Yamanouchi and Fujisawa to merge

Related tags Pharmacology

Predictions that 2004 could see another wave of consolidation in
the pharmaceutical industry were lent further weight yesterday by
the announcement that Japanese drug majors Yamanouchi and Fujisawa
intend to merge in a $7.7 billion (€6.1bn) deal.

There has been a sense that Japan will start to see more and more mergers, as the industry in that country is particularly affected by the problems leading to consolidation elsewhere, i.e. shrinking pipelines, patent expirations and downward pressure on pricing, particularly in the domestic market.

Recognising this, Japanese companies have been concentrating on building up international presence as operating in the once-lucrative domestic market has become more difficult. Analysts welcomed the latest link-up as it marries Yamanouchi's well-established presence in Europe with Fujisawa's strength in the US.

Japan's drug market is the world's second largest. But the Japanese pharma sector contains large numbers of uncompetitive small companies and has long been considered ripe for consolidation.

If it is completed, the Yamanouchi/Fujisawa merger will be the third in recent years involving a Japanese pharma firm. In 2001, Roche bought more than half of Chugai Pharmaceutical for $1.2 billion, while last year Merck & Co spent about $1.5 billion to buy the 49 per cent of Banyu Pharmaceutical that it did not already own. But merger talks between major Japanese drugs companies - including negotiations between Taisho and Tanabe and Teijin and Kyorin - have come to nothing.

The all-share transaction is scheduled to complete on 1 April 2005, with Yamanouchi the surviving entity when the deal is completed. As yet, a new name for the combined company has not been selected.

The combined company, which aims for annual sales of Y 1,000 billion (€7.3bn) and an operating margin of around 25 per cent, will vie to be the number one drug company in Japan, leapfrogging Sankyo and jostling for position with Takeda Chemical Industries. The current combined turnover of the two merger partners is around Y 800 billion. It will have a medical representative force of 2,400 and an R&D budget of Y 140 billion.

Outlining the background to their decision to merge, Yamanouchi and Fujisawa made the following statement: "With the growing pressure to control medical expenses in major developed countries, intensifying global competition for the development of new drugs and rising R&D spending, the business environment surrounding the pharmaceutical industry has become increasingly challenging."

They noted that competition in the domestic market has intensified as well, characterised by the further implementation of medication cost-control policies, such as drug price cuts, and market penetration by international pharmaceutical companies.

"Under these circumstances, in order to compete globally and achieve sustainable growth, it is necessary to spend on R&D and to create innovative new drugs, as well as to develop a global platform to recover efficiently the ever-increasing investment costs,"​ continued the statement.

They added that there is little therapeutic area overlap between the two firms' products, particularly in overseas markets.

In the USA, the merged company will have an enhanced product pipeline, including: Vesicare (YM905), for the treatment of urinary incontinence; micafungin, an injectable antifungal; and YM087, a treatment for hyponatraemia. Operations in Europe and Asia will also have a boost in new products and the merger will result in one of the most established presences among Japanese pharmaceutical companies in these regions.

With a Sanofi-Synthelabo take-over of Aventis now in the offing, the prospect of another bout of consolidation will bring little cheer to companies supplying goods and services to the pharmaceutical industry, which face a further shrinking of their traditional customer base.

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