TAIKO PHARMACEUTICAL CO.,LTD. Q3 FY2025 earnings call

3rd Quarter Cumulative Consolidated Financial Results

• Consolidated net sales: 4.229 billion yen, 7.6% decrease YoY
• Gross profit: 2.361 billion yen, gross margin 55.8% (slight deterioration YoY)
• Selling, general and administrative expenses: 2.036 billion yen, 47 million yen increase YoY, mainly from higher advertising spend for infection control web promotion and the new portable Seirogan Sugar-coated A launch
• Operating profit: 324 million yen, ordinary profit: 325 million yen; net profit attributable to parent shareholders: 669 million yen (includes special gains from investment securities sales and 140 million yen in foreign currency translation adjustment gains from liquidation of an overseas subsidiary)
• YoY decreases in profit were driven by 325 million yen in negative impact from Seirogan supply shortages, 269 million yen in higher raw material and labor costs for supply chain expansion, and 29 million yen in negative foreign exchange impact, partially offset by 251 million yen in positive impact from domestic price revisions. Costs are trending better than planned.

Mid-Term Management Plan (3-year plan starting 2026) Positioning & Core Strategies

This is the first externally disclosed mid-term plan, positioned as a critical 3-year period to transition from post-restructuring recovery to accelerating global growth, with a long-term 2035 vision of becoming a global enterprise with over 100 billion yen market capitalization and the No.1 position in the Asian gastrointestinal drug market.

• Strategic Priorities
  • Concentrate investment on the pharmaceutical business, advance both supply capacity expansion and demand growth: Target 40% higher Seirogan supply capacity by 2028 via lead time reduction and production line upgrades. Domestically, reposition Seirogan from a pure anti-diarrheal to a general gastrointestinal health product to expand use cases and grow the customer base, targeting 4.3 billion yen in domestic pharmaceutical sales by 2028 (+750 million yen vs 2024). Overseas, prioritize the Chinese and Greater China markets, grow sales from a projected 2.15 billion yen in 2025 to 3.7 billion yen by 2028, with the long-term goal of raising overseas sales to over 50% of total pharmaceutical revenue. In China, launch a new variant of Seirogan Sugar-coated A (sold as Kangfu Zhixie Pian), unify branding with Seirogan, expand distribution by co-listing with high-penetration Seirogan, adjust pricing to improve profitability, and reinvest profits into additional marketing.
  • Strategic investment in new products and new businesses: Reform R&D structure, increase the volume of new product ideas, implement a stage-gate development process and cross-functional teams to speed up development, and leverage existing strong brand equity for brand extension. The company aims to raise the share of revenue from new products in future periods, and will set formal KPIs for new product sales by the next mid-term plan.
  • Strengthen portfolio management focused on cost of capital, achieve full profitability for the infection control business: Classify domestic pharmaceuticals as the core stable growth business, overseas pharmaceuticals as the high-growth priority business, consumer infection control as a restructuring candidate, and B2B infection control as a profit-contributing business. For infection control, the company targets 5 billion yen in flat sales (set at a bottom-case scenario, no upside from pandemic events included) and full segment profitability by the end of the plan. It will focus on JSA-standard compliant B2C products, expand B2B sales to cleaning and funeral industry clients, cut unprofitable channels and R&D spending, and reduce fixed costs via liquidation of the Shanghai subsidiary.
  • Drive organizational culture transformation and human capital management: Invest in human resources to cultivate self-directed, change-ready employees, set KPIs including employee engagement scores to track progress toward building an innovation-focused organizational culture.

Financial Strategy & Shareholder Returns

• Financial Targets (end of mid-term plan, 2028): Total consolidated sales over 8.5 billion yen (+35% vs 2025 projected results), operating and net profit over 1 billion yen (+233% vs 2025 projected results), ROE 10-11%+; pharmaceutical segment sales 8 billion yen, operating profit 2.3 billion yen
• Shareholder Return: Dividends will resume starting in the 2026 December fiscal year, with a dividend policy based on DOE (Dividend on Equity). Target DOE of 2% for 2026, and 3%+ for the 2028 final year of the plan.
• Capital Allocation: Maintain a sound financial base while balancing growth investment and shareholder returns. Allocate 5-10 billion yen to strategic investment including factory upgrades, IT investment, and new business development. Dividends will be funded from operating cash flow for now, with leverage to be considered if needed in the future.
• Capital Market Goals: Target ROE 10%+, PER 20-25x, PBR 2.5x+ to achieve the 2035 market capitalization target, supported by consistent profit growth, optimized capital allocation, and enhanced IR communication.

