Feb. 13, 2018
The acquisition of the Indian agrochemicals company Excel Crop Care in the previous fiscal year boosted sales of Sumitomo Chemical Group’s Health & Crop Sciences segment. As a result, the segment’s sales increased by ¥21.9 billion in the third quarter ended December 31, 2017 compared with the same period of the previous fiscal year, to ¥213.8 billion. Operating income declined by ¥0.9 billion, to ¥15.7 billion.
Q&A with Masakazu Tokura, President of Sumitomo Chemical
Q: With regard to your agrichemical business outside Japan, in the recent second quarter conference call, you said that sales volume would recover in the second half, but are you seeing concrete signs of a recovery in demand? In addition, will it become more difficult to compete with genetically modified organisms (GMOs) in the next year and beyond? I have heard talk that GMO demand is increasing, so I would also like to ask about the impact of that.
A: Sumitomo Chemical is not involved in the GMO business, but resistance to agrichemicals will always emerge. Our product flumioxazin has found a new application as a countermeasure to resistance, giving rise to use in systemic pest control with Monsanto’s Roundup. Monsanto has launched next generation products for their pest control system, but we are also selling products that support the new system, which we hope will be competitive.
In addition, our forecast for the agrichemical market going forward has not changed since we announced our results for the second quarter. We see signs that shipments are increasing due to the slight improvement in Brazil’s economy and the impact of a reduction in inventory in America, as well, but we think that our performance this year will be in line with our full-year forecasts in the second quarter results announcement.
Q: In the life sciences field, I think that the reason you were forced to adopt a strategy of collaboration with major overseas manufacturers in your agrichemicals business is that you were unable to concentrate management resources within the agrichemicals business, but were forced to invest in a variety of businesses. Could you please give some details about how you will invest management resources in the life sciences?
A: Our agrichemicals business is small compared with those of major manufacturers outside Japan, in terms of revenue, but we believe there are two major reasons for this. These reasons are that not only have we not been involved in the GMO field, we have also not been able to build a sufficient global footprint. In order to enhance our global footprint, in addition to purchasing Excel Crop Care, an agrochemicals company of India, last year, we have also undertaken initiatives such as expanding our business collaboration with Nufarm. Building a global footprint is not something that can be done in a day, and we are currently considering further acquisitions and other measures. It would be best if we could sell the excellent agrichemicals we have developed internally entirely on our own, but in cases where we cannot sell them, we are also collaborating with major manufacturers outside Japan to have them sell these products for us. As for our pharmaceuticals business, we currently own just over 50% of Sumitomo Dainippon Pharma, and we would like to maintain this ownership ratio for the time being. Sumitomo Pharmaceuticals was born out of Sumitomo Chemical’s pharmaceutical business unit, and merged with Dainippon Pharmaceuticals to create Sumitomo Dainippon Pharma. Thereafter, Sumitomo Dainippon Pharma purchased US-based Sepracor, achieving its current structure.
There are some foundational technologies in common between the agrichemicals business and the pharmaceuticals business. For example, iPS cell technology is a foundational technology that is used in both the agrichemicals business and the pharmaceuticals business. In addition to being used in regenerative and cellular medicine, such as in creating retinas from iPS cells to treat age-related macular degeneration, this technology can also be used to check whether there are any side effects of agrichemicals and pharmaceuticals using structures created from iPS cells. Moreover, Omics technology, which is used to analyze issues such as metabolisms, proteins, and toxicity, is also a foundational technology common to the two areas. Looked at from a global perspective, Sumitomo Chemical is a middling player in both agrichemicals and pharmaceuticals, but we would like to continue to do business as a solid medium-sized manufacturer with unique characteristics.
Here below are excerpts from Masakazu Tokura’s presentation on the topic “Current Priority Management Issues and Business Strategy of Sumitomo Chemical”.