■Company Overview of KOH Corporation <9273>

3. Business content

The group consists of a unique business model that combines trading and manufacturing functions. As a trading function, KOH Corporation imports raw materials (pharmaceutical raw materials) from raw material manufacturers, and sells to pharmaceutical companies and KOH Seisay. In addition, as a manufacturing function, KOH Seisay undertakes the manufacturing of pharmaceuticals from pharmaceutical companies, and sells pharmaceuticals to pharmaceutical wholesalers and sales companies. Subsequently, pharmaceuticals are provided to patients through healthcare institutions.

For the fiscal year ending June 2024, the composition ratio of segment revenue and operating profit is 64.8% for the raw material segment in revenue, accounting for 62.0% of operating profit, while the pharmaceutical segment remains at 35.2% of revenue and 38.0% of operating profit. Currently, the weight of the raw material segment is significant. On the other hand, the operating profit margin is 17.9% for the raw material segment, compared to 20.2% for pharmaceuticals. The ongoing long-term business plan (fiscal year ending June 2021 to June 2030) aims to equalize the operating profit of both segments through the growth and expansion of the pharmaceutical segment.

Competing companies within the group include Daito <4577>, which similarly deals with raw materials and pharmaceuticals. However, while the group is import-centric in raw materials, Daito manufactures and sells its own raw materials. Furthermore, in pharmaceuticals, the group focuses on syringes (disposable injectors pre-filled with drugs at the manufacturing stage), while Daito is primarily focused on oral medications. Similarly, Astena Holdings <8095> also deals with raw materials and pharmaceuticals, with a focus on domestic manufacturing of raw materials and handling injections in pharmaceuticals but not syringes. These companies not only compete with each other but also collaborate within the industry to address various issues.

(1) Raw Material Segment

Through KOH Corporation, they import and sell raw materials, which are the active ingredients of pharmaceuticals. Despite being a trading company, they own a pharmaceutical analysis center with dedicated analytical equipment to guarantee quality by analyzing imported raw materials in-house, enabling quick responses. They have a trusted relationship with overseas suppliers and have investigative capabilities to select suppliers with abundant information from the starting materials. The quality assurance department is staffed with experienced personnel in pharmaceutical business operations, providing detailed support from approval support for manufacturing and selling companies to follow-ups after applications. Their knowledge and facilities enable them to provide wide-ranging support up to compliance with customers' Pharmaceutical and Medical Device Act.

The Raw Material Segment has the following four advantages. Firstly, as a specialized trading company of pharmaceutical raw materials, they have a top-class domestic trade base and handling items. They have transactions with over 90 overseas raw material manufacturers in 10 countries worldwide, supplying reliable, safe, and affordable raw materials to over 100 domestic pharmaceutical companies, traders, chemical manufacturers, etc. Secondly, they have established a robust support system with a small but elite sales team and specialists. As of the end of June 2024, they have 16 employees in the sales department and a total of 60 employees in the development department, quality assurance department, pharmaceutical analysis center, and business management department (including logistics and warehouse management).

Third, it has a specialized team that enables the proposal of safe and reliable pharmaceutical ingredients from the early stages of development. For overseas pharmaceutical manufacturers, it provides proposals for production methods that avoid patents, forecasts of the Japanese market, guidance on compliance with Japanese regulatory inspection standards, improvement of the quality of pharmaceutical ingredients that meet Japanese requirements, and proposals for new refining methods that can be synthesized at low cost. It also provides services to domestic pharmaceutical companies such as offering patent opinions, proposing products that are conscious of marketability and existing lineups tailored to customer needs, introducing reliable pharmaceutical manufacturers, providing pharmaceutical ingredients with characteristics suitable for formulations, and providing technical information useful for formulation development.

Fourth, it ensures stable supply through warehouses in two locations in eastern and western Japan and conducts rigorous quality control using state-of-the-art equipment. It has two locations in Yokohama and Osaka as warehouses for pharmaceutical ingredients imported from overseas manufacturers. It conducts in-house quality tests that general trading companies usually outsource or omit at the pharmaceutical analysis center, leading to cost reduction, shortened delivery times, and improved reliability. Furthermore, by establishing quality test methods and standards and providing support for regulatory inspection, it also helps reduce the development workload of customers (domestic pharmaceutical companies).

(2) Pharmaceutical Segment

Koaisei and Koabiotec Bay engage in the manufacturing, sales, procurement, and contract manufacturing of medical pharmaceuticals and general medicinal products. They have established a system that can handle everything from pharmaceutical development to manufacturing. In addition to possessing production facilities capable of manufacturing small quantities of a wide variety of highly pharmacologically active injectables, which require advanced technology and investment, they can undertake the development and manufacturing of products in their unique areas within the company group.

The pharmaceutical segment has three advantages. Firstly, it has extensive experience in manufacturing injectables, freeze-drying technology, and handling oral and injectable dosage forms (vials (containers with rubber stoppers after medication is placed in, from which liquid medication can be extracted with a syringe), ampoules (filled with liquid medication and sealed by melting the tip), and prefilled syringes (syringes pre-filled with medication state)). Koaisei has the head office factory and Zao factory, with the head office factory having oral dose line, injectable ampule line, injectable vial line, and Zao factory having injectable syringe line, and injectable vial line.

Secondly, it boasts the superiority of its products. The 'Carbonate Lanthanum OD Tablets' are used to improve hyperphosphatemia in patients with chronic kidney disease. It is the only generic drug available in orally disintegrating tablets that can be taken without water, making it useful for dialysis patients with fluid intake restrictions. Also, 'Maxacalcitol Injection' suppresses the synthesis and secretion of parathyroid hormone, lowering the concentration of parathyroid hormone in the blood. It is usually used to treat secondary hyperparathyroidism in dialysis patients. Several companies, including Chugai Pharmaceutical <4519>, sell original drugs, but while other companies' formulations are all in ampoules, the company's formulation is in syringes. The prefilled syringe formulation is useful for infection prevention, healthcare personnel safety, and operational efficiency.

Thirdly, the existence of the Zaou Plant No. 1, which boasts small-lot multi-variety, high pharmacological activity, and high-quality and safety. In other words, with a flexible production system compatible with single-use, achieving category 5 for chemical hazard (exposure management level of highly pharmacologically active compounds), and adopting an isolator-compatible aseptic filling system, it can manufacture from trial medicines (medicines used for clinical trials conducted to confirm safety and treatment methods) to final products. The total investment amount in the plant is approximately 5 billion yen, and the manufacturing capacity (converted to 1 ml) is approximately 3.4 million units per year for syringe formulations, approximately 0.9 million units per year for vial formulations (liquid), and approximately 0.6 million units per year for freeze-dried formulations.

(Written by FISCO guest analyst Nozomi Kokushige).