新日本科学（2395） – Consolidated Financial Results for the Fiscal Year Ended March 31, 2022 (Under Japanese GAAP)

Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. May 6, 2022 Consolidated Financial Results for the Fiscal Year Ended March 31, 2022 (Under Japanese GAAP) Company name: Listing: Securities code: URL: Representative: Inquiries: Shin Nippon Biomedical Laboratories, Ltd. Prime Market, Tokyo Stock Exchange 2395 https://www.snbl.co.jp/ Ryoichi Nagata, MD, PhD, Representative Chairman, President & CEO Toshiyuki Iwata, Senior Officer, Senior Director of Corporate Communications Department +81-3-5565-6216 Telephone: Scheduled date of annual general meeting of shareholders: Scheduled date to commence dividend payments: Scheduled date to file annual securities report: Preparation of supplementary material on financial results: Holding of financial results briefing: June 28, 2022 June 29, 2022 June 29, 2022 Yes Yes (Yen amounts are rounded down to millions, unless otherwise noted.) 1. Consolidated financial results for the fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) (1) Consolidated operating results (Percentages indicate year-on-year changes.) Revenue Operating profit Ordinary profit Profit attributable to owners of parent Fiscal year ended March 31, 2022 March 31, 2021 Millions of yen % Millions of yen % Millions of yen % Millions of yen % 17,748 15,110 17.5 3.8 4,195 2,529 65.9 13.5 7,078 3,645 94.2 16.8 7,127 3,661 94.6 43.6 Note: Comprehensive income For the fiscal year ended March 31, 2022: ¥4,650 million For the fiscal year ended March 31, 2021: ¥(328) million [–%] [–%] Basic earnings per share Diluted earnings per share Return on equity Ratio of Ordinary profit to total assets Ratio of Operating profit to net sales Fiscal year ended March 31, 2022 March 31, 2021 Yen 171.20 87.95 Yen – – % 40.4 22.9 % 18.6 9.6 % 23.6 16.7 Reference: Share of profit (loss) of entities accounted for using equity method For the fiscal year ended March 31, 2022: For the fiscal year ended March 31, 2021: ¥1,439 million ¥846 million (2) Consolidated financial position Total assets Net assets Equity ratio Net assets per share As of March 31, 2022 March 31, 2021 Millions of yen Millions of yen 39,312 36,972 19,723 15,838 % 49.8 42.6 Yen 469.85 377.94 Reference: Equity As of March 31, 2022: As of March 31, 2021: ¥19,561 million ¥15,734 million (3) Consolidated cash flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at end of period Fiscal year ended March 31, 2022 March 31, 2021 Millions of yen Millions of yen Millions of yen Millions of yen 5,952 4,746 (4,268) (268) (4,911) (2,471) 4,548 7,279 2. Cash dividends Fiscal year ended March 31, 2021 Fiscal year ended March 31, 2022 Fiscal year ending March 31, 2023 (Forecast) – – – Annual dividends First quarter-end Second quarter-end Third quarter-end Fiscal year-end Total Total cash dividends (Total) Payout ratio (Consolidated) Ratio of dividends to net assets (Consolidated) Yen Yen Yen Yen Yen Millions of yen % % 0.00 0.00 20.00 20.00 832 40.00 40.00 1,665 20.00 20.00 40.00 – – – 22.7 23.4 38.7 5.2 9.4 Note: Breakdown of year-end dividend for the fiscal year ended March 31, 2021: Ordinary dividend ¥10.00, special dividend ¥10.00 Breakdown of year-end dividend for the fiscal year ended March 31, 2022: Ordinary dividend ¥30.00, special dividend ¥10.00 3. Consolidated earnings forecasts for the year ending March 31, 2023 (from April 1, 2022 to March 31, 2023) Six months ending September 30, 2022 Fiscal year ending March 31, 2023 Revenue Operating profit Ordinary profit (Percentages indicate year-on-year changes.) Profit attributable to owners of parent Profit per share Millions of yen % Millions of yen % Millions of yen % Millions of yen % 9,500 19.3 2,450 24.4 2,950 16.6 2,050 (41.5) Yen 49.24 19,600 10.4 5,000 19.2 6,000 (15.2) 4,300 (39.7) 103.28 * Notes (1) Changes in significant subsidiaries during the period (changes in specified subsidiaries resulting in the change in scope of consolidation): None (2) Changes in accounting policies, changes in accounting estimates, and restatement (i) Changes in accounting policies due to revisions to accounting standards and other regulations: Yes (ii) Changes in accounting policies due to other reasons: None (iii) Changes in accounting estimates: None (iv) Restatement: None Note: For details, please see page 16 of the attachment, “(5) Notes to consolidated financial statements (Changes in accounting policies)” of “3. Consolidated Financial Statements and Significant Notes thereto.” (3) Number of issued shares (common shares) (i) Total number of issued shares at the end of the period (including treasury shares) (ii) Number of treasury shares at the end of the period As of March 31, 2022 As of March 31, 2021 As of March 31, 2022 As of March 31, 2021 (iii) Average number of shares outstanding during the period Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 41,632,400 shares 41,632,400 shares 390 shares 358 shares 41,632,038 shares 41,632,042 shares * Financial results reports are exempt from audit conducted by certified public accountants or an audit corporation. * Proper use of earnings forecasts, and other special matters The forward-looking statements, including earnings forecasts, contained in these materials are based on information currently available to the Company and on certain assumptions deemed to be reasonable. Consequently, any statements herein do not constitute assurances regarding actual results by the Company. Actual financial results may differ significantly from the forecasts for various reasons. For more information regarding our suppositions that form the assumptions for the earnings forecasts, please see page 5 of the attachment, “(4) Future outlook” of “1. Overview of Operating Results and Others.” Attached Material Index 1. Overview of Operating Results and Others ……………………………………………………………………………….. 2 (1) Overview of operating results for the fiscal year ended March 31, 2022 ………………………………… 2 (2) Overview of financial position for the fiscal year ended March 31, 2022 ……………………………….. 4 (3) Overview of cash flows for the fiscal year ended March 31, 2022 …………………………………………. 5 (4) Future outlook ………………………………………………………………………………………………………………… 5 2. Basic Policy on Selection of Accounting Standards ……………………………………………………………………. 7 3. Consolidated Financial Statements and Significant Notes Thereto ……………………………………………….. 8 (1) Consolidated balance sheet ………………………………………………………………………………………………. 8 (2) Consolidated statement of income and consolidated statement of comprehensive income ………. 10 Consolidated statement of income …………………………………………………………………………………… 10 Consolidated statement of comprehensive income …………………………………………………………….. 