How Does The Third-Party Japanese DMAH System Work?

Currently the third largest medical device market in the world, Japan presents many opportunities for foreign medical device companies. However, only local companies with a Marketing Authorization Holder or Designated Marketing Authorization Holder (MAH/DMAH) license are legally allowed to import and market medical products in Japan.

A foreign company has three different options to register and market their product in Japan. First, a foreign company can set up their own subsidiary in Japan, which will mean that they will be their own MAH/DMAH. The advantages of this system are the foreign company will be closer to their customers, have more control of the sales and marketing process, and hold their registrations in their own name. If they need to switch distributors, this can easily be done. The disadvantages of this strategy are the costs to set up a subsidiary in Japan are very high, and hiring the right staff may take time and be difficult.

Second, if a foreign company does not want to set up their own subsidiary in Japan, finding, qualifying, and signing up an excellent Japanese distributor may be a good option and clearly the cheapest to execute. If your distributor registers your products in Japan and acts as your MAH/DMAH, they will normally bear the costs of registering your product including the government fees, etc. The disadvantage of this strategy will be the registrations will not be in your name, so you will have less control of your sales and marketing. If your distributor does not perform, and you want to switch distributors, you may need to re-register your products from scratch with the new distributor, which may mean you may be off the market for a period of time. Alternatively, you may be able to pay your current distributor a hefty buy-out fee to make a “friendly transfer” of your registrations to a new distributor. In some cases, you may be able to put in a clause outlining a friendly transfer of the registrations in your initial distribution agreement, and if the distributor does not perform with respect to your sales in Japan, seek to do a friendly transfer of your registrations – but enforcing this in Japan without a payment to the distributor may not be so easy.

The third option is to have an independent third party register your products in Japan (in the foreign company’s name) and act as your DMAH. This strategy is cheaper than option 1 above and gives the foreign device company “more control” than option 2 above. Specifically, the disadvantages of this strategy are the costs/fees including – 1. The foreign company will need to pay their DMAH a registration fee for product approval, 2. A monthly DMAH fee for holding your license and dealing with the PMDA as needed, and 3. A warehouse fee to cover the cost of storing the company’s products in a Japanese warehouse. Please note that under the independent third party DMAH system, your products need to be shipped to a Japanese warehouse and have a quality check before being released to your Japanese distributor or into the market.

The most important advantage of an independent third party DMAH option is that the foreign company owns their own approval(s) – the registrations are in the foreign company’s name, and they do not have to rely on their distributor if and when they want to transfer their licenses to another distributor. Moreover, in the event that the foreign company is acquired by another company, registrations that are held in the company’s name instead of the distributor’s name can be easily transferred and accessed by the acquirer. This is a significant advantage for the acquirer’s company and allows them to sell in Japan right away.

If you decide to employ an independent third party to be your DMAH in Japan, it is important that you understand the flows for your documents, product, and money that you will need to follow to be in compliance with Japanese DMAH requirements.

How the document flow works

With regards to the document flow, the Japanese distributor normally sends a Purchase Order (PO) to the DMAH (step 1 below), who will then send a PO to the foreign company (step 2). After receiving the PO, the foreign company will send the DMAH an invoice (step 3), and the DMAH will forward the invoice to the Japanese distributor (step 4).

Figure 1: How the document flow works

How the product flow works

The products will be shipped from the foreign company to the DMAH’s warehouse, and the DMAH will have their warehouse ship the products to the Japanese distributor.

Figure 2: How the product flow works

 

Since the DMAH is also responsible for storing your products in Japan and doing a quality check before the products are released to the Japanese distributor, the foreign company has to pay a warehouse fee to the DMAH (or directly to the warehouse company), which oftentimes also includes the domestic transportation fee.

How the money flow works

There are two approaches in which the payments for your products can flow. Under the first approach, the Japanese distributor pays for your products to the DMAH, who in turn transfers the payments to the foreign company. In this scenario, the distributor may send the DMAH the exact amount of money to pay for the products or the exact amount for the products, plus extra money to pay for the transportation or other transaction fees. Under the second approach, the Japanese distributor makes a direct payment to the foreign company.

Figure 3: How the money flow works

Approach 1:

Approach 2:

Pacific Bridge Medical is an experienced DMAH in Japan. If your company wants to enter the Japanese market and is interested in our DMAH service, contact us today for a free consultation.