Business strategies employed by Japanese pharmaceutical manufacturers-

by Dr. Shruti Bhat


Over reliance on mature drugs-

Most of the leading Japanese pharmaceutical companies have mature product portfolios, with a heavy reliance on products over 10 years old.

An over-reliance on older drugs leaves companies in any market exposed to a greater risk of declining sales as a result of competition from both new products and generics. However, in Japan it also has a major effect on the impact of reimbursement price cuts. The Japanese government imposes biennial reductions in the level at which hospitals and pharmacies are reimbursed in order to restrain the rapid rise in the country’s health care bill.

The average impact of the 2002 reductions was 6.3%, however the reduction for each drug varies according to a number of factors, and “long-listed” products are subject to additional price reductions. An example of a drug that suffered a large impact in 2002 is Sumitomo’s Sumiferon, which was subject to a 25% reimbursement price cut. Therefore, not only does a reliance on older products provide less potential for future growth, but it also increases the risk of declining sales. The next price cuts are expected in 2004.

Increased spending-

In the past, Japanese pharmaceutical companies have had a lower average R&D spend in comparison to their Western counterparts, partly due to their heavy reliance on in-licensing and the lack of reward for innovation in the country’s drug pricing system. The average ratio of R&D as a proportion of total sales was 12.8% for the leading Japanese companies in 2002, compared to an average for 34 of the leading Western companies at 17.2%.

Japanese companies have begun to recognize the need to boost their portfolios through in-house R&D, and R&D expenditure rose by an average of 9.2% between 2001 and 2002, compared to an average increase in ethical sales of only 4.4%.

Strategic changes-

While most of the Japanese pharmaceutical companies are increasing their R&D expenditure, many are also reorganizing their entire R&D. Daiichi is a key example of a company that has changed the structure of its R&D operations, announcing in August 2003 that it is shifting control of its global drug development operations to the US.

Daiichi aims to achieve this by setting up a new company in the US, headed by a non-Japanese president, with responsibility for therapeutic strategy and clinical trial design on the macro level, as well as authority over which drug candidates have the greatest commercial potential.

A key reason for this geographic shift is the higher cost associated with completing clinical trials in Japan, where the cost of late stage trials have been reported as two to four times higher than those in the US or Europe. This trend is also motivated by the recognition that getting drugs onto the larger US market earlier can reap considerable rewards. Japan's other leading drug makers may now follow suit.

For inquires and clarification, please email me at drshrutibhat@gmail.com or call 1-514-743-6159.