Nihon Chouzai is an integrated healthcare company whose core business is the operation of dispensing pharmacies. The company also manufactures and sells generic drugs and engages in the staffing and placement of medical professionals. In FY03/21, the company’s sales were JPY279.0bn, operating profit was JPY8.1bn, and the OPM was 2.9%. The company’s three business segments are the Dispensing Pharmacy business (FY03/21: sales of JPY244.1bn, 81.9% of total sales, 77.6% of operating profit, OPM of 4.3%), the Pharmaceutical Manufacturing and Sales business (FY03/21: sales of JPY45.7bn, 15.3% of total sales, 17.2% of operating profit, OPM of 5.1%), and the Medical Professional Staffing and Placement business (FY03/21: sales of JPY8.4bn, 2.8% of total sales, 5.2% of operating profit, OPM of 8.5%).
Dispensing Pharmacy business: As of end-March 2021, the company had 670 pharmacies in all prefectures in Japan, a 1% share of the market. This is the company’s original line of business, started in 1980. Segment sales are determined by the number of prescriptions dispensed by pharmacies multiplied by price per prescription. In FY03/21, the company dispensed 14.2mn prescriptions and average price per prescription was JPY16,869 (versus the FY2019 national average of JPY9,184). The prescription price consists of a drug fee and a technical fee (remuneration for a pharmacist’s dispensing work and giving medication guidance to patients). A pharmacy records the technical fee and the drug price margin (difference between the drug selling price and purchase price) as gross profit. Materials costs (cost of drugs purchased from wholesalers) account for about 70% of total costs in the segment, while personnel costs, chiefly for pharmacists (average of five staff per pharmacy), account for about 10%.
Pharmacy opening strategy and status: The company distinguishes between “hospital-front pharmacies” (located near or inside the premises of major hospitals), and “hybrid pharmacies” (located in high-traffic areas of cities and handle prescriptions from many different medical facilities). Hospital-front pharmacies record annual sales of around JPY500mn, above the FY03/21 company-wide average of JPY369mn, and represented 67% of all Nihon Chouzai pharmacies as of end-March 2021. The company says it plans to boost the number of hybrid pharmacies to 50% of the total, seeking a balanced approach to expanding its pharmacy network. Moreover, the company’s policy is to focus on the organic growth of its own pharmacies while taking advantage of promising M&A opportunities. Organic growth (i.e., pharmacies opened on its own as opposed to those added via M&A) currently accounts for roughly 70% of all store openings. This strategy sets the company apart from its peers that mainly focus on expanding their pharmacy networks through acquisitions.
Pharmaceutical Manufacturing and Sales business: This segment mainly engages in the manufacturing and sales of generic drugs (oral medications). As of end-FY03/21, the company handles 677 products: it manufactures 262 of these at five production facilities it operates and outsources manufacturing of other products to outside makers or purchases them. In FY03/21, sales to Nihon Chouzai’s own pharmacies accounted for 42.0% of total sales (internal sales) and sales to external customers for 58.0%. The company generally ships almost all its pharmaceuticals to wholesalers, and these wholesalers also supply Nihon Chouzai’s own pharmacies. In this way, the company is contributing to revenues of such wholesalers while growing its share of the wholesale market. Costs in this segment mainly consist of purchases of raw materials, manufacturing consignment (outsourcing) costs, and labor costs. Segment OPM was 5.1% in FY03/21, which is lower than the FY03/21 average of roughly 10% among the three main competitors in this field. The company is aiming to boost profitability through increased production following an aggressive series of capital investments it made through FY03/18.
Medical Professional Staffing and Placement business: This segment involves the temporary staffing and placement of medical professionals, primarily pharmacists. The focus going forward is on the placement of pharmacists, particularly family pharmacists who offer consultations on an ongoing basis to patients, and of physicians, for which there is strong demand in Japan.
Industry comparison: Nihon Chouzai has fewer pharmacies than industry leader Ain Holdings Inc. (TSE1: 9627), which boasts 1,065 pharmacies (2% share). The company ranks third in store count among companies specializing in dispensing pharmacy operations (as of end-March 2021, same hereafter). In terms of sales per pharmacy, however, at around JPY369mn the company surpasses Ain Holdings (JPY244mn). As discussed above, this is attributable in part to the high proportion of hospital-front pharmacies (63% versus 58% for Ain Holdings as of July 2020). As these pharmacies are located near or inside the premises of major hospitals, they tend to dispense relatively costly medications such as anticancer drugs. The growing number of pharmacies in the Dispensing Pharmacy business has spilled over into rising earnings in the Pharmaceutical Manufacturing and Sales segment. At the same time, the increase in drug manufacturing has the added benefit of enabling procurement cost reductions at pharmacies through the streamlining of manufacturing processes. The company points out the synergies between the two segments, with growth in one contributing to profitability in the other.
In FY03/21, Nihon Chouzai reported sales of JPY279.0bn (+3.9% YoY), operating profit of JPY8.1bn (+6.8% YoY), recurring profit of JPY8.4bn (+13.6% YoY), and net income attributable to owners of the parent of JPY3.5bn (-47.2% YoY). Sales were up by 5.7% YoY in the Dispensing Pharmacy business and 6.1% YoY in the Pharmaceutical Manufacturing and Sales business, but dipped by 34.0% YoY in the Medical Professional Staffing and Placement business. Sales were hit by the ongoing pandemic-driven decrease in prescriptions (due to restrained hospital visits), but rose thanks to the effect of store openings and higher price per prescription with the increase in long-term prescriptions. Operating profit was boosted by a better-than-expected recovery in patient traffic to pharmacies in 2H, improved profitability due to strong sales of products newly added to the NHI drug price list in June and December 2020, and various cost-cutting measures.
The company revised its FY03/22 forecast on October 29, 2021. The revised forecast calls for sales of JPY294.6bn (+5.6% YoY), operating profit of JPY7.0bn (+13.6%YoY), recurring profit of JPY7.0bn (-16.8% YoY), net income attributable to owners of the parent of JPY4.0bn (-13.0% YoY). In the Dispensing Pharmacy business, the company will work to develop highly user-friendly pharmacies and cultivate pharmacists with advanced expertise to deliver high-quality medical care services through its certified “specialized medical institutions cooperation pharmacies” and “regional cooperation pharmacies” (see FY03/22 company forecast for details). In the Pharmaceutical Manufacturing and Sales business, it will invest in R&D to expand its catalog of in-house manufactured product offerings, including newly listed drugs, while aiming to improve overall profitability. In the Medical Professional Staffing and Placement business, the company will work to further fortify its placement business for pharmacists, physicians, and other medical professionals, as well as operate nationwide industrial physician services to further expand its physicians placement business. That said, Pharmaceutical Manufacturing and Sales earnings are expected to fall short of initial company estimates (announced April 30, 2021) due to product recalls and manufacturing delays caused by quality control issues at sub-subsidiary Choseido Pharmaceutical Co., Ltd (unlisted).
Nihon Chouzai announced its long-term vision “On the Road to 2030” in April 2018. The plan targets FY03/30 sales of JPY1tn—more than 3x the level of sales (before intragroup eliminations) in FY03/20—as well as a 10% share of Japan’s dispensing pharmacy market (compared with less than 5% in FY03/20). It also targets a 15% share of the generic drug market sales (3% in FY03/20) in the Pharmaceutical Manufacturing and Sales business. Its qualitative strategy involves growing the Dispensing Pharmacy business by investing in personnel, enhancing pharmacy functions, and prioritizing sales potential when opening new pharmacies (i.e., opening large-scale pharmacies capable of providing advanced services). In response to public policy calling on pharmacies to serve to improve the health of the overall population, the company will take steps to increase its number of family pharmacies and promote the expansion of online medication guidance services. Building on a solid record of growth in the Dispensing Pharmacy business, the company aims to achieve sustainable growth as an integrated healthcare company by expanding its Pharmaceutical Manufacturing and Sales and Medical Professional Staffing and Placement businesses.
1) Having established a chain of pharmacies near large general hospitals ahead of competition, the company’s per-pharmacy sales (JPY369mn) and prescription volume (21,600) are highest in the industry, reflecting its efficient pharmacy operations.
2) The company has relatively strong capacity to expand the pharmacy network internally. It opened (not acquired) 127 pharmacies in the five years to FY03/21, with organic growth accounting for 62.3% of its store openings—both figures are higher than competitors.
3) Even without a large MR force, the company can expand its share of the generic drug market (total wholesale volume) by selling in-house products to its own pharmacies.
1) Compared with drugstores, the company’s pharmacies have lower name recognition and are not as well positioned to attract general consumers.
2) Because it sells nearly all its generic drugs through wholesalers, the company has structurally higher distribution costs (lower profit margins) than competitors with their own distribution networks (Sawai Group Holdings, Towa Pharmaceutical).
3) If the company is to comply with recent MHLW policy calling for pharmacies to relocate from hospital-front to community locations, its relatively high ratio of hospital-front pharmacies will expose it to the impact of rising relocation costs.
|Gross profit margin||17.1%||16.9%||15.4%||15.5%||17.6%||17.8%||17.6%||18.2%||17.1%||17.3%||17.7%|
|Operating profit margin||4.3%||4.2%||2.3%||2.9%||3.7%||4.8%||3.8%||4.4%||2.7%||2.8%||2.9%||2.4%|
|Recurring profit margin||3.9%||3.8%||2.0%||2.5%||3.3%||4.5%||3.6%||4.2%||2.5%||2.8%||3.0%||2.4%|
|Per-share data (split-adjusted; JPY)|
|Shares issued (year-end; '000)||32,048||32,048||32,048||32,048||32,048||32,048||32,048||32,048||32,048||32,048||32,048|
|EPS (fully diluted; JPY)||-||-||-||-||-||-||-||-||-||-||-|
|Dividend per share (JPY)||15.0||17.5||17.5||17.5||17.5||22.5||25.0||25.0||25.0||25.0||25.0||25.0|
|Book value per share (JPY)||447||512||509||545||629||1,015||1,139||1,298||1,370||1,570||1,663|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||7,276||12,622||14,583||15,429||13,952||32,385||21,200||28,464||29,749||32,254||32,893|
|Total current assets||28,920||36,543||43,037||53,373||60,096||84,838||82,327||83,121||80,132||87,414||89,246|
|Tangible fixed assets||25,465||30,796||32,459||42,123||48,819||51,997||68,513||75,662||69,806||66,082||64,785|
|Investments and other assets||8,368||9,429||10,219||10,694||10,848||10,650||10,733||9,837||11,833||12,628||13,277|
|Total current liabilities||38,399||36,757||44,702||55,666||53,474||68,985||66,305||70,310||69,100||70,107||87,720|
|Total fixed liabilities||21,522||35,141||35,735||45,779||59,031||56,151||75,595||74,756||68,504||68,370||48,673|
|Total net assets||12,780||14,716||14,702||15,849||17,635||32,473||36,447||41,506||41,073||47,072||49,868|
|Total interest-bearing debt||33,891||42,277||48,280||62,035||66,422||65,321||85,481||84,689||79,310||73,030||72,331|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||6,724||7,127||2,885||6,243||5,831||19,327||-940||23,141||13,572||13,192||11,213|
|Cash flows from investing activities||-8,269||-9,694||-6,422||-14,510||-8,437||-7,823||-28,444||-13,843||-1,770||-2,731||-7,767|
|Cash flows from financing activities||1,110||7,920||5,496||8,782||1,422||7,031||18,205||-2,034||-10,516||-7,955||-2,806|
|Total asset turnover||163.2%||163.2%||153.5%||155.7%||147.0%||152.4%||133.0%||132.2%||134.5%||147.4%||150.0%|
|% of total||91.3%||91.6%||89.6%||83.8%||82.2%||82.1%||80.0%||80.4%||79.5%||80.5%||81.9%||81.9%|
|Pharmaceutical Manufacturing and Sales||7,579||8,133||11,196||23,192||27,550||32,598||36,821||38,066||40,659||43,072||45,699||49,800|
|% of total||6.5%||6.0%||7.7%||13.3%||14.3%||14.0%||15.6%||14.9%||15.5%||15.0%||15.3%||15.9%|
|Medical Professional Staffing and Placement||2,558||3,236||3,991||5,046||6,554||8,934||10,500||11,970||13,083||12,721||8,393||6,900|
|% of total||2.2%||2.4%||2.7%||2.9%||3.4%||3.8%||4.4%||4.7%||5.0%||4.4%||2.8%||2.2%|
|Operating profit margin||4.3%||4.2%||2.3%||2.9%||3.7%||4.8%||3.8%||4.4%||2.7%||2.8%||2.9%||3.1%|
|Operating profit margin||7.3%||7.6%||5.2%||5.3%||4.9%||5.6%||5.0%||6.0%||4.2%||4.2%||4.3%||4.9%|
|% of total||96.8%||101.6%||90.9%||85.8%||70.9%||71.5%||73.6%||80.3%||72.1%||75.6%||77.6%||80.4%|
|Pharmaceutical Manufacturing and Sales||-1||-586||233||500||1,888||2,668||1,719||1,194||1,885||1,301||2,350||2,700|
|Operating profit margin||0.0%||-7.2%||2.1%||2.2%||6.9%||8.2%||4.7%||3.1%||4.6%||3.0%||5.1%||5.4%|
|% of total||0.0%||-6.3%||3.1%||5.6%||17.4%||17.8%||13.2%||7.7%||15.6%||10.1%||17.2%||17.1%|
|Medical Professional Staffing and Placement||262||437||450||770||1,266||1,599||1,710||1,842||1,478||1,851||712||400|
|Operating profit margin||10.3%||13.5%||11.3%||15.3%||19.3%||17.9%||16.3%||15.4%||11.3%||14.6%||8.5%||5.8%|
|% of total||3.2%||4.7%||6.0%||8.6%||11.7%||10.7%||13.2%||11.9%||12.2%||14.3%||5.2%||2.5%|
On November 29, 2021, Nihon Chouzai Co., Ltd. announced there was a fire at a contract logistics center of its consolidated subsidiary.
