Issue Date: August 5, 2013
Japan Retools Drug Research
The stock price of Takeda Pharmaceutical increased by almost 40% in the four months after the U.S. Food & Drug Administration approved, in January, the company’s new treatment for type 2 diabetes. The approval was somewhat unexpected because FDA had twice rejected the drug in the five years since Takeda submitted its first application.
FDA’s approval of the Takeda drug, alogliptin, was one of a string of successful U.S. launches for Japanese companies. In 2012, Astellas Pharma and Eisai each received FDA approvals for two novel pharmaceuticals. And this year FDA gave the green light to a treatment for menopause symptoms discovered by Noven Pharmaceuticals, a subsidiary of Tokyo-based Hisamitsu Pharmaceutical. Like Takeda’s stock price, Japan’s drug R&D engine—flagging in recent years—appears to be recovering.
Success is never guaranteed in the high-risk endeavor of researching and developing new pharmaceuticals and putting them on the market. But Japanese firms started to reform their approach to R&D several years ago to improve their odds of successful drug launches. The efforts appear to be beginning to pay off. And this renaissance is occurring at a time when biotech firms are sprouting in a country notorious for being inhospitable to high-tech start-ups.
“We are close to recovering from our patent cliff,” says Hiroyuki Kato, Eisai’s executive director of portfolio strategy and strategic operations. The patent cliff he refers to is the loss of $3 billion in annual revenue his company suffered in 2010 when U.S. patent protection expired on the Alzheimer’s drug Aricept. Eisai is bouncing back through the launch of Halaven—a cancer treatment—in 2010, with last year’s launch of the epilepsy drug Fycompa, and by licensing foreign drugs to sell in Japan, Kato says.
In 2012, Japanese drug companies lost patent protection on products that had recorded sales of $6.1 billion in 2011, according to IMS Health, a life sciences industry consulting firm. Sales actually shrank by only $2.3 billion last year, but IMS expects the impact to grow in coming years.
The struggle that Japanese drug companies are facing resembles that of their counterparts in Europe and the U.S. that have also lost the fat margins generated by marketing billion-dollar-plus patented drugs. One difference is that Japanese companies have not resorted to mass layoffs of R&D staff to improve the bottom line. That decision could benefit productivity in the years ahead as the R&D engine revs up again.
As part of their effort to come up with a new generation of moneymakers, Japanese firms are attempting to end the isolation in which their researchers have traditionally worked. Major companies have internationalized their research activities, either by setting up new labs or acquiring companies. Most spectacularly, Takeda acquired the U.S. oncology firm Millennium Pharmaceuticals in 2008 in a $9 billion deal.
And whereas Japanese drug firms used to keep almost all their R&D in-house—and still harbor a preference for doing so—they are now more likely than in the past to outsource projects to contractors in China and India, or to team up on research projects with other companies. For instance, Astellas announced in May that it will work with the U.S. biotech firm Amgen to develop new drugs for the Japanese market. And last year Takeda initiated a multiyear collaboration with the Indian drug discovery firm Advinus Therapeutics.
“As Japanese companies diversify their portfolio and expand into new therapy areas, they realize that they need outside support, at least until they can build a more solid in-house team,” says Alan Thomas, director of client relations at the Tokyo office of IMS Health.
Eisai provides an illustration of the changes under way at Japanese drug companies. It has aspirationally renamed its R&D organization Product Creation Systems. “One goal of the renaming is to make the minds of researchers focus on new product launches,” Kato says. The change, implemented in 2009, is aimed at achieving shorter drug development times.
Product Creation Systems seeks to develop products that Eisai can launch globally and sell through its own channels. In the past, Kato explains, Eisai typically worked with foreign partners on international sales while the company focused on Japan. This has changed. “The Japanese drug market—the world’s third largest after the U.S. and Europe—is huge, but our first priority is the global launch of new drugs,” Kato says.
A general trend among major Japanese drug companies nowadays is to directly manage their international sales. “If you look at how much smaller Japanese drug companies were 10–15 years ago, you understand why they tended to out-license their products outside Japan,” IMS’s Thomas says. “But given the investment that Japanese companies have made in expanding their global sales presence, they’re less likely in the future to license out their new drugs.”
In addition to the renaming, Eisai has abandoned a site-oriented research model and reorganized R&D along global lines under which researchers, wherever they may be, are grouped together depending on the type of work they perform. The units to which clinical and nonclinical researchers are attached may be focused on certain types of diseases, such as cancer, or technology areas, such as the study of biomarkers. “The structure integrates the best features of bioventures but without the problem of having to operate hand to mouth in terms of project funding,” Kato says.
The 2009 reorganization has sharply internationalized Eisai’s R&D efforts. Among Eisai’s 11 senior R&D managers, four are based in Japan and seven in the U.S. Six of them are Japanese nationals. “Under the new structure, oncology people work together, whether they are based in Japan, the U.S., or the U.K.,” Kato says.
The globalization of R&D activities is a fundamental trend among major Japanese drug firms. Even Chugai Pharmaceuticals, a company that has been majority-owned by the Swiss drug giant Roche since 2002, is expanding its R&D internationally although it could just rely on Roche to supply it with new products to market in Japan.
