Having lived in Japan for more than 20 years, I have admittedly become perhaps a little too accustomed to the Japanese lifestyle. This is probably why after a few days in the hustle and bustle of Shanghai, I find myself looking forward to returning to the peace and quiet of the village of 15 million inhabitants called Tokyo. China indeed has a buzz – every time I go there, I am struck by the energy. On the other hand, Japan seems to be much more….structured. Things usually work as they should. Trains are always on time, and when they leave 25 seconds ahead of schedule, there is a public apology from the provider (just happened last week). Service in Japan is really something special. And in terms of safety, if you have young kids, there are few places better to live than Japan. I love all of this about Japan and expect that I will appreciate Japan’s service orientation as I grow older and greyer in this country.
In Japan, society seems to naturally strive to make things as predictable as possible. This makes for comfortable living and a quality of life that very much suits this writer. On the other hand, China seems to thrive on a bit of craziness, riskiness and unpredictability. While the pace and culture in China can be hectic, perhaps this type of environment is more conducive to innovation. After all, innovation often blossoms from unpredictable environments, the likes of which China seems to embrace more than Japan.
This difference is reflected in today’s life science industries in Japan and China. China has clearly decided to take risk and build up its domestic biopharma industry. There are billions of dollars now flowing into new biopharma companies at a fervent pace. Several successful, young companies, like BeiGene and Zai Lab, have recently gone public on the US markets and have valuations over $3B and $1B respectively. Innovation is starting to flow not only into China, but also from China. On the regulatory front, the China Food and Drug Administration (CFDA) has recently signaled that companies will be able to use foreign data for China filings. There is a definite buzz in the biopharma space as those who have been in China recently know.
Across the Sea of Japan, Japanese biopharma face a very different environment when it comes to risk capital available to help advance their pipeline and grow the business. Just take a look at the IPO markets in both countries. In China through the 3Q 2017, there have been 33 IPOs in the biopharma space with nearly $2B of new capital raised. In Japan, over the last 4 years, there have been a total of only 7 IPOs, and this year there has been only 1 IPO (Solasia Pharma) which raised approximately $30M. The difference is, frankly, staggering.
Yet even in such an environment, Japanese academic researchers continue to foster innovation and advances in scientific research. Japan is still the source of some of the most exciting innovations in biotech. Few in the west perhaps realize that the statin class of anti-cholesterol agents was developed in Japan; or that Programmed Cell Death Protein 1 (PD-1) that has led to the global blockbuster oncology therapies such as Opdivo® and Keytruda® was first identified in 1992 by Dr. Tasuku Honjo of Kyoto University; or that it was Dr. Shinya Yamanaka also of Kyoto University who discovered that mature cells can be reprogrammed to become pluripotent (induced pluripotent stem cells, or iPS cells). Today, there are a handful of exciting Japanese biopharma with potential blockbuster agents under development. One such company is Megakaryon, a Japanese biotech whose technology comes out of (not surprisingly) Kyoto University and seeks to possible mass production of platelets from iPS cells.
However, for most start-up biopharma coming out of academia in Japan, access to capital – both private and public – is severely lacking. This creates a unique environment for opportunistic Western companies. Due to the lack of capital available for emerging Japanese biopharma, there is an opportunity for Western companies to invest in such companies, providing early stage capital to drive assets forward in development, in return for future asset rights. Also, since the domestic Japan biopharma industry is still relatively under developed, the larger Japanese pharmaceutical companies (many of whom are flush with cash) must look outside of Japan to access innovation, either through licensing rights to new drugs from western companies, or looking to buy the company outright. In 2017, there have been a number of large M&A executed by Japanese pharma including Takeda’s acquisition of Ariad Pharmaceuticals (US) for $5.2B, and Mitsubishi Tanabe’s acquisition of the CNS company, NeuroDerm (Israel), for $1.1B.
In China, the opportunity is growing rapidly for Western biopharmas to execute deals with Chinese companies for China rights to their asset in return for substantial deal terms including large upfront payments. Until recently, it was unusual for Chinese companies to spend much in terms of upfront fees to access China rights to novel drugs from Western firms. Today, newly-established Chinese companies flush with cash are looking for assets to in-license and are increasingly willing to pay significant amounts. One simply need to look at the April 2017 Zai Labs/Paratek deal where Zai paid $7.5M upfront to develop, manufacture and commercialize Paratek’s antibiotic, omadacycline; or the January 2017 Fosun Pharma/Kite Pharma collaboration where Fosun and Kite created a 60/40 joint venture in China, with Kite receiving an upfront fee of $40M from the JV in return for China rights to Kite’s CAR-T oncology therapy. In parallel, the China regulatory environment continues to improve providing fuel for more collaborations, and suggesting that the number and size of deals between western and China biopharma companies will continue to increase.
Although Tokyo and Shanghai are separated only by a 2-hour flight, the two countries are different in many ways. The biopharma industries of both countries are indeed also evolving along quite different paths. Most likely, I will never live in China, but what a dynamic country. Going forward, innovation in biotech will be flowing from China perhaps just as much as innovation coming into the country. In Japan, emerging biotech companies will continue to have challenges unless the dilemma around capital access can be solved or mitigated. And this will lead to the larger Japanese pharmaceutical companies continuing to look to M&A and licensing to strengthen their pipeline. With our experienced team in Asia, Locust Walk is here to assist you with your initiatives. Please feel free to visit us in Tokyo or contact us at steve@locustwalk.com.
