After Japan’s Takeda Pharmaceutical Co. has jumped up to be the world’s eighth largest global pharmaceutical company through a bold merger and acquisition (M&A) strategy, there are growing calls for domestic pharmaceutical firms to consider an aggressive M&A strategy to become truly global companies.
The South Korean pharmaceutical industry has been inking a series of technology export deals with global pharmaceutical firms and entering the markets in the United States and Europe from the beginning of the year. However, some point out that the industry will not be able to secure the leadership in the global drug market unless it accomplishes the economy of scale through M&As.
According to industry sources on Dec. 17, Japan’s number one drug-maker Takeda Pharmaceutical recently held a board meeting and its shareholders have approved the takeover of Irish rare disease drug producer Shire Plc. With the latest decision, Takeda Pharmaceutical has become the world’s eighth largest pharmaceutical firm with sales of 33 trillion won (US$29.16 billion), Last year, it ranked 19th with sales of 17 trillion won (US$15.02 billion). The company has also become the first Japanese firm to make it to the top 10 in the global pharmaceutical market, which has been dominated by multinational firms, mainly those from the U.S. and Europe.
Takeda Pharmaceutical acquired Shire for about 65 trillion won (US$57.45 billion) which was four times higher than the company’s sales of 17 trillion won (US$15.02 billion) last year. It is the largest takeover deal undertaken by a Japanese firm and the second largest in the global pharmaceutical industry in terms of price.
There have been pros and cons for Takeda Pharmaceutical’s acquisition of Shire after the M&A deal was signed in May because it costs a lot. Some industry analysts acknowledged that the M&A deal was necessary to gain supremacy in the global drug market, while others expressed concerns about the huge debt burden. However, 88 percent of Takeda’s shareholders voted in favor of the M&A deal.
According to the Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA), four Japanese companies – Takeda Pharmaceutical, Astellas Pharma Inc., Daiichi Sankyo Co. and Otsuka Pharmaceutical Co. – made the top 25 global pharmaceutical firm list in terms of sales last year. In addition, 18 Japanese firms ranked among the top 100 global drug-makers, while 11 Japanese drugs are included among the top 100 drugs in the world in terms of sales.
On the other hand, South Korean pharmaceutical and biotech companies rank low in the global market. The nation’s largest pharmaceutical firm Yuhan Corp. ranks among the top 80 in the world with estimated sales of 1.5 trillion won (US$1.33 billion) this year. Celltrion Inc.'s first biosimilar Remsima surpassed the 1 trillion won (US$883.78 million) mark in global sales last year for the first time in the domestic industry but it hasn’t made the top 100 list overall yet. It means that the competitiveness gaps between the South Korean and Japanese pharmaceutical industries are getting wider and wider even considering the fact that the Japanese market is four times larger than the South Korea’s.
Experts express concerns that domestic drug producers will eventually be weeded out of the global market without an aggressive M&A strategy, though they have continued to show growth with the achievements of technology exports and entry into advanced markets this year. If M&As with global pharmaceutical companies are a difficult goal to achieve for now, they should consider M&As with domestic firms first. However, even M&As among domestic companies are hard to achieve due to the closed management system led by owner families.
Kim Suk-kwan, head of the industrial innovation research division at the Science and Technology Policy Institute (STEPI), said, “As a Japanese drug-maker worth 80 trillion won (US$70.70 billion) has been bulking up through an aggressive M&A strategy, Japan has become the world’s third largest drug market for a single country after the U.S. and China. The domestic pharmaceutical industry needs to advance new drug development with the aggressive M&A strategy and invest funds secured through new drugs in research and development again, creating a virtuous cycle, in order to secure the global competitiveness.”