Some 65 years after its establishment, Towa Pharmaceutical has grown into a key player in the Japanese generic drugs’ market, generating sales of over 80 billion yen, which amounts to an increase of nearly 70% over the past five fiscal years. President Itsuro Yoshida provides an insight into the generic drugs industry and the company’s adherence to ethical business that ensures trust with the public and medical practitioners alike.
Mr Yoshida, as you celebrated your 20th anniversary as the president of this company, what major milestones have led to this success? What do you attribute this impressive growth to?
First, let me to talk about how we evolved and how I evolved. When I became president 20 years ago, I was the second generation. I assumed my father's position as the president and then for three years I inherited the policy of my predecessor because I was a beginner president. I started to learn the basics of management. I just inherited what he was doing. After I sat for president for maybe three to five years, I tried to come up with my way of doing business, and that was around the year 2000. I tried to do something about the management and the situation of generic drugs, which at that time was hard because they had to compete for a good quality and competent pricing. By making the price lower we did have the number one share of the generic drugs market, but we even though we were at high volumes, the profit was low because of the low pricing.
What happens in the generic industry is that after the expiration of the patent for a new drug, several generic companies start producing generic versions of the new drug. Then two times per year, they are allowed to come up with new generic drugs. In Japan, the system is a little bit different from that of the US and the Japanese government sets the price for pharmaceutical drugs, which is the National Health Insurance price (NHI price). Then, the companies try to sell them below the NHI price but by doing that, once it is sold at a certain price below the NHI price, then it will be revised every two years to the new NHI price below the current sales price. In the course of the revisions, the NHI price of the drugs keeps becoming cheap, and then eventually the value of this drug will be very low. By that time, there will be new drug and the cycle is repeated. However, in the year 2000 we expected that 17 years later there would be only a certain number of new drugs coming out and we realized we could not keep on repeating this cycle.
I thought instead of repeating the same process, we have to come up with the right value for such drugs and maintain the value even if we are dealing with generic drugs. Just a little bit of a back-story: the government’s set price, the NHI price, is renewed every two years. If a certain drug is sold in the market at a price considerably lower than the NHI price, then the government will set it at a lower level in consideration of the market price. If the pharmaceutical companies are selling the drug at a lower price, then the NHI price will get lower and lower.
So in order to cope with this situation, I came to the thought, “What are people looking for in the generic drugs?” The effect is bioequivalent between the branded and generic drugs but I thought that we could add value to it. What if the kind of value that people want is the ease in taking the drugs? We thought of stabilizing the quality of the drugs and adding value to it and try selling it without much discount from the NHI price. This is what we did in 2002. We came up with a new type of generic drug, the making of it and the technology. We tested it in the market. We came up with a very stable type of drug that can stay without losing enough hardness as a tablet in this kind of humid weather (rainy season in Japan). I was really happy to find that a considerable number of doctors who used to look at just the price of the drugs said they prefer this kind of value added to the drugs without much discount from the NHI price. The doctors supported our value-added drugs with an understanding of our concept and efforts, and I was very happy about the results.
With four R&D laboratories across Japan, and several awards the past years (e.g. 2012 ‘Generic Drug of the Year’, ‘Good Design Award’ for its RACTAB technologies), Towa Pharmaceutical perfectly embodies Japan’s leadership in cutting-edge pharmaceuticals. Could you tell us more about the company’s unprecedented RACTAB technologies, and how Towa manages to be on the frontline of innovation?
Yes, I was going to mention RACTAB (“Rapid And Comfortable Tablets”) as well. It is easy for us to talk about innovation and what we can provide with the new drugs is easy, because it is new. You come up with new ingredients and it is a new drug to cure a disease or condition that was not curable before. For generics it is not like that because the efficacy will be the same as the existing drugs. We have to make our drugs with better and higher performance or we have to raise our ability to make our unique drugs. The performance of drugs, I mentioned here, means stability against heat, light and moisture, as good examples. That is one thing we have to raise there. Also to make our drugs easy to be taken is also very important. In the US, I hear that not so much attention is paid to the swallow-ability of such drugs. It can be big as long as it is bioequivalent and cheaper.
I think for children and elderly people, it is not necessarily easy to take tablets, and it is very important and is appreciated if we come up with drugs that are easy to take. An OD (orally disintegrating) tablet is one of the examples. We also have the technology to minimize the size of each tablet. You can swallow an OD tablet without water because it dissolves in your mouth.
We are looking at an approximate 11% growth in the generic market by 2020, by the Tokyo Olympics time. How are you preparing yourself for the generic drugs boom and how do you think generic drugs will impact society in the future?
I am not thinking that definitely, because there is an order to it. If we look at the Japanese market, the market would grow steadily until the year 2025.
First, the volume share of generic drugs in Japan has not yet attained the government’s goal of 80% so we really want to focus on our domestic market and to enlarge the share within Japan. Also, if we look at the Japanese market, the customer base consists of doctors, pharmacists, as well as the patients, and the demands towards the pharmaceuticals are very high.
Going back to the OD tablets, I wanted to tell you a little more about it. What is important is of course the dissolve-ability in your mouth but also stability in an outside environment. When it is there, it has to be stable. It should not dissolve or disintegrate when it is left outside, and the toughness as well.
