In
a short time much can change in Japan. A striking example is the move by
Japanese pharmaceutical companies to acquire assets outside Japan.
Not too long ago Western observers considered
local companies as very provincial, protected and strong in Japan but
non-competitors in the rest of the world. Today, four Japanese firms realize
over 50% of their revenue outside Japan.
Reed Maurer recently met face to face with the
senior executives of 20 Japanese pharma/health care companies, much like
similar meetings in 2005. The purpose was to ask three questions, namely:
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1 Is your company interested in acquiring
assets outside Japan? If yes,
2 What type of assets? There are
platform technology assets usually found in emerging bioventures. There are
product assets in various stages of development. There are company assets with
a development and commercial presence in one or many markets. And there are comparative lower cost
manufacturing assets. Acquisition of assets can be accomplished via licensing
and/or M&A activities.
3 In what country or area of the world
would you like to acquire assets?
The questions are simple but very direct, yet
no one hesitated to give a frank answer in a forthright manner. In other words,
the executives had a clear, well reasoned strategy for the responses given.
There was no hesitation, no hedging, and suffice it to say no one said they
were not interested in acquiring assets outside Japan.
Six years ago people did not have a clear idea
of what they wanted and from where, except the age old desire to license in
products, preferably at a late stage of development when the risks were mostly
assumed by the licensor. This year licensing in was not the highest priority in
most companies.
Acquisition
preferred way of expanding outside Japan
Acquisition is now the preferred method of
expanding outside Japan. Not one company mentioned a joint venture. Minority
equity interests were acceptable as long as it was clear from the beginning
these were the first steps toward majority or 100% control.
The question, “How much money are you willing
to invest?” was not as important as a proper “fit” with the target in terms of
therapeutic expertise and management culture. In discussing product technology
acquisitions each company had a clear focus in a limited number of disease
areas. Years ago people would say they were interested in any good product.
The executives appreciated the plusses and
minuses of buying a company. A key challenge is the post acquisition
integration activity. It takes time to get everyone on board and pulling in the
same direction. In other words, the real work starts after the acquisition.
Doing the deal is the easiest part.
However, the alternative of building through
organic growth takes more time. Achieving critical mass is expedited by an
acquisition, particularly since many Japanese companies do not yet have a cadre
of managers with experience living and working outside Japan.
Geographic
interest widened
In 2005 the highest priority country of
interest outside Japan was the USA. Every other country or region was a distant
second. Today, the interest is more geographically diversified although the USA
is still viewed as a primary source of innovation and is obviously the largest
drug market. Some already have a presence in the USA. Others believe countries
in Asia are less daunting than the all out effort required to get into the USA.
Europe continues to be a mystery for most of the executives. Too many
countries, too many languages, economic issues across southern Europe, and price
controls all over Europe.
On the other hand, India and to a lesser
extent China are now on the radar screen. India appears more user friendly as
there are many bilateral relations with Japan. Suspicions abound with China,
from intellectual property (IP) protection to the structure of business
relationships. Some consider India as a manufacturing base for markets in
Southeast Asia. Other advantages include the English language, familiarity with
Food and Drug Administration regulations, and a large and growing middle class.
Japanese executives view the rush into China by US and European companies as
premature. India is a safer or less risky bet.
In short, the differences between local
companies now and six years ago are:
• Executives today have a much clearer focus
on what assets they would like to acquire outside Japan and where they want to
place their bets.
• Today there is a much higher level of
confidence in moving off shore. Companies know what they want and are not
hesitant about seeking advice as to how to get it.
• For some, Asia is a more comfortable first
step outside Japan but the USA remains the big elephant in the room.
• Money is not a priority issue for several
reasons, ie, the yen is strong so assets outside Japan look cheap; most
companies are loaded with cash; and if not, the cost of borrowed money is as
close to “free” as you can get.
• The executives today do not waste time with
idle chit chat. In essence, they say: “Here are our objectives. If you can help
with a good idea as to how we can accomplish our objectives you are welcome at
any time. If not, we have better things to do with our time.”
P Reed Maurer
P Reed Maurer is President of International
Alliances Limited in Tokyo, and a veteran Japanese pharmaceutical industry
watcher.
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