'Op­ti­miz­ing R&D struc­ture is al­so on the hori­zon, with­out ex­cep­tion,' new Sum­it­o­mo Phar­ma CEO says

Sum­it­o­mo Phar­ma CEO Toru Kimu­ra says that he sees the need to stream­line the com­pa­ny’s busi­ness and prod­uct line­up, and is con­sid­er­ing steps in­clud­ing job cuts. He’s al­so look­ing at how to op­ti­mize the com­pa­ny’s R&D sys­tems.

The CEO spoke to Nikkei Biotech in an in­ter­view in June. He said that the com­pa­ny’s wors­en­ing fi­nan­cial sit­u­a­tion was caused in part by the on­go­ing lack of a suc­ces­sor to the an­tipsy­chot­ic Latu­da (lurasi­done), and that the North Amer­i­can busi­ness, which was sup­posed to be the main source of rev­enue, was not pro­gress­ing well.

There are changes hap­pen­ing in the North Amer­i­can busi­ness, how­ev­er. Af­ter the com­pa­ny re­or­ga­nized the sev­en North Amer­i­can com­pa­nies and gained con­trol, “we are grad­u­al­ly cor­rect­ing things. Sales fig­ures for April and May 2024 have been fi­nal­ized, and they are pro­gress­ing ac­cord­ing to bud­get,” Kimu­ra said. The North Amer­i­can busi­ness has re­duced its work­force from 2,200 to 1,200.

“Our biggest chal­lenge for 2024 is to steadi­ly ex­pand sales of our three core prod­ucts with the re­main­ing struc­ture,” Kimu­ra said.

In the Japan­ese busi­ness, the patents for the Parkin­son’s dis­ease treat­ment Trerief and the di­a­betes treat­ments Equa and EquMet will ex­pire be­tween June 2024 and June 2025.

“With the loss of such a large num­ber of main prod­ucts, the Japan­ese busi­ness will be ex­treme­ly tough from 2024 on­wards,” Kimu­ra said. “We were mak­ing a lot of prof­it from Latu­da, so our or­ga­ni­za­tion­al struc­ture was not nec­es­sar­i­ly op­ti­mized in some ar­eas. Our chal­lenge this year is to stream­line our or­ga­ni­za­tion in a way that is ap­pro­pri­ate to our cur­rent busi­ness scale and prod­uct line­up,” Kimu­ra said.

Re­search and de­vel­op­ment ex­pens­es will be re­duced by 40.9 bil­lion yen (45%) from 90.9 bil­lion yen in fis­cal 2023 to 50 bil­lion yen. Of the ap­prox­i­mate­ly 40 bil­lion yen re­duc­tion, more than 30 bil­lion yen will be for late-stage de­vel­op­ment projects. In March 2024, the com­pa­ny an­nounced that it would en­trust the de­vel­op­ment of Ulotaront and SEP-380135 in the psy­chi­atric and neu­ro­log­i­cal fields to Ot­su­ka Phar­ma­ceu­ti­cal. Kimu­ra said that the im­pact of the re­duc­tion in re­search and de­vel­op­ment ex­pens­es on the R&D of the re­main­ing pipeline will not be as great as it may seem, but “it is true that we are ask­ing for strict fig­ures.” He al­so ex­pressed that the re­search and de­vel­op­ment struc­ture needs to be changed to match the scale of the busi­ness and the bud­get.

The com­pa­ny will con­sid­er op­ti­miz­ing its over­all or­ga­ni­za­tion, in­clud­ing re­duc­ing staff. If staff re­duc­tions are to be made, “we need to re­duce the work­load in all de­part­ments. How­ev­er, down­siz­ing the pro­duc­tion de­part­ment is not re­al­is­tic, so it will not be in­clud­ed,” Kimu­ra said. He added that it is not re­al­is­tic to cut staff in half, as in the US, but he al­so pre­dict­ed that a re­duc­tion of around 50 to 60 peo­ple would not be enough.

