Shareholder value creation in Japanese pharmaceuticals

Shareholder Value Creation in Japanese Pharmaceuticals

Selection and focus along the

"Therapeutic Area" axis

The selection and focus on

specific therapeutic areas (TAs)

is an effective strategy for

improving the capital profitability

of pharmaceutical companies.

An analysis of the correlation

between the concentration of

sales in specific TAs and ROIC

shows that companies with a high

concentration of sales in specific

TAs had relatively high ROIC and

positive EP, while those with low

concentration in TAs generally

had low ROIC and negative EP

(Figure 13). Spreading resources-

including people, materials, and

investments-necessary for sales

growth across multiple therapeutic

areas leads to dispersion and

increases administrative costs,

thereby lowering profitability. This

is the same phenomenon as a

conglomerate discount in corporate

management, where the market

value of diversified companies is

evaluated lower than the sum of the

values of the individual businesses

they comprise.

In addition, we aggregated the

amount of R&D investment and its

growth rate over the past 10 years

to compare the investment scale

between Japanese pharmaceutical

companies and global leaders

(Figure 14). According to this,

many Japanese pharmaceutical

companies lag global leaders in

terms of both the scale and speed

of R&D investment. Companies

with limited capital strength and

limited R&D spending should be

making efforts to improve capital

profitability by further promoting

the selection and focus on specific

therapeutic areas and becoming

specialists in those areas.

R&D spending ratio (%)

-1 2

-3

10 8

3 76

9 10

11 12

-2

R&D spending growth rate (%)

Weighted average of

Global Top (1,014 billion yen)

Global Top Japanese

R&D spending growth rate (FY12-21) R&D spending to

sales ratio (average of FY12-21) the size of bubble represents

the size of R&D spending (FY21)

FIGURE 14: CORRELATION ANALYSIS OF SALES CONCENTRATION IN

SPECIFIC THERAPEUTIC AREAS AND RETURN ON CAPITAL

Source: Annual reports and IR materials, SPEEDA

*1: weighted average

A group of companies

with portfolios diversified

across therapeutic areas

A group of companies

with portfolios concentrated

in specific therapeutic areas

Sales concentration for the top therapeutic area in terms of sales (%)

ROIC(%)

15 20 25 30 35 40 45 50 55 60 65

Positive EVA

Negative EVA

Sales concentration for the top therapeutic areas (FY21),

ROIC (FY21), the size of bubble is EVA

FIGURE 13: R&D SPENDING COMPARISON OF JAPANESE

PHARMACEUTICAL COMPANIES AND GLOBAL TOP LEADERS

Source: Annual reports, IR materials, and SPEEDA