Japan Slides Off the Patent Cliff

Japan’s looming ‘patent cliff’ has analysts wondering what Japanese pharmaceutical companies will do in an attempt to offset revenue losses when their blockbuster patents expire over the next few years. The ‘patent cliff’ phenomenon that began in 2009 is expected to peak in 2011, causing a large decline in sales for Japanese pharma, and a scramble to stay profitable. However, what is a blow to Japanese companies may be a windfall for western entities eager to merge, acquire, or be acquired by a Japanese business. On the other hand, as Japanese companies seek out other markets around the world, western manufacturers may experience increased competition abroad, necessitating a strategy change.

International mergers and acquisitions may be the boon Japanese pharmaceutical companies need in order to preserve their flow of revenue. With the growing pressure on Japanese companies to become more competitive, M&A activity will allow them to expand despite their sluggish pipelines. Western companies looking for synergies in the Japanese pharmaceutical industry may find willing entities looking to benefit from strategic M&A. However, while partnerships inside the United States’ market is an obvious choice, emerging markets abroad, especially other Asian economies such as Vietnam and Thailand, are also ripe for M&A activity. If Japanese companies target these players for expansion, it will heighten the competitive environment for all businesses in these geographical areas.

While Japanese companies have never been exposed to much risk in the past, the slew of expiring patents – such as Takeda Pharmaceuticals’ diabetes drug Actos and dyspepsia remedy Prevacid, or Eisai’s Alzheimer’s drug Aricept – will require some hedging. In addition to international M&A, outsourcing from Japan to more emergent markets has also become prominent, which will put competitive pressure on western manufacturers selling in those areas.