After a series of government reforms that are appealing to both domestic and foreign players, the Japanese pharmaceutical market is making a comeback, writes Jane Wan.
In March 2012, Pfizer Japan, a subsidiary of Pfizer US, set up a Rare Disease Division with the objective of becoming a global leader in treating rare diseases. China's Beijing Genomics Institute (BGI) in the Yantian District of Shenzhen, formed BGI Japan in Kobe, in September 2011, to increase its range of partners and to conduct joint research with Japanese companies. Golden Biotechnology Corporation in Taipei, Taiwan, established a Tokyo-based subsidiary in April 2011 to push out its proprietary health supplements. And the list goes on.
The well-established Japanese pharmaceutical market continues to attract extensive foreign interest and investment. Alan Thomas, director of business planning and analytics at IMS Japan K.K., says: "An increase in chronic disease, such as diabetes and cardiovascular related, and the number of treated patients within these diseases continues to see expanded access to pharmaceuticals. Additionally, an increase in specialty-related disease areas, such as oncology and osteoporosis, drives growth with increased use of biologics and specialty pharmaceuticals. With these emerging and expanding disease areas, the number of innovative treatment options available is also improving."
Japan's stagnating economy and aging population have urged the government to reshape healthcare policies that favor the entry of foreign firms. The agency has taken steps to shorten the drug-approval process and facilitate easy access to better treatment options. The median drug approval has fallen from 22 to 15 months in the past two years; and the approval time for products under priority review has dropped from 15 to 9 months.
The government is considering "a compassionate use" system that allows seriously ill patients to use drugs yet to be approved for use in Japan. This program is meant for patients who have not responded to standard treatments and where domestic options are unavailable. The government is also looking to allow health insurers to shoulder some of the costs incurred by patients under this system. Japan has spent time examining the sector's clinical trials and pricing as well, and under new initiatives, the increased acceptance and use of global clinical-trial data has reduced cost and sped timelines. The so-called "clinical triangle" comprising of China, Korea, and Japan, also helps to reduce development time in Japan because of the additional trial data available. In addition, the extension of Japan's "premium for development of new drugs and elimination of off-label use" is applicable to the National Health Insurance (NHI) price revisions established in April 2010. Under this system, manufacturers are encouraged to develop new drugs and provide additional information for existing ones when products are eligible for a lower NHI price revision.
Recently, the government shifted its focus to generic drugs with the goal of increasing market share to 30% by 2013 in a bid to address to the country's overburdened healthcare system. To dispel the common public perception that generic drugs are inferior, generic drugs and their active ingredients are placed under rigorous quality control. Generic-drug manufacturers are required to supply all of the strengths and dosage forms of the branded version. The Ministry of Health, Labor, and Welfare (MHLW) also requires manufacturers to supply strengths of the same dosage form as those of the branded products, and that the generic versions be a perfect match to the branded products.
Ranjith Gopinathan, program manager of life sciences and healthcare practice at Frost & Sullivan, adds, "Strongly backed by the government, the generics market is encouraged by initiatives such as relaxing registration procedures and providing incentives to doctors prescribing them over branded drugs."
Interestingly, foreign presence has reshaped the business strategies of domestic players. Jamie Davies, head of pharmaceuticals and healthcare at Business Monitor International, says, "Typically, Japanese pharmaceutical companies are conservative in nature and focus primarily on the domestic market and have limited exposure in less developed states. However, the dual effect of patent expiries and reduced research productivity has forced them to increasingly look abroad for sales growth. As a result, several are looking to emerging markets to generate new growth."
Domestic companies have started to forge strong links with international firms and foreign markets. All the leading Japanese firms derive around 40% of their revenue from overseas markets, mainly the US, although exposure to emerging markets is increasing, adds Davies. In October 2010, Takeda Pharmaceutical in Tokyo announced plans to form alliances with Indian companies to sell its patented drugs and to offer basic business services.
The M&A quest has also gained momentum in Japan with Takeda's acquisition of Nycomed, based in Zurich, Switzerland, for $13.7 billion in September 2011. Takeda Farmacêutica Brasil has signed an agreement to acquire Multilab Indústria e Comércio de Produtos Farmacêuticos, based in Rio Grande do Sul, Brazil, by the end of the second quarter of 2012.
Of course, there are exceptions. Recently, Eisai, based in Tokyo, has shifted its focus back to East Asia, citing the region's enormous potential, especially now that the Japanese market is becoming attractive again thanks to government initiatives. Likewise, Sawai Pharmaceutical in Osaka is concentrating on the Japanese market and exploring partnerships with larger pharmaceutical companies to expand its therapeutic range.
Thomas adds, "From a portfolio perspective, Japanese pharmaceutical companies will put their focus on speciality pharma, oncology, and biological platforms. This acquisition activity will gain momentum as a strategy for market entry and portfolio expansion." Although domestic firms control 66% of the Japanese pharmaceutical market share, the market remains attractive to foreign big players for its lower risk and exposure compared with other markets. In fact, a Bloomberg source indicates that the prominent companies are doing quite well. Pfizer grew Japanese sales to $7.3 billion last year and GlaxoSmithKline figures were up by 28% in the same year. Large-scale companies are well-positioned due to their strong late-stage pipelines and aggressive launch objectives to continue to grow over the next two to three years. On the other hand, smaller-scale players with no presence in Japan may have to opt for out-licensing or partnering to maintain growth.
Jane Wan is a freelancer writer based in Singapore