October 22/Tokyo/Pharma Marketletter-- Following speculation and rumor ahead of the weekend, Kirin Holdings, the parent of Japanese beer giant Kirin Brewery, confirmed at a Tokyo press conference on October 22 that it plans to acquire 50.1% of Kyowa Hakko Kogyo through a takeover bid and a stock swap between the latter and Kirin Pharma, the brewer's pharmaceutical subsidiary.

Although financial terms of the deal were not disclosed, pre-confirmation speculation valued the transaction at around 300.0 billion yen ($2.55 billion).

Assuming the acquisition succeeds, Kirin plans to integrate its pharmaceutical division into Kyowa Hakko to form a single entity called Kyowa Hakko Kirin. After Kirin acquires a majority share, Kyowa Hakko will make Kirin Pharma a wholly owned subsidiary, effective April 2008 and will integrate Kirin Pharma into Kyowa Hakko Kirin in October next year. Kirin will maintain its ratio of stock in the new company at 50.1% for 10 years. Yuzuru Matsuda, president of Kyowa Hakko Kogyo, will be in this post in the new company, the head office of which will remain at the current location.

Both firms have strength in antibody technologies
Since both firms are strong in antibody medicine technology, synergistic effects are expected to be generated by the integration. In addition, while Kirin plans to strengthen its pharmaceutical business and make up for the sluggish alcoholic beverages sector, Kyowa Hakko will be able to utilize the huge resources that Kirin has in an attempt to invest in R&D. The drugmaker will remain a Tokyo Stock Exchange-listed firm after the merger.

Kirin set up its pharmaceutical business in 1982 and acquired rights to U.S. biotechnology major Amgen's Epogen/Procrit (epoetin alfa), for the treatment of anemia and patients on dialysis, which it launched in 1990. The drug accounts for around 70% of the unit's revenues and is made using a fermentation process.

At the press conference to announce the merger, Mr Matsuda said: "the new company will respect the basic operation policy of Kirin Holdings and the new company will maximize interests of shareholders and expand sustainably its corporate value by keeping our management independence as a TSE-listed company."

For its part, Kyowa Hakko has a number of antibody-based drugs in development, and last year revealed an accelerated program in the USA (Marketletter November 13). This included BIW-8405, an interleukin-5 receptor alpha antagonist for the treatment of asthma, which is being developed by BioWa, Kyowa's US drug development unit, has entered Phase Ib trials. In addition, BioWa has three antibody drugs utilizing potelligent and one such agent for the treatment of cancer. KW-0761, a CC chemokine receptor-4 anti-allergy agent, is now in Phase II in Europe. This compound was due to enter Phase I Japanese trials in lymphoma.

KW-2449, a multi-protein kinase inhibitor centering on FLT-3 inhibition, which is being developed for acute myelocytic leukemia, chronic myelocytic leukemia and solid cancers, is currently in a Phase I US trial. Kyowa Hakko then said it plans to initiate Phase I studies in Japan in three years time, at the earliest.

NDA filing for KW-6002
The company filed a New Drug Application for its Parkinson's disease drug candidate, istradefylline (KW-6002), in the spring. Ongoing Phase IIa PD monotherapy studies began in the USA and Japan in May 2005 and November 2005, respectively. As an additional indication for restless leg syndrome, Phase IIa clinical trials were initiated in July 2005 in the U.S. and Matsuda says Kyowa Hakko is now seeking a partner to license the agent.

Matsuda also said that the new company will focus on global specialty pharmaceuticals in the areas of cancer, kidney and immunologic diseases based on antibody technologies which both companies have.

Financial projections
In the wake of the merger, combined turnover and operating, ordinary and net profits are expected to reach 2,200.0 billion yen, 150.0 billion yen, 140.0 billion yen and 57.0 billion yen, respectively, according to Kazuyasu Kato, president of Kirin Holdings.

Total sales of Kyowa Hakko's pharmaceutical unit and Kirin Pharma in fiscal year 2006 were about 200.0 billion yen (131.5 billion yen for Kyowa Hakko and 67.2 billion yen for Kirin Pharma) putting the group in 10th place in the Japanese prescription drug market, almost the same as that of Shionogi.

Sales of Kyowa Hakko's non-pharmaceutical business, such as biochemicals including bulk pharmaceuticals, amino acids, agricultural business, chemical products and foods reached 222.7 billion yen in FY2006.

With respect to these non-pharmaceutical operations, both firms will establish an operating system to maximize the business and its profitability as early as possible, for instance, by spinning off and/or integration.

From the November 5, 2007, Prepared Foods e-Flash