COMPANY RESEARCH AND ANALYSIS REPORT

Pharma Foods International Co., Ltd.
2929
Tokyo Stock Exchange Prime Market

26-May-2023
FISCO Ltd. Analyst

Masanobu Mizuta

FISCO Ltd.
https://www.fisco.co.jp

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Company profile.. ................................... ......................................................................................................

01

2. Outline of results for 1H FY7/23...................................................................................................................

01

3. Outlook for FY7/23.. .....................................................................................................................................

02

4. Growth strategy...........................................................................................................................................

02■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. Company profile.. ................................... ......................................................................................................

03

2. History................................................... ......................................................................................................

04■Business summary--------------------------------------------------------------------------------------------------------------------------------------------------- 06
1. BtoB business. . ............................................................................................................................................

08

2. BtoC business.. ...................................... ......................................................................................................

11

3. Bio Medical business............................. ......................................................................................................

12

4. Risk factors, feature of earnings, and countermeasures. .............................................................................

14■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 14
1. Outline of results for 1H FY7/23...................................................................................................................

14

2. Trends by business segment. . ......................................................................................................................

16

3. Financial condition................................. ......................................................................................................

18■Outlook ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 19
1. Outlook for FY7/23.. .....................................................................................................................................

19

2. Outlook by business segment. . ....................................................................................................................

20■Growth strategy----------------------------------------------------------------------------------------------------------------------------------------------------------- 21
1. Creation of new products. . ...........................................................................................................................

21

2. Creation of new markets........................ ......................................................................................................

21

3. Creation of a new organization. . ...................................................................................................................

23

4. FISCO’s opinion..................................... ......................................................................................................

23■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 23■Initiatives for ESG and SDGs-------------------------------------------------------------------------------------------------------------------------- 24

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en■ Summary
A biotechnology company aiming to create pharma foods by fusing
pharmaceuticals and foods
Pharma Foods International Co., Ltd. <2929> (hereafter, also “the Company”) is a biotechnology company whosebasic policy is to conduct business that contributes to people’s health by aiming to create pharma foods throughfusing pharmaceuticals and foods. By focusing on raw ingredients derived from nature and providing proprietary
technologies and products that are based on scientific evidence, it is creating food ingredients that clearly function
to improve both health maintenance and QOL (Quality of Life).
1. Company profile
With a sustainability vision of meaningful prosperity and health in an era with lives spanning 100 years, the Company
seeks to realize a sustainable society in which people are happy and healthy. To achieve this goal, it develops foodproducts, cosmetics, and pharmaceuticals based on scientific evidence and broadly provides them to society in threebusiness, the BtoB business, BtoC business, and Bio Medical business. The BtoB business manufactures and sells
functional ingredient products such as PharmaGABA®, and through Meiji Yakuhin Co., Ltd., which was made into a
subsidiary in August 2021, it manufactures and sells pharmaceutical and non-pharmaceutical products. The BtoC
business conducts e-commerce sales and wholesale distribution of supplements, non-pharmaceutical products,
and cosmetics that blend the Company’s proprietary functional ingredients. The main product is Newmo® Hair
Growth Formula, a hair restoration and new growth stimulant. The Bio Medical business is involved in drug discovery
using ALAgene® technology, the Company’s proprietary technology for producing antibodies from chickens, andother technologies.
2. Outline of results for 1H FY7/23
In the Company’s 1H FY7/23 consolidated results, net sales increased 21.9% year on year (YoY) to ¥35,143mn,
operating loss was ¥883mn (¥2,032mn profit in the same period of the previous fiscal year), ordinary loss was¥912mn (¥2,105mn profit), and loss attributable to owners of parent was ¥914mn (¥1,561mn profit). Although net
sales increased amid steady growth of the mainstay BtoB and BtoC businesses, the Company recorded losses foreach profit type due to ongoing aggressive investment in new product research and development and investment
in advertising to promote growth. Meanwhile, looking at quarterly results, the Company recorded losses in 1Q(August–October 2022) due to a significant increase in advertising expenses, but then recorded an increase in
net sales in 2Q (November 2022–January 2023) relative to those of 1Q due to factors that include effectiveness ofadvertising and contribution of new products, thereby culminating in a shift to positive results facilitated by effective
use of advertising expenses.

