M&A returns as Dainippon buys out rival

DAINIPPON Sumitomo Pharma agreed yesterday to buy US drugmaker Sepracor for $2.6bn (&pound;1.5bn), in the fourth major buyout deal this week.<br /><br />The deal spurred hopes that activity is seeping back into the M&amp;A market. It is the latest in a string of overseas acquisitions by Japanese drugmakers keen to grow outside a mature home market and build product pipelines before key drug patents expire.<br /><br />Dainippon, Japan&rsquo;s seventh biggest drugmaker by revenues, will gain a sales force of 1,200 that are familiar with central nervous disorders as it looks to promote its experimental schizophrenia drug Lurasidone, which has performed well in late-stage trials.<br /><br />It will also acquire Sepracor&rsquo;s insomnia drug Lunesta, asthma drug Xopenex and an experimental epilepsy drug.<br /><br />&ldquo;We anticipate our business will shrink if we focus only on Japan, where medical prices are under pressure,&rdquo; Dainippon Sumitomo President Masayo Tada said.<br /><br />&ldquo;Even if the US carries out healthcare reform, it&rsquo;s not as if the market is going to halve. It will remain the world&rsquo;s biggest drug market.&rdquo;<br /><br />The deal is the fourth-largest overseas acquisition by a Japanese drugmaker, and the second-biggest this year by any Japanese company<br />Japanese firms have spent $41bn on acquisitions so far this year, slowing from $64.5bn a year ago.<br /><br />Jainippon will pay $23 cash for each share, a premium of 27.6 percent on Tuesday&rsquo;s close, before talk of the deal sent Sepracor&rsquo;s stock surging to $22.8 on Wednesday. The acquisition cost is roughly equal to Dainippon&rsquo;s annual sales.<br /><br />&ldquo;It&rsquo;s a very expensive deal for a company of Dainippon Sumitomo&rsquo;s size and also very risky, given the series of patent expirations on Sepracor&rsquo;s mainstay drugs in the next few years,&rdquo; said Credit Suisse analyst Fumiyoshi Sakai.<br /><br />&ldquo;Dainippon must be extremely confident in Lurasidone, although I have some doubts,&rdquo; he said, adding the deal would not have been possible without the backing of the Sumitomo Group, which owns Sumitomo Mitsui Financial Group, Japan&rsquo;s third-biggest bank.