Industrial Report (C) JETRO Japan Economic Monthly, August 2005
Trends in the Pharmaceutical Industry Japanese Economy Division
Summary The nature of Japan’s pharmaceutical market is changing. The market for generic drugs in Japan has been expanding in recent years. Major Japanese pharmaceutical companies have undertaken mergers and restructuring, and an increasing number of foreign pharmaceutical companies have entered the Japanese market recently by establishing joint ventures with Japanese drug companies or granting distribution rights for their products to Japanese firms.
1. Market Overview The Japanese pharmaceutical industry, buoyed by a rise in income levels and growing awareness about hygiene after World War II, has grown gradually in line with Japanese industry. The introduction of universal health insurance coverage in April 1961 triggered a soaring increase in domestic demand for medicines. The brisk development of new medicines based on technologies introduced from the West has enabled the industry to respond more quickly to market needs. As a result, the Japanese pharmaceutical industry is now second only to that of the United States.
In recent years, however, Fig. 1-1 Japanese Market Share of Generic Drugs (GE/total drugs) the financial situation (%) Value Quantity basis surrounding health insurance has (Drug price basis) become strained due to increasing 1999 4.7 10.8 medical costs shouldered by the 20024.8 12.2 2003 5.2 16.4 government, owing to the aging Source: Japan Generic Pharmaceutical Manufacturers Association population, advances in medical Fig. 1-2 Market Shares of Generic Drugs in Main Countries technology and the development (2002) of new medical equipment. The (%) U.S. Germany U.K. France Japan Ministry of Health, Labour and Quantity 52 50 52 12 12 Welfare has responded with Value 9 29 17 3 5 measures designed to help curb Note: Figures for the U.S. and France are for 2001. Source: Japan Generic Pharmaceutical Manufacturers Association the cost of medicine, shouldered by patients, medical institutions and insurers, which has stimulated the market for generic drugs. In fiscal 2003 (ended March 31, 2004), the sales share of generic drugs in the pharmaceutical market increased 5.2%, or 0.4 percentage points, in terms of value and 16.4%, or 4.2 percentage points, in terms of sales volume. This upward trend continues. Reorganization of the pharmaceutical industry is proceeding apace, particularly in the drug wholesale trade. In addition, mergers and restructuring of major domestic pharmaceutical
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
manufacturers, which were almost nonexistent in the past, have become commonplace in recent years. One new business model is for pharmaceutical firms to outsource business to bio-venture companies, a move that is attracting much attention.
2．Change in Market Scale a. Changes in drug production Drug production in 2003 totaled ¥6,533.1 billion, a fractional gain of 0.7% over the preceding year, but still an all-time high. Following a trend that has emerged in recent years, the growth rate was alternately positive and negative on the back of changes to the health insurance drug price schedule, which is Fig. 2 Changes in Pharmaceutical Production revised every two 70,000 (billion Home medicines sold door-to-door yen) OTC drugs years. The year 2003 60,000 Other drugs Ethical drugs was a year of positive 50,000 growth, but the growth rate was the smallest in 40,000 recent years due to 30,000 curbs placed on the 20,000 nation’s medical bills owing to strained 10,000 health insurance 0 1970 1975 1980 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 finances, among other Note: Imports are mainly drugs produced from bulk powder, liquid concentrate, bulk products and raw materials for drug formulations. Source: Japan Pharmaceutical Manufacturers Association (JPMA) reasons. b. Change in production, by drug category Production of prescription drugs rose 1.5% to ¥5,813.7 billion, while production of other drugs came to ¥719.4 billion, a decrease of 5.3%. Ordinary over-the-counter medicines totaled ¥671.8 billion, down 5.1%, and medicines sold door to door ¥47.6 billion, a drop of 8.0%. This was the sixth consecutive year of decline for sales of the three categories apart from prescription drugs, resulting in prescription drugs holding an 89.0% share of the market. c. Change in production, by usage Among prescription drugs, the production of cardiovascular medicines and gastroenterological drugs trended upward because of increased fatalities stemming from adult diseases. A phenomenal proliferation of cardiovascular medicines was spurred by increased lifestyle-related diseases and chronic hypertension. In 1989, cardiovascular medicine production
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
caught up with antibiotics, which had long retained the top position. Cardiovascular medicine totaled ¥1,226.1 billion in 2002, a decrease of 0.7% and the first decrease in four years, but rebounded to ¥1,299.8 billion in 2003, up 6.0%, the biggest growth rate among the top 10 drugs. The growth of cardiovascular medicines was supported by antihypertensive drugs, vasodilators and lipid-lowering agents. Production of antihypertensive drugs in fiscal 2003 totaled
