Johnson & Johnson Must Acquire Small Pharmas to Ensure Future Growth

A lot of the future growth for large pharmas comes from scooping up samll companies when they have been beaten down by the market.

If you're a holder of a large pharma company, you need to aggressively push them to looking for good values. This is a great time, as many of the small bios/healthcare stocks are trading near all time lows.

I am a holder of Johnson & Johnson (JNJ) and have been for 9 years. Recently, on February 28th, 2008, a private company Veridex announced FDA approval for its prostate cancer CTC system. This is now the 3rd CTC testing system that they have received FDA approval for. Well, Veridex is owned by Johnson & Johnson.

Now this is where it gets interesting. If you research Veridex, they actually just have a contract with Immunicon (IMMC) to sell the products. Immunicon owns the patents and produces the technology for the CTCs. Immunicon gets 30% of revenue from Veridex sales. Immunicon's revenue was up 86% y/y without the most promising prostate CTC. Their stock has fallen to a near low of .26 cents. With only 31 million outstanding shares, JNJ could buy IMMC for, say, $1.50 a share. This would only be 46 million, in which IMMC has around 18 million cash after debt and tax benefits that would equal around 40 million over the next couple of years.

JNJ could buy this company for nothing once all is factored in. They will pay them an estimated 15-20 million just this year. So after the next 14 years of their contract, what will they pay them if they still do not own the rights? If you are a JNJ shareholder, you need to pressure them into moving forward on a offer for this company and look for others like this. JNJ's Veridex is nothing without IMMC, and this is one of many steps to future growth.

Disclosure: I am long JNJ

Comments

[John C]

Great idea, but how can a small investor have an influence in strategic decision making?

[mkreisel]

One reason to invest is to trust others because you can't do it yourself.

The trick is to find competent and trustworthy people in a favorable business, and the price must be good too.

[User 172200]

JNJ SHOULD move higher into the 70s within a year .. Why ? : -"The Right demographics"-&am... well known products, Large international participation , Nice dividend that Grows EVERY year 10-12%, Predictable earnings Growth, Diversification, Solid management .... What's not to like ??

[Pj568]

Confused by paragraph 2!!!

Is Veridex a private company or is it own by JNJ?

If everything is so rosy why would IMMC sell at $1.50?

If JNJ buys IMMC, they will face the same risks as they did with Conner (write off). There's nothing wrong with a 70% gross profit margin with risk limited to marketing and selling costs.