(Bloomberg) — Across the pharmaceutical industry, companies have rushed towards medicines with sky-high prices — making bets in lucrative areas like complex cancer treatments and even gene therapy that could come with a $1 million price tag.
Japan’s Shionogi & Co., best known for its early development of the blockbuster cholesterol medicine Crestor, says it’s making a conscious decision to buck the trend — and aims to double its revenue in the next five years through that strategy.
Shionogi is staying committed to developing less complex or “small molecule” treatments like antibiotics that many other global drugmakers are paying less attention to, Chief Executive Officer Isao Teshirogi said in an interview. The decision to not focus on the highest priced category of emerging medicines has drawn plenty of negative comments, he says, adding that has abated as its strategy has paid off. Shionogi’s shares have tripled over the past two years.
“At the time I got a lot of criticism — from the outside and the inside,” said Teshirogi. “People were saying: these products are cheap and they’re old — they were asking if I was crazy.”
The company’s sales forecast for the year ending March 2016 is 301.5 billion yen ($2.8 billion). This is projected to increase to 500 billion yen ($4.6 billion) for the year ending March 2021, the company said in its mid-term plan. Its internal target for the same time-frame is higher at 600 billion yen, according to Teshirogi.
Under Teshirogi’s leadership, Shionogi continued to bring products to market, including several that worked with big international partners. To drive growth, the company is interested in further tie-ups, he said. It’s constantly in touch with the biggest drugmakers — including existing partners AstraZeneca PLC and GlaxoSmithKline PLC — so it can quickly jump on future opportunities, he said. “Partnerships are the way to go for us.”
The company’s shares were up 1.06 percent at the close of Tokyo trading. The benchmark Topix index was down 0.73 percent.
HIV medicine royalties from its stake in U.K.-based ViiV Healthcare, other drug approvals, sales for a flu drug it’s making with Roche Holding AG and antibiotic and opioid treatments under development will also help drive revenues, according to the company.
Teshirogi says that the company has chosen to tackle two ends of the patient market — the young who are vulnerable to ‘sudden death’ from infectious diseases and the terminally ill whose last days can be made more tolerable through pain medicines. That philosophy has also kept it investing in antibiotics at a time when many companies have pulled back.
As of March this year, about 68 percent of Shionogi’s pipeline originated from its own labs, including collaboration products. It does not intend to have that contribution drop below 50 in coming years, Teshirogi said. This is helped by working with Japanese start-ups at a very early stage to help groom talent and build on domestic scientific prowess, he added.
Shionogi holds 10 percent of ViiV Healthcare, from which it derives royalties and annual dividends. ViiV is a joint-venture that is majority-held by GlaxoSmithKline Plc and also counts Pfizer Inc. as a shareholder. AstraZeneca has global rights to sell Crestor. Shionogi developed Crestor until its mid-stage trials, or Phase 2a, after which it licensed the treatment out to AstraZeneca for further global development.
Royalties from HIV are projected to increase, Fumiyoshi Sakai, an analyst at Credit Suisse wrote in a February note. The company’s strategy of focusing on small molecules has worked so far, with success on drugs such as Crestor and HIV treatment Tivicay, he said.
Japanese pharma companies are facing increasing pricing pressures at home. An aging population and a massive government debt burden have Prime Minister Shinzo Abe’s government insisting on price reductions for branded drugs and pushing for a speedier transition to generics.
Drug prices will be the defining “root” issue for the industry for some time to come, Teshirogi said, especially with the number of drugs costing hundreds of thousands of dollars.
“We’ve factored in the potential cuts, but it needs a serious discussion — who is taking the risk, who is making the developments and what is the process we are offering to each patient in each country?” said Teshirogi, who took over as CEO in 2008, after spending a few years as head of R&D.
The decision to stay away from higher priced drugs was shaped by his time as head of the Japan Pharmaceutical Manufacturers Association from May 2011 to May 2014. He also remembers conversations during those years with his elderly father — age 88 at the time — over the amounts to spend on treatments. “It gave me an opportunity to think,” he said. “How long can the world afford such high prices?”
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