Roundtable discussions with Outside Directors and Board Members
Becoming a globally recognized total healthcare company
Building on record business results to further evolve total healthcare centered on people’s lives
In FY2025, Otsuka Holdings Co., Ltd., posted record results for revenue and all profit indicators. Although some adjustment will be required in FY2026 to account for loss of exclusivity in some major products, we have set a long-term revenue target of ¥3.5 trillion for 2035 and will continue under CEO Makoto Inoue to make active investment in next-generation growth drivers. This roundtable discussion brings together five outside directors with different areas of expertise for an exchange of opinions on the unique aspects of the Otsuka group, its governance under the new leadership, and how the Otsuka group should evolve going forward.
The Otsuka Group’s unique business style and evaluation of its present position
—In your role as outside directors, how do you evaluate the present position of the Otsuka Group?
Matsutani As the longest-serving of the current outside directors and a specialist in medical administration, I see my role as being to make recommendations on what companies should and should not do that affects the health of individuals and society. As part of that, I pay particular attention to coordination between the Pharmaceutical and Nutraceutical Businesses. Essentially, drugs can be seen as using one poison to control another. Nutraceutical and food products are different in that the element of flavor is vital. Operating and successfully coordinating two different business fields is part of Otsuka’s uniqueness and makes its business model unlike almost any other in the world. However, actual synergies remain limited, and I sense there is room for further evolution.
Kitachi As a certified public accountant, the insights I offer are mainly in finance and new market development. In my previous post, I was active in setting up the Mothers market and drafting M&A-related legislation, and I was also involved in Otsuka’s stock market listing. I remember well that Otsuka seemed to me at the time to be a “big venture” that acted very boldly. That impression has stayed with me. On the Board of Directors, I pay attention to whether the value created by the company is appropriately shared with customers, society, and employees. Instead of just focusing on the accounting side to improve price-to-book (P/B) ratio, I encourage Otsuka management to show a consciousness of the medium- to long-term cost of capital, in other words to try the so-called income approach, which seeks to maximize future cash flow.
Mita I have covered the healthcare industry for more than 20 years as a securities analyst. I too was involved in Otsuka’s public listing and have vivid memories of that time. Otsuka’s stock price was stagnant, mainly due to concerns over the patent expiry of ABILIFY* and the idea that the strengths of the group were not well recognized externally. The stock price recently passed the ¥10,000 mark at last. I consider my role as being to encourage active dialogue with investors and analysts in order to promote accurate evaluation of the group’s strengths. To further develop these strengths, I think that Otsuka needs to concentrate its resources in growth businesses and above all act with speed.
Seguchi I have been active for over 25 years in investment banking at overseas-based financial institutions. As well as contributing to global governance, my role is to draw on this experience to give appropriate advice from the shareholders’ perspective on whether M&A projects will enhance corporate value. I also think that Otsuka must demonstrate to investors the advantage of simultaneously operating the Pharmaceutical and Nutraceutical Businesses, which have different valuation multiples.
Aoki Having worked at a general trading company in the supervision of group companies and the management of the food department, I feel that Otsuka is also a business engaged in multiple industries and that its business model resembles that of a trading company. In the trading company business, I acquired the ability to run multiple operations by using certain mechanisms, so I see it as part of my mission to transfer that skill to Otsuka. Each business is run by professionals, but it is the task of the holding company to exercise objective oversight. I see the Otsuka group’s greatest issue as being how to put in place a corresponding framework.
* An antipsychotic drug indicated for schizophrenia and other conditions. Its U.S. exclusivity period expired in April 2015.
Management under the new CEO and changes in the Board of Directors
—It has been about a year since the new management under CEO Inoue was put in place. How do you assess the new management team and the effectiveness of the Board of Directors?
Matsutani CEO Inoue combines a strong understanding of frontline operations with sound decision-making, and above all, his character is a major strength. The new management is preserving those founding principles that must remain intact while also changing what needs to be changed. I highly value the balance between continuity and adaptability achieved in the transition.
Kitachi Once he has formed his own view of the overall situation, CEO Inoue consistently demonstrates a willingness to listen not only to outside directors but also to a wide range of other opinions from those around him.
Mita I think that attitude also has a positive influence on the inside directors.
