RegulationLaws and regulations
What are some of the primary laws and regulations governing or implicated in healthcare-related business combinations? Are healthcare assets subject to specific regulation that would be material in a typical transaction? Is law and regulation of healthcare national or subnational?
The Companies Act is the main law governing business combinations in many kinds of industries because it regulates and governs stock corporations and some forms of stock corporation combinations such as mergers, company splits, and share exchanges. Additionally, the Act on Securing the Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices (the PMD Act) is the primary law that regulates pharmaceuticals and medical devices businesses.
On the other hand, the Medical Care Act is the primary law governing healthcare providers. For-profit organisations such as stock corporations are not allowed to own or operate healthcare providers. Instead, healthcare providers are most commonly established as non-profit medical corporations regulated and governed by the Medical Care Act.
The laws and regulations above are generally national. However, that processing periods and detailed procedures may vary depending on the prefectures in, for example, the case of obtaining a new manufacturing licence.Consents, notification and filings
What regulatory and third-party consents, notifications and filings are typically required for a healthcare business combination?Pharmaceuticals and medical devices companies
A person intending to run a business relating to medicinal products or medical devices will need one or more licences under the PMD Act including, among others:
- marketing licence;
- manufacturing licence; and
- sales licence.
A marketing licence is required for a company to manufacture, by itself or by outsourcing to a third party, or to import pharmaceuticals and medical devices, and then sell them. A manufacturing licence is needed for each business establishment that manufactures pharmaceuticals and medical devices on commission but does not sell them by itself. A holder of a marketing licence who manufactures products by itself also additionally needs a manufacturing licence for each manufacturing establishment. A sales licence is required for each selling establishment that sells pharmaceuticals and certain medical devices. A pharmacy can also sell pharmaceuticals to general consumers, but a licence to establish a pharmacy is required.
In addition to a marketing licence, a company that intends to market pharmaceuticals and class two or higher medical devices must also obtain a marketing approval from the Minister of Health, Labour and Welfare (MHLW) for each product. However, a company that intends to market class one medical devices needs to only notify the Pharmaceuticals and Medical Devices Agency.
When shares of a pharmaceuticals or medical devices company are sold in a business combination, generally, since the company holding the licence or approval will not change, no notifications or filings before the completion of the transaction are required to maintain the licence or approval.
In the case of mergers, company splits or business transfers, the surviving company in a merger, the succeeding company in a company split or the transferee in a business transfer (each, the successor company) cannot succeed to the marketing licence, the manufacturing licence or the sales licence. Therefore, if the successor company does not have any of these licences, then it must obtain new licences. Moreover, even if a transaction is made between holders of marketing licences, the successor company must get new manufacturing licences or sales licences for each business establishment because these licences are required not for the company but for each of its business establishments.
The successor company can take over the marketing approval for each pharmaceutical and medical device through a merger, a company split or a business transfer, but it must notify the MHLW or PMDA, as applicable, no later than one month before the effective date of the transaction. In addition, the successor company in a company split or a business transfer must receive documents and information relating to quality, efficacy, safety, and other required information for the products to succeed to the marketing approval. However, as a general rule, the successor company cannot succeed to a marketing approval that is in the process of a partial change review or that is not more than one year after approval.
Regardless of the method of business combination, there are other things to keep in mind when the name of the entity operating the pharmaceuticals business is changed. The name and address of the marketing licence holder must be described on the actual container or wrapper of the pharmaceuticals, pursuant to the PMD Act, and in practice are written on package inserts. Therefore, when the name of the marketing licence holder changes or the marketing licence holder itself changes after or due to a business combination, the successor company must change the aforementioned descriptions in the containers, wrappers and package inserts before making any shipment of pharmaceuticals.
As for third-party consents, major business contracts, such as licence contracts and distributorship agreements, often contain change of control provisions and require the consent of the other party.
A person intending to establish hospitals or clinics needs a licence under the Medical Care Act. In addition, hospitals or clinics require a designation from the MHLW as medical institutions covered by health insurance under health insurance laws such as the Health Insurance Act and the National Health Insurance Act to claim health insurance reimbursement in Japan.
