Japan: Where medical miracles are waiting to get out of the lab

April 8, 2013, 11:20 AM UTC

FORTUNE — The world’s first sterilizable, flexible organic transistor; mobile apps that can measure your pulse just by imaging your face; X-ray machines that capture not just bone but cancer tissue, too. These are just a few of the technologies being developed in Japan now, where an industry has grown around the world-beating longevity of the country’s people. So why don’t we see ”Made in Japan” stamped more often on medical instruments or other products in the medical field?

The answer, according to some pundits, is the so-called Death Valley Syndrome. In other words, Japanese innovation, full of vitality and promise at the R&D level, rarely makes it across the perilous divide between research and commercialization. Japan is “good at technology but poor in business” as one official who declined to be named puts it. “Its high levels of basic research and superior technology are hampered by too-strict regulations, vertically integrated administration. And the gap between researchers and manufacturers is, in many cases, preventing brilliant R&D results from being put into practical use — the ‘Death Valley’ problem.”

Practicing some of the highest levels of innovation, professionalism, and care seen anywhere, Japanese medicine so far has been famously under-exploited. As a result, Japan’s imports of medicines and medical equipment trounces exports. The country’s medicine imports exceeded exports by about 1 trillion yen last year. That is something the newly elected government, led by Shinzo Abe, means to fix immediately.

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In February, Tokyo announced that it would establish an Office for Health Care and Medical Strategy charged with getting some of Japan’s exceptional but languishing R&D efforts to market. The office aims to establish Japan as the most advanced in medical technologies and health care services in the world. The P.M., so sure of the potential strength of the sector, has made it one of the “three arrows” of his so-called Abenomics policy plan to revive Japan’s flagging economy. The government aims to “develop the medical sector, pharmaceutical products, and medical devices and equipment as strategic industries that will form a key pillar for Japan’s economic revitalization,” says chief cabinet secretary Yoshihide Suga who launched the health care office last month.

In addition, deregulated areas, such as a large stretch of coast that straddles Tokyo’s neighboring cities, have been designated special zones dedicated to getting innovation out of the labs and into the hands of private companies. Tax breaks and government funds are available to labs and firms in the region. Strict regulations that apply elsewhere in Japan on medical trials are looser here, say officials

So far the deregulated zone has made it possible to develop an advanced surgery simulator that allows inexperienced doctors to perform simulated surgery training, virtually, without the need for human guinea pigs. Other companies have jointly developed an ultrasound kit miniaturized for home use. Clinical trails at home were made possible because the site, Yokohama, now falls outside Japan’s regulated zone that would ban home use.

Japanese medical technology is also to be aggressively marketed abroad, says Hideaki Nakagaki, a director general of the Office of Health Care Policy. “There is a huge market here for health, longevity. We were looking at the domestic market, but now we will be focusing on overseas sales, too.” His committee should have concrete policies on this subject by summer, he adds.

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With over 22% of Japan’s population already aged 65 or older, and much of the developed world following suit, businesses are finding remote monitoring gadgets, among others, are a better bet than consumer electronics in a care technology market worth well over a billion dollars annually. With an eye on this growing market, large trading firms such as Marubeni are stepping in to market devices such as wearable health monitors. Even car parts manufacturers are choosing the medical field as a promising alternative to Japan’s incredibly shrinking market for its vehicle part products.

Nagoya-based Asahi Intecc has transformed itself from manufacturing wiring for cars into a global leader in catheters and guide wires used in today’s advanced surgery techniques. Such stainless steel wires and catheters now make up 90% of the former auto parts business, with the firm currently distributing its medical devices to 85 countries. “People ask me why Asahi chose the most challenging areas such as circulatory organ and cranial nerve [applications], but innovative devices cannot be created without taking risks,” company President Masahiko Miyata told Medtechinsider.com in an interview.

Such risk-taking in Japan is rare. And while the Asahi story is not exceptional, there are indications it will take more than government polices to productively tap Japan’s innovation genius. Previous attempts led by one of the country’s leading scientists on behalf of the state ended in disaster recently with his resignation. Given no budget or authority, Prof. Yusuke Nakamura resigned from his post after less than a year. He blamed the intractability of various turf-defending ministries. “Nobody in Japan is thinking about the nation’s medical services comprehensively,” says Nakamura, who is currently a professor at the University of Chicago, in an interview with the Yomiuri newspaper. “Japan is quickly falling behind other countries.”