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Takeda Deal Fuels Pharma Consolidation

|Includes: Takeda Pharmaceutical Co., Ltd. ADR (TKPYY)

The looming patent cliff and current state of Takeda Pharmaceutical’s pipeline are driving factors in the company’s acquisition of the Swiss specialty pharmaceutical maker Nycomed. This move reflects the increasing globalization, the mounting pressure to build product pipelines and the progressively consolidating drug manufacturing environment within the pharmaceutical industry

Without a strong pipeline of new product sales to compensate for the patent cliff, companies like Takeda (OTCPK:TKPYY) have adopted consolidation strategies to expand into global markets.  Takeda’s acquisition of Nycomed would provide the company with 43.0% and 35.0% of the European and emerging markets (Latin America, Russia/CIS and Asia Pacific), where Takeda had only 12.0% and 5.0% top-line exposure, respectively.

“Currently, 15 multinational companies dominate the brand name pharmaceutical industry and the top 10 businesses command more than 45.0% of the total global pharmaceutical market,” said IBISWorld pharmaceutical analyst Sophia Snyder.  “Much of the expansion into global markets has been attributed to a reduction of trade barriers and better quality management; however, firms are also starting to move abroad to improve skills and research capability, rather than just focusing on low-cost production.”

In the United States, the number of industry operators is forecasted to decline at an average annual rate of 0.3% to 2,669 in the next five years due to consolidation.  If Takeda completes the acquisition of Nycomed, the company will enhance its presence in emerging markets, particularly China.  The global industry will remain dominated by US firms, but the merger will illustrate both the continued consolidation of the industry and the rising significance of globalization.  Despite the patent cliff, the US Pharmaceutical industry is expected to grow by 1.5% in 2011 due in large part to the Nycomed deal, up from a pre-acquisition forecast of 1.0%.