Japan Lifeline Co.,Ltd. Q3 FY2026 earnings call

Overall Financial Results

• Total cumulative revenue reached 44.405 billion yen, a 3.7% year-over-year increase, marking an all-time high. Operating profit was 9.824 billion yen, a 0.8% year-over-year decrease (slight decline). Net profit attributable to parent company shareholders was 6.821 billion yen, a 3.5% year-over-year decrease, resulting in a higher revenue but lower profit outcome overall.
• Upfront investments in sales and R&D are broadly progressing as planned. The lower profit outcome is primarily driven by one-time costs below operating profit.

Profit and Loss Change Analysis

• Sales/Cost Factors: Increased sales volume across all 4 core products delivered 1.256 billion yen in incremental profit; increased sales volume in new cerebral vascular and gastroenterology areas delivered an additional 0.496 billion yen in incremental profit, leading to a net 0.602 billion yen profit increase after offsetting 1.15 billion yen in profit declines from PFA-related product sales decreases and 0.29 billion yen in profit declines from unit price drops due to official price revisions and distribution changes.
• Selling, General & Administrative (SG&A) Factors: Excluding one-time items, increased R&D investment for PFA, higher personnel costs from salary increases, and higher sales-related expenses from expanded sales activities delivered a 1.072 billion yen profit decrease. A one-time 0.2 billion yen profit increase came from the full recovery of a previously reserved bad debt; overall SG&A factors delivered a net 0.684 billion yen profit decrease. Combining all factors, operating profit decreased by 0.082 billion yen year-over-year.

Own Product Ratio Change

• The ratio of in-house products to total revenue decreased 2.1 percentage points from 57.6% to 55.5%. This is explained by strong growth in purchased products for cerebrovascular and hemostatic device segments, and decreased sales of in-house products (most notably esophageal temperature monitoring catheters) due to PFA adoption.

New Product Updates

• The company gained approval for in-house developed transseptal puncture high-frequency wire XEROstar in January 2026, planned for launch in March 2026 after expected insurance coverage approval. XEROstar improves intracardiac safety via a unique half-pigtail tip design, and enables zero-exchange workflow (the wire can be used for subsequent steps after puncture, eliminating the need for device exchange) to improve procedure efficiency. The product serves a 0.6-0.7 billion yen annual market with 5 competitors, and the company expects to regain high market share leveraging its past experience popularizing transseptal puncture procedures via distribution of Baylis Medical's RF needle.

Headquarters Relocation Update

• The company will relocate its headquarters to the newly built OIMACHI TRACKS BUSINESS TOWER directly connected to Ōimachi Station in Shinagawa Ward (same ward as current headquarters) on March 1, 2027. The relocation aims to accommodate headcount growth from global strategy expansion, and consolidate current headquarters functions spread across 2 locations and 4 floors into a single floor to improve cross-organizational collaboration and productivity. The impact on 2026/3 fiscal year results is negligible; one-time costs including double rent and relocation expenses will be incurred in 2027/3 fiscal year, which the company views as a necessary investment for future growth.

1. Rhythm Devices: 9-month cumulative revenue of 9.995 billion yen, 1.2% decrease year-over-year. Core product S-ICD saw mid-to-high single-digit growth in new implant cases driven by increased prophylactic implants, with higher-than-expected growth in replacement cases. Pacemaker-related revenue decreased 17% year-over-year due to competitive pressure from competitor leadless pacemakers, which now hold approximately 40% of the new market. Lead management (extraction) products launched in Q1 contributed pure incremental revenue.
2. EP/Ablation: 9-month cumulative revenue of 21.904 billion yen, 2.6% increase year-over-year. Atrial fibrillation (AF) case volumes increased 10% year-over-year. Core intracardiac cardiac ablation catheter revenue increased 5.7% year-over-year, in-line with initial expectations. Core hemostatic device revenue increased 77.9% year-over-year, exceeding expectations, driven by expansion from high-volume to small and medium-sized facilities, with penetration rising from 40% to 45% of all ablation cases. Large-size products have been added to accommodate the larger sheaths used in PFA cases. Negative impact from PFA penetration (now over 60% of all AF cases): esophageal temperature monitoring catheter revenue decreased 50.3% (unnecessary for PFA procedures), and EP catheter revenue decreased 6.4% due to lower usage volume. This segment represents 49.3% of total cumulative revenue.
3. Cardiovascular Related: 9-month cumulative revenue of 9.341 billion yen, 3.8% growth year-over-year. Core Frozen Elephant Trunk (FET) revenue increased 5.2% year-over-year, with FET holding approximately 90% market share; growth was driven by a shift to higher-priced 4-branch integrated FET models, outpacing 3% year-over-year case volume growth. Artificial vascular graft revenue increased 5.4% year-over-year, driven by market share gains after a competitor exited some products. Abdominal stent graft revenue decreased 3.8% year-over-year due to intensified competition. This segment represents 21% of total cumulative revenue.
4. Cerebrovascular Related: 9-month cumulative revenue of 1.913 billion yen, 48.1% increase year-over-year. Thrombus aspiration catheters grew approximately 200% year-over-year, led by the small-diameter model for distal vessels launched in Q1. Embolic coils grew 17% year-over-year, supported by expanded sales to non-neurosurgical fields including radiology and vascular surgery. Stent retrievers are growing steadily; a new model with fluoroscopic markers is scheduled for launch in March 2026, expected to become a new growth driver. This segment represents 4.3% of total cumulative revenue.
5. Gastroenterology: 9-month cumulative revenue of 1.21 billion yen, 27.6% increase year-over-year. Biliary tube stents grew 40.3% year-over-year, driven by strong demand for the new model. Endoscopic guidewires grew 160% year-over-year, though growth is slightly behind plan due to high competition. Gastrointestinal stents grew 10.8% year-over-year, a high growth rate explained by a voluntary product recall in the prior year. Liver cancer ablation needles decreased 24.2% year-over-year due to lower unit prices after sales were transferred to Terumo this fiscal year. This segment represents 2.7% of total cumulative revenue.

