BRIDGE REPORT
CellSeed (7776)
Setsuko Hashimoto, President
Setsuko Hashimoto,
President
Corporate Profile
Company
CellSeed Inc.
Code No.
7776
Exchange
JASDAQ
Industry
Precision Instrument (Manufacturing)
President
Setsuko Hashimoto
HQ Address
Haramachi 3-61, Shinjuku-ku, Tokyo
Business Description
A leading company in regenerative medicine, which employs the cutting edge technology of "cell sheet engineering" as its technological base for developing new medical treatments that can lead to fundamental changes in the therapy of severe medical conditions worldwide.
Year-end
December
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥1,122 8,674,292 shares ¥9.733 billion - 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
- - - - ¥355.10 3.2x
* Stock price as of closing on 2014/8/26. Number of shares at the end of the most recent quarter excluding treasury shares.
 
Consolidated Earnings Trends
Fiscal Year Sales   Operating
income
Recurring
income
Net
income
EPS (¥) Dividend (¥)
December 2009 87 -785 -788 -790 - -
December 2010 66 -1,204 -1,002 -1,009 - -
December 2011 86 -1,418 -1,358 -1,442 - -
December 2012 75 -846 -842 -913 - -
December 2013 105 -534 -581 -584 - -
We present this Bridge Report along with analysis of the first half of fiscal year December 2014 earnings results for CellSeed Inc.
 
Key Points
 
 
Company Overview
 
CellSeed seeks to promote worldwide diffusion of "cell sheet regenerative medicine" that employs "cell sheets" to treat and cure patients, who previously could not be treated using conventional treatments, through the use of fundamental technologies of "cell sheet engineering" developed in Japan by Professor Teruo Okano of the Tokyo Women's Medical University.

CellSeed's business can be divided into two main divisions including the cell sheet regenerative medicine business, where research and development of cell sheet regenerative medicine products is conducted and cell sheets fabrication and processing technologies are developed, and the "regenerative medicine support business," where temperature-responsive cell cultureware used in the fabrication of cell sheets are fabricated and sold. The "regenerative medicine support business" also plays a strategic role in the cultivation of alliance partners in the realm of cell sheet regenerative medicine.
 
<Cell Sheet Regenerative Medical Technologies and Cell Sheet Regenerative Medicine>
The basic principle of cell sheet regenerative medical technologies calls for the cultivation of cell sheets using temperature-responsive cell cultureware. Using the temperature-responsive cell cultureware developed by CellSeed allows the cultivation of cultured cells in individual sheet format (Cell sheets). The "ability to cultivate individual sheets" is synonymous with the "ability to cultivate living tissue that autonomously functions that was not possible using traditional methods."

Traditionally, the only method to cultivate cells was in individual cell units using trypsin and other protein type hydrolase degradative enzyme procedures (Cultivation of cells that have been separated through the dissolving of the protein adhesive properties called "extracellular matrix") which were unable to allow organically fused tissue to be cultivated. However, the affected area retention rate was poor when individual cells are injected to patients' bodies using syringes (While the individual cells eventually fuse over time as adhesive proteins are secreted, they may not necessarily adhere to patients' affected areas). Compared with this, extracellular matrices can be cultivated in sheet form by cultivating cells using temperature-responsive cell cultureware to easily raise the retention rate in the affected area that allows for easy growth after application.
 
 
By reducing the cultivation temperature, the characteristics of temperature-sensitive polymer are changed to allow cell sheet detachment. Traditionally, trypsin and other protein type hydrolase degradative enzyme procedures were used. However, the protein type hydrolase degradative enzyme procedures were factors in the subversion of fusing of cells and adhesion, leading to significant damage of cells.
 
(Note) Extracellular Matrix
Extracellular matrices are supermolecular structures that exist outside of cells. In addition to filling in the spaces surrounding cells, they function as footholds for cell fusion and as the structural skeletons, and they control specialization and growth of cells. They are absolutely necessary to allow cells to function as cells.
 
