IQVIA Insights
Covid-19 impact on Japan pharmaceutical spend and outlook to 2025
By C Bryan Jones
The impact of Covid-19 is wide reaching, affecting day-to-day life, business operations, and planning for the future. For the pharmaceutical industry, disruption comes from not only the need to switch gears to combat the coronavirus, but also patient behavior. The reduction in face-to-face doctor visits has compounded ongoing challenges of research and development (R&D), pricing, and coordination with Japan’s National Health Insurance (NHI) system.
On April 7, the American Chamber of Commerce in Japan (ACCJ) Healthcare Committee welcomed Alan Thomas, director of thought leadership at ACCJ Corporate Sustaining Member company IQVIA Solutions Japan K.K., to deliver an update on the state of pharmaceutical spending in Japan and the effects of Covid-19. He shared data points from 2020 that have impacted patient and prescriber behavior, explained how the market has shifted over the past five years, and offered an outlook for the industry covering the next five.
Costs of Corona
“The Covid-19 outbreak, in terms of the pharmaceutical market, has really created a considerable patient backlog, and delayed treatment initiation and switch therapies,” Thomas said.
The prescription market can be divided into three broad categories:
Dynamic market
Static market
Lost patients
“The dynamic market covers prescribing that either starts, accelerates, or shifts a patient journey,” he explained. It comprises three categories:
Newly diagnosed patients
Existing patients switching brands
Existing patients prescribed an additional brand
The static market comprises—as the name suggests—patients continuing with their current prescription and brand.
Lost patients, meanwhile, refers to those who have switched to either another brand or a generic, or who have delayed an expected follow-up prescription.
The healthcare professional’s choice to engage with the rep at their convenience saw more effective use of that detailing time, and there was an increase in the score of effectiveness, usefulness, and intent to prescribe as a result of that digital interaction.
The dynamic market in particular has been affected the pandemic. “During the past 12 months, we’ve seen an overall decline in new patient starts within the dynamic market, and also lower levels of switch and add-on activity due to an overall decline in patient visits in 2020,” Thomas explained.
“This was evident across nearly all doctor specialty areas,” he added, “and was a direct result of patients refraining from visiting their healthcare professional—maybe in part for fear of coming into contact with a Covid-19-positive patient, hospital and clinic restrictions, or community states of emergency restricting unnecessary movement.”
He said that a patient’s risk/benefit perception in a disease area where symptoms may not be immediately present or detectable by the patient may have also played a role.
New patient starts were lower in 2020, with a number of therapy areas reporting 65–70 percent the level of 2019. “This was most evident during the first national state of emergency, from mid-April through May, which is basically weeks 14 through 26,” he said.
New active substances (NASs) that were launched over the past 12–24 months have been most impacted. “A NAS generally requires more frequent monitoring, and with patients refraining from visiting their healthcare professionals, the ability for prescribers to follow guidelines and monitor patients on a new therapy was a challenge, given that there was a decline in, or lack of, willingness by patients to revisit their institutions. So that new switch and add-on for newly or recently launched products was very challenging,” Thomas explained.
The number of NAS launches, he added, was slightly higher in 2020 than in 2019, but the contribution from those products was only about ¥27 billion, compared with ¥60–65 billion in a usual year. The NASs launched in 2018 and 2019 were also affected, showing flatter sales trajectories than had been expected in 2020.
This decline in the dynamic market was offset somewhat by an increase in the length of prescriptions and the number of treatment days per prescription. With more patients wishing to avoid clinic visits, doctors were writing more prescriptions extended for four-plus weeks. Prior to the pandemic, 37 percent of prescriptions were for more than four weeks (38 days on average). This jumped to 45 percent and a 44-day average for the March–December 2020 period.
Physician Interaction
The pandemic has also changed how physicians prefer to interact with pharma companies.
“Hospital and physician restrictions on face-to-face visits during the first state of emergency resulted in a noticeable shift in promotion strategy,” Thomas said. “That continued throughout 2020 and is evident into 2021. Pre-Covid, 45–47 percent of promotional activity was digital, and we saw a considerable shift within digital platforms.”
