Interaction and Interchange

Annual Report 2013 For the year ended March 31, 2013

VISIONFor the Benefit of All Humankind

A healthcare innovator creating drugs that are 100% effective

Achieve a revolutionary therapeutic effect by delivering therapeutic antibodies optimized to

individual patients

Create technologies capable of discovering antibodies that can be

administered to people in only a few weeks

Offer a complete substitute for vaccines with the fully human ADLib® system

Our goal for 2023:the ultimate

made-to-order medicine

Our goal for 2014:establishment of

a fully human ADLib® system

Our goal for 2018:countermeasuresfor pandemic diseases

Dealing with my family’s suffering from

diseases and the medical treatment

options available to them, I have

serious doubts about current medicines

that bring limited or poor outcomes,

and even severe side effects or on

occasion some type of subsequent

complication. Being invented in the

RIKEN Research Institute in Japan, the

ADLib® system is a drug discovery

technology platform that quickly

discovers a diverse array of antibodies

against antigens that were difficult or

impossible to obtain using conventional

methods. Our ultimate goal is to attain

100% therapeutic effectiveness through

the rapid generation of therapeutic

antibodies with superior therapeutic

effects and negligible side effects.

Mission“Interaction and interchange” are key business principles at CHIOME. A major element of our business strategy is therefore to form relationships and alliances with a large number of businesses and institutions. At CHIOME our aim is to develop a unique international service based on technology for diversifying genetic information while fostering interchange among a diverse array of people and ideas. We seek to meet the diverse needs of clinicians everywhere through masterful use of our proprietary technology.

C o n t e n t s

VISION: For the Benefit of All Humankind 1

A Personal Letter to Our Shareholders 2

STRENGTH: Unique Value 5

Unique Business Model 6

Exclusive Technology 7

VOICES of Academia Partners 8

Proven Partnership 9

At a Glance 10

Six-Year Financial Summary 12

Management’s Discussion & Analysis 13

Corporate Information 16

Stock Information 17

Chiome

Chiasma -ome

“Chiome” (pronounced as “kai-ohm”) is a fusion word

from “Chiasma” and “-ome.” The “chi” (pronounced as

“kai”) of Chiome is the “chi” of “Chiasma.” “Chiasma” is

the point of contact between paired chromatids during

meiosis, resulting in a cross-shaped configuration. It is

the cytological manifestation of crossing over,

representing the blending of genes and the birth of a

new generation.

The “-ome” of Chiome is the same as the “-ome” of

“Genome” and “-ome” of “Proteome,” which carries the

meaning of “collectivity.” The name Chiome therefore

signifies “Exchange,” “Diversity,” “Sustainability” and

“Fusion.”

1

A Personal Letter to Our Shareholders

Dispensing with the formulaic approach to messages from senior management, I would like to take a few minutes of your time to deliver a personal letter to current and potential shareholders, whom I fervently hope will form the majority of readers. Taking care not to blind you with the science that so vitally underpins Chiome Bioscience’s operations, my intention is simple: to paint a jargon-free picture of the human aspects involved and to touch on just a few key financial indicators. More scientific and financial details can easily be found elsewhere in this report and on our website. By getting back to basics, I would just like to reiterate who we are, what we do, why we do it, and—most importantly—why you should certainly continue to place your valued investments with us or add our name to your portfolio.

Who We AreHaving marked only our eighth company anniversary in

February 2013, we employ a young and dynamic biotech

venture team of 31 dedicated personnel here at our

headquarters and research laboratories in central

Tokyo. A source of that dynamism and a salient feature

is the combination of business acumen and distinguished

science backgrounds provided by our eight-strong

leaders.

A technology-driven ethical health care innovator,

Chiome Bioscience is imbedded with a corporate

culture in which innovation, inspiration, and inquiring

minds thrive in equal measure.

What We DoA bioscience company generally conjures up images of

a different kind of culture, one being produced on glass

dishes by people in white lab coats. While long ago it

became fashionable for companies to trumpet some

prized facet as being “in our DNA”—the amino acids that

have been described as the building blocks of life—the

world-leading drug discovery technologies we possess

are inextricably linked with the real DNA that is in each

and every one of us. In Chiome Bioscience’s case, the

secrets of success really do lie in our DNA.

We have already charted an ambitious yet realistic

10-year course toward a world of made-to-order drugs

in a revolutionized medical system. Using our

proprietary, patent-protected ADLib® system, we are

working to combine DNA from different sources in the

rapid creation of highly effective drugs. These drugs

will become powerful weapons in the fight against a

number of diseases that are afflicting the human race

right now.

In the shorter term, the indications are that in 2014 we

will be in the position to create and quickly administer

human antibodies, the substances normally produced by

our blood to ward off illness and disease. Set for 2018, the

next milestone will be the use of the ADLib® drug discovery

platform to replace vaccines in pandemic control.

Why We Do ItAs scientists, we derive great satisfaction from the

ADLib® system’s capabilities that allow us to see

results and thus where the problems lie. Above all, we

want to display management capabilities that lead to

success as a business.

On a deeply personal note, many of you reading this

will know of someone who is currently experiencing

the effects of some debilitating disease. Having been at

Chiome Bioscience since its inception, I myself retain

particularly poignant memories of my disappointment

at the state of medicine at the time of my mother’s

illness and of having to pay for treatment that was

ultimately ineffective. Those memories are a driving

force behind the work I am doing today.

