Orix in race for Jafco drug firm - sources

By Alison Tudor

SYDNEY, March 3 (Reuters) - Financial services group Orix Corp (8591.T) is vying for the Japanese dental products and generic drug firm being auctioned by venture capital and buyout firm Jafco Co Ltd (8595.T), sources briefed on the deal said.

Jafco has whittled down the field of prospective suitors for Showa Yakuhin Kako down to a shortlist of two: Orix and one other Japanese firm, they added.

A spokesman for Orix declined to comment.

The original field of bidders was very small, according to the sources, partly at the request of Showa Yakuhin Kako.

The bidding has been fiercely competitive and is due to come to a close shortly.

Jafco bought the firm for 25.2 billion yen, according to its Web site, in one of the largest transactions of 2004.

Showa Yakuhin Kako, whose products include the painkiller acetaminophen or paracetamol, made a net profit of nearly 2 billion yen on sales of 7.7 billion yen ($73 million) in calendar 2006.

Japan's generic drug industry is expected to see increased merger and acquisition activity this year, spurred on by government moves to more aggressively promote the cheaper off-patent medicines.

The sector is still highly fragmented with small players. The biggest, Sawai Pharmaceutical Co Ltd , has annual sales of around 35 billion yen ($330 million).

Fast-ageing Japan has a low rate of generic drug use, around 17 percent of volume compared with 63 percent in the United States. (Reporting by Alison Tudor; Additional reporting by David Dolan; Editing by Hugh Lawson)