Shareholder value creation in Japanese pharmaceuticals

Shareholder Value Creation in Japanese Pharmaceuticals

To explore the reasons for low capital profitability, we decomposed ROIC into two elements: profitability (NOPAT

Margin = NOPAT/Sales) and capital efficiency (Sales/Invested Capital) and compared between Japanese

pharmaceutical companies and Global Top companies (Figure 12). In general, the ROIC of most Japanese

pharmaceutical companies significantly lags the Global Top companies, and it can be seen that low profitability

is causing low capital profitability since profitability tends to follow the same trend. In addition, from the

perspective of asset efficiency, most Japanese pharmaceutical companies are below the level of the Global Top

companies, which could also be a factor contributing to low capital profitability.

While it's true that an overemphasis on ROIC can often lead to a trap of shrinking equilibrium management (since

decisions to divest low-return businesses or postpone necessary investments often seem rational for improving

ROIC), if we limit the discussion to the pharmaceutical business, it would be reasonable to streamline areas of

therapeutic area, value chains, and regions that have low investment returns.

SALES/INVESTED

CAPITAL (%)

NOPLAT MARGIN (%)

ROIC(%)

Source: Annual reports and IR materials, SPEEDA

*1: weighted average

64.1

19.9

12.8

Japanese B

78,069

Investment efficiency(FY21)

FIGURE 12: CAPITAL EFFICIENCY COMPARISON BETWEEN JAPANESE PHARMACEUTICAL COMPANIES

AND GLOBAL TOP LEADERS

INVESTED CAPITAL (100 MILLION YEN)

Japanese E

Japanese L

Japanese G

Japanese C

Japanese A

Japanese D

Japanese N

Japanese K

Japanese I

Japanese H

Japanese F

Japanese O

Japanese M

Japanese J

Global Top average*