As a result of significantly more deregulation in the Japanese marketplace over the last 5-7 years, more and more foreign companies are bringing their products and making investments into the country. The Japanese government’s greater openness to foreign businesses is also meant to stimulate the country’s ailing economy. In the healthcare sector, Japan’s desire to utilize cost-effective medical products, oftentimes made by foreign medical manufacturers, will hopefully improve the quality of healthcare and lessen the healthcare burden on the government. Although some of the overall barriers to entry have been made more transparent, regulations for pharmaceutical and medical device products in Japan continue to be complex and evolving. Thus, in order for foreign companies to manage their regulatory costs and remain flexible vis-à-vis Japan’s changing laws, it is necessary for medical companies to formulate comprehensive business and regulatory strategies.
Many foreign medical companies require help from seasoned regulatory specialists in order to successfully navigate the Japanese medical regulations for product registration and other regulatory matters. However, finding and evaluating such regulatory assistance is not an easy task. In Japan, there are a limited number of ways employees can receive medical regulatory training. Since there are very few formal educational programs for this type of regulatory training in Japan, most people gain their expertise in Japanese medical regulations through working in the regulatory departments of pharmaceutical and medical device companies, employment at regulatory consulting companies, or at the Ministry of Health, Labor and Welfare (MHLW). Many people can claim to be specialists in this field; however, many foreign medical companies have found out the hard way that these “experts” have limited knowledge and capabilities.
In order to prevent unnecessary regulatory costs and reduce the amount of time it takes for your company’s products to get registered and then sell in Japan, it is crucial to understand the types of regulatory resources available.
Many foreign medical companies choose to obtain regulatory assistance from regulatory consultants in Japan. However, as just mentioned, there are a limited number of qualified medical regulatory consultants who speak English, therefore, foreign medical companies must be discerning when choosing the right consultant. Regulatory consultants often have different specializations in terms of the medical products they work with. These specifications can range from medical devices, pharmaceuticals, dental products, cosmetic products, and biotechnology products. Some specialize in one area of medical products while others work in a range of product areas. Currently in Japan there are approximately 20 medical device regulatory consultants and/or consulting companies that speak some English and about 50 pharmaceutical regulatory consultants and/or consulting companies geared toward helping foreign companies that speak some English (note: this does not include ICCs and CROs to be discussed later.).
Consultants can range from being individuals, small companies, or larger companies. The size of the consulting company may not always indicate its capabilities. Some smaller consulting companies are better equipped to assist with regulatory issues than larger companies. Smaller consulting companies can also oftentimes be more cost effective.
When choosing a regulatory consultant for a specific project, foreign companies must evaluate the knowledge, contacts, references, and availability of the consulting company to assist on a timely basis. Thorough checks on these issues will help to prevent future problems.
Another factor to note is that English speaking Japanese consultants may not be experts on Japan’s regulations. Although it is normally more convenient to deal with consultants who speak English, if they have spent most of their time learning English, do they truly understand the regulations? If you decide upon a western or foreign consultant who does not speak Japanese, it is necessary to ensure that the consultant is very aware of Japanese culture and feels comfortable operating within it. In general, Japanese people have an aversion to pushy, arrogant foreign people.
Other considerations must be kept in mind if you have a Japanese national as a consultant. In the US, when a company hires a lawyer or a consultant, in almost all cases, you can be assured that your lawyer or consultant will represent your best interests. However, in Japan, this cannot always be assumed. Japanese society emphasizes that Japanese people should look out for each other and be wary of foreigners. There are implicit moral obligations between Japanese people to protect each other. As a result, a Japanese consultant may place another Japanese company’s “interests” above the foreign company’s interests even though the foreign company is paying the Japanese national consultant and the consultant is supposed to be representing the foreign company. Thus, foreign medical companies must be wary of “double-agents,” consultants who appear to be representing your interests but are at the same time collecting paychecks from the foreign companies’ Japanese competitors.
Finally, foreign medical companies should always try to determine whether a regulatory consultant is out to provide regulatory information and collect fees even when the overall project is NOT feasible in Japan. For example, in a number of cases, US medical companies have hired regulatory consultants to provide clinical development plans or product registration dossiers. However, if the regulatory consultant is initially aware or becomes aware shortly after taking on the assignment that the foreign medical company’s products “will not work” in Japan (because of competing products, patent problems, lack of reimbursement), do they tell the foreign company such news before they do the regulatory work? Honest consultants tend to be more upfront about such issues. Thus, hiring regulatory consultants who have some common sense business instincts is always a plus.
Hiring Your Own Regulatory Employees
Companies that have set up offices in Japan and have the resources can hire their own in-house regulatory employees. However, given the shortage of qualified medical regulatory experts in Japan that speak English, this is not an easy task. Poaching qualified employees away from their current positions is difficult. Many Japanese prefer to work for Japanese companies and often do not want to work for foreign companies, much less newly established or small foreign medical companies. They are often apprehensive about how long a new foreign company would be able to last (staying power) in Japan and thus do not want to risk losing their jobs in the near future. Foreigners should realize that once a Japanese leaves a Japanese company (to join a western company), it is almost impossible for that Japanese employee to get back into a Japanese company at the same status and pay prior to joining the western company. The employment system in Japan is quite different from that of the U.S.
