3-D Matrix Ltd. (7777) · SR Research Report 2015/6/12 3-D Matrix Ltd. (7777) Shared Research Inc. has produced this report by request from the company discussed in the report

SR Research Report 2015/6/12

3-D Matrix Ltd. (7777)

Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.

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2015/6/12

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SR Research Report

Contents

Executive summary .................................................................................................. 3 Key financial data .................................................................................................... 4 Recent updates ....................................................................................................... 5

Highlights ............................................................................................................ 5 Trends and outlook .................................................................................................. 9

Quarterly trends and results .................................................................................. 9 Full-year (FY04/16) outlook ................................................................................. 16 Long-term outlook .............................................................................................. 18

Business ............................................................................................................... 21 Business description ........................................................................................... 21 Main business segments ..................................................................................... 23 Main development pipeline .................................................................................. 26 Main business partners ....................................................................................... 38 R&D System ...................................................................................................... 39 Group companies ............................................................................................... 42 Business model .................................................................................................. 43 Strengths and weaknesses .................................................................................. 45 Market and value chain ....................................................................................... 46 Strategy ............................................................................................................ 50

Historical financial statements ................................................................................. 51 Earnings results (for reference purposes).............................................................. 51 Income statement .............................................................................................. 53 Balance sheet .................................................................................................... 55 Statement of cash flows ...................................................................................... 58

Other information .................................................................................................. 59 History .............................................................................................................. 59 News and topics ................................................................................................. 61 Major shareholders ............................................................................................. 76 Dividends and shareholder benefits ...................................................................... 76 Top management ............................................................................................... 76 Employees ......................................................................................................... 77 Glossary ............................................................................................................ 78

Company profile .................................................................................................... 81


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Executive summary

Medical technology company that develops, manufacturers, and markets a

self-assembling peptide technology

3-D Matrix is a medical technology company that develops, manufacturers, and markets a self-assembling peptide technology originally created at the Massachusetts Institute of Technology (MIT). The key features of the company’s business: 1) MIT holds the underlying patent for the self-assembling peptides that are the basis of the 3DM’s

products. The Company has an exclusive global license from MIT for this technology that includes rights of development, manufacture, and marketing of applications that use these self-assembling peptides.

2) Self-assembling peptides have two main advantages over competing medical products currently on the market. Firstly, as they are produced by chemical synthesis, there is no risk of viral or other types of contamination that can occur in goods derived from living organisms. Secondly, they can be mass-produced in a homogenous fashion.

3) These characteristics potentially lend themselves to large-scale use in surgery (as absorbent localized hemostatic agents and mucous membrane protuberance agents) and in the regenerative medicine field (as alveolar bone reconstruction agents).

4) 3DM’s business model attempts to minimize risks particular to medical product start-ups. Specifically, the products it develops are categorized as ‘medical devices’ rather than ‘pharmaceuticals’. Consequently, the duration from application to approval is shorter and costs are lower compared to drug development. (See the Business section for details.)

Trends and outlook

In FY04/15, 3DM reported operating revenue of JPY100mn (JPY107mn in FY04/14), an operating loss of JPY1.9bn (operating loss of JPY1.5bn in FY04/14), a recurring loss of JPY1.8bn (recurring loss of JPY1.5bn in FY04/14), and a net loss of JPY2.0bn (net loss of JPY1.5bn in FY04/14). For FY04/16, the company projects operating revenue between JPY783mn~JPY2.9bn (JPY100mn in FY04/15). Other projected ranges are an operating loss of JPY2.0bn to a profit of JPY24mn (operating loss of JPY1.9bn in FY04/15), a recurring loss of JPY2.0bn to profit of JPY16mn (recurring loss of JPY1.8bn in FY04/15), and a net loss of JPY2.0bn to a profit of JPY11mn (net loss of JPY2.0bn in FY04/15). (See Trends and outlook.) 3DM’s medium-term management plan for the period through FY04/18 targets operating revenue of JPY9.9bn, operating profit of JPY3.0bn, recurring profit of JPY3.0bn, and net income of JPY2.3bn.

Strengths and weaknesses

Shared Research believes that the three strengths of 3DM are its promise of the core self-assembling peptide technology, differentiated business model and large potential market. Weaknesses include its commercial success being dependent on outside partners, dependence on third party core patents with relatively short lives, and potential human resources bottlenecks. (See Strengths, weaknesses for details.)


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Key financial data

Income Statement FY04/10 FY04/11 FY04/12 FY04/13 FY04/14 FY04/15 FY04/16

(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Est.

Operating Revenue 402 158 1,107 32 107 100 783～2,877

YoY - -60.6% 599.5% -97.1% 234.7% -6.9% -

Operating Expenses 467 641 753 1,031 1,626 2,003

YoY - 37.2% 17.5% 36.9% 57.6% 23.2%

Operating Profit -65 -482 354 -999 -1,518 -1,903 -1,996～24

YoY - - - - - - -

OPM - - 32.0% - - - -

Recurring Profit -60 -510 310 -978 -1,524 -1,795 -2,004～16

YoY - - - - - - -RPM - - 28.0% - - - -

Net Income -61 -534 309 -978 -1,525 -1,995 -2,005～11

YoY - - - - - - -Net Margin - - 27.9% - - - -

Per Share Data (JPY; adjusted for stock splits)

Number of Shares (thousands) 13,568 15,168 18,355 18,936 19,876 21,438

EPS -4.5 -35.2 18.4 -52.6 -77.8 -94.9 -93～0.56

EPS (fully diluted) - - 17.3 - - -

Dividend Per Share - - - - - -

Book Value Per Share 86.0 75.1 156.3 53.7 146.2 281.8

Balance Sheet (JPYmn)

Cash and Equivalents 544 589 1,758 2,033 2,641 5,137

Total Current Assets 594 666 2,501 2,484 3,593 6,204

Tangible Fixed Assets, net 7 6 88 107 103 94

Other Fixed Assets 19 22 30 47 86 118

Intangible Assets 578 505 437 383 339 393

Total Assets 1,198 1,199 3,055 3,020 4,121 6,809

Accounts Payable 12 16 22 48 92 139

Short-Term Debt - - - - - -

Total Current Liabilities 31 49 112 913 958 409

Long-Term Debt - - - - - -

Total Fixed Liabilities - 0 55 42 29 18

Total Liabilities 31 49 167 955 988 428

Net Assets 1,167 1,150 2,888 2,066 3,133 6,382

Interest-Bearing Debt - - - - - -

Cash Flow Statement (JPYmn)

Operating Cash Flow -28 -434 -131 -647 -1,680 -1,905

Investment Cash Flow -13 -18 -100 -56 -83 -126

Financing Cash Flow 573 498 1,400 983 2,360 4,511

Financial Ratios

ROA -6.3% -44.6% 14.5% -32.2% -42.7% -36.5%

ROE -6.6% -46.3% 15.4% -39.9% -61.8% -44.0%

Equity Ratio 97.4% 95.0% 93.9% 67.3% 70.5% 90.4%

Source: Company data

Figures may differ from company materials due to differences in rounding methods.


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Recent updates

Highlights

On June 12, 2015, 3-D Matrix Ltd. (3DM) announced full-year earnings results for FY04/15 and a medium-term management plan; see the Trends and outlook section for details. On May 27, 2015, the company announced the establishment of a subsidiary in the Netherlands. In order to expand the medical products business—utilizing self-assembling peptide technology, which is currently under development—in Europe, the company has decided to establish a wholly owned subsidiary in the Netherlands, mainly as a sales and marketing base. Overview of the new subsidiary Name: 3-D Matrix EMEA Business: Medical products business in Europe, such as hemostatic agents Capital: EUR300,000 (planned). On April 22, 2015, the company announced the approval of a US patent for the use of self-assembling peptide technology in myocardial tissue regeneration. The US Patent and Trademark Office approved a patent application for the use of self-assembling peptide technology in myocardial tissue regeneration submitted by the company’s US subsidiary. The patent covers both protection and regeneration of cardiac tissue via self-assembled peptide technology. Research has shown that delivering self-assembled peptides to damaged myocardial tissue resulting from conditions including acute myocardial infarction, pericardial disease, congenital heart disease, and congestive heart failure has beneficial effects for cardiac function. According to the company, this patent will protect its rights as it expands the development of regenerative medicine products in the US into the field of myocardial tissue regeneration, including the treatment of heart diseases. Myocardial tissue has significantly limited reproductive capacity, and the health of tissue that suffers damage from an acute myocardial infarction gradually declines. Regenerative treatments for such necrotic tissue harbor potential, and a significant amount of research is currently devoted to the subject. The self-assembled peptide treatment contained within the patent provides scaffolding to not only protect cardiac tissue, but also aid in regeneration of cells. This is a new approach to treatment for improving cardiac function, and the company anticipates that it will be able to contribute to treating acute myocardial infarctions. On April 20, 2015, the company announced revisions to full-year earnings forecasts for FY04/15. Forecasts for FY04/15 (previous forecasts in parentheses) Sales: JPY97mn (JPY51mn) Operating loss: JPY1.9bn (loss of JPY2.0bn) Recurring loss: JPY1.8bn (loss of JPY1.9bn) Net loss: JPY2.0bn (loss of JPY2.1bn). Reasons for the revisions As announced on April 16, 2015, the company obtained approval to register locally absorbent hemostatic


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material PuraStat® as a medical product in Indonesia. This means the company may market the product in Indonesia and, as a result, it received a milestone payment of about JPY50mn from its exclusive sales and marketing partner in Indonesia, PT. Teguhsindo Lestaritama. Together with an analysis of the recent sales performance of PuraStat®, this has led 3DM to make an upward revision to its sales forecast announced on March 13, 2015. The company also made upward revisions to profit forecasts, in view of the above increase in its sales forecast, and lower SG&A expenses. The company does not expect this to have a material effect on medium-term targets announced on March 13, but it plans to make another announcement including the effect of the above in April 2016 or later. On April 16, 2015, the company announced that it had obtained approval to register locally absorbent hemostatic material PuraStat® as a medical product in Indonesia. The company’s subsidiary in Singapore, 3-D Matrix Asia Pte. Ltd., and its sales and marketing partner for Indonesia, PT. Teguhsindo Lestaritama (headquartered in Indonesia) received notification from the Ministry of Health on April 16, 2015 that the product has been approved for registration as a medical device. This application, submitted on July 18, 2014, makes use of the CE marking for PuraStat® obtained on January 14, 2014. This CE marking can used to apply for regulatory agency approval in the 28 member states of the European Union, in addition to countries in Asia, Oceania, and South America. The product can be commercially marketed once the necessary procedures are complete in each country. PT. Teguhsindo Lestaritama plans to begin marketing the product in Indonesia in FY04/16. Furthermore, per a partnership agreement with PT. Teguhsindo Lestaritama, 3-D Matrix Asia Pte. Ltd. will receive a milestone payment of approximately JPY50mn, which it will report as sales. The company is assessing the impact on full-year earnings forecasts for FY04/15, and plans to disclose any relevant information as soon as the assessment is completed. On April 15, 2015, the company announced the approval of a patent for the use of self-assembling peptide technology in wound healing and skin-tissue regeneration in Europe. The company has demonstrated that self-assembling peptides, when applied to wounds, can restore the skin to its original condition without leaving a scar. According to the company, this patent will protect the company’s rights as it expands sales of wound-healing agent TDM-511 in Europe. When treating burns and moderate skin wounds, the limitation of scarring is a challenge. Many types of wound healing agent and treatment methods are being developed to combat the scarring that often occurs after the treatment of deep rounds that reach the dermis. According to 3DM, the use of self-assembling peptides in wound healing and skin-tissue regeneration offers a treatment method that does not leave cosmetic damage. The company does not expect this patent to have any material impact on earnings forecasts for FY03/15 or later. On March 13, 2015, the company announced that it decided to withdraw its application for approval of the production and sale of TDM-621, a locally absorbent hemostatic agent, in Japan.


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3DM will conduct another round of clinical trials and file a new application at a later date. The company filed the application on May 31, 2011 with the Pharmaceuticals and Medical Devices Agency (PMDA) after conducting trials for use in digestive system surgery, cardiovascular surgery, and gastrointestinal medicine. The PMDA has recently notified 3DM that it must provide stronger evidence for the efficacy of TDM-621. As of March 2015, 3DM preparing for new clinical trials, which may take place during FY04/16. The company is unable to provide cost estimates for the trials at this time. 3DM will file another application for approval, although the company is not certain when that will happen. On the same day, the company revised its earnings estimates for FY04/15 and reduced directors’ compensation. FY04/15 full-year earnings forecasts (previous estimates in parentheses) Operating revenue: JPY51mn (JPY10.4bn) Operating loss: JPY2.0bn (operating profit of JPY4.5bn) Recurring loss: JPY1.9bn (recurring profit of JPY4.5bn) Net loss: JPY2.1bn (net loss of JPY3.7bn) Reasons for the revisions TDM-621: 3DM had expected milestone payments and income from product sales associated with

TDM-621. However, the company on March 13, 2015 withdrew its request for domestic approval, saying that it will conduct another round of clinical trials and file a new request at a later date. Thus, TDM-621 will not contribute to earnings during this fiscal year.

Delays in overseas sales contracts for TDM-621: 3DM had expected to sign contracts with overseas sales agents for TDM-621 and receive one-time contract payments and earn regular income from product sales. The company was in talks with several sales agents as of March 2015. However, the company may not reach any agreement by the end of this fiscal year.

Costs associated with TDM-621: The cost of sales may increase as a result of the above-mentioned development. 3DM will seek to reduce SG&A expenses.

On the same day, the company revised its medium-term management targets. Earnings targets (JPYmn) Operating

revenue Operating

profit Recurring profit Net income

FY04/16 (previous target) 14,307 6,796 6,779 4,678 FY04/16 (revised target) 3,694 731 714 171 FY04/17 (previous target) 18,473 8,213 8,196 5,450 FY04/17 (revised target) 11,345 4,377 4,361 3,000

Reasons for the revisions FY04/16: 3DM expected one-time contract payments, milestone payments, and income from product

sales associated with TDM-621, as well as payments for other products, both in Japan and abroad (Europe, the Americas, and Asia) during FY04/15. The company now expects to sign contracts for TDM-621 with European sales agents during FY04/16. The company may also sign similar agreements in Asia and Latin America.

FY04/17: 3DM expected one-time contract payments, milestone payments, and income from product sales associated with TDM-621, as well as payments for other products, both in Japan and abroad


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(Europe, the Americas, and Asia) during FY04/15. The company now expects to sign contracts for TDM-621 with US sales agents during FY04/17. The company may also win approval of TDM-621 in Japan and earn milestone payments. At the same time, 3DM may increase product sales in Europe, Asia, and Latin America, and receive milestone payments from mucous membrane protuberance agents.

For corporate releases and developments more than three months old, please refer to the News and topics section.


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Trends and outlook

Quarterly trends and results

FY04/15 results

(FY04/14 figures in parentheses.) Operating revenue: JPY100mn (JPY107mn) Operating loss: JPY1.9bn (operating loss of JPY1.5bn) Recurring loss: JPY1.8bn (recurring loss of JPY1.5bn) Net loss: JPY2.0bn (net loss of JPY1.5bn) R&D expenses were JPY816mn (+36.3% YoY). Excluding R&D, SG&A expenses increased to JPY1.2bn (+15.8% YoY) as the company ramped up overseas expansion. The company posted JPY141mn in non-operating income (JPY3.5mn for Q1, JPY54.8mn for Q2, JPY72.7mn for Q3, JPY10.0mn for Q4) because of an increase in the value of assets held in foreign currencies at subsidiaries.

Hemostatic agent (TDM-621)

3-D Matrix had applied to Japan’s Pharmaceuticals and Medical Devices Agency (PMDA) for approval to manufacture and sell this pipeline product in the domestic market. However, since the precise validation of the efficacy of the hemostat was deemed necessary to obtain approval, the company decided to withdraw the application in March 2015, conduct a subsequent clinical trial, and then reapply for approval. The company plans to start these clinical trials in 1H FY04/16 while continuing to consult with PMDA. In January 2014, this hemostatic agent was certified as meeting the European CE marking requirements. As such, the company can now apply for product registration in countries that adopt the CE marking system without conducting clinical studies. With this approval, the company started clinical use in

Quarterly Performance (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of FY FY Est.Operating Revenue 48 1 7 51 0 0 0 100 102.9% 97

YoY - - - 58.4% - - - 96.8% -R&D Expenses 146 136 145 171 141 281 181 214

YoY 59.7% 50.0% 61.6% 39.1% -3.7% 106.1% 24.7% 24.8%SG&A Expenses 222 221 232 349 297 286 328 274

YoY 65.9% 62.6% 40.7% 73.2% 33.6% 29.3% 41.7% -21.5%Operating Profit -321 -356 -372 -470 -438 -567 -509 -389 - -1,918

YoY - - - - - - - - -OPM - - - - - - - - -

Recurring Profit -341 -361 -357 -466 -471 -514 -438 -372 - -1,814YoY - - - - - - - - -RPM - - - - - - - - -

Net Income -341 -361 -357 -467 -635 -514 -439 -407 - -2,009YoY - - - - - - - - -NPM - - - - - - - - -



Forecasts based on most recently released figures.

FY04/15FY04/14 FY04/15


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Germany in August 2014. As part of pre-marketing activities, the company is compiling a track record of clinical use by well-known doctors and prominent medical institutions in major European countries such as Germany, France, and the UK. Sales of the product through sales agents began in Q4 FY04/15 and operating revenue was booked. The company negotiated sales agreements with multiple potential sales partners in Europe, but agreements were not concluded during FY04/15. Among Asian countries that adopt the CE marking system (Singapore, Indonesia, South Korea), the company has applied for product registration as a medical device and has begun preparing for product sales. It applied for medical device product registration in Singapore in June 2014, which was approved in September of that year. It likewise applied for product registration in Indonesia in July 2014, which was granted in April 2015. An application was submitted in South Korea in January 2015. This application was still under review as of June 2015. In Indonesia, a milestone payment was received from the sales partner on product registration approval, and product sales were started in Hong Kong where such approval is not required, both of which were booked as operating revenue. As South American countries (Brazil, Columbia, Mexico) adopt the CE marking system, the company applied for product registration in Columbia in March 2015. The review of this application is currently ongoing. Preparations are being made for similar application filings in Brazil and Mexico. In the US, the company has been consulting with the Food and Drug Administration (FDA) regarding protocols in order to start clinical trials in the US. Plans are to start these trials in FY04/16.

