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September 4, 2009
Sepracor: A Desirable Property?
Well, I didn't see this one coming. Dainippon Sumitomo has announced that they're buying Sepracor. My first thought on reading this was "Are they sure they want to do that?"
I say that because the ostensible reason that the Japanese company is pulling out their wallet is that they're looking to replace declining revenues at home. In that case, why are they buying declining revenues over here? Their flagship product (Lunesta) is going to be going off patent in the not-too-distant future, and they don't have a gigantic pipeline of stuff behind it.
The answer seems to be a deficiency that many Japanese firms have felt: a lack of boots-on-the-ground sales staff over here. The US is the biggest single profit center for the worldwide drug industry, and it's impossible for a big company to ignore that. But realizing all those potential profits isn't easy, if you're coming in from a standing start. (It's not like Dainippon Sumitomo has a big profile over here). Says the Boston Globe:
In a note to investors on the sale, Credit Suisse analyst Scott Hirsch said the deal made sense for Sepracor. He noted that the company is generating $300 million to $400 million in cash a year but has a limited pipeline of new drugs in development and its existing products will face competition from generic drugs in coming years. Hirsch also doubted another suitor would step forward with a better bid.
“In our view, if a US firm wanted Sepracor, that likely would’ve happened already, as there have been plenty of lookers over the years,’’ said Hirsch, who has a neutral rating on the stock. “We think Dainippon Sumitomo is more interested in the sales platform and operating leverage than the revenue stream.’’
So where does that leave Sepracor's research operations? It's true that Takeda has apparently been very kind to Millennium's research staff, but that was a more research-driven deal than this one seems to be. I'm sure the folks at Sepracor are looking for a little more clarity on that question. The problem is, the company's revenues have come almost entirely from clever (albeit irritating) patent-busting moves (active metabolites, pure enantiomers, and so on), but these strategies ran out of gas some time ago as the rest of the industry tightened up its IP protection. Rightly or not, Sepracor doesn't have a reputation as an outfit with a lot of great in-house research ideas. Outside of a ready-made sales force, what exactly do they have to offer?
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