BRIDGE REPORT
EIKEN CHEMICAL (4549)
President Morifumi Wada
President
Morifumi Wada
Corporate Profile
Company
EIKEN CHEMICAL CO., LTD.
Code No.
4549
Exchange
Tokyo Stock Exchange, First Section
Industry
Pharmaceuticals (manufacturing)
President
Morifumi Wada
HQ Address
Yamaguchi building 7, 4-19-9, Taito, Taoto-ku, Tokyo 〒110-8408
Business
Description
Major manufacturer of clinical diagnostics. Its immunochemical fecal occult blood test reagents occupies over 50% share of the domestic market. It is strengthening its molecular genetics. It is proactive in forming alliances.
Year-end
End of March
URL
Stock Information
Share Price Number of shares issued
(excluding treasury shares)
Total market cap ROE (Actual) Trading Unit
1,910 Yen 18,256,169 Shares 34,869 million yen 8.3% 100 shares
DPS (Est.) Dividend yield (Est.) EPS (Est.) PER (Est.) BPS (Actual) PBR (Actual)
35.00 Yen 1.8% 102.43 Yen 18.6 times 1,323.98 Yen 1.4 times
* Share price is as of the end of October 30. The number of shares issued is from the latest financial settlement report (excluding treasury shares from the number of shares issued). ROE and BPS are based on actual results at the end of the first term.
 
Business Performance Trends
Fiscal Year Net Sales Operating
Income
Ordinary
Income
Net Income EPS    DPS   
March 2010 (actual) 26,841 1,902 2,011 1,214 66.87 25.00
March 2011 (actual) 27,562 2,709 2,775 1,672 92.06 30.00
March 2012 (actual) 27,702 2,363 2,543 1,460 80.38 30.00
March 2013 (actual) 28,645 2,548 2,812 2,453 134.98 35.00
March 2014 (actual) 30,027 3,008 3,095 1,984 109.13 35.00
March 2015 (estimate) 31,320 2,900 2,930 1,870 102.79 35.00
* The figures for the fiscal year ending March 2015 are based on the estimates made by EIKEN CHEMICAL.
 
This Bridge Report presents EIKEN CHEMICAL's earnings results for the first half of fiscal year March 2015.
 
Key Points
 
 
 
Company Overview
 
EIKEN CHEMICAL is a general manufacturer of clinical diagnostics, including immunological and serological, microbiological, clinical chemistry, urine analysis and molecular genetics. It also develops and sells medical devises.
It offers many products that occupy high market share including fecal occult blood test reagents that occupy about 57% of the domestic share. Its unique gene amplification technology, "LAMP", is highly recognized in the world. With the fecal occult blood tests and LAMP, EIKEN is aiming to become a global corporation.
 
 History
1939
Establishment of Koa Kagakukogyo Co., Ltd. Initiation of the manufacturing and sales of nourishing food article. (founder, Tsuyoshi Kurozumi)
1949
Powdered agar for the detection of bacteria, the first product of the field, was successfully commercialized in Japan.
1961
Establishment of Clinical Laboratory Division. Initiation of R&D of clinical diagnostics.
1969
Company name was changed to EIKEN CHEMICAL CO., LTD. in recognition of its 30th anniversary.
1972
Commencement of the sales of "Uropaper ‘EIKEN’", a urinalysis test strip.
1987
Commencement of the sales of "OC-hemodia", the immunochemical fecal occult blood test regent .
1989
Commencement of the sales of "OC CENSOR", the automated fecal occult blood analyzer.
1990
Stocks listed in the second section of the Tokyo Stock Exchange.
1998
Development of novel DNA amplification LAMP method and filing of its patent applications.
Mar. 2002
Stocks listed on the first section of the Tokyo Stock Exchange.
Mar. 2002
Establishment of patent for LAMP in U.S.A.
Mar. 2002
Commencement of the sales of novel "Loopamp Bovine Embryo Sexing Kit" and "Loopamp End Point Turbidimeter", using LAMP.
May. 2002
Establishment of patent for LAMP in Japan.
Nov. 2004
Acquired FDA approval for fecal occult blood test reagent and analyzer and commencement of their sales in the U.S.A.
Jul. 2005
Conclusion of agreement with Foundation for Innovative New Diagnostics (FIND) for development of rapid diagnostic test for tuberculosis using LAMP.
Aug. 2006
Completion of construction of plant and company building of EIKEN SHANGHAI CO., LTD.
Oct. 2008
Expansion of collaborative development with FIND to include malaria and African trypanosomiasis.
Conclusion of agreement with FIND for development regarding malaria, human African trypanosomiasis and HIV.
Mar. 2009
Establishment of new management plans, ‘EIKEN WAY’ and ‘EIKEN ROAD MAP 2009’.
Jul. 2010
Commencement of the sales of various in vitro diagnostic products using LAMP including "Loopamp Mycoplasma P Detection Kit," "Loopamp Legionella Detection kit C."
Jun. 2011
Commencement of the sales of "Loopamp MTBC Detection Kit".
Dec. 2011
Conclusion of agreement with FIND for development of diagnostics for Leishmaniasis.
Aug. 2012
Commencement of the sales of ultrasensitive fully automated biochemiuminescent immunoassay analyzer, "BLEIA-1200" and "BL-NV EIKEN" to detect Norovirus.
Nov. 2012
Commencement of the sales of "Immuno Catch Noro" using the immunochromatographic analysis method.
2013
Commencement of the sales of BLEIA-1200 specific reagents, called "BLEIA EIKEN HCV antibody", "BLEIA EIKEN HCV antigen", and "BLEIA EIKEN HBs antibody".
Jan. 2014
Conclusion of agreement with FIND for development against Chagas disease.
Mar. 2014
Commencement of the sales of an analyzer for drug sensitivity ‘DPS192iX’ and three types of Dry plate ‘EIKEN’ (192 plates)
*For LAMP and FIND, please refer to "2. Characteristics and Strengths (4) Competitive Advantages of LAMP"
 
