PRICE CUTS TO HIT SMALLER JAPANESE DRUG FIRMS HARDEST

Medium-sized pharmaceutical companies in Japan are coming under increased pressure to consolidate in the face of growing competition from larger players.

The government's biannual price cut, set to be implemented this spring, is expected to reduce average prescription drug prices by 6.7%. This could have a disproportionately harder impact on smaller firms, as these generate the majority of their incomes from domestic sales.

Market sources estimate that the price cuts will cut industry revenues by JPY440bn (US$3.75bn). This is roughly equal to the entire turnover of two second-tier drug firms. In addition to government price pressure, Japanese drugmakers also face mounting competition from foreign rivals and are struggling to cope with soaring new drug development costs. As a result, players in Japan's traditionally fragmented drug sector are increasingly looking for acquisition targets.