Dr Reddy’s and Fujifilm in Japanese generic tie-up

India’s Dr Reddy’s Laboratories and Japan’s Fujifilm Corporation (Fujifilm) will jointly sell generic drugs in Japan, the world’s second largest pharmaceutical market after the USA. Fujifilm is better known for its photographic products but has been added pharmaceuticals to its portfolio, as digital imaging has affected the prospects of traditional camera and film roll companies.

Dr Reddy’s and Fujifilm will have an exclusive arrangement and will develop, make and sell generic drugs, using Fujifilm’s quality control technologies and Dr Reddy’s cost competitive production processes. Dr Reddy’s will own a 49% stake in the company with Fujifilm being the majority stakeholder.

The first set of drugs are expected to hit the market only in 3-4 years, so the impact of this JV will not be visible in the near to medium term. The delay could be attributable to the formal creation of a JV, setting up operations, identifying drugs and getting regulatory approval for a launch. Very few details have been announced, either on the kind of drugs –targeted disease profile- or on the financial implications.

Dr Reddy’s recently acquired the prescription drug business of JB Chemicals in the Russia and CIS. Entering Japan is a big step for Dr Reddy’s, as this has been a large market but a market where generic drugs have not been encouraged in a big way. Local knowledge also appears to be a key success factor and Ranbaxy Laboratories is hoping to make bigger inroads in Japan, as a subsidiary of Daiichi Sankyo.

Dr Reddy’s will secure a foothold in a large pharmaceutical market, but with low generic penetration. Japan’s pharmaceutical market is estimated to have revenues of $97 billion or about Rs 42,700 crore at today’s exchange rates, according to a statement announcing the transaction. But generic drug penetration is only 23% in volume terms compared to 70% in the US.

Faced with an ailing economy, and ageing population, government-funded healthcare is facing a strain. The government wants to increase the share of generics in sales to at least 30% by fiscal 2012 and Indian companies are trying to ensure they don’t miss the bus. Leading pharma majors too are in the fray, trying to ensure that if their patented drugs lose share, their generics divisions can recover some of it. Price erosion in generic drugs too is said to be lower than that seen in the US.

Fujifilm’s pharmaceutical ambitions took off in 2008, when it acquired Toyama Chemical, a pharmaceutical company. The company does not view its diversification into pharmaceuticals as strange. When announcing its decision to enter healthcare in 2006, it said the technology it developed as a photographic company has applications in many fields, including healthcare.

All pharmaceutical products are derived from chemicals, after all, and that gave Fujifilm the confidence it can extrapolate its learnings in healthcare as well. In 2010-11, Fujifilm’s medical systems and life sciences business segment contributed to Yen267.7 billion or about Rs 15,000 crore.

The stock price did not react to the development, which is understandable as this JV will have no earnings impact for the next 3-4 years.

Read the press release from Dr Reddy’s here.

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