Toyokezai interview with Barry Thomas, Vice President Cook Medical Asia Pacific October 12, 2012 [Translated

d Article]
http://www.toyokeizai.net/business/interview/detail/AC/07d6584648a36482452bfd2a5f 6a19aa/page/1/

Every year, over 30 million people worldwide develop peripheral arterial disease. The adhesion of lipids causes the arteries to narrow, limiting the flow of blood, and as the disease progresses, gangrene can develop in the feet, leading to amputation of the lower extremities. The main risk factor is diabetes, with hypertension, atheromatous disease (arteriosclerosis) and hypercholesterolemia forming contributing factors. The new stent, used in the treatment of such arterial blockages in the thighs, has been approved for insurance coverage beginning in July. The American medical device manufacturer who developed this new product, Cook Medical, applied for manufacturing and sales approval simultaneously in Japan and America. The application was approved in Japan in January of this year, in advance of the United States. According to the company, this represents a groundbreaking step in the resolution of device lag (the phenomenon that medical device approval in Japan lags behind that in Europe and America).

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We spoke with Cook Medical Vice President Barry Thomas (Director, Asia Pacific Vice President, Cook Incorporated) while he was in Japan about trends in the Asian medical device market and his opinions on the device lag. -- How is Cook Medicals performance in the Asia Pacific region? It is the region in which the company has seen the most rapid growth. The region into

which we first expanded was Australia, in 1979. In 2007, we established our Asia Pacific regional headquarters in Brisbane, Australia. In 2002 our net sales in the region were 50 million dollars, whereas last year they had expanded to 303 million dollars. This year we are expecting a further increase to 405 million dollars. At present we sell our products in 135 countries, but 20% of the total is represented by sales in the Asia Pacific region. -- Does China lead the increase you are seeing in the region? Actually, no. At present, after the United States, Japan stands out above the rest in second place. Stent grafts (a product comprising an artificial blood vessel with a stent applied) and drug eluting stents (DES, stents that are coated with a drug to prevent blood vessels from re-clogging) are becoming a major driving force. The approval of a stent graft used in the treatment of thoracic and abdominal aortic aneurysms is another factor behind our growth in income. The fact that we do not make use of general sales agents, and have switched to selling directly to resellers throughout Japan has also helped increase our earnings. -- Your stent for the expansion of thigh arteries has been approved in Japan ahead of the United States, but there are still many indications that the problem of the device lag in Japan has not yet been resolved. The manufacturers also probably bear some responsibility for causing the device lag. What we have learned from gaining approval this time is that it is necessary to research what exactly Japans Pharmaceuticals and Medical Devices Agency (PMDA), the regulatory authority in question, is looking for and fully understand those requirements in advance. However, when a review continues over a long period of time, gaps can appear between the initial specifications under which the product was developed, and the actual product that goes on the market in Japan. In such a case, it becomes necessary to redo the data and perform new studies (clinical trials for the purpose of gaining approval under the Pharmaceutical Affairs Act). This ends up taking a lot of time. It is also true to say that it now takes time to get approval from regulatory authorities not only in Japan but throughout the world. This is true for the U.S. Food and Drug Administration (FDA). The same also applies in China. Regulatory authorities are facing pressure to ensure that their decisions are correct and they are becoming reluctant to take risks. As a result, the requirements on manufacturers are becoming stricter. As a company, we need to begin an open and effective dialogue with authorities while

