Japan’s $48 billion market for pharmaceuticals is the largest in the world behind the US, with about 19% of the global market. Ninety percent of the market, however, is dominated by domestic production. Imports account for less than 10% of the total market, and have remained at a constant level for the past several years. The majority of foreign pharmaceutical companies in Japan are large U.S. and European drug companies that manufacture and sell their products locally and/or license compounds to Japanese drug manufacturers. The U.S. and Germany each hold approximately 20% of the Japanese import market for pharmaceuticals, followed by Great Britain with about 11.5%, Sweden with 10%, and Switzerland with 8%.
Nevertheless, while Japan is one of the leading pharmaceutical markets in the world, its growth rate since 1995 has been only 1%, compared to 9% for the U.S., and 6% each for France and Germany. Japan, however, is embarking upon a comprehensive deregulation program that will not only make the pharmaceutical industry more efficient (currently, drugs account for about 30% of Japan’s total medical expenditure, about three times the US figure) but also create growing opportunities for foreign pharmaceutical firms in the future.
II. STRUCTURAL CHANGES IN PHARMACEUTICAL REVIEW
Japan’s Ministry of Health and Welfare (MHW) and other Japanese pharmaceutical organizations are undergoing major changes in order to strengthen their review of clinical trials and thus improve the safety and quality of drugs entering the Japanese market. Under the National Institute of Health Sciences, a new Pharmaceutical and Medical Device Evaluation Center was created in July 1997 to help with the review of New Drug Applications (NDAs). Previously, the Central Pharmaceutical Affairs Committee (CPAC) was solely responsible for the review of NDAs. Now, however, a committee of inspectors from the new center specialized in medicine, pharmacology, veterinary medicine, and statistics will jointly review NDAs with CPAC in an effort to improve scientific, not bureaucratic, participation in the review of new drugs.
Japan’s Drug Organization (Kiko) has also taken on new functions to improve the safety and quality of new drugs. Kiko, a half-public, half-private organization supervised by the MHW, focused originally on monitoring any adverse drug reaction (ADR) of drugs during clinical trials, promoting R&D of new drugs, and performing selective reviews of some drugs, generics, and cosmetics. Now, however, Kiko is cooperating with the Evaluation Center to ensure compliance with safety and review standards, perform raw data checks, and give advice to companies on clinical development and trials. Kiko also has two new divisions – the Clinical Trial Department and Compliance Review Department.
Kiko is also planning to increase its staffing for the evaluation of NDAs from its current level of 160 to 220 by the year 2000. Similarly, the Evaluation Center (which at the outset had 45 staff members divided into 4 teams) expects to increase its staff to 8 teams with a total of 77 employees. Furthermore, the Japanese government plans to extend the rotation schedule of these employees from its previous length of two years so employees can pass their knowledge on to newer staff members.
Over the past year, the MHW has also been reorganizing, combining the departments for Drug Safety Measures and General Medical Practices to establish a new Pharmaceutical and Medical Safety Bureau. The Pharmaceutical and Medical Safety Bureau (PMSB), formerly the Pharmaceutical Affairs Bureau (PAB), is responsible for the following: 1) the efficacy/safety of prescription and over-the-counter drugs, cosmetics and medical devices; 2) adequate blood supply; 3) regulation of poisonous and deleterious substances; and 4) promotion measures against narcotics. Furthermore, the Economic Affairs Division and the Research and Development Division, both concerned with the promotion of drugs and related products, have been reassigned from the PAB to the Health Policy Bureau.
By reorganizing the MHW, the Japanese government hopes to separate its regulatory and industry promotion functions to provide more scientific and coherent regulatory evaluation of products like pharmaceuticals, quasi-drugs, in-vitro diagnostics, medical devices and cosmetics, all of which are covered under the Pharmaceutical Affairs Law. The MHW is also trying to increase transparency in its operations, making it easier for foreign companies to voice their concerns with MHW officials.
Finally, the MHW has also established a new Evaluation/Licensing Division under the PMSB, which takes care of important administrative functions in the final NDA review stages. It provides evaluation results and instructions to drug sponsors, maintains ties with other international regulatory agencies, and can also decide the need for new pharmaceutical guidelines.
