Fixing the eyes of patients who are going blind and the knees of those about to lose their ability to walk. Both are goals of two venerable Japanese firms, Fujifilm and Hitachi Chemical, which hope to turn regenerative medicine into a viable, mass-market business.
Meanwhile, Japanese petrochemical maker Mitsui Chemicals aims to become a global player in materials for dental care. And JSR, a company formerly known as Japan Synthetic Rubber, wants to build a major business around supplying materials to manufacturers of biologic drugs.
For JSR, the life sciences are another step away from its original, and still thriving, synthetic rubber business. In the past 25 years, the company has expanded into chemicals for the electronic industry. Materials for biologic drugs might seem an implausible step beyond, but JSR managers believe otherwise.
“We’re targeting custom manufacturers of biological drugs,” says Eric Johnson, U.S.-based head of JSR’s newly formed life sciences division and a veteran of the electronic materials business. “We see those companies as the equivalent of the foundries in the semiconductor industry.” The company also supplies innovators, Johnson adds.
In a constantly changing world, one in which Japan faces disadvantages in labor and manufacturing costs, the medical field is emerging as a source of growth for Japanese manufacturers of materials and chemicals. Supplying materials to the life sciences industry plays to Japanese companies’ strengths in quality control and the ability to innovate.
Japanese firms see opportunities throughout the health care sector, from materials used to make dental implants to new manufacturing methods for the cell cultures used in regenerative medicine. Seeking a use of their money other than depositing it in Japanese bank accounts that offer negative interest rates, the firms are building up their presence in the field by investing in new plants and R&D facilities and by acquiring companies that can expand their capabilities. Despite having little experience with the heavily regulated health care sector, the firms are confident that they will be able to compete.
Few Japanese executives feel more urgency in their desire to develop new businesses than those working for Fujifilm. Since the late 1990s, when it saw its core photographic film business evaporate, Fujifilm has successfully reinvented itself as a supplier of semiconductor and display materials, cameras and diagnostics systems, pharmaceuticals, and miscellaneous businesses such as cosmetics and nutraceuticals.
The numerous businesses into which Fujifilm has expanded tend to be linked to the materials science capabilities that the company acquired from years of making photo films. For instance, Fujifilm developed triacetate cellulose as a raw material for the substrate of photographic film. Today it is the leading manufacturer of triacetate cellulose film used to create liquid-crystal display polarizers.
Similarly, Fujifilm became an expert in gelatin, a processed form of animal collagen, from years of coating it on photographic film as a support medium for silver halide and sensitizing dyes, explains Toshikazu Ban, corporate vice president of of the company’s regenerative medicine business. Fujifilm studied the properties of collagen for decades, Ban says, including its function as the main protein in the human body.
“About 20 years ago, one of our experts developed a method for making recombinant peptide because natural collagen is of inconsistent quality,” Ban recalls.
Fujifilm never produced recombinant collagen peptide for use on film because it’s too expensive. But the research helped the company enter regenerative medicine, with Fujifilm initially focusing on tissue engineering scaffolds. In 2014, Fujifilm acquired a majority stake in Japan Tissue Engineering, which had developed regenerative medicine products for cartilage and epidermis.
Regenerative medicine, with its promise to regrow body parts that are damaged or worn out, sounds like it belongs more in science fiction than in the real world. But Ban expects the company’s business to become profitable in as little as two years.
One early source of profits could be treatments for pets. Some pet owners will pay a fortune to extend the lives of their companions. Developing regenerative medicine treatment for animals requires less testing than it does for humans, Ban points out. A joint venture of Fujifilm and the Japanese insurance firm Anicom started offering experimental treatments for dogs and cats in Japan last September.
Meanwhile, Cellular Dynamics International (CDI), a U.S. company that Fujifilm acquired in 2015 for nearly $300 million, is about to start testing, with the support of the U.S. National Eye Institute, a treatment for macular edema, an eye disease that can lead to blindness. The treatment uses autologous cells that CDI grows in incubators starting from cells supplied by the patient. The treatment could potentially protect or restore the vision of millions of people, Ban says.
Fujifilm is also developing allogeneic cell treatments for various diseases and injuries. In contrast with autologous cells, allogeneic cells are produced in large quantities, starting from cells extracted from an unrelated donor.
The major advantage of allogeneic cells, Ban says, is that they can be mass-produced. The main challenge is finding a way to suppress rejection by the patient. Fujifilm is involved in a clinical trial in the U.K., the first of its kind, of an allogeneic cell treatment for graft-versus-host disease, an ailment that may afflict bone marrow recipients.
Autologous cell therapies are less experimental, but the technique has some disadvantages, Ban notes. For a knee cartilage treatment, autologous cell transplant involves extracting cartilage cells from the patient’s body, growing a larger quantity in an incubator, and weeks later, performing a second surgery to graft new cartilage on the knee where it’s needed.
Altogether, Ban says, the patient is largely immobile for about four weeks, and the resulting medical fees are huge. The allogeneic approach, which involves only one surgery, lets the patient leave the clinic much sooner and face a smaller bill.
Hitachi Chemical, a major supplier of materials to the electronics industry, is likewise diversifying into regenerative medicine. Unlike Fujifilm, however, Hitachi is focusing only on autologous cell therapies. The company has global ambitions, but it expects the Japanese market to be among the first to develop. In late 2014, Japan adopted legislation on regenerative medicine that allows conditional early market approval of new products if their efficacy and safety are confirmed.
