Many companies showing interest in the expanding Chinese market

Some manufacturers seek alternative markets in response to ongoing device approval challenges in Japan.

As Japan’s reimbursement and regulatory systems continue to present formidable barriers for device manufacturers, some companies are exploring the Chinese market as a new option for marketing, distribution and/or manufacturing.

“Japan is obviously our No. 1 foreign market,” said Ralph F. Ives, executive vice president for global strategy and analysis with the Advanced Medical Technology Association (AdvaMed), a medical technology advocacy group. “So it’s not a question of switching [focus]. We are focusing on China, maybe stressing China more than we have before, because the growth of the Chinese market is so large that medical technology manufacturers can’t afford to ignore that market anymore.”

To accommodate increased corporate interest, AdvaMed has hired a Chinese market specialist, he said.

However, despite a growing medical industry and market, the country also poses challenges.

“China, as you know, is moving from decades of communist state-controlled government to a market economy,” Ives said. “In the process, some of the remnants of the state-run system still exist.”

Avoiding overlap

Multiple organizations within China perform regulatory duties, according to Ives.

“What we’re urging the Chinese to do is rationalize those procedures … that is, to have one of the agencies do the testing and procedures, rather than two,” he said.

J. Patrick Anderson, vice president of strategy and communications at Stryker Corp., told Orthopaedics Today that regulating intellectual property and pricing pressures are other potential barriers in China.

“While China has great potential — and we are very much there for the long run — it still has many of the same features and problems that we face in lesser-developed countries,” he said. “Its legal and commercial systems and institutions are just now beginning to catch up with its rapid economic growth.

“But we believe that it is going to be a great market for medical devices and for Stryker, in particular.”

Local competition

Although corporations often view China’s low production cost as a benefit, Michael O’Regan, Fidia SpA director of research and strategic marketing, cautioned that the low production cost also poses a major threat to quality and competition.

“I think that the problem is a premium price issue,” said O’Regan, who is a member of the Orthopaedics Today industry council. “You’ve got these local companies that are producing [products] at rock-bottom prices, and the market probably doesn’t appreciate the quality difference all that much.”

“We asked the Japanese government … to work with us on an alternative reimbursement system, and they expressed some willingness to do that.” — Ralph F. Ives

A few years ago, his company marketed a viscous supplement in China. “Once our product was established, there were quite a number of locally produced, cheap copies that came on the market. Obviously, they destroyed our business,” he said.

Back in Japan

Meanwhile, many companies face challenges surviving Japan’s strict regulatory requirements and tough market climate.

Since 2002, Japan’s government has instituted nearly $3 billion in price cuts, which ultimately affects manufacturers, Ives said.

Japanese officials base biannual price reductions on foreign average pricing and national hospital surveys. To set the average foreign price, Japan requests the standard device price in the United States, the United Kingdom, Germany and France, and then applies these costs to the Japanese market. AdvaMed opposes this method, Ives said.

“We have strong objections to that system because it is based on conditions in foreign countries where the regulatory system, the distribution system, the entire market system is much different in those four countries than it is in Japan,” he said. “So, in our view, it’s not appropriate to compare prices in Japan with foreign prices.”

Nagging regulatory issues

The country’s regulatory system also creates roadblocks for foreign companies marketing new devices.

“Japan has always had one of the most difficult and cumbersome regulatory systems in the world,” Ives said. Revisions to its Pharmaceuticals Affair Law caused a significant lag in device approvals. For example, it can take years for an American-approved product to receive approval in Japan.

The result? Japanese patients are receiving older devices.

“It’s not something that our companies want,” Ives said. “We do not choose to sell our products that are several generations behind in Japan. We’d much prefer to sell the latest technology.

“The Japanese doctors prefer us to sell the latest technology, but it takes so long to get through the Japanese regulatory system that by the time it gets through, life has gone on in other parts of the world,” he added.

Partial change applications

Companies making changes to an existing device must also complete a partial change application.

“There are a lot of change applications that are still in the works, pending in the backlogs of applications because the change control policies in Japan are pretty strict,” the executive vice president for AdvaMed’s technology and regulatory affairs department, Janet E. Trunzo, told Orthopaedics Today.

Even products extensively tested in other countries may have difficulty being approved for the Japanese market.

“One of the major challenges we need to understand is the acceptance of foreign clinical data,” Trunzo said. “So, sometimes in Japan, there’s still this need to do a clinical study to get the product approved.”

Changing business trends

“[China’s] legal and commercial systems and institutions are just now beginning to catch up with its rapid economic growth.” — J. Patrick Anderson

The combination of price cuts and restrictive regulatory demands have changed the face of doing business in Japan, Anderson said.

“We have seen our business grow in the Japanese market throughout the many years that we have been doing business in that country,” he said. “Our growth has, however, been affected by the ongoing effort by the Japanese government to push prices down.

“Because we have designed products specifically to meet the anatomies of Japanese patients and the needs of Japanese medical personnel, we are concerned about the extensive cost and the lengthy time that it takes to gain approval to sell these products in Japan. We are working to find a way to cope with these challenges and to grow our business in Japan, given our current and new product offerings and our competitive strength,” Anderson said.

Is avoidance the answer?

The arduous regulatory and reimbursement process has caused some manufacturers to bypass the Japanese market altogether.

“No company in my whole group of companies has ever brought a product to Japan, and we sell our products everywhere in the world,” O’Regan said. “There are a lot of regulatory and trade buyers that you have to get by in order to enter the Japanese market.”

AdvaMed continues to advocate system change in Japan. Last October, representatives met with Japanese officials to explain that the cuts, regulatory barriers and high cost of doing business created a situation that was “not sustainable,” Ives said.

“In going forward, one of the things that we asked the Japanese government to do is to work with us on an alternative reimbursement system, and they expressed some willingness to do that,” he said.