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JAPANESE DRUG FIRMS ANTICIPATE NEW U.S. MARKETING CHALLENGES

Executive Summary

JAPANESE DRUG FIRMS ANTICIPATE NEW U.S. MARKETING CHALLENGES should the Clinton Administration succeed in implementing its proposed health care reform, Chugai President Osamu Nagayama told the New York Pharma Forum Dec. 2. Commenting on the proposed reform "as president of a foreign company anticipating to strengthen currently existing small business activities" in the U.S., Nagayama said he expects "the trend will be that pharmaceutical companies are most likely asked to make available as many products as possible to meet the needs of high-volume buyers and be flexible in supplying them in the new price- sensitive environment." The Chugai president described the Clinton plan as one that encourages health care providers to "move toward a vertical, horizontal and community-wise integration and seek after a one- stop-shopping coverage or wider medical care" to provide better and less expensive care to more people. He expects that "being successful in business will become more difficult than today" for Japanese manufacturers. Nagayama's strongest criticism of the plan concerned "the control mechanism affecting the drug price in general and that of new pharmaceuticals in particular" which he believes may negatively affect the "vitality and investment zeal for the development of new products" in the U.S. Because health care reform will place an even higher premium on innovative products, Japan must rethink its current research funding policies, Nagayama suggested. The Japanese government's method of handling research grants should be "fully reviewed and improved so that the individual research areas can be given a value weighed budget and regular assessment of research results may be reinforced," Nagayama said. Japanese companies currently spend around 11% of sales on R&D and R&D spending has grown 59% over the past five years compared to 28% sales growth, Nagayama said. The Ministry of Health and Welfare provides grants, but they "have very small budgets which are thinly spread among the government departments." Although Japan's health care reform is currently focused on changing the country's health insurance system, the proposed changes are expected to have a "massive impact" on the pharmaceutical industry, Nagayama said. As an example of the potential effect some of the proposed changes may have, he noted that when in 1990 the government agreed to let geriatrics hospitals shift to a flat sum payment from the fee-for-service formula, "there was as much as a 40% drop in drug consumption in hospitals under the new method." The Council on Health Insurance, established in 1992, published an interim report in June 1993, which included a recommendation that the current drug benefit be reexamined, the MHW Counselor for Pharmaceutical Affairs told the Pharma Forum. One aspect of the review should be the recent pricing of new drugs as well as a study of generic drug use.

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