Generics Market

An Expert's View about Medical, Health and Cosmetics Products in Japan

Posted on: 28 Nov 2011


The Japanese market for generics has been increasing steadily although it still lags far behind the U.S. and other developed countries. The Government of Japan (GOJ) regards the promotion of generics as a key political solution to reduce soaring healthcare costs from Japan’s rapidly aging society. As a result, in June 2007, the GOJ decided to increase the use of generics to at least 30 percent of all prescription drugs, on a volume basis, by Japan fiscal year (JFY) 2012 (ending March 2013). As of JFY 2010, generics held a 23 percent share of the Japanese prescription drug market, on a volume basis, according to the Japan Generic Medicines Association (JGA). It is not clear whether the GOJ will be able to achieve its goal of increasing in the share of generics to at least 30 percent, on a volume basis, by JFY 2012. However, the Japanese market for generics is expected to increase as the GOJ will continue taking measures to promote the use of generics. Fuji Keizai, a Japanese research company, estimated that the Japanese market for generics would increase to $5.2 billion (¥489 billion) in 2013, up 23.4 percent from $4.2 billion in 2009. The use of generics in the Japanese market could accelerate due to patent expirations for a number of blockbuster branded drugs over the next few years. Also, due to severe financial pressures on the GOJ, as a result of the Tohoku Pacific Earthquake (tsunami and nuclear accident) in March 2011, there may be a greater push to use generics in order to lessen national healthcare expenditures.

NOTE: The exchange rate used in this report is US$1=JP¥93.68 unless otherwise noted.

Market Demand

The unprecedented aging of Japan’s society and the country’s low economic growth has created market conditions favorable for expanded sales of generics in Japan. The increased use of generics is considered a key solution to reduce soaring healthcare expenditures. According to the Ministry of Health, Labour and Welfare (MHLW), in JFY 2009 Japan’s healthcare expenditures reached $384 billion (¥36.67) which set a record high for healthcare costs for the third consecutive year. Due to the rapidly aging Japanese population, medical expenditures for people aged 70 and over represented 44.6 percent and those aged 65 and over represented 55.4 percent of total national health expenditures in JFY 2009. Japan’s population is also declining. According the Statistics Bureau, as of September 2010, the proportion of people aged 65 and over in the total population reached a record high of 23.3 percent. The elderly will increasingly make up a significant percentage of the total Japanese population. According to the National Institute of Population and Social Security Research, the number of those aged 65 and over is projected to reach approximately 30 percent in 2025 and 40 percent in 2050. Since 2005, there have been more deaths than births in Japan, and the population is projected to shrink to 75 percent of its 2004 peak of 128 million by 2050. With these demographic trends, an increase in healthcare expenditures cannot be avoided. MHLW forecasts that annual healthcare expenditures will exceed $533 billion (¥50 trillion) in JFY 2025.

Japan has been taking measures to curb the growth of healthcare expenditures. The measures were mainly focused on addressing the immediate budget shortfall in Japan’s healthcare system, including cutting prices of branded drugs. However, over time this approach has become less effective in containing costs. As a result, the promotion of generics became one of Japan’s main policies to contain soaring healthcare expenditures. In June 2007, the Japanese Cabinet approved the 2007 Basic Policies for Economic and Fiscal Management and Structural Reform, known as “honebuto no hoshin” or "thick-boned policies”, drafted by the Japanese Cabinet Office Council on Economic and Fiscal Policy (CEFP). The policies called for an increase in the share of generics to at least 30 percent, on a volume basis, by JFY 2012 as one of the main goals. Subsequently, in October 2007,

MHLW created the “Action Program to Promote Reassured Use of Generics” to increase the adoption of generics. The program included the creation of a council in each prefecture, measures to ensure good quality generics, guidance to manufacturers to ensure a regular supply of generics, and revision of the prescription form. MHLW has been taking specific actions to promote the use of generics. For example, in the JFY 2008 revision of medical fees, MHLW implemented a revised prescription form which now requires physicians to check a designated box on the form if they do not wish to substitute generics in place of branded drugs. With the revised 2008 form, pharmacists were allowed to replace branded drugs, prescribed by doctors, with generics if the patient agreed. As part of the JFY 2008 revision, in order to encourage pharmacies to dispense more generics, MHLW also introduced a premium system whereby pharmacies will receive a four-point (¥40) premium if they dispensed generic drugs for 30 percent or more of total prescriptions. At the same time, MHLW decreased the basic dispensing fees by two points (¥20). In the most recent revision of medical fees in JFY 2010, MHLW enhanced the existing premium system for pharmacies by granting three different new premiums which depend on the generic dispensing rate based on volume. Pharmacies can receive a 17 point premium (¥170) if the generic dispensing rate is 30 percent or higher; a 13 point premium (¥130) if the rate is 25 to 30 percent; and a six point premium (¥60) if the rate is 20 to 25 percent. At the same time, MHLW created a new premium for medical institutions that established specific systems for use of generics. Medical institutions could receive 30 points (¥300) in addition to the basic admission fee on the first day of admission if (1) the medical institution established a system to formally adopt generics by creating a drug division that collected and assessed information on quality, safety and supply of individual generics and recommended their adoption to the in-house drug review committee and 2) the number of generics accounted for at least 20 percent of all drugs included in the hospital's formulary. Also, in the JFY 2010 revision of medical fees, MHLW created a new premium system called the "premium for the development of new drugs and elimination of off-label drug use" on a pilot program basis.

