Takeda Boosts European, Emerging Markets Footprint With $13.6B Nycomed Buy

Japan's largest drug maker confirms Nycomed deal, which will double its European sales, jumpstart its emerging markets presence and provide a 30% revenue boost as key drug Actos faces patent expiry.

Takeda Pharmaceuticals Co. Ltd. on May 19 confirmed it was buying privately held Nycomed AS in a cash deal worth €9.6 billion ($13.7 billion), a week after rumors of the tie-up first emerged.

The transaction - worth slightly more than initial reports suggested - values the Swiss-based Nycomed at about 3.4 times its 2010 revenues, excluding its U.S. dermatology business, which is not part of the deal. Some Japanese analysts saw the price as too high, given Nycomed's lack of innovative drugs. The deal is Takeda's largest acquisition yet, greater than the $8.8 billion that Japan's largest pharma paid in 2008 for U.S. biotech firm Millennium Pharmaceuticals (Also see "Takeda’s Millennium Buy Brings In Potential Cancer Blockbuster Velcade" - Pink Sheet, 14 Apr, 2008.).

Takeda will require a ¥600 billion-¥700 billion ($7.33 billion-$8.55 billion) loan to finance the deal, but does not plan to issue new equity. Ratings agencies Moody's and Standard & Poor's both have warned that they are reviewing Takeda's credit rating in light of a possible downgrade, according to the Japanese business newspaper The Nikkei.

Two Growth Pillars: Emerging Markets & Daxas

The deal's size reflects its strategic value to Takeda, both in the short and longer term. Takeda is well established in Japan and the United States, but has a limited presence in Europe. Nycomed will double Takeda's European sales and provide it with a strong foothold in emerging markets, where it also had been slow to establish its own presence.

Emerging markets today account for 40% of the Swiss group's €3.2 billion total annual revenues, but are growing rapidly and expected to increase to 60% of sales by 2015 (Also see "Japan's Takeda Reportedly Offering $12B For Europe's Nycomed" - Pink Sheet, 12 May, 2011.).

Nycomed's newly launched Daxas (roflumilast) for chronic obstructive pulmonary disease represents a second growth pillar for Takeda - including in emerging markets, where the company will have exclusive rights and where approvals are expected during 2011. Takeda is forecasting global sales of €500 million by 2015, excluding partner milestones and royalties. Daxas is co-promoted with Merck & Co. Inc. in Europe and with Forest Laboratories Inc. in the U.S.; Takeda also is said to be seeking a Japanese development partner for the drug.

Near term, buying Nycomed provides Takeda with an immediate 30% revenue boost as it prepares to contend with the U.S. patent expiries of its largest-selling drug, the diabetes treatment Actos (pioglitazone), which likely faces generic competition beginning in August 2012, as well as GERD drug Prevacid (lansoprazole). The deal also will boost operating income by more than 40%, according to Takeda.

Nycomed's aggressive emerging markets push allowed it to successfully compensate for the decline in sales of its own key drug, proton pump inhibitor pantoprazole, which lost exclusivity in Europe in 2009 and a year later in the U.S.

Maximizing Takeda's Portfolio Value, "Vitalizing" The Culture

In a conference call announcing the deal, Takeda's President & CEO Yasuchika Hasegawa said the deal would be earnings-per-share accretive from year one, and deliver ¥30 billion in annual cost synergies in the third year after closing. The transaction "will allow us to maximize the value of our products and pipeline," he enthused, referring to Nycomed's regulatory expertise, its global infrastructure (which more than doubles Takeda's country coverage, to 70 from 28 currently) and its low-cost manufacturing facilities in emerging markets.

Takeda also will take advantage of Nycomed's expertise in tailoring its product mix - which includes OTC and branded generics - to meet individual market requirements, a skill that is becoming increasingly important given more challenging reimbursement hurdles and the very different dynamics in emerging markets relative to Western ones.

Not all the benefits of this deal will be financial or commercial: Takeda wants to capitalize on Nycomed's entrepreneurial, agile, "can-do" culture, which contrasts strongly with the heavily corporate, hierarchical set-up typical of many Japanese firms. Management talked about "transforming" and "further vitalizing" Takeda's culture.

Small wonder, then, that Takeda "will strive to keep as many [as possible] of the key people at Nycomed on board" following the deal, although the position of Nycomed CEO Hakan Bjorklund, who has run the group since its 1999 spin-out of what was then Nycomed Amersham, is "still subject to discussion," Frank Morich, Takeda's EVP International Operations, told 'The Pink Sheet' DAILY. Morich will oversee Nycomed's integration with Takeda.

"There have been few acquisitions quite like this in the pharmaceutical sector," claimed Hasegawa on the call, in reference to the partners' highly complementary skills and infrastructure.

Nycomed's Owners Hit The Jackpot - And Retain U.S. Dermatology

Nycomed's majority private equity owner, Nordic Capital, would agree that this deal was exceptional. The group, which owns a 41% stake, has approximately quintupled its money since March 2005, when it bought a controlling interest in Nycomed for €1.8 billion.

And that was Nordic's second dip into this particular company: it bought into Nycomed (via an earlier fund) at inception in 1999, paying about $700 million, or just over one-times revenues (the group as the time was focused only on the Nordic/Baltic area). Three years later, it sold Nycomed for $1.1 billion to a group of private equity investors.

As such, "it has been a very successful investment for us," said Kristoffer Melinder, a partner at Nordic Capital. And despite the long list of assets that Nycomed provides to Takeda, and the attractive risk profile presented by its in-licensing focus and its product mix, "we didn't expect to have this strategic interest," he recounted. Takeda approached Nordic with an unsolicited offer for the company, Melinder clarified.

Nordic's own vision for Nycomed had always been an IPO, said Melinder, dismissing 2009 rumors of an aborted sale attempt and of moves to buy Solvay's pharmaceuticals business. "We were looking at the end of 2011 or early in 2012," he said.

The certainty of money on the table today, however, was more alluring than holding out for a listing at some point in the future - particularly given still-fragile financial markets.

The price, as a multiple of sales, is fair but not outstanding relative to other recent acquisitions in Europe. Melinder describes it as "adequate," reflecting the company's "quite strong growth outlook," especially in emerging markets. A Takeda spokesperson commented, however, that the price incorporated continued downward pricing pressure in Europe and in emerging countries.

This deal may not be the last of the value that Nordic, and its three other private equity co-owners will derive from their investment in Nycomed. The consortium plans to hold on to, and further develop, Nycomed's U.S. dermatology business. This generates about $400 million in sales from a combination of generics and branded products and is ranked number two in generics, with particular strength in topical drugs.

"It's an active space where there are lots of opportunities," commented Melinder.

- Melanie Senior ([email protected]) with additional reporting by Daniel Poppy ([email protected])