¥439.7 billion, an increase Fig. 3 Breakdown of Domestic Drug Production （ ） of 8.5%, retaining the top In billions of yen and % Central Other Antibiotic Blood and Allergy Cardiovascu- Gastrointesti- nervous Biological Dermatolo- FY metabolic prepara- body fluid medication Chemotherpeutics position in terms of drugs lar drugs nal drugs system drugs gic drugs drugs tions drugs s drugs classified by effect. Behind 1980 a 361.7 254.7 183.6 271.8 814.3 82.5 33.8 114.4 121.9 29.5 b 12.1 8.6 6.2 9.1 27.3 2.8 1.1 3.8 4.1 1.0 the strong growth, the rapid c (2) (4) (6) (3) (1) (11) (15) (8) (7) (17) 1985 a 506.2 185.1 272.2 289.4 690.5 120.9 19.0 153.4 156.9 59.0 expansion of the b 15.0 5.5 8.0 8.6 20.4 3.6 0.6 4.5 4.6 c (2) (5) (4) (3) (1) (10) (20) (8) (7) (16) 1988 a 383.8 225.5 365.5 406.9 702.5 151.2 25.8 162.0 214.7 103.3 Angiotensin II receptor b 15.9 5.2 8.5 9.4 16.3 3.5 0.6 3.8 5.0 2.4 c (2) (5) (4) (3) (1) (11) (20) (10) (6) (14) inhibitor should be noted. 1989 a 757.9 256.7 421.2 442.1 724.5 175.9 24.3 159.8 227.1 118.9 b 16.2 5.5 9.0 9.5 15.5 3.8 0.5 3.4 4.9 2.5 c (1) (5) (4) (3) (2) (9) (21) (10) (6) (13) Other cardiovascular 1990 a 814.8 274.7 424.0 429.4 624.1 177.9 24.4 171.7 228.1 162.1 b 17.3 5.8 9.0 9.1 13.2 3.8 0.5 3.6 4.8 3.4 medicines that attained c (1) (5) (4) (3) (2) (9) (22) (10) (7) (13) 1995 a 10,045.7 415.0 457.4 442.5 451.5 263.0 183.1 233.2 218.2 179.7 steady growth included b 19.1 7.9 8.7 8.4 8.6 5.0 3.5 4.4 4.2 3.4 c (1) (5) (2) (4) (3) (6) (9) (7) (8) (10) 2000 a 1,113.5 435.5 445.3 389.4 373.9 343.0 185.3 250.7 240.0 159.0 Blopress from Takeda b 20.7 8.1 8.3 7.2 7.0 6.4 3.4 4.7 4.5 3.0 c (1) (3) (2) (4) (5) (6) (9) (7) (8) (11) Pharmaceutical, Nu-Lotan 2001 a 1,234.8 484.3 477.5 428.0 410.4 301.3 247.8 255.4 236.6 167.4 b 21.6 8.5 8.3 7.5 7.2 5.3 4.3 4.5 4.1 2.9 c (1) (2) (3) (4) (5) (6) (8) (7) (9) (10) by Banyu Pharmaceutical, 2002 a 1,226.1 519.9 477.1 459.5 369.8 295.7 218.5 254.7 230.8 186.6 b 21.4 9.1 8.3 8.0 6.5 5.2 3.8 4.4 4.0 3.3 and Diovan from Novartis c (1) (2) (3) (4) (5) (6) (9) (7) (8) (10) 2003 a 1,299.8 528.8 488.4 474.6 386.9 312.0 245.1 237.2 223.0 194.1 Pharma. In addition, b 22.4 9.1 8.4 8.2 6.7 5.4 4.2 4.1 3.8 3.3 c (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) contributing to this Note 1: Classification of effect was revised in 1991. Note 2: "a" indicates value produced, "b" percentage of total, and "c" order. increase was the release of Source: Ministry of Health, Labour and Welfare Micardis by Nippon Boehringer Ingelheim in December 2002, and the release of Olmetec by Sankyo–Sanwa Kagaku Kenkyusho and Kowa–Nikken Chemicals in May 2003. Production of lipid-lowering agents in 2002 stagnated at ¥269.5 billion, down 6.4%, but bounced back vigorously in 2003 to ¥302.7 billion, up 12.3%. Sales of the HMG-CoA reductase inhibitor increased. Mevalotin of Sankyo and Lipovas of Banyu were reclassified as generic drugs in July 2003 and Lipitor of Pfizer and Astellas, a second-generation cardiovascular agent, exhibited strong growth. Livaro was introduced by Kowa and Sankyo in September 2003. In 2004, top-ranking products Mevalotin and Lipovas were affected by generic drugs, reflecting expectations of minus growth in cardiovascular agents as a whole. Competition in the cardiovascular agent market was expected to intensify with the launch of Crestor by AstraZeneca and Shionogi in March 2005. The market for agents affecting the central nervous system gradually expanded, although the respective market share did not change much. Four top-ranking products — the psychoneurotic agent Zyprexa from Eli Lilly Japan, Risperdal from Janssen Pharmaceutical, Seroquel from Astellas
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
and Depas from Mitsubishi Pharma — showed rapid growth. 3. Structure and Distribution a. Structure Pharmaceutical companies The number of Fig. 4 Sales Shares of Top Japanese Drug Companies pharmaceutical companies (%) operating in the Japanese Fiscal Number of Top 5 Top 10 Top 30 Top 50 Top 100 year companies market had been increasing 1990 21.3 34.1 58.5 71.5 84.5 1,567 due to the entry of foreign 1991 20.0 33.5 59.0 71.4 84.4 1,738 pharmaceutical companies 1992 25.4 43.2 74.0 89.2 100.0 95 1993 18.8 31.6 56.1 69.2 83.5 1,856 and non-pharmaceutical 1994 18.3 30.9 55.7 68.9 83.8 1,788 1995 19.3 31.4 56.3 69.6 84.2 1,691 firms diversifying their 1996 22.2 34.6 59.2 72.2 85.3 1,596 product portfolios, but in 1997 23.6 36.0 62.9 75.9 87.4 1,562 1998 20.3 32.2 60.1 73.0 85.8 1,627 recent years the number 1999 23.6 36.6 65.6 78.8 90.7 1,427 has decreased. There are 2000 26.7 40.6 68.0 80.6 92.3 1,396 2001 27.4 41.5 69.3 81.5 92.2 1,391 several reasons for this, the 2002 28.3 42.3 69.7 82.0 92.8 1,347 first being the slower 2003 28.6 42.5 70.8 82.3 92.7 1,342 Note: Numerical values for 1992 cover the top 100 companies (95 answers received). growth of the domestic Source: Ministry of Health, Labour and Welfare drug market. In addition, some pharmaceutical companies tried to expand through mergers and restructuring, while others simply withdrew from the market due to the time lag between research and commercialization, as well as the increased costs for development. As a result, the number of pharmaceutical companies peaked at 1,646 in 1993, but then decreased to 1,062 in 2003. Broadly classified, there (Companie Fig. 5 Number of Drug Manufacturers 1,700s） are three groups of 1,600 1,500 pharmaceutical 1,400 1,300 companies: those 1,200 that mainly 1,100 1,000 produce and sell 900 800 prescription drugs 700 600 (474 firms), those 500 400 that mainly 300 200 produce and sell 100 0 over-the-counter FY1975 FY1980 FY1985 FY1990 FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003
