PRICE CUTS TO AFFECT JAPANESE DRUG SALES, ALTHOUGH WEAK YEN BOOSTS EXPORTS

There are mixed signals emanating from the Japanese pharmaceuticals sector. Industry observers are warning that government-imposed price cuts may affect profits for Japanese drugmakers in the near future, yet they also point out that the weak local currency will aid the export market.

The Japanese drug market grew by 5% between April and September 2005, driven by the medical costs of an increasingly ageing population. Japan has the highest life expectancy in the world, and the elderly accounted for 40% of total health expenditure in 2004.

To counter growing costs the Japanese government cuts drug prices every two years, with the next reduction scheduled for April 2006. The domestic industry anticipates a cut of around 6% compared with 4.2% in 2004. The decision will be made in December, and drug sales are expected to slow notably in the early months of 2006, as hospitals become reluctant to purchase new medicines directly before the price reductions.

However, drug exports are benefiting from the depreciation of the local currency, which has resulted in Japanese-produced drugs being more competitive on price. However, imports will continue to outstrip exports as Japan's R&D sector lags behind other markets and the country remains reliant on innovative drugs developed overseas.