Analyst Report ReproCELL. Inc

ANALYST NET Company Report
ReproCELL, Inc.
（4978 JASDAQ Growth) Published Sep. 4, 2015
1/25
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of the company.
Step-by-step Progression toward Becoming the
Global Leader in Regenerative Medicine Business
Step-by-step Progression to Become the No. 1 in B2B/Upstream
Regenerative Medicine Business
ReproCELL (RC) was founded in 2003 in order to establish a business based on the outcome
of regenerative medical research on stem cells performed at the University of Tokyo and
Kyoto University, the two foremost national institutions of higher learning. RC has developed
the cutting-edge technologies and has accumulated achievements in embryonic stem (ES)
cells and induced pluripotent stem (iPS) cells. One example is development of a culture and
other research reagents for Dr. Yamanaka of Kyoto University for his research on human iPS
cells. RC has also concentrated its management resources on R&D of cells such as
cardiomyocytes, neurons, and hepatocytes generated from iPS cells, which could help new
drug development, and has become the global first provider of those products. In the 11th
year
since foundation, RC became profitable and was listed in the JASDAQ market in 2013. In
2014, the proceeds from equity financing were used to fund acquisition of three venture
companies (one in the U.K. and two in the U.S.A.). RC has thereby strengthened its
technological base to enhance safety and efficiency, diversity, functionality, and quality, and
mass production in iPS cell culture technology. RC has established itself in an attractive
position to aim at becoming the global No.1, through business expansion and accelerated
globalization, in the iPS cell business centered on research reagents and drug development
support, or, in other words, the B2B/Upstream domain of the regenerative medicine field.
According to RC’s Mid-term Management Plan, the target is to return to profit-earning in fiscal
2016 (ending March 31, 2017) and to generate close to ¥600 million in ordinary profit by fiscal
2017.
No.1 in B2B/Upstream + No. 1 in B2C/Downstream = No.1 regenerative Medicine
In Japan, the Act on the Safety of Regenerative Medicine, and the Pharmaceutical and
Medical Device Act, PMDA (renamed from the revised Pharmaceutical Affairs Law were
enforced on November 25, 2014). This new legislative framework is expected to accelerate
development of regenerative medicine business. In this environment, RC plans to enter with
full force into the regenerative medicine field and aims at becoming the global No. 1 in this
market, i.e., the B2C/Downstream field. In order to fund needed capital spending and
expenses of facility operation, clinical tests, and R&D, an allotment of new acquisition rights
to a third party (Evolution Biotec Fund) is scheduled on August 31 and RC is expected to
procure ¥2.2 billion.
Probability of realizing the aim, and market evaluation
RC has a clear ambition and a long-term step-by-step plan to become the No. 1 player first in
the B2B/Upstream segment, then in the B2C/Downstream market, and ultimately in the
overall regenerative medicine market. RC’s stock is expected to have a significant upside
potential. According to estimates by the Ministry of Economy, Trade and Industry, the
regenerative medicine market is estimated to grow to ¥2 trillion in 2020, ¥30 trillion in 2030,
and ¥53 trillion in 2050 (of which, ¥42 trillion is a relevant market for RC.) Assuming that RC
gains a 10% share of the relevant market and attains about 15% operating margin, and using
20% for cost of capital in calculating corporate value, the stock price could be valued at
around ¥1,500 on a fully diluted basis. While RC’s losses have expanded due to goodwill
amortization resulting from the acquisition of three companies and for other reasons, RC’s
stock price, currently at around ¥500, could have a substantial upside potential if it becomes
highly probable that RC will realize its strategies. RC’s stepwise evolution toward becoming
the global No. 1 company in the regenerative medicine market is worth paying close attention.
Basic report
J-Phoenix Research Inc.
Osamu Miyashita, CFA
Basic corporate data
Location
Kohoku-ku,
Yokohama City
Representative
Chikafumi
Yokoyama
Established Feb. 2003
Capital ¥3,815million
Listed June 2013
URL
www.reprocell.
com
Industry sector Chemical
Employees 79 (parent)
Share information
as of Sep. 2, 2015
Stock price ¥507
52-week high ¥945
52-week low ¥469
Shares o/s 52,240,750
Trading unit 100
Market cap ¥26,486 mln
DPS (E) ¥0
FY2015 EPS (E) -¥9.53
PER (E) －
BPS (A) ¥131.75
PBR (A) 3.84
Fiscal term end
Sales
¥mn
YOY
％
Operatin
g profit
¥mn
YOY
％
Ordinar
y profit
¥mn
YOY
％
Net profit
¥mn
YOY
％
EPS
¥
Term-end closing
share price ¥
High Low
March 2014 460 - -93 - -132 - -133 - -3.08 3,660 856
March 2015 567 23.0 -740 - -456 - -451 - -9.01 1,026 648
3 mo to June 2014 87 2.9 -68 - -39 - -41 - -0.85 1026 648
3 mo to June 2015 263 201.3 -216 - -112 - -108 - -2.08 710 645
March 2016 Est. 1,530 169.8 -555 - -495 - -495 - -9.53 - -

ReproCELL, Inc. (4978 JASDAQ Growth) Published Sep. 4, 2015
2/25
of the company.
RC’s technological prowess
was proven by providing
culture reagents and other
research to Dr. Yamanaka of
Kyoto University and
contributing to his
development of human iPS
cells in 2007
RC is dedicated to becoming
global No.1 in the iPS cell
business centered on
research reagents and drug
development support, or in
the B2B/Upstream of the
regenerative medicine
market.
■ Founded in 2003 to establish business based on the outcome of
regenerative medicine research at University of Tokyo and Kyoto
University
With the aim of establishing next-generation medical business centered on cell
technologies, ReproCELL was founded in February 2003, using the
technological seeds of two researchers: Professor Norio Nakatsuji, Ph. D., who
then was the Director of the Institute for Frontier Medical Sciences, Kyoto
University, and Professor Hiromitsu Nakauchi, M.D., Ph. D., who is the Director
at the Center for Stem Cell and Regenerative Medicine, Institute of Medical
Science, the University of Tokyo. RC’s technological prowess was proven by
providing culture reagents and other research reagents to Professor Yamanaka
of Kyoto University and contributing to his development and culture of human
iPS cells in 2007. Since 2009, RC has concentrated its management resources
in R&D and has successfully launched the world’s first production and sales of
iPSC-derived cardiomyocytes, neurons, and hepatocytes, which help drug
development. RC’s culturing technology for iPS cells is at the leading edge in
the world. It turned profitable in the 11th year since its founding and was listed in
the JASDAQ market in fiscal 2013. The proceeds from the increased capital
were then used in acquiring three bio-venture companies in fiscal 2014. Those
acquisitions have helped further enhance RC’s technological base for the
enhancement of safety and efficiency, diversity, and function and quality of
products and services in iPS cell culturing technology. Moreover, they have
contributed to attainment of a global customer base and a structural base for
cross selling. Therefore, RC is well positioned by now to aim to become global
No. 1 in the iPS cell business centered on research reagents and drug
development support, or in the B2B/Upstream business of the regenerative
medicine field.
History and business portfolio
History

