Like a Sumo Wrestler, Pfizer Goes Big, With Help

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When Pfizer (NYSE: PFE  ) floated the idea of moving into Japan's generic-drug market a few years ago, it seemed like a good idea to me, but it was clear that the pharma needed to go in big.

And that's exactly what it's doing with a little help from a friend.

Pfizer and Mylan (Nasdaq: MYL  ) announced yesterday that they've established a pact to sell generic drugs in Japan. Pfizer will provide the marketing muscle and Mylan will provide its copycatting skills to make cheap knockoffs of off-patent drugs. All told, they'll have 350 products and another 125 that are in development.

The financial details weren't disclosed, but considering that their strengths are quite complementary, it's probably safe to assume this is a good deal for both Pfizer and Mylan. Much like Teva Pharmaceuticals (NYSE: TEVA  ) and Procter & Gamble's (NYSE: PG  ) partnership for over-the-counter drugs, Pfizer and Mylan seem to fit perfectly together.

For Pfizer, it's important to have more drugs to sell than just the ones in its established products division because generics tend to be a low-margin business. The easiest way to make a decent profit is to make up for the low margins with higher volume as large generic-drug makers like Teva Pharmaceuticals and Novartis' (NYSE: NVS  ) Sandoz division have done.

Mylan has the products to make it work, but growing a sales channel isn't easy. Using Pfizer's established infrastructure will help keep costs down, and the big pharma's name is likely more established than Mylan's.

Japan is a relatively untapped market for generic drugs, which encompass only a quarter of the drug use. In the U.S., generics make up more than 50% of drug sales by volume. And the Japanese government is behind a push to increase the generic utilization given its potential to reduce health care expenditures.

It's still generics, so don't expect sumo-sized profits for either company, but a few extra pounds of profit from the untapped market will help the bottom line nonetheless.

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Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Procter & Gamble. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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10/28/2016 12:17 PM
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