CMIC Holdings Co Ltd

TSE:2309

Earnings Call Transcript 2021-Q3

[Operator]

Thank you very much for taking time out of your busy schedule and joining the conference call today. We are now starting the CMIC Holdings Third Quarter Financial Results Presentation Meeting. Today, our CFO, Wataru Mochizuki, who will explain the financial results overview.

We are scheduled to end at 5:45 p.m. after the Q&A session. The video recording of this call will be posted later on CMIC's IR web page and be available to be viewed on demand. Now our CFO, Wataru Mochizuki, will explain an overview of financial results.

[Wataru Mochizuki, executive]

Hello. I am Mochizuki, and I'll be giving an overview of financial results for the third quarter of the fiscal year ending September 30, 2021. This table shows the business segments and corresponding group companies as of the end of June 2021. CMIC Group consists of 25 companies in total, which includes CMIC Holdings that is a holding company, 24 consolidated subsidiaries, including 13 from overseas.

In this term, CMIC Group is executing the focused activities in the midterm plan, which are the acceleration of our PVC model, the promotion of globalization and the creation of the health care business in order to achieve sustainable growth and increase our corporate values in the drastically changing medical and pharmaceutical industry.

Regarding the creation of health care business in particular, as part of our Healthcare Revolution project started in July last year, we are creating new businesses that will contribute to maintaining and improving personal health and developing talent in the health care arena, partly for the purpose of responding to COVID-19 pandemic.

Regarding our main business activities in the consolidated cumulative third quarter 2021, we are focusing on contributing to COVID-19 countermeasures in the initiative of healthcare revolution. We are providing support for local governments to prepare the vaccination systems by utilizing CMIC Group's human resources, call centers and the health care communication channel, harmo-based vaccine management system.

With regard to the creation of business that contributes to maintaining personal health, we have launched the operation of the

MONET LABO—HEALTHCARE, a medical MasS, a Mobility-as-a-Service business development program with MONET Technologies, Inc., which was shortly established by SoftBank Corp., Toyota Auto Corporation and others.

For the acceleration and streamlining of drug and device development, we have started a demonstration experiment proof-of-concept of clinical trial using harmo as well as projects to support the upstream of development, including support for establishing a business model of digital therapeutics and AI medical device development support. In our IPM solution, which is a unique business solution combining value chains and marketing authorization licenses and others processed by CMIC Group, 2 orphan drugs involved by our group company OrphanPacific Inc. received manufacturing and marketing approval in January this year and NHI's price listing on April 21.

We have launched ORLADEYO capsules on April 21 and Lynspad intravenous infusion 1,000 milligram on July 27. In addition, in order to respond to business environment changes in a more agile way, we implemented changes of executive management in April, including the repeal of the executive officer system. Furthermore, we have introduced and launched the Healthcare Professional Certification System with the aim of developing group's talents in the health care arena. Our certified health care professionals are also supporting the municipalities administering COVID-19 vaccines. Furthermore, in November last year, we acquired International Standard Certification, ISMS, or Information Security Management System for us to continue to strengthen information security. Also in December, we received a letter of appreciation from the Ministry of Economy, Trade and the industry as a company that contributed to the increased production of medical supplies in the COVID-19 pandemic.

This is an overview of consolidated income statement. Sales in the third quarter of fiscal year were JPY 59.146 billion, which was up 4.2% year-on-year by JPY 2,409 million. Operating income was JPY 3,571 million, which was up 13.8% year-on-year by JPY 433 million. Ordinary income was JPY 3,733 million, which was up 7.1% year-on-year by JPY 247 million. Profit attributable to owners of parent was JPY 1,943 million, which was down 18.1% year-on-year by JPY 429 million. Earnings per share were JPY 107.44.

For nonoperating income and expenses and extraordinary income and losses, we recorded JPY 329 million of foreign exchange gains and others for nonoperating income, and JPY 166 million of interest expenses and others for nonoperating expenses. Furthermore, we recorded JPY 41 million in income for extraordinary income and losses altogether, JPY 1,626 million for total income taxes and JPY 203 million net profit attributable to noncontrolling interests. As a result, profit attributable to owners of parent in a consolidated cumulative third quarter was JPY 1,943 million.

This table shows sales and operating income by segment. Sales in a consolidated cumulative third quarter was JPY 59.146 billion, up 4.2% year-on-year. Operating income was JPY 3,571 million, up 13.8% year-on-year, which both exceeded the same period of the previous year, mainly thanks to the growth of the health care business.

