Things have only really gotten going in terms of contract manufacturing in Japan since 2005, when the Pharmaceutical Affairs Law was changed to allow Japanese license holders to outsource 100 per cent of the manufacturing of drugs, bringing Japan in-line with Europe and North America, where as before the rule stipulated that at least part of the process had to be conducted in-house. Robert Kamphuis from Japan's largest dedicated contract manufacturer, Bushu Pharmaceuticals told Outsourcing-Pharma.com on a recent site visit that the law had previously been a major stumbling block for license holders to outsource because their mentality was often "if they are required to conduct part of the process in-house, they might as well keep the whole process in-house." Six months after the law change however, Kamphuis said Bushu's business began to increase steadily. Still, Japanese contract manufacturers are usually only asked to jump in at the manufacturing stage, with Japanese firms still choosing to make around half the active pharmaceutical ingredient (API) themselves in-house. This compares to a figure of as high as 90 per cent for Europe and North America. Figures from a survey conducted by a Regional Industry Group last year show that around 30 per cent of Japanese companies make their APIs in-house or source them from within Japan, while only 7 per cent source them from overseas and 44 per cent do a mixture of both, with the majority sourced from inside Japan. Europe is the most common place that a Japanese firm will look to source an API, followed by China, then to a lesser degree, North America, India, Korea, South East Asia and Latin America. Japanese companies are lately starting to venture outside their borders more in terms of ingredient sourcing, although Bushu president Takayuki Kasai said that companies are generally testing the waters first by sourcing intermediates before APIs as the intermediates are the least impacting on the drug. International firms are now stepping up their focus on cracking the lucrative Japanese domestic market, ranked second in the world to the US. Cost is not the country's drawcard when it comes to international manufacturers, but the market in Japan is so unique that the role of Japanese contract manufacturers is highly important to international players looking to do business there. This is because Japan is unique in the pharma industry in that it has the most stringent expectations in terms of quality and cleanliness in the world and anything less than perfection is simply not tolerated. Kamphuis said that because of this there are challenges for products entering Japan that are acceptable to a global market but do not pass Japanese quality and specification standards. This is where Japanese contract manufacturers have a role to play - assisting international firms with producing a product that is in line with what Japanese consumers expect on a cosmetic level. "Japanese people think that appearance is representative of quality. This is not necessarily true in terms of pharmaceuticals, but it is the perception," said Yoshiaki Taniguchi, another Bushu spokesperson. Kamphuis added that because of this there are a high numbers of complaints from pharmacists, doctors, consumers etc. over drugs manufactured outside Japan that may have cosmetic flaws that would be overlooked outside the country. Recalls of foreign-made products are also higher because the basis for a drug recall in Japan is much stricter than anywhere else. For example, a hair in a drug package would trigger a lot recall in Japan where as anywhere else this would not be considered necessary. The general rule is that if a foreign material found in a drug or packaging is living or it has been living, the product is recalled. "International companies wanting to sell their product in Japan often have a hard time coming to terms with the quality perception in Japan. I always try to explain to them that their product is not bad or harmful in any way, it is just that it is not up to the strict Japanese cosmetic standards," said Kamphuis. "The Japanese strive for perfection." However, contract packaging is where the majority of work is currently coming from, as it is extremely difficult for foreign manufacturers to package products appropriately for the Japanese market. Meanwhile, the contract manufacturing industry in Japan is still young and very much growing. The market size was last valued at 220bn Yen in 2004. The projection by Yano Research Institute is that it will more than double to 520bn Yen by 2009. Currently there are around 100 companies that conduct contract manufacturing but the majority of these do so on the side of their own commercial operations, particularly generics firms. Only around 10 firms are dedicated contract manufacturing organisations (CMOs), and these include Bushu Pharmaceuticals, Akiyama Jyozai, Toyobo and more recently MP-Technopharma, Mochida Pharmaceutical Plant, Tanabe Seiyaku Yamaguchi. The majority of these have been spun out of large parent drug manufacturers.