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SRD Holdings: providing the support required by the R&D of health-related companies.

Interview - September 19, 2022

With a wide range of services that go from non-clinical to clinical trials for new drug candidates, SDR Holdings can simplify what are normally the most costly and time-consuming steps in the development of pharmaceuticals by taking advantage of their group expansion and multiple partnerships.

HIROMI TAZAWA, PRESIDENT OF SRD HOLDINGS CO. , LTD.
HIROMI TAZAWA | PRESIDENT OF SRD HOLDINGS CO. , LTD.

Japan’s population is widely known to have one of the longest life expectancies in the world, however, Japan also has the highest percentage of elderly people, with 28% of people over the age of 65. As a medical company, what challenges and opportunities is this aging population presenting for firms such as yours? What can Japan teach the world when it comes to dealing with an aging population?

My personal views on this issue related to an aging society is that population conditions are considerably different from those of Europe and other countries, in that Japan has a rather lower birth rate than that of the most of other countries. France, for example, also faces the increased aging population like Japan, but the birth rate of the country is relatively high compared to Japan. The fact that the birth rate is low, I believe, well correlates with the low marriage rate. Both of these two parameters have considerably decreased in recent years, especially during the period of the COVID-19 pandemic in Japan.

While both the declining population and the aging of society have caused detrimental impacts on the Japanese society, I am afraid that the declining of birthrates are essentially different type of major social issues to be solved than the aging of society. With regard to the economic growth, as is well accepted, the population decline is one of the serious problems. In order to sustain the economic growth, it is mandatory to maintain the labor force, and therefore the Japanese government is trying to take measures to cope with issues of the falling birthrate and aging population.

Unfortunately, however, successive administrations by the Japanese government have failed to find a clear solution to these issues, and the situation seems to continuously deteriorate up to now. In compliance with the pension and social security systems in Japan, complying especially with the National Health Insurance System, people over 75 years old have to pay 20% of their medical expenses, while other generations must pay 30% of them, under the control of the universal health insurance system. However, the dramatic increase in the number of elderly people of aged 75 or older has made it extremely difficult to maintain the current rate of out-of-pocket expenses. Since the proportion of the elderly population continuously increases in the midst of the population decline, we need to find out other alternative ways to maintain the system.

For a rather long time, pharmaceutical industries in Japan have faced with the difficulty of deciding whether or not the price of each drug is appropriately set up, since the NHI price is always set by the government of Japan. Pharmaceutical companies in Japan are strongly willing to develop new drugs of their own, but in the case where they cannot expect acquiring a reasonable NHI price for their compounds (which fully compensates the R&D cost), then it seems to be quite a natural response to make a company decision not to launch a new drug in Japan but in the U.S. instead. This is because the economic benefits are expected to be much higher in the U.S. than Japan.

The size of the Japanese pharmaceutical market is approximately ¥10 trillion, which seems likely to successively decrease year after year. Also, the Government of Japan well recognizes that there are far more imports than exports rates for pharmaceutical compounds. Therefore, the Japanese pharmaceutical companies have a tendency to aggressively invent new technologies to develop new drugs. And, as a matter of fact, the Government of Japan encourages them to develop innovative, world-class drugs, in order to increase the export rates of pharmaceuticals. Nevertheless, things do not seem to work easily.

Major Japanese pharmaceutical companies, in general, do not think that they have accomplished sufficient sales enough to fully cover their R&D expenditures, at the same levels as those European and U.S. companies attain. What is worse, the Government of Japan does not seem to provide pharmaceutical companies with sufficient subsidies. Thus, a vicious cycle is taking place in both sides in Japan.

The year of 2015 is an epoch-making year for pharmaceutical industries in Japan. This is because a pioneering system that can conditionally approve highly effective drugs was officially implemented at the Government in Japan. By virtue of this system, several new innovative drugs are now on the market list in Japan. It is not too much to say that the main companies that need to be pioneered are Bioventures or start-up companies in Japan. In these days, both the government funds and national funds that have been also available to support their scientific activities being carried out at these companies in Japan, while the amount of funds is not much.

In this concern, in the United States, we learned that venture capitalists and States by itself help Bioventures all from the beginning of drug research to the drug is to be put on the market. In Japan, on the other hand, Bioventures need to be financed mainly through IPOs, because they are not well supported in terms of these fundings. This is why many Japanese Bioventures nowadays focus on gaining IPOs. Thus, please understand that the funding systems in the U.S. and Japan are distinctly different.

