[ Feature ] JAIC has the largest number of domestic and overseas entitles among the Japanese venture capital companies. Flexing the Muscles of

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1 Global Linkage Network JAIC has the largest number of domestic and overseas entitles among the Japanese venture capital companies. Flexing the Muscles of BioVentures in Japan and Beyond Mr Tsutomu Kanezaki gives an overview of Japan Asia Investment Co Ltd (JAIC) and an analytical insight into bioventures in Japan. by Tsutomu Kanezaki About JAIC Established in 1981, Japan Asia Investment Co Ltd (JAIC) is one of the oldest and largest venture capital companies in Japan. Since its inception, it has invested in 1632 companies totalling billion (US$2.153 billion). Among those invested, 232 companies have already gone public (as of March 2008). Having started as a semigovernmental corporation, JAIC was actively investing in the small to medium-sized enterprises in Southeast Asia in 1980s in line with the policy of Japanese government at that time, creating a wide network throughout the Asia region. In 1991, the company became fully privatized and expanded its investment activities into Japan and the United States. 18 Volume 15 > Number 3 >

2 Beside Japan, JAIC has 11 offices worldwide with 10 in Asia (Korea, China (Beijing and Shanghai), Hong Kong, Taiwan, Thailand, Vietnam, Malaysia, Singapore and Indonesia) and in the U.S. with a total staff strength of 265 (as of March 2008). Among all the venture capital companies in Japan, JAIC has the most offices in the Asia region. Being listed on Tokyo Stock Exchange, JAIC has grown into one of the four major public-listed venture capital companies in Japan. It has invested in 189 companies with a total amount of 18.9 billion (US$173 million) in 2007, 45% of which was allocated for domestic companies and the rest for overseas companies. JAIC s Investment in Life Science Industry Life science, along with information technology and Internet-related business, is one of the core business areas for JAIC s investment. JAIC started to invest actively in Quality of Life (QOL) industry in 2001, to which the company allocated 39.6% of the total fund in 2006 and 19.1% in Between 2000 and 2007, the company established 11 life sciencerelated funds with a total amount of 17.2 billion (US$157 million) in Japan, the U.S., Korea, Singapore and Europe. A majority of JAIC s investment is in companies at start-up to early development stage in Japan and those at middle to later development stage in overseas. The investment size is normally up to 100 million (approximately US$1 million) for start-up to early stage companies, and about 100 million to 500 million (approximately US$1 million to US$5 million) for middle to later stage companies. Among those invested, a total of 32 companies (22 in Japan, 8 in Asia and 2 in the 26 (12%) Number of invested companies by region during period. Source: Japan Asia Investment Co Ltd. Medical Service Medical Equipment Number of invested companies by sector during period. Source: Japan Asia Investment Co Ltd. U.S.) went public between 2000 to March Biotech Start-ups in Japan Japan s biotechnology industry started to boom after In order to fully utilize and commercialize intellectual properties owned by academic institutions, Japanese government established the 1000 university spin-off companies vision in 2001 and implemented a number of policies to back the establishment Pharmaceutical of university start-up companies. As a result, the number of newly established companies reached 1000 by 2003, and 1773 companies were formed by the end of 2007, among which 38% is bio-related companies (statistics provided by the Ministry of Economy, Trade and Industry). According to a study by Japan Bioindustry Association, there were 586 biotech companies at the end of 2006 and the number is increasing at an average of 56 per annum. Volume 15 > Number 3 >

