Seikagaku : Consolidated Financial Results (Summary) for Fiscal 2022(Year Ended March 31, 2023)

May 12, 2023

SEIKAGAKU CORPORATION

Consolidated Financial Results (Japan GAAP) (Summary)

for the Fiscal 2022

(Year Ended March 31, 2023)

Listed exchanges: Tokyo Stock Exchange (Prime Market)

Stock code number: 4548

URL: https://www.seikagaku.co.jp/en/

Date of ordinary general meeting of shareholders (Planned): June 20, 2023

Date of dividend payment (Planned): June 21, 2023

(All amounts have been rounded down to the nearest million yen)

1. Consolidated Financial Results for the Fiscal 2022(from April 1, 2022 to March 31, 2023)

(1) Consolidated Financial Results

(Percentages indicate changes from the prior fiscal year)

	Net sales		Operating income	Ordinary income	Net income attributable to
		owners of parent
	Millions of	%	Millions of	%	Millions of	%	Millions of	%
	Yen	Yen	Yen	Yen
Fiscal 2022	33,456	(4.0)	2,114	(53.0)	3,069	(43.1)	2,236	(40.1)
Fiscal 2021	34,851	25.7	4,495	99.9	5,395	78.4	3,733	(12.4)
(Note) Comprehensive income:
	Fiscal 2022: 3,921 million yen[(14.3) % ]
	Fiscal 2021:	4,573 million yen[(10.7) % ]

	Net income per	Diluted net	Return on equity	Ordinary income	Operating income
	as a percentage of	as a percentage of
	share	income per share
		total assets	net sales
	Yen	Yen	%	%	%
Fiscal 2022	40.49	-	3.3	4.1	6.3
Fiscal 2021	66.32	-	5.7	7.4	12.9

(2) Consolidated Financial Position			Total equity
Total assets	Total equity	Equity ratio
per share
Millions of Yen	Millions of Yen	%	Yen
Fiscal 2022	75,625	67,216	88.9	1,232.41
Fiscal 2021	75,244	66,340	88.2	1,179.46
(Reference) Shareholders' Equity:
Fiscal 2022:	67,216 million yen
Fiscal 2021:	66,340 million yen
(3) Consolidated Cash Flows

	Net cash flows from	Net cash flows from	Net cash flows from	Cash and cash
	equivalents at the end
	operating activities	investing activities	financing activities
	of fiscal year
	Millions of Yen	Millions of Yen	Millions of Yen	Millions of Yen
Fiscal 2022	1,574	3,365	(3,244)	25,798
Fiscal 2021	8,192	870	(2,151)	23,367
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2. Dividends

					Dividends per share
	1st Quarter		2nd Quarter	3rd Quarter		Fiscal Year-end	Annual
	Yen		Yen	Yen			Yen	Yen
Fiscal 2021	-		15.00	-			15.00	30.00
Fiscal 2022	-		13.00	-			13.00	26.00
Fiscal 2023	-		13.00	-			13.00	26.00
(Forecast)
	Total dividend payments		Dividend payout ratio		Dividends as a percentage of
	(Annual)			(Consolidated)		total equity (Consolidated)
	Millions of Yen			%				%
Fiscal 2021			1,687				45.2		2.6
Fiscal 2022			1,426				64.2		2.2
Fiscal 2023							97.8
(Forecast)

3. Forecast of Consolidated Financial Results for Fiscal 2023 (from April 1, 2023 to March 31, 2024)

(Percentages indicate changes from the prior fiscal year)

								Net income	Net income
	Net sales		Operating income	Ordinary income	attributable to
		per share
								owners of parent
	Millions		%	Millions	%	Millions	%	Millions	%	Yen
	of Yen		of Yen	of Yen	of Yen
Fiscal 2023	32,550		(2.7)	100	(95.3)	1,550	(49.5)	1,450	(35.2)	26.59

* Notes

1. Changes in the status of material subsidiaries during the period: No
2. Changes in accounting principles, changes in accounting estimates, and retrospective restatements

1. Changes in accounting principles accompanying revisions in accounting standards: Yes
2. Changes other than those in (a) above: No
3. Changes in accounting estimates: No
4. Retrospective restatements: No

1. Number of shares issued (common stock):

1. Number of shares at the end of the period (including treasury stock)
2. Number of treasury stock at the end of the period
3. Average number of shares issued during the period

