CMIC Holdings Co Ltd
TSE:2309

Watchlist Manager
CMIC Holdings Co Ltd Logo
CMIC Holdings Co Ltd
TSE:2309
Watchlist
Price: 999 999.9999 JPY 37 893.92% Market Closed
Market Cap: 47.6B JPY
Have any thoughts about
CMIC Holdings Co Ltd?
Write Note

Earnings Call Transcript

Earnings Call Transcript
2022-Q4

from 0
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 2020 Financial Results Presentation Meeting. Today, we have CEO, Kazuo Nakamura, COO, Keiko Oishi and CFO Wataru Mochizuki with us. First of all, our CFO, Wataru Mochizuki will explain the financial results and then CEO Nakamura will present the future outlook of our business, followed by a Q&A session. We are scheduled to end at 2:00 pm after the Q&A session. The video recording of this call will be posted later on CMIC's IR and will be available to view on demand.

Now our CFO Wataru Mochizuki will explain an overview of financial results.

W
Wataru Mochizuki
executive

Hello. I am Mochizuki. I will be giving an overview of financial results for the fiscal year ended September 30, 2022. The following is a description of our group's business activities. CMIC has positioned the current fiscal year ended September 30, 2022 which marks the 30th anniversary of its founding as the first year of its third founding. In addition to promoting drug development and digitalization based on new drug discovery platform technologies, CMIC is expanding its business domain into the health care field and promoting support for total disease care initiatives from prevention to diagnosis, treatment and prognosis.

This table shows CMIC Group sites. As of September 30, 2022, the CMIC Group consists of 26 companies including CMIC Holdings, the holding company and 24 consolidated subsidiaries September 30, 2022, and 1 equity method affiliated company, 13 of which are overseas and has 62 sites, including plants and laboratories in Japan and overseas. Effective this fiscal year, we have changed our reportable segments to pharmaceutical solutions and health care solutions. The Pharmaceutical Solutions segment consists mainly of the CRO business, which provides development support to pharmaceutical companies, the CDMO business, which provides manufacturing support and the market solutions business, which conducts sales and marketing and orphan drug development and sales.

The Health Care Solutions segment consists mainly of the site support solutions business, which provides support to medical institutions and health care professionals and the Healthcare Revolution business, which provides support to individuals and local governments. The year-on-year increase, decrease and percentages of results by segment shown in today's materials are comparisons based on the classification after the change. This fiscal year is the first year of our FY 2022 to '25 midterm plan formulated in November 2021.

We are working to address our midterm plan priorities. One, the advancement of health care business, two the strengthening of comprehensive support for disease prevention and treatment from R&D to marketing, and three, contribution to sustainable society through businesses that are highly beneficial to society.

First, let me talk about our progress toward advancement in the health care business. We have continued from the previous fiscal year to provide comprehensive efforts, including follow-up of infected patients, call center and physician nurse referrals and provision of antigen and antibody test kits, along with providing COVID vaccination and PCR test support services with the current concern about the eighth wave and simultaneous influenza pandemic, we are receiving an increasing number. The contract extensions for existing contracts and new inquiries. We are also promoting self-check services for health insurance associations of local governments as well as for individuals.

Currently, self-check products have launched for HPV, cervical cancer and chronic kidney disease as well as [indiscernible] and stress-related symptoms. This is an initiative for PHR utilization. In June 2022, CMIC announced its participation in a PHR Service Business Association, tentative name, together with 14 companies engaged in a PHR service business, including pharmaceuticals, medical devices, health-related apps and insurance. Taking part in the activities of the PHR Service Business Association, tentative name, CMIC will join other participating companies to study the standardization of the effective utilization of data related to health and medical care and the establishment of rules to promote quality improvement of PHR services. With regard to strengthening comprehensive support for disease prevention and treatment from R&D to sales, we have entered into a partnership with Science 37 to promote decentralized clinical trials, DCT and state of drug development is an initiative to speed up and improve the efficiency of drug and medical device development.

DCTs have great interest to pharmaceutical companies and an increasing number. The trials are in portering elements of DCT, such as telemedicine, home visit, nursing care and EPRO. In the bioanalysis business, we are actively engaged in supporting drug discovery in advanced areas where modalities are becoming increasingly diverse such as next generation biopharmaceuticals and gene therapy drugs. In addition, the development of glycerol phenylbutyrate, Ravicti for the treatment of urea cycle disorders began in Japan.

CMIC was awarded best contract research organization at the Informa Pharma Intelligence, awards Japan 2022 held in September this year. This award is the Japanese equivalent to the world-renowned script Awards for excellence and innovation by Japanese pharmaceutical and biotechnology companies to highlight Japan's role in a global health care industry. This is the first time the script awards have been held in Japan. CMIC was selected for the award and recognition of its contributions to the approval and marketing of pharmaceutical products, its activities against COVID infection and its multifaceted business development, including partnerships with various companies.