11 (3) Consolidated statement of changes in equity …………………………………………………………………….. 12 (4) Consolidated statement of cash flows ………………………………………………………………………………. 14 (5) Notes to consolidated financial statements ……………………………………………………………………….. 16 (Notes on going concern assumption) ………………………………………………………………………………. 16 (Changes in accounting policies) …………………………………………………………………………………….. 16 (Segment information) …………………………………………………………………………………………………… 17 (Per share information) ………………………………………………………………………………………………….. 19 (Subsequent Events) ………………………………………………………………………………………………………. 19 – 1 – 1. Overview of Operating Results and Others (1) Overview of operating results for the fiscal year ended March 31, 2022 In the pharmaceutical industry, companies have been increasingly turning to contract research organizations (CROs) that specialize in outsourcing, with the aim of accelerating research and development in Japan and abroad while improving cost efficiency and simplifying their correspondence with regulatory authorities, and this trend has only further accelerated during the novel coronavirus disease (COVID-19) pandemic. Moreover, research and development involving new modalities in drug discovery is in full swing, particularly with respect to therapeutic antibodies, nucleic acid medicine, peptide drugs, gene therapy, and regenerative medicine, in addition to research and development of COVID-19 vaccines and therapeutic agents. With the CRO business at the core of its operations, the Company has been addressing such trends by placing its focus on meeting customer needs which involves taking swift action, improving services, and persistently enhancing quality, aiming to become far and away the first name that comes to mind for clients when they consider CRO. Under such circumstances, revenue for the fiscal year ended March 31, 2022 increased by ¥2,637 million (up 17.5%) year on year to ¥17,748 million. Operating profit increased by ¥1,666 million to ¥4,195 million (up 65.9%) year on year, and ordinary profit increased by ¥3,432 million to ¥7,078 million (up 94.2%) year on year, in part due to recording foreign exchange gains of ¥1,370 million (foreign exchange gains of ¥239 million in the previous fiscal year). Profit attributable to owners of parent increased by ¥3,465 million (up 94.6%) year on year to ¥7,127 million due mainly to the recording of extraordinary income of ¥1,360 million in the first quarter. As the result, profits at each level have renewed record highs. As of March 31, 2022, the Company had 994 employees (an increase of 8 employees from the end of March 2021), and the ratio of female employees was 51.2%. Operating results by segment of the SNBL Group and initiatives for SDGs/ESG are as follows. (i) CRO business The CRO business comprises the preclinical CRO business, which undertakes preclinical studies mainly using cells and laboratory animals, and the clinical business, which undertakes clinical studies. The preclinical CRO business achieved continuous favorable results for the fiscal year ended March 31, 2022. The following initiatives implemented by the Company have shown positive results. The importance of the Company-established framework for breeding and supplying large laboratory animals within the SNBL Group, the only such framework being built by a CRO in the world, has increased due to research and development involving new modalities in drug discovery coming into full swing. This has led to an increase in orders received from overseas. The Company has introduced the cutting-edge devices required to evaluate the efficacy and safety of new modalities in drug discovery, and built an evaluation system from an earlier stage. Synergies were demonstrated between this system and the above Company-established framework for breeding and supplying large laboratory animals within the SNBL Group. This led to orders received related to new modalities in drug discovery. The Company has achieved steady progress in concluding contracts to undertake comprehensive research at the drug discovery stage with major pharmaceutical companies, and has already received orders from multiple companies for such studies. As a result of the above efforts, orders received increased substantially by ¥7,118 million (up 46.6%) year on year to ¥22,389 million, which is a record high for orders received. The order backlog as of March 31, 2022, was ¥19,494 million, which is also a record high. In addition, orders received from overseas also increased substantially by ¥3,008 million (up roughly two-fold) year on year to ¥6,138 million. The main driver was an increase in orders from Europe and North American customers, and the ratio of overseas orders received out of total orders received was 27.4% (20.5% in the previous fiscal year). Meanwhile, the clinical business has been engaging in operations at PPD-SNBL K.K. (“PPD-SNBL”), a joint venture with PPD International Holdings, LLC (“PPD”), an international clinical CRO based in the United States. PPD-SNBL also made solid progress in business operations mostly pertaining to their mainstay business of implementing global studies (studies conducted simultaneously in multiple countries and regions) in Japan for orders received by PPD. Furthermore, as PPD-SNBL is an equity method affiliate of the Company (present equity stake is 40%), its contribution to the consolidated statement of income is recorded as “share of profit of entities accounted for using equity method” under non-operating income. The share of profit of entities accounted for using equity method from PPD-SNBL’s contribution amounted to ¥1,258 million (¥846 million in the previous fiscal – 2 – year; up 48.7%). PPD, through a share acquisition by Thermo Fisher Scientific Inc. (“TF”) in December 2021, became a wholly owned subsidiary of TF. The CRO business posted revenue of ¥17,047 million, which was an increase of ¥2,539 million (up 17.5%) relative to the fiscal year ended March 31, 2021. Operating profit of the CRO business significantly increased by ¥1,642 million (up 48.4%) year on year to ¥5,035 million. Given the successful results achieved by high occupancy of the laboratory facilities due to strong orders and a substantial order backlog in the preclinical CRO business, as well as cost-saving initiatives involving innovation in internal operating processes (the promotion of robotization and automation in work processes, and the “Zero Mission” in-house activities aiming to eliminate the use of paper), the operating profit margin of the CRO business was 29.5%, 6.2% higher than the previous