Seikagaku develops new drugs in-house, conducts clinical trials, and submits applications for approval from regulatory authorities such as the Ministry of Health, Labour and Welfare (Japan) and the FDA (US). It manufactures drugs itself, but sells through pharmaceutical companies of sales partner that are strong in specific areas. Earnings are driven by GPM of products sold to sales partners. Since its establishment in 1947, it has specialized in glycoscience (study of sugar chains and glycoconjugates), developing and manufacturing related drugs and bulk drugs.
Pharmaceuticals
Executive summary
Business overview
Seikagaku develops and manufactures drugs for orthopedic disorders and ophthalmic diseases (mainly joint function improving agents and ophthalmic surgery aids whose API [Active Pharmaceutical Ingredient] is hyaluronic acid) and sells them to partner pharmaceutical companies for distribution. Since it was established in 1947, the company has specialized in glycoscience—a niche area where it can avoid competition from major pharmaceutical companies. According to the company, its joint function improving agent has a 69% market share (value basis) in Japan and a 15% share in the US. In 1950, Seikagaku was the first in the world to commercially manufacture chondroitin sulfate. The extraction and purification technologies developed at that time remain the foundation of its operations.
By segment, Domestic Pharmaceuticals accounted for 43% of FY03/21 sales, Overseas Pharmaceuticals 25%, Bulk Products and Contract Development and Manufacturing Organization 7%, and LAL (Limulus Amebocyte Lysate, endotoxin-detecting reagents) 25%. Mainstay products are ARTZ, a joint function improving agent launched in March 1987 for improving the symptoms of knee osteoarthritis, and OPEGAN, ophthalmic surgery aid for cataract launched in January 1987. Both products have top domestic market share (accounting for 61.2％ and 53.7%, respectively, in FY03/21 (volume basis), according to the company). The company spends much of its sales on R&D (26.1% in FY03/21). Overseas sales accounted for 49.6% of total sales in FY03/21. RPM that includes royalty income booked under non-operating income has exceeded 10% every year over the past 10 years except in FY03/17 (10.9% in FY03/21).
The main pipeline includes six themes: SI-6603 (treatment for lumbar disc herniation), SI-613 (osteoarthritis treatment), SI-614 (treatment for dry eye), SI-449 (adhesion barrier), and SI-722 (treatment for interstitial cystitis). These can be broken down into seven projects taking into account different regions and indications. Seikagaku aims to expedite commercialization of new products by focusing R&D on glycoscience, its area of expertise. Gathering attention is treatment for lumbar disc herniation SI-6603, an injectable drug containing condoliase, an enzyme that selectively breaks down glycosaminoglycan (GAG) in the herniated nucleus pulposus, and thus when injected directly into the intervertebral disc can reduce pressure on nerves (the source of pain).
On March 23, 2018, Seikagaku obtained approval from the Ministry of Health, Labour and Welfare (MHLW) to manufacture and sell SI-6603 (brand name: HERNICORE®) in Japan. On May 22, 2018, HERNICORE was listed in the National Health Insurance drug price list (a 1.25-unit bottle was priced at JPY81,676 and then increased 1.9% to JPY83,189 in October 2019. The price was unchanged in April 2020 and April 2021, and according to the company, the number of patients receiving the agent is estimated at 5,200 with corresponding sales peaking at JPY420mn in the eighth year). Kaken Pharmaceutical Co., Ltd. (TSE1: 4521) launched the product in August 2018. It was increasingly adopted by medical institutions as it became more well-known, boosting total shipments to medical institutions to 11,500 units by end-FY03/21.
HERNICORE is an injectable drug that uses condoliase, an enzyme that selectively degrades glycosaminoglycans (GAG), the main component of nucleus pulposus. When injected directly into the intervertebral disc, it degrades GAGs and shrinks the nucleus pulposus, reducing the pressure on nerves (the source of pain) caused by the herniation and thus providing pain relief. HERNICORE is expected to improve the symptoms of lumbar disc herniation with a single injection, and Seikagaku anticipates that it will provide a new treatment option to patients and contribute to improving their quality of life (QOL).
