Kidswell Bio (TYO: 4584)
Sales of biosimilar GBS-007 are strong.
Also, first-generation SHED has advanced to just ahead ofclinical research and development.
◇Summary of 3Q results for FY2023/3
In the 3Q results for FY2023/3, Kidswell Bio's biosimilar (BS) business, including GBS-007,
performed well, recording sales of 1.72bn yen. Following the completion of Master Cell
Bank (MCB) for SHED (Stem cell from Human Exfoliated Deciduous teeth) in 2Q, joint
research with academia is steadily progressing towards practical applications. MCB is a
crucial technological development for the company's future business using SHED, andfurther acceleration of various development activities is expected. In 4Q, sales and R&D
costs are expected to grow further, so the company has not changed its full-year forecast.
However, there is likely to be an upward swing in profits (smaller losses).
The company's SHED business is progressing steadily. The fact that the first-generation SHED
has progressed right up to clinical research and development (human administration) is
worth significant attention. In the second generation SHED, the company plans to invest
aggressively with a view to overseas development and expansion. From now on, financing
for this will be on the agenda.

3Q results update
Healthcare
As of February 13, 2023
Share price(2/10)¥280
52 weeks high/low
Avg Vol (3 month)Market Cap
Enterprise ValuePER (23/3 CE)
PBR (22/3 act)
Dividend Yield (23/3 CE)
ROE (TTM)
Operating margin (TTM)
Beta (5Y Monthly)
Shares Outstanding
Listed market◇ A view on share price
The company's share price has adjusted sharply since the full-year results announcement for
FY2022/3 in May 2022. Although recovering slightly in November 2022, it has yet to recover
to its previous level. As a result, the shares' PBR remains at 5.22, below the three-year
average (LTM) of 8.44x. In its new medium-term term strategic plan (KWB 2.0), the company
plans to achieve sales of 3 billion yen and an operating profit of 1 billion yen in FY2025 bysecuring solid earnings from its BS business. At the same time, the company has stated its
intention to accelerate business development with an eye on the global market throughcontinued investment in SHED. As mentioned above, steady progress has been made in thefirst-generation SHED, with some products entering the clinical preparation stage. It will beinteresting to see whether the share price will be revalued in light of this progress.

◇ Results for 3Q FY2023/3: Steady growth in sales of BS GBS-007
The company's 3Q results for FY2023/3 showed sales of 1,726 million yen, an operating lossof 135 million yen and a net loss of 194 million yen. The company has shifted to nonconsolidated reporting from the current term, so simple year-on-year comparisons are
impossible (consolidated sales in 3Q FY2022/3 were 1,383 million). Still, profitability is
steadily improving.
In terms of sales, the BS business, including the third BS product GBS-007, continued toperform well in 3Q. Although there were some timing delays in shipments of some products,
progress was generally in line with plans. In 2Q, the company recorded sales from thecompletion of MCB and milestone revenues from the fourth BS product.
In terms of profit, the company recorded an operating profit of 11 million yen in 2Q, but thiswas the result of curbing R&D investment until the completion of the MCB, as noted in theprevious year's report. In 3Q, the increase in research and development costs resulted in an
operating loss for the nine months, as described above. The operating loss has improved
YoY due to a review of investment priorities and ongoing cost reductions.

JPY, mn, %Net sales

YoY
%

Oper.
profitYoY%

Ord.
profit¥483/200
576.6 thou shrs
¥8.9 bn¥9.5 bn–X
5.74 X–%-32.17 %-58.57 %1.13
32.046 mn shrs
TSE Growth

Share price performance
Stock pricevs. TOPIX Index (RHS)

700

160

600

140

500

120

400

100

300

80

200

60

100

40

0
2/10/22

5/10/22

8/10/22% ofShare prices
Relative share price11/10/22

1 mo.
6.5%
0.8%

20
2/10/23

3 mo. 12 mo.
-1.1% -34.7%-3.6% -35.5%

Points of interest
A drug discovery venture company originatedfrom Hokkaido University. Leading andsuccessful in biosimilars. Focuses on celltherapy (regenerative medicine) using Stem cellfrom Human Exfoliated Deciduous teeth (SHED)and the development of new biologics.
This report (Company note) has been prepared onbehalf of Kidswell Bio. For more information,please refer to the Disclamer on the last page.

YoY%

Profit
ATOP

YoY
%

EPS
(¥)

2019/3

1,021

-3.6

-805

–

-816

–

-856

–

-43.842020/3

1,077–-1,161–-1,187–-7,316–-264.652021/3

996

-7.5

-969

–

-991

–

-1,001–-34.792022/3

1,569

57.7

-919

–

-952

–

-535

–

-17.352023/3 (CE)

2,900

–

-980

–

-999

–

-1,000–-31.80*2022/3 3Q

–

–

–

–

–

–

–

–

–

2023/3 3Q

1,726

–

-135

–

-194

–

-194

–

-6.18

* The company's financial results are on a consolidated basis until FY2022/3; FY2023/3 is on a non-consolidated basis. Therefore, figures for the same period of the previous
year and YoY comparisons are not shown.

