Japan offers growth opportunities in generics & biosimilars
Demographic pressures on healthcare costs in Japan are driving a political agenda that will benefit players with lower costs solutions. Generics are an obvious route, but Japan’s status as a highly-developed economy with a pharma industry that leads in innovation opens other possibilities, particularly in the longer term for the biosimilars segment. In fact, an overwhelming 59 per cent of domestic respondents believe biosimilars will be the fastest growing sector, according to CPhI Japan 2018 report. The Japanese pharma economy is in a state of transition towards greater openness, potential rewards for early international movers were cited as another key factor in the rapid shifts predicted in 2018. CPhI forecasts 2018 will be a transformative year for Japanese pharma as the market evolves towards growth in generics, biosimilars and increased internationalization.
Japan is the third largest pharma market globally. According to a GlobalData survey, the pharmaceutical sector is forecast to reach $72 billion by 2021, representing 17 per cent growth between 2011 and 2020. Yet, in the past, the market has not been an easy access for many international companies. This is accounted by a historically insular domestic market as well as impervious entry barriers, leading to lesser opportunities.
However, times are changing now and Japan’s Pharma economy is in a state of transition towards greater openness. 2018 could be a transformative year for the Japanese pharma market, according to a new report from CPhI 2018, with strong growth evolving from elevated use of generics, biosimilars and increased internationalization. Japan’s domestic market is looking increasingly at exports, and international companies are seeking opportunities to invest in and access the large, well-funded healthcare system.
For the past ten years, Japan has been able to sustain the growth curve in pharma industry. Japan’s demographic profile, with a rapidly ageing population, provides considerable growth potential for innovative drugmakers given the growing demand for chronic disease medicines, along with broad access to healthcare. The regulatory regime is amongst the most robust globally, with a well-
developed drug approval process and one of the strongest intellectual property protection systems. In addition, Japan’s market expenditure - both on a per capita and absolute basis - is among the highest globally, indicating a strong preference for and an ability to pay for high quality medicines. Further compounding drugmaker opportunities in Japan is the high level of urbanisation, meaning a high level of access to advanced healthcare facilities. With the keen interest of international world to enter into the domestic market, Japan is spearheaded to develop into an acquisitioned environment.
Patent expiry, annual price cuts, generics taking holdJapan is facing a series of challenges. To add on to the list of problems is the growing funding gap. It is estimated that if the situation is not put in control, this gap will rise to around $160 billion by 2020 and $370 billion by 2035 (according to Deallus Consulting).
Japan’s government spends $93 billion on pharmaceutical annually. The pharmaceutical market is highly fragmented, with over 1,000 companies, hundreds of which are very small enterprises selling traditional Chinese medicines.
Simply increasing the country’s insurance premiums will hardly make an impact as it will
damage sectors beyond pharma by increasing labour costs and reducing competiveness. With already high co-payment rates at around 30 per cent, there is little scope for further expansion. Few recent examples of the impact of these changes on the strategies of pharma companies are: Recent cuts to Opdivo from Ono Pharmaceutical and Gilead’s Sovaldi and voluntary reduction in Merck’s cancer therapy, Keytruda.
Japan has long been a great spot for patented drug consumption, with a strong innovative pharma industry, but as an impending patent cliff has loomed, many companies are now forced to reconsider their long- and medium- term strategies.
Because of numerous challenges, Japan’s pharma market holds a dearth of opportunities. Through diverging strategies, innovative big pharma can step into the market and invest in its pipeline and grow exports. Opportunities for both Japanese and international generic companies are clear, especially with the gradual shift of public attitude from cultural scepticism of generic medicines. Many Active Pharmaceutical Ingredient (API) and generic finished dosage suppliers have recognised this potential and have acknowledged the unique needs and challenges of the Japanese market. Japan government is committed to transform its pharmaceutical landscape from an internally-facing market to a global one.
Generics Market and government initiatives promote investments
Once considered one of the most immature generics markets, Japan has launched a series of reforms since 2007 to cope up with the challenges. This resulted in generics reaching 60.1 per cent in the second quarter in 2016 in Japan, up from 18.7 per cent in 2007 (Research and Markets).
In order to reduce the healthcare expenditure burden, including a burgeoning national budget deficit the Japanese government is promoting the use
“There are several significant factors we need to take into account considering the business landscape in Japan- from investment or regulatory perspective. Japanese government is now proactively starting to enhance and support the pharma companies by providing sufficient grants and providing a consulting system. However, there is a lot of scope for improvement. There are very few venture capitols to support start-up companies. This is a big challenge that needs special attention.” - Dr Minoru Ono, Professor and Chairman, Department of Cardiac Surgery, Graduate School of Medicine, The University of Tokyo
of generics as a cost-containment tool. To that end, the government in May 2017, stated that it would boost the use of generic drugs from 56 per cent to more than 80 per cent by September 2020.
