The generics sector is witnessing  significant growth in Japan. Generics are expected to increase their market share through sales from 8.3 per cent in 2010 to 12.8 per cent in 2015. This is an increase of more than 50 per cent in just five years and the total generics market in Japan is expected  to be worth US$12.3 billion by that time.

The pharmaceutical market in Japan has been growing effectively for the past few years. Japan is currently the world’s second largest pharmaceutical market, surpassed only by the US. At the same time, Japanese generic drugs market is fast  evolving to become the world’s next generic hub, offering a wide range of opportunities to both domestic and international players.

The patent expiry of a large number of branded drugs, a rapidly ageing population and wide-ranging government initiatives to reduce healthcare spending ,is  making the generic drug sector in Japan increasingly attractive. It is expected that the promising factors will boost the generics industry’s revenue  and the market will advance at a CAGR of around nine per cent during 2012-2014.

Though the Japanese prescription drug market was valued at US$96 billion in 2010,  only around 23 per cent of its prescription drug sales (by volume) are generics.  Despite the fact that generic medicines have been in used in Japan for more than 10 years, Japan is a poorly developed market in the use of generic medicines. Thus Japan has one of the lowest generics utilisation rates of developed markets.

There is still a lack of awareness about generics in Japan that the government needs to address if it hopes to meet its 30 per cent  target by 2012.  According to a  health ministry survey, the biggest factor behind the lack of generic usage among physicians was a lack of confidence in generics manufacturers and a distrust  in their quality. Doctors are hesitant to use generics because they are only familiar with brand-name products.

The Ministry of Health, Labour and Welfare (MHLW) feels  that the reason for distrust in generics stems from concern among physicians about the ability of generic drugmakers to ensure stable supplies and provide detailed safety information

Moreover Japanese physicians do not have any  financial incentive to prescribe and dispense generics. At the same time  wholesalers, who receive a rebate based on the drug’s price, need strong incentives to sell generics, which are about 30 per cent  cheaper than brand-name drugs .

At the same time patent owners use a combination of litigation, patent-life extensions, line-extensions, and misinformation campaigns to protect revenues. Typically these are very successful and even off-patent products are resistant to generic competition.

Moreover Japan has not been an easy place for drug makers to do business. Every other year, the government has introduced price cuts to keep its medical costs in check. These price cuts have worked against the spread of generics since there is little difference in price between originator and generic drugs.

In an effort to redress this, and make generic drugs more attractive, the government, in April 2010, opted to leave prices unchanged for some drugs still protected by patents, while cutting prices for generics.

Hospitals are also shifting towards a flat-fee system, known as Diagnosis Procedure Combination (DPC). The new DPC attempts to do away with the system in which doctors and hospitals are reimbursed for every procedure they perform and drug they dispense.

To educate patients, the health ministry has printed posters and pamphlets, hosted public seminars and posted videos online explaining the benefits of generics. Japan’s national health insurance agency has also issued cards with ‘generic drugs, please’ on them so patients can ask for generics without having to challenge the authority of doctors.

Generics companies are trying to overcome perceptions of low quality, inadequate information, and bioinequivalence among patients and doctors. Some are turning to value-added products to try to win market share from innovators.