Takeda Chemical Industries, Ltd. Business Information, Profile, and History

History of Takeda Chemical Industries, Ltd.

Takeda Chemical Industries is Japan's largest pharmaceutical company and one of the largest 20 drug firms worldwide. Until recently Takeda's name was virtually unrecognized outside the borders of its own nation. However, with the increasing presence of Japanese companies on the U.S. market, Takeda's reputation has gained wider recognition.

Takeda's corporate headquarters are located in the same city of its origins--Doshomachi, Osaka. In the mid-18th century this urban center was the focus of the nation's drug business. Ohmiya Chobei, the company founder, established a small firm in 1783 to sell Japanese and Chinese medicines. During the Meiji Era the firm's products expanded to include imported medicines from the west. After the company's first factory was completed in 1895, production began on manufactured pharmaceuticals. Fine chemicals were added to the production line in 1909 and four years later a modern factory was constructed to facilitate growth.

From the start of the Showa Era in 1925 the company's operations expanded significantly and transformed it from a local business to a major pharmaceutical concern. An important innovation during this period of growth was the successful synthesis of Vitamin C in 1937 and Vitamin B1 in 1938. Takeda marketed the product of this innovative research under the name Metabolin-Strong and became the manufacturer of Japan's first synthetic vitamin preparation. During the postwar years Japanese citizens expressed a new health consciousness. A vigorous orientation toward health and hygiene found Takeda's products in great demand. By 1962, 30% of the nation's drug sales were generated from the sale of vitamin preparations; Takeda supplied nearly 50% of the total, earning the title of "Takeda of Vitamin Fame."

In the 1940's the company changed its name to its current title, Takeda Chemical Industries Limited, and absorbed two other firms, Konishi Pharmaceutical and Radium Pharmacy, into its operations. The company's experience with vitamin production increased with the successful synthesis of a thiol derivative of thiamine, otherwise known as a long-acting Vitamin B1 preparation. Alinamin, the brand name of this synthesized product, became one of Takeda's most popular items. In 1952 Takeda's food division was established under the name Takeda Food Industry. This division grew to include the manufacture of enriched foods, food additives and beverages. Six years later Takeda's research activity was strengthened by the completion of new laboratory facilities.

Besides the manufacture of synthetic vitamins, Takeda's pharmaceutical products included tranquilizers, treatments for nervous disorders, and antibiotics. In the food product division, manufactured items included Plussy, a soft drink enriched with vitamin C, and Ino-Ichiban, a popular condiment. Takeda's formidable expansion allowed the company to invest unprecedented amounts of money into new equipment and facilities. Even more significant was Takeda's role in the inception of the drug export trade; by exporting manufacturing techniques for Alinamin, Takeda led the Japanese pharmaceutical industry towards international expansion.

In the early 1960's the Japanese drug industry experienced an annual growth rate exceeding 20%, making it one of the fastest growing industries in the nation. In addition, sweeping changes in government regulation would soon make the industry one of the most profitable. Takeda was well-positioned to capitalize on these changes; no one single industry competitor came close to challenging Takeda's preeminence in sales and marketing.

The 1961 implementation of the Japanese National Health Insurance system marked an important date for the pharmaceutical industry. Under this system the patient's prescription costs were almost completely covered by the insurance program. In addition, the official drug pricing system allowed doctors full reimbursement for the cost of dispensing drugs. This structure, therefore, encouraged the generous prescription of drugs because doctors profited from the difference between the price at which they purchased drugs and the higher official price, set by the Ministry of Health and Welfare, at which they were reimbursed. For this reason the pharmaceutical industry experienced unprecedented financial success.

Takeda's growth matched the expansion of the industry and the health insurance system. Under the leadership of Ohmiya Chobei Takeda VI, decendant of the company founder, Takeda operated as a holding company for numerous subsidiaries including Yoshitomi Pharmaceutical, Teikoku Hormone and Biofermin Pharmaceutical. As profits increased the company established subsidiaries in Taiwan, Hong Kong, Thailand, the Philippines, Indonesia, West Germany, the United States and Mexico. By 1970, 10% of the total national production of pharmaceuticals was traceable to Takeda operations. Moreover, while Japan's industry share of drug exports remained only 2.9% of total sales, export figures increased 34.7% between 1968 and 1970 with Takeda's business accounting not only for 25% of total pharmaceutical exports but also for 25% of food additives and industrial chemicals exports.

Despite movement toward export expansion, the trade deficit in pharmaceuticals remained sizeable; as late as 1982, 80% of the drugs sold in Japan continued to be manufactured overseas or with technology developed abroad. It was precisely this trade deficit that compelled the government to implement changes. One cause for this imbalance was traceable to Japan's lack of strict patent laws in the industry which, in turn, made research and innovation unprofitable. To encourage the industry to be less reliant on foreign technology the government passed stronger patent protection laws and altered the drug pricing system. By establishing high prices for innovative products, the development of new drugs suddenly became a highly lucrative business. Pharmaceutical companies immediately invested money in research and development and for the first time technology began moving from Japan to foreign markets. By 1977 Japan had received 1,700 drug and related product patents in the U.S. alone, ranking it second among all foreign recipients of U.S. drug patents.

