BIOCATALYSIS

Japan has a rich tradition of developing materials through fermentation. Large companies such as Ajinomoto and Kyowa Hakko characterize fermentation as their core business.

	DIRTY WORK Kyowa Hakko researcher isolates microorganisms from soil samples. COURTESY OF KYOWA HAKKO

These companies have traditionally concentrated on food additives and multiclient products, rather than the advanced custom intermediates emphasized by Europe's biocatalysis experts, but a few of Japan's leading firms are now attempting to crack this market as well.

For many decades, the Japanese have been impressed by the potential of fermentation processes to produce items other than food. For example, when Japan was at war in the 1930s, Kyowa Hakko was formed with a mission to find ways to produce aircraft fuel by fermenting sugar.

Similarly, wine producer Mercian developed various types of solvents during the war through the fermentation of sugarcane and other sources. And in the 1950s, Hamao Umezawa, head of the Institute of Microbial Chemistry in Tokyo, became a world authority in the development of new antibiotics manufactured through fermentation processes.

TO A LARGE EXTENT, Japanese expertise in the area of fermentation derives from the country's unique foods and beverages. The manufacture of soy sauce, tofu, miso, sake, natto, and Japanese pickles, to name a few, has provided companies the opportunity to endow themselves with vast banks of microorganisms peculiar to Japan. The food additive monosodium glutamate (MSG), which is now produced through fermentation, was initially isolated in Japan.

Two of the three strongest Japanese players in the production of chiral drug ingredients by biocatalysis are not food and beverage companies, however, but rather chemical firms. Although it has been in the yeast business since the 1940s, Kaneka grew as a producer of polyvinyl chloride-based impact modifier resin. Daicel Chemical Industries is mostly a producer of organic chemicals and cellulosic derivatives. Aromas and fragrances are the core business of the third one, Takasago.

Japanese achievements in harnessing fermentation extend to the creation of industrial supplies. Mitsui Chemicals says it will begin producing acrylamide through a biocatalytic process in 2002. Mitsubishi Rayon already manufactures acrylamide through enzymatic hydration. The company's acrylonitrile and acrylamide business is currently being merged with that of Mitsubishi Chemical.

The Mitsubishi Rayon process is being implemented on a large scale by licensee SNF, a French company producing flocculants for water treatment. Mitsubishi itself has a 20,000-metric-ton plant in Japan. SNF is building five plants, each with an annual production capacity of 20,000 metric tons and making use of the Mitsubishi process. 

SNF SAYS these plants are four times cheaper to build than facilities implementing a chemical process. One plant will be located in Andrézieux, France; three will be in Riceboro, Ga.; and one will be in Taixing, China. According to Mitubishi, the process yields output in very high concentrations.

Mitsubishi and Mitsui provide rare examples of fermentation techniques being applied to the manufacture of industrial compounds. It's in the production of amino-acid-based drug ingredients that Japanese companies are most active in striving to develop new biocatalytic processes.

This market is attracting several new entrants. Mitsui's chemicals group says it has the know-how to produce amino acids such as L-tryptophan, L-serine, and L-phenylcysteine. It says it will soon launch a nucleoside compound based on its own technology, and that active pharmaceutical ingredients manufactured through biocatalysis will follow.

Another unlikely entry in the field is Mercian. The firm is one of Japan's largest producers and importers of wine and spirits. Over the years, the company has added feed and antibiotics to its product portfolio.

Through these various operations, all of which involve fermentation, the company has gained an understanding of about 10,000 microorganisms, says Riichi Kanemaru, division manager of pharmaceuticals and chemicals. Mercian entered the pharmaceuticals business in 1966 by licensing the rights to several antibiotics, and it has made them ever since on behalf of Japanese drug companies.

	SPICE IT UP Food and beverages produced by fermentation inspire Japan's biocatalysis industry.

About six months ago, Kanemaru says, Mercian formally added a new business called "bioconversion" to market services the company had been providing to key customers for several years. Based on customer requests, Mercian researchers strive to identify a microorganism and a cost-effective substrate which, when combined, will generate the desired compound. Mercian says it can scale up production in tanks ranging from 3 to 100,000 L. Its lab in Fujisawa has about 50 researchers.

Kyowa Hakko's expertise with fermentation derives from food additives and ingredients. In 1956, the company was the first to develop a fermentation process for MSG, says Tomoki Azuma, associate general manager of the development department. In earlier decades, MSG was produced, mostly by Ajinomoto, through an extraction method. In 1958, Kyowa Hakko also invented a lysine fermentation process, Azuma says.

Kyowa Hakko still makes lysine, but nowadays its main business is making amino acids and pharmaceuticals through proprietary fermentation processes. About half of production is exported, Azuma says.

