3-d matrix ltd (7777)3d-matrix.co.jp/dl_file/2013/etc/7777_130701_en.pdf · 2013. 7. 2. · 3-d...

3-D Matrix Ltd (7777)

Recent Updates

HighlightsOn June 13, 2013, 3-D Matrix (3DM) announced its full-year FY04/13 business results and revision to its medium-termbusiness plan (view FY04/13 results).

Medium-Term Plan (FY04/14–FY04/16) Revisions

FY04/14 Targets

Operating revenue: 4.2 billion yen (previous forecast: 4.7 billion yen)

Operating profit: 1.7 billion yen (2.1 billion yen)

Recurring profit: 1.6 billion yen (2.0 billion yen)

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Net income: 1.5 billion yen (1.8 billion yen)

FY04/15 Targets

Operating revenue: 8.5 billion yen (previous forecast: 8.0 billion yen)




FY04/16 Targets

Operating revenue: 12.6 billion yen

Operating profit: 5.8 billion yen

Recurring profit: 5.8 billion yen

Net income: 3.7 billion yen

3-D Matrix expects to record milestone revenues in FY04/14. However, the company has assumed a conservative stanceregarding its product sales period, leading to a downward revision of its forecasts for FY04/14.

For FY04/15, the company expects its business development to progress favorably in the United States, Europe, and Asia.Consequently, it has revised upward its forecasts for FY04/15, and has newly formulated earnings forecasts for FY04/16.

Although the company has worked to reduce its expenses, including through a revision of outsourcing fees, profits have beenrevised downward for FY03/14, mainly owing to increases in clinical trials expenses and other R&D. The company also expectsR&D expenses to increase in FY04/15. However, taking into account the expected increase in operating revenue, profit estimateshave been largely unaffected compared with earlier forecasts.

On May 30, 2013, the company announced that it had signed an exclusive sales agreement for TDM-621 hemostatic agent withPT. 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.

On May 28, 2013, the company announced it was granted a Japanese patent for the use of the self-assembling peptidestechnology for liver and pancreas cell culturing.

The company was granted a patent for the technology, submitted jointly with Okayama University, in Japan.

Invention title: Peptide scaffold encapsulation of tissue cells and uses thereof

JP Patent No.: 5263756

Patent holder: Okyama University, 3-D Matrix

According to the company, this patent covers the method of culturing cells using self-assembling peptides as scaffolds and the useof the method. More specifically, the patent explains the method is effective in culturing cells in three-dimensional self-assemblingpeptide scaffolds. It is known that repeating two-dimensional cell culturing promotes dedifferentiation and results in the loss of cellfunctions. Hence, it is believed to be difficult to culture liver and pancreas cells while maintaining the cells’ functions in a two-dimensional setting. According to the company’s announcement, the patent’s three-dimensional cell culturing method will maintainthe functions of liver and pancreas cells.

On May 20, 2013, the company said it filed for CE marking in Europe for its hemostatic agent TDM-621.

The company’s 3-D Matrix Europe SAS unit on May 17, 2013 submitted documents on hemostatic agent TDM-621 to anorganization responsible for CE marking certification. CE marking is required for the sale of medical equipment in the EuropeanUnion, according to the company. In order to obtain CE marking, the applicant must receive certification that the product’s qualitymaintenance system meets the requirements of the medical device directive. Documents must be submitted in stages inaccordance with an agreement with the certification agency.

The company will be able to sell TDM-621 after obtaining CE marking. The company plans to conduct small-scale clinical trials afterobtaining the certification.

On May 15, 2013, the company said it would conduct a stock split. The two-for-one stock split would be implemented on May 31,2013.

On April 19, 2013, the company lowered its full-year FY04/13 forecasts and revised its mid-term plan.

Full-Year FY04/13 Forecast Revisions

Operating revenue: 32 million yen (previous forecast: 1.9 billion yen)

Operating loss: 1.1 billion yen (152 million yen profit)

Recurring loss: 1.1 billion yen (160 million yen profit)

Net loss: 1.1 billion yen (130 million yen income)

3DM submitted a manufacturing and marketing approval application in May 2011 to Japan’s Pharmaceuticals and Medical DevicesAgency (PMDA) for hemostatic agent TDM-621, and the PMDA was conducting related tests on TDM-621. The acquisition of theapproval, however, was taking longer than expected and was pushed back to FY04/14, resulting in 3DM lowering its FY04/13forecasts.

In more specific terms, the company now expects to book related milestone revenues in FY04/14, instead of FY04/13, and

July 03, 2013 3-D Matrix Ltd (7777)



accordingly lowered its FY04/13 operating revenue projection. The company said that it was working to cut costs, includingoutsourcing fees. However, the lower operating revenue projection meant that its operating profit forecast was also reduced.

Mid-Term Plan (FY04/13–FY04/15) Revisions

FY04/14 Targets

Operating revenue: 4.7 billion yen (previous plan: 4.5 billion yen)




FY04/15 Targets

Unchanged

As discussed above, the delay in booking related milestone revenues resulted in 3DM’s midterm plan revisions. More specifically,FY04/14 operating revenue is likely to increase due to the pushback of operating revenue from FY04/13. The company maintainedFY04/15 estimates.

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

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Trends & OutlookQuarterly Trends & Results

FY04/13 Results (announced on June 13, 2013; please refer to the preceding table.)

Operating revenue was 32 million yen, recurring loss was 977 million yen, and net loss was 978 million yen. The company hadalready 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 theapproval 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 countriesby obtaining ISO 13485 certification, a comprehensive quality management system for the design and manufacture of medicaldevices. In the United States, the company filed an investigational device exemption (IDE) application—equivalent to Japan’sinvestigational new drug (IND) application—for TDM-621 with the US Food and Drug Administration (FDA). In Europe, 3DM wasplanning to submit and application for the CE Mark (the CE Mark denotes that a product meets EU standards). The companycontinued to work with business partners to prepare for bridging studies in South Korea and Taiwan. Mainly through its Singaporesubsidiary,, the company is strengthening relationships with its business partners in South Korea and Taiwan, and will also pursuebusiness 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 apredetermined protocol and was in the clinical follow-up stage. Based on the clinical trial results, the company plans to begindiscussions 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.

For details on previous quarterly and annual results, please refer to the Historical Financial Statements section.

Full-Year (FY04/13) Outlook




The company anticipates operating revenue to include upfront and milestone payments associated with the production andmarketing of hemostatic agent TDM-621, which is expected to be approved both in Japan and abroad, as well as planned sales ofthe product in Japan.

