NEWS DETAIL

CMIC HOLDINGS Co., Ltd. Consolidated Financial Results for the 3rd Quarter Ended June 30, 2020

Tokyo, July 31, 2020 – CMIC HOLDINGS Co., Ltd. %uFF08TSE Code: 2309 %uFF09 today reported financial results for the 3rd quarter ended June 30, 2020

CMIC group is rolling out a PVC (Pharmaceutical Value Creator) model, which is our unique business model contributing to increase additional values of pharmaceutical companies. We provide extensive support for development, manufacturing, sales and marketing value chains of pharmaceutical companies with our CRO (Contract Research Organization) business, CDMO (Contract Development Manufacturing Organization) business, CSO (Contract Sales Organization) business, and Healthcare business. In addition, our IPM (Innovative Pharma Model) business is providing new business solutions to pharmaceutical companies that combine marketing authorization licensing%uFF08intellectual properties%uFF09 and value chains.

In the pharmaceutical industry, while creation of innovative drugs is anticipated towards providing personalized medicine or "precision medicine", drug pricing system is being revised, such as introduction of cost-effective assessment and consideration of special or specified medical care coverage, due to impact on the health insurance budget. Further improvement of productivity and technical capability is expected for the pharmaceutical industry for transformation to the industrial structure with more global competitiveness. New technologies called the Fourth Industrial Revolution such as artificial intelligence (AI) or IoT are bringing significant changes to the society, and as way of medicine and people's ideas of health change in the healthcare arena, industry, government, academia and civil society are collaborating to achieve innovation to address the decreasing birthrate and aging population.

The global epidemic of COVID-19 that started at the beginning of 2020 is significantly impacting the socioeconomics, increasing the uncertainty about the future with no prospect of when it will be contained. We are recognizing the importance of drug development that is leading to maintaining the lives of patients, and are requested to ensure stable supply of drugs by further promoting the domestic production of drug substances with high dependency on overseas production.

To achieve the mid-to-long-term corporate value improvement of our group, the mid-term plan (FY2019-2021) - 2 - includes focus activity items such as acceleration of PVC model, expansion of globalization, and creation of healthcare business. The outbreak of COVID-19 is rapidly changing the medical and economic environment as well as people's way of working. CMIC will enhance digitalization and utilize our talents in the healthcare arena to prepare ourselves for the post-corona era.

As a life science company, CMIC Group will support the development of effective treatment and precautions against the new coronavirus, contribute to providing efficacious treatment for early recovery of patients and maintaining the hospital system, and deliver our mission as a healthcare company.

Sales and Operating Income

In the 3rd quarter of the current fiscal year, we are addressing the top-priority items identified in the mid-term plan including business incubation in healthcare arena. On the other hand, following the outbreak of COVID-19, we had no choice but to suspend or reduce business activities including restriction on hospital visits, delayed collection of safety information, and cancellation of academic conferences and seminars. We are strengthening the sales activities toward winning new projects of COVID-19 treatment drug development support operations etc.

Sales in the 3rd quarter of fiscal year 2020 was 56.7 billion (grew 3.4% year-on-year) driven by the CDMO and CSO business growth. Operating income was 3,137 million (down 22.1% year-on-year) mainly due to decrease in profits of CRO business, despite the improvements of CDMO business and CSO business.

Segment Information

The business results by segment are listed as below:

Please note that reported segment was changed. We compare the percentage change in sales and operating income by segment versus the same period during the previous year, using the segments after the changes as the basis.

CRO (Contract Research Organization) Business





%uFF08Millions of yen%uFF09


Q3 FY2020

Q3 FY2019

YoY Change

YoY Change


Amount

%




Sales

25,605

27,523

(1,918)

(7.0)

Operating income

4,288

5,718

(1,430)

(25.0)

In this business, we provide services primarily to pharmaceutical companies to support drug development.

In the 3rd quarter of the current fiscal year, we are supporting overseas companies entering the Japanese market and non-healthcare companies entering the healthcare sphere, promoting measures to address sophisticating development needs including biopharmaceuticals and regenerative medicines, and expanding our presence in Asia.

For clinical services, we are promoting PVC projects involving multiple business units, clinical trials with the latest method and technologies (e.g. Virtual clinical trials with on-line doctor consultation, improving the efficiency of clinical trials with electronic prescription records), and improving the expertise and technical capabilities of our talents.