• Full year revenue and operating profit guidance is maintained, as cumulative results through Q3 are broadly in line with initial expectations. Full year net profit is expected to miss the initial forecast due to one-time costs incurred in Q3.
• The full year dividend forecast is maintained at 54 yen per share, as the net profit miss is driven entirely by one-time costs.
• The Q4 2026/3 fiscal year results are expected to land at a similar performance level as Q3.
• Management believes the negative impact of PFA penetration on earnings already bottomed out in Q3; after almost one year of full PFA adoption starting from November 2024, the year-over-year negative impact will be minimal from Q4 onward. PFA is expected to drive future overall procedure volume growth, as it reduces case duration to two-thirds of conventional procedures.
• For the next fiscal year, EP/ablation segment growth is expected to continue in line with overall case volume growth, with XEROstar providing incremental positive growth, and no material additional negative impacts from PFA expected.
• The gastroenterology segment is expected to maintain its current strong growth pace next fiscal year, driven by ongoing adoption of existing new models; new growth drivers will need to be developed over a 3-year medium-term horizon to sustain long-term growth.

• Pulsed Field Ablation (PFA), a new arrhythmia treatment promoted by competitors, has spread to over 60% of all AF cases, driving significant sales declines for the company's esophageal temperature monitoring catheters and EP catheters; PFA penetration progressed faster than the company initially expected, leading to a larger negative impact than forecast.
• Leadless pacemakers from competitors now hold 40% of the new pacemaker market, creating continued headwinds for the company's pacemaker segment revenue.
• Medtronic's entry into the EV-ICD market (enabled by new procedure coverage under the medical fee revision) creates competitive pressure on the company's S-ICD product, which lacks ATP (anti-tachycardia pacing) functionality. The company expects overall ICD implant volumes to increase with Medtronic's entry, but expects TV-ICD market share to decline relatively.
• Competitor combination RFA-PFA products (such as Abbott's Volt) and broad competitor investment in PFA product launches create ongoing competitive pressure for the company's existing EP/ablation product portfolio.
• New competitive products for VASCADE are expected to enter the Japanese market, creating potential future competitive pressure.
• Gastrointestinal segment growth will require new product launches to sustain double-digit growth over the medium term, as current growth is driven by the existing REGULUS product line which will mature over time.

Q: How long will the impact of unit price decreases from distribution changes for some products last, and what is the total amount of the impact?

A: The product impacted is the liver cancer ablation needle in the gastroenterology segment, with the change effective from April this fiscal year. The full fiscal year impact is approximately 0.2 billion yen, and the impact will end this fiscal year.

Q: What is the magnitude of future cost savings after exiting the biliary tract system and HeartLightX3 products?

A: These were already launched products, not new development programs, so there are no material ongoing development costs to eliminate. The company has already recorded inventory impairment reserves for the exit, so no additional future costs will be incurred, only the corresponding sales will no longer be recorded.

Q: Is my understanding correct that the main negative impacts of PFA are elimination of Esophastar sales and reduced EP catheter usage volume? The negative impact from PFA appears larger than expected through 9 months – can you summarize the actual impact to date?

A: It is correct that PFA penetration is faster than the company initially expected, and it has created negative impacts for Esophastar and EP catheters. However, overall AF case volumes are growing, and the utilization rate of our core product BeeAT has not changed significantly, which is a positive outcome.

Q: How much of the 10% year-over-year growth in AF case volumes is attributable to the adoption of PFA?

