Japanese biotech: a plan for the future: why Japan has been slow to succeed--and how that may change.

THE JAPANESE GOVERNMENT HAS set an ambitious target of growing the biotech industry to [yen] 25 trillion and creating 1,000 new biotech companies by 2010. Considering the current status of the industry, the word "ambitious" is an understatement.

Today, Japan lags far behind the United States in biotech and has failed to create a niche for itself in the global biotech market. Biotech thrives in countries such as the United States because of active links and cooperation between the worlds of academia and industry. While academia drives research, industry takes the product from "bench-to-bottle"--that is, to the market. Such relationships have not been commonplace in Japan, and the domestic industry has suffered in their absence.

Japan has also suffered from its failure to recognize the importance of patents. While the US government took a pro-patent stand in the 80s, Japan became aware of the importance of intellectual property only in the late 90s, and this set back the nation's plans dramatically. The United States holds most of the basic patents in biotech. Japan needs to accelerate its quest for patents as intellectual property if it hopes to drive the global biotech industry in the future.

Pharmaceutical giants, breweries, huge food companies, chemical industries, heavy engineering giants and IT drive biotech research in Japan. But the number of startups is very low when compared to the United States. This is an important hurdle for the Japanese biotech industry to overcome: Besides being commercially driven, startups are the home of innovation. There is more scope for innovation in smaller startups that can begin research on a technology faster than a bigger company with a longer decision-making process. The United States has become a biotech behemoth due to the successes of its startups. Though aggressive government plans and mature venture capital investment can rectify this in the long run, right now it remains a prohibitive weakness in Japan.

There are looming opportunities, however. The aged population of Japan is growing, and this alone opens a wide array of opportunities for local biotech companies to flourish. More pharmaceutical companies are looking to biotech solutions to find treatment options for diseases such as CNS disorders and heart diseases that afflict the elderly population. The number of elderly is also expected to increase worldwide, providing Japanese biotech companies with global opportunities as well.

Japanese biotech companies have expertise in bioinformatics, manufacturing and genetics. Japan also offers opportunities to form joint-venture partnerships with multinational majors, or to establish technology transfer agreements and strategic research partnerships with key research institutions. A number of multinational companies have formed partner ships with a variety of Japanese companies, and this trend is expected to grow, creating new opportunities for Japanese biotech participants.

With increasing competition mad challenges, biotech companies need to be cash rich to sustain and chase their dreams. Countries that have been successful in biotech have always had an established investment community that could support the needs of an emerging industry with long gestation periods. The US has successfully managed to meet this challenge. Japan's initiatives in strengthening the investment community would be vital to the growth of biotech. On November 11, 1999, the Tokyo Stock Exchange established a new market named Mothers (market of high-growth and emerging stocks) to provide venture companies access to funds at an early stage of their development, and to provide investors with more diversified investment products. There should be many more such initiatives so that an atmosphere of support, opportunity and potential is fostered.

Japan should also increase its focus on emerging technologies that have immense impact on the future of biotech. Although Japan may lag behind in the commercialization of biotech products, it has always maintained high technology research in its universities and research institutes. This is another ace up its sleeve. Areas such as stem cell research, where Japan has clear guidelines, could emerge as a trump card for the nation, and initiatives such as the formation of The Japan Biological Informatics Consortium (JBIC) help boost the Japanese focus on bioinformatics.

Finally, Japan should concentrate on genomics and proteomics. Japan's focus on human full complementary DNA sequencing and SNPs puts it an ideal position for major advances in the future.

Clearly, Japan has what it takes to kickstart itself into high gear in biotechnology. What could make the difference between success and failure is its business road map for the future. It has the infrastructure, strung government support and manpower resources for success. What it needs is focus on growth areas, a strong sense of commercialization, a well-defined investment community to support biotech, and most importantly, a way to engage the private sector. Japan has the right ingredients in its universities and public research labs; now, Japan needs to facilitate links between academia and industry. With increased commitment to biotech from its pharmaceutical and IT behemoths, Japan can become a force to reckon with.

Balaji K is Regional Industry Manager for Lifesciences Practice, Frost & Sullivan.