HONG KONG – Aiming to increase the financial stability of the national health care insurance system, Japan has announced a list of 17 drugs for which prices will be reduced. The country’s Central Social Insurance Medical Council, an advisory group from the Ministry of Health, Labour and Welfare (MHLW), approved the drug repricing system on Jan. 22. The repricing system will take effect from April 2020, with an average price reduction of 4.38%.
Even though Japan has steadily reduced drug prices at around 2% to 8% every other year since the 1970s, OECD data show the country’s pharmaceutical proportion of total health spending was as high as 18.6% in 2016, which was then 9th among OECD countries.
The MHLW said the basic goals of the fundamental reform of the drug pricing system are the achievement of the “sustainability of the health care system” and the “promotion of innovation” in order to realize a “public financial burden reduction and medical care quality improvement.”
The drug prices reflect market size changes, said Ryuta Ito, an official at the medical economics division of the health insurance bureau of the MHLW.
“Japan revises drug prices in order to reflect the actual market prices, which medical institutions and pharmacies pay wholesale manufacturers. In the repricing system, drug prices are revised in case the drug market has increased above expectations. This happens because drug usage and the number of patients change. The principles of repricing are decided at a public deliberation meeting after reviewing Japanese and global pharmaceutical companies’ opinions,” Ito told BioWorld.
The Japanese government’s endeavors to cut drug prices are closely linked to the ballooning pharmaceutical costs of the rapidly aging society. The government estimates that public medical spending will rise 75% to ¥68.5 trillion (US$624 billion) by 2040.
The repricing system will reduce the price of some international huge sellers. Merck & Co. Inc.’s Keytruda (pembrolizumab) and Daiichi Sankyo Co. Ltd.’s Lixiana (edoxaban) are facing “repricing by special case expansion,” an additional price reduction system for drugs with considerable annual sales.
Specifically, the system cuts a maximum of 25% from a drug’s price in cases where the drug’s annual sales are between ¥100 billion and ¥150 billion, and more than 1.5 times the expected annual sales. Also, it cuts a maximum of 50% from the cost of a drug if its annual sales are more than ¥150 billion and 1.3 times the expected sales. Lixiana is an example of the former case while Keytruda is one of the latter. In worse news for Merck, Keytruda’s price will be reduced by 17.5% in February, according to the law, and it will be repriced again in April.
In a separate example, Novartis AG’s Xolair (omalizumab) will have “special case pricing,” which is for drugs with main indication changes. In December, Japan approved Xolair’s pollen allergy indication, which may significantly increase the number of its users. The exact percentage of the price reduction has not been disclosed.
The price reduction list includes some other huge global sellers: Vyndaqel (tafamidis), Pfizer Inc.’s transthyretin amyloidosis medicine; Samsca (tolvaptan), Otsuka Pharmaceutical Co. Ltd.’s autosomal dominant polycystic kidney disease medicine; Feburic (febuxostat), Teijin Pharma Ltd.’s hyperuricemia treatment; Revlimid (lenalidomide), Celgene Corp.’s myelodysplastic syndrome treatment; Astrazeneca plc.’s breast and ovarian cancer drug, Lynparza (olaparib); active Crohn’s disease medicine Stelara (ustekinumab) by Janssen Biotech Inc.; atopic dermatitis treatment Dupixent (dupilumab) by Sanofi SA; and hemophilia A treatment Hemlibra (emicizumab) by Chugai Pharmaceutical Co. Ltd.
The price reductions system also covers biosimilars and follow-on drugs. For biosimilars, the price can only be 70% of that of the original product and could even be 60% in cases where the medicine is used for more than 10 indications in the market. If it is a chemically synthesized product, the price will be 50% of the original drug price and could be 40% in cases where it is used for more than 10 indications.
Japan’s repricing puts foreign pharmaceutical companies in Japan under pressure. Lupin Ltd., India’s fourth largest drug developer by market value, sold its entire share in its Japanese subsidiary, Kyowa Pharmaceutical Industry Co. Ltd., for $300 million to private equity firm Unison in November.
Also, South Africa’s largest drug company, Aspen Pharmacare Holdings Ltd., said in November that it would sell its Japanese branch, Aspen Japan K.K., to German pharmaceutical giant Sandoz International GmbH for a total deal value of €400 million.
Meanwhile, some Japanese drugmakers are seeking ways to earn sales by growing medical device and digital therapeutics (DTx) businesses from the public health insurance system and also producing drugs within cost-effective systems.
“Besides the financial retrenchment issue, there is no stable growth in the national health care system,” Eisai Co. Ltd. CEO Haruo Naito said in March 2019. After the statement, the Japanese pharmaceutical company announced a capital and business alliance with Japanese biotech Allm Inc. for ICT digital health solutions, especially for dementia prevention and treatment.
Japanese biotech Astellas Pharma Inc. entered a license agreement with U.S. biotech Welldoc Inc. for the digital health care solution Bluestar with a $15 million up-front payment in November. Bluestar cleared the FDA 510 (k) in 2010 for usage in managing type 1 and 2 diabetes and is currently under development. It aims to gain Japanese marketing approval and public insurance coverage.
“The drug repricing system will mainly impact the business strategies of the Japanese drug industry,” Masahiro Fujita, partner at health care business consulting company JAM Inc., told BioWorld. “Under the system, it will be very hard for drugmakers to increase profits and develop novel drugs with reasonable prices. The market players have to create other businesses that enable sustainable financial growth. Otherwise, the country may lose its third-largest pharmaceutical market worldwide.”