Hospital/physician restrictions on face-to-face visits and the first state of emergency resulted in a shift in promotion strategy that continues.
IQVIA tracks detailing activity globally on a weekly basis, and has seen a decrease during the Covid-19 outbreak. Pre-pandemic levels in Japan were 28–30,000 details per week. But, Thomas explained, the drop has not been as severe in Japan. “In the US and across Europe, the total number of details decreased about 70 percent, whereas in Japan they decreased 30–35 percent, with a shift from face-to-face to established digital platforms and the expansion of digital platforms.”
Digital share peaked at 91.1 percent in the week ending May 15, 2020. The pre-pandemic average (January and February) was 47.6 percent, and the March–December average was 74.4 percent. “We have seen considerable investment and shifting focus to digital channels and the emergence of remote detailing as opposed to the traditional e-detailing approach that many companies took prior to Covid.”
In remote detailing, there is still an interaction between the pharma representative and the doctor, a group of doctors, or key opinion leaders.
“One of the clear outcomes,” Thomas said, “was that a lot of the detailing was done after standard office hours, where a physician or healthcare professional—when time was made available for them to contact a rep at their convenience—was willing to have that interaction. And the length of interactions, the time spent discussing, was actually longer than the historical average for face-to-face [interactions].”
Normally, face-to-face detailing, is done during office hours and many healthcare professionals do not have much time to spend with reps.
“So, the healthcare professional’s choice to engage with the rep at their convenience saw more effective use of that detailing time, and there was an increase in the score of effectiveness, usefulness, and intent to prescribe as a result of that digital interaction,” he explained.
While face-to-face sessions will be an option after the pandemic, Thomas expects digital to remain dominant, with a probable 60/40 split.
Profit Potential
The total pharma market for Japan has been in decline over the past five years, dropping from ¥10.598 trillion in 2015 to ¥10.372 trillion in 2020, a decline of ¥226 billion. Losses in 2020 attributable to Covid-19 are estimated to be ¥147 billion. In addition to the pandemic, other factors, such as the out-of-cycle NHI price revision at the time of the October 2019 consumption tax hike from eight to 10 percent and the government’s quarterly price revision for drugs.
But that doesn’t reflect the opportunities for R&D- and innovation-driven pharma companies, Thomas said, as there were a number of brands that shifted from protected to long-listed product (LLP) status between 2016 and 2020, thus impacting top line brand growth. Products facing loss of exclusivity, and therefore risk of generic erosion, accounted for 37.5 percent—or ¥2.2 trillion—of total protected brand spend in 2015 and not protected in 2020.
“Products that remained protected actually grew 5.7 percent (compound) over the past five years,” he stated. “This does not include any new product that was launched in the past five years. So, looking at apples to apples, in the existing protected brand space, we actually saw nearly six-percent growth, not the half-percent growth of the top line.”
If you include the contribution from branded, new active substances launched in the past five years, Thomas added, then about ¥1.2 trillion (20 percent) of total protected brand spend in 2020 came from newly available innovations. “In 2015, the protected market was only ¥3.6 trillion, because those brands that shifted to LLP are being excluded. So, realistically, we’re looking at around 10.5-percent growth in the innovative branded space today.”
The ¥1.2 trillion contribution was indeed lower than the historical five-year average—impacted last year by lower contribution from 2020 launches as well as shallower sales trajectories for many other recent launches, and IQVIA forecasts that the contribution from new products will remain relatively low over the next two years.
But Thomas said that, as patient backlogs are slowly covered, continued or expanded contribution from new launches are expected toward the end of IQVIA’s forecast, which stretches out to 2025.
Going Generic?
“I’m often asked about the ongoing use of generics in Japan,” Thomas said, “and if we have a look at generic utilization, it continues to expand. If a generic was available in Q4 last year, one was dispensed 79.6 percent of the time.”
Generic utilization continues to expand as of Q4 2020. If a generic was available, one was dispensed 79.6% of the time.
Source: IQVIA Solutions Japan. Japan Thought Leadership analysis. IMSBase JPM (Japan Pharmaceutical Market) All rights reserved.