The timing of approval for the production and marketing of TDM-621 in Japan deserves particular attention. For planning purposes,the company assumes that it will receive approval during 1H. The company also expects to form a sales partnership in the UnitedStates for TDM-621 during FY04/14.

R&D expenses are forecast to increase twofold from FY04/13 since the company plans to book expenses related to thedevelopment of TDM-621 in Europe and the United States in addition to regular R&D expenses. SG&A expenses are forecast to riseas the company expands overseas.

Despite increases in R&D and other expenses, operating profit is forecast to increase significantly driven by the large rise inoperating revenues.

According to the company, the status and outlook for the company’s main product pipeline is as follows.

Hemostatic agent TDM-621

The company’ key task domestically is to receive approval for production and sale during FY04/14 and commence marketing ofthe product in Japan. Overseas, the company is preparing for bridging studies in South Korea and Taiwan. In the United States, thecompany filed an investigational device exemption application in February 2013 and plans to begin clinical trials during FY04/14.The company also submitted an application for CE marking in Europe in May 2013. It seeks to obtain the marking during FY04/14.

Other products in the pipeline

The company is conducting clinical trials for alveolar bone regenerator TDM-711 in the United States. For mucous membraneprotuberance material TDM-641 and vascular embolization agent TDM-631, the company plans to cite safety data of itshomeostatic agent and accumulate efficacy data as part of its efforts to begin clinical trials at an early stage. For TDM-641 inparticular, the company plans to commence clinical trials during FY04/14. The company is also conducting preclinical trials ofwound-healing agent TDM-511.

Future Outlook

On June 13, 2013, 3DM revised its midterm plan. Specifically, with regard to its FY04/14 operating revenue projections, thecompany expects to receive milestone payments in relation to the approval in Japan for manufacturing and marketing ofhemostatic agent TDM-621. However, the company lowered its FY04/14 TDM-621 operating revenue forecast from 4.7 billion yento 4.2 billion yen based on a conservative stance regarding the product sales period. The company raised its operating revenueforecast for FY04/15 from 8.0 billion yen to 8.5 billion yen, citing steady progress in the execution of its plans for TDM-621.Specifically, the company said that business development was progressing well in Europe and the United States, and in Asia thecompany has formed a sales partnership in Indonesia following similar agreements in South Korea and Taiwan.




Source: Company data, SR Inc. Research

The company lowered its operating profit forecast for FY04/14 to 1.7 billion yen from 2.1 billion yen. This reflects a conservativeestimate of clinical trial expenses related to R&D for hemostatic agent TDM-621 in Europe and the United States, although thecompany is also working to cut SG&A expenses. For FY04/15, the company cut its operating profit forecast to 3.3 billion yen from3.5 billion yen due to an expected increase in R&D expenses for TDM-621 in Europe and the United States.

3-D Matrix has also newly formulated a business plan for FY04/16.


The company sees the start of domestic sales and global expansion of the hemostatic agents business as its main mission for thetime being. An important indicator would be the company’s approach to the European and U.S. hemostatic agent markets. Thecompany said it would launch clinical trials and start sales tie-up negotiations once it gained connections with influential medicalinstitutions and key opinion leaders (KOL).

According to the company, the revenue targets in the mid-term plan were based on the schedules of major pipelines.

FY04/15

The company expects to receive approval for the production and marketing of hemostatic agent TDM-621 and bone regeneratorTDM-711 in the United States during FY04/15 and commence marketing. Progress is also expected for TDM-621 in Europe. InJapan, sales of TDM-621 are expected to rise, leading to a significant increase in operating revenue. Despite higher R&D expensesrelated to next-term development pipelines, the company is anticipating a substantial rise in profitability.




According to a chart contained in materials provided at the company’s FY04/13 results briefing, revenue from upfront andmilestone payments are expected to exceed 2.0 billion yen. In SR Inc.’s view, most of these payments will likely come fromoverseas judging from the development pipeline.

Of the remainder, the company forecasts operating revenue of just under 6.0 billion yen will be generated by sales of TDM-621 inJapan and abroad. The company has stated that about a third of TDM-621 sales would come from Japan and two-thirds fromabroad. Therefore, sales of TDM-621 in Japan, in SR Inc.’s view, may total some 2.0 billion yen since the overall sales areexpected to be 8.5 billion yen (8.5 billion yen x 1/3). Outside Japan, sales of TDM-621 may total a little more than 3.0 billion yenafter subtracting upfront and milestone payments totaling some 2.0 billion yen (8.5 billion yen x 2/3 – 2 billion yen).

Considering that the size of the market for hemostatic agent is 17 billion yen in Japan and 100 billion yen in the United States, salesof this level would give the company only a very small market share, particularly overseas. In SR Inc.’s view, the company’s salesforecasts appear somewhat conservative in light of the product’s competitiveness.

FY04/16

Sales are forecast to expand further due to increased shipments of TDM-621 and the expected launch of other products. Thecompany forecasts higher profitability since R&D spending and SG&A expenses are expected to remain unchanged from FY04/15.

The company plans to generate a third of its overall sales in Japan and the remainder from abroad. Most of the sales are expectedto come from TDM-621. Although the company expects increased sales in the U.S. and Europe, it is assuming a market share of afew percent for hemostatic agents. Consequently, SR Inc. views the forecasts for FY04/16 as somewhat conservative, similar tothose for FY04/15.

Exchange Rate Assumptions

The company’s mid-term management plan is based on the assumption that the yen will trade in the mid-90s against the dollar.The ratio of overseas sales is expected to rise during FY04/15 and thereafter.

Development Status and Targets of Main Pipeline Applications

Absorbent topical hemostatic agent (TDM-621)

Japan: the company expected to receive a manufacturing and marketing approval for Japan, have the product covered underthe Health Insurance Portability and Accountability Act (HIP), and launch the product in FY04/14.

South Korea and Taiwan: utilizing results from Japanese clinical trials, the company was aiming to acquire a manufacturing andmarketing approval, attain national health insurance coverage, and bring the product to market in Korea and Taiwan in FY04/15.

U.S.: the company expects to start clinical trials in FY04/14 with an eye to acquiring a manufacturing and marketing approval,attaining national health insurance coverage, and launching the product in FY04/15.

Europe: the company was planning to receive the CE Mark in FY04/14. (In order to sell medical devices in the EU,manufacturers must meet EU standards and the CE Mark denotes the product meets these standards.) Clinical trials were to beconducted in FY04/15 with a view to attaining national health insurance coverage and to expanding sales in FY04/16.

Mucous membrane protuberance agent (TDM-641)

Japan: clinical trials to start in FY04/14. Manufacturing and marketing to be approved, national insurance coverage attained, andthe product launched in FY04/16.