Kidswell Bio | 2023/2/13

1

Results for 3Q FY2023/3 (PL)

Source: Company materials
As previously reported, a bank loan of 1 billion yen was taken out at the end of June to secure working capitalin line with the increase in sales of GBS-007. As a result of the interest paid (23 million yen) and commission
paid (30 million yen), which were recorded as non-operating expenses, recurring profit resulted in a loss of 194
million yen.
On the balance sheet, cash and deposits at the end of 3Q stood at 1.49 billion yen due to the execution of bankloans and the issue of the 4th unsecured convertible bond with acquisition rights. Meanwhile, thecorresponding non-current liabilities increased to 1.70 billion yen. As a result, total assets at the end of 3Q
stood at 4.17 billion yen, an increase of 0.70 billion yen from the end of FY2022/3.

❖ Cell therapy business (regenerative medicine): various collaborations have progressed withcompleting the SHED MCB*Progress in the pipeline: see the figure above on the next page for the company's cell therapy businesspipeline.
In first-generation SHED, although the development status is at the non-clinical stage, collaboration with
Nagoya University and other academia is progressing. In October 2022, the company filed a patent application
jointly with Nagoya University for the treatment of cerebral palsy using SHED. On January 30, it was announced
that the University's Certified Special Committee for Regenerative Medicine had deliberated on the clinicalresearch plan "Clinical trial to examine the safety and tolerability of a single administration of autologous SHED
for children with cerebral palsy", which was being carried out concerning this application, and that thecommittee had decided to continue the deliberations. This indicates progress in specific research results on
first-generation SHEDs.
The development status of second-generation SHED is still in the research and exploratory phase, but thecompany continues to focus on it. As an example, in a joint research project with Hamamatsu University Schoolof Medicine, it was confirmed that brain tumours disappeared after the administration of thymidine kinaseguided SHED. Second-generation SHED is positioned as a critical element in the company's future overseas
expansion, and the company intends to continue to focus on this area.

Second generation SHED: an image of development process for 'designer cells'
Accelerating SHED modified by gene transfection and culture
methods to enhance therapeutic efficacy

Source: Company materials

Kidswell Bio | 2023/2/13

2

Pipeline Highlights: Cell therapy business (Regenerative medicine)

Source: Company materials
The company is looking at creating other modalities based on the MCB-based system S-Quatre® as the next
step in second-generation SHED. It is already in ongoing discussions with many potential partners for theapplication of SHED as a raw material for other modalities.

Business development of S-Quatre®: an image of the application of S-Quatre® in other modalities

Creating other modalities using SHED as a raw material with partners❖ Biosimilars business: strong sales of GBS-007 and approval for additional indications*Ranibizumab (GBS-007): on December 9, 2021, the third product in the BS business, ranibizumab BS, an antiVEGF antibody drug for age-related macular degeneration, was launched by development partner Senju
Pharmaceutical. As the first BS in the ophthalmology field, this has attracted a lot of attention and sales havebeen strong, with orders exceeding initial forecasts. The company has raised funds to support increased
production.
Furthermore, on January 13, the company announced the approval of an additional indication for GBS-007: inaddition to the existing indications of 'age-related macular degeneration with subcentral choroidal
neovascularisation' and 'choroidal neovascularisation in pathological myopia', 'diabetic macular edema' wasnewly added. This is expected to broaden the drug treatment options for these diseases and reduce theeconomic burden on patients. The approval of the additional indications is due to the patent expiry for the
existing drugs. Although this will only have a negligible impact on the company's performance, it is a positive
step in enhancing corporate value by strengthening the BS business.
*Filgrastim (GBS-001): BS, which a partner has already launched. GBS-001 has also been subject to cost-cutting,which should improve profitability. Mochida Pharmaceutical has decided to discontinue sales of GBS-001, but
Kidswell Bio has already reflected this in its forecasts.

Kidswell Bio | 2023/2/13

3

❖ New biologics business: Patent application for anti-RAMP2 antibody (GND-004)*Anti-RAMP2 antibodies to address unmet needs in retinopathy of prematurity: The anti-RAMP2 antibody isa novel antibody created in collaboration with the research group of Professor Takayuki Shindo of Shinshu
University School of Medicine and is being developed under the company development code GND-004. The
patent application states that the anti-RAMP2 antibody binds to the RAMP2 (Receptor Activity-Modifying
Protein 2)/CRLR (Calcitonin Receptor-Like Receptor) complex. This inhibits the promotion of pathologicalangiogenesis. As a result, it is expected to be clinically applicable for retinopathy of prematurity. Anti-VEGF
drugs are already known as angiogenesis inhibitors, but the anti-RAMP2 antibody acts via a different pathway
to anti-VEGF. The company intends to promote licensing activities for anti-RAMP2 antibodies while
differentiating them from existing drugs.

