Carna Biosciences,Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥395M
• Operating Income: ¥-1.55B
• Net Income: ¥-1.59B
• EPS: ¥-83.76

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: FY2025 Q3 (cumulative) shows a materially loss-making quarter with contracting top line and heavy SG&A burden, resulting in a deep net loss and sharply negative ROE. Revenue was 3.95 (−18.8% YoY), while operating income came in at −15.51 and net income at −16.00, underscoring a business model still reliant on external funding or milestone variability. Gross profit was reported at 3.64, implying a gross margin of 92.2%, which is consistent with high-margin licensing/fee-type revenues typical in biotech, but we note an internal inconsistency versus reported cost of sales (1.23) that would ordinarily imply a lower margin. SG&A was 19.42, exceeding gross profit by 15.78, and drove the operating loss. Ordinary income was −15.90 after roughly offsetting non-operating income of 0.25 and expenses of 0.26. Net loss of −16.00 translates to EPS of −83.76 yen. Profitability ratios are very weak: operating margin approximately −392.6% and net margin −405.1%. DuPont analysis indicates ROE of −185.2%, driven primarily by an extremely negative net margin, low asset turnover (0.257x), and moderate leverage (assets/equity 1.78x). Cash and deposits were 9.25 against current liabilities of 1.62, yielding a very strong current ratio of 9.18x and quick ratio of 8.50x, which alleviates near-term liquidity pressure. Total equity is 8.64 (equity ratio roughly 56.3%), but retained earnings are deeply negative at −14.09, highlighting accumulated deficits. Noncurrent liabilities are sizable at 5.10 relative to total assets of 15.35, though interest expense was minimal at 0.02, suggesting limited interest-bearing debt (long-term loans only 0.08). Earnings quality cannot be assessed robustly due to unreported cash flow statements; OCF/NI and FCF coverage are not calculable. Interest coverage is deeply negative (−646x), reflecting operating losses rather than debt-servicing strain. Forward-looking, the company must either secure higher licensing/milestone revenues or meaningfully reduce SG&A to extend cash runway and improve sustainability. Without visibility on OCF and pipeline milestones, the path to profitability remains uncertain and financing risk (including potential dilution) stays elevated.

Profitability Analysis

ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (−405.1%) × 0.257 × 1.78 ≈ −185.2%. The component that changed the most versus a normal profitable profile is the net profit margin, which is extremely negative, reflecting revenue contraction and outsized SG&A relative to sales. Business reason: biotech revenue mix tends to be milestone/licensing-heavy; the −18.8% YoY revenue decline coupled with stable or sticky SG&A (19.42) created severe negative operating leverage. Asset turnover at 0.257x is low, typical for R&D-centric models with small revenue bases relative to asset levels. Leverage is moderate (assets/equity 1.78x) and not the main driver. Sustainability: the negative margin is unlikely to be sustainable in the long run; improvement hinges on milestone/licensing inflows or partnering deals. However, absent revenue inflection, current cost structure suggests continued losses. Concerning trend: SG&A (19.42) is 492% of revenue (3.95), indicating cost growth well above revenue; while YoY SG&A growth is unreported, the absolute mismatch is a red flag for profitability.

Growth Assessment

Top-line declined 18.8% YoY to 3.95, suggesting weaker milestone timing or fewer contracted services/licenses. The gross margin at 92.2% indicates revenue is largely high-margin (typical of licensing), but the reported cost of sales (1.23) conflicts with the gross profit figure, implying either classification differences or reporting timing; we rely on the provided gross profit for margin commentary. Operating loss widened materially to −15.51 against the low revenue base, pointing to negative operating leverage. Non-operating items netted to roughly zero (0.25 in, 0.26 out), so core operations drove the loss. Profit quality is strained: without cash flow disclosure, sustainability of the revenue mix and collection cannot be verified. Outlook: near-term growth depends on securing new licensing deals, milestone recognition, and potential out-licensing/partnering in the pipeline. In the absence of revenue catalysts, growth is likely to remain subdued and volatile. Execution on R&D milestones and BD (business development) is critical to reverse the revenue decline.

