The merger between Yamanouchi and Fujisawa is the first step towards creating a global mega-player, but additional tie-ups will be required if the new entity is to join the top tier of multinational pharmaceutical companies.
And at a press conference to announce the merger, executives from both Yamanouchi and Fujisawa said that further deals could not be ruled out.
Market research firm Datamonitor notes that the relatively small size of Japanese pharma players means that independent overseas growth can only take them so far, with international subsidiaries lacking the scale to promote a blockbuster drug.
Following the completion of its merger with Fujisawa in April 2005, Yamanouchi will be the second largest Japanese pharmaceutical company, with global sales of around $7.6 billion (€6bn), compared with Takeda's $9 billion, for the year ended March 2003.
The transaction follows the increasingly intense competition Japanese players are now facing in their domestic market, while overseas players have targeted Japan as a new growth opportunity now that barriers to western firms' entry have been removed.
Recent merger and acquisition deals between western and domestic companies demonstrate the increased interest. In 2001, Roche bought more than half of Chugai Pharmaceutical for $1.2 billion, while last year Merck & Co spent about $1.5 billion to buy the 49 per cent of Banyu Pharmaceutical that it did not already own. And following its merger with Pharmacia, Pfizer now has the largest sales force in Japan, boasting over 3,000 reps. But merger talks between major Japanese drugs companies - including negotiations between Taisho and Tanabe and Teijin and Kyorin - have come to nothing.
As a result, domestic players have been driven toward international markets to maintain sales growth, and both Yamanouchi and Fujisawa have overseas operations. Based on Datamonitor's analysis of 17 Japanese companies, Fujisawa and Yamanouchi receive the second and fourth highest proportion of total sales from overseas markets, respectively. Despite this, neither has the scale to promote a blockbuster drug and both have alliances with western companies to promote their drugs in global markets.
The tie-up can therefore be seen as defending the firms' position in Japan against the threat from western companies. It is also a step towards building an independent global presence, although its combined sales mean the operation will still only rank 17th on a global scale.