III. PROCEDURES FOR OBTAINING NEW DRUG APPROVAL
General Approval Procedure
New drug applications can be made through the local prefecture office, which makes sure the file is complete and sends the application to the Evaluation Center. Kiko performs a review of the company’s raw data and compliance with existing safety and quality standards, using Good Clinical Practice (GCP) inspections for the latter when applicable (see Clinical Trials section below). A number of reports on the NDA are submitted by the Evaluation Center and CPAC’s New Drug Investigation Subcommittee (NDIS), and final approval is given by the MHW’s Evaluation and Licensing Division.
Afterwards, the Japanese government publishes the review results as recorded by minutes taken during CPAC review meetings, CPAC and Evaluation Center reports, selected NDA documentation lists, and Kiko’s GCP inspection reports (if any). By requiring a CPAC report for each NDA published, the MHW hopes to increase transparency in its operations. The Japanese government promises that sensitive and related commercial information about the product and company will be deleted from the published documents, but some companies still worry about the confidentiality of the information they submit.
Changes in the Approval System
By April 2000, the MHW hopes to cut the time needed for new drug approvals from 18 months to 12 months. The MHW hopes to speed approval by eliminating unnecessary stages of inspection and employing more medical experts in the review process. MHW’s new Pharmaceutical & Medical Safety Bureau will be responsible for streamlining the approval process. In its review of the current drug approval system, the Pharmaceutical & Medical Safety Bureau will reexamine the need for extensive pre-application consultations and publication of approved application materials, both of which delay the authorization of new drugs. Also, the Bureau will look at establishing special committees for drugs according to medicinal effectiveness and creating clearer standards for drug approval.
Japan has also made new efforts to accelerate the introduction of innovative drugs in its market, and recently implemented “fast track” review for orphan drugs, drugs where the target disease is life threatening, and drugs that are clearly superior in efficacy or safety to existing drugs. There are some guidelines as to what constitutes orphan drugs and “breakthrough new drugs,” listed below:
Definitions of Some “Fast Track Review” Drugs
(Source: K. Ihara, Japan External Trade Association (JETRO), July 1998)
Breakthrough New Drugs:
• R&D arose from a completely new idea
• Clearly more effective than existing medicines or has greater safety, and has been proven either scientifically or objectively.
• Expected to have great influence on and contribution to the treatment methods of the targeted illness.
• The number of targeted patients in Japan is extremely few (less than 50,000)
• There is no alternative medicine and this medicine is necessary for highly effective treatment.
Finally, the Japanese government is trying to increase opportunities for companies to contact and seek advice from its pharmaceutical review organizations. For example, Kiko can now be approached for early and late-stage advice. In this new system, companies generally have four different opportunities to seek advice throughout the NDA process: 1) receiving regulatory advice on clinical development before filing the Clinical Trial Notification (CTN, see Clinical Trials Section below); 2) receiving advice in the “Post-Phase II” stage after CTN; 3) receiving advice formally before NDA (when clinical trial data has already been collected and the main emphasis is on data presentation); and 4) receiving advice informally of a scientific, regulatory, or developmental nature.
Many consultation officials in Kiko are former CPAC council members, and can therefore give insightful and relevant advice to companies. Furthermore, advice is now binding; all recommendations made by Kiko and other Japanese regulatory organizations are put in writing to be used later by the Evaluation Center when the NDA is being processed. Companies have found this system quite useful in the short time it has been in existence, finding that it not only allows a greater exchange of information but can also shorten review times. Advice seeking, however, does carry a high price: fees can range from $10,000 to $20,000.
Typically, the first procedure a pharmaceutical company must follow when conducting clinical trials is a Clinical Trial Notification (CTN), which used to take 7 to 8 months but now only takes about 1 to 2 months. Companies introducing new drugs must submit a CTN to the Evaluation Center, which consults with Kiko to make sure the data is acceptable and then submits a report to the Evaluation and Licensing Division. If there is any issue the Evaluation Center feels is not addressed by the company, it will notify the company through the Evaluation and Licensing Division.
Clinical trials then follow three phases, according to Japan’s 1992 General Considerations for the Clinical Evaluation of New Drugs. In Phase I, the drug is tested on healthy volunteers (20 subjects for CV drugs); in Phase II, clinical tests are performed under hospital conditions unless the safety of the drug is fully guaranteed (100 patients for CV drugs); and in Phase III, tests are performed under conditions similar to actual clinical practice with both inpatients and outpatients depending on the target indications of the drug (200 patients including the control group for CV drugs).
