TOKYO – Pharmaceutical companies are growing increasingly concerned about the knock-on effect of new legislation in Japan that changes how drugs are priced. Set to take effect in April, those reforms, which introduce new frameworks on cost-effectiveness, will also have repercussions on reimbursement guidelines for biotechnology innovations.

The impact, particularly implications of the pricing system on future therapeutic developments, was a key topic of discussion at the BIO Asia International Conference this week.

Japan's government approved the reform package in December 2017 to include a pricing methodology that significantly undermines the country's pro-innovation environment, said Joe Damond, vice president of the Biotechnology Innovation Organization.

Japanese approval for premium prices on innovative drugs will now be based on a company tier system, not the value of the drug. That tier system is based on various factors, including such considerations as how long the company has been operating in the Japanese market.

The restrictive criteria of the Price Maintenance Premium (PMP) discriminates against life sciences startups and emerging biotech companies, said Damond. "These small companies are the life-blood of the industry – the life sciences startup and emerging biotech companies are responsible for 70 percent of the global clinical pipeline in therapeutics and 84 percent of all orphan-designated products in development," he said.

U.S. companies might feel the impact more than others, as biopharmaceutical collaboration has expanded in recent years between the U.S. and Japan, in no small part due to progress and reforms within Japan's drug regulatory system, which now approves products on a similar time frame as the U.S. Additionally, advances in scientific research in both countries have increased the opportunities for collaboration.

"The environment for regenerative medicine therapies remains incredibly strong in Japan, thanks to the recent regulatory advances that have helped promote the efficient development of innovative therapies in a safe and ethical manner, and that has stimulated a lot of investment and collaborative activity," said Gil Van Bokkelen, chairman and CEO at Athersys Inc.

However, some industry experts said they believe Japan's new system for pricing and reimbursing drugs will hinder innovation. They say it will restrict opportunities for biopharmaceutical companies in the U.S. to develop and launch new drugs in Japan.

Some of the pricing changes will make it particularly difficult for small, emerging biotech businesses to launch in Japan because of the company tier system.

Van Bokkelen agreed. "Some of the recent pending initiatives could work against that tremendous progress that has been made and might end up creating a less favorable environment that could inadvertently delay the development and delivery of safer and more effective new medicines, and slow patient access in areas where innovation is desperately needed," he said.

Those appear to be contrary to the pro-innovation policies of the Japanese Government, which worries some companies.

Seiji Tsutsumi, business development manager of Nihon Servier Co., noted that "these prices systems such as the price cut every year, low premium prices for innovative drugs and cost-effective companies as well as midsized Japanese pharmaceutical companies could cause some to close."

And price reforms in Japan could have multiple ramifications both from innovation and insurance reimbursements that are related but independent of each other, said Toru J. Seo, APAC and senior director at Pfizer Worldwide Business Development.

"Pricing is a serious issue in Japan and those with me-too drugs, which contributes significantly to their revenues, will have higher price cuts," he said.

Broader impact

The issue could have broader impact as negotiations start for a U.S.-Japan trade agreement, even as Japan works to tackle ballooning drug costs in its national health insurance system, especially spending on drugs.

Prime Minister Shinzo Abe has targeted cuts in Japan's health care costs as part of his initiatives to build a more sustainable economy.

According to the Ministry of Health, Labor and Welfare, Japan's medical costs rose 2.3 percent overall to ¥42.2 trillion (US$370 billion) in the fiscal year ended March 2018. A 2.9 percent jump in spending on medications was the largest increase in any of the medical cost categories.

One of the main reasons for the increase is demand for new and expensive drugs, such as hepatitis C treatments Harvoni (sofosbuvir/ledipasvir, Gilead Sciences Inc.) and Sovaldi (sofosbuvir, Gilead Sciences Inc.), as well as cancer drug Opdivo (nivolumab, Bristol-Myers Squibb Co.). Add to that mix a rapidly aging population where one out of four people are over the age of 65 years.

The health care system in Japan provides services where patients pay for 30 percent of medical costs, while the government covers the remaining 70 percent. Opdivo's price in Japan was initially set at about ¥730,000 (US$6,530) per 100 mg, costing a patient ¥35 million (US$313,000) a year. It will be lowered in November to about ¥170,000 (US$1,520) per 100 mg, following a special regulatory decision by the Health Ministry. That's about a fifth of the original price.

Price cuts are expected in other countries as well. The Ministry of Finance plans to call for further cuts in drug prices in budget preparations for the fiscal year starting April 2019. And from the fiscal year 2021, the U.K.'s MHLW plans to study revisions to drug prices every year, instead of every other year as now.