Introduction:

Japan’s health care market is highly efficient, in spite of its extremely challenging demographic profile. Japan has the longest life expectancy in the world (82.6 yrs) and a very large pensionable population.

Japan's ageing and affluent population represents strong opportunities for foreign drugmakers. However, given its weak macroeconomic environment, there is a risk that the country will not be able to sustain its generous welfare for its residents, and will seek to save costs through the use of more generic drugs and price cuts. Indian pharmaceutical exporters, will find the market to their liking as Generic drug exporters and, also the fact that we have large number of exporters suiting the market requirement of Geriatric (Chronic problems of elderly population) preparations.Multinational drugmakers will face an increasingly tough pricing environment in Japan.

Pharmaceutical Expenditure:

Japan’s estimated Pharmaceutical expenditure in the calendar year 2016 would $109bnwithan estimated growth of 15% after a continuous negative growth during the last three years. The forecast for 2017 is to reach$114.

Latest Updates

• In September 2016, Toru Kawanishi, Chairman of the Ministry of Health, Welfare and Labor noted that a'blue book' will be issued by the end of March 2017. This will include data that hospital and pharmaciescould use as reference when selecting generic drugs.
• In October 2016, Japan's Central Social Insurance Medical Council (Chuikyo) agreed to a plan to applyprice cuts to Ono Pharmaceutical's Opdivo(nivolumab). Critically, this is expected to be implementedbefore the next biennial price revision scheduled for April 2018.

Strengths:

• Third largest pharmaceutical market in the world after the US& china.
• Per capita spending among the world's highs (US$750 in 2015).(Per capita is continuously coming down. From $ 1018 in 2012 to $ 750 in 2015)
• Very strong patented drugs market (accounting for nearly 82% of total drug expenditure), due to the country's traditional wealth and preference for this type of product ( It indicates huge future opportunity for India’s exporters)
• High number of prescriptions per patient.

Opportunities:

• The underdeveloped generic drug sector set to play a greater role in the Japanese pharmaceutical market due to government promotion of the sector, as well as the expiry of a number of blockbuster drug patents.
• Japan’s major drug makers are looking for low cost centers for research and investments.

Valued at US$94bn in 2015, the Japanese pharmaceutical market is the third -largest in the world, behind the US and China and ahead of Germany. Pharmaceutical expenditure as a percentage of GDP is 2.3%, which is above the regional and global averages.

Due to preferences for branded products and entrenched prescribing patterns, patented drugs comprise the vast majority of Japan’s pharmaceutical market, representing over 82% of the total. Sales of OTC medicines are limited by restrictive sales channels and a conservative view of self-medication. Generic drugs account for just 12% of the pharmaceutical market – well below the average for a developed country, although this is set to change under government’s encouragement.

Japan's burden of communicable diseases is falling while the burden of non-communicable diseases isincreasing

 

Japan’s Industry:

All major multinational drugmakers operate in Japan’s pharmaceutical market. With annual global sales exceeding US$16bn, Takeda Pharmaceutical is the leading local company, followed by DaiichiSankyo, Astellas Pharma and Eisai, which each achieve global annual sales of about US$10bn.

As of April 2012 Japan has 162 manufacturing sites registered with USFDA.Japan has strong R& D especially in the sector of Bio Pharma it has the credit of third largest spend on in the research field of biopharma. The first two being USA and Europe.
The dominant role of patented medicines in the past has significantly limited the flourishing of Japan's generic drug industry. However, in light of the cost containment measures, in particular the growing push by the government to encourage generic drugs, there has been an influx of generic drug companies into the market. There are 72 research oriented companies and far less generic companies in Japan though the exact figure is not known Japanese generic manufacturing association of Japan has only 10 members.
Innovative companies like Daichi, Nippon and others are setting up generic manufacturing subsidiaries.

The time is very opportune for India companies to either start joint ventures with Japan companies in India or in Japan. China, Malaysia and Indonesia are already in the race. Malaysia is PICS compliant nation China and Indonesia have already signed in to PICS and are now gearing up to PICS requirements.

