“API Geoeconomic Briefing” is a weekly analysis of significant geopolitical and geoeconomic developments that precede the post-pandemic world. The briefing is written by experts at Asia Pacific Initiative (API) and includes an assessment of burgeoning trends in international politics and economics and the possible impact on Japan’s national interests and strategic response. (Editor-in-chief: Dr. HOSOYA Yuichi, Research Director, API; Professor, Faculty of Law, Keio University; Visiting Fellow, Downing College, University of Cambridge)
This article was posted to the Japan Times on January 20, 2022:
API Geoeconomic Briefing
Photo：Prime Minister’s Office（https://www.kantei.go.jp/jp/100_kishida/actions/202110/09shisatsu.html）
January 20, 2022
Japan needs radical change to achieve health security
Fellow, Asia Pacific Initiative (API)
In his policy speech to the parliament on Dec. 6, Prime Minister Fumio Kishida touched on the importance of economic security.
“With countries around the world engaging in fierce competition to secure strategic goods and acquire key technologies, economic security is a matter of great urgency,” he said.
To cope with the COVID-19 pandemic, Kishida said the government will make investments of some ¥500 billion to fund domestic production of vaccines, development of therapeutic drugs and installment of dual-use facilities that can easily be switched from producing biopharmaceuticals to vaccines when needed.
Kishida also pledged to strengthen “the control tower function” to respond quickly to infectious disease crises and other health crises.
While vaccines and therapeutic drugs are the most essential strategic supplies that countries around the world have been fiercely competing to obtain, it is not clear how the government intends to integrate the two policy areas of economic security and health crisis management.
COVID-19 has taken the lives of more than 18,000 people in Japan. The number is similar to the total number of victims killed in the March 2011 earthquakes and tsunami combined with those who later died of illness or stress linked to the disaster.
The pandemic was the last crisis that hit former Prime Minister Shinzo Abe’s administration, after various crises and threats including serious disasters caused by typhoons and heavy rain, as well as North Korea’s nuclear tests and ballistic missile launches.
Following the Abe administration, former Prime Minister Yoshihide Suga’s administration had been completely absorbed in coping with COVID-19. And now the Kishida administration is the third to try tackling the pandemic.
Health crises, including infectious diseases, are a national security threat just like major disasters and armed attacks.
How should Japan build its economic security to prepare for and respond to such crises to protect the lives and health of its people?
There are two major threats that could lead to health crises.
One threat is infectious disease — “disease-X,” which represents a serious threat of outbreaks of emerging or re-emerging infectious diseases that could be caused by unknown pathogens.
There are concerns over the possible emergence of “COVID-X,” which spreads from infected people without symptoms and is, like COVID-19 that emerged in 2019, very hard to contain and even more deadly. If such a virus emerges in 2030, for example, it will be named “COVID-30.” Though it could come earlier.
Due to global warming, there is also an increasing risk of an outbreak of a tropical disease such as dengue fever.
The increasing prevalence of antimicrobial resistance (AMR), which occurs when bacteria, viruses, fungi and parasites change over time and no longer respond to medicines, making infections harder to treat and increasing the risk of the spread of disease, severe illness and death, would also pose a serious public health crisis.
In Japan, roughly 8,000 people die every year due to AMR.
The other threat is chemical, biological, radiological and nuclear (CBRN) terrorism, which includes but is not limited to potential threats from nuclear power plants and North Korea’s attacks using weapons of mass destruction.
There are three key items that the government must prepare to achieve economic security in the field of health crises.
First, drugs, including therapeutic drugs and active pharmaceutical ingredients (APIs), and vaccines, as well as the raw materials and equipment needed to produce them.
APIs are manufactured mainly in China and India, and most of the raw materials needed to produce APIs are supplied by China.
Second, medical supplies and devices, including personal protective equipment such as masks and gloves, as well as alcohol hand sanitizers.
Third, testing devices and test reagents.
As countries battled against the COVID-19 pandemic, they rushed to secure masks and vaccines.
It should be noted that demand for certain goods and necessities has changed dramatically over the past two years.
Now that the production capabilities of vaccines have significantly increased, the main issue has become the disparity in vaccine supply between developed and developing countries. And developed countries are now racing to obtain oral therapeutics.
Key technologies and items to cope with health crises change dynamically even in the midst of a crisis, depending on the kind of threats, the supply and demand situation in markets and the degree of dependence on certain countries.
It is not easy, however, for Japan’s pharmaceutical companies to respond quickly and flexibly to health crises.
While Japan, the United States and Europe all focus on drugs and APIs as a priority area in economic security, Japan lags behind.
Of the top 100 prescription drugs by global sales, 49 are sold by American firms, 40 by European firms and only nine by Japanese firms.
Furthermore, just as Taiwan Semiconductor Manufacturing Co. (TSMC) caused an earthshaking change in the semiconductor industry by dominating outsourced manufacturing, contract development and manufacturing organizations (CDMOs) are rapidly growing in the pharmaceutical industry as well.
Switzerland’s Lonza Group AG leads the market, followed by South Korea’s Samsung Biologics Co., which together make up half of the global pharmaceutical contract manufacturing capabilities.
In May, when U.S. President Joe Biden and South Korean President Moon Jae-in agreed on a comprehensive partnership on COVID-19 vaccines during Moon’s visit to Washington, Samsung Biologics signed a fill-finish manufacturing deal with Moderna Inc. for its mRNA COVID-19 vaccine. Samsung Biologics began shipping the vaccine in South Korea in October.
Moderna had been awarded funds from the Defense Advanced Research Projects Agency (DARPA) in the U.S. to research and develop potential mRNA medicines.
The mRNA vaccine developed in the U.S. and produced in South Korea will support the demand for booster shots in Asia.
