Shionogi aims to buy tobacco giant's pharma unit for $1bn

Shionogi has reached a JPY 151 billion ($1.04 billion) agreement to buy the pharmaceutical subsidiary of Japan Tobacco, Torii Pharma, which sells medicines for skin disorders, kidney disease, and allergy treatments.

The deal includes a plan to buy a near-55% stake in Torii for JPY 70.3 billion, followed by a tender offer for the remainder of its stock for another JPY 80.7 billion, which represents a 21% premium on Torii's prior closing share price. 

If it goes through, the transaction will bring together two well-recognised names in the Japanese pharma industry with a heritage extending back into the late 19th Century.

In a prospectus for the proposed merger, Shionogi said that combining the two companies would strengthen its domestic business – for example, by strengthening sales and marketing channels in dermatology, paediatrics, and otolaryngology – and also expand its international footprint.

Shionogi focuses mainly on anti-infective drugs, including antivirals for HIV and influenza, and its portfolio also includes products for pain, central nervous system (CNS), cardiovascular, and gastrointestinal disorders.

For Torii, the merger would also give it access to in-house manufacturing – it has relied exclusively on contract partners for this since 2020 – which will protect it from "the volatility of supply chains caused by such factors as geopolitical issues, quality issues in multiple companies, and increases in stock shortfalls and limited shipments," said Shionogi.

Torii previously said it had earmarked JPY 3 billion for a new active pharmaceutical ingredient (API) production facility for CedarCure, an immunotherapy for cedar pollen allergy, which is prevalent in Japan.

Torii's board of directors voted in favour of the transaction yesterday and recommended that shareholders take part in the tender offer of JPY 3,537 per share.

The company recently published a medium-term management plan with the objective of boosting sales from JPY 60.4 billion in fiscal 2024 to more than JPY 80 billion by 2030, driven by new drugs such as Vtama (tapinarof) for atopic dermatitis and pipeline candidates like TO-208 treatment for warts and skin disorder molluscum contagiosum, TO-210 for acne, and a product to treat grass pollen allergy.

Shionogi, meanwhile, is predicting that revenues in its current fiscal year will reach JPY 455 billion, with a target to drive that above JPY 800 billion by the end of the decade. In its most recent financial update, the company singled out its HIV and COVID-19 franchises, new antibiotic Fetroja (cefiderocol), and late-stage pipeline projects naldemedine for opioid-induced constipation and antifungal olofilm as its main growth drivers.