From regulatory landscapes to evolving healthcare needs, the president of Shiratori Pharmaceutical Co. Ltd. elucidates the dynamics of two giant pharmaceutical markets, delves into the ambitions of a legacy firm, and unveils strategies for a future embracing both innovation and wellness.
The United States and Japan each present unique challenges and opportunities for pharmaceutical drug development. Japan boasts a robust regulatory framework and advanced healthcare infrastructure. However, it grapples with stringent pricing regulations that can impede profitability. On the other hand, the United States is very innovative with the world's highest healthcare expenditure. Nevertheless, it contends with intense competition, making it challenging for new companies to carve out a niche in the market. As someone who has lived and worked in both countries, what do you think are the key differences between the United States and Japan as a market for pharmaceutical drug development?
Japan's most significant advantage, and something the country should take pride in, is its national health insurance system, which covers every citizen. This system provides substantial benefits to patients, ensuring comprehensive healthcare coverage. However, there are also inherent issues within this system. In contrast, the United States lacks an expansive governmental insurance program, but it has seen significant evolution within its private insurance sector.
In Japan, ambulance services are provided free of charge when transporting patients to the hospital. However, there is an issue where some individuals exploit this system by calling for an ambulance even for minor ailments like a common cold. On the other hand, during my time in the United States, I experienced a car accident and had to be transported to the hospital in an ambulance, incurring a cost of $1,000. To qualify for coverage through private insurance, I had to provide proof of my presence in the ambulance.
The Japanese healthcare system has historically provided significant benefits, offering low-cost medical services to its citizens. Approximately two decades ago, this system was highly effective, especially during a period of population growth and GDP expansion. However, the landscape has shifted due to Japan's aging population, rendering the current system unsustainable. This is primarily because the insurance system relies on the support of individuals within the working age range of 20 to 60 years old, a demographic that is now shrinking. As a result, the Japanese government is actively working to sustain the system by implementing measures to reduce drug costs.
The reduction in pricing has led to several mismatches in the pharmaceutical industry. Cost considerations have made it challenging to develop innovative drugs, and even the prices of old generic drugs have decreased significantly, making them less profitable for pharmaceutical companies. Consequently, drugs that may not be the perfect match for certain conditions are sometimes utilized. While healthcare is fundamentally a public concern, the introduction of economic and capitalist principles has disrupted its efficient circulation.
The pharmaceutical industry in the United States is heavily influenced by capitalist principles. In this system, more effective medicines often come with higher price tags, while less effective ones tend to be more affordable. This capitalist drive has been a driving force behind the United States' ability to innovate and develop cutting-edge drugs.
Take, for instance, the contrasting approaches to anti-cancer drugs in Japan and the United States. In Japan, the healthcare system ensures that cancer treatments remain affordable and accessible to the population, resulting in widespread usage. However, a challenge emerges as the affordability of these drugs sometimes leads patients to accept treatment without a full understanding of potential side effects or risks. There have been claims that these side effects have resulted in the unfortunate deaths of some cancer patients.
In contrast, in the United States, patients receive clear and comprehensive information about the risks and side effects associated with anti-cancer drugs. They are empowered to make informed decisions about their treatment options. Additionally, patients are provided with a transparent breakdown of the drug's cost, typically around 30 million yen, and the expected benefit, which typically amounts to approximately three months of extended lifespan. This thorough explanation and the opportunity for choice before treatment significantly reduces the likelihood of claims or complaints attributing drug-related side effects to patient deaths.
As a supplier of functional ingredients and organic compounds for pharmaceuticals, comparing Japan with other foreign markets like the United States, which are more appealing to you for production and sales?
Currently, 90% of our sales are derived from the domestic market, while the remaining 10% originates from overseas through the export of APIs and the utilization of licensing and patents. Our objective is to expand this 10% share as we observe the Japanese market contracting due to its aging population, while the overseas market presents growth opportunities.
Our primary focus is on expanding our API business and further utilizing patent licensing. It's essential to note that our purpose extends beyond profit-making; we view our involvement in the medical field as a social contribution. Our aim is to continue contributing to the Japanese market while simultaneously playing a part in global wellness and well-being.
Our vision revolves around creating a sustainable cycle. This cycle entails the development and production of value-added products, ensuring that patients receive fair and appropriate benefits from these products. The profits generated from these endeavors are then reinvested in the creation of innovative drugs, with the ultimate goal of delivering continued benefits to patients.
Currently, there is a negative view of the Japanese market. However, there is a silver lining to the situation. What do you see as the positives of Japan being the oldest society in the world?
Japanese medicine boasts notable strengths in the realm of regenerative medicine, particularly in the area of iPS (induced pluripotent stem cells), exemplified by the work of Nobel Prize laureate Professor Yamanaka. Shiratori Pharma, as an organic compound manufacturer, operates in a different sphere from regenerative medicine. Nevertheless, there exists a niche within regenerative medicine where organic compounds find application. Recognizing the rising prevalence of diseases and health issues among our aging population, we are actively pursuing collaborative opportunities within this specific domain of regenerative medicine.
The Japanese government is striving to digitize medical data, but in comparison to China, Japan's progress in medical digitization lags behind. This discrepancy is primarily because of Japan's stringent privacy protection laws, which have posed challenges to the rapid advancement of medical digitization within the country.
The compounds, materials, and intermediates that you create have a wide use of applications. Please give us an overview of the different sectors that your ingredients cater to. In the future, are there different applications of your ingredients and intermediates that you are looking to expand beyond medical use?
In the past, our operations involved the production of electronic compounds for IT and caffeine for cosmetic applications. However, our current exclusive focus is on pharmaceuticals. This shift is primarily due to the fact that different sectors entail distinct business structures, especially concerning the level of quality assurance, cost, and production speed.