The Ministry of Health, Labour and Welfare (MHLW) was originally established in 1938 and is ultimately responsible for the regulation of pharmaceuticals in Japan, in addition to controlling foodstuffs, forming health policies and distributing pensions and benefits. It took its current form in January 2001 through the merger of the Ministry of Health and Welfare and the Ministry of Labour as part of a governmental reorganisation.

The Pharmaceutical and Medical Devices Agency (PDMA) conducts consultations concerning the clinical trials of new drugs and medical devices. It also undertakes approval reviews and surveys of the reliability of application data.

Japan’s Regulatory mechanism is believed to admirably addresses the needs and concerns of the three major industry stakeholders - patients, payers and pharmaceutical companies. It has relatively a better defined bio similar approval pathway. Drug lag( As a result late patent expiries) is the only issue to be addressed by JPMDA.

Strong government support, increased levels of drugmaker activity and the shifting attitudes of consumers will drive the robust growth of generic drugs in Japan. While patented drugs will remain the mainstay in the country, these factors have also seen generic medicines capture a larger share of the overall market.

Generic market was of the size $ 11.5 billion in 2015 and has been continuously negatively growing from 2012 and in 2015 has negatively grown by 6%. It is estimated that the trend is reversed in 2016 and would grow at a CAGR of 6.8% till 2025 and reach $22.7 billion.

Japan's MHLW continues to actively implement the 'Roadmap for the Further Promotion of Generic Medicine Use', which was first initiated in April 2013. Under the programme, authorities seek to increase the volume share of generic medicines to above 60% of drug sales by 2018 through several key initiatives.
Generic drug sales will be further augmented by Japan's favourable drug approval process. In February 2015 alone, the MHLW approved a total of 309 generic drug products ahead of the National Health Insurance drug price listing scheduled in June 2015.

Local generic companies are virtually doubling their capacities to cash in the forecasted rapid rise in generic demand. Some of the innovator companies are acquiring generic companies to cash in the opportunity. India companies could collaborate with Japanese companies and invite JV’s in our country to take the advantage of low cost base.

Some of the market studies suggest a noticeable shift in patients’ attitude for the better towards generics.

Following a medicine's first introduction in the US or Europe, there is a considerable delay before launch in Japan. This phenomenon is called the 'drug lag' and is due to regulatory bureaucracy, staff shortages at the MHLW and Japan's culture of conservatism.However this drug lag is likely to be phased out soon as PMDA is fast catching up with other countries in approvals.

In 2015, the country’s generic drug sector accounted for12% of the total pharmaceutical market in value terms andwas aiming to reach 30% in volume terms. This compares poorly with the US, where generic drugs comprise 70% of all prescriptions and over 20% of overall sales.

Japan’s Trade:

Similar to most countries, Japan has a negative pharmaceutical trade balance. However japans’ exports are also growing fast.

Imports are expected to grow rapidly over the next five years reaching USD 26.7 bn  by 2020 from the present $ 22.2 bn with generic medicines making up a major impact in volume terms. The competitive nature of the multinational sector's high-tech imports will add to pressures on the pharmaceutical trade balance, especially as the level of domestic R&D activity lags behind that of other major markets.

Recent trends& developments favorable for India’s exporters:

• In January 2013, Japan's Liberal Democratic Party stated that it would like doctors and medical organisations to prescribe generic drugs instead of proprietary drugs to people on welfare, in the hope of curbing rising expenditure on providing livelihood assistance to low-income people. Currently welfare recipients do not have to pay for medical treatment, meaning the cost of their drug consumption falls under government spending. In a survey by local news agency, Kyodo News, of the 49 major municipalities, 28 (63%) support the use of generic drugs for welfare recipients.
• Japan is keen to reduce its fiscal deficit and the national debt burden. The later has already reached the region of 200% of GDP.
• The new incumbent to the Seat of Government is likely to implement aggressive fiscal policies.
• All of the above call for austerity drives. Usually l it is pharmaceuticals expenditure which come under severe cuts in health care. The authorities would be keen to substitute Generics to the maximum to contain pharmaceutical expenditure.

