A $3 Billion Biotech Firm That Almost Wasn't Finds New Life

  • PeptiDream’s co-founders invested own money to start firm
  • Japanese biotech stocks have surged over past two years

The biggest biotechnology company in Japan almost didn’t get built.

When Patrick C. Reid, now managing director of PeptiDream Inc., arrived in Japan about a decade ago, he found investors reluctant to put much money into drug startups -- even though the country had world-class universities and pharma companies. A string of biotech firms had seen their shares slump by the mid-2000s, leaving the sector with an unfavorable image.

So when PeptiDream was first set up, its co-founders had to dig deep into their own pockets to get it up and running. It took more than 10 years for investors to get over some of their previous disappointments with IPOs in the Japanese biotech industry. But there has since been a resurgence of interest in the sector -- aided partly by a more nimble drug regulator and by share gains for newer companies.

An employee works at the PeptiDream laboratory.

Photographer: Tomohiro Ohsumi/Bloomberg

PeptiDream has seen its shares -- which were trading at 5,410 yen at 9:40a.m. local time -- more than double over the past two years for a market value of about $2.7 billion, and partnerships with global pharma giants including Bristol-Myers Squibb Co., Novartis AG and Roche Holding AG’s Genentech have helped bring in more money. Reid in an interview said his company expects to announce more international tie-ups this year, another sign, he believes, of the green shoots emerging in the sector.

Companies like PeptiDream, Sosei Group and Healios KK are “doing deals and showing that Japan biotech can do something,” said Reid, who is also head of research and development at PeptiDream. “Hopefully in years to come, people will look at us – and we will be the example of why biotech in Japan turned around.’’

To read a profile of Hiroaki Suga and how he founded PeptiDream click here.

Sosei, which has the rights to technology that allows it to develop drugs in a more targeted way, has expanded through acquisitions and seen its shares surge about 300 percent over two years. Healios, which uses stem-cell technology to develop treatments for stroke and vision loss, has seen its stock jump about 53 percent over that period.

While Japan has large academic institutes producing world-class science, many of its inventors have shunned entrepreneurship. The country’s vast drug sector is dominated by multinationals and local behemoths like 235-year-old Takeda Pharmaceutical Co. After the woes of the biotech industry in the 2000s, innovative startups, usually key to bringing in new drugs and technologies, largely fell off the map in Japan.

Now a number of smaller companies are beginning to try again, propelled partly by Prime Minister Shinzo Abe’s more favorable regulations. Burdened with an aging population and tighter fiscal budgets, Japan is seeing more value in newer therapies. Legislation to encourage emerging new areas such as regenerative medicine, which focuses on repairing damaged body organs, have spurred investment.

"More success stories with basic researchers getting very high economic benefits is a stimulus for others to follow in the path,’’ said Makio Kitazawa, Tokyo-based partner and managing director at the Boston Consulting Group. “A huge change is happening due to some new pressures such as very tight government budgets and new generations of researchers and risk money.’’

Still, the progress of some of the new regenerative medicines remain to be seen, with less than a handful having reached the market. Some critics also caution that loosening regulations could have an effect on safety.

One proponent of policies to spur the development of new medicines has been Tatsuya Kondo, the neurosurgeon who helms the Japanese drug regulator, the Pharmaceuticals and Medical Devices Agency. Since Kondo took over in 2008, the PMDA has pushed to speed up the approval process.

While the PMDA got its start by copying its U.S. counterpart, Kondo is now looking ahead, he said in a November interview. Although Japan has contributed to global scientific advances for years, the country has yet to establish a vibrant start-up environment. This could be changed by getting firms to work more closely with the regulator through the drug development process, according to Kondo.

To read more about Japan’s push in regenerative medicine click here.

The Japanese regulator has been “super receptive in listening,” and very open to finding the best way to move peptides through regulatory processes, Reid said. Made of amino acids, Peptides are much like proteins, although they are shorter versions.

An automated microwave peptide synthesizer at the PeptiDream laboratory.

Photographer: Tomohiro Ohsumi/Bloomberg

PeptiDream uses its peptide system to facilitate the discovery and testing of new drugs in a range of diseases from cancer to neurological conditions. The company also offers a window into the evolution of the biotech industry in Japan.

Reid arrived in Japan 14 years ago, fresh from a Ph.D. in biochemistry from Dartmouth College, to be an associate professor at Tokyo University. He recalls the first time he mentioned his entrepreneurship ambitions to researcher Hiroaki Suga. The response was: “Why would you want to do that?”

But the two saw each other regularly. And when Suga -- who had a breakthrough in peptides -- was approached by a U.K. firm for a partnership, he remembered the conversation and invited Reid on board.

The two scientists and other co-founders initially put their own money into the company. They went on to raise an early round of funding in 2008 from outside investors and eventually listed on the public exchange in 2013. Despite a 10 percent drop in the share price this year, the stock has climbed more than eightfold since it started trading in 2013. Sixteen larger pharmaceutical companies now have partnerships with the Japanese firm. 

“We really want to be a drug discovery engine,’’ Reid says. “Building a Japanese biotech doesn’t need to be as risky as people believe.”

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