Shionogi & Co., Ltd.

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Shionogi & Co., Ltd.

1-8, Doshomachi 3-chome
Chuo-ku, Osaka 541
Japan
(06) 202-2161
Fax: (06) 229-9596

Public Company
Incorporated: 1919
Employees: 6,500
Sales: ¥216.8 billion (US$1.50 billion)
Stock Exchanges: Tokyo Osaka Nagoya Fukuoka Sapporo

Japan’s leading developer, producer, and exporter of antibiotics is Shionogi & Co., Ltd. Antibiotics have been at the heart of the company’s operations only since the post–World War II years, when Shionogi began to acquire the state-of-the-art technology necessary to compete with overseas suppliers of the then-new “wonder drugs.” Prior to that time, the company had developed a reputation as an all-around manufacturer of pharmaceuticals—and company spokespersons continue to describe Shionogi in those terms.

The decision to devote a substantial portion of the company’s resources to the development of one type of product represented a departure from Shionogi’s many decades of fairly evenhanded expansion of its range of medicines, drugs, and other health-care-related products. Despite the sudden focus on antibiotics, however, the company did not stop developing and producing its broad lines of pharmaceutical products. While Shionogi has continued to invest in new technology and technical expertise in order to remain on the cutting edge of antibiotic development and production, the company has also continued to expand its facilities for the manufacture of other products and for laboratory research. Development of new products and services and improvement of production methods have been important parts of the company’s operations since its early years. A new facility—the Institute for Medical Science—opened in 1988 and extended Shionogi’s thrust into basic research. Its current emphasis is on exploring the causes of disease and linking those findings to the development of products to combat those causes.

Although much of Shionogi’s business in the past has been based on licensing products from prominent manufacturers, such as Eli Lilly and Merck in the United States, new projects undertaken in Shionogi’s laboratories indicate a growing emphasis on development and production of original product lines. The company’s confidence in its existing and projected output may be judged by its plans to phase out its handling of other manufacturers’ wares by 1996 and to replace them with original products. Shionogi’s lines encompass medical drugs, agricultural and animal health products, diagnostic products, and chemicals for industrial and other uses. In addition, the company provides clinical testing facilities.

In 1878 Osaka was already a center of commercial activity, a logical place for a wholesaler of traditional Japanese and Chinese medicines and herbal remedies to open a business. Gisaburo Shiono began supplying local distributors with the herbal and folk remedies that had been in popular use in Japan for more than 1,000 years. Eventually he introduced something new: medicines and drugs manufactured in the United States and Europe. This development was a more radical step than simply importing pharmaceutical products for wholesale distribution. The decision required confidence on Shiono’s part in his countrymen’s willingness to accept a Western-style approach to the treatment of illness.

His confidence turned out to be well placed. In the quarter-century since their government’s barriers to trade with those countries had been lifted, Japanese consumers’ initial resistance to the infiltration of Western ways into their culture had waned. Some groups still tried to stem the tide of curiosity and interest in Occidental lifestyles and products, but consumers were ready for the Western nations’ innovations, which also had the blessing of the newly restored imperial government.

The Shiono family business found a ready clientele in Osaka-area merchants. Within his first two decades of wholesaling both Oriental and Western-style medications, Gisaburo Shiono began to develop new products in-house. By the turn of the century, his reputation for quality and dependability had brought sufficient profits to the company to enable him to build his own research laboratory. Difficulties with transportation and supply lines cropped up as a result of the nation’s brief wars with China and Russia, but Shionogi retained a hard-won reputation for quality and service. Early in the 20th century, the company added a new dimension to its wholesale medication business: drug manufacture.

The drug trade proved both profitable and brisk, and the company grew even faster than before. Not even Japan’s entry into World War I slowed it down. On the contrary, the demand for pharmaceutical products increased as battlefields became impromptu testing grounds for improvised treatment of injuries under emergency conditions. That situation held true not only during both world wars, but also through far-ranging flu epidemics and disasters such as the Great Kanto Earthquake of 1923.

As Western-style medical practice spread throughout Japan, the company increasingly enhanced its reputation as a reliable supplier to hospitals and pharmacies. However, it was the discovery and development of antibiotics during World War II that was pivotal in Shionogi’s business.

