Tegoprazan US P3 shows +19.6pt superiority in severe EE healing rate; Lazarus out-licensing reactivates dormant assets; three-tier framework drives value visibility

Summary

Business revenue for H1 FY12/2026 came in at JPY 1,455M (−5.2% YoY), with an operating loss of JPY 338M. Royalty income was solid at JPY 1,228M (+14.4% YoY), but the absence of milestone and upfront payments left the full-year guidance achievement rate at just 36.6%. Management described progress as tracking the initial plan, maintained full-year guidance, and outlined a strategy to accumulate other income in H2 to achieve full-year profitability. At the briefing, the company introduced a three-tier enterprise value framework for the first time—Tier 1: stable revenue base, Tier 2: out-licensed assets and pipeline value, Tier 3: drug discovery platform—while detailing the superiority data from the tegoprazan US P3 trial and the strategic rationale behind the out-licensing agreement with Lazarus Group.

Key Points (Earnings Highlights and Growth Actions)

• Corporate Strategy and Market Perspective
  • Introduced a three-tier value visualization framework, refreshing the investor communication approach across distinct time horizons: royalties (Tier 1), out-licensed assets (Tier 2), and the drug discovery platform (Tier 3)
  • Identified a significant white space for tegoprazan differentiation, noting that ~40% of patients in the ~JPY 400B US peptic ulcer drug market have inadequate responses to PPIs
  • Acknowledged the stock's YTD decline of −46.9%, significantly underperforming broader indices, and flagged improved visibility of tangible results as a key challenge
• Current Business Progress and Drivers
  • Royalty income growth was primarily driven by +15.4% growth in Korean K-CAB sales; three animal health products also contributed steadily
  • Other income fell to JPY 227M (−50.9% YoY), mainly due to the absence of milestone and upfront payment recognition in H1
  • Financial position strengthened: equity ratio at 70.6% (+5.5pt), cash and deposits at JPY 4,696M (+44.8%)
• Strategic Initiatives and Inflection Points
  • Out-licensed the 5-HT4 agonist and motilin receptor agonist to Lazarus Group; deal structure forgoes upfront payments in favor of back-end returns (milestones, royalties, and equity consideration)
  • Velovia exercised an option on one animal health compound, unlocking value through repurposing existing human health assets for veterinary applications
  • Launched a computational chemistry and AI drug discovery collaboration with RIKEN, targeting acceleration of the DMTA cycle

Outlook and Strategy

• Full-year business revenue guidance of JPY 3,980M maintained; targeting profitability through accumulation of milestone and upfront payments in H2
• Tegoprazan US FDA approval expected in January 2027; post-approval commercialization will be handled by Sebela/Braintree, with earnings contribution to RaQualia anticipated from 2028 onward
• Japan development of tegoprazan is being advanced by HK inno.N, which is preparing for late-stage clinical trials; details remain undisclosed
• Explicitly stated intention to out-license the ghrelin receptor agonist and IRAK-M degrader in the near term
• Three-year cumulative business revenue outlook of JPY 12.8B; growth investment to be funded by JPY 5.3B in cash on hand + JPY 500M in borrowing capacity + JPY 490M in stock acquisition rights
• Dividends planned in line with financial base strengthening; share buybacks to be flexibly considered once retained earnings are secured

Positive Factors

• K-CAB Korea H1 sales of KRW 120B (~JPY 13.2B, +15.4% YoY); as of April 2026, ranked #1 in outpatient prescription sales across all therapeutic areas in Korea
• Expanded to six approved indications in Korea (most in class) with the addition of NSAID-induced ulcer prevention
• Tegoprazan US P3 (TRIUMpH trial) demonstrated clear superiority: severe EE complete healing rate of 74.1% vs. PPI 54.5% (+19.6pt); 24-week maintenance rate of 76.4% vs. 44.3% (+32.1pt)
• Tegoprazan now sold in 20 countries with business activities spanning 57 countries; marketing authorization obtained in Belarus, regulatory submission filed in Australia
• US composition-of-matter patent granted for FIMECS' IRAK-M degrader (July 30, 2026), strengthening IP protection
• Financial base reinforced through capital and business alliance with HK inno.N, with joint research expansion into the metabolic and endocrine disease space

Concerns

• Full-year guidance achievement rate at 36.6%; H2 must deliver a concentration of milestone and upfront payments, creating high timing dependency
• Lazarus out-licensing deal includes no upfront payment; development progress is contingent on external fundraising, execution, and exit, leaving the timeline for value realization uncertain
• Stock down −46.9% YTD, significantly lagging the Growth Index (+6.9%) and TOPIX (+20.1%); a re-rating requires accumulation of concrete results
• Management acknowledges the sluggish uptake of the first-to-market US P-CAB (Phathom); while tegoprazan's superior efficacy could serve as a competitive differentiator, payer dynamics warrant close monitoring
• Operating loss of JPY 338M and EBITDA of −JPY 112M; R&D expenses continued to rise at JPY 864M (+10.1%), with the path to profitability dependent on H2 revenue realization
• Progress and timeline for tegoprazan Japan development remain undisclosed, making it difficult to gauge timing

Performance Highlights

H1 FY12/2026 business revenue was JPY 1,455M (−5.2% YoY), with an operating loss of JPY 338M and an interim net loss of JPY 466M. Royalty income of JPY 1,228M (+14.4% YoY) was solid, but other income of JPY 227M (−50.9% YoY) was weak due to the absence of milestone recognition. Full-year guidance (business revenue of JPY 3,980M) was maintained.

