Nxera Pharma Co., Ltd. (4565) Earnings Call Transcript & Summary

[Interpreted] Good morning, ladies and gentlemen. My name is Christopher Cargill, Representative Executive Officer, President and CEO. Thank you very much for taking the time out of your busy schedules to attend today's meeting. In accordance with Article 15, Paragraph 1 of the Articles of Incorporation, I will serve as the Chair of this meeting, and I respectfully ask for your cooperation. I hereby declare the 36th Ordinary General Meeting of Shareholders of Nxera Pharma Company Limited open. For the smoother conduct of the meeting in Japanese, Executive Officer, Nomura, will facilitate the proceedings at my designation as Chair. Mr. Nomura, please proceed.

[Interpreted] I am Nomura, Executive Officer. Based on the Chair's designation, I will serve as moderator of today's meeting. As previously announced, this meeting is being live streamed via the Internet for shareholders. While we will not film shareholders attending in person, please understand that any remarks made during the meeting will be broadcast. We kindly request that you refrain from stating your name when speaking. For shareholders viewing online, please note that video or audio restrictions may occur due to network conditions, computer settings, heavy access traffic or other factors. In addition, we respectively request that all shareholders refrain from photographing, recording, audio recording or saving any part of this meeting. We will take questions and comments from attendees collectively after all reports and explanations of the proposals have been completed. When asking a question or making a comment, please speak from the nearest standing microphone. Should an unforeseen event such as an earthquake occurred during the proceedings, please remain calm and follow the instructions of our staff. The matters to be addressed at today's general meeting are as stated in the notice of convocation provided on our company website in accordance with applicable laws and our articles of incorporation, printed materials have not been sent. A summary will be projected on the screen at the front later, so please refer to it. You may also view the notice of convocation on our company website using your smartphone or other device. Next, I will report the number of shareholders in attendance and the number of voting rights they hold. Out of a total of 25,623 shareholders, the number of shareholders entitled to exercise voting rights at this AGM is 23,160. The total number of voting rights is 904,371. Including shareholders attending today as well as those who exercised their voting rights via Internet or by mail, the total number of shareholders represented is 13,863 and the total number of voting rights represented is 640,132. Next, since we are meeting the quorum, I would like to report that. Next, I will report the results of the audit conducted by Audit Committee. The audit results are as stated in the audit report of the Audit Committee on Page 80 of the notice of convocation provided on our company website. The Audit Committee conducted an audit of the execution activities by the directors and executive officers for the 36th fiscal year from January 1 to December 31, 2025. The results of the audit are as follows: the business report and its supplementary schedules are recognized as properly prepared in accordance with applicable laws, regulations and the articles of incorporation and as accurately represent the status of the company. No fraudulent acts or material facts in violation of those regulations or the articles of incorporation were found in relation to execution of duties of the directors and executive officers. The resolutions of the Board of Directors regarding the internal control system are deemed appropriate. The description in the business report concerning the internal control system as well as the execution of duties by the directors and executive officers have no matters required comment. With respect to the consolidated financial statements, the nonconsolidated financial statements and the respective supplementary schedules EY are considered appropriate. That concludes the report. Thank you for your attention. Next, we will proceed to the reports and an explanation of our business outlook. The details of the reporting items are stated in the notice of convocation provided on our company website. However, we will present a summary and our future business outlook by video. Shareholders attending in person are asked to view the screen at the front of the venue. Shareholders participating online are asked to view the broadcast screen on your device. Questions will be taken collectively after the reports and explanations of the proposals.

