Linical Co., Ltd. (2183)
Kazuhiro Hatano CEO
Kazuhiro Hatano
Corporate Profile
Linical Co., Ltd.
Code No.
First Section, TSE
Kazuhiro Hatano
HQ Address
10 Fl., Shin-Osaka Brick Building, 6-1 Miyahara 1-chome, Yodogawa-ku, Osaka, Japan
Home Page
Stock Information
Share Price Shares Outstanding Market Cap. ROE (Act.) Trading Unit
¥2,175 22,725,457 shares ¥49,428 million 27.9% 100 shares  
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Act.) PBR (Act.)
¥12.00 0.55% ¥58.48 37.19x ¥229.02 9.50x
* Stock price as of closing on July 6, 2018. Number of shares issued at the end of the most recent quarter excluding treasury shares.
* ROE and BPS are based on previous term’s results. EPS is based on the estimates of FY3/19.
Consolidated Earnings Trends
Fiscal Year Sales    Operating
Net Income EPS (¥)  Dividend (¥)
March 2015 4,872 876 840 437 38.36 14.00
March 2016 7,666 2,012 1,985 1,330 58.40 10.00
March 2017 8,355 2,128 2,076 1,447 63.59 10.00
March 2018 9,113 1,846 1,826 1,295 57.02 11.00
March 2019 Est. 13,100 2,031 1,993 1,329 58.48 12.00
* Estimates are those of the Company. ¥1 per share was paid during FY3/16 to commemorate the 10th anniversary of its establishment.
*A 2 for 1 stock split was performed on January 1, 2016. Dividend payment after the stock split is ¥10 per share (Including a ¥1 commemorative dividend), the actual dividend payment would have been ¥20 per share if the stock split is not considered.

We present this Bridge Report about Linical Co., Ltd. and details of the fiscal year March 2018 earnings.
Key Points
Company Overview
Linical Co., Ltd. provides contract research organization (CRO) services that support the drug development processes of pharmaceutical companies on an outsourced consignment basis, and sales and marketing functions for pharmaceutical products and post market launch clinical research and surveys on a consigned basis in the contract medical affairs business (CMA). Pharmaceutical products are subject to approval of the Ministry of Health and Welfare prior to their sales, and efficacy and safety of pharmaceutical products must be confirmed through clinical trials prior to their approval. Companies providing clinical trial support services are known as contract research organization (CRO) service providers. In addition, there is a need to conduct surveys and clinical research after pharmaceutical products have been launched into the market and contract medical affairs is a service provided to support these efforts.

Linical has conducted various efforts to eradicate cancer, central nervous system and other diseases globally since its founding, and it has deployed its CRO business in disease realms where there is strong demand for new drug development. These are highly difficult disease realms, and Linical is able to support clinical trials in these realms with its high levels of knowledge and bountiful expertise. In addition, Linical focuses its efforts up the new drug development support and contract medical affairs business, approval application support and post approval marketing and clinical research, and post market survey support services, which exceed the traditional definition of outsourcing and is now considered to be part of a wider range of consulting services provided to customers as a "true clinical development partner". Furthermore, amidst the advance of globalization and large scale pharmaceutical product development, the Linical Group can provide "one stop shopping" type comprehensive services for large scale global products. Consequently, Linical is able to play the role of a strategic business partner by providing total support to help raise the competitive advantage of customers in the market and to help pharmaceutical companies develop new future business opportunities.
<Corporate History>
Linical Co., Ltd. was established in June 2005 by nine members who worked at Fujisawa Pharmaceutical Co., Ltd. (Currently known as Astellas Pharma Inc.) on the development of immunosuppressant drugs. Established with the objective of becoming the ideal drug development outsourcing (CRO) company from Osaka, Linical focused its efforts upon the realms of central nervous system diseases (CNS) and oncology since its founding, and received one of its first orders from Otsuka Pharmaceutical Company shortly after its establishment. Thereafter, the Company fortified its staffing as part of its efforts to strengthen its order taking capabilities. In addition, Linical is benefitting from the bountiful experiences of its employees in the realm of oncology pharmaceutical product development and experiences having worked at foreign pharmaceutical companies. Consequently, Linical is successfully expanding orders in the near term.

