Japan's EPS Manager Takehiro Minami On What It Takes To Go Global: An Interview with PharmAsia News (Part 2 of 2)

Established in 1991 as a data management company, EPS has become one of the two top-tier contract research organizations in Japan. In part one of this interview, EPS Manager, Office of the President, Takehiro Minami, spoke with PharmAsia News about the company's beginnings and how it has expanded its business in Japan. In this second segment, he discusses the company's business development strategy for emerging markets, as well as in Japan.

Established in 1991 as a data management company, EPS has become one of the two top-tier contract research organizations in Japan. In (Also see "EPS Manager Takehiro Minami On Growing A Japanese CRO Into A Global Provider: An Interview with PharmAsia News (Part 1 of 2)" - Scrip, 4 Jan, 2010.) of this interview, EPS Manager, Office of the President, Takehiro Minami, spoke with PharmAsia News about the company's beginnings and how it has expanded its business in Japan. In this second segment, he discusses the company's business development strategy for emerging markets, as well as in Japan.

PharmAsia News: Now that Japan is allowing clinical trial data from other Asian countries, are Taiwan and South Korea becoming more popular for Japanese drug applications? Are these locations more popular than mainland China?

Takehiro Minami: We also have offices in South Korea and Taiwan. I believe that if we only provide trials in China, not many companies would come to us for global trials. Rather, they will ask us to conduct trials in a group of countries, such as two trials in China, one in South Korea, one in Taiwan, and two in Singapore. If the customer wants to engage the contract in English, we would ask that customer to work with our subsidiary in Singapore, and then arrange all the trials accordingly. In other words, if we could not provide such flexible options for our customers, we could not get global trials. We have already established an adequate system for global clinical trials. However, our sales in other Asian countries remains limited, $4-5 million. We have negative profits from this business segment, but recognize it as a necessary investment for the future.

I believe that no Japanese CROs have earned positive profits from the Chinese market or Asian trials so far, but we possibly could harvest [profits] several years later. Therefore, whether or not we can put money in emerging markets depends upon how big we are now in Japan. This means that Japanese companies that can prepare for global trials are limited in number.

PharmAsia News: You mentioned earlier that your company is becoming "Sogo-Shosya" rather than a CRO. Can you explain what that means?

Minami: Yes, the reason we want to become "Sogo-Shosya" is that we believe no company can survive with a sole business 100 years from now. Generally speaking, companies grow while integrating their business segments with others, or companies have to change to grow. What if the outsourcing business in Japan deteriorates? EPS is a Japanese CRO but this premise may not last forever. Thus, we need to be ready for any possible changes including global trials. However, if we enter into the global market, the CRO business is too small or too unstable to compete with others. Then we thought that effective use of human resources abroad may be complementary to our CRO business.

We often hear that Japanese small and medium companies suffer from a lack of good human resources. Whenever I hear this news, I wonder why those companies don't hire skilled foreign talent instead. It is clear that the Japanese population is shrinking and we will be short of young skilled talent due to the recent birthrate decline. To solve this problem, we have only two options. One is to accept immigrants from other countries. The other is to look for talent abroad, or to move the company to the place where necessary human resources are abundant. Since we are not a government organization, we cannot handle immigration issues. Therefore, we have only one option available, which is to utilize good Asian talent.

If we do not utilize Asian talent, it is hard for EPS to realize future business expansion and growth. Yes, we are especially targeting Chinese talent. We are currently moving forward with the "Suzhou Project," which consists of three major businesses: the existing CRO business in China, IT development and a new business which has not yet been disclosed in public. However, we will consider some kind of business process outsourcing, including human resource replacement. These three business segments are our core business in China.

PharmAsia News: How will your operations in China be different than your Japanese operations?

Minami: Of course, we will continue to increase our efforts to do our CRO business in Japan while we develop CRO operations in China. The key concept in the Chinese market is more quickly, economically and globally. The main advantage of data obtained in China is that if the data were used for the drug application in developed countries and successfully approved by those countries, then that drug is also allowed to be sold in the Chinese market six months after that approval. In this sense, the Chinese market is very unique in that China agrees to conduct clinical trials for another country's drug approval purpose. This system will never be accepted by Japan. In reality, many pharma companies conduct trials in China for their own country's application purposes and then come back to the Chinese market.

We believe that China is now in a transition stage. It takes awhile to promote Western style pharmaceuticals and/or clinical trials for approval, as the typical Chinese person has not yet had access to those pharmaceuticals, other than traditional herbal medicines, in terms of quality and price.

You know, IT development and clinical trials have similarity in the sense that all these projects have costs represented by [manpower hours]. Although deliverables are different in CRO, CRC, or IT development, management style is the same in terms of operations. Therefore, when we develop managers, we consider providing training so that managers can control any business outsourcing, not just a specific business segment. The only resources necessary to support this type of outsourcing business are office space, computers and manpower. As long as we conduct such an outsourcing business, we can utilize the same management style wherever we are.

PharmAsia News: I understand that EPS tries to stay mobile and to maintain certain flexibility in different businesses. If so, are you considering moving your headquarters to other countries in the future?

Minami: Yes, we don't care about where our head office is located. We may move to Singapore, for example. But please don't misunderstand. We continue to provide CRO services to the Japanese market and try to maximize our customers' benefits as long as they come to us. However, the ratio of sales in Japan may decline in the future across our whole company. If the entire pie becomes bigger with other business segments, comparative sales in Japan and/or CRO business becomes smaller.

As I mentioned earlier, we are considering some new business in China including CRO services, IT and human replacement. We may actually consider one more business, which is pharmaceutical development. However, in other parts of Asia we will stick with CRO services.

For drug development in China, we would like to in-license certain pharmaceuticals that have already been launched and have been popular in other countries - most likely Japan - and which are beneficial to the Chinese market. Once in-licensing has been done, we will then conduct clinical trials in China. We have license agreements in place for two pharmaceuticals and expect to initiate clinical trials within the year. We are also looking for a company [that] can work with us for sales and production in China. We believe that our drug development in China does not compete with our Japanese customers.

PharmAsia News: In terms of hiring highly skilled people, is China better than other Asian countries?

Minami: Yes, we believe so. We have an alliance with Suzhou University where approximately 50,000 students are studying, and intend to offer special courses or internship programs to recruit good students. This alliance is a part of our new business strategy in China because if we have an office in Shanghai, it is very hard to get and keep good students. In Shanghai, even if we trained a good monitor for clinical trials, he/she is more likely to move to another multinational pharma company. If we got a good IT developer by training, he/she is likely to be head-hunted by other IT-related companies. In big cities, it is very difficult for us to combat large capital. Therefore, we selected Suzhou to start our new business and it will be the center of our China business soon.

- Kaori Kido ( [email protected] )