Roche to purchase all of Chugai Pharma

Jose Castro – Fourth Estate Cooperative Contributor

Tokyo, Japan (4E) – Roche, the largest manufacturer of cancer drugs, is now deep in discussions to purchase the remaining 38% of the partnership it has with Chugai Pharmaceuticals. Chugai is focused on oncological and arthritis related drugs.

The price tag on the 60% of the Tokyo-based drug company has been pegged at USD10 billion. The deal may be completed by early next week, but no final decisions have been made, according to one of the sources who did not want to identified due to the sensitive nature of the discussions.

Roche shares dropped nearly one percentage point on the Swiss bourse. Chugai on the other hand rose to a high of EUR29.70 on the Frankfurt Index. Over in Japan, Chugai shares have increased in value by 43% for 2014. A share price is not valued at JPY3,315 or about EUR24.17 making the company worth nearly USD18 billion.

The said planned purchase of shares it does not already own in Chugai is one of the moves of Roche to gain a better foothold in the Japanese drugs market. This is the world’s second largest market after the United States. Prior to these rumors, Roche CEO Severin Schwan was asked about the possibility of such a purchase back in April 2013. He replied that he had no plans then to increase Roche’s shareholdings in Chugai. Chugai has been a subsidiary of Roche since 2002.

In the first half of 2014, about USD260 billion worth of agreements were forged in the pharmaceutical, medical, and products sector. This is twice the value achieved in the same period back in 2013, according to market research firm Mergermarket.

Roche has been on an acquisition spree in the past years, with the purchase of Seragon Pharmaceuticals (USD1.7 billion) as well as Santaris of Denmark and US firm Genia Pharma. These were the biggest purchases done since its USD47 billion takeover of Genentech back in 2009.

The agreement between the Swiss firm and the Japanese drugmaker marks the first time that a Japanese firm had agreed to cede majority control to an overseas entity. Initially, Roche purchased a 50.1% shareholding in 2002 which it increased to 59.9% in 2009. As of June 30, 2014, Roche had 62% ownership in the Japanese firm.

When sought for comment, Roche representatives did not respond to emails sent to the company. Chugai representatives also did not reply to or return both emails and phone messages sent after business hours.

Amongst the drugs Roche manufactures are Avastin, Herceptin and Tarceva. All are for tumor management while Roche created the drug Actemra in conjunction with Chugai.

For its part, Chugai was able to generate USD4.4 billion in revenues for 2013. This figure is about 10% of the total sales generated by Roche for 2013. Roche was able to generate USD19 billion in free cash flow and many quarters and shareholders have been urging CEO Schwan to use the excess cash to generate more cash for the company. Now, about USD10 billion may be used in the purchase of the remaining 40% of Chugai Pharmaceuticals.

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