4 Product Development Decisions that Impact Sales Performance in Asia

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US medical device manufacturers typically launch new products in Asia only after establishing success in the US and Europe. However, decisions made in the product development process have significant impact on regulatory costs, time to market and ultimately sales results in Asia. Address these four points to ensure fastest time-to-revenue in Asian markets.

Incorporate Asian Requirements into Product Testing
Conformance testing certificates are a common element of medical device registration applications. In most Asian regulatory systems, test reports used for US and European device registration are sufficient, with notable exceptions. South Korea and other markets require CB Scheme certification for electrical safety testing certificates. Further, testing records should be generated based on a country’s electrical supply (e.g., 220V/60Hz and/or 380V/60Hz). In Indonesia, Certificates of Analysis require numeric test values as well as a pass/fail designation. In China, in addition to having a complete set of test certificates to international standards, registration of Class II and III devices will require test certificates generated from one of ten local CFDA-certified test laboratories.

Design Your Clinical Trial to include Asian Requirements
If you must conduct a clinical trial in support of FDA Approval or CE Marking, confirm the data generated will also be acceptable for device registration in Asia. The Pharmaceutical and Medical Devices Agency in Japan offers a Clinical Trial Consultation just for this purpose. You may also consider the Harmonization by Doing program in Japan, which is designed to reduce the cost and time to register novel devices significantly by shifting 25% of your patient sample from a US clinical trial to Japan. The CSCSO in India will generally accept clinical data from outside India (except for drug-eluting stents, etc.), but may want to see ethnicity data. Again, Chinese registration of Class II and III devices will require a limited local clinical trial data.

Select a Fully Recognized Notified Body
Pick an ISO 13485 Registrar and CE Mark Notified Body that is recognized by competent authorities in Asia to avoid redundant QMS inspections and product conformity assessment fees. The Australian government has a mutual recognition treaty with the European Union whereby medical devices with CE Mark avoid local conformity assessment, greatly accelerating market listing in Australia. However, the Australian government has begun to deny recognition of certain Notified Bodies. In Japan, if your device qualifies for Pre-Market Certification (most Class II and some Class III devices), conformity assessment will be performed by a private Registered Certification Body. Seven of the fourteen RCBs also provide CE Mark in Europe. In Korea, a similar situation applies to most Class II devices. In Malaysia’s new and evolving regulatory system, all devices must undergo local conformity assessment, though the assessment for devices with reference country approval is greatly expedited. In these cases, manufacturers may request synergies if their Notified Body is also their RCB in Japan or Third Party Reviewer in Malaysia and South Korea.

Budget to Control Your Registration Certificate in Asia
In the US, Europe and Canada, the manufacturer on the labeling is considered the owner of the product registration certificate. In all other regulatory systems, the license/certificate/listing is owned or fully controlled by a local agent. In these markets, foreign manufacturers can only change or add distributors with the cooperation of the incumbent license holder. If the license is held by a commercial distribution partner, it is difficult to add, change or influence distributors in that market. Also, start-up companies with acquisition strategies have added incentive to control registration certificates to enhance acquisition value and enable the acquiring company to integrate new device/s into its direct sales channel. This situation can only be assured through an independent license holder.

Consult with Asia Actual for specific conditions that apply to your devices in Asia.

Know Your Market Price in Japan

Japan should be the second largest national market for your medical device after the United States and maximizing sales performance in Japan should be critical to your overall corporate success. Yet, many manufacturers are frustrated by their results in Japan or struggle to attract the interest of leading distributors. Follow these steps to create a winning market strategy in Japan that will wow investors and leapfrog the competition.

STEP #1: Diagram the Sales Channel

The sales channel in Japan is arguably the most expensive and complex in the world due to unique regulatory requirements and the high level of customer service demanded by end users. The first step to designing a winning strategy is to understand the functional responsibilities and costs in the sales process. To do this, diagram all the entities that touch your product from your factory to the Japanese hospital.

Most foreign manufacturers use a traditional approach to the Japanese market by engaging with a master distributor to cover links B-C-D-E in the distribution chain outlined above. However, as reimbursement rates are systematically reduced every two years by the Japanese government, the traditional distribution channel becomes rationalized. New distribution options may be necessary to get your devices to market more efficiently. It is critical for you to understand the links in your Japanese sales channel so that you can adjust your strategy as needed over time.

