Japan's largest drugmaker, Takeda Pharmaceutical, is in talks to buy privately-held Swiss rival Nycomed for more than $12 billion in a bid to extend its global reach into Europe and emerging markets, according to sources with direct knowledge of the matter.
The purchase would offer the mainly Asia and U.S-focused maker of drugs for diabetes and heart disease access to a lung disease drug, Daxas, just approved in the United States, and a portfolio of over-the-counter consumer products.
Broadening Takeda's horizons and revenue base is something analysts said was key to its future success and could explain a hefty suggested price tag of more than $12 billion.
"The suggested price looks high, but in the sector M&A is starting to happen and there are not enough companies to buy," Kepler Capital Market analyst Tero Weckroth said. "Mid-cap pharma is a real sweet spot for M&A."
Credit Suisse analyst Fumiyoshi Sakai said Takeda "has to survive as a global player. It's not in a position to go backwards."
Nycomed is well placed to deliver in faster-growing markets and says emerging markets made up nearly two-fifths of revenue in 2010 and should make up 60 percent of sales by 2015. Emerging markets sales leapt 30 percent last year.
A Nycomed deal would be Japan's second-biggest overseas takeover according to Thomson Reuters data — after Japan Tobacco's $19 billion buy of British rival Gallagher — and would be a second major deal for Takeda after it bought U.S. cancer drug specialist Millennium Pharmaceuticals in 2008 for about $9 billion.
One person familiar with the matter said the deal is in its final stages although it may take time to conclude. The sources did not want to be identified as they were not authorized to speak to the media. Takeda and Nycomed both declined to comment.
Takeda, which has around 874 billion yen ($10.8 billion) in cash and marketable securities at hand, has previously said it would be willing to take on debt for future deals.
A second source told Reuters Takeda had approached a number of domestic lenders who were prepared to help finance the deal which is likely to exceed 1 trillion yen ($12 billion).
Nycomed has around 12,500 employees and had revenue of 3.2 billion euros in 2010, generating adjusted earnings of 851 million euros before interest, taxes, depreciation and amortization. It has four research and development centers in Europe and India, 15 production facilities and two joint ventures in 13 countries.
The Swiss firm is majority owned by four private equity firms, led by Nordic Capital with a 41 percent. Credit Suisse's DLJ Merchant Banking has 25.6 percent, Coller International Partners 9.7 percent and Avista 8.9 percent.
Its lung drug roflumilast, known as Daxas in Europe and Daliresp in the United States, is the first drug in a new class of treatment for chronic obstructive pulmonary disease, a common breathing disorder often caused by smoking.
After some delays it won U.S. approval in March where Forest Laboratories has the marketing rights. In Europe, Merck & Co has marketing rights.
Another of Nycomed's top products is pantoprazole for heartburn, a field Takeda knows from its own Prevacid, a former blockbuster heartburn drug that has now lost patent protection.
Japanese drugmakers, including Daiichi Sankyo and Astellas Pharma, have been pursuing acquisitions to boost growth as they face the loss of patent protection on key medicines.
Takeda has previously unsuccessfully explored takeovers of other European drugmakers including Organon, ultimately sold by Akzo Nobel NV in 2007 to Schering Plough, and Sweden's Meda AB, two people familiar with those talks said.
Sources said Takeda has hired Deutsche Securities as an advisor. Takeda's shares ended 1.4 percent lower, in line with the Nikkei benchmark index.
Nycomed, which is being advised by Goldman Sachs and Credit Suisse, has been the subject of much speculation about a sale or an IPO, with reports in 2009 saying it had hired Goldman Sachs to explore a possible sale of the company.
It fielded approaches from Takeda and several other suitors in the past three months, including international and U.S. pharmaceutical companies, one person familiar with the matter said, starting in the run-up to U.S. approval of roflumilast.
Takeda will probably be able to reap major synergies in sales and research and development, that source added, which could run to hundreds of millions of euros a year.
Takeda said on Wednesday it expects operating profit to increase 6.2 percent to 390 billion yen in the year to March 2012. It sees operating profit to fall to 240 billion yen two years later, hurt by patent expiry on diabetes drug Actos.
Last year, Nycomed paid around $210 million for 51.3 percent of Chinese company Guangdong Techpool Bio-Pharma, underscoring its focus on emerging markets and Western manufacturers' hunger to boost their presence in the country.
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