Revenue Breakdown by Category

The company operates as a single segment; figures are presented by revenue category.

• Tegoprazan Korea H1 Sales (Prescription Basis): ~JPY 13.2B (+15.4% YoY)
• Tegoprazan Korea Market Share (Gastric Acid Secretion Inhibitors): 15% (#1)
• Number of Countries With Tegoprazan Sales: 20 (business activities in 57 countries)
• Equity Ratio: 70.6% (+5.5pt vs. prior FYE)
• Cash and Cash Equivalents: JPY 4,696M (+44.8% vs. prior FYE)
• Full-Year Guidance Achievement Rate (Business Revenue): 36.6%

Q&A List

• Q: Regarding the YoY increase in royalty income, is growth coming from specific countries, or are new countries contributing incremental royalties? What are the drivers behind the changes?
  A: Looking at the breakdown, Korea accounts for the largest share by far. The steady growth in Korean royalty income is the primary positive driver. While some markets are inevitably small, larger markets naturally contribute more significantly. Animal health products are also growing, so all products are trending positively, but the biggest contributions come from tegoprazan in large markets such as Korea and China.
• Q: Do you disclose a country-by-country breakdown of royalty income?
  A: Our partner HK inno.N does not disclose individual country-level breakdowns, so we are unable to comment on that.
• Q: In the US peptic ulcer drug market, which companies and products currently hold the leading market share?
  A: PPIs remain the mainstream. We cited several examples where lansoprazole was used as the comparator in clinical trials—lansoprazole is one of the representative PPIs and one of the most widely prescribed gastric acid secretion inhibitors globally.
• Q: What generation does lansoprazole belong to?
  A: Lansoprazole is essentially a second-generation drug and is a very good medication. However, the drawback remains that it takes several days after initial dosing for full efficacy to manifest. Tegoprazan overcomes these limitations as a third-generation class drug—rapid onset of action, strong efficacy, and sustained effect. In the US, payer dynamics are also a critical factor, including whether insurance coverage will be granted, so we need to closely monitor market penetration. In the P-CAB class, Phathom Pharmaceuticals was first to market in the US with a product launched in 2025, but uptake appears somewhat sluggish. That said, our view is that tegoprazan will not necessarily follow the same trajectory. We expect differentiation through the strong clinical trial results and tegoprazan's status as the world's first P-CAB to demonstrate efficacy in severe patients.
• Q: Is it fair to say that you, as CEO, are confident in this trajectory?
  A: Personally, I would like to see tegoprazan capture a position in the US similar to what Takecab has achieved in Japan. However, the regulatory and payer landscape for gastric acid secretion inhibitors varies significantly by country, so ultimately we won't know until actual sales materialize—that has been the consistent lesson from tegoprazan's global rollout, and we remain cautious.
• Q: With expected approval in January next year, should we model earnings contribution starting in 2028?
  A: Once approval is obtained in January next year, we hope Sebela/Braintree will launch sales as quickly as possible, but some time lag is inevitable. Regarding the contribution to our financials, royalties flow from sub-licensees Sebela/Braintree through HK inno.N before reaching us, so there is an additional accounting time lag. Our planning assumption is that actual revenue contribution will begin in 2028.
• Q: What is the outlook for tegoprazan development in Japan?
  A: Our partner HK inno.N is currently preparing for the conduct of late-stage clinical trials. As HK inno.N has not publicly disclosed detailed progress or timelines, we are unable to comment further.
• Q: Can we expect a Phase 3 trial in Japan?
  A: Yes.
• Q: What prompted you to adopt the three-tier framework, and how do you feel about the initial reception of this communication approach?
  A: The most important objective was to make it easier to see what progress is being made at each tier—Tier 1, 2, and 3. We deliberately chose this format for the presentation this time. We recognized that our previous communication had contributed to the company being difficult to understand, so we decided to reorganize our messaging. We feel reasonably encouraged by the initial response. Being able to articulate value and time horizons separately has made explanations more straightforward, and we've seen references to this earnings presentation material and the three-tier framework on social media, suggesting it may be a useful lens for investors to separately assess the significance, value, and risks of each initiative. It's still early days and we await further evaluation, but we believe it has contributed at least somewhat to improved clarity. Going forward, we intend to continue refining this approach to make RaQualia Pharma's value proposition easier to understand.