TOKYO – At least one multinational pharmaceutical giant may be considering introducing into the Japanese market a new drug pricing mechanism that would link the effectiveness with drug cost. Novartis Pharma K.K. is reported to be working with the Japanese government and the Ministry of Health, Labour and Welfare (MHLW) toward introducing a drug payment mechanism based on patient outcomes for a new and innovative therapy.

Such a system may offer a solution for Japan's struggles to reform its drug pricing mechanism and cut costs. Whether the plan will be widely accepted is another question.

"As for the pricing mechanism based on patient outcome, it was adopted in the U.S. just for specific diseases," said Satomi Yago, who handles oncology communications and patient relations for the Japan subsidiary of Novartis AG.

The therapy in question is Kymriah (tisagenlecleucel), a CAR T therapy for patients up to 25 years old with B-cell precursor acute lymphoblastic leukemia. It gained U.S. FDA approval in August, making it the first treatment classified as a gene therapy available in the U.S. There, it is sold under an "outcome-based" pricing model; Novartis only gets paid if the patient responds to Kymriah by the end of the first month. (See BioWorld, Sept. 5, 2017.)

Reports of the company's plan to introduce a new drug payment mechanism in Japan have been circulating, but "nothing has yet been decided in regard to the introduction of Kymriah to Japan and insurance reimbursement, and we are not at the stage to comment yet," Yago told BioWorld Asia.

Officials also have not yet worked through the complexities of the plan.

"I am aware that there are reports about Novartis considering the sales of patient outcome-based drugs, but we have not directly heard from Novartis so it is difficult to comment on," Katsunobu Kato, Minister of Health, Labour and Welfare, told journalists. "I do not know the exact details of these outcome-based models, but when I heard about [them], I thought there is a multitude of problems, such as how they judge the effect of the drug in case of a success, what to make of the relationship between the patient's out-of-pocket payment and insurance payment, and the distinction between medication and treatment since they are done as a package."

Japan's aging population presents opportunities for the pharmaceutical industry, but ongoing efforts by the government to reform the country's drug pricing mechanism, most notably the move from biennial to annual price revisions, have cast a shadow of uncertainty over the entire market.

The debate gathered momentum in November 2016 after an emergency review of the price of cancer drug Opdivo (nivolumab) from Ono Pharmaceutical Co. Ltd. The decision to cut the price of the drug by half became effective in February. (See BioWorld Today, Dec. 5, 2016.)

Tokyo's push to change its drug pricing mechanism was met with enormous backlash from the industry. Seven organizations, including the American Chamber of Commerce in Japan, the European Federation of Pharmaceutical Industries and Associations and Pharmaceutical Research and Manufacturers of America, issued a statement in December opposing the move.

At a talk held during the BIO Asia International Conference in Tokyo in March, Yasuhiro Suzuki, director general of the Health Insurance Bureau and Chief Global Health Officer at MHLW, said that the agency will be "discussing and deciding on the actual reform direction toward the end of this year," highlighting the balance between innovation and financial sustainability of health insurance, transparency and predictability of the pricing policy, maximization of patients' value whilst ensuring the quality of health care, support for expedited approval process for pharmaceuticals, and employment of cost-effective analysis as points of concern.

Measuring economic effect

Japanese patients and regulators have been reluctant to choose generic drugs over brand names, highlighting Tokyo's struggle to convince people of the possibility of using a cheaper alternative. It is unclear whether setting prices based on potential patient outcomes will be convincing enough.

"There is a possibility that in Japan the new pricing mechanism based on the patient outcome will be introduced only for expensive drugs, but the current system makes it difficult and time-consuming to do so," said Mitsuru Toishi, chief consultant at Mitsubishi UFJ Research and Consulting. "The biggest hurdle when it comes to the introduction of the pricing mechanism based on patient outcome is what standards they will use to measure the economic effect. In particular, there are many questions such as the time frame to measure the effect of the drug and the selection of subject patients, and thus it is unlikely that this will be introduced any time soon.

"It is fairly common to set drug prices based on medical economic effect in European countries such as the U.K.," said Toishi. "In Japan, this idea to link the drug price and medical economic effect are still under discussion, and it was only introduced to seven products, including Opdivo, as a pilot program."

The U.K. uses a quality-adjusted life year, or QALY, metric to set the price for one extra year of health.

In Europe, expensive medicines are given prices based on the medical economic effect to maintain the insurance system, and ineffective drugs are inevitably given lower prices, said Toishi.

Ultimately, by funding drugs from public insurance, the push to base drug prices on patient outcomes may easily attract support. In turn, pharma companies can use the approach while negotiating drug prices.

"On the other hand, the U.K., where they especially emphasize cost-effectiveness, performs worse than other countries in cancer care," said Toishi. "The U.S. does not officially say their pricing mechanism is based on patient outcome, but because it is funded by private health insurance and takes into consideration the drug's costs and effects, in practice the price is set based on the effectiveness of the drug."

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