The Japanese pharmaceutical market is the second largest in the World and is valued at USD 80 billion.

Almost all Japanese citizens are covered through National Health Insurance (NHI) which is funded by the Government. Increased health insurance burden has propelled the Government to take measures to promote the adoption of generic medicines in the market.

These measures have resulted in increasing generic penetration in the Japanese market, creating strong growth opportunities for generic pharmaceutical players. The Government has also put in place healthcare reforms that would expand generic penetration to 30% of the overall Japanese pharmaceutical market by 2012 with the market expected to expand to USD 7 billion.

Lupin, with its strong R&D pipeline, vertically integrated manufacturing operations and a nimble supply chain is well positioned to take advantage of this opportunity. Kyowa Pharmaceutical Industry, Lupin’s 100% subsidiary in Japan has strong presence in the Neurology, Cardiovascular, Gastroenterology and Respiratory segments. Kyowa is amongst the fastest growing generic pharmaceutical companies in Japan. Today, Kyowa has a product portfolio of over 200 products and a strong sales and marketing team of 75 personnel. In FY 2011, the neurology segment contributed to 44% of Kyowa’s total revenues. During the year, Kyowa launched 5 new products and filed applications for an additional 20 products.

Over the past 4 years, Lupin has implemented a number of operational and margin optimization measures like price re-negotiations, API variations and utility cost improvements that have resulted in significant improvement in our margins and hence our profitability in the Japanese market. The gross margin has improved by 6.7% since integrating Kyowa’s business, despite 2 biennial price cuts imposed by the NHI. Kyowa’s business revenues have increased by a strong 49% since acquisition.

Today, Kyowa is amongst the fastest growing Japanese generic businesses with sales of ¥11,646 million (`6,212 million) registering growth of 12% over the previous fiscal and contributing to 11% of Lupin’s consolidated revenues.

API’s have been identified as a key area for synergy between Lupin& Kyowa and the Company has started developing and filing the API’s required by Kyowa. During the year, the Company filed for application API variation for 2 products using in-house Lupin APIs. The Company has filed for 2 more Drug Master Files for the Japanese market during the year. Lupin’s Goa plant is already registered with PMDA, Japan. Kyowa is in the process of filing for additional site approvals for manufacturing at the Goa plant for 4 of its major products which are currently being manufactured at its Sanda plant.