Last week, the news item that could have the most profound effect on the China biomedical world, did not – paradoxically – involve a China biomedical company. The third largest pharmaceutical company in Japan, Daiichi Sankyo (TSE: 4568.JP), announced its intention to buy a majority stake in Ranbaxy (NSE/BSE: Ranbaxy/500359), the generic drug maker that is the largest pharmaceutical company in India. The purchase price could reach as much as $4.6 billion. 

A comparison between India and China drug markets turns up many differences – the Indian firms are more mature with larger retail presences outside their home market. Nevertheless, the ability to manufacture high quality drug products at a low price makes them both competitors and, in a way, very similar. Thus, an alliance between an established western-style pharma company and a major Asian generic company is a significant development for China biomedical enterprises.

The US, as ChinaBio® Today reported recently, sources approximately 75% of its drugs from China. Can further consolidation between China-India companies and western-style biopharmas be far away? China represents a special difficulty for acquisitions, because the government does not want to see profitable enterprises taken over by foreigners. But the financial impetus behind mergers remains strong. Ranbaxy is a case in point. It should also be pointed out that Ranbaxy already has a JV in China. Further, it has announced its intention of sourcing more of its API needs there.

For Japan-based Daiichi Sankyo, its consolidation with Ranbaxy will allow the company to reduce its manufacturing costs by moving production to India. Will some of its drug development also migrate there? The deal has one other interesting facet: so far only 5% of Japan’s drug spending is on generics. Daiichi Sankyo may very well seek to open up the Japanese market to generics.

Daiichi Sankyo is seeking to buy a majority of Ranbaxy by buying the 35% stake owned by the family of the founding Singh family and then offering to purchase up to 20% additional publicly held shares in a tender. Adding to the drama, at the end of the week, there were rumors that Pfizer (NYSE: PFE) might make a higher offer, even though both Daiichi Sankyo and Ranbaxy maintained the existing transaction was a done deal.

The Pfizer name surfaced in other rumors last week as well. According to China newspapers, the giant pharma was in talks to purchase Tianjin Tianyao Pharma, a State-Owned Enterprise with which Pfizer already does business. Both companies produce Glucocorticoid APIs. Pfizer is the largest producer of the API, while Tianjin Tianyao comes in second – and Pfizer sources some of its drug from Tianjin Tianyao. Revenues for Tianjin Tianyao topped $100 million last year, but profits slipped 42% to $4 million.