Lupin Pharmaceuticals' smooth-run in Japan; all eyes on biosimilars growth

The decision of Mumbai-based Lupin Pharmaceuticals to stay invested in the Japanese market, when its peers gave up, has paid off, as it clocked a 23.4 per cent year-on-year (YoY) growth in Japan sales in 2017-18, the highest in the last five years. The company is preparing for the next wave of growth in Japan, which would come from biosimilars and it expects nearly 50 per cent of its Japan sales to come from the speciality business.

Lupin’s Japan story assumes significance as it held on to the highly regulated market, when most of its Indian peers quit. Ranbaxy, one of the first entrants, exited its JV with Nippon Chemiphar in December 2009. Others such as Dr Reddy’s, Orchid Chemicals and Cadila Healthcare, too, wound up their Japanese business in the following years.

Fabrice Egros, president, APAC and Japan for Lupin, said, “We entered the Japanese market in late 2005. At the time, it was the second largest pharmaceutical market in the world. Along with that, the regulatory reforms driven to support generics players and the National Health Insurance also supported growth of generics to as high as 20-30 per cent. These factors made investing in Japan a natural choice for Lupin.”

It made some strategic investments in that country and managed to increase them. Lupin acquired generics player Kyowa in 2007 when it ranked among the top 60 firms in Japan. Egros claimed that in the last 10 years, it has risen to the sixth position.

“To that end, we have made several strategic investments in the market over the years, including the acquisition of two companies, a portfolio of 21 branded products, and a joint venture for our biosimilars portfolio. Today, Japan is our third largest market and a critical base for manufacturing and R&D,” he added.

The Asia Pacific region contributed roughly 17 per cent of Lupin’s global sales in FY18, and Japan contributed 80 per cent to its revenues in the region. This is excluding India, considered a separate region, and not a part of APAC. With sales of Japanese Yen 35,478 million in 2017-18, Japan roughly contributed to 10 per cent of Lupin’s global sales.

The Japanese government has been pursuing the agenda of promoting generics and has set the target of 80 per cent generic utilisation by FY 2020-21. Incentives will remain until this period and then it will switch to biosimilars. Lupin has thus drawn up a plan to build a biosimilars portfolio. It expects to launch rheumatoid arthritis biosimilar Etanercept during FY19 and has tied up with Nichi-Iko for its distribution.

“The current biologics market in Japan is pegged at $13.5 billion and the current healthcare spends on biologics by the government is about 14 per cent, which is expected to go up further, resulting in more growth opportunity for us,” Egros said. He admitted that in the generics space, owing to government intervention in drug pricing, Lupin expected pricing pressure to continue in the coming fiscal. “Ideally, we are looking at the share of specialty segment in Japan to reach 50 per cent,” he added.

Japan opened up to low cost generic drugs in 2005. Several Indian players had then rushed to enter the Japanese market, but later found the going tough, thanks to stringent quality standards and other trade-related issues. “The regulations are not only stringent, but also not very transparent at all times. The trade practices too make it difficult for foreign players to operate there, which is why many had gone for joint ventures. On the whole, while it’s a lucrative market, some players did not find it profitable,” said a senior executive of a firm that was once present in the Japanese market.