With its advance into the site management organization (SMO, clinical trial facility support organization) business, Aurora Ltd. was turned into a subsidiary in January 2006. However, all shares held in Aurora were later sold in May 2007 in order to focus management resources upon the CRO business. In July 2008, Linical USA, Inc. was established in California, United States to provide support to Japanese pharmaceutical companies seeking to enter the United States market. Also in October of the same year, Linical listed its shares on the Mothers Market of the Tokyo Stock Exchange, and subsequently moved its listing to the First Section of the Tokyo Stock Exchange in March 2013. In May 2013, Linical Taiwan Co., Ltd. and Linical Korea Co., Ltd. were established in Taiwan and Korea respectively. In April 2014, Linical teamed up with its Linical Korea to acquire the Korean CRO company P-pro. Korea Co., Ltd. In October 29, 2014, all of the shares of Nuvisan CDD Holding GmbH, which conducts CRO business in Europe, were acquired and it was converted to a 100% owned subsidiary effective on November 30, 2014. In order to strengthen the collaboration within the Group, the company name of Nuvisan CDD was changed to Linical Europe GmbH on December 1, 2014. In addition, Linical U.K. Ltd. was established in March 2016, and a local subsidiary called Linical Poland SP. Z.O.O. was also established in October of the same year. Moreover, LINICAL Czech Republic s.r.o was established in September 2017. In addition, Accelovance, Inc. was acquired in April 2018 and its company name was changed to Linical Accelovance America, Inc. This acquisition has contributed to a strengthening of Linical's consignment structure for global jointly conducted clinical trials.
<Business Description>
Linical mainly conducts contract research organization (CRO) business, post market launch clinical trial and clinical research and marketing support activities in the contract medical affairs business, and new drug development support business.
CRO Business (Contract Research Organization)
In the main CRO business, Linical seeks to provide highly effective clinical trial support to allow the quick introduction of new drugs into the market by maintaining staff with high levels of technological knowledge and bountiful experiences. The company has opened facilities in Asia (Korea, Taiwan, Singapore), Europe and the United States to be able to respond to growing demand for global studies. Llinical provides "one stop shopping" services ranging from pharmaceutical affairs to planning, implementation plan creation, monitoring, data management, statistical analysis, and pharmacovigilance. With regards to jointly conducted global trials, Linical headquarters operates a function where personnel with in depth knowledge about various countries pharmaceutical product development work. These personnel are able to provide information necessary to establish a development environment that can enable jointly conducted global clinical trials to be conducted in Japanese. Within new drug development projects, which take between 10 to 20 years, the Company specializes in the clinical trial process where patients are subjected to treatments in the "phase II" and "phase III" stages of clinical trials, which require between 3 to 7 years, and monitoring, quality management, and consulting services, which make up the core of clinical trials, are provided. Highly credible data is accumulated in support services to ensure quick and steadfast new drug development can be conducted. Moreover, Linical has chosen to specialize in oncology and central nervous system related realms, where development demands from the market are strong, and other highly difficult disease realms and to respond to the needs of pharmaceutical companies in these realms.
Contract Medical Affairs Business
Clinical research after pharmaceutical product approval entails evidence based medicine (EBM) data creation related to activities designed to improve the quality of medical treatment including validation of effectiveness, confirmation of safety, and interaction consideration for pharmaceutical product usage in the clinical work front. In recent years, facilitation of rules for clinical research has progressed, and the amount of corporate led clinical research is on the rise, in addition to the traditional physician led clinical research. Linical has been able to implement clinical research that responds to the most recent information in global applications not only in intervention studies, but also in consigned observational studies, database research and other various clinical research by leveraging its knowhow in the realm of clinical trials. In the future, pharmaceutical companies will gather opinions from key opinion leaders (KOL) in various disease realms through its medical affairs division (MA) and medical science liaison (MSL) along with the increasing fairness and transparency of marketing activities. Various tasks are conducted within the MSL division including key opinion leader engagement, advice board operations, and lecture operations. Linical will leverage its experiences in creation of operating manuals, regional opinion leader support, clinical research procedure manual creation support and consulting services to provide medical science liaison support on a global basis.
