March 31, 2009

Japan Tissue Engineering

ABOUT THIS REPORTMarch 31, 2009

Japan Tissue Engineering Co., Ltd.

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This Report was compiled by Actcell Corporation from analysis based on our own research of hidden potential (known as Intellectual Capital), which can be difficult to detect in acompany’s financial statements. We believe that it is crucial for a company to accumulate individual strengths, such as technological skills, human resources, and a strong client base,in order to create long-term corporate value, and to have “hidden potential” that effectively utilizes those resources. This Report is intended to provide information for reference
purposes on the hidden potential (or Intellectual Capital) of the organization, and represents our understanding of characteristics and strengths of the organization. Accordingly, theinformation contained in this report is not intended for investment activities nor to attract investment. No analysis has been made of financial information such as stock prices or financial
performance. This Report in no way intends to offer either investment or any other type of advice. Furthermore, any costs incurred in issuing this Report were borne by the organizationthat is the subject of the actual Report.
The ratings for Intellectual Capital range from 5 （★★★★★） representing the optimum state in which sufficient intellectual capital has been accumulated and is being properly
utilized, to 1 (★★★★★) representing the state in which sufficient Intellectual Capital has not been accumulated and is not being properly utilized.
★★★★★...Initial level (minimal accumulated Intellectual Capital; management is haphazard; a confused state)★★★★★…Replicable level (accumulation of foundation-level experience in Intellectual Capital through self-refinement)★★★★★…Definite level (unique Intellectual Capital is defined; management processes to enhance Intellectual Capital are clearly set)★★★★★…Under control level (possesses adequate Intellectual Capital and its maintenance and enhancement is managed quantitatively as a structure)★★★★★…Optimum level (possesses optimum Intellectual Capital and is enhanced systematically and continually in the organization as a whole)This Report has been compiled from scores that visualize management’s recognition of issues, with analysis based on interviews. Therefore, the factors indicated below need to be taken
into consideration with regard to high and low scores. Please use this Report as a material for assessing the company together with financial statements, including performance trends.

DIAGNOSTIC REPORT ON● Outward focus“Outward focus” describes the extent of awareness by theexternal parties of the company – clients, business partners,
society, stockholders, etc. – and of establishment ofrelationships with them. This consists of Clients, Brand, andBusiness Partners, and stakeholders’ strengths.

This diagnostic report on J-TEC’s hidden company potential has been prepared by an analyst from Actcell Corporation, an intellectual capital consulting
company. Hidden company potential is a corporate asset that is not readily apparent in financial figures. This report was prepared employing Actcell’s own
methods, to visualize awareness of management issues and diagnose the potential of the organization through interviews. It focuses on the long-term potentialof the organization for creating value. However, no guarantees are provided as to the content, its accuracy or completeness.

Person in charge of Analysis:
Mr. Yasushi Azegami (Director, Actcell Corporation)

Japan Tissue Engineering Co., Ltd.

● Inward focus“Inward focus” describes the extent of structure within thecompany to ensure the business runs smoothly. This consistsof Business processes, and Technology and know-how
strengths.

● Human resource (HR) strengths"Human resource strengths" decribe whether the “people”
working for the organization do what needs to be done
correctly and with satisfaction, and whether theenvironment is set up for them to do so. This consists ofManagement, Employees and Corporate Culture strengths.

● Clients' score
The analysis is a synthesis of the following:① Does the company have many clients willing to consume
and use its products, services, business, etc. on an
ongoing basis, and is it maintaining them?
② Does the client base improve the credibility andreputation of the organization, and is the company
acquiring and maintaining clients willing to nurture an
ongoing relationship?
③ Is the company continually increasing sales from a highly
loyal client base?
④ Is the company avoiding competing with its rivals, andmaintaining sales consistently with minimal costs?

Company Profile⑤ Is the company acting consciously to achieve thesethings?

● Brand score
The analysis is a synthesis of the following:① To what extent do brand recognition, differentiation fromthe competitors, and credibility contribute?
② How capable is the brand of acquiring and maintaining
clients?
③ Can the company connect abilities such as maintaining
competitive pricing in negotiations to its performance?
④ Can the brand effect be extended to join together
products and services?
⑤ Is the company building and using brands strategically?

● Business partners and stakeholders score
The analysis is a synthesis of the following:① Does the strength of relationships with other interested
parties go beyond individual transactions?
② How do transactions with and support from otherstakeholders contribute to performance, competitive
advantage and risk aversion?
③ What is the power balance between the company and thesales/marketing channels, and funding sources, such as
suppliers, financial institutions and stockholders, that
may have significant impact on the business?

● Organization / Corporate culture score
The analysis is a synthesis of the following:① Are common values and objectives shared within thecompany, and is the company spontaneously andfunctionally operating consistent activities?
② Are action policies decided by management, along withauthorities and responsibilities, relayed promptly to theappropriate organization, and are they implemented in
the same way?
③ Does the management carefully monitor and evaluate
the result, and make changes where necessary?

● Technology and know-how score
The analysis is a synthesis of the following:① What is the originality, difficulty of imitation anddurability of value of the intellectual capital?
② Can the company maintain and improve the durability ofthis value?
③ Can the company convert its Intellectual Capital to apply
it to products, services and businesses?
④ To what extent does the company’s Intellectual Capital
contribute directly or indirectly to enhancing thebusiness value?
⑤ Is the company engaging in internal activities to improveand increase its Intellectual Capital, and in activities toform assets specific to the company by documentationand information-sharing?

● Business process score
The analysis is a synthesis of the following relating to thecompany’s process of providing value to its clients, that is,
the areas of the products and services development
function, the operational function including procurement,
production and distribution, the product planning andmarketing function, the sales, marketing and services
function and the financial and business administration
functions:① Is the company operating with high productivity and cost
efficiency, and is its productivity standardized?

② Is the company enjoying advantages in terms of
productivity and quality when compared with its
competitors and within the industry?
③ Does the company have controls and strategies in place
to improve the efficiency and functionality of the overall
process?

● Management score
The analysis is a synthesis of the following:① Is management equipped with such qualities as
innovative leadership and comprehension of and insight
to industry and markets that are indispensable forleading the company to sustainable growth?
② Is management proactively encouraging the creation of
new value and improving organizational capacity
beyond the current corporate scheme?
③ Is management taking the initiative itself?

● Employee score
The analysis is a synthesis of the following:① Do the employees have the ability to undertake theirtasks and the expertise to contribute to the company’sbusiness activities, and do they have a sense of belonging
and motivation?
② Does the company have a clear picture of the employees
it requires for sustainable growth?
③ Is the company properly evaluating, recruiting,developing, placing and retaining employees?

Frontrunner in Regenerative Medicine
Corporate Information
Established:
Initial Offering:
Industry Sector:
Listed Securities
Exchange:
Stock Code:Financial Year
Ends:
Representative:
Headquarters:
No. Employees:

February, 1999
December, 2007
Precision Instruments

Physiologically
activesubstance

JASDAQ NEO
7774
March
Mr. Yosuke Ozawa,
President and CEO
Gamagori City,
Aichi Prefecture
105 / - consolidated basis(current at March 31, 2009;
excludes external directors)

Overall Management
Outward focus

The structure of this Report corresponds to the Guidelines for Statements of Intellectual Capital Management issued by the Ministry of Economy, Trade and Industry (METI),
which is a report on non-financial information, and the content of EBRC Framework Version 2.1. However, it may not necessarily cover all items outlined therein.
【Guidelines for Statements of Intellectual Capital Management】※ From Page 4, ‘4. Representative examples of reporting on Intellectual Capital’ of METI’s Guidelines for Statements of Intellectual Capital Management.

【Body of Statement】【Appendices】

Corresponding part of this report(General)

Description and Special Characteristics of the Company

Outline of basic management philosophy/nature of business

Strategies and Business of Top Management(Past to Present)

Strategies and Business of Top Management

A. Past management policies / B. Investment (based on A) (including figures on performance) / C. Inherent Intellectual Capital accumulatedby the organization (based on A and B), strengths and method of value creation founded on this Intellectual Capital (including supportingIntellectual Capital indicators) / D. Performance, such as profit (including figures) (resulting from the value creation in C)

Actcell Analysis of the Value Creation Process
Company History
Company Financial Performance(Present to Future)(based on C and diagnosis relating from Past to Present)
E. Intellectual Capital firmly established in the organization that will continue to be valid in the future, and method of value creation basedon this IC (including supporting intellectual capital indicators) / F. Recognition of future uncertainty and risk, responses to it, and management
policies for the future that include these / G. New and additional investment required to maintain and develop Intellectual Capital (inalignment with management policies in F)(including figures) / H. Anticipated future earnings, etc. (based on these)(including numericaltargets)
Other indicators of Intellectual Capital (Optional)

HR Stengths

Inward focus

Actcell Diagnostic of Hidden Potential① Management stance/Leadership, ② Selection and focus, ③ External negotiation power/Relationships, ④ Knowledge creation/Innovation/Speed, ⑤ Teamwork/Organizational knowledge, ⑥ Risk management/Governance,⑦ Coexistence with society.
※ Please refer to ACTCELL’s website (www.actcell.com) for the EBRC Framework.

Time / Environment

Tissues andorgans withvital
functionsA ‘manufacturing-style’ business model
bio-venture aiming to“industrialize regenerative medicine”[Business Environment and Company Position]
Regenerative medicine is a treatment method that uses the regenerative and healing abilities of cells to regenerate artificiallycultured tissues. It is garnering a lot of attention as a next-generation medical treatment, as there are high expectations thatit may act as a trump card for treating intractable diseases. Although the needs of patients with intractable diseases arepotentially huge, a major prerequisite for the industrialization of this type of product is that it must be safe for the human body.
Accordingly, close collaboration between industry and government is indispensable in this field of business. With thisbusiness environment as a backdrop, J-TEC was granted approval for coverage by National Health Insurance (NHI) for its
autologous cultured epidermis as Japan’s first tissue-engineered medical product (TEMP) on January 1st, 2009. J-TEC ispioneering this potential market in Japan, which is said to be worth several billion yen domestically. Having overcome
various challenging hurdles to become the first manufacturer to successfully bring this type of product to commercial
realization, high expectations are held that this will contribute to J-TEC’s future earnings, and that both autologous cultured
cartilage and corneal epithelium products will follow the trends set by cultured epidermis.
[J-TEC’s Hidden Potential](1) The first regenerative medicine-related company in Japan to be granted manufacturing approval by MHLW and coverage
under National Health Insurance (NHI). (2) As a bio-venture company, all research & development, manufacturing and sales
functions are performed in-house. (3) Executive personnel and other employees demonstrate their ability to work closely
together as a team to develop the business.
[Points of Interest]
The key to the company’s growth lies in strengthening ties with external stakeholders and getting them involved.

Characteristics and Strengths

The number of stars reflects the accumulation and usage status regarding the company’s intellectual property (IP),current as at March 31, 2009, while the Notes describe the specific features and strengths of the intellectual property.

Brand

J-TEC is the frontrunner paving the way for the regenerative medicine field, and the very first company in this field to be publicly-listed.

Technology & Know-how

Results and know-how in linking research findings to commercial realization.

