Japan Limits Scope of Online Pharmaceutical Sales; The Closely Watched Decision Dilutes Prime Minister Abe’s Pledge to Deregulate Medical E-Commerce

Japan Limits Scope of Online Pharmaceutical Sales

The Closely Watched Decision Dilutes Prime Minister Abe’s Pledge to Deregulate Medical E-Commerce

TOKO SEKIGUCHI

Nov. 5, 2013 9:43 p.m. ET

TOKYO—Japanese Prime Minister Shinzo Abe’s government on Wednesday said it would impose strict limits on the online sale of some over-the-counter medicines, diluting a pledge to deregulate medical e-commerce and heightening concerns about a broader effort to free up business and spur growth. Mr. Abe’s effort to wipe out distinctions between online and brick-and-mortar drugstores—one of the few specific pledges he made when he unveiled a sweeping growth strategy in June—has gotten mired down amid safety worries and lobbying by traditional pharmacies. The plan epitomized the type of deregulation Mr. Abe said would liberate Japanese commerce, long constrained by the type of rules abandoned in other advanced economies.Five months on, The effort illustrates just how difficult it will be to pry open a raft of tightly regulated industries with powerful backers.

Mr. Abe’s deregulation push “has been not as drastic as we had expected so far,” says Norio Miyagawa, a senior economist at Mizuho Securities Research and Consulting. “Our focus remains on whether Mr. Abe, on the back of his high approval ratings, can push through much-expected structural reforms despite strong opposition.”

Slowing the online-drugs effort have been brick-and-mortar pharmacies, and some medical experts and health-care bureaucrats who question the safety of selling certain drugs, such as some painkillers, online.

Mr. Abe’s cabinet was persuaded that consumers needed more protection than an unfettered free market would allow. Specifically, they decided that medications with a risk of high toxicity could only be sold in drugstores, not online. And they said that prescription drugs recently converted to over-the-counter status could be blocked from online sales for up to three years, pending a safety assessment.

“Some have said that exchanging information via the Internet or face-to-face is equivalent. But in this case experts have decided that it is safer [to sell drugs] face-to-face,” Health Minister Norihisa Tamura said Wednesday.

The new regulations “are unconstitutional and are absolutely unacceptable,” Rakuten Inc.4755.TO 0.00% Chief Executive Hiroshi Mikitani said in a statement released ahead of the decision, based on press reports saying such a decision would be made. The head of the Internet giant is a member of Mr. Abe’s Council for Industrial Competitiveness, and has praised the prime minister in the past for his apparent willingness to cut the red tape for Japanese companies.

Mr. Abe’s chief spokesman defended the conclusion, noting that the drugs facing online sales limits represent only a tiny fraction of overall OTC medicine sales. The decision “combines both aspects of safety and convenience,” said Yoshihide Suga, the chief cabinet secretary.

The online-drug debate reflects broader difficulties Mr. Abe faces as he tries to spark economic growth. One essential change, many economists and business executives say, would be to give companies more freedom to lay off workers. But the Abe administration, after indicating earlier this year that it would push such changes, has since delayed a decision to re-evaluate the politically sensitive issue of loosening Japan’s stringent labor laws. Farmers and their agriculture-ministry backers are pushing to limit the number of crops that would be subject to global competition under new free-trade efforts.

Mr. Abe “put forth the online drug sales as a symbol of deregulation, but once they got to the specifics of it, they had to become realistic, and set exceptions,” says Hisashi Yamada, chief economist at the Japan Research Institute think tank. “In that sense, they’re backpedaling on reforms.”

Some critics of earlier proposals for unlimited online-drug-sales said they raised risks for consumers who may not pay sufficient attention to hazards if they can easily buy drugs online.

“Consumers don’t have sufficient knowledge about drugs, so I am deeply concerned that an environment in which they can have access to medication any time and regardless of age,” Yukari Masuyama, a consumer-health advocate testified to a health ministry advisory panel in March.

Mr. Abe has said several times that his comprehensive economic plan, dubbed “Abenomics,” consists of “three arrows”: a sharp increase in money supply from the Bank of Japan, more public-works spending, and deregulation and structural overhauls.

The first two arrows—looser monetary and fiscal policy—came quickly and easily earlier this year, and have largely been responsible for the jump in the stock market and the economic-growth spurt over the past few months. Many economists see the third arrow of structural change as essential to keeping the recovery going, but it is also the most difficult to implement, as each rule and regulation has staunch defenders.

“Japan still has regulations that are not in line with the times,” Mr. Abe said in his June 5 speech introducing the third arrow. “We will comprehensively remove hindrances to corporate activities.” The first example he cited of these types of commerce-liberating policies was lifting the ban on OTC-drugs sales.

That was, in some ways, making a virtue of necessity.

Shortly after Mr. Abe took office in late December, Japan’s Supreme Court ruled illegal a 2009 health ministry regulation that prohibited most online sales of certain OTC drugs due to safety concerns.

Mr. Abe’s administration needed to respond to the legal decision. In the wake of the court decision, some companies such as Kenko.com—one of the plaintiffs in the lawsuit—have started selling pharmaceuticals online without any regulations. The market has remained relatively small—a fraction of the ¥607 billion ($6.2 billion) overall OTC drug market expected for 2013, according to market researcher Fuji Keizai Co.—pending the implementation of new rules. Under the new rules, the government will end up forcing some e-commerce companies to pull from their websites medication currently being sold.

When the debate began over crafting the online-drug law over the summer, drugstores pushed for stringent rules against online retailers.

Online-store pharmacists will be required to spend some time in a store, as part of a compromise between the officials and industry lobbies crafting the bill. By early October, they had written a plan that would allow equal sales rights between online and physical drugs stores for products deemed low-risk, such as laxatives and some cold medicines.

But the debate intensified over so-called switch OTCs—drugs that recently required prescriptions, but are now sold over the counter—and drugs designated as having high toxicity profiles. Those are drugs for which the line between an effective dose and a toxic dose is relatively thin. These 28 items include popular drugs like Daiichi Sankyo‘s4568.TO +1.25% Loxonin S painkiller.

In the end, Mr. Abe’s cabinet decided to impose limits for online sales of those products.