DW-5LBT projected sales volume exceeding initial estimates prompts renegotiation of contract terms; preparations for H-1337 Japan P3 ramp up through partnership with Senju Pharmaceutical

Summary

Consolidated revenue for 2Q FY12/2026 was JPY 33M (−80.9% YoY), primarily due to the expiration of the European patent for DW-1002 and non-recognition of U.S. royalties. The operating loss of JPY −312M was roughly in line with the prior-year period, while R&D expenses tracked at JPY 217M (−31.7% YoY). On the pipeline front, the sales agreement with U.S.-based Terrain for DW-5LBT is being renegotiated due to higher-than-expected projected sales volume, with execution targeted for August. All observation periods for the K-321 global P3 trial have been completed, and data analysis is underway. For H-1337, preparation for the Japan P3 trial has commenced following a capital and business alliance with Senju Pharmaceutical. Management set targets of launching one product per year (DW-5LBT in 2026, DW-1002 in 2027, K-321 in 2028) and achieving a market capitalization of JPY 10B (TSE Growth Market criteria).

Key Points (Earnings Takeaways and Growth Actions)

• Management Strategy and Market Assessment
  • The company has factored in declining revenue from expiring royalties on existing marketed products, with plans to offset this through the launch of late-stage pipeline candidates
  • Based on favorable U.S. P2b results for H-1337, the company is prioritizing Japanese development. Senju Pharmaceutical's support will drive the domestic P3 program
  • The near-term target is a market cap of JPY 10B, the TSE Growth Market maintenance threshold for 2030 (versus JPY 4.2B as of end-June 2026). Business and capital alliances are also under consideration
• Current Business Progress Rate and Drivers
  • Full-year revenue guidance achievement stands at just 11.0%, but U.S. DW-1002 royalties for January–June are expected to be booked in a lump sum upon contract extension
  • Glaalpha is trending upward in Japan and Asia, with the January 2026 Singapore launch expanding geographic reach
  • For competing product Viznova, a market forecast indicates 160 patients with projected peak sales of approximately JPY 1.5B (in year 6), suggesting the market potential for DWR-2206
• Strategic Initiatives and Inflection Points
  • DW-5LBT projected sales volume has exceeded initial estimates, prompting renegotiation of contract terms with Terrain (execution targeted for August)
  • For H-1129, the company acquired an exclusive license for a co-owned patent with Keio University and plans PMDA consultation ahead of P2 initiation
  • A joint research collaboration with LAB Biotech on lactic acid bacteria exosome-based ophthalmic therapeutics has commenced

Outlook and Strategy

• Full-year guidance is maintained at revenue of JPY 300M and recurring loss of JPY −800M. DW-5LBT revenue is excluded from the forecast as a reasonable estimate remains difficult
• The company plans to launch one product per year: DW-5LBT in 2026, DW-1002 (Japan/U.S.) in 2027, and K-321 in 2028
• In 2027, DW-1002 approval/launch and K-321 filing are expected, with management targeting revenue above FY2025 levels
• The H-1337 Japan P3 development plan will be disclosed once finalized. The potential to leverage U.S. data and alignment with Japanese regulatory requirements are being discussed with Senju Pharmaceutical
• Management has explicitly stated that profitability from in-house developed products—achieving breakeven and steepening the revenue ramp trajectory—is a top priority
• On the funding front, the company is advancing residual fundraising through the 13th tranche of stock acquisition rights (90.9% progress), with all proceeds allocated to growth investments

Positive Factors

• DW-5LBT:
  The target U.S. lidocaine patch market is $295M (2025). Comparable predecessor ZTlido posted net sales of $52M (2024), and projected sales volume is exceeding initial estimates
• K-321:
  Fuchs endothelial corneal dystrophy has no existing pharmacotherapy. The addressable patient population is approximately 16M in Europe and approximately 6M in the U.S., suggesting blockbuster potential
• H-1337:
  Once-daily dosing with 6–7 mmHg IOP reduction. Potential superiority in side-effect profile versus competing netarsudil. Following option exercise under the Senju Pharmaceutical alliance, cumulative milestone payments of up to JPY 6B are possible
• DWR-2206:
  P2 met the primary safety endpoint and suggested efficacy (improvement in corrected visual acuity and corneal thickness). The frozen formulation offers a competitive advantage. Competing product Viznova has a market forecast of 160 patients with projected peak sales of approximately JPY 1.5B (in year 6)
• H-1129:
  Orphan drug designation application is under consideration, enabling efficient development through small-scale trials

