Tremors triggering a quake, which struck about 250 miles north of Tokyo, followed by a colossal Tsunami, wreaked havoc on the people of the “Land of the Rising Sun” on March 11, resulting in massive carnage and destruction.
The catastrophe, which is believed to have already claimed at least 10,000 lives (mostly in the northern port of Sendai) with tens of thousands still missing, has entered the book as the largest ever in the island nation’s recorded history.
Japan in Dire Straits
While the human casualty is enormous, the calamity has struck a major blow to the nation’s ailing economy. The Japanese economy is forecast to slow down in 2011 (projected GDP growth of 1.3% versus 3.9% in 2010) as political instability continues to weigh on the country’s economic prospects.
Moreover, following the violent quake, it might become difficult for the Japanese government to curb its galloping budget deficit and massive debt (at roughly 200% of GDP!), as the money will mostly flow on rebuilding initiatives, considering the scale of damage brought about by the killer Tsunami. As such, at this moment Japan is in double jeopardy.
Although the Japanese government is grappling with the mammoth rebuilding task, including steps to ease the monetary policy and a hefty emergency funding of roughly $184 billion from the country’s central bank, much is left to be done. The Tokyo stock market crashed on March 14, the first trading day following the Friday’s temblor, on looming concern over the economic impact of the debacle. Darkness has fallen on the rising sun.
MedTech Perspective
As the nightmare continues to haunt the Japanese people and the nation’s attempt to recover from the “Friday Fury,” its impact on the medical devices industry may conceivably be substantial. Japan, the third-largest economy in the world, is the second-largest medical devices market after the U.S. It accounts for roughly 45% of the medical devices industry in the Asia-Pacific.
The aging population represents a major catalyst for demand of medical devices in Japan. The rising elderly population (persons 65 years and above), local manufacturing constraints and increased incidence lifestyle diseases including cardiovascular diseases, diabetes and hypertension trigger the need for advanced medical technology from the west.
The roughly $25 billion Japanese medical devices sector has been an extremely successful market for American medical devices firms. U.S. firms account for roughly 60% of all imported medical devices products in Japan. Traditionally, the U.S. has consistently enjoyed a sizable trade surplus in the Japanese medical devices sector.
The largest exporters include medical devices heavyweights such as Johnson and Johnson (JNJ), Boston Scientific (BSX) and Medtronic (MDT). These firms continue to discern opportunities in leading edge medical products including pacemakers, stents, orthopedic implants, catheters and diagnostic imaging equipment.
While the market for U.S. medical devices remains healthy in Japan, the U.S. firms have been facing both pricing and regulatory headwinds. The Japanese government regulates medical devices under the Pharmaceutical Affairs Law (“PAL”) through the Ministry of Health, Labor and Welfare (“MHLW”).
A more stringent regulatory environment coupled with implementation of cost containment measures and healthcare reforms (resulting in lower price and/or reimbursement cuts) has added a degree of uncertainty for the overseas firms.
U.S. MedTech giants such as Medtronic, Boston Scientific and St. Jude (STJ) have major exposure to the Japanese medical devices sector. Other key players such as Abbott Laboratories (ABT), Covidien (COV) and Stryker ( “>SYK ) have established a foothold in this lucrative market. Many of these players derive sizable revenues from their Japanese operation.
In an effort to solidify its presence in Japan, Boston Scientific recently struck a deal with Japanese distributor Fukuda Denshi to sell its cardiac rhythm management (“CRM”) devices. The company, which booked revenues of $968 million from its Japan unit (located in Tokyo) in 2010, is expected to launch its new stent systems (PROMUS and TAXUS Element) in the country over the 2011-2012 timeframe.
As for MedTech kingpin Medtronic, Japan represents one of its three biggest medical devices markets. Likewise, St. Jude reckons Japan as one of its largest geographic market outside the U.S.
Abbott Labs, with just over $2 billion in sales derived from Japan in 2010, leads the country’s drug eluting stent (“DES”) market with its Xience V stent. Orthopedic devices giant Stryker stated that higher sales in Japan contributed to its hip, trauma and surgical equipment product sales growth in 2010.
Thus, it remains to be seen how long the impact of this horrific disaster on the struggling and debt ridden Japanese economy will last, which only time will tell. Nonetheless, the impact will likely be felt beyond the pulverized Japanese northeastern cost to a broad spectrum of industries (including medical devices) as it may lead to a disruption in the global supply chain with Japan being a crucial link.
ABBOTT LABS (ABT): Free Stock Analysis Report
BOSTON SCIENTIF (BSX): Free Stock Analysis Report
COVIDIEN PLC (COV): Free Stock Analysis Report
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
MEDTRONIC (MDT): Free Stock Analysis Report
ST JUDE MEDICAL (STJ): Free Stock Analysis Report
STRYKER CORP (SYK): Free Stock Analysis Report
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