Deal for US drugmaker poised to boost sales for Japan's Sawai

[TOKYO] For decades, Japan's Sawai family was content to keep the drug business they founded focused on its home market. Now, they are steering the country's second-biggest maker of generic drugs through its first overseas acquisition in its 88-year history.

Sawai Pharmaceutical Co, which plans to complete its US$1 billion purchase of the generic drug business of Minnesota-based Upsher-Smith Laboratories Inc next month, forecasts sales growth at the US business to reach 13 per cent annually through 2021. The US growth would provide a new boost for the Japanese firm, which has over the last 15 years seen revenue jump more than sevenfold to 132.4 billion yen (S$1.65 billion), according to data compiled by Bloomberg.

As Sawai expands in the US, it faces rising competition from Indian and Chinese makers of low-cost copycat medicines and political pressure on the drug industry to curb prices. The Osaka-based drugmaker is counting on Japan's reputation for high-quality therapies coupled with Upsher-Smith's local expertise to navigate the world's largest pharmaceutical market.

"Upsher-Smith has a very good eye on selecting products and pricing them to a level which can bring sufficient profit to the company,'' President Mitsuo Sawai said in an interview in Tokyo last week. "We have manufacturing technology that enables us to bring down cost and want to combine it.'' Upsher-Smith's operating margin is high at 38 per cent, Sawai said, without specifying how much the companies would save through the deal. The US company's generic operations had revenue of US$397 million last year.

Japan has in recent years sought to encourage the use of generics, which are cheaper than branded medicines, to curb health-care costs. At the same time, the nation's drugmakers are up against a string of pressures including a shrinking population and pressure to lower prices. The Japanese government plans to cut prices of drugs annually from next April, instead of biennially.

The acquisition would allow Sawai to expand in the US at a time when the country is approving generic drugs at a record pace and its regulatory chief has spoken out in favor of more and faster approvals of medicines. About eight in every 10 prescriptions filled in the US are for generics.

As President Donald Trump champions American manufacturing, the Upsher-Smith purchase may be a boon because it has factories in the US, Sawai said in the interview.

"Observing from outside, I feel that having manufacturing sites in the U.S. may turn out to be a plus in the end,'' said Mr Sawai.

Sawai aims to introduce one drug of its own each year in the US, and is searching for niche therapies where it doesn't face direct competition from bigger makers of generic medicines like Teva Pharmaceutical Industries Ltd or Mylan NV.

Upsher-Smith's non-generic business will remain with the family that currently controls the US drugmaker. Sawai family members own about 7 per cent of the Japanese drugmaker, data compiled by Bloomberg show.

Mr Sawai says when he met executives at closely held Upsher-Smith he realized there were many similarities between the two companies. They are both family-run businesses with quick decision making. Both were started by pharmacists around the same time and were focused on producing high-quality generic drugs, he said.

"It was a really rare moment when I felt that we fitted each other perfectly,'' said Mr Sawai.

BLOOMBERG