Japan's reputation for innovation, large population, and high drug prices – which are second only to the U.S. – have made the country an attractive and lucrative market for pharmaceutical companies.1 In 2019, for example, Japan’s drug market was valued at about $105 billion, according to the International Trade Association.2
Today, Japan is home to the most aged society in the world, which comes with a resultant rise in health care spending. Ideally, the limited spending of younger generations would offset this rise, but “the other problem is that Japan has a lower birth rate,” said Hideaki Nakajima, MD, PhD, a hematologist at Yokohama City University School of Medicine. “We have to support more and more aged people but have fewer younger people. That’s the problem of our health insurance system.”
Reforming the pharmaceutical market is one way in which the Japanese government is attempting to reduce consumer health care costs. The reforms that have taken place over the past several years involve new approaches to controlling drug prices and encouraging the development and use of generic and biosimilar drugs. In the realm of hematology treatment, for which pharmaceuticals can be very expensive, this should be a positive development for patients, but some worry that efforts to control pricing could stifle the innovation that Japan is known for.
In 1961, Japan’s universal health system was introduced. It covers every citizen in the country, although private insurance options are also available. One of the system’s functions is to set prices for new treatments that are approved.
The Pharmaceutical and Medical Device Agency (PMDA) works alongside the Ministry of Health, Labour and Welfare (MHLW) to evaluate and approve drugs. Companies submit regulatory paperwork to the PMDA, which reviews it and sends recommendations to the MHLW. It’s up to the MHLW to approve or deny a drug’s application. At the point of approval, the MHLW also determines a price that the national health care system will pay for the drug based on its market value.
Every two years, the MHLW reviews the prices of all drugs in the system, and on average, it lowers each one by about 5-7%.3 The agency decides on new pricing based on a variety of criteria such as whether other therapeutic options exist for the same condition. As of 2021, the MHLW started updating prices every year instead of every two.
The Price Maintenance Premium
Unsurprisingly, pharmaceutical companies weren’t pleased that their drugs became less profitable in Japan year after year. So, to entice pharmaceutical companies to invest in developing innovative drugs in Japan, the government introduced the Price Maintenance Premium in 2012.
If a drug is shown to treat an orphan or pediatric disease, it may qualify for the policy, which adds a premium to the drug’s price for the length of its patent. Companies do not need to be based in Japan to take advantage of the program, and several international companies that manufacture drugs sold in Japan have been able to obtain premium pricing.
For the most part, the premium “has been considered a success, albeit with a larger-than-expected drawback,” Nobuko Kobayashi wrote in PharmaExec in 2018.4 Specifically, it undid some of the cost savings associated with Japan’s price control.
National medical spending was growing beyond what the country could sustain, so in 2018, regulators announced they’d reduce the number of drugs that qualify for the price maintenance premium. That year, only 560 drugs received the designation, compared with 823 in 2016.3 Several industry groups – including the Federation of Pharmaceutical Manufacturers’ Associations of Japan, the Pharmaceutical Research and Manufacturers of America, and the European Federation of Pharmaceutical Industries and Associations – spoke out against the change.
The price maintenance premium is meant to reward innovation. While most drugs decrease in price each year, some gain value. In 2021, researchers set out to assess the characteristics of drugs most likely to increase in price.5 They identified three main qualities of these drugs: they were injectable, they treated microorganisms or parasites, or they acted as narcotics.
The Market for Hematology and Oncology Therapies
One example of a drug that maintained its elevated pricing in Japan is the immuno-oncology drug nivolumab, which was approved in 2014 to treat melanoma. Just one year later, its approval expanded to treat non-small cell lung cancer and renal cell carcinoma as well, greatly increasing the number of patients who were prescribed the drug.1
Since it was considered a breakthrough therapy, the price of nivolumab did not fall right away, causing concern among lawmakers. Kunito Hideo, MD, an oncologist at the Japanese Red Cross Medical Center in Tokyo, predicted that its incredibly high price, $350,000 per patient per year, would bankrupt the health care system. However, the price was reduced by about 50% in 2016 and then by 23.8% more in 2018.6
Interestingly, while the price of multiple myeloma drugs in Japan increased between 2010 and 2017, the overall cost of care decreased, according to one 2019 study.7 Researchers attributed this to a lower cost of surgery, hospitalization, and other treatments.
Expedited Approval of Innovative Therapies
In a further effort to support innovation, the Japanese government has introduced several expedited pathways to approval, similar to the breakthrough designations of the U.S. Food and Drug Administration.
