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Monday, 28 September 2009

Cashing in on swine flu - Johnson & Johnson taking an 18 % stake in Crucell NV

Health care giant Johnson & Johnson is jumping into the increasingly hot vaccine business by taking an 18 percent stake in Dutch biotechnology company Crucell NV as J&J boosts its focus on preventive medicine and infectious diseases.

Under the deal the companies announced Monday, Johnson & Johnson is spending $440 million (301.8 million euros) for new shares of Crucell in a deal focused initially on developing a universal vaccine or treatment against influenza from Crucell's genetically engineered antibody technology.

A universal flu vaccine — one that would work against all or most strains rather than having to be reformulated every flu season — has been an elusive goal some other pharmaceutical companies have abandoned. Amid the swine flu pandemic, it has suddenly become a bit of a Holy Grail.

Longer-term, Crucell and Johnson & Johnson will work on developing vaccines and possibly treatments based on antibodies against three additional disease targets, primarily in the area of infectious diseases. J&J already has numerous medicines or drugs in testing for bacterial and viral infections including tuberculosis, HIV and hepatitis C.

"This vaccine deal perfectly fits into infectious diseases ... and it makes the picture complete," J&J spokesman Frederik Wittock told The Associated Press, adding, "There are three potential compounds that are not disclosed in this deal."

All are what's called "monoclonal antibodies" — genetically engineered antibodies cloned over and over that are designed to hunt down a target in the body and either deliver a medicine to the target or alert the body's own immune system to attack it. The companies aren't saying what diseases the compounds would target.

The initial work would focus on a vaccine that could block both seasonal flu and the current swine flu pandemic strain, as well as bird flu.

"This is absolutely the right thing to do" for J&J, analyst Steve Brozak of WBB Securities said of the deal. "This is a sign of things to come."

He said Johnson & Johnson is likely to enter similar partnerships and make smaller acquisitions instead of megadeals, such as the pending acquisitions of Wyeth by Pfizer Inc. and Schering-Plough Corp. by Merck & Co.

Also Monday, Merck announced a deal to market and distribute Australian vaccine maker CSL Ltd.'s seasonal flu vaccine Afluria.

"Both J&J and Merck are making bets on the next generation of vaccines and their importance to the global health system," Brozak said.

In August, Leiden, Netherlands-based Crucell was awarded grants worth up to $69 million by the U.S. government to develop its range of monoclonal antibodies for influenza, which Crucell says have shown early promise in fighting "a wide range" of seasonal and pandemic flu viruses. The company claims the antibodies can even fight flu strains resistant to Tamiflu — the medicine currently most often used to slow their progression.

Crucell CEO Ronald Brus said his company was overwhelmed with interest after it published results in Science magazine showing the treatment's potential, but Johnson & Johnson offered a deal that preserved a fair share of future profits for Crucell.

In addition, he said Crucell didn't want to partner with any of the top five players in the vaccine market because they make large amounts of money from selling annual flu vaccines and so would have conflicting interests.

"You want to partner with the one that wants to enter the market, not the ones that want to defend their market," he said.

New Brunswick, N.J.-based Johnson & Johnson, with about $64 billion in annual sales, is the world's biggest and most broadly based health care company, with products ranging from Band-Aids and baby shampoo to contact lenses and contraceptives.

While J&J is one of the top biotech companies, with its Centocor division, it's new to the vaccine game. But this summer, it made a similar move by taking a stake, also 18 percent, in Irish biotech company Elan Corp. in a collaboration to develop both treatments for and a vaccine against Alzheimer's disease — another key target of the pharmaceutical industry. J&J will invest up to nearly $1.4 billion.

Under the deal, Crucell will retain the right to market products the companies develop jointly in Europe, while Johnson & Johnson will market them in the rest of the world.

Crucell will receive additional royalties and payments from Johnson & Johnson "worth hundreds of millions," Brus said, if the flu cure is marketed.

In New York trading, U.S. shares of Crucell fell $1.39, or 5.9 percent, to $22.31, while J&J shares rose 76 cents, or 1.3 percent, to $61.38.

Johnson & Johnson said the purchase would reduce its per-share earnings by 2 cents to 4 cents in 2009.

The agreement with Johnson & Johnson specifies that the U.S. company won't buy any more of Crucell's shares for three years without Crucell's consent.

By Toby Johnson

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