Business Processes

Retaining all functions in the value chain for delivering new products to patients (R & D – Manufacturing – Sales – Post-marketing Surveillance)

Hopes and Expectations for the Future※ The Intellectual Capital indicators are likened to the “Seven Aspects for increasing Corporate Value’ (see below)

Cells

Materials

Mr. Yosuke Ozawa
President and CEO

Overall Diagnosis by ACTCELL

Guidelines followed by this Report

Item / Content: information from materials provided by the client

HIDDEN POTENTIALHigh score: Has reached management’s satisfactory level = Score may be slightly higher when management’s recognition of issues is low
Low score: Has not reached management’s satisfactory level = Score may be slightly lower when management’s recognition of issues is highTerminology: information provided by Actcell analyst

Clients; Business Partners;
Related Parties

Corporate Culture
Employees

The number of stars reflects the accumulation and usage status regarding the company’s intellectual property (IP),current as at March 31, 2009, while the Notes describe future hopes and expectations.

Building relationships with hospitals that share an affinity with J-TEC's corporate philosophy; acquiring positive feedback from patients
about their appreciation and/or high expectations of J-TEC's products.
Delegation of authority and affiliations that go beyond an organization’s structure and hierarchy; an organizational approach focusing on collaboration,
information and sharing.
Sustaining and further improving the excellent skills and motivational levels of J-TEC’s employees, who are the driving force behind its futurebusiness expansion, and attracting new personnel.

Copyright ⓒ 2009 Actcell Corporation, All Rights Reserved. Actcell Corporation retains all rights to the content of this report, which may not be reproduced, forwarded or transmitted in any other way without prior consent, either electronically or mechanicallyand regardless of purpose.

Copyright ⓒ 2009 Actcell Corporation, All Rights Reserved. Actcell Corporation retains all rights to the content of this report, which may not be reproduced, forwarded or transmitted in any other way without prior consent, either electronically or mechanically andregardless of purpose.

[ Note: ]Neither Actcell Corporation nor the information providers, nor any party providing information to readers of this Report, warrants or guarantees the truth or completeness of the information contained therein, nor do any of these parties accept liability for any
omissions or errors and so forth in the data and graphics employed in this Report. None of the parties makes any representation or warranty in relation to any outcome arising from the use of this report. The information in this Report may be rendered invalid by
the passage of time. Actcell does not represent that the Report and its contents thereof are up to date, nor does Actcell represent that the Report and its contents thereof have been updated for changes in market or economic or other factors. Representations offact or opinion by Actcell in this Report may not be up to date, and may not represent the present opinions of Actcell.

[ Note: ]Neither Actcell Corporation nor the information providers, nor any party providing information to readers of this Report, warrants or guarantees the truth or completeness of the information contained therein, nor do any of these parties accept liability for any
omissions or errors and so forth in the data and graphics employed in this Report. None of the parties makes any representation or warranty in relation to any outcome arising from the use of this report. The information in this Report may be rendered invalid by
the passage of time. Actcell does not represent that the Report and its contents thereof are up to date, nor does Actcell represent that the Report and its contents thereof have been updated for changes in market or economic or other factors. Representations offact or opinion by Actcell in this Report may not be up to date, and may not represent the present opinions of Actcell.

Japan Tissue Engineering

March 31, 2009

Description and Special Characteristicsof the Company

J-TEC is a bio-venture corporation that was established with the objective of ‘aiming to create a fundamental treatment through tissue regeneration.
This treatment is based on tissue engineering techniques that will bring about real qualitative changes in medicine. J-TEC also aims to develop a businessthat will change 21st century medicine itself.’ The company’s principal business objectives involve the development, manufacture and sale of TissueEngineered Medical Products (‘TEMPs’) and other related products.
Tissue engineering is a concept that uses living cells to artificially create tissue or organs that retain their original functions to the fullest extent
possible. This is based on the results of interdisciplinary studies that prove that tissue and organs with vital functions can be produced through an appropriate combination of the three elements of ‘cells’, ‘materials’ and ‘physiologically active substances’.
Regenerative medicine is a discipline that focuses on restoring parts of the human body that may have been lost or damaged due to an accident or illness.
Producing tissue or organs using tissue engineering techniques is one effective method for realizing regenerative medicine.
In addition to its tissue engineering techniques (from which the company’s name is derived), J-TEC’s fundamental business activities deal with cell
culture technologies required for converting its products into commercial realities; having manufacturing plant and equipment authorized and licensed
under the Pharmaceutical Affairs Law; manufacturing methods refined through research and development activities; quality control-related know-how;and sales-related organizational structure & know-how.
J-TEC’s business can be classified in the two areas of Tissue-Engineered Medical Products (‘TEMPs’) (namely, autologous cultured epidermis, autologous
cultured cartilage, and autologous cultured corneal epithelia) which are applicable under the Pharmaceutical Affairs Law, and Research & Development
Support Business (cultured human tissue for research purposes), which is not applicable under the Pharmaceutical Affairs Law.
The Ministry of Health, Labor and Welfare (MHLW) granted manufacturing approval for J-TEC’s autologous cultured epidermis in October 2007 as Japan’s
first medical product to use human cells and tissue. The product’s retail name is JACE (J-TEC Autologous Cultured Epidermis), and indications include
serious burns (large area burns). This product was newly approved for coverage by Japan’s National Health Insurance (NHI) in January, 2009.

JACE[ Approval Number ][ Generic Name ][ Indications ]Autologous Cultured Epidermis

21900BZZ00039000
Human autologous graft tissue
Critical extensive burns that are second or third degree deep dermal burn wounds coveringa total of 30% or more of the body surface

J-TEC completed its clinical trials for autologous cultured cartilage in March 2007, and is currently preparing to submit its application for manufactureand sales of this product. J-TEC also submitted its application to start a clinical trial for autologous cultured corneal epithelium in May 2007, and is
working towards being granted compliance.
In April 2005, J-TEC began selling the LabCyte series of human cultured tissue for research purposes as development reagents in medical and cosmetic
products, etc.

Patient

Healthy skin tissue

Grafting

Medical Institution

As a ‘manufacturing-style’ business model bio-venture corporation, J-TEC is working towards “industrializing regenerative medicine,” by undertaking toperform not only all of its own research & development, but also the functional processes that range from business development through to manufacturing, sales and post-marketing practices, all in-house.

Healthy skin tissue

Incoming Inspection
CultureManufacture (Product name = ‘JACE’)
Shipment

Outgoing Inspection
Packaging & Shipment

State of Progress concerning the Industrialization of TEMPs

epidermis (‘JACE’)

Autologous cultured
cartilage

Autologous cultured
corneal epithelium

Pre-clinical
Study

Application
for starting
clinical trial

Clinical
Trial

Application Listing on NHI
forManufacture& Sales;
Post-marketing surveillance

NHI-listed
January
2009 *

Approved October 2007 *Application for Insurance November 2007*

Clinical Trial completed
March 2007 *Application forstarting clinical trial
May 2007 *Applicationfor
Manufacture& Sales *Autologous cultured

Basic
Research

Compliance *Business
Evaluation
Process

Market Launch / Manufacture & Sales*: Results*: Next Goal

Indications
Severe burns(Second or third degree deep dermalburn wounds covering a total of 30%
or more of the body surface)1
Traumatic cartilage deficiency,
osteochondritis dissecans (OCD),
osteoarthritis
2
Chemical burns, thermal burns,
Stevens-Johnson syndrome, ocular
cicatricial pemphigoid, corneal
infection, recurrent pterygium

1 and

2 are envisaged applications.

Japan Tissue Engineering

Strategies and Business Policiesof Top Management

March 31, 2009

Please describe your businessand tell us about yourapproach.

Please tell us about thecompany’s future business
policies and outlook.

As a ‘manufacturing–style’ business model
bio-venture, J-TEC is committed to “industrializing regenerative medicine,” which is somethingthat no other organization has ever attempted.
Regenerative medicine endeavors to be a
curative technique by restoring tissue and/ororgans, that have been lost as a result of accident
or illness, to their former state. J-TEC will provide
this new treatment method known as regenerative medicine to patients, in addition to existingtreatments incorporating pharmaceuticals orsurgery, in order to contribute to improving their
Quality Of Life (QOL). In October 2007, autologous cultured epidermis (offered under thename ‘JACE’) became Japan’s first medical
product using human cells and tissue to be
granted manufacturing approval by the Ministryof Health, Labor and Welfare (MHLW), and in
January 2009, JACE was further approved to belisted as covered under National Health
Insurance (NHI). Development of an additional
two products, namely, autologous cultured
cartilage and autologous cultured corneal
epithelium, is also progressing smoothly. As amanufacturer, J-TEC pursues quality and safety in
its Tissue-Engineered
MedicalProducts(abbreviated as ‘TEMPs’) so as to deliver productsthat excel in both these qualities to its customers.

To begin with, we will concentrate J-TEC’s
management resources on launching ‘JACE’
autologous cultured epidermis. As Japan’s firsttissue-engineered medical product, the efficacy
and safety of JACE needs to be thoroughly
demonstrated and firmly grounded, with a view
to industrializing regenerative medicine. Following this, we will proceed with ensuring we canbring J-TEC’s next pipeline products, autologous
cultured cartilage and autologous cultured
corneal epithelium, to market. In the medium- tolong-term, we foresee an increase in the numberof people we employ, business tie-ups with manyother companies, and formation of a complicated regenerative medicine industry. When thistakes place, J-TEC will be bolstered by the professionalism of its personnel. In addition to creating‘tissue-engineered medical products (TEMPs)’
and a ‘regenerative medicine industry,’ it can besaid that J-TEC also educates and nurtures its‘people.’ As a corporation involved in healthcare,
we hope to steadily develop our businessactivities and become the type of company thatsociety really needs. As a result, we aim tocontinue to grow as a company for as long as thehuman race exists.

Please describe any special
characteristics or know-how
involved in your company’s
technology.
The tissue-engineered medical products(‘TEMPs’) currently being developed by J-TEC are
cultivated in our factory using tissue and/or cells
harvested from the actual patient. These are thenused in ‘autologous transplantations’ whereby
the cultured tissue is grafted back onto the same
patient. Autologous transplantations generallypose a minimal risk of immunological rejection
and are said to have a high survival rate aftergrafting on the body. To manufacture and sellthis type of TEMP, official permission and authorization must be granted by MHLW in accordancewith the Pharmaceutical Affairs Law. As part ofthe process for obtaining approval to manufacture ‘JACE’ autologous cultured epidermis, J-TEC
had to acquire the necessary cell culture technology for making the product a commercial reality,
as well as accumulating know-how with regard
to manufacturing methods and quality control
refined through research and development
activities. This is all in addition to our tissue
engineering technology (from which ourcompany name is derived). J-TEC’s production
facility has been granted GMP (Good Manufacturing Practice) accreditation by MHLW, making it
the only plant in Japan capable of producing
TEMPs on a commercial basis.

