Toshio Fujimoto, MBA, MD of Japan’s Shonan Health Innovation Park, gives an insider’s take on the opportunities and challenges for pharma companies in the large, innovation-friendly, but often misunderstood, Japanese market.
Japan is the world’s third-largest economy and second-largest pharmaceutical and medtech market, and yet it still holds a reputation as a difficult business environment for some foreign companies, due in part to its unique cultural nuances. Following the recent BIODigital 2020 convention, I was struck by how many top biotech executives approached me for advice on entering the Japanese market, and how little they knew about its intricacies despite their strong general interest.
I know first-hand how important understanding the playing field is when it comes to seizing potential growth opportunities here in Japan. Here are a few recent trends in the Japanese pharmaceutical market, and a few of the unique challenges the market presents.
Understanding the Opportunities
Japan is the third-largest single-country by GDP in the world and its pharmaceutical drug market accounts for 7.2 percent of the world’s USD 1.2 trillion market (2018 IQVIA survey). Prescriptions and interventions are reimbursed for the most part by the universal health system once approved, and Japan is one of the fastest markets to introduce new drugs, generally within one year of the US (according to the annual report of the Japan’s Pharmaceutical and Medical Devices Agency (PMDA)).
The Japanese government has created incentives for companies seeking to enter the market. An investigational drug can be submitted for sakigake (“pioneering”) designation, providing it is developed first in Japan (or at the same time as global development), and shows promising results for life-threatening diseases or diseases without a treatment or cure at early-phase clinical trial. Regulatory review is accelerated if a drug is granted this designation and the period of exclusivity is expanded after-market launch.
Another incentive is the conditional approval system, primarily established to enhance the development of regenerative medicine. Under this, a drug or intervention can be submitted for NDA without prior validation (Phase III trial). Efficacy and safety are instead validated during post-market trials.
Overall, while there are legitimate concerns over rising healthcare costs as a result of Japan’s aging population, the market continues to represent a reliable and attractive opportunity for those companies able to deliver new medicines that expand the possibility frontier.
Understanding the Challenges
Five key areas differentiate the Japanese market from that of the US: 1) medical needs 2) regulatory 3) pricing 4) financing 5) players involved. A common challenge for companies entering the Japan market is understanding these differences and then establishing an appropriate strategy to address them.
The Japanese population must be considered. For example, the EGFR mutation is more common among Japanese lung cancer patients (-40 percent) than the US (-20 percent), resulting in greater treatment efficacy for the molecular target agents. It’s not a coincidence that the EGFR inhibitor, gefitinib, earned first approval and continued strong sales in Japan while experiencing challenges in other countries. Understanding such differences is crucial for clinical trial decision-making and accurate assessment of post-launch market success.
The Japanese regulatory system requires close attention to be paid to what data is replicated in Japanese when filing for NDA. The rise in multinational trials has seen more non-Japanese data be accepted for NDAs recently, but PMDA—the agency responsible for drug review and approval—still requires secondary analyses of Japanese-specific data. A consistent efficacy and safety trend between Japanese and non-Japanese must be shown for drug approval. In most cases, a phase-1 study in Japanese is also required in order to show PK/PD similarities.
Japan is also unique in that new drug prices are decided solely by the government shortly after approval and before launch. Once the price is set, it will never go up, instead constantly going down with each adjustment for market price. With competition among wholesalers, drug prices are under constant pressure for discounting, and the resulting market price is reflected in the biennial price revision. Recent reform of the pricing system has seen innovative drugs enjoy a price premium and price security for a limited period, while follow-on drugs and long-listing drugs suffer harsher price cuts with each price revision. It is crucial for companies to demonstrate how innovative and indispensable their developing drugs are and negotiate the right premium up front, since this will define its value for the entire product lifecycle.
Our research shows that healthcare investment in Japan deploys only three percent (USD 0.7 billion) of that in the US (USD 22 billion in 2019), though it has grown six-fold in the last five years. Corporate Venture Capital is the primary source of capital, so for international companies wishing to expand their footprint and raise funds in Japan, the primary targets are big corporations, except for a few well-known funds like SoftBank.
There are many types of biotech firms in Japan to partner with. 20 years ago, there were more than 500 pharmaceutical/biotech companies in Japan. This number has been reduced to one hundred through M&As, but the partnership opportunities remain vast. Many small companies that haven’t generated new treatments for years have historically been protected by government regulations. The new pricing system reform means that these companies must look beyond Japan for partnerships in order to survive. In return, they can bring value in helping to navigate the aforementioned Japanese business environment.
On the surface, the complexities of the Japanese market may appear too high a hurdle for companies to overcome. It is certainly true that success requires a strong understanding of the differences involved, along with the right skills for negotiating with the government and other players. With the right guidance and network, however, I believe Japan is the most reliable and safe market in the world for companies to expand their market. The Japanese market remains unique but could well be the first move in establishing a footprint in Asia.
 Japanese universal health insurance covers 70% of patient’s costs for those aged under 70; 80% aged 70-74; and 90% aged 75 with a limit to total patient costs.
 From 2021 onwards, price revisions will be made annually.
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