Executive summary

Summary

3-D Matrix (3DM) is a medical technology company that develops, manufacturers, and markets a self-assembling peptide technology originally created at the Massachusetts Institute of Technology (MIT). Self-assembling peptides are composed of three types of amino acids, and upon coming into contact with neutral pH environments, the peptide molecules “self-assemble” to create a gel formed of nanofibers. These peptides are also unique in that they do not include organic compounds, yielding advantages in safety and homogeneity. Utilizing these properties, 3DM is working to commercialize self-assembling peptide products in various fields, such as surgery, regenerative medicine, and DDS. The medical products in development by the company are categorized as “medical devices” rather than “pharmaceuticals.” Consequently, the duration from application to approval is shorter and costs are lower compared to drug development.

The company’s key pipelines are an absorbable local hemostat (TDM-621), an anti-adhesion material (TDM-651), and a mucous membrane protuberance material (TDM-644). Among these, Shared Research believes absorbable local hemostat (TDM-621), which is applied through a syringe to bleeding areas caused by surgical and GI endoscopic procedures, is of particular importance. Upon coming into contact with bodily fluids such as blood, TDM-621 self-assembles to create a gel formed of nanofibers to stop bleeding. According to the company, its advantages versus current blood coagulants include low infection risk, no requirement for informed consent, and a superior field of view. According to the company, the market for blood coagulants is USD3.0bn globally. 3DM is aiming for a market share of between 30% and 50% in each region by leveraging the advantages of TDM-621 to promote replacement from current methods.

In January 2014, 3DM received approval to use the CE marking for TDM-621 in Europe. With this, in Europe, Asia, Oceania, Latin America, and Canada, where products with the CE marking may be sold and granted regulatory approval without the need for clinical studies, the company plans to expand sales of TDM-621. To that end, in June 2019, 3DM appointed FUJIFILM as its exclusive distributor in Europe for the promotion and sale of TDM-621 in gastrointestinal (GI) endoscopic surgery indications.

In July 2020, 3DM obtained marketing approval in Japan for TDM-621, an absorbable local hemostat for hemorrhage per diapedesis occurring during endoscopic submucosal dissections. In May 2021, the company obtained marketing approval for PuraLift, a submucosal injection material for use in endoscopic procedures. The company plans to apply for National Health Insurance coverage for these products and begin selling them once coverage has been obtained.

In the US, in April 2019 anti-adhesion material PuraSinus was approved by the Food and Drug Administration (FDA) for otorhinolaryngologic use. In June 2021, the 510(k) premarket notification for the company’s hemostat in the gastrointestinal endoscopic field was cleared.

Trends and outlook

In FY04/21, the company reported full-year consolidated operating revenue of JPY1.0bn (+52.3% YoY), an operating loss of JPY2.6bn (versus loss of JPY2.5bn in FY04/20), a recurring loss of JPY1.9bn (versus loss of JPY3.0bn in FY04/20), and a net loss attributable to owners of the parent of JPY2.0bn (versus loss of JPY3.1bn in FY04/20).

In March 2022, the company announced revisions to its full-year earnings forecasts for FY04/22. It now projects full-year consolidated operating revenue of JPY1.5bn (+47.3% YoY), an operating loss of JPY2.7bn (versus loss of JPY2.6bn in FY04/21), a recurring loss of JPY2.8bn (versus loss of JPY1.9bn in FY04/21), and a net loss attributable to owners of the parent of JPY2.9bn (versus loss of JPY2.0bn in FY04/21). The new forecasts represent downward revisions of JPY870mn for operating revenue, JPY912mn for operating profit, JPY1.1bn for recurring profit, and JPY1.0bn for net income attributable to owners of the parent. 

Under its new medium-term business plan, the company has set in FY04/24 targets for consolidated operating revenue of JPY9.8bn, operating profit of JPY2.9bn, recurring profit of JPY2.9bn, and net income attributable to owners of the parent of JPY2.8bn. As growth drivers, the new plan is counting on the expansion of product sales in Europe and Australia, and the startup of product sales in the US and Japan. On the profit front, a new sterilization process will be adopted from FY04/22, which is expected to reduce manufacturing costs. The company expects to post operating profit in FY04/23 supported by rising sales and higher profit margins.

Strengths and weaknesses

Shared Research believes that the three strengths of 3DM are its promise of the core self-assembling peptide technology, differentiated business model and large potential market. Its three weaknesses include its commercial success being dependent on outside partners, dependence on third party core patents with relatively short lives, and potential human resources bottlenecks. (See Strengths, weaknesses for details.)

Key financial data

Recent updates

Issue of fifth series unsecured convertible bonds with share subscription rights and 31st series share subscription rights via third-party allotment

On April 11, 2022, 3-D Matrix Ltd. announced that it will issue a fifth series of unsecured convertible bonds with share subscription rights and a 31st series of share subscription rights through a third-party allotment.

The company has decided to issue a fifth series of unsecured convertible bonds with share subscription rights and a 31st series of share subscription rights through a third-party allocation.

The total of the maximum number of shares (4,002,000 shares) that would be issued if all of the bonds with share subscription rights were converted at the initial conversion price and the number of shares (3,997,000 shares) that would be issued if all of the share subscription rights were exercised would amount to 7,999,000 shares. If the maximum numbers of shares were issued in both cases, the result would be a 14.7% dilution of the company's 54,374,000 outstanding shares as of October 31, 2021.

Funds to be raised

• Total amount to be raised: JPY3,535mn
• Estimated issuance costs: JPY25mn
• Estimated net proceeds: JPY3,510mn
  

Specific use of funds to be raised

The funds (JPY1,740mn) to be procured through the issuance of the bonds with share subscription rights will be used specifically for the following purpose and during the following period.

Business operating expenses: JPY1,740mn (to be spent during the period spanning from May 2022 through April 2023)

The funds (JPY1,769mn) to be procured through the issuance of share subscription rights will be used specifically for the following purposes and during the following period.

Business operating expenses: JPY1,431mn (to be spent during the period spanning from October 2022 through April 2024)

Procurement costs of peptide raw materials for hemostat: JPY338mn (to be spent during the period spanning from October 2022 through April 2025)

Overview of offer

Obtained marketing approval for wound healing material for radiation proctitis

On April 4, 2022, 3-D Matrix Ltd. announced that it had obtained marketing approval for wound healing material for radiation proctitis. 

The company's US subsidiary 3-D Matrix, Inc. obtained approval to market its wound healing material for radiation proctitis (RP), for which it had submitted a premarket notification 510 (k) to the US Food and Drug Administration as a Class II medical device.

This development is expected to have no impact on the company's performance for FY04/22, for which the company has already released an earnings forecast; its impact on medium-term earnings is currently being assessed.

Announcement of revision of full-year FY04/22 earnings forecast

3-D Matrix Ltd. announced revisions to its full-year earnings forecasts for FY04/22.

(Click here for release)

Revised company forecast for FY04/22

• Operating revenue: JPY1.5bn (previous forecast JPY2.4bn)
  
• Operating loss: JPY2.7bn (previous forecast for loss of JPY1.7bn)
  
• Recurring loss: JPY2.8bn (previous forecast for loss of JPY1.8bn)
  
• Net loss attributable to owners of the parent: JPY2.9bn (previous forecast for loss of JPY1.9bn)
  
• Net loss per share: JPY52.6 (previous forecast for loss of JPY42.1)

Reasons for revision

Decline in operating revenue:
Growth in Omicron infection numbers since December 2021 has delayed many of the non-essential surgeries that the company targets, especially in Europe and the US. As a consequence, Q3 FY04/22 sales fell short of the company target. While such delays will be temporary, there is no certainty of a recovery before end-FY04/22, in view of which 3DM revised down its forecast for operating revenue. By region, it now sees Europe generating product sales of JPY843mn (previous forecast JPY1.1bn), Australia sales of JPY497mn (JPY650mn), the US sales of JPY53mn (JPY318mn), and other regions sales of JPY116mn (JPY310mn).

