Executive summary

Business overview

Kringle Pharma, Inc. (TSE Mothers: 4884, Kringle) is a late clinical-stage biopharmaceutical company. It was founded as a biotech startup in Osaka in December 2001, and traces its roots back to Osaka University. Kringle’s mission is to develop and commercialize innovative medicines for patients suffering from intractable diseases*. Its current research and development focus is on the application of recombinant human hepatocyte growth factor (HGF) to treat patients with these rare diseases worldwide. Rare diseases are medical conditions characterized by a low incidence, a lack of effective or established treatments due to unknown or poorly understood causes, and a serious impact on patients’ everyday life over the long term. In 2005, Kringle started developing regenerative medicines that contained HGF proteins, which were discovered by the late Toshikazu Nakamura while a professor at the Osaka University Graduate School of Medicine. The company has established a manufacturing method to produce HGF protein using recombinant DNA technology (recombinant human HGF protein). Following successful nonclinical studies, the company initiated and completed several clinical studies in Europe, the US, and Japan. In the Phase I/II clinical trial for the treatment of acute spinal cord injury (acute SCI; June 2014–October 2018), the company confirmed the safety of recombinant human HGF protein as a therapeutic agent. In July 2020, the company initiated a Phase III clinical trial aimed at verifying the proof of concept (POC) demonstrated in the earlier study (ongoing as of end-1H FY09/21).

*Intractable diseases: A term derived from the Japanese word nanbyo, it is widely used among Japanese medical scientific communities and government agencies (including the Ministry of Health, Labour and Welfare and the Pharmaceuticals and Medical Devices Agency) to refer to rare diseases with unknown or poorly understood causes for which no effective or established treatments exist.

HGF is a naturally occurring protein in the human body, and mainly promotes the proliferation of hepatocytes. The liver has the highest regenerative capacity of any human organ. For example, if one-third of a donor liver is removed during a liver transplant surgery, the organ will eventually regenerate to its original size. The research of Prof. Nakamura and Kringle has demonstrated that HGF protein is instrumental in the regeneration and repair of not only the liver but also various other organs and tissues, and has a powerful effect on the nervous system. In light of these discoveries, Kringle set out to develop HGF-based drugs targeted mainly at two neurological conditions: Acute SCI and amyotrophic lateral sclerosis (ALS).

Japanese drug-discovery companies generally concentrate on producing research outcomes, and out-license development, manufacturing, and marketing rights to pharmaceutical companies. However, Kringle develops its own drugs with the aim of commercializing them after securing marketing approval. The company has developed manufacturing and purification processes for HGF protein as well as stable formulations containing the protein as an active pharmaceutical ingredient (API). These developments have enabled the company to mass-produce GMP-compliant HGF-based pharmaceuticals. This not only bolsters the company’s development of regenerative medicines for various diseases, but has also allowed Kringle to start supplying HGF as an API to other companies. HGF has potential as a therapeutic agent for a range of rare diseases, but there is a limit to the development the company can undertake independently. Hence, the company generates revenue from supplying its HGF protein as an API to other companies developing HGF-based therapies for specific diseases. In April 2020, the company concluded an agreement with Claris Biotherapeutics, Inc., a US-based biotech startup affiliated with Harvard University, to supply HGF as an API (development code: KP-100) to be used in the treatment of ophthalmic diseases.

Kringle’s clinical trials to date have included one Phase III clinical trial (acute SCI), two Phase II clinical trials (ALS and vocal fold scarring [VFS]), and one Phase I clinical trial (acute kidney injury). KP-100IT (recombinant human HGF protein formulation) used in Kringle’s clinical studies including its ongoing Phase III confirmatory study in acute SCI, received and orphan drug designation by Japan’s Ministry of Health, Labour and Welfare (MHLW) in September 2019. This substantially increased the likelihood of an accelerated review by the authorities and subsequent market approval. The company has already established a supply chain by entering into capital and business alliances with Maruishi Pharmaceutical Co., Ltd. and Toho Holdings Co., Ltd. (TSE1: 8129), and aims to launch its HGF-based regenerative medicine for acute SCI in FY09/25 (October 2024–September 2025).

As of end-FY09/21, the company was developing recombinant human HGF-based drugs for acute SCI and ALS in collaboration with, respectively, Prof. Hideyuki Okano of the Department of Physiology and Prof. Masaya Nakamura of the Department of Orthopedic Surgery at the Keio University School of Medicine, and Prof. Masashi Aoki of the Department of Neurology at the Tohoku University School of Medicine, with the aim of commercializing them. These conditions have no effective treatments that address their root causes, result in motor impairment, and place a significant burden on caregivers. HGF is a potential treatment for these conditions thanks to its effect in protecting, regenerating, and repairing tissues and organs.

The company generates revenue from upfront payments, milestone payments based on R&D progress, research support payments, royalties, and sales revenue (sales of pharmaceuticals, supply of APIs, and sales of reagents). 

Expenses consist of cost of revenue and SG&A expenses (R&D expenses and other general and administrative expenses).

Earnings trends

In FY09/21, the company reported revenue of JPY290mn (-38.0% YoY), an operating loss of JPY358mn (loss of JPY172mn in FY09/20), a recurring loss of JPY300mn (loss of JPY116mn), and a net loss attributable to owners of the parent of JPY301mn (loss of JPY118mn). The revenue came from Claris Biotherapeutics for the supply of APIs and technology access fees. SG&A expenses came to JPY576mn (-9.9% YoY), including R&D expenses of JPY399mn (-18.6% YoY).

The company's FY09/22 earnings forecast calls for revenue of JPY355mn (+22.5% YoY), an operating loss of JPY1.4bn (loss of JPY358mn in FY09/21), a recurring loss of JPY1.3bn (loss of JPY300mn), and a net loss of JPY1.3bn (loss of JPY301mn). The company expects to book revenue from Claris Biotherapeutics for the supply of APIs and technology access fees. It expects SG&A expenses of JPY1.6bn (+173.1% YoY), including R&D expenses of JPY1.3bn (+232.5% YoY).

Kringle does not disclose medium-term business plans or numerical targets. After securing marketing approval for its HGF-based regenerative medicine for acute SCI in Japan in FY09/25, it looks to achieve profitability thereafter through continued sales of the pharmaceutical. In addition, Kringle plans to expand the indications for its HGF-based regenerative medicine to other rare disease such as ALS and is currently in business development discussions to initiate partnerships and market access globally.

Strengths and weaknesses

Shared Research thinks Kringle’s strengths are 1) its capability to mass-produce GMP-compliant, pharmaceutical-grade HGF protein; 2) the wide-ranging applicability of its drug discovery protein (HGF), which is a human-derived, multi-functional protein with an excellent safety profile; and 3) the fact that it manages the master cell bank (MCB) for HGF—from which its HGF protein is manufactured—under an exclusive license obtained from the discoverer of HGF.

We see its weaknesses as 1) the absence of approved drugs in its mainstay pipelines (acute SCI, ALS, and VFS); 2) limited financial resources contributing to slow progress in the acute kidney injury pipeline (halted after Phase I study), which represents a massive market; and 3) the fact that the HGF substance patent has already expired, allowing other companies to freely develop HGF-based regenerative medicines outside of the scope of Kringle’s application or formulation patents.

Origin of company name:

Key financial data

Recent updates

Extension of Phase III study of recombinant HGF protein in acute SCI patients

On May 13, 2022, Kringle Pharma, Inc. announced that the timeframe of the Phase III clinical trial it is conducting on acute spinal cord injury (SCI) patients would be extended. 

Patient enrollment for the Phase III clinical trial (targeting 25 patients) evaluating recombinant HGF protein preparation infusions in patients with acute SCI is ongoing at five medical institutions in Japan. Patient enrollment, which had proceeded in line with plan since recruitment started in July 2020, has been derailed by the resurgence of COVID-19 infections and its protracted effects, and accordingly has not reached the target. 

Kringle had previously projected the follow-up for the last patient in the clinical trial would be completed in 2H 2022, but given the current situation and uncertainty over COVID-19 infection trends going forward, the company has notified the Pharmaceutical and Medical Devices Agency (PMDA) that this trial will be extended by six months. The company aims to work closely with medical institutions participating in the clinical trial to complete patient enrollment by 2H 2022 and the final follow-up by 1H 2023.

This delay in the clinical trial has limited implications on FY06/22 earnings.

Grant amount decided for FY2021 under the Orphan Products Development Support Program for recombinant human HGF protein for treatment of acute spinal cord injury

On April 26, 2022, Kringle Pharma, Inc. announced the receipt of a grant for its recombinant human HGF protein formulation for the treatment of acute spinal cord injury from the National Institutes of Biomedical Innovation, Health and Nutrition (NIBIOHN). 

