Consolidated Financial Results for the Nine Months Ended September 30, 2021[Japanese GAAP]

Consolidated Financial Results

for the Nine months ended September 30, 2021

[Japanese GAAP]

November 5, 2021

Company name: Modalis Therapeutics Corporation

Stock exchange listing: Tokyo Stock Exchange

Code number: 4883

URL: https://www.modalistx.com/jp/

Representative: Haruhiko Morita, President and Representative Director

Contact: Naoki Kobayashi, CFO and Executive Officer

Phone: [phone]

Scheduled date of filing quarterly securities report: November 15, 2021

Scheduled date of commencing dividend payments: -

Availability of supplementary briefing material on quarterly financial results: Available

Schedule of quarterly financial results briefing session: -

(Amounts of less than one million yen are rounded down.)

1. Consolidated Financial Results for the Nine months ended September 30, 2021 (January 1, 2021 to September 30, 2021)

(1) Consolidated Operating Results		(% indicates changes from the previous corresponding period.)
		Operating revenue	Operating income	Ordinary income	Profit attributable to
		owners of parent
	Nine months ended	Million yen	%	Million yen	%	Million yen	%	Million yen	%
	September 30, 2021	1	(99.7)	(677)	-	(661)	-	(181)	-
	September 30, 2020	340	-	(168)	-	(209)	-	(214)	-

(Note) Comprehensive income: Nine months ended September 30, 2021: ¥ (174) million [ - %] Nine months ended September 30, 2020: ¥ (215) million [ - %]

	Basic earnings	Diluted earnings
	per share	per share
Nine months ended	Yen	Yen
September 30, 2021	(6.32)	-
September 30, 2020	(8.34)	-

(Notes)

For diluted earnings per share, the figure is not presented as the Company recorded basic loss per share although the Company has dilutive shares.

(2) Consolidated Financial Position
	Total assets	Net assets	Capital adequacy
	ratio
	Million yen	Million yen	%
As of September 30, 2021	6,498	6,093	93.8
As of December 31, 2020	6,277	6,206	98.9

(Reference) Equity: As of September 30, 2021: ¥6,093 million As of December 31, 2020: ¥6,206 million

2. Dividends
					Annual dividends
				1st	2nd	3rd		Year-end		Total
				quarter-end	quarter-end	quarter-end
				Yen	Yen	Yen		Yen		Yen
		Fiscal year ended December 31, 2020	-	0.00	-		0.00		0.00
		Fiscal year ending December 31, 2021	-	0.00	-
		Fiscal year ending December 31, 2021						0.00		0.00
		(Forecast)
	(Note) Revision to the forecast for dividends	announced most	recently: No

3. Consolidated Financial Results Forecast for the Fiscal Year Ending December 31, 2021(January 1, 2021 to December 31, 2021)

The earnings forecasts for fiscal year 2021 are not presented due to the difficulty of formulating reasonably accurate estimates at this time. For further details, please refer to page 3 "Explanation of Consolidated Financial Results Forecast and Other Forward-lookingInformation"

• Notes:

1. Changes in significant subsidiaries during the Nine months ended September 30, 2021 (changes in specified subsidiaries resulting in changes in scope of consolidation): No
   Notes on changes in significant subsidiaries during the Nine months ended September 30, 2021
2. Accounting policies adopted specially for the preparation of quarterly consolidated financial statements: No Notes on accounting policies adopted specially for the preparation of quarterly consolidated financial statements
3. Changes in accounting policies, changes in accounting estimates and retrospective restatement
4. 1. Changes in accounting policies due to the revision of accounting standards: No
   2. Changes in accounting policies other than 1) above: No
   3. Changes in accounting estimates: No
   4. Retrospective restatement: No

Notes on changes in accounting policies

1. Total number of issued shares (common shares)
2. 1. Total number of issued shares at the end of the period (including treasury shares): September 30, 2021: 28,861,700 shares
      December 31, 2020: 28,515,600 shares
   2. Total number of treasury shares at the end of the period:

September 30, 2021: 63 shares

December 31, 2020: - shares

3) Average number of shares during the period:

Nine months ended September 30, 2021: 28,697,050 shares

Nine months ended September 30, 2020: 25,665,611 shares Notes on total number of issued shares

• These quarterly financial results are outside the scope of quarterly review by certified public accountants or audit firms.
• Explanation of the proper use of financial results forecast and other notes

The earnings forecast and other forward-looking statements herein are based on information available and certain assumptions judged to be reasonable as of the date of publication of this document. They do not represent a commitment from the Company that they will be achieved. Actual results may differ significantly from these forecast due to a wide range of factors. Please refer to page 3 of the attachment for matters related to the earnings forecast.

