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GenomeWeb Feature: Funding Initiative in Japan Aims to Boost Life Science Research, But Skeptics Worry It May Be Too Late

NEW YORK (GenomeWeb News) – On the heels of $11 billion in stimulus funding provided earlier this year, Japan has plans for major new initiatives to transform the nation's life science landscape.

But even as it has made investing into its scientific research community a top priority as the country tries to shake itself out of an economic stupor, there remains much heavy lifting to be done if Japan is to restore its reputation as a scientific leader. And in the omics tools and molecular diagnostics space, especially, some are skeptical that Japan will be able to make up the ground it has already lost.

In January, the Japanese government approved a stimulus package totaling ¥10.3 trillion, or about $116 billion at the time, in order to stir up its stagnant economy. Included in that package was approximately $11 billion earmarked for life science and technology research.

But even with the new funding and plans for new initiatives, some in the investment and research communities told GenomeWeb Daily News that so much has been lost from years of flat funding that Japan might not be able to regain its place as a major innovator in the life science tools space. Specifically, in genomics, they said, there is doubt that Japan will ever become a major player.

While the country's drug development industry has remained robust, experts said, its efforts in basic research and in the omics-related fields have lagged too far behind those of the US and Europe, as well as developing nations, such as China.

To be fair, it is early days in the country's renewed push in science and technology, and the government's plans continue to evolve — the latest proposal being floated is the creation of a centralized governing body similar to the National Institutes of Health in the US.

But the past decade has left researchers reeling from what they saw as a "crisis of funding" from Japan's government, as one researcher told GWDN, and they remain unsure about what to expect moving forward.

Because scientific funding in Japan is a mash-up of dollars from multiple sources, getting a reliable figure on Japanese government funding specifically for the life sciences is elusive. As Hidewaki Nakagawa of the Riken Center for Integrative Medical Sciences, Lab for Genome Sequencing Analysis said to GWDN, funding for the sciences is provided primarily by three separate ministries — the Ministry of Education, Culture, Sports, Science, and Technology; the Ministry of Health, Labor, and Welfare; and the Ministry of Economy, Trade, and Industry — resulting in a "difficult kind of segmented administrative system in Japan.

"These three ministries independently allocate research funding without any good coordination," he said.

The most recent figure available from the Japanese government is from 2005 when a total of ¥451 billion, or $4.7 billion, was allocated to the life sciences.

Brandon Couillard, an analyst at investment bank Jefferies, estimated the Japanese government budget for science and technology has grown about 1 percent compounded annually in recent years. Assuming the same growth rate for life science funding, the budget allotted specifically for life sciences in Japan would have totaled roughly $5 billion in 2012 and about $5.1 billion in 2013, before the supplemental funding announced earlier this year.

For comparison's sake, that is one-sixth of the budget for the US National Institutes of Health.

"If we really talk about crisis of funding, it's really not something new," Shigehiro Kuraku, the leader of the Genome Resource and Analysis Unit at the Center for Developmental Biology at Riken, told GWDN. "It already started like five years ago, 10 years ago. It's not really happening [only] now, and … as a result of this long-term situation … the field of genomics or genome sequencing is not really active in Japan.

He said that most sequencers and analysis tools and prep kits come from other countries, primarily the US, and "we try to catch up with global development."

In part, Japan's troubled scientific funding landscape stems from the country's broader economic woes, exemplified by steep losses in real gross domestic product and a sharp reduction in exports in recent years.

After Shinzo Abe became Japan's Prime Minister again in December — he previously served in office between 2006 and 2007 — he swiftly implemented a set of economic policies, including the ¥10.3 trillion stimulus package, which came to be known as Abenomics.

In terms of Japan's scientific future, the $11 billion in stimulus funding was just part of Abe's larger vision to fundamentally transform the nation's scientific funding mechanism. In a document issued in June, Japan's Council for Science and Technology Policy (CSTP) broadly outlined its plans to raise the profile of Japan's scientific community by creating an economic imperative.

"Science, technology, and innovation are the driving force of economic growth, and the source of vitality," CSTP said in its document titled Comprehensive Strategy on Science, Technology, and Innovation — A Challenge for Creating Japan in a New Dimension.

"Looking back at post-World War II Japan, science, technology, and innovation was the driving force that led the rapid economic growth, the breakthrough to overcome numerous crises, such as the oil crises, and the leverage that converted crises into opportunities" CSTP said.

