6
Shareholder Value Creation in Japanese Pharmaceuticals
Pillars of Measures to Be Taken to Improve Corporate Value
AlixPartners proposes "Short-term measures: Generating the source of growth through immediate profitability
improvement", "Medium-term measures: Selection and focus of business domains", and "Long-term measures:
Investment in innovation" as the pillars of growth strategies for Japanese pharmaceutical companies. This report will
focus in particular on short-term measures, which contribute directly to improving corporate value through EBITDA
improvement in addition to the cash generation necessary for growth investment (Figure 6).
FIGURE 6: PILLARS OF MEASURES TO BE TAKEN BY JAPANESE PHARMACEUTICAL COMPANIES TO IMPROVE
CORPORATE VALUE
Generation the source of growth through cost reductions centered
on SG&A expenses
• Optimize personnel costs by reviewing organizational structure and
personnel allocation
• Improve sales representatives' productivity by advancing the sales model
• Optimize R&D expenses by reviewing resource allocation
Selection and Concentration by Therapeutic Area, Value Chain
and Deployment Region
• Selection and concentration in therapeutic areas
• Improve value chain efficiency by utilizing function providers
• Redefine global and local strategy
Challenges of Modality Innovation and Business Model Innovation
• Next generation modalities
• Digital transformation for operational innovation
• Beyond/Around the drug challenges
SHORT-TERM:
Generation the source
of growth through
immediate profitability
improvement
MID-TERM:
Selection and
focus of business
domains
LONG-TERM:
Investment
in innovation
1
2
3
Short-term Measures: Generation the Source of Growth through Immediate Profitability Improvement
As a first step, Japanese pharmaceutical companies require immediate profitability improvement to help them reinvest
for growth. Comparing the profit structure of Japanese pharmaceutical companies with that of the Global Top, there is
no significant difference in the cost of sales ratio, but it is clear that the selling, general and administrative expense ratio
of Japanese pharmaceutical companies is significantly higher (Figure 7).
Therefore, the first thing Japanese
pharmaceutical companies need
to do to improve profitability is
to optimize their SG&A (selling,
general and administrative
expenses). In the following, we
will examine in detail the
personnel expenses and R&D
expenses, which are the major
expense items of selling, general
and administrative expenses.
Approximately
8 points
difference
23.0%
46.7%
30.3%
Global Top average
15.2%
55.0%
29.8%
Japanese companies
SG&A
Cost
Operating
profit
Comparison of profit structure between Japanese and Global Top
pharmaceutical companies (% average of FY2002-2021)
FIGURE 7: PROFIT STRUCTURE COMPARISON OF JAPANESE P
HARMACEUTICAL COMPANIES AND GLOBAL TOP LEADERS
Source: Annual reports, IR materials, and SPEEDA