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01 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Summary

3. Outlook for FY7/23
For its FY7/23 consolidated results, the Company has maintained its initial forecasts which project net sales toincrease by 18.0% YoY to ¥71,000mn, operating profit to increase 10.3% to ¥1,191mn, ordinary profit to edge up
0.3% to ¥1,268mn, and profit attributable to owners of parent to be ¥886mn (loss of ¥374mn in the previous fiscal
year). The Company will continue to focus on M&A and building alliances, and intends to establish overseas sites
and actively expand, but it plans to offset this by achieving higher sales in all segments. Although the Company
recorded losses in 1H, FISCO thinks the Company will most likely attain its initial forecasts considering factorsthat include the notion that it shifted to positive results in the three months of 2Q in part given the effectiveness ofadvertising and contribution of new products, and the notion that its advertising expenses in 2H are expected to
be lower than the initial estimates.
4. Growth strategy
In its Medium-Term Management Plan 2026, the Company has established “new value creation 1K” as a goal,
and through initiatives to create new value (new products, new markets, and a new organization), seeks to be acompany with net sales of ¥100.0bn by FY7/26. Regarding its approach to profit levels, it will conduct businessdevelopment through FY7/26 without concerns over a decline in profit margin each year and intends to expand inscale while boldly taking on risk. The Company is aiming to create a structure that can secure an average operating
profit margin of 10%. It has been making progress in reducing its risk of dependence on hit products. For instance,in the BtoC business it has been achieving steady growth with new products that support Newmo® Hair Growth
Formula, and in the BtoB business it has been encountering expansion with respect to PharmaGABA® and the
CMO*1 business and has launched its new Meiseki Lab product, which is the first in a series of Company’s national
brand (NB)*2 products. In the Bio Medical business, expectations for drug discovery and development are rising.
Business results for the immediate future may vary depending on the level of investment in advertising, but throughnew product and new market creation and active business development, FISCO believes the Company has highpotential for medium- to long-term growth.
*1	Abbreviation for contract manufacturing organization.
*2	Abbreviation for national brand, and refers to brands associated with the Company’s own products.

Key Points
A biotechnology company aiming to create pharma foods by fusing pharmaceuticals and foods
For FY7/23, the forecast for higher net sales and profits remains unchanged, with upside potential brought
about by rationalization of investment in advertising• Aiming for net sales of ¥100.0bn in FY7/26 through initiatives to create new value••

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02 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Summary

Results trends
Net sales (left)(¥mn)
80,000Operating profit (right)

(¥mn)
6,400

5,673

70,0005,600

60,0004,800

50,0004,000

40,0003,200
71,00030,00015,35320,00010,0002,400

60,185

7,943
296

10,532576

46,752

1,600

740
1,080

1,191

FY7/22

FY7/23 E

0800
0FY7/18

FY7/19FY7/20FY7/21

Source: Prepared by FISCO from the Company’s financial results■ Company profile
Creates food ingredients that clearly function to improve both healthmaintenance and QOL
1. Company profile
The Company is a biotechnology company whose basic policy is to conduct management that contributes topeople’s health by aiming to create “pharma foods” by fusing pharmaceuticals and foods. With a development
concept of immunity, aging, and the nervous system, three important elements in life activity and health maintenance,
the Company examines everyday foods and ingredients like eggs, milk, green tea, rice, and lactic acid bacteria
for components that act on these three elements, and by providing proprietary technologies and products basedon scientific evidence, it creates food ingredients that clearly have functions helpful to health maintenance andenhancing quality of life.
At the end of 1H FY7/23, the location of the Company’s headquarters was in Nishikyo Ward, Kyoto City, and thePharma Foods International Group consisted of the Company, its five consolidated subsidiaries (PharmaFoods
Communication Inc., FUTURE LABO Inc., medi-labo Co., Ltd., Meiji Yakuhin Co., Ltd., and PF Capital) and two equity-method affiliates (Benart Co., Ltd., and Onkyo Home Entertainment Corporation). PharmaFoods Communication
conducts call center operations for the BtoC business, and FUTURE LABO and medi-labo sell cosmetics, Meiji
Yakuhin manufactures and sells pharmaceuticals and non-pharmaceutical products. PF Capital (which became asubsidiary following acquisition of the CVC operating company in May 2022) manages the PF Visionary Fund, alimited liability investment partnership established in January 2023.

