Sawai Draws On Its Strengths Despite Japanese Pressures

Despite the pressures of local price cuts and the impact of the COVID-19 pandemic, Japan’s Sawai Pharmaceutical is holding steady and believes it can differentiate itself from its peers through a combination of research and development expertise, supply-chain stability and a healthy slate of launches, according to company president Kenzo Sawai.

Speaking to Generics Bulletin in an exclusive interview, Sawai observed that the Japanese market had been both bolstered by government policies to increase uptake of generics over recent years at the same time as being dampened by National Health Insurance price cuts.

“When I look at the Japanese generics market, there are two important points I want to highlight,” Sawai told Generics Bulletin. “The first one is the government target for generic drugs.” This uptake target had been set at 80% of the eligible market, Sawai noted, and “the market is approaching this 80% target,” despite a slight slowdown caused by the impact of the COVID-19 pandemic.

“The issue is, once we reach the 80% generic share in Japan, what promotional measures will be imposed further, to go beyond 80%? There should be some sort of policy necessary to promote the generic share higher than 80%,” he suggested. But “if there are no specific policies that will be implemented,” he acknowledged, “after we reach 80% we have a certain picture of the market without these policies.”

“Our vast strength and advantage is our R&D capabilities.”

“The second point is the NHI drug price revisions,” Sawai said. “This takes place every couple of years – but in reality, starting from next year, we are going to have annual price revisions. This should be understood as a factor for us.”

Nevertheless, he insisted Sawai Pharmaceutical had “been able to stay competitive in the market, even under the impact of price revisions and COVID-19, because we have been able to introduce and launch more new products than our competitors.” (Also see "Sawai Chalks Up More Than A Dozen Launches" - Generics Bulletin, 22 Jun, 2020.)

The company’s sales in Japan were stable at ¥72.1bn ($693m) in its financial first half ended 30 September 2020, contributing to overall sales that were virtually unchanged at ¥90.2bn, with the remainder coming from its US business. Newly-launched Japanese products in FY2020 came in “above forecast” for the company’s financial first half, contributing sales of ¥4.43bn.

“Our vast strength and advantage is our R&D capabilities,” Sawai observed, referring to “our intellectual property strategy but also our formulation technologies.”

The company was focused on finding “a competitive point in patents from the originators, to find the weak points in the patent,” he outlined. Then, “by challenging these patents, we are able to launch products earlier than our competitors,” Sawai explained. “That is how we can launch generic drugs faster.”

Supply-Chain Stability Aids Resilience

As well as the firm’s focus on IP strategy, Sawai also highlighted the company’s “capability to supply our products in quite a stable manner.”

“We have a number of generic drug products,” Sawai outlined. “We are able to manage a very good relationship with our suppliers and also we have very large capacity. We have six well established and maintained manufacturing plants in Japan. So the stable supply capability is the second important point.”

Asked about whether the company’s efforts in terms of R&D and product development were focused on any particular therapeutic categories or treatment areas, Sawai said “we do not really think that way. We really like to seek opportunities everywhere.”

“If you only focus on specific therapeutic areas, that means we are going to put restrictions on ourselves, on our capabilities,” he suggested. “So we are not going to do that, we are going to challenge in any therapeutic area.”

And when asked about innovation around dosage forms – such as orodispersible tablets – Sawai said that “in terms of innovation around formulations, the OD tablet is a good example. It is not only about producing the OD tablet but also in terms of the scent of the tablet, the speed of the dissolving of the tablet. These different points are pretty well-managed with our skills and experience.”

Sales Take A Hit From COVID-19

On the subject of the coronavirus pandemic, Sawai noted that COVID-19 had “impacted our business in two different ways.”

In terms of sales, he said, “our existing drug products are obviously affected by COVID-19. People are not going to doctors’ offices to consult with doctors. Therefore we are seeing a limited impact on sales of our existing products, especially in the areas of respiratory and also the ear, nose and throat area and the pediatric area. So our existing drug products in these areas are experiencing volume declines.”

