Japan's Shionogi bucks the pharma trend with focus on old, cheap drugs

Shionogi President, Isao Teshirogi with Lord Darzi and Kit Malthouse, Deputy Mayor.(Business Wire)

For most drugmakers, it pays to focus on high-priced drugs in new treatment areas. But Japan’s Shionogi is counting on the opposite.

Shionogi CEO Isao Teshirogi told Bloomberg that the company, which helped develop blockbuster cholesterol med Crestor, will buck the industry trend and focus instead on making less complex treatments such as antibiotics. The company plans to double its revenue over the next 5 years using this strategy.

Shionogi’s sales forecast for the year ending March 2016 is ¥301.5 billion ($2.8 billion). The drugmaker expects this to increase to ¥500 billion ($4.6 billion) for the year ending in March 2021. And its internal target for the same time frame is ¥600 billion, Teshirogi said.

Teshirogi, who came on board as CEO in 2008, has faced “a lot of criticism--from the outside and the inside,” for focusing on older therapies rather than newer, high-priced meds, he told Bloomberg. “People were saying: These products are cheap and they’re old--they were asking if I was crazy.”

But at least for now, Teshirogi’s instincts seem to be paying off. The company’s strategy of focusing on small-molecule drugs has worked so far, Credit Suisse analyst Fumiyoshi Sakai said earlier this year in a note to investors seen by Bloomberg. Shionogi sold rights to Crestor to AstraZeneca ($AZN) after developing the drug until its midstage trials, and now the med has reached blockbuster status.

Shionogi also holds a 10% stake in ViiV Healthcare, an HIV-focused joint venture led by GlaxoSmithKline ($GSK) that developed the HIV fighter Tivicay. The company’s royalties from HIV are projected to increase, Sakai said, which could help drive revenues.

Shionogi is also counting on sales for a flu drug it’s making with Roche ($RHHBY) and revenues from antibiotic and opioid treatments under development to give it a boost. By tackling two ends of the patient market--young people who could succumb to sudden death and terminally ill patients who require pain meds--the company plans to increase sales, Teshirogi said. The same philosophy will keep it focused on antibiotics even as other drugmakers jump ship.

Still, Shionogi’s strategy wouldn’t work for everyone. Big Pharma relies on big ideas and high-priced drugs to drive sales, and concentrating on cheaper therapies wouldn't be popular with investors.

But one large drugmaker has taken a similar approach. Last year, under the leadership of CEO Andrew Witty, GlaxoSmithKline ($GSK) finalized its asset swap with Novartis ($NVS), handing over pricier cancer treatments to focus on less expensive, lower-margin products such as vaccines and consumer health.

Even though Witty is on his way out of the company, his strategy could stay behind. The way Witty sees it, GSK’s recently expanded OTC unit is primed for a turnaround. If and when it does, the company could be poised for more sales.

"We're talking about a big, big business, with a significant capacity to produce value for shareholders," Witty told Bloomberg earlier this year. "And what I've shown--and what I think the company has shown--is that we've got a terrific track record of passing that value directly to shareholders in dividend payments."

- read the Bloomberg story