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03 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Company profile

At the end of 1H FY7/23, total assets were ¥33,875mn, net assets were ¥5,752mn, capital was ¥2,042mn, theequity ratio was 17.0%, and the number of issued shares was 29,074,500 shares (includes 233,970 treasury shares).
2. History
The Company was established as Pharma Foods Research Co., Ltd. in September 1997 in order to develop and sellfunctional food ingredients, and then changed its trade name to Pharma Foods International Co., Ltd. in October
2004. Regarding the main functional ingredient products, sales of the GABA-containing ingredient PharmaGABA®
began in September 2001, the e-commerce sales brand Tamagokichi® and the Tamagosamine® with iHA® formulation supplement were launched in August 2012, and Newmo® Hair Growth Formula, a non-pharmaceuticalproduct formulated with HGP® (Hair Growth Peptide), was launched in November 2018.
In M&As and alliances, the Company concluded capital and business alliance agreements with Sanyo Chemical
Industries, Ltd. <4471> in March 2021, and with ROHTO Pharmaceutical Co., Ltd. <4527> in July 2021, respectively.
In August 2021, it invested in Ai-BrainScience Inc., which develops a cognitive function diagnosis app, while it also
made a wholly owned subsidiary of Meiji Yakuhin. In December 2021, it concluded a business alliance agreementwith Onkyo Home Entertainment Corporation (made an equity-method affiliate in May 2022 through third-party allocation of shares) and entered the hearing aid business. The Company obtained the bioscience business (proteome
analysis business) of Intégrale Co., Ltd., which possesses top-level results and technological capabilities in protein
analysis in Japan, via an absorption-type split in April 2022. Additionally, in July 2022, it made joint investmentswith ENEOS Holdings <5020> in ENEGGO Inc., which manufactures liquid fertilizers derived from eggs. Most
recently, the Company concluded a memorandum of understanding in December 2022 regarding the establishmentof a joint venture involving three companies with respect to a health food factory in Vietnam (The MoU pertains
to construction of a health food factory in Vietnam, with the intent to make sales through Long Chau Pharmacy;
details to be adjusted going forward). The joint venture consists of the Company, FPT Digital Retail Joint Stock
Company (“FRT”), owner of Vietnam's major pharmacy chain Long Chau Pharmacy, and Sato Connect Gate Joint
Stock Company by VTM Group (“SCG”). In March 2023, the Company concluded a capital and business allianceagreement with LB Co., Ltd., which has strengths in manufacturing yogurt and lactic acid beverages (underwritingof third-party allocation of class A preferred shares).
Regarding shares, the Company listed shares on the Tokyo Stock Exchange (TSE) Mothers Market in June 2006,
switched to the TSE Second Section in December 2016, and moved to the TSE First Section in February 2021. It
transitioned to the Prime Market accompanying the change in TSE market categories in April 2022.

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04 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Company profile

History
Date
September 1997
May 2001
September 2001

Event
Pharma Foods Research Co., Ltd. was established in order to develop and sell functional food ingredients
Market launched Ovopron®, a helicobacter pylori chicken egg antibody
Market launched PharmaGABA®, an ingredient containing GABA

October 2003

Market launched Pharma Foods Delicious CatechinTM, an ingredient containing catechin

October 2004

Changed trade name to Pharma Foods International Co., Ltd.

