Merger Mania Besets Japanese Pharmaceuticals

A law allowing greater foreign investment in Japanese companies is fueling a merger mania in that country's pharmaceutical industry. In April, Astellas Pharma will be created by a merger of Yamanouchi Pharmaceutical and Fujisawa Pharmaceutical, which will surpass Takeda Pharmaceutical, currently Japan's largest in terms of sales. This will be followed in October by the just-announced merger of Sankyo, the country's second-largest drug maker, and Daiichi Pharmaceutical, the sixth-largest. A third megamerger between Dainippon Pharmaceutical and Sumitomo Pharmaceutical is also set for October. Driving the mergers is legislation slated to take effect in 2006 that will allow mergers and acquisitions based on share swaps with foreign companies. With drug development costs steep and the government continuously cutting prescription prices, the pharmaceuticals see themselves as vulnerable to a takeover. Further, Japanese pharmaceuticals believe they need to allocate approximately $955 million for research and development to compete effectively with U.S. pharmaceuticals. Sankyo spends about $860 million, while Daiichi spends almost $573 million. Combined, their total expenditures would exceed the mark, while consolidated revenues would be around $8.7 billion for the year ended in March 2004, superseding the soon-to-be-created Astella's projected $8.1 billion. Takeda had sales of $9.5 billion for the same period.