Takara Bio : Annual Report 2021

TAKARA BIO REPORT

TAKARA BIO INC.

Research support
Research reagents and		Academic and	• Basic research and advanced
	research for the life sciences
scientific instruments		corporate	• Drug discovery and other applied
			research
Diagnostic reagents	Sales		Use
In vitro diagnostics		Clinical	• Reagents to detect pathogens
	laboratory
	such as COVID-19
		and medical

Bioindustry

Corporate Philosophy

CDMO*

Services related to regenerative

medicine products

Manufacturing and development of viral/plasmid vectors and cells, quality and safety testing, and more

Services related to genetic

analysis and testing

Genetic analysis such as human genome sequence analysis, etc. and contract research for genetic engineering such as genome editing

	• Clinical development and
Pharmaceutical	commercial production of
regenerative medicine products
industry	such as gene therapies for
	pharmaceutical companies and
	bio ventures
Contracting	Use
Academic and	• Basic research and advanced
research for the life sciences
corporate
• Drug discovery and other applied
	research

Contributing to the health of humankind through the development of revolutionary biotechnologies such as gene therapy

Biotechnology using

genes and cells

(platform technology for drug discovery)

Proprietary technology

RetroNection®, siTCR™

Development of new technology

Use	Development of	Approval
	Social
	gene therapy products
	implementation
	for cancer and others
	Licensing
		and
		partnerships

Gene Therapy

Ongoing clinical development

projects

NY-ESO-1· siTCR™,

CD19·JAK/STAT·CAR

Developing new clinical projects

*Here, CDMO (Contract Development and Manufacturing Organization) refers to provision of contract services for drug development and manufacturing, in all steps of the process from formulation to final manufacturing, for clients such as pharmaceutical companies. Takara Bio provides CDMO services focused on regenerative medicine products such as gene therapy.

Our History	• Commenced sales of the first	• Began DNA synthesis services	• Began DNA sequence analysis services
	1979	1985	1990
	domestically produced	1988	1993
	restriction enzymes as
	• Acquired exclusive distribution rights	• Obtained worldwide,
	reagents for genetic
	in Japan for a gene amplification	broad-
Bioindustry	engineering research
system using PCR technology	ranging PCR-related
			patent licenses

2000	2008	2013
• Launched full-scale	• Started Japan's first	• Launched genome editing services
genetic analysis	sponsor-initiated	2014
services	clinical trial of ex
• Completed construction of the Center for Gene and
2006	vivo gene therapy
Cell Processing; began full-scale CDMO business
2009
• Began next-generation	providing manufacturing and development support
sequence analysis	• Began iPS cell	services for regenerative medicine products
services	production services

2015	2020
• The Center for Gene and Cell	• Began selling Takara
Processing accredited as a foreign	SARS-CoV-2 Direct
cell processor to conduct specific	PCR kit, an in vitro
processed cell manufacturing	diagnostic
2016

• Obtained CAP-LAP certification for

the contract genetic analysis business

Business

Gene

Therapy

1995

• Developed the RetroNectin® method for highly efficient retroviral transduction in hematopoietic stem cells

2010

• Acquired C-REV project

2018	2020
• Designated NY-ESO-1·siTCRTM	• NY-ESO1·siTCRTM
as a product under the	designated as an Orphan
SAKIGAKE Designation	Regenerative Medicine
System

	1925	1995
	• Established Takara	• Established Takara Biomedical Europe
	Shuzo Co., Ltd. (now	S.A. (now Takara Bio Europe S.A.S.)
Company	• Established Bohan Biomedical Inc.
Takara Holdings Inc.)
(now Takara Korea Biomedical Inc.)
	1993	2000
	• Established Takara Biotechnology	• Established DRAGON GENOMICS
	(Dalian) Co., Ltd. in China	CO., LTD. (merged in 2002)

2002

• Established Takara Bio Inc.

