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Consolidation continues in the pharmaceutical sector, with Johnson & Johnson set to scoop up Switzerland’s Actelion in the biggest European drugs takeover in 13 years.

The US giant will acquire the Swiss firm, which is Europe’s biggest biotech company, in a $30 billion all-cash buyout. Johnson & Johnson will significantly diversify its drug portfolio as a result, adding established medications and late-stage products, including a treatment for resistant hypertension and a range of high-price, high-margin treatments for rare diseases.

Downward pricing pressure, expiring patents and declining R&D productivity are cited as causes for a years-long era of consolidation in pharmaceuticals and biotechnology. Johnson & Johnson’s biggest product, the arthritis medication Remicade, is currently facing cheaper competition. The New Jersey-based group, which is the world’s largest healthcare company, reported disappointing results in the most recent quarter.

As part of the deal, Actelion will spin off its research and development pipeline, including drug discovery operations and early-stage clinical development assets, into a new Swiss biopharmaceutical company with the working title R&D NewCo. The new company will be headed by Jean-Paul Clozel, Actelion’s Chief Executive and co-founder. Jean-Pierre Garnier, Actelion’s Chairman, will serve as Chairman. Johnson & Johnson will own 16% of the company, with rights to acquire an additional 16%.

The deal will put Actelion’s established drugs into Johnson & Johnson’s bigger commercial organisation, yet leave its riskier early-stage R&D assets in the new spinoff company. Urs Beck, a fund manager at EFG Asset Management, an Actelion shareholder, expressed support: “J&J is a good partner with a huge distribution network. For Actelion's founders that is certainly a good solution. Mr and Ms Clozel can do research for another 20 years and J&J has gained an interesting indication”.

Reuters reports that Johnson & Johnson will pay $280 a share – a 23% premium to Actelion’s closing price on January 25, when the deal was announced. This is more than 80% above the November 23 closing price, before reports of a potential takeover emerged. “The price is quite high at around 30 times price to estimated 2018 earnings. J&J is paying a lot and R&D is not even included, just a substantial minority stake”, noted one Zurich-based trader. “But it represents only 10% of (J&J’s) market capitalization and they are finally investing the cash they hold in Europe.”

The deal won unanimous approved from the boards of both companies, and is expected to close by the end of the second quarter. Actelion shareholders will need to agree to the spinoff and to selling a minimum of 67% of their shares to Johnson & Johnson. The acquisition is also pending regulatory approval.

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