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Japanese Pharma Waves Its Charge Card

Japanese drugmakers are anxious to expand their presence in global pharma/biotech markets where they've long been largely shut out -- and the strong yen is making it cheaper for them to basically buy their way in. Interestingly enough, some of these deals are bypassing the U.S. altogether.

Japanese flagUnanswered is whether these deals will come close to achieving the twin goals of reviving ailing drug pipelines at Japan's major drug companies and bolstering their international presence. I'm not sure I'd bet on it.

Yesterday, for instance, Daiichi Sankyo bought a majority stake in Ranbaxy Laboratories, India's largest maker of generic drugs, for as much as $4.6 billion. The deal is unusual because it combines a name-brand drugmaker, albeit one with limited global exposure, and a big generics maker that tends to market to developing nations. Such corporate marriages aren't unheard of -- Novartis has been able to make a big push into generics thanks to its Sandoz generics unit -- but despite pharma's growing interest in generics, they're still rare.

Ranbaxy is the largest acquisition to date for Daiichi, which itself came into existence in a 2005 merger between Daiichi Pharmaceuticals and Sankyo, two almost century-old Japanese pharmaceutical companies. Daiichi remains something of a global midget, however, as almost 70 percent of its ¥880.1 billion ($8.1 billion) annual sales are domestic. As part of the deal, Daiichi will also acquire minority stakes in several other Indian drugmakers, including Zenotech Laboratories, Jupiter Bioscience, Kribs Biochemical and Orchid Pharma.

Several other Japanese pharmas have also stepped up their dealmaking recently. Takeda Pharmaceutical plunked down $8.8 billion for the U.S. biotech Millennium Pharmaceuticals in April, and last month went on to sign a development deal with the RNA-interference biotech Alnylam Pharmaceuticals that could ultimately be worth up to $1 billion. Eisai spent $3.9 billion to snap up the specialty pharmaceutical MGI Pharma last December.

Like most acquisitions, however, the Japanese buying spree may well be rooted more in optimism than solid business sense. Most Japanese pharmas are still relatively new to global business, following decades in which they remained focused on their sheltered domestic market. While some have been successful in discovering new drugs, few have actually built up much in the way of international operations, and their record of success with overseas acquisitions remains spotty.

In fact, while Daiichi is spinning the Ranbaxy deal as a global expansion, its greatest benefits may lie in Japan itself, where the purchase could help the company essentially create a domestic market for generic drugs, which currently account for only five percent of drug sales there:

In a bid to slash its costs, Japan's health ministry is attempting to persuade both doctors and patients that generic drugs are just as good as their branded equivalents but has so far met with failure.

Even changing the prescription forms to make generic drugs the default recommendation of doctors has been unsuccessful - a government target that 30 per cent of the Japanese drug market should be occupied by generics by 2010 has looked increasingly implausible.

Part of the problem, say government officials, is that generic drug companies in Japan are small and doctors do not trust them.

Japanese flag via Wikimedia Commons
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