For non-clinical services, our laboratories in Japan and the United States are further collaborating to provide drug discovery support for advanced medicine including nucleic acid drugs and regenerative medicine.

Sales were below the same period last year due to the impact of delay in receiving orders and cancellation/postponement of existing projects following the global pandemic of COVID-19 and downsizing/increased complexity of development projects. Operating income was also below the same period last year impacted by reduced operation rates and listing of unprofitable projects.

CDMO (Contract Development Manufacturing Organization) Business





%uFF08Millions of yen%uFF09


Q3 FY2020

Q3 FY2019

YoY Change

YoY Change


Amount

%




Sales

15,199

11,858

3,340

28.2

Operating income

15

(156)

172

-

In this business, we provide services primarily to pharmaceutical companies to support drug formula development and manufacturing.

In the 3rd quarter of the current fiscal year, CDMO business is further improving technical capabilities, developing low-cost production structure, and enhancing competitiveness through strategic capital investment as a global pharmaceutical drug manufacturing platform that includes formulation design, investigational new drug manufacturing, and commercial production.

Sales and operating income exceeded the same period last year thanks to increased contract volume in Japan and the sales contribution by CMIC CMO Nishine Co., Ltd., despite the reduction of contract volume following the inventory adjustment by customers in the United States.

CSO (Contract Sales Organization) Business





%uFF08Millions of yen%uFF09


Q3 FY2020

Q3 FY2019

YoY Change

YoY Change


Amount

%




Sales

6,516

5,795

720

12.4

Operating income

768

100

667

661.6

In this business, we provide sales- and marketing-support services, primarily to pharmaceutical companies.

In the 3rd quarter of the current fiscal year, in addition to the medical representative (MR) dispatch and other related services, we are providing comprehensive solution that combines multiple communication channels and various services including dispatch and training of Medical Affairs personnel.

Sales and operating income exceeded the same period last year thanks to the steady progress in MR dispatch projects acquired in the previous period and the operation rates maintained at the high level.

Healthcare Business





%uFF08Millions of yen%uFF09


Q3 FY2020

Q3 FY2019

YoY Change

YoY Change


Amount

%




Sales

7,463

7,613

(149)

(2.0)

Operating income

586

946

(360)

(38.1)

In this business, we provide SMO services, healthcare services related to treating, maintaining, and promoting the health for medical institutions, patients and general consumer, and services related to BPO and human resources. In the 3rd quarter of the current fiscal year, we are further strengthening the oncology capabilities in the SMO operations and providing new services. We are creating new business for early detection and prevention of aggravation of disease, including “harmo” electronic prescription record service and "SelCheck" (self-screening) service. We will strive to win new SMO business orders and aim to expedite the in-flow of income for the new healthcare business.

Sales were below the same period last year despite growth in healthcare services, due to reduction in work volume for some BPO/Staffing services. Operating income was below the same period last year impacted by lower sales of BPO/Staffing services and prior investment cost to create new healthcare business models.

IPM (Innovative Pharma Model) Business





%uFF08Millions of yen%uFF09


Q3 FY2020

Q3 FY2019

YoY Change

YoY Change


Amount

%




Sales

2,564

2,695

(131)

(4.9)

Operating income

121

(199)

320

-

IPM business provides new business solutions to pharmaceutical companies that combine value chains and marketing authorization licenses (intellectual properties) possessed by our group. We are mainly delivering development and marketing services for orphan drugs.

In the 3rd quarter of the current fiscal year, we are selling orphan drugs, including products developed in-house. Further, we are strengthening business foundation through provision of IPM platform such as supporting foreign companies entering the Japanese market and providing strategic options to pharmaceutical companies in accordance with their business model changes. We will further expand the business scale and reach profitability by continuing to provide new business solutions.

Though sales were below that of the corresponding period last year due to reduction in sales volume of some products, operating surplus was recorded due to the effect of cost reduction and commission income.

Ordinary Income

Ordinary income for the 3rd quarter of the current fiscal year was ¥3,486 million (down 4.3% YoY).

For non-operating income, we recorded ¥519 million of share of profit of entities accounted for using equity method and other, for non-operating expenses we recorded ¥170 million of interest expenses and other.

Profit attributable to owners of parent

Current profit attributable to owners of parent for the 3rd quarter of the current fiscal year was ¥2,373 million (up 24.3% YoY).