As of March	31,	56,814,093 shares	As of	March	31,	56,814,093 shares
2023		2022
As of March	31,	2,273,029 shares	As of	March	31,	567,822 shares
2023		2022
Fiscal 2022		55,239,983 shares	Fiscal 2021		56,299,803 shares

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(Reference) Non-Consolidated Financial Results

Non-Consolidated Financial Results for Fiscal 2022 (from April 1, 2022 to March 31, 2023)

(1) Non-Consolidated Financial Results

(Percentages indicate changes from the prior fiscal year)

	Net sales			Operating income			Ordinary income	Net income
	Millions of		%		Millions of		%			Millions of	%	Millions of		%
	Yen			Yen				Yen	Yen
Fiscal 2022	22,091		(12.3)	0		(100.0)		1,845	(50.2)	1,798		(28.0)
Fiscal 2021	25,178		19.6	2,273		73.3		3,703	87.4	2,496		(28.5)
	Net income per share		Diluted net income per
			share
	Yen				Yen
Fiscal 2022			32.55					-
Fiscal 2021			44.34					-

(2) Non-Consolidated Financial Position

	Total assets		Total Equity	Equity ratio	Total Equity per share
	Millions of Yen		Millions of Yen	%	Yen
Fiscal 2022	63,068		56,672	89.9	1,039.07
Fiscal 2021	64,644		58,010	89.7	1,031.37
(Reference)	Shareholders' Equity:
	Fiscal 2022:	56,672 million yen
	Fiscal 2021:	58,010 million yen

*This financial reports are not subject to audit of the certified public accountant and audit firm.

*The above forecast has been prepared on the basis of economic circumstances, market trends, and other assumptions made at the time of release of this document. Actual results may differ from the forecast due to a variety of factors.

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1. Analysis of Results of Operations

Results of operations for the current fiscal year

In the fiscal year ended March 31, 2023 (fiscal 2022), net sales were ¥33,456 million, down 4.0% year on year. The result is attributable to a substantial decline in royalty income and a decline in sales in the pharmaceutical business due to the impact of National Health Insurance (NHI) drug price reductions in Japan, despite the positive impact of yen depreciation on the results from the LAL business and overseas pharmaceuticals.

Operating income fell 53.0% year on year to ¥2,114 million as a result of the sales decrease, notwithstanding a decrease in R&D expenses accompanying completion of subject enrollment in an additional clinical study underway in the U.S. for SI-6603, a treatment for lumbar disc herniation. Ordinary income and net income attributable to owners of parent fell 43.1% to ¥3,069 million and 40.1% to ¥2,236 million, respectively.

1. Net sales by segment Pharmaceutical Business
   - Domestic Pharmaceuticals (¥11,271 million, down 1.5% year on year)
   Deliveries to medical institutions of ARTZ, a joint function improvement agent for knee osteoarthritis, increased year on year thanks to successful measures to promote switching from competing products. The Company's sales fell due to the impact of NHI drug price reductions, despite an increase in shipment volume due to higher deliveries to medical institutions and the impact of shipment timing.
   The Company's sales of the joint function improvement agent JOYCLU increased year on year, reflecting higher deliveries to medical institutions. The Company issued a Dear Healthcare Professionals Letter of Rapid Safety Communication (Blue Letter) about JOYCLU on June 1, 2021 and is continuing cooperative efforts with sales partner Ono Pharmaceutical Co., Ltd. to proactively gather side effects reports and other information and provide safety-related information. Also, since April 2022 the Company has been conducting a clinical study to identify the cause of side effects with the cooperation of specialists and medical institutions.
   Deliveries to medical institutions of the OPEGAN series of ophthalmic viscoelastic devices increased year on year due to a gradual return to the pre-COVID market growth trend and the impact of limited shipments of competing products. The Company's sales were at the prior-year level as a result of shipment volume increase, despite the impact of NHI drug price reductions.
   The Company's sales of MucoUp, a submucosal injection agent for endoscopic surgery, decreased due to the impact of an NHI reimbursement price revision.
   Although deliveries to medical institutions of HERNICORE, a treatment for lumbar disc herniation, remained at the prior-year level, the Company's sales rose due to the impact of shipment timing.

- Overseas Pharmaceuticals (¥8,534 million, up 11.5% year on year)

Local sales volume in the U.S. of Gel-One, an intra-articularsingle-injection viscosupplement for the treatment of knee osteoarthritis, decreased year on year, reflecting the impact of a health insurance system change implemented in July 2022. The Company's sales increased substantially, fueled by the impact of yen depreciation.

