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develop treatments for infectious diseases hasdeveloped fatal corporate pneumonia. Forexample, Johnson & Johnson (Raritan, NJ,USA) is continuing to seek such drugs,according to Karen Bush of the company’sPharmaceutical R&D division. She suggeststhat medical needs for new antibiotics out-weigh any IP issues that may deter a pharma-ceutical company from entering the field. “Amajor reason to stay in the field is drug resist-ance,” she notes.

Moreover, there are still solid commercialjustifications for pursuing new antimicrobialtreatments because this field is considered the

Cell therapy firm MEDINET (Yokohama,Japan) completed an initial public offering(IPO) on October 8 in Japan, joining fourother biotech companies that have gonepublic in the country since September 2002.Industry observers expect around six morewill have IPOs before the end of 2004 (seeTable 1). The spate of offerings is seen as aharbinger of a Japanese economic upturn andcontrasts sharply with the biotech industry’slack of activity on public markets elsewhere inthe world. There has not been a biotech IPO inEurope or the United States since June 2002.

“This is virtually unknown outside Japan,but the nation’s biotech sector has beenexploding in recent years,” says ChristopherSavoie, CEO of Gene Networks (Tokyo), apharmaceutical development company thathopes to go public within the next few years.Indeed, share prices of four of the five biotechfirms, which all spun out from universities,have increased since their IPO completions.

The IPO boom reflects the recent recoveryof the Japanese economy. The country’s GDP grew by 1.0% in the second quarter,0.4% higher growth than was expected by theCabinet Office, and the benchmark NIKKEI225 index rose above 10,000 in August for the first time since August 2002. Insiders saythis positive economic climate in Japan givesan advantage to biotech firms there.

Japan’s biotech sector has also benefittedfrom changes in economic infrastructure andgovernment deregulation of industry–academic collaboration that is favorable toentrepreneurs (Nat. Biotechnol. 18, 256,2000). Part of this system fell into place whenJapan’s markets for emerging stocks wererestructured to make it easier and faster forcompanies to conduct IPOs, reducing theapplication approval time from years to oneor two months, say financial market experts.

Legislation enacted in 1998 granting investorslimited liabilities, in the hope that it wouldboost investment by venture capitalists,has also helped entrepreneurs, says TakeoMatsumoto, CEO of Biotech-HealthcarePartners (Tokyo). It appears to have worked.In fiscal year 2002, overall investment inbiotech firms stood at ¥8.8 billion ($77million), an increase of 33% over the previousyear, according to statistics from the JapanEconomic Journal (19 August 2003, p.19).

Japanese biotech startups are also drawingincreasingly on the expertise of the country’suniversities. Faculty members—onceconfined to their ivory towers—have beenallowed to run R&D companies andtechnology licensing organizations, since2000. The universities have thus become more active players in the biotech industry,says Robert Kneller, professor of intellectualproperty at the University of Tokyo. AndJapan’s Ministry of Economy, Trade andIndustry (METI; Tokyo) aims to increaseuniversity-backed venture firms to 1,000 bythe fiscal year 2006. As of March 2003, 131such companies were involved in activitiesclassified by METI as biomedical; of these, sixplan to go public by 2009, according to METI.

“Japan has traditionally possessed amyriad of biotech business seeds. It was justthat there was no system to bridge them withventure opportunities,” says Savoie. Amongthose seeds, the fusion of biotech and othertechnologies is particularly hot, says KatsuyaTamai, a professor of intellectual property at the University of Tokyo.“Japan has been strong in nanotechnology, so thecombination of nanotech and biotech is thefuture.” Tamai hopes there will be moreleeway for university professors to conductunique research and run biotech ventureswhen national universities become

Japan’s biotech sector shows signs of life

drop dead.” Many larger companies have indi-cated that drug development attention isbeing shifted to those products that will beused for treating chronic diseases, rather thanacute infections for which treatment coursestypically are brief. This sort of behavioramong major pharmaceutical corporationsnot so long ago was often what spurredupstart biotech companies to seize on smallermarket sectors that offered them adequatelysized product-development opportunities.

