NanoCarrier / 4571

COVERAGE INITIATED ON: 2009.09.07 LAST UPDATE: 2020.02.14

Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.

Research Coverage Report by Shared Research Inc. NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

INDEX

How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.

Key financial data ------3 Recent updates ------4 Highlights ------4 Trends and outlook ------5 Quarterly trends and results ------5 Business ------12 Business description ------12 Product pipeline ------15 New development pipeline and expansion of applications ------24 Business model ------29 Strengths and weaknesses ------31 Market and value chain------32 Market overview ------32 Historical financial statements ------36 Income statement ------48 Balance sheet ------49 Cash flow statement ------51 Other information ------52 History ------52 News and topics ------53 Top management ------60 Employees ------60 Major shareholders ------60 Dividends and shareholder benefits ------60 Other ------61 Company profile ------66

02/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Key financial data

Income statement FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) Est. Sales 118 84 346 374 472 676 243 219 259 497 581 YoY -66.7% -28.4% 310.7% 7.9% 26.3% 43.1% -64.0% -10.1% 18.5% 91.7% 17.0% Gross profit 47 33 221 101 290 464 212 158 191 417 YoY -55.9% -29.2% 566.4% -54.4% 187.2% 60.0% -54.4% -25.5% 21.3% 118.0% GPM 39.8% 39.4% 63.9% 27.0% 61.4% 68.7% 87.0% 72.1% 73.8% 83.9% Operating profit -493 -520 -334 -527 -1,123 -1,108 -2,083 -2,712 -5,351 -1,802 -1,520 YoY ------OPM ------Recurring profit -492 -550 -366 -432 -1,095 -171 -2,381 -2,619 -5,304 -1,774 -1,536 YoY ------RPM ------Net income -495 -555 -398 -484 -1,114 -207 -2,537 -2,676 -5,417 -1,809 -1,450 YoY ------Net margin ------Per share data (split-adjusted; JPY) Shares issued (year-end; '000) 12,858 22,089 23,494 32,531 40,265 42,607 42,629 43,179 43,237 49,403 EPS -38.7 -36.0 -17.4 -18.9 -30.4 -5.1 -59.5 -62.1 -125.4 -39.1 -28.5 Dividend per share 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Book value per share 78.7 83.6 77.8 135.3 336.9 338.4 278.8 227.8 103.4 117.2 Balance sheet (JPYmn) Cash and cash equivalents 1,006 1,872 2,981 5,155 7,247 13,772 13,760 11,769 6,408 6,567 Accounts receivable 6615272371016591192 Inventories 22 60 99 181 203 51 150 276 152 33 Total current assets 1,066 1,981 3,112 5,473 7,589 14,209 14,317 12,442 6,841 6,986 Total assets 1,135 2,038 3,663 5,606 14,341 14,704 15,386 12,939 7,627 8,568 Accounts payable 112 550401714261313 Interest-bearing debt 001,7001,04054000000 Total liabilities 121 189 1,804 1,205 744 202 3,258 2,872 2,965 2,689 Shareholders' equity 1,012 1,848 1,829 4,353 13,563 14,407 11,882 9,827 4,443 6,122 Net debt -1,006 -1,872 -1,281 -4,115 -6,707 -13,772 -13,760 -11,769 -6,408 -6,567 Working capital 17 65 95 136 190 271 237 315 230 212 Cash flow statement (JPYmn) Cash flows from operating activities -452 -578 -293 -635 -1,098 -1,121 -1,971 -2,526 -4,928 -2,037 Cash flows from investing activities -8 -5 -1,721 -121 -7,059 -2,562 7,385 -597 215 -992 Cash flows from financing activities 97 1,449 1,924 2,327 9,581 505 3,101 88 24 3,385 Financial ratios ROA (RP-based) -37.0% -34.6% -12.8% -9.3% -11.0% -1.2% -15.8% -18.5% -51.6% -21.9% ROE -40.0% -38.8% -21.5% -15.6% -12.4% -1.5% -19.3% -24.7% -75.8% -34.9% Equity ratio 89.4% 90.7% 50.7% 78.5% 94.8% 98.6% 78.8% 77.8% 61.1% 68.6% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

03/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Recent updates

Highlights

On February 14, 2020, NanoCarrier Co., Ltd. announced earnings results for Q3 FY03/20; see the results section for details.

On December 27, 2019, the company issued an update on its NC-6004 phase III clinical study for pancreatic cancer.

The company decided not to submit a new drug application based on the phase III clinical study of NC-6004 (cisplatin micelle) targeting pancreatic cancer (one of its development programs). The company added that it would continue looking at potential domestic development of NC-6004 in the future, as domestic data suggests that combination therapy with NC-6004 leads to longer survival periods.

NanoCarrier has been conducting phase III clinical trials of a combination therapy of NC-6004 and Gemcitabine for pancreatic cancer since 2014. Standard regimens in the treatment of pancreatic cancer have recently changed, however, and Gemcitabine is no longer the usual drug of choice for first-line treatment. With this change, the company recognized that a new drug application would require an additional study to demonstrate the usefulness of NC-6004 in treating pancreatic cancer. Plans for the new study call for Orient Europharma Co., Ltd. (its Taiwanese development partner and licensee) to carry out database lock and detailed statistical analysis.

With regard to the ongoing phase II clinical trials of the combination therapy of NC-6004 and an immune checkpoint inhibitor for treating head and neck cancer, the company indicated that it will be focusing its development efforts on NC-6004 for use in combination with immune checkpoint inhibitors, which have been seeing growing use in treating cancer in recent years.

On December 17, 2019, Shared Research updated the report following interviews with the company.

On December 16, 2019, the company announced its decision to establish a scientific advisory board.

The company has decided to establish the NanoCarrier Scientific Advisory Board to promote R&D and support business management through expert opinions and advice from external specialists.

To discover new pipeline drugs, NanoCarrier conducts R&D based primarily on micellar nanoparticle technology that applies nanotechnologies that originated in Japan. The company anticipates that it can produce better results through more efficient R&D by applying proposals and suggestions based on opinions and insight from specialists of this technology, as well as incorporating the results of cutting-edge research. Kazunori Kataoka, professor emeritus of Tokyo University and an inventor of the company’s technologies, will serve as chairman of the Scientific Advisory Board. The rest of the board’s membership will consist of outside directors of the company.

For previous releases and developments, please refer to the News and topics section.

04/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Trends and outlook Quarterly trends and results

Cumulative FY03/19 FY 03/ 20 FY03/20 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4% of FYFY Est. Sales 42 218 336 497 146 294 435 74.9% 581 YoY 18.1% 209.0% 142.0% 91.7% 247.8% 34.7% 29.6% 17.0% Gross profit 22 177 276 417 125 239 362 YoY -1.7% 262.8% 180.7% 118.0% 462.4% 35.0% 31.1% GPM 53.1% 81.2% 82.2% 83.9% 85.8% 81.4% 83.2% SG&A expenses 663 1,106 1,750 2,219 625 923 1,295 YoY -48.4% -48.1% -63.5% -60.0% -5.7% -16.5% -26.0% SG&A ratio ------Operating profit -641 -928 -1,473 -1,802 -499 -684 -932 - -1,520 YoY ------OPM ------Recurring profit -636 -911 -1,461 -1,774 -540 -734 -969 - -1,536 YoY ------RPM ------Net income -637 -910 -1,460 -1,809 -446 -897 -1,137 - -1,450 YoY ------Net margin ------Quarterly FY03/19 FY 03/ 20 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 Sales 42 176 118 161 146 147 142 YoY 18.1% 403.5% 72.8% 33.7% 247.8% -16.2% 20.1% Gross profit 22 155 99 141 125 114 123 YoY -1.7% 492.6% 99.9% 51.5% 462.4% -26.6% 24.2% GPM 53.1% 88.0% 84.1% 87.4% 85.8% 77.0% 86.9% SG&A expenses 663 443 644 469 625 298 372 YoY -48.4% -47.6% -75.8% -37.2% -5.7% -32.7% -42.3% SG&A ratio ------Operating profit -641 -288 -545 -329 -499 -184 -248 YoY ------OPM ------Recurring profit -636 -275 -549 -314 -540 -194 -235 YoY ------RPM ------Net income -637 -273 -550 -348 -446 -450 -241 YoY ------Net margin ------Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Company forecast represent most recent figures. Note: Figures that exceed 1,000% YoY are denoted by “-.”

SG&A expenses Cumulative FY03/19 FY 03/ 20 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 R&D expenses 532 879 1,424 1,793 492 695 957 YoY -53.5% -52.5% -67.4% -64.0% -7.6% -21.0% -32.8% SG&A excl. R&D 131 226 325 426 133 228 337 YoY -6.6% -18.2% -22.5% -24.3% 1.6% 0.8% 3.7% Quarterly FY03/19 FY 03/ 20 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 R&D expenses 532 347 545 369 492 203 263 YoY -53.5% -51.0% -78.4% -38.9% -7.6% -41.5% -51.8% SG&A excl. R&D 131 95 99 101 133 95 109 YoY -6.6% -30.1% -30.8% -29.7% 1.6% -0.4% 10.2% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

05/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Cumulative Q3 FY03/20 results

▷ Sales: JPY435mn (+29.6% YoY) ▷ Operating loss: JPY932mn (versus operating loss of JPY1.5bn in cumulative Q3 FY03/19) ▷ Recurring loss: JPY969mn (versus recurring loss of JPY1.5bn in cumulative Q3 FY03/19) ▷ Net loss: JPY1.1bn (versus net loss of JPY1.5bn in cumulative Q3 FY03/19)

Sales increased YoY due to milestone payments, sales from the supply of raw materials for cosmetics, and cosmetics sales. Losses contracted at all levels, beginning with the operating loss, due to a reduction in SG&A expenses to JPY1.3bn (-26.0% YoY), in addition to higher sales. Of SG&A expenses, R&D expenses were JPY957mn (-32.8% YoY).

Main pipeline status

Cisplatin Guiding Micelle (NC-6004 Nanoplatin®) Together with Orient Europharma Co., Ltd. (OEP), NanoCarrier has been conducting clinical trials globally.

In July 2019, administration commenced in the US and Europe in an NC-6004 Phase II clinical study in combination with the checkpoint inhibitor Keytruda, for head and neck cancer.

With respect to the NC-6004 Phase III study for pancreatic cancer being conducted in Asia (including Japan), the combination drug gemcitabine is no longer regarded as the treatment of choice for this type of cancer. NanoCarrier accordingly has reached the conclusion that an NDA will not be submitted on the basis of this study. Based on domestic data, though, combination therapy with NC-6004 indicates benefits for overall survival, and NanoCarrier continues to examine the possibility of NC-6004 development in Japan in the future.

Epirubicin Micelle (NC-6300) NanoCarrier is conducting Phase I/II trials in the US as a treatment for soft tissue sarcoma. Among the subtypes of soft tissue sarcoma in which NC-6300 demonstrated efficacy in the Phase I study, NanoCarrier selected angiosarcoma as the target indication for NC-6300, and in October 2019 it commenced administration of NC-6300 in an expansion cohort for the purpose of confirming both efficacy and safety in angiosarcoma patients. This drug, too, has received an orphan drug designation from the FDA.

Paclitaxel Micelle (NK105) In February 2018, Nippon Kayaku Co. (TSE1: 4272)—the licensee in Asia (including Japan)—announced the commencement of a Phase II clinical study in breast cancer patients.

Gene therapy drug VB-111 With regard to VB-111, a gene therapy drug in-licensed from Vascular Biogenics (VBL) of Israel in November 2017 for development and marketing rights in Japan, the company performed Phase III clinical trials with platinum-resistant ovarian cancer patients. In November 2019, NanoCarrier obtained approval from the Minister of Health, Labour and Welfare and the Minister of the Environment for Type 1 use, etc. in order to initiate domestic development of VB-111 based on the Act on the Conservation and Sustainable Use of Biological Diversity through Regulations on the Use of Living Modified Organisms (Cartagena Act). Based on interim analysis results of the trials due out in Q4 FY03/20, the company plans to continue development in Japan.

Further, based on the results of Phase II and III clinical trials conducted in recurrent glioblastoma (rGBM) patients, VBL announced on November 6, 2019, that an investigational new drug (IND) application had received clearance from the US FDA, for an investigator-initiated Phase II clinical trial of VB-111 in rGBM patients undergoing a second surgery. As well, VBL announced plans for a trial (initiated by the US National Cancer Institute) investigating VB-111 in combination with an immune checkpoint inhibitor as a treatment for colon cancer.

06/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

New pipeline drug in otolaryngology disease area (ENT103) With respect to ENT103, a new pipeline drug in the otolaryngology disease area based on a joint development agreement with CEOLIA Pharma Co., Ltd., NanoCarrier is conducting a Phase III clinical trial in otitis media patients in Japan, for which registration began in May 2019. The company aims to receive approval to manufacture and market the pipeline drug quickly and be able to supply the product at the earliest opportunity by establishing an integrated structure from manufacture to sales.

Acti-PRP (platelet-rich plasma separator) In April 2019, NanoCarrier acquired sales rights in Japan for Acti-PRP (platelet-rich plasma separator used in regenerative medicine) from Aeon International Inc. Platelet-rich plasma (PRP) contains an abundant supply of growth factor that stimulates the growth of cells, helping to repair damaged tissues when injected locally. While previously PRP therapy was mainly performed in orthopedic surgery, the company established an obstetrics and gynecology PRP study group in the view that it could also be used as a fertility treatment, and NanoCarrier has been selling Acti-PRP to medical facilities that are members of this study group and conducting clinical research on the subjects. Having moved into the regenerative medicine field, the company plans to develop Acti-PRP as its first new business in Japan.

New pipeline products The company is developing a pipeline of next-generation DDS technologies that use NanoCarrier’s proprietary core technology ADCM (Antibody/Drug-Conjugated Micelles). Active-type nanomicelle particles that encapsulate drug substances and combine it with antibody sensors are expected to enhance the antitumor effect further.

NanoCarrier also is conducting joint research aimed at exploring new types of sensors, allowing ADCM to have functions added or achieve accelerated optimization. The company has concluded a collaborative research agreement with JCR Pharmaceuticals Co., Ltd. to develop drug delivery to the brain. The two companies will integrate their unique technologies and knowledge, such as NanoCarrier’s ADCM and JCR’s J-Brain Cargo® (blood-brain barrier penetration technology) to deliver active drug molecules to the central nervous system, and aim to develop an innovative drug that can be effectively delivered to the brain.

Status of business development In May 2019, NanoCarrier issued 705,800 new shares by third party allotment to Cyntec Co., Ltd., a wholly owned subsidiary of OEP, with a view to solidifying collaboration with OEP and extending the scope of their business alliance regarding mainstay pipeline product NC-6004.

In addition, in April 2019 the company concluded a sales agency agreement with Aeon International Inc. for Aeon International’s Aeon Acti-PRP (platelet-rich plasma separator used in regenerative medicine) in Japan, and started selling the product.

Cosmetics business NanoCarrier supplies raw materials for the skincare serum Eclafutur and the whitening agent Excia AL Whitening Immaculate Essence IDD, both sold by Albion. NanoCarrier also conducts online sales and counseling sales at salons of Depth, a scalp care product for men that it developed in collaboration with Albion.

The company sees potential for development of dermatological medicines from its studies on the skin permeability of cosmetics under development and plans to apply the technology in the dermatological disease area.

For details on previous quarterly and annual results, please refer to the Historical financial statements section.

07/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Full-year FY03/19 company forecasts

Company forecasts FY03/19 FY03/20 (JPYmn) 1H Act. 2H Act. FY Act. 1H Act. 2H Est. FY Est. Sales 218 279 497 294 287 581 YoY 209.0% 47.8% 91.7% 34.7% 3.1% 17.0% CoGS 41 39 80 55 Gross profit 177 240 417 239 YoY 262.8% 68.4% 118.0% 35.0% GPM 81.2% 86.0% 83.9% 81.4% SG&A expenses 1,106 1,114 2,219 923 R&D expenses 879 914 1,793 695 605 1,300 SG&A excluding R&D 226 200 426 228 Operating profit -928 -874 -1,802 -684 -836 -1,520 YoY ------OPM ------Recurring profit -911 -863 -1,774 -734 -802 -1,536 YoY ------RPM ------Net income -910 -899 -1,809 -897 -553 -1,450 YoY ------Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

FY03/20 company forecasts are sales of JPY581mn (+17.0% YoY), an operating loss of JPY1.5bn (versus operating loss of JPY1.8bn in FY03/19), a recurring loss of JPY1.5bn (versus recurring loss of JPY1.8bn in FY03/19), and a net loss of JPY1.5bn (versus net loss of JPY1.8bn in FY03/19).

The company forecasts sales will increase 17.0% YoY to JPY581mn, primarily derived from development milestone payments, revenues from the supply of raw materials for cosmetics and sales of Depth (men’s scalp total care product), and sales of regenerative medicine PRP (platelet-rich plasma) separator Aeon Acti-PRP.

▷ In July 2018, NanoCarrier concluded a licensing agreement with Orient Europharma to conduct joint multinational clinical trials of NC-6004 for head and neck cancer that would provide development milestone payments of up to USD8mn in line with

development progress. These milestone payments have been factored into company forecasts. ▷ NanoCarrier generates revenues from supplying cosmetic raw materials to Albion as well as from the sale of Depth, a men’s scalp total care product. In FY03/18, sales to Albion totaled JPY155mn. ▷ A domestic sales agency agreement was concluded with Aeon International in April 2019 for regenerative medicine PRP (platelet-rich plasma) separator Aeon Acti-PRP. NanoCarrier looks to begin marketing Aeon Acti-PRP in Japan from FY03/20.

NanoCarrier forecasts operating losses of JPY1.5bn (down from JPY1.8bn in FY03/19), recurring losses of JPY1.5bn (down from JPY1.8bn), and net losses of JPY1.5bn (down from JPY1.8bn). Operating losses are projected to shrink as a result of rising sales and lower R&D expenditures, which are forecast to be about JPY1.3bn (down from JPY1.8bn).

08/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Outlook

From FY03/20, the company aims to shift its policy focus from a "select and prioritize" mindset to "change and pursuit". The company will promote ongoing clinical trials of in-house developed candidates that made the cut in FY03/19. Licensing will be limited to late-stage candidates or drugs that can be marketed in order to foster rapid monetization.

In-house developed candidates The current lineup of three in-house developed candidates—Cisplatin Micelle (NC-6004), Epirubicin Micelle (NC-6300), and DACH-Platin Micelle (NC-4016)—will be consolidated to NC-6004 and NC-6300 from FY03/20.

In FY03/19, NC-6004 development included Phase III clinical trial (Asia, including Japan) for pancreatic cancer; Phase II (Europe and the US) for non-small-cell lung cancer, biliary tract cancer, and bladder cancer; and Phase II (Europe, the US, and Taiwan) for head and neck cancer. In April 2019, result analysis of the Phase II trial targeting non-small-cell lung cancer, biliary tract cancer, and bladder cancer showed efficacy on par with conventional treatment across all three cancer types. It is our understanding that NanoCarrier will consolidate NC-6004 development from FY03/20 to the Phase III study for pancreatic cancer and Phase II study for head and neck cancer owing to limitations in both finances and human resources.

Phase III trial of NC-6004 for pancreatic cancer in Asia Development of NC-6004 in Asia: since February 2014, OEP has been leading a comparative PIII clinical trial in Taiwan on the combination therapy of Nanoplatin® and gemcitabine versus gemcitabine monotherapy for the indication of pancreatic cancer. The company announced completion of patient registration in April 2019 and looks for top-line data in 1H FY03/21 following continued treatment and an observational period.

Under the terms of the agreement with OEP, NanoCarrier stands to receive total milestone payments of JPY800mn depending on the development and sales stage of NC-6004, in addition to royalties in proportion to the volume sold. The company also plans to supply materials for manufacturing to OEP, which will generate revenues.

Phase I/II clinical trial of NC-6300 for soft tissue sarcoma Phase I/II trial of NC-6300 was underway for soft tissue sarcoma, and as of May 2019 the company was preparing for transition to the Phase II part of the trial.

Licensed candidates Among licensed candidates, NanoCarrier is considering its development strategy for VB-111, conducting domestic Phase III trial for ENT103, and preparing to market Aeon Acti-PRP.

▷ The company is considering its domestic development strategy for VB-111 following detailed analysis of clinical trial results, including the Phase III study being conducted by originator VBL for platinum-resistant ovarian cancer. VBL expects interim analysis of the Phase III trial results for platinum-resistant ovarian cancer during Q4 (Oct–Dec) 2019. ▷ Treatment started in May 2019 for the first patient in the Phase III trial of ENT103, jointly conducted with CEOLIA Pharma, for otitis media patients. The study is expected to take about one year, so approval filing could be as early as FY03/21 with commercialization around FY03/22. We expect NanoCarrier to receive revenues from the sale of jointly developed ENT103. ▷ The company concluded a domestic sales agency agreement with Aeon International in April 2019 for regenerative medicine PRP (platelet-rich plasma) separator Aeon Acti-PRP. The company forecasts commercialization in Japan from FY03/20 and looks for annual sales to reach JPY500mn.

R&D expenses expected to decline The company expects R&D expense to increase due to the pursuit and acceleration of in-house clinical development of such product pipelines as Nanoplatin® (NC-6004); the expansion of new pipelines like siRNA (small interfering RNA) and

09/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Antibody/Drug-Conjugated Micelle (ADCM), a system that combines antibodies with micellar nanoparticle technology; and transfer to clinical trials.

R&D expenses came to JPY5.0bn in FY03/18 (includes USD15mn payment to VBL) but declined to JPY1.8bn in FY03/19 as the one-off payments made to VBL in FY03/18 was not repeated and costs associated with US and European basket design trials of NC-6004 declined. R&D expenses are projected to further decline to JPY1.3bn in FY03/20 as the company prioritizes basic research.

Funding status Cash and equivalents (cash, deposits, and securities) at the end of FY03/19 stood at JPY6.6bn (JPY6.4bn as of end-FY03/18). The company raised a total of JPY6.3bn (excluding refinancing) in May 2019 to support future clinical development.

