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Farallon Capital Management has taken a significant stake in one of Japan’s biggest pharmaceutical companies as activist shareholders, emboldened by a corporate governance reform drive, take aim at the country’s household names.
The San Francisco-based fund with $39bn in assets has built a more than 3 per cent position in Astellas, according to people familiar with the matter, making Farallon a top-three shareholder, based on LSEG data.
The move is part of a wave of shareholder activism in Japan as governance reforms by the Tokyo exchange push companies to take investor demands more seriously.
Astellas shares, which were down 2 per cent in early afternoon trading on Wednesday, gained sharply on the news to trade up 3.5 per cent.
Farallon made its name in the country with a series of high-profile bets, including a long and often contentious engagement with Toshiba, where it successfully installed an outside director shortly before the cash-strapped conglomerate was taken private.
Its involvement in the management change, alongside fellow activist Elliott Management, redefined the role of shareholders in Japanese corporate crises.
Since exiting its roughly $800mn position in Toshiba in 2023, Farallon has left the market speculating about its next target.
Farallon, which calls itself an engagement fund, is hoping to work with the Astellas management and board to quickly and significantly increase its share price, said people familiar with the matter. The company has a market capitalisation of ¥2.6tn ($17bn) after its share price fell almost 40 per cent from a peak in 2023.
The fund has been engaging with Astellas since 2020 and sent its board numerous letters, which have been seen by the Financial Times.
Farallon wants Astellas to cut costs more quickly and overhaul its research and development programmes, which it says are diffuse and have failed to advance a sufficient number of drugs past trial stages. It also wants Astellas to refocus its merger and acquisition strategy on later-stage drugs with a higher chance of getting to market.
Astellas had spent more than ¥1.5tn on M&As since the beginning of 2016, according to Farallon’s letters, and the company said last year that under new chief executive Naoki Okamura, it was the “right time to go on the aggressive to further accelerate growth”.
One of its most successful drugs, Xtandi, which treats prostate cancer, is expected to reach the end of its patent exclusivity period in 2027, giving the company a limited window to invest cash flow from the drug’s sales.
Astellas during its third-quarter results last week said it was making progress in cost-cutting and drug development. It has targeted a 30 per cent core operating margin, compared with its current level of close to 20 per cent.
Farallon declined to comment. Astellas said: “We appreciate and value the discussions we have with individual shareholders; however, we do not comment on matters regarding individual shareholders.”
With Farallon increasing its engagement with the company, Astellas has asked a group of external directors to provide “objective oversight of the execution” of its priorities, which overlap with the activist fund’s suggestions, said people familiar with the matter.
Farallon has indicated to the board that it expects the external directors to conduct a broad review of the company’s cost structure, R&D and M&A plans, as well as other strategic possibilities, including partnerships or an outright sale, the people added.
Some analysts have compared the group to a special committee, which is often tasked with analysing takeover offers but can also advise on strategy.
Since Japan overhauled M&A guidelines in 2019, activist shareholders have used the new rules to show that investors can start a sale process, most recently with IT services company Fuji Soft, in which Farallon was also an investor.
Japanese pharmaceutical companies have taken different approaches to finding the scale and resources to compete against global rivals, including M&As and partnerships with bigger groups, such as Chugai Pharmaceutical’s strategic alliance with Switzerland’s Roche.
Last week, Bain Capital acquired 340-year-old Mitsubishi Tanabe Pharma for $3.3bn, betting that drug development in Japan would benefit from regulators loosening their approval process.