fiscal year. (ii) Translational Research business (TR business) Translational Research business (“TR business”) is a research and development business that discovers promising seeds and new technologies generated through in-house research and development as well as fundamental research performed at Japanese and overseas universities, bio-ventures, and research institutes, and develops them for commercialization, stock listing, or M&A, by increasing their added value. Since 1997, the TR business as in-house research and development has been conducting in-house drug discovery through application of developing intranasal drug delivery technologies and a drug delivery device (medical device), while developing a proprietary delivery technology (Nose to Brain) to enhance drug delivery to the brain through the nose. The basic technology of this intranasal drug delivery system is a platform technology that combines a powdered formulation technology using a proprietary carrier and a delivery device, and characterized by rapid onset of action based on absorbability through the nasal mucosa. It has the advantage of being easier to administer than injection and allowing the formulation to be stored at room temperature. SNLD, Ltd. (“SNLD”), a subsidiary established for the clinical development of nasal delivery of neurodegenerative disease rescue medication, has initiated a domestic Phase I clinical trial of a nasal neurodegenerative disease rescue medication (development code: TR-012001). It is also pursuing to create new intranasal portfolios, including nasal vaccines. Subsidiary Gemseki Inc. operates a licensing brokerage business for drug discovery seeds and technologies on a global basis, and has formed a fund with Gemseki as an unlimited liability partner to conduct investment business. Amid these circumstances, for the fiscal year ended March 31, 2022, the TR business posted a revenue of ¥12 million, mostly level with the fiscal year ended March 31, 2021, while it posted operating loss of ¥746 million, relative to operating loss of ¥708 million for the fiscal year ended March 31, 2021. (iii) Medipolis Business (Social Benefits Generation Business) The Company owns a large tract of land of 340 hectares (840 acres) in the highlands of Ibusuki City, Kagoshima Prefecture called Medipolis Ibusuki. Making use of this natural asset (approximately 90% forest), the Company engages in environmentally-friendly social benefit generation businesses. In particular, the Company engages in a power generation business using renewable energy sources and a hospitality business, operating hotel accommodation facilities underpinned by the concept of well-being. In power generation business, geothermal power generation has continued to generate power steadily since its startup in February 2015 and the amount of power produced during the fiscal year ended March 31, 2022, marked a record high. In addition, as a new power generation project, the construction of a hot spring power generation plant that will utilize residual steam from the hot spring sources supplied to the hotel’s bathing facilities and floor heating has been completed, and preparations are underway to start operation during the fiscal year ending March 31, 2023. In hospitality business, accommodation facilities (total number of rooms: 74) are divided into three hotels by accommodation building and by function to meet the needs of guests, and they are operated as the Amafuru Oka as a healing resort hotel, the Ibusuki Bay Hills Hotel & Spa as a facility for general lodging and medium- to long-term stays, and the HOTEL Freesia as an accommodation facility for patients of the Medipolis Proton Therapy and Treatment Center, respectively. Although the Amafuru Oka has been affected by the sharp decline in the number of tourists who prefer luxury resorts due to COVID-19, the impact on business management is minimal because the number of rooms is small (15) and efficiency is being improved by transferring staff to other departments. Ibusuki Bay Hills Hotel & Spa has 33 rooms and is popular among mid- to long-term guests who wish to avoid COVID-19, and the number of repeat guests is steadily increasing. HOTEL Freesia, a patient-dedicated accommodation facility, has 26 rooms with a high occupancy rate of over 75%. – 3 – Medipolis business posted revenue of ¥563 million for the fiscal year ended March 31, 2022, which was an increase of ¥11 million (up 2.0%) relative to the fiscal year ended March 31, 2021, and posted operating loss of ¥17 million, relative to operating loss of ¥54 million for the fiscal year ended March 31, 2021 despite the high operation of the 1,500kW binary geothermal power plant. (iv) Initiatives for SDGs/ESG In September 2015, the UN General Assembly adopted the “Sustainable Development Goals (SDGs)” as globally shared targets to be met by 2030 that were established so that the people of the world can live in happiness. The SDGs are actually the same as the Company’s all-time corporate philosophy of “We are a company that values the environment, life, and people” and the Company’s slogan “I’m happy, you are happy, and everyone is happy,” and the Company accordingly has an awareness of being an industry leader in initiatives for SDGs/ESG. The SDGs Committee, which the Company established as an advisory body to the Board of Directors in August 2021, conducts lively discussion on a monthly basis. The Company discloses a sustainability report that is produced based on these achievements regarding initiatives for SDGs/ESG, each of the Company’s policies, and information based on TCFD Recommendations on a dedicated page of the Company’s website (https://www.snbl.co.jp/esg/). We are working diligently to prepare an Integrated Report to further enhance our disclosure by reporting financial and non-financial information to our stakeholders in an integrated manner. In March 2022, the Company was selected as a “Nadeshiko Brand 2022” jointly sponsored by the Ministry of Economy, Trade and Industry and the Tokyo Stock Exchange as a company that excels in promoting the advancement of women. In addition, the Company was selected as a Health & Productivity Management Outstanding Organization (large enterprise category (White 500)) jointly certified by the Ministry of Economy, Trade and Industry and the Nippon Kenko Kaigi for the sixth consecutive year. As a part of efforts to conserve biodiversity, the Company has been conducting research into the breeding of Japanese eels in their juvenile stage (glass eels), which are listed as endangered in IUCN Red List, in artificial habitats. We have been gradually moving our