The Japan Generic Market Drivers and Obstacles for Change. Matt Heimerdinger Anterio Inc.

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1 The Japan Generic Market Drivers and Obstacles for Change Matt Heimerdinger Anterio Inc.

2 Quick country overview Osaka Tokyo Population: 127,520,000 Life expectancy: Male: 79.9; Female: 86.4 Pharmaceutical market size: $111,642 million (2 nd largest) Healthcare expenditure per capita: $3,958 Healthcare spend as % GDP: 9.3% 2

3 Characteristics of the Japanese pharmaceutical market Universal health insurance and no restrictions on access Low out of pocket costs High utilization rates of medicines and medical services Preference for branded pharmaceuticals 3

Low out of pocket costs High utilization rates of

4 Cultural background to preference for wellknown brands Suspicion of unfamiliar brands at lower prices Self-perception as Middle class and able to afford the best Perception of health as very important Detail-oriented and extremely demanding quality standards 4

class and able to afford the best Perception of health as very

5 Two solutions to the same problem Japanese Company American Company 5

6 Historically, overall generic share has been low 100% 80% 60% 40% 20% 0% 2009 Generic Share (volume base) USA Canada UK Germany France Spain Japan Italy Source: 6

63 44 37 21 6 USA Canada UK Germany France Spain Japan

And off-patent products have traditionally continued to enjoy strong sales 100% 80% 60% 40% Generic Substitution Rates in 2010 Generics Off-patent

7 And off-patent products have traditionally continued to enjoy strong sales 100% 80% 60% 40% Generic Substitution Rates in 2010 Generics Off-patent brand % 0% USA Germany UK Italy France Spain Japan 39 Source: 7

Additionally, the price differential has not been that compelling Generic Pricing 1 st to market (1 st 10 products) 70% of the originator drug price Atorvastatin 10mg/d (30

8 Additionally, the price differential has not been that compelling Generic Pricing 1 st to market (1 st 10 products) 70% of the originator drug price Atorvastatin 10mg/d (30 days) 3,408 Originator 2,295 Generic You save 333 JPY! Late entry 90% of the cheapest GE price 1, Drug price Patient copay Source: 8

days) 3,408 Originator 2,295 Generic You save 333 JPY!

9 However, Japan faces a rapidly aging population demographic 100% 80% 60% 40% 20% 0% Trends in Japanese Population Structure 65+ Under Source: 9

Under 65 9.1 10.3 12.1 14.6 17.4 20.2 23 23.3 24.1 29.1 31.6 36.

10 And spiraling medical costs 38,400,000,000,000 JPY in Trends in Medical Costs (Trillions of JPY) Total medical costs Drug costs Source: MHLW 2012 Study on Medical Cost Trends 10

4 34.1 35.3 36.6 38.4 35.3 3.3 3.6 3.9 4.2 4.6 4.7 5.2 5.4 5.9 6.1 6.6 6.

11 MHLW taking increasingly aggressive steps to promote generic usage 2007: MHLW set 30% target for generic share* by Additional reimbursement based on generic dispensing ratio (20%, 25%, 30%) Upwardly revised in 2012 (22%, 30%, 35%) Patient and HCP education Nationwide advertising campaigns Point-of sale posters, etc. Incentivize pharmacies to substitute generics Incentivize hospitals to employ generics Prescription from revised in 2006, 2008, and 2012 Additional reimbursement for generic name scripts implemented in Incentivize doctors to allow generic substitution *Volume base Additional reimbursement on inpatients if 20%+ generics on formulary Upwardly revised in 2012 to 30%+

12 Generic utilization fell short of the 2012 goal Generic Market Share Trend (volume base) Source: 12

13 Target 60% generic substitution by 2017? Original standard New standard Dispensed generic (volume base) Dispensed generic (volume base) Total dispensed (volume base) Total GE + off-patent branded with GEs (volume base) (25.8% in 2012) (Approx. 40% in 2012) 13

Dispensed generic (volume base) Total dispensed (volume base)

14 14 Are generics poised to surge in Japan?

