Points of View Co-Creation in R&D by Japanese Pharmaceutical Companies -Implications of External Alliances between Major Japanese Pharmaceutical Companies and Drug Discovery Ventures

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The Office of Pharmaceutical Industry Research Yuji Takasuna, Senior Researcher

Introduction

R&D-oriented pharmaceutical companies have continuously contributed to improving the health and healthcare of people in Japan and around the world through the development of innovative and highly useful pharmaceutical products. In recent years, however, satisfaction with drugs for lifestyle-related diseases and other medical conditions has increased, and most of the drug discovery targets that have been addressed have been fully researched, making it increasingly difficult for pharmaceutical companies to create innovative drugs and medical technologies on their own. In this challenging environment, pharmaceutical companies need to more efficiently convert scientific advances into value for patients through co-creation with a variety of stakeholders, including academia and drug discovery ventures. In the past, The Office of Pharmaceutical Industry Researchhas surveyed trends in research alliances and licensing agreements using pharmaceutical company press releases as a source of information, and has reported on trends among Japanese pharmaceutical companies regarding open innovation, which has become increasingly important in recent ^{years1) - 5)}.

This time, the author investigated the latest trends in external alliances, mainly R&D, of major Japanese pharmaceutical companies by combining information from Evaluate Pharma and press releases of domestic pharmaceutical companies that they send to external stakeholders. We believe that this survey will provide an overall picture of open innovation promoted by domestic pharmaceutical companies, as well as a clearer understanding of open innovation trends based on the characteristics of external alliances that domestic pharmaceutical companies consider important. We analyzed trends in license-in agreements and corporate acquisitions, which are representative examples of alliances. In order to investigate what kinds of products and technologies domestic pharmaceutical companies are acquiring from where in the world and where in the world they are trying to commercialize them through external alliances, we focused on license-in agreements of domestic pharmaceutical companies and analyzed the characteristics of introduced products and partners, and the target regions where the rights were acquired through the agreements. In addition, we also analyzed the products and technologies that they have licensed. In addition, in order to understand the characteristics of the side that out-licenses items and technologies, we extracted and analyzed cases involving out-licensing agreements, one of the important business models for drug discovery ventures, from the press releases of domestic listed drug discovery ventures. Then, by comparing the status of license agreements between domestic pharmaceutical companies and domestic drug discovery ventures, we examine the future of co-creation in R&D utilizing external alliances.

Survey Methodology

We surveyed press releases published on the websites of 10 domestic pharmaceutical companies (Astellas Pharma Inc., Eisai, Otsuka Holdings, Ono Pharmaceutical, Kyowa Kirin, Sumitomo Pharma, Daiichi Sankyo, Takeda Pharmaceutical Industries, Mitsubishi Tanabe Pharma Corporation, and Chugai Pharmaceutical) ⁶⁾ during the 10 years from 2012 to 2021 (the target (There are some companies whose press releases during the period were not yet published. See Appendix Table 1).

Press releases of each company were referenced from October to December 2022. Press releases related to alliances in research and development, including joint research and development, and post-marketing alliances, including co-promotion, related to ethical drugs, regenerative medicine and other products (excluding generic drugs and biosimilars) items and technologies were extracted. In order to investigate initiatives related to future business, press releases related to the development status of items developed through alliances, obtaining approvals, etc., were excluded. In cases where there were multiple press releases with the same partner, such as changes in alliance terms, extension of alliance period, etc., they were counted in duplicate for the purpose of weighting the relevant projects.

The number of press releases was counted as the number of alliances, and in the case of alliances between surveyed firms in which press releases were published by both parties, they were counted in duplicate. When analyzing the nationality and classification of the partner, multiple partnerships with multiple external organizations were counted in the case of a single partnership. Outsourcing agreements with partners and alliances between the same group of companies were excluded. In cases where information on the partner company or product was not included in the press release, we referred to Evaluate Pharma's data and other publicly available information other than the press release of each company.

