Indian generic firm says “I do” to Japanese brand-name drugmaker

by Anne Law, June 16th, 2008, 7:00 am

The announced deal in which #3 Japanese pharmaceuticals firm Daiichi Sankyo will purchase a controlling stake in India’s #1 pharma company (and Top 10 global generic drug manufacturer), Ranbaxy, is a shining example of two recent trends that have emerged in the industry: (1) Japanese price cuts are prompting the country’s drugmakers to branch out aggressively into new markets, and (2) global companies that have traditionally focused on brand-name drugs are reaching toward new industries to balance lagging sales.

Other recent transactions that signify trend #1 include Takeda’s acquisition of US biotech Millennium Pharmaceuticals and Eisai’s similar purchase of MGI PHARMA. Daiichi Sankyo itself announced another deal earlier this year in which it will buy German biotech U3 Pharma. While deals such as these were not previously unheard of, merger announcements in 2008 have skyrocketed as the Japanese government is enforcing price cuts and encouraging generic competition.

Daiichi Sankyo will gain a strong foothold not only in India’s booming drug market, but it will bolster its operations worldwide through Ranbaxy’s presence selling generic drugs in some 50 countries. Ranbaxy itself will also benefit as it will gain wide access to the Japanese generic drug market.

Like many international pharmaceutical companies suffering from patent-expiration/sluggish-pipeline disease, Daiichi Sankyo is also following trend #2 where companies expand into new industries such as biotechnology, over-the-counter drugs, and animal health products to reduce their dependence on traditional prescription drugs. Some drugmakers have fallen into the “if you can’t beat ’em, join ’em” mentality in regards to generic drug companies as the patent-protected vs. generics battle heats up (with generics often coming out ahead).

Overall, the hookup of Daiichi Sankyo and Ranbaxy looks to be pretty smart, despite the companies’ differing backgrounds, and comes as no major surprise considering the state of the industry. The deal may even pave the way for larger marriages between previous generic/branded drug-making enemies.