Beyond Borders: Global biotechnology report 2010

Japan year in review
Rekindling investment
Despite its status as the second-largest
economy and pharmaceutical market in the
world, Japan has a biotech industry that
is relatively underdeveloped compared to
other advanced economies. While there are
different schools of thought on when to date
the birth of the Japanese biotech industry,
the 2002 IPOs of Trans Genic and AnGes
are generally considered the first Japanese
biotech IPOs. Since then, there have been
only 25 additional Japanese biotechs that
have gone public, the majority (16) listing
on the Tokyo Stock Exchange (TSE) Mothers
market, with the remaining 11 listing on
other Japanese markets — Nagoya Stock
Exchange (NSE) Centrex, Osaka Securities
Exchange (OSE) Hercules and Jasdaq NEO.
From 2002 to 2004, high expectations for the
biotech industry fueled a run-up in the Nikkei
BP Bio Index. However, investors — who did
not always have a full appreciation of the long
time frame to bring a drug from early research
to market — soon became impatient; the
“bubble” burst, and the index plunged from
approximately 1,000 to the 130–150 range.
From 2004 until 2008, the index remained
volatile, ranging from lows in the low 100s to
highs near 700.
The global economic crisis that began
in 2008 exacerbated the industry’s
challenges as stock prices continued to
tumble and many firms were forced to
close their doors. When the Japan Biotech
Association last updated its list of privately
held Japanese biotech companies in 2007,
it identified 586 private companies — we
estimate that that number has now fallen
well below 500.
The Japanese Government has invested
considerable effort into building the
industry, injecting funding, introducing
administrative changes and streamlining
regulatory structures. In 2002, the
Biotechnology Strategy Council was
established with the aim of growing the
biotech market from ¥1.3 trillion (US$14.3
billion) in 2001 to ¥25 trillion (US$276.2
billion) in 2010, as well as creating one
million new biotech jobs. The challenges
of the intervening years have delayed
the achievement of this goal — or, frankly,
getting anywhere close. Nevertheless,
the Government continues to encourage
investment in key technology industries,
including biotech, as described below.
Financing
A persistent challenge for Japan’s biotech
industry has been, and still is, raising
capital. The size of VC investments across
all industries in Japan is less than a fifth
that of the US or Europe, and investments
on a per-company basis in Japan pale in
comparison to the West. According to a
2006 survey by the Venture Enterprise
Center, created by Japan’s Ministry of
Economy, Trade and Industry, investments
per company across all industries in Japan
averaged ¥83 million (US$916,000),
far below the average of ¥1.04 billion
(US$11.4 million) in the US and ¥450
million (US$5 million) in Europe.
The financial crisis made the venture capital
investing situation even more challenging.
With the uncertainty in the global markets
throughout 2009, investors became even
more selective in their investment decisions,
and venture capital investment across all
industries reached its lowest level in 10
years. Venture capital firms have remained
reluctant to provide new investment because
of the low returns from IPOs. According to
a report by the Japanese Venture Capital
Association (JVCA), members’ investments
in 2009 were 30% lower than in 2008.
Also, most of the biotech companies are
considered too immature (often just a
university professor with ¥10 million to
invest in a novel technology), and there
is not a large contingent of experienced
venture capitalists with an established
vetting process to identify the
highest-potential prospects.
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