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Sep 2, 2008

The Japanese Acquisition Binge

  • Shionogi's planned acquisition is the latest in a spending spree by Japanese drug groups. Yesterday Shionogi said that it had agreed to pay $1.42 billion to buy Sciele Pharma of the U.S., becoming the latest Japanese drugmaker to acquire an overseas rival.

    Why is it that so many Japanese pharma's are acquiring targets overseas? The Japanese domestic market, where Shionogi and its local rivals are facing government-mandated price cuts and increasing competition from multinational competitors is simply not an attractive option. Recent acqusitions include the takeover of Millenium by Takeda for ~$8.5 billion, and the total is ~$17 billion (DataLogic).

    Could the same happen to the U.K., the U.S.? I say the U.K. is an interesting case because of the recent Government involvement in the decision to foster certain pipeline drugs and not other via market mechanisms (reimbursment). The U.S. on the other hand is faced with the enormously bloated medicare / medicaid system and the next administration is bound to change the reimbursment practices towards generics, effectively tilting towards the Japanese market model (though, of course whether there is going to be a universal healthcare system, is up in the air).

    What will happen to these Japanese giants? If anyone remembers the mid- to late-eighties, the world was certain to be speaking Japanese by 1995 due to the Keiretsu's success in the heavy industry and car manufacturing industries.

    The jury is out on this recent binge. Short- and medium-term, it looks like a good idea for the bottom line, but the premium on each and every one of those acquisitions is hefty. I for one am reluctant to call them successes.

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