The all-cash bid is Astellas' second for the sought-after OSI after a March 1 $3.5 billion offer was rejected. Astellas will pay $57.50 per OSI share, 11% more than the first offer and 55% more than OSI's last closing price before Astellas starting bidding. OSI closed at $59.80 Friday.
OSI's money-making cancer drug Tarceva generated $1.2 billion in sales last year and is projected to bring in $7 billion in revenue through 2020. Astellas wants to build a global cancer-drug business and jointly develop more cancer drugs with OSI.
OSI brought in $428 million in revenue last year, and Astellas is expecting the deal to add $368 million (34 billion yen) to its revenue by March 2011.
"With Astellas, you have to look at the longer term," Jason Zhang, a BMO Capital Markets analyst, told Bloomberg. "This is a step into the U.S., and into oncology. I think this is good for them."
Besides Tarceva, Astellas gets three cancer drugs with its OSI purchase that are currently undergoing clinical tests, a 90-person U.S. sales and marketing team, and offices in the United States and United Kingdom.
Profits Falling Off the "Patent Cliff"Astellas last week announced, along with Japan's largest drug maker Takeda Pharmaceutical Co., that it was cost-cutting due to generic competition eating into profits.
Takeda estimated a 26% net income loss in the year ending March 2011 and Astellas said profits would drop 13% this fiscal year, making for a third consecutive yearly loss. Takeda planned to eliminate jobs while Astellas aimed to cut its research and development spending.
Part of the problem is that "Japanese drugmakers, even Takeda, don't have a strong global presence," Mitsushige Akino, from Ichiyoshi Investment Management Co., told Bloomberg.
Astellas' OSI bid is a significant step toward increasing its global footprint and erasing concern over the "patent cliff" losses, as a slew of pharmaceutical companies' patents are facing expiration in 2010.
Astellas' revenue was slated to keep falling on losses from transplant drug Prograf, for which the patent expired last August, and urinary drug Flomax that expired in March.
"It's a little bit unusual in that a Japanese company should decide to go hostile, but shows their determination, and emphasizes that for pharmaceutical companies this use of M&A to supplement their R&D activities is not just nice to have, it's pretty fundamental," said a banker at a global investment bank whose name was not provided, to the Financial Times. "It's not as if there is some vast long list of companies available and a nice fit."
Mergers and acquisitions of pharmaceutical companies hit a new high in 2009 with $169 billion in deals being sealed. Pfizer Inc. (NYSE: PFE) bought Wyeth for $68 billion; Merck & Co., Inc (NYSE: MRK) paid $41 billion for Schering-Plough. Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA) shelled out $5 billion in March for German generic producer Ratiopharm to compensate for its top-selling drug facing patent expiration.
While U.S. companies are preparing for a new healthcare environment, Japanese drug makers are bracing for the country's goal to increase generic usage to 30% of the market to reduce healthcare costs, so companies are finding their ways into the U.S. pharmaceuticals market.
Takeda bought Millennium Pharmaceuticals Inc for $8.9 billion and Eisai Co., Ltd. bought MGI Pharma, Inc for $3.9 billion in 2008. Astellas unsuccessfully went after CV Therapeutics, Inc. last year but lost to Gilead Sciences, Inc. (Nasdaq: GILD).
"Investors were worried that Astellas might fail to buy a foreign firm again," Atsushi Seki, a drugs analyst at Barclays Capital, told Reuters. "That they have managed to clinch the deal will probably wipe out investor anxiety about Astellas' management."
M&A activity in the industry is expected to continue through this year. In a 2010 pharmaceuticals/biotech outllook report, Morningstar analysts picked Vertex Pharmaceuticals Inc. (Nasdaq: VRTX), Auxilium Pharmaceuticals, Inc. (Nasdaq: AUXL) and Human Genome Sciences (Nasdaq: HGSI) as the top three takeover targets this year, with all three having drugs nearing the market.
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