Mucous membrane protuberance material

The company started a clinical study in December 2014, but decided to voluntarily and temporarily discontinue the study in February 2015, in order to explore test methods for more evident efficacy and for product development. The company aims to restart the study by end-Q3 FY04/16 and as of June 2015 there were no changes to its development plan up to placing the product on the market. It aims to quickly restart the study while maintaining product advantages.

Alveolar bone regenerator

In clinical trials in the US, the company completed treatment and observations of 15 patients, collecting good results and data in terms of bone formation. It plans to move onto the next clinical trial phase in 1H FY04/16.

Wound-healing agent

In October 2014, 3-D Matrix submitted a 510(k) premarket notification to the US Food and Drug Administration (FDA), which was approved in February 2015, allowing for the start of sales. The company expects increased therapeutic effects in combination with other pharmaceuticals (antibiotics, anticancer drugs, hyaluronic acid) and as of June 2015 it was working on commercialization with higher added value for the fields of skin burn treatments, skin cancer treatments, and cosmetic surgery. In other areas, the company is collaborating with the National Cancer Center on treatment for “triple negative” breast cancer with nucleic acid medicine that targets the RPN2 gene. It was awarded research grants from the government, which were booked as operating revenue. The National Cancer Center has started physician-led clinical trials with the company providing siRNA nucleic acid medicine that uses the self-assembling peptide A6K as a drug-delivery system (DDS).


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In 2010, 3-D Matrix began collaborative research with the New Energy and Industrial Technology Development Organization (NEDO), an incorporated administrative agency. The title of the research is “Research and Development of Next-Generation Alternative Vital-Function Technologies / Research and Development of Next-Generation Regenerative Medicine Technologies / Development of Autonomous Regeneration Device for Regenerating Tissue in Vivo with a Small Number of Cells.” The company has received subsidies for the relevant research, which it booked as subsidy income. The company is also providing its self-assembling peptide as scaffolds for cartilage regeneration.

Q3 FY04/15 results (out March 13, 2015; see table above)

(Q3 FY04/14 figures in parentheses.) Operating revenue: JPY0 (JPY56mn) Operating loss: JPY1.5bn (operating loss of JPY1.0bn) Recurring loss: JPY1.4bn (recurring loss of JPY1.1bn) Net loss: JPY1.6bn (net loss of JPY1.1bn) R&D expenses were JPY603mn (+40.9% YoY). Excluding R&D, SG&A expenses increased to JPY911mn (+35.0% YoY) as the company ramped up overseas expansion. The company posted JPY131mn (JPY3.5mn for Q1, JPY54.8mn for Q2, and JPY72.7mn for Q3) in non-operating income during cumulative Q3 because of an increase in the value of assets held in foreign currencies.


In January 2014, 3-D Matrix obtained the CE mark for this product, meaning the company can sell or apply to register it without clinical trials in certain countries. As a result, the company launched clinical use of the product in leading facilities in Europe. According to 3DM, key opinion leaders (KOLs) began clinical use of TDM-621 in Europe in the second half of 2014. As of March 2015, the company says it has received feedback on 60 cases, with positive evaluations for TDM-621’s hemostatic properties, visibility and safety. The company continued to focus on uptake at leading facilities, thus expanding clinical use of PuraStat®. The company is also negotiating sales agreements with a sales partner in Europe. The company also aims to grow sales of PuraStat® using the CE mark in countries outside Europe. Subsidiary 3-D Matrix Asia Pte. Ltd. (Singapore) obtained approval to register TDM-621 as a medical product in Singapore in September 2014 after applying in June of that year. The company also applied to register TDM-621 as a medical product in Indonesia in July 2014, and use in clinical trials began in Hong Kong in September 2014. The company plans to continue growing sales in Asia and Oceania. In June 2014, the company established a subsidiary in Brazil, in order to develop sales of PuraStat® in South America. Its use in clinical trials began in Chile in October 2014. The company is also preparing to register the product in South America, and is looking for a potential sales partner. In Japan, 3DM on May 31, 2011 filed an application with the Pharmaceuticals and Medical Devices Agency (PMDA) for approval of the production and sale of TDM-621. However, 3DM withdrew this request on March 13, 2015 following the agency’s decision that the company needs stronger evidence for the efficacy of TDM-621. The company will conduct another round of clinical trials and submit a new request at a later


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date. 3DM said it was preparing for trials as of March 2015 and that it would start the trials during FY04/16. In the US, the company is negotiating with the Food and Drug Administration (FDA) concerning the launch of clinical trials. The company is also preparing to begin clinical trials in China.

Alveolar bone regenerator (development code: TDM-711)

The company is in talks with the FDA concerning the expansion of clinical trials in the US.

Mucous membrane protuberance material (development code: TDM-641)

3DM began clinical trials in December 2014. However, the company decided to halt the trials because the tests failed to provide strong enough evidence for the efficacy of the agent. The company will seek to come up with a better method of testing.

Wound-healing agent (TDM-511)

The company in October 2014 filed a 510(k) application with the FDA, and obtained approval in February 2015.

1H FY04/15 results (out December 11, 2014)

Operating revenue: JPY0 (JPY49mn in 1H FY04/14) Operating loss: JPY1.0bn (operating loss of JPY676mn in 1H FY04/14) Recurring loss: JPY984mn (recurring loss of JPY701mn in 1H FY04/14) Net loss: JPY1.1bn (net loss of JPY701mn in 1H FY04/14) R&D expenses were JPY422mn (+49.2% YoY). Excluding R&D, SG&A expenses increased to JPY583mn (+31.5% YoY) as the company ramped up overseas expansion. The company recorded JPY58mn (JPY4mn during Q1; JPY55mn during Q2) of non-operating profit during 1H FY04/15 due to changes in exchange rates for assets denominated in foreign currencies that are held by a subsidiary.


In January 2014, 3-D Matrix obtained the CE mark for this product, meaning the company can sell or apply to register it without clinical trials in certain countries. As a result, the company launched clinical use of the product in leading facilities in Europe. According to the company, the product has won acclaim from doctors in Europe for its hemostatic properties and its transparency and high visibility. The company continued to focus on uptake at leading facilities, thus expanding clinical use of PuraStat®. The company is also negotiating sales agreements with multiple sales partners in Europe. The company is considering various types of sales agreements, including an exclusive sales agreement with a major corporation, agreements with various distributors for different types of therapy, and direct sales through a wholesaler.


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The company also aims to grow sales of PuraStat® using the CE mark in countries outside Europe. Subsidiary 3-D Matrix Asia Pte. Ltd. (Singapore) obtained approval to register TDM-621 as a medical product in Singapore in September 2014 after applying in June of that year. The company also applied to register TDM-621 as a medical product in Indonesia in July 2014, and use in clinical trials began in Hong Kong in September 2014. The company plans to continue growing sales in Asia and Oceania. In June 2014, the company established a subsidiary in Brazil, in order to develop sales of PuraStat® in South America. Its use in clinical trials began in Chile in October 2014. The company is also preparing to register the product in South America, and is looking for a potential sales partner. In Japan, the company is applying to the Pharmaceuticals and Medical Devices Agency (PMDA) for approval to manufacture and sell TDM-621. In the US, the company is negotiating with the Food and Drug Administration (FDA) concerning the launch of clinical trials. The company is also preparing to begin clinical trials in China.




In September 2014, the company submitted a notification of its plans for clinical trials to the PDMA. The “30 day investigation” was completed in October, an investigation carried out by the PDMA to prevent any adverse public health effects. As a result, the company is working with health facilities to prepare for clinical trials to begin.


Preclinical trials are underway in the US, and the company is preparing to file a 510(k) application with the FDA.

Q1 FY04/15 results (out September 12, 2014)

Operating revenue: JPY0 (JPY48mn in Q1 FY04/14) Operating loss: JPY438mn (operating loss of JPY321mn in Q1 FY04/14) Recurring loss: JPY471mn (recurring loss of JPY341mn in Q1 FY04/14) Net loss: JPY635mn (net loss of JPY341mn in Q1 FY04/14). R&D expenses were on par with Q1 FY04/14. However, the company plans to spend more on R&D over the course of the full-year owing to clinical trials of locally absorbent hemostatic agent TDM-621 in the US and Europe. Other SG&A expenses increased as the company stepped up its expansion overseas.


In January 2014, 3-D Matrix obtained the CE mark for this product, meaning the company can sell or apply to register it without clinical trials in certain countries. As a result, the company launched clinical use


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of the product in leading facilities in France, Austria, and Germany. The company continued to focus on uptake at leading facilities, thus expanding its clinical use. The company is also negotiating sales agreements with sales partners in Europe. The company also aims to grow sales of TDM-621 using the CE mark in countries outside Europe. Subsidiary 3-D Matrix Asia Pte. Ltd. (Singapore) obtained approval to register TDM-621 as a medical product in Singapore on September 3, 2014, after applying in June of that year. At the time of writing, the company is negotiating with partners about sales agreements in the region. The company also applied to register TDM-621 as a medical product in Indonesia in July 2014. The company plans to continue growing sales in Asia and Oceania. In June 2014, the company established a subsidiary in Brazil, in order to develop sales of TDM-621 in South America. At the time of writing, the company is preparing to register the product in South America, and looking for a potential sales partner. In Japan, the company is applying to the Pharmaceuticals and Medical Devices Agency (PMDA) for approval to manufacture and sell TDM-621. In the US, the company is negotiating with the Food and Drug Administration (FDA) concerning the launch of clinical trials. The company is also preparing to begin clinical trials in China.




In September 2014, the company submitted a notification of its plans for clinical trials to the PDMA. The company plans to begin clinical trials between Q2 and Q3 FY03/15.


Preclinical trials are underway in the US, and the company is preparing to file a 510(k) application with the FDA.

Lawsuit settlement

OncoTherapy Science, Inc. brought a lawsuit against the company for failing to pay compensation. On August 8, 2014, following negotiations in court, the company agreed to pay a fee of JPY160mn to settle the case under the view that settlement of the issue would absolve the company of future obligations. The company booked the settlement fee as an extraordinary loss this quarter (Q1 FY04/15).

Shareholders’ equity

The company offered new shares overseas, with July 9, 2014 as the payment deadline. As a result, issued capital and reserves increased by JPY2.5bn each in Q1.


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For details on previous annual results, please refer to the Historical financial statements section.


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Full-year (FY04/16) outlook

For FY04/16, the company projects operating revenue between JPY783mn~JPY2.9bn (JPY100mn in FY04/15). Other projected ranges are an operating loss of JPY2.0bn to a profit of JPY24mn (operating loss of JPY1.9bn in FY04/15), a recurring loss of JPY2.0bn to profit of JPY16mn (recurring loss of JPY1.8bn in FY04/15), and a net loss of JPY2.0bn to a profit of JPY11mn (net loss of JPY2.0bn in FY04/15).

Pipeline assumptions

In FY04/16, 3-D Matrix will continue development in the surgery and regenerative medicine fields utilizing its self-assembling peptide technologies with the aim of quickly realizing operating revenue through product sales. In Japan the company is consulting with PMDA regarding clinical trial protocols with the aim of restarting clinical trials for its absorbable local hemostat. It will conduct clinical trials in 1H FY04/16 and aims to resubmit its application in 2H FY04/16. In Europe, the company is ready to start product sales through wholesalers / sales agents (specialized sales approaches for each country) targeting prominent medical institutions in Germany, France, and the UK with the aim of generating operating revenue. The plan is to launch sales targeting the entire EU by end-Q3 FY04/16 using sales partners (candidates) that have sales channels and promotion functions covering the entire region. In the US the company is now in the protocol preparation stage and plans to launch clinical trials in FY04/16. In Asia and South America, there are also plans to launch product sales in Southeast Asian countries such as Indonesia, and South American countries such as Columbia, and Chile. As for other products in its development pipeline, clinical trials for the alveolar bone regenerator are ongoing in the US. Clinical trials for its mucous membrane protuberance material were suspended, but the company aims to restart these trials by end-Q3 FY04/16, while maintaining product advantages. As for the joint project with the National Cancer Center, the center has started physician-led clinical trials, promoting development in the drug-delivery system (DDS) field.

FY04/16 Company Forecasts(JPYmn) 1H Act. 2H Act. FY Act. FY Est.Operating Revenue - 100 100 783～2,877CoGS - - 2

CoGS / Operating Revenue - - 1.5%R&D Expenses 422 394 816SG&A Expenses 583 602 1,185Operating Profit -1,005 -898 -1,903 -1,996～24

YoY - - - -OPM - - - -

Recurring Profit -985 -811 -1,795 -2,004～16YoY - - - -RPM - - - -

Net Income -1,148 -846 -1,995 -2,005～11YoY - - - -

Source: Company dataFigures may differ from company materials due to differences in rounding methods.

FY04/16FY04/15


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Projections for absorbable local hemostat

In preparing its earnings forecasts the company assumes operating revenue of JPY582mn~JPY675mn from product sales of absorbable local hemostats and JPY176mn~JPY2.2bn from upfront payments and milestone payments involving these products. The company plans to sell absorbable local hemostat products in those regions that adopt the CE marking system in Europe, Asia, and South America. In Europe the main sales targets will be prominent medical facilities in Germany, France, and the UK. In Asia the main sales targets will be Southeast Asian countries like Indonesia and Malaysia, while the main targets in South America will be Columbia and Chile. 3-D Matrix expects a significant year-on-year increase in product sales. Its anticipated product sales of JPY582mn~JPY675mn breaks down as roughly JPY266mn sales in Asia/South America and around JPY316mn~JPY409mn in Europe. The main factors are sales through dealers in Europe, sales agents, and sales partners. In Europe, the company is working out sales forecasts calculated based on marketing forecasts (market scale / forecasts) obtained by the company through meetings with wholesalers and sales agents in Germany and the UK. For Asia and South America, the company is setting sales forecasts calculated based on marketing forecasts derived from (1) rough estimates for order volumes based on agreements with partners in Indonesia and (2) market scales / forecasts for countries in Southeast Asia and South America (Malaysia, etc.). 3-D Matrix books upfront payments on its absorbable local hemostats associated with sales partnerships involving partner candidates in Europe (negotiating). The company considered multiple methods for making this calculation including comparisons with cases involving other companies and comparisons with its past results. Total upfront payments were estimated based on past results in Japan and Asia, while taking into consideration market scales, product values, and assumed shares / risks in the target regions. The company is currently negotiating sales agreements with the aim of selling absorbable local hemostat in Europe. Contracts were not completed during FY04/15. After the company proposed conditions following candidate partner due diligence, there were items that required time to complete and a candidate partner’s group was reorganized and business divisions were also reorganized. However, the company narrowed its list to three candidates and plans to conclude contracts by end-Q3 FY04/16 along with compiling product evaluations and moving forward with negotiations. The upper range of the company’s operating revenue forecasts for FY04/16 is JPY2.9bn. Upfront payments from sales partnerships with candidate sales partners in Europe and product sales from such partnerships are projected at JPY2.1bn. As such, working to reach the upper end of this target is a main condition for the conclusion of such agreements.

Expense forecast

R&D expense is the total for projects in each development pipeline. This mainly consists of clinical trial expense for absorbable local hemostat (Japan / US), CE marking registration expense (each country worldwide), and clinical trial expense for alveolar bone regenerator (US) and mucous membrane protuberance material (Japan). SG&A expenses were estimated based on future business plans and by taking into account past amounts.


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Long-term outlook

Medium-term management plan

According to the company’s medium-term management plan, it plans to expand its operations via upfront payments, milestone payments, and product sales from locally absorbent hemostatic material TDM-621 and other pipeline products both in Japan and overseas.

FY04/17 (target) assumptions

The company made estimates based on sales and upfront payments mainly for its absorbable local hemostat as well as upfront payments for other products in its pipeline. Expectations are that its absorbable local hemostats will be sold in Japan, in addition to those regions that adopt the CE marking system, specifically Europe, Asia, and South America. In Europe these sales are expected to target prominent medical institutions in Germany, France, and the UK, as well as customers in each EU country. Sales in Asia will mainly target Indonesia, Malaysia, and South Korea, while those in South America will target Columbia, Chile, Brazil, and Mexico. Product sales are estimated at JPY4.0bn, with Europe expected to account for roughly 55% of this amount. The company makes sales projections and order estimates based on the estimates for the previous year and certain assumptions for (1) sales in Europe through wholesalers/sales agents, (2) sales through sales partners, (3) CE marking registration for products in South Korea, (4) CE marking registration for products in Brazil and Mexico, and (5) approval for manufacturing / marketing in Japan.

Medium-Term Plan FY04/15 FY04/16 FY04/17 FY04/18

(JPYmn) Act. Est. Target Target

Operating Revenue 100 783～2,877 8,233 9,851

R&D Expenses 816 1,024 1,544 1,643

SG&A Expenses 1,185 - - -

Operating Profit -1,903 -1,996～24 2,180 3,010

Recurring Profit -1,795 -2,004～16 2,180 3,010

Net Profit -1,995 -2,005～11 2,064 2,337



Revenues by Segment FY04/15 FY04/16 FY04/17 FY04/18

(JPYmn) Act. Est. Target Target

Locally Absorbent Hemostatic Material 54 758～2,850 7,473 9,091

Product Sales 3 582～675 3,976 9,090

Upfront, Milestone Payments 51 176～2,175 3,497 1

Others 45 25 758 758

Product Sales 0 7 7 7

Upfront, Milestone Payments 45 18 751 751Source: Company data


Others includes alveolar bone regenerator, mucous membrane protuberance material, and the vascular embolization agent. The wound-healingagent is not included in targets.

The company's earnings forecasts for FY04/16 include a lower and an upper limit, in view of the possibility that one-time payments and productsales may be delayed until FY04/17 depending on progress and negotiations with sales partners of the locally absorbent hemostatic material inEurope.


