Bridge Report:（2183）Linical The second quarter of the fiscal year ending March 2025

Kazuhiro Hatano CEO	Linical Co., Ltd. (2183)

Company Information

Stock Information

* Stock price is as of closing on December 3, 2024. Number of shares issued is the term-end figure stated in the summary of financial results for the second quarter of FY3/25 excluding treasury shares.
* ROE is based on FY3/24 results. BPS is based on the second quarter of FY3/25 results. EPS and DPS are based on the estimates of FY3/25.

Consolidated Earnings Trend

*Unit: Million yen.
*Estimates are those of the company.

This Bridge Report reviews on the overview of Linical Co., Ltd.’s earnings results for the second quarter of the fiscal year ending March 2025 and its forecast for the fiscal year ending March 2025.

Table of Contents

Key Points
1. Company Overview
2. Management Strategy
3. 2Q of Fiscal Year ending March 2025 Earnings Results
4. Fiscal Year ending March 2025 Earnings Forecasts
5. Conclusions
<Reference：Regarding Corporate Governance>

Key Points

• In the first half of the fiscal year ending March 2025, sales decreased 10.5% year on year, and they posted an operating loss of 192 million yen (an operating income of 421 million yen in the same period of the previous year). Overall sales declined, as the sales in the U.S. grew significantly, but the sales in other regions dropped. In terms of profit, the profit in the U.S. increased significantly, but the operating income in other regions was negative, so they posted an overall operating loss.

   

• The company downwardly revised the earnings forecast for the fiscal year ending March 2025 on November 14. The latest forecast of the company calls for a 6.8% y/y decrease in sales and a 65.6% y/y drop in operating income. In terms of sales, the sales in the U.S. exceeded the forecast thanks to the steady progress of existing projects, but they are struggling to receive new orders in Europe and Japan as assumed, and some development projects in Japan have been cancelled. In addition, sales were affected by the delay in progress of ongoing projects and business negotiations for new deals caused by the large-scale strike by medical doctors that started in South Korea around February of this year, so sales are projected to fall below the initial forecast. In terms of profit, they are controlling personnel expenses by adjusting staffing and optimizing SGA at all business establishments, but profit is forecast to be affected significantly by the declines in sales in Japan and other Asian countries. On the other hand, there is no change to their plan to pay an ordinary dividend of 16 yen/share, up 1 yen/share from the previous fiscal year.

   

• The company has been concentrating on the fields of oncology, the central nervous system (CNS), and immunology, in which they possess strong competitive advantages, since the establishment of the company. In addition to these three fields, they plan to expand their business in the ophthalmic and dermatological fields, where needs will grow in the aged society, and the fields of regenerative medicine and digital medical apparatus, which are new modalities. It is noteworthy whether they can produce expected results in such promising fields.

   

1. Company Overview

The company is a global contract research organization (CRO) based in Japan, which provides a comprehensive range of services ranging from the initial phase of clinical trials to post-marketing studies as a professional in development of pharmaceutical products. Linical Co., Ltd. provides contract research organization (CRO) services that support the drug development processes of pharmaceutical companies on an outsourced consignment basis, and sales and marketing functions for pharmaceutical products and post market launch clinical research and surveys on a consigned basis in the Contract Medical Affairs Business (CMA).
Pharmaceutical products are subject to approval of the Ministry of Health and Welfare prior to their sales, and efficacy and safety of pharmaceutical products must be confirmed through clinical trials prior to their approval. Companies providing clinical trial support services are known as contract research organization (CRO) service providers. In addition, there is a need to conduct surveys and clinical research after pharmaceutical products have been launched into the market and contract medical affairs is a service provided to support these efforts.
Linical has conducted various efforts to eradicate oncology, central nervous system and other diseases globally since its founding, and it has deployed its CRO Business in therapeutic areas where there is strong demand for new drug development. These are highly difficult areas, and Linical is able to support high level clinical trials in these areas by the company’s knowledgeable and experienced experts. In addition, Linical focuses its efforts up the new drug development support and Contract Medical Affairs Business, approval application support and post approval marketing and clinical research, and post market survey support services, which exceed the traditional definition of outsourcing and is now considered to be part of a wider range of consulting services provided to customers as a "true clinical development partner". Furthermore, amidst the advance of globalization and large-scale pharmaceutical product development, the Linical Group can provide "one stop shopping" type comprehensive services for large scale global products. Consequently, Linical is able to play the role of a strategic business partner by providing total support to help raise the competitive advantage of customers in the market and to help pharmaceutical companies develop new future business opportunities.

