Kyowa Hakko Kogyo Co., Ltd. History

Address:

6-1, Ohtemachi, Chiyoda-ku
Tokyo 100-8185
Japan

Telephone: (81) 3 3282-0007
Fax: (81) 3 3284-1968

Public Company
Incorporated: 1949
Employees: 7,766
Sales: ¥375.6 billion ($2.97 billion) (2001)
Stock Exchanges: Tokyo
Ticker Symbol: 4151
NAIC: 325411 Medicinal and Botanical Manufacturing; 325412 Pharmaceutical Preparation Manufacturing; 325188 All Other Basic Inorganic Chemical Manufacturing; 312130 Wineries; 311942 Spice and Extract Manufacturing

Company Perspectives:

Kyowa Hakko will contribute to the health and well being of people worldwide by creating new value with the pursuit of advancements in life science and technology.

Key Dates:

1936:: Three alcohol distillers--Takaro Shuzo, Godo Shusei, and Dainippon Shurui--create a consortium.
1937:: The Kyowa Chemical Research Laboratory is created.
1947:: Kyowa enters the pharmaceutical field.
1949:: The company is incorporated as Kyowa Hakko Kogyo Co., Ltd.
1955:: Kyowa Hakko develops an anticancer drug called Mitomycin-C.
1956:: The firm becomes the first to control the internal metabolism of a microorganism in order to produce an amino acid.
1964:: The company markets an organic compound fertilizer.
1982:: Biokyowa Inc. is formed as a U.S. subsidiary.
1989:: Kyowa begins to import Kane Foods products from the United States and is named the sole agent for U.S. wine producer Alexis Lichine.
1997:: The company reports stagnant sales as the Japanese Ministry of Health and Welfare reduces drug reimbursement prices.
2001:: The company creates a new vision for its pharmaceutical division.
2002:: Kyowa sells its alcoholic beverage operations to Asahi Breweries Ltd.

Company History:

Kyowa Hakko Kogyo Co., Ltd. is a research-based company that develops and manufacturers prescription medicines, amino acids, fine chemicals, and food additives and ingredients. The company has five main business segments including Pharmaceuticals, which made up approximately 34 percent of sales in 2001; Chemicals; Bio-Chemicals; Liquor and Food; and Other Business, a segment whose operations are related to transportation, warehousing, sales of equipment, and plant design. While the bulk of Kyowa Hakko's revenues are domestic, the company secures approximately 14 percent of sales from the Americas, Europe, and other Asian countries. In order to focus on its pharmaceutical related businesses, Kyowa Hakko announced the sale of its alcoholic beverage business in 2002.

Origins

In June 1936, Takaro Shuzo, Godo Shusei, and Dainippon Shurui, three alcohol distillers, created a consortium. In November 1937 they further formalized their relationship by founding the Kyowa Chemical Research Laboratory. Benzaburo Kato became the first director of the Kyowa Laboratory and later served as chairman of Kyowa Hakko. Through extensive research, he discovered a fermentation process vital to the company's development. The company specialized in fermented products from the start. Its first commercially marketed products were ethyl alcohol, which is used in sake and other beverages; acetone; and butane.

A turning point for the newly formed research laboratory occurred when the Japanese government, noting Kyowa Laboratory's early ventures in chemical research, commissioned it to develop technology for the production of the chemical isooctane--used to determine octane levels in fuel.

During World War II, alcohols were much in demand. The extent of Kyowa's contribution to the war effort is difficult to gauge, but the company was forced by the occupation authorities to undergo some restructuring as a result of its wartime activities, as were many other Japanese businesses. Following restructuring, Kyowa Laboratory emerged as Kyowa Sangyo. The company did very well at this time by shifting some of its resources from research to production. Establishing a plant in Hofu, Kyowa Sangyo manufactured food items in high demand, including salt, gin, and shochu, a traditional grain-based liquor. In 1947, Kyowa Sangyo entered the pharmaceutical field for the first time, manufacturing penicillin.

Focusing on Pharmaceuticals and Food: 1950s-70s

Kyowa Sangyo was incorporated on July 1, 1949, as Kyowa Hakko Kogyo Co., Ltd. Kyowa Hakko means "harmony fermentation." The goals of the company were to develop its own fermentation biotechnology while attracting foreign technology to Japan.

