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SOLinGEL to Global Expansion: Dia's Innovative Journey in Healthcare and Cosmetics

Interview - January 26, 2024

From pioneering SOLinGEL technology to overcoming challenges with strategic collaborations, Dia's President and Chairman, Daizou Morikane and Shinji Morikane, discuss their company's evolution, international growth strategies, and ambitious goals for the future

DAIZOU MORIKANE, PRESIDENT, DIA PHARMACEUTICAL CO., LTD.
DAIZOU MORIKANE | PRESIDENT, DIA PHARMACEUTICAL CO., LTD.

In the last 25 to 30 years, Japan has seen the rise of regional competitors who have replicated the Japanese success model but done so at cheaper labor costs. This has pushed Japan out of certain mass markets. However, we know that Japanese firms are still leaders when it comes to niche fields. In your opinion, how have Japanese firms maintained their leadership despite the stiff regional competition? First of all, I would like to ask President Morikane.

As you mentioned, Japanese firms are facing very stiff price competition. The same goes for the cooling gel sheets that we produce. Right now, the JPY is weak. However, the JPY was as strong as JPY 75 per USD in the past. This benefited countries such as South Korea and Taiwan when their companies tried to sell their products in the Japanese market. On the other hand, Japanese companies struggled to lower their costs as the average cost for raw materials and labor remained high when compared to these countries. Most Japanese companies tried to enhance their efficiency. For instance, they tried to save labor costs by reducing the number of employees working in manufacturing from five to three. They made a lot of effort to save whatever they could to lower their costs. That was how we have been able to compete in the market for cooling gel sheets.

To save our labor costs, we automated some of our production processes. We also tried to develop technology to reduce our manufacturing costs. For example, conventionally when you make cooling gel sheets, after they are produced, you then have to leave them for one or two days before fixing the gel or the adhesive on the sheet. However, that was not efficient. We thought that it would be more efficient to ship those products immediately after they are finished. To achieve this, we developed a manufacturing process to shorten the lead time and speed up the delivery of our products. Of course, we pursued new technology for the products themselves. However, we also pursued technology that focused on cost-saving. This was driven by the requests we received from our customers. To meet their requests, we developed new technology to enhance the speed of our manufacturing while also maintaining its quality. This allowed us to stay competitive in the market for cooling gel sheets. Thanks to our new technology, we are now able to ship our products immediately, which has led to an enhancement in our productivity. Alongside this, we developed our SOLinGEL technology that makes the cooling sheets hard to peel off and easy to attach to the skin. Our quality improvements differentiate us from our competitors.

 

Speaking about SOLinGEL technology, you have been a pioneer, developing it in 1983. We know that it is a water-soluble polymer technology that differs from conventional patches as it combines a gel agent with excellent heat resistance and shape retention. It also includes a sol agent with excellent drug release in a well-balanced manner. Not only can it be applied to medicine, but it can also be applied to cosmetics as well. Can you tell us a little more about this SOLinGEL, and how have you improved and adapted this technology over time? I would like to ask Chairman Morikane (President of Kanahashi Holdings Co, Ltd., the holding company of Dia and father of President Morikane).

Patches have been around in Japan for quite some time. In the past, people used to mix flour and vinegar and apply it to the skin. At that time, cataplasms were mainly distributed in the market as sol types, so they were unable to maintain their shape. During transportation, there were cases where the sol melted due to the influence of excessive heat, which was a big problem. To solve this issue, TEIKOKU SEIYAKU CO., LTD. began developing gel-type patches. Other pharmaceutical companies followed suit, which led to gel-type patches becoming the main products in the market. However, these patches had a weakness. They were hard to attach to the skin. Tape was also required to stick them to the skin, which could easily cause skin rashes due to the additives incorporated into the gel patches. Despite these issues, the gel-type patches became popular in the market, and the revenues of the companies grew rapidly. The average revenue, which used to be JPY 3 billion, grew to double, and these companies grew rapidly.

I succeeded my father at this company after he collapsed. At that time, I saw the rapid growth of the patch makers. However, looking at our own company Dia, our main product back then was an ointment for athlete’s foot which produced JPY 25 million in revenue per year. We only had one employee at that time. We were even told by the regulator that we could not survive in the pharmaceutical market, so we should divest our business to someone else. Back then, I thought that if we overcame the weaknesses of the patches, then we would be able to compete in the market. However, the know-how for making the patches was tightly kept confidential by the makers. I believed that if we were able to grasp this high-level know-how and improve it, then we would be able to revive our company. Although the regulator did not believe I could achieve that, I spent 10 years developing new types of patches incorporating both the strengths of sol and the strengths of gel. That technology is now called SOLinGEL.