research base to Okinoerabu since 2019, where superior quality seawater is available, and plan to completely relocate our research base to the Okinoerabu island during the fiscal year ending March 31, 2023. The number of leptocephalus (larvae) which can be obtained from artificially fertilized eel eggs per fertilization at our laboratory ranges from approximately 50,000 to 100,000. In the fiscal year under review, we collected eggs from a total of 10 parent eels and were able to obtain more than 500,000 larvae. After the larvae hatch, we selected several thousand larvae that can be housed in our laboratory for cultivation, and the average survival rate is over 20% in the first month of life, and the survival rate has remained at around 8-10% for the following three months. It takes six to eight months for the larvae to grow into glass eels, and since improving the survival rate is the key to success, we are currently conducting research on improving the cultivation environment. (2) Overview of financial position for the fiscal year ended March 31, 2022 Changes in financial position for the fiscal year ended March 31, 2022 from the end of the previous fiscal year were as follows: Total assets as of March 31, 2022 increased by ¥2,340 million compared to the balance as of the end of the previous fiscal year, to ¥39,312 million (up 6.3%). Current assets increased by ¥1,354 million compared to the balance as of the end of the previous fiscal year, to ¥16,134 million (up 9.2%) due mainly to increase in notes and accounts receivable – trade, and contract assets. Non-current assets increased by ¥985 million compared to the balance as of the end of the previous fiscal year, to ¥23,178 million (up 4.4%) due mainly to an increase in other in investments and other assets. Liabilities decreased by ¥1,544 million compared to the balance as of the end of the previous fiscal year, to ¥19,589 million (down 7.3%). Current liabilities increased by ¥1,458 million compared to the balance as of the end of the previous fiscal year, to ¥13,373 million (up 12.2%) due mainly to an increase in advances received. Non-current liabilities decreased by ¥3,002 million compared to the balance as of the end of the previous fiscal year, to ¥6,215 million (down 32.6%) due mainly to a decrease in long-term borrowings. Net assets increased by ¥3,884 million compared to the balance as of the end of the previous fiscal year, to ¥19,723 million (up 24.5%), after the posting of ¥7,127 million in profit attributable to owners of parent and a decrease in market value in investment securities and others. – 4 – (3) Overview of cash flows for the fiscal year ended March 31, 2022 The outstanding balance of cash and cash equivalents (“cash”) as of March 31, 2022 was ¥4,548 million, down ¥2,731 million (37.5%) compared to the balance as of the end of the previous fiscal year. Status of each cash flow during the fiscal year ended March 31, 2022 and main contributing factors thereof are as follows. (Cash flows from operating activities) Net cash provided by operating activities was ¥5,952 million, up ¥1,206 million (25.4%) relative to the fiscal year ended March 31, 2021. The main contributing factors included net profit before income taxes of ¥8,183 million, depreciation of ¥1,177 million, foreign exchange gains of ¥1,348 million, gain on sale of shares of subsidiaries and associates of ¥1,096 million, share of profit of entities accounted for using equity method of ¥1,439 million, an increase in advances received of ¥1,611 million and income taxes paid of ¥1,014 million. (Cash flows from investing activities) Net cash used in investing activities was ¥4,268 million, up ¥3,999 million (1488.8%) relative to the fiscal year ended March 31, 2021. The main contributing factors included payments into time deposits of ¥3,672 million, purchase of property, plant and equipment of ¥1,543 million, proceeds from sales of shares of subsidiaries resulting in change in scope of consolidation of ¥1,084 million and purchase of investment securities of ¥521 million. (Cash flows from financing activities) Net cash used in financing activities was ¥4,911 million, up ¥2,440 million (98.8%) relative to the fiscal year ended March 31, 2021. The main contributing factors included repayments of long-term borrowings of ¥3,492 million and dividends paid of ¥826 million. (4) Future outlook In our mainstay CRO business, we are working to build a system that can reliably respond to the demands of our customers in Japan and overseas from a medium- to long-term perspective. Currently, we are actively promoting the following investments and research and development in research support for new modalities in drug discovery, including therapeutic antibodies, nucleic acid medicine, peptide drugs, gene therapy, and regenerative medicine, and have been able to receive orders for new modalities in drug discovery based on our techniques and an evaluation system that are difficult for competing laboratory facilities to achieve. Establishment of techniques for delivering drugs into special regions such as eyes or brain Introduction of state-of-the-art equipment useful for evaluation of new modalities in drug discovery Building new evaluation systems useful for assessing the efficacy and safety of each modality in drug discovery Our research and development support for vaccines and therapeutic agents against COVID-19 has been highly evaluated by our customers due to reduced lead times and others, which other companies cannot emulate, through our internal business process innovation, and we have been consigned to conduct a large number of research projects. In addition, inquiries from overseas customers continue to be active, and we have succeeded in receiving ongoing orders from global pharmaceutical companies due to our competitive advantage in the following three areas. Know-how and trust cultivated through 20 years of preclinical CRO business operations in the US Leveraging human resources with experience working in the US Establishment of an evaluation system for new modalities in drug discovery In particular, we have achieved a stable supply of laboratory animals through supply chain management and the Company-established framework for breeding and supplying large laboratory animals within the SNBL Group, which is the only system of its kind in the world, and this has been highly evaluated by our customers, which has led to orders for large-scale studies. We will continue to strengthen our supply chain management and reinforce the breeding system at our Group facilities in Southeast Asia, as well as establish a sufficient breeding