Nov. 5 (Bloomberg) -- Astellas Pharma Inc., Japan’s second- largest drugmaker, cut its full-year profit forecast by 7.4 percent because of the stronger yen and higher research and development costs.

Net income may decline 27 percent to 125 billion yen ($1.4 billion) in the 12 months to March 31, the Tokyo-based company said today. That’s less than the 135 billion yen Astellas predicted in August and analysts’ projection of 136 billion yen, based on the median of three estimates compiled by Bloomberg.

The yen’s 9.8 percent gain against the dollar in the six months to Sept. 30 cut overseas earnings at Astellas, which gets about half of sales outside Japan. The company predicted it will have to spend 6 percent more on research than earlier expected as it buys products to cope with a sales drop for its bestseller Prograf and books a one-time charge to shut a laboratory.

“It was a surprise that Astellas cut its earnings outlook to this extent,” Fumiyoshi Sakai, an analyst at Credit Suisse Group AG in Tokyo, said by telephone. “Given the current situation of Prograf sales, the company probably can’t help but be conservative about its forecasts.”

Astellas projects research and development spending at 179 billion yen this fiscal year, less than the previously expected 169 billion yen. The drugmaker said it plans to close its laboratory in Aichi prefecture, central Japan, by March 2013 and spend 7 billion yen to relocate testing and some production facilities to another lab in Tsukuba, west of Tokyo.

Stock Buyback

The company will spend as much as 30 billion yen to buy back up to 8.2 million shares, or 1.7 percent of outstanding stock, from Nov. 9 to Dec. 11, it said in a separate statement.

Astellas fell 3 percent to close at 3,290 yen on the Tokyo Stock Exchange before earnings were reported. The stock has lost 9.4 percent this year, lagging behind the MSCI World Health-Care Index of 119 companies, which has gained 7.8 percent.

Astellas is assuming an average rate of 93 yen to the dollar and 132 yen to the euro this fiscal year. In August, the company had expected 100 yen and 130 yen.

The U.S. currency averaged 93.6 yen and the euro 133.8 yen in the three months ended Sept. 30, compared with 107.5 yen and 161.9 yen a year earlier, according to data compiled by Bloomberg. A stronger yen reduces the value of overseas earnings when repatriated.

Full-year operating profit, or sales minus the cost of goods sold and administrative expenses, is projected to drop 20 percent to 200 billion yen. The company previously forecast 215 billion yen.

Cheaper Generic Drug

Novartis AG’s Sandoz unit introduced in August the first generic copy of Prograf, hurting sales of the Japanese drugmaker’s biggest revenue generator. Astellas projects global sales of Prograf, used to stop transplanted organs from being rejected by the body, will fall 8.4 percent to 184.3 billion yen in the year ending March 31.

“Demand for generic Prograf is spreading faster than we anticipated because of the economic slowdown,” Astellas Chief Financial Officer Yoshihiko Hatanaka told reporters in Tokyo. “We can’t accurately predict what will happen to Prograf sales next fiscal year.”

Astellas raised its full-year revenue projection to 976 billion yen from the previously expected 968 billion yen, citing better-than-expected sales of its Harnal medication for urinary disorders and influenza vaccines.

To contact the reporter on this story: Kanoko Matsuyama in Tokyo at kmatsuyama2@bloomberg.net.

Last Updated: November 5, 2009 05:15 EST