However, he pointed out, “we have been able to offset the declines in these areas with newly launched products. We have been able to manage our sales numbers.”

“We have to become a company that can provide a variety of solutions to patients and the public not only in the field of digital health and treatment, for example, including peripheral areas, but also in the field of prevention and undiagnosed diseases, rather than just selling generics.”

And in terms of the internal business aspects of the pandemic – the “non-sales impact of COVID-19” – Sawai said that the move to home-working had marked a significant shift for the company.

“In the past we almost never tried working from home, but now many of our staff are working from home or teleworking [and] it is becoming common practice,” he observed.

“We are holding our internal business meetings remotely. We are also changing our internal approval processes, using electronic ways to approve internal business decisions. So we are really getting used to this new way of doing business and these business practices.”

And these pandemic experiences were common both across Japan and more widely, Sawai suggested. “I think our competitors are also experiencing these things and going through these kinds of efforts,” he said, with all companies “seeing difficulties with people not making visits to doctors and other medical institutions.”

“So everyone in the market is really facing similar difficulties under these conditions,” he noted. “These themes are across the Japanese market. Just like the US or other major markets. There is no significant difference.”

Japanese Acquisitions Not On The Agenda

Turning to the possibility of M&A activity – and whether Sawai saw potential for an acquisition in Japan, or was more interested in optimizing its existing business – the company’s president was clear that there was no current appetite for a transformative deal.

“There are a number of pharmaceutical companies in Japan and many of them are quite lookalike and quite similar,” Sawai observed, “and therefore we expect in the Japanese market in future there will be further consolidation. However, if we were acquiring a similar company like ourselves, it would be very difficult to integrate the two companies together.”

“Because if we have similar products, similar generics, in multiple presentations and strengths, we would need to integrate and sort out these presentations and strengths for the same products.” This would be “really cumbersome, hard work, hard labor,” he suggested. “So therefore we are not really thinking about buying other generics companies similar to ourselves.”

Meanwhile, when asked about whether the company still does not intend to pursue opportunities in biosimilars (Also see "Sawai Eyes Global Position Helped By Growth In Japan And Upsher-Smith – But No Biosimilars" - Generics Bulletin, 29 Jul, 2019.), Sawai confirmed that even if it was not completely out of the question in future, it was certainly not a current focus.

“I am not going to say we are not interested in biosimilars at all,” he commented. “However, in Japan so far biosimilars have not been accepted very much, and sales of biosimilar products in Japan have been very, very small.”

“So it doesn’t really make sense to invest a large amount of money to move into the biosimilar market. That’s why strategy-wise we have no intention to move into biosimilar products now.”

More Than Just Selling Generics

With uncertainty continuing amid the upheaval of the pandemic and the pressures of NHI price cuts – the company declared in its most recent financial results that “the circumstances surrounding the generics industry continue to be unclear,” even as it reaffirmed full-year forecasts of ¥200.2bn in sales and operating profit of ¥26.9bn – Sawai was asked to offer his vision for the near future of the Japanese generics market.

“From my personal point of view,” he said, “in the generics market we expect the volume of generic drugs should be positively increasing further. But profit-making wise, and with the NHI price revisions now becoming an annual event, it will be really challenging from now on.”

Meanwhile, the company and the industry more widely had to set its ambitions higher than just selling generic drugs, he suggested.

“I think the ideal way for generic drug companies is that now on they should not only be focused on manufacturing and sales,” he outlined. “As the future of generic manufacturers, we have to become a company that can provide a variety of solutions to patients and the public not only in the field of digital health and treatment, for example, including peripheral areas, but also in the field of prevention and undiagnosed diseases, rather than just selling generics.”

“Of course, generics should be at the center and a central part of our business, but I think we should do several different things as well.”

In the second part of this interview, Sawai talks about the company’s Upsher-Smith business and the US market.  (Also see "Sawai Sets Out US Recalibration" - Generics Bulletin, 8 Dec, 2020.)