【 Mid-term Management Plan 】

Summary of the mid-term management plan (fiscal 2016 to fiscal 2018)

The Company instituted a mid-term management plan covering the three-year period beginning April 2016 as the final step of The Seikagaku Corporation Ten-Year Vision and has pursued four high-priority strategies.

 

The first high-priority strategy was development of SI-6603 (product name in Japan: HERNICORE), a treatment for lumbar disc herniation. Although it took time to obtain approval, the Company succeeded in the launch of HERNICORE in Japan in August 2018. Since strict requirements for the use of HERNICORE have been set, the Company is paying due attention to promoting appropriate use and ensuring safety and is striving for a phased rollout. In development in the U.S., the Company announced in November 2017 that a Phase III clinical study did not meet its primary endpoint and initiated an additional Phase III clinical study in February 2018. The Company is currently focusing on various measures to increase the probability of success in the additional study.

 

The second strategy was development of the knee osteoarthritis market. Although U.S. local sales volumes of Gel-One, an intra-articular single-injection viscosupplement increased, the market environment has become increasingly difficult, and the growth rate fell short of the target. The Company worked to expand into new markets with the objective of maximizing the value of single-injection products and in March 2019 introduced HyLink, an intra-articular viscosupplement for the treatment of knee osteoarthritis, in Italy. By actively making product modifications to meet user needs, the Company maintained the deliveries to medical institutions of ARTZ, a joint function improving agent sold in Japan. However, the Company’s sales declined sharply, reflecting the impact of a substantial price decrease accompanying drastic reform of the NHI drug price system.
Development in Japan of SI-613, a treatment for osteoarthritis and enthesopathy being developed as a next-generation product, has reached the Phase III clinical study stage, and the Company is conducting three trials. Since positive results were obtained in February 2019 in the main study, a confirmatory study on the knee joint, the Company aims to file an application for manufacturing and marketing approval in the first half of 2020 following consideration of the results from the other two studies. The Company concluded an agreement with Ono Pharmaceutical Co., Ltd. on co-development and marketing collaboration in Japan on SI-613 in September 2017 and plans to receive milestone royalties in accordance with future progress in development and marketing.

 

The third strategy was enhancement of the development pipeline. In May 2018, the Company initiated a clinical study in Japan for SI-449, an adhesion barrier, adding a new theme to the development pipeline. The Company is developing SI-449 with a view to introducing it globally, not only in Japan. Other themes are progressing toward advancement to the clinical development stage.

 

The fourth strategy was pursuit of an optimal production and quality control system. To strengthen control systems compliant with global standards, including for existing products, the Company upgraded manufacturing facilities and introduced a new quality control system. Furthermore, the Company engaged the services of expert consultants at the Takahagi Plant and Kurihama Plant and implemented operational improvements to boost production efficiency and product cost reduction measures involving cutting of various costs, achieving a certain level of results.

 

The Company has achieved results in regard to “achieving the ten-year vision and making a further leap forward,” the key concept set out in the previous mid-term management plan. Successes include the launch of HERNICORE in Japan, progress with new drug development, including SI-613, and growth of the LAL business. On the other hand, responding to environmental changes, such as drastic reform of the drug price system in Japan, a factor contributing to deterioration of profitability in the pharmaceuticals business, and intensification of competition in overseas markets, is a matter of urgent importance.

Outline of the next mid-term management plan

The business environment facing the pharmaceutical industry is likely to become even more difficult, and securing an earnings foundation will be an urgent task. For this reason, in the pharmaceuticals business, Seikagaku’s core business, the Company will devote every effort to rapidly and reliably ensure the success of SI-6603 (HERNICORE) and SI-613 as pillars of the business. In the LAL business, the Company will accelerate expansion into the worldwide market of endotoxin-detecting reagents utilizing gene recombination technology. The Company will also make strategic moves to diversify its earnings model, unconstrained by Seikagaku’s traditional business model, and will implement rigorous cost reduction with no preconceptions and pursue an agile management strategy that utilizes the financial foundation.
In the area of R&D, the source of growth, the Company will continue to position glycoscience, Seikagaku’s area of specialization, at the core of drug discovery and work to enhance the pipeline. Furthermore, the Company will upgrade and expand its basic technologies that utilize glycoscience, including drug delivery systems (DDS) technologies, and increase R&D efficiency by pursuing an open innovation strategy.
The Company plans to announce the next mid-term management plan and numerical targets in November 2019. In view of the possibility that the management plan and numerical targets may change substantially depending on a future review of HERNICORE use requirements (physician requirements and facility requirements) and the SI-613 development trend, we have judged that it is appropriate to make a public announcement once the degree of certainty has increased.