A Med-Tech Shopping List For Japanese Companies

by: Stephen Simpson, CFA

Outside of pharmaceuticals and "big iron" applications like imaging, Japanese companies haven't made much impression on the U.S. healthcare market. That may be changing, though. As Japan faces its own aging population and companies look to diversify from traditional industries, healthcare is becoming an increasingly popular sector in corporate Japan.

It's still too soon to call it a real trend, but Japanese companies have recently shown an inclination towards accelerating their diversification by buying established U.S. med-tech names. Asahi Kasei recently announced a $2 billion-plus deal for ZOLL Medical (NASDAQ:ZOLL), while a few months earlier Fujifilm stepped up to buy SonoSite (NASDAQ:SONO). Though not exactly comparable, Terumo (a Japanese healthcare and device company) acquired CaridianBCT for over $2 billion early in 2011 to strengthen its position in the global transfusion equipment market.

With Japanese companies apparently willing to pay up for American growth and market share, who else should investors consider as potential take-out plays?


Volcano is one of the rare American med-tech companies for whom Japan is a major market, as Japan as been quite willing to accept intravascular ultrasound (IVUS) as an aid in angioplasty procedures. Although IVUS adoption in the U.S. and Europe has been sluggish, fractional flow reserve (FFR) is off to a much more promising start and Volcano is seeing very good growth here despite competition from St. Jude Medical (NYSE:STJ).

Volcano would offer an established angiography/cath lab player like Toshiba an entryway into the disposable device market, but would also work as a standalone subsidiary.

Nxstage Medical (NASDAQ:NXTM)

Dialysis is an essential life-sparing therapy for people with kidney failure, but costs and other practical constraints limit how often patients can get the therapy they need. Nxstage Medical's System One is a small, portable hemodialysis system that can be used in a hospital or clinic setting or in the home of the patient. Not only does the System One include a semi-permanent "device", but also a disposable/consumable cartridge and premixed dialysate.

Although the Japanese dialysis market is significant, Japanese companies like Asahi Kasei, Nipro, Fuso have had less success in addressing the North American and European dialysis markets and the acquisition of Nxstage Medical could offer something of a bridge for those companies.

Given Imaging (GIVN)

Imaging is one of the relatively few areas where Japanese healthcare companies have established a global presence. Although Given Imaging's swallowed camera capsule systems are a considerably different animal, the higher incidence of GI disorders in Japan would make it a logical fit. The company already has a distribution agreement with Fujifilm for Japan, and Olympus has attempted to enter this market as well, so it is not as though this is a completely unfamiliar product or company to the Japanese market.

Although the Given PillCam approach doesn't lend itself to biopsies, it's a more comfortable diagnostic for patients. With the company looking to launch a product targeted at the colonoscopy market, Given's PillCam could be a solid growth product for many years. Although Given Imaging derives much of its revenue from the U.S., it is headquartered in Israel.


Cancer is hardly ignored in Europe or North America, but it is a major market in Japan and a matter of considerable public concern. Consider, for instance, the fact that cancer insurance policies are almost unheard of in the U.S., but have been popular in Japan for going on 20 years now.

Accuray offers some interesting technology for radiation oncology, including the more traditional TomoTherapy products and its innovative CyberKnife system. Accuray has done a good job of addressing TomoTherapy's problematic service business, but the marketing leverage that could be offered by a large (and deep-pocketed) buyer could give a significant boost to the adoption rate of its systems.

A Handful Of "Others"

Other companies that offer differentiated proprietary products and reasonable growth include Cyberonics (NASDAQ:CYBX), Insulet (NASDAQ:PODD), and DexCom (NASDAQ:DXCM) and any of these could be targets for Japanese companies looking for easily digestible med-tech buys.

That's not to say that bigger fish couldn't find themselves targets as well. Japanese investors and analysts do not impose the same penalties on companies that diversify outside of their historical core businesses as Western investors tend to, so a large number of sizable Japanese companies could have the means and the motive to look at larger companies like St. Jude, Boston Scientific (NYSE:BSX), CareFusion (NYSE:CFN) and so forth.

The Bottom Line

Nxstage, Volcano, Insulet, and DexCom are not exactly cheap today, but that does not necessarily discourage a buyer who sees a deal as a keystone to a long-range diversification plan. In all cases, however, investors should not pony up and add these names simply because they could attract a buyer. While a buyout certainly offers a nice lift to almost any position, investors should do their research and make sure that they could live with any of these names on their own merits and on a standalone basis.

Disclosure: I am long ARAY.