A: We estimate AF case volumes have increased by approximately 10,000 cases year-over-year, close to a 10% increase. Case volumes have increased across small to large hospitals after PFA adoption, which we believe is driven by shorter procedure times enabling higher case volume throughput. Total ablation cases are estimated at 130,000-140,000, with AF cases accounting for just over 110,000, so the 10,000 case increase is entirely in the AF segment. We cannot yet accurately isolate how much of this 10,000 case increase is purely incremental from PFA-enabled throughput versus displacement of conventional procedures. The company's base case forecasts 9% annual case volume growth over the next 5 years, which already includes PFA's positive effect, and we do not assume an aggressive upside from PFA at this time. If growth exceeds 9%, that upside would come from PFA's procedure time reduction effect.

Q: What is your outlook for EP/ablation segment performance next fiscal year? Can we expect growth in line with overall market growth plus incremental upside from new product launches?

A: Yes, that is correct. Case volumes are expected to continue growing steadily, and the new product XEROstar will provide incremental upside. PFA's negative impact is expected to remain at current levels going forward after this past year of adoption, so there will be no material additional negative impacts to the segment next fiscal year.

Q: Can the gastroenterology segment maintain its current strong double-digit growth next fiscal year and beyond just on the strength of REGULUS, or will new products be needed to sustain growth?

A: REGULUS version updates will continue to launch, and the current new model is still in the early adoption phase, so we expect growth around the current pace to continue next fiscal year. Over a medium-term 3-year horizon, we do agree that new growth drivers will be needed to sustain high growth, and we are currently exploring a wide range of potential new products including both in-house developed and imported options.

Q: Besides the 0.09 billion yen negative impact from official price revisions, what is driving the remaining decline in average selling price? Is this driven by BeeAT price cuts to maintain share, and will this continue going forward?

A: The majority of the remaining ASP decline comes from the 0.2 billion yen impact of the liver cancer ablation needle sales transfer to Terumo, which changed the distribution model and reduced reported unit price. There is no broad-based discounting to maintain share for BeeAT. We do have incentive contracts with various distributors, and there were lower incentive payments in the prior year, with incentive payments returning to more normal levels this year, which creates some ASP pressure. Common purchasing groups represent around 20% of market case volume, so there is some incremental fee paid to these groups, but we have not significantly increased these fees to maintain share, so this will not create ongoing broad ASP pressure.

Q: Can you disclose the expected amount of headquarter relocation costs for 2027/3 fiscal year?

A: We are still finalizing the exact amount, but we expect total costs (including double rent and relocation expenses) to be in the range of several hundred million yen.

Q: Is the 2027/3 fiscal year outlook too optimistic given increased competitive pressure from competitor innovations including leadless pacemakers, competing S-ICD products, and broad competitor investment in PFA new products? For example, EV-ICD (which offers ATP functionality that S-ICD lacks) will likely see faster adoption after the recent medical fee revision.

A: Your observation is correct, and we are already developing PFA products in partnership with CardioFocus in response to competitor activity. For our existing core product BeeAT, we have already launched a unique model that enables femoral/inguinal approach, which no competitors offer, and this product has already gained significant market share. This unique positioning means PFA will only have a minor impact on our existing BeeAT business. For EV-ICD, Boston Scientific will also launch a leadless pacemaker that will enable ATP functionality when paired with S-ICD. Customers already value the completely extra-sternal procedure approach of our S-ICD, so while this is a competitive threat, we will actively promote the benefits of our product. We also expect total implant volumes to increase with Medtronic's entry into the EV-ICD market.

Q: If there is no additional strategic price cutting for BeeAT, can we expect BeeAT sales to grow in line with overall case volume growth next fiscal year?

A: While there may be occasional spot strategic price actions that create some deviation, these are not permanent. We expect to maintain price levels by shifting the product mix to higher-functionality products that competitors do not offer, so sales will grow in line with case volume growth.

Q: Do you plan to follow the Terumo model of developing in-house alternatives to currently distributed purchased products in high-growth areas like cerebrovascular thromb aspiration catheters, and transition to in-house products when ready?

A: You are correct that XEROstar could have launched earlier, which we acknowledge. Going forward, while we have existing long-term distribution contracts, we will simultaneously advance in-house product development in parallel, and transition to in-house products as appropriate when contracts allow, to expand our business.

Q: Will new competing products threaten VASCADE market share, and how will you respond?

A: You are correct that new competitors are entering this space. We have strong existing advantages in sales footprints, sales headcount, and hospital coverage, so we will leverage our product strength and organizational strength to maintain market share.

Q: How will you roll out XEROstar to hospitals, particularly regarding the generator that is required for the procedure – will hospitals incur upfront capital costs, or will you own and deploy the generators?

A: We will initially distribute the generator through sales agents, and offer trial loans to hospitals for clinical evaluation before purchase. We see high clinician demand for this product, so we expect a meaningful number of hospitals will purchase the generators after trial use.