3 Japan s Venture Capital Industry Currently, there are approximately 200 venture capital companies in Japan. However, majority of these are small-sized companies whose investments are limited to certain industries, and few are investing in biotechnology companies. Thus, most of the investment in biotechnology companies is done by the leading venture capital companies. According to a study conducted by Nihon Keizai Shimbun, the total investment amount by top 20 venture capital companies in Japan was billion (US$1.46 billion) in Of this amount, 17.1 billion (US$157 million), or 10.7% of the total, was invested in biotechnology/ pharmaceutical sector, which represents a reduction of 36% as compared to 2006 due to the recent pessimistic market sentiment. Japan s Emerging Stock Market In 2000, Japan had put into place three emerging stock markets Mothers in Tokyo Stock Exchange, Hercules in Osaka Stock Exchange and JASDAQ. These new markets provide small-sized companies and non-profitable companies better opportunities to raise funds by going into public listing. As these markets shorten the time for Initial Public Offering (IPO), venture capital companies started to invest in startup and early stage companies which they had never targeted previously. Since the establishment of these emerging stock markets, the number of IPO has exponentially jumped. Between 2001 and August 2008, the total number of companies achieving IPO was 1086 which averaged out the number to approximately 150 per annum. Japan s Biotech Company IPO From 2001 to present, the number of life science companies which achieved IPO is 20. There was an IPO craze for biotech-related companies between 2002 and During that period, some companies achieved a market capitalization of more than 100 billion (approximately US$1 billion). There was a virtuous cycle of venture capital companies receiving favorable results from high performance funds and striving to invest more in new start-up companies. At the beginning of 2005, however, the share price of these listed biotech companies started to plunge due to investors fear that the price was being overvalued. In addition, some of the listed biotech companies poor business results were revealed and released, thus triggering the burst of biotech bubble. In some cases, the market capitalization became less than 10% of their peak value. Amid this slow-down, in order to protect investors, Tokyo Stock Exchange (TSE) announced a new listing guideline for biopharmaceutical-related companies to be listed in the Mothers market. The new guideline announced in June 2005 includes the following: 1. The company must have several kinds of product pipelines under development. 2. At least one of the products under development needs to be in Phase II or later stage of clinical trials and has obtained proof of concept. 3. The company must have a licensing partnership with leading pharmaceutical companies. The new guideline placed a higher hurdle for many, causing them to put off their IPO plan. The IPO of biotech companies practically stopped for the following two years. The IPO resumed in March 2007, however, the share prices are not as high as they used to be during the boom time. The IPO prices often dipped way below the prices invested by venture capital companies, which cooled down their investment activities. However, some of the listed biocompanies finally started to market their proprietary products recently. J-TEC, a tissue engineering company, received a manufacturing and marketing approval for its autologous cultured epidermis JACE for the treatment of serious burn in October This is the first regenerative medicine product approved in Japan. In March 2008, AnGes MG submitted a manufacturing and marketing approval application for its gene therapy Collategene for the treatment of critical ischemia in arteriosclerosis obliterans. If approved, this will be the first gene therapy approved outside of China. R-Tech Ueno already had a product called Rescula Eye Drops and AMITIZA to market when it went to IPO in April The company has already been recording profit mainly due to the licensing fee it earns from the distribution contract with Santen Pharmaceutical Co., Ltd. and Takeda Pharmaceutical Co., Ltd., the largest pharmaceutical company in Japan. The company s market capitalization at the IPO was 35.2 billion (US$323 million) and its current market capitalization is 72.8 billion (US$668 million). This is one of the most successful IPO cases in recent years. These promising biotech companies with successful business are expected to re-establish the confidence of investors and create 20 Volume 15 > Number 3 >

