The recent rise of Japan’s Nikkei (up 20% in 2024) has set many hearts pumping.
One surprising performer has been herbal medicine maker Tsumura whose stock has soared 40% this year.
Unless you are a doctor or a heavy user of herbal medicine, Tsumura is not a familiar name, and written in Katakana (ツムラ）does not sound medicinal either.
Tsumura is an old company dating back to 1893 and has sales of Yen140bn (US$954m), hardly a drop in the ocean. 90% of Tsumura’s sales are prescription drugs; significantly Japan’s medical insurance system subsidises herbal as well as western medicines.
According to Japanese news reports, over 80% of Japanese doctors sometimes prescribe a herbal drug.
Tsumura claims over 80% share in Japan* and its domestic business is growing, but not by 40%. However its China business last racked up sales of JPY15bn (US$104) growing 54%. That’s what’s attracted investors!
Tsumura’s top seller in Japan is called Daikenchuto.
Daikenchuto relieves tummy ache
大建中湯 (だいけんちゅうとう)
Tsumura positions itself as a Kampo maker (漢方). Kampo is the Japanese word used to describe traditional Chinese medicine in Japan. If you look at Tsumura’s corporate web site (which is very well put together), the company draws a distinction between traditional Chinese medicine and Kampo, although I think for many that difference is quite subtle.
Tsumura is not new to China. A large proportion of its raw ingredients are sourced there. In 2023 Tsumura also acquired a Chinese pharma business, Shaanxi Unisplendour Life Care Pharmaceutical Co., Ltd.
Are investors over-emphasising Tsumura’s opportunity in China?
Most news about China these days is negative. One of the biggest challenges is understanding what is the actual state of the economy. According to the FT, in 2022 enrolment in China’s state-subsidised health insurance system fell by an unprecedented 19m people, according to official data.
Kampo medicines tend to be much cheaper than prescription drugs which is a driver to adoption. However there are fewer patents and I am unclear what innovation or brand naming policies Tsumura is going to adopt.
China has been a challenging market for many Japanese consumer brands. Toyota has around 7% market share there. Kirin exited the market in 2022 selling its soft drink JV to an investment fund.
To what extent will Tsumura be on China’s VOBP? (VoBP is China’s Volume based Procurement) This a question investors might want to pose at the AGM.
Besides China there could be more fertile territory for Tsumura in SE Asia. In Malaysia for example there are hundreds of TCM, Traditional Chinese Medical halls. I believe the consumer in SE Asia is more pre-disposed to Japanese brands than the Chinese.
There is a growing cohort of consumers in the West who are anxious about drug medicines. Acupuncture is the not the same as herbal medicine, but I think for many consumers the usage driver is similar: mistrust or dissatisfaction with chemical drugs and their side effects. Acupuncture is now mainstream.
*In early March 2024 I visited 5 drug stores in central Osaka looking for Tsumura’s products. Honestly they weren’t easy to find. It’s true that the vast majority of Tsumura’s sales are prescription so perhaps drug stores aren’t a priority channel for them. However, it left me wondering if their market share claim is over stated. The drug store where I filmed the video did have a comprehensive display of Tsumura and its key competitor, Kracie.