1. Pharmaceutical Segment: Total net sales reached 3.835 billion yen, a decrease of 357 million yen year-over-year, driven by reduced Seirogan shipments and delayed shipments of overseas products. Segment profit was 1.094 billion yen, with a segment profit margin of 28.5%. Within the segment: - Domestic pharmaceutical: Seirogan sales decreased 14.9% YoY to 1.36 billion yen due to ongoing supply restrictions (only 100-pill packs are currently available, with unmet demand for larger sizes). Seirogan Sugar-coated A sales grew 34.4% YoY to 1.516 billion yen, surpassing Seirogan, after supply issues were resolved and the new portable SKU launched. The company maintains a 47.1% share of the domestic anti-diarrheal market. - Overseas pharmaceutical: Net sales in core markets (China, Hong Kong, Taiwan) decreased 434 million yen YoY to 1.116 billion yen due to production scheduling-related shipment adjustments, but full-year sales are expected to recover to nearly year-ago levels. 2. Infection Control Segment: Net sales were flat year-over-year at 390 million yen. The segment loss improved by 89 million yen to 143 million yen, driven by cost cuts outside of marketing that offset increased advertising spend for overseas operations. Japan's first JSA standard for chlorine dioxide gas products was enacted in September 2025, and the company's Creberlin Standalone product passed compliance testing; distribution to major drugstores has progressed smoothly for the fall/winter selling season. The company contributes 90.7% of total consolidated revenue from the pharmaceutical segment and 9.3% from the infection control segment, based on 3rd quarter cumulative results.

• 2025 December full-year fiscal guidance: Management upwardly revised full-year profit (from operating profit through net profit) following 3rd quarter results. Full-year sales are projected to be broadly in line with original plans, as lower-than-planned manufacturing and SG&A costs plus the ongoing weak yen trend drove the upward adjustment. Management expects full-year pharmaceutical sales to recover to nearly year-ago levels despite 3rd quarter shipment delays. - Mid-term management plan guidance (2026-2028): Sets binding targets of 8.5 billion yen+ in total sales, 1 billion yen+ in operating/net profit, and 10-11%+ ROE by the 2028 final year of the plan. - Pharmaceutical segment mid-term guidance: Domestic sales target of 4.3 billion yen by 2028, overseas sales growth from 2.15 billion yen (2025 projected) to 3.7 billion yen by 2028, and 40% higher supply capacity for Seirogan by 2028. - Infection control segment mid-term guidance: Maintains a flat sales target of 5 billion yen (bottom-case scenario, no upside from pandemic events) and targets full segment profitability by the end of the plan. - Dividend guidance: Dividends will resume in 2026, targeting a 2% DOE for 2026 and a 3%+ DOE for the 2028 final year of the mid-term plan.

• Seirogan is facing ongoing supply shortages, with only the 100-pill SKU currently available. Unmet demand for larger 200-pill and 400-pill sizes has led to a slight decline in domestic market share, and supply constraints have driven reduced year-to-date sales and profit. - Current 3rd quarter cumulative pharmaceutical sales declines are partially driven by delayed shipments of overseas products, which creates near-term revenue pressure even though full-year recovery is expected. - The infection control business has not yet reached profitability, and still faces challenges around improving revenue quality and cutting unprofitable operations to hit the mid-term breakeven target. - The company has paused shareholder dividends since the post-COVID restructuring period, and the resumption of dividends starting in 2026 will depend on meeting the mid-term plan's profit targets. - Foreign exchange volatility has created negative profit impacts in the 3rd quarter, and ongoing exchange rate fluctuations present continued risk to overseas segment results.

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