Third-party allotment to OEP In May 2019, NanoCarrier announced the issuance of shares (705,800 shares) through third-party allotment to Cyntec Co., Ltd, a wholly owned subsidiary of capital alliance partner Orient Europharma Co., Ltd (OEP).

Overview of capital fund raising

▷ Amount raised: JPY296mn (net) ▷ Specified use of funds: Clinical development of cisplatin micelle (NC-6004) ▷ Dilution: 1.43%

No. 4 unsecured convertible bonds with stock acquisition rights, including exercise price adjustment provision (refinancing), No. 17 stock acquisition rights with exercise price adjustment provision, and No. 18 stock acquisition rights via third party allotment In May 2019, the company issued No. 4 unsecured convertible bonds with stock acquisition rights, including exercise price adjustment provision (refinancing), No. 17 stock acquisition rights with exercise price adjustment provision, and No. 18 stock acquisition rights via third party allotment. Payment for the No. 4 unsecured convertible bonds and No. 17 stock acquisition rights will not be cash, but rather the No. 3 unsecured convertible bonds with stock acquisition rights issued in October 2015—i.e., a refinancing of the No. 3 bonds.

No. 4 unsecured convertible bonds with stock acquisition rights Total number of stock acquisition 40 rights Number of resulting dilutive shares 6,122,715 common shares (if converted at the initial conversion price) (2,758,823 shares if converted at the maximum conversion price; 11,009,389 shares if converted at the minimum conversion price) Conversion price Initial: JPY383 (maximum: JPY850, minimum: JPY213) Amount to be raised None (refinancing of No. 3 unsecured convertible bonds with 32 stock acquisition rights [face value of JPY2.4bn])

No. 17 stock acquisition rights with exercise price adjustment provision Total number of stock acquisition 78,400 rights Number of resulting dilutive shares 7,840,000 common shares Exercise price Initial: JPY383 (maximum: JPY850, minimum: JPY213) Amount to be raised From issuance: none (payment received in the No. 3 unsecured convertible bond with a stock acquisition right [face value of JPY75mn]) From exercise: JPY3,003mn (if exercised at the initial exercise price) (JPY6,664mn if exercised at the maximum exercise price; JPY1,670mn if exercised at the minimum exercise price)

10/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

No. 18 stock acquisition rights Total number of stock acquisition 78,400 rights Number of resulting dilutive shares 7,840,000 common shares Exercise price JPY383 Amount to be raised JPY3,010mn (JPY7mn from issuance, JPY3,003mn from exercise)

Overview of capital fund raising

▷ Amount to be raised (excludes refinancing portion): JPY6.0bn net ▷ Specified use of funds:  JPY2.5bn for capital and business alliance, and for new business development (projected timeframe: May 2019–Apr 2022)  JPY3.5bn for basic research, R&D expenses of pipeline drugs (projected timeframe: Jan 2020–Dec 2022) ▷ Dilution: 44.13% assuming the No. 4 bonds with stock acquisition rights are converted at the initial conversion price and the No. 17 and No. 18 stock acquisition rights are fully exercised; 54.02% if all of the No. 4 bonds with stock acquisition rights are converted at the minimum conversion price.

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Business

Business description

NanoCarrier is a pharmaceutical venture company undertaking the development of nanomedicine based on micellar nanoparticle technology.

Core technologies

In the company’s core micellar nanoparticle (polymeric micelles) technology, nanoparticles (one nanometer = one one-billionth of a meter) are injected with a drug, and these nanocapsules are internally administered. These capsules then directly deliver and release the drug to the target lesion. The technology is a type of drug delivery system (DDS).

Core technology focus (Micellar nanoparticle/nanomicelle particle technology)

◤ Micellar nanoparticles consist of block copolymers. These block copolymers are single molecules that are synthesized from polyethylene glycol (a hydrophilic polymer that easily dissolves in water) and a polyglutamic-acid-based hydrophobic polymer that is largely insoluble in water.

◤ When block polymers are mixed with water, spherical particles (i.e., micelles) 20-100 nm (nanometers) in size are formed. These micelles consist of two distinct layers, with the hydrophilic polymer forming the outer shell and the hydrophobic polymer forming the core. A drug is then packed into and sealed inside the core (the polyglutamic acid structure) of the micellar nanoparticles.

Micellar nanoparticle size Micellar nanoparticle

Source: Company data

Conventional anticancer drugs present the same level of cell-killing effect to cancer cells and healthy cells. By spreading systemically, these drugs act on healthy cells. Due to this nature, side effects are, in general, inevitable when administered.

The company’s drugs based on nanomicelle particle technology stay in the bloodstream for a longer period and act selectively on the target lesion, reducing the impact on other healthy cells and their dosage amounts. Accordingly, they are considered to be effective in cancer treatments (with conventionally high risk of side effects from drugs). Also, they have been proven to be effective against drug-resistant cancers.

Features of nanomicelle particle technology:

◤ Few particles become trapped inside major organs. When particles are injected into the bloodstream, their size dictates the organs they are likely to become trapped in. Particles larger than 3,000 nm may end up in the lungs, particles larger than 300 nm in the spleen, and particles larger than 100 nm in the liver. As the company’s micellar nanoparticles are less than 100 nm in diameter, fewer of them end up being trapped in organs, and more of them are able to circulate through the bloodstream until they reach a cancer cell.

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◤ Prolonged circulation for particles. The immune system works to expel foreign substances, such as bacteria from the body, similarly, it also attempts to remove drugs administered into the bloodstream. In contrast, the polyethylene glycol that covers the surface of the micellar nanoparticles is not easily recognized as a foreign substance by the immune system. So, after the particles have been injected intravenously, they are able to circulate the bloodstream for a prolonged period thereby increasing the drug’s efficacy.

◤ Particles are able to target cancer cells. Cancer tissue differs from normal tissue in that cancer cells proliferate faster. It is thought that many new blood vessels form to supply the various nutrients that these newly created cells require. Since these new blood vessels are formed quickly, the bindings between cancer cells are larger than those found in normal cells and these blood vessels therefore are highly permeable. It is believed sub-100 nm micellar nanoparticles circulating in the bloodstream accumulate in cancer tissue easily. In addition, the lymphatic vessels found in cancer tissue are underdeveloped, so micellar nanoparticles tend to remain inside the tissue rather than return to the bloodstream. In other words, particles do not leave the cancer cells as easily as they arrive. Together, these two phenomena are known as the EPR (Enhanced Permeation and Retention) Effect. The anticancer drug contained in the particle is able to persist in cancer cells for a long period of time due to the EPR Effect’s ability to trigger a type of angiogenic activity that is unique to tumor tissue.

The Concept of Micellar Nanoparticle Delivery into Body Tissues

Source: Company data

The company’s three micellar nanoparticle technology systems can be used individually or combined according to their intended use. These systems are the NanoCap® System, Medicelle® System, and NanoCoat® System. These systems make it possible to make normally insoluble drugs soluble and can target a specific lesion showing longer drug retention.

◤ NanoCap® System uses polyamino acids to form the inside of the micellar nanoparticle. Polyamino acids have water-insoluble, oil-like properties and this system utilizes these properties to encapsulate the water-insoluble drug by way of dissolving the drug in oil. This increases the solubility of drugs that are normally insoluble.

◤ Medicelle® System encapsulates drugs by magnetic binding or chemical binding. Some medications show positive or negative electric charges. It is possible to lock drugs inside a micelle and chemically bind the drug to part of the polyamino acid by using a polymer with the opposite electric charge. This improves the retention of the drug in the bloodstream.

◤ NanoCoat® System is used to efficiently target cancer cells by making a substance (functioning like a sensor) selectively home in on cancer cells (this substance is applied onto the surface of the drug-carrying micellar nanoparticle). The sensor-like substance can be antibodies. This system enhances the drugs’ ability to target specific lesions.

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Three Micellar Nanoparticle Technology Systems

Source: Company data

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Product pipeline

Pipelines: development status and schedule (as of May 2019) Product Indication Stage Region Status Development structure

Nanoplatint Pancreatic P III Asia Taiwan Trials underway Joint development with NC-6004 cancer Singapore OEP Hong Kong South Korea Philippines Malaysia Japan Lung cancer P II US/Europe Analysis results obtained in April 2019 In-house development Bladder cancer Biliary tract cancer Head and P I / II Asia/US/Europe Basic agreement from May 2018, Joint development with neck cancer preparing for trials. Combination with OEP immune checkpoint inhibitors Epirubicin Micelle Solid cancer P I / II US Angiosarcoma In-house development NC-6300 Phase I expansion cohort trial underway Paclitaxel Micelle Breast cancer P II Japan Phase II underway Out-licensed to Nippon NK105 Stomach P II Japan Clinical trials finished Kayaku cancer Source: Shared Research based on company data *OEP (Orient Europharma Co., Ltd.)

The main pipelines under development are Nanoplatin® (NC-6004), Epirubicin Micelle (NC-6300), Paclitaxel Micelle (NK105, out-licensed). The company is also advancing basic research of ADCM and has licensed candidates VB-111, ENT103, and Aeon Acti-PRP.

Nanoplatin® (NC-6004)

Nanoplatin® (NC-6004, Cisplatin Guiding Micelle) is a drug that NanoCarrier developed applying its micellar technology to cisplatin (anticancer drug).

Cisplatin is a platinum-containing anti-cancer drug in chemotherapy for various cancers, whose effectiveness is widely recognized. However, the drug causes strong side effects, such as severe vomiting, and requires intensive hydration during prolonged administration. This results in dramatic reduction of quality of life (QOL) of patients. In addition, cisplatin causes such side effects as kidney failure and neural toxicity, leading to treatment suspensions and postponements.

With the aim of developing a new drug that expects to reduce such cisplatin’s side effects and have a stronger antitumor effect, the company prepared Nanoplatin® (NC-6004), a novel compound conjugated with a new block polymer. Results of nonclinical tests showed sustained drug release (properties that delay release of active ingredients from the drug), cancer tissue accumulation potential, reduced kidney and neural toxicity. Accordingly, NanoCarrier started Phase I clinical trials in the UK in May 2006.

However, insufficient capital, primarily due to a turbulent equity market during and after the IPO, caused NanoCarrier to suspend further European trials and look for lower cost opportunities in Asia for its subsequent clinical trials. NanoCarrier out-licensed NC-6004 to Orient Europharma Co. Ltd. (OEP), a Taiwan based pharmaceuticals and cosmetics manufacturer and importer, in September 2008, granting it exclusive Oceania and Asia (ex-Japan, ex-China, ex-India) rights. OEP will undertake half of the costs associated with clinical trials, and will purchase drugs at a discount from NanoCarrier.

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In November 2012, the company signed two agreements with Orient Europharma Co., Ltd. (OEP), of Taiwan: a new license agreement granting OEP global manufacturing rights; and an agreement under which NanoCarrier will take an equity stake in a subsidiary of OEP.

According to the company, the agreements comprise the following:

◤ Regarding the development of NC-6004, including for pancreatic cancer, in the Asia region, OEP has a leading role while NanoCarrier will cooperate from a joint development perspective. Development costs will be borne by OEP.

◤ As consideration in relation to non-exclusive manufacturing rights, OEP will make milestone payments to NanoCarrier totaling JPY800mn in accordance with the stage of development and sales, and also pay royalties based on sales volume. The company will supply materials as necessary for manufacturing, and OEP will pay consideration for materials supplied. In September 2013, OEP founded OP Nano Co. as a drug manufacturing subsidiary, and NanoCarrier invested TWD29.5mn in OP Nano.

On August 31, 2012, the Taiwanese government announced new guidelines to promote the development of the biotech and pharmaceutical industry as a national-level strategy. Based on these guidelines, the Taiwan Food and Drug Administration (TFDA), the Industrial Development Bureau with the Ministry of Economic Affairs and other agencies will relax regulations as much as possible in relation to new-drug R&D by Taiwanese companies. This includes such measures as early approval of drugs and preferential pricing of drugs. In addition, the Taiwanese government is hammering out a range of other support policies. The content of the new license agreements between NanoCarrier and OEP meets the conditions set within the Taiwanese government’s industry promotion and support package, and this is expected to greatly contribute to the rapid development and early approval of NC-6004. Further, the company said that depending on the progress of negotiations between Taiwan and China, another point of significance in these agreements is the increased potential for approaches into the Chinese market via the aforementioned OEP subsidiary.

Development status of Nanoplatin® (NC-6004) Following is the stages of development of Nanoplatin® (NC-6004). Development status of Nanoplatin® (NC-6004)

Indication Region Status Schedule Development structure Pancreatic cancer Japan/Asia PIII Patient registration Joint development led by completed in April 2019 OEP Head and neck cancer Asia/Europe/US PII (combination with Recruiting patients Joint development with immune checkpoint OEP inhibitor) Non-small cell lung US/Europe PII Patient registration In-house cancer ended in Q3 FY03/18 Bladder cancer for clinical trial targeting Biliary tract cancer biliary tract cancer. Clinical trials targeting non-small cell lung cancer and bladder cancer are progressing. Trials scheduled to end in 2019

Phase I and II clinical trials targeting pancreatic cancer completed OEP is conducting Phase I and II trials in Taiwan and Singapore for combination treatment with Gemcitabine, the standard medication for pancreatic cancer.

In the Phase I/II clinical tests, the company confirmed that cisplatin’s side effects, such as kidney failure, gastrointestinal toxicity, neurological disorder and hearing difficulties, were at low levels in terms of both frequencies of occurrence and degrees of severity, and that kidney disorder known for cisplatin-derived drugs could effectively be reduced without administering a significant amount of electrolyte replenisher (hydration).

In the clinical tests, Nanoplatin® (NC-6004) showed similar efficacy to literature data for the existing substances (Abraxane and Gemcitabine). As treatment in the Phase I/II trial was conducted without hydration, light kidney disorder had been detected on administration of Nanoplatin® (NC-6004). As a result, the amount of Nanoplatin® (NC-6004) was halved in seven cases, which is

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assumed to have affected the efficacy of the clinical tests. In the Phase III clinical tests, the company intends to improve efficacy data by adding a small amount of hydration to kidney disorder.

Phase III clinical trials targeting pancreatic cancer (Asia) According to the company, OEP will lead the Phase III clinical tests, which began administration to patients in February 2014 in Taiwan. As of May 2018, NanoCarrier, together with OEP, is conducting Phase III clinical trials on patients with metastatic and advanced pancreatic cancer in Taiwan, Hong Kong, Singapore, South Korea, the Philippines, and Malaysia. The tests will cover 300 patients of metastatic/advanced pancreatic cancer and compare efficacy of the combined therapy of Nanoplatin® (NC-6004) and Gemcitabine and the monotherapy of Gemcitabine. Another 100 patients from Japanese institutions were additionally enrolled for the Phase III trials in Asia.

In June 2015, the company applied for and obtained permission from Japan’s Pharmaceuticals and Medical Devices Agency (PMDA) to conduct Phase III clinical trials for Nanoplatin® in Japan to treat patients with pancreatic cancer as part of the trials already underway in the Asia region. This could allow for earlier approval in Japan as the company may be able to use the results of pancreatic cancer treatment Phase III trials in Asia without the need to conduct Phase II trials in Japan. According to the company these trials are expected to help realize earlier marketing of Nanoplatin® in Japan and should involve less expenses compared to clinical trials in Japan conducted independently by the company.

Patient registration ended as the number of patients needed to satisfy statistical analysis of the Phase III trial of the cisplatin micelle targeting pancreatic cancer was reached in April 2019. Top-line data is expected by 1H 2020 (results to determine if the primary endpoint for the clinical trial was achieved).

Joint multinational trial for head and neck cancer For the head and neck cancer trials of NC-6004, OEP was conducting Phase I in Taiwan while NanoCarrier was conducting Phase I/II in Europe and the US. The two companies reached an agreement in May 2018 to integrate their respective trials into a multinational joint study. In July 2019, the company commenced Phase II clinical trials to evaluate NC-6004 in combination with immune checkpoint inhibitor Keytruda® (PD-1 antibody pembrolizumab).

The trial comprises Phase IIa and Phase IIb. Phase IIa will be conducted on 12 patients and determine the recommended dose of NC-6004 when used in combination with Keytruda®. Phase IIb will be conducted on 124 patients, with one group of 62 patients receiving Keytruda in combination with NC-6004, and a control group of 62 patients receiving Keytruda alone. Phase IIb will compare the median progression-free survival (PFS: the period in which the patient survives without the illness worsening) between the groups.

*Immune checkpoint inhibitors: A living organism’s natural immune system works against external foreign bodies as well as cancer cells, which are foreign bodies that occur internally. However, cancer cells have an immune checkpoint mechanism that allows them to evade the immune system. By inhibiting immune checkpoints, anticancer effects are activated by enabling the T cells’ immune response. Drugs with this action are called immune checkpoint inhibitors, of which four have been approved in Japan: Opdivo (nivolumab), Keytruda (pembrolizumab), Tecentriq (atezolizumab) and Bavencio (avelumab).

*Keytruda® (pembrolizumab)：Keytruda® is an immune checkpoint inhibitor developed and sold internationally by the US-based Merck & Co., Inc. As of end-June 2018, it was approved for indications including non-small-cell lung carcinoma, malignant melanoma, head and neck cancer, urothelial cancer, stomach or gastroesophageal junction adenocarcinoma, classical Hodgkin’s lymphoma, and microsatellite instability high (MSI-H) or deficient mismatch repair (dMMR) solid tumors in the US. When used in combination with platinum chemotherapy (pemetrexed plus carboplatin), Keytruda® is approved for the treatment of nonsquamous non-small cell lung cancer. According to Merck & Co., Inc., sales of Keytruda® in 2017 amounted to USD3.8bn.

Phase II clinical trials targeting non-small cell lung cancer, bladder cancer, and biliary tract cancer (the US and Europe) In May 2014, the company began Phase Ib/II clinical trials for non-small cell lung carcinoma in the US at multiple facilities, including the University of Texas MD Anderson Cancer Center.

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This clinical test has the basket design to encompass patients with non-small cell lung cancer, bladder cancer, and biliary tract cancer. It aims to confirm efficacy of therapy combining NC-6004 and Gemcitabine.

Basket design trials: Clinical trials targeting multiple indications to broadly investigate efficacy and safety. This trial system allows for the discovery of carcinoma with high efficacy within a short period, as well as a smooth transition to the next trial stage, which supports earlier application for approval.

The company received analysis results of the phase II trial in April 2019. Efficacy of NC-6004 was comparable to the conventional treatment of cisplatin-gemcitabine therapy and was well-tolerated as adverse events were similar to existing cisplatin-based drugs, but the frequency and severity were reduced. The focus of development going forward will be on enhancing its value as a pharmaceutical.

Market size and effect on business of Nanoplatin® (NC-6004) Products similar to Nanoplatin® include oxaliplatin, gemcitabine, and carboplatin, and peak sales for each were JPY227.2bn (in 2007), JPY172.0bn (2008), and JPY90.5bn (2003), respectively. (Estimates provided by EvaluatePharma.) Figures include global sales for all applications, and assume an exchange rate of JPY100/USD.

According to the company, there exist approximately 190,000 pancreatic cancer patients that would benefit from the drug, and sales are projected to be JPY80.0bn per year.

Epirubicin Micelle (NC-6300)

Epirubicin is an anthracycline-class anti-cancer drug that fits into the double-helix structure of DNA, inhibiting its synthesis; suppresses enzyme activity; and severs DNA. Anthracyclines have a wide range of applications, and are used particularly in breast cancer treatment. On the other hand, it is also highly cardiotoxic but it was proven that micelle-ization reduces this side effect.

Epirubicin Micelle (NC-6300) is an improved version of the pH-responsive micelle system originally developed of by Professor Kataoka’s team at Tokyo University, and that has been further developed by the company. According to the company, this is a system whereby the drug is introduced into a cancer cell using a micelle, which then lowers the pH level and the Epirubicin is released explosively within the cell. Preliminary research suggests the system is effective against anthracycline-resistant forms of cancer.

Significant improvement in the drug’s retention in the bloodstream and increased concentration of the drug in cancer cells was demonstrated in Epirubicin Micelle (NC-6300) animal experiments. (See: Improved anti-tumor activity of stabilized anthracycline polymeric micelle formulation, NC-6300：M. Harada, I. Bobe, H. Saito, N. Shibata, R. Tanaka, T. Hayashi, Y. Kato, Cancer Science 102 (1) 192-199(2011).) According to the company, in human liver cancer model experiments, tumors mostly vanished and in human breast cancer model experiments it was shown to be substantially more effective at inhibiting tumor growth than a simple administration of Epirubicin formula. Moreover, as accumulation of Epirubicin in the heart is also greatly reduced by micelle administration, there are high hopes for a reduction in side effects.

Development status of Epirubicin Micelle (NC-6300)

Development status of Epirubicin Micelle (NC-6300)

Indication Region Status Schedule Development structure Soft tissue sarcoma US PI/II — In-house

In September 2011, the company entered into a licensing and co-development agreement with Kowa Co. and added Epirubicin Micelle (NC-6300) to their main pipeline. Both the license and the joint development agreement were cancelled in October 2016 as Kowa reevaluated its priorities for development in light of its move to focus development on Europe and the US in its global strategy. NanoCarrier plans to take over all the results of studies owned by Kowa related to this development for free, and accelerate the drug’s development.

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Phase I clinical trials for Epirubicin Micelle (NC-6300) targeting solid tumors (Japan) As of November 2016, domestic Phase I clinical trials targeting solid tumors were near completion and preparations to release the trial results such as through articles are currently underway. During the Phase I clinical trial, it was evident that side effects specific to Epirubicin (such as nausea and myelotoxicity) were suppressed, and a higher dosage could be administered than for conventional Epirubicin. NanoCarrier also interprets the results of the clinical trials as favorable, since no tendency of reduced cardiac function was observed even with patients being administered the drug for over 12 months.

Phase I/II clinical trials for Epirubicin Micelle (NC-6300) targeting soft tissue sarcoma (US) As mentioned above, NanoCarrier’s joint development contract with Kowa for Epirubicin Micelle (NC-6300) was cancelled in October 2016. The company plans to take over all the results of studies owned by Kowa without compensation for use in this development, including the results of the domestic Phase I clinical trial of NC-6300, and accelerate the drug’s development.