New Drug Development Support Business
Linical provides a wide range of services that respond to the needs of pharmaceutical product development including consigned clinical trial monitoring, new drug marketing support, development plan proposal, and clinical trial plan creation that fully satisfy the requirements of client pharmaceutical companies in the new drug development support business. Moreover, Linical proposes new drug development solutions that reduce the risk of development by leveraging funds and subsidies to develop compounds that become the "seeds of medicine" in the initial stages of pharmaceutical product development process.
<Five Strengths>
(1) Comprehensive "One Stop" Services on a Global Scale
Linical is Japan's only global CRO services provider with the ability to provide services in the three regions of Asia, Europe, and the United States. In addition, the Company boasts of partners in 20 different countries, with the ability to provide services in about 30 different countries. Moreover, Linical boasts of highly skilled professionals with bountiful experience in a wide spectrum of comprehensive services ranging from planning, monitoring, data management, statistical analysis, medical writing, pharmaceutical affairs, pharmacology vigilance, and other various services who can respond to customers' needs, including the need for not only local but also multi-national clinical trials. Therefore, Linical is trial a comprehensive "one stop" service provider operating on a global scale.
(2) New Drug Discovery Support to Clinical Development and Research
Linical is a true partner that contributes to the maximization of value of drugs by offering responses required in various stages of the drug development process including new drug discovery, clinical development and post market launch manufacturing. Linical also enables clients to promote efficient new drug development, extend life cycle management, shorten the time required to market launch (TTM), and maximize sales at an early stage (TTP).
(Source: Linical)
(3) Focus Upon Oncology, Central Nervous System, Immune System
Pharmaceutical product development is currently focused upon the three realms of oncology, central nervous system and immune system. Founding members of Linical boast of bountiful experience in the realm of immune system and have provided services in the highly difficult realm of immune system since the Company's founding. Thereafter, Linical has expanded its realms of expertise to include central nervous system in 2006, and oncology in 2010. Currently, Linical's business is based upon the regions of unmet medical needs in these three main business realms of oncology, central nervous system and immune system. In addition, its overseas subsidiaries are also boast of a strong track record in oncology, central nervous system, and immune system related services, which are realms where unmet medical needs are high.
Order backlog of existing projects is constantly completed, while acquiring new and changed orders for CNS realm and oncology realm. Also, acquisition of LAA (Linical Accelovance America, Inc.) to convert into subsidiary contributed to a large increase in order backlog as of May 15, 2018.
(4) Global Collaboration
Linical is Japan's only CRO services company that can provide clients with services on a global basis. Because of its ability to provide exceptionally high quality services (Japan Quality), it has established its global business development center in Japan and maintains multilingual staff with the ability to communicate in Japanese, English and other languages including Korean, Taiwanese, German and others at its Osaka headquarters and Tokyo branch office. Overseas staff also understand Linical's advantage of having high quality services originating in Japan and provide these "Japan Quality" services throughout the Linical business globally.
(5) High Quality Services
In order to provide high quality services that Linical is widely recognized for, the Company implements training of its staff in both aspects of quantity and quality of work. As a result, the Company has been able to maintain high passage rates of the GCP Support Certification Examinations administered by the Japan Society of Clinical Trials and Research (JSCTR) since the first examination and has been awarded with recognition awards for its high quality and passage rates, which in turn have contributed to promotion of clinical trials. In addition, Linical boasts of bountiful experience in GCP compatibility surveys and FDA inspection. In both instances, the Company has received high regard for its services from clients. Moreover, overseas subsidiaries have also received high regard for its bountiful experiences in dealings with the FDA, KFDA, ANVISA and other organizations.
