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Management Policy
Massage from President
Overview of Results and Management Initiatives for the Year Ended March 31, 2011
Ken Mizutani
President, CEO
Seikagaku is moving ahead with initiatives to strengthen the business fundamentals in preparation for new growth. We have expanded sales of ARTZ®, our flagship product, and made steady progress in new drug development.
First Of all, the management and employees of Seikagaku offer our heartfelt sympathies to those affected by the Great East Japan Earthquake and prayers for a rapid recovery. Although our Takahagi Plant and a subsidiary incurred damage from this earthquake and tsunami, we were fortunate to have been spared any loss of life. In addition, the earthquake caused no disruption to our shipment plan or supply structure.
In the fiscal year ended March 31, 2011, although revenue and profits declined due to reductions in NHI reimbursement prices and yen appreciation, unit sales of ARTZ® in Japan increased steadily as a result of growth in the aged population and continuation of public awareness campaign. Further, new drug development progressed favorably. We obtained Food and Drug Administration (FDA) approval for a single injection treatment for osteoarthritis pain of the knee, Gel-One®, a strategically important product for the U.S. market, and completed clinical trials in Japan for a treatment for lumbar disc herniation. We are steadily implementing measures, including the start of a new capital expenditure plan, to address key priorities in the mid-term management plan, which covers the three-year period ending March 31, 2012. The management plan is designed to build our underlying strengths and organizational structure in preparation for achieving the 10-Year Vision.
Research and development activities
Two projects in the later stages of development made steady progresses.
Progress with research and development activities is described below.
•Gel-One® (single-injection treatment for osteoarthritis pain of the knee; development code: Gel-200)
The Company received U.S. FDA approval for Gel-One® as a medical device in March 2011. The main ingredient of Gel-One® is a cross-linked hyaluronate produced using a cross-linking technology developed by Seikagaku. It provides pain relief from a single injection. A 2011 launch is planned.
•SI-602 (additional indication for SUPARTZ® for shoulder osteoarthritis.)
Although the Company submitted a premarket approval application (PMA) for this additional indication for SUPARTZ® in September 2009, we withdrew the application in March 2011 as the FDA requested additional clinical trials.
•SI-6603 (treatment for lumbar disc herniation)
SI-6603 is expected to reduce the herniated nucleus pulposus, with a single injection bringing the same relief of pain and numbness as surgery. It will offer significant clinical value, not only a reduced physical burden for patients, but also lower medical costs. Post-administration observations for all patients in a Phase II/III clinical trial in Japan were completed in August 2010.
A Phase II clinical trial is in progress in the U.S.
•SI-615 (rheumatoid arthritis treatment: in-licensed)
A Phase I clinical trial of a single-drug oral dose has been completed in Japan. Since originator Can-Fite BioPharma Ltd. is currently conducting a single-drug late Phase II trial, the Company plans to consider the future development policy while observing the progress of this trial.
•SI-636 (inflammatory disease treatment: in-licensed)
Originator BioTie Therapies Corporation reported in January 2010 that safety and tolerability had been confirmed in a Phase I repeated-dose study for rheumatoid arthritis conducted in Europe. SI-636 is in the pre-clinical stage in Japan, and the Company plans to consider the future development policy, taking into consideration the progress in clinical development in Europe.
In addition, the Company is developing two in-house themes at a pre-clinical stage, one for ophthalmic disease and another forarthritis, both with the aim of commencing clinical trials at an early date.
Summary of Results for the Year Ended March 2011
Net sales ¥27,117 million (-1.8%, year on year)
Net sales for fiscal 2010 fell 1.8% year on year to ¥27,117 million. While pharmaceuticals in Japan rose due to a sales volume increase of ARTZ®, net sales declined because of lower sales volumes to the U.S. and the impact of yen appreciation. Another factor for this decline was a change in an accounting policy, decided in fiscal 2010, by which the recording of milestone royalty income is classified as non-operating income rather than as net sales.