Took over Takara Shuzo Co.'s biotechnology business and established Takara Bio Inc. in the city of Otsu, Shiga

2004

• Established Takara Biomedical Technology (Beijing) Co., Ltd.
• Listed on the TSE Mothers Index

2005	2014	2016	2020
• Established Takara Bio USA	• Acquired Cellectis AB (now Takara Bio Europe AB)	• Changed listing to the First	• Launched the Center for
Holdings Inc.	2015	Section of the TSE	Gene and Cell Processing II
• Acquired U.S.-based Clontech	• Completed construction	2017	2021
Laboratories Inc. (now Takara Bio	of new research facility	• Acquired Rubicon Genomics,	• Established Takara Bio UK
USA, Inc.)	in Kusatsu, Shiga;	Inc. and WaferGen	Ltd.
2011	Headquarters functions	Bio-systems, Inc. (later merged
• Established DSS Takara Bio India	relocated	into Takara Bio USA, Inc.)
Pvt. Ltd.

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Financial Highlights

The company's accounting period is from April 1 until March 31 of the following year. This report refers to the period ending in March 2021 as FY2021. Other periods also use this denotation.

Net Sales (billion yen) /

SG&A Expenses (billion yen) /SG&A

R&D Expenses (billion yen) /

Gross Profit to Net Sales Ratio (%)

Expenses to Net Sales Ratio (%)

R&D Expenses to Net Sales Ratio (%)

Net Sales

Gross Profit to Net Sales Ratio

SG&A Expenses

R&D Expenses

SG&A Expenses to Net Sales Ratio

R&D Expenses to Net Sales Ratio

48.0					46.0	100	20.2					17.9	100	6.0					5.5	40
36.0		32.3	35.8	34.5		75	15.0	13.7	15.0	15.2	14.8		75	4.5	4.1	4.6	4.3			30
	29.3			69.2										3.8
24.0	57.7	57.7	57.7	61.1		50	10.1						50	3.0						20
								46.8	46.7	42.5	42.9	38.9						12.0
														14.4
12.0						25	5.0						25	1.5	14.0	12.1	11.2		10
0						0	0						0	0						0
	2017	2018	2019	2020	2021	(FY)		2017	2018	2019	2020	2021	(FY)		2017	2018	2019	2020	2021	(FY)

FY2021
Net Sales by Business Segment (%)	Net Sales by Region (%)

Contract	Gene Therapy	Europe		Other
Service	0.6%	8.1%		1.4%
19.3%
	Consolidated	Asia (excl.	Consolidated
	Japan and
	net sales	China)	net sales
	¥ 46.0	10.7%	¥ 46.0
	billion	China	billion	Japan
Scientific		18.3%		44.4%
Instruments
3.7%	Research Reagents	United States
	76.4%	17.1%

Employees by Region
Europe	Asia (excl. Japan
88	and China)
	92
	No. of
United	employees
1,539
States
202	China
	587

Japan

570

Depreciation and Amortization (billion yen) /

Net Income Attributable to Owners of the

Depreciation and Amortization to Net

Operating Income (billion yen) /

Parent (billion yen) /Net Income Attributable to

Sales Ratio (%)

Operating Income to Net Sales Ratio (%)

Owners of the Parent to Net Sales Ratio (%)

Depreciation and Amortization

Operating Income

Net Income Attributable to Owners of the Parent

Depreciation and Amortization to Net Sales Ratio

Operating Income to Net Sales Ratio

Net Income Attributable to Owners of the Parent

to Net Sales Ratio

				EPS: net income per share (yen) /
Equity (billion yen) /ROE (%)	Total Net Assets (billion yen) /ROA (%)		BPS: net assets per share (yen)

Equity

ROE

Total assets

ROA

EPS

BPS

4.0
				2.9	3.2
3.0
		2.6
		2.5
2.0	1.7
		7.9	7.5	8.5	7.0
1.0
5.9
0
	2017	2018	2019	2020	2021

20	14.0					13.9	60	10.0
15	10.5						45	7.5
					6.2	30.3
10	7.0			5.4		30	5.0
5	3.5	3.2	3.5				15	2.5
		18.2
				15.2
		10.9	11.0
0	0						0	0
(FY)		2017	2018	2019	2020	2021	(FY)

				9.5		40
						30
				20.7	20
		3.6	3.8
	2.3					10
			11.1
1.3	7.2	10.2
4.6
					0
2017	2018	2019	2020	2021	(FY)

80.0													74.1	16	100.0													89.7	16	120																	800
										66.4
	59.8	61.8	64.0			13.6												75.0																			616.05
60.0																12	75.0	67.1	68.6	71.0						11.6 12	90	497.32	513.66	531.57	552.23	79.29			600
40.0																8	50.0																8	60																400
20.0								5.8			5.9					4	25.0								5.2			5.2					4	30					19.39		30.38		31.72					200
				3.8																								11.24
0		2.3													0	0		2.0			3.4											0	0														0
															2017	2018	2019	2020
	2017	2018 2019	2020 2021	(FY)		2021	(FY)		2017	2018	2019	2020	2021		(FY)

