Japanese Brewer Tries Drug Market

To break its dependence on alcohol, Japan’s biggest brewer has turned to drugs.

Pharmaceuticals are just one of several businesses that Kirin Brewery Co. is building outside the food-and-beverage industry to reduce its heavy reliance on beer sales.

And the drug market is still largely uncharted territory--accounting for just 3% of the brewer’s worldwide revenue last year.

But Kirin is counting on the latest generation of biotechnology to keep its group earnings afloat. It got into the pharmaceuticals business in 1982 amid signs that decades of growth by Japan’s beer market were reaching an end.

“In the early 1980s, we were looking for diversification opportunities wherever we could find them,” said Jun Kojima, deputy administrative manager at Kirin’s pharmaceuticals division. “Our hopes for this business are high, but the risks are high too.”

Just how high those hopes are was made clear in late February, when the Japanese brewer announced what it called its long-term “vision” for the drug business.

Over the next 10 years, Kirin wants to triple its pharmaceuticals-related revenue to $1.11 billion. To do that, it plans to expand overseas sales of its current lineup--two prescription treatments for blood-cell deficiencies--while developing commercial applications for next-generation biotechnologies such as human antibodies.

Beer and pharmaceuticals aren’t as unrelated as they may seem.

“The first thing we thought of was finding various medical uses for fermentation products,” said Dr. Masaharu Ishikawa, a product-development manager in the brewer’s pharmaceuticals division. “Of course, the microorganisms that are fermented to make beer are different than those for, say, a cancer-fighting agent.”

Kirin set its sights on erythropoietin, a protein hormone then being targeted by the biotechnology industry as a treatment for patients with kidney disease who suffer from a chronic deficiency of red blood cells.

Its researchers started studying ways to isolate the human gene that produces erythropoietin, clone it into cells and mass-produce those cells using a process Ishikawa likens to an “extension” of fermentation technology.

But a U.S. venture called Amgen Inc., one of the world’s most successful biotechnology companies, moved ahead of Kirin with its own research into a renal-anemia treatment based on the recombination of erythropoietin genes.

So Kirin decided in 1984 to form a joint research and development venture with the Thousand Oaks-based company, and with a license to Amgen’s technology Kirin was able to begin manufacturing a drug named Espo in 1990.

Kirin also collaborated with Amgen for its second pharmaceutical product. Gran, which went on sale in Japan in 1991, stimulates production of white blood cells in cancer patients.

Each of the drugs have since captured about 40% of their market in Japan. Together they boosted Kirin’s pharmaceutical-related sales to $379.3 million in 1999, up from $55.8 million a decade ago.

Still, that figure is just a drop in Kirin’s bucket. The 93-year-old company’s group revenue last year reached $13.5 billion, three-quarters of which came from beer.

But while beer sales have stagnated, Kirin’s pharmaceuticals division has posted double-digit percentage gains for three of the last five years.

And analysts are pessimistic about Japan’s beer market, noting that the country’s population is expected to peak this decade and that younger Japanese have more diverse tastes than their beer-and-rice wine drinking elders.

“The Japanese market is already saturated,” said Naomi Takagi, an analyst at HSBC Securities Ltd.

That’s shifted the spotlight to Kirin’s ventures outside the food-and-beverage industry, which range from producing yeast-based cattle feed to selling bottling equipment. But it’s the drugs that have pumped up expectations.

Kirin’s stock shot up 15% on Jan. 15--its biggest single-day gain in a decade--on news that the brewer signed a licensing agreement with Medarex Inc., a U.S. biotech venture.

The deal gives Kirin the right to use Princeton, N.J.-based Medarex’s technology for creating genetically altered mice that produce human antibodies. Those antibodies may be used in future generations of heart and cancer treatments.

Kirin has set a target date of 2010 for the first commercial applications of that technology as well as projects in cell therapy.