BioWorld International Correspondent

LONDON - Sosei Co Ltd. is taking over Arakis Ltd. for £106.5 million (US$187.4 million) in a cash-and-shares deal that creates an Anglo-Japanese company valued at £278 million.

It will have a lead product due for approval next year and eight further products in clinical development, including one that is licensed to Novartis AG.

To date, privately held Arakis has raised £49 million in three funding rounds, the most recent in September 2003, when it banked £29 million. It has £30 million in cash, plus an expected income stream from the Novartis deal and three further products in clinical development, including one for cancer breakthrough pain that is due to enter Phase III development later this year.

Sosei, which is quoted on the Tokyo Stock Exchange, is paying £11.7 million in cash and issuing 35,630 new shares, representing 33.6 percent of the enlarged share capital. That is thought to be only the second Japan/UK takeover deal in the past 10 years involving a share transaction.

"I can't believe how complicated it was to get it done," Ken Cunningham, CEO of Arakis, told BioWorld International. "It has been a very, very intensive seven or eight weeks." The process began when Cunningham, at the time on holiday in the Loire Valley in France, received a phone call from Sosei CEO Shinichi Tamura.

"Sosei had gone through a process of looking for suitable companies in Europe to merge with and we were on his radar screen," Cunningham said.

Arakis' main focus is on performance-enhanced medicines, in which it uses biological knowledge to find new applications of existing drugs, or drug templates. It then modifies them through chemical modification, such as selecting the optimal isomer, or changing the pharmacokinetic or pharmacodynamic properties. That fits well with Sosei's low-risk approach to drug development, in which, like Arakis, it re-profiles existing drugs, and also in-licenses products that are approved or in clinical trials outside Japan.

The lead product, SOT-375, for treating prostate cancer, was licensed from Atrix Laboratories Inc., of Fort Collins, Colo., and is expected to receive approval in Japan in 2006. Sosei has an emergency contraceptive and treatments for inoperable glioma, urinary incontinence, asthma, attention deficit hyperactivity disorder and asthma in clinical development, also.

Tamura, a former CEO of Genentech Japan, founded Sosei in 1990. He said the acquisition of Arakis was a step in his vision of creating a top-10 biopharmaceutical company.

"It combines two highly successful companies to create an enlarged group with a strong pipeline of products today, which is sustainable into the future through complementary product discovery and development capabilities," he said.

The merged company, to be known as the Sosei Group, will be headed by Tamura as CEO, with David Chiswell, nonexecutive chairman of Arakis, becoming nonexecutive chairman of Sosei. Arakis will remain at its existing facility in Saffron Waldron, UK, with the Arakis co-founders Robin Bannister and Julian Gilbert becoming managing director of Arakis and group director, commercial and strategic development of Sosei, respectively. Cunningham and Peter Keen, the chief financial officer of Arakis, will be leaving after a hand-over period. Both said they do not know what they intend to do next.

Arakis looked to position itself as an initial public offering candidate in April this year, when it agreed to a license with Novartis for AD 237 in treating chronic obstructive pulmonary disease. Arakis and its 50/50 joint venture partner, Vectura plc, each received $15 million up front, with the balance tied to milestones up to the expected launch date of 2010.

Chiswell said, "We always knew that if you want to build a global company, M&A comes into it at some point, whether pre- or post-IPO. It's just one of those things that we had the opportunity to do at this stage."

While Sosei will maintain its single listing in Tokyo, Chiswell said the level of overseas investors would increase.

"At flotation last year, 8 percent of investors were non-Japanese, and this has since increased to 22 percent. Obviously, with this move the percentage is now much higher."

There will be a portfolio review once the formalities are completed but the joint venture with Vectura and the deal with Novartis are unchanged by the acquisition.

The longer-term strategy will include adding a U.S. arm to the business, but Chiswell said that will be at a time to be decided. The merged company has sufficient funding for three years and will launch products within that time frame. However, Chiswell said there is no target yet for when the company expects to become profitable.