● From December 2016, the Ministry of Health, Labour and Welfare has started reviewing drug prices annually instead of once every two years, based on the difference between the actual market price and the official price.
● Although increasing generic substitution and yearly pricing reviews are likely to restrict growth in the Japanese pharmaceutical market in the future, the government is also working to reduce long regulatory processes faced by pharmaceutical industry in order to expedite the approval of products and improve access to novel therapeutics. This will not only attract foreign companies but also positively influence the healthcare market.
● PMD Act: The revolutionary 2014 revision of Japan’s keystone pharmaceuticals law (renamed PMD Act) for pharmaceutical and medical devices was the biggest government initiative. Japan now boasts to have a faster and smoother drug approval process as compared to both Europe and the US. This has brought a positive change in the approach of international companies towards the Japanese market, and have triggered a number of partnerships, licensing deals, and research collaborations in Japan with existing business there.
● Two-week restriction policy: Japan government has intently abolished many unfavourable rules that it once followed. The ‘two-week restriction’ policy permitting doctors only to write a prescription of two weeks as a safety precaution, as Japan was not a part of global clinical trials, has now been rendered invalid. This was a major deterrent to the Japanese market.
“We are constantly working with other Asian countries, on a multitude of research topics. Intention is to facilitate knowledge exchange between doctors and professors from these countries, while collaborating and contributing to areas of mutual interest. Data security and privacy is also a key consideration – especially when it involves sharing of electronic or patient documents deployed in the system, if they have to be shared across borders.” - Soichiro Sasago, Director for Policy Planning, Ministry of Health, Labour and Welfare, Japan
Favourable market for biosimilars
Japan is considered an emerging market for biosimilars as the uptake for some products is now at par with generics. It is well known that biologics have gained significant traction in the pharmaceutical industry for the past couple of years. It is estimated that by 2020, biosimilars will comprise 27 per cent of the pharmaceutical market, generating a predicted revenue of $290 billion. Globally, there are more than 700 biosimilars approved or in the pipeline. This is driving their uptake across the world and Japan is proving to be a particularly lucrative market for biosimilar makers.
Japan’s ageing population, coupled with less stringent regulatory environment than other countries could be the reason behind such a strong motivation for the early uptake of biosimilars. The first biosimilar in Japan was approved in 2009, and to date, the Pharmaceuticals and Medical Devices Agency (PMDA), has given the go ahead for 10 biosimilars.
The volume shares of biosimilars suggest that in the next five years Japan could become a key market, closely following the EU’s lead. The overall outlook for biosimilars looks good for Japan. As a developed country, they have large access to affordable products, an established regulatory environment, good engagement with payers in favour of biosimilars and a high presence of biosimilars in the pharmaceutical market.
Companies are now following a different approach to enhance strong distribution and sales capabilities.
Takeda, the country’s largest pharma company, has been in acquisitive mood recently, and is one of the main leaders in spearheading a more global outlook from Japan’s pharma sector. Takeda has bought its stem cell therapy partner TiGenix for $626 million, with the suggestion that further acquisitions could follow.
Takeda’s recent joint partnership with the manufacturing scale of Teva Pharmaceuticals, one of the world’s largest generics companies is an excellent example that showcases how companies are entering into new ventures to improve their sales prowess and distribution relationships.
Similarly, Daiichi Sankyo has partnered with Amgen to combine its commercial scale with Amgen’s emerging biosimilars portfolio in the Japanese market. Maruishi, a smaller Japanese company, focuses its energies on a finite set of hospital call points along the surgical continuum, where it has a marketleading position in anesthesia and post-surgical pain. Maruishi leverages this targeted commercial scale and expertise to become a “partner-of-choice” for innovators lacking such infrastructure, as evidenced by its Japanese commercialization partnership with Faron Pharmaceutical for Faron’s acute respiratory distress syndrome asset, Traumakine.
Global drug development partnerships
A more recent trend that has come up as a result of government initiatives is that the big pharma in Japan has started to increasingly look to partner with international firms for co-development of novel therapies.
Strategic alliances: New name of the game
The Japan pharmaceutical industry has great potential. As Japanese pharma market is in a state of transition and is more open to new strategies to boost global influx, potential rewards for early international movers cannot be ignored. However, this cannot be achieved without an appropriate strategy in place. Partnership with domestic firms – taking advantage of local knowledge as well as technical expertise – appears a binding strategic move. The potential for direct entry and even acquisitions cannot be discounted in the medium term which will make this land of rising sun, a hub of growth for pharma companies.