Management Philosophy
"Management Philosophy": Protect the health of the public through health care services.

"Management Vision": EIKEN group is dedicated to leveraging expertise as a medical testing pioneer in order to increase corporate value by protecting the health of the public with products and services that customers can trust.

"Motto": We EIKEN provide trustworthy quality, and develop with technology.

EIKEN group formulates "EIKEN WAY" as its attitude toward each stakeholder, centering these philosophy, vision and motto.
 
 
Market Environment
<Domestic Market>
The market scale of clinical reagents (including diagnostics devices) is about 338 billion yen as of 2013 (survey by the Japan Association of Clinical Reagents Industries, or JACRI). In order to control medical cost, the Japanese government is focusing on preventive medicine such as special health check-up (check of metabolic syndrome) and cancer screening. Thus, it is expected that the number of sample (number of specimen) for testing will increase as the population ages.
Some negative factors include impact of population decline as a result of decreasing birth rates and revision of medical treatment fees (reduction). However, the trends of laboratory test fees which had been subject to revision of medical treatment fees show that, even though they were cut by some 40% from 1997 to 2006, the fees have been stable or only slightly reduced after 2007. This is a result of advocacy on the importance of prevention and test by the entire industry including EIKEN. Thus, in the medium to long term, the domestic market is expected to slightly grow by approximately 3% per year.

According to the "Prospect of Clinical Laboratory Test Market, 2009" conducted by Yano Research Institute, EIKEN CHEMICAL ranked the fifth largest sales, occupying 5.8% market share, after Sysmex (6869, first section of Tokyo Stock Exchange), Roche Diagnostics (Japanese corporation of the Roche Group in Germany), FUJIREBIO (now known as Miraca Holdings. 4544, first section of Tokyo Stock Exchange), and Abbott Japan (Japanese corporation of the Abbott Group in the USA).

Out of the 124 member companies (as of July 2014) of JACRI mentioned above, about 80 are manufactures, and there are about 10 companies with over 10 billion yen sales. Most of them are small to medium sized companies. Because the test items of diagnostics tests range widely, each company has its own strong field, and business segregation is already established in the industry. As a result, collaboration, such as supplying the products from other companies and selling them, is often observed. In addition, the market is modestly growing. Therefore, there is currently no obvious trend of weeding out uncompetitive corporations.
 
<Overseas Market>
According to the "Prospect of Global Clinical Laboratory Test Market, 2009" conducted by Yano Research Institute, the global clinical laboratory test reagent/device market is US$ 44.5 billion or 4.45 trillion yen (1 USD=100 yen), and, by region, the market is occupied by the USA at 41.2%, followed by Europe at 36.9% and Asia/Pacific at 12.0%.

The overseas market is over ten times larger than the domestic market. In developed countries, the number of tests is increasing as aging of population progresses. Furthermore, in emerging countries, the needs for medical services are expanding because of economic and income growth. As a result, the annual growth rate of overseas market is expected to be 7 to 8%, which is much higher than that of the domestic market. Therefore, the Japanese companies in the industry are vigorously undertaking globalization of their businesses.
In the global market, the global large companies such as Roche, Abbott, SIEMENS, and Beckman, whose sales are 200,000 to 900,000 million yen, are leading the market, and in order for Japanese companies to survive the competition, they must strengthen their competitiveness by, for example, developing unique products or systems.
 
