High prices shock Japan, prompting dramatic changes

Pharma companies should be bracing for more frequent price cuts in Japan, as well as a bit more unpredictability when it comes to how prices will be determined. 

Historically, Japan has been a very consistent and predictable market, but the recent launch of several innovative drugs with very high price tags triggered a cascade of events that is moving the Ministry of Health, Labour and Welfare (MHLW) toward new pricing reforms that will drastically change the landscape, according to a new report by global consulting firm LEK.

Japan’s biennial pricing policy used to be more mechanical and rigid, and companies came to expect that their drugs would be reduced by 2% every two years, Ray Fujii, LEK’s Japan representative director told BioPharma Dive.

The MHLW will look at cutting prices every year, he said, adding that there is also no limitation to drug price cuts.

"Now they will take different components into account when they re-price a drug," Fujii said. "For example, for Opdivo (nivolumab), the agency will look at actual revenue, and if it significantly exceeds what the company estimated when it set the price, the cuts could be deep.

Talks of reform started around the time that Gilead’s hepatitis C drug Sovaldi (sofosbuvir) was introduced to the market in Japan, which put considerable pressure on the country’s universal healthcare system despite the potential of the drug to cure HCV.

Opdivo launch triggers reform

The Opdivo launch was the trigger that moved lawmakers to action, report author Patrick Branch said in an interview.

Opdivo launched first in Japan in 2014 at a price of JPY 729,849 (USD$7,298) for one 100 mg vial. The initial indication was for melanoma, which has relatively low precedence in Japan. The regulator was willing to pay the high price tag as long as it was for an orphan indication, but as originator Ono Pharmaceuticals began to roll out additional indications, the regulator felt blindsided, as it greatly increased the Opdivo patient population and put a strain on the country’s resources.

As a result, "policymakers introduced the 'ultra-expensive drug repricing rule' in early 2016, a measure targeted at drugs that have far exceeded the revenue forecasts provided by respective manufacturers to the MHLW at the time of pricing," the LEK report says.

The resulting policy greatly affected the pricing of four big sellers, including Sovaldi, Gilead's follow-on Harvoni (sofosbuvir/ledipasvir), Roche's Avastin (bevacizumab) and the anticoagulant Plavix (clopidogrel), with price cuts ranging from 10.9% for Avastin to 31.7% for Sovaldi.

Opdivo was singled out and hit the hardest with a 50% cut In November 2016.

What can companies expect from Japan’s new approach to pricing drugs?

For one, it is moving toward a more value-oriented and restrictive formula, according to LEK. Fujii said the government is talking about implementing health technology assessments, but it hasn’t talked about how they would do that.

LEK suggests that the new policy is likely to contain the following elements:

  • Pharmacoeconomic measures such as health technology assessments to "more rationally inform pricing decisions for innovative and potentially high-cost therapies;"
  • Stronger prescribing restrictions, possibly even requiring physicians to rationalize usage of certain high-priced drugs; 
  • More rigid assessment of innovative drugs, so that "me-too" drugs would not be afforded high price tags; and
  • A departure from Japan’s "rigid rule-based approach to pricing," in favor of access to a system that is more flexible and pragmatic.  

Branch suggested that France might be a model that Japan would consider, because it blends economic consideration with innovation that could better reflect Japanese values than say a UK model. The U.S. model, Branch said, is determined by HTAs at the expense of physician discretion, and in Japan, physicians wield a fair amount of power.

Japan does use foreign reference pricing (FRP) in making its decisions. The drug pricing subcommittee recently suggested removing the U.S. from that basket of foreign countries because prices in the U.S. are generally much higher than other countries.

The report notes that Japanese policymakers increasingly saw "U.S. pricing as an aberration rather than a comparator." It might replace the U.S. with Australia or Canada in the FRP basket, which may "materially reduce the average used in FRP pricing decisions."

The government has been successful in increasing generic usage in Japan by incentivizing pharmacies to use generics.

But the country wants to strike the right balance between innovation and granting government more control over market access, Fujii stressed. For example, Japan wants to establish its own version of the U.S. National Institutes of Health to help drive early-stage research and innovation.

Recent moves by MHLW to streamline data and regulatory requirements have helped reduce the drug lag in Japan. Local trials are no longer required as long as the Japanese population is represented in foreign trials. MHLW also launched a Japanese version of accelerated approval, called the Sakigake system, to expedite Japan-first launches of products.

Preparing to launch

Companies should make their case with MHLW when they discuss patient populations and pricing potential for their new innovative therapies, Branch said.

But rather than using these meetings with the regulator as on opportunity to pitch the highest price, companies need to be more pragmatic and flexible to the changing situation and the pressures on healthcare budgets and be more transparent in those discussions instead of fishing for the highest price possible, he urged. In particular, companies should be more transparent about potential patient populations and follow-on indications down the road.

"I think companies should be realistic, and basically what Ono did with Opdivo was quite egregious, and companies should not be expecting to get away with that in the future," Branch said, noting that companies should assume that prices will be reduced as the market is expanded. He stressed that the government has a new assertiveness that didn’t exist a decade ago when companies rather "bullied the government."

Some pharmas are struggling with the changing pricing reality, "but some such as Janssen and Bayer are quite evolved about the way they think about pricing and have built up health economic teams and market access teams and are developing more sophisticated dossiers," Branch said.

Now is the time to look at pipelines and think about quality-of-life endpoints in Phase 3 trial designs. Certain therapies may be more at risk in the new pricing scenarios.

Several new product launches might also put the current system under additional strain and trigger further change. Those key products are Merck & Co./Taiho’s anti PD-1 Keytruda (pembrolizumab), Intercept/Dainippon Sumitomo’s PBC and NASH therapy Ocaliva (obeticholic acid), AstraZeneca’s durvalumab/tremelimumab combo therapy for non-small cell lung cancer, and Biogen/Eisai’s beta-amyloid targeted Alzheimer’s drug aducanumab.

There is a concern that Western companies might become reluctant to launch their higher-priced drugs in Japan. But Fujii suggested that Japanese companies would likely find a way to partner with those companies to bring those innovative drugs into the country.

The next round of pricing revisions is scheduled for April 2018, and it is possible that annual price revisions won’t be implemented until April 2021, LEK says. Regardless, companies should brace for HTA decisions as early as 2018. 

Filed Under: Regulatory / Compliance
Top image credit: Wikimedia; Morio