BRIDGE REPORT
(4549)

東証1部

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 and sales)
President
Morifumi Wada
HQ Address
7 Yamaguchi building, 4-19-9 Taito, Taito-ku, Tokyo 110-8408, Japan
Year-end
End of March
URL
Stock Information
Share price Number of shares issued
(excluding treasury shares)
Total market cap ROE (Actual) Trading Unit
2,235 Yen 36,639,216 Shares 81,888 million yen 8.3% 100 shares
DPS (Est.) Dividend yield
(Est.)
EPS (Est.) PER (Est.) BPS (Actual) PBR (Actual)
27.00 Yen 1.2% 82.97 Yen 26.9 times 877.35 yen 2.5 times
*Share price is as of the end of July 4. 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 previous term.
 
Business Performance Trends
Fiscal Year Net Sales Operating
Income
Ordinary
Income
Net Income EPS DPS
March 2013 28,645 2,548 2,812 2,453 67.49 17.50
March 2014 30,027 3,008 3,095 1,984 54.57 17.50
March 2015 31,014 2,826 3,013 2,100 57.57 17.50
March 2016 32,163 3,536 3,570 2,429 66.43 20.00
March 2017 33,274 3,976 4,112 2,918 79.69 25.00
March 2018 34,991 3,478 3,549 2,608 71.21 25.00
March 2019 Est. 36,760 4,200 4,230 3,040 82.97 27.00
*Estimates are by the Company. The definition for net income means net income attributable to owners of parent.
*On April 1st, 2018, a two-for-one split of the stock was performed. EPS and DPS adjusted retroactively.
 
This Bridge Report presents EIKEN CHEMICAL's earnings results for the fiscal year March 2018.
 
Key Points
 
 
 