15 Research with patients indicates a small change in behaviour 100% 75% 50% 25% 0% Ratio of Prescriptions where Generic Considered (n = 1,165,738 Rx) 2012 (n = 1,017,980 Rx) GE not considered Patient requested GE Pharm recommended GE DR recommended GE Source: Anterio Patient Mindscape 2010 and

1,165,738 Rx) 2012 (n = 1,017,980 Rx) GE not considered Patient requested GE

16 Patients most frequently requested GEs for medications to treat chronic conditions Therapeutic Category # products in top 50 (Overall) Hypertension Anti-acids/PPIs Diabetes Dyslipidemia Analgesics CNS Anti-allergy Anti-bacterials Asthma 12 products 8 products 5 products 5 products 4 products 3 products 3 products 1 product 1 product Source: Anterio Patient Mindscape

Dyslipidemia Analgesics CNS Anti-allergy Anti-bacterials Asthma 12 products 8 products 5

Dispensing audit data shows generic uptake increasing in speed 12 molecules 16 molecules

molecules 14 molecules Source: JMIRI Generic

18 Physicians state that their use of generics is on the rise Trend in Generic Use Increasing No change Decreasing DK N = 2209 Source: Anterio proprietary market research 18

19 Patient requests and prescribing incentives driving GPs, facility policy for HPs Reasons for Increase in Generic Use (MA) 0% 10% 20% 30% 40% 50% 60% 70% 80% More patient requests Facility policy Commonly used agent now GE Pharmacy substitution incentive GE name prescription incentive Improved GE supply stability GE formulary ratio incentive Change in prescription format Improved GE quality Hospital-based DRs (N = 908) Office-based Drs (n = 432) Source: Anterio proprietary market research 19

incentive GE name prescription incentive Improved GE supply stability GE formulary ratio incentive Change in prescription

20 Trends in physician attitudes appear to moving in a positive direction vs % 10% 20% 30% 40% 50% 60% 70% Actively prescribe generics to minimize out of pocket costs Prescribe generics to reduce medical costs Using generics is a deterrent to drug development Only prescribe generics if patient asks Top 2 boxes (5pt scale) Concerned about generic quality Concerned about generic supply stability Patients want to be prescribed originators Source: Anterio proprietary market research 20

medical costs Using generics is a deterrent to drug development Only prescribe generics if patient asks Top 2 boxes (5pt

quality are worried about safety At least half of cases admit that their

21 Generic efficacy and safety remain a significant concern 85% of those concerned about GE quality are worried about efficacy 79% of those concerned about GE quality are worried about safety At least half of cases admit that their concern is NOT based on personal experience Source: Anterio proprietary market research 21

22 47% of HPs and 66% of GPs have handled requests from patients to be switched back to a branded product Reasons for Requesting Switch (MA) 0% 20% 40% 60% 80% Decline in efficacy 64 Side-effects/Too effective Formulation/Appearance/Taste Overall (N = 1177) Other Nothing in particular 7 8 Source: Anterio proprietary market research 22

23 Physicians suspect GE quality before patient perception Suspected Reason for Declining Efficacy (MA) 0% 10% 20% 30% 40% 50% Difference in quality of active 39 Difference in excipient agents 47 Patient misconception 11 Patient has bad image of GEs 24 Other DK 5 8 Overall (N = 748) Source: Anterio proprietary market research 23

However, the majority of physicians are resigned to increased generic use Agreement with MHLW Policy Promoting GE Use 10

24 However, the majority of physicians are resigned to increased generic use Agreement with MHLW Policy Promoting GE Use N = Disagree with policy Can't be helped Agree with policy DK Source: Anterio proprietary market research 24

25 Who do DRs consider appropriate generic targets? Chronic conditions Multiple medications Expensive medicines Outpatients Orals Source: 25 Anterio proprietary market research

26 GE share (volume base) May 2013 Source: JMIRI Generic Analysis, Not for reproduction, All rights reserved For some categories, 60% substitution may not be that far away Dyslipidemia Hypertension Diabetes GI Analgesics 2017 Goal 2012 rate Anti-allergy 26 Anti-bacterial CNS

Highly specialized therapeutic categories can also see very rapid generic

28 Conclusions Although concern lingers, majority of doctors are resigned to the MHLW policy of promoting an increased reliance on generic medications to cut costs. In addition to an overall increase in usage, speed of generic uptake is also on the increase, and depending upon the therapeutic area generic entry can have a significant impact on sales within the first year of launch. Current generic substitution trends indicate that high volume, chronic, maintenance therapies in therapeutic areas with low patient emotional involvement and less risk of immediate consequences if medication proves faulty may be at higher risk from generic competition. (However trends may change as patients gain greater voice.) Lower risk/involvement Higher risk/involvement Hypertension Dyslipidemia CNS Anti-allergy 28 Anti-acid/PPIs Anti-biotics

29 What does this mean for you? Originator Brands Life-cycle strategies to maximize patient emotional involvement in the brand New formulations Starter kits and administration reminder programs Generic Brands Be prepared to adapt to the Japanese consumer - Remember the cookies! Packaging and tablet appearance needs to convey Quality, not Cheap Be ready to provide information on your products potentially promote your quality Low tolerance for error running out of stock is not an option 29

30 Thank you!

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