News Release

(Call held on February 17, 2023)

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This presentation contains statements concerning the current plans, expectations and strategies of GNI Group Ltd. (GNI Group). Any statements contained herein that pertain to future operating performance and that are not historic facts are forward-looking statements. Forward-looking statements may include, but are not limited to, words such as “believe,” “plan,” “strategy,” “expect,” “forecast,” “possibility” and similar words that describe future operating activities, business performance, events or conditions. Forward-looking statements, whether spoken or written, are based on judgments made by the management of GNI Group, based on information that is currently available to it. As such, these forward-looking statements are subject to various risks and uncertainties, and actual business results may vary substantially from the forecasts expressed or implied in forward-looking statements. Consequently, investors are cautioned not to place undue reliance on forward-looking statements.

The information contained in this presentation does not constitute or form part of any offer for sale or subscription of or solicitation or invitation of any offer to buy or subscribe for any securities, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. Any decision to invest in or acquire securities of GNI Group must be based wholly on the information contained in the preliminary offering circular issued or to be issued by GNI Group in connection with any such offer and not on the contents hereof.

This English summary translation is for convenience only. To the extent there is any discrepancy between this English translation and the original Japanese version, please refer to the Japanese version.

Note: In places, pro forma figures in the pages which follow may be rounded to underscore direction of the business.

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Legends:

GNI Group Ltd. (single entity in Japan): the Company
The Company and its subsidiaries: the Group or we
Beijing Continent Pharmaceuticals Co., Ltd.: Continent
Catalyst Biosciences, Inc.: CBIO
Berkeley Advanced Biomaterials LLC: BAB

Q1: What’s the status of clinical trials? We understand that there were delays in China due to COVID-19 pandemic, but are things back to normal? Are you still affected by COVID-19?

A1: The enrollment process slowed down significantly from November 2022 to January 2023 due to the rapid spread of COVID-19 infections throughout China. This is why we stated in Tanshin that we were delayed by 3 months. During that time, we discussed how to resume enrollment after COVID-19 calms down with the hospitals. Enrollment has resumed, so we are currently targeting to catch up by the end of Q3, 2023, as long as there are no more severe COVID-19 lockdown or outbreak in China. Since COVID-19 infections seem to surge every few months in other parts of the world, we are closely monitoring the situation.

Q2: What drove the big increase in SG&A spending apart from the one-off IPO-related expenses? The increase is very large, even taking into account these costs. I see from your Yuho from FY2021 that personnel costs increased a lot, but so did “sales commission.” Did “sales commission” increase a lot this year too?

A2: Indeed, last year’s personnel cost and the sales commission both increased because last year was a very difficult year (worse than 2020). As you heard, Shanghai was locked down for three months last year, and we had to make up for the lost time by pushing hard to boost marketing activities. Continent had to pay extra to the staffs under increasing lockdowns on special transportation arrangements, protective equipment, additional incentives, etc. During the peak times of COVID-19 pandemic, many costs went up; for example, transportation costs such as taxi fares in Shanghai increased many-fold. Things appear to be coming back to normal these days, but we will have to wait and see at least up to the end of Q1 as to how we will fare this year. Please also note that some more factors are at play in terms of SG&A increase in addition to Continent’s IPO preparation costs: the weakening of JPY against not only USD but RMB, which inflates various costs in SG&A, and other one-time professional service fees for M&A transactions (around JPY 200 million in total),

Q3: Regarding the mark-to-market estimated cost of failing to move forward with Cullgen, what is the maximum potential size of that liability?

A3: What we can say now is that, for P&L, as we stated in Slide 12 of the investor deck, it’s at least JPY 837 million. This is the cost that appears in our consolidated financial statements due to our consolidation of Cullgen. If we change Cullgen’s treatment to the equity method from the current full consolidation, these costs related to Cullgen will not be booked to our consolidated finance costs but will be taken into account in the profit attributable to owners of the parent (i.e., there will be no change to the profit attributable to owners of the parent).

Q4: Regarding the commitment to buy out the minority shareholders in Continent, is that GNI’s liability or CBIO’s liability? What price will you commit to buy shares? How will that liability show up on your balance sheet?

A4: Please note that we have not necessarily committed to buying out those China-domestic shareholders’ shares in cash. The Continent shares held by China on-shore shareholders may be swapped with CBIO shares in a similar way to how off-shore shareholders’ Continent shares are swapped with CBIO shares, if they have a way to transfer their Continent shares out of China. We are exploring various options and discussing with stakeholders on how to meet the needs of China-domestic Continent shareholders’ holdings. As such, we do not know yet who will support these transactions what way and how this “liability” may show up in our balance sheet.

Q5: I understand that the purpose of the reverse-merger transaction with CBIO is to fund F351 clinical developments for NASH in the U.S. When do you plan to conduct the NASH clinical trial? Are you considering any alliance or license-out deals with other companies for this trial? Do you think you are able to raise funds from the U.S. investors, as NASH is considered to be a difficult disease to treat?

