Astellas Launches Another Hostile U.S. Takeover Bid with US$3.5-bil. Offer for OSI Pharmaceuticals

Japan's second largest drug maker, Astellas, yesterday launched yet another unsolicited takeover bid for a U.S. firm by offering to acquire all outstanding shares of OSI Pharmaceuticals' common stock for US$52 per share in cash. The offer represents a premium of 40% over OSI's share price as of 26 February 2010, and would result in a total price tag of some US$3.5 billion. On the same day, OSI issued an announcement confirming that it has received Astellas's proposal, and advised shareholders against taking any action while the proposal is under the review of the Board of Directors. Meanwhile, OSI also noted that it had received Astellas's oral proposal in February but had declined this, believing that the offer significantly undervalued OSI. Astellas also noted that its tender offer is "not subject to any financial conditions or due diligence conditions and will be only subject to customary closing conditions". It is not expecting any regulatory barriers to the completion of the transaction, added the company.

OSI: Potential Boost for Astellas’s Oncology, Diabetes Pipeline

OSI is a biotech firm with its main focus on the development and marketing of drugs in the fields of oncology, diabetes, and obesity. Its lead product, Tarceva (erlotinib), is a small-molecule human epidermal growth factor type 1/epidermal growth-factor receptor (HER1/EGFR) inhibitor which is currently marketed for the treatment of non-small-cell lung cancer (NSCLC) and pancreatic cancer. Tarceva has been outlicensed by Astellas to Swiss drug giant Roche, which reported annual global sales of the product in 2009 of US$1.2 billion. OSI's Tarceva-related revenue during the same period reached US$359 million, up by 7.1% year-on-year, constituting 83.9% of the company's annual net sales for 2009. OSI also has a late-stage candidate, OSI-906, which is being developed for the treatment of adrenocortical carcinoma (ACC) as well as Phase I/II studies for ovarian cancer treatment. In the company's diabetes pipeline, there are currently two compounds undergoing Phase I investigations.

Outlook and Implications

The US$3.5-billion hostile bid to takeover OSI is Astellas's second recent acquisition attempt in the U.S. market following its unsuccessful move to acquire CV Therapeutics in early 2009. During last year's takeover battle, Astellas's US$1-billion bid lost out to U.S. firm Gilead Sciences's US$1.4-billion offer (see United States - Japan: 13 March 2009: Gilead Sciences Steals CV Therapeutics from Astellas with Higher Offer). Astellas's unfulfilled ambition to enhance its presence in the U.S. market as well as boost its development pipeline has made the latest acquisition move no surprise. The company's top performer—immunosuppressant Prograf (tacrolimus)—has been suffering a slump in sales during recent quarters due to generic competition. Astellas is therefore, as is the case with most of its peer drug majors, in need of immediate enhancement in its product line-up through means of acquisitions and collaborations in addition to in-house development. The bid for taking over OSI reflects Astellas's particular interest in the fields of oncology and diabetes treatments. If the deal can be successfully closed, Astellas will follow in the footsteps of compatriot drug makers such as Takeda and Eisai in beefing-up its oncology portfolio through a U.S. acquisition. Takeda and Eisai acquired U.S. oncology specialty firms Millennium and MGI Pharma for US$8.8 billion and US$3.9 billion respectively in 2008.

If successful, Astellas will enjoy a pipeline boost in the form of OSI's oncology and diabetes drug candidates. However, near-term prospects may be limited by several factors. First of all, the most-attractive product, Tarceva, has already been outlicensed to Roche by OSI for its overseas rights, so revenue growth potential for the drug is limited. In addition, most of OSI's pipeline compounds still remain in early-stage development. Astellas is, therefore, not likely to reap much immediate reward, apart from the Phase III OSI-906. Furthermore, bearing the example of Astellas's failed bid for CV Therapeutics and the OSI board of directors' previous rejection in mind, it is not unlikely that further twists may still be in store the Japanese firm, including facing potential counter offers, or needing to increase its bid.