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Sepracor vows to stay in Mass.

Japanese buyer interested in help with new drug and US sales

By Todd Wallack
Globe Staff / September 4, 2009

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Marlborough-based Sepracor Inc. vowed to maintain its Bay State operations, even after announcing a $2.6 billion deal yesterday to sell itself to Dainippon Sumitomo Pharma Co. of Japan.

Sepracor, best known for marketing the Lunesta insomnia aid, has about 2,100 employees worldwide, including 650 at its Marlborough headquarters. The company received $7 million in state and local tax breaks earlier this year, and in exchange promised to expand its Marlborough campus, retain its existing jobs, and create 250 new ones in Marlborough by 2017.

“It’s business as usual, which includes honoring commitments made to the Commonwealth of Massachusetts,’’ Sepracor spokeswoman Jonae Barnes said.

Under the terms of the deal, Dainippon Sumitomo will acquire Sepracor at $23 per share, a 28 percent premium over its $18.03 closing price on Tuesday, the day before news of a possible sale surfaced. On Wednesday, Sepracor’s stock vaulted to nearly $23 before trading was halted mid-afternoon after a Japanese newspaper reported that Dainippon Sumitomo was preparing the offer.

Sepracor shares closed at $22.85 yesterday. Dainippon Sumitomo shares edged up 1 percent yesterday to $11.07 on the Tokyo Stock Exchange.

The deal is the largest involving the sale of a Massachusetts company this year and is the second in 17 months in which a Japanese drug maker has agreed to take over a major Massachusetts drug company. Last year, Takeda Pharmaceutical Co. bought Cambridge-based Millennium Pharmaceuticals for $8.8 billion, the biggest deal in the history of the Massachusetts biotechnology industry. Takeda is using Millennium as the heart of its cancer research organization.

Dainippon Sumitomo said it hopes to use Sepracor’s expertise to help it launch lurasidone, an experimental schizophrenia treatment that is currently in advanced clinical trials. And because the deal gives Dainippon Sumitomo access to Sepracor’s sales force of 1,200 representatives, the Japanese company will not have to build its own US sales force from scratch. Dainippon Sumitomo said the deal will also help it expand its portfolio of drugs, bolster overseas sales, and expand its pipeline of new potential therapies.

“We want to be a global company,’’ Masayo Tada, the company’s president, said through an interpreter in a conference call yesterday. “We are sure that we will have a stronger platform in the US.’’

In addition to Lunesta, Sepracor also markets Xopenex and Alvesco for asthma, Brovana for people with chronic lung disease, and the Omnaris nasal spray for people with allergies to dust and pollen. It is seeking US approval to market an epilepsy drug called Stedesa.

Dainippon Sumitomo is about twice the size of Sepracor and is expected to generate about $2.9 billion in revenue this year, compared with $1.3 billion for Sepracor. The Japanese company markets a number of medications, including an antipsychotic called Lonasen, an antibiotic called Meropen, and two hypertension medications, Amlodin and Avapro.

After outlining the deal yesterday, the companies pledged to let Sepracor continue to maintain its name and operations as a separate subsidiary.

Sepracor’s chief executive, Adrian Adams, said in a statement that the deal will benefit both shareholders and employees.

“The transaction should enable Sepracor to enhance its product pipeline and enjoy sustainable growth well into the future,’’ Adams said.

Adams is in line to receive severance payments and other benefits of nearly $9 million once the company is sold, according to the company’s filing with the Securities and Exchange Commission.

In a note to investors on the sale, Credit Suisse analyst Scott Hirsch said the deal made sense for Sepracor. He noted that the company is generating $300 million to $400 million in cash a year but has a limited pipeline of new drugs in development and its existing products will face competition from generic drugs in coming years. Hirsch also doubted another suitor would step forward with a better bid.

“In our view, if a US firm wanted Sepracor, that likely would’ve happened already, as there have been plenty of lookers over the years,’’ said Hirsch, who has a neutral rating on the stock. “We think Dainippon Sumitomo is more interested in the sales platform and operating leverage than the revenue stream.’’

However, another analyst, Robert Hazlett of BMO Capital Markets Corp., did not rule out the possibility of other bidders coming forward before Dainippon Sumitomo closes on the sale. In a note to investors, Hazlett said Sepracor’s pipeline “remains relatively strong,’’ with new formulations of Lunesta in the works, along with potential treatments for depression and respiratory diseases.

Todd Wallack can be reached at twallack@globe.com.