On November 29, 2021, there was a fire at a logistics center of Hitachi Transport System West Japan Co., Ltd., to which the company's consolidated subsidiary Nihon Generic Co., Ltd. outsources warehousing operations for its products.
Nihon Generic is using part of the logistics center as its West Japan Logistics Center. The company disclosed the following regarding the fire.
Products damaged by the fire at the contract logistics center are expected to be covered by insurance. As of the time of this announcement, Nihon Chouzai said that it was investigating the impact of the fire on its earnings performance and that it would promptly disclose any matters that require public disclosure.
On November 15, 2021, Nihon Chouzai announced an absorption-type merger (simple and short-form merger) of a consolidated subsidiaries.
At a meeting held on the same day, the company's board of directors decided to merge its wholly owned subsidiaries Yajima Medical Brain Y.K. and Duon Y.K. into the company, effective January 1, 2022. The merger will be an absorption-type merger, with Yajima Medical Brain Y.K. and Duon Y.K. as the merged companies and Nihon Chouzai as the survivor company.
The dispensing pharmacy subsidiaries acquired by the company conducts the same operations and provides the same level of medical services as directly operated stores. The company has decided to merge its subsidiaries by absorption in order to strengthen its management functions and further improve the efficiency of its Dispensing Pharmacy business through the centralization of management.
As the absorbed companies are consolidated subsidiaries of Nihon Chouzai, the impact of this merger on the company's consolidated performance is expected to be minimal.
Nihon Chouzai Co., Ltd. revised consolidated earnings forecasts for FY03/22.
The company revised full-year FY03/22 consolidated earnings forecasts as follows. Previous forecasts are company estimates made on April 30, 2021.
The Tokushima prefectural government took administrative disciplinary action against Nihon Chouzai's subsidiary Choseido Pharmaceutical Co., Ltd. as was reported in the October 11, 2021 press release. Nihon Chouzai revised FY03/22 earnings forecasts to reflect the financial impact of this matter.
The company noted earnings are holding firm in the Dispensing Pharmacy and the Medical Professional Staffing and Placement businesses as sales and operating profit are running ahead of initial forecasts despite lingering effects from the pandemic. On the other hand, Pharmaceutical Manufacturing and Sales segment earnings look likely to fall short of initial company forecasts because of product recalls and manufacturing delays caused by the quality control issues at Choseido Pharmaceutical. Consequently, the company expects FY03/22 consolidated sales to exceed initial company forecasts while profits across the board come in below the original estimates.
Nihon Chouzai Co., Ltd. announced that it passed a resolution at its Board of Directors' meeting held on October 21, 2021 to transfer all shares in consolidated subsidiary Choseido Pharmaceutical Co., Ltd. to consolidated subsidiary Nihon Generic Co., Ltd. As a result of this share transfer, Choseido Pharmaceutical will become a wholly owned subsidiary of Nihon Generic while remaining in the Nihon Chouzai Group as a consolidated sub-subsidiary. The agreement concerning this transfer was concluded on October 22, 2021, and the stock transfer is scheduled for execution on November 30, 2021.
The company decided to convert Choseido Pharmaceutical into a wholly owned subsidiary of Nihon Generic in an effort to integrate its Pharmaceutical Manufacturing and Sales Business and facilitate more efficient improvement in both its management of generic drug manufacturing and its quality control systems. This decision was made in response to the administrative action taken against Choseido Pharmaceutical, which has been outlined in the company's October 11, 2021 press release titled "Notice of Administrative Disciplinary Action against a Subsidiary of the Company (Choseido Pharmaceutical Co., Ltd.)." This transfer will enhance the effectiveness of the business improvement plan that the company will formulate moving forward. The entire Nihon Chouzai Group will cooperate on a unified front while implementing the business improvement plan and ensuring legal compliance.
All transfers of consolidated subsidiaries resulting from this share transfer will occur within the company's scope of consolidation. Accordingly, no changes in this scope will arise as a result of this transfer.
Choseido Pharmaceutical became a consolidated subsidiary of the company in April 2013 and has since been manufacturing and selling generic drugs as part of the Nihon Chouzai Group. Nihon Generic has also been producing and marketing generic drugs since its establishment in 2005.
The company has stated that impact from this share transfer on its performance in FY03/22 will be minor and maintains that it will promptly disclose any future relevant developments, should they arise.
Nihon Chouzai Co., Ltd. has announced that a subsidiary was subjected to administrative disciplinary action.
On October 11, 2021, Choseido Pharmaceutical Co., Ltd., a Nihon Chouzai subsidiary, was subjected to administrative disciplinary action by the prefectural government of Tokushima in accordance with Japan’s Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices. This disciplinary action was conducted because Choseido Pharmaceutical manufactured pharmaceutical products for Nihon Chouzai using unauthorized methods and did not conduct necessary measures when results generated by drug stability monitoring procedures deviated from prescribed standards.
The company treats this incident very seriously and will support Choseido Pharmaceutical as it formulates a business improvement plan. Meanwhile, Nihon Chouzai will implement groupwide measures targeting recurrence prevention.
The company is currently investigating the impact this incident will have on its financial results in FY03/22 and will promptly disclose all relevant information as it becomes available.
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||% of Est.||1H Est.|
|Gross profit margin||17.3%||17.2%||17.3%||17.3%||16.0%||17.1%||17.6%||17.7%||17.4%||17.2%|
|Operating profit margin||2.8%||3.1%||2.8%||2.8%||0.6%||2.0%||2.8%||2.9%||1.3%||1.7%||2.1%|
|Recurring profit margin||2.7%||3.1%||2.7%||2.8%||0.5%||2.0%||2.8%||3.0%||1.4%||1.7%||2.1%|
|Net income margin||1.3%||1.6%||1.5%||2.5%||0.5%||1.1%||1.6%||1.3%||0.6%||0.9%||1.0%|
|(JPYmn)||Q1||Q2||Q3||Q4||Q1||Q2||Q3||Q4||Q1||Q2||% of Est.||FY Est.|
|Gross profit margin||17.3%||17.1%||17.3%||17.3%||16.0%||18.2%||18.5%||18.0%||17.4%||17.1%|
|Operating profit margin||2.8%||3.5%||2.3%||2.8%||0.6%||3.5%||4.1%||3.3%||1.3%||2.0%||2.4%|
|Recurring profit margin||2.7%||3.5%||2.1%||2.8%||0.5%||3.4%||4.3%||3.7%||1.4%||2.1%||2.4%|
|Net income margin||1.3%||1.9%||1.4%||5.2%||0.5%||1.8%||2.6%||0.2%||0.6%||1.2%||1.4%|
|By segment (cumulative)||FY03/20||FY03/21||FY03/22||FY03/22|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||% of Est.||FY Est.|
|% of total||85.2%||85.8%||85.8%||86.0%||85.2%||86.9%||86.9%||87.5%||87.6%||88.1%|
|Pharmaceutical Manufacturing and Sales||10,881||21,040||32,564||43,072||12,073||22,812||35,235||45,699||12,158||23,669|
|% of total||16.9%||16.1%||16.4%||16.0%||17.7%||16.8%||16.9%||16.4%||16.9%||16.2%|
|Medical Professional Staffing and Placement||3,597||6,775||9,737||12,721||2,943||5,025||6,644||8,393||1,901||3,648|
|% of total||5.6%||5.2%||4.9%||4.7%||4.3%||3.7%||3.2%||3.0%||2.6%||2.5%|
|Operating profit margin||2.8%||3.1%||2.8%||2.8%||0.6%||2.0%||2.8%||2.9%||1.3%||1.7%||2.4%|
|Operating profit margin||3.4%||3.9%||3.9%||4.2%||0.8%||3.1%||3.9%||4.3%||3.0%||3.9%|
|% of total||56.0%||66.3%||68.9%||75.6%||25.7%||66.1%||71.0%||77.6%||72.1%||88.8%|
|Pharmaceutical Manufacturing and Sales||798||1,155||1,534||1,301||833||1,163||2,205||2,350||451||195|
|Operating profit margin||7.3%||5.5%||4.7%||3.0%||6.9%||5.1%||6.3%||5.1%||3.7%||0.8%|
|% of total||24.2%||17.4%||16.1%||10.1%||46.1%||21.2%||22.4%||17.2%||17.2%||3.4%|
|Medical Professional Staffing and Placement||651||1,082||1,442||1,851||509||696||653||712||278||440|
|Operating profit margin||18.1%||16.0%||14.8%||14.6%||17.3%||13.9%||9.8%||8.5%||14.6%||12.1%|
|% of total||19.8%||16.3%||15.1%||14.3%||28.2%||12.7%||6.6%||5.2%||10.6%||7.8%|
|By segment (quarterly)||FY03/20||FY03/21||FY03/22||FY03/22|
|(JPYmn)||Q1||Q2||Q3||Q4||Q1||Q2||Q3||Q4||Q1||Q2||% of Est.||1H Est.|
|% of total||85.2%||86.3%||85.7%||86.8%||85.2%||88.7%||86.9%||89.1%||87.6%||88.5%||87.1%|
|Pharmaceutical Manufacturing and Sales||10,881||10,159||11,524||10,508||12,073||10,739||12,423||10,464||12,158||11,511||96.2%||24,600|
|% of total||16.9%||15.4%||16.8%||15.1%||17.7%||15.9%||17.2%||14.8%||16.9%||15.5%||17.3%|
|Medical Professional Staffing and Placement||3,597||3,178||2,962||2,984||2,943||2,082||1,619||1,749||1,901||1,747||107.3%||3,400|
|% of total||5.6%||4.8%||4.3%||4.3%||4.3%||3.1%||2.2%||2.5%||2.6%||2.3%||2.4%|
|Operating profit margin||2.8%||3.5%||2.3%||2.8%||0.6%||3.5%||4.1%||3.3%||1.3%||2.0%||2.1%|
|Operating profit margin||3.4%||4.5%||3.7%||5.3%||0.8%||5.3%||5.4%||5.7%||3.0%||4.8%||3.9%|
|% of total||56.0%||38.6%||22.7%||24.8%||25.7%||57.6%||34.2%||26.3%||72.1%||55.5%||78.7%|
|Pharmaceutical Manufacturing and Sales||798||357||379||-233||833||330||1,042||145||451||-256||17.7%||1,100|
|Operating profit margin||7.3%||3.5%||3.3%||-2.2%||6.9%||3.1%||8.4%||1.4%||3.7%||-2.2%||4.5%|
|% of total||24.2%||5.4%||4.0%||-1.8%||46.1%||6.0%||10.6%||1.1%||17.2%||-4.5%||18.0%|
|Medical Professional Staffing and Placement||651||431||360||409||509||187||-43||59||278||162||220.0%||200|
|Operating profit margin||18.1%||13.6%||12.2%||13.7%||17.3%||9.0%||-2.7%||3.4%||14.6%||9.3%||5.9%|
|% of total||19.8%||6.5%||3.8%||3.2%||28.2%||3.4%||-0.4%||0.4%||10.6%||2.9%||3.3%|
|Sales per store||91||184||275||370||88||179||274||369||93|
|No. of prescriptions ('000)||3,576||7,219||10,980||14,704||3,278||6,858||10,579||14,223||3,755|
|Price per prescription||15,110||15,239||15,199||15,479||17,473||16,965||16,833||16,869||16,474|
|Nihon Chouzai's own pharmacies||5||16||26||35||4||14||19||22||7|
|Pharmacies through M&A||2||4||27||30||5||5||6||7||4|
|[By store type]|
|Store count (quarter-end)||600||611||641||650||658||665||670||670||679||685|
|Nihon Chouzai's own pharmacies||5||11||10||9||4||10||5||3||7|
|Pharmacies through M&A||2||2||23||3||5||-||1||1||4|
|[By store type]|
|Store count (quarter-end)||600||611||641||650||658||665||670||670||679||685|
|No. of new NHI listings||8||-||14||-||16||-||5||-||12||-|
Sales were JPY146.2bn, up 7.5% YoY. Factors
contributing to sales growth included the higher prescription volume and the contribution of
new pharmacies in the Dispensing Pharmacy business (sales up 8.9% YoY), as well as
robust sales of products newly listed in the NHI drug price list in 2019, 2020, and in June 2021 in the Pharmaceutical Manufacturing and Sales business (+3.8%
YoY). Sales in the Medical Professional Staffing and Placement business were
down 27.4% YoY, due largely to the pandemic-driven decline in temporary staffing
Operating profit declined 12.9% YoY. The OPM declined 0.3pp YoY from 2.0% to 1.7%.
