IHS Global Insight Perspective | |
Significance | Sanofi-Aventis is reported to be partnering with Japanese generic maker Nichi-Iko through obtaining the latter's stakes and establishing a joint venture for generics development and marketing in Japan. |
Implications | Earlier this year, Sanofi revealed that it planned to launch acquisitions in the fields of generics and over-the-counter drugs with up to US$15 billion earmarked. The said move is one of its generic expansion in the promising Japanese generic market. |
Outlook | With the Japanese government beefing up its encouragement for generic substitutes to reduce soaring healthcare costs, the generic sector in Japan has projected promising growth prospects and attracted significant interest from multinational drug majors including Pfizer and Daiichi Sankyo. The competition Sanofi and Nichi-Iko will face in this field will be from both existing generic makers and heavyweight pharmaceutical giants like Pfizer. |
French major pharmaceutical company Sanofi-Aventis is set to enter into the generic market in Japan by teaming up with Japanese generic firm Nichi-Iko through a capital and operational deal. According to a report by Nikkei, Sanofi-Aventis is planning to obtain about 5% of Nichi-Iko's stake with an investment of some ¥5 billion (US$55.3 million), which will make it the second-largest shareholder following Nichi-Iko's founding family. In addition, Sanofi and Nichi-Iko are also set to establish a Japanese joint venture (JV) for the development of generic drugs as well as the importation of Sanofi-Aventis's products to Japan. Sanofi and Nichi-Iko will hold 51% and 49% of the new JV's shares respectively. Furthermore, collaborative development of biotech products are also on the two partners' plan to follow, added the source.
In 2009, Sanofi-Aventis garnered sales revenue of 1 billion euro (US$1.2 billion) from its generic product segment, representing a 185.9% year-on-year (y/y) jump on a reported basis (see France: 10 February 2010: Sanofi Reports 6.3% Y/Y Growth in Revenue as Vaccine Sales Offset Generic Threat in 2009). In terms of Nichi-Iko, the annual sales reached ¥52.5 billion (US$580.3 million) with a 14.7% y/y increase in the fiscal year 2009 ended 30 November 2009.
Outlook and Implications
The move reflects Sanofi-Aventis's confidence in the growth potential of Japan's generic drug market, which has started attracting the expansion interest of major multinational pharma companies. In order to reduce the soaring cost burdening the country's national health insurance (NHI) system, Japan's Ministry of Health, Labour and Welfare (MHLW) has been implementing a series of measures to encourage the use of generic drugs including the introduction of financial incentives in generic substitution and generics-friendly prescription forms. The goal of the MHLW is to increase the volume share of generic drugs in the Japanese drug market to 30% by 2012. Currently generics only account for less than 20% in volume share and 6.4% in value share, far below the generics' shares in other developed markets including the United States and the United Kingdom. It is therefore envisaged that there is still a sizeable growth room for generic drugs in the pharmaceutical market of Japan. U.S. drug heavyweight Pfizer unveiled its plan of foraying into Japan's generic market at the end of last year and earlier this year further highlighted that it aims at the leading position in this sector with potential alliance with local generic companies (see Japan: 3 February 2010: Pfizer Provides Insights on Japanese Generics Market Entry). Japan's third-largest drug maker Daiichi Sankyo is also poised for the growth in its domestic generic market following its big-ticket acquisition of Indian generic major Ranbaxy in 2008. On 1 April 2010, the company established new subsidiary, Daiichi Sankyo Espha, jointly with Ranbaxy for the marketing of generic drugs in the Japanese market (see Japan: 26 February 2010: Daiichi Sankyo to Establish New Japanese Subsidiary to Market Generics).
On the other hand, Sanofi-Aventis is no stranger to expansion into generic sectors, which has become one of the company's four strategic pillar focuses. It acquired Brazil's top generic drug maker Medley at a price of US$670 million in April 2009, which was then followed by the takeover of Swiss generic firm Helvepharm later that year (see France: 9 April 2009: Sanofi-Aventis Concludes Acquisition Agreement with Medley and France: 10 August 2009: Sanofi-Aventis Snaps Up Swiss Generics Player Helvepharm, Sanofi Pasteur Begins Swine Flu Vaccine Trials). The company's expansion into Japan's generic field through partnership with Nichi-Iko is well in line with its plan, revealed earlier this year, that up to US$15 billion is expected to be earmarked for acquisitions in generic and over-the-counter (OTC) sectors within this year. That being said, Sanofi's new joint generic establishment with Nichi-Iko will potentially face strong competition from not only existing generic makers on the market, such as Teva (Israel) or domestic players, but also multinational companies like Pfizer and Daiichi Sankyo.