Number of external alliances and acquisitions by Japanese pharmaceutical companies

Figure 1 shows the number of external alliances and the number of acquisitions by the 10 Japanese pharmaceutical companies from 2012 to 2021. The number of acquisitions is counted separately from the number of external alliances because the nature of acquisitions differs from external alliances such as licensing agreements and joint development, such as the acquisition of a large number of products in a single acquisition deal.

For external alliances, the development phase was divided into three phases: "research," from basic research to non-clinical trials; "development," from clinical trials to pre-launch; and "post-marketing. The "research" phase includes joint research with other parties, partnerships for mutual use of technologies used in research, obtaining grants for internal research, and investment in research conducted by external organizations. Development" includes co-development with other parties and alliances in which development is shared with other parties by development stage or by region. Post-marketing" includes mainly co-promotion and government contracts for the purchase of marketed products. Projects that cannot be assigned to any of the development phases, such as investments in venture funds through investment companies, are included in "Other". The Company also excluded projects related to the transfer of long-listed products and manufacturing sites. In addition, license-in and license-out agreements were assigned to either "research," "development," or "post-marketing," depending on the development stage of the product or technology to be in-licensed or out-licensed at the time of the agreement.

First, looking at the overall number of external partnerships, while there was an upward trend in the number of such partnerships from 2012 to 2017, there was a downward trend through 2019, with the number of partnerships peaking in 2017 at 110. However, over the 10-year period covered, there was a general upward trend (Figure 1, left).

Next, in terms of the number of alliances by development phase, the total number of alliances in the research and development phases accounted for 70-80% of the total in all years. This confirms the current situation where R&D-oriented domestic pharmaceutical companies are forming alliances with external parties with an emphasis on drug discovery.

In terms of acquisitions, a total of 33 deals were identified for the period 2012-2021. In general, the number of deals has remained between 2 and 4 per year, but the number of deals in 2017 and 2018 were 6 and 8, respectively, with the high number of deals in the last two years (Figure 1, right).

Alliances of Domestic Pharmaceutical Companies

Domestic pharmaceutical companies' alliances are classified into pharmaceutical companies, drug discovery ventures, other companies, academia, etc., and the number of alliances per classification is shown in Figure 2. This section does not include corporate acquisitions, and the results of the analysis are presented in a later section. We defined "drug discovery venture" as an emerging drug discovery company or an emerging biotech company that has been in business for 30 years or less from the establishment of the partner company to the publication of a press release. The category with the largest number of partnerships was pharmaceutical companies, with 247, followed by drug discovery ventures, with 237. In terms of development phase, the largest number of partnerships were with academia (114) and drug discovery ventures (98) in the research phase, and with drug discovery ventures (124) and pharmaceutical companies (107) in the development phase. In addition, all of the partnerships with national research and development institutions (29) were with Japanese organizations, and more than 70% of the partnerships with government agencies (29) were with Japanese organizations, indicating that Japanese pharmaceutical companies tend to emphasize partnerships with the Japanese government and national research institutions.

The following sections present the results of the analysis by development phase.

First, we will focus on alliances in the research phase. Figure 3 shows the number of research alliances with academia, national research and development institutions, and drug discovery ventures. The number of partnerships with academia and national R&D corporations has generally risen throughout the survey period, a trend that can be seen.

Figure 4 shows the percentage of modality classification in research alliances with academia, national R&D corporations, and drug discovery ventures. In research alliances with academia and national R&D corporations, 50% of the respondents selected "none" where the target modality was not disclosed, followed by small molecules (16%), vaccines (8%), and antibodies (8%). On the other hand, in research alliances with drug discovery ventures, the highest percentage of "None" was 25%, but this percentage was lower than that of academia and NRIs; antibodies, including next-generation antibodies such as bispecific antibodies and antibody-drug conjugates, came in second (21%), followed by small molecules (18%). The third most common modality was "small molecules" (18%).

