Chugai Pharmaceutical Co., Ltd.

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Chugai Pharmaceutical Co., Ltd.

1-9, Kyobashi 2-chome, Chuo-ku
Tokyo 104-8301
Japan
Telephone: (81) 3-3281-6611
Fax: (81) 3-3281-2828
Web site:http://www.chugai-pharm.co.jp

Majority-Owned Subsidiary of Roche Group
Incorporated: 1943
Employees: 4,931 (2001 est.)
Sales: $122.7 million (est.)
Stock Exchanges: Tokyo Nagoya Osaka Fukuoka
Ticker Symbol: 4519
NAIC: 325412 Pharmaceutical Preparation Manufacturing; 325411 Medicinal and Botanical Manufacturing

Chugai Pharmaceutical Co., Ltd. is the fifth largest pharmaceutical company in Japan, with branch offices, plants, research laboratories, affiliates, and subsidiaries located worldwide. The company’s main business, accounting for 76.2 percent of net sales in 2001, is in the discovery, development, and marketing of prescription drugs for cancer and infectious diseases, blood disorders, bone disorders, and heart and vascular disorders. Chugai also develops nonprescription products (over-the-counter drugs and insecticide products), diagnostics products (enzyme-immunoassay kits and DNA probes), and implant-related products (artificial bone implants and internal fixation devices). Chugai consistently invests nearly 20 percent of its net sales in R&D, one of the highest levels among Japanese pharmaceutical companies and consistent with the highest levels in the industry. As a result of a unique merger in late 2001, Chugai is now a subsidiary of the Switzerland-based Roche Group.

1925 to 1979: The Early Years

Originally named Chugai Shinyaku Shokai, the company was founded in 1925 as a pharmaceutical trading company. The company was incorporated in 1943 and changed its name to Chugai Pharmaceutical Co., Ltd. In 1944 the company acquired Matsunaga Pharmaceutical Co., Ltd. By 1951, Chugai began to establish the foundation for its future growth, with the successful commercial production of glucuronic acid and its launch under the brand name Guronsan. Guronsan was a popular line of health tonics and continued to be a successful product into the 21st century. Even after more than 40 years, Guronsan still commands a large share of Japan’s liquid health tonics market.

Another successful Chugai product, Varsan, was launched during the 1950s and has been heavily marketed ever since. Synonymous with pest-control in Japan, Varsan has grown into a successful line of home-use insecticide products, including Japan’s most popular smoke-type fumigators. Further innovative development led Chugai to bring to market such highly competitive, original new drugs as Ulcerlmin (sucralfate), an antiulcer agent in 1968, and Picibanil, an immunotherapeautic anticancer agent in 1975. The company also introduced Rythmodan (disopyramide phosphate) in 1978, and Glyceol (glycerin plus fructose) in 1979.

The 1980s: Outgrowing the Japanese Market

The 1980s marked a time when Chugai, along with other Japanese pharmaceutical companies, began to establish strong research and co-marketing ties with other countries and their respective markets. Such a widespread industry shift was not arbitrary. By the mid-1980s, Japan’s pharmaceutical companies as a group sold only about 3 percent of their drug output abroad. And the industry’s bread and butter for years, Japan’s national health insurance plan, which had been generously paying for antibiotics and other drugs, began to decrease that coverage. According to Joel Dreyfuss in his story for Fortune magazine in July 1987, prescription drug coverage had decreased by as much as 40 percent during the previous six years. Dreyfuss quotes a Chugai executive at the time, Katsuaki Asano, for his plain honesty about the company’s new strategy: “We are forced to go abroad. If you’re confined to the domestic market, it doesn’t pay at all.”

In an effort to overcome the limitations of an increasingly limited Japanese market, Chugai began to set up subsidiaries and joint ventures overseas, as well as new branch offices in The United States (New York in 1982), Europe (London in 1986), and another part of Asia (Taipei in 1988). In 1989, Chugai acquired the United States-based Gen-Probe, Inc., for about $110 million, or almost double the market price for Gen-Probe’s stock. Gen-Probe had already been working with Chugai to help the Japanese company market diagnostics products in Japan for infectious diseases and cancer. A leader in the industry for its development of genetic probes, a new, promising technology used in diagnostics tests, Gen-Probe was an attractive fetch for Chugai, which was looking to expand its diagnostics offerings.