For extraordinary income, we recorded ¥46 million as gain on sales of shares of subsidiaries and other, and as for extraordinary losses, we recorded ¥75 million as loss on retirement of non-current assets. ¥877 million was recorded as total income taxes, and ¥205 million as profit attributable to non-controlling interests.
Overview of the financial condition

Assets, liabilities, and net assets

Total assets at the end of the 3rd quarter of the current fiscal year increased by ¥5,888 million YoY to ¥86.068 billion. This is mainly due to an increase in cash and deposits, inventories, and tangible fixed assets of CDMO business.

Total liabilities increased by ¥3,749 million YoY to ¥50.935 billion. Most of the above is attributable to increase in borrowings from financial institutions anticipating the impact of COVID-19 and decrease in income taxes payable and provision for bonuses.

Total net assets increased by ¥2,138 million YoY to ¥35.133 billion. This is mainly due to an increase in retained earnings.

Future Outlook

Since it was quite difficult to reasonably calculate our future business performance due to the impact of COVID-19 including delay, postponement, and cancellation of many pharmaceutical drug development projects, CMIC Group’s future outlook was previously undetermined. Following the recent partial resumption of new drug development projects, we calculated and revised its forecast based on all available information gathered at this point. Our FY2020 performance forecast for sales is expected to be 75,000 million yen, operating income is expected to be 2,300 million yen, ordinary income is expected to be 2,600 million yen, and profit attributable to owners of parent is expected to be 1,350 million yen.

Cautionary statement:

This material includes forward-looking statements based on assumptions and beliefs in light of the information currently available to management, and is subject to significant risks and uncertainties. Actual financial results may vary materially from the content of this material depending on a number of factors. While this material contains information on pharmaceuticals (including compounds under development), this information is not intended to make any representations or advertisements regarding the efficacy or effectiveness of their preparations, promote any kind of unapproved uses, nor provide medical advice of any kind.

Summary of Results for the 3rd Quarter Ended June 30, 2020 (October 1, 2019 through June 30, 2020)

(1) Consolidated financial results

(Millions of yen; amounts less than one million yen are omitted)

(Percentage figures indicate increase compared with the corresponding period of the prior fiscal year)


Q3 FY2020

Q3 FY2019



Change


Change



(%)


(%)

Net sales

56,736

3.4

54,855

6.3

Operating income

3,137

(22.1)

4,028

0.3

Ordinary income

3,486

(4.3)

3,643

(4.3)

Profit attributable to owners of parent

2,373

24.3

1,909

55.3

Earnings per share (Yen)

131.26


103.04


Diluted net income per share (Yen)

%uFF0D


%uFF0D


Reference: Comprehensive income: 3rd quarter FY2020: ¥2,733 million (up141.1% YoY), 3rd quarter FY2019: ¥1,133 million (down 29.7% YoY)

(2) Consolidated financial position

(Millions of yen; amounts less than one million yen are omitted)



End Q3 FY2020

Year End FY2019




Total assets

86,068

80,179

Net assets

35,133

32,994

Equity ratio (%)

28.1

27.8

Book value per share (Yen)

1,338.52

1,231.65

Reference: Shareholders' equity: : 3rd quarter FY2020: ¥24,214million, year-end FY2019: ¥22,258 million.

Distribution of Profits and Dividends

We regard the return of profits to shareholders as one of our most important management policies. Our basic policy is to pay dividends in accordance with our business performance, while securing internal reserves to improve profitability and strengthen our business foundation. At the same time, we will maintain a consolidated dividend payout ratio of 30% and pay continuous and stable dividends. For the time being, the minimum annual dividend is set at ¥10.00 for stable dividends.

The year-end dividend forecast for the fiscal year ending September 2020 is ¥17.00 per share, based on the full-year earnings forecast. We paid an interim dividend of 5.00 yen per share as announced at the beginning of the fiscal year. As a result, the total dividend of the current fiscal year is ¥ 22.00 per share.