Progress against the company's full-year FY03/22 forecast (revised on October 29, 2021) was as follows.
Sales reached 49.6% of the forecast (48.8% in 1H FY03/21 versus full-year results), operating profit 34.5% (34.2%), recurring profit 36.1% (31.7%), and net income attributable to owners of the parent 33.5% (44.0%).
Sales increased 8.9% YoY to JPY128.7bn while operating profit was up 39.1% to JPY5.0bn. Both sales and profit were up YoY, despite lingering effects of COVID-19, reflecting
the higher prescription volume and ｄるdrug fee income as well as contributions from pharmacies opened in
The number of pharmacies at end-Q2 FY03/22 was 685 (including one merchandise store; up 20 from 665 at end-Q2 FY03/21) as a result of 20 openings and five closures during 1H.
Generic drugs represented 88.2% of the company’s total pharmaceutical usage in volume terms as of end-September 2021. The share of pharmacies providing at-home medical care services (pharmacies that have carried out 12 or more at-home visits annually) came to 92.0%.
Sales increased 3.8% YoY to JPY23.7bn while operating profit declined 83.2% YoY to JPY195mn. Sales were up YoY, despite pricing erosion of existing drugs due to the NHI price revision, reflecting rising sales of drugs newly included in the NHI drug price list in 2019, 2020, and in June 2021. Operating profit was down YoY, despite cost-cutting measures, marketing policies focused on profitability, and continued expansion of inhouse drugs (including newly NHI listed items), because of product recalls and manufacturing delays caused by quality control issues at Choseido Pharmaceutical.
The company launched 12 newly listed products in 1H FY03/22, bringing the total number of product offerings to 673 at end-September 2021 (including two OTC drugs).
Sales declined 27.4% YoY to JPY3.6bn while operating profit receded 36.8% to JPY440mn. The fall in sales is mainly attributable to the reduced demand for temporary pharmacist staffing amid the pandemic. Operating profit was down YoY as well, despite continued demand for physician placements to help carry out the COVID-19 vaccination effort, due to reduced temporary pharmacist staffing demand.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Est.||FY Est.||1H Act.||2H Est.||FY Est.|
|Cost of sales||112,726||116,851||229,577||121,007|
|Gross profit margin||17.1%||18.3%||17.7%||17.2%|
|Operating profit margin||2.0%||3.7%||2.9%||1.7%||3.1%||2.4%|
|Recurring profit margin||2.0%||4.0%||3.0%||1.7%||3.0%||2.4%|
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Est.||FY Est.||1H Act.||2H Est.||FY Est.|
|Cost of sales||100,875||105,143||206,018|
|Gross profit margin||14.7%||16.4%||15.6%|
|Operating profit margin||3.1%||5.5%||4.3%||3.9%|
|Pharmaceutical Manufacturing and Sales|
|Cost of sales||19,394||19,410||38,804|
|Gross profit margin||15.0%||15.2%||15.1%|
|Operating profit margin||5.1%||5.2%||5.1%||0.8%|
|Medical Professional Staffing and Placement|
|Cost of sales||2,446||1,470||3,916|
|Gross profit margin||51.3%||56.4%||53.3%|
|Operating profit margin||13.9%||0.5%||8.5%||12.1%|
The company revised FY03/22 earnings forecasts (announced April 30, 2021) on October 29, 2021.
The prefectural government of Tokushima issued an administrative disciplinary action against the company's subsidiary Choseido Pharmaceutical as noted in the October 11, 2021 press release. In response, Nihon Chouzai revised its FY03/22 consolidated forecasts after assessing the impact to earnings.
The company noted that earnings are holding firm in the Dispensing Pharmacy and Medical Professional Staffing and Placement businesses as sales and operating profit are running ahead of initial company guidance despite some lingering adverse effects from the pandemic. That said, Pharmaceutical Manufacturing and Sales earnings are expected to fall short of original forecasts as quality control problems at Choseido Pharmaceutical led to product recalls and delayed manufacturing. The net effect is that the company expects FY03/22 consolidated sales to exceed initial company estimates while profits fall short across the board.
The following information is based on our post-Q1 results company contact and we plan to update the report after further follow-up.
For FY03/22, the company forecasts sales of JPY293.4bn (+5.2% YoY), operating profit of JPY9.2bn (+13.5%YoY), recurring profit of JPY9.1bn (+8.2% YoY), net income attributable to owners of the parent of JPY5.1bn (+44.1% YoY). Nihon Chouzai is expecting sales to reach an all-time high.
The company expects the business environment to remain much the same across FY03/22 as it was in 2H FY03/21, when the number of prescriptions swung upward YoY on an all-store basis and declines in customer footfall slowed despite some ongoing impact from the COVID-19 pandemic.
The company apparently hired more than 500 new pharmacists as of April 2021. For some time now, Nihon Chouzai has been looking to grow pharmacist numbers principally by hiring new graduates, who then receive education and training in-house before being deployed across the pharmacy network. The company expects labor costs to decrease over the longer term as a consequence of focusing on new graduates in place of mid-career hires and temporary staff.
For FY03/22, the company assumes a price per prescription of JPY16,000 (-5.2% YoY) and looks for prescriptions to number 15,700,000 over the full year (+10.4% YoY). It also assumes 40 new pharmacy openings (organic growth), with potential for more to be added via M&A.
The company commented that the number of prescriptions (customer traffic) fell short of target because of another state of emergency being declared, but it expects progress in line with its forecast from Q2 onward.
In addition, from April 2021, the Ministry of Health, Labour and Welfare (MHLW) switched from making biennial revisions to NHI drug prices to making annual revisions. As such, the company recognizes that the dispensing pharmacy and pharmaceutical industries are facing a tougher business environment.
But while it expects some impact from NHI drug price revisions (in the form of downward pressure on prices), the company plans to increase sales volume of in-house manufactured products (chiefly newly NHI listed items).
On August 3, 2021, the company reported that having conducted its own inspection of the manufacturing process of Choseido Pharmaceutical, it had to suspend manufacturing and shipment of 44 pharmaceutical products made there. The company said it would proceed with shipment adjustment until it had a stable supply structure in place, and suspend sales of these products once inventories ran out. As of August 3, it did not have the means to supply alternatives for all products. Shared Research understands that this may have an unforeseen negative impact on sales and profit of the Pharmaceutical Manufacturing and Sales business in Q2 and beyond.
In the Medical Professional Staffing and Placement business, the company sees both sales and profit decreasing YoY, as although it plans to strengthen the doctor placement business and expand into new business fields, it assumes that temporary staffing demand will remain weak. The forecast is unchanged at end-Q1. The company assumes that the growth rate of doctor placements will slow as the COVID-19 vaccination program progresses.
|(JPYmn)||Q1 Est.||Q2 Est.||Q3 Est.||Q4 Est.|
|Cost of sales||57,500||58,600||61,800||60,800|
|Gross profit margin||18.2%||18.3%||19.0%||18.6%|
|Operating profit margin||1.3%||2.9%||3.9%||4.0%|
|Recurring profit margin||1.1%||2.9%||3.9%||4.0%|
|Gross profit margin||15.8%||16.0%||16.7%||16.7%|
|Operating profit margin||3.0%||4.8%||5.6%||6.2%|
|Pharmaceutical Manufacturing and Sales|
|Gross profit margin||15.1%||15.0%||17.2%||15.5%|
|Operating profit margin||4.0%||5.0%||7.5%||4.3%|
|Medical Professional Staffing and Placement|
|Gross profit margin||61.1%||62.5%||58.8%||55.6%|
|Operating profit margin||11.1%||0.0%||0.0%||5.6%|
In the dispensing pharmacy industry, certification of pharmacies with specialized functions will start in August 2021, as per the revised Pharmaceuticals and Medical Devices Act (Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices) promulgated in 2019. Under this system, the dispensing pharmacies will be classified as either “regional cooperation pharmacies” (those capable of collaborating with medical institutions to manage patients’ medication information, including for inpatients and patients receiving at-home care), or “specialized medical institutions cooperation pharmacies” (which have the ability to handle advanced pharmaceutical management and a high level of expertise in oncology and other areas). Dispensing pharmacies will be able to obtain certification as either one of these from the prefectural governor.
