Japan's largest generics manufacturer Nichi-Iko Pharmaceutical has agreed to acquire US generics firm Sagent Pharmaceuticals for approximately USD736 million, the companies said in a statement, amid increasing pressure on profitability in the Japanese generics market.
Implications | Nichi-Iko also plans to use the acquisition to seek further growth by tapping the US biosimilars market, by leveraging Sagent's extensive network in the hospital market and clinical research staff. |
Outlook | Given increasing pressure on Japan's generics market, industry players have long anticipated growing cross-border mergers and acquisitions by generics makers hoping to remain competitive; Nichi-Iko's acquisition of Sagent is aimed to help the firm diversify its revenue streams and increase profitability. |
The acquisition will also allow Nichi-Iko to increase growth through marketing biosimilars in the United States, where Sagent is the ninth-largest manufacturer of generic injectables and holds a significant network in the hospital market, according to Pharma Japan. In addition, Sagent's portfolio of 55 products is focused mainly on cancer treatment, critical care, and anti-infectives. According to Nichi Iko president Yuichi Tamura, the US biologics market – which accounts for 55% of the global market – is growing at an annual rate of 17%, well above the global growth rate of over 10%.
Upon completion of the acquisition, Nichi-Iko expects to record total sales of JPY180 billion (USD1.72 billion), including Sagent's sales of JPY31.8 billion. According to Pharma Japan, Nichi-Iko aims to raise annual sales to JPY300 billion "as quickly as possible", and propel the company to rank among the top-10 largest generics makers globally by March 2019.
Tamura plans to achieve this growth by increasing the pace of clinical development through the addition of Sagent's development staff to US-based clinical trials of biosimilars. Next month, Nichi-Iko also plans to initiate US-based Phase III clinical trials for a biosimilar version of rheumatoid arthritis drug Remicade (infliximab; Johnson & Johnson, US) and gain marketing approval in 2019. Future potential targets include the biosimilar version of oncology drug Herceptin (trastuzumab; Roche, Switzerland) and Rituxan (rituximab; Roche).
Nichi-Iko's acquisition of Sagent comes amid what Tamura describes as increasing pressure on profitability in Japan's generics sector, despite growth in generics' share of overall drug sales. Slowing profitability in Japan's generics market is due to an anticipated decline in patient expiries after 2018. Japanese authorities have set aggressive targets for generic uptake in an attempt to stem soaring healthcare costs (see Japan: 14 September 2015: Japan's MoF targets "sharp" price cuts for new and listed generics in FY 2016).
Nichi-Iko plans to fund the acquisition with available cash and bank loans, with the all-cash deal expected to close at the end of August.
Outlook and implications
Nichi-Iko's acquisition of Sagent is expected to contribute significantly to the diversification of the Japanese company's revenue streams, given increasing pressure on Japan's generics market. While Japan's Ministry of Health, Labour and Welfare (MHLW) has set ambitious targets for the uptake of generics in order to dampen soaring healthcare costs, it has also been lowering the reimbursement prices of first-time generics (see Japan: 19 November 2015: Japan's MHLW considering further price cuts for first-time generics). The Japanese government aims to raise the market share of generics to at least 70% by mid-2017, and at least 80% between financial years 2018 and 2021.
Industry analysts have long anticipated growing cross-border mergers and acquisitions (M&A) by generics makers hoping to remain competitive, as well as consolidation among Japan's smaller generics makers struggling to increase their manufacturing capacity to meet government targets (see Japan: 26 August 2015: Japan's Comprehensive Strategy for pharmaceutical sector calls for innovation and M&A).