Bio-tech is messy because life is complicated.

A lot of attention is given to computers sequencing genomes, but some of the most advanced and important work is done by studying and using other living things to make our own lives better.

Kenta Yamato co-founded Kaico to commercialize a technique that uses silkworms to manufacture small-batch custom proteins. And Kico is involved with everything from veterinary medicine to Japan’s search for a coronavirus vaccine.

We also talk about the challenges or creating startups based on university technology and the one e-commerce model in Japan that just won’t go away.

I think you’ll enjoy the conversation.

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Show Notes

  • How to get proteins from a silkworm (It’s not fun for the silkworm)
  • Why silkworms, in particular, must be used
  • The importance and uses of small-batch, custom proteins
  • The start of a silkworm startup
  • The most common (and least successful) Japanese e-commerce model
  • Why it’s so hard for Japanese universities to spin-out startups
  • How Kaico silkworms are part of the fight against covid-19
  • How to scale a silkworm startup

Links from the Founder

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Transcript

Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for joining me.

Today, we’re going to be talking about worms. No, no, wait, don’t go, I promise this is going to be really interesting.

Today, we’re going to sit down and talk with Kenta Yamato of Kaico, a Kyushu-based startup that is using silkworms to rapidly produce custom small-batch innovative proteins that are used for bio-research, medicine, and they play a part in Japan’s search for coronavirus vaccine. It’s a fascinating process but admittedly one that’s not particularly fun for the silkworms themselves.

We also talk about the most popular and most unsuccessful e-commerce business model in Japan, the challenges Japanese universities in spinning out startups, and we even cover some practical solutions to that problem. But you know, Kenta tells that story much better than I can, so let’s get right to the interview.

Interview

Tim: So I’m sitting here with Kenta Yamato of Kaico, a company that uses silkworm to produce specific protein used in medical tests and vaccine, and thank you for sitting down with me.

Kenta: Yes, thank you for me and I have a very pleasure to explain our company’s story. Yeah, thank you very much.

Tim: It’s great to have you on the show. I tried to explain very briefly what Kaico does, but I think you can explain it a lot better than I can, so at like a high level, what does Kaico do?

Kenta: We started Kaico two years ago in 2018. Kaiko means silkworm in English. Maybe you know silkworm can make silk for clothes, but we will use this kaiko silkworm for making proteins. We are a startup company from Kyushu University and our products are many proteins, the protein the other companies cannot make because it is difficult to make it. We make this protein by silkworm.

Tim: So if I understand the basic process, you inject the silkworm with a virus containing the target gene, and then it makes the proteins as part of its silk, and then you extract the proteins from the silk?

Kenta: No, no. First, we’ll incorporate the gene of target protein into baculovirus, so this baculovirus is safe for us humans and animals, but baculovirus damage to only silkworms and we will insert this recombinant baculovirus into silkworm and their body can make the specific protein in their cell, and finally, we’ll collect and purify the body liquid from the silkworm.

Tim: Okay, so it’s not from the silk, it’s from the silkworms themselves that you extract the proteins.

Kenta: Yes, we don’t use silk.

Tim: Okay. So why silkworm? Is there something about silkworms that makes it easy to generate proteins in this way?

Kenta: Yes. Maybe other insects can make same like proteins, but silkworm is the only one insect not moved and it’s very cheap. Do you know the price of a piece of silk?

Tim: I have no idea.

Kenta: A piece of silk a silkworm can make is $0.20 or $0.30, so very cheap, silkworm, and we can plant a huge amount of silkworm in a very narrow space.

Tim: So the advantage of the silkworm isn’t genetic, it’s the fact that they just eat the mulberry leaves and stay put, and you can control them? Okay.

Kenta: Yes, yes, it’s very easy to plant silkworms.

Tim: So what is the normal process for producing these kinds of proteins?

Kenta: Normally, people use very huge tanks like beer tanks, silver tanks, but the silkworm is like a biologic tank, so very useful and convenient for us.

