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.