If the U.S. can help Japan reform its drug pricing controls, both countries stand to benefit.
During Thursday’s Oval Office meeting with Japanese Prime Minister Sanae Takaichi, President Donald Trump praised Japan for “stepping up to the plate” and working to deepen security and economic ties. The meeting yielded several new commitments, including Takaichi’s promise to help secure shipping lanes in the Middle East and the announcement of a $40 billion investment in American nuclear energy projects.
As they continue their conversation in the weeks and months to come, the president and the prime minister have an opportunity to boost another industry that’s critically important for both nations. If they work together to implement drug pricing reforms in Japan, it would help revive the island nation’s stagnating life sciences sector, strengthen America’s lead in global drug development and deepen an alliance rooted in shared prosperity.
For decades, Japan’s national health insurance system has set artificially low reimbursements for new medicines. The Japanese health system then repeatedly revises those already controlled prices downward. The latest revisions will reduce reimbursements on numerous therapies beginning in April, with the government targeting a 4% cut in total drug spending.
Adopting price controls won’t fix what ails American healthcare. It would replicate Japan’s mistakes at home and drive investment out of U.S. labs.
While these price controls do restrain short-term spending, they also discourage companies from investing in the research required to bring medical breakthroughs to patients. Indeed, decades of such policies have partially hollowed out Japan’s drug industry. The global share of new medicines invented by Japanese companies has plummeted from 29% in the 1980s to just 7% in the 2010s. By 2020, Japan’s biotech sector was attracting just $1 of venture capital investment for every $67 in VC funding that flowed to promising U.S. biotech firms.
That’s not for lack of opportunity. Japan’s scientists continue to produce Nobel Prize–winning breakthroughs and the country maintains a vibrant pipeline of academic research. Yet too few of those breakthroughs become startups or new medicines at the scale seen in biotech hubs like Boston or San Francisco.
Japan’s experience should serve as a stark warning to American policymakers currently considering a “Most Favored Nation” drug pricing framework that would effectively import these same price controls into the United States. Adopting price controls won’t fix what ails American healthcare. It would replicate Japan’s mistakes at home and drive investment out of U.S. labs.
Despite these policy headwinds, the sheer scientific brilliance of many Japanese biotechs still attracts some investor interest. Last year, AN Venture Partners raised a $200 million fund to commercialize discoveries from Japanese laboratories, while Tokyo-based Fast Track Initiative launched a $130 million life sciences fund aimed at building new biotech companies.
A fairer, more market-based drug pricing system in Japan would turn those policy headwinds into tailwinds, breathing new life into the country’s biotech industry.
Such reforms would also give new life—literally—to Japanese patients, who currently wait months or even years for cutting-edge medicines approved in America to reach Japan, if they arrive at all. A recent analysis found that about 44% of medicines approved in the U.S. between 2005 and 2022 were still unavailable in Japan, largely because price controls make it unviable for many companies to secure the expensive regulatory approvals to launch their drugs in the island nation.
I’ve spent years working with venture capitalists and biotech founders in Japan and one sentiment comes through repeatedly: Japan’s drug lag signals to investors that the country is a challenging place to launch new medicines. Price controls and persistently low reimbursement rates also make it harder to justify investing in Japanese biotechs, even when the underlying science is world-class.
If Japan paid U.S. market prices for innovative drugs, biotech companies here in America, as well as in Japan and Europe, would collectively earn tens of billions in additional revenue. They could use those funds to reinvest in research that would lead, on average, to more than three additional new medicines each year.
In the post-summit follow-up, U.S. cooperation to reform drug pricing in Japan offers an opportunity that rarely comes along in diplomacy: three clear wins from a single meeting. For the United States, it addresses a longstanding—and legitimate—grievance of the Trump administration that other countries don’t pay their fair share for American innovation that keeps the world healthy. For Japan, it ends the drug lag that has harmed patients and lays the groundwork for the biotech ecosystem the country aspires to build. And for both nations, it reinforces the industrial and scientific alliance that has helped drive medical innovation on both sides of the Pacific.
Whichever way you look at it, it’s a deal worth making.