The company is conducting a Phase III clinical trial in Japan investigating its recombinant human HGF protein formulation (development code: KP-100IT) in patients with acute spinal cord injury. KP-100IT was designated as an orphan drug in Japan as of September 12, 2019, with the approval of the Minister of Health, Labor and Welfare, making it eligible for a grant under the Orphan Products Development Support Program of the NIBIOHN. 

Official grant amount (FY2021): JPY80mn

The JPY80mn grant will be booked as non-operating income in Q3 FY09/22. There will be no impact on the company's FY09/22 earnings forecast, as the grant was reflected in the FY09/22 forecast announced on November 12, 2021. 

Provided security to AMED in connection with the CiCLE agreement

On April 21, 2022, Kringle Pharma, Inc. announced that it has concluded a research and development contract with the Japan Agency for Medical Research and Development (AMED) after its project to develop recombinant human HGF protein as a treatment for chronic fibrosis was selected by AMED for the sixth round of its Cyclic Innovation for Clinical Empowerment (CiCLE) grant program for FY2021 (disclosed November 8, 2021). The company provided to AMED a term deposit as security equal in amount to the outsourcing fee it is due to receive from AMED.

If the project achieves its predetermined development targets, the company must repay the full amount of the outsourcing fee received from AMED. Consequently, the company has to put up security of the same amount as the outsourcing fee for each contracted year. The company has issued share subscription rights to finance the development of a pharmaceutical product using recombinant HGF protein for the treatment of vocal fold scarring (VFS). Having signed the CiCLE agreement, the company will provide the security and receive the outsourcing fee, but the funds raised from the issue of share subscription rights will be used for R&D of the VFS treatment.

The company does not expect the CiCLE contract and payment of security to have any impact on FY09/22 earnings.

Development of recombinant human HGF protein as a treatment for chronic fibrosis

On April 20, 2022, Kringle Pharma, Inc. announced that it has concluded a research and development contract with the Japan Agency for Medical Research and Development (AMED) after its project to develop recombinant human HGF protein as a treatment for chronic fibrosis was selected by AMED for the sixth round of its Cyclic Innovation for Clinical Empowerment (CiCLE) grant program for FY2021 (disclosed November 8, 2021).

• Project title: Development of recombinant human HGF protein as a treatment for chronic fibrosis
• Representative organization: Kringle Pharma, Inc.

This R&D project seeks to pursue clinical research toward developing a revolutionary new treatment for fibrotic disorders with the focus on the anti-fibrotic effect of HGF, which is just one of its many properties. Initially, the plan is to conduct verifiable clinical trials targeting vocal fold scarring (VFS) to lay a foundation for treatment with the view to applying for pharmaceutical manufacturing and marketing approval. At the same time, Kringle will conduct research into the molecular mechanism of HGF's therapeutic effect on VFS, and pharmacological testing using animal models of pulmonary fibrosis and other fibrotic disorders, with the goal of expanding indications to include various other fibrotic conditions. Kringle expects verified results of efficacy from clinical trials in one type of fibrotic disorder, VFS, to provide proof of HGF's efficacy in regenerating and repairing fibrotic tissue, thereby heightening the possibility of HGF's practical application in other types of fibrotic diseases. 

Patent application filed for treatment of chronic SCI

On March 11, 2022, Kringle Pharma, Inc. announced that it had jointly filed a patent application with Keio University for the treatment of chronic spinal cord injury (SCI).

Kringle Pharma currently is conducting a Phase III clinical trial of recombinant human hepatocyte growth factor (HGF) in patients with acute SCI. In parallel, Kringle Pharma has been undertaking a collaborative research project with Professors Hideyuki Okano (Department of Physiology) and Masaya Nakamura (Department of Orthopedic Surgery) at Keio University School of Medicine, aiming to create novel therapies for SCI (see press release dated February 10, 2021). In this research, transplantation of human iPS cell-derived neural stem/progenitor cells (hiPSC-NS/PC) owned by Keio University, combined with scaffold-mediated delivery of HGF developed by Kringle Pharma, demonstrated functional recovery in animal models of chronic complete SCI, leading to the new patent application.

The company does not expect the patent application to have any impact on FY09/22 earnings.

Overview of patent application

• Name of invention: Therapeutic agent for spinal cord injuries
• Application number: PCT/JP2022/10976
  
• Filing date: March 11, 2022
  

• SCI commonly results from a traumatic impact on the spinal cord. In the acute phase, due to severe inflammation, secondary injury follows and worsens the damage. As the inflammation subsides, the injury progresses from the subacute to the chronic phase. In the chronic phase, the injury involves the formation of a cystic cavity and the development of scar tissue, which disables axonal outgrowth. In this research, the scaffold containing HGF was placed at the injury site in a rat model of thoracic complete SCI, prior to the hiPSC-NS/PC transplantation. Investigators subsequently confirmed axonal outgrowth at the injury site and motor function recovery in the lower limbs. Based on these results, it is suggested that the combination of the transplantation of hiPSC-NS/PC with the scaffold-mediated delivery of HGF could be a novel therapeutic strategy to combat chronic SCI with no effective treatment option, benefitting even the most severe cases of complete spinal cord transection.

Trends and outlook

Quarterly trends and results

1H FY09/22 results

Summary

Results for 1H FY09/22 were as follows.

• Revenue: JPY27mn (-76.8% YoY) 
• Gross profit: JPY27mn (-76.8% YoY)
• SG&A expenses: JPY338mn (+17.6% YoY)
• R&D expenses: JPY239mn (+24.8% YoY)
• Other general and administrative expenses: JPY99mn (+3.4% YoY)
• Operating loss: JPY311mn (loss of JPY170mn in 1H FY09/21)
• Recurring loss: JPY319mn (loss of JPY192mn in 1H FY09/21)
• Net loss attributable to owners of the parent: JPY320mn (loss of JPY193mn in 1H FY09/21) 
  

In 1H FY09/22, Kringle reported revenue of JPY27mn (-76.8% YoY). The revenue came from Claris Biotherapeutics as technology access fees. 

SG&A expenses came to JPY338mn (+17.6% YoY), including R&D expenses of JPY239mn (+24.8% YoY). R&D expenses comprised clinical trial expenses for the SCI and ALS pipelines, clinical trial preparation expenses for the VFS pipeline, and various testing costs related to manufacturing and development. SG&A expenses also included JPY99mn (+3.4% YoY) in other general and administrative expenses. 

The operating loss widened to JPY311mn (loss of JPY170mn in 1H FY09/21) due to lower revenue and higher SG&A expenses, mainly R&D. Non-operating expenses declined JPY14mn YoY to JPY8mn, as although prior-year stock market listing expenses of JPY16mn and share issuance expenses of JPY7mn dropped out of the picture, in 1H the company incurred JPY8mn in issuance expenses for share acquisition rights. 

Recurring loss came to JPY319mn (loss of JPY192mn in 1H FY09/21), and net loss attributable to owners of the parent was JPY320mn (loss of JPY193mn in 1H FY09/21).

By pipeline

Acute spinal cord injury

From June 2014 to October 2018, Kringle conducted a Phase I/II clinical trial of its recombinant human HGF protein formulation (development code: KP-100IT) in patients with acute spinal cord injury (acute SCI). The study was led by Prof. Masaya Nakamura of the Department of Orthopedic Surgery at the Keio University School of Medicine as coordinating investigator, and delivered positive clinical outcomes in terms of safety and efficacy. The company subsequently prepared plans for a Phase III clinical trial to validate the proof of concept (POC) demonstrated in the earlier study, and submitted a clinical trial notification to the Pharmaceuticals and Medical Devices Agency (PMDA), the Japanese regulatory agency, on June 9, 2020. The study began in July 2020 at the Spinal Injuries Center, the Hokkaido Spinal Cord Injury Center, and the Murayama Medical Center. From March 2021, the study was expanded to the Japanese Red Cross Kobe Hospital and Aijinkai Rehabilitation Hospital, bringing the total number of clinical trial sites to five, and in 1H FY09/21 patient enrollment continued.

The company is testing manufacturing processes for recombinant human HGF protein with a view to securing marketing approval as a treatment for acute SCI. Using the same process as commercial manufacturing, it also is implementing plans for trial manufacturing (process validation) for the active pharmaceutical ingredients (APIs), as this is required for the submission. Global production facility operating rates declined and the supply of raw materials for manufacturing COVID-19 vaccines was prioritized over manufacturing of other pharmaceuticals due to the prolonged COVID-19 pandemic. This caused declines and delays in the supply of raw materials needed for the manufacture and development of the company’s recombinant human HGF protein, and the scheduled completion of some tests was pushed back to FY09/22 from FY09/21.

In February 2021, the company launched a new collaborative research project with the Keio University School of Medicine to study more effective administration routes and timings for recombinant human HGF protein formulations in SCI patients, concentrating particularly on applying the technology to transplant neural progenitor cells derived from induced pluripotent stem cell (iPS). In March 2022, Keio University School of Medicine and Kringle filed a new patent application related to collaborative research using Keio’s iPS cell-derived neural stem/progenitor cells and Kringle’s scaffold-mediated delivery of HGF to treat chronic SCI as it demonstrated functional motor recovery in animal models of chronic complete SCI.