In addition, an application for manufacturing and marketing of SI-613/ONO-5704 (brand name: JOYCLU®), jointly developed in Japan by Seikagaku and Ono Pharmaceutical (TSE1: 4528), was approved in March 2021 for treatment of osteoarthritis (knee and hip joints). JOYCLU 30mg Intra-articular Injection was listed in the National Health Insurance drug price list on May 19, 2021. It was priced at JPY4,394, and according to the company, the number of patients receiving the agent is estimated at 486,000 with corresponding sales peaking at JPY6.9bn in the tenth year.
JOYCLU is diclofenac (an anti-inflammatory drug) chemically bound to hyaluronic acid using the company’s proprietary drug binding technology, which releases diclofenac by hydrolysis in the joint. It has been approved as a treatment for osteoarthritis of the knee and hip joints, and is expected to improve symptoms by intra-articular injection once every four weeks. JOYCLU is the first ethical drug having the indication of osteoarthritis of the hip joint in Japan. The package insert carried a boxed warning citing the risk of serious shock and anaphylaxis, but after several patients were reported to have suffered shock and anaphylaxis after the drug’s administration, the company issued a "Dear Healthcare Professionals Letter of Rapid Safety Communication" (also known as a “Blue Letter”) on June 1, 2021. A “Blue Letter” is intended to promptly alert healthcare professionals as to the product’s risks and ensure the safety of patients through proper treatment and action. The company will continue to work with its marketing partner, Ono Pharmaceutical, to collect safety information and investigate the cause of the problems as quickly as possible.
SI-6603 Phase III clinical trial under way in the US has confirmed safety and efficacy, but failed to demonstrate a statistically significant improvement in the primary endpoint of reduction in worst leg pain at week 13 (November 2017). In response, the company announced on February 19, 2018 that it would initiate an additional US Phase III clinical trial, which it has started. The company aims to build on the findings from the previous study to increase the likelihood of success. Patient enrollment for the additional study began in Q1 FY03/19. The company had planned to complete the additional Phase III clinical trial in November 2022, but the schedule has been delayed due to some medical facilities having suspended or cancelled trials and increased postponement of hospital visits for trial subjects due to the COVID-19 pandemic.
As of end-March 2021, patient enrollment was proceeding apace, amid effective advertising activities aimed at recruiting patients and collaborations with local CROs to enlist new trial sites as activity at trial facilities picked up. The top priority remains to carry out clinical trials while taking steps to lower coronavirus infection risks.
US Phase II clinical trials on SI-613 for osteoarthritis have been completed and the company is concurrently considering a Phase III trial while working to select an alliance partner. In April 2020, Seikagaku concluded a joint development and marketing agreement with Eisai for SI-613 in China, and in September 2020 it reached a joint marketing agreement with Eisai in South Korea.
As for SI-613-ETP, analysis of the domestic late-stage Phase II data on enthesopathy in tendons and ligaments has been finalized, and Seikagaku is currently reviewing the next phase study with development and marketing partner Ono Pharmaceutical.
US-based Phase II/III clinical trials on the dry eye treatment SI-614 are complete, and the company is currently evaluating the results of the Phase III clinical studies while also working to select an alliance partner.
The company began Phase I/II clinical trials of SI-722 in the US in November 2019. The trial suffered delays as a result of the spread of COVID-19 in the US, but completed patient enrollment in January 2021. The study confirmed tolerability, and the company is now using the data acquired as basis for planning the next clinical trial.
For SI-449, in November 2021 Seikagaku launched a pilot study in the field of gynecology, with the aim of expanding indications to gynecology if operability and safety are confirmed. The pivotal study in the field of gastroenterological surgery launched in May 2020 has faced delays due to the pandemic. The company continued working to overcome the delays by increasing the number of clinical trial sites and using remote methods at those sites with restricted visiting arrangements.
