TT-557 -- Kaneka: Innovation Powerhouse, ebiz news from Japan

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General Edition Sunday, March 14, 2010 Issue No. 557


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Despite the ongoing recession here in Japan, the nation's
major exporters know that the only way they will keep their
lifeline open to foreign profits is to stay ahead of the
competition by continuing to bring out new technology that
is hard to duplicate. Be it cars, electronics, plastics,
or more recently functional foods and pharmaceuticals,
Japanese conglomerates are excellent at not only continuous
improvements (Kaizen) but also breakthrough technologies as

This commitment to innovation is best captured by the race
for the company filing the top number of patents each year.
According to the World Intellectual Property Organization
in Geneva, Panasonic submitted the most international
patent applications in 2009, with 1,891. Three other
Japanese firms scored in the top ten as well, being NEC,
Toyota, and Sharp.

Of course readers who have actually worked in some of these
Japanese firms will be quick to point out that the quality
of the patents lodged may in fact be less than impressive.
Nonetheless, we can assume that the bosses of these firms
are not funding patent submissions just for bragging
rights. Instead, Panasonic seems to believe that a tsunami
approach to research will mean that at least some of the
patents do have value and can be leveraged later if not

Another way to sum up commitment to R&D is to look at
absolute spending on new product development. Here again,
the Japanese feature high, with Toyota being acknowledged
by the European Commission in November last year as the
world leader in R&D, with investment of approximately
JPY1.02trn. In achieving this, they pushed Microsoft back
into second place. Actually, in the EC survey, which
covered 2,000 major global firms, 13 Japanese companies
made the top 50 in terms of absolute yen spent, up from
just 9 in 2008.

So is the momentum going to continue? Well, a Nikkei
survey done in August last year (2009) found that
although of 253 major firms, Rn&D spending fell 6.5% from
fiscal 2008, actually in view of sales having fallen by a
greater amount of 11.8%, the ratio of R&D spending to
sales actually increased by 4.3% to JPY10.95trn. This shows
that Japanese leadership is totally focused on innovation
as one of their main competitive weapons. The other
probably being strong financing for M&A.

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[...Article continues]

One firm that doesn't come up much on the patent pusher
lists, and in fact doesn't really come up in the public eye
at all, is an Osaka chemicals firm called Kaneka. But on
doing some research we have discovered Kaneka to be
an R&D powerhouse.

We originally got interested in Kaneka, a firm we have to
admit we'd barely heard of before, after tracking down the
latest developments in anti-aging products that might be
big sellers in the Japan market. Older people here are
better heeled than the rest of the population and they want
to stay young and healthy -- so anyone pandering to this
market has a better than odds-on chance of doing well over
the next ten years.

This line of thought lead us to CoQ10, the antioxidant that
has been found in various studies to improve heart health,
lower blood pressure, and when used with a diet rich in
polyunsaturated fatty acids can lead to longer life in lab
rats (and probably humans, too).

CoQ10 is really nothing new, having been discovered in the
U.S. in 1957 and it has been used to treat cardiac patients
here in Japan since the late 1960's. It is easily available
in the market and the world's largest supplier of the
product is none other than Kaneka.

What is more interesting, however, is that in 2006 a
subsidiary of Kaneka found a way to make CoQ10 in a reduced
and far more bioavailable form, called Ubiquinol. Unlike
CoQ10 which is considered to be steadily less effective the
larger the dose, Ubiquinol is highly effective even in
large doses -- which means that it can be used at a
clinical level. Indeed, a 2008 trial of cardiac patients
with late stage congestive heart failure found that after
3 months of those patients taking therapeutic doses of
Ubiquinol, the patients on average experienced a 24% to
50% increase in heart blood flow. Further, of those
patients with life expectations of less than 6 months, all
had survived beyond initial expectations.