The company says the revised Act will increasingly require the kind of pharmacies that are capable of meeting patients’ needs. In the Dispensing Pharmacy business, it will work to develop highly user-friendly pharmacies and cultivate pharmacists with advanced expertise to provide the kind of pharmacies the Japanese government envisions. It also looks to deliver quality medical care services to patients through its certified specialized medical institutions cooperation pharmacies and regional cooperation pharmacies, via the undertakings described below.
Regional cooperation pharmacies: Expand at-home medical care (provided by 94.1% of pharmacies as at end-FY03/21), hire more family pharmacists (on staff at 82% of pharmacies), establish more certified Nutrition Care Stations* (14 pharmacies certified as such as of April 2021), expand Health Support Pharmacies (91) and Health Check-up Stations.
Specialized Medical Institution Cooperation Pharmacies: Cultivate expert pharmacists certified in outpatient cancer treatment and provide oncology expertise training for other pharmacies
Joint undertakings: Install the advanced drug information (DI) web platform FINDAT at pharmacies (more detail below), and strengthen the function of providing drug information in local communities
*Certified Nutrition Care Stations: Nutrition Care Stations are community-based hubs providing nutrition care, with certification from the Japan Dietetic Association. They provide nutritional diet guidance in cooperation with medical institutions as well as day-to-day nutritional consultations for patients who find it difficult to travel to and forth to hospitals. In addition, they offer cooking classes, menu-planning advice, and specific health guidance for local governments, health insurance unions, private companies, and medical institutions.
FINDAT is an online drug information platform for healthcare professionals, neutrally evaluating drug information comprehensively collected from various data sources, domestic and overseas guidelines, and secondary information databases. “FINDAT” is a coined word that combines “FIND” and “ATLAS.”
The types of information provided include:
Lists of recommended pharmaceuticals to aid medical institutions and communities in establishing formularies (the most effective and economical drug-use policy for patients).
Materials providing comprehensive comparison of the efficacy, safety, and economics of different drugs with the same indications
Materials to aid medical institutions in identifying newly approved pharmaceuticals with particularly significant clinical impact and evaluating them on scientific grounds, with a view to potentially using them
Collection and evaluation of pharmaceutical safety information disseminated by overseas regulatory authorities (e.g., FDA, EMA, and MHRA)
Efficacy and safety evaluation for existing pharmaceuticals that have had clinically significant indications added
Using FINDAT can help reduce the burden of drug information (DI) work, including peer review of original papers and information gathering on new drugs. This can aid in shifting from product service to interpersonal service, enhancing team medical care, and establishing formularies (the most effective, safe, and economical drug-use policy for patients).
Nihon Chouzai released this service on June 1, 2020. According to the company, as of May 25, 2020, FINDAT was Japan’s first drug information web platform.
In addition to introducing the FINDAT platform at its own dispensing pharmacies, Nihon Chouzai plans to roll the service out to medical institutions (hospitals), educational institutions, and eventually, non-group dispensing pharmacies. To support this expansion of the service, the company will also train and hire specialist personnel including system engineers and data scientists.
The company will take the lead on measures to enhance user friendliness and pharmacy functions with online medication guidance and online insurance coverage confirmation. It intends to conduct group business administration by making full use of its ICT capabilities, including for the development of next-generation dispensing systems.
Over the next three years, the company will invest a total of JPY4.5bn in the development of next-generation dispensing systems. According to Nihon Chouzai, it is the only company in the dispensing pharmacy industry developing and operating proprietary dispensing systems for use by pharmacies.
To date, Nihon Chouzai has developed/introduced a number of dispensing systems (platforms), as follows.
Voice input system (2005): Assists with input of medication history
Vein biometric authentication system (2011): Guarantees the authenticity of pharmacists’ work, also optimizing working hours
At-home medical care communication system (2012): Used as a tool to streamline the work of pharmacists who conduct at-home medical care
Electronic medication notebook Okusuri Techo Plus (2014): Links with the dispensing system to enable centralized management of medication history, with roughly 750,000 members as of March 2021
Health consultation system (2017): Centrally records information such as health consultations at pharmacies and health consultations conducted by registered dieticians at Health Check Stations
Nihon Chouzai Online Store (2019): Online store offering approximately 2,000 different healthcare products, including pharmaceuticals, medical equipment, cosmetics, health foods, and hygiene products
Remote medication guidance (2019): Conducted in Aichi Prefecture, Fukuoka City, and Chiba City. In addition, starting in September 2020 the company has been able to offer online medication guidance for prescriptions given online (under the revised Pharmaceuticals and Medical Devices Act)
Automation of dispensing work (2019): The company is promoting automation of picking work in pharmacies (legal revisions allowed non-pharmacists to perform picking work under the supervision of pharmacists)
In the Medical Professional Staffing and Placement business, the company will work to further fortify its placement business for pharmacists, physicians, and other medical professionals, as well as operate nationwide industrial physician services, primarily through Workers Doctors Inc.* (unlisted), to further expand its physicians placement business.
* Workers Doctors Inc. provides industrial physician services mainly in the Tokyo metropolitan area. In November 2020, the company's consolidated subsidiary Medical Resources Co., Ltd. (unlisted) acquired all shares in Workers Doctors, making it a wholly owned subsidiary (a second-tier subsidiary of the company).
With Workers Doctors now a subsidiary, Nihon Chouzai’s future vision is as follows.
Strengthen physician placement business, with eye to building new growth engine alongside pharmacist business
Utilize nationwide network of Medical Resources Co., Ltd. to support nationwide rollout of Workers Doctors’ network from one city and four prefectures at present
Realize group synergies and achieve revitalization of occupational doctor and existing registered doctor services
Develop online medical checks and promote DX
Pursue comprehensive health care company strategy, providing support for corporate health management so that workers can maintain good physical, mental and social health
In April 2018, the company announced a business plan setting out its medium- to long-term vision for growth leading up to FY03/30. The plan establishes a numerical target of over JPY1tn in sales in FY03/30. The qualitative goal is to grow the Dispensing Pharmacy business by implementing a strategy of opening pharmacies that both conform to public policy calling for pharmacies to bolster their functionality and are positioned to weather the current move toward pharmacy closures and consolidations amid mounting competition. Building on a solid record of growth in the Dispensing Pharmacy business, the company aims to achieve sustainable growth as an integrated healthcare company by expanding its Pharmaceutical Manufacturing and Sales and Medical Professional Staffing and Placement businesses.
Nihon Chouzai envisions the company’s size and scale in FY03/30 as follows:
Group sales: Over JPY1tn (before intragroup eliminations, simple sum of business segments)
Share of dispensing pharmacy market sales: 10%
Share of generic drug market sales: 15%
Earnings portfolio (breakdown of operating profit): Dispensing Pharmacy business 50%; combined Pharmaceutical Manufacturing and Sales business and Medical Professional Staffing and Placement business 50%
Nihon Chouzai’s growth strategy involves continued investment in personnel, enhancement of pharmacy functions and quality of healthcare services, and expansion of the pharmacy network emphasizing prime location and strong per-pharmacy sales potential.
Invest in personnel: Expand the hiring of highly specialized pharmacists capable of dealing with increasingly sophisticated healthcare, and cultivate the workforce through distinctive in-house education and training
Enhance pharmacy functions and raise the quality of healthcare services: Elevate all pharmacies to the level of “regional cooperation pharmacies” (pharmacies acting under a government initiative beginning in August 2021 to collaborate with community-based medical institutions to provide integrated healthcare services, including at-home care) and “specialized medical institution cooperation pharmacies” (pharmacies capable of providing highly-specialized healthcare utilizing advanced pharmaceutical management)
Digital transformation initiatives: Internally develop systems built on the company’s dispensing platform, including its electronic medication notebook Okusuri Techo Plus, online medication guidance, and the Nihon Chouzai online store, as well as moving forward with the mechanization of prescription-filling tasks
Raise the proportion of hybrid pharmacies: target a 50/50 ratio of hospital-front and hybrid pharmacies
The growth strategy in this segment involves promoting the shift to in-house manufacturing of generic drugs, business expansion through contract manufacturing and out-licensing (sales of Nihon Chouzai licensed products by other companies), and containing fixed and variable costs to boost profitability.
Shift to in-house development and manufacturing of generic drugs: Increase the proportion of products manufactured internally (currently about 40%); target an OPM of 10%
Business expansion through contract manufacturing and out-licensing: Accept more contract manufacturing projects at Tsukuba Plant No. 2
Control of fixed and variable costs to boost profitability: Contain fixed costs by streamlining manufacturing processes and contain variable costs by reducing waste loss
The growth strategy in this segment involves expanding the placement business for pharmacists, physicians, nurses, and other healthcare professionals. In particular, the company will work to capture increasing demand for family pharmacists, positions that are difficult to fill by means of temporary staffing, by working to step up the placement business.
Nihon Chouzai is an integrated healthcare company whose core business is the operation of dispensing pharmacies. The company also manufactures and sells generic drugs and engages in the temporary staffing and placement of medical professionals. In FY03/21, the company recorded sales of JPY279.0bn (+3.9% YoY) and operating profit of JPY8.1bn (+6.8% YoY) with an OPM of 2.9% (2.8% in FY03/20). The company’s three business segments are as follows:
Dispensing Pharmacy business (FY03/21 sales of JPY244.1bn, 81.9% of total sales, 77.6% of operating profit, OPM of 4.3%): As of end-March, 2021, the company had 670 pharmacies in all 47 prefectures in Japan. This segment is the company’s original line of business, started in 1980.
Pharmaceutical Manufacturing and Sales business (FY03/21 sales of JPY45.7bn, 15.3% of total sales, 17.2% of operating profit, OPM of 5.1%): This segment mainly engages in the manufacturing and marketing of generic drugs.
Medical Professional Staffing and Placement business (FY03/21 sales of JPY8.4bn, 2.8% of total sales, 5.2% of operating profit, OPM of 8.5%): This segment involves the temporary staffing and placement of pharmacists, as well as the placement of physicians and other medical professionals, for medical institutions and dispensing pharmacies.
The Dispensing Pharmacy business is Nihon Chouzai’s core business. Its pharmacies generate annual sales of approximately JPY369mn per pharmacy, the highest level in the industry (annual per-pharmacy sales for Ain Holdings Inc. [TSE1: 9627] are JPY244mn and for Qol Holdings Co., Ltd. [TSE1: 3034] JPY184mn). “Hospital-front pharmacies” (located near or inside the premises of major hospitals) account for more than 67% of the company’s pharmacy network. Highly specialized pharmacists are allocated to each pharmacy to handle complex prescriptions. Due to their proximity to large hospitals, many of these pharmacies dispense costly medications such as anticancer drugs, which leads to relatively higher sales per pharmacy. Per-pharmacy sales of the company’s “hybrid pharmacies” (see below) are also higher than the national dispensing pharmacy average of around JPY128mn (Shared Research estimate based on Ministry of Health, Labour and Welfare [MHLW] data).