Trends and outlook
FY03/22 results: The company reported full-year consolidated sales of JPY34.9bn (+25.7% YoY), operating profit of JPY4.5bn (+100.0% YoY), recurring profit of JPY5.4bn (+78.4% YoY), and net income attributable to owners of the parent of JPY3.7bn (-12.4% YoY). By segment/business, sales were flat YoY for Domestic Pharmaceuticals, up 12.9% YoY for Overseas Pharmaceuticals, up 41.2% YoY for Bulk Products and Contract Development and Manufacturing Organization, and up 31.9% for the LAL Business. Royalties increased 455.6% due to the achievement of product development milestones. Sales were affected by the application of the new Accounting Standard for Revenue Recognition and changes to accounting for royalties received (see below; no effect from either on recurring profit).
Operating profit rose 100.0% YoY as sales growth outweighed higher SG&A expenses such as R&D spending in line with progress in US clinical trials to evaluate SI-6603 for the treatment of lumbar disc herniation. R&D-related spending increased to JPY9.0bn (+24.9% YoY).
FY03/23 full-year company forecast: As of May 2022, the company had not disclosed a full-year FY03/23 forecast due to the difficulty of rationally estimating results. The company said it needed to closely monitor progress in uncovering the cause of shock and anaphylaxis following administration of joint function improving agent JOYCLU.
As of May 2022, the company expected lower NHI drug prices in Japan (weighted average of 11% reduction for the Domestic Pharmaceuticals business) and lower royalties to reduce sales. In addition, the overseas sales weighting reached 56% in FY03/22, so earnings will be more affected by currency fluctuations. In the US, patient enrollments in the additional clinical trials to evaluate SI-6603 for the treatment of lumbar disc herniation were completed in March 2022, so the company expects R&D expenses to fall.
The company announced the direction of its next medium-term business plan that begins in FY03/23 along with its FY03/22 results. In the next medium-term plan, its key priority is commercialization and sales launch in the US of SI-6603 for treatment of lumbar disc herniation in its core Pharmaceuticals Business. It also plans to address safety concerns regarding JOYCLU. On the R&D front, the company plans to proceed with its development pipeline, including adhesion barrier SI-449.
Strengths and weaknesses
Strengths: R&D-focused pharmaceutical company with expertise in a niche area, leverages accumulated state-of-the-art technology, and has cash cow products. Weaknesses: high ratio of domestic drug sales, which are susceptible to NHI drug price reductions; constrained by limited target market size; and lack of returns on development of new blockbuster drugs. (See Strengths and weaknesses section).
Key financial data
Notes: Figures may differ from company materials due to differences in rounding methods.
Past figures have been retroactively revised in line with the “Revision of deferred tax assets and deferred tax liabilities.”
The company has applied the Accounting Standard for Revenue Recognition and Guidance on Accounting Standard for Revenue Recognition from the beginning of FY03/22. For purposes of calculating YoY changes, this new accounting standard has been applied retroactively to consolidated figures for FY03/21.
As of May 2022, the company had not announced a FY03/23 forecast.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: The company will apply ASBJ Accounting Standard for Revenue Recognition and Guidance on Accounting Standard for Revenue Recognition from the beginning of FY03/22. For purposes of calculating YoY changes, this new accounting standard has been applied retroactively to consolidated figures for FY03/21.
Recent updates
Commencement of Phase III study of SI-614 for treatment of dry eye in the US and acquisition of treasury stock
On May 13, 2022, Seikagaku Corporation announced the commencement of a Phase III clinical study in the US for SI-614, ophthalmic solution for treatment of dry eye.
