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To Our Investors - October 30, 2014 -

The environment in which Japan Tissue Engineering Co., Ltd (J-TEC) has been situated is about to change dramatically. I will report on what J-TEC must tackle amidst this change, as well as how J-TEC will utilize this environmental transformation.

Lessons from the First Half

On October 30, J-TEC made a downward adjustment to its full-year sales estimates. In particular, we had no choice but to make significant revisions to our sales revenue plans for the autologous cultured cartilage “JACC” and autologous cultured epidermis “JACE.” I am deeply remorseful for having been over-optimistic in the draw-up of plans and assessment of their status.

We initiated sales of JACC in April 2013 under reimbursement, and the current business year is the second year of its sales. “Training for physicians and medical institutions implementing the product,” which is a condition for marketing authorization of JACC, as well as a matter of concern in terms of reimbursement, has been proceeded smoothly. As of now, over 700 JACC certified physicians and over 120 JACC certified medical institutions have been registered in Japan. Another condition that we must fulfill for marketing authorization is to conduct the post-marketing surveillance, and J-TEC is conducting this survey for all cases. Regenerative medicine, in which JACC is used, is a new option in knee joint treatment. Although we require some more time to boost the market, we will make efforts for the appropriate penetration of JACC and link this to a sales revenue increase, while cooperating with the physicians working in the medical field and The Japanese Orthopaedic Association.

In terms of autologous cultured epidermis JACE, ever since April 2012, when the upper limit of reimbursement has been deregulated from 20 to 40 sheets, the percentage of units provided free of charge remained at several percentage points. However, in the current term, the percentage surged due to the large number of occurrences of patients with severe burn injury requiring 41 or more sheets of JACE. In tandem with this, in the current term, the percentage of patients who passed away during the manufacturing of JACE also shifted around 45%, marking the highest pace in history. Although these events are beyond the control of J-TEC, I keenly realize the necessity of drawing up plans that further take risks into consideration.

We will make sure to recover the sales of JACC and JACE in the second half of the year.

Further Cooperation with Fujifilm

On October 30, our largest shareholder Fujifilm Corporation revealed their intention to exercise all subscription rights allocated to them on March 31, 2014 within this year. According to the contract at the time of allocation, they were expected to exercise these rights over the course of five years. This turn of events indicates their wish to accelerate efforts in the health care domain including the area of regenerative medicine as a Fujifilm Group strategy. Today, Fujifilm is disclosing their intention before it is exercised.

At J-TEC, we will strive to reinforce our financial base through this exercise of subscription rights by Fujifilm. At the same time, by displaying our synergy with Fujifilm Group, we will try our best to strengthen and accelerate the following domains:

  • Development of regenerative medicine products utilizing the scaffold materials that Fujifilm develops such as recombinant peptide (RCP)
  • Cooperation with Fujifilm Group in existing businesses
  • Product development leveraging the Pharmaceutical and Medical Device Act (Revised Japanese Pharmaceutical Affairs Act)
  • Business development leveraging the Act on the Safety of Regenerative Medicine
  • Overseas business development

After the exercise of the said subscription rights, the ratio of J-TEC shares held by Fujifilm Group will total 50.33% and, as a result, J-TEC will become a consolidated subsidiary of Fujifilm Holdings Corporation. We must link this to an improvement in J-TEC’s corporate value as well as to the realization of profitability, while optimally leveraging the managerial resources of Fujifilm Group. J-TEC and Fujifilm Group will discuss deeply in order to meet mutual objectives spending several months from here on forward, and the result of this will be reflected into J-TEC’s medium-term business plan.

The shared goal of J-TEC and Fujifilm Group is the “industrialization of regenerative medicine.”

 

October 30, 2014
Yosuke Ozawa
President & CEO
Japan Tissue Engineering Co., Ltd.