Director and senior executive officer of Terumo Corporation and managing director of Terumo Asia Holdings, Hideo Arase recounts key takeaways from working in the US medtech market, the unique M&A opportunities he sees in Asia—especially as a pathway for bridging access to care in developing countries—while highlighting how Terumo can contribute to society beyond solely supplying a product.
Can you provide our readers with some insight on your background and how you came to oversee the group’s operations in Asia?
“[Asia-Pacific] is a region that is especially difficult from a compliance and governance perspective.”
I joined Terumo in 1977 and had the immediate opportunity to accumulate work experiences across the entire Asia Pacific region in countries such as Singapore, Thailand, Taiwan, Philippines, and Hong Kong.
My second expatriation was at our European headquarters in Belgium, and after spending a few years there, I then moved to France to develop our intervention business for Europe.
I was eventually promoted to president and chairman of Terumo Europe, overseeing all aspects of our operations including cardiac and vascular, blood component technologies (BCT), and general hospital. By the time I left Europe in 2009, our business had grown by a CAGR of 16 percent, with revenues expanding from EUR 40 (USD 45) million to roughly EUR 200 (USD 223) million, CAGR 16 percent, in the span of 10 years.
After spending two years back in Japan leading our global cardiac and vascular business, I moved to Brazil and took on the challenge of turning around our business in Brazil.
My career then led me to the United States for the subsequent three years, invoking a more supervisory capacity—governing and supervising the nine different subsidiaries under the Terumo Americas umbrella.
I was then moved to Singapore to pursue a similar role, but overseeing our Asia Pacific operations instead, as this is a region that is especially difficult from a compliance and governance perspective.
Within the realm of medtech, the US is often seen as the ultimate development assignment for managers of multinational companies. What lessons can you draw from the three years that you spent there?
Indeed, the US has oftentimes set the industry tone for quality standards and innovation. In the short time that I spent there, I was able to come up with three overarching conclusions.
Firstly, in the US, and perhaps more so than anywhere in the world, it’s absolutely imperative that product outcomes meet a certain need in the market, else there’s simply no room for penetration and growth.
After product outcomes, what has been truly notable is the emphasis on clinical evidence, and the increasingly crucial role it plays in demonstrating the value of an innovation in the face of payers, providers, and patients—eliciting many medical device players including Terumo to respond accordingly. For us, product development has been primarily been undertaken by our R&D teams. But now they only account for a third of development process, with regulatory affairs and clinical studies comprising the remainder.
Lastly, my time spent in the American market surely validated the gradual emergence of value-based healthcare, and the growing demand and expectation for products that provide both clinical and economic value. This trend is perhaps driven by policy changes and healthcare reforms such as Obamacare that have introduced significant pricing pressures across the board. Consequently, more and more are healthcare institutions becoming cognizant of the value they receive from an innovation—especially in relation to the paid price—and the perceived benefits to patients.
How do these learnings then apply to a region as fast growing and dynamic as Asia?
Asia Pacific includes countries like Australia, New Zealand, and Singapore—all exhibiting the same levels of development and maturity as the US, and thus calling for a similar approach.
But when it comes to the more underdeveloped countries, however, there are varying weights associated with the three pillars of business development: product performance, relationship with customers, and price competitiveness.
In India, for example, price is an extremely significant consideration. On the other hand, in countries like Thailand and Indonesia, quality relationships are critical, and establishing these relationships requires a lot of time, energy, and resources.
As such, Terumo has been shifting from a product-centric strategy to also encompass relationship building. And of course price is always a major consideration factor when operating across emerging Asian countries, prompting us to adjust our strategies accordingly.
Outside of Japan, how would you characterize the growth potential of this region?
A large majority of Terumo’s business is still largely focused on the United States and Japan. However, both of these markets are quite mature, exhibiting relatively minute growth and significant pricing pressures from the governments, payers, and even customers themselves.
In Asia Pacific, there’s a rapidly aging population, coupled with a burgeoning middle class and expanding levels of purchasing power—collectively driving the demand for safe and effective medical technologies.
Currently, cardiac and vascular and general hospital are our two primary drivers, with each segment accounting for approximately 45 percent of our business. Blood management comprises the remaining 10 percent, mainly because of the limited markets, which encompasses mainly blood centers.
Obviously the companies that are able to stay ahead in the industry are the ones that continually innovative—a core objective for Terumo. Which products are you personally most excited to introduce to this region in the coming years?
Currently, our flagship product is the Ultimaster® Drug-Eluting Coronary Stent, which employs the next generation of science and medical engineering to facilitate faster and efficacious vascular repair. This is a unique product that can truly improve patient outcomes in many countries across Asia.
We also have several products pending in the pipeline, including the regenerative therapy for heart failure patients. And we’re constantly assessing opportunities within this region to introduce more of such high-value technology—particularly in the areas of cardiology, and cancer.
