Domestic firms missing out on slice of medical device market


Dr. Kiyoshi Namba is a hard-core believer in medical technology. A breast cancer specialist, Namba has invested heavily in state-of-the-art medical equipment at his two clinics in Miyazaki Prefecture, claiming this provides exactly what he needs to counter the killer disease — the earliest detection possible.

This month, he is taking a big leap forward, opening a flagship breast cancer clinic in the upscale Tokyo district of Minami-Aoyama.

Technology at the clinic — including digital mammography, ultrasound and computer-assisted screening devices, as well as software programs on which to store patient records — cost some 150 million yen.

The devices all come from the United States.

According to Namba, the U.S. is where all the technology comes from, at least in his field.

“When it comes to screening and diagnostics of breast cancer, Japan is 15 years or more behind the level of the U.S. and Europe,” Namba said. “With little local demand, domestic companies have significantly lagged behind their Western competitors.”

Japan’s medical equipment industry is struggling to secure a competitive edge. When it comes to certain maladies that are common in Japan, including stomach cancer, Japanese firms do have an edge. But the incidence of breast cancer is much more prevalent in the West, and hence the greater demand there for effective ways to combat it.

Like Namba, many doctors find they have no choice but to import their medical equipment due to an absence of domestic suppliers.

The nation’s dependency on imported medical equipment has surged from 23 percent in 1989 to 42 percent in 2000. Government officials are now alarmed that the domestic industry’s presence in the 2 trillion yen market could be all but wiped out.

Tetsuya Fujimori, deputy director of the economic affairs division in the Health, Labor and Welfare Ministry, said, “Japan’s industry is in such a miserable state that we must do all we can to change the status quo.”

Several problems have been blamed for Japan’s shortcomings in the medical equipment field, including inadequate funding at many hospitals, the aversion of domestic manufacturers toward mergers and acquisitions, firms’ tendency to avoid high-risk sectors and the lack of adequate coverage of some forms of treatment by the national medical insurance system.

The performance of Japanese manufacturers is especially weak in the local market for “treatment-related” products, chiefly implanted devices, such as pacemakers, catheters and artificial bones.

This market logged a dynamic growth rate of 9.5 percent over a period of 10 years, grossing 907 billion yen in sales in 1998.

According to the health ministry, Japan imported all of its pacemakers and 70.4 percent of dilated balloon catheters in fiscal 2000.

Fujimori said, however, that the dearth of competitive domestic firms when it comes to some equipment results in high prices for products in Japan.

He cited as an example pacemakers, which on average cost the equivalent of 300,000 yen in Britain but between 1.6 million yen and 1.7 million yen in Japan.

Japan’s diagnostic parity

There are two broad medical device categories; one deals with diagnosis, the other with treatment.

Japan is relatively competitive in “diagnostic imaging,” including magnetic resonance imaging, computerized tomography and ultrasound imaging.

In the 51.7 billion yen domestic X-ray CT market, Toshiba Corp. holds the top market share with 44.5 percent.

General Electric Co. of the U.S. holds a 30.8 percent share and Siemens AG of Germany holds 8 percent.

With Hitachi Ltd. claiming a 7.2 percent share and Shimadzu Corp. 6.9 percent, Japanese firms have a majority share, according to health ministry statistics.

As well as holding the top market share in the 54.9 billion yen ultrasound equipment market, Toshiba is strong in the MRI sector.

Like GE, it possesses nearly 30 percent of a market worth 54.2 billion yen.

Aside from certain exceptions, however, Japanese providers of diagnostic equipment face mounting pressure from international technology giants, including GE, Siemens and Royal Philips Electronics of the Netherlands.

In the U.S., GE is the mainstay. In Europe, Siemens and Philips have effectively cornered the market.

They are constantly acquiring startups and absorbing innovative technologies, whereas in Japan, electronics giants, including Toshiba, Hitachi and Shimadzu, prefer to develop products in-house, said Shinji Okakura, director of the medical and assistive device industries office in the Ministry of Economy, Trade and Industry.

“Japanese manufacturers are dwarfed by foreign players just in their size of capital,” Okakura said. “There is no way Japan can beat foreign players boasting such overwhelming capital. But Japanese firms hate M&As. Many employees have the technologies but can’t accept the idea of taking their company badges off.”