Operating Income ¥3,533 million (-30.9%, year on year)
Although an increase in pharmaceutical sales volume in Japan compensated for the impact of the drug price reduction, operating income fell 30.9% year on year to ¥3,533 million. Factors influencing this result included the impact of yen appreciation, a sharp increase in R&D expenses accompanying posting in full of SI-6603 clinical trials expenses accompanying with their completion in Japan and a decline in profit commensurate with the sales decrease due to the above-mentioned change in the accounting policy.
Ordinary income ¥4,159 million (-18.7%, year on year)
Ordinary income fell 18.7% to ¥4,159 million, due to the above-mentioned recording of milestone royalty income under non-operating income.
Net income ¥2,451 million (-31.4% year on year)
Net income fell 31.4% to ¥2,451 million as a result of the recording of extraordinary losses of ¥984 million. Major items in these losses were the cost of restoring damage to facilities at the Takahagi Plant (Takahagi City, Ibaraki Prefecture) by the Great East Japan Earthquake and impairment loss on valuation of land owned by the Company and rented to Sanriku Kakou Corporation (a subsidiary in Kesennuma City, Miyagi Prefecture), which was severely damaged by the resulting tsunami.
Net Sales by Business Segment
<<Pharmaceuticals>>
Domestic net sales ¥17,976 million (+3.8%, year on year)
The market in Japan for ARTZ®, an injectable treatment for osteoarthritis pain of the knee, continued to expand. The market growth is partly attributable to an increase in the aged population and to public awareness campaign targeting people having knee pain conducted together with sales partner Kaken Pharmaceutical Co., Ltd. Focused sales expansion activities that capitalized on the brand strength of the original drug and the introduction of a plastic syringe that meets physician and patient needs contributed to a market share increase for ARTZ®, and sales rose as higher deliveries to medical institutions more than offset the impact on sales of the NHI drug price reduction.
Sales of the ophthalmic surgery aid OPEGAN® fell year on year. Although continued sales promotion activities focused on target patients, conducted in collaboration with sales partner Santen Pharmaceutical Co., Ltd., led to an increase in deliveries to medical institutions, the higher unit sales did not fully offset the impact of the NHI reimbursement price reduction.
Sales of MucoUp®, a surgical aid for use in endoscopic mucosal resection, were also higher in response to market-building initiatives, such as workshops for surgeons on endoscopic surgical techniques held in cooperation with our sales partner, Johnson & Johnson K.K.
Overseas net sales ¥3,207 million (-21.4%, year on year)
The Company's export sales to the U.S. of SUPARTZ®, the product name of ARTZ®, in the U.S., decreased year on year. Although price maintenance efforts stemmed a decline in local selling prices, unit sales in the U.S. fell, due to factors including tightening of insurance reimbursements by some private insurance companies. A build-up of distributor inventories at the end of fiscal 2009 and the impact of yen appreciation also adversely affected sales. Meanwhile, export sales to China continued to rise. ARTZ® enjoys an excellent reputation in China for high quality and proven performance around the world, particularly among medical institutions in major cities.
As a result, sales of pharmaceuticals fell 1.8% year on year to ¥27,117 million.
<<Fine Chemicals>>
Sales of hyaluronic acid increased, and endotoxin assay reagents used in quality control showed solid performance in overseas markets. However, due to yen appreciation and lower sales of reagents in Japan, sales of fine chemicals fell 4.5% year on year to ¥5,933 million.
Improving Shareholder Value
We are working to improve shareholder value through the evolution of Seikagaku as a "Global Category Pharma." Our management policies will also continue to emphasize the maintenance of confidence in Seikagaku.
Seikagaku strives to increase shareholder value through sustained growth and considers the return of profit to our shareholders an important management priority. In the coming years, we will continue to pursue development as a "Global Category Pharma" in order to earn and retain the trust of our shareholders and all our stakeholders.
We look forward to the continuing support and understanding of our shareholders.
June 2011
Ken Mizutani
President, CEO