◇ Outlook for FY2023/3: Guidance is unchanged from initial estimates, but operating loss may
narrow
The company has left its FY2023/3 forecasts of 2.9 billion yen in sales, 0.98 billion yen of operating loss and a
net loss of 1.0 billion yen unchanged from the initial estimates. As of the end of 3Q, sales are approximately
60% of the full-year forecast. However, as sales of GBS-007 and other BS are expected to continue to be strong,
the full-year sales plan is within the achievable target range of the company. On the other hand, the company
has set a forecast of 1.4 billion yen for R&D expenses for the full year, but the actual amount as of 3Q was 580
million yen, a progress rate of 41%. The company has set 4Q as the period for booking major development
costs. But as the remaining 800 million yen of R&D investment in 4Q alone is unrealistic, the full-year operating
loss will likely be smaller than forecast.

◇ Share price trend: A rebound on good results and progress on SHEDThe company's share price fell sharply in May 2022 when it announced its FY2022/3 results due to thepostponement of its return to profitability in FY2023. Subsequently, on November 7, 2022, the share pricerebounded significantly following the publication of a paper on the results of research conducted incollaboration with Hamamatsu University School of Medicine. On the following day, November 8, the company
announced an operating surplus in its 2Q results, which led to further growth and a volume record rarely seen
in recent years. However, since then, the share price has remained at around 300 yen to below 300 yen and has
not recovered to its previous level. As a result, the company's PBR remains below the three-year average (LTM)of 8.44x, staying at 5.22x (see chart on next page). In its new medium-term strategic plan (KWB 2.0), thecompany plans to achieve sales of 3 billion yen and an operating profit of 1 billion yen in FY2025 by securingsolid earnings from the BS business. At the same time, the company has stated its intention to acceleratebusiness development with an eye on the global market through continued investment in SHED. These plans
are to move away from business development almost exclusively centered on the domestic market and to
expand overseas in one stroke with SHED as a pillar, so the investment is expected to be enormous. The recent
progress of the first-generation SHED into the clinical preparation stage, the patent grant for the anti-RAMP2
antibody and the addition of the indication for GBS-007 are examples of the company's steady progress in its
medium-term strategic plan. It will be interesting to see whether the share price will be revalued, reflecting
these positive developments.

Kidswell Bio (4584) Share price and events over the past year
4Q FY22/3
Announcementof financial
results
KWB 2.0
announced(Yen)

Moving average (5 days)
Moving average (25 days)
Moving average (75 days)

1Q FY23/3
Announcementof financial
results
SHED MCB
construction
completed

1Q FY23/3
Announcementof financial
results

Publication ofresearch resultsin collaboration
with Hamamatsu
University
School ofMedicine

3Q FY23/3
Announcementof financial
results

Publicationof approvalof GBS-007
for additional
indications(million shares)

Kidswell Bio | 2023/2/13

4

Stock price transition (last 6 years)(Yen)

Moving average (13 weeks)Moving average (26 weeks)Moving average (52 weeks)(million shares)

Historical PBR (4584, last three years, LTM)
(X)

Average = 8.44

5.22

Kidswell Bio | 2023/2/13

5

Financial data
FY (¥mn)[Statements of income]Net sales
Cost of sales
Gross profit
SG&A expenses
R&D expenses
Operating profit (loss)
Non-operating income
Non-operating expenses
Ordinary profit (loss)
Extraordinary income
Extraordinary expenses
Profit (loss) before income taxes
Total income taxes
Net profit (loss)[Balance Sheets]
Current assets
Cash equivalents and short-term
securities
Non-current assets
Tangible assets
Investments and other assets
Total assets
Current liabilities
Short-term borrowings
Long-term debts to be repaid within
one yearNon-current liabilities
Long-term debt
Long-term borrowing
Convertible bonds
Total liabilities
Total net assets
Total shareholders' equity
CapitalLegal capital reserve
Retained earnings
Stock acquisition right
Total liabilities and net assets[Statements of cash flows]
Cash flow from operating activities
Loss before income taxes
Cash flow from investing activities
Expenditure on acquisition of
intangiblefixed assets
Purchase of investment securities
Sales of investment securities
Cash flow from financing activities
Income from the issuance of
convertible bond-type bonds withstock acquisition rights
Income from issuance of shares by
exercising stock acquisition rights
Income from issuance of stockacquisition rights
Proceeds from issuance of newshares
Net increase in cash and cash equiv.
Cash and cash equiv. at beginning of
periodCash and cash equiv. at end of period

