JAPAN: GENETECHS LATE BLOOMER
Japan was a late starter in the biotechnology arena. Japanese companies began to make their first forays into biotechs brave new world in the early 1980s, attracted by the anticipated high rates of return and the potential to become less dependent on oil-based products and energy-consuming production methods. Unlike the US, whose biotech industry grew out of small biotech start-ups, Japanese interest in biotechnology came from large corporations looking to diversify their activities. Some 88% of Japanese companies involved in biotech introduced it into existing portfolios. These include Japans largest pesticide producer Sumitomo Chemical; seed and pharmaceutical company Suntory; the worlds second largest tobacco producer Japan Tobacco; and the worlds sixth largest corporation Mitsubishi.
These large, established companies relied heavily on joint ventures with US companies to carve their way into the biotech business. At least 375 strategic alliances have been established since 1981. These partnerships suited both parties - US companies provided the technological expertise, while the Japanese were endowed with much needed venture capital. Given Japans proven success with product and process improvements, many thought that biotech -like computers before it - would soon be dominated by the Japanese. The country has certainly made great strides: it now stands in third place in the global biotech market (with 9.6% of sales), after the US (46.3%) and Switzerland (17.3%). Nevertheless, the new industry has had a bumpy ride. It has yet to establish its credibility in the global arena and achieve acceptance of its products at home.
According to a 1996 survey released by the Japanese Science and Technology Agency (STA), Japan continues to lag behind North America and Europe in basic research and advanced science and technology. Although in-house capacity for basic research is improving, the rate of technology transfer from US to Japan is still four times that of Japan to US. The lack of basic research is considered the weakest link in Japans biotechnology industry and the roots of its shaky foundations.
Recently, the government recognised these shortcomings and launched several new policy initiatives to help the industry thrive in what it describes as the mega-competition of the global market. These initiatives are included in the governments radical and ambitious overhaul of Japans economy known as the Program for Economic Structure Reform, which was adopted in December 1996. R&D, and basic research in particular, are heavily emphasised in the plan, swallowing up yen 79.9 billion (US$0.6 billion) of its yen 150 billion (US$1.2 billion) budget in 1997. Genetic research is highlighted as an important research area, and the biotechnology-related sector is one of the 15 growth fields in the economy given special attention in the plan. Japan spent an estimated US$8 billion on biotechnology R&D in 1995. This represents 20% of total global investment, making Japan the second biggest spender after the US. The private sector, comprising more than 800 companies, continues to finance the lions share (80%) of biotech R&D.
The Product Pipeline
Biotechnology is not a completely new avenue of interest for the Japanese, thanks to their long history of fermentation. Foodstuffs such as miso, natto (fermented soya), soy sauce, sake and beer have long had their place in the Japanese kitchen. Many food companies, such as Ajinomoto, Meiji Seika, Kirin and Suntory, continue to exploit these techniques, but they are not putting much energy into expanding into other biotech fields for their food processing activities. Many of them are paying more attention to penetrating the pharmaceutical sector than developing DNA foodstuffs. A few exceptions to this rule include Kagomes high pectin tomato, KIK, Japan Tobaccos low-protein rice (for sake brewing) and Mitsui Toatsus low-allergen rice, which have completed or are currently undergoing biosafety testing.
The vast majority of Japanese companies involved in biotech R&D are focusing on the pharmaceutical sector. Japans pharmaceutical market is the second largest in the world, worth about yen 6,000 billion (US$46 billion) in 1995. More than 50% of the market is controlled by domestic drug companies, and an additional 20% by Japanese companies under foreign licence. The pharmaceutical sector is booming, largely in anticipation of the countrys ageing population and the attraction of the high value-added nature of drugs. Genetically-engineered drugs are doing quite well, and in 1994, the 14 biomedicines marketed in Japan achieved a market share of 7%. Japan is investing heavily in research into marine resources as future sources of pharmaceuticals.
Agriculture is a sector which is relatively underexploited by the biotech industry. Japanese agriculture has always been a highly protected sector, and it was not until 1994 that the country was finally forced to allow rice imports. The use of advanced breeding material is envisaged as a way to cope with the new competition, and the agbiotech sector is expected to grow considerably over time. The Japanese seed market has a value of about US$1 billion, comprised of 30% rice seeds, 50% vegetable seeds, and 20% other seeds. Current research in plant biotech focuses heavily on rice, with the main aim of shortening its breeding and growing time. To date, rice breeding has not attracted much interest from the industrial sector, but that situation may well change with the advent of the so-called Terminator Technology , which has the potential to increase dramatically the profitability of rice breeding.
