Shionogi joins move westward with Sciele buy


It may have been a little slow to join the party and not indulged quite as heavily as some of its compatriots, but Shionogi today joined the growing number of Japanese companies making acquisitions in the US to revive stagnating sales at home, with its $1.1bn offer for Sciele Pharma.

The deal, which will jump to $1.42bn once the group’s $325m senior convertible loan notes are taken into account, looks like a fair one, despite what looks like a chunky 61% premium on Friday’s share price. According to EvaluatePharma’s NPV Analyzer, all of Sciele’s risk-adjusted products are worth $1.33bn.

For Shionogi, not only does the deal help it with gaining US approval for its new drugs, but it also solves its main headache of getting a sales team in the world’s biggest market, without starting from scratch in a region where it has little experience.

Mutual benefit

The deal is also a two-way street because Sciele has already been struggling with generic competition to its best selling drug Sular, following the launch in June of Mylan’s copycat version. In its second-quarter results, Sciele, which has been desperately trying to switch users to a longer-acting formulation, Sular CR, reported that sales of the drug had unsurprisingly slipped.

Also, despite the Sular sales decline due to generic competition, it still looks like a wise buy for Shionogi, because as well as its sales force, Sciele has a number of catalysts this year, which if positive would have driven up its valuation, so Shionogi, which in its first-quarter results reported virtually flat prescription drug sales thanks to declines in its main antibiotics business and lower sales of its kidney cancer drug, Imunace, has struck at an opportune time.

EvaluatePharma's Calendar of Events: Sciele Pharma (next 12 months)
Event Status Product NPV ($m) NPV as % of Mkt Cap Event Type Event Start Date End Date
In-Play (15%) Clonicel  63  11% Phase III Trial Results Phase III Trial Results for Clonicel for ADHD  01 Jul 2008  31 Dec 2008
In-Play (25%) Robinul - line extension  20  3% US Product Filing Expect US Filing for Glycopyrrolate (liquid formulation) to Treat Chronic, Moderate-to-Severe Drooling in Paediatric Patients  08 Jul 2008  30 Sep 2008
In-Play (48%) Fenofibrate & Pravastatin  12  2% Phase III Trial Results Phase III Trial Results for Fenofibrate & Pravastatin for Dyslipidaemia  01 Jun 2008  30 Sep 2008
Starts in 64 days PSD502  15  2% Phase III Trial Results Phase III Trial Results for PSD502 for Premature Ejaculation  01 Oct 2008  31 Dec 2008
Starts in 143 days CloniBID  58  10% US Product Approval (PDUFA) FDA Decision Date (PDUFA) on CloniBID for the Treatment of Hypertension  19 Dec 2008  19 Dec 2008

Adding Sciele will also help the originator of Crestor to fill the gap in earnings when its largest drug, Flomox, which last year had sales of $259m, comes off patent in December. It will additionally shore up Shionogi’s relatively low value pipeline, as the company is heavily dependent on Crestor, which accounts for 51% of its total NPV of $6.5bn, considerably lower than Shionogi’s market capitalisation of $8.13bn.

Despite its relative small size Sciele also puts the accelerator pedal down on world-wide prescriptions sales growth, with the merged company reporting an 8% rise in sales in the seven years to 2014. Without Sciele the Japanese company would only have managed a 6% rise in the same period.

This is due to the fact that between 2007 and 2014, five out the top 10 growth drivers from the combined company come from Sciele.

  Shionogi and Sciele Growth Drivers (2007-14)
        Annual Sales WW - Sales ($m)      
Rank Product Company Pharmacological Class 2007 2014 Total Change Contribution to Growth Phase (Current)
1 Crestor Shionogi Statin/ HMG CoA reductase inhibitor  86  430  344  29% Marketed
2 Avapro Shionogi Angiotensin II antagonist  -  198  198  17% Marketed
3 LY-248686 Shionogi SNRI  -  139  139  12% Filed
4 OxyContin Shionogi Narcotic analgesic  58  141  84  7% Marketed
5 Fenoglide Sciele Pharma Fibrate  -  82  82  7% Marketed
6 Sular CR Sciele Pharma Calcium antagonist  -  77  77  7% Marketed
7 Finibax Shionogi Carbapenem  24  99  75  6% Marketed
8 Clonicel Sciele Pharma Alpha 2 agonist  -  73  73  6% Phase III
9 Prandin Sciele Pharma Meglitinide  -  72  72  6% Marketed
10 Aquelle/LARx  Sciele Pharma Anti-infective  -  64  64  5% Filed

Go west

Shionogi’s move on a foreign company follows in the footsteps of Eisai which paid $3.9bn for MGI Pharma in December 2007, a deal that was quickly followed by Takeda, the country's largest drugmaker, snapping up US biotech Millennium in April for a princely sum of $8.8bn. In June, Daiichi Sankyo bid up to $4.6 billion for control of India's Ranbaxy Laboratories.

While Shionogi may be the latest Japanese company expanding its geographical reach, an analysis of companies carrying large amounts of cash on their balance sheets suggests it will not be the last. (Pfizer remains likely candidate to strike mega-merger, 27 Aug, 2008)

Both Astellas and Otsuka have $4.6bn and $2bn respectively in net cash, which could enable them to do significant acquisitions outside of Japan, and something that they might now be seriously considering if they do not want to fall behind the competition. So it looks like the move from East to West for big deals within the pharma market will continue for a little while longer.

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