March 1, 2010 / 11:50 AM / 10 years ago

Japan's Astellas bids $3.5 billion for OSI Pharma

NEW YORK (Reuters) - Astellas Pharma Inc (4503.T) launched a $3.5 billion hostile bid for OSI Pharmaceuticals OSIP.O to gain access to the blockbuster Tarceva cancer drug, in the latest move by a Japanese drugmaker to make inroads in the United States.

OSI shares surged 51.8 percent to $56.20, well above Astellas’ $52-per-share offer as analysts expected a higher price or even a rival bid from potential suitors such as Swiss drugmaker Roche Holding AG ROG.VX, OSI’s partner on Tarceva.

OSI said it previously rejected the offer from Japan’s No. 2 drugmaker as too low and advised shareholders not to act at this time. Astellas’ offer represents a 40 percent premium to the biotech company’s Friday closing price.

OSI Chief Executive Colin Goddard last month offered to share nonpublic information about the company with Astellas to make a case for a higher value, according to a copy of a letter made public by OSI on Monday. The company said on Monday it would review the proposal by Astellas.

OrbiMed Advisors, the seventh-largest OSI shareholder according to Thomson Reuters data, would “absolutely not” tender shares under the current Astellas offer, said Sven Borho, general partner of OrbiMed.

OrbiMed would look for something above $55 and has valued OSI at around $60, Borho said.

“It has to be closer to our sum-of-parts valuation,” said Borho, who said OrbiMed holds about 1.6 million OSI shares. “We are supportive of a deal.”

Astellas said it was taking its offer directly to OSI shareholders after the company rejected the bid last month. Astellas, which is being advised by Citigroup (C.N), said it will begin a tender offer on Tuesday and plans to nominate directors at OSI’s annual meeting.

“This offer follows our attempts over the past 13 months to engage OSI in meaningful discussions,” Astellas’ Chief Executive Masafumi Nogimori said in a statement.

Roche is the obvious candidate to snatch OSI away, JPMorgan analyst Geoff Meacham said in a research note.

“We think that it is feasible that Roche could step in with a competitive offer, but we note that Roche is historically valuation sensitive and their rights to Tarceva are unchanged with a new owner,” Meacham said in a research note.

Roche declined to comment.

SCRAMBLE FOR NEW DRUGS

Astellas is scrambling to develop next-generation drugs as patents on its mainstay products expire. Last year it made a hostile, $1 billion bid for heart drug specialist CV Therapeutics, but lost out to Gilead Sciences (GILD.O).

In November, it cut its outlook below market expectations, partly due to generic competition to its Prograf transplant drug. Astellas said its bid for OSI aims to help it become a global leader in oncology.

Under longtime CEO Goddard, OSI has become heavily dependent on Tarceva after a highly criticized 2005 purchase of Eyetech Pharmaceuticals brought it rights to the drug Macugen. The drug paled in comparison to a rival eye-disease treatment from Roche’s Genentech and ultimately flopped commercially.

Tarceva, which totaled $1.2 billion in sales last year, is approved as a second-line treatment for patients whose lung cancer has gotten worse after at least one round of chemotherapy.

OSI receives royalties on sales of the blockbuster drug, which is also approved for pancreatic cancer. The Melville, New York-based company reported $358.7 million in Tarceva-related revenue last year — more than 80 percent of its total revenue — and net income of $75.9 million.

Astellas may be trying to acquire OSI before the U.S. Food and Drug Administration decides whether to approve Tarceva as a first-line maintenance therapy for lung cancer.

Such an approval could lead to a significant expansion of the drug’s use because Tarceva could be taken earlier in the progression of the disease and possibly for several more months than under its current label. The FDA is due to decide on the label expansion by April 18.

The OSI bid is the latest effort by Japanese drugmakers to make gains in the world’s top pharmaceutical market.

In recent years, Takeda Pharmaceutical Co Ltd (4502.T) acquired biotech Millennium Pharmaceuticals for $8.9 billion, and Eisai Co Ltd (4523.T) bought MGI Pharma for $3.9 billion, in two other deals to acquire oncology specialists.

Astellas’ offer for OSI also comes as German pharmaceutical company Merck KGaA (MRCG.DE) agreed to buy U.S. life sciences tool maker Millipore MIL.N for $6 billion.

Reporting by Lewis Krauskopf and Bill Berkrot in New York, Esha Dey in Bangalore and Katie Reid in Zurich; Editing by Lisa Von Ahn, Gunna Dickson, Dave Zimmerman

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