Local sales volume in the U.S. of SUPARTZ FX, an intra-articular5-injection viscosupplement for the treatment of knee osteoarthritis, rose due to a changing market environment accompanying a health insurance system change. The Company's sales increased, reflecting the impact of yen depreciation.

Local sales volume in China of ARTZ fell sharply because of the impact of factors including limitation of access to outpatient services accompanying the renewed spread of COVID-19. The Company's sales declined substantially, reflecting the absence of shipments in the first quarter due to a packaging material change and a decrease in local sales volume.

• Bulk Products and Contract Development and Manufacturing Organization (¥2,916 million, up 11.9% year on year)
  Sales increased due to higher sales of bulk products and the impact of yen depreciation on sales of contract development and manufacturing and other services of overseas subsidiary Dalton Chemical Laboratories, Inc.

As a result of these developments and a steep decline in royalty income (¥1 million, down 100.0% year on year),

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sales from the Pharmaceuticals business segment fell 11.6% year on year to ¥22,723 million.

LAL Business

Sales from the LAL business segment increased 17.2% year on year to ¥10,732 million, reflecting the impact of yen depreciation on sales of reagents and diagnostics at overseas subsidiary Associates of Cape Cod, Inc. as well as steady sales in Japan.

2) Research and Development Activities

To contribute to healthy and fulfilling lives for people around the world, the Seikagaku Group focuses its research and development on glycoscience as its area of specialization and aims to create original pharmaceuticals and medical devices.

The Group will aim to achieve early and continuous launching of new products, which hold the key to future business growth, by focusing on application of Seikagaku's original glycoscience-related basic technologies to create new development themes in existing fields as well as innovative research themes, including in new disease areas, and by pursuing various alliances.

Total R&D expenses in fiscal 2022 were ¥7,951 million, or 23.8% of net sales (excluding royalties), and the number of R&D personnel was 196, or 20.1% of the total number of employees, at March 31, 2023.

The status of progress of principal R&D activities is described below.

SI-6603 (treatment for lumbar disc herniation: developed in the U.S.)

Follow-up observation in an additional Phase III clinical study was completed in March 2023, and preparations for results analysis are underway.

SI-6603, which contains condoliase as its active pharmaceutical ingredient, is a therapeutic agent directly injected into the lumbar disc. It does not require general anesthesia and is less invasive to the patient than surgical treatment. Since a single-injection treatment is expected to improve the symptoms of lumbar disc herniation, the Company aims to provide SI-6603 as a new treatment option.

SI-614 (treatment for dry eye: developed in the U.S.)

Subject enrollment has been completed for a Phase III clinical study being conducted since May 2022 with the objective of evaluating efficacy and safety. After obtaining data from the clinical study currently underway, the Company plans to select a sales partner and conduct a second Phase III clinical study and a long-term study.

SI-614 is a substance produced by introducing a hydrophobic group into hyaluronic acid using Seikagaku's own proprietary technology. Ocular instillation of SI-614 in patients is expected to improve symptoms of dry eye by stabilizing the tear film and promoting corneal epithelial wound healing. Through development of SI-614, the Company aims to provide a new option for the treatment of dry eye.

SI-613 (treatment for osteoarthritis: developed in the U.S., China, and South Korea)

SI-613-ETP (treatment for enthesopathy: developed in Japan)

SI-613

The Company will consider the future direction for development in the U.S., China, and South Korea while assessing progress with identification of the cause of shock or anaphylaxis of JOYCLE.

SI-613-ETP

The primary efficacy endpoint in a late-stage Phase II clinical trial in Japan of SI-613-ETP for the treatment enthesopathy was not met, and the Company will prioritize identification of the cause of shock or anaphylaxis of JOYCLE. For these reasons, development of SI-613-ETP was discontinued in February 2022.

SI-613 is a formulation in which hyaluronic acid and diclofenac (an anti-inflammatory agent) are chemically bound using Seikagaku's own proprietary technology. It is expected to improve symptoms associated with osteoarthritis and enthesopathy by releasing diclofenac by hydrolysis.

SI-722 (treatment for interstitial cystitis: developed in the U.S.)

Seikagaku is considering the policy on future development based on data obtained in Phase I/II clinical studies.

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