Healthcare

July 2002

The nation's leading pharmaceutical companies have taken a much more hands-on approach to intellectual property, working to get a handle on the true value of such assets and strengthening the systems for efficient management. They intend to use this knowledge of the real value of their intellectual property both strategically and for investor relations. Simultaneously, the drug makers have taken a more cautious approach in their sharing of patented technology and know-how with foreign entities so as not to be involved in infringement suits and cases of industrial espionage. Takeda Chemical Industries Ltd. is now studying different ways of calculating the value of its intellectual property and intends to make its assessment method public next fiscal year. It also plans to draw up a table of intellectual property revenues and expenditures, including licensing fee payments and revenues. Kyowa Hakko Kogyo Co. already discloses "future assets" calculated under the assumption that drugs under clinical trials will be commercialized and generate revenues for 20 years. It is also studying ways of adding such patented assets as antibody technology to these figures. To protect themselves against lawsuits and charges of spying, the firms have begun re-evaluating their contracts to use genetic samples for research purposes. They have also called on employees studying abroad to be much more careful. In fact, Sankyo Co. has instructed personnel not to send any research information electronically without the academic institutions' approval. (July 26, the Nihon Keizai Shimbun)

Major drug makers are aiming to outsource production of pharmaceuticals to other firms and to focus on research & development, in anticipation of the enactment of a revised Pharmaceutical Affairs Law. The revised law will allow drug makers to sell drugs they have developed even if they do not have production facilities, separating development-focused companies from those specialized in manufacture. Large drug makers are seeking to scale back domestic production and spin off their production divisions, while smaller firms lacking sophisticated R&D capability are moving to meet the increased outsourcing demand. The trend will likely involve both domestic firms and foreign companies operating in Japan, creating the possibility of an industry-wide shakeup. The current law requires drug companies to sell medicines that they produce in large part at their own factories to ensure product safety. The new law will make it possible for companies to entrust production entirely to outside firms. Taiyo Pharmaceutical Industry Co. is installing the most advanced production equipment to tap demand for outsourcing from other firms. It plans to invest a total of 10 billion Yen in land, buildings and equipment in fiscal 2001-2002, expecting to generate 2.54 billion Yen in sales in fiscal 2002 and 4.58 billion Yen in fiscal 2004 from outsourcing operations. Meguro Chemical Industry Co. has already won outsourcing orders from more than 100 drug firms, and is mulling expanding facilities at its factory in Shiga Prefecture. Growing outsourcing demand reflects the desire of major firms to concentrate resources on development of new drugs. Yamanouchi Pharmaceutical Co. is exploring the possibility of outsourcing production of most of the 200 or so drugs in its lineup, excluding its 10 mainstay products for treating digestive and urinary disorders. Takeda Chemical Industries Ltd. plans to concentrate on output of prescription drugs such as anticancer medications at its factory in Yamaguchi Prefecture, while terminating operations at its Kanagawa Prefecture plant by the end of fiscal 2005. Meanwhile, it will outsource production of influenza medicines to a subsidiary. The outsourcing trend will benefit foreign drug makers. Pfizer Pharmaceutical Inc.　is currently running its Nagoya factory at near-full capacity, and has entrusted some output to Taiyo Pharmaceutical Industry. (July 24, the Nihon Keizai Shimbun)

The government must pave the way for biotechnology industry. Japan has been lagged behind in this key industry for so long that it is now far outdistanced by the U.S. and Europe. Moreover, China and Singapore are rapidly narrowing the gap with Japan. The government belatedly took steps to address the situation, as Prime Minister Koizumi summoned seven ministers and 12 business and academic leaders to his official residence for the first meeting of the biotechnology strategy council. Koizumi instructed the group to map out by a game plan by the end of the year that will thrust Japan into the global lead in biotechnology. The plan will include steps the government must take to help biotech firms leverage genetic engineering and other cutting-edge technologies to turn a profit and become formidable global players. The move is a long-awaited step involving cross-ministry cooperation to improve Japan's status in this crucial arena. The most heated battle is being fought in the field of pharmacogenomics, where drug development is combined with genetic analysis. In the U.S. and Europe, legislation has been enacted to secure efficient DNA sampling, an essential process for research in this field, by protecting private information and preventing any links between personal DNA data used for research and life insurance contracts. Both the U.S. and Europe have five times as many biotech startups as Japan, while big drug companies have been bulking up through mergers and acquisitions to gain the financial muscle needed to make huge investments in research & development. The newly created pharmaceutical titans are already producing, and marketing in Japan, a new generation of drugs and treatments, including effective anti-cancer drugs with minor side effects. To promote biotech industries, the government should remain behind the scenes. Its primary role should be to improve systems and infrastructures to ensure the private sector can perform without obstruction. The traditional rivalry among ministries competing for budget outlays for the research institutes under their jurisdiction threatens to destroy the entire effort. If the government is to play a more visible role, it should be for basic research. At the same time, Japanese pharmaceutical firms, which have so far not been active in the M&A game, need to build up their endurance and technological base to compete with major Western rivals. (July 19, the Nihon Keizai Shimbun)