Otsuka Holdings share price up, to acquire Avanir Pharmaceuticals ahead of patent expiration

Japans Otsuka Holdings Co Ltd reached a deal to purchase Avanir Pharmaceuticals for around $3.5 billion, marking it as the companys second big US acquisition in slightly over a year.

The agreement for the unprofitable Avanir comes as the drugmaker is looking to increase its portfolio of products, including treatments for Alzheimer’s, Parkinson’s and migraines, before Otsukas US patent for its best selling antipsychotic Abilify drug expires in April 2015.

Abilify, with the US as its largest market, accounted for $5 billion in revenue from global distribution in the last fiscal year, or 40% of all of Otsukas sales during the period.

The drugmaker said that it expects a reduction in operating profit by a half for the fiscal year ending March 2017 as patents expire, however, the company said it would rebound to the same levels as now by the business year through 2019.

Otsuka announced that subsidiary Otsuka Pharmaceutical would pay $17 per share in an all-cash deal, the offered price represents a 13.3% premium to Avanirs closing price on Monday. The US drugmakers value increased by 85% after it announced a positive phase two result from its drug trial to threat Alzheimer’s in September.

Avanirs Nuedexta drug and AVP-786 treatment are likely the cause of the acquisition, said Yasuhiro Nakazawa, analyst at SMBC Nikko Securities, “The two products Avanir has are unique, exciting and fit with Otsuka,” Mr. Nakazawa added. “They will help Otsuka have sustainable growth after Abilify.”

Japans companies are looking to expand in non-local markets to ensure future growth. Prior the Avanir deal, Otsuka bought Astex Pharmaceuticals, another US company, specializing in drug production for cancer treatment, for around $886 million last year.

According to Dealogic, if the purchase is completed it would become the third-largest deal between a Japanese group and a US company, lagging behind Dai-ichi Life Insurance’s $5.7 billion acquisition of Protective Life and Suntory’s $16bn takeover of Beam.

“Avanir’s creativity and proven execution on drug discovery and development of largely unexplored medical indications, represents a hand-in-glove fit with Otsuka’s culture,” said Taro Iwamoto, president of Otsuka Pharmaceutical.

Otsuka Holdings Co Ltd gained 0.88% on Monday and an additional 2.09% on Tuesday to close at ¥3 864.5, marking a one-year increase of 29.77%. The company is valued at 2.11 trillion. According to the Financial Times, the 10 analysts offering 12-month price targets for have a median target of ¥3 930, with a high estimate of ¥4 600 and a low estimate of ¥3 300. The median estimate represents a 1.69% increase from the last price of ¥3 864.5.