20 Oct U.S.-Japan healthcare comparison: Rapidly aging population, skyrocketing costs
I’m just back from the third year of attending of the annual Bio-Japan Conference.
It was fascinating being in Japan during a tumultuous week of U.S. politics and the financial roller coaster around the world. Tom Friedman may have said the world is flat, but it really appeared quite round from a vantage point in Yokohama as one watched the close of the Nikkei, Hang Seng, and Shanghai Stock Exchanges each day, and then the resulting impact on the various European bourses, and then, finally, on the U.S. market as it opened.
At 10 p.m. in Japan, it is 2 p.m. in London, and 9 a.m. in New York City, when the market is just opening; it is an interesting perspective to see this rolling effect of the financial markets’ closing on each other. Waking up at 5 a.m. the next day in Japan and the NYSE is just closing as the Japanese are getting up.
After several hours of watching CNN and BBC, it was a welcome relief to attend the Bio-Japan conference to observe how this global industry has progressed in this part of the world. Bio-Japan seemed quiet this year without the “buzz” of the prior year.
To be sure, the French, the Swiss, the British, and the Canadians all had a larger presence this year versus last. The U.S. pavilion, perhaps reflecting the crisis back home, was smaller and almost meager, a sad reflection on an industry discovered and propagated in the U.S. Present on the exhibit floor were Illinois, North Carolina, Iowa, and Pennsylvania, in addition to the U.S. Commercial Services and BIO.
Other states, such as Ohio, Arizona, and Florida, did participate in the Japanese External Trade Organization reception, which featured several other countries in smaller exhibits. Interestingly, BIO had announcements out that it was starting a Bio-India partnering conference in September 2009.
Illinois, which has had a direct representative office and local staff in Tokyo for over 23 years, held an invitation-only lunch for a select group of Japanese life science companies with operations already in the state, as well as a few potential candidate companies. Managing Director Rajinder Bedi of Illinois’ Office of Trade and Investment and his local Tokyo-based staff Toshi Yamada and Akiko Kimura, were there to personally pitch Illinois’ many attributes (along with yours truly). Considering that Illinois already has 600 Japanese companies in residence, with close to 400 in the Chicagoland area, there is a substantial nucleus of Japanese companies and organizations.
In addition to pharmaceutical giants Takeda and Astellas in Chicagoland, other Japanese life science companies that Illinois can tout include Sunstar, Omron, Asahi Kasei Medical, Sysmex, Ajinomoto, Valent Bioscience, and others.
I was also asked by JETRO to participate in a conference panel session, which they sponsored on partnering with American life science companies, which included executives from Midwest Big Pharma companies, Abbott Labs and Eli Lilly. My role was to talk about entry strategy alternatives for small Japanese biotech companies to enter the U.S. market. This enabled me to do some research on key factors in doing business comparing the U.S. with Japan, which I will share with you.
COMPARISON BETWEEN JAPAN AND U.S. – KEY FACTORS
|Population||127.3 million||303.8 million|
|GDP||$4.4 trillion||$13.8 trillion|
|GDP/capita||$33.3 k||$45.8 k|
|Cell Phone Users / % of Population||107 million (84%)||225 (74%)|
|Internet Users/ % of Population||88 million (69%)||223 million (73%)|
Remember that Japan’s population, about 42 percent of the U.S., is crammed into four main islands that together represent less than the size of the state of California. The Japanese exceed the use of cell phone users as a percent of the population but lag the U.S. Internet users as a percent of population; however this data is somewhat circumspect as the Japanese use their cell phones as main access points to the Internet and these cell phones are a generation further advanced than U.S. cell phones.