[Foreign Language] My name is Chris Cargill. I'm the CEO of Nxera Pharma. Thank you for being here. And I have a lot to share with you today. Now I want to begin by addressing our share price. Your frustration is legitimate, and it is shared by every member of our leadership team, including me personally. I'm not here to make excuses, I'm here to explain what we have been building beneath it and to show you concretely why I believe the next chapter looks very different. We have a clear focus, we have a sound strategy, and we have the capital and patience to execute it. And this is not the first time Nxera has been in this position. The chart on the left shows our share price between 2011 and 2014. It looked very similar to today. The shareholders who held through that period were rewarded. By 2016, the share price had risen more than 10x from its lowest point. We know what an investment cycle looks like. We have navigated one before. And our 2030 vision, revenue above JPY 50 billion, operating profit margins above 30% remain unchanged. I want to address directly why we have reported losses. These are not accidental losses, but with a deliberate cost of building something valuable. Look at the green bars on the right. Each year, our research and development investment has grown. This represents investments in new medicines and our drug discovery platform. Every yen of these reported losses was matched by new investments in Nxera's future. A pharma does not call the seed a loss. They call it the beginning. This investment phase is now changing. In FY 2026, we expect to reach core operating profitability. The direction has changed. The returns phase is beginning. In 2022, we had a very solid base from which to build from. we made a deliberate choice. Products, platform, programs and partners. These are not 4 separate businesses. Each one was designed to fund, derisk and strengthen the others. Now let me show you what we are building. More products for patients in Japan and Asia Pacific, more data to enable the AI drug discovery revolution, more programs in the largest areas of global unmet medical need and more partners with 10 programs now advancing through global clinical development. Japan is our home. It is our #1 market and our #1 patient priority. The Japanese pharmaceutical market is worth USD 76 billion. We have built our commercial foundation here in Japan first in specialty medicines, in rare diseases and soon pediatric care. And we are beginning to expand that foundation across the Asia Pacific region. 3 years ago, our Japan revenue was 0. In FY 2025, our revenue in Japan reached JPY 17.8 billion. That is growth of 27.5% in 1 year. Now let me show you how we did it. PIVLAZ is a treatment for dangerous condition affecting the brain blood vessels after hemorrhage. It now holds 74% of its market in Japan. QUVIVIQ is our treatment for insomnia. We launched it in December 2024 with our partner, Shionogi. Sales grew 224% in FY 2025. And we just added a third product, Vamorolone, a medicine for children living with Duchenne muscular dystrophy, and I want to tell you more about that. This is Dr. Vasantha Gowda. She is a specialist children's neurologist at Evelina London Children's Hospital. Some of her patients are now being treated with Vamorolone. And I would like you to hear directly from her. [Presentation]