In populous suburban areas, the company is developing a network of what it calls “hybrid pharmacies” that fill prescriptions from multiple medical facilities across a wide geographical area (i.e., these pharmacies are not dependent on specific medical institutions). Aside from straightforward dispensing services, hybrid pharmacies also collaborate with local medical institutions to provide patients with convenient healthcare such as at-home care and pediatric care, as well as health promotion services for the community. By assigning highly specialized pharmacists to its hybrid pharmacies, the company aims to win the confidence of local medical institutions and make further inroads into the communities it serves. The company’s growth strategy looks to expand the pharmacy network in this way while maintaining a high level of sales per pharmacy.
|Dispensing pharmacy||Dispensing sales (JPYmn)||Operating profit margin||No. of pharmacies||Sales per pharmacy (JPYmn)|
|Nihon Chouzai Co., Ltd. (Dispensing Pharmacy)||TSE1: 3341||244,072||4.3%||670||369|
|Ain Holdings Inc.||TSE1: 9627||263,095||7.3%||1,065||244|
|Qol Holdings Co., Ltd.||TSE1: 3034||148,778||5.4%||811||184|
|Medical System Network Co., Ltd.||TSE1: 4350||99,214||5.7%||416||238|
|Drugstore chain with dispensing pharmacy|
|Welcia Holdings Co., Ltd.||TSE1: 3141||174,169||-||1,638||128|
|Sugi Holdings Co., Ltd.||TSE1: 7649||117,597||-||1,267||93|
|Generic pharmaceutical manufacturing||Sales||Operating profit margin||No. of products (total)||No. of products manufactured in-house|
|Nihon Chouzai Co., Ltd. (Pharmaceutical Manufacturing and Sales)||TSE1: 3341||45,699||5.1%||677||262|
|Nichi-Iko Pharmaceutical Co., Ltd.||TSE1: 4541||188,218||0.1%||1,226|
|Sawai Pharmaceutical Co., Ltd. (Japan)||TSE1: 4555||153,584||17.1%||754|
|Towa Pharmaceutical Co., Ltd.||TSE1: 4553||118,685||16.4%||770|
A dispensing pharmacy is a pharmacy that dispenses medications based on physicians’ prescriptions. Dispensing pharmacies also offer medication guidance to patients and support various healthcare services such as at-home medical care.
The company mainly operates two types of dispensing pharmacies: “hospital-front pharmacies” and “hybrid pharmacies.”
Hospital-front pharmacies are located near or inside the premises of major hospitals, such as university hospitals and regional public hospitals. As of end-March 2021, such pharmacies accounted for 67% of the company’s pharmacy network. Most patients who visit hospital-front pharmacies are undergoing medical treatment at a single hospital, and most prescriptions handled by the pharmacy (95% in some cases) are issued by the hospital.
Hospital-front pharmacy is a format that has taken off in Japan since the latter half of the 1980s. Until then, major hospitals had their own medications on hand and filled prescriptions for patients. As hospitals began outsourcing pharmacy functions at the urging of the government, which sought the separation of drug prescribing and dispensing services*, many outside companies began to open pharmacies near hospital premises.
*The separation of drug prescribing and dispensing services means that doctors and pharmacies assume responsibility for their respective specialties, rather than the doctors performing everything from issuing prescriptions to dispensing drugs. The goal is to ensure patient safety and prevent overprescribing and overdoses. To encourage the separation of services, the former Ministry of Health and Welfare increased the prescription fee (which was included in the medical treatment fee and counted as income for doctors) from six points (JPY60) to 10 points (JPY100) in its February 1974 medical fee revision, and again to 50 points (JPY500) the following October. The new fee system encouraged doctors to issue prescriptions and utilize dispensing pharmacies outside hospitals.
Up until mid-2010s, dispensing pharmacies and medical facilities had to be located on separate properties according to the MHLW’s regulations on the independence of pharmacies and medical institutions. However, the MHLW relaxed regulations in October 2016 to allow pharmacy openings on the premises of medical institutions.
Compared to neighborhood pharmacies, hospital-front pharmacies tend to handle drugs for serious illnesses, such as cancer, which also carry a relatively high risk of side effects. Because such drugs are costly, the price per prescription at these pharmacies tends to be higher than the company-wide average (JPY15,479).
Rather than being near or on hospital premises, hybrid pharmacies are located in high-traffic areas of cities (e.g., near train stations, within shopping districts). The assumption is that patients from a wide range of medical facilities will make use of such pharmacies to fill their prescriptions, and the prescriptions handled tend not to be weighted toward a single hospital. On the other hand, hybrid pharmacies must handle prescriptions from a customer base that varies according to location (for example, station-front pharmacies will serve commuters) or the demographics of the surrounding residential area (for example, areas with a high proportion of elderly people).
“Hybrid pharmacy” is Nihon Chouzai’s own term, referring to a combination of the company’s Mentaio-type pharmacies and its medical center-type pharmacies.
Mentaio-type pharmacies (literally, “serving a wide catchment area”): Unlike the one-on-one pharmacies built to service a single medical practitioner, which was the company’s prototypical dispensing pharmacy, Mentaio-type pharmacies accept prescriptions from multiple medical facilities in the surrounding community. The pharmacy sees its business field not as a single point (patients from a specific clinic) but as an area.
Medical center pharmacies: Pharmacies that fill prescriptions issued by multiple clinics gathered in a central “medical mall” location.
In building up its hybrid pharmacy network, the company is focusing on creating a healthcare system that can adequately respond to the healthcare and pharmaceutical needs of the community (see Pharmacy network strategy). Through the hybrid pharmacy, the company aims to make available the pharmaceutical supplies and pharmacists needed to fill sophisticated prescriptions just as well as hospital-front pharmacies, even in suburban areas.
Sales in the Dispensing Pharmacy business derive from the number of prescriptions multiplied by price per prescription. The company dispensed 14.2mn prescriptions in FY03/21 (-3.3% YoY), with an average price per prescription of JPY16,869 (+9.0% YoY).
The company filled fewer prescriptions than its chief competitors, e.g., Ain Holdings at 20.9mn (FY04/21) and Welcia Holdings (TSE1: 3141) at 16.1mn (FY02/21). On the other hand, in terms of price per prescription (JPY16,869) and per-pharmacy sales (JPY369mn), the company outstrips all major dispensing pharmacy chains and major drug stores in Japan. For comparison, Ain Holdings’ price per prescription in FY04/21 was JPY12,552 and its per-pharmacy sales were JPY244mn; the figures for Welcia Holdings (FY02/21) were JPY10,816 and JPY128mn, respectively.
|No. of prescription||Price per prescription||No. of pharmacies||Sales per pharmacy||No. of prescription|
|('000)||(JPY)||FY-end||% of total||(JPYmn)||('000/Pharmacy)|
|Nihon Chouzai Co., Ltd. (Dispensing Pharmacy)||TSE1: 3341||14,223||16,869||670||1.1%||369||21.6|
|Ain Holdings Inc.||TSE1: 9627||20,960||12,552||1,065||1.8%||244||19.5|
|Qol Holdings Co., Ltd.||TSE1: 3034||13,369||10,234||811||1.3%||184||16.5|
|Medical System Network Co., Ltd.||TSE1: 4350||8,289||10,655||416||0.7%||238||19.9|
|Welcia Holdings Co., Ltd.||TSE1: 3141||16,102||10,816||1,638||2.7%||128||10.5|
|Sugi Holdings Co., Ltd.||TSE1: 7649||10,101||11,642||1,267||2.1%||93||8.3|
|Average for Japan (FY2019)||838,690||9,184||60,171||100.0%||128||13.9|
Nihon Chouzai’s higher average price per prescription (JPY16,869 versus JPY10,234–12,552 among its major competitors) is attributable to the high proportion of hospital-front pharmacies, which tend to dispense costly medications such as anticancer drugs, in its pharmacy network.
As of end-FY03/21, 67% of the company’s dispensing pharmacies were hospital-front pharmacies. The remaining just over 30% were hybrid pharmacies. The proportion of hospital-front pharmacies at the company was higher than at its leading competitors (57.6% for Ain Holdings and 52.5% for Qol Holdings). Most of the company’s hospital-front pharmacies are located near or inside university hospitals and large regional hospitals—it has a presence at 47.1% of the nation’s university hospitals. Shared Research thinks this sets the company apart from its competitors, which tend to serve many clinics and small and medium-sized hospitals, in terms of the scale of its pharmacies and its track record of dealing with advanced healthcare.
Typical hospital-front pharmacies mainly fill prescriptions issued by medical institutions ranging from university hospitals and other major hospitals to small and medium-sized hospitals and clinics. The average price of prescriptions filled by Japanese pharmacies is JPY9,184. Breaking down this figure by prescribing institution, the average price per prescription is JPY17,472 for hospitals (medical facilities with 20 or more beds) and JPY6,914 for clinics (0–19 beds).
The reason for the higher per-prescription prices for hospitals is that they tend to prescribe more costly medications. The prescription price comprises a technical fee (dispensing technical fee and pharmaceutical management fee) and a drug fee. The technical fee is in the JPY2,000 range for both hospitals and clinics. The drug fee, on the other hand, is JPY14,808 for hospitals and JPY4,613 for clinics, a difference of more than 3x. This is the main reason why the average prescription price differs depending on the location of pharmacies.
|(JPY)||% of total||% of total||University hospitals||% of total||Public hospitals||% of total||Hospitals with 200 or more beds||% of total||% of total|
|Dispensing fees (price per prescription)||9,184||100.0%||17,472||100.0%||31,675||100.0%||21,062||100.0%||22,029||100.0%||6,914||100.0%|
|Technical fee (Dispensing technical fee and pharmaceutical management fee）||2,357||25.7%||2,613||15.0%||2,535||8.0%||2,604||12.4%||2,599||11.8%||2,294||33.2%|
|Specified treatment materials fee||17||0.2%||52||0.3%||113||0.4%||71||0.3%||73||0.3%||7||0.1%|
Nihon Chouzai reports that per-pharmacy sales at its hospital-front pharmacies are higher than its company-wide average of JPY369mn.
Calculating based on the proportion of pharmacies, Shared Research estimates that per-pharmacy sales for the company’s pharmacies other than hospital-front pharmacies (i.e., hybrid pharmacies) are about JPY150mn.
Using data from the MHLW, Shared Research calculates nationwide average per-pharmacy sales at JPY128mn. Shared Research notes that Nihon Chouzai also records sales above the national average at non-hospital-front pharmacies.
Prescription volume (total number of prescriptions filled) is mainly determined by the number of patients visiting a pharmacy, which in turn is influenced in large part by the total number of pharmacies. Nihon Chouzai is a pioneer in the dispensing pharmacy field, having opened its first pharmacy in 1980. The company currently has fewer pharmacies than Ain Holdings, which entered the field in 1993, or major drugstore chains which operate in-store dispensaries. In terms of average annual per-pharmacy prescriptions, however, the company’s FY03/21 figure of 21,600 exceeds the FY04/21 figure of 19,500 for Ain Holdings and the FY02/21 figure of 10,500 for Welcia Holdings, even though these two companies have larger pharmacy networks.
Shared Research understands that one factor that attracts customers to Nihon Chouzai pharmacies is their relatively high efficiency, attributed to the company’s strategy of placing a higher number of pharmacists per pharmacy (see below). Robust staffing has fed into the expansion of services such as medication guidance, health counseling, and at-home care (including home drug delivery), ultimately resulting in higher patient visits and prescription volumes.
Shared Research recognizes that the high number of pharmacists per pharmacy is part of the company’s pharmacy network expansion strategy, which sets out a target of average annual per-pharmacy sales of JPY350mn—setting the bar higher than that of other companies. To sustain and grow per-pharmacy sales, the company is expanding both staffing and the inventories at its hybrid pharmacies as well (see Pharmacy network strategy).
The company strives to set itself apart by operating pharmacies that specialize in healthcare, ranging from advanced medical care to community-based healthcare. Nihon Chouzai does not seek to attract customers through the sale of food or cosmetics, which distinguishes the company both from other chains whose pharmacies handle such products and from drugstores.
The company’s policy is to appeal to customers by focusing on the fundamental role of pharmacy. It aims to position its pharmacies as a type of medical facility, which patients will choose for their functionality. The company’s efforts include the following:
Promoting the use of generic drugs at all pharmacies and stressing the benefits for customers of lower drug fees. The company’s proportion of generic drug use (by volume) was 89.3% as of end-March 2021, higher than that of its competitors (79–82%).
