Foreign drug companies expand in Japan

Ed Weiss looks at the aggressive strategies being employed by western drug companies in Japan

To expand their local influence, and thus sales of their products, overseas pharmaceutical companies are becoming increasingly aggressive in the Japanese market. They have, or are planning to, increase their market share by investing heavily in r&d, expanding their product ranges and sales forces in Japan.

The Japanese domestic pharmaceutical market has a uncomplicated structure, in that drug makers who have developed promising products are able to sell them directly to medical institutions and doctors, and the company with the largest sales force is a winner. Thus overseas companies with sophisticated selling methods finely honed on the global market are considered to have a substantial advantage.

Offsetting this for a long time was the difficulty overseas companies experienced in becoming established locally, mainly because of deliberate differences in government regulations and licensing requirements that favoured Japanese drugmakers. However, standardisation of regulations has removed most of this red tape, to the very great advantage of international companies with non-Japanese clinical data, acquired at massive cost; GlaxoSmith-Kline for example spends the equivalent of ¥450bn on r&d annually worldwide, dwarfing that of the largest Japanese companies.

Parent companies of Japanese subsidiaries are seen locally as becoming major international players by an aggressive strategy of mergers and acquisitions (M&A), and local industry analysts consider that if a similar spate of M&As occurs in Japan, half the top 10 drugmakers could ultimately become affiliates of overseas companies.

This is supported by the publication of interviews with heads of the local units. For example, Lawrence Payne, president of Pharmacia KK, said he plans to make his firm one of the 20 largest drugmakers in Japan and eventually a top 10 concern, while Marc Dunoyer, president of the local arm of GlaxoSmithKIine, also promised that the company will be among the top five drugmakers in Japan by 2010.

top ten companies

Alan Bootes, president of Pfizer Pharmaceuticals, predicted his company will be a market leader by 2004, while Martin Wright, president of Astra Zeneca, also intends to become one of the top 10 drug-makers by 2005. Novartis Pharma KK President Masahiro Michisuji optimistically stated the company will double sales by 2005 to ¥250bn.

Their optimism is reinforced by expanding product ranges; GlaxoSmithKline released five new products in 2000, including the Paxil antidepressant with claimed sales of US$2bn worldwide. Additionally, the company launched two new drugs in April, and has stated it has over 20 drugs in the second stage of clinical testing.

Commenting on this expanding range, senior md Hiroshi Okawa admitted the marketing division has problems keeping up with the spate of new products. Not far behind is Pfizer, with 10 new products to be released in Japan in the next four to five years, and AstraZeneca, which aims to will introduce 15 products in next three years.

New products are not sufficient without a large and efficient distribution and marketing organisation. Thus Pfizer now has Japan's largest sales force of 1,700 medical representatives, and also intends to train their sales people as specialists in certain areas of treatment. AstraZeneca is to boost its sales force to 1,500, GlaxoSmithKline already has 1,300 on the road, while Merck's Japanese affiliate Banyu Pharmaceutical is to enlarge its sales force to 1,800 by 2004 from the current 1,260. A problem they may all face is that too many reps. calling on the same doctors will cause information fatigue.

In what would appear in the west as sour grapes, the president of Chugai Pharmaceutical, Osamu Nagayama commented, 'We are not much interested in sales rankings, our company image is much more important.' Maybe, but in the present parlous state of Japan's economy, cash flow is the winner.