Business Description
1. What are clinical tests?
One type of clinical tests is "biological tests" that directly examine body using medical equipment such as X-ray, CT, MRI, electrocardiogram, and ultrasound. Another type of clinical test is "medical laboratory tests" that examine biological sample (specimen) obtained from people such as blood, urine/feces, and cells.
The clinical test reagents made by EIKEN CHEMICAL are the ones used for medical laboratory tests. For example, they are used to test infectious diseases or to measure small amount of blood contained in stool. They are made to support diagnosis.
Most of these reagents are called in vitro diagnostics (IVD). Reagent manufactures usually file applications for the approval of the Ministry of Health, Labor and Welfare. The users of these reagents include hospitals, clinics, medical test centers that carry out tests based on request from medical institutions, health check-up centers, public health departments, institutions for health research, etc.
 
2. Major products
EIKEN CHEMICAL mainly manufactures and sells the following reagents and medical devices.
As it deals with a wide range of reagents and medical devices, it not only sells their in-house products but also purchases and sells the products of other companies.
Their major in-house products include fecal occult blood test reagents, microbiological reagents, general test reagents (e.g. test strip for urinal test), and molecular genetics.
The sales composition ratio of their in-house products and other companies' products are about 50%-50%. The gross profit margin rate is about 55% by the in-house products, about 35% by other companies' products.
 
 
Fecal occult blood tests reagents
The reagents and sampling bottles for immunochemical fecal occult blood tests to specifically detect and measure human hemoglobin in feces as a screening test for colon cancer are the major products of EIKEN CHEMICAL. They are sold globally.
 
Immunological and serological reagents (excluding fecal occult blood tests)
EIKEN CHEMICAL develops, manufactures and sells various reagents to diagnose and measure infectious disease, rheumatism, inflammation, atrophic gastritis, and prostate-specific antigen. Such reagents include reagents for automated analyzer called "LZ test EIKEN." EIKEN also purchases medical devices from TOSOH Corporation and sells them.
 
Microbiological reagents
Since its establishment, EIKEN CHEMICAL has been developing reagents for microbiological tests in order to prevent infectious diseases and food poisoning. Currently, it develops, manufactures and sells various reagents that are effective for diagnosis and treatment of microorganism infection, such as medium, powder medium, drug sensitivity test reagents, and rapid test reagents.
 
General tests reagents (e.g. test strip for urinal analysis)
EIKEN CHEMICAL develops, manufactures and sells "UROPAPER EIKEN" series for testing various items such as occult blood, protein and glucose in urine as well as "UROPAPER α III EIKEN", a dedicated test strip for fully automated urine analyzer.
 
Clinical chemistry reagents
EIKEN CHEMICAL develops, manufactures and sells reagents for biochemical tests including "EXDIA XL EIKEN" series that assist to measure and analyze biological components in blood serum and urine, specifically for the test items that are related to life-style related diseases.
 
Equipments/ culture medium related to food and environment
EIKEN CHEMICAL sells reagents for food microorganism tests to detect food-poisoning bacteria as well as reagents for environmental microorganism tests and equipment/devices to measure contamination of work environment.
 
Medical devices (excluding molecular genetics)
EIKEN CHEMICAL sells various types of automated analyzers. Since its commencement of sales in 1989, it has been working on technical innovation and quality enhancement of its automated fecal occult blood analyzers, "OC CENSOR" series.
It also offers the "US," automated urine analysis devices using EIKEN's proprietary color CCD sensor, as well as fully automated biochemiluminescent immunoassay, "BLEIA-1200," which is the world's first fully automated device in the clinical test field.
 
Molecular genetics (including devices)
In 1998, EIKEN CHEMICAL developed an innovative gene amplification technology, called "LAMP" (Loop-mediated Isothermal Amplification), and applied for patent. LAMP is "simple, rapid, and accurate" and is a critical tool for EIKEN's future global expansion of its business. (The details are described later.)
 
2. Sales structure
EIKEN CHEMICAL has 11 sales offices and 2 sales divisions in Japan. Its academic department supports sales promotion.
Out of 620 employees (non-consolidated) during FY 2014, about 280 belong to the sales department.
As for the sales channels for medical institutions such as hospitals, the Company's direct sales partners are medical wholesale companies, and it has businesses with almost all of the wholesale companies in the medical industry.