system in Japan. In addition, we are expanding our facilities and increasing our research staff in order to build a system that can fully meet customer needs. For TR business, we are developing drugs based on application of our proprietary intranasal drug delivery technology, and we are engaged in licensing activities and joint development proposals to pharmaceutical companies in Japan and overseas. We will continue to provide technical support to Satsuma Pharmaceuticals, Inc., which is conducting a Phase III clinical trial for an intranasal migraine therapeutic agent, as licensor of the intellectual property. SNLD has been – 5 – conducting a Phase I clinical trial of a nasal neurodegenerative disease rescue medication and will select a portfolio to follow. Meanwhile, SNLD is accelerating research and development of nose-to-brain delivery technology as a new application area. Unmet medical needs in central nervous system diseases are very high, and the development of therapeutic agents for these diseases has become a priority focus area for pharmaceutical companies. Nose-to-Brain delivery technology is expected to be applied to drugs that cannot be delivered into the brain even by intravenous injection due to the presence of the Blood Brain Barrier. The goal going forward is to promote collaborative research with academia, and based on these data, to enter into joint research and feasibility study agreements with several major pharmaceutical companies. Gemseki Inc. will actively develop its licensing brokerage business for drug discovery seeds and technologies on a global basis and promote its investment business. For Medipolis business (Social Benefit Generation Business), in addition to the existing geothermal power generation facility, we are constructing a hot spring power generation facility utilizing the existing hotel spring source. Hospitality business is operating under a new style, such as focusing on COVID-19 measures, establishing a system to allow overnight stay with peace of mind, and opening a luxury-oriented wellness resort hotel with a limited number of rooms. Consolidated earnings forecasts The consolidated earnings forecast for the fiscal year ending March 31, 2023 (April 1, 2022 to March 31, 2023) is revenue ¥19,600 million, operating profit ¥5,000 million, ordinary profit ¥6,000 million, and profit attributable to owners parent ¥4,300 million. Please refer to the next page for principal management benchmarks (capital expenditures, depreciation, R&D expenses, and number of employees), assumptions on which the forecast is based. The assumed exchange rate is 1 US dollar = 122.41 yen. With regard to the impact of the situation in Russia and Ukraine, the Company does not expect any direct impact since we do not have any business locations in Russia or Ukraine, however, due to concerns about rising energy and other costs, on April 12, 2022, the Company established a committee to promote energy consumption savings, and we are studying fundamental measures and strengthening resource-conserving activities that we have been implementing in the past. The impact of COVID-19 on the Company’s financial results is believed to be negligible at this time. – 6 – (Reference) [Conceptual diagram of the preclinical CRO business] [Orders received in the preclinical CRO business] Full-year results for the fiscal year ended March 31, 2020 Full-year results for the fiscal year ended March 31, 2021 (Millions of yen) Full-year results for the fiscal year ended March 31, 2022 Orders received [of which, overseas orders received] Order backlog 13,194 [1,780] 11,299 15,271 [3,130] 13,275 22,389 [6,138] 19,494 [Trends in Principal Management Benchmarks] (Millions of yen, unless otherwise noted) Full-year results for the fiscal year ended March 31, 2020 From April 2019 to March 2020 Full-year results for the fiscal year ended March 31, 2021 From April 2020 to March 2021 Full-year results for the fiscal year ended March 31, 2022 From April 2021 to March 2022 Fiscal year ending March 31, 2023 (Forecast) From April 2022 to March 2023 Capital expenditures Depreciation R&D expenses Number of employees at period-end (people) 1,514 1,229 400 985 2. Basic Policy on Selection of Accounting Standards 1,025 1,187 392 986 1,703 1,177 425 994 5,700 1,410 815 1,066 For the time being, the Group has decided to adopt Japanese GAAP in consideration of periodic comparability of consolidated financial statements. We intend to address adopting IFRS (International Financial Reporting Standards) as appropriate, taking into consideration various circumstances in Japan and overseas. – 7 – 3. Consolidated Financial Statements and Significant Notes Thereto (1) Consolidated balance sheet As of March 31, 2021 As of March 31, 2022 (Thousands of yen) Assets Current assets Cash and deposits Notes and accounts receivable – trade, and contract assets Securities Inventories Other Allowance for doubtful accounts Total current assets Non-current assets Property, plant and equipment Buildings and structures Accumulated depreciation Buildings and structures, net Machinery, equipment and vehicles Accumulated depreciation Machinery, equipment and vehicles, net Tools, furniture and fixtures Accumulated depreciation Tools, furniture and fixtures, net Land Leased assets Accumulated depreciation Leased assets, net Construction in progress Total property, plant and equipment Intangible assets Investments and other assets Investment securities Long-term loans receivable Deferred tax assets Other Total investments and other assets Total non-current assets Total assets 7,230,744 2,954,087 55,765 4,071,369 470,119 (2,056) 14,780,029 19,112,933 (11,546,772) 7,566,161 1,993,760 (1,281,015) 712,744 6,443,694 (5,678,950) 764,744 2,803,260 1,205,578 (611,165) 594,412 456,647 12,897,971 213,762 8,286,937 37,523 521,612 234,567 9,080,641 22,192,374 36,972,404 6,628,901 3,501,562 368,090 4,359,421 1,278,736 (2,225) 16,134,487 19,229,717 (11,871,452) 7,358,265 1,969,013 (1,363,427) 605,586 6,641,060 (5,593,370) 1,047,689 2,944,966 1,186,464 (750,285) 436,178 763,130 13,155,817 212,337 7,080,067 36,554 1,129,594 1,563,796 9,810,013 23,178,168 39,312,655 – 8 – (Thousands of yen) As of March 31, 2021 As of March 31, 2022 Liabilities Current liabilities Accounts payable – trade Short-term borrowings Income taxes payable Advances received Provision for loss on business liquidation Other Total current liabilities Non-current liabilities Long-term borrowings Lease liabilities Other Total non-current liabilities Total liabilities Net assets Shareholders’ equity Share capital Capital surplus Retained earnings Treasury shares