April 11 (Bloomberg) -- Takeda Pharmaceutical Co. shareholders may not be satisfied with the purchase of Millennium Pharmaceuticals Inc. because the company won't gain enough new revenue to counter generic competition to its best-selling Actos diabetes pill.

The $8.8 billion acquisition Takeda announced yesterday gives Japan's largest drugmaker only one product on the market: the blood-cancer medicine Velcade. The drug generated more than $800 million last year, compared with $3.4 billion for Actos.

Millennium's other therapies, which include promising cancer medicines, are still being tested on patients and may not be approved by regulators until after 2011. By then Takeda will face low-priced competition to products, including Actos, that account for 40 percent of revenue.

``Millennium is a leader in genome-based drug discovery with promising drugs in early development,'' said Mitsuo Ohmi, a drug analyst at Japan Advisory LLC. ``However, Takeda still needs to do a little more to fully cover the loss of sales once Actos's patent expires.''

The deal, the largest for an Asian drugmaker, follows an agreement by Tokyo-based Eisai Co. in December to buy U.S. biotech firm, MGI Pharma Inc., for $3.9 billion. Japanese companies, aided by the dollar's 15 percent decline against the yen in the last 12 months, are seeking growth abroad to counter Japanese government price cuts and a shortage of new medicines from research operations.

Takeda, which traces its origins to a medicine wholesale business opened in Osaka in 1781, hasn't released a product in the U.S. since the sleeping pill Rozerem in September 2005. Two weeks ago, Takeda scrapped development of a cholesterol pill in late-stage studies because of safety concerns.

Lung Cancer Drugs

Takeda in February agreed to buy Amgen Inc.'s Japanese unit for as much as $902 million, gaining about a dozen experimental medicines including two in the final stages of human testing for lung cancer. Takeda hasn't developed any cancer therapies in its own labs that have progressed to advanced human trials.

The drugmaker wants to strengthen its cancer business, ``where we had a slow start in sales and in getting sufficient compounds into the pipeline,'' Takeda President Yasuchika Hasegawa told reporters in Tokyo yesterday. He said Takeda will provide details on the deal's impact on earnings when the drugmaker reports results on May 9.

It sought U.S. approval in January for alogliptin, a once- daily treatment for type-2 diabetes and the candidate to succeed Actos. The new drug will have to go up against a similar-acting drug, Januvia, sold by Merck & Co. that generated sales of $667.5 million in its first full year on the market in 2007.

`Speed Things Up'

``As Takeda faces the expiration of the Actos patent, it needs to make effective use of its financial resources to make up for it,'' said Kumi Miyauchi, a drug analyst with Daiwa Institute of Research in Tokyo. ``Competition is severe, especially in the cancer drug business, so Takeda has had to speed things up.''

Stockholders of Cambridge, Massachusetts-based Millennium will receive $25 a share in cash, 53 percent more than the April 9 closing price before the deal was announced, the two companies said. Millennium rose 5 cents to $24.39 at 4 p.m. in Nasdaq Stock Market composite trading today, following a 49 percent gain on April 10.

``Takeda took advantage of the strength of the yen against the dollar to pay that premium in cash, to shut down any possible objection from Millennium stockholders about the lack of a competing bid,'' said Chris Raymond, an analyst with Robert W. Baird & Co. in Chicago, in an interview. Velcade can generate peak annual sales of $1 billion in the U.S., and $2 billion worldwide, Baird said.

Shares Plunged

Takeda shares dropped 110 yen, or 2 percent, to 5,300 yen today and have plunged 33 percent the past year, even as Hasegawa announced plans to buy back as many as 34 million shares, made three acquisitions and increased dividend payments.

Masatake Miyoshi, a Tokyo-based equities analyst at Merrill Lynch Japan Securities lowered to his recommendation on Takeda to ``sell'' from ``buy'' today.

Takeda is being reviewed for possible downgrade by Moody's Investors Service.

``Moody's will focus on the potential impact of the merger on Takeda's competitiveness,'' Shinsuke Tanimoto and Tomomichi Nagaoka, credit analysts at Moody's in Tokyo, said in a statement today.

Cash

The drugmaker had 1.77 trillion yen ($17.5 billion) of cash as of Dec. 31, according to financial statements.

``Takeda has been sitting on a pile of cash,'' said Samuel Isaly, a managing partner at Orbimed Advisers LLC in New York, who oversees the Eaton Vance Worldwide Health Sciences Fund with $1.5 billion under management and owns 3 million Millennium shares.

``It represents something like a quarter of their market value and they get close to zero return on it in terms of the rate of interest paid,'' said Isaly. His fund sold Takeda stock during ``the last couple of months because of the patent cliff'' facing the drugmaker, he said.

Buying Millennium will bolster sales in the U.S., Takeda's fastest-growing market. Revenue rose 1.7 percent in the quarter ended Dec. 31, the slowest pace in at least four years, on flagging demand for its prostate and stomach ulcer drugs.

Millennium, led by Chief Executive Officer Deborah Dunsire, earned $14.9 million in net income, its first profit since 1998, according to data compiled by Bloomberg.

Velcade Prospect

``Velcade will be a blockbuster in short order,'' Dunsire, who joined Millennium in 2005, said yesterday in a conference call with investors.

Johnson & Johnson, based in New Brunswick, New Jersey, will continue to market Velcade outside the U.S. under a co- development agreement with Millennium until the drug's patent expires, said Marsha Fanucci, Millennium's chief financial officer, in an interview.

Last year, Velcade sales outside the U.S. were more than $500 million, Millennium said. J&J paid Velcade royalties of about $80 million on those sales, Millennium said. The arrangement would survive a Takeda purchase, Fanucci and J&J spokesman Marc Monseau said.

A separate agreement with J&J to use its sales force to promote Velcade in the U.S. will expire at the end of this year unless both parties agree to renew it, Fanucci said.

To contact the reporters on this story: Kanoko Matsuyama in Tokyo at at kmatsuyama2@bloomberg.net; Lisa Rapaport in New York at Lrapaport1@bloomberg.net;

Last Updated: April 11, 2008 16:14 EDT