Red yeast rice impact: Kobayashi Pharmaceutical records nearly US$25m losses in Q1

21-May-2024 - Last updated on 21-May-2024 at 02:10 GMT

Kobayashi Pharmaceutical has recalled all its Foods with Function Claims (FFC) containing red yeast rice.

Kobayashi Pharmaceutical reported an “extraordinary loss” of nearly US$25m (JPY$3.86bn) in its Q1 results due to the recall of its contaminated red yeast rice products, raw materials, and compensation of medical expenses.

Stung by a string of kidney disease cases linked to its red yeast rice products since late March, the Osaka-headquartered company estimated product recall-related losses to be JPY$3.65bn (US$23m).

The estimation was calculated based on past sales data and products recalled to date, it said in financial results.

It reported another JPY$213m (US$1.37m) impairment losses on manufacturing equipment related to the incident.

Since reports of kidney disease linked to the consumption of it Red Yeast Cholesterol Help products broke out in late March, Kobayashi Pharmaceutical and its 52 business partners that use its red yeast rice extract began recalling affected products.

The saga also led to a shake up in the red yeast rice industry elsewhere, with authorities from South Korea and Taiwan releasing consumer advisories.

Taiwan Food and Drug Administration also announced a halt on the use and sales of Kobayashi Pharmaceutical’s red yeast rice raw materials and related products.

Puberulic acid was identified as one of the ingredients unexpectedly found in the affected red yeast rice products.

As of May 19, Japan’s Ministry of Health, Labour and Welfare (MHLW) said 1,594 consumers had received medical attention as a result of taking the affected red yeast rice products, while 276 were hospitalised. Five deaths have been recorded so far.

Aside from product recalls, Kobayashi Pharmaceutical also said that it would be paying medical expenses for consumers suspected to be affected.

“At this time, the causative agent, mechanism of action, and the relationship between our products and kidney-related diseases have not been clarified.

“On April 25, 2024, as a provisional measure until the cause is identified, we confirmed that there is a corresponding relationship between the intake of our red yeast rice-related products and the symptoms.

“We have announced that we will begin paying actual expenses such as medical expenses to customers who are suspected to be related.”

As the case is ongoing, Kobayashi Pharmaceutical has retracted its full-year financial forecast released on February 9. Its full-year results forecast is now pending until a later date.

“At this point, it is extremely difficult to assess the impact. Therefore, we have decided to temporarily withdraw our full-year consolidated performance forecast for the fiscal year ending December 2024 and leave it as yet to be determined.

“In the future, we will make a new public announcement when it becomes possible to calculate the business performance forecast,” it said in a statement.

It previously announced a forecast of sales of JPY$185.6bn (US$1.19bn) for this year, up from JPY$173.5bn (US$1.11bn) reported last year, as well as a net income attributable to owners of company of JPY$20.5bn (US$131.5m) – higher than last year’s JPY$20.3bn (US$130.5m).

In Q1, the firm, which also sells fever relief pad Koolfever and is the owner of US supplement and general medicine firm Focus Inc since last October, said its revenue was up nine per cent as compared to the same time last year to JPY$36.5bn (US$234m).

Ordinary profit was up 5.7 per cent to JPY$5.46bn (US$35m).

Quarterly net income attributable to shareholders, however, was down 72.9 per cent to JPY$976m (US$6.26m).

Kirin: Supplement market is “disrupted”, will “keep an eye” on the future

Since the incident, companies such as Kirin also acknowledged that the saga had “disrupted” the supplement market and that it would “keep an eye on future trends.”

“The issue of red yeast rice is disrupting the supplement market, but no products in Kirin Group are made from red yeast rice manufactured by Kobayashi Pharmaceutical.

“We expect the financial impact on the overall Group to be not material, but we keep an eye on the future trends in the supplement market,” said Hiroaki Takaoka, Senior Executive Officer & General Manager of Corporate Strategy Dept during Kirin’s Q1 results presentation on May 9.

Kirin’s Health Science division, which consists of its own branded supplement products, that of Blackmores, functional ingredient business of Kyowa Hakko Bio etc, had seen its revenue increased 83.8 per cent in Q1 this year to JPY$31.9bn (US$204.7m).

In Japan, its LC-plasma business, consisting of both of finished products and ingredients, also reported a revenue growth of 33 per cent.

Hiroaki also stressed that the company has a Quality Compliance Section that gatekeeps its product quality.

“Before the system of Foods with Function Claims was launched, Kirin Group has established an organization called the Quality Compliance Section as an independent department to check the quality of Kirin Group products and has a system in place to strictly check the validity of products as a third party from fundamental research to postlaunch.

“In order to minimize the impact of Quality Issue such as this one, we will continue to make improvements to maintain and improve the level of quality assurance in the Group.”

Market research firm Fuji Keizai is also positive that the functional food industry in Japan will continue to grow, it said in April.

“Sales of supplements were sluggish due to stricter regulations on advertising expressions, but food and drink products are clearly being actively launched, with claims of efficacy such as improving fat and cholesterol levels and sleep support, and concept of complete nutrition being the driving force,” it said.