Total shareholders’ equity Accumulated other comprehensive income Valuation difference on available-for-sale securities Foreign currency translation adjustment Total accumulated other comprehensive income Non-controlling interests Total net assets Total liabilities and net assets 95,012 3,486,826 683,229 5,317,925 15,419 2,317,390 11,915,803 8,669,916 529,324 18,573 9,217,814 21,133,617 9,679,070 2,306,771 3,854,474 (197) 15,840,118 2,096,313 (2,201,981) (105,667) 104,335 15,838,786 36,972,404 64,574 2,942,742 743,103 6,938,417 － 2,685,133 13,373,972 5,809,744 385,822 20,011 6,215,578 19,589,550 9,679,070 2,306,771 10,196,329 (247) 22,181,923 170,768 (2,791,597) (2,620,829) 162,011 19,723,105 39,312,655 – 9 – (2) Consolidated statement of income and consolidated statement of comprehensive income (Thousands of yen) Fiscal year ended March 31, 2021 Fiscal year ended March 31, 2022 Consolidated statement of income Revenue Cost of revenue Gross profit Selling, general and administrative expenses Remuneration for directors (and other officers) Salaries and allowances Retirement benefit expenses Welfare expenses Insurance expenses Supplies expenses Rent expenses Depreciation Travel, transportation and vehicle expenses Commission expenses Breeding animal maintenance expenses R&D expenses Provision of allowance for doubtful accounts Other Total selling, general and administrative expenses Operating profit Non-operating income Interest income Dividend income Foreign exchange gains Share of profit of entities accounted for using equity method Other Total non-operating income Non-operating expenses Interest expenses Other Total non-operating expenses Ordinary profit Extraordinary income Gain on sale of non-current assets Gain on sale of investment securities Gain on sale of shares of subsidiaries and associates Gain on change in equity Other Total extraordinary income Extraordinary losses Loss on retirement of non-current assets Impairment losses Loss on valuation of investment securities Loss on liquidation of business Total extraordinary losses Profit before income taxes Income taxes – current Income taxes – deferred Total income taxes Profit Profit attributable to non-controlling interests Profit attributable to owners of parent – 10 – 15,110,548 7,556,144 7,554,403 324,238 1,535,857 22,388 301,842 22,955 71,268 110,322 150,268 64,673 676,183 552,706 392,238 – 799,924 5,024,869 2,529,534 2,972 – 239,999 846,283 214,683 1,303,939 184,860 3,273 188,133 3,645,340 1,929 48,234 1,242,339 – – 1,292,502 5,645 639,168 117,464 – 762,279 4,175,563 660,054 (162,262) 497,792 3,677,771 15,916 3,661,855 17,748,482 8,061,183 9,687,299 362,852 1,651,822 23,175 380,380 25,864 59,571 104,482 158,960 80,326 834,856 487,311 425,075 169 896,839 5,491,689 4,195,609 8,313 500 1,370,005 1,439,317 193,687 3,011,824 126,646 2,594 129,240 7,078,192 896 － 1,096,054 322,435 514 1,419,900 21,748 225,219 37,243 30,569 314,781 8,183,311 1,049,664 (33,458) 1,016,205 7,167,105 39,475 7,127,629 Consolidated statement of comprehensive income (Thousands of yen) Fiscal year ended March 31, 2021 Fiscal year ended March 31, 2022 Profit Other comprehensive income Valuation difference on available-for-sale securities Foreign currency translation adjustment Share of other comprehensive income of entities accounted for using equity method Total other comprehensive income Comprehensive income Comprehensive income attributable to Comprehensive income attributable to owners of parent Comprehensive income attributable to non-controlling interests 3,677,771 (3,998,437) (7,637) – (4,006,074) (328,303) (345,211) 16,907 7,167,105 (1,925,545) (673,588) 82,360 (2,516,774) 4,650,331 4,612,468 37,862 – 11 – (3) Consolidated statement of changes in equity Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) Share capital Capital surplus Treasury shares Shareholders’ equity Retained earnings Balance at beginning of period 9,679,070 5,196,804 (2,489,003) (197) 12,386,673 Changes during period Profit attributable to owners of parent Deficit disposition Dividends of surplus – other capital surplus Change in ownership interest of parent due to transactions with non-controlling interests Net changes in items other than shareholders’ equity 3,661,855 (2,681,623) 2,681,623 (208,160) (250) Total changes during period – (2,890,033) 6,343,478 – 3,453,445 Balance at end of period 9,679,070 2,306,771 3,854,474 (197) 15,840,118 (Thousands of yen) Total shareholders’ equity 3,661,855 (208,160) (250) – – Accumulated other comprehensive income Valuation difference on available-for-sale securities Foreign currency translation adjustment Total accumulated other comprehensive income Non-controlling interests Total net assets Balance at beginning of period 6,094,751 (2,193,352) 3,901,398 93,775 16,381,848 Changes during period Profit attributable to owners of parent Deficit disposition Dividends of surplus – other capital surplus Change in ownership interest of parent due to transactions with non-controlling interests Net changes in items other than shareholders’ equity – – – – 3,661,855 – (208,160) (250) (3,998,437) (8,629) (4,007,066) 10,559 (3,996,506) Total changes during period (3,998,437) (8,629) (4,007,066) 10,559 (543,061) Balance at end of period 2,096,313 (2,201,981) (105,667) 104,335 15,838,786 – 12 – Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) Share capital Capital surplus Treasury shares Shareholders’ equity Retained earnings (Thousands of yen) Total shareholders’ equity Balance at beginning of period 9,679,070 2,306,771 3,854,474 (197) 15,840,118 Restated balance 9,679,070 2,306,771 3,901,340 (197) 15,886,984 46,865 46,865 7,127,629 (832,640) (49) 7,127,629 (832,640) (49) – Total changes during period – – 6,294,989 (49) 6,294,939 Balance at end of period 9,679,070 2,306,771 10,196,329 (247) 22,181,923 Cumulative effects of changes in accounting policies Changes during period Profit attributable to owners of parent Dividends of surplus Purchase of treasury shares Net changes in items other than shareholders’ equity Accumulated other comprehensive income Valuation difference on available-for-sale securities Foreign currency translation adjustment Total accumulated other comprehensive income Non-controlling interests Total net assets Balance at beginning of period 2,096,313 (2,201,981) (105,667) 104,335 15,838,786 Restated balance 2,096,313 (2,201,981) (105,667) 104,335 15,885,651 – – – 46,865 7,127,629 (832,640) (49) Cumulative effects of changes in accounting policies Changes during period Profit attributable to owners of parent Dividends of surplus Purchase of treasury shares Net changes in items other than