Another interesting comparison lies in an analysis of Japanese versus healthcare expenditures. Let’s take a look:
HEALTHCARE FACTORS – JAPAN AND THE U.S.
|Healthcare as % of GDP||8%||15.2%|
|Age Structure: % 65 years old +||21.6%||12.7%|
|Life Expectancy||82.1 years old||78.1 years old|
|Pharmaceutical Market||$57.3 billion||$281.9 billion|
|Drug Consumption/ capita||$450.11||$929.91|
Source: www.cia.gov; Med Ad News, September, 2008
Although the Japanese elderly population is almost double the U.S., a segment of the population which requires most healthcare expenditures, the actual amount of healthcare expenditure in Japan, as a percentage of the overall population, is almost half that of the U.S.
Related to this is the fact that drug expenditures in Japan are about half of the U.S. (although this may not include Japanese herbal medicines which don’t count as prescription drugs). The Japanese elderly population is aging at a faster rate than the U.S., so these healthcare expenditures are bound to increase quickly. According to JETRO, by 2050 it is projected that one out of every three Japanese will be a senior citizen, meaning a need for greater medical and nursing care services.
Due to the rising pressure of Japanese healthcare costs as a result of the rapidly aging population, the Japanese Ministry of Health plains to raise the volume of generics in the market, according to Med Ad News. This level, today about 7.3 percent of total pharma sales, is expected to grow to 30 percent by 2012, meaning that this sector will grow considerably at the expense of branded innovator drugs. This shift is expected to precipitate further M&A activity in Japan.
The leading Japanese companies for 2007 were:
|COMPANY||SALES $ Billion (2007)||% CHANGE|
|1. Takeda Pharmaceutical *||$12.73||+6%|
|2. Astellas Pharma||$ 9.72||+6%|
|3. Otsuka Pharmaceutical Group||$ 8.99||+9%|
|4. Daiichi Sankyo**||$ 8.41||0%|
|5. Eisai ***||$ 7.12||+9%|
|6. Chugai Pharmaceutical Co.****||$ 3.05||+6%|
|7. Mitsubishi Tanabe Pharma||$ 2.92||N/A|
|8. Taisho Pharmaceutical||$ 2.5||+26%|
|9. Kyowa Hakko Kogyo*****||$ 2.25||+13%|
|10. Dainippon Sumitomo Pharma||$ 2. 08||+1%|
Source: Med Ad News, September 2008
*Takeda sales do not reflect the acquisition of Millennium Pharma in May 2008 or the acquisition of Amgen’s Japanese business in the same year
**Daiichi Sankyo’s sales do not include the recent acquisition of the largest Indian pharma company, Ranbaxy
***Eisai sales do not include the acquisition of MGI Pharma in January 2008 for $3.9 billion
****Chugai is owned by Hoffman-LaRoche
*****Kyowa Hakko’s sales do not include its merger with Kirin Pharma the pharmaceutical part of Kirin Brewery.
Yen for U.S. companies
The Japanese yen has appreciated about 12 percent against the dollar in the last 12 months, making further U.S. acquisitions attractive. Given the onset of generics in Japan, the Japanese Big Pharma faces the same issues as their U.S. and European brethren: the need for revitalized product pipeline (meaning more new products).
I believe there will be further mergers between Japanese companies as well as acquisition of Japanese companies by foreign pharma. There is a large tier of Japanese pharma companies with annual sales between $500 million and $2 billion which never internationalized their businesses and do not have deep products for R&D. They also seem not to be tapping into local Japanese biotech companies for product flow.
During my trip and participation in Bio-Japan, it was hard to get a pulse on the growth and size of the Japanese biotech market. The “buzz factor” at the meeting was definitely lower, but perhaps due to the overall concern about the local and world financial markets. It is known that venture capital groups are few and far between in Japan and, although there is an IPO market there, it is small and there are few IPOs. Nevertheless, the Japanese government seems intent on fostering the growth of this industry to help contain rocketing current and expected future healthcare costs.
Needless, to say it was a fascinating week. The international presence at this meeting demonstrated the interconnections of the biotech industry around the world.
See you soon!
This article previously appeared in MidwestBusiness.com, and was reprinted with its permission. The article is not meant to be a stock recommendation.
The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC. WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.