In 1951, Kyowa Hakko negotiated an agreement with Merck & Company, a U.S. pharmaceutical company, to produce and market the antibiotic streptomycin. This project engendered a separate pharmaceutical division of Kyowa Hakko. The company had also created the Allospas distiller in 1950, which helped to improve alcohol and wine production methods.

Kyowa Hakko gained international recognition in 1955 with the development of an anticancer drug called Mitomycin-C. Shigetoshi Wakaki of Kyowa Hakko, in conjunction with the Kitasato Research Institute, shared responsibility for this treatment for stomach, lung, breast, and other solid cancers. The drug was developed using Kyowa Hakko's fermentation expertise.

The year 1956 was significant for Kyowa Hakko in the food industry. Once again, the company's leadership in fermentation led to a notable achievement: Kyowa Hakko became the first company to control the internal metabolism of a microorganism in order to produce an amino acid. Prior to Kyowa Hakko's work, amino acid production had been expensive, because it required the use of protein-rich substances such as decomposed wheat and soybeans. Kyowa Hakko substituted inexpensive and readily available molasses. The discovery resulted in cheaper production of monosodium glutamate, an amino acid-based seasoning.

In 1958, Kyowa Hakko produced another amino acid, the feed-grade L-Lysine, a base for livestock feed. Kyowa Hakko's cost-effective production system has since become standard and is used internationally to develop amino and nucleic acids for medical treatment and as post-surgery nutrition supplements.

Steadily continuing chemical research and production, Kyowa Hakko also became a manufacturer of acetone, butanol, and other solvents and plasticizers. In 1961, the company decided to replace its fermentation method of producing solvents with petrochemical technology. Low oil prices instigated the change. Noting that the fermentation process resulted in large amounts of waste water, Kyowa Hakko studied various methods of water treatment and in 1964 began to market an organic compound fertilizer, a product popular in Japan and other nations.

Throughout the 1970s, Kyowa Hakko maintained its place as an innovator in antibiotic production. The company also moved into new arenas, including the production of cardiovascular agents, gastrointestinal drugs, hormones, dermatological medicines, vitamins, and advanced chemotherapeutics. Kyowa Hakko continued to apply biotechnology to create diagnostic reagents for cancer, the goal being to give accurate cancer diagnoses within minutes. In 1977, the company filed 45 drug-related patents in Japan, and in 1978 it formed the affiliate Janssen-Kyowa, dedicated to pharmaceutical research.

Forming Joint Ventures: 1980s

Recognizing that the pharmaceutical industry was growing increasingly international in scope, Kyowa Hakko stepped up collaborative efforts in the early 1980s. The company jointly funded development of a thrombolytic agent with Genentech, a U.S. pharmaceutical company. In 1982, Kyowa Hakko formed Biokyowa in the United States as a fully-owned subsidiary. In a project with the Mexican government and Sumitomo Corporation, Fermentaciones Mexicanas (Fermex) was formed in Orizaba, Mexico. Both new ventures were organized to produce and market feed-grade L-Lysine.

The Japan Chemical Industry Association granted Kyowa Hakko its 1983 technology award for Sagamicin, another advance in chemotherapy. The same year, Kyowa Hakko developed a genetic-engineering technique involving DNA recombination that was expected to make amino acid production easier and less expensive.

By March 1984, Kyowa Hakko had launched another joint venture in association with Native Plants of the United States, Tata Enterprises of Switzerland, and the Sumitomo Corporation. The consortium's goal was to develop new strains of coffee and tea in Southeast Asia.

Demand for feed-grade L-Lysine increased significantly in the late 1980s. Kyowa Hakko responded with plans for a plant in Hungary that would be operated by Agroferm Hungarian Japanese Fermentation Industry and was scheduled to open in fall 1990. Kyowa Hakko also agreed to several joint projects in Japan, including ventures to produce and market frozen foods with Kitchenbell, develop cosmetic biotechnology with Shu Uemura, and introduce the frozen-food wholesaler Sun Kyowa. In 1989, Kyowa Hakko agreed to import Kane Foods products from the United States. The same year the company became the sole agent for the U.S. wine producer Alexis Lichine.

