Japanese Pharma on the move again

Japanese Pharma on the move again

CHICAGO -American and European pharma companies have been on the move this year with:

  • Pfizer acquiring Wyeth for $68 billion
  • Merck Acquiring Schering-Plough for $41 billion
  • Roche acquiring Genentech (or the final piece it didn’t own) for $46.8 billion

In recent years, the top tier Japanese pharma companies, in order to compete against international incursion in its own $78.6 billion home market (or about 10% of the global pharma market), has been forced to globalize. Add to this that the Japanese market growth has slowed down: 2.1 % in 2008 versus the worldwide pharma market growth of 4.8%. This is still better than the North American pharma market ($311.8 billion) growth of 1.4% (U.S. and Canada combined).
As I have covered in an earlier article this year on the pharma industry, there are 5 Japanese pharma companies ranked in the top 25 pharma companies worldwide:
Leading Japanese Pharma Companies – 2008 Sales

Company 2008 Sales
– $ Billions
17 Takeda Pharmaceuticals $12.2 +25.4%
20 Astellas Pharma $9.7 +24.4%
21 Daiichi Sankyo $8.8 +23.6%
24 Eisai $7.2 +29.3%
25 Otsuka Pharmaceuticals $6.5 +21.4%

Source: Pharmaceutical Executive, May 2009
Two observations: the first is that no Japanese company has yet to crack the top ten global pharma ranks; the second observation is that it is not for a lack of trying – all of the above companies are growing 4-5 times as fast as the global pharma market, either as a result of company/technology acquisitions or their own internal R&D product growth or both.
If we take a look at the ranks of the top 50 companies, Japan adds to the ranks a few more companies:
Next Tier of Leading Japanese Pharma Companies – 2008 Sales

World Rank Company 2008 Sales – $ Billions %
35 Mitsubishi Tanabe $3.6 +19.9%
36 Chugai $3.6 +19.5%
46 Dainippon Sumitomo $2.1 +20.3%

Source: Pharmaceutical Executive, May, 2009
Unfortunately, Japan only adds 3 more companies in the next tier of 25 companies, for a total of 8 pharma companies in the top 50 companies. Also, Chugai, although a well-known Japanese pharma company, is controlled by Roche in 2001 when it acquired a 50.1% controlling interest. It is also noteworthy that 4 of the Japanese companies are a result of mergers between two Japanese companies: Astellas (Fujisawa and Yamanouchi), Daiichi Sankyo (Daiichi and Sankyo), Mitsubishi Tanabe (Mitsubishi Pharma and Tanabe Seiyaku), and Dainippon Sumitomo (Dainippon and Sumitomo Pharma).
Some of the other Japanese companies that didn’t make the cut are:

  • Taisho Pharmaceutical
  • Shionogi
  • Teijin
  • Meiji Seika
  • Taiho Pharmaceuticals
  • Kyowa Hakko Kogyo
  • Nippon Kayaku
  • Nippon Shinyaku
  • Santen Pharmaceuticals
  • Rohto Pharmaceutical
  • Tsumura

While some of these companies have made attempts to establish operations out of Japan, they clearly have lost impetus by not globalizing fast enough and may well be forced to merge with other Japanese companies or get acquired by either American or European companies. In fact, controlling interest in Kyowa Hakko was acquired by Kirin Holdings, the Japanese brewery company which has dabbled in biotechnology. Shionogi is perhaps the only exception in the group.
Last week, yet another Japanese pharma companies made a bold move in the U.S. market by acquiring a U.S. specialty pharma company. Dainippon Sumitomo announced its acquisition of Sepracor for $2.6 billion. Interestingly, when Daiippon and Sumitomo merged in 2004, that deal was only valued at $2.2 billion, according to an article in in-pharmatechnologist.com. According to a Wall St. Journal article of Sept.3, 2009, the Sepracor acquisition adds over 1,200 person sales force to Dainippon-Sumitomo in the U.S., and makes this the third largest Japanese pharma acquisition in the U.S. after:

  • Takeda’s acquisition of Millenium Pharma for $8.4 billion in 2008
  • Eisai’s acquisition of MGI Pharma for $3.9 billion in 2007
  • Shionogi acquired U.S. company Sciele Pharma for $1.1 billion in 2008

Daiichi Sankyo also made a significant acquisition last year with indirect impact into the U.S. with the $4.6 billion acquisition of one of the largest Indian pharma companies, Ranbaxy Laboratories, also one of the largest generic pharma companies in the world.
Dainippon Sumitomo`s acquisition of Sepracor adds annual sales of $1.3 billion in the U.S. adding more than 50% more in annual sales to Dainippon Sumitomo, according to a Financial Times article of Sept. 4.
It is interesting to see the Dainippon Sumitomo play. Before the merger of these two companies, Dainippon for years had joint ventures in Japan both with Abbott Labs and G.D. Searle, but never wanted to extend that joint venture to the U.S. like its fellow Osaka-based company Takeda did in setting up TAP Pharma (Takeda Abbot Pharma). This shortsighted international strategy left Dainippon, and other Japanese pharma companies, dependent on growth in the home market. While the Japanese market is the second largest individual country market in the world, the U.S. market is about 3 times the size. Sumitomo had a similar experience, but was part of a much larger group (Sumitomo Chemicals, Steel, Banking, etc.). Now the combination is playing catch up in the U.S., but the Sepracor move is bold.
In the face of the gargantuan U.S. and European pharma acquisitions this year, Japanese companies are forced to be equally as bold, within their financial constraints, to remain players in the market. There will likely be a further shakeout of Japanese pharma companies in Japan.
Recent columns by Michael Rosen

Michael S. Rosen is Senior Vice President, New Business Development for the Science + Technology Group at Forest City Enterprises, a NYSE-traded real estate development company which develops and builds bioscience parks across the U.S. Rosen is also a founder and board member of the Illinois Biotechnology Industry Organization. He can be reached at rosenmichaels@aol.com.
This article previously appeared in MidwestBusiness.com, and was reprinted with its permission. The article is not meant to be a stock recommendation.
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