Otsuka sets IPO range on weak side on growth worries

By Tim Kelly and Yumiko Nishitani

TOKYO (BestGrowthStock) – Japan’s Otsuka Holdings set a tentative IPO price range with a lower end 17 percent weaker than a prior reference price, reflecting worries about its growth prospects after a key drug loses patent protection in 2015.

Otsuka, which developed schizophrenia drug Abilify and tied up with Bristol-Myers Squibb (BMY.N: ) to sell it in the U.S. and other markets, set a range of 2,000-2,400 yen ($24-$29) per share, compared with its indicative price of 2,400 yen.

It would raise $2.7 billion at the top of that range, exceeding Merck KGaA’s (MRCG.DE: ) $1.7 billion 1995 debut, previously the largest IPO on record globally for a pharmaceutical firm.

Investors sounded out for the offering had raised the company’s heavy reliance on Abilify and the uncertain outlook for profits once it loses its patent protection as a concern, Otsuka said in a filing, citing that as one factor behind the set range.

“Otsuka sells Abilify jointly with Bristol-Myers in U.S. and the sales figures were very strong at $2.5 billion, but the patent expires in April 2015, so there’s nothing afterwards,” said Atsushi Seki, an analyst at Barclays Capital.

Otsuka, which also sells sports drinks, instant meals and skincare products, will be the second-biggest listing in Japan this year after that of Dai-ichi Life Insurance (8750.T: ), and comes at a time when the Tokyo stock market has been sluggish.

That contrasts with elsewhere in Asia. Companies have raised a total of $48.7 billion through IPOs in Hong Kong so far this year, according to Thomson Reuters data, nearly double the tally last year.

Yet even one of hottest markets for IPOs remains vulnerable to global economic downturn concerns Hong Kong saw more than $3 billion worth of floats shelved on Wednesday as tensions in Korea and Ireland’s debt problems rattled investors.

The shaky outlook could also turn some investors away from Otsuka even at the lower price range, said Yuuki Sakurai, CEO and president of Fukoku Capital Management in Tokyo.

“Unless its urgent it’s probably better to wait for a year. I don’t think the wind is pulling them,” he said.

Otsuka, Japan’s second-biggest pharmaceutical group in terms of annual revenue after Takeda Pharmaceutical (4502.T: ), said it would sell 80 million shares, including 56.7 million shares outside Japan.

It also earmarked 4.5 million shares for a green shoe option with shareholders selling 10 million more.

The offer price will be set on December 5, and Otsuka shares will start changing hands on the Tokyo bourse on December 15. The firm is expected to use the proceeds to speed the globalization of its operations and develop drugs.

Dai-ichi Life shares, which debuted on the Tokyo Stock Exchange on April 1, closed on Thursday at 123,700 yen, 12 percent lower than their IPO price, while the Nikkei average (.N225: ) has fallen about 8 percent since April.

Otsuka had a net profit of 67.4 billion yen on revenues of 1.08 trillion yen in the year to March 2010.

($1=83.51 Yen)

(Additional reporting by Antoni Slodkowski; Editing by Edwina Gibbs and Nathan Layne)

Otsuka sets IPO range on weak side on growth worries