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Japan’s Pharmaceuticals Set for Growth in Regenerative Medicine

Japan’s Pharmaceuticals Set for Growth in Regenerative Medicine

Apr 27, 2015
byJeff Allan

 

 The Japanese pharmaceutical market is the second largest in the world, coming in just behind the United States. According to data from GBI Research, Japan’s industry was worth $89 billion in 2011. That was an increase from its 2005 value of $63 billion. Overall, the industry saw a Compound Annual Growth Rate (CAGR) of 5.1 percent for the period.

 This growth might be surprising to some fund managers because the industry has experienced significant downward pressure due to government efforts to cut the domestic healthcare costs of its aging population. Likewise, the proliferation of generic medications has further depressed prices, as the government has heavily promoted these alternatives to brand name products.

 Despite these challenges, however, the industry has grown, and looks to be on the verge of far larger gains. This is due to the combination of strong product pipeline, Japan’s continually aging population, and the easing of various regulatory restrictions. The latter holds especially large promise because of Japan’s newly liberal stance concerning the approval of regenerative medicines; rules that could make Japan a new hotbed of regenerative treatment research and development.

 

Japan Pharmaceuticals: Past and Present

 Historically, the Japanese market was highly protected with domestic companies receiving favorable treatment, resulting in these companies taking a primarily inward looking view. That started to change with deregulation initiatives introduced in the 1990s. Since that time, the Japanese market has gone through a fair amount of evolution.

 Japanese pharmaceutical companies have taken an increasingly outward looking view to create international market share. The last decade has witnessed several aggressive M&A deals that have helped make Japan a truly global pharmaceutical contender.

 These deals are exemplified by Takeda Pharmaceutical’s near $14 billion acquisition of Nycomed in 2011, as well as Otsuka Pharmaceutical’s recent acquisition of Avanir for $3.5 billion. Since 2007, Japanese pharmaceutical firms have spent nearly $49 billion in overseas M&A on the top 10 deals, to establish footholds outside of Japan. As noted by Reuters in a recent article, however, the size of these companies has limited the value of the resulting deals. Analysts see consolidation potential in the Japanese pharmaceutical sector, which will allow for larger deals in the future.

 

The Regenerative Future

 For several years, Japanese pharmaceutical companies lagged behind their global peers when it came to bringing regenerative medicines to market. The Japanese government has to date only approved two regenerative treatment products, while governments in Europe have approved 20, in South Korea 14, and in the United States another nine, according to data from the Nikkei.

 Regenerative medicine represents the future of pharmaceuticals and?in the words of research firm TechNavio?it “deals with the process of using therapeutically induced or laboratory-grown human tissue to treat injured or diseased human cells, tissues, or organs.” These products are critical to the advanced treatment of diseases such as cancer and the synthesis of organs.

 In order to close the gap between Japan and other countries, the Japanese government passed two new laws last November. The first was the pharmaceutical affairs law, which aims to provide quicker approvals for regenerative medicine products. The second law is the regenerative medicine safety law, which will allow non-medical institutes to process cells.

 The changes to the pharmaceutical affairs law will help companies gain approval for and commercialize new regenerative treatment products in as little as two to three years. Most other countries require as long as seven years to commercialize these new products. The change to the law now makes approvals in Japan the quickest in the world.

 The new regenerative medicine safety law opens doors for private companies that had previously only been open to medical institutions that were actually providing cell therapy. Under this law, medical institutions can now outsource cell processing to private companies in the pharmaceutical sector. This is expected to drastically cut costs for the institutions while creating a boon for the private companies in this field.

 This is great news for Japanese pharmaceutical companies in this arena. The Ministry of Economy, Trade, and Industry (METI) expects this sector to be valued at over $370 billion by 2050.

 Foreign firms have already taken notice. Pluristem Therapeutics, an Israeli biotech company, will begin clinical trials for its new blood flow treatment this year, in conjunction with a Japanese partner. Likewise, Britain’s ReNeuron Group and South Korea’s Medipost have similar plans for clinical trials over the coming year.

 Officials at METI note that the US FDA and the European Medicines Agency have taken a keen interest in what Japan is undertaking with regenerative medicines. If the framework proves successful, there is the likelihood that it could become the global standard for regenerative medicine. If that transpires, Japanese pharmaceutical companies will have a clear advantage, as well as a significant head start that will provide them with a strong competitive edge.

 Regenerative medicine has gained a lot of interest over the last few years. It shows promise to successfully treat many of today’s most endemic diseases. Japan’s new laws and its pioneering initiatives are ready to harness the advances of the sector, with the potential to help define the industry standards that will guide the global market of the future.

The Japanese pharmaceutical market is the second largest in the world, coming in just behind the United States. According to data from GBI Research, Japan’s industry was worth $89 billion in 2011. That was an increase from its 2005 value of $63 billion. Overall, the industry saw a Compound Annual Growth Rate (CAGR) of 5.1 percent for the period.

This growth might be surprising to some fund managers because the industry has experienced significant downward pressure due to government efforts to cut the domestic healthcare costs of its aging population. Likewise, the proliferation of generic medications has further depressed prices, as the government has heavily promoted these alternatives to brand name products.

 

Profile

Jeff Allan

Jeff Allan is a native of Boston and currently resides in Tokyo. Jeff has spent nearly two decades in Asia, working closely with the finance and technology industries in Japan, Singapore, and Indonesia. He is a regular contributor to several leading business publications both inside and outside of Japan.

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