Envisioned Future Message from the CEO

Chugai Pharmaceutical CEO Message The Road to Becoming a Top Pharmaceutical Company
We will raise our corporate value by continuing to
innovate for the benefit of patients worldwide.
Osamu Nagayama
Representative Director, Chairman & CEO

Our Growth Engine Is Innovation

“INNOVATION BEYOND IMAGINATION” Chugai's growth engine truly is innovation. Throughout our history of more than 90 years, we have achieved growth with numerous innovations, such as boldly reforming our business structure, initiating biopharmaceutical research, and entering into the strategic alliance with Roche.

We have continued to innovate in recent years, including the establishment of next-generation antibody technologies. In 2016, two of our products, Actemra and Alecensa, received breakthrough therapy designation*1 (BTD) from the U.S. Food and Drug Administration (FDA). Chugai products have received this designation a total of five times over the past three years, and one-third of the Roche Group’s BTDs have been for products created by Chugai – proof of the high level of our drug discovery capabilities and the strength of our innovation.

A system introduced in July 2012 by the U.S. Food and Drug Administration aimed at expediting the development and review of drugs for the treatment of severe or life-threatening diseases or symptoms

Ensuring That Our Innovations Are Properly Evaluated

Our mission is to make innovative drugs available to patients suffering from diseases with no effective treatment options, but creating a new drug is no easy task. Declining success rates and soaring costs associated with technological innovations have fueled fierce competition globally in new drug development. According to one study,*2 the investment necessary to develop a single new drug is $2.5 billion (approximately ¥300 billion), including the cost of unsuccessful projects.

Meanwhile, in response to rising social security costs and weakening financial foundations, which are common issues worldwide, many countries are implementing policies to contain healthcare costs, including controls on drug prices. Due to the specialized nature of drug development, the risks involved in the business and the process and cost of innovation are not necessarily well understood by the public.

But if innovation is not evaluated properly, novel drugs to fight diseases that have no existing treatment options cannot be created. The pharmaceutical industry should initiate a discussion on the balance between innovation and cost. Chugai is a leader in the industry because of its innovation, and will devote efforts to promoting society’s understanding of the necessity and importance of innovation.

In a study by the Tufts Center for the Study of Drug Development, it was estimated that development of a single drug requires investment of approximately ¥300 billion based on the clinical development success rate.

A Unique Business Model Built Over the Past 15 Years

In this tough operating environment, Chugai has established unique strengths that have enabled it to achieve continuous innovation. The foundation supporting these strengths is the strategic alliance with Roche, a unique business model that enables us to maintain autonomy as a publicly traded company while also being a member of the Roche Group.

In terms of drug discovery, the Roche Group as a whole spends about ¥1 trillion a year on research and development, and has a framework that enables the three major Group companies – Roche, Genentech and Chugai – to focus on activities that make the most of their respective strengths. As a result, Chugai has established world-leading antibody engineering technologies, and in addition to acquiring infrastructure for small-molecule discovery, we have taken on the challenge of establishing next-generation technologies for creating middle-molecule drugs.

In development and production, we now have the ability to quickly move multiple compounds through development. We have built a global development system that allows us to concentrate our resources on earlier stages of the development process up to early proof of concept (PoC),*3 with a view to late-stage global development in collaboration with Roche. In marketing, our efforts to promote personalized healthcare*4 and the coordination of community care are well recognized and have further increased our presence in the Japanese market.

We have achieved solid growth over the 15 years of the alliance: Chugai's revenues, operating profit and market capitalization have roughly tripled. In 2002, there was some concern over this alliance, which was an unprecedented arrangement at the time, but today the success of the alliance is shared with stakeholders, and I am very pleased that they appreciate its value.

PoC is a demonstration that the therapeutic effect conceived in the research stage is effective in humans. Early PoC means that in addition to safety, signs of efficacy or pharmacological effect have been confirmed in a limited number of cases.
A treatment approach designed and implemented according to each patient’s unique molecular and genetic profile

Progress and Results of Our “Voyage into Uncharted Waters”

Now that we have built these unique strengths and the infrastructure for growth, our challenge is to generate further innovation. The environment surrounding the pharmaceutical industry is likely to become increasingly severe, and the emergence of disruptive technologies*5 such as artificial intelligence and the Internet of Things, as well as the entry of companies from other industries, could dramatically change approaches to drug discovery.

In IBI 18, our mid-term business plan that began in 2016, we are working to bring all of our functions to a world-class level of competitiveness. At the outset of IBI 18, I shared with all employees my decision to “embark on a voyage into uncharted waters.” In the first year of the plan, we took on new challenges in many of our business activities.

We achieved significant results in 2016 despite an average 5.5 percent reduction of National Health Insurance (NHI) drug prices for our products. Development of future key growth drivers emicizumab (ACE910) and atezolizumab (RG7446) progressed smoothly, and we concluded agreements to out-license SA237 and CIM331, both of which Chugai had been developing globally.

To support future growth, we acquired land in Yokohama, the first step in establishing a core base for research and development. We also concluded an agreement for comprehensive collaboration with Osaka University Immunology Frontier Research Center (IFReC).

New technologies that disrupt markets that use existing technologies and bring about dramatic changes and unprecedented value in people’s lives, the economy and other aspects of society

Further Raising the Strength of Our Human Resources to Continue Innovating for Patients

We will continue to work on the priority agenda of IBI 18, but what we are emphasizing above all else is strengthening our human resources, the source of innovation that creates value.

To achieve this, we are stepping up our diversity and inclusion initiatives, including providing opportunities for women, senior employees and non-Japanese employees to play active roles, and have established an organizational culture that encourages autonomous innovation. In addition, we formulated a new talent management strategy to expedite development of world-class talent.

Each and every employee continually pursuing innovation for patients to address areas of unmet medical need.*6 We believe that is the essence of a company that delivers a high level of satisfaction to all its stakeholders and receives their active support and trust – in other words, the “top pharmaceutical company” that Chugai is aiming to be.

By using innovation as the driving force to benefit patients worldwide, we will increase Chugai's corporate value and meet the expectations of our stakeholders.

Medical need that is not adequately met due to a lack of effective treatments
Annual Report 2016
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Annual Report 2016
Composition of Annual Report 2016 (Full Version)
  • Message from the CEO
  • Chugai Fundamentals
  • Message from the President (Commentary on Strategies)
  • Chugai's Management (Corporate Governance/Employee Talent)
  • Message from the Deputy Chairman
  • Feature: Innovation in Chugai's Out-Licensing Strategy
  • Interview with the CFO (The CFO Answers Frequently
    Asked Questions from Investors)
  • Chugai's Activities
  • Detailed Report
  • Financial Information
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: Excerpts featured in the Online Annual Report (16 pages out of the 136 pages of the full version)
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