Japan is currently the world leader in rice genome research, which it hopes will provide advances not only in rice breeding, but also other cereal crops like wheat, maize and barley (see Box). The main corporate players in plant biotechnology are Japans largest pesticide producer Sumitomo Chemical, seed and pharmaceutical company Mitsui Toatsu, beverage company Suntory, Mitsubishis Plantech Research Institute and brewer Kirin, and the national organisation of agriculture co-operatives Zennoh. There is something rather disconcerting about the main players in the agricultural genetech field having no experience in seeds or breeding, raising questions about the direction the agbiotech sector will take in the future.
Meanwhile, more than 40 transgenic crops have been developed in Japan. Most of those in the field testing stage are focused on viral resistance and modifying the nutritional qualities of rice (see Table 1). Genetic engineering in animals has concentrated mainly on developing animal models for disease, like the oncomouse, but there is also some interest in livestock applications. Japanese researchers were the first to introduce a gene into a fertilised chicken egg through micro-injection, and they have also produced chimera pigs.
Humans have not escaped Japans biotech research. Although Japan started late on human genome research, it owns the largest number of patents for human DNA sequences. Out of 1,175 patents granted between 1981-1995 worldwide, approximately 40% are owned by Japanese companies. Patenting is considered an essential feature for the successful commercial exploitation of the human genome for new diagnostic and therapeutic tools, such as gene therapy. However, despite owning the bulk of the patents, Japanese genome research lags behind the US and Europe by some five years. Japans patenting frenzy reflects its research communitys fascination with the brain and its vague hopes for future exploitation: most have no clear application at this point. This kind of patenting activity has been described as driftnet patenting, a catch-all safety-net approach to patenting to ensure that no opportunities for future commercialisation are missed.
So where is all this gene research taking the country? In its 1997 Basic Plan for Research and Development of Life Sciences, the government anticipates the creation of new pharmaceutical and food industries based on DNA information, and the development of innovative information-processing industries (eg brain-type computers) that benefit from new knowledge of brain functions. In addition to a multiplicity of medical applications, gene research is expected to play an important role in developing technologies to conserve ecosystems, deal with global climate change, increase crop yields, and create improved and superior crop and livestock species. With the intensification of DNA-related R&D, the biotech industry is expected to grow from the current market of yen 1 trillion (US $7,700 million) to an estimated yen 10 trillion (US$77,000 million) by 2010.
Although industry funding for biotech far exceeds public monies, the government provides important structural support and a necessary regulatory role. Despite being faced with a shaky economy, the government continues to increase its spending on R&D. 1996 spending almost doubled that in 1992, representing 11.9% of total R&D expenditures for science and technology. Government support for biotech R&D is scattered among the various government ministries and lacks co-ordination. The main actors are the Ministries of International Trade and Industry (MITI), Agriculture, Forestry and Fisheries (MAFF), Education, Science and Culture (MESC), Health and Welfare (MHW), and the Science and Technology Agency (STA).
Public university funding comes almost exclusively from MESC, but due to the low level of this financial support, their facilities are inferior to their US and European counterparts. Increasingly, funding is being channelled through quasi-government organisations that manage extramural research activities such as the Society for Techno-Innovation of Agriculture Forestry and Fisheries (STAFF) which runs the Rice Genome Program and MAFFs Bio-oriented Technology Research Advancement Institution (BRAIN). The latter supports private sector research through subsidies and loans, as well as making genetic resources stored in the MAFF gene bank available to companies.
Biotechnology R&D is regulated by different ministries, depending on the type of work involved. Each ministry has its own set of guidelines. MAFF covers environmental release and conducts biosafety reviews. MITI deals with industrial products, while the MHW concerns itself with human drugs and food products. MAFF has approved some 90 transgenic organisms to date: 48 plants, 24 animals, and 18 micro-organisms producing amino acids, enzymes and pharmaceutical products. So far, all the transgenic crops approved for sale in Japan have been imported from the US and Europe, although field testing was undertaken in Japan for all the products approved (See Table 2). The majority of the approved products are varieties genetically engineered for herbicide-resistance or to produce Bacillus thuringiensis (Bt) toxins against insect pests.
Japanese biosafety regulations for transgenic plants are quite strict in relation to international standards, but biosafety regulations in other areas are very weak. For example, regulations related to transgenic micro-organisms are mainly restricted to sterilising the wastes from the experiments - in spite of the fact that there have been more than 250 applications for the large-scale fermentation of genetically modified micro-organisms and for cell or tissue culture.