Although it is difficult, it is still possible to poach qualified regulatory staff from other companies. Foreign medical companies looking to recruit Japanese regulatory people should establish clear career paths. Most Japanese prefer to be employed in positions with longer career prospects. Foreign medical companies that fail to realize this will have recruiting and retention problems. It is also helpful to have an excellent office location in a reputable area in Tokyo or Osaka. If your office address is in a residential neighborhood (this is frowned upon in Japan), recruiting becomes that much tougher. Japanese employees often also look at a company’s reputation (i.e., their “brand name”) when considering employers. Although the bigger the better (with respect to company size) is not so fashionable in the US anymore, it is still gospel in Japan. Compensation packages for regulatory specialists have also increased dramatically over the past 10 years. Small and medium sized medical companies often will need to pay a premium over larger companies’ compensation packages since many Japanese employees prefer working for larger organizations. In general, compensation over $150,000 is the norm for very qualified English speaking regulatory candidates.
Another option to poaching employees is to train your own staff. Although this requires greater upfront investment on the part of the foreign medical company, this may also prove to be a good form of employee retention. When a company helps its Japanese employees to develop new skills and gain new knowledge, such employees will be more likely to continue working with them for the long-term. Their sense of “obligation” goes beyond what is found in the west.
Hiring a retired regulatory expert is also another way for foreign medical companies to obtain regulatory assistance in Japan. Most of these retired regulatory specialists are in their 50s or 60s. Although they have already retired from their Japanese employers, in many cases, they are still very active and eager to work. Many of these retired experts are also willing to work for lower salaries (than market) since they already are receiving large pensions from their previous employers.
Some foreign medical companies have recruited and oftentimes converted pharmaceutical regulatory experts to medical device regulatory experts. These Japanese pharmaceutical regulatory experts oftentimes will already have good contacts with the MHLW. While they will need time to learn the specific nuances in the medical device area, their overall regulatory knowledge can help “ease” the transition.
In Country Caretakers (ICCs)
For foreign medical companies that do not have offices in Japan, it is oftentimes better for these companies to register medical products with the MHLW in the company’s name rather than the name of a local distributor. If a distributor does not meet its sales quota or is not complying with an agreed contract, it is much easier for the foreign medical company to switch distributors when its product registrations are under its own name. If registrations are in the distributor’s name, a distributor will almost always demand “payment” to transfer the registrations back to the foreign company, thus, holding the foreign company “hostage.” Of course, the foreign company can always re-register the products under its own name from scratch without buying back its registrations from the distributor. However, this entails spending more time and money to re-do the registration process, not to mention the time the product will be off the market, allowing competitors to focus in on your existing customers in the healthcare marketplace.
In Japan, the In Country Caretaker (ICC) system (established in the mid 1980s) enables foreign medical companies without offices in Japan to “directly” register their products in Japan under their own name. The ICC acts as a liaison for the foreign medical company in Japan and assists the company in registering medical products with the MHLW. The ICC is responsible for the preparation of documentation, ensuring both the initial and ongoing safety and efficacy of the imported products, providing the foreign company’s importers and distributors with necessary information, and acting as a negotiator on the foreign company’s behalf with the MHLW.
The major advantage of “direct registration” via an ICC is clear; the foreign company has increased control over its marketing strategy in Japan. With direct registration, or its own shonin, the foreign company can change distributors with greater ease and it can also appoint multiple distributors from day one.
The major disadvantage of utilizing an ICC in Japan is the additional upfront cost that is paid by the foreign medical company. These costs include a one-time registration fee pre product and a yearly “watch-dog” fee to the ICC for assuming ongoing responsibilities. Without an ICC, if a foreign company decides to register its products indirectly through a distributor, it may not have to bear the majority or any of the initial and ongoing registration costs. The importer or distributor will often be willing to pay these fees in order to have the products registered under their name, hence, “controlling” the sales and marketing process.
ICCs are usually small companies with approximately 1-15 employees. Currently, there are about 15 stand alone ICCs in Japan that speak some English. Due to the shortage of ICCs and the high demand for their services, many of these ICCs are very busy and often do not have the time to pay close attention to each of their foreign clients’ needs. It is necessary to find an ICC that has specific expertise in the product area that the foreign company is involved in, as well as one that has the time to do the work. Often, an ICC without the proper experience or who has taken on too many projects, will slow down the registration process resulting in lost revenues for the foreign medical company.
Thus, it is crucial that a foreign medical company find and evaluate the right ICC. Besides checking the ICC’s references, other things to consider include the following:
- Put a performance bonus in your ICC contract. Try to reduce the “fixed” hourly fees but give bonuses which will be meaningful and motivating. Obviously, the largest bonus should be given on product approval and not dossier submission.