Our SOLinGEL technology incorporates all the good aspects of sol and gel. The body itself is a gel, and we added the advantages of sol to it. We can enjoy its high performance in shape retention as well as sol’s effective drug release and new patch which has synergy effects was born. The patches also attach to the skin easily and do not cause skin rashes. Therefore, we can enjoy the benefits of these two types of agents. That was how SOLinGEL was developed.

Around that time, the regulators were trying to remove the patches from insurance coverage. In order to reduce annual medical costs due to prescription drugs, this product has become a candidate for removal from insurance coverage. The same goes for Chinese herbal drugs and vitamins, and the regulators believe they should be used as self-medication drugs. However, patch manufacturing companies tried to keep the patches under the coverage of the insurance by saying that they have the technology for the transdermal therapeutic system. When it comes to Chinese herbal drugs, some of the drugs work rapidly and are not slow-release types of drugs. That is how patch manufacturing companies tried to keep it under insurance coverage They tried to keep it covered by insurance by scientifically studying its pharmacological effects as a medicine with immediate effects.

We also incorporated drug delivery systems (DDS) technology into SOLinGEL. When we had the facilities in place to produce our SOLinGEL patches, the other patch makers tried to learn from us. They already possessed the base technologies. However, it took them around four years to reproduce what we were producing. The medical industry changed rapidly. The patch market in Japan which had been worth around JPY 60 billion, expanded to JPY 500 billion.

 

If we look around the world, there are many different skin types. Asian skin, for example, ages slower due to a thicker dermis but it also scars more easily due to a thinner stratum corneum and is very different from European and American skin. How are you able to ensure that your products can be used on a variety of different skin types? (questions to Chairman Morikane)

We have not given a lot of thought to the different skin types in other countries. We just focused on reducing the additives that irritate the skin. When you form the patches into gel, you need to use a strong acid agent. However, we have tried to control and reduce this as much as possible. We also made sure that the pH of the skin stayed neutral and maintained a low acid level.



The lines between medical remedies and treatments are beginning to blur. As a result, many people are deciding to opt for OTC medicines and treatments rather than physically going to see a doctor, which was further exacerbated by the COVID-19 pandemic. In an era when more people are self-treating themselves, what opportunities do you see for your firm? (question to Chairman Morikane)

Our main product used to be pharmaceutical patches. That was our starting point. However, this has shifted, and our cooling gel sheets have replaced patches as our main product We used our technology for cooling gel sheets. We also felt that we needed to diversify ourselves using that technology. That was why we started producing some cosmetic products such as face masks to stick on. We still produce pharmaceutical patches. However, we are now focusing on the cosmetics field.

In the beginning, we wanted to compete in the medical field. Once the new patches were developed, I visited all pharmaceutical companies listed on the First Section of the Tokyo Stock Exchange in Tokyo at the time. They showed a lot of interest in the patches. However, they asked me about the size of our business and the number of employees we had. I told them that my wife and I were the only employees. After that, they dropped their interest. I learned that reliability and actual performance are important in the medical field. However, we only had JPY 25 million in revenue per year. I thought that a good product should sell, but that is not how it works for pharmaceutical companies. We then decided to move on to applying our technology in the cosmetics field. Our face mask was the first product that we applied the technology to. We started producing cooling gel sheets first. After three years, we moved on to attaching cosmetics which were the first of their kind in the world. Initially, they were compared to Jason from the movie Friday the 13th. However, they are now being used in many countries around the world.

 

Could you go into more detail about the role that partnerships play in your business model and are you currently looking for any partners in overseas markets right now? (Question to Chairman Morikane)

When we developed our patches, we wanted to sell them as medical products. We also wanted to showcase our DDS technology. However, as a small company, we were not able to do so by ourselves. Back then, we decided to bring our face masks, the world’s first adhesive cosmetic face mask developed by us, to a large distributor who told us that even though they were good products, they could not sell them. Soon after that, one mail-order company decided to sell our products. However, this too did not work out. As a result of these issues, we were close to going bankrupt and did not even have enough money to buy rice. My father decided to take out a loan from his life insurance, which was JPY 3 million, as the banks would not lend us money. Thanks to that loan, we were able to produce our OTC patches and make JPY 100 million in revenue. That was how our company was able to survive.