A5: Currently, F351 rights outside China are owned by CBIO, whom the Group owns only around 17% of its voting share until Transaction 2 is approved by CBIO shareholders in Q2, 2023 (please refer to the Company’s disclosure on December 27, 2022 for more details). Therefore, the Company cannot publicly discuss its future prospect at this moment. One thing we can say now is that the Group will support clinical developments in the U.S. As a Group’s strategy, we want to keep various options open. Please note that one of the reasons for seeking a source of funds in the U.S. is to minimize dilution for the Company’s shareholders in Japan, if a further fund-raising need were to arise.

Q6: Regarding 2023 forecast, the profit attributable to owners of the parent is much higher than 2022 actual number. Given the profit after tax in 2022 was negative, why does the profit attributable to owners of the parent go up this much?

A6: This was because only the portion of Cullgen’s loss that belongs to the Company (28.3%) is booked to our profit attributable to owners of the parent. The profits from other profitable entities such as Continent (56.0%) and BAB (100%) are booked to our profit attributable to owners of the parent as well, but since the Company’s ownership in those profitable entities is higher than in Cullgen, the profits coming from Continent and BAB compensate the loss coming from Cullgen enough to bring the profit attributable to owners of the parent to the level indicated. We expect Cullgen’s expenses will increase as they will continue to invest into R&D, and as Cullen grows in size, we expect their other expenditure will also rise. Due to this reason, as long as we consolidate Cullgen, the Group’s consolidated profit and the profit attributable to owner of the parent are heavily influenced by Cullgen, and you will see large differences between those two profit items. As stated above, the Group intends to remain as the largest shareholder of Cullgen, but as Cullgen continues to grow, it will be inevitable for the Company to deconsolidate Cullgen at some point. As we have shown in Slide 13 of our investor deck, our consolidated profit figures would show very different numbers if we were to deconsolidate Cullgen. We believe what is shown on Slide 13 is closer to the reality of the Group.

Q7: Why could you not anticipate Continent’s IPO expense write off earlier? CBIO deal progressed rapidly last year?

A7: We could not incorporate the related write offs and expenses for Q3 Tanshin and updated forecast, as CBIO deal was rapidly firmed up at the very end of 2022.

Q8: Is Osderma’s / Ruixing’s business for aesthetics application of BAB’s biomaterials technology starting from 2023?

A8: Yes, but some companies that joined the Osderma / Ruixing joint venture have been engaged in biomaterials business, so there’s good inertia toward the business launch.

Q9: Why was operating profit down by JPY 670 million even compared to the forecast revised in November last year, which was just 3 months ago?

A9: The Group’s operating profit was hit in the last 2 months of 2022 by unexpected expense items such as the IPO write off (JPY 395 million), CellCarta write off (JPY 321 million), and M&A-related expenses at year-end. In our financial statements, Other Expenses come above Operating Profit, so the above write-off’s and one-time expenses affected our Operating Profit.

Q10: Regarding CBIO’s listing status in Nasdaq, the Company said in its disclosure before that the Company would take measures to keep CBIO listed. I understand that you will have to do it by May or so, as CBIO’s stock price has been below $1 since Sep last year. What are you going to do?

A10: There are many ways to avoid delisting due to this rule, as we stated in Q17 of our 2nd Q&A on this transaction published on January 18, 2023. However, since this is a CBIO issue, we cannot discuss further details before CBIO’s board makes a decision.

Q11: Is there any possibility that the CBIO stocks which the Group acquired would turn into floating stocks (i.e., the Group sells those stocks in the market)?

A11: We do not have any plan to sell CBIO stock at this moment. We consider the stock as highly valuable assets of the Group.

Q12: Why is CBIO’s common stock owned by the Group valued only at JPY 432 million, while tax-wise it will be regarded as USD 35 million worth of income?

A12: Based on extensive discussions with our auditor, we have decided to take a conservative position on the value of the CBIO stock which the Group received. As a result, all the CBIO preferred shares which the Group holds are deemed to have 0 value in the financial statements.

Q13: How is CBIO’s preferred stock booked in the Group’s balance sheet? In investment and other assets?

A13: The preferred stock is currently booked at zero value in the Group’s balance sheet as of 2022 fiscal year end as a result of discussions with our auditor.

Q14: After Transaction 2 with CBIO is completed, will Continent’s value be booked to GNI’s Other Income?

A14: There will be no impact from CBIO to the Group’s consolidated statement of income, as CBIO will be a subsidiary of the Group.

Q15: Why are RP (Radiation Pneumonitis) and DN (Diabetic Nephropathy) no longer mentioned in R&D section of Tanshin?

A15: We are labelling DN (Diabetic Nephropathy) as DKD (Diabetic Kidney Disease) now. They are synonymous. We switched the wording as DKD is easier to understand for many people outside the medical and pharmaceutical industries. Regarding RP, during the course of 2022, Continent transferred the sponsorship of Pirfenidone’s clinical trial for RP to the investigators at the hospital where the trial was conducted. The reason was for Continent to focus on F351 and other indications of Pirfenidone. This is why we have removed the reference to RP from Continent’s R&D descriptions and pipeline Chart from the Company’s disclosure materials, although Continent does continue to support those doctors who continue the trial.