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Feature

Mergers emerging in Japan

Posted on: 06 Apr 06
Mergers emerging in Japan

Summary

Japanese pharmaceutical companies have tended to avoid using mergers in their efforts to grow, but in recent times this attitude appears to have changed. Key mergers currently underway include Sankyo and Daiichi Pharmaceutical, Yamanouchi Pharmaceutical and Fujisawa Pharmaceutical (who now operate as Astellas), and a tie-up between Dainippon Pharmaceutical and Sumitomo Pharmaceuticals.

Trends


Although there are many companies that are part of the pharmaceutical sector, only a select number have the size and capability to carry out both R&D and marketing functions on a worldwide scale. In order to achieve the critical mass they believe necessary to widen their activities some companies have chosen the merger and acquisition route.


 


This trend has occurred in a number of national pharmaceutical sectors and has led to a transformation of the global industry. Japanese pharmaceutical companies have tended to avoid using mergers in their efforts to grow, but in recent times this attitude appears to have changed. Key mergers currently underway include Sankyo and Daiichi Pharmaceutical, Yamanouchi Pharmaceutical and Fujisawa Pharmaceutical (who now operate as Astellas), and a tie-up between Dainippon Pharmaceutical and Sumitomo Pharmaceuticals.


 


All the signs are that large-scale industry consolidation is set to continue worldwide and this has no doubt persuaded many Japanese companies to also explore this strategy. In the 1980s there were estimated to be about 80 major pharmaceutical companies around the world. However, by 2000 this fell to around 35 pharmaceutical companies and by 2010 it has been predicted that there will be about a dozen major companies (1).


 


Merger reasoning


It is the desire for greater market share that has been behind many of the mergers. Many of the tie-ups have had global implications as companies seek partners who will help them extend their market reach and improve dominance in key product areas. In terms of R&D, companies hope to find a partner whose pipeline will complement their own without too much of an overlap.


 


Aside from consolidating their position in leading markets, particularly in the USA, a growing interest of many companies is to enhance their presence in the emerging markets of Asia and Latin America, which offer enormous potential for growth. For a number of years Japanese companies have openly expressed a desire to globalize their operations and rely less on their home market for sales (2). The introduction of government cost containment policies to stem rising healthcare expenditure has put considerable pressure on the Japanese pharmaceutical industry’s ability to maintain its profits. The pressure on companies to reduce their prices is set to continue, particularly as the government struggles to maintain healthcare spending in the face of considerable demographic challenges.


 


Outlook


Although mergers have occurred in the Japanese pharmaceutical sector before, the scale of the current tie-ups suggests that there will be major changes to the structure of the industry. It is also likely to prompt a further wave of consolidation in the Japanese pharmaceutical sector. A number of legal revisions, expected to take effect by 2007, will make it easier for foreign companies to acquire Japanese firms by allowing them to be purchased using stock swaps (3). Many Japanese companies may seek a merger with a domestic partner rather than accept foreign ownership. There has also been speculation that Japanese companies may seek to acquire foreign companies (3). Such moves would bring a new dimension to the globalization strategy of Japanese firms.


 


Whether mergers are the means by which the Japanese pharmaceutical industry can maintain its global role as a major source of drugs is as yet unclear. There will be considerable pressure on the management teams to integrate the merging companies’ operations so that they complement each other and enhance productivity and commercial success. Although the Japanese pharmaceutical industry will look very different over the next decade, it would be unwise to discount the ability of these merged companies to succeed. The external forces that are influencing Japanese companies to change their structure may yet bring about the new thinking that is required for the pharmaceutical industry to remain innovative.


 


References




  1. Anon (2001). Mergers - the Drive to Dominate. IMS Health.


  2. Kermani F. (2004). Japanese R&D: Branching Out. Applied Clinical Trials. Aug 1, 2004. http://www.actmagazine.com


  3. Fuyuno I (2005). Mergers in Japan help firms retain own products. Nature Reviews Drug Discovery. http://www.nature.com/news/2005/050425/pf/nrd1744_pf.html

Dr Faiz Kermani

Last updated on: 27/08/2010 11:40:18

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