MedRx : Fair Research Inc. Report ( October 12, 2023)

ANALYST NET Company Report

		MEDRx Co. Ltd.
	（4586 Growth）
	Issued: October 12 2023

NDA Re-Submission for Lidocaine Tape Within the Year

Uses proprietary technology in a niche market

MEDRx is a company which develops transdermal absorption drugs using the active components of existing oral and injectable preparations. It then licenses out these drugs to pharmaceutical companies and secures milestone income and, after going to market, royalties on sales. Compared to most new drug discovery businesses, the probability of success is high because it is based on the active ingredients of existing drugs, in addition to which competition is limited because it is a niche field differentiated by the company's own ILTS® technology and NCTS® technology. The company has also developed microneedle "vaccine patches" on which feasibility studies are now underway.

Preparing to re-submit lidocaine tape application

On September 29 the company received its second complete response letter (CRL) from the FDA for Lydolyte, a lidocaine tape preparation which the company hopes will be its first product to market. However, MEDRx has determined that it can comply with the FDA's instructions (to resubmit some data from non-clinical studies) by further analysis of the data without conducting additional testing, and plans to resubmit within the year. If all goes well, approval will be received in the first half of 2024 and a market launch is possible in the second half. Lydolyte sales are expected to peak at JPY8.5 billion, with a certain amount of the profit accruing to MEDRx. Since the company had cash reserves of JPY1.3 billion in June 2023 it is well placed to be aggressive in its R&D activities and run operations for a year, while the approval and launch of Lydolyte in 2024 will further boost funds for company operations.

Continued emphasis on "selective concentration"

In April 2023 MEDRx at last retrieved all rights to tizanidine tape (MRX-4TZT), which it had licensed out to Cipla, thereby clearing the way to conduct Phase-2 on its own. The company will for the time being focus its resources on the development of tizanidine tape, which is expected to see peak sales of at least JPY40 billion. The development of fentanyl tape (MRX-9FLT) will be limited to BE testing, and core tests such as testing of misuse prevention technology will be conducted after 2024. The development of memantine patches (MRX-7MLL) will be limited to formulation improvements, with PK and other tests scheduled to be carried over to 2024. Meanwhile, the development of diclofenac-lidocaine tape (MRX-6LDT), which is expected to have blockbuster potential, remains pending. Although MEDRx is a bio-venture company with an enthusiasm for development and has several pipelines, it is important for it to continue "selective concentration" and steadily increase the number of its products on the market, thereby building up corporate value.

Follow-up Report

Fair Research Inc.

Tsuyoshi Suzuki

Company Outline

	Location			Kagawa Pref.
	President			Yonehiro
			Matsumura
	Established			January 2002
	Capital			JPY 227 mil
	Listed			February 2013
	URL			www.medrx.co.jp
	Sector			Pharmaceuticals
	Employees			23（consol.）
	Key Indicators (Oct. 12 2023)
	Share Price			169
			yen
	52-week Low			91 yen
	52-week High			315
	Shares Issued			37,145,100
	Trading Unit			100 shares
	Market Value			JPY6,278 mil.
	Forecast div.			0
	EPS (est.)			-26.2 yen
	Forecast PER			na
	BPS (actual)			JPY45.87
	Actual PBR			3.68X

On the basis of shares outstanding (excl treasury shares)

	Sales	YoY	Op.	YoY	Rec.	YoY	Net Income	YoY	EPS	Share Price (JPY)
Results	Income	Profit
JPY mil	％	％	％	JPY mil	％	JPY	High	Low
	JPY mil	%
19/12 Actual	169	1922.9	-1,627	na	-1,618	na	-1,616	na	-134.3	698	301
20/12 Actual	115	-32.2	-1,130	na	-1,149	na	-1,114	na	-68.6	426	160
21/12 Actual	8	-92.7	-1,061	na	-1,066	na	-1,059	na	-49.6	327	126
22/12 Actual	59	612.4	-1,098	na	-1,112	na	-1,111	na	-43.8	133	92
23/12 Forecast	27	-78.2	-1,050	na	-1,003	na	-1,006	na	-26.2
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This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based on information and materials that Fair Research judges reliable, there is no guarantee of accuracy, credibility, completeness, suitability or timeliness. Fair Research shall not take any responsibility whatsoever for any results including direct or indirect damage arising from the use of, or reliance on, this report. Investors should take their own responsibility for securities and other transactions. The intellectual property rights of this report belong to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited..