Seikagaku commenced a Phase III study of SI-614, ophthalmic solution for treatment of dry eye, in the US. Clinically beneficial effects of SI-614 were demonstrated in the Phase II/III clinical study, and accordingly, the company will evaluate the efficacy and safety of SI-614 in a multicenter, randomized, double-blind, placebo-controlled Phase III study.
SI-614 is an amphiphilic (the property of showing affinity for both water and oil) polymer produced by introducing a hydrophobic group (a modifying group that does not dissolve in water, but dissolves well in oil) into hyaluronic acid using the company’s own proprietary technology. Ocular instillation of SI-614 in dry eye patients is thought to stabilize the tear film by utilizing the mucoadhesive and surface tension reducing properties of SI-614. SI-614 is also believed to promote corneal epithelial wound healing by binding to the fibronectin found in corneal epithelial defects to promote epithelial cell growth. Through these actions, SI-614 is expected to restore the tear film and corneal structure to their normal states and improve symptoms associated with dry eye.
Dry eye is a chronic disease that accompanies ocular discomfort and visual disturbance and that is caused by dryness and inflammation of the ocular surface resulting from a decrease in tear production or changes in tear composition due to overuse of the eyes, aging, or other causes. According to GlobalData's "Dry Eye Syndrome: Global Drug Forecast and Market Assessment to 2024," it is estimated that approximately 14mn people suffer from dry eye in the US.
On the same day, the company announced the acquisition of treasury stock.
Details of matters pertaining to the acquisition
Trends and outlook
Quarterly trends and results
Notes: Figures may differ from company materials due to differences in rounding methods.
The company has adopted the new Accounting Standard for Revenue Recognition from Q1 FY03/22, and figures for Q1 FY03/21 have been revised retrospectively to reflect this change.
Notes: Figures may differ from company materials due to differences in rounding methods.
The company has adopted the new Accounting Standard for Revenue Recognition from Q1 FY03/22, and figures for Q1 FY03/21 have been revised retrospectively to reflect this change.
Full-year FY03/22 (out May 13, 2022)
Overview
In FY03/22, the company reported consolidated sales of JPY34.9bn (+25.7% YoY), operating profit of JPY4.5bn (+100.0% YoY), recurring profit of JPY5.4bn (+78.4% YoY), and net income attributable to owners of the parent of JPY3.7bn (-12.4% YoY).
Attainment rates
Sales were 108.2% of the full-year FY03/22 forecast, operating profit 98.8%, recurring profit 116.0%, and net income attributable to owners of the parent 102.3%.
Sales
Seikagaku’s FY03/22 sales were up 25.7% YoY to JPY34.9bn, with sales at its Domestic Pharmaceuticals business flat YoY, sales at its Overseas Pharmaceuticals business up 12.9% YoY, sales at its Bulk Products and Contract Development and Manufacturing Organization business up 41.2% YoY, royalties* up 455.6% YoY, and sales at its LAL Business up 31.9% YoY. Despite lower NHI drug prices in Japan, the increase in sales reflected sharp growth in royalty payments, rebound from the impact of the COVID-19 pandemic in Japan and overseas a year previously, and growth in the LAL Business and overseas products.
Operating profit
FY03/22 operating profit was up 100.0% YoY to JPY4.5bn.
Gross profit margin was up 2.6pp YoY to 58.9%, on the back of higher sales and a decrease in the CoGS ratio accompanying changes in the sales mix. The SG&A expense ratio was down 2.2pp YoY to 46.0%, as higher sales offset a JPY1.8bn (+24.9%) YoY increase in R&D expenditures due to an additional clinical study of SI-6603 in the US. As a result, the operating profit margin was 12.9%, up 4.8pp YoY.
Results by segment
Pharmaceuticals segment
Domestic Pharmaceuticals
FY03/22 sales of JPY11.4bn were steady YoY.
Joint function improving agent ARTZ
Shipment volumes of joint function improving agent ARTZ to medical institutions grew due to a market recovery from the impact of the COVID-19 pandemic a year ago and customers switching to ARTZ from rival products. Sales value was down slightly YoY due to the impact of NHI drug price revisions.
