Japan Pricing Policy Reform 2024

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Published May 17, 2024

Executive Summary

The Central Social Insurance Medical Council, the key Japanese reimbursement policy panel known as Chuikyo, introduced the 2024 drug pricing reform in April 2024.

Some key features of the reform plan include:

  • The creation of premiums for incentivizing the early introduction of new innovative therapies in Japan
  • The establishment of post-listing price adjustment scheme by average foreign price for specific imported drugs at the time of price revision
  • The simplification of the price maintenance premium (PMP) system so more drugs can defer price cuts while on patent
  • The reformed eligibility criteria of existing premiums allowing higher premium rates to be more easily achieved
  • The reform outlines a suite of measures aimed at driving innovation while also addressing drug lags (delay in manufacturers launching drugs in Japan compared to overseas markets) and losses (manufacturers not launching in Japan at all, or withdrawing from Japan post-launch)
  • The enhancement of rewards for pediatric medicines

The reform outlines a suite of measures aimed at driving innovation while also addressing drug lags (delay in manufacturers launching drugs in Japan compared to overseas markets) and losses (manufacturers not launching in Japan at all, or withdrawing from Japan post-launch).

Introduction & Current System

Japan’s current National Health Insurance (NHI) drug pricing system is a quick and universal market access pathway that enables new drugs to be priced, and consequently accessed by patients, around three months after approval, resulting in one of the quickest market access pathways in the world.

However, the current NHI price revision system in Japan, including the introduction of annual price revisions (via the biennial and off-year price cuts) and adjustment of premiums based on manufacturer disclosure rates, continues to exert pricing pressure on manufacturers. This consequently extends the timeframe manufacturers need to recoup investment before further reinvestment into R&D can be made, which may negatively impact early pipeline development and potentially lead to manufacturers deprioritizing Japan as a priority launch market for newly developed assets. Industry stakeholders, such as the Japan Pharmaceutical Association (JPA), continue to publicly voice their frustrations with drug pricing reforms, as they believe that industry growth and innovation will be hindered. 

In order to boost innovation and tackle the growing concerns around drug lag and loss, the Ministry of Health, Labour and Welfare (MHLW) has published its 2024 pricing reform policies to be implemented in April. These policies aim to incentivize the prompt introduction of innovative therapies by introducing favorable policy measures during initial drug listing and subsequent price revision. In this blog post, we highlight key focus areas of the plan, comprising the creation of a new ‘rapid introduction’ premium, the implementation of post-launch price increases based on the average foreign price, the simplification and expansion of the price maintenance premium (PMP) system, relaxed eligibility criteria of existing premiums and enhanced rewards for pediatric medications.

Key Major Reform Plans for Fiscal Year 2024

1. New premium for the early introduction of innovative new drugs into Japan

In 2015, the MHLW implemented the Sakigake premium to incentivize pharmaceutical companies to prioritize Japan for their product launches, offering a 10-20% increase in pricing for drugs designated as “pioneering,” under the condition that these products are launched in Japan simultaneously with, or before other first-launch markets.

However, recognizing that the stringency of Sakigake’s eligibility criteria might limit the scope of new drugs from international manufacturers benefiting from this scheme, the MHLW plans to introduce a new ‘rapid introduction’ premium (迅速導入加算). The new premium, set at a rate of 5-10%, will be applied to the pricing evaluation for newly listed products, subject to priority review. Essentially, qualifying new drugs must have: 1) clinical trials prioritizing Japan (i.e., international trials including Japan sites or Japan-specific clinical trials) at the same time as or ahead of other first-launch markets, and 2) submission and regulatory approval in Japan within 6 months of the earliest submission and approval in the U.S. or Europe, if not earlier. Unlike the Sakigake premium, there are no specifications related to the drug’s innovativeness, efficacy, or target medical condition, nor is there a requirement for Japan to be the first market that the drug needs to be filed in. With the less strict eligibility criteria, the MHLW aims to reward more manufacturers, particularly international manufacturers , for prioritizing Japan as an early market in the launch sequence.

Previously listed products could also potentially be eligible for the new premiums at the price revision evaluation when new efficacies, effects or methods of usage and dosages are added and meet specific conditions. The same qualifying criteria on clinical trials and regulatory timelines apply here.