MEDRx Co., Ltd. （4586 Growth）

Issued: October 12, 2023

Company Outline & Management Philosophy

A venture company engaged in developing transdermal absorption formulations

The company has proprietary

technologies, giving its products a higher probability of success than for other new drug discovery businesses

In broad terms, the company is involved in developing transdermal absorption formulations using the active ingredients of existing oral and injectable drugs. In terms of business model, it licenses out these formulations to pharmaceutical companies, collecting milestone payments and, after launching in the market, royalties on sales.

Transdermal absorption formulations make up a growing medium to long-term segment of the pharmaceutical market. Among their attributes are maximisation of pharmaceutical effect, reduced side-effects and better quality of life for the patient. These attributes are achieved by the following:

• Providing a consistent and sustained release of active ingredients: enabling the maintenance of a constant volume of the drug in the bloodstream.

• Little or no first-pass effect: while the efficacy of orally administered drugs can be reduced to 10-20% as they pass through the liver, this is not an issue in the case of transdermal absorption formulations.

• Better medication compliance: suitable for patients who find it difficult to take drugs orally due to problems swallowing, and also reduces the problem of forgetting to medicate.

• Unlike drug delivery by injection, transdermal delivery is painless.

• Transdermal delivery lends itself to a wide range of conditions.

The MEDRx business model is also distinctive in two ways:

1. It is low risk (i.e. high probability of success) because it does not involve the discovery or development of new active ingredients.
2. The company has its own transdermal absorption technology using ionic liquids (ILTS®: Ionic Liquid Transdermal System), which distinguishes it from other companies.

Note: Ionic liquids are salts in liquid form at room temperature composed of ions which are resistant to crystalization. They are non-volatile, non- flammable and electricity conductive. In recent years these properties have led to applications in lithium battery electrolysis and elsewhere. With ILTS®, MEDRx was the first to develop the technology for the transdermal absorption of ionic liquids, thus facilitating the administration of drugs which are normally difficult to administer transdermally. With existing technology, transdermal absorption was difficult in the case of nucleic acid or macromolecular formulations, but ILTS® has made it much easier.

Source: MEDRx company briefing materials

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This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based on information and materials that Fair Research judges reliable, there is no guarantee of accuracy, credibility, completeness, suitability or timeliness. Fair Research shall not take any responsibility whatsoever for any results including direct or indirect damage arising from the use of, or reliance on, this report. Investors should take their own responsibility for securities and other transactions. The intellectual property rights of this report belong to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited..

MEDRx Co., Ltd. （4586 Growth）

Issued: October 12, 2023

High barriers to entry for would-be competitors are presented by the company's well-endowed library of ionic liquids and technical knowhow

The company's primary target is the US market

Another notable feature of MEDRx's ILTS® is that it presents high barriers to entry. The company has a library of several hundred ionic liquids formed from combinations of compounds with a track record of use on human subjects as pharmaceuticals and food additives. The company also has extensive know-how on selecting optimum ionic liquids for particular drug properties, and formulation expertise on maintaining and improving the transdermal properties of ionic liquids.

The company's primary business target is the US market for transdermal absorption formulations. This primacy is based mainly on the potential of the US market for tape-type formulations. The US market accounts for some 40% of worldwide demand and has seen significant growth in recent years. Further, in the liberally- priced US market, MEDRx believes that the added value of new formulations, such as patches (increased efficacy, reduced side effects, improved quality of life and convenience, etc.), is more easily reflected in drug prices.

Note: In Japan and the countries of Europe, where state medical insurance schemes and public funds cover the greater part of medical costs, and there are officially set drug prices, there are fiscal constraints on such prices. In contrast to the US market, the added value of new drug types is less efficiently reflected in drug prices.

