Company Research and Analysis Report
FISCO Ltd.
http://www.fisco.co.jp

Gene Techno Science
Co.,Ltd.
4584 TSE Mothers

8-Feb.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato伪伪To be the world’s leading biosimilar company
Gene Techno Science <4584> (hereafter, also “the Company”) is a drug discovery venturecompany originating from Hokkaido University specialized in biologics and biosimilars. In the fieldof biosimilars, it was the first company in Japan to launch filgrastim biosilimar, under the Japanesebiosimilar guidelines. The potential market value of the Company`s main development pipeline
candidates are considered to be worth ¥90 billion domestically and ¥1.2 trillion globally. Net sales is
expected to expand up to ¥20 billion in 10 years’ time if the candidates in the pipeline were steadily
commercialized, and the Company is aiming to become “the world’s leading biosimilar company”.
The ratio of biologics in the pharmaceutical market rose from 18% to 23% from 2010 to 2014, and it
is anticipated to continue expanding. The patents of the main biologics are set to expire by 2020, by
when the biosimilar market is expected to rapidly expand. Biosimilar products are expected to reduce
the expense of biologics, which is the major factor behind the expanding medical expenditures.
Following Japan and Europe, the United States also approved the manufacture and sale of biosimilars
in 2015, and there is little room for doubt that it is a growing market worldwide.
The Company has been attracting attention for its track record of launching biosimilars and its
expertise in this field, from development to commercial production. In 2015, it announced that it
had entered into basic agreements for joint development and sales with Mochida PharmaceuticalCo., Ltd. <4534> in the anti-cancer field in August, and with Senju Pharmaceutical Co., Ltd., in theophthalmology field in November.
The forecasts for FY3/16 are for net sales to increase approximately 4 times year-on-year (y-o-y)to ¥1,132mn and for an operating loss of ¥1,045mn (compared to a loss of ¥824mn in the previous
fiscal year). In addition to net sales of the filgrastim biosimilar increasing by more than 3 times, thelump-sum payments received upon entering into basic agreements will contribute ¥50mn. Due to theacceleration in developments with the said collaborations, R&D costs will increase ¥500mn, which is
the main reason of slightly higher expected operating loss.
There are many candidates in the Company’s biosimilar development pipeline that will enter theclinical trials from 2016 and beyond, and the earliest target for the market launch is 2019 onwards.
For the time being, the situation will continue where the development costs are covered mainly byearnings from the filgrastim biosimilar, milestone payments in the pipeline with joint development
and from new agreement-related payments. However, considerable growth is expected from 2020
onwards and we will be paying close attention to the progress that the Company makes in its
developments, as well as movements toward concluding new agreements with joint-development
partner companies.

伪伪Check Point• Currently developing 11 biosimilar products and the potential global market for just the main
6 products is ¥1.2 trillion• The filgrastim biosimilar is contributing to the major increase in sales, while the extent of
the loss is also shrinking• Aiming to grow the biosimilar business to a scale of ¥10bn by around 2021

We encourage readers to review our complete legal statement on “Disclaimer” page.
1

㻾㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟(¥mn)

㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕

㻝㻘㻞㻜㻜
㻝㻘㻜㻜㻜

Gene Techno Science
Co.,Ltd.

㻤㻜㻜4584 TSE Mothers

㻢㻜㻜

(¥mn)
㻜

㻙㻟㻝㻢

㻙㻞㻜㻜

㻙㻟㻡㻤

㻙㻠㻜㻜

㻙㻡㻝㻞
㻝㻘㻝㻟㻞

㻙㻢㻜㻜

㻙㻤㻞㻠
㻠㻜㻜

8-Feb.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato㻙㻤㻜㻜㻙㻝㻘㻜㻠㻡

㻞㻜㻜
㻞㻜㻣

㻢㻜

㻲㼅㻟㻛㻝㻞

㻲㼅㻟㻛㻝㻟

㻟㻜㻝㻟㻞㻝㻲㼅㻟㻛㻝㻠

㻲㼅㻟㻛㻝㻡

㻜㻙㻝㻘㻜㻜㻜
㻙㻝㻘㻞㻜㻜

㻲㼅㻟㻛㻝㻢㻌㻔㻱㻕



伪伪Company outline and the biologics market
A bio-venture company originating from Hokkaido Universitythat is strengthening its development of biosimilars(1) Company history*	filgrastim: a granulocyte growth
factor drug product (G-CSF).
Following chemotherapy (dosagesof anti-cancer agents), white blood
cells decrease and immunity is
weakened, which can cause various
symptoms. Filgrastim is a drug
product which helps the cell growthof the white blood cells.

