Warnings for the Japanese pharmaceutical market may lead to more lenient price controls

Japan is currently the fourth largest market in the world. Based on GlobalData estimates, the Japanese pharmaceutical market generated 9.392 trillion yen ($67.32 billion) in total sales in 2021 and is projected to grow by 1.1% in 2022 to 9.498 trillion yen ( $68.08 billion). However, despite this significant market share, the Japanese market is likely to become a less attractive market for international pharmaceutical companies based on recent Office of Pharmaceutical Industry Research (OPIR) findings.

OPIR, a research arm of Japan’s largest pharmaceutical industry association, the Japan Pharmaceutical Manufacturers Association (JPMA), recently released a report highlighting the drug delay phenomenon in Japan, showing that ten of the 37 member companies of the JPMA (27%) considered Japan will be a lower investment priority for their business operations from 2016. Among the 37 member companies, 17 are overseas companies and 20 are Japanese companies with a pharmaceutical sales ratio of more than 10% per year. abroad. According to the report, five member companies decided to reduce their investments in Japan between 2016 and 2017, four companies changed their investment goals between 2018 and 2020 and one company lowered the priority given to Japan after the 2021. of the 27 companies (73%) reported no material changes to their investment plans.

One reason at play is the concern the Japanese pharmaceutical industry has shown about the impact of annual price reviews. Six companies responded to the OPIR survey saying that a lower drug price was the main reason they changed their market strategy, while two other companies said that drug price was the second most important factor for the change their investment plan. Other reasons include lower sales demand and high investment costs. In terms of the influence caused by adverse changes in international investment in Japan, pharmaceutical companies that have decided to reduce their commercial priority in Japan have reported lower pharmaceutical sales. Fewer clinical trials and regulatory filings were other important factors behind the decision. Other contributing factors include the declining number of postmarketing studies and difficulties in primary research and manufacturing.

The OPIR report showed that Japan’s pricing policy has raised serious concerns among large multinational pharmaceutical companies, which are wary of a potential lower return on investment. However, it is difficult to distinguish between the investment plans of overseas companies and Japanese companies with over 10% pharmaceutical sales ratio overseas, as OPIR survey results are shown anonymously.

The survey result could spur further industry calls for higher pricing in fiscal year (FY) 2023, which begins in April 2023, as it may directly indicate a decline in market investment opportunities for pharmaceutical companies directly caused by the pricing policy. The Japanese Ministry of Health, Labor and Welfare (MHLW) has introduced a series of pricing regulations to reduce the prices of drugs listed by the National Health Insurance (NHI), including the implementation of annual off-year price reviews. GlobalData estimates that the FY2021 NHI drug price review has resulted in price cuts for approximately 70% of major drug treatments, with major upper-tier drugmakers expected to face average NHI price cuts of 2% to 4% . This trend continues as the FY2022 price revision is estimated to have led to an average price reduction of 4% to 5% for major drugmakers.

The MHLW is currently proposing FY2023 drug pricing review discussions. Experts on an MHLW price review panel acknowledged that the Japanese pharmaceutical market is struggling to attract international investment and presents risks. For example, the lower investment could signal delays in innovative drug launches in Japan. Meanwhile, another recently released MHLW report confirmed that 696 essential medicines from 94 companies were identified as unprofitable due to rising manufacturing and packaging costs and the depreciation of the Japanese yen.

Japan’s pharmaceutical industry has warned that supplies of some drugs could be disrupted if NHI drug prices remain low and said the current pricing policy has discouraged drugmakers from launching new products in Japan. GlobalData predicts that concerns over the withdrawal of medicines from the Japanese market and the disruption of supply of essential generics may lead to a more lenient approach to price controls to ensure a stable supply of essential medicines.

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