News Release

GNI Group FY2023Q1 Earnings Call Transcript

(Call held on May 18, 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.: BC

Catalyst Biosciences, Inc.: CBIO

Berkeley Advanced Biomaterials LLC: BAB

Nonalcoholic Steatohepatitis: NASH

Targeted Protein Degradation: TPD


In Q1 2023, BC, in spite of the strong COVID headwind in January, still maintained stable profitability. As you know, in January, almost all the hospitals in China were occupied with COVID, so the sales increase in this quarter was extremely challenging. We’re glad that BC continued their push forward.

At the same time, BAB was our second biggest revenue source and maintained stability in the United States.

These 2 key subsidiaries maintain very good steady cash flow and liquidity, which is the foundation of our group.

However, the consolidated profit decreased for several reasons including some one-time items which we want to explain.

Cullgen has been pushing forward in R&D relatively fast, and the increase of consolidated R&D expense by 35.7% on a consolidated basis is a very important factor.

We will talk about later in the call that Cullgen recently finished another round of Series C financing, led by an AstraZeneca fund, which was successful. Under current market conditions, it’s extremely difficult and very challenging to raise money. Cullgen’s success to close Series C is evidence that this company is doing very well in the R&D development of new drugs. GNI invested in Cullgen together with many other global private equities and large industry players, and I t is our strategy now to use all this money to speed up R&D in Cullgen. When Cullgen has more products proceeding to clinical trials, we can see a moderate increase of R&D expenses in the future.

On the other hand, we continue to hire more sales and marketing representative in China because if we don’t build up a strong enough sales network today, it will be much more costly to build one in the future. We need to have a larger sales force for our future drugs.

Other than that, we also have some one-time expenses. The first and the more important one is related to CBIO and its stock price movement. During the transaction with us, they distributed existing cash as dividends to existing shareholders, which caused a drop in their stock price afterwards. Since we have around 17% of the company (without taking into account the large number of preferred shares), upon consultation with the auditor, we valued our holdings of CBIO lower by roughly 2.7 oku (270 million) yen. This is why we have a large one-time expense. In addition to that, there were M&A expenses at GNI USA, GNI and BC. These M&A expenses are also related to CBIO.

All of these combined together decreased our profit for the first quarter.


On the R&D side, there was much good progress. F351 Phase III trial in China finally enrolled half of the (target) patients now. Last year, as you know, we had no enrollment for quite a few months due to COVID lockdowns in China. We believe the momentum is coming back.

The same is true for F573, which is progressing in Phase II trial.

Cullgen’s degrader is also ready for Phase I trial, for which we already passed all the regulatory approvals.

Also in the US, regarding F351 (clinical trial) for NASH, we have communicated with the US FDA and reached an agreement on the protocol. However, due to the ongoing transaction, we will refrain from discussing too much about CBIO.


CBIO and BC transaction is still on track.

As we mentioned, AstraZeneca-led fund’s money is already in Cullgen’s bank account.

Multiple pre-IND studies such as the ones for COPD and cancers are ongoing. Once they reach the IND stage, our Group will have the largest pipeline so far in our corporate history.

On the Medical Device business side, OsDerma continues to use BAB technology for the application to the aesthetic field, on which we have a high hope on fast growth.

Last year, we acquired Micren and are continuing the integration process, which is smooth.


All of what we are doing today and have been doing in the last 10 years is to create a new business model in which we balance profitability and drug discovery. For many people, drug discovery means spending a lot of money without a profit for a long period of time, but we try to create a new model for drug discovery. That’s why we created this group structure, which we believe is the best way to balance profit and drug discovery expenses.

Other than increasing revenue, we also need to continue to have a very cost-efficient and innovative platform, which is based on the early clinical trials in China and subsequent commercialization worldwide. On the one hand, we increase our revenue and on the other, we spend efficiently so that we will not consume too much. While we balance between income and expense, we always keep our focus on the future growth potential in pharmaceutical and medical device business. We believe this business model is ideal, especially in today’s very challenging market environment. As I mentioned, it’s very difficult recently for biotech to raise money; however, because of our unique model, most of our subsidiaries remain profitable.

