Top News Press Conference of the President of the Pharmaceutical Manufacturers Association of Japan held. Recognition of the current situation and issues surrounding the pharmaceutical industry and the basic framework for solving them

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On August 30, 2022, the "Pharmaceutical Manufacturers Association of Japan Press Conference" was held at Muromachi Mitsui Hall & Conference (Chuo-ku, Tokyo). Mr. Yasushi Okada, Chairman of the Pharmaceutical Manufacturers Association of Japan (PMAJ), made a presentation focusing on "the current situation and recognition of issues surrounding the pharmaceutical industry and the basic framework for solving these issues". The event was conducted in a hybrid format with both on-site and online participation, and was attended by 39 members of the press from 27 companies. The following is a summary of Chairman Okada's presentation and Q&A session.

We believe that scientific and technological capabilities are the foundation of a nation's survival and development, including the protection of the lives and health of its citizens, economic growth, and the strengthening of national security. In the U.S., Europe, and China, life science is positioned as a top-priority national field, with major goals and huge budgets. To give a more concrete example, other countries are mobilizing a variety of policies to foster R&D and venture companies. They have introduced various taxation and funding systems to lead innovation creation as a nation, and they compete with each other in these efforts. I strongly believe that the government needs to set a national strategy for innovation creation, and the public and private sectors need to work together to create innovation, rather than simply leaving the development of fundamental technologies and basic research to the market and companies in fields where the risks are too great for a single company to bear, or where commercialization is far from feasible. I understand that this is truly national defense and that we should view science and technology innovation competition from the perspective of national security.

Transformation of the Pharmaceutical Industry Business Model

The business model of the pharmaceutical industry around the 21st century was one of consolidation and acquisitions in pursuit of scale around the world. At that time, it was believed that a company needed to be large enough to generate hundreds of billions of yen in R&D expenses in order to create a new drug. In recent years, however, mergers and acquisitions in pursuit of corporate scale have all but disappeared. In other words, the business model of the pharmaceutical industry has clearly shifted from vertical integration to horizontal division of labor. In the past, the strategy was to internalize the entire value chain (discovery and research, clinical development, manufacturing, and sales) from upstream R&D to sales. However, these value chains have become increasingly sophisticated and complex, and there is a need for digital IT companies specializing in each field, contract manufacturing organizations (CMOs) and contract development and manufacturing organizations (CDMOs) in the area of manufacturing, and other companies that can provide services in the area of pharmaceuticals. In manufacturing, it is very important to work with Contract Manufacturing Organizations (CMOs) and Contract Development and Manufacturing Organizations (CDMOs).

In the past, small molecule drugs were the predominant modality of pharmaceuticals. While small molecule drugs are still important, they are now being replaced by biopharmaceuticals, a new modality that is steadily increasing its share of global ethical drug sales. Unfortunately, however, Japanese companies have not been able to make their presence felt in the biopharmaceutical field, although they are doing well in small molecule drugs. Although this is a somewhat harsh view of Japan's declining drug discovery capabilities, in the past, Japanese companies had a very strong presence in small molecule drug discovery in the fields of infectious diseases and lifestyle-related diseases, and continued to deliver a variety of blockbusters to the world. However, they have fallen behind in the development of biopharmaceuticals and have not been able to respond to changes in the target diseases of drug discovery. This decline in drug discovery is partly due to the government policies mentioned above, but it also lies on the side of the pharmaceutical industry. The reality is that we ourselves have not been able to change and have fallen behind the curve.

Measures to curb medical costs that rely on drug price reductions

In Japan, where the population is aging at a rate unparalleled in the world, insurance finances are strained as healthcare costs increase, and measures are being taken every year to reduce the growth of healthcare costs. However, despite the fact that this is a structural issue, no action has been taken to address the real cause, and as a result, most of the reduction in medical cost growth has been achieved through drug price reductions. The price reductions are not limited to long-term listed drugs and generics, but also include drugs that are still under patent in Japan, as a result of the narrowing of the list of drugs eligible for the "new drug creation allowance" and the introduction of various reimbursement schemes. A comparison of the top 10 drugs launched in Japan after 2009 and with sales between 2015 and 2020 in the U.S., U.K., Germany, and Japan at the 2021 price level shows that many products in the three countries are protected by more than 100%, while Japan is the only country where prices have been reduced. As a result, the global market has been in decline for an average of 5 years.