3/25
of the company.
2003 · ReproCELL Inc. is founded
· Joint research agreement with Institute of Medical Science of
the University of Tokyo and Kyoto University
2005 · Began production and sales of culture reagents, dissociation
solution, and freezing for human ES cells
2006 · Registered as a Sanitation Inspection Facility and began doing
assay service business
2007 · Professor Shinya Yamanaka, Kyoto University, succeeded in
establishing the world’s first human iPS cells. RC’s culture
reagents were used to establish and culture human iPS cells
2009 · Began production and sales of the world’s first human
iPSC-derived cardiomyocytes
2010 · Began production and sales of the world’s first human
iPSC-derived neurons
2011 · ReproCELL USA Inc. was established as a subsidiary
· Began production and sales of a new feeder-free culture
ReproFF2, to be used for human ES/iPS cells
2012 · Launch of the world’s first human iPSC-derived hepatocytes
and human iPSC-derived neuron model cells for Alzheimer’s
disease
2013 · Listed on the Osaka Securities Exchange (present Tokyo Stock
Exchange) JASDAQ Growth Market
· Established RC Partners, Inc., RC’s affiliate to invest in
unlimited liability partnerships of the venture capital fund “Cell
Innovation Partners, L.P,” that focuses on the creation of
next-generation pharmaceutical and medical businesses
2014 · Acquired Reinnervate (U.K.), which is engaged in
development, production, and sales of 3D culture devices, and
made it RC’s consolidated subsidiary
· Acquired BioServe (U.S.A.), engaged in human tissue banking
and its provision, and made it RC’s consolidated subsidiary
· ReproCELL USA, RC’s subsidiary in the U.S.A., acquired the
iPS cell business unit (engaged in production and sales of
research reagents for iPS cells) of Stemgent (U.S.A.)
2015 · A national patent on culture method of hematopoietic stem cell
was approved
· Entered into a collaborative research agreement with Japanese
National Cancer Center concerning human epithelial cell and
cancer cell culture reagents
· Began sales of “ReproCryo DMSO free”, a new freezing
medium for human ES/iPS that is optimal for use in
(Source: ReproCELL’s Securities Report)

4/25
of the company.
■ Positioned to aim to become the global No.1 in the B2B/Upstream of the
regenerative medicine market
RC can be said to have already established the No. 1 position in ES/iPS cell
culturing technology in Japan. RC’s business portfolio is as follows.
Business iPS Cell Business Clinical Assay Service
BusinessResearch Reagents Cell Products
Product Research reagents for
human ES/iPS, coating
agent, etc.
Human iPS-derived functional
cells, such as for
cardiomyocytes, neurons,
and hepatocytes. Used in
drug discovery screening.
Provide assay services
specialized in bone-marrow
transplant and organ
transplant. HLA typing test,
anti-HLA antibody test, and
others.
Features Commercialized the
leading-edge culturing
technology of Kyoto
University. By using RC’s
research reagents, Professor
Yamanaka established the
first human iPS cells for the
first time in the world.
The world’s first
commercialized iPS cells.
Drew attention from the world
as a way to replace animal
experiments.
A niche market that large
analysis companies are
unlikely to be engaged in.
RC has a full lineup in
transplant-related assay
services and is in alliance with
major companies.
Present
and
outlook
Began in 2005. Services a
clear majority of ES/iPS cell
researchers in Japan. RC’s
major products at present.
Plans overseas expansion.
RC’s medium- to long-term
strategic area. Some
pharmaceutical companies
began technical assessment
of this area. Has a potential to
be a main player in the future
drug development
technology.
Began in 2006. Received
orders from over 100
institutions.
(Source: ReproCELL’s Result Briefing Material, with additional notes by JPR)
RC’s research reagents are
widely used by a vast
majority of ES/iPS cell
researchers in Japan, who
■ Becoming the global No.1 in research reagents for EP/iPS cell culture
RC’s business is broadly divided into the iPS Cell Business and the Clinical
Assay Service Business. The iPS business forms the core of the business base
in aiming to become the global No. 1 in the B2B/Upstream segment of the
regenerative medicine field. The iPS business can be further divided into
research reagents and cells products. Research reagents are widely used by a
vast majority of ES/iPS cell researchers in Japan, who are leading the world in
regenerative medicine. RC supplies a complete set of reagents needed for
Business portfolio
iPS Cell Business：
Research Reagents
Took over the No. 1 position in ES/iPS cell culture technology in Japan