Financial Health

Liquidity is strong: current assets 14.83 vs current liabilities 1.62 yields a current ratio of 917.6%, and a quick ratio of 849.9%. No warning on current ratio (<1.0) as it is comfortably above thresholds. Solvency: total liabilities 6.71 and total equity 8.64 imply a liabilities-to-equity ratio of 0.78x (moderate). Equity ratio is approximately 56.3% (8.64/15.35), signaling a relatively solid capital base despite accumulated deficits (retained earnings −14.09). Interest-bearing debt appears minimal (long-term loans 0.08), consistent with low interest expense (0.02). Maturity mismatch risk is low: current assets far exceed current liabilities (working capital 13.21), and noncurrent liabilities (5.10) are covered by total cash and current assets, though the nature of NCL (e.g., leases, provisions) is not detailed. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported, so OCF/Net Income and FCF coverage cannot be calculated. Therefore, we cannot conclusively assess earnings quality via cash conversion or working capital dynamics. Given the large operating loss (−15.51) and small interest burden, cash burn is likely driven by SG&A and R&D, but without OCF we avoid precise runway estimates. Potential signs of working capital manipulation cannot be assessed due to missing OCF and component details.

Dividend Sustainability

No dividend information is reported; payout and DPS are N/A. Given the deep net loss (−16.00) and likely negative FCF (unreported), any cash distributions would be imprudent and are unlikely under a typical biotech capital allocation policy. With retained earnings at −14.09 and priority on funding R&D and operations, dividend sustainability is not applicable at this stage.

Risk Assessment

Business Risks:

• Revenue volatility from milestone/licensing timing (revenue −18.8% YoY; high gross margin mix suggests reliance on non-recurring items).
• Pipeline execution risk (clinical/preclinical outcomes drive partnering potential and milestone receipts).
• Customer/partner concentration risk common in small biotech models.
• Regulatory and approval risk impacting commercialization timelines and deal flow.

Financial Risks:

• Sustained operating losses (operating margin ~−392.6%) requiring external financing if OCF is negative.
• Potential equity dilution risk to extend runway given accumulated deficits (retained earnings −14.09).
• Interest coverage is negative (−646x), though driven by operating loss rather than debt burden.
• Noncurrent liabilities of 5.10 without detail may embed lease or other obligations.

Key Concerns:

• Extremely weak ROE (−185.2%) driven by negative net margin (−405.1%).
• SG&A scale (19.42) far exceeds gross profit (3.64), implying persistent losses absent revenue step-up.
• Data limitations: no OCF/FCF reported; inability to validate cash burn and cash conversion.
• Internal inconsistency between reported gross profit (3.64) and cost of sales (1.23), which clouds precise margin analysis.

Investment Implications

Key Takeaways:

• Top line down 18.8% YoY to 3.95 with very high reported gross margin, consistent with licensing-heavy mix.
• Operating loss of −15.51 and net loss of −16.00 underscore heavy negative operating leverage.
• Liquidity is strong near term (cash 9.25; current ratio 9.18x), but long-term sustainability depends on revenue inflection or financing.
• Leverage is moderate (liabilities/equity 0.78x) with minimal interest-bearing debt (0.08), so balance sheet risk is more equity/dilution than credit.
• Earnings quality cannot be confirmed due to missing cash flow data; financing optionality and BD progress are critical.

Metrics to Watch:

• OCF and FCF when disclosed (cash burn trajectory and runway).
• Milestone/licensing revenue cadence and backlog/contract pipeline.
• SG&A trajectory versus revenue growth (evidence of cost control).
• Noncurrent liability breakdown (leases, provisions) and any new debt/equity issuance.
• Partner concentration and new BD deals that can re-accelerate revenue.

Relative Positioning: Within small-cap Japanese biotech peers, the company exhibits typical high-margin but volatile revenue patterns, heavy SG&A relative to sales, and adequate near-term liquidity; progress on partnering and milestone conversion will determine whether it outperforms or continues to lag on profitability and ROE.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis