The mystery of risk-taking in biotech (US, Japan)

As we’ve expanded our US-Japan services, we are often asked about the differences between the US and Japanese biopharma industry. There are several, and we recently hosted a members-only webinar in Japan about the differences between US and JP innovation and output. Japan is, of course, a growing leader in biopharma and home to several top multinationals. Japan consistently ranks highly among nations with quality innovation, claiming the #1 spot worldwide in 2018 and #3 in 2019 (The Global Innovation Index, 2019). Despite this, the country has struggled to consistently translate innovation into the marketplace, ranking behind the US and much of Europe on the innovation output index. Why this difference?

  • There is an opportunity for more healthy risk-taking in Japanese biotechs. Americans generally place a high value on entrepreneurship and risk-taking. As a society, we admire those that succeed and tolerate failures as positive (even if painful) learning experiences. Out of 47 countries, the US ranks 9th for giving high status for entrepreneurship and 23rd highest for fear of failure. Whereas Japan places 42nd for giving a high status for entrepreneurship and 9th highest for fear of failure (The Global Entrepreneurial Monitor 2018-2019 Global Report). This risk aversion may discourage startups in Japan from making bold investments to advance innovative products to market.

  • In Japan, companies must be profitable prior to IPO, and IPOs are often considered an exit rather than an important fundraising milestone. In the US, IPOs are viewed as financial events - a way for companies to raise capital and further grow the company. While an IPO may be lucrative for early investors/employees and executives, stakeholders typically have their shares in the company locked up for 6 months or longer before they can cash out. In Japan, the IPO is a major exit opportunity because executives can cash out a certain percentage of their shares at the IPO. Furthermore, companies must be profitable in order to file for IPO, which prompts biotech firms to pursue “fee for service” or “platform technology” business models at the expense of investing more in novel pipeline programs.

  • M&A activity is low in Japan relative to the US (even accounting for market size). Many US companies pursue M&A or licensing deals. These add immediate cash value and can help fund late-stage development. Whereas Japanese companies tend to focus on IPOs instead of M&A, and this preference lowers the ability of companies to bring assets to market.


While these aren’t all the factors at play, they are some that have emerged from our recent review of data in dealmaking, along with our experience with numerous biotechs. Despite the above, Japan continues to foster exciting innovation and an increasing amount of capital is being deployed to support innovative biotechs. We are excited to be at the center of these activities with our growing footprint in the US and Japan. Headland can help biotechs looking to take calculated risks to advance their exciting pipeline programs and attract potential BD/M&A partners.

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