Daiichi Sankyo to Establish New Japanese Subsidiary to Market Generics

Japanese drug major Daiichi Sankyo and its Indian generic arm Ranbaxy today jointly announced that the company will set up a new Japanese subsidiary, Daiichi Sankyo Espha, on 1 April 2010, to sell generic drugs and Daiichi Sankyo's products. According to a report by Reuters quoting Daiichi Sankyo's spokesman Satoru Ogawa, the company has set its annual generic drug sales target at some ¥50 billion (US$560 million) by 2015. Following the acquisition of Ranbaxy in 2008, Daiichi Sankyo and Ranbaxy have now moved into the process of fully leveraging their Hybrid Business Model, noted the company in the announcement.

Global Organisational Restructuring to Be Launched on 1 April

On the same day, Daiichi Sankyo also announced that effective from 1 April 2010, it will restructure its global organisations to reflect the fast-changing business environment and growing competition. The new structure will include key components such as:

• Corporate functions within a global management structure;
• Japanese company with existing Sales & Marketing Division and the newly created Administration Division and Business Intelligence Division;
• ASCA company with focus on the businesses in Asia (excluding Japan) and South and Central America aimed at long-term strategic growth in these regions; and
• Global functional divisions.

Among the global functional divisions, there will be new creations or consolidations in the company's R&D department. The Oncology Research Laboratories and Cardiovascular-Metabolics Research Laboratories will be established to highlight the company's focus in the fields of oncology and cardiovascular fields. The Frontier Research Laboratories will adopt a specific first-in-class focus on therapeutic areas outside oncology and cardiovascular diseases.

Outlook and Implications

Although Daiichi Sankyo has been cautious by commenting that the reports of the company entering into the Japanese generics market is not from its official announcement, the establishment of the new Japanese unit is a reflection of the company's key strategic move. Following its takeover by Daiichi Sankyo, Ranbaxy has been joining forces with its parent company in the expansion of generics strength as well as marketing of Daiichi Sankyo's innovative products in worldwide markets including Africa (see Japan: 22 December 2009: Daiichi to Use Ranbaxy to Market Olmesartan in Sub-Saharan Africa) and Latin America (see Japan: 10 February 2010: Daiichi Sankyo, Ranbaxy Delineate Business Prospects in Mexico, Focus on Innovative Drugs). In November last year, Daiichi Sankyo's official also revealed that the company was expecting to sell Ranbaxy's generic drugs in Japan, following the latter's termination of its joint-venture agreement with Nihon Pharmaceuticals Industry (Japan). The decision of marketing generics in Japan through the new subsidiary Daiichi Sankyo Espha is therefore a widely expected move indeed.

Moreover, Daiichi Sankyo is not the only, nor the first Big Pharma company to set its eye on the generic market in Japan. U.S. drug giant Pfizer revealed its intention of marching into the Japanese generics market (see United States: 3 February 2010: Pfizer Provides Insights on Japanese Generics Market Entry). On the other hand, Daiichi Sankyo's compatriot drug major Takeda also announced its plan of entering into the generics field through potential collaborations and acquisitions with specific focus on Indian and Latin American markets. The trend has not come as surprising considering that the generic sector is experiencing a promising growth. In order to ease the heavy burden of the soaring expenditure costs on the country's national health insurance system, the Japanese government has set a goal of increasing generics' share in Japan's overall drug sales to 30% in volume terms by fiscal year 2012. The government's consistent pro-generics efforts are poised to enhance the market potential in this sector, which has led to the strategic moves of Daiichi Sankyo and others. IHS Global Insight is expecting to see continued moves from multinationals, both innovative and generics, to enhance their presence in Japan's generic market.

In addition, the company's revelation of global restructuring also highlights its core business focuses for the coming years especially in its innovative drug department. Oncology and cardiovascular will be set as two main therapeutic areas and Africa and Latin America are clearly set to be new regional focuses in terms of the company's geographic expansion. The strategies are largely in line with the general trend observed in Daiichi Sankyo's compatriot and foreign competitors. It is therefore likely to face intensifying competition in its expansion in key emerging markets as well as in anti-cancer and cardiovascular fields.