Drug Lag and Loss: Japan’s Prescription for Progress
The evolving landscape of drug development and approval in Japan was the topic of a recent British Chamber of Commerce in Japan event, held at AstraZeneca KK’s Tokyo office. Expert speakers explored the root causes and potential solutions, delving into the challenges and opportunities faced by the pharmaceutical industry while examining key factors such as the regulatory framework, the innovation ecosystem and international collaboration.
With moderation from Alison Beale, director of the Japan office of the University of Oxford, the panel comprised Dr Kenji Shibuya, CEO of Medical Excellence Japan; Takafumi Horii, president and representative director of AstraZeneca KK; and Philippe Fauchet, founder of Mirasense Partners.
Global trends and Japan
AstraZeneca’s Horii began by outlining trends in the global pharmaceutical market, which grew from $499 billion in 2003 to $1,472 billion in 2022. Over that period, Japan’s compound annual growth rate was a mere 1.2% compared to 4.6% for Europe, 5.8% for the United States and 17.7% for China, although Japan’s performance was impacted by the fluctuation of the yen versus the US dollar, he explained. Still, Japan’s market share has been shrinking year-on-year, down from 12% in 2003 to 5% in 2022, while the United States’ share was at 44% in both 2003 and 2022, and China’s share has increased from 1% to 11%.
In Japan, the pharmaceutical industry places second in the technology trade balance ranking, behind transportation equipment, and third in tax contribution by industry, behind transportation equipment and electric equipment, demonstrating that pharma “has been contributing to Japan significantly from an economic growth perspective,” said Horii.
AstraZeneca KK has “developed Japan-origin products for the world, being a partner of choice for Japanese pharma,” he added. Examples include its partnerships with Shionogi, Kyowa Kirin and Daiichi-Sankyo in the therapeutic areas of hyperlipidaemia (high cholesterol), bronchial asthma and breast cancer, respectively. The company also collaborates with Japanese biotech startups and academia, from early stage research to joint research agreements.
The Japanese government, meanwhile, is working to improve the drug discovery infrastructure to enable the earlier introduction of new drugs into Japan, including by setting up a public-private council to discuss policy direction. The pharma industry is considered a key industry in the government’s growth strategy as evidenced by the budgeting of ¥350 billion to accredit VCs and support clinical trial costs, explained Horii.
He closed by noting that AstraZeneca is sponsoring the UK Pavilion at Expo 2025 in Osaka, where the company will “highlight what science and technology can bring to people’s lives and address topics such as climate change and the challenges in the healthcare systems faced by countries around the world.”
Drug lag and loss
Mirasense Partners’ Fauchet provided a snapshot of the drug approval situation in March 2023, when Japan had 57 drugs classified as “developing” and 86 classified as “undeveloped.” Of the approved drugs in the United States and European Union, only 28% were invented by big pharma, with the rest originating from emerging biopharma companies. Of all new drugs in 2022, 69% were launched by emerging biopharma companies, reflecting their “rising independence,” he explained.
Looking at investment, while Japan is a leader in traditional R&D, its VC investment level is extremely low for its GDP and its innovation ecosystem has not evolved yet to the new startup-led model, he said. The UK represents 30–40% of overall activity in this area in Europe, for example, but Japan’s activity is about four times less than that of the UK, despite having double its population.
Low research productivity and low start-up activity is causing Japan’s drug development presence to decline globally. In scientific communication, too, Japan has fallen out of the top 10 ranking in terms of number of Japanese articles referred to in biotechnology publications.
China, on the other hand, is placing more importance on innovation, not only in sales, but also in fields such as discovery, licencing and M&A, he said. The country is particularly active in oncology, overtaking the United States in developments in this area. Still, Fauchet noted that the data reflects the quantity, not quality, of activities.
“Japan has been seen as too complicated, with a lot of regulations that impede developments,” he said of the country’s drug development, but welcomed Japanese authorities’ measures to tackle lag and loss, including the simplification of development requirements. For example, Since December 2023, Phase I data in Japanese patients has not been required before joining global Phase III, which he believes will help small companies introduce their products in Japan. Furthermore, companies without an office in Japan can now submit regulatory applications in English.
Japan’s healthcare system
Medical Excellence Japan’s Dr. Shibuya described Japan’s universal health insurance system as unsustainable due to the country’s low economic growth, ageing population and chronic care demand. Coupled with the stagnant growth of the fee schedule, the system failure is resulting in overburdened healthcare workers and the closure of some private hospitals. In financial terms, urban clinics are struggling and the pharmaceutical industry is suffering from cuts in drug prices, he said. Despite the crisis, the medical community lacks political power, and there is little public support to boost medical and drug fees, he explained.
To tackle the problems, he suggested value-based pricing and waste reduction. For example, non-essential treatments, such as cold medicine and pain-relief patches, could be excluded from insurance, while innovative new drugs could be priced more appropriately. In a move towards fair cost sharing, elderly patient co-payments could be increased and high-cost medical expense caps could be revised. However, he acknowledged that these measures would be politically challenging due to their unpopularity with the public. Given these difficulties, he emphasised the importance of market expansion via private healthcare for preventative care, advanced treatments and high-value services, starting with medical tourism for foreign patients.
Talent and globalization
Asked to evaluate the government’s measures to fortify Japan’s pharmaceutical industry, Fauchet suggested more needs to be done in skill development to ensure there is more talent to work on projects and act as investors. “Japan needs more exposure to the world and needs to assimilate more quickly the kind of skills that are not available yet here,” he added.
Dr. Shibuya pointed to the UK as a good example of securing talent by opening up its borders to workers. Japan lacks the ability to “harness talent” and Japanese startups are primarily focused on domestic capital, he said.
Horii added that Japanese culture is well accepted by younger generations in other countries and provides unique opportunities to attract young talent to Japan.
In closing, Dr Alicia Demirjian, clinical lead for antimicrobial resistance & prescribing at the UK Health Security Agency, addressed members. As part of a UK–Japan collaboration led by The University of Warwick with funding by The Great Britain Sasakawa Foundation, she is working with policy fellow Dr Nobuaki Matsunaga to tackle antimicrobial resistance.
Innovating Japan’s pharma industry requires “openness to collaboration, public-private partnerships and international partnerships, as well as bringing ministries and academia on board,” she said, adding the importance of “fostering talent and training them up for leadership.” Some gaiatsu (external pressure) from outside Japan could also be useful “to nudge a culture that was once at the top to bring it back,” she concluded.
*More information on drug loss/drug lag can be found in this article co-written by Dr Kenji Shibuya and Philippe Fauchet and published by The Tokyo Foundation for Policy Research.