In other words, Ubiquinol is an exciting supplement for
those societies dealing with rampant heart disease. Perhaps
more exciting is the fact that Kaneka has a rock solid
patent for the compound and therefore is the only supplier
of the product globally. As a result, the firm has become a
standard that health firms are advertising, much the same
as PC makers say there's an "Intel Inside".

We then checked out Kaneka, the parent company. This is a
JPY410bn company that almost no one outside of professional
investors has heard of. They really do keep a low profile
and apart from the obvious market wrap-ups and quarterly
financial reports, they seldom show up in Japanese news
(much less foreign news) unless they are releasing a new
product or doing a joint venture. This is surprising,
because the company is a world leader in a number of
different sectors ranging from Thin Film Solar Panels to
pharmaceuticals and medical products.

R&D and diversification are the key strategies of Kaneka
in a changing world. Although nominally Japan's second
largest chemicals firm, its greatest sales in fact come
from food stuffs such as margarine, shortening, [Ed:
Perhaps appropriate that it is also the supplier of heart
health supplements!] and fermentation products. Following
from there are its chemicals and plastics businesses, then
life science products, and electronics.

Kaneka is one of those companies that represent the
backbone of Japanese industry. Lots of patents, market
leadership (it was the first major Japanese chemical firm
to go overseas in the 1970's), and decades of steady growth
and profits. In fact, this 71-year old company suffered its
first net loss in more than 30 years in FY2009 (ending
March 31st, 2009). In case you're wondering, it announced
in February that it expects to be back in the black again
this year.

So where is Kaneka going in 2011 and beyond? We go back to
the R&D theme starting this article. The company itself
says that it has some very interesting new technologies
coming up. Three highlighted in their latest Annual Report

1. Photovoltaics
As mentioned, Kaneka is a leader in Thin Film (TF) solar
panels. It makes the world's most efficient TF panels,
offering 12% conversion efficiency, not far short of
convention crystalline silicon PV panels, yet at a
substantially reduced cost. Not only are TF panels cheaper,
they are also popular because they operate in shade and
under high heat conditions.

Kaneka established in March last year (2009) a lab to focus
on next generation tandem modules, looking to increase
conversion efficiency even more. It is also going into
partnership with Osaka University on organic TF panels that
use organic electroluminescent technologies. It will be
interesting to see what comes out of that.

2. Functional Plastics
The company has developed a number of plastics compounds
that provide high thermal conductivity without compromising
electrical insulation. One such compound, a graphite-based
sheet, can conduct heat 300% better than copper. This
allows the company to supply plastics for the casings of
high power mobile devices such as smart phones and games
consoles, where heat dissipation and subsequent plastics
degradation is a major headache for product designers.

3. Life Science
The company is making head roads in the medical devices
sector, and has two core product lines: intravascular
catheters and extracorporeal blood purification filters.
The filters are particularly interesting. Kaneka has
managed to create a filter with researchers from Kyoto
University, that allows hospitals to isolate mesenchymal
stem cells (MSCs) from bone marrow fluid for transfers from
donors, without having to use time-consuming and
potentially contaminating centrifuges to do the job.
Instead, the Kaneka team has come up with a non-woven
fabric filter that separates out the MSCs in just 20
minutes, compared to 3-4 hours for the centrifuges.

On a financial level, the dividends paid by Kaneka
are modest, but we suspect this is one company that
will be a "keeper." Furthermore, if they ever get broken
up, then the sum of the parts and their many patents
could well be worth much more than the whole. In fact
we wonder why they don't get an intellectual property
audit done and start declaring that latent value in their
balance sheet -- it might do wonders for the stock

...The information janitors/


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+++ NEWS

- Japan to fall behind South Korea in productivity
- Livedoor is for sale
- Whale chef may be convicted
- Why thalidomide causes birth defects
- Full body scanners for Narita?

