New Outsourcing Law Readies Japanese Companies for Global Pharmaceutical Markets | Article

A Major Development in Japan

Pills in circleOutsourcing opportunities are expected to grow in Japan’s pharmaceutical markets in 2005 when the government implements a new law permitting Japanese pharmaceutical firms to outsource all phases of their manufacturing. The revised Pharmaceutical Affairs Law, passed on July 31, 2002 and scheduled for implementation in April 2005, lifts decades-old restrictions that limited the percentage of drug company outsourcing by requiring firms to manufacture at least part of the drugs they produced.

Under the new law, companies will manage outsourcing through a new marketing authorization system similar to those of the United States and the European Union (EU). The new law separates companies’ marketing and manufacturing functions and gives responsibility to “marketing authorization holders” (MAHs) for these aspects of distributed products: quality control, inspection (pharmacovigilence), and outsourcing strategy and implementation. The MAH — a pharmacist or similarly qualified individual — can decide how much and what to outsource (up to 100% under the new law).

“The percentage (and mix of services) this person decides to outsource depends on the needs of the company,” says Yoshikazu Hayashi, Deputy Director of the Evaluation and Licensing Division of the Ministry of Health, Labor and Welfare (MHLW), which submitted the original bill to the Japanese Diet (Congress). Hayashi is also Coordinator of the International Conference on Harmonization (ICH), which is a tripartite initiative to unify the technical requirements of the EU, Japanese, and US systems for registering and approving new drugs.

Japanese manufacturers actually promoted the Pharmaceutical Affairs legislation. “The Japanese Pharmaceutical Manufacturers Association proposed the changes four years ago to MHLW,” says Ryota Muneyoshi, who is charged with biopharmaceutical business development for Asahi Glass, (a glass, electronics, and chemicals company that manufactures pharmaceuticals and biopharmaceuticals. “When they asked for a revision of the drug laws and an expansion of outsourcing, the manufacturers wanted to revise a 40-year-old regulation that did not match current trends and was not flexible enough for production needs, ” Muneyoshi says.

A Matter of Company Survival

The new broad discretion over outsourcing decisions “gives companies more flexibility in the global pharmaceutical market and helps them control costs and quality,” says Hayashi. This freedom of action “is critical at a time when the survival of R&D-oriented companies requires greater efficiency on the production line,” says Seizo Masuda, Coordinator of the Corporate Communications Department of Takeda, Japan’s largest drug maker.

The law also promises to both increase the role in Japan of US and EU outsourcing companies that are Japanese-GMP-compliant (those that meet Japanese standards for current good manufacturing practices) and also give Japanese companies a stronger role in a cost-competitive global marketplace.

But differences between Japan and the global community remain. In a country known to, as one pharmaceutical company executive put it, “prefer little white pills over the multicolored capsules favored in the United States,” it is incumbent upon outsiders hoping to outsource in Japan to adapt to local market conditions. Companies that would like to market in another country or region might study that country’s practice as well as culture and background,” Hayashi advises.

Takeda Exemplifies New Trends

Outsourcing has grown in the pharmaceutical industry, says Hayashi, as companies work to strengthen Japan’s global position through maximizing the efficiency of their production methods by choosing providers who improve the total flow and cost-effectiveness of production.

“Outsourcing is growing for us now,” Muneyoshi says, a reflection both of the steady growth of outsourcing and biotechnology. (Biotech, he adds, is growing in Japan but not as fast as the US market.) However, he says the growth of outsourcing is uneven in Japan. “Almost all Japanese companies are not as big as foreign ones and may not have enough volume to use outsourcing providers effectively; some don’t have enough experience to make instructions, show guidelines, and deal in English or another language. It will take time for them to see the benefits of outsourcing.”

Outsourcing has a domestic purpose also, says Akira Miura, Director of the Health and Welfare Department of the Japanese External Trade Organization, JETRO New York. “It helps pharmaceutical companies cut costs at a time when the government has been reducing the pharmaceutical fee schedule because of the rising costs of national health insurance, the aging of Japanese society, and the expansion of medical technology.”

“Cost-cutting is very important in the pharmaceutical industry to increase overall competitiveness and to reduce the fixed costs and payroll tied to the manufacturing facility,” Matsuda adds. However, cost cutting is not the only attraction; outsourcing offers flexibility in production; it facilitates meeting growing demands while assuring quality at a global level.

Outsourcing Expands Global Reach

The outsourcing provision is viewed in Japan as an integral part of a system with global reach–one capable of achieving international harmony by making Japan’s pharmaceutical system–its efficiency and quality approaches–more like those of the US and Europe. It is the latest in Japanese efforts to modernize and harmonize its pharmaceutical system for the last five years. “The efforts are a reflection of the need to support the progress of our science and technology companies, our R&D-based industries, and our approval systems, Hayashi said.

As such, outsourcing represents an open door to new efficiencies and cost-effectiveness in Japan’s reach for a global place in the pharmaceutical economy. Moreover, because the pursuit of common manufacturing agreements is tied to the ongoing harmonization (of common regulations) efforts between the US, the EU, and Japan, outsourcing is a key element in the move toward new partnerships between East and West. The opening of this door and the lifting of the 100% requirement by the Pharmaceutical Affairs law promises both Japan and the West that the barriers to outsourcing will continue to diminish. While it will take some time for the smaller firms to gain the experience to make the most of their new-found opportunity, firms of all sizes will benefit from the new outsourcing opportunities. They will offer Japan’s pharmaceutical industry efficiency, cost-effectiveness, and the ability to gain competitive advantages in their manufacturing approach.

Lessons from the Outsourcing Journal:

  • A law to be implemented in 2005, allowing Japanese pharmaceutical companies to outsource 100% of their drug manufacturing processes, will provide major opportunities in Japan for US and European outsourcing.
  • The new law separates marketing and manufacturing functions and permits companies to decide how much to outsource, depending on company needs.
  • Outsourcing has been expanding and will continue to do so–even before the law is implemented–as the Japanese pharmaceutical industry looks for efficient, flexible, and quality-driven manufacturing tools that make companies cost-competitive in the global pharmaceutical economy.
  • To be successful, US and European outsourcers will need to learn to understand and adapt to the Japanese pharmaceutical practices and culture.
  • Japanese pharmaceutical firms will need to learn more about the foundational principles for achieving successful outcomes through outsourcing.


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