Hyderabad: India’s second-largest drug maker Dr. Reddy’s Laboratories Ltd has tied up with Fujifilm Holdings Corp. to develop and produce generic drugs for the Japanese market, seeking to tap growth in demand promised by a government effort to reduce healthcare spending by encouraging the use of generic medicines in the world’s third biggest economy.

Fujifilm will have a 51% stake in the venture with Hyderabad-based Dr. Reddy’s holding the remainder under an in-principle agreement signed by the two companies on Thursday. A definitive agreement will be signed later this year, the two companies said in a press release. Dr. Reddy’s spokesman S. Rajan said investment details aren’t being disclosed at this stage.

The joint venture will focus on high-quality generic drugs, using Fujifilm’s quality control technologies and Dr. Reddy’s expertise in cost-competitive production of active pharmaceutical ingredients and formulations. It intends to strt selling its first product in Japan in the next three to four years.

“The generic market of Japan would be in the range of $3-4 billion. There is hardly any presence of Indian generic manufacturers," said Sarabjit Kour Nangra, an analyst at Mumbai-based Angel Broking Ltd. “The stakes are certainly very high for Indian companies like Dr. Reddy’s with Japan turning towards generics to cut down on healthcare expenditure."

Japan is the world’s second-largest pharmaceutical market, estimated to be worth an annual $97 billion, according to market researcher IMS. Generic drugs make up only 23% of Japanese prescription drug sales by volume, compared with 70% in the US. The Japanese government is targeting the increase of generics’ market share to at least 30% by March 2013.

“Fujifilm continues to build upon its ongoing commitment to delivering pharmaceutical business," Shigetaka Komori, president and chief executive, said in the statement. “With the execution of the memorandum of understanding with Dr. Reddy’s Laboratories, Fujifilm will have excellent capability in developing and manufacturing across active pharmaceutical ingredients and formulations of generic drugs." Fujifilm has been expanding into medical and pharmaceutical industries as demand for its mainstay photo film paper business weakens amid increasing use of digital cameras.

“Since acquisition opportunities are very less in Japan and it’s a highly regulated market, companies like Dr. Reddy’s are entering through joint ventures," said Hemant Bakhru, an analyst at CLSA Asia-Pacific Markets. “It will take around two years for them to register the formulations and it will add value in the long run." Dr. Reddy’s shares gained 1.52% to 1,609 on the Bombay Stock Exchange, whose benchmark Sensex index fell 1.21%.


Reuters contributed to this story.