The government, aiming to lessen the budgetary burdens of health care, plans to double the use of generic medicines--drugs that are no longer protected by patents--by the end of fiscal 2012.
Encouraging wider use of generics has repercussions for the pharmaceutical industry. The plan, if realized, would reduce the market for newly developed medicines to the tune of nearly 1 trillion yen a year.
Substituting generic drugs also could trigger a far-reaching realignment of pharmaceutical manufacturers.
Apparently reflecting the increasing popularity of generics with physicians and patients, TV commercials touting the products of such generic medicine manufacturers as Sawai Pharmaceutical Co. and Towa Pharmaceutical Co. have been on the rise recently.
In a bid to reverse the perception that their products are inferior to those of name brand pharmaceuticals, the generic drug makers have featured celebrities in the commercials: actor Hideki Takahashi representing Sawai Pharmaceutical and emcee-interviewer Tetsuko Kuroyanagi appearing for Towa Pharmaceutical.
A generic drug is of the same quality as the original medicine whose exclusive patent has expired. The active ingredients in generics are essentially the same as in the original drugs and are interchangeable.
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Prices can be reduced by half
Developing a new medicine can cost the manufacturer several hundred billion yen and take more than 10 years.
When patents expire, allowing the medicine to be copied by other companies, the cost of bringing the generic substitute to market can run into the several tens of millions of yen.
Generic medicine prices immediately after the expiration of the patents of their originals are about 30 percent lower than newly developed equivalents.
Generics can often become even cheaper because government-set prices under health insurance plans are often revised downward.
For example, Daiichi Sankyo Co.'s Mevalotin, whose patent expired in October 2002, costs 137.8 yen per daily dose of two five-milligram tablets as prescribed by doctors. Generic versions of the drug, which is used to treat excessive levels of lipids in the blood, cost anywhere from 42.8 yen to 94.4 yen for the same dosage.
Currently, about 16.8 percent of all medicines prescribed by medical institutions are generics. The government's Basic Policies for Economic and Fiscal Reform 2007, made public in June, incorporated the goal of expanding this figure to 30 percent or more by the end of fiscal 2012.
The plans call for substituting about 50 percent of newly developed medicines with their generic equivalents in terms of volume. The move is expected to substantially reduce health insurance-covered drug costs.
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Market may double
According to estimates by industry sources, in fiscal 2004, generic medicines accounted for about a 5 percent nationwide share, or 300 billion yen to 400 billion yen of an approximately 6.9 trillion yen market.
If the government goal is realized, the market for generic medicines, as gauged based on prices listed under government-run health insurance plans, will double, according to Kaname Mizuno, a senior analyst of Daiwa Institute of Research, a private think tank.
This means the market for newly developed medicines will shrink by at least 700 billion yen to 800 billion yen a year, he said.
One executive of a midsized pharmaceutical company said he felt alarmed at the prospects.
"We're confronted with a bitter choice of three alternatives: redoubling efforts to develop new medicines, specializing in generic products or exiting the pharmaceutical market," he said.
In the pharmaceutical industry, disparities in business results have continued to widen among the Big Four--Takeda Pharmaceutical Co., Daiichi Sankyo, Astellas Pharma Inc. and Eisai Co.--and the rest.
Daiwa's Mizuno added, "Expanding the generic medicine market could accelerate realignment of pharmaceutical companies that have no potent outlets overseas or no strong research and development capabilities to produce new, promising medicines."
Genetic medicine manufacturers, by contrast, have drawn rosy pictures for the future.
Sawai Pharmaceutical has set a goal of raising revenues, which were 34.3 billion yen in the business year that ended March 31, 2007, to as high as 100 billion yen in coming years.
Towa Pharmaceutical also is bullish, and is busy preparing to boost production by increasing capital spending for fiscal 2007 to 2.5 billion yen, double the previous year's level.
M&As loom for Japanese firms
Generic product manufacturers with good business prospects may find themselves the targets of corporate merger and acquisition attempts.
In fact, India's Zydus health care business group took over one of Japan's generic product manufacturers, Nippon Universal Pharmaceutical Co., in April.
Given that major generic medicine manufacturers overseas, including Teva Pharmaceutical Industries of Israel, the world's largest in the field, have grown spectacularly on the strength of mergers and acquisitions, they may soon launch takeover bids against Japan's generic drug makers.
Among Japanese pharmaceutical companies with a primary focus on developing and marketing new medicines, Tanabe-Mitsubishi Pharmaceutical Co.--the entity to be launched in October through the merger of Tanabe Seiyaku Co. and Mitsubishi Pharma Corp.--will establish its generic subsidiary in fiscal 2008.
Another major pharmaceutical firm, Nippon Chemiphar Co., which has affiliated with Indian drug giant Ranbaxy Laboratories, plans to have generic medicines account for 70 percent of revenues, up from the present 30 percent.
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