For overseas sales, EIKEN CHEMICAL has basically 1 agency per country, and the sales and maintenance are commissioned to the agencies.
EIKEN's products are exported to 43 countries (FY 2014). The high proportion of overseas sales is occupied by the sales in the USA, Italy, South Korea, and Taiwan.

In addition to the Europe Office in Amsterdam (the Netherlands), the Company is strengthening its manufacturing and sales structure through its consolidated subsidiary, "EIKEN CHINA CO., LTD.," as well as aiming to expand its businesses by setting a business office in China. In the future, it will explore the possibility of making the office as a local corporation, as the size expands.
The overseas sales for FY 2014 are 20.17 billion yen, out of which 16.67 billion yen, 82.6%, is from the sales of fecal occult blood test reagents.
 
 
The ROE for FY 2014 was 8.3%. Although slightly lower than the ROE of 8.71% announced by the Tokyo Stock Exchange summary of financial statements for all industries in the First Section, it is above the 7.16% for the pharmaceutical industry, making it an acceptable level.
(The reason for the high ROE in FY 2013 was the net profit to sales for the year increased due to extraordinary income from property sales.)
However, with the pharmaceutical sector's net profit to sales for the year 8.27% for FY 2014, it will be necessary to further strengthen productivity and profitability with the company's stated goal of developing products with high added value, creating new businesses and markets and lowering cost rate and SG&A expenses rate in order to further increase the ROE.
 
 
Characteristics and Strengths
 
(1) Products that occupy high share in the market
The share of EIKEN's fecal occult blood test reagents is top ranked (about 57%) in the domestic market. Furthermore, its in-house products occupy high share in the market, as its test strips for urinal analysis occupies about 23% (second rank) in the market and its microbiological reagents occupy about 18% (second rank) in the market.
The distribution of fecal occult blood test reagents rapidly expanded after 1992 when fecal occult blood test became available at public expense as a colon cancer screening method as a result of an amendment of the Health and Medical Service Act for the Aged.
The reasons why EIKEN could obtain a high share are that 1) it launched fecal occult blood test reagents called "OC-Hemodia" in 1987, 2) it kept improving sanitation aspect and handling of feces sampling bottle, 3) it developed automated analyzers using latex photometric immunoassay method for the first time in the world, and 4) the performance of its reagents is excellent.
Especially combination of sampling container and device was favorably accepted by the users, which became a big factor for the expansion of its distribution.
 
 
As for fecal occult blood test, EIKEN will globally expand its business based on the above characteristics.
The immunochemical method in Japan applies reagents that react only to human hemoglobin, and also it is possible to process a large volume at the same time.
Meanwhile, in other countries, reagents for chemical method (Guaiac method) based on old measuring principles are still used, which presents accuracy challenges. In recent years, the test guidelines in Europe finally begin recommending automated analyzers using immunochemical method. As a result, the market is beginning to go through a dramatic change.
Furthermore, although the chemical method is still common in the USA as well, which has the largest potential market, there is a gradual shift of trend towards the immunochemical method. This means that, in both developed and emerging countries in Europe, North America, Asia and Oceania, there is a large yet-to-be-developed market.
 
(2) Focusing on research and development
EIKEN CHEMICAL is focusing on research and development of unique technologies as a research and development corporation, and the development of original products that respond to customers' needs, using the unique technologies. The number of staff assigned for research and development is about 100.
The demand from the customers is higher quality of medicine. Specifically, they demand for higher differential diagnosis accuracy with high sensitivity and high quality and improved detection rate. In addition, easier usage will lead to reduction in the work of medical staff. Responding to such needs is critical.
Since its establishment in 1939, EIKEN CHEMICAL has accumulated unique technologies for manufacturing reagents. Their unique technologies are applied to the measuring principles of their devices such as fecal occult blood test analyzer, automated urine analyzer, and biochemiluminescent immunoassay analyzer "BLEIA" that are designed to optimize the performance of the reagents.
 
(3) Development of various types of products in various fields through alliance strategy
Because clinical test reagents have wide range of subjects and items, it is not possible for one company to develop, manufacture and sell all types of reagents. The other companies in the industry are focusing on the technologies and products that they are specialized in. However, as an integrated manufacturer of clinical test reagents, EIKEN CHEMICAL aims at stabilizing profit structure, expanding their own strengths through alliance strategy, and pursuing synergy effects such as complementing functions and acquiring new technologies, while dealing with a wide range of products and responding to the needs of customers and users such as medical institutions.
Another reason why they cover various types of products in various fields is that they believe that covering wide range of clinical tests is their social responsibility to protect the health of the public, as is stated in their management philosophy: "protect the health of the public through health care services".
 
