Japan's innovative drugs have a certain position in the global market, but generic drugs in the U.S. market have been beaten by Indians.
Sawai Group Holdings and Nichi IKO, the top two generic pharmaceutical companies in Japan, suffered losses in the fiscal year ending March 2022, both because of the huge impairment losses related to the US business. Both companies entered the U.S. market through the acquisition of generic drug manufacturers in the United States from 2016 to 2017. However, with the full entry of Indian pharmaceutical companies, intensified competition and increasingly severe market environment, Japanese generic pharmaceutical companies are forced to readjust their strategies.
On May 13, Nichi IKO announced the application for alternative dispute resolution (ADR). ADR refers to the dispute resolution system outside the court aiming at debt consolidation. It is a debt consolidation procedure mediated by neutral and impartial experts to form a debt consolidation agreement between the debtor and the financial creditor.
In fiscal year 2021, Nichi IKO's operating income was 179.1 billion yen (a year-on-year decrease of 4.9%), and its profit loss was 110billion yen (a surplus of 100million yen last year). The loss was due to a large impairment loss caused by the delay in product development in the United States. In 2016, Nichi IKO purchased sagent pharmaceuticals, an American generic pharmaceutical company, for about 75billion yen. However, the application for approval of bio similar drugs and orphan drugs developed by the company was delayed, and an impairment loss of 83.6 billion yen including goodwill was accrued.
The U.S. business of Sawai Group Holdings (hd) was also dragged down. The financial performance for the fiscal year ending 2021 announced on May 11 was a revenue of 193.8 billion yen (an increase of 3.5%), and a profit loss of 35.9 billion yen (a surplus of 18.9 billion yen last year). Among them, the impairment loss related to the U.S. subsidiary upshire Smith laboratories was 68.8 billion yen. Before impairment, the intangible assets of the US business were JPY 74.5 billion.
On the other hand, Toho pharmaceutical, the only "normal operation" among the three major generic pharmaceutical companies in Japan, had sales of 165.6 billion yen (an increase of 6.9%) and profits of 19.2 billion yen (a decrease of 3.6%) in 2021.
Prices fell due to the entry of Indians.
The U.S. business of Sawai group HD continued to deteriorate and suffered losses for several consecutive quarters. The sales of the three major generic drugs, which accounted for nearly half of the sales of its U.S. subsidiary, upscher Smith, fell by 40% in one year due to the entry of its competitor (India). Nichi IKO's U.S. business has also been sluggish. Since the fiscal year ended march31,2018, sagent, a U.S. subsidiary, has been in a loss every year.
"The competitive environment in the US generic drug market is fierce, and we expect prices to continue to fall." Mo Ji and Yan, chief operating officer of Sawai group HD, said at the financial performance Conference on May 11. In the US generic drug market, Indians with high cost competitiveness have begun to seriously enter in recent years. The integration of wholesalers has also stimulated price competition. It is said that many generic drug manufacturers, including upshire Smith, have performed poorly. President Moji said, "in the case of major crustal changes in the whole industry, we have reexamined our future profit plan based on the judgment that it should not be easy to think that it will recover." Explain.
Upscher Smith intends to recover profits in this period by making up for the decline in sales of its main generic drugs and reducing R & D and API procurement costs through sales of branded drugs. It is expected that the U.S. business will return to profitability by March 23, with a revenue of 32.2 billion yen (an increase of 7.4%) and a profit of 600million yen. For the future, the company said that it is trying to improve efficiency by integrating local production systems and reduce risks through joint development of new products. However, as the business environment is not expected to improve, it is uncertain whether the growth will be sustainable.
"Entering the United States is a failure." Some Japanese insiders said that under the situation that the domestic market in Japan is stagnant, pharmaceutical enterprises have no choice. The annual drug price adjustment starts from April 2021. In the first mid year adjustment, about 80% of generic drugs are reduced in price. Obviously, just doing a generic drug business in Japan will make you poor. Asked by a reporter at the financial report press conference, "is it expected that the US business will be comprehensively reviewed in the future?" At that time, President Moji denied, "I don't know at present". In the United States, where we have invested a lot of money, can we reap the fruits. In this dilemma, we need a clear development strategy.
Summary
The price reduction of generic drugs is a problem faced by global pharmaceutical companies, as well as in China. The entry of Japanese generic drugs into the U.S. market through M & A is undoubtedly a failure, because it has encountered India with a lower cost than it. For generic drug companies, cost may be the only way to win. However, through the price reduction mode of "injuring the enemy by a thousand, and losing yourself by 800", the profits of Indian generic drug companies will not be very high. Only by carrying out differentiated innovation and developing unmet clinical needs can pharmaceutical enterprises maintain sustainable growth.
Source: PHARNEX the public