STEP #2: Determine the Prevailing Market Price for Your Device Type

Market price in Japan is highly correlated to reimbursement rates. After determining the Japan Medical Device Nomenclature (JMDN) code for a device, the associated reimbursement rate/s can be identified. This research is fairly straight-forward and provides a good starting estimate. For more accurate market price information, all competitive devices registered under the JMDN code should be identified and model specific sale prices should be researched. For new products that do not have JMDN codes, there is more latitude in pricing, and your pricing strategy becomes very important.

STEP #3: Calculate the Projected Market Price for Your Device

Plug the target international transfer price (typically based on a discount from US list pricing) into your sales channel diagram and apply all mark-ups to arrive at the projected hospital sales price. This price is compared to the prevailing market price.

STEP #4: Formulate Your Market Launch Strategy

The relationship of “projected sales price” to “prevailing market price” is a key determinant of market launch strategy design in Japan.

Projected Sales Price > Prevailing Market Price

  1. Forge Ahead (without adjustments) – Companies that have a projected or actual market price higher than prevailing market price and/or reimbursement rates are swimming upstream. It is possible to get sales and distributor interest, but difficult to maintain. This can be the largest contributor to poor sales performance and lack of distributor interest.
  2. Lower Your Transfer Price – The fastest way to achieve a market price at or below prevailing market price is to lower your international transfer price. However, this may be at odds with expectations that Japan should be a high-profit market, certainly the highest in Asia.
  3. Squeeze Your Distributor’s Margin – Often a common first consideration is to request distribution partners to decrease their mark-up in order to achieve a more desirable market price. While this approach can be successful, in the long run, it will tend to decrease distributor focus, which is an important factor to sustained success.
  4. Remove Links from Your Distribution Chain – One of the most effective ways to lower sales price without adjusting transfer price or demotivating the distribution channel is to eliminate the national distributor and their mark-up, which is typically 100%. To do this, distributor responsibilities must be redistributed to other parties. For example, the foreign manufacturer can contract market authorization holder, packaging manufacturing and even Importing responsibilities to independent providers and then sell products directly to regional distributors. In this case, demand creation and possibly service support would be absorbed by regional distributors, who would increase their mark-up to account for these responsibilities.
  5. Apply for Higher Reimbursement – Manufacturers of medical devices with new technology or new applications may apply for a new reimbursement code. By design, rates established for new codes are to be “generous” relative to the current reimbursement levels for similar products or treatments, the manufacturer’s cost for bringing the therapy to market, or the price of the product in foreign markets. It should be noted that the application processes for a new reimbursement code can be onerous and time-consuming, but well worth it in many circumstances.

Depending on the gap between projected sales price and prevailing market price, manufacturers may pursue more than one of the options above at the same time.

Projected Sales Price < Prevailing Market Price

A more attractive set of options is available if your projected market price is lower than the prevailing market price.

  1. Keep Low Market Price – In situations where there is high price elasticity in demand and the goal is to achieve high market share or sales volume, you may decide to keep your market price as low as possible.
  2. Increase Distributor Margin – In situations where distributor focus and effort are critical to sales success, you may consider lowering your transfer price (and raising your market price slightly) to increase distributor margin, or fund programs to incentivize the distribution network.
  3. Increase Transfer Price – A third option is to increase your transfer price to your distributor to increase your profit margin in Japan. This option is particularly attractive in situations where price elasticity for demand is low and distributor focus is assured.

Manufacturers that make the effort understand the distribution chain for their device in Japan will have a variety of market launch options to consider and will have a significant advantage over competitors that are locked into traditional distributor search.

Contact Asia Actual with questions for assistance to determine you market price and sales channel strategy assistance.

In future posts we will address non-price related influencers on distributor interest and market demand such as clinical efficacy, novelty, etc.

Medical Device Sales in Asia

29 countries in the Asia Pacific sales region do not have a national medical device regulatory review system.

Asia Pacific Sales Region – Medical Device Registration Systems:
44 countries
3.74B people
$31B device market
29 countries without regulatory review systems
15 countries with regulatory systems
9 countries with reference country approval requirements
Note: hospital purchasing managers in these countries may require products to have home or reference country approval.