Stelic: Researching the Dynamics of Somatic Stem Cells In Vivo
And Their Application to the Development of New Stem Cell Therapies

Overview of Activities and Announcement of Business Strategy for the Next Fiscal Year

Stelic Institute & Co. (President: Yoshihisa Kudo; Head Office: Minato Ward, Tokyo; Capitalization: 38.125 billion yen) was established in November 2004 to pursue research to uncover the dynamics of somatic stem cells in vivo, and to carry out R&D in regenerative medicine on the basis of a completely innovative business model never before seen in a bioventure enterprise. In the two years since Stelic’s establishment, thanks to strengthening our research the Company has been able to file nine patent applications related to stem cell research and other areas.

As Stelic enters its third financial year of business, we are proud to announce to the media both the results of our two years of research so far and our business strategy for the next financial year.

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Stelic As a New Business Model

Stelic’s business model is both novel and unique, with medically qualified researchers engaged in consideration of completely new treatment concepts for disorders from the very earliest stages of drug development. Currently, the development of new drugs requires a process lasting several years that runs from identification of an effective candidate substance (known as a “seed”) through preclinical trials, clinical trials, application for approval, approval, and finally marketing. The most important process in drug discovery is the early stage during which candidate substances are identified, and generally “seeds” are identified by way of in vitro experiments or genetic information. This is a researcher’s empirical perspective, however, and does not always coincide with the patient’s viewpoint. At Stelic it is physicians, who are constantly putting themselves in their patients’ shoes, who are at the center of research and development. The company has created a completely novel business model whereby ideas stemming from the needs of the clinical setting are developed into scientifically reliable “somatic stem cell therapeutic concepts” on the basis of proprietary stem cell research, and the results are licensed widely as intellectual property in order to exploit new fields of business. This is made possible by the high standards and originality of Stelic’s research.

Business in Previous Years

Stelic’s facility for research, which forms the core of its business, moved in June 2006 from Oji in Tokyo’s Kita Ward to its present location in Higashi Azabu, Minato Ward. In the 2006 business year the research facility and its equipment were improved and a laboratory system with world-class standards developed, enabling the implementation of top-class stem cell research.

The introduction of the latest confocal fluorescence laser microscope, capable of distinguishing stem cells by several types of fluorescence, and of the world’s highest-level cell sorter, a laboratory device for isolating stem cells, have laid firm foundations for drug discovery based on intellectual property. Completion of our research laboratories has given Stelic the means of demonstrating in-house that the patents the company has obtained really are therapeutically effective. At the same time it has also enabled us to file a large number of patents related to individual disorders, and the company already has a record of results in terms of independent research and patent development.

Stelic’s Patent Strategy

The linchpin of Stelic’s patent strategy is the patenting of somatic stem cell therapy concepts.

The main stem cell therapies currently under consideration by medical science are divided into two major types: those using embryonic stem cells (ES cells) and those using somatic stem cells. Unresolved questions still remain with respect to the ES stem cells currently in vogue, with regard both to ethical issues and to problems of rejection and canceration, and it has to be said that there are still high hurdles in the way of their clinical use. These hurdles are lower in the case of somatic stem cells, which possess the realistic prospect of clinical application. In comparison with ES cells, however, their proliferation and differentiation are difficult to regulate.

At Stelic, focusing on such somatic stem cells as the target of our research has enabled us to elucidate successfully the properties and dynamic changes of living somatic stem cells. This has demonstrated the possibility of completely new therapies for incurable disorders for which no definitive treatments currently exist.

Stem cell research is not yet generally underway, and even where it is being carried out it is impossible to establish somatic stem cell therapeutic concepts or to obtain patents unless the scientific level of both researchers and facilities has attained world-class standards.

Making full use of its in-house resources, Stelic is placing top priority in its patent strategy to the patenting of somatic stem cell therapeutic concepts, in addition to expanding the scope of associated patents with the objective of achieving a unique market expansion.

The scope of the patents currently filed by Stelic is outlined below.

1. Patents for drug candidate substances (“seeds”)
   Drug candidate substances (“seeds”) identified on the basis of our unique stem-cell theory of somatic stem cell therapeutic concepts, which arose from the clinical setting and has been demonstrated in our laboratories, are covered by patents.
2. Stem cell imaging techniques
   The existence of stem cells is already known, but until now no means of identifying these cells had been established. At Stelic we have developed techniques for imaging living somatic stem cells in vivo where they are present within specific organs in the body. These techniques themselves are covered by patents.
3. In vivo biomarkers
   The human body possesses a wide variety of biological information. Stelic’s stem cell research is presently elucidating what sorts of biological changes occur in the body when untreatable diseases develop. “Biomarkers” refers to quantitative or numerical indicators of biological information that change in different ways in specific organs for particular disorders, and which are useful in providing an objective indication of the status of a disease. Such biomarkers not only have a role to play in treating disorders, but are also important indicators for their prevention. New biomarkers discovered through stem cell research are covered by patents.
4. Screening techniques (methods of identifying drug candidate substances)
   The natural world contains an almost infinite number of substances that are candidates for drugs. There are also many artificially produced chemical substances that do not exist in nature. “Screening” refers to the identification from among these of substances that are effective against specific disorders. The process of identifying candidate substances through the application of stem cell research is itself covered by patents.

We anticipate that Stelic’s business opportunities will expand dramatically in future, thanks to our core policy of patenting somatic stem cell therapeutic concepts derived from the application of research on the hitherto unknown dynamics of somatic stem cells, as well as to the filing of numerous associated patents covering a wide range of related fields.

Business During the Current Fiscal Year

As outlined above, previous financial periods have focused on improving research and development capabilities.

This year marks a turning point in Stelic’s business expansion. While continuing to press ahead with the cutting-edge research and development in which the company is already involved, we are now also adding a new emphasis on the promotion of marketing and sales.

From the current financial year we will begin disclosing Stelic’s patent applications. We will make good use of the high added value of such published patents through proactive sales and marketing activities with the goal of business expansion. We are also strengthening our international collaboration with universities and other institutions, and plan to augment our research and development with collaborative marketing and sales.

Stelic is also achieving results in research and development concerning individual disorders, and we anticipate that the number of our patents in this area (from filing to publication) will continue to increase. In response, it has become imperative for us to enhancing our marketing and sales departments. We are working urgently to strengthen these areas, which we believe will form a cornerstone of our rapid growth.

Until now, Stelic had rarely been involved in PR activities. From now on, however, we will be actively releasing information to the media. We look forward to your guidance and encouragement in future.