In its document, it makes recommendations to beef up efforts in five areas, including energy; "long and healthy life;" next-generation infrastructure; local area resources; and recovery and revitalization from the earthquake in 2011 that devastated whole areas of the nation.

It also maps out a strategy to make CSTP the hub of science and technology innovation and funding in Japan by centralizing responsibilities and budgetary activities that currently are divvied up by the different government ministries. CSTP currently operates under the umbrella of the Ministry of Education, Culture, Sports, Science, and Technology.

Under healthcare, in general, CSTP aims to extend "healthy longevity" by developing methods of preventing, diagnosing, and treating diseases, such as cancer, diabetes, chronic obstructive pulmonary disease, infectious diseases, rare and intractable diseases, and other ailments.

The document also touches on goals that the Abe cabinet would like to see achieved in genomics. They include the promotion of genomic research aimed at preemptive medicine as well as the use of genomic technology in the agricultural, forestry, and fishing industries.

Rebuilding its science base

Japan's renewed push into the sciences comes amid what some see as a downward spiral toward scientific irrelevancy. In its report, CSTP said, "There are increasing concerns over [a decline] in international competitiveness of Japan's science, technology, and innovation, and the eventual declining presence of Japan's industries, in synchronization with the loss of economic and social vitality and spread of sense of stagnancy in the society."

The report said that between 2007 and 2012, the country's ranking in international competitiveness in innovation dropped from fourth to 25th. Additionally, between 1995 and 2010, Japan's market share in the high-tech industry fell from 27 percent to 13 percent.

The country, according to the report, has ceded its leadership role to nations such as China, which the CSTP report singles out as a hotbed of life science research activity.

Indeed, many new omics tools firms have aggressively built up their presence in China through licensing deals and by building new facilities to serve customers there.

The Chinese government has also made healthcare a major priority. In the country's most recent five-year plan issued in early 2011, China places particular emphasis on scientific development and other areas that are likely to benefit companies operating in the life science tools space.

During a recent webinar by ISI Group's Ross Muken to discuss his impressions from a trip through Asia, he noted a major push by Chinese authorities to improve the quality of life for the masses, which include new hospital construction and increasing resources related to improving medical care. Healthcare investments in China, Muken said, are "on fire."

China is not alone in that respect, as other nations including South Korea, India, Russia, Brazil, and Singapore also are building up their healthcare and biotech infrastructure and threatening to push Japan further into the background.

These geographies are "where, honestly, folks are investing in manufacturing capacities, [and] sales, marketing support," in the life sciences, Jefferies' Couillard told GWDN. "And as that persists, Japan … is becoming less relevant as an end market in terms of the overall mix."

The stimulus funding approved in January is meant to at least provide some temporary relief and start the process of rebuilding Japan's scientific infrastructure, an effort that is expected to extend beyond the next decade. Many of the goals outlined in CSTP's June report are targeted to be completed in 2030.

About $2 billion of the stimulus funding is targeted at the translation of university research into commercial operations, according to Goldman Sachs analyst Isaac Ro. Additionally, about $960 million is directed at upgrading research infrastructure, and $380 million is for promoting innovative medical treatment and pharmaceuticals, including $240 million for research into pluripotent stem cells and other regenerative therapies, he said in a research note published in late September.

Researchers are not the only ones who have applauded the new funding effort, either, as a lack of research dollars translated to soft business for life science tools firms operating in Japan.

"I would say, in general, Japan has not been a robust growth market [in life science tools] for maybe a decade," Couillard said.

Slowly, such companies are beginning to see benefits from the supplemental funding. Just one quarter ago, many executives at these firms said that any material benefits of the stimulus funding were still limited, but that they expected it to pick up as 2013 progressed. A handful of firms who have reported their third quarter financial results have said that the improvements are starting to show.

In late October Marc Stapley, CFO and senior vice president at Illumina, said that revenues in the Asia-Pacific region were up 22 percent year over year during Q3, "driven by continued strength in Japan, where HiSeq instruments had a particularly good quarter," though he did not elaborate.

Waters also reported its Japan business was up 5 percent in the third quarter, and its Chairman, President, and CEO Douglas Berthiaume said that in the Waters division, constant currency sales in that country "were up nicely in the quarter, as the pickup in government and academic spending that began to materialize late in the second quarter continued through the third."

He added that "governmental supplemental stimulus programs are having a positive impact on our Japanese business," while sectors in the country not associated with government funding, including the industrial, chemical, and pharmaceutical end markets "remain under pressure."

