Japan is the second largest single market for pharmaceuticals worldwide. However, over the past decade, significant regulatory barriers to new product approval developed, leading to an extensive drug lag in which 120 global products launched worldwide since 1985 remain unavailable in Japan.1 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.
As a result, in 1997, the U.S. Government agreed to include the pharmaceutical sector in the U.S. - Japan Enhanced Initiative for Deregulation and Competition. Specifically, at the Birmingham Summit of G-8 countries in May 1998, Japan's Ministry of Health and Welfare (MHW) made significant commitments under the Enhanced Initiative to facilitate market access and deregulation on four specific points related to pharmaceuticals sector regulatory and pricing mechanisms:
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.
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.
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.
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.
In June 1999, the Japanese Government furthered their commitment to deregulation and valuation of innovation with amended language stating that:
"recognizes the value of innovation of pharmaceuticals so as not to impede or prevent the introduction of innovative pharmaceuticals which bring more effective and more cost-effective treatments to patients, and continues to study the pharmaceutical pricing system with related parties, including the U.S. industry, recognizing the role of the market."
The Japanese Government is working in good faith to meet these commitments on the regulatory approval system; however, there are a number of areas where continued engagement is needed to resolve issues on reimbursement pricing. The following provides a review of Japan's status on regulatory and reimbursement pricing deregulation to date.
Industry currently is working with MHW to further progress in re-organization and harmonization of Japan's regulatory requirements. Specific areas targeted include MHW's follow-through on commitments to broad acceptance of foreign clinical data, training of reviewers for review of foreign data, development of strategy to shorten product review time to 12 months, and in particular, sponsors direct communication with the experts and the reviewers.
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. Industry 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.
MHW's structural reform of the drug approval process has targeted all aspects of the system. The staffing of reviewers has doubled since 1997, with short term efforts focused on training for the current staff rather than additional increases. MHW has also developed internal guidelines on Good Reviewer's Practices (GRP) modeled after the FDA standards.
This year, MHW committed to approve dosage strengths which are bracketed by previously approved dosage strengths without having to request further clinical "test" data other than bioequivalency data; abolish the Sub-Committees of the Central Pharmaceutical Affairs Council and institute a team-review system in the Pharmaceutical and Medical Devices Evaluation Center that will allow for continuous direct communication between the reviewers and the applicant, increase the number of meetings of the Special Committee which evaluate the preliminary review report to eight times per year (versus four previously), and eliminate the backlog of pending approvals through acceptance of data prior to the 1997 implementation of new guidelines on clinical practices.
Since January 1999, MHW has published several official notifications on new regulations to allow for the continuation of clinical work during the review process, eliminate a mandatory number of clinical trials, and eliminate requirements for new trials with different dosage forms. Although the industry is supportive of the above changes, another a notification was published in October 1999 regarding guidelines on the disclosure of portions of the NDA on the internet which causes significant concern for the industry.
MHW assured the Committee members that proprietary portions of the Gaiyo will not be disclosed; however, MHW also indicated that the sponsor has responsibility to make sure that attachment is labeled confidential otherwise proprietary portions could be made public. Industry is working with MHW to set clear guidelines in order to assure adequate data protection.
Other areas of concerns in the regulatory reform initiative include questions about how MHW will meet it's commitment to a 12-month review time given that MHW has not established a relatively structured timing mechanism for the review process. In addition, industry is concerned with the practical interpretation of the ICH E-5 guidelines on bridging studies for ethnic sensitivities and is also seeking the establishment of a transitional mechanism for use of bridging packages for products with significant global experience and data. Lastly, clear metrics on how the improvements in review time will be measured need to be established under the Enhanced Initiative for objective, consistent and transparent assessment.
Pricing and Reimbursement Barriers
A good portion of the early years of the MOSS discussions targeted trade barriers within the drug approval process; however, market access barriers by means of the reimbursement pricing system have increased significantly over the past several years, and as a result, are now a major portion of the MOSS agenda. Under the Enhanced Initiative, the commitments related to reimbursement pricing include recognition of the value of innovation and the role of the market, transparency and access to all relevant councils and officials involved in policy reform.
To date, most of the reforms proposed by the Ministry of Health and Welfare (MHW) have involved significant price cuts to innovative medicines, compromising the ability of the industry to obtain rewards for investment in innovation and market access for new medicines. In fact, earlier this year, the leading proposal under consideration by the Government of Japan was for a reference pricing scheme which, if implemented would only expand government regulation and control over reimbursement levels for patented, innovative medicines, adversely affecting research-based pharmaceutical companies.
Global evidence supports that 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. Additionally, reference pricing system would directly violate Japan's Birmingham commitments and impede the introduction of innovative products.
In response, the industry presented a proposal for a market-based pricing to the Japanese Government in December 1998. The principal objective of the proposal was to suggest a way to implement a market-based system that values innovation and increases market access to innovative medicines. MHW supported a reference pricing system that would cut prices of innovative new medicines to the level of older, ineffective medicines and generics. In April, 1999, the Liberal Democratic Party (LDP) rejected the PhRMA proposal citing it as impractical for a universal coverage insurance system, as well as took MHW's reference pricing proposal off the table.
Since then, the Japanese Government announced that it is not prepared at this time to undertake comprehensive restructuring of the reimbursement pricing system, but will pursue revisions to the current system instead. The subcommittee of the Central Social Insurance Medical Council (Chuikyo), established by MHW, engaged in deliberations to revise the current pricing system. Final decisions on the revisions are expected by mid-December 1999.
Industry has submitted a proposed Price Review System as a practical and cost-effective way to better reward innovation and efficiently value pharmaceutical products within the current structure of regulated reimbursement prices in Japan. Under the Price Review System, the manufacturer of a pharmaceutical product would present to MHW a comprehensive dossier with a proposed reimbursement price and objective and scientific data to support that price. The dossier would be based on data generated to global scientific standards according to ICH guidelines. The manufacturer and MHW would then discuss the pricing proposal, and MHW could retain authority to accept or deny the proposed price. In the case of denial, MHW would provide a detailed written rationale for the rejection, and the manufacturer could resubmit a revised pricing proposal within a defined time period (e.g., 30 days).
The Price Review proposal offers a significant step toward better recognition of innovation in the Japanese pharmaceutical pricing system, as the value of each product would have to be defended based on detailed scientific and medical information, rather than mechanical application of a formula or price comparisons.
In contrast, the preliminary recommendations by the Chuikyo subcommittee give cause for concern that the revisions to the current system may not be toward deregulation and encouragement of innovation. Reports indicate that pricing decisions may be delegated to a Chuikyo committee. Traditionally, Chuikyo operations related to pharmaceutical pricing have lacked the transparency, neutrality, objectivity, and technical expertise to price pharmaceuticals in a fair and reasonable manner that appropriately values innovation. In addition, reference pricing in another form may again be under consideration.
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 deregulated reimbursement pricing system would further increase opportunities for trade and investment by the U.S. research-based pharmaceutical industry in Japan.
1 Draft Study by L.G. Thomas III, The New Drug Lag: Barriers to the Japanese Pharmaceutical Market, 1998.