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of the company.
are leading the world in
Becoming No.1 in research
reagents in EP/iPS cell
culture by using its
globalized customer base,
through acquisition of three
companies
culturing ES/iPS cells (see graph below.) From 2015, the broadened customer
base, due to the acquisition of three companies, is enabling RC to expand sales
worldwide. RC and aims to become the global No. 1 in sales of research
reagents for culturing EP/iPS cells.
Use of iPS cells in preclinical
tests brings us closer to an
ideal drug development
process
■ Produce human iPSC-derived cardiomyocytes, neurons, and
hepatocytes and sell them mainly to pharmaceutical companies
In addition to cell products, RC also sells specialized culture media, coating
agent, and others as a set. They are used by pharmaceutical companies to
effectively conduct efficacy evaluation and toxicity assessment of new drug
candidate compounds. Using those cell products, RC also provides the
subcontracted service business to conduct the requisite in-house medicinal and
toxic testing.
Pharmaceutical R&D is a process of ultimately discovering a new drug out of
from the library of hundreds and thousands or even millions of compounds
owned by each pharmaceutical company, through screening by various efficacy
and toxicity testing. R&D processes are divided into exploratory research,
preclinical test, and clinical test. During clinical tests, the candidate compounds
for a new drug are administered to subjects. However, use of iPS cells in
preclinical tests allows a drug development process to be closer to an ideal one
(see graph below.)
Coating agent Culture
medium
Contains matrix
needed for plate cells
when preparing cell
culture. Used for
coating of flasks and
dishes prior to plating
cells.
.
Dissociation
solution
Used to culture
cells. Depending
on cell species,
various types of
culture media are
used.
Used to detach cells
from a culture plate.
Used for
cryopreservation of
cells.
Freezing
medium
iPS Cell Business:
Cells

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of the company.
hiPSC-Cardiomyocytes
hiPSC-Neurons
■ Human iPSC-derived (hiPSC-) Cardiomyocytes: Contribute to high
throughput screening of cardiotoxicity testing
RC developed pulsating cardiomyocytes made of human iPS cells and
commercialized it for the first time in the world in 2009. Cardiotoxicity of drugs
can be life-threatening through critical side effects and cardiotoxicity testing is
required for all drugs. Use of the pulsating cell lines in safety tests allows us to
see complex responsiveness to the drug. Moreover, RC developed a 96-well
plate, which enables 96 types of drug to be tested at once, resulting in a
significantly high efficiency in throughput screening, compared to animal
experiments, with drastic reduction in the necessary cost and time.
■ hiPSC-Neurons: Contribute to drug development for treating
Alzheimer’s disease and Parkinson’s disease
RC succeeded in developing various neurons derived from human iPS cells and
became the world’s first provider of iPS-derived neurons. The number of
patients who suffer from Alzheimer’s, Parkinson’s, and other neurodegenerative
diseases has been rising together with the aging of populations. This problem
needs to be addressed. Development of drugs for neurodegenerative diseases
ideally uses human neurons as experiment materials. However, it is difficult to
obtain them. With RC’s neurons, the experiments can be conducted efficiently.
RC’s line-up includes cerebrum cells as assessment material for Alzheimer’s
disease and mesocephalon cells for Parkinson’s disease.
Further, RC launched the world’s first hiPSC-derived Alzheimer’s disease model
neurons, utilizing gene modification technology, in 2012. Such products can be
Significance of supporting drug development with iPS cells
= To pursue an ideal drug development process
 It is ideal to use human cells in preclinical tests but it is difficult to
obtain a supply.as it must rely on donors. That is why cancerous cells
or animal experiments are often used.
 Use of human iPS cells in the drug development process enables
overcoming the problem of interspecies difference (i.e., different
reactive characters of humans and animals) and the challenge of
stable supply.

7/25
of the company.
hiPSC-Hepatocytes
valuable tools for researchers for drug screening and discovery in the field of
neurodegenerative disease research.
■ hiPSC-Hepatocytes: Contribute to assessment of drug-induced
hepatoxicity and effect on metabolism of the liver
RC launched the world’s first commercial hiPSC-hepatocytes in collaboration
with the National Institute of Biomedical Innovation in 2012. Most of the
administered drugs are processed in the liver. Therefore, examination of drug
metabolism in the liver and hepatotoxicity is required for new drug development.
At present, hepatocytes from deceased donors are most used for the tests but
there are issues of supply and lot-to-lot variations, resulting in difficulty in
obtaining reliable reproducible results. Therefore, RC’s hiPSC-hepatocytes are
promising as they represent virtually limitless supply and consistent
batch-to-batch characteristics.
■ Supplementary business in regenerative medicine
RC offers assay services specializing in bone-marrow transplant and organ
transplant treatments. Blood or serum samples are transported from medical
institutions to RC’s sanitation inspection facility for assay services. This market
is expected to grow in line with the expansion of the regenerative medicine
market.
■ iPS Cell Business representing the most part of sales
In fiscal 2014, the IPS Cell Business represented a large portion of sales. In
fiscal 2015, sales are expected to increase by about three times from ¥500
million in fiscal 2014, due to the acquisition of the three companies. As they are
all engaged in the iPS Cell Business, this business segment will further raise its
share of the business.
Fiscal 2014 sales (¥5.67 million)
(Source: ReproCELL’s Securities Report, prepared by JPR)
■ Post-acquisition iPS Cell Business segment in fiscal 2015
The iPS Cell Business segment sales forecast for fiscal 2015 can be further
divided into the drug development support and the basic research (including
research reagents.) Each sub-segment roughly represents a half. The regional
sales breakdown appears to be well-balanced globally. It can be regarded that
iPS Cell
Business,
¥5.07mn,
90%
Clinial
Assay
Service
Business,…
Clinical Assay
Service Business
Segment
Information

8/25
of the company.
RC has established a customer base to globalize its domestic No. 1 position in
the B2B/Upstream portion of the regenerative medicine area through cross
sales.
Estimated Fiscal 2015 Sales Contribution of the iPS Cell Business
Segment
(Source: ReproCELL’s Presentation Material, prepared by JPR)
■ A global network with worldwide prominent universities
Having leading-edge technologies which support research on ES/iPS cell
culturing, RC is aggressive in undertaking joint research with prominent
academic institutions, which includes Harvard University and MIT, in addition to
the University of Tokyo, Kyoto University, and Keio University. Such
relationships with those research universities helps drive RC toward becoming
global No. 1 in the B2B/Upstream portion of the regenerative medicine area.
RC’s network with joint research partner academic institutions
(Source: ReproCELL’s Securities press release)
Drug
development
support, 47%
Basic
research,
53%
Japan, Asia,
35%
U.S.A., 55%
Europe, 10%
Network with
worldwide research
institutions
Tokyo
Univ. Harvard
Univ.
MIT
Keio
Univ.Kyoto
Univ.
Durham
Univ.