Management Strategy
(1) Contract Research Organization (CRO) Business
Main Strategies for the CRO Business
① Strengthen the global marketing structure to 1,000 members, improve quality, and acquire new preferred clients
② Strengthen regenerative medicine in addition to Oncology, CNS, and Immunology realms
③ Maintain high capacity utilization rates
④ Promote acquisition of orders based upon comprehensive capabilities for global jointly conducted clinical trials by establishing a global structure
Global Development
Linical endeavors to secure profits in Japan, Europe and Korea.
・Efforts will be focused upon regenerative medicine in addition to Oncology, Central Nervous System and Immunology in Japan.
・Efforts will be made to raise profitability by increasing the Company's competitive strengths in Europe.
・In Korea, steps are being taken to expand the staffing to 50 at an early stage and to establish a highly profitable earnings structure based upon two consecutive terms of profits.

Capital investments will be aggressively expanded in the United States, Taiwan and Europe.
・The successful M&A of Linical Accelovance America, Inc. in the United States is the starting point for business cultivation in that region.
・In Taiwan, efforts are being made to expand the number of CRAs to 20 at an early stage, acquire new projects including those of the Singaporean subsidiary, and enter the China market (Linical Accelovance China will be leveraged for the expansion in China).
・With regard to Europe, Linical Accelovance Europe will be strengthened, the number of facilities will be expanded, and staffing at the newly established companies in Poland and the Czech Republic will be increased.

Linical is facilitating an environment that will enable Japanese communication to be conducted, and assign staff knowledgeable in pharmaceutical product development in various countries as a means of providing support to the implementation of global strategies by pharmaceutical companies. In particular, Linical Japan will become the contact point within Japan at the early stages of development with regard to global jointly conducted clinical trials of highly difficult disease realms including oncology and central nervous system ailments, with facilities in both Japan and Asia taking over the role of development thereafter. Also, a strategy for simultaneous market launch in the later stages of development will be implemented in Japan, Asia, the United States, and Europe.
Linical is adopting a policy of strengthening its global jointly conducted clinical trial consignment structure based upon the three main geographic regions of Japan and Asia, North America and Europe.
A global network of 1,000 staff is now a target within reach due to the acquisition of LAA (Linical Accelovance America, Inc.) as a subsidiary, and further strengthening and improvement in Linical's marketing capabilities are now anticipated.
(2) Contract Medical Affairs Business
Important strategies within the contract medical affairs business include:
① Respond to the special order needs of the growing number of corporate led clinical research related activities.
② Provide academic support through medical scientific liaison activities.
Linical differentiates itself from its competitors, which primarily offer only MR dispatch services, by focusing upon the consigned service type drug development business. Specifically, the Company seeks to differentiate itself by leveraging its bountiful knowhow established in the CRO business to take on highly specialized tasks. Currently, Linical provides the two main services of clinical research support and product marketing (liaison). With regards to the provision of consigned support services for clinical research, the securing of quality levels of clinical research is a critical issue for evidence creation. Linical creates procedure manuals for structure facilitation support, monitoring and surveillance implementation. Cultivation of new medical institutions and physicians as clients in the process for market launch of new products in new realms, and execution of product differentiation strategies are conducted and proposed in the product marketing (liaison) service. In addition, the ability to receive work for clinical research was responsible for the turn to profits of this business segment during fiscal year March 2013, and new orders for clinical research and development in fiscal year March 2014 allowed sales and profits to rise from the previous term. Aggressive hiring is expected to be maintained to respond strong demand for this business.
(3) New Drug Development Support Business (New Business Development)
Important strategies within the new drug development support business include:
① Provide a wide range of services that respond to development plan establishment and drug authority correspondence.
② Leverage new drug development funds.

