TOKYO - Japan's drugmakers will sit out a wave of consolidation sweeping through the industry, focusing instead on integrating past acquisitions and smaller, bolt-on deals.

In recent weeks, Pfizer Inc has paid $68 billion for Wyeth (WYE.N), Swiss Roche Holding AG is paying $46.8 billion for the 44 percent it didn't already own in U.S. biotech group Genentech Inc, and Merck & Co Inc agreed to buy Schering-Plough Corp for $41 billion.

Japan's top drugmakers, including Takeda Pharmaceutical Co, still have cash after $16 billion worth of overseas buys last year, and are aided by a strong yen, but are more likely to seek only minor acquisitions to plug gaps in their development pipelines than chase big deals just to build scale.

Major Japanese drugmakers will continue buying ventures to supplement in-house efforts to improve their pipelines, said Yasuhiro Nakazawa, a drug analyst at Mitsubishi UFJ Securities. (But) they're through with mergers for economies of scale.

Analysts expect Japan's drugmakers to seek out acquisitions or partnerships, mostly overseas, as they look to reduce their dependence on a mature home market and extend their global reach.

Attractive biotechnology ventures, which can strengthen a drugmaker's pipeline, are mostly in the United States.

Last year, Takeda bought U.S. biotech firm Millennium Pharmaceuticals for $8.9 billion, while Eisai spent $3.9 billion on cancer specialist MGI Pharma.

Daiichi Sankyo grabbed a majority stake in Indian generic drug maker Ranbaxy Laboratories, which gets around a quarter of its sales in the U.S., for $4.6 billion.

Astellas Pharma, the only one of the top four not to have landed a major deal, withdrew a $1 billion hostile bid for CV Therapeuticson Monday after the U.S. biotechnology firm reached a deal with another suitor.

Astellas and Daiichi Sankyo were each created through mergers earlier this decade to ensure they had annual research and development budgets of at least $1 billion -- a level thought to be necessary to compete amid rising safety standards and costs.

Eisai, with an R&D budget of around $1.5 billion, no longer sees the need for a big acquisition even as it braces for the 2010 expiration of Aricept, its blockbuster Alzheimer's drug.

I would not speak against a big pharma model, but in the coming era we have to focus on improving efficiency and productivity, Eisai President Haruo Naito said last month. I think we will only make small acquisitions here and there to take in technology and products.


Japan's top three drugmakers -- Takeda, Astellas and Daiichi Sankyo -- have a healthy cash cushion and could take on debt to finance a big deal.

Takeda has 223 billion yen of cash and deposits after its all-cash Millennium deal. Astellas has 255 billion yen in cash and no borrowings. Daiichi Sankyo has 161 billion yen in cash.

But they would find it hard to convince investors of the merits of a big buy at a time when they are trying to squeeze value from past acquisitions and struggling to get drugs already in the pipeline to market.

They also face a global economic slowdown, rising development costs, tougher generic competition and sliding prices as the U.S. and other governments look to rein in medical costs.

Shares of Takeda, which expects its recurring profit to nearly halve in the year to end-March, hit a 10-year low on March 9 on worries that the replacement for Actos, its key diabetes drug, could be delayed in the United States.

In line with industry trends, the efficiency of R&D at Takeda is falling. It has money, but I don't see any more need for acquisitions, said Kumi Miyauchi, sector analyst at Daiwa Institute of Research.

It bought Millennium to expand its presence in the cancer drug market. However, because everyone is focused on this market, severe competition and thin margins may be waiting ahead for Takeda's drugs in the pipeline. One thing it can do to cut costs is to narrow its therapeutic areas, she said.

Daiichi Sankyo's experience with Ranbaxy offers a cautionary tale about the risks of a large deal.

Daiichi Sankyo incurred a first-ever quarterly loss in October-December as its stake in Ranbaxy slumped by two-thirds on a scandal-led import ban on its products in the United States.

Astellas is the one major Japanese drugmaker seen needing an acquisition.

Astellas is desperate (for new income sources). It's up against the wall, said Credit Suisse drug analyst Fumiyoshi Sakai.

Its Prograf transplant drug has lost U.S. patent protection, and its Flomax prostate drug, its second best-selling product, will lose exclusivity in the United States in October.

Astellas dropped plans to introduce a follow-up, Prograf MR, in the United States and a new antibiotic, Telavancin, in Europe, and it faces a fall in recurring profit as early as this year amid competition from generic drugmakers in some areas, such as transplant drugs.

It still needs some kind of strategic investment, rather than just buying back its own shares to enhance shareholder returns. But it remains unclear what exactly the company can do to improve its outlook, Daiwa's Miyauchi said.

Astellas, which had hoped for synergy between its U.S. hospital franchise and CV's products, including the Ranexa cardiovascular disease treatment, said it would continue looking for acquisitions and licensing deals.

($1=98.22 Yen)

(Editing by Ian Geoghegan)