Japan's MHLW plans talks by end-2016 on major drug-pricing overhaul after Opdivo repricing

Japan's Ministry of Health, Labour and Welfare (MHLW) plans to initiate talks on a major overhaul of the country's drug-pricing system by the end of this year, after approving a 50% cut in the price of Opdivo (nivolumab), according to Pharma Japan. To come into effect in April 2018, the overhaul would take into account pricing systems in other countries and involve consultation with industry groups and a revision of the foreign price adjustment rule.

In addition, Japanese authorities are under pressure not only to carry out an emergency price cut on Opdivo and draw up guidelines on optimal use, but also to bring forward the introduction of a pilot cost-effectiveness assessment programme when making decisions on reimbursement approval and setting National Health Insurance (NHI) prices.

According to the source, Japan's potential overhaul of its drug-pricing system would be aimed at dealing with substantial expansions in indications, a strategy that Ono Pharma (Japan) pursued with Opdivo. While the MHLW initially granted marketing approval and reimbursement of Opdivo – thereby becoming the first country in the world – for melanoma in 2014, Ono Pharma swiftly applied for and received approval for several other indications, including non small-cell lung cancer (NSCLC) and renal cell carcinoma, and has filed for approval of head and neck cancer. Opdivo was also recommended for approval for Hodgkin's lymphoma this month (see Japan: 14 November 2016: Japan's PAFSC recommends marketing approval of Hodgkin's lymphoma indication for Opdivo).

The rapid increase in additional indications and its high price have made Opdivo something of a 'lightning rod' for public criticism, becoming the symbol of Japan's "expensive drug problem" and threatening the sustainability of its social security system.

Last week, Japan's Fiscal System Council submitted a recommendation paper urging the government to return to a budget surplus in financial year (FY) 2020, in part by reining in drug spending, which has pushed healthcare costs to record highs (see Japan: 30 September 2016: Drug costs boost Japan's healthcare spending to record high despite peaking sales of Sovaldi, Harvoni).

In addition, Pharma Japan reports described increasingly acrimonious discussions between pharma industry representatives and members of the MHLW's Central Social Insurance Medical Council (Chuikyo). On 16 November, Japan Medical Association (JMA) vice-president Toshio Nakagawa reportedly attacked drug makers' strategy of applying for multiple additional indications, thereby significantly widening the initially small target population.

Initially, the Federation of Pharmaceutical Manufacturers' Associations of Japan (FPMAJ)'s head of drug pricing affairs, Yoshiaki Kamoya, reportedly criticised the repricing of Opdivo and said, "We recognise that the sustainability of healthcare insurance is an important challenge, but we'd like you all to understand that unless we can obtain sufficient profits from new drugs in the Japanese market, it will be difficult to invest in the development of next products."

Outlook and implications

Given the increasing pressure on Japan's government to rein in drug spending, a major overhaul of the country's drug-pricing system seems all but certain. Drug makers and government officials appear to blame each other for the crisis, with the FPMAJ and the Japan Pharmaceutical Manufacturers Association (JPMA) accusing authorities of using the unprecedented 50% price cut for Opdivo as a pretext for introducing annual NHI price revisions. In addition, pharmaceutical industry associations warn of a slowdown in research and development (R&D) in Japan, as well as the return of a drug lag. The JMA vice-president, Toshio Nakagawa, on the other hand, has reportedly blamed drug makers for triggering emergency price cuts because of their strategy of rapidly expanding target patient populations. He added, "That’s not how companies should play the game under the public health insurance system."

In addition, Japanese authorities are also highly likely to bring forward the current cost-effectiveness pilot scheme and use cost-effectiveness criteria to directly influence whether new drugs would be reimbursed or when setting NHI prices. JMA president Yoshitake Yokokura has said that the current system needed to change, in light of the number of high-cost drugs expected to enter the Japanese market, according to local media reports.

Although it remains too early to say whether overall levels of pharmaceutical R&D in Japan would fall, or whether the drug lag issue would return, the scope for an introduction of annual drug price revisions is significant. A number of factors are in play: Ono Pharma is reportedly considering filing an objection to the 50% price cut, and the MHLW's estimate that Opdivo's annual sales will surpass JPY150 billion (USD1.4 billion) may prove incorrect, and the price cut may be over-zealous. In addition, the feasibility of introducing cost-effectiveness as a major criteria when reimbursing treatments is questionable, given domestic drug makers' and the Japanese government's severe shortage of available health economic data or the staff and expertise to collect them.

However, overall, given the fact that government officials see the drug-price issue as threatening Japan's universal healthcare system – and the level of public discontent – an overhaul of the drug pricing system is very likely. This, combined with the high-pricing pressure already existing in Japan, may well outweigh the government's efforts to boost pharmaceutical innovation (through its 'sakigake' fast-track approval pathway and liberal regulations on regenerative treatments), making the Japanese market a less attractive destination for pharmaceutical multinationals.