Japan: An Introduction to Life Science Markets in Japan
Japanese Market Context for Life Sciences
Despite its “lost decades” in terms of growth and development, Japan still continues to be the world’s third-largest economy, with a GDP of around USD5 trillion and a population of approximately 126 million people enjoying the highest life expectancy on the planet. The country also has one of the largest pharmaceutical markets, with an estimated value of USD100 billion, according to the Ministry of Health, Labor and Welfare (the “MHLW”).
The Japanese government regulates and controls nearly all aspects of the healthcare system (i.e. hospitals, clinics, doctors, pharmaceutical and medical devices industries) and the MHLW is the central organisation in charge of regulating and controlling all functions under the healthcare system in Japan. The manufacture and sale of pharmaceuticals and medical devices in particular mostly require special business licences and marketing authorisations.
The national health insurance (the “NHI”) also characterises Japan’s healthcare system. Under the NHI, every resident in the country is (in principle) entitled to a full medical care service (including medical treatments and prescription drugs) provided by medical institutions. Patients (who are insured) pay a portion of the medical fees to the medical institution on each visit. Being a public healthcare system, the NHI allows every patient to freely choose (without any restrictions) the medical institution from which they wish to receive medical treatment. It is worth noting that the fees charged for a medical procedure are almost the same across the country. It is essential for pharmaceutical manufacturers to know the NHI pricing system. For certain medical devices, the NHI reimbursements would cover specific costs of the medical devices. For other types of medical devices, the NHI reimbursements substantially cover patient treatment and the technical fees for physicians’ diagnosis and treatments using such medical devices.
An entrant to the market should pay close attention to potentially applicable regulations depending on the relevant field, i.e., healthcare services, pharmaceuticals or medical devices and the potential business impact due to the presence of the NHI system, as well as other generic legal issues such as competition, public procurement, privacy and product liability.
Challenges and Opportunities
Japan is also one of the world's most rapidly ageing societies. Almost one third of its population is now over the age of 65. On one hand, this data is indicative of a sign of significant expansion of the healthcare market in Japan, including preventive medicine, especially in the age-related diseases and nursing care services. On the other hand, the ageing population (in combination with the NHI system), constitutes one of the largest causes of serious government debt, which now amounts to more than 250% of its GDP. Therefore, the government is focusing on its initiatives to streamline the entire healthcare system and process.
Starting from the promotion of generic drugs, the government’s efforts to streamline the healthcare system involve a wide variety of measures and policies. One of the most notable policies would be the emphasis on the preventive phase, especially in relation to age-related diseases. In this area, digital health is regarded as one of the key drivers and represents a prominent area of innovation. The government used to see software as an accessory to hardware devices and did not grant an authorisation to software as a separate entity. Following the regulatory change in 2014, software is now recognised as a medical device independent from a hardware product and since then, a number of novel software products have been granted market authorisation. Although this software was typically designed to function together with a dedicated medical tool (i.e. the hardware) which is also categorised as a medical device, in 2020, the MHLW granted authorisation for a couple of apps that could be installed on ordinary smartphones and wearable devices. This trend suggests a potentially broader market for the digital health industry to flourish in.
Another example of an area where the potential to develop and progress exponentially is telemedicine. The regulations on the medical practitioner and the NHI system used to assume that a physician and a patient must have a face-to-face consultation, and it was highly controversial as to whether and to what extent telemedicine should be permitted for the benefit of patients and the medical fraternity. As part of streamlining the healthcare process, the government has gradually allowed online medication consultation and, to cope with the spread of COVID-19, it temporarily repealed the requirement that the patient’s initial consultation should be a face-to-face meeting with the medical practitioner. The MHLW is further preparing permanent rules permitting an initial consultation to be conducted online. The expansion of online medication consultation would call for new technologies and services to support its infrastructure, which would offer opportunities for suppliers who may not have been traditionally involved in the life sciences sector.
Japanese Market for Foreign Entrants
The Japanese market is often criticised as closed to foreign players. At least in the case of the life science sector, this does not hold true. Among the top 20 pharmaceutical manufacturers in terms of sales volume in Japan, ten companies are subsidiaries of international firms. International players in particular have shown outstanding performances in the therapeutic areas of biotechnology-based pharmaceuticals (such as antibodies) and molecular-target.
Nevertheless, in 2019, against the backdrop of recent international economic conflicts, the Japanese government amended the Foreign Exchange and Foreign Trade Act and tightened its inbound investment regulations. Furthermore in June 2020, amid the COVID-19 pandemic, the government also added certain healthcare businesses to the list of highly regulated industries. In addition to the regulations specific to the healthcare system, foreign players are now required to carefully examine the requirements under the foreign exchange regulations as well.
Anderson, Mori & Tomotsune