High-level initiatives begin
It seems, in fact, that the Japanese government is going all out to develop its generic-drug market, a market that remained untapped in this country for many years. In June 2007, Japan's Ministry of Health announced a program to increase the share of generic drugs in its domestic market from 17% in volume in 2007 to 30% by 2012. Pending legislation seeks to increase the percentage of generic-drug sales from its current domestic market rate of 5% to 10% by 2020, and to 25–30% by 2050, according to Nitin Naik, vice-president of Asia Pacific Healthcare at Frost & Sullivan, a global consulting firm. "The primary aim of these reforms is to ensure that generics will graduate to mainstream products."Behind the government's push are escalating healthcare costs, patent expiries, and the country's ageing population. Frost & Sullivan projects that 35–40% of Japan's citizens will be over age 65 by 2050. Japan's current annual healthcare bill totals ¥30 trillion ($30 billion), of which drug costs make up ¥6 trillion ($6 billion), according to the Japan Generic Pharmaceutical Manufacturers Association (JGPMA). Under the country's new push for generic drugs, generic-drug companies are required to supply strengths of the same dosage form as that of branded drugs to cater to substitution needs. Generic-drug companies are also helping to market generics by distributing products to hospitals and promoting their benefits.
Foreign firms cautiously step in
As a result of these changes, many foreign companies have set up camp on Japanese soil over the past few years. In 2008, Indian-based Ranbaxy Laboratories launched generic tablets of amlodipine for hypertension in Japan with a market value of $2 billion. To date, Ranbaxy has successfully launched four products in the Japanese market.
Foreign companies typically do not venture into the Japanese market alone. Instead, multinational firms come to Japan through joint ventures with domestic companies or acquire an existing generic-drug company. In the generic-drug market, there is a need for in-country experience, reputation, and relationships with Japanese partners, says Kate Kuhrt, director of generics and API intelligence at Thomson Reuters. The recent joint ventures between Israel's Teva Pharmaceutical Industries and Japan's Kowa Company, and between Iceland's Actavis Group and Japan's ASKA Pharmaceutical demonstrate this point.
Japan is particular about the quality of its goods and services. Due to negative perceptions, Indian-based companies such as Ranbaxy are having a tough time in Japan. Ranbaxy's quest to make inroads in Japan became that much more difficult when the US banned the company from bringing products into the states due to good-manufacturing-practice violations at three of Ranbaxy's India-based plants (Dewas, Paonta Sahib, and Batamandi). FDA also stopped reviewing applications from Ranbaxy's Paonta Sahib plant due to evidence of falsified generic-drug data.
Foreign companies face additional costs tied to Japan's multilayered distribution systems and slow drug-approval process. Governmental agencies and JGPMA have stepped in by encouraging pharmaceutical companies to use large national distributors, which are often less expensive. The time required for approving drugs should decrease when Japan's Pharmaceutical and Medical Devices Agency increases its man power. A Health Ministry committee set a deadline of Apr. 1, 2011 for reducing the review time for new drugs to 18 months. Currently, drugs come to the Japanese market on average four years after they have been launched overseas.
Domestic companies face tough road
Domestic companies in Japan are quick to form alliances with foreign firms in a bid to extend their generic-drug ambitions because the government's annual mandated price cuts and slow regulatory approval process discourage innovators, says Kuhrt. For example, Daiichi Sankyo's (Tokyo) acquisition of Ranbaxy not only opens Daiichi's access to the emerging Indian, Chinese, and Eastern European brand markets but also to the global generic-drug market.
"Japanese companies are willing to in-license compounds from US or EU companies that do not have the bandwidth to commercialize products in their research and development portfolio in Japan," according to Naik. "This is expected to only accelerate in 2009–2010."
Broadly speaking, generic drugs do not have a good reputation in Japan because they are still regarded as inferior compared with brand-name drugs. According to Kuhrt, the government is trying to educate the public through advertising and educational activities to improve the image of generic products as cost-effective and safe. Getting past resistance by the public and healthcare community, however, may take years of education.
To make matters worse, wealthy Japanese have the purchasing power to buy branded drugs despite recent rises in copayments to 30%. A spokesperson at Sandoz (Holzkirchen, Germany), one of the top global generic-drug companies, highlighted that pharmacies are not helping. A recent survey, says the spokesperson, revealed that almost half of Japanese pharmacies have not explained generic-drug substitutability to patients. This lack of education is further aggravated by the strong dominance of Japanese innovator companies.
For now, reorganization within the Japanese market is likely to continue, says Kuhrt. "More innovators will launch their generic-drug products. There will be more mergers and acquisitions among Japanese players; [more] Japanese generics by overseas generic manufacturers, Japanese originators, and traders; and additional acquisitions by Japanese originators overseas. The Japanese generic-drug market may not grow as much as the government hopes, but we believe that it will continue to initiate additional incentives to promote generic-drug use."
Jane Wan is a freelance writer based in Singapore.