Financial Data of Major Subsidiaries Net Sales / Operating Income (billion yen)

Takara Biotechnology (Dalian) Co., Ltd.			Takara Bio USA Inc.
		Net Sales		Operating Income			Net Sales		Operating Income

Share Values (above) and Turnover (below)

(Yen)

5,000

6.0			5.3	40
4.5	3.8			30
	3.4		24
3.0				20
1.5			10	10
		8
0				0
	2019	2020	2021	(FY)

12.0	11.2	11.2	10.9	20
9.0	15		16	15
6.0				10
3.0			5	5
0				0
	2019	2020	2021	(FY)

Listed on the Tokyo Stock

Listed on the First Section

of the Tokyo Stock Exchange

4,000

Exchange Mothers Index

Stock split

(December 2004)

(April 2011)

(March 2016)

3,000

2,000

1,000

Takara Biomedical Technology (Beijing) Co., Ltd.

Net Sales		Operating Income

10.0			20
		8.3
7.5	6.3	15	15
6.1
5.0		12	10
10
2.5			5
0			0
2019	2020	2021	(FY)

Takara Bio Europe S.A.S.*

Net Sales		Operating Income

8.0			16
			6.3
6.0			12
			10
4.0	3.3	3.0	8
2.0			4
		2
0		1	0

201920202021 (FY)

*Consolidated with Takara Bio Europe AB

0

16,000

12,000

8,000

4,000

0
(10,000 shares)	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	(FY)

• Period: December 2004-June 2021
• Number of shares listed are those post-stock split adjustment

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Message from the President

Takara Bio aims to be a drug development company that continually creates new modalities by developing platform technology for drugs through our core businesses of research reagents/scientific instruments and CDMO services.

We will continue contributing to society by creating new value and achieving sustainable growth through proactive business activities.

Research Reagents

Takara Bio offers a wide variety of products and services from basic research to industrial applications in the life sciences to universities and companies all over the world.

In our research reagents business, revenue from regular research reagents decreased due to a pandemic-related slump in research across the life sciences field. However, due to greatly increased sales of products related to COVID-19 PCR testing, overall revenue from research reagents increased to ¥35,189 million (141.7% of the previous year). Note that net sales figures for research reagents also include sales of in vitro diagnostics, which we began selling in Japan in November 2020.

Scientific Instruments

Revenue from scientific instruments increased due to greater sales of PCR machines for COVID-19 PCR testing, with net sales at ¥1,726 million (139.0% of the previous year).

Contract Service

Performance of contract services for regenerative medicine products remained robust due to increasing activity in development of regenerative medicine products such as gene therapy at pharmaceutical companies. In this period, we also added contract services related to COVID-19 vaccines.

Revenue from contract services related to gene analysis and testing grew due to various factors, including being contracted to conduct a large whole genome sequencing project.

Consequently, this period's net sales greatly increased to ¥8,910 million (143.9% of the previous year).

Gene Therapy

Due to factors such as reduced royalties from pharmaceutical companies, our gene therapy business saw revenue decrease by ¥2,027 million from the previous year, to ¥268 million (11.7% of the previous year).

Koichi Nakao

President

FY2021 business performance

Net

46.0

YoY

Changes in sales by category

Changes in operating income

billion

composition

133%

Sales

FY2020

34.5

FY2020

6.2

Research

Difference

+3.6

YoY

+10.3

Gross

in composition

Operating

13.9

Reagents

billion

222%

Difference

Income

+7.3

Scientific

+0.4

profit

in sales

Instruments

Difference in

-0.2

Contract

exchange rate

+2.7

FY2021 Business Performance

Increases in revenue and profit lead to record high performance

In fiscal 2021, our group worked toward becoming a drug development company that continually creates new modalities by developing platform technology for drug development through our research reagents/scientific instruments business and CDMO business, following our six-yearLong-Term Management Plan 2026, which concludes in fiscal 2026, and our three-yearMedium-Term Management Plan 2023, which concludes in fiscal 2023. We actively worked toward ensuring a stable supply of products related to COVID-19 PCR testing, and optimizing systems for manufacturing vaccines and other regenerative medicine products.