He al­so said that com­pa­ny cul­ture changes were need­ed. “Sum­it­o­mo Phar­ma is known both in­side and out­side the com­pa­ny as a group of very earnest and kind peo­ple, but from now on we need to start pro­duc­ing sol­id re­sults. We need to change the cor­po­rate cul­ture of our per­son­nel sys­tem so that the goal is not to do what you’re told, but to take ac­tion to pro­duce re­sults, and those who ac­tu­al­ly put in the ef­fort are re­ward­ed,” said Kimu­ra.

Re­gard­ing the fu­ture of Sum­it­o­mo Phar­ma’s re­gen­er­a­tive and cel­lu­lar med­i­cine busi­ness, Kimu­ra said about an al­lo­gene­ic iPS cell-de­rived prod­uct for Parkin­son’s dis­ease that “the in­ves­ti­ga­tor-ini­ti­at­ed clin­i­cal tri­al at Ky­oto Uni­ver­si­ty Hos­pi­tal has been com­plet­ed, and the ex­pect­ed da­ta has been ob­tained. We would like to ap­ply, in 2024, and to ob­tain ap­proval. As it will be based on the re­sults of sev­en cas­es in a clin­i­cal tri­al, it will prob­a­bly be con­di­tion­al, time-lim­it­ed ap­proval. The im­pact on our busi­ness is not like­ly to be great, but if we can demon­strate ther­a­peu­tic ef­fec­tive­ness for a va­ri­ety of pa­tients af­ter ap­proval, it has the po­ten­tial to sig­nif­i­cant­ly change fu­ture treat­ment meth­ods.”

Kimu­ra al­so not­ed that man­u­fac­tur­ing iPS cell-de­rived prod­ucts is dif­fi­cult and re­quires know-how, say­ing, “Even if com­pet­ing prod­ucts emerge, I don’t think they will be po­si­tioned as gener­ics. I think it can con­tin­ue as a long-term busi­ness. I think the key is to make it a suc­cess not on­ly in Japan but al­so in the Unit­ed States.”

There was al­so talk about the man­u­fac­tur­ing ca­pac­i­ty of the re­gen­er­a­tive med­i­cine and cel­lu­lar med­i­cine busi­ness. “If we want to make it a 100 bil­lion yen busi­ness, main­ly in the US, we need to ex­pand the pro­duc­tion scale of the re­gen­er­a­tive med­i­cine and cel­lu­lar med­i­cine busi­ness,” Kimu­ra said. He added that there is high mo­bil­i­ty of hu­man re­sources in the US, and that peo­ple may leave be­fore their skills have im­proved, and point­ed out that Japan may have an ad­van­tage in terms of train­ing hu­man re­sources to man­u­fac­ture cel­lu­lar med­i­cines and in terms of keep­ing man­u­fac­tur­ing costs down. On the oth­er hand, he al­so rec­og­nized that it would be bet­ter to man­u­fac­ture 3D reti­nal tis­sues close to med­ical in­sti­tu­tions, as they are dif­fi­cult to freeze and store.

In ad­di­tion, the com­pa­ny plans to launch a new com­pa­ny with Sum­it­o­mo Chem­i­cal for this busi­ness in the fu­ture. Based on the re­leas­es is­sued by Sum­it­o­mo Chem­i­cal, Kimu­ra said, “It seems that some peo­ple have as­sumed that [the new com­pa­ny] will be sold to some­one, but that is not the case. We want to de­vel­op the re­gen­er­a­tive med­i­cine and cell med­i­cine busi­ness as a busi­ness of the Sum­it­o­mo Chem­i­cal Group. We want to cre­ate a struc­ture that ben­e­fits both Sum­it­o­mo Phar­ma and the Sum­it­o­mo Chem­i­cal Group.” Spe­cif­ic de­tails are cur­rent­ly un­der dis­cus­sion.

