A Big Opportunity for Small Companies in Japan

Creators of new medical devices generally don’t limit themselves to a local market when a product is launched—eyeing, instead, the possibilities of the global marketplace. Even small and medium-size companies (including new startup ventures) think globally. The largest segment of the $200 billion world market, of course, is the United States, which makes up roughly 50%. The second-largest segment is the European Union, which has a 30% market share. Japan, with 10% share, is third. Given Japan’s large share, no company can afford to ignore the country when formulating a global strategy.

How does a company enter the Japanese market? Traditionally, there have been two options. The first is to establish a subsidiary company incorporated under Japanese law and obtain a business license, including regulatory registrations, with a plan to organize an independent sales network—many large medical device companies have entered the Japanese market with this method. The other option is to appoint a Japanese company as an exclusive distributor and consign all necessary registrations, including regulatory requirements, to the distributor.

In the case of medium and smaller-size companies, the first option generally is not feasible because it requires a large financial investment. Thus, the more realistic option for these companies has been to rely on a Japanese distributor. However, the foreign manufacturer and Japanese distributor basically remain different entities. Although both entities have the same objective—to earn profits by the same product—the marketing strategy, sales method and other factors often differ.

Sometimes, a foreign manufacturer may feel uncomfortable with the distributor’s function, capability or outcomes against what is expected—the worst-case scenario being that some form of trouble or dispute arises between them and they go their own separate ways. In such instances, the regulatory approval can be a problem. The regulatory approval obtained by a Japanese distributor can be transferred to the other company, but it must be subject to mutual agreement and amicable compromise between the two companies. On the other hand, if a domestic transfer is made from one Japanese entity to another, a simple transfer notification would be submitted and the transfer completed in a relatively quick fashion. When a Japanese entity seeks transfer to a foreign entity, a special transfer application through a regulatory representative (as described below) would be submitted and may take more time to be approved.

Along with the two options presented earlier, a third option exists: the foreign manufacturer obtains a regulatory approval under its own name. Years ago, this process had been known as an In-Country Caretaker (ICC) system under Japan’s prior regulation; however, an amendment of the Pharmaceutical Affairs Law (PAL) in April 2005 has drastically changed the system. While the previous ICC represented the foreign manufacturer on paper only and had no physical functions except regulatory representation, the newer PAL imposes the same regulatory responsibilities (eg, safety assurance, quality control and post-marketing efforts in Japan) on the foreign manufacturer as it does on a Japanese company.

 

A New System Solves Old Problems

To enable foreign manufacturers to fulfill those requirements, a new process, the Designated Marketing Authorization Holder (DMAH) system, was introduced. Under this system, a DMAH company must have a marketing authorization holder license and be capable of handling all regulatory functions (eg, product importation, quality and safety checks, maintenance of documentation and other records, as well as post-marketing surveillance) on behalf of the foreign manufacturer.

The new system allows foreign manufacturers to obtain marketing approval through a DMAH for their own products by pursuing the following actions and documentations:

• Clinical trial (including consultations with authorities to determine whether foreign clinical data are acceptable), if necessary

• Submission of an application for marketing approval by Summary Technical Documentation (also known as STED) format

• Application of a good manufacturing practice (quality system management) conformity audit for the applied product—for both the foreign manufacturing site and the DMAH manufacturing site (placing a Japanese label, instructions for use and even temporary storage are regarded as a part of manufacturing process at the DMAH)

• Application for accreditation of the foreign manufacturing facility—for every facility in which the manufacturing process affects the function of the medical devices

• Product master file

• Application of import license after obtaining regulatory approval

As a regulatory representative, the DMAH executes the above documentations on behalf of foreign manufacturer. After obtaining approval, the DMAH acts as a regulatory importer and takes care of safety assurance, safety management, post-marketing surveillance and so on. There are two types of DMAHs: one that is a distributor who becomes a DMAH, and the other is an independent DMAH. An independent DMAH does not get involved with marketing or distribution of the products. The foreign manufacturer appoints the distributor separately and consigns the sales of products in the Japanese market. The foreign manufacturer can freely appoint or change distributors or even appoint multi-distributors by region, market, product and so on. Some companies establish a sales office in Japan for marketing and sales purposes only, while outsourcing regulatory functions to the DMAH. By doing so, the foreign manufacturer can organize its own sales network with a smaller initial investment.

For your own reference, if you wish to establish a subsidiary in Japan with full compliance of regulatory requirements, you may need to take the following steps:

1. Obtain a marketing authorization holder license

2. Hire three qualified, responsible controllers (general responsible controller, quality controller and safety controller)

3. Obtain the manufacturing license for storage and labeling, and hire a responsible technician

4. Prepare standard operating procedures for good manufacturing practices, good vigilance practices and good quality system practices

5. Allot space for inspection and storage

In particular, hiring three qualified, responsible controllers has been extremely difficult at present and usually requires a sizable investment. To accomplish the above requirements, at least $500,000 or more may be required annually.

Outsourcing to a DMAH may be one prudent way to fulfill the requirements. Table 1 presents a comparison of the capabilities and other related factors pertaining to the use of a subsidiary, distributor or DMAH.

The choice obviously is subject to a company’s strategy, direction and financial situation, among other factors. In general, maintaining control upon approval and being able to compete in the third largest global market would offer a company additional value in the future.

Many people have a general impression that Japan is a closed and difficult market. However, by introduction of the DMAH system, Japan has become an open market with big opportunities for middle, small and virtual companies.

Yoshio Mitsumori is the president and CEO for Tokyo-based ADMIS, a consultant specializing in the medical device industry. He has more than 25 years of experience in the medical industry, including positions with the Itochu Corp., U.S. Surgical, National Medical Enterprises and Century Medical. A member of RAPS, he has spoken at many industry events and worked extensively in international trade of medical products and technologies. He can be reached at [email protected].