New Drug Access and Market Dynamism The Impact of Market Factors on New Drug Development in Japan
Takashi Iwai, Senior Research Fellow, Pharmaceuticals and Industrial Policy Research Institute
(No.43: Published December 2008)
This study analyzes the impact of the basic characteristics of the domestic pharmaceutical market, namely the constant decline in drug prices and the long product life of new drugs, and the differences in market structure between Japan and the U.S. and Europe, which may be attributed to these factors, on the decisions and activities related to domestic new drug development by R&D-based pharmaceutical companies, which hold the key to improving access to new drugs.
First, we estimated the sales growth curves of new drugs in Japan, the U.S., and Europe, and found that the U.S. and European markets, which have superior access to new drugs, have dynamic market structures compared to the Japanese market: (1) higher growth peak after launch, (2) shorter time required to reach the peak, and (3) sharp decline in growth after patent expiration. (2) short time required to reach the peak, and (3) rapid decline in growth after patent expiration. Second, an empirical analysis of the impact of factors related to market characteristics and structure on domestic new drug development in 11 OECD member countries, including Japan, found that expansion of the domestic market model and higher drug prices significantly increase the number of products developed domestically. Third, if only measures to promote the use of generics were to proceed unilaterally in the future, the overall size of the domestic market would be suppressed by about 0.4 to 1.5 trillion yen in FY2020, compared to the case where the market followed the trend. Based on the results of the aforementioned empirical analysis, it was inferred that the suppression of domestic market growth due to the expansion of generics may reduce the number of items under development in Japan.
Based on the above, in order to improve access to new drugs, a shift to a dynamic market structure that encourages a faster R&D investment and payback cycle by pharmaceutical companies is considered necessary. A dynamic market structure could also strengthen the competitive foundation of the pharmaceutical industry by promoting healthy competition among firms in the domestic market. As Japan's economy undergoes a structural transformation, the pharmaceutical industry's high international competitiveness as a knowledge-intensive industry should help accelerate the paradigm shift to a knowledge-creating, high-value-added economy. In considering the future of the domestic pharmaceutical market, it is desirable to have comprehensive discussions not only from the viewpoint of patient and medical care policy, but also from the viewpoint of industrial and economic policy.