Warnings for the Japanese pharmaceutical market could lead to softer price controls

Japan is currently the fourth largest market in the world. Based on GlobalData estimates, the Japanese pharmaceutical market generated total revenue of JPY9.392 trillion (US$67.32 billion) in 2021 and is expected to grow by 1.1% to JPY9.498 trillion (US$68.08 billion) by 2022 . However, despite this significant market share, the Japanese market is likely to become a less attractive market for international pharmaceutical companies based on the latest findings from the Office of Pharmaceutical Industry Research (OPIR).

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 JPMA member companies (27%) Taking this into account, Japan has had a lower investment priority for its operations since 2016. Among the 37 member companies, 17 are foreign companies and 20 are Japanese companies with an overseas pharmaceutical sales rate of over 10%. According to the report, five member companies decided to reduce their investments in Japan between 2016 and 2017, four companies changed their investment targets between 2018 and 2020, and one company lowered the priority given to Japan after 2021. On the other hand, a total of 27 companies (73%) reported no significant changes to their investment plans.

One reason for this is the concern of the Japanese pharmaceutical industry about the impact of annual price corrections. Six companies responded to the OPIR survey by claiming that lower drug price was the main reason for them to change their strategy in the market, while two other companies indicated that drug price was the second most important factor in their investment plan change. Other reasons are lower sales demand and high investment costs. Regarding the impact of negative changes in international investment in Japan, the pharmaceutical companies that decided to downgrade their business priority in Japan reported lower pharmaceutical sales. Fewer clinical trials and regulatory filings were other important factors in the decision. Other factors include the declining number of post-market studies and difficulties in primary research and manufacturing.

The OPIR report showed that Japan’s pricing policy has raised serious concerns among large pharmaceutical multinationals, who fear a potentially lower return on investments. However, it is difficult to distinguish between the investment plans of foreign companies and the Japanese companies with over 10% overseas pharmaceutical sales ratio because the OPIR survey results are presented anonymously.

The survey result may spur further industry appeals for higher pricing in FY2023, which starts from April 2023, as it can directly point to a decline in investment opportunities in the pharmaceutical company market directly caused by pricing policies. Japan’s Ministry of Health, Labor and Welfare (MHLW) has introduced a series of price regulations to lower drug prices listed by the National Health Insurance Fund (NHI), including implementing annual off-year price revisions. GlobalData estimates that the FY2021 NHI drug pricing revision resulted in price reductions for approximately 70% of major pharmaceutical treatments, with large/lead drug manufacturers expecting average NHI price reductions of 2% to 4%. This trend continues as it was estimated that the fiscal 2022 price revision resulted in an average price reduction of 4% to 5% for large drugmakers.

MHLW is currently proposing discussions on the revision of drug pricing for fiscal year 2023. Experts from an MHLW price review body have acknowledged that the Japanese pharmaceutical market is struggling to attract international investment and faces risks. For example, lower investment could indicate delays in bringing innovative medicines to market in Japan. Meanwhile, another recent MHLW report confirmed that 696 key drugs from 94 companies were deemed unprofitable due to rising manufacturing and packaging costs and the depreciation of the Japanese yen.

The Japanese pharmaceutical industry has warned that supplies of some drugs could be disrupted if NHI drug prices remain low, claiming current pricing policies have discouraged drugmakers from launching new products in Japan. GlobalData believes that concerns over drug withdrawals from the Japanese market and disrupted supplies of key generics could lead to a more lenient approach to price control to ensure a stable supply of key drugs.

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