Fuso Pharmaceutical Industries,Ltd. Q3 FY2026 earnings call

• Corporate Purpose & Values

  • Formalized corporate purpose as "Sustaining life, nurturing life", reflecting the company's core mission of manufacturing life-sustaining pharmaceuticals including dialysis fluids and infusions.
  • Updated 5 core values that emphasize high ethical standards, long-term challenge-focused mindset, and company-wide commitment to social contribution and employee self-realization, aligned with the company's role as a provider of medical infrastructure.
  • Confirmed core competitive strengths: low supply disruption risk production/supply network, long-standing strong relationships with medical institutions, trusted brand, and stable revenue from a large portfolio of basic pharmaceuticals.

• Materiality & Sustainability

  • Followed a structured process to identify key management priorities, including stakeholder input, expert consultation, and assessment of impact on the firm and society, with initiatives centered on solving five core material issues to deliver shared value for stakeholders and drive sustainable growth.

• R&D Initiatives

  • Relocating the existing R&D center to Ibaraki, Osaka by 2027, to a hub near multiple universities and public research institutions to drive open innovation and improve research quality and efficiency.
  • Key development pipeline: DMX-200 for focal segmental glomerulosclerosis (FSGS), a new concept embryo culture medium that suppresses age-related decline in embryo quality for ART, and additional in-licensed product candidates from global partners.

• Production & Supply Chain Initiatives

  • Planning production base consolidation: building a second formulation building at Okayama Plant with a new powder dialysis agent production line to consolidate operations from Daito Plant, and updating aging infusion/injectable production lines to improve capacity and efficiency. Each of these projects requires more than 12 billion yen in investment.
  • Opening a new centralized QC Center in the relocated R&D campus to standardize and upgrade quality management across the company, and establishing a new production technology department to drive continuous improvement in productivity, quality, and process standardization.
  • Creating a new centralized department to lead SCM, with core priorities of maintaining quality and compliance, improving supply chain resilience against disruptions, driving digital integration with suppliers, and securing social trust.
  • Maintains geographically dispersed production (4 domestic factories) and logistics (12 locations across Japan) to reduce supply risk and enable uninterrupted supply under all circumstances.

• Sales & Marketing Strategy

  • Strengthening presence in three core specialty areas: (1) Renal/Dialysis: Maintain domestic No.1 share, expand penetration of age-appropriate products like the Kindery 5 series, push growth of dialysis complication treatments, target 55% patient share and 75% facility adoption; (2) Urology: Expand disease awareness activities to improve patient QOL for existing products, address unmet medical needs; (3) ART: Build the HiGROW brand, prepare for launch of the new embryo culture medium, target 20 percentage point growth in facility adoption to 70%.
  • Expand the basic pharmaceutical portfolio, grow revenue share of basic pharmaceuticals to 75% of prescription sales by 2030 to build a stable revenue base and strengthen supply resilience.
  • Improve logistics efficiency through digitalization and industry collaboration to shorten lead times, cut costs, and improve disaster response flexibility.

• Digital Transformation (DX)

  • Launched a CEO-led DX Promotion Office in 2024 to address legacy system issues, fragmented data, and process challenges, with a 3-phase rollout:
  • Phase 1: Refresh ERP to unify management of manufacturing, sales, inventory, logistics, quality, and accounting, launch the new F-Direct ordering system for direct dialysis product delivery in FY2025, drive process standardization, efficiency, and develop digital talent.
  • Phase 2: Implement business intelligence visualization and AI-powered supply-demand forecasting to enable data-driven management.
  • Phase 3: Expand to factory automation and AI-driven drug discovery.

• Human Capital & Organizational Initiatives

  • Increasing investment in talent aligned with the company's purpose, focusing on strategic hiring and development to improve employee engagement and productivity.
  • Relocating and consolidating headquarters functions to the historic pharmaceutical district of Dosho-machi, Osaka, to improve cross-functional communication, employee engagement, and recruiting competitiveness.