Increasing the number of family pharmacists employed at each pharmacy and expanding services such as medication guidance and health consultation.
At suburban hybrid pharmacies as well, gaining the confidence of patients by increasing the types of drugs handled to be able to fill a variety of prescriptions.
|End-Mar. 2015||End-Mar. 2016||End-Mar. 2017||End-Mar. 2018||End-Mar. 2019||End-Mar. 2020||End-Mar. 2021|
|Mar. 2015||Mar. 2016||Mar. 2017||Mar. 2018||Mar. 2019||Apr. 2020||Apr. 2021|
The company began providing at-home services to care facilities in 2009 and expanded into at-home services for individual residences in 2010. It established a specialized at-home services department in 2011. As of March 2021, all Nihon Chouzai pharmacies have a system in place to provide at-home medication guidance services. Examples of these at-home services include guidance for patients undergoing medical treatment about how to take medicine and what to do with unused drugs.
The company reports that 94.1% of its pharmacies provided at-home care at least once in FY03/20. Home-visiting services by pharmacists mainly consist of the following:
Packaging medications (grouping multiple drugs together for each medication time) and delivering them directly to patients’ homes.
Suggesting to physicians methods of taking medicine best suited to patients (e.g., the use of swallowing-aid jelly).
Checking how a patient is taking medicine and checking for side effects.
Checking missed medications and devising medication management methods.
Sorting out medicines patients missed taking and considering ways of reducing the burden of subsequent medical expenses.
In principle, at-home medical care is used by patients who have difficulty going to a hospital or pharmacy. The pharmacist visiting service fee is the sum of the visiting fee and the drug fee based on the prescription. Pharmacist visiting fees are set uniformly, based on Japan’s Health Insurance Act and Health and Long-Term Care Insurance Act. Fees vary depending on the age of the patient (for example, elderly patients pay a 10% co-payment) and on household situations (such as whether or not multiple patients live in a single building). The fee structure and the rules for the number of visits are shown below.
|No. of patient treated within a single building: 1|
|Long-term care insurance (1)||JPY517|
|Medical insurance (2)||JPY650|
|No. of patient treated within a single building: 2–9|
|Long-term care insurance (1)||JPY378|
|Medical insurance (2)||JPY320|
|No. of patient treated within a single building: 10 or more|
|Long-term care insurance (1)||JPY341|
|Medical insurance (2)||JPY290|
|Contingency (emergency) visits|
|Long-term care insurance||(Not covered)|
|Medical insurance (3)||JPY500|
|No. of visits||Regular, up to four times per month|
|Insurance type||Medical, long-term care|
|Patients with end stage malignant tumor, patients applying total parenteral nutrition|
|No. of visits||Regular: up to twice per week, eight times per month|
|Insurance type||Medical, long-term care|
|Contingency (emergency) visits|
|No. of visits||Emergency: Up to four times per month|
|Insurance type||Medical (long-term care is not covered)|
The prescription prices that make up this segment’s sales (number of prescriptions x price per prescription) can be broadly divided into drug fees, dispensing technical fees, and pharmaceutical management fees.
Drug fee: This is the selling price of the drug, which is the purchase price (cost) of the drug plus the pharmacy’s margin. On a national average (FY2019), the drug fee accounts for 74.2% of the prescription price.
Dispensing technical fee and pharmaceutical management fee: Vary depending on the location of the pharmacy and the tasks performed by the pharmacist. Together, these fees represent gross profit for the pharmacy. The fees (in points) are set out in a fee schedule issued by the Ministry of Health, Labour and Welfare (MHLW). As a general rule, the schedule is revised every two years. Dispensing technical fees account for 20.5% of the prescription price, while pharmaceutical management fees account for 5.2% on a national average.
The dispensing technical fee is further subdivided into three categories: the basic dispensing fee (7.4% of the national average prescription price), the dispensing fee (11.2%), and various premiums (1.9%).
|Breakdown of dispensing activities||Fee (JPY)||% of total||Points (x JPY10=price)|
|Prescription price = Dispensing technical fee + pharmaceutical management fee + drug fee (incl. tax) + specified treatment materials fee||9,184||100.0%|
|Dispensing technical fee||Points for various pharmacy functions and services||1,881||20.5%|
|Basic dispensing fee||Points for the use of various pharmacy facilities and equipment (determined on per-pharmacy basis)||676||7.4%||・5 levels: 9, 16, 21, 26, or 42 points|
|Dispensing fee||Points for dispensing operation||1,031||11.2%||・Oral medications: 28, 55, 64, 77, or 86 points (prescriptions of 7 days or less = 28 points, over 31 days = 86 points)|
|Depends on number of days of prescription|
|(more points for longer prescription periods)|
|Various premiums||Points for special dispensing services, such as grouping medications to be taken together (one-dose packaging) (premium added to dispensing fee)||174||1.9%||・Community support system premiums (38 points)|
|・Generic drug dispensing premiums (15, 22, or 28 points)|
|・One-dose package premiums (34 or 240 points), etc.|
|Pharmaceutical management fee||Points awarded when pharmacist records or manages patient medication history or provides information||477||5.2%||・Medication history management and guidance fee (43 or 57 points)|
|・Family pharmacist guidance fee (76 points), etc.|
|Drug fee||Price of drug as determined by NHI drug price schedule||6,810||74.2%||(1/10th of NHI drug price)|
|Specified treatment materials fee||Price of designated medical materials such as insulin used in treating diabetes, infusion therapy used in at-home medical care, etc.||17||0.2%||(1/10th of materials costs ÷10)|
Of the three types of dispensing technical fee, the basic dispensing fee varies depending on the characteristics of the pharmacy. A higher fee can be charged by pharmacies with a lower proportion of prescriptions filled for a single medical facility (i.e., a lower concentration rate).
Hospital-front pharmacies: These pharmacies tend to be highly dependent on specific medical institutions. If a pharmacy fills over 400,000 prescriptions per month and a specific medical institution accounts for more than 85% of the total (concentration rate above 85%), it is allowed to charge a basic dispensing fee of 16 points (x JPY10=JPY160).
Other pharmacies (hybrid pharmacies): These pharmacies fill prescriptions from multiple medical facilities. If a pharmacy fills less than 1,800 prescriptions per month, or if its concentration rate is less than 70%, it is allowed to charge a basic dispensing fee of 42 points (x JPY10=JPY420), and the profit for the pharmacy is JPY420.
Differences in basic dispensing fees can make a difference of millions of yen in annual profit. For example, if a pharmacy fills 1,800 prescriptions per month and the basic dispensing fee per prescription is 42 points, its profit (annual basic dispensing fee) comes to JPY9.1mn (=42 points x JPY10 x 1,800 prescriptions per month x 12 months). However, even with the same number of prescriptions, a pharmacy with a basic dispensing fee of 26 points will earn just JPY5.6mn, a difference of JPY3.5mn.
Dispensing fees, various premiums, and pharmaceutical management fees are remuneration for the services provided by a pharmacist. Of these, dispensing fees are charged for working with pharmaceutical materials, while various premiums and pharmaceutical management fees are charged for patient-centered services.
A dispensing fee is remuneration to the pharmacist for filling a prescription. For example, prescriptions with longer prescription periods involve a higher volume of medications and require more work to fill, so the dispensing fee is higher. In most cases, the length (number of days) of prescriptions is specified by the prescribing doctor or medical facility, so the dispensing fee is not determined independently by the pharmacy.
In terms of patient-centered services, various premiums are determined by the degree of services provided by the pharmacist. For example, a pharmacist might group medicines by the time of day when they need to be taken by the patient (i.e., one-dose packaging). There are also premiums determined in line with public policy which contribute to the gross profit of pharmacies, including community support system incentives, based on the degree to which the pharmacy contributes to community-based healthcare, and generic drug dispensing premiums, based on the volume of generic drugs used.
Pharmaceutical management fees can be charged for patient-centered services such as medication guidance by a family pharmacist.
Drug fees are determined by the drug price standard (official price) issued by the MHLW. However, the actual purchase price of drugs for pharmacies is the prevailing market price, which fluctuates in line with pharmacy demand. How much a pharmacy profits from drug fees is determined by the drug price margin, the difference between the official price and the market price. If pharmacies can obtain discounts through high-volume purchases from wholesalers, their margins will increase.
Average domestic drug price margin: According to the MHLW, the average drug price margin for pharmacy transactions in September 2020 was 8.0%.
NHI drug price revisions: The MHLW revises the NHI drug prices every year to bring prices closer to the prevailing market prices, typically causing margins to shrink over time.
Nihon Chouzai reported that the gross profit margin for its Dispensing Pharmacy business in FY03/20 was 15.1%. However, the company records consumption tax on drug purchases in SG&A expenses, while its competitors include consumption tax in their cost of sales, so care is needed when making comparisons.
For FY03/20, the company estimated that the gross profit margin, taking into account the consumption tax recorded in SG&A expenses, was 9.1%.
Comparing gross profit margins adjusted for consumption tax, the company’s two main competitors had higher gross profit margins than Nihon Chouzai (see below).
|Gross profit margin (dispensing)||15.6%||12.6%||13.0%|
|Adjusted for consumption taxes||9.1%||12.6%||13.0%|
|Versus Nihon Chouzai||-||+4.2pp||+3.7pp|
Shared Research understands that the difference in gross profit margin between Nihon Chouzai and its two competitors is mainly due to the high drug fee component of the company’s prescription price. The company’s average price per prescription was JPY15,497 in FY03/20, which was higher than its competitors. As described above, when the prescription price is high, the proportion accounted for by the drug fee also tends to be high, and the gross profit margin tends to be low. The drug fee represents the drug purchase price for the pharmacy, plus any margin. In Q3 FY03/21, the gross profit margin gap narrowed due to the company’s strong performance compared to its competitors.
Major costs for the Dispensing Pharmacy business consist of drug purchase costs and personnel expenses. Looking at the parent company’s cost of sales and SG&A expenses, drug purchase costs (materials costs) are about 70% and pharmacy-related labor costs (personnel expenses under cost of sales) are roughly 11% (see below).
In FY03/21, materials costs (mainly drug purchases) accounted for JPY156.9bn of parent cost of sales, mainly in the Dispensing Pharmacy business, while internal sales in the Pharmaceutical Manufacturing and Sales business were JPY19.2bn. Shared Research estimates that in-house products account for more than 10% of the drugs purchased by the company’s pharmacies.
|(JPYmn)||(JPYmn)||(JPYmn)||(% of sales)||(% of sales)||(% of sales)|
|Cost of sales: Parent||174,323||190,190||196,971||85.6%||85.0%||84.3%|
|SG&A expenses: Parent||25,849||28,981||31,320||12.7%||13.0%||13.4%|
The company is pursuing a two-pronged strategy as it expands its pharmacy network:
By 2030, achieve a 50/50 balance of hospital-front pharmacies and hybrid pharmacies.
Focus on the organic growth of the pharmacy network, while actively taking advantage of M&A opportunities for pharmacies with high growth potential.
The company’s strategy for expanding its pharmacy network is based on the family pharmacist and pharmacy system laid out in the Vision of Pharmacies for Patients, a paper published in 2015 by the Ministry of Health, Labour, and Welfare (MHLW) (discussed below). The MHLW defines a family pharmacist as a professional who provides appropriate pharmaceutical management and guidance to patients, allowing them to consult at any time about medicines and treatments. Apart from the formal qualifications* required of family pharmacists, the system calls for pharmacies to fulfill the following basic functions:
Centralized management of medication information: The pharmacy continuously monitors and maintains medication information of individual patients and, based on this information, offers medication guidance, prevents overprescribing and duplicate medications, and works to ensure patient safety, such as preventing side effects.
