Samurai and the sipahi
After US and Europe, Indian drugmakers are now making a foray into the land of Samurais. Sushmi Dey analyses Indian presence in Japan
The US and Europe, which are the biggest regulated markets, are now becoming less attractive on account of high generic penetration and ever increasing competition. As a result, Indian pharmaceutical companies are now moving eastwards.
A treasure trove
Historically, the Japanese drug market posted slower growth rates. However, a steep growth was observed in 2005. “The Japanese market performed strongly in 2005, growing 6.8 percent to $60.3 billion, its highest YOY growth since 1991,” informs Vinod Dhawan, President, Business Development, Lupin Pharmaceuticals. He adds that today there are high stakes in the Japanese drug market which makes it lucrative for Indian pharmacos.
“Japan is the second largest individual pharmaceutical market in the world. Even if you consider US and Europe, it ranks just behind them,” said M S Sisodia, Deputy General Manager International, JB Chemicals. With sales of around $60 billion, Japan constitutes approximately 11 percent of the world market.
“With the government of Japan actively supporting the use of generics in the market, KPICL plans to conduct bio-studies, obtain regulatory approvals and market the products developed and manufactured by Lupin”
– Vinod Dhawan President Business Development
Japan has recently witnessed an evolution in the pharmaceutical arena and this has made it one of the fast growing drug markets of the world. Tapping the Japanese drug market is not just tapping a large potential market for generics but also an abundance of opportunities for Indian pharmacos, in terms of new technologies, global research networks and a host of collaborations.
The Japanese industry is interested in licensing innovative drugs to supplement their product pipeline. Analysts say that it is essential for Japan to avail cost-effective drugs of high quality from countries like India. This will help the industry not just to cut costs but also to grow. While earlier, pharma business between the two countries had been restricted to sourcing APIs and intermediate products from India to Japan. Lately, the Japanese pharmaceutical industry is also looking at India as a new hub for clinical trials and contract manufacturing.
In addition to collaboration, there are various untapped segments that hold a great deal of potential. Japan is a big market for prescription drugs. “In 2005, ethical medicines segment accounted for 83.5 percent of the total market. There are more drugs prescribed in Japan than anywhere else in the world,” asserts Dhawan.
In addition to the prescriptions segment, generics offer a huge opportunity for Indian drugmakers. According to officials from Ranbaxy, generic penetration in Japan is estimated as 12 percent by volume and four percent by value. According to Dhawan, many leading international producers of off-patent drugs believe that generic medicines are poised for exponential growth. This is because, like many other large markets (of US, Germany and France), Japan also started facing mounting costs of healthcare, primarily funded by the government. To reduce the country’s expenditure on drugs. Medication is a challenge before Japanese drugmakers and the government. This led the country to begin its push for generic substitution. Indian phamacos are specialised in generic products and have the pricing advantage to compete in Japan. According to experts, major Indian pharmacos are optimising their presence in this market to seek greater return on their investments.
Giving high hopes
All this would not have been possible without timely policies and reforms brought in by the Japanese government. The Government of Japan increased co-payments by salaried individuals from 20 percent to 30 percent in April 2003, informs a source from Ranbaxy. With an increase of individual co-payment, the incentive for a patient to use generic drugs also increases. Besides, due to the rapidly aging population of Japan, the healthcare system of Japan is burdened, making it a profitable market for Indian pharmacos. “The funding and facilities have become matters of great concern for the Japanese government,” opines Dhawan. A large number of products are going off-patent in Japan over the coming years, which will also fuel the long-term growth of the generics market.
With the Japanese pharmaceutical market entering a pivotal period of change and its generics market showing distinct buoyancy and opening up, Indian pharmacos specialising in generic products have already started taking advantage of the changing economic conditions.
While Strides Arcolab was amongst the first Indian companies to enter the Japanese market with generic drugs, the trend continues with many Indian pharmacos doing business in Japan
While Strides Arcolab was amongst the first Indian companies to enter the Japanese market with generic drugs, the trend continues with many Indian pharmacos doing business in Japan. For instance, Ranbaxy announced the launch of Clarithromycin tablets (Innovator Taisho/Dinabbot; Brand name Clarith/Klaricid) and Terbinafine tablets (Innovator Novartis; Brand name Lamisil) through Nihon Pharmaceutical Industry (NPI), a JV between Ranbaxy Laboratories Limited (RLL) and Nippon Chemiphar (NC). According to company sources, these products will be sold in Japan under the Ranbaxy/NPI label and will be marketed and actively promoted to doctors in hospitals as well as in clinics jointly by the field forces of NC and NPI.
