Driving innovation at the intersection of science and industry

The Japanese chemical industries have suffered from regional competitors producing base chemicals at reduced costs. However, with firms like Mitsubishi Chemicals, Japanese chemical manufacturers remain leaders in highly functional and specialized chemicals. Japan also accounts for various chushokigyos that were able to develop very niche chemicals and material technologies. What are the strengths and weaknesses of the Japanese chemical industry from your point of view?

We operate as a research contract company primarily within the domestic market, making it challenging to offer a broader global perspective. However, a noticeable trend emerges when examining major companies such as Mitsubishi – Japanese companies are increasingly positioning themselves as specialized chemical providers in specific sectors. Specifically, the Japanese industry has a growing emphasis on semiconductor chemicals.

Recently, Mitsubishi appointed a new foreign President to its board, signaling a significant shift toward catering to international markets with specialized technologies. Japanese companies are also establishing partnerships to increase their global competitiveness.

Japan has an aging population, and it is said that by 2050, the population will drop below 100 million people, raising two main issues. The first is the shortage in the labor force, and the second is its domestic market, which is slowly but surely shrinking. How do you react to this demographic shift? To what extent must you look overseas to ensure long-term business success?

Japan's population challenges, particularly the manpower shortage resulting from an aging population, pose a significant threat to our company. Recognizing the impact of the aging population on both society and our company, we would like to extend the retirement age from 60 years old. This initiative aims to create a longer and more comfortable working environment for our existing employees, allowing us to retain valuable skills and experience within the organization.

In addition to workforce management, we are actively investing in automation to develop a labor-saving system. We are committed to enforcing more efficient ways of creating new value. Moreover, given the shrinking domestic market, we realize the importance of a global perspective. Many of our clients are global companies, and as a contract monozukuri company, our strategy involves maintaining close collaborations with these global partners. By doing so, we believe we can ensure the sustainability of our operations through a diverse and international customer base.

What role does partnership play within your business model? Are you searching for such partnerships within these overseas markets, even though you mainly count on your domestic clients?

At present, our focus is not on seeking partnerships with overseas entities. Our primary engagements involve working with domestic companies, providing us with a comprehensive and fully operational framework. Pursuing new partnerships beyond our domestic scope is not within our immediate plans.

However, considering the potential risks associated with the shrinking Japanese market in the future, we acknowledge the importance of exploring opportunities abroad as a viable option for our long-term strategy. One avenue we are considering is the life science or pharmaceutical field.

We are actively researching FDA's and European Medicines Agency’s (EMA's) compliance standards, which will be important in the future.

KNC Laboratories specializes in the research, development, or production of solution businesses for organic chemicals using cutting-edge technologies in synthetic chemistry and biotechnology. You are helping different industries, which include industrial, pharmaceutical, information, electronic, material, and agricultural fields. Which one do you reckon has the most growth potential for your business?

We prioritize all three pillars of our business—pharmaceutical, functional material, and bio-field. There's a notable increase in the low-molecular and mid-sized molecular fields within the pharmaceutical sector. Our company specializes in nucleic acids, and it's crucial to clarify that, contrary to discussions surrounding degeneration in the low molecular field, our company does not face such challenges.

In biotechnology, we've committed a substantial investment of JPY 3 billion in a new factory, scheduled for completion in July 2025. Simultaneously, we are allocating JPY 2.6 billion toward a functional material factory in Izumo, Shimane Prefecture, with an anticipated completion date around the same time as the bio-factory. Considering our current annual turnover of about JPY 8.6 billion, these investments represent a significant undertaking for our company as part of our strategic vision for the future.

Are there any new fields or businesses to which you would like to cater your products or services outside these main pillars?

We actively embrace new opportunities and maintain a flexible approach as a contract company committed to staying at the forefront of emerging technologies. We are among the few companies that have a strong engagement in academia and start-ups. With the continuous development of new technologies, we are determined to be flexible in catering our services to the dynamic needs and advancements in the industry.

When considering a partnership with a company that offers medicinal chemistry research support, it is crucial to understand their approach and capabilities. KNC Laboratories aims to leverage advancements in drug discovery research technology to provide valuable support to its customers, who would qualify its Izumo plant as the apex of insourced manufacturing, with high-end equipment, including 22 different reactor vessels with capacities up to 6,000 liters, sealed & continuous centrifuges and jet mills. How has the remarkable progress in drug discovery research technology in recent years influenced your approach to supporting medicinal chemistry research?