24-hour response, at-home response: The MHLW envisions that family pharmacists will be available to respond to patients’ questions related to medical treatments not only during pharmacy hours of operation, and in some cases will prepare medications or make home visits as needed.
Collaboration with physicians and medical institutions: The family pharmacist makes inquiries with the prescribing physician about prescriptions and provides feedback to the physician about the patient’s condition after filling the prescription.
* To be eligible to work as a family pharmacist, a pharmacist must have three or more years of work experience as a pharmacist (a temporarily staffed pharmacist can only work up to three years at a pharmacy, so it is difficult for him/her to be certified); work more than 32 hours per week at the same pharmacy; have been employed at the pharmacy for 12 months or more; have received certified pharmacist training; and be involved in community healthcare-related activities.
In addition to the above, the MHLW system also calls on family pharmacies to reinforce the following two functions:
Healthcare support: Advising community residents about the safe and proper use of medicines, accepting a wide range of health consultations, and making referrals to appropriate medical facilities as needed.
Advanced pharmaceutical management: By maintaining collaborative relationships with specialized medical facilities and accurately understanding the rationale for physicians’ prescriptions, the pharmacist offers appropriate medication guidance and other pharmacy management services to the patient. This function is carried out by pharmacists with advanced knowledge, skills, and clinical experience, such as pharmacists specializing in oncology pharmacy. This function is needed in some family pharmacies, but not all.
Patients can choose a family pharmacist or pharmacy if they want; it is not compulsory. In addition, patients are not required to use only their designated family pharmacy.
MHLW’s Vision of Pharmacies for Patients calls for all pharmacies in Japan to function as family pharmacies by 2025. Longer term, the ministry expects pharmacies, primarily those adjacent to major hospitals, to relocate into local communities, when it comes time to rebuild their facilities, by 2035 at the latest. The goal is to build a system in which pharmacies become embedded in the communities in which patients live, and play a key role in supporting comprehensive community-based healthcare.
The MHLW pharmacy system assumes that the communities in which patients live represent the range of all necessary services that can be accessed within approximately 30 minutes. Specifically, these communities correspond to the roughly 10,000 junior high school districts in Japan.
Each pharmacy is expected to build up its capacity to function as a family pharmacy, or, in cases where this is not feasible, to collaborate with the local community to fulfill the functions of a family pharmacy.
In light of the above discussion of family pharmacies, Nihon Chouzai has indicated the direction it intends to take in separating the functions of hospital-front and hybrid pharmacies, and reinforcing their respective functions.
Hospital-front pharmacies: As pharmacies linked to specialized medical institutions, strengthen advanced pharmaceutical management functions.
Hybrid pharmacies: As “regional cooperation pharmacies,” strengthen collaboration with community-based medical institutions as well as the capacity to engage in at-home healthcare and support community healthcare (see the table below).
|Functions||Healthcare service structure|
|Hospital-front pharmacies||Family pharmacist/pharmacy functions (medium to wide area)||Handling of advanced treatments|
|Advanced pharmaceutical management||Training of pharmacists specializing in disease types|
|Hybrid pharmacies||Family pharmacist/pharmacy functions (local area)||Support for community residents' health|
|Heath support functions||Initiatives for well-person and preventative care|
The company expects that its hybrid pharmacies will increasingly handle the kind of prescriptions from major hospitals that hospital-front pharmacies currently handle. In addition, the company has listed Accredited Pharmacist of Ambulatory Cancer Chemotherapy (APACC; oncology pharmacy) and Board Certified Pharmacist in Palliative Pharmacy (BCPPP; palliative pharmacy) certifications as requirements for the specialized pharmacists it puts in charge of advanced pharmaceutical management. One in four active pharmacists who are certified in APACC in Japan is a Nihon Chouzai pharmacist.
The company’s competitors are also developing their pharmacy networks in line with the MHLW policy. As of July 2020, family pharmacists were employed at 82% of Nihon Chouzai pharmacies and made up 31.3% of the company’s total pharmacists. For competitor Ain Holdings, the figures were 85.3% (April 2020) and 30.8% (October 2020), respectively.
Given the expectation by the MHLW that pharmacies, particularly those located near major hospitals, will relocate into local communities, the company has indicated its plans to draw down the proportion of its hospital-front pharmacies. Specifically, it intends to lower the proportion of hospital-front hospitals from around 70% at present to 50%, while increasing the proportion of hybrid pharmacies from just over 30% to 50%.
Meanwhile, the company aims to attract more patients to the hybrid pharmacies located in their communities. By enabling these pharmacies to handle some of the drugs used in advanced medical treatments, they can serve patients with serious illnesses who would normally visit hospital-front pharmacies.
Looking at the company’s pharmacy openings by type, in FY03/17 it opened 36 hospital-front pharmacies and six hybrid pharmacies (14% of new openings). In FY03/18, the proportion of hybrid pharmacies increased to 44%, with 20 hospital-front pharmacies and 16 hybrid pharmacies opened. Since FY03/18, the proportion of hybrid pharmacies has been trending at around 50% of new openings.
|% of total||86%||56%||50%||58%||45%|
|% of total||14%||44%||50%||42%||55%|
|Store count (quarter-end)||494||511||527||557||585||598||650||670|
|% of total||67%|
|% of total||33%|
The proportion of hybrid pharmacies in the company's pharmacy network increased from 28% in FY03/16 to 33% as of end-March 2021. In the Tokyo metropolitan area (Tokyo and surrounding three prefectures), hybrid pharmacies accounted for 57% of all Nihon Chouzai pharmacies as of end-FY03/21.
As a general rule, the company will open new pharmacies organically, while taking advantage of M&A opportunities as it assesses the growth potential of outside pharmacies.
The company focuses on opening its own pharmacies in front of busy stations, within commercial complexes, or as part of medical centers. In conjunction with opening a new pharmacy, the company may invite medical practitioners, clinics, and other medical institutions to set up practice nearby.
For example, in an area it is targeting to open a new pharmacy, the company analyzes the existing distribution of clinics (e.g., numerous ENT specialists but few pediatric clinics, etc.) and invite medical practitioners in underrepresented fields. If the invitation is accepted, this may lead to an increase in prescriptions filled at the company’s pharmacy.
The company will also continue to promote “medical malls,” locations with multiple medical facilities. Since the 1980s, the company has been planning and promoting such malls as a means of expanding its pharmacy network. The company continues to gather information on real estate properties that are amenable to multiple medical facilities setting up practice, and to provide such information to interested doctors or medical institutions. For medical practitioners, the advantages of “medical malls” are the low cost of attracting patients and greater ease of specialization.
Conforming to MHLW policy on family pharmacies requires that pharmacies become multifunctional. This is giving impetus to the progressive weeding out and consolidation of small-scale pharmacies unable to make the transition. The company explained that it will deal with industry restructuring by focusing on pharmacies with greater scale and range of functions. Specifically, as the number of pharmacies expands going forward, the target is to maintain annual per-pharmacy sales at around JPY350mn (company-wide average).
Across the industry, Shared Research perceives that drugstore chains and leading pharmacy chains often target smaller pharmacies unable to make the transition to family pharmacies, or where continued operation is not feasible, for acquisition.
In 2017, the Council on Economic and Fiscal Policy addressed the problem of the excessive number of pharmacies in Japan, noting that about half of all pharmacies were small in scale, operated by a single pharmacist.
The government mentioned the need for consolidation, pointing out that single-pharmacist pharmacies lacked adequate capacity to function as family pharmacies, including the centralized management of patient information.
Nihon Chouzai has been accelerating its acquisition of outside pharmacies since FY03/17. In FY03/16, five out of 27 new pharmacies (19%) were by acquisition, which rose to 21 out of 42 pharmacies (50%) in FY03/17. The number of acquired pharmacies was 13 (36%) in FY03/18, six (19%) in FY03/19, 30 (46%) in FY03/20, and seven (24%) in FY03/21.
|Nihon Chouzai's own pharmacies||33||28||22||21||23||26||35||22|
|% of total||89%||97%||81%||50%||64%||81%||54%||76%|
|Pharmacies through M&A||4||1||5||21||13||6||30||7|
|% of total||11%||3%||19%||50%||36%||19%||46%||24%|
|Store count (quarter-end)||494||511||527||557||585||598||650||670|
|% of total||67%|
|% of total||33%|
The company also emphasizes per-pharmacy sales in its M&A activities. According to company materials, company-wide sales per pharmacy in FY03/17 were JPY340mn, while sales at acquired pharmacies were JPY430mn. The company converts acquired pharmacies into directly managed pharmacies, ensuring service quality through the placement of highly specialized pharmacists and improving the efficiency of management, such as through ICT investment, obtaining discounts through high-volume purchasing, and the greater use of generic drugs.
|FY03/14||FY03/15||FY03/16||FY03/17||FY03/18||FY03/19||FY03/20||FY03/21||Recent 5-yr total|
|Nihon Chouzai's own pharmacies||33||28||22||21||23||26||35||22||127|
|Pharmacies through M&A||4||1||5||21||13||6||30||7||77|
|YoY change in pharmacies||28||17||16||30||28||13||52||20||-|
|Store count (quarter-end)||494||511||527||557||585||598||650||670||-|
|Own pharmacy ratio||89.2%||96.6%||81.5%||50.0%||63.9%||81.3%||53.8%||75.9%||62.3%|
|FY04/14||FY04/15||FY04/16||FY04/17||FY04/18||FY04/19||FY04/20||FY04/21||Recent 5-yr total|
|Ain's own pharmacies||36||40||32||27||25||23||14||15||104|
|Pharmacies through M&A||26||119||110||182||11||134||6||14||347|
|YoY change in pharmacies||56||138||127||185||-37||103||-44||-23||-|
|Store count (quarter-end)||616||754||881||1,066||1,029||1,132||1,088||1,065||-|
|Own pharmacy ratio||58.1%||25.2%||22.5%||12.9%||69.4%||14.6%||70.0%||51.7%||23.1%|
|FY03/14||FY03/15||FY03/16||FY03/17||FY03/18||FY03/19||FY03/20||FY03/21||Recent 5-yr total|
|Qol's own pharmacies||38||16||11||18||21||17||21||28||105|
|Pharmacies through M&A||66||16||34||125||14||50||39||6||234|
|YoY change in pharmacies||82||18||25||133||22||48||39||6||-|
|Store count (quarter-end)||520||538||563||696||718||766||805||811||-|
|Own pharmacy ratio||36.5%||50.0%||24.4%||12.6%||60.0%||25.4%||35.0%||82.4%||31.0%|
Nihon Chouzai’s policy for expanding its pharmacy network, which guides its pharmacy opening strategy, is in accordance with the Vision of Pharmacies for Patients announced by the Ministry of Health, Labour and Welfare (MHLW) in 2015. The main points of the Vision are as follows.
The government aims to bring about a separation of drug prescribing and dispensing services. This means that doctors and pharmacies assume responsibility for their respective specialties, rather than the doctors performing everything from issuing prescriptions to dispensing drugs. The goal is to ensure patient safety and prevent overprescribing and overdoses.
The task of realizing the separation of services falls to so-called family pharmacists or pharmacies. The family pharmacist or pharmacy is not simply to dispense medicines, but should centrally manage patient medication information, and thus be in a position to respond to patients’ needs to consult about drug treatments at any time. The family pharmacist or pharmacy also plays a role in providing community-based healthcare services, including at-home care, in collaboration with doctors and medical institutions.
