Download New priorities emerge from devastating earthquake, tsunami

PwC Industry Analysis - Pharmaceuticals
New priorities emerge from devastating earthquake, tsunami
The natural disaster had limited immediate impact on Japan's pharmaceutical industry, but the
aftermath brings challenges. Ongoing distribution and power supply disruptions and reallocation
of government funding for reconstruction will affect clinical research and prescription drug sales.
In response, companies will focus on increased contract research, supply chain efficiencies,
international expansion, and compliance.
The impact on Japanese pharma *Status as of the
Disaster severity vs. pharma manufacturing
middle of April
Company
Astellas
Chugai/
Roche
Daiichi
Sankyo
Dainippon
Sumitomo
Mitsubishi
Pharma
Shionogi
Eisai
GlaxoSmith
Kline
Takeda
Immediate Impact
Status
One plant remains
R&D operations affected. Plants
idle (Oct.
halted in Iwate and Ibaraki
resumption). Most
prefectures.
R&D ops resumed.
Packaging/shipme
Damage to API/formulation
nt resumed. Full
facilities at Utsunomiya plant in
ops expected by
Tochigi.
September.
One API facility
Operations suspended at two
suspended; the
plants, including one in
other online midFukushima.
April.
Production unaffected. Eastern
Operational
Japan distribution ops halted.
Two production plants
Resumed
suspended. Eastern Japan
operations
distribution affected.
Operations suspended at one
Gradual recovery
antibiotics/analgesics plant.
expected
Damages to facilities at the
Kashima plant, the Misato
Operations
plant, Sannova Gunma plant,
restored to normal
and Tsukuba Research
Laboratories.
Resumed
Operations suspended at
operations after a
Imaichi plant.
few days
No disclosure/No impact
Cost
¥4.5
billion
Major pharmaceutical hubs
Most severe impact
¥9.0
billion
¥5.5
billion
¥3.0
billion
Source: Company reports, Scrips, PwC analysis
Limited immediate impact
Both the earthquake's epicentre and landfall of the
resulting tsunami were far enough from the
pharmaceutical hubs of Tokyo and Osaka/Kyoto for the
industry to escape severe, immediate harm. In broader
terms, however, the economic impact is substantial —
estimated at 3%-5% of GDP, or ¥15.7-¥24.6 trillion.
The affect on drug sales also has been minimal. The
hardest-hit Tohoku region accounts for only 6% of GDP
and thus a small percentage of national drug sales. Even in
the most heavily damaged areas, companies report sales
and information gathering is recovering already.
Further, major Japanese pharma companies generate
nearly half of their sales from international markets,
making them less dependent on domestic sales.
Companies with operations in the north, however, have
experienced material consequences. Chugai/Roche
suffered extensive damage at its key Utsunomiya
manufacturing site in Tochigi prefecture, and expects
direct and other costs of ¥9.0 billion ($110 million).
Source: US Geological Survey, PwC analysis
Distribution and infrastructure disruption
Closed distribution facilities and transportation difficulties
in the most affected areas have been the main short-term
impacts for the sector, with longer-term problems
expected from ongoing power outages.
Shipment delays have been minimal, however, because
manufacturers and distributors keep several months'
inventory. Japan's leading drug wholesaler, MediPal
Holdings, pointed to some disruptions to services, but no
material impacts. Workarounds include moving
distribution and logistics control to centres in western
Japan, away from the most affected regions.
Japan pharma: Rest-of-world sales
2006 vs. 2008 vs. 2010
2010
2008
2006
60%
50%
40%
30%
Takeda
Eisai
Astellas
Daiichi
Source: Company reports, PwC analysis
PwC
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Government debt vs. household savings rate
(2000–2012 est.)
(Household Net
Savings Rate)
(Debt/GDP）
300%
10%
Recent regulatory initiatives impacting
prescription drugs in Japan
Pricing pressure on branded drugs
• Price cuts every two years by Ministry of Health, Labour &
Welfare.
• When similar product is already available, comparative price
260%
8%
Household Net Savings Rate
220%
6%
Debt/GDP
2012E
2011E
2010E
2008
2009E
2007
2006
2005
0%
2004
100%
2003
2%
2002
140%
2001
4%
2000
180%
method is used to set the price at launch. Otherwise cost-plus
method is used.
• Premium is applied if MHLW considers the drug innovative or
useful.
• Drugs for pediatric use, or for orphan diseases tend to be
given low priority by the industry, etc.
• If entitled to an exemption from price cuts, a drug will be
subject to a price cut equivalent to the cumulative exempted
percentage price cut at the time of the launch of the first
generic competition, plus a 4%-6% price cut.
Incentives to increase generic use
• Twice-yearly pricing for generics to allow faster market access.
• Targets an increase in generic share of the market to 30% by
2012. (Share was 19% in 2008 — much lower than the 75%
share in the US.)
Source: IMF、OECD、PwC analysis
Source: Datamonitor, PwC analysis
Reconstruction funding needs may
exacerbate challenges for pharma
Post-disaster priorities and opportunities
As the Ministry of Health, Labour and Welfare (MHLW)
shifts its focus to disaster response, government
healthcare spending is likely to decline.
At the same time, increasing debt and declining savings
rates have made it more difficult for the government to tap
household savings, its historic source of funding.
Mounting pressure on government spending for
healthcare, therefore, may accelerate the push for lower
prescription drug prices and greater use of generic drugs
in a country that has been reluctant to adopt them.
Demographics and a national healthcare
system will support short-term demand
Greater demand for prescription drugs stemming from
Japan's aging population may offset some pressure on
government healthcare spending in the short term. Over
time, however, a declining population coupled with
spending constraints will negatively affect sales.
Japan's comprehensive national health insurance system
means most citizens likely will continue to view healthcare
spending as non-discretionary, helping to insulate the
industry from any general consumer downturn.
• Pharma companies increasingly will seek to move
production activities (both in-house and outsourced)
to high-quality facilities/producers overseas. Settingup or finding high-quality overseas facilities will be
crucial, given the focus on drug quality from Japanese
regulators and consumers.
• A greater emphasis on supply chain management,
specifically in having back up facilities/contractors.
• The increased movement of operational functions to
other countries will require companies to focus on
international tax issues.
• Companies will also seek to continue expansion into
other markets to lessen dependence on domestic sales,
leading them to pursue more international M&A
opportunities.
• M&A activity driven by the need to build R&D
organization (early- and late-stage) will remain
important.
• If power outages and transportation delays remain
persistent, clinical trials could suffer. Companies will
be looking for better project management and R&D
outsourcing opportunities.
• Medical devices and pharmaceuticals exports from
Japan may require compliance with additional
regulations, as regulatory authorities are worried
about radioactive contamination and damage to
medical devices from power disruptions.
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