【Management philosophy】

The management philosophy is “Linical promotes the greater wellbeing of all our stakeholders—patients, clients and employees— we strive constantly to offer professional, high-quality services to support all aspects of new drug development.”

The blue color represents “Integrity&Honesty,”
the red color “Unending Enthusiasm,” and
the yellow color “Continuing Spirit of Inquiry.”
This corporate logo depicts the company’s hope of pursuing the wellbeing of patients around the world through business, and the company has the mission to “wings to new drugs.”

【Corporate History】

Linical Co., Ltd. was established in June 2005 by nine members who worked at Fujisawa Pharmaceutical Co., Ltd. (Currently known as Astellas Pharma Inc.) on the development of immunosuppressant drugs. Established with the objective of becoming the ideal drug development outsourcing (CRO) company from Osaka, Linical focused its efforts upon the realms of central nervous system diseases (CNS) and oncology since its founding, and received one of its first orders from Otsuka Pharmaceutical Company shortly after its establishment. Thereafter, the Company fortified its staffing as part of its efforts to strengthen its order taking capabilities. In addition, Linical is benefitting from the bountiful experiences of its employees in the realm of oncology pharmaceutical product development and experiences having worked at foreign pharmaceutical companies. Consequently, Linical is successfully expanding orders in the near term.
With its advance into the site management organization (SMO, clinical trial facility support organization) business, Aurora Ltd. was turned into a subsidiary in January 2006. However, all shares held in Aurora were later sold in May 2007 in order to focus management resources upon the CRO Business. In July 2008, Linical USA, Inc. was established in California, United States to provide support to Japanese pharmaceutical companies seeking to enter the United States market. Also, in October of the same year, Linical listed its shares on the Mothers Market of the Tokyo Stock Exchange, and subsequently moved its listing to the First Section of the Tokyo Stock Exchange in March 2013. In May 2013, Linical Taiwan Co., Ltd. and Linical Korea Co., Ltd. were established in Taiwan and Korea respectively. In April 2014, Linical teamed up with its Linical Korea to acquire the Korean CRO company P-pro. Korea Co., Ltd. On October 29, 2014, all of the shares of Nuvisan CDD Holding GmbH, which conducts CRO Business in Europe, were acquired and it was converted to a 100% owned subsidiary effective on December 1, 2014. In order to strengthen the collaboration within the Group, the company name of Nuvisan CDD was changed to Linical Europe GmbH. In addition, Linical U.K. Ltd. was established in March 2016, and a local subsidiary called Linical Poland SP. Z.O.O. was also established in October of the same year. Moreover, LINICAL Czech Republic s.r.o was established in September 2017. In addition, Accelovance, Inc. was acquired in April 2018 and its company name was changed to Linical Accelovance America, Inc. In addition, Linical Hungary Kft. was established in March 2019, and Linical China Co., Ltd. was established in May 2019. Furthermore, the company further strengthened their system for undertaking global joint clinical trials, through the enhancement of their business in the European region by integrating the European subsidiary of Linical Accelovance America, Inc. (LAA) into LINICAL Europe GmbH in December 2019, and the establishment of a Shanghai branch in February 2020. In April 2020, Linical Benelux BV and Linical Accelovance Europe BV were merged to form Linical Netherlands BV, and Linical China Co., Ltd. and Linical Accelovance China Ltd. are scheduled to be integrated in the fiscal year ending March 2023. The company grew steadily through overseas mergers and acquisitions, and achieved record sales consecutively in fiscal year ended March 2022 and fiscal year ended March 2023. In the fiscal year ended March 2024, profit declined due to the decrease in sales in Japan and Europe, and in the fiscal year ending March 2025, too, sales and profit are projected to decline due to the drop in sales in Japan and other Asian countries.

*Produced by Investment Bridge Co., Ltd. with reference to disclosed material.

