Johnson & Johnson (JNJ): Why Might This Play Shake Up the Cancer-Drug Industry?

The future looks bright for Aragon’s treatment. In early trials, the drug has successfully reduced the size and aggressiveness of early-stage prostate tumors and may actively impede the process by which the cancer typically metastasizes. If these results are borne out by future trials, the drug could represent a powerful new alternative to aggressive radiation therapy, chemotherapy or castration surgery. Such “disruptive” drugs can be worth several billion dollars per year in revenue.

What It Could Mean for Competitors

Johnson & Johnson’s aggressive play will have ramifications for all of the cancer-focused firms with which it competes. This deal’s biggest impact may well be felt by Medivation, a smaller firm that produces a successful, recently commercialized prostate cancer treatment. Medivation claims that it owns the rights to Aragon’s compound and has been pursuing a variety of legal actions to exercise this supposed prerogative. Obviously, Aragon does not agree with this sentiment. Johnson & Johnson (NYSE:JNJ)’s acquisition will bring virtually unlimited resources to this legal fight and provide Aragon’s drug with an open-ended development commitment. As such, Medivation may soon find itself struggling to keep pace with its larger competitor.

Is There a Play Here?

Investors who wish to play this deal should look to buy Johnson & Johnson’s stock on temporary weakness. Although this acquisition will not produce sustained income for several years, the wait could easily turn out to be worthwhile. In the meantime, Johnson & Johnson offers a solid yield and has plenty of other strong points. While a late-stage failure could temporarily set the firm back, Johnson & Johnson is too powerful to ignore.

The article Why Might This Play Shake Up the Cancer-Drug Industry? originally appeared on Fool.com and is written by Mike Thiessen.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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