Multinational drug makers brace for tough pricing environment in Japan

Weak economy adds pressure on the government to contain costs.

Japan's pricing regime will become increasingly contentious over the coming quarters as government officials shift their attention towards the cost burden imposed by high-value products, said BMI Research.

"In line with our expectations , the Ministry of Health, Labor and Welfare disclosed in October 2016 that it is seeking to reduce the price of Opdivo (nivolumab) by 25%," it said in a report.

A decision is expected to be announced in November 2016, which is notable considering price revisions are typically enacted at the beginning of the Japanese fiscal year in April.

This move was prompted by concerns over the total cost of the product - which is marketed by Ono Pharmaceutical in Japan - to the Japanese healthcare system. According to an estimate by the Ministry of Finance's fiscal system, treating 50,000 lung cancer patients for a year could incur a cost of JPY1.7trn (USD17bn).

From a company perspective, Opdivo has become an integral growth driver for Ono Pharmaceutical. Quarterly revenues have risen exponentially from JPY300mn (USD2.9mn) in Q214 to JPY25.2bn (USD244mn) by Q116. For the full year of FY2016 (April 2016 to March 2017), the company has projected a total revenue of JPY126bn (USD1.2bn).

"We highlight that Opdivo is not the only product targeted for price cuts - Gilead Sciences' Sovaldi (sofosbuvir) and Harvoni (sofosbuvir and ledipasvir) are on this list as well," said BMI.

Meanwhile, BMI notes that the need for austerity measures in Japan's healthcare sector will continue to be driven in part by the government's fiscal position.

Government spending has grown substantially, amounting to 41% of GDP as of 2015, and looks set to head as high as 45% after a stimulus package - announced in August 2016 - focusing on boosting consumer spending, increasing female labour force participation and improving the low birth rate.

This correspondingly demands cuts to other areas such as healthcare, as the government has already generated a large deficit, with total government debt at 231% of GDP in 2015.

"Japan's economy is also facing significant headwinds with real GDP growth for Q216 coming in below consensus at 0.2% quarter-on-quarter annualised and 0.6% year-on-year. This is unlikely to improve in the short term, with BMI's Country Risk team expecting a negligible impact on headline growth from the fiscal stimulus measures," warns BMI.