Aiming to
Industrialize
Regenerative
Medicine
Mr. Yosuke Ozawa
President and CEO,Japan Tissue Engineering Co., Ltd. (‘J-TEC’)

Please describe the qualities
J-TEC demands from its
employees.
As I mentioned previously, J-TEC is committed
to “industrializing regenerative medicine,” which
is something that no other organization has everattempted, so we look for personnel that canwork together with us, just as a soccer player
would do for his/her team. In other words, welook for people who are capable of flexibly but
actively ‘playing’ outside of their fields ofexpertise, rather than sticking to a single, specificarea of business. We don’t believe it is sufficient
for an employee to simply possess specialist
knowledge in medicine and biology. Regardlessof whether a person works within our Research &Development, Manufacturing, Pharmaceutical or
Quality Control Departments, they are also
expected to become involved in the businessactivities of other divisions, and to strengthen
these inter-department bonds. In addition to thesmooth implementation of the aforementioned
activities, the field of regenerative medicine also
requires a multitude of other skills such as
expression, negotiation and analysis. Consequently, we have developed our own “Employee
Education & Training Program” in an effort toimprove the skills and capabilities of all our
employees. I hope that J-TEC can serve as a place
where we can accomplish the goal of “striving tolive better,” in accordance with our corporate
philosophy.

What are the main aspects ofrunning a bio-venturecompany?
Generally speaking, venture companies tend
to lack management resources, namely people,
materials, and money. However, J-TEC is blessedwith stakeholders including stockholders, andhas gathered together more than 100 very
talented employees from all over Japan. We have
our own manufacturing facility and have raised
capital worth approximately JPY 9 billion so far(comprising just over JPY 6 billion before going
public, and just under JPY 3 billion at the time of
public offering). We believe that the main aspects
to be conscious of when running a bio-venturecompany in this bioindustry-specific environment are as follows:
1. Producing results in the main businesses.
2. Resolving managerial mistakes promptly.
3. Always preparing for the ‘worst-casescenario’ when running the business.
Regenerative medicine has virtually no
precedents within the bioindustry. Accordingly,
Points #2 and #3 above will fall under the responsibility of management. Conversely, teamwork is
required to achieve Point #1. J-TEC is driven by its
people, and I believe that it is vital for our
employees to have the backbone and tenacity toenable our company to progress as much as itcan, and that we must create an environment inwhich these feats can be accomplished.

Japan Tissue Engineering

March 31, 2009

Description and Special Characteristicsof the Company

J-TEC is a bio-venture corporation that was established with the objective of ‘aiming to create a fundamental treatment through tissue regeneration.
This treatment is based on tissue engineering techniques that will bring about real qualitative changes in medicine. J-TEC also aims to develop a businessthat will change 21st century medicine itself.’ The company’s principal business objectives involve the development, manufacture and sale of TissueEngineered Medical Products (‘TEMPs’) and other related products.
Tissue engineering is a concept that uses living cells to artificially create tissue or organs that retain their original functions to the fullest extent
possible. This is based on the results of interdisciplinary studies that prove that tissue and organs with vital functions can be produced through an appropriate combination of the three elements of ‘cells’, ‘materials’ and ‘physiologically active substances’.
Regenerative medicine is a discipline that focuses on restoring parts of the human body that may have been lost or damaged due to an accident or illness.
Producing tissue or organs using tissue engineering techniques is one effective method for realizing regenerative medicine.
In addition to its tissue engineering techniques (from which the company’s name is derived), J-TEC’s fundamental business activities deal with cell
culture technologies required for converting its products into commercial realities; having manufacturing plant and equipment authorized and licensed
under the Pharmaceutical Affairs Law; manufacturing methods refined through research and development activities; quality control-related know-how;and sales-related organizational structure & know-how.
J-TEC’s business can be classified in the two areas of Tissue-Engineered Medical Products (‘TEMPs’) (namely, autologous cultured epidermis, autologous
cultured cartilage, and autologous cultured corneal epithelia) which are applicable under the Pharmaceutical Affairs Law, and Research & Development
Support Business (cultured human tissue for research purposes), which is not applicable under the Pharmaceutical Affairs Law.
The Ministry of Health, Labor and Welfare (MHLW) granted manufacturing approval for J-TEC’s autologous cultured epidermis in October 2007 as Japan’s
first medical product to use human cells and tissue. The product’s retail name is JACE (J-TEC Autologous Cultured Epidermis), and indications include
serious burns (large area burns). This product was newly approved for coverage by Japan’s National Health Insurance (NHI) in January, 2009.

JACE[ Approval Number ][ Generic Name ][ Indications ]Autologous Cultured Epidermis

21900BZZ00039000
Human autologous graft tissue
Critical extensive burns that are second or third degree deep dermal burn wounds coveringa total of 30% or more of the body surface

J-TEC completed its clinical trials for autologous cultured cartilage in March 2007, and is currently preparing to submit its application for manufactureand sales of this product. J-TEC also submitted its application to start a clinical trial for autologous cultured corneal epithelium in May 2007, and is
working towards being granted compliance.
In April 2005, J-TEC began selling the LabCyte series of human cultured tissue for research purposes as development reagents in medical and cosmetic
products, etc.

Patient

Healthy skin tissue

Grafting

Medical Institution

As a ‘manufacturing-style’ business model bio-venture corporation, J-TEC is working towards “industrializing regenerative medicine,” by undertaking toperform not only all of its own research & development, but also the functional processes that range from business development through to manufacturing, sales and post-marketing practices, all in-house.

Healthy skin tissue

Incoming Inspection
CultureManufacture (Product name = ‘JACE’)
Shipment

Outgoing Inspection
Packaging & Shipment

State of Progress concerning the Industrialization of TEMPs

epidermis (‘JACE’)

Autologous cultured
cartilage

Autologous cultured
corneal epithelium

Pre-clinical
Study

Application
for starting
clinical trial

Clinical
Trial

Application Listing on NHI
forManufacture& Sales;
Post-marketing surveillance

NHI-listed
January
2009 *

Approved October 2007 *Application for Insurance November 2007*

Clinical Trial completed
March 2007 *Application forstarting clinical trial
May 2007 *Applicationfor
Manufacture& Sales *Autologous cultured

Basic
Research

Compliance *Business
Evaluation
Process

Market Launch / Manufacture & Sales*: Results*: Next Goal

Indications
Severe burns(Second or third degree deep dermalburn wounds covering a total of 30%
or more of the body surface)1
Traumatic cartilage deficiency,
osteochondritis dissecans (OCD),
osteoarthritis
2
Chemical burns, thermal burns,
Stevens-Johnson syndrome, ocular
cicatricial pemphigoid, corneal
infection, recurrent pterygium

1 and

2 are envisaged applications.

Japan Tissue Engineering

Strategies and Business Policiesof Top Management

March 31, 2009

Please describe your businessand tell us about yourapproach.

Please tell us about thecompany’s future business
policies and outlook.

As a ‘manufacturing–style’ business model
bio-venture, J-TEC is committed to “industrializing regenerative medicine,” which is somethingthat no other organization has ever attempted.
Regenerative medicine endeavors to be a
curative technique by restoring tissue and/ororgans, that have been lost as a result of accident
or illness, to their former state. J-TEC will provide
this new treatment method known as regenerative medicine to patients, in addition to existingtreatments incorporating pharmaceuticals orsurgery, in order to contribute to improving their
Quality Of Life (QOL). In October 2007, autologous cultured epidermis (offered under thename ‘JACE’) became Japan’s first medical
product using human cells and tissue to be
granted manufacturing approval by the Ministryof Health, Labor and Welfare (MHLW), and in
January 2009, JACE was further approved to belisted as covered under National Health
Insurance (NHI). Development of an additional
two products, namely, autologous cultured
cartilage and autologous cultured corneal
epithelium, is also progressing smoothly. As amanufacturer, J-TEC pursues quality and safety in
its Tissue-Engineered
MedicalProducts(abbreviated as ‘TEMPs’) so as to deliver productsthat excel in both these qualities to its customers.

To begin with, we will concentrate J-TEC’s
management resources on launching ‘JACE’
autologous cultured epidermis. As Japan’s firsttissue-engineered medical product, the efficacy
and safety of JACE needs to be thoroughly
demonstrated and firmly grounded, with a view
to industrializing regenerative medicine. Following this, we will proceed with ensuring we canbring J-TEC’s next pipeline products, autologous
cultured cartilage and autologous cultured
corneal epithelium, to market. In the medium- tolong-term, we foresee an increase in the numberof people we employ, business tie-ups with manyother companies, and formation of a complicated regenerative medicine industry. When thistakes place, J-TEC will be bolstered by the professionalism of its personnel. In addition to creating‘tissue-engineered medical products (TEMPs)’
and a ‘regenerative medicine industry,’ it can besaid that J-TEC also educates and nurtures its‘people.’ As a corporation involved in healthcare,
we hope to steadily develop our businessactivities and become the type of company thatsociety really needs. As a result, we aim tocontinue to grow as a company for as long as thehuman race exists.

Please describe any special
characteristics or know-how
involved in your company’s
technology.
The tissue-engineered medical products(‘TEMPs’) currently being developed by J-TEC are
cultivated in our factory using tissue and/or cells
harvested from the actual patient. These are thenused in ‘autologous transplantations’ whereby
the cultured tissue is grafted back onto the same
patient. Autologous transplantations generallypose a minimal risk of immunological rejection
and are said to have a high survival rate aftergrafting on the body. To manufacture and sellthis type of TEMP, official permission and authorization must be granted by MHLW in accordancewith the Pharmaceutical Affairs Law. As part ofthe process for obtaining approval to manufacture ‘JACE’ autologous cultured epidermis, J-TEC
had to acquire the necessary cell culture technology for making the product a commercial reality,
as well as accumulating know-how with regard
to manufacturing methods and quality control
refined through research and development
activities. This is all in addition to our tissue
engineering technology (from which ourcompany name is derived). J-TEC’s production
facility has been granted GMP (Good Manufacturing Practice) accreditation by MHLW, making it
the only plant in Japan capable of producing
TEMPs on a commercial basis.

Aiming to
Industrialize
Regenerative
Medicine
Mr. Yosuke Ozawa
President and CEO,Japan Tissue Engineering Co., Ltd. (‘J-TEC’)

Please describe the qualities
J-TEC demands from its
employees.
As I mentioned previously, J-TEC is committed
to “industrializing regenerative medicine,” which
is something that no other organization has everattempted, so we look for personnel that canwork together with us, just as a soccer player
would do for his/her team. In other words, welook for people who are capable of flexibly but
actively ‘playing’ outside of their fields ofexpertise, rather than sticking to a single, specificarea of business. We don’t believe it is sufficient
for an employee to simply possess specialist
knowledge in medicine and biology. Regardlessof whether a person works within our Research &Development, Manufacturing, Pharmaceutical or
Quality Control Departments, they are also
expected to become involved in the businessactivities of other divisions, and to strengthen
these inter-department bonds. In addition to thesmooth implementation of the aforementioned
activities, the field of regenerative medicine also
requires a multitude of other skills such as
expression, negotiation and analysis. Consequently, we have developed our own “Employee
Education & Training Program” in an effort toimprove the skills and capabilities of all our
employees. I hope that J-TEC can serve as a place
where we can accomplish the goal of “striving tolive better,” in accordance with our corporate
philosophy.