Mainly ethical drugs Mainly OTC drugs Mainly non-ethical/OTC drugs
Note: The definition of “iyakuhin” (drugs) was changed in fiscal 1999. Source: Japan Pharmaceutical Manufacturers Association
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
drugs (416) and those that produce and sell drugs other than prescription and over-the-counter drugs (172). Within the first group, 71 mainly produce and sell generic drugs. The trend toward oligopoly in the pharmaceutical market strengthened, with the top 10 firms accounting for 42.5% of sales in fiscal 2003. This will increase further as mergers and reorganizations of major pharmaceutical firms have continued since 2004. The top 20 companies in terms of sales in fiscal 2004 are shown in Fig. 6. Banyu Pharmaceutical announced nine-month results due to a shift in their accounting period, but full-year sales were estimated at more than ¥180 billion. There was no major change in placement among high-ranking companies, but the soaring growth of foreign-affiliated companies and the expanded scale of operations through mergers were major trends. In April 2005, Yamanouchi Pharmaceutical and Fujisawa Pharmaceutical merged to create Astellas Pharma, while Dainippon Pharmaceutical and Sumitomo Pharmaceuticals were scheduled to merge soon, and Daiichi Pharmaceutical and Sankyo were expected to follow suit. These changes would result in Astellas Pharma placing second in sales, Daiichi Sankyo third and Dainippon Sumitomo Pharma seventh. Fig. 6 Top 20 Drug Companies by Sales (FY2004) 900,000 (million yen) 800,000
700,000
600,000
500,000 OTC drugs 400,000 Ethical drugs
300,000
200,000
100,000
0 Takeda Pharmaceutical Astellas Pharma Daiichi Sankyo Pfizer Yamanouchi Pharmaceutical Sankyo Chugai Pharmaceutical Fujisawa Pharmaceutical Dainippon Sumitomo Pharma Eisai Novartis Daiichi Pharma Taisho Pharmaceutical Mitsubishi Pharma Otsuka Pharmaceutical Shionogi & Co. Glaxo Smith Kline AstraZeneca Tanabe Seiyaku Kyowa Hakko Kogyo Ono Pharmaceutical Banyu Pharmaceutical Sumitomo Pharmaceuticals Dainippon Pharmaceutical
Compiled by Yano Research Institute from data released by each company.
Drug wholesale trade The role of the wholesale sector in the pharmaceutical industry trade has changed greatly over time, in parallel with changes in wholesaling throughout the Japanese economy. In fact, the evolution of the wholesale sector symbolizes the history of the pharmaceutical industry. With the
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
introduction of the price quotation system, competition among drug wholesalers escalated and profitability worsened. This forced wholesalers into mergers or business tie-ups with the purpose of lowering their costs by
Fig. 7 Japan Pharmaceutical Wholesalers Association Members developing economies of 450 900 （No. of scale, which helped them firms) 400 800 Head offices to strengthen sales and JPWA member 350 fi 700 create more bargaining 300 600 power with manufacturers. 250 500 As a result, member 200 400 companies of the Japan Pharmaceutical 150 300 Wholesalers Association 100 200 (JPWA) decreased from 50 100
440 in 1986 to 142 in fiscal 0 0 1986 1990 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Note: Some members (branch offices, R&D centers, etc.) have the same head office. (fiscal years ending March 31) 2005, a drop of 298. Source: Japan Pharmaceutical Manufacturers Association Mergers and reorganizations accelerated from Fig. 8 Sales of Four Major Drug Wholesalers in FY2004 around 1999, resulting in four 1,800,000 main groups: Mediceo Holdings, 1,600,000 Other sales 1,400,000 Drug wholesale business/drug sales Suzuken group, Alfresa group 1,200,000 and Kyoso Mirai group (whose 1,000,000 core company is Toho 800,000
Pharmaceutical). The combined 600,000 sales of the groups’ drug 400,000 production and/or drug wholesale 200,000 divisions in fiscal 2004 was 0 Mediceo HD Suzuken Alfresa HD Toho Pharmaceutical
¥4,795.6 billion, or 73.4% of the (million yen) Consolidated Major drug wholesalers and their subsidiaries market. sales Senshu Yakuhin, Ushioda Sangokudo Yakuhin, Chiyaku, Kuraya Sanseido, Yamahiro Mediceo HD 1,665,815 In October 2005, Mediceo Kuraya, Heiseiyakuhin, Izutsu-yakuhin, Everlth, Atol Suzuken Suzuken Okinawa Yakuhin, Suzuken Iwate, NakanoYakuhin, Astis 1,330,982 Holdings, the leading wholesaler, Alfresa Pip Tokyo, Daiwa Yakuhin, Kowa-yakuhin, Odashima, Alfresanikkensangyo, Alfresa HD 1,195,313 Ando will combine operations with Sanus, Honma Toho, Tokai Toho, Yamaguchi Toho, Ogawa Toho, Yakushin, Godo Toho Pharmaceutical 603,586 Toho
Paltac, a wholesaler of daily Total for 4 Note: The sales of Mediceo HD and Toho Pharmaceutical are drug sales, and those of Suzuken and Alfresa 4,795,696 companies goods, in a cross-industry HD are consolidated sales for the drug wholesale business. Source: Compiled by Yano Research Institute from data released by each company. arrangement. Their combined sales in fiscal 2004 came to ¥2,052.0 billion, or ¥700 billion more than Suzuken’s ¥1,331.0 billion.