On the other hand, Japan depends on imports to secure mRNA vaccines.
In order to develop new drugs, it usually takes more than 10 years and requires hundreds of billions of yen, going through the process from conducting clinical trials to receiving marketing approval.
Moreover, the approval success rate of drugs has been declining.
The success rate of a drug candidate to gain approval has declined from one in about 13,000 two decades ago to one in some 20,000 to 30,000.
Even if drugmakers manage to gain approval to market new drugs, they are substituted with generic drugs after the patents expire, giving the makers limited time to secure funding for research and development.
While the government’s policy is to domestically develop vaccines and therapeutic drugs, a difficult road lies ahead for Japan to put it into practice.
How should the Kishida administration cope with health crises issues and achieve economic security?
First, politics, bureaucracy, industry and academia should deepen cooperation in normal times.
Regarding pharmaceuticals, different strategies and playmakers exist, including the vaccine development and production system strengthening strategy from the Cabinet Secretariat’s Office of Healthcare Policy, the pharmaceutical industry vision 2021 by the health ministry and the bio strategy compiled by the Cabinet Office’s science, technology and innovation promotion secretariat.
The government should work with like-minded countries to clarify economic security needs and construct a comprehensive working group consisting of government, academic and industry leaders focusing on health crises.
Health crisis management
Second, in order to integrate intelligence and policies under the Prime Minister’s Office, the government should create a permanent body within the Cabinet Secretariat to lead health crisis management, which focuses on policy planning and coordination by utilizing the secretariat’s authorities.
The body can be either a secretariat, headed by a secretary-general who will be ranked immediately below the Deputy Chief Cabinet Secretary — just as the Deputy Chief Cabinet Secretary for Crisis Management and the Secretary-General of National Security Secretariat — or an office, with its head ranked immediately below the Assistant Chief Cabinet Secretary.
The Cabinet Secretariat has the Office for COVID-19 and Other Emerging Infectious Disease Control, but the new body would be in charge of wider issues related to health crises.
In times of emergency, the body should be allowed to appoint experts from outside the government as aides or counselors.
Targeting key technologies
Third, it is important to designate target technologies and items for economic security, as well as identify potentially threatening health crises.
The so-called Quad grouping of Japan, the U.S., Australia and India has agreed to map the supply chains of critical technologies and materials.
The working group comprising politicians, bureaucrats, industry officials and academics should closely analyze the threats that pose risks and identify target technologies and items that are important to Japan, while sharing sensitive technological information.
Furthermore, it is urgent for the working group to establish a system to make patent application information confidential, as well as a security clearance system that limits access to classified national security information only to authorized individuals.
Fourth, the government should classify core capacities — minimum requirements to guarantee a public health response in normal times — and surge capacities — the increased capacity available during mass casualty situations and disasters — for critical items, and conduct appropriate public health preparedness planning.
It is extremely important to maintain the quality and stable supply of medicines, as medications that are taken regularly should be available at all times.
In September 2020, the health ministry designated 21 so-called stable supply medicines as essential in clinical practices. Maintaining core capacities means having the ability to supply these products.
The government should also regularly check the availability of medical supplies and medical equipment, including commodities such as masks, so that it can create surge capacity in times of emergency.
Fifth, the government should protect technologies and items with which Japan has a competitive advantage and solve supply chain vulnerabilities through offering pull incentives, rewarding successful development by increasing or ensuring future revenue.
The government should buy up such items in emergency situations and stockpile them at normal times to maintain production facilities.
To cope with the COVID-19 pandemic, the U.S. invoked the Defense Production Act to urge companies to accelerate mass production of medical supplies, such as ventilators and vaccines, and prioritize government contracts.
Unless the government obligated itself to buy those supplies in times of emergency, companies cannot make bold investments.
Japan should consider establishing a version of the Defense Production Act so that the government will be able to flexibly ask companies to increase production of essential items, buying them up in case of a future health crisis.
In order for drug makers to maintain production in times of emergency, it is important for the government to offer constant support and nurture CDMOs.
Sixth, the government needs professionals with an excellent eye for competitive technologies and the ability to connect experts from various fields.
The government should also launch a research and development project financed by both public funds and risk money from the private sector that acts as a “push incentive” to put new technologies to practical use.
A country that can generate innovation enough to develop mRNA vaccines will be able to contribute to containing the global pandemic, while also expanding national wealth.
If Japan can develop technologies that enable it to gain strategic indispensability and establish control of the choke points in supply chains, these will become critical assets for the Japan-U.S. alliance.
However, the government should be careful not to repeat the failure of the Japanese semiconductor industry which, since the latter half of the 1990s, has tried to pursue a made-in-Japan, self-reliance approach.
The recent trends of technological development, such as open innovation and pharmaceutical research and development ecosystem, go beyond national borders.
A typical example is the world’s first mRNA vaccine rolled out in the United Kingdom, which was produced by U.S. drugmaker Pfizer Inc., based on research and development by German biotech startup BioNTech SE.
In addition, startups are highly likely to fail. Seeds from academia take time to reach the market. It is desirable to build a portfolio and have as many candidates as possible lining up in the pipeline.
The government must seek entrepreneurs and researchers who share the sense of crisis regarding economic security and views on how the country should be, and support efforts to get their technologies adopted while respecting entrepreneurship and market aspirations.
Japan should integrate intelligence and policies, and work together with all parties to cope with the ongoing COVID-19 pandemic and future health crises.
People’s lives and health depend on economic security in the field of health.
Disclaimer: The views expressed in this API Geoeconomic Briefing do not necessarily reflect those of the API, the API Institute of Geoeconomic Studies or any other organizations to which the author belongs