The Company is a bio-venture company that was established within Hokkaido University in 2001
with the objective of developing diagnostic and therapeutic agents based on the research of the
University’s Division of Molecular Interaction, Institute for Genetic Medicine. In terms of researchand development of new biologics, in 2007 it licensed-out to Kaken Pharmaceutical Co., Ltd. <4521>
anti-integrin alpha 9 antibodies. In addition, in order to build a stable earnings foundation, it began
developing biosimilars, which are the follow-on products of innovator drugs. In 2007 it entered intoa joint-development agreement with Fuji Pharma Co., Ltd. <4554> for a filgrastim biosimilar *, andin 2012 it was the first company to obtain approval for manufacturing and sales under the domestic
biosimilar guidelines for biosimilars. This product has been marketed by Fuji Pharma and MochidaPharmaceutical since 2013.
Whilest strengthening its biosimilar development pipeline, the Company has been actively forming
collaborations with other companies for joint development. It entered into joint-development
agreements with ITOCHU CHEMICAL FRONTIER Corporation in 2013 and with Sanwa Kagaku
Kenkyusho Co., Ltd., in 2014, and most recently, it concluded basic agreements for joint development
and sales with Mochida Pharmaceutical in the anti-cancer field in August 2015, and with Senju
Pharmaceutical in the ophthalmology field in November of the same year. At the same time asentering-into the basic agreement, Senju Pharmaceutical acquired 5.26% (as of November 12, 2015)of the Company’s shares from its largest shareholder, Whiz Healthcare PE1 Limited Partnership (ahealthcare sector specialized investment fund), making it the second largest shareholder.
The Company has started initiatives for the healthcare-related field. In 2014, It entered into a capitaland business partnership with venture company ORTHOREBIRTH Co., Ltd., which is conducting
research and development on synthetic bones, and in 2015, DyDo Drinco, Inc. <2590> acquired
3.79% of the Company’s shares (as of November 12, 2015), and the companies are working tocollaborate in the healthcare field.

We encourage readers to review our complete legal statement on “Disclaimer” page.
2

■■Company outline and the biologics market

Company history
Date

Gene Techno Science
Co.,Ltd.
4584 TSE Mothers

8-Feb.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato

Main events in the Company’s history
Established in Sapporo City with the objective of developing diagnostic and therapeutic agents
March 2001
based on the research in the Division of Molecular Interaction, Institute for Genetic Medicine,
Hokkaido University.
As a venture company certified by the National Institute of Advanced Industrial Science andJune 2002
Technology (AIST), it newly established research facilities within the Hokkaido Center of AIST
and reinforced its research and development into new biologics.
June 2007
Licensed-out the anti-integrin alpha 9 antibody to Kaken Pharmaceutical Co., Ltd.
Entered into a joint-development agreement with Fuji Pharma Co., Ltd. for a filgrastim
October 2007
(G-CSF) biosimilar
Licensed-in filgrastim biosimilar cell line and basic production technology from Dong-A
January 2008
Pharmaceutical Co., Ltd.
Fuji Pharma Co., Ltd. and Mochida Pharmaceutical Co., Ltd. domestically acquired
November 2012
manufacturing and sales approval for the filgrastim biosimilar (launch in May 2013)
Listed on the Tokyo Stock Exchange (TSE) Mothers (market of the high-growth and emerging
November 2012
stocks)In the biosimilar business, entered into a capital and business partnership with ITOCU
August 2013
CHEMIAL FRONTIER Corporation.
Research facilities were moved to the Center for Promotion of Platform for Research on
September 2013
Biofunctional Molecules, The Creative Research Institute, Hokkaido University
Entered into a joint-development agreement with Sanwa Kagaku Kenkyusho Co., Ltd., for a
January 2014
darbepoetin α biosimilarEntered into a nucleic-acids joint business agreement with Gene Design Inc. with the objective
June 2014of commercializing a nucleic-acid pharmaceuticals development platform
Entered into a capital and business partnership with ORTHOREBIRTH Co., Ltd., which isNovember 2014
conducting research and development on synthetic bones
Capital participation in the Company by DyDo Drinco, Inc. toward a collaboration in theJuly 2015
medical and healthcare related businessEntered into a basic agreement for a business-partnership agreement with Mochida
August 2015 Pharmaceutical Co., Ltd. toward the joint development and sales of a biosimilar in the anticancer field
Entered into a basic agreement for capital and business partnership agreement with Senju
November 2015 Pharmaceutical Co., Ltd. toward the joint development and sales of a biosimilar in theophthalmology fieldSpecializing in biologics manufactured by applying generecombination technology and cell culture techniques(2) Biologics and biosimilars
The biologics developed by the Company refers to pharmaceuticals manufactured utilizing theability of microorganisms and cells to create specific proteins (hormones, enzymes, antibodies,etc.) useful for pharmaceuticals. Well-known biologics include insulin (a diabetes therapeutic agent)and interferon (a hepatitis C therapeutic agent). General pharmaceuticals (low molecular weightdrugs) are mass-produced by chemosynthesis on a molecular level. But the manufacturing processof biologics is very different utilizing gene recombination technology and cell culture techniques
to synthesize in a large scale volume of microorganisms and cells. One of the characteristics of
biologics is that major costs must be undertaken for the development and the manufacturing facilities
for mass production. Biologics also tend to have shorter expiry than that of general pharmaceuticals,
leading to higher product price.
In the same way that general pharmaceuticals have innovator drugs that were developed first andthen followed by generic pharmaceuticals that use the same molecules as of the innovator drugs,
biosimilars are the follow-on products of biologics.
However, in case of biosimilars, the drug efficacy and safety do not change compared to theinnovator drugs because the type of protein is the same as the innovator drugs, however, the sugar
chain attached to the protein has slight difference, thus biosimilars are not identical to the innovator
drugs. Therefore in order to pursue the similarity between innovator drugs and its biosimilars, itis necessary to establish an independent manufacturing process and accumulate physicochemical
data to prove its similarity. It is also necessary to conduct clinical trials to prove the safety and theefficacy. Approvals are given based on these requirements, therefore the R&D costs of biosimilars
are much higher than those of generic pharmaceuticals.

