Japan’s Otsuka picks low price end for No.1 pharma IPO

By Junko Fujita and James Topham

TOKYO (BestGrowthStock) – Japan’s Otsuka Holdings (4578.T: ) priced its $2.4 billion initial public offering at the lower end of its range, reflecting worries the drugmaker will struggle to find a successor for its schizophrenia drug, Abilify.

Otsuka has until April 2015 until Otsuka’s patent on Abilify expires and investors said the company has no comparable products to replace it so far. By going public now, Otsuka will acquire a war chest that may give it the ammunition to shop around for a new hit remedy.

“I get the feeling it’s being discounted because it’s future is unclear due to a lack of growth drivers and its heavy dependence on Abilify,” said Yutaka Kakizaki, an analyst at Chibagin Asset Management.

“It has been hard for the (pharmaceutical) sector to bring out new drugs, so acquisitions would be a plus (in securing growth drivers),” he said.

Otsuka, which also sells sports drinks, instant meals and skincare products, will sell shares at 2,100 yen in its initial public offering. Otsuka is Japan’s second-biggest pharmaceutical group by revenue after Takeda Pharmaceutical (4502.T: ).

Otsuka, which developed and tied up with Bristol-Myers Squibb (BMY.N: ) to sell Abilify in the U.S. and other markets, had sounded out investors with a price range of 2,000-2,400 yen per share, compared with its indicative price of 2,400 yen.

The conservative pricing suggests underwriters wanted to ensure investors gain profits from what will be the largest pharmaceuticals IPO, with the shares likely to hover above the offer price at a time when other Japanese IPOs have made a disappointing debut.

“Given the pricing at the lower end of the range, as well as Otsuka’s name recognition, the stock will definitely be popular and should perform well in the secondary market,” said Hiroyuki Fukunaga, president of Investrust.

Earlier this year, Dai-ichi Life Insurance Co (8750.T: ), Japan’s second-largest life insurer, went public with an $11 billion IPO. The shares, which were also priced cautiously, have been trading below the IPO price for almost six months.

“Overall it’s hard to find IPOs by growing companies these days because Japan’s economy is not growing,” said Katsuhiko Mori, a fund manager at Daiwa SB Investments. “Most companies which try to go public are already grown,” he added.

Otsuka will sell a total of 198.6 billion yen ($2.4 billion) worth of shares, exceeding Merck KGaA’s (MRCG.DE: ) $1.7 billion 1995 debut, previously the largest pharmaceuticals IPO on record.

At 2,100 yen, Otsuka shares will trade at 14.7 times expected future earnings, while Takeda trades at about 12.7 times.

Shares of Takeda, Japan’s top drugmaker, have fallen 1.7 percent since Otsuka Holdings announced its IPO plans on November 12, prompting Otsuka to pick the lower end of its price range, a Tokyo-based fund manager said.

Otsuka said last month it expects net profit to grow 18 percent to 79.7 billion yen in the year to March 2011 on revenue of 1.14 trillion yen, up 5 percent.

The listing by Otsuka, which owns Ridge Vineyards in California, will be the second-biggest in Japan this year after that of Dai-ichi Life Insurance.

The company said it would sell 80 million new shares, including 56.7 million shares outside Japan. Shareholders will sell 10 million existing shares.

It has also earmarked 4.5 million shares for a green shoe option. Otsuka shares will start changing hands on the Tokyo bourse on December 15.

(Additional reporting by Yumiko Nishitani; Editing by Michael Watson and Tim Kelly)

Japan’s Otsuka picks low price end for No.1 pharma IPO