Japan sees 'drug lag' as foreign pharmas pass up the market amid pricing pressure, industry group warns

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Altogether, 176 new drugs that were approved in the U.S. and Europe between 2016 and 2020 didn’t enter Japan, according to Japan Pharmaceutical Manufacturers Association. (Getty Images)

Japan has been leveraging different policy tools to rein in drug expenditures, and that is scaring foreign pharmas away.

The country is seeing “trends of a drug lag,” as approvals decrease, Yasushi Okada, president of the Japan Pharmaceutical Manufacturers Association and Eisai’s chief operating officer, said in a recent interview, as quoted by local news agency Jiji Press.

Altogether, 176 new drugs that were approved in the U.S. and Europe between 2016 and 2020 didn’t enter Japan, up from 117 in the five years leading up to 2016, according to the industry group.

“An industry will not prosper unless technological innovation is rewarded,” Okada said, as quoted by Jiji. “We barely feel any advantage from being based in Japan.”

Okada’s comment comes as Japan this year reportedly implemented its first “off-year” price cut outside of its planned biennial drug price revisions. Japan adjusts drug prices biennially mainly to close the gap between the reimbursement price and the actual purchase price on the market.

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Okada, in particular, took issue with how Japan slashes drug prices simply when sales exceed certain thresholds. The country maintains a system of repricing for market expansion, which pares back prices when annual sales vastly exceed a drug’s original estimated figure. In extreme cases, authorities may cut a maximum of 25% off a drug’s price if its annual sales rise to between 100 billion yen and 150 billion yen and are at least 1.5 times the original expected sales or 50% off when sales exceed 150 billion yen.

The most well-known case that experienced a price cut under this scheme was perhaps Ono Pharmaceutical’s Opdivo, which was licensed to Bristol Myers Squibb outside of Japan.

Opdivo originally launched in Japan in 2014 in the small indication of melanoma. But its sales growth from label expansions to such areas as non-small cell lung cancer spooked Japanese authorities, which singled out the drug in a special repricing with a hefty 50% discount, which took effect in 2017. The PD-1 inhibitor went on to take several more rounds of price cuts in the following years.

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The repricing for market expansion rule is just one of several tools the Japanese government has resorted to for cutting drug prices. This year, Japan started officially applying a cost-effectiveness assessment (CEA) system to drug prices, two years after its introduction in April 2019. Novartis’ CAR-T therapy Kymriah and GlaxoSmithKline’s three-in-one COPD inhaler Trelegy became the first two treatments to undergo an assessment under the program. Starting in July, those drugs will see a 4.3% and 0.5% price cut, respectively.

Gilead Sciences’ rival CAR-T drug, Yescarta, which is managed by Daiichi Sankyo in Japan, got the same 4.3% downward adjustment from the get-go because its original reimbursement price was benchmarked against Kymriah. Back in 2019, Kymriah won Japanese coverage at a price of 33.5 million yen, whereas Yescarta secured approval earlier this year.

The CEA system, which uses an incremental cost-effectiveness ratio for its calculations, targets highly innovative but pricey drugs.

Okada also opposes a proposal to tie the maximum increase in drug prices to the growth rate of Japan’s nominal GDP, according to Jiji. “The pharmaceutical industry has the potential to make money,” he said. “It must lead GDP growth instead.”