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Feature

Japanese Pharma Prepares to Bounce Back

Posted on: 13 Dec 04
Japanese Pharma Prepares to Bounce Back

Summary

The Japanese pharmaceutical industry is facing a range of problems in competing with its foreign rivals. However, it has survived tough operating conditions before and there are signs that it will do so again.

Even though it is smaller and less globally spread than its US and European rivals, the Japanese pharmaceutical industry has been an important source of new pharmaceutical products.  The productivity of these companies is impressive considering that they operate in an environment that is less conducive to R&D than some of their foreign counterparts (1). The Japanese government’s drive to introduce cost containment policies, such as the system of biennial price cuts, has made it difficult for companies to commit to long-term R&D spending. Yet if these companies are to have any chance of surviving they must continue to invest and develop strategies for the future market (1).


 


Tough times before and ahead


 


Although the current R&D environment for Japanese companies is far from ideal, it is not the first time that they have been faced with tough operating conditions. In the late 1980s and early 1990s, the Japanese pharmaceutical industry’s R&D expenditure fluctuated considerably. Between 1985 and 1986 the industry’s R&D expenditure remained static because of the economic recession (2). Following this period, R&D spending increased to around 10% per year up to 1992 (2). Then once again, the industry entered a period of uncertainty.  In 1993 the industry’s R&D expenditure actually dropped by 2.2% followed by modest increases of below 2% up to 1995 (2). According to these figures, the outlook for the industry appeared bleak given that R&D expenditure at this same time increased annually by 7% for the US industry and 3% for the European industry (2). Even when the Japanese industry appeared to show some sort of recovery with a 3.5% increase in R&D expenditure for the period 1995 to 1996 its rivals had surged ahead (2). Between 1995 and 1996, the US industry’s R&D expenditure increased by 14.3%, and R&D expenditure for the European industry increased by 6.5% (2).


 


Resilience


 


Drug development is an expensive and lengthy process and is characterized by a high level of failure. The maintenance of a high level of spending on R&D would appear to be necessary, given that it now costs US$897 million on average to get a drug successfully to market (3). As the Japanese pharmaceutical industry’s R&D investment wavered between 1985 and 1996, a sharp drop in productivity might have been expected. At this time, many observers considered the Japanese pharmaceutical industry to be lacking in innovation and speculated that Japanese companies would have to merge or seek alternative arrangements to survive. However, although there were certain moves in this direction, companies continued to bring new drugs to the market and there were some notable successes.


 


Perhaps the resilience of the Japanese pharmaceutical industry lies less in the amount of R&D expenditure and more on its use of such expenditure (1). As has been shown elsewhere in the world, R&D strategy is as important as spending power. Despite lower revenue from sales many Japanese companies have maintained or increased their R&D expenditure to sales ratios. One survey found that over the period 1996 to 1998, five major Japanese companies increased their mean worldwide R&D expenditure to sales ratio from 14.1% to 16.5% (2). Furthermore, many Japanese companies have looked beyond the R&D process to create new global opportunities. They are more proactive in seeking partnerships with foreign companies and have made a strong commitment to establishing themselves abroad. This gives them alternative options in reacting to current events.


 


Another feature of the Japanese pharmaceutical industry is that it has become much more outspoken concerning the R&D environment in Japan (1). It has made a very public effort to demonstrate its importance to the country and to society. As a result, the Japanese government is beginning to realize that it must strike a balance so that whilst it maintains control over rising healthcare expenditure it does not do so in a manner that cripples the domestic pharmaceutical industry. After all, it is relying on the pharmaceutical industry to produce medicines that will tackle the future healthcare problems of Japanese society and it gains considerable economic benefit from the activities of the industry. The industry is also a  major employer and its innovative efforts are a source of national pride. In fact there is a general realization by the government that there needs to be more emphasis on the R&D-based industries and that the pharmaceutical industry shows what can be achieved. Foreign pharmaceutical companies are having more success in entering the Japanese market and thus it is in the government’s interest to ensure that domestic companies can compete on an equal footing.


 


Outlook


 


There is no doubt that the Japanese pharmaceutical industry will face considerable difficulties in the coming decade. They must find a way of competing with their foreign rivals in the current market and yet also plan how they will do so in the future. However, Japanese companies have faced such problems before and have managed to remain an importance force in the global industry. It should also be noted that their foreign rivals also face problems in remaining both productive and competitive in R&D and so their path to success is far from straightforward (3). Even the largest multinational companies have faced setbacks that have weakened their global position (3). Thus perhaps rumours of the demise of the Japanese pharmaceutical industry may be greatly exaggerated.


 


References


 


1. Kermani F. (2004). Japan's Biopharmaceutical Challenge. Chiltern International. http://www.thepharmyard.com/shop/product.php?xProd=245&a=inpharm


 


2. Kermani, F. and Findlay, G. (2000), ‘The Pharmaceutical R&D Compendium’, CMR International. http://www.cmr.org


 


3. Anon (2003). Total Cost to Develop a New Prescription Drug, Including Cost of Post-Approval Research, is $897 Million. The Tufts Center for the Study of Drug Development Press Release 13 May 2003. http://csdd.tufts.edu


 


4. Kermani F. (2004). Pharma R&D in Europe: Past, Present and Future. Chiltern International. http://www.thepharmyard.com/shop/product.php?xProd=203&xSec=96


 

Dr Faiz Kermani

Last updated on: 27/08/2010 11:40:18

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