“Netflix for Doctors” | H.E.R.O. Issue 20, 25 January 2021

Be Stronger, Wiser & Kinder By Participating in the Quiet Innovators' Quest to Purpose

“Netflix for Doctors” | H.E.R.O. Issue 20, 25 January 2021

January 24, 2021 Uncategorized 0

Where do doctors, surgeons, oncologists and medical professionals go to learn about the latest medical practices and information? In Japan, they have formed a habit to sign into their Netflix-like paid-subscription account to stream thousands of fun and useful video programs by leading lecturers who are active at the forefront of clinical practice explain information useful in actual clinical practice in an easy-to-understand manner.

For 5,000 yen (~US$48) per month, they can choose and learn from a wide range of medical educational content from primary care to specialized fields for improving clinical skills, as well as "premium" video content from a variety of genres that can be streamed, including specialist exam preparation. More than 1,900 programs are distributed on the website, and about 10 new programs are updated every month. Many doctors, residents and medical students use it for exam preparation and qualifications because they can acquire the latest medical information more efficiently than learning on their own using specialized books. Due to the coronavirus which resulted in the increase in workload and cancellation of conferences and group training, many residents and medical students have been deprived of clinical training opportunities, and they are using their Netflix-like account to watch livestreaming videos of lectures by leading doctors.

In the fall of 2019, this innovator added new videos that combine surgical video content in the breast cancer field with related information held by the pharmaceutical company (tests, pharmacotherapy, reconstructive surgery and other related information, etc.) and interview videos with doctors. There are about 2,800 specialists in the mammary surgery field in Japan, of which 2,300 are members. The company has also added surgical procedure video channels for other cancer species that include ethnological cancer, stomach cancer, colorectal cancer, hepatobiliary pancreatic cancer, urological cancer, lung cancer, etc.

In April 2020, this innovator extended its #1 market leadership in acquiring one of the largest video media platforms in Japan, and expanded its content and membership base in the oncology field, including further developing its online medical education services by producing and selling VR content. Only the movement of medical staff in the operating room and the video content of the surgical procedure were used, but in the future, the movement of medical staff in emergency medical care and home medical care sites will be featured in VR and produced as educational content. With the advent of the 5G era, medical content services are poised to develop production and distribution of surgical simulation content that make full use of VR technology.

Very few companies produce educational content for doctors, and this innovator is in an overwhelming position in track record and quality. This innovator is also one of the largest Facebook-LinkedIn-like online platforms in Japan that provides various medical information and job change support services to doctors and medical professionals, connecting them to pharmaceutical companies whom it provides pharmaceutical marketing and sales support services called e-Detailing and content production services. The company is the #2 leader with 360,000 registered medical professional members, including over 180,000 physician members (FY2019: 150,000) which cover over 50% of the total number of doctors in Japan, trailing the #1 market leader M3 Inc (2413:JP), another of our portfolio company, with over 280,000 registered physician members. Cross-synergies between the company's Netflix-like medical content services business (for doctors) and the Facebook-LinkedIn-like pharmaceutical sales support e-detailing business (for pharmaceutical companies) are expected to increase as membership and subscribers increase, especially in the e-promotion sales orders for new drugs in the cancer field.

This week, we highlight one of our portfolio companies, "Japan's Netflix-Facebook-LinkedIn for Doctors", which is up +6.5% during the week (18 to 22 Jan 2021). This rising dividend-yielding highly profitable and cashflow generative innovator has also compounded almost 13-fold in capital gains in the recent five years vs MSCI ACWI World index +77.4%. It had earlier reported strong 3Q2020 results on 12 Nov 2020, in which sales rose 70.9% yoy, operating profit jumped 257% yoy, with operating margin improving from 20.5% to 42.9%. It also revised its full-year profit upward by 2.1 times, further increasing the previous record profit forecast for the fourth consecutive year. Tokio Marine Insurance group has recently became a strategic shareholder and business partner with a stake of 5.13% in Dec 2020, and the partnership aims to develop new healthcare services and insurance products that make full use of data and technology.

E-detailing in Japan is unique, accounting for up to 90% of all e-detailing activities worldwide. Demand for e-Detailing is high for busy physicians who require timely information at their convenience, without the limitations imposed by their off-line MRs (medical sales representatives). Doctors spend the most time collecting information via the Internet. Conversely, pharmaceutical firms spend the majority of their budget (92%) on MR related costs – and Japanese pharmaceutical firms’ huge marketing cost of 1.5 trillion yen (US$14 billion) is not sustainable. The marketing budget allocation of drug companies in Japan towards internet is still underpenetrated at only 2%.

The company's online platform is characterized by its richness of highly specialized and high-quality content. The company differentiates by focusing on e-promotion projects for specialty pharmaceutical drugs that require high-cost and strict distribution control, such as anticancer drugs, autoimmune treatment agents, vaccines, and rare disease treatment agents, and its business strategy is to expand high-quality content as a medium for specialists to increase media value and increase orders from pharmaceutical companies. In the wake of the coronavirus pandemic, the sales measures of pharmaceutical companies are expected to accelerate the digital shift from physical sales MR (medical representatives) to e-Detailing and web conferences. Notably, as the center of new drugs launched in the pharmaceutical industry shifts from primary pharmaceuticals (for lifestyle-related diseases) to specialty drugs (for cancer and rare diseases), sales will increase for the company, given its focus on and strength in e-promotion services of specialty drugs.

