Japanese Pharma’s Skyrocketing US Footprint

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Following PharmaBoardroom’s recent interview with Ivan Cheung, chairman of Eisai’s US affiliate and president of Eisai’s global neurology business, we take the opportunity to look back on the interesting history and particularities of Japanese pharma companies’ entry and expansion into the US market.

 

Japan is one of the world’s largest pharma markets. The market size, along with a relatively complex regulatory and pricing environment that has suppressed the entry of competition and a robust tradition of chemical and industrial development, has contributed to the development of strong pharma players within the country. At present, for instance, ten of the world’s top 50 pharma companies in terms of revenues – a staggering 20 percent – are headquartered in Japan, with many of them able to date their histories back over a century, much like their Western European counterparts.

 

We have learned that to perform well in the US, we need to have a consistently robust pipeline instead of relying on just one or two blockbusters

Ivan Cheung, Eisai

 

However, Japanese pharma companies have been slower than the Europeans when it came to internationalization, and to date, with the notable exception of Takeda, Japanese companies still seem somewhat reluctant to establish a direct presence in parts of the world deemed too distant, whether geographically or culturally. Nevertheless, despite the complicated and fragmented healthcare infrastructure in the US, the US market has proven too attractive for the Japanese to overlook, though even there, Japanese companies have taken a characteristically cautious and almost ambivalent approach to the largest market in the world, with a number of starts and stops. Chugai Pharma, for instance, initiated activities in the US as early as 1982 but to date, the company does not market any product in the US, choosing instead to rely on their strategic alliance with Roche. Their US operations are now focused on Early Development activities, congregating global functions of proprietary assets in conjunction with Japanese and European teams.

 

It seems clear that the mere size of a market does not guarantee commercial success, especially when the market is as intensely competitive as the US. A longer-term calculus is necessary to evaluate the pros and cons of being present in the US market. Ivan Cheung, chairman of Eisai’s US affiliate, recalls, “Eisai’s pharma business first entered the US in the 1980s. During that time, most international pharma companies, whether they came from Europe, Japan or other parts of the world, entered the US because of its positioning as the largest global pharma market. The idea was that, if you wanted to launch a blockbuster, you had to go to the US.” On the contrary, “when Eisai made that decision to enter the US, the company did not have any assets remotely close to commercialization in the US market. Our CEO, Haruo Naito, had the foresight to recognize the immense innovation potential and activity present in the US, and he decided to build a drug discovery and research laboratory in Massachusetts. This was very visionary, especially considering that the Cambridge biotech cluster did not even exist back then in the 1980s!”

 

Four decades on, many Japanese companies have followed suit and expatriated at least part of their global R&D efforts to the US in order to access the dynamism and innovation there. For instance, Takeda’s US hub in Massachusetts hosts not only their US commercial business but also their Global R&D, Global Oncology and Global Vaccines operations – perhaps unsurprisingly when one considers that the US is home to Takeda’s single largest affiliate which accounts for 40 percent of their global business. As another example, Astellas established the Astellas Institute for Regenerative Medicine (AIRM) through the acquisition of Ocata Therapeutics in Massachusetts in 2016.

 

In Eisai’s case, in addition to their New Jersey operations, which house their global clinical development and regulatory affairs activities for both core therapeutic areas (oncology and neuroscience), they have three more R&D hubs, focusing on different areas like genomics-based cancer drug discovery, antibodies, and Alzheimer’s disease. Cheung himself is also the president of Eisai’s global Neurology Business Group, splitting his time between the US and Japan.

 

Even for relative stragglers like Ono Pharmaceutical, that US address is indispensable. While the company does not currently have a commercial presence in the US, in April 2019, they relocated their Global Clinical Development Division from Japan to the US. They have also stated that they intend to build their own commercial infrastructure in the US for more niche, in-house assets that do not require a large-scale salesforce. A little more advanced on the timeline is Otsuka, who, in March 2020, appointed its North American president and CEO, Kabir Nath, senior managing director for its Global Pharmaceutical Business, with overall operational leadership for the regions of North America, Europe, Japan and the rest of Asia.

 

The Japanese pharma players have also displayed a penchant for the use of M&A in US expansion. In fact, some Japanese powerhouses – Daiichi Sankyo, Astellas, Dainippon Sumitomo, and Mitsubishi Tanabe, to name just a few – were themselves established only in the 2000s through mergers. In 2010, for instance, Dainippon Sumitomo augmented its US presence through the acquisition of what was then known as Sepracor, now Sunovion Pharmaceuticals, for a hefty price tag of USD 2.6 billion, which amounted to the Japanese player’s annual sales at the time. Fortunately, this approach seems to have proven successful, with the overall US business generating JPY 247 billion (USD 2.3 billion) in FY 2019, representing, again, their largest global market.

 

Takeda’s USD 26 billion 2019 acquisition of Shire is, of course, the prime example of this strategy. Though, as mentioned, the US was already Takeda’s largest market, the Shire acquisition further strengthened their US presence and catapulted Takeda into a top 10 global pharma player with overall annual revenues exceeding USD 30 billion.

 

For Eisai’s Cheung, however, the strategic importance of the US affiliate goes beyond the short-term basic commercial numbers. He elucidates, “if you look at our FY 2019 financial results, the Americas represented over 18 percent of the global business in 2019, rendering the region the second-largest market for Eisai globally after our home market of Japan.” This is down from the 40 percent that the US business represented in the late-2000s, which Cheung attributes to the particularities of the US market. “The product mix and portfolio composition of the US business is markedly different from that of the businesses in Asia. In most Asian markets, you can typically find a very balanced and diversified portfolio composed of both new and legacy products. Based on how the US healthcare system is structured, however, the US business model relies solely on new patented drugs, which means it is more cyclical.” As a result, Cheung stresses, “to perform well in the US, we need to have a consistently robust pipeline instead of relying on just one or two blockbusters.”

 

Nevertheless, based on their efforts and current ten-year plan (2016-2025), he does expect the US business to return to 40 percent of global business ultimately. In addition, he also highlights, “Eisai currently has two major collaborations in oncology and neuroscience, with Merck & Co., Inc. Kenilworth, NJ USA (known as MSD outside the US and Canada) and Biogen, Cambridge, MA respectively. Both of them are headquartered in the US so that represents [another] reason why the US is a fundamentally strategic market for Eisai.”

 

While the specifics and speed of each company’s play in the US may be different, it seems clear that the US market remains an indispensable part of the global strategy of Japanese pharma companies, in the present as well as the future.

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