At a recent meeting of the Japanese Central Social Insurance Medical Council (Chuikyo), substantial price cuts for drugs with “huge sales” were discussed. These cuts are to be implemented in April and will impact four brands:
- Sovaldi (sofosbuvir)
- Harvoni (ledipasvir-sofosbuvir)
- Avastin (bevacizumab)
- Plavix (clopidogrel).
Sovaldi and Harvoni face price cuts of up to 50%; the others up to 25%.
This latest government mandated “price reduction” decision further emphasizes payer concerns and focus over budget impact of breakthrough drugs, a discussion that surfaced in many countries after the launch of Sovaldi. The decision in Japan is unlikely to cause major concern over the financial viability of biopharmaceutical company Gilead, but it could have a broader impact over long-term price and profit margin expectations, particularly for high-cost biotechnology drugs in Japan. Even the most profitable biotechnology drugs can easily become a loss leader at a 50% discount.
Drug re-pricing rules
New “huge seller” drug categories that are affected by price reductions are:
- Annual sales over 150 billion Yen ($ 1.3 billion) that exceed their sales projections by at least 50% - price reduction up to 50%. Sovaldi and Harvoni (both Gilead) are subject to this rule.
- Annual sales between 100 and 150 billion Yen ($ 0.8 to 1.3 billion) that exceed their sales projections by at least 30% - price reduction up to 25%. Avastin (Chugai) and Plavix (Sanofi) are subject to this rule.
In addition, many drugs are subject to an already existing re-pricing rule:
- Annual sales over 15 billion Yen ($ 130 million) that exceed sales projections by at least 100% - price reduction up to 25%. 45 drugs (20 chemical entities) are subject to this rule.
Price changes: United States vs. Europe vs. Japan
The new price law in Japan further contrasts price developments over a drug’s life cycle in the United States, Europe and Japan:
- U.S. prices are typically increased annually or bi-annually, as with most consumer products, albeit at a rate which is contested for some drugs.
- Most European markets do not accept price increases post the initial price approval. Price decreases occasionally happen as part of a label extension or general government mandates for price reductions.
- Japan has bi-annual “R-zone” price reductions in which “excess margins” given to the trade under competition are transformed into a list price reduction. In addition, as described above, price reductions are mandated when certain sales levels are exceeded.
The life-cycle pricing differences between Japan, the United States and Europe continue to contribute to the complexity of managing global pricing strategies for prescription drugs. Ironically, the new Japanese volume-based pricing arrangements are a government mandated way of moving away from a fixed price per pill. Moving away from the price per pill has been a topic of much contemplation inside drug companies’ executive suites. The Japanese answer is not exactly what most had in mind. Did you?