The national government monitors the progress of the separation of services by family pharmacists and pharmacies using multiple performance indicators, such as the overall number of certified family pharmacists and pharmacies, and the extent of at-home support carried out. The government is also promoting the adoption of ICT-based systems for centralized, continuous management of medication information to enable pharmacists and pharmacies to fulfill their roles more effectively.
The Vision of Pharmacies for Patients was formulated in recognition of the limitations of the conventional division of drug prescribing and dispensing services. The paper argued that pharmacies were not adequately playing their part in the prescribing and dispensing balance and that the system was not patient-centered, noting the following situations:
Medical facilities in Japan are typically surrounded by numerous pharmacies, but these are not equipped to centrally monitor patients’ medication information.
Ensuring the separation of drug prescribing and dispensing services necessitates that patients go someplace other than the medical facility where they are being treated to fill prescriptions, which increases the burden on the patient. However, patients do not have a sense of receiving better services from these pharmacies or reaping the benefit of separate dispensing services commensurate with the increased burden.
In light of these issues, the MHLW declared that a family pharmacy system was needed to realize a patient-centered separation of prescribing and dispensing functions, and laid out its vision for the ideal system. The paper also presented a roadmap for transitioning toward a family pharmacy system in stages: the first stage goes up to 2025, when Japan’s postwar baby boomer generation will have turned 75 or older, and the next stage covers the following ten years, to 2035.
A family pharmacy is not simply a pharmacy that employs a family pharmacist, but an entity that can also manage specialized operations and is equipped with an appropriate physical structure:
Ensuring an appropriate work system, such as scheduling pharmacists in charge of providing medication guidance
Ensuring adequate pharmacist training and qualifications (patient communication skills, at-home support skills, etc.)
Building collaborative systems with medical facilities and other healthcare-related organizations
Ensuring a safety management system to prevent dispensing accidents and incidents
Securing a space where visitors can feel at ease consulting with their pharmacist
Maintaining sufficient stock of drugs and implementing quality control to respond to patients’ medication needs in a timely and appropriate manner
The work of family pharmacists ranges from dealing with pharmaceutical materials to providing patient-centered services: Patient-centered services include checking prescriptions; checking for overprescribing, duplicate medications, and medications to be taken simultaneously; making inquiries with prescribing doctors; giving thorough medication guidance; and continuously monitoring medication status and side effects in at-home care contexts, and using this information to provide feedback to doctors and suggest prescriptions. Other services include the management of unused medicines, as well as outside activities such as at-home medical care and other initiatives to contribute to comprehensive community-based healthcare.
Communication skills: To enable patients and community residents to feel comfortable consulting about medications and health issues, pharmacists must listen to patients’ concerns while being attentive to their psychological state, and endeavor to provide simple and easy-to-understand directions and explanations.
The Vision of Pharmacies for Patients indicates the importance, in terms of maintaining and improving health, of enabling certain patients in particular to designate their own pharmacist or pharmacy:
Patients with lifestyle diseases and other chronic conditions
Patients requiring advanced medication management due to a serious or rare disease
Patients such as pregnant women and young children who especially require centralized and continuous monitoring of medication information
People in risk groups for lifestyle-related diseases who require regular health management
The Vision of MHLW indicates three aspects involved in reorganizing pharmacies to realize a more patient-centered separation of prescribing and dispensing services.
Shift from location to function: Rather than relying on the convenience of pharmacy locations (especially those located near or inside hospitals) to attract patients, pharmacies ought to strive to become patients’ first choice by demonstrating their pharmaceutical expertise and their ability to respond to the diverse needs of patients and community residents, such as providing 24-hour and at-home support.
Shift from working with pharmaceutical materials to patient-centered services: Pharmacies and pharmacists ought to shift from simple materials-centered tasks such as the preparation of medicines toward patient-centered services that involve a greater degree of involvement with patients and community residents, and hone their expertise and communication skills to that end.
Shift from dispersed to centralized operation: Pharmacies should gather medication information in a central location to offer patients peace of mind about their medical treatments, such as confirming what medications are to be taken together and managing unused medications. Pharmacists and pharmacies should not work in isolation from the community merely filling prescriptions, but rather aim to be a vital part of comprehensive community-based healthcare* in cooperation with other medical disciplines and institutions such as family doctors.
* Comprehensive community-based healthcare as defined by the MHLW includes medical care, long-term care, preventative medicine, housing, and social support to enable people as much as possible to continue living in areas where they are accustomed to living with as much independence as they can achieve, even when medical care or long-term care is required. The MHLW is striving to put this kind of comprehensive community-based healthcare system in place by 2025. The system assumes that the communities in which patients live represent the range of all necessary services that can be accessed within approximately 30 minutes (specifically, these correspond to the junior high school districts).
Nihon Chouzai’s Pharmaceutical Manufacturing and Sales business is mainly carried out by two subsidiaries, both unlisted: Nihon Generic Co., Ltd. and Choseido Pharmaceutical Co., Ltd. The segment manufactures, purchases, and sells generic oral medications. For convenience, this report refers to Nihon Chouzai as the segment business entity.
The company’s Pharmaceutical Manufacturing and Sales business has its origin as a “fabless manufacturer,” i.e., a business operation that does not own its own manufacturing facilities. The company established Nihon Generic in January 2005. The subsidiary obtained approval as a pharmaceutical manufacturing and sales company in April that same year, and started nationwide marketing of generic drugs (made by other companies) via wholesalers in April 2006. It began marketing approved drugs of Nihon Chouzai in 2007.
Approved drugs are drugs for which the Ministry of Health, Labour and Welfare (MHLW) has given approval to Nihon Chouzai to manufacture and sell in-house. Until it acquired its own manufacturing facilities, the company outsourced manufacturing of internally developed drugs to contract manufacturers.
The company acquired a plant in Tsukuba, Ibaraki Prefecture in 2010, and started up in-house production. It made Choseido Pharmaceutical a subsidiary in 2013 and, in 2018, completed the construction of Tsukuba Plant No. 2, equipped with a state-of-the-art production management system and manufacturing facilities. Its manufacturing network now comprises five production facilities and two R&D centers.
|Nihon Generic Tsukuba Plant||- Small to midsize
|Nihon Generic Tsukuba Plant 2||- Midsize to large-scale
|Choseido Pharmaceutical Main Plant||- Small to midsize
- Tablets, capsules, medicine
|Choseido Pharmaceutical Main Plant 2||- Small to midsize
- Tablets, capsules, medicine
|Choseido Pharmaceutical Kawauchi Plant||- Small to
(dedicated to antibiotics)
- Tablets, capsules, medicine
As of end-FY03/21, the company sold 677 drugs. Of these, 473 were drugs approved for in-house manufacturing and sales, and 211 were procured (in-licensed) from outside companies.
As of end-FY03/21, of all drugs approved by MLHW for in-house manufacturing, it manufactured 262 (including contract manufacturing for outside companies) at its own production facilities.
With the startup of operations at Tsukuba Plant No. 2, Nihon Chouzai’s R&D and manufacturing network has grown to five production facilities and two R&D centers. The company already has the capability to develop a similar volume of drugs as major generic manufacturers like Nichi-Iko Pharmaceutical, Sawai Group Holdings (formerly Sawai Pharmaceutical), and Towa Pharmaceutical. It is striving to expand its product lineup every year, by manufacturing and marketing newly NHI listed generic drugs as the patents for brand-name products expire.
The company says it intends to prioritize the in-house manufacturing of drugs that are used most frequently at its own pharmacies.
|Number of products sold||99||170||223||235||244||283||340||373|
|Number of products sold||573||561||574||611||636||663||681||677|
|No. of products manufactured and marketed||No. of products manufactured in-house||Number of plants|
|Towa Pharmaceutical||Approx. 770||Approx. 770||3|
|Nichi-Iko Pharmaceutical||1,218||8 in Japan, 3 overseas|
Pharmaceutical wholesalers are the direct customers for the company’s drugs. Wholesalers then sell the drugs to Nihon Chouzai’s pharmacies (internal sales) and outside dispensing pharmacies and medical facilities (external sales). When the company began manufacturing drugs in-house in FY03/11, internal sales accounted for the majority of sales (56.9%). Having made Choseido Pharmaceutical, which handles contract manufacturing, a subsidiary in 2013, external sales now account for the majority.
The company believes that sales in the Pharmaceutical Manufacturing and Sales business will expand, driven by the growth of its Dispensing Pharmacy business and supported by the increased supply capacity of generic drugs with the startup of operations at the Tsukuba Plant No. 2.
|Sales to internal customers (JPYmn)||4,311||4,210||5,873||7,703||9,215||12,247||12,637||13,381||16,428||18,173||19,173|
|% of total||56.9%||51.8%||52.5%||33.2%||33.4%||37.6%||34.3%||35.2%||40.4%||42.2%||42.0%|
|No. of dispensing pharmacies (year-end)||340||417||466||494||511||527||557||585||598||650||670|
|Sales per pharmacy (JPYmn)||12.7||10.1||12.6||15.6||18.0||23.2||22.7||22.9||27.5||28.0||28.6|
|Sales to external customers (JPYmn)||3,268||3,923||5,323||15,489||18,335||20,351||24,184||24,685||24,231||24,899||26,526|
|% of total||43.1%||48.2%||47.5%||66.8%||66.6%||62.4%||65.7%||64.8%||59.6%||57.8%||58.0%|
|No. of products sold||283||340||373||573||561||574||611||636||663||681||677|
For the drugs it manufactures and sells, the company works through wholesalers not only for outside pharmacies and medical facilities, but for its own pharmacies as well, and records these transactions as sales. This arrangement allows the company to reap the benefits of greater transaction volumes for its products in the generic drug market, increased recognition of its brand name, and volume discounts for purchases by the company’s pharmacies.
The advantage for pharmaceutical wholesalers is the assurance that they can sell a certain volume of generic drugs purchased from Nihon Chouzai to the company’s own pharmacies. If the company can further increase its share of the generic drug distribution market, this in turn will increase the benefit to wholesalers of handling the company’s products.
The company had already established business relationships with pharmaceutical wholesalers through its Dispensing Pharmacy business. The company’s pharmacies purchase not only its own generic drugs but those of other companies as well, both brand-name and generic drugs.
In FY03/20, materials costs (mainly drug purchases) accounted for JPY153.2bn of parent cost of sales, mainly in the Dispensing Pharmacy business, while internal sales in the Pharmaceutical Manufacturing and Sales business were JPY18.2bn. Shared Research estimates that in-house developed products account for more than 10% of the drugs purchased by the company’s pharmacies.
Nihon Chouzai began focusing on opening hospital-front pharmacies from the late 1980s. As a result, it reports that both its pharmacies and its generic drugs have gained wide recognition from doctors working at general hospitals. The company says this has a spill-over effect, e.g., if a major hospital starts handling the company’s generic drugs, this may lead community-based medical facilities and other companies’ pharmacies to also handle more Nihon Chouzai drugs. Although the company only employs a small number of medical representatives, it is well-known among medical facilities, which Shared Research sees as a factor encouraging wholesalers to sell Nihon Chouzai drugs to customers other than the company’s own pharmacies.
In FY03/21, gross profit margin in the segment was 15.1%, which is lower than that of the company’s main competitors Sawai Group Holdings (formerly Sawai Pharmaceutical) (36.6%) and Towa Pharmaceutical (42.3%). The company explains that this is primarily because the proportion of drugs it manufactures in-house is about 40%, which is comparatively low. This means that it purchases a higher volume of pharmaceuticals manufactured externally, including by contract manufacturing as well as the purchase and sale of in-licensed drugs.
The company is also a comparative latecomer to the generic drug market. When it first entered the market, as part of the process of expanding its product