As a result, Japan is the only country in the world where the world market is shrinking while the global market is growing at an average of 5% per year, or 1.3 times in 5 years. Not surprisingly, the attractiveness of the Japanese market and investment priorities in the world are declining, and the drug lag is resurfacing. The increasing number of unapproved drugs in Japan since 2016 is a concrete indication of the reemergence of the drug lag. In the last five years, starting in 2020, there were 243 New Molecular Entity (NME) drugs in the U.S. and Europe, of which 176 are unapproved in Japan. A breakdown of the 176 NMEs shows an increase in the number of products that are subject to priority review in the U.S. or that are of high clinical importance, such as for rare diseases. In other words, the latest drugs that are needed by the Japanese people, rather than those that are unnecessary for Japan, are not approved, and this is clearly to the detriment of the Japanese people.

Many developed countries are in a similar situation as Japan, with declining birthrates, aging populations, and strained finances. We would like to see the Ministry of Health, Labor and Welfare's expert panel fully examine from various angles why Japan is becoming the only market that is becoming unattractive. According to data provided by private companies, Japan has achieved a certain level of success in promoting the use of generics, along with the introduction of an additional allowance for the creation of new drugs in 2010. However, can it be said that the current Japanese market has reached the global standard? We hope that this point will be discussed in depth at future expert panel meetings. In order to ensure access to innovative new drugs, it is necessary to create an attractive market by setting appropriate prices from the perspective of global standards according to the classification and role of the drug, and by encouraging the launch of innovative new drugs by achieving further flexibility.

2. basic framework for problem solving

Creation of innovation through public-private partnership

The following support programs are available for academia and venture companies with promising drug seeds: venture capital, the Japan Agency for Medical Research and Development (AMED), the Medical Innovation Support Office (MEDISO), and the InnoHub (Healthcare Innovation Support Hub). InnoHub (Healthcare Innovation Hub)*1 and other organizations will support the venture capitalists and pharmaceutical companies as an exit strategy, which will lead to the creation of innovative healthcare solutions. In other words, we in the pharmaceutical industry have a renewed awareness of the need to make a firm commitment to the exit strategy for the creation of Japan's first innovations.

In order for Japan to become a science and technology powerhouse in the life science field, in addition to fostering a pharmaceutical industry that can compete globally, it is necessary to take measures to make Japan a global center for innovation creation by attracting the world's pharmaceutical industry to conduct research and development in Japan. In particular, we would like to ask for the expansion of the "Drug Discovery Venture Ecosystem Enhancement Project," for which a supplementary budget of 50 billion yen was allocated in 2021 as a strategy to strengthen the vaccine development and production system. The "Kotta Policy 2022" clearly states that support for venture companies should be strengthened, and Prime Minister Fumio Kishida also made a positive statement in his answer to the Diet. In addition to reviewing the current situation, which is limited to measures against infectious diseases, we would like to ask for more large-scale national support than now in order to win the international competition at a time when drug discovery venture investments are exceeding three-digit billion yen per case worldwide ( Figure 1 ).

Figure 1 National support that can generate innovative new drugs

Regarding the creation of innovation through the use of big data, the world is making great progress in drug approval and evidence building using real world data (RWD), and in the use of genome information in actual clinical practice. The use of AI, Big Data, etc. is indispensable and in many ways a prerequisite for future drug development and improvement of the quality of healthcare. In order to promote the utilization of health and medical big data, it is necessary to develop the infrastructure and laws in both directions. The "Kotta Policy 2022" clearly states comprehensive efforts ranging from the establishment of a national medical information platform to legislative measures. The pharmaceutical industry should also take concrete actions as soon as possible. We will not only ask for the use of data, but will also show concrete benefits to the nation and its citizens that will be brought about by the utilization of data.