What are the main aspects ofrunning a bio-venturecompany?
Generally speaking, venture companies tend
to lack management resources, namely people,
materials, and money. However, J-TEC is blessedwith stakeholders including stockholders, andhas gathered together more than 100 very
talented employees from all over Japan. We have
our own manufacturing facility and have raised
capital worth approximately JPY 9 billion so far(comprising just over JPY 6 billion before going
public, and just under JPY 3 billion at the time of
public offering). We believe that the main aspects
to be conscious of when running a bio-venturecompany in this bioindustry-specific environment are as follows:
1. Producing results in the main businesses.
2. Resolving managerial mistakes promptly.
3. Always preparing for the ‘worst-casescenario’ when running the business.
Regenerative medicine has virtually no
precedents within the bioindustry. Accordingly,
Points #2 and #3 above will fall under the responsibility of management. Conversely, teamwork is
required to achieve Point #1. J-TEC is driven by its
people, and I believe that it is vital for our
employees to have the backbone and tenacity toenable our company to progress as much as itcan, and that we must create an environment inwhich these feats can be accomplished.

Japan Tissue Engineering

March 31, 2009

Visualizing Hidden Potential ・ Company
History ・ Company Financial Performance

Hopes & Expectations for J-TEC

Visualizing Hidden Potential

Dr. Norio KUMAGAI

Professor, Department of Plastic
and Reconstructive Surgery

Dr. Kohichiro YOSHINO
President and CEO,
Carna Biosciences Inc.

St. Marianna University School of
Medicine
Autologous cultured epidermis - ‘JACE’■ In October, 2007, this product became the very first tissueengineered medical product (TEMP) in Japan to be granted
manufacturing approval by the Ministry of Health, Labor andWelfare (MHLW). Indications are for severe burns. This product was
newly approved for insurance coverage, being listed on Japan's
National Health Insurance (NHI) in January, 2009.

Discussing the Basics of Regenerative
Medicine■ We have created a website and booklet full of easy-tounderstand information, to encourage as many people as possible
to learn more about regenerative medicine.
URL: http://www.jpte.co.jp/stories/index.html

Manufacturing Facilities■ Japan Tissue Engineering Co., Ltd’s production facility is the
only manufacturing facility in Japan capable of producing TEMPs
on a commercial basis that has been approved by the MHLW for
GMP (Good Manufacturing Practice).

Our employees are thoroughly versed incell cultivation■ Every one of our employees involved in producing TEMPs has
expert knowledge in cell cultivation, and has undertaken adequate
educational training in specific information and cultivation
techniques pertaining to TEMPs. Only those employees actively
engaged in thoroughly mastering their craft are allowed to be
involved in the manufacturing process.

Employee Award System■ Since 2006, we have incorporated a system for recognizing
major contributions made throughout the year by individuals or
teams towards our company’s business development. We display
the historical achievements of our award recipients on a wall ofhonor to remember these contributions long into the future.

Education within the company■ Lecture sessions are held every month as part of our ‘Employee
Education & Training Program.’ We make efforts to improve all of
our employees’ skills by engaging external lecturers as well asasking our own employees to give presentations.

Company History
1999 • Japan Tissue Engineering Co., Ltd was founded in Gamagori City, Aichi Prefecture, through joint capital investment funded by Nidek Co., Ltd., INAX Corporation, Toyama
2000
2001
2002
2003
2004

2005
2007

2008
2009

Chemical Co., Ltd. (now a group company of Fuji Film Holding Corporation) and Central Capital K.K. (now Mitsubishi UFJ Capital Co., Ltd.). Company headquarters wererelocated to Miyakitadoori, Gamagori City, Aichi Prefecture.
• Submission of pre-clinical trial application for confirmation of autologous cultured epidermis (‘JACE’) to the Ministry of Health and Welfare [MHW] (now the Ministry of Health,
Labor and Welfare [MHLW]).
• Submission of application for starting clinical trial of autologous cultured cartilage to MHLW.
• Approval obtained from the Pharmaceutical Affairs Biotechnology Subcommittee of the Pharmaceutical Affairs and Food Sanitation Council (PAFSC) for application to start
clinical trial of autologous cultured epidermis (‘JACE’); Notice of compliance received from MHLW.
• Research and development on cultured corneal epithelia begins with technology introduced from The Veneto Eye Bank Foundation, which conducts stem cell research in
Italy’s Cornea Banks.
• Institutional Review Board (IRB) gives approval for clinical trials on autologous cultured epidermis (‘JACE’) to commence at facilities including those at Tokyo Women’s Medical
University Hospital.
• Approval obtained from the Bio-based Technology Subcommittee of the Pharmaceutical Affairs and Food Sanitation Council (PAFSC) for application to start clinical trial of
autologous cultured cartilage; Notice of compliance received from MHLW.
• Institutional Review Board (IRB) gives approval for clinical trials on autologous cultured cartilage to commence at facilities including those at Hiroshima University Hospital.
Submission of application for manufacture and sales of autologous cultured epidermis (‘JACE’).
Completion of, and relocation to, new company premises in Miyakitadoori, Gamagori City, Aichi Prefecture.
• Approval received from MHLW for priority review on autologous cultured epidermis (‘JACE’).
• Sales of LabCyte EPI-MODEL cultured human tissue for research purposes begin.
• Submission of notification of completion of clinical trials for autologous cultured cartilage to the Pharmaceutical and Medical Devices Agency, Japan (PDMA).
• Submission of application for starting clinical trial of autologous cultured corneal epithelium to MHLW.
• Approval obtained from MHLW to manufacture and sell autologous cultured epidermis (‘JACE’) as Japan’s first medical product using human cells and tissues• Submission to MHLW of official documents requesting insurance coverage, with the objective of securing a listing for autologous cultured epidermis (‘JACE’) to be approvedfor coverage under National Health Insurance (NHI).
• Became a NEO-listed company on the JASDAQ securities exchange.
• Advisory contract concluded with Professor Howard Green of Harvard University.
• Approval granted for listing of autologous cultured epidermis (‘JACE’) as covered under National Health Insurance (NHI).

Website:http://www.carnabio.com

University Website:
http://www.marianna-u.ac.jp
I have been conducting research on autologous cultured epidermis,
which was developed by Professor Howard Green of Harvard Medical
School, since the 1980s. In 1985, I reported the first case of treating
severe burns in Japan using Dr. Green’s autologous cultured epidermis
technique. In the past 25 years, we have treated almost 600 cases ofsevere burns, scarring, vitiligo and nevi (birthmarks) in clinicalpractice using both autologous and allogeneic cultured epidermis.

My company, Carna Biosciences Inc., aims to create medical
products targeting an enzyme known as kinase, a type of protein. Like
J-TEC, Carna Biosciences is also listed publicly on the JASDAQ NEO.
During my regular discussions with Mr. Ozawa, we often speak ofpromoting NEO (New Entrepreneurs’ Opportunity) through our efforts,
and encourage each other with our dreams of further growing thebiotechnology industry to become one that can support the nation.

A key feature of autologous cultured epidermis is that a large
volume can be cultivated from a small sample of the patient’s skintissue. Furthermore, there is an extremely low risk of rejection
response following grafting of the cultured epidermis to the patient,
as the patient’s own cells are used for cultivation. Conversely, there
are individual differences in the propagating ability of cells whencultivating a patient’s own cells. Dr. Green’s autologous cultured
epidermis uses a superb technique for propagating cells with 3T3-J2
cells as the feeder layer to supplement these individual differences.

Under Mr. Ozawa’s energetic leadership, J-TEC has succeeded inindustrializing regenerative medical products in the brand-new
medical field of tissue engineering. In January this year, autologous
cultured epidermis (‘JACE’) was listed as an item covered by Japan’s
National Health Insurance (NHI). Healthcare industry insiders viewed
this as a landmark breakthrough, signifying that a new era in healthcare was beginning. It is necessary to demonstrate both ‘safety’ and‘effectiveness’ in order to successfully industrialize this new field ofhealthcare known as regenerative medicine. As there are noprecedents in this new field, every progressive step needs to be taken
in close consultation with the Ministry of Health, Labor and Welfare(MHLW), and thus it became clear that bringing the product tocommercial realization was an even more difficult task than had been
imagined. Mr. Ozawa is optimistic, tenacious and full of ideas, whichis exactly why he has succeeded with these great achievements.

The number of physicians in Japan with practical experience in theuse of tissue engineered medical products (abbreviated as ‘TEPs’) is
extremely limited. Therefore, I have high expectations that J-TEC will
fulfill its mission of providing information and research materials tophysicians and healthcare facilities, as well as educating them andproactively supporting educational activities, to ensure thatphysicians can provide appropriate treatment for cell harvesting andgrafting as well as in post-graft patient care. Through these efforts, I
feel sure that J-TEC will be able to establish a mechanism for popularizing regenerative medicine.

In the future, we hope that Japan’s NHI will agree to cover autologous cultured cartilage and autologous cultured corneal epithelium aspromptly as possible, to facilitate the supply of these vital products tothe many patients eagerly awaiting their industrialization.

Company Financial PerformanceYear Ending

2005/March

2006/March

2007/March

2008/March

2009/March

2010/March (Est.)

Sales (million JPY)
Operating income (million JPY)
Ordinary income (million JPY)
Net income (million JPY)
Net income per share (JPY)Dividend per share (JPY)[Business Risk]
The following issues are some of the potential risk factors our company foresees might occur as our business develops. Please refer to ourcompany’s financial reports for further details.
(1) Main Focus of Japan Tissue Engineering’s
Business(2) Being a completely new field of business(3) Changes in management performance(4) Research and Development Activities(5) Competition(6) Intellectual Property Rights(7) Relationships with Universities and otherResearch Institutions(8) Company Premises(9) The Company’s Organizational Structure(10) Product Liability Risks(11) Stakeholders, Key Players and Related Parties

Japan Tissue Engineering

March 31, 2009

Visualizing Hidden Potential ・ Company
History ・ Company Financial Performance

Hopes & Expectations for J-TEC

Visualizing Hidden Potential

Dr. Norio KUMAGAI

Professor, Department of Plastic
and Reconstructive Surgery

Dr. Kohichiro YOSHINO
President and CEO,
Carna Biosciences Inc.

St. Marianna University School of
Medicine
Autologous cultured epidermis - ‘JACE’■ In October, 2007, this product became the very first tissueengineered medical product (TEMP) in Japan to be granted
manufacturing approval by the Ministry of Health, Labor andWelfare (MHLW). Indications are for severe burns. This product was
newly approved for insurance coverage, being listed on Japan's
National Health Insurance (NHI) in January, 2009.

Discussing the Basics of Regenerative
Medicine■ We have created a website and booklet full of easy-tounderstand information, to encourage as many people as possible
to learn more about regenerative medicine.
URL: http://www.jpte.co.jp/stories/index.html

Manufacturing Facilities■ Japan Tissue Engineering Co., Ltd’s production facility is the
only manufacturing facility in Japan capable of producing TEMPs
on a commercial basis that has been approved by the MHLW for
GMP (Good Manufacturing Practice).