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
b. Distribution structure Drug distribution can be roughly divided into four main channels: • Prescription drugs flow from manufacturers to hospitals via wholesalers. • Some over-the-counter drugs flow from manufacturers to consumers via drugstores and other retailers. • Other over-the-counter drugs move from manufacturers to consumers via wholesalers and then drugstores/retailers. • Medicines sold door-to-door move from manufacturers to consumers via sales companies specializing in this kind of sales. About 70% of prescription drugs is sold to medical institutions via primary wholesalers, and the rest is sold by small/midsized or secondary wholesalers that have no direct transactions with either large or second-tier manufacturers.
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
Fig. 9 Drug Distribution Structure
Drug医薬品メーカー manufacturers (including（輸入販売含 importer-distributors)む） sell their products directly products directly their sell Ethical drugmanufacturers that sold door-to-door Manufacturers thatproduce drugs
Primary一次卸売店 wholesalers directly sellproducts their 一般用医薬品直販メ drugOTC manufacturers that ーカー 配置用家庭薬メ ーカー
Secondary二次卸売店 wholesalers Ethical OTC drugs drugs Cash and carry wholesalers dispensaries Health insurance Hospitals and clinics drugstores Dispensaries and
Prescriptions
Injections and dispensing Dispensing Selling
Selling Patients患者および and consumers消費者
Source: Ministry of Health, Labour and Welfare
4. Trends in Exports and Imports The Japanese (million yen) Fig. 10 Drug Imports and Exports pharmaceutical 800000 3.0 750000 Value exported (A) Value imported (B) B/A (times) industry has lagged 700000 2.5 behind international 650000 600000 550000 practices. The industry, 2.0 500000 after operating in a 450000 400000 1.5 technological vacuum 350000 300000 during and after World 1.0 250000 War II, was highly 200000 150000 0.5 dependent on imported 100000 50000 0 0.0 19941995199619971998199920002001200220032004 Source: Ministry of Economy, Trade and Industry Industrial Report (C) JETRO Japan Economic Monthly, August 2005
products and technologies. Japan’s balance of trade in pharmaceuticals continues to run a heavy deficit. This situation has been exacerbated by universal health insurance in Japan, which has created a huge domestic demand for pharmaceuticals and diverted Japanese drug companies from developing export markets. In recent years, however, the slowdown of the domestic pharmaceutical market and the increasing disappearance of international barriers have prompted Japanese drug manufacturers to aggressively launch operations overseas. In 2004, drug exports came to ¥383.0 billion and imports to ¥769.2 billion, or a deficit of ¥386.2 billion. Although imports Fig. 11 Approved Drugs Containing New Active Ingredients (from had been shrinking until about 2001) （ 2000, they suddenly began to rise Number of products and %) Total drugs Company Total Production approved for in 2001. One reason is because Import approved approved production the government approved fewer Chugai Pharmaceutical 4 2 2 50.0 AstraZeneca 4 1 3 25.0 drugs containing new active Aventis Pharma 4040.0 Novartis Pharma 4 0 4 0.0 ingredients for domestic drug Pfizer 4040.0 Mitsubishi Pharma 3 3 0 100.0 companies, while approving more Tanabe Seiyaku 3 1 2 33.3 Glaxo Smith Kline 3 0 3 0.0 for foreign-affiliated companies. Ono Pharmaceutical 2 2 0 100.0 Sumitomo Pharmaceuticals 2 2 0 100.0 The comprehensive enforcement Meiji Seika 2 2 0 100.0 Sankyo 2 2 0 100.0 of the Good Clinical Practice Banyu Pharmaceutical 2 1 1 50.0 Kyorin Pharmaceutical 2 1 1 50.0 (GCP) guidelines in April 1998 Boehringer Ingelheim 2 0 2 0.0 Schering-Plough 2 0 2 0.0 established new regulations for Yamanouchi Pharmaceutical 1 1 0 100.0 Fujisawa Pharmaceutical 1 1 0 100.0 monitoring, auditing, recording, Kaken Pharmaceutical 1 1 0 100.0 analysis and reporting. This Nippon Shinyaku 1 1 0 100.0 Toyama Chemical 1 1 0 100.0 increased the workload for Takeda Chemical Industries 1 0 1 0.0 Abbott 1 0 1 0.0 pharmaceutical companies Eli Lilly 1 0 1 0.0 Bayer Yakuhin 1 0 1 0.0 requesting clinical trials and Note 1: All drugs approved as of November 30, 2004. Approved drugs of Nippon Roche, Nihon Ciba-Geigy and Pharmacia are treated as those of Chugai Pharmaceutical, Novaltis and Pfizer, respectively. medical institutions conducting Note 2: The sources are "yakumu kouhou" (service bulletins). the trials, and required companies Source: Japan Pharmaceutical Manufacturers Association to train more clinical trial coordinators and monitors. As a result, the number of clinical trials in Japan declined.
