RaQualia Pharma Inc. Q4 FY2024 earnings call

Company Overview & Business Model

• RaQualia is a Japanese drug discovery biotech venture spun out of Pfizer's former Japan central research lab, founded in 2008, with 4 internally discovered products already launched globally.
• The company operates a hybrid business model combining pipeline-based and platform-based discovery:
  • Pipeline-based: Develop new drug candidates from early research through clinical stages, then out-license (license out) to pharma partners for late-stage development, manufacturing and commercialization, earning upfront signing fees, development/sales milestones, and sales-based royalties.
  • Platform-based: Generate early revenue from research collaboration fees and upfront payments for its proprietary drug discovery technologies.
  • Roles are loosely split: Phymeux (subsidiary) leads platform business, RaQualia leads pipeline business.

Core Operational Highlights

• Tegoprazan, the company's lead P-CAB class acid reflux drug, achieved positive top-line results from its US Phase 3 TRIUMpH trial, meeting all primary and secondary endpoints: it demonstrated superiority over the standard-of-care PPI lansoprazole for complete healing at 8 weeks and 2 weeks across all disease grades (mild to severe) for erosive esophagitis (EE), and proved superior to placebo for symptom improvement in non-erosive reflux disease (NERD) — the first drug to statistically demonstrate reduced acid reflux events for NERD. It also showed a comparable safety profile to PPI and placebo.
  • Tegoprazan is already launched in 15 countries covering 54 total licensed territories, with recent sub-license expansions to Australia, New Zealand, and 6 North African countries. Partner HK inno.N targets expansion to 100 countries by 2028, with Japan and Europe remaining as the key unlicensed regions.
• The company has shifted its research portfolio to prioritize new modalities and oncology: from 9 programs at the start of 2024 (7 small molecule, 2 new modality; 1 oncology, 5 neurology) to 11 programs at the start of 2025 (4 small molecule, 7 new modality; 5 oncology).
• The company completed a capital and business alliance with long-time Tegoprazan partner HK inno.N, raising 1.017 billion yen in new equity proceeds to strengthen its balance sheet and deepen collaboration, including support for Tegoprazan out-licensing in Japan.
• As of Q1 2025 end, cash on hand was 3.2 billion yen, with total expected cash position of more than 16 billion yen over the next 3 years, sufficient to support planned operations.

Strategic Priorities for Value Creation

• 1. Strengthen the drug discovery research base, invest in modality expansion focused on neurology and oncology.
• 1. Expand and optimize the development pipeline.
• 1. Grow and accelerate revenue generation.
• Core mission: Address unmet medical need by turning traditionally undruggable targets into druggable candidates, delivering innovative new drugs to patients faster.

1. Human Pharmaceutical Segment (lead program: Tegoprazan): Royalty revenue from Tegoprazan (sold in 15 countries globally) is the largest contributor to total royalty earnings, with particularly strong contributions from South Korea (2024 local sales of ~19.7 billion yen, +24% YoY; 2025 Q1 sales of ~5.1 billion yen, double-digit YoY growth, 5 consecutive years of market leading share) and China (national launch, recently gained approval for H. pylori eradication indication, expected further sales growth). Total 2024 full year royalty revenue across all products was 1.944 billion yen, (+21.2% YoY). 2025 Q1 royalty revenue was 614 million yen, (+11.3% YoY).
2. Veterinary Pharmaceutical Segment (three marketed products: GALLIPRANT, ENTYCE, ELURA): GALLIPRANT is already a blockbuster product; ELURA for feline weight loss launched in Europe and Japan in 2024, expected to become a future revenue contributor. This segment has contributed significant milestone revenue to RaQualia's other income.
3. TPD Platform Segment (subsidiary Phymeux): 2024 full year revenue was 601 million yen. 2025 Q1 delivered 200 million yen in milestone revenue plus research collaboration income. It has an ongoing joint research program with Astellas Pharma that has already achieved Q1 2025 progress.

• Full year 2025 consolidated business revenue is maintained at the previously guided 3.889 billion yen; 2026 and 2027 targets are set at 3.571 billion yen and 3.653 billion yen respectively (conservative targets set based on prior year miss, with upside from new milestone achievements and new licenses expected on top of stable royalty and Phymeux research collaboration revenue).
• Remaining partial trial sites for the US Tegoprazan Phase 3 program are expected to complete in Q3 2025, with US NDA submission planned for Q4 2025.
• The company prioritizes achieving Tegoprazan out-licensing in Japan in 2025.
• Other key 2025 milestones: advance clinical preparation and out-licensing activities for ghrelin receptor agonist and IRAK-M degrader programs; expect further progress from Phymeux's ongoing Astellas joint research program.

• The hybrid business model creates complex management challenges: platform and pipeline businesses require different resource allocation and investment priorities (platform requires investment in core technology, while pipeline requires investment in advancing individual programs).
• Royalty revenue growth for Tegoprazan is dependent on successful partner expansion to new markets (especially the large US market) and continued market share retention in existing markets, which cannot be guaranteed.
• Prolonged weakness in the Chinese economy and geopolitical tensions could potentially negatively impact Tegoprazan sales in China, though the company cannot accurately quantify the impact at this stage and is monitoring the situation closely.
• Drug discovery and development has inherently long timelines (typically 10+ years from initial research to commercialization) and high failure risk, with no guarantee that pipeline programs will achieve regulatory approval or commercial success.

Q: What are the expected timing for Tegoprazan out-licensing in Europe and Japan, after the positive US Phase 3 data? / A: (Summarized core takeaway) Management is actively negotiating with potential partners for both regions. The positive US Phase 3 data has significantly increased the asset's value and partner interest, and the company prioritizes completing Japan out-licensing in 2025. HK inno.N's existing manufacturing and development experience for Tegoprazan will support these efforts, though no specific timeline can be disclosed for Europe at this stage.

Q: Why did RaQualia change strategy from self-development to out-licensing for Tegoprazan in Japan, after multiple years of delays? Was the original strategic decision incorrect? / A: The company still views self-development as an important tool to increase pipeline value generally. However, for Japan Tegoprazan, completing large Phase 3 trials, gaining approval, and building commercial infrastructure for marketing would be extremely difficult for the company's current size and resource base, so a partner is required. This was the correct strategic decision for the asset and the company at this stage, and the entire organization is focused on closing a deal this year.

Q: What is the biggest long-term revenue driver among RaQualia's development programs, and what target market does it serve? / A: Tegoprazan remains the highest-impact program for the foreseeable future: the global gastroesophageal reflux disease market is over 2 trillion yen, and the US market alone is ~400 billion yen, so successful US approval and launch would be the primary driver of future royalty growth. Beyond Tegoprazan, the company's pipeline also has programs targeting 2 trillion yen global pain markets and large oncology immunology markets, which have significant long-term upside potential.

Q: Would RaQualia consider accepting additional investment from HK inno.N in the future? / A: There is no current agreement for additional investment from HK inno.N, and HK inno.N has stated it plans to hold its stake long-term. If any future discussions for additional investment arise, the company will evaluate any potential deal carefully to ensure it benefits all stakeholders and existing shareholders.