At $2.6B, is Sepracor the best buy for Dainippon?

Another Japanese pharma has snapped up a U.S. drugmaker. This time, it's Dainippon Sumitomo Pharma, which will pay $2.6 billion for Sepracor mainly to get access to the latter's sales network. Dainippon will offer $23 per share in a tender that amounts to a 28 percent premium to Tuesday's closing price.

Best known for its sleep drugs, Sepracor also sells respiratory treatments; Dainippon also is strong in insomnia and respiratory meds, analysts said. Plus, Sepracor has a U.S. sales force that's 1,200 strong, giving Dainippon's drugs--including an experimental schizophrenia treatment, lurasidone--clear channels into the U.S. market.

Japanese drugmakers are looking to foreign markets for expansion because of strict government price controls back home. "Our business won't grow within Japan as the government continues to reduce health-care costs," Dainippon President Masayo Tada said (as quoted by Bloomberg). "It was crucial for us to expand to the U.S."

But is Sepracor the right deal at the right price? Only time will tell, but there are warning signs. Dainippon is funneling almost all its cash into the deal, and it's borrowing $2.17 billion in bridge financing. The price comes in at 3.5 times sales, compared with 3.1 times sales on average for other specialty pharma deals.

Meanwhle, two of Sepracor's key products, which account for about 80 percent of its 2009 revenue so far, go off patent within the next two years. And there's no guarantee that Sepracor's sales network can turn Dainippon's lurasidone into a big success, given the huge competition in the antipsychotic market. "We are unconvinced that this is the most sensible option for the company," Sanford Bernstein analyst Aaron Gal told Reuters, "given the alternatives of building a sales team internally or acquiring a higher-performing sales team at a more rational price."

- here's Dainippon's release
- get the news from Reuters
- see the Bloomberg story
- read the analysis in the WSJ

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