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3-D Matrix expects to win approval for manufacturing / marketing in Japan in 2H FY04/17. There are plans to restart clinical studies taking into account consultations with PMDA, with the studies conducted by multiple institutions and CRO. Moreover, the clinical studies and reviews should only take two-thirds the time required for the previous (canceled) study as the previous study did not uncover any adverse events or other problems. As for upfront payments on absorbable local hemostat agreements, the company estimates upfront payments from sales partner candidates in the US (negotiations ongoing) and milestone payments tied to approval for domestic manufacturing / marketing. Of the estimated JPY3.5bn in upfront payments for relevant hemostat products, roughly 70% is from sales partners in the US and about 30% is from milestone payments in Asia and those tied to approval for domestic manufacturing / marketing. The projected JPY751mn in upfront payments for other products in its pipeline are mainly milestone payments for alveolar bone regenerators and mucous membrane protuberance material.

FY04/18 (target) assumptions

The company estimated sales, mainly for its absorbable local hemostats, and upfront payments for other products in its pipeline. Expectations are that its absorbable local hemostats will be sold in those regions that adopt the CE marking system, specifically Europe, Asia (including Oceania), South America, Japan, and the US. In Europe, these sales are expected to target prominent medical institutions in Germany, France, and the UK, as well as customers in each EU country. Sales in Asia will mainly target Indonesia, Malaysia, South Korea, and Australia, while those in South America will target Columbia, Chile, Brazil, and Mexico. Product sales estimates are based on estimated values up through the previous year, as well as sales forecasts and order estimates that assume expanded sales in Europe, Asia, and Japan. These estimates also assume the start of new product sales in the US from FY04/18. The projected JPY751mn in upfront payments for other products in its pipeline are mainly milestone payments for alveolar bone regenerators and mucous membrane protuberance material. As such, progress for its development plans / negotiations is a precondition for reaching this projection.

Development targets for main pipeline products

Absorbent topical hemostatic agent (TDM-621) Europe: The company received the CE Mark on January 14, 2014 and began sales from April 2015. The US: The company expects to start clinical trials in FY04/16. Japan: In March 2015, new clinical trials were decided. However, the company changed its plans and

will later resubmit its application for approval. Asia: Medical device registration approved in Singapore in September 2014 and in Indonesia in April

2015. An application was submitted in South Korea in January 2015. This application was still under review as of June 2015.

South America: Submitted an application for medical device registration in Columbia in March 2015. This application is currently under review. The company plans to submit the same applications in Brazil and Mexico in FY04/16.

Mucous membrane protuberance agent (TDM-641) Japan: Clinical trials began in December 2014. However, in March 2015 the company decided to temporarily halt the trials because the tests failed to provide the strong evidence for the efficacy of the


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agent that had been expected from previous trials. The company will seek to come up with a better method of testing. Vascular embolization agent (TDM-631) Japan: Aiming for pre-clinical trials in FY04/16, clinical trials in FY04/17, and approval for manufacturing / marketing and a market launch in FY04/18. Alveolar bone reconstruction agent (TDM-711) The US: clinical trials began in February 2012. The goal is to receive approval for manufacturing and marketing, attain national health insurance coverage, and launch the product in FY04/18. Wound-healing agent (TDM-511) United States and Europe: In October 2014, the company submitted a 510(k) premarket notification to the Food and Drug Administration (FDA) with a view to sell the product as a medical device, and received approval in February 2015.

Note: In the US, premarket notification submissions for medical devices that are substantially equivalent to

existing devices in safety and effectiveness can be filed without clinical trials. This submission process is

known as 510(k).


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Business

Business description

3DM is a medical technology company that develops, manufacturers, and markets a self-assembling peptide technology originally created at the Massachusetts Institute of Technology (MIT). The key features of the company’s business are: MIT holds the underlying patent for the self-assembling peptides that are the basis of the 3DM’s

products. The Company has an exclusive global license from MIT for this technology that includes rights of development, manufacture, and marketing of applications that use these self-assembling peptides.

Self-assembling peptides have two main advantages over the medical products currently on the market they are intended to compete with. Firstly, as they are produced by chemical synthesis, there is no risk of viral or other types of contamination that can occur in goods derived from living organisms. Secondly, they can be mass-produced in a homogenous fashion.

These characteristics lend themselves to potentially large-scale use in surgery (such as absorbent localized hemostatic agents and mucous membrane protuberance agents) and in the regenerative medicine field (as alveolar bone reconstruction agents).

3DM’s business model attempts to minimize risks specific to medical product start-ups. Specifically, the products it is developing are categorized as ‘medical devices’ rather than ‘pharmaceuticals’. Consequently, the duration from application to approval is shorter and costs are lower compared to drug development.

Self-Assembling Peptide Technology The human body is made up of proteins, the smallest unit of which is amino acids. Peptides are molecules composed of a number of connected amino acids. Invented by Dr. Shuguang Zhang at MIT in 1992, self-assembling peptides are composed of a (16 base) RADA sequence that is made up of three types of amino acids; Arginine (R), Alanine (A), and Aspartic acid (D). The peptides are suspended in an acidic solution, when this solution comes into contact with a neutral pH environment, for example blood or a salt solution, the peptide molecules ‘self-assemble’ to create a gel formed of nanofibers. Once the self-assembling peptides become gelatinous, they will not revert to a liquid state even if they returned to an acidic solution. Moreover, ADME tests run on the self-assembling peptides have confirmed they do not accumulate in any particular organ, but instead degrade into protease and are excreted from the body after approximately 30 days. The gel that is formed is an environment similar to that for cells cultured in vivo and has a network structure similar to that of an extracellular matrix, such as collagen. The company is exploiting these characteristics to create applications in a variety of fields, including surgery, regenerative medicine, and drug delivery systems (DDS). While MIT holds the patents, 3DM has an exclusive agreement with MIT for the basic patents for the self-assembling peptide technology: PuraMatrix™ is its first-generation product that uses these self-assembling peptides.


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PuraMatrix™


Self-assembling peptides are non-biological molecules produced by chemical synthesis and have the following characteristics: Safety: as self-assembling peptides are produced via chemical synthesis there is no risk of viral

infection (as can occur in biologically-derived molecules) or contamination from foreign elements. Homogeneity: mass production with practically identical levels of quality is possible. Ease of use: as a gel created from a solution, they are transparent and easy to handle. Development potential: application potential across a wide range of fields and in development as

medical devices.


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Main business segments

The company reports only one business segment, Medical Products. However, this can be further broken down into the Medical Products Development and Research Reagent Sales sub-segments.

Medical products development

In this sub-segment, the company develops medical devices and treatments for use in the fields of surgery, regenerative medicine, and DDS (drug delivery systems) based on its self-assembling peptide technology. The main development pipeline consists of: Surgical field: absorbent localized hemostatic agents, mucous membrane protuberance agents,

and vascular embolization agents Regenerative medicine field: alveolar bone reconstruction agents 3DM’s strategy has been to develop these applications in-house as medical devices and then to obtain manufacturing and marketing approvals for them. Its sales strategy involves signing exclusive sales agreements with distributors domestically and overseas. In the field of regenerative medicine, 3DM has been conducting research into bone reconstruction (outside of the alveolar bone space), cartilage and tendon regeneration, treatments for skin wounds, and cardiac muscle regeneration; and looking to commercialize this research. As for the DDS space, 3DM has been working to launch products that combine self-assembling peptides with a variety of pharmaceuticals, with the peptides functioning as a carrier for the pharmaceutical agent. While it is also likely that self-assembling peptides themselves can be developed to function as pharmaceutical agents, independently developing this would be time consuming for the company. Instead it intends to license the technology out to third parties for this purpose and generate licensing revenue from doing so. The company is also using joint research and MTA agreements with universities and other research facilities to acquire new self-assembling peptides application technologies.

Medical device development process

The medical products that 3DM is focused on are categorized as ‘medical devices.’ The process for developing a new medical device or a pharmaceutical product follows the same sequence of basic research, preclinical trials, clinical trials, and an application for a manufacturing and marketing approval. However, with pharmaceuticals the clinical-trial stage requires a number of phases and generally speaking, involves a large number of patients. As a result, the pharmaceutical development process tends to be long. More specifically, for pharmaceutical development the clinical trials have three phases; in Phase I and II, researchers test the drug/treatment on a small group of healthy people to evaluate its safety and effectiveness, while in Phase III they administer it to a large group of patients who suffer from the disease or condition that it is intended to treat to confirm its safety and effectiveness.


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On the other hand, medical devices require a comparatively short development process of just one clinical trial phase. The R&D process for medical devices can be summarized as follows: Medical Device R&D Process


Basic research: the company searches for potential medical device applications for its technologies

and optimizes product specifications. Preclinical trials: animal tests conducted to see if the product meets safety and efficacy standards. Clinical trials: human trials on sufferers conducted to see if the product meets safety and efficacy

standards. Application for a manufacturing and marketing approval: an application is submitted to the

relevant regulatory body in each country, such as the Ministry of Health, Labour and Welfare’s Pharmaceuticals and Medical Devices Agency (PMDA) and the Food and Drug Administration (FDA) in the US.

Manufacturing and marketing approval: the relevant regulatory body issues an approval to the company.

Inclusion in HIP/National Health Insurance schemes: in order to be covered by Japan’s national health insurance scheme (HIP) or the relevant health insurance in other countries the product’s reimbursement price needs to be calculated by the authorities. In Japan, the reimbursement value will set and the product included in HIP about two to three months after the manufacturing and marketing approval is approved.

Market launch: the product is manufactured and goes to market.

3DM’s main development pipeline consists of: Absorbent localized hemostatic agent (development code: TDM-621) Alveolar bone reconstruction agent (development code: TDM-711) Mucous membrane protuberance agent (development code: TDM-641) Vascular embolization agent (development code: TDM-631) Wound-healing agent (development code: TDM-511) All of these are based on the same sequence of self-assembling peptides (RADA 16) as absorbent localized hemostatic agent TDM-621. Clinical trials in humans are already underway for TDM-621 and no adverse effects were detected among the 97 patients in the trial, as of June 2013. Given this, the key point for the other products appears to be not their safety but rather their efficacy. According to the company, as long as efficacy is confirmed in clinical trials, the regulatory approval appears likely.


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Medical reagent sales

3DM sells self-assembling peptides product, PuraMatrix™, through its partner Corning Incorporated as a research reagent to universities and other research facilities around the world. PuraMatrix™ is used in various medical applied studies and types of therapy. 3DM is marketing the product as a research reagent in the hope that the researchers using PuraMatrix™ will develop new commercially viable applications.


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Main development pipeline

Development pipeline progress (locally absorbent hemostatic materialTDM-621)


Development pipeline progress (others)



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As of March 2015, 3DM’s main pipeline products are an absorbent localized hemostatic agent, a mucous membrane protuberance agent, an alveolar bone reconstruction agent, a wound-healing agent, and a vascular embolization agent.

Absorbent localized hemostatic agent (development code: TDM-621)

3DM is developing the absorbent localized hemostatic agent TDM-621 based on its RADA16 self-assembling peptide technology. TDM-621 can be applied with a syringe to comparatively narrow openings where bleeding may occur during surgery and can also be used in conjunction with an endoscope. TDM-621 becomes pH-neutral when it comes into contact with bodily fluids, such as blood. The peptides then self-assemble into nanofibers and become gelatinous. The gel perfectly coats the surface of the contact area, forming a coating that physically seals the surface film and peripheral blood vessels. In aortal blood vessels, it produces blood coagulation and hemostasis. Overview of Hemostasis


No risk of infection with TDM-621; advantageous in different types of surgery

Existing hemostatic agents are categorized as liquid types (fibrin glue) or sheet/powder types (fibrin and collagen). Fibrin glue involves creating a paste out of blood-derivative fibrinogen. There are question marks over the safety of the products currently in use as the use of blood preparation products carries the risk of infecting a patient with the hepatitis C virus. Clearly, accidental hepatitis C infections of patients have the potential to morph into a major public healthcare issue.


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TDM-621 has a number of advantages over existing hemostatic agents. First, there is no risk of infection. The majority of hemostatic agents currently in use are synthesized from human or animal blood, such as from fibrinogens, while the raw material for collagen is produced from the skin of animals. As these products are derived from living organisms, they carry the risk of viral infection. In contrast, TDM-621 is chemically synthesized from amino acids and so carries no risk of viral infection or contamination from unknown elements. The medical use of biologically derived products is subject to strict controls: Informed consent. Patients (or their families) must receive an appropriate explanation about their use

and risks Records of production and use must be kept Reports must be created verifying absence of infectious diseases in the products As TDM-621 is chemically synthesized product, there is no infection risk. Apart from obvious healthcare and legal benefits, this could also reduce administrative burden. In cases when biologically derived hemostatic agents are used, patients (or their representatives) must sign off a consent form before the start of the surgery. When TDM-621 is used, no consent is required. Infections transmitted during medical procedures have emerged as a serious public health issue in the recent years and there is substantial latent demand for new medical agents that can eliminate the risk of infection, reduce surgery time and alleviate the burden on patients. From a surgeon’s perspective, TDM-621 also has a number of appealing features. A transparent liquid, it becomes pH-neutral gel only after coming into contact with bodily fluids such as blood. Therefore, it does not obscure a surgeon’s view and can be easily applied via a catheter or into a narrow tissue entrance. In contrast, standard hemostatic agents are cloudy liquids and can obscure a surgeon’s view of a damaged area, especially when operating remotely with a camera. Finally, unlike surgical glue, TDM-621 does not self-solidify, so it can be applied via a catheter. 3DM notes that TDM-621 induces hemostasis in, and perfectly seals surface membranes and peripheral blood vessels, meaning it can induce a greater hemostatic effect than existing products (which induce hemostasis by bonding the tissue or covering it with an adhesive agent.


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Image of DM-621


TDM-621 is dispensed as a prefilled syringe product adding to ease of use. Any residual left in the body breaks down into amino acids and is naturally excreted over the course of several days. To eliminate the risk of administering potentially dangerous dosages, 3DM has introduced a number of measures to prevent accidental dangerous use. For instance, TDM-621 is prefilled in a syringe with a non-standard tip that prevents attaching needles and limits the amount of substance to recommended levels (see image above). TDM-621 Features



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TDM-621 R&D Status

Japan: 3DM launched clinical trials in January 2010 for TDM-621 in order to apply for a Japanese manufacturing and marketing approval. 97 clinical trial patients were chosen who exhibited the following symptoms: Exudative (oozing) hemorrhaging from wounds in coronary artery bypass surgery and artificial

vascular replacement surgery Exudative hemorrhaging from the wound surface in hepatic resection surgery Exudative hemorrhaging from the mucosal resection part or submucosal layer during upper

gastrointestinal tract endoscopic mucosal resection surgery, and endoscopic submucosal dissection. Clinical trials were completed in April 2011. TDM-621’s hemostatic efficacy has been generally confirmed in clinical trials and tests five to seven days after surgery did not detect any problems. The product also received high praise by the doctors conducting the Japanese clinical trials. Based off the clinical-trial results, the company submitted a manufacturing and marketing approval application in May 2011 to the PMDA for TDM-621. However, the PMDA has notified 3DM that it must provide stronger evidence for the efficacy of TDM-621, with more precise evidence on its hemostatic effects. In March 2015, the company withdrew its application for domestic manufacturing and marketing approval and has decided to restart clinical trials in Japan and reapply for approval. The company plans to commence clinical trials in April 2016. Asia (ex. Japan): Plans were also afoot to commercialize and market TDM-621 in Asia, excluding Japan. On September 17, 2011, 3DM concluded a partnership agreement with Daewoong Pharmaceutical Co. of South Korea and a licensing agreement with Excelsior Medical Co. of Taiwan. In addition to South Korea and Taiwan, the company is also seeking to expand sales in Southeast Asia. The company’s Singapore subsidiary, 3-D Matrix Asia Pte. Ltd., has an exclusive sales agreement with PT. Teguhsindo Lestaritama. Under the agreement, the Indonesian company is responsible for selling the Japanese partner’s products in Indonesia. The company submitted an application for CE marking in Indonesia in July 2014 and South Korea in January 2015, taking advantage of the fact that the CE marking can be used to obtain marketing approval without clinical trials. In Singapore, the company obtained approval to register PuraStat® as a medical product in September 2014, after submitting an application in July of that year. The company is also preparing to conduct a clinical trial in China with a view to launching the product during FY04/17. United States In the United States, the company submitted an investigational device exemption application to the FDA, with an eye to starting clinical trials in FY04/16. The company aims to apply for and obtain manufacturing and marketing approval, as well as conduct a product launch, in FY04/17. Europe In Europe, 3DM’s French subsidiary obtained a CE Mark in January 2014 (CE Marks are required certification for selling medical devices in the EU and denote EU safety standards have been met). According to the company, the acquisition of the CE Mark will enable 3DM to sell the product in 28 EU member states, Hong Kong, Malaysia, Singapore, New Zealand, and Chile. With the CE Mark, the company will also be able to obtain approvals without clinical trials in such nations and regions as Australia, South Korea, Indonesia, Brazil, Thailand, Vietnam, the Philippines, and South America.


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TDM-621 sales agreements

In May 2011, 3DM concluded an exclusive sales agreement for absorbent localized hemostatic agent TDM-621 in Japan with Fuso Pharmaceutical Industries Ltd. (TSE1: 4538). The company has already received an upfront payment and a milestone payment (triggered by the confirmation of the regulatory approval application). It will receive a further undisclosed milestone payment upon receiving the manufacturing and marketing approval for TDM-621. Furthermore, Fuso Pharmaceutical is obliged to purchase a minimum volume of TDM-621 from 3DM for approximately 10 years. Fuso Pharmaceutical was chosen as a partner as it recognized the value and potential of the product from an early stage. As previously mentioned, 3DM has also concluded agreements with Daewoong Pharmaceutical of South Korea, Excelsior Medical of Taiwan, and PT. Teguhsindo Lestaritama of Indonesia. Daewoong Pharmaceutical is one of South Korea’s leading pharmaceutical companies, and Excelsior Medical one of Taiwan’s top medical devices manufacturers. Regarding sales partners in the US and Europe, as of March 2015, the company is negotiating with several candidates, and plans to conclude an agreement within FY04/16. The company is considering various types of sales agreements, including an exclusive sales agreement with a major corporation, agreements with various distributors for different types of therapy, and direct sales through a wholesaler.

