CountryFocus: Japan Healthcare, Regulatory and Reimbursement Landscape 2020

Japan has a mature healthcare market which offers universal access to healthcare facilities and insurance. Simplification of the regulatory process resulting in an increase in the number of new product launches, growing disease burden and demand for healthcare from the growing elderly population will drive the pharmaceutical market of Japan. However, increasing focus on generic substitution and a biennial pricing review system may limit the extent of growth.

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The pharmaceutical market was valued at $54.8 billion in 2007 and reached approximately $89.1 billion in 2012 at a Compound Annual Growth Rate (CAGR) of 10.2%. It is estimated that the pharmaceutical market would grow at a CAGR of 2% during the period 2013-2020 and reach $104.5 billion in 2020. Based on the pharmaceutical production data, in 2011, the cardiovascular agents, Central Nervous System (CNS) agents, agents affecting metabolism, digestive-organ agents, and blood-and-body-fluid agents dominated the market. Simplification of the regulatory process acts as a key growth driver. The government intends to remove regulatory hurdles by reducing the number of approval reviews required, increasing the number of review members, and reducing the duration of approval timelines in order to reduce the length of the drug approval process.

A total of 6,756 medicines were approved in 2011, of which 3,614 were prescription drugs, 1,031 were OTC drugs, 173 were In Vitro Diagnostics (IVDs), and 1,938 were quasi-drugs (PMDA, 2013). Additionally, in 2012, the elderly population of Japan accounted for 24.2% of the overall population (IPSS, 2012), moreover, it is estimated that by 2050, this population pool would account for 38.8% of the overall population (Statistics Bureau, 2012). Japan’s elderly population is growing at a faster rate than that of the US and Europe. Improving healthcare facilities and strong financial support for the elderly have accounted for a higher life expectancy in Japan. The growing elderly population and the associated disease burden further contribute to the growth.

In order to reduce the healthcare expenditure, the government is promoting the use of generics as a cost-containment tool. In 2007, generic drugs accounted for 18.7% of the pharmaceutical market in terms of volume, which increased to approximately 28.7% in 2012. The government is strictly regulating pricing policies through biennial pricing reviews, reference pricing, and comparator pricing. Increasing generic substitution and biennial pricing reviews restrict the quantum of growth of the pharmaceutical market.

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The medical device market was worth approximately $46.8 billion in 2012 and is projected to reach approximately $73.9 billion by 2020 at a projected CAGR of 6%. Ophthalmic devices (14.8%), IVD (10.5%), and cardiovascular devices (9.4%) were the major segments in 2012. In 2008, the government, in its basic policies for economic and financial reform, announced an action program for the faster evaluation of medical devices, with the aim of increasing foreign investment.

The primary objectives for the action program included:
• Increasing the number of reviewers from 35 to 104
• Classifying medical devices into three levels based on novelty, with each level evaluated by a specialized team
• Establishing evaluation standards and guidelines

The government is working to ease the tedious regulatory process in order to expedite the approval of pharmaceuticals and medical devices and improve the access to novel therapeutics. This will not only attract foreign companies but will also positively influence the healthcare market.

The Ministry of Health, Labour and Welfare (MHLW) controls all pharmaceutical regulatory affairs in Japan, however, the veterinary drugs fall under the jurisdiction of the Ministry of Agriculture, Forestry and Fisheries. The Pharmaceuticals and Medical Devices Agency (PMDA) provides consultations for the clinical trials of new drugs and medical devices, and conducts approval reviews and surveys on data reliability. The approval requires confirmed Good Laboratory Practice (GLP) norms, PMDA compliance reviews, discussions on advanced scientific knowledge by members of the Pharmaceutical Affairs Food Sanitation Council (PAFSC), and final evaluation and approval from the MHLW after the manufacturer has paid the required fees. Approval for medical equipment requires pre-market approval (Shonin) from the MHLW and a manufacturing/import license (Kyoka) from the regional government.