Slower-than-projected reductions in manufacturing cost ratio:
While the company had some success in lowering production costs by changing its sterilization methods and scaling up systems, decreased sales resulted in slower inventory turnover and reductions in the manufacturing cost ratio (calculated on a moving average basis) fell short of plan. The company had been targeting a manufacturing cost ratio of roughly 50%, but is now shooting for a ratio of approximately 60%.

Smaller-than-expected cost savings:
With regard to SG&A expenses, the company had planned to compensate for extra costs incurred in establishing a sales structure in Japan and the US with cost savings on the same scale. Because of COVID-19, however, 3DM was unable to operate as normal in the US and Europe, such that SG&A expenses came to JPY3.3bn, roughly JPY250mn higher than the company expected.

Trends and outlook

Quarterly trends and results

Cumulative Q3 FY04/22 results

• Operating revenue: JPY1.0bn (+41.9% YoY)
• Operating loss: JPY2.0bn (versus loss of JPY1.9bn in cumulative Q3 FY04/21)
• Recurring loss: JPY2.0bn (versus loss of JPY1.5bn)
• Net loss attributable to owners of the parent: JPY2.1bn (versus loss of JPY1.6bn)
  

Driving the YoY growth in operating revenue were sales of JPY1.0bn from absorbable local hemostat TDM-621 (JPY563mn from Europe, JPY340mn from Australia, and JPY75mn from other regions), and sales of JPY23mn from research reagents (including those used in COVID-19 antibody test cassettes).

Expenses increased, as the company booked upfront costs for the establishment of a sales structure in Japan and the US, prior to commencing sales in those countries, and missed its target for cost savings as reductions in the manufacturing cost ratio (calculated on a moving average basis) fell short of plan.

Cost of sales amounted to JPY640mn (+28.7% YoY), and company's cost of sales ratio (cost of sales divided by product sales) was 64.0% (-6.5pp YoY). The cost of sales ratio improved because the company reduced manufacturing costs by changing its sterilization methods. The company's new manufacturing methods are expected to reduce manufacturing costs to less than half of their previous levels, but as noted above, the company's application of the moving-average calculation method has caused these cost reductions to progress more slowly than previously anticipated.

R&D expenses fell 5.4% YoY to JPY517mn. Quarterly R&D expenses have trended around JPY200mn since FY04/19.

SG&A expenses rose 23.8% YoY to JPY1.9bn. The company increased the size of its sales force as it launched sales in Japan and the US and observed a corresponding increase in personnel and sundry expenses.

Due to the spread of COVID-19's Omicron variant, operating revenue fell short of the company's previous projections while loss exceeded them. On the other hand, the company made progress with its efforts to generate medium-term earnings growth, which included transitioning to new manufacturing methods projected to lower the company's cost of sales ratio, obtaining regulatory approvals for several pipeline products, and acquiring new customers in Japan and the US. The company's application of self-assembling peptide technology has facilitated R&D in the areas of surgery (concerning hemostatic materials, etc.), regenerative medicine for radiation proctitis and inflammatory bowel disease (IBD), and drug delivery systems (for nucleic acid drugs, etc.). Further details can be found below. 3-D Matrix believes that it can generate profit through earnings in the area of surgery alone but also maintains that the size of potential markets for regenerative medicine and drug delivery systems exceed that of surgical markets.

Progress of Q3 results versus full-year projections

In March 2022, the company announced revisions to its full-year projections for FY04/22. The company's revised projections forecast operating revenue of JPY1.5bn (+47.3% YoY), operating loss of JPY2.7bn (versus operating loss of JPY2.6bn in FY04/21), recurring loss of JPY2.8bn (versus recurring loss of JPY1.9bn), and net loss attributable to owners of the parent of JPY2.9bn (versus net loss of JPY2.0bn in FY04/21).

Compared to its previous forecast, the company lowered its projections for operating revenue by JPY870mn, operating profit by JPY912mn, recurring profit by JPY1.1bn, and net income attributable to owners of the parent by JPY1.0bn (i.e., expects wider losses). The company made these revisions due to a decline in operating revenue caused by the spread of the Omicron COVID-19 variant and slower-than-expected reductions in cost of sales and other costs booked (for details, please refer to the section entitled "Company forecast for FY04/22").

At the end of Q3, sales had achieved 66.3% of their corresponding projection in the company's full-year forecast. Meanwhile, operating loss amounted to JPY2.0bn, versus a full-year forecast of JPY2.7bn.

R&D status and sales of absorbable local hemostat by region are detailed below.

R&D status

Major progress in R&D was as follows. In the US, the company received approval for its hemostatic material for use in the field of gastrointestinal endoscopy and for its wound-healing material for radiation proctitis. In Japan, the national health insurance (NHI) system began providing coverage for the absorbable local hemostat provided by the company. Further, the company obtained approval for a new manufacturing method for PuraStat in both Japan and Europe.

In April 2022, the company's US subsidiary, 3-D Matrix, Inc., received Class II medical device approval from the US Food and Drug Administration for a wound-healing material for radiation proctitis (application submitted using the 510(k) premarket notification process).

In December 2021, the company entered into an agreement with a new contract manufacturer, Pharmpur GmbH. Under this agreement, Pharmpur will manufacture, package, and deliver the company's products for the European, US, and Japanese markets.

In November 2021, the Ministry of Health, Labour and Welfare (MHLW) notified the company that its absorbable local hemostat PuraStat® was included in NHI coverage, with NHI reimbursement starting on December 1, 2021. 

In November 2021, the company obtained approval for the addition of new sterilization methods for absorbable local hemostat PuraStat® in Japan.

In August 2021, the company signed a memorandum of understanding with PURMX Therapeutics Co., Ltd. regarding a patent transfer and licenses, and in relation to this, agreed to acquire a portion of PURMX’s shares (more details below).

In June 2021, the US FDA cleared the company’s 510(k) premarket notification for hemostat PuraStat-GI (provisional name) as a Class II medical device for use in gastrointestinal endoscopic procedures.

In May 2021, 3DM obtained marketing approval in Japan for PuraLift (TDM-644), a submucosal injection material for use in endoscopic procedures. The company plans to apply for NHI coverage and launch the product once it has been added to the NHI reimbursement price list.

In May 2021, an independent third-party verification body approved the new sterilization method in the manufacturing process of CE-marked PuraStat, which is being marketed by European subsidiary 3-D Matrix Europe SAS. Adoption of this new manufacturing process is expected to cut manufacturing costs by more than half.

Financing status is as follows.

In April 2022, the company decided to issue a fifth tranche of unsecured convertible bonds with share acquisition rights and a 31st tranche of share acquisition rights through a third-party allotment. The issuance and exercise of these unsecured convertible bonds and share acquisition rights will result in a 14.7% dilution of the company's outstanding shares (assuming all rights are exercised). The company estimates net proceeds of JPY3.5bn.

In August 2021, the company issued a fourth tranche of unsecured convertible bonds with share acquisition rights and a 30th tranche of share acquisition rights (with strike price reset provisions) via third-party allotment. Through the issue of these unsecured convertible bonds and stock acquisition rights and their subsequent exercise, the company had raised JPY2.3bn as of October 31, 2021.

In November 2020, the company issued its 27th and 28th tranches of stock acquisition rights, and during 1H FY04/22, it raised JPY620mn through exercise of the 27th series stock acquisition rights.

Surgery

Absorbable local hemostat

In Japan, 3-D Matrix obtained manufacturing and marketing approval in July 2020 for its absorbable local hemostat PuraStat® for hemorrhage per diapedesis in gastrointestinal endoscopic surgery and insurance coverage commenced in December 2021. Following the commencement of insurance coverage, medical institutions have become able to claim reimbursement for their use of PuraStat at the product's official price. Consequently, hospitals can use PuraStat without a cost burden, and the company expects sales to accelerate in the future.

