Burdensome regulations and an atavistic aversion to risk are partly responsible for the relative decline of Japan’s medtech industry.
Interview conducted by Miki Anzai, Associate Editor, Japan Medical Design & Manufacturing Technology
Market insights
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Japan’s medtech market was valued at approximately US$23.9 billion in 2008, about 10% of the total global market, according to a survey conducted by the Ministry of Health, Labour and Welfare. It is the third largest medical market in the world, after the United States and the European Union, but it has been in relative decline over the past 10 years. Although the perception is that barriers to entry for foreign medtech manufacturers are significant, it’s interesting to note that Japan imports approximately US$12 billion worth of medical goods, almost twice as much as it exports. High-end medical technology from the United States and Europe continues to be in great demand.
To gain insights into the dynamics of Japan’s medtech industry and its singular challenges, Miki Anzai, associate editor of EMDT sister publication Japan Medical Design & Manufacturing Technology, interviewed Kazuo Ogino, chairman of the Japan Federation of Medical Device Associations (JFMDA). He offered his informed perspective on the worrisome balance of trade in medical technology, the state of Japanese industry, and the impact that government initiatives will have on the device sector.
Q Give us an overview of Japan’s device market. What are your primary concerns?
A Japan’s medical device industry is in decline. Although Japan is still the third largest medical market in the world, after the United States (42%) and the European Union (32%), its share of the global market has dropped to 10% from 15% a decade ago. Also, Japan’s international competitiveness, especially in the diagnostic devices sector, is weak. We import twice as much as we export—approximately 70% of Japan’s diagnostic devices are imported—creating a huge trade deficit. We lag behind foreign manufacturers. This is not good for industry or for Japan’s healthcare system. Just to give you one example: last year, Baxter failed to supply its bone-marrow harvest kit temporarily in Japan, heightening concerns about supply shortages.
Q How do you account for the relative loss in market share?
A Japan has been cutting overall healthcare costs for the past decade without mapping out any sort of strategy. The sluggish global economy also has hampered growth.
In addition to economic factors, Japan’s regulatory environment has been unfavourable for the industry. Japan’s medical devices fall under the Pharmaceutical Affairs Law (PAL), which [was designed] to regulate drugs and medicines. Medical devices were regulated much later under the PAL scheme.
Drugs and medicines are fundamentally different from medical devices, and the PAL has too many unnecessary restrictions affecting the development of medical equipment. Compared with the US and European systems, Japan’s burdensome regulations prevent industry from running smoothly. Our environment does not encourage manufacturers to develop innovative, high-risk diagnostic devices.
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But industry also must take responsibility. US medical device manufacturers set aside an average of 13% of revenue for R&D; by contrast, Japanese firms invest 5.8%. Japanese companies are reluctant to invest in R&D, but that is part of a larger societal attitude.
In the United States, there are many venture capitalists willing to invest money in high-risk product development projects. Japan lacks a venture capital mindset. Few people are willing to make risky investments, and that affects the device industry. Our society doesn’t reward innovation.
For example, a huge obstacle exists for manufacturers sourcing materials and parts. Suppliers to the medical device industry deal in small quantities but take on high risk. If there is a problem with a product and it becomes a big story with the media, that company’s bottom line can be severely hit. That’s why many component suppliers simply refuse to provide their products for medical applications.
JFMDA is now negotiating with the Ministry of Economy, Trade and Industry to seek ways to protect components manufacturers from being unfairly affected when a finished product is defective.
Safety is a priority for the Japanese people--they are reluctant to take risks, even if there is a chance to reap a huge benefit—and the government tends to tighten regulations to minimise risk. In Europe, the regulatory system encourages industry to take challenges and strengthen competitiveness. By contrast, Japanese firms cannot do anything without going through the cumbersome PAL approval process.
Even when Japanese companies allocate resources to the design and manufacture of innovative devices, by the time the products are commercialised, their foreign rivals are already on to the third or fourth generation device. Japan must implement a system that enables local manufacturers to develop innovative medical technologies. Barring that, many Japanese companies will look overseas for opportunities.
Q What sorts of opportunities are they finding?
A Clinical trials. Conducting clinical trials is virtually impossible here, so Japanese firms go to Europe. They used to go to the United States until the rules became too strict. Now, Europe is the favourite destination for clinical trials.
Some companies are even making products outside of Japan—in countries where regulations are more lenient—and conducting clinical trials in Europe.
Q I understand that you are also having discussions with Chinese authorities?
A Yes, I just met with our Chinese government officials. We discussed plans to hold joint seminars with ministers from both countries to promote an understanding of the issues facing the medical device industry and the legal systems of our two nations. I hope to harmonise the bilateral legal systems and eliminate duplication in the approval processes. In other words, I would like to implement a simpler distribution system and pave the way for a mutual recognition agreement that would allow manufacturers that have obtained approval from one country to distribute their products freely in the partner country.
Q Regulatory hurdles within Japan continue to be a thorn in industry’s side. Has JFMDA made much progress in persuading the government to ease the product approval process?
A Since it was founded in 1984, JFMDA has advocated easing PAL regulations for medical devices and promoted cultivating and revitalising the nation’s medical device industry. We have asked the government to accelerate and streamline regulatory processes, which will contribute to the country’s overall economic growth.
In 2001, JFMDA created the Medical Engineering Technology Industrial Strategy Consortium (METIS), an alliance that brings together members of industry, government and academe to make the Japanese medical device industry more competitive internationally. This initiative made a significant contribution in raising awareness of the importance of our industry. Through various discussions, we came to share an understanding of what the pressing issues are and how to solve them. We have made proposals, and have begun to see results.
Q The JFMDA, in concert with the American Medical Devices and Diagnostics Manufacturers Association1 and the European Business Council in Japan2, submitted a number of proposals to promote growth to the Japanese government in April. Tell us about them. How receptive do you think the government will be?
