Japan is currently the fourth largest market in the world. Based on GlobalData estimates, the Japanese pharmaceutical market generated JPY9.392 trillion ($67.32 billion) in total sales in 2021 and is expected to grow 1.1% in 2022 to JPY9.498 trillion ($68.08 billion). However, despite this significant market share, the Japanese market is likely to become a less attractive market for international pharmaceutical companies based on recent findings from the Office of Pharmaceutical Industry Research (OPIR)

The OPIR, a research division of Japan’s major pharmaceutical industry association, the Japan Pharmaceutical Manufacturers Association (JPMA), recently released a report that highlights the drug delay phenomenon in Japan, showing that ten out of the 37 JPMA member companies (27%) considered Japan to be a lower investment priority for their business operations since 2016. Among the 37 member companies, 17 of them are overseas companies and 20 of them are Japanese companies with a 10%+ overseas pharma sales ratio. According to the report, five member companies decided to decrease their investment in Japan between 2016 and 2017, four companies changed their investment targets between 2018 and 2020, and one company lowered the priority given to Japan after 2021. On the opposite side, a total of 27 companies (73%) reported no major change to their investment plans.

One reason at play is the concern that the Japanese pharmaceutical industry has shown about the impact of annual price revisions. Six companies responded to the OPIR survey by claiming that a lower drug price was the main reason for them to change their strategy in the market while another two companies said that the drug price was the second most important factor for them to change their investment plan. Other reasons include lower sales demand and high investment costs. In terms of the influence caused by negative changes in international investment in Japan, the pharmaceutical companies that decided to lower their business priority in Japan reported lower pharmaceutical sales. A lower number of clinical trials and regulatory filings were other important influences behind the decision. Other contributing factors include the decreasing number of post-market studies and difficulties in primary research and manufacturing.

The OPIR report showed that Japan’s pricing policy has raised serious concern among large multinational pharmaceutical companies, which are wary of a potentially lower return on investment. However, it is difficult to distinguish between the investment plans of overseas companies and the Japanese companies with a 10%+ overseas pharma sales ratio, as the OPIR survey results are shown anonymously.

The survey result may spur further appeals from the industry for higher prices in fiscal year (FY) 2023, which will start from April 2023, as it can directly point to a decline in investment opportunities in the market for pharmaceutical companies directly caused by pricing policy. Japan’s Ministry of Health, Labour and Welfare (MHLW) has introduced a series of pricing regulations to reduce the national health insurance (NHI)-listed drug prices, including the implementation of annual off-year price revisions. GlobalData estimates that the FY2021 NHI drug price revision led to price reductions for approximately 70% of major pharmaceutical treatments, with major/top-tier drug makers expected to face average NHI price reductions of 2% to 4%. This trend continues as it estimated that the FY2022 price revision led to an average price reduction of 4% to 5% for major drug makers.

The MHLW is currently proposing discussions on the FY2023 drug price revision. Experts from an MHLW price revision panel have acknowledged that the Japanese pharmaceutical market is struggling to attract international investment and comes with risk. For example, the lower investment may signal delays in innovative drug launches in Japan. Meanwhile, another recently released MHLW report confirmed that 696 essential drugs from 94 companies were identified as unprofitable due to increasing costs of manufacturing and packaging and the depreciation of the Japanese yen.

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Japan’s pharmaceutical industry has warned that the supply of some medicines may be interrupted if the NHI drug prices remain low and claimed that the current price policy has discouraged drug manufacturers from launching new products in Japan. GlobalData expects that concerns about the withdrawal of drugs from the Japanese market and the interrupted supply of essential generic drugs may lead to a more lenient approach to price control to ensure a stable supply of essential drugs.