Astellas Pharma's $3.5 Billion Takeover Bid for OSI Pharmaceuticals Fails to Reflect Peak Annual Revenue Potential

Astellas Pharma's hostile takeover bid for OSI Pharmaceuticals Inc. has been criticized by OSI's Chief Executive Officer Colin Goddard, who argues that the $3.5 billion offer does not account for the cancer pill Tarceva's peak annual revenue potential of $7 billion. Goddard also noted that the bid assigns no value for the ongoing life-cycle plan for Tarceva, leaving the timeline for reaching peak sales unclear. In a letter to shareholders, OSI Chairman Robert Ingram urged rejection of the Astellas tender offer, highlighting OSI's value as a profitable biotechnology company with a marketed cancer medicine.

Key Takeaways:

• OSI Pharmaceuticals' cancer pill Tarceva generated $1.6 billion in revenue in 2009, and its peak annual revenue potential is estimated to be $7 billion.
• Astellas Pharma's takeover bid of $3.5 billion amounts to about 6.3 times OSI's annual revenue, which is lower than the price multiples paid by other companies in the industry.
• OSI is a unique asset, described as the only profitable, mid-cap biotech company with a growing, high-quality, and fully integrated oncology franchise and a strong diabetes and obesity franchise.
• The takeover would give Astellas access to Tarceva, its first marketed cancer medicine, and would help replenish revenue lost since its patent expired on Prograf.
• OSI's Chairman Robert Ingram argued that the bid does not fully reflect OSI's value as a company, and that the $52-a-share bid assigns no value for the ongoing life-cycle plan for Tarceva.

Statistics:

• OSI Pharmaceuticals' 2009 revenue from Tarceva: $1.6 billion
• Peak annual revenue potential of Tarceva: $7 billion
• Astellas Pharma's takeover offer: $3.5 billion
• Price multiple of Astellas takeover offer: 6.3 times OSI's annual revenue
• OSI Pharmaceuticals' closing price on February 26: $57.68
• OSI Pharmaceuticals' closing price on March 2 (after takeover announcement): $58.64
• Comparison of price multiples: OSI's takeover bid is lower than Osaka-based Takeda Pharmaceutical Co.'s 13.5 times revenue offer for Millennium Pharmaceuticals in 2008, and lower than Eli Lilly & Co.'s 7.8 times revenue offer for ImClone Systems Inc. in 2008.

Sources:

• "OSI Pharmaceuticals Warns on Astellas Takeover Bid" by Sai Sridhar, Bloomberg, 2010
• "Astellas Pharmaceutical to Take Over OSI Pharmaceuticals" by Rei Tanaka, Bloomberg, 2010
• "OSI Pharmaceuticals Rejects Astellas Takeover Bid" by Contify.com, 2010