On the other hand, a group of giant IT companies in the U.S., known as GAFA, is entering not only the domain of daily health applications, but also the mainstay area of healthcare, such as AI diagnosis and online medical care. The pharmaceutical industry will be swallowed up by this business model if it sees this as a fire on the other side of the river. The examples of cooperation in the digital field in the pharmaceutical industry show that we, the pharmaceutical industry, must make a major shift in our business model and sublimate it in order to meet the increasingly diverse and sophisticated healthcare needs on a global scale. This is one of the solutions to our failure to keep pace with global changes, as I indicated in the recognition of the challenges above. The pharmaceutical industry must respond to the expansion of healthcare needs to support the extension of healthy life expectancy of all citizens, including prediction, prevention, and forecasting of disease onset, based on the human life course.

National discussion to ensure the sustainability of universal health insurance

We recognize that discussions on the social security system are an unavoidable challenge for the nation. I strongly agree with the government's idea that the basic approach presented in the "Kotta Policy 2022" should be widely shared with the public and encourage national debate to avoid a composition of conflicts between generations over benefits and burdens.

In Japan, where the birthrate is declining and the population is aging, the number of elderly people, especially those in the later stages of life, is increasing, which in turn increases medical costs, and the working population is declining. In the future, medical services in Japanese society will need to become even more efficient, and we believe that digital transformation (DX) will be the key to solving this problem. Digital technologies such as AI, which were previously used only to diagnose a limited number of organs and diseases, are now being applied to a wide range of diseases throughout the body. And in order to maximize the effective use of limited social security funds, the acceleration of medical DX is a prerequisite.

Appropriate use of pharmaceuticals is also indispensable to optimize medical costs. The Pharmaceutical Manufacturers Association of Japan (PMAJ) is vigorously promoting a variety of initiatives to eliminate drug resistance (Antimicrobial Resistance, AMR) and polypharmacy. We do not end with the sale of pharmaceuticals, but take responsibility for their proper use.

Reform of the NHI drug price system to ensure access to innovative new drugs

As mentioned earlier, while the global pharmaceutical market is growing steadily, the Japanese market is the only one that is shrinking, to the detriment of the Japanese people. In order for the Japanese people to have access to innovative new drugs without lagging behind the rest of the world, we believe that it is essential to transform Japan into a market where the growth of patented drugs is comparable to that of developed countries in Europe and the United States, and that the market as a whole should aim for moderate growth under fiscal constraints. Needless to say, technologies related to pharmaceuticals are becoming more sophisticated every day and groundbreaking innovations are being created, and the pharmaceutical industry will continue its efforts to deliver the benefits of these innovations to the public. I would like to reiterate that a healthy and innovation-friendly Japanese market is the foundation of our business activities ( Figure 2 ).

Figure 2 Building a pharmaceutical market that ensures access to innovative new drugs

In terms of the recent situation and issues related to Japan's NHI drug pricing system, the conditions of the pharmaceutical market and the environment surrounding the pharmaceutical industry have changed drastically since 2010, when the additional allowance for new drug creation was introduced. The ratio of generic drugs has increased to approximately 80%, and manufacturers of brand-name drugs are moving away from a business model that relies on long-listed products. In other words, the initial role of the additional subsidy for new drug creation has almost been fulfilled. The time has come to update this system to a simpler and easier-to-understand form after clarifying what the next step will be. We must take immediate action to address the recent increase in the number of unapproved drugs and the signs of drug lag and drug loss. In order to achieve early access to innovative new drugs, it is important that innovation be well evaluated. Specifically, it is necessary to establish a global standard system that protects the value of innovations during the patent term as long as the clinical and scientific evaluation remains unchanged, as well as a system that objectively and appropriately evaluates the various values of pharmaceutical products ( Figure 3 ).

Figure 3 Recent situations and issues related to the NHI drug price system

The first of the proposals for the NHI drug price system for new drugs is the introduction of a new price maintenance system. The main thrust of the proposal is to introduce a simple price maintenance system that excludes the conventional price revision based on the prevailing market price. However, it does not mean that the drug price during the patent period is unconditionally maintained. Rather, it is a system whereby after a certain period of time has elapsed after the NHI drug price is listed, the drug price is reevaluated based on newly obtained evidence, environmental changes, and other factors, and is revised, including reductions, based on this reevaluation.