Vascular embolization agent (TDM-631)

Japan: clinical trials scheduled to start in FY04/15.

Alveolar bone reconstruction agent (TDM-711)

U.S.: clinical trials began in February 2012. The goal is to receive approval for manufacturing and marketing, attain national healthinsurance coverage, and launch the product in FY04/15.

Wound-healing agent (TDM-511) U.S.: preclinical trials underway as of FY04/14 with a view to filing a 510 (K) application with theFDA (see note below) .

Note: In the U.S., premarket notification submissions for medical devices that are substantially equivalent to existing devices insafety and effectiveness can be filed without clinical trials. This submission process is known as 510 (K).

Expanding and Enhancing Development Pipelines

The company intends to search for opportunities in the surgery and related fields. In addition, the company plans to expand itspipelines in the tissue regeneration field (i.e., bone reconstruction other than alveolar bone) based on the outcome of alveolarbone reconstruction agent development in the US.

Growth Projections beyond the Mid-Term Plan

Based on the potential market size, SR Inc. believes European and US sales of hemostatic agents will become the company’smain growth driver. SR Inc. also believes that wound-healing agent TDM-511 possesses great potential for future growth.

If, however, major new pipeline products do not materialize, 3DM’s R&D expenses are unlikely to increase substantially fromFY04/15 onward, likely leading to higher OPM.

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Business

Business Description3DM is a medical technology company that develops, manufacturers, and markets a self-assembling peptide technology originallycreated 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 hasan exclusive global license from MIT for this technology that includes rights of development, manufacture, and marketing ofapplications that use these self-assembling peptides.

Self-assembling peptides have two main advantages over the medical products currently on the market they are intended tocompete with. Firstly, as they are produced by chemical synthesis, there is no risk of viral or other types of contaminationthat 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 hemostaticagents and mucous membrane protuberance agents) and in the regenerative medicine field (as alveolar bonereconstruction agents).

3DM’s business model attempts to minimize risks specific to medical product start-ups. Specifically, the products it isdeveloping are categorized as ‘medical devices’ rather than ‘pharmaceuticals’. Consequently, the duration from applicationto 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 numberof connected amino acids. Invented by Dr. Shuguang Zhang at MIT in 1992, self-assembling peptides are composed of a (16base) 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, forexample 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 insteaddegrade 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 anextracellular 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 peptidetechnology: PuraMatrix™ is its first-generation product that uses these self-assembling peptides.

PuraMatrix™


Self-assembling peptides are non-biological molecules produced by chemical synthesis and have the following characteristics:

1) Safety – as self-assembling peptides are produced via chemical synthesis there is no risk of viral infection (as can occur inbiologically-derived molecules) or contamination from foreign elements.

2) Homogeneity – mass production with practically identical levels of quality is possible.

3) Ease of use – as a gel created from a solution, they are transparent and easy to handle.

4) Development potential – application potential across a wide range of fields and in development as medical devices.

Main Business Segments

The Company reports only one business segment, Medical Products. However, this can be further broken down into the MedicalProducts 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, regenerativemedicine, 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 embolizationagents

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 andmarketing approvals for them. Its sales strategy involves signing exclusive sales agreements with distributors domestically andoverseas.

In the field of regenerative medicine, 3DM has been conducting research into bone reconstruction (outside of the alveolar bonespace), cartilage and tendon regeneration, treatments for skin wounds, and cardiac muscle regeneration; and looking tocommercialize this research.

As for the DDS space, 3DM has been working to launch products that combine self-assembling peptides with a variety ofpharmaceuticals, with the peptides functioning as a carrier for the pharmaceutical agent. While it is also likely that self-assemblingpeptides themselves can be developed to function as pharmaceutical agents, independently developing this would be timeconsuming for the company. Instead it intends to license the technology out to third parties for this purpose and generate licensingrevenue 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 theclinical-trial stage requires a number of phases and generally speaking, involves a large number of patients. As a result, thepharmaceutical development process tends to be long.

More specifically, for pharmaceutical development the clinical trials have three phases; in Phase I and II, researchers test thedrug/treatment on a small group of healthy people to evaluate its safety and effectiveness, while in Phase III they administer it toa large group of patients who suffer from the disease or condition that it is intended to treat to confirm its safety and effectiveness.

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

Medical Device R&D Process

Source: Company data processed by SR Inc.

Basic research: the company searches for potential medical device applications for its technologies and optimizes productspecifications.

Pre-clinical 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 eachcountry, such as the Ministry of Health, Labour and Welfare’s Pharmaceuticals and Medical Devices Agency (PMDA) and theFood and Drug Administration (FDA) in the US.

Manufacturing and marketing approval: the relevant regulatory body issues a 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 theauthorities. In Japan, the reimbursement value will set and the product included in HIP about two to three months after themanufacturing 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 agentTDM-621. Clinical trials in humans are already underway for TDM-621 and no adverse effects were detected among the 97 patientsin 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.

Main development pipeline

Development pipeline progress





(A) Surgical Field

3DM’s main pipeline products for the surgical field are: an absorbent localized hemostatic agent, a mucous membraneprotuberance agent, and a vascular embolization agent. The company also believes the there are other potentially attractiveproduct development areas outside of the current pipeline.

a) 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 alsobe 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 intonanofibers and become gelatinous. The gel perfectly coats the surface of the contact area, forming a coating that physically sealsthe surface film and peripheral blood vessels. In aortal blood vessels, it produces blood coagulation and hemostasis.

Overview of Hemostasis


Existing hemostatic agents are categorized as liquid types (fibrin glue) or sheet/powder types (fibrin and collagen). Fibrin glueinvolves 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 riskof infecting a patient with the hepatitis C virus. Clearly, accidental hepatitis C infections of patients have the potential to morph intoa major public healthcare issue.





TDM-621 has a number of advantages over existing hemostatic agents. First, there is no risk of infection. The majority ofhemostatic agents currently in use are synthesized from human or animal blood, such as from fibrinogens, while the raw materialfor collagen is produced from the skin of animals. As these products are derived from living organisms, they carry the risk of viralinfection. In contrast, TDM-621 is chemically synthesized from amino acids and so carries no risk of viral infection or contaminationfrom 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, thiscould also reduce administrative burden. In cases when biologically derived hemostatic agents are used, patients (or theirrepresentatives) 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 issubstantial latent demand for new medical agents that can eliminate the risk of infection, r-educe surgery time and alleviate theburden on patients.

