The Roche healthcare group is planning a major expansion in Japan, the world's second largest pharmaceuticals market.

Roche reported on Monday it was going to buy a majority stake (50.1 per cent) in the Chugai Pharmaceutical Company and would invest 155 to 198 billion yen (SFr2 - 2.6 billion).

Under the terms of the alliance, the two will create a new enterprise from the merger of Nippon Roche and Chugai. A statement said it would be a "fully functional and internationally active pharmaceutical company based in Japan with access to global markets".

The research-driven company would have a pro forma 2000 turnover of about 253 billion yen (SFr3.4 billion) and rank number five by sales in Japan, the statement added.

Under the terms of the deal, Chugai will be Roche's exclusive Pharma representative in Japan and will have rights to develop and market all pharmaceutical products which the Roche group decides to commercialise in Japan.

In return, Roche will have the right to licence all Chugai products outside Japan and South Korea.

The statement said the venture would allow Chugai to fully exploit the potential of all products by taking advantage of the "dynamic changes" in the Japanese market place.

Japan's ageing population has one of the highest per capita usages of prescription drugs, and the market is expected to grow substantially within the next ten years as the proportion of elderly people increases.

Based on 2000 figures, the combined businesses will have global pro forma sales of SFr20.5 billion for Roche's global pharmaceutical division and SFr30.4 billion for the Roche Group in total. Roche will rank among the world's top 10 pharmaceutical companies.

"This unprecedented transaction significantly strengthens our position as it enables Roche to become a leader in the second largest pharmaceutical market worldwide and adds global access to Chugai's solid research and development pipeline," commented Roche chairman and CEO Franz Humer.

"The two highly professional teams and the product portfolios of both companies complement each other ideally... Roche has always recognised the value enhancing opportunity when two organisations can create a partnership that capitalises on the best of both worlds," he added.

Chugai has particular strengths in biotechnology products and in the therapeutic fields of renal, cancer, bone and cardiovascular diseases.

According to Tokyo analyst Mayo Mita, an analyst at Morgan Stanley Dean Witter, Chugai is the "most cosmoplitan" of Japanese pharmaceutical companies.

"But it lacks a wide-ranging distribution and marketing network in Europe and the United States. Roche will offer this and the financial means to launch very innovative products on the market."

The deal is expected to increase Roche's gross cash flow by SFr500 - 600 million a year and push Roche up to number nine in the global pharmaceutical company league table, by sales revenues, from number 12.

"Over the past few years, Roche has been a little out of breath and short on promising innovative products. It is proving with this investment in Chugai that it knows how to ally itself with attractive companies which are rich in world-class researchers," commented an analyst at UBS Warburg in Tokyo.

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