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Japanese firms investing in California biotechs

At a time when major biotech companies in California are eager for investors, Japanese pharmaceutical companies are increasingly becoming a go-to place for money to develop and sell new drugs.

Japan’s largest drug maker teamed up with Amylin Pharmaceuticals Inc. in San Diego last month to develop and sell an obesity drug that the companies think could eventually be worth $1 billion.

In October, Japan’s second-largest drug firm announced a $110-million payment to Medivation Inc. of San Francisco to develop and market a potential prostate cancer drug together in a deal that they hope could reach $655 million.

And biotech giant Amgen Inc. of Thousand Oaks got a $200-million investment last year from a Japanese company for rights to its cancer, inflammation and pain drugs.

“A large amount of Japanese drug development money is going to the United States and particularly to California,” said Hiroshi Konishi, manager at the Japan Cancer Society.

Global competition is forcing multinational drug companies to go outside their own laboratory walls to find new products and boost revenue, and Japanese firms have been among the most aggressive. Reasons include the lack of patents held in Japan compared with Western companies and the scarcity of biotech firms within Japan.

U.S. biotech companies, in turn, have welcomed investment -- especially in the economic downturn -- and access to laboratories, factories and other facilities of larger global pharmaceutical companies to get their drugs on the market.

The Japanese government views pharmaceutical care as a social service, whereas the U.S. government treats it as a business, and this makes it easier for companies to secure patents, Konishi said.

“It’s much more cost effective for Japanese firms to invest and develop compounds with a U.S. company,” Konishi said.

Richard Brown, a pharmaceutical business development consultant and partner at Plexus Ventures in Tokyo, said many Japanese firms had been courting California companies, partly because the state is the birthplace of the industry and home to many big players.

California biotechs have what Brown calls “the essential ingredients for success: scientific innovation, commercial vision and financial backing.” San Diego particularly has benefited from an entrepreneurial culture with great business leaders, some calling themselves “serial entrepreneurs,” he said.

The Golden State has a knack for attracting so much biotech talent, said Patrick Machado, chief financial officer for Medivation. “It’s sort of like the Gold Rush,” he said. “Like come . . . and try your luck. The culture is ingrained across both the life sciences and the tech industries.”

Brown said the state had encouraged the growth of the biotech industry by offering various incubator programs, research and development tax credits and cash grants or loans including those for stem cell research.

More recent pharmaceutical deals reached by Japanese and California companies have concentrated on experimental cancer treatments. Japan’s health ministry data indicate cancer is the leading cause of death for the Japanese.

In hopes of getting first dibs on promising treatments, including those for cancer, Japanese companies have been setting up offices in California.

It was Japan’s largest drug maker, Takeda Pharmaceutical Co., that teamed up with Amylin Pharmaceuticals to develop and sell an obesity drug. Takeda has three subsidiaries in California. Two are research and development centers -- one in San Francisco, the other in San Diego. The third is Takeda Research Investment Inc. in Palo Alto, which was started in 2001 to reach out to local start-ups and other biotech ventures.

“We think the Palo Alto area is one of the best locations in the world because of the number of bio ventures and research institutions concentrated there and venture capitalists there as information resources,” said Hiroyuki Odaka, general manager of Takeda’s pharmaceutical research division. “These three research companies’ performances are indispensable in our global research network.”

Takeda’s other research labs are in Japan, England, Singapore and Massachusetts. Takeda acquired Cambridge, Mass.-based Millennium Pharmaceuticals Inc. and its oncology pipeline last year for a whopping $8.8 billion.

California biotechs have many reasons for sometimes choosing Japanese companies over Western partners.

Amgen has worked with three Japanese pharmaceutical companies -- Takeda, Daiichi Sankyo Co. and Kyowa Hakko Kirin Co.

Kyowa Kirin has been Amgen’s partner for 25 years. “They were willing to partner with us when we were still a tiny company and a high-risk one,” Dominique Monnet, Amgen’s vice president of global marketing and commercial development, said of the relationship with Kyowa Kirin.

Monnet said Amgen struck a deal with Takeda because the Japanese pharmaceutical market is very different from the U.S. with its clinical trial and drug approval process.

Medivation in San Francisco said several companies courted it before it chose Japan’s second-largest drug company, Astellas Pharma Inc., as a partner in the development of its prostate cancer drug.

“We were talking to these global pharmaceutical companies, and with all of them it’s very much a David and Goliath sort of situation,” Medivation’s Machado said.

“What you frequently get from the Western companies is pretty much an insistence that they get to call all the final shots. With Japanese companies -- very, very consistently -- they are looking for a consensus-based arrangement, and that’s very attractive to us.”

Another winning point may be that Japanese firms are not known for company takeovers aimed at selling assets and cutting overhead costs.

Yasuchika Hasegawa, Takeda’s president, told a recent Tokyo business leadership forum his view of takeovers.

“Unfortunately, I don’t have a management team that has the expertise and capability to pull something like that off,” he said.

Hasegawa said Japanese companies were still struggling to achieve diversity in their own offices to become truly global and were generally not ready to do the type of takeovers commonly found in Western countries, at least not yet.

An industry securities analyst said although California did have much to offer, it was important to remember that the location ultimately wasn’t what mattered.

“Biotechs in California are like the high-tech companies in Silicon Valley” in the past, said Fumiyoshi Sakai, senior analyst at Credit Suisse Securities in Tokyo.

“If I might say, I’d think Japanese companies would travel to the South Pole if there was a company with a desirable compound they wanted to cut a deal with.”

Nagano is a special correspondent.


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