Solasia Pharma K.K. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥91M
• Operating Income: ¥-713M
• Net Income: ¥-726M
• Earnings per Unit (EPU): ¥-3.16

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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 was very weak, marked by minimal revenue scale, heavy operating losses, and cash burn funded by external financing. Revenue was 0.91 (100M JPY), up 12.6% YoY, but gross profit was only 0.05, implying a low gross margin of 5.5% and limited pricing power or high product costs. SG&A was 5.80, far exceeding gross profit and driving an operating loss of -7.13. Net income was -7.26 and total comprehensive income -7.22, reflecting persistent losses through the bottom line. ROE calculated via DuPont was -40.4% (NPM -797.8%, Asset Turnover 0.039, Leverage 1.30x), showing the dominant driver is extreme negative margin due to inadequate scale versus fixed costs. Operating cash flow was -8.65, worse than the accounting loss, with financing inflows of 11.82 propping up the cash balance to 18.32. With total assets of 23.40 and equity of 17.96 (equity ratio 76.8%), the balance sheet remains lowly levered, but the business model is not yet self-funding. Margin comparison versus last year cannot be quantified due to limited disclosed prior-period margin data; directionally, the operating margin is deeply negative (operating income -7.13 on revenue 0.91). Earnings quality is weak as OCF was more negative than net income despite the OCF/NI ratio being reported as 1.19x; with both figures negative, cash conversion is not favorable. Working capital shows inventories of 1.38 and receivables of 0.75 against accounts payable of 3.78, implying reliance on supplier credit offset by cash reserves (balance sheet cash not disclosed, but period-end cash and equivalents were 18.32). Equity financing likely funded operations in the period, which introduces dilution risk if losses persist. ROIC is -38.5%, signaling poor capital efficiency at current scale. No dividends are disclosed, which is appropriate given losses and negative retained earnings (-3.70). Forward-looking, the company must either accelerate commercial traction and gross margin improvement or substantially reduce the cost base to extend runway and move toward breakeven. Near-term catalysts would need to target revenue scale, pricing/mix, and operating discipline to mitigate continued financing dependence.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-797.8%) × 0.039 × 1.30 ≈ -40.4%. The largest driver of the change is the net profit margin, which is extremely negative due to very small revenue (0.91) versus sizable fixed operating costs (SG&A 5.80) and other operating items, resulting in operating loss of -7.13 and net loss of -7.26. Business reasons: (1) limited commercialization scale and low gross margin (5.5%) provide insufficient contribution to cover fixed costs; (2) likely R&D/other operating costs not separately disclosed add to the negative spread; (3) minimal non-operating contribution (equity method income -0.03) offers no offset. Sustainability: the current margin profile is not sustainable without either step-up in revenues/gross margin or substantial SG&A/R&D rationalization; the negative margin is not a one-time effect but a function of business scale. Asset turnover at 0.039 is very low, consistent with early-stage pharma with undeployed assets relative to sales; improvement depends on commercialization milestones. Financial leverage is modest (equity multiplier 1.30), so leverage is not a contributor to ROE volatility. Concerning trend flags: SG&A absolute level (5.80) vastly outpaces revenue (0.91), indicating negative operating leverage; we cannot confirm YoY SG&A growth versus revenue growth due to undisclosed prior-period SG&A, but the cost structure is currently misaligned with revenue scale.

Growth Assessment

Revenue grew 12.6% YoY to 0.91, but the base is extremely small, and gross profit of 0.05 suggests weak unit economics at this stage. Operating income of -7.13 indicates growth is not translating into operating leverage; fixed costs dominate. Equity method income was -0.03, offering no support. With gross margin at 5.5%, pricing power and/or cost of goods remain issues; a path to at least breakeven requires both higher volumes and margin lift. Non-operating income/expenses were not disclosed, limiting visibility on one-offs; the reported tax credit (-0.21) modestly narrows losses but is not a structural profit driver. Given the financing inflow of 11.82, recent growth appears funded by external capital rather than internal cash generation. Outlook hinges on commercialization progress (new indications/territories, partner milestones) and cost control; without these, continued dilution risk is likely. No segment disclosures or pipeline milestones were provided, constraining forward assessment.

