Prescription drugs: Japanese style

The Japanese pharmaceuticals market is the second largest in the world, but it is also one of the most difficult to enter. Giovanni Monte* analyses the trends and opportunities for European drug companies in delivering prescription drugs

Foreign pharmaceutical companies are making headway in Japan by selling products that have proved successful at home. Of total sales in excess of ¥6 trillion(US$5bn), these companies account for 30% (see Table 1 and Figures 1 and 2)

The pharmaceutical sector is one of the few high technology sectors in which Japan runs a trade deficit. It is generally agreed that the harmonisation of new drug approval systems has helped foreign pharmaceutical companies that have globally competent products to gain access to the Japanese market; and it is expected that the listed foreign pharmaceutical companies will continue to expand their direct-marketing ability.

Merger and acquisition activities between Japanese and foreign companies are also on the rise. Nihon Schering is due to take over Mitsui Pharmaceuticals, the drug arm of Mitsui Chemicals. Another German-owned company, Nippon Boehringer Ingelheim, has raised its stake in SSP to 36%. Though not all foreign-owned companies are necessarily growing, in five years time some of those that possess the strength in both research and marketing, such as Pfizer and Banyu Pharmaceutical of the Merck group, are likely to take as much of the Japanese pharmaceutical market as the major Japanese pharmaceutical companies.

directives and amendments

Japan's National Health Insurance (NHI) system covers the cost of prescription drugs, which historically have accounted for more than 25% of Japan's total medical expenditure under the insurance system. Japanese demand for drugs increased steadily until 1995 but has fallen slightly since 1996. Amendments to Japan's Health Insurance law that became effective in 1997, and NHI drug price revisions for three consecutive years from 1996 to 1998, have had a significant effect in reducing demand for pharmaceuticals. Since there was no revision in NHI pricing in 1999, the market is showing stable growth. A consequence of all these factors is that the notional price of drugs has fallen over the past 15 years (see Figure 3).

The ruling coalition parties withdrew a Japanese-style reference pricing system in 1999, and have been working on a new drug pricing reform proposal. The new proposal, it seems, will:

Foreign firms are expected to benefit significantly from the Japanese government's deregulation measures. The Ministry of Health and Welfare (MHW) directive issued in 1998, based on the International Conference on Harmonisation (ICH) guidelines, a joint Japan/US/Europe contribution, expanded the acceptance of foreign clinical test data for the approval of new pharmaceuticals. Japan will further expand the acceptance of foreign clinical data that meet, or are equivalent to, Japanese Good Clinical Practice (GCP) standards. Japan confirmed that the approval processing period for new drug applications will be shortened to 12 months, and to speed up further the introduction of innovative new pharmaceuticals the approval period will be significantly shortened, particularly for priority drugs. Because of these developments, market share for foreign manufacturers, especially for r&d based companies, is expected to increase further.

Adverse drug reactions can differ enormously from patient to patient, and it is difficult to predict their occurrence. In order to minimise the harm caused by adverse reactions, it is necessary to identify, analyse scientifically and take appropriate measures, such as providing data to medical care providers, as rapidly as possible. In 1994 the Japanese MHW formed the study group on measures to ensure drug safety, which since then has been studying comprehensive countermeasures to ensure the safety of pharmaceuticals. In 1996, the study group compiled its views on matters related to systematic reform and recommended:

dispensing and prescribing

In the past, dispensing was not sufficiently separated from medical practice in Japan. As the society ages and the disease pattern changes, combined use and long-term use of drugs are becoming more common, and the appropriate use of drugs is becoming a serious issue. The separation of dispensing and prescribing is essential to promoting appropriate use of drugs.

Under this system, a patient's medication records (patient medication profiles) are kept at the patient's family pharmacy, so that the pharmacy can check the combination of drugs prescribed by different hospitals and doctors and prevent the occurrence of duplicate dispensing and drug interactions.

