Eisai Co Ltd said on Monday it would buy U.S. biotech firm MGI Pharma Inc for $3.9 billion cash to strengthen its cancer treatment pipeline, marking the largest overseas acquisition by a Japanese drug maker.

The move is a bold step by Eisai, which has not yet brought any of its own cancer drug candidates to market, to increase its foothold in the fast-growing cancer drug business and its international presence.

The nation's fourth-biggest drug maker said the deal would ensure growth in the U.S. market after the patent on its main earnings driver, Alzheimer's treatment Aricept, runs out in 2010.

It also comes after a major setback for an experimental medicine for Parkinson's disease, which failed to meet its key goal in a late-stage trial.

To tackle these issues, management has moved flexibly and quickly, and the first impression is positive, said Kumi Miyauchi, analyst at the Daiwa Institute of Research.

The planned purchase of the cancer specialist is the latest example of accelerating M&A in the biotechnology sector, which has seen a scramble by drugmakers to secure promising technologies and pipelines developed by small biotech firms.

Japan's drug makers, including industry leader Takeda Pharmaceutical Co Ltd, have been criticized for not being sufficiently aggressive to clinch major deals.

Eisai will offer $41 per share in a bid approved by MGI. That represents a 38.7 percent premium to MGI's closing share price on November 28, the last business day before MGI said it was exploring strategic alternatives.

MGI shares closed on Friday at $33.45.

With this purchase we can be very confident of achieving our goal of 440 billion yen in sales in the United States by March 2012 and 1 trillion yen in sales overall, Chief Executive Haruo Naito told a news conference.

Eisai said it would finance the deal with $300 million of its own cash and through bank loans. It is the 9th biggest acquisition by any Japanese company, according to Thomson Financial.

DEBT RATINGS MAY BE CUT

Credit ratings agency Moody's said, however, that it may cut Eisai's AA3 issuer rating, possibly by several notches. Eisai currently has no debt.

The purchase, to be conducted by a tender offer, is expected to be completed in the first quarter of 2008, and Eisai predicted it would boost cash EPS, excluding goodwill amortization, in fiscal year 2008 and GAAP EPS in fiscal 2009.

MGI's products include Aloxi, a treatment to prevent chemotherapy-induced nausea; Gliadel Wafer, a drug delivery device in the treatment of brain cancer; and Dacogen, a treatment for a group of blood disorders known as myelodysplastic syndromes that often precede leukemia.

After three years of losses, MGI has turned a profit for the year to date and its revenues are expected to grow by an average of over 35 percent over the next five years, Naito said.

Eisai has already taken smaller steps to strengthen its oncology pipeline.

Just over a year ago it acquired four cancer drugs from Ligand Pharmaceuticals and it has bought Morphotek, a small firm specializing in protein and antibody gene evolution. It is also building a new oncology facility in North Carolina.

Industry analysts had expected MGI to attract interest from major U.S. and European companies after the decision by management last month to effectively put the business up for sale, but Eisai was not on the radar.

Other big-ticket biotech deals this year include AstraZeneca buying MedImmune for $15.6 billion, and Celgene acquiring Pharmion, a rival of MGI, for $2.9 billion. U.S. biotech group Biogen is also on the block.

JP Morgan advised Eisai on the deal, while MGI was advised by Lehman Brothers.

(Additional reporting by Ben Hirschler in London; Editing by Will Waterman and Hugh Lawson)

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