Industry Trend Analysis - Business Environment For Drugmakers To Become More Challenging - MAY 2017

BMI View : Japan will remain an important market for innovative drugmakers - the large market size, considerable purchasing power and the strength of the regulatory environment all contribute to creating revenue - earning opportunities for drugmakers. However, an increasingly tough pricing environmen t and a push towards the consumption of generic medicines , will require drugmakers to review their selling strategies in the world ' s second largest pharmaceutical market.

In the long term, pressure on the Japanese government to contain pharmaceuticals and healthcare spending will go beyond the enforcement of strict pricing policies and the promotion of lower value medicines. This is because threats to the financial sustainability of Japan's healthcare system are largely structural, with an ageing population resulting in higher demand for medical services, lower insurance premiums collected and a government incentivised to reduce social security spending. Healthcare expenditure is a part of social security spending in Japan and accounted for a significant 33% of the FY2016 budget. Given the government's fiscal position - with a large government debt at 219% of GDP in 2016 - this will become a central pressure point.

As a result, we believe that over the coming years, economics, politics and demographics will present significant downside risks to drugmakers operating in Japan. We are currently forecasting medicine sales in Japan to rise from JPY11,730bn (USD107bn) in 2016 to JPY13,969bn (USD109bn) by 2026, with a low compound annual growth rate of 1.7% in local currency terms and 0.1% in US dollar terms.

High Debt Levels To Put Pressure On Pharmaceutical Sector
Total Government Debt As A % Of GDP
f = BMI forecast. Source: Ministry Of Finance, BMI

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