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-Q3 FY09/21, the company was developing recombinant human HGF-based drugs for acute SCI and ALS in collaboration with, respectively, 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).
In FY09/21, Kringle for the first time recorded cost of revenue in the form of JPY44mn in API manufacturing costs associated with the supply of APIs to Claris Biotherapeutics. R&D expenses were JPY998mn, including personnel expenses for the pharmaceutical development division and subcontracted development/manufacturing expenses. Other general and administrative expenses were JPY200mn, mainly breaking down into personnel expenses in divisions other than the pharmaceutical development, rent, directors’ compensation, and other compensation. 

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

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

Kringle Pharma, Inc. announced the development of recombinant human HGF protein as a treatment for chronic fibrosis.

Kringle announced that its project to develop recombinant human HGF protein as a treatment for chronic fibrosis had been selected by the Japan Agency for Medical Research and Development (AMED) for the sixth round of its Cyclic Innovation for Clinical Empowerment (CiCLE) grant program for FY2021. 

CiCLE is a support initiative established by AMED to foster a foundation for open innovation in the medical field, and promote R&D toward development of drugs, medical devices, regenerative medicine products, and medical technologies based on industry-academia collaboration.

Outline of selected research project

• 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 with a view to developing a revolutionary new treatment for fibrosis patients, based on the observation that one of HGF's multiple properties is an anti-fibrotic effect. Initially, the goal is to obtain Proof of Concept (POC) to lay a foundation for treatment, through a Phase II/III clinical study in patients with vocal fold scarring (VFS). At the same time, Kringle will conduct research into the molecular mechanism of HGF's therapeutic effect on VFS, and pharmacological testing using models of pulmonary fibrosis and other fibrotic disorders, with the goal of expanding indications to include various other fibrotic conditions. By obtaining POC through clinical trials in one type of fibrotic disorder, VFS, the company seeks to demonstrate HGF's efficacy in regenerating and repairing fibrotic tissue, thereby heightening the possibility of HGF's practical application in other types of fibrotic diseases. 

Under the CiCLE grant program, a performance goal is set in advance and if the goal is achieved the total amount of funds received from AMED must be repaid. Thus, when AMED and the representative organization make an agreement, AMED may require the organization to provide collateral equivalent to the grant amount, or organize a loan guarantee. Kringle already has issued share acquisition rights for the purpose of funding development of a pipeline product utilizing recombinant human HGF protein for the treatment of VFS, but it may offer as collateral some or all of the funds raised through the issuance and exercise of these share acquisition rights. Any changes to the planned use of funds thus raised will be announced once details of the CiCLE collateral are determined. 

The company does not expect this development to have any impact on FY09/21 or FY09/22 earnings.

Issue of 10th series share acquisition rights with exercise price revision clause via third-party allotment and conclusion of third-party allotment agreement with commitment clause

Kringle Pharma, Inc. announced the issuance of 10th series of share acquisition rights (with an exercise price revision clause) via third-party allotment and the conclusion of a third-party allotment agreement (with a commitment clause).

At a meeting held on October 15, 2021, the company’s Board of Directors decided to issue a 10th series of share acquisition rights (with an exercise price revision clause) via a third-party allotment to Barclays plc and conclude a third-party allotment agreement (with a commitment clause) with Barclays after the registration filed under the Financial Instruments and Exchange Act has come into effect.

Assuming all shares acquisition rights are exercised, the number of common shares of the company will rise by a maximum of 1mn (equivalent to 10,000 shareholder voting rights). Compared to the company’s current number of common shares issued (4.3mn as of September 30, 2021), this figure would represent an increase of 23.07%. The exercise of all issued share acquisition rights would also dilute total current shareholder voting rights (43,323 as of September 30, 2021) by a maximum of 23.08%.

Summary of the issue

Funds to be raised

• Total amount to be paid in: JPY892.1mn
• Approximate cost of issuance: JPY12.0mn
• Estimated net proceeds: JPY880.1mn

Use of funds to be raised through the third-party allotment

Costs associated with clinical development targeting vocal fold scarring (VFS; estimated period of expenditure: November 11, 2021–December 2026): JPY486.1mn

Kringle views its development of a pipeline product that utilize recombinant human hepatocyte growth factor (HGF) protein to target treatment of VFS as a model for its own development and for sales collaboration. Accordingly, the company plans to verify the efficacy of the drug through in-house clinical trials and obtain marketing approval. The company will use JPY486mn of the funds generated through its 10th series of share acquisition rights to cover costs associated with the Phase II/III clinical trial for VFS and costs for approval application processes. The specific details of the trial will be determined through consultations with the Pharmaceuticals and Medical Devices Agency (PMDA), but the company currently thinks that the trial will follow the following general outline.

