Analysts view pharma revenue exposure in Japan

Last month, the Japanese pharmaceutical analyst at Lehman Brothers lowered his Japanese pharmaceutical sector rating from 2-Neutral to 3-Negative to reflect a likely increase in the frequency of National Health Insurance drug reimbursement price revisions from biennial to annual (Marketletters passim). In light of this downgrade, the broker has provided a guide to company sales derived from the Japanese market. It also gives an earnings sensitivity analysis to an assumed price cut of 7% in Japan.

Among the large capital European pharmaceutical firms, Roche has the highest exposure to Japan (14% drug sales). Lehman estimates that a 7% price cut would reduce group earnings per share 1.1%. Sanofi-Aventis has the lowest exposure to Japan, with only 0.3% of group earnings at risk.

While Roche has the highest revenue exposure via its subsidiary Chugai, it is important to note that NHI price cuts are usually weighted towards patent-expired, long-listed drugs. Among its peers, Chugai has a relatively unique portfolio with only 7.6% of sales from long-listed drugs. This compares with an average 17% of sales among large Japanese pharmaceutical peers.