IDM and Victory snapped up as Japanese appetite for overseas deals continues

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IDM Pharma has found its saviour just in the nick of time. With only $7m in the bank and every possible activity on hold to conserve cash, the group has received and wisely accepted a $69m takeout offer from Takeda.

News of another overseas foray by a Japanese drug maker emerged today, with Shionogi’s $150m acquisition of Victory Pharma, a privately owned specialty group focused on the pain market. Both are very different deals; the former is in the oncology space and the latter certainly not a distressed sale. However they do provide further evidence, if any is needed, of the growing presence of Japanese firms around the table when deals are being negotiated (see table below).

As the table below illustrates, a couple of years after a wave of mergers within Japan in 2005, the countries’ drug makers started to look for growth overseas. A stagnating domestic market, largely caused by a government drive to vastly increase the use of generic drugs, combined with the same old patent cliff issues, prompted the deals.

Last year’s big jump in acquisitions of foreign healthcare companies looks set to continue, with three already inked this year. A table showing product licensing deals between Japanese companies and overseas partners would likely show the same peak.

Acquisitions by Japanese companies
M&A Deal Date Deal Value ($m) Deal Count Overseas deals
2009 (None yet closed) 3 3
2008 17,985 11 8
2007 5,162 4 2
2006 300 1 0
2005 36,536 7 1

Takeda’s move on IDM fits nicely with the Japanese company’s current oncology drive. Its biggest move so far has been its $9bn swoop on Millennium Pharmaceuticals, which ranks as last year’s biggest deal struck by a Japanese company abroad (Takeda turns to Millennium for long-term growth, April 10, 2008).

IDM’s main asset, Mepact, earlier this month won final approval in Europe. It works by activating macrophages, immune cells that participate in the body’s first line of defence. The phase III trial was conducted in non-metastatic, resectable osteosarcoma, a rare and often fatal bone tumour that typically affects children and young adults. Only 1,200 cases are diagnosed in Europe each year, and the drug received orphan status, granting ten years market exclusivity.

A phase III trial, which enrolled 800 patients, concluded that the addition of Mepact to three or four-drug adjuvant chemotherapy resulted in a 30% decrease in the risk of death, with 78 patients surviving after six years.

The FDA handed the company a non-approvable letter in 2007, and a resubmission was planned for around now, but lack of cash meant the project was put on hold until the outcome of a strategic review was known. That outcome was Takeda, and although the identity may be a surprise, a takeout was widely anticipated, given the dire financial straights and low share price (IDM's good news could be first step to turnaround, November 19, 2008).

Takeda is paying $2.64 a share, a respectable enough 55% premium over Friday’s close, although cash of around $7m decreases the enterprise value somewhat. Still, IDM stock has struggled to stay over $2 since the FDA rebuff. For an approved, niche cancer treatment and a pipeline of other early stage oncology products, Takeda does not appear to have overpaid.

More on the way

For Shionogi, meanwhile, the move on Victory was struck through its US operation, Sciele Pharma, which it in turn bought for $1.1bn in the fourth biggest overseas Japanese deal struck last year (Shionogi joins move westward with Sciele buy, September 1, 2008). Daiichi Sankyo’s purchase of a stake in Ranbaxy Laboratories and Eisai’s move on MGI Pharma rank second and third.

The Victory acquisition will take Shionogi into the US pain market for the first time. It has a number of R&D projects in the field, so could use this as a springboard for its own products.

Additionally, the company indicated in a press release that further acquisitions will be sought in the area, underlining the desire by Japanese companies to seek growth in the industry's most valuable markets.

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