CellSeed (7776)
President Yukio Hasegawa
Yukio Hasegawa
Corporate Profile
CellSeed Inc.
Code No.
Regenerative Medicine
Yukio Hasegawa
HQ Address
R-Bldg., Shinjuku 1F, 33-8, Wakamatsu-cho, Shinjuku-ku, Tokyo, 162-0056, Japan
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥1,635 5,324,934 shares ¥8.706 billion - 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
- - - - ¥358.34 4.6x
* Stock price as of closing on 2011/2/23. Shares outstanding are based on the number of shares
  as of the end of the most recent quarter and exclude treasury shares.
Consolidated Earnings Trends
Fiscal Year Sales Operating income Recurring income Net income EPS (¥) Dividend (¥)
December 2007 40 -809 -614 -616 - 0.00
December 2008 61 -778 -644 -650 - 0.00
December 2009 87 -785 -788 -790 - 0.00
December 2010 66 -1,204 -1,002 -1,009 - 0.00
December 2011 Est. 175 -1,531 -1,460 -1,464 - 0.00
We present this Bridge Report along with the fiscal year December 2010 earnings results for CellSeed Inc.
If you have any questions about this report, please contact Invesstment Bridge.
Key Points
Company Overview
CellSeed seeks to promote the worldwide diffusion of "cell sheet regenerative medicine" that employs "cell sheets" to treat and cure patients, that previously could not be treated, through the use of fundamental technologies of "cell sheet engineering." CellSeed’s business is divided into two divisions including the "regenerative medicine support business," where temperature responsive cell cultureware used in the manufacture of "cell sheets" are manufactured and sold, and the "cell sheet regenerative medicine business," where cell sheets for various applications are developed, manufactured, and sold (Sales are expected to be realized from fiscal year December 2011.).
Regenerative Medicine Support Business
CellSeed develops and manufactures temperature responsive cell cultureware and various applications of this product (some of the manufacturing processes that require large capital investments are outsourced) that are the fundamental tool in cell sheet regenerative medicine. These products are provided to universities, research institutions and other institutions around the world. This business is of high strategic importance in developing partners in the cell sheet regenerative medicine business, in addition to its main purpose of generating earnings.
Cell Sheet Regenerative Medicine Business
Cell sheet regenerative medical products (Cell sheets) and various applications of these products are sold in this business. Currently CellSeed is conducting joint research and development of five different regenerative medical product pipelines with Tokyo Women’s Medical University, Osaka University, and Tokai University.
Fiscal Year December 2010 Earnings
Losses Incurred as Expected for Commercial Launch of Regenerative Cell Sheet Business
Sales of temperature responsive cell cultureware reached ¥66 million. Front loading of sales resulting from aggressive sales and marketing activities conducted during the previous term, which was Cellseed’s first year of commercial operations, and weaker sales in Europe resulting from the stronger yen contributed weak sales growth. Within Japan delays in sales of products to some of CellSeed’s larger clients until after the start of the next year also contributed to the lower sales within Japan. With regards to profits, increased marketing and sales promotional costs for temperature responsive cell cultureware, manufacturing consignment support fees paid to Lyon National Hospital, fees for preparation of business in Europe, research support fees to Japanese research institutions, and anticipatory investments relating to corneal regenerative cell sheet applications led to an expansion in operating losses of about ¥0.4 billion in the current term compared with the previous term. Among the main factors contributing to this loss were a ¥0.19 billion increase in research and development expenses from ¥0.41 in the previous term to ¥0.60 billion in the current term, and a ¥0.21 billion rise in sales, general and administrative costs from ¥0.40 billion in the previous term to ¥0.61 billion in the current term. At the same time the improvement in non-operating income can be attributed to the completion of the New Energy and Industrial Technology Development Organization (NEDO) project and the subsequent ¥0.22 billion in subsidies booked as non-operating income.

By business segment, the regenerative medicine support business recorded sales of ¥66 million (A ¥20 million decline from the last term.), and an operating loss of ¥62 million (A ¥10 million increase from the last term.). The cell sheet regenerative medicine business incurred an operating loss of ¥632 million (A ¥205 million increase from the previous term.).