9/25
of the company.
First step to be No. 1:
B2B/Upstream ties with
research institutions
↓
Second step: B2B/Upstream
ties with pharmaceutical
companies
↓
Third step: Establish the
leading technologies in
terms of safety and
efficiency, diversity,
functionality high quality,
and mass production
capability
■ Take a three-step approach to become global No. 1 in the
B2B/Upstream domain
RC intends to take a three-step approach to become the global No. 1 in the
B2B/Upstream domain.
■ First step: No. 1 in the B2B/Upstream domain, targeted to research
institutions
The first step is to become the No. 1 provider to research institutions. Being
the front runner in regenerative medicine research in Japan, most researchers
use RC’s research reagents for ES/iPS cells. At present, RC’s operations are
becoming more global with the acquisition of three overseas companies. RC
intends to solidify its position by doing joint research with prominent research
institutions overseas and aims to become the global No.1.
■ Second step: No. 1 in the B2B/Upstream domain, targeting the
pharmaceutical companies
The second step is to become the No. 1 provider to pharmaceutical
companies. RC has already developed the world’s first iPSC-derived cardio-
myocytes, neurons and hepatocytes, which are essential to support drug
development. By globally selling those cells together with research reagents
as a kit, RC plans to secure the global No. 1 position in the B2B and upstream
domain, targeting the pharmaceutical companies.
■ Third step: Establish the leading technologies in terms of safety and
efficiency, diversity, high functionality and high quality, and mass
production capability
The third step is to establish the No. 1 technologies for iPS cell culture in
terms of safety and efficiency, diversity, high functionality and high quality, and
mass production. For all these aspects except mass production, the
technological base of the three acquired companies is expected to contribute
greatly.
Vision of stepwise evolution toward No.1 in B2B/Upstream + No. 1 in B2C/Downstream
= No.1 regenerative medicine
Stepwise evolution to
be the global No.1 in
B2B/Upstream
business

10/25
of the company.
Enhan-
cement
of base
by the
three
com-
panies
Better safety and efficiency
More diversity
(Help reduce drug
development testing time)
High functionality and high
quality
The cutting-edge iPS cell
reagent company in the
U.S.A. Its advanced mRNA
Reprogramming method
enables production of iPS
cells in an efficient, safe way,
which is more similar to
clinical applications.
Production efficiency could
improve by 100-1,000 times
compared to conventional
methods.
One of the largest
commercial human tissue
banks in the world. Stocked
with more than 600,000
human tissues, DNA, and
serum samples. Provide to
over 700 affiliated medical
institutions in the world
tissues for their biorepository,
from human biological
samples of over 120,000
patients.
Leading the rapidly growing 3D
culture market, enabling
creation of sterical cells, which
are closer to ideal conditions
than 2D cell culture. It has
received much attention as a
new technology in the realms
of iPS cell and regenerative
medicine and has been used
by academic and corporate
researchers for screening in
drug development and
academic research.
Stemgent’s mRNA
Reprogramming eliminates,
in theory, risk in rewriting
DNA and when generating
iPS cells.
■Stemgent: Contribute RC to become No.1 in safety and efficiency
Using their cutting-edge mRNA Reprogramming method, Stemgent deploys
efficient, highly safe technologies to generate iPS cells without doing genetic
manipulation (see graph below). This method is 100-1,000 times more
efficient than conventional methods in generating iPS cells. In addition,
Stemgent has the technology of highly efficient and high-quality differentiation
by means of specialized chemical technology. This is used to induce neuron
or cardiomyoctye differentiation of iPS cells. Conventional methods are gene
manipulation, meaning to apply technologies to rewrite DNA, in generating
iPS cells. This, however, may potentially generate cancerous cells. In
contrast, mRNA Reprogramming, in theory, does not rewrite DNA of the target
cell, whereby there is no theoretical risk in rewriting DNA and of generating
cancerous cells. Stemgent’s technologies provide a strong technological base
for RC to become the global No. 1 in iPS cell technologies in terms of safety
and efficiency.
Three acquisitions to enhance the technological base for safety and efficiency, diversity,
and high function and high quality.
Global customer base and cross-sale capability have also been enhanced.
iPS Cell Business forcued on research institutions and drug developers
= Toward becoming No.1 in B2B/Upstream in regenerative medicine
すなわち再生医療分野の「B2B・上流」において世界 No.1 へ

11/25
of the company.
Bioserve’s human tissue
bank has dramatically
improved RC’s diversity in
iPS cells
(Source: ReproCELL’s Presentation Material)
■ Bioserve: Contribute to ensure No.1 in diversity
Bioserve is one of the largest commercial human tissue banks in the world,
stocked with more than 600,000 human tissue, serum, and DNA samples. It
provides those samples to universities and pharmaceutical companies. Such
a repository can be used for creating iPS cells with various features and
diverse disease record. By using multiple hiPS-Cardiomyocytes, neurons, and
hepatocytes with diverse features and diseases all at once, the time to be
spent on efficacy analysis, cardiotoxicity testing, and drug-induced effect
testing of the metabolism of the liver by pharmaceutical companies can be
reduced dramatically. Bioserve’s human tissue bank has dramatically
improved RC’s diversity in iPS cells, helping RC to aim at becoming the global
No.1 in this field.
mRNA Reprogramming Kit
Comparison in efficiency and safety of various
methods for generating iPS cells
Efficiency
Safety
mRNA Reprogramming method is 100-1,000 times
more efficient in generating iPS cells, compared to
conventional methods, and has a high level of
safety, closer to clinical applications, with no gene
integration.