MEDRx's proprietary ILTS® technology is used in four product pipelines

A memantine patch product

employs the NCTS® technology using nano-sized colloids

Key product pipelines

Source: MEDRx home page,

Re-submission of an application for Lydolyte scheduled within 2023

The four main MEDRx products which the ILTS® technology are tizanidine tape (CPN-101,MRX-4TZT), which once had been successfully licensed out to Cipla Corp., lidocaine tape (MRX-5LBT), fentanyl tape (MRX-9FLT), oxycodone tape and diclofenac-lidocaine tape (MRX-6LDT).

The company also has a transdermal absorption technology using nanocolloids (NCTS®: Nano-Sized Colloid Transdermal System). As mentioned earlier, the ILTS® technology is used in the transdermal absorption of macromolecular agents such as peptides and nucleic acids. The NCTS® technology, however, aims to enhance transdermal absorption of relatively low molecular-mass agents by reducing pharmacologically active components to nano-sized colloids. Among products now at the development stage for which information has already been disclosed is MRX-7MLL, a transdermal absorption formulation using memantine (for the treatment of Alzheimer's), which can suppress the skin irritation which memantine usually causes.

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This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based on information and materials that Fair Research judges reliable, there is no guarantee of accuracy, credibility, completeness, suitability or timeliness. Fair Research shall not take any responsibility whatsoever for any results including direct or indirect damage arising from the use of, or reliance on, this report. Investors should take their own responsibility for securities and other transactions. The intellectual property rights of this report belong to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited..

MEDRx Co., Ltd. （4586 Growth）

Issued: October 12, 2023

The company has developed microneedle technology to provide "vaccination patches

NCTS®： Nano-sized Colloid Transdermal System - Image

Source: Fair Research Inc. using MEDRx company briefing materials

The company has also developed a technology using microneedle arrays as a sort of "vaccination patch". The microneedle technique works by using super-fine needles to open apertures in the surface of the skin, thereby allowing access to the vaccine. The skin not only acts as a physical barrier to foreign substances but also acts immunologically to expel such substances. Langerhans cells in the epidermis below the stratum corneum and dermis dendritic cells in the dermis below, are antigen- presenting cells which play an important role in biological defence. A strong immune response can be elicited by efficiently transmitting the vaccine antigen to these antigen-presenting cells.

However, the stratum corneum presents a barrier, so that vaccine applied to the skin does not penetrate. Microneedles transmit drugs into the skin by opening apertures in the epidermis with superfine needles. They are less than 1mm in length and do not reach the nerve, hence providing vaccination without pain. In other words, this method can be seen as an "attachable vaccination".

Characteristics of microneedle arrays

Microneedles offer promise in

tackling pandemics in developing countries

Source: MEDRx company briefing materials

This area of business has potential social significance. A patch vaccine using microneedle technology not only avoids the pain of an injection (minimally invasive), but also does not necessarily require administration by a medical professional (can be self-administered). In addition, if solid vaccine antigens are coated on microneedles, they can be stored at room temperature and are easy to transport and store, making it a promising technology in combating pandemics in developing countries with poor medical environments.

Furthermore, in September 2023 MEDRx announced it had concluded a collaborative development agreement with the US company Alto Neuroscience for a novel candidate drug for the central nervous system using MEDRx subcutaneous absorption technology (without specifying which technology). The product is currently undergoing clinical trials (Phase-1 trials) at Alto, and Phase-2 trials are scheduled to begin in 2024. MEDRx will jointly bear the costs and promote development up to a designated development stage, subsequent to which Alto will take the lead in development and have the right to commercialise it worldwide.

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This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based on information and materials that Fair Research judges reliable, there is no guarantee of accuracy, credibility, completeness, suitability or timeliness. Fair Research shall not take any responsibility whatsoever for any results including direct or indirect damage arising from the use of, or reliance on, this report. Investors should take their own responsibility for securities and other transactions. The intellectual property rights of this report belong to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited..

MEDRx Co., Ltd. （4586 Growth）

Issued: October 12, 2023

MEDRx is set to receive an upfront payment and milestone payments based on development progress (amounts not disclosed). Once the product is launched on the market, the contract is such that the product will be supplied exclusively to Alto, which will receive royalties based on sales.

Alto's product pipelines

Source: Alto Neuroscience home page. Last four drugs now at Phase-1

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This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based on information and materials that Fair Research judges reliable, there is no guarantee of accuracy, credibility, completeness, suitability or timeliness. Fair Research shall not take any responsibility whatsoever for any results including direct or indirect damage arising from the use of, or reliance on, this report. Investors should take their own responsibility for securities and other transactions. The intellectual property rights of this report belong to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited..

