It seems that the Japanese pharmaceutical companies have realized the importance of mergers and acquisitions to consolidate their market. Though largely limited to domestic acquisitions, the move is positive, as mergers and acquisitions were not culture of the Japanese pharmaceutical industry. In what can be considered as a ground-breaking move, Yamanouchi Pharmaceuticals had acquired Fujisawa Pharmaceuticals for $7.94 billion and Sankyo acquired Daiichi Pharmaceuticals for $6.65 billion in 2005. Following the trend, the Japanese market has seen some significant acquisitions of biotech and generics companies in the domestic arena.

Mergers and acquisitions within the Japanese pharmaceutical sector have, to an extent, accelerated the pace of reorganization of certain companies as a key player in a particular segment of the business. At a time when pharmaceutical companies around the globe are in a race to go global, many of the mid cap Japanese pharma companies are yet to make up their mind so as whether to establish their presence in the global market, it is learnt. In fact, through mergers and acquisitions within the domestic area, the Japanese firms may be trying to establish a better regional foothold to venture into the global market, said an industrial expert.

"It might be easy for the Japanese pharma companies to venture into the global market either through acquisitions and mergers or setting up indigenous facilities, once they establish foothold in the domestic market," said an industrial expert. Apart, market experts feel that the Japanese firms will increasingly depend on acquisitions and mergers to expand their business activities both within and outside the country, as research and development activities eat away a large chunk of Japanese companies' profit and time and effort. For instance, Takeda, one of the leading Japanese drug makers, is all set to pursue the path of inorganic model of growth. Takeda has announced that it will set aside US $8.4 billion for strategic acquisitions, as the company looks to shift its focus from organic way of growth.

Apart, earlier in February 2005, CIMC, one of the top CROs in Japan, had announced that it would incorporate its business with the US-based Pharmaceutical Product Development Inc. (PPD) to extend its business to Japanese clients and share Japanese clinical trials of foreign pharmaceutical companies with PPD.

The next five years will see mergers and acquisitions in Japan, both between the domestic companies and foreign companies and regional companies, it is learnt. The fact that the Japanese generic market is a low penetrated one and stringent rules and regulations make it difficult for the foreign companies to directly sell the generic versions of medicines in the market, often direct the foreign companies to think in terms of establishing a regional base through merger, acquisition and joint venture to easily access the regional market.

As acquisitions, mergers and joint ventures would provide critical access to a ready manufacturing and marketing base as well as a strong distribution reach, the Indian pharma companies are actively pursuing these paths to conquer the generics market of Japan. The Indian pharmaceutical companies, including Ranbaxy, Lupin, Zydus Cadila Dishman Pharmaceuticals and Bal Pharma have already ventured into the Japanese market to make it big in the generic business. While drug-maker Ranbaxy has established a joint venture with Nippon Chemiphar to market its generics, Dishman Pharmaceuticals has struck an alliance with Azzuro Corporation to garner a share of Japanese generics market. The pharma major Zydus Cadila acquired 100 per cent equity in Nippon Universal Pharmaceutical Ltd, while Lupin has partnered Kyowa Pharmaceutical to market its generic drugs in Japan. Apart, Dr Reddy's and Lupin are exploring acquisition opportunities in the country to take advantage of the growing generics market in Japan.

With the Japanese government moving heaven and earth to promote generics to tackle cost pressures, the generics market in Japan is expected to grow to 40 per cent of the total pharmaceutical market in the country. Currently the generics market in the region accounts for only 17 per cent of the total Japanese pharma market. Given this, many more pharma companies across the globe are expected to resort to mergers and acquisitions to enter into the Japanese generics market.