Company Overview
EIKEN CHEMICAL is a general manufacturer of clinical diagnostics, including immunological and serological, microbiological, clinical chemistry, urine analysis and genetic screening test. It also develops and sells medical devices. It offers many products that occupy high market share including fecal immunochemical test that occupy about 60% of the domestic share, Urinalysis test, Microbiological test and so on. Its unique gene amplification technology, "LAMP", is highly recognized in the world. With the fecal immunochemical test reagents, urinalysis test strips and LAMP, EIKEN is aiming to become a global corporation. 【History】
1939 Established Koa Kagakukogyo Co., Ltd. and began manufacturing and sales of nourishing food articles and pharmaceuticals using livestock internal organs as raw materials.
1949 First in Japan to successfully commercialize a powder medium (SS agar) for bacteriological examination.
1961 Established Clinical Laboratory Division and began R&D on clinical diagnostics.
1969 Company name changed to EIKEN CHEMICAL CO., LTD. in recognition of its 30th anniversary.
1972 Commencement of the sales of "Uropaper EIKEN," a urine analysis test strip.
1987 Commencement of the sales of "OC-hemodia" (visual determination method), the fecal immunochemical test reagent.
1989 Commencement of the sales of "OC Sensor," the automated fecal immunochemical test analyzer.
1990 Listed stock in the second section of the Tokyo Stock Exchange.
1992 Commencement of the sales of "US-2100," an automated urine analyzer.
1998 Developed LAMP, the new innovative gene amplification technology, and filed patent applications.
Apr. 2001 Began sales of in-house clinical reagents and devices.
Mar. 2002 Listed stock in the first section of the Tokyo Stock Exchange.
Mar. 2002 Obtained patent for LAMP method in the U.S.A.
Mar. 2002 Commencement of the sales of "Loopamp Bovine Embryo Sexing Kit," the first product to use the LAMP method, and of specialized equipment.
May 2002 Obtained patent for LAMP method in Japan.
Dec. 2003 Commencement of the sales of "Loopamp SARS Coronavirus Detection Test Kit" utilized with LAMP method.
Nov. 2004 Acquired FDA approval for fecal immunochemical test reagents and analyzer and began sales in U.S.
Jul. 2005 Entered into an agreement with the Foundation for Innovative New Diagnostics (FIND) for joint development of a LAMP-based rapid genetic diagnostic test for tuberculosis.
Feb. 2008 Developed successfully of simplified pretreatment method (PURE method) that was utilized for LAMP method,
Oct. 2008 Entered into a new agreement with FIND for joint development of drugs and therapies against malaria, African sleeping sickness, and HIV.
Mar. 2009 Established new management vision "EIKEN WAY" and "EIKEN ROAD MAP 2009."
Jun. 2011 Commencement of the Japan sales of the "Loopamp MTBC Detection Kit" and "Loopamp PURE DNA Extraction Kit".
Jun. 2011 Established a European office (now the European branch) in Amsterdam, the Netherlands.
Dec. 2011 Entered into an agreement with FIND for joint development to treat and prevent leishmaniasis.
Nov. 2012 Commencement of the sales of "Immuno Catch Noro" which uses the immunochromatographic analysis method.
Mar. - Jul.
2013
Commencement of the sales of screening kits for BLEIA-1200: "BLEIA 'EIKEN' HCV Antibody," "BLEIA 'EIKEN' HCV Antigen," and "BLEIA 'EIKEN' HBs Antigen."
Jan. 2014 Entered into an agreement with FIND for joint development to treat and prevent Chagas disease.
Nov. 2014 Commencement of the sales of "OC Sensor-PLEDIA," the automated fecal immunochemical test analyzer.
Jan. 2015 Developed next-generation compact fully automatic genetic testing device and multi-item testing chip, using the LAMP method.
Feb, 2015 Commencement of the sales of "US-3500", a full-automated urine analyzer.
Jan. 2016 Formed a tie-up with SYSMEX CORPORATION for the urine chemistry testing business in overseas markets.
Aug. 2016 Acquired WHO (World Health Organization) recommendation for TB-LAMP.
Formed a global sales alliance with HUMAN mbH for TB-LAMP, and malaria testing.
Oct. 2016 Completion of a block of new urine analysis test strip producing plant.
*For further information about the LAMP method and FIND, please refer to "2. Characteristics and Strengths (4) Competitive Advantages of the LAMP Method." 【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 is about 351.0 billion yen and 589.7 billion yen (including research reagents and diagnostic devices) as of 2016 (survey by the Japan Association of Clinical Reagents Industries, or JACRI). In order to control rising medical costs, the Japanese government is focusing on preventive medicine such as special health check-ups (metabolic check-ups) and cancer screenings. It is expected that this, along with the aging population, will lead to an increase in the number of samples (number of specimens). Some negative factors include the 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 insurance (medical laboratory test 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. (Laboratory test fee in fiscal 2018: -0.4%) This is a result of advocacy on the importance of preventive medicine and clinical diagnostics by the entire industry including Eiken. Thus, in the mid to long term, the domestic market is expected to slightly grow by 2% each year. Out of the 130 member companies (as of June 2018) of JACRI mentioned above, about 80 are manufacturers, and there are about 15 companies with over 10 billion yen in sales. Most of them are small to medium sized companies. Because the test items of diagnostic tests range widely, each company has its own field of strength, and business segregation is already established in the industry. As a result, collaboration, such as supplying raw materials and products from other companies and manufacturing and selling them, is often observed. Against such a backdrop, the market is modestly growing. Therefore, there is currently no apparent trend of weeding out uncompetitive corporations. <Overseas Market> The global clinical laboratory test reagent/device market is estimated to be US$ 62.3 billion and, by region, the market is occupied by the USA at 44%, followed by Europe at 29% and Asia at 17% (As of 2015). 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 the "Biological test" that directly examines the body using medical equipment such as X-ray, CT, MRI, electrocardiogram, and ultrasound. Another type of clinical tests is the "Laboratory test" that examines biological samples (specimens) 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 amounts of blood contained in stool. They are made to support diagnosis. Most of these reagents are called in vitro diagnostics (IVD) and are regulated by the Pharmaceutical and Medical Device Act so reagent manufacturers file applications with PMDA (Pharmaceuticals and Medical Devices Agency) and obtain its approval. Users include hospitals, clinics, medical offices, medical test centers that carry out tests commissioned by medical institutions, health screening centers, public health centers, and institutions for health research, and others. 2. Major Products EIKEN CHEMICAL mainly manufactures and sells the following types of reagents and medical devices. As they deal with a wide range of reagents, they not only sell their in-house products but also purchase and sell products from other companies. Major in-house products include fecal immunochemical test reagents, microbiological reagents, immunological and serological reagents, urinalysis test strips, genetic testing reagents, etc. The sales ratio of in-house products to other companies' products is approximately 60:40. The gross profit margin is approximately 55% for in-house products and approximately 35% for other companies' products. Fecal immunochemical test reagents The major products for EIKEN CHEMICAL are reagents and sampling bottles for fecal immunochemical tests to specifically detect and measure human hemoglobin in feces as a colorectal cancer screening and diagnosis and are sold globally. Immunological and serological reagents (excluding Fecal immunochemical test reagents) EIKEN CHEMICAL develops, manufactures, and sells reagents for various tests, such as LZ Test EIKEN, a reagent for general-purpose automatic analyzers used for diagnosing rheumatism and inflammatory disorders and gauging the stomach health level (the ABC method). The company also procures reagents for fully automated enzyme immunoassay devices and reagents for automatic glycohemoglobin analyzers from Tosoh Corporation, and sells them. Urinalysis test strips EIKEN CHEMICAL develops, manufactures, and sells "UROPAPER III 'EIKEN'," a urinalysis test strip for testing various items such as occult blood, protein and glucose, as well as the "UROPAPER α III 'EIKEN'," a specialized test strip for fully automated urine analyzers. Microbiological test reagents Since its establishment, EIKEN CHEMICAL has been developing biological specimens as well as reagents for microbiological tests for food and environment 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 mediums, powder mediums, antimicrobial susceptibility tests, and rapid test reagents. Clinical chemistry test reagents EIKEN CHEMICAL develops, manufactures and sells reagents for clinical chemistry tests including "EXDIA XL 'EIKEN'" series that assist to measure and analyze biological components in blood serum and urine, with a focus on the test items that are related to lifestyle related diseases. Equipment/ Culture mediums related to food and environment EIKEN CHEMICAL sells reagents for microbiological tests on food to detect food poisoning bacteria as well as reagents for environmental microbiological tests and equipment and devices to measure contamination of work environments. Molecular genetics (LAMP) In 1998, EIKEN CHEMICAL developed and patented an innovative gene amplification technology called "LAMP." The LAMP is "simple, rapid, and accurate" and is a critical tool for Eiken's future global expansion of its business. (Details are described below) Medical devices EIKEN CHEMICAL sells various types of automated analyzers. They contract manufacturing specialized equipment that uses their in-house reagent. Since beginning sales of "OC Sensor" in 1989, they have worked continuously on technological innovation and quality improvement of this fecal immunochemical test analyzer. Also, they offer the "US," an automated urine analysis device that uses Eiken's proprietary image processing system, the "BLEIA-1200," a fully automated biochemistry photogenetic immunoassay device that was the world's first of its kind in the clinical testing field, and "Loopamp EXIA," a LAMP-based real time turbidity measuring device. 