We encourage readers to review our complete legal statement on “Disclaimer” page.
3

■■Company outline and the biologics market

Gene Techno Science
Co.,Ltd.
4584 TSE Mothers

8-Feb.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru SatoAs the drug price of biosimilars are set at around 70% of the innovator drugs, high productivity
in development and manufacturing process is important for commercialization of biosimilars. In
particular, there are not many companies in Japan that possess the expertise necessary to establish
the required manufacturing process, or to analyze the characteristics and the quality of developed
biosimilars. The Company specializes in biologics/biosimilars and has accumulated track records inthis field from conducting research and development for more than 10 years, and it has established aposition as a leading expertise in the development of biologics/biosimilars field in Japan.
When new biologics and biosimilars are compared, it takes around 15 to 17 years from the start of
the research to launch of the new biologics, where it takes from 4 to 7 years to develop and launchbiosimilars. In case of a new biologics, it takes two to three years to search for genes (functional
analysis), and further two to four years to screen the candidate compounds. After that, a long periodof time is required from the non-clinical trials through to the clinical trials. The R&D costs for a new
biologics will therefore be in the range of ¥20bn to ¥30bn. In contrast, the cost for biosimilars will
be from ¥2.5bn to ¥6bn, and has higher probability to succeed at each stage from development
to market launch compared to new biologics. The Company is utilizing its expertise to develop its
business with the focus placed on the biosimilar business, while also developing new biologics.
Characteristics of biologics• Biologics refers to pharmaceuticals manufactured through the application of gene recombination technology
and cell culture techniques, utilizing the ability of microorganisms and cells to create specific proteins(hormones, enzymes, antibodies, etc.) in a large scale volume.
• Main biologics include insulin (a diabetes therapeutic agent), interferon (a hepatitis C therapeutic agent), andrituximab (an anti-cancer agent, etc.)
Size (molecular weight)
Manufacturing method
Production

Biologics
Approx. 10,000
Synthesized within microorganisms and cells
Unstable (the product can change depending on theconditions of the microorganisms and cells)

General pharmaceuticals
100~
Chemosynthesis
StableBiosimilars• Biosimilars are approved pharmaceuticals that have demonstrated the equivalent efficacy and safetycompared to previously approved biologics.

Differences between biosimilars and other generic pharmaceuticals
Molecular structure
Efficacy and safety
Costs of development andmanufacturing facilities
Price difference with
innovator drugs

Biosimilars
Enormous and complex
Practically the same as the innovator
drugs (the amino acid sequence is thesame, but the molecular structure andmanufacturing process are different)High (¥20bn to ¥30bn)* Innovator drug, ¥100bn
70% of the innovator drug price*F or medicines for internal use, 60%
when more than 10 biosimilar productsof a certain innovator drug arelaunched.

Other generic pharmaceuticals
Small and simple
Same as the innovator drug (themolecular sequence and structure are
the same)
Low (around ¥100mn)* innovator drug, ¥30bn to ¥100bn
60% of the innovator drug price*F or medicines for internal use, 50%
when more than 10 genetic products ofa certain innovator drug are launched.

