Japan has long been a source of unlikely entrants into the pharmaceutical industry, with materials companies such as Teijin Ltd., major drinks firms like Suntory Ltd. and Kirin Holdings Co. Ltd., and diversified groups including Kowa Co. Ltd. all building a presence of varying size and success over the past decades, usually with the help of mainstream partners.
As such, Osaka-based drinks group DyDo Group Holdings - whose main business is in canned coffee found in the ubiquitous vending machines across Japan - is not blazing a pioneering trail, although it is taking a more focused approach than some of its predecessors.
One of the pillars of its current mid-term corporate plan is to establish new business foundations, given price pressures and a static market for its mainstay lines, to help reach a group sales target of JPY200bn ($1.83bn) and a 4% operating margin in the current fiscal year ending next January 20. While the planned pharma business will not be making any financial contributions this term, the hope is to steadily build these up over the next few years.
Explaining the broad strategic thinking behind DyDo's recent decision to enter into the prescription sector, group president Tomiya Takamatsu was quite clear. “Our core [drinks] business is stable, but it is a mature market with lower growth. We want to develop new markets.
Building On Foundations
“We had a choice of moving in two directions – expanding our existing business or moving into new areas. Remember that 60 years ago we also had no experience in our [now mainstay] business,” Takamatsu toldScrip in an exclusive interview at the group’s Tokyo offices.
“Actually, we don’t see it as that distinct from our core business, which is also health-related, and our origins were in home health product sales [in the 1950s], so in some respect we are going back to our roots,” he said. DyDo - established under its current name in 1975 - already markets a series of health drinks and has a consumer health business focused on over-the-counter mini tonic drinks and food.
The company first disclosed in March that it was planning to enter the drug business in July 2019 as part of its mid- and long-term growth strategy, with a clear initial focus on orphan drugs in Japan. DyDo sees a total rare disease domain market of several billion yen in the country, where official orphan status is conferred to therapies for disorders with fewer than 50,000 patients and where there is high outstanding medical need.
“We needed to narrow our focus as there is a lot of competition in the wider areas," Takamatsu explained, "and Japan’s rapidly ageing population and demand for longer healthy lives were other key factors" behind the decision.
Japan in addition provides a range of government policy support to drugs with limited markets, including priority regulatory consultations, expedited reviews, research grants, and tax incentives, all of which are seen by DyDo as positive entry factors.
The DyDo president freely admitted that the company currently has few relevant skills in-house among its roughly 3,800 employees and that it will need to recruit talent, which will be a gradual process. Some functions will be outsourced, and the main initial focus will be on exploring research seeds for candidate drugs and building an initial pipeline.
The split of internal and external functions has yet to be decided, but concentrating on niche indications means that full in-house capabilities across all areas are not necessarily required. Patient registries in Japan meanwhile mean that only a relatively small sales force targeting selected specialists would be needed.
One other benefit of focusing on unmet needs is that the most recent revisions to Japan's reimbursement pricing system set stricter qualifying criteria for new drugs to be eligible for pricing premiums, setting the bar higher for innovation but also providing rewards for those novel products that have demonstrated clear benefits.
“The pharma industry needs a long-term perspective, and being a latecomer can actually be a strength, as we can learn from others and adapt to changing systems,” Takamatsu observed.
The company has already set up a new strategic investment group in its Corporate Strategy Department to study the sector, and has recently invested JPY2bn (about $18.3m) in a fund partnership under Asajes Ventures, a new Japan-based fund co-founded by Innate Pharma SA chairman Dr. Hervé Brailly and Dr. Chika Yoshinaga.
Asajes provides consulting services, information and assistance in finding/licensing assets and potential partners in the US and Europe for companies in Asia, and will be assisting DyDo in getting its pharma interests off the ground.
Asajes declined to disclose the total size of the fund and its investors, but Yoshinaga (formerly with Quintiles) toldScrip that “we are not a normal VC [venture capital] group. We can provide business development and clinical trials and development expertise, along with capital. We do not invest in established companies, but can help shorten the time and cost to market.”
Brailly added that there are still plenty of good opportunities to bring new specialist products with patient benefits to Japan, where “many smaller companies are still not present, and where we can help make a bridge.”
While the two firms did not reveal further details of their relationship, it appears likely that Asajes will help research and identify potential licensing candidates to help kick-start DyDo's pharma activities.
DyDo’s Takamatsu toldScrip that the firm would like to have its first commercial drug products “as soon as possible” and that the overall goal is to bring one asset a year to the market. No pharma business financial targets have so far been disclosed but the hope is to have sales of around JPY1bn for each planned product, he disclosed.
Clearly there is a long way to go, but in terms of what success might look like in 10 years, Takamatsu said: “We would hope to be of a certain size in pharma, with a self-supporting business [in the sector] meeting its targets and being a core activity alongside beverages and food.
"We want the perception of DyDo to change."