Eisai Strengthens Oncology Position With $3.9 Billion MGI Pharma Acquisition

MGI sale comes less than two weeks after the biopharma said it was exploring "strategic alternatives."

In a move that will bolster its position in oncology, Eisai will buy MGI Pharma in an all-cash deal valued at $3.9 billion, the firms announced Dec. 10.

The acquisition was unanimously approved by Bloomington, Minn.-based MGI's board of directors and is expected to close in the first quarter of 2008.

For Tokyo-based Eisai, the acquisition continues a trend over the last few years of acquiring oncology-oriented products or companies. In October 2006, Eisai gained four oncology products from Ligand Pharmaceuticals in a $205 million deal. Eisai's oncology franchise and Ligand are both based in San Diego (¹ (Also see "Eisai Eyes Oncology Franchise With Acquisition Of Ligand Products" - Pink Sheet, 8 Sep, 2006.)).

In March, the Japanese pharma announced it would pay $325 million to acquire Morphotek, which specializes in protein development and antibody gene evolution technology (² (Also see "Eisai Enters Biologics Arena With $325 Million Morphotek Acquisition" - Pink Sheet, 22 Mar, 2007.)).

In addition, Eisai is building a new oncology facility for R&D and manufacturing at an existing company site in North Carolina.

The acquisition of MGI comes less than two weeks after that firm formally announced it was pursuing "strategic alternatives" and had hired Lehman Brothers as a financial advisor. Activist investor Carl Icahn, who has a record of upping his stake in biotechs ahead of a sale, recently bought shares in the firm, adding to the speculation (³ (Also see "Sale Speculation Begins As MGI Pharma Considers ‘Strategic Alternatives’" - Pink Sheet, 29 Nov, 2007.)).

Financial terms call for a tender offer of all outstanding shares of MGI at a price of $41 per share. According to the companies, that figure represents a 38.7 percent premium over MGI's closing price on Nov. 28, the day before MGI said it was exploring alternatives.

Eisai has several marketed oncologics including ONTAK (denileukin diftitox) for cutaneous T-cell lymphoma, Targretin (bexarotene) for cutaneous lesions in patients with CTCL and Panretin (alitretinoin) for cutaneous lesions in patients with AIDS-related Kaposi's sarcoma.

Eisai also has the low molecular weight heparin Fragmin (dalteparin), which it co-markets with Pfizer, for the treatment and prevention of venous thromboembolism in cancer patients. The two firms also co-market Eisai's top-selling drug, Alzheimer's treatment Aricept (donepezil).

[Editor's note: A previous version of this story mistakenly said that Fragmin was Eisai's only marketed oncologic.]

MGI's currently marketed cancer-oriented products include Dacogen (decitabine) for myelodysplastic syndromes, Gliadel Wafer (polifeprosan 20 with carmustin) as an adjunct therapy for high-grade malignant gliomas, Hexalen (altretamine) for refractory ovarian cancer, Aloxi (palonosetron) for chemotherapy-induced nausea and vomiting, and Salagen (pilocarpine) to treat dry mouth associated with head and neck cancer radiation and Sjogren's syndrome.

In its pipeline, MGI also has the Phase III HPV vaccine amolimogene, the Phase II solid tumors vaccine ZYC300, irofulven in Phase II for various types of cancer, as well as a Phase III trial of Dacogen in acute myeloid leukemia. In October 2006, the firm received an "approvable" letter for its oral mucositis treatment Saforis (glutamine). In addition, through a partnership with AkaRx, MGI is developing AKR-501 for thrombocytopenia, currently in Phase II.

The firm also has a pending NDA for Aquavan (fospropofol), submitted in September, for minimal to moderate sedation for minor surgery or diagnostic procedures (⁴ (Also see "MGI Pharma Files Aquavan NDA" - Pink Sheet, 27 Sep, 2007.)).

Eisai's own pipeline is strong in the oncology space. Its lead cancer candidate is E7389, in Phase III for breast cancer and Phase II for prostate cancer and sarcoma. In addition, Eisai has two other candidates in Phase II for oncology-related indications, and several Phase I candidates including an anti-mesothelin monoclonal antibody and a VEGF receptor tyrosine kinase inhibitor.

In a Tokyo briefing, Eisai CEO Haruo Naito said that the acquisition will help to support the firm's plan to achieve worldwide net sales of 1 trillion yen ($8.95 billion) by 2012, including 440 billion yen ($3.94 billion) from the U.S.

Eisai also has a "Dramatic Leap Plan" spanning from April 1, 2006, to March 31, 2012, designed to "achieve steady growth in all regions ... with a special focus on integrative oncology, where tremendous unmet medical needs exist."

In a Dec. 10 investor's note, Baird analyst Christopher J. Raymond wrote he was "impressed" with the acquisition price MGI was able to get considering the many obstacles its marketed products and pipeline face. For example, in the MDS space, Dacogen faces stiff competition from Pharmion's Vidaza (azacitadine) and Celgene's Revlimid (lenalidomide)

"Recall in previous notes we cited Aloxi's rather finite patent life (expiry in 2015) as a potential impediment to an acquisition," Raymond said. "Coupling this factor with mounting competitive pressure on Dacogen, and Aquavan's higher risk approval scenario, we are impressed with the elevated premium [MGI] was able to fetch for its shares."

- Jonathan M. Block ([email protected])

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