The 9.0 Tohoku earthquake and tsunami disasters resulted in a devastating toll on hundreds of thousands of lives, loss of property, and loss of employment. This disaster coupled with the ongoing nuclear threat is putting people's health at risk, destroying the food and water in the area which is creating food and water shortages.

This devastation is far greater than the 6.0 Kobe earthquake in 1995. The Japanese government reported that the Tohoku earthquake and tsunami is estimated to cost 16 trillion to 25 trillion yen ($198 billion to $308 billion), about double the cost of the Kobe quake and about four times the cost of Hurricane Katrina at $81 billion.

These estimates do not take into account the continuing radiation threat at the Fukusima plant affecting the food and water, the shut down of many manufacturing plants due to power outages (from nuclear power plants being knocked out and reactors damaged), and local and foreign offices closing due to damage or fear of further radiation exposure.  

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1) Daiichi Sankyo, one of the largest Japanese pharma company has a plant that has suspended production of active pharmaceutical ingredients that include pravastatin and olmesartan. Gradual production may be resumed by the end of April.

2) It was reported that Asaka Pharmaceuticals which manufacturers 98% of the domestic supply of levothyroxine sodium, a hypothyroid drug has halted production and only has enough product to supply the people of Japan for a month. There are about 300,000 people in Japan who are taking this medicine and stoppage of this medication poses an imminent health risk to these people. Asaka has resumed partial production and is prepared to import levothyroxine sodium.

3) Chugai Pharmaceutical manufactures Rivotril, an antiepileptic drug used to treat panic disorders, and Madopar, used for Parkinson's disease were also halted

It will take approximately ten years, if the Kobe earthquake recovery of 1995 is any indicator on how long it will take for Japan to completely rebuild.  After 3 years, the Kobe economy had recovered 75% to 90% of its pre-event capacity, but it took 10 years to completely rebuilt the infrastructure, commercial buildings and housing.

However, the Kobe earthquake did not involve a tsunami or a nuclear reactor threat and therefore will probably take at least 5 years for the economy to recover and more than 10 years to completely rebuild. This area was highly industrialized and accounted for about 6 per cent of Japan's economy. Sendai, the area's biggest port, which was destroyed, is the major port for exports.

The nuclear power plant problem and the continuing power outage will be key factors for how quickly Japan will recover. Tokyo Electric and Tohoku Electric supply electricity to businesses that account for almost 50% of overall Japanese output and almost 45% of manufacturing output according to Nomura.

"The analysts estimated that a 10% shortfall in electric power capacity could dent recurring profit by 4.7%, or 1.4 trillion yen ($17 billion), in the Japanese business year beginning in April for corporations in the Nomura 400 company index."

Pharma/Biotech

Before the earthquake and tsunami, large Japanese pharmaceutical companies were actively acquiring US and international pharmaceutical companies. Daiichi Sankyo acquired Plexxikon, a Berkeley, CA biotech company and Ranboxy Laboratories, an Indian generic company. Last year Astella Pharma acquired OSI Pharmaeuticals for $4 billion and last month bought out Maxygen in a JV for $76 million.

Bankers predicted that Japanese pharma companies will be more aggressive in international M&A. While this could be beneficial to US companies that are looking for an infusion of cash for R&D or an exit for VCs, it is predicted that deals would be small until they consolidate.

It hasn't been determined how much of a negative monetary impact the Tohoku earthquake will have on the Japanese pharmaceutical industry. Both Daiichi Sankyo and Astella Pharma have manufacturing plants and R&D facilities (Astella) suspended due to damage. They both have donated 100 million yen to the Japanese Red Cross and possible donations of medical supplies and pharmaceutical products from Daiichi and Astella respectively.

Depending on how long the power outage last and the recovery of the economy, Japanese pharmaceutical companies may not be a major player in global M&A activities or maintain the status of being the third largest global market. In this scenario, this will attract large pharma companies to acquire local Japanese companies as an entry to the Japanese market and help the local economy.

Medical Device

Prior to the earthquake, the Japanese market was a significant growth opportunities for only a handful of US companies. In 2010, Abbott reported in regulatory filing more than $2 billion in sales with a growth of 60 percent in the past three years in Japan. Yet Japanese sales accounted for only about 5 percent of total sales for Abbott, Medtronic, and Johnson & Johnson. Boston Scientific had 13 percent, St Jude had 11 percent, Stryker had 10 percent, and Zimmer Holding Inc. had 9 percent of total revenue from Japan.

Device manufactures can expect a temporary decline in sales from Japan possibly for the next 5 years or until the economy recovers to pre-event disaster. Growth will have to come from other global markets and plans to penetrate other markets need to be accelerated.

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