BMI View: The Japanese pharmaceutical market will become increasingly challenging for multinational drugmakers. This comes as the use of generic drugs has begun to gain momentum, creating a more competitive environment for innovative medicines. In addition, top line growth for foreign-based multinational drugmakers will be further challenged by the depreciation of the yen, which will remain weak under the country's 'Abenomics' economic initiative.
Headline Expenditure Projections
Pharmaceuticals: JPY11,239bn (USD106bn) in 2014 to JPY11,490bn (USD99bn) by 2015 with a year-on-year growth of 2.2% in local currency terms and -9% in USD terms. The contraction in the US dollar amount is due to the strengthening of the dollar against the yen.
Healthcare: JPY50,395bn (USD476bn) in 2014 to JPY51,535bn (USD433bn) in 2015 with a year-on-year growth of 2.3% in local currency terms and-9% in USD terms. Healthcare spending revised downwards due to new data from the World Health Organization. The lower US dollar amount is driven by the weakening of the yen against the dollar.
Japan's continues to be ranked as the most attractive region according to our Pharmaceutical Risk/Reward Index, scoring 73.3 out of 100 in Q315, significantly ahead of peers such as Australia (65.8) and South Korea (68.6) as well as the region's average at 52.7. This is driven by the country's high market expenditure scoring (18.0 out of 20.0) as well as a high spending per capita score of (10.8 out of 12.0). However, dragging down the country's score includes a declining population (population growth score of 1.0 out of 5.0). In addition, we highlight that the country's score has been lowered from Q115 due to the weakness in the Japanese Yen, which translates into a lower value returns in US dollars.
Key Trends And Developments
In April 2015, Japanese lawmakers disclosed that the country's medical and nursing costs is estimated to rise to JPY4.0trn (USD33.5bn) over the next five years. This highlights the increasing strain on public finances imposed by the country's fast ageing population.
In March 2015, regulators ordered Novartis to halt its manufacturing and sales of non over-the-counter medicines from March 5 2015 to March 19 2015. This comes as the company was accused in 2014 of manipulating data over its product Diovan (valsartan).
In February 2015, the Ministry of Health, Labour and Welfare disclosed that it will set up a new panel to determine the direction for that medical treatment policy will move over the next 20 years. This strategy will factor in the country's ageing population as well as ways in which they can control medical costs.
BMI Economic View
Rapidly improving terms of trade and incipient corporate governance reforms will provide support to Japanese real GDP growth, posing upside risks to our 0.8% forecast for 2015. That said, deteriorating demographics and increasingly experimental monetary and fiscal policy will prevent a meaningful acceleration in growth.
BMI Political View
Japanese Prime Minister Shinzo Abe will be strengthened by his Liberal Democratic Party's robust performance in regional and local elections, but the prospects for structural reforms are modest, as Abe is likely to continue focusing more on defence and security issues.