Japan Pharmaceuticals & Biotechology

Research evidence excerpt

Japan Pharmaceuticals & Biotechology

Japan Pharmaceuticals & Biotechnology UBS Research

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Otsuka, Ono, Shionogi Eisai

Pivotal Questions Q: Is the in-house drug discovery productivity of Japanese biopharmaceutical companies

improving?

It varies by company, and polarisation is accelerating. Chugai, Daiichi Sankyo, and Shionogi boast

top-class in-house drug discovery productivity, while pipeline enhancement remains a challenge for

Astellas, Eisai, and Kyowa Kirin. Expectations for platform technologies are high, and premium

valuations are easily assigned to Chugai’s antibody and mid-sized molecule technologies and Daiichi

Sankyo’s ADC (antibody-drug conjugate) platform.

Q: How do companies balance product in-licensing or acquisitions with shareholder returns

in the use of free cash flow?

Across the nine covered companies, we estimate pre-research and development operating cash flow

of $149bn over 2026–30, of which $29bn is expected to be allocated to dividends, while

discretionary spending of $40bn under management control could be used for share buybacks and

product in-licensing or M&A. Astellas and Otsuka Holdings will likely continue product in-licensing to

supplement top-line growth. Given its business model, product in-licensing is difficult for Chugai,

and we forecast an increase in the dividend payout ratio in FY2026.

Q: Are executive compensation structures sufficiently linked to shareholder value creation?

Progress remains incomplete. While reforms have increased the performance-linked component, the

proportion and amount of long-term performance-linked compensation including share price KPIs

remains small, making it unlikely that management is fully incentivised. Compared with Western