The company in January 2014 received the CE marking in Europe for TDM-621, which is on sale throughout Europe. The company plans to continue expanding indications in multiple disease areas, including central nervous system disorders, as well as expand its functions including wound healing.

In January 2021, the company submitted an application for use in the US of its absorbable local hemostat in gastrointestinal endoscopy to the FDA using the 510(k) process. Approval was granted in June 2021. The company said it would continue to take a development approach aimed at achieving high-value-added wound-healing and anti-adhesion effects.

Mucous membrane protuberance material

Using a different sequence than hemostatic material, this material self-assembles into a gel structure, allowing excellent protuberance maintenance. As it is not a biologically derived substance, it has a high level of safety and carries no risk of viral contamination. According to the company, the material could be widely used in endoscopic surgery to remove polyps and tumors.

The company submitted its application for marketing approval in December 2020, and obtained approval from the PMDA in May 2021, commencing commercial production in December 2021. The company is currently preparing for the inclusion of the product in the National Health Insurance (NHI) reimbursement price list, and plans to create a system that will allow for the cross-selling of the product with its hemostat.

Hemostatic agent to prevent post-operative bleeding

In Europe, prevention of post-operative bleeding under endoscopic surgeries was approved as an additional indication in December 2017.

Prevention of post-operative bleeding was also approved as an additional indication in Australia in September 2019. The company sees a need for the prevention of post-operative bleeding (bleeding that occurs after surgery), because it requires further surgery, which adds to patients’ physical stress as well as the hospital’s workload. Bleeding occurs during gastrointestinal endoscopic surgery in 5% of cases, whereas the risk of post-operative bleeding (in high-risk patients and procedures) is around 30%. The company believes that the additional indication more than doubles the scope of the agent’s potential market in the endoscopic surgery field.

Next-generation hemostat

The next-generation hemostat under development uses a new peptide sequence patented by the company that is different from that used in the absorbable local hemostat. The next-generation hemostat is being developed based on the self-assembling peptide technology for which 3D-Matrix was granted a license from MIT. It plans to advance R&D with a view to make the next-generation hemostat its mainstay product as it is superior to absorbable local hemostat in hemostatic effect and can be manufactured at lower cost.

In Europe, the company has already established commercial scale manufacturing methods in accordance with Good Manufacturing Practice (GMP), a manufacturing and quality control standard. The clinical trial protocol was approved in May 2021, and the trial in neurosurgery patients commenced in July 2021. In an exploratory clinical study preceding this trial, the company completed treatment (application of the study medical device) in all patients in December 2021, and no adverse effects were reported as of March 2022. In Japan, the company is proceeding with development, while investigating whether it will be possible to apply for approval as an improved medical device (without clinical trials) with the product being developed in Europe as its predecessor.

Anti-adhesion material

In April 2019, 3D-Matrix received approval from the Food and Drug Administration (FDA) for PuraSinus, an anti-adhesion and hemostatic agent, for use in the otorhinolaryngology field in the US. Being the only product with simultaneous hemostatic, anti-adhesion, and wound-healing effects, the company believes the device can deliver high clinical value in otolaryngology procedures such as turbinectomy and nasal septoplasty. 
The company anticipates strong demand in the US market, where patient quality of life (QOL) is highly valued, as it thinks PuraSinus could reduce the need for post-operative nasal packing (to soak up fluids that drain from the nose, such as blood), which can significantly worsen patient QOL. 3D-Matrix also is making preparations to expand indications into areas such as obstetrics and gynecology.

Regenerative medicine

Alveolar bone regenerator

In clinical trials in the US, the company completed treatment and observations of 15 patients, collecting favorable results and data in terms of bone formation. The company enrolled 12 more patients to continue the clinical trial in FY04/18, because there was scope for improvement in the study protocols. The company is in discussions with the FDA concerning the next step after completing clinical trials.

Wound-healing material

The product was approved by FDA in February 2015, allowing for the start of sales in the US. The company expects increased therapeutic effects in combination with other pharmaceuticals (such as antibiotics and anticancer drugs) and is progressing research in the fields of skin burn treatments and skin cancer treatments. Further, to move into the giant market of cosmetic surgery, the company submitted an application for approval of the additional indications to the FDA in November 2019; it obtained approval in May 2020. Cosmetic surgery requires a different marketing approach to the general medical market. In the first instance, the company said it is proceeding with clinical trials in Europe and the United States in order to obtain the clinical data necessary to make inroads into the market.

Radiation proctitis healing material

Radiation proctitis is a side effect of radiation therapy used to treat prostate and uterine cancers, and frequently causes inflammation of the rectum. Approximately 20% of radiation proctitis patients suffer from complications including chronic bloody discharge, frequent bowel movements, and severe abdominal pain, so an effective treatment is needed.

In a European clinical trial, efficacy was observed in using the company's absorbable local hemostat to treat radiation proctitis. The company aims to develop the product with a view to early expansion of indications to address unmet needs in this area. In Europe, preparations are under way for an investigator-initiated clinical trial by a British academic society, and the product is being considered for adoption as a future standard of care. In the US, the company submitted an application to the FDA in November 2021 for approval to market the wound healing material for radiation proctitis; it received this approval in April 2022.

Possible effectiveness of absorbable local hemostat PuraStat in the treatment of inflammatory bowel disease (IBD)

Inflammatory bowel disease (IBD) refers to an inflammation of the gastrointestinal tract that stems from unknown causes with no known cure. Once developed, IBD will repeatedly flare up and go into remission and therefore requires life-long treatment. Two types of IBD have been identified: ulcerative colitis and Crohn's disease. Anti-inflammatory drugs can be used to control symptoms, but existing anti-inflammatory drugs alone are not enough to reduce rates of relapse. Despite claims that mucosal healing is necessary for recovery, as of December 2021, no products showing promise in this regard were available.

IBD market size: More than 3mn patients around the world suffer from IBD, and sales of anti-inflammatory drugs and other treatments for IBD exceeded JPY2.5tn in 2018 (according to documents from 3DM.) Patients who develop IBD require treatment for the rest of their lives, so the size of the market will continue to grow in the future with no decline in patient count.

Promising results from animal studies concerning the treatment of IBD: According to experiments conducted by Kurume University, local application of absorbable local hemostat PuraStat to rat models exhibiting colonic injury reduced ulcer length and area while application to rat models exhibiting intestinal wound promoted healing. These results suggest that PuraStat may be a potential therapeutic strategy for IBD.

Future initiatives: After acquiring data from animal studies, 3DM plans to conduct clinical trials regarding the efficacy of PuraStat as a treatment for IBD with Gunma University in Japan starting in 2022. In Europe, 3DM plans to commence clinical trials of PuraStat for Crohn's disease in 2022. The company also plans to conduct clinical trials to investigate PuraStat’s effectiveness in treating IBD following animal studies. The company is considering the possible addition of PuraStat to its pipeline as a treatment for IBD once these clinical studies confirm the product's efficacy in humans.

Drug-delivery system (DDS)

3-D Matrix is collaborating with the National Cancer Center on treatment for “triple negative” breast cancer with nucleic acid medicine that targets the RPN2 gene. The company provided siRNA nucleic acid medicine that uses the self-assembling peptide A6K as a drug-delivery system (DDS). The company has a joint patent with the National Cancer Center regarding treatment and diagnostic method for cancer stem cells, and is working toward advancing joint R&D in the subject and related fields.

