Japan's generic love affair.(Indian pharmaceuticals)

In what could be a win-win situation, Japanese drug majors are teaming up with Indian firms for their generic capability and to conduct their contract manufacturing and clinical trials. At the same time, India is keen to encourage new Japanese investment and get a foothold in its lucrative drugs market.

After Daiichi Sankyo snagged Ranbaxy Laboratories for $4.6bn, Japan's Eisai moved in with a $44m investment plan and is in the midst of establishing manufacturing and sales in India. Another firm keen to extend its footprint in India is Japan's second largest pharmaceutical company Astellas Pharma, which has announced plans to conduct business with a capitalisation of around [yen] 320m (2..4m [euro]) .

Astellas is a leader in transplant and urology drugs and had sales of [yen] 965bn (7.4bn [euro]) in 2008. The firm opened its first office in Mumbai in October 2007 and is looking to find more patients for Vesicare, its bladder control treatment, and Prograf, used to prevent rejection in organ transplant patients. The move is also expected to help the firm offset prescription drug price cuts by Japan's government.

Himanshu Dave, director, sales and marketing, Astellas Pharma India, said: 'Driven by a huge patient base, increasing incomes, improving healthcare infrastructure and strong penetration of health insurance, the [Indian] drug market is expected to grow more than double its size in the next five years.'

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Japanese investors have been looking at India as an investment destination for some time, and momentum is growing, according to Arjun Asrani, former Indian ambassador to Japan. According to Asrani, investors are looking at pharmaceuticals and healthcare, telecommunications, steel and financial services.

A recent survey of 620 Japanese manufacturing companies, conducted by the Japan Bank for International Co-operation (JBIC), found that, after China, India remained the second largest investment destination for Japanese companies.

India has several advantages that draw outside investment, including a domestic market of more than a billion people, a growing GDP and expectations that it will be a major player in the global pharmaceutical market, both at home and abroad, as a pharmaceutical export hub.

Japan ranks sixth in terms of cumulative foreign direct investment (FDI) equity inflows into India. According to the latest data provided by the Department of Policy and Promotion, Japanese FDI into India touched $2.4bn for the period April 2000 to February 2009. Japan's FDI in India is projected to be around $5.5bn between 2006 and 2010.

'Several drug majors in Japan are keen on strategic MS& opportunities. India has emerged as a preferred investment destination for firms looking at high-growth markets,' says Akihiro Watanabe, managing partner and founder at GCA Sawian, an investment bank offering MSA advice to Indian and Japanese companies.

Rohan Srivastava, a pharmaceutical analyst with investment banker Sharekhan, says: 'The mid-term growth prospects of Indian pharmaceutical companies are intact following the increase in exports of generic products, a healthy growth rate of around 13% in the domestic market and the scale-up of contract research and manufacturing services (CRAMS) by the Indian companies. Moreover, the opening of the generic market in Japan is likely to benefit Indian pharmaceutical companies.'

With the Japanese government now allowing substitution of branded drugs with generics, many Indian companies are also eyeing the Japanese drugs market.

Currently, the generic drug penetration in Japan is about 5%, equivalent to a $3bn market. The Japanese government is making regulatory changes to promote generic drugs to reduce health care costs and expects generic drug penetration to reach 30% by volume by 2012-13.

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