well-deserved given Crucell's strong product pipeline and proven technologies.

"This is a nice premium," Muller notes, giving a "buy" rating for Crucell. "It shows that the company has created value over the past years. The shareholders will be willing to sell."

"There will not be a higher bid," said Fabian Smeets, an analyst at Rabo Securities in Amsterdam told Bloomberg, because of J&J's nearly 18 percent stake. "The shareholder base is very diverse and it will be difficult to band them together to force a higher bid," he says, also giving a "buy" rating on Crucell.

"We believe the chances for success are high [for the deal to go through]," agrees Jan de Kerpel, an analyst at KBC Securities. "The bid price on the remaining shares can be considered as a knock-out price and is substantially higher than the analysts' consensus target price" and he added that the proposed deal is additional proof that it is a matter of  "not if but rather when" other successful biotech companies with late-stage products will be bought.

"The acquisition would make strategic sense, in our view, with J&J the most natural bidder, given their pre-existing relationship," wrote analysts at Jefferies International, in a note to clients. "We continue to see long-term value in Crucell's vaccines portfolio and technology platform—in particular FluCell and the rabies antibodies, with the earlier-stage assets malaria, tuberculosis and HIV vaccines being high-risk options."

"Johnson & Johnson is a large pharmaceutical company that doesn't have a vaccine branch and vaccines are our claim to fame, so for us, its a very encouraging start for us to start spreading our wings," said Crucell Chief Executive Ronald Brus in announcing the deal in mid-September, adding that he would run the company as J&J's vaccine division if a deal is completed, but otherwise leave its leadership, staffing, existing facilities and such generally unchanged. J&J's due diligence is mostly complete, Brus has reported, though it is still too early to know for certain if the deal will go through; however, he hopes it can be completed by the end of this year.
 
(If you would like to share your thoughts about the J&J/Crucell situation, visit our blog post about the deal by clicking here, and avail yourself of the comment function)


Jeffrey Bouley

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