3-D Matrix is also advancing a joint development project with Hiroshima University, for which it provides its surfactant peptide A6K for use in an innovative anti-tumor nucleic acid drug for malignant pleural mesothelioma. PURMX Therapeutics, established by Professor Hidetoshi Tahara of Hiroshima University, is taking the lead in product development. 3DM has acquired a 10% stake in PURMX and intends to continue to engage in joint development of new products with PURMX moving forward. In January 2022, a physician-led Phase I clinical trial commenced with enrollment of the first patient. This is the company's second project in which it provides DDS for nucleic acid drugs, following the project centered on RPN2-targeted nucleic acid drugs for the treatment of triple-negative breast cancer.

As nucleic acid therapeutics become increasingly common, the company thinks its self-assembling peptide A6K may be widely used as an option for delivering these drugs. According to the company, A6K may be capable of being ingested by multiple types of cancer stem cells, and the combination of A6K with oligonucleotide therapeutics that act on cancer stem cells may be able to reset resistance to anticancer drugs and inhibit metastasis.

Changes in manufacturing methods that sharply reduce production costs

On other fronts, the company is pushing ahead with major modifications on the factory floor, changing its sterilization methods and scaling up systems with the aim of lowering production costs across its product lineup. Toward this end, the company submitted an application for the approval of these changes to BSI, a third-party certification body in Europe, in October 2020 and obtained approval from the BSI in May 2021. In Japan, the company obtained approval for an additional sterilization method for absorbable local hemostat PuraStat in November 2021.

Manufacturing under the new method began in Q1 FY04/22, and the company has started shipments of products manufactured using the new method to the European, Middle Eastern, and Australian markets. The company believes that this change in manufacturing method ultimately can reduce the manufacturing cost ratio to around half of the 70% or so reported in FY04/21, eliminating bottlenecks so that it can move into the black from FY04/23.

Addition of new manufacturing base: 

In December 2021, the company entered into an agreement with a new contract manufacturer, Germany-based Pharmpur GmbH. Pharmpur already has begun manufacturing product for the US market, and in January 2022, the company submitted an application for approval of an additional manufacturing plant to a third-party certification body in Europe. By combining this plant with the Japanese manufacturing bases already in operation, the company aims to further expand its business by ensuring a stable supply of product. The company anticipates that growth in the volume of products produced by Pharmpur will result in lower manufacturing costs, and to that end it is proceeding with preparations for scaling up while keeping an eye on regulatory review progress.

Antibody testing

3-D Matrix and Prometheus Bio Inc., which has a track record of selling COVID-19 antibody test kits in Europe and North America, are jointly developing novel coronavirus antibody test kits for the Japanese market. Prometheus Bio’s antibody test kit Coronavirus IgG/IgM Antibody (COVID-19) Test Cassette is an in-vitro diagnostic immunoassay that detects 2019-n-CoV antibodies in whole blood, serum, or plasma. It can detect antivirus antibodies that suggest acquired immunity to COVID-19. This is being jointly developed in Japan.
In December 2021, 3-D Matrix also started handling neutralizing antibody test kits, which can screen not only for COVID-19 infection, but also the presence of neutralizing antibodies that could block the virus.

Regional sales status

Breakdown of sales of absorbable local hemostat and anti-adhesion material and hemostat by region

Europe

In Europe, the company reported cumulative Q3 product sales of JPY563mn (+91.0% YoY). Product sales were JPY190mn (+95.4% YoY) in Q1 (May–July 2021), JPY163mn (+41.4% YoY) in Q2 (August–October 2021), and JPY210mn (+155.5% YoY) in Q3 (November 2021–January 2022).

Product sales in Q3 (three months) fell short of the company's projections due to a decrease in surgical procedures as the spread of the Omicron COVID-19 variant began causing stagnation in normal hospital operations at the end of December 2021. Despite this shortfall, product sales increased both YoY and QoQ. Usage rates associated with existing accounts increased. The company intends to preserve this growth potential and aims to restore the single-month profitability of these products during FY04/22 and full-year profitability in FY04/23.

Australia

In Australia, 3DM reported cumulative Q3 product sales of JPY340mn (-0.8% YoY). Product sales came to JPY127mn (+30.9% YoY) in Q1, JPY122mn (+15.5% YoY) in Q2, and JPY91mn (-35.0% YoY) in Q3.

In Q3 (November 2021–January 2022), product sales fell both YoY and QoQ. The number of COVID-19 cases has increased since the beginning of the fiscal year, with the resulting restrictions on movement across state and territorial lines leading to a heightened impact on economic activity. The number of Omicron infections has increased sharply since December 2021, causing delays in the elective (non-critical) surgeries that the company targets. The company's sales activities also were affected, but 3DM is preparing to ramp up these activities again in anticipation of a demand recovery heading into FY04/23, as it believes that elective surgeries cannot be pushed back indefinitely.

US

In April 2019, 3DM obtained FDA approval to sell anti-adhesion material and hemostat PuraSinus for use in the otorhinolaryngology field. The company launched sales through a direct sales system in Q1 FY04/22, and as of end-Q2 it was acquiring new accounts as planned. Product utilization rates were high at the medical facilities and by physicians that have started purchasing the company's products, with the company acknowledging the high competitiveness of its products. In Q3, however, hospital operations were hampered by an increase in Omicron infection numbers, leading to a reduction in the otolaryngological operations that 3DM targets. In Q3, the company shifted its focus to market segments that are less susceptible to impact from COVID-19 (e.g., clinics). As a result, cumulative new customer acquisitions and sales had fallen short of projections at the end of Q3, but the company expects the shift in its target customer groups to begin impacting performance in Q4 and early FY04/23.

In June 2021, the company obtained approval from the FDA for the application of its hemostatic material in the field of gastrointestinal endoscopy. The company will begin marketing the material for this purpose in Q4 and prepare for its launch in FY04/22. As mentioned above, the company will begin delivering products manufactured through Germany-based Pharmpur in March 2022. According to the company, endoscopic surgical procedures are more advanced in Japan and Europe than in the US. Accordingly, it believes that the application of its hemostatic material within the gastrointestinal endoscopy field in Japan and Europe will represent an advantage for sales in the US market.

Japan

In Japan, the Ministry of Health, Labour and Welfare (MHLW) notified the company that PuraStat®, its absorbable local hemostat, was included in NHI coverage in November 2021, with NHI reimbursement starting in December 2021. As hospitals accordingly can use PuraStat® without a cost burden, the company says that inquiries are strong, and customer acquisition is proceeding ahead of schedule. According to the company, hospitals in Japan tend to actively use quality medical devices because the nation has a government insurance system that eliminates the financial burden using these devices would otherwise place on them.

Beginning in January 2022, there were delays caused by the spread of the Omicron COVID-19 variant, but sales activities achieved progress ahead of schedule and absorbed this impact. As of March 2022, about 60% of the 200 facilities performing the largest number of endoscopic submucosal dissections (accounting for the majority of these procedures) had either adopted PuraStat or had used it on a trial basis (sample use). According to the company, many of its target facilities for FY04/23 have already begun trial use of PuraStat.

For COVID-19 antibody test cassettes, the company launched sales of antibody test cassettes for research purposes to universities and other research organizations in April 2020. With the start of sales to private businesses in July 2020, the company booked cumulative Q3 sales of JPY22mn. 

Other

As announced by the company in December 2020, its agreements with Fuso Pharmaceutical Industries (covering exclusive sales for absorbable local hemostat using RADA16 self-assembling peptide technology in Japan and contract manufacturing) were terminated in response to the notification of intent to terminate the agreement previously received from Fuso Pharmaceutical in July 2020. As part of the termination agreement, it was agreed that Fuso Pharmaceutical Industries would continue to produce the needed amounts of absorbable local hemostat products until 3DM was able to enlist the services of a new contract manufacturer.

As noted above, in December 2021 the company added a new manufacturing base when it entered into an agreement with a new contract manufacturer, Germany-based Pharmpur GmbH.

