THIS WEEK · DEVELOPED ASIA-PACIFIC

Co-owners,

We've spun the wheel for developed Asia-Pacific and landed in Japan, on a company that sells a sports drink across Asia and a dementia medicine in American care homes. The two share a surprising origin.

Before we dive in, a reminder of what the index itself has delivered over time.

On a hot afternoon in Manila, Jakarta or Tokyo, open a convenience-store fridge and you will probably find a blue-and-white bottle called Pocari Sweat. In an American pharmacy, the vitamins on the shelf may well be Nature Made. Both belong to Otsuka.

But most of the money comes from somewhere you would never look: prescription medicines for schizophrenia, depression, agitation in Alzheimer's patients and rare kidney diseases.

Otsuka began in 1921 making chemicals from the leftovers of salt production in Naruto, a seaside town on the island of Shikoku. In 1946 it moved into IV solutions, the bags of fluid that hang beside hospital beds, and became Japan's leading maker.

In the 1970s, an Otsuka researcher called Rokuro Harima fell ill on a business trip to Mexico. The doctors told him to drink fizzy soda. Then he saw a surgeon, fresh out of the operating theatre, drinking IV fluid straight from the pouch. Harima knew exactly what was in that pouch, because his employer made it. Why not a drip you could drink?

The first versions tasted like medicine, until the team mixed in a citrus powder from a rejected drink project. Pocari Sweat launched in 1980. "Pocari" means nothing; "Sweat" is what it replaces. It sold slowly at first, then became a fixture across Asia. Today it is sold in more than 20 countries, most recently India and Nigeria.

Like CSL, which we covered in edition #7, Otsuka's more exciting products grew out of an unglamorous hospital staple.

Otsuka kept spotting markets early. In 1968 it launched Bon Curry, a ready-made curry that Otsuka says was the world's first food sold in a sealed pouch. In 1989 it bought the Californian vitamin maker Pharmavite and its Nature Made brand, at a time when Japan barely had a supplement market. Nature Made now holds the top US retail market share for vitamins, and US pharmacists have named it their most recommended supplement brand for 28 years running.

Medicines (~71% of revenue, ~80% of profit). The biggest seller is Rexulti, which brought in $2.2 billion (¥331 billion) in 2025, up 24%. It treats schizophrenia and depression, and in the US it is approved for agitation in Alzheimer's dementia, when patients become restless or aggressive. That is exhausting for families and care homes, and it now accounts for a quarter of US Rexulti prescriptions. Next come long-acting injections of Abilify, an older Otsuka drug, which patients need once a month or once every two months instead of a daily pill. And the original drip business is still growing: last year it started selling IV solutions in the US.

Drinks, vitamins and foods (~23% of revenue, ~12% of profit). Pocari Sweat, Nature Made, Calorie Mate nutrition bars and menopause products such as Equelle. Thinner margins, but steadier sales.

A drug patent lasts about 20 years. When it expires, cheap copies called generics arrive and sales usually collapse. It is the central risk for any drug company, and Otsuka has now lived through it twice.

The first cliff. Abilify was discovered by Otsuka and became one of America's best-selling drugs, making up roughly 40% of Otsuka's sales in 2014. Its US patent expired in 2015. Revenue fell 16% the following year and did not get back to its old level until 2021. Six years of climbing.

The second cliff. Jynarque treats an inherited disease in which cysts slowly take over the kidneys. It lost US protection in April 2025, and in February 2026 Otsuka warned that profit would fall by ~20% this year. By July it had raised its forecast instead.

Part of that was luck: only one generic copy launched, and no others followed. Most of it was preparation. Rexulti kept growing, the Abilify injections kept growing, and royalties from two Novartis cancer drugs nearly doubled. Voyxact, a new kidney medicine launched in the US at the end of 2025, sold $108 million (¥17 billion) in its first six months, almost three times the plan. Otsuka now expects it to bring in more than $630 million (¥100 billion) a year by 2027.

More is coming: Simtriyo, a new kind of ADHD medicine approved in the US in July, launches later this year.

In the first half of 2026, revenue rose 12.8% to $8.4 billion (¥1.33 trillion), and business profit rose 17.3% to $1.8 billion (¥281 billion).

A weaker yen helped, because sales earned in dollars are worth more yen. Without the currency effect, profit grew 10.7%. For the full year, Otsuka expects business profit of $3.0 billion (¥470 billion). At last year's exchange rates, that is roughly flat. Flat, in the year a major drug lost its patent, is the achievement.

The dividend rises from ¥140 to ¥200 per share this year, up 43%, alongside share buybacks. The balance sheet is very cautious, with ~3.0 billion (¥470 billion) in cash against borrowings of only ~0.6 billion (¥95 billion).

The cycle never ends. Rexulti and the Abilify injections will face their own patent cliffs one day, and the next generation has to be ready in time. The Jynarque cushion is also temporary: Otsuka expects only ~$93 million (¥15 billion) of sales in the second half, against $567 million (¥90 billion) in the first.

With almost half its revenue in North America, US drug pricing and tariffs are real risks, which Otsuka itself flags. The 2026 currency tailwind can also reverse.

Then there is the long view. Over the ten years to December 2025, Otsuka returned 8.7% a year to shareholders, behind Japan's TOPIX index at 10.8%, a decade weighed down by the Abilify cliff. Over the last three years, it beat the index comfortably. One company's cliff is a big deal for anyone who owns only that company. Spread across 4,200 companies, it is a ripple.