【Strengths】

【Business Description】

As a global CRO founded in Japan, the company operates primarily in Japan, and also in Asia, Europe and the U.S, providing a comprehensive range of services ranging from the drug discovery stage to clinical development to post-marketing drug development. The company has extensive experience and achievements in the trending areas of drug development, notably in oncology, neurology , and immunology.
A CRO is an organization that receives requests from pharmaceutical companies and others to act on their behalf and provide support for clinical trials conducted during the development phase of a pharmaceutical product. It is an organization with high expertise in clinical trials and is a professional in the field of drug development. The scope of work includes monitoring activities to ensure that clinical trials are conducted in compliance with regulatory requirements and the clinical trial protocol, including data management and medical writing activities.
Linical mainly conducts contract research organization (CRO) business, post market launches clinical trial and clinical research and marketing support activities in the Contract Medical Affairs Business, and new drug development support business. As a true partner, the company contributes to the maximization of the value of the medical drugs by helping the procedure from the non-clinical tests to clinical development and after-release surveys and clinical trial, and making it possible to shorten the time needed to start selling the drugs and prolong the life-cycle of the products. On top of that, the company supports not only pharmaceutical companies but also the bio-ventures in various ways including exit strategies.

(Source: Linical)

CRO Business (Contract Research Organization)
The CRO business undertakes part of the clinical trial operations conducted by pharmaceutical companies, including monitoring, data management, medical writing, pharmacovigilance, biostatistics, and quality control. The company employs highly skilled and experienced staff with the aim of supporting high-quality, highly efficient clinical trials that will lead to the rapid launch of new drugs on the market. The company has opened facilities in Asia (Korea, Taiwan, Singapore, China), Europe and the United States to be able to respond to growing demand for global studies. They offer one-stop services, including the design of clinical development plans, monitoring, data management, biostatistics, pharmacovigilance, and support for application for approvals for pharmaceutical products and medical apparatus. Among the new drug development projects spanning from 10 to 20 years, Linical is focused on the processes of “Phase II” and “Phase III” that require 3 to 7 years targeting patients who are particularly important in clinical trials, and it provides “monitoring” services that are the core of the clinical trials in the contract-based business style in conjunction with “quality control” and “consulting.” It collects highly reliable data and supports the rapid and reliable development of new drugs.
In addition, the company offers high-quality services in the fields of schedule management, standard procedure documents for clinical trials, compliance with GCP, the reliability of data and case reports, etc.

* Global jointly conducted clinical trials
“Global jointly conducted clinical trials” refers to conducting clinical trials simultaneously in multiple countries or regions in order to develop new drugs on a global scale and aim for early launch.
*GCP (Good Clinical Practice)
“GCP” is the international rule the companies are supposed to obey when they conduct the clinical trial. It is enacted by Ministry of Health, Labor and Welfare as a ministerial ordinance so that they can conduct it properly in Japan.

Since the establishment of the company, they have been dealing with very difficult clinical trials in fields where there are significant unmet medical needs and many patients are waiting for the creation of new medicines, and concentrating on the fields of cancer, immunity, and the central nervous system.

(Source: Linical)

Contract Medical Affairs Business
In the contract medical affairs business, the company provides support for the organizational structure and construction of corporate and doctors-led clinical research, as well as planning for surveys, monitoring, and auditing services for post-release clinical trials and investigations. The Clinical Trials Act is enacted, and the environment surrounding clinical research is changing drastically. Under this circumstance, to obtain information in a timely manner and be the best partner for the medical affairs department of pharmaceutical companies, Linical provides full-service support including data management and biostatistics with a focus on monitoring and research administration works of clinical trials. It has a policy to respond to the latest regulations and contribute to the creation of evidence in the challenging areas based on the know-how cultivated in the past development works.

Innovative Drug Development Business
Following the existing CRO Business and Contract Medical Affairs Business, Linical is cultivating the third business called Innovative Drug Development Business. In the innovative drug development business, the company provides consulting services to support entry into the Japanese market. This business is mainly operated by employees who are involved with licensing, business development, clinical trials development, development pharmacy, and marketing at major domestic pharmaceutical companies and have abundant results and experiences in determining developed products, introduction and derivation negotiation, and clinical development. In the Innovative Drug Development Business, 3 types of consulting services: a) market analysis of developed products, b) support for PMDA consultations, and c) partnering and licensing support, are provided. With these experiences as a weapon, they support pharmaceutical companies and bio technology companies inside and outside Japan in the broad therapeutic field.

