Healthcare Biotechnology Food Page  1   2   3    Three Key Points towards the Future Point 1 Major Risks in the Development of New Drugs    There are three key points for forecasting the future of the pharmaceutical industry: reorganization, division of labor and acquisition of foreign affiliates. First of all, an acceleration of reorganizations within the industry is expected. The reform of the Japanese healthcare insurance system is exhibiting a major effect on the pharmaceutical industry. Government policy measures to curb medical expenses (pharmaceutical fees) is leading directly to the stagnation of the pharmaceutical market The separation of dispensing and prescribing functions is established. Pharmacies, not hospitals, handle sales to patients.    This is why, as mentioned earlier, major Japanese pharmaceutical companies are focusing their strength on the development of new drugs, and the aggressive advancement into American and other overseas markets has become an issue.    It has already been explained here that the continued revision of officially-fixed drug prices is a cause of major declines in the earnings of pharmaceutical companies. There is a pressing need among pharmaceutical companies to advance the development of innovative new drugs because the price of such new drugs is higher than that of products that have been on the market for some time.    The development of a new drug, however, requires vast R&D expenses, while it is uncertain whether such investments will lead to the development of a promising new drug. In this sense, this is a business that contains major risks. According to one estimate, the odds of a new drug development reaching actual commercialization are 6,000 to 1. It is also said that it take more than 10 years as well as expenses of between 15 billion and 20 billion yen before a new drug can be placed on the market. Entry into an Age of Two Major Pharmaceutical Companies through Major Mergers?    Even if, after the injection of a massive amount of funds, the development of a new drug reaches the point where it can be sold on the market, proprietary patent rights to manufacture and sell the new drug will expire after 20 years. This means that there is a possibility of major declines in the drug's profitability.    For this reason, reorganization is taking place on a global scale in the industry, and Japanese pharmaceutical companies cannot consider themselves exempt from such tides. This is because mergers between major pharmaceutical companies expand the scale of operations and lessen the burden of developing a new drug.    Turnover in 2003 for prescription pharmaceutical products at Pfizer Inc. of the United States after its acquisition of Pharmacia was more than 40 billion dollars. This is almost six times greater than related sales at Takeda Pharmaceutical, which has the leading position in Japan.    Yamanouchi, which is in third place in terms of sales, and Fujisawa Pharmaceutical Co., Ltd., in fifth place, have announced a business merger effective April 2005. If this major merger takes place as planned, it will result in the birth of a Japanese pharmaceutical company that will be in close second place after Takeda Pharmaceutical. There is a possibility that the reorganization of Japan's pharmaceutical industry, which has fallen behind similar moves elsewhere, will accelerate in a spurt upon such major mergers between leading companies. Point 2 A Division of Labor between R&D and Manufacturing    A division of labor within the industry will also probably occur triggered by reorganizations within the industry. An amendment to the Pharmaceutical Affairs Law made in July 2002 resulted in a review of the system for approving the manufacture of pharmaceutical products. In the past, companies that conducted R&D for a new drug were obliged to manufacture the drug (handle at least one of the production processes) at an in-house plant. Since the amendment, companies have been allowed to consign all manufacturing processes to outside firms, including the production of new drugs developed by the company.    As a result, we are beginning to see moves by leading pharmaceutical companies to focus their financial resources to the R&D of new drugs and commission the whole production process to outside firms. Meanwhile, there are some moves by mid-ranked pharmaceutical companies to not conduct any R&D for new drugs but rather specialize in commissioned production. We are beginning to see a division of labor between R&D and manufacturing. Point 3 Offensives into Japan by European Firms    Many major European pharmaceutical companies are beginning to launch new drug offensives in the Japanese market. They include companies such as Aventis (France), GlaxoSmithKline (U.K.) and Boehringer Ingelheim (Germany). They are increasing their product lineup with a focus on lifestyle and central nervous system related diseases. These are fields that show potential for market expansion.    Japan is the second largest market in the world after the United States, but the market share of European affiliates are still low. There is much room for expansion. In addition to intensified business in Japan by Pfizer, the biggest pharmaceutical company in America, Roche has brought Chugai Pharmaceutical under its umbrella. As a result, the market share of foreign affiliates in Japan is now over 30 percent. Competition between American, European and Japanese firms over the Japanese market is sure to spur a further reorganization of the Japanese pharmaceutical industry.