• Design: Multicenter, randomized, placebo-controlled, double-blind, parallel-group phase II/III clinical trial
• Patient population: Patients with VFS
  
• Dosage and administration: To be determined through consultation with the PMDA based on dosage used in previous studies (1, 3, and 10µg per fold and per dose); four doses, administered locally once per week to both vocal folds

Costs associated with manufacturing an investigational new drug (IND) for VFS and developing a commercial formulation (estimated period of expenditure: November 2021–December 2026): JPY394.0mn

Kringle will use JPY394mn generated through the issue of its 10th series of share acquisition rights to cover the costs of manufacturing an IND to be used in clinical trials for VFS and developing commercial formulations. The company expects that dosage of the IND for VFS will be less than 10% of dosages for neurological diseases. In the clinical trials for VFS, the company is using a diluted version of the same drug formulation it is using in clinical trials for acute spinal cord injury and amyotrophic lateral sclerosis (ALS). However, the company believes that it will need to develop a small-volume formulation before it can commercially launch a version of the drug for VFS. Accordingly, while conducting the Phase II/III clinical trial for VFS, the company plans to examine small-volume formulations, review options for manufacturing on a commercial scale, and perform a variety of other studies.

Kringle plans to manage funds raised through its 10th series of share acquisition rights by placing them in stable financial assets, such as bank deposits, until the expected time of expenditure. The amount of these funds and the timing at which they are raised will be determined by future exercise of the share acquisition rights. Accordingly, if the share acquisition rights are not exercised during their exercisable period, the company cannot raise the associated funds. In this case, the company will utilize cash reserves or funds raised through other means to cover the costs indicated above. Further, when allocating these funds, the company plans to prioritize operations in the same order they are scheduled.

Trends and outlook

Quarterly trends and results

FY09/21 results

Summary

• Revenue: JPY290mn (-38.0% YoY) 
• SG&A expenses: JPY576mn (-9.9% YoY)
• R&D expenses: JPY399mn (-18.6% YoY)
• Other general and administrative expenses: JPY178mn (+18.6% YoY)
• Operating loss: JPY358mn (loss of JPY172mn in FY09/21)
• Recurring loss: JPY300mn (loss of JPY116mn in FY09/21)
• Net loss attributable to owners of the parent: JPY301mn (loss of JPY118mn in FY09/21) 
  

In FY09/21, Kringle reported revenue of JPY290mn (-38.0% YoY). The revenue came from Claris Biotherapeutics for the supply of APIs and technology access fees. The company booked cost of revenue of JPY72mn (none booked in FY09/20). Until FY09/20, the company sold APIs expensed under R&D expenses in prior years, but started cost accounting for APIs in FY09/21, booking cost of revenue.

SG&A expenses came to JPY576mn (-9.9% YoY), including R&D expenses of JPY399mn (-18.6% YoY). R&D expenses comprised JPY71mn (+118.5% YoY) for the ALS pipeline, JPY153mn (-49.0% YoY) for the SCI pipeline, common GMP-compliant manufacturing expenses of JPY116mn (+5.3% YoY) for the two pipelines, and JPY58mn (+25.2% YoY) in other R&D expenses. SG&A expenses also included JPY178mn (+18.6% YoY) in other general and administrative expenses. 

Although SG&A expenses declined, the operating loss widened to JPY358mn (loss of JPY172mn in FY09/20) due to lower revenue YoY and the booking of cost of revenue. Non-operating income was up JPY19mn YoY to JPY82mn, mainly due to an increase of JPY20mn in subsidies received. Non-operating expenses were up JPY16mn YoY to JPY24mn mainly due to stock market listing expenses of JPY16mn. 

Recurring loss came to JPY300mn (loss of JPY116mn in FY09/20) and net loss attributable to owners of the parent was JPY301mn (loss of JPY118mn in FY09/20).

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) for the treatment of 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 patient enrollment continued without delays.

Meanwhile, the company tested manufacturing processes for recombinant human HGF protein with a view to securing marketing approval for the treatment of acute SCI. It also pushed ahead with process validation for the manufacturing of active pharmaceutical ingredients (APIs). 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 June 2021, the company received 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).

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 administration of the investigational drug continued. 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 FY09/21. 

To prevent a slowdown in the clinical trial as a result of an end to the subsidies received from the Japan Agency for Medical Research and Development (AMED) in March 2021, 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). 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 addition, the company continued working to secure subsidies for the indication, including applying to the Japan Agency for Medical Research and Development (AMED) for the sixth round of its Cyclic Innovation for Clinical Empowerment (CiCLE) grant program for FY2021.  

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 FY09/21, Kringle continued to supply HGF as an API for the production of investigational drugs and various studies by Claris Biotherapeutics. 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.

Business development

In FY09/21, 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-FY09/21, total assets stood at JPY2.6bn, up JPY285mn from end-FY09/20.