The second point is the introduction of a new value evaluation process. The second point is the introduction of a new value evaluation process. This process will be used to evaluate the value of new drugs with extremely high novelty and medical needs in a broad and objective manner prior to NHI price calculation, and a system will be established to calculate the NHI price based on the evaluation report. By introducing this system, we hope to increase the transparency and acceptability of drug prices to the public. The NHI price system should be reconstructed so that innovative new drugs can be delivered to the public more quickly by reforming the system in an integrated manner ( Fig. 4 ). We would like to create a system in which innovative drugs are appropriately valued from the perspective of global standards, while those that are not so innovative are calculated at a value that is commensurate with their value.

Figure 4 Proposal framework for the NHI drug price system for new drugs in the patent period

In the new valuation process, we envision that pharmaceutical companies will proactively explain the value of their drugs, and a third-party organization will objectively evaluate the appropriateness of the value in a report that will be made public. The process of drug value evaluation and NHI price calculation should not be a black box, but a highly transparent system. In addition, the value evaluation process should be conducted prior to NHI price calculation, while complying with the 60- and 90-day rules after NHI price listing. This is completely different from the current cost-effectiveness evaluation system, in which price adjustments are made after the drug is listed on the NHI drug price list.

The various values of drugs are indicated by the results of a web-based survey of the public presented at the Policy Research Institute in 2021. It is clear that the public has expectations for the various values of pharmaceuticals, especially labor productivity and reduced uncertainty (the ability to predict the degree of efficacy and side effects), and discussions on the development and use of outcome measurement tools for these are underway both in Japan and abroad.

Under the current NHI drug price system, medical institutions, pharmacies, and drug wholesalers trade under a ceiling of NHI prices, and from this ceiling, free competition will always result in a difference in NHI prices. In other words, NHI drug prices will always fall if drug price revisions are made, and increasing the frequency of drug price revisions will lead to an accelerated decline in drug prices. This mechanism is unique to Japan, and we recognize that it has led to the decline in the attractiveness of the Japanese market and prolonged the problem of a stable supply of pharmaceuticals. On the other hand, for medical institutions and pharmacies, the revenue derived from the NHI price differential is an extremely important factor in their business management. Despite the fact that drug price differentials arise structurally, the issues of transparency and appropriateness have not been resolved, and the public ultimately bears the burden of the drug price differentials. In light of the public burden, we believe that the time has come to consider a fundamental review of the NHI price revision system based on prevailing market prices, which is a fundamental issue, as a transparent system that is easy for the public to understand.

In summary of today's announcement, we, the pharmaceutical industry, will make a solid contribution to the nation and its people by implementing the pharmaceutical industry policy as a national strategy through public-private partnership ( Figure 5 ).

Figure 5 Pharmaceutical industry policy as a national strategy

Finally, at the end of 2021, a study group on driving economic growth by extending healthy life expectancy, consisting of professors specializing in health economics and other fields, has been established. In this study group, prominent professors discuss from a neutral and objective standpoint how the pharmaceutical industry and pharmaceutical products can contribute to the extension of healthy life expectancy and economic growth from an academic standpoint. The Pharmaceutical Manufacturers Association of Japan (PMAJ) will firmly support good discussions that lead to excellent results from this study group.