According to Ro, Waters and Bruker, are "the greatest potential beneficiaries of these stimulus funds given their above-peer exposures to Japan … and product mix in both the applied and life sciences focused end markets." Japan makes up about 10 percent of each company's total revenues.

However, Peer Schatz, CEO of Qiagen, noted that third quarter revenues from the firm's Japanese operations were flattish year over year, and he is taking a wait-and-see approach on the potential benefits of the stimulus funding.

"We all know that there is a very significant uptake that could be expected from any of these stimulus fundings. The problem is timing and calling that, and we've seen that so often in Japan and have been burned a few times by expecting … this or this to happen," he said on Qiagen's third quarter earnings conference call in October. "It's sometimes quite opaque when and how these things get implemented.

"So our team tells us here, at the moment that they're not seeing any material inflow at all, and there's still a lot of uncertainty if and when this will come. … We'll believe it when we see the money, and we haven't seen the money yet," he added.

Even if stimulus funding is beginning to trickle down to the omics tools firms, it may be going toward the purchase of lower ticket items, and any meaningful uptick to big ticket items, such as capital equipment, may still be at least a quarter away.

"It's certainly a second-half [of 2013] phenomenon, likely to be more, I would think … the fourth quarter, or the early part of next year, where we will see it translate to capital equipment sales," Muken told GWDN.

What next?

In the meantime, the Japanese government is preparing its Fiscal Year 2014 budget. The three ministries that provide the bulk of funding for scientific research in Japan have each asked for budget increases for next year. The Ministry of Education, Culture, Sports, Science, and Technology reportedly is requesting about $60.56 billion, which would represent a 10 percent increase over 2013 funding. The Ministry of Health, Labor, and Welfare seeks a 4 percent increase to $311.4 billion, and the Ministry of Economy, Trade and Industry has asked for a 22 percent increase to $17.81 billion.

Abe's government also continues in its mission to change how scientific research will be funded. One proposal being revisited is the creation of a Japanese version of NIH, which would oversee medical R&D, centralize medical research activities in Japan, and accelerate the commercialization of new diagnostics, devices, drugs, and other products and services.

Under one plan, the agency would comprise an independent administrative institution and the existing Headquarters for Healthcare and Medical Strategy Promotion (HHMSP). The institution would allocate research funds to universities and research institutions to carry out goals and strategies created by HHMSP.

While an NIH-like entity has been proposed before, and gone nowhere, indications are that such an agency could take form this time around. In June, the Abe Cabinet approved a broad roadmap for revitalizing Japan's economy called the Japan Revitalization Strategy, which included plans for the Japanese NIH. The revitalization strategy also generally supported many of the ideas raised in the June CSTP document.

The government then quickly established the HHMSP as a step toward creating a Japanese NIH. Importantly, Abe heads HHMSP as its director, while Chief Cabinet Secretary Yoshihide Suga serves as its deputy director.

More details about a Japanese NIH are expected in January, and legislation authorizing the agency could come in March.

Meanwhile, an initial budget of $1.4 billion has been proposed for such an institution. The largest share of the dollars, about $310 million, is being targeted for drug discovery, followed by cancer research ($215 million), medical technologies, and medical devices follows ($167 million each).

Genomic medicine would receive $130 million in funding under the proposal.

Still, how much of a boost the genomics industry would receive from a Japanese NIH is far from clear. Riken's Nakagawa said that he hoped the barriers between the agencies that currently supply funding to scientific researchers will come down, resulting in a more fluid funding system and more investments into genomics.

Without more support for the country's genomic facilities, Japan will not be able to stay competitive, he said.

"When I look at the draft [NIH proposal] — cancer, brain, and regenerative medicine — [these are the] strategic fields," he said, adding, "I think we need genome centers. … [Japan has] one genome center [with] 20 or 30 HiSeqs. That is not enough."

Similarly, the country needs improved bioinformatics capacity and capabilities. "Genome research is a big data research field now," Nakagawa said, adding that as thousands or tens of thousands of people are sequenced, the data produced will reach into terabytes or petabytes.

Institutes in other countries like BGI in China and the Broad Institute in the US have such supercomputer facilities, in addition to sizeable numbers of sequencers. "That is a big problem. We don't have any central genome center [and] we don't have any central supercomputer system specialized for genome research," Nakagawa said.

Ciara Curtin contributed reporting to the article.