Japanese company Sankyo confirmed Industry speculation this morning with the announcement that it has agreed to buy Daiichi Pharmaceutical in a deal worth almost $8 billion dollars.

Under the terms of the agreement, Sankyo will exchagne 1.159 shares for each Daiichi share. Sankyo’s share price closed at 2,450 yen on the Tokyo Stock Exchange yesterday, valuing the deal at some 813.4 billion yen (or $7.7 billion).

The firms plan to integrate their businesses in October 2005 when an initial stock transfer will see Daiichi and Sankyo become wholly-owned subsidiaries of a new joint holding company. A second phase of the deal will integrate the ethical pharmaceuticals businesess by April 2007. During this phase, the firms say they will consider the status of the over-the-counter and non-pharmaceutical businesses. The merged company, to be known as Daiichi Sankyo, will boast annual sales in the region of 911 billion yen in 2005.

The news comes hot on the heels of two recent big deals in the Japanese pharmaceutical industry – namely the merger between Fujisawa and Yamanouchi, which is set to close next month, creating the country’s second largest pharmaceutical company behind market leader Takeda Chemical Industries [[25/05/04b]], and the recently signed agreement between Dainippon and Sumitomo [[26/11/04c]]. In a statement, Sankyo and Daiichi noted that the Japanese pharmaceutical industry is “showing clear delineation between winners and losers and moving to an environment where only the strongest will survive.” This begs the question of whether any more consolidation will occur in this market. Although the news met with investor approval - both companies’ share prices rose in Tokyo on the announcement - some remain sceptical. Earlier this week, Datamonitor questioned whether the agreement was merely a “quick fix” for Sankyo, which it says is suffering from a thin pipeline and “bleak future prospects” [[22/02/05a]].