Linical is endeavoring to cultivate new drug development support services by responding to customers' needs for comprehensive "one stop shopping" services by providing new drug development schemes that have little impact upon near term earnings and for which demand is growing. In addition, patients and the administrative authorities in Taiwan and Japan are encouraging companies to develop drug lag compounds as well as new drugs in the realms of oncology, dementia, difficult diseases and regenerative medical treatments. Linical seeks to cultivate a new drug development support business that responds to these needs which have surfaced in recent years. Therefore, the Company will implement efforts for clinical trial implementation planning creation, data collection and other tasks, and plan development of compounds in house at an early stage by leveraging subsidies and new drug development funds. Development of compounds using new drug funds is expected to help grow the CRO business while allowing the experiences of the Company to also be leveraged. Also, experiences in consignment of tasks ranging from development planning to approval applications are expected to be gathered.
Market analysis (Sales forecasting, others), drug development responses (PMDA consultations, others), development strategy proposals, partnering support (Business model proposal, licensing negotiation support, others) and other services are provided.
Currently, Linical has signed consulting contracts with six Japanese and foreign companies and is in negotiations with one more company. Furthermore, the business is ramping up as planned with one of the consulting contracts yielding a contract for monitoring work.
Fiscal Year March 2018 Earnings
Sales Rise 9.1%, Ordinary Income Falls 12.0% Year-On-Year
Sales rose 9.1% year-on-year to ¥9.113 billion, but ordinary income fell by 12.0% year-on-year to ¥1.826 billion.
The CRO and CSO industries in which Linical participates saw gradual increases in market scale on the back of increases in global jointly conducted clinical trials and outsourcing of pharmaceutical product development and sales.
Amidst these trends, Linical's aggressive activities to promote its global consignment structure in Japan, Asia, the United States and Europe contributed to increases in the number of consignment projects for global jointly conducted clinical trials within the CRO business. Sales of the contract medical affairs business rose on the back of increases in orders for corporate led clinical research from Japan led global clinical research projects in Japan, Taiwan, and Korea.
With regard to profit, mainly in CRO business, the lower than expected sales arising from delays in the start of large global jointly conducted clinical trial projects in Japan, Asia, and Europe had a negative influence upon profits despite efforts to acquire orders for Japan led global jointly conducted clinical trials conducted in Japan and Europe. Labor and rent expenses rose in line with expectations due to the move of the Tokyo office necessitated by the need to expand floor space to accommodate new staff hiring in line with the order taking plans which had been accounted for in the previous term and despite the delays in start of projects. Moreover, costs from M&A activities conducted in the United States also weighed against profits. Since sales of the contract medical affairs division also fell below expectations, profits fell due to the anticipatory investment upon labor that caused labor expenses to rise relative to sales and the inability to absorb expenses arising from the move of the Tokyo office. Consequently, operating income fell by 13.3% year-on-year to ¥1.846 billion.
Gross income margin declined by 5.1 points year-on-year to 38.8%, and sales, general and administrative expense to sales ratio rose by 0.1 point year-on-year to 18.5%. A large decline in the foreign exchange loss of ¥39 million booked as non-operating income last year allowed for a smaller margin of decline than operating income in ordinary income of 12.0% year-on-year to ¥1.826 billion. In addition, a lack of any extraordinary income bookings allowed net income attributable to the parent to fall by 10.5% year-on-year to ¥1.295 billion. Linical expects to pay a dividend in line with its initial projection of ¥11 per share (A ¥1 increase from the previous term).
While sales of both the CRO and Contract Medical Affairs businesses rose, higher labor expenses due to anticipatory investments in human resources and inability to absorb expenses arising from the move of the Tokyo office caused profits of both businesses to decline.
Within Japan, Linical saw an increase in sales resulting from higher new orders, but labor expense included in cost of sales rose due to strengthened hiring of staff and caused a decline in ordinary income. Within the United States, the start of new projects contributed to an increase in sales, but anticipatory expenses to bolster staffing caused ordinary loss to expand. In Europe, higher sales and profits were derived from an expansion in orders. Moreover, sales rose in Korea on the back of an increase in orders, and goodwill amortization expenses were absorbed to allow profits to grow. In Taiwan, delays in large scale global jointly conducted clinical trials caused sales to decline and higher labor expenses caused an expansion in the margin of decline in profits.
