Otsuka ekes out gain in Tokyo debut after $2.4 billion IPO

By Junko Fujita

TOKYO (BestGrowthStock) – Shares of Otsuka Holdings (4578.T: ) posted modest gains in their debut on Wednesday after the company priced its $2.4 billion IPO conservatively to offset investor worries about future competition for its mainstay schizophrenia drug.

Otsuka, Japan’s No.2 drugmaker by sales after industry leader Takeda Pharmaceutical (4502.T: ), closed at 2,140 yen, 1.9 percent above the 2,100 yen per share price for its IPO, which was the largest globally for a pharmaceuticals firm.

The benchmark Nikkei average (.N225: ) ended down 0.1 percent.

Investors had been expecting Otsuka to rise slightly after the company set the IPO price at the lower end of an initial range to allay jitters about its heavy reliance on schizophrenia treatment Abilify, which generates a third of its sales.

Otsuka has a tie-up with Bristol-Myers Squibb (BMY.N: ) to sell the drug in the United States and other markets.

The task of finding new growth drivers rests with CEO Tatsuo Higuchi, a 60-year old former food chemist who has played a key role in turning the largely domestic outfit into a global player in the drug industry with a market value of $14 billion.

“Otsuka’s profit source should be solid until 2015 when Abilify’s patent protection ends, but many see uncertainty after that,” said Yoshinori Ogawa, an analyst at financial market research and information provider FISCO.

“Developing the next hit product in the coming five years won’t be easy.”

Otsuka, which also markets sports drinks, instant meals and skincare products, sold a total of 198.6 billion yen ($2.4 billion) worth of shares, exceeding Merck KGaA’s (MRCG.DE: ) $1.7 billion 1995 IPO, previously the largest pharmaceuticals IPO.

Japan’s IPO market has been in the doldrums for the past three years in the wake of the financial crisis, with the number of issues dropping to 20 in 2009 and 22 so far this year from 121 in 2007, Thomson Reuters data shows.

The last IPO above $1 billion in Japan was the $11 billion offering of Dai-ichi Life Insurance Co (8750.T: ), whose shares have served as a symbol of the market malaise, down 17 percent since their debut in April.

Shares of cosmetics maker Pola Orbis Holdings (4927.T: ), which were listed on December 10, are wallowing below its IPO price of 1,800 yen, ended 0.9 percent lower at 1,711 yen on Wednesday.

That contrasts with Singapore and Hong Kong, where new listings are more buoyant and some investors are worried that bubbles are forming, a reflection of the stronger prospects for the region’s economic growth.

Otsuka’s debut was helped by the recently bullish trend for Japanese shares. The Nikkei is trading near a seven-month high and has risen more than 12 percent over the past six weeks as foreign funds increase their buying of Tokyo shares.

But investors are less likely to snap up drugmakers and other defensive shares when the market is rising, and the recent IPOs that have performed well have tended to be those companies targeting a niche market, as opposed to more diversified firms.

Among companies to go public this year, pet insurer Anicom Holdings (8715.T: ) is almost 50 percent above its IPO price, while electronic book store operator Papyless (3641.OS: ) has rocketed up 60 percent since floating its shares.

“Looking at long-term growth prospects, there are many more attractive companies on the Tokyo market,” other than Otsuka, said Hiroaki Osakabe, a fund manager at Chibagin Asset Management. He declined to comment if his fund bought Otsuka shares.

Otsuka, said 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.

Otsuka is trading at 15 times its earnings forecast compared with a price-to-earnings ratio of 13.6 for Takeda, Astellas Pharma (4503.T: ) at 17.8 and Daiichi Sankyo (4568.T: ) at 23, three of its largest Japanese peers.

“Whether Otsuka is trading at a discount or premium depends on how you see the patent expiration of Abilify in five years,” said a Tokyo based fund manager who asked not to be named because he was not allowed to talk about a specific company.

“It’s whether we consider Otsuka has as many as five years to rely on that drug or only five years.”

Nomura Holdings, UBS AG and Morgan Stanley arranged the Otsuka IPO.

($1=83.60 Yen)

(Additional reporting by Antoni Slodkowski and Mariko Katsumura; Editing by Nathan Layne and Michael Watson)

Otsuka ekes out gain in Tokyo debut after $2.4 billion IPO