Company forecast for FY04/22

In March 2022, 3-D Matrix announced revisions to its full-year earnings forecasts for FY04/22. It now projects full-year consolidated operating revenue of JPY1.5bn (+47.3% YoY), an operating loss of JPY2.7bn (versus loss of JPY2.6bn in FY04/21), a recurring loss of JPY2.8bn (versus loss of JPY1.9bn in FY04/21), and a net loss attributable to owners of the parent of JPY2.9bn (versus loss of JPY2.0bn in FY04/21). 

The new forecasts represent downward revisions of JPY870mn for operating revenue, JPY912mn for operating profit, JPY1.1bn for recurring profit, and JPY1.0bn for net income attributable to owners of the parent. 

Decline in operating revenue
Growth in Omicron infection numbers since December 2021 has delayed many of the non-essential surgeries that the company targets, especially in Europe and the US. As a consequence, Q3 FY04/22 sales fell short of the company target. While such delays will be temporary, there is no certainty of a recovery before end-FY04/22, in view of which 3DM revised down its forecast for operating revenue. By region, it now sees Europe generating product sales of JPY843mn (previous forecast JPY1.1bn), Australia sales of JPY497mn (JPY650mn), the US sales of JPY53mn (JPY318mn), and other regions sales of JPY116mn (JPY310mn).

Slower-than-projected reductions in manufacturing cost ratio
While the company had some success in lowering production costs by changing its sterilization methods and scaling up systems, decreased sales resulted in slower inventory turnover and reductions in the manufacturing cost ratio (calculated on a moving average basis) fell short of plan. The company had been targeting a manufacturing cost ratio of roughly 50%, but is now shooting for a ratio of approximately 60%.

Smaller-than-expected cost savings
With regard to SG&A expenses, the company had planned to compensate for extra costs incurred in establishing a sales structure in Japan and the US with cost savings on the same scale. Because of COVID-19, however, 3DM was unable to operate as normal in the US and Europe, such that SG&A expenses came to JPY3.3bn, roughly JPY250mn higher than the company expected.

The discussion below is based on 3DM's previous forecasts. 

Behind the growth in top-line revenues the company sees full-year sales of absorbable local hemostat products and anti-adhesives rising to JPY2.4bn versus only JPY970mn in FY04/21. By region, it sees Europe generating sales of JPY1.1bn (versus JPY456mn in FY04/21), Australia sales of JPY650mn (versus JPY495mn in FY04/21), the US sales of JPY318mn (no sales in FY04/21), and other regions generating combined sales of JPY310mn (versus only JPY19mn in FY04/21).

On the operating expense side, the company sees total spending coming in at just over JPY4.1bn (versus JPY3.7bn in FY04/21).

Cost of sales is projected at JPY1.1bn (versus JPY719mn in FY04/21) while the cost ratio is forecast at 46.7% (versus 70.2% in FY04/21). Including raw materials for peptides, contract manufacturing charges, and other production costs, the projected cost of sales of JPY1.1bn is well above the JPY719mn recorded in FY04/21 due to an expected increase in sales and production volumes and a hike in the gross profit margin due to higher production volumes and changes in manufacturing processes that will bring down unit costs. Changes to the sterilization method used in the manufacturing process of hemostat products were approved by a European independent third-party certification body in May 2021. The transition to the new sterilization method is planned for 2H FY04/22 and is expected to reduce manufacturing costs by more than half. In the US, it is possible to simply submit a supplemental application to change the manufacturing process, and the company plans to adopt the same sterilization method in the US. In April 2021, the company submitted a partial change application to MHLW for the addition of the new sterilization method to the approved manufacturing process in Japan.

Planned R&D spending of JPY591mn is down from JPY785mn in FY04/21.

Planned SG&A spending of JPY2.4bn is up from JPY2.2bn in FY04/21. The projected increase is attributable to increased personnel expenses due to expanded hiring, higher transportation expenses, and increased license fees to MIT in line with the expansion in sales.

Breakdown of product sales forecast by geographic region

Broken down by geographic region, the company’s full-year forecast for product sales in FY04/22 sees Europe generating sales of JPY1.1bn, Australia sales of JPY650mn, the US sales of JPY318mn, and other regions sales of JPY310mn. While its full-year forecast for total product sales of JPY2.4bn points to an impressive 132.2% increase over JPY970mn in FY04/21, it still leaves product sales well short of the FY04/22 target of JPY4.8bn set under the company’s previous medium-term business plan (released in June 2020). The blame here goes to the disruptions to normal business operations caused by the pandemic; extending all the way through FY04/21, the disruptions impeded the company’s efforts to bring in new customers in Europe and Australia as previously planned, while the restrictions on hospital sales calls in the US slowed its efforts there to put together a sales team and plan its marketing approach. In Japan, the disruptions in the wake of the pandemic led to more than a six-month delay in getting production started after the company had already received approval from regulators for the domestic manufacturing and sales of hemostat products, with this in turn further delaying the startup domestic sales. The company’s product sales outlook for FY04/22 takes all this into account and the assumptions underlying its sales projections have been adjusted accordingly.

Europe

The company’s full-year estimate for product sales in Europe is JPY1.1bn versus JPY456mn in FY04/21. In years past the company has grown sales in Europe by narrowly targeting demand in the area of surgical and GI endoscopic procedures. In the process it has also been able to shrink operating losses, but in FY04/22 it has its set sights on putting European operations into the black on a regular monthly basis. Towards that end, 3DM has expanded its sales partnership agreement with FUJIFILM Europe BV to include the Middle East and, with the help of this, is looking to double sales through FUJIFILM Europe over pre-pandemic levels. Having recognized the relatively limited size of potential market in Europe for hemostat products used in surgical and GI endoscopic procedures (estimated at most to be about JPY8.0bn per annum), 3DM has set its sights on the much larger market for hemorrhage prevention products, thereby increasing the size of its addressable market several times over. 

Already, the company has been working since FY04/21 to broaden its target market in Europe to include the cardiovascular surgery and otorhinolaryngologic surgery markets. In the case of the cardiovascular surgery market, it started selling in Italy, France, and Spain and worked out to the rest of Europe from there; in the case of the otorhinolaryngologic surgery market, it started in England and worked out from there. In both cases, the company first went after the key influencers and heavy users and, based on its success there, went on to build up sales elsewhere. The company estimates that its product sales in FY04/21 gave it roughly 3% of the relevant market in Europe, up from a market share of roughly 1.5% the previous year.

US

The company’s full-year estimate for product sales in the US in FY04/22 is JPY318mn; it had no sales in the US in FY04/21, restrictions on hospital sales calls in the wake of the pandemic having delayed its efforts to break into the market. The company said it had brought on board a total of four sales people for its US sales team by the end of FY04/21, allowing it to score its first client win soon after moving into FY04/22. Based on the average sales figure per salesperson in Australia (AUD1.0mn in sales of anti-adhesives for use in otorhinolaryngologic applications), the similarities between this market in Australia and the US, and the marketing skills in this area that it has built up through its operations in Australia, the company has set a FY04/22 sales target of USD0.7mn per salesperson in the US. 

Following the premarket notification 510(k) approval in June 2021 of hemostat products for use in gastrointestinal endoscopic-related applications, the company is moving forward with the creation of a sales team and distribution channels so as to be able to also begin US sales in this area in FY04/22.

Japan

Having secured regulatory approval for sales of its hemostat products for use in gastrointestinal endoscopic-related applications in FY04/21, the company expects to get these items listed for reimbursement by Japan’s national insurance scheme and commercialize them in 2H FY04/22. During FY04/22, the company is looking to focus much of the efforts of its three-person sales team on medical institutions that participate in clinical trials and related institutions. Because there will not be much time in FY04/22 when the company will actually be able to book sales, it does not expect domestic sales to be very large this year but nevertheless expects to take major steps toward establishing its own sales team and sales methods, and through this set the stage for maximizing growth starting in FY04/23. The Department of Gastrointestinal/Liver Internal Medicine, Gunma University Hospital began using it from May 2021. The company has already confirmed needs at several prominent Japanese medical institutions and plans to proceed with clinical evaluation aimed at adoption of its hemostat by each medical institution. 