Pharmaceuticals, in particular, demand a higher level of quality assurance due to their direct impact on health. They require meticulous attention to impurities and related substances. On the other hand, the semiconductor industry places great emphasis on the avoidance of foreign substances. In this regard, our extensive history in adhering to Good Manufacturing Practices (GMP) positions us well.
By concentrating our efforts solely on the pharmaceutical sector, we can channel all our resources and expertise, leading to cost reductions in production. This strategic focus ultimately benefits patients by ensuring the availability of high-quality pharmaceutical products.
Shiratori Pharmaceutical Chiba Plant
Part of your overseas strategy is the licensing and patents of technologies. Is there a particular patent or technology that you would like to introduce to the overseas market?
Back in 2013, we secured a patent for a method to produce a well-known substance that was notoriously challenging to manufacture. Thanks to this patent, several U.S. pharmaceutical companies reached out to us, and now we're collaborating with one of them to further enhance our manufacturing process. Currently, we're in the midst of Phase 3 clinical trials. Our company's core mission revolves around developing methods for manufacturing organic compounds and licensing these methods both domestically and internationally.
In these ten years, Shiratori Pharma had supplied ingredients for orphan drug development to pharmaceutical companies in the United States. Could you tell us more about your venture with orphan drugs? How do you plan to build on this development and increase your presence in the US market?
In the realm of orphan drug development, we embarked on a joint project and successfully obtained a patent through collaboration with a Japanese pharmaceutical company. Our efforts caught the attention of a U.S. pharmaceutical company, who reached out to express their interest in our venture.
Expanding our licensing activities overseas is a key component of our business strategy. To facilitate this, we have recently set up an International Affairs Department, dedicated to tapping into the global market and leveraging the innovative developments achieved by our researchers.
It is our view that Japanese manufacturing is currently experiencing an exciting period. We've witnessed a three-year supply chain disruption. All the while, multinational companies are actively seeking to diversify their supplier base, placing a strong emphasis on reliability. With the historically weak yen, it can be argued that this presents a unique opportunity for Japanese firms, products, and services to reaffirm their position as significant players in the international market. Do you agree with this premise? Why or why not?
I see both promising opportunities and challenges for Japanese firms. Historically, Japan followed a model where it imported raw materials, added value through processing, and then exported the finished products overseas. The depreciation of the yen has been advantageous for industries involved in materials processing, bolstering their competitiveness. However, when the yen appreciates, Japanese manufacturers tend to relocate their production operations to overseas facilities.
The current issue lies in the fact that with Japanese manufacturing shifting abroad, the crucial processing technologies have diminished in Japan. To fully harness the benefits of yen depreciation, it's imperative to retain these processing technologies within the country. Interestingly, the pharmaceutical industry stands out as an exception. It has managed to retain its manufacturing operations in Japan, effectively adding value to the processing methods. This commitment to adding value through processing has provided a significant advantage to the pharmaceutical sector in Japan.
In recent years, you opened Shiratori Wellpharma, which focuses on sales of healthy foods and supplements. Why did you decide to expand into this type of business? Since the sales model is different, how are you adapting your systems to cover both your B2B business and B2C business?
Currently, 90% of our group's sales come from pharmaceuticals, while health food and supplements contribute only 10%. Our goal is to boost the share of health food and supplements to a range of 20-30%. The motivation behind our entry into this market stems from the aging population and the escalating burden of medical expenses. Pharmaceuticals are primarily aimed at treating diseases, but health food and supplements play a pivotal role in disease prevention.
By advocating for a healthier lifestyle and emphasizing the use of these products, we aspire to enhance the quality of life for individuals and, concurrently, help mitigate the rising costs associated with medical expenses.
The disparity between B2B and B2C is substantial. In the B2B realm, our products are primarily shaped by the needs and preferences of our customers and users. In contrast, B2C entails a heavier emphasis on marketing strategies aimed at promoting and selling products directly to consumers.
One notable distinction is the gross profit margin, which tends to be much higher in B2C transactions. For instance, in the cosmetics industry, the cost of manufacturing typically accounts for only 10% of the final product price. In order to ensure the sustainability of the cosmetics and health food market, it's crucial to maintain this 10% manufacturing cost while allocating the remaining 90% to cover development and marketing expenses.
Conversely, in B2B operations, adhering to a 10% manufacturing cost isn't feasible. The nature of B2B necessitates higher manufacturing costs, ranging from 40% to 60%, to deliver high-quality products that meet the stringent requirements of business clients.
This experience has taught us the importance of producing top-notch products while concurrently focusing on effective marketing strategies to attract consumers. To accommodate the distinct needs of each market segment, we've established Shiratori Wellpharma as a separate entity within our organization.
Is there a specific goal or ambition you'd like to accomplish during your tenure as president before passing the company on to the next generation, considering it's a family business?
Currently, as manufacturers of API, we hold the 10th position in the rankings of Japan’s leading technical pharmaceutical companies. Back in 2018, when I took on the role of president, I set a clear target of reaching the number 1 position by 2028. We have five years left to accomplish this objective.
Admittedly, our growth trajectory has lagged behind, and not all our employees believe that this goal is attainable. However, there is a dedicated group within our workforce, comprising 20-30% of our team, who remain resolute in their commitment to achieving this ambitious target.
It's important to emphasize that while our aim is to secure the number 1 spot, this isn't our sole purpose. We firmly believe that growth stems from having a content, vibrant workforce. Providing an environment where our employees can experience personal and professional growth, find fulfillment, and have a sense of purpose is paramount. My role and mission as the leader is to create a supportive structure that encourages our employees to choose not only to work with us but to thrive and contribute their best.