Study Biotechnology in Japan

Editor: Dr. Jörg Kempf

In recent years a steady stream of bad news of deflation, structural crises and a shrinking population have increasingly dampened public interest in Japan as the second biggest economy in the world. In many cases the incredible economic growth of its huge neighbor, China, has also meant that current developments in Japan are being overlooked. This feature provides a brief insight into the Japanese pharmaceutical and biotechnology markets.

Related Companies

(Picture: archives; [M]-Kansog)
(Picture: archives; [M]-Kansog)

With sales of ¥ 8 trillion (€ 61.54 billion) in 2007, the Japanese pharmaceutical market is the second biggest in the world behind the USA and well ahead of Germany. Even in 2005, the market volume was some US$ 66 billion and therefore equivalent in size to the German, French, British and Australian markets combined.

The biggest products groups in Japan by sales in 2007 were heart and circulation drugs with a market share of 21.5%, metabolism drugs (9.6%), drugs for diseases of the central nervous system (9.1%) and gastrointestinal drugs (8.9%). The markets for anti-diabetes drugs and psychotropic and neuroactive drugs in particular have posted high growth rates in recent years.

Heavily Fragmented

There are more than 1,100 pharmaceutical companies in the market in Japan, the majority of which are very small companies that only manufacture traditional herbal medicines. Only 457 companies manufacture drugs that qualify as refundable by health insurance companies. As a result of this high number of manufacturers, the Japanese market is heavily fragmented. The market concentration of the 25 biggest pharmaceutical companies in Japan is 64%, as it is in Germany – relatively modest by international standards when compared to the USA (85%) and France (78%), for example.

Until the 1990s, the Japanese market provided the perfect environment for the local pharmaceutical industry; however, competition has become tougher in recent years as a result of market liberalization in the 1990s and a wave of takeovers of Japanese pharmaceutical companies by international competitors at the start of the millennium. In 2001 Mitsui Pharmaceuticals was taken over by Schering and SS Pharmaceutical by Boehringer Ingelheim, while in 2002 and 2004 Roche became the majority shareholder at Chugai and Merck likewise at Banyu. Although the market share of Japanese pharmaceutical companies still came to 85% in 1990 and only one foreign company featured among the 20 biggest manufacturers, by 2005 the market share of Japanese companies had fallen to 64%.

At present, four foreign companies –  Pfizer, Roche, Novartis and Merck – are in the top 10 of the Japanese pharmaceutical industry. Pfizer is in first place with a market share of approx. 6%, ahead of even the biggest Japanese pharmaceutical company, Takeda (5.3%).

Spectacular Mergers

A number of spectacular mergers have taken place in recent years within the Japanese corporate landscape with the aim of achieving a critical mass for international competition. New industry giants were created in 2005 with the mergers of Yamanouchi and Fujisawa – at that point the numbers 3 and 5 in the top Japanese pharmaceutical companies – with Astellas and with the merger between Daiichi and Sankyo to create Daiichi-Sankyo. In October 2007, the merger between Mitsubishi Pharmaceuticals and Tanabe Pharmaceuticals resulted in Mitsubishi Tanabe Pharma, the new number 6 among Japanese producers.

Taken together, Japanese pharmaceutical companies have a global market share of 11%, of which the Japanese market constitutes more or less half. In 1989, the global market share stood at 15.7%.

Although the proportion of expenditure on research and development has increased in recent years, the question remains: Are the available resources sufficient to remain internationally competitive in view of the increasing cost of research and development, or is further consolidation of the market unavoidable?

The internationalization of the Japanese pharmaceutical industry has advanced rapidly in recent years. In Japan also, the large pharmaceutical companies are endeavoring to extend their product pipelines through acquisitions or alliances with biotechnology companies. The focus here is on foreign biotechnology companies in particular. On the other hand, very few cooperation agreements have been struck so far between the big pharmaceutical manufacturers and Japanese biotechnology companies – to the regret of the Japanese biotechnology industry.

Clinical Research in the Ascendancy

While at the start of the 1990s Japanese pharmaceutical companies were still using their overseas laboratories primarily to conduct basic research, the capacity for clinical research has expanded significantly in recent years. Now already over 50% of all clinical trials are conducted overseas. Results from overseas clinical trials have been recognized in Japan since 1998, although further conditions are imposed by the Japanese supervisory authorities. In all cases, phase I clinical trials and parts of phase II trials are required in order to assess the pharmacokinetics in respect of the on-average smaller body size.

Although it has been possible to speed up the registration process in recent years with the availability of more and better trained personnel at the regulatory authorities, the average time taken in Japan of 20.1 months is still significantly longer than in the USA (10 months) and the EU (13 months). Japanese experts believe that greater individual liability of employees in the approval process is responsible for more careful and more accurate testing.