Hiroyuki Sasa, President and Representative Director
Yasuo Takeuchi, Director and VP
Todd Usen, President, Olympus Medical Systems Group, Olympus Corporation of the Americas
Akihiro Taguchi, Business Management Officer, Medical Business
Katsuyuki Saito, Head of Gastrointestinal and Respiratory
Tomohisa Sakurai, Head of General Surgery
Minoru Okabe, Head of Urology/Gynecology
Georg Schloer, Head of Ear, Nose, and Throat
Yoshihito Shimizu, Head of Medical Service
NUMBER OF EMPLOYEES: 33,336 (total)
GLOBAL HEADQUARTERS: Shinjuku, Tokyo, Japan
Still somewhat fresh in the public mind, in October 2011 the U.S. Department of Justice began investigating the Olympus Corporation of the Americas (OCA) Latin American business’ (also known as Olympus Latin America, OLA for short) alleged violations of the U.S. Foreign Corrupt Practices Act. Working with the U.S. government, the company internally investigated facts related to OLA’s financial relationships with healthcare providers at government-owned facilities who could authorize or influence purchase decisions. In March 2016, OLA agreed to pay $22.8 million to resolve accusations of FCPA violation as well as enter into a Deferred Prosecution Agreement (DPA) with compliance obligations.
Additionally (and separately) the U.S. Attorney’s Office for the District of New Jersey investigated the interactions and financial relationships with medical customers and physicians using Olympus products. These concerned activities to induce the purchase of Olympus products between 2006 and 2011, and in the resulting settlement, OCA paid $612 million plus interest to resolve the violations of the U.S. Anti-Kickback Statute and, by extension, the U.S. False Claims Act. OCA also entered a separate DPA, Civil Settlement Agreement, Medicaid State Settlement Agreements, and a Corporate Integrity Agreement requiring certain compliance measures, one example being the appointment of a monitor.
“Olympus leadership acknowledges the company’s responsibility for the past conduct, which does not represent the values of Olympus or its employees,” OCA president and CEO Nacho Abia commented in a company statement. “Olympus is committed to complying with all laws and regulations and to adhering to our own rigorous Code of Conduct which guides our business processes, decisions, and behavior. The company has implemented and will continue to enhance its robust compliance program.”
Abia continued, promising, “Our ability to meet the needs of our customers and their patients is of paramount importance and we can confirm that the previous conduct did not adversely affect patient health or patient care and the investigations and settlements have had no impact on product or service availability. The mission of Olympus is to help people around the world lead safer, healthier, and more fulfilling lives. We remain committed to achieving this mission, both as individuals and as a company, with uncompromised integrity.”
Hopefully that integrity can remain strong for many years to come.
ANALYST INSIGHTS: A market leader in rigid endoscopes primarily used in the outpatient settings, Olympus is seeking new ways to use its minimally invasive imaging muscle to expand its presence in the hospital settings. While relatively small, its recent acquisition of Image Stream Medical demonstrates its commitment to this strategy. Watch for Olympus to continue to use “bolt-on” M&A to enhance its base of core endoscopic products.
—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors
In April 2015, Olympus rearranged its Medical Business’s organizational structure into five units: GI&R (gastrointestinal and respiratory), GS (general surgery), Uro/Gyn (urology/gynecology), ENT (ear, nose, and throat), and MS (medical service). The Medical Business touted FY16 revenues (ended March 31) of 609 billion yen ($5.4 billion), climbing 9.1 percent from the previous year. Olympus’ flagship gastrointestinal endoscope operations continued to produce strong sales in Japan and overseas. Sales increased in both the surgical device and endotherapy device fields as well, thanks to growth investments conducted in strengthening sales forces. Though Olympus has historically shown a fairly even distribution of revenue gains globally, in 2016 the North American market generated 39 percent of the Medical Business’s sales with 239.4 billion yen.
The GI&R division contains Olympus’ endoscopy systems, which make up a share of over 70 percent of the global gastrointestinal endoscope market. Strong sales of the company’s mainstay GI video endoscopy systems (including Evis Exera III and Evis Lucera Elite) fueled this unit’s expansion—in 2016 endoscope product sales amounted to 341.6 billion yen, a 9 percent rise from the previous year. Double-digit growth was achieved in the North American endotherapy device market for the second year in a row, climbing 14 percent from 2015. (In FY15, sales growth in this market rose 13 percent from 2014.)
