Dainippon Buys Drugmaker Sepracor For $2.6 Billion

TOKYO (AP) -- Dainippon Sumitomo Pharma Co. is acquiring U.S. drug maker Sepracor Inc., which makes insomnia drug Lunesta, for about $2.6 billion in an effort to expand in the U.S. market, both sides said Thursday.

The Japanese drug maker said the deal will give it access to Sepracor's established sales network of about 1,325 people in the U.S., which will help it establish a sales platform for lurasidone, a potential treatment for schizophrenia that is now in late-stage trials. Dainippon said it plans to submit a new drug application for lurasidone to the U.S. Food and Drug Administration in early 2010.

Dainippon said that the acquistion of Sepracor will also increase its overseas revenue to 40 percent of its total. The Osaka-based company has depended on its own domestic market up until now.

The company said it will offer $23 per share, a 27.6 percent premium over Sepracor's closing price Tuesday, through a tender offer set to start in early September. The deal is expected to close during the fourth quarter.

Shares of Sepracor had soared 26 percent, to $22.80 on Wednesday afternoon, amid media reports in Japan that a deal was imminent. On Thursday morning, Sepreacor changed hands at $22.84. In Japanese trading Thursday, Dainippon's shares closed up at 1.2 percent to 1,025 yen.

The buyout is the latest in a series of acquisitions of foreign pharmaceuticals by Japanese drug firms as companies face looming patent expirations on key drugs. Last week, Hisamitsu Pharmaceutical Co. bought Noven Pharmaceuticals of Florida for $428 million. Almost a year ago, Shionogi and Co. expanded into the U.S. market by buying Sciele Pharma for $1.4 billion. The deal for Sepracor is the second-largest foreign acquisition by a Japanese company this year, behind Kirin Holdings Co.'s bid for Australian brewer Lion Nathan Ltd. earlier this year, according to data from Dealogic.

Under the deal, Dainippon plans to acquire all outstanding common shares of Sepracor, based in Marlborough, Massachusetts, it said.

Sepracor makes treatments for respiratory and central nervous system disorders and reported $1.29 billion in revenue in 2008. Lunesta was reponsible for almost half of those sales.

"Sepracor has pursued growth through development of its unique pipeline and introduction of innovative pharmaceutical products to the market, a strategy that fits perfectly with our management philosophy," Dainippon President Masayo Tada said.

Dainippon said it hopes to become an internationally competitive research and development-oriented pharmaceutical company.

Deutsche Bank analyst David Steinberg said the deal will make Dainippon the sixth largest Japanese drugmaker in terms of revenue, up from seventh.

In addition to Lunesta, Sepracor makes the respiratory drug Xopenex, lung disorder treatment Brovana, Alvesco for asthma, and Omnaris allergy spray. It is developing drugs for allergies, epilepsy, insomnia, depression, attention deficit hyperactivity disorder and lung disease. The FDA is expected to make a ruling on the epilepsy drug Stedesa by the end of January.

Outside of North America and Japan, Lunesta is marketed as Lunivia by GlaxoSmithKline PLC.

The sale may cap a difficult year for Sepracor. In July, the company said an experimental depression treatment failed in a clinical trial, and the FDA placed a hold on two trials studying the use of Lunesta in children. The company has been trying to extend the patents on Lunesta, which expire in 2012, by getting the drug approved for pediatric use.

Sales of Lunesta were down slightly in 2008, and Sepracor expects its total revenue to decrease this year. In January, Sepracor said that it would eliminate 20 percent of its work force, or about 530 jobs, to cut costs. It also cut 410 contracted sales jobs.

On Tuesday, a generic version of Xopenex reached the market in the U.S. Mylan Inc. said it started shipping a low-cost version of the inhaled form of the drug. Sepracor also sells a solution version.

Adrian Adams, President and CEO of Sepracor, welcomed the deal.

Dainippon "is a leading Japanese pharmaceutical company with a distinguished history and an established, strong track record of operational and financial performance based on a number of successful product launches," he said.

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