UPDATE 2-Astellas forecasts profit fall on forex, R&D costs

* Sees annual profit down 19 pct, below analyst forecasts

* Stronger yen, drug development costs to weigh on profits

* Reviewing profit targets for year to March 2011

* Shares close up 2.1 pct before announcement

By Yumiko Nishitani

TOKYO, May 13 (Reuters) - Astellas Pharma Inc 4503.T, Japan's second-largest drugmaker, forecast on Wednesday a second straight year of profit falls, hurt by a stronger yen and higher costs to beef up its product pipeline.

Astellas, half of whose revenues come from overseas, expects its recurring profit to drop 19 percent to 219 billion yen ($2.25 billion) in the year to March 2010, below an average estimate of 249.64 billion yen in a poll of 16 analysts by Thomson Reuters.

For the year just ended, Astellas said its recurring profit fell 4.5 percent to 271.45 billion yen, also hurt by a firmer Japanese currency and increased development expenses.

“We cannot say today when and by how much” Astellas’ profits will get back on a growth track, Chief Financial Officer Yoshihiko Hatanaka told a news conference, adding that the company was reviewing its profit targets for the following business year.

Like other Japanese and global drugmakers, Astellas faces a pressing need to enhance its product pipeline through internal efforts and possible acquisitions, given recent and expected expiries of patent protection for mainstay drugs.

Unlike its peers, however, Astellas has made no major acquisition, failing after months of effort to buy U.S. biotechnology firm CV Therapeutics CVTX.O in what finally became a hostile takeover bid.

Astellas faces a more urgent need to improve its pipeline than do its rivals.

Its best-selling product, the transplant drug Prograf, lost U.S. patent protection in April last year. Although the drug still has no generic rivals, Astellas expects it to face competition some time this business year, the company said.

Its second best-selling drug, Flomax, used for urinary problems, will lose U.S. patent protection in October.

Astellas plans to increase spending on research and development this year to conduct late-stage studies on key drug candidates such as YM178, which treats urinary problems, but it does not expect to apply for marketing approval until 2010.

Hatanaka also said Astellas’ Japan, U.S. and European business development teams were still looking into opportunities for acquisitions to strengthen operations in the company’s focus therapeutic areas.

“We would not consider a hostile takeover from the start as our basic policy is to pursue a friendly deal. But we cannot rule out the possibility of having to launch another hostile bid, depending on the course of negotiations,” he said.

Hatanaka said Astellas was reviewing its earnings targets for the year to March 2011. Astellas is aiming for an operating profit of 280 billion yen in that business year.

On Wednesday, Astellas said it expects its operating profit to slide 14 percent to 215 billion yen in the current year after a 9 percent drop last year.

Hatanaka said Astellas expects a recovery in the midterm but did not elaborate on the timeframe.

For the January-March quarter, Astellas booked a recurring profit of 28.1 billion yen, up 19.2 percent from the same period last year.

Before the announcement, Astellas shares closed up 2.1 percent at 3,400 yen, outperforming the benchmark Nikkei average .N225, which gained 0.5 percent. ($1=97.34 Yen) (Editing by Chris Gallagher)