NC-6300 Phase I In December 2016, the company submitted a plan to conduct Phase I/II clinical trials of NC-6300 (Epirubicin Micelle) to treat soft tissue sarcoma to the US Food and Drug Administration (FDA). In December 2018, the company announced that primary Phase I benchmarks, including efficacy and tolerability, had been met in Phase I/II clinical trials for NC-6300 and that a maximum tolerated dose (MTD) of 185mg/sqm had been determined.

According to the company, NC-6300 was safely administered to 29 patients with solid tumors, including sarcomas, during Phase I. Phase I results are summarized below.

▷ The maximum tolerated dose (MTD) was established at 185mg/sqm. NC-6300 could be administered at a higher dose than the standard clinical dose for Epirubicin (e.g., 60mg/sqm or 100mg/sqm for breast cancer patients). ▷ No adverse events specific to NC-6300 were observed. Although adverse effects of Epirubicin such as nausea, vomiting, and bone marrow toxicity were observed, their frequency and severity were reduced. ▷ Reduced cardiac function (a clinically significant adverse reaction) was not observed in patients who had long-term treatment with NC-6300. ▷ Partial response (PR) was observed in two out of two patients with registered angiosarcoma, a type of soft tissue sarcoma. ▷ Long-term stable disease (SD) was observed in a patient with malignant melanoma that had developed resistance to immune checkpoint inhibitors.

The FDA granted Epirubicin Micelle (NC-6300) orphan drug status as a treatment for soft tissue sarcoma in July 2017.

Soft tissue sarcomas: Malignant tumors that develop in soft tissues of the body, including fat, muscle, and blood vessels. According to the US National Cancer Institute, it is estimated that about 12,000 new cases of soft tissue sarcoma are diagnosed each year among adults in the US.

NC-6300 expansion cohort In October 2019, NanoCarrier selected angiosarcoma among the subtypes of soft tissue sarcoma as the target indication for NC-6300 and commenced administration of the drug in an expansion cohort for the purpose of confirming both efficacy and safety in angiosarcoma patients. NC-6003 will be administered (at a dose of 150 mg/m2, every three weeks) to a group of 10 patients over an approximately two-year period.

Angiosarcoma is a subtype of soft tissue sarcoma, in which more than 50 subtypes have been reported, and is a malignant tumor of the vascular endothelium. Sarcoma accounts for 1% of all malignant tumors, and angiosarcoma makes up 2 to 3% of all soft tissue sarcoma. Although anthracyclines or paclitaxel are used as treatment for angiosarcoma, a standard treatment has not been established as yet.

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Market size and effect on business of NC-6300 Products similar to NC-6300 include docetaxel, paclitaxel, paclitaxel DDS formulation, and doxorubicin DDS formulation, and peak sales for each were JPY303.9bn (in 2009), JPY159.3bn (2000), JPY178.0bn (2018), and JPY66.9bn (2010), respectively. (Estimates provided by EvaluatePharma.) Figures include global sales for all applications, and assume an exchange rate of JPY100/USD.

Paclitaxel Micelle (NK105)

Paclitaxel (Taxol®) is an anticancer drug widely used around the world for treating a variety of cancers including ovarian, lung, breast, and stomach cancers. When administrated, it does not dissolve well in water, so special alcohol-based solvents must be used. In addition to side effects attributable to drugs, these solvents cause side effects. Reducing these side effects upon administration requires the use of additional medicines such as steroids and antihistamines, for which medical frontlines have pointed out complexity in administration. With its micellar nanoparticle technology (NanoCap® system), the company has succeeded in manufacturing a micellar nanoparticle into which Paclitaxel can be locked: Paclitaxel Micelle (NK105).

The company performed joint studies with Nippon Kayaku (TSE1: 4272) to improve paclitaxel using micellar technology. Nippon Kayaku then made a decision to develop Paclitaxel Micelle (NK105), based on results of those studies and in licensed the technology from NanoCarrier in June 2002. The license gave Nippon Kayaku exclusive distribution rights for Japan and Asia, as well as non-exclusive rights for the rest of the world.

Under this license agreement, NanoCarrier will receive milestone payments from Nippon Kayaku if NK105 is approved. The company will also receive a proportion of net sales as royalties from Nippon Kayaku if the drug goes to market.

Development status of Paclitaxel Micelle (NK105)

Development status of Paclitaxel Micelle (NK105)

Indication Region Status Schedule Development structure Breast cancer Japan/Asia Phase II — Out-licensed to Nippon Kayaku

Phase I clinical trials targeting breast cancer NanoCarrier started a Phase I clinical trial targeting breast cancer (Taxol® is the standard treatment) in August 2010. In July 2012, Nippon Kayaku began the Phase III comparative clinical trials for Paclitaxel Micelle (NK105) targeting metastatic/recurrent breast cancer (Phase II trials were skipped thanks to favorable results of the preceding trials).

Nippon Kayaku announced Phase III clinical trials targeting breast cancer failed to meet key benchmarks. Started Phase II study in February 2018 The Phase III trial (randomized international multicenter joint research) aims to compare the efficacy and safety of the Paclitaxel Micelle drug group with those of the NK105 drug group as a treatment for metastatic/recurrent breast cancer. These drug groups are to be evaluated for progression-free survival (PFS: the period in which the patient survives without the illness worsening). The trials target 380 administration cases. Nippon Kayaku planned to file an NDA (New Drug Application) in 1H FY03/17. But in July 2016, Nippon Kayaku announced that NK105 had not met key benchmarks in Phase III trials on patients with metastatic or recurrent breast cancer. That said, Phase III clinical trial results were published in international scientific journal British Journal of Cancer in February 2019, indicating that although almost no difference was shown in median progression-free survival (PFS) between the NK105 and control groups (paclitaxel), the NK105 group saw greater suppression of peripheral neuropathy.

In February 2018, Nippon Kayaku announced that it had started a Phase II clinical trial of NK105. It is a randomized trial comparing the same dosage of NK105 versus paclitaxel in terms of efficacy and safety in patients with breast cancer.

According to NanoCarrier, the NK105 technology (a part of the company’s first generation technologies) out-licensed to Nippon Kayaku physically entraps drugs into the nanomicelles. It was known that retention of paclitaxel in human plasma half-life was

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approximately 30 minutes. In contrast, the human plasma half-life could be prolonged to more than 10 hours by slower release effect of the micellar technologies, generating high expectations for NK105 on clinical contribution. On the other hand, other drugs in the company’s pipeline such as NC-6004, NC-4016 and NC-6300 have been developed by using the second generation of NanoCarrier technology, in which drug is chemically conjugated in polymer inside micelles. This technology has greatly improved the performance of controls in drug release, with human plasma half-life prolonged by more than100 hours in the case of NC-6004 and NC-4016. Although Paclitaxel failed to meet the key benchmarks in the Phase III clinical trials, the company has indicated that, because of the differences in technology, this will have no impact on the development of drugs in its second-generation pipeline.

As of July 2016, in addition to Phase III trials on breast cancer patients, Nippon Kayaku is preparing Phase I trials on a combined regimen of NK105 and carboplatin for treating solid tumors.

Market size and effect on business of Paclitaxel Micelle (NK105) Products similar to Paclitaxel Micelle include docetaxel, paclitaxel, and paclitaxel DDS formulation, and peak sales for each were JPY303.9bn (in 2009), JPY159.3bn (2000), and JPY178.0bn (2018), respectively. (Estimates provided by EvaluatePharma.) Figures include global sales for all applications, and assume an exchange rate of JPY100/USD.

VB-111 Introduced VB-111 In November 2017, NanoCarrier signed an exclusive license agreement with VBL Therapeutics (NASDAQ: VBLT, based in Israel; hereinafter VBL) for gene therapy drug VB-111 (generic name: ofranergene obadenovec). The license agreement gives NanoCarrier exclusive rights to develop and commercialize VB-111 in Japan. Under the agreement, VBL will provide VB-111 to NanoCarrier, and the latter will engage in clinical development toward commercialization and sales of the drug. In exchange, NanoCarrier will make an upfront payment of USD15mn to VBL, followed by milestone payments based on development stages. After the marketing, NanoCarrier will pay milestone payments and royalties based on sales.

VB-111’s mechanism of action VB-111 is a gene therapy drug using a non-integrating, non-replicating, Adeno 5 vector. After intravenous administration by injection, it is absorbed in vascular endothelial cells to selectively induce cell death (apoptosis) of endothelial cells in tumor vessels. In a dual mechanism, VB-111 also induces a specific anti-tumor immune response.

VB-111 induces selective apoptosis of endothelial cells in tumor vessels VB-111 expresses a gene that induces targeted apoptosis of only endothelial cells in newly formed blood vessels Cancers need oxygen and nutrients for growth. To absorb nutrients, tumors emit particular molecules called growth factors, which promote angiogenesis (formation of new blood vessels) and feed tumors. Tumors go into the circulatory system through newly formed blood vessels and spread to other parts of the body (cancer metastasis).

VB-111 expresses a gene that selectively induces apoptosis of endothelial cells (in angiogenic tumor blood vessels) needed for the maintenance and growth of tumors, under the control of a modified murine pre-proendothelin promoter (PPE-1-3x), a specific gene expression control sequence that targets tumor vessels. The gene is called the Fas-TNFR-1 chimeric receptor.

Endogenous TNF-α, abundant in the tumor milieu, interacts with the Fas-TNFR-1 receptor, leading to apoptosis of endothelial cells in newly formed blood vessels. When these vessels are destroyed, provision of nutrients and oxygen to tumors stops, leading to tumor starvation, regression, and necrosis.

While avoiding impacts on normal blood vessels, VB-111 selectively targets angiogenic blood vessels that provide nutrients to tumors. This selectivity is one of VB-111s, leading to tumor starvation, regression, and necrosis.de effects on other organs free of tumors. This singularity enables VB-111 to be administered systemically without concerns over the toxicity and side effects typical of non-specific gene therapies and ordinary cancer chemotherapies.

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Ability to kick-start immune reaction in tumors VB-111 also acts as a factor to stimulate immune reaction, which triggers tumor immunity, inducing infiltration of cytotoxic CD8 T cells to tumors, which causes apoptosis of tumor cells.

VB-111 development status VBL is conducting Phase III clinical trials of VB-111 for recurrent glioblastoma (rGBM) and platinum-resistant ovarian cancer. Further, it announced plans to start a joint study of VB-111 administered in combination with an immune checkpoint inhibitor for gastrointestinal cancer from 2H 2019.

Phase III trial for recurrent glioblastoma (rGBM) In March 2018, VBL announced preliminary results of the Phase III trial of VB-111 in combination with Avastin® targeting recurrent glioblastoma (rGBM), primarily conducted in the US. There was no significant difference in overall survival (OS), the primary endpoint of the study, between the group receiving VB-111 in combination with Avastin and the control group receiving Avastin only.

Glioblastoma (GBM), which accounts for around 10% of brain tumors, is the most refractory of them with median overall survival (OS) of 12-15 months from diagnosis and a five-year survival rate of 8% or less. At diagnosis, patients generally get resection, radiotherapy, or chemotherapy via temodar, but most of them have a recurrence within six months. At that point, patients receive drug treatments with Avastin, temodar, gliadel, and others, but there has been no standard treatment and the survival period after progression is six to eight months.

According to VBL, in Phase III clinical trials of VB-111, 256 patients (128 patients per group) in 57 facilities received either Avastin monotherapy or Avastin in combination with VB-111 to compare efficacy and safety.

▷ Overall survival (OS) was 7.9 months for the Avastin group and 6.8 months for the Avastin/VB-111 group, with no statistically significant difference between the two groups. ▷ However, in collectives with small gross tumor volumes (less than 15cm3), OS was 8.3 months for the Avastin group and 9.2 months for the Avastin/VB-111 group. ▷ Median progression-free survival (PFS) was 3.7 months for the Avastin group and 3.4 months for the Avastin/VB-111 group. The response rate was 21.9% for the for the Avastin group and 27.3% for the Avastin/VB-111 group. ▷ Although no statistically significant difference was observed between the two groups (including safety), improved efficacy was observed in some sub-groups of the Avastin/VB-111 group versus the Avastin group. Treatment with VB-111 was well tolerated, with fever as the only notable adverse side effect.

In the Phase II study, patients who relapsed after initial treatment such as surgery, chemotherapy, or radiation therapy received VB-111 and went on to receive a combination of Avastin and VB-111 if the disease progressed. In the Phase III study, patients in the Avastin/VB-111 group received Avastin and VB-111 when their disease recurred after initial treatment. OS was 13.6 months in the Phase II study (24 patients), whereas OS was 6.8 months in the Phase III study (128 patients). As of November 2018, VBL was conducting a detailed MRI analysis to check whether Avastin reduced the efficacy of VB-111, as suggested in the results of the Phase III trial. As of May 2019, VBL was conducting detailed MRI analysis to test its hypothesis on the need of initial administration of VB-111 monotherapy (priming). At the June 2019 American Society of Clinical Oncology (ASCO) meeting, VBL presented MRI analysis from VB-111 Phase II and Phase III trials for recurrent glioblastoma that showed a survival benefit associated with objective responses to the compound and a distinct signature of VB-111 activity.

In November 2019, VBL also received US FDA clearance for an investigational new drug (IND) application for an investigator-initiated Phase II clinical trial for the indication of gene therapy drug VB-111 in the treatment of recurrent glioblastoma (rGBM).

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VB-111 targeting platinum-resistant ovarian cancer Results of Phase I/II clinical trials of VB-111 for platinum-resistant ovarian cancer VBL presented final results of the Phase I/II clinical trials of VB-111 targeting platinum-resistant ovarian cancer at the annual ASCO meeting in June 2019.

Following is the analysis summary of the trial:

▷ The therapeutic dose of VB-111 demonstrated a statistically significant improvement in overall survival versus low dose (498 days for the therapeutic-dose group versus 172.5 days for the low-dose group; p=0.03). ▷ A CA-125 response rate of 58% was seen in patients treated with the therapeutic dose (more than 50% reduction in the level of tumor biomarker CA-125 in patients continuously treated for four or more weeks). ▷ Post-treatment presence of tumor-infiltrating CD8-positive T cells and cancer cell apoptosis indicated VB-111 induces immunogenicity, contributing to favorable clinical outcomes.

VB-111 Phase III clinical trials targeting platinum-resistant ovarian cancer As of May 2019, VBL was conducting Phase III clinical trials of VB-111 in the US and Israel for platinum-resistant ovarian cancer. The trial targets 400 patients: 200 will receive VB-111+paclitaxel while 200 will receive a placebo+paclitaxel. Overall survival (OS) and progression-free survival (PFS) are the primary endpoints and trial completion is projected by June 2023. An interim analysis of the ovarian cancer biomarker (CA-125) is scheduled for end-December 2019.

ENT103 (indication: otitis media patients with persistent purulent otorrhea)

Administration of a new ENT drug candidate commenced from May 2019 for the first patient in the Phase III trial that has been jointly prepared by NanoCarrier and CEOLIA Pharma Co., Ltd. since June 2018.

The candidate drug, with the development code ENT103, targets otitis media. As a new drug candidate in the ENT space, it could be the first new antibacterial ear drop to be commercialized in Japan in 20 years. Efficacy is expected to be higher than conventional drugs because antibacterial activity is 10 times greater.

Phase III clinical trial outline

▷ Indications: Patients with otitis media who have persistent purulent otorrhea (ear discharge) ▷ Trial period: Approximately one year ▷ Endpoint: Efficacy  Effect on inflammation of the middle ear and eardrum  Time to stop ear discharge  Effect on bacteria in ear discharge  Nature of ear discharge

The company anticipates filing for manufacturing and marketing approval within two years from the start of treatment in the clinical trial and estimates the market in the ENT field at about JPY200bn.

CEOLIA Pharma Co., Ltd. specializes in the otolaryngology field in Japan and manufactures and markets basic ethical drugs such as antibacterials, anti-allergy agents, and treatments for dizziness. In an effort to expand the product lineup, it is also developing candidates for the head and neck field.

Aeon Acti-PRP

NanoCarrier concluded a domestic sales agency agreement with Aeon International (Chiyoda-ku, Tokyo; manufactures and markets regenerative medicine devices) in April 2019 for Aeon Acti-PRP (platelet-rich plasma separator).

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Aeon Acti-PRP

Source: Company data

PRP (platelet-rich plasma) is a form of regenerative medicine that promotes healing of injuries and recovery from illness when directly injected into the affected area, taking advantage of the regenerative properties of growth factors and other cytokines contained in one’s own platelets. PRP has been used overseas to treat joint pain in professional athletes since around 2000.

PRP is also used overseas in the obstetrics and gynecology field as a fertility treatment. In Japan, clinical research headed by Sanno Hospital (Tokyo) adding PRP as a treatment for refractory infertility began in 2018 and a final report is scheduled for presentation at the Society of Fertilization and Implantation in August 2019.

PRP treatment for refractory infertility Indication Female patients scheduled for artificial insemination or frozen embryo implantation during infertility treatment (mainly used after multiple unsuccessful treatment attempts) Treatment method 20ml of venous blood collected from forearm, PRP is extracted and processed, then injected into the uterus

An interim report was presented at the 71st Annual Congress of the Japan Society of Obstetrics and Gynecology (April 2019), when it was reported that implantation was confirmed in five of 19 patients with refractory infertility (26.3%), of which three patients progressed to delivery. The Obstetrics and Gynecology PRP Study Group was started based on these results. Refractory infertility PRP therapy was started from March 2019 at Sanno Hospital and will be expanded nationwide. NanoCarrier will primarily target physician members of the PRP Study Group to market Aeon Acti-PRP.

Of 450,000 cases of infertility per year, approximately 13,000 are refractory. NanoCarrier targets Aeon Acti-PRP annual sales of JPY500mn.

Refractory infertility treatment: Typically targets patients who have unsuccessfully undergone multiple treatment attempts and are often over 40 years of age.

New development pipeline and expansion of applications

Within its new development pipeline, the company is advancing its Antibody/Drug-Conjugated Micelle (ADCM), which combines micellar nanoparticles and antibodies, and siRNA technologies moving forward with feasibility studies in concert with business partners. Additionally, NanoCarrier is exploring applications in joint development of cosmetics and raw materials procurement. Development and sale of hair growth products are also a focus.

Antibody/Drug Conjugated Micelle (ADCM)

The company is performing a feasibility study regarding the possibility of attaching biosensors to its polymeric nanomicelles for specific tumor targeting.

Antibody/Drug-Conjugated Micelle (ADCM) combines Antibody/Drug Conjugates (ADCs) with micellar nanoparticle technology. With the aim of delivering drugs to target cells, it attaches an antibody, which works as a sensor to detect cancer cells and other antigens, onto the surface of a micellar nanoparticle containing drug.

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For example, by attaching an antibody that recognizes specific antigens present in cancer cells onto the surface of a micellar nanoparticle, tumor targeting can be enhanced. The company explained ADCM can deliver a larger amount of drug to targeted cells than ADC, it is expected to show over ten times the efficacy of previous methods. In addition, enhanced tumor targeting means reduced side effects compared with conventional drugs and greater effectiveness against drug-resistant cancers.

The ADCM under development at the company can attach not only antibodies, but proteins and peptides as well, as sensors and deliver drugs made not only of low molecular weight compounds, but of highly polymerized compounds like nucleic acids. NanoCarrier is also developing delivery technologies (Active-type NanoFectTM) that combine both ADCM and siRNA. Only some units of an antibody are enough to detect a target for one ADCM, which can contain hundreds of units of a drug. The company has received patents for ADCM in Japan, the US, the EU, Canada, Australia, and China.

Sensor-Incorporated Micelles (ADCM)

Source: Company data

Comparison of ADCM and ADC

ADCM ADC

Attach and contain drugs in the nano particle Drugs directly attached to antibodies

Able to contain larger amounts of drugs in the particle Few drug conjugation number Only a few antibodies needed per particle Only able to select novel compounds with high potency Able to combine many different types of drugs and antibodies Danger offside effects because of its high potency Able to attach a wide range of drugs Need large amounts of antibodies Source: Shared Research based on company data

siRNA micelle siRNA (small interfering RNA) regulates sequence-specific gene expression by breaking down intracellular mRNA (messenger RNA, RNA composed of protein which contains amino acid sequencing information). In other words, it has the ability to suppress the creation of specific illness-related proteins within cells, so it is hoped that “designer siRNA” could be made to specifically target a wide variety of illnesses. Areas where siRNA drugs could be therapeutically effective include cancer, AMD (age-related macular degeneration), respiratory syncytial virus, choroidal neovascularization, diabetic macular edema, asthma, and hypercholesterolemia symptoms, among others.

However, siRNA is naturally broken down soon after being introduced into the body. This is why a pharmaceutical that can be introduced into the bloodstream must have the ability to stabilize siRNA using some kind of intracellular delivery technology. The company licensed siRNA delivery technology from the University of Tokyo (see Note below) and has been developing it. This nucleic acid delivery technology was patented in Japan in September 2010.

The company entered into an exclusive license contract on May 25, 2009 with the University of Tokyo and Todai TLO Ltd. for cationic polyamino acid (aggregation of positively charged amino acids). The license allows the company to introduce a new technology in addition to the pre-existing nanomicelle delivery technology. The new technology is a delivery technique using cationic polyamino acids. It forms a polymer ion complex with siRNA that makes it possible to specifically release siRNA within cells.

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NanoFect® siRNA is known to be easily broken down in blood. In June 2013, NanoCarrier announced that micellization successfully stabilized siRNA. The success came from NanoCarrier’s joint research with the University of Tokyo and also from the company’s own research efforts. siRNA begins functioning only after cellular uptake, and it has been thought difficult for siRNA to enter the cytoplasm, which the company successfully proved it is possible. Animal tests confirmed siRNA’s efficacy as a cancer treatment through intravenous injection.

Also, NanoCarrier has successfully developed three highly effective systems with differing characteristics and begun feasibility studies on these systems. From June 2013, the company plans to begin licensing the technology under the NanoFect brand while developing it as its own product.