A We asked the government to encourage manufacturers to develop medical devices in Japan by adjusting the PAL, speeding up the approval process, and incentivising manufacturers by raising the national health insurance (NHI) points3 for the development of innovative devices. The government incorporated most of our proposals in its policy package released in mid-June. But words—such as “we will consider, or make efforts to do this and that”—are not sufficient. The government needs to follow up with actions.
Q How will you make sure that the government’s words translate into action?
A Working groups have been set up within JFMDA for each proposal that we made to the government, and they are tasked with monitoring progress. Every couple of months, each working group issues a report. If the situation has not improved, we will mount a stronger appeal for action.
Q The so-called device lag is a constant concern.
A The term device lag refers to the lengthy amount of time that is required to obtain regulatory approval in Japan compared with other countries. Many devices that are widely used in other countries have yet to be approved in Japan. The device lag eliminates opportunities for Japanese people to benefit from the most recent advances in medical technology. As I mentioned earlier, we have asked the government to accelerate the approval process.
I should also note that, at our request, the government has increased the number of reviewers at the Pharmaceuticals and Medical Devices Agency (PMDA) from 35 in 2009 to 48. By 2013, the PMDA aims to increase the number to 104.
Q But the number is still small compared with US FDA’s staff of 8000.
A Actually, there are about 1000 US FDA agents in charge of medical devices. Although PMDA has steadily increased the size of its staff, the number obviously is on a different scale compared with US FDA. But staff size is not everything. We have asked the government to hire more PMDA employees, but our ultimate goal is to see a quicker approval process. More people could mean more paper work, so when I attended the PMDA managing council the other day, I made the point that increasing staff is good, but to really combat device lag, you need to simplify the workload and streamline the process.
Q What is the high-priority item for JFMDA this year?
A We are putting an emphasis on the appropriate and transparent evaluation of innovative technologies. We want the government to raise NHI points for high-tech medical treatments that create value for the patient.
Our association wants the government to formulate an equation or some sort of rule that fairly calculates the economic value generated by medical devices. Instead of merely engaging in advocacy, we are producing our own draft guideline [for assigning appropriate NHI points], which we will discuss in greater detail with the government.
Q Have you made any progress?
A It’s hard to change a bureaucrat’s way of thinking, but our constant appeal has had a positive, if not far-reaching, impact. For example, a more powerful MRI now commands more NHI points, because a stronger magnetic field has been shown to produce higher definition images. This is a first step in the right direction, but MRI is just one product among 300,000 different types of devices.
Q How can Japan’s medical industry excel in the future?
A We cannot compete with existing devices. While Japan got a bit of a late start on robotics, there are opportunities in regenerative medicine and gene therapy. The medical device market is the place for technological competition. Japan’s medical device industry should cooperate with the government and academe to focus on areas where we can leap ahead of foreign manufacturers. Developing devices that simplify medical treatments, for example, will get the attention of practitioners and purchasers of medical equipment. Technological innovation is the key to success in the global market.
Kazuo Ogino
is chairman of the Japan Federation of Medical Device Associations and co-chairman of the Medical Engineering Technology Industrial Strategy Consortium (METIS). He also serves as chairman of Nihon Kohden Corp. He can be reached by e-mail atyasuo_iwaski@mb1.nkc.co.jp.
For more information about the Japan Federation of Medical Device Associations and/or the Medical Engineering Technology Industrial Strategy Consortium (METIS), please visit www.jfmda.gr.jp/e and/or www.jfmda.gr.jp/metis/e, or write to: 8F, Iidabashi Square Bldg., 3-2, Shimomiyabicho, Shinjuku-ku, Tokyo 162-0822, Japan, or contact by phone, +81 3 5225 6234, or fax, +81 3 3260 9092.
References
1 .The American Medical Devices and Diagnostics Manufacturers Association represents the operations of companies that provide medical devices and in-vitro diagnostics and other advanced medical technology in Japan. It is headquartered in Japan.
2. The European Business Council in Japan was established in 1972 as the trade policy arm of 17 European National Chamber of Commerce and Business Associations. The EBC was registered with the Ministry of Economy, Trade and Industry in 2008 as the European (EU) Chamber of Commerce in Japan.
3. National Health Insurance (NHI) points form the basis for medical fees and are set for most clinical testing items. NHI points are revised every two years in accordance with the Health Insurance Act by the Ministry of Health, Labour and Welfare. Should the medical fees change and the margins of medical institutions be reduced, the impact could have an adverse impact on the business performance and financial position of medical device manufacturers, diminishing their incentive to develop new products.
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さらに、異業種から医療機器分野に参入した企業の成功要因などを重点に学べる「サプライヤー向けセミナー」も新たに企画されている。実際に参入を果たした3社による具体的な参入障壁の克服法や成功の要因が解説されるだけでなく、大手医療機器メーカーが医療機器サプライヤーに求める製品・技術など、最新動向や買い手側の購買方針などの解説も予定されている。
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Japan’s medtech market was valued at approximately US$23.9 billion in 2008, about 10% of the total global market, according to a survey conducted by the Ministry of Health, Labour and Welfare. It is the third largest medical market in the world, after the United States and the European Union, but it has been in relative decline over the past 10 years. Although the perception is that barriers to entry for foreign medtech manufacturers are significant, it’s interesting to note that Japan imports approximately US$12 billion worth of medical goods, almost twice as much as it exports. High-end medical technology from the United States and Europe continues to be in great demand. 
But industry also must take responsibility. US medical device manufacturers set aside an average of 13% of revenue for R&D; by contrast, Japanese firms invest 5.8%. Japanese companies are reluctant to invest in R&D, but that is part of a larger societal attitude.
