Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Medivation Inc (MDVN), Dendreon Corporation (DNDN): 3 Positives From Johnson & Johnson (JNJ)’s Latest Acquisition

Johnson & Johnson (NYSE:JNJ) completed its acquisition of privately held Aragon Pharmaceuticals earlier this week. Plans for the deal were first announced by J&J in June. Buyouts of smaller companies don’t always work out that great, but the Aragon pickup should be good for Johnson & Johnson (NYSE:JNJ) — and its shareholders. Here are three positives that I see from this latest acquisition.

Source: Johnson & Johnson.

1. Good fit

Johnson & Johnson (NYSE:JNJ)’s Zytiga pulled in sales of $961 million in 2012. This year is looking to be even better, with sales for the prostate cancer drug totaling $739 million in just the first six months of 2013. That’s the good news. The bad news is that Johnson & Johnson (NYSE:JNJ) loses patent exclusivity for Zytiga in a little over three years from now.

Aragon’s androgen receptor signaling inhibitor ARN-509, which is in phase 2 clinical trials, appears to be a good fit for J&J. Like Zytiga, ARN-509 targets prostate cancer. If eventually approved, the drug could potentially be marketed as a complementary treatment alongside Zytiga. Johnson & Johnson (NYSE:JNJ)’s sales team should be able to easily incorporate the second product into their strategy.

2. Good move to fend off rivals

With Zytiga going off-patent in 2016 and no potential replacement in late-stage studies, J&J has reason to worry about its prostate cancer franchise. Several other companies would love to capture market share from the big drugmaker.

Medivation Inc (NASDAQ:MDVN) is coming on strong with its prostate cancer drug Xtandi. The company, along with partner Astellas Pharma, racked up nearly $158 million in sales for Xtandi during the first half of this year. Like ARN-509, Xtandi is an adrogen receptor inhibitor.

Dendreon Corporation (NASDAQ:DNDN) is also still plugging away with prostate cancer vaccine Provenge. While Provenge has been a big commercial disappointment since its approval in 2010, Dendreon Corporation (NASDAQ:DNDN) is making efforts to position the vaccine as part of a regimen that includes rival drugs. The company has a clinical study under way with Provenge in combination with Zytiga and another study in process with Xtandi.

3. Good use of cash

As of the end of June, J&J reported total cash (including cash equivalents and short-term investments) of more than $25 billion. Putting that cash to good use seems like a smart move. I think the purchase of Aragon qualifies as a good use.

J&J paid $650 million up front for Aragon with up to $350 million more to possibly follow if specified milestones are reached. Basically, we’re talking about paying at most $1 billion for a prostate cancer program that could realistically bring that much or more in every year if all goes well.

Investors are hoping they get to experience a bit of deja vu with the Aragon acquisition. J&J gained Zytiga with its buyout of Cougar Biotechnology in 2009. The price tag for that purchase? $1 billion. Zytiga made most of that cost back in its first year on the market.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.