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Message from Our CEO

 Today, on July 31, 2018, we have announced the results for the second quarter of fiscal year 2018.  First, the following is a summary of current financial results and future prospects.

  • The partnership with Shionogi & Co., Ltd. (hereinafter referred to as “Shionogi”) has been proceeding as planned and net sales were recorded by achieving the first milestone during the current quarter.In terms of the second milestone that planned at the fourth quarter, we have been making steady progress and believe that we can clear the full-year sales plan.
  • Considering the steady progress of the above R&D activities, under talks with Shionogi, we are examining moving forward the preparation work ahead of schedule for the second phase during the fiscal year of 2019.
  • We have recorded extraordinary loss in accordance with impairment loss due to significant decline of market value of the land of Akita Plant. However, we believe that the impact on the full-year business forecast due to the impairment loss will be minor since it is expected to reduce the cost in the expenses of R&D and General and administrative expensed to offset the loss.
  • The net worth debt as of the end of the second quarter is negative while we have already assumed the negative net worth itself in the second quarter. We will definitely realize to keep the net assets balance with plus at the end of FY2018 by capital enhancement through CB conversion of Shionogi while we have recognized that the conversion will be executed during the 4th quarter due to current progress towards the second milestone.

 Next, we would like to explain the details.

 As disclosed on October 31, 2017, we have entered into a capital and business alliance (hereinafter referred to as “capital and business alliance”) with Shionogi. In next-generation biopharmaceutical in-house development business, we have established business policies to develop and create “next generation logical vaccine” by integrating peripheral technology such as adjuvant, formulation and devices as the first phase, namely the establishment of novel fundamental core technology and fundamental research of development candidates.We had arranged existing partnership, and as newly self-developed pipelines, have set recombinant seasonal influenza HA vaccine (UMN-101), recombinant H1N1 influenza HA vaccine (UMN-102), recombinant Rotavirus single vaccine (UMN-103), and recombinant Norovirus single vaccine (UMN-104) have pushing forward development of them.

 Regarding the progress of our next-generation biopharmaceutical development business in the second quarter of FY2018, we have recorded net sales by the achievement of the first semi-annual milestone that was confirmed and accepted by Shionogi, based on this capital and business alliance, as already disclosed on May 29, 2018 while we cannot still disclose details about specific of the fundamental core technology.Currently, we have been promoting R&D towards the achievement of the second milestone, since we have been in general progress as initial planned, we have determined that we are also beginning to achieve the second milestone.Based on the capital and business alliance, we will promptly disclose milestone achievement status as soon as possible in the future. In terms of UMN-101, 102 and 103, we have been developing R&D, as targets of fundamental research for development candidates, based on this capital and business alliance.In addition, we have also been prompting the selection of development candidates according to development.

 Based on the above progress of the establishment of novel fundamental core technology, the two companies have been considering conducting earlier ahead of original schedule regarding preliminary work of transition for the second phase during FY2019.We have been aiming to shift to the second phase earlier, and to pipeline the selected development candidates, and translate to full-fledged development.

 In terms of the creation of next generation logical vaccine by integrating peripheral technology such as adjuvant, formulation and devices, in the joint research regarding new adjuvant with National Institute of Biomedical Innovation, Health and Nutrition, as announced on June 26 and on December 1, 2017, we have been acquiring new adjuvant technology and formulation technology, and accumulating development know-how of next-generation logical vaccine. In addition, we assume that they will become subjects of development candidates based on this capital and business alliance since the development process has been progressing among contracted projects and has been growing to be shifted possibly to in-house development.

 With respect to the progress of contract manufacturing business, two cases we acquired in the previous fiscal year have been accepted by a domestic research institute and posted as net sales during this first quarter.We did not receive orders in the second quarter. In the future, in contract manufacturing business for biopharmaceuticals, we will accept orders mainly for consignment work that contribute to partnership with Shionogi.

 As disclosed on March 30, 2018, on the financial aspect, the net assets value at the end of the fiscal year ended December 2017 and excess debt was avoided. At the result, the stock exchange with the grace period of delisting by the Tokyo Stock Exchange was canceled.On the other hand, as of the end of the second quarter, we are in the state of excess debt again, however, this situation had been assumed within the plan.We have been aiming to maintain the net assets balance with plus at the end of FY2018, with accordance to capital increase by CB conversion under alliance with Shionogi, which is a pillar of financial aspects.Although CB conversion depends on Shionogi’s plan, we have been planning to realize it in the fourth quarter, in consideration of the progress of the alliance, as explained so far.We will continue to make every possible effort to maintain the net assets balance with plus at the end of FY2018.

 Finally, our medium-to long-term scenario mainly on this capital and business alliance is as follows.

Our medium- to long-term scenario

  

 From 2018 to 2019 is the period of the first phase under this capital and business alliance, and we will advance the establishment of novel fundamental core technology related to drug discovery, including worldwide deployable vaccine for prevention against human infection. As a fundamental research of development candidates, based on established new fundamental core technology, for the purpose of development, application and launch of next-generation logical vaccine, by optimally combining adjuvant, formulation, and drug delivery technology, for each infection, we will progress fundamental research for development candidates added a new pipeline in selected several pipelines from each pipeline in our next-generation biopharmaceutical in-house development business, and will decide items for actually proceeding development during 2019.

 We will advance to the second phase of this capital and business alliances, when judging that certain results have been obtained for fundamental core technology, and we are assuming that the stage will be during 2019. In the second phase, we will cooperatively promote development, application, and launch, after the GLP examination, as development pipelines from actually determined items by basic research.

 When shifting to the second phase, in advancing to the development, both companies will make a new collaborative contract regarding exclusive license agreement and other forms related to development and launch of pipelines. We will receive revenue by the forms of milestone under this contract. On the other hand, it is difficult to make a medium-term management plan as a numerical target at the moment, since the timing of transition to the second phase and the collaborative content of new exclusive license agreement or other forms will be discussed in the future. However, we would like you to understand that we will disclose a medium-term management plan as a numerical target when we will move to the second phase after completing the discussion described above.

 We will progress our business, making this capital and business alliance as planned and shifting to the second phase as soon as possible as top priority of the Company’s management task, such as expanding the necessary R&D human resources and organizing manufacturing and development facilities.

 We appreciate your continued support and understanding in the future.

July 31, 2018
Tatsuyoshi Hirano
Chairman and CEO

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