 

We understand that SRD has been running a business in Vietnam since 2015, in which you have concentrated your efforts to build up contract research organizations (CROs) . What are the expected benefits of running such a business in Vietnam?

In 2015, we opened an office in Vietnam for the following reasons. First, the reason I selected Vietnam was that the country was within the Asian geographical territory. Second is that Vietnam is a pro-Japan country, with a large population, and that a growing need for pharmaceutical products would be expected in the not far future. Finally, I happened to have an excellent acquaintance there in that country.

At that time when SRD opened an office, the clinical trial environment in Vietnam was not fully developed, and we were convinced that there would be a plenty of opportunities for mid-sized companies like SRD to play critical roles in the clinical development in Vietnam. I remember discussing the CRO, SMO, and GCP standards with Ministry of Health, MOH, officials not a few times. In those days, since Vietnam has a large number of young people, there is almost no medical need for pharmaceutical products to treat these young generations with.

However, the noteworthy is the fact that the pharmaceutical market could be expected to grow in a rapid way during the coming next 10 to 20 years, as the aging of the population steadily progresses and the demand for pharmaceuticals is expected to constantly increase. Collectively, to have a presence in Vietnam as soon as we can, seems SRD to be a great advantage in order that SRD has a direct access to information on the Southeast Asian pharmaceutical market and clinical development as well in those geographical areas.

SRD also established a small-size joint venture, in China four years ago. That JV is regarded as not a domestic but a foreign company in China. Nowadays, China has a large number of CROs, and is regarded as a growing and an active business. Unfortunately, however, the turnover of CROs turned out to be to be extremely high.

Shifting our attention to the economic conditions of Japan, the depreciation of yen is apparently taking place. This has made it economically attractive for most of the pharmaceutical companies in Europe and North America, because this economic condition opens up a new opportunity to conduct clinical trials in Japan. Previously, the cost needed for conducting clinical trials in Japan was said to be rather high, and what is more, extremely slow in its clinical development speed.

Fortunately, however, the depreciation of yen has made it attractive for pharmaceutical companies in the United States and Europe to perform clinical trials in Japan with much less expensive than before, in terms of the development cost. As far as the export of pharmaceutical products from Japan is concerned, Japanese pharmaceutical companies can be said to have become more competitive than before internationally.

Furthermore, pharmaceutical development capabilities in Japan are expected to increase dramatically, only if the Japanese government puts much more financing and financial supports into Bioventures. To tell the truth, currently the amount of funds provided is not sufficient enough to cover all the R & D cost to be needed by Bioventures. To enhance the competitiveness of Japanese pharmaceutical companies in the global market place, the Japanese government believes it indispensable for supporting these Bioventures as much financial supports as to the same extent that the U.S. or China put for their own R&D activities

 

When we spoke to Mr. Yan, the president of EPS Holdings, he spoke of the importance of strategic alliances for his business. To continue growing, he was looking to partner with academia, bioventures and start-up companies, both domestically and internationally. In the case of your company, are you looking for overseas partners? If so, which country are you looking for partners in, and what type of partners would they be?

As you are quite aware, CROs assume their full responsibility to develop pharmaceutical drug candidates. Therefore, for CROs it is of central importance to work with clients who are prepared to develop such candidates both in Japan and overseas, but not limited to domestic. It is true that CRO business in Japan targets mainly domestic pharmaceutical companies and Bioventures, but it is also very true that SRD has been partnering with one of the global CROs, always keeping the SRD’s strategic alliances in mind.

We have also signed contracts with SMO in Taiwan, CRO and SMO in China, respectively. These are loose partnerships, where personnel can freely introduce each other's customers to each, rather than working together in a bureaucratic way. These are all about SRD has done so far, and we do not expect to go forward to any further.

 

In 2014, your company transitioned to a holding structure, and your business is now split into three divisions. The first is your business base services where you offer support for R&D and clinical trial services. The second is your institutional support where you act as a coordinator among many other services. The third is related to patients, where you provide real estate services related to home cares and housing. What are the synergies that you have been able to develop between those three divisions, and what benefits does this holding structure allow you to realize?

Regarding the first question, the business service thus established could further be classified into the three categories. (1) CRO's regular outsourcing services, (2) supports for which are closely tied to Bioventures by financially providing support through investments, and (3) new drug candidate developments whose main aims and purposes is to reposition their therapeutic effects, or so called “line-extension studies”, most of which are usually performed by Bioventures within the Group.