In June 2021, the company received the APSS CONGRESS Best Clinical Research Award for its presentation on the Phase I/II clinical study of HGF in acute SCI patients at the 13th Combined Meeting of Asia Pacific Spine Society & Asia Pacific Paediatric Orthopaedic Society (APSS-APPOS 2021, held from June 9 to 12, 2021 at Kobe International Conference Center, Kobe, Hyogo Prefecture).

In December 2021, the company registered a patent in Europe as an HGF preparation suitable for treatment of neurological diseases. Not only is it being used as an investigational new drug for acute SCI, but also for amyotrophic lateral sclerosis and vocal fold scarring, thus paving the way for expanded indications for HGF preparations. The addition of Europe to countries where the company's HGF preparation has already been granted rights (Japan, the US, Canada, and South Korea) facilitates a positive environment for global IP development of HGF preparations.  

Amyotrophic lateral sclerosis

The Phase II clinical trial of recombinant human HGF for the treatment of amyotrophic lateral sclerosis (ALS) started in May 2016 as an investigator-initiated study led by Prof. Masashi Aoki of the Department of Neurology at the Tohoku University School of Medicine. Tohoku University Hospital and the Osaka University Hospital completed patient recruitment in November 2020, and the final observation of the final patient (last patient last visit) was completed in December 2021. As the investigational drug supplier, Kringle remained responsible for the provision of the investigational drug, operating and providing promotional support for the study, and testing the stability of the investigational drug in 1H FY09/22. 

In 1H FY09/22, to prevent a slowdown in the clinical trial as a result of the March 2021 end to subsidies received from the Japan Agency for Medical Research and Development (AMED), Kringle continued to cover the clinical trial expenses incurred by its contract research organization (CRO). In September 2021, Prof. Masashi Aoki gave a presentation about the history of using recombinant human HGF protein to develop a drug for ALS at the Pan-Asian Consortium for Treatment and Research in ALS (PACTALS) 2021 International Conference. 

Vocal fold scarring

Vocal fold scarring (VFS) is a condition in which vocal fold mucosa harden and degenerate due to the formation of scar tissue (fibrosis). The investigator-initiated Phase I/II study for this pipeline confirmed the safety of administering recombinant human HGF protein into the vocal folds, and pointed to a functional restoration of the vocal folds in some patients (Hirano et al. “A Phase I/II exploratory clinical trial for intracordal injection of recombinant hepatocyte growth factor for vocal fold scar and sulcus.” Journal of Tissue Engineering and Regenerative Medicine, Apr. 2018, 12:1031–1038). Subsequently, following a preliminary consultation with the PMDA in July 2019, Kringle held discussions with the Kyoto Prefectural University of Medicine, and plans to launch its next clinical trial (placebo-controlled, double-blind comparative study) aimed at validating the POC in FY09/22. In November 2021, Kringle issued share acquisition rights to fund clinical trial expenses as well as costs associated with manufacturing the investigational drug and developing a commercial formulation. In addition, the company continued to utilize public funds for this project, having been selected by the Japan Agency for Medical Research and Development (AMED) for its Cyclic Innovation for Clinical Empowerment (CiCLE) grant program.  

Supply of active pharmaceutical ingredients to Claris Biotherapeutics

In April 2020, Kringle entered into a license and supply agreement with US-based Claris Biotherapeutics Inc., under which it has agreed to supply Claris Biotherapeutics with APIs for the clinical development of HGF-based therapies for ophthalmic diseases. In 1H FY09/22, there was no supply of HGF API to Claris Biotherapeutics. However, based on data the company provided on HGF, in May 2021 Claris Biotherapeutics filed an Investigational New Drug (IND) application with the US Food and Drug Administration (FDA) to start a Phase I/II clinical trial targeting neurotrophic keratitis, with the first patient dosed in August 2021. With this, Kringle will receive a fixed amount of annual technology access fees (royalty revenue) from Claris Biotherapeutics.

Business development

In 1H FY09/22, in terms of business development activities, the company focused on seeking business tie-ups with overseas pharmaceutical companies with an eye toward taking its pipeline drug for acute SCI overseas. In September 2021, the company announced that “oremepermin alfa” would be the international nonproprietary name (INN) for its key ingredient, recombinant human HGF protein (development code: KP-100 [five amino acid-deleted variant, glycosylated]).

Financial condition

At end-1H FY09/22, total assets stood at JPY2.9bn, up JPY274mn from end-FY09/21.

Assets

Current assets were JPY2.9bn, up JPY273mn from end-FY09/21. This mainly reflected an increase of JPY236mn in cash and deposits as a result of the capital increase accompanying the exercise of share acquisition rights and an increase of JPY111mn in inventories associated with production development, despite a JPY7mn decline in accounts receivable. Fixed assets were JPY2mn, up JPY1mn from end-FY09/21 due mainly to a JPY1mn increase in investment and other assets. As a result, total assets came to JPY2.9bn, up JPY274mn from end-FY09/21.

Liabilities

Current liabilities were JPY326mn, up JPY199mn from end-FY09/21. This was mainly attributable to a JPY185mn increase in other accounts payable. Fixed liabilities were JPY2mn, largely unchanged from end-FY09/21. As a result, total liabilities came to JPY328mn, up JPY199mn from end-FY09/21.

Net assets

Net assets were JPY2.6bn, up JPY75mn from end-FY09/21 as although there was a JPY320mn decrease in retained earnings as a result of booking a quarterly net loss, there were also increases of JPY197mn in both capital and capital surplus owing to the capital increase accompanying the exercise of share acquisition rights. 

For details on previous quarterly and annual results, please refer to the Historical financial statements section.

Full-year company forecasts

Revenue

In FY09/21, the company reported revenue under a license and supply agreement with US-based Claris Biotherapeutics for the supply of recombinant human HGF protein KP-100 as an API for ophthalmic diseases and technology access fees (fixed annual amount) triggered by the administration of the first dose in the initial clinical trial conducted by Claris Biotherapeutics. For FY09/22, the company expects to continue to book revenue from sales of APIs to Claris as well as the receipt of technology access fees. Based on the above, the company's FY09/22 forecast calls for revenue of JPY355mn (+22.5% YoY). Sales from the supply of the API will vary according to progress of Claris Biotherapeutics' development program.

Phase III trials for acute spinal cord injury are scheduled to be completed in 2H 2022, after which the data is fixed, analyzed, and verified. The company plans to disclose results in 1H 2023.

The Phase II clinical trial for ALS is scheduled for completion in 1H 2022, after which the data will be fixed, analyzed, and verified at Tohoku University. The company plans to disclose trial results in 1H to mid-2022. If statistically significant results are obtained for primary endpoints in the Phase II study, the company plans to discuss the possibility of early approval with the PMDA, because ALS is a designated intractable (rare) disease under the Act on Medical Care for Patients with Intractable Diseases.

After the completion of the Phase II trial, the company plans to progress development with an alliance partner. Although the company may receive an upfront payment when it forms a new development alliance, it did not factor this into its revenue forecast, because prospects were uncertain at the beginning of FY09/22. The company set up a management strategy office in June 2021 and hired business development personnel to strengthen its structure. The office is playing a key role in exploring alliances with domestic and overseas pharmaceutical companies.

The company plans to begin Phase II/III trials for vocal fold scarring in 2H 2022.

For acute kidney injury, the company is exploring partnerships for Phase II trials.

Cost of revenue

In FY09/21, the company booked manufacturing costs associated with its supply of GMP-grade APIs to Claris Biotherapeutics. For FY09/22, it forecasts JPY138mn (+92.7% YoY) in manufacturing costs for APIs for Claris Biotherapeutics. This figure was calculated by multiplying the manufacturing cost per unit weight derived from historical API production data by the volume expected to be supplied.

The cost ratio was 24.7% in FY09/21, but is forecast to increase to 38.9% in FY09/22. In FY09/21, Kringle sold some non-GMP-grade APIs, for which it recorded R&D expenses in previous accounting periods. The company expects to sell non-GMP-grade APIs in FY09/22 as well, but it anticipates YoY changes in the sales volumes of GMP-grade APIs, which are subject to cost of revenue accounting.

SG&A expenses

Kringle’s SG&A expenses comprise R&D expenses and other general and administrative expenses. 

The company expects R&D expenses of JPY1.3bn in FY09/22, up 232.5% YoY from JPY399mn in FY09/21, broken down as follows.

Acute spinal cord injury (SCI) pipeline: The company projects R&D spending of JPY250mn (+63.0% from JPY153mn in FY09/21). Its FY09/22 projections are based on the estimate obtained from the contract research organization (CRO) for Phase III clinical trial expenses and its historical experience with Phase I/II clinical trials.

