TOKYO -- Takeda Pharmaceutical is pushing into the ranks of multinational drug giants with its deal for Irish peer Shire. But the 46 billion pound ($62 billion) purchase is not just about one company's ambition. It is emblematic of a larger trend, in which Asian drugmakers are throwing their weight around in the global mergers and acquisitions game.
Besides Takeda's move, which stands to be the largest overseas acquisition by a Japanese company, two Asian players are pursuing the dermatology business of Swiss company Novartis. Indian generic drug producer Aurobindo Pharma is one. And on May 11, Bloomberg and other media outlets reported that China's Shanghai Fosun Pharmaceutical Group plans to submit a bid. The price is expected to reach $2 billion.
Aurobindo ranks 10th in global sales among generic drug manufacturers, according to British research company Evaluate. Its sales have more than tripled over a five-year period. Shanghai Fosun is the drugs unit of conglomerate Fosun, which has been actively expanding through overseas acquisitions, including a French resort operator and a Portuguese insurance company.
In worldwide acquisitions for the life sciences sector, those where both buyer and seller were American accounted for only 30% of the overall deal value in 2017, down from 52% in 2015, according to Pamela Spence, global life sciences industry leader at Ernst & Young Global. "Asian pharma companies are increasing their presence as buyers in big deals," Spence said.
How did Asian drugmakers become contenders to acquire Western rivals?
One reason is the growth of the generics market. Evaluate estimates the global market was worth $80 billion last year, up 35% from 2010. Japan still prefers new medicines, but there is high demand for generic products in the U.S. -- the world's top pharmaceutical market -- and emerging economies.
"Innovative new medicines have been developed in Japan, but only a handful of rich countries can afford expensive drugs," said one Japanese analyst who specializes in the drug market. "In emerging economies, where income levels are rising and medical services are being developed, generic drugs are becoming more important."
This has put wind in the sails of Asian generics producers.
India is home to numerous such players, and they are on the hunt. Lupin invested $150 million to acquire Symbiomix Therapeutics of the U.S. late last year and obtained the latter's drugs for gynecological diseases. "Price competition is intensifying for the mainstay U.S. business," Lupin CEO Vinita Gupta told the Nikkei Asian Review. "We will improve our competitive edge with unrivaled products."
Chinese drugmakers, in particular, have become prominent acquisitors, backed by a government that is keen to develop the pharmaceuticals industry.
On May 8, Luye Life Sciences Group announced a $546 million deal for U.K. company AstraZeneca's mental health medicine business and rights in 51 markets, including China, Britain and Brazil.
Luye Pharma Group, a subsidiary of Luye Life Sciences Group spent $5 million to invest in U.S. biotech startup Exicure in November 2017. Exicure is working on technology known as nucleic acid medicine, which targets the genes that cause diseases, including rare ailments that affect the skin, lungs and various organs. "We want to obtain cutting-edge medical technologies, such as gene and cell therapies, overseas and introduce them to the Chinese and Japanese markets," Luye founder and Chairman Liu Dianbo told Nikkei.
This is on top of other overseas endeavors: Luye opened a laboratory in Boston, a center for biomedicine, last July. It also has research centers in Munich and Basel, Switzerland. Luye Pharma International CEO Zhang Yehong has expressed interest in opening an R&D base in Japan.
For the Chinese government, which faces a declining birthrate and aging population, medicine is a priority sector in its "Made in China 2025" industrialization plan. The government announced in April that it will grant a preferential corporate tax rate of 15% to generic drug makers with outstanding R&D capabilities -- 10 points lower than the regular rate. A government statement said generic medication will be recommended for severe infectious diseases and rare illnesses.
Beijing has also extended the patent protection period for medical products to up to 25 years, effective this month, bringing the policy into line with advanced economies to encourage development. China aims to transform itself into a pharmaceutical powerhouse, and acquisitions are instrumental for speeding up the process.
Besides acquiring promising new drugs and building market share, Asian pharmaceutical companies are drawn to low corporate tax rates in other countries, especially in Europe.
Wuxi Biologics, which plans to list its shares in Hong Kong, said on April 30 that it will invest 325 million euros ($383 million) to build a biomedicine factory in Dundalk, Ireland. Wuxi told Nikkei that the country's tax system is very attractive; the corporate rate is 12.5% in Ireland, versus 18% in Switzerland and 19% in Britain, according to auditing company KPMG.
In contrast, U.S. President Donald Trump has cut the rate to 21%, while India imposes a 35% levy and Japan charges 30%.
Trump's "America first" policies have done Asian companies a favor, in a way, by making it harder for U.S. drugmakers to shift their businesses to places like Ireland in pursuit of lower tax rates.
This leaves profitable acquisition targets there for the taking.