(4) Competitive advantage of "LAMP"
Currently, the mainstream technology for amplifying genes as a process of gene test is called "PCR method." Against this, EIKEN CHENICAL developed a unique technology called "LAMP" in 1998.

As compared with the PCR method, LAMP offers the following excellent characteristics and allows the users to carry out simple, rapid and accurate gene tests.
 
 
Currently, in the medical field, LAMP is used to diagnose infectious diseases such as tuberculosis, mycoplasma and influenza.
EIKEN CHEMICAL is making focused efforts on infectious disease diagnostic tests in order to establish the status of LAMP. At the same time, it is promoting the use of LAMP in the other fields such as food production and processing, environment, agriculture/veterinary in order to spread and enhance recognition of LAMP. In fact, the products based on LAMP have been commercialized one after another since 2002.
Furthermore, for the same purpose, EIKEN CHEMICAL is giving license to external companies in order to build the LAMP camp.

One of the major actions to spread LAMP in the world is the alliance with "Foundation for Innovative New Diagnostics (FIND)".
FIND is a non-profit organization, recognized by the Swiss government. It was launched at a meeting of the United Nations World Health Assembly in May 2003. In the initial five years, it received grant from the Bill & Melinda Gates Foundation for their activities.
The goal is to develop and introduce affordable, simple, and advanced diagnostic tests in order to mitigate infectious diseases in developing countries.

FIND's scope of activities includes tuberculosis, malaria and human African trypanosomiasis. For tuberculosis, collaborative research between EIKEN CHEMICAL and FIND for tuberculosis test using LAMP began in July 2005. The purpose of the research was to improve the accuracy of tests to make it better than the one by microscopy test (sputum smear test) that is currently common in developing countries.
As a result of the collaboration, improvements such as simplified pretreatment, improved reagents storage and simplified devices were made to enable the developing countries to operate the procedure. These improvements were not possible with the conventional PCR method.
This product with LAMP was already launched in Japan in 2011.
Currently, FIND is carrying out on-going clinical trials in various developing countries in order to obtain recommendation from World Health Organization (WHO) for the products.
Furthermore, in addition to tuberculosis and other diseases mentioned above, FIND and EIKEN CHEMICAL conduct collaborative research for reagents of Leishmaniasis and Chagas disease.
EIKEN CHEMICAL expects that the results of these collaborative studies will accelerate the spread of LAMP as well as establish its status as a global standard, which will lead to their expansion in the gene test market.
 
∗Gene amplification technology
Since the amount of genes found in a genetic test sample is extremely small, in order to detect genes, the targeted gene must be amplified first of all. Gene amplification technology, therefore, is crucially important for genetic testing.
 
∗African trypanosomiasis
An endemic found in tropical Africa, African typanosomiasis is a serious tropical disease transmitted to humans by a protozoa called Trypanosoma brucei. The disease is transmitted by a tsetse fly. Trypanosoma in human blood sucked by a tsetse fly develops and propagates inside the human body in 2 to 5 weeks, before turning itself into a terminal Trypanosoma-type, which becomes a source of next round of infection. The disease causes fever, headache, and vomiting, and the patient falls into constant sleep. Since the patient cannot take meals, he or she becomes thin and complain of generalized weakness and, in many cases, leads to a complication and dies.
 
∗Leishmaniasis
Leishmaniasis is a diseases transmitted by a protozoa called leishmania, and has various types such as visceral leishmaniasis (also known as black fever), Brazilian leishmaniasis that affects skin and mucous membranes, and skin tropical leishmaniasis which affects skin. All of these types are transmitted by blood-sucking insects, especially sandflies. Visceral leishmaniasis, after about three months incubation period, causes fever, sweating, diarrhea, etc. and, in about one month, causes a swollen liver and spleen, the patient becomes weak if untreated and may die in half a year to two years.
 
∗Chagas disease
Found in southern U.S. as well as Central and South America, Chagas disease is an infectious disease transmitted by Reduviidae, a kind of blood-sucking Triatominae. The disease does not develop symptoms immediately after infection; it usually has a latency period of about 30 years. It causes symptoms such as inflammation of sinews, liver and spleen, myalgia, myocarditis, cardiomegalia, cardiac disturbance, etc.
 
