Dainippon Sumitomo Pharma Co. (4506.TO) is in the final stage of talks to buy U.S. pharmaceutical maker Sepracor Inc. (SEPR), a person familiar with the matter said Thursday.

While the person didn't specify a purchase price or when the deal would be concluded, the Nikkei reported earlier in the day that Dainippon would spend an estimated Y250 billion to make the company a wholly owned subsidiary.

A spokesman for the Osaka-based pharmaceutical firm said it plans to announce details of an acquisition later Thursday.

By purchasing Sepracor, which sells drugs to treat central nervous system and respiratory disorders, Dainippon would be able to open a sales channel in the U.S. for its new schizophrenia drug currently in phase-3 clinical studies.

The latest move by Dainippon, Japan's seventh largest pharmaceutical company by sales, comes as many Japanese drug makers try to deal with looming patent losses on their major profit earners by purchasing overseas assets.

Expected declines in sales of key products going off patent triggered a series of multi-billion-dollar acquisitions by Japan's leading drug makers last year.

Hoping to refuel growth with cancer drugs using biopharmaceutical technologies, Takeda Pharmaceutical Co. spent $7 billion to buy Millennium Pharmaceuticals, while Eisai Co. bought MGI Pharma for nearly $4 billion. Daiichi Sankyo Co., aiming to tap the growing generic drug market overseas, bought a controlling stake in Ranbaxy Laboratories Ltd.

Dainippon plans to submit the new drug application for Lurasidone to the U.S. Food and Drug Administration early next year. Lurasidone would be Dainippon's first major product in the U.S., where it has a very limited presence.

Sepracor posted $1.292 billion in sales in 2008, up 5.5% from the previous year. It has about 1,300 sales representatives.

Analysts had been speculating that Dainippon would initially sell Lurasidone in the U.S. for schizophrenia treatment on its own or with a local partner, but an acquisition might be a necessary step when the drug's target market is eventually expanded to depression treatment in the future.

However, analysts expressed mixed feelings about the potential benefits of a Dainippon-Sepracor alliance.

Credit Suisse analyst Fumiyoshi Sakai said the takeover of Sepracor could potentially put a financial strain on Dainippon.

As the reported acquisition cost represents nearly 60% of Dainippon's market capitalization, "the deal could be a mixture of both risk and return," Sakai said.

The news sent the shares of the Massachusetts-based company soaring on Nasdaq, jumping 26% to $22.80 before trading was halted. Sepracor officials weren't available for comment.

Piper Jaffray analyst David Amsellem said Dainippon is unlikely to face much competition from higher bidders as Sepracor will be competing with generic drug makers in coming years and has a thin product pipeline.

"I think this is probably the best possible outcome for Sepracor shareholders," Amsellem said.

On the Tokyo Stock Exchange, Dainippon shares also gained on the news. They were up 2.7% at Y1,043 midday, off the day's high so far of Y1,095.

While Lurasidone could be one remedy for expiring or expired patents on some of Dainippon's main products, the company is sure to face tough competition in the U.S. market.

Dainippon will be competing with popular products including Eli Lilly & Co.'s Zyprexa, AstraZeneca PLC's Seroquel and Johnson & Johnson's Invega.

Lurasidone, which is expected to reach the market in 2011, will also compete with generic versions of these products from the U.S. and European giants when they start going off patent from 2011 in the U.S.

Even if Lurasidone successfully reaches the U.S. market, several new schizophrenia drugs will also have likely been launched by then, including Saphris from Schering-Plough Corp. (SGP) and Merck & Co. Inc. (MRK), Fanapt from Vanda Pharmaceuticals Inc. (VNDA) and Serdolect by Lundbeck Inc.

 
   -By Kazuhiro Shimamura, Dow Jones Newswires; 813-6895-7566;

kazuhiro.shimamura@dowjones.com (Ayai Tomisawa and Thomas Gryta contributed to this report.)