Although some research partnerships may be undisclosed even though the target modality has already been identified, the results in Figures 3 and 4 suggest that academia and national research institutes often seek partnerships for various basic research and expertise that will contribute to the elucidation of disease mechanisms before identifying a modality that could become a drug candidate. In many cases, academia and national research and development institutions are considered to be partners for various basic research and expertise that contribute to the elucidation of disease mechanisms, etc., prior to the establishment of a potential drug candidate modality. On the other hand, compared to academia and NRIs, drug discovery ventures have a higher proportion of antibody and cell medicine, including next-generation antibodies, and therefore, it is considered that a relatively large number of cases form alliances in order to seek technologies related to new modalities.

For academia and drug discovery ventures (see Figure 2), which have the largest number of research-stage alliances, Figure 5 shows the percentage of nationalities of the alliances. In academia, Japan accounted for 71%, the largest share, followed by the U.S. (14%) and the U.K. (8%). On the other hand, in drug discovery ventures, the U.S. (45%) had the highest percentage, followed by Japan (23%) and the U.K. (9%).

Next, we will analyze the development stage alliances. Figure 6 shows the percentage of nationalities of the partners of the drug discovery ventures and pharmaceutical companies (see Figure 2) that have the largest number of partnerships in the development stage. For drug discovery ventures, as in the research phase, U.S. companies accounted for the highest percentage at 70%, followed by Japan (10%) and the U.K. (4%). Among pharmaceutical companies, both Japanese and U.S. companies accounted for about 30% of the total. Figures 5 and 6 show that Japanese pharmaceutical companies tend to collaborate with Japanese, U.S., and U.K. partners more frequently in the R&D phase.

Table 1 shows the number of U.S. drug discovery ventures with which Japanese pharmaceutical companies have many partnerships in the research and development stage, by the state where they are located. The largest number of partnerships were with drug discovery ventures based in California on the West Coast, with 45 confirmed. In addition, there were many alliances with drug discovery ventures based in the northeastern United States, primarily in Massachusetts, but also in New York, Pennsylvania, Maryland, and New Jersey. Thus, it was observed that domestic pharmaceutical companies are accessing the technologies and seeds of drug discovery ventures in states such as California and Massachusetts, where drug discovery is thriving.

Licensing-in Agreements by Domestic Pharmaceutical Companies

Next, we surveyed the license-in agreements of domestic pharmaceutical companies. In addition, for press releases that did not mention payment of compensation, we defined "license-in" agreements as those in which a domestic pharmaceutical company paid compensation to the partner based on development progress and sales, and those in which the rights were introduced from the contract partner (see Table 1). We defined "license-in contracts" (excluding co-promotion). Figure 7 shows the trend of license-in contracts from 2012 to 2021 and the classification of license-in contract partners. A total of 127 license-in contracts existed during the study period, of which two were with two organizations, bringing the total number of license-in contract recipients to 129 organizations.

The trend in the number of license-in contracts shows a gradual increase in the number of contracts until 2017, after which a head-starting trend was observed, but a general upward trend was observed over the 10-year period covered by the survey. In addition, a survey of the nationalities of the license-in contract recipients showed that the number of license-in contracts was higher among foreign companies, mainly from the U.S., compared to Japan (Figure 7, left).

Drug discovery ventures accounted for 87 (67%) of the total number of licensees. Of the 87 drug discovery ventures, 47 (54%) were listed companies and 40 (46%) were unlisted companies. This was followed by pharmaceutical companies (22%) and academia (5%) (Figure 7, right).

Trends by development phase at the time of the license-in agreement are shown in Figure 8. Compared to the first half of the survey period (2012-2016), the number of license-in contracts increased significantly in the second half (2017-2021), while the share of contracts in the research phase as a percentage of total contracts increased only slightly, from 27% to 30%.

Figure 9 shows the change in the modality ratio for items introduced under license-in contracts by domestic pharmaceutical companies. The percentage of small molecules showed a gradual downward trend, while the percentage of modalities other than small molecules gradually increased. Focusing on modalities other than low-molecular weight, vaccines were more common in the first half of the period covered, and medical devices including cell medicine, gene therapy, and digital applications were more common in the second half of the period covered.