shareholders’ equity (1,925,545) (589,616) (2,515,161) 57,675 (2,457,485) Total changes during period (1,925,545) (589,616) (2,515,161) 57,675 3,837,453 Total balance during period 170,768 (2,791,597) (2,620,829) 162,011 19,723,105 – 13 – (4) Consolidated statement of cash flows (Thousands of yen) Fiscal year ended March 31, 2021 Fiscal year ended March 31, 2022 Cash flows from operating activities Profit before income taxes Depreciation Impairment losses Increase (decrease) in allowance for doubtful accounts Interest and dividend income Interest expenses Foreign exchange losses (gains) Loss (gain) on sale of non-current assets Loss on retirement of non-current assets Loss (gain) on valuation of investment securities Loss (gain) on sale of investment securities Loss (gain) on sale of shares of subsidiaries and associates Share of loss (profit) of entities accounted for using equity method Loss (gain) on change in equity Decrease (increase) in trade receivables Decrease (increase) in inventories Increase (decrease) in advances received Increase (decrease) in trade payables Other Subtotal Interest and dividends received Interest paid Income taxes paid Net cash provided by (used in) operating activities Cash flows from investing activities Payments into time deposits Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Purchase of intangible assets Purchase of investment securities Proceeds from sale of investment securities Purchase of shares of subsidiaries and associates Proceeds from sale of shares of subsidiaries and associates Proceeds from purchase of shares of subsidiaries resulting in change in scope of consolidation Proceeds from sales of shares of subsidiaries resulting in change in scope of consolidation Loan advances Proceeds from collection of loans receivable Other Net cash provided by (used in) investing activities 4,175,563 1,187,684 639,168 (68,350) (2,972) 184,860 (249,218) (1,924) 5,641 117,464 (48,234) (1,242,339) (846,283) – (343,473) (71,685) 1,039,665 (24,188) 543,476 4,994,853 404,049 (172,416) (479,798) 4,746,687 – (1,067,166) 1,985 (50,855) (894,973) 91,426 – 1,242,339 – – (8,800) 420,440 (3,052) (268,657) – 14 – 8,183,311 1,177,432 225,219 169 (8,813) 126,646 (1,348,182) (896) 21,748 37,243 － (1,096,054) (1,439,317) (322,435) (480,925) (371,070) 1,611,879 (36,713) (121,676) 6,157,566 928,190 (118,155) (1,014,823) 5,952,778 (3,672,300) (1,543,090) 904 (71,180) (521,827) － (225) 57,874 58,522 1,084,650 (6,000) 343,024 1,101 (4,268,545) (Thousands of yen) Fiscal year ended March 31, 2021 Fiscal year ended March 31, 2022 Cash flows from financing activities Net increase (decrease) in short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Decrease (increase) in treasury shares Repayments of finance lease liabilities Dividends paid Dividends paid to non-controlling interests Purchase of shares of subsidiaries not resulting in change in scope of consolidation Net cash provided by (used in) financing activities Effect of exchange rate change on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period (2,000,000) 4,540,000 (4,598,224) – (200,005) (206,246) (2,950) (3,648) (2,471,074) 29,621 2,036,577 5,243,258 7,279,835 (6,150) － (3,492,304) (49) (583,999) (826,530) (2,950) － (4,911,983) 496,708 (2,731,043) 7,279,835 4,548,792 – 15 – (5) Notes to consolidated financial statements (Notes on going concern assumption) Not applicable. (Changes in accounting policies) (Application of Accounting Standard for Revenue Recognition, Etc.) The Company has applied the “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020) from the beginning of the fiscal year ended March 31, 2022 and has recognized revenue at the amount expected to receive in exchange for the promised goods or services when control of the goods or services is transferred to customers. As a result of this change, for contracts that consist of multiple performance obligations, revenue was previously recognized when all the performance obligations in the contract were satisfied, but now when a contract contains multiple performance obligations, revenue is recognized at each time when a performance obligation is satisfied. Further to the application of the Accounting Standard for Revenue Recognition and relevant revised ASBJ regulations, the Company has followed the transitional treatment prescribed in the proviso of paragraph 84 of the Accounting Standard for Revenue Recognition, and the cumulative effect of retroactively applying the new accounting policy prior to the beginning of the fiscal year ended March 31, 2022 has been added to or deducted from the opening balance of retained earnings of the fiscal year ended March 31, 2022, and the new accounting policy has been applied from such opening balance. The effects of the application of the Accounting Standard for Revenue Recognition on profit and loss and the opening balance of retained earnings for the fiscal year ended March 31, 2022, described above, is immaterial. Due to the application of the Accounting Standard for Revenue Recognition and relevant revised ASBJ regulations, “Notes and accounts receivable – trade,” which was presented in “Current assets” in the consolidated balance sheet for the previous fiscal year, is now included in “Notes and accounts receivable – trade, and contract assets” from the fiscal year ended March 31, 2022. (Application of Accounting Standards for Fair Value Measurement, Etc.) The Company has applied the “Accounting Standard for Fair Value Measurement” (ASBJ Statement No. 30, July 4, 2019) and relevant guidance from the beginning of the fiscal year ended March 31, 2022, and has applied the new accounting policy stipulated by the Accounting Standard for Fair Value Measurement and relevant guidance prospectively in accordance with the transitional treatment stipulated in paragraph 19 of the Accounting Standard for Fair Value Measurement and paragraph 44-2 of “Accounting Standard for Financial Instruments” (ASBJ Statement No. 10, July 4, 2019). This change has no effects on the consolidated financial statements. – 16 – (Segment information) 1. Overview of reportable segments The reportable segments of the Company are components of the Company for which discrete financial information is available and regularly reviewed by the CEO to make decisions about allocation of managerial resources and to assess their performance. We organize our business units based on the drug development process and have three reportable segments: CRO business, Translational Research business, and Medipolis business (Social Benefits Generation Business). In CRO business, we use laboratory animals, cells and bacteria to confirm the efficacy and safety of study substances created mainly by pharmaceutical companies and other consignors. Translational Research business is a business to increase added value and to commercialize by development of nasal delivery formulations and discovery of promising seed technologies and new substances derived from basic research of universities, bio-ventures and research institutes, etc., through demonstrating the basic theory in a clinical setting while conducting preclinical and clinical studies necessary for evaluation and approval of drugs, etc. Medipolis business consists of the operation of accommodation facilities and geothermal power generation business. 