M & A in Japan: Foreign Companies Increase Presence in Japanese Healthcare Market

Mergers and acquisitions in the Japanese healthcare industry are on the rise. The strength of the dollar (versus the yen) and deregulation in Japan have many U.S. and European drug companies planning to increase their presence in Japan, where pharmaceutical sales are valued at eight trillion yen (US$60.41 billion) per year. Industry experts predict that many Japanese drug companies, which have long resisted global consolidation, will have to merge and become more global in order to remain competitive.

Roche Holding AG, a Swiss drug company with annual sales of US$16.6 billion, is now executing one of the first friendly acquisitions of a Japanese drug company. Roche and Chugai Pharmaceutical Company, a leading Japanese drug maker, have negotiated a deal by which Roche will acquire 50.1% of Chugai for 198 billion yen (US$1.49 billion). Roche intends to merge Chugai, which had sales of 203 billion yen (US$1.53 billion) last year, with its Japanese subsidiary, Nippon Roche KK. This acquisition will greatly expand Roche’s presence in the world’s second largest healthcare market (Japan), since Chugai’s annual sales were more than triple those of Nippon Roche (65.68 billion yen / US$496 million) in Japan last year.

The rising development costs have also generated talk of plans for Japanese companies to merge amongst themselves. This past September, Tanabe Seiyaku Company and Taisho Pharmaceutical Company publicized plans to amalgamate their operations. This merger would have made them the third-largest pharmaceutical company in Japan, but plans were cancelled due to reorganization difficulties and company differences.