Japan to curtail soaring drug prices

February 8
5:48 AM 2016

The Japanese government is aiming to bring down drug prices by encouraging more generics. The ageing population and huge debt burden on the government are major factors for implementing drug price control measures. The Japanese government is taking measures to reduce prices of branded drugs and pushing generics.

The World's third largest economy was once a lucrative market in the world for the drugs. The Japanese medicine market is expected to be $78 billion. Several global pharmaceuticals including AstraZeneca Plc, Roche Holding Ag and Novartis AG have been enjoying the huge Japanese market encouraged by favorable government policies. But, now the situation is different. 

Japan's Prime Minister Shinzo Abe has been taking several initiatives to ease the cost pressure on the national budget. Ageing population and heavy debt burden on the government are driving Abe to seek price cuts on branded drugs and encouraging generics. Abe's immediate priority is to ensure fast transition to generics, as reported by Bloomberg.

Masato Iwasaki, who heads up Takeda's domestic business unit, said: "Nobody imagined that this radical change could happen here. Everybody had believed the market would continue growing, but now government pressure is changing the focus."

The Japan Times reports that the generics share in the domestic drugs market is 50 percent and Abe's government aims to take it to the 80 percent. The government is seeking that 80 percent of subscriptions should be for generics only. This will impact the revenues of brands pharmaceuticals particularly those that are off-patent.

The generics industry in Japan is expected to grow 10 percent annually and is poised for a major push. Sanjeev Kumar, a consultant at market research firm Frost & Sullivan, foresees more consolidation in the Japanese market. Small and medium-size companies will become more competitive and major global firms may benefit in the generics segment as well.

Global companies are benefiting from the Japanese market. For instance, Gilead has surpassed analysts' forecasts for the fourth quarter earnings and revenues boosted by sales volume of drugs in Japan market. The sales of its flagship hepatitis C treatments in Japan rose encouragingly. Whereas, hepatitis C treatments Harvoni were declined in the US to $1.7billion from $2billion, according to CNBC.

Japan's largest drug maker Takeda Pharmaceutical has announced the separation of its off-patent products and share its domestic distribution network with Teva Pharmaceutical. Israel's Teva is the world's largest seller of generic medicines. The objective of this major decision is to take advantage of government's push towards generics.

Kumar said: "The Takeda-Teva deal took people by surprise, and is one that could be a trendsetter in gaining more acceptability for similar deals. I don't think any companies including domestic players can ignore this in any way."

Indian generic drugs majors such as Sun Pharmaceutical Industries, Dr Reddy's Laboratories and Lupin Ltd are cost competitive. They may acquire mid-sized companies in Japan. AstraZeneca, Roche and Novartis get revenues to the tune of 6-9 percent of total revenues from Japanese market. The drug spending in Japan may grow 3-4 percent in next five year. This is lowest growth rate in any developed market. If sales tax is increased then it'll offset the expansion and gives in zero growth.

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