But this strategy has become increasinglydifficult for biotech companies to exploit,according to David Shlaes of IdenixPharmaceuticals (Cambridge, MA, USA),another biotech seeking to develop productsto treat infectious diseases. “It is a myth thatbiotech companies will take over this field,” hesays. One big problem revolves around capi-tal, particularly the sums that are neededwhen any company plans a large-scale clinicaltrial, Shlaes explains. “Cubist was an excep-tional case. Most small companies can’t takeon the cost of trials, and the departure of bigpharma removes a major source of fundingfor small companies.”

Antbiotics represent a “complex market,”counters Ralph Christoffersen atMorgenthaler Ventures (Boulder, CO, USA).He acknowledges that some big pharmaceuti-cal companies are leaving the field becausethey think it is too small, but he says that itnonetheless remains “superb for some smallbiotech companies.” Moreover, he adds, “thenotion that big pharma must fund clinical tri-als is over-generalizing. It’s much more feasi-ble for venture capital to fund clinical trialsfor [drugs such as antibiotics] to treat acuterather than chronic diseases—and becauseanimal models are more highly predictive, itcosts much less money, and there is a higherprobability of success.”

Other discouraging forces include costlyunresolved issues over intellectual property(IP) rights and continuing regulatory difficul-ties having to do with clinical trials, accordingto both Shlaes and Projan. Reforms beingconsidered as part of the BioShield legislativeproposal pending in Congress could providenew incentives, but remain unsettled. Forexample, one proposal being floated—to provide a given company with ‘wildcard’extended market exclusivity for any drugwithin its portfolio in exchange for develop-ment of valuable but less profitable drugs—could prove a useful incentive to attractcompanies back into the antiinfectives field,Shlaes says.

Of course, not all pharma are sniffling overthe value of antiinfective agents, and notevery small biotech company seeking to

third largest in terms of annual sales, sur-passed only by drugs for treating central nerv-ous system disorders and cardiovasculardisease. Antibacterial agents represent about a$26 billion worldwide annual market, accord-ing to Projan. Even a small piece of that actioncan be attractive for small companies, saysZhengyu Yuan of Vicuron Pharmaceuticals(Fremont, CA, USA). A product with annualsales of “more than $150 million is very suit-able for biotech companies,” making thesearch for antimicrobial products still “veryattractive” for some companies.

Jeffrey L. Fox, Washington

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independent organizations in April 2004.Although Japan’s penchant for biotech

ventures is increasing, there are obstacles thatmust be overcome, says Kneller. One of thebiggest challenges in Japan is a reluctance oflarge pharmaceutical companies to partnerwith small biotechnology companies that are focused on biomedical research, whichconsists of almost half of all Japanese biotechfirms, according to statistics by the JapanBioindustry Association (Tokyo).“Drugdiscovery in Japanese large pharmaceuticalcompanies occurs predominantly in-house.In contrast, European and USpharmaceutical companies rely more onalliances with university based startups andother biotechnology companies for drug

GM confusion in BrazilThe Brazilian government temporarily

lifted the country’s ban on planting geneti-cally modified (GM) soy on September 26,but long-awaited legislation that would allowsuch crops to be made commercially availablein Brazil has yet to be voted on by Congress.The confused legal situation has set back bothagbiotech firms and local academic scientistsdeveloping new GM organisms and couldtherefore hamper the overall competitivenessof the country’s agbiotech sector.

Although the new measure still forbids thesale of GM seeds, the government’s decisionbrings Monsanto (St. Louis, MO, USA) a stepnearer to selling its GM soy in Brazil. “This isanother time that Roundup Ready soy’s safetyhas been attested [to] by the federal govern-ment,” says Lúcio Mocsányi, director of com-munications for Monsanto, referring to a

decision made in 1998 by the ComissãoTécnica Nacional de Biossegurança (NationalTechnical Biosafety Committee, CTNBio;Brasília, Brazil) that the GM soy could besafely commercialized (see Box 1). As a resultof CTNBio’s decision, Greenpeace filed a law-suit against Monsanto that resulted in a courtruling that banned GM soy until the govern-ment’s recent removal of the ban (Nat.Biotechnol. 17, 848, 1999).

