Analysis: Midsize Drugmakers Stay Independent Via Takeovers By Nondrug Firms (Japan)

Executive Summary

Kyowa Hakko Kogyo Co.'s decision to become part of major brewery group Kirin Holdings Co. is the latest example of a growing trend in Japan's fragmented pharmaceutical industry - midsize pharmaceutical firms being bought out by large corporations outside the sector to stay afloat while retaining their independence. Japanese pharmaceutical firms are having to deal with such issues as increased government scrutiny of drug prices and an effort by the government to promote the use of generic drugs. Meanwhile, foreign-affiliated rivals are introducing blockbuster products developed outside of Japan. "It will be impossible for all of our 70 member (nongeneric) drug companies to stay in business in their present form," said Hatsuo Aoki, president of the Japan Pharmaceutical Manufacturers Association. Analysts expect the focus of consolidation to be on second-tier companies because they will be the hardest hit by sharp drops in drug prices. "Midsize companies will be forced to decide whether to merge with other firms of the same size or ally with big-name companies," said Fumiyoshi Sakai, an analyst at Credit Suisse Securities (Japan) Ltd. Realignment is aimed at securing research and development funds to maintain sales growth and improve overseas operations by going under the umbrella of a major firm in another sector like the Kirin-Kyowa Hakko deal. The pharmaceutical sector will likely see a new wave of realignment led by unions between midsize drug firms seeking ways to stay in business and large corporations with core businesses in other industries, who hope to turn pharmaceutical operations into another major earnings source. (Click here for more - May Require Paid Subscription