Industry Trend Analysis - Pharmaceutical Growth To Slow Amid Pricing Challenges - JAN 2018


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 significant revenue-earning opportunities for pharmaceutical firms. However, an increasingly tough pricing environment and a push towards the consumption of generic medicines, will require drugmakers to review their selling strategies in the world's third largest pharmaceutical market.

The operating environment for multinational pharmaceutical firms in Japan will remain dynamic as the country continues to reform its healthcare system. Japan's demographic profile, with a rapidly ageing population, provides considerable growth potential for innovative drugmakers given the growing demand for chronic disease medicines. 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. In addition, Japan's market expenditure - both on a per capita and absolute basis - is among the highest globally, indicating a strong preference for and an ability to pay for high quality medicines. Further compounding drugmaker opportunities in Japan is the high level of urbanisation, meaning a high level of access to advanced healthcare facilities. Reflecting this positive outlook, AstraZeneca, Roche, Sanofi and Daiichi Sankyo reported positive sales growth in Q317.

Ageing Population Boosts Demand For Chronic Diseases
Pensionable Population As A % Of Working Age Population
Note: Selection of Asia Pacific markets with a significant demand for innovative medicines. f= BMI forecast. Source: UN, BMI

As the third largest individual pharmaceutical market globally, Japan will remain a key market for product sales growth. However, pharmaceutical companies commercialising their medicines in the country will increasingly face a more challenging business environment as authorities seek to enact measures to curb healthcare spending. The principal deterrent to multinational pharmaceutical firms launching innovative products in Japan will be the country's pricing regime. Plans to implement an annual price revision, marking a paradigm shift from the current biennial system, will have significant implications for the commercial opportunities available to drugmakers and on the market's growth rate. Astellas' financial results reflected the impact of price revisions which led to a repression in product sales in recent quarters.

Japanese authorities have also begun to take steps towards employing health technology assessments in Japan's pricing process. This was affirmed in July 2017, with the Ministry of Health, Labour and Welfare (MHLW) proposing a more structured cost-effectiveness assessment scheme and introducing a larger role for value-based medicines. Additionally, the country's government has identified growth of the nation's generic drug market as imperative to Japan's long-term economic health. To that end, the government in May 2017, stated that it would boost the use of generic drugs from 56% to more than 80% by September 2020.

Astellas

Sales in Japan fell by 10.2% year-on-year (y-o-y) principally due to the impact of transferring 16 long-listed products in April 2017. The introduction of generic competition for the hypertension drug Micardis (telmisartan) in June 2017 also contributed to the sales decline.

AstraZeneca

Sales in Japan grew by 4% in constant exchange terms (CER) to USD617mn, reflecting the strong uptake of Tagrisso (osimertinib).

Daiichi Sankyo

The Japanese market remains key to Daiichi Sankyo's revenues with sales generated in the market rising by 8.2% y-o-y to JPY293.4bn (USD2.5bn), driven by the growth in sales of products such as Lixiana (edoxaban), Nexium (esomeprazole) and Tenelia (Teneligliptin), despite a decline in sales of Olmetec (olmesartan) and negative effects on sales of long-listed products.

Eli Lilly

In Japan, despite a large negative impact from the entry of generic Zyprexa (olanzapine) in June 2016, pharmaceutical revenue outside the US was USD114.8mn, as a result of uptake of Cyramza (ramucirumab) and Trulicity (dulaglutide) in Japan and Europe.

GlaxoSmithKline

In Japan, sales declined by 2% y-o-y due to a three percentage point price cut. On the positive side, denture care returned to stronger growth with the fixative format delivering strong results in the US and Japan following the introduction of new marketing programmes.

Novo Nordisk

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

Merck & Co

The hepatitis C drug, Zepatier (elbasvir/grazoprevir) outperformed in international markets, with sales revenue amounting to USD241mn in Q317, compared to just USD13mn a year previously. Growth was boosted by strong underlying demand in the US, Europe and Japan.

Roche

In the first nine months of 2017 sales growth in Japan increased by 2%. Growth of Alecensa (alectinib) sales was partially offset by Avastin (bevacizumab)(-3%), which was negatively affected by the biennial government price cuts in April 2016.

Sanofi

Sales in Japan for the quarter amounted to EUR386mn (USD454.6mn), a significant 6.8% y-o-y increase. However, at constant structure, sales were down 12% impacted by generic Plavix (clopidogrel) competition, lower sales of vaccines and Aprovel (irbesartan).

Takeda

Japan sales grew by 0.3% due to an increase in Takeda's Growth Drivers, offsetting the negative impact from the return of certain distribution products to Pfizer.

Bayer

Sales of the company's eye medicine Eylea (aflibercept) grew by 19.9% to EUR469mn (USD546mn), due particularly to a substantial expansion of volumes in Japan, Europe and Canada. Oncology drug Xofigo grew by 25%, partly the result of a successful market launch in Japan and higher demand in Europe.

Johnson & Johnson

In Q317, the firm's oncology segment saw sales growth of 25.1% y-o-y. Sales were boosted by strong worldwide sales of Imbruvica (ibrutinib) and robust growth in the US and Japanese markets for Zytiga (abiraterone acetate).

Merck KGaA

The company's healthcare business sector generated organic sales growth of 5.8% y-o-y attributable to approval of Bavencio (avelumab) - the first targeted treatment aimed at patients with metastatic merkel cell carcinoma - in Europe and Japan.

Shire

The Asia Pacific region generated product sales of USD224mn in Q317, corresponding to a 37% y-o-y increase. This growth likely reflects the company's push towards key markets in Asia such as Japan, where the approval of Intuniv (guanfacine) is being co-promoted by Shire's partner Shionogi & Co.

We note that a significant number of firms did not discuss the performance of sales in Japan for Q317, including AbbVie, Amgen, Bristol-Myers Squibb, Gilead, Novartis, Pfizer and Teva.