 
 
New Management Structure, Future Strategies
 
(1) Creation of New Management Structure
Numerous measures focused upon the regenerative medical field as part of the "Japan is Back" Revitalization Strategy have been created including the facilitation of cutting edge regulations, fortification of public support for research and development, and introduction of global standards. CellSeed endeavors to quickly create a management structure that is able to leverage various measures designed to fortify the regenerative medicine industry as a means of accelerating growth of the Company. And from June 2014, Setsuko Hashimoto assumed the position of President of CellSeed Inc. In her new responsibility as Chairman, the outgoing President Yukio Hasegawa will provide support to Setsuko.
 
President Setsuko Hashimoto Profile
Setsuko Hashimoto is a specialist in biochemistry and molecular biology. After conducting research in America and Germany, Hashimoto worked in Japan at German and Swedish biotech companies. She boasts of 30 years of work experience within the biotechnology industry and has cultivated a wide network in the global biotech industry. Hashimoto will leverage both her experience and global network to connect business with science and to introduce technologies developed within Japan to the world.

President Setsuko Hashimoto was a former coworker of Chairman Hasegawa when he was the manager of research and development at Pharmacia Biotech Inc., where she was in charge of marketing. Moreover, Hashimoto acted as an intermediary introducing the developer of "cell sheet regenerative medical technologies" Professor Teruo Okano of the Tokyo Women's Medical University to Karolinska Institute in Sweden to conduct joint research.
Education
1979:
Kyushu University, Master of Science, Biochemistry.
1986:
Heidelberg University, Molecular Biology, Masters
2010:
Japan Advanced Institute of Science and Technology, PhD. (MOT)
Work Experience
1984:
Hoechst Japan, Research Institute (German Pharmaceutical Company)
1991:
Pharmacia Biotech Inc. (Swedish Biotech Company)
1998:
Biacore (Formerly the Japanese subsidiary of Pharmacia Biotech)
2008:
Bio-Business Bridge Co., Ltd. established and appointed as President (Current position)
2009:
Responsible for Life Science in the Scientific Technologies Division of the Investment Department of the Swedish Embassy
2014:
Appointed as President of CellSeed Inc.
(2) Future Strategies
CellSeed's Mission
・ Realize regenerative medical applications as quickly as possible
・ Create unique cell sheet regenerative medical technologies in Japan and introduce them to the world
・ Contribute to medical innovation by providing safe and high quality products
 
Until now, CellSeed has been a research support company bringing basic research seeds of universities to the clinical development level. However, the reborn CellSeed will deploy business activities to realize regenerative medical technologies while at the same time generating earnings.
 
External Environment, Direction of CellSeed's Strategy
The environment for the industrialization of the regenerative medicine business is benefitting from a tailwind represented by various efforts of the Prime Minister Abe's strategy of facilitating a legal structure that is conducive to invigorating the Japanese regenerative medical business. For example, the Regenerative Medicine Promotion Law was passed in April 2013 with the goal of realizing regenerative medical treatments. And in November 2013, the Revised Pharmaceutical Law and Regenerative Medicine Safety Law were passed. With regards to the Pharmaceutical Product and Medical Equipment Law, a new category of "regenerative medical products" will be established in addition to pharmaceutical products and medical equipment, and systems catering to the needs of this new category of products (Including the creation of an early approval system) will be introduced. With regards to the Regenerative Medicine Safety Law, the regenerative medicine realm will be divided into three subcategories and different safety assurance systems will be introduced according to the risk levels of each category, and a category known as the cell processing industry (The fabrication and consigned manufacture of specialized processed cells) will be newly created.

CellSeed has assigned 2014 as "the founding year of regenerative medicine", and the Company has identified the two strategies of "development of strategic regenerative medical technologies with a view to long term technological innovations" and "development of strategic regenerative medical product pipelines that will generate synergies and earnings over the short to midterm."
 