MEDRx Co., Ltd. （4586 Growth）

Issued: October 12, 2023

Lidocaine tape (MRX-5LBT) was developed as a treatment for post-herpetic nerve pain. Scheduled to be MEDRx's first product to be marketed in the United States

There are three factors differentiating Lydolyte from Lidoderm and its generics (patches)

The trials necessary for the application were completed by February 2020, and the new drug application was submitted in August, but failed to receive approval

Supplementary studies

1. Re-submission of application for lidocaine tape (MRX-5LBT; product name Lydolyte)

Lydolyte is a tape preparation of lidocaine, a type of local anesthetic, and is used to treat post-herpetic nerve pain. On September 29, 2023 MEDRx was in receipt of its second Completed Response Letter (CRL) from the FDA, in which it was required to re-submit certain non-clinical data according to FDA instructions. MEDRx has determined that it can comply with the FDA's instructions by reanalyzing the data without conducting additional testing, and plans to resubmit the application within 2023. If all goes well, the drug is expected to receive new drug approval in the first half of 2024, and after conclusion of a sales partnership agreement, will become MEDRx's first commercially available product in the United States in the second half of 2024.

Herpes zoster (shingles) is a painful disease brought on by the reactivation of the varicella-zoster virus that remains latent in the dorsal root ganglion during childhood. For most people with shingles, the pain disappears as the shingles are treated. Normally, viruses are blocked by immune cells and remain dormant, but they become active again when immunity is weakened due to aging or chronic disease. In Japan, 90% of adults carry the virus that causes shingles, and one in 30 people are thought to have developed shingles.

In the past, nerve block drug therapies were the main treatments for post-herpetic neuralgia, but in March 1999, Lidoderm®, a skin-absorbable poultice, was approved in the United States and rapidly expanded to become the first-line treatment. Although the only condition approved by the FDA is post-herpetic neuralgia, it is widely used off-label to treat other neuropathic pain. Lidoderm® at one time boasted sales of approximately USD1.2 billion, and the number of poultices sold was approximately 140,000. However, the patent expired in 2014, leading to the appearance of generic products. Low-concentration OTC products have also appeared, making competition intense. The US lidocaine patch market in 2022 was valued at approximately JPY34 billion, of which Lidoderm generic products accounted for 50% on a value basis and 90% on a volume basis.

MEDRx has developed Lydolyte as a competitive product targeting this market with the following differentiating factors:

• It is a tape rather than a patch, making it easier to use

• Less lidocaine (30% of conventional products) for the same effectiveness
• Less skin irritation, strong adhesiveness even during physical exercise (does not peel off when perspiring)

Lydolyte demonstrated superior adhesiveness to Lidoderm® in tests in 2019, and was shown to be less irritating to the skin than Lidoderm® in tests in the same year. Furthermore, in January 2020, in tests on the effects of physical exercise (adhesive strength evaluation), it demonstrated adequate adhesive strength even during exercise accompanied by sweating.

MEDRx completed all the tests necessary for the application by February 2020, submitted a new drug application in August 2020, and had the application officially accepted by the FDA in October. However, on July 5, 2021, the company received a Complete Response Letter from the FDA, notifying them that the application was not approved at this time. Initially, MEDRx thought that there would be no need for additional testing and that it would be approved within 2021 by appropriately

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This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based on information and materials that Fair Research judges reliable, there is no guarantee of accuracy, credibility, completeness, suitability or timeliness. Fair Research shall not take any responsibility whatsoever for any results including direct or indirect damage arising from the use of, or reliance on, this report. Investors should take their own responsibility for securities and other transactions. The intellectual property rights of this report belong to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited..

