Sankyo Company, Ltd. - Company Profile, Information, Business Description, History, Background Information on Sankyo Company, Ltd.

3-5-1, Nihonbashi Hon-cho
Chuo-ku, Tokyo 103-8426

Company Perspectives:

As a leader in healthcare, Sankyo's corporate philosophy is to make a significant contribution to healthy and full lives for people around the world, through the provision of quality-assured products and services that add value for our global customers. With this philosophy, and in line with the highest standards of business ethics, we strive to serve society as responsible and diligent corporate citizens.

History of Sankyo Company, Ltd.

As Japan's second largest pharmaceuticals company, Sankyo Company, Ltd. manufactures and markets a wide range of pharmaceuticals, medical devices and diagnostics, agrochemicals, food, cosmetics, veterinary drugs, and fine chemicals. The company spends heavily on research and development and has laboratories throughout the United States, Europe, and South America. Expanding globally and developing new drugs--especially those related to cardiovascular diseases--remain at the forefront of Sankyo's strategy.

Company Origins

While living in the United States Dr. Jokichi Takamine discovered a digestive enzyme and called the product Taka-Diastase. In order to import and sell the digestant in Japan, a company under the name of Sankyo Shoten was established in 1899. Contracting a sales agreement with Parke, Davis & Company, a U.S. drug firm, the product was manufactured in the United States, imported to Japan, and then distributed by Sankyo Shoten. Three years later, in 1905, the company began manufacturing Taka-Diastase in Japan. To augment production Sankyo's first plant was constructed in Shinagawa, Tokyo in 1908.

Other items were soon added to the product line. Dr. Umetaro Suzuki's vitamin B1 discovery in 1910 was marketed under the name Oryzanin. A cough depressant by the name of Brocin and a disinfectant called oxyfull were added to Sankyo's product line in the early 1900s. By 1913 the growing business was reorganized as a joint stock company and incorporated as the Sankyo Company, Limited. Dr. Takamine assumed the title of president. Later achievements included the production of salicylic acid, used as a mild antiseptic or pain reliever, and Dr. Hata's development of Arsaminol, an arsphenamine used as a treatment for syphilis and other infections.

In the 1920s production expanded into new areas. The Wakodo Company, established as a subsidiary, became an industry leader in infant care products. During this period Sankyo also initiated the research into and production of agricultural chemicals and enzymatics. Even the production of yeast for bakers was incorporated as a product item in 1932.

Postwar Growth

The Japanese pharmaceutical industry experienced unprecedented growth in the postwar years due to a new sense of health consciousness. In particular, worldwide breakthrough discoveries in medicine resulted in antibiotics amounting to more than 10 percent of Japan's total pharmaceutical production by 1963. Japanese pharmaceutical companies, however, did not actually participate in these discoveries; meaningful patent protection laws were significantly absent, making innovation subject to pirating. For this reason companies, allotting negligible amounts of money for research and development, depended on their foreign counterparts for innovative drugs. Industry developments eventually led to foreign companies seeking out Japan's expertise in antibiotics; in the interim, however, Sankyo played a major role in importing antibiotics.

Through a new licensing agreement with Parke, Davis & Company, Sankyo imported Chloromycetin, the tradename for antibiotic chloramphenicol. By 1950 Sankyo gained the necessary technical expertise from its foreign licensor to begin manufacturing Chloromycetin domestically. By 1966 this drug accounted for 80 percent of Sankyo's sales in antibiotics. As Japan's sole manufacturer of this popular pharmaceutical, Sankyo built a vast reserve of cash earned on large profits.

The establishment of the National Health Insurance system in the 1960s was not only important to Sankyo, but to the Japanese pharmaceutical industry at large. Under the new system patients were required to pay a fraction of prescription fees while the government assumed the majority of costs. Moreover, the system encouraged the generous prescription of medications since doctors profited from the difference between the official reimbursement price set by the Ministry of Health and the actual price for which the drugs were purchased. For this reason, the drug industry became one of Japan's most profitable industries. By 1961 the industry's annual growth rate reached 21 percent.

Sankyo benefited from these changes. Profits increased nearly 18 percent in 1963 due to the increase in sales of external medicines, food products, central nervous system drugs, and farm chemicals. Biotamin, a newly developed vitamin B1, recorded a monthly average sale of ¥150 million, making the sale of antibiotics and vitamins nearly half Sankyo's annual sales. At this time, the company's food product line included a noncaloric synthetic sweetener and a fruit juice clarification enzyme. Sankyo's agricultural chemical division produced more products than any other pharmaceutical company in Japan. Tachigaren, a soil fungicide and seed disinfectant developed by Sankyo, was awarded the Okochi Prize in 1969.