Our employees are thoroughly versed incell cultivation■ Every one of our employees involved in producing TEMPs has
expert knowledge in cell cultivation, and has undertaken adequate
educational training in specific information and cultivation
techniques pertaining to TEMPs. Only those employees actively
engaged in thoroughly mastering their craft are allowed to be
involved in the manufacturing process.

Employee Award System■ Since 2006, we have incorporated a system for recognizing
major contributions made throughout the year by individuals or
teams towards our company’s business development. We display
the historical achievements of our award recipients on a wall ofhonor to remember these contributions long into the future.

Education within the company■ Lecture sessions are held every month as part of our ‘Employee
Education & Training Program.’ We make efforts to improve all of
our employees’ skills by engaging external lecturers as well asasking our own employees to give presentations.

Company History
1999 • Japan Tissue Engineering Co., Ltd was founded in Gamagori City, Aichi Prefecture, through joint capital investment funded by Nidek Co., Ltd., INAX Corporation, Toyama
2000
2001
2002
2003
2004

2005
2007

2008
2009

Chemical Co., Ltd. (now a group company of Fuji Film Holding Corporation) and Central Capital K.K. (now Mitsubishi UFJ Capital Co., Ltd.). Company headquarters wererelocated to Miyakitadoori, Gamagori City, Aichi Prefecture.
• Submission of pre-clinical trial application for confirmation of autologous cultured epidermis (‘JACE’) to the Ministry of Health and Welfare [MHW] (now the Ministry of Health,
Labor and Welfare [MHLW]).
• Submission of application for starting clinical trial of autologous cultured cartilage to MHLW.
• Approval obtained from the Pharmaceutical Affairs Biotechnology Subcommittee of the Pharmaceutical Affairs and Food Sanitation Council (PAFSC) for application to start
clinical trial of autologous cultured epidermis (‘JACE’); Notice of compliance received from MHLW.
• Research and development on cultured corneal epithelia begins with technology introduced from The Veneto Eye Bank Foundation, which conducts stem cell research in
Italy’s Cornea Banks.
• Institutional Review Board (IRB) gives approval for clinical trials on autologous cultured epidermis (‘JACE’) to commence at facilities including those at Tokyo Women’s Medical
University Hospital.
• Approval obtained from the Bio-based Technology Subcommittee of the Pharmaceutical Affairs and Food Sanitation Council (PAFSC) for application to start clinical trial of
autologous cultured cartilage; Notice of compliance received from MHLW.
• Institutional Review Board (IRB) gives approval for clinical trials on autologous cultured cartilage to commence at facilities including those at Hiroshima University Hospital.
Submission of application for manufacture and sales of autologous cultured epidermis (‘JACE’).
Completion of, and relocation to, new company premises in Miyakitadoori, Gamagori City, Aichi Prefecture.
• Approval received from MHLW for priority review on autologous cultured epidermis (‘JACE’).
• Sales of LabCyte EPI-MODEL cultured human tissue for research purposes begin.
• Submission of notification of completion of clinical trials for autologous cultured cartilage to the Pharmaceutical and Medical Devices Agency, Japan (PDMA).
• Submission of application for starting clinical trial of autologous cultured corneal epithelium to MHLW.
• Approval obtained from MHLW to manufacture and sell autologous cultured epidermis (‘JACE’) as Japan’s first medical product using human cells and tissues• Submission to MHLW of official documents requesting insurance coverage, with the objective of securing a listing for autologous cultured epidermis (‘JACE’) to be approvedfor coverage under National Health Insurance (NHI).
• Became a NEO-listed company on the JASDAQ securities exchange.
• Advisory contract concluded with Professor Howard Green of Harvard University.
• Approval granted for listing of autologous cultured epidermis (‘JACE’) as covered under National Health Insurance (NHI).

Website:http://www.carnabio.com

University Website:
http://www.marianna-u.ac.jp
I have been conducting research on autologous cultured epidermis,
which was developed by Professor Howard Green of Harvard Medical
School, since the 1980s. In 1985, I reported the first case of treating
severe burns in Japan using Dr. Green’s autologous cultured epidermis
technique. In the past 25 years, we have treated almost 600 cases ofsevere burns, scarring, vitiligo and nevi (birthmarks) in clinicalpractice using both autologous and allogeneic cultured epidermis.

My company, Carna Biosciences Inc., aims to create medical
products targeting an enzyme known as kinase, a type of protein. Like
J-TEC, Carna Biosciences is also listed publicly on the JASDAQ NEO.
During my regular discussions with Mr. Ozawa, we often speak ofpromoting NEO (New Entrepreneurs’ Opportunity) through our efforts,
and encourage each other with our dreams of further growing thebiotechnology industry to become one that can support the nation.

A key feature of autologous cultured epidermis is that a large
volume can be cultivated from a small sample of the patient’s skintissue. Furthermore, there is an extremely low risk of rejection
response following grafting of the cultured epidermis to the patient,
as the patient’s own cells are used for cultivation. Conversely, there
are individual differences in the propagating ability of cells whencultivating a patient’s own cells. Dr. Green’s autologous cultured
epidermis uses a superb technique for propagating cells with 3T3-J2
cells as the feeder layer to supplement these individual differences.

Under Mr. Ozawa’s energetic leadership, J-TEC has succeeded inindustrializing regenerative medical products in the brand-new
medical field of tissue engineering. In January this year, autologous
cultured epidermis (‘JACE’) was listed as an item covered by Japan’s
National Health Insurance (NHI). Healthcare industry insiders viewed
this as a landmark breakthrough, signifying that a new era in healthcare was beginning. It is necessary to demonstrate both ‘safety’ and‘effectiveness’ in order to successfully industrialize this new field ofhealthcare known as regenerative medicine. As there are noprecedents in this new field, every progressive step needs to be taken
in close consultation with the Ministry of Health, Labor and Welfare(MHLW), and thus it became clear that bringing the product tocommercial realization was an even more difficult task than had been
imagined. Mr. Ozawa is optimistic, tenacious and full of ideas, whichis exactly why he has succeeded with these great achievements.

The number of physicians in Japan with practical experience in theuse of tissue engineered medical products (abbreviated as ‘TEPs’) is
extremely limited. Therefore, I have high expectations that J-TEC will
fulfill its mission of providing information and research materials tophysicians and healthcare facilities, as well as educating them andproactively supporting educational activities, to ensure thatphysicians can provide appropriate treatment for cell harvesting andgrafting as well as in post-graft patient care. Through these efforts, I
feel sure that J-TEC will be able to establish a mechanism for popularizing regenerative medicine.

In the future, we hope that Japan’s NHI will agree to cover autologous cultured cartilage and autologous cultured corneal epithelium aspromptly as possible, to facilitate the supply of these vital products tothe many patients eagerly awaiting their industrialization.

Company Financial PerformanceYear Ending

2005/March

2006/March

2007/March

2008/March

2009/March

2010/March (Est.)

Sales (million JPY)
Operating income (million JPY)
Ordinary income (million JPY)
Net income (million JPY)
Net income per share (JPY)Dividend per share (JPY)[Business Risk]
The following issues are some of the potential risk factors our company foresees might occur as our business develops. Please refer to ourcompany’s financial reports for further details.
(1) Main Focus of Japan Tissue Engineering’s
Business(2) Being a completely new field of business(3) Changes in management performance(4) Research and Development Activities(5) Competition(6) Intellectual Property Rights(7) Relationships with Universities and otherResearch Institutions(8) Company Premises(9) The Company’s Organizational Structure(10) Product Liability Risks(11) Stakeholders, Key Players and Related Parties

March 31, 2009

Japan Tissue Engineering

March 31, 2009

Japan Tissue Engineering

Actcell’s Diagnosis of Hidden Potential

Actcell's Analysis of the Value Creation Process
Objective

The value creation process is a series of processes that incorporate a combination of “human resource strengths,” “inward focus”
and “outward focus” to create value.

To become the type of company that society truly needs by industrializing regenerative
medicine. To continue to grow as a company for as long as the human race exists bycontributing to improvements in our patients’ Quality of Life (QOL) in compliance with ethics .
As a result of these efforts, we hope to enable all of our stakeholders to live a better life.

Benchmark Figures

Item

Remarks and Notes

Outward Focus

Number of lecture presentations given: 27
Accomplishments at
Academic Conference
Presentations and Lecture
Presentations
Notable Award Achievements Received the ‘Japan Bio-venture Grand Prize’

Patent Acquisition Status

at the ‘Fourth Japan Bio-venture Grand Prix’

Between April 2008 and March, 2009
(Example of actual presentation)‘The 8th AGM of The Japanese Society for Regenerative
Medicine,’ ‘Venture 2008 Kansai’ and so on.
October, 2005
Held by ‘Fuji Sankei Business i’

Received the ‘Highest Award’ at the ‘2006 Chubu
Economic Federation New Business Awards’

November, 2006
Held by Chubu Economic Federation

Under examination: 60 cases (of which, 14 overseas)

Current as at March 31, 2009

Qualification Acquisition
Status

One dental practitioner / 6 Pharmacists / 8 Doctors of Current as at March 31, 2009

Brand

Outward Focus

Outward Focus

Technology &Know-howBusiness
Processes

Executive
Management

Employees

Inward Focus

Inward Focus

HR Strengths

HR Strengths

Business fields considered asnational strategies‘Millennium Genome Project’

Corporate Culture

Philosophy / 3 clinical laboratory technicians‘Vision of Medicine Industry,’ ‘New Vision of Medicine Industry’Cutting-edge medical development districts(Super special districts)

July, 2005. Prime Minister’s Final ReportAugust 2002, August 2007 MHLW
December 2002, Biotechnology Strategy Meeting heldby the Prime Minister’s OfficeNovember 2008, Cabinet Office(Documentation provided by J-TEC)<Research & Development>

Basic Research / Pre-clinical Studies / Clinical Trials / GLP<Pharmaceutical Development>

Application for starting Clinical Trials / Clinical Trials / Application for Manufacture & Sales /Listing on NHI / GCP<Research & Development>

QMS / ISO9001 / ISO13485 / GQP / GMP / GVP / GPSP

● Sales core facility / selection of consultant physicians● Educating and promoting to physicians, surgery and● Determining Price of Product● Promote understanding by patients and their families

hospital staff● Optimal logistics structure<<Acceptance of Patient Tissue>>● Sterile, closed devices withtemperature control● Transport system● Educating about tissue harvesting

and transport proceduresManagement
Strategy<<Manufacture>>● Made-to-order system● Cell cultivation procedures● System for reporting progressstatus of cultures● Outgoing inspection

Carry around cards inscribed with the ‘Objectives offounding the company,’ ‘Corporate philosophy,’ and‘Behavioral Policies’

A policy of always coming back to the corporate philosophy to makedecisions whenever unsure

Education &Training

J-TEC’s own ‘Employee Education & Training
Program’Support for improving skills such as expression, negotiation and analysis(for all employees)● Advertising & Promoting TEMPs<<Product Supply>><<Post-marketing Surveillance >>● Sterile devices with temperature

control● Transport system● Procedural education at time

Margin<Reliability Assurance / Quality Assurance>

Inward Focus

Customers /Business Partners /Related Parties

Registration of rights: 24 cases (of which, 13 overseas)‘Broad Outline of Biotechnology Strategy’