5. Trends in Goods and Services Major trends included an increase in the cost of product development, more corporate mergers and reorganizations, and brisk outsourcing. a. Higher cost of development
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
The goal of every pharmaceutical company is to develop a blockbuster drug that results in a tremendous marketing success. But the chance of such success is low and the risks are high. According to the Japan Pharmaceutical Manufacturers Association, only one out of 11,000 new substances actually Fig. 12 Top 10 Drug Firms' R&D Expenditures and Profit/Sales Ratios (% share of 10 firms) (billion yen) 25 650 becomes a new 24 23 600 22 medicine that is 21 550 Average R&D expenditures (10 companies' average) 20 Net income to sales ratio supplied to 19 500 18 R&D expenditure to sales ratio 17 450 medical 16 15 400 14 350 institutions. On 13 12 300 average, it takes 11 10 250 9 8 200 between nine and 7 6 150 17 years, and 5 4 100 3 between ¥20 2 50 1 0 0 billion and ¥30 FY1990 FY1991 FY1992 FY1993 FY1994 FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 Note 1: The companies covered are Takeda Pharmaceutical, Sankyo, Dai-ichi Pharmaceutical, Taisho Pharmaceutical, Eisai, Shionogi & Co., Fujisawa Pharmaceutical, Chugai Pharmaceutical, and Tanabe Seiyaku. Note 2: From fiscal 1999 data is on a consolidated basis. Note 3: Chugai Pharmaceutical’s fiscal 2003 figures are on an irregular 9-month basis, from April to December. billion, to develop Note 4: Sources used are the companies’securities reports. Source: Japan Pharmaceutical Manufacturers Association a new medicine that reaches the market. b. Increased mergers and reorganizations Drug manufacturers Recent examples of mergers and reorganizations in the Japanese pharmaceutical industry include the merger between Chugai Pharmaceutical and Nihon Roche in October 2002, which formed New Chugai. In the same month Daiichi Suntory Pharma was established by the merger of Daiichi Pharmaceutical and Suntory. Taisho Toyama Pharmaceutical, a firm selling prescription drugs, was formed through joint investment by Taisho Pharmaceutical and Toyama Chemical in October 2003. A merger between Dynabott and Hokuriku Seiyaku in February 2003 brought about Abbott Japan, and Pfizer and Pharmacia merged under the name Pfizer in August 2003. Various types of mergers and reorganizations were seen. These included mergers between Japanese and foreign-affiliated drug companies, Japanese-only drug companies, or foreign-only companies. The most common example was the second example, such as the merger between Pfizer and Pharmacia. Other examples of Japanese-foreign mergers included Nippon Boehringer Ingelheim in July 1997, Novartis Pharma in April 1997, Wyeth Lederle (currently Wyeth) in December 1998, AstraZeneca, Aventis Pharma and Sanofi-Synthelabo in January 2000, and Glaxo Smith Kline in January 2001. Japanese-only mergers started appearing around 2004. For example, Yamanouchi Pharmaceutical and Fujisawa Pharmaceutical merged on April 1, 2005 to create Astellas Pharma.
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
Dainippon Pharmaceutical and Sumitomo Pharmaceuticals were to merge as Dainippon Sumitomo Pharma, and Daiichi Pharmaceutical and Sankyo were to jointly form the holding company Daiichi Sankyo, both in October 2005. In addition, Daiichi Sankyo is scheduled to combine its prescription drug divisions in April 2007. New moves by top-ranking Japanese pharmaceutical companies began to open up a new stage of mergers and reorganizations, with some observers expecting more activity among major domestic drug companies, following the example of Takeda Pharmaceutical.
Over-the-counter drug manufacturers The OTC drug industry began undergoing drastic change. In October 2004, Zepharma was established by combining the OTC drug divisions of Fujisawa Pharmaceutical and Yamanouchi Pharmaceutical, with the two companies equally sharing ownership.
In January 2005, Lion Fig. 13 Major OTC Drug Companies
Corporation purchased Sato Seiyaku July 2003 ◇Purchases OTC drug business of Mitsubishi Pharma. Chugai Pharmaceutical’s ◇Created by merger between OTC divisions of Fujisawa healthcare division to launch Zepharma October 2004 Pharmaceutical and Yamanouchi Pharmaceutical (50-50 investment) a new enterprise. As a result, Lion January 2005 ◇Purchases Chugai Pharmaceutical’s healthcare division. annual sales of Lion
◇Sells prescription drug business to Hisamitsu Corporation’s OTC drug SS Pharmaceutical April 2005 Pharmaceutical. department will top the ¥50 ◇Purchases Dainippon Pharmaceutical’s healthcare business Kowa June 2005 billion mark, ranking and the business of Marupi Yakuhin, its sales subsidiary. alongside Rohto August 2005 ◇Purchases total shares of Sumitomo Pharmaceuticals Dainihon Jochugiku Pharmaceutical. SS (scheduled) Healthcare, Sumitomo Pharmaceuticals’ OTC drug subsidiary. Pharmaceutical now belongs ◇Daiichi Pharmaceutical and Sankyo to merge management Daiichi by setting up joint holding company in October 2005. to the third largest group, Pharmaceutical/ April 2007 Scheduled to set up an operating holding company in April Sankyo 2007 to combine ethical drug business. Studying what to do after Taisho Pharmaceutical with OTC drug business. Source: Compiled by Yano Research Institute from information released by each company. and Takeda. In January 2005, Kowa and Dainippon agreed that Kowa would purchase Dainippon’s healthcare division and the business of Marupi Drug, which is Dainippon’s sales subsidiary. SS Pharmaceutical sold its prescription drug business to Hisamitsu Pharmaceutical in April 2005. SS henceforth will focus on OTC drugs, aiming to become a top-ranking manufacturer. Daiichi and Sankyo will integrate operations under a holding company in October 2005.