Questions and Answers

	With drug prices falling even during the patent period in Japan, how should the current system be changed? Is it correct to understand the new NHI price maintenance system mentioned in the proposal for NHI price reform as "a mechanism to completely maintain NHI prices"? Does this maintenance system have anything to do with the "fundamental reform of the NHI price revision system based on prevailing market prices" described below? Also, when do you envision this system being implemented?
	The proposed NHI price maintenance system is a system in which NHI prices are maintained unless a change in medical value, such as clinical positioning, is recognized, and we envision a new system as a built-in part of the system. NHI prices should not be devalued unless a change in value is recognized through medical evaluation. It depends on discussions with various stakeholders, but we recognize that it should not take five to six years. Under the current additional drug creation allowance, products subject to the allowance are exempted from price reductions during the patent period, and the mechanism is such that prices are significantly reduced after the expiration of the exclusivity period (LOE). Although it is not closely related to the prevailing market price method, it is relevant from the perspective of the overall design of the NHI drug price system. We would like to make proposals to stakeholders on the details in the future through opportunities such as industry statements of opinions at the expert panel meetings.
	Is it correct to consider the issue of prevailing market prices as a medium- to long-term issue?
	In the mid- to long-term, we are advocating that the framework of the NHI drug price system should be changed in the evaluation of new drugs. (On the topic of NHI price reform, the proposal today is out of scope because it will affect the discussion on the mid-year revision. We believe that the drug price revision system based on prevailing market prices has reached its limits due to systemic fatigue, and we would like the Expert Panel and others to discuss this issue in the future.
	The need for national discussion to ensure the sustainability of universal health insurance is mentioned. Does this mean that you would like the issue of how to finance medical expenses, including reform of the NHI drug price system, to be placed on the chopping block at the Council for the Establishment of Social Security for All Generations?
	Although there are perspectives on individual issues as you have pointed out, we believe that "overall discussions" should strongly proceed in the context of the overall social security framework, which includes approximately 10 trillion yen for pharmaceuticals and more than 40 trillion yen for medical expenses, among the more than 100 trillion yen in social security expenditures on an expenditure basis, as well as nursing and long-term care, pensions, and other areas. We are not saying that only the pharmaceutical part should be considered. The "Framework for the National Health Insurance Policy 2020" addresses the issue of benefits and burdens as part of the overall framework, and this is a discussion that must be faced (as a nation). I strongly agree that the national government should proceed with discussions on national issues, including what to do about the universal health insurance system and what should be covered by public assistance.
	What are your views on the evaluation of pharmaceuticals and how to generate financial resources for reforming the drug price system?
	It is necessary to discuss what should be covered and to what extent within the limited social security financial resources. Naturally, there is a trade-off in the overall pharmaceutical market, but it is necessary to have a balanced approach that takes into account the review of innovative new drugs and drugs under patent. There are perspectives such as the extent to which public insurance should cover all drugs, from innovative new drugs to drugs not listed in treatment guidelines. If these issues are not discussed thoroughly and the general framework management discussion takes precedence, it will lead to postponement of problem solving and may lead to market inefficiency. We believe that the market structure proposed today can be realized by first resolving individual issues and making it more flexible.
	Discussions are expected to take place in the expert panel and in the mid-year revision. Today's proposal is on the NHI drug price system, and we assume that the major theme will be discussed in 2023. Do you have any thoughts on how to respond to the mid-year revision, which is likely to be discussed in the near future?
	First of all, the Pharmaceutical Manufacturers Association of Japan (PMAJ) has issued various statements on the mid-year revision, as it will have a tremendous impact on the promotion of innovation and the stable supply of pharmaceuticals. There is no change in our basic stance on this issue. In the future, we would like to work with the Japan Federation of Pharmaceutical Manufacturers' Associations (JFPMA) to make firm proposals on the direction of solutions.
	What is the difference between the "Evaluation Report" presented today and the "Request for NHI Drug Price Listing" submitted to the Economic Affairs Division?
	The purpose of today's presentation is to increase the transparency of the drug evaluation process. I would like to propose the specific contents of the evaluation report in due course. It is important that the evaluation be conducted by a third-party organization and that the process be made public. One specific item is "value elements," and we would like to discuss the presence or absence of such elements and their weight in the current value assessment.
	Regarding the method of determining drug prices, do you want pharmaceutical companies to openly prepare value evaluation reports, which are then evaluated by a third-party organization, and to ensure transparency to the public, you want to include factors such as those related to quality of life in the value evaluation, for example?
	We are unable to discuss the weighting of value factors at this time, but the proposal is to improve the evaluation method to reflect this concept.
	What exactly is being reviewed in the "fundamental revision of the NHI price revision method based on prevailing market prices"? Is it possible to create a system that would prevent differences in NHI prices?
