Japan is currently the fourth largest market in the world. Based on estimates by GlobalData, the Japanese pharmaceutical market generated 9.392 trillion yen ($67.32 billion) in total sales in 2021 and is expected to grow 1.1% in 2022 to 9.498 trillion yen ($68.08 billion). However, despite this large market share, the Japanese market is likely to become a less attractive market for international pharmaceutical companies based on recent findings from the Office of Pharmaceutical Industry Research (OPIR).
OPIR, a research division of Japan’s major pharmaceutical industry association, Japan Pharmaceutical Manufacturers Association (JPMA), recently released a report highlighting the drug delay phenomenon in Japan, showing that ten out of 37 JPMA member companies (27%) considered Japan a priority Low investment of its business operations since 2016. Of the 37 member companies, 17 of them are overseas companies and 20 of them are Japanese companies with an overseas pharma sales ratio of more than 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 reduced the priority given to Japan after 2021. 27 companies (73%) reported no significant change in its investment plans.
One reason for this is the concern shown by the Japanese pharmaceutical industry about the impact of annual price revisions. Six companies responded to the OPIR survey by claiming that the drug’s lower price was the main reason for them to change their market strategy while another two companies said that the drug’s price was the second most important factor for them to change their investment plan. Other reasons include lower sales demand and higher investment costs. Regarding the impact of negative changes in international investment in Japan, pharmaceutical companies that decided to deprioritize their business in Japan recorded lower drug sales. A lower number of clinical trials and regulatory filings were other important influences behind the decision. Other contributing factors include the low number of post-market studies and difficulties with initial research and manufacturing.
The OPIR report showed that pricing policy in Japan has sparked serious concern among large multinational pharmaceutical companies, which are apprehensive about the potential for lower return on investment. However, it is difficult to distinguish between the investment plans of foreign companies and Japanese companies with a 10% + percentage of overseas drug sales, as the results of the OPIR survey appear anonymously.
The survey result may spur further calls from the industry for price hikes in fiscal year (FY) 2023, which will start from April 2023, as it could directly indicate a decrease in market investment opportunities for pharmaceutical companies due to pricing policy. . Japan’s Ministry of Health, Labor, and Welfare (MHLW) has introduced a series of pricing regulations to lower the prices of drugs on the National Health Insurance (NHI) list, including the implementation of annual price reviews out of the year. GlobalData estimates that the NHI drug price review for fiscal year 2021 resulted in price reductions for approximately 70% of key pharmaceutical treatments, with major/tier 1 drug manufacturers expected to experience average NHI price reductions of 2% to 4%. . This trend continues as it is estimated that the FY2022 price revision resulted in an average price drop of 4% to 5% for major drugmakers.
The Ministry of Health, Labor and Welfare is currently proposing discussions on revising drug prices for fiscal year 2023. Experts from the MHLW Price Review Committee acknowledged that the Japanese drug market is struggling to attract international investment and comes with risks. For example, lower investment may indicate a delay in launching innovative drugs in Japan. Meanwhile, another recent report by the Ministry of Health, Labor and Welfare confirmed that 696 essential medicines from 94 companies were identified as unprofitable due to increased manufacturing and packaging costs and the depreciation of the Japanese yen.
The Japanese pharmaceutical industry has warned that supplies of some drugs may be disrupted if NHI drug prices remain low and claimed that the current pricing policy may discourage drug manufacturers from launching new products in Japan. GlobalData anticipates that concerns about drug recalls from the Japanese market and supply disruptions to essential generics may lead to a more permissive approach to price control to ensure a stable supply of essential medicines.