Regarding contribution to a sustainable society as a company involved in the business of supporting people's life and health, the CMIC Group places a high priority on ethics and science and is proactively developing human resources who can play an active role in these areas and providing opportunities for them to do so. In December last year, our core operating company, CMIC Co. Limited obtained Cerumen Certification as a company supporting child-rearing.

Also as ongoing social contribution activities, we support activities such as Rare Disease Day, award the Aids Society of Japan Price and co-sponsor the international children's drawing contest. In this fiscal year, we are supporting athletes with disabilities who aim to compete in apparel impact. We are also promoting our contributions to society as well as internally developing talent and improving work-life balance by centering on the key concept of a ikigai or a reason for living.

This is an overview of consolidated income statement. Sales in the current fiscal year were JPY 108,461 million, which was 26.4% year-on-year by JPY 22,672 million. Operating income was JPY 11,845 million, which was up 140.7% year-on-year by JPY 6,924 million. Ordinary income was JPY 13,450 million, which was up 164.2% year-on-year by JPY 8,358 million. Profit attributable to owners of parent was JPY 8,387 million, which was up 314.5% year-on-year by JPY 6,364 million.

Earnings per share were JPY 469.44, which is the highest ever recorded. Effective from the current fiscal year, the company has adopted accounting standards for revenue recognition for its impact on the current consolidated total sales increased by JPY 3,293 million. Cost of sales increased by JPY 3,090 million, and operating income, ordinary income and profit before income taxes increased by JPY 203 million each.

As for the breakdown of nonoperating income loss and extraordinary income loss, foreign exchange gains, et cetera, of JPY 1,830 million were posted as nonoperating income and interest expenses, et cetera, of JPY 225 million were posted as nonoperating expenses. The company recorded JPY 139 million in gain on reversal of asset retirement obligations as extraordinary income, JPY 1,550 billion in impairment loss and loss on retirement of fixed assets as extraordinary loss, JPY 6,066 million in corporate tax, inhabitant tax and enterprise tax and JPY 657 million and net income attributable to noncontrolling interests.

Regarding the impairment loss, the amount of JPY 1,386 million was recorded for the fixed assets in our CDMO business in the U.S. In addition, the company reported minus JPY 3,071 million in income taxes deferred resulting from the revision of tax effect company classification and some consolidated subsidiaries, which decreased our income tax burden. Sales and operating income by segment are shown in a table below. Sales and operating income increased significantly from the previous fiscal year due to substantial growth in vaccine development and vaccination support services for new coronavirus infections in the Healthcare Solutions segment as well as solid performance in each of the businesses in the Pharmaceutical Solutions segment.

Orders received and order backlog by segment are shown on a table below. Orders received increased by 23.3% compared to the previous fiscal year, and the order backlog increased by 7.0% compared to the previous fiscal year. The percentage of sales for reportable segments were 71.6% for pharmaceutical solutions and 28.4% for Healthcare Solutions. The composition ratio of health care solutions increased compared to the previous fiscal year due to significant growth in vaccine development for new coronavirus infections and vaccination support services et cetera in health care solutions. The following is the sales composition by business segment of Pharmaceutical Solutions. Sales grew in all businesses, reaching JPY 78,188 million, and operating income also increased to JPY 4,752 million.

In accordance with the application of the accounting standard for revenue recognition, segment sales and income increased by JPY 2,819 million and JPY 242 million, respectively, compared with the previous method. This is an overview of the Pharmaceutical Solutions CRO business. Our sales has increased compared to the previous fiscal year as we acquired orders for new development projects. Also, our operation ratio has improved, lifting our profit rate up and beyond the level of the previous fiscal year. This is an overview of the Pharmaceutical Solutions CDMO business. Sales increased from the previous year due to an increase in contract production volume in Japan. However, EBITDA margin were lower than the previous year due to the slow recovery of the U.S. business performance.

Domestically, new projects expanded steadily with the need for the stable supply of pharmaceuticals. We are strengthening our sales activities in the U.S. business in order to get our performance back on track while continuing to closely monitor the price trends and supply issues and energy, raw materials and so on. This is an overview of the Pharmaceutical Solutions Market Solutions business. Sales increased from the previous year. The business profit margin was maintained at the same level as the previous fiscal year due to the acquisition of new projects and steady progress in existing projects in MR dispatch services as well as a recovery in orphan drugs despite the temporary impact of manufacturing delays.

The following is a breakdown of the sales composition of the health care solutions business, profit has increased significantly with sales in both businesses rising to JPY 31,007 million and operating income rising to JPY 8,660 million. The sales composition is 40.6% for the Site Support Solutions business and 59.4% for the Healthcare Revolution business, the composition of the health care revolution business increased due to vaccination support.