3. Sales structure EIKEN CHEMICAL has 11 sales offices and 3 sales divisions in Japan. Its academic department supports sales promotion. Out of 704 employees (consolidated) during FY 2018, about 300 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 39 countries (FY 2018). The high proportion of overseas sales is occupied by the sales in the USA, Italy, France, Spain, Germany, Australia, South Korea, and Taiwan. In addition to the Europe Branch 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 2018 are 5,405 million yen, out of which 3,228 million yen, 59.7%, is from the sales of fecal immunochemical test reagents. 【ROE Analysis】 The company had forecasted ROE of 7.0% for FY 2018, but the actual result was higher. This was because sales didn't reach the estimate, but profit exceeded the estimate, as capital investment was revised and R&D expenses were delayed to the next term. EIKEN CHEMICAL sets ROE 9.2% as a target in FY March 2019 in its mid-term management plan. The Company aims to fortify priority measures, including developing high value-added products, generating new businesses and new markets, improving further profitability and productivity through reducing COGs rate and SG&A rate. Moreover, the Company plans to enhance overseas sales forces including increment of sakes staff especially, because it is needed to raise the in-house products rate from 60% to 70 or 80%. 【Characteristics and Strengths】 (1) Products that Occupy High Share in the Market The share of Eiken's fecal immunochemical test reagents is ranked top (more than 60%) in the domestic market. Furthermore, many of their in-house products occupy high market share in the market, for example, urinalysis test strips occupying approximately 26% (ranked second) of the market, and microbiological reagents occupying approximately 16% (ranked fourth) of the market. The background to how Eiken's fecal immunochemical test reagents have come to hold such a high share of the market includes that in 1987, Eiken began sales of "OC-Hemodia," a visual determination method fecal immunochemical test reagents, a product that more closely conformed to user needs when compared to competitor's products, and that in 1989 they adopted the latex photometric immunoassay method and began sales of "OC-Sensor," the world's first fully automated analyzer. Also, the Health and Medical Service Act for the Aged was revised in 1992, making it possible to have fecal immunochemical test reagents as a method in colon cancer screening and diagnosis using public funds (no cost to the patient) which led to an accelerated spread and increased competition. But in 2001, Eiken began sales of the "OC-Sensor neo," with completely remodeled functions, which increased its market share. As for fecal immunochemical tests, Eiken will expand its business globally based on the above characteristics. The immunochemical method used in Japan applies reagents that react only to human hemoglobin, and can process a large volume simultaneously. Meanwhile, in other countries, reagents for the chemical method (Guaiac method) based on old measuring principles are still used, which presents accuracy challenges. In 2011, the test guidelines in Europe have finally begun recommending automated analyzers that use the immunochemical method. As a result, the market is beginning to undergo a dramatic change. Furthermore, although the chemical method is also still common in the United States, which has the largest potential market, trends show a gradual shift toward the immunochemical method. Additionally, new guidelines on colorectal cancer screening by USPSTF (US Preventive Medicine Special Committee) was published in June 2016. These guidelines pointed that the immunization method is superior to the conventional chemical method and pursuantly, and assessed Eiken's fecal immunochemical test product, "the OC FIT-CHEK family of FITs" has the utmost inspection performance with high sensitivity and specificity. Besides, the large markets which are underdeveloping exist on the leading and emerging countries in Asia and South America. Because the fecal immunochemical test market is a niche market, Japanese companies, the forerunners of the immunochemical method, own the most advanced technique, and hence Eiken's reagents and equipment are the global standard. (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 Advantages of the "LAMP" Thus far the mainstream technology for amplifying genes as a process of gene tests has been what is called "PCR" Under such circumstances, in 1998, EIKEN CHEMICAL developed a unique technology called the "LAMP." Compared to the PCR, the "LAMP" offers the following superior characteristics and allows users to carry out simple, rapid and accurate gene tests. Currently in the medical field, the LAMP is used to diagnose infectious diseases such as tuberculosis, mycoplasma (a genus of bacteria, it can also cause pneumonia), legionella, pertussis, etc. EIKEN CHEMICAL is making focused efforts on infectious disease diagnostic test in order to establish the status of the LAMP. At the same time, it is promoting the use of the LAMP in other fields such as food production and processing, environment, agriculture/veterinary in order to spread and enhance recognition of the LAMP. In fact, the LAMP-based products have been commercialized one after another since 2002. Furthermore, for the same purposes, EIKEN CHEMICAL is actively giving licenses to external companies in order to build the LAMP camp. One of the major actions to spread the LAMP in the world is an alliance with "FIND." "FIND" stands for "Foundation for Innovative New Diagnostics" and is a non-profit organization recognized by the Swiss government, launched at a meeting of the United Nations World Health Assembly in May 2003. In its initial five years of existence, it received a grant from the Bill & Melinda Gates Foundation to start up their activities. Their goal is to develop and introduce affordable, simple and advanced diagnostic tests in order to eradicate infectious diseases in developing countries. FIND's scope of activities includes tuberculosis, malaria, and African sleeping disease. With tuberculosis, collaborative research between EIKEN CHEMICAL and FIND for a tuberculosis test using the LAMP began in July 2005. The purpose of this research is to improve the accuracy of tests by replacing the microscopy test (sputum smear test), which is the current practice in developing countries. As a result of this collaboration, improvements which are not possible with the conventional PCR such as simplified pretreatment (PURE), improved reagents storage (store at room temperature) and simplified devices have been made to enable the developing countries to carry out the procedure (TB-LAMP). This LAMP-based product was already launched in Japan in 2011. After that, in order to obtain endorsement from the WHO (World Health Organization), FIND has completed its clinical evaluation in 14 developing countries and submitted this information to the WHO. In consequence, the company has acquired the recommendation by WHO as an evaluation replaces with microscopic examination or as an inspection reinforcing microscopic examination in August 2016. According to a report on global tuberculosis announced by WHO in November, 2017, the number of patients suffering from tuberculosis in 202 countries all over the world in 2016 was 10.4 million, an increase of 0.8 million from 9.6 million in 2014. Additionally, the number of deceases was 1.7 million, an increase of 0.2 million from 1.5 million in 2014. Most of them are inferred as matters of undiagnosed or untreated, and WHO indicates "the enforcement of countermeasures for the countries where access to diagnosis and treatment is not yet maintained is demanded". Following these situations, the company expects that dissemination and penetration of TB - LAMP contribute greatly to solve these problems. In addition to tuberculosis and other diseases listed above, EIKEN CHEMICAL and FIND also conduct collaborative research of reagents for leishmaniasis and Chagas disease. Also, EIKEN CHEMICAL is developing a next-generation compact fully automated genetic testing device and multi-item testing chip using the LAMP "Simprova". This equipment fully automates the process from specimen preprocessing (nucleic acid extraction and purification) to amplification and detection. By developing the unique protocol that exploits the LAMP's characteristics, the operation time that used to take over 2 hours with a conventional high purity nucleic acid extraction and purification device and an amplification and detection device combined, is now shortened to less than an hour. First, a clinical performance test will be carried out with the goal of simultaneous detection of several respiratory infection causing germs but the usage application is extensive. It is anticipated that through these products, EIKEN CHEMICAL will accelerate the spread of the LAMP and establish its position as the global standard in a newly created 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 trypanosomiasis is a serious tropical disease transmitted to HUMAN mbH by a protozoa called Trypanosoma brucei. The disease is transmitted by a tsetse fly. Trypanosoma in HUMAN mbH blood sucked by a tsetse fly develops and propagates inside the HUMAN mbH 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 disease 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 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 develops an anemia and 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, encephalomyelitis, cardiac disturbance.
 
