India has become a major hub for pharmaceutical companies of the world. An India-strategy is a must for all western companies and is often mandated by their managements.
However, a noteworthy trend that came into spotlight in 2008 brought Japan in the picture. The reforms in Japan’s pharmaceutical policy, especially in the generics space, made Japan a dominant country, in the cross-border deal scenario.
In Japan, mergers and acquisitions between pharmaceutical companies existed since 2001. However, it was for the first time in 2008, that Japanese companies started looking beyond the ‘comfort zone’ at the emerging markets. And India appeared to be the most suitable country for further expansion of the Japanese pharma industry. A number of Japanese companies are gradually making inroads into the $8 billion Indian pharmaceutical market. There were talks of Takeda Pharmaceuticals entering the market with a possible buyout of Torrent Pharmaceuticals, which was later shelved.
The Daiichi-Sankyo-Ranbaxy pact worth $4.6 billion, considered as the mega deal of 2008 in the Asia Pacific region, not only gave Japan an opportunity to make its presence felt, but also gave a fillip and recognition to the quality of Indian drug and other pharma products. It is for the first time that Japan ventured into India and that too at such a deal size. The historic deal gave Daiichi-Sankyo, a foothold in the Indian market through Ranbaxy.
Initially, Japanese pharmaceutical industry largely resisted the temptation to follow the lead of a number of western pharma companies who have been using India as a low-cost hub to outsource manufacturing and clinical trials. The life sciences industry in the two countries started taking interest in each other when in 2007; Zydus Cadila acquired Nippon Universal, a small generic company which now spearheads the group’s operations in Japan. And if Japan saw India as an emerging market, than the latter surely has an edge over China, mainly due to the growing demand for biotechnology products, rich biodiversity, availability of high quality human capital and strong R&D sector.
With the change in industry dynamics, the pact showed Japan, a new way towards growth as the current sales of generics in Japan is estimated to be six percent of the overall drug market as against close to 60 percent in China and 37 percent in India. Japan is making every effort to make healthcare more affordable to its aging population.
The country is extensively promoting the use of generics, which in turn has given impetus to the local Japanese industry. The government in Japan is encouraging doctors to prescribe generics to cut healthcare costs. This will likely open several doors for the Japanese companies to tap the opportunity. Looking at India, the country is emerging as a competitive outsourcing hub and is playing a major role in the global pharma industry in manufacturing APIs and intermediates for drug makers. As a result, the global pharma majors are establishing long term relationships with Indian pharma companies.
Besides Daiichi Sankyo-Ranbaxy deal, Japan seems to be looking at India in a big way for further expansion of its pharma companies. A recent instance is the establishment of the Indian subsidiary by one of Japan’s top drug maker, Astellas Pharma. Astellas had established its presence in India by opening a liaison office in 2007. The company will now adopt a business model of importing and marketing pharmaceutical products. "Astellas Pharma aims to establish a strong business base in India by developing the sales and marketing activities of in-house products especially in immunology and urology, where Astellas has strong global franchise," says Mr Teruo Yasufuku, Managing Director, Astellas Pharma India.
Listed on the Tokyo Stock Exchange and the Osaka Stock Exchange, Astellas began its operations in April 2005 by the merger of Japanese companies Yamanouchi Pharmaceutical and Fujisawa Pharmaceutical. According to recent IMS reports, the company clocked a global sales revenue of $5.3 billion (MAT Dec ‘07) and $6.2 billion (MAT Dec ‘08) while in Japan it clocked sales of $2.2 billion (MAT Dec ‘07) and $2.6 billion (MAT Dec ‘08). Apart from its revenue-churning markets namely the US and Europe, the company has marketing subsidiaries in seven Asian regions which include China, Korea, Taiwan, Hong Kong, the Philippines, Thailand and Indonesia.
The establishment of its Indian subsidiary is a part of the company’s overall business plan to further expand and consolidate its presence in the Asian markets, with India and China being its top priority. According to statistics, Japan’s total pharma market is estimated to be $60 billion. However, analysts are of the opinion that the growth rate is slower than the US and some European markets which till recently had been growing at double-digit rates.
Double digit growth of the Indian pharma market proved to be a significant catalyst towards Astellas’ entry into the region. Mr Yasufuku says, "India was one country where we decided to enter by ourselves. The obvious reason was that the pharma market was growing in double digits. Within Asia, we have prioritized on China and India because markets like the US, Europe and Japan are stagnating in growth, and the price or currency fluctuation has cost us heavy. We have promising products in our pipeline and everybody is looking at the BRIC countries for growth." For this, a long term investment of $160 million was pumped in.
Mr Himanshu Dave, Director of Sales and Marketing, Astellas Pharma India, adds, "India is one of the fastest-growing pharmaceutical markets in the world. Driven by huge patient base, increasing incomes and strong penetration of health insurance, the pharma market is expected to more than double its size in the next five years." As an initial step, Astellas intends to tap the transplantation market in India with the launch of its flagship product Prograf.
Japanese firms are warming up to the idea of using the country to either outsource various business functions or set up infrastructure and take advantage of India’s burgeoning, low cost pharma industry. Driven by rising consumption levels in the country and robust demand from export markets, Indian pharmaceutical industry has been witnessing phenomenal growth in recent years. Over the last few years, the industry has seen a growth rate of about 10 percent and is expected to touch $12 billion by next year.
But industry analysts also believe that until and unless a company has a manufacturing base in Japan too, it will be difficult to establish presence in the Japanese market as manufacturing and other quality norms are very stringent. However, support from the Japanese government on generic drug in the country is influencing local companies to seek for better, more, and cost effective opportunities to plunge into emerging Asian markets, especially India and China.