Kitachi Yes, I think so too. The directors who also have executive duties make active contributions not only on their own area of responsibility but also on issues across the group as a whole. I feel that is also significant for raising the quality of governance.
Aoki In terms of effectiveness, one thing I would particularly like to note is that a number of staff members from the Corporate Planning Department and elsewhere who are expected to become the leaders of the next generation have begun to attend meetings of the Board of Directors as observers. Attendance at the Company’s highest decision-making body provides them with a valuable opportunity for leadership development. CEO Inoue has also assigned to every department the task of looking ahead to see what its needs will be in 10 years’ time. This future-oriented management approach that does not settle for short-term results is steadily taking root throughout the organization.
Mita Advance briefings for outside directors have also been upgraded and become more comprehensive, which has made it easier to intervene with constructive questions. In the questionnaire to evaluate effectiveness, I sometimes comment sharply on areas where there is room for improvement, but positive changes are steadily emerging.
Seguchi From the perspective of someone who has been involved in investment bank-related operations, CEO Inoue is consistent in his efforts to ensure that Otsuka generates appropriate returns on the resources it invests in science, and I commend his strong leadership on that point. CEO Inoue has not only successfully managed the “patent cliff” but has also used the corporate culture as a foundation to establish a global framework for nurturing promising scientific opportunities. I consider that highly praiseworthy.
Toward medium- to long-term business growth
—What are your individual ideas on the perspectives and initiatives that will be required to continue sustained growth going forward?
Matsutani Up to now, the Otsuka group has achieved growth by presenting a strong product lineup in the Pharmaceutical Business backed by the ability to identify promising opportunities from the research stage and a strategy of business acquisitions. To sustain growth going forward, the key will be to connect the diverse drug discovery platforms that Otsuka has picked up through acquisitions and find ways of creating synergy. Also, if Otsuka can align the Nutraceutical Business with the Pharmaceutical Business as another mainstay based on scientific evidence, that could create value in a way possible only for Otsuka.
Aoki I see strengthening the profitability of the Nutraceutical Business as important for achieving stable performance. Pharmaceuticals can generate significant returns when a product proves successful, but developing new drugs on a continuous basis is difficult, and in that sense, it is a business with an inherent degree of uncertainty. The Nutraceutical Business on the other hand is one that can provide a steady source of profit.
Matsutani That underlines precisely what I said earlier about the need to align the Pharmaceutical and Nutraceutical Businesses.
Aoki Exactly. Otsuka provides foods to maintain health, Nutraceutical products to make up deficiencies, and medicines to treat disease. This total healthcare value chain should be reinforced.
Seguchi The continuity and adaptability that Mr. Matsutani spoke of, in other words preserving important essentials while making continuous change where needed, is an approach that should be useful in dialogue with the market. The capital market has begun to accurately evaluate the product pipeline, which is what generates future cash flow. I am referring for instance to the Next 8 pipeline currently under development. So even if the revenue outlook becomes challenging due to patent expiry or other factors, I believe the stability of the stock price is a sign that the capital market has begun to appreciate Otsuka’s consistent management approach. All the same, even if something has a long history, there may still come a time to rethink it and Otsuka should remain alert to that. That is another reason why it is essential to achieve the target KPIs not only in the Pharmaceutical but also the Nutraceutical Business.
Mita From a market perspective, I feel there is still great room for growth through global expansion of the Nutraceutical Business, particularly POCARI SWEAT in non-Asian markets and nutritional supplements in markets outside the U.S.. Also, in new fields such as Ultrasound Renal Denervation systems, production and sales structures need to be put in place at an early stage. The pace of change relative to competitors should be monitored continuously.
Kitachi That indicates that Otsuka’s strength lies in its strong presence in specific fields. On the other hand, because the Pharmaceutical Business is so strong, there is a risk it can obscure the true state of other businesses with low profitability. As management progressively adopts an approach focused on the cost of capital, there is the question of which businesses need to be monitored and what action needs to be taken. Hasty decision-making should be avoided, but monitoring must be strengthened.
Strengthening non-financial capital
—The importance of non-financial capital, and particularly human capital, is increasing. What are your ideas for related initiatives going forward?