Tim: So they’re little bio-factories?

Kenta: Yes, a bioreactor.

Tim: Little bioreactors?

Kenta: Yeah.

Tim: So you mentioned it was cheaper to use silkworms, so how long does the process take and how much cheaper it is than the industrial approach of large tanks?

Kenta: Maybe many industrial tanks need to study and develop for the production ways and process but we don’t need the scale up period and money because we can make proteins from silkworm. One silkworm, we will make a huge amount of protein because we just increase the number of silkworms, so it’s easy to increase. No need to study for scale up.

Tim: Yeah, I could see why that would give you a lot of flexibility for producing small amounts or very flexible amounts of the proteins as you need. So what is the turnaround time? How long does it take from the time that you identify a target protein that you want to produce to the time that you’ve isolated and you have that protein in the bottle?

Kenta: Our setup time is about one month, we’ll make the recombinant baculovirus, and after that, we will insert this baculovirus into the silkworm in three or four days so they can make the target protein in their cells. So after four days, we’ll pick up the protein from a silkworm, just only four days.

Tim: Oh, wow, that’s much faster than I imagined it.

Kenta: Yes, but we need about one month to make recombinant baculovirus, so total is two months. Regarding COVID-19, we already developed the spike protein of COVID-19, so earlier this year, we get approval from the Japanese government to procure this COVID-19 and two months later, Kyushu University and our company had finished this research and we can get s-protein in May 10 or 15th, yeah, about two months.

Tim: I want to go into more detail about the COVID research you’re doing in a minute, but in general, what kind of problems does this solve? So I mean, everyone’s talking about COVID right now but what other kinds of medical research and testing is this technology likely to be used in?

Kenta: Oh, we are now developing the diagnostic product with partner companies and maybe in September, we can show our demo kits to the domestic markets, and next, our target is vaccine for coronavirus.

Tim: Actually, before we get into the details on the vaccine and the corona, I want to ask you a little bit about your own background. You mentioned before you started Kaico in April of 2018 but your co-founders, it’s based on the research of two very prominent researchers, but your own background is in economics and business, right?

Kenta: Yes, that’s right.

Tim: So how did you end up starting a silkworm startup?

Kenta: Yeah, mysterious, maybe mysterious but my history is long. So after graduation from Yokohama National University, I joined Mitsubishi Heavy Industries. I was responsible for the ship sales and procurement for materials for ship building and power plants, and after 15 years, I decided to make own company, name is Burio and we were handling Internet products because I was in the Kyushu island in 2004 or 2005 and in these days, the first stage of Japanese Internet trade, so I built Kyushu local products, for example, Castella and the other product produced Kyushu.

Tim: So like e-commerce selling Kyushu products?

Kenta: So using Rakuten commerce, but very busy. We could sell the product but nothing profit because we need packing and dispatching, everything needed for manpower, so no –

Tim: I think that is – yeah, that is one of the most common and most commonly failed e-commerce models. Everyone wants to sell like, interesting food and crafts from local hometowns.

Kenta: We can sell but no profit. So two years later, I decided to return to salaryman, but I thought I want to make one more startup company and I watched a commercial, Kyushu University has a business MBA course for businessman, evening class and Saturday and Saturday class only, so I joined. In the MBA course, I met these professors, Kusakabe-sensei and Kamiya-sensei, and we talked about silkworms problem and silkworms merit, so I found this is very interesting business and this is very Japanese domestic science.

Tim: Yeah, definitely very uniquely Japanese, I think. Was this like a university program trying to match business and researchers or did you just run into your co-founders socially at the university?

Kenta: We had some classes in the university, industry and academic collaboration program and I joined this class and I was taught how to make a startup, so one of the selections is the startup company we will make, so I negotiated with these professors: please make our startup company. After that, these professors agreed.

Tim: That’s great. I mean, we’re seeing more Japanese university spin-outs but they’re still pretty rare, so it’s great to see this working out.

