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New Market Report: Japan Pharmaceuticals & Healthcare Report Q1 2014

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2013-12-12 18:27:17 - New Healthcare research report from Business Monitor International is now available from Fast Market Research

High overall and per-capita pharmaceutical expenditures, an ageing population, strong patent respect and a generally stable economic and political environment make Japan highly attractive to pharmaceutical investors. However, a downside risk to this trend is its shrinking population, limiting growth potential not just in the pharmaceutical sector, but the economy overall. Headline Expenditure Projections

* Pharmaceuticals: JPY10,338.7bn (US$129.5bn) in 2012 to JPY10,992.8bn (US$112.2bn) in 2013; +6.3% in local currency terms and -13.4% in US dollar terms. Forecast slightly upgraded from Q413 due to a small increase in GDP growth projected by BMI's Country Risk team, growth in US terms down due to currency fluctuations.

Full Report Details at
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* Healthcare: JPY43,863.2bn (US$549.3bn) in 2012 to JPY44,824.2bn (US$457.4bn) in

2013; +2.2% in local currency terms and -16.7% in US dollar terms. Forecast is broadly in line with Q413, US growth is down due to currency fluctuations.

Risk/Reward Rating

Japan's Pharmaceutical Risk/Reward Rating (RRR) score for Q114 is 74.5 out of the maximum 100 in our newly improved RRR system. This high score makes Japan the most attractive country in comparison with the other 18 key Asia Pacific markets. While we highlight low growth potential over the long term, Japan's ageing and affluent population will continue to boost pharmaceutical spending. Meanwhile, the country offers few risks to investors, given its low corruption rate and lack of bureaucracy.

Key Trends And Developments

In October 2013, Swiss drugmaker Novartis overhauled the management structure of its Japanese unit. The move coincided with sanctioning numerous members of staff following a scandal that saw data for the Diovan clinical property manipulated to improve the drug's regulatory prospects. The sanctions include a 30% pay cut for two executives, in addition to the departure of the head of the firm's Japanese unit In September 2013, Japan's Ministry of Health, Labour and Welfare released preliminary estimates for healthcare spending in fiscal 2012. In FY2012 (April 1 2011 to March 31 2012), the ministry stated that hospitals and clinics across Japan earned JPY38.2trn (US$386bn), an average of JPY300,000 (US$3,034) per person. This was -1.7% more than the previous year, making it the 10th straight year of the industry's expansion. Approximately 95% of health expenditure was reimbursed by National Health Insurance.

In August 2013, Japan-based Mitsubishi Tanabe Pharma announced that its subsidiary in China, Tianjin Tanabe Seiyaku, will construct a new JPY1.9bn (US$19.5mn) production facility in the country. The new facility is expected to start operating in 2016. Aside from this planned facility, the firm has other operations in China, including a production site and two sales offices in Guangzhou and a research and development (R&D) facility in Beijing.

BMI Economic View: Important factors stand in the way of Japan achieving anything other than meagre real GDP growth over the coming decade. These closely related factors suggest to us that real GDP growth will average around 1.2% per annum over the next decade. A fiscal crisis, which would lead to rising interest rates, is by far the most salient threat to growth, although it could be argued that an economic crisis could be a necessary evil to trigger a boost in private sector growth dynamism.

BMI Political View: Although the Liberal Democratic Party (LDP) won a landslide victory in the 2012 election, it is doubtful whether the party has the means to deliver a sustainable recovery of the Japanese economy and address the country's structural woes. These include a colossal national debt burden, demographic decline, and the loss of competitiveness of Japan's key industries. If the LDP fails to make progress, it risks paving the way for a fiscal crisis before the end of the 2010s, and its eventual replacement by new political forces.

According to the Japan Automobile Manufacturers Association (JAMA), August vehicle production (latest data available) declined 7.6% year-on-year (y-o-y), to 680,487 units. This brought auto production for the first eight months of the year to 6,251,777 units, a decrease of 9.5% y-o-y.

However, we believe production will have picked up in September and will continue to do so for the rest of 2013. While official JAMA production figures for September are still unavailable, the phenomenal 17.0% y-o-y surge in sales for that month suggests to us that production also saw strong increases.

Another factor in favour of automakers is the low base effects of late 2012, when production declined due to a sharp fall in domestic vehicle sales after government subsidies for small cars and mini vehicles ended.

Also, we believe consumer sentiment has turned positive and will remain so in the next few months, allowing sales to remain buoyant for the rest of 2013, which will further support production. Therefore, we are upgrading our 2013 auto production growth forecast to 1.2%, to 10.1mn units, from -3.1 previously.

Consumer Optimism Rises

The rising consumer optimism is evident, with auto sales in September 2013 registering their first y-o-y gain since April. According to Honda Motor's senior managing officer, Sho Minekawa, customers have slowly been returning to showrooms. We believe this positive sales momentum will continue for the rest of the year as Abenomics (a set of aggressive fiscal and monetary stimulus policies introduced by Japan's new Prime Minister Shinzo Abe) finally begins to loosen consumer purse strings.

About Business Monitor International

Business Monitor International (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets. BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including in-depth quarterly Country Forecast Reports. View more research from Business Monitor International at

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