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NEWS OF THE WEEK
BUSINESS
December 17, 2001
Volume 79, Number 51
CENEAR 79 51 p. 12
ISSN 0009-2347
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ROCHE TO BUY STAKE IN CHUGAI
Deal will give Swiss firm greater access to Japanese drug market

JEAN-FRANÇOIS TREMBLAY

In an elegant transaction, Roche has agreed to acquire 50.1% of Chugai Pharmaceutical, Japan's 10th largest drug company. This marks the first foreign takeover of a major Japanese drug firm.

THE NEW CHUGAI AT A GLANCE

Founded: 1925


Sales: $2 billion
Total staff: 6,000
Sales force: 1,400
Products: Roche's entire product range plus Chugai's drugs, which are mostly for cancer and blood disorders, bone metabolism, and cardiovascular diseases
NOTE: Pro forma 2000 figures.
Chugai will remain an independent entity listed on the Tokyo stock market. It will leap to the fifth position in terms of sales in Japan by assimilating Nippon Roche, Roche's Japanese subsidiary. Chugai's chairman and CEO, Osamu Nagayama, will keep his job, while the president and CEO of Nippon Roche, Wataru Ogawa, will become executive vice president.

"The Japanese company can keep its autonomy, its history, and also gets to expand in Japan by acquiring the subsidiary of its new parent," says George Suzuki, pharmaceutical industry analyst at HSBC Securities in Tokyo.

Roche estimates that gaining control of Chugai will cost it between $1.25 billion and $1.6 billion. Chugai will have to spin off its California-based DNA-probe diagnostics and blood screening subsidiary, Gen-Probe, which competes with a similar Roche business.

Implementing the deal will be a long process and is by no means a sure thing. Last week, a proposed merger between Japanese pharmaceutical companies Tanabe Seiyaku and Taisho Pharmaceutical fell apart as a result of several disagreements.

For foreign firms, better access to Japan, the world's second largest market, motivates acquisitions. Moreover, Japanese drug discovery capabilities are world-class. But Japanese drug companies are generally too small to effectively market their products globally or keep up with the increasing cost of developing new drugs.

Nonetheless, Suzuki believes that the Roche-Chugai deal could be a special case. He explains that Chugai does not do much business outside Japan, so there will be no layoffs at foreign operations. In addition, he says, Chugai's Nagayama is an excellent communicator who is at ease in an international environment. "Much communication is required during a merger," Suzuki notes.

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