Price, market size

According to the company, the global hemostat market is worth about USD3.0bn. About half of this market comprises regions where sales are possible with the CE marking, or approval may be granted without clinical trials with the CE marking.

Assuming the same pricing as for existing hemostatic products, Shared Research anticipates a sales price of around JPY14,000/cc. However, when considering the competitive advantages of TDM-621, it is conceivable that a premium could be charged.

Global hemostat market



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Mucous membrane protuberance agent (development code: TDM-641)

R&D for 3DM’s self-assembling peptide based agent that is injected into the mucous membrane during endoscopic procedures to form a protuberance on the tumor site is ongoing. TDM-641 is intended for use in endoscopic surgery for stomach cancer, endoscopic mucosal resection (EMR) surgery and endoscopic submucosal dissection (ESD) surgery for esophageal cancer. The company is developing TDM-641 as an agent to be injected into the submucosal layer in endoscopic procedures and causes the affected area to protrude. Based on the product’s feature–namely, of forming a pH neutral gel on coming into contact with a liquid, such as blood–it has been confirmed in animal experiments that not only can TDM-641 produced the protuberance, but that it also possesses a secondary hemostatic effect. Naturally, saline and sodium hyaluronate do not provide this hemostatic effect and it is hoped that TDM-641 will reduce the difficulty of these operations.

Overview of the mucous membrane protuberance method


TDM-641 R&D Status

Both mucous membrane protuberance agent TDM-641 and absorbent localized hemostatic agent TDM-621 use the same RADA 16 self-assembling peptides as their raw material, although the concentration of the peptides varies for the two. Consequently, safety data obtained in clinical trials for TDM-621 can also be used for TDM-641. In September 2014, the company submitted a notification of plans for clinical trials of TDM-641 as an agent to be injected into the submucosal layer in endoscopic procedures to the Pharmaceuticals and Medical Devices Agency (PMDA). In December 2014, the company launched trials of the product, in order to evaluate and verify its safety and efficacy as a submucosal injection material for endoscopy, for EMRs (endoscopic mucosal resections) and ESDs (endoscopic submucosal dissections). The company planned to enroll 260 patients in these trials. However, in March 2015 the company decided to temporarily halt the trials because the tests failed to provide sufficient proof of the efficacy anticipated from previous clinical trials. The company will seek to


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come up with a better method of testing.

TDM-641 Sales Agreements

In February 2012, the company signed an exclusive sales agreement for TDM-641 in Japan with Fuso Pharmaceutical Industries. The company has received upfront payments and milestone payments, and expects to receive more milestone payments upon applying for and obtaining manufacturing and marketing approval.

Vascular embolization agents (development code: TDM-631)

3DM has been pursuing R&D of its RADA 16 self-assembling peptides technology for use as an intravascular embolization agent in hepatic artery embolization surgery and uterine artery embolization surgery. The development code for this product is TDM-631. In hepatic artery and uterine artery embolization surgery, TDM-631 is injected via a catheter into the embolus in the artery, this blocks the artery that provides the liver or uterine tumor with nourishment and by cutting off the blood supply the tumor dies. As TDM-631 becomes gelatinous when it comes into contact with a liquid, it can be injected into the artery via a catheter and used to close the intravascular cavity the company is exploring TDM-631’s use as a new type of embolization agent.

TDM-631 R&D Status

In pre-clinical trials, 3DM confirmed that vascular embolization agent TDM-631 becomes gelatinous within an intravascular cavity after it was dissolved in a contrast agent and had been injected into the cavity via a catheter. Moreover, it confirmed that the gelatinous TDM-631 can be checked visually using an X-ray camera. Going forward, once the company’s mucous membrane protuberance agent enters the clinical development stage, 3DM plans to conduct testing towards the clinical development of its vascular embolization agent. Embolization Therapy



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Alveolar bone reconstruction material (development code: TDM-711)

Alveolar bone degradation due to periodontitis can cause teeth to drop out. In such cases, artificial teeth can be artificially implanted, however, if there is not enough bone to affix the artificial teeth to then alveolar bone reconstruction surgery is required beforehand. 3DM has been developing TDM-711 as a scaffolding material for alveolar bone reconstruction bone reconstruction. The nanofibers created by self-assembling peptides in their gelatinous form have a structure similar to the biological environment required for cells proliferation. By filling in areas where there is a lack of bone, TDM-711’s characteristics allow it to function as a scaffolding material to promote bone reconstruction. Overview of alveolar bone reconstruction process

Many surgeons in the U.S. use bone substitutes, such as autogenous, allogeneic, and artificial bone grafts, when conducting alveolar bone reconstruction surgery as part of implant treatment. 3DM is investigating the use of alveolar bone reconstruction material TDM-711 to improve bone take-up in reconstruction procedures that use autogenous or allogeneic bone grafts. Additionally, TDM-711 carries no risk of infection and should improve patients’ quality of life. 3DM is developing alveolar bone reconstruction material TDM-711 in the U.S. Shared Research believes that this is because the country already has the market for the material in the regenerative medicine field and clinical trials are easy to undertake in the dental field. Over the long term, the company appears to be


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targeting the orthopedic surgery field (larger market) with its bone reconstruction material.

TDM-711 R&D Status

The company performed GLP-compliant confirmatory tests of the efficacy of TDM-711 on patients with alveolar bone defects. As significant bone regeneration was confirmed compared to the control group, the company then continued R&D of TDM-711 and submitted an IDE approval application to the FDA in September 2010. Approval was granted in July 2011. In February 2012, it commenced clinical studies (first pilot study) at the Forsyth Institute (an independent non-profit research center affiliated with Harvard University). In June 2012, the company completed the treatment and observation of 15 patients in line with a predetermined protocol. None of these patients showed serious adverse side-effects. In May 2014, the company submitted a full report of the clinical trials to the US Food and Drug Administration (FDA). 3DM plans to launch a second pilot study in early 2015.

Wound-healing agent (development code: TDM-511)

Most of the products that the company has in its pipeline are intended for use inside the body. However, the company is also developing a product applied to the skin for use in tissue regeneration. Wound-healing agent TDM-511 is one such product. It self-assembles into a gel structure and forms nanofibers, creating a condition conducive to skin-tissue regeneration. This product is applied to light to moderate skin wounds.


TDM-511 is used to stop localized bleeding (it can quickly stop bleeding from the surface skin and inner skin) and heal wounds (it promotes healing by enhancing tissue regeneration functions). However, the product has other uses. For instance, this agent could be used to restore the skin after a tumor is removed. Animal experiments showed that the agent not only promoted tissue regeneration, it also restored the skin to its original condition. Hence, in addition to medical applications, this product is also being developed for use in cosmetic surgery. The target markets are Europe and the US. In October 2014, 3DM submitted a 510(k) premarket notification to the US Food and Drug Administration (FDA), with a view to marketing the product as a medical device. The company received this approval in January 2015. Now that the company’s 510(k) has


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been approved, 3DM plans to research ways to increase the hemostatic and therapeutic properties of TDM-511 by combining it with other pharmaceuticals, as well as the product’s application to cancer treatment and other types of therapy.

In the US, premarket notification submissions for medical devices that are substantially equivalent to existing

devices in safety and effectiveness can be filed without clinical trials. This submission process is known as

510(k).

DDS Field

3DM has been researching the possibility of using self-assembling peptides as a carrier in drug delivery systems (DDS). It has also conducted multiple efficacy trials into the controlled release of proteins, including bFGF and PDGF. The surfactant peptide A6K is drawing particular attention. A characteristic of A6K is that it forms a kind of nanotube, called micelle, in liquids. The micelle is able to include or encapsulate various materials in it due to its surfactant effects. 3DM is researching whether this characteristic can be used to deliver siRNA encased inside micelles through the cell membrane and inside cancer cells.

DDS R&D Status

3DM is conducting two joint research projects with the National Cancer Center in pursuit of new cancer therapy technologies using surfactant peptides: the National Cancer Center, Phase I Center, Early Research and Development project, and Japan’s first non-clinical research aimed at turning revolutionary new cancer therapies into viable treatment options. In the Early Research and Development project, 3DM and the National Cancer Center are collaborating to develop siRNA nucleic acid medicine that uses the self-assembling peptide A6K as a drug-delivery system (DDS), targeting the RPN2 gene, responsible for the spread of cancer and its resistance to pharmaceuticals. The timeline for the project is five years, starting in FY2011. In FY04/15, the company plans to launch the first domestic investigator-initiated trials of siRNA nucleic acid medicine for the indication of “triple negative” breast cancer that has failed to respond to existing treatments.

In the non-clinical research project, 3DM and the National Cancer Center are collaborating to develop a nucleic acid medicine that uses self-assembling peptides as a DDS targeting microRNA (miRNA), which regulates cancer stem cells in cancerous bone tumors (osteosarcoma). The timeline for the project is

New nucleic acid medicine: RPN2siRNA-A6K compound



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three years, starting in FY2012. According to the company, it may be possible to lower the high recurrence rate of cancerous bone tumors by targeting the cancer stem cells. In the surgical and regenerative medicine fields, the company is able to independently carry out clinical trials and acquiring manufacturing and marketing approvals. But in the DDS field, product development focuses on the commercialization of its research products as pharmaceutical drugs. Here 3DM strategy is to license its technology to major pharmaceutical companies.


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Main business partners

The company is outsourcing the manufacture of the peptide raw materials to CPC Scientific Inc. (unlisted) and two other companies, all of which appear to supply exclusively to 3DM.

Absorbent localized hemostatic agent (TDM-621)

In May 2011, 3DM signed a manufacturing outsourcing agreement with Fuso Pharmaceutical Industries Ltd. and part of manufacturing process (pre-filling of syringes) has been exclusively outsourced to Fuso. In April 2009, 3DM concluded a business tie-up agreement with Itochu Chemical Frontier Corporation (subsidiary of Itochu Corp.; TSE1: 8001), for it to carry out raw peptide material procurement, outsourcing of manufacturing, and sales on for 3DM. A cooperation and support system was also implemented. The company has an exclusive sales agreement with Fuso Pharmaceutical for distribution in the Japanese market. It has also signed exclusive agreements with Daewoong Pharmaceutical Co. of South Korea and Excelsior Medical Co. of Taiwan, and PT. Teguhsindo Lestaritama of Indonesia for sales in these two countries.

Mucous membrane protuberance agent (TDM-641)

The company has an exclusive sales agreement with Fuso Pharmaceutical for sales and distribution in Japan.


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R&D System

3DM’s R&D activities are carried out by two departments: Pharmaceutical Development Department (three staff): manufacturing and marketing approval

applications and quality control systems; Business Development Department (six staff): sourcing of clinical-trial facilities, doctors for the trials,

and the clinical monitoring required. The company has also signed self-assembling peptide technology MTA agreements with over 100 universities and research institutes worldwide. 3DM has been conducting joint research with these partners with an eye to developing new applications for its technology. In these joint-research agreements, the personnel and funds are sourced from its partners, while the company is left to acquire the rights to commercialize any results.

Relationship with MIT

MIT holds the substance patent and the method-of-use usage patent for the self-assembling peptides (collectively termed "the basic patents"). 3-D Matrix, Inc., a U.S. company that later became a subsidiary, concluded an exclusive patent license agreement with MIT in April 2003 for the worldwide license (including re-licensing rights) to its patents in the fields of medicine, life sciences, and beauty care. In October 2004, 3DM signed a license-and-supply agreement with 3-D Matrix, Inc. and acquired the patent rights for Asia. In October 2007, the contract was revised after 3DM became the parent of the U.S. company. The basic patents cover all the peptides that self-assemble to form a hydro-gel, and while there are some variations across regions, the main patents have all been registered. A list of both self-developed patents awaiting approval and those that the company acquired through its exclusive license deal with MIT follows:


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Substance Patent

Patent Applications

Note: Modified self-assembly peptide patents have been filed internationally in the EU, Japan, and Canada under the Patent Cooperation Treaty (PCT) and

are currently under examination.

Source: Company data, SR Inc. Research

Patent Holder Registration Date Expiry DateProduct Pipeline Patent Description Patent No. Territory

September 23, 1997 November 29, 2014

Self-Assembly PeptideSubstance Patent (self-assmebly and inhibitionmethods)

Absorbable localhemostatic materialProminence materialmucosaEmbolization materialAlveolar bonereconstruction materialPuraMatrix

Self-Assembly PeptideSubstance Patent US 5670483 US MIT

US 6548630 US MIT

Self-Assembly PeptideSubstance Patent

April 15, 2003 July 21, 2017

WO 06/014570US

(Patent pending) Subsidiary - -

Absorbable localhemostatic materialProminence materialmucosa

Self-Assembly PeptideHemostatic agent andmethods for blockingassembly

2008-316133Japan

(Patent pending) 3-D Matrix

August 21, 2014Alveolar bonereconstruction materialPuraMatrix

- -

US 6800481 US MIT October 5, 2004 March 25, 2017Alveolar bonereconstruction materialPuraMatrix

Self-Assembly Peptide CellCulture Method

Self-Assembly Peptide CellCulture Method US 5955343 US MIT September 21, 1999

MIT August 29, 2006 March 16, 2023PuraMatrixDDS

Self-Assembly PeptideProtein DDS US 7098028 US

November 30, 2008 February 5, 2021

PuraMatrixSelf-Assembly PeptideCartilage Cell CultureMethod

US 7449180 US

MIT

EP 717398 EU December 31, 2008 February 5, 2022

PuraMatrixSelf-Assembly PeptideCartilage Cell CultureMethod

507629 Japan

June 24, 2024

PuraMatrixSelf-Assembly PeptideNerve RegenerationMethod

US2005/0287186US

(Patent pending) MIT - -

PuraMatrixSelf-Assembly PeptideModified PeptideSubstance Patent

US 7713923 US MIT May 11, 2010

MIT September 8, 2012 -

PuraMatrixSelf-Asembly PeptideModified Peptide CellCulture Method

5057781 Japan MIT September 6, 2012 -

PuraMatrixSelf-Assembly PeptideCardiac Muscle IssueRegeneration Method

EP 2089047 EU Subsidiary November 11, 2012 -

US 8647867 US May 30, 2014

-Okayama

University / 3-DMatrix

May 28, 20135263756 JapanSelf-Assembly PeptideCardiac Muscle IssueRegeneration Method

PuraMatrix

PuraMatrixSelf-Assembly PeptideSkin Tissue Regeneration 5497451 Japan 3-D Matrix April 1, 2014 -


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Among the basic patents, the first one expires in 2014 and others begin to expire thereafter. However, even as the first patent expires, 3DM believes managing its patents as a portfolio should continue to form a barrier to entry and thus it will be able to maintain its competitive advantage. It is working on its patent strategy with a prominent law firm based in Boston (Choate Hall & Stewart LLP). A number of Bain & Co. alumni, including the current chairman of 3DM, Keiji Nagano, co-invested as angel investors when 3DM, Inc. was formed and exclusive commercialization rights to self-assembling peptides technology were acquired from a group of MIT researchers in May 2001.

Contract company Subsidiary (3-D Matrix Inc.)Counterparty MITContract Title ・Amended and restated exclusive patent license agreement

Contract period

Main Agreement Licensing

Source: Company data, SR Inc. Research

Technology License Agreement

・First amendment, second amendment and third amendment toamended and restated exclusive patent license agreement

Basic patents covered until patent expiry, others covered until expiry or patentapplication abandoned

MIT grants 3-D Matrix Inc. exclusive global licensing rights (incl. sub-licensing rights)of self-assembling peptide patents owned by MIT as well as those for patents


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Group companies

3-D Matrix Inc.: a 100% owned subsidiary based in Massachusetts, US; 3-D Matrix Europe SAS.: a 100% owned subsidiary based in Lyon, France; 3-D Matrix Asia Pte. Ltd. a 100% owned subsidiary based in Singapore; 3-D Matrix Da America Latina Representacão Comercial Ltda.: a 100% owned subsidiary based in

Brazil. Responsible for the medical products business in South America, including hemostatic materials and other products;

3-D Matrix Consulting (Beijing) Limited: a 100% owned subsidiary based in Beijing, China. Responsible for the medical products business in China, including hemostatic materials and other products.

Global expansion



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Business model

3DM’s business model is significantly different from that of conventional drug discovery start-ups. One of the things that made this possible is a unique nature of self-assembling peptides. The company built its business model based on the characteristics of self-assembling peptides. Medical Device Business Flow-Chart


Company revenues can be categorized into: Upfront payments Milestone payments Revenues from product sales. Upfront payments are received from licensee pharmaceutical companies when the agreement is signed, while milestone payments are generated in the development process when certain goals are achieved. This is the same as with conventional drug-discovery venture companies. The major difference is that in the case of 3DM, the company develops the substance as a medical device itself and independently seeks a manufacturing and marketing approval. Therefore, if its products reach the market, 3DM will sell them directly to pharmaceutical companies at a certain percentage of the final market price. What this means is that 3DM gets a substantially larger portion of the sales revenues compared to conventional drug discovery startups. Up until FY04/13, the majority of 3DM’s revenues came from upfront and milestone payments. However, from FY04/15 on, if the launch of absorbent localized hemostatic agent TDM-621 and other products goes according to schedule, product sales revenues will also be recorded. The company anticipates that the weight of such revenues will grow in the future, leading to greater and more stable profits. The gross profit margin is 100% for upfront and milestone payments. For product sale revenues the company expects the GPM of around 60% at the start and around 70% once the mass production scale effect kicks in. Because 3DM has acquired the exclusive rights to the patents from MIT, it pays a license fee to MIT as a


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fixed percentage of sales. However, Shared Research anticipates that this license fee will not exceed few percentage points. 3DM pays a fee for the outsourced peptide raw materials. In addition, the company pays certain fees to such parties as CROs and pharmaceutical consultants that provide it with advice and support regarding the procurement of peptide materials, manufacturing technology, and domestic and overseas sales partnerships. The company, which has small operations with a small number of employees, uses help from outside parties to improve its product development efficiency. The company’s business model is different from that of conventional pharmaceutical startups in various other ways, as well. For instance, many conventional startups handle research and development themselves at least until the process reaches the first part of Phase II clinical trials. Since these companies do not usually license the product to drugmakers until then, they often face the following risks: 1) It takes a long time before the product is licensed to drugmakers; 2) Costs are high; and 3) The chances of the product failing during the process of development are high. On the other hand, the company’s products are considered “medical devices” as opposed to drugs. This means a substantially shorter path to the regulatory approval. For instance, the company began developing its absorbent localized hemostatic agent (TDM-621) in Japan around 2009. If the company brings TDM-621 to the market during FY04/15 as planned, it will mean that the entire development process takes about five years. Furthermore, 3DM claims it can keep development costs down by actively using outside parties. Also, all 3DM pipeline products use basically the same raw material (the RADA 16 self-assembling peptides). Therefore, once it successfully completes clinical trials for the first product, it should be able to shorten the time to market the subsequent products. Overview of the company’s business model


As 3DM deals with medical devices there is a standardized manufacturing process for its products and the risk of bottlenecks in raw material procurement, manufacturing, or at other points in the supply chain is low.