12/25
of the company.
Reinnervate’s 3D cell culture
technology contributes to
ensuring attainment of a
position as No. 1 in high
functionality and high quality
■ Reinnervate: Contribute to ensure being No.1 in high functionality and
high quality
Reinnervate is leading the rapidly growing 3D culture market. Its 3D culturing
technologies enables creation of sterical cells, which are closer to actual
ones, compared to 2D cultured cells that are cultured in ordinary flat culture
dishes. The technologies are also capable of culturing in near-vivo
environment and closer to ideal conditions than 2D cell culture. This also
means that it is easier to obtain near-vivo results than in the case of vitro
culture. It has received much attention as a new technology in the realms of
iPS cell and regenerative medicine and has been used by academic and
corporate researchers for screening in drug development and academic
research.
One of the largest commercial human
tissue banks in the world
Stocked with more than 600,000 human biological samples,
from over 120,000 patients who gave informed consent and
over 700 affiliated medical institutions in four continents.
These samples are provided according to the relevant
disease or organ for research purposes, such as preclinical
tests and drug development, and for other applications.
USA Europe
Africa
India
Asia
Australia

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of the company.
Technology to generate iPS
cells from blood cells, which
is easier to extract than
epidermis cells, ensures RC
to be No. 1 in mass
production
■ Generating iPS cells from blood cells: Contributing toward becoming
No. 1 in mass production
Based on the interviews at the company, RC is particularly focused on the
technology to produce iPS cells from blood cells. iPS cells are generated by
introducing genes in epidermis cells or blood cells to iPS cells. As blood cells
are easier to extract than epidermis cells, the technology to generate iPS cells
from blood cells will greatly facilitate mass production.
In addition, a joint research undertaking with Tokyo Women’s Medical
University on a mass production system of hiPSC-Cardiomyocytes is also
expected to help the advance toward mass production.
Side imaging of cells (fibroblasts) grown in 2D
and in Alvetex® Scaffold
Alvetex® enables the cell to retain its natural
spherical shape and preserve more
functions.
２D Culture VS 3D Culture
２D Culture ３D Culture

14/25
of the company.
Joint research with Tokyo Women’s Medical University on
a mass production system of hiPSC-Cardiomyocytes
■ The next three steps to become the global No. 1 in the
B2C/Downstream market
In Japan, the Act on the Safety of Regenerative Medicine, and the PMDA Law
were enforced on November 25, 2014. This new legislative framework is
expected to accelerate development of regenerative medicine business, as
regenerative and other products can be allowed to be used provided that the
risks were explained to the patients, the patients gave their consents, and
safety measures were ensured (see below).
Revised approval system (conditional temporary approval) corresponding to
practical use of regenerative and other devices
Stepwise evolution
toward the global
No. 1 in the
B2C/Downstream
market
50 culture plates 1 reactor 5 reactors 50 reactors
Stable mass production of cardiomyocytes, using 100ml reactors (culturing
devices)(Chosen to receive a Yokohama City subsidy for leading businesses)
100 reactors/mo
1,200 reactors/mo
(Worth approximate sales of)
¥150mn
500 reactors/mo
6,000 reactors/mo
¥700mn
1 reactor for 100ml solution
(Production capacity of 50
plates)
Future
Current
The aim is to gain a significant increase in production capacity by connecting
reactors in RC’s present manufacturing space. This is enabled by the reduction of
space required for reactors.
5,000 reactors/mo
60,000 reactors/mo
¥7,200mn
Previous procedure flow for product approval
Clinical trial (confirming efficacy and safety) Approval Launch
Clinical trial
(estimating
efficacy and
confirming
safety)
Conditional &
Limited
approval
Conditional Launch
(examining efficacy
and more safety)
Revised procedure flow for product
approval, corresponding to practical
use of regenerative and other
devices
Re-application
for approval
within 7 years,
in principle
Approval (or
expiration of
conditional
temporary
approval)
Launch
Clinical
Research
Clinical
Research
Explain risks to the patients, receive their consents, and ensure
post-launch safety measures

15/25
of the company.
In this environment, RC intends to fully enter into the regenerative medicine
market and aims to become the global No. 1 in the B2C/Downstream market.
The three steps to accomplish this are described below.
(Source: ReproCELL’s Press Release)
First step: Develop
business of culture media
and reagents
↓
Second step: Develop cell
drugs, using somatic body
cells
↓
Third step: Develop cell
drugs, using iPS cells
■ First step (Step3-1): Develp business of culture media and reagents
RC already possesses the world’s leading-edge know-how in iPS cell culture
technology for the B2B/Upstream market. Such know-how will be used to
enhance the global B2C target market in regenerative medicine. Through
equity financing, the establishment of safety, quality, test system, and clinical
research system will be funded. The market size of this segment is projected
to be ¥90.1 billion in 2020 and ¥3 trillion in 2050. This will be the first area to
start up. RC will concentrate on this step, which is likely to be executed
concurrently with the abovementioned third step for B2B/Downstream.
■ Second step (Step3-2): Develop cell drugs, using somatic body cells
RC set up a joint venture fund for regenerative medicine with Shinsei Bank in
2015. One of the targets of this fund is to gain access to complimentary
technology in the field of somatic stem cells, which will be critical for RC to
enhance its comprehensive technology in regenerative medicine. As
described later in more detail, the derivation technology enables iPS cells to
be differentiated into somatic stem cells, which are then differentiated into
somatic body cells. Therefore, the enhanced technology in somatic stem cells
is indispensable for RC’s targeting the global No. 1 position in regenerative
Stepwise evolution
toward being global
No. 1 in
B2C/Downstream
■Road map toward regenerative medicine (Step 3) ■How to develop ■Global market size (estimate)
Y2020 Y2050
Develop cell drugs
that utilize iPS cells
Develop cell drugs
that utilize somatic
stem cells
Develop culture and
research reagents for
regenerative
medicine
Apply the RC Group’s
advanced culture
technology
Technological alliance
with firms invested by
a joint venture fund
“Cell Innovation
Partners, L.P.”
Develop cell drugs
that utilize iPS cells
¥1,089.7bn ¥38,448.7bn
¥90.1bn ¥3,374.9bn
Source: 2012 Report on the Survey to Support
Small/Medium-Sized Companies (Survey
administration concerning commercialization and
industrialization of regenerative medicine)
Time
Business
scale

16/25
of the company.
medicine based on iPS cell technology. Somatic stem cells are closer to
somatic body cells. They are ahead of iPS cells in terms of safety verification
and probably future market expansion. This gives another reason for RC to
strengthen technology concerning somatic stem cells.
R&D efforts of the invested firms are projected to lead to establish business operating
companies after 5-7 years from the initial investment.
■ Third step (Step3-3): Develop cell drugs, using iPS cells
The third step is to promote development of cell drugs using iPS cells. Due to
its pluripotency or high proliferative capacity, iPS cells can be generated from
adult cells. However, much clinical research is needed to ensure safety before
commercial application can be done. It could take many years. That is why
RC focuses on areas where steady market growth is foreseen: development
of culture media and reagent products, and then, establishment of business in
somatic stem cells, which are expected to be launched first. Finally, RC will
expand into the business of iPS cells, with the objective of becoming global
No.1 in regenerative medicine. Their strategic roadmap is well outlined with
realistic understanding of the prospects of each business.
Fund investors (Closed in March 2015)
ReproCELL, Shinsei Bank, SMBC Strategic Investment Fund 2
Limited Liability Partnership, One operating company
Fund size: ¥900mn
Venture firms related
to iPS cells and
regenerative
medicine
Venture firms related
to iPS cells and
regenerative
medicine
Acquire new
technologies through
investment medicine
ReproCELL & Shinsei Bank Group
Joint venture fund
“Cell Innovation Partners, L.P.”