 
Fiscal Year March 2018 Earnings Results
Sales increased and profit decreased from the previous term Net sales were 34.9 billion yen, up by 5.2% compared to the previous year. Domestic sales saw its rapid testing reagents, etc. perform well. Overseas sales grew by double digits thanks to the increase in sales of urinalysis test strips and devices for SYSMEX CORPORATION, as well as sales of fecal immunochemical test reagents and devices in North America and Europe. Operating income was 3.4 billion yen, down by 12.5% compared to the previous year. The company made a conscious effort to streamline various expenses; as the development stage of its compact, fully automated genetic testing device (Simprova) is nearly over, it posted the R&D expenses of 700 million yen. While the overseas sales of both fecal immunochemical test reagents and LAMP reagents were more sluggish than initially expected and the sales fell short of the estimate, revised capital investments and delayed R&D expenses caused profit to exceed the initial estimate. - Fecal immunochemical test reagents (FIT) In Japan, sales grew 2.1% year on year. EIKEN CHEMICAL's efforts to promote installation of their Fully automated fecal occult blood analyzer - the OC Sensor PLEDIA - have led to the increase of new clients using it. In addition, the company has continued to focus on expanding the market through activities to heighten public awareness of screening for colorectal cancer. Meanwhile, overseas sales grew 33.7% year on year. In North America, the sales to private medical insurers such as HMO* rose, and the sales promotion for the Veterans Medical Security Program (VA) was reinforced. The company also maintained the concentrated effort to secure new clients after the USPSTF (United States Preventive Services Task Force) published the new guidelines on screening for colon cancer in June 2016. In Europe, sales to major testing centers in Germany were strong; while in France - where sales were short of the estimate during the previous term - the company continued to engage itself in the measures to push up the medical examination rate, though it has made little progress so far. The company also continued its effort to have their products used in national screenings for colorectal cancer in various countries in the Middle East. The company won the national screening contract in Australia. *HMO (Health Maintenance Organization): an American membership-based medical organization. It targets people living in specific areas or environments and offers comprehensive medical services including inpatient and outpatient services, emergency care, general practitioners, specialists, rehabilitation, nursing homes, home health care, preventative examinations and health promotions. - Immunological and serological reagents (excluding fecal immunochemical test reagents) The company promoted the installation of the "AIA-CL Series," which it undertakes from Tosoh Corporation and resells, but mainly due to the intensified competition, the increase in sales was minimal. As for the LZ reagents, the company carried out the sales promotion of helicobacter pylori antibody test reagents as well as the promotion of a stomach health evaluation (that uses a rating of A, B, or C),but the increase in sales of LZ reagents as a whole was small. - Urinalysis test strips Domestically, the company continued to promote its automated urine analyzer "US-1200" - the next-generation model of "US-1000" - launched in August 2016. Because of its effort to promote the new installation and switching to the fully-automated urine analyzer "US-3500", the sales of UROPAPER α III 'EIKEN' rose. Overseas sales of urinalysis test strips produced for SYSMEX CORPORATION contributed significantly to the growth. - Microbiological test reagents In the field of rapid testing reagents, the company managed to meet the client demands by combining the sales of "Imunocatch-regeonera" and "Imunocatch-pneumococcus" and recorded sales growth. Reagents for drug susceptibility testing saw growth in dry plates from securing new clients in complete packaged proposals conducted in unison with analyzers that identify the classification of microbes in the hospital market. The sales of prepared media (Pore Media) fell due to the impact from changing to genetic screening in the form of fecal media testing. - Related molecular genetics (LAMP) Domestically, the sales of mycoplasma detection reagent decreased due to the end of an epidemic. Outside Japan, the company promoted the field studies mainly in Africa and Asia in collaboration with HUMAN mbH in Germany about the global expansion of TB-LAMP and Malaria. Cameroon decided to adopt TB-LAMP, and the funding from the Global Fund was also secured. Patent revenue grew by 40 million yen to 512 million yen. - Medical devices Automated urine analyzer "US-1200" and the urine testing device designed for the overseas markets for SYSMEX CORPORATION performed very well. The US and European sales, which lagged in the previous term, grew significantly and in the Asian region, the national colorectal cancer screening started in Australia in January 2018. Urinalysis reagent and device sales to SYSMEX CORPORATION performed well. With the revised capital investments, R&D costs were delayed to the next term. Current assets rose 596 million yen from the end of the previous term due mainly to an increase in trade receivables. Noncurrent assets grew 317 million yen due mainly to an increase in investment and other assets, etc.; total assets rose 913 million yen from the end of the previous term to 45,165 million yen. Total liabilities decreased 955 million yen from the end of the previous term to 12,687 million yen due mainly to capital-investment-related debt payouts. Net assets grew 1,869 million yen from the end of the previous term to 32,478 million yen due mainly to an increase in retained earnings. As a result, equity ratio rose 2.6% from 68.6% to 71.2%. The surplus of operating CF shrank due to the decrease in net income before taxes and other adjustments, etc. Because of the increase in purchase of property, plant and equipment, the deficit of investing CF widened, while the surplus of free CF shrank. The deficit of financing CF widened due to the increased dividend payout. No significant changes in the cash position.
 
