New pricing rules will mean cuts against 1,118 off-patent brands in Japan

Further analysis published in the Ministry of Health, Labour and Welfare (MHLW) gazette last week reveals the impact of the key pricing rule change in the April National Health Insurance (NHI) price revision, as reported by Pharma Japan. One-off price revisions will be made against long-listed (off-patent branded) drugs of which generic substitution rates are below 60% on a volume basis, following at least five years since first generic entry, with a total of 1,118 drugs falling within this remit. The maximum cut of 2.0% will be applied to those drugs with a generic replacement rate below 20%; those products with a replacement rate below 40% face a 1.75% cut, and below 60% a 1.5% cut. The rule replaces the 4–6% cut for products that face generic competition for the first time.

The generic rates are calculated for individual active pharmaceutical ingredients (APIs) according to administration route categories – oral drugs, injectables, or topical drugs – based on the market price survey carried out by the MHLW in September 2012. Japanese firms Mitsubishi Tanabe Pharma Corp. and Astellas Pharma face the most significant quantity of cuts under the rule, according to a survey carried out by Jiho of 38 pharma companies. Mitsubishi Tanabe states that 25 APIs will face price cuts, while Astellas reported that 20 APIs amounting to 56 products will be affected. Companies were questioned in the survey about the impact of the cuts on their five best-selling long-listed drugs, with the results showing that 28% of those firms' 186 top-selling products will see price cuts.

Examples of prominent drugs affected by the ruling include Mochida Pharma (Japan)'s Epadel (ethyl icosapentate), and Ono Pharma (Japan)'s Opalmon (limaprost alfadex), which face 1.75% cuts, while Takeda Pharmaceutical (Japan)'s Takepron (lansoprazole), Dainippon Sumitomo (Japan)'s Amlodin (amlodipine), and Pfizer (US)'s Norvasc (amlodipine) face 1.5% cuts.

Outlook and implications

Compensation for consumption tax rise reduces overall reduction to 2.75%

As previously reported, this year's NHI revision, as calculated by the MHLW, will produce a 5.64% effective reduction in NHI prices, equating to around a JPY500-billion (USD4.84-billion) reduction in NHI prices and comparable to the previous 2012 revision (see Japan: 3 January 2014: Japan's 2014 revision to bring down NHI drug prices by 5.7%). However, the increase in Japan's national consumption tax rate to 8%, from 5%, that takes effect from April is to be offset by an additional surcharge, given that medical institutions are not permitted to pass on the tax hike to patients under Japanese law. The supplement amounts to an additional JPY260 billion added to NHI prices, and means that this year's actual price reduction amounts to an overall 2.74% of NHI drug expenditure.

Generic rule changes to encourage innovation, generic uptake

Japanese firms focused on the domestic market have in the past been able to rely on patient and doctor brand loyalty and resistance to generic alternatives to earn steady revenues from off-patent branded drugs. This year's rule changes will further stimulate greater innovation among new drug developers, alongside the ongoing premium for new drug development introduced in 2010 (see Japan: 6 March 2014: Japan grants 397 APIs new drug development premium in April NHI price revision). Those companies with drugs that have gone off patent in the last two years will benefit from the removal of the automatic 4–6% price cut for originator drugs upon generic entry – although this rule may serve to boost generic uptake by emphasising the price differential between long-listed drugs and generic alternatives.

Promoting generic uptake is now a key cost-containment strategy for the government in Japan, with efforts focused on notifying patients of the excess costs related to using branded drugs at the point of sale, and subsidies for health insurers that inform patients of generics savings (see Japan: 10 September 2013: Japan's MHLW plans to reduce health spend by USD10 bil. through generics promotion). Generic makers will in the long term benefit from the drive for greater generic uptake, but face considerable pressure within this year's price revision due to the generic pricing rule change that will see prices of first oral generics set at 60% (from 70% currently) of the originator price, or 50% if 10 or more generics are approved, with the potential for an industry shake-up as a consequence.

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