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METI Publishes "Ito Review 2.0: Biomedical Edition" Report of the Study Group for Encouraging Dialogue between Biotechs and Investors was compiled

In November 2018, the Ministry of Economy, Trade and Industry (METI) established the Study Group for Encouraging Dialogue between Biotechs and Investors, aiming to create global biotechs in order to provide new therapies to patients around the world as early as possible. METI hereby publishes "Ito Review 2.0: Biotech Edition" which was compiled as a result of activities of the Study Group for
(1) formulating the Guidance for Collaborative Value Creation by Biotechs and Investors and
(2) offering solutions to challenges facing emerging markets from the perspective of R&D-oriented firms in the fields of biotechs.

1. Background and purpose

Biotechs need to raise funds for R&D in order to develop their products and achieve success. Difficulties in fund raising have been identified, but the focus has been generally placed on the need to improve the environment for biotechs prior to listing.

However, when looking at the United States, where many biotechs have been achieving success, these companies generally promote growth after listing by raising around 335 million dollar on average from stock markets (mainly from institutional investors) while continuing to post losses for around 10 years on average.

In Japan, market capitalizations of biotechs after listing in emerging markets are lower compared to not only firms in the US and Europe, but also firms in China and the Republic of Korea. Biotechs need to invest in R&D even after listing and are generally unable to record sales or earnings at an early stage, which makes it difficult for institutional investors to evaluate the value of those start-ups. This is one of the factors that hinders flexible and expeditious fund raising.

Biotechs do not simply aim to get listed. They want to market their products as early as possible to provide appropriate therapies to patients. "Ito Review 2.0: Biomedical Industry" provides policy direction for improving the environment for fund raising, also covering the period after listing by way of (1) indicating discussion points for promoting dialogue between biotechs and investors and (2) describing and presenting the current status and problems of emerging markets.

2. Guidance for Collaborative Value Creation between Biotechs and Investors (outline)

This Guidance was compiled by reorganizing the "Guidance for Integrated Corporate Disclosure and Company-Investor Dialogues for Collaborative Value Creation," which METI released in May 2017, in consideration of the characteristics of the biomedical industry. This Guidance aims to (1) clarify points that biotechs should convey to obtain the understanding of institutional investors, etc. and (2) present the evaluation points for institutional investors, considering the inherent industry characteristics of biotechs.

Specifically, the Guidance offers, based on the industry’s characteristics, effective approaches for dialogue between biotechs and institutional investors, in accordance with company growth stages. The key dialogue points common to all listed biotechs are (1) values; (2) business model and development strategy, and (3) management system to improve the corporate value. For firms that have any products developed at the late clinical stage or thereafter, (4) business model and exit strategy are added, and for firms that have reached the stable growth stage after marketing their products, (5) sustainability and growth potential and (6) governance are further included, as in the case of firms in other industries.

3. Problems of emerging markets from the perspective of R&D-oriented firms in the fields of biotechs (outline)

In order to improve the environment for fund raising after listing, firms need not only to promote dialogue with institutional investors but also to promote growth in emerging markets to become attractive as investment targets. However, in emerging markets in Japan where the listing system is based on financial indicators, such as sales and earnings, this is difficult. Also, passive management is the prevailing trend and institutional investors adopt TOPIX-linked asset management. Under such circumstances, biotechs have to secure short-term sales and earnings, which often damage their own corporate value in the medium- and long-term by early licensing-out to pharmaceutical companies or for other reasons. In consideration of such issues, "Ito Review 2.0: Biomedical Industry" describes the current status and challenges facing emerging markets in Japan and offers desirable responses.

< Three facts representing the current status of emerging markets >

  1. Market capitalizations of Japanese biotechs are lower compared to not only firms in the US and Europe, but also firms in China and Republic of Korea.
  2. Based on the delisting criteria of Japanese emerging markets, many US biotechs have been delisted.(*)
    (*) Around 80% were delisted from JASDAQ (earnings criteria) and around 35% from Mothers (sales criteria).
  3. Domestic and foreign institutional investors are unwilling to invest in Japanese biotechs because of the high rate of individual investors, as this may increase the volatility of stock prices.

< Three problems of emerging markets and desirable directions >

  1. Creating a listing system that will contribute to the growth of R&D-oriented start-ups including biotechs that generally post losses at an early stage
    - Need to consider new listing and delisting criteria, and better funding methods for R&D-oriented start-ups
  2. Increasing domestic and foreign institutional investors that support start-up firms
    - Need to create a mechanism to increase crossover and active institutional investors in Japan, attract foreign institutional investors, and increase fund supply to start-up firms
  3. Developing functions to link start-up firms and institutional investors
    - Need to increase analysts specialized in start-up firms and establish emerging sector indices
     (e.g.) biotech analysts sector, biotech index

4. Future actions

METI will hold a follow-up meeting of the study group for "Ito Review 2.0: Biotech Guidance" by the end of this fiscal year to discuss improvements and relevant measures based on the results of opinion exchange with stakeholders, including domestic and foreign biotechs and institutional investors.


Release date

April 27, 2018

Division in Charge

Commerce and Service Industry Policy Group

Ministry of Economy, Trade and Industry1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8901, Japan Tel: +81-(0)3-3501-1511
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