Kyowa Hakko entered the 1990s with representative offices in the United States, Mexico, China, Hungary, and Germany, and with ventures in progress in Southeast Asia. The company operated seven plants in Japan and two overseas, exporting goods to over 80 countries. Projects underway were international in scope, as Kyowa Hakko studied cloning and gene-mapping in order to develop new plant strains, researched amino acid application, and studied the safety of pharmaceuticals.

Restructuring: 1990s and Beyond

This focus on pharmaceuticals and research and development strengthened throughout the 1990s. In 1991, the company launched Coniel, a drug that treated both hypertension and angina. Loracarbef, an antibiotic, was licensed to Eli Lilly & Company and made it to the U.S. market in 1992. The firm also licensed Olopatadine, an allergy medication, to Alcon Laboratories Inc. The drug was launched in eye drop form in the United States in 1997. In 1999, an anti-cancer drug, Navelbine, was also launched.

During this time period, the drug industry as whole was dealing with major changes due to rising development costs and new technological breakthroughs. Kyowa Hakko faced increased pressure in Japan, where the Ministry of Health and Welfare was passing new laws to reduce health care costs, particularly drug reimbursement prices. Meanwhile, the company's food and alcohol business had to deal with the rising taxes and decreasing demand brought on by a fall in consumer spending and a rapidly declining economy in Southeast Asia. These changes had a negative effect on Kyowa Hakko's sales figures, which remained stagnant in the late 1990s.

At the same time, the company was named in a lysine price fixing cartel scandal. During 1996, the European Commission began an investigation into several firms involved in a global price fixing cartel. Kyowa Hakko, along with four other firms, were found guilty for operating the lysine cartel from 1990 to 1995. In 2000, Kyowa Hakko was fined $12 million for its involvement.

Challenging market conditions continued into the new millennium. In April 2000, the National Health Insurance drug price standard was lowered in Japan and the firm faced fierce competition in its pharmaceutical business segment. The company's bio-chemical and chemical operations also suffered and weak consumer spending continued to cause shortfalls in the Kyowa Hakko's liquor and food segment. As such, the firm began to restructure and streamline operations in order to remain competitive. With pharmaceuticals as its core concern, Kyowa Hakko launched a new strategy for this division entitled "Reform for Value Creation." The new plan, made up of two five-year stages, was designed to position the company as a leader in the pharmaceuticals industry. This plan stated that by 2011, Kyowa Hakko's pharmaceutical business would secure sales of ¥300 billion and be a leader in biopharmaceuticals and the treatment of cancer and allergies. The company hoped to achieve this goal by strengthening its domestic operations, developing new drug assets, and by expanding internationally.

In a move that signaled the firm's commitment to its drug and chemical related businesses, Kyowa Hakko announced the sale of its alcoholic beverage business to Asahi Breweries Ltd. in 2002. Its U.S. subsidiary BioKyowa Inc. also stopped production of feed-grade amino acid lysine in order to focus on various other high profit amino acids. During fiscal 2002, sales rose by .80 percent, while operating profit increased by 14.9 percent over the previous year. As Kyowa Hakko's business environment remained challenging as well as highly competitive, management continued to cut costs and restructure both its domestic and overseas operations.

Principal Subsidiaries: Kyowa Yuka Co. Ltd. (94%); Kyowa Medex Co. Ltd.; Mohan Medicine Research Institute (98.9%); Shinwa Pharmaceutical Co. Ltd.; Kyowa Medical Promotion Co. Ltd.; Kyowa Nozai Co. Ltd.; Riken Kagaku Co. Ltd.; Asahi Foods Products Co. Ltd. (78%); Miyako Kagaku Co. Ltd. (52.9%); Kyowa Engineering Co. Ltd.; Kyowa Warehouse & Transportation Co. Ltd.; Seifu Co. Ltd.; Biokyowa Inc. (U.S.); Fermentaciones Mexicanas S.A. de C.V. (Mexico); Agroferm Hungarian-Japanese Fermentation Industry Ltd. (Hungary); Kyowa Hakko U.S.A. Inc.; Kyowa Hakko Europe GmbH (Germany).

Principal Competitors: Meiji Seika Kaisha, Ltd.; Shionogi & Co. Ltd.; Yamanouchi Pharmaceutical Co. Ltd.

Kyowa Hakko Kogyo Co., Ltd. History

Company Perspectives:

Key Dates:

Company History:

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