R&D, Consolidation Drives Outlook for Japanese Firms

Japanese drugmakers are heading for soft growth in the next 10 months, amid maturing product lines and heavy investment in new discoveries. The expectations come after sluggish growth last year, largely because of a 4.2% cut in reimbursement levels. With another price cut expected shortly, delays in realising gains from R&D spending could affect margins for the top domestic firms.

However, some leading Japanese companies are likely to offset losses from patent expiries and competition more effectively than others. Sankyo's cholesterol-lowering drug Mevalotin was Japan's third-best selling drug in 2004, with sales of JPY96.86bn (US$910.7mn), but the product's patent has already expired in Japan and some European Union states, and US protection is due to expire in spring next year. Nevertheless, some observers expect the company's strong R&D alliances and development pipeline to make it Japan's fastest-growing drugmaker by the end of the decade.

Expectations are similar for fourth-ranked Eisai, which has encountered flat US growth for its Aciphex ulcer treatment but has sustained R&D spending at high levels. Notably, the current wave of consolidation in the Japanese sector is expected to create short-term growth, with newly merged entity Astellas likely to report substantial cost savings this year. However, Japan's drugmakers are unlikely to weather growing foreign competition with cost savings alone, and all eyes will stay on drug discovery and US sales of existing patented therapies.