Amyotrophic lateral sclerosis (ALS) pipeline: The company projects R&D spending of JPY97mn (+36.7% from JPY71mn in FY09/21). Its FY09/22 projections are based on the estimate for the Phase II study from April 2021 until it concludes (apportioned by fiscal year) provided by Tohoku University and the cost of using the trial data based on historical experience.

Vocal fold scarring (VFS) pipeline: The company projects initial R&D spending of JPY151mn (none booked in FY09/21) based on estimates from the contract research organization (CRO) and other parties involved. 

R&D expenses associated with Good Manufacturing Practice (GMP)-compliant production common to acute SCI, ALS, and VFS pipelines: The company expects R&D expenses of JPY709mn in FY09/22 (+513.7% from JPY115mn in FY09/21). It plans to test its formulations and manufacture APIs in FY09/22, and its cost outlook reflects the GMP-compliant manufacturing schedule prepared by its pharmaceutical development division, the estimated manufacturing cost per batch, as well as an estimate for clinical trial expenses from its contract research organization (CRO). Its manufacturing cost per batch assumption is based on historical manufacturing data.

Other R&D expenses comprise personnel expenses for the pharmaceutical development and quality assurance divisions and general expenses such as communication and travel. The company expects other R&D expenses of JPY116mn in FY09/22 (+101.7% from JPY57mn in FY09/21). Assumptions for personnel expenses factor in salary increases in line with its personnel plan, and those for other expenses are based on historical data. The company strengthened its internal structure to obtain business permits for manufacture and sales.

Other general and administrative expenses mainly comprise directors’ compensation, personnel expenses outside the pharmaceutical development and quality assurance divisions, rent, and other compensation. The company expects other general and administrative expenses of JPY248mn in FY09/22 (+40.2% from JPY177mn in FY09/21). Its assumptions for personnel expenses factor in salary increases in line with its personnel plan, and those for other expenses are based on historical data. 

Factors associated with the spreading and prolonged COVID-19 pandemic had an impact in FY09/21. These included the drop in capacity utilization rates at plants worldwide and reduced supply volume and supply delays of raw materials needed for the manufacture and development of the company's HGF products because of vaccine production taking priority. Although some raw materials are taking longer from order to delivery in FY09/22 as well, the company expects supplies to be delivered on schedule, because it is allowing extra time.

The company projects cost of revenue of JPY138mn in FY09/22 (+92.7% YoY), SG&A expenses of JPY1.6bn (+173.1% YoY), and an operating loss of JPY1.4bn (loss of JPY358mn in FY09/21).

Recurring loss

The company forecasts non-operating income of JPY80mn in FY09/22 (-2.8% YoY from JPY82mn in FY09/21). This is mainly due to an expected subsidy based on the receipt of JPY82mn subsidy to support its acute SCI pipeline in FY09/21. The company forecasts non-operating expenses of JPY17mn in FY09/22 (-26.4% from JPY24mn in FY09/21), mainly for estimated issuance expenses for share subscription rights and shares, including securities company, printing company, and attorney fees. The company forecasts a recurring loss of JPY1.3bn (loss of JPY300mn in FY09/21). 

Net loss

The company did not factor in any extraordinary gains or losses in its earnings forecast. It forecasts a net loss of JPY1.3bn in FY09/22 (loss of JPY301mn in FY09/21). 

Medium-term management plan

Present conditions

Kringle does not disclose medium-term management plans or numerical targets. It has yet to launch products, and is still investing in R&D of HGF-based regenerative medicines for rare diseases. In FY09/20, it only recorded revenue of JPY468mn in the form of upfront payments from alliances with Maruishi Pharmaceutical and Claris Biotherapeutics. Revenue in FY09/21 (JPY289mn) was generated through the supply of APIs to Claris Biotherapeutics. The company does not expect to record revenue from any source other than Claris Biotherapeutics in FY09/22. This is not uncommon for drug-discovery startups, which often operate at a loss due to heavy upfront spending on R&D. Very few such companies generate profit at an early stage. For example, 70% of the 200+ companies comprising the NASDAQ Biotechnology Index in the US operate at a loss.

Medium-term outlook

Kringle has five development pipelines that have progressed to clinical trials: Acute spinal cord injury (acute SCI), amyotrophic lateral sclerosis (ALS), vocal fold scarring (VFS), acute kidney injury, and ophthalmic diseases (by Claris Biotherapeutics). The company also has several drugs in the basic research stage. At present, it is concentrating on developing its recombinant human HGF-based drug for acute SCI ad ASL where the company has an ongoing confirmatory Phase III study and a soon-to-be-completed Phase II study, respectively. Current resources are focused on securing marketing approval for acute SCI in Japan.

In collaboration with universities and other research institutions, the company continues to pursue basic research, explore new indications for HGF-based drugs, and search for new drug discovery seeds. It hopes to obtain marketing approval in Japan for its HGF-based regenerative medicine for acute SCI in FY09/25, and aims to subsequently generate profit supported by continued sales of the regenerative medicine product. It also plans to expand the indication for its HGF based regenerative medicine to other rare diseases such as ALS and is currently cultivating potential partnerships to commercialize this application globally.

R&D budget

Since its inception in December 2001, the company has researched and developed HGF-based regenerative medicines, booking a total of JPY7.0bn in R&D expenses through FY09/20. It plans to spend another roughly JPY3.0bn on R&D by FY09/23, including JPY998mn in FY09/21. It will allocate the bulk of the R&D budget for FY09/21 to the ongoing Phase III clinical trial for acute SCI, and intends to advance other pipelines and overseas clinical trials through joint development with partners and applying for subsidies.

Acute spinal cord injury (SCI) pipeline: The company projects R&D spending of JPY250mn (+62.9% from JPY153mn in FY09/21). Its FY09/22 projections are based on the estimate obtained from the contract research organization (CRO) for Phase III clinical trial expenses and its historical experience with Phase I/II clinical trials.

R&D expenses associated with Good Manufacturing Practice (GMP)-compliant production common to acute SCI, ALS, and VFS pipelines: The company expects R&D expenses of JPY709mn in FY09/22 (+513.1% from JPY116mn in FY09/21). It plans to test its formulations and manufacture APIs in FY09/22, and its cost outlook reflects the GMP-compliant manufacturing schedule prepared by its pharmaceutical development division, the estimated manufacturing cost per batch, as well as an estimate for clinical trial expenses from its contract research organization (CRO). Its manufacturing cost per batch assumption is based on historical manufacturing data.  

Other R&D expenses comprise personnel expenses for the pharmaceutical development and quality assurance divisions and general expenses such as communication and travel. The company expects other R&D expenses of JPY116mn in FY09/22 (+100.1% from JPY58mn in FY09/21). Assumptions for personnel expenses factor in salary increases in line with its personnel plan, and those for other expenses are based on historical data.

The company forecasts non-operating income of JPY80mn in FY09/22 (-2.8% YoY from JPY82mn in FY09/21). This is mainly due to an expected subsidy based on the receipt of JPY82mn subsidy to support its acute SCI pipeline in FY09/21. The company forecasts non-operating expenses of JPY17mn in FY09/22 (-29.4% from JPY24mn in FY09/21), mainly for estimated issuance expenses for share acquisition rights and shares, including securities company, printing company, and attorney fees. The company forecasts a recurring loss of JPY1.3bn (loss of JPY300mn in FY09/21).   

Business

Business model

Business overview

Company characteristics

Late clinical-stage biotech startup (Phase III clinical trial ongoing) pursuing drug discovery for regenerative medicines

Rare diseases, also referred to as intractable diseases* in Japan, are conditions characterized by a small number of patients, and unknown or poorly understood causes and pathology. This makes it difficult to establish evaluation parameters and select subjects for clinical trials. Kringle partners with universities to gain specialized insights on rare diseases, formulate evaluation parameters for small-scale clinical trials with a high probability of success, and conduct these studies. As the number of subjects participating in clinical trials for rare diseases is relatively small, even biotech startups can independently conduct Phase III studies with relative ease. When a biopharmaceutical such as a recombinant protein secures regulatory approval, it can typically command a high National Health Insurance (NHI) price. Kringle’s recombinant human hepatocyte growth factor (HGF) protein formulation for acute spinal cord injury (acute SCI)—Phase III trial ongoing as of end-1H FY09/21—has been designated as an orphan drug by the Ministry of Health, Labour and Welfare (MHLW). The company therefore sees a high probability of the drug going to market (64% based on “Ito Review 2.0” by Eli Lilly Japan K.K. and the Ministry of Economy, Trade and Industry [METI]). It aims to launch the HGF-based regenerative medicine by FY09/25.

*Intractable diseases: A term derived from the Japanese word nanbyo, it is widely used among Japanese medical scientific societies and government agencies (including the Ministry of Health, Labour and Welfare and the Pharmaceutical and Medical Devices Agency) to refer to rare diseases with unknown or poorly understood causes for which no effective or established treatments exist.