Financial Health

Liquidity: Current ratio cannot be calculated due to missing current liabilities; however, current assets are 20.76 versus at least 3.78 in accounts payable, and period-end cash and equivalents were 18.32, suggesting near-term liquidity is adequate. There is no explicit warning for Current Ratio < 1.0 as it is not calculable with available data. Solvency: Total liabilities are 5.43 against equity of 17.96, implying modest leverage; the reported D/E ratio is 0.30x (likely total liabilities/equity). The equity ratio is strong at 76.8%. Interest-bearing debt details are unreported; interest coverage cannot be assessed. Maturity mismatch: Accounts payable (3.78) exceed the sum of receivables (0.75) and a portion of inventories (1.38), but ample cash (18.32) mitigates near-term rollover risk. Off-balance sheet obligations: none disclosed. No D/E > 2.0 warning.

Cash Flow Quality

OCF was -8.65 versus net income of -7.26; although the calculated OCF/NI ratio is shown as 1.19x, both figures are negative, so cash conversion is not favorable. Free cash flow is -8.65 (capex not disclosed), indicating operations are not self-funding. The divergence suggests working capital outflows and/or non-cash items did not offset losses; with inventories at 1.38 and receivables at 0.75, rising inventories or slower collections could be contributing, but detailed working capital drivers are not disclosed. Sustainability: Absent a significant uplift in gross profit and operating efficiency, negative OCF is likely to persist, requiring continued financing. Dividend and capex commitments are minimal/not disclosed; FCF is currently insufficient to support any distributions.

Dividend Sustainability

No dividends are disclosed, and retained earnings are negative (-3.70). With net losses (-7.26) and negative FCF (-8.65), any dividend would be unsustainable. Payout ratios and FCF coverage are not calculable but would be effectively non-viable given current performance. Policy outlook: Expect a continued emphasis on capital preservation and funding operations rather than shareholder distributions until profitability and positive OCF are achieved.

Risk Assessment

Business Risks:

• Commercialization risk: revenue (0.91) remains subscale, with gross margin only 5.5%.
• Pipeline and regulatory risk typical for pharma; delays or trial outcomes can materially affect timelines and cash needs.
• Pricing and reimbursement risk impacting gross margin and adoption.
• Inventory obsolescence/write-down risk with inventories at 1.38 amid low sales.
• Partner dependency risk if commercialization relies on distributors/alliances (not disclosed).

Financial Risks:

• Cash burn risk: OCF -8.65 over the period requires external funding.
• Dilution risk: financing CF 11.82 indicates equity/debt issuance; likely additional raises if losses persist.
• Liquidity data gaps: current liabilities not fully disclosed, limiting precise liquidity assessment.
• FX risk if product sourcing or trials are foreign currency–denominated (not disclosed).

Key Concerns:

• ROIC -38.5% and ROE -40.4% indicate poor capital efficiency.
• Extreme negative operating margin (operating loss -7.13 on revenue 0.91) shows misaligned cost base.
• OCF more negative than NI signals weak cash earnings quality.
• Equity method income (-0.03) provides no buffer.
• Potential going-concern pressure medium term if revenue/margins do not improve and markets for financing tighten.

Investment Implications

Key Takeaways:

• Top-line grew 12.6% YoY to 0.91, but gross profit (0.05) and 5.5% GM are insufficient to cover fixed costs.
• Operating loss -7.13 and net loss -7.26 underscore lack of operating leverage.
• OCF -8.65 necessitated financing inflows of 11.82; runway currently relies on external capital.
• Balance sheet leverage is low (equity ratio 76.8%), but capital efficiency is poor (ROIC -38.5%).
• No dividend capacity given losses and negative retained earnings.

Metrics to Watch:

• Quarterly revenue trajectory and product uptake (absolute and QoQ growth).
• Gross margin progression and COGS control.
• SG&A and R&D run-rate versus revenue (operating leverage).
• Operating cash flow and working capital movements (inventories/receivables).
• Cash runway versus monthly burn; additional financing plans and dilution.
• Regulatory/pipeline milestones that could unlock revenue scale.

Relative Positioning: Within Japan’s small-cap biotech/pharma peers, the company sits at the high-burn, low-revenue end of the spectrum with a strong equity ratio but heavy dependence on capital markets; near-term competitiveness hinges on achieving meaningful commercialization and improving gross margin.

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