Message from Senior Executive Officer of Health Science Strategy

June 5, 2023

Maximizing the Value of Lactococcus Lactis strain Plasma (LC-Plasma) and Other Specialty Materials through a Unique BtoB/BtoC Linkage Model

Takeshi Minakata
Director of the Board, Senior Executive Officer
Kirin Holdings Company, Limited

Using fermentation and biotechnology to solve health issues

――Why is the Kirin Group getting involved in the field of health science?

Since 2013, the Kirin Group has made Creating Shared Value (CSV) a cornerstone of its management, striving to address social issues through its business. With the COVID-19 pandemic raising global awareness on health concerns, we recognize the importance of the health sector, which holds significant social and economic value. Our group’s expertise in fermentation and biotechnology, honed through more than a century of experience in the beer industry, enabled us to enter the pharmaceutical market 40 years ago. Now, we are applying these technologies to the Health Science domain to tackle global health challenges. We are working with a strong sense of purpose to establish the Health Science business as the third pillar of support for the Kirin Group, following Food & Beverages and Pharmaceuticals.

Until last year, our focus was on addressing health issues related to immunity, brain function, and gut health. However, in 2023, we are reassessing our approach and restructuring it as the Kirin Group’s unique strategy to enhance innate human capabilities. This strategy involves pursuing both the “building foundation of health” approach that targets immunity, and the resolution of “individual health issues” such as lifestyle diseases and brain function.

  • Figure: Solving health issues with a unique approach

  • Figure: Solving health issues with a unique approach

Our group’s vision is to be a “Become a partner for healthy and happy lifestyle in the 100-year life.” Leveraging our expertise in fermentation and biotechnology, we aim to enhance human beings’ innate capabilities through science-based products and services. This, in turn, will lead to happier lives and enable us to deliver smiles and joy to the world.

――One year has passed since you were put in charge of strategy for the Health Science Domain. What results have you seen over this period?

The Health Science Business Division was launched in April 2022 in order to tackle the health science business in earnest and establish a collaborative structure to foster mutual learning and make speedy progress toward common goals with each operating company. One year has passed since the launch, and we are pleased to report that a strong sense of unity has developed between the division and our operating companies, including Kyowa Hakko Bio and Koiwai Dairy Products. The smooth coordination among these companies has allowed us to establish a structure for implementing individual business strategies, which has significantly increased our decision-making speed.

Apart from restructuring our unique approach to addressing health issues, our most notable accomplishment since I assumed this role has been the creation of a roadmap to establish a BtoB/BtoC Linkage Model*1, which we have applied to our LC-Plasma products. The model aims to address health issues by deploying technologies and ingredients on a broad scale (BtoB) and providing consumer touch points with solutions to a variety of health issues through technology platforms (BtoC). This resulted in a significant 40% increase in the value of LC-Plasma sales in 2022 over the previous year. Achieving this goal has given us confidence, and we are thrilled to see more consumers choosing the products containing LC-Plasma at supermarkets, drugstores, and other channels. This success is due to the renewed advertising for LC-Plasma, the development of in-house products like “Morning Immune Care” in small bottles, expanded coverage at drugstores, and the licensing of materials to external companies, which has significantly increased the number of consumer touch points.

  1. A business model in which businesses are linked, that utilizing the insights gained from selling the company’s own products in the BtoC business to create a new BtoB business that is not limited to ingredient sales.

Another result is that our partner companies have recognized the value of LC-Plasma and are now using it in their own product promotion activities. We place a great deal of importance on quality assurance when we out-license ingredients. We don’t simply stop at selling materials to partner companies; we also conduct a thorough evaluation of the activity of LC-Plasma in their final products.

The reason we out-license our proprietary ingredients, including LC-Plasma, to our partner companies instead of keeping them in-house is to fulfill our social responsibility of contributing to global health issues and achieve our vision. By increasing the number of partner companies and products and expanding our consumer touch points, we can create a larger market for immune care than what our group alone can achieve. Our ultimate goal is to make immune care an everyday activity. Although there is interest in immune care in Japan, only about 10% of people make it a habit, as revealed by our surveys. The market has a latent need for immunity, which has yet to become apparent. That is why we want to collaborate with our partners to create this market.

Fostering researchers with a commercialization mindset to speed up time to market

――Please tell us about the challenges that the Health Science business is facing.

One challenge is that we have not achieved our sales targets for specialty ingredients other than LC-Plasma. Specifically, we haven’t achieved our sales targets for Citicoline*2, and although three strains of Human Milk Oligosaccharide (HMOs*3) have passed safety screening in China, commercial production has only just begun at our plant in Thailand, so sales are not yet possible. Consequently, we believe that the scale of our Health Science business is insufficient.

