The Japanese Odyssey

Japan is being considered as one of the hottest Asian pharma destinations. The PricewaterhouseCoopers
(PwC) report on Japan as the pharma hot-bed throws light on the fine print that underlines any Multinational company's (MNC) existence in the country. The Express Pharma team presents a snap shot of the report

While the Japanese pharmaceutical industry has experienced stability in the past, the current environment is changing rapidly. Ideally, being the fastest ageing country in the world, Japan's pharmaceutical market should also continue to expand in the future. PwC has recently released a report titled 'Japan-Prescription of Growth', which maps the progress of the Japanese Pharmaceutical industry over the last few years and its potential in the international market.

According to the report, Japan is the world's second-largest economy after the US, with GDP reaching nearly $5 trillion in 2005. The report states that though, the country's economic growth was spectacular, the pace slowed down dramatically in the 1990s due to the after effects of over investment in the late eighties and some domestic policies.

The Japanese buck up

Despite the economic difficulties of the past decade, Japan remains one of the wealthiest countries in the world, with GDP per capita of $30,400. It also has a highly developed healthcare system providing universal coverage, both factors which help to explain why the market for prescription products is second only to that of the US. The latest figures from IMS Health show that, in 2005, the Japanese pharmaceuticals market reached $60.3 billion and saw its highest year-on-year increase since 1991, with sales rising upto 6.8 percent.

Additionally, the ageing consumers have also played a large part in sustaining the over-the-counter (OTC) market, which was worth nearly $10 billion in the fiscal year ending March 2006, states the report. Although demand for many OTC products has stagnated for the past four years, sales of vitamins, dietary supplements and beauty/healthcare goods targeted at middle-aged women have completely bucked this trend.

The Japanese pharmaceuticals market is expected to grow quite slowly over the next few years. According to the Datamonitor estimates, it has expanded at a Compound Annual Growth Rate (CAGR) of just 1.8 percent between 2001 and 2005, and predicts that the rate of growth will slow down further over the next five years, bringing the market to $70.8 billion by the end of 2010.

One major turning point in the Japanese pharmaceutical industry, according to the report, was the revision of the Pharmaceutical Affairs Law in July 2002. The key changes, brought into effect between July 2003 and April 2005, included new regulations covering biologics; the introduction of post-marketing surveillance; and the amendment of the drug marketing and manufacturing approval system to let companies outsource the manufacturing process. This last change is particularly significant, since it means that pharmaceutical companies can market their drugs in Japan without operating their own production facilities.

In April 2004, the system for regulating drugs was also overhauled. The three main regulatory agencies—the Pharmaceuticals and Medical Devices Evaluation Centre, Japanese Association for the Advancement of Medical Equipment and Organisation of Pharmaceutical Safety and Research, were merged to form a single administrative body, the Pharmaceutical and Medical Devices Agency (PMDA), which is responsible for all clinical testing consultation, drug reviews and approvals, and post-marketing surveillance. This move has played a big role in accelerating the approval process and ensuring efficiency.

In 2003, the average time from submission to approval of a new chemical entity was about 19 months in Japan, compared with an average of about 12 months in the US and Europe. By 2009, the PMDA plans to review 80 percent of all new drugs within 12 months. It also intends to introduce a fast-track process for reviewing new drugs with significant clinical benefits. These improvements will make it easier for multinationals to bring their products to market, and maximise the sales they generate before the patents expire.

Already, a growing number of Western pharmaceutical firms have responded to this more liberal environment by increasing their presence in Japan. Foreign multinationals now account for 34 percent of the market, and three of them rank amongst the top 10 drug makers in the country, measured by sales. However, greater competition from foreign multinationals has made life hard for Japan's domestic producers, since few of them operate in other countries. Some companies have responded by engaging in mergers and acquisitions. Several of the largest Japanese companies have also gone on the offensive and moved into Western markets.

Increasing expenditure on R&D

A full product pipeline is the key to surviving in the global pharma market. However it may not be always possible to have a complete one. While one way is to forge licensing agreements, another way is to undertake research. The PwC report indicates that Japan's research base is rapidly improving, thanks to various government initiatives to promote R&D. It is still too early to tell what fruit this investment will yield, but the preliminary signs are promising. The Datamonitor estimates that the top 15 Japanese companies will launch 71 new products between 2004 and 2010.

Japan has also been making considerable efforts to develop a domestic biotechnology sector, although it still lags behind the US and Europe in this respect. The industry has expanded accordingly; by 2004, there were 464 Japanese biotech ventures-up from 387 in 2003.

The high cost of clinical trials

However with research, comes the need to do trials. And this is where Japan does not hit a high note. The report states that pharmaceutical companies face a high cost of doing clinical trials—a factor that has driven many of the domestic drug makers abroad. But drug testing is still more expensive in Japan than it is in many other countries, and these problems are compounded by the fact that many Japanese patients are reluctant to participate in trials.

Surviving in Japan

In short, Japan cannot be described as an emerging market in any conventional sense; on the contrary, it is one of the strongest and most highly industrialised countries in the world. But for many Western drug manufacturers, it still represents comparatively new ground. That ground is becoming increasingly attractive, with the removal of the obligation to manufacture locally, the introduction of a faster system for approving new drug applications, the promise of better prices for truly innovative drugs, government interest in promoting generics and an ageing, educated population with high healthcare expectations.

However, any company that wants to do business in Japan should be aware of the political and legal restrictions and sensitive to different cultural mores. So how should foreign pharmaceutical firms set about entering Japan or securing a stronger footing there? The right amount of due diligence and country-specific strategies could be one of the many answers!