Eisai - Company History

The Sakuragaoka Laboratory, set up as a sideline by a Tanabe director

Eisai begins in November 1936, when Naito Toyoji (内藤豊次) — managing director of Tanabe Shoten (Tanabe Genzaburo Shoten Co.) and head of its new-drugs division[1] — set up a limited partnership, the Sakuragaoka Laboratory (合資会社桜ヶ丘研究所), at Mikawashima in Tokyo while still holding his day job[2]. On an inspection tour of Europe and America Toyoji had seen for himself how deep the research institutions of the advanced countries ran, and he concluded that without a laboratory of its own Japan would never create a new drug at home[3]. The board of Tanabe Shoten would not entertain the idea, citing the abacus, so Toyoji drew in Tanabe’s plant manager Horii (堀井) and doctors from Juntendo Hospital and got the laboratory running on a sideline footing, looking in himself only on Thursday evenings[4]. The following year, 1937, he put up a laboratory of about 462 square metres at Mikawashima in Arakawa ward and obtained a licence to manufacture and sell pharmaceuticals; Eisai itself counts this as its founding[5]. Behind the venture stood a man who carried as many as fifty technical books with him to the hot-spring inns of his business trips — self-teaching he called 調書出張, ‘study trips’ — building up his knowledge of new drugs while handling one Tanabe star product after another, among them Ebios (エビオス), Hariba (ハリバ) and Salomethyl (サロメチール).

The first products the laboratory sent into the world, Yubera (ユベラ) and Sampoon (サンプーン), were launched by Tanabe Shoten in 1938 and sold well. In 1941 a new plant was built at Honjo in Saitama prefecture and Nihon Eizai Co. was established[6]; in 1944 the laboratory and Nihon Eizai were merged[7]. When Toyoji reached the retirement age of 55 at Tanabe and gave himself entirely to running his own business, Eisai crossed over from Tanabe’s shadow into an independent mid-tier drugmaker. A laboratory raised outside the company by one of its own directors, standing up as an independent firm in roughly ten years and supporting itself as a mid-tier pharmaceutical maker after the war, was an unusual path even by the standards of the industry at the time. In an era when the mainstream of the business was the majors’ trade in imported goods, the appearance of a mid-tier company holding products that came out of its own laboratory was no small thing.

Cash-flow management, brought in “to hold my father back”

For some years after the war Eisai’s story was one of simply staying alive. It got by on a miscellany of lines — vitamin C injections, dentures, prophylactics against venereal disease — and the stretch from 1949 to 1952 was the hardest in its history. In the middle of that squeeze came an episode in which the founder, Toyoji, very nearly destroyed the company through over-ambitious expansion. His eldest son Naito Yuji (内藤祐次)[8] put it plainly in later years: I brought the idea of cash flow into this company in order to hold my father back[9]. Because the father’s appetite for attack and the son’s instinct for defence collided head-on, Eisai’s financial discipline was not something imported from outside; it was shaped by a tug of war between father and son inside the firm. That arrangement — Toyoji’s hunger for investment pulling against Yuji’s management of cash — persisted from here on.

The foothold that carried the company out of the squeeze was not a product but a way of selling. When the contraceptive Sampoon was officially approved in May 1949 and a market opened up, redeveloped high-potency vitamin preparations such as Rutin C (ルチンC), Chocola A (チョコラA) and Chocola D Shu widened the outlets, helped by the standing of the drug Neophylline (ネオフィリン), and president Naito Toyoji and those under him pressed ahead with a scheme to organise a rational distributor network[10]. It came to fruition in October 1952 as the チョコラ会 Chocola-kai, a nationwide association of distributors run on three-yearly contract renewals[11]. At the time rival manufacturers and the distributor trade alike doubted that it would achieve much; within a few years many manufacturers had adopted Eisai’s method[12]. Then in 1957 the company drew up and executed its first long-range plan, the 三六計画 Sanroku Plan — a scheme to reach monthly sales of $1M (¥360m) over three and a half years and seven half-year terms — and this led on to the 三八計画 Sanpachi Plan and a third long-range plan, consolidating the four divisions of production, sales, research and business development[13]. A thinly capitalised mid-tier firm built its foundations not on a one-off hit product but on a distributor network and management by plan.

In 1955 the company changed its trading name to Eisai[14], written in the katakana script — unusual at the time — went public with its shares in 1960, and listed on the First Section of the Tokyo Stock Exchange in 1961[15]. In 1966 Yuji became president[16], for the reason, as he gave it, that I had been with the company longest[17]. While the majors — Takeda, Sankyo, Shionogi — slugged it out in a price war over antibiotics, Eisai narrowed its research onto the thinly contested cardiovascular field. Yuji himself said as much: antibiotics are in a ferocious price war right now[18], stating openly that he would keep his distance from any field where the first movers would beat him down. A strategy of elimination — narrowing because there was no money to do otherwise — turned out to be the company’s single greatest point of difference, and became the ground from which Neuquinon and, later, Aricept would grow. The idea of taking time as an ally rather than chasing scale settled in here.

Neuquinon: ¥1bn to ¥28bn, and a mid-tier constitution changed

Neuquinon (ノイキノン), a metabolic cardiotonic whose development began in 1965, was an attempt to apply coenzyme Q — a substance then attracting a great deal of attention — to the treatment of chronic angina[19]. Several manufacturers entered the race and dropped away one after another; Eisai was the first in the world to bring the compound to market, in April 1974[20]. Sales of $3.3M (¥1bn) in the year to March 1975 swelled to $127M (¥28bn) by the year to March 1981, making it a mainstay accounting for roughly a quarter of the company’s turnover[21]. This was what came of a thinly capitalised mid-tier firm settling in and waiting in a field the majors had left thinly worked; the doggedness of the roughly ten years it took from the start of development to commercialisation was repaid directly in earnings. It was the first time the narrowing strategy turned into visible numbers.

Pulled along by Neuquinon and by Methycobal (メチコバール), launched in 1978, the company posted six consecutive terms of higher sales and higher profits from a trough in the year to March 1976. Between 1976 and 1982 sales rose 2.1-fold and recurring profit five-fold[22]. The recurring-profit margin ran at 15 to 16 per cent and the equity ratio improved to 54.1 per cent[23]. While the big firms — Takeda, Sankyo, Shionogi — were tearing down the Meishin Expressway in a large coach, we came up the old Tokaido road with a few small cars and motorcycles strung out behind us[24], Yuji recalled; this was the period in which that independent line was borne out financially as well. He also said, in the same years, that you cannot hit home runs all that often, but as long as the thing is original I do not mind a single or a double[25], stating plainly the policy of avoiding a head-on collision with the majors. The later move into anticancer drugs and the expansion overseas would both be assembled on the foundation of this success.