The expertise of Indian drug companies in active pharmaceutical ingredients (APIs) is luring Japan pharma. Primarily Japan pharma is engaged in the production of formulations and this requires high value APIs. Since India is the second largest source globally for APIs after China, Japan pharma is looking towards India for supply of good quality and dependable APIs.
At the same time Indian companies are keen on having technical collaborations with Japan to strengthen their generic drug capability and marketing partnerships. From an Indian stand point, Japan is an important market for high quality and APIs, generics, biosimilars and medical devices. However a chunk of the export earnings come in from the API segment.
As per some reports, between 2012-13, Indo- Japanese bilateral trade reached $18.61 billion, marginally higher than US$18.43 billion in the previous FY. Primary exports to Japan include organic chemicals, apart from petroleum products, iron ore, gems and jewellery, marine products, oil meals, ferroalloys. Japanese FDI into India grew exponentially from US$ 139 million in 2004 to an all time high of $551 million in 2008 due to mega deals particularly acquisition of Ranbaxy by Daiichi Sankyo.
After the government has permitted five per cent imports of generics, the market of generic drugs has expanded in Japan. According to Japan External Trade Organization (JETRO), there is a visible change in Japan’s pharmaceutical market. Several Indian companies jumped in to maximize the advantage of high valuations ensuing from here.
Major Japanese pharma companies have embarked up on mergers and acquisitions. There are many global pharma majors which have entered Japan by establishing joint ventures with Japanese drug makers or granting distribution rights for their products to Japanese firms.
The reorganization of the pharma market in Japan with mergers and restructuring of the domestic drug makers which were almost non-existent in the past have become a common place in recent years. One new business model is for pharmaceutical firms to outsource to bio-venture companies and this move is attracting much attention, stated JETRO.
Top 20 Japanese companies like Takeda, Astellas, Mitsubishi, Sumitomo are seriously scouting for mergers and acquisitions of India drug majors. There is an increasing interest on India even for contract manufacture and procurement of finished formulations driven by rising product development costs in Japan.
The Japanese companies are eager to grow to the next level. Many such enterprises from Japan are chalking out inorganic paths and therefore identifying acquisition targets here that fit into their line of business segments. Companies are looking to strike potential buyouts of the established big pharma names in India, Deepak Anand, Director-Research, JETRO told Pharmabiz.
After 2008, when Daiichi Sankyo acquired India’s drug major Ranbaxy for $4.6 billion making it the largest buyout in the pharma space, several Japanese companies have set their sights on India.
From a Japanese pharma company perspective, it will enable them to get manufacturing and research infrastructure along with the qualified scientific talent prowess from India. The companies are eager to grab the API expertise. Therefore, we could expect many such buyout deals coming in as Japan is just waiting to fuel its M&A appetite. The trend points to mergers, reorganization of business models and brisk outsourcing, he added.
In the recent years ,companies from Japan have been outsourcing aggressively to optimize efficiency of their corporate resources as the cost of research and development rises.
Recipients of outsourced work include biotech and pharma companies, contract sales organizations, site management organizations and contract research organizations, stated JETRO.
India pharma which have sighted opportunities in Japan to strengthen their generics marketing opportunities are Lupin and Zydus which have acquired companies in that country. While Lupin went in for two buyouts : Kyowa in 2007 and I’rom in 2011, Zydus in 2007 bought Tokyo-headquartered Nippon Universal Pharmaceutical to spearhead into the generic markets. Dr. Reddy’s Labs, Aurobindo Pharma,and Dishman too have fortified their presence in the region by setting up offices in Japan.
Even though Indian companies cannot ignore API exports to Japan, the market is tough and challenging. The regulations are stringent and cumbersome. More over in the generic industry , quality, timeliness and aesthetics are demanding. Only those Indian companies like Lupin, Zydus, Dr. Reddy’s Labs, Biocon and Aurobindo Pharma which have built competencies across business areas can succeed, said Sriram V Iyer, CEO, ValuGen Pharma.
The number of pharma companies in Japan had been increasing with the entry of multinational drug makers but in the last couple of years this has declined. It is primarily attributed to the slower growth of the domestic pharma sector. Another reason for the withdrawal of global pharma is because of time lag between research and commercialization, reports JETRO.
Today, Japan pharma market is the second largest in terms of value after US and the segment is estimated at $96.5 billion.
In 2010, Japan has opened its market allowing five per cent of generic imports. Here the valuations are high but competition is intense. Therefore Indian pharma largely is not qualified and huge gaps exist compared to those in Japan, pointed out Iyer.
The reality is that there are many Indian companies which are exporting and have a presence in Japan. These include Biocon, Bal Pharma, Micro Labs, RL Fine Chem, Venus, Dishman, IndSwift and Suven Pharma.
Since there is a lull in pharmaceuticals growth in Japan, companies are heading to India to garner emerging prospects here. India is expected to benefit from Japan in the area of active pharmaceutical ingredients. The country’s strong technical expertise, increasing compliance with international standards are the key drivers of growth in the API sector.
The government of India has inked the first multilateral trade agreement referred to as the India-ASEAN Free Trade Agreement (FTA) in 2009 at Bangkok. The Look Far East Policy of 1993 and the Comprehensive Economic Partnership Agreement (CEPA) are expected to help the country to widen prospects of growth under these economic initiatives. This makes it easier for Indian pharma to look at Japan, according to the Institute of Economics and Social Change.
The challenges in the market are the strict regulations of Japanese Pharmaceutical Manufacturers Association. Since Japan insists on total transparency by India pharma companies, this is delaying decisions in finalizing orders and deals.