We have posted the stock prices and market capitalization of GNI Group and our new subsidiary, Gyre, in the “Investor Relations” section of our website so that you can see the value of our group at a glance.

We hope that investors will find this information useful.

Investor Relations | 株式会社ジーエヌアイグループ (gnipharma.com)

Thank you for your continued support of our business.

Yesterday, we announced that we would take strict action upon consultation with experts regarding suspicious trading of our shares on the stock exchange. Please be advised that we have taken some specific actions today.

We would like to advise investors to exercise due caution.

Thank you for your support and understanding.

We have been continuously observing transactions on the Tokyo Stock Exchange that are suspected of stock price manipulation, in which a large number of market orders for our shares are placed during the order acceptance period before the market opens, while all or part of these orders are canceled before the opening. Please be advised that we are continuing to closely monitor the situation and are considering consulting with attorneys and other experts with strict measures in sight.

Thank you for your support and understanding.

Regarding the transaction between GNI Group Co. Ltd. (“GNI” or “we) and Catalyst Biosciences, Inc. (“CBIO”), which we disclosed on December 27, 2022, we have recently noticed some speculative information such as the relevant authorities did not approve the transaction or CBIO will be delisted. Neither GNI nor its group companies have officially disclosed such information. Investors are advised to carefully check the source of such information before making investment decisions.

In addition, we would like to inform you that we make a strong protest against such baseless information, and if we believe that such information constitutes a violation of the Financial Instruments and Exchange Act, such as by spreading false rumors, we will take decisive measures such as contacting the Securities and Exchange Surveillance Commission to investigate the matter.

Legends:

Targeted Protein Degradation: TPD

Tropomyosin Receptor Kinase: TRK

Ubiquitin Mediated Small Molecule-Induced Target Elimination: uSMITE™

Investigational New Drug: IND

Q1: What is a protein degrader?

A1: A Protein degrader is a Heterobifunctional small molecule which harnesses the intrinsic ubiquitin-proteasome system to degrade disease-causing proteins. This can be a new type of precision medicine that is used to target and degrade “undruggable” proteins, thus providing new treatment options for patients.

Q2: Can you provide more information about Cullgen and its proprietary targeted protein degradation technology platform?

A2: A Cullgen is a San Diego, USA based privately-held US biotechnology company focusing on the development of small molecule therapeutics using its proprietary targeted protein degradation (TPD) technology, referred to as uSMITE™ (ubiquitin-mediated small molecule-induced target elimination). Cullgen’s TPD technology can be applied to create protein degraders (including both heterobifunctional and molecular glues) for a broad range of intracellular disease targets, including oncology, inflammation, CNS, and other diseases that cannot be addressed by existing therapies, commonly referred to as “undruggable” targets.

Cullgen has a number of preclinical molecules in development, primarily for oncology applications.  Cullgen’s most advanced program is a TRK degrader for cancer which recently had an IND allowed.

In addition to Cullgen’s internal pipeline of TPD programs, Cullgen is also discovering and developing novel E3 ligands that can be used to enhance the overall robustness and effectiveness of TPD therapeutics.  Cullgen believes that the development of novel E3 ligands will be one of the key long-term success factors for TPDs.  Through the use of such novel E3 ligands, Cullgen will be able to design protein degraders that are capable of recruiting and binding to one of the hundreds of existing E3 ligases that have never been utilized for TPD therapeutics.  Designing a protein degrader that has the capability to bind to non-common E3 ligases offers the potential to provide a therapeutic solution with increased efficacy, reduced toxicity, enhanced tissue selectivity and the ability to overcome drug resistance.

More information about Cullgen and their game-changing technology can be obtained by visiting Cullgen’s website:

 https://www.Cullgen.com

Q3: What are the differences and advantages between Cullgen’s platform and other TPD technologies?

A3: One of the key differentiating factors between Cullgen and other TPD companies is that Cullgen has discovered multiple novel E3 ligands and has demonstrated that such novel E3 ligands lead to the creation of functional TPDs.  In fact, Cullgen is regarded as a world-wide leader for the development of novel E3 ligands for the use in TPDs and has incorporated such novel E3 ligands in several of its internal TPD programs.

