Johnson & Johnson (J&J), the health-care giant is set to acquire cancer drug developer Cougar Biotechnology Inc. for about $1 billion, aiming to expand its business in the area of oncology - the branch of medicine dealing with tumors.

J&J announced on Thursday that it has entered into an agreement with Cougar to initiate an offer for acquisition of all the outstanding shares of Cougar at $43 per share in an all cash deal. The offer price is at a premium of 16.28 per cent to Thursday's closing price of $36.98 in Nasdaq.

J&J said the deal will be completed in the third quarter, which will trim down the 2009 earnings per share of the company by 2 to 3 cents.
 
The Los Angeles-based cancer drug developer has in its portfolio a key product, abiraterone acetate–a drug for the treatment of prostate cancer – in the late-stage testing along with other drugs in early stages of development, for the treatments of breast cancer and hematological malignancies.
 
The prostate cancer pill is intended to stop tumer cells reproduction, thereby prolonging the life of the patients, with negligible side effects.

Cougar, as well as its competitor San Fransisco-based Medivation Inc. would be presenting key data at the American Society of Clinical Oncology annual meeting scheduled on May 29.

The move by J&J, the New Jersey-based global manufacturer of pharmaceutical, medical devices and packaged goods indicate its interest in smaller companies to compensate for the patent expiry problems, whereas other peers resort to mega deals.

Recent mega deals include Pfizer's $68 billion takeover of Wyeth, Merck's $41-billion buyout of Schering-Plough and Roche's $47 billion acquisition of Genetech. (See: Pharma majors under merger pressure after Merck-Schering deal)

The global financial crisis has propelled many smaller drug makers to merge with financially sound entities to wade through the turmoil.

Last month GlaxoSmithKline had shown interest in another smaller drug maker Stiefel Laboratories which makes drugs for skin treatments. (See: GSK close to acquiring Stiefel Lab for $3 billion).

J&J said in a statement, the acquisition of Cougar Biotechnology with its talented team would strengthen their growing capabilities toward a leadership position in the global oncology market.

Cougar is expected to become part of J&J's oncology research wing, Ortho Biotech Oncology R&D. Currently Cougar has no marketed products, whereas J&J has Velcade for multiple myeloma and Yondelis for ovarian cancer, which has been filed for FDA approval.

J&J registered a turnover of $63.7 billion in 2008 and the company is in a healthy financial position with a cash reserve of $12.59 billion by the end of March.
However, the company's drugs division reported a slump of over 10 per cent in the first quarter as its patent for Risperdal–antipsychotic drug–expired last year and the sales of few key products plunged.

Some analysts feel that J&J may have to top up the offer, in case other potential buyers turn up.

The rival bidders could be Eli Lilly & Co., Sanofi-Aventis or Takeda Pharmaceutical Co. who could add another $100 million to the offer to raise the acquisition price to $48 per share.

It is felt that since Cougar has no late-stage data yet, the risks could remain. Two major trials, the phase III study on chemo-experienced as well as chemo-naïve patients could be available by 2010.

Responding to the news of acquisition, Cougar shares shot up 15.79 per cent yesterday to close at $42.82 in New York, and J&J shares closed 0.4 per cent lower at 54.77.

The Cougar shares had risen over 70 per cent since February on investor speculation on a possible J&J acquisition, till signing of the actual agreement yesterday.