Japan’s Perilous New Pricing Policy
The introduction of a new drug pricing reform in Japan has pharma up in arms. Are their fears justified?
According to a 2015 report by the International Monetary Fund into the economic consequences of shrinking populations, an ageing society can bring about a “dire” effect on a country’s finances.
Home to world’s oldest population, Japan knows this only too well. Official figures show that the over-65s now total 34.6 million– roughly 27% of the country’s population, with the Japanese demographic declining by 403,000 in 2017 alone.
The flipside of the longevity of its people is that Japan’s public budget is straining under the burden of higher welfare and healthcare costs. Forced to spend more in these areas, the country’s public debt is now believed to be double its gross domestic product – one of the highest debt-to-GDP ratios in the developed world.
At the end of last year, the Japanese government announced a reform of the country’s drug pricing system as means of recourse to reduce “people’s burdens” and improve “quality of care”.
Safe to say, the revelation went down like a lead balloon within Japan’s international pharma community. On December 20, the Pharmaceutical Research and Manufacturers of America and European Federation of Pharmaceutical Industries and Associations Japan (EFPIA Japan) issued a joint statement accusing the measure of jeopardising patient care and the wholesale competitiveness of the Japanese pharma industry.
Three months later, the furore around the roll-out of the new pricing policy has yet to subside. The general consensus among EFPIA Japan member companies is one of shock and disappointment, says the body’s chairman Ole Mølskov Bech.
“It’s fair to say that the policy came as a big, unpleasant surprise,” he says. “The industry is in quite a lot of shock as to the extent by which this could reduce the attractiveness of the Japanese pharma market in the future.”
A particular sore spot is how the reforms were sprung on pharma companies by Japan's Ministry of Health, Labour and Welfare. There wasn’t much warning, says Bech.
“The policy has been implemented during a very short period in December and January,” he says. “Companies were given a very short deadline to fill in information on each of their products, and an even shorter period to assess and fill in and submit a ‘statement of disagreement’ for the products taken of PMP [price maintenance premium].”
The PMP is a scheme that adds price premiums to innovative new drugs and protects this price for the duration of the period of exclusivity or patent period. This had made it more attractive for pharma companies to develop new drugs for Japan early as there was a mechanism in place to get a reimbursed price that would reduce towering research and development costs.
In December 2016, Japan promised to make its drug pricing review system an annual occurrence – as opposed to biennial. It also pledged to account for all prescription drugs, following severe price cuts for two “outlier” medications: cancer drug Opdivo and Sovaldi and Harvoni (Hepatitis C virus).
Despite these two instances of price reduction, the EFPIA – which advocates that the cost of the PMP system for new drugs should be financed by savings from the biennial price revision of “long-listed and generic products” – was relatively satisfied with the pricing system, says Bech.
“Essentially, we have been advocating that the pricing policy was working very well, although we recognize that the policy was not able to handle well Sovaldi and Harvoni and Opdivo, and that such cases needed to be managed better.
“Up until late November 2017, we were under the impression that this was also the direction the new pricing policy would take.”
So what’s at stake here? From a corporate vantage point, companies are clearly concerned about the impact lower drug prices will have on their bottom lines. In a wider industry context, Bech believes there is a risk that smaller pharma will be muscled out by bigger players when it comes to obtaining PMP.
“Smaller, but innovative companies, are disadvantaged as they will not be able to obtain full PMP,” he says.
“It will by sheer size be the bigger companies that do most R&D in Japan. They will be the only companies that can obtain full price protection.”
The Japanese pharma market is reported to have declined by 1% in 2017 – a year in which there was no price revision. According to research cited by Bech, the industry could contract by as much as 7-8% this year – even without the full scope of the price revision fully known yet.
In the short term (“the next two to three years”), the development of drugs already given the green light will not stop. After that, however, the future is less clear.
“The big and very real risk is that new development programs will be postponed in Japan until there is phase III data available from outside Japan, and companies can assess the likelihood for obtaining PMP,” says Bech.
“We are very concerned with the outcome and the future consequences of the drug pricing policy, but we are determined to work with the government to ensure the policy is amended as soon as possible. This is important if we want to avoid a new drug lag.”
To find out more about the big issues affecting the region, check out our line-up of industry leaders at the Commercial Excellence Japan 2018 event in May.
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