Medipal seeks to diversify amid falling drug margins
The distributor, which also sells cosmetics and sundries, is seeking to boost profit, excluding extraordinary items, to ¥100 billion ($694 million) by March 2027 from ¥65 billion in the latest fiscal year.
"To do so, we need growth outside of organic means, including M&A,' Toshihide Yoda, senior managing director of Medipal Holdings said in an interview Monday.
Medipal is expanding into areas such as animal health products and drug development as margins from selling pharmaceuticals gets squeezed in its home market. In Japan, the government is cutting the prices of novel drugs to cut costs to care for the aging population and encourage patients to use cheaper generic medicines.
The company has committed to investing a total of ¥200 billion for growth and capital investment over five years through 2027. Medipal is budgeting around ¥10 billion to buy smaller regional wholesalers that supply drugs for animals, according to Yoda. The company, which holds about 22% stake in JCR Pharmaceutical in Japan, bought the rights to develop and sell four experimental treatments for rare diseases outside of Japan in 2022 and added another one in 2023.
Shares of Medipal are down around 2% this year, while the benchmark Topix index has climbed 3%.
Medipal disclosed its policy on the cost of capital for the first time in May and is seeking to boost its price-book-ratio above 1 by 2027, according to Yoda. The current ratio of 0.8, according to data compiled by Bloomberg.
"We've focused on profit and loss and have been extremely insensitive to cost of capital until recently,' Yoda said. "But by setting the benchmark, we can now move toward the goal, constantly review and refine our targets.'
The company has a 51% stake in a Japanese cosmetic wholesale Paltac. Medipal relied about half of its current profit on Paltac in 2022. Although the company is constantly discussing the parent-affiliate holding, it plans to keep its stake in Paltac as there's a high synergies between drugs and cosmetics wholesale businesses, according to Yoda.
"We are the only company in the market that can supply everything that drug stores sell, from pharmaceuticals, to over-the-counter drugs and household goods,' which is a high-growth area, Yoda said. "So we'll have to think of tightening our relationships.'
Japanese conglomerates are under pressure from regulators to streamline their corporate structures. In February, the Tokyo Stock Exchange cautioned companies with parent-affiliate listings to better protect minority shareholders' interests, stepping up its campaign to reduce such arrangements.
Since then, NEC has acquired unit NEC Networks & System Integration, while the Toyota group plans to buy out and delist Toyota Industries. The move has fueled speculation that more companies may follow suit.
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