 
First Half of Fiscal Year March 2015 Earnings Results
 
 
Performing well domestically and abroad. Increased Revenue and Profit above initial plan with double-digit profit increase.
Net sales were 15.8 billion yen, up 5.0% year-on-year. Domestic sales were affected by a rebound from the increased demand before the consumption tax increase in Q1, but recovered from June onwards. By product, general test reagents, ABC category test reagents and fecal occult blood test reagents all contributed. Overseas sales significantly increased by 45.7%, mostly with fecal occult blood test reagents and devices.
With the 280 million yen in research and development costs planned for Q2 shifted to Q3, operating income increased 13.3% year-on-year and ordinary income increased 15.6% year-on-year, both double-digit increases. With the tax reform in 2014 leading to decreased corporate taxes, the quarterly net profit also increased by 24.4% year-on-year.
Sales did not quite reach planned amounts, but income surpassed planned amounts.
 
 
○ Microbiological reagents
The rebound in demand after the consumption tax increase led to lower sales year-on-year.
 
○ General test reagents
The sales of the "UROPAPER α III EIKEN," dedicated test strip for fully automated urine analyzer, increased.
 
○ Immunological and serological reagents
Sales of immunological and serological reagents increased 13.5% year-on-year. With the increase of colon cancer tests in Japan and success of domestic marketing strategies, domestic sales increased 6.6% year-on-year. Overseas sales increased significantly, by 48.0%. North American and Asian sales performed well.
The sales of the "E Plate EIKEN helicobacter pylori antibody II" and "LZ Test EIKEN helicobacter pylori antibody," which measure helicobacter pylori antibody in the blood, and the sales of the "LZ Test EIKEN PepsinogenI/II," which are used as a test for the condition of stomach (ABC classification) in combination with helicobacter pylori test, increased.
 
○ Clinical chemistry test reagents
Sales decreased due to prices being lowered to compete for market share.
 
○ Equipment/ culture mediumrelated to food and environment
The rebound in demand after the consumption tax increase led to lower sales year-on-year.
 
○ Other (medical devices, genetics related)
For medical devices, fecal occult blood test devices, the fully automated urine analyzer and microbiological test devices performed well.
For genetics-related sales, patent royalties totaled 197 million yen including initial fees for new client contracts.
 
○ Overseas Sales
As mentioned above, sales of fecal occult blood test reagents increased significantly, by 48.0% year-on-year. Other products including devices increased as well by 39.9% year-on-year.
 
 
*North America
Since the U.S. Food and Drug Administration (FDA) instructions on quality management system were closed in September 2014, sales of fecal occult blood test reagents and devices increased.
 
*Europe
Efforts are being made for the adoption of fecal occult blood tests in countries including France and England. Plans were for bidding in France to occur in Q1, with results announced in Q2, but it is slightly behind schedule.
Sales of the fully automated urine analyzer and dedicated test strips increased significantly in Italy.
 
*Asia, Other
In Thailand, Hong Kong, and New Zealand, EIKEN CHEMICAL is making focused efforts to accelerate new adoption and sales expansion of fecal occult blood tests.
In China, EIKEN CHINA CO., LTD. is promoting the sales expansion of LAMP reagents, LAMP devices and fecal occult blood test reagents.
 
(3) Other Activities
◎FIND Business
The progress of the alliance business with FIND was as follows.
①Tuberculosis
Assessments in developing countries to obtain WHO recommendation continued to be carried out in 14 countries in Africa, South East Asia, etc.
A private-public initiative project funded by the Ministry of Foreign Affairs was conducted in the Republic of Haiti.
Application process to the China Food and Drug Administration continued.
Although WHO recommendation is slower than originally planned, additional data collection and analysis are being carried out to acquire recommendation.

②Malaria
EIKEN CHEMICAL sold reagents for screening to eradicate malaria.

③African trypanosomiasis (sleeping sickness)
Clinical tests continued to be conducted in the Democratic Republic of the Congo and Uganda.
Reagents for the eradication project were sold in 6 African countries.

④Leishmaniasis
The assessment of samples by FIND continued to be carried out.

⑤Chagas disease
Based on a joint research and development agreement with FIND, development of a prototype proceeded.
 
◎Increasing Productivity, Training Human Resources, CSR, etc.
In order to increase productivity, SG&A expenses were reduced by optimizing work flow and improving the cost to sales ratio (manufacturing cost decreased).
Continued training was implemented to improve skills and for operation of the new quality control system.
Personnel were trained as part of the skill development vision.
Brave Circle (campaign to eliminate colon cancer) activities were continued.
 