Generic drug manufacturers
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
An incentive to use lower-cost generic drugs was included in the April 2002 revisions to the health insurance system, under the section Fig. 14 Reorganization of Major Generic Drug Manufacturers Towa Acquires all shares of J-Dolph Pharmaceutical and converts covering dispensing fees October 2003 it into a wholly-owned subsidiary 1 Pharmaceutical and medical service fees . Accepts the allocation of new shares to a third party issued It was decided that if a Nipro April 2004 by Takeshima Seiyaku and converts the latter into a subsidiary. Nipro's sharehodling ratio rises to 65.5%. Enters business tie-up with Zensei Pharmaceutical generic drug were Sawai November 2004 Industries. Acquires 167,000 shares (19.9%) out of Zensei Pharmaceutical included in a prescription Pharmaceutical Industries’ shares issued and outstanding. obtained from a January 2005 Absorbs Nippon Galen. Nichi-iko Concludes a comprehensive business tie-up agreement and pharmacy that is not part business transfer agreement covering drugs with Maruko Pharmaceutical April 2005 Pharmaceutical. Acquires Maruko Pharmaceutical and of a hospital, two points converts it into a subsidiary on April 1,2005. may be added to the Teikoku Medix and Ohta Pharmaceutical scheduled to merge on October 1, 2005. Ota Pharmaceutical will be the Teikoku Medix October 2005 medical service fee and surviving corporation, but the new company’s name will be two points to the Teikoku Medix Co., Ltd. dispensing fee. In Source: Compiled by Yano Research Institute from information released by each company. addition, 10 points may be added if information about the drug is furnished to the patient. In June of the same year, the Ministry of Health, Labour and Welfare sent a notice to government-operated hospitals and sanatoriums encouraging them to use generic drugs more. Three months later, the ministry introduced a fixed-rate payment for geriatric care. In April 2003, salaried workers’ burden of medical fees was raised to 30%, resulting in higher medical costs for patients at medical institutions. Thus, the business climate became more favorable for generic drugs. Moreover, patent rights expired on such big-market drugs as Gaster of Yamanouchi, Mevalotin of Sankyo and Lipovas of Banyu. In April 2003, the comprehensive evaluation system known as diagnosis-procedure combination (DPC) was introduced, stimulating the proliferation and increased consumption of generic drugs at medical institutions. The new environment has been a boon to major generic drug firms, such as Towa Pharmaceutical, Sawai Pharmaceuticals, Taiyo Yakuhin and Nichi-iko, while other generic drug companies began to actively seek mergers and restructuring to expand their shares. c. Brisk outsourcing
1 The medical service fee is remuneration that a medical institution receives for services rendered to a patient. It is calculated based on rates (number of National Health Insurance points) determined for each type of clinical examination or treatment. The medical institution adds up the points, with each point equal to ¥10, and receives the corresponding fees from the patient and their public health insurance organization. The revision of any such fee is first considered by the Central Social Insurance Medical Council, which makes recommendations that the Ministtry of Health, Labour and Welfare uses to determine a revised number of points for the specific service under consideration.
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
In recent years, pharmaceutical companies have been outsourcing more aggressively to optimize the efficiency of their corporate resources while the cost of research and development rises. Recipients of outsourced work include bio-venture companies, drug manufacturing service companies, contract sales organizations, site management organizations and contract research
Fig. 15 Trends in Outsourcing by Pharmaceutical Companies
Venture companies, research Outsourcing Research institutes (universities, private institutes) Tie-up
Entry
Development SMO/CRO
Business spun off Manufacturing as independent firm Manufacturing service companies GenericGeneric drugdrug manufacturersmanufacturers
Distribution CSO CRO/temporaryCRO/temporary staffingstaffing firmsfirms
Pharmaceutical companies Outsourcing companies Main new entrants
Source: Yano Research Institute
organizations.
Bio-venture companies The domestic drug market has declined as a result of frequent revisions to drug prices and curbs on medical bills via national health insurance. Pharmaceutical companies have to develop new medicines to spur growth, which has prompted them to tie up with bio-venture companies. This has provided access to externally developed technologies for faster, more efficient development, reduced costs and risk diversification. In November 2001, Takeda Pharmaceutical set up Takeda Research Investment (TRI), a wholly owned subsidiary in California. Sankyo introduced technology for the mass production of antibiotics from Lonza Biologics, a major British manufacturing service company, and is engaged in joint research with Quark Biotech, an American bio-venture company. Quark Biotech also has tie-ups for joint research with Taisho Pharmaceutical, Shionogi and Astellas Fig. 16 Plant Consolidation/Closure/Separation by Major Drug Companies Kyorin Pharmaceutical Plans to close Nogi plant by March 2006. Pharma (formerly Fujisawa Pharmaceutical). Sankyo Yasugawa and Tanashi plants closed. Plans to concentrate production at Settsu and Kanegasaki Shionogi & Co. plants Scheduled to separate Onoda Plant as Tanabe Seiyaku. Tanabe Seiyaku Drug manufacturing service companies Yamaguchi Co., Ltd. in October 2005. Takeda Chemical Scheduled to close Shonan plant at the end of March 2006 The revised Pharmaceutical Law enacted in Industries and concentrate production at Hikari and Osaka plants. Scheduled to concentrate production, now at five plants, to April 2005 replaced the old “approval for Utsunomiya and Fujieda plants in five or six years. Also Chugai Pharmaceutical scheduled to separate the production division into a manufacture” regulation with “approval for company in January 2006. Sold Kagamiishi plants plant to Nipro at the end of June 2005 Separated Yoshitomi and Ashikaga plants as MP- Mitsubishi Pharma Technopharma in April 2005. Closed Yodogawa drug preparation plant and consolidated Meiji Seika production at Odawara plant. Separated Otawara plant as Mochida Seiyaku Kojo Mochida Pharmaceutical (Mochida Phaarmaceutical Plant) in April 2005.
Source: Compiled by Yano Research Institute from information released by each company. Industrial Report (C) JETRO Japan Economic Monthly, August 2005
manufacture and wholesale.” Previously, only partial outsourcing of a manufacturing process was permitted, but the revised law allows complete outsourcing. As a result, the market for drug manufacturing services is expected to expand. In addition, some major pharmaceutical companies are spinning off manufacturing operations into separate companies.
Contract sales organization (CSO) A CSO is a company that undertakes sales and marketing for a pharmaceutical company under a trust contract. CSOs began to grow in Europe at the outset of the 1980s and later spread to the
United States. In Japan, CSOs Fig. 17 Main Domestic CSOs APO Plus Station July 1998 First CSO in Japan Inovex division of were introduced by Commercial solutions for Quintiles Transnational Quintiles Transnational September 1998 Japan liberalization of temporary Japan Pharma Network August 2000 CSO for capability proposals staffing laws in July 1999. Richfield Corporation March 2001 Temporary staffing firm in Itochu group. UPSHE October 2002 CRO in CRONOVA group Recently, an increasing number EPMedical January 2004 CRO in EPS group of contract research Tokyo CSO September 2004 CRO in Tokyo CRO group CMIC-CP April 2005 CRO in CMIC group Tempstaff Biomedical organizations and temporary May 2005 Major temporary staffing firm Business staffing companies have been Source: Compiled by Yano Research Institute from homepages, etc. of each company. entering the CSO market.