Takeda participated actively in this new orientation toward innovation Between 1970 and 1974 research expenditures increased and a new plant in Kashima was built to strengthen these efforts. The number of patents received locally and abroad for products developed in Takeda laboratories surpassed 3,000. As leadership passed from Chobei Takeda to Shinbei Konishi, the new company president made the development of pharmaceuticals a priority along with the continued expansion into foreign markets. In addition, a new food company was established with the intent of raising the company's food industry market share to 12%. Konishi's strategy proved successful. While the sales of vitamins increased nearly four times between 1960 and 1964, the 1970's found Takeda instrumental in developing innovative antibiotics. A majority of Takeda's $1.8 billion in sales was generated from the sale of vitamins and antibiotics in the early 1980's. By 1982 cephalosporins, a powerful third-generation antibiotic, accounted for 24% of Japan's domestic drug sales.

The Japanese pharmaceutical industry's increasing emphasis on research served not only to strengthen the domestic market but also to facilitate growth overseas. On the one hand, because large expenditures were now needed to support the industry-wide effort, drug companies initiated a concerted expansion into foreign markets as a means of recouping the millions of dollars necessary to develop one drug. On the other hand, Japan's innovation in antibiotics compelled foreign companies to solicit their expertise. Thus began the popular trend of securing foreign licensing agreements between Japanese drug companies and their foreign counterparts. Between 1970 and 1980 drug-licensing increased nearly four times. The enactment of the Pharmaceutical Affairs Act, effectively extending the time a Japanese company can market a drug under exclusive license, encouraged further agreements. Takeda, representing the largest of the Japanese pharmaceutical concerns, contributed largely to this increase. By 1983 the company was involved in agreements with over 20 companies, including the licensing of a cephalosporin antibiotic with Abbott Laboratories.

As industry analysts are keen to observe, licensing agreements with foreign companies are often just the first step in establishing independent foreign operations. Since agreements generally pay the licensee an initial fee and between 2 and 7% in royalties, a more lucrative endeavour is often pursued as a next step in securing overseas markets. Therefore, Takeda initiated a joint venture with Abbott Laboratories where profits were split 50-50. Calling the venture Takeda Abbott Products, the two partners worked to develop and market four new products, including a treatment for diabetes. Takeda's efforts to gain access to the U.S. market were not always easy. The Food and Drug Administration's long approval process often frustrated company officials. Similarly, Takeda experienced difficulty securing a U.S. producer for Nicholin, a treatment for unconsciousness caused by brain damage.

For the most part, however, Takeda's foreign expansion was successful and the company received further impetus to pursue overseas partners when the National Health Insurance system was reformed in the 1980's. By 1982 the per capita drug bill for Japanese citizens reached $95, making the Japanese drug market the second largest in the world. In an effort to halt escalating healthcare costs, the government reduced official drug prices by a total of nearly 50% and required elderly and insured workers to carry some of the costs of treatment. To maintain their respective market shares, companies reduced prices while continuing to allot generous sums for research. Thus foreign markets as a means of alleviating deteriorated domestic profit margins offered even greater appeal. In 1985, for example, Takeda opened a North Carolina plant to produce vitamin B1 in the United States.

Even as Takeda continued pursuing foreign ventures, domestic sales were hurt drastically by the government reforms. Two of the best selling antibiotics, Pansporin and Bestcall, were given between a 12 and 13% price reduction and total sales of antibiotics dropped from 18.4% to 16%. Similarly, vitamins, once accounting for close to 40% of sales, represented a mere 9% of the total. To ameliorate this trend, company president Ikushiro Kurabayashi shifted Takeda's domestic market orientation toward the growing population of aged people. According to a government sponsored research study, one of every four Japanese will be at least 65 in the year 2020. For this reason Takeda's research now concentrates on drugs for geriatric diseases. One such drug, called Avan, treats senile dementia. Having entered the market in early 1987, Avan already generates ¥1 billion a month. Following Avan, Takeda plans to release an anti-osteoporosis drug aimed at treating the 4.3 million sufferers of this disease.

Takeda's research and development expenditures for 1985 reached ¥31.5 billion. This represented the highest budget allotment among all Japanese pharmaceutical companies. Aside from the drugs for geriatric diseases, the company is developing an antidiabetic agent and a high blood pressure treatment drug. Furthermore, Takeda's research makes the company a world leader in biotechnology. Due to the fact that Takeda also excels in fermentation technology, foreign companies are pursuing this expertise as a means of manufacturing products of biotechnology on a large scale. Although company profits suffered from the changes in the health insurance program, these trends suggest Takeda will remain one of the world's most successful pharmaceutical manufacturers.

Principal Subsidiaries: Import-Export, Germany; Century Chemical Works, Malaysia; Paiboon Watana Co, Thailand; Fatec Quimica Industrial S.A., Brazil. Takeda also owns principal subsidiaries in Germany, Taiwan, Mexico, the Philippines, France, and Indonesia.