Joint function improving agent JOYCLU
The package insert for joint function improving agent JOYCLU carried a boxed warning citing the risk of serious shock and anaphylaxis, but after several patients were reported to have suffered shock and anaphylaxis after the drug’s administration, the company issued a “Dear Healthcare Professionals Letter of Rapid Safety Communication” (also known as a “Blue Letter”) on June 1, 2021. Seikagaku has continued efforts to proactively gather information including reports of side effects and provide safety information in collaboration with sales partner Ono Pharmaceutical. Further, the company initiated investigator-initiated clinical research to investigate causes while cooperating with experts and medical institutions.
OPEGAN series (ophthalmic surgery aids)
Shipment volumes of the OPEGAN series of ophthalmic surgery aids to medical institutions grew as the number of cataract surgeries, which declined due to the spread of COVID-19 a year ago, recovered. Sales value declined, though, owing to the NHI drug price revision and a decline in shipments from a high level in FY03/21.
MucoUp (submucosal injection agent for endoscopic surgery)
The company’s sales for MucoUp (submucosal injection agent for endoscopic surgery) were steady YoY. Despite a recovery from a pandemic-induced decline a year earlier, sales partners adjusted their inventories.
Lumbar disc herniation treatment HERNICORE
Shipment volumes of HERNICORE to medical institutions grew as the company stepped up efforts to provide information to sales partners and medical institutions. Sales were up YoY in value terms as well.
Overseas Pharmaceuticals
Sales of JPY7.7bn were up 12.9% YoY.
Gel-One (single-injection joint function improving agent)
Sales volume and sales value grew for Gel-One (intra-articular single-injection viscosupplement for the treatment of knee osteoarthritis) in the US due to the ongoing preference for products requiring fewer injections and success of measures at sales partners to encourage customers to switch to Gel-One from competing products.
SUPARTZ FX (five-injection joint function improving agent)
Despite tough market conditions for multiple injection agents, sales volume of SUPARTZ FX increased due to the dropout of the FY03/21 drag from the pandemic. Sales value also increased from shipments being brought forward to avoid distribution risks.
ARTZ in China
Sales volume of ARTZ in China increased YoY on sales promotion activities in regions where the company won tenders for centralized purchasing and increased orders from medical institutions concerned about disruptions to logistics due to the pandemic. Sales for the company increased significantly as it brought forward shipments ahead of packaging material changes.
Bulk Products and Contract Development and Manufacturing Organization
Sales of JPY2.6bn were up 41.2% YoY. Sales of bulk products were down slightly, but the business’ sales increased YoY due to full-year contributions from the CMO business of overseas subsidiary Dalton Chemical Laboratories.
Amid a significant JPY4.0bn (+455.6%) YoY increase in royalty income, Pharmaceuticals Business sales grew 23.6% YoY to JPY25.7bn.
LAL segment
Sales of JPY9.2bn were up 31.9% YoY. Growth was due to firm domestic sales, increased sales of endotoxin-detecting reagents and beta-glucan-detecting in vitro reagents at overseas subsidiary Associates of Cape Cod (ACC) on the back of enhanced sales activities, and increased orders for contract research services.
Drug pipelines
R&D expenditures in FY03/22 came to JPY9.0bn (25.8% of sales, or 29.2% if royalty income is excluded).
Pipeline progress is as shown following. In Q4, there were no developments with SI-772 or SI-449.
SI-6603 (for treatment of lumbar disc herniation; developed in the US)
While the COVID-19 pandemic caused some delays, the company completed patient enrollment for the additional Phase III clinical trials in the US in March 2022. It plans to analyze results and prepare to file for approval after a one-year post-administration follow-up period.