Strategic Direction
・ Development of regenerative medical product pipelines with a view to long term trends in technological innovation
・ Development of strategic regenerative medical product pipelines that will generate synergies and earnings over the short to midterm
 
Three Policies of the Reborn CellSeed
Based upon the above mentioned strategies, CellSeed will continue to respond to progress in technological innovation while at the same time seeking to maintain a balance between anticipatory investments and profitability. CellSeed will implement the following three policies of fortifying the materials business, entering the consigned processing business, and establishing the strategic position of regenerative medical product pipelines.

The key points in the industrialization of the regenerative medical business are technological innovations, legal structure facilitation, and participation of companies. By clearly identifying the processes necessary for industrialization, including the establishment of raw material cell technologies for cell sheet regenerative medical technologies and iPS cells, processing technologies for cell sheet regenerative medical technologies, and transportation and other peripheral technologies can be achieved. Furthermore, positive results of government support and participation by corporations in related fields have begun to appear along with moves to establish standardization and normalization of fundamental technologies. At the same time, efforts with regards to the legal structure need to be implemented, along with moves to conduct research and development for automated fabrication and to develop manufacturing machinery. Attention also needs to be paid to measures to increase competitive standing through expansion in the market, reductions in costs, and improvements in productivity.

Efforts to establish fundamental technologies are being promoted with the goal of cultivating business opportunities in the materials business arising from moves to standardize and normalize fundamental technologies. CellSeed will also accelerate efforts to commercialize its consigned processing business based upon moves to create a legal framework for industrialization of the regenerative medicine business. In addition, strategic positioning of regenerative medical product pipelines will be established with a view to technological innovation arising from ever improving research and development for automated manufacturing and trends in the legal framework facilitation.
 
 
 
First Half of Fiscal Year December 2014 Earnings Results
 
 
Preparations to Enter Consigned Processing of Cell Sheet Business Started
Just as in the previous term, there were no sales recorded in the cell sheet regenerative medicine business, and only ¥34 million of sales were recorded in the regenerative medicine support business. The decline in sales is attributed primarily to the disappearance of special product orders booked during the previous fiscal year. Despite this decline in sales, the full year sales estimate remains unchanged at ¥75 million. At the same time, preparations have begun for entry to the consigned processing business with a view to the "Regenerative Medicine Safety Law" to be implemented in November 2014.

With regards to profits, lower gross income due to the decline in sales and higher sales, general and administrative expenses (SG&A) caused operating loss to expand from ¥224 million in the previous first half to ¥316 million in the current first half. Within SG&A, research and development and other expenses rose from ¥87 to ¥98 million and ¥152 to 227 million respectively. Non-operating income improved on the back of the disappearance of foreign exchange translation loss and despite the decline in subsidiary income, and a recurring loss ¥292 million was recorded.
 
 
 
Compared with the end of the previous fiscal year, total assets rose by ¥998 million to ¥3.783 billion at the end of the current first half. The raising of ¥860 million from the exercise of the 11th stock acquisition rights in January 2014, and ¥500 million from the issuance of the 1st unsecured convertible bonds with stock acquisition rights in March 2014 contributed to a rise in cash and equivalents and was a factor behind the increase in total assets. Moreover, along with a review of the capital sourcing strategy by the new management, redemption of the 1st unsecured convertible bonds with stock acquisition rights was moved up to July 2014.
 
 
Conclusions
 
The Japanese approval system for regenerative medical technologies and products used to be a high hurdle to clear, having contributed to delays in their commercialization of products and technologies compared to the rest of the world. However, facilitation of the legal system relating to regenerative medicine has changed dramatically due to revisions in pharmaceutical laws and establishment of laws relating to the safety of regenerative medicine that were implemented in 2013. CellSeed expects to capitalize on new business opportunities that have arisen from these legal changes and by the quick establishment of a new management structure. Furthermore, CellSeed is expected to announce a new business plan that is designed to realize both regenerative medical products and technologies, and profitability along with its full year earnings in February 2015.
 
Disclaimer
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.

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