Drug price cuts in Japan sink in though details sparse

Shinzo Abe

Domestic and foreign drugmakers in Japan may cut spending on R&D as the scope of mandated price cuts for reimbursed products kicks in--suggesting that future investments are at stake. 

Reuters said Pfizer ($PFE) and Eli Lilly ($LLY) have raised the issue as a combination of price reviews for pharmaceuticals hits in one of the top 5 reimbursement markets globally.

"Without stability and predictability in drug prices, investments will go elsewhere," Patrick Johnson, chief executive of Eli Lilly in Japan, recently told reporters, according to Reuters.

And Pfizer's Japan head, Ichiro Umeda, told Reuters that cost cuts "raise the risk of less investment in Japan."

Reimbursement in Japan was a double-whammy this fiscal year that started April 1 for many drug firms, with price cuts for widely prescribed drugs by Japan's Central Social Insurance Medical Council, known as Chuikyo, reaching as much as 50 percent.

Under the formula, drugs with annual Japan sales of more than ¥150 billion ($1.8 billion) and that see sharp sales gains can face cuts. That would rope in Gilead Sciences' ($GILD) hep C blockbuster Sovaldi (sofosbuvir) to face an estimated cut of 30 percent.

Japanese Prime Minister Shinzo Abe

On top of that, the every-other-year price-cut exercise by the government at the same time aims for savings of $1.5 billion. The exact revenue losses for companies won't likely be known until second-quarter results are released--although several companies flagged the issue in fourth-quarter earnings calls.

However, the companies did dodge a possible sales tax increase that had been on the table until the government of Prime Minister Shinzo Abe decided against the move because of fears it would hit spending power in the economy.

Akira Kawahara, senior managing director of the Japan Pharmaceutical Manufacturers Association, complained to Reuters that the rules were "suddenly proposed and suddenly implemented."

In January, Patrik Jonsson, new head of the PhRMA Japan-based Executive Committee, said the Japanese pharmaceutical market would dwindle 30% in the next decade if the price cuts took effect as planned.

But Japan's Ministry of Finance has suggested the price cuts need to be every year as healthcare costs balloon along with a rapidly aging society that requires increasingly expensive care.

- here's the story from Reuters

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