This is why we do this work. There are more than 2,000 children and families in Japan living with Duchenne muscular dystrophy. We hope to bring Vamorolone to them. Duchenne muscular dystrophy is rare. It's progressive and today, incurable. It weakens the muscles over time, leading to loss of mobility, heart problems and a shortened life. Until now, the only treatment in Japan was corticosteroids, medicines that work but cause serious side effects in growing children. Vamorolone works differently. It targets the same receptors but with a gentler effect and fewer side effects. It is already approved in the U.S., Europe, the U.K. and China, and we are proud to bring it here to Japan. Now I want to show you the engine behind our future program pipeline. Artificial intelligence is changing how medicines are discovered. It's not a prediction, it's already happening. But there is an important point that many people miss. When every company uses the same public training data, the results converge. The real advantage comes from the proprietary data that you train the AI. We have spent more than 15 years building a unique scientific data set, 493 protein structures, 59 biological targets studied in detail, 30,000 measurement points and more than 100 active projects. No other GPCR focused company in the world has this specific data set. It cannot be bought and it cannot be copied, and that is our advantage. We are building what we call the AI+Q platform. This combines artificial intelligence with quantum level simulation technology. In plain terms, it allows us to predict how a potential medicine may interact with the GPCR in the body before we even make a single molecule in the laboratory. This makes discovery faster, more precise and less costly. We have invested USD 5 million in our London discovery center to build this capability. We chose London as the base given its excellent access to world-leading data science talent for AI drug discovery. Google DeepMind and Isomorphic Labs developers of AlphaFold and large language model companies such as Anthropic, OpenAI and Meta all have large operations in London, which enhances the local talent pool. Our new AI+Q platform is expected to activate by the end of 2026. This slide shows what our AI+Q platform does at a molecular level. We can simulate in precise detail how a drug candidate interacts with its target inside the body. The AI+Q platform is currently in beta development. The first programs generated entirely by this platform are expected in 2027. This is the sprout that will become a significant flower. I now want to show you something that our current share price does not reflect at all. This is our pipeline of new medicines in development. On the left, our neurology programs already partnered with Neurocrine and Centessa. And on the right, what comes next. We are now discovering medicines in metabolic disease and rare endocrine disorders. These are conditions where today's treatment options are mostly limited to chronic injectable therapies, a burden for patients. This slide shows the 6 new programs we are advancing and the estimated size of the global market for each one. The combined market for these programs is estimated at more than USD 220 billion by 2030, 1 billion patients seeking better tolerated, more convenient treatments. The value of this pipeline in our share price today is approximately 0. We believe that will change. There is strong strategic logic to selecting these targets. They are highly synergistic. The metabolic programs will combine to drive 10% weight loss or more, placebo-like tolerability and muscle preservation, the future of chronic weight management. Patients and payers want oral therapies. And clinical endpoints for these programs are biomarker-driven, enabling speed and capital efficiency. This slide shows the 3 clinical stage programs that we have earmarked to new partnerships. The EP4 agonist program, NXE'744, has demonstrated early efficacy signals in an indomethacin challenge study. With the GPR52 agonist, NXE'149, we've run imaging studies that suggest it has effects in brain regions similar to other approved antipsychotic drugs. And the EP4 antagonist program, NXE'732 showed early efficacy signals, including 2 partial responses. And continues its Phase IIa study with Cancer Research UK. Active discussions are ongoing, and we expect new licensing transactions in 2026. I want to explain how the world's most rigorous pharmaceutical companies view us. Neurocrine Biosciences, Eli Lilly, AbbVie, Centessa Pharmaceuticals. These companies choose their partners carefully. When a company of that scale signs an agreement with us, it means our science has passed their highest level of review. Our partnership with Neurocrine alone has a total potential value of USD 2.6 billion. Our partnerships with Lilly and AbbVie add a further USD 2 billion in potential value. These partners provide an important source of nondilutive capital for Nxera. They offer our science a global reach from a Japanese base. As I said at the beginning, we are not the first company to go through a period of trading where we are undervalued. Both Amazon's and Apple's share prices fell over 80% between 1999 and 2001, both recovered. This is what investors call the J-curve, and this is where we are on that curve. The dot marked we are here, that is today. The investment phase is largely behind us, and we are at the inflection point. The returns phase lies ahead. Short-term sacrifice, long-term value creation. That is the thesis, and we are executing it. Let me be specific about what the near-term future looks like financially. In FY 2025, our revenue was JPY 29.6 billion, and we held JPY 20.4 billion in cash. In FY 2026, we expect revenue of JPY 33.8 billion and a core operating profit of JPY 7.8 billion. Breakeven is in sight. We have also made significant changes to our cost structure. Since 2023, we have reduced our global headcount by over 30%. Multiple pipeline programs with low probabilities of success have been culled. We are spending and allocating shareholder capital as if it were our own money because it is. This is the Nxera leadership team. Every leader you see here holds shares in this company. When the share price is low, we feel it personally. When the value is created, we share in it alongside you. Our interests are aligned with yours. I do not ask you to trust words, I ask you to watch the milestones. In 2026, we expect to submit QUVIVIQ for approval in Taiwan. We expect clinical data and milestones from multiple partnered programs, including Neurocrine and Centessa. We expect the first development candidate from our metabolic pipeline, and we expect to launch our AI+Q drug discovery platform. In 2027, we expect approval and launch of QUVIVIQ in South Korea. And with our newest product, Vamorolone, we've already commenced our preparations for engaging with the PMDA as we plan to bring this very important medicine to patients in Japan as soon as possible. We expect top line Phase III data for direclidine, our lead partnered program with Neurocrine. And we expect multiple more development candidates to come through the metabolic and rare endocrine disease pipeline. And we expect the AI+Q platform to start rapidly generating optimized lead programs. Each of these milestones is a sprout becoming above. Each one moves us closer to the harvest. More products, more data, more programs, more partners. The flywheel is turning. The next chapter of Nxera is not yet written, but the foundation is laid. The strategy is clear, the team is ready. We planted the seeds that others could not see. And today, I'm showing you the first sprouts. We will not stop until you see the harvest. Thank you. [Foreign Language]

[Interpreted] Thank you very much. We have now explained the matters to be reported and our business outlook going forward through the video presentation. Next, we will proceed with the proposal. The details of the proposal are stated in the notice of convocation provided on our company website. I will now explain the proposal election of 7 directors. All 8 current directors will complete their terms of office at the conclusion of this general meeting. Accordingly, based on the resolution of the Nomination Committee, we propose the election of 7 directors. The director nominees are Christopher Cargill, David Roblin, Rolf Soderstrom, Eiko Tomita, Naoko Shimura, Nicola Rabson, Takeo Morooka, total of 7 nominees. The career summaries and the other details of each nominee are stated in the notice of convocation. We will now invite the candidates for the external directors to share their aspirations. Please note that when speeches are made in English, that will be followed by Japanese interpretation. We would like to, first of all, hear from Director David.

