News Release

GNI Group summary Q&A from FY2022 AGM

(Held on March 30, 2023)

This presentation contains statements concerning the current plans, expectations and strategies of GNI Group Ltd. (GNI Group). Any statements contained herein that pertain to future operating performance and that are not historic facts are forward-looking statements. Forward-looking statements may include, but are not limited to, words such as “believe,” “plan,” “strategy,” “expect,” “forecast,” “possibility” and similar words that describe future operating activities, business performance, events or conditions. Forward-looking statements, whether spoken or written, are based on judgments made by the management of GNI Group, based on information that is currently available to it. As such, these forward-looking statements are subject to various risks and uncertainties, and actual business results may vary substantially from the forecasts expressed or implied in forward-looking statements. Consequently, investors are cautioned not to place undue reliance on forward-looking statements.

The information contained in this presentation does not constitute or form part of any offer for sale or subscription of or solicitation or invitation of any offer to buy or subscribe for any securities, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. Any decision to invest in or acquire securities of GNI Group must be based wholly on the information contained in the preliminary offering circular issued or to be issued by GNI Group in connection with any such offer and not on the contents hereof.

This English summary translation is for convenience only. To the extent there is any discrepancy between this English translation and the original Japanese version, please refer to the Japanese version.

Note: In places, pro forma figures in the pages which follow may be rounded to underscore direction of the business.



GNI Group Ltd. (single entity in Japan): the Company

The Company and its subsidiaries: the Group or we

Beijing Continent Pharmaceuticals Co., Ltd.: Continent

Catalyst Biosciences, Inc.: CBIO

Berkeley Advanced Biomaterials LLC: BAB

Cullgen Inc. and Cullgen Shanghai, Inc.: Cullgen

Targeted Protein Degradation: TPD

(Note: all the questions below were answered by our CEO, Dr. Ying Luo.)

Q1: What is the progress of clinical trials for F351 in China? You said that the completion of subject registration at the end of June is behind schedule, but by what percentage has it progressed? What is your general impression?

A1: Regarding Phase 3 clinical trials in China, about 45% of the planned number of subjects have been registered, and we are targeting to complete the registration by the end of the year (unless major problems such as COVID-19 resurgence occur). As for the US, we will refrain from commenting on it, as it will be conducted by a listed company in the US. . Looking at the impacts of COVID-19 in China last year, we do not think that the 45% patient enrollment at the moment is a bad number. During the lockdown in 2022 and explosive infection in December 2022 to January 2023 caused by the COVID-19 in China, there was a period when few liver fibrosis patients could visit Chinese hospitals, which made it very difficult to enroll patients into the trial. Things have improved significantly recently.

Q2: Regarding Cullgen, competitors such as Arvinas have a market capitalization of over 200 billion yen. What are your thoughts on Cullgen’s Nasdaq listing? Will that be related to CBIO, also listed on Nasdaq and an investment of GNI? Or will it be a completely different story?

A2: This point has been discussed for a long time by the Group’s management team. The founders of Cullgen are scientists who have published articles on TPD technology in prominent academic journals, and we consider Cullgen to be one of the top companies in TPD. Cullgen’s proprietary drug discovery platform, uSMITETM, is considered one of the best in the world, and together with our group, a number of venture capital (VC) and private equity (PE) funds have invested in Cullgen. Those VCs and PEs naturally expect Cullgen to go public, so our group will also aim for Cullgen to be listed. Also, for that reason, Cullgen’s listing is independent of CBIO merger transactions. At the moment, the biotechnology sector of the stock market is not doing well, which is not favorable for new listing, but the Group will keep a close watch on market conditions. We believe that the Cullgen listing is good for the Group’s shareholders as well.

Q3: A few years ago, there was a comment that GNI was worth 200 billion yen, but now the market capitalization is only 49 billion yen. As a management team, why do you think this is the case? How exactly do you plan to improve it?

A3: As the CEO of the Company, I always follow the stock price and global stock market conditions, and we are also concerned about the current stock price; however, we ourselves cannot directly affect the stock price. Some of the biotech sector stocks on the Hong Kong Stock Exchange were down 70%. There were times when some of them were down to 90% at its worst. I have heard that there were times when the market capitalization of over a hundred biotech companies in the US was lower than the cash value they held. Of course, we can’t blame everything on market conditions, but many companies can’t avoid downward pressure on the overall market. My strategy for what we can do in such a difficult environment is that we invested over $8 million last year. We believe that this will be a source of profit in the future. We also founded OsDerma to expand our biomaterials business so that we could profit from another product other than F351. Furthermore, we have expanded our sales team in Beijing Continent, China, and are trying to penetrate not only large cities but also the so-called tier 3 or tier 4 cities. Investment in Cullgen is also a very valuable asset for us with a novel approach to TPD.