2020/3
1Q

2Q

3Q

4Q

2021/3
1Q

2Q

3Q

4Q

2022/3
1Q

2Q

3Q

4Q

284
77
207
417
235
-210
0
2
-212
4
5,939
-6,147
1-6,147

30
8
22
423
249
-401
0
1
-402
0
0
-402
0
-403

419
359
60
381
201
-321
1
20
-340
0
0
-340
3
-342

2,761

2,390

1,654
330
2
328
3,091
421
25

25

24

345
209
136
365
213
-229
0
4
-233
2
194
-425
-2
-424

121
5
116
354
138
-238
0
7
-244

53
35
19
463
265
-445
1
5
-450

547
46
500
465
198
36
1
4
33

276
34
242
565
363
-323
1
8
-330

303
122
182
491
297
-309
2
6
-314

438
154
283
425
236
-142
0
8
-150

642
183
460
442
237
18
0
15
4
418

186
91
94
580
380
-486
1
7
-493
0

0
-244
1
-245

1
-451
0
-451

8
26
0
25

0
-331
1
-330

-314
0
-314

-148
1
-149

421
52
369

3,238

3,322

3,573

3,218

3,329

3,346

2,794

3,203

1,602

2,482

2,033

2,658

2,502

1,830

1,461

874

427
2
425
2,817
550
25

418
2
416
3,656
529
25

270
2
268
3,592
881
25

379
2
374
3,952
772
25

393
2
389
3,611
858

340
2
336
3,670
925

588
3
582
3,934
1,114

728
3
722
3,522
823

446
573
2,644 2,244
2,644 2,244
612
612
9,917 9,917-7,908 -8,311
38
43
3,091 2,817

2023/3
1Q

2Q

3Q

-493
-51
-441

610
292
318
356
105
-37
0
43
-80
–
–
-80
0
-80

505
128
377
328
147
49
2
13
39
–
–
39
1
38

610
233
377
524
327
-146
0
5
-151
–
–
-151
0
-152

3,722

3,326

4,079

4,035

3,948

974

1,253

1,187

1,532

1,874

1,499

656
2
651
3,859
1,034

178
2
173
3,901
1,045

177
2
173
3,503
1,129

225
1
220
4,304
1,175

224
1
220
4,259
651

224
1
220
4,173
780

75

250

300

400

1,224 1,224 1,384 1,287 1,231 1,209 1,051
826
718
656 1,485 1,908 1,704
1,200 1,200 1,340 1,240 1,200 1,100
900
700
700
625 1,450 1,875 2,275
600
600
600
600
600
600
600
600
600
525 1,350 1,275 1,175
600
600
740
640
600
500
300
100
100
100
100
1,752 2,105 2,156 2,145 2,156 2,324 1,873 1,860 1,763 1,785 2,661 2,560 2,485
1,904 1,487 1,796 1,466 1,514 1,610 1,648 1,999 2,138 1,719 1,643 1,699 1,688
1,904 1,487 1,796 1,466 1,514 1,610 1,648 1,999 2,138 1,719 1,444 1,500 1,490
612
612
842
892
912 1,032 1,150 1,420 1,420 1,421 1,424 1,433 1,504
9,917 9,917 10,147 10,197 10,217 10,338 10,456 10,725 10,726 10,727 10,730 10,739 10,810-8,653 -9,077 -9,322 -9,773 -9,748 -10,079 -10,393 -10,542 -10,173 -10,614 -10,710 -10,672 -1,0824
51
57
70
82
101
116
134
145
165
185
199
199
197
3,656 3,592 3,952 3,611 3,670 3,934 3,522 3,859 3,901 3,503 4,304 4,259 4,173-604-6,548-106-1,325-7,314
-137

-104
-695
-5

-1,267
-999
-22

-857
-462
–

-1,169
-533
526

-709
-42
-23

–

–

-3

-3

–

-1

–

-100
–
40

-100
–
1,221

–
–
579

–
–
718

–
–
370

–
526
369

-50
–
1,446
970

–

599

599

599

–

–

499

40

40

–

138

370

369

–

–

3

4

4

–

–

–

-670

-240

468

-571

-486

-273

713

2,009

2,009

2,032

2,032

1,461

1,462

1,160

1,602

2,032

2,501

1,461

974

1,187

1,874

Note: Consolidated basis until FY2022/3; non-consolidated basis from 1Q FY2023/3. For the statement of cash flows, the figures for 2Q are thecumulative figures for the period from 1Q to 2Q, and the figures for 4Q are the cumulative figures for the period from 1Q to 4Q. Therefore, theopening balance is also the balance at the beginning of each quarter.
Source: Omega Investment from company materials

Kidswell Bio | 2023/2/13

6

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