JNJ / Omrix: Potential Synergies

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 |  Includes: JNJ, OMRI
by: Eben Tessari

Johnson & Johnson (NYSE:JNJ) and Omrix Biopharmaceuticals (OMRI), a biopharmaceutical company that develops and markets biosurgical and immunotherapy products, announced a definitive agreement whereby Omrix will be acquired for approximately $438 million in a cash tender offer. Omrix is expected to operate as a stand-alone entity reporting through ETHICON, a J&J company and leading provider of suture, mesh, hemostats and other products for a wide range of surgical procedures.

The acquisition of Omrix would strengthen its presence in active, biologic-based hemostats and convergent products for various surgical applications. ETHICON currently has exclusive distribution rights in the U.S. and the European Union for EVITHROM(TM) Thrombin Topical (Human) and EVICEL(TM) Fibrin Sealant (Human), two active, biologic-based hemostats manufactured by Omrix. ETHICON and Omrix are also partnering on a Fibrin Pad product candidate, currently in Phase II clinical trials, as an adjunct to control mild to moderate soft tissue bleeding.

Terms
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- J&J to purchase all outstanding shares through a tender for $25/share

- 18% premium over last close and ~51% over last months average trading price

- $358M total net of estimated cash on hand

Assuming this transaction closes in 2008, Johnson & Johnson is expected to incur an estimated one-time, after-tax charge of approximately $120 million reflecting the write-off of in-process research and development charges (IPR&D). The acquisition is expected to be breakeven to slightly dilutive to Johnson & Johnson’s earnings per share in 2009.

Omrix has taken a big hit this year dropping from their 52 week high of 38.18 to a low of just 8.99 after a disappointing update regarding their phase 2 fibrin coagulant patch. I think JnJ got a pretty good bargain here.