17/25
of the company.
Equity financing on August
31 for investment needed to
expand to the
B2C/Downstream market
Successful financing opens
up the road roward a No.1 in
■ Financing through new share acquisition rights, due August 31, to
accelerate forward on the road toward a No.1
RC plans to procure ¥2.2 billion by issuance and allotment of new share
acquisition rights to a third party (Evolution Biotec Fund) on August 31, 2015.
The proceeds from this equity financing will be used to establish the testing
and clinical research system that ensures the level of safety and quality
required in the B2C/Downstream regenerative medicine market. There are
three specific investment projects, as follows.
① Expenses for facility investment and maintenance to comply with
GMP Guidelines
¥440 million will be used for expenses to comply with the Good Manufacturing
Practice (GMP) Guidelines for pharmaceuticals and quasi-pharmaceuticals.
This is to ensure that products will be consistently produced and controlled
basedon the quality standards. RC must conduct clinical trials in order to
launch reagents and cell products for regenerative medicine in the market.
② Expenses for clinital trials, using the revised approval system, to
accelerate business development
¥1.32 billion will be used for expenses of clinical trials to utilize a revised
procedure flow for product approval, which allows conditional sale of a
product, that has been given conditional or temporary approval, after a
shortened clinical trial using human subjects. Within Japan, the process has
been revised as such after the enforcement of the Act on the Safety of
Regenerative Medicine, and the PMDA Law.
③ R&D expenses for raising reagents and cell products to clinical
grade in compliance with GMP Guidelines
¥440 million will be used for R&D expenses to ensure a higher level of efficacy
and safety by reviewing existing materials and re-designng optimal cell
generating process. For development of reagent and cell products for
regenerative medicine, RC is required to upgrate not only production facilities
but also reagents and cells to the clinical grade in compliance with GMP
Guidelines.
Successful financing and execution of the above investments will pave the
way for RC to advance toward becoming global No. 1 in the B2C/Downstream
market, based on their position as global No. 1 in the B2B/Upstream market,
and ultimately becomin global No. 1 in the regenerative medicine field (see
below).
Financing to help
accelerate the
advance on the road
toward No. 1

18/25
of the company.
Road toward global No. 1 in the regenerative medicine field
(Source: JPR)
Toward global No. 1 in the B2B/Upstream market
Toward global No. 1 in the B2B/Upstream market
 Established Japan’s No.1 position in the B2B/Upstream market. Globalized
with three acquisitions and enhanced technological base
 Getting close to achieve the global No. 1
Equity financing on August 31:
Execute investment needed to expand to the B2C/Downstream market
Implement 3 steps toward global No. 1 in the B2C/Downstream market

19/25
of the company.
The objective of regenerative medicine is to regenerate human body cells that constitute neurons, heart, liver, and other organs. There
are three methods for generative medicine (see the graph below). The first method is to use stem cells, directly extracted from neurons,
the heart, or the liver. This is a highly safe method as actual human cells are used. However, proliferation of stem cells is limited and the
application potential is low. The second method is to use somatic stem cells that are differentiated from stem cells. The human body has
somatic stem cells that are differentiated ultimately to neurons or the heart. This method is to extract them from a human and those cells
are differentiated, proliferated, and used for regenerative medicine. This is a relatively safe method but extraction of somatic stem cells
can be extremely difficult, depending on the position of an organ, such as neurons or the heart, leading to challenges in application
potential. The third method is to use ES/iPS cells. By properly being differentiated and derived, ES/iPS cells can be established as
various somatic stem cells and ultimately as somatic body cells. They can also be proliferated, meaning very high application potential.
However, there may be significant safety issues as they are engineered. The third method can be most promising in terms of market
potential if safety is ensured, which, however is expected to take quite some time. Considering safety, the method involving use of
somatic stem cells, which utilizes the same technology as in case of iPS cells, is anticipated to be commercialized sooner. Based on the
above viewpoints, having both the somatic cell technology and the iPS cell technology is extremely important to ensure competitive
advantage in the regenerative medicine market.
Three methods for regenerative medicine and their safety and application potential
(Source: Prepared by JPR, based on the Company hearing)
(Reference) Overview of regenerative medicine: Relationship of the somatic stem cell technology and
the ES/iPS cell technology
Blood cells
Epidermis cells
iPS cells
Stem cells to differentiate to cardiomyocytes
Stem cells to differentiate to neurons
Stem cells to differentiate to hepatocytes
Stem cells to be used at a final stage
(Cardiomyocytes, neurons, hepatocytes)
ES cells
Fertilized egg
→Blastocyst
Culture
Engineer
Differentiate
Derive
Initialize
Differentiate
Derive
Human
Differentiate
Derive
Extract
Extract
Treatment of regenerative medicine to patients
Differentiate
Derive
Differentiate
Derive
Transplant
Method 3 Method 2
Transplant Transplant
Method 1
Transplant
Use stem cells extracted
from a human body
Safety: High
Application: Low
Use ES/iPS cells
generated from blood cells
or blastocyst extracted
from a human body
Safety: Low
Application: High
Use stem cells extracted
from a human body
Safety: High
Application: Medium
Method 1
Method 2
Method 3