This is an overview of the Health Care Solutions Site Support Solutions business. Sales were significantly higher than in the previous year, and the business profit margin also increased. Development of vaccines and therapeutic drugs for new coronavirus infection and call center projects are increasing. To expand our business domain, we are strengthening collaboration with academia in addition to medical institutions, health care solutions, health care revolution, business overview. Sales were significantly higher than in the previous year, and the business profit margin was also at a high level. There has been an increase in local government support services driven by our COVID vaccination support services for them.

In addition, we are expanding business that integrates disease prevention, health information and information technology. Here, I'd like to explain our consolidated balance sheet. Total assets at the end of the period increased JPY 16,397 million from the end of the previous fiscal year to JPY 107,590 billion, mainly due to increases in trade receivables and tangible fixed assets. Capital expenditures totaled JPY 8,846 million. Depreciation totaled JPY 5,230 million. Liabilities increased JPY 9,614 million from the end of the previous fiscal year to JPY 66,320 billion due to increases in accrued bonuses, contract liabilities. Net assets increased JPY 8,783 million from the end of the previous fiscal year to JPY 41,269 million, mainly due to increases in retained earnings.

Operating cash flow for the period was JPY 11,213 million, mainly due to an increase in funds from net income and depreciation and amortization. Investment cash flow was an outflow of JPY 8,045 million, mainly due to the acquisition of tangible fixed assets in the CDMO business. Financing cash flow was a net outflow of JPY 1,230 million, mainly due to dividend payments and share buybacks. As a result of the above, cash and cash equivalents at the end of September totaled JPY 11,703 million.

Next I will explain the full year earnings forecast for the fiscal year ending September 30, 2023. For the fiscal year ending September 30, 2023, net sales are expected to be JPY 95,000 million, down 12.4% from the previous year, and operating income is expected to be JPY 5,000 million, down 57.8% from the previous year. Operating income margin will be 5.3%. This is due to the reaction to the significant demand for vaccination support services and others in the health care solutions segment in the previous fiscal year, while the Pharmaceutical Solutions segment will show steady growth.

Ordinary income is projected to be JPY 4,700 billion. Net income attributable to shareholders of the parent company is projected to be JPY 2,900 million, and net income per share is projected to be JPY 163.64. Capital expenditures are expected to be JPY 6,300 million, and depreciation is expected to be JPY 5,600 million. The company plans to pay a dividend of JPY 50 per share. That is all about an overview of financial results.

Thank you. From here on, Nakamura will give you a glance of our CMIC's business outlook.

K
Kazuo Nakamura
executive

I am Nakamura, and I will speak about CMIC's business outlook here on. It was unfortunate that Japanese companies did not contribute to the development of COVID vaccine development, but I would like to talk about how the trend of new drug development has changed. The number of drugs not yet approved in Japan is on the rise. These new drugs have already been approved in the United States and Europe, but have not yet been approved in Japan. From 2010 to 2021, FDA approved total 481 products, out of which 68% are also approved in Europe. However, Japan has only approved 47% out of this, meaning more than half are not yet approved in Japan.

Also, we see changes in the type of companies that got approved in the United States. 62% of the approvals are given to pharmaceutical companies and 37% to biotech. On the other hand, when we look at the U.S. approved drugs that are also approved in Japan, 41% of the U.S. approved products held by pharmaceutical companies are not approved in Japan. 72% of the emerging biotech products are non-approved. So we could say that around 70% have not been approved or not developed in Japan. Biotech has been on the forefront of new drug development and even pharmaceutical companies are licensing in from biotech. When we look at the overall picture in which almost 2/3 of the new drugs are developed by biotech. It is true that many new drugs are developed by biotech not well known in Japan. We are under the situation that new drug development would not advance without biotech, and we noticed the broadening drug lag in Japan behind its peers.

Let me explain how the Japanese market is changing in terms of drug development. As you know, due to the depreciation of the yen and lower labor costs, development costs in Japan are relatively lower than in other countries. Furthermore, because of the high quality of Japanese development, there is a reviving trend to develop drugs in Japan and use the data at the FDA. The trend of not wanting to get the initial approval in Japan and wanting to get FDA approval. First remains unchanged since the drug price becomes lower if it is first approved in Japan due to the NHI drug price standard.

On the other hand, emerging biotech from overseas do not know Japan well and have no experience developing drugs in Japan. So there is a growing need for a system that enables drug development without having a Japanese subsidiary such as what CMIC has. In addition, domestic pharmaceutical companies have an increasing need for support and introducing overseas developed items and in developing those items overseas that they have introduced. Perhaps today, Japanese companies are losing more and more of their expertise in new drug development. And with the newly established consulting and navigation unit, we are trying to fully support pharmaceutical companies and biotech with our extensive experience and advanced expertise and information, and we are trying to provide a full range of support around pharmaceuticals and biotech.

