The Hindu Business Line : Drug-makers build business bridges in Japan

Mumbai April 22 Drug-maker Ranbaxy is there through its joint venture with Nippon Chemiphar. Dishman Pharmaceuticals struck an alliance with Azzuro Corporation this year. And last week, Zydus Cadila acquired 100 per cent equity in Nippon Universal Pharmaceutical Ltd.

Dr Reddy's Laboratories is reportedly evaluating potential acquisition targets in this market. And Indoco Remedies has just made another exploratory trip to establish business relations here.

The market these Indian drug-makers are actively courting is Japan, the world's second largest individual market for medicines. With revenues grossing $60 billion, the Japanese market for medicines contributes about 11 per cent of the world's pharmaceutical market, say analysts involved in helping domestic drug companies chart their course in Japan.

Active corridor

The Indo-Japanese corridor will see more activity, observes Mr Aluri Srinivasa Rao, Director, Investments, ICICI Venture Funds. Generic medicines have a low penetration in Japan, but that is changing with cost pressures driving regulators to draft laws ensuring better acceptance of generics, he says.

Though Japan is relatively new terrain for Indian drug-makers, recent regulatory changes have made it easier for overseas companies to bring their products into Japan, points out Ernst & Young's Partner, Mr Utkarsh Palnitkar.

Earlier, overseas companies had to conduct clinical trials on medicines to get a marketing approval in Japan. But with regulatory norms liberalised recently, companies can now outsource the manufacturing process without operating its own production facilities there, he states. Mr Palnitkar adds that foreign players are already tapping into the liberal environment, with multinationals accounting for 34 per cent of the market.

Good prospects

The Japanese market also holds out mouth-watering prospects for makers of generic drugs, or medicine copies that are chemically similar to an original medicine. The Japanese Government aims to raise the generic drugs share to about 40 per cent of the pharma market, compared to the current 16 per cent. The Japanese generic market is expected to grow to over $4.3 billion by 2008.

The scale has tipped in favour of generics in Japan as it deals with an increasing ageing population. And the Japanese government is promoting generics to tackle cost pressures, an analyst said.

Opportunities are opening up in the active ingredients and formulations segment or finished dosage forms segment too. Indoco, for example, is exploring opportunities in the intermediates segment, said its Director, Ms Aditi Kare Panandikar.

M&As

The world's largest pharma market, the US, has grown at 15 per cent over 10 years. Europe has an average growth of five per cent. But Japan has grown at 1.6 per cent annually.

The next five years will see mergers and acquisition in Japan, but only companies with deep-pockets in it for the long haul will survive the steep valuation, Mr Rao said. Value accretion will be slow unlike European acquisitions, he added.

But that has not stopped Indian companies headed there. And the most recent is a delegation from Gujarat, under the Chief Minister, Mr Narendra Modi. According to Mr Sunil Parekh, Advisor to Zydus Cadila, the largely corporate delegation has just concluded a weeklong trip to bridge business bridges between Gujarat and Japan.

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