A new product can attain up to one premium in each of three categories, corresponding to clinical value, indication type, and local development, which are added to the final NHI price
Achievable Price Premiums – Clinical Value
Premium for Innovation (70-120%)

Newly listed products meeting all of the following requirements

  • Has a new mechanism of action (MoA) which is clinically beneficial and meaningful
  • Objectively shows high efficacy or safety compared to the comparator drug (preferably within a head-to-head study)
  • Objectively shows that the product will improve the treatment of diseases and/or injuries which are included in the indications of the product
Premium for Usefulness I (35-60%)

Newly listed products meeting two of the three requirements listed under Premium for Innovation.

Premium for Usefulness II (5-30%)

Newly listed products meeting any of the following requirements

  • Any one requirement listed under Premium for Innovation.
  • Objectively shows higher clinical usefulness compared to the comparator drug as a result of unique features (e.g., formulation)
Achievable Price Premiums – Local Development
Premium for Rapid Introduction (5‑10%)

Newly listed products meeting all of the following requirements:

  • Has clinical trials prioritizing Japan at the same time as or ahead of other first-launch markets
  • Has submission and regulatory approval in Japan within 6 months of the earliest submission and approval in the U.S. or Europe, if not earlier
Premium for Sakigake (10-20%)

Newly listed products meeting all of the following requirements:

  • A novel therapy
  • Targets serious diseases
  • Has prominent efficacy
  • Is being developed and planned for approval in Japan ahead of the rest of the world
Achievable Price Premiums – Indication Type
Premium for Specific Use (5‑20%)

Newly listed products meeting all of the following requirements:

  • Designated as a ‘specific use’ product in accordance with the Pharmaceutical and Medical Devices Act, covering a small market size with a high unmet need
  • The product did not receive a Marketability I or pediatric premium
  • A comparator drug has not received a Marketability I or II premium
Premium for Pediatric Use (5-20%)

Newly listed products meeting all of the following requirements (excludes drugs that have not conducted clinical trials for pediatric indications in Japan)

  • The main indication, or the dosage and administration for the main indication, clearly describe pediatric usage (for young children, infants and newborns)
  • A comparator drug has not received a premium for pediatric use
  • If also eligible for a premium for marketability, priority is given to pediatric use, and these premiums cannot be granted simultaneously
Premium for Marketability I (1020%)

Newly listed products meeting all of the
following requirements

  • The product is an orphan drug in accordance with the Pharmaceutical Affairs Act, and its main indications are for orphan diseases
  • A comparator drug has not received a Marketability I premium
Premium for Marketability II (5%)

Newly listed products meeting all of the
following requirements

  • The main indication falls into the category “small market size,” which is defined by
    other rules
  • A comparator drug has not received a Marketability I or II premium

Source: Trinity Secondary Research

2. Post-listing upward price adjustment based on the average foreign price

Currently, during the price determination process for newly listed drugs, the price set through either the Comparative Method (I) or the Cost Accounting Method is adjusted accounting for its deviation from the average foreign price, specifically when there is a large disparity (i.e. ≥25% higher or lower) from the average. This benchmark is derived from specific price levels in the U.S., UK, Germany and France. Initially, this adjustment was only applied at the time of listing in Japan to avoid substantial price differences between Japan and other developed western countries.

In the recent reform, to mitigate the post-launch downward repricing trend from diverting new drug developments overseas, the MHLW plans to introduce a one-time upward foreign average price adjustment for certain imported drugs during the price revision. The adjustment applies to drugs whose active ingredients and formulations are imported, and which did not undergo a foreign price adjustment at the time of listing. Qualifying products will be eligible for an upward price adjustment of no more than 1.2 times the pre-revision drug price, but their eligibility will be voided if a generic version of the drug has been listed, or if 15 years have passed since the drug’s initial listing.

3. Revision and simplification of the price maintenance premium (PMP)

The Price Maintenance Premium (PMP) was originally introduced in 2010 to protect ground-breaking products (i.e., first-in-class mechanism of action (MoA) products in orphan disease areas, etc.) from the regular downward price revisions, by deferring the biannual price cuts to the end of the patent protection period. The initial evaluation and rate-setting criteria for PMP include a company ranking system measured by the listed corporate indicators, basing the eligibility as well as the level of PMP awarded on the manufacturer tiering.