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Strengths and weaknesses

Strengths

Promise of the core self-assembling peptide technology: self-assembling peptides have a number of advantages compared to their biocompatible material rivals, including safety and ease of use. Moreover, the material can be used across a wide field of applications. 3DM has been granted the exclusive worldwide license (including re-licensing rights) from MIT for the basic patents. Consequently, barriers to entry for competitors appear to be high, both in terms of technology and intellectual property rights.

Differentiated business model: the company is focused on the development of medical devices, which means the product development period needed is relatively short when compared to the time it takes to develop standard drugs. Moreover, development costs are also lower for medical devices than drugs. Finally, 3DM relies on third parties for development of its medical products helping minimize its own employee numbers.

Large potential market: 3DM’s target markets of hemostatic agents and alveolar bone reconstruction agents are both expected to grow in the future. Shared Research believes the superiority of its core technology and its exposure to growth medical markets puts the company in a sweet spot.

Weaknesses

Commercial success depends on outside partners: given the company has chosen to focus on searching for pipeline products, accumulating medical device development expertise, and specializing in ‘project management and business strategy’, choosing the right partners for its other functions is critical to the company’s success.

Dependence on third party core patents with relatively short lives: one potential weakness for the company is the fact that most of the patents that form the core of 3DM’s technology are licensed (albeit exclusively) from MIT and are due to expire in the period between 2014 and 2024. 3DM is aware of potential challenges and counters that clever intellectual property management strategy would sufficiently ensure legal control of the related technologies. In fact, the company has retained a prominent law firm to advise it on the patent strategy.

Potential human resources bottlenecks: the majority of 3-D Matrix’s functions are dependent on third parties, which helps ameliorates human resource bottlenecks as the company grows. However, the company must still secure personnel with the necessary levels of expertise in order to carry out the project functions it has chosen to focus on. Consequently, it still faces some human resource hurdles in its efforts to grow its business.


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Market and value chain

Market environment

Hemostatic agent market

Domestic market Hemostatic agents are used in surgery in areas such as cardiac and vascular, respiratory, digestive, and neurosurgery. The Japanese market is estimated to be worth approximately 17 billion yen. The Yano Economic Research Institute has forecast the market will remain more or less at this scale going forwards. However, most of the currently used products are fibrin glue-type or collagen-type, both of which use materials derived from living organisms and so carry the risk of infection from viruses that may reside within these materials. A string of companies have been forced to withdraw from the market as they have been unable to meet heightened safety standards following revisions to the Pharmaceuticals Affairs Law. This and other factors have led to market stagnation. After absorbent localized hemostatic agent TDM-621 is launched, the Company is aiming to capture 50% market share based off TDM-621 replacing existing products on the market. The company is also expecting the domestic market to grow to around 30 billion yen. The biggest reason is that currently surgeons are refraining from using hemostats due to concerns about the risks associated with animal/human origin of the existing products. TDM-621 resolves this problem and should trigger more liberal use. The company also develops new end applications such as use in combination with an endoscope or peritoneoscope. Domestic hemostatic agent market


US market Hemostatic agents are widely used during surgery in the US. Due to the increasing number of operations driven by an aging society, the American hemostatic agent market is expected to grow at an annual average rate of 6% and be worth 1.3 billion dollars by 2016, according to iDATA Research. The European market is also forecast to reach a similar size, totaling 1.1 billion dollars in 2016 (source: the company’s


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estimate based on data from the Millennium Research Group.). 3DM believes it can capture a 30-50% share of both the European and US markets. Forecast Trends for US Hemostatic Market


Overview of the mucous membrane protuberance agent market

Around 800,000 endoscopic lesion resections are performed annually in Japan and this number is increasing by about 10% per annum, according to a survey by the Ministry of Health, Labour and Welfare.

Overview of the vascular embolization agent market

There were 113,685 head, thorax, and abdominal surgical procedures and 11,526 procedures using anticancer agents in arterial embolization to treat uterine myoma performed in Japan, according to a Ministry of Health, Labour and Welfare survey.

Overview of the alveolar bone regeneration agent market

About 600,000 implant procedures are carried out in Japan each year. However, in the US about 10 times

CY2016 Est: USD1.1bn

0

200

400

600

800

1,000

1,200

CY10 CY11 CY12 CY13 CY14 CY15 CY16

(USDmn)EU Hemostatic Market

（2010 - 2016）


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this number is performed. Moreover, alveolar bone reconstruction surgery in the US is expected to grow annually by 5.6% out to 2014, according to the Millennium Research Group.


Barriers to entry

3DM’s core self-assembling peptide technology produces agents that have a number of advantages compared to other biocompatible materials, including safety and ease of use. The company has also obtained from MIT the exclusive global rights (including re-licensing rights) for the basic patents for this technology. Consequently, from both a technological and intellectual-property-rights perspective barriers to entry are extremely high.

Competition

According to MedMarket Diligence, in 2009 the global market for hemostats was dominated by major corporations such as CSL Behring (unlisted), Johnson & Johnson (NYSE: JNJ), King Pharmaceuticals, Inc. (unlisted; Pfizer Inc. subsidiary), Nycomed (unlisted; Takeda Pharmaceuticals subsidiary), and Baxter International Inc. (NYSE: BAX). Pfizer Inc. (NYSE: PFE), HemCon Medical Technologies, Inc. (unlisted) and Integra Lifesciences Corp (NASDAQ: IART) were also prominent. The main hemostatic agents in the Japanese market include: Bolheal, a fibrinogen preparation. The product is manufactured by the Chemo-Sero-Therapeutic

Research Institute (Kaketsuken) and distributed by Astellas Pharma Inc. (TSE1: 4503) and Teijin Pharma Ltd., a subsidiary of Teijin Ltd. (TSE1: 3401)

Tachocomb, manufactured by CSL Behring Abiten, a collagen-type absorbent localized hemostatic agent, manufactured by Zeria

Pharmaceutical Co. (TSE1: 4559). Arista AH, an absorbent localized hemostatic agent, developed by Medafor, Inc. and distributed by


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Mera Pharmaceuticals Inc. It appears that 3DM’s products are superior, particularly in terms of safety. Of many products available in the market, Medafor’s Arista AH is derived from starch rather than from living organisms, and Matsudaito is a non-absorbable topical hemostatic material for the central circulatory system, derived from urethane (sales by Terumo Corporation [TSE1: 4543] and manufacturing by Sanyo Chemical Industries Limited [TSE1: 4471]).


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Strategy

3DM strategy is to develop and commercialize products across a variety of fields based on its self-assembling peptide technology, using outside partners to supply it with manufacturing and distribution capabilities while it focuses on developing the pipeline, accumulates medical device development expertise, and recommends commercialization strategies. If the company can build a strong distributor network and find partners able to aggressively market its products, then the products appear to be likely to realize their potential and capture significant market share. On the other hand, if its distributor network is weak or it ends up partnering with companies who feel that the company’s products are a threat to their existing product line-up then 3DM’s products are unlikely gain much traction. 3DM believes the strength of its products provides it with a strong negotiating position when dealing with current or potential partners. In line with this view, the company intends to begin clinical trials and negotiate with potential sales partners through contacts with influential medical institutions and key opinion leaders (KOL).


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Historical financial statements

Earnings results (for reference purposes)

FY04/14 Results (out June 12, 2014)

Operating revenue consisted of upfront payment for conclusion of an exclusive sales agreement for hemostatic agent TDM-621 in Indonesia and development expenses received from the National Cancer Center, to total JPY107mn (+234.7% YoY). Operating expenses consisted of SG&A expenses for global expansion and increased R&D expenses, for a total of JPY1.6bn (+57.6% YoY). Specifically, R&D expenses were JPY599mn (+51.5%) and SG&A expenses were JPY1.0bn (+61.0%). Hemostatic agent (TDM-621) 3DM is applying to Japan’s Pharmaceuticals and Medical Devices Agency (PMDA) for approval to manufacture and sell this pipeline product in the domestic market. Overseas, the company is in consultations with the Food and Drug Administration, as it looks to begin clinical trials in the US. The company has permission to sell the product in Europe, having been granted the CE mark on January 14, 2014. The company has begun manufacturing TDM-621, and is moving to establish its use in influential medical institutions. The CE mark also means clinical trials are not necessary to manufacture and sell the product in certain countries in Asia, Oceania, and South America. 3DM has begun working toward clinical research in influential facilities in Europe. The company is also working to have TDM-621 placed on lists of recommended products in different countries, and encouraging its increased use in medical institutions. The company is negotiating exclusive sales agreements with sales partners. In May 2013, subsidiary 3-D Matrix Asia Pte. Ltd. (Singapore) agreed upon an exclusive sales agreement in Indonesia with PT. Tegushindo Lestaritama (Indonesia). Alveolar bone regenerator (development code: TDM-711) 3DM treated 15 patients in the US, and completed the clinical follow-up. Based on the results, the company plans to begin discussions regarding the next phase of clinical trials with the US FDA. Mucous membrane protuberance material (development code: TDM-641) 3DM is working with the PMDA in preparation for clinical trials. The company is collaborating with the National Cancer Center on treatment for “triple negative” breast cancer with nucleic acid medicine that targets the RPN2 gene. The Ministry of Health, Labour and Welfare judged this research to fall under the “National Cancer Center, Phase I Center, Early Research and Development” system, and awarded the company grants. The company booked the grants as operating revenue. In 2010, 3DM began collaborative research with the New Energy and Industrial Technology Development Organization (NEDO), an incorporated administrative agency. The title of the research is “Research and Development of Next-Generation Alternative Vital-Function Technologies / Research and Development of Next-Generation Regenerative Medicine Technologies / Development of Autonomous Regeneration Device for Regenerating Tissue In Vivo with a Small Number of Cells (Research and Development for the Practical Application of In Vivo Autonomous Regeneration of Organs)”.


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FY04/13 Results (announced on June 13, 2013)

Operating revenue was 32 million yen, recurring loss was 977 million yen, and net loss was 978 million yen. The company had already announced revisions to its full-year FY04/13 earnings forecasts on April 19, 2013. The status of 3DM’s product pipeline at the end of FY04/13 was as follows: Hemostatic agent (TDM-621) The product continued to undergo screening by Japan’s Pharmaceuticals and Medical Devices Agency (PMDA) as part of the approval process for manufacture and sale in the domestic market. The company was also in the final stage of establishing a TDM-621 manufacturing framework. The company made significant progress in preparation for export of TDM-621 to various countries by obtaining ISO 13485 certification, a comprehensive quality management system for the design and manufacture of medical devices. In the United States, the company filed an investigational device exemption (IDE) application—equivalent to Japan’s investigational new drug (IND) application—for TDM-621 with the US Food and Drug Administration (FDA). In Europe, 3DM was planning to submit an application for the CE Mark (the CE Mark denotes that a product meets EU standards). The company continued to work with business partners to prepare for bridging studies in South Korea and Taiwan. Mainly through its Singapore subsidiary, the company is strengthening relationships with its business partners in South Korea and Taiwan, and will also pursue business interests in other parts of Asia. Alveolar bone regenerator (Development code: TDM-711) A US subsidiary began clinical trials for this product in February 2012. Treatment of 15 patients has been completed in line with a predetermined protocol and was in the clinical follow-up stage. Based on the clinical trial results, the company plans to begin discussions regarding the next phase of clinical trials with the US FDA. Mucous membrane protuberance material (Development code: TDM-641) The company was preparing to start clinical trials.


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Income statement

FY04/12

Operating Revenue was JPY1.1bn, which can be broken down into milestone and upfront payments for the TDM-621 hemostatic agent for surgery (“TDM-621”), upfront payment revenues from contracts for the TDM-641 mucous membrane protuberance material (“TDM-641”), and grant revenue associated with a joint project with Japan’s National Cancer Center. Expenses stood at JPY753mn driven by R&D costs, higher personnel costs on the back of business expansion, and IPO related costs. Consequently, the company recorded an operating profit of JPY354mn. Non-operating income came in at JPY3mn. Under non-operating expenses totaling JPY48mn, JPY14mn was due to stock issuance expenses (IPO), and JPY26mn in advisory costs. As a result, the company logged a recurring profit of JPY310mn and a JPY309mn net income. In April 2012, the company upwardly revised its full-year FY04/12 forecasts. Thanks to lower-than-planned R&D and other expenses, operating profit came in above the revised forecast of JPY300mn.

FY04/11

Total sales were JPY158mn (vs. JPY402mn in FY04/10), driven by JPY150mn in upfront payments (vs.

Income Statement FY04/10 FY04/11 FY04/12 FY04/13 FY04/14

(JPYmn) Cons. Cons. Cons. Cons. Cons.

Operating Revenue 402 158 1,107 32 107

YoY - -60.6% 599.5% -97.1% 234.7%

CoGS 1 2 3 0 3

R&D Expenses 111 233 251 395 599

SG&A 355 406 499 636 1,024

Total Business Expenses 467 641 753 1,031 1,626

Operating Profit -65 -482 354 -999 -1,518

YoY - - - - -

OPM - - 32.0% - -

Non-Operating Income 11 0 3 38 32

Non-Operating Expenses 5 27 48 17 38

Recurring Profit -60 -510 310 -978 -1,524

YoY - - - - -

RPM - - 28.0% - -

Extraordinary Gains - - - - -

Extraordinary Losses - 3 - - -

Tax Charges 1 21 1 1 2

Net Income -61 -534 309 -978 -1,525

YoY - - - - -

Net Margin - - 27.9% - -




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JPY400mn in FY04/10). Operating expenses meanwhile came to JPY641mn, an increase of JPY174mn from FY04/10. This was mainly due to a JPY50mn increase in SG&A expenses from increased headcount, and a JPY122mn rise in R&D expenses from higher clinical trial expenses for TDM-621. This resulted in an operating loss of JPY482mn (vs. JPY65mn in FY04/10); a recurring loss of JPY510mn (vs. JPY60mn in FY04/10), and a net loss of JPY534mn (vs. JPY61mn in FY04/10).


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Balance sheet

Assets

The company assets are mostly cash and equivalents. During FY04/14, inventories of JPY789mn comprise 19% of total assets, which is the result of purchases of raw materials for peptides. Goodwill of JPY257mn was also recorded in FY04/14, resulting from the acquisition of its former US parent; amortizing at about JPY70mn p.a. through FY04/19).

Liabilities

The company is debt free as of the end of FY04/11.

Net Assets

As a pharmaceutical startup, 3-Matrix has to incur R&D costs even before its products hit the market and

Balance Sheet FY04/10 FY04/11 FY04/12 FY04/13 FY04/14


ASSETS

Cash and Equivalents 544 589 1,758 2,033 2,641

Inventories 33 39 25 261 789

Other Current Assets 17 39 718 190 163

Total Current Assets 594 666 2,501 2,484 3,593

Total Tangible Fixed Assets 7 6 88 107 103

Total Other Fixed Assets 19 22 30 47 86

Goodwill 537 467 397 327 257

Patents 42 38 40 46 56

Total Intangible Assets 578 505 437 383 339

Total Fixed Assets 604 533 554 536 528Total Assets 1,198 1,199 3,055 3,020 4,121

LIABILITIES

Accounts Payable 12 16 22 48 92

Accrued Expenses 4 24 30 43 37

Short-Term Debt - - - - -

Other Current Liabilities 15 9 59 821 829

Total Current Liabilities 31 49 112 913 958

Long-Term Debt - - - - -

Other Fixed Liabilities - 0 55 42 29

Total Long-Term Liabilities - 0 55 42 29

Total Liabilities 31 49 167 955 988

SHAREHOLDERS' EQUITY (NET ASSETS)

Issued Capital 1,109 1,359 2,070 2,139 3,339

Reserves 1,099 1,349 2,060 2,129 3,329

Retained Earnings -1,063 -1,596 -1,288 -2,266 -3,792

Total Shareholders' Equity (Net Assets) 1,167 1,150 2,888 2,066 3,133

Working Capital 21 22 3 213 697

Interest-Bearing Debt - - - - -

Net Debt -544 -589 -1,758 -2,033 -2,641




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as a result has negative retained earnings as of the end of FY04/11. The company has also conducted the following capital increases, primarily through issuance of new equity: October 2007: Third-party share allocation of JPY579mn (1,448 common shares issued to 3DM

Investment LLC., and Massachusetts Institute of Technology) November 2009: JPY500mn third-party allocation (1,250 common shares issued to Yasuda

Enterprise Development Co. No. 4 Business Investment Limited Partnership; JAIC SME Global Support Investment Limited Partnership; So-net M3 Inc. (now M3 Inc.); Jafco Sangaku Bioincubation Investment Business Limited Partnership; and TAIB-JAIC Asian Balanced Private Equity Fund)

September 2010: JPY200mn third-party allocation (400 common shares issued to Fuso Pharmaceutical Industries Ltd.)

September 2010: JPY300mn third-party allocation (600 common shares issued to Excelsior Medical Co., Daewoong Pharmaceutical Co.)