Japan has been taking a number of measures to strengthen the review of clinical development and clinical trials. In April 1997, Japan’s revised Pharmaceutical Law went into effect, applying stronger safety standards for pharmaceuticals and harmonizing regulations for the pharmaceutical industry. This included Japan’s implementation of ICH Good Clinical Practice (GCP) in April 1997, clinical trial standard operating procedures in July 1997, and clinical trial auditing and compliance inspection in April 1998. While many hospitals in Japan are still not aware of the new GCP guidelines, the Japanese government has taken measures in 1998 to implement a training program for clinical research coordinators that will familiarize them with the new testing standards.
The new regulations have had a large impact on companies introducing new drugs into Japan’s pharmaceutical market. First, the reporting systems for adverse drug reactions have new, detailed guidelines. Manufacturers must also report cases of serious, adverse side effects as agreed in the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use. The fees for certain permits have also been raised.
Japan is also planning to allow the use of foreign clinical test data for domestic product approval, since testing methods in Japan can be insufficient and underdeveloped compared to other countries. While this step has brought Japan closer to harmonizing its standards with those accepted internationally, it poses a problem for agencies like Kiko that lack adequate staff to inspect data generated from trials abroad. Currently, Kiko requires that 100% of the data generated in Japan be inspected for GCP, but can only expect 20 – 25% of foreign data to be examined for the same standards.
Finally, Japan revised its Good Post-Marketing Surveillance Practice (GPMSP) standards in April 1997. Whereas GPMSP applied only to pharmaceutical companies before, the new standards must be followed by pharmaceutical manufacturers, importers and distributors. Also, the new post-marketing surveillance (PMS) system includes a periodic safety reporting system in addition to the original reexamination system, reevaluation system, and adverse drug reaction (ADR)/infection reporting system requirements, all of which are discussed below.
The reexamination system under GPMSP is unique to Japan; it reconfirms a drug’s effectiveness and safety by comparing data collected in PMS with data submitted at the time of drug approval. Two kinds of surveys are carried out during the reexamination period: 1) surveys of drug use, which gather information on drug safety; and 2) special surveys from “special patient groups” (including infants, the elderly, pregnant women and those who have just given birth) to assess long-term drug use. Also, clinical studies during the PMS period are also performed to collect data that could not be confirmed at the time of approval. Depending on the type of drug, the reexamination period may be 10, 6, or 4 years:
Reexamination Periods for Various Drugs
• Orphan Drugs
• Drugs confirmed at the time of approval to require evaluation using pharmacoepidemiological techniques based on indices of the overall therapeutic effect, including life-prolonging effects, improvements in the quality of life, effectiveness in preventing complications, etc. with long-term use.
• Drugs containing new active ingredients, new combination drugs, and drugs with new administration routes
• Drugs with efficacy effects different from those of previously approved drugs and drugs with uses and dosages clearly different from those of previously approved drugs.
After reexamination has taken place, approved drugs undergo reevaluation every 5 years, with special reevaluations performed on drugs for which the clinical evaluation procedure has been revised, efficacy evaluation guidelines have been radically altered, etc. The existing reevaluation system is currently being revised by the MHW, which is considering having reevaluation reports contain Periodic Safety Update Reports (PSURs) from companies after the reexamination period as well as safety information from overseas. PSURs, which the MHW expects at least annually, will contain the latest reports on the safety information of the drugs and will be introduced under the new periodic safety reporting system.
Finally, the MHW has made some changes to its ADR reporting requirements. Until recently, there were three ways the MHW received ADR reports: 1) the ADR monitoring system, which supervised hospitals appointed by the MHW and collected reports on ADRs; 2) the Corporate Reporting System, where pharmaceutical companies submitted ADR reports to the MHW; and 3) the Pharmacy Monitoring System, where the MHW would receive information on the safety of OTC drugs collected by pharmacies.
In July 1997, however, the current ADR monitoring and pharmacy monitoring systems were discontinued and replaced by a new system covering all medical institutions and pharmacies. Under the new system, physicians, dentists, and pharmacists alike are all required to submit ADR reports to the MHW, and pharmaceutical manufacturers must report any cases of infection due to drug use in addition to ADR reports. As in the previous regulations, pharmaceutical companies are required to report any occurrence of known serious ADRS and any previously unknown serious ADRs to the MHW within 30 days. This period is 15 days if patients have died or the company observes symptoms of serious disease suspected to be caused by the drug. A pharmaceutical company is obliged to report all cases of serious infectious disease resulting from the use of a drug, irrespective of whether the company previously knew about the potential infectious diseases.
