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Japan’s efforts to cut drug costs have prompted at least one big deal this past year, with Takeda Pharmaceutical saying that it would team up with Teva Pharmaceutical Industries to take advantage of the country’s generics push.

These kind of deals will become more common, one analyst says, as Japan continues to shift away from branded meds and spurs development of low-cost copycats.

Takeda’s tie-up with Teva “took people by surprise” but it’s one that “could be a trendsetter in gaining more acceptability for similar deals,” Frost & Sullivan analyst Sanjeev Kumar told Bloomberg. Small and mid-size companies are looking for more generics clout, and big international firms also want to gain a stronger foothold so they can remain competitive. “I don’t think any companies–including domestic players–can ignore this in any way,” Kumar said.

Indian generics companies such as Sun Pharmaceutical Industries, Dr. Reddy’s Laboratories and Lupin could jump on the dealmaking bandwagon, Kumair said, snatching up a midsized Japanese company to increase their visibility in the market. Big pharma heavyweights such as AstraZeneca, Roche and Novartis, who get about 6% to 9% of their total revenues from the Japanese market, could also be ripe for a JV or partnership.

Drugmakers could face a tough road ahead in Japan, though, as the country continues to cut down on costs. Drug spending in the country will rise by just 3% to 4% over the next 5 years–the lowest increase of any developed market, according to a November report from the IMS Institute of Healthcare Informatics. That’s not to mention projected sales tax increases, which could weigh down market expansion and contribute to a “zero-growth scenario” during that period, IMS said in its report.

Japanese companies will need to proceed with caution, as “almost all face these difficulties,” head of Takeda’s domestic business unit Masato Iwasaki told Bloomberg. Japan wants to have generics account for at least 80% of all prescription drugs by 2020, a number that is impossible for drugmakers to ignore. “Nobody imagined that this radical change could happen here. Everybody had believed the market would continue growing, but now government pressure is changing the focus,” Iwasaki said.

Takeda is obviously wise to the trend. In December, the company said it would form a JV with Teva to gain ground in generics. Takeda will hive off older meds including hypertension drug Blopress and Type 2 diabetes med Basen, products that contributed to ¥125 billion ($1.03 billion) in fiscal 2014, or 7% of Takeda’s total global revenue. Teva will hold a 51% stake, and Takeda will have the remaining part of the venture, which is expected to be “EPS and cash flow accretive” in 2016 and to generate long-term generics growth, the companies said last month.

By Emily Wasserman

Source: Fierce Pharma