Sankyo's entry into foreign markets paralleled its growth in business. Joint ventures with overseas companies grew to include projects with AKZO, a pharmaceutical company in Holland; Miles Laboratories and Air Products, two companies in the United States; and pharmaceutical companies in Taiwan and India. Biotamin was well received on foreign markets and Cytochrome-C (sometimes spelled Titochrome C or Tytochrome C), an innovative new drug for the treatment of high blood pressure, was scheduled to be marketed abroad. This innovation marked one of Sankyo's first major discoveries that did not employ technical assistance from foreign companies.

The sale of Biotamin, Chloromycetin, and the newly developed Cytochrome now accounted for Sankyo's three major products. Biotamin became a popular item in overseas markets and Sankyo provided manufacturing knowledge to companies in France and Portugal. Although the basic patent right for Chloromycetin was scheduled to expire in 1966, Sankyo's market preeminence through affiliated patents mitigated the effects of losing exclusive marketing rights to this drug.

To facilitate growth two new plants were scheduled for construction. The Fukuroi site was chosen for the manufacture of soft drinks and seasonings and the Hiratsuka plant would house the manufacture of pharmaceuticals. Due to the fact that the main plant at Shinagawa was operating at capacity, the Hiratsuka site was designated the new main plant.

New Laws Encourage Development and Investment: 1970s-80s

Further changes in the pharmaceutical industry resulted in Japanese companies significantly increasing their research and development expenditures. The enactment of the 1976 patent protection laws marked an important date for the industry. Rather than depending on their foreign counterparts to develop drugs, Japanese pharmaceutical companies could invest in research without fear of pirating. Furthermore, an altered pricing system, placing newly developed drugs at a premium, suddenly made innovative drug research a highly lucrative business. The products of this research not only served to benefit the quality of domestic healthcare, but also began reversing the flow of technology from West to East.

Sankyo actively participated in this new development. During the 1970s Sankyo took a leading role in the development and production of drugs for the nervous system. The tranquilizer Serenal was developed with the intention of serving a growing number of people who experienced the stressful demands of modern lifestyles. The company submitted patent applications for the manufacture of the tranquilizer in more than 40 countries. Furthermore, upon the completion of the Hiratsuka plant, the company allotted funds to significantly increase research and development expenditures. Meanwhile, several other promising drugs existed in the development stage.

Prior to this new emphasis on research and development, a vast trade deficit existed between the large number of imported pharmaceuticals and the comparatively smaller number of drugs exported. Even as late as 1982 almost 80 percent of the drugs sold in Japan continued to be manufactured abroad or domestically with technology developed overseas. Recognizing the potential in developing a drug export trade, the government implemented further industry incentives with the 1980 Pharmaceutical Affairs Act of 1980. This act extended from three to six the number of years a company is ensured exclusive licensing rights with foreign companies. The new atmosphere encouraging industry export, coupled with the rising cost of research and development, compelled pharmaceutical companies to aggressively pursue foreign markets. Since millions of dollars were now spent on the development of a single drug, companies looked to foreign licensing as an attractive means of recovering investments in research and development.

Sankyo strengthened its long involvement with foreign markets during this period. In addition to the overseas introduction of Serenal, a joint venture in India was established. Uni-Sankyo supplied bulk medicine to the Indian market and also exported products to Asia and Africa. By 1986 Sankyo's licensing program and joint ventures grew to include agreements with Sandoz in Switzerland, Glaxo Holdings in the United Kingdom, and Du Pont, Squibb, and Upjohn in the United States. In a move to heighten the company's presence in the United States, Sankyo opened an office in New York.

Of the many drugs developed in Japan and actively pursued by foreign companies, a new family of highly effective third-generation antibiotics represented the drugs most in demand. Sankyo participated in the development and distribution of these medicines through the sale of Cefmetazon, a cephamycin-allied antibiotic, that was sold in the United States through a license agreement with Upjohn. Of similar technological importance was Sankyo's involvement in the development of drugs called enzyme inhibitors. By discovering the inhibitor for the enzyme instrumental in the synthesis of cholesterol, Sankyo developed a drug to inhibit heart disease, Mevalotin. This new drug was launched overseas in 1989 and by 1991 was responsible for ¥83 billion in sales.

Other lucrative products developed or marketed by Sankyo included an anticancer agent introduced in 1984. Sankyo acquired the rights to sell this agent, called Kurestin, which was developed by the Kureha Chemical Industry. In addition, Captoril, an anti-hypertensive drug, was also a source of income.