Examination of the relevant data for post-marketing surveillance (PMS), together with examination of references to raw data, is Kiko’s responsibility. If Kiko decides that a certain drug does not meet GPMSP standards, its approval may be revoked or partially amended.
IV. DRUG PRICING AND REIMBURSEMENT
Currently, prescription drugs are covered by Japan’s national health insurance (NHI) system; OTCs are not. More than 90% of prescription drugs are delivered to medical institutions through wholesalers, with the remainder being delivered directly to hospitals, clinics, and dispensing pharmacies. As a result, most drugs in Japan encounter large price hikes as they are passed through multiple distribution layers.
Currently, drugs containing new chemical entities (NCEs) are added to the NHI drug price list four times annually (in March, May, August, and November) at prices calculated by comparison with previously listed comparable drugs. Drugs for comparison are selected based on having similar indications, chemical structure, therapeutic effects, etc. The price of the new drug is then based on the day-to-day price of the comparable drugs, with premiums being added as required (see Figure 7 below). If no similar drug is identified, the new drug is priced according to the cost calculation method.
Classification and Rate of Drug Pricing Premiums
(Source: K. Ihara, Japan External Trade Association (JETRO), July 1998 )
Classification Based on Usefulness (Premium)
• Innovative new drugs (standard, 40%; priority allocation, 20-60%)
• Useful new drugs (I) (standard, 10%; priority allocation 5-15%)
• Useful new drugs (II) (standard, 3%; priority allocation, 1.5-4.5%)
• Other new drugs (no premium)
Classification Based on Market Size
• New drugs with extremely small market size (standard, 10%; priority allocation 5-15%)
• New drugs with small market size (standard, 3%; priority allocation 1.5-4.5%)
• Other new drugs (no premium)
Japan is currently trying to reduce the large price disparity between drugs’ list price and actual retail price (officially 13.1% in December 1997). Proposals include cutting the number of major pharmaceutical wholesalers in Japan by about half to 130 by the year 2000, and implementing a system of written contracts to replace verbal agreements made between pharmaceutical manufacturers and dealers and thus eliminate “hidden costs” that raise the price of drugs as they go through the distribution cycle.
The MHW also plans to introduce a new drug reimbursement system in the year 2000, although no definitive system has yet been agreed upon. The MHW currently favors a reference-based pricing system, used in Germany and other European countries, under which health insurance would pay for standard-priced drugs. Drugs would be categorized according to their active ingredient, each of which would be assigned a standard drug price determined by competing manufacturers. Any excess cost to hospitals, pharmacies or clinics purchasing these drugs would be covered by patients’ out-of-pocket expenses. Patented drugs would not be categorized, but instead assigned separate reimbursement prices based on their chemical compound. Market-based pricing policies would be employed for innovative and orphan drugs to preserve pharmaceutical companies’ incentives to produce these drugs.
Alternative proposals, however, are being offered by other agencies. The Japan Medical Association (JMA) recently announced a new medical price reform plan to eliminate wholesalers and establish a new organization to supply medical equipment and medicine exclusively. Medical insurance agencies would then negotiate with manufacturers over the prices of medical products, based on the amount of income generated by medical insurance fees. Large price mark-ups between market prices and NHI drug prices for medical products in Japan would therefore be eliminated, causing national medical expenditures to fall. The JMA has realized, however, that doctors and medical institutions benefit from these mark-ups. Thus, in order to reduce the price differential while making up for their lost income, the JMA has been looking into alternative revenue sources for medical institutions, including raising technical fees.
The JMA and the drug industry have criticized the MHW’s reference-based price proposal for concentrating only on slashing expenditures while increasing the burden on individuals and medical institutions. The MHW has set up a working team to calculate the effect that the introduction of the new pricing system will have on the drug industry, and discussions on this topic will continue through the end of 1998.
Japan’s pharmaceutical industry has enormous potential for foreign companies, and new deregulation policies will make this market even more attractive. Foreign pharmaceutical companies will also greatly benefit from the increased access to the MHW and other review agencies. However, Japan’s new testing and safety standards for pharmaceuticals are much more stringent than before, and foreign pharmaceutical manufacturers introducing new drugs into Japan should pay close attention to the new regulations, as well as future changes in such areas as data review and drug reimbursement.