Israel Japan | Business Guide | 2023

Japanese government has promoted the healthcare industry as an important growth engine under the country’s economic revitalization and growth strategy. National Health Insurance (NHI) Annual Price Cut Despite significant market value, the Japanese market is likely to become less attractive for international companies due to the impact of annual price revisions, lower sales demand and high investment costs resulting in a lower return on investment. Due to that and other factors the “drug lag” is still a serious impediment in the market as 176 new drugs that were approved in the U.S. and Europe between 2016 and 2020 didn’t enter Japan, according to Japan Pharmaceutical Manufacturers Association. 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. 70 % of major pharmaceutical treatments, with major/top-tier drug makers faced average NHI price reductions of 2 % to 4 % annually. This trend continues as it estimated that the 2022 price revision led to an average price reduction of 4 % to 5 % for major pharmaceutical companies. In extreme cases, the price was cut up to 25 % off a drug’s price if its annual sales rise to between 100 B yen and 150 B yen and is at least 1 . 5 times the original expected sales or 50 % off when sales exceed 150 billion yen. Ono Pharmaceutical’s Opdivo, licensed fromBMS, outside of Japan, was launched in Japan in 2014 in a small indication of melanoma. Growth from label expansions to areas such as non-small cell lung cancer spooked Japanese authorities, which singled out the drug in a special repricing with a 50 % discount, and took effect in 2017 . The PD- 1 inhibitor went on to take several more rounds of price cuts in the following years. The market for U.S. medical devices in Japan is strong, but U.S. firms face similar challenges with reimbursement pricing, such as the Foreign Average Price (“FAP”) Rule. The FAP is the average list price of specific medical devices in the United States, the United Kingdom, France, Germany, and Australia. Japan uses this FAP as a reference price when setting reimbursement prices for medical devices sold in Japan. Since Japan implemented the FAP Rule in 2002 , the Government of Japan has continued to revise the application of the rule in order to reducemedical device reimbursement prices most effectively, including prices of innovative U.S. medical devices. The U.S. medical device industry therefore is concerned that continued frequent changes in Japan’s FAP Rulewill further undermine the predictability of Japan’s medical device pricing systemand adversely impact the U.S. industry’s ability to introduce innovative medical devices in Japan. The 2023 drug price revision comes with risk delays in innovative drug launches and a recently released MHLW report confirmed that 696 essential drugs from 94 companies were identified as unprofitable due to increasing costs of production, packaging and the depreciation of the Japanese yen. The Covid- 19 pandemic has enforced the importance of digital therapies, digital devices and IoT in treatment. The first digital therapy (nicotine addiction) was launched in December 2020 . According to Yano Research, the Japanese digital market is predicted to grow and will proceed at full speed around 2025 (USD 243 M in 2020 to USD 404 . 5 M in 2025 ). Companies developing general healthcare apps are converting their own apps to digital health. Various players, such as companies inmedical information systems and life insurance, are also expected to enter the market. Dror Wohlfeiler, Ph.D., is the owner of DWC Pharmaceutical Consulting Ltd: www.dwc-consulting.com ● World’s highest life expectancy rate ● Lowest infant mortality rate ● Spends 10 % of its GDP on healthcare ● Market for medical devices among the largest (USD 40 B.) 43