The government began the process of easing restrictions on foreign capital through deregulation in 1975 when it permitted 100% subsidiaries of foreign pharmaceutical companies to initiate operations in Japan. In 1976, the patent law was changed to allow innovative pharmaceutical products to be patented. In 1997, Japan, Europe and the US adapted the Good Clinical Practice (GCP) guidelines within the framework of the International Conference on Harmonisation (ICH). These guidelines have played a key role in defining the uniformity of the drug approval process. In addition, under the new guidelines, only Phase I and some stages of Phase II trials are required to be performed with Japanese nationals (in order to account for the differences between Western and Japanese body types). The new guidelines allow foreign pharmaceutical companies to use data from Phase III clinical trials performed in regions other than Japan and have reduced the length of the new drug application review process from three years in the 1990s to around one year currently. In April 2005, the accreditation of drug manufacturing was simplified.

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A license (Shonin) for the manufacture and sale of drugs, quasi-drugs, cosmetics or medical devices is obtained from the MHLW. The application process includes the submission of an application and an inspection of the relevant documents and facilities.

An import and sales business license (Kyoka) is obtained via the submission of an import certificate to the MHLW and if manufacturing and quality control standards are fulfilled.

MHLW approval for conducting the clinical trials includes submission of the study protocol to PMDA, reviews by the PMDA, and obtaining written consent from the trial subjects.

Universal access to healthcare facilities and reimbursement are the salient features of the Japanese healthcare system.

The government offers universal access to reimbursement, covering the entire population. Healthcare insurance under the public insurance system comprises of the Employees’ Health Insurance (EHI), National Health Insurance (NHI), and a health insurance system for the elderly. These insurance systems cover almost the entire population. Private health insurance players are gaining importance as the public health insurance does not cover health diagnosis and group health examinations, vaccinations, cosmetic surgery, normal pregnancy and childbirth, and orthodontic work.

Government healthcare policies contribute to the success of the healthcare system in Japan.

The government is focusing on reducing the country’s disease burden, especially that of the elderly population, in order to improve global competitiveness. Although the government has framed a number of policies for the prevention and early detection of disease conditions, efforts are ongoing to achieve more in terms of quality of life, workforce productivity and cost efficiency. The government is trying to facilitate the early detection and treatment of diseases through the implementation of new national policies and health programs. This is expected to lead to improvements in health outcomes and patient quality of life. Following are the key healthcare policies taken by the government:

• The Healthy Japan 21 (2000–2012) (Kenko Nippon Nijuichi) plan was enacted in 2000 to focus on the prevention of lifestyle diseases. The second edition of Healthy Japan 21 (2013-2022) was introduced in 2013. Its focus is on extending healthy life expectancy and minimizing the spread of health inequalities within the population.
• The taspo (tobacco passport) age-verification system was introduced in 2008 to prevent minors from buying cigarettes, and the tobacco tax was increased in October 2010.
• The Basic Plan to Promote Cancer Control was introduced by the government in June 2007 to promote the early detection and prevention of cancer.
• The MHLW launched the Panel on Chronic Pain in December 2009, which issued a set of policy recommendations in September 2010, including recommendations to improve medical and patient education, promote public awareness, and increase research.
• The government of has added three vaccines to public vaccination program in April 2013. Such program may help to significantly improve access to and usage of vaccines (Pharma Japan, 2013a).

Political instability is a major hindrance to economic recovery.

Political instability remains a constant problem in Japan, with six Prime Ministers in the last five years. This has continued after the recent natural disasters and nuclear crisis and has hindered the formulation and implementation of economic policies as well as recovery from the economic crisis and natural disasters. Japan is the third largest economy in the world after the US and China, but is facing problems such as deflation, high public debts, weak domestic demand and, softening exports. The ratings agency Moody's has rated Japan at Aa3 (Moody’s Investors Service, 2013).