【Services】

Strategy for drug development

Clinical trials

【Global expansion】

The company is a global CRO based in Japan, with a focus on Japan, it is operating its offices around the world, including Asia, Europe and the U.S. The company operates in about 20 countries/regions, and about 30 countries/regions if countries where it can provide services through partners are included. Experts in each function, who are familiar with local regulations and customs, work together globally to provide detailed services customized to each and every project. On July 1, 2024, they established a new office in New Jersey, the U.S., and on July 9, 2024, they established Linical Australia as a 100% subsidiary serving as the first base of the company in the Southern Hemisphere.

LINICAL　Global Base “Three Main Operating Regions of “Japan and Asia, United States, Europe”
(Source: Linical)

(Source: Linical)

In the fiscal year ended March 2024, the overseas ratio was 63% for sales and 54% for the number of employees.

【Order backlog by region】

*Produced by Investment Bridge Co., Ltd. with reference to disclosed material.

Order backlog refers to the balance of the amount of orders received for undertaking of tasks for which contracts have been already concluded. It shows sales that will be earned in the next one to five years and is an indicator that serves as the basis for the corporate group's future earnings forecasts. As of November 14, 2024, order backlog stood at 11.6 billion yen, down 4.2% from the end of the fiscal year ending March 2024. However, it is now on an upward trend from the fiscal year ended September 2024 due to some informal contracts that have not yet been signed. Two major orders are to be placed in Japan, and they still receive many inquiries from biotech businesses in the U.S. Additionally, the integration of management in Europe and the U.S. is demonstrating synergies in Europe, resulting in the undertaking of new projects.

<Order backlog in each region>

2. Management Strategy

According to "IQVIA The Global Use of Medicines 2024 OUTLOOK TO 2028," the global pharmaceutical market is expected to grow at an average annual rate of 6-9% until 2028. Furthermore, their share in the global market in 2028 is expected to be 45.1% in the U.S., 13.2% in Europe (only Germany, France, Italy, the UK, and Spain), 8.8% in China, and 3.3% in Japan. The company believes that it is essential to expand its business in the U.S., the largest market.

【Medium and Long term Goal】

(1) To build a system with more than 1,500 employees where there will be 500 in Japan, 400 in Asia, 400 in Europe, and 400 in the U.S.
(2) To maintain and improve profitability while making growth investments (including M&A) in all main business regions
(3) The company will expand its business to about 60 countries around the world.

(Source: Linical)

【Initiatives to strengthen profitability】

The company is promoting the following actions as a top priority in order to achieve sustainable sales growth and increase profit margin: (I) expanding the overseas business further; (ii) growing the clientele; (iii) expanding the therapeutic areas; and (iv) expanding the service areas. Additionally, the company's objective is to keep endeavoring to use new treatments, including regenerative medicine and applications, in view of changes in the market environment.

①Expanding the overseas business further
The company will expand its global service network, focusing on the U.S., the most important market.

②Growing the clientele
To expand the focus from major Japanese pharmaceutical companies to overseas pharmaceutical and biotech companies.

③Expanding the therapeutic areas
In addition to the three focus areas, the company will aim to expand into the fields of ophthalmology and dermatology, where needs are growing in the aging society, and the fields of new modalities, such as regenerative medicine and digital medical devices.

④Expanding the service areas
To strengthen functions to provide full services for the drug discovery stage and all phases of clinical trials.

3. 2Q of Fiscal Year ending March 2025 Earnings Results

(1) Consolidated results

*Unit: million yen
*The figures include figures calculated by Investment Bridge Co., Ltd., and may differ from actual figures. (Abbreviated hereafter)

Sales decreased 10.5% year on year, and an operating loss of 192 million yen was posted.
Sales decreased 10.5% year on year to 5,426 million yen, and they posted an operating loss of 192 million yen (an operating income of 421 million yen in the same period of the previous year). Overall sales declined, as the sales in the U.S. grew significantly, but the sales in Japan and other Asian countries dropped.
In terms of profit, the operating income in the U.S. increased significantly due to the healthy sales, and the operating loss in Europe shrank from the same period of the previous fiscal year, but an operating loss was posted in Japan and other Asian countries due to the significant drop in sales, so the company posted an overall operating loss. Gross profit margin declined 8.5 points year on year to 24.2%. SGA decreased 3.6% year on year, as they optimized SGA in all business establishments. As non-operating expenses, they posted an exchange loss of 64 million yen (an exchange gain of 69 million yen in the same period of the previous year), so ordinary loss amounted to 239 million yen, exceeding the operating loss. There was no extraordinary gain or loss.