HR Strengths

Inward Focus● Post-marketing clinical trials● Actual use studies● Safety management system● Records storageof customer receipt

No. of Employees(excluding external directors)

Good balanced ratio of male and female
personnel

105 (54 male, 51 female) (current at March 31, 2009): Category: Explanation of Category: Specific benchmarks for category

HR Strengths

Outward Focus
The Brand and Innovative
Capabilities as ‘Frontrunners
in Regenerative Medicine.’
J-TEC has boldly taken up the challenge to ‘industrialize
regenerative medicine,’ a feat that no one else has
succeeded in as yet. Already, the company has broken
through numerous barriers on its way to achieving this goal.
As a pioneering company with an ability to accomplish its
innovations that is unmatched by any other company, J-TEC
continues to formulate the No. 1 Brand in Japan’s domestic
regenerative medicine field.
As Japan’s aging population continues to increase, so
too does the national healthcare expenditure, reaching as
much as JPY 33.4 trillion in 2007, equivalent to 8% or moreof the country’s GDP (Gross Domestic Product). The factthat healthcare costs are rising at a faster rate than theeconomy’s rate of growth is cause for apprehension about
the nation’s future financial burden. The government is
attempting to implement various measures to curb
healthcare costs, such as revising medical treatment feeschedules, shortening hospital stays, and promoting
generic drugs.
Despite these grim circumstances, J-TEC was granted
coverage by National Health Insurance (NHI) for its JACE
product (J-TEC Autologous Cultured Epidermis) as Japan’s
first Tissue-Engineered Medical Product (TEMP) on January
1st, 2009. However, the product’s Points To Consider (PTC)
specify that there are currently only a few more thantwenty facilities that comply with the requirements for
supplying JACE under insurance, and the coverage limit isset at a maximum of 20 JACE sheets per patient. Therefore,
it remains very difficult for this product to become
profitable. However, the achievement of being listed ascovered by NHI has contributed to an environment in which
both patients and medical institutions can now use thisproduct with confidence. It could be said that J-TEC, as a‘manufacturing–style’ business model bio-venture involvedin much more than just research, has acted as a bridgehead
in working towards making regenerative medicine more
widely-known, as there had previously been someapprehension in the field regarding practical application ofthis product.
The addition of regenerative medicine as a new option,
available together with existing treatment methods, may
enable patients to select the best treatment method forthemselves in the future, as they will be able to consider
treatment expenses and duration, efficacy & effects, andany risks of side-effects. In this case, the range ofhealthcare services would be expanded, and it has been
predicted that this would result in a shift towards useroriented services, where the patient makes a proactive
choice about their treatment method, rather than a oneway decision made by the service provider. It is hoped thatpatients will consider and choose JACE as a suitable
treatment option, and that gradually, a wide range ofrelated parties will steadily come to acknowledge the valueof autologous cultured epidermis. An expansion of sales
channels will also be vital, and it is anticipated that J-TEC
will build relationships based on mutual trust with various
medical institutions in the future.
In contrast to the negative elements of healthcare
financing's current predicament, there are actually highexpectations for regenerative medicine to become the‘healthcare mode that will support the next generation.’ Inlight of its acknowledgement of the problems being facedby the regenerative medicine system, the government
established an Investigative Commission into Regenerative
Medicine in March 2009, to discuss matters such as whether
it should be made possible to commission external
outsourcing of cell cultivation. Debate is scheduled to takeplace between relevant persons from industry, academia
and government. J-TEC has already succeeded in overcoming numerous hurdles in its dealings with the Ministry of
Health Labor and Welfare (MHLW) and regulatory authorities. These include being the first company to submit
applications for starting clinical trials, implementing
clinical trials, application for Manufacture & Sales of JACE,
and managing to get autologous cultured epidermis listed
for coverage under NHI. It could be said that J-TEC has built
up special relationships that no other company can claim tohave. Fees for medical treatments are scheduled to berevised in April 2010, at which time a number of aspects
will be reviewed, including calculation limits, facility
compliance requirements, and insurance reimbursement
amounts. By continuing to steadily accumulate thesevarious achievements, it is hoped that JACE will truly beable to begin making a profit.
In addition, the achievement of securing government
backup in the form of National Health Insurance (NHI)
coverage for autologous cultured epidermis in the field of
regenerative medicine heightens the probability that
insurance coverage may also be applied to the manufactureand sale of cartilage and corneal epithelia, and future
movements will undoubtedly be watched with interest.

Establishing a coherent value chain,from Research & Development
through to Manufacturing, Sales andAfter-care Support
Although it is anticipated that the market for regenerative medicine will expand in the future, there are various
hurdles to overcome before a product can become acommercial reality, such as the issues of safety and quality.
Therefore, research findings do not necessarily translate
immediately into the development of a business in thisfield. To successfully achieve industrialization, a manufacturer must have vital operational technology in order tofacilitate a stable supply of the product.
J-TEC has a value chain function in place for delivering
new products to patients (Research & Development,
Manufacturing, Sales, Post-marketing surveillance). These
are different ‘strengths’ to those found conventionally in‘research & development-style’ business model bioventures. J-TEC is contributing to building a new businessstructure as a frontrunner, despite regenerative medicine’s
currently inadequate social infrastructure.
Furthermore, J-TEC has built up GMP (Good Manufacturing Practices) and QMS (Quality Management Systems) toensure safety through its stringent quality control, while
the company’s strengths in production technology contribute to improving efficiency and risk reduction. Continuous
improvements aimed at establishing unassailable businessprocesses, such as more refined operating procedures andcompilation of manuals, will also be vital in the future.
Major barriers for other companies wishing toparticipate in this market include the lengthy duration and
expense required to perform clinical trials, and theextremely strict conditions that must be met in order for
authorization and/or licensing to be granted. Despite this,
it is anticipated that J-TEC will further demonstrate its
strengths by accumulating know-how as it chalks up new
milestones with each individual accomplishment and caseexample.

HR Strengths
It is vital to have a corporate environment that encourages employees tobe independent, and a structure thatwill draw out their abilities and ideas
Effective leadership in management ensures thateveryone in the company is thoroughly familiar with
J-TEC’s values (such as its corporate philosophy andbehavioral policies), and the workforce itself comprises atalented group of highly-skilled and motivated people.
However, a possible personnel shortage has been predicted
as the company expands and grows from its current
business development stage. Although appropriate training
and education are not easy matters when it comes to aperson’s specific aptitude for research, plant and sales,
education and training are necessary for the division
leaders. Simultaneously, employee shortages need to besupplemented and/or internal capacity expanded throughutilization of external skills and professionals.
In particular, it is not possible for products in the
medical field to become well-known unless they are being
used properly by the relevant professionals. Accordingly,
education and training needs to be provided to middlemanagement employees so that they will be able to leadthe field of regenerative medicine, as it will be vital forthese employees to have a high degree of expertise in theirbusiness dealings with physicians or medical institutions.
In addition, decisions need to be flexible and dynamic
in order to cope with uncertain elements and changes sothat the company can develop further. Accordingly, otheraspects that will become even more important include theprogressive delegation of authority, getting each individual
employee to become more conscious of actively participating in the company’s management, together with business
relationships and information-sharing that extend beyond
organizations and hierarchy. J-TEC uses a soccer teamanalogy to describe what the company looks for in its
employees, noting that the company educates and trains“personnel capable of flexibly but actively ‘playing’ acrossa wide range of disciplines.” In order to continue to makethe most of employee autonomy whilst demonstratingorganizational abilities, Actcell believes that other possible
strategies that could be pursued might include a personnel
rotation system, an internal recruitment system (to assign
suitable employees that are interested in participating in aparticular task or project), or policies to further strengthen
human resources as a venture corporation.

March 31, 2009

Japan Tissue Engineering

March 31, 2009

Japan Tissue Engineering

Actcell’s Diagnosis of Hidden Potential

Actcell's Analysis of the Value Creation Process
Objective

The value creation process is a series of processes that incorporate a combination of “human resource strengths,” “inward focus”
and “outward focus” to create value.

To become the type of company that society truly needs by industrializing regenerative
medicine. To continue to grow as a company for as long as the human race exists bycontributing to improvements in our patients’ Quality of Life (QOL) in compliance with ethics .
As a result of these efforts, we hope to enable all of our stakeholders to live a better life.

Benchmark Figures

Item

Remarks and Notes

Outward Focus

Number of lecture presentations given: 27
Accomplishments at
Academic Conference
Presentations and Lecture
Presentations
Notable Award Achievements Received the ‘Japan Bio-venture Grand Prize’

Patent Acquisition Status

at the ‘Fourth Japan Bio-venture Grand Prix’

Between April 2008 and March, 2009
(Example of actual presentation)‘The 8th AGM of The Japanese Society for Regenerative
Medicine,’ ‘Venture 2008 Kansai’ and so on.
October, 2005
Held by ‘Fuji Sankei Business i’

Received the ‘Highest Award’ at the ‘2006 Chubu
Economic Federation New Business Awards’

November, 2006
Held by Chubu Economic Federation

Under examination: 60 cases (of which, 14 overseas)

Current as at March 31, 2009

Qualification Acquisition
Status

One dental practitioner / 6 Pharmacists / 8 Doctors of Current as at March 31, 2009

Brand

Outward Focus

Outward Focus

Technology &Know-howBusiness
Processes

Executive
Management

Employees

Inward Focus

Inward Focus

HR Strengths

HR Strengths

Business fields considered asnational strategies‘Millennium Genome Project’

Corporate Culture

Philosophy / 3 clinical laboratory technicians‘Vision of Medicine Industry,’ ‘New Vision of Medicine Industry’Cutting-edge medical development districts(Super special districts)

July, 2005. Prime Minister’s Final ReportAugust 2002, August 2007 MHLW
December 2002, Biotechnology Strategy Meeting heldby the Prime Minister’s OfficeNovember 2008, Cabinet Office(Documentation provided by J-TEC)<Research & Development>

Basic Research / Pre-clinical Studies / Clinical Trials / GLP<Pharmaceutical Development>

Application for starting Clinical Trials / Clinical Trials / Application for Manufacture & Sales /Listing on NHI / GCP<Research & Development>

QMS / ISO9001 / ISO13485 / GQP / GMP / GVP / GPSP

● Sales core facility / selection of consultant physicians● Educating and promoting to physicians, surgery and● Determining Price of Product● Promote understanding by patients and their families

hospital staff● Optimal logistics structure<<Acceptance of Patient Tissue>>● Sterile, closed devices withtemperature control● Transport system● Educating about tissue harvesting

and transport proceduresManagement
Strategy<<Manufacture>>● Made-to-order system● Cell cultivation procedures● System for reporting progressstatus of cultures● Outgoing inspection

Carry around cards inscribed with the ‘Objectives offounding the company,’ ‘Corporate philosophy,’ and‘Behavioral Policies’

A policy of always coming back to the corporate philosophy to makedecisions whenever unsure

