3Q results: losses held flat YoY despite a steep revenue decline, as R&D spending was curtailed. The TissueBlue contract extension and K-321 data analysis are the next focal points.

Key Positives From The 3Q Results

Revenue fell to JPY 51M (-82.7% YoY) because no TissueBlue™ royalties were booked. However, R&D expenses were held to JPY 349M (-34.8% YoY), which kept the operating loss at JPY 483M, roughly in line with the prior-year JPY 478M. Early repayment of borrowings reduced liabilities. In October, the company also secured a funding facility for H-1337 development through stock acquisition rights and bonds. Overall, the quarter positioned the company for its next development phase on both the balance sheet and the pipeline.

• SG&A:
  JPY 535M (-28.2% YoY). Prior-year H-1337 US Phase IIb trial costs dropped out, and the resulting cost savings absorbed most of the JPY 246M revenue decline.
• GLA-ALPHA® Combination Ophthalmic Solution:
  Sales are tracking well in Japan and Asia. 3Q standalone revenue was JPY 18M, flat with 2Q, making it a stable royalty stream (our estimate).
• K-321:
  In March, the observation period of the one remaining global Phase III trial ended, completing observation across all trials. The program has now moved into data analysis.
• Balance Sheet:
  Interest-bearing debt fell from JPY 605M to JPY 75M, and the equity ratio rose to 90.3%. In October, the company raised JPY 500M through interest-free 2nd Series Unsecured Bonds.
• H-1337 Partnership:
  In March, the company signed an option agreement with Senju Pharmaceutical for H-1337 and received a JPY 194M equity investment. Development has shifted to a Japan-first approach funded by the partner.

Key Concerns From The 3Q Results

Revenue is only 17.2% of the JPY 300M full-year plan. Achieving the plan depends heavily on the timing and terms of a TissueBlue™ contract extension. Cash and deposits stood at JPY 849M, down JPY 860M from the start of the fiscal year. Future development funding will therefore depend on how quickly the stock acquisition rights with an exercise price adjustment clause are exercised.

• TissueBlue™:
  The license agreement with DORC expired in December 2025, and extension terms are under negotiation. No royalties were booked in the 9M period.
• Dilution Risk:
  The 14th Series Stock Acquisition Rights carry 39 million potential shares, equivalent to 67.7% of shares outstanding (our estimate). The exercise price resets to 90% of the share price, with a floor of JPY 44.
• Bond Redemption:
  The JPY 500M 2nd Series Bonds mature on October 29, 2027. Redemption is designed to be funded by warrant exercise proceeds, so slow exercise would leave a redemption burden.
• K-321 Monetization:
  K-321 carries no milestone income, and revenue will come only from post-launch royalties. Even once data analysis results are available, they will not feed through to earnings immediately.
• Going Concern:
  The company continues to disclose material events or conditions related to the going-concern assumption. Management states there is no material uncertainty, citing secured funding.

Focus Areas / Items To Monitor Going Forward

• TissueBlue™ Extension:
  Timing and terms of the contract extension. The key question is how much it contributes to the full-year revenue plan, which requires JPY 249M in 4Q alone.
• K-321:
  Results of the global Phase III analysis and Kowa's path to a regulatory filing. Because post-launch royalties are the only revenue source, launch timing visibility is critical.
• Bondlido and Financing:
  Execution of the US commercialization license agreement for Bondlido and a launch within 2026. Also monitor the exercise pace of the 14th Series Stock Acquisition Rights and the start of H-1337 clinical trials in Japan.

Key Financial Highlights

• Cost of Goods Sold was zero (prior year: JPY 30M), giving a Gross Profit Margin of 100.0%.
• The absolute loss was flat YoY. However, the per-share loss narrowed because average shares outstanding rose 22.9%.
• The recurring loss includes interest expense and share issuance costs tied to the third-party allotment and related financing.

Performance By Business Segment

The company operates a single drug discovery segment. 9M revenue consisted solely of GLA-ALPHA® Combination Ophthalmic Solution royalties. The absence of TissueBlue™ royalties drove the YoY revenue decline.

Segment Performance Table

Progress Versus Full-Year Guidance

Revenue progress stands at 17.2%. Meeting the full-year plan requires JPY 249M in 4Q alone (our estimate), well above the prior-year 4Q standalone figure of JPY 90M. Agreement on the TissueBlue™ extension, and how it is booked, is therefore key to achieving the plan. Operating loss progress is 61.9%, below the prior-year ratio of 77.2% of full-year actuals (both our estimates). The plan allows a 4Q standalone operating loss of up to JPY 297M. Compared with the 3Q standalone loss of JPY 171M, this leaves room on the cost side (our estimate).

Changes To Guidance

The full-year guidance announced on February 13, 2026 is unchanged: revenue of JPY 300M, an operating loss of JPY 780M and a net loss of JPY 800M. The revenue plan assumes a TissueBlue™ extension agreement in 4Q. The timing and terms of that agreement will determine where the full year lands.

Commentary On Shareholder Returns

The year-end dividend forecast for FY12/2026 is JPY 0.00, so the company remains on a no-dividend policy. There is no change to its share buyback policy.

Financial Position

Early repayment of borrowings cut interest-bearing debt to JPY 75M, and the equity ratio rose to 90.3%. Cash and deposits declined to JPY 849M. The funding structure relies on the 14th Series Stock Acquisition Rights and the JPY 500M 2nd Series Unsecured Bonds, both issued in October, to replenish capital.

Disclosures Released Alongside The Earnings Announcement

Major Announcements During The Quarter

Large-Shareholding Filings / Material Proposals Over The Past Year

• Growth Capital: 43.0%→41.9% (2026/10/28) - Pure investment. Filed due to a change in the breakdown of shares and a decrease in holding ratio of 1% or more
• Growth Capital: New→43.0% (2026/10/01) - Pure investment. New filing on the allotment date of the 14th Series Stock Acquisition Rights
• Yuichi Hidaka: 9.0%→9.7% (2026/09/14) - Long-term holding as a stable shareholder in his capacity as President and CEO. Filed due to the conclusion of material contracts, including collateral agreements
• Yuichi Hidaka: 11.1%→9.0% (2026/05/12) - Long-term holding as a stable shareholder in his capacity as President and CEO. Holding ratio decreased by 1% or more
• SBI SECURITIES: 5.5%→4.5% (2025/11/28) - Held as inventory for its securities business