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To Our Investors - October 30, 2012 -

Only two months remain until the end of the year. I would like to report on the recent situation at Japan Tissue Engineering (J-TEC).

The Nobel Prize and J-TEC

Since Professor Shinya Yamanaka, director of Kyoto University’s Center for iPS Cell Research and Application, won the Nobel Prize in Physiology or Medicine, the environment surrounding J-TEC has also been beneficially affected.

  1. In explanatory meetings about our company, I have sensed that investors’ interest and understanding about regenerative medicine have increased. The expectations of the Japanese people regarding a new medicine grounded in practicality rather than abstruse ideas are also on the rise.
  2. The Japanese government, through its 5-Year Strategy for Medical Innovation (implemented this June) and its Strategy to Revitalize Japan (implemented this July), has begun to place importance on regenerative medicine as an industry. Professor Yamanaka’s winning of the Nobel Prize will now serve as a tailwind to these recently announced policies, whereby government ministries and agencies will support regenerative medicine, over the long term, as a top-priority field.
  3. Attention to regenerative medicine from overseas has also increased. In recent meetings with foreigners, I have been congratulated for obtaining approval of our company’s autologous cultured cartilage, JACC, and also for Professor Yamanaka’s winning of the Nobel Prize.

I often remember the impressive remarks that Professor Yamanaka made when I visited his laboratory. “There are things that we still don’t understand about the mechanism of iPS cells. First I would like to clearly ascertain whether they can be applied to people.” Then I asked him what he wanted. “I want to find talented people who will continue to engage in research with me.” The success of a corporation depends on its people. Science also depends on the people involved. I think the same can be said about many fields.

Revision of Sales Budget

As of today, we revised our sales budget for the fiscal year ending March 31, 2013. There are two reasons for the revision.

  1. Sales for our autologous cultured epidermis, JACE, in the first half of the year fell short of the forecast for this period, so we revised the forecast for the entire year from 530 million yen to 473 million yen. In particular, orders arising from injuries to elderly patients were numerous, and there were many cases where we had to discontinue production prior to shipment due to the demise of the patient. Moreover, the volume of orders varied greatly from month to month. On the other hand, the limits on insurance coverage were raised during this period. Sales thus rose to about 114% of what they were in the same period last year.
  2. For our autologous cultured cartilage, JACC, we planned to record sales of 110 million yen for the fourth quarter; however, we concluded that this product would not gain insurance coverage during the current fiscal year, so we cut its sales amount from the budget. It is our understanding that, as one of the conditions for our manufacturing and sales approval, discussions about the “facilities standards” of the medical institutions that provide treatment using JACC are currently being conducted between the Ministry of Health, Labor and Welfare and the relevant scientific organizations. As we assume that facilities standards are linked to insurance coverage, we closely watch the trends of both. At the same time, we are endeavoring to establish an in-house system for producing and selling JACC.

I apologize to all of our shareholders for this budget revision. We are working to minimize the loss for the current fiscal year while preparing for the start of cartilage sales next year.

October 30, 2012
Yosuke Ozawa
President & CEO
Japan Tissue Engineering Co., Ltd.