The second question you raised is largely related to the SMO business aiming at supporting many clinical study sites which were selected for clinical trials. Both of these two models are to support services for companies engaged in the new drug candidate developments. While we understand that the provision of housing particularly for the elderly people, houses that are equipped with medical institutions, and that of real estate services are, in a broad sense, considered to be a part of the healthcare industry.

No direct synergistic effects remain unfortunately to be demonstrated up until now. Nevertheless, it is our hope that beneficial outcome to the business of the SRD group would be generated sooner or later. To make a long story short, the chief reason for the transition to a holding company is to flexibly implement the capital policy at the SRD group.

Finally, we would reiterate one thing: relatively large funds are almost always in need for investing into Bioventures, and also for buying or selling the real estate. This statement would have to be borne in mind as the bottom line of all the group of SRD’s financial transactions.

 

What have been some of your favorite CRO interactions that you have had previously? Is there one of the success stories that is close to your heart?

The background of the word originally derives from the historical event that the SRD has been investing into Bioventures since 2011. Between ¥100 and ¥300 million JPY was usually invested into for each company.

We have been investing from the early development phase. And, some of these Bioventures we do hope to be listed as IPOs in the near future.
We are thus planning to continue providing full supports, all the way from the approvals to the marketing of drug candidates.

Lastly, one success story I want herein to touch upon. One of the Bioventures SRD invested was able to successfully develop and launch new drug candidates. Currently, the company has put investments into nine biotech ventures, including overseas companies, and has two other company candidates at their hands.

 

In your case, as a CRO with a unique way of operating, what would say are your main competitive advantages for a foreign company looking to partner with you?

I admit that this is a rather general story, but our business strategy is that SRD timely and continuously provides services of a high-quality to any clients. Our fundamentals lies in the business model which was originally invented by SRD. And, SRD made and will make its best endeavor by concentrating on the R&D activities. Besides these fundamentals, SRD has succeeded in establishing amicable interactions with university hospitals in Japan, and has been working closely with professors in order that we can smoothly conduct investigator-initiated clinical trials.

We are convinced that these two are powerful weapons for SRD to go forward with all the programs which are currently on-going at SRD. Although it is true that these investigator-initiated clinical trials do not make a significant contribution to profits of SRD so far, we can elaborately challenge on the pioneering, and state-of-the-art drug candidates. This is the SRD’s motto. This sort of CRO's supports for academia is not a common path cultivated by major CRO companies in Japan. And it seems therefore to very specific to SRD, because SRD is a medium-sized CRO.

Needless to say, not all drug development works well, but continuity of our efforts would eventually overcome any hurdles in front of us. Currently, we have about 230 employees as for the CRO activities, and about 500 employees throughout the SRD Group.

We do not intend to expand the company size, but we are aiming at achieving a high profit rate through the enhancement of our services.

Altogether, SRD is said to have been focusing on establishing a new business model that has emerged above and beyond the scope of so-called CRO activities.

 

How will you continue to grow your business internationally, and which countries will you prioritize?

Currently, we do not consider expanding the SRD’s capability toward overseas countries. SRD has operations in both Vietnam and China, as I told you before, and our current goal is not to aggressively progress, but to maintain their activities as they stand now. During the period of the COVID-19 pandemic of more than two years, mutual visits across countries have been almost impossible, which made us feel that overseas expansion is extremely hard to make during these days.

This means if clinical trials are to be conducted in Japan, we will also be able to be commissioned from any countries around the world, regardless of the differences of the geographical locations. In the above dialogue, I talked about the conversation delivered between Mr. Yang, president of EPS, who originally came from China, and I believe it quite possible for Mr. Yang to effectively work in China, because he was born there and grew up there, which may be enough to get acquainted with the peculiar culture of China, e.g., history, economy and even political soil in China, which may eventually lead to a business success in that country.

In the case of Japanese CROs, however, even though they successfully extended business activities overseas, I am afraid that considerable efforts would have to be in need for fully penetrating into the pharmaceutical markets and for building up a workable space into those overseas countries like China.

 

What are some of the dreams you have for this company that you would like to accomplish in the next few years?

One final goal of SRD is to provide full services for licensing businesses of pharmaceutical industries and medical device companies, to provide new Bioventures with funding supports for their own know-how, and to run a drug discovery business through these Bioventures within the SRD Group.

The other goal SRD keeps in mind at the present moment is that all of us working at the SRD group would become shareholders for the group, and actively to participate in the company's any business operations being performed at SRD in the long run.

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