After repeated efficacy experiments using siRNA and other nucleic acids with anticancer effects, the company successfully developed three highly effective systems that have differing characteristics. In experiments using mice, the company confirmed that 1mg/kg of siRNA in a single dose is sufficient to exert anticancer effects. The company will study methods to further strengthen the effectiveness of these methods.

Three systems’ differing characteristics are explained below. Each system has distinct particle sizes, features, and properties. According to the company, these differences should bring flexibility in the systems’ use (i.e., applicable tumors, administering methods, cancer tissue variety).

◤ System A: Largest particle (120-140nm diameter) among the three systems, easy cellular uptake, and efficient entry into the cytoplasm

◤ System B: Midsized particle (30-50nm diameter), effectively holds siRNA even in the blood after being introduced into the body, and releases siRNA using ATP (see Note below) after entering cells

Adenosine Triphosphate. It is an energy source produced in living organisms, particularly mitochondrion in cells. It provides various functions in metabolism while controlling intercellular calcium/iron concentration, cell cycles, and apoptosis.

◤ System C: Smallest particle (10-20nm diameter), effectively stays in the blood, and gets through narrow pathways to targeted cells.

Active-type NanoFect® Active-type NanoFect® is a technology combining nucleic acid drug delivery technology NanoFect® and ADCM. As mentioned, nucleic acid drugs such as siRNA are naturally broken down soon after being introduced into the body, so they need a carrier system to have an effect. The company is developing Active-type NanoFect® as a system for benefiting from nucleic acid drugs. Sensors use antibodies to target specific cells, before penetrating the cells and delivering drugs.

Active-type NanoFect® mechanism

Source: Company data

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Joint research of drug delivery to the brain, J-Brain Cargo® In October 2017, the company and JCR Pharmaceuticals Co., Ltd (JCR) concluded a collaborative research agreement for development of drug delivery to the brain of nucleic acid medicines. The two companies will integrate their proprietary technologies and knowledge, such as NanoCarrier’s ADCM (Antibody/Drug Conjugated Micelle) technology to efficiently deliver drug molecules to target cells, and JCR’s J-Brain Cargo (blood brain barrier penetration technology) to deliver active drug molecules to the central nervous system, and aim to develop innovative drugs that can be effectively delivered to the brain.

Applications (cosmetics) Supply of materials for cosmetics Another emerging field for the company’s nanomicelle technology is in skin care. While conducting research and development into pharmaceuticals the company discovered that nanomicelles can penetrate through the outer layer of human skin (stratum corneum) and into the epidermis making it also suitable for cosmetics and as a result the company has been developing nanomicelle applications for cosmetics.

Cosmetic product Eclafutur® In July 2012, the company signed an agreement with Albion Co., Ltd. regarding the joint development of new materials for cosmetics and commercialization of cosmetics based on developed materials. The company will provide Albion with necessary materials, while Albion will develop, manufacture and sell new cosmetic products that utilize the materials supplied by NanoCarrier. A new skincare serum resulting from this agreement called Eclafutur® was launched on the market in October 2013. The product consists of Albion’s original selection of skincare ingredients encapsulated in the company’s polymeric micellar nanoparticles, for which the company has built a track record in the drug development sphere. The company said that the product is effective in continuously delivering the skincare ingredients over an extended period to areas deep within the skin where the user wishes to treat.

A 40ml Eclafutur® bottle is sold for JPY10,000 and a 60ml bottle for JPY14,000. According to the company, sales totaled 560,000 bottles in a year after the launch. In April 2016, the company began sales of Albion Excia AL Whitening Immaculate Essence IDD, a skin whitening essence jointly developed with Albion sold in lots of 28 units of 1.5ml each for the price of JPY25,000.

As NanoCarrier’s sales came mainly from providing materials to Albion, sales to Albion were only about JPY100–200mn.

Sales to Albion (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Albion Co., Ltd. 130 162 146 146 155 YoY 520.8% 24.9% -10.4% 0.6% 5.7% Source: Shared Research based on company data

Depth, a total scalp care product for men The company also struck a new agreement with Albion in September 2013 for joint development and commercialization of other cosmetics, including hair growth agents and milky lotions. By expanding its product lineup of cosmetics and hair growth agents, the company aims to expand its sales and profits. In January 2016, the company announced that the sale of Depth, a new total scalp care product for men that it developed in collaboration with Albion, has started at beauty salons in Tokyo. From March 2016, direct sales to consumers began via the Internet. The lineup includes Depth shampoo (JPY3,024 to JPY3,456), treatment (JPY3,024), care essence (JPY6,480), and tonic essence (JPY3,240).

According to the press release that announced the start of the Eclafutur® business, NanoCarrier said that the company had concluded an agreement with Albion to jointly develop substances for cosmetics, and that the company would supply Albion with materials needed for the manufacture of products. Meanwhile, for Depth, the two companies also have an agreement regarding the joint development and commercialization of the product in a new cosmetics field, not limiting its role to provision of materials. Shared Research believes that the agreements for Eclafutur® and Depth are different from each other, meaning that

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for Eclafutur® the company receives only sales by providing materials to Albion, while for Depth it will not only provide materials but also be able to obtain higher income through other operations.

According to Yano Research Institute’s “Hair Care Industry 2017” report, Japan’s hair growth/hair restoration market in FTY2016 was valued at JPY67.5bn (+0.4% YoY).

Potential to apply technology in dermatological disease area At the 1H FY03/19 financial results briefing, the company commented that it sees potential for development in the realm of dermatological medicines from its studies on the skin permeability of cosmetics (such as improvement in the water solubility of hydrophobic substances) and plans to apply its technologies in the field.

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Business model

The company in-licenses intellectual property rights and conducts joint research with universities and research institutions. Based on the output of this R&D, the company either develops new drugs in-house, conducts out-licensing to partner companies, or conducts joint R&D.

Source: Company data

The company views its micellar nanoparticle technology as a platform technology—it aims to promote its use by various companies to develop new drugs, and to improve the performance and efficacy of existing drugs with significant side effects and low tolerability, and compounds for which development has been halted. In principle, it employs three approaches: in-house development, joint development, and out-licensing.

In-house development In-house development requires the company to develop a drug up until it goes to market, or at least reaches the latter stages of clinical development; once it sells the drug the company then generates revenues. As the costs and personnel requirements of this method are high, the company usually chooses to out-license drugs after it conducts nonclinical tests and clinical trials to verify the drug’s viability.

Nanoplatin® (NC-6004) and Epirubicin Micelle (NC-6300) are examples of in-house development.

Joint research and development In certain cases, the company will sign a joint-research agreement with a business partner that has shown interest in using the company’s micellar nanoparticle technology to develop a micelle. Generally, NanoCarrier develops the drug formulation and its business partner will evaluate it. If the evaluation is favorable the drug then moves to the out-licensing stage.

Out-licensing After the in-house development and joint-R&D stages are complete, the drug is out-licensed. There is some variation in licensing agreements, but generally the company receives an up-front payment and progress-based milestone payments from the licensee. The company also generates revenues in cases where it supplies drugs for R&D purposes. The company may receive royalties based on sales numbers once the drug is placed on the market.

One example of the company’s business model in action could be seen in its out-licensing of Paclitaxel Micelle (NK105) to Nippon Kayaku.

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Revenue drivers:

▷ R&D assistance payments and grants: Payments made under contracts with partner companies and government organizations. ▷ Upfront payments: Payments received at the beginning of each licensing contract, upon its conclusion. ▷ Milestones: Payments received at certain points of the development stages. ▷ License fees: Fixed sum or net-sales-linked variable royalties that are paid once a drug is released in the market.

Estimates of typical royalty percentages that licensor (e.g. a biotech company like NanoCarrier) receives vary widely. According to one often mentioned study (Medius Associates 2001), royalties were in 0–5% range for nonclinical stage drugs, 5–10% for Phase I, 8–15% for Phase II, 10–20% for Phase III, and >20% for approved drugs.

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Strengths and weaknesses

Strengths

◤ Micellar nanoparticle technology: The company maintains that its main strength is in technological experience of modifying various block copolymer structures to construct micellar nanoparticles and incorporate organic and inorganic materials inside such particles. Shared Research thinks that micellar nanoparticle technology differs from drugs targeting specific indications and that it is a platform technology enabling its application to various existing drugs and compounds to control adverse effects and improve their efficacy.

◤ Patents: NanoCarrier’s micellar nanoparticle technology is protected by more than 30 patent applications.

◤ Further access to primary technology: NanoCarrier has strong ties with Professor Kataoka (scientific advisor) and his team. Kataoka was one of the company’s founders and will probably remain supportive.

Weaknesses

◤ No successfully launched drugs: NanoCarrier is without a successfully launched drug from its pipelines and thus had only a limited significant source of recurring revenue.

◤ Market perception: While the company is trying to position itself as a new drug development company, the fact that so far it mostly out-licenses early technology might create a temptation to regard it as a transport-only manufacturer. That could affect its market valuation restricting growth potential. Management has been stressing NanoCarrier is a drug development firm.

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Market and value chain

Market overview

Market for anti-cancer drugs

The company’s mainstay area of anti-cancer drugs is its largest market on a worldwide level. A brief on the number of cancer patients worldwide and the anti-cancer drug market follows.

Cancer patients worldwide

▷ According to the World Cancer Report 2018 by WHO affiliate International Agency for Research on Cancer (IARC), there were 18.1mn recorded cancer patients in 2018, of which 9.6mn died. ▷ The most common types were lung cancer and breast cancer (2.1mn, 11.6% of the total) and colorectal cancer (1.8mn, 10.2%). Breast cancer accounted for 24.2% of female cancer patients in 2018. ▷ The IARC forecasts the total number of cancer patients will rise to 29.5mn in 2040 owing to the expansion and aging of the global population.

Cancer patients in Japan According to Japan’s National Cancer Center (NCC) publication "Nationwide Estimates of Cancer Incidence, Deaths, and Prevalence (annual averages for 2015–2039), the number of cancer patients in Japan is projected to increase by 25.6% from roughly 862,452 in 2013 to 1,083,590 in 2024.

Number of patients by cancer type Cancer type 2015 Change from 2013 estimate Colorectal 153,850 +17.1% Lung 145,590 +30.2% Stomach 142,460 +8.0% Breast 104,220 +35.6% Prostate cancer 134,710 +79.9% Source: Shared Research based on Japan’s National Cancer Center

NCC expected a particularly sharp rise in breast cancer.

Number of cancer patients in Japan

1,200

1,000 Other 403 800 375 Breast (women) 338 336 332 Colon/rectum 320 104 600 306 312 281 90 251 263 Lung 249 72 74 77 154 68 142 59 61 400 56 125 135 Prostate (men) 48 50 119 131 48 113 116 146 104 107 109 130 97 112 113 112 Stomach 97 104 107 200 80 84 85 93 104 135 65 79 73 75 39 43 43 47 52 60 110 117 117 117 123 123 126 132 132 132 138 142 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2015-2019 2020-2024 ('000)

Source: Shared Research based on National Cancer Center Research Institute

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Drug Delivery System

DDS (Drug Delivery System) is a new area of research that emerged in the late 1990s fueled by advances in biochemistry and nanotechnology. The company is focusing on the cancer field and is continuing its DDS R&D. DDS makes possible both passive and active targeting to tumors and other disease afflicted cells, as well as release control. The technologies under DDS umbrella offer a promise of such improvements over conventional medications as:

▷ Better drug efficacy ▷ Less adverse side-effects ▷ Easier use (better quality of life).

Other DDS technologies, apart from nanomicelles developed by NanoCarrier and discussed in this report, include polymeric microspheres, hydrogels, biodegradable polymers, dendrimers, electroactive polymers, and modified C-60 fullerenes (“buckyballs”).

Some of the DDS and molecular target drugs currently available in the market are:

◤ Doxil (ovarian cancer, AIDS-related Kaposi’s sarcoma; Johnson & Johnson). Doxil is used primarily for treatment of ovarian cancer when platinum-based chemotherapy was not effective. (See also Competition section)

◤ Abraxane (metastatic breast cancer). Abraxis BioScience (NASDAQ: ABII) launched Abraxane, the world’s first drug delivery system (DDS) version of paclitaxel in 2005. It uses albumin as a carrier. Abraxane is co-marketed with AstraZeneca. It reached USD315mn in 2009 (USD336mn in 2008). Shared Research notes that there are some concerns raised regarding Abraxane’s ability to prolong life and it is an open question whether or not it is a valid comparator for NK105. While both are DDS drugs, they are using completely different transport systems and will probably have different efficacy and toxicity profiles.

◤ Iressa (generic name Gefinitib) is a drug marketed by AstraZeneca and Teva. Iressa acts to inhibit EGFR (epidermal growth factor receptor; a protein in which mutation can cause cancer). Tarceva (Erlonitib by Chugai/Roche) is another EGFR inhibitor.

◤ Herceptin (Trastuzumab) is an antibody drug that was developed by Genentech (acquired by Roche). It acts by binding to a so-called HER2/neu receptor that has been identified as one of direct trigger mechanisms for breast cancer.

◤ Avastin (Bevacizumab) is another monoclonal (made by cloning of one cell) antibody drug developed by Genentech/Roche that acts by blocking formation of blood vessels in tumors (such formation is called angiogenesis and drugs stopping them are therefore angiogenesis inhibitors).

The problem highlighted in regard of those drugs has been that they delay growth of tumors but their effectiveness in killing cancer cells is low. At the same time, they work well in combination with other drugs, oxaliplatin being one frequently mentioned.

Suppliers and sources of technology

NanoCarrier buys polymers and reagents necessary for production of nanomicelles. The level of dependence on particular suppliers appears to be high.

NanoCarrier has been and is likely to continue to obtain the basic technologies to develop into practical manufacturing application from Todai TLO, a company formed by Tokyo University to commercialize discoveries of its researchers. In some cases, in the past, such technologies were transferred to JST and NanoCarrier would source it from JST. In most cases, the base technologies were developed by Tokyo University Prof. Kataoka and his colleagues.

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Barriers to entry

Barriers to entry would be very high for successfully approved drugs due to patent protection. At the same time, it is hard to judge how high the barriers are at R&D stage. Indeed, while the company’s access to what seems to be world-class basic research of Tokyo University Prof. Kataoka and others is probably a barrier, there are a large number of competing technologies and superiority claims. Winners will be determined as technologies approach the commercial stage.

In terms of the particular technology that NanoCarrier is pursuing, if this technology proves to be commercially successful then the barriers to entry into this area should be very high due to the company’s learning curve (experience) advantage.

Competition

It is difficult to identify relevant potential competitors among new compounds. NanoCarrier is developing substantially novel technologies. There are several companies in Japan and worldwide that are developing new drugs using similar compounds or technologies based on similar principles.

NanoCarrier mentions in its IPO prospectus and elsewhere that liposome carriers applied to cancer drugs, particularly paclitaxel and cisplatin, are possible competitors. Liposomes are microscopic particles that are protected by a membrane and are used to store substances and deliver them to target cells. Doxil (PEGylated Liposome Encapsulated Doxorubicin) is an example of such drug. (Doxorubicin is an effective but highly cardiotoxic anticancer drug). Liposome carriers, while looking conceptually very similar to nanomicelles, are different in how they store, deliver and release drugs. Such differences result, according to the company, in poorer drug loading, release control and drug selectivity of liposome carriers.

There are several biotech companies that seem to be pursuing similar goals, trying to address issues of release control, targeting and reducing toxicity of anticancer and other drugs, as well as performing targeted therapy of cancers in general:

◤ Novosom AG is a German biopharmaceutical company that uses so called “fully charge-reversible liposomal technology” for delivery of nucleic acid drugs. It uses liposomes that change their charge from negative to positive depending on pH of the environment. It has a compound called CD40 antagonist in a nonclinical stage.

◤ Calando Pharma Inc. is a US biotech company developing a drug delivery technology. Its drug, IT-101, is Campothecin (another common anticancer drug) made soluble using Calando’s Cyclocert (TM) technology in a nonclinical stage. The company’s strength seems to be in know-how related to manufacturing of polymer nanoparticles containing cyclodextrin and PEG. Calando is trying to apply this know-how to siRNA drugs.

◤ Access Pharmaceuticals Inc., a US based company, has developed Prolindac (completed Phase II in US trials in 2010) which active metabolite is DACH-platinum, same as in NanoCarrier’s NC-4016. The active agent in Prolindac is attached to an HPMA (hydroxy-propyl methacrylamide) copolymer backbone.

◤ Supratek Pharma Inc. is a Montreal, Canada based company. It developed a technology called “pluronic block copolymers” and developed SP1049C, Doxorubicin based DDS drug. Phase II clinical trial for UGI applications was complete as of 2010, with other applications (NSCLC, colorectal and hematological) in earlier stages of development.

Substitutes

Any existing or new drug for the same application is a substitute. Many years after the drug is released and goes off-patent, the generic versions become powerful substitutes. Arguably, generics also raise the hurdle in terms of efficacy of new drugs. Unless a new drug is much more effective than available generics, it is less likely to achieve high level of sales due to its high comparative cost.

Alternative technologies for fighting cancer, if successful, could be a substitute although such technologies would be used most likely in combination with, not instead of, existing drugs. An example of such technology is provided by NanoBiotix, a French company developing nanoparticles that can accumulate inside cancer cells. These particles are inert, i.e. they are not drugs and

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do not have particular activity by themselves. However, when exposed to X-ray irradiation, they release free radicals and heat that can potentially shut down the cancer cells. NanoBiotix products are in the experimental nonclinical stage.

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Historical financial statements

Earnings results discussion for the year preceding current fiscal year (For reference purposes)

1H FY03/20 results

▷ Sales: JPY294mn (+34.7% YoY) ▷ Operating loss: JPY684mn (versus operating loss of JPY928mn in Q1 FY03/19) ▷ Recurring loss: JPY734mn (versus recurring loss of JPY911mn in Q1 FY03/19) ▷ Net loss: JPY897mn (versus net loss of JPY910mn in Q1 FY03/19)

Sales increased YoY due to milestone payments from Orient Europharma Co., Ltd. (OEP), sales from the supply of raw materials for cosmetics, cosmetics sales, and sales of Acti-PRP (platelet-rich plasma separator used in regenerative medicine) in the PRP business.

Gross profit was up JPY239mn (+35.0% YoY) on higher sales. Losses contracted at all levels, beginning with the operating loss, due to higher sales and a reduction in SG&A expenses to JPY923mn (-16.5% YoY). Of SG&A expenses, R&D expenses were JPY695mn (-21.0% YoY).

Main pipeline status The status of the main pipeline from April to November 2019 was as follows.

▷ In November 2019, VBL Therapeutics announced an investigational new drug (IND) application for an investigator-initiated Phase II clinical trial of gene therapy drug VB-111 in recurrent glioblastoma (rGBM) patients had received clearance from the US Food and Drug Administration (FDA). Furthermore, VBL announced plans for a trial (initiated by the US National Cancer Institute) investigating VB-111 in combination with an immune checkpoint inhibitor as a treatment for gastrointestinal cancer. ▷ In October 2019, NanoCarrier selected angiosarcoma among the subtypes of soft tissue sarcoma as the target indication for NC-6300 and commenced administration of the drug in an expansion cohort for the purpose of confirming both efficacy and safety in angiosarcoma patients. The trial will be conducted on 10 patients over a two-year period. ▷ In July 2019, the company began administration of NC-6004 in combination with immune checkpoint inhibitor Keytruda® to patients in Phase II clinical trials. NC-6004 targets head and neck cancer. The trials will take place over a period of three years with 136 patients and are aimed at determining recommended dosages of NC-6004 when administered in combination with

Keytruda® and finding the median Progression Free Survival (PFS) for two categories of patients: those receiving NC-6004 and Keytruda® and those receiving Keytruda® alone. ▷ In May 2019, the company began administration of a new drug candidate (ENT103) in the otolaryngology disease area in a Phase III clinical trial, which was jointly prepared with CEOLIA Pharma Co., Ltd. ENT103 targets patients with otitis media who have persistent purulent otorrhea (ear discharge). The company expects the trial to last one year.

Cisplatin Guiding Micelle (NC-6004 Nanoplatin®)

▷ Together with Orient Europharma Co., Ltd. (OEP), NanoCarrier has been conducting Phase III clinical trials comparing gemcitabine monotherapy with combination therapy of NC-6004 and gemcitabine for the indication of pancreatic cancer, in the Asia region including Japan. The company completed patient enrollment for the trials after reaching the number of patients

necessary for statistical analysis in April 2019, and is monitoring survival rates. The company expects to obtain top-line data in 1H 2020 (results that determine whether the primary endpoint for the clinical trial was achieved).

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▷ In July 2018, the pair inked an official licensing agreement for development of NC-6004 targeting head and neck cancer in North America and Europe. They are engaged in joint international clinical trials of NC-6004 in combination with immune checkpoint inhibitor Keytruda®. In January 2019, the company submitted clinical trial applications (CTA) to the US Food and Drug Administration (FDA) and regulatory authorities in Europe, which have been accepted, and began administration of NC-6004 to patients in July 2019 in Phase II clinical trials.

Epirubicin Micelle (NC-6300) NanoCarrier is conducting Phase I/II trials in the US as a treatment for soft tissue sarcoma. Among the subtypes of soft tissue sarcoma in which NC-6300 demonstrated efficacy in the Phase I study, NanoCarrier selected angiosarcoma as the target indication for NC-6300, and in October 2019 it commenced administration of NC-6300 in an expansion cohort for the purpose of confirming both efficacy and safety in angiosarcoma patients. This drug, too, has received an orphan drug designation from the FDA.

Paclitaxel Micelle (NK105) In February 2018, Nippon Kayaku Co. (TSE1: 4272)—the licensee in Asia (including Japan)—announced the commencement of a Phase II clinical study in breast cancer patients.