Good morning, fellow shareholders. My name is David Roblin. I'm a medical doctor, and I've been practicing in research and development for new medicines for 30 years. And I've had the privilege and honor of developing 11 medicines in my career to date with Pfizer, Bayer and in biotech. I serve because I wish to transform patients' lives through the medicines that I've been involved with, and I remain honored to be an independent Nonexecutive Director of our company, Nxera. I'm confident that we are on a journey together based on a sound strategy to deliver value. Value for patients in the Japan and Asia Pacific region, and it is important that we can already see the benefits of our medicines to patients in that region. Value through our R&D activities, our best-in-class strategy that the CEO described, our new AI platform allows us to keep pace with the competition. And our business development partnerships with big pharmaceutical companies. And third, value to shareholders in the way in which our company is valued. I remain confident. You all know that the R&D process takes time. There are challenges in that process but success leads to massive rewards, rewards for patients and rewards for shareholders. I remain confident, and I thank you for your votes for me as a Nonexecutive Director.

[Interpreted] Thank you very much, Director David. Now moving on to the Director Rolf.

Good morning. My name is Rolf Soderstrom, and I'm honored to be a Director of Nxera. I've worked for over 20 years in biotechnology, building successful companies and have helped bring several medicines to both commercial and clinical success. I'm very excited by the opportunity of Nxera and believe that the strategy will deliver both a unique and valuable company to Japan. The investments we have made over the past few years are building a very strong foundation on which to build the next phase of Nxera's growth. I am honored and remain very dedicated to supporting Nxera over this next phase, and I would like to thank all shareholders for their continued support. Thank you.

[Interpreted] Thank you very much, Director Rolf. Now I would like to ask Director Tomita to say a few words.

[Interpreted] My name is Eiko Tomita. Very nice to meet you. For the past 30 years or more, I've been working for pharmaceutical companies, including Bristol Myers Squibb and AstraZeneca. I was involved in R&D of drugs and also regulatory affairs and also decision-making of such companies. Based on those experiences, I would like to make contributions to Nxera Pharma business. I'm very honored. As was explained in the presentation video, there are various programs that have already started. And the company is also working to utilize the scheme of drug discovery using AI. So we are now facing the new phase. So I would like to continue to take -- to capture the opportunities and to make sure that reduce risks. And I'm hoping that I will be able to make contributions to the development of this company. Thank you.

[Interpreted] Director Tomita, thank you very much. Now Director Nicola, please.

Thank you. I am Nicola Rabson. I am a senior partner at Linklaters, one of the world's largest law firms. I specialize in dealing with corporate employment and governance matters. In that capacity, I work alongside some of the world's largest and most successful companies, including Nomura and Mitsubishi. I have held numerous executive positions within Linklaters and a Nonexecutive Director of a FTSE business. I am truly privileged to be involved in this next phase of Nxera. I believe in this company, its vision and its prospects. On a personal note, I was diagnosed with lupus as a young woman and have personally benefited from the discovery of drugs during my lifetime. I am committed to being part of the journey, and I look forward to the future and our collective success. Thank you.

[Interpreted] Thank you very much, Director Nicola. Now, Director Shimura, please.

[Interpreted] My name is Naoko Shimura. Very nice to meet you. On Page 8 of the complication notice the skill matrix. What is expected of me is legal affairs and compliance according to my understanding. I would like to make sure I have the courage to be [indiscernible] by other members of the company. And at the same time, I would like to make contributions to make this company the very first Japanese leading international biotech company. I would like to make sure that, that will not deaccelerate the company's growth. I'm very much looking forward to working with all of you. Thank you.

[Interpreted] Director Shimura, thank you very much. Last but not least, I would like to ask Mr. Takeo Morooka to say a few words.

[Interpreted] My name is Takeo Morooka. I am -- I've been trained as plastic and reconstructive surgeon in the emergency medicine. And after that, I worked for WHO and also for Ministry of Health and Welfare of Japan. I have been focusing on the Japanese market and through health care policymaking and so on, I would like to make sure I can make contributions to the development of the company. Thank you very much.

[Interpreted] Mr. Morooka, thank you very much. This concludes the explanation of the proposal.

[Interpreted] Now we would like to proceed to the vote. CFO, Nomura, please.

[Interpreted] We will now proceed to vote on the proposal, election of 7 directors. The details of this proposal are -- has been explained. Those in favor of this proposal, please indicate your approval by applause. [Voting]

[Interpreted] Thank you very much. As a result of the votes just taken, including voting rights exercised via the Internet and by mail, we have received approval from a majority of the voting rights of shareholders present. The proposal is therefore approved and passed as proposed. Thank you very much.

[Interpreted] This concludes all matters to be addressed at this Annual General Meeting of Shareholders. This concludes the 36th Annual General Meeting of Shareholders of Nxera Pharma Company Limited. Thank you very much.

[Interpreted] Directors and executive officers, please stand. Once again, thank you very much for your attendance today. To further enhance our corporate value, we will continue working together as one company, and we sincerely appreciate your continued support. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]