It’s somewhat surprising that endoscope sales increased despite the widely publicized U.S. outbreak of carbapenem-resistant Enterobacteriaceae (CRE) linked to improper reprocessing of Olympus’ TJF-Q180V duodenoscopes at the beginning of FY16. While the jury’s still out on how much knowledge the company had of the improper reprocessing instructions leading to the outbreak, the company reacted in a timely manner to public concern. Following collaborative investigation with the U.S. Food and Drug Administration (FDA) and, as stated by Olympus, “other competent authorities, relevant medical societies, and our customers,” in January 2016 the company announced FDA 510(k) clearance for TJF-Q180V’s modifications to the device design and labeling. Beginning early February, the company implemented corrective action for the duodenoscopes, replacing the maligned forceps elevator mechanism with a new forceps elevator design. Olympus also supplied updated operation and reprocessing manuals, which include information on use of Acecide-C high-level disinfectant and a new chapter detailing annual inspections by Olympus personnel.
Adding to the endotherapy portfolio, Olympus launched the EZDilate multi-stage endoscopic balloon dilator in November 2015. EZDilate’s design allows efficient navigation through difficult anatomy, easier placement and positioning within the stricture, and an accurate achievement of target diameters for gastroenterologists. Further adding to gains in this business area, in December 2015 Olympus entered into an agreement to distribute fellow Japanese device maker Terumo’s Glidewire endoscopic guidewire in the United States.
The company earned 195 billion yen in sales (nearly a quarter of its total revenue) from its surgical devices business, which is part of the general surgery unit. According to Tomohisa Sakurai, head of this unit, Olympus is actively allocating management resources to this unit in order to grow it into a second core business to match GI endoscopes. He also said the company seeks to establish 4K and 3D surgical endoscopes as the de facto standard.
Olympus began this initiative in October 2015 with the launch of a surgical endoscopy system in Japan and Europe that leveraged 4K technologies (i.e., those with resolution of 3840 x 2160 pixels or more), jointly developed with Sony Corporation in the medical business venture Sony Olympus Medical Solutions Inc. The extremely high-resolution images 4K technologies can enable observation of minute details inside the body and permit identification of small tissue and vessel structures of veins, nerves, and lymph ducts. The system is particularly adept at identifying shades of red, which is crucial during surgery.
During the Society of American Gastrointestinal and Endoscopic Surgeons (SAGES) 2016 Annual meeting in Boston in March 2016, Olympus unveiled the latest addition to the Visera surgical system line with the Visera 4K UHD System. It features a 55-inch operative display with four times the resolution of HD, greatly magnifying anatomical features. The system was created in order to improve the visual elements necessary for laparoscopic and arthroscopic surgery, providing additional light to illuminate bleeding in surgical fields and visualize deep surgical cavities.
“The image is so clear that I was able to see down to the capillary level,” said Dr. Ninh Nguyen, professor and interim chair of the Department of Surgery at the University of California Irvine Medical Center. “[Seeing the capillary level] is important for improved dissection of tissue and evaluating the perfusion of the tissue.”
In order to further grow their surgical business, Olympus also opened a new Surgical Innovation Center in April 2015. The over $37 million, 180,000-square-foot research & development (R&D) and manufacturing facility joins the strong medical device industry in Minnesota, the North American center of the company’s surgical business. This accounted for a sizeable chunk of the $369.5 million Olympus spent on R&D in FY16, most of which has historically been spent on its medical business.
Olympus’ Uro/Gyn business furthered collaboration with Terumo in May 2015, agreeing to distribute Terumo’s Glidewire Urologic Hydrophilic Guidewire. Used during minimally invasive urology procedures like ureteroscopies, percutaneous nephrolithotomy, and lithotripsy, it complements the imaging and therapeutic device solutions of the Urology segment well.
As mentioned earlier, Olympus’ endoscope sales flourished despite CRE creeping into the company’s endoscopic product line. Olympus holds the majority of the endoscope market, and endoscopic surgery has advanced greatly since its introduction about 30 years ago. Endoscopic surgery entails less pain, it’s less invasive, and allows for quicker recovery. As market share leader in this field, Olympus stands to make an impact in replacing open abdominal and chest surgeries with endoscopic surgery by driving technological process in both endoscopes and endotherapy devices.
“As advances in medical equipment make endoscopic surgeries safer and easier to perform, more and more surgeons will switch over from open abdominal and chest surgeries, resulting in growth in the endoscope market,” Dr. Sumio Matsumoto, honorary director of the National Hospital Organization Tokyo Medical Center, commented in the company’s annual report. “My expectations for Olympus are for it to develop equipment that is friendly to both patients and physicians and for it to claim a prominent position on the global stage where it can stand proudly as a Japanese medical equipment manufacturer.”