According to the company, commercialization of hemostat products is more favorable in Japan than other countries because the company anticipates rapid penetration to about 30% of high-volume facilities through product introduction to the top 10 medical institutions participating in clinical trials or related medical institutions and through referrals. Only in Japan are medical devices individually covered for NHI reimbursement. This allows hospitals to procure medical devices without incurring an economic risk, which promotes active use of good medical devices. In other countries, a lump-sum reimbursement scheme based on disease (i.e., diagnosis related group or DRG) is used, so medical devices become a cost that reduces profits. There is also competition with hemostat products of major companies in Europe and the US, while 3DM effectively has the market to itself in Japan. 

The company obtained marketing approval for its submucosal injection material for use in endoscopic procedures, PuraLift, in Japan in May 2021, and plans commercialization once the device has been listed in the NHI reimbursement price list. The company also plans to promote cross-selling of hemostat products in Japan. 

Australia

The company’s full-year estimate for product sales in Australia is JPY650mn versus JPY495mn in FY04/21. In FY04/21 the company’s Australian operations moved into the black on a standalone basis even though disruptions in the wake of the pandemic caused it to fall short of its target for new customers. Moving into FY04/22, the company is looking to further improve the profitability of Australian operations while at the same time maximizing sales. More specifically, the company said it will be working especially to increase the usage rates of its products at existing customers so as to maintain the rapid sales growth rates realized in past years. Through this and other means, the company is also looking to expand its share of the Australian market for hemostat products used in otorhinolaryngologic settings from the 12% share recorded in FY04/21. Having put together a strong track record in Europe for hemostat product sales for used in gastrointestinal endoscopic procedures, the company is also looking to expand its share of this market in Australia from roughly 5% in FY04/21 to 7% in FY04/22. The company will also be working to put together data from clinical trials of its hemostat products used it much larger markets that it would like to enter, such as otorhinolaryngologic surgery and urologic surgeries (both at least twice as large as the gastrointestinal endoscopic surgery market), with the aim of finding new customers in these areas starting in FY04/23.

One-time contract payments

In Japan and the US, the company is moving forward with the selection of future sales partners to handle hemostat sales and, in Europe, is moving forward with the selection of future sales partners to handle hemostat sales for use in areas other than gastrointestinal endoscopic procedures (which it already has covered). Once these new sales partners have been selected and obtain regulatory approval to begin selling, 3DM will be able to book one-time contract payments/milestone payments in return for granting its new sales partners exclusive sales rights. With 3DM having changed its sales strategy in FY04/21 and now in the process of building up its own internal sales capabilities, it will no longer have to wait on finding a sales partner before starting sales but will always have the option of linking up with a partner if the timing and terms are right. As of June 2021, the company says the timing of new partnership agreements is hard to predict and therefore the timing of the receipt of one-time contract payments/milestone payments is similarly uncertain. Accordingly, its forecast for top-line revenues in FY04/22 only includes revenues from product sales.

Medium-term outlook

Medium-term management plan

In June 2021, 3DM announced a revised medium-term management plan. In compiling the plan, the company considered the progress of sales in individual regions and the progress of business in Europe, Asia, Oceania, South America, Japan, and the US.

For the company outlook on FY04/22, see the “Company forecast” section on previous pages. The company’s outlook for FY04/23 and FY04/24 are detailed below.

The medium-term plan calls for a return to profitability at the operating level in FY04/23 and growth in operating profit in FY04/24. As of July 2021, 3DM had already obtained marketing approval for the new products needed to meet the sales target of the medium-term plan (excluding next-generation hemostatic material slated for commercialization in Europe in FY04/23 and wound-healing material for colitis expected to be launched in the US in FY04/24) in each region. Lowering the cost ratio will be essential to move into the black at the operating level. In this regard, the new manufacturing process, which will enable the company to reduce the cost ratio, was approved in Europe in May 2021. 

One-time contract payments and milestone payments

In Japan and the US, the company is moving ahead with the selection of sales partners to handle hemostat sales and, in Europe, is in the process of selecting of sales partners to handle hemostat sales for use in areas other than gastrointestinal endoscopic surgery. Once these new sales partners have been selected and authorized to begin selling, 3DM will be able to book one-time contract payments/milestone payments in return for granting its new sales partners exclusive marketing rights. With 3DM having changed its sales strategy in FY04/21 and now in the process of building up its own internal sales capabilities, it will no longer have to wait on finding a sales partner before starting sales though will still have the option of linking up with a partner if the timing and terms are right. As of June 2021, the company says the timing of any new partnership agreements is hard to predict and therefore the timing of the receipt of one-time contract payments/milestone payments is similarly uncertain. Accordingly, the company’s forecast for top-line revenues in FY04/22 only includes revenues from product sales.

Company revenue and earnings targets for FY04/23: Underlying assumptions

Product sales target

For FY04/23, the company is targeting total product sales revenue of JPY5.6bn, with Europe generating sales of JPY2.6bn, Australia JPY1.0bn, Japan JPY539mn, the US JPY1.4bn, and other regions JPY20mn.

Europe

The company’s FY04/23 target for product sales in Europe of JPY2.6bn represents an increase of 140% over its estimate of JPY1.1bn for sales in FY04/22. With operations running in the black, plans call for building on its FY04/22 sales plan and expanding sales of hemostat products throughout Europe via its sales partners. In the area of GI endoscopic surgeries, the company is looking to double sales again in FY04/23 after having doubled them in FY04/22, this feat being accomplished mainly by steadily expanding its sales territories into new countries as it did in FY04/22. In the area of cardiovascular and otorhinolaryngologic surgeries, plans call for focusing on key influencers that is has already won over and using their influence to help build a base of core users among central hospitals in the different regions. The company estimates that its product sales in FY04/22 will give it roughly 3% of the relevant market in Europe, and that the expansion of sales in FY04/23 will push its market share up to 8%. It also expects to begin rolling out its next generation of hemostat products sometime during the course of the year.

US

The company’s FY04/23 target for product sales in the US of JPY1.4bn represents an increase of 333% over its estimate of JPY318mn for US sales in FY04/22. Having put together its US sales organization in FY04/22, patterning it after its successful operations in Australia for selling anti-adhesives for use in otorhinolaryngologic applications, in FY04/23 the company plans to simply expand its reach and build up its client base through the addition of more salespeople, expanding its US sales force from four to twelve with each salesperson expected to generate USD1.0mn in sales.

The company obtained premarket notification 510(k) approval to begin sales of hemostat products for use in gastrointestinal endoscopic surgeries in June 2021. It looks to establish its marketing plans in this area in the US during the course of FY04/23, patterning its efforts here after those used in Europe, where it has seen rapidly growing sales in this same market. In this relation, the company noted that the gastrointestinal endoscopic surgery market in the US is the fastest growing market and, in terms of the number of procedures performed, is about the same size as in Japan and Europe.

Japan

The company’s FY04/23 target for product sales in Japan is JPY539mn. The company is not projecting any product sales in Japan for FY04/22 but is saying that by the end of FY04/22 it expects its mucous membrane protuberance products to have been put on the list of medical products approved for reimbursement under the national health insurance scheme and be the subject of cross-sales efforts along with its hemostat product sales in the gastrointestinal endoscopic surgery market. In FY04/23 the company expects to expects to expand the size of its domestic sales force from three to six, and focus mainly on hospitals that handle at least 150 ESD/EMR surgeries a year. With each salesperson generating roughly JPY90mn in sales a year, the company is looking to capture a market share in this field of roughly 7%. The company believes it is being realistic in its expectations, especially compared with the rapid ramp-up in sales achieved in this same market when it started sales in Europe.

