The other Drug War: U.S.-Japan Trade in Pharmaceuticals

Abegglen James C. Stalk George Jr. , Kaisha, the Japanese Corporation (New York, NY: Basic Books, Inc., 1985), p. 14.

Heins John , “Take Two of These and Call Tokyo in the Morning,” Forbes, March 24, 1986, p. 179.

Dibner Mark , “Biotechnology in the American Pharmaceutical Industry: The Japanese Challenge,” in Koshland Daniel Jr. , ed., Biotechnology: The Renewable Frontier (The American Association for the Advancement of Science, 1986), p. 270.

Calculated for data given in Jitsuo Ookuwa, Iyakuhin (Tokyo: Yoyosha, 1988).

However, the rapid appreciation of the Japanese yen since 1983 has increased the relative size of Japanese pharmaceutical firms.

Although the R&D intensity is higher for the top 10 companies in Japan than in the U.S., the industry average is higher for the U.S. companies. In 1986, among more than 100 firms belonging to the American Pharmaceutical Manufacturers Association (PMA), the average R&D intensity was 15% of sales, whereas it was 10.3% for members of the Japanese Pharmaceutical Manufacturers Association (JPMA).

However, the level of market concentration differs widely among pharmaceutical products in Japan. The antibiotics market exhibits a dramatically higher rate. Although the average level of concentration in pharmaceutical production was only 36.2 in 1982, it was 72.2 for antibiotics. The share of the top three firms, Shiongi, Takeda, and Fujisawa, alone was more than 40%. Ibid., p. 139.

Other biotechnology-based drugs likely to be introduced within the next two years are Interleukein-2, an anti-cancer drug, and EPO (Erythropoietin).

The government of Japan has specified biotechnology as a key technology for future competitiveness for Japan. Yoshikawa Aki , The Japanese Challenge in Biotechnology: Industrial Policy, BRIE Working Paper No. 29, University of California, pp. 8–11.

One explanation for Japan's emphasis on pharmaceutical biotechnology is its changing age structure. It is expected that the proportion of people in Japan over the age of 65 will rise from 10.1% in 1985 to more than 20% by the year 2010.

For example, only a few years ago interferon was called the “magic bullet” that could destroy cancer. The potential market was expected to be as great as $1 billion a year. It was later discovered that interferon was less effective than people had hoped. But similar hype has been repeated for other biotechnology-based anti-cancer drugs, such as TNF.

A statement by Theodore Cooper, Executive Vice President, the Upjohn Company.

A leading executive in the U.S. biotechnology industry remains high-spirited, however. Dr. Ron Cape, Chairman of the Cetus Corporation, stated that we would see “the avalanche” of biotechnology products by the late 1990s.

Abegglen and Stalk provide insight into Japanese firms' efforts to cultivate new markets. They observed a “strong bias” to grow and a desire to survive. In the West, it is the smaller, less-established firms that exhibit this urge to grow. They conclude that the Japanese are preoccupied with a fear of falling behind their competitors and thus make riskier ventures. See Abegglen Stalk , op. cit., Chapter 1.

Facts at a Glance, Pharmaceutical Manufacturers Association, 1987, p. 33.

Whereas an approval is an official recognition that a drug is considered both effective and safe, a license certifies (1) that establishments producing or importing the drug meet appropriate safety and manufacturing standards, and (2) that their board members are legally able to serve in that capacity. Report on Medical Equipment and Pharmaceutical Market-Oriented Section-Selective (MOSS) Discussion, U.S. Department of the Treasury, 1986, p. 30.

Subsidiaries of foreign companies could apply directly. Many foreign firms established their Japanese branches after relaxation of the Foreign Exchange Control Law.

In the so-called Market-Oriented Sector-Selective (MOSS) Discussion, it was agreed that foreign clinical test data meet Japan's requirements except for items for which there are believed to be immunological and ethnic differences between Japanese and foreigners. Ibid. p. 4.

MOSS, op. cit., pp.14–17.

Ibid., p. 14.

Diamond's Japan Business Directory 1986, p. 351.

Heins John , op. cit., p. 180.

Ibid. John Heins also stated that the most vulnerable American firms toward such Japanese control are companies that “skimp on research spending to boost quarterly earnings or have a poor current record of developing their own new products.”

Byrne John , “The Miracle Company,” Business Week, October 19, 1987, p. 86.

Ibid.

This issue has been widely debated in Japan recently after Professor Tonegawa of MIT, a native of Japan, earned a Nobel Prize. He openly maintained that he was able to realize his scientific achievement in the free academic environment abroad, and could not have realized it in Japan's rigid research environment.

Japanese firms are not the only ones establishing such ties: Hoechst, a West German company, gives money to Massachusetts General Hospital.

Data Book 1986, p. 33.

Two other technologies targeted are new material and next generation micro-electronics technologies.

For a detailed review of Japanese policy to promote biotechnology, see Yoshikawa , op. cit.