[Brave Circle: Campaign to Eliminate Colon Cancer]
The number of people affected by colon cancer increased by about 6 times over the past 30 years, to 110,000, making it the second most common cancer. Since 2003, it has become the most common cancer to cause death in women.
There are almost no noticeable symptoms at early stages, but since early detection and treatment can completely cure more than 90% of cases, early testing is important.

Fecal occult blood tests are used for cancer testing, but the number of people eligible for the testing (generally 40 years or older) who are actually tested is low, at 41.1% of males and 34.5% of females. (Ministry of Health, Labour and Welfare "National Livelihood Survey 2013")

In light of this situation, the specified non-profit corporation Brave Circle Executive Committee has been collaborating with companies and government organizations since July 2009 in the Brave Circle: Campaign to Eliminate Colon Cancer, to spread awareness of the importance of periodic testing for colon cancer. (Activities of the previous incarnation began in 2007.)
EIKEN CHEMICAL, along with Olympus Medical Systems, is an official supporter of the Brave Circle Executive Committee.

Based on the Basic Law for Cancer Countermeasures implemented in 2007, the Basic Plan for Promotion of Cancer Countermeasures was passed by the Cabinet the same year, with the goal of increasing cancer test recipients to 50% or more within 5 years. The initial 5 year period ended in 2012, but the 50% goal was not met, and so stage two of the plan is underway to reach a 50% test ratio.
The Executive Committee is cooperating with the government to carry out several ongoing projects promoting the importance of colon cancer testing as follows:
 
*Colon cancer related investigative studies project
*Colon cancer awareness promotion project
*Colon cancer related events, seminars and lectures
*Colon cancer related awareness and research organization support
*Colon cancer related organization information exchange and network building

*Colon cancer awareness promotion business
 
 
Notes and accounts receivable-trade increased, but due to a decrease in cash and deposits current assets decreased by 1.505 billion yen compared to the end of March 2014. Increases in investments and other assets led to noncurrent assets increasing by 2.848 billion yen, with total assets increased by 1.342 billion yen.
While current liabilities increased by 493 million yen due to notes and accounts payable-trade, etc. noncurrent liabilities decreased by 526 million yen due to decreases in liabilities related to retirement benefits, etc. with total liabilities decreased by 33 million yen.
Net assets increased by 1.375 billion yen, due to increased retained earnings, etc. As a result, the capital-to-asset ratio increased by 1.3%, from 66.2% at the end of March 2014 to 67.5%.
 
 
Fiscal Year March 2015 Earnings Estimates
 
 
There will be no change in the estimates. Despite recovery of overseas sales, profit will decrease due to significant increase in testing and research costs.
There will be no change in the estimates. Net sales were 31.3 billion yen, up 4.3% year-on-year.
In the domestic market, EIKEN CHEMICAL will strive to increase sales by placing fecal occult blood test reagents, general test reagents and the "LZ Test EIKEN helicobacter pylori antibody" pylori test reagent as highest priority sales products, AIA-related reagents and HbA1c reagents as products to maintain and strengthen sales, LAMP products and new immunological reagents from the BLEIA method as products to develop and strengthen sales.

In the overseas market, EIKEN CHEMICAL will strive to establish brand of fecal occult blood test reagent and increase its sales, promote the sales of LAMP product, expand the sales of immunological and serological reagents and rapid testing reagents, and move forward the sales of urine testing Uropaper. In addition to the European and Asian markets which are performing well, North American sales expected to recover and overseas sales are estimated to significantly increase over 40% year-on-year.
 
For research and development, EIKEN CHEMICAL will:
Apply knowledge of customer needs to product development
Develop BLEIA method products and LAMP/POCT (rapid testing) products
Product improvement by fine-tuning existing technology
Research in finding new biomarkers and developing new testing technology
Continue FIND business (tuberculosis, malaria, HAT; African sleeping disease, leishmaniasis, Chagas disease)
 
In addition to increasing R&D costs significantly by 775 million yen year-on-year (39.8% increase) to 2.72 billion yen, capital investment also increased for new facilities and upgrading old equipment, for an estimate increase of 300 million yen (26.9% increase) in depreciation.
R&D costs, capital investment and depreciation are all being focused on the second half of the year.
 
 
Other efforts will be continued, including increasing productivity by reducing manufacturing costs and with SG&A expense control, continued training for operating new quality control systems, basic human resource training based on the ability development vision, and activities for the colon cancer elimination campaign.

Dividends of 35.00 yen/share are planned, the same as the previous year. The estimated dividend payout ratio is 34.1%.
 
