Overview 

Market size = local production + imports – exports 

Data Sources: Annual Pharmaceutical Production Statistics, Ministry of Health, Labour and Welfare (“MHLW”) 

*U.S. Commercial Service Japan (“CS Japan”) estimated 2021 local production and import data using MHLW monthly reports.  CS Japan estimated export and import data based on past trends. 

Japan is the third largest pharmaceutical market in the world and a critical export market for U.S. pharmaceuticals.  Since 2013, the Government of Japan (“GOJ”) has promoted the healthcare industry as an important growth engine under the country’s economic revitalization and growth strategy.  Japan’s healthcare field, including the pharmaceuticals sector, has recently experienced renewed attention.  The COVID-19 pandemic, which demonstrated the importance of innovative healthcare products, is one reason for this heightened attention on Japan’s healthcare sector.  Another important factor for increased interest in Japan’s pharmaceuticals sector is the need to enhance Japan’s drug discovery ecosystem. 

The Japan Ministry of Health, Labour and Welfare’s (“MHLW’s”) Annual Pharmaceutical Production Statistics Report provides that the Japanese market for prescription and nonprescription pharmaceuticals in 2020 totaled USD $109 billion.  Based on CS Japan’s research, U.S. pharmaceutical imports’ share of Japan’s pharmaceuticals market is significantly higher than the percentage reflected in official statistics.  Based on CS Japan’s research, U.S. pharmaceutical imports into Japan, including local production by U.S. firms and compounds licensed to Japanese manufacturers, account for approximately 20% of Japan’s total pharmaceuticals imports.   

All major U.S. pharmaceutical companies – including Pfizer, Eli Lilly, Merck, Biogen, Bristol Myers Squibb, Abbie, and Janssen – have subsidiaries in Japan.  

IQVIA, a leading global research organization, projects that Japan’s pharmaceuticals market will decrease at a rate of 0.2–1.2% per annum through 2025 while the global pharmaceuticals market is projected to grow at a rate of 4.4% over the same time period.  One of the reasons for the projected decline in Japan’s pharmaceuticals market is a concurrent decline in Japan’s off-patent drug market.  However, Japan’s patented drug market, a Japanese market segment in which U.S. companies’ products excel, is expected to enjoy continued growth throughout this time period.  

U.S. companies may see renewed growth opportunities in Japan’s biotechnology sector as the GOJ aims to spur biotechnology innovation.  The GOJ’s June 2022 “Grand Design for New Capitalism” plan identifies regenerative medicine as well as cell and gene therapies as the government’s priorities in the biotechnology sector.  The GOJ’s plan also includes initiatives to increase the development of genome medicines and vaccines. 

Japan’s Healthcare Policy 

Japan’s healthcare system receives high marks for providing both basic care and a free choice of doctors to all Japanese citizens at an affordable cost under the country’s national health insurance system established in 1961.  Japan enjoys one of the world’s highest life expectancy rates along with the low rate of infant mortality.  

Nonetheless, Japan’s aging population combined with a low national birthrate has led to serious financial challenges for Japan’s medical system.  In response to these challenges, the GOJ has taken various measures to cut national healthcare spending.  U.S. companies have expressed serious concerns that frequent changes to the Japanese healthcare pricing and reimbursement systems have made Japan an unpredictable healthcare market.  Specifically with regards to pharmaceuticals, Japan’s recent transition in Fiscal Year 2021 from a biennial process for determining prices of all reimbursed medicines to an annual review for price determination further increases the unpredictability of drug prices.  Under the new annual reimbursement schedule, the country’s pace of price determinations – and specifically price reductions – is dramatically accelerated. 

Japan has prioritized development of innovative pharmaceuticals and vaccines based on the challenges Japan faced in developing a vaccine in response to the COVID-19 pandemic.  The MHLW’s vision for the pharmaceutical industry in 2021, which was updated for the first time in eight years, called for both Japanese and non-Japanese companies to promote policy measures for innovation in pharmaceutical manufacturing in the next five to ten years.  The MHLW’s vision highlights the importance of predictability for companies to recoup investments in Japan among other policy measures.  In the GOJ’s 2022 annual economic and fiscal policy blueprint, the GOJ spells out the need to strengthen drug discovery capabilities, advance scientific technologies, and promote healthcare data utilization – including for artificial intelligence-based optimization support of new drug candidate selection and clinical trials.  The U.S. healthcare industry favorably regards the GOJ’s 2022 policy blueprint as constructively identifying measures by which the GOJ can promote innovation in Japan’s health care system. 

 
Chart – Healthcare Expenditure and Aging Trends  

 

Sources: *Ministry of Health, Labour and Welfare; **OECD; and ***the World Bank. 

Table – Demographics in Japan  

Sources: *Ministry of Health, Labour and Welfare; and **Statics Bureau of Japan. 

Leading Sub-Sectors  

Biopharmaceuticals 

Japan’s biopharmaceutical market is expected to grow notwithstanding the projected decline in Japan’s overall pharmaceutical market.  In Japan, biopharmaceuticals account for approximately 15% of drug sales whereas globally biopharmaceutical sales account for about 30% of all pharmaceutical sales.  Similarly, Japan has a low number of emerging biopharmaceuticals; Japanese companies have a global market share of only about 3% for biopharmaceutical products developed in the new modality area.  While the number of antibody drugs sold in Japan is increasing, Japan is highly dependent on overseas manufacturing bases for these antibodies as approximately 90% of these products are manufactured overseas and imported into Japan.  