submitting an application. At the same time, it is also important for us to understand our consumers. That also contributes to the resolution of the device lag. -- Some say that clinical studies in Japan are too long, and research costs are too high. I have been told that the existence of so many small hospitals tends to inflate the operating costs. On the other hand, based on the national push towards medical expense reduction, reimbursements are on a downward trend. It seems likely to me that foreign medical device manufacturers entering the Japanese market will face more challenging business conditions in future. Every business and indeed every country is facing change. The era of low development costs is over. Our company, too, must work hard as a business. For instance, there have been cases in which we have asked the Ministry of Health, Labour and Welfare and the PMDA to accept Japanese ex-patriots as valid study subject cases. The fact that such approval was given for trials of the new stent allowed us to acquire data globally.. There is currently a movement emerging to collect data for medical devices in post-marketing surveys, rather than getting all the data before approval and sale. After market release, study subjects can include many patients who requested treatment using the product in question. Its performance in the true sense is then reflected in the data, which is of benefit to patients. Once a product has gone to market, manufacturers can also start to record profits. That income can be assigned to post-marketing surveys. Increasing medical fees is a problem shared by all countries. Because the cost to market for some products is too high, it is very unfortunate, from the manufacturers point of view, but they end up being shelved before release. Patients also lose out on the chance to benefit from good products.

The size of the Chinese medical device market is estimated at 250 million people -- Tell me about sales in China. An economic slowdown is emerging; wont this affect the medical device market? Under Chinas 5 year plan, the government is promoting development of healthcare, and in comparison with other industries, the medical industry is in an advantageous position. While it is true that the pitch of economic growth has lessened, the middle class is growing, and the need for access to healthcare is growing. Our Chinese business is showing a growth

of 24 ~ 25%. The Chinese medical device market targets around 250 million people. Development is impossible if you follow the views of Wall Street. The position that depressed sales in Europe should be offset with expansion in China is a mistake. It should be positioned as a separate case. When considered on a 5, 10 or even 20 year time span, it is certain to grow into a truly massive market. -- I hear from Japanese medical device manufacturers struggling in China that the reseller policy is a challenge. China is a unique market. Business techniques and ways of dealing with resellers that have developed in other countries do not translate. This is something that can be said not only for Japanese manufacturers, but also for those from the United States and Europe. What is important in China is Relationships. Their society moves on the basis of who knows who, and the relationship they have. The management of our Chinese base is carried out entirely by Chinese people, and we have instituted the full-time post of Government Relationship to deal with the central government and regional governments. Other Japanese businesses do not deal with this issue so thoroughly. There are many rules and regulations in China, and Japanese businesses tend to think that Rules are rules and think that they cannot avoid those restrictions. In contrast to this, the Chinese way of thinking is that The law is law, but.... In conversation, there is also the tendency to leave things at Never mind that now. Business takes time. Meeting, eating and greeting are the same (they take time). For the Chinese, business does not end when a deal is decided. Business in each country has characteristics unique to the region. Japan is also the same. Business related communications may be sent by fax, whereas in Australia email would be normal. Theres no point in thinking, Why send it by fax? and getting annoyed. -- I hear that when selling medical devices in Japan, it is important to take care of key opinion leaders (KOLs) that can affect the introduction of devices at hospitals. Would it be fair to say that in China, there are KOLs in the central government and regional governments?

Absolutely, yes. KOLs are not restricted to the field of medicine, but also exist in government medical departments. The other day, the Minister of Health, Labour and Welfare was among those visiting our booth at a conference held in Beijing. Contacts and connections are important. -- What is the outlook for sales in the Asia Pacific region? Conservatively, within 5 years we should be able to reach sales of 800 million dollars. The Asia Pacific Region currently includes 9 countries, but it will expand to 15 countries. Sales in the region this year will probably exceed those in the European region for 2007. Next years sales are expected to exceed those for Europe in 2010. The new market we are focusing on is Indonesia. We have formed a 4-person task force, and are considering our future plans for expansion. The size of their population is attractive. They are also blessed with natural resources, and thanks to that their medical field is looking better and better. The fact that it is close to Australia is also beneficial for us. We also have great hopes for Vietnam. The pace of their growth is slow in comparison with Indonesia, but their middle class is growing, and healthcare is a very attractive field. Barry Thomas joined Cook Medical in 2001 from Johnson & Johnson Medical. At present, he is also the managing director of Cook in Australia. (Interviewer: Yasuhiro Matsuzaki = Toyo Keizai Online)

[Original Article]
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