No. of products listed in
the standard prices for27 (5 components)
9,478
medicines (as of June 2014)
Source: extracted from “Current conditions of biosimilars” by the Ministry of Health, Labour and Welfare (July,2014)

The global biologics market is expected to expand to $300
billion by 2020
(3) The environment of biologics market
The biologics market is continuing to expand year by year. In 2014, the global pharmaceutical market
was worth approximately $800bn, where the biologics market was estimated to be worth around$180bn, or 23%, and it is expected to grow to be worth around $300bn by 2020.

We encourage readers to review our complete legal statement on “Disclaimer” page.
4

■■Company outline and the biologics market

Growth of Global Pharmaceutical Sales

Gene Techno Science
Co.,Ltd.
4584 TSE Mothers

8-Feb.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato
Source: Company materials

High percentage of large-scale selling pharmaceuticals (so-called block busters) is a characteristic of
this field, 7 products out of top 10 pharmaceutical sales ranking were biologics in 2014.
In this environment, the biosimilar market is also expected to rapidly expand in the future. Within the
10 biological products out of top 20 products in terms of sales, the patent of 8 biologics will expire
by 2020.The scale of patent expired biologics market by 2020, is forecasted to reach US$62.2bn.
Sales of the top twenty products and the biologics market scale
Sales of the top twenty products ($bn)
Within which, the number of biologics (products)
Within which, biologics whose patents are expiring (products)
Within which, biologics net sales ($bn)
Within which, net sales of biologics whose patents are expiring ($bn)
Source: Company briefing materials

2008
111.0
7
0
36.2
0

2014
131.5
10
0
73.7
0

2020 (E)
135.0
12
8
85.4
62.2

In the biosimilar market, a human growth hormone pharmaceutical was first launched in Europe(EU) in 2006, and currently sold in Europe and Japan. Finally in 2015, the United States publishedbiosimilar guidelines and opened-up the biosimilar market. In March 2015, Sandoz Inc. was the firstto receive manufacturing and sales approval for a filgrastim biosimilar in U.S, opening a door for the
U.S. market, the world’s largest market for pharmaceuticals. This event set 2015 as the Year One of
the biosimilar market, and biosimilar market is expected to expand and enter a full-fledged growthstage. In countries other than Japan, the United States, and in Europe, it is likely that the approval
may be obtained if the biosimilar product was already approved in at least one or two counties of
either Japan, the United States, or Europe.

We encourage readers to review our complete legal statement on “Disclaimer” page.
5

■■Company outline and the biologics market

Gene Techno Science
Co.,Ltd.
4584 TSE Mothers

8-Feb.-16

The increased use of biosimilars can be described as one key to keep the medical costs down. Dueto their efficacy, demand for biologics is increasing year by year to the extent that biologics occupy
nearly all of the top positions in the sales ranking. As their drug prices are expensive, they arepressuring the national healthcare expenditure. The drug prices of biosimilars are around 70% of
the prices of innovator drugs, so the difference is smaller compared to the generic pharmaceuticals,
which are around 60% of the price of their innovator drugs. But as the drug prices of biologics
themselves are high, the effect of increased use of biosimilars will have significant effect in reducing
medical cost. The reduction in medical costs not only decrease the financial burden on the individual
patients, but also helps to alleviate the burden on national healthcare expenditure. In order toreduce government spending on healthcare, institutional reforms are hiking-up the use of genericpharmaceuticals, but so far biosimilars have not been the subject of these reforms. In March 2015,
the Parliamentary Association for Promoting Biosimilars, which is a cross-party alliance of membersof the Diet, was established and it is expected that there will be institutional reforms to promote theuse of biosimilars, which will be very beneficial to the Company.
The Company’s domestic biosimilar competitors include JCR Pharmaceuticals <4552> and Kyowa
Kirin Fujifilm Biologics Co., Ltd., which is a subsidiary of Kyowa Hakko Kirin <4151>.

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru SatoA hybrid business structure; stable business structure with aprofit at early stage of development for biosimilars and highgrowth through new biologics business(4) Business model
For its business model, the Company adopts a hybrid business structure consisting of the biosimilarbusiness, which is highly stable and expected to become profitable at an early stage, and the new
biologics business, aiming for high growth.
R&D system

Source: Company materials○The biosimilar business
The earnings model in the biosimilar business is comprised of sales earnings at the researchand-development stage and post-market-launch stage from supplying the active pharmaceuticalingredient that will be the main raw material for the drug product developed by the collaborating
pharmaceutical company. Earnings are also from the development expertise and other such services
it provides to the collaborating company after entering into the joint research and development
agreement. The Company adopts a fabless system and outsources all of the tasks of manufacture,
analysis, evaluation, and testing of the active pharmaceutical ingredient.

