Healthcare

August 2006

ANALYSIS: Approval Delays Deny Japanese Latest Medical Devices
Japanese are forced to be content with medical devices two to three generations behind those used in the U.S. and Europe thanks to an official approval process that moves at a snail's pace. The two-year-plus delay in getting products approved for sale -- about twice as long as in the U.S. -- is mainly attributable to understaffing at the Pharmaceuticals and Medical Devices Agency, which looks into the safety and efficacy of new medical devices, as well as a shortage of medical institutions that provide clinical tests. Terumo Corp., which has recently developed a groundbreaking supplementary mechanical heart, expects to be able to release the device by spring 2007 in Europe. But it is not sure when the device will be able to go on sale in Japan, as domestic clinical testing is just now set to begin. "In Japan, it takes a long time just to obtain a permit to start clinical tests," lamented Chisato Nojiri, president of Terumo subsidiary Terumo Heart Inc. The use of a supplementary mechanical heart has been regarded as a brief, stop-gap measure that sufferers of serious heart disease can take until they can receive a heart transplant. But Terumo claims its highly durable new product can be used for at least five years. Particularly in Japan, where it is difficult to receive a heart transplant, doctors and patients have high hopes for the new device. When it comes to pacemakers, the three U.S. companies that command a near-monopoly of the Japanese market have introduced a spate of new models outside Japan in recent years. But in Japan, they are forced to sell models two or more generations behind their latest offerings because of the slow clinical testing process. Under such circumstances, Japanese makers of medical devices have had to resign themselves to trailing their foreign rivals in the race to develop new products. For instance, the domestic market for stents -- cylindrical springs used to prop open arteries during heart surgeries -- was instantly dominated by Johnson & Johnson after the U.S. company introduced in 2004 a new product developed overseas. The company now controls 70% of the market. Japanese medical device makers have largely been cautious about commercializing their new technologies out of fear of coming under fire should their products cause any accidents -- especially devices that are used within the body, such as Terumo's supplementary mechanical heart. Accordingly, it is only natural that the authorities set strict standards for such products, some industry analysts say. To clear this hurdle, industry, academia and the government must work together closely, they contend. "The more innovative a technology is, the more difficult it is to commercialize," said Terumo Chairman Takashi Wachi. "There are limits to what a company can do on its own." Collaboration among the three sectors is already under way. Hitachi Ltd., the Shinshu University School of Medicine and some other parties are jointly developing a robot for brain surgeries. Operations assisted by the robot, which will cut a small hole in the skull and remove ulcers with a thin scalpel, are expected to have significantly less impact on patients than the conventional practice of temporarily removing a large portion of the skull. The legal guidelines for using such a robot have yet to be formulated, but the Japan Society for Endoscopic Surgery has already begun drawing up an operating manual. Also, the government has started subsidizing research on such robots, prototypes of which have already successfully performed operations on four patients. (The Nihon Keizai Shimbun, August 30, 2006)

Canon, IHI Leverage Digital Tech To Enter Medical Device Market
Major precision machinery makers and heavy manufacturers, such as Canon Inc. and Ishikawajima-Harima Heavy Industries Co., are entering the medical instrument business one after another, taking advantage of their expertise in advanced digital technology. Canon has begun developing a technology to detect diseases in their early stages using its molecular-level image processing skills. Ishikawajima-Harima, meanwhile, is focusing on applying its precision irradiation technology for cancer treatment. As expectations grow for sophisticated medical testing and treatment methods that place less of a physical burden on patients amid the aging of society, the companies are using their digital technology developed through existing operations, like image processing, to expand into the medical equipment sector, which promises high growth and profitability. Canon has tied up with Kyoto University to develop a medical-use image processing technology that will display accurate images of the movement of disease-causing substances on a screen, enabling the earlier discovery of cancer, hardened arteries and other diseases. The company believes that its image processing skills that have been accumulated through developing high-function digital cameras and other advanced products will be helpful in the development work. Using its proprietary atomic nucleus technology, Ishikawajima-Harima has begun developing a device to irradiate cancer cells with carbon ions, which are thought to be effective in killing these cells. The company plans to soon apply for a license for the device as a medical instrument. Mitsubishi Heavy Industries Ltd. has set up a medical equipment firm with a subsidiary of Konica Minolta Holdings Inc. and others. The venture is working to develop equipment to accurately concentrate radiation onto cancer cells by combining Mitsubishi Heavy's precision positioning technology -- a product of its machine tool expertise -- and Konica Minolta's image processing know-how. According to the Ministry of Health, Labor and Welfare, growth in domestic production of medical instruments has remained almost unchanged at 1.5 trillion yen a year. And while output of radiation-related devices has risen at an annual rate of 6%, though the value of production is still limited to several tens of billions of yen, said a manager at a major machinery maker. The moves by these companies to enter the market are also prompted by the fact that the medical devices they are focusing on are less vulnerable to price competition than digital products like cameras, currently the main products for precision machinery makers, an observer said. (The Nihon Keizai Shimbun, August 27, 2006)

Generic-Drug Firms Soar as OTC Drugmakers Slump
The pharmaceutical sector has outperformed the overall Nikkei Stock Average since last month, but a closer review shows an industry split among struggling over-the-counter (OTC) drug manufacturers and thriving generic-drug firms. Shares of major generic-drug companies have outpaced the sector index since the end of March. Each of these firms logged double-digit profit growth on a consolidated basis for the quarter ended June 30. Segment leader Sawai Pharmaceutical Co. reported a 45% rise in sales on the year to 8.6 billion yen and a 1.2 billion yen operating profit, up 41%. In April, the Ministry of Health revised prescription rules to make the selection of generic drugs easier. Shipments to independent practitioners and pharmacies have since increased. The stocks of OTC pharmaceutical firms have underperformed the sector index over the same period. With beverage companies' health drinks steadily cutting into their energy tonic sales, Taisho Pharmaceutical Co. saw a 19% decline in group operating profit for the April-June quarter. Meanwhile, SSP Co. reported an operating loss. Taisho Pharmaceutical has already lowered its operating profit forecast for the full year ending March 2007. In addition to the unseasonable weather since spring, an overhaul of its sales operations in April caused confusion. Given that energy tonic sales rise in the spring and peak in summer, Nomura Securities Co. analyst Ryoichi Urushibara says that "the organizational change should have been carried out in the winter, when sales decline." As investors buy generic-drug stocks and sell OTC stocks, the former are showing signs of becoming overvalued. Their projected price-earnings ratios stand at about 30 -- high even for the pharmaceutical sector -- and expectations of forecast-beating earnings are waning. According to drug wholesaler Mediceo Paltac Holdings Co., generic drugs accounted for 4.2% of prescription pharmaceutical sales in the quarter ended June 30. The figure is 0.4 point higher compared with March 31, but "growth was not as much as we had expected," says Director Bunichi Murayama. OTC drugmakers could turn around their fortunes by increasing sales of so-called switch-OTC products, which make use of compounds developed for pharmaceutical drugs. While the market is currently limited to such products as painkillers, a broadening of the segment could open a window of opportunity. With Taisho Pharmaceutical holding more than 140 billion yen in cash and deposits as of June 30, the effective use of such ample funds will also hold the key to the OTC segment's success. Taking a more aggressive management stance may be necessary for OTC firms to pull out of their earnings slump. (The Nikkei Financial Dail, August 10, 2006)