An editorial in this morning’s Yomiuri Shimbun reminded me of a mind-blowing conversation I had the other day with an accomplished health care investor.

Today’s Yomiuri editorial, Extremely high drug prices should be reviewed for appropriateness, cites the case of Kymriah, a breakthrough biological drug which efficaciously treats certain types of leukemia and other blood cancers.  The Japanese government decided that Kymriah, for which one course costs ¥33.5 million, will be covered by public health insurance, a new record. The article raises legitimate concerns about impact on health insurance finances. Here’s a link to the original article as well the professional English translation.

The aforementioned mind-blowing conversation started from a gratuitous remark about hedge fund villain Martin Shkreli (remember Daraprim and Wu-Tang ?) and morphed into a broader discussion about the health care business models and regulatory arbitrage.

I couldn’t possibly do justice to the insights that were shared with me, but I will say that they made me realize that the universal condemnation of Purdue Pharma for OxyContin — and the ensuing manhunt for its CEO Richard Sackler — is a more complex matter than it seems. It was an eye-opener into pharmaceutical business practices, and frankly, I can no longer separate the good guys from the bad guys.

One takeaway, however, struck me as the stark contrast in regulatory approaches toward prescription drug prices among developed countries. The UK, for instance, has established a fairly unified front in holding the line against excessive drug pricing. Contrast this with the U.S., where clever pharmaceutical companies can easily outmaneuver a disjointed collection of politicians, lobbyists, insurance firms, public and private hospitals, and primary care providers who lack cohesion and alignment in interests.

It might sound like I’m passing judgement on which regulatory approach is better, but believe me, I’m not. I’ve heard compelling arguments in favor of both approaches. For avoidance of doubt, I’m not referring here to the experience as a health care consumer, where anecdotally as a consumer I’ve found the calibre and value of health care in both France and Japan far surpasses my experiences in the U.S. system. On this point, there’s no contest (at least in my humble opinion).

Back to today’s Yomiuri editorial about drug prices. As has been well-reported, Japan is undergoing the most dramatic demographic inversion among developed countries. You may have heard some of the stats: Japan’s working population will decline from 66 million to 35 million by 2060; financing this aging population will bring the country’s health care system to the brink of collapse by 2040 without radical change; Japan’s pharma firms are facing a 2020 patent cliff; health care costs in Japan exceed $400 billion and are growing at $10 billion annually; etc.  Many of these factors have informed our investment thesis for Japan.

Innovation from abroad undoubtedly represents part of the solution, but this must be accompanied by intelligent and constructive regulation. I appreciated the Yomiuri editorial but would have admired a bit stronger of a recommendation than their conclusion of, “Relevant discussions should be deepened.”