We encourage readers to review our complete legal statement on “Disclaimer” page.
6

■■Company outline and the biologics market

Gene Techno Science
Co.,Ltd.
4584 TSE Mothers

As an example, for the commercialized filgrastim biosimilar, the Company paid royalties to introduce
the cell line from Dong-A Socio Holdings (formerly, Dong-A Pharmaceutical Co. Ltd.) of South
Korea and sells the developed active pharmaceutical ingredient to its partner, Fuji Pharma. Fuji
Pharma manufactures and sells the drug product, and also supplies the drug product to MochidaPharmaceutical. The filgrastim biosimilar developed by the Company takes approximately 30% of
filgrastim sales in Japan since the filgrastim biosimilar was launched in 2013, and this ratio is expected
to rise even further. Filgrastim biosimilars are sold by a number of pharmaceutical manufacturers
other than Fuji Pharma and Mochida Pharmaceutical, including Nippon Kayaku Co., Ltd. <4272>,
Teva Pharma Japan Inc., and Sawai Pharmaceutical Co., Ltd. <4555>. Since Fuji Pharma andMochida Pharmaceutical started the sales in advance, they together hold a considerable market
share of filgrastim biosimilars.
Biosimilar development schedule and earnings model

8-Feb.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato

Source: Company materials○The new biologics business
The Company implements its new biologics business from the basic research for drug discovery. It
conducts research not only in-house, but also jointly with universities and other research facilities.
Manufacturing, quality testing and non-clinical trials for drug-discovery of drug candidates areoutsourced both domestically and overseas. As enormous costs will be subsequently incurred at theclinical trials stage, in principle its basic policy is to license-out to a pharmaceutical manufacturer atthis stage.
For its earnings model, the Company enters into joint research and development agreements orlicense agreements and obtains earnings from agreement lump-sum payments, milestone payments
according to the progress of the research and development, followed by royalties after launching the
product.
In 2007 the Company provided the exclusive development, manufacture, and sales rights of ananti-integrin alpha 9 antibody to Kaken Pharmaceutical and as the compensation, it received anagreement for lump-sum payment, while it is also currently providing support and advice to advanceits development. In terms of the other candidate drugs in the development pipeline, it is currently
conducting basic research for a total of six candidates in fields such as cancer, immune disorders,and circulatory diseases.

We encourage readers to review our complete legal statement on “Disclaimer” page.
7

■■Company outline and the biologics market

New biologics development schedule and earnings model

Gene Techno Science
Co.,Ltd.
4584 TSE Mothers

8-Feb.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato

Source: Company materials

伪伪The biosimilar development pipeline
The Company is currently progressing the development of 11
biosimilar products, and the potential global market for justthe main 6 products is ¥1.2 trillion
Currently, the Company has 11 biosimilar products that has been launched and marketed, or
currently under development. The potential market for the main 6 products has been provisionallycalculated to be ¥1.2 trillion globally and even ¥90bn for Japan alone (biologics market ×biosimilar
penetration volume rate 60% ×70% of the innovator drug price). Among these six, the filgrastim
biosimilar has already been launched in the domestic market. The Company also plans to launchfilgrastim bosimilar overseas and currently is at the stage of searching business partners, and at theearliest, it is aiming for a market launch in around 2019.
Other candidates in the pipeline for which the Company has entered into a joint-development
agreement or basic agreement are biosimilars in the fields of renal anemia, anti-cancer, andophthalmology field for treatment of age-related macular degeneration and other indications. The
Company entered into agreements for a biosimilar in the renal anemia field with Sanwa Kagaku
Kenkyusho in January 2014, in the anti-cancer field with Mochida Pharmaceutical in August 2015,
and in the ophthalmology field with Senju Pharmaceutical in November 2015, and these agreements
are accelerating the development of each respective biosimilar. The most progress has been madefor the development of the renal anemia biosimilar, which is a Nesp (darbepoetin alfa) biosimilar.
Steady progress is being made for this product and it is expected to enter clinical trials soon.
Also, with regards to PEG-filgrastim that has superior longevity than filgrastim, which reduces theburden on the patient in terms of taking the drug and going to the hospital, the non-clinical trials havebeen completed and currently the stage is being shifted to establishing the production technology
toward its commercial production. PEG-filgrastim is manufactured using filgrastim as the raw material,
so it could be an advantage for companies that have already commercialized filgrastim biosimilar toenter this market. It is targeting market launches of 2019 overseas and 2023 domestically, andcurrently it is searching for companies to collaborate with both domestically and overseas.

We encourage readers to review our complete legal statement on “Disclaimer” page.
8

■■The biosimilar development pipeline

The Company is jointly developing a biosimilar in the ophthalmology field with Senju Pharmaceutical.
As the price of the innovator drugs for the treatment of age-related macular degeneration, the largest
market in the ophthalmology field, is expensive, there is demand for an inexpensive biosimilar. The
basic research has been completed and it is expected to enter clinical trials soon.