The orders received increased in segments, including the health care and CSO businesses, which contributed to 24.0% growth compared with the same period of the previous year. The backlogs increased by 18.0% from the same period of the previous year.

This shows the trend in consolidated sales and operating income. We achieved an increase in both sales and operating income compared with the same period of the previous year and operating margin was 6.0%.

This shows the trend in CRO sales and operating income. For the clinical services and CRO business, we are proposing new clinical trial models, including the streamlining of clinical trial process by using harmo and working to improve the expertise and technical capabilities of our talents.

For the nonclinical services, our laboratories in Japan and the United States are in collaboration to actively provide drug discovery support for advanced medicine, including nucleic acid drugs and regenerative medicines. Sales exceeded the same period of the previous year, thanks to the growth of nonclinical business. Despite the weakness in orders for clinical operations in the previous consolidated fiscal year as a result of the spread of COVID-19 infection, operating income was below the same period of the previous year due to factors such as decrease in revenue from clinical operations. CRO sales were JPY 25,777 million, operating income was JPY 3,872 million and operating margin was 15%.

This is about CDMO business. We are focusing on a large-scale commercial production project that is scheduled to start production in the fiscal year ending September 30, 2022, the launch of new facility and production line in the United States, and hence the acquisition of new projects. CDMO sales were above the same period of the previous year due to an increase in contracted production volume.

Operating income was above the same period of the previous year due to the increase in sales despite buyer investment costs for the contract manufacturing business of biopharmaceutical APIs. CDMO sales were JPY 15,617 million and operating income was JPY 163 million.

This is about CSO business. Sales and operating income exceeded the same period of the previous year, thanks to the acquisition of new MR dispatch service projects. CSO sales were JPY 6,600 million, operating income was JPY 788 million and operating margin was 11.9%.

This is about health care business. Sales were significantly above the same period of the previous year due to growth in the BPO and personal services for vaccination support and SMO operations. Operating income was also significantly above the same period of the previous year due to an increase in sales despite prior investments for the creation of new health care business. Health care sales were JPY 9,323 million, operating income was JPY 1,142 million and operating margin was 12.3%.

This shows the trend in IPM sales and operating income. In this fiscal year, we are selling orphan drugs, including products developed in-house while strengthening the IPM business foundation by supporting foreign companies entering the Japanese market and proposing strategic options through the provision of IPM platform.

In January this year, we received a manufacturing and marketing approval in Japan of all the deal capsules, 150-milligram for the suppression of the onset of attacks in acute hereditary angioedema. At the same time, Lynspad for intravenous infusion 1,000 milligram of Grifols Therapeutics LLC, received manufacturing and marketing approval in Japan in which we have provided support to the approval as an appointed marketing authorization holder and will support its marketing. Both products have received NHI price listings.

Sales were below the same period of the previous year due to a decline in sales volume of some products. Operating income, on the other hand, exceeded the same period of the previous year, thanks to the cost reduction and other factors. IPM sales were JPY 2,453 million, operating income was JPY 152 million and operating margin was 6.2%.

Here, I'd like to explain our consolidated balance sheet. Total assets at the end of the third quarter increased by JPY 3,589 million compared with the end of the previous consolidated fiscal year to JPY 93,107 million. This is due mainly to an increase in notes and accounts receivable trade and tangible noncurrent assets in the CDMO business and a decrease in cash and deposits. Meanwhile, total tangible and intangible fixed assets investment in the third quarter was JPY 5,663 million, depreciation was JPY 3,846 million and amortization of goodwill was JPY 100,000.

Total liabilities increased by JPY 1,382 million compared with the end of the previous consolidated fiscal year to JPY 56,888 million. This is due mainly to an increase in long-term debt and income taxes payable, a decrease in short-term borrowings and provision for bonuses. Total net assets increased by JPY 2,207 million to JPY 36,218 million. This is due mainly to an increase in retained earnings.

As for the full year consolidated earnings forecast for the fiscal year ending in September 2021, the future outlook announced in November 2020 shall be revised upward as follows based on the information available at this point in time: sales in the fiscal year ending in September 2021 is expected to be JPY 82,000 million; operating income is expected to be JPY 3,500 million; ordinary income is expected to be JPY 3,600 million; profit attributable to owners of parent is expected to be JPY 1,700 million. As a result of the semi state of emergency and state of emergency coronavirus measures, while there is delay in data collection, a decline in contract production volume following the reduced pharmaceutical drug sales volume, we expect to see the growth of vaccination support operations for municipalities.

That's all about an overview of financial results. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]