While income fell below the CellSeed’s estimates due to higher than anticipated research and development expenses related to corneal regenerative cell sheets, these research and development expenses are in line with the Company’s midterm business plan.
(1) Clinical Trial and Sale Approval Application
The clinical trial of corneal regeneration epithelial cell sheet, which started in 2007, completed a year of clinical testing on 25 patients at Lyon National Hospital, France in September 2010. Ahead of the issuance of an official report, which is currently being prepared, on the clinical testing conducted, Odier Damal, PhD. (Lyon National Hospital, Organ Tissue Bank Director), who is responsible for the manufacture of the clinical test products, presented the results of the clinical testing (preliminary results) during the "Tokyo iPS/Stem Cell Symposium 2010" held at the University of Tokyo in November 2010. While it is difficult to draw a conclusion at the current time in light of the lack of the final report on the clinical testing performed, Odier reported that the corneal regeneration epithelial cell sheet proved to be safe and effective in treatment of patients suffering from severe sight impairment arising from corneal epithelial limbal stem cell deficiency, which is in line with expectations of CellSeed. Furthermore the formal report on the clinical testing is being audited and the final results will be detailed in this report. The final report will be submitted to the AFSSAPS in France and to the European Medicines Agency (EMA) for approval of commercial use. The approval is expected to be acquired in about one year and sales are expected to begin after pricing negotiations are concluded with various countries in Europe (In countries such as the United Kingdom and Germany where pharmaceutical prices are not regulated, sales can be expected to begin as soon as the approval is received.). Given the assumption that the application for commercial launch is expected to be submitted in fiscal year December 2011, the approval for commercial launch is expected to be grated in fiscal year December 2012. Because of the European "compassionate use" system, sales of the corneal regeneration epithelial cell sheets can be expected during fiscal year December 2011, with sales from actual commercial uses expected to be booked from fiscal year December 2013. Europe’s compassionate use system allows for pre-approved drugs to be provided to human patients on a fee basis. The pre-approval preparations are progressing smoothly, with overviews of the approval application already submitted to the EMA, having received positive results in "scientific advice" received on the overview.
(2) Facilitation of Manufacturing and Sales Structure
Preparations for the manufacture, which had been expected to be completed in November 2010, are now expected to be completed in fiscal year December 2011. With regards to the corneal regeneration epithelial cell sheet business in Europe, the manufacturing will be outsourced to the Lyon National Hospital and TBF Genie Tissulaire (France), a company involved with the manufacture of tissue engineering products used in cartilage regeneration treatments, and the time required to prepare for the technology transfer to TBF is taking longer than expected. In addition, cells taken from the lining of the mouth used to culture corneal regeneration epithelial cell sheets was the responsibility of Lyon National Hospital and not the manufacturer. Therefore, the installation of manufacturing facilities, which must be inspected to see if they are in compliance with the "Good Manufacturing Practice," (GMP) a quality standard for medical products, is currently being conducted (Ultimately the process will need to receive GMP inspection before approval can be granted) and revisions and renewal of the facilities may become necessary.

With regards to sales, CellSeed has reached official agreements with Clonmel Healthcare Limited (Ireland) of the Stada Group in Germany, and GENESIS Pharma S.A. in Greece for them to become the marketing agents (CellSeed Europe will provide their products to these companies), and products sales in compassionate uses are expected to begin in fiscal year December 2011 after manufacturing preparations are completed.