 
Fiscal Year March 2019 Earnings Estimates
Increase in both sales and profit expected Sales for the final year of its mid-term management plan (FY March 2017 - FY March 2019) are expected to rise 5.1% year on year to 36.7 billion yen. While domestic sales are expected to stay at the same level, in the overseas markets, the sales of fecal immunochemical test reagents continue to be strong in the US and Europe. Operating income is estimated to rise 20.7% year on year to 4.2 billion yen. As well as the increase in sales, capital investment, including the delayed investment from the previous term, will grow roughly 1.4 billion yen year on year, but the depreciation expenses are projected to fall short of the initial estimate. The dividend is to be 13 yen per share for the interim and 14 yen per share for the year-end, a total of 27 yen per share. After taking the stock split into consideration, it is a payout increase of 4 yen per share. Payout ratio is forecasted to be 32.5%. Due to the delay, R&D expense seems to have reached its peak in the previous term for the time being. Capital investment is expected to greatly exceed that of the previous term, due to the revision, even though it will not reach the forecasted figure of the mid-term management plan. The same can be said for depreciation expenses. (4) Progress of mid-term management plan As seen below, overseas sales did not make the expected figures of the mid-term management plan in the two previous terms, therefore the company has revised down the forecast for FY March 2019, which is the final term of the current mid-term management plan.
 