Australia

The company’s FY04/23 target for product sales in Australia of JPY1.0bn represents an increase of 55% over its estimate of JPY650mn for sales in FY04/22; in terms of profitability, the company expects its Australian operations to have an operating profit margin of roughly 30% by that time. The top-line growth projected for FY04/23 reflects the company’s expectation of continued rapid growth on the back of new customer wins in the rapidly growing gynecological surgical market, and also the urological surgical market, where its marketing efforts are expected to be bolstered by clinical trial results that are scheduled to come in during FY04/22. In terms of market share of the relevant markets, the company is looking to get its hemostat market share up to around 10% versus an estimated share of 7% in FY04/22.

Company revenue and earnings targets for FY04/24: Underlying assumptions

Product sales target

For FY04/24, the company is targeting overall product sales of JPY9.8bn (versus JPY5.6bn in FY04/23), with Europe generating sales of JPY4.0bn, Australia JPY1.5bn, the US JPY3.0bn, Japan JPY1.4bn, and other regions JPY24mn.

Europe

The company’s FY04/24 target for product sales in Europe of JPY4.0bn represents an increase of 50% over its estimate of JPY2.6bn for sales in FY04/23. Hemostat product sales to the GI endoscopic surgery market via its sales partners are seen growing by roughly 30% YoY. In the cardiovascular and otorhinolaryngologic surgery markets, plans call for steadily building out its client base from its initial base of core users at central hospitals all across Europe. In terms of market share, the company is looking to get its share of relevant markets up to at least 11% versus an estimated 8% share in FY04/23. Plans call for additional contributions to sales starting in FY04/24 from sales of wound-healing products for use in new applications (specifically, radiation thyroiditis and ulcerative colitis-related applications) and the launch of next-generation hemostat products for the neurosurgery market.

United States

The company’s FY04/24 target for product sales in the US of JPY3.0bn represents an increase of 116% over its estimate of JPY1.4bn for US sales in FY04/23. The target figures assume the company will capture roughly 12% of the market for anti-adhesives and hemostat products for otorhinolaryngologic applications. In the gastrointestinal endoscopic surgery market, as this will be only the second year for the company and its hemostat products in the US, it is looking for a market share of roughly 3%. Plans also call for additional contributions to sales starting in FY04/24 from the start of sales of wound-healing products for use in radiation thyroiditis-related applications.

Japan

The company’s FY04/24 target for product sales in Japan of JPY1.4bn represents an increase of 151% over its estimate of JPY539mn for sales in FY04/23. In FY04/24 the company expects to expand the size of its domestic sales force from six to nine, and focus on hospitals that handle at least 120 ESD/EMR surgeries a year. With this, the company is looking to boost its market share in this field up to roughly 15% versus an estimated 7% in FY04/23.

Australia

The company’s FY04/24 target for product sales in Australia of JPY1.5bn represents an increase of 49% over its estimate of JPY1.0n for sales in FY04/23; in terms of profitability, the company expects its Australian operations to have an operating profit margin of roughly 40% by that time. In terms of market share of the relevant markets, the company is looking to get its hemostat market share up to around 12% versus an estimated share of 10% in FY04/23. The top-line growth projected for FY04/24 reflects the company’s expectation of continued rapid growth in sales to the rapidly expanding gynecological and urological surgery markets. Plans also call for additional contributions to sales starting in FY04/24 from sales of wound-healing products for use in new applications (specifically, radiation thyroiditis and ulcerative colitis-related applications), which because they will carry the CR mark indicating that they have been approved for sale in Europe can also be sold in Australia.

FY04/24 earnings outlook

The outlook for the sharp improvement in 3DM’s profit is based on the success of its ongoing efforts aimed at eliminating the bottlenecks on the production side that have thwarted past efforts to bring down product costs (as a percent of sales). With changes to its equipment sterilization processes and larger production lines, the company is preparing to modify its production processes so as to bring down product costs and, having already received a go-ahead from European regulators in May 2021, is now set to implement these changes to its production lines in Europe starting in FY04/22. These changes are expected to cut manufacturing costs by more than half. The company expects the cost ratio to fall from 70.2% in FY04/21 to 46.7% in FY04/22 and to 30.0% in FY04/24 as a result of the revised manufacturing process.

In December 2021, the company concluded an agreement with Germany-based Pharmpur, which will serve as a new contract manufacturer. The company believes that growth in the volume of products produced by Pharmpur will begin having a downward impact on manufacturing costs in FY04/23, augmenting the downward impact associated with changes in sterilization methods. This impact was not factored into the medium-term management plan the company announced in June 2021.

After moving into the black at the consolidated level in FY04/23, the company’s medium-term business plan is targeting a consolidated operating profit margin of 29.5% in FY04/24—the improvement here coming on the back of rapidly rising sales and despite increases in its employee headcount and SG&A spending.

Capital funding plans

With spending on clinical studies for products in its development pipeline and other R&D spending accounting for a large proportion of its funding needs, the company plans to continue fortifying its financial position in order to meet those needs going forward.

In this relation, we note that 3DM has procured some capital funding from Heights Capital Management, a US investment fund known for investing in the biotech industry, making private placements of Series 2 and Series 3 unsecured convertible warrant bonds and also privately placing Series 25, Series 27, and Series 28 warrants with the US-based investment company.

In addition to procuring additional equity capital, at the end of FY04/21 the company also renewed a committed credit line agreement of up to JPY300mn with Resona Bank so as to have access to a more flexible source of operating capital.

Business

Business description

3DM is a medical technology company that develops, manufactures, and markets a self-assembling peptide technology originally created at the Massachusetts Institute of Technology (MIT).

The key features of the company’s business are:

MIT holds the underlying patent for the self-assembling peptides that are the basis of the 3DM’s products. The Company has an exclusive global license from MIT for this technology that includes rights of development, manufacture, and marketing of applications that use these self-assembling peptides.

Self-assembling peptides have two main advantages over the medical products currently on the market they are intended to compete with. Firstly, as they are produced by chemical synthesis, there is no risk of viral or other types of contamination that can occur in goods derived from living organisms. Secondly, they can be mass-produced in a homogenous fashion.

These characteristics lend themselves to potentially large-scale use in surgery (such as absorbable local hemostat and mucous membrane protuberance materials) and in the regenerative medicine field (as alveolar bone reconstruction materials).

3DM’s business model attempts to minimize risks specific to medical product start-ups. Specifically, the products it is developing are categorized as “medical devices” rather than “pharmaceuticals.” Consequently, the duration from application to approval is shorter and costs are lower than would be the case if the company were to develop pharmaceuticals.

Self-Assembling Peptide Technology

The human body is made up of proteins, the smallest unit of which is amino acids. Peptides are molecules composed of a number of connected amino acids. Invented by Dr. Shuguang Zhang at MIT in 1992, self-assembling peptides are composed of a (16 base) RADA sequence that is made up of three types of amino acids; Arginine (R), Alanine (A), and Aspartic acid (D).

The peptides are suspended in an acidic solution, when this solution comes into contact with a neutral pH environment, for example blood or a salt solution, the peptide molecules ‘self-assemble’ to create a gel formed of nanofibers. Once the self-assembling peptides become gelatinous, they will not revert to a liquid state even if they returned to an acidic solution. Moreover, ADME (absorption, distribution, metabolism, and excretion) tests confirmed that self-assembling peptides do not accumulate in any particular organ but instead degrade into protease and are excreted from the body after approximately 30 days.

The gel that is formed is an environment similar to that for cells cultured in vivo and has a network structure similar to that of an extracellular matrix, such as collagen. The company is exploiting these characteristics to create applications in a variety of fields, including surgery, regenerative medicine, and drug delivery systems (DDS).

