How Government Money is Hurting Japanese Startups

Japanese university and government venture funds play a much larger role in Japan than in the West.

I've always considered this difference to be, on balance, neutral, today's guest makes a convincing case that these funds are actually hurting the startup ecosystem here.

Today we sit down and talk with Hiroaki Suga, co-founder of PeptiDream. PeptiDream is now a $7 billion biotech company, but it started out as a couple of university faculty members funding operations out of their own pockets.

PeptiDream succeeded by using a very different model than that used by either the current generation of university spin-outs or biotech startups in the West. It's an interesting blueprint that other biotech firms might want to copy, but only if they are really sure that their technology will actually work.

It's a great conversation, and I think you will really enjoy it.

Show Notes

Japanese Univstities' problems with applied research The challenge in moving from academia to startup operations How to hire a CEO What most professors don't know they don't know about business How to land large sales contracts as a small startup How to sell new technology to Japanese pharmaceutical companies Why biotech investment is so hard in Japan Why you want to step away while you are on top Japan's next biotech unicorn Why most Japanese government startup money is misused

Links from the Founder

Dr. Suga's Lab Everything you ever wanted to know about PeptiDream Hiroaki's new project MiraBiologics

Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs.

I’m Tim Romero and thanks for joining me.

We’ve talked a lot before about how there are not many life sciences startups in Japan and what can be done to change that. But there are, of course, some and some incredibly successful ones. PeptiDream is one of those startups. Founded by a small team at a university lab, PeptiDream has grown from nothing to a $6 billion company.

Today, we sit down with the founder of PeptiDream and fellow guitarist, Hiroaki Suga, and he’ll explain how they’re working with pharmaceutical companies all over the world to discover new drugs and new treatments. We also talk about the rather unusual business strategy that allow them to scale up with relatively little financing and to land deals with global drug companies a lot sooner than most biotech startups can.

And I’ve got to say, my conversation with Dr. Suga really changed my mind about the role the Japanese universities and the government should play in fostering startups and innovation here.

It’s a fascinating and unique perspective from inside the system, and I guarantee you, it’s not what you think it is.

But you know, Hiroaki tells that story much better than I can, so let’s get right to the interview.

[pro_ad_display_adzone id="1411" info_text="Sponsored by" font_color="grey" ] Interview Tim: I’m sitting here with Hiroaki Suga, the cofounder of PeptiDream. So, thanks for sitting down with me today.

Hiroaki Suga: Sure. Very welcome.

Tim: PeptiDream is a peptide discovery platform but what is that exactly?

Hiroaki: So, the technology started from over 25 years ago. I had idea. Is that okay? I want to develop RNA catalyst. The so-called ribozymes. I did a post doc with Professor Jack Szostak in Harvard Medical School. I run the techniques for the in vitro selections but I didn’t really get major success, but I was fortunate enough that I get an academic position in State University in New York Buffalo.

So, I succeeded in developing we call “flexizimes” so that the first two patents are owned by SUNY Buffalo, but it wasn’t really quite useful yet.

Tim: So, you were working on this for 20 years plus?

Hiroaki: Pretty much, yeah.

Tim: Did you have an end target in mind saying, “This is how I’m going to commercialize it, this is why it’s useful”?

Hiroaki: Right, right. I already envisioned that we can apply this to the in vitro transition system. Once we have this in hand, we can do a lot of things, a lot of interesting things, right. So, I developed this flexizime prototype in the US. I came back to Japan by the invitation of the University of Tokyo. I got back to Japan and immediately we succeeded in real practical version of the flexizime.

Tim: That’s interesting because Japanese universities have a reputation of really prioritizing pure research over applications.

Hiroaki: Right. But this is actually pure research stage.

Tim: Okay.

Hiroaki: It’s really pure research but I was reminded to make it very practical. So, having this flexizime allows us to rewrite the genetic code. We call it “genetic code reprogramming.”

Tim: It sounds like from pretty early on, you were thinking about how to commercialize this at some point in the future.

Hiroaki: Yeah, at some point but not – I don’t know when. I didn’t know when.

