Direct Registration of Medical Products in Japan: A Case Study

This case study will examine direct registration of medical device products in Japan. It assumes that the U.S. manufacturer (henceforth Company X) is only interested in exporting its products and does not have and is not interested in setting up its own office in Japan. For the purposes of this case study, Company X is a U.S. based medical device corporation with total sales of $200 million. Company X is presently selling their medical products in Japan through a Japanese distributor/importer (henceforth Importer Y). Currently, the product registrations are indirect and in Importer Y’s name. Company X has about 23 products, of which 13 are “me-too” products (about $5 million in sales) and 10 are unique products (about $10 million in sales). Company X is now considering the advantages, disadvantages and costs of directly registering their products in their own name.

To transfer registration from the distributor’s name into their own name (direct registration), Company X will have two main options – 1) conduct an unfriendly transfer where Company X re-registers all products in its own name from scratch or 2) conduct a friendly transfer where Importer Y helps Company X make the transition to direct registration but requires a termination fee as compensation. As outlined in the attachments, both options have high costs.

First, a decision to proceed with an unfriendly transfer would generate an estimated total cost for Company X of about $27.8 million dollars (please see analysis on page 4). The majority of this figure will be a result of lost sales during the re-registration period. This is largely due to the fact that Japan is very strict about companies selling their products without accurate, up-to-date registrations. While Company X’s “me-too” products should not take too much time to re-register, their unique products will take about two years to re-register (including Japanese clinical trials). Besides lost sales for Company X’s unique products during this two year period, they will also lose some sales in year 3 as they repair their “credibility” and try to recapture their old market share.

Second, should Company X decide to proceed with a friendly transfer, estimated total costs will be about $24.2 million (please see analysis on page 4-5). The major cost in this scenario will be the cost to pay off Importer Y for the previous work they have done, including – 1) initially registering Company X’s products, 2) time, energy and costs previously spent on marketing Company X’s products and 3) some compensation for Importer Y’s loss of future income. Of course, Importer Y can compute the cost figures above for an unfriendly transfer and will thus start negotiating above this figure – $27.8 million. In addition, with a friendly transfer, Importer Y will require that Company X purchase Importer Y’s entire inventory at cost.

After re-registration of Company X’s products is completed, both of the strategies above for direct registration will also require on-going regulatory work primarily in a “watchdog” capacity to be in accordance with Japanese regulations. Without an office in Japan, such annual costs will need to be paid to an In-Country Caretaker (ICC). Such annual costs will be about $115,000 via an ICC (23 products times $5,000/product).

Thus, if Company X wants to have direct registration, their costs for a friendly or unfriendly transfer will not vary much. Obviously, there is a breakeven point where a foreign company is indifferent to a friendly or unfriendly transfer. Otherwise, the choice between friendly or unfriendly will be relatively straightforward – depending on which deal is financially better. In this case study, a friendly transfer will be cheaper. In general, if these two strategies yield similar financial results, the friendly transfer is preferable because their re-registration risks and lost sales risk is lower.

The real issue then, if Company X decides to do direct registration and switch importers, is whether the new distribution partner (henceforth Importer A) will do more business than your old distributor (Importer Y at $15 million) plus the cost of transfer of about $25 million. While various companies will account for this one time transfer charge in different ways, if a company take the financial “hit” in the first year, changing distribution strategies may prove to be a tough financial decision. In this scenario (where the transfer fee is taken right away), your new distributor (Importer A) will need to sell over $40 million ($15 million current sales plus $25 million to transfer registration) to “break even” with current sales to the old Importer Y (i.e. $15 million). If Company X believes their old distributor (Importer Y) is “cheating them” or leaving, let’s say, $5 million of sales on the table, they will probably not press them too hard since it may not make much financial sense to change. Thus, in some respects, Importer Y has significant “control” of Company X’s Japan business.

The real value of direct registration is that the manufacturer, not the distributor, is in control of its business in Japan. On a long-term basis, this is a tremendous advantage. This is why many medical companies are registering their products directly in Japan and paying the associated fees up-front, oftentimes even before any sales occur. In addition, with direct registration, Company X can appoint multiple distributors from day one, which they cannot do with indirect registration.


  1. The registration fees and time to register Company X’s products used in this analysis were provided by three ICCs in Japan. These figures were reduced where it was determined discounts could be obtained based on the size of this type of project (economies of scale).
  2. Company X would have to compile all registration dossiers and translators in advance of changing their strategy in Japan – so that down times are minimized between Company X and their new Importer A in Japan.
  3. Some registration costs were not included in this projection (i.e. testing fees) since they are hard to determine at this point and are not significant enough to affect this analysis.
  4. With a friendly transfer, Importer Y will be fully cooperative and helpful.
  5. With an unfriendly transfer, Importer Y will play “hard-ball” in negotiating a termination fee.
  6. With an unfriendly transfer, it will take 2 years to re-register Company X’s unique products and 4 months to re-register their me-too products.
  7. Sales losses for an unfriendly transfer are calculated based on #6 above as well as the assumption that even when Company X has their unique products registered, there will be some fallout in sales in year 3 due to their two year lapse in the marketplace (i.e. 50% of unique product sales today equals $5.0 million).
  8. It is assumed the chosen ICC can handle this project quickly and efficiently; however, most ICCs in Japan are relatively small entities.
  9. In a friendly transfer, Company X’s sales will be maintained except for a 2% fallout. In an unfriendly transfer, sales will not be diminished beyond assumptions #6 and #7 above.
  10. Once Importer Y realizes Company X is contemplating direct registration or begins to negotiate with them, this will not negatively affect Company X’s sales.
  11. Annual regulatory or “watchdog” fees are about $5,000 per product.
  12. Clinical trials in Japan can cost between $75,000 to $400,000. This case study assumes $200,000 as a mid-point.


1. Unfriendly Transfer

Assuming there is no relationship with the old distributor, Company X must start over from scratch.

(A) Registration costs for registering Company X’s products via an In-Country Caretaker (ICC).

1. Me-too products (13 products @ $5,000 for each product) $65,000
2. Unique products that require clinical trials Japan (10 products @ $200,000 for each product) $2,000,000
3. MHW/government fees (13 me-too products @ $2,000 each plus 10 unique products @ $6,000 each) $86,000

(B) Sales losses

1. Me-too product sales per year ($5 million) – it will take 4 months to register 13 products so 1/3 of $5 million lost in year one. $1,666,666
2. Unique products – 2 years to do clinical trials and re-register means two years of no sales at $10 million per year. $20,000,000
3. Year three – to rebuild unique products after two years off the market; sales reduced (estimate) from 10 million to 6 million, therefore a loss of 4 million. $4,000,000

(C) Total (A) and (B) above $27.8 million (rounded)

(2) Friendly Transfer

Assuming Importer Y cooperates with Company X and their new distributor or ICC. All figures below are in million dollars.

(A) Registration costs – re-registration

1. 13 me-too products @ 1K each $13,000
2. 10 unique products @ 20K each $200,000
3. MHW/government fees (13 me-too products @ $2,000 each plus 10 unique products @ $6,000 each) $86,000

(B) Sales losses

1. Assuming a friendly transfer, there should be minimal sales losses, however there will be at least some downtime (2% of $15 million). $300,000

(C) Payment to Importer Y so transfer is friendly

1. This figure is negotiable, but Importer Y can do the math of an unfriendly transfer and start negotiating at this total $27.8 million; however since Company X will pay cash or some type of earn-out and are a good credit, maybe they can get a 15% discount $23,630,000

(D) Total of (A), (B) and (C) above $24.2 million (rounded)