While we remain earnest about and dedicated to

every facet of our business, on the brighter side of our

operations, we are firm believers that work should be

fun. Thinking outside the box and staying one step

ahead, even to the point of occasional eccentricity, can

often provide the wellspring for innovation. In this

regard, we are looking forward to the advances that we

will be making for the sake of society at large in the

years ahead.

The Key Part You PlayAs you would expect, our painstaking research is highly

labor and cost intensive, hence the need to share the

burden with other organizations.

Our work involves a chain of crucial partnerships

that could be described as being similar to the chainlike

form that DNA itself takes. The close-knit Chiome

Bioscience team is linked into a number of alliances—

involving close collaboration with major pharmaceuti-

cal companies, the Japanese government and

academia—that are interacting to facilitate the

end-user partnerships between doctors, medical

teams and above all their patients.

First listed on the Tokyo Stock Exchange Mothers Index

in December 2011, our shareholders’ investments

2 3

STRENGTHUnique Value

Our value is derived from providing gratification to people

Source of

Values

Growing Market

Exclusive Technology

(ADLib® System)

Unique Business

Model

Multiple Earning Points

Strong Client Base

Proven Partners

We will then commence and add impetus to the second

stage, the creation of innovative drug pipelines. The

third and final stage calls for us to be a prime mover in

what is nothing less than a medical revolution: the rapid

provision of optimal antibodies customized to the needs

of individual patients.

In specific terms, in three years’ time we anticipate

recording net sales of ¥4.3 billion from three revenue

streams, having added and speedily developed the

concomitant Licensing Out Platform Technology segment

(¥2.9 billion) to the existing Drug Discovery Alliance (¥1.0

billion) and Lead Antibody Licensing (¥0.4 billion)

segments.

The targets outlined in the business plan cover the

following four perspectives:

R&D

Financialandcustomer

Internalcontrolsandpersonneldevelopment,and

Socialcontribution

In ConclusionI sincerely hope these few words have served to

reinforce your sense of what Chiome Bioscience is all

about and the key role that you can play in ultimately

saving lives.

I would urge you to either get involved or deepen

your involvement in our ultimately altruistic enterprise.

Thank you very much for your time.

June 27, 2013

provide a vital resource that helps bind the entire chain.

We would, however, prefer that our shareholders buy

into Chiome Bioscience not for short-term profit but

because they fully understand the nature and

significance of what we are trying to achieve over the

long term.

The Way ForwardAfter three years of growth, our two-segment net sales

of ¥324.1 million for the fiscal year ended March 31,

2013, represented a 48.8% decrease compared with the

¥633.2 million of the previous fiscal year. However, this

result should be weighed against the ¥309.7 million in

expenses incurred in our Drug Discovery Alliance

business and a massive 73.9% increase in R&D

expenses. We are forecasting net sales to bounce back

to ¥740 million in the current year and be that much

closer to recording our first overall operating profit.

Having lauded the unique benefits of our superb

ADLib® system, there remains a great deal of work to

be done before we can bring to fruition even the

short-term goal of the full generation of human

antibodies in the next year. Leveraging the special

feature that produces the ADLib® system’s rapid

results, it is our avowed intention to show a steady

performance.

Following the announcements of our antibody

acquisition technology and our practical successes

thus far, we have garnered rave responses from our

alliance partners and investors alike.

The development of human antibodies forms an

exciting short-term target in our new, recently launched

medium-term business plan, which will run for the next

three years and end on March 31, 2016.

Under the banner of working for the people of the

world who are eagerly awaiting new medicines, we are

targeting a three-stage switch to a high-value-added

business model. Already well advanced, the first stage

involves the creation of sustainable new drug discovery

technologies based on a range of genetic information. Masa Fujiwara, D.V.M

Chief Executive Officer

Antibodies are naturally occurring drugs that exist in everyone’s bodies. If a technology to produce antibodies existed, it would change medicine forever. As a researcher, I intuitionally understand the potential of this game-changing technology. The ADLib® system is an antibody discovery technology that can rapidly generate a diverse array of antibodies against antigens that are difficult to obtain by conventional methods. Conventional drugs were developed principally based upon the statistical concept and attitude that drugs cannot be consistently effective for all people. However, if a tailored therapeutic antibody which is ideally suited for an individual patient can be generated by the advanced ADLib® system, then personalized medicine in a mature sense — 100% therapeutic effectiveness - will become reality.

4 5

Unique Business Model

Three Core Businesses

Lead Antibody Licensing

Drug Discovery Alliance

Licensing Out Platform Technology

Exclusive Technology

Based on alliances with pharmaceutical companies, the ADLib® system is deployed to generate

antibodies for the development of therapeutics candidates. Chiome Bioscience provides antibodies

tailored to the needs of its partners, who then analyze the functions of the antibodies and examine

their potential to become future drugs.

Chiome Bioscience licenses the ADLib® system to pharmaceutical and diagnostic companies, and

allows them to generate antibodies through their own effort.

Chiome Bioscience discovers first-in-class therapeutic antibody candidates for its own discovery

purpose, against targets discovered from research collaborators including universities and public

institutions. Chiome Bioscience then licenses these lead antibodies to pharmaceutical companies

after having evaluated those antibodies for their therapeutic potential. Licensing at an early

stage reduces Chiome Bioscience’s exposure to risk in later development stages, while securing

compensation in the form of upfront fees, milestone payments and royalties.

