FUJISAWA/LYPHOMED COMBINED U.S. SALES FORCE WOULD TOTAL OVER 260; FUJISAWA BIDS $ 651 MIL. FOLLOWING FDA ALL-CLEAR FOR PENTAMIDINE PLANT IN PUERTO RICO
Fujisawa Pharmaceuticals' acquisition of Lyphomed would create a combined U.S. hospital, generic and ethical sales force of more than 260 people, almost doubling the Japanese firm's sales staff in the U.S. and significantly enlarging its U.S. product offering. Fujisawa's existing U.S. sales force of nearly 150 is currently limited to detailing the broad-spectrum parenteral antibiotic Cefizox (ceftizoxime sodium), with primary emphasis on hospital sales. The sales force was built up as part of a 1981 Cefizox joint marketing venture with SmithKline Beckman. Fujisawa took over the joint venture at the end of 1987. Lyphomed has 60 reps selling multisource products and 42 ethical pharmaceutical sales reps who handle nearly 400 drug products. The Rosemont, Illinois-based critical care pharmaceutical and nutritional products company plans to expand the brandname part of the sales force to 50 by year-end, a spokesperson said. The company's Nebupent aerosolized pentamidine product was approved for Pneumocystis carinii pneumonia prophylaxis in AIDS patients June 15. Fujisawa is proposing to acquire the 70% of the 29.9 mil. outstanding shares of Lyphomed common stock that its does not already own for $ 31 per share, or roughly $ 651 mil. The firm now controls approximately 9 mil. Lyphomed shares. The offer was announced on Aug. 21. At that price, Fujisawa is valuing Lyphomed at about $ 930 mil., more than 370 times the $ 2.7 mil. that Chairman John Kapoor paid in 1981 to start the company on its fast growth track. Fujisawa is also offering more than 44 times company earnings in 1987, the last time Lyphomed turned a full-year profit. The proposed price is also more than 31 times the going Street estimates for projected 1989 earnings of around $ 30 mil. By comparison to other recent pharmaceutical acquisition prices, Fujisawa's offer tops the recent benchmarks set by Kodak's acquisition of Sterlin and the Merrell Dow Marion merger, which were 26 and 28 times earnings, respectively. When Fujisawa first acquired a stake in Lyphomed in December 1984, it paid $ 11.3 mil. for a 22.5% equity position. Fujisawa's initial investment calculates to less than $ 2 per share for the number of current shares that make up a 22.5% holding. Fujisawa's current offer, however, is not quite as far above its initial price in yen value, based on the relative decline of the dollar to the yen in the five years since the first purchase. Fujisawa's offer has Kapoor's nod of approval. The deal would mark the largest acquisition of a U.S. drug firm by a Japanese company. By comparison, Yamanouchi acquired the direct marketer Shaklee in March for $ 395 mil.; Otsuka purchased the vitamin firm Pharmavite at the end of last year. If the acquisition proposal is consummated, Fujisawa said its plans to set up a new company, to be called Fujisawa USA, Inc., that will incorporate Lyphomed with Fujisawa's other U.S. subsidiaries. In addition to the U.S. toehold from Fujisawa SmithKline, the company also operates an industrial chemical manufacturing and sales unit callled PMP Fermentation Products, established in 1985, and an R&D base opened in Rockville, Maryland in 1987. Lyphomed has set up a special committee to study the proposal with its financial advisor, First Boston, and legal counsel. Morgan Stanley and Skadden Arps are representing Fujisawa. First Boston is being asked to provide the committee with "alternative transactions as well," Lyphomed said Aug. 21, noting that "no one should assume that any transaction will result." No date has been set for a board meeting to discuss the proposal. Complicating the offer is a standstill agreement that Fujisawa has with Lyphomed that prevents the Japanese firm, except in certain circumstances, from boosting its stake in Lyphomed until Jan. 11, 1991 without prior board approval. However, Kapoor and Fujisawa have a separate standstill agreement under which the chairman will not sell his roughly 14% stake in the company until Dec. 31 to anyone but Fujisawa. He has granted a proxy to Fujisawa to vote his stock until that date. If the board approves Fujisawa's proposal, Kapoor said he will sell his stock to the Japanese company. That action would give Fujisawa a significant 43% share of the stockholder vote. Under the $ 31 a share bid, Kapoor's 4.2 mil. shares would make his stock worth around $ 129 mil. When he purchased the then-struggling firm from Stone Container eight years ago along with three other partners for $ 1.6 mil. in cash and $ 1.1 mil. in subordinated debt, he reportedly put up less than $ 100,000 in cash. If the deal goes through, Lyphomed