MEDRx Co., Ltd. （4586 Growth）

Issued: October 12, 2023

followed by re-submission in March 2023

Another CRL received in September 2023

Another submission planned for 2023

Second tape in the market - forerunner is expanding

responding to the questions from the FDA, but in the process of negotiations with the FDA, It was determined that some additional testing was required (see note). Subsequently, MEDRx conducted additional testing from the second half of 2022, announced in January 2023 that the additional testing had yielded positive results, and reapplied on March 29. This, however, was followed by another CRL from the FDA on September 29. This time the company was being asked to resubmit some data from non-clinical studies in accordance with FDA instructions. After conducting a thorough investigation with its joint developer, D. Western Therapeutics Institute, Inc. (DWTI), MEDRx determined that it was possible to comply with the FDA's instructions by re-analyzing the data without conducting additional testing and planned to reapply within 2023 with a possible launch date in the second half of 2024.

(Note) The FDA issued new draft guidance for transdermal adhesion in July 2021, which requires products be able to adhere well when exercising, sweating, or taking a shower, and be resistant to peeling off due to friction with clothing or bedding. The draft guidance describes adhesion performance and important points related to its testing.

＜Process recap＞

2019: Successful results for adhesiveness and skin irritation test January 2020 Successful results for adhesiveness during physical exercise August 2020 NDA submitted (receipt in October)

July 2021 Complete Response Letter received January 2023 Good results from supplementary tests March 2023 Re-submission

September 2023 Receipt of second CRL

Lidocaine tapes already exist in the United States. In October 2018, US company Scilex Pharmaceuticals Inc. (parent company Sorrento Therapeutics Inc. (See Note below) launched a lidocaine tape (ZTlido®) that has superior properties to Lidoderm®. ZTlido®'s market share (number of tapes) is estimated to be around 5%, but it is expanding with the aim of reaching 10%. Sales in 2022 grew 50% YoY on a gross basis as a result of the large amount of promotional expenses spent in order to expand the market. Even after deducting promotional expenses, net sales totaled USD$38 million, an increase of 21.4% from the previous year. Strong sales growth continues in the first half of 2023.

Overall US lidocaine tape and ZTlido's sales

		2022	2021
Overall market	No. of prescriptions	4.6 mil.	3.9 mil.
	Patches	169 mil.	147 mil.
	Market size	na	246 mil.USD
Ztlido®	Net sales	38.0 mil.USD	31.3 mil.USD
	Share of sales	na	12.7 %
	Patches	7.6 mil.	5.1 mil.
	Volume share	4.5 %	3.5 %
	（YoY）	48%
	Assumed unit price	USD 5.0/patch	USD 6.1/patch

Estimates by Fair Research Inc.

Source; Fair Research Inc,. using various materials

The official price for ZTlido® is USD10.2 per tape but on a net basis we presently estimate just under USD5 per tape.

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This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based on information and materials that Fair Research judges reliable, there is no guarantee of accuracy, credibility, completeness, suitability or timeliness. Fair Research shall not take any responsibility whatsoever for any results including direct or indirect damage arising from the use of, or reliance on, this report. Investors should take their own responsibility for securities and other transactions. The intellectual property rights of this report belong to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited..

MEDRx Co., Ltd. （4586 Growth）

Issued: October 12, 2023

Now negotiating sales agreements with multiple companies - decision on selection may be made at time of FDA authorisation

(Note) In February 2023, Sorrento, together with its wholly owned subsidiary Scintilla, filed for Chapter 11. In the past, there was a legal dispute with the licensee over the development of the anti-cancer drug Cynviloq®, but on February 7, 2023, Sorrento announced that the licensee would pay USD175 million to Sorrento. A payment of USD125 million was made. It appears that Sorrento was forced to file for Chapter 11 due to concerns about its short-term cash flow as it faced a net outflow of USD50 million. Sorrento has assets of over USD 1 billion and is not insolvent. Silex is not subject to Chapter 11 because there is no debt relationship with Sorrento, and Sorrento's ownership has decreased due to its listing on the market (November 11, 2022). In addition, Sorrento continues to operate as usual even after filing for Chapter 11,with support from JCM Capital.

After submitting a new application to the FDA , MEDRx is expected to begin full- scale sales partnership negotiations with multiple companies. Since it is selling a tape agent, MEDRx believes it can cover the marketing with a relatively small number of MRs, say about 100 to 200. This compares to about 100 MRs for ZTlido® and 250 MRs for the original product, Lidoderm®), and we are targeting primary care sales. In terms of partner, it is looking for a company that has a strong network, especially one that is strong in general practice and pain clinics. The company plans to enter into sales partnership agreements before and after obtaining approval, and is expected to launch the product in the second half of 2024. Once launched in the market, the idea is to track ZTlido's sales growth by emphasizing Lydolyte's superiority in terms of skin irritation and adhesive strength, and strategically setting the sales price in consultation with partners.

