A sea change in Japan’s pharmaceutical industry

As part of his ‘Abenomics’ plan, Prime Minister Shinzo Abe has introduced a number of legislative changes that have led to an overhaul of the Japanese pharmaceutical industry, as domestic pharma companies increase their R&D investments and look to strengthen their presence on the global market

Japan’s pharmaceutical industry – the second largest in the world after the U.S. – has undergone a transformation in recent years, thanks to government healthcare reforms that have opened up the sector to foreign investors, promoted innovation and R&D, and streamlined regulation to speed up the approval of new drugs.

One of the major features of Prime Minister Abe’s healthcare reforms is the Sakigake Strategy. Launched in 2015, the Sakigake Strategy covers from basic research to clinical research/trials, approval reviews, safety measures, insurance coverage, improvement of infrastructure and the environment for corporate activities, and global expansion. The aim of the strategy is for Japan to lead the world in the practical application of innovative medical products.

“I believe there are three elements that have impacted the pharmaceutical sector,” says Yoshihiko Hatanaka, President and CEO of Astellas, one of Japan’s leading pharmaceutical companies which has a presence in more than 50 countries. “The first is the Sakigake system, which is encouraging innovation and early access for patients. The second area is regenerative medicine, an area where the government is also encouraging innovation. The third area is the establishment of the Japan Agency for Medical Research and Development (AMED), which is providing funding for an environment for integrated R&D through practical application.

“Clearly Japan is one of the first countries facing an aging population. My hope is that with all the effort that is being put in healthcare innovation, we are able to manage this situation. We will then be able to send a strong message and show a model for managing a sustainable aging society.”

With more than 17,000 employees worldwide and a market capitalization of 3.7 trillion yen, approximately $3.3 billion (as of July, 2016), Astellas is one of the companies leading the innovation drive in Japan. The company’s R&D expenses ratio to sales is more than 16 percent, and it employs more than 3,000 R&D personnel. Astellas’ key fields are oncology, immunology, urology, nephrology and neuroscience. In addition to these fields, it has identified two new emerging therapeutic areas, which are muscle disease and ophthalmology.

Astellas has recently strengthened its global presence through a series of acquisitions, most recently in Europe and the U.S. In April, it announced it was acquiring Belgium-based Ogeda SA for up to 800 million euros (approx. $875 million). This followed its acquisition of German firm Ganymed for up to 1.28 billion euros last December, and the $379 million purchase of Boston-based Ocata Therapeutics in February last year which enhanced the company’s footprint in regenerative medicine.

The Ocata acquisition is aimed at boosting Astellas’ presence in the U.S., its primary international market, which accounts for 33 percent of its total revenue.

“Needless to say, the U.S. is one of the world’s hubs for medical science, with the largest pharmaceutical market and strongest depth of scientific talent on the globe,” says Mr. Hatanaka. “Given our focus on innovative products, the U.S. has become our key market. In fact, currently we employ nearly 3,000 people in the Americas for R&D and commercialization.”

Generic Drugs

Japan has one of the lowest penetration rates of generic drugs in the developed world. One major focus of Prime Minister Abe’s plan is increasing the use of generic drugs as a means to tackle the issue of rising healthcare costs associated with Japan’s aging population.

As a result of its measures to boost generic drug consumption, the government expects the market penetration rate of generic drugs in Japan to rise to 80 percent or higher by 2021, up from 46.9 percent in September 2013. If the target is achieved, the Ministry of health predicts that medical expenses would be reduced by 1.3 trillion yen.

This represents a big opportunity for companies like Towa Pharmaceutical, which is dedicated to research and development, production, and marketing of generic drugs.

“In our sector specifically, reducing costs is crucial,” says Towa president, Itsuro Yoshida. “It seems clear that what we are doing with the generic drugs will help tremendously in the reduction of the pharmaceutical cost within the social security system. The government, instead of cutting subsidies, is aware of this and is promoting the use of generic drugs. The awareness of generics is certainly improving thanks to the enormous efforts of the government and the sector.

“Considering the pressure that the market is putting on generic drug makers to lower their prices, it is a challenge for companies like ours but also an opportunity to show the added value of our products.”

“I genuinely believe that there is something very special in the ‘Made in Japan’ concept, which is the spirit of Monozukuri (Japanese craftsmanship),” he says. “People appreciate our product and we strive to produce even better drugs and optimize every process.”

Regenerative Medicine

Regenerative medicine is a broad umbrella that includes treatments around stem cells and gene therapy that are intended to restore the function of damaged organs and tissues. In 2014, Prime Minister Abe introduced new regulations accelerating the approval of regenerative therapeutics in Japan and pledged funding of approximately $1 billion for stem cell research. As a result of this focus, the regenerative medicine market in Japan is forecasted to grow at an annual rate of 35 percent between 2016 and 2020.

Shin Ashida, president and CEO of JCR Pharmaceutical

Shin Ashida, president and CEO of JCR Pharmaceutical

“Under the Abenomics reform I believe that the current administration has fostered tremendous innovation in the medical industry. Furthermore, such a policy is telling us that we need to continue to come up with innovation in these areas, such as regenerative medicine and new drug development, thus stirring much activity in these fields,” says Shin Ashida, president and CEO of JCR Pharmaceutical, one of the country’s leading developers of regenerative medicines.

“Regarding regenerative medicine, we are working with mesenchymal stem cells, and we have succeeded in bringing it to the market stage. We brought in the technology from the U.S., and it has taken us 12 years to develop it into a therapeutic product, TEMCELL® HS Inj., to treat acute graft-versus-host disease. In the future, we will be seeing much more cell therapy and regenerative medicine technologies as one of the main R&D pillars of our company.”

Like Astellas, JCR invests heavily in R&D. Currently JCR researchers are developing a range of medicines for conditions such as Fabry Disease, renal anemia, Hunter Syndrome (which it is developing in collaboration with GlaxoSmithKline), Pompe Disease and Gaucher Disease. JCR’s innovative edge is a result of the freedom it gives to its researchers, according to Mr. Ashida.

“JCR’s research arm is structured in such a way that the researchers have freedom to explore and develop what they want, whatever concepts they come up with – we support and encourage all their visions. All 100 of our researchers have been producing good results over the last two years because of this new R&D structure, which I believe is one of the biggest components of our success.”

With innovative companies like JCR Pharmaceutical, Astellas and Towa Pharmaceutical expanding their global operations, Japan pharma companies looks set to play a greater role in the international pharmaceutical market.

Jonathan Meaney

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