Pursues in-house development of HGF-based pharmaceuticals to treat rare diseases

Plans to commercialize its pipeline drug for acute SCI 

Phase I/II clinical trial (June 2014–October 2018) suggested efficacy. Based on the results of the study, the company obtained an orphan drug designation in September 2019.

Phase III clinical trial ongoing since July 2020 (HGF-treated group only, targeted enrollment: 25 patients)

Supply chain has already been established (Maruishi Pharmaceutical, Toho Holdings) 

HGF-based regenerative medicine platform operator

Recombinant human HGF protein: First-in-class development seed

Established a system to manufacture and mass-produce recombinant human HGF protein for use in pharmaceuticals

Earnings growth can be expected through expanding indications for recombinant human HGF protein

Kringle supplies recombinant human HGF protein as an active pharmaceutical ingredient (API) to Claris Biotherapeutics for use in the development of therapies for ophthalmic diseases.

Products

Kringle was founded as a drug-discovery biotech startup in Osaka in December 2001, and has its roots in Osaka University. It researches applications of pharmaceuticals that contain HGF, and develops therapeutic drugs for patients with rare diseases in Japan and across the world. Rare diseases are medical conditions characterized by a low incidence, a lack of effective treatments due to unknown or poorly understood causes, and a serious impact on patients’ everyday life over the long term. In 2005, the company started developing regenerative medicines that contained HGF proteins, which were discovered by the late Toshikazu Nakamura while a professor at the Osaka University Graduate School of Medicine. The company has developed a manufacturing method to produce HGF protein using recombinant DNA technology (recombinant human HGF protein). Following successful nonclinical studies, the company initiated and/or completed several clinical studies in Europe, the US, and Japan. In the Phase I/II clinical trial for the treatment of acute SCI (June 2014–October 2018), the company confirmed the safety of recombinant human HGF protein as a pharmaceutical agent and obtained results that suggested efficacy. In July 2020, the company initiated a Phase III clinical trial aimed at verifying the proof of concept (POC) demonstrated in the earlier study (ongoing as of end-1H FY09/21).

HGF is a naturally occurring protein in the human body, and mainly promotes the proliferation of hepatocytes. The liver has the highest regeneration capacity of any human organ. For example, if one-third of a donor liver is removed during a liver transplant surgery, the organ will eventually regenerate to its original size. Research by Prof. Toshikazu Nakamura and Kringle has elucidated that HGF protein is instrumental in the regeneration and repair of not only the liver but also various other organs and tissues, and that it has a powerful effect on the nervous system.

Target conditions

As of end-1H FY09/21, Kringle was developing therapeutic drugs for acute SCI and amyotrophic lateral sclerosis (ALS) in collaboration with, respectively, Prof. Hideyuki Okano of the Department of Physiology and Prof. Masaya Nakamura of the Department of Orthopedic Surgery at the Keio University School of Medicine, and Prof. Masashi Aoki of the Department of Neurology at the Tohoku University School of Medicine, with the aim of commercializing them. Spinal cord injuries are caused by trauma to the central nervous system sustained during accidents or falls, and can result in paralysis of the limbs or other parts of the body. ALS is a neurodegenerative disease that results in the loss of muscle control; its causes are unknown. These conditions have no effective treatments, result in motor impairment, and place a significant burden on caregivers. HGF is a potential treatment that can address the root cause of these conditions thanks to its effect in protecting, regenerating, and repairing tissues and organs.

Independently handles all aspects from development to commercialization and API supply

While Japanese drug-discovery companies generally concentrate on producing research outcomes while out-licensing development, manufacturing, and marketing rights to pharmaceutical companies, Kringle develops its own drugs with the aim of commercializing them after securing marketing approval. The company has developed processes to manufacture and purify HGF protein as well as stable formulations containing the protein as an active pharmaceutical ingredient. These developments have enabled the company to establish a system that can mass-produce HGF-based pharmaceuticals. This system not only bolsters the company’s development of regenerative medicines for various diseases, but allows Kringle to start supply HGF as an active pharmaceutical ingredient (API) to other companies. HGF has potential as a therapeutic agent for many rare diseases, but there is a limit to the development the company can undertake independently. Hence, Kringle generates revenue by supplying HGF as an API to other companies wishing to develop HGF-based therapies for specific diseases. The company already signed an agreement in April 2020 with Claris Biotherapeutics, Inc., a US-based biotech startup with roots in Harvard University, to supply HGF as an API to be used in developing HGF-based therapies for ophthalmic diseases. The company plans to supply HGF as an API in many medical fields.

Pipeline

Kringle’s clinical trials to date have included one Phase III study (acute SCI), two Phase II studies (ALS and vocal fold scarring [VFS]), and one Phase I study (acute kidney injury). The company’s pipeline drug for acute SCI, which was in the Phase III clinical trial as of end-1H FY09/21, received an orphan drug designation from the MHLW in September 2019, boosting the probability of the drug going to market. The company has established a supply chain by forming capital and business alliances with Maruishi Pharmaceutical and Toho Holdings, and aims to launch its HGF-based regenerative medicine for acute SCI by FY09/25.

Revenue and cost structure

Revenue

The company generates revenue from upfront payments, milestone payments based on R&D progress, research support payments, royalties, and sales (sales of pharmaceuticals, supply of APIs, and sales of reagents).

In its acute spinal cord injury (acute SCI) pipeline, Kringle booked an upfront payment as revenue in FY09/20 under an exclusive marketing license agreement for KP-100IT (development code for recombinant human HGF formulation) concluded with Maruishi Pharmaceutical. For ophthalmic diseases, the company booked an upfront payment as revenue based on a license and supply agreement with US-based Claris Biotherapeutics. In FY09/21, it recorded revenue from the supply of active pharmaceutical ingredients (APIs)—recombinant human HGF protein (KP-100)—under the license and supply agreement with Claris Biotherapeutics, as well as annual technology access fees (fixed amount) prompted by the administration of the first dose in the initial clinical trial by Claris Biotherapeutics. In FY09/22, the company expects to continue generating revenue from its supply of APIs to Claris Biotherapeutics and through technology access fees paid by the latter. As a result, the company projects revenue of JPY355mn (+22.5% YoY) in FY09/22.

Cost structure

Expenses break down into cost of revenue and SG&A expenses (R&D expenses and other general and administrative expenses).

Cost of revenue

Kringle recorded costs associated with the manufacture of APIs that it supplies as cost of revenue for the first time in FY09/21. It did not book cost of revenue in FY09/20, but in FY09/21, booked JPY44mn in manufacturing costs for APIs supplied to Claris Biotherapeutics under cost of revenue. In FY09/22, the company expects to record JPY138mn under cost of revenue and arrived at this forecast by multiplying the manufacturing cost per unit weight derived from historical API production data by the expected volume to be supplied to Claris Biotherapeutics.

R&D expenses

R&D expenses consist of personnel expenses for the pharmaceutical development division, and subcontracted development/manufacturing expenses. In FY09/22, the company projects JPY1.3bn in R&D expenses (+232.5% YoY), compared to JPY490mn in FY09/20 and JPY399mn in FY09/21.

Acute SCI pipeline: In FY09/22, the company anticipates R&D expenses of JPY250mn, up 63.0% YoY (JPY153mn in FY09/21, JPY301mn in FY09/20), for the Phase III clinical trial, calculated based on the estimate received from its contract research organization (CRO) and actual expenses for the Phase I/II study.

Amyotrophic lateral sclerosis (ALS) pipeline: In FY09/22, the company expects to record JPY97mn (+36.7% compared to FY09/21 [JPY71mn]; JPY33mn in FY09/20) in R&D expenses associated with this pipeline. The company arrived at this forecast based on an even annual distribution of the estimate it received from Tohoku University (covering the period extending from April 2021 through the end of the Phase II trial) and calculations of trial data utilization costs and other expenditures performed using totals from previous accounting periods.

Vocal fold scarring pipeline: Based on estimates from a CRO and other parties, the company expects to record JPY151mn in R&D expenses associated with this pipeline in FY09/22 (none in FY09/21).

R&D expenses associated with Good Manufacturing Practice (GMP)-compliant production common to acute SCI and ALS pipelines: In FY09/22, the company plans to manufacture APIs and conduct testing aimed at the development of drug formulations. Accordingly, it expects to record JPY709mn in R&D expenses associated with GMP-compliant production (+513.7% compared to FY09/21 [JPY115mn]; JPY110mn in FY09/20) in FY09/22. Kringle arrived at this forecast based partly on GMP manufacturing schedules and manufacturing costs per lot estimates prepared by its pharmaceutical development division. It also incorporated estimates it received from business partners concerning testing costs. Estimates regarding manufacturing costs per lot were calculated using totals from previous accounting periods.