October 2011: Public stock offering of JPY1.4bn (700,000 common shares issued) July 2013: Public stock offering of JPY2.3bn (550,000 common shares issued) July 2014: Public stock offering of JPY5.1bn (1,270,000 common share issued) Per Share Data

The company has conducted the following stock splits: July 2011: Split shares 100:1 taking the outstanding common shares to 948,000. August 2011: Split shares 4:1 taking the outstanding common shares to 3,792,000. September 2012: Split shares 2:1 taking the outstanding common shares to 9,221,600. June 2013: Split shares 2:1 taking the outstanding common shares to 18,936,000

Warrants and Dilution

As of the end of FY04/13, there were outstanding warrants for 651,200 shares, some of which were subsequently exercised. Assuming that all warrants were exercised as of the end of April 2013, the number of outstanding common shares would be 9,468,000, equivalent to about 6.9% dilution. (The

Per Share Data (JPY) FY04/10 FY04/11 FY04/12 FY04/13 FY04/14

Cons. Cons. Cons. Cons. Cons.

No. of shares ('000) 8.5 9.5 4,588.8 9,468.0 19,876.4

Earnings Per Share -7,870.6 -58,896.1 73.7 -105.3 -77.8

EPS (fully diluted) - - 69.0 - -

Dividend Per Share 0.0 0.0 0.0 0.0 0.0

Book Value Per Share 137,634.2 120,159.5 625.1 107.3 146.2

Per Share Data (JPY, adjusted)

Stock Split Adjustment Factor 1,600 1,600 4 2 1

Split-Adjusted Shares ('000) 13,568 15,168 18,355 18,936 19,876

Earnings Per Share -4.5 -35.2 18.4 -52.6 -77.8

EPS (Fully Diluted) - - 17.3 - -

Dividend Per Share 0.0 0.0 0.0 0.0 0.0

Book Value Per Share 86.0 75.1 156.3 53.7 146.2




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numbers of shares discussed here are those prior to the June 2013 stock split.)


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Statement of cash flows

Operating Cash Flow

Almost fully determined by changes in pre-tax earnings.

Investment Cash Flow

Minimal overall; driven by acquisition of tangible or intangible assets.

Financial Cash Flow

Positive due to equity financing rounds.

Cash Flow Statement FY04/10 FY04/11 FY04/12 FY04/13 FY04/14


Operating Cash Flow (1) -28 -434 -131 -647 -1,680

Investment Cash Flow (2) -13 -18 -100 -56 -83

Free Cash Flow (1+2) -40 -452 -231 -703 -1,763

Financial Cash Flow 573 498 1,400 983 2,360

Depreciation & Amortization (A) 75 79 79 86 102

Capital Expenditures (B) -11 -10 -90 -36 -40

Working Capital Changes (C) - 1 -20 210 485

Simple FCF (NI + A + B - C) - -467 318 -1,139 -1,948




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Other information

History

The company was founded in May 2004 to develop, produce, and sell medical devices based on self-assembling peptide technology discovered by Dr. Shuguang Zhang of the Massachusetts Institute of Technology (MIT). Dr. Zhang discovered self-assembling peptides at MIT in 1992. An MIT-research group acquired the rights to commercialize the technology from the university in May 2001, and established 3DM, Inc. (currently a subsidiary of the company) in the US. Nagano, who is the company chairman, teamed up with several people from Bain and Co. as angel investors to fund the startup. Confident in the technology behind self-assembling peptides, Nagano founded 3-D Matrix Japan Ltd. (now 3DM) in May 2004, with the aim, of developing, producing, and selling medical devices based on the platform in Japan and rest of Asia. In October 2004 the newly formed subsidiary entered into a license-and-supply agreement with 3DM, Inc., and also obtained the rights to re-license the technology covered by the basic patents. 3DM, Inc. never took off the ground as a business, and in 2007 the Japanese subsidiary acquired its parent in a stock swap, resulting in the present corporate structure. 1992 Dr. Shuguang Zhang of MIT discovers self-assembling peptides May 2001 3DM, Inc. (currently a subsidiary of the company) established in the U.S. as an MIT

biotechnology venture April 2003 3DM, Inc. enters into an Exclusive Patent License Agreement (including

sub-licensing rights) for self-organizing peptides with MIT, the patent owner May 2004 3-D Matrix Japan Ltd. founded to commercialize self-organizing peptide technology

in Japan October 2004 3-D Matrix Japan Ltd. concludes License and Supply Agreement* with 3DM, Inc.

(currently US subsidiary), receiving licensing and sub-licensing rights for patents relating to self-assembling peptides Agreements to supply research reagents free of charge to research institutions that had been entered into by 3DM, Inc. transferred to agreements between those research institutions and 3-D Matrix Ltd. (Japanese parent), and the company begins supplying them with PuraMatrix free of charge

October 2007 3DM, Inc. becomes a subsidiary of 3-D Matrix Japan Ltd. February 2008 Supply Agreement signed, granting Becton, Dickinson and Company exclusive

worldwide rights to sell the PureMatrix product (RADA16) for research reagent purposes

March 2008 Company name changed to 3-D Matrix Ltd. (3DM elsewhere in this report) October 2008 Patent application filed for using self-assembling peptides as a hemostatic agent

(TDM-621) in surgery April 2009 Itochu Chemical Frontier Corp. selected as partner for procurement of raw peptide

materials and manufacture of products. Business Collaboration Agreement for advice, cooperation, and support signed

July 2009 Exclusive Sales License Agreement signed with Fuso Pharmaceutical Industries Ltd. (Fuso Pharma) for the rights to sell its hemostatic agent (TDM-621) for surgery product in Japan signed

August 2009 Notification of clinical trial plan for hemostatic agent (TDM-621) for surgery submitted to Japan’s Pharmaceuticals and Medical Devices Agency (PMDA)

January 2010 Clinical trials for hemostatic agent (TDM-621) begin August 2010 Approval obtained for Class One medical devices manufacture and sale (Tokyo,

Approval number 13B1X10105)


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September 2010 3DM, Inc. submits IDE application for alveolar bone regenerator (TDM-711) to FDA Partnership Agreement with Daewoong Pharmaceutical Co. of Korea granting them exclusive rights to sell hemostatic agent (TDM-621) for surgery in Korea signed License Agreement with Taiwan’s Excelsior Medical Co. granting them exclusive rights to develop, manufacture, and sell hemostatic agent (TDM-621) in Taiwan signed

May 2011 Agreement with Fuso Pharma for outsourced manufacturing of hemostatic agent (TDM-621) for surgery signed Notification of conclusion of clinical trials for hemostatic agent (TDM-621) for surgery submitted to PMDA Application for approval of manufacture and sale of hemostatic agent (TDM-621) for surgery submitted to PMDA

July 2011 3DM, Inc. receives IDE approval for alveolar bone regenerator (TDM-711) from FDA February 2012 Exclusive sales agreement with Fuso Pharma for mucous membrane protuberance

material (TDM-641) signed U.S. clinical trials begin alveolar bone regenerator product TDM-711), intended for dental implantation (registration and trial surgery for initial patients begins)

March 2012 Doctor-led clinical research started at Keio University’s School of Medicine by newly applying 3DM’s self-assembling peptide technology

April 2012 Sales agreement between Fuso Pharma and Kaken Pharma for absorbent localized hemostatic agent (TDM-621) Establishment of European subsidiary 3-D Matrix Europe SAS. in Lyon, France

October 2012 Establishes Singapore subsidiary 3-D Matrix Asia Pte. Ltd. February 2013 IDE application filed with FDA for hemostatic agent (TDM-621) March 2013 Receives ISO 13485 May 2013 Signs exclusive sales agreement with Indonesia’s PT. Teguhsindo Lestaritama for

hemostatic agent (TDM-621) January 2014 Independent approval institution approves locally absorbent hemostatic material

TDM-621 for the CE mark, required for sales in Europe.

* In April 2009, the company and 3DM, Inc. of America revised agreements as necessary to reflect the

October 2007 conversion of 3DM, Inc. into a company subsidiary.


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News and topics

March 2015

On March 9, 2015, the company announced the submission of an application to register absorbable hemostat PuraStat® as a medical device product in Columbia. European consolidated subsidiary 3-D Matrix Europe SAS submitted the application for medical device product registration in Columbia on March 6, 2015. This application makes use of the CE marking for PuraStat, obtained on January 14, 2014. This CE marking can used to apply for regulatory agency approval in the 28 member states of the European Union, in addition to countries in Asia, Oceania, and South America. The product can be commercially marketed once the necessary procedures are complete in each country. The company is also preparing use consolidated subsidiary 3-D Matrix Da America Latina Representação Comercial Ltda. as a base to register and begin sales of PuraStat in other countries such as Brazil and Mexico.

February 2015

On February 16, 2015, the company announced that the US Food and Drug Administration (FDA) had granted a wound-healing agent (TDM-511) premarket approval, following the submission of a 510(k) notification. US subsidiary 3-D Matrix Inc. submitted the 510(k) on October 23, 2014, informing the FDA that the company intended to sell TDM-511 as a medical device. The FDA granted premarket approval on February 13, 2015 (US time). According to the company, the FDA granted approval for the company to market the device in light of equivalencies between TDM-511 and wound-healing agents already approved in the US. TDM-511 is a gel composed of self-assembling nanofibers that, when applied to skin (the epidermis or dermis), preserves moisture and creates conditions conducive to skin-tissue regeneration. From a cosmetic standpoint, this product rarely leaves scars. Furthermore, TDM-511 does not use animal or plant compounds, and contains no antiseptics likely to cause allergic reactions or irritate the skin. As a prescription (Rx) device, it may be used under the supervision of a physician for healing wounds from the epidermis to the dermis, including pressure sores, leg ulcers, diabetic ulcers, and surgical wounds. The approval also covers the product’s use in over-the-counter (OTC) applications to heal light to moderate skin wounds, including cuts, excoriation, wounds, and first-degree burns. This approval covers wound-healing applications classed as skin-tissue regeneration, such as burns and sores. The company plans to extend the range of applications to include cosmetic surgery (such as hyaluronic acid injections) and skin cancer when used together with anti-cancer agents. This approval is not accounted for in 3DM’s full-year earnings forecasts for FY04/15, or in the operating revenue target given in the company’s medium-term management plan. In the event that this approval will have a material effect on earnings results, the company will disclose such information as soon as possible.


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On the same day, the company announced the temporary cessation of clinical trials of endoscopic mucosal resection aid “mucous membrane protuberance material (TDM-641).” On December 11, 2014, the company launched domestic clinical trials to evaluate and verify the safety and efficacy of TDM-641 when used in endoscopic procedures such as endoscopic mucosal resection (EMR) and endoscopic submucosal dissection (ESD). The company has now resolved, however, to submit a report on the safety measures and findings of the clinical trials of this medical device to the Pharmaceuticals and Medical Devices Agency (PDMA) and temporarily end the clinical trials as of February 17, 2015. The company expected a certain level of efficacy based on preclinical data, but it has been unable to demonstrate this level of efficacy in the new domestic clinical trials. The company has thus resolved to voluntarily call a temporary end to the clinical trials, in order to focus on product development and trial methods that will more clearly demonstrate TDM-641’s efficacy. As the company looks to market this product, it will consider how to develop TDM-641 in a way that ensures its superiority as a medical device is verifiable. The company plans to coordinate with physicians leading the clinical trials as it develops the product, with the aim of restarting clinical trials. The temporary cessation of the domestic clinical trials of TDM-641 will have a negligible effect on 3DM’s full-year earnings forecasts for FY04/15.

January 2015

On January 29, 2015, the company announced the submission of an application to register absorbable hemostat PuraStat® as a medical device product in Korea. Daewoong Pharmaceutical, the company’s exclusive sales and marketing partner for the Korean market, submitted the application for medical device product registration in Korea on January 29, 2015. This application makes use of the CE marking for PuraStat®, obtained on January 14, 2014. This CE marking can used to apply for regulatory agency approval in the 28 member states of the European Union, in addition to countries in Asia, Oceania, and South America. The product can be commercially marketed once the necessary procedures are complete in each country. At the time of writing, 3DM is focused on the launch of the product in Europe. The company is also preparing to register and begin sales of PuraStat® in various other countries where it can use the CE marking to apply for approval. On January 27, 2015, the company announced a new global license agreement between a subsidiary and the Massachusetts Institute of Technology (MIT). Subsidiary 3-D Matrix Asia Pte. Ltd. (Singapore) concluded the global license agreement with MIT for a method of incorporating and using modified self-assembling peptides and peptide surfactant technology. This method of modified self-assembling peptides may be used to apply short motif sequences to self-assembling peptides in order to stimulate biological functions. It is mainly used in regenerative medicine. This license broadens the company’s rights on cell-growth enhancing peptides in areas such as


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bone tissues, skin tissues, myocardial tissues, and nerve tissues. Peptide surfactant technology has been used in drug delivery systems as a carrier of drugs or treatment materials. The new license grants rights to additional peptide sequences. In combination with the ultrashort peptide technology license concluded in May 2014 with Exploit Technology Pte. Ltd. (Singapore), a technology transfer arm for the Agency of Science, Technology and Research (A*STAR), the company now has a wider range of peptide sequences to develop new carriers for the sustained release of molecules.

December 2014

On December 22, 2014, the company announced the start of clinical use of the locally absorbent hemostatic material PuraStat® in endoscopy. Clinical use of PuraStat® began in Europe after the company obtained the CE marking on January 14, 2014. Its first clinical use in endoscopy was in France on December 17, 2014, with permission to announce its use granted by the medical institution on December 22, 2014. Professor Thierry Ponchon of the Hepato-Gastroenterology department at the Edouard Herriot Hospital used PuraStat® to control bleeding during and after endoscopic submucosal dissection (ESD) surgery. This hospital is a leading facility in Europe for endoscopic mucosal resections (EMRs) and ESDs, with about 900 surgeries performed each year. In EMRs and ESDs, surgeons use endoscopes to remove benign and early tumors in the gastrointestinal tract. The techniques are minimally invasive, thus contributing to patients’ quality of life. PuraStat® is a liquid locally absorbent hemostatic material that turns into a gel when it comes into contact with the source of the bleeding. It is well suited to endoscopic surgery, which uses thin tubes. The company aims to increase distribution of PuraStat® by further promoting its use in the European market and forming exclusive sales agreements with marketing partners. On the same day, the company announced the termination of a semi-exclusive sales license agreement for locally absorbent hemostatic material TDM-621 between sales partner Fuso Pharmaceutical Industries, Ltd. (TSE1: 4538) and Kaken Pharmaceutical Co., Ltd. (TSE1: 4521). 3DM developed TDM-621, and is applying for approval to manufacture and market the product as medical equipment. Fuso Pharma and Kaken Pharma planned to sell the product concurrently, but following the cancellation of this agreement, 3DM will consider an alternate system for selling the product. According to the company, its exclusive sales license agreement with Fuso Pharma remains unchanged, and the two companies remain on good terms. The company plans to hold further consultations with Fuso Pharma. As soon as more information is available, the company plans to disclose details of the effect of the cancellation of the semi-exclusive sales license agreement on full-year earnings estimates for FY02/15 and the medium-term plan announced on June 12, 2014. On December 11, 2014, the company announced the start of domestic clinical trials of endoscopic mucosal resection aid “submucosal injection material for endoscopy (TDM-641).” 3DM is developing TDM-641 using self-assembling peptide technology, for which the Massachusetts


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Institute of Technology (MIT) granted 3DM the exclusive license. 3DM has been preparing to launch clinical trials for TDM-641 as a medical device since the Pharmaceuticals and Medical Devices Agency (PMDA) received the company’s clinical trial application, submitted on September 9, 2014. The clinical trials began on December 11, 2014, with the aim of evaluating and verifying the safety and efficacy of TDM-641 when used in endoscopic mucosal resection (EMR) and endoscopic submucosal dissection (ESD). 3DM plans to apply to the PMDA for approval to manufacture and market TDM-641, after conducting trials at seven domestic trial facilities. After approval is awarded, the company plans to market the product together with Fuso Pharmaceutical Industries, Ltd. (TSE1: 4538), to which it has granted an exclusive domestic sales license for TDM-641. On December 3, 2014, the company announced the approval of a patent for modified peptides. The Massachusetts Institute of Technology (MIT) granted 3DM the exclusive license to self-assembling peptide technology. A US patent has now been approved for a method of modifying self-assembling peptides. Invention title: self-assembling peptides incorporating modifications and methods of use thereof US patent number: 8901084 Patent holder: Massachusetts Institute of Technology This patent covers the method of applying a short motif sequence to self-assembling peptides in order to stimulate organic functions. The patent was approved following a new patent application after the approval of US patent 7713923 in 2010, which applied only to a limited range of motif sequences for modifying self-assembling peptides. There are no such limits on the motif sequences in the new patent, meaning it has a wider application. Modified peptides are better for cultivating cells than conventional non-modified self-assembling peptides, as shown with bone, skin, cardiac muscle, and neural tissue. Professor Shuguang Zhang of MIT—the inventor of self-assembling peptides and patent applicant—and partner research institutes are conducting research in preparation for the clinical use of this technology, and plan to release their results via academic papers and conferences.

