Chuikyo's Pilot For Premium Reimbursement Pricing Under Review: One Of Three Fates By Year-end

TOKYO - Japan's Ministry of Health, Labor and Welfare will soon decide the future of a two-year pilot reimbursement program that staves off Japan's traditional biennial price cut. The program draws rave reviews from companies, and PhRMA is urging the Japanese government to make the program permanent.

In English, the program is given the lengthy name "Premium for Promotion of New Drug Creation and Resolution of Unapproved Drugs and Indications." As the title implies, the program - initiated in April 2010 - is a government effort to offer incentives to encourage development of innovative drugs as well as bring to market drugs approved elsewhere but not yet in Japan.

At its core, the program allows Japan's Central Social Medical Insurance Council - known as Chuikyo - to grant a pricing premium for innovative drugs when companies comply with government requests to bring older, less profitable drugs or new indications to market.

Instead of the traditional biennial price cuts, long a sore spot among Big Pharma, Chuikyo maintains drug prices throughout its patent life. The government has relied on the biennial price cuts to keep prices down, but PhRMA says the cuts stifle innovation for the country, the world's second-largest pharma market.

In the last four rounds of price cuts since 2004, the average reimbursement price reduction within Japan's National Health Insurance system has wavered between 4.2% and 6.7%.

Under the pilot program, innovative drugs are immune from the biennial price cuts, allowing companies to gain larger margins on drugs throughout their patent life. Once a product reaches patent expiry, Chuikyo would lower the price to the same level as it would under the biennial price cut system.

But now Chuikyo is putting the pilot program on the examination table. Chuikyo will hold hearings at the end of November to examine the effectiveness of the program. The committee will examine its biennial price survey for drug prices around Japan, as well as additional data to compare drugs prices in Japan and other markets.

There are three potential outcomes for the pilot program. It could be discontinued, made permanent, or it could be extended. According to PhRMA Japan representative Ira Wolf, some members of Chuikyo are recommending that the pilot period should be extended for another two years, saying that it's too early to make a decision with the data available.

PhRMA Wants Pilot Program To Be Permanent

PhRMA will only be satisfied if the program is made permanent. Wolf says that merely extending the program for another two years "would be a big mistake."

"The drug development decision is a long-term decision with long-term investment. Our decision makers in companies are looking for stable environments and stable climates. If there is uncertainty on the climate in Japan, it can only lead to hesitation," Wolf said, speaking via teleconference from Tokyo for an event sponsored by the New York Pharma Forum. He added that he is optimistic the program will eventually become permanent.

At a Chuikyo meeting in July, PhRMA made its case that the program would promote simultaneous global development, and would increase development programs within Japan, including orphan drug and regional-specific programs.

The savings under the young program have been significant. Chuikyo posted the savings individual companies earned under the pilot at the July meeting. GlaxoSmithKline PLC led all companies with ¥5.61 billion, followed by Astellas Pharma Inc. at ¥5.57 billion, Chugai Pharmaceutical Inc. at ¥5.43 billion, Pfizer Inc. at ¥4.95 billion and Sanofi at ¥4.84 billion. In total, companies saved ¥70.21 billion by not being subjected to the price cuts.

Pilot Reduces "Historic Erosion" On Innovation

Indeed, GSK CEO Andrew Witty extolled Japan's pilot project to shelter certain innovative drugs from the country's biennual price cuts during the company's Q2 earnings call. He said GSK has been "helped in Japan by the new pricing regime, which has taken away that historic erosion of being a successful innovator."

"You will pay the price when the product eventually goes generic just as in normal Western markets," he said, "but for a company like GSK where we have so much innovation opportunity, that is why Japan is such an important area for us" ( (Also see "Novo Ramps Up In China, Roche Downplays Branded Generics, GSK Talks Up Japan While Hitting "The Inflection Point": Emerging Markets Round Up (Part 2)" - Scrip, 11 Aug, 2011.)

With Chuikyo members already calling for more data on the program, it appears likely that it will be extended as a pilot program. For one, the program would have a vast impact on drug expenditures in Japan. The new Prime Minister Yoshihiko Noda hopes to pass a controversial bill next year that would double the consumption tax from 5% to 10% and use the proceeds for healthcare and welfare programs.

But according to recent reports in Japan's leading newspaper Yomiuri Shimbun, many members of the prime minister's party still are resistant to the tax hike. If the tax is passed, MHLW would likely have more breathing room for healthcare expenditures, but until then, the ministry may remain cautious on drastically increasing spending.

Chuikyo's newly appointed chairman has already suggested the committee will consider linking drug prices to health technology assessments, drawing comparisons to the UK's industry-maligned National Institute for Health and Clinical Excellence (Also see "Could Japan's Chuikyo Embrace NICE Model As New Chairman Takes Reign?" - Scrip, 9 May, 2011.).

On a positive note for the pharma industry, Wolf said during his talk that there has been an evident, if small, shift in Japan to award price premiums for innovation. Chuikyo has the option during the drug price calculation to award a product different levels of premiums. A premium for innovation can range from 70-120% for the NHI-listed price, and premiums for marketability could vary between 5-60%. The problem is, Chuikyo has been hesitant to award the premiums.

For example, from 2002-2005, Chuikyo awarded 17 drugs the minimum premium, and only one drug a premium of 30%. Chuikyo appears to have become more generous since 2006, and premium awards have grown larger, with at least one drug receiving a premium above 50%.

- Daniel Poppy ([email protected])