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I. Introduction
On May 22, 2024, a report (the “Report”) was published summarizing the discussions by the Review Committee on the Industrial Structure for the Realization of a Stable Supply of Generic Drugs at the Ministry of Health,Labour and Welfare (the “MHLW”) (the “Committee”). The administrative action against generic drug companies in 2021 due to Good Manufacturing Practice (“GMP”) issues led to concerns about the stable supply of generic drugs in Japan. The purpose of the Committee is to hold wide-ranging discussions on the ideal industrial structure and policies to rebuild the generic drug industry in Japan so as to ensure a stable supply of generic drugs. Experts in various fields with knowledge of the pharmaceutical industry have been appointed as members of the Committee. The author of this article, as an expert in the legal field, has also been appointed as a member of the Committee and has contributed to the discussions at each meeting and compilation of the discussions for the Report.
This issue presents an overview of the results of the discussions by the Committee, which are summarized in the Report.
II. Current Status and Issues in the Generic Drug Industry in Japan
The starting point for the Committee’s discussions was to understand the current status of the generic drug industry and the issues it faces in achieving a stable supply of generic drugs. As described in Chapter 1 of the Report, the percentage of generic drugs in the overall use of pharmaceuticals in Japan has increased from approximately 35% to approximately 80% over the past 15 years. On the other hand, since 2021, there have been a series of violations of the Pharmaceuticals and Medical Devices Act by generic drug companies, and shipments of their products have been suspended, leading to a serious supply crisis of generic drugs that has continued for about three years.
In addition to the supply suspensions and the expansion of limited shipments triggered by the above-mentioned compliance issues, structural problems also contribute to continuing supply concerns. These include the repeated obtainment of new product approvals and NHI drug price listings to compensate for the combination of a decline in profitability of other products due to falling NHI drug prices therefor with the limited production capacity and production volume, especially for many relatively small and medium-sized companies. These factors have led to the expansion of small-volume, multi-product production, which in turn has led to further production-related inefficiencies. Another factor was that distribution practices and price competition after the NHI drug price listing accelerated the decline in profits, making it difficult to invest in manufacturing facilities and to secure and train human resources.
III. The Generic Drug Industry as It Should Be
In considering specific measures to resolve the various issues mentioned above, the Committee considered it important to clarify the aims of the generic drug industry. The Committee spent a substantial amount of time carefully discussing the ideal state of the generic drug industry, the results of which are shown in Chapter 2 of the Report. Specifically, it was decided that, as a natural prerequisite for the social responsibility of a pharmaceutical company, it is necessary to aim for the realization of the following three points to ensure a stable supply of quality-assured pharmaceutical products.
| Ensure manufacturing and quality control systems | Manufacturing and quality control systems in place in all companies. |
| Ensure stable supply capacity | Each company must be able to maintain a stable supply of drugs, and the industry as a whole must have the capacity to increase production as needed. |
| Sustainable industrial structure | A virtuous cycle of profit and investment has been established and the industry is sustainable. |
IV. Direction of Measures
The specific measures that were discussed in the Committee and ultimately proposed in the Report to resolve the various issues mentioned above cover a wide range of topics. These measures, summarized in Chapter 3 of the Report, are aligned with the above-mentioned ideal state of the generic drug industry. The Report also mentions the promotion of collaboration and cooperation among companies, from the viewpoint that there is a cost to the implementation of these measures, and that the establishment of production and quality control systems on a somewhat larger scale may be an effective option to improve production efficiency and profitability. An outline of these measures is as follows.
| Ensure manufacturing and quality control systems | Conducting thorough self-inspections
ü Prompt implementation of thorough self-inspections by all companies (use of outside expert organizations is also recommended) ü Publication of inspection results and reliable reporting to the competent prefectural governments and the MHLW |
| Strengthening Governance
ü Strengthening governance, including legal compliance ü Promoting human resource development, including fostering a quality culture ü Sharing of best practices mainly through industry associations |
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| Improvement of pharmaceutical regulatory oversight
ü Implementation of unannounced on-site inspections of high-risk manufacturing sites in collaboration with prefectural governments and the PMDA ü Establishment of a cooperation system including prompt information sharing between the national and prefectural governments for pharmaceutical regulatory oversight |
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| Ensure stable supply capacity | Establishment of systems to ensure stable supply at individual companies
ü Confirmation of the organization and persons responsible for contributing to a stable supply, and the supply performance of each product after the NHI drug price listing ü Specifying measures that companies should be required to implement ü Transparency and clarification of responsibilities in inter-company outsourcing relationships |
| Establishment of a management system to ensure a stable supply of drugs
ü Examination of the institutional framework for a management system to ensure a stable supply of drugs (such as monitoring of supply and demand) with reference to the revised Infectious Disease Control Act and other existing systems ü Strengthening Supply chain resilience, including securing APIs and raw materials (including research and analysis with respect to same) |
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| Sustainable industrial structure | Improvement of production efficiency such as optimization of small-volume, multi-product production
ü Simplification of pharmaceutical regulatory procedures for changes in manufacturing process ü Clarification and simplification of the process for removing a product from the NHI drug price list for withdrawal of products from the market ü Rationalization of the identical product line-up policy between a brand drug and its generic drug ü Arrangement of the relationship with the Antimonopoly Act concerning the adjustment of production volume and other collaborations between companies |
| Prices and distribution that create a virtuous cycle of profit and investment
ü Establishment of a mechanism for public disclosure of corporate information to make visible corporate efforts to ensure stable supply ü Utilization of corporate information in the NHI drug price system ü Study on the state of authorized generic drugs (AG) ü Compliance with revised distribution improvement guidelines and study of environmental improvements |
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| Promote collaboration and cooperation among companies | Improvement of production efficiency and profitability through collaboration and cooperation among companies
ü Increase in production capacity and scale of production per product through integration of products ü Promote efficiency through collaboration at various levels, including at the department level ü Promote industry restructuring through various models of corporate integration |
| Measures to promote cooperation and collaboration among companies
ü Consideration of measures to support corporate initiatives from various aspects such as financial measures |
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| Arrangement of the relationship with the Antimonopoly Act
ü Prepare and disseminate casebooks and other materials on specific examples of legitimate business-to-business cooperation ü Establishment of a consultation service for antitrust concerns for the companies |
The Committee also recommends that a five-year period of intensive reform should be set aside for the steady implementation of these measures, starting promptly with those that can be implemented, with prompt formulation of a roadmap and periodic follow-ups on the implementation status. In fact, some of the above-mentioned measures have already been implemented during the period of the Committee’s discussions. In addition, generic drug companies are said to be actively considering various forms of collaboration and cooperation in response to the Committee’s discussions.
V. Expectations for Stakeholders
The “Conclusion” section of the Report summarizes the Committee’s discussions and outlines expectations for stakeholders in the generic drug industry. This includes the industry as a whole, led not only by individual generic drug companies, but also by industry associations and companies that are aware of their role as the core of the industry, together with involvement by financial institutions and investors, support by the government, and support by drug wholesalers, medical institutions, pharmacies, and other stakeholders. It is noteworthy that the Report also calls on the MHLW to consider the various measures that have been proposed through the discussions at the Committee, including the need for a new legislative framework, and to begin implementing them as soon as possible.
The publication of the Report is only a starting point. In order to realize the ideal state of the generic drug industry, it is important for all stakeholders to work together to intensively implement various measures in a short period of time. Based on the discussions at the Committee, the author of this article would also like to continue to contribute in various ways to help resolve issues in the generic drug industry and to help the industry make further progress.
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Author: Masanori Tosu, Partner