Kenta: Thank you very much. And one more matter is Dr. Kusakabe was willing to spread their technology worldwide but he wanted to stay in the professor’s position in Kyushu University. He didn’t want to be a businessman, so he said, okay, I will stay in university but you have to make a business.

Tim: Well, that’s – I mean, I think that is, I mean, most professors are very – especially the successful professors are perfectly happy being professors. They don’t want to become businessmen. Are your co-founders involved with the business day-to-day or are they strictly focused on the research?

Kenta: Dr. Kusakabe also joined our company as technical advisor and research and development is in Kyushu University’s laboratory and the production development is in Kaico.

Tim: Excellent. And let’s get back because I really do want to talk about the COVID research. So originally, Kaico was formed well before any one had ever heard of COVID-19, but it’s now, you’re an active part in the search for a cure or search for treatments.

Kenta: We would like to make some agreement with pharmaceutical companies for making market of silkworm vaccine, but at this moment, no pharmaceutical company we can get but silkworm, we have some technology for eating medicine, for animal medicine, but no pharmaceutical companies are interested. Last month, we decided to make ourselves eating medicine for humans.

Tim: When I was reading about Kaico, I came across an article where you were talking about using silkworm-generated proteins as a way of developing antibody tests. Is that something you’re still working on?

Kenta: Yes, we are still. University is now researching.

Tim: And so what is the path to commercializing that. You were mentioning Japanese pharma companies are very conservative and they haven’t expressed direct interest in this protein manufacturing method, so what is the path to get to production, to get these as part of the antibody test or vaccine creation? Don’t you need the partnerships with the large pharmaceutical companies to make that happen?

Kenta: Yeah, we need a pharmaceutical company and we don’t hope to make some agreement with Japanese domestic companies, so we approached foreign pharmaceutical company in the vaccine market, global foreign company shared almost 80%. One of them, we approached this April and May, but they said this is a time to show their own technology to the market because it’s a very short time to approve, so they said your time is next time, so we’ll market our technology by ourselves. So after that, your technology is very interesting. Many vaccines for COVID-19 depend on the DNA and RNA, but our technology and our vaccine is based on protein but just we will make silkworm, so only how to make just one.

Tim: Sure, it’s just the production method. It’s the same proteins in the end.

Kenta: Yes.

Tim: So what do you think as a company, as Kaico, what is your best path to commercialization? Is it being part of the COVID research? Is it another avenue?

Kenta: We will hope to make some revenue from COVID-19 production but normally, our business plan is based on animal medicine, animal vaccine and our revenue comes from the animal medicine and vaccine, and/or research protein, so we can make the normal protein for researcher and companies, and we have some business with domestic companies and foreign companies.

Tim: And you recently raised about $2.5 million in a recent fundraising, and I think you mentioned you were planning on spending most of that money investing it in better manufacturing equipment and pharmaceutical-grade production.

Kenta: GMP production, yeah. We are now a design laboratory but we can’t use the laboratory for the production of animal medicine and animal vaccine, so it depends on the GMP rules. And maybe for humans, it’s too small.

Tim: So then what is the future of Kaico? I mean, how do we scale this business? Are we going to be seeing millions of acres of silkworms eating mulberry leaves? Do you see Kaico scaling as manufacturing?

Kenta: Yes.

Tim: Or more scaling as like licensing the technology? So how does it scale? I mean, do you need just more acres of mulberry?

Kenta: We will just be the supplier of the medicines related to the pharmaceutical company and maybe we cannot license business because silkworm is not easy to get in the United States and Europe. Maybe China and India is easy, but our target market is the United States and Europe, so we will supply bulk medicine liquid to the pharmaceutical company.

Tim: But do silkworms scale? I could see it be really useful, like before, we were talking about how it was incredibly useful for producing very small batches, but could you produce like, really large quantities or would you be limited by the number of acres?