Our research reagents and scientific instruments business saw a large jump in net sales due to high demand

for products related to COVID-19 PCR testing, to ¥46,086 million (133.3% of the previous year). The cost of sales was ¥14,214 million (105.6% of the previous year) due to a decrease in cost rate resulting from factors such as changes in sales composition and increased plant utilization, making gross profit ¥31,872 million (151.0% of the previous year). Selling and general administrative expenses were ¥17,919 million (120.8% of the previous year) due to an increase in R&D and other expenses, and operating income increased to ¥13,952 million (222.4% of the previous year).

Following growth in operating income, ordinary income increased to ¥14,159 million (223.1% of the previous year), and net income attributable to owners of the parent to ¥9,547 million (249.9% of the previous year). We achieved record high performance not only in terms of net sales, but also in all other profit-related figures, and our operating income has increased for 12 consecutive periods.

Net Income

YoY

Service

R&D

-1.6

Attributable to

expenses

Owners of the 9.5

billion

250%

Gene

-2.0

Other

-1.4

Parent

Therapy

expenses

ROE

13.6%

YoY

FY2021

46.0

FY2021

13.9

7.7points

30.0

40.0

50.0

5.0

10.0

15.0

(billion yen)

(billion yen)

Research reagent* sales by region

Changes in research reagent* sales and overseas sales ratio

																		Overseas sales ratio
					Domestic		Overseas	Overseas sales ratio			68 %
	China			(billion yen)															(%)
		U.S.
Europe	¥ 7.1billion		35.0																		80
	¥ 9.0
¥ 6.1	Japan	30.0																		70
	25.0																		60
billion	billion
	Other Asian	¥11.2billion	20.0	24 %																50
																		40
	countries			15.0
	¥1.6billion																				20
																						30
				10.0
				5.0																		10
				0																		0
					2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	(FY)
																	*All include in vitro diagnostics

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Message from the President

Shareholder Return

Considering the management performance and financial condition overall, Takara Bio recognizes a basic policy aimed at profit contribution, positioning the profit distribution to shareholders as an important issue for management as well as enhancing the internal reserves to strengthen R&D activities.

In accordance with this policy, Takara Bio paid year-end dividends of ¥16 per share, an ¥8 increase over the ¥8 per share dividend the previous year. We have now increased dividends for nine consecutive terms.

Outlook for FY2022 Business Performance (released August 3, 2021)

We anticipate that revenue from sales will increase with growth in sales of COVID-19 PCR testing reagents, recovery of the general market for research reagents from its pandemic slump, as well as growth in contract services and gene therapy. We also anticipate an increase in gross profit due to increased revenue and reduced cost rate. Selling and general administrative expenses will increase because we plan to actively increase R&D and personnel spending.

Consequently, we predict that in fiscal 2022 sales will increase to ¥54,200 million (117.6% of the previous year), gross profit to ¥37,267 million (116.9% of the previous

year), operating income to ¥17,000 million (121.8% of the previous year), ordinary income to ¥17,100 million (120.8% of the previous year), and net income attributable to owners of the parent to ¥11,900 million (124.6% of the previous year).

These forecasts assume that the effects of the pandemic will persist for some time into fiscal 2022, and consequently may vary depending on future circumstances. If our performance forecasts need to be revised, we will promptly publish that information.*

Progress toward Medium-Term Management Plan 2023 and Long-Term Management Plan 2026

In May 2020, we created our Medium-Term Management Plan 2023 and Long-Term Management Plan 2026, and defined quantitative targets, management indicators, and business strategies. However, income was much better than expected in fiscal 2021 due to the success of our COVID-19 PCR testing-related products, and thus we achieved the target figures for the final fiscal year of the plans early. Nevertheless, I believe we have yet to finish the work of building the growth foundation we set forth in our medium- and long-term plans. Therefore, we will leave the quantitative targets, indicators, and business strategies in those plans as they are, and continue to actively invest in R&D and equipment to expand our business.

