Pharma Foods International Co.,Ltd. Q2 FY2026 earnings call

• Strategic Shift & 新価値創造1Kプロジェクト Repositioning

  • Management has shifted its core focus from sales growth to profit-driven growth over the past year, with the goal of building a business that generates sustainable revenue through new technologies and new products. A new Corporate Strategy Department was established to implement portfolio-based, data-driven management.
  • The 新価値創造1Kプロジェクト's original 100 billion yen sales target became an overemphasized standalone metric that diluted the project's core goal of creating innovative functional materials and products. Management reaffirmed the 100 billion yen revenue target remains, but has restructured roles: existing core businesses will prioritize profit generation over sales growth, with excess resources reallocated to new innovation and new business areas to drive long-term growth.
  • 4 M&A deals are currently in conditional negotiation, and management is progressing carefully toward closing.

• BtoB Business Operational Highlights

  • In-house developed functional materials have secured adoption at major consumer product companies: ボーンペップ is used in Rohto Pharmaceutical's long-selling Senobic beverage with over 20 million cumulative units sold; PharmaGABA (the company's GABA ingredient, which holds global leading market share) is used in Ezaki Glico's long-selling GABA chocolate and was newly adopted in Japan Coca-Cola's new Ayataka series product.
  • Distribution expansion for category-leading direct-to-consumer products is accelerating: ニューモ hair growth product shipments for Costco-exclusive bottles are growing, and WMOA eyelash serum and KURUB cream shampoo have gained traction at LOFT stores.
  • Overseas PharmaGABA adoption is growing, with new adoption by major North American supplement manufacturers Life Extension, NOW Health Group, and Youtheory, and adoption by Thailand's largest soft drink manufacturer Osotspa for distribution at 7-Eleven locations across Thailand. US GRAS certification for PharmaGABA is the top priority for overseas sales, with FDA preparation progressing steadily, and significant demand expansion is expected in the North American food and beverage market following approval.

• BtoC Business Operational Highlights

  • The segment has shifted to a higher-margin customer structure centered on the ニューモ series: total recurring customers decreased 4.8% year-over-year to 758,528, but revenue per customer increased 16.3% year-over-year to 37,876 yen, driving overall revenue growth and improved profitability, with clear improvement in customer lifetime value (LTV).
  • New revenue pillar cultivation is progressing: WMOA eyelash serum and DRcula medicated gel toothpaste are already category leaders and contributing to profit, while ラクトロン錠 and ヘルスパンC錠 have maintained consistent sales growth, with ongoing work to improve profitability through higher recurring subscription rates. てんらい清流錠 and てんらい黄望皇 address unmet customer needs for conditions including tinnitus and nocturia, which supports high recurring retention and will drive future profitability growth.
  • Long-selling タマゴサミン, which has exceeded 8.38 million cumulative bags shipped, was relaunched as a functionally labeled food to clearly communicate benefits for consumers with knee discomfort, and is expected to drive second-half supplement sales growth.

• Biomedical Business R&D Pipeline Progress

  • MT-3534, an antibody drug candidate for autoimmune diseases out-licensed to Tanabe Pharma, completed Phase 1a trial.
  • One CasMab cancer-specific antibody in-licensed from Tohoku University is already in active partnering development, and a cerebral circulation improvement drug is targeted for in-licensing in 2026, with a goal of future in-house commercialization.
  • The company is building a next-generation drug discovery platform for oncology through collaboration with academia, combining Tohoku University's high-efficacy cancer antibody technology, the University of Tokyo's AI technology to shorten product development timelines, and the company's proprietary ALAgene technology, with a goal of continuous development of promising new drugs.
  • Development of アドレノメデュリン, a treatment for the specified intractable disease CADASIL, completed an exploratory clinical trial led by the National Cerebral and Cardiovascular Center, and is targeting regulatory approval submission in 2030, with the center leading efforts to pursue early approval.

