Shares in Lundbeck jumped in the wake of the announcement from the pairing on Friday, and were up 5.0 percent at 111.2 Danish crowns at midday, against a 0.5 percent rise in the STOXX Europe 600 healthcare index and a 0.9 percent rise in the Copenhagen bourse's blue chip index.
"We see this deal as clearly positive for Lundbeck and it bodes well for long-term revenue, top-line diversification and company perception," said Nordea in a note to clients.
Lundbeck will make an upfront payment of $200 million to Otsuka, Japan's No. 2 drugmaker. Otsuka said the agreement could bring it up to $1.8 billion in royalties and milestone payments.
There is no doubt that this is not a cheap deal for Lundbeck, but it is necessary," Nordea said. Lundbeck's most important drug will lose patent protection in 2012.
Otsuka Pharmaceutical President Taro Iwamoto added that the alliance would address concerns about his company's earnings outlook after its mainstay schizophrenia drug loses US patent protection in April 2015.
"I think this is a major response to what is widely seen as a problem," Iwamoto told Reuters in an interview.
Lundbeck will acquire rights to two compounds which the Danish group said could realize total accumulated revenue of more than 50 billion Danish crowns ($9.1 billion) if fully developed and marketed.
"This is the biggest partnership agreement in Lundbeck's history," said Chief Executive Ulf Wiinberg in the statement.
"We will have a very complete psychiatry portfolio with the agreement," he said by telephone.
The agreement combines Otsuka's expertise in anti-psychotic drugs and relatively strong presence in the United States and Asia with Lundbeck's expertise in anxiety and depression treatments and presence in Europe.
Key to the deal is Otsuka's aripiprazole depot, a once-a-month injectable treatment for schizophrenia that is in late-stage development.
The Japanese drugmaker collaborates with Bristol-Myers Squibb Co. on sales of the tablet versions of aripiprazole, marketed as Abilify.
Abilify posted $4.5 billion in net sales in the 2010 financial year and is a big profit driver for Otsuka.
Lundbeck will also get rights to Otsuka's experimental medicine OPC-34712, another drug in late-stage development for schizophrenia and as an adjunctive treatment for major depressive disorder.
Otsuka in turn will receive the rights to co-develop and market three Lundbeck compounds in mid-stage development.
Shares in Otsuka ended up 1.8 percent at 2,096 yen, outperforming a flat broader market.
Lundbeck generates most of its revenue from antidepressant Cipralex, sold as Lexapro in the United States by Forest Laboratories.
The group is working to find replacements for the key antidepressant as patents expire between 2012 and 2014.
It has warned it stands to lose about 90 percent of US sales of Lexapro due to generic competition.
"We estimate the deal will improve Lundbeck's long-term growth opportunities," said Jyske Bank.