Concerns and Risks

• Full-year revenue guidance achievement is low at 11.0%. If the U.S. DW-1002 contract extension does not materialize, there is additional downside risk to revenue
• Formal contract execution with Terrain for DW-5LBT is delayed (original July 15 deadline has been extended), posing a risk of spillover impact on the launch timeline
• Cash on hand stands at just JPY 986M (no marketable securities). Given annual R&D expenses of JPY 780M, liquidity headroom warrants close attention
• The H-1337 Japan P3 development plan remains unfinalized. Each step—including preclinical studies, investigational drug manufacturing, and PMDA consultations—could require considerable time
• The CEO's shareholding ratio has declined from 12.11% to 9.00% (primarily attributable to dilution from new share issuances, but the trend bears monitoring)
• Addressing the stricter TSE Growth Market listing maintenance criteria (2030) requires more than doubling the current market capitalization

Performance Highlights

Consolidated revenue for 1H FY12/2026 was JPY 33M (−80.9% YoY), reflecting the expiration of the European patent for DW-1002 and the deferral of U.S. royalty recognition (contract extension under negotiation). The operating loss of JPY −312M (versus JPY −309M in the prior-year period) was broadly flat YoY, with the decline in R&D expenses to JPY 217M (−31.7% YoY) constraining overall SG&A. The interim net loss was JPY −323M.

Key Financials

• Cash and Deposits: JPY 1,581M (−JPY 128M vs. prior FY-end)
• Liquidity on Hand (Cash and Deposits Only): JPY 986M
• 13th Stock Acquisition Rights Fundraising Progress: 90.9% (JPY 49M raised in January–June)
• Late-Stage Pipeline (P3 and Beyond): 5 candidates
• Market Capitalization: JPY 4.2B (as of end-June 2026)

Q&A List

• Q: Regarding DW-5LBT, the formal contract with Terrain has been prolonged. Is the Q4 launch target unchanged?
  A: Correct, there is no change.
• Q: On page 11 of the presentation materials, the future revenue trajectory indicates that royalty expirations for marketed products will result in lower revenue in 2026 and 2027. Does this mean a further decline from 2026 to 2027, or a decline in both 2026 and 2027 relative to 2025?
  A: It means a decline relative to 2025.
• Q: Does that imply it is still difficult to put out a revenue forecast for 2027?
  A: At this point, it is challenging. What we do know is that royalties from existing marketed products are expected to be lower in 2026 and 2027 compared to 2025.
• Q: The formal contract with Terrain for DW-5LBT has been prolonged because projected sales are expected to be higher than initially assumed. Does this also imply upside to profit-sharing income in 2027?
  A: Logically, yes. However, the specifics depend on the contract terms between Medrx and Terrain. Even if Medrx's revenue and profits increase, there is a separate formula governing our agreement with Medrx, so it depends on that. That said, logically, higher overall volume would indeed lead to higher profit-sharing payments.
• Q: Was the implication that revenue from 2028 onward could exceed 2025 levels?
  A: We will make every effort to grow revenue on an annual basis and would like to achieve a V-shaped recovery. However, realistically, we anticipate a decline through 2027.
• Q: Is the U.S. the only remaining jurisdiction where the BBG patent is in force?
  A: That is correct.
• Q: If the royalty contract extension is concluded, would royalty income continue not only in 2026 but also from 2027 onward?
  A: Assuming there is revenue, yes, that is correct.
• Q: If the contract extension is finalized within this year, would the royalties from January onward be recognized all at once simultaneously with the contract?
  A: That is correct.
• Q: Is there any change to the plan to file the DW-1002 application within this fiscal year?
  A: At this point, we are not considering any change.