November 2014

On November 27, 2014, the company announced the start of comprehensive R&D toward creating a cultivation kit for ReproHepato™—a cellular product manufactured by ReproCELL Incorporated—and PuraMatrix®—manufactured by the company. The cultivation kit will be the recommended material for use in cultivation of ReproHepato™—liver cells derived from human iPS cells that are manufactured and were first commercialized by ReproCELL Incorporated—when used in conjunction with the company’s PuraMatrix® research agent. Under an exclusive license to use self-assembling peptide technology developed at the Massachusetts Institute of Technology, 3DM globally markets PuraMatrix®, a research agent that enables three-dimensional cell culturing. ReproHepato™eproHepatonsional cell culturing. ReproHepatoing peptide technology developed at the MassachusetPuraMatrix® was included in standard protocols for cell


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cultivation of ReproHepato™ebecause it can significantly increase the metabolism of drugs exposed to ReproHepato™eproHepatotly increase the metabolism of drugs exposed to ReproHepatoveloped at the Massaraise evaluation efficiency. Use of PuraMatrix® also accelerates experiments, as it requires no prior preparation. The two companies plan to continue capitalizing on the strengths of the respective products as part of comprehensive joint research toward producing a cultivation kit. On November 6, 2014, the company announced the start of clinical use of the locally absorbent hemostatic material PuraStat® in Hong Kong. Clinical use of PuraStat® began in Europe after the company obtained the CE marking on January 14, 2014. On October 30, 2014, clinical use began at the Pamela Youde Nethersole Eastern Hospital (PYNEH) in Hong Kong. On November 6, 2014, the company received positive feedback from PYNEH. According to the company, Doctor Chung Ngai Tang, M.D., chief of service at the department of surgery and director of the minimal access surgery training center at PYNEH used PuraStat® to control bleeding during surgery. PYNEH is one of the largest hospitals in Hong Kong, performing over 5,000 surgical procedures per year. The company aims to increase distribution of PuraStat® by further promoting its use in Hong Kong and forming exclusive sales agreements with marketing partners. On November 4, 2014, the company announced the start of clinical use of the locally absorbent hemostatic material PuraStat® in Latin America. Clinical use of PuraStat® began in Europe after the company obtained the CE marking on January 14, 2014. On October 30, 2014, clinical use began at the Hospital San Borja-Arriaran in Chile. Doctor Christian Baeza, head of the cardiac surgery department at the leading Chilean medical institution Clinica Las Condes and the Hospital San Borja-Arriaran, used PuraStat® to control bleeding during surgery. The company aims to increase distribution of PuraStat® by further promoting its use in Latin American markets and forming exclusive sales agreements with marketing partners.

October 2014

On October 23, 2014, the company announced that it has submitted a 510(k) premarket notification to the US Food and Drug Administration (FDA) for sales of its wound-healing agent (TDM-511). According to the company, the 510(k) was submitted by subsidiary 3-D Matrix Inc. on October 22, 2014 for TDM-511, a wound-healing agent that is currently in development by the company. Premarket notification in the 510(k) application process is separate from premarket authorization, which is a process made available for new products that have no competitors. Premarket notification requires the submitting part to submit notification to the FDA at least 90 days prior to when the product is scheduled to be made available to the public. The FDA will then carry out an investigation, to be completed within 90 days, to determine if any similar products exist in the market. Upon receiving approval from the FDA, the submitting party may then proceed to sell its product. This application will mark the company’s entry into the skin regeneration business. Initial applications will


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be for light to medium skin wounds—such as burns and sores—with possible expansion to cosmetic surgery procedures—such as hyaluronic acid injections—in the future. The application in its current form also includes antibiotic and anti-inflammatory properties, which will aid in preventing infections and inflammation of treatment sites. Due to its low toxicity, the inclusion of a cancer fighting additive would also open possibilities for its use in fighting skin cancer. In the event that the approval process will have a material effect on the company’s FY04/15 earnings forecasts or its medium-term plan, 3-D Matrix will disclose such information as soon as possible.

September 2014

On September 10, 2014, the company announced the approval of a patent for a transfection agent (for introducing genes into cells) using peptide technology. The company was granted a domestic patent for the use of surfactant peptide technology as a transfection agent. The application was submitted jointly with Nippon Medical School (an incorporated educational institution). This patent covers the method of using surfactant peptide technology as a transfection agent to introduce nucleic acid (genes) into tumor tissue, which has been shown to be effective in suppressing gene expression in cancer cells. Professor Daizo Yoshida (Associate Professor at Nippon Medical School, Department of Neurosurgery) has published articles and spoken at conferences about the results of research into the use of surfactant peptide technology to treat brain tumors. The company is also collaborating with the National Cancer Center (an incorporated administrative agency) to prepare for investigator-initiated trials, with an aim toward clinical application for this technology. The use of cationic transfection agents—such as cationic polymers and cationic liposomes—to introduce genes into cells is well-established in basic research. However, these agents are known to be cytotoxic. Much research therefore focuses on transfection agents with a high transfection rate and low cytotoxicity, placing less of a burden on patients yet improving the efficacy of tumor treatments. Its low cytotoxicity means the use of surfactant peptides as a transfection agent—as covered by this patent—has the potential to be approved for clinical use to treat various types of solid cancers, including brain tumors. On September 9, 2014, the company announced that it submitted a clinical trial application for endoscopic mucosal resection aid “Submucosal injection material for endoscopy (TDM-641).” The company submitted an application to the Pharmaceuticals and Medical Devices Agency (PMDA) on September 9, 2014 to conduct a clinical trial for the endoscopic mucosal resection aid "Submucosal injection material for endoscopy (development code: TDM-641)," which is currently under development. According to the company, TDM-641 is a transparent liquid composed of a peptide made of three types of amino acids. Its property of instantly forming a hydrogel (self-assembled) when injected submucosally improves operability of resecting or separating damaged sites. This is due to its ability to separate and raise the mucosal and muscle layers and maintain this state after being injected into the submucosal layer of damaged sites during endoscopic treatment. This peptide is manufactured via chemical synthesis, and since this eliminates animal products, there is no risk of infection from agents such as the hepatitis C virus or other foreign substances. TDM-641 is anticipated to reduce risk and burden for healthcare professionals and patients due to its easy


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administration as an aqueous solution via submucosal injection. It is also able to form a steep protrusion suitable for mucosal resection since TDM-641 promptly turns into a gel after it is injected submucosally. TDM-641 is also able to maintain the mucosal protrusion by forming a gel. On February 20, 2012, the company entered into an agreement with Fuso Pharmaceutical Industries, Ltd. (TSE1: 4538) granting an exclusive domestic sales license for TDM-641. On September 3, 2014, the company announced that subsidiary 3-D Matrix Asia Pte. Ltd. (Singapore) obtained approval to register locally absorbent hemostatic material PuraStat® as a medical product in Singapore. The company obtained the Appro for PuraStat® on January 14, 2014. The CE marking may be used to apply for approval to manufacture and sell products in countries across the globe, including the 28 member states of the EU—where the company already has approval to sell PuraStat®—and countries in Asia, Oceania, and South America. The company will thus be able to sell PuraStat® in these countries once it has completed the necessary application procedures. Following an application on June 3, 2014, the company obtained approval from Singapore’s Health Sciences Authority to register PuraStat® as a medical product in Singapore. The company’s use of the CE marking in this application meant it did not need to perform clinical trials. At the time of writing, 3-D Matrix is preparing for sales of PuraStat® in the EU, and is also applying for approval to register it as a medical product in Indonesia. Henceforth, the company intends to continue preparing to register the product and launch sales in countries where the CE marking may be used to apply for approval. On September 1, 2014, the company announced the establishment of a subsidiary. The company is currently expanding its medical business utilizing self-assembling peptide technology in Japan, the US, the EU, South America, and Asia. To further global expansion of this business, the company established a subsidiary on August 21, 2014, in Beijing via subsidiary 3-D Matrix Medical Technology Limited (a wholly-owned subsidiary of 3-D Matrix Asia Pte. Ltd). Subsidiary details Name: 3-D Matrix Consulting (Beijing) Limited Business: Promotion of medical products such as hemostatic agents in China Capital: JPY20mn (tentative) Shareholders: Subsidiary 3-D Matrix Medical Technology Limited (owns 100%).

August 2014

On August 28, 2014, the company announced the start of clinical use of the locally absorbent hemostatic material PuraStat® in Germany. The company obtained the CE marking for PuraStat® on January 14, 2014. Since then, it has been preparing to initiate clinical use of the product in major European markets. Doctor Michiel Morshuis, from the Heart and Diabetes Center NRW at the Clinic for Thoracic and


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Cardiovascular Surgery, used PuraStat® to control bleeding during cardiovascular surgery. The Heart and Diabetes Center NRW is a global leader in cardiovascular surgery, with about 5,000 procedures per year. The company aims to increase distribution of PuraStat® by further promoting its use in European markets and forming exclusive sales agreements with marketing partners. On August 8, 2014, the company announced the settlement of a lawsuit and the recording of an extraordinary loss. The company had been named as the defendant in a lawsuit filed by OncoTherapy Science, Inc. (TSE Mothers: 4564) for compensation nonpayment, and the suit was settled on August 8, 2014. 3-D Matrix will incur an extraordinary loss as a result of this settlement. The lawsuit alleged that 3-D Matrix did not pay a portion of fees that were owed to OncoTherapy as part of a domestic advisory agreement between the two companies. After assessment of the conditions at hand, 3-D Matrix decided to settle with OncoTherapy, under the view that settlement of the issue would contribute more to the medium and long term profitability of the company by absolving it of possible obligations in the future. As a result of the above, the company plans to book an extraordinary loss of JPY160mn during Q1 FY04/15 in relation to the lawsuit settlement; the effect that this will have on full year results is still under investigation. According to the company, resolution of this lawsuit is likely to yield reduced costs in the medium to long term, and it is also working to determine effects this will have on its medium term plan in FY04/16 onward; results will be disclosed upon completion of the investigation.

July 2014

On July 18, 2014, the company announced an application to register the locally absorbent hemostatic material TDM-621 as a medical product in Indonesia. PT. Teguhsindo Lestaritama made the application on July 18, 2014. PT. Teguhsindo Lestaritama has an exclusive sales agreement in Indonesia with 3-D Matrix Asia Pte. Ltd., the company’s Singapore subsidiary. Indonesia is the second South East Asian country where the company has used the CE Mark to apply to register TDM-621, following the application in Singapore on June 3, 2014. The company will be able to bring the product to market early if the Indonesian Ministry of Health grants approval. The company aims to begin sales of this product in FY04/15. On July 14, 2014, the company announced commencement of clinical use in the EU for absorbable hemostat “PuraStat®”. The company has been working toward initiating clinical use of absorbable hemostat “PuraStat®”since obtaining CE marking for the product on January 14, 2014. On July 1, 2014, clinical use began at the St. John of God Hospital in Austria. Doctor Bernhard Dauser of the St. John of God Hospital, Department of Surgery, utilized PuraStat® to control bleeding during a surgical procedure. St. John of God Hospital is a major hospital that conducts more than 4,000 surgical procedures every year


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With the beginning of clinical use, the company aims to further promote use of PuraStat® in core European markets, and expand its distribution through exclusive agreements with marketing partners.

June 2014

On June 25, 2014, the company announced details of an overseas offering of new shares, including the offer price and a change to the number of shares offered. Changes to the number of shares (initial data in parentheses) Total new shares: 1.3mn (1.6mn) Total shares after the offering: 21.2mn (21.5mn) Approximate funding received (after deductions): JPY5.0bn (JPY6.3bn) Dilution: 4.84% (4.77%). Details of the offering Offer price per share: JPY4,162 Total offer value: JPY5.3bn Paid-in amount per share: JPY3,977.5 Total paid-in amount: JPY5.1bn. On June 24, 2014, the company announced an overseas offering of new shares. The company intends to use funds raised by this offering to cover costs for R&D (primarily global application and clinical trial costs associated with attaining the CE marking for absorbent localized hemostatic agents), raw materials, and production evaluation. Assuming that all shares are issued according to initial plans, dilution resulting from the offering is estimated to be 8.0% (19,914,800 shares have been issued as of May 31, 2014). Funds to be raised from the offering will amount to an estimated JPY6.3bn. Of this, JPY3.0bn is scheduled to be used by FY04/18 for R&D, raw materials, and production evaluation. JPY800mn is earmarked for use to repay debts during FY04/15, and the balance is planned for use in operational costs through FY04/17. Costs to be covered by the balance are detailed below. R&D for hemostatic agent: JPY2.8bn (August 2014 – April 2018) R&D for wound-healing agent: JPY200mn (November 2014 – April 2016) Debt repayment: JPY800mn (FY04/15) Share offering details Number of shares to be issued: 1.6mn common shares Offering method: Overseas offering primarily targeting Europe and Asia Paid-in amount: To be determined on a date between June 24 and June 26, 2014 Issue price: To be determined based upon demand and the market price on the Tokyo Stock Exchange as of the date which the issue price is set, multiplied by a factor of between 0.90 and 1.00. Sponsor: Mizuho International Plc to purchase all shares Payment deadline: July 9, 2014


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On June 20, 2014, the company announced the approval for a patent regarding myocardial tissue regeneration properties of its self-assembled peptide technology. According to the company, it was granted a Japanese patent for application of self-assembled peptide technology to myocardial tissue regeneration. The patent covers both protection and regeneration of cardiac tissue via self-assembled peptide technology. Research has shown that delivering self-assembled peptides to damaged myocardial tissue resulting from an acute myocardial infarction has beneficial effects for cardiac function. Myocardial tissue has significantly limited reproductive capacity, and the health of tissue that suffers damage from an acute myocardial infarction gradually declines. Regenerative treatments for such necrotic tissue harbor potential, and a significant amount of research is currently devoted to the subject. The self-assembled peptide treatment contained within the patent provides scaffolding to not only protect cardiac tissue, but also aid in regeneration of cells. This is a new approach to treatment for improving cardiac function, and the company anticipates that it will be able to contribute to treating acute myocardial infarctions. Invention title: Composition and method for protection and regeneration of cardiac tissue JP Patent No.: 5558104 Patent holder: 3-D Matrix On June 17, 2014, the company announced the establishment of a consolidated subsidiary in Brazil for R&D and arranging business partnerships in South America. According to the company, the new subsidiary will focus on R&D, marketing and sales as the company develops the medical products business in South America. This segment is centered on the self-assembling peptide technology that the company is developing (pipelines for a locally absorbent hemostatic material and a dental bone reconstruction material). Overview of the new consolidated subsidiary Name: 3-D Matrix Da America Latina Representação Comercial Ltda. Business description: medical products in South America, such as hemostatic materials Capital: BRL600,000 (approximately JPY27mn) Established: June 13, 2014 Shareholders: 3-D Matrix Ltd. (99% stake)

3-D Matrix Europe SAS (consolidated subsidiary; 1% stake) Personnel overlap: 3-D Matrix, Ltd. Chairman Keiji Nagano and Vice President Jun Okada will serve as

directors. On June 12, 2014, the company announced revisions to its medium-term management plan; see the outlook section for details. On June 5, 2014, the company announced the approval of a patent for a transfection agent (for introducing nucleic acid [genes] into cells) using peptide technology. According to the company, it was granted a European patent for the use of surfactant peptide technology as a transfection agent. The application was submitted jointly with Nippon Medical School (an incorporated educational institution).


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The patent covers the transfection method and its application in suppressing gene expression in cells, which has been shown to be effective in cancer cells. The company is collaborating with the National Cancer Center (an incorporated administrative agency) to prepare for investigator-initiated trials, with an eye toward a clinical application for this technology. The use of cationic transfection agents—such as cationic polymers and cationic liposomes—to introduce genes into cells is well-established in basic research. However, these agents are known to be cytotoxic. Much research focuses on transfection agents with a high transfection rate and low cytotoxicity. Many such candidates for nucleic-acid carriers are being studied, but surfactant peptide technology may be approved for clinical use due to its low cytotoxicity. On June 4, 2014, the company announced the application to register TDM-621, a locally absorbent hemostatic material, as a medical product in Singapore. According to the company, its subsidiary in Singapore, 3-D Matrix Asia Pte. Ltd. submitted the application on June 3, 2014. Applications for registration as a medical product in Singapore use the CE marking system, which does not require clinical trials. Approval from the Health Sciences Authority in Singapore will make sales of the product possible in the near future. 3-D Matrix is making progress toward sales of this product in Europe. The company is also applying for registration in Indonesia, via 3-D Matrix Asia Pte. Ltd. Henceforth, the company intends to continue preparing for registration, with an eye to launching global sales of TDM-621 wherever the CE marking system is valid.

May 2014

On May 30, 2014, the company announced the approval for a patent regarding pancreatic regeneration properties of its self-assembled peptide technology. According to the company, it was granted a US patent for the application of self-assembling peptide technology to pancreatic regeneration, which was submitted jointly with Okayama University. The patent covers culturing islets of Langerhans (groups of cells that secrete chemicals such as insulin in the pancreas), and demonstrates the effectiveness of islets that have retained their organic functions in three-dimensional self-assembling peptide scaffolds. This patent is supplementary to the patent acquired in February 2014, which covered the method used to culture islets. With the issuance of this patent, the company now has full control over both the method to culture islets and the resulting cell cultures. During organ transplantation, maintaining the physiological functions of cells and tissue are a dominant issue, and the development of a method to allow culturing islets of Langerhans would be beneficial in the field of islet transplants for diabetic patients. It is known that repeating two-dimensional cell culturing promotes dedifferentiation and results in the loss of cell functions. As a result, it is believed to be difficult to culture liver and pancreatic cells while maintaining cell functions in a two-dimensional setting, and much research is being conducted in this field. According to the company’s announcement, the patent’s three-dimensional cell culturing method could become one method to maintain the functions of islet cells, and the company hopes that this method can contribute to the establishment of islet transplantation technology and treatment of diabetes.


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On May 12, 2014, the company announced a license agreement on self-assembled ultrashort peptide technology. The company announced that it has concluded a global license agreement for self-assembled ultrashort peptide technology between subsidiary 3-D Matrix Asia Pte. Ltd. (“3DMA”) and Exploit Technologies Pte Ltd ("ETPL"), the technology transfer arm of the Agency for Science, Technology and Research ("A*STAR") in Singapore. The agreement grants license on self-assembled ultrashort peptide technology invented by Dr. Charlotte Hauser, team leader and principal research scientist of the Institute of Bioengineering and Nanotechnology (IBN), a national research institute under A*STAR. The technology will reinforce the group’s intellectual property portfolio and allow for further commercial development opportunities as it will provide more options as to the types of candidate peptides. This technology will be used in the areas of regenerative medicine and drug delivery systems in orthopedic surgery. IBN’s technology is based on rationally designed ultrashort peptides that have an innate tendency to self-assemble to helical fibers within supramolecular structures. These peptides, which are composed of a hydrophobic tail and a hydrophilic head group, form hydrogels by changing their secondary structures from α-helical intermediates to β-turn end structures. They demonstrate high mechanical stiffness and thermal stability. These hydrogels can be used as carriers of cells and drugs. The hydrogels demonstrate high biocompatibility and injectability that are similar to β-sheet hydrogels (e.g. PuraMatrix). Therefore, these hydrogels are attractive for various biotechnological applications, for example for bone regeneration, and for sustained release of drugs, where they serve as scaffolds and carriers. Their short lengths also substantially lower the cost of synthesis.

