This article examines the following two significant recent changes to the regulatory regime in Japan relating to the business of originator pharmaceutical companies and generic pharmaceutical companies:

These changes directly impact certain legal protections (such as the re-examination system and patent term extensions) in Japan for pharmaceutical companies that produce original drugs. These protections are increasingly important in the light of governmental steps to increase the historically low market share of generic drugs in Japan.

According to the Japan Generic Medicines Association (JGA) (comprised of the major generic pharmaceutical companies in Japan), the market share of generic drugs in Japan increased from 16.8% in 2004 to 17.6% in 2008 (based on the number of units sold) and from 5.2% to 6.8% (based on the cash amount of sales over the same period). According to statistics of the Ministry of Health, Labour and Welfare of Japan (MHLW), the market share of generic drugs (based on the number of units sold) as of September 2009 was 20.2%. Due to generic drugs' low market share, the MHLW is now focusing on the promotion of generic drugs in order to achieve its goal of making the market share of generic drugs (based on the number of units sold) at least 30% by 2012. Legal protections for pharmaceutical companies that produce original drugs are increasingly important in light of this governmental promotion.

In Japan and most other pharmaceutical markets, patent rights are a fundamental legal protection for originator pharmaceutical companies. Europe and the US have also developed data exclusivity and marketing exclusivity systems, respectively, to provide certain protections for originator pharmaceutical companies. These systems aim to ensure that originator pharmaceutical companies have the exclusive right to market the original drugs for a certain period of time by preventing health authorities from relying on the originator's clinical data to approve applications for generic drugs.

In Japan, however, there is no established system similar to either the data exclusivity or marketing exclusivity systems that would explicitly prohibit the MHLW from relying on the originator's clinical data. Nevertheless, the Pharmaceutical Affairs Act of Japan (PAA) does provide a re-examination system and, although its primary purpose is to ensure the efficacy and safety of newly approved drugs, in practice it functions in a manner similar to the data exclusivity or marketing exclusivity systems.

In addition to the re-examination system, the patent term extension, as set out under the Patent Act of Japan (PA), also gives market protection in Japan for originator pharmaceutical companies. Unlike in the US, under the PA, a patent term extension can be made multiple times for one patent covering an original drug.

Recently though, important changes have taken place regarding such protections for originator pharmaceutical companies in Japan. One change in relation to the re-examination system is the extension of the study period. Another change to the patent term extension is in relation to the permissibility of partial marketing approvals (MAs) for generic drugs.

When an MA is granted, the new drug is designated by the Minister of the MHLW (Minister) as a drug for which the active ingredients, quantities, dosage, administration, and indications are clearly different from those of drugs which have already been approved for marketing (Item 1, Paragraph 1, Article 14-4, PAA).

Although an applicant for the MA of a new drug must submit to the Minister clinical data supporting the safety and efficacy of the drug, the scope and the number of clinical cases examined in the MA approval process are limited. Accordingly, an additional review concerning the safety and efficacy of the newly approved drug is necessary even after the marketing of the drug has begun. The purpose of this re-examination system is to ensure the safety and efficacy of a newly approved drug by imposing on the MA holder the obligation to gather clinical data during a certain period after the MA is granted so that the Minister has the opportunity to re-examine the safety and efficacy of the drug.

An MA holder for a new drug must apply for a re-examination by the Minister within three months after the expiration of a certain period of time (the study period), based on the category of the drug (Item 1, Paragraph 1, Article 14-4, PAA).

One of the important protections for originator pharmaceutical companies is a patent right for an original drug. In principle, the Minister will not approve any generic drugs as long as the patent right that covers the active ingredients of the original drug is valid. This is to avoid a situation where the original drug patentee makes a claim for an injunction against the generic drug manufacturer to cease the sale of the generic drugs, and the stable supply of the generic drugs cannot be maintained due to such dispute.

The duration of a patent is 20 years from the filing date of the patent application; however, a patentee in the field of pharmaceuticals must commonly wait for a considerable period of time to use its patented invention for business purposes, due to the requirement that pharmaceutical products must be approved by the governmental health authority (that is, an MA be received). In light of this erosion of the patent term, the PA has established the patent term extension system to compensate patentees (the originator pharmaceutical companies) for time lost while awaiting an MA.

If there is a period during which a patentee cannot use its patented invention for a drug product because it is waiting for the MA for the drug product, the duration of the patent right can be extended (Paragraph 2, Article 67, PA). The extended term is based on the period in which the patentee was unable to use the patented invention, after the patent was granted, due to obtaining an MA.

Unlike in the US, multiple patent term extensions can be granted under the PA for one patent if two or more MAs have been granted for different indications of the drug covered by the patent. The maximum duration of each extended term is five years.

The effect of a patent term extension does not cover all of the patent rights. Only the use of the patented invention for the specific drug product that was the subject of the MA triggering the patent term extension is covered (Article 68-2, PA). That is, if the MA covers a specific usage of the drug product the patent term extension is limited to that specific usage.

When a patentee holds a patent right on a new chemical substance, and when an MA has been granted for a new drug that contains that substance as an active ingredient for a specific indication, a patent term extension can be registered for the patent. This extension covers only the use of this substance for this specific indication. Therefore, after the original expiration date (that is, twenty years after the filing date of the patent application), anyone can use the patented substance except for use for this specific indication.

If, however, another MA is granted for a second indication, a second patent term extension can also be registered for the patent right for the substance. The duration of the extension is based on the period for obtaining the additional MA. Therefore, the duration of the second extension can be longer than that of the first.

For example, if the duration of the first extension is two years and that of the second is four years, between the expiration date of the first (two years after the original expiration date) and the second (four years after the original expiration date), third parties can use the drug in relation to the first indication but not the second indication.

While the extension of the study period strengthened the protection for originator pharmaceutical companies, the permissibility of partial applications or partial approvals allows generic pharmaceutical companies to launch generic drug business earlier than was previously possible. Therefore, these important changes seem to conflict with government policy on the protection of the business of original drug manufacturers against generic drug manufacturers.

These two changes were both made by notifications of the MHLW and are not based on any amendment of any legislation approved by the Diet of Japan. As such notifications can be amended easily, compared with passing an amendment of legislation approved by the Diet, it is possible that the situation will change again in the future.

In light of these recent changes and the conflict between the policies regarding the promotion of generic drugs and the protection for originator pharmaceutical companies, it is important for pharmaceutical companies conducting or contemplating doing business in Japan to carefully monitor and follow future regulatory changes which will be made not only by the Diet but also by the MHLW in connection with the areas of pharmaceutical law and patent law in Japan.