Our strength in the pharmaceutical industry lies in our ability to deliver a seamless and comprehensive service, guiding our customers through every stage, from research to commercialization. The intricate process of drug discovery involves multiple complex steps, spanning from initial research to preclinical and clinical trials, securing governmental approval, and finally, commercialization. At each juncture, we offer a complete and integrated service, ensuring a smooth transition from one phase to the next. This seamless approach not only streamlines the drug development process but also establishes a foundation of reliability and trust with our customers. Our commitment to providing end-to-end solutions positions us as a key player in this industry.

The semiconductor market is known to be constantly expanding, and it’s predicted to grow and reach USD 1 trillion by 2030. The increasing adoption of AI technology in a wide range of industries, such as automotive, IT, or electronics, partially drives the demand for semiconductors. AI applications require powerful semiconductor chips to process large amounts of data. Makers of semiconductor and electronic materials are expected to almost triple their fabrication capacity in recent years. What type of solution can you provide, and how do you adapt your production to feed the ever-growing needs of the semiconductor industry?

We hold high expectations for the semiconductor industry, recognizing its substantial growth potential well into 2030 and beyond. The surge in demand for semiconductors, driven by trends such as autonomous driving and electrification, is a key factor contributing to this expansion. To align with this trajectory, we've been investing in a new factory in Izumo, with an anticipated completion date in July 2025 and a total investment of JPY 2.6 billion.

This facility focuses on functional materials, specializing in the control of metal impurities crucial for semiconductor production. In addition to our manufacturing capabilities, we offer valuable services in the front-end processing of semiconductors. Our core role revolves around providing essential materials to meet the evolving demands of the semiconductor industry.

Izumo factory

The semiconductor industry in Japan is witnessing significant developments, with major players like TSMC and Sony poised to open a new factory in Kumamoto, and there's even consideration for a second one. Additionally, Micron has chosen Hiroshima as the location for its new venture. With all these global players coming into Japan, are you looking to provide services to these customers?

Those international conglomerates primarily engage in back-end processing, where they purchase products from front-end processors.  In contrast, our clients are mainly Japanese front-end makers, playing a crucial role in providing services to the products that eventually reach those international conglomerates.

Currently, the number of agricultural management entities that support food production in Japan is just above 1 million and decreased by 3,000 since 2015. If this situation continues, the globally renowned production technology created in Japan over decades may cease, and securing a stable food supply will become difficult. In such difficult market conditions, firms like yours are pushing beyond their traditional role to tackle the problem of Japan's agricultural sector head-on with innovative solutions, products, and services. How do you support the Japanese agricultural industry in overcoming its challenges?

Our current business scope in agriculture is exclusively on research and development. We supply a limited quantity of products to our customers specifically for research purposes because agricultural chemicals often lack the value-added or value-specific characteristics found in other sectors such as pharmaceuticals, semiconductors, bio, or GMOs. Hence, we tend to concentrate more on the other fields where we can provide a specialized value.

When we interviewed the President of PeptiDream, an SME based in Tokyo, he mentioned that Japan has powerful universities and excellent pharmaceutical companies. However, its very weak biotechnology field is holding pharmaceutical companies in Japan back from making breakthrough drug discoveries and becoming global leaders. What is your sentiment on these words from the President of PeptiDream? How are you supporting the biotechnology field to grow further in Japan and pharmaceutical & life science?

I share Mr. Patrick's sentiments to a certain extent. Operating as a contract company, we have a strong collaborative relationship with Japanese academia and startups. Japan has seeded many promising technologies. However, unlike Western nations, there is a scarcity of venture capital schemes to nurture these investments.

Recognizing this gap, the Japanese government actively addresses the issue by creating bridges to facilitate investment. Our role is pivotal in bridging the initial seeds of innovation from academia and startups, transforming them into commercialized products. As a comprehensive service provider, we closely engage with academia and startups, cultivating and implementing new technologies.

The success of these endeavors has been reviewed in the IR document we issued. We firmly believe that Japanese academia and startups still hold significant untapped potential.

What is missing for the biotechnology field and Japanese startups to flourish even more in Japan?

