Incentivizing Life Science Innovation in Japan and the United States
NBR’s research project on the Evolution of Japan’s Life Sciences Sector examines Japan’s ability to leverage the life sciences as a key driver of economic growth. The project explores the implications of new reforms for domestic and international collaboration and innovation. In this expert interview, Ryo Kubota (Acucela CEO and NBR Board Member) compares the environments for scientific innovation in Japan and the United States, drawing on his own experience in launching the first successful IPO in Japan for a U.S.-headquartered start-up company.
Japan and the United States lead the globe in technology innovation and R&D spending, as well as the number of new patents filed each year. Your research and work in scientific and medical innovation spans both countries. Could you share your observations on the broad similarities and differences between the ways that each country approaches and rewards life science innovation?
In the United States, there is a more concerted effort in advancing science literacy. In Japan, I have not yet seen this level of effort. In terms of R&D spending, I believe both countries are about the same.
In the United States, the biotechnology industry is in its fourth decade. In Japan, by comparison, it is a fairly new industry. What this means is that the United States has had a longer period of time to enhance and enrich this industry. As a result, the fruits of innovation have been realized, the frameworks and financial support are in place, the risk tolerance is higher, and there exists a full and functioning workforce with deep experience and knowledge in science—one that is also experienced in the business and operational aspects of biotech and life sciences.
The 1980 U.S. Bayh-Dole Act  permits a university, small business, or nonprofit to pursue ownership of an invention made using federal research funding. Some argue that this policy speeds up the commercialization process for federally funded university research and helps new industries, particularly the life sciences, develop more quickly. How does Japanese policy approach ownership for innovation created in Japanese universities that leverages government funding? Are there opportunities for the United States and Japan to learn from one another’s policies around incentivizing the commercialization of innovation?
The Japanese equivalent of the Bayh-Dole Act was implemented in 1999 and is similar in scope to the U.S. law. However, Japan still has to figure out a way to learn from the United States, as the R&D cycle is very long, and part of embracing innovation means embracing a certain level of risk.
The ability to embrace risk will come with the experience of failure, and it is imperative for society to accept constructive failures and allow second chances for people who have failed. Risk can take a very personal form, such as when people seek to invest their own time and careers. In the United States, many are eager to work for small biotech companies, even if those companies do not yet have products on the market or a revenue stream. The promise of the science is a driving factor.
In addition, Japan could learn from the way U.S. universities are fostering innovation by transferring their technology to industry. “Tech transfer” has become very sophisticated and efficient in the United States since the 1980 Bayh-Dole Act, and U.S. universities are working to smoothly transition innovative IP to biotech and pharma companies to ensure that research breakthroughs made at the academic bench are then making it to patients’ bedsides. American universities are also supporting the ongoing innovation driven by that IP by creating a framework that allows professors and researchers to actively participate in new companies—as founders, advisors, and even CEOs. In Japan, by contrast, academics rarely hold positions in companies.
We cannot be afraid of innovation: to go places where nobody has ever dared to go is an adventure and the driving force behind the most life-changing medical discoveries and treatments. Japan certainly has courage, and systems are evolving to transform this courage into tangible results.
One more important ingredient is to allow diversity of thought. Due to being a multicultural country, the United States has fostered and embraced diversity. The United States also tolerates more differences of opinion; American society accepts people who stick out and think differently. This is not necessarily always the case in Japan, although I see some effort to change.
Finally, the right funding is important for innovation, but equally so is the dedication to conducting good science.
Creating policy, tax, and other incentives for start-up companies is one way a government can incentivize innovation in the business sector. Could you compare and contrast how both countries’ governments help and hinder start-ups, particularly those in the life sciences space?
At-will employee contracts in the United States are the norm. In Japan, it is life-time employment; the goal is to provide a safety net and encourage long-term commitment. Moving from job to job is not looked at as favorable. This approach, however, does not benefit innovative start-up companies. In the United States, job movement is expected as a way to garner diverse experience, and diverse experience is valued.
In terms of companies wishing to tap the public market, the United States’ Jumpstart Our Business Startups (JOBS) Act has helped streamline the capital access process for small companies. 