As such, we are deepening the dimensions of our business. Now I am going to touch on a different topic, health care. We are facing many challenges in our super aging society, and we are promoting health care based on a ikigai. Behind this is the average life expectancy and healthy life expectancy. As Japan's population ages, the number of elderly people over 100 years of age is increasing, and Japan leads the world in both average life expectancy and healthy life expectancy.

Although there are many challenges, it is wonderful that average life expectancy and healthy life expectancy are increasing, and it is everyone's desire to extend healthy life expectancy still further. What is ikigai? Based on Dana from Japan, a book was published in Spain in 2016 about how Japan's longevity and happiness is achieved because of our brilliant ikigai. The book has been translated in 63 countries and is the best seller worldwide. The data shows that increasing a ikigai will increase healthy life expectancy. This is the original data. A report published in English and 2008 showed that the presence of ikigai is related to healthy life expectancy, and research has been advancing overseas.

A book on ikigai has been published based on the evidence that people with ikigai have a longer and healthier life expectancy and the world is paying great attention to ikigai. Even the results of Harvard University's famous 75-year follow-up study found that good relationships played a bigger role in longevity than cholesterol and blood sugar levels. This surprising finding means that how happy you are and your relationship has a huge impact on your health. It means that we now know that there are factors in the same areas as social relationships on ikigai. Another book, The Village effect by Susan Pinker, which became an international best seller says that face-to-face in person interactions and live encounters are important and related to longevity.

However, the COVID-19 infection control measure of staying at home has resulted in a loss of face-to-face contact. This is the point. When we think about health care in the future, it will be very important for local governments, companies and individuals to find ways to restore the state of health. That is why we have launched the support service for local governments based on ikigai. We currently serve 40 municipalities, providing comprehensive support for infection control and health management by individuals. This includes prevention against cruelty, local health care promotion, epidemiological surveys, health measurement sessions, antigen and PCR testing and comprehensive health care such as our own health care communication channel, harmless services as well as services for improving the efficiency and quality of the health care system.

One example is Miyaki Town and Saga Prefecture, which aims to improve the health of the entire Miyaki Town. We are using a variety of personal and medical data to analyze trends and health status and support health measures. Our prescription data and that of the town's pharmacies are combined and monitor to support the development of a healthier town.

Now I will talk about PHR, which are currently attracting a lot of attention. The Japanese government has also suddenly started talking about PHR, which are an attempt to improve health and change the health care system by allowing individuals to be in hold of and use their own medical, health and nursing care information in a digital format. Led by the Ministry of Economy, Trade and Industry in Japan, the PHR Service Business Association was established to transcend the boundaries of the private sector. I myself, am participating as Secretary of this subcommittee. We have already started a proof-of-concept study on PHR. And I would like to talk about that. I have also the opportunity to speak about PHR at international conference call, The Well Aging Society Summit, Asia-Japan. The cornerstone of the PHR service, we are developing a CMIC's harmo, a health care communication channel. It can be used within a variety of IT tools and uses Sony's [indiscernible] technology. Harmo is a drug history handbook, in its nature, but we are also using it as a vaccination management system during the COVID pandemic.

The COVID-19 vaccine has to be administered all at once by the local governments to their citizens. We developed a system that reads the information on a vaccination voucher with a bar code manages the last number of the vaccine and provides information to the inoculated person. This system has successfully prevented 40 vaccination accidents. The system has been used at 200 vaccination sites in 21 municipalities with 1.05 million registered users.

Also, Harmo's electronic drug history handbook, has 400,000 users and is used in 801 stores and 100 medical institutions. The drug history handbook can be displayed and managed on a card or smartphones. This drug history handbook can be utilized by the patient himself/herself, but it can also be used as an emergency card when responding to an emergency, showing what medications the patient is taking and estimating what kind of illness he or she is suffering from.

Medical institutions are actively adopting harmo as they are very convenient for elderly patients and are very helpful during emergency procedures. It is important to know whether patients have these drug history handbooks, whether they can use them and who uses them and how they are used. I believe that various businesses will come up with PHR in the future, but we wanted elderly people to have them close at hand.

So we collaborated with Kiyomizu - dera Temple to create an Okusuri Omamori, medication good luck charm with an IC chip in it. When we contact elderly people and municipalities, we find that even if they have a card, they do not know which card contains their medication history, and they are not smartphone savvy. We want them to bring the card with them as much as possible. So we are developing a drug history handbook, that includes this kind of [indiscernible].

We are approaching municipalities and individuals to improve health care by looking at things from the perspective of ikigai, which is not limited to the treatment of illnesses, but also to the happiness of each individual in order to live a full life and by using a variety of data and digital operations in the background, and we have already started a proof-of-concept study. This concludes my part. Thank you.

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