 
Interview with President Wada
Developing Overseas Operations In the previous term, we did achieve a double-digit sales increase from the previous term in overseas sales but the sales of fecal immunochemical test reagents fell short of our estimates and left much to be desired. Of course, each country has its unique conditions and in the short term there is only so much we as a company can do. We will nevertheless press on with our educational activities to increase the medical examination rate. In addition to the US and Europe, the emerging markets where the eating habits are becoming increasingly westernized, especially the Middle East, are quite promising in terms of growth in the near future and we will fortify our approach mainly targeting the core countries. We are boosting the number of staff for this purpose. Only a few years ago we had just over 10 staff members working on overseas businesses but now we have nearly 30 of them. We also think it would be necessary to hire more local workers to penetrate these markets more speedily and strongly. We couldn't expand the overseas sales as expected and we had to revise down the performance forecast for this fiscal year, which is the final term of the mid-term management plan. But we will try to catch up early on in our next mid-term management plan. Launch of "Simprova" - a compact, fully automated genetic testing device Development of "Simprova" (compact, fully automated genetic testing device) is in its final stage. Our company have kept developing testing methods and reagents for quicker and easier genetic testing. The compact, fully automated genetic testing device "Simprova" exploits the LAMP's high sensitivity and high specificity characteristics and making the easy and quick simultaneous multi-item testing a reality. In the world of clinical testing, the so-called POCT (point of care testing) - the real-time testing carried out at the medical scenes using compact analyzers and rapid testing reagents - is becoming common. POCT - also termed as "near the patient" - is carried out by the medical professionals near the patient at the clinics, consultation rooms or at patients' homes, and not at the testing labs of hospitals or external testing centers. This is a testing method aimed at improving the subjects' QOL (quality of life) by offering a patient-orientated medical care. "Simprova" has many advantages such as being compact, highly accurate, quick (only by setting a sample, it will automatically conduct the test. The preprocessing time to extract nucleic acid, which used to take over 1 hour, has been shortened to 15 minutes and detection time is also about 15 minutes) and multiple items can be tested simultaneously. This is a product we would like to promote in the diverse fields of testing in which these great characteristics will become useful, not to mention POCT. From now on, we will try our best to establish the manufacturing process and to find prime agents to launch the product as soon as possible. About Research and Development Working to discover new biomarkers of cancers and cardiovascular diseases from a long-term perspective, such as developing "Simprova." It is sometimes difficult, however, to make progress speedily and steadily only by our company alone, so we will collaborate with various universities and research institutions in joint researches in the spirit of open innovation. Searching for new technologies, and not just biomarkers, is an essential part of our company's growth strategies so we will continue to invest in this area robustly.
 