*Salaries include salaries & allowances, provision for bonuses, costs for retirement benefits, etc.
*Produced by Investment Bridge Co., Ltd. with reference to disclosed material.

Sales and profit by segment
In the CRO Business, sales decreased 9.3% year on year to 5,155 million yen and operating income decreased 39.8% year on year to 831 million yen.
In the Contract Medical Affairs Business, sales decreased 29.0% year on year to 270 million yen, and operating loss was 24 million yen (operating income of 109 million yen in the same period of the previous year).

(2) Performance trend in each region

*Unit: million yen
*Amortization of goodwill is recorded as an adjustment. “Sales” means the value before exclusion of internal transactions.

*Produced by Investment Bridge Co., Ltd. with reference to disclosed material.

【Japan】
Sales decreased year on year and an operating loss was posted in Japan. The failure to receive orders as planed and the impact of contract revisions to shorten the timeframe in the previous fiscal year, as well as the cancellation of several ongoing projects, resulted in a significant y/y drop in sales. Additionally, because of the drop in sales, the company reported an operating loss. In the Japanese pharmaceutical industry, the company is persistently continuing sales activities by inviting overseas biotech businesses to enter the Japanese market in cooperation with the businesses in Europe, the U.S., and Asia, despite the fact that the market environment stands severe due to structural reforms like a series of early retirement offers by every company. By taking steps to boost employee utilization rates and carefully examining SG&A, the company is further attempting to enhance its performance.

(Source: Linical)

In FY 2023, the number of clinical trial plan notifications fell to the lowest level in 10 years, and the market environment in Japan continues to be severe.

【Korea】
In South Korea, sales fell year on year, and an operating loss was recorded due to a decrease in sales as a result of revisions in contracts for ongoing projects, as well as delays in the progress of several projects. The situation remains severe, having a major influence on clinical trials as a result of the strike by medical doctors in South Korea. Since these developments are affecting both the completion of ongoing projects and orders for new ones, the company is keeping a careful eye on them.

【China】
In China, delays in the commencement of new projects and a drop in revenues as a result of the completion of existing projects led to a y/y decline in sales, and an operational loss was reported.

【Taiwan】
In Taiwan, the company struggled to undertake new projects and was unable to make up for the impact of the cancellation of existing projects and the completion of projects acquired in the previous year. As a result, sales dropped and operating loss increased year on year. However, there are signs of improvement in sales, such as the receipt of informal agreement for international trials from Taiwanese biotech businesses and the receipt of orders for domestic projects in Taiwan.

【United States】
In the U.S., both sales and profit increased significantly year on year. This was mainly due to the steady progress of commissioned projects and favorable sales, as well as revisions to existing contracts due to additional work. New projects have been steadily entrusted by U.S. biotech companies. The company will continue to focus on cultivating the U.S. CRO market and aim for sustainable growth.

【Europe】
In Europe, although the company is achieving sales results by promoting cooperation with the U.S. business, it did not contribute to the increase in sales in the current fiscal year, and sales decreased year on year. In terms of profit, the deficit decreased due to cost-cutting measures. Inquiries have been increasing recently, and the company is strengthening its structure by hiring sales personnel in Europe and focusing on receiving more orders.

【Goodwill balance and remaining amortization period (at the end of FY2024/3)】

*Unit: million yen
*1 Goodwill generated by the acquisition of Linical Accelovance America, Inc., has been apportioned pro rata to its European subsidiary.
*2 Intangible assets other than goodwill recognized by purchase price allocation.
*3 Figures have been converted at the exchange rate as of the end of the fiscal year ended March 2024.

(3) Change in order backlog

*Unit: million yen

In the CRO business, the total amount of clinical trials commissioned to the company, which has an implementation period of one to three years, is determined by the difficulty of the clinical trials due to the number of cases and the target disease. A consignment contract is concluded with the client for this implementation period, and sales are generated according to the contract. In the Contract Medical Affairs Business, the company enters into a consignment contract with a client for a similar period of time, and sales are generated in accordance with the contract.
The order backlog is the balance of orders received for contracted services for which contracts have already been concluded. This is an indicator of sales that will occur over the next one to five years, and is the basis for the company's future earnings forecasts.