Drugs containing new chemical entities are added to the NHI drug price list four times a year (March, May, August and November), at prices calculated by comparison with previously listed comparable drugs. Drugs for comparison are selected on the basis of similar indications, chemical structure, therapeutic effects, etc. The price of the new drug is based on the daily price of the comparable drugs, with premiums added as required. If no similar drug is identified, the new drug is priced according to the 'Japanese cost calculation method'.

The committee on drug pricing issues has been studying two sticking points:

From the perspective of the rather closed world of publicly funded insurance programmes, which are represented by the law on health insurance, the main arguments usually advanced are that existing differences in drug prices should not be borne solely by insurance programmes and that pharmaceuticals consisting of basically the same ingredients should be the same price. On the other hand, the market and economic environment of pharmaceutical companies leads with the following arguments:

The R-zone is a buffer that bridges the gap between the market economy and public insurance programmes and it is necessary to facilitate smooth transactions; and even if several pharmaceutical products have the same ingredients, differences in prices reflect the market evaluation of the brands.

Furthermore, the EBC's pharmaceutical committee is asking the Japanese government to establish a new yakkasa-free pricing mechanism that rewards innovation in new drug development, recognising the important benefit that effective new drugs have in the overall delivery of healthcare in Japan.

drug approval

Globally, there has been a reduction in the administrative processing period, but in Japan the time required to obtain approvals is much longer than in the US and in European countries, in terms of both the standard administrative processing period and the actual time required. The standard administrative processing period is 18 months in Japan, eight months in the US, seven months in Germany and 120 days in the UK and France. The ICH has made a great contribution in promoting the acceptance of foreign clinical trials in Japan for use during the drug approval process. This has made it much easier for European pharmaceutical companies to have their products approved for sale.

In Japan the relationship between the pharmaceutical companies and the physicians has been characterised by face-to-face communication. Thus, Japanese manufacturers were forced to build business relationships with a large number of wholesalers or medical suppliers (MS), and to build a strong, sales promotion system employing many medical representatives (MR). This is attributed to the strong authority that doctors have, compared with their European and US counterparts.

Now, however, the Japanese companies are beginning to scratch the surface of the opportunities available to them in terms of 'online customer service', and many compare the use of the Internet for customer service to the use of call centres and telephone help-lines 30 years ago.

There is an extremely large number of MSs in the Japanese pharmaceutical distribution system, but there are no MSs operating on a nationwide basis, nor are there any that have a product line-up consisting of pharmaceuticals produced by all manufacturers. In a free and competitive market, manufacturers are responsible for setting their invoice prices at reasonable levels, while MSs must do business at their own risk and set their sales prices at levels that make it possible for them to obtain optimal gross margins.

Recently, several Japanese pharmaceutical companies have started to introduce 'new business systems' in which marketing will be separated from distribution in many Japanese territories. These companies aim to increase productivity of their MSs by making them responsible for a larger number of customers. With non-price competition becoming more important as the radical healthcare reform scheduled for 2002 approaches, the companies also aim to increase the ability of MSs to supply information and develop new skills.

MSs therefore face a situation that requires them to take action quickly to improve their financial status. Medical suppliers should become independent as an industry. Consequently it is necessary for them to stabilise their profits, improve public confidence in them by providing a wide range of services to users, and educate the general public regarding the important role MSs have in the Japanese healthcare system.

Customers usually seek business that makes it easy for them to get support pertinent to their individual needs – and ideally this assistance should be convenient and free of worry or stress. So, in the future two models may exist – both telephone call centres and the web will be strongly and effectively integrated into the Japanese healthcare environment to assist both physicians and patients.

Effective drug promotion is extremely important in the Japanese market. European pharmaceutical companies should choose smarter, expert and independent advertising agencies for winning promotional campaigns for their products. Japanese doctors (and patients) prefer a harmonious combination of well-documented medical information with 'Japanese taste' and a lot of international medical information.

opportunities for EU companies

With the new drug approval system, the new drug pricing mechanism, new marketing trends, and the use in Japan of a considerable number of drugs that are one or two generations older than those in use in Europe, there are various opportunities in the Japanese pharmaceutical market:

However, it must be remembered that to get into the market may prove more difficult than it first seems. But once in, the opportunities are there for the taking.