Japan's Dainippon Sumitomo makes $2.6 billion bid for Sepracor

In yet another Japanese bid to extend its reach into the all important US pharmaceutical market,  drug major Dainippon Sumitomo has entered into an agreed transaction to acquire Sepracor for around $2.6 billion, or $23 a share, a 27.6% premium to the US firm's closing price on September 1.

Drug unit Dainippon Sumitomo Pharma (DSP) outlined in its mid-term business vision to 'strengthen our business foundation as a first step in becoming a global corporation.' As part of the efforts to realize this vision, DSP has been focusing on the global development of the antipsychotic drug, lurasidone, as well as considering the commercialization of this developmental drug in the USA through a locally-based sales and marketing organization.

In the USA, Sepracor owns several highly regarded and well-recognized products, including Lunesta (eszopiclone) for the treatment of insomnia, the Japanese firm notes. In addition, it has a fully integrated commercial organization that includes a strong sales network covering primary care physicians and specialists. DSP says it intends to significantly enhance its sales and marketing capability in the USA through the acquisition, which should enable DSP to accelerate its penetration into the US market and increase the potential to maximize product value of lurasidone there. The acquisition will also increase DSP's overseas revenue contribution to approximately 40% and immediately enhance DSP's clinical pipeline in the USA. DSP also intends to continue its efforts to improve its presence in the US market and to further expand its business in that market and in Canada.

To some, the deal appears expensive. Based on projections for 2013, the deal values Sepracor at 3.5 times sales, compared to 3.1 times for the average of other specialty pharmaceutical and generic drug industry acquisitions, said Aaron Gal, an analyst at Sanford Bernstein, quoted by the CNBC news service. It also values Sepracor at 19.4 times Earnings Before Interest, Taxes, Depreciation and Amortization compared to an average of 15.1 times for other deals, he noted.

"Arguably, Dainippon is buying a US sales force which it can leverage to promote its current and pipeline products," said Mr Gal. "We are unconvinced that this is the most sensible option for the company given the alternatives of building a sales team internally or acquiring a higher performing sales team at a more rational price," he added.

'The yen is very strong, and Japanese companies have been very active in this space over the last year,' said Les Funtleyder, an analyst with Miller Tabak & Co. in New York, in a telephone interview with Bloomberg ahead of the formal announcement. 'It's been pretty widely known that Sepracor has been shopping itself for a while. It's a cheap company, on a valuation basis,' he added.

Sepracor shares rose 28%, to $23.10 as of 2:03 pm New York time in Nasdaq Stock Market composite trading before the news. Earlier, the shares jumped as much as 31% in the biggest percentage intraday gain since March 1, 2004.