Gene therapy drug VB-111

▷ With regard to VB-111, a gene therapy drug in-licensed from Vascular Biogenics (VBL) of Israel in November 2017 for development and marketing rights in Japan, the company performed Phase III clinical trials with platinum-resistant ovarian cancer patients. Based on interim analysis results of the trials due out in Q4 FY03/20, the company plans to consider its development policy in Japan. ▷ Further, based on the results of the Phase III clinical trial conducted in recurrent glioblastoma (rGBM) patients, VBL announced on November 6, 2019, that an investigational new drug (IND) application had received clearance from the US FDA, for an investigator-initiated Phase II clinical trial of VB-111 in rGBM patients undergoing a second surgery. ▷ As well, VBL announced plans for a trial (initiated by the US National Cancer Institute) investigating VB-111 in combination with an immune checkpoint inhibitor as a treatment for colon cancer.

New pipeline drug in otolaryngology disease area (ENT103) The company is conducting Phase III clinical trials in Japan of ENT103, a new pipeline drug in the otolaryngology disease area based on a joint development agreement with CEOLIA Pharma Co., Ltd., and began administration of ENT103 to otitis media patients in May 2019. The company aims to receive approval to manufacture and market the pipeline drug quickly and be able to supply the product at the earliest opportunity by establishing an integrated structure from manufacture to sales.

Acti-PRP (platelet-rich plasma separator) In April 2019, NanoCarrier acquired sales rights in Japan for Acti-PRP (platelet-rich plasma separator used in regenerative medicine) from Aeon International Inc. Platelet-rich plasma (PRP) contains an abundant supply of growth factor that stimulates the growth of cells, helping to repair damaged tissues when injected locally. While previously PRP therapy was mainly performed in orthopedic surgery, the company established an obstetrics and gynecology PRP study group in the view that it could also be used as a fertility treatment, and NanoCarrier has been selling Acti-PRP to medical facilities that are members of this study group and conducting clinical research on the subjects. Having moved into the regenerative medicine field, the company plans to develop Acti-PRP as its first new business in Japan.

According to the Act on the Safety of Regenerative Medicine, medical institutions that plan to provide regenerative medicine are obliged to create a plan for providing regenerative medicine, apply for consideration of the plan at the certified special committee for regenerative medicine, and submit the plan and other materials to the Ministry of Health, Labour and Welfare.

37/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Clinics and institutions that plan to use Acti-PRP as an infertility treatment must undergo these procedures, which are expected to take six months.

New pipeline products The company is developing a pipeline of next-generation DDS technologies that use NanoCarrier’s proprietary core technology ADCM (Antibody/Drug-Conjugated Micelles). Active-type nanomicelle particles that encapsulate drug substances and combine it with antibody sensors are expected to enhance the antitumor effect further.

NanoCarrier also is conducting joint research aimed at exploring new types of sensors, allowing ADCM to have functions added or achieve accelerated optimization. The company has concluded a collaborative research agreement with JCR Pharmaceuticals Co., Ltd. to develop drug delivery to the brain. The two companies will integrate their unique technologies and knowledge, such as NanoCarrier’s ADCM and JCR’s J-Brain Cargo® (blood-brain barrier penetration technology) to deliver active drug molecules to the central nervous system, and aim to develop an innovative drug that can be effectively delivered to the brain.

Status of business development In May 2019, NanoCarrier issued 705,800 new shares by third party allotment to Cyntec Co., Ltd., a wholly owned subsidiary of OEP, with a view to solidifying collaboration with OEP and extending the scope of their business alliance regarding mainstay pipeline product NC-6004.

In addition, in April 2019 the company concluded a sales agency agreement with Aeon International Inc. for Aeon International’s Aeon Acti-PRP (platelet-rich plasma separator used in regenerative medicine) in Japan, and started selling the product.

Cosmetics business NanoCarrier conducts online sales and counseling sales at salons of Depth, a scalp care product for men that it developed in collaboration with Albion. The company is pursuing an omni-channel strategy, expanding its network of distributors from major department stores and cosmetics specialty stores to hair salons nationwide as well as online channels such as E-Commerce sites, social media, and e-zines.

NanoCarrier supplies raw materials for the skincare serum Eclafutur and the whitening agent Excia AL Whitening Immaculate Essence IDD, both sold by Albion.

The company sees potential for development of dermatological medicines from its studies on the skin permeability of cosmetics under development and plans to apply the technology in the dermatological disease area.

Q1 FY03/20 results

▷ Sales: JPY146mn (+247.8% YoY) ▷ Operating loss: JPY499mn (versus operating loss of JPY641mn in Q1 FY03/19) ▷ Recurring loss: JPY540mn (versus recurring loss of JPY636mn in Q1 FY03/19) ▷ Net loss: JPY446mn (versus net loss of JPY637mn in Q1 FY03/19)

Sales increased YoY due to milestone payments from Orient Europharma Co. Ltd. (henceforth OEP), sales from the supply of raw materials for cosmetics, and cosmetics sales.

Gross profit rose 462.4% to JPY125mn on higher sales. In addition to growth in gross profit, losses contracted at all levels, beginning with the operating loss, due to a reduction in SG&A expenses to JPY652mn (-5.7% YoY). Of SG&A expenses, R&D expenses were JPY492mn (-7.6% YoY).

38/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Main pipeline status The status of the main pipeline from April to July 2019 was as follows.

In July 2019, the company began administration of NC-6004 in combination with immune checkpoint inhibitor Keytruda® to patients in Phase II clinical trials. NC-6004 targets head and neck cancer. The trials will take place over a period of three years with 136 patients and are aimed at determining recommended dosages of NC-6004 when administered in combination with Keytruda® and finding the median Progression Free Survival (PFS) for two categories of patients: those receiving NC-6004 and Keytruda® and those receiving Keytruda® alone.

In May 2019, the company began administration of a new drug candidate (ENT103) in the otolaryngology disease area in a Phase III clinical trial, which was jointly prepared with CEOLIA Pharma Co., Ltd. ENT103 targets patients with otitis media who have persistent purulent otorrhea (ear discharge). The company expects the trial to last one year.

Cisplatin Guiding Micelle (NC-6004 Nanoplatin®) Together with Orient Europharma Co., Ltd. (OEP), NanoCarrier has been conducting Phase III clinical trials on patients with pancreatic cancer in the Asia region including Japan. The company completed patient enrolment for the trials after reaching the number of patients necessary for statistical analysis in April 2019.

In July 2018, the pair inked an official licensing agreement for development of NC-6004 targeting head and neck cancer in North America and Europe. They are engaged in joint international clinical trials of NC-6004 in combination of immune checkpoint inhibitor Keytruda®. In January 2019, the company submitted clinical trial applications (CTA) to the US Food and Drug Administration (FDA) and regulatory authorities in Europe, which have been accepted, and began administration of NC-6004 to patients in July 2019 in Phase II clinical trials.

The company will focus on development that will enhance the value of NC-6004 as a pharmaceutical product (taking market and other factors into consideration), based on knowledge of formulation attributes such as reducing adverse effects gleaned from clinical trials so far.

Epirubicin Micelle (NC-6300) NanoCarrier is conducting Phase I/II trials in the US as a treatment for soft tissue sarcoma. In the Phase I study, NC-6300 scored well in terms of safety and tolerability, achieving the primary endpoints. The company is preparing for the Phase II part. This drug, too, has received an orphan drug designation from the FDA.

Paclitaxel Micelle (NK105) In February 2018, Nippon Kayaku Co. (TSE1: 4272)—the licensee in Asia (including Japan)—announced the commencement of a Phase II clinical study in breast cancer patients.

Gene therapy drug VB-111 With regard to VB-111, a gene therapy drug in-licensed from Vascular Biogenics (VBL) of Israel in November 2017 for development and marketing rights in Japan, VBL performed Phase III clinical trials with platinum-resistant ovarian cancer patients. Based on interim analysis results of the trials due out at end-2019, the company plans to consider its development policy in Japan.

Further, based on the results of the Phase III clinical trial conducted in recurrent glioblastoma (rGBM) patients, VBL plans to begin an investigator-initiated clinical trial in rGBM patients to verify whether preceding administration of VB-111 monotherapy (priming administration) is required.

As well, VBL announced plans to begin a joint global clinical trial of VB-111 in combination with an immune checkpoint inhibitor as a treatment for gastrointestinal cancer.

New pipeline drug in otolaryngology disease area (ENT103)

39/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

The company is conducting Phase III clinical trials in Japan of ENT103, a new pipeline drug in the otolaryngology disease area based on a joint development agreement with CEOLIA Pharma Co., Ltd., and began administration of ENT103 to patients in May 2019. The company aims to receive approval to manufacture and market the pipeline drug quickly and be able to supply the product at the earliest opportunity by establishing an integrated structure from manufacture to sales.

Acti-PRP (platelet-rich plasma separator) In April 2019, NanoCarrier acquired sales rights in Japan for Acti-PRP (platelet-rich plasma separator used in regenerative medicine) from Aeon International Inc. Platelet-rich plasma (PRP) contains an abundant supply of growth factor that stimulates the growth of cells, helping to repair damaged tissues when injected locally. PRP therapy was mainly performed in orthopedic surgery, but has been applied to fertility treatment in Japan following the establishment of an obstetrics and gynecology PRP study group. The number of facilities that have obtained approval for the use of PRP for fertility treatment is currently expanding. The company sells Acti-PRP to medical facilities that are members of the study group. Having moved into the regenerative medicine field, the company plans to develop Acti-PRP as its first new business in Japan.

New pipeline products The company is developing a pipeline of next-generation DDS technologies that use NanoCarrier’s proprietary core technology ADCM (Antibody/Drug-Conjugated Micelles). Active-type nanomicelle particles that encapsulate drug substances and combine it with antibody sensors are expected to enhance the antitumor effect further.

NanoCarrier also is conducting joint research aimed at exploring new types of sensors, allowing ADCM to have functions added or achieve accelerated optimization. The company has concluded a collaborative research agreement with JCR Pharmaceuticals Co., Ltd. to develop drug delivery to the brain. The two companies will integrate their unique technologies and knowledge, such as NanoCarrier’s ADCM and JCR’s J-Brain Cargo® (blood-brain barrier penetration technology) to deliver active drug molecules to the central nervous system, and aim to develop an innovative drug that can be effectively delivered to the brain.

Status of business development In May 2019, NanoCarrier issued 705,800 new shares by third party allotment to Cyntec Co., Ltd., a wholly owned subsidiary of OEP, with a view to solidifying collaboration with OEP and extending the scope of their business alliance regarding mainstay pipeline product NC-6004.

In addition, in April 2019 the company concluded a sales agency agreement with Aeon International Inc. for Aeon International’s Aeon Acti-PRP (platelet-rich plasma separator used in regenerative medicine) in Japan, and started selling the product.

Cosmetics business NanoCarrier conducts online sales and counseling sales at salons of Depth, a scalp care product for men that it developed in collaboration with Albion. The company is pursuing an omni-channel strategy, expanding its network of distributors from major department stores and cosmetics specialty stores to hair salons nationwide as well as online channels such as E-Commerce sites, social media, and e-zines.

NanoCarrier supplies raw materials for the skincare serum Eclafutur and the whitening agent Excia AL Whitening Immaculate Essence IDD, both sold by Albion.

The company sees potential for development of dermatological medicines from its studies on the skin permeability of cosmetics under development and plans to apply the technology in the dermatological disease area.

Full-year FY03/19 results

▷ Sales: JPY497mn (+91.7% YoY) ▷ Operating loss: JPY1.8bn (versus operating loss of JPY5.4bn in FY03/18) ▷ Recurring loss: JPY1.8bn (versus recurring loss of JPY5.3bn in FY03/18)

40/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

▷ Net loss: JPY1.8bn (versus net loss of JPY5.4bn in FY03/18)

Sales increased YoY due to milestone payments, sales from the supply of raw materials for cosmetics, and cosmetics sales. Losses contracted at all levels, beginning with the operating loss, due to a reduction in SG&A expenses (JPY2.2bn, -60.0% YoY), in addition to higher sales.

Main pipeline status Status of main drug candidates in the company’s development pipeline from April 2018 to May 2019 is as follows.

▷ In June 2018, the company entered into a joint development agreement with CEOLIA Pharma Co., Ltd. The pair will conduct joint research and development of CEOLIA Pharma’s drug candidates in the fields of otolaryngology and cancer with an aim of obtaining manufacture and sales approval in a short period of time. The first trial patient was administered the drug candidate ENT103 in the otolaryngology field from May 2019. ENT103 targets patients with otitis media who have persistent purulent otorrhea (ear discharge) and the trial is expected to take about one year. ▷ In July 2018, the company concluded a licensing agreement with Orient Europharma Co., Ltd. (OEP) regarding joint global clinical trials of NC-6004 targeting head and neck cancer. The two companies agreed to conduct joint global clinical trials of NC-6004 administered in combination with an immune checkpoint inhibitor Keytruda® in North America/Europe and Asia (excluding Japan). The company out-licensed development rights of NC-6004 in North America and Europe to OEP, and in

return will receive a total of USD8mn in milestone payments from OEP. In October 2018, the company submitted an IND application regarding a Phase II clinical trial of NC-6004 to the US Food and Drug Administration (FDA); and in January 2019, it submitted a Clinical Trial Authorization (CTA) for the trial to applicable regulatory authorities in the EU. ▷ In December 2018, the company announced that it had met primary Phase I benchmarks in the Phase I/II clinical trials of Epirubicin Micelle (NC-6300) in the US and established a maximum tolerated dose (MTD) of 185mg/sqm. The company is preparing to advance to the Phase II part of the trial. At this time, NC-6300 will be administered in combination with

olaratumab (an antibody drug) to patients with soft tissue sarcoma, a rare form of cancer.

Olaratumab (brand name: Lartruvo) is an antibody drug marketed by Eli Lilly approved for the treatment of soft tissue sarcoma in the US in 2016. It is a monoclonal antibody that binds specifically to human platelet-derived growth factor receptor alpha (PDGFR-α). It improves the tumor microenvironment such as interstitial tissue and facilitates delivery of the anticancer drug that is administered with olaratumab.

▷ Development status of VBL-led trials of VB-111  At the June 2019 American Society of Clinical Oncology (ASCO) meeting, the company presented MRI data from VB-111 Phase II and Phase III trials for recurrent glioblastoma (rGBM) showing survival benefits associated with objective responses to

the compound and a distinct signature of VB-111 activity. At the same time, it is planning an investigator-initiated Phase II clinical trial of VB-111 as a treatment for rGBM to begin in spring 2019 with results expected in mid-2020.  VB-111 has advanced to Phase III study for platinum-resistant ovarian cancer. Interim analysis of the ovarian cancer tumor biomarker CA-125 is expected by end-December 2019.  VBL is planning a joint clinical trial of VB-111 administered in combination with an immune checkpoint inhibitor as a treatment for gastrointestinal cancer, scheduled to begin in 2H 2019, with results out at the end of 2020. ▷ In April 2019, the company announced completion of patient registration for the Phase III trial evaluating NC-6004 for pancreatic cancer and expects top-line data in 1H 2020. ▷ In April 2019, the company disclosed results of the Phase II basket trial of NC-6004 (evaluating three indications: non-small-cell lung cancer, bladder cancer, and biliary tract cancer). Efficacy was confirmed to be comparable to conventional cisplatin-gemcitabine treatment across all cancer types. It was well tolerated and a marked improvement in adverse event frequency and severity was observed.

41/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

▷ In April 2019, a sales agency agreement was concluded with Aeon International for domestic distribution of Aeon Acti-PRP (platelet-rich plasma separator). NanoCarrier plans to focus its Aeon Acti-PRP marketing on physicians treating refractory infertility with PRP.

Cisplatin Guiding Micelle (NC-6004) Phase III trial for pancreatic cancer in the Asian region, including Japan Together with Orient Europharma Co., Ltd. (OEP), NanoCarrier has been conducting Phase III clinical trials on patients with pancreatic cancer in the Asia region including Japan. The company completed patient enrolment for the trials after reaching the number of patients necessary for statistical analysis in April 2019 and it continues to administer the investigational new drug to these patients.

Clinical trials in Europe, the US, and Asia for head and neck cancer Regarding treatment of head and neck cancer, OEP was conducting Phase I clinical trials in Taiwan while the company was conducting Phase I/II trials in North America and Europe. As of May 2018, the company and OEP agreed to integrate Asia and North America/Europe regions and conduct a joint clinical study investigating NC-6004 in combination with an immune checkpoint inhibitor; in July 2018 the pair inked an official licensing agreement. In October 2018, the two companies submitted an investigational new drug application (IND) to the US FDA for joint global Phase II clinical trials of NC-6004 in combination with immune checkpoint inhibitor Keytruda as a treatment for head and neck cancer. In January 2019, it submitted clinical trial applications (CTA) to regulatory authorities in Europe, which have been accepted. OEP plans to submit an IND to the Taiwan Food and Drug Administration (TFDA) and begin patient enrollment.

Phase II trial for non-small-cell lung cancer, bladder cancer, and biliary tract cancer (basket design trial) In the US, the company is conducting Phase II clinical trials (basket design study) for three indications (non-small cell lung cancer, bladder cancer, and biliary tract cancer) and it received analysis results on these in April 2019. Results showed an efficacy level comparable to that of conventional cisplatin-gemcitabine treatments and a good tolerability was observed with side effects similar to those for conventional cisplatin, but with reduced frequency and severity. Going forward, NanoCarrier will focus on further developing the drug to improve its value as a pharmaceutical.

Gene therapy drug VB-111 Phase III trial for recurrent glioblastoma (rGBM) conducted by VBL With regard to VB-111, a gene therapy drug in-licensed from Vascular Biogenics (VBL) of Israel in November 2017 for development and marketing rights in Japan, VBL announced in March 2018 the results of the Phase III clinical trial conducted by NanoCarrier mainly in the US in recurrent glioblastoma (rGBM) patients. There was no significant difference in overall survival, the primary endpoint, between the group receiving VB-111 in combination with Avastin (bevacizumab) and the control group receiving Avastin only. VBL is performing detailed image analysis to test its hypothesis that priming administration of VB-111 is required, based on the favorable results of Phase II trials. At the same time, VBL plans to start an investigator-initiated Phase II clinical trial with rGBM patients (including hypothesis testing) around spring 2019.

Joint clinical trials of combination therapy with an immune checkpoint inhibitor for gastrointestinal cancer (VBL expected to conduct) VBL announced plans to begin a joint global clinical trial of VB-111 in combination with an immune checkpoint inhibitor as a treatment for gastrointestinal cancer in 2H 2019.

Phase III trials of platinum-resistant ovarian cancer conducted by VBL Based on the detailed examination of interim analysis results and the progress of trials, including the phase III clinical trial by VBL of VB-111 indicated for ovarian cancer, NanoCarrier will consider development of VB-111 in Japan.

Epirubicin Micelle (NC-6300)

42/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

NanoCarrier is conducting Phase I/II trials in the US as a treatment for soft tissue sarcoma. In the Phase I study, NC-6300 scored well in terms of safety and tolerability, achieving the primary endpoints. The company is preparing for the Phase II part. This drug, too, has received an orphan drug designation from the FDA.

New pipeline drug in otolaryngology disease area Since June 2018, the company has been preparing for development of a pipeline drug in the otolaryngology disease area based on a joint development agreement with CEOLIA Pharma Co., Ltd. In December 2018, the company submitted a clinical trial plan for Phase III clinical trials to the Pharmaceuticals and Medical Devices Agency (PMDA), which has been accepted. The company plans to receive approval to manufacture and market the pipeline drug quickly and be able to supply the product at the earliest opportunity by establishing an integrated structure from manufacture to sales.

Paclitaxel Micelle (NK105) In February 2018, Nippon Kayaku Co. (TSE1: 4272)—the licensee in Asia (including Japan)—announced the commencement of a Phase II clinical study in breast cancer patients.

New pipeline products and business development status ADCM The company is developing a pipeline of next-generation DDS technologies that use NanoCarrier’s proprietary core technology ADCM (Antibody/Drug-Conjugated Micelles). Active-type nanomicelle particles that encapsulate an anticancer drug and combine it with antibody sensors are expected to expand the treatment range by improving the targeting ability to deliver to cancer cells and enhancing the antitumor effect further.

In addition to such small molecule drug candidates, the company has established a proprietary drug delivery technology for nucleic acids such as siRNA, which is believed to have fewer side effects. It is now combining this with an antibody (active-type) to develop nucleic acid drugs with enhanced targeting capabilities.

NanoCarrier also is conducting joint research aimed at exploring new types of sensors, allowing ADCM to have functions added or achieve accelerated optimization. The company has concluded a collaborative research agreement with JCR Pharmaceuticals Co., Ltd. to develop drug delivery to the brain for nucleic acid medicines. The two companies will integrate their unique technologies and knowledge, such as NanoCarrier’s ADCM and JCR’s J-Brain Cargo® (blood-brain barrier penetration technology) to deliver active drug molecules to the central nervous system, and aim to develop an innovative drug that can be effectively delivered to the brain.

Business alliance with Noritsu Koki and Gene Techno Science In April 2018, the company concluded a business alliance agreement with Noritsu Koki Co., Ltd. and Gene Techno Science Co., Ltd, to form a biopharmaceutical business by combining their business development know-how. Nano Carrier also concluded a capital alliance with the two companies, acquiring 500,000 shares in Gene Techno Science (owned by Noritsu Koki Bio Holdings LLC, which is indirectly wholly owned by Noritsu Koki), and Noritsu Koki Bio Holdings LLC acquired 1,500,000 shares in Nano Carrier.

Joint development with CEOLIA Pharma Since January 2018, the company has been considering initiatives based on a business alliance concluded with CEOLIA Pharma, and toward that end the two companies concluded a joint development agreement in June 2018. As noted above, the company seeks early patient enrollment for Phase III trials in the otolaryngology field.

Marketing of Aeon Acti-PRP (platelet-rich plasma separator) for PRP treatment of refractory infertility In addition, the company concluded a sales agency agreement with Aeon International Inc. for Aeon International’s Aeon Acti-PRP (platelet-rich plasma separator used in regenerative medicine) in Japan in April 2019. In Japan, an obstetrics and gynecology PRP study group has been formed and clinical research is underway. NanoCarrier aims to develop a new business that would be the first in Japan to treat infertility by extracting PRP from the blood of infertile patients and injecting this into the uterus.