As part of the Program for Economic Structure Reform, the government plans to reorganise its administrative system. The streamlining plan aims to reduce bureaucracy by consolidating the 22 ministries and agencies into a Cabinet and 12 ministries and turning more government bodies into independent agencies. This includes a measure to consolidate all the ministries involved in biotech R&D, including the STA, MITI, MAFF and MHW. This structuring could dramatically simplify and streamline the regulatory channels, something that the genetech industry would welcome.
Japans once vibrant economy has fallen on hard times - a relative term compared with some of its neighbours in the region, but enough to get the government sweating. The recent spate of bank and brokerage failures jolted the government into drawing up its rigorous reform plan. According to MITI, the economic crisis was caused by the hollowing out of industry caused by the migration of the Japanese industrial base to foreign turf and a decline in economic vitality stemming from its ageing population. MITI also foresees problems caused by potential constraints to growth posed by increasing energy costs in response to Asias rising energy demand and measures required to address the climate change issue. Japan is more sensitive than ever to its position in the global economy and its heavy dependence on imports (of food and energy in particular) from the rest of the world. It is looking to foster greater foreign direct investment in Japan and increase its influence and competitiveness abroad.
In order to achieve this, Japan is looking to take a leadership role in international co-operation, to help harmonise the rules of the global marketplace relating to trade and investment. In the biotech arena, that means working towards international guidelines on biosafety assessment, intellectual property rights (IPRs), and the sharing and development of genetic resources. Historically, Japans intellectual property system has been less stringent than those found in the US and Europe, much to the chagrin of foreign companies. Some claim that their Japanese competitors use the patent system as a weapon against foreign firms to appropriate their technologies.
The scope of protection afforded by Japanese patents was much narrower than those awarded in the US and Europe, meaning that making minor changes to patented products or processes caused them to fall outside patent coverage. Japanese biotech firms have often taken advantage of this situation to produce and patent near replicas of existing patented products. The most celebrated case of such copy-cat activity was the patent awarded to Sumitomo for its tissue plasminogen activator (tpA), which differed from Genetechs version by the substitution of a single amino acid which had no impact on the drugs activity.
Under pressure from the WTO and the US, Japan started to revise its patenting laws in 1997 by broadening the scope of its patents. In November 1997, the US, Japanese and European patent offices met to start working on a common world patent system and adopted a so-called Kyoto Action Plan to this end. Japan has wholeheartedly jumped on the globalisation bandwagon and is eager to help developing countries strengthen their IPR laws, particularly those in the Asia-Pacific Economic Co-operation (APEC) where Japan has most influence. Its biotech companies would obviously benefit greatly from strengthened patent protection in the region, and as usual, the losers will be farmers, consumers and the environment.
IPRs favour countries that are more technologically advanced. Now that Japan has largely caught up with the other industrial countries, it is eager to tighten up IPR regimes around the world, so that it can better capitalise on its inventions. The South-East Asian region represents rich pickings for the Japanese, since in many of the countries innovation remains at a more informal level. Many of these kinds of innovations, such as farmers informal breeding experiments or fermentation technologies, are not recognised by patent regimes. Japans biotech exports will rake in royalties via their patents, while Japan will remain free to pirate and patent the innovations it finds in farmers fields.
Aid or impediment?
With only 7.4% of its labour force involved in farming, Japan will be looking abroad for markets for its agbiotech products as the industry matures. This should make farmers in the region feel nervous. Not only will the products be developed in a completely different environment to that in which they will be grown, but they come from a country with a weak farming base, the products of science rather than farmers wisdom. The main vehicle for transferring the technologies is likely to be Japans Official Development Assistance (ODA). Despite a dramatic 35% reduction in funding between 1995 and 1996, Japan remains the worlds largest donor of overseas aid. Its 1996 budget was US$9,439 million, just nosing ahead of the US$9,058 million).
