Heathcare report | Japan: Hope for change

Japan is the world's second largest pharmaceutical market after the US, accounting for around eight per cent of the global total and sales of an estimated US$95 billion in 2009. China is due to replace it in terms of scale within the next decade, but the new government has announced bold plans to increase competitiveness. However, while change is underway, Japan remains acutely distinct from the rest of the region.

On the surface, the country's well-documented ageing population (34 per cent of people are set to be over 65 by 2035) would appear a key driver for the healthcare industry. However, growth potential for both domestic and multinational firms has, up to now, been severely limited by stringent price controls. According to the Economist Intelligence Unit (EIU), the value of domestic pharmaceutical sales fell by an average of four per cent a year between 2005 and 2009 due to the price reductions.

This has put leading domestic companies such as Takeda Pharmaceutical and Daiichi Sankyo in a particularly challenging situation. In addition to continued pressure on prices, profits are expected to tumble as patents on a range of lucrative products marketed in the US (such as market leader Takeda's Actos diabetes tablets) expire over the next two years. Takeda expects net income to slump 26 per cent to $2.6 billion by next March. Combined with a Government-sanctioned pro-generics drive, which is expected to see generics make up 30 per cent of the market by March 2014, this means a new model is essential for survival.

With no time to lose, Japan's biggest firms are scrambling to increase their global reach. There has been a flurry of consolidation in recent years, including a tie-up between Daiichi and Sankyo. And since 2007, the top players have been actively acquiring foreign biotech companies and generic producers. The most recent list of acquisitions includes Eisai's purchase of MGI Pharma for $3.9 billion in 2007, and Takeda's purchase of Millennium Pharmaceuticals, a US biotech drug company, for $8.9 billion in 2008.

At the same time, concerted efforts have been made to expand sales networks in emerging markets. While Daiichi Sankyo has secured sales networks in around 30 countries through the acquisition of India's Ranbaxy, Takeda has struck an exclusive co-promotion agreement with Pfizer in China for its Actos product. The firm is also setting up a sales subsidiary in South Korea, and by fiscal 2012 aims to enter Russia and India.

New government, new philosophy
Japan's new leaders have identified the medical sector as one of several drivers to a return to modest economic growth. While nothing is guaranteed, the policy aims to promote the research and development of innovative pharmaceuticals; expand options for chronic disease patients; promote overseas sales and health tourism; develop joint clinical research and testing bases with neighbouring countries; improve the clinical testing environment; and resolve the country's notorious drug and device lags.

The last point in particular is good news for multinationals, which according to Kumi Sato, president of Cosmo PR, have long struggled due to excessive red tape. Sato states that it takes up to three times longer for a new drug to hit the Japanese market than in the US or Europe.

In the interim, Japan's pharma companies are ramping up to embrace an experimental scheme that was introduced under the biennial price revision in April. The new system rewards the development of innovative drugs, while applying additional price cuts for long-listed drugs, or off-patent drugs for which generics equivalents are available. Meanwhile, in an effort to address the drug lag, the Ministry of Health, Labour and Welfare (MHLW) recently issued a 'request list' of 108 high-priority drugs not yet approved in the Japanese market.

These are expected to receive preferential treatment in terms of the regulatory review process, and in pricing if they are included in the country's national health insurance listing.

Working in the healthcare sector's favour, particularly with regard to new product launches, is a well-developed online infrastructure. Yuta Kaneko, MD of Beacon Healthcare, says that e-detailing, a system enabling pharmaceutical companies to conduct online advertising directed at physicians, is a key component. Strongest among these platforms is MR-Kun, which operates on M3Inc's m3.com, a portal for physicians with 190,000 members out of a possible 250,000.

The way forward
Japan's principal sales and marketing opportunities undoubtedly lie in long-term treatments for age-related conditions, illnesses such as cancer and cardiovascular disease, and products that balance the need to contain healthcare costs with the desire for a better quality of life. Preventative treatments are also likely to be a big story going forward.

Within this context, generic drugs are ripe for growth given the pro-generics drive and the fact that the country's generic drug market has yet to be fully developed. According to a spokesperson for Cegedim Dendrite, a pharmaceutical CRM firm, recent Government efforts to educate the public have improved the image of generic products and led to an increase in sales among specialist producers such as Nichiiko. While research and development is being encouraged, the imminent expiry of patents means that branding of generic products will become critical at home and abroad.

Meanwhile, focus on the over-the-counter (OTC) market is expected to increase. The Government is accelerating efforts to reclassify certain prescription medicines as OTC products as it seeks to transfer the burden of medical expenses to consumers. Distribution regulations have also been relaxed. In June, the government passed a bill allowing supermarkets to sell all OTC medicines (the previous 2004 measure only allowed non-pharmacy retail outlets to sell a limited range).

At the same time, it has tightened the safety measures for the handling of OTC drugs. The Pharmaceutical Affairs Law was recently revised to classify OTC drugs into three categories according to risk, with extra conditions for the selling of what are deemed to be high-risk OTC drugs. Daiichi Sankyo and Eisai are both looking to develop OTC products based on ingredients for their key prescription drugs, while specialist OTC drug producers are ramping up efforts to tap into the growing regional demands.