By Ames Gross, President and Founder of Pacific Bridge Medical
This article was also published on MedTech Intelligence.
To succeed in Asia, you must know the region, which involves performing extensive primary market research to determine the size and growth rate of your product in each market, speaking to the top key opinion leaders, and so on. Unfortunately, this is often not done well, leading Western medtech companies to fail or not optimize their business in Asia.
To illustrate the issues that Western medtech executives often overlook and highlight important points that should be considered prior to pursuing product registration in an Asian market, I will describe a recent correspondence between a client who contacted me about product registration in China and me. The person who called was a senior regulatory executive who had been asked by their international sales and marketing executive to investigate registration in China.
The following are the key questions that were asked between the client and me—and that you should ask yourself if you are considering registering your product in an Asian market. While this client was primarily interested in the Chinese market, these questions apply to any market in Asia.
1. Question to the client: How big is your company (in sales) and what are your specific product(s)?
To start, I asked the client many questions to better understand their company and products. If I do not know how big the company is and what resources they can devote to China, it is difficult to determine what strategy they should follow. I also need to understand what type of products they produce and whether these products will be well received in the Asian markets. Over the years, we have helped many medtech companies complete registrations in Asia only to learn later that there was little demand or low reimbursement for their product in a specific Asian market . Why spend the time and money to register the product if there is no market opportunity?
This client is a small medical device company that produces mostly commodity type products, with about $30 million in sales. To date, this company has only sold in the United States and Europe, and has not accessed any of the Asian markets.
2. Question to the client: Do your products have patents in China? Can your products be easily reverse engineered?
Everything is copied in China today. While intellectual property protection has improved slightly, companies must be aware of the realities on the ground there. It is very difficult to win cases in a foreign legal system like China’s. Small medtech companies with innovative products are especially vulnerable, as they normally do not have the resources to sue or enforce patents overseas. This is still a huge problem, and executives looking to penetrate Asia must know this to begin.
The regulatory executive was not sure what patents they had, and needed to check. If they had not been made aware of this issue, they could have faced many intellectual property issues down the road.
3. Question from the client: What entity should register the products and control the product registration?
There are three different options for registering products in China. You can register the product yourself by setting up your own office or subsidiary there, register the product via an independent third party, or simply have your distributor register the product. There are benefits and risks for each option.
For this client, their sales manager had found a Chinese distributor, so he wanted information on product registration in China. I told the client that while letting their distributor register the product would mean the most cost savings, this would also mean that the distributor owns the registrations. It may be difficult to buy back or transfer the registrations in the future if the distributor does not meet their sales targets and the client wants to switch to a new distributor.
If they have an independent third party register on their behalf, the client would need to pay for the product registration and the local agent holding fee—but at least they will have the registrations in their own name. Having the registration in your own name will make it easier to switch distributors if you need to do so.
If the market opportunity is big, setting up your own local office and registering via your own China staff may be appropriate. This gives you the most control over your product registrations.
4. Question from the client: If we have the distributor register our products, how can we protect our registrations in China?
If the client does choose to let their distributor register their products, I recommend that they make sure to include a buy-back provision in the distribution agreement. This should be at a fixed price, or they should have a specific formula to determine the buy-back price.
The client should keep copies of the original registration dossier that the distributor submitted to the China Food and Drug Administration (CFDA), with all related CFDA correspondence. If sales goals are not reached or you have a dispute with your distributor that cannot be resolved, sometimes you can go to the CFDA with the original documentation (including the original registration certificate) and the CFDA may let you transfer the registration even without your distributor’s consent. Keeping all the document copies and information at your headquarters is also a good idea in case your distributor goes bankrupt.
5. Question from the client: Should we sell through a distributor at all or would it be better to set up a small subsidiary in China?
The answer to this question depends on many factors, including the size of the market for the client’s particular product in China and the client’s patent situation. If the client expects sales in China to be only $3 million in three to four years, they may want to sell via a distributor, but maybe register their product via an independent third party so they can control their own registrations. If the market size will be $8 million or more in China in three to four years, it may be best to start a small subsidiary to register directly and have their own sales team manage their local distributors in China. However, keep in mind that setting up your own small office in China is not cheap and can be difficult to manage.
6. Question from the client: How much will it cost to have a small subsidiary in China with three to four people?
If the client needs to maintain an office with the related expenses, and we estimate each experienced Chinese employee to cost about $75,000 per year, the client may need around $600,000 to run the subsidiary each year. This includes the product registration fees. There are also one-time start-up costs. The client will need to asses their market opportunity in China to determine whether this cost will be too much for their budget.
7. Question from the client: Will we need to do a local clinical trial in China for registration approval?
It is important to determine the need for local clinical trials and adequately plan out the trial process when considering product registration in Asia, as clinical trials that are not conducted properly may result in major issues and delays in the registration approval process. One key factor is choosing the right contract research organization (CRO) to conduct trials for your particular product. While your distributor may already have a partnership with a certain CRO, it could be a good idea to consider including a provision in your agreement with the distributor about maintaining veto rights if you do not like your distributor’s CRO.
This client has Class II and III products, which means they may need to conduct a strong Clinical Evaluation Report (CER) or a local clinical trial in China for approval.
8. Question to the client: Have you checked into the reimbursement of your product in China and what reimbursement rate you are likely to get?
In some of the Asian countries, hospitals receive government reimbursement for the medical products they purchase. In these countries, obtaining reimbursement status and a high reimbursement rate for your product is crucial for successful sales. If you cannot obtain a profitable reimbursement rate for your product, it may not be worth it to register and sell your product in that market at all.
This client did not know the reimbursement status of their product in China and stated that they would check the national reimbursement list. I noted that they would likely need to go through the steps to obtain reimbursement in each province of China. Therefore, they need to sign with a distributor that has good contacts at each provincial pricing bureau or hire an experienced employee who can help them navigate the process in each province.
9. Question to the client: What is your overall Asia strategy?
I want to know their overall plans for Asia, not just focus on China registration. Oftentimes, clients will be interested in a specific country such as China without realizing that there may be better market opportunities for their particular product in some of the other Asian markets.
This regulatory executive did not know his company’s overall Asia strategy, since he was simply asked by their international sales and marketing manager to look into registration in China because he wants to work with a Chinese distributor. I asked the regulatory executive whether their product has a patent in Japan—if they have a patent in Japan, but not in China, it may be better to start with the Japanese market instead.
After asking these important first questions to better understand the client’s situation and needs, I recommended a conference call with both the regulatory executive and the international sales and marketing executive in order to discuss the best business and regulatory strategy for them to succeed in Asia. For the complex Asian markets, it is often necessary to develop a comprehensive plan that accounts for both business and regulatory affairs to ensure that the entire process of entering the product into the markets goes smoothly.
If you are looking to register your medical product in Asia, be sure to consider all the above- discussed key points as a preliminary step.