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This April, Japanese Prime Minister Fumio Kishida reiterated how “increasingly important” it is that Japan and the United States collaborate on biotechnology during his visit to Washington, D.C.

Continued collaboration between our two nations can bring more revolutionary treatments to patients in need. As venture capital continues to flow in both countries, it is critical for the U.S. and Japan to take steps that ease uncertainty and promote investment.

Together, we can make the next decade of innovation the most successful yet.

Private financing facilitates beneficial collaboration between our two nations. Japan has become an especially attractive investment destination over the last decade. Venture capital investments in Japanese startups grew from $500 million in 2012 to $9.7 billion in 2023 — an increase of nearly 2,000%.

Venture capital is particularly important in the life sciences because of the significant costs and risks associated with drug development. Life sciences firms — especially start-up companies that may only have a few dozen employees — often rely on venture capital for support during research and testing, clinical trials and regulatory approval.

American and Japanese biotech startups increasingly receive investment support from firms a hemisphere away. Just last year, the newly formed AN Venture Partners raised $200 million in its initial fund to support Japanese biotech companies and scientific discovery out of Japan.

Just as dollars are flowing to Japan, Yen are flowing to America. Japanese venture capital firm Fast Track Initiative has invested in U.S. biotechs working to develop treatments for inflammatory bowel disease, cell therapies to target solid tumor cancers, and RNA-editing technology.

Drug development is inherently risky. In the United States, fewer than one in 10 drugs entering clinical trials ultimately makes it to market. Unfortunately, recent policy developments could add even more risk to the U.S. pharmaceutical market. This could drive away Japanese venture investors, who are traditionally more risk-averse than their U.S. counterparts.

Japan’s Prime Minister Fumio Kishida addresses a joint meeting of Congress in the House chamber, Thursday, April 11, 2024, at the Capitol in Washington. (Jose Luis Magana/AP Photo)

One source of uncertainty is Medicare’s new authority to set prices for certain prescription drugs. Currently, there’s no way for investors to predict which drugs the government will select for price-setting, and thus which development projects present the highest odds of a return. A new White House effort to forcibly relicense patents arising from federally funded research could also have unpredictable and unintended consequences.

Japan’s biotech ecosystem, meanwhile, could attract even more venture investment by adopting recommendations recently outlined by a Ministry of Health, Labour and Welfare panel.

Measures proposed in the panel’s review, such as adding new incentives for drugs that treat rare illnesses and re-evaluating methods for pricing innovative cures, will encourage more U.S. venture firms to support Japanese biotech start-ups.

President Biden has committed the United States to “ending cancer as we know it.” Japanese Prime Minister Fumio Kishida pledged to increase investments in Japanese startups tenfold from 2022-2027. Policy ecosystems that reward innovation and generate returns will help achieve both of these goals, while supporting millions of jobs on both sides of the Pacific.

John Stanford is the executive director of Incubate, a Washington-based coalition of life sciences venture capitalists.

John Stanford