In the case of a merger or a company split under the Medical Care Act, the licence to establish hospitals or clinics and the designation as a medical institution covered by health insurance can be transferred. However, the surviving medical corporation in the merger or the succeeding medical corporation in the company split must also obtain the authorisation of the prefectural governor for the merger or company split to take effect.
In the case of a business transfer, the transferee medical corporation cannot succeed to the licence to establish hospitals or clinics and the designation as a medical institution covered by health insurance. Therefore, it must obtain a new licence and designation for each of its hospitals or clinics. However, even if the transferor medical corporation has no problem in operating the hospitals or clinics in the past, the prefectural governor may refuse to grant the new licence, in the case where the number of hospital or clinic beds in the area where the transferee medical corporation is located has reached the target number of beds set by the MHLW.Ownership restrictions
Are there any restrictions on the types of entities or individuals that can wholly or partly own healthcare businesses in your jurisdiction?
The governor of the prefecture may choose not to grant a marketing licence, a manufacturing licence or a selling licence for pharmaceuticals and medical devices if the applicant is disqualified under the PMD Act. The main causes for disqualification include the rescission of a licence of the applicant in the past. There are no restrictions on foreign investment in pharmaceuticals and medical devices companies in Japan.
In the case of medical providers, for-profit organisations such as stock corporations are not allowed to own or operate hospitals or clinics. In addition, for-profit organisations are prohibited from being a member of or having equity interests in medical corporations.Directors
Are there any restrictions on who can be director of healthcare businesses in your jurisdiction?
The causes for disqualification of directors are the same as those of licence holders. Incidentally, it is necessary for the holder of a marketing licence for pharmaceuticals or certain medical devices to appoint a pharmacist in a specific official position under the Medical Care Act. For example, it must appoint a pharmacist as a marketing director, as defined by the Medical Care Act, to provide quality control and post-marketing safety control.
In the case of medical providers, any person who has been sentenced to a fine or a more severe punishment pursuant to the Medical Care Act or any other laws and regulations concerning medical practice may not be a director of a medical corporation. The head director of a medical corporation must be a doctor or a dentist.Operating outside the home jurisdiction
What domestic regulatory issues might arise for a company based in your jurisdiction operating healthcare businesses in other jurisdictions?
Under the Medical Care Act, when holders of marketing licences for pharmaceuticals or medical devices learn of the occurrence of any disease, disability or death suspected to be caused by the side effects of the pharmaceuticals or medical devices that they manufactured and sold or received approval for, they must report the occurrence to the MHLW. Even if the disease, disability or death occurs in jurisdictions other than Japan, they must report the occurrence to the MHLW if it exceeds a certain level. Therefore, holders of marketing licences must establish a mechanism to collect information on the safety of the products from all over the world.
The export of pharmaceuticals does not require a licence or permission if the pharmaceuticals will be distributed outside Japan in their original form without any change. However, if any change will be made to the containers, wrappers and package inserts, including adapting the Japanese description to a local language, the pharmaceuticals will be considered as having been manufactured for export, and a manufacturing licence under the PMD Act is necessary.Cross-border acquirers
What domestic regulatory issues arise when the acquirers of healthcare businesses are based outside the jurisdiction?
In general, the Foreign Exchange and Foreign Trade Act (the Forex Act) requires an ex post facto report to the relevant ministries via the Bank of Japan for certain foreign investments, for example, the acquisition of 10 per cent or more of shares of listed companies or the acquisition of shares of unlisted companies from domestic investors.
However, the Forex Act requires prior filing with the relevant ministries via the Bank of Japan for certain limited investments involving particular areas of businesses such as manufacturing vaccine. In that case, an investor may not make the investment for a period of 30 days after the acceptance of the application by the Bank of Japan. The waiting period is customarily shortened to two weeks from the acceptance of the application.
In the case of investments in healthcare providers, for-profit organisations such as stock corporations are not allowed to be members of, or have equity interests in, medical corporations.Competition and merger control
What specific competition or merger control issues may arise in healthcare business combinations?
There are no typical and material competition or merger control issues specific to healthcare business combinations.State and private healthcare combinations
Are there any differences for healthcare business combinations if the transaction relates solely to businesses servicing private clients rather than state-funded clients?