December 10, 2007 / 8:11 AM / 11 years ago

UPDATE 5-Japan's Eisai to buy U.S. MGI Pharma for $3.9 bln

(Adds MGI stock price, competition with Celgene/Pharmion)

By Edwina Gibbs

TOKYO, Dec 10 (Reuters) - Eisai Co Ltd (4523.T) said on Monday it would buy U.S. biotech firm MGI Pharma Inc MOGN.O for $3.9 billion in cash to strengthen its cancer pipeline, marking the largest overseas acquisition by a Japanese drugmaker.

The deal — struck at 23 percent above Friday’s close — is the latest example of accelerating M&A in the biotech sector, which has seen a scramble by big drugmakers to secure promising technologies and pipelines developed by smaller firms.

It is a bold step by Eisai, which has yet to bring any of its own cancer drug candidates to market, to increase its foothold in the fast-growing cancer drug business and its international presence.

The nation’s fourth-biggest drug firm said the deal would ensure growth in the U.S. market after the patent on its main earnings driver, Alzheimer’s treatment Aricept, runs out in 2010.

It also comes after a major setback for an experimental medicine for Parkinson’s disease, which failed to meet its key goal in a late-stage trial.

“To tackle these issues, management has moved flexibly and quickly, and the first impression is positive,” said Kumi Miyauchi, analyst at the Daiwa Institute of Research.

Japan’s drugmakers, including industry leader Takeda Pharmaceutical Co Ltd (4502.T), have been criticised in the past for not being sufficiently aggressive to clinch major deals.

Eisai will offer $41 per share in a bid approved by MGI. That represents a 39 percent premium to MGI’s closing share price on Nov. 28, the last business day before MGI said it was exploring strategic alternatives. The price is 23 percent more than MGI’s Friday close of $33.45.

MGI stock jumped 20 percent to $40.20 in early Nasdaq trade on Monday.

“With this purchase we can be very confident of achieving our goal of 440 billion yen in sales in the United States by March 2012 and 1 trillion yen in sales overall,” Chief Executive Haruo Naito told a news conference.

Eisai said it would finance the deal with $300 million of its own cash and through bank loans. It is the 9th biggest acquisition by any Japanese company, according to Thomson Financial.

DEBT RATINGS MAY BE CUT

Credit ratings agency Moody’s said, however, that it may cut Eisai’s AA3 issuer rating, possibly by several notches. Eisai currently has no debt.

The purchase, to be conducted by a tender offer, is expected to be completed in the first quarter of 2008, and Eisai predicted it would boost cash EPS, excluding goodwill amortisation, in fiscal year 2008 and GAAP EPS in fiscal 2009.

MGI’s products include Aloxi, a treatment to prevent chemotherapy-induced nausea; Gliadel Wafer, a drug delivery device in the treatment of brain cancer; and Dacogen, a treatment for a group of blood disorders known as myelodysplastic syndromes (MDS) that often precede leukaemia.

The acquisition pits Eisai against U.S.-based Celgene Corp (CELG.O), which recently agreed to acquire MGI rival Pharmion Corp PHRM.O for $2.9 billion. The two companies make competing drugs for MDS.

After three years of losses, MGI has turned a profit for the year to date and its revenues are expected to grow by an average of over 35 percent over the next five years, Naito said.

Eisai has already taken smaller steps to strengthen its oncology pipeline.

Just over a year ago it acquired four cancer drugs from Ligand Pharmaceuticals (LGND.O) and it has bought Morphotek, a small firm specialising in protein and antibody gene evolution. It is also building a new oncology facility in North Carolina.

Analysts had expected MGI to attract interest from U.S. and European companies after the decision by management last month to effectively put the business up for sale, but Eisai was not on the radar.

Other big-ticket biotech deals this year include AstraZeneca (AZN.L) buying MedImmune for $15.6 billion. U.S. biotech group Biogen is also on the block.

JP Morgan advised Eisai on the deal, while MGI was advised by Lehman Brothers. (Additional reporting by Ben Hirschler in London and Toni Clarke in Boston; Editing by Hugh Lawson and Elizabeth Fullerton)

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