Leveraging your experiences in this region, what factors do you have to take into consideration to ensure a successful product launch in Asia?
In order to truly achieve our mission of contributing to society, we employ a segmentation strategy when launching new products. Asia Pacific covers a few highly developed countries such as Australia, New Zealand, and Singapore, which entails more traditional pathways, as well as many more emerging countries that encompass the majority of the regional population.
For the latter, we will aim to collaborate with local partners to help bring costs down and ultimately enable more access to care for patients—one the biggest challenges in emerging Asia—while of course maintaining the quality standards that the Terumo brand is known for. Domestic manufacturers have the added advantage of holding technologies and channels that are specifically tailored to local needs, which is further complemented by our longstanding expertise and capabilities, especially on the production side.
What education and training initiatives has Terumo undertaken to enhance the skills of healthcare practitioners around the region?
In Japan, we’ve established the Terumo Medical Pranex, a state of the art simulation facility for medical training and education. Up until recently, this facility is primarily been used to train Japanese healthcare practitioners, but we’ve since begun extending the scope to doctors across the greater Asia region.
In the near future, we would like to establish similar sites in various countries across the region, as the more doctors that are aware of our products and know how to use them, the bigger the market. In line with these ambitions, we will aim to work with stakeholders in Japan—both in government and industry—to collectively develop the necessary infrastructure to expand the medical device industry for Japanese players in the region.
We see that M&A has been a key driver behind the group’s development within the US market. Has this has been the preferred entry route in some of these more underdeveloped Asian markets or has the group taken a more organic approach?
Traditionally, and common of many Japanese players, Terumo has chosen a more organic route, driving business and scientific development independently. Recently, M&A has one of the key factors for business development, from both a commercial and innovation standpoint, but primarily in the US.
However, the Western mentality and fruitful demand for high-end value and features simply does not align in developing countries, particularly here in Asia, where many places are struggling to even meet basic medical needs, let alone eliciting funds for premium products.
On the business side, Japanese companies tend to be quite risk-averse to VUCU (volatility, uncertainty, complexity, and ambiguity)—characteristics inherent across Asia, a region home to over half of the world’s population. But in order to effectively tap into that potential, we have to see the reality: the mass market will not buy high-end products.
That being said, local producers in these countries are not enough to meet the needs in this region—both in terms of quality and volume—placing a unique opportunities for multinational companies like Terumo to bridge this gap. That’s why I’m a big proponent of open innovation, and partnering with local companies who are already familiar with the dynamics and needs of their respective markets.
M&A is also not expensive here in Asia. In the US, we’ve conducted from USD 100 million to USD 2.5 billion worth of transactions. We announced to acquire with a neurosurgical company valued at nearly USD 400 million in June 2016. Here it’s probably max USD 10 million.
As you stated, Terumo is committed to “contributing to society.” How can the company achieve this mission beyond just providing a product?
The core of our efforts obviously focus on manufacturing and supplying, but at the same time, we can also support our customers for more services-based solutions—particularly in the realm of IT, which can allow widespread connectivity among and yield valuable data and insights for the providers and users alike.
The conceivable applications of IT are endless, and all of the channels can help improve patient outcomes. For example, through such technologies we could potentially help reduce wait times in rural China from three to five hours to maybe less than 30 minutes or help patients connect with the nearest general clinic in a highly fragmented market like Indonesia.
We are of course not an IT specialist, but we possess a lot of knowhow in the medical technology and hospital arena, giving us the ability to forge unique collaborations with conventional and unconventional partners to improve the quality of life for patients in this region.
What factors lead Terumo to choose Singapore as its regional base, as opposed to Japan?
Despite its characterization as an Asian country, Japan’s healthcare market is much different than the dynamics exhibited in other markets across Asia, especially in terms of regulatory frameworks, clinical affairs, demand drivers, and overall way of thinking.
Singapore’s well-established infrastructure, proximity to neighboring countries in the region, and widespread availability of high-caliber talent collectively enable us to more quickly respond to arising opportunities, adapt to market changes, and maintain close relationships with our customers.
What will your priorities center on in the next three to five years?
The overarching goal in Asia is to position Terumo as number one in customer satisfaction. Beyond just supplying quality products, I would like to align ourselves closer with our customers’ demands—which have expanded tremendously beyond just product functionality over the years and into information, education, and services.
For example, Terumo recently partnered with the Mexican government to enhance the skillsets of local doctors intervention systems, which can create significant cost savings for hospitals and payers alike if employed correctly. We invited a host of young doctors from Mexico to Japan and held a forum to facilitate training, knowledge transfer, and sharing of best practices. So, beyond commercial targets, one of my personal objectives in the coming years is to translate such an initiative to the Asia Pacific context, which really just finds in line with Terumo’s dedication to satisfying patient needs and enabling customer satisfaction.