The pharmaceutical company will cooperate with its generic-drug unit, Ranbaxy Laboratories of India, in product development.

As Mr Shimamura points out, Tokyo-based Daiichi Sankyo joins a growing list of companies entering the Japanese generic-drug market, where demand has been expanding in recent years as the government pushes for increased use of such low-priced drugs to cut national health-insurance costs.

The new business plan by Daiichi Sankyo follows the expansion of generic-drug businesses in Japan by Pfizer of the US and Teva Pharmaceutical Industries of Israel. The moves mean that smaller generic pharmaceutical makers are likely to face tougher competition in coming years, and some could even be forced out of the market.

Major pharmaceutical companies will be able to take advantage of low production costs at their generic business units and partners, as well as employ existing sales staff and channels used to market their branded drugs.

Generic drugs contain the same ingredients as original products whose key patents have expired. The Japanese government aims to nearly double the market share of such drugs to 30% in eight years through March 2013.

Daiichi Sankyo said its new company, Daiichi Sankyo Espha Co., will be established in Tokyo in April and will start operations around October by selling mainly Daiichi Sankyo's off-patent prescription drugs.

While a product line-up has not been finalised, a person at the company familiar with the matter said Daiichi Sankyo will aim for annual sales of about 50 billion yen, or approximately US$563 million, in 2015, a level close to those of leading Japanese generic-drug makers such as Nichi-Iko Pharmaceutical and Sawai Pharmaceutical.

Daiichi Sankyo, like Novartis of Switzerland, is developing a business model focused on both original and generic drugs after it acquired Ranbaxy Laboratories in 2008.

The generics business has become attractive for developers of original prescription drugs as it is becoming increasingly difficult for pharmaceutical companies to develop new drugs through conventional small-molecule research.

Other major Japanese pharmaceutical companies remain cautious about entering the domestic generic-drug business because their branded products without patent protection have historically been attractive revenue sources. That industry landscape is gradually changing, with the Japanese health ministry applying bigger price cuts to such off-patent drugs and planning further review of the prescription system to promote generic-drug use, Mr Shimamura concludes.

Reference:

Kazuhiro Shimamura. Daiichi Sankyo Unit to Sell Generic Drugs. The Wall Street Journal Asia. 2010 February 28.