Talks between Sanofi and Actelion could yet fall apart, cautioned the people informed about the situation.
After J&J's announcement, Actelion issued its own statement, saying it was "engaged in discussions with another party" without giving more detail.
Actelion's share price was down around 9% this morning on the news that J&J had pulled out of talks. However, one person close to the Swiss group said the French company had emerged as a more serious buyer than the U.S. suitor.
Analysts had previously identified France's Sanofi as a potential buyer for Actelion, whose portfolio would supplement the French drugmaker's Genzyme rare disease unit.
Actelion - Europe's largest biotech - was built by Chief Executive Officer Jean-Paul Clozel, his wife Martine Clozel and a team of scientists who split from Roche Holding AG. Sanofi declined to comment on the WSJ report.
"Winning a bidding war when it comes to acquiring biopharmaceutical companies nearly always equates to way over-paying", wrote Tim Anderson, Bernstein analyst.
Two people close to the company's top management said that J&J, which has a cash-rich balance sheet, remains firmly committed to securing a big deal in 2017, but at the right price. "If Actelion were to go out at around $30 billion, this equates to around 13 times sales and 30 times earnings before interest and taxes".
J&J's decision to abandon negotiations was mainly a result of failing to reach an agreement over price, said a source close to the USA group. The source stressed that the disagreement was purely over price.
It's a leader in the pulmonary arterial hypertension (PAH) market with key drugs like Opsumit, Tracleer, Ventavis, Veletri and Uptravi.
They aim to expand in drugs for multiple sclerosis and clostridium difficile, but regulatory approvals for those are years away.
The company is also counting on its new pulmonary arterial hypertension treatments Opsumit and Uptravi, which combined are forecast to bring in almost SFrt4.5 billion in annual sales by 2020, according to Reuters data.
Ending deal negotiations without a sale would likely subject Clozel to new shareholder pressure.