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Message from Our CEO

Today, on April 28th, 2017, we have announced the results for the first three month of fiscal year 2017. As disclosed on January 31st , 2017, we transferred all the shares of UNIGEN Inc. (hereinafter referred to as "UNIGEN"), which was a consolidated subsidiary of the Company, to API Co., Ltd., and we have disclosed our financial results as a non-consolidated since the current first quarter of fiscal year 2017. On a non-consolidated basis, our net sales resulted in 2 million yen; however, since Astellas Pharma Inc. withdrew an application for the designation of orphan drugs and was applied by authorities on March 2017, we have transferred 336 million yen to non-operating income as subsidy income from long-term deposits in the current first quarter, which we received before as subsidies targeting UMN-0501(recombinant influenza HA vaccine (H5N1) for the prevention of pandemic influenza, hereinafter referred to as “UMN-0501”). As a result of the procedure, our net income amounted to 206 million yen, our gross assets amounted to 660 million yen, and our net assets amounted to 544 million yen in current first quarter of FY2017. On the other hand, we have been in the grace period for delisting under the regulation of the listing policy of Tokyo Stock Exchange since the end of December of FY2016 because our consolidated net assets turned to be negative when we consolidated UNIGEN as a subsidiary at the end of December of FY2016, as disclosed on 31st March, 2017. We sincerely apologize for the continued worry of our shareholders and stakeholders to this result of grace period. As mentioned above, from this fiscal year we have been on a non-consolidated basis and have maintained the positive net assets. We will precede with our business, achieving performance of the provision, and strengthening our financial bases, so as not to become excessive debt anymore.

We have redefined our business domain as “Next-Generation Biopharmaceutical In-house Development Project” and “Contract Manufacturing Business for Biopharmaceuticals”, specializing in *CMC & Process Development utilizing Yokohama Laboratory, Akita Laboratory and Akita Plant, as our new business policy disclosed on 14th February, 2017 in addition to our new mid-term business plan on 22nd February, 2017.

In terms of the progress of “Next-Generation Biopharmaceutical In-house Development Project” in the current first quarter of FY2017, we have engaged in R&D, seeking for partnership and establishing a new pipeline of UMN-2001 (recombinant rotavirus VP6 single vaccine, hereinafter referred to as “UMN-2001”). We have been getting the findings of immune response through immunogenicity tests using mice. In addition, we have been consulting with companies expected as candidate for joint developments. We have been discussing joining early with joint applicants, submitting flexible cooperative policies in accordance with business strategy of customers. In terms of UMN-2002 (recombinant norovirus VLP vaccine, hereinafter referred to as “UMN-2002”), we have been maintaining the joint research with Daiichi Sankyo Company, Limited which is behind far from original schedule. However, we will promote other partnership activities domestically and globally, seeking for various opportunities and adjusting to changes in circumstances since **BEVS (Baculovirus Expression Vector System, hereinafter referred to as “BEVS”)has been highly evaluated overseas. In addition, except for another existing pipelines, some development process have been improved on the entrusted projects so far, and have been growing up to shift to positive in-house development, so we have also proceed with joint activities with pharmaceutical companies in order to advance development with the trustee. However, all the projects have been under discussion at the moment, and have not yet attributed to sales revenue.

In terms of the progress of “Contract Manufacturing Business for Biopharmaceuticals” in the current first quarter of FY2017, although we have already received a part of orders by continuing manufacturing contract from domestic research institutions, most of their official orders will be made after April because their fiscal year start April with new budget. In addition, we have been preparing for other orders, consulting and submitting estimation. Concerning new projects of applied biotechnology, we have already submitted estimation of the costs and schedule in order to meet various needs from the small scale technology transfer at Yokohama Laboratory to scale-up manufacturing of 600L at Akita plant. Regarding biopharmaceuticals, we have also submitted estimation of the costs and schedule for 600L manufacturing, and have been consulting for multiple projects to accept orders. We are discussing all of the estimated projects at the moment; however, we have not required orders yet, so we will concentrate on toward further orders.

We will disclose business progresses under confidentiality with partners and customers at any time as soon as possible, when it becomes possible to open to the public.

In terms of financial aspect, we have financed 133 million yen in January, 2017 as a part of execution of 1.5 million shares as the 20th stock acquisition right issued in November, 2016. On the other hand, in consideration of the current financial situation, at the ordinary general meeting of shareholders held on March 30th, 2017, we were approved the resolution on the reduction of capital and legal capital surplus, and disposal of other capital surplus in order to transfer to retained earnings to reduce carry forward deficit on 2nd May, 2017, as effective date. After the procedures above, the capital and legal capital surplus will be 217 million yen respectively. Net assets will be 544 million yen with an improvement of 336 million yen compared with the end of the previous fiscal year, thanks to posting net income of 206 million yen. On the other hand, as mentioned above, we have been in the grace period for delisting due to negative net assets at the end of the previous fiscal year in a consolidated basis. Therefore we will make our best endeavors in order to maintain positive net assets through securing profitability and expanding business, and to avoid excessive debt at the end of current fiscal year.

Although we were promoting UMN-0502 (recombinant influenza HA vaccine for the prevention of seasonal influenza, hereinafter referred to as “UMN-0502”) as a pillar of our business, concentrating domestic supply and export of Flublok® drug substances for the US market by this January, we were unable to establish these business. We sincerely apologize for the inconvenience caused to our shareholders and stakeholders. In the future, we will continue to work to restore confidence by proceeding with new business policy and achieving the current operating results and medium-term management plan, while considering business risk sufficiently. We would like to ask your continued understanding and warm support.

*CMC:Chemistry, Manufacturing and control, a consolidated concept of process development for drug substance, R&D for formulation, and R&D for quality evaluation

**BEVS:Baculovirus Expression Vector System, our basic platform for manufacturing protein using Baculovirus and insect cell lines

April 28, 2017
Tatsuyoshi Hirano
Chairman and CEO

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