Quarterly Report (3Q of 23rd Fiscal Period)

(3Q of 23rd Fiscal Period)

To September 30, 2023

2-2, Nihonbashi-Honcho 2-chome, Chuo-ku, Tokyo

First Section [Corporate Information]

First [Overview of the Company]

Our group consists of the company submitting consolidated financial statements (hereafter, "we") and 15 consolidated subsidiaries and

3 affiliated companies. The business content of these companies is classified into the pharmaceutical business and the medical device business. In the pharmaceuticals business, the Group conducts R&D, manufacturing, and sales of ETUARY , which is marketed in the Chinese market, and F351, which is under clinical trials. In the medical device business, the Group develops, manufactures and sells medical devices (biomaterials)

based in the United States.

Changes in major affiliated companies related to each segment in the 3Q of the current fiscal year are generally as follows.

No changes in major affiliates.

No changes in major affiliates.

Second [Business Conditions]

There have been no significant changes in the status of business, accounting and other matters described in this quarterly report

during the 3Q of the fiscal year under review that could have a significant impact on investors' decisions or the "Business Risks" described in the previous fiscal year's securities report.

Forward-looking statements are based on judgments as of the end of the 3Q of the current fiscal year.

During the first nine months of the current fiscal year, the Japanese economy showed a gradual recovery trend as socioeconomic activities normalized following the shift of new

coronavirus infection to "category 5" infection. On the other hand, the global economy remained uncertain against the backdrop of prolonged geopolitical risks and rising prices and interest rates worldwide. Similarly, in the biotechnology sector, the

global outlook has yet to be completely cleared.

Despite these circumstances, the GNI Group Inc. and its affiliated companies ("the Group") achieved year-on-year increases in revenue in its main businesses.

In particular, sales of ETUARY , the main product of Beijing Continent Pharmaceutical Co., Ltd. ("BC"), a major

subsidiary of our group, remained strong, contributing significantly to the revenue increase. BC is proceeding with Phase III clinical trials in China for F351, which is a strong candidate for its next product, and the trial is making steady progress

with patient enrollment expected to be completed by the end of 2023.

With respect to the transaction with Catalyst Biosciences, Inc. ("CBIO"), a U.S. Nasdaq-listed company, disclosed in December 2022, the Group has completed Transaction 1 to

transfer the non-Chinese rights of F351 to CBIO and is now planning to transfer the BC shares held by the Group to CBIO by way of an investment in kind. At the general meeting of CBIO shareholders held on August 29, 2023, all related agenda items were

Cullgen Inc. ("Cullgen"), a US subsidiary specializing in research and development mainly in The United States and China, continues to make a steady progress utilizing a

proprietary target protein degradation degradation technology platform uSMITE (ubiquitin-mediated, small molecule induced target elimination). As disclosed in June 2023, Cullgen has entered into a collaboration and exclusive option agreement with

Astellas Pharma Inc. ("Astellas") for the development of innovative protein degraders. The joint research with Astellas under this strategic alliance is progressing well. Cullgen is also advancing the clinical trial in China for its first TRK-degrader

oncology drug candidate and, as disclosed in July 2023, has initiated Phase I/II clinical trials, its first clinical trial in humans. At the same time, we are developing several other programs targeting to submit IND's for clinical trials.

In the medical device business, the performance has been strong led by Berkeley Advanced Biomaterials LLC ("BAB"), which is engaged in the biomaterials business in the United

States. In order to further enhance the biomaterials business, as disclosed on September 19, 2023, the Group has decided to acquired a portion of the orthobiologics business from Elutia Inc, (Nasdaq-listed; ticker: ELUT; "Elutia"), which develops and

commercializes biologics in the United States, subject to the successful completion of due diligence, and to establish a wholly owned subsidiary in the United States that will serve as the entity to run that business, and the due diligence is underway.

In addition, as disclosed on August 1, 2023, the Group has started consolidating per the equity method Shanghai JIUCE Medical Device Technology Co., Ltd, which is BAB's existing distributor and focuses on marketing imported medical devices and

consumables, in order to expand the medical device business in China going forward.

Pharmaceutical Business

Revenue from ETUARY , BC's flagship product, in the Chinese marketplace remained firm. In

addition, we recorded revenue of JPY4.8384 billion from the upfront payment due to the strategic alliance between Cullgen and Astellas Pharma Inc.

As a result, revenue and segment profit in the Pharmaceutical Segment were JPY18,272,865 thousand (up 65.4% year on year) and JPY5,915,025 thousand (up

643.5% year on year), respectively.

Medical Device Business

In the Medical Device Segment, revenue and segment income increased 32.7% to JPY2,275,030 thousand and 27.0% to JPY887,511 thousand, respectively,

reflecting continued strong sales of BAB's mainstay bone transplantation-related products.

Selling, general and administrative expenses for the first 3 quarters of the fiscal year under review increased 27.4% year on year to JPY9,556,455

thousand. This increase in selling, general and administrative expenses was primarily due to increases in personnel expenses in the Pharmaceutical Segment and costs to build a sales structure and marketing activity-related expenses.

R&D expenses for the first 3 quarters of the fiscal year under review were JPY1,776,530 thousand, down 2.3% year on year. This decrease in R&D

expenses was primarily due to an increase in the capitalization of F351 R&D expenses at BC.

