TOKYO – Japanese biopharmaceutical companies are bracing for tough years ahead, as cuts in the costs of medicine at home and issues of getting new drugs to the market begin to bite. For some, the response is to step up development of new drugs.

Executives at Roche AG's Japanese subsidiary Chugai Pharmaceutical Co. Ltd. (TYO:4519) said they anticipate tepid growth over the next three years, due to an expected three-year price revision for drugs by the Japanese government. However, the company aims to get back on the growth track from fiscal 2019 by getting new drugs to market.

"We are deeply concerned about the Japanese pricing rule which drastically cuts down the drug price simply by the amount of sales," Chugai's head of media relations, Koko Harada, told BioWorld Today. Under the Japanese government's plan, drugs that face cuts in price are those that are selling well.

"It is crucial for pharmaceutical companies to be rewarded adequately for innovation not only to further strengthen the entire Japanese pharmaceutical industry but also for the benefit of Japanese health care," said Harada. "Our goal is to countermeasure these issues by developing innovative drugs."

The drugs under development at Chugai include emicizumab and atezolizumab. Emicizumab, which improves clotting functions to reduce bleeding, is currently in global phase III clinical trials.

"The expected filing timeline in Japan is 2017," said Harada. Atezolizumab, which makes cancer cells vulnerable to the body's immune system, is being developed with partners including parent company Roche, which owns about 60 percent of Chugai's outstanding shares.

For the October-December 2015 quarter, Chugai logged ¥500 billion (US$4.2 billion) in sales and an operating profit of ¥87 billion.

Another Japanese firm, Sumitomo Dainippon Pharma Co. Ltd. (TYO:4506), is struggling at home as sales of established products decreased and sales growth for new drugs disappointed.

In the U.S., however, the company sees promise in Latuda (lurasidone HCl), an antipsychotic agent. Sales of the drug grew 30 percent in the U.S. market last year to $729 million.

"We are on track for sales of more than $1 billion," said Hiroshi Nomura, senior executive officer, adding that there are challenges ahead for the company as well.

"The external environment has changed since last year. Internally, not all the study results are good, for example, for Latuda and some other products. Because of that, some of our launch plans have been revised. We need to review our plan."

Nomura did not set a date for announcing any revisions to the company's plans.

Hiroshi Noguchi, a representative director at Sumitomo Dainippon, said that progress was being made on getting its drugs dasotraline and SUN-101 to market. Dasotraline treats attention deficit and hyperactivity disorder (ADHD); SUN-101, which treats bronchoconstriction in patients with chronic obstructive pulmonary disease, is being developed by subsidiary Sunovion Pharmaceuticals Inc., of Marlborough, Mass.

"The study of SUN-101 is ongoing, and will take some time," said Noguchi. "But the results should be available in fiscal 2016 . . . perhaps around summer. On dasotraline, the final stages of the study are ongoing; it will take time to announce the results." Noguchi said that they are unlikely to be announced in the next fiscal year, which ends March 31, 2017.

STAYING THE GLOBAL EXPANSION COURSE

Other companies in Japan are also revising their plans, looking to develop new drugs and expand overseas. Biotech company Kyowa Hakko Kirin Co. Ltd. will from fiscal 2016-18 go through a period of investment with the aim of increasing sales overseas to 50 percent by 2020. The company is aiming for core operating profit of ¥100 billion or more by that year.

For 2015, the Kyowa Kirin earned ¥43.7 billion in operating income on net sales of ¥364.3 billion.

"Consolidated sales and profits increased year-on-year due to factors such as growth of domestic pharmaceutical products and despite higher expenses such as R&D costs in the pharmaceuticals business," the company said in a note.

The company's upcoming R&D includes phase II trials on RTA 402, for the treatment of chronic kidney diseases and type 2 diabetes, and phase I trials for Nivolumab in combination with KW-0761, a drug that will tackle solid tumors. Kyowa Kirin execs hope such drugs will turn into global sellers.

"Biotechs have been looking at global market from the beginning," said an analyst, speaking on condition of anonymity, due to company rules. "The new special cut is of course negative, but it will not change their strategy, in my view."

Daiichi Sankyo Inc. (TYO:4568), meanwhile, announced revenue of ¥759 billion and an operating profit of ¥150 billion for the first nine months of fiscal 2015. The company expects to log ¥980 billion in revenue and ¥130 billion in operating profit for the fiscal year.

Japanese pharmaceutical companies will face further pressure in April, when the government will reduce the price of generics to 50 percent of brand-name rivals, down from the current 60 percent; and cut government health care expenditures by cutting popular drugs' prices as well.