Hitachi is building a pilot plant in Yokohama, Japan, that will supply autologous cells to customers on a contract basis and allow the company to experiment with different manufacturing processes. To design the facility, Hitachi is advised by PCT, a U.S.-based manufacturer of regenerative medicine cells that Hitachi bought last month for about $100 million.
As at other Japanese materials producers that are expanding in the medical field, managers at Hitachi Chemical argue that they can streamline production by bringing their chemical manufacturing skills to bear. Kazuchika Furuishi, head of business strategy for regenerative medicine at Hitachi, says the know-how the company has gathered from making semiconductor materials in a clean-room environment applies to manufacturing human cells under strictly controlled conditions.
“There are similarities,” Furuishi says. “For both semiconductor materials and biological materials, you need to strictly manage the impurity profile.”
Furuishi hopes to use Hitachi’s manufacturing knowledge to greatly reduce the cost of making regenerative medicine cells. For decades, Hitachi has steadily raised the degree of automation in its electronic materials facilities and could do the same at plants producing cells for regenerative medicine. “A lot of the cost in manufacturing is salaries,” Furuishi notes.
Costs are key to making regenerative medicine a reality, agrees Fujifilm’s Ban. As things stand, treating macular edema with about 1 million regenerated cells would cost at least $150,000, which is too expensive for most patients. To repair cardiac damage, the cost would explode to impossible levels because it requires the production of far more cells, even for fixing a small part of the organ. “For the heart, you’re talking about 10 billion cells or so,” he says.
Like Fujifilm and Hitachi Chemical, JSR is a major producer of electronic materials whose managers believe their firm can compete in medical materials. To meet the demanding needs of the semiconductor industry, JSR has become adept at producing materials with precise impurity profiles, Johnson contends.
“Our life sciences customers like to hear about our philosophy and our procedures for controlling our quality,” he says. “They’re looking for materials that impact at the molecular level.”
Although JSR’s electronic materials business is based in Japan, which makes sense given the size of the electronics industry in that country, its life sciences business is based in the U.S. because that’s where the most dynamic life sciences companies are, Johnson says.
For now, JSR’s life sciences materials business consists mainly of two offerings, he says. One is a line of polymer beads paired with proteins that help purify biopharmaceuticals such as monoclonal antibodies during manufacturing. The other is a line of ferromagnetic and latex beads that can be used to produce diagnostics or target biological samples in the blood. The beads are products that JSR has made for 70 years for various applications and that it now customizes for life sciences applications, Johnson says.
JSR has invested substantially in R&D for its life sciences business, which will become a significant source of sales within a few years, Johnson expects. “The life sciences sector is always looking for new technologies to help patients get results, and we want to be part of that,” he says.
At Keio University, one of Japan’s top universities, JSR is funding the construction of a new research building where scientists will pursue several themes. Among them will be three-dimensional cell culture. While traditional cell culture is grown in flat environments like petri dishes, 3-D cultures allow cells to grow in all directions. Scientists can use a 3-D cell culture to simulate the effect of experimental therapeutics, Johnson explains.
Acquisition also plays an important role in JSR’s expansion into the life sciences field. In February 2015, the company teamed up with the Japanese contract research firm CMIC Holdings and the investment fund Innovation Network Corporation of Japan to buy KBI Biopharma, a biopharmaceutical contract manufacturing firm based in Research Triangle Park, N.C.
Another Japanese chemical firm growing its health care business by acquisition is Mitsui Chemicals. In April 2013, it paid $480 million for Heraeus Kulzer, a German manufacturer of dental products such as dentures and fillings.
The business seems like an odd fit for Mitsui, which is otherwise mostly a producer of petrochemicals and other industrial chemicals. According to Minoru Koshibe, a former executive vice president at Mitsui Chemicals who is now Kulzer’s chair, one reason for the acquisition was to reduce the ups and downs of Mitsui’s sales and profits. “Health care is very stable,” he says.
And although dental care and petrochemicals seem worlds apart, Kulzer’s business fits in well with Mitsui, Koshibe argues. At some point in the future, Mitsui could secure regulatory approval to supply raw materials such as polymethyl methacrylate resins to Kulzer, he hopes. Moreover, Mitsui was already in the business in Japan before the acquisition. Sun Medical, a joint venture in which Mitsui holds a 70% stake, produces and sells dental materials.
The Japanese market was not a major factor in Mitsui’s decision to buy Kulzer, Koshibe says, as the country represents only 5% of Mitsui’s total dental material sales, even including Sun’s contribution. More important for Mitsui were the negative interest rates on bank deposits in Japan, he notes.
“Japanese companies tend to be cautious and have saved substantially in the past 20 years,” Koshibe says. Like other Japanese firms, Mitsui holds savings that lose value every year if left in a bank in Japan. As a result, Mitsui is considering other acquisitions in the near future.
Mitsui is not alone. JSR, Fujifilm, and other major Japanese materials producers are also making health care acquisitions. They see their materials manufacturing capabilities carrying over to the medical field. And if they do not invest the cash their existing businesses generate, it will lose value while sitting in the bank.
CORRECTION: This story was updated on May 1, 2017, to correct mischaracterizations of JSR’s business.