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Japan Pharmaceutical Market Outlook Deregulation and Foreign Investment

The Declining and Rapidly Aging Population Presents Significant Challenges to the Healthcare System and Economy as a Whole

Japan had a population of 127,817,277 in 2011, making it the 10th most populated country in the world (The World Bank, 2012). However, since 2005, as the number of deaths exceeded that of births, the population has declined. Without significant government intervention, the depopulation process is expected to continue.

The proportion of people aged 65 or over is 23.3% and projected to reach 29.1% by 2020 and almost 40% by 2050 (Statistical Research and Training Institute, 2012).

These demographic changes will present further challenges to a stagnating economy, which, as the data in this report confirms, is already struggling with reduced economic growth. A diminishing workforce and falling productivity levels will likely add to the economic difficulties Japan is experiencing.

The associated increase in disease burden has also had implications for the healthcare system. Healthcare expenditure has risen, and is set to rise further as the population continues to age.

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In 2010, Japan’s healthcare spending per capita was $4,065.4, a significant increase from 2005.

Japan’s universal healthcare system may therefore prove unsustainable as the government looks to control spending. A combination of pro-generic policies, government initiatives to prevent lifestyle diseases, and higher copayments should help to keep healthcare expenditure under control.

Regulatory Reform will Continue to Attract Foreign Pharmaceutical Companies

The ongoing deregulation of the Japanese pharmaceutical industry has made it an attractive market for big pharma. Improvements to the new drug approval process have significantly shortened the approval time. Consultation services provided by approval bodies have been expanded and improved, approval standards have been clarified and the number of trained personnel involved in the review process has increased.

Many of these changes have occurred following the introduction of a number of plans and government policies. Plans are currently being implemented to shorten the review period and improve cooperation with other countries, particularly Western and other Asian nations, such as the Second Medium Range Plan (2009–2014), which includes the International Strategic Plan.

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In April 2007, the government introduced the 5-Year Strategy for the Creation of Innovative Pharmaceuticals and Medical Devices, which contributed towards the reduction in lag time associated with new product approvals.

In addition to attracting foreign investment, deregulation has also improved the competitiveness of Japan’s pharmaceutical companies. The market now consists of multinational players such as Takeda and Daiichi Sankyo, who market leading products globally.

Takeda Maintains its Position as the Leading Company in the Japanese Pharmaceutical Industry

Takeda maintained its position as the leader in Japan’s pharmaceutical industry in 2012, with revenues of $18.9 billion. This was followed by Otsuka Holdings, Astellas, Daiichi Sankyo and Eisai.

M&A activity has become a common theme within the global pharmaceutical industry. This is often a strategic response to patent expirations, reduced R&D productivity and the need to cut costs.

The Japanese pharmaceutical industry has followed this trend. Although historically dependent on domestic R&D, the recent globalization of Japanese companies has been driven by enhanced M&A activity. Significant deals have been completed in the US, Europe and developing nations, such as China, India and Brazil.

With a total of 20 M&A, including two recently announced, Takeda has been the most active Japanese company.

The M&A strategy is seen as necessary for pharmaceutical companies keen to expand product pipelines following patent expirations and gain access to untapped markets. It is hoped that such strategic measures will help develop or maintain growth and revenue.

Reasons to buy

- Primarily, the report will allow clients to gain a strong understanding of the economic and healthcare challenges facing Japan.

- In addition, the report will assist in identifying opportunities within Japan’s pharmaceutical market, including:

- Potential for market growth – A number of factors could provide strong potential for sales growth in the Japanese pharmaceutical market. Examples include the world leading life expectancy and associated increase in lifestyle diseases, and government initiatives to prevent such diseases, which provides opportunities for healthcare and pharmaceutical companies, who often carry out the work.

- The report provides a source of information covering Japan’s regulatory landscape, and importantly, recent deregulation, to help identify the reasons Japan has become an attractive market for big pharma.

- The report will provide new market entrants with a comprehensive overview of the leading Japanese pharmaceutical companies, and the specific therapeutic indications they are currently targeting.

- Overall, allowing clients to determine whether the Japanese pharmaceutical market will provide them with commercially viable opportunities for growth.

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