Other R&D expenses consist of personnel expenses incurred through the pharmaceutical development division and quality assurance division (calculated based on the company's HR planning and accounting for salary increases) and other expenses related to communications, travel, transportation, and other aspects of business (estimates based on totals in previous accounting periods). In FY09/22, the company projects JPY116mn in other R&D expenses (+101.7% compared to FY09/21 [JPY57mn]; JPY46mn in FY09/20).

Other general and administrative expenses

Other general and administrative expenses mainly comprise directors’ remuneration, personnel expenses for divisions other than pharmaceutical development, rent, and other compensation. In FY09/22, Kringle plans JPY248mn in other general and administrative expenses (+40.2% compared to FY09/21 [JPY177mn]; JPY150mn in FY09/20). Its assumptions for personnel expenses factor in salary increases and are determined based on its personnel plan, and its assumptions for other expenses are predicated on historical data.

Personnel expenses

As of end-September 2021, the company had six directors (including three part-time directors), three auditors (including two part-time auditors), and 11 employees. Its pharmaceutical development division, which is tasked with research and development and recently spun off a new quality assurance division, consists of one director (quality assurance manager from June 2021) and six employees. The corporate planning management division, which is tasked with management, consists of one director and five employees (as of end-September 2021).

Non-operating income/expenses

Kringle forecasts non-operating income of JPY80mn in FY09/22 (-2.8% compared to FY09/21 [JPY82mn]; JPY63mn in FY09/20) in the form of an anticipated JPY80mn in subsidy income for its acute SCI pipeline (based on JPY82mn received in FY09/20). Meanwhile, the company projects non-operating expenses of JPY17mn in FY09/22 (-26.4% compared to FY09/21 [JPY24mn]; JPY8mn in FY09/20). It anticipates that these non-operating expenses will consist of costs associated with the issue of both shares and share acquisition rights and arrived at its non-operating expense forecast based on estimates from sources such as securities firms, printing companies, and attorneys.

Based on the above, in FY09/22 the company forecasts cost of revenue of JPY138mn (+92.7% YoY), SG&A expenses of JPY1.6bn (+173.1% YoY), an operating loss of JPY1.4bn (versus loss of JPY358mn in FY09/21), a recurring loss of JPY1.3bn (versus loss of JPY300mn in FY09/21), and a net loss of JPY1.3bn (versus net loss of JPY301mn in FY09/21).

Hepatocyte growth factor: a regenerative medicine for rare diseases

Hepatocyte growth factor

Originally discovered in Japan, hepatocyte growth factor (HGF) is a naturally occurring protein in the human body.

It is a comparatively large molecule composed of 692 (or 697) amino acids.

It has a complex “kringle” structure (from which the company borrows its name).

It has multiple biological functions (multi-functional protein).

It plays a role in protecting, regenerating, and repairing tissues and organs.

Discovery of HGF

In 1984, the late Toshikazu Nakamura (then an associate professor in the Faculty of Medicine, Tokushima University; passed away on September 8, 2020) succeeded in proliferating mature hepatocytes in vitro, becoming the first researcher in the world to do so. Using this method, he discovered HGF (composed of 692 amino acids), the principal factor contributing to liver regeneration, which had hitherto been unknown*. He elucidated the molecular and genetic structures of HGF, which opened the door to understanding the mechanisms of liver regeneration at a molecular level. He subsequently succeeded in purifying HGF and cloning HGF genes, and identified the structure of HGF as a factor in liver regeneration. Prof. Nakamura conducted research on liver and other organ regeneration, and found that HGF had a therapeutic effect on rare diseases.

*Around the same period, Hirohito Tsubouchi (Kagoshima University) published a research paper on HGF (697-amino acid protein).

Prof. Nakamura proved that, in addition to being instrumental in liver regeneration, HGF was one of the factors contributing to the regeneration of the kidneys. He observed that HGF is a multi-functional protein that stimulates proliferation of epithelial cells found in many tissues and organs, including hepatic and renal tubular epithelial cells; promotes cell motility; and induces morphogenesis (effectively acting as a morphogen). He learned that HGF not only plays a central role in the regeneration of many organs, but also is an essential factor in organ development (organogenesis). Prof. Nakamura elucidated the existence of multiple bioactive molecules that promote or inhibit the actions of HGF, contributing to a deeper understanding of tissue regeneration mechanisms.

Based on his research findings related to HGF-induced regeneration and repair mechanisms, Prof. Nakamura demonstrated using animal disease models the effectiveness of recombinant human HGF protein or HGF expression vectors (DNA or RNA molecules used to artificially carry foreign genetic material to other cells) in the prevention or treatment of a range of diseases for which no effective treatments were available. These included acute diseases (e.g., fulminant hepatitis, acute kidney injury, and myocardial infarction), neurological diseases (e.g., Huntington’s disease and amyotrophic lateral sclerosis [ALS]), and chronic fibrosis (e.g., cirrhosis, chronic kidney disease, pulmonary fibrosis, and dilated cardiomyopathy). He also found that the remarkable efficacy of HGF as a therapeutic agent derived from its action as a powerful apoptosis inhibitor; its ability to inhibit the release of cytokines that promote fibrosis such as transforming growth factor-β (TGF-β) and accordingly reduce tissue destruction and fibrosis; and its capacity to enhance functions by actively promoting the regeneration of normal tissues.

In May 2005, the company was granted a license to develop HGF protein from Prof. Nakamura (then a professor at the Graduate School of Medicine of Osaka University), and launched a new development pipeline for recombinant human HGF (development code: KP-100). Kringle established a manufacturing method for HGF protein using recombinant DNA technology, completed nonclinical studies, and initiated several clinical trials in Europe, the US, and Japan. After results of the Phase I/II clinical trial for treatment of acute SCI (June 2014–October 2018) confirmed the safety of recombinant human HGF protein as a therapeutic drug while also suggesting efficacy, the company started a Phase III clinical trial from July 2020 to verify the proof of concept (POC) demonstrated in the earlier study.

HGF structure and functions

HGF is a protein that is secreted by mesenchymal cells into the extracellular environment. By binding with MET receptor proteins, it promotes growth and regeneration of tissues. It is a comparatively large molecule with a complex (kringle) structure consisting of 692 (or 697) amino acids. An HGF molecule has 19 disulfide bonds configured in a stable three-dimensional structure. Its mechanism of action (MOA) can be summarized as follows. HGF binds with the c-Met receptor on the surface of a cell, which then induces transmission of signals inside the cell and activates the genes of the cell nucleus through various molecular reactions. This leads to the expression of proteins that trigger biological activity such as cell proliferation. As a multi-functional cytokine, it mainly acts on epithelium-derived cells. It affects a broad range of cells, playing a role in inflammation, tissue repair, morphogenesis, angiogenesis, tumorigenesis, immunomodulation during viral infections, and cardiometabolic activity.

In addition to promoting cell proliferation, HGF has a powerful effect on cell migration and survival. Excess production of HGF in cancer tissues therefore increases cancer cell migration and resistance against anti-cancer drugs. To counter this, a molecule that inhibits the bonding of HGF to MET needs to be developed. Based on animal studies, researchers assume HGF cannot
create cancer cells out of normal tissues. In patients with cancer, however, HGF has been known to either grow the cancer or promote the migration of cancer cells. Kringle therefore thinks that long-term, systemic administration of HGF-based drugs carries risks. The clinical studies to date have not raised concerns regarding drug combinations or side effects, but the company thinks further study will be required when it expands indications for its HGF-based drugs or alters administration routes.  

Business model

Operator of platform for HGF-based regenerative medicines

Kringle has adopted a hybrid business model that blends (1) in-house development and marketing, (2) joint-development and out-licensing of drugs, and (3) supply of active pharmaceutical ingredients (APIs). To ensure the outcomes of its clinical studies are commercialized into pharmaceuticals that contribute meaningfully to society, its basic policy is to independently apply for marketing approval in Japan. The company aims to commercialize its pipeline drugs currently undergoing clinical trials through a mix of (1) and (2) above (in-house development and marketing partnerships) in its acute spinal cord injury (acute SCI) and vocal fold scarring (VFS) pipelines, and through (2) in its amyotrophic lateral sclerosis (ALS) and acute kidney injury pipelines. Its supply of APIs to Claris Biotherapeutics falls in category (3) above.

Development process

The company is required to follow the standard development process for new drugs. It goes through the following steps to develop therapeutic drugs for rare diseases.

Basic research

Exploring candidates for potential drug candidates requires long-term research. The company realizes that even if a drug candidate is identified at this stage, the probability of it being successfully developed as a pharmaceutical is extremely low. Its basic research focuses on expanding indications for recombinant human HGF protein and finding new candidate drugs. By engaging in joint research with universities and thus gaining access to specialized knowledge, the company looks to increase the probability of success of its pharmaceutical development.

Nonclinical studies and manufacturing

Kringle works with contract research organizations (CROs) and contract manufacturing organizations (CMOs)—which possess cutting-edge technologies—to rapidly complete nonclinical studies and manufacturing. Because the company does not generate revenue that can offset the heavy spending at this stage of the development, the company secures public, non-dilutive funding (grants and subsidies) to reduce its cost burden and mitigate financial risk.