Peak sales could come in at 13.5 million patches, compared to the 2022 level for lidocaine patches of 169 million, assuming a final market share of 8%. As for pricing, it is not possible to have a clear outlook at this point, since it depends on the sales company's strategy. However, assuming that pricing is competitive (USD4.5 per patch compared to just under USD5 for the leading tape agent ZTlido®), peak sales in value terms would be around JPY8.5 billion (at JPY140/USD.

(Reference)

The lump-sum contract fee associated with licensing out sales rights is expected to be JPY2 billion yen, which is about one-quarter of peak sales, but it cannot be predicted accurately due to the highly competitive market environment. The royalties rate paid by distributors to MEDRx is currently unclear, but if we assume that the wholesale price from MEDRx to distributors is around 30% of the net price, at its peak sales to the value of JPY2.5-2.6 billion will accrue to MEDRx.. Furthermore, assuming that the manufacturing cost rate is approximately 15% of the net price, the gross profit for MEDRx is expected to be approximately JPY1.2 to JPY1.3 billion annually.

Also requiring mention is that MEDRx concluded a joint R&D agreement with D. Western Therapeutics Institute, a biotech venture, on April 16, 2020. It expects to receive a total milestone amount of JPY200 million in accordance with progress in product commercialisation in the US. JPY100 million was received in the second half of 2020 at the time of application and it is inferred the remaining JPY100 million will be received at the time of approval. After the product is launched a portion of the royalties (estimated at 10-20%) will be payable to DWTI.

(Reference)

Scilex is also developing a tape preparation, SP-103, indicated for lower back pain and other conditions, that has triple the concentration of lidocaine. It received fast track designation in August 2022, and in September 2023, it was announced that safety and efficacy had been confirmed at Phase2.

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This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based on information and materials that Fair Research judges reliable, there is no guarantee of accuracy, credibility, completeness, suitability or timeliness. Fair Research shall not take any responsibility whatsoever for any results including direct or indirect damage arising from the use of, or reliance on, this report. Investors should take their own responsibility for securities and other transactions. The intellectual property rights of this report belong to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited..

MEDRx Co., Ltd. （4586 Growth）

Issued: October 12, 2023

Tizanidine tape is a central muscle relaxant used to relieve stiff shoulders.

There is no competing patch.

2.Tizanidine tape: Focus on development of MRX-4TZT

Tizanidine tape is a transdermal formulation of tizanidine (trade name Zanaflex), a central muscle relaxant that is also used to relieve stiff shoulders, using MEDRx's ILTS® technology. Currently, tizanidine is available only as an oral drug, and there are no competitors. The market size of muscle relaxants in the United States is estimated to be around JPY170 billion (2022).

Tizanidine acts on the brain/central nervous system, and drug efficacy is more likely related to blood concentration, rather than to local (peripheral nerve, muscle) effects like lidocaine. In February 2017, the results of the U.S. Phase-1a (exploratory stage of clinical Phase1) were released, and it was confirmed that the same level of sustained blood concentration and reduction of side effects, such as drowsiness, were achieved compared to oral drugs.

Advantages of the oral preparation over the transdermal absorption preparation - bloodstream concentration comparison

Phase-1a completed in February 2017, licensing-out to Cipla in April

The plan was to move on with Ph1b and Ph2 in 2018, but the entire development program was delayed due to setbacks in manufacturing scale-up

Note1: Since the concentration in the blood of the oral preparation shows a spike-type dynamic that rises and falls rapidly after administration, it can rise excessively to a level where side effects occur.

Note 2: With transdermal preparations, the skin gradually absorbs the drug (sustained release), so the blood concentration in the therapeutic window can be maintained and the risk of side effects can be reduced.