From a surgeon’s perspective, TDM-621 also has a number of appealing features. A transparent liquid, it becomes pH-neutral gelonly after coming into contact with bodily fluids such as blood. Therefore, it does not obscure a surgeon’s view and can be easilyapplied via a catheter or into a narrow tissue entrance. In contrast, standard hemostatic agents are cloudy liquids and can obscurea surgeon’s view of a damaged area, especially when operating remotely with a camera. Finally, unlike surgical glue, TDM-621does 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 itcan induce a greater hemostatic effect than existing products (which induce hemostasis by bonding the tissue or covering it with anadhesive agent.

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 aminoacids 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 preventaccidental dangerous use. For instance, TDM-621 is prefilled in a syringe with a non-standard tip that prevents attaching needlesand limits the amount of substance to recommended levels (see image above).

TDM-621 Features





TDM-621 R&D Status

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 endoscopicmucosal 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 notdetect any problems. The product also received high praise by the doctors conducting the Japanese clinical trials. Based off theclinical-trial results, the company submitted a manufacturing and marketing approval application in May 2011 to the PMDA for TDM-621. If the process goes smoothly, as of June 2013, the product was expected to receive approval during FY04/14, and launchedin Japan sometime later in 2012.

Plans were also afoot to commercialize and market TDM-621 in Asia ex-Japan. On September 17, 2011, 3DM concluded apartnership agreement with Daewoong Pharmaceutical Co. of South Korea and a licensing agreement with Excelsior Medical Co. ofTaiwan. Japanese pre-clinical and clinical trial data confirming the safety and effectiveness of TDM-621 was slated for use for theSouth Korean and Taiwanese regulatory approval processes (i.e. the company was to conduct bridging studies).

If these bridging studies are recognized as valid by the authorities in these two nations, then the 3DM can be expected to acquire amanufacturing and marketing approval for both countries in a comparatively short period of time. However, if the bridging studiesare not recognized, it will have to carry out additional South Korean and Taiwanese clinical trials.

In addition to South Korea and Taiwan, the company is also seeking to expand sales in Southeast Asia. The company’s Singaporesubsidiary, 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 is at the same time preparing to conduct a clinical trial in China with a view to launching the product in China duringFY04/17 (as of June 2013).

In the United States, the company submitted an investigational device exemption application to the FDA, with an eye to startingclinical trials in FY04/14. The company was aiming for a product launch during FY04/15 (as of June 2013).

In Europe, 3DM’s French subsidiary filed an application to obtain a CE Mark in May 2013. (CE Marks are required certification forselling medical devices in the EU and denote EU safety standards have been met.) The company expects to receive a CE Markduring FY04/14. Although 3DM will be able to sell TDM-621 once it receives its CE Mark, it will need to conduct clinical trials if itwishes the product to be covered by national health insurance in Europe. The company plans to obtain insurance coverage inmajor European nations and start selling the product during FY04/16 (as of June 2013).

TDM-621 Sales Agreements

In May 2011, 3DM concluded an exclusive sales agreement for absorbent localized hemostatic agent TDM-621 in Japan with FusoPharmaceutical 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 uponreceiving the manufacturing and marketing approval for TDM-621. Furthermore, Fuso Pharmaceutical is obliged to purchase aminimum 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. Alsoregarding TDM-621, Fuso Pharma reached a domestic sales agreement with Kaken Pharmaceutical Co., Ltd. (TSE1: 4521) in April2012. In line with the agreement, Kaken Pharma will start selling TDM-621. According to the company, with Fuso Pharma gainingaccess to Kaken Pharma’s sales channels, roughly 1,000 MRs for the two companies combined will enable strong TDM-621promotion. In addition, Kaken Pharma has sold Seprafilm (synthetic-absorbent anti-adhesive barrier, annual sales of about 10.0billion yen). As Seprafilm and TDM-621 target the same field in surgery, about 700 MRs at Kaken Pharma experienced in providingproduct explanations in operation rooms can use their expertise and sales channels to promote TDM-621.

As previously mentioned, 3DM has also concluded agreements with Daewoong Pharmaceutical of South Korea, Excelsior Medical ofTaiwan, and PT. Teguhsindo Lestaritama of Indonesia. Daewoong Pharmaceutical is one of South Korea’s leading pharmaceuticalcompanies, and Excelsior Medical one of Taiwan’s top medical devices manufacturers.




Assuming the same pricing as for existing hemostatic products, SR Inc. anticipates a sales price of around 14,000 yen/1cc.However, when considering the competitive advantages of TDM-621, it is conceivable that a premium could be charged.

b) 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 toform 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 causesthe affected area to protrude. Based on the product’s feature – namely, of forming a pH neutral gel on coming into contact with aliquid, such as blood – it has been confirmed in animal experiments that not only can TDM-641 produced the protuberance, butthat it also possesses a secondary hemostatic effect. Naturally, saline and sodium hyaluronate do not provide this hemostaticeffect 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 16self-assembling peptides as their raw material, although the concentration of the peptides varies for the two. Consequently, safetydata obtained in clinical trials for TDM-621 can also be used for TDM-641. As of June 2013, 3DM was preparing for additionalstudies to confirm the safety of TDM-641 with a view to starting clinical trials in FY04/14.

TDM-641 Sales Agreements

In February 2012, the company signed an exclusive sales agreement for TDM-641 in Japan with Fuso Pharmaceutical Industries.

c) 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 inhepatic 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, thisblocks the artery that provides the liver or uterine tumor with nourishment and by cutting off the blood supply the tumor dies. AsTDM-631 becomes gelatinous when it comes into contact with a liquid, it can be injected into the artery via a catheter and used toclose 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 cavityafter it was dissolved in a contrast agent and had been injected into the cavity via a catheter. Moreover, it confirmed that thegelatinous TDM-631 can be checked visually using an X-ray camera. Going forward, once the company’s mucous membraneprotuberance agent enters the clinical development stage, 3DM plans to conduct testing towards the clinical development of itsvascular embolization agent.

Embolization Therapy


(B) Regenerative Medicine




Self-assembling peptides have a physical structure similar to an extracellular matrix that supports cell reproduction. As a result,3DM has been looking to apply its technology to the field of regenerative medicine and its pipeline products include an alveolarbone reconstruction agent and wound-healing agent. The company is eying a U.S. commercial launch and believes its technologyhas significant potential for skin-wound treatment.

Outside of its immediate product pipeline, 3DM has also been conducting research on self-assembling-peptide technology’s use inbone reconstruction other than alveolar bone surgery, its application in cartilage and tendon regeneration, and regeneration ofcardiac muscles.

a) 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 artificiallyimplanted, however, if there is not enough bone to affix the artificial teeth to then alveolar bone reconstruction surgery is requiredbeforehand. 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 environmentrequired for cells proliferation. By filling in areas where there is a lack of bone, TDM-711’s characteristics allow it to function as ascaffolding 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 conductingalveolar 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 reconstructionprocedures 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. SR Inc. believes that this is because the countryalready 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 targeting the orthopedic surgery field (larger market) with its bone reconstructionmaterial.