Consolidated Financial Statements for the 3rd Quarter Ended June 30, 2020

(1) Consolidated Balance Sheets




(Millions of yen)



Q3 FY2020

Year End FY2019



(June 30, 2020)

(September 30, 2019)





Assets



Current assets



Cash and deposits

12,905

12,146

Notes and accounts receivable - trade

13,261

13,082

Merchandise and finished goods

1,010

682

Work in process

4,498

4,074

Raw materials and supplies

2,500

2,578

Other

4,467

3,009

Allowance for doubtful accounts

(69)

(67)





Total current assets

38,575

35,506

Non-current assets





Property, plant and equipment



Buildings and structures, net

15,274

13,471

Machinery, equipment and vehicles, net

10,557

9,848

Land

6,425

6,425

Other, net

5,138

4,004





Total property, plant and equipment

37,396

33,750

Intangible assets





Goodwill

81

237

Other

1,492

1,338





Total intangible assets

1,574

1,575

Investments and other assets





Investment securities

3,110

3,007

Lease and guarantee deposits

1,975

1,997

Other

4,013

4,921

Allowance for doubtful accounts

(576)

(579)





Total investments and other assets

8,523

9,347





Total non-current assets

47,493

44,673





Total assets

86,068

80,179





- 8 -




(Millions of yen)



Q3 FY2020

Year End FY2019



(June 30, 2020)

(September 30, 2019)





Liabilities



Current liabilities



Notes and accounts payable - trade

939

1,082

Short-term borrowings

7,006

3,018

Current portion of long-term debt

3,158

2,822

Commercial papers

2,000

2,000

Income taxes payable

222

647

Provision for bonuses

571

2,677

Provision for loss on orders received

558

561

Other

12,739

9,935





Total current liabilities

27,195

22,743

Non-current liabilities



Long-term debt

11,135

11,356

Net defined benefit liability

9,205

8,721

Other

3,398

4,364





Total non-current liabilities

23,739

24,441

Total liabilities

50,935

47,185

Net assets



Shareholders' equity



Capital stock

3,087

3,087

Capital surplus

6,100

6,102

Retained earnings

15,919

14,121

Treasury shares

(1,545)

(1,578)





Total shareholders' equity

23,562

21,733

Accumulated other comprehensive income



Unrealized gain(loss) on securities

723

613

Foreign currency translation adjustments

(50)

(35)

Remeasurements of defined benefit plans

(20)

(52)





Total accumulated other comprehensive income

652

525





Non-controlling interests

10,919

10,735

Total net assets

35,133

32,994

Total liabilities and net assets

86,068

80,179





- 9 -

(2) Consolidated Statement of Income




(Millions of yen)



Q3 FY2020

Q3 FY2019



(October 1, 2019-

(October 1, 2018-



June 30, 2020)

June 30, 2019)





Net sales

56,736

54,855

Cost of sales

44,710

42,349





Gross profit

12,026

12,506

Selling, general and administrative expenses

8,888

8,477





Operating income

3,137

4,028

Non-operating income



Interest income

3

3

Share of profit of entities accounted for using equity method

401

-

Other

115

70





Total non-operating income

519

73

Non-operating expenses





Interest expenses

89

84

Share of loss of entities accounted for using equity method

-

162

Foreign exchange losses

45

173

Other

35

38





Total non-operating expenses

170

458

Ordinary income

3,486

3,643

Extraordinary income





Gain on sales of non-current assets

5

7

Gain on sales of investment securities

10

-

Gain on sales of shares of subsidiaries

30

-





Total extraordinary income

46

7

Extraordinary losses



Impairment loss

-

124

Loss on sales of non-current assets

-

1

Loss on retirement of non-current assets

75

65





Total extraordinary losses

75

190

Profit before income taxes

3,457

3,460

Current

290

1,080

Deferred

587

742





Total income taxes

877

1,823

Profit

2,579

1,637

Profit(loss) attributable to non-controlling interests

205

(272)





Profit attributable to owners of parent


2,373

1,909

%u2015 10 %u2015

(3) Consolidated Statement of Comprehensive Income



(Millions of yen)


Q3 FY2020

Q3 FY2019


(October 1, 2019-

(October 1, 2018-


June 30 , 2020)

June 30, 2019)




Profit

2,579

1,637

Other comprehensive income



Valuation difference on available-for-sale securities

110

(467)

Foreign currency translation adjustments

(13)

(95)

Remeasurements of defined benefit plans

57

59




Total other comprehensive income

154

(503)

Comprehensive income

2,733

1,133

Comprehensive income attributable to





Owners of parent

2,500

1,437

Non-controlling interests

233

(304)