Eisai to Acquire MGI for $3.9 Billion

In a bid to have access to more cancer drugs, Tokyo based pharmaceutical company Eisai Co. has decided to acquire Bloomington, Minnesota, based MGI Pharma Inc. in a cash deal worth $3.9 billion, which amounts to 9.7 times the annual revenue of MGI Pharma. Eisai is the manufacturer of the largest selling drug for Alzheimer’s disease, while MGI sells shots for nausea that occurs as a result of chemotherapy.

In a statement made to the local stock exchange, Eisai said as a result of the deal, investors with MGI would receive $41 per MGI share, a price that is 23 percent more than the closing price MGI recorded on December 7. The company announced its intention to acquire MGI after trading on the stock exchange in Tokyo had ended.

With the announcement of the acquisition, stock prices at Eisai shot up by 100 yen, a 2.1 percent increase to end at 4,840 today. During after-hours trading at the German exchange, MGI stock prices shot up by 4.07 euros to end at 27 euros ($39.56). It had earlier ended the day at $33.45 during trading on Nasdaq on December 7.

To finance the deal, Eisai would be using up about $300 million in cash and get the rest through bridge loans. The company expects to complete the acquisition by the end of March 2008. In its statement, Eisai has said it would provide further details related to the impact the deal would have on its earnings later.

Eisai is the manufacturer of Aricept, the most widely used drug against Alzheimer’s currently. While the revenues accrued from sale of the drug made up approximately 38 percent of the company’s Q3 revenues this year, sales are expected to plummet as cheaper versions of the drug hit the market, by 2010.

In October this year, shares at Eisai fell to a two-month low as there were delays in finding potential successors. Haruo Naito, the CEO of Eisai has been looking to acquire MGI so he can add the potential revenues that can be accrued from its cancer treatments to bridge the current shortfall.

In a telephonic interview, Shinsuke Nagasaki from Mizuho Asset Management Co. said it was possible that the pharmaceutical company would be seeing more acquisitions and mergers along the lines of the one involving Eisai and MGI in the near future. “Large drug makers need to expand the product selections in their pipelines as they face patent expiry,” he said.

Earlier on November 29, MGI had said it had brought n board Lehman Brothers Holdings Inc. to see the possibility of selling the company. Analysts have talked of worries related to revenue growth when it came to MGI. At least two of them have cut back the ratings for the company in November.

Earlier, there was a 5.8 percent drop in sales of Aloxi, the biggest selling drug at MGI during Q3 this year. Sales during this quarter dropped to $66.3 million. The company is also looking at possible reduction in sales numbers for Dacogen, its second-largest product, as Celgene Corp. bought out one of MGI’s rival companies.