January 9, 2017 / 9:30 PM / 7 months ago

Takeda exemplifies Japan's expertise at overpaying

Logos of Japanese Takeda Pharmaceutical Co are seen at an office building in Glattbrugg near Zurich March 7, 2012.Arnd Wiegmann/File Photo - RTX2RH16

NEW YORK (Reuters Breakingviews) - Japanese companies' overseas shopping sprees tend to be overpriced. Takeda Pharmaceutical is the latest acquirer to pay over the odds. The $34 billion drugmaker is shelling out $5.2 billion, a 75 percent premium, for Ariad Pharmaceuticals, a biotechnology company with a middling cancer drug.

Takeda and its domestic peers are in a bind. They prospered for decades in a cozy market by introducing versions of therapies developed in Western countries, supplemented by the occasional home-grown innovation. More recently, though, competition from cut-price generic drugs has made the Japanese market less profitable. And local firms are big enough to share Big Pharma's difficulty in turning research investment into new drugs but too small to compete with multinationals in licensing and marketing other companies' drugs.

With a foreigner, Christophe Weber, in the corner office since April 2015, Takeda has its own specific concerns too, in particular a need to refill its pipeline. The company's 2008 acquisition of Millennium Pharmaceuticals for nearly $9 billion brought it a cancer drug, Velcade, which became a blockbuster. But thanks to an unexpected court ruling in 2015, patent protection will lapse in a few months' time.

And an almost $14 billion outlay on Nycomed in 2011 hasn't jump-started emerging-market sales as Takeda hoped it would. Those sales fell in the last fiscal year, although the weakening yen had a lot to do with that.

There was talk of Takeda buying gastrointestinal specialist Salix Pharmaceuticals from Valeant Pharmaceuticals International, the acquisition and cost-cutting machine whose run of stock-market success hit the skids towards the end of 2015, just months after it acquired Salix for $11 billion.

That didn't happen. Ariad provides some consolation for Weber. It has one approved drug for some forms of leukemia and racked up an estimated $180 million of revenue last year. Another drug for lung cancer might prove a winner, but competition from similar therapies will be intense.  The huge premium Takeda is paying may have prevented a bidding war from breaking out. But it makes the pricetag look too high.

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