Site management organization (SMO) The Standards for the Implementation of Clinical Trials on Pharmaceutical Products introduced in 1997 facilitated preparations for clinical trials at Japanese medical institutions. In 1999, a council studying clinical trials recommended the use of SMOs to assist medical institutions in clinical trials. In November 2002, the Ministry of Health, Labour and Welfare released a report that led to a formal definition of SMOs. Demand for SMO services has been rising along with the number of participating companies, which now number more than 60.
Contract research organization (CRO) CROs, which first appeared in the U.S. and Europe in the 1970s, are entrusted with developing products such as drugs, medical instruments and cosmetics. In Japan, CROs were given legal status as trustees and as contract research organizations under Ministerial Ordinance No. 28 of the Ministry of Health, Labour and Welfare dated March 27, 1997 (Standards for the Implementation of Clinical Trials on Pharmaceutical Products), Notification No. 455 (Pharmaceuticals and Cosmetics Division) and Notification No. 68 (Safety Division) under the Pharmaceutical Affairs Bureau of the Ministry of Health, Labour and Welfare dated May 29, 1997, and a notification concerning the Implementation of Clinical Trials on Pharmaceutical Products (or “Good Clinical Practice”). At present, there are about 30 CROs in Japan.
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
6. Trends among Foreign-Affiliated Companies Almost all large pharmaceutical companies in the world have entered the Japanese market. There are few barriers to entering this market, but experience has shown that it can take a long time for foreign companies to establish themselves. There are two main methods to enter the market: establish a joint venture with a Japanese pharmaceutical company or conclude a sales tie-up. After doing business in Japan and learning about the market, however, many foreign companies end up selling their own products directly. Furthermore, foreign companies have realized increased growth through mergers and reorganizations. Three foreign-affiliated companies were listed among the top 10 pharmaceutical companies in fiscal 2004: Pfizer was second, Chugai fifth and Novartis Pharma eighth. Mergers and reorganizations of foreign-affiliated pharmaceutical companies can be broadly divided into two types. One is the merger of Japanese subsidiaries of foreign companies resulting from mergers and restructuring of parent companies in their home countries, and the other is to combine management between a foreign-affiliated pharmaceutical company and a Japanese pharmaceutical company. The first type is the most prevalent, and examples include AstraZeneca (established by the merger of Astra Japan and Zeneca Pharma in January 2000), Glaxo Smith Kline (established by the merger of Glaxo Welcome and Smith Kline Beecham in January 2001) and Pfizer (established by the merger of Pfizer and Pharmacia). The second type includes Abbott Japan (established by the merger of Dynabott and Hokuriku Seiyaku in February 2002) and Chugai (established by the merger of Chugai Pharmaceutical and Nippon Roche in October 2002).
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
Fig. 18 Process of Screening Drugs and Medical Equipment
Applicant申請者 Pharmaceuticals医薬品医療機器総合機構 and Medical Devices Agency 外部専門家External specialist Designation and consultation Interview Screening, and 指名・相談 面談 Applicant Screening審査専門員 specialist 申請者 と investigationチーム審査 of Inquiry by Pharmaceuticals and Investigation specialist reliability信頼性調査 Medical機構からの照会・確認 Devices Agency and 調査専門員 Advice助言 confirmation 申請者からのプレゼンテーション、回答Presentation by applicant
Report審査報告 about screening
Consultation審査専門協議 Screening審査専門員 experts と External外部専門家 specialists GMP between Factory製造所 ＧＭＰ調査 investigation screening Discussion主要問題点の諮議・意見の調整 of main problems experts Review書面による協議もあり of documents
Summing主要問題点のまとめ up main problems
Explanation申請者による説明（プレゼンテーション）の機会 (presentation) by applicant 面接審査会 Applicant申請者 Screening審査専門員 expert Interview by Study主要問題点の検討 of main problems screening と Proceedings進行は審査担当部長（または総括審査役） entrusted to department manager in charge of committee Applicant-side申請者側専門家 experts External外部専門家 expert screening (or officer for overall screening) ２回開権もあり Two interviews possible.
専門審査協議 審査専門員 と 外部専門家 Consultation among Screening experts External experts screening experts 面接審査会に引き続き実施 (ongoing, following interview)
Report審査報告 about screening Results of GMP investigationＧＭＰ調査結果 （調査結果通知書）(notification of results) Results審査結果 of screening (notification（審査結果通知書） of results)
Request for advice Approval Pharmaceutical Ministry of Health, 薬事食品衛生 厚生労働省 Affairs and Food Labour and Welfare Sanitation審議会 Council Advice Source: Pharmaceuticals and Medical Devices Agency
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
7. Glossary
Angiotensin II receptor inhibitors The angiotensin II receptor inhibitors lower blood pressure by regulating the renin angiotensin system. In Japan, they are sold under trade names such as Blopress by Takeda Pharmaceutical Industries, Nu-Lotan by Banyu Pharmaceutical, Diovan by Novartis, and Pharmaand Micardis by Nippon Boehringer Ingelheim and Yamanouchi Pharmaceutical.
HMG-CoA (hydroxymethyldutary-CoA reductase inhibitor) A lipid-lowering agent that inhibits HMG-CoA reductase, a rate-controlling enzyme of the cholesterol synthesizing system in a living organism (mainly the liver), which lowers LDL cholesterol. In Japan, it is sold under trade names such as Mevalotin by Sankyo, Lipovas by Banyu, Lipitor by Yamanouchi and Pfizer, and Crestor by AstraZeneca and Shionogi.
Generic drugs A generic drug has the same active ingredients in the same amounts, is used in the same way and in the same doses, and has the same effect-efficacy as a brand-name patented drug. Generic drugs appear on the market after a review is conducted when the patent for the corresponding brand-name medicines expires. In Western countries, generic drugs are prescribed using the generic name of the active ingredient, which is why they are called generic drugs.
