MHLW Considers Price Maintenance Scheme for Patented Drugs

Japan's Ministry of Health, Labour and Welfare (MHLW) has started considering a price maintenance scheme for patented prescription drugs in a bid to encourage the marketing of innovative treatments in the Japanese market. According to a report by Nikkei, the new scheme is aimed to change the existing ruling, which sees patented drugs undergoing price cut in the country's National Health Insurance (NHI) price revisions once every two years, and maintain their prices during their patent protection period. On the other hand, the MHLW is also planning to maintain generic drugs' price advantage over off-patent innovative drugs by setting generics' prices lower than the latter.

The MHLW is expecting to make its final decision, which will be based on the input from the Central Social Insurance Medical Council, by the end of this year. The imposition of the new scheme is expected to start in April 2010, when the next round of Japan's price revision is scheduled to be effective. The price maintenance scheme for patented drugs is estimated to increase Japan's healthcare costs by some ¥100 billion (US$1.1 billion), the source added.

Outlook and Implications

Earlier this year, IHS Global Insight reported that the Federation of Pharmaceutical Manufacturers' Associations of Japan (FPMAJ) had put forward a proposal calling for the MHLW to maintain innovative drugs' NHI prices for their patent protection and re-examination period (see Japan: 20 April 2009: MHLW Reviews FPMAJ's Proposal on NHI Drug Price Maintenance System). Under the current drug pricing policy in Japan, innovative drugs are facing biennial price reductions during their patent-protected period, the same as off-patent and generics drugs. Altogether with other factors such as the country's drug approval lag, this has led to the reluctancy of innovative drug makers to market their new medicines in Japan. As a result, some new drugs are only approved and launched years after their marketing in other markets such as the United States, Europe and Australia. For innovative manufacturers, the biennial price cut is disencouraging with reduced profit margin for their products after heavy investment in their research and development.

The MHLW's consideration on the proposed scheme is therefore an encouraging development for innovative drug makers, which are poised to see their new drugs' revenue bolstered by price maintenance should a positive decision be made next month. Nevertheless, the prospect of increased drug cost to Japan's NHI system, which has already been under a heavy burden, is likely to generate strong opposition to the new scheme. Furthermore, the MHLW's earlier concern about how to define eligible drugs for price revision exceptions with genuine innovativeness may also lead to a limited scope of drugs to be subject to the potential price maintenance.