COSMO BIO COMPANY,LIMITED Q3 FY2025 earnings call

Core Business Strategy

• The company positions itself as a life science specialist trading company with in-house manufacturing capabilities, combining distribution and R&D/manufacturing to improve business stability.
• In-house manufacturing benefits: Less exposure to foreign exchange volatility, lower risk from trading rights changes compared to pure distribution, and higher profit margins for raw material supply lines.
• Core competitive advantages for the trading business: Unmatched product variety, robust specialized information management and dissemination, specialized cold chain and compliant logistics for sensitive bioreagents, and matching diverse researcher demand to global supplier products.

Recent Operational Updates

• Peptide manufacturing: Expanded production capacity at the Sapporo facility and implemented ChromaJean's AI-powered platform to automate peptide purification condition setting, reducing lead time, lowering dependency on skilled labor, and freeing experienced staff for complex high-value products.
• Egg bioreactor technology: Developed jointly with AIST, uses genome editing to replace ovalbumin genes in chicken eggs with target proteins, enabling low-cost high-volume protein production. Brazein is the lead candidate product, positioned as a healthy sugar alternative targeting the multi-trillion yen functional sweetener market.

Corporate Value Improvement

• Formalized a target to achieve ROE of 8% or higher, and reach PBR of 1x or higher as soon as possible by reducing cost of equity.
• Updated shareholder return policy: Introduced a 3.5% DOE rule, paying the higher of 3.5% DOE or 60% payout ratio (up from the previous 30-40% payout range). Maintained full-year dividend of 50 yen per share for the current fiscal year, and executed share buybacks in the prior year.
• Four-step improvement plan: (1) Step 0: Resolve information asymmetry with shareholders through enhanced IR communication, especially for high-potential new projects like Brazein; (2) Step 1: Optimize balance sheet and increase stable shareholder returns; (3) Ongoing: Drive revenue growth via digital transformation, global expansion, and new business creation.
• The company's core mission contributes to SDGs by enabling research across healthcare, environmental protection, and consumer goods, and it also supports public outreach to build public interest in life science.

1. Trading Business (core distribution segment): This is the company's core business, distributing over 1,000,000+ products from 500+ global suppliers to research customers. Cumulative full-year revenue is projected to exceed 10 billion yen (100亿円 original = 10 billion yen), with 3rd quarter cumulative revenue of 7.885 billion yen (78亿8500万円 original = 7.885 billion yen), representing a 6.4% increase year-over-year. This segment is highly exposed to foreign exchange fluctuations as it relies primarily on imported products.
2. In-house Manufacturing & R&D Segment (three sub-segments): a. Primary Cultured Cells & Research Reagents: Domestic-focused production of hard-to-import fresh primary cells, plus custom research reagent manufacturing. No separate absolute financials are reported. b. Peptide Contract Manufacturing: Has annual production capacity of over 15,000 units, believed to be the largest scale in Japan. Recent operational improvements include production capacity expansion and DX/AI implementation, with high growth expected from neoantigen and modified peptide products for cancer immunotherapy. No separate absolute financials are reported. c. Egg-based Bioreactor Protein Manufacturing: New growth business focused on raw material supply for pharma, cosmetic, and food manufacturers. Key product is the low-calorie protein sweetener Brazein, which is currently in pre-commercial development. No separate absolute financials are reported.

• Full-year 2025 December fiscal year revenue guidance maintained at +6.6% year-over-year, with a second half foreign exchange assumption of 152 JPY per US dollar.
• Long-term strategic guidance targets the egg bioreactor business (led by Brazein) as the company's next core growth engine, targeting a meaningful share of the large functional sweetener market to become a major new profit pillar.
• Maintained the 50 yen per share full-year dividend guidance, unchanged from the prior year.

• The core trading business faces significant foreign exchange exchange rate volatility risk, which has compressed profit margins since 2022 due to difficulty passing through all exchange rate increases to customers in the short term.
• New business commercialization (Brazein and the egg bioreactor platform) faces regulatory approval risk, with timing of market launch still uncertain as of the call.
• Pure-play trading business faces inherent revenue risk from loss of distribution rights for key products, which is mitigated by the company's expansion of in-house manufacturing.
• The company faces talent acquisition and retention challenges for its new business expansion initiatives.

Q: What are the cost and production advantages of Cosmo Bio's chicken egg bioreactor technology compared to traditional microbial or mammalian cell culture methods?

A: Compared to traditional mammalian cell culture, which costs 10,000-20,000 yen for 1 liter of culture medium to produce ~10g of protein, 1 liter equivalent of chicken eggs costs ~1,000 yen and produces ~16g of target protein. The natural egg structure is inherently sterile, eliminating the need for expensive strict cleanroom production facilities, and egg protein diversity is low, making target protein purification much easier than bacterial production. Scaling production is also simple: just increase the number of chickens, with no large new capital expenditure required for bioreactor facilities.

Q: What is the competitive landscape for the egg bioreactor technology, and what advantages does Cosmo Bio hold?

A: The core patented technology for this method is held by AIST, and no other company currently operates a commercial business using this exact method globally. Similar virus-based methods exist, but Cosmo Bio's approach outperforms competitors on production efficiency and final product safety.

Q: What is the current status of Brazein commercialization, what are the next steps for regulatory approval and partnerships, and when can we expect commercial launch?

A: The company is currently scaling up chicken production to establish mass production processes and complete required safety testing. After those steps, it will pursue regulatory approval in Japan and the US; approval is expected to come first in the US, where similar products have already received FDA clearance. Commercial launch timing is still undefined due to regulatory uncertainty, but the company has already received numerous inquiries from major food manufacturers post-announcement, and plans to pursue broad partnerships with industry players moving forward.

Q: Has the company considered M&A to accelerate growth, and are there any current plans?

A: There are no specific M&A plans to disclose at this time, but the company keeps M&A as an active strategic option. Many new growth areas like Brazein and digital transformation cannot be completed internally in a short timeline, so the company will consider M&A to acquire needed capabilities and accelerate development when it makes strategic sense.