Assets

Current assets were JPY2.6bn, up JPY285mn from end-FY09/20. This mainly reflected increases of JPY88mn in products intended to be sold as APIs and JPY180mn in raw materials and supplies to be used in R&D into API formulation. Fixed assets were JPY1.0bn, unchanged from end-FY09/20. As a result, total assets came to JPY2.6bn, up JPY285mn from end-FY09/20.

Liabilities

Current liabilities were JPY127mn, down JPY32mn from end-FY09/20. This was mainly attributable to a JPY26mn decline in other accounts payable as API manufacturing progressed. Fixed liabilities were JPY2mn, largely unchanged from end-FY09/20. As a result, total liabilities came to JPY129mn, down JPY32mn from end-FY09/20.

Net assets

Net assets were JPY2.5bn, up JPY318mn from end-FY09/20. This was mainly the result of a JPY301mn net loss, and increases of JPY307mn in both capital and capital surplus driven by a capital increase accompanying the listing of the company’s shares as well as increases of JPY3mn in both capital and capital surplus due to the exercise of share acquisition rights. In July 2021, due to declines in capital and capital surplus, the company reduced capital and capital surplus by JPY558mn and JPY208mn respectively, and transferred equivalent amounts to other capital surplus, and appropriated the other capital surplus of JPY765mn to cover the deficit in retained earnings brought forward. As a result, capital was JPY52mn, capital surplus was JPY2.8bn, and retained earnings deficit was JPY301mn.

Cash flows 

In FY09/21, cash and cash equivalents (net cash) totaled JPY2.1bn, up JPY35mn from end-FY09/20. 

Cash flows from operating activities 

Net cash used in operating activities came to JPY561mn. This mainly reflected JPY87mn in proceeds from subsidy income, the booking of a pre-tax loss of JPY300mn, and a JPY269mn increase in inventories. 

Cash flows from investing activities 

There were no cash flows from investing activities in FY09/21. 

Cash flows from financing activities 

Net cash provided by financing activities amounted to JPY596mn. This was mainly attributable to JPY612mn in proceeds from the issuance of shares and outflows of JPY16mn in listing expenses.

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).

Cost of revenue

In FY09/21, the company booked cost of revenue for API manufacturing costs associated with the supply of 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.

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 JPY398mn in FY09/21, broken down as follows.

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.

Amyotrophic lateral sclerosis (ALS) pipeline: The company projects R&D spending of JPY97mn (+35.7% 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 (+513.1% 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.

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 (+39.3% from JPY178mn 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. 

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 (-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). 

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. The company does not forecast revenue from sources other than Claris Biotherapeutics in FY09/21. 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 four development 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 in ophthalmic diseases in nonclinical studies using animal models, and is gearing up for a clinical trial. Kringle also has several drugs in the basic research stage. At present, the company 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 US-based 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. 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, it booked an upfront payment as revenue under an exclusive marketing license agreement for KP-100IT (development code for recombinant human HGF formulation) concluded with Maruishi Pharmaceutical. However, the company does not expect revenue from the agreement in FY09/21. For ophthalmic diseases, it booked an upfront payment as revenue in FY09/20 based on a license and supply agreement with US-based Claris Biotherapeutics. In FY09/21, it expects revenue from the supply of active pharmaceutical ingredients (APIs)—namely, recombinant human HGF protein (KP-100)—under the same agreement, 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. Based on the above, the company forecasts revenue of JPY206mn in FY09/21 (-55.9% YoY).

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 expects to record cost of revenue for the first time in FY09/21 to account for manufacturing costs accompanying the supply of APIs. It did not book cost of revenue in FY09/20, but forecasts JPY44mn in FY09/21 stemming from manufacturing costs for APIs supplied to Claris Biotherapeutics in the US. The company 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. The company forecasts R&D expenses of JPY998mn in FY09/21 (+104.0% from JPY490mn in FY09/20), breaking down as follows.

Acute SCI pipeline: The company anticipates Phase III clinical trial expenses of JPY241mn in FY09/21 (-19.6% from JPY300mn in FY09/20) 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: The company forecasts R&D expenses of JPY133mn in FY09/21 (+308.2% from JPY32mn in FY09/20). The subsidies from the Japan Agency for Medical Research and Development (AMED) for the investigator-initiated Phase II clinical trial (ongoing as of end-1H FY09/21) at Tohoku University expired in March 2021, so the company’s cost outlook factors in the estimate for the Phase II study (April 2020–March 2021) provided by Tohoku University (apportioned by fiscal year) and, assuming that the company will be funding the study from April 2021 onward, estimated expenses for the study from April 2021 based on data for the Phase I/II study for acute SCI.