At first, we could not sell the 50,000 units of our cooling gel sheets that we produced. However, one pharmaceutical company decided to sell these products, despite having doubts that the products would sell. In the end, the products were a big success thanks to them making a TV commercial for a very famous TV show. We were able to sell 500,000 units in the first two weeks and they became a blockbuster product in the market, which led to our revenue increasing rapidly.

Our revenue ended up reaching JPY 1.7 billion. Since this pharmaceutical company totally supported the production of our cooling gel sheets, they sent 250 employees to our office and production site to help us produce the cooling gel sheets. These employees acquired all the necessary know-how to produce the sheets. Around five years later, however, this company suddenly told us that they could produce the cooling gel sheets by themselves. I learned that partnerships are important; however, there was a risk of technology leakage. We had to recover by ourselves from this very difficult situation.

Thanks to this very difficult experience, however, we were able to grow from a company with JPY 25 million in revenue to one with JPY 4.2 billion average in revenue during the past seven years. We did not fight back or have a dispute with this pharmaceutical company as it was thanks to this collaboration that we were able to survive up to today.

 

Is finding partners for the distribution of your products overseas something that is of interest to you? (question to Chairman Morikane)

Ever since we were a small company, we have always looked into overseas markets such as Italy, France, or the UK. Thanks to JETRO’s support, my wife and I traveled to Europe with an interpreter to visit Pierre Fabre. We were able to meet with the chairman who has since passed away. He liked our patches a lot and wanted to use them for medical purposes, especially for their anti-inflammatory effect as he believed they would benefit rugby teams; however, we decided to use our cosmetic ones first. After that, Pierre Fabre decided to distribute our eye patches. While it did not create a lot of revenue, by having Pierre Fabre as our distributor, we received a lot of credibility and were able to establish a presence in the European markets including Italy and the UK.

Back in Japan, we have been collaborating with PIGEON CORPORATION who started to distribute our cooling gel sheets for babies. This proved that our sheets could even be used for babies without any problems. We are also currently working together with PIGEON HOME PRODUCTS CORPORATION and some universities on a project to develop chewing gum for influenza. They are the kinds of collaborations we have been engaged in. After our collaboration with Kobayashi ended, Hisamitsu immediately came to us to collaborate on cooling gel sheets, and this collaboration is still ongoing to this day. Thanks to these collaborations, we were able to distribute our products to the world today.

 

In 2011, you opened a joint venture in China. Moving forward, which countries or regions do you see as key to the corporate growth of your firm? (question to President Morikane)

We have experienced a lot of political issues in China during the last 10 years. The regulations there can change suddenly. For example, last year they informed us that we should not sell anything that includes menthol, which is often used for cooling gel sheets. The same goes for antipyretic agents as well. These changing restrictions are risky for us. Rather than solely focusing on China, we are now focusing on a new business model whereby we develop new technology and provide it to local partners who can then produce the products. We are currently looking for reliable local partners who can make products based on our technology. We are also looking for overseas distributors who can distribute our products in the overseas markets. These are the two axes of our international development.

 

Which regions or countries do you believe have the most potential? (question to President Morikane)

The US is our focus as it has the largest market.

 

Imagine that we come back two years from now and have this interview all over again: what would you like to tell us? What are your dreams for this company and how would you like your company to be seen in the global market? I would like to ask both President Morikane and Chairman Morikane, first President and then Chairman.

Our products are currently being distributed to 27 countries. However, there are more than 150 countries left around the world for us to distribute our products to. In the next two years, I would like to expand our product distribution to at least one-third of all the countries in the world. To that end, we are working on the development of sales channels, and I hope that more and more people will use our products. That is my first goal.

For almost 20 years I have been working on ways to fight against viruses. As we are a small company, it is difficult to develop a new drug by ourselves. Therefore, I have been considering ways to reinvent existing technologies and agents for new types of medicines. I am currently working on incorporating chewing gum as a new formulation for medical use. I visited Italy and the US to learn more about gum. I am very happy to say that we now finally have the capability to produce this chewing gum in-house

It will be difficult to commercialize it in the medical field, so I would first like to use it against influenza. It uses celiac acid to fight against viruses like influenza or COVID-19. As I mentioned earlier, we have been working on a three-year project subsidized by the government. If we can commercialize this product, people will be able to use it to block influenza in their mouths. It will replace the wearing of masks and the washing of hands. This year is the last year of the three-year project. While it will be difficult to commercialize it in the next two years, I want to continue working on it so that we can eventually distribute it throughout the world. That is one of my main goals for the future.

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