My target for these OD tablets is evolving. We do have further goals for these OD tablets. The first goal we are currently working on is to even shorten the dissolving time. Currently it is 15 to 30 seconds. We want to make it less than 10 seconds for everything. Also, we want to improve the mask-ability of the bitterness of the drug. We want to do it completely. We also want to improve and to minimize the size of the particles in OD tablets, below 100 microns, where the human tongue cannot sense it. In order to achieve that, of course, innovation is required.
We are currently working on a joint research project with the University of Tokyo to control the particles of active pharmaceutical ingredients, the original and unique concept of the shape of the ingredients. We are seeing the possibility in this research. We would be able to commercialize this as early as 2019. Of course, we are not sure but this is what we are doing at this point.
Something that investors and people from the international pharmaceutical world can learn from you is your capacity for selling your drugs. You have a huge network of 65 sales offices across Japan and a tremendous MR network. Could you tell us more about what is one of your tremendous competitive advantages?
I think there is a difference in the Japanese and US medical insurance system. In the US, MRs are not necessary for generic drugs in comparison with Japan because once the insurance company approves them, then the hospitals and pharmacists will take these generic drugs, from what I understand. Japan is not like that. The customers of the ethical drugs are clinics, hospitals as well as pharmacies. There are about 8,000 hospitals, 8,000 pharmacies, and 32,000 internally dispensing clinics. Each of them has a buying power. We have to visit each and every one of them to explain, negotiate and promote the benefits of our products.
I think the fact that our MRs do sales activities and deliver our products directly has an advantage in the sense that we can promote our products with confidence and we can also hear feedback directly from the customers. Normally, other companies’ MRs promote their products and provide information relative to the products without sales activities. That is of course more cost-efficient way of doing it, but for us I think it is important for each MR to be able to hear the feedback of the customers, which can lead to improved products based on the feedback and is also another way of building trust.
You have opened your factories to people, and they can see there is transparency, and innovation. What is the aim behind this?
The reason why we open our facility is because seeing is believing. Despite all the promotions that we are running, there are some doctors who are still skeptical about using generic drugs. In order to improve the situation we are opening up our facilities to see.
What should Japan represent to the eyes of the world today?
I have expressed my personal standpoint, my personal perspective as well as the company's basic standpoint. I have a phrase that I always have in mind. Independence and self-respect, is my one and only catchphrase. It was stated by Yukichi Fukuzawa, who is the founder of Keio University, one of the private universities in Japan. That is my personal credo. I think it is very important to be independent and be proud of yourself. Also to accept others and realize self-help efforts. That is my credo, as well as basic perspective or standpoint of the company.
To force people to do something should be avoided in culture and economics. I think we, Japanese, respect and accept each other, and that would be our basic attitude.
Also, the basic principle of this company is local production for local consumption. This concept is to consume products produced locally at the local area. This is the basic principle of this company. For a Japanese market, we produce locally here in Japan and then sell within Japan, and this is the basic attitude. We would like to keep the same principle when we extend our market abroad.
What we are doing is to reflect the requests and needs of doctors, pharmacists as well as patients, and come up with the products that are recognized by the market and raise our market share. Thereby we contribute to society. I think when our profit keeps building, and then we can recruit more people and then invest in our facilities. That is another contribution to society in that sense. Also, by paying tax to the local and national government we will contribute to the local communities and nation as well.
What do you think has been the impact of Abenomics on the economy, and on your industry in particular?
I am going to talk about it in a general point of view. Since Mr Abe became Prime Minister, economic policies of the prior “three arrows” of Abenomics were implemented, and as results, the stock price came up from 7-8,000 to 14-15,000 yen; also, the exchange rate has improved from 80 to 100 yen. Thanks to the fiscal, financial, and monetary policies, the stock price came up and the economy has been activated to some extent. However, in terms of the growth strategies, I guess we are not seeing that much effect as we expected, and more effect would be found in the near future.
Let me talk about the effect on our company as a whole. As an individual and a member of the pharmaceutical industry, we are not feeling the strong effect of the deregulation yet. That has yet to come. However, for the generic pharmaceutical industry, the government is pushing to balance out the fiscal situation by 2020, and as a core practice the government is promoting the use of generic drugs as part of cost savings.
In 2015, the government announced the volume share target of generic drugs to be used by the public. It is in an unprecedented thing. This shows how serious the government is to balancing out the fiscal situation, and the government decided to put the promotion of generic drugs at its core because it is very clear to understand. Medical costs can be reduced without undermining quality of medical care at any extent since the effects are the same but it is financially more beneficial. We have been pushed by this favorable wind and the generic industry as a whole is expanding.
What do you believe could be the impact of the Trans-Pacific Partnership (TPP) on your sector if it is ratified?
We do not have an exact picture of what the TPP will bring to us, but we do know that we are talking about opening up the market from a wide point of view and then reducing the tariffs. It is not unanimously applied and there are so many details that are being discussed. The only thing we know at this point in concrete terms is about the intellectual property rights. There will be about 12 countries in the TPP. The US is talking about new drugs; however, Asian countries and Southeast Asian countries do not have many new drugs. Instead, they are focusing on talking about generics.
Japan is somewhere in the middle. Japan has eight years of the data protection period and the US proposed 12 years as it is for biological drugs. However, Asia would like to start using generic drugs as soon as possible, so they are talking about shortening this period. Now, it seems that the consensus will be eight years in Japan, and that will not change much of our industry.