TDM-711 R&D Status

The company performed GLP-compliant confirmatory tests of the efficacy of TDM-711 on patients with alveolar bone defects. Assignificant bone regeneration was confirmed compared to the control group, the company then continued R&D of TDM-711 andsubmitted an IDE approval application to the FDA in September 2010. The approval was granted in July 2011. In February 2012, itcommenced clinical studies at the Forsyth Institute (an independent non-profit research center affiliated with Harvard University).In June 2012, the company completed the treatment of 15 patients in line with a predetermined protocol. None of these patientsshowed serious adverse effects. Based on the clinical trial results, the company plans to begin discussions regarding the nextphase of clinical trials with the US Food and Drug Administration (FDA).

b) Wound-healing agent (development code: TDM-511) Most of the products that the company has in its pipeline areintended for use inside the body. However, the company is also developing a product applied to the skin for use in tissueregeneration. 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 (itpromotes healing by enhancing tissue regeneration functions). However, the product has other uses. For instance, this agent couldbe used to restore the skin after a tumor is removed. Animal experiments showed that the agent not only promoted tissueregeneration, it also restored the skin to its original condition. Hence, in addition to medical applications, this product is also beingdeveloped for use in cosmetic surgery.

The target markets are Europe and the United States. As of June 2013, a preclinical trial was underway in the U.S. with a view tofiling a 510 (K) application with the FDA at an early date (see note below).

Note: In the U.S., premarket notification submissions for medical devices that are substantially equivalent to existing devices insafety and effectiveness can be filed without clinical trials. This submission process is known as 510 (K).

(C) DDS Field

3DM has been researching the possibility of using self-assembling peptides as a carrier in drug delivery systems (DDS). It has alsoconducted multiple efficacy trials into the controlled release of proteins, including bFGF and PDGF. The surfactant peptide A6K isdrawing particular attention. A characteristic of A6K is that it forms nanotubes in liquids. 3DM is researching whether thischaracteristic can be used to deliver siRNA encased inside nanotubes through the cell membrane and inside cancer cells.

DDS R&D Status

3DM is conducting joint research with the National Cancer Center in pursuit of new cancer therapy technologies using surfactantpeptides and has commenced basic research focusing on controlled release targeting cancer cells.

In the surgical and regenerative medicine fields, the company is able to independently carry out clinical trials and acquiringmanufacturing and marketing approvals. But in the DDS field, product development focuses on the commercialization of itsresearch products as pharmaceutical drugs. Here 3DM strategy is to license its technology to major pharmaceutical companies.

Medical Reagent Sales

The self-assembling peptides product, PuraMatrix™, is sold by Becton, Dickinson and Company as a research reagent touniversities and other research facilities around the world. PuraMatrix™ is used in a variety of medical applied studies and 3DM ismarketing the product as a research reagent in the hope that the researchers using will develop new commercially viableapplications.

Main business partners

The company is outsourcing the manufacture of the peptide raw materials to CPC Scientific Inc. (unlisted) and two othercompanies, 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 ofmanufacturing 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. Acooperation and support system was also implemented.

The company has an exclusive sales agreement with Fuso Pharmaceutical for distribution in the Japanese market. In addition,Fuso Pharma has reached a sales agreement with Kaken Pharma. Based on this agreement, Fuso Pharma and Kaken Pharma areexpected to sell TDM-621 in Japan.

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.

R&D System

3DM’s R&D activities are carried out by two departments:




Pharmaceutical Development Department (three staff) – handling manufacturing and marketing approval applications andquality control systems

Business Development Department (six staff) - handling the sourcing of clinical-trial facilities, doctors for the trials, and theclinical monitoring required.

The company has also signed self-assembling peptide technology MTA agreements with over 100 universities and researchinstitutes worldwide. 3DM has been conducting joint research with these partners with an eye to developing new applications for itstechnology. In these joint-research agreements, the personnel and funds are sourced from its partners, while the company is leftto 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 "thebasic patents"). 3-D Matrix, Inc., a U.S. company that later became a subsidiary, concluded an exclusive patent licenseagreement with MIT in April 2003 for the worldwide license (including re-licensing rights) to its patents in the fields of medicine, lifesciences, 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. InOctober 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 acrossregions, 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 withMIT follows:




Among the basic patents, the first one expires in 2014 and others begin to expire thereafter. However, even as the first patentexpires, 3DM believes managing its patents as a portfolio should continue to form a barrier to entry and thus it will be able tomaintain 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 MITresearchers in May 2001.

Group Companies

3-D Matrix Inc.: a 100% owned subsidiary based in Massachusetts, U.S.

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


Business Model

3DM’s business model is significantly different from that of conventional drug discovery start-ups. One of the things that made thispossible 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


The diagram above shows the business flow for 3DM’s Medical Products segment.

Company revenues can be categorized into 1) upfront payments, 2) milestone payments, and 3) revenues from product sales.




Upfront payments are received from licensee pharmaceutical companies when the agreement is signed, while milestone paymentsare generated in the development process when certain goals are achieved. This is the same as with conventional drug-discoveryventure companies. The major difference is that in the case of 3DM, the company develops the substance as a medical deviceitself and independently seeks a manufacturing and marketing approval. Therefore, if its products reach the market, 3DM will sellthem directly to pharmaceutical companies at a certain percentage of the final market price. What this means is that 3DM gets asubstantially 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 FY04/14 on, if thelaunch of absorbent localized hemostatic agent TDM-621 and other products goes according to schedule, product sales revenueswill also be recorded. The company anticipates that the weight of such revenues will grow in the future, leading to greater and morestable profits.

The gross profit margin is 100% for upfront and milestone payments. For product sale revenues the company expects the GPM ofaround 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 fixed percentage of sales.However, SR Inc. 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 andpharmaceutical consultants that provide it with advice and support regarding the procurement of peptide materials, manufacturingtechnology, and domestic and overseas sales partnerships. The company, which has small operations with a small number ofemployees, 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. Forinstance, many conventional startups handle research and development themselves at least until the process reaches the first partof Phase II clinical trials. Since these companies do not usually license the product to drugmakers until then, they often face thefollowing risks: 1) It takes a long time before the product is licensed to drugmakers; 2) Costs are high; and 3) The chances of theproduct 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 substantiallyshorter 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 FY04/14 as planned, it will mean that theentire development process takes about four or five years. Furthermore, 3DM claims it can keep development costs down byactively using outside parties. Also, all 3DM pipeline products use basically the same raw material (the RADA 16 self-assemblingpeptides). Therefore, once it successfully completes clinical trials for the first product, it should be able to shorten the time tomarket 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 rawmaterial procurement, manufacturing, or at other points in the supply chain is low.