Figure 10 shows the percentage of the target regions for the license-in contracts. Of the 127 license-in contracts, 11 contracts with unknown target regions were excluded. The highest percentage (29% or 34 cases) was for Japan alone, followed by the rest of the world (25% or 29 cases), and Asia (17% or 20 cases), including Japan, in third place. A survey of the nationalities of the licensees in these top three regions showed that the U.S. was the most common in all three regions, with Japan coming in second after the U.S. (Table 2). The above indicates that Japanese pharmaceutical companies are in-licensing products from overseas, especially from the U.S., and acquiring rights to these products mainly in Asia, including Japan, as their target regions.

Acquisitions by Domestic Pharmaceutical Companies

While the previous sections have primarily examined alliances in general during the research and development phase, this section of the analysis focuses on acquisitions by domestic pharmaceutical companies. As shown in Figure 1, a total of 33 acquisitions were identified during the period 2012-2021, with the largest number of 8 in 2018. Figure 11 shows the characteristics of the acquired firms and the distribution of acquisition value. The United States had the highest percentage of nationalities of acquired companies (61%), followed by the United Kingdom (15%) in second place. Japanese firms accounted for 3% (1 case) (upper left of Figure 11). In terms of the acquired company's corporate classification, 88% of the acquired companies were drug discovery ventures (Figure 11, upper right). The survey on the period from the year of establishment of the acquired company to the year when the acquisition was announced in a press release showed that the largest number of acquisitions were within five years of establishment (12 cases), confirming the trend of acquiring newly established companies through acquisitions (Figure 11, bottom left). The distribution of the 29 deals with disclosed acquisition values, including development milestones, is shown in the lower right-hand corner of Figure 11. 7 deals were worth less than $200 million and 7 deals were worth between $200 and $400 million, but 6 deals were worth more than $1 billion, indicating a wide range in the acquisition value of each deal.

In addition, for each acquisition, the most advanced product in the development phase owned by the acquired company was selected, and its characteristics are shown in Figure 12. In terms of modality classification, the percentage of small molecules reached 64% in the 2012-2016 period, but dropped to 32% in the 2017-2021 period, while the percentage of modalities other than small molecules improved to 64%. Note that the breakdown of non-low-molecule modalities was 2 in 2012-2016: cell medicine (1) and vaccines (1), and 14 in 2017-2021: cell medicine (4), antibodies (3), medical devices (3), gene therapy (2), proteins (1), and nucleic acids (1) (Figure 12, left).

In addition, a survey of development phases at the time of acquisition identified 7 research-stage items in the 2017-2021 period that were not present in the 2012-2016 period, with research-stage items accounting for 32% of the total (Figure 12, right). In summary, the above confirms the recent trend of domestic pharmaceutical companies partnering with emerging companies that are based overseas, mainly in the U.S., through acquisitions and have non-small molecule modalities that are in the research stage.

Out-licensing agreements by domestic listed drug discovery ventures

In order to compare the trend of out-licensing agreements with that of domestic pharmaceutical companies and to understand the trend of those who out-license items and technologies, we surveyed 32 domestic drug discovery ventures7) listed in Japan during the period 2000-2021, and identified the trend of out-licensing agreements with startup companies that have been listed in Japan for 10 years from 2012 to 2021. The information on out-licensing agreements was extracted from the press releases of each company for the 10-year period from 2012 to 2021 for 32 domestic drug discovery ventures7 listed between 2000 and 2021 (some companies have not yet published their press releases during the period covered by the survey). See Appendix Table 1).