Education &Training

J-TEC’s own ‘Employee Education & Training
Program’Support for improving skills such as expression, negotiation and analysis(for all employees)● Advertising & Promoting TEMPs<<Product Supply>><<Post-marketing Surveillance >>● Sterile devices with temperature

control● Transport system● Procedural education at time

Margin<Reliability Assurance / Quality Assurance>

Inward Focus

Customers /Business Partners /Related Parties

Registration of rights: 24 cases (of which, 13 overseas)‘Broad Outline of Biotechnology Strategy’

HR Strengths

Inward Focus● Post-marketing clinical trials● Actual use studies● Safety management system● Records storageof customer receipt

No. of Employees(excluding external directors)

Good balanced ratio of male and female
personnel

105 (54 male, 51 female) (current at March 31, 2009): Category: Explanation of Category: Specific benchmarks for category

HR Strengths

Outward Focus
The Brand and Innovative
Capabilities as ‘Frontrunners
in Regenerative Medicine.’
J-TEC has boldly taken up the challenge to ‘industrialize
regenerative medicine,’ a feat that no one else has
succeeded in as yet. Already, the company has broken
through numerous barriers on its way to achieving this goal.
As a pioneering company with an ability to accomplish its
innovations that is unmatched by any other company, J-TEC
continues to formulate the No. 1 Brand in Japan’s domestic
regenerative medicine field.
As Japan’s aging population continues to increase, so
too does the national healthcare expenditure, reaching as
much as JPY 33.4 trillion in 2007, equivalent to 8% or moreof the country’s GDP (Gross Domestic Product). The factthat healthcare costs are rising at a faster rate than theeconomy’s rate of growth is cause for apprehension about
the nation’s future financial burden. The government is
attempting to implement various measures to curb
healthcare costs, such as revising medical treatment feeschedules, shortening hospital stays, and promoting
generic drugs.
Despite these grim circumstances, J-TEC was granted
coverage by National Health Insurance (NHI) for its JACE
product (J-TEC Autologous Cultured Epidermis) as Japan’s
first Tissue-Engineered Medical Product (TEMP) on January
1st, 2009. However, the product’s Points To Consider (PTC)
specify that there are currently only a few more thantwenty facilities that comply with the requirements for
supplying JACE under insurance, and the coverage limit isset at a maximum of 20 JACE sheets per patient. Therefore,
it remains very difficult for this product to become
profitable. However, the achievement of being listed ascovered by NHI has contributed to an environment in which
both patients and medical institutions can now use thisproduct with confidence. It could be said that J-TEC, as a‘manufacturing–style’ business model bio-venture involvedin much more than just research, has acted as a bridgehead
in working towards making regenerative medicine more
widely-known, as there had previously been someapprehension in the field regarding practical application ofthis product.
The addition of regenerative medicine as a new option,
available together with existing treatment methods, may
enable patients to select the best treatment method forthemselves in the future, as they will be able to consider
treatment expenses and duration, efficacy & effects, andany risks of side-effects. In this case, the range ofhealthcare services would be expanded, and it has been
predicted that this would result in a shift towards useroriented services, where the patient makes a proactive
choice about their treatment method, rather than a oneway decision made by the service provider. It is hoped thatpatients will consider and choose JACE as a suitable
treatment option, and that gradually, a wide range ofrelated parties will steadily come to acknowledge the valueof autologous cultured epidermis. An expansion of sales
channels will also be vital, and it is anticipated that J-TEC
will build relationships based on mutual trust with various
medical institutions in the future.
In contrast to the negative elements of healthcare
financing's current predicament, there are actually highexpectations for regenerative medicine to become the‘healthcare mode that will support the next generation.’ Inlight of its acknowledgement of the problems being facedby the regenerative medicine system, the government
established an Investigative Commission into Regenerative
Medicine in March 2009, to discuss matters such as whether
it should be made possible to commission external
outsourcing of cell cultivation. Debate is scheduled to takeplace between relevant persons from industry, academia
and government. J-TEC has already succeeded in overcoming numerous hurdles in its dealings with the Ministry of
Health Labor and Welfare (MHLW) and regulatory authorities. These include being the first company to submit
applications for starting clinical trials, implementing
clinical trials, application for Manufacture & Sales of JACE,
and managing to get autologous cultured epidermis listed
for coverage under NHI. It could be said that J-TEC has built
up special relationships that no other company can claim tohave. Fees for medical treatments are scheduled to berevised in April 2010, at which time a number of aspects
will be reviewed, including calculation limits, facility
compliance requirements, and insurance reimbursement
amounts. By continuing to steadily accumulate thesevarious achievements, it is hoped that JACE will truly beable to begin making a profit.
In addition, the achievement of securing government
backup in the form of National Health Insurance (NHI)
coverage for autologous cultured epidermis in the field of
regenerative medicine heightens the probability that
insurance coverage may also be applied to the manufactureand sale of cartilage and corneal epithelia, and future
movements will undoubtedly be watched with interest.

Establishing a coherent value chain,from Research & Development
through to Manufacturing, Sales andAfter-care Support
Although it is anticipated that the market for regenerative medicine will expand in the future, there are various
hurdles to overcome before a product can become acommercial reality, such as the issues of safety and quality.
Therefore, research findings do not necessarily translate
immediately into the development of a business in thisfield. To successfully achieve industrialization, a manufacturer must have vital operational technology in order tofacilitate a stable supply of the product.
J-TEC has a value chain function in place for delivering
new products to patients (Research & Development,
Manufacturing, Sales, Post-marketing surveillance). These
are different ‘strengths’ to those found conventionally in‘research & development-style’ business model bioventures. J-TEC is contributing to building a new businessstructure as a frontrunner, despite regenerative medicine’s
currently inadequate social infrastructure.
Furthermore, J-TEC has built up GMP (Good Manufacturing Practices) and QMS (Quality Management Systems) toensure safety through its stringent quality control, while
the company’s strengths in production technology contribute to improving efficiency and risk reduction. Continuous
improvements aimed at establishing unassailable businessprocesses, such as more refined operating procedures andcompilation of manuals, will also be vital in the future.
Major barriers for other companies wishing toparticipate in this market include the lengthy duration and
expense required to perform clinical trials, and theextremely strict conditions that must be met in order for
authorization and/or licensing to be granted. Despite this,
it is anticipated that J-TEC will further demonstrate its
strengths by accumulating know-how as it chalks up new
milestones with each individual accomplishment and caseexample.

HR Strengths
It is vital to have a corporate environment that encourages employees tobe independent, and a structure thatwill draw out their abilities and ideas
Effective leadership in management ensures thateveryone in the company is thoroughly familiar with
J-TEC’s values (such as its corporate philosophy andbehavioral policies), and the workforce itself comprises atalented group of highly-skilled and motivated people.
However, a possible personnel shortage has been predicted
as the company expands and grows from its current
business development stage. Although appropriate training
and education are not easy matters when it comes to aperson’s specific aptitude for research, plant and sales,
education and training are necessary for the division
leaders. Simultaneously, employee shortages need to besupplemented and/or internal capacity expanded throughutilization of external skills and professionals.
In particular, it is not possible for products in the
medical field to become well-known unless they are being
used properly by the relevant professionals. Accordingly,
education and training needs to be provided to middlemanagement employees so that they will be able to leadthe field of regenerative medicine, as it will be vital forthese employees to have a high degree of expertise in theirbusiness dealings with physicians or medical institutions.
In addition, decisions need to be flexible and dynamic
in order to cope with uncertain elements and changes sothat the company can develop further. Accordingly, otheraspects that will become even more important include theprogressive delegation of authority, getting each individual
employee to become more conscious of actively participating in the company’s management, together with business
relationships and information-sharing that extend beyond
organizations and hierarchy. J-TEC uses a soccer teamanalogy to describe what the company looks for in its
employees, noting that the company educates and trains“personnel capable of flexibly but actively ‘playing’ acrossa wide range of disciplines.” In order to continue to makethe most of employee autonomy whilst demonstratingorganizational abilities, Actcell believes that other possible
strategies that could be pursued might include a personnel
rotation system, an internal recruitment system (to assign
suitable employees that are interested in participating in aparticular task or project), or policies to further strengthen
human resources as a venture corporation.

March 31, 2009

Japan Tissue Engineering

ABOUT THIS REPORTMarch 31, 2009

Japan Tissue Engineering Co., Ltd.

Reading the Report

The index tab color on each page
indicates:

This Report was compiled by Actcell Corporation from analysis based on our own research of hidden potential (known as Intellectual Capital), which can be difficult to detect in acompany’s financial statements. We believe that it is crucial for a company to accumulate individual strengths, such as technological skills, human resources, and a strong client base,in order to create long-term corporate value, and to have “hidden potential” that effectively utilizes those resources. This Report is intended to provide information for reference
purposes on the hidden potential (or Intellectual Capital) of the organization, and represents our understanding of characteristics and strengths of the organization. Accordingly, theinformation contained in this report is not intended for investment activities nor to attract investment. No analysis has been made of financial information such as stock prices or financial
performance. This Report in no way intends to offer either investment or any other type of advice. Furthermore, any costs incurred in issuing this Report were borne by the organizationthat is the subject of the actual Report.
The ratings for Intellectual Capital range from 5 （★★★★★） representing the optimum state in which sufficient intellectual capital has been accumulated and is being properly
utilized, to 1 (★★★★★) representing the state in which sufficient Intellectual Capital has not been accumulated and is not being properly utilized.
★★★★★...Initial level (minimal accumulated Intellectual Capital; management is haphazard; a confused state)★★★★★…Replicable level (accumulation of foundation-level experience in Intellectual Capital through self-refinement)★★★★★…Definite level (unique Intellectual Capital is defined; management processes to enhance Intellectual Capital are clearly set)★★★★★…Under control level (possesses adequate Intellectual Capital and its maintenance and enhancement is managed quantitatively as a structure)★★★★★…Optimum level (possesses optimum Intellectual Capital and is enhanced systematically and continually in the organization as a whole)This Report has been compiled from scores that visualize management’s recognition of issues, with analysis based on interviews. Therefore, the factors indicated below need to be taken
into consideration with regard to high and low scores. Please use this Report as a material for assessing the company together with financial statements, including performance trends.

DIAGNOSTIC REPORT ON● Outward focus“Outward focus” describes the extent of awareness by theexternal parties of the company – clients, business partners,
society, stockholders, etc. – and of establishment ofrelationships with them. This consists of Clients, Brand, andBusiness Partners, and stakeholders’ strengths.

This diagnostic report on J-TEC’s hidden company potential has been prepared by an analyst from Actcell Corporation, an intellectual capital consulting
company. Hidden company potential is a corporate asset that is not readily apparent in financial figures. This report was prepared employing Actcell’s own
methods, to visualize awareness of management issues and diagnose the potential of the organization through interviews. It focuses on the long-term potentialof the organization for creating value. However, no guarantees are provided as to the content, its accuracy or completeness.

Person in charge of Analysis:
Mr. Yasushi Azegami (Director, Actcell Corporation)

Japan Tissue Engineering Co., Ltd.

● Inward focus“Inward focus” describes the extent of structure within thecompany to ensure the business runs smoothly. This consistsof Business processes, and Technology and know-how
strengths.

● Human resource (HR) strengths"Human resource strengths" decribe whether the “people”
working for the organization do what needs to be done
correctly and with satisfaction, and whether theenvironment is set up for them to do so. This consists ofManagement, Employees and Corporate Culture strengths.