The order backlog as of November 14, 2024 stood at 11,672 million yen, down 4.2% from the end of the fiscal year ended March 2024.
In Japan, while the market conditions remained harsh, order backlog increased from the end of the fiscal year ended March 2024 owing to the receipt of several orders for new projects and revisions to some contracts. Meanwhile, in Asia, order backlog decreased from the end of the fiscal year ended March 2024 because the company did not get new orders as it planned due chiefly to the strike by medical doctors in South Korea. Through cooperation between the business in Asia and the businesses in Europe and the United States, the company will tenaciously continue sales activities, for example, by providing overseas biotech companies with proposals to branch out into the Japanese and Asian markets.
In the United States, order backlog rose from the end of the fiscal year ended March 2024 as the company concluded contracts for new projects and revised some contracts for increasing man-hours. Furthermore, Linical has received a number of inquiries for multiple global projects and the like as well as several orders for new projects that are not included in the order backlog mentioned above as it is in the process of concluding contracts for them, and it continues sales activities with the aim of increasing order backlog.In the European region, order backlog has decreased since the end of the fiscal year ended March 2024 as a result of the fulfillment of existing orders and the recording of their sales, despite the receipt of new orders and contract modifications that increased the labor hours involved. Meanwhile, they are receiving orders for new projects through the cooperation with the business in the U.S. and there are multiple projects to be ordered, which are not included in the above order backlog. They will further enhance global synergy in the aspect of marketing, to receive more orders for new projects in Europe, etc. from U.S. enterprises.

(4) Variation in performance in the second quarter (July to September)

In the second quarter (July–September) of the fiscal year ending March 2025, the company recorded an operating loss due mainly to a sales decline in Japan.

(5) Financial Conditions and Cash Flow（CF）

Financial Conditions

* Unit: million yen
* Interest-bearing liabilities＝Borrowings + Lease Obligations

*Produced by Investment Bridge Co., Ltd. with reference to disclosed material.

Total assets as of the end of September 2024 stood at 17,286 million yen, down 1,253 million yen from the end of the previous year. On the asset side of the balance sheet, principally, cash and deposits, accounts receivable, advance payment, and goodwill went down while other current assets and deferred tax assets grew. On the liabilities and net assets side, chiefly, short-term and long-term debts, income taxes payable, retained earnings, and foreign currency translation reserves went down, and advance received and deposits received grew. The equity ratio at the end of September 2024 was 42.7%, down 1.7 percentage points from the end of the previous year.

* Unit: million yen

Regarding cash flows, the cash inflow from operating activities shrank chiefly because the interim net loss before taxes and other adjustments was recorded and the amount of increase in deposits received fell. The surplus of free cash flow decreased mainly because the cash flow from investing activities became negative for reasons such as a rise in expenditure resulting from the acquisition of intangible fixed assets and a drop in income from distributions from investment partnerships. In addition, the cash outflow from financing activities declined mainly because expenditure on payment of lease obligations went down. As a result, the cash position as of the end of September 2024 was down 1.4% from the end of the previous interim period.

4. Fiscal Year ending March 2025 Earnings Forecasts

(1) Consolidated results

*Unit: million yen

Sales and profit are projected to drop 6.8% and 65.6%, respectively, from the previous fiscal year.
Linical projects that sales will go down 6.8% from the previous fiscal year to 11,468 million yen and operating income will shrank 65.6% year on year to 250 million yen in the fiscal year ending March 2025.
On November 14, the company downwardly revised its earnings forecast for the fiscal year ending March 2025. While it made steady progress with the existing projects in the United States and generated larger sales than the forecast, it did not receive orders for new projects as forecast in Europe or Japan, and cancellation of a development project in Japan had impact to some extent. In addition, delays in the progress with the existing projects and business negotiations about new projects, which were caused by the large-scale medical strike that started around February in South Korea, affected Linical’s business performance.
While the company controls labor costs, including personnel adjustment, and optimizes SG&A expenses at all the bases, declining sales in Japan and Asia significantly affect its profit. Operating income margin is expected to be 2.2%, down 3.7 points from the previous fiscal year.
The forecast for the amount of dividend paid remains unchanged from 16 yen per share, up 1 yen per share from the previous fiscal year.

