Japan's Takeda Reportedly Offering $12B For Europe's Nycomed

Japan's largest drug maker, Takeda Pharmaceuticals Co. Ltd., may be close to buying private-equity owned Nycomed AS, based in Switzerland, for about $12 billion.

If it goes ahead, the deal will significantly boost Takeda's European footprint but also jump-start an emerging markets strategy that has been slow to materialize, as it has for other Japanese pharma. Almost 40% of Nycomed's €3.2 billion ($4.5 billion) 2010 revenues came from emerging territories, and the company expects that share to increase to 60% by 2015. Less than 10% of Takeda's ¥1.4 trillion revenues currently comes from emerging markets.

At the reported valuation, the deal would be Takeda's largest-ever purchase, and the second-largest overseas acquisition by any Japanese firm, according to Thomson Reuters. But this isn't the first sign of Takeda's aggressive bid to expand overseas, re-invigorate R&D and attempt to offset the forthcoming patent expiry of diabetes blockbuster Actos (pioglitazone) ( (Also see "Takeda Unveils R&D, Commercial Realignments To Try For Post-Patent Gains" - Scrip, 11 May, 2011.).)

In 2008, marking a step-up in Japanese dealmaking, the company bought Millennium Pharmaceuticals for $9 billion. (Also see "Takeda’s Millennium Buy Brings In Potential Cancer Blockbuster Velcade" - Pink Sheet, 14 Apr, 2008.).

Emerging Markets Focus Enhances Nycomed's Appeal

But while Millennium was largely about accessing biotech revenues and a cancer pipeline, Nycomed's international footprint would tick some other boxes for Takeda. Nycomed's significant growth has come mostly through in-licensing and acquisition, yet it has further differentiated itself from most other European specialty pharmas through its aggressive emerging markets focus (Also see "Specialty Pharma In Europe: Is Long-Term Independence Still An Option?" - In Vivo, 1 Apr, 2011.).

Its biggest market is Russia, where it achieved a significant head start over most other players, notably through persevering in a challenging business environment that prompted others to pull out, and through investing in a manufacturing presence, which is now becoming compulsory for foreign firms if they want to succeed in Russia (Also see "Nycomed CEO Hakan Bjorklund On Emerging Markets As Core Focus For Growth: An Interview With PharmAsia News" - Scrip, 6 Oct, 2010.) (Also see "Russia Pledges $3.9 Billion For Local Pharma Growth, As Big Pharma Scrambles To Set Up Shop" - Scrip, 22 Dec, 2010.). Brazil is Nycomed's second-largest territory in sales terms.

In November 2010 the Swiss-based group bought a 51% stake in Chinese pharmaceutical firm Guangdong TechPool BioPharma Co. Ltd., providing expertise in biologics and protein manufacturing, as well as a commercialization base for its own drugs - including older ones, such as proton pump inhibitor pantoprazole (Pantoloc/Protonix) which has gone generic in most territories, including in the U.S. in January 2011 (Also see "Russia Pledges $3.9 Billion For Local Pharma Growth, As Big Pharma Scrambles To Set Up Shop" - Scrip, 22 Dec, 2010.).

The Guangdong deal may add particular shine to this target for Takeda, given the Japanese group's stated focus on China and its relatively late interest in protein-based drugs (shared with several other Big Pharma).

Nycomed's largest acquisition was in 2006, when it paid €4.2 billion for Germany's Altana Pharma, which brought with it COPD drug Daxas (roflumilast), approved in the U.S. in March 2010 after some delay. The drug is marketed there by Forest Laboratories Inc., and in Europe it is co-promoted by Merck & Co. Inc. per an April 2010 deal. Nycomed has since continued to in-license on a regional and national level, for instance buying Eurand's Zenpep for CIS/Russia in January 2011. Nycomed doesn't break down sales by specific product, but it has said that 2011 results will be heavily affected by its progress in emerging markets and Daxas launches.

Nycomed Won't Help Takeda's CNS Focus, But Complements OTC

Although Nycomed's emphasis on gastrointestinal diseases, respiratory and inflammation doesn't quite chime with most of Takeda's priority areas, which in addition to GI, include CNS, oncology and metabolic disease, the European group's OTC business - which makes up about 13% of its revenues - complements Takeda's strong OTC position in Japan, where it's ranked number two.

Over-the-counter drugs have become an attractive means for Big Pharma like Takeda to diversify risk and revenues, since they are subject to fewer regulatory and reimbursement hurdles than innovative products. But they also provide a means to extend the life-cycle of prescription drugs, via OTC switches - and Nycomed has demonstrated its prowess in this domain, scoring Europe's second centralized Rx-to-OTC switch in 2009 for pantoprazole (" (Also see "Nycomed Prepares To Launch First Nonprescription PPI With EU-Wide Approval" - Pink Sheet, 18 May, 2009.)).

Private Equity Ownership Makes Nycomed A Unique Target

Besides its strength in emerging markets, Nycomed also stands out thanks to its ownership structure: private equity firm Nordic Capital holds over 40%, with Credit Suisse's DLJ Merchant Banking, Coller International Partners and Avista also holding significant stakes. This has meant that unlike many of Europe's other privately-owned firms, which are often family-owned or, like Sweden's Meda AB, have a single, dominant long-term shareholder, it has often been the subject of takeover speculation.

Reports in the Wall Street Journal in 2009 that the company had hired Goldman Sachs to explore a potential takeover were not confirmed, but Bjorklund did speak out about a potential IPO earlier this year, saying - unsurprisingly, given market conditions - that it was unlikely.

The low chances of an exit by flotation likely edged Nycomed's owners toward an acquisition, and the company hasn't been short of suitors, including in the U.S, according to sources quoted by Bloomberg. Takeda is said to have explored buying other European firms, including Meda (which is also prioritizing emerging markets) and Organon, which was sold to Schering Plough (now part of Merck & Co. Inc.).

Although neither company was available for comment on the deal's status on May 12, the evening edition of The Nikkei, Japan's top business newspaper, reported May 12 that Takeda had indeed agreed to buy Nycomed for some ¥1 trillion ($12 billion). That price tag - although hardly off the map in terms of sales multiples, at about 2.7 times sales - would require Takeda to raise some debt. The Japanese group has $10.8 billion in cash and marketed securities.

Nycomed is being advised by Goldman Sachs and Credit Suisse, with Takeda reported to have hired Deutsche Securities as advisors.

- Melanie Senior ([email protected])

[Editor's note: This article appeared in 'The Pink Sheet' DAILY - May 12, 2011.]