20/25
of the company.
■ Balanced business model that reflects long-term and short-term
perspectives
RC has been managing business development in a balanced manner that
reflects both long-term and short-term perspectives. While the regenerative
medical market has potential for explosive growth in the long run, various
issues remain ahead from a safety viewpoint, as the cells are to be
regenerated by artifical operations. This is an extremely difficult area to
establish a business in the short term. Undoubtedly, the basic research
segment, including research related to new drug development, is the first area
to expand most. This is why RC, since its foundation, has focused on
research reagents and drug development support, the area with the highest
probability for market creation. At the same time, the critical technological
base was established, with complimenting technologies acquired through
M&A. On top of such approach, RC has drawn a detailed roadmap, with a
long-term aim to become a global No. 1 in regenerative medicine, and has
undertaken financing needed to implement the plan.
■ Comprehensive and exhaustive
RC shall be highly valued for its extremely comprehensive and exhaustive
strategies. Concerning the value chain, RC plans to encompass both
B2B/Upstream and B2C/Downstream. Regarding technology, RC intends to
enhance technology for somatic stem cells, in addition to that for ES/iPS cells.
■ Sustainable
RC has established its No. 1 position in research reagents and drug
development support and thus acquired strong relationships with prominent
research institutions. Those connections are expected to be sustainable as
RC is well aware that it is important to ensure access to latest R&D and
technical information and trends in the regenerative medicine market, which is
still at its dawn stage, anticipating emergence of innovative technologies.
■ Expanding organization size can be a challenge
RC has roughly 100 personnel, which makes it quite small and perhaps
understaffed to aim to become a global No. 1 in the regenerative medicine
market. To timely build a corporate size sufficient for its business development
may become a challenge.
Balanced business
model that reflects
long-term and
short-term
perspectives
Comprehensive and
exhaustive
高い
Sustainable
Challenge in
managing
capability to
support
organizational
growth

21/25
of the company.
■ The acquisitions will help increase sales but goodwill amortization will
cause losses to increase
In fiscal 2015 (ending March 2016), RC is expected to almost triple its sales
from the previous year to around ¥1.5 billion. The operating loss is expected
to decrease as expenses are to be reduced with due to a decrease in
acquisition expenses, sales increase, and group-wide synergy effects in sales
and marketing expenses, etc. The operating loss, excluding the estimated
annual goodwill amortization of ¥135 million, can be ¥420 million.
(Millions of yen)
Fiscal year March 2014 March 2015
March 2015
1Q
March 2016
1Q
March 2016
RC’s forecast
Net sales 460 567 87 263 1,530
Gross profit 256 276 47 147 －
SG&A expenses 349 1,016 116 363 －
R&D expenses 120 280 30 66 －
Operating income △93 △740 △68 △216 △555
Ordinary income △132 △456 △39 △112 △495
Net income △133 △451 △41 △108 △495
(Source: ReproCELL’s Financial Statements)
Ample net assets even in
case of impairment in
goodwill
Sufficient financial
strength for executing the
strategy
■ Ample net assets and sufficient current assets
RC raised ¥2,349 million in total by private placement of shares to the London
Branch of Deutsche Bank AG in 2014. The proceeds are used to fund
acquisition of Reinnervate (¥451 million), BioServe (¥205 million), and
Stemgent (¥893 million). By consolidating these three companies, goodwill of
¥1,351 million was recorded in fixed assets. The goodwill will be amortized
over 10 years under the straight-line method.
(Millions of yen)
Fiscal year
End of March 2014 End of March 2015 Difference
¥mn¥mn % ¥mn %
Current Assets 5,343 98.6 5,359 70.6 16
Fixed Assets 75 1.4 2,234 29.4 2,159
Total Assets 5,418 100.0 7,594 100.0 2,175
Current Liabilities 135 2.5 299 3.9 163
Fixed Liabilities 87 1.6 209 2.8 121
Net Assets 5,195 95.9 7,085 93.3 1,889
Liabilities & Net Assets 5,418 100.0 7,594 100.0 2,175
■ Sufficient financial strength for executing the strategy
RC has sufficient financial strength to fund execution of its strategic plan up to
a stage to expand in the regenerative market. Even if goodwill were to be
impaired, its net assets of approximately ¥7 billion are sufficient and would
Financial record and mid-term management plan
Income statements
Balance sheet

22/25
of the company.
decrease only to around ¥5.7 billion. In addition, its current assets represent
70% of total assets, suggesting that RC has enough financial strength to
sustain itself even if an operating loss of ¥400 million were to be generated for
10 years or more.
■ Evolving from Japan’s No.1 in B2B/Upstream to a global No.1 in
B2B/Upstream
RC announced its Mid-term Management Plan in May 2015. RC has
disclosed its plan to globalize its operations with the three acquired
companies and stress cross selling so as to evolve from Japan’s No.1 in
B2B/Upstream to global No.1 in B2B/Upstream. Sales are projected to double
from the present fiscal 2015 to over ¥3 billion by fiscal 2017 and operating
profit of close to ¥0.6 billion is expected for the same year. Given the growth
outlook of the regenerative medicine market, RC should have a high
probability to achieve its target of doubling in sales if it can expand overseas,
leveraging its strengths in Japan and utilizing its globally-established base.
Mid-term
Management Plan
 Establish a global sales network
 Full entry to China and India
 New product launch
 Market growth
 Expand sales network
 Accelerate the iPS Cell
Business
 New product launch
 Market growth
 Enhance sales
structure
 Promote cross
selling Enhance
sales structure
 Promote cross
selling
If 12-month
results of the
three
acquired
group
companies
were
consolidated
(Millions of yen)
Consolidated
ordinary profit
Consolidated
sales
March 2015
result
March 2016
estimate
March 2017
target
March 2018
target