• Capital Allocation & Governance

  • Identified core issues holding down the company's PBR (consistently below 1x): insufficient focus on cost of capital and limited investor communication on growth strategy and capital allocation.
  • Aims to lift PBR above 1x over the medium term by improving ROE through strategy execution and lifting PER through enhanced IR/SR to build growth expectations and reduce cost of capital.

For fiscal year 2024, the company reports its revenue split across four core business segments: 1. Renal/Dialysis Segment: Accounts for just over 50% of total revenue. Fuso holds the No.1 domestic market share for dialysis agents, with over 60 years of sales history. 2. Infusion/Injectable Segment: Consists of a broad product line of general infusion and injectable products, which are classified as basic essential pharmaceuticals. 3. Urology Segment: Centered on long-established products such as Serenilton, focused on supporting patient quality of life. 4. ART (Assisted Reproductive Technology) Segment: Focused on fertility treatment and assisted reproduction products, a growing strategic priority. Across all prescription pharmaceutical sales, 44% are classified as "basic pharmaceuticals" (89 product SKUs) and 74% are classified as "secure supply pharmaceuticals" (79 product SKUs); combined, these essential products account for over 90% of total prescription pharmaceutical revenue.

• Sets a 6-year (FY2025 to FY2030) mid-term plan, targeting over 70 billion yen in total revenue by FY2030 and ROE exceeding 8%. The company has delivered 6 consecutive years of revenue growth since FY2018 and plans to accelerate growth through plan execution.
• The mid-term period is positioned as an investment phase for future transformation; the company expects profit levels to decline through approximately FY2028 due to R&D investment for DMX-200, production base reorganization, and investments in human capital, DX, and sustainability, with profit returning to growth from FY2029 onward, hitting the 8%+ ROE target by FY2030.
• Four core sales/marketing KPIs: (1) 5 percentage point increase in dialysis agent patient share to 55% by 2030; (2) 5 percentage point increase in dialysis agent facility adoption rate to 75%; (3) 20 percentage point increase in ART product facility adoption rate to 70%; (4) 31 percentage point increase in basic pharmaceutical revenue share to 75% of total prescription pharmaceutical sales.
• For DMX-200, the global Phase 3 ACTION3 trial is on track to complete patient recruitment (286 total) in FY2025, with approval submission planned for FY2029 and launch targeted for FY2030, assuming average regulatory review timelines.
• Total projected cash inflow over the 6-year period is over 53 billion yen: 46 billion yen from operating cash flow (before R&D deduction) and 7 billion yen from sales of fixed assets and policy-held shares, with additional bank borrowing to be used if needed depending on investment progress.
• Total planned cash outflow is over 45 billion yen for growth investment and 6 billion yen for shareholder returns. Growth investment will prioritize production base consolidation/efficiency improvement and R&D for pipeline candidates. Shareholder returns will follow a policy of continuous stable dividends, maintain a minimum 2.0% dividend on equity ratio through 2030, and consider opportunistic share buybacks based on cash flow.

• Dialysis market risk: The total dialysis patient population is on a gradual downward trend, driven by preventive chronic kidney disease management that reduces new dialysis initiation and higher mortality among an aging patient population. Healthcare institutions also face cost pressure from suppressed medical fees and rising labor and material costs.
• Infusion market risk: Infusion manufacturing requires strict sterile control, large ongoing capital investment for equipment maintenance and replacement, and has a high cost structure. Rising crude oil prices have increased container manufacturing and distribution costs, while shrinking hospital and bed counts create demand headwinds.
• Industry-wide supply risk: Supply uncertainty has been a persistent issue for domestic Japanese pharmaceuticals since 2020, with approximately 1 in 5 pharmaceuticals in limited or halted supply as of October 2024. Key risks include production shutdown from disasters and aging production infrastructure, requiring urgent mitigation action.
• Competitive risk: Competitors are increasing focus on new product development across core market segments, increasing competitive pressure.

No question and answer section is included in the provided transcript.