Source: MEDRx company briefing

Development timeline

In April 2017, after the success of Phase-1a, MEDRx entered a development and sales licensing agreement in the global market (excluding East Asia) with Cipla USA, a wholly owned US subsidiary of Cipla, a major Indian pharmaceutical company. (Subsequently, due to reorganization within the Cipla group, the contracting party was changed to Cipla Technologies, LLC, hereafter referred to as Cipla). The contract includes an upfront payment of JPY160 million in 2017, followed by milestone income of up to USD30 million depending on progress made in product development and sales. After the market launch, royalties income will be received in stages according to sales. In January 2018, it was announced that a supplementary Ph1a' trial had started and the results were as expected. At that time, the plan was to scale up production of the investigational drug and conduct additional repeat-dose studies (PK (pharmacokinetics study: Phase1b) and PD (pharmacodynamics) study (Phase2) in 2018.

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This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based on information and materials that Fair Research judges reliable, there is no guarantee of accuracy, credibility, completeness, suitability or timeliness. Fair Research shall not take any responsibility whatsoever for any results including direct or indirect damage arising from the use of, or reliance on, this report. Investors should take their own responsibility for securities and other transactions. The intellectual property rights of this report belong to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited..

MEDRx Co., Ltd. （4586 Growth）

Issued: October 12, 2023

Start of Phase2 entry has stalled due to the impact of

COVID-19 and Cipla's strategy change

In April 2023 MEDRx recovered all rights from Cipla and began Phase2 independently

Phase2 prep. (preparation of

investigationaldrug, consultation with FDA, etc.) are taking longer than expected.

Also, time required for Phase- 2 likely to be longer than originally expected

＜Events in tizanidine tape development>

February 2017	Ph1a' successful
April 2017	Licensing-out to Cipla
January 2018	Supplementary Ph1a' successful
September 2019 Ph1b（repeat dose pharmacokinetic）successful
2020	Change in Cipla CNS development strategy - Phase-2 suspended
2022	With a view to bearing all or part of the costs of Phase-2 MEDRx
	discusses outlook for development with Cipla
March 2023	All rights re-acquired from Cipla

However, it took longer than expected to scale up production, and the company was unable to conduct Phase-1b in 2018. A start was made in early 2019 and success was achieved in clearing the pre-specified standards in September. Originally, a milestone payment of USD6 million was expected upon successful completion of Phase-1b, but by mutual agreement the milestone amount for 2019 was reduced to USD1 million.

Subsequently, in mid-2020, Cipla was to lead a Phase-2 study (duration: approximately 6 months) in a small number of patients to examine drug efficacy and side effects. such as drowsiness, in case of dose increases.

However, due to the impact of the Covid-19 infection, technology transfer for mass production of investigational drugs was delayed, in addition to which Cipla changed its development strategy in the CNS field from mid-2020, meaning that such development was re-licensed (rather than developed in-house). As the structure changed to sublicensing development came to a standstill. Therefore, MEDRx became responsible for preparing for Phase2 preparations and began selecting and negotiating sublicense candidates with Cipla. However, a sublicensing agreement was not reached, and from 2022, MEDRx changed its policy to bear some or all of the costs and has been in discussions with Cipla. At the same time, the company twice raised the funds necessary to carry out Phase2 on its own (24th issue of stock acquisition rights and 25th issue of stock acquisition rights).

Finally, in March 2023, MEDRx agreed to take back all rights to MRX-4TZT from Cipla, and in April concluded a license termination agreement. This allows MEDRx to independently resume development and increase the value of its pipeline. It was also announced that the impact of this rights recovery on business results would be minor. In the final analysis, while giving up future milestones, it is believed that all rights were recovered in a form close to cost free.

Looking ahead, MEDRx plans to begin full-scale development of tizanidine tape (MRX-4TZT) on its own. The exercise of the 24th stock acquisition rights was completed in February 2023, and the exercise of the 25th stock acquisition rights was completed in September 2023. As a result, the total amount raised through both was JPY1,967 million, thereby securing the funds necessary for the Phase2 implementation. MEDRx is now in discussion with the FDA on the Phase2 trials protocol.

However, as preparations for the examination are taking longer than expected, the timing of the planned spending has been changed from that expected at the time of announcing the fund procurement plan. That is to say, the period of expenditure related to Phase2 of tizanidine tape (MRX-4TZT) has, with respect to the funds raised from No.24 subscription rights, been changed from the originally planned

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