Rumours abound that Sankyo, Japan's second largest pharmaceutical company, is in late-stage discussions with sixth-ranked Daiichi Pharmaceuticals over a merger.
The story first appeared in the Japanese national press and comes at a time when Sankyo is set to lose its second place in the Japanese industry because of the upcoming merger between Yamanouchi and Fujisawa to form Astellas Pharma.
Japanese drugmakers have largely resisted the consolidation pressure that has changed the face of the European and US pharmaceutical industries in recent years. But pricing pressures in the domestic drug market, increased competition from overseas companies and a need to tap into international markets with new product candidates has forced them to think again.
If the Sankyo/Daiichi wedding takes place, the combined firm will retain its number two position, behind current leader Takeda Pharmaceuticals which has projected revenues of some Y 1,100 billion ($8.01bn) for the fiscal year to March. Sankyo/Daiichi's combined revenues would come in at Y 911bn in fiscal 2005, ahead of third-placed Astellas with Y 849bn.
But while big by Japanese standards, this turnover is still dwarfed by the true multinationals like Pfizer and GlaxoSmithKline - with 2004 revenues of €34bn and €29bn respectively - which exemplifies the task faced by Japanese companies wishing to compete on the global stage.
"Sankyo and Daiichi are turning to consolidation in the hope that they can fortify their international position by optimising the use of their global sales forces," according to Datamonitor, which notes that this will be of particular benefit in the US market. However, with a little over 600 US sales reps, the combined firm will stall lag between Takeda (with 4,000) and Fujisawa (whoich has 800 even ahead of the formation of Astellas).
The merger plan calls for Sankyo and Daiichi to set up a joint holding company in October, with Sankyo acting as the dominant partner and its president, Takashi Shoda, retaining the same post in the combined firm, according to newspaper reports.
The move comes at a difficult time for both companies. Sankyo has seen generic competition for its leading cholesterol-lowering drug Mevalotin (pravastatin) - both at home and overseas where it is partnered by Bristol-Myers Squibb - and lacklustre domestic sales that drove its just-reported nine-month sales down 2.6 per cent to Y 444bn.
Meanwhile, although Daiichi posted slightly improved results for the first three quarters, its future growth looks likely to be limited by the termination of no fewer than five prospective blockbuster drug candidates due to safety problems.
In addition to the Yamanouchi/Fujisawa marriage, Dainippon and Sumitomo Pharmaceuticals also announced plans to merge towards the end of last year, and analysts are expecting additional M&A activity in the years to come.