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Sankyo Co. and Daiichi Pharmaceutical Co. said Friday they have reached a basic agreement to integrate their business operations in October, creating Japan’s second-largest drugmaker.

The companies said in a statement they will set up a holding company called Daiichi Sankyo Co. on Oct. 1, under which both firms will become subsidiaries. They will merge their prescription drug operations in April 2007.

In the planned share swap with the holding firm, one Sankyo share will equal one holding company share, while each Daiichi share will be worth 1.159 holding company shares, they said.

Sankyo President Takashi Shoda will serve as president of the holding firm and Daiichi President Kiyoshi Morita will become chairman.

The Sankyo-Daiichi integration is intended to cope with stiffening competition in the drug industry as well as the increasing costs related to developing new drugs, the two companies said.

The combined consolidated annual sales of Sankyo, currently Japan’s second-largest drugmaker, and Daiichi, the sixth-largest, would total about 900 billion yen. Japan’s biggest drugmaker, Takeda Pharmaceutical Co., had sales amounting to 1.150 trillion yen.

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