Gene Techno Science
Co.,Ltd.
4584 TSE Mothers

The Company is also currently developing a biosimilar of Humira (biologics for rheumatoid arthritis),which has the largest sales of all pharmaceuticals. Global sales of Humira is on the scale of ¥1.3
trillion, and the potential market for Humira biosimilar has been provisionally calculated as around¥520bn. As the market scale is so large, many competitors are also developing Humira biosimilar, but
it seems that the Company holds the key to this market with high levels of quality and productivity for
its Humira biosimilar. It is currently progressing non-clinical trials and aiming to enter into agreementswith pharmaceutical manufacturers domestically and overseas. It is considered at the earliest toenter phase 1 clinical trials in 2016 aiming for market launch in Japan in around 2020.

8-Feb.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato

Main biosimilars in the pipeline
Pipeline biosimilar(common name)innovator drug /product namePotential scaleof the biosimilarmarket
The
Japan
world

The estimatedmarket launch
period
The
Japan
world

Current development situation

Gran / Neupogen(biologics forMarketMarket launched domestically, searching
¥8bn
¥40bn
2019
neutropenia caused bylaunched
for partner companies overseas.
chemotherapy)
G-Lasta / Neulasta
Non-clinical trials have been completed.
GBS-010(biologics for
Now at the stage of establishing production¥8bn¥208bn2023
2019(PEG-filgrastim)
neutropenia caused bytechnology toward commercial production
chemotherapy)
and searching for partner companies.
Nesp / Aranesp
GBS-011
Joint development with Sanwa Kagaku(biologics for renal¥22.4bn¥92bn
2020(darbepoetin alfa)
Kenkyusho.
anemia)HumiraCurrently searching partner companies
GBS-005(biologics for rheumatoid ¥14.4bn ¥520bn
2020
2021 for joint development. Scheduled to start(adalimumab)
arthritis)
phase 1 clinical trials from 2016..
Ophthalmic biologics
Joint development with Senju(ophthalmic biologics) for age-related macular¥25.2bn ¥307bn
Pharmaceutical.
degeneration, etc.
Synagis
GBS-008(biologics for respiratory
¥15bn
¥59bn
Non-clinical trials stage.
(palivizumab)
syncytial virus (RSV))
Total¥93bn ¥1,226bn
In terms of the other candidates in the pipeline, the Company is currently developing drugs on a number of themes, cancer,
immune disorders, and circulatory disease.
Note: the potential market scale is calculated as approximately 40% of the innovator drugs (innovator drugs net sales × biosimilar
penetration volume rate 60% × 70% of the innovator drug price)
Source: prepared by FISCO from Company materials
GBS-001(filgrastim)

伪伪Results trends
The filgrastim biosimilar is contributing to the major increasein sales, while the extent of the loss is also shrinking(1) FY3/16 Q2 cumulative results
In the FY3/16 Q2 cumulative results, net sales increased 443.7% y-o-y to ¥791mn, while theoperating loss was ¥116mn (compared to a loss of ¥396mn in the previous fiscal year). In thebiosimilar business, sales of the filgrastim biosimilar trended strongly, while the lump-sum paymentof ¥50mn upon entering into a basic agreement with Mochida Pharmaceutical also contributed.
In the new biologics business, the Company is progressing research and development of a next
generation antibody pharmaceutical, while it is also implementing initiatives toward the developmentof a nucleic-acid drug development platform with its business partner, Gene Design Inc. It is also
focusing on acquiring new technologies, including Exosome for which it has jointly applied for apatent with the National Cancer Center. In July, it began a business collaboration in the healthcarerelated field with DyDo Drinco following a capital participation by this company.
In terms of year-on-year profits, the extent of the loss was greatly reduced (improved ¥280mn) due tothe increase in sales of the filgrastim biosimilar. The result has exceeded the initial target (improved¥34mn).

We encourage readers to review our complete legal statement on “Disclaimer” page.
9

■■Results trends

FY3/16 Q2 cumulative results
FY3/15 2Q cumulative
ResultGene Techno Science
Co.,Ltd.