The Community & Network effect of its online platform is also expected to increase exponentially with the growth of members, content and new services. Pharmaceutical companies usually sell their products after a person in charge of pharmaceutical information called MR (medical representative) meets with a doctor and provides various pharmaceutical information. The company's main service MRPlus is a platform that allows doctors and MR in charge to exchange information while delivering videos of pharmaceutical information to doctors through the Internet, and will support the productivity improvement of MR's sales activities. Since doctors who deliver information become registered members on the website, expanding the number of members will increase the value of MRPlus. In order to increase the number of members, the website includes medical content useful for doctors and medical professionals, including videos, patient guidance, guideline explanations, overseas papers, and the latest medical news.

The continuous launch of new innovative services by the company is enhancing value to and increasing stickiness of its members. For instance, in June 2020, the company launched a mobile app for web conferences in the specialty pharmaceutical field. The company also launched a new business "Medical Industry Succession Support Service“ to address the problem of the absence of successors. In addition, the company launched a Zoom-like digital communication tool, developed specifically for use in the medical field with an easy-to-use user interface for users, and since it often handles high-definition photos and image information, it has features such as a function that allows participants to share smoothly and a function that allows discussion in both directions.

In October 2018, the company opened a new media for specialists called Doctors' Picks.com, where doctors such as KOL (Key Opinion Leader) and YOL (Young Opinion Leader) who are specialists in their area select medical information scattered on the Internet (academic conference presentation papers, etc.), and share it by commenting with explanations and opinions. The collection of highly specialized medical information enables member physicians to gather information efficiently and to deepen their understanding of information by touching other doctors' comments. In June 2019, the company released an iOS version of the app to improve convenience. It is already used by many specialists mainly in the oncology field, and it is a strategy to differentiate itself from competitors by activating the media by enclosing high-quality KOL and increasing the number of specialist members.

In July 2018, the company entered into a business alliance with infrastructure platform services provider V-Cube (3681:JP) and a venture company to expand into remote intensive care support by specialists, and plans to jointly develop remote intensive care solutions nationwide. Intensive care specialists are required because a wide range of medical knowledge is required, but the number of specialists is overwhelmingly insufficient in Japan. There are about 1,100 intensive care rooms nationwide, of which about 300 have 5 to 10 intensive care specialists, but the remaining 800 are covered by doctors who do not have specialists and are not specialists. As a solution to eliminate such unbalanced supply and demand, the company will promote the introduction of a remote intensive care support system. Even if an intensive care specialist is absent when the patient's condition changes suddenly, appropriate treatment can be directed from a remote location via a video communication system, and the patient's condition deterioration can be avoided. In the U.S., where the spread of "remote intensive care" is leading the way, 20% of the total ICU rooms have already established a system of "remote intensive care", and it has led to the reduction of medical expenses, reduction of ICU mortality rate for critically ill patients (decrease of 11.7%), reduction of average length of stay in ICU (decrease by 0.63 days). It is likely to spread in Japan as the shortage of doctors continues. There are high expectations for future growth as a solution that will lead to eliminating regional disparities in medical care and saving the lives of many critically ill patients

Since the Ministry of Health, Labour and Welfare's (MHLW) Guidelines for Drug Sales promotion came into effect in April 2019, the company has experienced an increase in demand for its online disease awareness and education services in the field of specialty medicine. In disease awareness, the company is expanding the contents of its service that was launched in July 2016 which mainly targets the specialty pharmaceutical field, and is a promotional measure that responds to the needs of pharmaceutical companies that want specialists to learn about disease areas related to newly released drugs, foster a sense of expectation, and prepare for prescriptions. Although it is a promotional measure that is generally popular in Europe and the United States, demand was sluggish because the culture of selling and promoting sales without giving the company's product name did not grow in Japan, until the new MHLW Guidelines for Drug Sales Promotion came into effect in April 2019.

The  H.E.R.O.'s Journey with Purpose Quotient (PQ) started in July 1996 when Chairman and CEO Mr. O, who was formerly a hospital manager, founded the firm to provide medical information to physicians, using satellite communication broadcasting initially. Subsequently in 2000, the company opened a free membership website for doctors and medical professionals, and launched a marketing research service. In November 2001, it launched its current mainstay pharmaceutical sales support service.

Founder Mr. O shared the company's philosophy and mission: "Medical care in Japan is supported by clinicians in the field who work tirelessly every day at the forefront. Since our founding, our mission has been to provide accurate and high-quality clinical medical information in a timely manner to help clinicians who continue to study and learn every day. We will continue to improve and grow as a medical media platform, maintaining the idea that improving the quality of clinical practice is the most important for each patient and from the viewpoint of national medical care. Our philosophy is for our company to contribute to the achievement of a society where patients can have higher quality medical care more efficiently. For this purpose, we will distribute information, such as evidence, knowledge and experience, on medical science and pharmaceuticals, and support the intellectual activities of medical professionals utilizing cutting edge information technologies, so that medical professionals such as doctors can make the best decisions."