Revision to the forecast

*Unit: million yen

(2) Earnings forecast for the second half of the fiscal year

*Produced by Investment Bridge Co., Ltd. with reference to disclosed material.

For the second half of the fiscal year ending March 2025, the company forecasts that sales will shrank slightly and operating income will grow year on year.

(3) Strategies in each region

5. Conclusions

Their financial results in the first half of the fiscal year ending March 2025 were unfavorable, with sales decreasing 10.5% year on year and an operating loss of 192 million yen. Considering the situation in the first half, they downwardly revised the full-year earnings forecast for the fiscal year ending March 2025 on November 14. The latest forecast of the company calls for a 6.8% y/y decrease in sales to 11,468 million yen and a 65.6% y/y decline in operating income to 250 million yen. This is because sales decreased as they struggled to receive new orders in Europe and Japan as assumed and development projects in Japan were cancelled. Their performance was also affected by the delay in progress of ongoing projects and business negotiations for new deals caused by the large-scale strike by medical doctors that started in South Korea around February of this year. Although the results in the first half of the fiscal year ending March 2025 are unfavorable, there are many topics that make us believe the recovery of business performance from the second half. In the United States, their business performed well in the first half of the fiscal year ending March 2025 and is expected to drive the growth of their business, and there are many new transactions for which they are preparing contracts although they are not included in order backlog. They still receive many business inquiries from biotech companies, and some of the inquiries are about global projects. In Japan, they are expected to receive two large-scale orders next year. In Europe, too, they proceeded with the cooperation with the business in the U.S., so they are about to receive new orders, and there are many new transactions for which they are preparing contracts although they are not included in order backlog. The order backlog as of November 14, 2024 is smaller than that as of the end of the previous fiscal year, although it started increasing at the end of the interim period. It is noteworthy how much they can accumulate order backlog by the end of the current fiscal year, for business expansion from the next fiscal year. In particular, we would like to expect that they will receive large-scale orders from leading biotech companies in the U.S. and leading pharmaceutical companies in Europe.
The company has been concentrating on the fields of oncology, neurology, and immunology, in which they possess strong competitive advantages, since the establishment of the company. In addition to these three fields, they plan to expand their business in the ophthalmic and dermatological fields, where needs will grow in the aged society, and the fields of regenerative medicine and digital medical apparatus, which are new modalities. We would like to pay attention to whether they can receive orders steadily in these fields, which are expected to grow rapidly.
The growth potential in the U.S., which is the largest market in the world, is significant. The expansion of their business in the U.S. is indispensable for the company’s growth. The company aims to expand their business by actively hiring personnel in the U.S. and utilizing M&A. While their business in the U.S. has been expanding steadily, cash and deposits have accumulated and interest-bearing liabilities have decreased, so they are now able to carry out another M&A in the U.S. We would like to keep paying attention to the growth strategy in the U.S. market with expectation.

<Reference: Regarding Corporate Governance>

◎Organization type, and the composition of directors and auditors

◎Corporate Governance Report
Last updated on July 2, 2024
<Basic Policy>
(1) Management Philosophy
Our management philosophy is “To promote the greater wellbeing of all our stakeholders — patients, business partners, shareholders, and employees — we strive constantly to offer professional, high-quality services to support all aspects of new drug development.” We aim to contribute to the development, evolution and diffusion of new therapeutic technologies including new pharmaceuticals, and ultimately to the healthy lives of human beings, by continuously developing and maintaining the knowledge and experience of our executives and employees, as well as the know-how and systems of our organization.
(2) Basic Approach on Corporate Governance
Based on the above management philosophy, our company will contribute to the birth and growth of new disease prevention and therapeutic technologies, including new pharmaceuticals, with our know-how and technologies in pharmaceutical development. As a partner of healthcare companies and medical institutions, including domestic and foreign bio-venture firms, pharmaceutical companies, and medical device manufacturers, our company will contribute to the development of healthcare and meet the expectations of patients and the entire society.
Since our business activities impact people's lives, our executives and employees are required to have high ethical standards as well as expertise. Thus, we thoroughly comply with the Corporate Code of Conduct, including strict compliance with laws. In addition, we strive to improve corporate value and business development by enhancing internal control and ensuring the soundness and transparency of management.

Major principles for not implementing and the reasons

<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>