UPDATE 4-Otsuka ekes out gain in Tokyo debut after $2.4 bln IPO

* Otsuka shares close up 1.9 pct in weak market

* Rise reflects conservative IPO pricing, market upswing

* Otsuka’s $2.4 bln IPO biggest for drug firm
(Adds comments, updates share price)

By Junko Fujita

TOKYO, Dec 15 (BestGrowthStock) – Shares of Otsuka Holdings (4578.T: )
eked out a modest 2 percent gain in their debut on Wednesday
after the drugmaker priced its record-setting $2.4 billion IPO
conservatively, underscoring the sluggish market for new
listings in Japan.

The lacklustre first-day pop was widely expected due to
investor worries over Otsuka’s heavy reliance on Abilify, a
schizophrenia drug due to lose patent protection in 2015, and a
general decline in interest in initial public offerings in an
economy plagued by deflation and stop-start growth.

“There are much fewer IPOs these days and many of them are
not performing well. Before an IPO was a good investment
opportunity, but not any more,” said Katsuhiko Mori, a fund
manager at Daiwa SB Investments.

“It’s hard to find a growing company that is doing an IPO
these days because Japan’s economy is not growing. Most
companies that try to go public are already grown.”

Otsuka, Japan’s No.2 drugmaker by revenue after industry
leader Takeda Pharmaceutical (4502.T: ), closed at 2,140 yen in
its first day on the Tokyo Stock Exchange, 1.9 percent above the
2,100 yen IPO price, set at the lower end of an initial range.

Otsuka, which has a tie-up with Bristol-Myers Squibb (BMY.N: )
to sell Abilify in the United States and other markets, said it
would use the funds from the IPO for new drug development and
acquisitions, and that it was working on a successor to Abilify.

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 family-run domestic outfit into a global
player in drugs and food 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.”

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Newsmaker on Otsuka CEO Higuchi: [ID:nTOE6BD04F]

Graphics:

Top 10 global drug IPOs: http://r.reuters.com/nuh99q

Japan’s Top 10 IPOs: http://r.reuters.com/muh99q

Asia IPO volumes: http://link.reuters.com/xav22r

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Otsuka will apply for a new drug patent next year, two years
ahead of schedule, in an effort to find a successor to Abilify,
Higuchi told at a news conference on Wednesday.

The new drug will be injected into the body via a shot and
need to be taken less frequently than Abilify, an Otsuka
spokeswoman said, adding the company would likely apply for a
patent in the United States.

Otsuka, which also markets sports drinks such as the popular
Pocari Sweat, 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 offering, previously
the largest pharmaceuticals IPO.

Higuchi said some of the cash could be used to buy rivals.

“We will probably focus on smaller acquisitions rather than
a megadeal worth several billion dollars,” he said. “Because
just one acquisition won’t be a solution for our business
strategy.”

IPO DOLDRUMS

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 Dec. 10, are also below their IPO price of
1,800 yen, closing Wednesday down 0.9 percent at 1,711 yen.

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
growth in Asia outside Japan.

Otsuka’s debut was supported, however, 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 big, 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 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, the
three largest Japanese drug firms by market value.

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)
([email protected]; +81-3-6441-1840; Reuters
Messaging: [email protected]))

UPDATE 4-Otsuka ekes out gain in Tokyo debut after $2.4 bln IPO