Figure 13 shows the number of out-licensing agreements among listed drug discovery ventures in Japan. It is considered that there are more drug discovery ventures in Japan seeking to raise funds through listing than in the U.S. With the increase in the number of listed drug discovery ventures surveyed, the number of license-out agreements generally tended to increase, but peaked in 2020 and declined significantly in 2021. In terms of the nationality of the partners, compared to the trend in the number of license-in agreements among Japanese pharmaceutical companies (Figure 7 left), there was a trend toward more alliances with Japanese companies and fewer with U.S. companies. The "Others" category was also characterized by the large number of Asian countries included in this category.

Figure 14 shows the number of alliances by development phase at the time of out-licensing agreements for listed drug discovery ventures in Japan. The percentage of out-licensing agreements in the research phase improved to 60% in the period 2017-2021, compared to 47% in the period 2012-2016.

Figure 15 shows the modality percentage change in out-licensing agreements. Although there is no particular trend in the change in the percentage of modality, compared to the percentage of modality in the in-licensing agreements of domestic pharmaceutical companies shown in Figure 9, the percentage of small molecules is generally low, and the percentage of peptides and nucleic acids is high.

Figure 16 shows the percentage of out-licensing agreements for listed drug discovery ventures in Japan in terms of the geographic area covered. Of the 104 out-licensing agreements, 23 agreements with unknown geographic coverage were excluded. The region with the highest percentage was worldwide (36%), followed by Asia excluding Japan (19%) and Japan only (14%). The nationality of the out-licensing company for the 29 out-licensing agreements that were worldwide in scope (29 cases) was examined, with Japan (11 cases) being the most common, followed by the U.S. (7 cases). Among the out-licensing agreements (15 cases) that were concluded in Asia (excluding Japan), the majority were from Asian countries, such as China (8 cases), including Taiwan and Hong Kong, and South Korea (5 cases). In the contracts covering only Japan (11 contracts), all of them were out-licensing to Japanese companies.

Summary and Discussion

This paper investigates trends in alliances with external parties, mainly in the research and development phase, based on a combination of press releases published by 10 Japanese pharmaceutical companies from 2012 to 2021 and data from Evaluate Pharma.

First, in comparison to the previous sections, Figure 17 shows the trends of internal and external research expenditures in the Japanese pharmaceutical manufacturing industry from a more macro perspective. A comparison of the main breakdown of external research expenditures between 2016 and 2021 shows that research expenditures with domestic companies remained at approximately 110 billion yen, research expenditures to overseas companies grew from 61.7 billion yen to 79.2 billion yen, and expenditures to domestic academia and public institutions increased from 14.4 billion yen to 19.7 billion yen. grew from 14.4 billion yen to 19.7 billion yen, while overseas academia decreased from 4.7 billion yen to 2.3 billion yen. Thus, the tendency for private companies to place more emphasis on overseas was confirmed, and in addition, the trend of external spending on research in academia, which is increasingly tilted toward domestic, was also observed. However, with internal use research expenditures not increasing as much, total external spending on research also increased only slightly from 208.6 billion yen in 2016 to 235.4 billion yen in 2021, although it rose to 355.8 billion yen in 2020. In order for the pharmaceutical industry to further strengthen its research alliances with outside parties in the future, one of the issues to be addressed is how to secure outside expenditure research funds.

Next, we will examine the trends of external tie-ups among Japanese pharmaceutical companies and listed drug discovery ventures in Japan, as shown in the previous sections. We found that the number of external tie-ups among Japanese pharmaceutical companies generally increased from 2012 to 2021. On the other hand, a downward trend was observed from 2017 to 2019. The reason for this decline is not clear, but as shown in Figure 1 right, the number of corporate acquisitions was prominent in 2017 and 2018 compared to other years, which may have affected the decline in alliances other than corporate acquisitions. It is also necessary to consider that domestic pharmaceutical companies do not necessarily publish all external alliance deals, including those in the early development phase, as press releases, and undisclosed research alliances, etc., are not included in this survey.

In the future, we plan to investigate trends in external alliances among overseas pharmaceutical companies to better understand the current status of Japanese pharmaceutical companies through comparison with overseas global pharma companies.