Three business lines centered on the ADLib® system

Earnings model for each business

Eyeingrobustgrowthintheantibodydrugmarket,globalpharmaceuticalcompanieshavebeenplowingresourcesintothedevelopmentofantibodydrugs.ChiomeBioscience’sADLib®systemisanexcellenttechnologyforgeneratingantibodiesfortherapeuticuse.

Chiome Bioscience has acquired basic patents for the

ADLib® system in major markets including Japan, China,

the U.S. and Europe, as well as related patents in Japan

and other countries. Chiome Bioscience has an exclusive

worldwide right to commercialize the ADLib® system.

The ADLib® system has piqued the interest of major

pharmaceutical companies around the world. Chiome

Bioscience has been working with these companies in the

three following business models.

Antibody drug development typically takes 6.5 to 9 years

from discovery research to market launch following clinical

trials. Chiome Bioscience is focusing on the drug discovery

stage, the most upstream part of the drug development

process, aiming to earn revenue in the early stage. By

operating three business models based on the ADLib®

system, Chiome Bioscience can generate revenue by stable

earnings and milestone payments at each stage of the value

chain, from drug discovery research to market launch.

The ADLib® system and its main features

Shift to a high-value added business model :Long-term business strategy

Accelerate the shift from a “technology devel-opment-centered” to a “drug discovery-cen-tered” strategy

Lead Antibody Licensing (antibody drug development)Licensing Out Platform TechnologyDrug Discovery Alliance

Time

DT40 cells TSA treatment

Activates recombination

Antibody selection:

30 minutes

Magnet

Antigen

Magnetic beads

Cultivation for 1 week

Acquisition ofspecific monoclonal lgM antibodies

Provide antibodies

in about 10 days

ADLib®

SN

Feature #1: Cell-based diverse antibody libraryTrichostatin A (TSA) activates the antibody gene diversification mechanism in the DT40 cells, and then a diversified, cell-surface displayed antibody library is generated. The antibody library can be used on a regular basis.

Feature #2: Rapid screening of antibodies specifically bind to the targetMagnetic beads coated with a specific antigen are introduced into a cell-based antibody library, and antibodies that bind to the target antigen are harvested. These steps are accomplished in only 30 minutes. The harvested antibody-expressing cells are then cultivated. The avian antibodies obtained by the ADLib® system can be converted to human antibodies, which can be further developed as drug candidates.

Feature #3: Application to tough antigens The ADLib® system can generate a variety of antibodies against antigens for which antibodies are difficult to obtain with conventional methods, such as toxins, pathogens, and self-antigens. For example, ADLib® axCELL, one of the applications of the ADLib® system, is a successful method in obtaining antibodies against multiple-trans-membrane proteins including G-Protein-Coupled Receptor (GPCR). GPCR is a protein family that is thought to be important drug targets, but yet remain difficult to obtain antibodies using conventional methods.

TheADLib®systemisagame-changing,antibodygenerationplatformprovidingdiversity,speedandapplicationtotoughantigens,threeproblemsthathadpreviouslybeenviewedasdifficulttoovercome.Theseadvanceshavecaughttheattentionofantibodydrugdiscoverycompaniesaroundtheworld.

Toward a fully human ADLib® system

Further technological innovation

Patents obtained in major markets around the world

As an upgrade of the ADLib® system, Chiome Bioscience has

been developing a fully human antibody library that would

allow human antibodies to be obtained, instead of avian

antibodies that must be humanized by protein engineering.

Homologous recombination has been confirmed to occur in

both the heavy and light chains in human immunoglobulin

genes, and also the expression of membrane-bound and

secreted human IgG has been confirmed. In order to develop

a fully human ADLib® system for efficient antibody screening,

Chiome Bioscience has been focusing on developing a

prototype library and completed it. If development proceeds

smoothly, we expect to generate a fully human ADLib®

system for commercial use in 2014, which would allow for the

generation of human antibodies in about 10 days.

In order to discover high-quality lead antibodies, Chiome

Bioscience is promoting joint technology development in

alliances with companies around the world that have

cutting-edge technologies. For example, Chiome

The basic patent of the ADLib® system has been issued in

China in 2007, Japan in 2008, and the U.S. and Europe in

2010. In addition, Chiome Bioscience has filed related

patents inside and outside of Japan. Chiome Bioscience has

an exclusive worldwide right to commercialize the ADLib®

system technology.

Title of the invention: Method of Enhancing Homologous

Recombination of Somatic Cells and Method of

Constructing Specific Antibody

Chiome Bioscience and RIKEN each hold 50% of the

patent rights

Bioscience’s alliance with Biotecnol, Inc. in the U.S. has

given it access to Tribody technology, which contributes to

the development of antibody drugs with higher efficacy. A

Tribody can recognize up to three different antigens in a

single molecule. This makes it possible to develop antibody

drugs with multiple mechanisms, such as the ability to

attack cancer cells while overcoming disease resistance of

some patients.

Sale

s

Alliance with state-of-the art technologies

Royaltiesfrom

clientsCompletion of fully

human ADLib®

present

Create pipelines continuously

Accelerate the shift to a high value-added company

6 7

Proven Partnership

Advantages of having alliances with many companies and organizations

WithpatentsonitsADLib®systemfiledinmajormarkets,ChiomeBiosciencehelpspeopleleadhealthylifestylesthroughtechnologicalinnovationandthedevelopmentofantibodydrugsinallianceswithcompaniesaroundtheworld.

