Innovation Critical As Japan Pharma Faces Continued Pricing Pressures
Executive Summary
Major Japanese pharma companies will add an estimated net $6.6bn in revenues through products launched over the 10-year period to 2027 to generate a combined total of $69.5bn, although average growth will be low, constrained mainly by pricing factors at home.
10 major Japanese pharma firms will add $11.4bn in revenues from new drugs reaching the market in the 2017-27 period, but the low expected compound annual growth rate of 1% for the peer set reflects an expected concomitant $4.8bn in patent expiries for major products and other core product sales losses.
The net positive gain of $6.6bn will give combined total predicted revenues of $69.5bn for the group - Astellas Pharma Inc., Daiichi Sankyo Co. Ltd., Eisai Co. Ltd., Kyowa Hakko Kirin Co. Ltd., Mitsubishi Tanabe Pharma Corp., Ono Pharmaceutical Co. Ltd., Otsuka Pharmaceutical Co. Ltd., Shionogi & Co. Ltd., Sumitomo Dainippon Pharma Co. Ltd., and Takeda Pharmaceutical Co. Ltd. - predicts the Japan Pharma Outlook 2027 report from Informa's PharmaVitae.
The Japanese industry is already facing challenges from ever-tightening drug reimbursement cost controls under the national health insurance scheme, and these are expected to continue as the population becomes increasingly top heavy.
At the other end of the age spectrum, a declining birth rate, and therefore working population and tax revenues, will create continued pressure on health system funding.
Pricing Pressures
"The policy environment for Japan is a complicated mix of positive and negative government factors, depending on portfolio and business strategy," the report states.
The pharma industry has long faced regular price cuts every two years, but the shadow of annual cuts is looming from 2020 after a two-year review period, while government policies continue to support the use of generics.
The official goal is to increase to 80% the volume share of such products in the substitutable market by 2020, and with this figure already nearing 75% the target looks set to be reached even earlier.
In addition, under changes introduced this April, the repricing of products with sales that expand beyond JPY35bn ($315m) will be considered four times a year, opening the way to more frequent additional cuts.
Higher Innovation Hurdles
Meanwhile, higher hurdles for drugs to be considered innovative and to qualify for a revised system of price premiums for novel products, and the adoption this year of more regular assessments of cost-benefit analyses, will further dampen market growth.
Under the new system of "innovation ratings" for companies - which is based on factors including number of clinical trials conducted, drugs in development, and completion of government-requested projects to commercialize high-need products - PharmaVitae predicts that only fewer than half of all Japanese companies will be eligible for the highest tier status in the new system, qualifying them for pricing premiums.
Strategies For Growth
Against this backdrop, cost-saving measures by the peer set, including continued job cuts and divestments of non-core or older branded products with generic competition, are expected.
Some consolidation is foreseen: "PharmaVitae believes Japan Pharma will at least partially revisit the consolidation approach seen in the 2000s as mid-sized companies seek greater economies of scale to become more competitive".
Mid-sized companies with established positions in the US may "seriously consider mergers in the near term to strengthen their US market penetration through existing commercialization rights," forecast the report, which looks at the complex mix of policy, regulatory, commercial, external and R&D factors facing the industry in Japan.
However, following the expected completion of the Takeda/Shire merger, no further global-scale M&A activity is anticipated in the near term.
Key Therapy Areas
Alongside, PharmaVitae expects there to be an increased focus on key therapeutic growth areas such as oncology and CNS, the US and emerging markets, while regenerative medicine - helped by a supportive regulatory environment - provides attractive opportunities in Japan.
The oncology market for the peer set is forecast to grow by $5.4bn (3.9% CAGR) to reach $17.0bn in 2027, and CNS to increase by $3.6bn (3.0% CAGR) to $14.1bn over the same period.
Main Winners
Helped by a presence in these areas, the main growth companies out to 2027 are expected to include Eisai with an additional $1.54bn added to the top line, helped by new Alzheimer's disease drugs, and Takeda with an additional $1.27bn (excluding the planned Shire acquisition).
Daiichi Sankyo is seen losing $802m, mainly due to patent expiries.
Eisai's Alzheimer's therapy aducanumab (partnered with Biogen) is seen becoming the highest-selling pipeline product with $1.9bn in sales by 2027, but Astellas's pipeline is seen as the most valuable pipeline overall, with eight launches adding $2.6bn to top line revenue by the same year.
(A webinar on the outlook for Japan Pharma and the contents of the report can be found here.)