Japan's pharma mergers will trickle to the Midwest
Laptop Battery By Michael Rosen • 02/28/05
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Thinkpad After word leaked out last week, Mondays Wall Street
Journal detailed the news of another Japanese pharma
merger.
year career at IBM, a global information technology company where he was a member of IBM senior leadership team. There he held multiple roles, from overseeing the company worldwide competitive and server sales to leading sales, services, marketing and channel operations for IBM software business in Asia Pacific. During this time he resided in Tokyo, Japan.
Microsoft In past columns, we have talked about the consolidation of the
Japanese pharma industry. The Japanese are actually arriving late
to the consolidation party as both American and European companies
have been consolidating for years and continue to consolidate.
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Laptop Computers Note that the only company above that did not acquire
other major pharmaceutical companies (except for a piece of Banyu
in Japan a number of years ago as Merck finally completed the Banyu
acquisition last year) was Merck.
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Laptop Computer Merck has paid the price by slipping from its longtime position
as the No. 1 Big Pharma company to seventh place during 2003. With
the Vioxx debacle and several drugs going off patent in the next
few years, Merck will most likely slip even further in the
rankings. All the other leading Big Pharma companies bought at
least one major company.
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Desktop Computer Last week, another merger of Japanese companies took place:
Sankyo, which is ranked No. 23 in the world and third in Japan,
announced its planned $7.8 billion acquisition of Daiichi
Pharmaceuticals, which is ranked No. 32 in the world and sixth in
Japan.
Notebooks While this in itself isnt a huge merger in the pharma world, it
marks only the third merger of Japanese pharma companies as well as
an increasing realization by the Japanese government that its
pharma
business failed to globalize
(unlike its colleagues in the automobile and electronics
industries). It is now paying the price in terms of world
leadership of this industry.
Lenovo Its also a signal by the Japanese government that it will let
more of this activity take place in the future (i.e. a Japanese
company acquiring a Japanese company and a foreign company
acquiring a Japanese company). Lets take a look at some of the
acquisitions by foreign companies of Japanese foreign companies as
well as mergers within Japan:
Hard Drive So why is all this Japanese merger mania happening now?
Well, lets start with the Japanese pharma market itself in
relationship with the rest of the world.
Travelstar The Japanese pharma market achieved sales of $50.7 billion in
2003. It grew only 2 percent versus the world pharmaceutical market
growth of 9 percent, U.S. market growth of 11 percent and European
market growth of 8 percent. The Japanese market is clearly lagging
behind.
Gateway While Europe is the second-largest market
area (with $124.2 billion) after
U.S. annual sales of $207.5 billion in 2003, Japan is clearly
the No. 2 country market. Japan more than doubled the
next-largest European country market, Germany, which had $24.5
billion in annual sales. There are obviously big stakes in this
market.
Laptop Parts As Japan has a number of large pharma companies that never
globalized, its pharma industry has fallen behind particularly in
the U.S. and Europe (with the exception of the No. 1 Japanese
company, Takeda, which ranked No. 15 in the world with annual sales
of $8.7 billion, partnered early on with Abbott in the U.S. and
made a large investment to create a significant U.S. presence).
Software Sankyo, the subject of the Wall Street Journal article,
also made a similar investment in the U.S. via a joint venture with
Warner-Lambert in the U.S. The company more recently took control
of its own destiny in the U.S. by creating a separate organization.
On the contrary, Daiichi never really built up a U.S. organization
(except for licensing drugs early on to Marion Labs) but was still
an important force in Japan.
Hard Drives Part of the Japanese merger activity is a reaction to foreign
companies acquiring Japanese pharma companies as well as the growth
of foreign companies in Japan due to consolidation on a world
scale. Japanese pharma companies were not achieving critical mass
in Japan and around the world and were failing to innovate with
differentiated products.
Electronics Almost 90 percent of Japanese pharma sales are from drugs that
have existed for 10 years or longer.
Canon Japanese pharma companies have not invested the R&D money
that their American and European counterparts have (12.8 percent of
sales versus 17.2 percent). Additionally, the Japanese government
cuts the price of pharmaceuticals between 8 percent and 10 percent
every two years, which cuts into the profitability of drug
margins.
Desktop Pc There are still a number of Japanese companies that could be the
target of a foreign acquisition or merger with other Japanese
pharma companies in Japan. These include the following:
Desktop Computers Though Taisho and Tanabe attempted to merge, merger discussions
fell apart on pricing. Likewise, second-tier Japanese pharma
companies Kyorin and Teijin also attempted to merge but had a
similar outcome. Not all merger discussions are successful.
Think Pad There are still large numbers of Japanese pharma companies with
annual sales of $500 million to $1.5 billion that need to decide on
their futures. These include companies
like Nippon Kayuku, Nippon Shinyaku, Ono Pharmaceutical, Japan
Tobacco and Otsuka.
Repair How will all of this affect the Midwest? A couple thoughts come
to
mind.
Data Recovery Most Japanese pharma companies are either located in Tokyo or
Osaka (the New York and Chicago of Japan). Likewise, most Japanese
pharma companies in the U.S. have set up shop in the New York area
(New Jersey) and Chicago (though some have followed the biotech
trend of opening R&D groups in California to be near top
centers of science and technology).
Cisco Chicago already has Takeda, the No. 1 Japanese pharma company,
and Astellas (the new name for Yamanouchi-Fujisawa), which is the
No. 2 Japanese pharma company.
Keyboard As Japanese companies usually like to cluster, the trend will be
to locate in these three geographic regions in the future.
Ajinomoto, a Japanese food ingredients company with growing
pharmaceutical interests, has for a long time had investments and a
presence in Illinois and previously had joint ventures with Searle
and NutraSweet.
Monitor With the large JETRO Chicago presence in the Midwest, other
Japanese pharma companies are looking at the Midwest as a base of
operations. Bank on the fact that there will be more Japanese
M&A in the cards this year and beyond. See you next week!
Desktop Michael S. Rosen is the chairman and CEO of Immune Cell Therapy,
a new start-up out of the University of Illinois at Chicago
developing cancer vaccines. Rosen is also a founder and board
member at the Illinois Biotechnology Industry Organization (IBIO).
He can be reached at rosenmichaels@aol.com.
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