The Sakigake designation, started in 2015, helps innovative drugs initially developed in Japan get to market quickly.8 Another option, conditional early approval, allows drugs designed for rare diseases for which there is an unmet need to be approved based on early data that suggest safety and possible efficacy. In contrast to U.S. and European programs, the Japanese conditional approval does not require continued clinical trials, but instead relies on “real-world data” to monitor efficacy.9
Biosimilars and Generic Drugs
Like many countries, Japan encourages the development and use of generic drugs and biosimilars, which drives down the cost of prescription drugs. Copycat drugs are thought to make up an especially large portion of the country’s pharmaceutical market at about 80%, according to an article in the Pharma Letter.10
The industry has “long centered on strong innovation and patented drugs,” Laura Murina, brand manager at CPhI Japan, told the Pharma Letter. But, she noted, “we are now observing a dramatic increase in generics and biosimilars in the market.”
According to Dr. Nakajima, biosimilar drugs are frequently used in Japanese hospitals.
“In the hematology field, [there are] expensive monoclonal antibody products, such as rituximab. We now have a bio-generic drug for rituximab and also cytokine products such as G-CSF [granulocyte colony-stimulating factor],” he said.
Like Japan, the U.S. has long struggled with the price of health care, although drug prices in the U.S. are largely unregulated by the government. In recent U.S. political news, both President Joe Biden and former president Donald Trump claimed they would prioritize lowering the price of prescription drugs, but major pricing reforms are yet to be seen.
Writing in PharmaExec, Ms. Kobayashi argued that price control and strict approval requirements are driving drug manufacturers away from Japan.4 However, she noted, Japan could be a more attractive market for pharmaceutical innovation with some adjustments to the current pricing structures.
“It is critical that Japan, with its aging population, cuts healthcare expenditure as well as fosters innovation,” she wrote. “The size of the market makes it intrinsically attractive to any global pharma player. Innovation of the pricing scheme could unlock potential that benefits all facets of the market.”
- Branch P, Fujii R, Gill J. New realities of drug pricing and access in Japan. Tokyo, Japan: L.E.K. Published 2017. Accessed December 12, 2021. https://www.lek.com/sites/default/files/insights/pdf-attachments/Japan_Drug_Pricing_Special_Report.pdf.
- International Trade Administration. Japan – Country Commercial Guide. October 30, 2020. Accessed December 27, 2021. https://www.trade.gov/knowledge-product/japan-pharmaceuticals.
- Nagatani T, Raviscioni M, Sugahara A. McKinsey & Company. Change in the Japanese pharmaceutical market: Cradle of innovation or grave of corporate profits? Published August 31, 2018. Accessed December 12, 2021. https://www.mckinsey.com/industries/life-sciences/our-insights/change-in-the-japanese-pharmaceutical-market-cradle-of-innovation-or-grave-of-corporate-profits.
- Kobayashi J. Japan: Balancing cost and innovation through pricing. com. Published July 8, 2018. Accessed December 12, 2021. https://www.pharmexec.com/view/japan-balancing-cost-and-innovation-through-pricing.
- Mamiya H, Igarashi A. Determinants of market prices for drugs under Japan’s national health insurance. Journal of Medical Economics. 2021;24(1):1109-1114.
- Niki R. Recent debate over how to tackle rapid increases in pharmaceutical expenditure in Japan. JMA Journal. 2020;146-148.
- Uno S, Goto R, Suzuki K, Iwasaki K, Takeshima T, Ohtsu T. Current treatment patterns and medical costs for multiple myeloma in Japan: A cross-sectional analysis of a health insurance claims database. Journal of Medical Economics. 2019;23(2):166-173.
- Ministry of Health, Labour and Welfare. Strategy of SAKIGAKE as a package. Accessed December 12, 2021. https://www.mhlw.go.jp/english/policy/health-medical/pharmaceuticals/dl/140729-01-02.pdf.
- Murayama A, Ueda M, Shrestha S, Tanimoto T, Ozaki A. Japan’s conditional early approval program for innovative cancer drugs: Comparison of the regulatory processes with the US FDA and the EMA. Cancer Cell. 2021;39(9):1165-1166.
- Wentworth S. Japan pharma market review. The Pharma Letter. Published June 28, 2019. Accessed December 12, 2021. https://www.thepharmaletter.com/article/japan-pharma-market-review.