Kenta: I don’t care about the volume of silkworms because many Japanese farmers offered to grow silkworms by themselves. Recently, silkworm farmers are decreasing but the potential they have, we approach many farmers in Japan. And also, in Kumamoto, they have very special factory for silkworms, so they can make 10 million silkworms by year, so we don’t care.

Tim: Okay, so capacity is not really an issue then?

Kenta: Yeah. A pair of silkworms can make 300 to 500 eggs from just only one pair, so the number, we can increase and increase, no worry about the number of silkworms.

Tim: All right.

Kenta: And silkworms can only eat mulberry leaves, so if our business is developing and growing, we have to plant mulberry trees, so we can decrease CO2.

Tim: I think a lot of people will be surprised at how biological a lot of the medical industry is, even like the flu vaccine is not created in tanks. It’s created in like millions and millions of chicken eggs.

Kenta: In Japan, the chicken egg really is, yeah.

Tim: In America as well.

Kenta: Ah, yeah.

Tim: I suppose it’s not that unusual in terms of creating proteins and replicating viruses and things to use other organisms like this, but you’re affiliated with the university so maybe it was easier, but usually, for biotech companies, it’s often very hard to find investors in Japan.

Kenta: Mm-hmm, yeah, that’s right.

Tim: So did you have trouble raising money?

Kenta: Last time, a little. I had some trouble with venture capital. But recently, many venture capitalists approached us for investing because our business model is not narrow medical development. Our business model is a platform for making proteins. The proteins can be used for research protein and diagnostic protein, and for vaccine and medicine, so we have some revenue. And maybe next year, we can get bottom line will be plus side maybe next year. So Japanese venture capitalists thinking about investment in biologics company. That narrow medicine development is very high risk but our business model is low risk but not high return.

Tim: So the investors kind of saw that you had an existing business they could model your costs and your income, and so they were more comfortable than in investing in more of a traditional biotech?

Kenta: Yes, that’s right.

Tim: Okay. So Kaico was spun out of a university and I think that’s something that we need more of in Japan. Japan does some really great like, fundamental research, but there’s often a challenge of turning that research into businesses and to products, and so I’m curious, what do you think we should do or what do you think universities should do to encourage more of these university spin-outs?

Kenta: Yeah, it is very problematic for Japanese universities. The program is there is no businessman for making business model from the university’s technology, so many good professors, many clever professors, we have, but the program is, we have limited businessmen from university. I think we have to make some more businessmen for making startup companies.

Tim: Well, you mentioned that in your case, at Kyushu University, you had gone back to school to get your MBA and that sounds like a perfect pairing.

Kenta: Yes, I think so, I think so, and I entered Kyushu University MBA course, I was seeking for the seed of business, so I’m very lucky to meet with two professors, but many MBA schools collect the students for just only business, not making business, for accounting.

Tim: Well, I think another thing that was really useful in this case is that you had had a successful business career before you returned to get your MBA. You weren’t just a 21-year-old new grad. Are more and more Japanese businessmen returning to school to get an MBA? Is that something that we’re seeing more of?

Kenta: Yes, I think so. So we need to learn again in 40 years, 50 years, 60 years, moreover, we need, but Japanese people, this is not the normal way.

Tim: Yeah, it is unusual. I mean, it’s something Japan needs more of. I’d like to see more people mid-career go back to school.

Kenta: Ah, yes. I think we need the current and change job. In Japan, we need at least two motion for the Japanese businessman, the current and change business.

Tim: Okay, Kenta, but before I let you go, I want to ask you what I call my “Magic Wand” question and that is, if I gave you a magic wand and I said you could change one thing about Japan, anything at all – the education system, the way people think about risk, the ability to go back to school – you could change anything at all to make it better for startups and innovation in Japan, what would you change?

Kenta: I’d like to change the language.

Tim: The language?

Kenta: Language, yeah.

Tim: How?

Kenta: Because maybe Japanese people are shy and hesitate to talk with foreign people because only from language skill, many Japanese people can’t speak English fluently. Maybe Japanese people go out and make good business with foreign countries’ companies. So this is Japanese dame na tokoro – most weak point for us.

