This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Johnson & Johnson Gets Key Cancer Drug With Aragon Buy

NEW YORK ( TheStreet) -- The last time I talked about health care giant Johnson & Johnson (JNJ - Get Report) I said the stock looked "too healthy".

Aside from concerns about the company's valuation, I didn't feel comfortable about Johnson & Johnson's margins; nor did I feel that the company's top-selling drug, Zytiga, was the answer to long-term prosperity.

My biggest source of anxiety stemmed from the competition for which Johnson & Johnson seemed to be unprepared. One threat was from Medivation (MDVN - Get Report). In that article, I said:

"I do wonder, though, how JNJ will respond to increased competition and further threats of weakening margins.

"Companies like Medivation -- which has a strong oral medication drug that rivals Zytiga -- should not be taken lightly. This is where JNJ's extraordinarily well-diversified business should offset potential near-term headwinds."

Well, it's taken two months but investors have finally gotten some answers. On Monday, Johnson & Johnson announced it agreed to acquire privately held Aragon Pharmaceuticals for $650 million in upfront cash. It may pay as much as $1 billion if certain milestones are met.

The deal gives Johnson & Johnson rights to Aragon's ARN-509, a prostrate cancer drug now in Phase II development. That may weaken Medivation, whose drug Xtandi has become a dominant force in battling prostate cancer.

Medivation has been fighting Aragon to keep ARN-509 off the shelves, suggesting that Medivation holds the rights to the drug -- claims that have led to legal action.

In the middle of all of this has been Aragon, which has had difficulty financing ARN-509's development. But with Johnson & Johnson, financing will not be an issue. Medivation's management, which now sees potentially faster development of a competing drug, understands that.

But they also understand that ARN-509 will complement Zytiga's strengths and give Johnson & Johnson the ability to take on new approaches to treat prostate cancer patients that Johnson & Johnson would have otherwise not considered. That forces the hand of Medivation, which is not in a position to take risks.

I'm not suggesting Johnson & Johnson has effectively killed any of Medivation's growth potential. The deal is just one move in a long chess game. Plus, the purchase still has to pass regulatory approval -- although I believe it will.

In the meantime, Medivation still has legal pieces it can play, even if that only serves to sedate Johnson & Johnson's momentum. But will it matter?

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
JNJ $101.08 0.62%
MDVN $131.01 -1.13%
AAPL $130.28 0.47%
FB $81.53 -1.07%
GOOG $565.06 3.30%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs