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Japan banks opening wallets for drug startups

  • April 19, 2017
  • , Nikkei Asian Review , 4:10 a.m.
  • English Press

TOKYO — Major Japanese financial institutions are starting to provide funds to pharmaceutical ventures via investment units as ultralow interest rates make it difficult to generate good returns from safe lending and investing.


Shinsei Bank has set up through a subsidiary its first fund dedicated to secondary investment in drug development. With equal contributions from Shinsei Corporate Investment and consultancy Hibiki Partners, the fund will start out at 300 million yen ($2.77 million) and likely grow to about 1 billion yen.


Drug development often takes more than a decade — longer than typical startup investors are willing to wait. So secondary funds often buy out the initial investors and keep the startup going toward its eventual listing.


Shinsei Bank’s drug venture fund will seek opportunities to invest in university-born and other drug development startups. Medicines require government approval, necessitating spending on clinical trials and other procedures. This puts up more hurdles to commercialization than in such other areas as information technology. A cancer treatment startup born out of a university laboratory took 12 years to finally go public, for example.


Shinsei Bank is not the only large financial institution to take notice of the high potential returns.


Mitsubishi UFJ Financial Group created a roughly 10 billion yen biotechnology investment vehicle this February with funding from units Bank of Tokyo-Mitsubishi UFJ and Mitsubishi UFJ Capital.


Startups often continue to bleed red ink for some time after their founding, which means that their banks must book lending to them as nonperforming. So even amid the Bank of Japan’s monetary easing, funds have not flowed smoothly to drug development startups.


Daiwa Securities Group has taken a more hands-on approach to exploring the opportunities in the drug development sector, forming a startup through subsidiary DCI Partners in March. The biopharmaceutical business specializes in cancer treatments and is partnering with Juntendo University as well as the government-affiliated Riken research institute.


Biotech startups began to proliferate in the 2000s, and Japan now has about 550. The market’s expansion has also gotten a boost from the November 2014 streamlining of the approval process for regenerative-medicine products.

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