SI-6603 (active ingredient: condoliase) is a treatment injected directly into the intervertebral disc. SI-6603 does not require general anesthesia and is less invasive than surgery. It is expected to improve the symptoms of lumbar disc herniation with a single injection.
SI-614 (treatment for dry eye; developed in the US)
After a US-based Phase II/III clinical trial on the dry eye treatment SI-614 confirmed clinically beneficial effects, the company launched a Phase III clinical trial in May 2022 to evaluate efficacy and safety.
SI-614 is an amphipathic (binds with both water and oil) polymer produced by introducing a hydrophobic group into hyaluronic acid using the company’s proprietary technology. It is expected to stabilize the tear film and promote the healing of corneal epithelial wounds when administered as eyedrops.
SI-613 (for treatment of osteoarthritis; developed in Japan, US, China, and South Korea)
The company will consider its approach to development in the US, China, and South Korea with an eye on progress in uncovering the cause of shock and anaphylaxis following administration of JOYCLU.
SI-613-ETP (anti-inflammatory agent for enthesopathy in tendons and ligaments; developed in Japan)
The company ceased development of SI-613-ETP in February 2022, as the investigational drug failed to meet the primary endpoint in domestic late-stage Phase II trials targeting enthesopathy and as the company prioritized uncovering the cause of shock and anaphylaxis following administration of JOYCLU.
SI-722 (for treatment of interstitial cystitis; developed in the US)
The company started Phase I/II clinical studies in the US in November 2019. As the pandemic put the studies behind schedule, patient enrollments was completed in January 2021. Now that the tolerability was confirmed in the studies, the company has been examining the obtained data as it considers moving onto Phase III studies.
SI-449 (adhesion barrier, developed in Japan)
In November 2021, Seikagaku launched a pilot study in the field of gynecology, with the aim of expanding indications to gynecology if operability and safety are confirmed. The pivotal study in the field of gastroenterological surgery launched in May 2020 has faced delays due to the pandemic. The company continued working to overcome the delays by increasing the number of clinical trial sites and using remote methods at those sites that have restricted visiting arrangements.
SI-449 is a powdered adhesion barrier whose main ingredient is cross-linked chondroitin sulfate, developed using Seikagaku’s own glycosaminoglycan cross-linking technology. SI-449 has the property of absorbing moisture and swelling, which is expected to prevent the formation of postoperative adhesions in surgery by forming a barrier between the surgical wound site and surrounding tissues. The company aims to develop this medical device not just in Japan, but with an eye on the global market.
For details on previous quarterly and annual results, please refer to the Historical financial statements section.
Company forecast for FY03/23
The company did not disclose a full-year FY03/23 forecast at the start of the fiscal year due to the difficulty of rationally estimating results. It said it needed to closely monitor progress in uncovering the cause of shock and anaphylaxis accompanying administration of joint function improving agent JOYCLU.
As of May 2022, the company expected lower NHI drug prices in Japan (weighted average of 11% reduction for the Domestic Pharmaceuticals business) and lower royalties to reduce sales. In addition, the overseas sales weighting reached 56% in FY03/22, so earnings will be more affected by currency fluctuations. In the US, patient enrollments in the additional clinical trials to evaluate SI-6603 for the treatment of lumbar disc herniation were completed in March 2022, so the company expects R&D expenses to fall.
Shareholder returns
Annual dividend forecast
In FY03/23, the company expects to pay an annual dividend of JPY22.0 per share (interim dividend of JPY11.0 and year-end dividend of JPY11.0). In FY03/22, it paid an annual dividend of JPY30.0 per share (interim dividend of JPY15.0 and year-end dividend of JPY15.0, for a dividend payout ratio of 45.2%).
Medium-term outlook
The company announced the direction of its next medium-term business plan that begins in FY03/23 along with its FY03/22 results. In the next medium-term plan, its key priority is commercialization and sales launch in the US of SI-6603 for treatment of lumbar disc herniation in its core Pharmaceuticals Business. It also plans to address safety concerns regarding JOYCLU. On the R&D front, the company plans to proceed with its development pipeline, including adhesion barrier SI-449.