Sales are booked on a monthly basis in both the contract research organization and the contract medical affairs businesses in line with consignment contracts, which normally run for one to three years. Consequently, the order backlog reflects the residual value of consignment contracts already booked. Therefore, the order backlog reflects sales that will be booked during the course of the next one to three years and are used as an assumption for estimates of future earnings.

Order backlogs as of May 15, 2018 were 14.1% higher than those at the end of the previous fiscal year March 2017. This is attributed primarily to the conversion of Accelovance, Inc to become a subsidiary (Linical Accelovance America, Inc.) and the inclusion of its order backlog. Rising demand for global jointly conducted clinical trials and outsourcing are contributing to a favorable order environment near term. Consequently, marketing activities have been effective in acquiring inquiries from both new and existing clients and Linical plans to fortify its consignment structure by increasing the number of clinical research associates (CRA).
As of the end of fiscal year March 2018, total assets rose by ¥947 million from the end of the previous fiscal year to ¥9.247 billion. Increase in cash and deposits on the left side, increases in retained earnings derived from booking of parent net income on the right side are the main factors of increase. Amortization of goodwill at the end of March 2018 fell by ¥1 million year-on-year to ¥1.049 billion. In addition, capital adequacy ratio rose by 6.9 points to 56.3% at the end of March 2018.
An increase in accounts receivables and decrease in prepayments contributed to a contraction in the margin of net cash inflow of operating activities, and declines in security deposits payment allowed the net cash outflow of investing activities to decline. Consequently, the margin of net inflow of free cash flow contracted. In addition, repayment of long term loans payable and dividend payments in line with the previous year caused the net cash outflow of financing activities to remain in line with the previous year's level.
Fiscal Year March 2019 Earnings Estimates
Linical's Earnings Estimates Call for Sales, Ordinary Income to Rise 43.7%, 9.1% Year-On-Year
Linical's estimates for fiscal year March 2019 call for sales and ordinary income to rise by 43.7% and 9.1% year-on-year to ¥13.1 and ¥1.993 billion respectively.
Large pharmaceutical companies are dealing with the negative influence of drug pricing revisions implemented in 2018 and the issue of pharmaceutical products going off patent by, and acquisition of overseas venture companies to secure promising new pharmaceutical products under development and strong demand for outsourcing of pharmaceutical product development, to create revolutionary new drugs and to improve efficiency and productivity, are expected to contribute to increases in clinical trials for pharmaceutical product development. In particular, a strong need for effective treatments in the realms of oncology and central nervous system ailments is expected to contribute to full scale pharmaceutical product development in these realms. In addition, difficulties in new drug administration methods in oncology applications is contributing to an expansion in corporate led clinical research and will also lead to increased outsourcing needs to establish clinical research methodology in the realm of contract medical affairs.
Against this backdrop, Linical will endeavor to acquire repeat orders from existing clients who have a high regard for Linical's businesses and to strengthen marketing activities to secure orders from new clients within the CRO business. In particular, Linical plans to expand sales by capturing demand for global joint clinical trials from both new and existing customers in the oncology and central nervous system ailment realms, which are strengths of the Linical Group. With regard to profit, the Company will conduct measures to realize a highly profitable earning structure by expanding the North American business and fortifying the management foundations of overseas subsidiaries despite amortization of goodwill resulting from M&A activities in Korea and Europe, and from the acquisition of Accelovance, Inc. to become a subsidiary Linical Accelovance America, Inc. in the United States in April 2018. Moreover, Linical will aggressively promote marketing activities for corporate led clinical research of post market launch new drugs and to expand its client base in the contract medical affairs business to receive new projects by leveraging the specialized knowledge cultivated in the CRO business.
Operating income is expected to grow by 10.0% year-on-year to ¥2.031 billion despite the outlook for increases in staffing and goodwill amortization expenses arising from acquisitions. Consequently, operating income margin is projected to fall by 4.8 points year-on-year to 15.5%. The Company does not anticipate any significant amounts of income or losses to be booked at the non-operating and extraordinary income levels.
Linical projects dividends to rise by ¥1 from the previous term to ¥12 per share in the coming term.
