Is Takeda overpaying by offering $ 9 billion for Millenium?

Takeda is offering almost $ 9 billion for Cambridge, MA based Millenium Pharmaceuticals. This is a 53 % premium on yesterday’s closing price. Millenium’s only commercial drug is Velcade, which competes with Celgene’s Revlimid. Recent favorable clinical trials are supporting a sustained revenue growth of at least 20% for Velcade. Johnson & Johnson is marketing Velcade outside of the US and co-promoting in the US.

However with only 6 years patent life left, the value of Velcade is probably in the $ 2-3 billion range based on discounted cash flow calculations. That leaves a $ 6+ billion valuation for the early pipeline – no product is beyond phase II. This is very high but maybe a similar situation to AstraZeneca beefing up its biologics capability and pipeline through the $ 15 billion acquisition of Medimmune.

Big Pharma, including Takeda- with Prevacid and Actos patent expiring soon- is facing a huge cliff in the early 2010s and betting on specialty products and biotechnology. With more deals to come,  valuations for quality biotech companies should fare well in a depressed stock market.