-> Japan to fall behind South Korea in productivity

As testament to the fact that Japan is a nation falling
behind in international competitiveness due to various
factors such as the aging society, moribund regulatory
environment, and lack of immigration, the Japan
Productivity Center has just announced that South Korea may
move ahead of Japan in terms of Labor Productivity within
the next 3 years. Out of 30 OECD countries in 2008, Japan
was ranked 20th in 2008 and Korea 22nd. But Korea managed a
2.96% rise in the five years through to 2008, while Japan
could only manage 1.9%. This means that if Korea maintains
the growth trend, it will surpass Japan sometime before
2013. ***Ed: This clearly is very upsetting to the
Japanese. Unfortunately robots and more taxes don't do much
to improve Labor Productivity if there's no workers to
operate or pay them.** (Source: TT commentary from, Mar 11, 2010)

-> Livedoor is for sale

Completing its monetization and divestment of all the
former Livedoor assets, LDH Corporation, formerly known as
Livedoor Holdings, is accepting bids to sell its final
major asset -- being that of the Livedoor Company portal
and data center business. Five bidders are expected to
compete to buy the business and the selling price may reach
JPY10bn according to the Nikkei. ***Ed: All in all, the
final investors into Livedoor after former-CEO Horie got
thrown in the slammer and just before it was delisted,
should do very well from this last divestment. They have
managed to extract at least JPY70bn in sales of assets --
substantially more than the few billion yen that the
company was valued at when they bought in. Minus maybe
JPY40bn for lawsuits, that leaves a handy JPY30bn in
spare change.** (Source: TT commentary from,
Mar 12, 2010)

-> Whale chef may be convicted

It's a strange world when you can be a whale chef in the
middle of Shibuya and make a pile, but do it in the U.S.
and you wind up busting a pile of rocks. That's what Santa
Monica sushi chef Kiyoshiro Yamamoto has found out to his
dismay when he was arrested for serving up Sei whale meat
to diners at his restaurant, which is suitably named "The
Hump." Yamamoto may be fined up to US$100K and face a year
in prison, while his restaurant could be fined up to
US$200K. (Source: TT commentary from, Mar
12, 2010)

-> Why thalidomide causes birth defects

It's been a long trail, but scientists at the Tokyo
Institute of Technology have finally found out why taking
thalidomide led to deformities of more than 10,000 children
born around the world between 1957 and 1961. The
researchers say that the drug, originally prescribed to
reduce nausea in pregnant women, inhibits the production of
a protein called cereblon, which in turn produces a vital
enzyme needed for limb development in fetuses. (Source: TT
commentary from, Mar 13, 2010)

-> Full body scanners for Narita?

The Nikkei has reported that the government may be
considering installing full body scanners at its airports
in a bid to reduce terrorist threats [Ed: And also to
lamely follow the U.S. in all things intrusive in
international travel]. ***Ed: So, how do you feel about
airport operators (who are often just rent-a-cops) of these
scanners being able to see right through your clothing and
get a good view of your breasts and genitals? This is not
going to be a random check, but a scan of every single
individual passing through immigration, kids included. In
the U.K. journalists have shown that by reversing and
coloring the scanner images, an easy thing to do with any
paint software, you can see in detail what the person would
look like -- in the nude...! Do we really think operators
can be trusted not to snap a photo of those images and
share them around the office?** (Source: TT commentary from, Mar 12, 2010)

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.


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In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to

*** In TT556 we ran a news item on record low bank lending
rates, and a reader came back with this comment:

=> Reader: The comments about bank lending rates are
interesting. I think it should be very clear by now that
companies have done the math. While they can borrow at
1.8% in Japan and expand their operations, unfortunately
demand and prices are shrinking, and to top it off any
profits they make are then taxed at 40% (even higher for
individuals). In contrast, they can go over to HK,
Singapore, etc., and borrow at 5% but then be taxed at a
maximum rate of 17%! Further, these governments have tax
incentive programs to attract capital. For example, the
first 10 years are tax free, etc.

What is wrong with Japan's politicians and citizens that
they have to wonder why tax revenues continue to fall while
they continue to raise tax rates...!? Hello?


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