Tim: I think so. I mean, I think some English ability definitely is important, but I think – so for example, you mentioned Kaico from the very beginning, you were talking with foreign pharmaceutical companies from the very start, right?

Kenta: Yeah, but this is – this is my role, this is my role, so I’m not good at speaking English but I have to contact as many foreign companies and I’m very shy but I want to make my dream, so I need to talk.

Tim: I think maybe that passion, that desire to see your dream come true is maybe more important than English ability.

Kenta: Yeah. But if I can speak English very fluently, I don’t need passion to talk with you. Maybe I could sound more smart and more of a gentleman, I can speak with you.

Tim: Well, I know the feeling. I feel the same way about my Japanese all of the time.

Kenta: Today, it’s easy to communicate with you because I can see your face and you can see my face, so we can convey emotion, but if just on the phone, it is difficult for me, but writing is okay. But we need some time to consider our translation, so my to-do list is next year or the year after, I will stay in the United States for Kaico’s business and maybe I can fluently communicate with you and maybe my business will expand.

Tim: You can improve both the English and the business at the same time.

Kenta: Maybe, very much.

Tim: Thanks so much for sitting down with me. I really appreciate it.

Kenta: Thank you very much.

Outtro

And we’re back.

Before we talk about silkworms and biotech, I want to return to Kenta’s first startup, the one that was selling regional specialties, you know, local foods and crafts online. For all this to make sense, I need to explain that regional specialties in Japan work a bit differently than regional specialties in the US or Europe.

Like so many things, the system is more formal and structured in Japan than it is elsewhere. There may not be an official body that decides these things, but everyone pretty much agrees on what the regional specialties are from each prefecture and city, and when you return from your travel there, you’re expected to bring some of those back with you to share with your family and co-workers.

It’s a nice system, so mainly, it’s not surprising that in the late 90s and early 2000s, a lot of e-commerce startups sprung up selling these specialties online and while these businesses continue to pop up, very, very few of them have been successful.

Now, as Kenta explained, much of this is due to the low margin nature of the business, but I think there’s also a more fundamental reason. While many of the regional specialty food are indeed delicious, that’s not the main reason people enjoy them. People enjoy them because it’s something we don’t eat every day and because someone brought it back for us. Things just taste better that way.

It’s like I’ve explained to my wife that she can buy wine and cheese any time she likes online, but for some reason, she always wants to eat them with me in expensive restaurants. In cases like this, the commodity itself is not what is providing the value.

Okay, getting back to biotech and silkworms. Kaico seems to have a genuinely novel and surprisingly scalable method of producing specialty proteins and they are succeeding despite two strong headwinds facing biotech startups in Japan. First, that few Japanese investors are interested in or qualified to invest in biotech startups and second, the Japanese universities are still struggling to commercialize their fundamental research, but as Kenta explained, we’re seeing progress.

Universities are taking the surprisingly bottom-up approach of simply matching executive MBA students and scientists, and venture capital. Well, venture capital is a global game today. If Japanese VCs are unable or unwilling to step up, there’s more than enough foreign capital available to fill that gap.

So if these trends continue, and it looks like they will, we’re going to see a lot more innovative biotech companies like Kaico coming out of Japan.

If you want to talk more about biotech or silkworms, Kenta and I would love to hear from you. So come by DisruptingJapan.com/show170 and let’s talk about it. If you leave a comment, I guarantee that Kenta and I or maybe both will respond.

And hey, if you get the chance, check us out on LinkedIn or Facebook, but even better, if you like the show, tell people about it. Disrupting Japan is my labor of love. It’s free forever and we have no advertising budget. People hear about the podcast because listeners like you enjoy it, and they tell their friends about it.

But most of all, thanks for listening, and thank you for letting people interested in Japanese startups and innovation know about the show.

I’m Tim Romero and thanks for listening to Disrupting Japan.