Artificial Intelligence Drug Discovery  

Japanese pharmaceutical companies are actively collaborating with artificial intelligence (“AI”) startups.  The success rate of new drug development in the Japanese pharmaceutical industry is said to be about 1 in 20,000 to 1 in 30,000, and the development period until market launch takes over 10 years.  Such new drug development efforts require investments of approximately 120 billion yen or approximately USD $834 million.  

The introduction of AI drug discovery techniques in Japan, including the ability to use large amounts of data for analytical purposes, will likely enable pharmaceutical companies to develop and design pharmaceutical molecules in significantly less time than is currently possible.  According to an August 2021 Report Ocean market research report, the global AI market for drug discovery will reach approximately USD $364.67 million in 2020 and is expected to grow at a compound annual growth rate (“CAGR”) of 40.8% from 2021 to 2027.  

The goals for using AI technology in pharmaceutical manufacturing processes are improving the probability of success in drug development, significantly reducing the time and cost of the drug discovery process, and achieving efficiency and innovation.  The MHLW Council for Promoting AI Utilization in the Healthcare Field has selected drug development as one of the six priority areas for AI development in Japan.  One GOJ priority for AI drug development is building a knowledge database for searching drug discovery targets; another GOJ priority is matching AI support between pharmaceutical companies and IT companies.  With the GOJ actively supporting AI pharmaceutical development, CS Japan anticipates increased collaboration between pharmaceutical companies and AI venture firms.  

Opportunities  

Following enactment of the GOJ’s policies to reduce national healthcare spending, Japan’s pharmaceutical market is generally expected to decline through 2025.  However, Japan offers discrete opportunities for U.S. pharmaceutical companies in the country’s digital transformation efforts for drug discovery and development.  These digital transformation efforts focus on the following three initiatives. 

• Innovation of the Drug Discovery Process using AI.  For Japanese pharmaceutical companies specializing in antibody drugs and middle molecule drugs, applying machine learning to the process of narrowing down drug candidates is expected to speed up the creation of new drugs.  

• Development of Digital Biomarkers.  Under this initiative, researchers will undertake efforts to objectively visualize a patient’s condition and changes after medical treatment by utilizing biological information measured by wearable devices. 

• Utilization of Real-World Data or Real-World Evidence (“RWE”).  Although advanced RWE analytics have been used more widely in Europe and the United States, they are gaining momentum in Japan.  Various GOJ initiatives are under way to develop the aggregated data needed for advanced RWE analysis and to permit its usage, such as consolidation of Japan’s healthcare data and accreditation to accelerate data aggregation and information exchange.  As Japan continues to accelerate the use of this technology, Japanese health providers anticipate that they may be able to gain deeper understandings of each patient’s condition and consequently realize personalized medicine.  

Compared to the United States, Japanese pharmaceutical companies have not yet established significant commercial ownership interests RWE data providers through acquisitions or joint ventures.  However, Japanese companies are gradually recognizing the advantages that could be realized from establishing relationships with RWE data providers with differentiated health industry capabilities.  By way of example, a Japanese company with expertise in electronic medical records signed a business alliance agreement with a U.S. health care analytics company that delivers RWE for manufacturers, purchasers, and regulators of medical treatments and technologies.  One of the principal goals of this business alliance is to enhance the use of RWE generated by Japanese medical data for purposes of global drug discovery. 

Resources 

Government of Japan Agencies 

Ministry of Health, Labor and Welfare (“MHLW”)  
 

Pharmaceutical Organizations 

The Federation of Japan Pharmaceutical Wholesalers Association (“JPWA”) 

Japan Bioindustry Association “(JBA”) 

Prime Minister’s Office of Japan 

Japan Generic Medicines Association (“JGA”) 

The Japan Pharmaceutical Manufacturers Association (“JPMA”) 

Medical Japan 

Pharmaceutical and Medical Device Agency (“PMDA”)  

Pharmaceutical and Medical Device Agency (“PMDA”)  

Pharmaceutical Research and Manufacturers of America (“PhRMA”) 

The Pharmaceutical Society of Japan (“PSJ”) 
 

Annual Trade Events 

CPhI Japan 
February (Chiba) / October (Osaka) 

MEDTEC Japan;  http://www.medtecjapan.com/en) 
April (Tokyo) 

International Technical Exhibition of Medical Imaging (ITEM) 
April (Tokyo)  

INTERPHEX Week JAPAN 
April (Yokohama) 

International Modern Hospital Show (IMHS) 
July (Chiba) 

Bio Japan 
July (Tokyo) 

HOSPEX Japan 
October (Tokyo)  

Commercial Service Japan  

For additional information about Japan’s pharmaceutical business sector, please contact Commercial Service Japan (“CS Japan”) at Office.Tokyo@trade.gov, Mr. Hiroyuki Hanawa at Hiroyuki.Hanawa@trade.gov, or Ms. Akiko Sugiura at Akiko.Sugiura@trade.gov.