Finance income for the consolidated cumulative 3Q was JPY505,384 thousand (up 45.3% year on year). This increase in finance income was

primarily due to an increase in interest income and foreign exchange gains.

During the first 3 quarters of the fiscal year under review, financial expenses amounted to JPY904,311 thousand (up 46.1% year on

year). This increase in financing costs was primarily due to an increase in non-cash interest costs related to Cullgen financings.

Consolidated Financial Position

Total assets at the end of the 3Q of the current fiscal year were JPY48,468,006 thousand (up 42.9% from the end of the previous fiscal

year). This increase in assets was primarily due to an increase in cash and cash equivalents from Cullgen trade receivables and financing.

Total liabilities at the end of the 3Q of the current fiscal year were JPY21,881,395 thousand (up 55.2% from the end of the previous

fiscal year). This increase in debt was primarily due to the funding of Cullgen and the accretion of non-cash interest expense related to the funding.

Total shareholders' equity

Total capital for the 3Q of the current fiscal year was JPY26,586,611 thousand (up 34.2% from the end of the previous fiscal year).

This was mainly due to an increase in retained earnings.

Consolidated cash flows

Net cash provided by operating activities

Net cash provided by operating activities for the first 3 quarters of the fiscal year under review was JPY4,442,988 thousand, compared

with net cash used of JPY162,928 thousand in the same period of the previous fiscal year. This was mainly due to an increase in trade and other receivables of JPY1,974,714 thousand compared to quarterly profit before income taxes of JPY6,376,072

Cash Flows from investment activities

Net cash used in investing activities for the first 3 quarters of the fiscal year under review was JPY3,697,727 thousand, compared

with net cash used of JPY2,909,505 thousand in the same period of the previous fiscal year. Major expenditures were for the acquisition of long-term deposits in China and the acquisition of property, plant and equipment related to plant expansion.

Cash Flows from financing activities

Net cash provided by financing activities for the first 3 quarters of the fiscal year under review was JPY4,981,492 thousand, compared

with net cash used in financing activities of JPY299,280 thousand in the same period of the previous fiscal year. The main source of proceeds was payments from non-controlling interests in connection with the financing of Cullgen.

There have been no significant changes in the Group's business and financial issues to be addressed during the 3Q of the fiscal year

under review. In addition, there are no new issues.

[Research activities]

Our group's drug discovery research aims to develop innovative new development candidate compounds (NCE), mainly in Cullgen. Cullgen is pursuing R&D to

expand its drug discovery pipeline, which includes several new compounds targeting enzymes and non-enzymes for oncology, pain and autoimmune diseases.

As disclosed on June 15, 2023, Cullgen entered into a joint research and exclusive option contract with Astellas Pharma Inc. for the creation of innovative

protein degradation derivatives. In this strategic alliance, the 2 companies will combine Cullgen's proprietary technological platform uSMITE that utilizes new E3 Ligand with the drug discovery capabilities of Astellas Pharma, with the aim of creating

several protein-decomposition derivatives. Cullgen and Astellas Pharma will conduct joint research. Astellas Pharma will be responsible for development and commercialization. We are making steady progress in collaborating with Astellas Pharma Inc. in

the United States, a lead program identified by Cullgen for the treatment of breast cancer and other solid cancers. This is a candidate compound for a decomposition inducer for cell-cycle protein.

[Development activities]

ETUARY [Chinese: , (Generic name:

Diabetic Kidney Disease (DKD)

The Phase I clinical trial to expand the indication of ETUARY to DKD has been completed, and an

application for a Class 2 meeting (a technical meeting on clinical trials) has been submitted to the Center for Drug Evaluation (CDE) in China to determine the regulatory direction for the next phase of the clinical trial, and to discuss how to

Connective Tissue Diseases Associated Interstitial Lung Disease (SSc-ILD and DM-ILD)

Clinical trials for Phase III are ongoing to expand the indications of ETUARY to two connective

tissue disorders, systemic sclerosis (SSc-ILD) and dermatomyositis (DM-ILD). However, at present, priority is given to the clinical trials of F351.

Clinical trials are underway to expand the indications of ETUARY in PD which entered Phase III in

June 2022. Although the spread of COVID-19 in China at the end of 2022 to early 2023 had some impact, subject enrollment has resumed.

F351 (for liver fibrosis) (Generic Name: Hydronidone) by BC

F351 (Generic name: Hydronidone), a therapeutic drug for the treatment of liver fibrosis, is a key candidate in BC's drug portfolio and a significant part of its strategy to

expand its clinical development activities into other major global pharmaceutical markets. F351 is an NCE derivative of ETUARY , which inhibits hepatic stellate cell

proliferation and the TGF- signaling pathway, both of which play major roles in the fibrosis of internal organs.

Following discussions with the CDE in China, F351 was designated by the NMPA in March 2021 as a breakthrough therapeutic drug for liver fibrosis. This has given us priority in

our discussions with the CDE regarding F351 and has allowed us to proceed with clinical trials based on the results of those discussions. Subsequently, on July 29, 2021, an application for a Phase III clinical trial was approved in China, and a Phase

III clinical trial was initiated in January 2022. The Phase III clinical trial has been making steady progress with the subject enrollment almost completed ahead of the target completion date of 2023 end.