Clinical trials (Phases I, II, and III)

Rare diseases affect a small number of patients, and their causes and pathology are often unknown or poorly understood. This makes it difficult to establish evaluation parameters and select participants for clinical trials. Kringle partners with universities to gain specialized insights on rare diseases, formulate evaluation parameters for small-scale clinical trials that have a high probability of success, and conduct the studies. The company outsources portions of its clinical trials to CROs in an effort to ensure quality and development speed, and works to enhance the scientific quality of its clinical evaluations and analyses by collaborating with physicians at specialized or university hospitals. It also collaborates with university hospitals and other medical institutions that conduct investigator-initiated clinical trials financed by public funding. In such cases, it supports the clinical trials by providing investigational drugs as well as scientific data and knowledge, and secures exclusive licenses to use the research outcomes.

Approval process

To ensure the outcomes of its clinical studies can contribute meaningfully to society in the form of pharmaceuticals, Kringle’s basic policy is to independently file for marketing approval in Japan. Its pipeline drugs for rare diseases are eligible to receive the orphan drug designation from the MHLW once a proof of concept (POC) has been demonstrated, resulting in benefits such as subsidies to cover development costs and priority review that accelerates the process through approval application. In addition, Kringle aims to shorten the application and screening time and obtain early approval by taking advantage of systems such as the Conditional Early Approval System and the Sakigake (“Fast-Track”) Designation System (formerly Sakigake [“Fast-Track”] Review Designation System).

Marketing

Because rare diseases are treated at specialized medical institutions, only a small number of facilities administer related treatments. This means Kringle does not have to build a large distribution network as is the case for drugs used on a wider scale. It also faces little competition as there is virtually no effective treatment today for the indications it is pursuing and there are few rival drugs,. Kringle can therefore avoid major spending on marketing activities. Building a supply chain (i.e., getting the necessary drugs to the medical institutions that require them) is therefore simply a matter of securing marketing approval and partnering with a pharmaceutical distributor. This approach produces many benefits such as reductions in marketing-related expenses and a persistently high gross profit margin.

At present, Kringle does not have an internal marketing organization for its acute SCI pipeline, but it has established a supply chain by partnering with Maruishi Pharmaceutical and Toho Holdings. Maruishi Pharmaceutical specializes in pharmaceuticals for acute conditions, and has developed a sales network that covers emergency hospitals across Japan. By partnering with Maruishi Pharmaceutical in the areas of drug marketing and promotion, Kringle believes it can establish a supply chain for its pipeline drug for the treatment of acute SCI.

Agreements with distribution partners 

Manufacturing system

To manufacture pharmaceuticals that contain recombinant human HGF proteins, Kringle must produce active pharmaceutical ingredients (APIs) and drug formulations. The company has acquired licenses to manufacture both, and it outsources production to contract manufacturing organizations (CMOs). Pharmaceuticals must be produced under stringent quality control standards in accordance with the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices as well as the Ministerial Ordinance on Standards for Manufacturing Control and Quality Control for Drugs and Quasi-drugs (good manufacturing practice [GMP]).

The production of recombinant human HGF protein into pharmaceuticals relies on cell manufacturing processes, requiring a mix of complex and specialized technologies. The company has accumulated the expertise to manufacture recombinant human HGF protein (both as an API and in drug formulations), and supplies pharmaceuticals by outsourcing the API and drug formulation production to two separate CMOs.

At the current stage of drug development, the company does not generate revenue from product sales and cannot commit to regular production. Consequently, it carries less financial risk and achieves greater efficiency by outsourcing the manufacturing to external organizations rather than maintaining production facilities and securing and managing human resources internally. Because the company develops drugs for rare diseases, the total volume of pharmaceuticals it can manufacture and sell for each disease it targets will evidently be small. This is another reason to maintain an external production structure during the period from development to early marketing. However, the company plans to explore avenues to scale up its operations based on its development progress, including expanding indications for its pipeline drugs. In addition, Kringle has submitted a Drug Master File (DMF) to the Food and Drug Administration (FDA) in the US. This allows the company to supply its recombinant human HGF as an API to partners developing HGF-based therapies in the US without having to disclose its manufacturing method to them.

Growth strategy 

Intellectual property and patents

Nearly 40 years have elapsed since the original discovery of HGF in 1984. As a result, the substance patent for HGF has expired. Kringle holds three use application patents for HGF-based drugs in the neurology and orthopedics fields, and two formulation patents for HGF. To maintain trade manufacturing secrets and to prevent knowledge loss, the company has opted not to obtain a basic patent for its recombinant human HGF protein manufacturing method. It carefully manages the manufacturing method as a trade secret, and believes it is protected under the Unfair Competition Prevention Act.

Kringle has obtained an exclusive license to use the HGF master cell bank (MCB)—the cell line from which all recombinant human HGF proteins are manufactured—from Neurogen Inc. (representative director: Yoshiko Yoneda). Neurogen studies and develops HGF inducers (found in Chinese herbal medicine and other substances that, when ingested, increase the production of HGF in the human body), and manages the HGF-related assets that were owned by the discoverer of HGF, the late Toshikazu Nakamura. A license to use the MCB is a prerequisite for any company that wishes to develop recombinant human HGF protein as a core business. Kringle has built a favorable relationship with Neurogen over many years, and no issues have arisen to date that could potentially hinder its continued use of the MCB. The company properly stores and manages the MCB in accordance with GMP standards based on the usage license. It does not disclose the MCB usage fees or royalties on sales it pays to Neurogen.

Expanding indications

While rare diseases only have a limited number of patients, the company sees room for market expansion by concurrently developing drugs across multiple pipelines, expanding sales to overseas markets, and developing drugs for patients suffering from diseases other than those already under development at the company. For example, if HGF is shown to have a neuroprotective effect in illnesses such as acute spinal cord injury (acute SCI) and amyotrophic lateral sclerosis (ALS), Kringle may be able to demonstrate that HGF has the same effect in other neurological disorders and develop it for these new indications.

If HGF exbibits an antifibrotic effect in vocal fold scarring (VFS), it stands to reason that the same effect may prevent fibrosis in other areas of the body. The number of fibrosis patients worldwide estimated by the company is 700,000 related to VFS, 2mn to pulmonary fibrosis, 3mn to cirrhosis, 16mn to myocardial infarction, and 800mn to chronic renal failure.

If HGF administered intravenously exhibits efficacy against acute kidney injury, it may be applicable in the treatment of rare diseases of organs other than the kidney.

In short, HGF has a broad range of actions and for each of these that can be demonstrated, the company says it is confident it can develop HGF to treat diseases in other areas. The company believes it will be able to continuously generate earnings in the future by expanding the indications for HGF-based drugs, and supplying APIs to companies that wish to develop such drugs for other areas.

Drug discovery seeds

Kringle’s primary asset for drug development is recombinant human HGF protein. The company is conducting clinical trials for multiple formulations that contain recombinant human HGF protein as an active ingredient. HGF was originally discovered in Japan as a growth factor that promotes the growth of hepatocytes. By binding with a receptor on the surface of a cell, a growth factor induces the transmission of signals to the nucleus (genes) of the cell, triggering cell proliferation. Because HGF is a naturally occurring protein in the human body, the ability to artificially manufacture it in the form of recombinant human HGF protein will likely open the door to a new range of safe and effective pharmaceuticals.

Research following the discovery of HGF has elucidated that it not only promotes cell proliferation but also induces other processes such as cell protection and morphogenesis, and that its sphere of action extends beyond hepatocytes to other organs such as the kidneys, lungs, and skin. HGF has proven to be particularly effective in mitigating fibrosis and sclerosis (both conditions in which the overgrowth of fibrous tissue undermines cell functions), and to have a beneficial effect on cells of the nervous system such as neurons and glial cells. As a result, various research outcomes suggest HGF is a viable candidate molecule for pharmaceuticals targeting a range of rare diseases.

Animal testing showed that when a disease or condition was induced in animal models, HGF protein levels increased and healing processes began, clarifying the relationship between HGF and tissue repair. In addition, it was demonstrated that the administration of supplemental doses of recombinant human HGF protein in these animal disease models either alleviated symptoms or had a therapeutic effect. Researchers are currently studying the effect of recombinant human HGF protein in a range of diseases. The main conditions in which the protein is believed to have clinical application are outlined in the table below.

Development of drugs for ophthalmic diseases: Supply of APIs to Claris Biotherapeutics

After confirming that HGF has a therapeutic effect on ophthalmic diseases in animal disease models, a research group at Harvard University in the US established Claris Biotherapeutics and reached out to Kringle. The two companies subsequently entered into a license and supply agreement on April 13, 2020. Under the agreement, Kringle supplies HGF as an active pharmaceutical ingredient (API), as well as related data, to be used exclusively for the development of therapies targeting ophthalmic diseases. In exchange, the company receives an upfront payment, technology access fees, and sales revenue for the HGF API (set at a fixed unit price) required by Claris Biotherapeutics to pursue its development in both nonclinical and clinical studies. In addition, Kringle has first negotiation rights on the license to market drugs developed by Claris Biotherapeutics in Japan.