Like many other Japanese companies whose premises and personnel were devastated during the country’s defeat in World War II, Shionogi began working immediately to reorganize and restore its product lines and rekindle the interest of a civilian market for its goods and services. Unlike some companies, Shionogi had the advantage of consistent management. Shiono had looked ahead to groom successors from within the family circle to take over responsibility as needed. At least three of his direct descendants held significant positions in the company’s leadership in 1990, including Chairman of the board of directors Kotaro Shiono, Senior Managing Director Yoshihiko Shiono, and Managing Director Motozo Shiono.

After an unprecedented military defeat during World War II, Japan still had many businesses that had survived the war and were determined to survive under peacetime occupation by the invading forces. Those business and industrial leaders encountered no opposition from the occupation authorities or the new government based on the revised constitution that took effect in 1948. Instead, they received help, encouragement, and guidance—the latter in the form of principles of efficient, far-sighted business practices such as those recorded in the writings of W. Edwards Deming. Those principles had been all but ignored when offered to already-prosperous Western businesses.

Shionogi’s management decided to specialize in antibiotics at a time when worldwide attention was drawn to the dramatic role they had played in combating diseases formerly considered incurable and in reducing the incidence of fatal infection from battlefield injuries. With the resumption of Japanese self-governance in the early 1950s, Shionogi already had plans underway for expansion into worldwide markets. The company’s research laboratories took their first steps toward the successful synthesis of a sulfanilamide at that time. Launched in 1958 under the name of Sinomin, Shionogi’s first sulfa drug was popular from the start, encouraging the company to increase its focus on development of original products.

In addition to originating products, Shionogi also formed relationships with overseas manufacturers to handle their products for other Far Eastern markets as well as Japan. A notable example was the line of cephalosporin antibiotics developed by Eli Lilly.

Astute management, especially financial management, has helped keep the company profitable overall despite recurrent problems. The antibiotics market softened late in the 1980s, posing a challenge for the company’s marketing techniques. Because of the elaborate bureaucracy that new products, intended for public use in Japan must face, much time has been lost in introducing new products; this condition has been true since before the turn of the century. Changes in the system to shorten the waiting period were reportedly planned in 1990, but there were no plans to abolish the system altogether.

The Japanese national health system is the source of another problem; it periodically lowers drug-reimbursement prices, thus limiting the profits Shionogi can make on sales made within the country. This policy provides strong motivation to further build up the company’s international business. However, other factors such as fluctuations in the value of the yen and the effectiveness of competitors marketing campaigns have also affected profits on overseas sales from time to time.

Licensure to market other manufacturers’ products has continued to be profitable overall. Examples include dilevalol, an antihypertensive, a long-acting sulphate preparation, and an ultrasound contrast imaging agent from Molecular Biosys-tems. Shionogi also handles Molecular Genetics’s drugs for veterinary practice. In 1988 Schering-Plough began marketing a new oral antibiotic developed by Shionogi.

However, Shionogi has emphasized expanding its internal operations in basic research as well as in development of new products and product applications rather than building up business by acquiring overseas companies or participating with them in joint ventures to any great extent. Shionogi has established wholly owned subsidiaries in several countries, including the United States, Germany, and Taiwan. This emphasis on company control enables Shionogi to keep a close rein on the policies and procedures associated with its products and to safeguard the reputation it has long held for top-quality production and service.

Achievement through basic research has long been a major goal for Shionogi, which has also used its findings to develop a number of innovative products. In 1986, for example, Shionogi became the first of Japan’s pharmaceutical companies to place biotechnology-based drugs on the market. Two years later, in order to expand its activities in antibiotics research and to examine the nature and causation of certain diseases, the company established a new laboratory and technical resource center, the Institute for Medical Science, in Osaka near its other laboratories. An eminent virologist heads the research teams exploring three basic areas: immunology and the causes of diseases such as cancer and viral ailments; cells, proteins, and genes; and instrumentation. About one-fourth of the company’s employees are engaged in some aspect of research and development.

From future findings, the company hopes to develop and market the new “wonder” products to follow the example of Flumarin, the Shionogi antibiotic that quickly soared to a top position internationally despite being introduced in the midst of a soft period early in 1990.