Business plans and earnings forecasts for the next medium-term business plan beginning in FY03/23 are likely to change significantly, depending on progress with measures to address safety concerns for JOYCLU and developments in the US regarding SI-6603 (for lumbar disc herniation). In light of this, the company refrained from disclosing numerical targets as of May 2022. It plans to release its next medium-term business plan in autumn 2022.
Medium-term business plan (FY03/20–FY03/22)
Along with its release of 1H results, the company also unveiled its new medium-term business plan covering FY03/20–FY03/22.
Numerical targets for final year of medium-term plan (FY03/22)
Under the medium-term plan, the company is targeting FY03/22 consolidated sales of JPY28.3bn (flat versus FY03/19), recurring profit of JPY4.5bn (+57% versus over FY03/19), and SKK EBITDA (= operating profit + depreciation + royalty income) of JPY5.0bn (+8% versus FY03/19), with 50.0% of sales coming from overseas versus 42.2% in FY03/19. The projections assume an average exchange rate of JPY105/USD.
Following a careful assessment of the current operating environment and medium- to long-term trends, the company decided to book JPY12.3bn in impairment loss against fixed assets belonging to its pharmaceuticals business in 1H FY03/20. Through this large impairment charge, the annual depreciation burden for FY03/20 and future years has been reduced from about JPY3.0bn per year previously to some JPY1.0bn from FY03/21. The revenue recognition standard for the medium-term business plan is different from that used for the company’s FY03/22 sales forecast (see the section on “Company forecast for FY03/22”).
A priority of the current medium-term plan is to strengthen business foundations to prepare for the next medium-term plan starting in FY03/23.
The company plans to compensate for the contraction of Domestic Pharmaceuticals by growth of Overseas Pharmaceuticals and LAL Business to maintain overall sales.
Having booked an impairment charge in 1H FY03/20, depreciation will decrease by JPY2.0bn per year in FY03/21 and FY03/22.
The company aims to increase SKK EBITDA by improving productivity and royalty income.
Of its pipeline drugs, the company is only factoring into its medium-term plan forecast SI-613 going on sale in Japan.
The company is not factoring US sales of SI-613 and SI-614 into its medium-term plan forecast due to uncertainty regarding selection of partner companies in the US (if a selection is made during the current plan period, it will be a factor that may raise plan targets).
Major initiatives
Introducing its new medium-term plan, the company said that with changes in the business environment surrounding the pharmaceuticals industry becoming increasing severe*, the need to lay out a new growth path yet again has made the continual creation of innovative new drugs an essential. Under the new medium-term plan, the company will be focusing its efforts on (1) accelerating the development of new drugs that can become major profit centers, (2) strengthening its revenue base by expanding the markets for its products, and (3) reforms for increasing productivity.
With respect to (1) efforts directed towards accelerating the development of new drugs, company plans call for further strengthening and utilizing its proprietary core technology related to glycosaminoglycan (GAG), accelerated development of innovative drugs using an open innovation strategy, and steady expansion of its development pipeline with an eye on global market expansion.
With respect to (2) efforts directed toward strengthening its revenue base by expanding the markets for its products, plans call for post-marketing drug development of HERNICORE for the domestic market and expediting the cultivation of new markets in other countries for existing products and products under development, and global expansion of gene-recombinant endotoxin-detecting reagents that utilize genetic recombination technology.
With respect to (3) efforts directed at increasing productivity, plans call for concerted cost-cutting in all areas, a more diversified earnings model, and the creation of an organizational structure that will maximize the value of resources.
Accelerating the development of new drugs that can become major profit centers
Strengthening and making use of the company’s own core technology related to GAGs: Leveraging proprietary drug discovery technology to the fullest extent to increase chances of discovering innovative drugs.