Table of Contents
1. Qualitative Information on Quarterly Financial Results for the Period under Review .................................	2
(1)	Explanation of Business Results ............................................................................................................	2
(2)	Explanation of Financial Position ..........................................................................................................	3
(3)	Explanation of Consolidated Financial Results Forecast and Other Forward-looking Information ..........	3
2. Quarterly Consolidated Financial Statements and Primary Notes ...............................................................	4
(1)	Quarterly Consolidated Balance Sheets .................................................................................................	4
(2)	Quarterly Consolidated Statements of Income and Comprehensive Income ...........................................	5
(3)	Notes to Quarterly Consolidated Financial Statements ...........................................................................	7
	(Notes on going concern assumption) ....................................................................................................	7
	(Notes in the case of significant changes in shareholders' equity) ..........................................................	7
	(Segment information) ..........................................................................................................................	7

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1. Qualitative Information on Quarterly Financial Results for the Period under Review

(1) Explanation of Business Results

In the Japanese economy during the Nine months ended September 30, 2021, economic activity and social life are gradually normalizing due to the spread of vaccination against the COVID-19 pandemic, but the outlook remains uncertain.

Against this backdrop, the Group, in the sixth year since establishment in 2016, has promoted its business proactively under the corporate philosophy "Every Life Deserves Attention," aiming to provide epoch-making therapeutic agents for genetic disorders, most of which are rare diseases. Capitalizing on the advantages of the CRISPR-GNDM® platform that is the technology base, the Group has adopted a hybrid business model to create therapeutic agents for genetic disorders for achieving "wide-range development" and "value chain supplement;" combining "collaboration pipelines" where the Group releases the CRISPR-GNDM® technology to partners that develop therapeutic agents for diseases of their choice at their expense; and "internal pipelines" where the Group uses the CRISPR-GNDM® technology, chooses diseases to be targeted, and develops therapeutic agents at the Group's expense. The Group believes that the COVID-19 pandemic has had a limited impact on business results during the Nine months ended September 30, 2021.

During the nine months ended September 30, 2021, collaboration pipelines and internal pipelines were in steady progress. The company has initiated manufacturing of the lead internal pipeline, MDL-101, and entered a strategic collaboration with a first tier global CDMO on process development, analytical development, and large-scale manufacturing for preclinical and clinical supply. Both companies have defined requirements, outline the process, and landed at a concrete plan to move forward. With this collaboration, Modalis gains access to the CDMO's proprietary vector system as well as its manufacturing capability for AAV production. Modalis believes that demonstrating a feasible plan of manufacturing is a critical piece potential license partners for the program as well as preclinical data. As a part of our efforts toward the clinic, Modalis was able to achieve further downsize of the CRISPR-GNDM® cassette, which shall contribute higher productivity in manufacturing. On the other hand, our strategy stays with finding a partner for MDL-101 and we believe that moving forward with manufacturing without delay is a way to increase the value of the pipeline for partnering and is also our responsibility to the patients who are waiting for the cure.

To accommodate the in-house manufacturing capacity and to gain rooms for future growth of our research function, we relocated our US research lab to Waltham MA as of Oct 20th. The area is one of the top business growth areas in Massachusetts offering traction to educated, diverse, and growing life science community.

As reported last quarter, Modalis regained the right of MDL-205 targeting Angelman syndrome from Astellas. To pursue the development by ourselves, we have re-obtained necessary licenses or research tools and materials and continues preclinical studies.

A shareholder of the Company violated the agreement (lock-up system) of Securities Listing Regulations and Enforcement Rules for Securities Listings Regulations. As a countermeasure, the Group has received an irregular income of 485,881 thousand yen.

As a result, for the Nine months ended September 30, 2021, operating revenue amounted to ¥1,100 thousand, operating loss to ¥677,519 thousand, ordinary loss to ¥661,924 thousand, and Loss attributable to owners of parent to ¥181,372 thousand.

The Group consists of a single business segment of developing therapeutic agents for genetic disorders. Accordingly, the Company omits statements of segment information.

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