(3) Recent Topics
Shares of the Untied States Company Accelovance, Inc. Acquired to Become a Subsidiary
Linical and Linical USA, Inc. (Headquarters: New York) acquired Accelovance, Inc. (Headquarters: Maryland) and converted it to a fully owned subsidiary on April 16, 2018. Accelovance maintains its headquarters in the United States and provides clinical trial services in the realm of oncology in the United States, Europe, and China. It also boasts of a strong track record of consigned global jointly conducted clinical trials provided to major global pharmaceutical companies and drug venture companies. In the realm of vaccines, Accelovance was selected for the "Vaccine Industry Excellence (ViE) Best CRO" by the World Vaccine Congress for three years running from 2009, 2010 and 2011 for its provision of high quality CRO services. The synergies derived with this company within the Linical Group are greatly anticipated. In addition, strong expectations for Accelovance to provide synergies in the realm of global development consignment with pharmaceutical companies operating in Japan, the United States, and Europe because it also operates subsidiaries in the United Kingdom, Holland, Rumania, and China. Furthermore, Linical expects to derive synergies between its own subsidiary in Taiwan and Accelovance's China subsidiary.
Linical changed the name of Accelovance, Inc. to Linical Accelovance America, Inc. on April 16, 2018. The cost of the acquisition is approximately ¥3.5 billion, all of which is expected to be funded by loans.
Linical is accelerating its growth strategy through various activities including the acquisition of Linical Accelovance America, Inc., which will strengthen Linical's global consignment structure a step further because of its facilities in Japan, Asia, the United States and Europe. Global pharmaceutical company clients operating in Japan, the United States and Europe can turn to Linical for their comprehensive global development needs, and Linical will be able to provide even faster clinical trial services on a global scale and improve operational efficiency. At the same time, this "one-stop shopping" comprehensive global service provision capability is expected to allow Linical to see a large increase in the value of its orders per projects and improve global operation rate. Therefore, the ability to extract synergies with Linical Accelovance America, Inc. should be watched closely. In addition, Linical Accelovance America, Inc. boasts of facilities in the United States, Europe and China. Therefore, the ability to maximize synergies between its existing subsidiaries operating in Europe and Taiwan will be a key to raising the competitive standing of Linical in those markets.
The trend for deterioration in profitability arising from aggressive increases in staffing and higher goodwill amortization expenses are a concern. However, the possibility of any further large scale M&A activities appears to have abated given the strengthened global consignment structure in Japan, Asia, the United States, and Europe made possible through the acquisition of Accelovance in the United States. In addition to higher sales derived from synergies, a close watch should be kept on Linical's ability to restore high levels of profitability through further efforts to strengthen its management structure.
<Reference: Regarding Corporate Governance>
◎ Corporate Governance Report
The company submitted its latest corporate governance report on July 5, 2018 after applying the corporate governance code.

<Basic Policy>
The company will contribute to the development of pharmaceutical products as a partner of leading pharmaceutical companies in Japan with its technology for developing pharmaceutical products and live up to the expectations of the entire society from the pharmaceutical field. In addition, in order to improve corporate value, it is necessary to establish a system for making decisions swiftly while securing soundness and transparency.
Therefore, the company plans to reinforce its internal control, including thoroughgoing compliance with laws, which is the most important issue to be solved.

<Regarding the implementation of the principles of the corporate governance code>
No. of unimplemented principles: 12
Major principles and reasons
In June 2017, the company appointed Mr. Masafumi Nogimori, who has assumed various important posts, including president of Astellas Pharma Inc., inside and external Japan since the age of the old Fujisawa Pharmaceutical Co., Ltd., as an external director, and in June 2018, the company appointed Mr. Akio Osawa, who has assumed various important posts of foreign-affiliated pharmaceutical corporations in Japan, as an external director. Namely, more than one external director was appointed.
The company aims to improve its medium/long-term corporate value by receiving managerial supervision and advice based on plenty of experience and knowledge from external directors, who are independent of the management.
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
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