Abbott, J&J strike deals, boost vaccines (Reuters)

Monday, September 28th, 2009 | Finance News

AMSTERDAM/NEW YORK (Reuters) –
The world's two largest diversified healthcare companies struck deals on Monday that will propel them into vaccines, a red-hot area for investors because of the pandemic flu threat and potential high profits for preventing other diseases.

Jumping on the vaccines bandwagon, Abbott Laboratories (ABT.N) agreed to buy the drugs unit of Belgium's Solvay (SOLB.BR) in a $6.6 billion (4.5 billion euro) cash deal.

Abbott will gain Solvay's Dutch cell-based flu vaccine production facility, which can produce both seasonal and pandemic influenza vaccines. Flu vaccines last year brought Solvay $201 million (137 million euros), or 5 percent of its pharmaceutical sales, but the new facility is expected to boost potential output and demand for the products.

The deal also gives Abbott a slate of Solvay medicines, including cholesterol drugs the companies now co-market, and expands its reach into Russia and other emerging markets.

Johnson & Johnson , the world's largest healthcare company by market value, bought an 18 percent stake in Dutch biotech company Crucell (CRCL.AS)(CRXL.O) for $444 million (302 million euros) as part of a flu vaccine development deal, Crucell said.

Vaccine-makers have been desirable M&A targets recently, particularly for large drugmakers eager to secure new products as exclusivity on existing best-selling products nears an end.

Vaccines can be complicated to manufacture and therefore less vulnerable to eventual generic competition.

Recent advances in preventing diseases as diverse as cancer and flu have taken vaccines beyond their traditional marketplace for babies and established immunization as an option for adolescents, adults and the elderly.

Fears of a pandemic form of the H1N1 swine flu have intensified urgency to develop vaccines.

Merck & Co (MRK.N), already a major player in vaccines, agreed with CSL Ltd (CSL.AX) to distribute the Australian company's seasonal flu vaccine in the United States for an undisclosed amount.

GlaxoSmithKline (GSK.L) sealed a $2.2 billion deal on Monday with Brazil guaranteeing sales of its pneumococcal vaccine for 10 years, demonstrating how vaccines can help drugmakers gain ground in important emerging markets.

NO FINANCIAL CONSTRAINTS

Abbott expressed optimism the Solvay deal could bolster profits over the next two years beyond its own forecast, helping lift company shares 3.3 percent to $48.89.

"This is a great use for the assets and a heck of a good return," Abbott Chief Executive Miles White said on a conference call with analysts. White said Abbott is not "financially constrained at all" in pursuing other deals.

Solvay shares were little changed, closing at 74.65 euros.

In chasing Solvay, Abbott trumped a bid from Swiss drugmaker Nycomed (NYCMD.UL), people familiar with the matter said.

Abbott said the deal should add 10 cents to ongoing earnings per share in 2010, doubling to more than 20 cents by 2012 and increasing thereafter.

Abbott had been reviewing a potential Solvay deal for months and had little initial interest, but changed its mind over the summer after gaining a better understanding of Solvay's drugs and their sales potential, White said.

"We did more homework and made the increased effort," said White, who has overseen four other deals this year. The Solvay transaction should help Abbott continue to deliver double-digit percentage earnings growth in coming years, he said.

A UNIVERSAL FLU APPROACH

J&J's transaction with Crucell will focus on developing "flu-mAb," a universal product meant to prevent infection with all influenza A strains as well as to treat patients who are already infected. The strains include seasonal flu and H1N1 swine flu strains, along with the H5N1, or avian, strain.

"A universal antibody or vaccine that protects against a broad range of strains would be an important advance in helping ... control acute epidemic and pandemic outbreaks," said Paul Stoffels, head of pharmaceuticals R&D at Johnson & Johnson.

Shares of Crucell fell 3.8 percent, as the sale of the stake to J&J ignited worries that a speculated takeover of the company will not happen. J&J shares were up 1.4 percent.

Crucell has previously been in takeover talks with U.S. drugmaker Wyeth (WYE.N), but discussions were broken off in January after Pfizer (PFE.N) moved in to buy Wyeth.

Johnson & Johnson expects the deal to decrease its 2009 earnings by 2 to 4 cents per share.

Crucell issued 14.6 million new Crucell shares to J&J, which paid about a 30 percent premium based on the average price of Crucell shares in the past 35 days, or about 20.63 euros per share.

($1=.6810 euros)

(Additional reporting by Philip Blenkisop and Jan Harvey, writing by Jason Neely and Lewis Krauskopf; Editing by Simon Jessop, Maureen Bavdek and Matthew Lewis)

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