Voices of Academia Partners

Chiome Bioscience does not out-license drug candidates

as its main business model. Accordingly, we enter

contracts with multiple companies and multiple contracts

with one company. Upgrades to the ADLib® system have

made it possible to generate antibodies against antigens

for which antibodies have been difficult to obtain using

conventional technologies. We plan to run our businesses

When I was researching neurobiology, I conjectured that Semaphorin 3A (SEMA3A) plays a broad and critical role after noticing that it was prevalent not only throughout the nervous system, but also in the lungs and other organs. I decided to obtain some SEMA3A antibodies and pursue this research further, but with the antibodies available at the time, I has issues with their specificity and sensitivity. Unfortunately, I was unable to produce the antibodies on my own using conventional methodologies. After going through this process of trial

In a bid to effectively and efficiently solve challenges,

Chiome Bioscience partners with companies and

academic institutions that specialize in fields requiring

fundamental and advanced expertise, such as clarifying

the diversification mechanism of the ADLib® system and

3. Alliances related to technological development

Partner Contract

ChugaiPharmaceuticalCo.,Ltd. JointresearchintoantibodyproductionusingtheADLib®system

ChugaiPharmaceuticalCo.,Ltd. Contract-basedresearchintoantibodyproductionusingtheADLib®system

FivePrimeTherapeutics,Inc. Contract-basedresearchintoantibodyproductionusingtheADLib®system

ChugaiPharmabodyResearchPte.Ltd. Workrelatedtothecalibrationofessentialresearchmaterialsfortheefficientdevelopmentofantibodydrugs

1. Alliances with drug discovery companiesOur alliances based on the ADLib® system support drug discovery and antibody drug creation at our clients via their own R&D.

in a sustainable fashion by continuing to upgrade the

ADLib® system.

Chiome Bioscience has also partnered with academic

institutions and public organizations, and with companies

and organizations that have related technologies. This

approach reduces risk in the drug discovery business,

which requires long periods of time for an outcome to

materialize, while building multiple promising product

pipelines. Our close relationships with academia also

facilitate the creation of product pipelines.There are 99 failures for every breakthrough in technology. A sizeable amount of upfront investment is necessary from the R&D stage to commercialization, because learning from a large number of mistakes is an essential part of the development of new technologies. Fortunately, Chiome Bioscience received grants from the Ministry of Education, Culture, Sports, Science and Technology, Japan Science and Technology Agency (JST) and New Energy and Industrial Technology Development Organization (NEDO) to sustain its efforts to improve the maturity of core technologies and commercialize the system. The market for antibody drugs has been expanding steadily. Corporations around the world are rushing to

discover new drugs in response to the pressing need to develop medicines that can treat cancer, because one out of two people are likely to get cancer, and the population of elderly people is growing in societies around the world. The ADLib® system’s ability to quickly create antibodies for an array of diseases, including cancer, has garnered considerable attention around the world. With the development of a fully humanized ADLib® system on the horizon, we are steadily advancing toward Chiome Bioscience’s vision when it was founded of practically realizing the ultimate in made-to-order drugs with 100% efficacy for all patients, thanks to the limitless possibility of the ADLib® system.

and error for more than 10 years, I heard that a venture company called Chiome Bioscience was building a monoclonal antibody fabrication system. When I had an opportunity to actually use the ADLib® system, I was astounded to see it produce a viable sample of functional antibodies in about 10 days. Through industry-academic collaboration, I hope Chiome Bioscience will make interesting new discoveries in areas that others have not looked into, and lead to the development of new drugs.

Partner Contract

UniversityofTokyo,TakahashiLab Productionofantibodiesagainstmembraneproteintargetsasindicationsofdiabetesandcancer.

JapaneseFoundationforCancerResearch Productionofantibodiesagainstantigenswithspecificexpressions,suchasforbreastcancer.

ShizuokaCancerCenterProductionofantibodiesagainstfirst-in-classtargetsbelievedtobeindicationsofseveraltypesofcancerinthehighunmetneedscategory.

NationalCancerCenterInJuly2012,beganproductionofantibodiesagainstfirst-in-class targetsbelieved tobe indicationsofseveraltypesofcancer.

2. Alliances with academia, etc.Chiome Bioscience aims to expand operations through

alliances with academia, which may lead to the acquisition

of target antigens and technological innovations. We

contribute to research by providing antibodies against

specific antigens. If antibodies demonstrate efficacy in

disease-model animals, we jointly file for a patent with the

academic institution and acquire commercialization

rights.

Chiome Bioscience is currently researching the drug

efficacy of anti-SEMA3A antibodies against targets that

cause blood poisoning together with Yokohama City

University. We also engage in joint research with the

University of Tokyo, the Japanese Foundation for Cancer

Research, the Shizuoka Cancer Center and the National

Cancer Center to license out lead antibodies.

analyzing the level of antibody diversification. In 2012,

Chiome Bioscience partnered with Biotecnol of the U.S.

and now uses its Tribody technology to further research

into the production of high-value-added antibody drugs.

Chiome Bioscience’s groundbreak-ing antibody production technology, the ADLib® system, is the outcome of my basic research into gene recombination at RIKEN (The Institute of Physical and Chemical Research).

I was astonished by the power of the ADLib® system. Antibodies that were impossible to produce with 10 years of effort can now be obtained in as few as 10 days.

KunihiroOhtaProfessor, Graduate School of Arts and Sciences The University of TokyoExecutive Director (outside) of Chiome Bioscience Inc.