Another way Chugai helped ensure that it could compete in the world markets was to invest heavily in R&D, so that it could develop new, competitive drugs. Chugai’s pre-1980s record of innovation continued with the 1981 release of Alfarol (alfacalcidol), an agent for bone metabolic disorders, and the launch in 1984 of Nicorandil, an antianginal agent now marketed under the name Sigmart. Later, in 1989, the company introduced Amoban (zopiclone), a drug to help address sleep disorders.

Throughout the 1980s, Chugai focused a substantial portion of its R&D capabilities into using genes as drug discovery tools. Chugai began research into drugs that target specific genes, which enabled the company to equip itself with an array of advanced genetic engineering technologies.

Such technologies include transgenic technologies for the functional analysis of genes and antibody engineering technologies for the design and production of target antibodies. One of the world leaders in antibody engineering, Chugai utilized genetic engineering to create recombinant antibodies and altered their functions. Antibodies from mice and other mammals, for example, were altered structurally to conform to the shape of human antibodies and then further reduced in antigenicity for therapeutic use in a process called “humanization.” Such advanced genetic engineering technologies would later, in the 1990s, allow Chugai to help lead the development of antibody drugs and to launch two major biotechnology drugs.

Chugai also distinguished itself as one of the few companies in the world to be investigating more than 500 vitamin D derivatives. Alfarol (alfacalcidol), an activated vitamin D₃ preparation for treating osteoporosis, was well received in Japan since its initial marketing in 1981. The product became a cornerstone of Japanese research on treatments for bone metabolic disorders. Later, in 2000, Chugai’s vitamin B derivative R&D led to the launch of Oxarol (injection), which is the first agent approved in Japan for treating secondary hyperparathyroidism in hemodialysis patients.

Chugai’s aggressive moves during the early 1980s initially showed mixed results. Even though Chugai’s sales were steadily increasing, earnings were not as impressive. For example, sales rose 4.4 percent, from $387.4 million in 1983 to $404.3 million in 1984, while earnings fell 7.4 percent, from $19.8 million in 1983 to $18.3 million in 1984. However, toward the end of the decade, Chugai’s financials were much more impressive. By 1988, for example, the company had a net income of $60 million on revenue of $991 million.

The 1990s: Greater Breakthroughs and Overseas Investments

Chugai’s commitment to R&D has paid off in a number of ways, including the launch of two breakthrough biotechnology drugs in the early 1990s: Epogin (recombinant human erythropoietin, EPOCH, epoetin beta), an agent for the treatment of anemia associated with chronic renal failure, and Neutrogin (recombinant human granulocyte-colony stimulating factor, rGCSF, lenograstim)—marketed as Granocyte in Europe—for the treatment of neutropenia associated with immuno-depleting cancer treatment.

Launched in 1990, Epogin quickly became one of Chugai’s principal products. The product was used to alleviate anemia and improve the quality of life (QOL) of patients who were undergoing or preparing for hemodialysis due to renal insufficiency. By 2001, Epogin had more than 60 percent share of the Japanese market for comparable products. That same year, Chugai introduced Epogin S, the same product in convenient, sterile, prefilled syringes. Neutrogin, another one of Chugai’s principal products, was launched in 1991. The product was used to treat neutropenia resulting from aplastic/hypoplastic anemia or from chemotherapy treatment for leukemia and other cancers, as well as to treat neutropenia in bone marrow transplant patients. By 2001, Neutrogin had a 39 percent share of the Japanese market for comparable products. Chugai introduced other drugs later during the 1990s: Keiten (cefpirome sulfate) in 1993, Preran (trandolapril) in 1996, and Taxotere (docetaxel hydrate) in 1997.

Chugai continued to improve its presence abroad during the 1990s, by establishing additional offices, labs and joint ventures around the world. In 1990, Chugai and Rhone-Poulenc Sante (later known as Aventis) established Chugai-Rhone-Poulenc (later known as Chugai-Aventis), a joint venture to carry out development and marketing of Granocyte in Europe. Later, in 1993, Chugai established Chugai Pharma Europe, Ltd. in London. In 1995, Gen-Probe, Inc. spun off its pharmaceutical assets and licenses to the newly created therapeutics company, Chugai Biopharmaceuticals, Inc. in San Diego. During that same year, Chugai established Chugai Research Institute for Molecular Medicine, Inc.