Over the past twenty years, Japan has been a global leader in the life sciences. In addition, the country boasts one of the best healthcare systems in the world. But only recently (in 2013) did health and the life sciences become an explicit component of Japan’s economic development strategy. What does the international life science community need to appreciate about this shift in focus?
Japan recognizes its large and growing aging population and is attempting to find commercially feasible ways to support this population. Life science and biotech innovation can provide a pathway to bolster that support. Other countries are appreciating the efforts of Japan to move from a system that relies on a pure safety net to one that embraces an industry that provides actual and real solutions through medical innovation.
The Japanese government’s efforts to set up a government body equivalent to the U.S. National Institutes of Health—the Japan Medical Research and Development Agency—have been controversial. Could you explain why this move has been both celebrated and resisted in Japan?
The Japan Medical Research and Development Agency is celebrated because this new agency will ideally provide a centralized place for innovation and scientific endeavors to happen. On the flip side, there remains the challenge of ensuring that the agency is driven by science rather than politics or bureaucracy.
Your own company, Acucela Inc., is the first start-up company headquartered in the United States to do a successful IPO in Japan. To achieve this, Acucela had to follow both U.S. and Japanese requirements. What challenges did that process pose? What lessons are there for the United States and Japan?
In Japan the IPO process requires a longer lead time, and companies are required to operate as a public entity for one full year before going public. Acucela began the IPO process four years ago; and the past two years were a significant effort. In the United States, six to nine months is the average.
On the front end, Japanese due-diligence requirements are much more stringent, conducted both by the underwriter and the stock exchange; in the United States, typically only the underwriter does the due diligence. Additionally, we must meet requirements of the Sarbanes-Oxley Act (SOX)—for which Japan has almost identical legislation—for Acucela’s first year on the Japanese Stock Exchange, whereas in the United States the JOBS Act exempts emerging growth companies from complying with SOX section 404(b) for five years. 
Furthermore, Acucela’s IPO in Japan was focused on only one city. Each related meeting lasted for over an hour (with an average of five meetings per day). By contrast, in the United States multiple cities (and often countries) are visited and the presentations are shorter in duration (30–45 minutes), with eight to ten meetings per day.
Notwithstanding these differences, for any start-up looking to go public in either the United States or Japan, it is critical to know and practice your company story—you will need to retell it time and time again. Additionally, be appreciative of cultural differences.
 The 1980 U.S. Bayh–Dole Act (PL 96-517, Patent and Trademark Law Amendments Act) addresses ownership (and intellectual property) of inventions made with federal funding. Before the act, the government automatically owned the intellectual property of inventions made using federal research funding contracts and grants. The Bayh-Dole Act created a uniform patent policy among the many federal agencies funding research. As a result of this law, universities retain ownership of inventions made under federally funded research. In return, they are expected to file for patent protection and ensure commercialization upon licensing. The royalties from such ventures are shared with the inventors, a portion is provided to the university and department/college, and the remainder is used to support the technology-transfer process.
 The JOBS Act was signed into law on April 5, 2012. This bipartisan legislation was designed to stimulate job growth by making it easier and less costly for smaller companies to raise capital in the United States through a loosening of regulatory restrictions applicable to private offerings, initial public offerings, and certain newly public companies.
 The Sarbanes-Oxley Act of 2002 was enacted to protect shareholders and the general public from accounting errors and fraudulent practices. The act is administered by the Securities and Exchange Commission, which sets deadlines for compliance and publishes rules on requirements. Sarbanes-Oxley defines which records are to be stored and for how long. Section 404(b) requires a publicly-held company’s auditor to attest to, and report on, management’s assessment of its internal controls.
Ryo Kubota, MD, PhD, is an NBR Board Member, and Chairman, President, and CEO of Acucela Inc. Acucela is a clinical-stage biotechnology company that specializes in discovering and developing novel therapeutics to treat and slow the progression of sight-threatening ophthalmic diseases. Dr. Kubota is a director of the Japan-America Society of the State of Washington and an advisor to the Japanese Institute for Global Health and a visiting professor at School of Medicine, Keio University. Dr. Kubota discovered a glaucoma gene, myocilin, which earned him the Suda Award.
This interview was conducted by Claire Topal, Senior Advisor for International Health at NBR.