This new premium system minimized downward pressure on new drug prices (for drugs without a generic equivalent) as long as the patent remained effective or for up to 15 years after the drug was listed in the National Health Insurance (NHI) reimbursement scheme. This system was implemented in order to promote the earlier introduction of innovative new pharmaceuticals into Japan, to help eliminate the drug lag and to promote the use of generics as soon as the drug patent expires.

In addition to MHLW, other interested parties such as generics academic societies and health insurance societies have been promoting the use of generics. For example, the Japan Society of Generic Medicines website lists names, manufacturers and prices of corresponding generics for branded drugs. This enables patients to identify cost differences between generics and branded drugs. The Japan Health Insurance Association (Kyokaikenpo), which serves employees of small and medium sized companies, started notifying members about the monthly cost burden differences between branded drugs and generics when the members started to use generics. According to Kyokaikenpo, of the two million insured members who were informed about the cost differences between branded drugs and generics over the past two years, approximately 500,000 members have started to use generics. The National Federation of Health Insurance Societies (Kenporen), which serves companies with 700 or more employees and groups of companies from the same industry, with a combined number of employees of 3,000 or more, has also been informing their members about generics usage. In August 2011, Kenporen reported the results of a survey of 1,477 health insurance societies on activities to promote the use of generics. According to the survey, 59 percent of the organizations were providing insured members with information on the cost burden differences between generics and branded drugs. This result was triple the number of organizations providing such information compared to the last survey conducted two years ago.

Market Data

Japan continues to be the second largest pharmaceuticals market in the world, after the U.S. valued at $93.6 billion (¥8.78 trillion) in 2009. However, the Japanese market for generics still lags far behind that of the U.S. and other developed countries. The latest figures from the Japan Generic Medicines Association (JGA) indicated that, in JFY 2010, generics held only a 23 percent share of the Japanese prescription drug market, in volume terms. According to JGA, in JFY2009 the share of generic drugs, on a volume basis, in the U.S., Canada, the United Kingdom, Germany, France and Spain was 72 percent, 66 percent, 65 percent, 63 percent, 44 percent, and 37 percent, respectively, and only 20.3 percent in Japan.

Fuji Keizai, a Japanese research company, reported that the size of the Japanese generic drug market was $4.2 billion (¥396 billion) in 2009. The firm also estimated that the market will increase to $5.2 billion (¥489 billion) in 2013, a 23.4 percent increase. It is estimated that U.S. products represent less than 10 percent of the market, however, the U.S. share is expected to increase as American companies expand their business (for example, Pfizer will started marketing generics in Japan in 2011).

Best Prospects

Fuji Keizai has projected sales for the Japanese generics market up to the year 2013. The firm estimated that in 2013, top selling generics by therapeutic category, would include upper gastrointestinal drugs, antihypertensive drugs, analgesic antipyretic drugs, other cardiovascular preparations, and lipid-lowering drugs. With the patent for Lipitor (a blockbuster branded drug for lowering lipids) set to expire in November 2011, many generics manufacturers are expected to develop generic versions of the drug. Fuji Keizai also reported that hospitals that have adopted a flat sum reimbursement system (known as Diagnostic Procedure Combination hospitals) have been shifting their purchases of drugs to generics in order to reduce drug costs (please see the “Prospective Buyers” section for more details on DPC hospitals). Among DPC hospitals, increases in generics sales have been seen in anti-cancer drugs, antibiotic drugs, antiviral drugs, and expensive injectable drugs. Generic sales of body fluid preparations, nutrients, vitamins and saline solutions have also been increasing. According to Fuji Keizai, with the increase in generics sales to medical institutions, major generics manufacturers have recently been putting efforts into marketing oral agents. The research firm further predicted that the generics market for oral drugs, especially for lifestyle diseases, will gradually increase. Traditionally, injectable generics have had a slightly higher market share compared to oral and external generics. In JFY 2010, in volume terms, injectable generics held a 25.1 percent share of the total injectable drug market, whereas oral generics held a 23.4 percent of the total oral drug market. Fuji Keizai also projected that biosimilars (generic versions of biotechnology-based drugs) are expected to grow in future with the expiration of patents for original drugs by 2015.

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Posted: 28 November 2011

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