Aoki The first point I want to mention is the cultivation of executive talent. CEO Inoue is in favor of looking ahead to the next 30 years when deciding human resource development. To operate in multiple industries, a system has to be in place that can nurture professionals in each industry and that provides the holding company with a framework for managing the process.
Mita In that sense, the development of global human resources is also an urgent task. That requires people to gain overseas experience while still young. After returning to Japan, they then need the ability in dialogue and coordination that will be required to communicate across the different business divisions. What is important is to create a culture that enables honest dialogue across differences in perspective and organization, so an environment must be created that facilitates global connection.
Matsutani For me, human capital management means bringing together as many people as possible who share the same enthusiasm. Making assessments on a one-dimensional scale is not enough. What is needed is human resources with the wide-ranging experience to apply a 3- or 4-dimensional perspective. Otherwise, the next wave of innovation will not emerge. For example, it is important to have a deep understanding of western culture, but that alone will only take you so far. Perhaps Otsuka’s greatest asset is its culture of free communication, because it retains the strengths of the Japanese approach but also gives space for the development of possibilities that are not yet visible to us.
Aoki Rather than focusing on short-term outcomes, investment in human resources needs to be made with a view to the next 10 or 20 years. Maintaining that approach over time will create a foundation for the Otsuka group’s sustainable growth.
Seguchi As well as nurturing human talent, I think it is also important to maintain confidence in the capital allocation policy. That means identifying clearly the group’s specialist fields and focus areas to allow concentrated investment of funds. In terms of its brand strategy, Otsuka could enhance confidence in its nutraceutical products based on their being the products of a pharmaceutical company, while also leveraging the familiarity of its nutraceutical products to support the pharmaceutical brand. There should be a greater awareness of this potential for two-way synergy. Since you mention synergy between pharmaceuticals and nutraceuticals, it was from the concept of IV solutions that Otsuka Pharmaceutical developed POCARI SWEAT. Promoting the functions of POCARI SWEAT led to a greater appreciation of the importance of hydration and electrolyte replenishment. Otsuka Pharmaceutical Factory also showed originality in its development of products such as OS-1. By reinforcing this virtuous circle within its brands on a global scale, I believe Otsuka can grow its core value.
Kitachi In its ESG activities too, Otsuka should carry out strategic promotion of the areas where it can contribute. Through initiatives with numerous business partners, Otsuka has secured safe water sources and has also contributed to protecting water sources in Europe. In the future, initiatives of this kind to protect water sources should also be expanded to developing countries.
Future expectations for the Otsuka group
—Lastly, what are your expectations for the future of the Otsuka group so that it can continue to be “an indispensable presence” for its stakeholders?
Aoki I often hear this phrase from Chairman Ichiro Otsuka, but I would like to see Otsuka aspiring to be “a company that people are glad to have around.” To achieve that, it will need to drop the approach of incremental progression along the same old track and start backcasting from its targets. It can then become the kind of organization that is able to devise a framework ensuring its survival for the next 100 or even 200 years. I want us outside directors to act as mentors encouraging a positive and forward-looking mindset.
Mita This echoes what Mr. Aoki said just now, but I hope to see a situation where the Otsuka brand enjoys widespread global recognition and confidence and where Otsuka products are a familiar presence around the world. I would like to help set up a positive feedback loop whereby all employees take pride in their work and that in turn inspires public confidence.
Seguchi I would like Otsuka to set a target of overtaking other pharmaceutical companies in market capitalization. Otsuka’s winning formula has been focusing on science and maximizing the return it provides. I would like to see that approach refined so that Otsuka can step up a level onto a truly global stage.
Kitachi At the time of Otsuka’s 90th anniversary, former Chairman Akihiko Otsuka said that he wanted it to continue to be a “big venture business.” No matter how much its revenue grows, I want to see that spirit continue. My hopes are that Otsuka will continue to be a company that contributes to customer Well-being and is indispensable to investor portfolios.
Matsutani I hope to see Otsuka becoming a presence recognized worldwide as a total healthcare company with high standards of ethical conduct. If it can consistently assert the Otsuka approach of looking at each individual holistically rather than seeing only the disease, it is sure to find a way forward. Under the leadership of CEO Inoue, I am confident that we will begin to see that new profile emerging.