2. Method of calculating revenue, profit or loss, assets, liabilities, and other items by reportable segment The accounting method for reported business segments is generally the same as that described in basis of presenting consolidated financial statements. Profits of reportable segments are based on operating profit. Transactions with other segments are based on prevailing market prices. 3. Information on the amounts of revenue, profit or loss, assets, liabilities, and other items by reportable segment Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) Reportable segments Revenue Revenues from external customers Transactions with other segments Total Segment profit (loss) CRO business Medipolis business Subtotal Translational Research business Other (Note 1) Total Adjustments (Note 2) 14,435,282 12,242 512,939 14,960,464 150,083 15,110,548 – 15,110,548 73,567 – 39,239 112,807 353,787 466,595 (466,595) 14,508,850 12,242 552,179 15,073,272 503,870 15,577,143 (466,595) 15,110,548 3,393,225 (708,029) (54,903) 2,630,291 (35,471) 2,594,819 (65,285) 2,529,534 (Thousands of yen) Amount recorded on the consolidated statement of income (Note 3) Segment assets 16,574,063 96,852 1,274,716 17,945,632 2,649,697 20,595,329 16,377,074 36,972,404 Other items Depreciation 930,313 472 91,251 1,022,036 165,647 1,187,684 1,187,684 Share of profit (loss) of entities accounted for using equity method Increase in property, plant and equipment and intangible assets 846,498 – 846,498 (215) 846,283 846,283 504,794 28,786 330,925 864,505 167,466 1,031,971 (6,741) 1,025,230 – (Notes) 1 The “Other” classification serves as a business segment not included as one of the reportable segments, and accordingly includes the real estate business and other such businesses. 2 Segment profit (loss) adjustments amounting to negative ¥65,285 thousand consist of ¥62,011 thousand in elimination of intersegment transactions and negative ¥127,297 thousand in corporate expenses not allocated to a reportable segment. Corporate expenses are mainly general and administrative expenses, which are not attributable to the reportable segments. The adjustment amount of ¥16,377,074 thousand for segment assets is corporate assets that are not allocated to each reportable segment. Corporate assets consist mainly of surplus operating funds (cash and deposits, etc.) and long-term investment funds (investment securities, etc.). 3 Segment profit (loss) has been calculated upon adjusting operating profit in the consolidated statement of income. – – – – 17 – Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) Reportable segments Revenue Revenues from external customers Transactions with other segments Total Segment profit (loss) CRO business Translational Research business Medipolis business Subtotal Other (Note 1) Total Adjustments (Note 2) 16,943,913 12,062 528,035 17,484,011 264,470 17,748,482 – 17,748,482 103,938 800 35,462 140,201 704,498 844,700 (844,700) 17,047,852 12,862 563,497 17,624,213 968,969 18,593,182 (844,700) 17,748,482 5,035,685 (746,987) (17,798) 4,270,899 41,581 4,312,481 (116,871) 4,195,609 (Thousands of yen) Amount recorded on the consolidated statement of income (Note 3) Segment assets 17,811,008 90,036 1,848,945 19,749,990 2,786,760 22,536,750 16,775,904 39,312,655 Other items Depreciation 916,203 3,421 94,963 1,014,589 162,843 1,177,432 1,177,432 – – – – 1,439,573 – 1,439,573 △255 1,439,317 1,439,317 1,070,200 18,503 186,208 1,274,913 464,648 1,739,562 △35,772 1,703,789 Share of profit (loss) of entities accounted for using equity method Increase in property, plant and equipment and intangible assets (Notes) 1 The “Other” classification serves as a business segment not included as one of the reportable segments, and accordingly includes the real estate business and other such businesses. 2 Segment profit (loss) adjustments amounting to negative ¥116,871 thousand consist of ¥10,297 thousand in elimination of intersegment transactions and negative ¥127,169 thousand in corporate expenses not allocated to a reportable segment. Corporate expenses are mainly general and administrative expenses, which are not attributable to the reportable segments. The adjustment amount of ¥16,775,904 thousand for segment assets is corporate assets that are not allocated to each reportable segment. Corporate assets consist mainly of surplus operating funds (cash and deposits, etc.) and long-term investment funds (investment securities, etc.). 3 Segment profit (loss) has been calculated upon adjusting operating profit in the consolidated statement of income. – 18 – (Per share information) Fiscal year ended March 31,2021 (from April 1, 2020 to March 31, 2021) Fiscal year ended March 31,2022 (from April 1, 2021 to March 31, 2022) (Notes) 1. Diluted earnings per share for the previous fiscal year and the fiscal year under review are not shown in the Net assets per share Profit per share 377.94 87.95 above table, as there are no dilutive shares. 2. The basis for calculation of net assets per share is as follows. As of March 31, 2021 As of March 31, 2022 15,838,786 19,723,105 15,734,450 19,561,094 (Yen) 469.85 171.20 162,011 41,632 3 The basis for calculation of earnings per share is as follows. Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) 3,661,855 7,127,629 – – 3,661,855 7,127,629 41,632 41,632 Total net assets (thousand yen) Net assets related to common stock at the end of the period (thousand yen) Breakdown of the difference (thousand yen) Non-controlling interests Number of shares of common stock used for calculation of net assets per share at the end of the period (thousand shares) Profit attributable to owners of parent (thousand yen) Amount not attributable to common shareholders (thousand yen) Profit attributable to owners of parent pertaining to common shares (thousand yen) Average number of shares of common stock during the period (thousand shares) (Subsequent Events) Not applicable. 104,335 41,632 – 19 –