D.Western Therapeutics Institute, Inc. Q2 FY2025 earnings call

Pipeline Development Updates

• New pipeline addition H-1129: The company approved development of H-1129, a first-generation ROCK inhibitor previously developed by licensee Wakamoto Pharmaceutical up to Phase 3 for an alternate indication. Development is now approved for an immunology-based keratoconjunctival rare disease (specific indication not disclosed for competitive reasons), which has limited existing treatment options. Orphan drug designation is under consideration; the company plans to leverage existing clinical data to start development directly from Phase 2, with a target to start Phase 2 trials in calendar 2026, with preparation starting in the second half of fiscal 2025.
• K-321 (Fuchs endothelial corneal dystrophy): Two of three global Phase 3 trials completed patient dosing in the first half of 2025 (one trial was already completed). Observation periods will conclude by March 2026, with regulatory submission targeted between late 2026 and 2027.
• DW-1002: Received regulatory approval in China in February 2025 and is now preparing for launch. The company is progressing submissions in Japan (leveraging US clinical data) and the US, where the FDA requested a small additional trial for the combination product, which the company is currently conducting.
• H-1337 (glaucoma, third-generation ROCK inhibitor): Phase 2b trials are completed, and the company is concurrently progressing Phase 3 preparation (including trial drug manufacturing and toxicology studies) and licensing activities. The company presented data at ARVO in May 2025 and plans to hold a meeting with the FDA in the second half of 2025 to finalize Phase 3 trial design. H-1337 targets the ~30 billion USD US glaucoma market, aiming for the leading position in the 40% of the market for second-line treatment (after first-line PG therapies), with a target peak sales of 30 billion yen as a single agent. Management believes H-1337 has superior efficacy to competitor netarsudil (RHOPRESSA), with positive early safety data.
• DWR-2206 (regenerative cell product): Phase 2 trial dosing is complete, and patients are currently in follow-up observation. No serious adverse events linked to the product have been reported to date. Phase 3 is planned for 2026, with regulatory submission targeted for 2027. DWR-2206 is a frozen cell product for corneal disease, which management believes can achieve higher sales than the competing room-temperature product Biznova.
• DW-5LBT (neuropathic pain treatment): Resubmitted to the FDA in March 2025, with a PDUFA goal date of September 24, 2025. The company is currently negotiating partnerships with potential sales partners, targeting launch in the first half of 2026 in the 24 billion yen US market.

Corporate Strategy

• The company's core strategy combines its kinase inhibitor platform technology with ophthalmology development expertise to build a diverse pipeline of late and early stage assets, spreading development risk and diversifying revenue. The company is prioritizing three core late-stage assets (H-1337, DWR-2206, H-1129) for focused growth investment, aiming to launch one new product per year starting from 2025. The goal is to grow base royalty revenue from already launched products and eventually achieve profitability by investing in late-stage assets.
• The company continues to progress early-stage development through internal research and external collaborations, including active partnerships with Kyushu University and Chordia Therapeutics, focusing on high-unmet-need ophthalmology conditions. The 13th third-party allocated share warrants, issued July 15 2025 to SBI Securities, is expected to raise up to 1.339 billion yen if fully exercised, which would provide 2.5 years of operating cash runway. 80% of proceeds will be allocated to new product development, with 100 million yen allocated to H-1337 development.

For the second quarter of the 2025 December fiscal year, the company only reports revenue from out-licensed commercial products as a single operating segment. Total revenue was 173 million yen, a 22.5% year-over-year decrease driven by the expiration of domestic royalty rights for the commercial glaucoma product Granatec, which reduced revenue by 50 million yen compared to the prior year period. Revenue contributions are split between two royalty streams: (1) Glaucoma therapies (Gralpha combination drug): revenue is expected to grow gradually as international launch progresses, contributing to base revenue. (2) Ophthalmic surgical adjuvant DW-1002 (Brilliant Blue G): royalty revenue decreased 1.3% year-over-year due to foreign exchange impacts despite higher sales volume. DW-1002 contributed steady base revenue in the period. R&D expenses for the half-year period were 318 million yen, a 203 million yen year-over-year decrease, after the completion of Phase 2b trials for H-1337 and dosing completion for DWR-2206 Phase 2 trials. Selling, general and administrative expenses decreased from 654 million yen to 464 million yen year-over-year. This resulted in an operating loss of 309 million yen (an improvement from the prior year loss) and an ordinary loss of 316 million yen.

• Full year 2025 consolidated revenue guidance is maintained at 400 million yen, down from the prior year full year result of 471 million yen, reflecting the expected reduction in revenue after Granatec royalty expiration.
• Full year 2025 R&D expenditure guidance is maintained at 760 million yen, down from the prior year 1.367 billion yen. First half R&D progress was 41.9% of the full year guidance, which is slightly lower than expected because a DW-5LBT milestone payment is scheduled for the second half of the year. Annual operating cash burn is expected to be between 500 million yen and 600 million yen.
• The product launch timeline is maintained: DW-5LBT launch planned for 2026, DW-1002 launch in Japan/US planned for 2027, K-321 potential launch in 2028, DWR-2206 launch expected between 2028 and 2029, followed by H-1337 or H-1129. The company is targeting one new product launch per year going forward.

• DW-1002 will see the expiration of patents in most major markets (outside the US, where patent has been extended) by December 2025, so royalty revenue from non-US markets will end after 2025.
• H-1129 development is for an untested new indication; negotiations with regulators will be required to confirm that starting development at Phase 2 based on older existing data is acceptable, which could delay timelines.
• All pipeline candidates are still in clinical development, and there is risk of failure to meet clinical endpoints, unexpected safety issues, or failure to obtain regulatory approval, which would impact the company's growth timeline and revenue projections.
• Licensing of H-1337 may not be completed on favorable terms, and competition in the glaucoma second-line treatment market is increasing with competitor products already approved and advancing in key markets.

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