- Obtain several ICC proposals to compare strategies, fees, and timing. When two proposals do not jive, ask why.
- Require monthly updates during the process. Meet face to face with your ICC as many times as possible so that they can get to know you and trust you – relationships are key to doing business in Japan.
Despite the benefits of the ICC system, the MHLW recently announced major changes that will significantly change and dismantle the system as it exists today. Effective April 2005, foreign sales approval will be subject to new Pharmaceutical Affairs Law (PAL) requirements. First, a foreign manufacturer must appoint a representative, also known as a Marketing Authorization Holder (MAH) or Original Vendor, in Japan. The representative is basically a distributor who has added additional regulatory personnel to their firm to meet the new PAL regulations. In short, the representative must be able to adequately perform both the regulatory functions traditionally performed by an ICC, as well as the testing, warehousing, and tracking duties traditionally performed by a distributor. These new requirements place a heavy burden on existing ICCs, many of which are small firms without the capacity to take on this greater regulatory and marketing/sales role. Thus, most ICCs will go out of their traditional business in 2005.
With the new PAL, representatives will be conducting the sales and marketing on “one side of the company” and registering the product either in their own name or directly in the foreign company’s name at the “other side of the company.” The foreign manufacturer will have two separate contracts with the representative in Japan, one for sales and marketing, and the other for registration and regulatory issues. In theory, if a company decides to terminate its contract with its representative, it should be easy to get the regulatory documentation back. However, in reality, if the foreign company decides to terminate its sales and marketing contract with the representative, the group may not agree to the termination and hold the foreign company’s product registration documentation “hostage” to an extent. The distributor may make it difficult for the foreign company to obtain all the paperwork needed for transfer of the shonin even if the shonin is in the manufacturer’s name. This conflict of interest does not appear to be adequately dealt with in the new PAL. To avoid future issues with your representative or the MHLW, remember to keep a copy of all regulatory files at your headquarters.
Contract Research Organizations (CROs)
When pharmaceutical manufacturers require assistance in developing clinical strategies and conducting clinical trials, they often turn to Contract Research Organizations (CROs). In Japan, the CRO business “officially” began in 1997 when three ordinances were passed based on the International Conference on Harmonization (ICH) by the MHLW concerning CROs, Site Management Organizations (SMOs), and Good Clinical Practices (GCP). Prior to this, CRO services were not allowed in Japan and clinical or preclinical studies were only arranged and conducted by the medical product manufacturer on their own. Almost all such clinical work was geared towards pharmaceutical products.
In 1997, the CRO industry was approximately worth $30 million, today, the industry has grown to about $500 million. The industry is expected to grow to $1.7 billion by 2005. Currently, there are about 30 CROs in Japan. More companies are entering the CRO business including Mitsubishi Chemical Corporation. Other entities are also following suit such as leading trading houses and various medical schools.
In recent years, some Japanese medical manufacturers have chosen to conduct their clinical and preclinical studies outside of Japan due to lower costs. However, Japanese CROs are assisting many of these companies in coordinating with European and US facilities to ensure that clinical trials done abroad are still admissible to the MHLW. Due to the complicated nature of Japanese medical regulations, Japanese medical manufacturers oftentimes still utilize local CROs to assist with coordination of foreign clinical studies. Post-marketing clinical studies and surveys are also important services provided by CROs for both Japanese and foreign medical manufacturers.
When choosing a CRO in Japan, there are several things that must be kept in mind. It is necessary to find a CRO that has extensive experience with regulatory affairs in Japan. The CRO should also fully understand the requirements of the client based on the relevant regulations; it is best if the CRO has experience with the client’s specific product type. A good CRO will also have appropriate contacts at local and foreign clinical facilities. Other things to consider are the cost-effectiveness of the CRO as well as ensuring that the CRO has an adequate follow-up system.
With the new PAL regulations, more medical device companies will need to perform clinical studies in Japan in order to receive product approval. In fact, while two sites and 30 cases at each site were the general requirements in the past, with the new PAL, the number of cases for medical devices will increase so that the data statistically proves that the medical device meets MHLW standards. Some traditional CROs who in the past only focused on pharmaceutical clinical studies are now building up their capabilities to conduct medical device clinical studies.
In order to successfully conduct regulatory work in Japan, it is necessary to understand the costs, advantages, and disadvantages of each type of regulatory assistance available. Oftentimes, it is difficult for companies to assess the qualifications of regulatory specialists and therefore, it is helpful to analyze each person, company, or group individually. Regulatory help should be chosen based on the company’s medical product as well as its overall strategy in Japan. Finding a creative regulatory expert with goals in line with your company’s objectives that speaks English will help in speeding up the registration and marketing process. Building close and trustful relationships with your regulatory expert is a requirement to be successful in Japan.