Japan Tissue Engineering Co.,Ltd. Q2 FY2026 earnings call

Overall Interim Performance

• The 2026 March fiscal year first half (April-September 2025) reported total revenue of 998 million yen, a 163 million yen year-over-year decrease, with an operating loss of 376 million yen (a 168 million yen year-over-year increase in loss).
• All business segments achieved year-over-year revenue growth in Q2 (July-September 2025), with a smaller operating loss than Q1, after a very weak Q1 performance.

Product Pipeline & Commercial Progress

• Skin Segment (Jayce/Jasmine): Jayce burn treatment orders recovered in Q2 after a weak Q1; Allo-JaCE03 (allogeneic cultured epidermis) is on track for regulatory approval submission within the current fiscal year. Jasmine expanded treatment coverage to 8 facilities across Japan, launched a dedicated patient education website to improve awareness, and targets 20 facilities by fiscal year end.
• Cartilage Segment (Jack): Discussions with Japan's Ministry of Health, Labour and Welfare (MHLW) for insurance coverage expansion to treat knee osteoarthritis are progressing steadily, targeting Q3 2026 inclusion. Pre-launch supply chain preparation and provider education for new facilities is underway.
• Corneal Segment (Nepic/Ocular): Working with distribution partner Nidek to increase provider education, and gained adoption at a leading corneal transplant center, expected to drive future order growth.
• Pipeline: Autologous CAR-T cell therapy continues physician-led trials, with manufacturing ongoing for acute lymphoblastic leukemia trials after completing trials for malignant lymphoma.

Strategic Partnerships & External Support

• Signed an initial technical transfer agreement with AlliedCel for future commercial production of JB-101, marking J-TEC's first commercial-scale contract manufacturing win, leveraging the company's experience with 5 approved in-house products to provide end-to-end support from technical transfer to commercial launch.
• Selected for METI's CDMO subsidy (jointly with Teijin Regenet) to support facility expansion for growing contract demand, and selected for Aichi Prefecture's overseas expansion subsidy to support European Labsite market entry.

1. Regenerative Medicine Products Business: This segment saw net negative impact on interim results, as the sales growth from the newly launched Jasmine (melanocyte-containing autologous cultured epidermis for vitiligo) could not offset underperformance of Jayce (autologous cultured epidermis for burn treatment). Jayce had a high order cancellation rate in H1 2025, though it returned to recovery in Q2. Jasmine expanded treatment sites from 3 to 8 locations in Q2. Jack (cartilage product) is on track for Q3 2026 insurance coverage expansion for knee osteoarthritis. Nepic and Ocular (corneal products) faced slow new patient growth in existing facilities, but gained adoption at a new top-tier corneal transplant center. Segment-wide Q2 saw year-over-year revenue growth after a weak Q1.
2. Regenerative Medicine Contract (CDMO) Business: Interim revenue declined 163 million yen year-over-year due to the absence of a large one-time project completion revenue that was recorded in the prior year period. Progress with Teijin collaboration contributed +13 million yen in revenue in the interim. New contracts include a manufacturing service agreement with Metcera for clinical trial material for functional single ventricle therapy, and an initial technical transfer agreement with AlliedCel for commercial-scale production of JB-101 (induced regulatory T-cell therapy for post-transplant immune rejection). The business was selected for Japan's Ministry of Economy, Trade and Industry (METI) Regenerative Medicine CDMO subsidy for facility and equipment expansion.
3. Labsite Business: Interim revenue grew 28 million yen year-over-year driven by increased international customer adoption. EpiSensA (3D skin model for safety testing) has growing demand in Europe, and expanding interest in both epidermal and corneal models in India. Domestic orders grew via collaboration with Teijin Structural Analysis Center for contract testing. Technology transfer for the new research-use intestinal epithelial model (scheduled for 2026 launch) from Osaka University started in July 2025. The business was selected for Aichi Prefecture's overseas market development subsidy to support European expansion.

• Management maintained full-year guidance, with the full-year operating profit target of 100 million to 200 million yen unchanged, despite weaker-than-planned first half performance.
• Management expects full recovery and revenue growth in the second half, driven by: 1) increasing Jasmine orders following facility expansion and patient education; 2) continued recovery of Jayce burn treatment orders following Q2 improvement, in line with historical seasonal trends; 3) increased orders for Nepic/Ocular from the newly adopted top-tier corneal transplant center; 4) expected milestone revenue from the Teijin collaboration in the second half; 5) potential insurance listing for Jack's knee osteoarthritis indication in Q3, with immediate uptake from existing experienced facilities.
• For the European Labsite business, the full-year target of 8 recurring subscription customers is maintained, with 3 customers already secured as of Q2.
• European manufacturing and sales hub plans are accelerated, targeting start of local production and product shipments in the first half of the next fiscal year, which is ahead of the original 3-year timeline.
• The intestinal epithelial model product remains on track for 2026 launch, with technology transfer started in July 2025.

• Jayce burn treatment inherently carries order cancellation risk: the 3-week manufacturing lead time means that severely ill burn patients may pass away before product delivery, resulting in incurred manufacturing costs without corresponding full revenue, and this risk was materialized at a higher-than-average rate in the first half of this fiscal year.
• Jasmine and Jack's growth are dependent on successful and timely healthcare provider adoption; Jasmine faced unexpected adoption delays at some medical facilities in the first half, and the timing of Jack's insurance coverage expansion is still subject to MHLW final approval, with a small risk of delay to the next fiscal year.
• Nepic and Ocular have seen slower-than-expected new patient growth in existing facilities, which has negatively impacted first half results.
• The full-year second half revenue target is aggressive, requiring over 800 million yen in incremental revenue above first half results, and achievement is not guaranteed.
• Growing competition in the regenerative medicine CDMO space from larger existing players may pressure market share and margins.

Q: What is the likelihood of receiving milestone revenue from Teijin in the second half, and was the first half revenue decline in line with expectations? / A: Teijin is currently pursuing new contract opportunities, and management believes there is a strong chance of achieving the milestone revenue in the second half. Management confirms that the first half revenue level was within expectations. The current interim results align with internal planning.

Q: What was the main driver of the high order cancellation rate for Jayce burn treatment, and what is the financial impact of these cancellations? / A: Jayce treats severe burn patients, and requires a 3-week manufacturing lead time after collecting patient tissue. The higher cancellation rate came from a higher number of patient deaths during the manufacturing period in H1. Only partial revenue for early manufacturing costs is covered by public insurance; no revenue is received for late-stage manufacturing and delivery costs, leading to a negative margin impact from cancellations.

Q: What is J-TEC's competitive differentiation in the increasingly crowded regenerative medicine CDMO market, and does experience in both cell and tissue engineering add to this advantage? / A: J-TEC's core advantage is its track record of gaining regulatory approval for 5 in-house regenerative medicine products, with over 3,500 cumulative autologous product delivery cases, enabling a stable, experienced production end-to-end process. Unlike many competitors, J-TEC can support clients beyond just manufacturing: it helps solve challenges related to post-launch supply, regulatory approval, and sustained commercial production. Management confirms that expertise in both cell and tissue engineering is an additional key competitive advantage.

Q: Why has management accelerated the timeline for the European Labsite manufacturing hub, which is ahead of the original 3-year target? / A: J-TEC's EpiSensA is currently the only OECD guideline-listed product for skin sensitization safety testing, so there is a window of opportunity to capture market share before competitors bring comparable products to market. Management decided to accelerate the hub to lock in customer relationships early, rather than risking losing market opportunities to future competitors while waiting for the original timeline. Local European production also solves the historic problem of variable delivery timelines due to customs delays for imports from Japan.