43/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Cosmetics business NanoCarrier conducts online sales and counseling sales at salons of Depth, a scalp care product for men that it developed in collaboration with Albion. The company is pursuing an omni-channel strategy, expanding its network of distributors from major department stores and cosmetics specialty stores to hair salons nationwide as well as online channels such as E-Commerce sites, social media, and e-zines.

NanoCarrier supplies raw materials for the skincare serum Eclafutur and the whitening agent Excia AL Whitening Immaculate Essence IDD, both sold by Albion. NanoCarrier and Albion are also collaborating in R&D of the next-generation Eclafutur and as a result of this research Albion launched Eclafutur-d in October 2018. NanoCarrier supplies raw materials for this new product, focusing on the property of its proprietary Nanocesta EX micellar nanoparticle technology of adhering to skin cells for cosmetics applications. The company sees potential for development of dermatological medicines from its studies on the skin permeability of cosmetics under development and plans to apply the technology in the dermatological disease area.

Q3 FY03/19 results

▷ Sales: JPY336mn (+142.0% YoY) ▷ Operating loss: JPY1.5bn (versus operating loss of JPY4.7bn in Q3 FY03/18) ▷ Recurring loss: JPY1.5bn (versus recurring loss of JPY4.7bn in Q3 FY03/18) ▷ Net loss: JPY1.5bn (versus net loss of JPY4.6bn in Q3 FY03/18)

Sales increased YoY due to milestone payments, sales from the supply of raw materials for cosmetics, and cosmetics sales. Losses contracted at all levels due to the sales growth effect and a 63.5% YoY drop in SG&A expenses to JPY1.8bn. NanoCarrier also booked a JPY21mn forex gain from the effect of exchange rate fluctuations on revaluation of foreign currency deposits and foreign currency-denominated bonds under non-operating profit.

Main pipeline status Status of main drug candidates in the company’s development pipeline from April 2018 to February 2019 is as follows.

▷ In June 2018, the company entered into a joint development agreement with CEOLIA Pharma Co., Ltd. The pair will conduct joint research and development of CEOLIA Pharma’s drug candidates in the fields of otolaryngology and cancer with an aim of obtaining manufacture and sales approval in a short period of time. In December 2018, the company submitted a plan to

conduct Phase III clinical trials of new drug candidates in the field of otolaryngology to the Pharmaceuticals and Medical Devices Agency (PMDA). ▷ In July 2018, the company concluded a licensing agreement with Orient Europharma Co., Ltd. (OEP) regarding joint global clinical trials of NC-6004 targeting head and neck cancer. The two companies agreed to conduct joint global clinical trials of NC-6004 administered in combination with an immune checkpoint inhibitor Keytruda® in North America/Europe and Asia (excluding Japan). The company out-licensed development rights of NC-6004 in North America and Europe to OEP, and in return will receive a total of USD8mn in milestone payments from OEP. In October 2018, the company submitted an IND application regarding a Phase II clinical trial of NC-6004 to the US Food and Drug Administration (FDA); and in January 2019, it submitted a Clinical Trial Authorization (CTA) for the trial to applicable regulatory authorities in the EU. ▷ In December 2018, the company announced that it had met primary Phase I benchmarks in the Phase I/II clinical trials of Epirubicin Micelle (NC-6300) in the US and established a maximum tolerated dose (MTD) of 185mg/sqm. The company plans to confirm development policy with the FDA, including priority review and accelerated approval, before progressing to Phase

II, during which NC-6300 will be administered in combination with olaratumab (an antibody drug) to patients with soft tissue sarcoma, a rare form of cancer.

44/67 NanoCarrier / 4571 RCoverage LAST UPDATE: 2020.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Olaratumab (brand name: Lartruvo) is an antibody drug marketed by Eli Lilly approved for the treatment of soft tissue sarcoma in the US in 2016. It is a monoclonal antibody that binds specifically to human platelet-derived growth factor receptor alpha (PDGFR-α). It improves the tumor microenvironment such as interstitial tissue and facilitates delivery of the anticancer drug that is administered with olaratumab.

▷ In January 2019, VBL announced its plans regarding clinical development of VB-111.  The OVAL potential-registration study of VB-111 in ovarian cancer is currently underway. VBL plans to present data on the immune mechanism of VB-111 in March 2019.  VBL is planning a detailed analysis of image data obtained from a Phase III clinical trial of VB-111 as a treatment for recurrent glioblastoma (rGBM). At the same time, it is planning an investigator-initiated Phase II clinical trial of VB-111 as a treatment for rGBM, to begin in spring 2019 with results expected in mid-2020.  VBL is planning a joint clinical trial of VB-111 administered in combination with an immune checkpoint inhibitor as a treatment for gastrointestinal cancer, scheduled to begin in 2H 2019, with results out at the end of 2020. Cisplatin Guiding Micelle (NC-6004) Phase III clinical trials targeting pancreatic cancer in Asia (including Japan) Together with Orient Europharma Co., Ltd. (OEP), NanoCarrier has been conducting Phase III clinical trials on patients with pancreatic cancer in the Asia region including Japan (Taiwan, Hong Kong, Singapore, South Korea, Philippines, and Malaysia.

Clinical trials targeting head and neck cancer in North America, Europe, and Asia Regarding treatment of head and neck cancer, OEP was conducting Phase I clinical trials in Taiwan while the company was conducting Phase I/II trials in North America and Europe. As of May 2018, the company and OEP agreed to integrate Asia and North America/Europe regions and conduct a joint clinical study investigating NC-6004 in combination with an immune checkpoint inhibitor; in July 2018 the pair inked an official licensing agreement. In October 2018, the two companies submitted an investigational new drug application (IND) to the US FDA for joint global Phase II clinical trials of NC-6004 in combination with immune checkpoint inhibitor Keytruda as a treatment for head and neck cancer. In January 2019, it submitted clinical trial applications (CTA) to regulatory authorities in Europe, which have been accepted. OEP plans to submit an IND to the Taiwan Food and Drug Administration (TFDA) and begin patient enrollment.

*Keytruda® (pembrolizumab) Keytruda® is an immune checkpoint inhibitor developed and sold internationally by the US-based Merck & Co., Inc. As of end-June 2018, it was approved for indications including non-small-cell lung carcinoma, malignant melanoma, head and neck cancer, urothelial cancer, stomach or gastroesophageal junction adenocarcinoma, classical Hodgkin’s lymphoma, and microsatellite instability high (MSI-H) or deficient mismatch repair (dMMR) solid tumors in the US. When used in combination with platinum chemotherapy (pemetrexed plus carboplatin), Keytruda® is approved for the treatment of nonsquamous non-small cell lung cancer. According to Merck & Co., Inc., sales of Keytruda® in 2017 amounted to USD3.8bn.

Phase II clinical trials (basket design study) targeting non-small cell lung cancer, bladder cancer, and biliary tract cancer in the US In the US, the company is conducting Phase II clinical trials (basket design study) for three indications (non-small cell lung cancer, bladder cancer, and biliary tract cancer) and has proceeded with registration of patients. Patient registration has been completed for the biliary tract cancer indication, and the study is currently in the observation period. The drug received an orphan drug designation from the US FDA for biliary tract cancer.

Gene therapy drug VB-111 Phase III clinical trials targeting recurrent glioblastoma (rGBM) (conducted by VBL) With regard to VB-111, a gene therapy drug in-licensed from Vascular Biogenics (VBL) of Israel in November 2017 for development and marketing rights in Japan, VBL announced in March 2018 the results of the Phase III clinical trial conducted by NanoCarrier mainly in the US in recurrent glioblastoma (rGBM) patients. There was no significant difference in overall survival, the primary endpoint, between the group receiving VB-111 in combination with Avastin (bevacizumab) and the control group receiving Avastin only. VBL is performing detailed image analysis to test its hypothesis that priming administration of VB-111 is required, based on the favorable results of Phase II trials. At the same time, VBL plans to start an investigator-initiated Phase II clinical trial with rGBM patients (including hypothesis testing) around spring 2019.

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Joint clinical trials of VB-111 in combination with immune checkpoint inhibitor targeting gastrointestinal cancer (planned by VBL) As well, VBL announced plans to begin a joint global clinical trial of VB-111 in combination with an immune checkpoint inhibitor as a treatment for gastrointestinal cancer.

Phase III clinical trials targeting platinum resistant ovarian cancer conducted by VBL Based on this analysis and also on the results of the phase III clinical trial by VBL of VB-111 indicated for ovarian cancer, NanoCarrier will consider development of VB-111 in Japan.

Epirubicin Micelle (NC-6300) NanoCarrier is conducting Phase I/II trials in the US as a treatment for soft tissue sarcoma. In the Phase I study, NC-6300 scored well in terms of safety and tolerability, achieving the primary endpoints. The company is preparing for the Phase II part. This drug, too, has received an orphan drug designation from the FDA.

DACH-Platin Guiding Micelle (NC-4016) The company has completed patient enrollment for a US-based Phase I clinical trial of its second self-developed anti-cancer drug for the indication of solid tumors, and reached the primary target: the determination of the recommended dosage. Taking into account progress with other pipeline projects, NanoCarrier has positioned NC-4016 as its second platinum-containing anti-cancer drug and is considering its policy going forward.

New pipeline drug in otolaryngology disease area Since June 2018, the company has been preparing for development of a pipeline drug in the otolaryngology disease area based on a joint development agreement with CEOLIA Pharma Co., Ltd. In December 2018, the company submitted a clinical trial plan for Phase III clinical trials to the Pharmaceuticals and Medical Devices Agency (PMDA), which has been accepted. The company plans to receive approval to manufacture and market the pipeline drug quickly and be able to supply the product at the earliest opportunity by establishing an integrated structure from manufacture to sales.

Paclitaxel Micelle (NK105) In February 2018, Nippon Kayaku Co. (TSE1: 4272)—the licensee in Asia (including Japan)—announced the commencement of a Phase II clinical study in breast cancer patients.

New pipeline products The company is developing a pipeline of next-generation DDS technologies that use NanoCarrier’s proprietary core technology ADCM (Antibody/Drug-Conjugated Micelles). Active-type nanomicelle particles that encapsulate an anticancer drug and combine it with antibody sensors are expected to expand the treatment range by improving the targeting ability to deliver to cancer cells and enhancing the antitumor effect further.

In addition to such small molecule drug candidates, the company has established a proprietary drug delivery technology for nucleic acids such as siRNA, which is believed to have fewer side effects. It is now combining this with an antibody (active-type) to develop nucleic acid drugs with enhanced targeting capabilities.

NanoCarrier also is conducting joint research aimed at exploring new types of sensors, allowing ADCM to have functions added or achieve accelerated optimization. The company has concluded a collaborative research agreement with JCR Pharmaceuticals Co., Ltd. to develop drug delivery to the brain for nucleic acid medicines. The two companies will integrate their unique technologies and knowledge, such as NanoCarrier’s ADCM and JCR’s J-Brain Cargo® (blood-brain barrier penetration technology) to deliver active drug molecules to the central nervous system, and aim to develop an innovative drug that can be effectively delivered to the brain.

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Status of business development In April 2018, the company concluded a business alliance agreement with Noritsu Koki Co., Ltd. and Gene Techno Science Co., Ltd, to form a biopharmaceutical business by combining their business development know-how. Nano Carrier also concluded a capital alliance with the two companies, acquiring 500,000 shares in Gene Techno Science (owned by Noritsu Koki Bio Holdings LLC, which is indirectly wholly owned by Noritsu Koki), and Noritsu Koki Bio Holdings LLC acquired 1,500,000 shares in Nano Carrier.

Since January 2018, the company has been considering initiatives based on a business alliance concluded with CEOLIA Pharma, and toward that end the two companies concluded a joint development agreement in June 2018. As noted above, the company seeks early patient enrollment for Phase III trials in the otolaryngology field.

Cosmetics business NanoCarrier conducts online sales and counseling sales at salons of Depth, a scalp care product for men that it developed in collaboration with Albion. The company is pursuing an omni-channel strategy, expanding its network of distributors from major department stores and cosmetics specialty stores to hair salons nationwide as well as online channels such as E-Commerce sites, social media, and e-zines.

NanoCarrier supplies raw materials for the skincare serum Eclafutur and the whitening agent Excia AL Whitening Immaculate Essence IDD, both sold by Albion. NanoCarrier and Albion are also collaborating in R&D of the next-generation Eclafutur and as a result of this research Albion launched Eclafutur-d in October 2018. NanoCarrier supplies raw materials for this new product, focusing on the property of its proprietary Nanocesta EX micellar nanoparticle technology of adhering to skin cells for cosmetics applications. The company sees potential for development of dermatological medicines from its studies on the skin permeability of cosmetics under development and plans to apply the technology in the dermatological disease area.

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Income statement

Income statement FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Sales 118 84 346 374 472 676 243 219 259 497 YoY -66.7% -28.4% 310.7% 7.9% 26.3% 43.1% -64.0% -10.1% 18.5% 91.7% CoGS 71 51 125 273 182 212 32 61 68 80 Gross profit 47 33 221 101 290 464 212 158 191 417 GPM 39.8% 39.4% 63.9% 27.0% 61.4% 68.7% 87.0% 72.1% 73.8% 83.9% SG&A expenses 540 553 555 628 1,413 1,572 2,294 2,870 5,543 2,219 SG&A-to-sales ratio ------Operating profit -493 -520 -334 -527 -1,123 -1,108 -2,083 -2,712 -5,351 -1,802 YoY ------OPM ------Non-operating income 4 1 2 106 244 948 71 142 58 50 Non-operating expenses 4 31 35 12 215 11 370 49 11 23 Recurring profit -492 -550 -366 -432 -1,095 -171 -2,381 -2,619 -5,304 -1,774 YoY ------RPM ------Extraordinary gains - - - 0 -0 - 9 33 23 Extraordinary losses 0 3 31 50 16 34 153 62 141 53 Pre-tax profit -492 -553 396 -482 -1,111 -206 -2,534 -2,672 -5,413 -1,805 Income taxes 2 2 2 2 2 2 3 4 4 4 Net income -495 -555 -398 -484 -1,114 -207 -2,537 -2,676 -5,417 -1,809 YoY ------Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Sales As described above, the company had no pharmaceutical that went to market as of May 2019. Its sales were comprised of upfront and milestone payments from pharmaceutical companies, revenue from providing investigational drugs to them, revenue from providing cosmetics materials, and sales of cosmetics. The following table shows sales to key partners. Sales to key partners (JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Sales 118 84 346 374 472 676 243 219 259 497 OEP 0 - - 103 195 207 - - - 260 Albion - - - 21 130 162 146 146 155 169 Kowa - - 322 233 100 194 4 - - - Debiopharm S.A. 55 ------Nippon Kayaku ------Chugai Pharmaceutical - - - - - 100 - - - - Other 62 84 25 17 47 13 94 72 50 10 Source: Shared Research based on company data

Gross profit CoGS is recorded for revenues from provision of investigational drugs and materials for cosmetics as well as sales of cosmetics. Upfront and milestone payments are profits without cost. Accordingly, gross profit margin grows higher as the ratio of upfront and milestone payments becomes higher.

SG&A expenses R&D expenses account for a majority of SG&A expenses. R&D expenses are on an uptrend due to the progress of clinical trials and the development of new pipelines. Other portions of SG&A expenses include salaries for employees and compensation for directors. SG&A expenses (JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SG&A expenses 540 553 555 628 1,413 1,572 2,294 2,870 5,543 2,219 Salaries, allowances, directors' compensations 129 129 135 134 148 149 155 172 129 124 R&D expenses 219 223 203 238 926 1,054 1,833 2,252 4,979 1,793 Other 191 201 217 256 339 369 306 446 435 303 Source: Shared Research based on company data

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Balance sheet

Balance sheet FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cash and cash equivalents 1,006 1,872 2,981 5,155 7,247 13,772 13,760 11,769 6,408 6,567 Accounts receivable 6 6 1 5 27 237 101 65 91 192 Inventories 22 60 99 181 203 51 150 276 152 33 Other 31 43 31 132 112 150 305 332 190 194 Current assets 1,066 1,981 3,112 5,473 7,589 14,209 14,317 12,442 6,841 6,986 Tangible fixed assets 24 19 38 19 39 169 62 162 58 3 Intangible fixed assets 35 27 2 0 2 6 11 1 3 2 Investment and other assets 11 11 510 114 6,710 319 997 334 725 1,577 Fixe d a s s e t s 70 57 550 133 6,752 495 1,070 497 786 1,582 Total assets 1,135 2,038 3,663 5,606 14,341 14,704 15,386 12,939 7,627 8,568 Accounts payable 11 2 5 50 40 17 14 26 13 13 Short-term debt ------Other 110 188 99 99 163 156 218 344 438 165 Current liabilities 121 189 104 149 203 173 232 370 451 178 Long-term debt - - 1,700 1,040 540 - - - - - Other - - 16 1 29 3,026 2,502 2,515 2,510 Fixed liabilities - - 1,700 1,056 541 29 3,026 2,502 2,515 2,510 Total liabilities 121 189 1,804 1,205 744 202 3,258 2,872 2,965 2,689 Shareholders' equity 1,012 1,848 1,829 4,353 13,563 14,407 11,882 9,827 4,443 6,122 Valuation and translation adjustments 3 1 30 48 34 95 4 8 27 -331 Net assets 1,014 1,849 1,859 4,401 13,597 14,502 12,129 10,067 4,662 5,880 Total liabilities and net assets 1,135 2,038 3,663 5,606 14,341 14,704 15,386 12,939 7,627 8,568 Working capital 17 65 95 136 190 271 237 315 230 212 Total interest-bearing debt - - 1,700 1,040 540 - - - - - Net debt -1,006 -1,872 -1,281 -4,115 -6,707 -13,772 -13,760 -11,769 -6,408 -6,567 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Assets NanoCarrier is a research and development biotech venture firm, and the majority of its assets are cash and cash equivalents (cash, deposits, and securities). Cash and cash equivalents have increased owing to high levels of equity financing conducted since FY03/11 (see Shareholders’ equity for details).

Liabilities Liabilities on the balance sheet have been negligible (debt-free from FY03/07-FY03/10). The company recorded JPY1.7bn of interest-bearing debt during FY03/12 as a result of issuing convertible bonds. The exercise of stock acquisition rights reduced this figure to JPY540mn during FY03/14 and zero in FY03/15.

Fixed liabilities grew in FY03/16 due to the issuance of the No. 3 unsecured convertible bonds in October 2015 (conversion price of JPY1,140, without interest). This resulted in raising JPY3.0bn in funds.

Shareholders’ equity NanoCarrier has used multiple sources of equity financing, including an IPO in FY03/08 and issued share acquisition rights.

Key fundraising initiatives from FY03/08 onward Month/year Fundraising method Number of shares issued Increase in shareholders’ equity Sep. 2008 Third-party allotment 4,116 shares JPY75mn (Cyntec Co., Ltd.) Jun. 2010 Third-party allotment 4,819 shares JPY100mn (Medinet Co., Ltd.) Dec. 2010 Shareholder allotment 68,987 shares JPY690mn Jan.–Mar. 2011 Exercise of stock acquisition rights 18,500 shares JPY601mn Apr.–Jun. 2011 Exercise of stock acquisition rights 3,000 shares JPY87mn Oct. 2011 Third-party allotment 11,000 shares JPY290mn (Kowa Co., Ltd.) Jan.–Nov. 2011 Exercise of stock acquisition rights 14,170 shares JPY429mn

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Nov. 2012 Third-party allotment 12,000 shares JPY690mn (Shin-Etsu Chemical Co., Ltd.) Nov. 2012–Mar. 2013 Exercise of stock acquisition rights 64,252 shares JPY1,891mn Oct. 2013 Public offering 33,600 shares JPY8,651mn (Global offering) Nov. 2013 Third-party allotment 1,625 shares JPY418mn (J.P. Morgan Securities plc) Apr. 2014–Mar. 2015 Exercise of stock acquisition rights 11,952,258 shares JPY551mn Mar. 2015 Third-party allotment 389,400 shares JPY500mn (Chugai Pharmaceutical Co., Ltd.) Apr. 2016–Mar. 2017 Exercise of stock acquisition rights 550,526 shares JPY620mn Apr. 2018 Third-party allotment 1,500,000 shares JPY1,209mn (Noritsu Koki Bio Holdings LLC) May 2018–Jul. 2018 Exercise of stock acquisition rights 1,389,000 shares JPY791mn Aug. 2018–Mar. 2019 Exercise of stock acquisition rights 3,277,000 shares JPY1,488mn Source: Shared Research based on company data Note: The company conducted 1:1,000 share split in April 2014.

Potential Dilution As of end-FY03/19, outstanding shares (52,515 thousand shares) combined with potential dilutive shares totaled 79,558 thousand shares for a dilution factor of 33.99%.

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Cash flow statement

Cash flow statement FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cash flows from operating activities (1) -452 -578 -293 -635 -1,098 -1,121 -1,971 -2,526 -4,928 -2,037 Pre-tax profit (loss) -492 -553 -396 -482 -1,111 -206 -2,534 -2,672 -5,413 -1,805 Depreciation 16 16 18 7 5 19 28 21 26 9 Foreign exchange gains (losses) - - - -102 -222 -919 361 31 35 -35 Cash flows from investing activities (2) -8 -5 -1,721 -121 -7,059 -2,562 7,385 -597 215 -992 Payments into time deposits - - -1,700 -1,701 -8,892 -8,701 -7,143 -2,010 -1,601 -2,708 Proceeds from withdrawal of time deposits - - - 1,700 1,958 6,417 16,955 1,736 2,604 2,207 Purchase of properties -2 -4 -19 -20 -25 -160 -77 -176 -60 -5 Proceeds from sale of properties - - - 1 - 0 - - - - Purchase of marketable securities ------1,000 -5,200 -9,035 -9,400 Proceeds from redemption of mark etable securities ------5,167 8,669 10,132 Purchase of investment securities - - - - -98 - -1,335 -113 -359 -1,216 Free cash flow (1+2) -460 -582 -2,015 -757 -8,158 -3,683 5,414 -3,123 -4,713 -3,030 Cash flows from financing activities 97 1,449 1,924 2,327 9,581 505 3,101 88 24 3,385 Proceeds from issuance of shares 44 773 288 687 8,868 500 - - - 1,200 Proceeds from issuance of stock resulting from - 589 - 1,641 717 1 8 88 24 2,238 exercise of new share subscription rights

Proceeds from issuance of convertible bonds - - 1,689 - - - 2,995 - - -

Simple FCF (NI+A+B-C) -452 -590 -429 -538 -1,189 -436 -2,565 -2,822 -5,394 -1,871 Depreciat ion and amort izat ion (A ) 16 16 18 7 5 19 28 21 26 9 Capit al expendit ures (B) -2 -4 -19 -20 -27 -166 -89 -89 -89 -89 Working capital change (C) -29 48 30 41 54 81 -33 78 -85 -18 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Cash flows from operating activities Main items of operating cash flows are pretax net loss and foreign exchange profit or loss. Negative operating cash flows have continued, reflecting the early stage of the company and its technology (the company has yet to create a mass-market product, and most costs are fixed, such as R&D, personnel, and SG&A).