＜Proprietary core technologies>
Accelerating innovative drug discovery using an open innovation strategy: In addition to its own proprietary technologies, Seikagaku will actively seek to adopt compatible technologies from other companies in an effort to maximize synergies, increase the number of new drug development projects, and accelerate development work.
Steady expansion of the development pipeline with eye on global expansion: Seikagaku will foster the rapid development and launch of SI-613, a treatment for osteoarthritis and enthesopathy, as a new core product by applying for and successfully obtaining drug approval. The company also aims to speed up clinical trials for SI-722, a treatment for interstitial cystitis, and SI-449, an adhesion barrier. With regard to SI-6603 for the treatment for lumbar disc herniation, the company will focus on speeding up additional studies for the Phase III clinical trial as part of a concerted effort to prepare for a US market launch.
Strengthen revenue base by expanding markets for its products
Post-marketing drug development of HERNICORE in Japan: The company plans to focus on a product information campaign aimed at ensuring appropriate and safe use, and on collecting after-marketing safety information. After reaching agreements with the regulatory authorities and coordinating with relevant scientific societies, the company will also work to gradually increase its number of qualified medical practitioners and facilities as a means of steadily increasing HERNICORE’s market penetration. The company also plans to advance disease awareness activities related to lumbar disc herniation for patients.
Accelerating multinational expansion of existing products and products in development: The company plans to speed up the cultivation of new markets for existing products and products in development to help maximize product value and reinforce its medium/long-term revenue base. The company will also be actively working to enhance products and develop new applications in keeping with medical treatment needs in the targeted area.
Global expansion of endotoxin-detecting reagents utilizing genetic recombination technology: Overseas development of the LAL business is conducted by US subsidiary Associates of Cape Cod, Inc. (ACC). ACC aims for global expansion of gene-recombinant endotoxin-detecting reagents, a field that is expected to spread moving forward, leading to the creation of a new revenue base.
Reforms for increasing productivity
Concerted cost-cutting in all areas: On the manufacturing front, initiatives already underway have the company looking at ways to reduce procurement costs and optimize/streamline production to help ensure greater product profitability. On the SG&A expense front, the company is looking to increase operational efficiency cut costs. On the R&D spending front, the company will work to increase the efficiency of its R&D spending by prioritizing projects in order to sustain its new drug development programs.
More diversified earnings model: The company plans to actively look for new ways to generate revenues and earnings without relying on previous business models.
Creation of organizational structure that will maximize the value of resources: The company plans to move ahead with organizational reform that allows it to be more flexible in its response to changes in the business environment, cultivate talented employees that can create new value, and enable each employee reach their full potential.
Basic policy on returns to shareholders
Seeing the return of profits to shareholders as an important management concern, the company has set a basic policy of linking the distribution of dividends to business performance. Going forward, the company will also consider making share buybacks as appropriate after contemplating future expansion plans, total returns to shareholders, and other factors.
For FY03/20, the company plans to pay a dividend of JPY26.0 per share and in FY03/21 and FY03/22, will strive to maintain a dividend payout ratio of 50%, depending on the profitability of the business and other factors.
At the same time, the company also plans to actively invest in various strategic initiatives that will generate synergies and lead to future growth, including investment spending on R&D and new production systems that will create additional value.
(Reference) Previous medium-term business plan (FY03/17–FY03/19)
Overview
The company instituted a medium-term management plan covering the three-year period beginning April 2017 (FY03/17–FY03/19) as the final step of The Seikagaku Corporation Ten-Year Vision, and has pursued four high-priority strategies. Successes include the launch of HERNICORE in Japan, progress with new drug development, including SI-613, and growth of the LAL business. On the other hand, responding to changes in the operating environment—such as drastic reform of the drug price system in Japan, a factor contributing to deterioration of profitability in the pharmaceuticals business, and intensification of competition in overseas markets—is a matter of urgent importance.