Daiichi Sankyo looks to have embraced the adage ‘if you can’t beat em, join em’, with its €150m ($235m) acquisition of private German biotechnology group U3 Pharma. While the acquisition looks small fry compared to some of the recent extravagant purchases by its fellow countrymen, the deal could mark the start of more aggressive expansion plans for the Japanese drugmaker.
The addition of U3 Pharma will give Daiichi Sankyo a range of fully-human antibodies that could act as potential therapies for breast, lung and colorectal cancers. Beefing up its oncology offering is sensible, because the therapy area is set to grow the fastest over the next five years, with compound annual growth of 10%, valuing the segment at $70bn by 2012, according to consensus forecasts from EvaluatePharma.
This compares with the 1% growth that would have come from Daiichi Sankyo’s existing oncology and immunomodulators division of three low-selling marketed products, three phase II candidates, including leukaemia drug CYC682, and two phase I products. The group also has a research collaboration with Morphosys, signed in 2006, that is not expected to yield results for some time.
U3's lead cancer treatment is U3-1287 (AMG 888), which is being co-developed with Amgen, and is expected to start clinical trials this year.
But while $235m is unlikley to cause Daiichi Sankyo's finance director to fret too much about the future return on investment, the fact that Antisoma bought Xanthus Pharmaceuticals for $52.2m with two clinical stage products, demonstrates how much shrewder those with limited cash have to be compared to their bigger rivals.
Playing catch up
Until now Daiichi Sankyo had been more conservative than other Japanese companies, who in turn are only just beginning to show some adventure in international deal making. Rather than close the big kind of deals that have catapulted its rivals into the headlines, Daiichi Sankyo had been quietly building up subsidiaries in other countries and striking marketing agreements.
Earlier this month the group announced that its European operations had opened up a subsidiary in Turkey. Daiichi Sankyo has also recently signed a deal with GlaxoSmithKline to promote its blood pressure drug Benitec through its India subsidiary that was established in March 2007. But rather than continue with distribution deals, full scale operations are due to start at the plant soon.
This seeming reluctance to make a foreign acquisition had made it appear to be falling behind its local rivals who have in the last 12 months made a string of high profile acquisitions.
In April, Takeda announced that it would be buying Millennium Pharmaceuticals for $8.8bn, in an attempt to get its hands on the group’s promising oncology drugs and US sales force. Three months earlier Eisai agreed a $3.9bn deal for MGI Pharma, another company with a large cancer franchise and a possible route into the US market.
The race to get western assets has partly been driven by the maturing drug portfolios that are leaving many Japanese companies open to generic competition, coupled with an increasingly hard stance from the government that is encouraging the use of more generics and continuing to cut the price it will pay for drugs every two years.
More to come?
This is unlikely to be the last acquisition for Daiichi Sankyo, which is not only sitting on $4.3bn in cash, but earlier this month announced at its full-year results that 2008 profits were likely to fall as it increased its presence in the US and R&D spend, causing its shares to fall despite a 15% rise in operating profits.
Spending to accumulate could be wise given the expected slow down in growth for its main stay products including Cravit and Mevalotin, and the recent set back of having its anti-anaemia treatment, Injectafer, rejected by the FDA.
But alongside further acquisitions, another catalyst to growth could be the key June 26 decision on whether the FDA will approve the anti-clotting treatment Effient. Getting the drug, which is partnered with Eli Lilly, to market would provide an important milestone for Daiichi Sankyo, who has not had a drug approved in the US since 2002. It could also be the spur for the group to make an even bolder move and do a deal in the US.