Blockbuster drugs These are very popular drugs with annual world sales of over $1 billion.
Diagnosis procedure combination Unlike the fee-for-service system under which a fee is separately calculated for each medical treatment, DPC is a system under which the fee is calculated on the basis of a fixed number of points accumulated per day, as determined by factors such as the kind of disease, condition of the patient and the type of treatment. This system was introduced to public hospitals, including government-operated facilities, in April 2003 and began to spread to private hospitals in 2004.
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
8. References a. Main industrial organizations
Ministry of Health, Labour and Welfare 1-2-2 Kasumigaseki, Chiyoda-ku, Tokyo 100-8916 Phone: 03-5253-1111 URL: http://www.mhlw.go.jp (http://mhlwgo.jp/english/indexhtml)
Pharmaceuticals and Medical Devices Agency (PMDA) Shin Kasumigaseki Bldg., 3-3-2 Kasumigaseki, Chiyoda-ku, Tokyo 100-8916 Phone: 03-3506-9454 URL: http://www.pmda.go.jp （http://www.pmda.go.jp/index-e.html）
The Federation of Pharmaceutical Manufacturers’ Association of Japan (FPMAJ) Tokyo Yakugyo Kaikan, 2-1-5 Nihonbashi-honcho, Chuo-ku, Tokyo 103-0023 Phone: 03-3270-0581 URL: http://www.fpmaj.gr.jp
Japan Pharmaceutical Manufacturers Association Torii Nihonbashi Building, 3-4-1, Nihonbashi-honcho, Chuo-ku, Tokyo 103-0023 Phone: 03-3241-0326 URL: http://www.jpma.or.jp （http://www.jpma.or.jp/english/index.html）
Japan Generic Pharmaceutical Manufacturers Association Ginsan Building 3F, 4-3-10 Nihonbashi Honcho, Chuo-ku, Tokyo 103-0023 Phone: 03-3279-1890 URL: http://www.epma.gr.jp （http://www.jgpma.gr.jp/index.html）
Japan Pharmaceutical Wholesalers Association (JPWA) Yaesuguchi Kaikan 4F, 1-7-20 Yaesu, Chuo-ku, Tokyo 103-0028 Phone: 03-3275-1573 URL: http://www.jpwa.or.jp （http://www.jpwa.or.jp/jpwa/index-e.html）
Japan Site Management Organization AMC Consulting, 2-12-12 Shin Yokohama, Kohoku-ku, Yokohama, Kanagawa Prefecture
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
222-0033 Phone: 045-478-2401 URL: http://www/jasmo.org
Japanese CRO Association (secretariat) 2-1-4-104 Takanawa, Minato-ku, Tokyo 108-0074 Phone: 0120-353-125 (toll-free within Japan; cannot be called from outside of Japan) URL: http://www.jcroa.gr.jp （http://www.jcroa.gr.jp/eng/eindex.html）
Kokyo Ryokin no Mado (Window for Public Utility Charges) 3-1-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8970 Phone: 03-3581-1208 URL: http://www5.cao.go.jp/seikatsu/koukyou b. Related legislation
• Pharmaceutical Affairs Law • Patent Law c. Publications
• Yano Research Institute, “Pharmaceutical Industry Yearbook 2005 edition,” Yano Research Institute, 2005 • Yano Research Institute, “Pharmaceutical Industry Yearbook 2004 edition,” Yano Research Institute, 2004 • Yano Research Institute, “Pharmaceutical Industry Yearbook 2003 edition,” Yano Research Institute, 2003 • Yano Research Institute, “Pharmaceutical Industry Yearbook 2002 edition,” Yano Research Institute, 2002 • Yano Research Institute, “Pharmaceutical-Related Companies Yearbook 2004 edition,” Yano Research Institute, 2004 • Yano Research Institute, “Analysis of Pharmaceutical Companies’ New Strategy 2004 edition,” Yano Research Institute, 2004 • Yano Research Institute, “Structural Change of Demand for Drugs and Distribution Market for Pharmaceuticals 2004 edition,” Yano Research Institute, 2004 • Yano Research Institute, “Pharmaceutical Companies’ Strategy for Generic Drugs, Reality and
Industrial Report (C) JETRO Japan Economic Monthly, August 2005
Outlook, 2003 edition,” Yano Research Institute 2004 • Yano Research Institute, “Market for Drug Manufacturing Service—Status and Outlook, 2005 edition,” Yano Research Institute 2005 • Yano Research Institute, “Bio-Ventures, Present Condition and Outlook, 2005 edition,” Yano Research Institute 2005 • Japan Pharmaceutical Manufacturers Association, “Data Book 2005,” Japan Pharmaceutical Manufacturers Association, 2005 • Ministry of Health, Labour and Welfare (editor), “Annual Report on Health, Labour and Welfare, 2004 edition,” Gyosei Corp. • Ministry of Health, Labour and Welfare (editor), “Annual Report on Health, Labour and Welfare, 2003 edition,” Gyosei Corp. • Ministry of Health, Labour and Welfare (editor), “Annual Report on Health, Labour and Welfare, 2002 edition,” Gyosei Corp. • Shuzo Nishimura, “Economic Systems of Health Care and Welfare,” Chikuma Shinsho, 1997 • Ichiro Kataoka, Mitsuaki Shimaguchi, and Yumiko Mimura (editors), “Discussions of Drug Distribution,” University of Tokyo Press, 2003 • Toshiki Mano, “Lecture on the Reform of Pharmaceutical Companies,” Yakuji Nippo Ltd., 2004 • Yakuji Nippo, “Glossary for the Practice of Medicine, 15th edition,” Yakuji Nippo Ltd., 2005 • Jiho, “Medicine Handbook 2005,” Jiho Inc., 2005
This report has been compiled by JETRO on the basis of research commissioned to Yano Research Institute.