Japanese biotech: A Midwestern perspective

24 Sep Japanese biotech: A Midwestern perspective

Just back from the Bio-Japan 2007 annual conference (the ninth to be held) held last week in Yokohama, Japan! Yokohama is the main port city to Tokyo, Japan’s largest city, but it is much more than that in biotechnology terms.
Yokohama, according to Wikipedia, represents the largest deep-water port in Tokyo Bay, although back in feudal Japan it was just a small fishing village. Yokohama’s status changed in 1853 and 1854 when U.S. Commodore Matthew Perry, with a fleet of U.S. warships, arrived just south of Yokohama and demanded that Japan open up its ports to foreign trade. As a result, the Japanese ruler decided that Yokohama was to be the initial port opened to foreign traders on June 2, 1859, and quickly became the largest trading port in Japan.
Many foreign companies set up their Japanese headquarters and offices early in the 20th century in Yokohama, and while today this has largely shifted to Tokyo, a large foreign presence is still visible in Yokohama. Besides shipping, Yokohama’s main businesses are semiconductors and biotechnology. While at first this did not seem to be a logical site for Bio-Japan 2007, its appropriateness became evident during the meeting and after some research.
Although I have spent good chunks of my life in Japan during 1987 and 1991, with many follow-up trips over the years (probably over two dozen in total at this count), I had never been to Yokohama before. In addition to being the site of this year’s Bio-Japan meeting, Yokohama was of special interest to me, as my paternal grandfather Jules Rosen, according to family lore, arrived in Japan and Yokohama in 1918 representing various U.S. department stores as a “buyer.” Grandfather Jules became so enamored of Japan that he founded his own silk trading company called Dai-Ichi (meaning Number 1) Raw Silk Corp. of America with a U.S. office on One Park Avenue in New York City.
According to the Japanese External Trade Organization (JETRO), the Japanese biotech market is the second largest in the world with annual revenues in 2005 of $15.3 billion. This level is projected to rapidly grow to $217 billion by 2010. Japanese biotech strengths are in the following areas: gene analysis, recombinant DNA, protein engineering, bioinformatics, and genomic drug creation. Of the projected revenues for 2010, $73 billion (or 34 percent) will be in medical care-related products, $46 billion will be in bio-tools and information (21 percent), $55 billion in food/agriculture (25 percent), $37 billion in environment/energy (17 percent), with the remaining three percent in other areas. It is estimated by JETRO that by 2010, 30 percent of all Japanese drug approvals will be for biotech drugs (up from six percent in 1996).
In 2001, Japan launched an Industrial Cluster Plan that focused on the development of 17 zones in Japan; of these, eight regions focus on the development of biotechnology, so this industry has become a national priority.
The growth of biotechnology is fueled in large part by the rapid aging of the Japanese population and concern about health, but also a decline in its traditional Pharma industry which, except for the top 10 to 15 companies, failed to internationalize and depended heavily on the local market for revenues. Those Japanese Pharma companies that did internationalize are growing quickly (Takeda, Astellas, Eisai, Daiichi-Sankyo, etc.). As I have mentioned in earlier article, M&A has begun to shake up the traditional Japanese Pharma market, whether it is by foreign companies acquiring Japanese companies or mergers between Japanese companies, and more are expected.
Numbers game
JETRO states that the Japanese biotech market has grown from 387 companies in 2003 to 531 companies in 2005 (although the Japanese government states that 1,364 companies have been created, it is not clear how many have survived). Ernst & Young’s annual report on Asian biotechnology for 2006, shows there are 738 companies in all of Asia, 137 of which are public and 601 are privately held. Given the number of companies in Asia, China, Singapore, and Taiwan, it would seem that the number of real Japanese biotech companies is much lower than attributed to by JETRO.
Likewise, the government has set a target of having 100 Japanese public IPOs by 2010, meaning that they would have at least 20 to 25 per year. I have not seen any evidence that this IPO trend has, in effect, happened. During Bio-Japan, I had the opportunity to talk to a few Japanese biotech CEOs, and it seemed that the IPO market was very tough there (sound familiar?), as was raising money due to the dearth of Japanese VCs. Again, Ernst & Young’s annual biotech report on Asia states that there has been a biotech IPO drought since 2005.
To incentivize the development of new drugs and medical devices, the Japanese regulatory agency, Koseisho, has created a “fast track” mechanism for approval of both drugs and devices for which there is a substantial medical need. Additionally, the government has allowed for a faster review-approval process of drugs that have already been approved in major Western countries.
One area of differentiation from U.S. biotech is in the area of “functional foods” and genetically modified foods, which are expected to generate about $30 billion in annual revenues by 2010. By the beginning of 2006, there were 569 food products approved by the government which bear the label: “foods for specified health use.”