In response, the Japan Industries Association of Radiological Systems, an industry body covering some 140 diagnostic imaging companies, has argued that mergers and acquisitions are not the only solution.

According to Hiroshi Ishikawa, an official of the group, a key problem that is facing the industry is a saturated market, as most hospitals are already adequately equipped and unlikely to acquire new products because of a lack of funds.

He said the government should strive to create business opportunities in areas that include the maintenance of existing medical equipment, much of which is now more than 10 years old.

“Unless the Japanese market becomes more attractive, no one will win,” Ishikawa said. “That is a much bigger problem, not the lack of industry realignment.”

In the domestic treatment-related market, Japanese firms have little presence. Although big overall, the market is so finely segmented it is hard to transfer technologies among different products, ranging from pacemakers to artificial joints.

Japanese firms are also reluctant to enter the market for fear of liability suits, according to industry officials.

Kunio Kimishima, general manager of corporate communications at Terumo Corp., a leading medical equipment provider, blamed the weak domestic presence in this field on the “social climate.”

“Major electronics and manufacturers of information technology do have the technical capabilities to enter the market,” Kimishima said. “But they have shied away from invasive medical treatment. They are worried about the possible damage it could do to the human body, and about the risk of ensuing liability lawsuits.”

Beyond the beachhead

Having made inroads into the Japanese market, foreign firms cannot be complacent.

Hospitals are tightening their purse strings and the government, with its spiraling health-care costs, is reluctant to increase medical fee reimbursements.

Amid this backdrop, the American Chamber of Commerce in Japan is trying to win the public opinion battle.

The largest and most influential lobby for foreign businesses in Japan kicked off a three-year publicity campaign in November called “The value of medical technology.”

Raising public awareness

One of its objectives is to raise public awareness about the benefits of medical technology, eventually fostering a “public consensus” regarding which level of technology the government should endorse, according to Dr. Huimin Wang, chairman of the ACCJ’s medical devices and diagnostics subcommittee.

“When we mention state-of-the-art medical technology, many associate the phrase with an image of expensive medical equipment,” said Wang, who is also Japan president of Edwards Lifesciences, a California-based manufacturer of equipment related to cardiovascular diseases.

“We wanted to appeal to the public that advanced medical technology is not a problem but a solution, because it could bring the overall costs down in the long run (for the government, hospitals and patients).”

He also questioned the government’s regulatory policy, which he believes is too strict on safety issues in comparison with European and U.S. standards.

“Should a product first and foremost be safe, even if it doesn’t work, or should we also have a treatment that carries some risks but could bring great benefits to patients? . . . That is a question we would like to raise.”

Fujimori of the health ministry acknowledged there are just 15 officials in Japan whose task is to approve medical equipment, whereas the U.S. Food and Drug Administration has assigned 300 people to this job.

But the government cannot sacrifice safety for speed, he said, claiming the pursuit of safe products is “a national characteristic.”

GE Yokogawa Medical Systems, 75 percent owned by GE, provides a range of high-end imaging devices that can help doctors make diagnoses.

The firm, which is participating in the ACCJ campaign, has complained that subsidies for advanced medical technology under the government health insurance system are insufficient.

Hirofumi Hino, manager of diagnostic X-ray sales and marketing at the company, said that while doctors in the field recognize the benefits of high-end devices, hospital management often frowns on them, citing cost concerns.

“It is often the case that doctors clash with management over costs,” he said.

For its part, the government realizes the need to prop up the industry, Fujimori said.

In March, the ministry unveiled a “five-year action plan” for making Japan more attractive to both foreign and domestic medical technology firms, and thus to spur more investment in the field.

Measures include doling out grants for research and development of medical equipment in high-growth areas, including bioengineering.

They also include expediting product approval by more than doubling the number of officials in charge from the current 15, so that innovative products can reach the market more speedily.

Meanwhile, Dr. Namba is entering uncharted territory.

The Minami-Aoyama clinic, which focuses on screening, will run entirely outside the national health insurance system, because it does not cover the clinic’s technologies.

The clinic is mostly targeting foreigners, who may be eligible for full reimbursements under their insurance plans. It will offer the world’s top technologies, including full-field digital mammography, at a cost of 25,000 yen per customer.

This is a far cry from the 1,000 yen charged for an analog mammography screening by some municipalities.