Unlike Mercian and Kaneka, Kyowa Hakko does not cater to drug companies by designing biocatalytic processes to replace more complex chemical ones. Kyowa Hakko's focus, rather, is to develop new products by means of fermentation. About one-quarter of the firm's 7,800 employees work in R&D, and about 200 people perform biochemical research, Azuma says.

About four years ago, Kyowa Hakko began implementing a biocatalytic process for the manufacture of L-hydroxyproline. The compound, traditionally extracted from animal protein, is used in cosmetics or as a chiral drug intermediate. Extraction from animal protein may pose a health hazard if the animals used were afflicted with mad cow disease.

BEST KNOWN for its food additives, Ajinomoto competes against Kyowa Hakko in several product areas. The company isolated glutamic acid in 1908, and to this day it remains the company's best known offering. Ajinomoto is also one of the world's leading producers of lysine, with a global market share of about 35%.

Ajinomoto says it is well positioned to assist international pharmaceutical firms in their efforts to develop cost-effective biocatalytic processes. The company is a "worldwide supplier of amino acids and nucleoside derivatives," says Kenichi Onuma, general manager of the intermediate chemicals department of the aminoscience division. In Japan, it has three sites manufacturing bulk pharmaceutical ingredients and intermediates.

The company says one of its special strengths lies in designing hybrid processes, combining chemical and enzymatic technologies. One example is the synthesis of the amino acid L-cysteine. Still mostly extracted from the hair of people in China, L-cysteine is used in the manufacture of expectorants and in hair growth formulas. The Ajinomoto process uses methyl acrylate as a substrate.

Ajinomoto is also the exclusive supplier of the anti-HIV agent dideoxyinosine to Bristol-Myers Squibb. The compound was originally discovered by the National Institutes of Health, Onuma says. It is manufactured through a hybrid process by the combination of chemical synthesis of dideoxyadenosine from adenosine and the enzymatic conversion of dideoxyadenosine to form dideoxyinosine.

Outside Japan, there are a few Asian companies that have developed advanced fermentation techniques. This is evidenced by BASF's 1998 purchase for $600 million of the lysine business of South Korea's Daesang business group, which gave BASF an immediate entry in the lysine market.

But Japan is still the only Asian country with advanced capabilities in the field of fermentation.

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DRUG INTERMEDIATES
Kaneka Leads The Asian Pack

Although its sales are still dominated by specialty resins, Kaneka's earnings nowadays are largely generated by its pharmaceutical and food operations. Over the past decade, the company has separated itself from its Japanese brethren to become a top producer of custom fine chemicals, most of which are the product of fermentation.

	SMITH

"From a chemical analyst's point of view, watching pharmaceutical earnings is like watching grass grow--at least within the chemical sector," Nicholas Smith, ABN Amro's Tokyo-based senior chemical analyst, commented in a recent research report. He added: "Kaneka is different: Its pharmaceutical intermediates business should manage annual medium-term growth of 20%."

Using enzymatic processes, Kaneka delivers chiral drug ingredients to international drug companies that are outsourcing their production. Kaneka's main Japanese competitors in this sector are Takasago and Daicel, Smith says. But these two companies lag far behind.

By outsourcing to Kaneka, pharmaceutical companies can achieve cost savings of 50% compared with in-house production, Smith believes. The firm's customers include Pfizer, Merck & Co., AstraZeneca, Bristol-Myers Squibb, and GlaxoSmithKline.

The only Japanese drug company that outsources its production, Sankyo, is also a Kaneka client, Smith says. The drugs and intermediates that companies entrust to Kaneka are confidential, he adds, although the firm has acknowledged making intermediates for captopril and enalapril-type antihypertensives.

Kaneka is not dependent on any one customer for more than 20% of its sales, Smith reports. Yet sales growth for drug intermediates in fiscal 2000 was about 3.5%, compared with 20% in the two previous years. Kaneka posted $2.97 billion in total sales for fiscal 2000.

The reason for this drop, Smith relates, is that Kaneka stopped producing an AIDS drug intermediate because of a sharp price drop when the patent expired. Moreover, Kaneka did not launch any new products in fiscal 2000, whereas it will likely introduce four new drugs or intermediates over the coming 18 months.

In fiscal 2001, Smith expects Kaneka's sales growth in the drug business to reach 8.5%, and he believes it will rise by 15 to 20% in 2002 and 2003. Kaneka's operating profit margins in the intermediates business are about 39%, he estimates. The growth in sales will be partly the result of the four new drug ingredients Kaneka will introduce and partly the result of growth of the drug intermediates market, particularly chiral drugs.

In recent years, there has been much merger and acquisition activity in the world fine chemicals industry. Kaneka has watched on the sidelines as its competitors grew larger. There is a risk, Smith says, that Kaneka could become too small in comparison with others if it does not boost its size through an acquisition. Smith believes that Kaneka's target will be a relatively small company with expertise in chiral drugs.

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