Shares of Sciele Pharma Inc. rocketed to their highest level in six years Tuesday after Sciele accepted a buyout offer from Japanese drug maker Shionogi and Co. at a hefty premium.
Shionogi agreed Monday to pay $1.4 billion, or $31 per share, for Atlanta-based Sciele. That is a premium of 57.1 percent to Friday's closing price. On Tuesday, Sciele stock jumped $11.41, or 59 percent, to close at $30.68, and earlier set a high of $30.73.
The stock last traded above $30 in February 2002.
Analysts including Ken Trbovich of RBC expressed surprise at the offer because of challenges to sales of key Sciele drugs. Trbovich complimented Sciele's management for obtaining such a large premium despite the difficult capital market, and the fact that most of its key franchises are experiencing slower prescription growth.
He raised his rating on the stock to "Sector Perform" from "Underperform," and lifted his target price to $31 per share from $17.
In a telephone interview, Trbovich said prescriptions of the high blood pressure treatment Sular, the company's top drug, have been falling 25 to 30 percent over the last few weeks, since a generic version reached the market. Sales of the emergency allergy injection TwinJect are down more than 30 percent since Sciele bought the product in March, he added.
Shionogi said the buyout gives it a much larger presence in the U.S. The deal is expected to close in the fourth quarter, and Shionogi said the acquisition will increase its profits starting in the fiscal year ending in March 2010. The company does not plan to lay off any Sciele employees.
Although there are questions about the potential of Sciele's drugs, "It's easier to buy these assets than to build it," Trbovich said. He said Sciele's current drugs will be used as a bridge, providing Shionogi with U.S. revenue over as it develops its own drugs, which have greater commercial potential but are several years away from reaching the market.
Building infrastructure in the U.S. would be more challenging for Shionogi if it did not have a revenue stream to cancel out some of the costs, he said.
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