YoshioGoshimaProfessor,

Molecular Pharmacology and Neurobiology

Graduate School of MedicineYokohama City University

8 9

At a Glance

Drug Discovery Alliance Lead Antibody Licensing Licensing Out Platform Technology

Summary Chiome Bioscience partners with pharmaceutical companies and other institutions to jointly research antibodies for the development of ethical drugs. Antibody research is also undertaken on a contract basis.

Net sales: ¥318,810,000 (down 49.2% year on year)

Gross profit: ¥199,423,000 (down 52% year on year)

Chiome Bioscience prepares novel antibodies as candidates for therapeutic drugs and out licenses them at an early stage to pharmaceutical companies.

Chiome Bioscience licenses the ADLib® system to pharmaceutical companies, allowing them to use the ADLib® system for their own R&D purposes.

Net sales: ¥5,317,000 (unchanged year on year)

Gross profit: ¥5,290,000 (up 23% year on year)

Strength This business offers a diverse range of earnings opportunities as Chiome Bioscience enters into alliances with multiple companies.

In addition to supporting clients in drug discovery, Chiome Bioscience engages in its own R&D to develop therapeutic antibodies.

By licensing out its proprietary drug discovery platform technology on a non-exclusive basis, Chiome Bioscience is able to generate earnings on the same scale as that of its alliance agreements.

Developments New contract entered into with Chugai Pharmabody Research Pte. Ltd.

Research underway with clients including Chugai Pharmaceutical Co., Ltd. and Glaxo Group Limited

Stepping up marketing to sign on new clients with the full-fledged commercialization of the ADLib® system based on a chimeric antibody library.

Successfully obtained humanized antibody for the anti-SEMA3A antibody, and confirmed drug efficacy in immune systems of animal disease models.

Entered into a contract with the National Cancer Center, and drug discovery research was launched.

Extended joint research contracts with the Takahashi Lab in the University of Tokyo. Strengthening alliances in discovery research with the Japanese Foundation for Cancer Research and the Shizuoka Cancer Center.

Out-licensed the ADLib® system to Fujirebio Inc. for R&D into reagents used for clinical testing and diagnosis.

Negotiating and conducting technological evaluation verification testing with several companies in Japan and overseas.

Earnings Models Upfront fees are collected as alliances are formed at the early research stage

Periodical research fees throughout the contract period in accordance with the alliance agreement

Upfront fees for the commercial license of the lead product at the outcome of the alliance

Milestone payments based on development outcomes by the licensee

Royalty income is received as a percentage of sales of the licensee’s antibody drug

Upfront fees are collected as alliances are formed at the early research stage

Lump-sum fees are received on conclusion of the development contract depending on the outcome of the alliance agreement

Milestone payments are received based on development outcomes by the licensee

Royalty income is received as a percentage of sales of the licensee’s antibody drug

Upfront fees are collected when licensing contracts are signed

Technology access fees are received while the licensee uses the technology

Milestone payments are received based on development outcomes by the licensee

Royalty income is received as a percentage of sales of the licensee’s antibody drug

Launch of an international joint project with Biotecnol, Inc.In January 2013, Chiome Bioscience entered into a co-development and

exclusive option agreement with Biotecnol, Inc. This international joint

project has been getting underway for the evaluation, non-clinical trial

and clinical development of therapeutic antibodies and will combine

Chiome’s ADLib® system and Biotecnol’s Tribody technology to

generate Tribody molecules (multi-specific T-cell engager antibodies)

for cancer treatment.

Merit award received for industry-academia-government collaboration by the Minister of Education, Culture, Sports, Science and TechnologyChiome Bioscience received a merit award from the Minister of

Education, Culture, Sports, Science and Technology in commendation

of its involvement in collaboration among industry, academia and

government. Sponsored by the Cabinet Office and various government

ministries, this award recognizes the advancements made possible

with the ADLib® system in the in vitro generation of a diverse array of

antibodies against antigens over a short time period of about ten days,

and the successful preparation of monoclonal antibodies against lipids

and evolutionarily conserved proteins that had been difficult to obtain

using conventional methods.

Progress building a fully humanized ADLib® systemIn addition to the observation of homologous recombination in antibody

light chain and heavy chain genes, Chiome Bioscience has confirmed

that gene conversion occurred between pseudogenes and functional

genes in the variable domains of both the light chains and heavy chains

in the same cell. Chiome Bioscience also confirmed the expression of

membrane-bound and secreted human IgG on the same cell. R&D

efforts successfully completed the prototype in June 2013.

Generation of high-affinity antibodiesChiome Bioscience has developed technology that improves the affinity

of antibodies obtained through direct ADLib® screening by optimizing

conditions for their acquisition. This technology also eliminates the

need for a diversification step during drug processing, thereby

considerably shortening the time required to prepare high-affinity

antibodies to around three weeks.