Al­so, in re­la­tion to the same busi­ness, the re­sult of the ar­bi­tra­tion claim filed by star­tups Vi­sion Care (Kobe City, CEO Masayo Taka­hashi) and VC Cell Ther­a­py (Kobe City, CEO Masayo Taka­hashi) re­gard­ing a patent for a method of man­u­fac­tur­ing reti­nal pig­ment ep­ithe­li­um (RPE) cells was an­nounced in May 2024. A set­tle­ment was reached be­tween Taka­hashi and the patent hold­ers He­lios, RIKEN, and Os­a­ka Uni­ver­si­ty, and Taka­hashi and his col­leagues ob­tained the right to use the rel­e­vant patent un­der cer­tain con­di­tions. As a re­sult, the ar­bi­tra­tion claim was with­drawn. When asked about the re­sult of this ar­bi­tra­tion claim, Kimu­ra com­ment­ed, “We were able to reach an agree­ment that would not af­fect our busi­ness. It was good that the set­tle­ment did not re­sult in a fu­ture prob­lem or im­pact, such as ob­tain­ing a li­cense for the patent by fil­ing an ar­bi­tra­tion claim.”

Oth­er com­ments from the in­ter­view:

The com­pa­ny’s bor­row­ings: “Re­gard­ing our debt plan with banks, we cur­rent­ly have short-term bor­row­ings of ap­prox­i­mate­ly 145 bil­lion yen, the re­pay­ment dead­line of which has been ex­tend­ed to the end of Sep­tem­ber 2024. Ex­perts have com­ment­ed that there are no is­sues with busi­ness con­ti­nu­ity as Sum­it­o­mo Chem­i­cal has guar­an­teed the full amount. We will clear­ly present our re­con­struc­tion plan to the banks un­til the re­pay­ment dead­line.”

Fu­ture re­search and de­vel­op­ment struc­tures: “We will con­tin­ue to do so as an R&D-based phar­ma­ceu­ti­cal com­pa­ny. Un­til now, we have con­duct­ed re­search in the Unit­ed States and Japan, but in 2023, we closed our re­search fa­cil­i­ty in the Unit­ed States. In oth­er words, the ba­sis of our fu­ture think­ing will be to con­tin­ue to con­duct re­search in Japan.”

“On the oth­er hand, the re­search and de­vel­op­ment bud­get (for fis­cal 2024) has been re­duced from ap­prox­i­mate­ly 90 bil­lion yen in fis­cal 2023 to 50 bil­lion yen. Most of that is re­lat­ed to Ulotaront, but oth­er ar­eas have al­so been sig­nif­i­cant­ly re­duced. I be­lieve that re­search and de­vel­op­ment will be sub­ject to stream­lin­ing or op­ti­miza­tion with­out ex­cep­tion.”

The patent cliff: “The patent cliff it­self is un­avoid­able, so it is im­por­tant to mit­i­gate the shock or build up a strong re­sis­tance to shock. For ex­am­ple, it is pos­si­ble to con­sid­er prod­uct life cy­cle man­age­ment and de­vel­op the prod­uct, such as mak­ing it a long-term sus­tained-re­lease for­mu­la­tion. How­ev­er, in the case of Latu­da, its sol­u­bil­i­ty is very high, and this was not pos­si­ble due to its phys­i­cal prop­er­ties.”

“Latu­da was a big prod­uct like [base­ball star] Shohei Ohtani. There is a risk in look­ing for a sec­ond Ohtani, that is, there are not many prod­ucts like Ohtani. Al­though it will be a case-by-case ba­sis, it would be one to con­sid­er a strat­e­gy of ar­rang­ing a cleanup hit­ter to re­place Ohtani.”

Look­ing back at your com­pa­ny’s ef­forts, were you late in putting to­geth­er the line­up?

It may be more ac­cu­rate to say that they spent too much time search­ing for a play­er of Ohtani’s cal­iber. They think they might have been bet­ter off de­vel­op­ing a cleanup hit­ter while they still had the mon­ey.

First published with our partner Nikkei Biotechnology & Business here.