23/25
of the company.
Corporate value estimates,
based on assumption of
10% market share, about
15% operating margin, and
20% of cost of capital,
suggest ¥88.8 billion in
market cap and ¥1,579 in
stock price on a fully diluted
basis.
■ Higher probability of achieving strategic goals could justify a
theoretical stock price of around ¥1,500 fully diluted
On the basis of the above analysis RC stock is expected to have a significant
upside potential. Estimates by the Ministry of Economy, Trade and Industry,
are that the regenerative medicine market will grow to ¥2 trillion in 2020, ¥30
trillion in 2030, and ¥53 trillion in 2050 (of which, ¥42 trillion is a relevant
market for RC.) For a simple calculation of corporate value, we assumed that
RC has a market share of 2.5% to 10% in the relevant market and that
after-tax operating profit becomes cash flow, and using 20% for the cost of
capital in calculating corporate value,. All undiluted shares from the equity
financing through the third-party allotment on August 31, 2015 are included in
outstanding shares (56,240,750 shares). In case RC obtains a 10% market
share, a 10% operating margin, cost of capital of 20%, RC’s market cap can
be estimated to be ¥88.8 billion, implying a stock price of around ¥1,500 on a
fully diluted basis. If RC’s strategic probability gets higher, this level of stock
price can be likely to be achievable.
Corporate value estimates (Market cap) (¥mln)
RC’s global relevant market share in 2040
2.50% 5.00% 7.50% 10.00%
Cost of
capital
15.0% 61,202 112,962 164,721 216,481
17.5% 39,438 71,529 103,620 135,710
20.0% 26,550 47,305 68,060 88,815
22.5% 18,528 32,428 46,328 60,229
25.0% 13,325 22,913 32,500 42,088
Stock price estimates (¥)
RC’s global relevant market share in 2040
2.5% 5.0% 7.5% 10.0%
Cost of
capital
15.0% 1,088 2,009 2,929 3,849
17.5% 701 1,272 1,842 2,413
20.0% 472 841 1,210 1,579
22.5% 329 577 824 1,071
25.0% 237 407 578 748
(Source: JPR)
Corporate value estimates
Corporate value
estimates

24/25
of the company.
■ Comparison with other bio-ventures
If the above estimate of ¥88.8 billion in corporate value or market cap is
divided by RC’s sales forecast of ¥3.1 billion for fiscal 2017, the projected PE
ratio is 28 times. Looking at the data below, which compiles market cap and
sales data of bio-venture companies by Toyo Keizai, only two companies
carry a P/E ratio as high as around 28 times or more for fiscal 2016 (see the
column A/C). RC’s stock price could go up to around ¥1,500 only when the
probability to become a global No. 1 in the regenerative medicine market
becomes higher.
Code
Abbreviated
name
A B C D E F G A/B A/C A/D
Mkt cap
(yen
100mn)
Sales
Est.
(2015
yen
100mn)
Sales
Est.
(2016
yen
100mn)
Sales
Com.
Est.
(Yen
100mn)
O.P.
Est.
(2015
Yen
100mn)
O.P.
Est.
(2016
Yen
100mn)
O.P.
Com.
Est.
(Yen
100mn)
Time Time Time
2191 Tella 112.52 19.5 22.0 19.5 -6.8 -7 -6.8 5.8 5.1 5.8
2369 MediBIC Group 54.40 7.0 7.0 3.1 0.05 0.1 -2.2 7.8 7.8 17.4
2370 Medinet 142.41 20.0 24.0 20.0 -18 -20 -18.0 7.1 5.9 7.1
4563 AnGes MG 124.39 4.5 9.0 4.5 -58 -25 -58.0 27.6 13.8 27.6
4565 Sosei Group 567.06 117.0 113.0 117.3 59 45 59.0 4.8 5.0 4.8
4579 Raqualia Pharma 81.83 6.0 12.0 6.0 -14.4 -11 -14.4 13.6 6.8 13.6
4591 Ribomic 139.42 6.5 7.0 2.0 0.3 0.8 -4.4 21.4 19.9 70.1
4592 SanBIO 453.72 20.7 30.0 20.7 -11 -10 -10.9 21.9 15.1 21.9
4593 Healies 428.41 0.7 2.0 0.7 -16.5 -5.5 -16.4 612.0 214.2 586.9
4978 ReproCELL 264.86 15.0 18.0 15.3 -5.6 -5 -5.6 17.7 14.7 17.3
7774 Jpn Tissue Eng. 402.56 17.5 22.5 17.3 -7.7 -3.5 -7.7 23.0 17.9 23.2
7776 Cellseed 62.20 0.9 1.0 0.9 -11.0 -10.0 -11.0 69.1 62.2 69.1
(Source: Toyo Keizai Quarterly, 2016 Forecasts based on Toyo Keizai Quarterly, Market cap as of Sep. 2)
Stock price chart (Yen)
(Source: Factset, prepared by JPR)
75 Days Moving Average
400
450
500
550
600
650
700
750
800
2015/9/2
2015/8/28
2015/8/25
2015/8/20
2015/8/17
2015/8/12
2015/8/7
2015/8/4
2015/7/30
2015/7/27
2015/7/22
2015/7/16
2015/7/13
2015/7/8
2015/7/3
2015/6/30
2015/6/25
2015/6/22
2015/6/17
2015/6/12
2015/6/9
2015/6/4
2015/6/1
2015/5/27
2015/5/22
2015/5/19
2015/5/14
2015/5/11
2015/5/1
2015/4/27
2015/4/22
2015/4/17
2015/4/14
2015/4/9
Comparison with
bio-venture
companies

25/25
of the company.
This report is issued by Toward the Infinite World, Inc. under the name of "ANALYST NET" and written by
external partners and analysts as its main authors.
□ In the report issued under the brand name of "ANALYST NET", we are aiming to provide information and
explanations about the target companies using a different approach from the traditional method. In principle,
TIW does not seek a review or authorization against the contents herein. (However, we point out to the authors
only if there are errors or incorrect wording.)
□ TIW may receive compensation directly or indirectly from the target companies in the project proposal and
infrastructure offering to issue this report.
□ External partners and analysts may receive compensation directly or indirectly from the target companies for
additional work apart from writing this report. The external partners and analysts may have already been
involved or may be involved in some trading of securities of target companies in the future.
□ This report is created for the purpose of providing information for investors to refer to when they are making
decisions about investments, and not for soliciting trading of securities or other financial products. Investors are
responsible for their final decisions on trading of securities or other financial products.
□ Although authors collected information during interviews with the target companies in order to create this report,
the hypothesis and opinions in this report do not reflect the views of such companies, and are from the authors'
own analysis and evaluation.
□ Although this report is based on information that the authors believed to be reliable, we do not guarantee the
accuracy, completeness and/or timeliness of the contents. The opinions and forecasts in this report are conducted
at the time of publication and may be changed without notice.
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