Over the last decade, significant regulatory barriers to new product approval have developed in Japan, leading to an extensive drug lag in which 120 global products launched worldwide since 1985 remain unavailable in Japan.7 In 1996, an industry survey revealed that on average, JNDAs were taking 26 months for review, compared to 18 months in the United States, the UK and Germany. Average review times further decreased to 12 months in the U.S. in 1997.
Regulatory barriers include requirements for local Phase III clinical trials and the creation of an environment that is not conducive to the provision of reliable data or efficient testing procedures. In Japan, moreover, there is a lack of transparency in the drug regulatory review system with little industry participation in that review process, and overly bureaucratic and highly inefficient organization of new drug approval system itself. Delays in the regulatory approval process created by these barriers have greatly affected U.S. companies' ability to do business in Japan.
Recognizing that Japan is the second largest single market for pharmaceuticals worldwide, in 1997, the U.S. Government agreed to include the pharmaceutical sector in the U.S. - Japan Enhanced Initiative for Deregulation and Competition. Under the Enhanced Initiative, the industry has made notable progress in facilitating commitments by Japan's Ministry of health and Welfare (MHW) to re-engineer and modernize the regulatory approval process, as well as harmonize its regulatory requirements with those of the U.S. and EU.
At the Birmingham Summit of G-8 countries in May 1998, the U.S. received a landmark commitment from the Government of Japan on four specific points to facilitate deregulation of the pharmaceuticals sector for both regulatory and pricing mechanisms:
1. Recognition of the value of innovation of pharmaceuticals and medical devices, so as not to impede the introduction of innovative products which bring more effective cost-effective treatments to patients.
2. In order to ensure the transparency in the consideration of health care policies, the Government of Japan also committed to allowing foreign pharmaceutical and medical device manufacturers meaningful opportunities to state their opinions in the relevant councils on an equal basis with Japanese manufacturers ("yuigi-na iken hyomei-no kikai"), and providing them on their request with opportunities to exchange views with MHW officials at all levels.
3. A shortening of the approval processing period for new drug applications to 12 months by April 2000, with steady and continuous improvement between now and then, and to further speed the introduction of innovative new pharmaceuticals, significantly shorten times, particularly for priority drugs.
4. An expansion of the acceptance of foreign clinical test data for pharmaceuticals through the incorporation of International Conference on Harmonization guidelines into Japanese regulations by August 1998, and adoption of an acceptance process that is transparent and avoids inappropriate delays.
For the most part, the Japanese Government seems to be working in good faith to meet these commitments on the regulatory approval system, but there are a number of areas where continued vigilance is required.
Industry currently is working with MHW to further progress in re-organization and harmonization of Japan's regulatory requirements. Specific areas for improvement include MHW's follow-through on commitments to broad acceptance of foreign clinical data, increase staffing of reviewers and provision of appropriate training for review of foreign data, development of strategy to shorten product review time to 12 months, and in particular, elimination of backlog of pending approvals through acceptance of data prior to the 1997 implementation of new guidelines on clinical practices.
Of particular concern to the industry is the recent action by MHW to return 200 applications to the submitting companies for various deficiencies. Apparently, a number of these will be discontinued altogether. It is not yet clear whether this action is justified. Thirty applications continue to be under review.
For the industry, the acceptance of foreign clinical data from the U.S. and Europe is the most important factor in reform of Japan's regulatory approval process. In August 1998, MHW implemented a Guideline for Ethnic Factors in the Acceptability of Foreign Clinical Data, but more experience is required to determine whether the extent of acceptance is satisfactory. PhRMA believes that all foreign clinical data which meet international standards should be acceptable. The ability to use foreign clinical data in Japan will help minimize expensive duplication of effort and save significant development time.
Pricing and Reimbursement Barriers
Another pressing issue facing the pharmaceutical industry in Japan is the proposed reform of the pricing and reimbursement system. The leading proposal under consideration by the Government of Japan is for a reference pricing scheme which, if implemented would only expand government regulation and control over reimbursement levels for patented, innovative medicines, adversely affecting U.S. research-based pharmaceutical companies. Reference pricing has been proven to be a disincentive for innovation as well as an ineffective mechanism to contain pharmaceutical and health care expenditures in other countries that have implemented such a system. Adoption of a reference pricing system would directly violate Japan's Birmingham commitments not to impede the introduction of innovative products.
As such, PhRMA has been very active in the development of an alternative proposal to reference pricing that supports deregulation of the pharmaceutical sector through the adoption of an incentive-based market-driven pricing and reimbursement system. On a number of occasions, PhRMA has indicated its intention to present to the Japanese Government a viable proposal for such a system that would provide appropriate rewards for innovation, ensure access for Japanese patients to innovative medicines in the future and assist the Japanese Government in providing cost-effective solutions to some of their most daunting cost containment problems for their rapidly aging society.
MHW officials have indicated their belief that a market-based pricing system is not a practical alternative, which suggests they are more interested in observing their Birmingham commitments as a matter of process rather than of substance.
Clearly, Japanese officials view the Birmingham agreement as a procedural mechanism without requirements for tangible results in the context of policy submissions to the legislature. MHW bureaucrats seem to believe that as long as they meet with industry on a regular basis, they are fulfilling the Government's trade commitments. There is no understanding or acceptance of the idea that the Birmingham commitments need to be reflected in the policy reforms of the Japanese health care system.
Accordingly, industry requests continued strong engagement by the U.S. Government in support of Japan's full compliance with commitments under the U.S. - Japan Enhanced Initiative on Deregulation and Competition on both regulatory reform and pricing and reimbursement reform. While the U.S. overall trade deficit with Japan has expanded during the past year, the U.S. pharmaceutical industry traditionally has maintained a significant trade surplus with Japan that reflects the international strengths and competitiveness of its research. PhRMA believes that this positive industry trade balance with Japan could deteriorate significantly, if a system of reference pricing governing the reimbursement of pharmaceuticals is adopted in Japan.
Potential Exports/Foreign Sales
Recognition of foreign clinical data would result in significant cost savings and reduced development time. Combined with NDA review times, these changes could result in new drugs reaching the market sooner. Depending on the product, this could result in increased sales on the order of $75 million to $125 million per product, in addition to savings in development costs. MHW may be able to approve 30 new, innovative products in an average year (including European and Japanese innovative drugs); this value change could range between $2.5 billion and $3.75 billion.
The adoption of a market-driven system would further increase opportunities for trade and investment by the U.S. research-based pharmaceutical industry in Japan.
7Study by L.G. Thomas III, The New Drug Lag: Barriers to the Japanese Pharmaceutical Market, The American Enterprise Institute, 1998.]