Growth in Japan's pharmaceutical market is forecast to plateau over the next 10 years in the face of rapid growth in generics use, EFPIA Japan says.
IHS Life Sciences perspective | |
Significance | Japan's pharmaceutical spending is forecast to level off over the next decade as use of generics increases, according to the European Federation of Pharmaceutical Industries and Associations (EFPIA) Japan. |
Implications | As growth levels off, generics use in Japan is expected to reach 59% in 2017 and 70% in 2025. |
Outlook | Japan's biannual drug price cuts have had a punitive effect on corporate sales, with several pharma majors facing the double challenge of lower domestic earnings and generic competition. Annual price cuts are expected to exacerbate this trend, and encourage Japanese pharma to look overseas for growth. |
Japan's pharmaceutical spending is forecast to level off over the next decade as use of generics increases, according to European Federation of Pharmaceutical Industries and Associations (EFPIA) Japan. The country's drug spending is expected to grow at a compound average growth rate (CAGR) of 0.13% to JPY10.4 trillion (USD86.7 billion) in 2025 from JPY9.8 trillion in 2013.
The estimated drug spending growth rate of 0.13% comes in far lower than the Japanese Ministry of Health, Labour and Welfare's (MHLW's) estimate of healthcare spending growth of 2.2%, the EFPIA argues.
Furthermore, as growth levels off, generics prescriptions in Japan are also forecast to reach 59% of the market in 2017 and 70% in 2025. The EFPIA argues that savings from the promotion of generics far outweigh government spending on premiums for innovative drugs, and justifies increased spending on the latter. If the premium system is discontinued in the next National Health Insurance (NHI) pricing reform in April 2016, Japan's pharmaceutical market is expected to shrink by a cumulative JPY4.8 trillion during 2016–25.
In addition, during 2012–25, the drop in sales for long-listed products – off-patent branded drugs – because of generic penetration are expected to be greater than the Japanese government's spending on premiums to promote new drugs and eliminate off-label use, according to the source.
Given these forecasts, the EFPIA argues that there is no need to introduce annual NHI drug price revisions, which have been proposed by the Ministry of Health (MoF) as a way to control healthcare expenditure. If they are introduced, and price cut regulations for long-listed drugs expanded, the number of new drug launches every year is expected to fall to 35 from 45 currently. Furthermore, Japan's pharmaceutical market is expected to shrink by 1% annually to JPY8.7 trillion in 2025, compared to JPY10.4 trillion in the absence of annual price revisions.
Outlook and implications
The Japanese government has proposed introducing annual drug price cuts rather than every two years, which has provoked a fierce response from the pharmaceutical industry. The EFPIA adds to the slew of opposition from pharma players concerned over the effect drug price cuts in Japan have had over their local sales and overall earnings. Furthermore, the industry is potentially facing three consecutive years of NHI price revisions from 2016 following Prime Minister Shinzo Abe's decision to delay a rise in the sales tax by 18 months (see Japan: 21 January 2015: Japanese MP expects drug prices to be cut for three consecutive years).
Trade group PhRMA (Pharmaceutical Research and Manufacturers of America) and the Federation of Japan Pharmaceutical Wholesalers Associations (JPWA) argue that annual price revisions – which the MoF argues would ensure that the ongoing drop in market prices is reflected more accurately – would threaten medical innovation, discourage investment in Japan, and lead to negative results on clinical development projects and employment (see Japan: 12 February 2015: Lobbying intensifies against Japan's plan to introduce annual drug price cuts).
Japan is encouraging the uptake of generics in order to curb rapidly-rising healthcare costs as a result of its ageing population. At the same time, it is trying to stoke innovation in the pharmaceutical sector by awarding premiums. In September, the Japanese government raised the ceiling for innovation premiums at the same time as it became the first country to approve PD-1 gateway inhibitor Opdivo (nivolumab) and is encouraging investment in regenerative medicines.
However, Japan's biannual drug price cuts have had a punitive effect on corporate sales, with several pharma majors facing the double challenge of lower domestic earnings and generic competition. Annual price cuts are expected to exacerbate this trend, and encourage Japanese pharma (for example Takeda) to increasingly look overseas for growth (see Japan: 6 February 2015: Takeda posts 4.1% rise in Q3 revenue on overseas markets, lowers full-year net profit forecast).