TOPICS:

10 11

Six-Year Financial Summary Management’s Discussion & Analysis

Thousands of YenThousands of U.S. Dollars

2008 2009 2010 2011 2012 2013 2013

(For the year ended March 31)

Net sales ¥ 34,207 ¥161,818 ¥380,815 ¥ 463,184 ¥ 633,197 ¥ 324,127 $ 3,446

Selling, general and administrative expenses

− − 420,227 495,570 427,035 617,874 6,569

Including research and development expenses

− − 209,752 245,407 177,981 309,437 3,290

Net loss (277,255) (204,617) (164,400) (180,233) (44,417) (426,890) (4,538)

Cash used in operating activities

¥ - ¥ - ¥ 4,006 ¥(195,289) ¥ (48,867) ¥ (373,258) $ (3,968)

Cash used in investing activities

- - (264,687) (85,664) (3,813) (114,786) (1,220)

Cash provided by financing activities - - 269,617 383,420 419,269 463,473 4,927

Net loss per share (Yen and U.S. dollars)

¥ (119.96) ¥ (78.22) ¥ (62.83) ¥ (63.38) ¥ (12.11) ¥ (101.94) $ (1.08)

Shareholders’ equity per share (Yen and U.S. dollars) (151.67) (229.89) (281.95) (285.29) 253.04 228.34 2.43

(As of March 31)

Capital stock ¥517,000 ¥517,000 ¥554,500 ¥779,500 ¥1,027,996 ¥1,213,090 $12,898

Shareholders’ equity and subscription right to shares

617,228 412,611 323,211 592,978 1,045,552 1,037,894 11,035

Total assets 729,279 660,861 865,735 876,017 1,265,866 1,296,734 13,787

Ratio of R&D expenses to operating revenue (%)

- - 55.1 52.9 28.0 95.4 -

Equity ratio (%) 84.6 62.4 37.3 67.7 82.6 76.3 -

(¥94.05 to U.S. $1)

Thousands of Yen

2013 2012 YOY Change%

Operating revenue 324,127 633,197 (48.8)

Cost of sales, selling, general and administrative expenses 737,288 640,463 15.1

Research and development expenses 309,437 177,981 73.9

Other 427,850 462,482 (7.5)

Operating loss (413,160) (7,266) -

Ordinary loss (424,813) (42,904) -

Net loss (426,890) (44,417) -

In fiscal 2012, the year ended March 31, 2013; operating revenue

declined 48.8% compared with the previous year to ¥324,127

thousand. Despite the extension of its contract research agreement

with Chugai Pharmaceutical Co., Ltd. in the first quarter, and the

execution of a new agreement with Chugai Pharmabody Research

Pte, Ltd. (CPR), a Singapore-based Chugai Pharmaceutical

subsidiary, in the Drug Discovery Alliance business, this downturn

in operating revenue was largely attributable to the Company’s

inability to fully cover delays in securing projects through to the

second quarter resulting from the effects of contract amendments

Drug Discovery AllianceDuring the fiscal year under review, Chiome Bioscience witnessed

positive developments in its research and business undertakings

with several licensees. In addition to the joint research contract and

extension of its research agreement with Chugai Pharmaceutical

Co., Ltd., Chiome Bioscience entered into a new agreement with

CPR. At the same time, the Company concluded a joint research

agreement with Biotecnol, Inc., a U.S.-based company that has

developed the unique Tribody technology, which generates multi-

specific antibodies, and continued to develop ties with the U.K.-based

GlaxoSmithKline group and several academic institutions.

Harnessing the competitive advantage of the Company’s ADLib®

system, which draws on its IgG chimera antibody library, currently

entering full-fledged practical application, Chiome Bioscience is

engaging in marketing activities that are designed to secure

large-scale contracts with several pharmaceutical companies.

Despite each of the aforementioned factors, operating revenue

in the Drug Discovery Alliance business declined ¥309,069 thousand

compared with the previous year to ¥318,810 thousand. Gross profit

in this business fell ¥216,046 thousand year on year to ¥199,423

thousand.

from the third quarter and beyond. While Chiome Bioscience took

steps to contain expenses wherever possible, the Company

witnessed an upswing in research and development expenditures

as it channeled in-house resources toward the development of a

fully human ADLib® System. This was consistent with the drop in

external projects. As a result, Chiome Bioscience incurred an

operating loss of ¥413,160 thousand, up ¥405,893 thousand year on

year. The Company’s ordinary loss climbed ¥405,893 thousand to

¥424,813 thousand and the net loss grew ¥382,472 thousand to

¥426,890 thousand.

Lead Antibody LicensingFocusing on its ongoing anti-SEMA3A antibody research with

Yokohama City University, Chiome Bioscience continues to draw on

its R&D results to negotiate with numerous pharmaceutical

companies in Japan and overseas. In advancing these negotiations,

the Company is working to develop a first-in-class therapeutic

antibody. In another major development, Chiome Bioscience

partnered with the National Cancer Center to begin joint research

into new therapeutic antibodies targeting cancer-specific molecules

owned by the Center. The Company has also extended the term of its

joint research agreement with a research laboratory led by Dr.

Shinichiro Takahashi at the Graduate School of Agriculture and Life

Sciences, the University of Tokyo, and entered into an agreement

with the Shizuoka Cancer Center to search for therapeutic

antibodies. As a part of ongoing efforts to uncover and obtain new

therapeutic antibodies, Chiome Bioscience is strengthening its

collaborative ties with academic and public research institutes

including the Japanese Foundation for Cancer Research.

There was no operating revenue or earnings in this segment

for the fiscal year under review.

Results by Business Segment

Operating Revenue

Overview of Operating Results

12 13

Management’s Discussion & Analysis

Licensing Out Platform TechnologyChiome Bioscience has licensed the ADLib® system to Fujirebio Inc.,

which continues to use the system to conduct research and engage

in the development of reagents for application in diagnosis.

Negotiations regarding agreements for technological assessment

are also under way with several Japanese and overseas pharma-

The current status of Chiome Bioscience’s research and

development activities is presented briefly as follows.