The manufacturer tiering system has been criticized for the lack of transparency, and implicitly leaving out emerging smaller biotech companies. Manufacturers are ranked based on indices such as the number of launches and the number of clinical trials conducted in Japan, which often results in new biotech companies with lack of track record in Japan being rated to the lower tier. In prior years, the MHLW has adopted a series of PMP expansion plans to extend and elevate the granting of PMP to a wider range of drugs and manufacturers in hopes of incentivizing manufacturers to develop and launch innovative products in Japan. The overall system of manufacturer tiering was retained until this year.

The MHLW indicates in this year’s plan that the previously established system of corporate indices has prevented the smaller ventures and startups from scoring high points for PMP. Given the obstacles posed by this tier-based system, metrics of corporate indicators will be abolished effective April 2024. Furthermore, the scope of drugs eligible for PMP will be expanded to encompass pediatric medications and drugs qualifying for the early introduction premiums.

4. Enhancement of other existing premiums at NHI price listing and at price revision

Besides modifications to the PMP, this year’s reform spell out further revisions to enhance the applications of other existing premiums. At NHI price listing, new evaluation items will be incorporated into the quantitative review framework for the usefulness premium, aiming to capture more comprehensively the clinical differentiations and added value of various products, reflecting the different landscapes for drug discovery and development. For example, in cases where either the mechanism of action or target receptor is differentiated compared to already listed products , an extra point will be awarded to the product if, within the same disease area, a new drug with a novel mechanism of action has not been listed for a long period.

Additionally, in light of current trends in drug development, such as the international scope of clinical trials and challenges with patient enrollment, rates of existing premiums, including the marketability premiums (a 5-20% premium applied to new drugs that treat orphan indications) and pediatrics premiums (a 5-20% premium to encourage the development and availability of pediatric medications), will be flexibly judged within the currently defined ranges.

The enhancement on existing premiums will also apply at the time of price revisions for patented drugs. When multiple indications are added to the listed drugs on patent, each indication will be evaluated separately for its eligibility for the premiums. Additionally, combinations of different premiums, though previously not allowed, will be permitted under the 2024 reform. However, to consider the impact on patient costs, the maximum limit for such premiums will be set at 120% of the pre-revision drug price.

5. Enhancement of pediatric premiums

Specifically targeting the medical needs of children, pediatric medications are designed for a demographic that often faces challenges in drug development due to the smaller patient population, the ethical considerations in conducting clinical trials and the need for specialized formulations and dosages. Under the broader structure of incentives for new pharmaceuticals, pediatric premiums have been designed as a significant pricing-related approach by the MHLW to improve healthcare access for children.

As outlined in the earlier discussion on PMP, the pricing policy updates for 2024 will extend PMP eligibility to products with clear efficacy, effect, dosage and usage for children, and which are potential candidates for the pediatric use premiums. Moreover, in alignment with the regulatory stipulation for manufacturers to formulate drug development plans for pediatric use alongside adult use, the MHLW will be implementing higher rates of pediatric use premiums for drugs approved for pediatric indications that were developed following these plans verified by the Pharmaceuticals and Medical Devices Agency (PMDA). Considering the hurdles and often less profitable nature of pediatric drug development, drugs under development for pediatric uses according to these specific plans, even if not yet approved, will be evaluated favorably for the corrective premiums during the process of market expansion recalculation.

Expected Pricing & Market Access Impact

These proposed pricing reforms demonstrate the MHLW’s willingness to recognize the pharmaceutical industry’s crucial role in supporting the Japanese economy and public health, and acknowledgement that Japan must keep up with pharmaceutical innovation and continue to strengthen its drug discovery capabilities. However, public health and health economics experts in Japan have urged the MHLW to strongly promote the latest reforms both domestically and internationally, to ensure that manufacturers are aware that Japan is revamping its pricing policies to eliminate drug lags and losses. Previously introduced pricing reforms continue to be criticized, such as the adjustment of premiums awarded to cost-calculation priced drugs based on manufacturer disclosure rates of their production costs; critics have noted that the penalization of lower disclosure rates has not actually led to any improvements in transparency and does not match the MHLW’s intention of incentivizing innovation. The MHLW should therefore continue to review and reform its existing pricing policies so that patients in Japan continue to have access to the latest treatment options.  

 If you have any questions, please feel free to reach out to speak with our Japan experts at Trinity.

Authors: Yutong Wu, Hannah Squires, Tami Sacre, Annabelle Brough, Shinkyu Park

Other blog posts in this series:

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