Cash flows from investing activities Main items of investment cash flows are spending or income due to transfers into or withdrawals from time deposits, acquisitions or sales of tangible fixed assets, and acquisition or redemption of securities.

Cash flows from financing activities Main items of financing cash flows are revenue from share issuance and revenue from issuing shares by way of exercise of stock acquisition rights (For the company’s key fund procurement results, see “Balance sheet”).

Simple free cash flow NanoCarrier’s negative simple free cash flow illustrates the company’s early stage of growth and the fact that products are still in the investment and development stage.

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Other information

History

The story of NanoCarrier starts with academic research of micelle nanoparticle technology. Professors Kataoka of Tokyo University (see Top Management) and Okano of Tokyo Women’s Medical University (see Top Management) were researching possibilities of medical application of polymeric nanomicelles (see detailed explanation of terminology in the Glossary). They found that if polymeric nanomicelles are injected intravenously they circulate in the bloodstream for a long time and can therefore be used as effective carriers of drugs.

Current CEO Ichiro Nakatomi who had management experience in biotech companies started, together with fellow researchers, a company called NanoCarrier, to commercialize their discovery.

Corporate timeline Month/Year Events

June 1996 NanoCarrier Co., Ltd. established to develop and commercialize pharmaceutical applications of micellar nanoparticle technology

August 1997 Signed an agreement with Nippon Oil & Fats, presently NOF Corp. (4403), to jointly develop new block copolymers

January 2001 Signed an agreement with CASTI (Todai TLO) on sub-licensing (in-licensing) of cisplatin-incorporated polymeric micelle

June 2002 Out-licensed paclitaxel micelle to Nippon Kayaku (4272)

November 2002 Signed an agreement with Kirin Brewery (now Kyowa Hakko Kirin Co., Ltd.) to jointly develop anticancer drug in the form of

antibody conjugate micelle (NC-4010), combining NanoCarrier’s nano-micelle technology and Kirin’s human antibody technology

May 2004 Nippon Kayaku started a Phase I clinical trial of Paclitaxel Micelle (NK105) in Japan

May 2004 In-licensed DACHPt (DACH-Platin) block-polymer based anticancer agent from Tokyo University and Todai TLO

March 2005 Signed Research Collaboration and Option Agreement with Debiopharm S.A. (Switzerland) regarding NC-4016 (DACH-Platin Polymeric Micelle)

May 2006 Started a Phase I clinical trial of cisplatin derivative micelle, Nanoplatin® (NC-6004), in the United Kingdom

June 2006 Entered into a new agreement with Kirin Brewery (now Kyowa Hakko Kirin Co., Ltd.) to co-develop NC-4010

July 2006 Obtained exclusive license for electrostatic bonding type macromolecular micelle drug carrier and resulting drugs from

University of Tokyo and Todai TLO

February 2007 In-licensed a new block copolymer for preparation of pH-sensitive polymeric micelle and its production process from

University of Tokyo and Todai TLO

October 2007 Signed License and Supply Agreement with Debiopharm S.A. regarding NC-4016 (DACH-Platin Polymeric Micelle)

November 2007 Nippon Kayaku started a Phase II clinical trial (for gastric cancer) of NK105 (Paclitaxel Micelle)

March 2008 Listed on Tokyo Stock Exchange MOTHERS market

April 2008 Signed exclusive agreement with Todai TLO regarding processes of incorporating nucleic acids into micelles

September 2008 Signed Licensing and Co-Development Agreement regarding NC-6004 (Nanoplatin®) with Orient Europharma Co. Ltd.

December 2008 Received approval to start a Phase I/II clinical trials of Nanoplatin® (NC-6004) in Taiwan

December 2008 Received approval to start a Phase I clinical trial of NC-4016 (DACH-Platin Polymeric Micelle) in EU

May 2009 Signed exclusive agreement with University of Tokyo and Todai TLO regarding cationic polyamino acids

November 2009 Issued a news release disclosing the successful development of the Docetaxel Micelle - a sustained release micelle for the anti-cancer drug docetaxel

December 2009 Announced a licensing agreement with the University of Tokyo and Todai TLO regarding Gene Therapy technology

August 2010 Licensee Nippon Kayaku started a Phase I clinical trial of Paclitaxel Micelle (NK105) for breast cancer patients in Japan

October 2010 Entered an option agreement with LFB Biotechnologies for the license of RHFVIIa (factor VII) Protein Micelle

March 2011 Signed a termination agreement with Debiopharm S.A. that marked the end of the license and supply agreement between the companies

July 2011 Signs a collaborative research agreement with LFB

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July 2011 Starts Phase II clinical trials for Nanoplatin® (NC-6004)

August 2011 Signs a collaborative research agreement with Kyoto University for a nucleic-acid drug

September 2011 Signs a global licensing and co-development agreement with Kowa Co. for Epirubicin Micelle (NC-6300); carries out a third-party allocation of new shares to Kowa

March 2012 Conducts large-scale fund raising using funds managed by Whiz Partners Inc. to accelerate in-house development

March 2012 Signs a collaborative research agreement with Eisai Co. (TSE1: 4523)

July 2012 Signs an agreement with Albion Co., Ltd., regarding the development of new materials for cosmetics and commercialization of cosmetics based on developed materials

October 2012 Commenced Phase I clinical trials in Japan for NC-6004. Signed an agreement with Shin-Etsu Chemical Co., Ltd., regarding a third-party allotment of new shares

October 2012 Signed an agreement with Orient Europharma Co., Ltd., regarding a manufacturing license for NC-6004

May 2013 Kowa Co. Ltd. submitted a plan to conduct a Phase I clinical trial for NC-6300 to Japan’s Pharmaceutical and Medical Devices Agency

May 2013 Submitted a plan to conduct a Phase I clinical trial for DACH-Platin Guiding Micelle (NC-4016) to the US FDA

June 2013 Submitted an Investigational New Drug (IND) application to the U.S. FDA for a Phase Ib/II dosage escalation and expansion

trial of Nanoplatin® (NC-6004) (possible indication: non-small cell lung cancer)

June 2013 Orient Europharma Co., Ltd. submitted the Phase III Protocol to the Taiwan Food and Drug Administration (TFDA) for

conducting a Phase III clinical study of Nanoplatin® (NC-6004) in Asian countries (possible indication: pancreatic cancer)

September 2013 Launched a domestic Phase I clinical trial of Epirubicin Micelle (NC-6300: pH-sensitive micelles)

October 2013 Began sales of Eclafutur®, jointly developed with Albion Co., Ltd.

December 2013 Launched a Phase I clinical trial of DACH-Platin Micelle (NC-4016) in the US

February 2014 Launched a Phase III clinical trial of Nanoplatin® (NC-6004) in Asia

June 2014 Concluded a licensing agreement with Eisai Co., Ltd. regarding new drug candidates

February 2015 Entered into agreement with Chugai Pharmaceutical Co., Ltd. to jointly research siRNA drugs

July 2015 Began Phase II clinical trial (basket design trial portion) of Nanoplatin® (NC-6004) in the US

March 2016 Began sales of Depth, a new scalp care product for men developed in collaboration with Albion

December 2016 Submitted plan to US FDA to conduct Phase I/II clinical trials for Epirubicin Micelle (NC-6300) targeting treatment of soft tissue sarcoma

June 2017 Began US Phase I/II of NC-6300 for soft tissue sarcoma

October 2017 Concluded collaborative research agreement with JCR Pharmaceuticals Co., Ltd for brain delivery of drugs such as nucleic

acid

November 2017 Licensed domestic rights to VBL Therapeutics’ VB-111

News and topics November 2019 On November 14, 2019, the company announced earnings results for 1H FY03/20.

On the same day, the company announced a change in executive leadership.

At a meeting held on November 14, 2019, the Board of Directors decided upon a change in executive leadership, effective the same day.

Names and positions of directors changing office New position Name Former position President and CEO Tetsuhito Matsuyama Director, CSFO, and Head of CEO Office Director Ichiro Nakatomi President and CEO

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On November 7, 2019, the company announced a new investigational new drug (IND) approval related to an investigator-initiated Phase II trial concerning the VB-111 gene therapy drug’s application as a treatment for patients of recurrent glioblastoma (rGBM).

The company has in-licensed the rights to develop and market VB-111 in Japan from VBL Therapeutics, which announced that the US Food and Drug Administration (FDA) approved the IND application it made in connection with its investigator-initiated Phase II trial concerning the VB-111 gene therapy drug’s application as a treatment for patients of rGBM.

This new and randomized Phase II trial focuses on VB-111’s application as a treatment for rGBM patients receiving their second surgical procedure. It involved three groups of patients; one for which VB-111 was administered either before or after surgery (neoadjuvant or adjuvant therapy), another for which VB-111 was administered only after surgery (adjuvant therapy), and a control group that received standard care.

This trial will have no impact on FY03/20 performance. VBL Therapeutics is currently conducting a Phase III trial targeting platinum-resistant ovarian cancer primarily in the US and expects to perform an interim analysis in Q4 (January–March 2020).

October 2019 On October 2, 2019, the company announced that NC-6300 administration had commenced in the expansion cohort of patients with angiosarcoma.

Summary of expansion cohort trial

▷ Target indication: Angiosarcoma ▷ Development region: Duke Cancer Center and Sarcoma Oncology Center in the US ▷ Planned number of patents: 10 patients ▷ Primary endpoint: Efficacy and safety of NC-6300 monotherapy (150mg/m2, every three weeks) in patients with angiosarcoma ▷ Study duration: Approximately two years (announcement of topline results scheduled for Q3 FY03/21)

NC-6300 has been designated as an orphan drug in the US, and NanoCarrier has been pursuing development strategies geared toward early approval. Epirubicin, the anticancer agent encapsulated in NC-6300, is gaining attention because of its cytotoxic effect as well as its action of inducing immunogenic cell death. It also has been reported that immuno-oncology is particularly effective against angiosarcoma, among different subtypes of soft tissue sarcoma. Taking into consideration NC-6300’s mechanism of action, NanoCarrier therefore selected angiosarcoma as the target indication for NC-6300.

Angiosarcoma is a subtype of soft tissue sarcoma, in which more than 50 subtypes have been reported, and is a malignant tumor of the vascular endothelium. Sarcoma accounts for 1% of all malignant tumors, and angiosarcoma makes up 2 to 3% of all soft tissue sarcoma. Although anthracyclines or paclitaxel are used as treatment for angiosarcoma, a standard treatment has not been established as yet.

Immunogenic cell death: Immunogenicity refers to the ability of a substance, such as an antigen, to promote antibody production and a cell-mediated immune response. In immunogenic cell death, administration of anticancer agents, in addition to suppressing proliferation of cancer cells, elicits an immune response, leading to tumor cell death.

July 2019 On July 9, 2019, the company announced the first administration of NC-6004 in combination with Keytruda® in a Phase II clinical trial targeting head and neck cancer.

The company has been preparing for a Phase II clinical trial in the US and Europe for the treatment of head and neck cancer applying a combination therapy of its key pipeline drug NC-6004 and an immune checkpoint inhibitor Keytruda®, and has confirmed administration of therapy to the first patient.

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Outline of the Phase II clinical trial

▷ Target indication: Head and neck cancer (recurrent [previously treated with platinum-based chemotherapy] and/or metastatic head and neck squamous cell carcinoma) ▷ Patient enrollment: 136 (planned; 12 in Phase IIa, 124 [62:62] in Phase IIb) ▷ Primary endpoint: In Phase IIa, determination of NC-6004’s recommended dosage when administered in combination with Keytruda®

In Phase IIb, comparison of median PFS (progression-free survival) for the combination therapy of Keytruda® and NC-6004 versus the administration of Keytruda® alone

▷ Trial duration: Approximately 3 years

June 2019 On June 4, 2019, the company announced the presentation of new findings for treatment of platinum-resistant ovarian cancer patients with the gene therapy drug VB-111 at a meeting of the American Society of Clinical Oncology (ASCO).

VBL Therapeutics (NASDAQ: VBLT), from which NanoCarrier has in-licensed the rights to develop and market VB-111 in Japan, presented the final results of Phase I/II trials involving the treatment of platinum-resistant ovarian cancer patients at the annual meeting of ASCO. According to the presentation, the trials showed dose-dependent increases in the overall survival, with a CA-125 response rate of 58% (with the level of the tumor marker CA-125 being lowered by more than 50% versus the level prior to treatment in patients treated for four or more weeks).

The analysis of the treatment of platinum-resistant ovarian cancer patients with VB-111 is as follows:

▷ VB-111 demonstrated a statistically significant increase in overall survival at therapeutic vs. low dose (498 days vs. 172.5 days, p=0.03) ▷ In patients treated with a therapeutic dose of VB-111, CA-125 response was reported in 58% of evaluable patients and was predictive of overall survival ▷ Post treatment tumor infiltrating CD8 T-cells and apoptotic cancer cells indicated tumor transformation from immunologically “cold” to immunologically “hot”, possibly contributing to the favorable clinical outcomes ▷ Fever response to VB-111 occurred in 29% of patients and was associated with favorable overall survival

Trial data demonstrated a median overall survival of 498 days in the VB-111 therapeutic-dose arm, versus 172.5 days in the low-dose arm (p=0.03). 58% of evaluable patients treated with the therapeutic dose of VB-111 had a CA-125 response. In contrast, in the AURELIA trial the CA-125 response rate was 31.8% with bevacizumab and chemotherapy, and 11.6% with chemotherapy alone.

VB-111 activity signals were seen despite unfavorable prognostic characteristics. There was a trend for favorable survival in patients who had CA-125 decrease of 50% or more in the VB-111 therapeutic-dose arm (808 days vs. 351 days; p=0.067) implicating CA-125 as a valuable biomarker for response to VB-111. Post treatment fever was also associated with a signal for improved survival (808 days vs. 479 days; p=0.27).

On the same day, the company announced the presentation of new findings for treatment of recurrent glioblastoma (rGBM) patients with the gene therapy drug VB-111 at the 2019 ASCO annual meeting.

At the annual meeting of ASCO, VBL Therapeutics also presented MRI data from VB-111 Phase II and Phase II studies in rGBM showing a survival benefit associated with objective responses to the compound and a distinct signature of VB-111 activity.

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The data were presented by Dr. Benjamin M. Ellingson, Ph.D., from the UCLA Brain Tumor Imaging Laboratory (BTIL), Department of Radiological Science. The UCLA analysis compared data from VBL’s Phase II study of VB-111, which met the primary endpoint of overall survival (OS) benefit with a median OS (mOS) of 414 days, to MRI data from the treatment arm in the GLOBE Phase III study, which had a OS of 6.8 months, despite similar baseline tumor volume between patient cohorts. The goal of the analysis was to investigate the difference between the trial outcomes, using quantitative radiographic tools.

There was a notable difference in the regimens between the studies: in the Phase II study, VB-111 was administered first as a single agent therapy (“priming”), with bevacizumab (Avastin®) added to VB-111 upon further progression; in contrast, the GLOBE Phase III study regimen included co-administration of VB-111 and bevacizumab from the start of study therapy without any VB-111 monotherapy “priming” period.

Regarding these results, Dr. Ellingson said, "Our analyses revealed that responders to VB-111 monotherapy or combination therapy after priming with VB-111 exhibited characteristic, expansive areas of necrosis in areas of initial disease, which are related to the VB-111 mechanism of action. Some patients had clear evidence of response to VB-111 while others showed pseudo-progression, potentially linked to edema and local immune response induced by VB-111, which may have been misinterpreted as disease progression. The data show that responders to VB-111 treatment had a statistically significant survival advantage compared to non-responders."

May 2019 On May 21, 2019, the company announced the conclusion of a joint research agreement in regard to enhancing pharmaceutical efficacy of combination therapy with immune checkpoint inhibitors.

The company entered a joint research agreement with Kawasaki Institute of Industrial Promotion (Kawasaki, Kanagawa Prefecture; Innovation Center of Nano Medicine [iCONM]) regarding development of micellar nanoparticle-encapsulated epirubicin NC-6300, for which the company is currently conducting Phase I/II clinical trials in the US. The objective is to obtain data that supports clinical development and approval of micellar nanoparticle products through collaboration with iCONM’s Kataoka/Kinoh Lab aimed at enhancing anti-brain tumor efficacy of NC-6300 in combination with immune checkpoint inhibitors.

On May 20, 2019, the company announced it had commenced drug administration in the domestic Phase III clinical trial of a new drug candidate in the ENT area.

Drug administration has commenced for the first patient enrolled in the Phase III clinical trial jointly prepared by NanoCarrier and CEOLIA Pharma Co., Ltd. of a new drug candidate in the ENT (Ear, Nose, and Throat) area.

The candidate drug, assigned the development code ENT103, is indicated for the treatment of otitis media. As a new drug development in the ENT area, it is the first new antibacterial ear drops to emerge in the Japanese market in the last 20 years. ENT103 is expected to have a higher efficacy than conventional drugs due to having a ten times higher antibiotic concentration.

Phase III clinical trial outline

▷ Indications: Patients with otitis media who have persistent purulent otorrhea (ear discharge) ▷ Trial period: Approximately one year ▷ Endpoint: Efficacy  Effect on inflammation of the middle ear and eardrum  Time taken to stop ear discharge  Effect on bacteria in ear discharge  Nature of ear discharge

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April 2019 On April 25, 2019, the company announced that it had approved the offering of the No. 4 unsecured convertible bonds with stock acquisition rights (including exercise price adjustment provision), the No. 17 stock acquisition rights (with exercise price adjustment provision), and the No. 18 stock acquisition rights via a private placement.

With regard to the terms of payment for the newly issued bonds and the No. 17 stock acquisition rights, instead of monetary remuneration the company will accept payment in the form of the No. 3 unsecured convertible bonds with stock acquisition rights that were issued in October 2015 (hereafter referred to as "existing bonds"). Because payment can be made in the form of the company’s existing bonds, the offering of the new bonds with stock acquisition rights effectively represents a refinancing of the company’s existing bonds.

Overview of capital fund raising

▷ Amount to be raised (excluding refinanced portion): approximately JPY6.0bn (net) ▷ Specified use of funds: JPY2.5bn for capital/business alliances and new businesses; JPY3.5bn for R&D spending, including basic research and spending on drug development pipeline ▷ Dilution potential: If all of the new bonds are converted at the initial conversion price and all of the No. 17 and No. 18 stock acquisition rights are exercised, the number of shares outstanding would increase by 44.13%; if all of the new bonds are converted at the minimum conversion price, the number of shares outstanding would increase by 54.02%.

On the same day, the company announced the issuance of new shares via third-party allotment.

NanoCarrier also approved the issuance of 705,800 new shares to Cyntec Co., Ltd., a wholly owned subsidiary of Orient Europharma (OEP) with whom the company has formed a capital and business alliance, via a private placement.

In return for the private placement of new NanoCarrier common shares with Cyntec, NanoCarrier will be allowed to make maximum use of the technology and expertise of Orient Europharma and aim for promotion and accelerated development of cisplatin micelle (NC-6004) with an eye toward obtaining approval for joint international clinical trials of NC-6004 used in combination with immune checkpoint inhibitors.

Overview of capital fund raising

▷ Amount to be raised: JPY296mn (net) ▷ Specified use of funds: Clinical development of cisplatin micelle (NC-6004) ▷ Dilution: 1.43%

On April 22, 2019, the company announced the conclusion of a contract in the field of regenerative medicine.

The company entered into a contract with Aeon International Inc. (Chiyoda-ku, Tokyo) regarding the appointment of the company as a domestic distributor for Aeon Acti-PRP.

Platelet-Rich Plasma (PRP) is a form of regenerative medicine that promotes the healing of injuries and recovery from illness when directly injected into the affected area, taking advantage of the regenerative properties of growth factors and other cytokines contained in one’s own platelets. Overseas, PRP is garnering attention as a new form of treatment, having been used in the treatment of joint pain in professional athletes since around 2000. PRP is also used overseas in the field of obstetrics and gynecology as a fertility treatment; in Japan clinical research headed by Sanno Hospital (Tokyo) adding PRP as a treatment for refractory infertility began last year, and the final report is scheduled to be presented at a conference of the Society of Fertilization and Implantation in August 2019. An interim report was presented at the 71st Annual Congress of the Japan Society of Obstetrics and Gynecology (April 2019, Nagoya), when it was reported that implantation was confirmed in five of 19 patients with refractory infertility (26.3%), of which three patients had progressed to delivery. The company plans to strengthen its

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management base by delivering and distributing the product in Japan, with a focus on doctors participating in the societies described above.

On April 5, 2019, the company announced results of the Phase II basket trial of NC-6004 in Europe and the US.

