Japan's Kirin, Kyowa Merge To Strengthen Biotechnology Focus

Kirin Holdings and Kyowa Hakko will seek to bring together each company's strength in biotech to create a global research and development-centered Japanese drug company. The two Tokyo-based companies announced a merger agreement Oct. 22, reflecting the ongoing consolidation of the Japanese drug industry.

Both Kyowa Hakko and Kirin Pharma are strong in antibody drug technology-centered biotechnology," the firms said. "Through the integration of this strength, both companies aim to further bolster their operations."

Under the deal, Kirin, a Japanese brewer that also operates a pharmaceutical business unit, will acquire a 50.1 percent stake in Kyowa in a cash and stock transaction reported to be close to ¥300 billion ($2.64 billion). Kirin's pharma unit is expected to merge with Kyowa Oct. 1, 2008, with the surviving company to be known as Kyowa Hakko Kirin.

The transaction reflects the ongoing consolidation in the industry as Japanese pharmas increase focus on international markets amid sluggish domestic growth and health spending reform.

"The domestic and international business environment of the pharmaceutical industry is undergoing drastic changes," the firms said, citing increased global competition for R&D, price reductions and health care reform.

The combined group would have sales of greater than ¥2.02 trillion ($17.6 billion), based on Kyowa's fiscal year 2007 sales of ¥354.2 billion ($3.09 billion) ended March 31, and Kirin's fiscal year 2006 sales ¥1.67 trillion ($14.6 billion) ended Dec. 31.

Kyowa's pharma research is focused on cancer drugs and antibodies, including the development of Potelligent technology, which is expected to increase antibody development by up to 100 times. Kyowa operates a U.S. subsidiary, Kyowa Pharmaceuticals, which submitted an NDA for istradefylline (KW-6002) to FDA for the treatment of Parkinson's disease April 25 ("The Pink Sheet" DAILY, April 27, 2007).

Kirin's pharma business is focused on renal diseases, cancer, immune disorders and infectious diseases. In the U.S., Kirin recently partnered with Aveo, giving the firm rights to an investigational once-daily VEGF inhibitor in regions outside of Asia ("The Pink Sheet" DAILY, April 5, 2007.)

Both companies operate significant non-pharmaceutical businesses, including Kyowa's chemical and food business, and Kirin's alcohol and beverages business. The firms plan to spin off Kyowa's bio-chemical business and consider integration of other corresponding businesses.

"We have a positive impression of the news," JP Morgan analyst Naomi Takagi said. "Short-term synergies will probably be limited, but from a mid- to long-term perspective, the combination should be significant for Kirin's pharmaceutical business' growth story."

- Jessica Merrill

This article is reprinted from "The Pink Sheet" DAILY – Oct. 24, 2007

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