While MIT holds the patents on the self-assembling peptide technology, 3DM has an exclusive agreement with MIT for the basic patents for the self-assembling peptide technology: PuraMatrix™ is its first-generation product that uses these self-assembling peptides.

Self-assembling peptides are non-biological molecules produced by chemical synthesis and have the following characteristics:

Safety: As self-assembling peptides are produced via chemical synthesis, there is no risk of viral infection (as can occur in biologically-derived molecules) or contamination from foreign elements.

Ease of use: Water soluble and assumes a gelatinous form, while also being transparent and easy to handle; has a uniform quality that allows for mass synthesis

Development potential: Physical properties suitable for the target application can be created through changes in peptide sequence and concentration.

Main business segments

The company reports only one business segment, Medical Products. However, this can be further broken down into the Medical Products Development and Research Reagent Salessub-segments.

Medical products development

In this sub-segment, the company develops medical devices and treatments for use in the fields of surgery, regenerative medicine, and DDS (drug delivery systems) based on its self-assembling peptide technology.

The main development pipeline consists of:
Surgical field: absorbable local hemostat, mucous membrane protuberance material, and anti-adhesion material
Regenerative medicine field: alveolar bone reconstruction material, wound-healing material, and radiation proctitis healing material
3DM’s strategy has been to develop these applications in-house as medical devices and then to obtain marketing approvals for them. Its sales strategy involves independent marketing or distribution through sales agents. Depending on the product or the region the company may enter into exclusive marketing agreements.

As for the DDS space, 3DM has been working to launch products that combine self-assembling peptides with a variety of pharmaceuticals, with the peptides functioning as a carrier for the pharmaceutical material. While it is also likely that self-assembling peptides themselves can be developed to function as pharmaceutical materials, independently developing this would be time consuming for the company. Instead, it intends to license the technology out to third parties for this purpose and generate licensing revenue from doing so.

The company is also using joint research and MTA agreements with universities and other research facilities to acquire new self-assembling peptides application technologies.

Medical device development process

The medical products that 3DM is focused on are categorized as “medical devices.”
The processes for developing new medical devices and pharmaceutical products are the same: First, there is basic research, followed by preclinical studies, clinical studies, and an application for manufacturing and marketing approval. However, with pharmaceuticals the clinical-study stage requires a number of phases and generally speaking, involves a large number of patients. As a result, the pharmaceutical development process tends to be long.
More specifically, for pharmaceutical development the clinical studies have three phases; in Phase I and II, researchers test the drug/treatment on a small group of healthy people to evaluate its safety and effectiveness, while in Phase III they administer it to a large group of patients who suffer from the disease or condition that it is intended to treat to confirm its safety and effectiveness.

On the other hand, medical devices require a comparatively short development process of just one clinical study phase. The R&D process for medical devices can be summarized as follows:

1. Basic research: the company searches for potential medical device applications for its technologies and optimizes product specifications.
2. Preclinical studies: animal tests conducted to see if the product meets safety and efficacy standards.
3. Clinical studies: human trials on sufferers conducted to see if the product meets safety and efficacy standards.
4. Application for a manufacturing and marketing approval: an application is submitted to the relevant regulatory body in each country, such as the Ministry of Health, Labour and Welfare’s Pharmaceuticals and Medical Devices Agency (PMDA) and the FDA in the US.
5. Manufacturing and marketing approval: the relevant regulatory body issues an approval to the company.
6. Inclusion in HIP/National Health Insurance schemes: in order to be covered by Japan’s national health insurance scheme (HIP) or the relevant health insurance in other countries the product’s reimbursement price needs to be calculated by the authorities. In Japan, the reimbursement value will set and the product included in HIP about two to three months after the manufacturing and marketing approval is approved.
7. Market launch: the product is manufactured and goes to market.
   

All of these are based on the same sequence of self-assembling peptides (RADA 16) as absorbable local hemostat TDM-621. 

In January 2014, 3DM received the CE marking in Europe for TDM-621. As of June 2021, the product was being sold in Europe, Asia, Oceania, and Latin America. In July 2020, the company obtained marketing approval in Japan. 

In May 2021, the company obtained marketing approval for its mucous membrane protuberance material TDM-644 in Japan.

In April 2019, 3DM obtained FDA approval for its 510(k) premarket notification application regarding the use of the anti-adhesion material (TDM-651; PuraSinus) in otorhinolaryngology.

Wound-healing material (TDM-511), which obtained US marketing approval from the FDA in February 2015, was further approved for aesthetic applications in May 2020.

Medical reagent sales

3DM sells self-assembling peptides product, PuraMatrix™, through its partner Corning Incorporated as a research reagent to universities and other research facilities around the world. PuraMatrix™ is used in various medical applied studies and types of therapy.
3DM is marketing the product as a research reagent in the hope that the researchers using PuraMatrix™ will develop new commercially viable applications.

Main development pipeline

Absorbable local hemostat (development code: TDM-621, trade name: PuraStat)

3DM is developing the absorbable local hemostat TDM-621 based on its RADA16 self-assembling peptide technology. TDM-621 can be applied with a syringe to comparatively narrow openings where bleeding may occur during surgery and can also be used in conjunction with an endoscope.

TDM-621 becomes pH-neutral when it comes into contact with bodily fluids, such as blood. The peptides then self-assemble into nanofibers and become gelatinous. The gel perfectly coats the surface of the contact area, forming a coating that physically seals the surface film and peripheral blood vessels. In aortal blood vessels, it produces blood coagulation and hemostasis.

No risk of infection with TDM-621; advantageous in different types of surgery

Existing biological hemostats carry infection risk

Existing hemostats are categorized as liquid types (fibrin glue) or sheet/powder types (fibrin and collagen). Fibrin glue involves creating a paste out of blood-derivative fibrinogen, and there are questions over its safety (in terms of viral infection, and others).

Absorbable local hemostat (TDM-621) has low infection risk

TDM-621 has a number of advantages over existing hemostats. First, there is no risk of infection. The majority of hemostats currently in use are synthesized from human or animal blood, such as from fibrinogens, while the raw material for collagen is produced from the skin of animals. As these products are derived from living organisms, they carry the risk of viral infection. In contrast, TDM-621 is chemically synthesized from amino acids and so carries no risk of viral infection or contamination from unknown elements.

Informed consent not required

The medical use of biologically derived products is subject to strict controls:
Informed consent. Patients (or their families) must receive an appropriate explanation about their use and risks
Records of production and use must be kept
Reports must be created verifying absence of infectious diseases in the products
As TDM-621 is chemically synthesized product, there is no infection risk. Apart from obvious healthcare and legal benefits, this could also reduce administrative burden. In cases when biologically derived hemostats are used, patients (or their representatives) must sign off a consent form before the start of the surgery. When TDM-621 is used, no consent is required. As a result, if a surgeon determines that a hemostat is required during the course of performing a procedure, TDM-621 can be used immediately.

Infections transmitted during medical procedures have emerged as a serious public health issue in the recent years and there is substantial latent demand for new medical materials that can eliminate the risk of infection, reduce surgery time and alleviate the burden on patients.

Transparent liquid that preserves field of view

From a surgeon’s perspective, absorbable local hemostat TDM-621 also has a number of appealing features. A transparent liquid, it becomes a pH-neutral gel only after coming into contact with bodily fluids such as blood. Therefore, it does not obscure a surgeon’s view and can be easily applied via a catheter or into a narrow tissue entrance. In contrast, standard hemostats are cloudy liquids and can obscure a surgeon’s view of a damaged area, especially when operating remotely with a camera. Finally, unlike surgical glue, TDM-621 does not self-solidify, so it can be applied via a catheter.

Hemostatic performance of TDM-621 is high

3DM notes that TDM-621 induces hemostasis in, and perfectly seals surface membranes and peripheral blood vessels, meaning it can induce a greater hemostatic effect than existing products (which induce hemostasis by bonding the tissue or covering it with an adhesive material.