Takeda Pays ‘Upper Limit’ for Nycomed as Competition Looms

Takeda Pharmaceutical President Yasuchika Hasegawa
Yasuchika Hasegawa, president of Takeda Pharmaceutical Co. Photographer: Tomohiro Ohsumi/Bloomberg

Takeda Pharmaceutical Co. President Yasuchika Hasegawa spent four years searching for an acquisition in Europe to revive growth. The result: Nycomed, a Swiss drugmaker with falling earnings and a $9.1 billion price tag.

The takeover, the largest ever by a Japanese pharmaceutical company, will bolster revenue by more than 30 percent and cut Takeda’s reliance on the domestic and U.S. markets for sales, the Osaka-based company said yesterday.

That might not be enough to buffer earnings once generic versions of Takeda’s best-seller, Actos, reach pharmacy shelves in 2012, said Atsushi Seki, an analyst at Barclays Plc in Tokyo. The diabetes pill accounted for 27 percent of sales last fiscal year and Hasegawa said on May 11 that competition from copycat drugs will drag profit to a 13-year low by 2014.

“For Takeda, it makes sense because of the geographic diversification they get through Nycomed,” said Birgit Kulhoff, a Zurich-based analyst for Rahn & Bodmer Co. “But the price tag is really at the upper limit.”

Takeda will pay Nycomed’s private-equity owners 6.3 billion euros ($9.1 billion) in cash. Including net debt, the purchase values Zurich-based Nycomed at 9.6 billion euros, dwarfing Takeda’s $8.9 billion acquisition of Millennium Pharmaceuticals Inc. in 2008 to gain the cancer drug Velcade.

Based on that enterprise value, Takeda is paying 11.3 times last year’s adjusted earnings before interest, taxes, depreciation and amortization. Acquirers paid a median multiple of 8.6 times profit in drug acquisitions of $2 billion or more over the past two years, according to data compiled by Bloomberg.

‘Fair’ Deal

The acquisition price is “fair” in comparison with similar deals over the past five years and Ebitda multiples for acquisitions in emerging markets, Hasegawa, 64, said on a conference call with analysts yesterday.

“This acquisition will facilitate our full-scale entry in high-growth emerging markets” and give Takeda a presence in 70 countries from 28 now, he said. It will also alleviate the negative effects of generic Actos in the U.S. and “put us back on the path of stable growth towards 2015,” the executive said.

Emerging economies accounted for 39 percent of Nycomed’s 3.17 billion euros in revenue last year. It sells pantoprazole for heartburn and the smokers’ cough drug roflumilast, sold in the U.S. as Daliresp and as Daxas in Europe, the Swiss company’s biggest market, accounting for 44 percent of revenue last year.

“I have no problem with Takeda getting a platform in Europe, but I can’t be completely happy because it’s paying a 30 percent premium,” said Shigeru Mishima, a health-care analyst with UBS AG in Tokyo, in a telephone interview.

No Share Boost

Mishima, who put a “neutral” rating on Takeda shares last month, said yesterday he can’t immediately see the deal buoying the company’s stock, which has fallen 4.8 percent this year. Takeda gained 0.4 percent to 3,805 yen at the 3 p.m. close of trading on the Tokyo Stock Exchange, compared with a 0.5 percent decrease in the benchmark Topix index.

Nycomed’s earnings before interest, taxes, depreciation and amortization dropped 21 percent last year to 850.5 million euros, excluding some costs, as pantoprazole faced competition from low-cost generic copies in Europe. The drug lost patent protection in the U.S. in January.

U.S. approval for roflumilast, its most promising new drug, was delayed by almost a year after a Food and Drug Administration advisory panel questioned whether its benefits justified risks of suicide and weight loss.

Nycomed will strengthen Takeda’s presence in Europe, especially in the region’s northern and eastern markets, Hasegawa said yesterday. Europe generated 12 percent of Takeda’s 1.4 trillion yen of revenue in the year ended March 31.

‘Missing Piece’

“It really makes sense in a global puzzle perspective; it’s a missing piece,” said Chris Albani, managing director at the consulting firm PRTM in Tokyo. “This is really a transformation of the business.”

Talks started about six months ago with an unsolicited e-mail from Anna Protopapas, a former Millennium executive appointed to head business development at Takeda in October 2010, Nycomed Chief Executive Officer Hakan Bjorklund said.

“She didn’t write that she wanted to buy Nycomed,” Bjorklund said in an interview yesterday. “She wanted to meet and talk.”

The executives knew each other from Bjorklund’s days at U.K. drugmaker AstraZeneca Plc, he said. They had also “had discussions” about Nycomed when Protopapas was still at Millennium, he said.

Sole Dinner

Over a dinner of Dover sole at Wiltons, the 269-year-old restaurant near St. James’s Square Gardens in London, with Protopapas in November, Bjorklund realized the Japanese drugmaker’s executives had already taken a close look at his company, he said. Joining them was Frank Morich, Takeda’s executive vice president of international operations and a former executive at Bayer AG.

“What I know they were interested in when it comes to Nycomed was first of all our sales and marketing presence, our strong European presence, and of course the fact that we have such a strong emerging market business,” Bjorklund said. “That, I think, was very important to them.”

‘Best Fit’

“We went through a fairly extensive strategic exercise to find acquisition opportunities that address the strategic objective and concluded that Nycomed was really the best fit,” Protopapas said on the conference call with analysts. “It gives us the geographic presence we’ve been looking for in Europe and emerging markets.”

Takeda, which traces its origins to a medicine wholesale business opened in Osaka in 1781, began a marketing venture in France more than 30 years ago. Hasegawa, who joined Takeda in 1970 and has been its president since 2003, said in November 2006 that he was looking for acquisitions in the region and had appointed a corporate adviser to assist.

“I wish I could say timing is everything, but it’s not only that,” Hasegawa told reporters in Tokyo yesterday. “The biggest reasons for the successful acquisition are two people: Anna Protopapas and Frank Morich.”

Acquiring Nycomed will make Takeda the world’s 12th-biggest pharmaceutical company, Hasegawa said. The Swiss drugmaker has about 12,500 employees, four research and development centers in Europe and India, and 15 production facilities and two joint ventures in 13 countries, according to its website.

‘Huge Meal’

“The real issue would be, can Takeda digest this huge meal?” said Reed Maurer, a former executive with Eli Lilly & Co. and Merck & Co. in Japan, and current president of International Alliance, a Tokyo-based pharmaceutical advisory firm. “Do they have management depth to digest this kind of acquisition?”

Internally, Hasegawa has been pushing Takeda to broaden its outlook sufficiently to tackle such a task. He created a board to advise management on running the company in a “rapidly changing” drug market in June 2009. Besides Morich, who will oversee the Nycomed integration, Hasegawa hired Karen Katen, formerly vice chairman at Pfizer Inc., Sidney Taurel, chairman emeritus at Eli Lilly & Co. and Tadataka Yamada of the Bill & Melinda Gates Foundation.

“Combining Nycomed’s entrepreneurial can-do-spirit with Takeda’s inherited corporate culture will create a new culture that aggressively promotes innovation,” Hasegawa said on the conference call.

He recruited Haruhiko Hirate, a former top executive at Merck in Japan, last year to run Takeda’s Asian business with specific targets to lower the high turnover of its sales force and secure a 10-fold revenue gain in China in five years.

“The options Japanese companies have are limited,” said Ludwig Kanzler, a partner at McKinsey & Co. in Tokyo. “Buying smaller companies and desperately trying to license something -- that works to some extent, but over time, it probably will not allow them to close the gap, because others are moving too.”

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