Practical application of the IgG Chimera antibody libraryChiome Bioscience has successfully developed over 80 chimera

antibody libraries with improved diversity and quality. Through the

Drug Discovery Alliance business and multiple joint research

projects with academia aimed at developing proprietary lead

antibodies, the Company has successfully applied its chimeric

antibody library to obtain antibodies for several antigenic proteins.

In this regard, the chimeric antibody library is fast becoming the

platform standard for obtaining antibodies.

Building a fully human ADLib® systemCurrently, Chiome Bioscience is introducing human antibody genes

into the DT40 cells in order to build a fully human antibody library

that is capable of obtaining human antibodies, not avian antibodies.

Successful development of a fully human ADLib® system is likely to

have a significant impact on the development of therapeutic

antibodies.

The Company had originally set the goal of both antibody and

pseudo-gene locus conversion into human genes and the

development of a homologous recombination fully human antibody

library prototype to be realized by the end of March 2013. In order to

bridge the gap between a prototype that offers diversified antibody

genes and practical application, Chiome Bioscience recognizes the

need for prudent development. Accordingly, the Company has put in

place increasingly stringent criteria for the establishment and

screening of a prototype pushing back the completion date to the

end of June 2013. Chiome Bioscience has finally verified the

expression of membrane-bound and secreted-type human

antibodies, and gene conversion occured in a single cell by adopting

new methods in the introduction of genes in an effort to ensure the

definitive practical application of a fully human ADLib® system.

The Company has successfully completed a prototype that is

capable of expressing diverse antibodies.

Obtaining functional antibodiesAs for the anti-SEMA3A antibody, which is discovered in the

collaborative research with Yokohama City University, Chiome

ceutical companies interested in licensing the ADLib® system.

As a result, operating revenue in this segment totaled ¥5,317

thousand, an increase of ¥0 thousand from the previous fiscal

year. Gross profit increased ¥991 thousand year on year to ¥5,290

thousand.

Bioscience confirmed the efficacy of both chimeric and humanized

antibodies on mouse model-based tests for immunological and

infectious diseases, more specifically, lipopolysaccharide

(LPS)-induced sepsis model. Moreover, tests clearly indicate the

therapeutic efficacy of the anti-SEMA3A antibody to substantially

improve the survival rates of patients even as a sole regimen.

Chiome Bioscience filed a patent application on February 6, 2013

and continues to engage in full-fledged marketing activities with the

aim of out licensing the antibody to pharmaceutical companies in

Japan and overseas.

In addition, Chiome Bioscience is making steady progress with

its joint research to generate new therapeutic antibodies targeting

cancer-specific molecules discovered by the National Cancer

Center, the development of new antibodies with a research

laboratory led by Dr. Shinichiro Takahashi at the University of Tokyo,

new therapeutic antibodies targeting cancer-specific molecules

with the Shizuoka Cancer Center, and endeavors with the Japanese

Foundation for Cancer Research. By bolstering joint-research with

multiple universities and public research organizations, Chiome

Bioscience is further reinforcing its ability to obtain new therapeutic

antibodies.

Obtaining high affinity antibodiesChiome Bioscience is engaging in research in an effort to isolate

high affinity antibodies from a growing number of cells in the ADLib®

library. To this end, the Company is working to enhance the

technological capabilities of its ADLib® system.

In this context, Chiome Bioscience is witnessing steady

progress in a variety of activities including the development of

methods to enrich high affinity cells, techniques to efficiently isolate

antibodies by improving screening methods, and a method to select

diversified libraries based on library diversification analysis by

next-generation sequencing machine. At the same time, the

Company has integrated each of the aforementioned improvements

and is establishing a discovery process of high affinity antibodies in

the internal antibody discovery projects. As a result, Chiome Bioscience

has successfully put in place the general protocols for discovery of

high affinity antibodies going forward. Looking ahead, the Company

will incorporate these methods into the overall operating processes

for developing therapeutic antibodies. This is expected to

substantially enhance antibody development efficiency.

Research and Development

Total assets stood at ¥1,296,734 thousand as of March 31, 2013, up

¥30,868 thousand compared with the end of the previous year.

Total liabilities totaled ¥258,840 thousand, a year-on-year

increase of ¥38,527 thousand. This was largely attributable to the

upswing in loans payable of ¥47,915 thousand mainly reflecting the

refinance of long-term loans payable.

Net assets totaled ¥1,037,894 thousand, down ¥7,658 thousand

compared with the previous year-end. Principal movements

included the drop in retained earnings of ¥426,890 thousand on the

back of the Company’s net loss for the period. In March 2013, Chiome

Bioscience issued its seventh series subscription rights. As a result,

new share warrants climbed ¥49,044 thousand. Accounting for the

exercise of new share warrants, the total of the Company’s common

stock and capital reserve increased ¥370,188 thousand.

Financial Position

Cash and cash equivalents as of the end of the period stood at

¥988,535 thousand, down ¥24,550 thousand.

Net cash used in operating activities was ¥373,258 thousand.

The principal movements were loss before income taxes of ¥424,813

thousand, depreciation and amortization of ¥55,455 thousand, and

changes in accrued consumption taxes of ¥28,701 thousand.

Net cash used in investing activities amounted to ¥114,786

thousand. During the fiscal year under review, the major components

were increase in lease deposits and others of ¥71,985 thousand and

purchases of property and equipment of ¥42,801 thousand relating to

the relocation of the Company’s head office and research laboratory.