Strengths & WeaknessesStrengths

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

Differentiated business model: the company is focused on the development of medical devices, which means the productdevelopment 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 itsmedical products helping minimize its own employee numbers.

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




Weaknesses

Commercial success depends on outside partners: given the company has chosen to focus on searching for pipelineproducts, accumulating medical device development expertise, and specializing in ‘project management and businessstrategy’, 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 factthat most of the patents that form the core of 3DM’s technology are licensed (albeit exclusively) from MIT and are due to expirein the period between 2014 and 2024. 3DM is aware of potential challenges and counters that clever intellectual propertymanagement strategy would sufficiently ensure legal control of the related technologies. In fact, the company has retained aprominent law firm to advise it on the patent strategy.

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

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Market & Value ChainJapan’s hemostatic agent market


Overview of the hemostatic agent market

Hemostatic agents are used in surgery in areas such as cardiac and vascular, respiratory, digestive, and neurosurgery. TheJapanese market is estimated to be worth approximately 17 billion yen. The Yano Economic Research Institute has forecast themarket will remain more or less at this scale going forwards. However, most of the currently used products are fibrin glue-type orcollagen-type, both of which use materials derived from living organisms and so carry the risk of infection from viruses that mayreside within these materials. A string of companies have been forced to withdraw from the market as they have been unable tomeet heightened safety standards following revisions to the Pharmaceuticals Affairs Law. This and other factors have led to marketstagnation.

After absorbent localized hemostatic agent TDM-621 is launched, the Company is aiming to capture 50% market share based offTDM-621 replacing existing products on the market. The company is also expecting the domestic market to grow to around 30billion yen. The biggest reason is that currently surgeons are refraining from using hemostats due to concerns about the risksassociated 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.

Hemostatic agents are widely used during surgery in the US. Due to the increasing number of operations driven by an agingsociety, the American hemostatic agent market is expected to grow at an annual average rate of 6% and be worth 1.3 billiondollars by 2016, according to iDATA Research. The European market is also forecast to reach a similar size. 3DM believes it cancapture 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% perannum, 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 arterialembolization 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 this number isperformed. Moreover, alveolar bone reconstruction surgery in the US is expected to grow annually by 5.6% out to 2014, accordingto the Millennium Research Group.


Barriers to Entry

3DM’s core self-assembling peptide technology produces agents that have a number of advantages compared to otherbiocompatible 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 CSLBehring (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), HemConMedical 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 Mera Pharmaceuticals Inc.

It appears that 3DM’s products are superior, particularly in terms of safety. Of many products available in the market, Medafor’sArista AH is derived from starch rather than from living organisms but 3DM feels that its product is sufficiently superior.




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Strategy3DM 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 productsappear to be likely to realize their potential and capture significant market share. On the other hand, if its distributor network isweak or it ends up partnering with companies who feel that the company’s products are a threat to their existing product line-upthen 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 potentialpartners. In line with this view, the company intends to begin clinical trials and negotiate with potential sales partners throughcontacts with influential medical institutions and key opinion leaders (KOL).

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Historical Financial Statements

Earnings Results Discussion for the Year Preceding Current Fiscal Year (For Reference Purposes)

Q3 FY04/13 Results (Announced on March 13, 2013; please refer to the preceding table.)

For the cumulative Q3 period, operating revenue was 0 million yen, recurring loss was 696 million yen, and net loss was 697million yen. The company said that these results were largely in line with its full-year FY04/13 forecasts announced (revised) onFebruary 1, 2013. For the full year, the company expects operating revenue of 1.9 billion yen from milestone payments and salesof hemostatic agent TDM-621. As of the end of Q3, however, the pushback of TDM-621 manufacturing and marketing approvalmeant that the company had not recognized such revenue and sales. Also for the full year, the company projects operatingexpenses of 1.7 billion yen, including CoGS of 399 million yen, R&D expenses of 533 million yen, and SG&A expenses of 766million yen. As of the end of Q3, R&D expenses were 272 million yen (51.0% of the full-year projection), and SG&A expenseswere 434 million yen (56.7% of the full-year projection). If the company obtains TDM-621 approval by the end of FY04/13, it mayachieve its full-year estimates, in SR Inc.’s view.

The status of 3DM’s product pipeline at the end of Q3 FY04/13 was as follows:


The product was being tested by Japan’s Pharmaceuticals and Medical Devices Agency (PMDA) for its manufacture and saleapproval. Meanwhile, the company was in the last stage of establishing a TDM-621 manufacturing framework. Also, FusoPharmaceutical Industries Ltd. (TSE1: 4538) and Kaken Pharmaceutical Co., Ltd. (TSE1: 4521) have signed a semi-exclusiveTDM-621 sales agreement. This agreement signing meant that the company strengthened its TDM-621 sales framework and wassteadily building a structure to launch the product.

In the US, the company filed an investigational device exemption (IDE) application—equivalent to Japan’s investigational new drug(IND) application—for TDM-621 to the US Food and Drug Administration (FDA). In Europe, 3DM was preparing to receive the CEMark (in order to sell medical devices in the EU, manufacturers must meet EU standards, and the CE Mark denotes the productmeets these standards). Furthermore, the company continued to work with business partners to prepare for bridging studies inSouth Korea and Taiwan.


A US subsidiary began clinical trials for this product in February 2012. The company has completed the treatment of 15 patients inline with a predetermined protocol and was in the clinical follow-up stage. Based on the clinical trial results, the company plans tobegin discussions regarding the next phase of clinical trials with the US FDA.


The company was preparing to start clinical trials.

Likely Events (within one year; source: 3DM Q3 FY04/13 results meeting materials)

Hemostatic Agent-Related

(Japan)

Receive manufacturing and marketing approval from PMDA

Receive milestone payments following the approval

Begin wholesale sales to sales partners

Have the reimbursement price approved and set under the National Health Insurance scheme

Launch products

Acquire ISO 13485 (an international standard for medical device quality assurance; acquired on March 21, 2013)

(Overseas)

Receive milestone payments following Asian manufacturing and marketing approval

File clinical trial plans to the US FDA (filed in February 2013; clinical trials scheduled to begin in FY04/14)

File for EU’s CE Mark (filing scheduled for FY04/13 or FY04/14; later, the company plans to obtain manufacturing and marketingapprovals and have the products included in national health insurance schemes in certain countries based on clinical trialresults)

Other Pipelines

Begin discussions with the US FDA based on the results of alveolar bone regenerator clinical trials

Submit mucous membrane protuberance material clinical trial plans

Q2 (1H) FY04/13 Results (Announced on December 13, 2012; please refer to the preceding table.)