stockholders could get roughly triple what their shares were worth during the nadir of a slump resulting from nearly a year of quality control problems with FDA that began in late 1987. Lyphomed stock, which had been trading in the low 30s prior to the downturn, slipped to as low as a third of that in 1988. At one point last year, Fujisawa was rumored to be a potential rescuer. Prior to Fujisawa's proposal, Lyphomed share value had rebounded into the 20s. Lyphomed stock closed at 30-1/8 on Aug. 25, up 7-5/8 in the week following the merger proposal. Lyphomed may, in retrospect, have been lucky to run afoul of FDA two years ago and gotten the close scrutiny of the agency at that time. Those difficulties may insulate the company from the recent problems and improprieties plaguing the industry and FDA's generic review and compliance activities. When it first purchased an equity position in Lyphomed in 1984, Fujisawa said its purpose was to explore long-term U.S. business opportunities. The firm boosted its stake in Lyphomed in August 1985 to 26.5% and to 30% in October 1986, each with the approval of Lyphomed's board. Fujisawa's offer to buy Lyphomed overshadowed the same-day news that FDA had given the long anticipated go-ahead for production at the firm's Canovanas, Puerto Rico plant. That facility will be the primary producer of Lyphomed's pentamidine. The 100,000 square foot manufacturing facility will start with the production of Pentam 300 sterile pentamidine on its one fill line. The plant has the capability to produce both liquid-fill and freeze-dried drug products and can accommodate vials in sizes from 2 ml to 200 ml. Lyphomed plans to manufacture other proprietary drugs, as they are approved, "and various multisource products such as trace elements, antibiotics and cardiovascular drugs," the company said Aug. 21. The plant currently employs 70 people. With its start-up, Lyphomed will be able to take advantage of Section 936 tax credits. The turnaround represented in part by the plant clearance is mirrored in recently-released first half financial results. Lyphomed sales were up 5.2% to $ 71.7 mil. after four quarters of declining revenues. The company reported a $ 105,000 profit in the first six months, even though it took a substantial loss in the second quarter. Its first profit in a year came in the first quarter. Following the reapproval of the firm's flagship Melrose Park, Illinois plant in September, Lyphomed is now supplying around 90% of its products from that plant, a spokesperson said; approximately 30 supplemental or abbreviated NDAs are still under FDA re-review. The company's Orlando plant, closed in July 1988 following FDA citations for good manufacturing practices (GMP) violations, is up for sale. Lyphomed also has a plant in Grand Island, N.Y., which has taken over the production of plastics products formerly handled in Orlando, and also manufactures some cardiovasculars. The company says the New York plant is running at normal capacity. Lyphomed offers a complete line of multivitamins, trace elements and electrolytes (the Micronutrients brand) to hospitals, and has an extensive range of generic injectables, including antibiotics, steroids, anti-cancer and cardiovascular products. Fujisawa had worldwide sales of 208.6 mil. yen ($ 1.6 bil.) for the year ended March 31 and profits of 6.3 mil. yen ($ 47.6 mil.). Antibiotics and biological preparations accounted for nearly 35% of sales. The company's major ethical drug products are the antibiotics Cefspan (cefixime), Epocelin (ceftizoxime), Cefamezin (cefazolin); SmithKline's Tagamet (cimetidine) and Fison's antiasthmatic Intal (cromolyn). Biocraft recently began marketing the firm's cefixime in the U.S. for Lederle, which has the license under the name Suprax ("The Pink Sheet" May 8, T&G-2). The company launched Lederle's calcium channel blocker nilvadipine as Nivadil in Japan in April. In addition to greatly expanding its antibiotic offering to hospitals, Fujisawa also stands to gain a more varied group of generic drugs detailed by Lyphomed and a few new pipeline opportunities for the U.S. Fujisawa has outlicensed the majority of its drug compounds that are sold or under development for marketing in the U.S. By comparison, Lyphomed's pipeline includes the anti-arrhythmic Adenocard (adenosine), licensed in the U.S. from Medco Research. The drug was recommended in May for approval by an FDA advisory panel for the treatment of paroxysmal supraventricular tachycardia. In March, the firm filed an NDA for gallium nitrate for use in treating cancer-related hypercalcemia and submitted an IND in the first quarter for cefodizime, a third generation broad-spectrum cephalosporin.
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