FY2022 Q1 Analyst Call Q&A Summary
(Held on May 19, 2022)
Q1: What are the expected impacts of lockdown in China due to COVID-19 resurgence on GNI's 2nd quarter results?
A1: It is true that the impacts on Shanghai have been significant from early April to the first half of May, but they are much less in other areas. Beijing has not been locked down as severely as Shanghai; only some districts have been locked down, and hospitals have been open. If you look at drug sales, the sales usually go up in Beijing and Shanghai during the early stage due to academic promotion, and other populous provinces such as Guangdong, Shandong, Henan will be the major markets afterwards. In the last 2 years, our drug sales have been going up in regional cities in the ascending order of their size; consequently, Shanghai's weight in our drug sales has been dropping in proportion. This is why we still maintain our original forecast for this year at this moment. Although we cannot predict the future, we expect the COVID-19 outbreak to subside as summer approaches.
Q2: Regarding the strategic investments,
(a) What is the rough budget?
(b) What kind of investments are you looking for (e.g., M&A, licensing)?
(c) Any specific region (the US, China, etc.)?
A2: We have long been investing strategically, as you can see in Beijing Continent (BC below), Cullgen, and Berkeley Advanced Biomaterials (BAB below), which are the outcomes of our previous investments.
(a) In terms of the investment budget, we're looking at both large and small investments. For the former type has to be profitable, and we take a majority stake. For the latter we take a minority stake to further incubate the company. GNI is a profitable company now, and we don't want our investments to erode our profits. We already have an R&D-focused Cullgen under incubation.
(b) Drug discovery and biomaterials are always at the top of our priority list. We will also consider an M&A deal if there is a good opportunity.
(c) Japan is the top priority for investments, followed by the United States and China.
Q3: Do you have any plan to leverage Beijing Continent's manufacturing capabilities or Cullgen's innovation in Japan?
A3: We are looking into the possibility of combining our manufacturing capacity in China with opportunities in Japan. But we cannot disclose more at this point. Cullgen's novel cancer drugs will be developed globally. Japan will certainly be included in future multi-center global clinical trials.
Q4: Regarding the F351 clinical trial in the US, do you have a plan to license the program to another company in the US at some point?
A4: We completed Phase 1 clinical trial in the US, and the indication of Phase 2 is NASH-induced fibrosis. We are talking to the US FDA, who have already given us some feedback. We are still discussing back and forth what kind of clinical trial plan will be suitable for Phase 2 clinical trial of NASH-related liver fibrosis. NASH-related fibrosis is a big indication, and we are looking into various possibilities for collaborating with other partners in the US market, as the trial is going to be very large and expensive.
Q5: NASH is a large market, but it is also a difficult area in which many programs have failed. What is your prospect of succeeding when so many others have not?
A5: NASH is a graveyard of many billion-dollar assets. So, we intend to move very cautiously because GNI's profitability cannot be negatively impacted by a wrong move. We intend to move in two steps. The first step is to finish the Phase 3 trial and obtain the approval in China, and then (as the second step) expand into NASH in China to learn the results before moving on to Phase 3 in the US. While we are working on Phase 3 clinical trial in China, we would like to nail down the protocol of our NASH fibrosis tests in the US based on the results from Phase 1 we already have done so that we can readily translate the Chinese results into the US. We believe this is the safest path for GNI.
Q6: What is the rationale behind your plan that skips ETUARY® 's Phase 2 trial and goes straight to Phase 3 in Diabetic Nephropathy?
A6: There have previously been two pirfenidone clinical trials for kidney fibrosis in the US with positive results. As a result, we can discuss with the Chinese FDA using the published data in the US to understand whether we can move to Phase 3 directly.
Q7: What is China's biomaterial sales contribution for FY2021, and what is the YoY growth expectation for this year?
A7: Our biomaterials sales in China accounted for around 15% of our overall sales in 2021. Our goal is to increase our Chinese sales by 10 folds in the following two to three years, depending on how quickly we can reach an agreement with our Chinese partner. Biomaterials business constituted nearly 1/3 of GNI's total profit in FY2021. We plan to grow it to a larger percentage in the coming years.
Q8: What type of partner are you looking for in terms of biomaterial business in China?
A8: We're looking for both new product developers and distributors. We are negotiating for strategic partnerships to extend our pipeline and distribution channels at the same time, as we rebuild the biomaterials business with additional products and opportunities across the Pacific.
Q9: What is the new aesthetics industry? Is it plastic surgery? How do you plan to invest in it? Through M&A's?
A9: We are developing a variety of product lines, including the application of our biomaterial to plastic surgeries because our biomaterial has been used in orthopedics. It is quite natural to pivot it into a plastic surgery product, which is currently in great demand in China. As previously stated, we engage in two types of investments: one is large, for which we aim to acquire a majority interest from the beginning. The other is small, in which we invest from the incubation stage. For biomaterial business, we are thinking of the latter (small investment). We will disclose more when we make the decision.