The largest part of Japans ODA is channelled towards South-East Asia (80% of its loans and 50% of its grant aid). Many countries in the region, such as Indonesia, the Philippines and China, rely for more than half of their total bilateral foreign aid on Japan. The reason for this bias is twofold. Firstly, most of the Japanese ODA in South-East Asia began as war reparations which continued after they were paid up. Secondly, Japan wants to develop South-East Asian economies, both to increase its exports to these regions and to satisfy domestic demand through imports. Most of Japans bilateral loans are channelled through the Overseas Economic Co-operation Fund (OECF), while the Japan International Co-operation Agency (JICA) is responsible for most of the grant aid. JICA specialises in technical assistance, and more than 25% of the 2,500 experts it dispatches work in the fields of agriculture and forestry. Historically, Japanese aid has been characterised by a heavy focus on large-scale infrastructure projects, in which aid money is largely tied to the procurement of Japanese technologies and expertise, jumping right back into Japanese coffers. In response to criticism from NGOs and changes in overseas aid policies among the aid heavies like the World Bank, there has been a shift towards more diversified assistance, including NGO support. The success of this shift, however, is questionable, as many Japanese foreign aid experts do not know how to do aid differently, and struggle with issues of empowerment, local control and appropriate technologies. For example, JICAs projects in support of genetic resource conservation in Sri Lanka, Pakistan and Chile all comprise ex-situ projects (ie gene banks) and involve working with government institutions rather than NGOs or farmers themselves. Despite leading the world in dollar-assistance, the Japanese appropriate aid quotient is somewhat lower. As Japans agricultural base becomes more and more dominated by high-tech biotech agriculture, this is the model that the country will be exporting to the countries around it, to the detriment of the majority of farmers. For all the hype in Japans policy documents about biotech feeding the world and solving its environmental problems, transgenic crops are not the path to food security for most farmers in the Philippines, Thailand or Indonesia. Transgenic crops are designed to feed corporate coffers, not farming families.
Japans Basic Plan for R&D of the Life Sciences states that future life science research must be conducted ... in co-operation with developing nations. This sounds good in theory, but what does it mean in practice? If the biopiracy activities of the Marine Biotechnology Institute are anything to go by, one fears for other countries in the South-East Asian region with whom Japan seeks to work. Only too aware of its own gene impoverishment, Japan has been quick to name gene-rich Thailand, Indonesia and Malaysia as potential partners with whom to build up a network for collecting, storing and providing micro-organisms and related information. Japan also has its eyes on South Americas genetic resources, and seeks to develop research co-operation in biotech with countries in the region - and not surprisingly - especially Brazil.
Japan is under pressure to expand its overseas markets because of its economic crisis. Biotechnology is seen as one of its great hopes for the countrys future wealth. Although its first experiences in the biotech arena were not as immediately successful as many had hoped, Japan is now well positioned to move its biotech industry ahead in leaps and bounds. The government is rallying round the industry to help it develop and thrive, and money is forthcoming from both public and private sources. The future looks rosy.
Japan is home to some of the largest corporations in the world, and many of them have developed a keen interest in biotech. It probably wont be long before we see the likes of Mitsubishi becoming Japans Monsanto and starting to monopolise the farming sector. Mitsubishi has already achieved vertical integration of food production: it has agrochemical interests, a partner to develop and market seeds and various food processing companies. Corporate control of the food supply means that profits override all other concerns, such as food safety, the environment and sustainability. This is a concern not just for Japans citizens, but for people all over South-East Asia, given Japans expansionist plans for the biotech sector.
Japans consumers do not necessarily share the government and industrys vision of the future and are making their concerns known. But a louder voice is needed from the larger South-East Asian region to counter the mantra Japans biotech industry has picked up from its US counterparts. Perhaps, and only perhaps, biotech could feed the world, make us live forever and solve our environmental problems if that was really the industrys agenda. But it isnt, and it never will be. Japans biotech industry may differ in some ways from its US and European counterparts, but not that fundamentally.
* 1997 Survey of research development in Japan, National Science Foundation, Tokyo Office, Report Memorandum #97-13, Dec. 13, 1997.
* Basic Plan for Reseach and Development on Life Sciences, Office of the Prime Minister, Aug. 13, 1997, http://www.sta.go.jp
* Report on activities of the Agriculture, Forestry and Fisheries Research Council (AFFRC) Secretariat, an Agency of the Ministry of Agriculture, Forestry and Fisheries (MAFF), National Science Foundation, Special Scientific Report #97-17, May 29, 1997.
* The Action Plan for Economic Structure Reform, Ministry of International Trade and Industry, May 1997, http://www.miti.go.jp/topic-e/e110001e.html
* White Paper on Science and Technology, 1997, Science and Technology Agency, Japan.
* Innovative Technology Division, MAFF, http://ss.saffrc.go.jp/docs/sentan/
* Shelton RD and Geoffrey Holdridge, Sleeping Tiger? Japans continuing advances in science and technology, International Technology Research Institute, Loyola College, Maryland, http://itri.loyola.edu/papers/jistc797/welcome.htm
* Special Issue on Japan, Biotechnology and Development Monitor, March 1995.