Growth of Generics in Japan

Japan is the home of one of the oldest populations in the world, causing Japan’s healthcare spending to be extremely high. In order to counter the high expenses, the Japanese government has been pushing the use of generic drugs in an attempt to reduce healthcare spending.

Japan is the second largest pharmaceutical market in the world and its pharmaceutical market is mostly comprised of patented drug products. The use of generic drugs has been relatively low due to the poor public perception (around 21% of market share as of 2011).  Many Japanese have a strong distrust of off-patented products and do not believe that the price difference between generic and branded drugs is high enough to justify the switch. This stands in sharp contrast to many large pharmaceutical markets such as the United States and Germany, where the generic drugs market exceeds 50%. However, recently, due to strong promotional activities and patent expirations, the generics market in Japan has been growing at a very fast pace.

To increase use of generic drugs, the Japanese government has made changes to the dispensing and prescription practices as well as giving incentives to pharmacies that recommend generics. Foreign generic manufacturers have taken notice and begun entering the market. One such company is Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest generic drug maker. They agreed to buy 57% of Taiyo Pharmaceutical Industry Co., one of Japan’s largest manufacturers of generics. TEVA is expecting to have $1 billion in sales in Japan by 2015. According to Mr. Sholomo Yanai, former CEO of TEVA, he expects the generic market in Japan “could reach 60% in a few years.”  That seems like a high percentage change for Japan and it is not likely to happen so soon.