The company announced that it received results of the analysis of a Phase II clinical trial of NC-6004 targeting three types of cancer conducted in Europe and the US. At the time of the announcement, a Phase II clinical trial of NC-6004 as a treatment for biliary tract cancer was in an observation period after completing patient registration. The purpose of the trial targeting three types of cancer was to identify a cancer type against which NC-6004 was highly effective. The study adopted a basket design in which the efficacy of NC-6004 against three types of cancer was studied at the same time in an exploratory manner. In specific, the trial investigated the efficacy and safety of NC-6004 (135mg/m2) administered in combination with gemcitabine (1,250mg/m2) as a treatment for non-small cell lung cancer, biliary tract cancer, and bladder cancer. Regarding efficacy, progression-free survival was 3.9 months for non-small cell lung cancer, 4.3 months for biliary tract cancer, and 6.8 months for bladder cancer. Overall survival was 9.2 months, 11.7 months, and 10.5 months, respectively.

Results indicated that the combination therapy of NC-6004 and gemcitabine had a similar level of efficacy against all cancer types as that of cisplatin-gemcitabine treatment. Quality of life assessment showed improvement in physical symptoms such as fatigue, nausea and vomiting, and difficulty breathing, in particular. Adverse effects were similar to those seen with cisplatin treatments, but frequency of occurrence and severity were improved, indicating favorable tolerability. No case of hearing loss was reported, which was a clinical issue with cisplatin. While peripheral neuropathy was observed, there was only a single incidence (incidence rate of 1%), with light symptoms (grade 1).

Based on these results of the trial, the company will focus on developing NC-6004 with an aim of improving its value as a pharmaceutical drug. The company will continue making necessary preparations to conduct a Phase II clinical trial of NC-6004 targeting head and neck cancer, administered in combination with an immune checkpoint inhibitor, which is currently at the center of anti-cancer drug development, in Europe, the US, and Asia. While patient registration for clinical trials targeting non-small cell lung cancer and bladder cancer is being delayed due to a recent sharp increase in clinical development projects involving immune checkpoint inhibitors, the company plans to complete patient registration in conjunction with the analysis of the trial targeting biliary tract cancer and obtain results of analysis of these trials at the same time.

On the same day, the company announced the completion of patient registration for Phase III clinical trials of NC-6004 as a treatment for pancreatic cancer.

The company has been preparing to conduct Phase III clinical trials of NC-6004 targeting pancreatic cancer in Japan and other Asian nations in a joint development effort with Orient Europharma (Taiwan), to which it had out-licensed rights to develop NC-6004. The company had been working on registering patients since restarting the effort in August 2017, and reaching a sufficient number of patients to conduct statistical analysis, it announced the completion of patient registration for trials to be conducted in Japan and other Asian nations. The trials are still in the phase of administering the investigational new drug to patients, and the company expects to obtain top-line data in 1H FY2020 after completing an observation period. According to NanoCarrier, the completion of patient registration has no impact on FY03/19 earnings.

March 2019 On March 20, 2019, the company announced the presentation of new findings for the gene therapy drug VB-111.

At the Society of Gynecologic Oncology’s 50th Annual Meeting on Women’s Cancer held in Hawaii, VBL Therapeutics (Israel), from which the company had in-licensed the rights to develop and market VB-111 in Japan, presented new research findings indicating therapeutic potential of VB-111 to stimulate the immune system and induce immune cells to infiltrate tumor and attack it.

Summary of the presentation is as follows:

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▷ Histopathological analysis of platinum-resistant ovarian cancer patients who were administered VB-111 in combination with paclitaxel indicated that VB-111 induced immunotherapeutic effects characterized by tumor infiltration with CD8+ T cells and tumor necrosis. ▷ Pathological findings (immune response) were associated with durable antitumor effects (e.g., tumor shrinkage). ▷ VB-111 has potential to enhance responsiveness of cancer cells that do not respond well to immune checkpoint inhibitors, and hence improve the efficacy of treatment. It may also be effective in treating cancer that are known to respond poorly to cancer immunity.

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Top management

Directors:Tetsuhito Matsuyama, Representative Director, President & CEO, appointed in November 2019. Advisor to the company from December 2014, Head of CEO Office from January 2015, and CSFO and Head of CEO Office from July 2018. Prior to joining NanoCarrier, he served as consultant and director at Nitto Boseki Co., Ltd. and senior managing director at Nittobo Medical Co., Ltd.

Ichiro Nakatomi, Ph.D., is a director. After a career at Hisamitsu Pharmaceutical Co., Ltd., he worked as Vice President, Business Development at TheraTech, Inc. in the US. He later became the President of TheraTech Japan. He became President & CEO in June 1996 and took his current position in November 2019. He is also Director at iPS Academia Japan Inc.

Outside directors Teruo Okano, Ph.D. (Non-Executive Director) is one of the core inventors of NanoCarrier technologies and plays an important role in advising direction of research and development and making important strategic decisions. He is a Professor at Tokyo Women’s Medical University, Professor at University of Utah, and Director of Institute of Advanced Biomedical Engineering and Science. His research specializes in biomaterials, artificial organs, DDS, tissue regeneration and other areas.

Akira Ohashi, M.D., Ph.D. (Non-Executive Director) is a key member providing advice and input on clinical/non-clinical program strategies and execution of company projects based on his rich experience and knowledge related to clinical development.

Scientific advisors: Company has advisory contracts with professors Kazunori Kataoka of Tokyo University, Yukio Nagasaki of Tsukuba University (Tsukuba Research Center for Interdisciplinary Materials Science), and Nobuhiro Nishiyama of Tokyo Institute of Technology.

Employees

As of end-FY03/19, the company employed 42 full time staff. On average, employees were 45.8 years old.

Major shareholders

Shareholding Top shareholders Shares held ratio Shin-Etsu Chemical Co., Ltd. 2,660,000 5.38% Noritsu Koki Bio Holdings G.K. 1,500,000 3.04% The Bank of New York Mellon 140051 1,450,300 2.94% Ichiro Nakatomi 1,009,000 2.04% Goldman Sachs International 854,600 1.73% The Bank of New York 133652 815,800 1.65% Cyntec Co., Ltd. 623,200 1.26% Matsui Securities Co., Ltd. 598,200 1.21% Chugai Pharmaceutical Co., Ltd. 389,400 0.79% BNY GCM CLIENT ACCOUNT JPRD AC ISG (FE-AC) 337,687 0.68% SUM 10,238,187 20.72% Source: Shared Research based on company data As of end-March 2019

Dividends and shareholder benefits

As of FY03/19, the company did not pay dividends or have a shareholder benefit program.

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Other Glossary NanoCarrier relevant biochemistry terms Antibody drug conjugates (ADCs) are composites that bind drugs to the tips of linkers that are detached by lysosomal enzymes within surface-layer specific antigens of cancer cell antibodies. By specifically targeting cancer cells by antibody, drugs may be delivered directly to target cells, attacking only cancer cells and preventing side effects to healthy cells. As the combined effects of the anti-cancer drug and the drug released within the target cell are only realized within the target cell, there is a significant benefit of reduced side effects when compared to methods that utilize both antibody drugs and chemical medications.

Amino acids are the building blocks of proteins. There are about 300 known amino acids and roughly 20 of them participate in protein synthesis.

Antibodies (Immunoglobulins, Ig) are unique proteins produced by the immune system as a response to presence of foreign substances, such as bacteria and viruses. They kill or help to kill invader cells. There are 5 types of antibodies with different protective functions.

Bond (chemical) is a process when atoms or molecules stick to each other.

Cell is a smallest unit of living organisms. Essentially, cell is a somewhat self-sustaining group of organic molecules and contains the information necessary for functioning and procreation of organisms they belong to.

Covalent bond is a process when atoms stick to each other (bond) by sharing pairs of electrons (subatomic particles with a negative electric charge).

Cytokine is a category of molecules with short lives, often proteins that are produced by some cells to impact functioning of themselves or other cells. They are basically signaling (messenger) agents that cause cells to react in a certain way, e.g. produce certain chemicals. Cytokines are important in functioning of the immune system.

Diaminocyclohexaneplatinum (DACHPt; DACH-platinum) is a platinum organometallic compound and the basic building block of Oxaliplatin.

DNA (deoxyribonucleic acid) is a nucleic acid that contains the entire genetic information of a given organism. Its functions as a repository of information, or instruction code template, for vital processes such as protein synthesis. The segments of a DNA molecule that actually carry that information are called genes.

Endocytosis is a process by which cells absorb substances from outside the cells by engulfing through cell membranes.

Hydrophilic molecules are molecules that form short-term temporary bonds with water. In other words, they “like water”.

Hydrophobic molecules are molecules that are repelled from water. In other words, they “hate water”.

Ligand is a signal triggering molecule that binds particularly to a protein or a nucleic acid. It serves as navigation buoy or a sensor allowing, for instance, attaching medical substances to targeted cancer cells.

Macromolecule is a large molecule.

Micelle is a bunch (aggregate) of substances called surfactants that are dispersed in a water-based colloid. Colloid is a mixture when two substances are dispersed evenly through each other. Different from a solution, these substances are only suspended

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but not dissolved, normally because their particles are too big to be dissolved. An example of a colloid is milk. Surfactants (“surface acting agents”) are a type of molecules that contain both hydrophobic “tails” and hydrophilic “heads”. This feature allows surfactants to dissolve in anything. When they reach a certain concentration in water, they form tiny ball-like structures with hydrophobic tails of each surfactant molecule hiding inside forming a core and hydrophilic heads sticking outside forming an outer shell. Micelles can act in a fashion similar to soap or detergents where insoluble particles are picked up and packed inside the micelle core (which is insoluble itself and is basically oil), a “cleaning” effect. This is precisely the effect of NanoCarrier’s technology, where small micelles pack insoluble and often toxic drugs and carry them around in bloodstream.

Micelle, Polymeric. Polymeric micelle is a macromollecular assembly formed from block polymers and has a spherical inner core and an outer shell.

Molecule is a stable group of atoms with a definite structure held in place by strong chemical bonds. They can be organic (of biological origin) or inorganic (of mineral origin). Organic molecules always contain carbon but not all carbon containing molecules are organic.

Nanosize is a size that is measured on a nanoscale, i.e. in nanometers. Nanometer is one billionth (1/1,000,000,000) of a meter. Typically, term “nanoscale” is used when talking about sizes of 1-100 nanometers.

Nucleic Acid is a macromolecule that carries genetic information or form structures within cells. The most common ones are DNA and RNA. They are found in all cells and viruses.

Organometallic compound is a chemical compound containing bonds between carbon and a metal. Organoplatinum compound is an example where metal is platinum. DACH-Platin is an example of organoplatinum compound.

Peptide is small polymer formed when certain amino acids, called alpha amino acids, bond together. These amino acids are the building blocks of all proteins. pH is a measure of acidity according to an internationally agreed relative scale. Pure water is pH neutral at pH of close to 7. Environments with pH of less than 7 are called “acidic” and those with pH of more than 7 are called “alkaline” or “basic”. Blood plasma is slightly alkaline at pH of about 7.35. This value is referred to as physiological pH, the optimum level for the body to function without stress.

Plasma is a water like solution (mostly water) that is the main blood component making more than half of its volume. It is the natural environment of blood cells.

Platinum (Pt) is a chemical element and a precious metal. It is also known to have high cytotoxicity (meaning it is toxic for living cells). In effect, it inhibits (blocks or reduces) DNA synthesis and prevents cells from dividing.

Polyethylene glycol (PEG) is a widespread type of polyether, a class of organic compounds. It is soluble in water and, when combined with some hydrophobic molecules, can form surfactants (building blocks of micelles).

Polymer is macromolecule (a compound with heavy molecular weight) made of repeating structures connected by chemical bonds (covalent bonds with shared electron pairs between atoms). ◤ Monomer is a small molecule (usually organic) that can bond with other monomers to form polymers. The most famous monomers are glucose and amino acids. Amino acids are natural monomers that form polymers called proteins.

◤ Copolymer is a polymer made from more than one kind of monomer. If only one monomer was used, it would be a homopolymer.

◤ Homopolymer is a polymer made of a single monomer chain.

◤ Block Copolymer is a copolymer with two or more homopolymer units linked by covalent bonds.

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Protein is an organic compound made of amino acids. Proteins are the major structural part of a human organism. They can act as building blocks for our tissues or as “enzymes” (bio-catalysts) when they help to control various biochemical reactions.

RNA (ribonucleic acid) is a nucleic acid that is somewhat similar to DNA. One part where it is different is that it usually has only one strand compared to two of a DNA. This feature allows RNA to play a vital role, for instance a carrier of information necessary for protein synthesis. ◤ Antisense RNA is a single-stand RNA that is complementary to an mRNA meaning that it connects neatly to mRNA. It may be used to prevent cells from functioning by attaching it to a complementary mRNA and physically obstructing translation mechanism. Medical applications proved elusive so far. Antisense RNA is not the same as RNA interference (RNAi).

◤ mRNA (messenger RNA) carries information from DNA to ribosomes (combination of RNA and protein) which in turn produce proteins.

◤ RNA interference (RNAi) is a process when genes are silenced (prevented from duplicating). This is a part of body’s natural defense against viruses. When scientists realized that it could also be used to silence certain harmful internal processes in the body, it became a hot medical and biotechnology venture topic. In RNAi fragments of siRNA couple themselves with “hostile” RNAs and prevent them from carrying information, effectively killing hostile cells. RNAi is also sometimes called posttranscriptional gene silencing (PTGS).

◤ siRNA (small interfering RNA, sometimes called also “short interfering RNA” or “silencing RNA”) is a class of RNA involved in RNA interference. Discovery of siRNA was first published in Science Magazine in 1999.

◤ Other RNA types. There are more than 20 types of RNA. Important ones seem to be tRNA (transfer RNA vital for protein production), and rRNA (ribosomal RNA, a catalyst).

Self-assembly (molecular), also called self-association, is a process in which a disorderly system forms an orderly structure by itself due to interaction of its components among themselves.

Therapeutic index shows the efficacy and safety of a drug when used for treatment. The higher the therapeutic index, the safer the drug and the more suitable it is for use in treatment. Calculated as LD50/ED50, where LD50 (median lethal dose) is the dose required to kill half of the population of test animals, and ED50 (median effective dose) is the dose required to produce a minimum therapeutic response in half of the subjects.

Therapeutic window is the range of drug dosages that can treat conditions effectively while remaining within the safety range (source: Company data).

Virus is an infectious agent, usually 10-300 nanometers in size, which can be reproduced only inside host cells. Viruses hijack cells using cell structures to replicate viruses’ own DNA or RNA. That usually results in host cells death while viruses rapidly propagate. Viruses are some of the most important sources of external diseases in humans.

Relevant pharmaceutical knowledge Abraxane is an anti-cancer drug developed and marketed by Abraxis Bioscience Inc. It is one of the first commercially available DDS anti-cancer drugs. It is based on paclitaxel and uses albumin (water soluble protein) as a delivery system.

Active targeting is a non-invasive therapeutic approach that consists in transporting drugs to target organs using site-specific ligands, or signaling molecules. Those molecules act as sensors and, if attached to a drug carrying micelles, they improve drug delivery efficiency.

Carboplatin is an anti-cancer (chemotherapy) drug synthesized by Johnson Matthey (LSE: JMAT) to have a similar effect to cisplatin, with less toxicity. The Institute of Cancer Research (UK), the National Cancer Institute (US) and Bristol-Myers Squibb Company (NYSE: BMY) further developed the drug.

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Carboplatin is less toxic to the kidneys (nephrotoxic) than cisplatin, and does not require the same moisture load when it is administered. Nausea and vomiting are characteristic side-effects of cisplatin, but they are lessened in the case of carboplatin, and it is said to have the least side-effects of any platinum-containing anti-cancer drug. Carboplatin’s anti-cancer mechanism is similar to cisplatin: it causes the DNA of cancer cells to crosslink, thus inhibiting DNA synthesis and killing the cancer cells.

Cisplatin is a platinum-based anti-cancer (chemotherapy) drug. It was approved by FDA in 1978 and was the first in the group of drugs including carboplatin and oxaliplatin. It acts by forming in the body of platinum compounds that penetrate DNA and interfere with the cell division ultimately causing cell death. It is administered intravenously. While it is a very effective anticancer drug, it causes severe adverse effects which limit its use.

Cisplatin-Incorporated Polymeric Micelle. Also can be called Cisplatin-loaded Polymeric Micelle. Polymeric micelle with cisplatin incorporated inside the core of the micelle. Clinical Trial is a biomedical or health-related research study in human beings that follow a pre-defined protocol and is conducted to confirm safety and efficacy of a new drug, treatment, or device. Clinical trials consist of several typical stages such as Phases I, II, III and IV. ◤ Phase I is a test of a new drug on a small group of people, mostly healthy individuals. The objective is to evaluate safety, determine safe dosage range, and learn about adverse effects.

◤ Phase II is an exploratory test on a medium group of individuals to establish efficacy, safety and dosage response of the drug. Phases I and II are sometimes done in one set.

◤ Phase III is usually a randomized test on large groups of patients to confirm efficacy and safety compared with a conventional treatment for similar conditions. If successful, the test results are submitted for a regulatory approval.

◤ Phase IV (Post-Marketing Surveillance) is a study of efficacy and safety of an approved drug in various population groups and sometimes its long-term safety.

◤ Phase 0 is a recently (2006) FDA designated human trial phase where very small amounts of drugs, below therapeutic level, are tested under FDA 2006 Guidance on Exploratory Investigational New Drug Studies. Phase 0 studies provide no data on safety or efficacy of compounds, only on whether they seem to be functioning the same way as during in-vitro and animal testing.

DACH-Platin micelle is a new diaminocyclohexaneplatinum (DACH-platinum) loaded nanomicelle developed by NanoCarrier.

DDS (Drug Delivery System) is a technology that improves drug profiles by modifying the way a drug is released, absorbed, distributed or eliminated from the body. The objective is to deploy drugs to targeted parts of the body. Simply, DDS is a system for drug targeting.

Docetaxel is an anticancer drug in the taxane group. Docetaxel is used for the treatment of a variety of cancers, such as breast, non-small cell lung, uterus, ovarian, and prostatic cancer.

Doxorubicin is an anti-cancer drug that inhibits DNA synthesis in cancer cells and breaks DNA chains, thus killing the cancer cells. Doxorubicin is a key anti-cancer drug, used in CHOP therapy for the indication of non-Hodgkin’s lymphoma (along with cyclophosphamide, vincristine, and prednisolone) and other anti-cancer therapies. Indications include malignant lymphoma, osteosarcoma (cancerous bone tumor), multiple myeloma, pediatric cancer, and cancers of the lung, stomach, gallbladder and bile duct, pancreas, liver, large intestine, breast, bladder, and uterine body.

Drug Carrier is substance that works to improve the delivery of a drug to the target area.

Gemcitabine is an anti-cancer agent derived from deoxycytidine, synthesized by Eli Lilly and Company (NYSE: LLY). After entering cells, gemcitabine is phosphorylated, thus inhibiting DNA replication and producing an anti-cancer effect. Indications

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include non-small cell lung cancer, pancreatic cancer, bile duct cancer, and urothelial cancer. It is also used to treat recurring or inoperable breast cancer. Gemcitabine is used in combination with cisplatin and other platinum-containing anti-cancer drugs as the standard treatment for non-small cell lung cancer, although it may also be used as a monotherapy.

GMP is an abbreviation for Good Manufacturing Practice which in the context of NanoCarrier’s business is a part of the set of development and manufacturing guidelines approved by the International Conference on Harmonization.

Investigational New Drug (IND) Application/Approval refers to filing applications to applicable authorities to start clinical trials and receiving an approval for trial plans from the Institutional Review Board (IRB).

In Vitro means a process that is performed in a controlled environment outside a living organism.

In Vivo means a process that is performed using living organisms, such as animals.

Micelle Antibody Conjugate is a compound type developed by the company. Conjugate is a product of coupling bio molecules together via covalent bonds. It can be used to attach sensors, for instance antibodies, to a drug-loaded micelle and improve drug delivery efficiency.

Milestone is a cash payment tied to achieving R&D or clinical trial phase milestones.

Nanoplatin® is a trademarked experimental drug developed by NanoCarrier (see Existing Pipeline) utilizing its nanomicellar technology to create a cisplatin-incorporated polymeric micelle.

Oxaliplatin is a platinum based anti-cancer drug that belongs to the same family as cisplatin. It was discovered in Japan in 1976 and licensed out to Debiopharm S.A. Debiopharm developed it as a colorectal cancer drug and licensed it to Sanofi-Aventis in 1994. Sanofi-Aventis is selling the drug under the trade name of Eloxatin. It was approved for sale in Europe in 1999 and in the US in 2004. Its patent as NCE (New Chemical Entity) expired in 2007 but the drug will remain protected by patents for applications in colon cancer treatment till 2013-2016.

Paclitaxel is a generic name for an anti-cancer drug. It was discovered in the US in 1967 when it was isolated from the bark of a rare Pacific yew tree. It was developed commercially by Bristol-Myers Squibb and marketed as Taxol. Paclitaxel, together with another drug, Docetaxel, are called taxanes.

PK/PD modeling is an analysis of a drug’s effects by combining pharmacokinetics and pharmacodynamics. Pharmacokinetics studies the movement and eventual dissolution of a drug after it is administered to the body whereas pharmacodynamics focuses on the relationship between the concentration and effects (efficacy and side-effects) of a drug in the site of administration. Progression-Free Survival (PFS) refers to the period in which the patient survives without the illness worsening.

Royalty is a percentage of sales or a fixed amounted that is paid in relation to revenues of an out-licensed product.

Taxol is a paclitaxel marketed by Bristol-Myers Squibb. It is paclitaxel dissolved in a castor oil formulation (Cremophor EL) and ethanol.

Upfront payment is a cash or equity payment that normally takes place at the beginning of a licensing agreement.

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Company profile

Company Name Head Office 144-15 Chuo, 226-39 Wakashiba, Kashiwa, NanoCarrier Co., Ltd. Chiba, 277-0871 Phone Listed On +81-3-3241-0550 (Tokyo Office) Mothers (TSE) +81-4-7197-7621 (Head Office) Established Exchange Listing June 14, 1996 March 5, 2008 Website Fiscal Year-End http://www.nanocarrier.co.jp/en/ March IR Web IR Phone http://www.nanocarrier.co.jp/en/ir/index.html +81-3-3241-0553 IR Mail [email protected]

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