Drugs market set for change:
Japan's pharma industry is slowly opening up,
write Michiyo Nakamoto and David Pilling:
Financial Times; Apr 3, 2002
By MICHIYO NAKAMOTO and DAVID PILLING
There are not many countries where research-driven pharmaceutical
companies would consider a 6.3 per cent cut in drug prices a step forward.
But Japan just might be one of them.
Not only is the reduction, introduced by the government this week, lower
than in any year since 1988, but it is also skewed towards older medicines,
whose price will fall 11 per cent. Newer drugs that are deemed innovative
can earn premiums of up to 100 per cent.
That is precisely what most big drug companies, particularly foreign ones,
have been pushing for. The policy is the latest indication that Japan is
slowly normalising its Dollars 47bn drugs market, still easily the world's
second-largest despite more than a decade of price cuts.
Since the war, Japan has imposed a raft of protectionist measures that have
favoured domestic companies, making Japan the world's most frustrating
market for western drug groups. With few exceptions, they are severely
under-represented in Japan.
Designed to help build a world-class Japanese pharmaceuticals industry,
those protectionist policies may in fact have retarded the development of
truly international companies by providing too cushy a market at home. Of
the top 20 global pharmaceutical companies, Japan's lone representative is
Takeda.
Success or failure, those policies are gradually being ditched. Faced with
the world's most rapidly ageing population, Japan is now putting budgetary,
and medical, concerns ahead of protecting local industry.
Foreign companies now find it easier to win regulatory approval for
medicines which, because of the need for extensive Japanese clinical trials,
used to be launched in Japan years, even decades, after Europe and the
US. Now drugs can be launched almost simultaneously and many western
drug groups are rapidly gaining share - admittedly in a shrinking market -
largely at the expense of second-tier domestic companies.
The pricing system introduced this week will step up the pressure on those
companies. Some will be forced to merge. Even the stronger Japanese
companies, such as Eisai, Shionogi, Yamanouchi and Fujisawa, will need
to increase sales abroad as the domestic market becomes more
competitive.
By widening the gap between the price of older and newer medicines, the
Japanese government is taking the first tentative steps towards the creation
of a market in generics, cheaper copies of patent-expired drugs. In the US,
when a drug goes off patent, generic copies flood the market, bringing the
price down by as much as 90 per cent.
But in Japan, doctors have, until recently, had a financial incentive to
prescribe expensive drugs. As a result, only about 20 per cent of off-patent
drugs are replaced by generic drugs, compared with about 80 per cent in
the west.
Such strong price controls have frustrated some Japanese companies as
much as foreign ones. "We are working in a market economy, but the
government system is a communist policy," says Toshio Tanaka, president
of Tanabe. "We believe that this kind of system has to be changed."
While companies that have never produced a new drug in years will now be
harder squeezed, those whose research efforts are producing new
medicines will market them more aggressively abroad.
Takeda makes more than 70 per cent of its own product sales outside
Japan and expects this ratio to increase.
Fujisawa's main medicine, Prograf, which prevents organ rejection in
transplant operations, has an overwhelmingly foreign sales base. Chugai, a
forward-looking Japanese company, last year took the bold step of merging
with Roche of Switzerland to internationalise its sales.
Even smaller Japanese drugs companies, such as Kissei, Ono and Taisho,
which do not yet market medicines outside Japan, are taking their first
tentative steps with plans to conduct clinical trials overseas, says Mayo
Mita, pharmaceuticals analyst at JP Morgan.
"The Japanese government has kept the pharmaceuticals industry under
severe control, particularly in terms of pricing, and at the same time offered
generous protection," says Kenjiro Nagasaka, chairman of Banyu
Pharmaceutical, which is 51 per cent owned by Merck of the US. "But, now
they can no longer afford this, there will be a divide between companies that
can survive on their own and those that will face a severe environment."
The writing may be on the wall, but change is likely to be slower than Mr
Nagasaka would like. "Even the price of rice is liberalised," he says. "Why
are only pharmaceutical prices controlled?" |