Q4: For the company to grow its value in the stock market, it needs to attract more shareholders to invest in it. For that purpose, shouldn’t you pay dividends, even 1 or 2 yen?

A4: Our group has considered paying dividends on multiple occasions. I would like to focus on two key points that were taken into consideration. Firstly, we evaluated whether investing in Cullgen or paying dividends would enhance the group’s value. Currently, the group holds subscription rights to shares in Cullgen. Secondly, we examined the effect of dividends on the value of biotech companies in various markets such as Japan, Hong Kong, and Nasdaq. It was noted that companies that pay dividends in these markets do not always have high price-to-earnings ratios. For instance, the stock I own, which has a dividend payout ratio of 7%, has a price-earnings ratio of only 3. We believe that there isn’t clear evidence to suggest that paying dividends will boost share prices significantly. While dividends aren’t necessarily bad, we prefer to invest our resources into good business opportunities if they arise. We believe that a high stock price is a result of continuous improvement in the company’s fundamentals. As our group companies become more successful in the future, we aim to return the profits to our shareholders.

Q5: Despite GNI’s profitable operation and possession of a promising drug candidate F351 and Cullgen with future potential, why is the stock price so low? Why aren’t other major companies acquiring your stock?

A5: There are various factors that affect stock prices, not only for our company but for many others as well, and it is difficult to completely avoid the overall market trend. I experienced a time when the stock price was as low as 4 yen. It was the darkest period of my life, but the stock price eventually recovered to over 1,000 yen. I believe it can recover even further as long as the Group continues to perform. As the largest shareholder of the Company, I care about the stock price. All of my decisions are based on the best interests of this company.

Q6: F351 was designated as a revolutionary therapeutic drug two years ago, but the application for its new drug approval is scheduled for the second half of 2024. Is there any special advantage to being designated as a breakthrough treatment drug?

A6: The advantage of being designated as a breakthrough treatment drug is that fewer subjects are needed for clinical trials, which means less time and resources are required to gain approval. Beijing Continent aims to finish registering subjects in China by the end of this year, then collect data for one year before applying for new drug approval. We hope to deliver clinical results by the end of next year. As clinical trial data is crucial, we are prioritizing the trial, and I check the progress with the clinical trial team on a weekly basis.

Q7: When the stock price was at 4 yen, some big investors may have helped the company. Have you already returned the favor? When you launched a new product F647 (ETUARYTM), some investors sold your company’s stock short. I believe they did so because of concerns about the progress of F351 clinical trial and warrant issuance.

A7: The number of shareholders has decreased from 18,000 last year to about 16,000 this year, but there are only limited institutional investors among them to my knowledge. Although we want long-term institutional investors to hold our stock, there are only a few such biotech investors, and we only speak with them once or twice a year. Therefore, we do not think that the stock price is driven by institutional investors. About 7 years ago, I found out that my own shares were being loaned without my knowledge, but I immediately cut ties with that securities company and moved my shares to a different bank. Since then, except for selling a little for tax purposes, I have not sold any of my shares in the past 15 years. I am one of the longest-term shareholders of this company.

Q8: Regarding joint venture with EPS Micren, will they be selling BAB products in Japan? If so, what is your plan for the schedule and target sales? If not, how do you plan to establish your business in Japan?

A8: Micren is our foothold in Japan and we are grateful to our joint venture partners, Mr. Yan and Mr. Sekitani from EPS. Japan is a highly regulated country with many obstacles to introduce foreign medical products into Japan. We cannot disclose a schedule at this time as integration is difficult and requires careful planning. Our group has a strong track record in business integration, and we are currently discussing with Micren how to expand our business in Japan. We plan to do this gradually and steadily and will disclose any progress as it happens.

Q9: I understand that GNI has many hidden assets. While the value of F351 and Beijing Continent has been revealed in the CBIO deal, there are still assets on the balance sheet that have not been accounted for. For instance, CBIO’s preferred stock was not reported as earnings, even though common stock was. Why are CBIO’s preferred stocks NOT included in GNI’s earnings even though they are taxed?

A9: We had a long discussion with the auditor about CBIO’s preferred stock, but due to various circumstances, it was difficult to obtain their valuation of such preferred shares. As a result, we decided to handle them conservatively and not include their valuations in our earnings. However, we believe that there are many potential assets within our group, and it is our job to unlock their value.