In addition, Cullgen’s scientific founders, Drs. Yue Xiong and Jian Jin are technical pioneers in the field of targeted protein degradation, having combined experience of over 40 years in this field with respect to the ubiquitin-proteasome system and targeted protein degradation.

Our website will undergo maintenance and upgrades on Monday 29th May in the morning.

During this period, you may experience temporary unavailability. We apologize for any inconvenience caused and appreciate your patience.

We plan to change the classification on the IR page and the URL of some subpages.

Please see below the screenshots of the upcoming updates to our website.

Before

After

Thank you always for your understanding and support of our business.

Legends:

GNI Group Ltd. (single entity in Japan): the Company

The Company and its subsidiaries: the Group or we

Beijing Continent Pharmaceuticals Co., Ltd.: BC

Catalyst Biosciences, Inc.: CBIO

Berkeley Advanced Biomaterials LLC: BAB

Targeted Protein Degradation: TPD

Nonalcoholic Steatohepatitis: NASH

Q1: What will be the impact of Series C funding on Cullgen’s cashflow?

A1: Extensive of cash runway under current budget into 2025.

Q2: What did the investors in this round receive in return for their investments? Common stocks, preferred stocks, and / or warrants?

A2: As typical in venture capital financing rounds, the investors received preferred shares of Cullgen.

Q3: Why did GNI not invest more than $6M to keep the ownership level (35%) on a fully diluted basis prior to Series C? Was the reduction in GNI’s ownership intentional and a part of the steps toward de-consolidating Cullgen?

A3: That was not necessarily our intention. Through GNI USA’s participation in the Series C financing, the GNI Group just maintained its investment in Cullgen in the low 30% level on a fully diluted basis, reflecting the continued confidence we have in Cullgen’s platform technology and ongoing programs.

Q4: Did GNI exercise all the Cullgen’s warrants it held along with Series C funding?

A4: Yes.

Q5: You have said Cullgen’s fund raising of $40m covers 3 years of its operations. Since GNI consolidated Cullgen, does that mean GNI’s R&D cost will increase?

A5: Yes, it will slightly increase R&D costs, but it is worth it. Cullgen is our future, and we look forward to seeing Cullgen grow in the future, and 30-ish% ownership is an ideal position for us.

Q6: What is in “Others” on Slide 24 in the presentation material?

A6: Others are research reagents and other general healthcare-related products handled by Reef. Our intention was to separate them from pharmaceutical revenues so that pharmaceutical revenues can be clearly identified.

Q7: Regarding the NASH Phase IIa test, you have said the protocol has been agreed. Will CBIO sponsor the trial alone? Who will sponsor the phase after IIa?

A7: We are afraid that we cannot comment on this more than what we have already disclosed.

Q8: Cullgen’s taking time to start TPD clinical trial. When will it likely start? Could it start this year?

A8: We are afraid that we cannot comment on this more than what we have already disclosed.

Q9: Cullgen has eight drugs one their pipeline. Which one will likely be the next one to proceed to a clinical trial?

A9: We are afraid that we cannot comment on this more than what we have already disclosed.

Q10: GNI used to give more guidance on future prospects before, but has your policy changed not to disclose anything about a future event?

A10: We cannot comment on CBIO’s plan because there are ongoing discussions and filings with the US SEC, and we must strictly comply with all the rules over there. Besides, CBIO is a public company in the US, so we cannot speak for them in Japan from now on. We apologize for the inconvenience. If any material information is disclosed by CBIO themselves, we will let you know.

Cullgen has other INDs in preparation, but we cannot disclose the name of the target until an IND is filed because TPD is a very hot field and therefore is crowded with competitors. If such sensitive information is made available to our competitors, it could damage Cullgen. We appreciate your understanding. As soon as Cullgen discloses a target name in an R&D or industry conference, we will be open to discuss it with the public.

