Japanese buying spree continues with $1.4B Shionogi-Sciele deal

As a summer of blockbuster Japanese-foreign market pharma deals fades away, Shionogi & Co. ended the active season with a bang last week when it announced its acquisition of Atlanta-based Sciele Pharma Inc. in an all-cash deal valued at $1.4 billion.

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OSAKA, Japan—As a summer of blockbuster Japanese-foreign market pharma deals fadesaway, Shionogi & Co. ended the active season with a bang last weekwhen it announced its acquisition of Atlanta-based Sciele Pharma Inc.in an all-cash deal valued at $1.4 billion.

Shionogi said it will offer $31 for each Sciele share, which represents a 61 percent premium over Sciele's closing price on Aug. 29, in a deal aimed at expanding its overseas sales infrastructure. The board of directors of both companies have approved the transaction, which is expected to close in the fourth quarter.

Calling its overseas expansion "an urgent priority for Shionogi in its pursuit of sustained growth in the mid- to long-term," Shionogi President Isao Teshirogi said the Osaka-based company was attracted to the "high productivity" of Sciele's 700-member sales force. Currently, Shionogi does not have its own sales network overseas, and now shares profits on its globally successful Crestor cholesterol-lowering drug with Astrazeneca PLC.

"As we have moved ahead on improving our product pipeline, we have been faced with increasingly imminent challenge of getting a hold of a sales network in the world's largest market," Teshirogi told investors last week. "Sciele has achieved steady sales expansion based on placing the needs of patients first, improving health and quality of life of patients, and implementing its business platform—an entrepreneurial spirit, innovation, speed of execution, simplicity and business principles and vision held by Shionogi management."

Sciele, a mid-size company that specializes in treatments for cardiovascular disease, diabetes, pediatrics and women's health, will become a wholly-owned subsidiary of Shionogi and continue operations in Atlanta as a stand-alone business unit.

In addition to boosting U.S. sales efforts, the Sciele acquisition will also give Shionogi the ability to develop Sciele's pipeline, which includes a hypertension treatment slated for release in 2009 and three mid-stage compounds—one for obesity, one for a skin disease indication and third for HIV— that could hit the U.S. market by 2012.

"Sciele will be a stronger company as part of Shionogi, which is one of the leading pharmaceutical companies in Japan, with an extensive product pipeline," said Sciele CEO Patrick Forteau in a statement. "Shionogi will rely on Sciele to continue to operate on the business platform that has made our company successful: speed of execution, an entrepreneurial spirit, innovation, simplicity and teamwork."

Following the announcement, on Sept. 2, Sciele stock jumped $11.41, or 59 percent, to close at $30.68. The stock last traded above $30 in February 2002. Some analysts noted that Sular, Sciele's hypertension drug, has been weighing on its share price since a generic version of the drug reached the market. Analyst Ken Trbovich of RBC Capital Markets told the Associated Press that sales of Sular have fallen 25 to 30 percent over the last few weeks. Still, despite questions about the potential performance of Sciele's drugs, they will be used as a "bridge" for Shionogi's U.S. revenue, Trbovich said.

"It's easier to buy these assets than to build it," he told the Associated Press.

Other analysts agreed, saying the deal fits well with Shionogi's strategy.

"Shionogi is not big enough to take over a large-size company and they don't need a pipeline. They need a sales force in the U.S.," said Toshihide Yoda, an analyst at Lehman Brothers in Tokyo.

The Shionogi-Sciele deal is the latest in a string of Japanese pharma acquisitions of overseas. companies. According to data provider Dealogic, there have been 13 outbound deals by Japanese health care companies this year, worth a record of $17.1 billion. Most recently, Takeda Pharmaceutical Co. Ltd. in May acquired Cambridge, Mass.-based Millennium Pharmaceuticals Inc. for nearly $8.8 billion, and in June, Daiichi Sankyo Co. agreed to acquire a majority stake in Indian generic pharma Ranbaxy Laboratories for up to $4.6 billion.

Windhover Information Managing Partner Roger Longman said it is "unsurprising, though again the specifics continue to astonish, to see Japanese companies continuing to snap up U.S. properties."

"A comparatively strong yen and a constricting home market are making the US look real good to Japanese companies," Longman said in a post on his In Vivo Blog. DDN

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