April 2014

On April 1, 2014, the company announced that its patent on the use of self-assembling peptide technology for skin-tissue regeneration has been approved in Japan. The patent relates to self-assembling peptide technology for skin-tissue generation. The company has demonstrated that self-assembling peptides, when applied to wounds, can restore the skin to its original condition without leaving a scar. The company is developing wound-healing agent TDM-511 in the US based on this technology. According to the company, the approval is not likely to affect its earnings for FY04/14 or thereafter.

February 2014

On February 13, 2014, the company announced it was granted a US patent for self-assembling peptide technology for pancreatic cell culturing. The company was granted a US patent for the application of self-assembling peptide technology to pancreatic cell culturing, which was submitted jointly with Okayama University. The patent covers the method of culturing cells using self-assembling peptides as scaffolds and the application of this method. More specifically, the patent explains the method is effective in culturing islets


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of Langerhans (groups of cells that secrete chemicals such as insulin in the pancreas) in three-dimensional self-assembling peptide scaffolds. During organ transplantation, maintaining the physiological functions of cells and tissue are a dominant issue, and the development of a method to allow culturing islets of Langerhans would be beneficial in the field of islet transplants for diabetic patients. It is known that repeating two-dimensional cell culturing promotes dedifferentiation and results in the loss of cell functions. As a result, it is believed to be difficult to culture liver and pancreatic cells while maintaining cell functions in a two-dimensional setting, and much research is being conducted in this field. According to the company’s announcement, the patent’s three-dimensional cell culturing method could become one method to maintain the functions of islet cells, and the company hopes that this method can contribute to the establishment of islet transplantation technology and treatment of diabetes.

January 2014

On January 31, 2014, the company announced that it was filing a patent infringement suit. 3-D Matrix, Inc. (an American subsidiary of the company), together with the patent owner, Massachusetts Institute of Technology (MIT) filed the patent infringement suit against Menicon Co., Ltd. and B-Bridge International, Inc. (B-Bridge) with the Federal District Court in Massachusetts. Furthermore, 3-D Matrix, Inc. filed an objection to the validity of a patent held by Menicon with the United States Patent and Trademark Office. 3-D Matrix, Inc.’s lawsuit states that Menicon’s PanaceaGelTM infringes upon two patents that concern self-assembling peptides and their usage. 3-D Matrix, Inc. requests that the district court order Menicon and B-Bridge to pay monetary damages for the ongoing infringement, and to cease any future infringement. The objection that 3-D Matrix, Inc. has filed concerns a patent that Menicon claims covers the Menicon product PanaceaGelTM. 3-D Matrix, Inc. requests that the United States Patent and Trademark Office reexamine this patent. 3-D Matrix, Inc. alleges misconduct by Menicon in not recognizing Dr. Shuguang Zhang—MIT professor and 3-D Matrix, Inc. founder—as the true inventor of the self-assembling peptides and their usage. On January 15, 2014, the company announced that the hemostatic agent TDM-621 had received the CE mark in Europe. The company’s 3-D Matrix Europe SAS unit received the CE mark for hemostatic agent TDM-621 on January 14, 2014. The acquisition of the CE mark allows the company to sell TDM-621 in European Union nations. The company will make the product in Japan and export it to Europe. The market size of hemostatic agent in Europe is estimated at JPY100bn. The acquisition of the CE mark will also enable the company to seek approval of the agent in several nations in the Oceania and ASEAN regions without conducting separate clinical trials. 3-D Matrix stated that the acquisition of the CE mark would not have much impact on the company’s earnings forecast for FY03/14. However, the company is currently assessing the financial impact of the move on its medium-term management plan. The company said it would release a new management plan as soon as the assessment is made.


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July 2013

On July 31, 2013, the company announced results of its plan on a third-party allocation of new shares. In a public offering of new shares, a secondary share offering, and a third-party placement of new shares, all announced on July 5, 2013, SMBC Nikko Securities was the subscriber to the third-party allocation. The company said that SMBC Nikko refrained from exercising its right and that there will be no new share issuance for the third-party placement On July 5, 2013, the company announced that it will issue new shares, as well as initiating a secondary share offering. As a result of the share offering, which had a payment date of July 23, 2013, net assets as of the end of Q1 FY04/14 amounted to 4.1 billion yen (up 2.0 billion yen compared with the end of FY04/13). Issued capital and reserves each increased by 1.2 billion. The following is the content of the news release at the time the share issuance was announced. The company stated that it will use the proceeds to fund research and development (R&D), mainly for products under development in overseas clinical trials, and repay debt. A successful public offering would dilute 3DM’s shares by 2.9%, and a third-party allocation would dilute its shares by 0.4%, for a total potential dilution of 3.3% (the total number of shares outstanding was 19,678,000 shares as of June 30, 2013). The company plans to raise 2.6 billion yen and intends to use the proceeds as follows; R&D expenses related to preclinical trials of hemostatic agent TDM-621 and mucous membrane protuberance material TDM-641 (hereinafter referred to as products in the pipeline): 40 million yen (from October 2013 to April 2017) R&D expenses related to clinical trials of products in the pipeline: 1.5 billion yen (from November 2013 to April 2017) Raw material expenses for products in the pipeline: 160 million (from October 2013 to April 2017) Labor expenses involving R&D: 340 million (from November 2013 to April 2015) Repayment of short-term debt: 800 million yen Proceeds raised through the new share offerings would allow the company to pursue a wider range of R&D at a faster pace, enhancing its operating base for growth, and strengthening its financial position to support stable medium- and long-term growth. Terms of the new share issuance are as follows; 1) Sale of new shares (public offering) ▪ Number of shares to be issued: 550,000 common shares ▪ Method: public offering ▪ Payment amount: to be determined between July 16, 2013 and July 18, 2013 ▪ Underwriter: SMBC Nikko Securities lead manager of syndication group


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▪ Registration period: up to two business days from the next trading day following of the issue price ▪ Payment date: between July 23, 2013 and July 25, 2013

2) Secondary offering (over allotment) ▪ Number of shares offered: 80,000 common shares ▪ Seller: SMBC Nikko Securities 3) Third-party placement of new shares ▪ Number of shares to be issued: 80,000 common shares ▪ Subscriber: SMBC Nikko Securities ▪ Registration period: from August 20, 2013 to August 23,2013 ▪ Payment date: from August 21, 2013 to August 26, 2013

May 2013

On May 30, 2013, the company announced that it had signed an exclusive sales agreement for TDM-621 hemostatic agent with PT. Teguhsindo Lestaritama of Indonesia. 3-D Matrix Asia Pte. Ltd., a Singapore unit, signed an exclusive sales agreement with PT. Teguhsindo Lestaritama on May 29, 2013. Under the agreement, PT. Teguhsindo Lestaritama will sell TDM-621 in Indonesia. 3-D Matrix, which already sells TDM-621 in South Korea and Taiwan, expects to expand sales in Southeast Asia.

March 2013

On March 21, 2013, the company obtained certification under the ISO 13485 standard, a quality management system for the design and manufacture of medical devices. ISO 13485 is a quality management system to ensure the manufacture and supply of safe, useful, and high-quality medical devices. According to the company, the acquisition of the certification from a third party means that its frameworks for TDM-621 hemostatic agent development, manufacture, sale, and quality control now satisfy the international standard. Given that many countries require medical devices to be ISO 13485-certified prior to release, the company stated that it has advanced significantly towards exporting TDM-621 to various countries.

February 2013

On February 4, 2013, the company announced that it filed an investigational device exemption (IDE) application for hemostatic agent TDM-621 to the US Food and Drug Administration (FDA). According to the company, it filed for IDE to the US FDA on February 1, 2013 for hemostatic agent TDM-621 (development code in the US: TDM-621-US01). Currently, the mainstream of surgical hemostatic agents is based on human-derived fibrin or bovine-derived collagen, and the US hemostatic agent market is estimated at around 100 billion yen. The


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company intends to promote its safe and unique hemostatic agent in new applications (e.g., endoscopic and laparoscopic surgery) and solidify its position in the market. The company said that to this end it would advance clinical testing and simultaneously search for sales partners in the US.

Major shareholders

(as of April 30, 2014)

Major shareholders are business partners of the company. Venture capital funds collectively owned 24.6% of the company prior to the IPO, 9.1% at the time of IPO, and less than 1% as of the end of April 2013.

Dividends and shareholder benefits

Once the company’s cumulative losses are cleared, management will start considering whether to pay a dividend by taking into account the company’s financial situation and performance trends. Management stated that it was considering the matter positively.

Top management

Keiji Nagano, Chairman Nagano was one of 3DM, Inc.’s (of America) original investors. In 2004 he sublicensed patents from it and established 3DM Japan. After working at Exxon and Bain & Co., he joined New Media in 2000, serving as the representative for New Media Japan Inc. At Bain and Co. he served as a vice president in their Tokyo office and had a central role in establishing Bain’s Korea practice and served as the representative there for four years. While at Bain he worked with clients across a variety of industries, but accumulated particular experience in the telecoms, high-tech, entertainment, and healthcare fields. He has an MBA from Columbia University. Kentaro Takamura, President and CEO Takamura worked for many years developing pharmaceuticals, biomaterials, and medical devices. He then went on to found Japan Tissue Engineering Co. (JASDAQ: 7774) in 1999, which was the first company in Japan to develop products employing cultured human cells, and served as a director and head of R&D. He became COO of Medinet Co. (TSE Mothers: 2370) in 2002, where he developed business

Top Shareholders AmountHeld

Keiji Nagano 8.07%The Master Trust Bank of Japan Ltd. (Trust account) 5.27%BBH For Oppenheimer Global Opportunities Fund 4.53%New Media Japan, Inc 4.35%Japan Trustee Services Bank Ltd. (Trust account) 3.75%Fuso Pharmaceutical Industries Ltd. 3.22%I'LL Inc. 2.01%Keiichi Sasaki 1.96%CBHK-Korea Securities Depository-Daishin 1.61%Pershing-Div. of DLJ Secs. Corp 1.54%Source: Company data, SR Inc. Research


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support for cell tissue medical treatment and took the company public for its October 2003 listing on the Tokyo Stock Exchange’s Mothers market. He has been a director of 3DM since 2005, and president since 2007. He has a PhD in medicine from Tokyo Medical University. Jun Okada, Executive Vice President Since 1998 Okada worked as a consultant in the Tokyo office of Bain & Co., where he was involved in many projects, including one year as a resident involved development support for a pharmaceutical company and venture capital investment support for biotech companies. He took over management planning for 3DM in 2005, has been a director since 2007, and was appointed an executive vice president in July 2012. He has a MBA from INSEAD. Tomoyuki Arai, Director Since 1996, Arai worked at Pronexus Inc. and was involved with many IPO projects. From 2006, he worked for CSBA Consulting, Inc., providing consulting services related to IPO and internal controls. He served as a director at CSBA Investment K.K. from 2007. In 2008, he played a key role in listing ASCOT Corporation’s stock on the JASDAQ market. Arai joined 3DM in 2008, and after acting as an executive in charge of compliance and corporate planning, he gained the current post in July 2012.

Employees

On a consolidated basis, the company had 35 employees as of end-April 2014. The parent had 19 of those (average age 38.9 years; years at the company 3.4 years). The company has very little assets itself for the development, manufacturing, or sales of products, and these functions are outsourced to various external partners.


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Glossary

Absorption, Distribution, Metabolism, Excretion (ADME) Experiment A pharmacokinetic experiment monitoring the entire process from the administration of a drug into the body through to its excretion from the body. ADME experiments gauge the resident period and excretion process and duration of a drug or equivalent in or from the body. Alanine (A) A type of neutral protein-forming amino acid. A nonessential amino acid for humans, and commonly exists naturally in such foods as meats, soy beans, and dairy products. Abbreviated as A or Ala. Amino Acid Compounds with an amine group (NH2) and a carboxylic acid group (-COOH) in the same molecule. Arginine (R) A basic amino acid that forms proteins. It is a nonessential amino acid for humans, and commonly exists naturally in such foods as meats, soy beans, and dairy products. It is abbreviated to R or Arg. Artificial blood vessel replacement surgery Surgery for improving blood flow by removing the blood vessel area where blood flow is hindered due problems such as an aneurysm, and replacing it with an artificial blood vessel composed of synthetic fibers. Asparaginic acid (D) An acidic amino acid that forms proteins; it is a nonessential amino acid for humans, and commonly exists naturally in such foods as meats, soy beans, and dairy products. It is abbreviated to D or Asp. Basic fibroblast growth factor (bFGF) Contributes to fibroblast growth and angiogenesis (the physiological process involving the growth of new blood vessels from pre-existing vessels) at the time of wounding. Bridging The practice of sharing data for preclinical and clinical trials between countries with different drug regulations when applying for regulatory approval. Carrier A substance that serves as the foundation for securing a substance that exhibits absorption or catalytic activity. Clinical trial Tests for studying the safety and effectiveness of an unapproved drug or medical device on humans. The drug/device is administered to humans and data collected, for the purpose of obtaining regulatory approval for its commercial use. Coronary artery bypass graft surgery A surgery treatment for ischemic heart disease (any disease characterized by reduced blood circulation to the heart), which restores blood blood-flow to the heart. Blood vessels are connected to the aorta in order to alleviate a lessening of blood-flow caused by contraction or blockage of the coronary artery sending blood from the heart. Drug Delivery System (DDS) A device or technology that provides the necessary dosage of a drug over a required length of time.


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Embolization Introducing substances into the circulatory system to cause blood vessel occlusion. Also, a minimally invasive therapeutic procedure using the technique. Endoscopic Mucosal Resection (EMR) A surgical procedure for treating early stage cancers or polyps. A high frequency electrical current is targeted into the submucosal layer through a wire (known as a snare) using an endoscope, in order to avoid damage in the muscle or below (within the submucosal layer). The tumors/polyps are then recovered. Endoscopic submucosal dissection (ESD) A relatively new surgical method for treating early stage stomach or throat cancer by using various electric scalpels to gradually carve away at the tumor after first injecting drugs such as hyaluronic acid in the area of the tumor and then creating a sufficient submucosal bulge. Since it uses an electric scalpel to cut away the tumor, it differs from endoscopic mucosal resection in that there is no limit on the size of the structure to be ablated, and it is possible to ablate an entire large lesion all at once. Extracellular matrix A scaffold material that supports the adhesion and growth of cells and proteins that form collagen outside of cells. Exudative (oozing) bleeding Hemorrhage in which blood flows weakly, in an oozing fashion. Fibrinogen Fibrinous plasma protein; a blood clotting factor. Gelation Gels are absorbent polymer materials that retain the flexibility of liquids while having the elasticity of solids. The formation of these materials is known as gelation. Good Laboratory Practice (GLP) Code of practice for maintaining the reliability of data for preclinical trials (especially safety tests, such as animal experiments) for drug or medical device development. Investigational Device Exemption (IDE) Application submitted to US Food and Drug Administration (FDA) for special exemption relating to clinical testing of new medical devices. Material Transfer Agreement (MTA) An agreement relating to the use of research samples such as genes, lab animals, or antibodies, when they are being transferred to a third party researcher. Milestone payment Payments made by a contract partner to a company that has invented a new product in accordance with the development progress for a new drug or medical device. The timing of these payments will be specified under any joint development agreement or exclusive sales licensing agreement between the companies. Occlusion coil / artificial embolization device A medical device intended for blocking blood flow to a site when treating it, these are administered intravascularly, causing the formation of an embolism (blocking the blood vessel).


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Peptide A chemical substance formed from two or more bonded amino acids (depending on the number of amino acids involved they may also be referred to as dipeptides, polypeptides, etc.). pH A measure of alkalinity or acidity (concentration of hydrogen ions). Platelet Derived Growth Factor (PDGF) Primarily contributes to regulation of growth, and migration of mesenchymal cells (fibroblasts, smooth muscle cells, glial cells, etc.). Preclinical trial An experiment conducted during the research stage of the manufacturing authorization application process of a drug or medical device on multiple animals for obtaining scientific data for evaluating or proving the fundamental efficacy of a drug or medical device before using it on humans (clinical trial). Pre-filled syringe A syringe sold ready-to-use, filled with the required drug dosage. PuraMatrix™ A first generation hydrogel product employing self-organizing peptide technology. Repeated sequences of peptide RADA16, formed from the amino acids arginine (R), alanine (A), asparaginic acid (D), which comprise the body. Reimbursement Price The price set by the Ministry of Health, Labour and Welfare for medical devices covered by national health insurance. Scaffolding An intracellular matrix composed of a substance found within the body, such as collagen, which acts as a scaffold for cell growth. Self-assembling peptide A peptide family that collects with other peptide molecules, and forms nanofibers under certain physiological conditions (neutral pH and the presence of salts). siRNA Low molecular weight double-stranded RNA composed of 21-23 base pairs. siRNA contributes to the phenomena known as RNA interference (RNAi) and suppresses gene expression in a sequence-specific fashion by breaking down messenger RNA (mRNA). However, siRNA breaks down immediately after being administered. A secure intracellular delivery technology is thus necessary to stabilize siRNA when creating pharmaceuticals to be administered into the bloodstream. Surfactants A substance that lowers the surface tension of a liquid in small quantities. Upfront Payment A payment made by a licensee to the licensor at the beginning of a license contract.


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Company profile

Company Name Head Office 3-D Matrix Ltd. Kojimachi HF Building 7th floor

3-2-4 Kojimachi Chiyoda-ku Tokyo, Japan 102-0083

Phone Listed On

+81-3-3511-3440 JASDAQ Established Exchange Listing May 19, 2004 October 24, 2011 Website Fiscal Year-End April IR Contact IR Web IR Mail IR Phone


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3-D Matrix Ltd. (7777) · SR Research Report 2015/6/12 3-D Matrix Ltd. (7777) Shared Research Inc. has produced this report by request from the company discussed in the report