 
Conclusions
Unfortunately, the overseas sales for the previous two terms fell short of the respective target figures and this forced the company to revise down the figures of net sales and operating income for the final year of its mid-term management plan. Having said that, the stock price has not been affected significantly and it is currently drifting around in the higher end. Its PER is 30 times, much higher than the average (15 times) of the companies listed in the First Section of the Tokyo Stock Exchange: this is presumably because the stock market maintains its high expectations for the future prospects of the company's fecal immunochemical test reagents based on the immunization method. In the short term we should keep a watch on how much the company's overseas sales might be able to grow this fiscal year, while in the medium term, it would be interesting to see what sort of targets and specific measures will be included in the next mid-term management plan.
 
 
<Reference1: Mid-term Managerial Plan (FY 2017 to FY 2019)>
The company produced the mid-term managerial plan of the corporate group for the coming 3 years till the term ending Mar. 2019, which is the last fiscal year of "EIKEN ROAD MAP 2009" and the 80th anniversary of the establishment of the company. 【Managerial goal】 The company aims to accelerate the efforts for becoming a global enterprise "EIKEN," contribute to the world with healthcare services, grow in a sustainable manner, and improve profitability steadily. 【Financial objectives】 The company strives to increase the ratio of overseas sales, but as mentioned above, the overseas sales in FY March 2017 and FY March 2018 fell short of expectations, and it had to lower the forecast figures for the final FY accordingly. Its growth strategies are (1) to expand the share of its products in the Japanese market, and (2) to accelerate global business expansion. As the investment for further growth, the company plans to (1) strengthen R&D and (2) develop a base for enhancing management efficiency. Other "basic policies" are to "refine core technologies," "establish market supremacy," "create new business and markets," "form strategic tie-ups," etc. 【Return to shareholders】 The company aims to pay dividends with a stable payout ratio of over 30%.
 
 
<Reference2: Regarding Corporate Governance>
◎ Corporate Governance Report Last updated: submitted on June 27, 2018. <Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)> The company has implemented every principle detailed in the Corporate Governance Code. <Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>
 
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