Analysis of the external alliances of domestic pharmaceutical companies shows that the number of research alliances with academia and national research and development institutions has been increasing in recent years, and in particular, it is assumed that many alliances seek various types of basic research and expertise that contribute to clarifying disease mechanisms before identifying a modality that could become a drug candidate. There have been many cases in the past where domestic pharmaceutical companies have collaborated with industry and academia to jointly research and develop seeds, and pharmaceutical companies have taken the risk of providing funding to develop these seeds into innovative drugs. The survey conducted in this paper shows that collaboration with academia in Japan is not small, and industry-academia collaboration in Japan will continue to be important in the future.

The number of partnerships with academia and drug discovery ventures in the research phase and with drug discovery ventures and pharmaceutical companies in the development phase were also high. In particular, the number of partnerships with drug discovery ventures based in California and Massachusetts in the U.S. in the research and development stages was particularly notable. As drug research and development by drug discovery ventures have been attracting increasing attention in recent years, it is believed that Japanese pharmaceutical companies are searching for cutting-edge drug discovery technologies and products in line with their own strategies from drug discovery ventures, not only in Japan but also overseas, and forming alliances with them. Of the 10 Japanese pharmaceutical companies surveyed in this report, 5 have R&D centers in California and another 5 in Massachusetts, suggesting that they are using these centers as footholds to explore opportunities to collaborate with local drug discovery ventures.

The survey of acquisitions confirms the recent trend of Japanese pharmaceutical companies acquiring emerging drug discovery ventures based overseas, particularly in the U.S., that are less than five years old and possess new modalities in the research phase. When the single most advanced development phase per acquisition was extracted and analyzed, the number of deals acquiring research-stage items through acquisitions increased from 2017 to 2021 compared to 2012 to 2016. This suggests that domestic pharmaceutical companies are considering partnerships through acquisitions not only to strengthen their pipelines, but also to leverage the technology platforms of acquired companies, possibly combining them with their own strengths to create new development candidates in the future. In this survey, few cases of acquisitions of domestic drug discovery ventures were identified. It is expected that an analysis of the background and factors behind this situation will be promoted and discussions will be held to resolve the issue.

In addition, from the survey of license-in agreements of domestic pharmaceutical companies, we analyzed the items and technologies introduced, the characteristics of the in-licensing source, and the regions covered by the rights. As a result, a trend emerged that, through license-in agreements, non-small molecule modalities that are not in the research stage but mainly in the development and post-marketing stages are introduced from overseas, mainly from the U.S. and Japan, and developed and marketed mainly in the Asian region, including Japan. To put it another way, foreign licensees are entrusting the development of their products to Japanese pharmaceutical companies in Asia, including Japan, in the hope that they will be commercialized.

However, this could also be viewed as a case of major overseas pharmaceutical companies acquiring seeds that can be efficiently developed globally, and Japanese pharmaceutical companies acquiring the remaining seeds for commercialization in Asia.

In fact, a survey of out-licensing agreements of listed Japanese drug discovery ventures revealed that there are many cases of out-licensing of new modalities that are still in the development phase, mainly to Japanese or U.S. companies, with a global coverage. The results of the survey revealed that there are many cases where new modalities, which are still in the less advanced development phase, are out-licensed to Japanese or U.S. companies mainly in the global market.

As more international clinical trials are conducted and more products are developed simultaneously around the world, the presence of Japanese pharmaceutical companies with strengths in the Asian region will gradually diminish. Therefore, it will be necessary for Japanese pharmaceutical companies to make greater efforts to acquire development candidates that can be deployed globally from the earlier research phases of development. In this press release survey, several cases were identified in which a company initiated joint research with a partner and subsequently in-licensed a development candidate created through collaboration, or acquired a partner. In the future, it will be necessary to accumulate more such cases.

Japanese pharmaceutical companies will incorporate cutting-edge life science technologies created in various parts of the world through alliances, co-create innovative drugs, and deliver them to patients in various parts of the world. We look forward to a future in which even more Japanese companies participate in such a global system.

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