Japan's Shionogi inks $1.4 billion US acquisition

The prescription drug firm buys specialised US company Sciele in the fourth Japanese outbound pharmaceutical deal in less than a year.
Japanese prescription drug firm Shionogi announced yesterday it will buy US-based Sciele Pharma for a firm value of $1.4 billion to gain distribution in the US.

Shionogi will pay $31 per share for all of ScieleÆs outstanding shares, translating into an equity value of $1.099 billion. The price is a 57% premium to Nasdaq-listed ScieleÆs six-month share price up to Friday, August 29, and a 61% premium to ScieleÆs closing price on Friday. Shionogi will also redeem $325 million of senior convertible notes on the books of Sciele, taking the Japanese company's total outlay to $1.42 billion.

Goldman Sachs was the financial adviser to Shionogi, while Davis Polk provided legal advice. Sciele used UBS as financial adviser and Paul Hastings as legal adviser. Goldman Sachs and UBS had no comment.

For calendar 2007 Sciele had total revenues of $382.3 million, up 30% from 2006, on which it earned an Ebitda of $111.5 million, up 13% over 2006. Shionogi is paying 3.7 times revenues and 12.8 times Ebitda on a trailing basis. The company has given analysts a forecast that full-year revenues for 2008 will be in the range of $440 million to $455 million, representing a 15% to 19% increase from 2007. It expects diluted earnings per share for the year to be in the range of $1.97 to $2.07 per share.

Shionogi said it expects the deal to be accretive to earnings from the fiscal year ending March 2010 and that it does not expect any reduction of ScieleÆs 920-strong employee base.

For the fiscal year ended March 31, 2008, Shionogi posted net sales of Ñ214 billion ($1.99 billion), an increase of 7.3% over the previous year, on which it earned a net income of Ñ25 billion, up 35%. Shionogi has given guidance for a similar level of revenue growth of around 7.8% to Ñ231 billion in the current fiscal year, but has warned investors that conditions in the prescription drug market are ôforecast to become even more challenging with the national health insurance price revisions implemented in April this year, which reduced prices by an average of 5.2% across the industryö.

Sciele, a 15-year-old firm, will become an indirect wholly owned subsidiary of Shionogi and will continue to be based in the US state of Georgia. Sciele is a pharmaceutical company specialising in sales, marketing, and research and development of branded prescription products focused on cardiovascular, diabetes, women's health and pediatrics.

Shionogi said the deal was driven by its need to further penetrate the US market with its line-up of proprietary pipeline products. Shionogi already has a US subsidiary, Shionogi USA, but needs additional overseas sales infrastructure to enable it to fully realise the value of its pipeline. Part of the value of Sciele for Shionogi lies in the fact that 770 of ScieleÆs employees are sales representatives. Shionogi also said Sciele would help it to obtain approvals for its own drugs in the US.

Shionogi has Ñ47 billion of cash on hand and has raised another Ñ110 billion of bridge loans to finance the Sciele takeover. It is considering various take-outs for the bridge loans including long-term borrowings and bonds.

Japanese pharmaceutical companies are increasingly turning to outbound M&A as a way to fuel growth and gain access to both R&D capabilities as well as drug pipelines. And Japanese companies are sitting on piles of cash and have access to a banking system flush with funds to help them finance the multi-billion dollar deals they are announcing.

In December 2007, Eisai shelled out $3.9 billion for US bio-pharmaceutical firm, MGI Pharma to expand in the US and strengthen its pipeline of cancer treatments.

Then, in April, Takeda bought Nasdaq-listed Millennium Pharmaceuticals for $8.8 billion to gain access to its brands and pipeline of drugs under development for oncology, inflammation and inflammatory bowel disease.

Most recently, in June, Daiichi Sankyo acquired a controlling interest in IndiaÆs largest pharmaceutical major, Ranbaxy Laboratories, at a firm value of $8.5 billion. The Indian firm has a higher growth rate than its acquirer and gives Daiichi a chance to increase cost competitiveness by optimising R&D.

Shionogi announced the deal after the close of trading on the Tokyo Stock Exchange. Its shares closed down 0.6% at Ñ2,460 yesterday. Sciele lost 2% to close at $19.27 on August 29 on the Nasdaq (the last trading day before the Labor Day weekend), down from a 52-week high of $28.83 in October 2007.
¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media