There is a lack of a robust financial support scheme for companies with exceptional seed potential. The flourishing of Japanese biotechnology could be further accelerated with the establishment of comprehensive investment schemes and increased venture capital for startup companies. The government is aware of this and is actively working toward creating a sustainable framework to facilitate smaller startups' continued exploration of new developments. Such a supportive scheme is not only vital for the growth of the biotechnology sector but would also contribute to a positive cycle. It has the potential to attract and retain talented engineers and personnel, fostering a collaborative environment between Japanese academia and companies.

What were the main lessons you’ve learned from doing business in the Chinese and American markets?

Our overseas expansion began in the United States, specifically in La Jolla, California. Unfortunately, the passing of the Japanese President led to a challenging period for the business. Although we experienced prior success, we couldn't find a suitable successor, which eventually led to the closure of our operations.

To reduce costs and enhance our ability to export to Asian countries, we established a manufacturing factory in China. However, navigating the complexities of operating as a Japanese company in China proved exceedingly difficult. The stringent restrictions imposed by the Chinese government didn't allow us to continue operations, resulting in the closure of the factory. Despite these setbacks, we remain optimistic about the future, drawing valuable lessons from our past experiences.

Which market overseas do you foresee to have the most growth potential?

Our strategy for overseas expansion would involve a collaborative approach, working through Japanese pharmaceutical manufacturers. Currently, we maintain tight-knit partnerships with Japanese pharmaceutical firms that export a portion of our products overseas.

Looking ahead, our goal is to work in cooperation with the stringent requirements of the FDA and EMA, ensuring our products comply with their regulations.  To facilitate this, we plan to partner with Japanese pharmaceutical companies, leveraging their expertise and distribution networks for international exports.

Your firm’s unique strength is combining organic synthesis and purification technology, which enables you to manufacture proteins, such as secondary metabolites and enzymes using genetically modified microorganisms, and construct expression systems to convert products through bioconversion. How does combining organic synthesis technology and purification technology enable you to do such unique manufacturing?

Our core strength is having multifaceted capabilities, which include chemistry, biology, and biotechnology. With a team of chemists and biologists, we have the flexibility to expand our contract work across diverse domains. Rather than confining ourselves to a specific field, our approach is characterized by a synergistic combination of these disciplines.

A distinctive aspect of our company is the proactive dispatching of our employees to academia. This strategic initiative ensures that our team stays abreast of cutting-edge research, enabling us to incorporate the latest advancements into our work.

In bio-conversion, we leverage our expertise with in-house enzymes and external sources, such as DAICEL CORPORATION, a renowned company in this field. Our collaborative efforts extend to partnering with multiple research companies, allowing us to stay at the forefront of the latest cutting-edge technologies.

What is your midterm strategy to continue to grow as a corporation?

In my message to our dedicated employees, I emphasize the importance of finding joy in science. Science, with its immense potential, has the power to shape dreams and bring about a sense of satisfaction. By deriving satisfaction and purpose from their work, our team members can not only enjoy their professional journey but also contribute significantly to our shared goals.

As a company founded in 1985, our commitment to science is deeply ingrained in 'Our Goals,' as envisioned by our founder. The very foundation of our company is rooted in science, and we aim to foster a culture that finds enjoyment in scientific exploration. The third statement in 'Our Goals' highlights the evolution of our company and its technologies. Since our current team of 300 employees cannot achieve this evolution alone, we aim to expand our workforce. Simultaneously, we are committed to continuous investment, with new factories set to open in 2025. Looking towards the future, globalization and expanding overseas are integral components of our strategic vision. As the President, I aspire to lead the charge in both expanding and evolving our company.

As a company celebrating its 38th anniversary, imagine we come back in two years and have this interview all over again. What would you like to tell us? What are your dreams and goals for this company? How would you like your company to be seen in the eyes of the international market?

Continuing the philosophy and message I've consistently shared with our employees — to enjoy science filled with dreams and hopes — remains at the core of our journey. I firmly believe that by collectively embracing the joy of scientific exploration, we will fulfill the goals expressed by our founder back in 1985.

As a leader, my vision is to guide the company toward providing an even greater array of products and services that contribute to the world, often working behind the scenes. A key focus is extending our offerings to the pharmaceutical field by providing APIs. Simultaneously, we aspire to supply specialized materials tailored for the functional material field, which would further improve societal evolution.

I firmly believe that as we enhance our contributions to the world, our employees will find increased engagement and satisfaction in their roles. This positive cycle of happiness contributes to the enjoyment of science, filled with dreams and hopes. I want to continue leading the company in creating this good cycle.

For more details, explore their website at https://www.kncweb.co.jp/