Net sales
Gross profit
SG&A expenses
Operating income
Ordinary income
Net income

145
78
474
-396
-369
-370

% of sales Initial target
53.9%
325.9%-272.1%-253.9%-254.6%

681
-150
-136
-137

(unit: ¥mn)
FY3/16 2Q cumulative
y-o-yChange vs.
Result% of sales
changetarget
791
+646
+110
458
57.9%
+380
575
72.6%
+100
-116
-14.7%+280+34-99-12.6%
+270
+37
-100
-12.7%+270+374584 TSE Mothers

8-Feb.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato

¥1bn sales of filgrastim biosimilar forecast in FY3/16, andacceleration in market launches through increased spending
on R&D.
(2) FY3/16 outlook
The outlook for the FY3/16 results is for net sales to increase 252.1% y-o-y to ¥1,132mn, on operating
loss of ¥1,045mn (compared to a loss of ¥824mn in the previous fiscal year), an ordinary loss of¥1,019mn (a loss of ¥790mn), and a net loss of ¥1,021mn (a loss of ¥792mn).
Net sales of the filgrastim biosimilar are expected to trend strongly and increase by more than
three times y-o-y for a major increase in net sales. However, based on the agreement with Senju
Pharmaceutical, R&D costs will also rise from ¥689mn in the previous fiscal year to ¥1,200mn inorder to advance the development aggressively towards earlier market launch. As a result, theoperating loss will increase.
The level of R&D costs is expected to hit the peak in this fiscal period. This is because majority of the
non-clinical trials have been completed for the main drugs in the pipeline, and further development(i.e. the clinical trials) will be carried out by the business partners. On the other hand, the operating
loss is forecasted to shrink in FY3/17 as the sales of the filgrastim biosimilar is expected to increase
being introduced to more medical facilities.
FY3/16 results outlook

Net sales(R&D costs)
Operating income
Ordinary income
Net income

FY3/15% of net
ResultInitial target
sales
321
100.0%
1,022
689
214.4%
700-824-256.2%-602-790-245.7%-573-792-246.3%-575

Revisedtarget1,132
1,200-1,045-1,019-1,021

FY3/16% of net
sales
100.0%
106.0%-92.3%-90.0%-90.2%(unit: ¥mn)y-o-yChange vs.
change initial target
811
110
511
500
-221
-443
-229
-445
-229
-445

Plans to raise funds through the execution of subscription
rights to share and forming collaborations with capital tie-ups(3) Financial position
Looking at the Company’s financial position at the end of September 2015, total assets had
increased ¥150mn y-o-y to ¥1,296mn. Income generated from the issue of stocks in conjunction
with the execution of subscription rights to share was ¥190mn, which was the main reason why cash
and deposits rose ¥158mn. Conversely, liabilities increased ¥58mn y-o-y to ¥934mn. Outstanding
payments, consumption tax payable, and advances received each increased to ¥14mn, ¥23mn, and¥20mn respectively. Net assets rose ¥91mn y-o-y to ¥362mn. Although a net loss of ¥100mn wasrecorded, capital and the capital reserve both increased ¥96mn due to the execution of subscription
rights to share.

We encourage readers to review our complete legal statement on “Disclaimer” page.
10

■■Results trends

In fixed liabilities, there are ¥775mn convertible corporate bonds with subscription rights to shareissued under third party allocation. The entire amount is owned by the leading shareholder, Whiz
Healthcare, and is scheduled for redemption in April 2018. If the business plan proceeds smoothly,
the bonds are expected to be converted into stocks.
Balance sheet

Gene Techno Science
Co.,Ltd.
4584 TSE Mothers

8-Feb.-16

Important disclosuresand disclaimers appear
at the end of this document.

Current assets(cash and deposits)
Fixed assets
Total assets
Current liabilities
Fixed liabilities(convertible-type corporate bonds with
subscription rights to share)
Total liabilities
CapitalCapital reserve
Retained earnings
Total net assets
Management indicators(financial strength)
Equity ratio
Interest-bearing debt ratio

FY3/13
919
887
3
922
24
9

FY3/14
1,881
1,610
4
1,886
50
783

FY3/15
1,092
599
54
1,146
92
783

FY3/16 2Q
1,237
757
59
1,296
150
783

(unit: ¥mn)
Change
144
158
5
150
58
-

-

775

775

775

-

34
1,239
1,143
-1,495
888

833
1,571
1,474
-2,014
1,052

876
1,576
1,479
-2,806
270

934
1,673
1,576
-2,907
362

58
96
96
-100
91

96.3%
-

54.7%
-

21.7%
-

26.4%
-

FISCO Ltd. Analyst
Yuzuru Sato伪伪Medium- to long-term vision
Aiming to grow the biosimilar business to the scale of ¥10bn
by around 2021
The Company is aiming to supplement and accelerate development in the biosimilar businessthrough swift collaboration with pharmaceutical manufacturers. Its strategy is also to develop its
business globally (through collaborations with pharmaceutical manufacturers in the United Statesand Europe and opening-up markets in newly emerging countries).
In the new biologics business, in addition to advancing in-house research and development
and improving added-value, its policy is to build alliances at an early stage with pharmaceuticalmanufacturers. To strengthen its technological foundations, it is jointly developing a technologicalfoundations for a next generation antibody pharmaceutical with Hokkaido University. As a
supplementary business, it is implementing various initiatives including national projects, such as
developing the technological foundations for the discovery of next generation drugs for personalized
medicine, and the trial production of antibody drug cell line and active pharmaceutical ingredients.
The Company’s medium- to long-term target is considered to grow net sales to a scale of ¥10bn byaround 2021 by using the filgrastim biosimilar as a stable source of earnings. From 2019 onwards, it
is aiming for net sales of around ¥20bn in the next decade with biosimilar alone by steadily launchingbiosimilars for PEG-filgrastim, Humira, Nesp, and in the ophthalmology field. If the biologics andhealthcare related businesses contribute to earnings, it is expected to accelerate the growth to aneven greater extent.

