Bloomberg News

Otsuka Bid for Astex Seen Undervaluing Cancer-Drug Maker

September 05, 2013

Otsuka Holding Inc. CEO Tatsuo Higuchi

Otsuka Holding Inc. President and Chief Executive Officer Tatsuo Higuchi speaks during a news conference in Tokyo on Thursday, Sept. 5. Photographer: Kiyoshi Ota/Bloomberg

Otsuka Holdings Co. (4578)’s offer of as much as $886 million for Astex Pharmaceuticals Inc. (ASTX:US) is too low and investors should hold out for more, two analysts and a shareholder said.

Otsuka, the maker of the mood-stabilizing drug Abilify, said in a statement today it will pay $8.50 a share for the Dublin, California-based maker of cancer medicines. That’s 27 percent higher than Astex’s closing stock price on Sept. 3, the day before the deal was reported by the Nikkei newspaper.

Astex should settle for nothing less than $13 a share, said Gene Mack, an analyst with Brean Capital LLC in New York. Otsuka’s bid undervalues Astex’s approved drug, Dacogen, for blood cancers and its pipeline of compounds, including SGI-110, Mack said in a note to clients today. One shareholder compared the deal to the Dutch colonists’ 1626 purchase of Manhattan from American Indians for an estimated $24 in goods.

“Otsuka got a price equivalent to what Peter Minuit got on Manhattan,” said Stuart Weisbrod, founder and chief investment officer of Iguana Healthcare Partners, which holds Astex shares as part of the $130 million in assets it manages. “This will go down as the biggest rip-off of investors in biotech history.”

Astex Chief Executive Officer Jim Manuso said on a conference call that the sale process started after a five-year internal review. Jefferies LLC acted as financial adviser, and many companies were contacted about a potential deal, he said.

Highest Bidder

“Otsuka emerged as the highest bidder interested in acquiring Astex,” Manuso said. The executives didn’t take questions on the call and the company didn’t immediately return a telephone message seeking further comment about the bid.

Astex rose 3.4 percent to a nine-year high of $8.55 at the close in New York, above Otsuka’s offer price in an indication that investors may expect a higher bid. The shares surged 24 percent yesterday after the Nikkei newspaper said Tokyo-based Otsuka planned to buy Astex for 90 billion yen ($900 million).

Otsuka, which also makes Pocari Sweat drinks and Soyjoy nutrition bars, would gain a stable of treatments for cancer, an area ripe in acquisitions. Amgen Inc. agreed last month to pay $10.4 billion for Onyx Pharmaceuticals Inc. (ONXX:US) to gain access to new oncology drugs.

Astex’s pipeline includes SGI-110, which last week produced results in a mid-stage study in acute myeloid leukemia that drove the stock up 24 percent in one day. The company said it will present further data at the American Society of Hematology meeting later this year.

$1 Billion

“If they waited until they turned the card on the SGI-110 data at ASH this year, they could be worth double what they’re selling for right now,” Mike King, an analyst with JMP Securities, said in a telephone interview today. “I don’t understand why you sell a company in advance of the most important data point in the company’s history.”

King said Astex should command at least $1 billion, and other companies may be interested, such as Johnson & Johnson (JNJ:US), Astex’s parter on Dacogen. Ernie Knewitz, a spokesman for New Brunswick, New Jersey-based J&J, declined to comment.

Otsuka fell 1 percent to 2,950 yen at the close in Tokyo, paring the stock’s gain this year to 21 percent. The benchmark Topix index has increased 35 percent in the same period.

Abilify is one of the world’s best-selling schizophrenia treatments. The company has been searching for new products before 2015, when its patent on Abilify expires. Its acquisition offer will be made via a tender process to begin within 10 days and remain open for 20 days.

If successful, the acquisition will be the fourth largest by a Japanese pharmaceutical company in the past five years.

Global sales of cancer medicines increased 5.1 percent to $61.6 billion last year, according to market researcher IMS Health. The drugs make up more than 7 percent of global pharmaceutical sales by value.

Otsuka said it was advised by Goldman Sachs Group Inc., while Skadden, Arps, Slate, Meagher & Flom LLP provided legal counsel. Astex received legal counsel from Wilson Sonsini Goodrich & Rosati P.C.

To contact the reporters on this story: Meg Tirrell in New York at mtirrell@bloomberg.net; Marco Lui in Tokyo at mlui11@bloomberg.net

To contact the editors responsible for this story: Jason Gale at j.gale@bloomberg.net; Reg Gale at rgale5@bloomberg.net


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