4 No. Company IPO Raised Fund (Year/Month) by IPO (Million Yen) At IPO Highest Share Price Current Price Change from IPO Change from Highest Current Market Value Business Result in 2007 (Million Yen) (Yen) (Yen) (Yen) (%) (%) (Million Yen) Sales Profit Business 1 Precision System Science 2001/2 1, ,000 1,062,500 31, % 3.0% 1,367 3, Research Equipments 2 AnGes MG 2002/9 3, ,000 1,260, , % 23.7% 35,077 1,720 1,728 Gene Therapy 3 Trans Genic 2002/12 3, , ,000 19, % 7.4% 2, Research Service 4 MediBIC 2003/9 2, , ,000 12, % 3.3% 2, ,314 Research Service 5 Medinet 2003/10 4, , ,000 7, % 2.4% 4,240 1, Cell Therapy 6 OncoTherapy Science 2003/12 8, , , , % 13.0% 21, ,323 Drug Development 7 Soiken 2003/12 2, , ,500 20, % 3.1% 5,204 2, Research Service 8 Shin Nippon Biomedical Laboratories 2004/3 6,000 2,055 2,845 1, % 52.2% 50,966 19, Research Service 9 DNA Chip Research 2004/ , ,000 38, % 5.2% 1, Research Equipments 10 Sosei 2004/7 11, , ,000 18, % 2.3% 2, ,503 Drug Development 11 LTT Bio-Pharma 2004/ , ,000 11, % 3.5% 1,499 1, Drug Delivery System 12 Takara Bio 2004/12 8, , , , % 31.0% 68,244 20, Research Equipments / Services 13 MediciNova 2005/2 12, , % 23.9% 4, ,582 Drug Development 14 Effector Cell Institute 2005/3 3, , ,000 18, % 4.8% 2, ,455 Drug Development 15 Immuno-Biological Laboratories 2007/3 1,100 10,000 11,000 1, % 12.4% 841 1, Research Reagent 16 GNI 2007/ % 11.6% 1, ,279 Drug Development 17 Japan Tissue Engineering 2007/12 3,000 96, ,000 62, % 35.3% 6, ,086 Regenerative Medicine 18 NanoCarrier 2008/ ,000 30,000 19, % 63.8% 2, Drug Delivery System 19 Carna Biosciences 2008/ , ,000 56, % 51.3% 3, Research Service 20 R-Tech Ueno 2008/ ,000 1,910,000 1,486, % 77.8% 73,116 6,332 2,070 Drug Development The figure tabulates Bio-Companies IPO after Source: Press release from each company Note 1: The current price and current market value are as of August 28, Note 2: The highest price is based on the closing price. Volume 15 > Number 3 >

5 a positive investment environment in Japan which, in return, nurtures emerging ventures of the next generation. On the other hand, TSE and London Stock Exchange (LSE) announced in July 2008 an outline framework for their Tokyo-based new emerging market. The structure of the new market will be modeled on LSE s Alternative Investment Market (AIM), which is underpinned by a regulatory framework specifically designed to suit the needs of smaller, growing companies, and by the key role played by Nominated Advisors in assisting issuers with meeting their obligations as public companies. TSE aims to start a new market at the beginning of This new market is meant for companies with high risk and high return, such as the biotech companies, for professional investors to invest. In addition, in order to promote the listing of foreign companies, this market will be the first Japanese stock market which allows companies to make disclosure in English and accepts accounting standard of not only Japan but also of the U.S. and international standards. JAIC s Global Network and JABN Currently, JAIC has a total of 817 portfolio companies worldwide, among which 212 are in the life science industry. The company also keeps close contact with companies which it already divested after IPO as well as major Japanese companies. JAIC has the most number of offices among Japanese venture capital companies, 7 offices in Japan and 11 offices around the world. With Global Linkage as its motto, JAIC strives to provide invaluable supports to its invested companies. The JAIC s services are not limited to financial support but also to business, marketing, cross-border IPO strategic support using its wide network of people and companies. More specifically, JAIC arranged marketing tours and meetings for delegates from overseasinvested companies with leading pharmaceutical companies in Japan. JAIC has extended such support, for example, to NanoMaterials Technology, a Singapore-based company which develops novel medicines using its proprietary nano particle production technology; About the author Maccine, a Singapore-based preclinical CRO company; and Sandia, a Shanghai-based company which conducts contract research of compound synthesis and screening. JAIC s other services include arrangement of meeting for Asian companies, which plan to go to IPO in Japanese market, with relevant persons for proceeding, and consultation for Japanese companies which plan to go to IPO in overseas market like Singapore s Catalist market. Furthermore, in order to create more investment opportunities, JAIC s Singapore office operates JAIC Asia Bio Network (JABN), a website which promotes bio businesses in Japan and Asia by providing a platform to exchange information on business partnering, licensing, and products among others. With its free membership, members are able to view the latest bio-related news and opportunities for business partnerships. Members are also able to post their partnership needs on JABN website ( to find potential partners. The author, Tsutomu Kanezaki, is the vice-president of JAIC Asia Holdings Pte Ltd, a wholly-owned Singapore subsidiary office of JAIC. He has been engaged in investment activities in Asian and Japanese biotech companies, while exploring opportunities for business partnering between Japanese and overseas companies. For any enquiries, please contact Mr Kanezaki via at tsutomu-kanezaki@jaic-vc.co.jp [Published in APBN Volume 12, Number 11, 2008] 22 Volume 15 > Number 3 >