Net cash provided by financing activities came to ¥463,473

thousand. The primary cash inflows were the increase in issuance

of shares of common stock in connection with the Company’s

Seventh Series of Share Warrants and the exercise of warrants

totaling ¥415,558 thousand as well as the increase in long-term

loans payable of ¥150,000 thousand representing the refinancing of

loans payable.

Cash Flows

Chiome Bioscience engages in substantial anticipatory investment,

which is recorded largely as research and development expenditure.

This is essential in securing ongoing breakthroughs in its R&D

activities. To date, the Company has reported successive operating

losses and accordingly is required to procure the necessary

financing to fund its working capital and business activity needs,

research and development expenditure, and capital investment. In

order to address this requirement, Chiome Bioscience undertook a

third-party allotment of its shares on March 4, 2013. As a result, the

Company issued 426,000 share of common stock in the form of

stock warrants to Milestone Capital Management, LLC. A portion of

these share warrants has already been exercised with a total of

¥261,560 thousand raised as of March 31, 2013.

All share warrants were exercised as of May 1, 2013 with the

total amount of funds procured reaching ¥3,776,598 thousand. This

has in turn had a dilutive effect of 10.01% on the total amount of the

Company’ issued and outstanding shares as of February 15, 2013.

Funds Procurement

Chiome Bioscience has continued to incur net losses since its

establishment. The Company is yet to pay a cash dividend. Recognizing

the need to engage in research and development into the future,

Chiome Bioscience will continue to place priority in securing the

necessary funds. As a result, the Company does not expect to pay a

cash dividend for the foreseeable future.

Despite these current conditions, management has positioned

the return of profits to shareholders as a key task and commitment.

Looking ahead, Chiome Bioscience will then work steadfastly toward

the payment of cash dividends and return of profits to shareholders

while taking into consideration its financial position and operating

results.

Returning Profits to Shareholders

14 15

Corporate Information (As of June 27, 2013) Stock Information (As of March 31, 2013)

Name: Chiome Bioscience Inc.Total authorized shares: 16,536,000

Total outstanding shares: 4,330,600

Number of shareholders: 6,147

Stock listing: Tokyo Stock Exchange, Mothers (Market of high-growth and emerging stocks)

Securities code: 4583

Share registrar: Sumitomo Mitsui Trust Bank, Limited

1-4-1, Marunouchi, Chiyoda-ku, Tokyo, 100-0005

Annual shareholders’ meeting: June

Mailing address and Sumitomo Mitsui Trust Bank, Limited

telephone number: 2-8-4, Izumi, Suginami-ku, Tokyo, 168-0063

The toll-free service of the transfer agent (Japan only)

(0120-782-031)

For Further Information: Investor Relations Section

E-mail: ir@chiome.co.jp

Upgrading IR website contentsStock price / Turnover of common stock

To provide disclosure of a

broad range of information

about the Company that is

useful to all stakeholders,

we are working to upgrade

and expand the contents of

our website.

http://www.chiome.co.jp/english/ir/

Major shareholders: Masa Fujiwara 272,600 6.29

Kunihiro Ohta 240,000 5.54

Keiichi Sasaki 189,000 4.36

Masahiro Amazutsumi 131,000 3.02

Fast Track Initiative, Inc. 125,000 2.88

Matsui Securities Co., Ltd. 123,400 2.84

Hidetaka Seo 122,600 2.83

FUJIREBIO INC. 100,000 2.30

Rakuten Securities, Inc. 84,200 1.94

Naoto Nakamura 79,700 1.84

Business: Research and development

centered on the ADLib®

system, our proprietary

drug discovery platform

technology.

Board of directors: ChiefExecutiveOfficer Masa Fujiwara, M. Agr., D.V.M.

ExecutiveDirectors Keiichi Kiyota, M.B.A. (Executive Director of Business Administration)

Shigeru Kobayashi, M.E. (Executive Director of Business Development)

ExecutiveDirectors(*) Kunihiro Ohta, Ph.D.

Tsutomu Kawaguchi, Ph.D.

Audit&SupervisoryBoard Yasuhiro Tsuji, Ph.D.

Members(*) Masashi Iwaki

Noriko Sawai, Attorney at Law

Yoshiaki Asahi (*) outside

Address: Headquarters, Research Laboratories

Sumitomo Fudosan Nishi-shinjuku Bldg. No.6, 3-12-1

Honmachi, Shibuya-ku, Tokyo 151-0071 Japan

TEL: +81-3-6383-3561 (reception)

Date of establishment: February 8, 2005

Capital: 2,971 million yen (As of June 14, 2013)

Number of employees: 31 (As of March 31, 2013)

History: Shortly after its founding in February 2005, Chiome Bioscience Inc. concluded a

collaboration agreement with RIKEN (The Institute of Physical and Chemical Research)

to commercialize its leading technology, the ADLib® system. After launching research

activities, Chiome Bioscience Inc. concluded a collaboration agreement with Chugai

Pharmaceutical Co., Ltd., which led to new business projects, including research support

services for antibody drugs based on the ADLib® system.0

3,000,000

2011/12 2012/1 2013/6

6,000,000

9,000,000

12,000,000

15,000,000

0

2,000

4,000

6,000

8,000

10,000(¥)(Shares)

Chiome Bioscience Stock TurnoverChiome Bioscience Stock Price

( splits: 1 2)

Number of shares Percentage of total shares (%)

16 17

Chiome Bioscience Inc.http://www.chiome.co.jp/english/