Last year, Chugai, which employs about 400 researchers in Japan, opened a second R&D facility in Singapore, this one to conduct research on antibodies. Chugai, notes spokesman Hitoshi Aikawa, is interested in launching its own drugs across the globe.
As Eisai, Chugai, and other Japanese firms boost their ability to tap innovation all over the world, Japan itself is becoming a more fertile ground for homegrown science. Eisai recently acquired the oncology market rights to a compound under development by Prism Pharma, a biotech start-up located in Yokohama, a city adjacent to Tokyo.
Called PRI-724, the Prism compound completed its first phase of clinical trials in the U.S. in November 2011. The compound inhibits certain protein-protein interactions that are responsible for cancer cell proliferation, according to Prism’s chief executive, Hiroyuki Kouji. Prism is working in a difficult area that has inspired a lot of research—mostly resulting in failure—at major drug companies. PRI-724, Kouji believes, also can be effective in applications besides cancer.
Prism’s primary contacts have been Eisai people based in New Jersey, says Kouji. “Dealing with Eisai has been like dealing with a U.S. drug company,” he says. “The drug development function of major Japanese drug companies is now usually based in the U.S. because it’s much easier to conduct clinical trials there.”
Kouji created Prism in 2006 when he left the Japanese chemical manufacturer Asahi Kasei. Whereas he wanted to continue researching protein-protein interactions, Asahi promoted him into a headquarters position, he recalls. “Asahi was not interested in oncology, and I was not interested in management,” he says.
It’s unusual for employees of large companies to strike out on their own in Japan. “It’s really difficult to abandon the power of the business card, the respect you get from presenting a business card from a major company,” Kouji says. Ignoring his colleagues’ advice to stay with Asahi Kasei, he established Prism in a business incubator between Tokyo and Yokohama that provided the infrastructure for setting up a chemistry laboratory. To minimize costs of operation, Prism outsources much of its research work to contractors in China.
Prism is 50% owned by DBJ Capital and Innovation Network of Japan, a government fund. The other half of the company is in the hands of venture capital firms and individuals, including Prism founders. In June, Prism raised $15 million in new capital, mostly from Japan, to initiate clinical trials of PRI-724 in non-oncology applications such as fibrosis.
“We could have attracted venture capital in the U.S.,” says Dai Takehara, Prism’s chief financial officer. But there’s a trade-off, he adds. “U.S. investors are more knowledgeable about life sciences and therefore more likely to get involved in the day-to-day running of the company.”
By Japanese standards, a “biotech boom” has taken place in Japan over the past five to eight years with the emergence of a handful of companies similar to Prism, says Shinichi Koizumi, a director of the drug discovery firm RaQualia. Although the venture capital market in Japan is far less developed than that in the U.S., “the research environment is excellent in Japan owing to the availability of instrumentation and experts,” he says. Several Japanese biotech firms have successfully executed initial public offerings (IPOs), he says. RaQualia itself was listed on the Osaka Securities Exchange in July 2011.
RaQualia was created in 2008 after an employee buyout of a Pfizer R&D facility near Nagoya that the U.S. giant had announced it would shut down. From 70 people at the time of the closure, R&D employment at the site has grown to about 100, Koizumi says. Before its IPO, RaQualia survived through private equity funding from investors both in Japan and abroad. “We would like to be an example to others that it is possible to operate a successful biotech firm in Japan,” he says.
Mostly focused on gastrointestinal diseases, much as it was in Pfizer’s days, RaQualia has a plan to complete early-stage discovery work and then license out its preclinical drug candidates to larger companies. “We can license out at any stage of the discovery and development process,” Koizumi says. “But our strengths lie in the discovery part.”
RaQualia collaborates on research projects with several major drug companies, both Japanese and foreign. But the foreign ones, Koizumi observes, appear to embrace the concept of external collaboration more readily than the Japanese ones do. “It’s not natural for a Japanese drug company to outsource its drug discovery function,” he says. “It feels more comfortable for the Japanese firms to acquire, much like Takeda did when it bought Millennium.”
At Eisai, portfolio strategy manager Kato asserts that the company is eager to collaborate with start-up firms, be they located abroad or in Japan. He points to Eisai’s current work with Prism in oncology. “Compared with companies from abroad, Eisai has an advantage in terms of its ability to access breakthrough medical research coming out of Japan,” he says. “But there aren’t at this stage that many start-up firms to work with in Japan.”
Chugai’s Aikawa notes that his company won a prize from the Japanese government in 2009 for developing the immunosuppressive drug Actemra in a successful collaboration with Osaka University. Chugai initiated its development of the drug, primarily used to treat rheumatoid arthritis, on the basis of breakthrough research done by Osaka professor Tadamitsu Kishimoto in the 1980s.
The changes taking place in Japan’s drug research community are very much a work in progress. But luck comes to those who help themselves. By taking a decisive stab at breaking down the insularity that used to characterize drug R&D in Japan, Japanese companies are trying to improve the odds that they will routinely launch new drugs on the international market. Their performance with FDA this year and last suggests that they are succeeding.
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