Performance trends of Anges (4563).

1. Summary of Performance for the Second Quarter Ended December 2024

For the cumulative business revenue in the second quarter of the fiscal year ending December 2024, it amounted to 3.47 billion yen (an increase of 296 million yen compared to the same period last year), operating loss decreased by 843 million yen to 5.107 billion yen, ordinary loss decreased by 1,586 million yen to 3,190 million yen, and the quarterly net loss attributable to the parent company's shareholders decreased by 1,329 million yen to 3,500 million yen.

Business revenue expanded steadily with a fee income increase of 68 million yen to 107 million yen in optional genetic disease screening tests compared to the same period last year. This was also boosted by sales of 151 million yen of 'Zokinvi', research and development business revenue of 76 million yen from receiving a license fee from Anocca, etc. Sales of 'Colategene' remained at the same level of 11 million yen, but sales were temporarily discontinued domestically as mentioned earlier by withdrawing the marketing authorization application.

The cost of sales increased by 141 million yen year-on-year to 199 million yen. The cost of sales for 'Colategene' decreased by 3 million yen due to the elimination of inventory write-offs in the same period last year, but was offset by a 44 million yen increase in ACRL's cost of sales, and a 100 million yen increase in the cost of purchasing 'Zokinvi'.

Research and development expenses decreased by 918 million yen year-on-year to 2,245 million yen. This was attributed to a reduction of 329 million yen in personnel expenses due to Emendo's structural reform, as well as a decrease of 233 million yen in outsourcing expenses and 122 million yen in payment fees. Selling, general, and administrative expenses increased by 229 million yen to 3,009 million yen. This increase was due to higher fees paid to lawyers, experts, and consultants in connection with Emendo's structural reform, and a 1,668 million yen increase in impairment losses due to the progress of the weakening yen exchange rate.

Non-operating income and expenses improved by 742 million yen compared to the same period last year. While subsidy income decreased by 46 million yen, exchange gains increased by 826 million yen due to the revaluation of loans to Emendo. Additionally, a special loss of 230 million yen was recorded for restructuring expenses related to the research and development department of Emendo.

It is expected that the operating loss for the fiscal year ending December 2024 will decrease due to the implementation of Emendo's business restructuring.

Performance outlook for the fiscal year ending December 2024.

For the fiscal year ending December 2024, it is expected to have a business revenue of 600 million yen (an increase of 447 million yen compared to the previous year), an operating loss of 8,450 million yen (a decrease of 3,517 million yen), an ordinary loss of 8,450 million yen (an increase of 2,798 million yen), and a net loss attributable to the parent company's shareholders of 8,650 million yen (an increase of 1,212 million yen). Emendo revised its consolidated performance plan for the fiscal year ending December 2024 due to the recognition of a one-time license fee in the second quarter following the partnership with Anocca.

Business revenue is expected to increase due to the expansion of commission income at ACRL, the launch of 'Zokinvi,' and the increase in research and development business revenue recognized until the second quarter. However, there is a possibility that the full-year plan may slightly fall short depending on the timing of 'Zokinvi' sales recognition, as the sales of 'Colategene' ended in the second quarter.

Regarding operating expenses, while there are cost increases due to the increase in sales at ACRL and the recognition of purchase costs for 'Zokinvi,' research and development expenses are expected to decrease by approximately 2 billion yen compared to the previous year primarily due to the downsizing of Emendo's research and development department, which will contribute to the reduction in operating losses. However, due to the exchange rates exceeding the assumed 142 yen/US dollar until the second quarter, expenses denominated in foreign currencies, including goodwill amortization, have increased, so there is a possibility that the loss amount may slightly expand depending on the exchange rate levels in the second half. On the other hand, there will be no more subsidy income of 5,402 million yen related to the development of a new coronavirus vaccine, which was accounted for as non-operating income in the previous year, and no exchange gains (which amounted to 745 million yen in the previous year) are expected, leading to an anticipated expansion in ordinary losses and net losses attributable to the parent company's shareholders compared to the previous year.

The company plans to issue new corporate bonds and subscription rights for new shares through third-party allotment to secure short-term operating funds.

Regarding financial circumstances:

As of the end of the second quarter of the fiscal year ending December 2024, the financial position shows total assets of 27,675 million yen, a decrease of 1,217 million yen compared to the previous year-end. In current assets, the purchase of 'Zokinvi' led to an increase in inventory by 213 million yen, but cash and deposits decreased by 2,339 million yen due to payments such as operating expenses. Additionally, a decrease of 379 million yen in raw materials and finished goods was recorded due to the evaluation loss of materials expected to be disposed of due to expiration. Fixed assets increased to 22,943 million yen, with Emendo's goodwill denominated in US dollars increasing by 1,197 million yen by the end of the second quarter, as the yen weakened. However, with the exchange rate reaching 140 yen/US dollar as of September 13, lower than the 160 yen/US dollar at the end of the second quarter, if this level continues, the goodwill by the end of the third quarter is expected to fall below 20 billion yen.

Total liabilities decreased by 591 million yen compared to the previous year-end, amounting to 2,198 million yen. Trade payables decreased by 146 million yen and accrued expenses decreased by 165 million yen due to the payment of expenses in the previous year. Additionally, due to the payment of restructuring costs at Emendo, the provision for restructuring costs decreased by 252 million yen. Total net assets decreased by 625 million yen, totaling 25,477 million yen. Capital stock and capital surplus increased by 936 million yen each due to the exercise of new share subscription rights and the issuance of convertible bonds with stock acquisition rights. On the other hand, the revaluation account for foreign currency translation adjustments increased by 934 million yen due to the yen depreciation. However, profit reserves decreased by 3,500 million yen due to the recognition of quarterly net losses attributable to the parent company's shareholders.

The company has issued unsecured bonds worth 13 billion yen through third-party allocation in September 2024, along with the 45th series of subscription rights (with a price adjustment clause for exercise price, 129.2 million potential shares, initial exercise price of 63.9 yen, lower limit exercise price of 35.5 yen), as the cash and deposit balance at the end of the second quarter was approximately 1.8 billion yen, indicating tight financing. The company plans to use these to cover its immediate business operating funds. If all the subscription rights are exercised at the initial exercise price, the number of shares issued would increase by 54.4% and raise 82.68 billion yen, of which 13 billion yen would be used to repay the unsecured bonds. The company has also acquired and eliminated the 44th series of subscription rights, raising 11.18 billion yen through the exercise of these rights from July to the end of September 2024.

As specific uses of the funds raised, the company anticipates allocating 38.78 billion yen for research and development expenses for the global expansion of HGF gene therapy products, in addition to planned expenses for the manufacturing and sales of "Zokinvi", the second phase clinical trial costs of NF-kB decoy oligo, and investments to enhance the testing business capabilities. Among these, for the HGF gene therapy products, if partner contracts can be signed in the future, there is a possibility of reducing the costs, as previously mentioned.

(Written by FISCO guest analyst, Jo Sato)