Pharma Foods International Co.,Ltd. Q2 FY2025 earnings call

• Overall Corporate Positioning

  • Overall consolidated revenue declined year-over-year, which management frames as in-line with plan, with positive results from aggressive strategic investments in R&D and marketing
  • R&D expenditure increased 32.4% year-over-year, advertising expenditure increased 2.7% year-over-year; the company continues to optimize debt balances while pursuing efficient capital allocation
  • Gross margin is maintained at a high 81.3% following 2024 direct-to-consumer price increases that have fully penetrated the market
  • Management plans to expand advertising investment in the second half of the fiscal year

• BtoB Operational Progress

  • Overseas: PharmaGABA has received a new patent in North America for the link between GABA consumption and improved endurance for everyday activity, opening access to the large 100 billion+ dollar North American sports nutrition market in partnership with Mitsubishi Corporation. The new patent targets a broader casual user base compared to the existing muscle growth patent for athletes achieved in 2019. A functional powdered drink with PharmaGABA developed with AVROLife has already won two industry awards.
  • Domestic: A new GABA-infused onigiri was launched at 7,000 major convenience store locations in the Kanto region, alongside a new patent for GABA improving rice flavor. The company is expanding PharmaGABA adoption into daily food categories (bread, prepared dishes) beyond traditional supplement shelves. The capital and business alliance with Itochu Corporation is progressing well, with Itochu increasing its stake to 4.9%, and multiple new national brand adoption deals are nearing finalization, leveraging Itochu's 2,000 retail and 10,000 manufacturer partners.

• BtoC Operational Progress

  • Three new Meiji Yakuhin products (Tenrai Seiryūjō, Healthpan C Tablets, Norux K Tablets) are delivering acquisition volume and efficiency not seen in two years; the lead tinnitus-targeted herbal product Tenrai Seiryūjō was developed in collaboration with Onkyo, with co-branded educational content creating strong market differentiation.

• Biomedical Operational Progress

  • The company established a joint CADASIL drug discovery research department with the National Cerebral and Cardiovascular Center, combining Pharma Foods' peptide development expertise with the center's research. Phase 1 trials are complete, Phase 2 is ongoing with extremely positive preliminary results. Management is prioritizing accelerated development and pursuing conditional approval to speed access to patients given the rarity of the disease. The existing antibody drug program with Mitsubishi Tanabe Pharma via ALAgene technology is progressing through Phase 1 trials started last year.

• Mid-Term Strategy Progress

  • Eggshell membrane fiber brand ovoveil is receiving strong industry and media attention, with ongoing product development and production investment. The brand will be launched globally at the 2025 Osaka-Kansai Expo before full market entry. The company plans to deploy 30 billion yen in aggressive strategic investments over the next five years, including 5 billion yen for ovoveil, drug discovery R&D, and M&A, to hit the 100 billion yen revenue target in the mid-term 1K Project.

1. BtoB Business: The functional materials segment grew 38.3% year-over-year, with strong overseas demand for PharmaGABA driving growth. Domestic PharmaGABA continues to be adopted by national brands despite an overall industry decline in health functional food notifications. The CMO segment saw a year-over-year revenue decline, which was fully expected and in line with budget. Functional product and CHC segments are identified as future priority growth areas, currently in active partnership development. BtoB continues to deliver stable profit. 2. BtoC Business (primarily direct-to-consumer e-commerce): The business hit a 2-year high in customer acquisition levels, driven by the recovery of core brand Newmo and strong growth of new Meiji Yakuhin products. Meiji Yakuhin's recurring customer count increased 2.2x compared to the end of the prior period, with 34,000 new recurring customers from new products and 31,000 new recurring customers from the core Newmo brand combined. Gross margin remained at a high 81.3% following 2024 price increases that have now fully penetrated the market. 3. Biomedical Business: Added a new pipeline for CADASIL, a hereditary intractable disease, with development underway in partnership with the National Cerebral and Cardiovascular Center. Existing autoimmune disease drug development continues to progress. No specific absolute financial or percentage contribution figures for overall revenue were provided in the transcript.

• Full year 2025 July fiscal year earnings guidance announced in September 2024 is maintained with no revisions
• Dividend guidance is also maintained, with management focused on growing absolute dividend amounts over the long term via future profit growth
• The company plans to expand investment in the second half of the fiscal year following the strong outperformance of new products, including the upcoming 3 million unit Newmo breakthrough campaign starting April 2025, but management commits to maintaining the full year profit target and delivering on the current guidance

• For CADASIL Phase 3 development, patient recruitment is expected to be challenging due to the status of CADASIL as a rare designated intractable disease
  • No other material operational or financial risks were explicitly discussed in the available transcript

The provided transcript does not include a structured question and answer section, so no exchanges can be summarized.