Launch of KIBIT AI Biology Lab and commercialization of bio-simulation highlighted; next catalysts are securing at least one US deal within the fiscal year and progress on out-licensing pipeline

Summary

Consolidated Q1 revenue came in at JPY 1.632B (+5.6% YoY), with the Life Science AI segment (+29.2%) and DX segment (+64.4%) absorbing the decline in the Risk Management segment (▲18.6%). The operating loss of JPY 179M is in line with the plan, which is heavily back-half weighted, and full-year operating income guidance of JPY 300M is maintained. During the briefing, management provided specific commentary on the commercialization of bio-simulation through the KIBIT AI Biology Lab launched in May, the full-scale kickoff of US expansion, and the feasibility of completing out-licensing for the NB Health Laboratory project within the fiscal year.

Key Points (Earnings Takeaways and Growth Initiatives)

• Management Strategy and Market Positioning
  • Continuing to concentrate management resources on the Life Science AI segment as the core growth engine to accelerate business expansion
  • Explicitly stated that US project unit prices are an order of magnitude higher than Japan; targeting at least one deal win within the current fiscal year(U.S.-originated and licensed-out projects have not been incorporated into the earnings forecast)
  • Drawing parallels to the NVIDIA/TSMC model in semiconductors, aiming to build a horizontal division-of-labor drug discovery ecosystem with biotech ventures
• Current Business Progress and Key Drivers
  • AI drug discovery revenue reached JPY 102M in Q1 (+59.4% YoY); cumulative co-creation projects have grown from 1 → 7 → 22, with 4 additional projects added in FY26 Q1, maintaining steady deal pipeline buildup
  • Risk Management segment revenue declined JPY 189M, primarily due to cancellations by large compliance clients including manufacturers; the contraction of this high-margin segment directly worsened the product mix
  • DX segment posted revenue of JPY 694M reflecting a full-year contribution from Arnetz; in-house development ratio is being raised from 10% last year to 20% this year
• Strategic Key Initiatives and Inflection Points
  • Opened KIBIT AI Biology Lab in May 2026, commercializing biology digital twins through bio-simulation
  • Norikazu Eiki, former Chairman of Bayer Yakuhin, appointed as strategic advisor, leveraging his network across Japan-US bio clusters
  • Divested Korean subsidiary FRONTEO Korea, scaling back overseas discovery operations and pivoting to domestic digital forensics
  • Nippon Life will conduct a nationwide pilot from September to November 2026 using Talk Lab KIBIT for policyholder intent confirmation in contract maintenance management

Outlook and Strategy

• Full-year guidance maintained (revenue JPY 7.6B, operating income JPY 300M); the back-half-weighted earnings structure remains unchanged
• Management explicitly stated that out-licensing of the co-development project with NB Health Laboratory (GPCR antibody therapeutics for fibrosis) is fully achievable within FY2026
• US out-licensing deals are being pursued in parallel, with multiple inquiries received and an expectation to announce results in some form within the fiscal year
• AI-powered cognitive function assessment medical device (SDS-881) has completed clinical trials, targeting regulatory approval within FY2026
• Out-licensing pipeline currently consists of 4 programs (pancreatic cancer, fibrosis, oncology, small molecule drug discovery seeds), with plans to expand further within the fiscal year
• Secured JPY 1.22B in borrowings in July 2026 to fund growth investments in the Life Science AI segment

Positive Factors

• AI drug discovery revenue continues on a growth trajectory: FY24 JPY 120M → FY25 JPY 750M → FY26 Q1 standalone JPY 102M (1.6x YoY)
• Santen Pharmaceutical launched a second co-creation project following a positive first-phase evaluation; the increase in repeat engagements validates the effectiveness of DDAIF technology
• Multiple projects confirmed to have progressed from Phase 1 to Phase 2, demonstrating improving client retention and deepening engagement
• Talk Lab KIBIT opened a new use case in the insurance industry for policyholder intent confirmation, with potential expansion into Financial Instruments and Exchange Act-related demand
• 92 active patents held (as of end of June 2026), forming barriers to entry for equation-driven AI
• Expanding recognition and branding among top-tier industry, government, and academic stakeholders through presentations at healthcare industry growth strategy seminars

Concerns and Risks

• If the revenue decline in the Risk Management segment accelerates beyond expectations, achieving full-year profitability in H2 could become challenging
• Life Science AI segment revenue progress stands at only 9.3% of the full-year forecast of JPY 1.5B, implying an extremely high concentration of revenue recognition in H2
• US expansion targets at least one deal win this fiscal year, but no concrete orders have been announced, leaving meaningful uncertainty
• The out-licensing pipeline is predominantly at the pre-clinical stage, limiting visibility on the likelihood and timing of successful out-licensing
• Cash and deposits at JPY 1.446B (▲JPY 287M vs. prior fiscal year-end) are trending downward, with rising dependence on borrowings
• Management acknowledges that private-sector demand in the economic security domain will take time to gain traction, with continued regulatory uncertainty

Performance Highlights

FY27 Q1 consolidated revenue was JPY 1.632B (+5.6% YoY), operating loss of JPY 179M, recurring loss of JPY 138M, and net loss of JPY 105M. While the Life Science AI and DX segments drove top-line growth, the decline in the Risk Management segment due to large client cancellations and rising costs associated with growth investments were the primary drivers of the operating loss. Full-year guidance is maintained at revenue of JPY 7.6B (progress rate: 21.5%) and operating income of JPY 300M.

Segment Performance

• AI Drug Discovery Revenue: JPY 102M (+59.4% YoY)
• AI Medical Device Revenue: JPY 36M (▲14.3% YoY)
• Cumulative DDAIF Co-Creation Projects: FY24: 8 → FY25: 22 → 4 added in FY26 Q1
• Consolidated EBITDA: ▲JPY 53M
• Equity Ratio: 40.3%
• Active Patents: 92 (as of end of June 2026)

Q&A List

• Q: Slide 21 shows 4 new orders for FY26, but the recently announced Astellas deal does not appear to be counted. Why is that?
  A: The Astellas deal was announced during Q1, but it was actually secured in Q4 of the prior fiscal year, so it is not included in the FY26 order count.
• Q: Is the anonymous "Company H" listed among FY26 orders a pharmaceutical company?
  A: Yes, it is a pharmaceutical company.
• Q: Regarding the US expansion of AI drug discovery DDAIF, could you elaborate on the current state of your US sales infrastructure?
  A: Our US sales operations are centered on our US subsidiary, with local personnel deployed on the ground to drive business development activities.
• Q: What is the expected timeline from securing a US co-creation project to revenue recognition?
  A: Once a co-creation project is secured in the US, we expect revenue to materialize within roughly a few months to six months. We are also pursuing out-licensing deals in the US and expect these within the current fiscal year. We are receiving multiple inquiries and expressions of interest, so we anticipate being able to announce a US deal in some form within this fiscal year.
• Q: What scale of business do you anticipate from US operations?
  A: In terms of business scale, we expect it to be an order of magnitude larger than Japan—potentially even more. In that sense, we position the US business as critically important going forward.
• Q: You mentioned targeting out-licensing of the NB Health Laboratory project by FY2026 at the earliest. Could you update us on progress?
  A: We cannot share specific details at this time, but we believe out-licensing within FY2026 is fully achievable. We intend to make an announcement once progress reaches a stage where we can clearly disclose it.