 
Interview with President Morifumi Wada
 
President Morifumi Wada joined EIKEN CHEMICAL in 1978. After working for years in improving the products that are one of EIKEN CHEMICAL's strengths with manufacturing technology, manufacturing control and quality control, since 2011 he has overseen sales as a whole as the Sales Management Executive Officer. In June of 2014, he was appointed President.
 
◎Mission as the New President
"Accurately input customer needs, and output products appropriate to those needs." I believe further enhancing this approach is one of my missions.
I feel the instructions from the U.S. FDA are a good opportunity, or lesson, to return to our roots in order to provide superior products, by rethinking this system and further approving quality control.
If we can meet the FDA requirements, we should meet requirements worldwide, so I would like to humbly accept the instructions and use them as a good opportunity to carry out global expansion.
 
◎Corporate Philosophy
In order to increase awareness of the philosophy, morning meetings and other opportunities are used to remind employees to consider the purpose, reason for existence and contribution to society of the company and themselves once a day.
The Eiken Way encourages employees to challenge themselves, and every opportunity is taken to remind employees of the 3 Cs, Charge (effort to improve yourself), Change (constantly improving), and Challenge (challenge yourself, take action).
 
◎Varied Initiatives
One of the fundamental policies of EIKEN CHEMICAL is "promoting global expansion," with efforts focused on Europe, America and Asia. In April this year, the number of staff in the European branch in Amsterdam, the Netherlands were increased, as it is optimal for a hub, including logistics. This branch also covers the North American market.
Currently, the Overseas Department has 20 staff, but it is necessary to increase that number some. Stimulating distributors is also an important policy, and in order to develop win-win relationships, management of the distribution network and development of potential distributors are proceeding. The increase in overseas sales this year is due in part to these efforts.
Improvement of cost rate and productivity are also important issues. Due to manufacturing facilities aging, proactive capital investment is also necessary to improve efficiency.
 
◎Message to Investors
While carrying on the "EIKEN WAY" and "EIKEN ROAD MAP 2009," focus is also being placed on medium-term creation of corporate value. In particular, the creation of a new platform to appropriately input market needs and create relevant output will be undertaken, especially in overseas markets.
By carrying out approaches such as these, I hope to achieve sustainable growth and increase dividends.
 
 
Conclusions
 
It is good news that with the closing of the FDA's warning letter, the American market has begun to recover. As mentioned in President Wada's comment, hopefully this will prove a valuable lesson and further improve the quality of products.
In the short term, there is the possibility that the recovery of the U.S. market for fecal occult blood test reagents and devices and their adoption in France may increase overseas sales for the fiscal year. In the mid-term it will be interesting to see how much the expansion speed of the FIND business will be increased, including acquisition of a WHO recommendation for tuberculosis, which will take time.
 
 
Reference: New Management Framework "EIKEN WAY" and "EIKEN ROAD MAP 2009"
 
EIKEN CHEMICAL set a goal for 2018, which will be the 80th anniversary, and established "EIKEN WAY" and "EIKEN ROAD MAP 2009" in March 2009, as a fundamental policy to promote "winning management."
 
Background
In Japan, the trend of medical system reform to reduce medical costs will remain unchanged. The corporations in the clinical diagnostics industry are forced to enhance efficiency and streamline their business as a result of revision of medical fees and intensification of products and price competition.
Furthermore, securing safety and compliance with laws and ordinances are becoming increasingly important management challenges. As a result, the gap between corporations is expected to be larger.
Under these circumstances, in order to achieve steady growth and sustainable enhancement of corporate values, EIKEN CHEMICAL recognizes that it is essential to clarify the goal of EIKEN group, optimize the efficiency of management resources, and implement the strategies to utilize environmental changes with new visions more quickly and boldly.
Based on this recognition, it established the "EIKEN WAY" as a plan to practice solid management and the "EIKEN ROADMAP 2009" as basic principles to promote "winning management" with long term goals.
 
Overview
1. Business domain
EIKEN CHEMICAL set the "clinical diagnostics business" and "food and environment testing business" among healthcare businesses as their main business domains for which they can utilize the technologies and strengths owned by the EIKEN Group to achieve steady growth and increase in profitability. Furthermore, in these domains, they are aiming at creating new businesses for future growth.
 
2. EIKEN ROAD MAP 2009 Grand Vision
We will transform EIKEN into a global corporation by 2018 that can leverage expertise as a medical testing pioneer to protect the health of the public.
 
3. EIKEN ROAD MAP 2009 Principles of Action
 
4. Fundamental policy
 
5. Management goal
To become one of the global medical testing corporations in the future, we will strive to steadily enhance profitability while creating solid business foundation.
 
 
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