Characteristics of generic drugs and competition

The Nichi-Iko Group engages in the manufacturing and marketing of medical drugs, with its main focus on generic drugs. A generic drug is placed on the market after the patents on the “original drug” initially developed and marketed have expired. A generic drug is defined as a “drug made of the identical active ingredients as the original drug with the same content, route of administration, efficacies and effects, usage and dosage.” They are placed on the market after the expiration of re-examination period for the original drug and its substance patent period. Upon the expiration of the patents on the original drugs, many generic drug manufacturers may enter the market. This may cause prices to fall due to the increased competition. As a result, the Group’s earnings may decrease and its business performance may be adversely affected.

Changes in healthcare system

The Ministry of Health, Labor and Welfare implemented numerous reforms of the healthcare system in the past for the purpose of controlling national healthcare costs. This policy is likely to be maintained in future.

The manufacturing and marketing of medical drugs are regulated in each stage of development, production, distribution and administration to patients by a variety of approval and licensing requirements as well as monitoring systems. Although the government has implemented measures to promote the use of generic drugs, future changes in the healthcare system may affect the business performance of the Group.

Entry of original drug/foreign drug manufacturers

The expansion of the generic drug market is likely to continue in the future. Because of this outlook, original drug manufacturers in Japan as well as international pharmaceutical companies may actively seek entry into the Japanese generic drug market. This is likely to increase competition in the general drug industry considerably, and may affect the business performance of the Group.

Revision of National Health Insurance drug prices

In Japan, the pricing of medical drugs is prescribed by the drug price standards established by the government. Prices are generally revised every two years. The business performance of the Group may be affected if a revision results in a considerable price reduction.

Patent litigations

Due to the nature of generic drugs, the manufacturer of the original drug may initiate patent litigation. Such litigation, should it occur, may affect the business performance of the Group.

The Nichi-Iko Group will carry out a thorough investigation of patents on substance and preparation as well as other industrial property rights. Furthermore, we are committed to taking into consideration the provisions of the Unfair Competition Prevention Act in our product development.

Regulatory control

The manufacturing and marketing of medical drugs by the Nichi-Iko Group are regulated under the Pharmaceutical Affairs Act and other related laws and regulations. We are required to acquire permits, to be registered, designated or licensed, and to file various reports by the government in the prefectures in which we have offices. Any violation of laws and regulations in respect of the approval and licensing of drug manufacturing and marketing could cause a regulatory agency to impose a penalty on us, such as suspension of business operation or cancellation of license and approvals. We have never experienced any cancellation of license or approval to this date. Should such an event occur, however, the business activities and performance of the Group may be affected.