Statistics:

• A) India's Exports to Japan

India's exports to Japan
	2013-14		2014-15		2015-16		Gr%
Categories	$mn	INR Cr	$mn	INR Cr	$mn	$mn	$mn	INR Cr
Ayush	9	54	0	2	0	1
Bulk drugs	106	642	97	590	107	698	10	18
Formulations	45	274	32	194	24	154	-26	-20
Herbal Products	12	73	12	74	12	78	-1	6
surgicals	2	15	1	9	1	10	-1	6
Vaccines	0	1	0	1	0	1	-26	-21
Grand Total	175	1058	142	869	144	941	1	8

Conclusions:
Neither the Japanese Government nor its physicians, pharmacies and patients are hostile to foreign drugs and active pharmaceutical ingredients (APIs) in principle.In practice, however, there is significant resistance to foreign generics.

The country’s belief to choose quality over price. Low pricing is associated with low quality in Japan, and generics are considered as low quality imitation. Japanese only trust the brands they know.

Japan has long been the target of foreign innovators, who therefore undoubtedly have better knowledge of the local market than those foreign generic companies, that, have not previously entered the country(like Indian companies), and hence may be better placed to succeed in the generic space. AstraZeneca, Abbott, Pfizer, Roche, Merck, Novartis and BoehringerIngelheim  have  a presence. The difference in the cost of generics to innovator brand in Japan is only 30%-40% and the consumer does not feel the difference hence innovator brand is preferred.( This phenomenon is now slowly changing, though it is a factor still)

However with Government and doctors being incentivized as described above, the citizen perception may change. For the present most of the finished formulation dosages are imported into Japan are of patented nature, if generic, they are imported  only through already established companies in Japan or through a local company.

As on March 2012 20% of the Site inspections PMDA has conducted overseas are in India, which amounts 190 in Number. 160 of them are of API sites and only 24 to 25 are of them for finished dosage forms. This endorses that though in the recent past Japanese companies have filed a large no of DMF’s from China with USFDA and have signed no of FTA agreements inclusive of Pharma with China and Korea, their interests now are towards India.  This is an important opportunity for our exporters to try and match japans’ requirement and win their trust.

As of now India’s exports are more of Bulk drugs than formulations (Finished Dosage forms). India needs to make best of the opportunities which are now being offered by Japan. 

Opportunities for India:

• Japanese Manufacturers Associations can sign up for Pharma Parks and house their manufacturing in India.
• Japanese Manufacturers can select various DMF approved sites for contract manufacturing and reduce their advanced intermediates / APIs sourcing costs.
• Initially OTC/ Neutraceuticals/ Dietary supplements/ pharmaceuticals can be manufactured in FDA/EU approved sites and reduce their sourcing costs. Bulk packs can be strip packed in Japan.
• India has emerged strong in Complex chemical reactions -  Hydrogenations, Chiral reactions,  Catalysis, Halide reactions etc. Japan can outsource these complex steps and have reliable supply chain management.
• Japan can outsource Formulation development, API synthesis, Drug intermediates synthesis, developing novel routes, monoclonal antibodies development etc   and can enhance success.

Difficulties Faced by India’s Exporters:

• India develops ANDAs for USA and reaches other markets. The dosage strengths used in Japan vary. A no of Japanese molecules are prescribed in Japan, which are not in the portfolio of US market. Often a mismatch of Indians portfolio and Japanese requirements
• India develops dossiers with universally accepted bioequivalence studies and dose linearity concept. However Japan requires local bioequivalence studies. And full study of each dosage strength. Hence most portfolio of Indian companies cannot be registered.
• In Japan, convincing doctors to prescribe generics becomes essential. Hence most companies are unable to promote beyond certain therapy areas.
• Resistance from the trade as Profit in selling branded products is far higher compared to generics.
• Japan requires API DMF to be first accessed by a Formulator. Where as in USA, one can file a portfolio of DMFs and look for attractive partners later.