Development pipelines

Overview

The company has four pipelines that have progressed to clinical trials: acute spinal cord injury (acute SCI), amyotrophic lateral sclerosis (ALS), vocal fold scarring (VFS), and acute kidney injury. Claris Biotherapeutics has confirmed the effectiveness of an HGF-based therapy for ophthalmic diseases in nonclinical studies using animal models, and is gearing up for clinical trials.
Kringle also has several drugs in the basic research stage. At present, the company is focused on developing a pharmaceutical agent for acute SCI, which is its most developed area of clinical development, and it is channeling its resources into securing marketing approval for acute SCI in Japan. Meanwhile, in collaboration with universities and other research institutions, the company continues to pursue basic research, expand the indications for its pipeline drugs, and explore new seeds for drug development.  

In Japan, the company is developing pharmaceuticals for rare diseases such as acute SCI, ALS, and VFS*. It has initiated a Phase III clinical trial in its acute SCI pipeline, and aims to complete the study early by collaborating with the medical institution leading the trial and other related medical institutions. In its ALS pipeline, a Phase II investigator-initiated study is ongoing. While the company has limited involvement here, it is supporting the study to the extent possible in an effort to achieve early completion and commercialize the investigational drug at an early stage. In its VFS pipeline, the company is deliberating on the design of the next clinical trial (Phase I/II study completed). The company is also applying for public funding to cover additional clinical trial expenses, and continues in significant business development efforts to secure developmental and commercial partners. (*Note: Development status as of end-Q3 FY09/21).

In addition to the three pipelines discussed above, Phase Ia and Ib clinical trials for the treatment of acute kidney injury have been completed in the US. From a capital resources standpoint, the company plans to proceed with this development subsequent to securing a development and commercial partner. Meanwhile, many research papers have been published about the potential therapeutic applications of HGF in addition to those covered by the company, which is a testament to its diverse biological activity. Kringle will target developing new therapeutic agents to treat these diseases. It plans to utilize the insights gained from its clinical trials for recombinant human HGF protein to develop new biopharmaceuticals that will enhance the quality of life (QoL) of patients suffering from myriad rare diseases.

Acute spinal cord injury (acute SCI)

Overview

The spinal cord is a bundle of nerves that carry electrical signals between the brain and the rest of the body. It is protected by a chain of vertebrae referred to as the spinal column. Acute SCI is a condition in which the spinal cord has suffered trauma caused by a powerful external force (typically during an accident or fall), resulting in the loss or impairment of motor/sensory nerve functions, which in turn produces motor/sensory disorders. Each year, about 5,000 new cases of acute SCI are reported in Japan (Hiroaki Sakai et al. “Current situation of medical care for spinal cord injury in Japan.” Journal of Spine Research, Jan. 2010, 1(1): 41-51). However, no effective treatment is available for spinal cord injuries, leaving patients entirely dependent on either surgery to treat fractures or dislocations of the spinal column, which covers the spinal cord, or symptomatic treatments such as rehabilitation to stimulate remaining nerve functions or enable daily activities.

Because HGF protects neurons and promotes the extension of axons, it is believed to have potential as a treatment for spinal cord injury. Spinal cord injury is commonly categorized into primary and secondary damage. The former is the initial trauma caused to neurons and glial cells by an external force. The latter refers to more extensive damage to the surrounding tissue. The purpose of treatments for acute SCI is to minimize the secondary damage. In collaboration with the Department of Orthopedic Surgery of the Keio University School of Medicine, Kringle has conducted nonclinical studies to identify the pharmacological effects of recombinant human HGF protein using animal models of spinal cord injury, and confirmed the efficacy of the HGF protein for acute SCI in motor function assessments. The company has also completed nonclinical toxicity and pharmacokinetic studies, which are a prerequisite for the development of pharmaceuticals, and advanced to clinical trials.

Characteristics of acute SCI

Spinal cord trauma is typically caused by falls or accidents.

New cases per year*: 5,000 in Japan, 60,000 in developed nations

The condition results in loss or impairment of motor/sensory nerve functions.

The degree of paralysis increases in direct correlation with the proximity of the injury to the brain.

No effective treatments are available (either in the form of therapeutic drugs or surgery).

Stemirac for Injection: Human (autologous) bone marrow-derived mesenchymal stem cells, jointly developed and commercialized by Nipro Corporation and Sapporo Medical University, for sub-acute phase of SCI.

Symptomatic treatment such as painkillers and anti-inflammatory drugs.

Rehabilitation: There are no long-term care facilities for acute SCI patients.

The condition has major financial implications for patients and caregivers.

*Source: Shared Research based on Hiroaki Sakai et al. “Current situation of medical care for spinal cord injury in Japan.” Journal of Spine Research, Jan. 2010, 1(1): 41–51, “Spinal Cord Injury Facts and Figures at a Glance” (2019) by National Spinal Cord Injury Statistical Center, and “Global Population Trends” by the Statistics Bureau of the Ministry of Internal Affairs and Communications (MIC) 

Development milestones

The company confirmed the therapeutic effect of HGF in animal models of spinal cord injury through joint research with Keio University and Osaka University.

Kringle, Keio University, and Osaka University jointly submitted a patent application for a “Therapeutic agent for spinal cord injury,” securing rights in various countries.

Phase I/II clinical trial for the treatment of acute SCI completed with the public funding shown below. Phase III study ongoing (as of end-1H FY09/21).

Public funding support

A-STEP Drug Discovery and Development, Japan Science and Technology Agency (FY2011–2014)

Medical Research and Development Programs Focused on Technology Transfers, Japan Agency for Medical Research and Development (AMED; FY2015–2016)

Support Program for Orphan Drug Prior to the Designation, AMED (FY2016–2018)

Orphan Products Development Support Program, National Institutes of Biomedical Innovation, Health and Nutrition (NIBIOHN; from FY2019)

Results of Phase I/II clinical trial

In terms of primary endpoints, the Phase I/II clinical trial of recombinant human HGF (intrathecal injection: KP-100IT) confirmed the safety of the investigational drug administered to acute SCI patients. Although the study found no significant difference (p=0.07) between the HGF-treated group and the placebo group in the change in ASIA (American Spinal Injury Association) motor score from baseline—used as the primary endpoint for efficacy—at week 24 (168 days), the HGF-treated group consistently showed functional recovery throughout the observation period, compared with the placebo group. In addition, the two groups differed significantly (p<0.05) in terms of the change in the ASIA motor score from baseline at week 20 (140 days), which was used as the secondary endpoint for efficacy. The company therefore believes the study demonstrated a proof of concept (POC), confirming the efficacy of HGF in the protection of neurons and recovery of motor functions. The outcome of the study (difference between the HGF-treated and placebo groups) is expressed as a p-value, which is a measure of the probability of the discrepancy between the two groups happening randomly. A p-value below 0.05 generally indicates that the divergence between the two groups observed in the clinical trial did not occur randomly, but was attributable to the effect of the drug under review.

Phase III clinical trial (ongoing as of end-1H FY09/21)

Based on the results of the Phase I/II clinical trial, recombinant human HGF (intrathecal injection: KP-100IT) was designated as an orphan drug for acute SCI by the MHLW in September 2019. The results of the study were also published in Journal of Neurotrauma, an international medical journal (published online on May 22, 2020, DDI: 10.1089/neu.2019.6854). Kringle drafted a protocol for a Phase III clinical trial to verify the POC demonstrated in the earlier study, and initiated the study in July 2020 (see summary in the table below). The study is scheduled to be completed in the second half of 2022. If results suggesting efficacy of the investigational drug can be obtained, the company plans to file for marketing approval.

Collaborative research on HGF combination therapies for sub-acute to chronic spinal cord injury

In February 2021, Kringle concluded a joint-research agreement with the Keio University School of Medicine to engage in complex research of HGF-based therapies for spinal cord injury. As HGF promotes the regeneration of nerves and the extension of axons, combining it with other therapies may result in further improvements in motor functions, not only in the acute but also in the subacute and chronic stages. As part of the collaboration, Kringle and Keio University are conducting nonclinical studies using animal models of spinal cord injury to study combinations of KP-100IT (a recombinant human HGF-based drug in late-stage development) with other therapies such as the Keio-owned technology to transplant neural progenitor cells derived from induced pluripotent stem cell (iPS); explore administration routes and timings for KP-100IT that may enhance its efficacy; and test whether combination therapies can further enhance the recovery of motor functions. About 5,000 new cases of acute SCI are reported every year in Japan, and the total number of patients, after including chronic cases, is estimated at 100,000–200,000.

Competitors in acute spinal cord injury treatments