	As long as the prevailing market price method is used, NHI price differentials are bound to occur. Since it is unclear how the NHI price difference arises and it has been pointed out that the NHI price difference is a bad thing, the committee stated that "there are issues regarding the transparency and appropriateness of the NHI price difference. We would like to make a proposal on specific details in cooperation with the NHI Research Committee on Insurance Drug Prices (NHI) of the JFPA.
	In the "new value evaluation process," it is stated that a third-party organization will evaluate the appropriateness and set a specific price.
	We have not been able to compare this with ICER, but the important thing is to conduct objective evaluations.
	There seems to be no example of introducing a system to measure outcomes and reflect them in prices, even in the world. The calculation method has not yet been established, and we think it would be very difficult, but how confident are you in your ability to achieve this?
	You are right that it is difficult to evaluate. There are various calculation methods for increasing working hours, but they have not yet been established. Today's presentation is only a qualitative explanation, and the details will be discussed in the future.
	In terms of your "vision" for the construction of the pharmaceutical market, do you envision the market expanding as a whole? Also, in the breakdown of the market, it appears that long-term listed products have been eliminated and the market is now composed only of patented products and generics.
	Patented products should be evaluated on the same level as in Europe and the U.S. as much as possible. We have not indicated what percentage we are aiming for, but unless the market is at least on par with Europe and the U.S., the problem of the increase in unapproved drugs that is occurring at present will not be halted. The market as a whole is expected to grow at a "moderate rate. The global market is growing by about 3-6%, but as a practical matter, investment in a shrinking market will lead to a spiral of ever-declining investment. We will refrain from answering about the trade-offs in the overall situation. However, we have presented data on the current composition of the value base and physical quantity base in comparison with other countries. At the MHLW's expert panel, we look forward to an international comparison of drug unit prices, the status of approval in Japan and the rest of the world, and discussions on the merits of NHI price calculation.
	The drug lag (loss) in Japan may be caused by companies that do not have a foothold in the Japanese market. Please explain the logic behind the relationship between the NHI drug price system and drug lag as presented in this report.
	As we indicated in "Current Status and Issues", venture companies that do not have a foothold in Japan do not dare to enter the Japanese market. The other reason is that even among Big Pharma companies that have already entered the Japanese market, the predictability of the Japanese market and the system that cuts into innovation have revealed the reality that they have overall lowered their priority to the Japanese market. In other words, the value of innovative new drugs is recognized globally, but in Japan, in addition to the launch pad issue (at the time of new listing), the drug price is reduced even though the drug is still under patent, and as a result, the drug is referred to as a cheaper price even if developed in Japan, which means that companies without a foundation in Japan As a result, companies that do not have a foundation in Japan would not dare to target Japan for their clinical development. In addition, even Big Pharma believes that this leads to a lower priority for development in Japan. Again, the problem is that Japan does not have a global standard system with respect to the value of innovative new drugs. Recently, there have been many new drugs originating from venture companies, but the reason why such venture companies have not entered the Japanese market is not only because of the NHI drug price system. For example, it may be due to differences in the clinical trial environment or insufficient market research, which may lead to development in other regions before investigating the Japanese market. We believe that drug prices play a significant role in the current situation where even venture companies, which are collaborating with Big Pharma in the horizontal division of labor, are not rushing to conduct clinical trials in Japan.
	Are you aware that the NHI price difference is a bad thing?
	I have no such perception. Our intention is that we often hear the suggestion that "the NHI price differential is a bad thing. As long as NHI drug prices are at the top and free competition takes place under them, NHI price differentials will be generated in the context of prevailing market prices. Even after various discussions, we feel that we have not been able to dispel the point that "the NHI price differential is a problem" in terms of transparency and appropriateness. I am merely saying that there is such a debate.
	Does this mean that a system without drug price differentials will be proposed? There have been proposals for new systems such as purchase price reimbursement at the Pharmaceuticals Mirai Juku and others, and will such systems be considered? In addition, please tell us if there are any other issues to be recognized besides the "NHI price difference". Will these discussions also lead to a range of adjustments?
	We would like to make proposals on matters beyond today's presentation in close cooperation with the JFMA. In the discussion on transparency, for example, when the NHI price is set at 100, there is discussion on whether a deviation rate of 8 is significant and whether a deviation rate of 5 is acceptable, etc. On the other hand, there is no discussion on what percentage difference in NHI prices is acceptable, including whether a 2% adjustment range is appropriate. The discussion continues from the perspective of transparency and reasonableness. We believe that such a state of affairs requires a drastic review, and we have indicated our recognition of such issues at this time. We believe that these discussions will lead to a range of adjustments.

( Naoyuki Iwata, Public Relations Committee, Ondmedia Promotion Subcommittee)

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