Some of the major biotech clusters are:
• Kinki Bio-cluster, including Kobe Medical Industry City, Saito International Cultural Park City (outside of Osaka), and Harima Science Garden City.
• Kanto Bio-cluster, including Yokohama Science Frontier, Kazusa Academy Park, which includes the DNA Research Center (in Chiba Prefecture), and Greater Nagoya Initiative.
• Chugoku Region Industrial Cluster.
• Kumamoto Area Cluster.
• Fuji Pharma Valley (Shizuoka Prefecture).
• Hokkaido Bio-Industrial Cluster.
• Kagawa Carbohydrate bio-cluster.
• Kitakyushu Bio-cluster.
• Kyushu Bio-cluster.
• Miyazaki Industrial Cluster.
Bio-Japan
As official number for this event were not available when I left Japan, so it is hard to say how successful this meeting was. But it is clear that it is the largest meeting in Asia and growing in importance. Some stats from last year’s meeting that hopefully will be met or broken by this year’s meeting:
• 13,680 attendees.
• 383 attending companies (118 foreign) in 303 exhibit booths from 16 countries.
There were various U.S. states that had exhibits or a presence at the conference, of which Illinois had perhaps the largest booth, including Alabama, South Carolina, New York, Pennsylvania, Missouri, Arizona, Kansas, Mississippi, North Carolina, Georgia, and Virginia. Of the Midwest, only Missouri and Illinois (and Kansas) were present; last year had a big Minnesota contingent, including the mayor of Minneapolis, that was absent this year.
While the U.S. had many states there, surprisingly the U.S. Pavilion area was not particularly attractive or inviting. With the exception of Illinois, most of the exhibits were pretty meager and paltry. By comparison, Australia, France, the U.K., New Zealand, Switzerland, Taiwan, Canada, etc. had much more attractive exhibit areas. This is surprising given the importance of biotechnology in the U.S.
Of major Pharma or biotech companies, Baxter had a fairly large exhibit – very close to Illinois – and Roche had one of the largest exhibits. Other major international companies present were: GE Healthcare, Wyeth, Boehringer Ingelheim, and Banyu Pharmaceuticals/Merck. Why this is all good, it was surprisingly light in major international life science companies.
Likewise, participation by major Japanese Pharma companies was also very light. Present, however, were the following non-traditional Japanese life science companies: Ajinomoto, Fujitsu, Hitachi, Japan Tobacco, Meiji Seika, Riken, Takara Bio, and Wako Chemicals.
So was this a successful meeting? Well, it is clear that the Japanese government has a strong commitment to this industry, although Japanese Big Pharma doesn’t seem to be paying a lot of attention to it (at least at the BIO-Japan conference). This is strange as most Japanese companies need new products to support their bare product portfolios, especially at a time when there is a lot of pressure on them from the government.
The bottom line is that the Japanese Pharma (drug) market is the second largest national market in the world. There are now 10 Japanese Pharma companies in the top 50 Global Big Pharma companies. Yet last year the Japanese Pharma market had negative growth. The Japanese government carried out special drug-price reductions in addition to the ordinary reduction of National Health Insurance drug prices.
The government also encouraged the specific use of generic drugs by implementing new supportive measures. It is projected that the Japanese Pharma market, according to MedAd News in its latest edition, estimates that at best the Japanese Pharma market will grow one to two percent in 2007.
Thoughts on Bio Japan
Getting back to my original question, the meeting was held in a stunning location, the Yokohama Pacifico Convention Center overlooking Yokohama harbor, with an array of ultra-modern and appealing buildings around it. Yokohama, itself, seems to be reinventing itself, both architecturally and by industry (including biotechnology).
Next year’s meeting will be held once again in the same place. This meeting certainly didn’t feel like a 13,000 person meeting (nor did last year’s), but it was generally well run. In contrast to the U.S., there seems to much more university involvement in the meeting (as well as the Japanese Bioindustry Association).
At the annual global bioconference that the BIO organization hosts every year in the U.S., American and European Big Pharma have caught on to the need to be very visible at this conference. Surprisingly, its Japanese Big Pharma counterparts have NOT caught on to this importance yet.
See you soon!
Previous articles by Michael Rosen
• Michael Rosen: The cost of doing biotech business: Midwest cheaper than the coast, but not by much?
• Michael Rosen: Midwest nanotechnology whittles away at top states
• Michael Rosen: Where have all the “Searlies” gone? How transplanted employees shape a tech industry
• Michael Rosen: Venture capital flows to Midwest life sciences at record rate
• Michael Rosen: Nano prominence: Midwest doesn’t take back seat to coasts