This means that the NHI system’s target of 80-percent generic use—a goal set by the Ministry of Health, Labour and Welfare in 2015—essentially was met by the target date of March 31, 2021, the end of FY2020.
“We hit the target in Q1 this year, so we are there. It has slowed, but we will continue to see that increased impact on the generics market,” Thomas added.
More generics and higher NHI price cuts have impacted the volume dynamics in the unprotected market. Total long-listed spend dropped 6.1 percent over the five years from 2015 to 2020, from ¥2.6 trillion to ¥1.9 trillion. New LLPs introduced in 2015–19 accounted for ¥932 billion in 2020 and existing LLPs ¥963 billion.
“That increased generic utilization has impacted the volume dynamics in the unprotected market, so there is that volume decline in long-listed products compounded by higher price cuts as a result of patent expiry, for example,” Thomas shared. “So that’s putting additional pressure on portfolios for those companies that may still have a predominantly higher share of their business in Japan coming from long-listed products.
“Given the increased use of generics over the past three to five years—and the considerable decline and higher impact on price, as well as decline in volume—the shift to innovation and the need to reinvest in launch in Japan is at the top of most pharma-company decision pyramids,” he added. “Those companies that are investing in launch and have robust R&D pipelines are showing strong growth and will continue to be well positioned into the next five years.”
Beyond Covid
IQVIA’s updated forecast for 2021 predicts a ¥40–45 billion impact (minus 0.4 percent) from Covid-19. This will depend in part on Japan’s vaccine rollout, which has so far been extremely slow. Vaccinations will play a key role in patient behavior returning to patterns seen before the pandemic, with more doctor visits.
“We’re assuming that long-term prescribing will remain at the levels we’re seeing today through our forecast for 2025,” Thomas said. “Because long-term prescribing will remain relatively unchanged over the next five years, we’re forecasting there will be no change in the average length of prescriptions.”
Those companies that are investing in launch and have robust R&D pipelines are showing strong growth and will continue to be well positioned into the next five years.
Further out-of-cycle revisions to pricing are expected to continue impacting the market. The NHI normally revises pricing every other year, but there were additional revisions in 2019 and there will be again this year. IQVIA expects the annual pattern to continue in 2023 and 2025, which should be off years.
“We’re not encouraging these forecasts and additional price cuts by any means,” Thomas said. “But I think it’s inevitable that we will see some out-of-cycle impact, and we have decided to keep that in our forecast modeling.”
Whether changes will be total market, and whether they will be higher or lower on average than a standard biennial revision, remains unclear. Thomas said that he assumes the impact will be lower than a standard revision. He also believes that the level of discounting and price differentiation in the generics and LLP markets will stabilize, which will result in the price survey results being lower than the historical average, potentially resulting in lower price cuts.
Thomas predicts price harmonization in the unprotected market, which is seeing considerably higher price cuts at the moment, and strong growth in the protected market, relatively in line with the historical growth that was reported in 2020.
“We have assumed the continuation of the price maintenance premium, and that eligible and innovative brands will continue to see that deferred NHI price revision,” he said. “I think it’s imperative that the current pricing methodology stay in place and continue to focus on rewarding innovation and rewarding those companies that continue to invest in better patient outcomes in Japan.
“And if we see the elimination of—or reduction in—these positive pricing policies,” Thomas cautioned, “I think we’ll see a return to some of the old metrics in Japan that were considerably slower than in the rest of world.
“Most important is the drug lag, which today is 16–17 months—half as long as it was eight to 10 years ago—and, in my opinion, that is a direct result of the positive rewards that have been given around pricing for those companies that were investing and bringing these products to market in Japan,” he continued.
“Halving the wait time has really improved patient access and outcomes, and it’s imperative that we do not see a return to drug lag or a shift away from Japan focus for launch and development.”
Alan Thomas
Director of thought leadership IQVIA Solutions Japan K.K.
THE JOURNAL
Vol. 58 Issue 5
A flagship publication of The American Chamber of Commerce in Japan (ACCJ), The ACCJ Journal is a business magazine with a 58-year history.
Christopher Bryan Jones, Publisher & Editor