Legends:

GNI Group Ltd. (single entity in Japan): the Company

The Company and its subsidiaries: the Group or we

Beijing Continent Pharmaceuticals Co., Ltd.: BC

Catalyst Biosciences, Inc.: CBIO

Berkeley Advanced Biomaterials LLC: BAB

Nonalcoholic Steatohepatitis: NASH

Targeted Protein Degradation: TPD

In Q1 2023, BC, in spite of the strong COVID headwind in January, still maintained stable profitability. As you know, in January, almost all the hospitals in China were occupied with COVID, so the sales increase in this quarter was extremely challenging. We’re glad that BC continued their push forward.

At the same time, BAB was our second biggest revenue source and maintained stability in the United States.

These 2 key subsidiaries maintain very good steady cash flow and liquidity, which is the foundation of our group.

However, the consolidated profit decreased for several reasons including some one-time items which we want to explain.

Cullgen has been pushing forward in R&D relatively fast, and the increase of consolidated R&D expense by 35.7% on a consolidated basis is a very important factor.

We will talk about later in the call that Cullgen recently finished another round of Series C financing, led by an AstraZeneca fund, which was successful. Under current market conditions, it’s extremely difficult and very challenging to raise money. Cullgen’s success to close Series C is evidence that this company is doing very well in the R&D development of new drugs. GNI invested in Cullgen together with many other global private equities and large industry players, and I t is our strategy now to use all this money to speed up R&D in Cullgen. When Cullgen has more products proceeding to clinical trials, we can see a moderate increase of R&D expenses in the future.

On the other hand, we continue to hire more sales and marketing representative in China because if we don’t build up a strong enough sales network today, it will be much more costly to build one in the future. We need to have a larger sales force for our future drugs.

Other than that, we also have some one-time expenses. The first and the more important one is related to CBIO and its stock price movement. During the transaction with us, they distributed existing cash as dividends to existing shareholders, which caused a drop in their stock price afterwards. Since we have around 17% of the company (without taking into account the large number of preferred shares), upon consultation with the auditor, we valued our holdings of CBIO lower by roughly 2.7 oku (270 million) yen. This is why we have a large one-time expense. In addition to that, there were M&A expenses at GNI USA, GNI and BC. These M&A expenses are also related to CBIO.

All of these combined together decreased our profit for the first quarter.

On the R&D side, there was much good progress. F351 Phase III trial in China finally enrolled half of the (target) patients now. Last year, as you know, we had no enrollment for quite a few months due to COVID lockdowns in China. We believe the momentum is coming back.

The same is true for F573, which is progressing in Phase II trial.

Cullgen’s degrader is also ready for Phase I trial, for which we already passed all the regulatory approvals.

Also in the US, regarding F351 (clinical trial) for NASH, we have communicated with the US FDA and reached an agreement on the protocol. However, due to the ongoing transaction, we will refrain from discussing too much about CBIO.

CBIO and BC transaction is still on track.

As we mentioned, AstraZeneca-led fund’s money is already in Cullgen’s bank account.

Multiple pre-IND studies such as the ones for COPD and cancers are ongoing. Once they reach the IND stage, our Group will have the largest pipeline so far in our corporate history.

On the Medical Device business side, OsDerma continues to use BAB technology for the application to the aesthetic field, on which we have a high hope on fast growth.

Last year, we acquired Micren and are continuing the integration process, which is smooth.

All of what we are doing today and have been doing in the last 10 years is to create a new business model in which we balance profitability and drug discovery. For many people, drug discovery means spending a lot of money without a profit for a long period of time, but we try to create a new model for drug discovery. That’s why we created this group structure, which we believe is the best way to balance profit and drug discovery expenses.

Other than increasing revenue, we also need to continue to have a very cost-efficient and innovative platform, which is based on the early clinical trials in China and subsequent commercialization worldwide. On the one hand, we increase our revenue and on the other, we spend efficiently so that we will not consume too much. While we balance between income and expense, we always keep our focus on the future growth potential in pharmaceutical and medical device business. We believe this business model is ideal, especially in today’s very challenging market environment. As I mentioned, it’s very difficult recently for biotech to raise money; however, because of our unique model, most of our subsidiaries remain profitable.

Although Cullgen’s not profitable yet, they were able to raise funds from reputable investors which demonstrate how advanced Cullgen’s TPD technology platform is.