In June 2010 CellSeed France, a CellSeed subsidiary, was appointed by and will receive support of the Eurostars Project for their jointly conducted work on the corneal regeneration epithelial cell sheet project with the Lyon National Hospital, GENESIS Pharma, and Paracelsus Medical University of Austria. This project is currently undergoing confirmation of the GMP manufacturing and shipping processes, and evaluation of multicenter-distributed small-scale experiments. In other words, the manufacturing and shipping processes established must be evaluated to assess whether they are in compliance with GMP standards to help avoid any potential problems before the actual commercial operations begin, granted subsidies. In this process, CellSeed has been able to establish a network of high profile physicians (Who could become proponents of the corneal regeneration epithelial cell sheet treatment.). By creating a network of high profile physicians, the positive results of the treatment in compassionate use applications can be promoted, thereby helping to smoothly promote the pricing acquisition and commercial launch of this treatment.
<Main Views of Odier Damal, PhD. (Success in 25 of 26 Transplants Cases)>
High Safety Levels of the Corneal Regeneration Epithelial Cell Sheet
・ While "serious adverse events" were found in 2 of the 26 cases, corneal regeneration epithelial cell sheets were not responsible for these events.
・ Other adverse affects that appeared had no direct impact upon the treatment.
Corneal Regeneration Epithelial Cell Sheet Found to Be Effective in Regeneration of Epithelial Corneal Layer
・ Effective in preventing the intrusion of conjuctiva that is the cause of various corneal functional disorders.
・ Effective in inhibiting blood vessel formation and activation that is the cause of various corneal functional disorders.
Corneal Regeneration Epithelial Cell Sheet Effective in Treatment of Corneal Epithelial Stem Cells Disorders
・ Effective in restoring vision in patients with healthy corneal functions aside from the epithelial layer (Actually the endodermis layers, incidents of patients who have recovered sight have been observed.).
・ Has been proven effective in patients with impairment in corneal functions aside from the epithelial layer. Because the corneal epithelial layer can be regenerated, donees can receive cornea transplants as secondary treatments.
<Therapeutic Use of Corneal Regeneration Epithelial Cell Sheets in Patients with Severely Impaired Vision Resulting from Corneal Epithelial Layer Stem Cell Dysfunction>
The cornea can be divided into the corneal epithelial layer, the corneal endodermis layer, and the corneal parenchyma.
Corneal epithelial layer: The clear structure on the external surface of the cornea (similar to the lens surface of a camera)
Corneal endodermis layer: The structure that is on the opposite side of the epithelial layer of the cornea (inside)
Corneal parenchyma: The structure that is sandwiched between the epithelial and the endodermis layers that is made up of primarily collagen
"Corneal epithelial stem cell dysfunction" is the condition where stem cells that are crucial in maintenance of the corneal epithelial layer and its metabolism are lost. Damage to the corneal epithelial layer contributes to the formation of blood vessels and conjunctiva matter in the cornea that leads to corneal impairment (The conjunctiva matter and blood cells block light from passing through the cornea. Conjunctiva and blood vessels do not form in healthy corneal parenchyma.). Aside from the reduction in sight, pain, sensitivity to light, and dry eye conditions are also common symptoms of corneal dysfunction, and in severe incidents patients may suffer total loss of sight. However in patients with healthy corneas and where only the corneal epithelial layer is affected, the disease symptoms can be rectified through the use of corneal regeneration epithelial cell sheets, and improved vision and reduction in symptoms have been confirmed though its use. It is possible to transplant corneal parenchyma from donors, but in patients with diseases of the corneal epithelial layer where stem cells, which are crucial in the maintenance of and metabolism of the epithelial layer itself, are lost, conjunctiva and blood vessels may form after the donor cornea has been transplanted to the patient. Therefore there is no effective treatment currently available.
(3) Financial Conditions and Cash Flow
At the end of the current term, total assets rose by ¥0.90 billion from the end of the previous term to ¥2.09 billion. Due to funds raised during the initial public offering in March 2010, CellSeed saw increases in cash on hand (cash and equivalents, and short term government bonds) and net assets. At the same time subsidies which had been booked as advance received as a part of non-operating income, declined. The net outflow in free cash flow expanded by a large margin, but this increase in the outflow can be attributed to the acquisition of marketable securities (shot term government bonds) as a part of the Company’s cash management strategy. As of the end of the term, cash and equivalents stood at ¥1.01 billion, but when short term government bonds are included the total of cash on hand rises to ¥1.81 billion. Therefore CellSeed’s cash position remains strong despite the loss expected to be incurred during fiscal year December 2011. Furthermore royalty related income expected to begin appearing in fiscal year December 2012 based on the progress of alliances seen in various products currently in the development pipeline should help to reduce the cash burden of CellSeed.
Earnings Estimates
CellSeed’s earnings estimates and projections for the period from fiscal year December 2011 to 2013 are provided in the above table. With the peak in expenses expected to be seen in fiscal year December 2011, the full scale commercial launch of corneal regeneration epithelial cell sheets and alliances on other products in the development pipeline are expected to begin contributing and allow earnings to improve from fiscal year December 2012.

By business segment, CellSeed endeavors to reduce the losses in its regenerative medicine support business by aggressively promoting and increasing sales of new products, while at the same time putting this business on a solid growth path over the intermediate term. At the same time in its cell sheet regenerative medicine business, commercial launch of the corneal regeneration epithelial cell sheet treatments on a compassionate use basis and acquisition of approval and market launch of corneal regeneration epithelial cell sheets in Europe, launch of the corneal regeneration epithelial cell sheet business in the United States, and acquisition of royalty income are expected to help offset aggressive research and development investments and yield profits.
(1) Royalties of ¥0.1 billion are expected to be derived from the start of corneal regeneration epithelial cell sheet business in the United States, in addition to sales from compassionate uses in Europe.
(2) During fiscal year December 2012, sales from the compassionate use of corneal regeneration epithelial cell sheet is expected to expand, in addition to official sales of products in countries where approval is expected to be granted. Furthermore lump sum payments for royalties of ¥0.5 billion in the regenerated cardiac patch product are included in sales projections (Currently under negotiation with a major pharmaceutical manufacturer.).
(3) During fiscal year December 2013, the conclusion of pharmaceutical pricing negotiations is expected to lead to an expansion in the corneal regeneration epithelial cell sheet business, which is expected to see full scale commercial launch during the term.
Due to revisions in the milestones established by CellSeed, the period when profits are expected to be realized has been delayed. However the preliminary results of clinical trials released by Odier Damal, PhD. are positive, and therefore it may be safe to say that the biggest hurdle in commercial launch of the corneal regeneration epithelial cell sheet has been cleared. In the instance of stem cell regenerative medicine, success in the clinical research stage of these treatments is usually followed by similarly successful results in the clinical trial stages, while it has taken more time for the result report of the clinical trial to be prepared than existing medicines. Unlike the processes in synthetically manufactured medical products, the processes used in the manufacture of regenerative medicine tend to be more difficult (Currently researches of automated manufacturing processes are being conducted with domestic electronics makers.). Because of the nature of CellSeed’s business accurately estimating a time schedule is difficult, but as part of the listing requirements CellSeed was required to disclose a time schedule. However CellSeed is close to receiving the final clinical test report and preparing for mass production of their products. Because of the difficulty in accurately assessing the time necessary to receive approval for commercial sales, there may be some divergence from the Company’s current time schedule. At the same time the other products in CellSeed’s development pipeline are steadily progressing towards commercial launch.
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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