Medical Device Daily Washington Editor

WASHINGTON — The second day of the medical device globalization conference on Tuesday, hosted by the Advanced Medical Technology Association (AdvaMed; Washington), focused on the current state of affairs in Japan as the Pharmaceutical Affairs Law (PAL) makes its way into regulatory practice. Hopes may or may not have been high going into the drafting of that legislation, but attendees heard little to whet their appetites for a foray into the world’s second largest economy and the third largest medical device market.

Harold Smith, founder and director of L.E.K. Acumen (Tokyo), a healthcare consultancy, described the costs of doing business in Japan, which he said are still formidable despite recent reforms.

He said that concerns over healthcare costs might be better focused on what he described as operational inefficiencies rather than the walls between medical devices and Japanese doctors and citizens, suggesting that those walls will be penetrated, given that Japan’s 900,000 acute and sub-acute hospital beds are in a state of glut.

Smith’s theme was essentially that Japanese authorities fail to fully account for the structural costs incurred by overseas manufacturers who do business in Japan, and who “incur about $5.1 billion in costs per year due to Japan-specific market factors and requirements,” not including distribution expense. This is about one-fifth of the total annual market value of about $25 billion for devices and diagnostics.

The figure would likely be worse, Smith said, but for the absence of income taxes and lower costs for contracting and pricing.

Getting a product to market in Japan is complicated by the fact that many devices have to be smaller to accommodate differences in physical size, but an additional layer barrier is offered by the regulations of the Ministry of Labor, Health and Welfare (MHLW) that “restrict the use of manufacturing processes commonly used throughout the world,” Smith said.

Faced with these hurdles, companies in other nations are left with the choice of retooling existing manufacturing lines periodically or maintaining dedicated lines. These two scenarios account for more than a third of products shipped to Japan.

Buying or renting space in this economy is not cheap, either, with the average per-square-foot lease rate at almost $40 in Japan versus the U.S. average of just under $19.

Marketing suffers from lack of economies of scale as well. Smith’s figures indicated that the number of hospitals per 100,000 population in Japan is almost 6.5 versus that in the U.S. of about 2.6. As a consequence, sales agents spend a greater portion of each day in transit and sales-per-client hospital drops by a factor of almost 10.

Japan also requires a rather cumbersome data submission regarding costs and nation-to-nation price comparisons that forced one firm to generate 10,000 data points, Smith said.

Still, interest in this market persists largely because of a population of 127 million, a fifth of whom are said to be elderly. Also, domestic competition is less than vigorous.

Smith told Medical Device Daily that Japan is “a reasonably good market” despite the pricing problems, but that there is “not much interest in starting a new company” in the device or diagnostics businesses because of the multiple drawbacks.

As to whether Japanese policy is written to encourage homegrown businesses in this sector, he said that “in theory, yes,” the government does help with domestic production but that it has not taken steps to put a serious initiative into play. The lack of government input means that R&D efforts do not get sufficient attention from the top minds at universities.

“It’s starting to happen, but they are far behind” the U.S. and Western European nations, Smith told MDD.

Michael Santalucia, vice president of global regulatory affairs for Bausch & Lomb (Rochester, New York), said that while the PAL rewrite is designed primarily to deal with accountability for defective products and safety, the law also calls for higher user fees, the bane of companies doing business in the U.S., and for more post-marketing safety tracking and more stringent manufacturing and quality assurance work.

The legislation also moved some devices into categories requiring greater oversight and data submissions, thus imposing more paperwork when licenses and registrations expire. As to whether the shift in categories will carry additional site audit liabilities, Santalucia said “they are thinking through these issues.”

The imposition of these fees and the dependence on these fees on the part of the office that handles devices, the Pharmaceutical Medical Device Agency, yields an inverse effect on volume and application turn-around, he said, offering little hope that those turn-arounds will be more rapid any time soon.

Santalucia said the PAL addressed harmonization of device guidances, but that “harmonization is in the eye of the beholder,” meaning a subjective assessment. He added that the struggle to hash out ISO standards for devices will likely be replayed in Japan’s effort to align its quality systems regulations.

However, one snafu that promises to catch virtually all applicants is that “PMDA has only seven auditors” to handle inspections of plants worldwide. And he noted that Canada’s approach to this dilemma, allowing the use of accredited registrars to conduct inspections, “has worked very well” and that this should “encourage PMDA ... to adopt a scheme” that expands the pool of entities authorized to conduct QS/GMP inspections.

Santalucia warned attendees that little is likely to change regarding the PAL’s impact on device exports to Japan.

“We’re going to have to work together ... one step at a time” to make the current system functional enough to avoid totally stifling the introduction of new medical technology.

But those steps are likely to be slow, he suggested, since some of the most obvious-seeming elements are not even in place. As just one example, he noted that at present, there is no readily available source of an exhaustive set of Japanese regulations translated into English.