The Health Science Division has set a sales revenue goal of 200 billion yen for 2027. To achieve this goal, it is crucial to maximize the value of our specialty ingredients. First and foremost, we need to conduct human clinical trials steadily and persistently to optimize the value of our three specialty ingredients: LC-Plasma, HMOs, and Citicoline. Next, we plan to leverage Kyowa Hakko Bio's expertise in ingredient development to discover new specialty ingredients. To achieve this, we must increase the amount of data on the contribution of our developed ingredients to health issues through thorough human clinical trials and analysis.

To accelerate the speed of our Health Science business, we established the Institute of Health Sciences within the Health Science Business Division in April 2023. This integration involved combining part of the Health Science Business Department with certain functions of the Kirin Central Research Institute. By linking the business and R&D divisions closely, we aim to speed up the PDCA cycle from ingredient development to commercialization and foster researchers with a commercialization mindset. Meanwhile, the Kirin Central Research Institute will continue to focus on promoting basic and applied research in the Health Science domain over the medium to long term, with a view to creating seeds for future developments. We are excited about the opportunity for both research institutes to collaborate in developing and commercializing new ingredients with a sense of urgency.

Another challenge is the deteriorating profitability of Kyowa Hakko Bio’s amino acid business. Despite its large sales, this segment has been struggling with low profitability due to commoditization of products and intense price competition. The situation worsened last year with soaring raw material and fuel prices and the suspension of manufacturing at our Shanghai plant in China, caused by COVID-19 lockdowns. As a result, we recorded an impairment loss in fiscal 2022. Recognizing the increasing pace of change in the business environment, we have downsized the amino acid business earlier than initially planned and are redirecting our focus towards specialty ingredients. We are optimistic that this shift will help us return to profitability by next year.

  1. An ingredient found in the body that maintains the cell membranes of the brain and nerve cells, and has been used for many years around the world in medicines for brain diseases and health foods that support the improvement of cognitive functions. In Japan, it is currently classified as a pharmaceutical product.
  2. A generic term for oligosaccharides contained in breast milk. More than 200 kinds are contained in breast milk, and the results of research contributing to immunity and brain function, among others, have been reported.

Developing specialty ingredients worldwide through a “BtoB/BtoC Linkage Model.”

――What are the strengths of the Kirin Group in the Health Science domain?

We believe that our business model is a unique strength of our group. The BtoB model involves out-licensing our specialty ingredients to other companies, while the BtoC model focuses on commercializing products ourselves and delivering them to consumers through our group company’s products. LC-Plasma was a leading example of this approach.

When attempting to out-license LC-Plasma as an ingredient, our group's knowledge in developing and marketing various products contributes to negotiations with partner companies and aids in the development of their product.

Leveraging this strength, we plan to first accelerate the growth of our Health Science business with LC-Plasma. Additionally, we intend to utilize the knowledge we have accumulated through this product to expand global sales of specialty ingredients like HMOs and Citicoline in the future.

In addition, we have been considering the utilizing M&A to solve the challenges and realize the discontinuous growth. In April 2023,, we announced that we will proceed with the process of making Blackmores, an Australian natural health company, a subsidiary. It could be expected to help us to realize growth globally by leveraging Kirin's specialty ingredients, and Blackmores brand which obtains a high market share in Oceania, South East Asia, and China. After the completion of the deal, both of us will aim to achieve the creating social value and economic value by tackling solving the social issues of 'health' together.

――Please tell us about the future prospects of the Health Science business.

In the past, it was thought that innovation was difficult for established companies, but for the past decade or so, such companies have been rapidly producing innovation. The principles of innovation are said to include conception, nurturing, and mass production. At the mass production stage, an established company can utilize its existing platform. We will leverage the platforms of each of our group’s operating companies to accelerate the growth of our new Health Science business. Our group is already following this trend.

The Health Science business is still in its early stages, but we have the advantage of a diverse range of human resources and the ability to utilize the wide variety of know-how accumulated in the existing businesses of the Kirin Group. This is our greatest strength.

Our group is characterized by its passion. We have the full support of the entire organization in our efforts to join forces and grow our Health Science business, which motivates us to continue pushing forward. While we recognize that growing a new business takes time, we are committed to taking the necessary steps to do so properly. Building on the success of LC-Plasma, we will further promote the use of new ingredients to expand the market. Our ultimate goal is to establish Health Science as a key contributor to the success of the Kirin Group.