Industry Trend Analysis - Challenging Business Environment To Impact Pharmaceutical Market Growth - OCT 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 environment and a push towards the c onsumption of generic medicines will impact the commercial opportunities for multinational drugmakers in the country .

Pharmaceutical companies commercialising their medicines in Japan will increasingly face a more challenging business environment as authorities seek to enact measures to curb healthcare spending. The government is focussed on maintaining the population's access to medicines and in the face of an already stretched healthcare system and a limited budget - will continue to target pharmaceutical prices.

Over 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 the country'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, part of social security spending, accounted for a third of the FY2017 budget. Given the government's fiscal position - with a large government debt at 219.1% 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 (in part) will present significant downside risks to drugmakers operating in the country. We forecast sales to rise from JPY11.7trn (USD108bn) in 2016 to JPY13.9trn (USD109bn) by 2026 with a 10-year compound annual growth rate of 1.7% in local currency terms and 0.1% in US dollar terms.

High Debt Levels To Affect Pharmaceutical Sector
Japan: Total Government Debt As A % Of GDP
Source: Ministry of Finance, BoJ, BMI

Pricing Environment To Weigh On Drugmaker Growth

We maintain our core view with respect to innovative pharmaceutical firms in Japan. Research and development focussed drugmakers will continue to face significant challenges due to the country's pricing regime and government's efforts to improve generic drug utilisation rate. Reform of Japan's biennial pharmaceutical price review into an annual revision will have significant implications for the commercial opportunities available to firms, and on the market's growth rate. Company financial results were mixed, with Astellas experiencing a 7.5% year-on-year (y-o-y) decline in sales in Q117 while GlaxoSmithKline reported an increase in its revenues for the quarter (Q217). Despite the country's pricing regime limiting revenue-generation opportunities, innovative pharmaceutical firms will continue to launch new products into the market. The regulatory regime is amongst the most robust globally, with a well-developed drug approval process and one of the strongest intellectual property protection systems.


Sales in Japan fell by 7.5% y-o-y principally due to the impact of transferring 16 long-listed products to LTL Pharma in April 2017. The introduction of generic competition for the hypertension drug Micardis (telmisartan) also contributed to the sales decline.


Sales in Japan grew by 8% on a constant exchange terms (CER) to USD617mn, with an accelerated performance in Q217 reflecting the launch of Tagrisso (osimertinib) and sale of Symbicort (budesonide/formoterol), which offset the biennial price reduction, effective from April 2016.

Daiichi Sankyo

The Japanese market remains key to Daiichi Sankyo's revenues, with revenues generated in the market rising by 6.3% y-o-y in Q117, driven by the growth in sales of products such as Lixiana (edoxaban), Nexium (esomeprazole) and Tenelia (teneligliptin), despite a decline in sales of olmetec and negative effects on sales of long-listed products as a result of the growing number of prescriptions of generic drugs.

Eli Lilly

In Japan, despite a large negative impact from the entry of generic Zyprexa (olanzapine) in June 2016, pharmaceutical revenue increased by 2% to USD604.3mn. Excluding Zyprexa, pharmaceutical revenue grew 16% in Q217, led by Cyramza (ramucirumab), Cymbalta (duloxetine) and Trulicity (dulaglutide).


In Japan, sales decreased by 3%, primarily due to a five percentage point price cut, and on the positive side, respiratory sales grew 6%, led by particularly strong growth of Relvar Ellipta.

Novo Nordisk

In the first six months of 2017, sales in Japan and Korea grew by 1%.

Merck & Co

The company recorded particularly strong growth in Japan, with sales increasing 22% y-o-y to USD818mn in Q217. This was largely driven by the strong uptake of Keytruda (pembrolizumab) in first- and second-line lung cancer.


In regional terms, growth in the first half of 2017 was driven in particular by Asia Pacific (13%), with continued strong growth in Japan (2%). Growth of Alecensa (alectinib) sales (+42%) was partially offset by Avastin (bevacizumab)(-3%), which was negatively affected by the biennial government price cuts in April 2016.


Sales in Japan for the quarter amounted to EUR472mn (USD554.7mn), a significant 10% y-o-y increase. At constant structure, sales in Japan were down 7.5% impacted by generic Plavix (clopidogrel) competition which was partially offset by strong growth of vaccines sales.


Japan sales grew by 1.6% including the negative impact of the return of the Prevenar and Benefix products to Pfizer. Excluding the impact of this return portfolio, Japan's growth rate was 9%.

We note that a significant number of firms did not discuss the performance of sales in Japan for Q217, including AbbVie, Amgen, Bayer, Bristol-Myers Squibb, Gilead, Johnson & Johnson, Merck KGaA, Novartis, Pfizer, Shire and Teva.