Healthy Skepticism Library item: 13267

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Publication type: news

Shiroki A.
Lower Drug Prices To Inflict Pain On Pharmaceutical Firms
Nikkei English News 2008 Mar 24
http://www.nni.nikkei.co.jp/AC/TNKS/Nni20080324D19HH130.htm

Full text:

TOKYO (Nikkei)—Government-set prices of prescription drugs are slated to drop in April by an average of 5.2%, smaller than the 6.7% decline two years ago but significant enough to harm the earnings of pharmaceutical companies. They are calling for changing the way prices are revised.

Under the current system, the Ministry of Health re-examines government-mandated drug prices with market prices every two years, with additional data also taken into consideration. Drugmakers argue that the effort and money expended to develop new medicines should be given more weight when their prices are revised.

In fiscal 2008, Chugai Pharmaceutical Co. (4519) will suffer an especially sharp 7.2% cut in the prices of its medicines, with most major drugmakers selling patented products facing smaller declines of about 5%. Generic drug manufacturers Sawai Pharmaceutical Co. (4555) and Towa Pharmaceutical Co. (4553) will be hit by reductions even bigger than the one affecting Chugai.

The main reason for the big drop at Chugai is the heated competition between its renal anemia treatment Epogin and rival drug Nesp. When Kirin Pharma Co. introduced Nesp in July 2007 at a lower price, Chugai responded by offering large discounts on Epogin to retain users of the drug. As a result, the company was forced to spend about 7 billion yen for that purpose in 2007.

The aggressive marketing push dragged down the price at which Epogin was actually sold, which led to an 18.2% decline in the government-set price. Excluding the cut in Epogin’s price, Chugai will suffer only a 4.2% drop in its drug prices overall.

For Janssen Pharmaceutical KK, the falling price of Risperdal, a schizophrenia medication, is an especially serious blow. The drug’s price will be lowered due to a rule that makes a medicine subject to a special reduction if its patent has expired and a generic version is available.

The cut in the price of Risperdal — Janssen’s biggest seller in Japan — is likely a significant part of the 6.5% decline in the prices of drugs made by the Johnson & Johnson group company.

Another rule that deals a heavy blow to pharmaceutical companies is the one that requires them to accept an additional cut in the price of a medicine if its sales show larger-than-projected growth.

Due to that rule, Novartis Pharma KK will suffer a 10.1% decline in the government-set prices of Diovan. The blood pressure medication is the biggest seller for the company, with sales of 127 billion yen in 2007, up 13% from a year earlier. “It is the reason for the 6.6% decline in the prices of our drugs, which is bigger than the average,” said a Novartis official.

This rule is especially opposed by drugmakers, which think a government-mandated price cut — not a voluntary one aimed at expanding sales — unreasonably reduces sales of innovative products.

With the Health Ministry’s Central Social Insurance Medical Council starting discussions this spring on a new system for drug prices, pharmaceutical companies will likely need to make a more persuasive argument to convince the government, which is hard-pressed to rein in ballooning costs of health care.

— Translated from an article written by Nikkei staff writer Akira Shiroki

(The Nikkei Business Daily Wednesday edition)