The company maintained its full-year forecasts.

Operating revenue in this 1H was zero, recurring loss was 458 million yen, and net loss was 458 million yen. According to thecompany, these figures were largely in line with company estimates.

The company received neither upfront payments nor milestone revenues from contracts in the 1H, resulting in the zero operatingrevenue. With the booking of expenses, the company posted recurring loss. Expenses were 452 million yen, which broke downinto R&D expenses of 182 million yen (34.1% of the company’s full-year estimate at 533 million yen) and SG&A expenses of 269million yen (27.7% of the full-year estimate at 971 million yen).

The status of 3DM’s product pipeline at the end of Q2 FY04/13 was as follows:


The product was being tested by Japan’s PMDA for its manufacture and sale approval. Meanwhile, the company was in the laststage of establishing a TDM-621 manufacturing framework. Also, Fuso Pharmaceutical Industries and Kaken Pharmaceutical signeda semi-exclusive TDM-621 sales agreement on September 25, 2012 based on the domestic TDM-621 sales agreement betweenthe two signed on April 9, 2012.

In Europe and the US, 3DM was preparing for clinical trial launch. More specifically, in Europe, the company was preparing toreceive the CE Mark. In the US, the company was preparing for upcoming discussions with the US FDA. 3DM was planning toreceive the CE Mark in Europe during FY04/14. In the US, the company was planning to begin patient registration in the sameyear. The company added that overseas activities were advancing smoothly, with European operations staying a little ahead of USoperations.


A US subsidiary began clinical trials for this product in February 2012. The company has completed the treatment of 15 patients inline with a predetermined protocol and was in the clinical follow-up stage. Based on the clinical trial results, the company plans tobegin discussions regarding the next phase of clinical trials with the US FDA.


The company was preparing to start clinical trials during FY04/13. 3DM was aiming to launch this product in Japan in FY04/15.

Likely Events (within one year; source: 3DM Q2 FY04/13 results meeting materials)

Hemostatic Agent-Related

(Japan)

Receive manufacturing and marketing approval from PMDA

Receive milestone payments following the approval

Begin wholesale sales to sales partners

Have the reimbursement price approved and set under the National Health Insurance scheme

Launch products

Acquire ISO 13485 (international standard for medical device quality assurance)

(Overseas)

Receive milestone payments following Asian manufacturing and marketing approval

Submit clinical trial plans to the US FDA

File for EU’s CE Mark

Other Pipelines

Begin discussions with the US FDA based on the results of alveolar bone regenerator clinical trials

Submit mucous membrane protuberance material clinical trial plans

Q1 FY04/13 Results (Announced on September 13, 2012; please refer to the preceding table.)

Operating revenue was zero, recurring loss was 232 million yen, and net loss was 232 million yen. The company commentedthese figures were largely in line with its estimates.

On the balance sheet, inventories were 123 million yen, up from 25 million yen as of April 30, 2012. This appears to be due to thecompany procuring peptides, a raw material of hemostatic agent TDM-621, which is likely to receive a manufacture and saleapproval from Japan’s PMDA. The company said that it was steadily advancing preparations for the hemostatic agent’s post-approval commercialization as the PMDA continued related tests.

3DM has signed a manufacturing outsourcing agreement with Fuso Pharmaceutical Industries, and part of manufacturing process(pre-filling of syringes) has been exclusively outsourced to Fuso Pharma. It appears that Fuso Pharma has built a frameworkrequired for the entire process from filtration and purification to pre-filling of peptides. On the sales front, following the signing of adomestic sales agreement between Fuso Pharma and Kaken Pharmaceutical, the two sales partners were accelerating medicalinformation provision to related parties.

The status of 3DM’s product pipeline at the end of Q1 FY04/13 was as follows. The company commented the status was largely inline with its plans (please see Future Outlook for pipeline development targets):


The product was being tested by the PMDA for its manufacture and sale approval. In Europe and the US, 3DM was preparing forclinical trial launch. More specifically, in Europe, the company was preparing to receive the CE Mark. In the US, the company waspreparing for upcoming discussions with the US FDA.


A US subsidiary began clinical trials for this product in February 2012. The company has completed the treatment of 15 patients inline with a predetermined protocol. Based on the clinical trial results, the company plans to begin discussions regarding the nextphase of clinical trials with the US FDA.


The company was preparing to start clinical trials during FY04/13.




Other Topics

According to the company, a joint project with the National Cancer Center Hospital, “Non-clinical research aimed at realizing thepractical application of Japan’s innovative cancer therapies,” was to receive research grants under the 2012 Ministry of Health,Labor, and Welfare’s Health Labor Sciences Research Grant system.

FY04/12 Results (Announced on June 13, 2012)

Operating Revenue was 1.1 billion yen, which can be broken down into milestone and upfront payments for the TDM-621hemostatic agent for surgery (mentioned as “TDM-621” elsewhere in the report), upfront payment revenues from contracts for theTDM-641 mucous membrane protuberance material (“TDM-641”), and grant revenue associated with a joint project with Japan’sNational Cancer Center.

Expenses stood at 753 million yen driven by R&D costs, higher personnel costs on the back of business expansion, and IPOrelated costs.

Consequently, the company recorded an operating profit of 354 million yen. Non-operating income came in at 3 million yen. Undernon-operating expenses totaling 48 million yen, 14 million yen was due to stock issuance expenses (IPO), and 26 million yen inadvisory costs. As a result, the company logged a recurring profit of 310 million yen and a 309 million yen net income.

In April 2012, the company upwardly revised its full-year FY04/12 forecasts. Thanks to lower-than-planned R&D and otherexpenses, operating profit came in above the revised forecast of 300 million yen.

The status of 3DM’s product pipeline at end-FY04/12 was as follows:


The product had been developed in Japan under the medical devices category, and in May 2011 filed an application with Japan’sPharmaceuticals and Medical Devices Agency (PMDA) for its manufacture and sale. Consequently, the company received amilestone payment tied to this development from Fuso Pharmaceutical Industries Ltd. (TSE1: 4538), who had been granted theexclusive right to sell TDM-621 in Japan, which drove consolidated sales for 3DM. Also, in April 2012, the company booked upfrontpayment revenue based on TDM-621 sales agreements with Fuso Pharma and Kaken Pharmaceutical Co., Ltd. (TSE1: 4521).