This is BC’s pipeline. Going forward, we will pay special attention to the F351 trial, which is halfway through Phase III. BC will continue to focus on inflammatory and fibrotic diseases.

CBIO will focus on the US NASH fibrosis application.

At the same time, Cullgen will focus on cancer, which is the difference between BC and Cullgen: the one focuses on inflammatory diseases, and the other focused on cancer. As you can see, we have different pipelines for different companies. In that way, they can best use their current resources and focus on drug development in the most cost-efficient way.

GNI Group consolidated revenue for the 2013 First Quarter was 4,206 million yen, an increase of 6.9% YoY. There have been significant currency changes since last year, and the rates we used this time were RMB plus 5% and US$ plus 14% YoY for the 2022 first quarter. Based on these exchange rates, the 6.9% increase in consolidated sales revenue that I mentioned at the beginning of this presentation may be appropriately described as a slight or stable increase in local currency terms. However, it is important to note that in the first quarter in general, the business environment in China was still very severely constrained by COVID. Taking this into account, we consider that the business sales of GNI Group in the first quarter were stable. On the other hand, operating income was 397 million yen, a YoY decrease of 17% and a loss of 2 million yen attributable to the parent company.

This chart shows the five-year first quarter revenues and expenses, etc. Basically, the trend has maintained a steady increase.

Gross profit was up 7.3% YoY, compared to a 6.9% YoY increase in revenue. Next, SG&A expenses grew 7.6% YoY, almost in parallel with revenue. As I mentioned earlier, the slight increase in revenue means that sales growth was realized in the midst of a very difficult COVID environment in the first quarter in China in particular.

However, in order to maintain this growth, selling, general and administrative (SG&A) expenses increased. In addition, M&A expenses and IPO expenses were added, which pushed up SG&A expenses.

On the other hand, R&D expenses increased by 35.7% YoY. There was a marked increase in R&D spending, mainly at Cullgen, both in the US and in China.

As a result, operating income was 397 million yen, down 17% YoY.

Next, we would like to turn to an analysis of the factors behind the increase/decrease in profit. First, gross profit on the far left was a positive factor of 249 million yen compared to the same period last year. On the other hand, the negative factors were 186 million yen in SG&A expenses and 158 million yen in R&D expenditures. Based on the above points, we can say that our businesses overall were profitable. However, financial expenses of 55 million yen and a 272-million-yen valuation decrease due to the ex-dividend rights of CBIO were added to this, resulting in a negative impact on the net profit.

In order to look back at GNI’s business activities over a longer period of time, this page shows the changes in SG&A expenses, R&D expenses, and their ratio to sales over the past nine years. Despite significant changes in the nature of our business, for the past five or six years, including the period before COVID, SG&A expenses have been 60% of sales, and R&D expenses have been 15% of sales, the levels that have remained stable.

Although it is difficult to say what will happen in the future, we can say that SG&A expenses have remained stable. On the other hand, we believe that unlike in the past, R&D expenses are expected to rise to some extent in the future.

Finally, we would like to explain some of the results by segment. The revenue of 3,606 million yen in the pharmaceutical segment was up 6% YoY, while operating income was 149 million yen, down 33% YoY. Negative factors for operating income in the pharmaceuticals segment included higher R&D expenses, in addition to higher personnel expenses and sales and marketing expenses. In the medical equipment segment, the revenue was 599 million yen, up 17% YoY, and operating income was 248 million yen, down 3% YoY. In terms of operating income, the medical equipment segment performed well with sales growth due to the recovery from COVID, but on the other hand, cost increases for biomaterials and other items were major negative factors.

For more details, please refer to the link below.

https://www.sec.gov/ix?doc=/Archives/edgar/data/1124105/000156459023007276/cbio-10q_20230331.htm

This document is a press release material created purely for the purpose of publicly disclosing CBIO’s official filing with SEC and NOT for the purpose of soliciting investment either in Japan or overseas.

For more details, please refer to the link below.

https://ir.catalystbiosciences.com/static-files/dcdd2465-4e87-4dba-b808-71ac4f404d45

This document is created purely for the purpose of publicly announcing CBIO’s official filing with SEC and NOT for the purpose of soliciting investment either in Japan or overseas.