Chris Earnshaw

Teva, the world’s 18^th largest pharmaceutical company and the world’s largest generic manufacturer, signed a joint venture with Kowa in 2008, starting operations in 2010.  Kowa ranks nearly 50^th in Japan, one-thirtieth the size of Teva, is not known for its international sales strength and had little experience with generics prior to meeting Teva. It is well know that Sawai Pharmaceuticals  rejected Teva’s advances on several occasions. Probably Kowa needs Teva more than Teva needs them. The objective is evident now that the J-V Teva-Kowa has taken  (Dec 2009) a small share in Taisho Pharmaceuticals, the seventh largest generic manufacturer in Japan and a major OTC manufacturer.  This move has turned heads, especially as Taisho is a closely held family firm.   Purportedly Teva bought Kowa’s holdings in Taisho and so came a player through the backdoor.

The acquisition now adds Taisho’s 220 generics to Teva-Kowa’s 40 products, increases Teva’s 90 MRs to 150 and catapults the company into about 5^th place in the Japanese generic manufacturer rankings.  However Teva’s aggressive “lawsuit business model” will undoubtedly be met with stiff resistance – akin to the T. Boone Pickens v’s Koito Manufacturing fight in 1990.

Other interesting moves include the Indian generics firm Lupin buying a majority stake in the Japanese generic manufacturer Kyowa Pharmaceutical in 2007 and Daiichii Sankyo strengthening its position in generics with its acquisition of a majority stake in Ranbaxy in 2008.

For more information see: Teva’s strategic positioning and competitive analysis: the Five Forces Model   http://slidesha.re/bn0rH6

The big three Japanese research-based pharma companies that are seriously involved in generics,  Nippon Kayaku, Meiji Seika and Nippon Chemiphar, have seen generic sales grow 20-80%. Nippon Kayaku (¥97bn 2009/5 of which sales of generics were 10%) Meiji Seika (¥306bn 2009/3, generics 4.5%) and Nippon Chemiphar (¥21bn 2009/3, generics 76%).  [I will look at the business models of these companies in later blogs.]

These companies, as well as other medium-sized ethical manufacturers are looking to generics as a way to support their business as the cost and difficulty of developing new medications increases. This is supported by increasingly severe revisions of medical fees and several major products coming off patent, the so-called “patent cliff”.

In April this year, 2010, a 2.2% reimbursement decrease was introduced for all long-term listed products. Therefore companies that have a core turnover from these products will be under pressure to restructure their business. They may be suitable candidates for J-V or acquisition by foreign companies wanting access to the market and an off-the-shelf sales force, re Teva’s J-V with Kowa.

At present the generic market is dominated by four specialist manufacturers, Sawai (¥43bn 2009/3), Taiyo (¥42bn 2009/3 privately held), Nichiiko (¥40bn 2008/11) and Towa (¥34bn 2009/3), which have been posting good growth. But large pharmaceutical companies are looking for new avenues for growth and several are contemplating entering the generic sector.

The largest Japanese pharma companies’ sales are in the region of ¥800-900bn (equiv. $8-9bn [n.b.  Pfizer 2009/12 $50bn]), but with the exception of Eisai, they don’t have a large stake in generics. Eisai’s subsidiary Elmed Eisai’s sales have grown steadily 30%+ to $1bn in 2010.

Among the middle ranking companies there are several that have a large portion of turnover attributed to sales of generics, examples of these companies are Nippon Kayaku, Meiji Seika and Mitsubishi Tanabe.  Now major companies such as Daiichi Sankyo (following the dissolution of the agreement between DS subsidiary Ranbaxy and Nippon Chemiphar) and Takeda (looking at options for the South American market) are looking again at the sector.

Foreign companies are not standing idly by; Pfizer established a new division to handle their products that will soon be off-patent, such as Liptior the anti-cholesterol therapy, for which they are expecting $1bn sales of the generic version in 2011 in Japan. This is being closely watched by other large pharma companies.