The company has been developing this product in the US, and in July 2011 its subsidiary received IDE (Investigational DeviceExemption) approval from the US Food and Drug Administration (FDA). The US clinical trials commenced in February 2012 atForsyth Institute affiliated with Harvard School of Dental Medicine.


R&D for this product was ongoing. On February 20, 2012, the company entered into an agreement with Fuso Pharma grantingthem an exclusive license to manufacture and sell the mucous membrane protuberance material, resulting in upfront paymentrevenue.

Other Topics

A joint project proposal with the National Cancer Center was selected as a “National Cancer Center Phase I Center Early StageR&D” project, under the 2011 Ministry of Health, Labor, and Welfare’s Health Labor Sciences Research Grant system. As a result,the company received a number of grants recorded as revenues. In addition, the company established a subsidiary in the Frenchcity of Lyon as part of its efforts to develop its business globally.

Q3 FY04/12 Results (Announced on March 9, 2012)

The company maintained its FY04/12 forecast.

Q3 cumulative operating income was 400 million yen (milestone payments for TDM-621). Expenses stood at 498 million yendriven by R&D costs, higher personnel costs on the back of business expansion, and IPO related costs. Consequently, thecompany recorded an operating loss of 98 million yen. Non-operating expenses came in at 52 million yen: 14 million yen was dueto stock issuance expenses (IPO), 26 million yen in advisory costs and 7 million yen in foreign exchange losses. As a result, thecompany logged a recurring loss of 149 million yen and a 150 million yen net loss.

The status of 3DM’s product pipeline at the end of Q3 was as follows:


The product had been developed in Japan under the medical devices category, and in May 2011 filed an application with Japan’sPMDA for its manufacture and sale. Consequently, the company received a milestone payment tied to this development from FusoPharmaceutical Industries Ltd. (TSE1: 4528), who had been granted the exclusive right to sell TDM-621 in Japan, which droveconsolidated sales for 3DM.

The company has also entered into an agreement to subcontract some of the manufacturing process for TDM-621 to Fuso Pharma,and had been working with the company to develop its system for operating as a manufacturer and vendor of this medical device.


The company has been developing this product in the US, and in July 2011 its subsidiary received IDE (Investigational DeviceExemption) approval from the US FDA. 3DM had been holding discussions with its business partners as it prepared for the start ofclinical trials, with the US clinical trials having commenced in February 2012).


R&D for this product was ongoing. The company was negotiating with partners as it prepared for the start of clinical trials and onFebruary 20, 2012, the company entered into an agreement with Fuso Pharma granting them an exclusive license to manufactureand sell the mucous membrane protuberance material).

Other Topics

A joint Japan’s National Cancer Center project proposal was selected as a “National Cancer Center Phase I Center Early StageR&D” project, under the 2011 Ministry of Health, Labor, and Welfare’s Health Labor Sciences Research Grant system. As a result,the company expected to receive a number of grants.




The company decided to establish a subsidiary in the French city of Lyon as part of its efforts to develop its business globally.

1H FY04/12 Results (Announced on December 9, 2011)

The company maintained its FY04/12 forecast.

1H revenue was 400 million yen, due to the same amount in milestone payments for the TDM-621 being booked. On the otherhand, there was 341 million yen in R&D, personnel, and IPO-related expenses.. This resulted in operating profit of 59 million yen,recurring profit of 9 million yen, and net income of 9 million yen.

The company’s balance sheet shows 2.5 billion yen in net assets, which was an increase of 1.4 billion yen from end-April 2011.The increase was primarily due to increases in both its capital and capital reserves of 685 million yen each, on the back of thecompany’s IPO and the exercise of warrants. The company listed its shares on the Osaka Securities Exchange’s Jasdaq Growthmarket on October 24, 2011 and the offering added 676 million to both its capital and capital reserves.

The status of 3DM’s product pipeline was as follows:


The company has been developing this in Japan under the medical devices category, and in May 2011 filed an application withPMDA for the manufacture and sale authorization, which was being considered by the agency. They have therefore received amilestone payment tied to this development from Fuso Pharmaceutical Industries Ltd. (TSE1: 4528), who had been granted theexclusive right to sell TDM-621 in Japan, which drove consolidated sales for 3DM.

The company has also entered into an agreement to subcontract some of the manufacturing process for TDM-621, and had beenworking with their partner to develop its system for operating as a manufacturer and vendor of this medical device.


The company was developing this product in the US, and in July 2011 its subsidiary received IDE (Investigational DeviceExemption) approval from the US Food and Drug Administration (FDA). 3DM was in consultations with business partners as itprepared for the start of clinical trials.

Q1 FY04/12 Results

Q1 business revenue was 400 million yen due to milestone payments for the TDM-621 hemostatic agent for surgery. Businessexpenses meanwhile came in at 190 million yen due to sales transaction fees relating to milestone payments, and increased laborcosts from increased headcount. Operating income was 210 million yen; recurring profit 204 million yen; and net income was 204million yen.

The status of the company’s product pipeline was as follows:


The company has developed this product in Japan under the medical devices category. Following the conclusion of clinical trials inFY04/11 the company filed an application in Q1 with PMDA for its manufacture and sales authorization. Given this development3DM received a milestone payment from Fuso Pharma who owns the exclusive right to sell TDM-621 in Japan, and this droveconsolidated sales for 3DM.

The company has also entered into an agreement to subcontract some of the manufacturing process for TDM-621, and had beenworking with their partner to develop its system for operating as a manufacturer and vendor of this medical device.


The company had been developing this product in the US, and in July 2011 its subsidiary received IDE approval from the US FDA.

FY04/11

Total sales were 158 million yen (vs. 402 million yen in FY04/10), driven by 150 million yen in upfront payments (vs. 400 millionyen in FY04/10). Operating expenses meanwhile came to 641 million yen, an increase of 174 million yen from FY04/10. This wasmainly due to a 50 million yen increase in SG&A expenses from increased headcount, and a 122 million yen rise in R&D expensesfrom higher clinical trial expenses for TDM-621. This resulted in an operating loss of 482 million yen (vs. 65 million yen inFY04/10); a recurring loss of 510 million yen (vs. 60 million yen in FY04/10), and a net loss of 534 million yen (vs. 61 million yenin FY04/10).The status of the company’s product pipeline was as follows:

Hemostatic agent for surgery (TDM-621)

Clinical trials began in FY04/10 and ended in FY041/11. The company then filed an application with PMDA for the manufacturingand sales authorization in FY04/11. In August 2010 the company received authorization for Type One medical de