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DAIICHI PHARMACEUTICAL HAS YEAR 2000 TARGET OF $3 BIL. SALES WORLDWIDE

Executive Summary

DAIICHI PHARMACEUTICAL HAS YEAR 2000 TARGET OF $3 BIL. SALES WORLDWIDE based on growth of the Japanese company's overseas business to $600 mil. by the end of the decade. The Tokyo-based pharmaceutical company generated sales of over $1.5 bil. in fiscal 1989, with $72 mil., or about 5%, derived from sales outside of Japan. Daiichi President and CEO Tadashi Suzuki says the company hopes to generate 20% of sales from outside Japan by the end of the decade. The annual worldwide sales target of $3 bil. by 2000 assumes an annual growth rate of 8% in sales for the rest of the decade. Given the current pricing climate in Japan, that rate of growth will be difficult to achieve without significant expansion abroad. On April 1, nearly across the board price cuts for pharmaceutical products averaging 9.2% were implemented by the Japanese government. Only two years earlier, the Japanese government cut drug prices in a similar move by more than 10%. In fiscal 1989 ended March 31, 1989, the company reported sales of $1.52 bil. and net income of $147.8 mil. (translated from Japanese yen at a rate of Y1.32 to $1.00). Prescription drug sales in FY 1989 of $1.24 bil. represented over 80% of sales, while OTC products generated sales of $50.9 mil., or slightly over 3% of total sales. The remainder of Daiichi's fiscal year 1989 sales came from the company's veterinary drugs and bulk medicinals businesses. To reach the target of $600 mil. in overseas sales by 2000, Daiichi management acknowledges that the company will have to expand its presence in the U.S. Daiichi has had an office in the New York City area for eight years and the company is currently expanding that effort with a new group headquartered in Fort Lee, N.J. Asked what routes Daiichi will take to achieve its growth objectives in the U.S., Suzuki said in a recent interview that the company is considering its options. Suzuki said that "in the next few years, it will be necessary for Daiichi to develop partnership arrangements in the U.S." He added that Daiichi's "final goal is to build an organization in the U.S. to market Daiichi products for ourselves." In order to "make up speed," Suzuki said that Daiichi will also "consider joint marketing arrangements in the U.S." Daiichi's lead compound in the U.S. is ofloxacin. The oral form of the quinolone antibiotic is licensed to Ortho, which will market the drug under the brand name Floxin. Allergan has rights to an eyedrop formulation of the product for ophthalmic uses. NDAs for both products are pending at FDA. However, Daiichi retains co-marketing rights to the oral form of ofloxacin in the U.S. Suzuki predicted that the Ortho NDA would be approved by the end of 1990. The Japanese firm also has an expanding R&D pipeline with 23 pharmaceutical products now in development, including several in Phase III. Daiichi's lead development compound in Japan is DP-1904, an anti-thromboxane synthetase inhibitor in Phase III. Also in the late stages of clinical development are an anti-ulcer compound and DR-3355 (levofloxacin), another oral quinolone antibiotic. An immune stimulator, muroctosin (DJ-7041) has been approved in Japan and the company is currently awaiting a pricing decision from the government before it can launch the new drug. Daiichi is currently spending about 11% of sales on R&D. Daiichi could be viewed as another logical purchaser into the U.S. pharmaceutical business. However, although Daiichi ranks among the largest ten Japanese drug companies, the company's small size relative to the major U.S. drug companies limits its acquisition appetite. Suzuki acknowledges that Daiichi's globalization strategy is "still in the infant stage." However, Suzuki emphasized that the company is committed to a global strategy and will patiently look for opportunities. "Daiichi will grow into an excellent pharmaceutical company in the U.S. even if it takes a while," Suzuki stated.
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