Japan not quite the market for our generics

Emerging opportunity in generic drugs is drawing big stakeholders in Japan. Teva, Mylan, Daiichi Sankyo and now Pfizer are making every move to ensure the Japanese generic market is exploited at the right time.

There will be fewer players and higher profits, but there will be stringent quality preconditions from the Japanese regulators that aim to convince the population on deciding in favour of generic medicine.

Japan is seen as the most tightly controlled market, where a product licence can take unbearably long periods of time. Besides, the costs are so high that all the effort may not generate the desired demand. Having been around for many decades, innovator companies know what it takes to get a product approved there.

Yet, several strategies are being devised by drug companies who have perhaps exhausted most options of tapping other lucrative markets.  Teva did a joint venture with Kowa and set a goal to reach $1 billion in sales by 2015.

Daiichi Sankyo showered its billions on acquiring Ranbaxy primarily to pump up offerings for the home market. Banking heavily on its own Japanese brand name, Sandoz went niche quite early and launched its biosimilar human growth hormone somatropin in October. And now, Pfizer has announced that it plans to get into the Japanese market by 2011.

Cadila and Lupin, the Indian players, may not be marginalised just yet as they have reported encouraging results from Japan’s generic boom.  After all, taking the healthcare costs of a predominantly ageing population may be seen by the government as a big drag for the economy, struggling to come out of a long spell of stagnation. At the heart of the big generics rush is also the willingness of the Japanese government, which seeks to have 30% copy drugs in the market by 2012.

But going by the reluctance to accept generics as an equivalent of brand drugs, that target looks ambitious as the present usage of generics is hardly 15% of the total market by volume and much lesser than that by value. It is important to remember that Japan has been trying to open its market for generics for no less than six years, but the progress has been tardy at best.

In any case, options for generic players are limited. The Japanese drug market size is pegged at $90-100 billion by various agencies and is growing in lower single digit every year.

The growth in generics is better, but it is on a lower base and the process of traversing the entire chain up to the pharmacy level is extremely complex, requiring significant spend in advertisement material and costly field staff. Nichi Iko, one of the fast emerging local generic players in Japan, is already taking up a sizeable position and expanding its staff there.

Ranbaxy had taken its initial steps to be in the Japanese market through a partnership with Nippon Chemiphar but the growth was average and when Daiichi Sankyo took over controls, the deal was called off. A bigger plan is expected to be announced by Daiichi Sankyo in the next few months, analysts forecast. The company did not do much to leverage on its early mover status. Other Indian companies, though bullish, may not have the right size to deal with the bigger drug makers.

Though spiralling prices of branded drugs is a big concern in Japan, some feel that costs may not be the only aspect to induce Japanese patients to opt for generic medicines. As such, most expect that brand building will play a critical role and that factor may not play out very well for the Indian companies.

The recent punitive action of the US FDA against Indian companies is still being seen as a big hurdle in the acceptability of Indian products in many countries and many feel it could still be premature to look at Japan.

Dr Reddy’s has been calculating its moves about Japan and so is the case with a few other Indian companies. Sun Pharma, which entered the European Union after being focused on the US for long, has still not made clear if Japan suits its expansion strategy. A large number of other Indian companies are equally apprehensive. May be some generic markets are opening up only for the bigger sharks to swallow.

Pillman is an executive closely linked to the global phama industry