Although Cullgen’s not profitable yet, they were able to raise funds from reputable investors which demonstrate how advanced Cullgen’s TPD technology platform is.


This is BC’s pipeline. Going forward, we will pay special attention to the F351 trial, which is halfway through Phase III. BC will continue to focus on inflammatory and fibrotic diseases.


CBIO will focus on the US NASH fibrosis application.


At the same time, Cullgen will focus on cancer, which is the difference between BC and Cullgen: the one focuses on inflammatory diseases, and the other focused on cancer. As you can see, we have different pipelines for different companies. In that way, they can best use their current resources and focus on drug development in the most cost-efficient way.


GNI Group consolidated revenue for the 2013 First Quarter was 4,206 million yen, an increase of 6.9% YoY. There have been significant currency changes since last year, and the rates we used this time were RMB plus 5% and US$ plus 14% YoY for the 2022 first quarter. Based on these exchange rates, the 6.9% increase in consolidated sales revenue that I mentioned at the beginning of this presentation may be appropriately described as a slight or stable increase in local currency terms. However, it is important to note that in the first quarter in general, the business environment in China was still very severely constrained by COVID. Taking this into account, we consider that the business sales of GNI Group in the first quarter were stable. On the other hand, operating income was 397 million yen, a YoY decrease of 17% and a loss of 2 million yen attributable to the parent company.


This chart shows the five-year first quarter revenues and expenses, etc. Basically, the trend has maintained a steady increase.


Gross profit was up 7.3% YoY, compared to a 6.9% YoY increase in revenue. Next, SG&A expenses grew 7.6% YoY, almost in parallel with revenue. As I mentioned earlier, the slight increase in revenue means that sales growth was realized in the midst of a very difficult COVID environment in the first quarter in China in particular.

However, in order to maintain this growth, selling, general and administrative (SG&A) expenses increased. In addition, M&A expenses and IPO expenses were added, which pushed up SG&A expenses.

On the other hand, R&D expenses increased by 35.7% YoY. There was a marked increase in R&D spending, mainly at Cullgen, both in the US and in China.

As a result, operating income was 397 million yen, down 17% YoY.


Next, we would like to turn to an analysis of the factors behind the increase/decrease in profit. First, gross profit on the far left was a positive factor of 249 million yen compared to the same period last year. On the other hand, the negative factors were 186 million yen in SG&A expenses and 158 million yen in R&D expenditures. Based on the above points, we can say that our businesses overall were profitable. However, financial expenses of 55 million yen and a 272-million-yen valuation decrease due to the ex-dividend rights of CBIO were added to this, resulting in a negative impact on the net profit.


In order to look back at GNI’s business activities over a longer period of time, this page shows the changes in SG&A expenses, R&D expenses, and their ratio to sales over the past nine years. Despite significant changes in the nature of our business, for the past five or six years, including the period before COVID, SG&A expenses have been 60% of sales, and R&D expenses have been 15% of sales, the levels that have remained stable.

Although it is difficult to say what will happen in the future, we can say that SG&A expenses have remained stable. On the other hand, we believe that unlike in the past, R&D expenses are expected to rise to some extent in the future.


Finally, we would like to explain some of the results by segment. The revenue of 3,606 million yen in the pharmaceutical segment was up 6% YoY, while operating income was 149 million yen, down 33% YoY. Negative factors for operating income in the pharmaceuticals segment included higher R&D expenses, in addition to higher personnel expenses and sales and marketing expenses. In the medical equipment segment, the revenue was 599 million yen, up 17% YoY, and operating income was 248 million yen, down 3% YoY. In terms of operating income, the medical equipment segment performed well with sales growth due to the recovery from COVID, but on the other hand, cost increases for biomaterials and other items were major negative factors.