- Johnson & Johnson is hunting for biotech and medical device companies to buy, top executives said Tuesday, as they prepare to split the drugmaker in two and spin off its consumer health division by next year.
- Their focus, however, will be on acquisitions that are smaller or mid-sized, rather than larger, potentially more disruptive deals that executives said are harder to make work financially and operationally.
- "We are constantly looking at M&A as a key source of growth for our business," said Joaquin Duato, J&J's new CEO after longtime chief executive Alex Gorsky stepped down from the role this month. "We'll continue with our focus on tuck-in acquisitions but not excluding, if the situation is granted, to look at medium-size opportunities."
With no large-scale acquisitions of biotechs in 2021, the total value of M&A activity in the industry fell for the second year in a row as pharmaceutical companies prioritized smaller deals.
But sliding market valuations for biotechs, coupled with swelling cash balances at big drugmakers, has led analysts to again predict a rebound in M&A this year.
Declining stock prices don't mean biotechs are selling themselves for cheap, though, J&J CFO Joe Wolk said on the company's fourth quarter earnings call Tuesday.
"It's really hard to say whether there's been a capitulation or a recognition that values have come down," Wolk said. "I don't think things are out there necessarily on sale. But I will say that it really just takes two parties to agree on a valuation that makes sense."
Executives at smaller biotechs, for example, may not be willing to mark down the value of their company's science due to a weak market, at least not yet.
J&J's preference for less pricey deals mirrors a position held by several other big pharmaceutical companies, executives of which have recently indicated they're seeking "bolt-on" acquisitions. A small or mid-sized deal for J&J, which has a market capitalization of $435 billion, may look large to others, however.
On the conference call, Duato said J&J doesn't have an "artificial ceiling" on deal size, pointing to the company's $30 billion buyout of Actelion in 2017 as an example of a larger acquisition.
"But we tend to prefer these small [deals for] new molecules, new devices that we can apply a lot of our scientific technology, regulatory expertise and ultimately create these $1 billion platforms," Duato said.
On Tuesday, J&J reported 2021 sales of $94 billion. Pharmaceutical revenue, at $52 billion, made up the bulk of that total and rose 14% from the year prior on faster sales for J&J's cancer drugs Darzalex and Erleada as well as its immune medicines Stelara and Tremfya.
Sales of J&J's COVID-19 vaccine reached $2.4 billion last year and the company expects that figure to grow to between $3 billion and $3.5 billion in 2022.