As the company expanded its business through innovation and overseas market penetration, the pharmaceutical industry underwent major changes. The per-capita drug bill by 1983 reached $95. To combat accusations of excessive profiting and to reduce the burden of national expenditures, official drug prices were reduced by more than 50 percent and patients were required for the first time to pay 10 percent of examination costs. As a result, nationwide drug production deceased for the first time since World War II and profits were negligible. Sankyo's net profits in relation to sales dropped from 3.9 percent in 1982 to 3.64 percent in 1983. Research and development expenditures, nevertheless, continued to increase. For this reason, by 1985 profits did not increase from the previous year despite the successful market introduction of Kurestin and a new anti-ulcer agent. Despite the changing configuration of the National Health Insurance system, Sankyo continued to be influential in both domestic and foreign markets and its earnings began to steadily increase. During 1991, profits increased by 30 percent over the previous year.

Overcoming Hardships: 1990s and Beyond

During the 1990s Sankyo placed increased importance on developing globally. The firm acquired an interest in Germany-based Luitpold-Werk GmbH & Co., which eventually became known as subsidiary Sankyo Pharma GmbH. In 1996, the company teamed up with Warner-Lambert Co. to create Sankyo Parke Davis, a U.S. company set up to market the diabetes drug Troglitazone--known as Rezulin in the United States--and cardiovascular agent Accupri. Sankyo eyed the venture as crucial to its global strategy and expected sales of Troglitazone, a treatment for diabetes, to be strong in both the United States and Europe. While the drug initially experienced stellar success, disaster loomed around the corner. Reports of possible toxic, and even deadly, side effects surfaced, resulting in a slew of lawsuits against the companies responsible for marketing the drug. By 2000, it had been pulled from the European, U.S., and Japanese markets. As a result, Sankyo's share price plummeted and the industry began to speculate that Sankyo could become a target for a hostile takeover.

To make matters worse, a series of patents related to Mevalotin were due to expire in 2002. The drug, responsible for nearly 40 percent of domestic pharmaceutical sales and much of the company's growth during the 1990s, was already seeing increased competition in the United States and, in 1999, shipments of the drug decreased for the first time. Domestic drug prices also were falling and the firm's product pipeline was considered lackluster by industry standards, leaving Sankyo's sales and profits in a vulnerable position. Then in 2000, the company's management took a blow when longtime chairman Yoshibumi Kawamura and his son Yoshinori resigned their posts due to a harassment scandal involving the latter.

With new blood at the helm--President Tetsuo Takato--Sankyo launched a turnaround effort. In order to bolster its presence in the United States, the firm acquired full ownership of Sankyo Parke Davis in 2001. That year it developed a new strategy focused on repositioning its businesses, creating new drugs, revamping its business processes, increasing its domestic market share, and strengthening its international sales force. As part of this new approach, the firm set plans in motion to spin off its agrochemicals and food additive business in 2003 in order to focus on pharmaceuticals. The company also announced a divestiture plan to sell off nonprofitable assets. Anti-hypertensive medication Olmesartan made its U.S. debut in 2002 under the name Benicar. This was the first drug over which Sankyo had independent control from start to finish and was considered a cornerstone in the company's globalization process.

Sankyo continued to face distinct challenges, however, as it worked to implement its strategy. New laws were encouraging foreign competition and threatened to weaken the company's domestic market share. The reforms were expected to continue through 2005, making it easier for overseas companies to sell drugs in Japan. "We are at the bottom now. If we can ride out our current problems, we should overtake market leader Takeda Chemicals Industries," President Takato optimistically claimed in a March 2003 Nikkei Weekly article. Indeed, only time would tell if Sankyo would emerge independently victorious or succumb to the impending industry shakeout.

Principal Subsidiaries: Nippon Nyukazai Co. Ltd.; Nippon Daiya Valve Co. Ltd.; Sankyo Chemical Industries Ltd.; Kyushu Sankyo Co. Ltd.; Meguro Chemical Industry Co. Ltd.; Sankyo Grundstucks GmbH; Sankyo Trading Co. Ltd.; Sankyo Pharma GmbH; Luitpold Pharmaceuticals Inc.; Sino-Japan Chemical Co. Ltd. (52%); Sankyo Pharma Inc. (U.S.A.); F.P. Processing Co. Ltd.; Institute of Science and Technology Inc.; Sankyo Yell Yakuhin Co. Ltd.

Principal Competitors: Daiichi Pharmaceutical Co. Ltd.; Shionogi & Co. Ltd.; Takeda Chemical Industries Ltd.


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