Company Perspectives:

Our mission is the discovery, development, and successful commercialization of innovative therapeutic products that satisfy unmet medical needs. We will become a profitable leader in our areas of therapeutic focus by applying state-of-the-art technologies, fostering creativity, and developing our people.

In 1996, Chugai formed a joint venture, Chugai MSD Co., Ltd., with Merck & Co., Inc., to develop, manufacture, and market over-the-counter medicines in Japan. Chugai MSD launched its first product line in 1997: Chugai Ichoyaku, which contains a switch-OTC gastrointestinal agent, sucralfate. The joint venture followed up with successful introductions of an antidiarrhetic, and Efeel, a gastrointestinal remedy based on the H2 antagonist famotidine. The joint venture did not last for long, however; Merck left in mid-1999, citing low returns on the over-the-counter business. According to the Financial Times report on the separation, “The U.S. company, the world’s biggest drugs group by sales, said it had misread the direction Japan’s regulatory environment would take. When it set up the joint venture in 1996 it had expected the government to encourage self-prescription as a way of controlling healthcare costs. That never materialized.”

In March 1997, Chugai established Chugai Shindan Kagaku Co., Ltd., Chugai Diagnostics Science Co., Ltd., and Chugai Pharma Marketing Ltd. (CPM) in London. In 1999, Chugai entered a joint venture with Eli Lilly and Company, enabling Lilly to accelerate drug development of compounds targeted for the Japanese market and Chugai to co-promote and co-market products developed through the collaboration that are sold in Japan. The collaboration initially set out to manage clinical trials of the antidepressant Prozac and other drugs to treat impotence and attention-deficit disorder. Later, in 2001, Lilly announced that it would leave the joint venture and transfer the management of the clinical trials to Lilly’s Japanese unit. Chugai, in exchange for giving up the rights to co-promote and co-market Prozac and other drugs associated with the joint venture, would gain an unspecified improvement to an existing agreement to market Lilly’s osteoporosis drug, Evista, in Japan. Also in 1999, Chugai strengthened its platform in Europe. It established CPM marketing branches in Germany and France and worked with Aventis’ subsidiaries throughout Europe to co-promote products.

Even though Chugai’s sales in Japan still made up 90 percent of the company’s sales, the company’s efforts to emerge globally were promising. With all of the expansions, joint ventures and drug discoveries throughout the 1990s, Chugai’s business continued to grow at a healthy pace. Boosted by sales growth and efforts to streamline production, Chugai reported in June of 1994 that sales that year had already climbed 35 percent to $84.9 million when compared to the previous year. In 1998, overseas sales increased 22.4 percent to ¥20.1 billion. Although net profits in 1999 were expected to fall 25 percent, overall sales were expected to rise 2.3 percent that same year.

A New Millennium, A New Chugai

In 2000, Chugai had introduced two new drugs: Suvenyl (sodium hyaluronate) and Oxarol (Maxacacitol). During 2001, Chugai’s sales had grown another 13.1 percent to $1.67 billion. The company’s net income had jumped 47.8 percent to $122.7 million. Of Chugai’s 2001 sales, prescription pharmaceuticals accounted for 76 percent; and nonprescription products accounted for 13 percent; while diagnostics products and other products accounted for 9 percent and 2 percent respectively.

In early 2001, Chugai’s CEO and chairman, Osamu Nagayama, began to talk about how Chugai would consider a partnership with a foreign group to strengthen its research and marketing capabilities, extending well beyond Japan into new markets. In February, the Financial Times quotes Mr. Nagayama: “We need a partner who can create synergies in terms of R&D, in our budget and in technology.” Coming from a top executive of one of Japan’s fiercely independent pharmaceutical companies, this was certainly news. But the conditions were ripe: Japan’s prescription drug market was shrinking, few of Japan’s pharmaceutical companies had the ability to market their own medicines abroad, and deregulation had allowed foreign drug companies to take hold in Japan.