We encourage readers to review our complete legal statement on “Disclaimer” page.
11

■■Medium- to long-term vision

Medium- to long-term sales vision

Gene Techno Science
Co.,Ltd.
4584 TSE Mothers

8-Feb.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato

Source: Company materials

Looking at the development pipeline, if steady progress is made it could become profitable in around2018-2019.
As previously explained, the biosimilar market is expected to rapidly expand due to the world largest
biosimilar market opening in the United States in 2015, and the expiry of number of large-scale
biologics patents by 2020. Consequentially, next two to three years will be of the utmost importancefor the Company making it a turning point to decide whether it can realize its goal of becoming “theworld’s leading biosimilar company.”
The candidates in the pipeline for which the joint-development partners have already been decided
are a Nesp biosimilar (Sanwa Kagaku Kenkyusho), a biosimilar in the anti-cancer field (MochidaPharmaceutical), and a biosimilar in the ophthalmology field (Senju Pharmaceutical), and we will
be paying attention on the progress in the clinical trials of these biosimilars, which are planned tostart from 2016 onwards. For the PEG-filgrastim and Humira biosimilars, which partners are yet to
be decided, the points to focus on would be the collaborating partners for joint development, both
domestically and overseas, and when and in what form these joint developments will take place.

We encourage readers to review our complete legal statement on “Disclaimer” page.
12

■■Medium- to long-term vision

Income statement

Gene Techno Science
Co.,Ltd.
4584 TSE Mothers

8-Feb.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato

Net sales(y-o-y)Cost of sales(% of sales)
SG&A expenses(% of sales)
Operating income(y-o-y)Ordinary income(y-o-y)(% of sales)
Pretax profit(y-o-y)Income taxes(effective tax rate)
Net income(y-o-y)(% of sales)

FY3/13
60
-70.8
15
24.9
403
666.6
-358
-373
-617.3
-373
3
-0.9
-377
-622.9FY3/14
301
397.8
141
47.1
671
222.9
-512
-516
-171.5
-516
2
-0.5
-519
-172.3(units: ¥mn, %)FY3/15
FY3/16
321
1,132
6.7
252.1
147
45.9
998
310.3
-824
-1,045-790-1,019-245.7
-90.0
-790
1
-0.2
-792
-1,021-246.3-90.2(main indicators)
Average number of shares during the fiscal period (thousands)
Earnings per share (¥)
Dividend per share (¥)
Book value per share (¥)
No. of employees

2,081-238.20426.7082,384-240.15
441.6113

2,394-331.86
104.1414

2,501-404.73-

We encourage readers to review our complete legal statement on “Disclaimer” page.
13

Disclaimer
FISCO Ltd. (the terms “FISCO”, “we”, mean FISCO Ltd.) has legal agreements with theTokyo Stock Exchange, the Osaka Exchange,and Nikkei Inc. as to the usage of stock
price and index information. The trademark and value of the “JASDAQ INDEX” are theintellectual properties of the Tokyo Stock Exchange, and therefore all rights to them belong
to the Tokyo Stock Exchange.
This report is based on information that we believe to be reliable, but we do not confirm or
guarantee its accuracy, timeliness,or completeness, or the value of the securities issued bycompanies cited in this report. Regardless of purpose,investors should decide how to use
this report and take full responsibility for such use. We shall not be liable for any result of its
use. We provide this report solely for the purpose of information, not to induce investment
or any other action.
This report was prepared at the request of its subject company using information provided
by the company in interviews, but the entire content of the report, including suppositions andconclusions, is the result of our analysis. The content of this report is based on informationthat was current at the time the report was produced, but this information and the content
of this report are subject to change without prior notice.
All intellectual property rights to this report, including copyrights to its text and data, areheld exclusively by FISCO. Any alteration or processing of the report or duplicationsof the report, without the express written consent of FISCO, is strictly prohibited. Anytransmission, reproduction, distribution or transfer of the report or its duplications is also
strictly prohibited.
The final selection of investments and determination of appropriate prices for investment
transactions are decisions for the recipients of this report.
FISCO Ltd.