• New Business Development

  • The company is expanding into three new fields beyond its core food, cosmetics, and pharmaceutical businesses: fiber, battery materials, and agri, with 5.1 billion yen in research funding from Japan's NEDO "Biomanufacturing Revolution Promotion Project".
  • Fiber business: ovoveil eggshell membrane fiber received strong industry interest after the 2025 Osaka Kansai Expo, with ongoing commercial discussions with luxury apparel brands after exhibiting at Premiere Vision Paris 27SS. The fiber can be used in products including t-shirts and jeans, and offers exceptional softness, skin benefits, and environmental sustainability. Domestic raw cotton supply has started, and the company is working to expand global awareness.
  • Battery materials business: The company developed a new electrode material from eggshell membrane that achieves both high energy density and high output, a combination that is difficult to achieve with conventional materials. Research findings have been published in a peer-reviewed journal with an impact factor over 20, and the company recently held positive discussions with two major Japanese battery manufacturers for sample evaluation, reaching the commercial evaluation stage.
  • Agri business: The company's biostimulant (a third-category alternative to traditional fertilizers and pesticides) demonstrated improved rice yield and quality in field trials across Kyoto, Kyushu, and Hokuriku. The project was selected for Japan's MAFF "Open Innovation Research and Commercialization Promotion Project", and the company is conducting further large-scale validation via a consortium with the University of Tokyo, Itochu Foods, the Kyoto Prefectural Agriculture and Forestry Technology Center, and Saga University to accelerate commercialization.
  • Meiji Seika has begun construction of a new factory with a planned investment of 12 billion to 13 billion yen to support future growth.

1. BtoB Business: Total revenue of 3.576 billion yen, a 4.9% decrease year-over-year, accounting for 11% of total consolidated revenue. Breakdown: - Functional materials: Revenue of 1.195 billion yen, 8.7% decrease year-over-year, expected to recover in the second half. - Functional products: 54.7% increase year-over-year, driven by distribution expansion of category-leading direct-to-consumer products including the ニューモ hair growth series to mass retailers and drugstore chains, alongside sales of in-house national brand (NB) products. - CHC: 23.7% increase year-over-year, supported by ongoing drugstore chain channel development. - CMO: 21.3% decrease year-over-year, a planned adjustment to prioritize production capacity for high-growth, high-margin in-house products such as ラクトロン錠 and てんらい清流錠. 2. BtoC Business: Total revenue of 28.73 billion yen, a 10.7% increase year-over-year, accounting for 88.6% of total consolidated revenue. Breakdown: - Pharmaceuticals and quasi-drugs: 3.574 billion yen increase year-over-year, the main driver of overall segment growth. The ニューモ series performed steadily, and new candidate revenue pillars including ラクトロン錠, てんらい清流錠, and てんらい黄望皇 grew steadily thanks to planned growth investment. - Supplements: Decreased revenue in the first half, but the long-selling product タマゴサミン was relaunched as a functionally labeled food in the second half to recoup sales. 3. Biomedical Business: No specific first-half revenue disclosed, as the segment is in the research and development stage focused on pipeline progress.

• The first-half operating loss of 2.361 billion yen was entirely planned, as the company proactively implemented growth investment in the first half of the fiscal year, and a return to net profit in the second half remains on track.
• Management revised the full-year 2026 July fiscal year guidance upward on the back of faster-than-expected profitability improvement: the new full-year forecast calls for consolidated revenue of 67 billion yen, operating profit of 2 billion yen, net income of 1.5 billion yen, EPS of 51.64 yen, and a payout ratio of 48.4%. Full-year net income is expected to increase 307% year-over-year.
• Going forward, management will refocus on corporate value improvement, prioritize capital efficiency and stock price-conscious management, and will release specific new management KPIs alongside the announcement of the next medium-term management plan.
• Business portfolio strategy: BtoC will focus on expanding loyal customers, improving investment efficiency, and exploring growth through new revenue pillar cultivation; BtoB will target domestic share growth and expanded overseas market development following PharmaGABA US GRAS approval; new growth businesses including biomedical, eggshell membrane fiber, and agri will be cultivated over the medium term as future growth drivers.
• Management plans to systematically deliver year-over-year revenue, operating profit, and net income growth, build a medium-term positive cycle of increasing corporate value, growing stock prices, and increasing shareholder returns.

• Over the past 5 years, sales-focused growth investment led to high EPS volatility, unstable market valuation, and continued decline in the company's P/B ratio. Management has responded with a strategic shift to profit-focused management to address this issue.
  • The D/E ratio increased temporarily in the first half due to higher borrowing to fund growth investment, but management expects operating cash flow to improve in the second half as the business returns to profit, leading to full-year improvement in the company's financial position.
  • New revenue pillars for BtoC such as てんらい清流錠 and てんらい黄望皇 currently face the challenge of acquiring new customers, which is required to deliver on their expected profitability contribution.
  • The 100 billion yen sales target of the 新価値創造1Kプロジェクト previously became an overemphasized standalone metric that diluted core innovation goals, and negatively impacted recent stock performance, per management assessment.

No Q&A section is included in the provided transcript.