Astellas Reaches OSI Takeover Agreement After Bid Raised to US$4 Bil.

Japan's second largest drug maker Astellas today announced that it has reached a definitive merger agreement with U.S. pharma company OSI for the takeover of the latter at the raised price of US$4 billion in an all-cash transaction. Based on the two companies' agreement, Astellas will raise its offer to US$57.5 per share, representing a 55% premium to OSI's closing share price on 26 February 2010. The offer also reflects a 10.6% increase from Astellas' original offer, US$52 per share, announced at the beginning of March. The deal is subject to other customary closing conditions inclusive of the successful tender of a majority of OSI's shares of common stock on a fully diluted basis, added Astellas in its announcement.

Astellas Eyes Growth in Oncology Field with OSI Platform

OSI's key products and pipeline development are mainly focused on the fields of oncology and diabetes/obesity, among which the main attraction has been laid on its only marketed flagship product Tarceva (erlotinib). A small-molecule human epidermal growth factor type 1/epidermal growth-factor receptor (HER1/EGFR) inhibitor, Tarceva has been marketed as maintenance, second- and third-line treatment of non-small-cell lung cancer (NSCLC) as well as first-line therapy for pancreatic cancer. Swiss drug major Roche has the marketing rights of Tarceva, which scooped up global sales of US$1.2 billion in 2009.

In terms of the development pipeline, erlotinib is also under the late-stage trials for the treatment of adjuvant NSCLC, ovarian cancer and colorectal cancer. Another of the company's anti-cancer compounds, OSI-906, is also under Phase III study for adrenocortical carcinoma treatment. In addition, OSI has also advanced the development of PSN-821 and PSN-010, into Phase II for the treatments of Type 2 diabetes and obesity, and Type 2 diabetes respectively.

Outlook and Implications

Astellas first announced its hostile bid of taking over OSI at the beginning of March offering a total price of US$3.5 billion (see United States - Japan: 2 March 2010: Astellas Launches Another Hostile U.S. Takeover Bid with US$3.5-bil. Offer for OSI Pharmaceuticals). The acquisition attempt of Astellas encountered opposition from OSI's board of directors, who claimed that the offer significantly undervalued OSI. The pressure for Astellas to up its bid mounted when Tarceva secured the FDA's approval as a maintenance therapy for locally advanced or metastatic NSCLC in April (see United States - Japan: 19 April 2010: Tarceva Earns Expanded Approval as Astellas Maintains Bid Offer). The latest agreement between Astellas and OSI based on the former's raised bid has therefore come as not surprising.

Earlier this month, Astellas announced its financial performance in fiscal year (FY) 2009/10 ended 31 March 2010, which saw flat sales and a profit slump. The company's best-selling product, immunosuppressant Prograf observed a year-on-year decrease of 7.1% in sales primarily resulting from the generic competition in the U.S. market. Envisaging continued declines in sales and profits, Astellas is seeking future growth drivers from new fields and products with a specific focus on oncology, named a high-priority area by the company. Astellas' existing oncology pipeline includes late-stage candidate MDV-3100, a treatment of prostate cancer Astellas inlicensed from U.S. firm Medivation last October (see United States - Japan: 28 October 2009: Astellas, Medivation Team Up in Prostate Cancer Drug MDV-3100 Development and Marketing). The series of moves in the enhancement of the oncology field also reflects a general trend among Japan's major pharmaceutical companies including Takeda and Eisai, who have been beefing up their oncology segment as main growth drivers. On the other hand, if the takeover is completed and consolidated within this fiscal year, the company is likely to adjust its full-year outlook in order to reflect the amortisation's impact on its operating profit.