● Clients' score
The analysis is a synthesis of the following:① Does the company have many clients willing to consume
and use its products, services, business, etc. on an
ongoing basis, and is it maintaining them?
② Does the client base improve the credibility andreputation of the organization, and is the company
acquiring and maintaining clients willing to nurture an
ongoing relationship?
③ Is the company continually increasing sales from a highly
loyal client base?
④ Is the company avoiding competing with its rivals, andmaintaining sales consistently with minimal costs?

Company Profile⑤ Is the company acting consciously to achieve thesethings?

● Brand score
The analysis is a synthesis of the following:① To what extent do brand recognition, differentiation fromthe competitors, and credibility contribute?
② How capable is the brand of acquiring and maintaining
clients?
③ Can the company connect abilities such as maintaining
competitive pricing in negotiations to its performance?
④ Can the brand effect be extended to join together
products and services?
⑤ Is the company building and using brands strategically?

● Business partners and stakeholders score
The analysis is a synthesis of the following:① Does the strength of relationships with other interested
parties go beyond individual transactions?
② How do transactions with and support from otherstakeholders contribute to performance, competitive
advantage and risk aversion?
③ What is the power balance between the company and thesales/marketing channels, and funding sources, such as
suppliers, financial institutions and stockholders, that
may have significant impact on the business?

● Organization / Corporate culture score
The analysis is a synthesis of the following:① Are common values and objectives shared within thecompany, and is the company spontaneously andfunctionally operating consistent activities?
② Are action policies decided by management, along withauthorities and responsibilities, relayed promptly to theappropriate organization, and are they implemented in
the same way?
③ Does the management carefully monitor and evaluate
the result, and make changes where necessary?

● Technology and know-how score
The analysis is a synthesis of the following:① What is the originality, difficulty of imitation anddurability of value of the intellectual capital?
② Can the company maintain and improve the durability ofthis value?
③ Can the company convert its Intellectual Capital to apply
it to products, services and businesses?
④ To what extent does the company’s Intellectual Capital
contribute directly or indirectly to enhancing thebusiness value?
⑤ Is the company engaging in internal activities to improveand increase its Intellectual Capital, and in activities toform assets specific to the company by documentationand information-sharing?

● Business process score
The analysis is a synthesis of the following relating to thecompany’s process of providing value to its clients, that is,
the areas of the products and services development
function, the operational function including procurement,
production and distribution, the product planning andmarketing function, the sales, marketing and services
function and the financial and business administration
functions:① Is the company operating with high productivity and cost
efficiency, and is its productivity standardized?

② Is the company enjoying advantages in terms of
productivity and quality when compared with its
competitors and within the industry?
③ Does the company have controls and strategies in place
to improve the efficiency and functionality of the overall
process?

● Management score
The analysis is a synthesis of the following:① Is management equipped with such qualities as
innovative leadership and comprehension of and insight
to industry and markets that are indispensable forleading the company to sustainable growth?
② Is management proactively encouraging the creation of
new value and improving organizational capacity
beyond the current corporate scheme?
③ Is management taking the initiative itself?

● Employee score
The analysis is a synthesis of the following:① Do the employees have the ability to undertake theirtasks and the expertise to contribute to the company’sbusiness activities, and do they have a sense of belonging
and motivation?
② Does the company have a clear picture of the employees
it requires for sustainable growth?
③ Is the company properly evaluating, recruiting,developing, placing and retaining employees?

Frontrunner in Regenerative Medicine
Corporate Information
Established:
Initial Offering:
Industry Sector:
Listed Securities
Exchange:
Stock Code:Financial Year
Ends:
Representative:
Headquarters:
No. Employees:

February, 1999
December, 2007
Precision Instruments

Physiologically
activesubstance

JASDAQ NEO
7774
March
Mr. Yosuke Ozawa,
President and CEO
Gamagori City,
Aichi Prefecture
105 / - consolidated basis(current at March 31, 2009;
excludes external directors)

Overall Management
Outward focus

The structure of this Report corresponds to the Guidelines for Statements of Intellectual Capital Management issued by the Ministry of Economy, Trade and Industry (METI),
which is a report on non-financial information, and the content of EBRC Framework Version 2.1. However, it may not necessarily cover all items outlined therein.
【Guidelines for Statements of Intellectual Capital Management】※ From Page 4, ‘4. Representative examples of reporting on Intellectual Capital’ of METI’s Guidelines for Statements of Intellectual Capital Management.

【Body of Statement】【Appendices】

Corresponding part of this report(General)

Description and Special Characteristics of the Company

Outline of basic management philosophy/nature of business

Strategies and Business of Top Management(Past to Present)

Strategies and Business of Top Management

A. Past management policies / B. Investment (based on A) (including figures on performance) / C. Inherent Intellectual Capital accumulatedby the organization (based on A and B), strengths and method of value creation founded on this Intellectual Capital (including supportingIntellectual Capital indicators) / D. Performance, such as profit (including figures) (resulting from the value creation in C)

Actcell Analysis of the Value Creation Process
Company History
Company Financial Performance(Present to Future)(based on C and diagnosis relating from Past to Present)
E. Intellectual Capital firmly established in the organization that will continue to be valid in the future, and method of value creation basedon this IC (including supporting intellectual capital indicators) / F. Recognition of future uncertainty and risk, responses to it, and management
policies for the future that include these / G. New and additional investment required to maintain and develop Intellectual Capital (inalignment with management policies in F)(including figures) / H. Anticipated future earnings, etc. (based on these)(including numericaltargets)
Other indicators of Intellectual Capital (Optional)

HR Stengths

Inward focus

Actcell Diagnostic of Hidden Potential① Management stance/Leadership, ② Selection and focus, ③ External negotiation power/Relationships, ④ Knowledge creation/Innovation/Speed, ⑤ Teamwork/Organizational knowledge, ⑥ Risk management/Governance,⑦ Coexistence with society.
※ Please refer to ACTCELL’s website (www.actcell.com) for the EBRC Framework.

Time / Environment

Tissues andorgans withvital
functionsA ‘manufacturing-style’ business model
bio-venture aiming to“industrialize regenerative medicine”[Business Environment and Company Position]
Regenerative medicine is a treatment method that uses the regenerative and healing abilities of cells to regenerate artificiallycultured tissues. It is garnering a lot of attention as a next-generation medical treatment, as there are high expectations thatit may act as a trump card for treating intractable diseases. Although the needs of patients with intractable diseases arepotentially huge, a major prerequisite for the industrialization of this type of product is that it must be safe for the human body.
Accordingly, close collaboration between industry and government is indispensable in this field of business. With thisbusiness environment as a backdrop, J-TEC was granted approval for coverage by National Health Insurance (NHI) for its
autologous cultured epidermis as Japan’s first tissue-engineered medical product (TEMP) on January 1st, 2009. J-TEC ispioneering this potential market in Japan, which is said to be worth several billion yen domestically. Having overcome
various challenging hurdles to become the first manufacturer to successfully bring this type of product to commercial
realization, high expectations are held that this will contribute to J-TEC’s future earnings, and that both autologous cultured
cartilage and corneal epithelium products will follow the trends set by cultured epidermis.
[J-TEC’s Hidden Potential](1) The first regenerative medicine-related company in Japan to be granted manufacturing approval by MHLW and coverage
under National Health Insurance (NHI). (2) As a bio-venture company, all research & development, manufacturing and sales
functions are performed in-house. (3) Executive personnel and other employees demonstrate their ability to work closely
together as a team to develop the business.
[Points of Interest]
The key to the company’s growth lies in strengthening ties with external stakeholders and getting them involved.

Characteristics and Strengths

The number of stars reflects the accumulation and usage status regarding the company’s intellectual property (IP),current as at March 31, 2009, while the Notes describe the specific features and strengths of the intellectual property.

Brand

J-TEC is the frontrunner paving the way for the regenerative medicine field, and the very first company in this field to be publicly-listed.

Technology & Know-how

Results and know-how in linking research findings to commercial realization.

Business Processes

Retaining all functions in the value chain for delivering new products to patients (R & D – Manufacturing – Sales – Post-marketing Surveillance)

Hopes and Expectations for the Future※ The Intellectual Capital indicators are likened to the “Seven Aspects for increasing Corporate Value’ (see below)

Cells

Materials

Mr. Yosuke Ozawa
President and CEO

Overall Diagnosis by ACTCELL

Guidelines followed by this Report

Item / Content: information from materials provided by the client

HIDDEN POTENTIALHigh score: Has reached management’s satisfactory level = Score may be slightly higher when management’s recognition of issues is low
Low score: Has not reached management’s satisfactory level = Score may be slightly lower when management’s recognition of issues is highTerminology: information provided by Actcell analyst

Clients; Business Partners;
Related Parties

Corporate Culture
Employees

The number of stars reflects the accumulation and usage status regarding the company’s intellectual property (IP),current as at March 31, 2009, while the Notes describe future hopes and expectations.

Building relationships with hospitals that share an affinity with J-TEC's corporate philosophy; acquiring positive feedback from patients
about their appreciation and/or high expectations of J-TEC's products.
Delegation of authority and affiliations that go beyond an organization’s structure and hierarchy; an organizational approach focusing on collaboration,
information and sharing.
Sustaining and further improving the excellent skills and motivational levels of J-TEC’s employees, who are the driving force behind its futurebusiness expansion, and attracting new personnel.

Copyright ⓒ 2009 Actcell Corporation, All Rights Reserved. Actcell Corporation retains all rights to the content of this report, which may not be reproduced, forwarded or transmitted in any other way without prior consent, either electronically or mechanicallyand regardless of purpose.

Copyright ⓒ 2009 Actcell Corporation, All Rights Reserved. Actcell Corporation retains all rights to the content of this report, which may not be reproduced, forwarded or transmitted in any other way without prior consent, either electronically or mechanically andregardless of purpose.

[ Note: ]Neither Actcell Corporation nor the information providers, nor any party providing information to readers of this Report, warrants or guarantees the truth or completeness of the information contained therein, nor do any of these parties accept liability for any
omissions or errors and so forth in the data and graphics employed in this Report. None of the parties makes any representation or warranty in relation to any outcome arising from the use of this report. The information in this Report may be rendered invalid by
the passage of time. Actcell does not represent that the Report and its contents thereof are up to date, nor does Actcell represent that the Report and its contents thereof have been updated for changes in market or economic or other factors. Representations offact or opinion by Actcell in this Report may not be up to date, and may not represent the present opinions of Actcell.

[ Note: ]Neither Actcell Corporation nor the information providers, nor any party providing information to readers of this Report, warrants or guarantees the truth or completeness of the information contained therein, nor do any of these parties accept liability for any
omissions or errors and so forth in the data and graphics employed in this Report. None of the parties makes any representation or warranty in relation to any outcome arising from the use of this report. The information in this Report may be rendered invalid by
the passage of time. Actcell does not represent that the Report and its contents thereof are up to date, nor does Actcell represent that the Report and its contents thereof have been updated for changes in market or economic or other factors. Representations offact or opinion by Actcell in this Report may not be up to date, and may not represent the present opinions of Actcell.