This article appeared in the May 2008 edition of the XIP newsletter INNsight

The Japanese (generic) puzzle

Those of you who regularly receive IMS World Pharmaceutical Market Summary updates on will have noticed that the second largest pharmaceutical market after the USA is Japan. The position is as follows:

Logically, the sizes of the generic markets should bear a similar relationship to one another but surprise, surprise that is not the case.

So it is interesting to see how the generic markets for these leading countries do actually compare to each other. Figures are from various sources with the Japanese figure coming from the Ministry of Health.

What this seems to show is that the Japanese generic market is significantly underdeveloped compare to other major world markets. Although the various Japanese governments have held prices in a tight grip for a long time, they have never really addressed the issue of encouraging a competitive generic industry and market to develop as means of containing healthcare expenditure.

In the past, the government has been rather ambivalent about generics. On the one hand, it increased the payments made to doctors who prescribed generically. On the other hand, it cancelled a minimum price arrangement for generics so that prices crashed by up to 70%

This now seems to be changing. Last year, the government set itself a target of 30% generic market share by volume in 2012. This will still leave it along way behind the US and mature EU markets where generic penetration is over 50%, but nevertheless a long way ahead of where it is now. IMS has forecast that the market will increase from its current US$2bn to US$ 3bn by 2012.

One measure that may help is the new prescription form that was implemented in 2006 which allows the doctor to tick a box to authorise generic substitution by the pharmacist. In that respect, Japan will come to resemble the other major generic markets where the pharmacist plays a major role and is the main target for the generic companies.

Japanese domestic companies are already feeling the pressures of government cost containment measures and so are not likely to welcome moves to increase generic usage. Many have already engaged in mergers with other Japanese companies in a bid to bulk themselves up to withstand competition.

As the Financial Times put it when reporting on the recent $8.8bn purchase by Takeda (Japan’s leading pharma company) of Millennium Pharmaceuticals, a US biotechnology company

• “Like other Japanese drug companies, Takeda faces a more difficult domestic environment. Though the need for medicines is rising as Japan’s population ages, the government is bearing down on costs through price controls and by encouraging the adoption of generic drugs, still underused in Japan.”

A number of local companies have announced their intention of entering the generic market, but the proof that things are changing must come from the arrival of the usual suspects such as Teva, Sandoz and Ranbaxy. All of them have set up subsidiaries there in 2006 and 2007; something that they would not be in hurry to do unless they believed that the circumstances are right.

Watch for further developments and other new entrants as the markets starts to move.