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Global Biopharma Outlook 2011: Japanese Pharma
MP Advisors, Jan 2011, Pages: 100
Innovation is the sole driver for Japan pharma in the short-term, and this Japanese Pharma Outlook for 2011 is largely based around Innovation.
This report identifies and names innovation driven small caps. It finds that some of the large pharma RD pipelines are rich which extends well into individual companies.
The thesis for pure generic companies has played out well for 2009-10 and this research does not see further drivers for this segment until 2012. However, new entrants like Daiichi-Sankyo-ESPHA will emerge as winners in generic space.
Some of the key findings for the Japanese Pharma Outlook 2011 are:
- Generics May Fall Short Of Targets for 2012: We find that major drivers for generics pick-up; those introduced in April-10 have already played out. We expect generics penetration to reach 25% (by vol.) by 2012 (the government's target is 30%).
- Japanese Companies have Lost Their ‘Cash Rich' Status: With the exception of Takeda, none of the Japanese companies carry 15% of their market-value in form of cash. Two years ago Japan pharma Inc. used to have cash equal to 30% of their aggregate Mcap.
- Antihypertensive Are Shrinking; Cancer is Growing: Analysis of Crecon Inc.(leading pharma research agency) data suggests that antihypertensive continue to be largest Thx class in Japan (with 17% of the share), however due to heavy price cuts their value share will shrink. Cancer remains second largest segments (10%) and will grow due to new product launches, premium pricing and intro of biologics.
- Hidden Jewels – Introduction of Japanese Biotech: From our scanning of the Japanese small cap and rising star (unprofitable bio-pharmaceutical companies); we learn that Torii, Zeria, Sosei have good R&D. Each of these companies have at least one compound that is addressing novel mechanism, unmet need and carry potential to change the shape of the company. We also initiate coverage of Torii as Outperform.
- No Political Surprise Intervention to Healthcare Policy Likely Until 2012: The DPJ (Democratic Party of Japan) has already eliminated fears regarding drastically changing the healthcare policies introduced by their predecessor LDP, and followed the same trajectory of targeting healthcare to curb cost. We do not see any near term change in on-going policies/ reforms at least until 2012.
- Change In 80% Rule May Be Realized By 2012 – Significance for Select Drugs Only: ‘Price maintenance system' implemented from April-2010 introduced 80% rule to decide price of branded drugs. Under this, after price cuts, the new price is divided by 0.8 and the new price is compared to the older price (before the price cut impact). The lower price is taken as new price of the drug. There has been news flow that the divisor 0.8 can be increased – this will lower the spectrum of price and may be negative for some drugs.
- Consolidation in Japanese Generics May Start: Foreign/ non-generic companies have started taking Japanese generics as one of their growth drivers. Formation of Daiichi Sankyo ESPHA and entry of global generics in Japan will force existing Japanese generic companies to search for a creative defence. Sawai-Kyorin could perhaps be such a defensive-model too.
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