In December 2001, the Swiss pharmaceutical giant, Roche Group, announced with Chugai that they had entered into a new, shattering business-model alliance to turn Chugai into a leading research-driven pharmaceutical company. Chugai would first have to sell its Gen-Probe subsidiary, which competed with certain diagnostics businesses of Roche. Roche would then merge its Japanese subsidiary, Nippon Roche, into Chugai at a ratio of 39 to 61 percent. And then after that, Roche would acquire a controlling 50.1 percent stake in Chugai, for a minimum of US$1.23 billion cash in one of the biggest mergers between a foreign and Japanese company. The newly formed group moved Chugai from the tenth largest to the fifth largest pharmaceutical company in Japan.

Key Dates:

1925:: The company is founded as Chugai Shinyaku Shokai.
1943:: The company is incorporated as Chugai Pharmaceutical Co., Ltd.
1951:: Guronsan (glucuronolactone), a health tonic, is introduced.
1956:: Chugai goes public.
1968:: Ulcerlmin (sucralfate), an antiulcer agent, is introduced.
1975:: Picibanil, a Japanese pioneer in immunothera-peutics, is introduced.
1981:: Alfarol (alfacalcidol), an agent for bone metabolic disorders, is introduced.
1982:: Chugai expands internationally with its first branch office in the United States.
1986:: Chugai opens a branch office in London.
1988:: Chugai opens a branch office in Taipei.
1990:: Epogin (epoetin beta), an agent for the treatment of anemia associated with chronic renal failure, is introduced.
1991:: Neutrogin (lenograstim), for the treatment of cancer, is introduced.
1994:: Granocyte (lenograstim), is introduced in Europe.
1995:: Chugai Biopharmaceuticals, Inc. is established as a major subsidiary based in the United States.
2001:: Chugai merges with Roche Group, ceding 50.1 percent ownership.

Although the new enterprise represented a major shake-up in the Japanese pharmaceutical industry, Chugai benefited from a major boost in R&D resources and distribution. The company name did not change and chairman and CEO, Osamu Nagayama, remained in position. Also, according to the complex agreement, Chugai continued to function as an autonomously managed company, closely coordinating its operations with Roche. Chugai became Roche’s exclusive pharmaceuticals representative in Japan with rights to develop and market all pharmaceutical products which the Roche Group chose to commercialize in Japan. And for all Chugai products outside Japan and South Korea for which Chugai sought a partner, Roche had the right to license-in. Newly merged with Roche in the new millennium, Chugai was well positioned to secure itself as a global pharmaceutical and medical products company in each of the major markets.

Principal Subsidiaries

C&C Research Laboratories (Affiliate); Chugai Aventis S.N.C.; Chugai Biopharmaceuticals, Inc.; Chugai Business Support Co., Ltd.; Chugai Diagnostics Science Co., Ltd.; Chugai Distribution Co., Ltd.; Chugai Pharma Europe Ltd.; Chugai Pharma France S.A.S.; Chugai Pharma Marketing Ltd.; Chugai Pharma Marketing Ltd. (Germany); Chugai Pharma Taiwan Ltd.; Chugai Pharma U.K. Ltd.; Chugai Pharma U.S.A., Inc.; Chugai Pharma U.S.A., Inc. (New York); Chugai Research Institute for Molecular Medicine, Inc.; Chugai Shoji Co., Ltd.; Chugai Transportation Co., Ltd.; CSK Research Park Co., Ltd.; Eiko Kasei Co., Ltd.; Gotemba Chugai Service Co., Ltd.; Hiroshima Chugai Pharmaceutical Co., Ltd.; Koei Pharma Co., Ltd.; Medical Culture Inc.; Shanghai Chugai Pharma Co., Ltd.; Takaoka Chugai Pharmaceutical Co., Ltd.; Tohoku Chugai Pharmaceutical Co., Ltd.

Principal Competitors

Amgen; Aquila Biopharmaceuticals; Atlantic Technology Ventures; Corixa; Dainippon Pharmaceutical; Immunex; Nippon Kayaku; Sankyo Co.; Shire BioChem; Takeda Chemical Industries; Targeted Genetics; Vical.