Tim: So, was the drug discovery an early and obvious target or was that something that —

Hiroaki: No, no. I was not interested in an obvious target or anything. This is just platform technology. So, idea is I want to rewrite the genetic code but at the time peptide is containing the amino acids which you don’t see in a protein, then I can mimic the secondary, metabolize the various organisms like bacterias and fungus and yeast and whatever they make. And it is very often used for antibiotics or something, other things. But natural products are very important drug source for a long, long time. So, if you can mimic the natural product, then you can synthesize artificially natural product like molecule will be useful for drug discovery.

Tim: So, the PeptiDream platform and this technology, in general, allows the synthesis and analysis of a huge variety —

Hiroaki: Of natural product-like molecules.

Tim: Right, and it can do it very quickly and very cheaply?

Hiroaki: Right.

Tim: Let’s talk about that.

Hiroaki: Yeah.

Tim: Because, I mean, now PeptiDream is a $6 or 7 billion company but you found it very recently. It was 2006, right?

Hiroaki: Yes.

Tim: So, back in 2006, you had a long successful academic career, you had academic accomplishments and the proof of the value of the technology.

Hiroaki: Yeah.

Tim: But how did the company come together?

Hiroaki: So, I envisioned that okay, if I further develop, I try to prove this system works for the drug targets. If I succeeded it, I’m pretty sure pharmaceutical companies will come to me to develop the drugs together. I really want to because I know if I do with them, if I get something very nice product, and then I cannot publish. My mission in academic, we need to publish. If it’s bad ones, maybe we can publish it. But if it’s good ones, we cannot publish it. And I was really confident that we can get something really good ones.

Tim: So, how did you get that initial founding team together?

Hiroaki: I wasn’t really intending to make a company but I was disclosing the patent through the – it’s called Todai TRO which is Technology Transfer Office in the University of Tokyo. They said, “You know, this sounds like really good technology. Are you interested in forming a company?” I said, “I may if I can find a good CEO. I don’t want to be CEO. I don’t think I can do CEO. Business is not easy.” And so they started screening the people I interviewed, maybe four or five people, then I found one, Kiichi Kubota.

So, before forming a company meeting with him many times, mostly drinking together, to know him very well, otherwise, I cannot trust. I developed a good friendship. I can see his vision. It wasn’t easy that he said yes but eventually, he said yes, we do.

Tim: I mean, that’s a technology transfer office working exactly the way they’re supposed to.

Hiroaki: Yeah, exactly.

Tim: But rarely the way they do. So, were you worried that you would have to give up a lot of the academic research or that the time demands would —

Hiroaki: No. That’s why I need the CEO, right? If I start a company and by myself, it’s going to take up a huge amount of time. At the time, I was still a researching professor, so less duty from the Institute or University duty, so it was much more time. And I was not quite famous at the time yet.

Tim: So you were really trusting the entire business side of the company to him?

Hiroaki: Yes.

Tim: And you were just focusing on the technology.

Hiroaki: Uh-huh. 100%.

Tim: That takes a lot of trust.

Hiroaki: Yeah, yeah, yeah. That’s why I did. I need to know him. Then also, it’s one other important person which is Patrick Reid, who is also CEO of the company now. He used to be a Science Director. He was also Associate Professor in a different lab. He’s staying one floor down of my floor but we met each other in faculty meetings. So, we started talking and then I found he is interested in starting company. I didn’t know about the time, first time. Before I decided to start a company, I said, “Ah, it’s going to be very tough in Japan. Japan is not a very good place to start a company.”

Tim: So, is Patrick an American?

Hiroaki: He’s American.

Tim: I think that’s got to be one of the biggest difference between American university professors and Japanese university professors.

Hiroaki: Yes.

Tim: So many American science professors are dreaming about wanting to start a company and so few Japanese do.

Hiroaki: I think all Japanese professors also somewhat thinking about or hoping to do it but they don’t know how and they don’t understand how the business is and they think they can do the business. That’s a big – I know I grew up in the family having a business, own business. I know how hard it is.

Tim: So you’ve got this really good team together that trust each other and you got a foundation but selling this technology,