R&D, Capital Investments, and Strengthening Our Business Base

In the area of R&D, we are strengthening our system for developing new products for our reagents business, which serves as both a technological and revenue base for our company. Therefore, we are working to maximize synergy across R&D systems in our three key regions of Japan, the U.S., and China, and urgently working to bring new products to market while implementing strategies such as open innovation. In our scientific instruments business, we are tackling the challenge of developing new systems by combining our instruments with our proprietary reagents. In our CDMO business, we are putting effort into developing peripheral technology for next-generation sequencing (NGS) that can be used to develop platform technology for regenerative medicine products or for clinical diagnosis. In our gene therapy business, we are cultivating new clinical projects not only through in-house development, but also by developing drug candidates identified by academic researchers.

In the area of capital investments, we are restructuring our manufacturing capabilities. Research reagent manufacturing has been concentrated at our plant in Dalian, China, but in light of recent changes in global conditions and effects of the pandemic, we are aiming to increase efficiency and competitiveness while reducing supply chain risk. In Japan, we are adding facilities for manufacturing critical components of PCR test reagents and assay kits, such as in vitro diagnostics, at our headquarters in Kusatsu, Shiga Prefecture.

business, including vaccine manufacturing services. In the U.S., we decided to add capability to manufacture PCR enzymes and other products to our new hub in San Jose, California where we are gearing up to launch manufacturing operations around the fall of 2021. In Europe, we are building manufacturing systems for cell and culture medium products at our manufacturing hub in Gothenburg, Sweden.

To strengthen our business base, we are actively working to build up personnel, an organizational structure, and a work environment that will support long-term business expansion, as well as working on management challenges such as maximizing shareholder return and increasing ROE.

Promoting Sustainability Management

Guided by our corporate philosophy to "contribute to the health of humankind through the development of revolutionary biotechnologies such as gene therapy," and from the perspective of increasing our medium- to long-term corporate value, we are working to solve various social challenges concerning sustainability, in health as well as other areas, through our business activities.

This year, we launched a Sustainability Promotion Committee chaired by the President, identified important issues we call "materialities," and defined specific goals for each materiality, and have been taking action to achieve those goals. Going forward, we will continue to formalize our efforts to implement sustainability management, with the aim of striking a balance between becoming a sustainable company

Performance since founding (net sales, operating income, and R&D expenses)

Net sales

Operating income

R&D expenses

We are also expanding Japanese facilities for our CDMO

and achieving sustained growth of Takara Bio Group.

(billion yen)																			(billion yen)
60.0																					24.0
																			54.2
50.0																				6.0	20.0
																		46.0
40.0																			5.5		16.0
																35.8
																32.3
30.0														29.7	29.3			34.5			12.0
												25.9
												23.9
					20.9	20.2	18.9	19.3	18.7	19.5	20.5							3.8		17.0
20.0				16.5									4.3		8.0
															13.9
	14.3	13.5	13.6
													4.6
															4.1
														4.2
10.0													3.4							4.0
											3.0					6.2
										2.6	2.7					5.4
						3.2	2.9	3.2	2.6
	3.1	2.7	3.0	2.9	3.2					2.6	3.2	3.5
			1.0	1.5	1.6	1.9	2.3
0						0.5	0.4	0.5								0
-0.4	-0.2			-0.2
-1.0	-1.4
	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	(FY)
																			(revised forecast)*

*Fiscal 2022 performance forecasts are based on figures released on August 3, 2021. Please see the Takara Bio website for the latest performance figures.

Quantitative targets in our medium- and long-term management plans and progress toward those targets

				Medium-Term	Long-Term			FY2021	FY2022
			Management Plan 2023	Management Plan 2026
					(Result)	(Forecast)
				(FY2023)	(FY2026)
		Operating		6.5 billion	10.0 billion		13.9 billion	14.0 billion
Quantitative	income
	targets	ROE		6% or more	8% or more		13.6%		12.6%
		Net sales		42.6 billion	50.0 billion		46.0 billion	50.5 billion
	KPI*
R&D expenses		6.3 billion	7.0 billion		5.5 billion	5.8 billion
*KPI: key performance indicator
	Point 1			Point 2				Point 3
Actively invest in R&D and	Put effort toward building a foundation for increasing business		Keep sustainability management in mind and
equipment. Further expand our	performance in the long term through strategies such as		leverage biotechnology to strike a balance
reagent and CDMO businesses,	personnel training, and speed up business development		between becoming a sustainable company and
with the aim of sustained growth.	toward becoming a "drug development company."		achieving sustained growth of Takara Bio Group.

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