Agbiotech industry insiders hope thisannouncement will eventually lead to the endof restrictions on GM crops. On March 26,another presidential provisional measure(later converted to Law 10688/03) establishedrules for the commercialization of the2002/2003 soy crop, including transgenic soy.This measure gives amnesty to soy farmerswho illegally planted GM soy when the ban

was in place; there are no official statistics, butfarmers believe around 70% to 80% of soy inBrazil’s southernmost state of Rio Grande doSul is now transgenic (see Fig. 1).

Even so, the most recent provisional meas-ure implemented by the government is only atemporary solution; it has yet to be confirmedby Congress and converted into new legisla-tion on GM crops. This draft law, which wasinitially expected to be ready before October,the soy-planting season, has been delayed,partly due to disagreement within the govern-ment. The minister of agriculture, RobertoRodrigues, defends the planting of GM crops,whereas the minister of the environment,Marina Silva, is against the commercial plant-ing, saying that more studies are necessary.

“The worst thing that could happen is notto have a clear regulation pattern,” saysFernando de Castro Reinach, CEO of Alellyx,a genomics company created by researchersinvolved in the sequencing of plant patho-gens, such as Xylella fastidiosa. “We are losingthe concept that we must judge GMOs in acase-by-case manner.”

Although the lack of clear legislation affectsmultinational companies such as Monsanto,Brazil is only one country (albeit an impor-tant one) within their market. However, forsmaller companies like Alellyx, which workon crops of major economic significance toBrazil, such as sugarcane, eucalyptus andorange, the scenario may be more dire. “Rightnow we’re not suffering any damage, becausewe’re still in a developing phase regardingtransgenics, but in one or two years we wouldneed field testing, and then we may be put injeopardy,” says Reinach. He also warns that aGM-unfriendly scenario “with neither clearrules nor clear prohibitions” will cause com-panies to close and scientists to leave thecountry.

Not only are biotech companies affected,but Brazil’s research community is also feel-

Roundup ready soy in a farm in Rio Grande do Sul.

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discovery,” says Kneller. He further suggeststhat Japan’s inflexible labor market, which ispartly sustained by a pension system andretirement money program that favorslifetime employment at a single job,discourages changing career paths intoentrepreneurship.

In the meantime, Japan’s biotech sectorstill has some catching up to do.“There arealready 400 biotech [public] ventures in theUS, whereas Japan has only a handful,” pointsout Steven Burrill, CEO of Burrill & Co. (SanFrancisco), a life sciences merchant bank.“We will see thirteen companies that gopublic in the fourth quarter this year in theUS,” he predicts.

Keiko Kandachi, Tokyo

Table 1 Completed and proposed initial public offerings of Japanese biotech firms since September 2002.

Date of IPO Company Business

September 25, 2002 AnGes MG (Osaka) Gene therapy

December 10, 2002 TRANS GENIC (Kumamoto) Mouse and antibody production methods

July 30, 2003 A&T Corporation (Kanagawa) Clinical trial reagents

September 18, 2003 MediBic (Tokyo) Consulting, informatics

October 8, 2003 MEDINET (Yokohama) Cell therapy

December 2003 Soiken (Osaka) Human clinical research

December 2003 OncoTherapy Science (Tokyo) Gene therapy research

Spring 2004 Shin Nippon Biomedical Clinical pharmacology and safety Laboratories (Tokyo) research

Spring 2004 SOSEI (Tokyo) Drug development

Spring 2004 HuBit Genomix (Tokyo) SNPs

The second half of 2004 DNA Chip Research (Yokohama) DNA chip development

Sources: Tokyo Stock Exchange Mothers, JASDAQ, Japan Economic Journal (12 August 2003, p.1).

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