R&D expenses associated with Good Manufacturing Practice (GMP)-compliant production common to acute SCI and ALS pipelines: The company expects R&D expenses of JPY556mn in FY09/21 (+406.8% from JPY109mn in FY09/20). It plans to test its formulations and manufacture APIs in FY09/21, 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 received from a contract manufacturing organization (CMO). Its manufacturing cost per batch assumption is based on historical manufacturing data.

Other general and administrative expenses

Other general and administrative expenses mainly comprise directors’ renumeration, personnel expenses for divisions other than pharmaceutical development, rent, and other compensation. In FY09/21, Kringle forecasts JPY200mn in other general and administrative expenses (+33.9% from JPY150mn in FY09/20). Its assumptions for directors’ compensation and personnel expenses factor in salary increases in accordance with its personnel plan, and its assumptions for rent and other compensation are predicated on historical data.

Personnel expenses

As of end-May 2021, the company had six directors (including three part-time directors), three auditors (including two part-time auditors), and nine 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 five employees. The corporate planning management division, which is tasked with management, consists of one director and four employees (as of end-May 2021).

Non-operating income/expenses

Kringle forecasts non-operating income of JPY60mn in FY09/21 (-5.3% from JPY63mn in FY09/20) in the form of an anticipated JPY60mn in subsidy income for its acute SCI pipeline (based on JPY62mn received in FY09/20). At the same time, it expects non-operating expenses of JPY38mn (+375.7% from JPY8mn in FY09/20) mainly to account for expenses accompanying the listing of the company, including securities company, printing company, and attorney fees.

Based on the above, in FY09/21 the company forecasts cost of revenue of JPY44mn (no cost of revenue booked in FY09/20), SG&A expenses of JPY1.2bn (+87.6% YoY), an operating loss of JPY1.0bn (versus loss of JPY171mn in FY09/20), a recurring loss of JPY1.0bn (versus loss of JPY116mn in FY09/20), and a net loss of JPY1.0bn (versus loss of JPY117mn in FY09/20).

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. In addition, if intravenous administration of HGF is confirmed to be effective against acute kidney injury, it may be applicable in rare diseases affecting organs other than the kidneys.

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 worldwide

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.

Amyotrophic lateral sclerosis (ALS)

Overview

Amyotrophic lateral sclerosis (ALS) is one of the neural diseases designated as an intractable disease (rare disease) under the Act on Medical Care for Patients with Intractable Diseases. It selectively affects motor neurons, causing the loss of muscle control and muscle atrophy. As the disease progresses, patients experience symptoms ranging from difficulty walking and speech impediments to dysphagia and respiratory disorders. It is believed that some 80% of ALS patients die within three to five years of the onset of the disease. Japan reportedly has roughly 10,000 patients suffering from ALS (based on the number of holders of the specific medical expenses [for designated intractable diseases] recipient certificate in FY2018, Japan Intractable Diseases Information Center). Two pharmaceuticals for the treatment of ALS have already obtained regulatory approval (Edaravone* and Riluzole), but both have limited effect. Consequently, there is strong demand for a novel therapy with a greater efficacy. The current treatment approach for ALS at medical institutions consists of a mix of symptomatic treatments, including rehabilitation to maintain and acquire the ability to conduct daily activities and sedatives to alleviate the pain.

ALS can be triggered by genetic factors and glutamate toxicity, but some causes remain unknown. However, a common thread that runs through the disease is muscle atrophy caused by motor neuron impairment and loss. Therefore, drugs that protect motor neurons may have a beneficial therapeutic effect on the disease. As discussed in the section on acute SCI above, HGF has been shown to protect neurons and promote the extension of axons, so it may similarly prove effective as a treatment for ALS.
In collaboration with the Department of Neurology of the Tohoku University School of Medicine, Kringle conducted a study to identify the pharmacologic effects of recombinant human HGF protein using animal models of ALS. Results of the study demonstrated that the administration of HGF was effective in restoring motor function, delaying ALS onset, and increasing survival rates. In addition, the company conducted nonclinical toxicity and pharmacokinetic studies necessary for drug development and progressed to clinical trials.  

Characteristics of ALS

A progressive neurodegenerative disease that destroys motor neurons. Its causes are largely unknown.

Number of patients*: 9,800 in Japan, 85,000 worldwide (in 10 countries and regions for which incidence rates were available)

Over 80% of patients die within three to five years of the onset of the disease.**

Some 10% of patients develop ALS as an inherited condition.**

Patients develop ALS between the ages of 30 and 80-plus (onset peaks between the ages of 65–69).**

Existing drugs (Riluzole and Edaravone) have limited therapeutic effects.

The illness has major financial implications for patients and caregivers.

*Source: Number of holders of the specific medical expenses (for designated intractable diseases) recipient certificate in FY2018, and Arthur