Japan was once a global leader in life sciences innovation, introducing about a third of the world’s new drugs in the 1980s, but this positioning slipped following decades of economic stagnation compounded by a conservative regulatory regime. However recent regulatory reforms have brought a more positive outlook and sparked a surge of cross-border M&A activity that stands to give Japanese biopharma a much-needed boost.
M&A Across Borders
As government initiatives to ease regulatory requirements take hold, transactions between Japanese and non-Japanese pharma companies appear to be on the rise. The most recent example was Bain Capital’s USD 3.3 billion buyout of Tanabe Pharma from Mitsubishi Chemical Group this month. But Japanese companies, like Otsuka Pharmaceutical who last year paid USD 1.1 billion for Boston-based Jnana Therapeutics, are also crossing borders. Aiming to counter a declining global market share, competition from foreign drugmakers and looming patent cliffs, Japan’s native pharma players are also looking towards opportunities beyond the country’s frontiers.
Favourable Policies to Remedy “Drug Loss”
Japan has long since lost its place as a global life science powerhouse. In the 1980s Japanese companies accounted for nearly a third of all the newly approved chemical entities (NCEs) greenlit by the FDA. By contrast, between 2011 and 2020, Japan’s share plummeted to just seven percent.
The long period of economic stagnation known as the lost decade(s) had a negative impact on biopharma just as it did on other industries. And, the sector was also not helped by Japan’s conservative regulatory framework and the requirement for products to conduct an additional Japanese phase 1 study on top of original clinical trials.
This meant that drugs approved by other regulators did not necessarily receive approval in Japan because of the high cost of running additional trials there, leading to what has become known as “drug loss.” “This made it complicated for both Japanese and foreign companies to plan for and include Japan in their global clinical development programmes, which in turn led first to drug lag and later drug loss, as drugs were either launched much later or not at all in Japan,” said Johan Westblad, managing director of Aurora Partners, a life science business development consultancy in Japan.
Because of drug loss, Japanese patients are subject to a large gap between the number of drugs and treatments available to them as compared to patients in other countries. No less than 86 drugs approved in Europe and the US in March, 2023 were yet to be available in Japan, says the Financial Times, citing the Pharmaceuticals and Medical Devices Agency.
But recent policies have aimed to remove this obstacle and bring more products to the Japanese market. In 2023 the Japanese Ministry of Health, Labour and Welfare relaxed the requirement for additional clinical trials. Additionally, in 2024 the government eased the necessary criteria for orphan drug designations and, anticipating more applications, created the Consultation Centre for Paediatrics and Orphan Drugs Development (CCPODD).
In another encouraging development, late last year the government also set out a five-year roadmap focused on surmounting drug loss. The plan intends to promote drug development by initiating clinical trials on essential drugs by 2026 and creating at least ten new drug discovery start-ups by 2028. “We do not want patients to feel this way [that they cannot access necessary drugs], and we also want to be a place where drug discovery contributes not only to patients in Japan but also to patients around the world — this has been the impetus for the government’s efforts,” said then prime minister Fumio Kishida when the plan was announced.
Bain – Tanabe: A Favourable Future Outlook
With its USD 3.3 billion acquisition of the 340-year-old Japanese firm Tanabe Pharma, the American private investment firm Bain Capital has recognised the encouraging prospects presented by Japan’s life sciences sector. “We believe there are promising signs for growth and untapped opportunities in Japan’s life sciences industry as government and regulators have launched several initiatives to accelerate the development and approval of innovative medicines in the Japanese market,” said Ricky Sun, a Partner at Bain Capital Life Sciences.
The deal brings Tanabe the necessary cash to strengthen it research capacity, something Mitsubishi Chemical said it was unable to do. “Such investment would not be a feasible option under our ownership,” the company said in a statement. For Bain the purchase means gaining access to Tanabe’s blockbuster amyotrophic lateral sclerosis (ALS) therapy, edaravone. Sales of the therapy will fuel the development of new drugs for the Japanese market, both through internal pipeline advancement and external licensing and acquisitions.
“This kind of carve-out partnership [where a private investor takes over a non-core division of a larger company – Ed.], which couples knowledge and experience of Japan with really deep scientific expertise … is one of the most effective solutions to solving the drug loss problem in Japan and turning around the growth of major pharmaceutical companies,” asserted David Gross, co-managing partner of Bain Capital and Asia lead.
Japanese Players, Global Deals
Japan’s homegrown pharma industry, including stalwarts like Takeda and Astellas, has also been looking for opportunities overseas. Takeda perhaps kicked off a wave of cross-border acquisitions with its bold 2019 USD 60 billion purchase of UK-based pharma Shine, expanding its geographic footprint to some 80 countries and regions. The company then went on to close a string of ex-Japan deals that in 2022 brought it the US-based immune-oncology firm Maverick and the US biotech Nimbus Lakshimi.
Astellas in turn brought US ophthalmology specialist Iveric Bio onboard in 2023, increasing its foothold in the field, as well as another American company, Propella Therapeutics, for USD 175 million, gaining access to its prostate cancer asset. More recently, Otsuka Pharmaceutical paid USD 1.1 billion for the American biotech Jnana Therapeutics, getting hold of the company’s clinical-stage PKU drug and strengthening its R&D position in the Boston area bio cluster.
Meanwhile, the Osaka-based Ono Pharma bought out the American cancer therapy specialist Deciphera for USD 2.4 billion in 2024, as a means to reinforce its pipeline and “accelerate global development, as well as realize direct sales in the United States and Europe.”
Beyond the interest of Japanese pharmas in US companies, Tokyo’s Asahi Kasei grabbed the Swedish rare diseases outfit Calliditas Therapeutics last year, which will enable it to establish a presence in Europe.