Ranbaxy has made a relatively early entry in the Japanese market in 2002 by way of a strategic alliance with Japan’s NC, a mid-sized research pharmaceutical company. “It is our earnest intention to leverage the advantage of an early entry in the progressive opening up of the generic pharma market of Japan. We intend to rapidly introduce an array of generic therapies from our global portfolio,” states Malvinder Mohan Singh, CEO and Managing Director, RLL.
In July 2005, NPI, launched Vogseal tablets (generic-Voglibose) for diabetes. “This was Ranbaxy’s first generic product in the Japanese market which has gained market leadership amongst competing generic products,” asserts a company source. The company increased its equity stake in NPI in the same year to become a 50 percent partner in the subsidiary.
Today, Lupin is also focusing on Japanese markets. “Our core strategy remains to tie-up with marketing partners in these territories and explore potential acquisition targets,” informs Dhawan. As per an agreement with Japan’s Kyowa Pharmaceutical Industry Company Ltd (KPICL), Lupin will manufacture products and KPICL will market finished formulations in Japan. Dhawan adds, “With the Government of Japan actively supporting the use of generics in the market, KPICL plans to conduct bio-studies, obtain regulatory approvals and market the products developed and manufactured by Lupin.”
According to industry sources, Torrent Pharmaceuticals is also expected to begin marketing Indian-made generics, including its mainstay cardiovascular products in Japan as early as 2008. While most of the Indian companies choose to go for tie-ups and JVs to launch and market generics, Indian companies have also started targeting joint research and development and contract manufacturing.
For instance, Zydus Cadila has recently joined the race by establishing a wholly-owned subsidiary, Zydus Pharma Inc in Japan. The company will begin with the registration of products in 2007. Besides marketing generics, Zydus is also planning to explore collaborations and alliances with Japanese pharmacos in areas of joint R&D, co-marketing and contract manufacturing for API, intermediates and formulations. According to a company source, the company is targeting branded or speciality firms, generic drug firms and pharmaceutical venture companies for collaborations and alliances.
Glenmark Pharmaceuticals also signed a collaboration agreement with Japan’s Teijin Pharma in April 2005 to license its first Asthma/COPD molecule, Oglemilast (GRC 3886) which is still undergoing trials. The compound has subsequently completed Phase I clinical trials successfully and has recently entered Phase II clinical trials in the US in April 2006.
However, the Japanese ride will not be a smooth one for Indian pharmacos. Despite its major size and recent growth, Japan is a tough nut to crack. This drug market is dominated by domestic companies like Takeda, Eisai Pharma, Mitsubishi Pharma, Teisho, Sankyo, Sumitomo and Astellas. Japan has stringent regulatory norms and a fastidious approach towards quality. These factors have always kept Japanese drug market out of global pharma’s reach. Hence, while foraying in such a market, Indian companies need to be extra cautious and will require more than cost efficiency.
Japan is also a very difficult market in terms of regulatory approval. Though recent legislation is attempting to address many access difficulties, the market is characterised by its stringent regulatory system that has often put off some overseas investors. “Even generic substitution is not legally permitted at pharmacy level. It entails prescription generating marketing efforts, thus making it an expensive and an intensive proposition,” states Dhawan. Indian pharmacos, therefore, have to develop non-manufacturing capabilities and have to invest in large-scale distribution networks to ensure national supply in Japan.
Also, many studies suggest that the Japanese pharmaceutical market is growing at a relatively lower rate than other markets in the world. This can upset the strategic equations of major global players.
Though Japan might not be a cakewalk for Indian pharmacos, they need to gear up to overcome the pitfalls. Analysts suggest that Indian pharmacos should concentrate on generic products for Japanese market. While some companies are setting up subsidiaries in Japan, partnering with Japanese companies is still considered to be a safe route. This approach will minimise risks in investments and hence, will increase returns for Indian companies.
The upcoming years will see further business between the two countries but Indian pharmacos have to be cautious about safety and quality of drugs while investing in the Japanese drug market. As Indian companies turn into global giants and aim to conquer the world, Japan will just be a step towards realising their dreams.