Eisai Looks Beyond Aciphex and Aricept in FY2005/06 Results

Eisai on the March

Japanese drug firm Eisai today presented its results for fiscal year (FY) 2005/06, with sales growing by 13% to ¥601.3 billion (US$5.4 billion), on the back of a particularly strong performance during the final two quarters. These results were ahead of expectations (¥595 billion), although slightly higher-than-forecast selling, general and administrative (SGA) costs ultimately brought operating income into line with the ¥96.0 billion forecast included in the company's third-quarter results. Like most Japanese operators, Eisai enjoyed minimal domestic growth (3.3%), and sales were driven by North America and Europe, which grew by 18% and 13% respectively; overseas sales now account for 52.6% of the company's total. Eisai's cost base increased across the board, with SGA costs increasing by 14.3%, largely due to the global expansion of the company's marketing infrastructure - particularly in Europe. Overall, operating income grew by 10.2% to ¥95.8 billion, with a slight drop in operating margins, which remain small at 15.9%.

Eisai's product sales for the year were again dominated by Alzheimer’s treatment Aricept (donepezil) and proton pump inhibitor (PPI) Aciphex/Pariet (rabeprazole); together, they account for 58% of Eisai's net sales. Aricept grew by 20.6% to ¥196.5 billion, driven largely by a 23% gain in the United States, where it looks set to benefit further from Medicare reforms implemented earlier this year. Conversely, Aciphex shrugged off a difficult U.S. market, in which competition from generic and over-the-counter (OTC) PPIs is hitting its margins, to record explosive 42% growth in Japan, with total sales increasing by 17% to ¥154.5 billion. The profile of newly launched epilepsy treatment Zonegran (zonisimide) has been limited by its short life cycle outside Japan, although it continues to play an important role in expanding Eisai's neurodegenerative interests, in anticipation of the company's filed orphan epilepsy drug Inovelon (rufinamide; United States and Europe).

Outlook and Implications

Although Eisai maintains close relationships with Dainippon Sumitomo (Japan) and Abbott (U.S.), it continues to outline an organic growth path, and has indeed adopted a 'poison pill' strategy against potential mergers and acquisitions (M&As). Like most of its compatriots, Eisai is forecasting a slowdown in growth during FY2006/07, to around half the rate experienced in FY2005/06; sales are due to grow by 6.4% to ¥640 billion, due largely to the April 2006 price cuts in Japan, which saw particular attention paid to PPIs such as Pariet. Indeed, domestic Pariet sales are expected to grow by 8.7%, compared to the 42% growth enjoyed in FY2005/6.

However, investment in Eisai's R&D and marketing infrastructure will begin to yield important opportunities beyond Aricept and Aciphex/Pariet during FY2006/07, and the company has two important filings: Inovelon in the United States and Europe, and Humira (adalimumab) in Japan. Eisai is also seeking to build its Aricept franchise with a severe Alzheimer's setting, although research hurdles for this have already proven to be high. In the next 12 months, the company's Alzheimer's follow-up rasigiline, co-developed with Teva (Israel), should see movement beyond Phase II in the United States. Eisai is also increasingly moving into speciality oncology markets, having commenced Phase II trials for breast cancer candidate E-7389 in the United States and Europe, and gastric cancer candidate E-7070 in Japan; overall R&D expenditure is due to increase by 13% this year.

Related Articles:

• Japan: 1 March 2006: Eisai Adopts 'Poison Pill' Strategy against M&A, Targets US$1.7 bil. Operating Profit in 2011/12
• Japan: 23 March 2006: 'Big Three' Dominate, as Japanese Drug-Makers Position Themselves Ahead of April's Price Cuts
• Japan: 2 February 2006: Eisai Goes from Strength to Strength in Q3

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