March 2005

Market launched PF Alpha Lipoic AcidTM, an ingredient containing alpha lipoic acid

June 2006

Listed on the TSE Mothers market

October 2006
April 2007
February 2012
July 2012

Market launched Runpep®, an egg white peptides ingredient
Established Hiroshima Bio Medical Co., Ltd. in order to conduct an R&D business in the field of blood purification therapy using
chicken egg antibodies and to conduct a business for test drugs and reagents (Company’s investment ratio: 49%)
Launched the Bio Value business
Market launched iHA®, a hyaluronic acid production-stimulating ingredient
Invested in and made an affiliate of Benart Co., Ltd., which conducts a solar power generation business, in order to enter the
renewable energy field (Company’s ratio of shareholding: 33.3%)

August 2012

Market launched the e-commerce sales brand Tamagokichi® and Tamagosamine with iHA®

October 2012

Sold some of its shares of Benart (Company’s ratio of shareholding: 50%, currently an equity-method affiliate)

September 2013

For the fully fledged development of the drug discovery business, conducted an absorption merger of Hiroshima Bio Medical andestablished the Bio Medical Department

September 2014

Opened the Company’s own call center for the Tamagokichi® e-commerce sales brandMay 2015
August 2015

Acquired the ISO 9001 quality management system certification
Established PharmaFoods Communication Inc. to conduct call center operations for health foods and cosmetics (made a wholly
owned subsidiary in December 2018, currently a consolidated subsidiary)

November 2016

To expand the Bio Value business, made FUTURE LABO Inc. a subsidiary (currently a consolidated subsidiary)

December 2016

Listing was changed to the TSE Second Section

October 2018
November 2018

Concluded a joint research agreement with Mitsubishi Tanabe Pharma Corporation for antibody pharmaceuticals indicated for thetreatment of autoimmune diseases
Market launched Newmo® Hair Growth Formula, a non-pharmaceutical product formulated with HGP®

January 2021

Concluded an exclusive licensing agreement with Mitsubishi Tanabe Pharma for a new therapeutic antibody to treat autoimmune
diseasesFebruary 2021

Listing was upgraded to the TSE First Section

March 2021

Concluded a capital and business alliance agreement with Sanyo Chemical Industries <4471>

July 2021

Concluded a capital and business alliance agreement with ROHTO Pharmaceutical <4527>

August 2021

Invested in Ai-BrainScience Inc., which is developing a cognitive function diagnostic app
Made a wholly owned subsidiary of Meiji Yakuhin Co., Ltd., which manufactures and sells pharmaceuticals and nonpharmaceutical products

September 2021

Formulated the Agriculture and Nutrition Basic Plan with Sanyo Chemical Industries

December 2021

Concluded a business alliance agreement with Onkyo Home Entertainment Corporation and entered the hearing aid businessEntered a new upcycle business using eggshell membranes

April 2022

Obtained the bioscience business of Intégrale Co., Ltd. via an absorption-type split
Transitioned to the Prime Market accompanying the change in TSE market categories

May 2022

Made Onkyo an equity-method affiliate

July 2022

Received third-party allocation ENEGGO shares jointly with ENEOS Holdings <5020>

December 2022

Concluded memorandum of understanding related to establishment of a three-company joint venture with respect to a healthfood factory in Vietnam, between the Company, FRT, and SCG

January 2023

Established PF Visionary Fund, a limited liability investment partnership

March 2023

Concluded a capital and business alliance agreement with LB Co., Ltd.

Source: Prepared by FISCO from the Company’s securities report and press releases

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05 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en■ Business summary
Develops BtoB business, BtoC business, and Bio Medical business
The Company performs research on pharmaceuticals and functional ingredients that act on immunity, aging, andthe nervous system. Based on its research results, it conducts BtoB sales of functional raw materials to foodproduct manufacturers and other companies, engages in the BtoC business in conducting e-commerce sales
and wholesale of supplements and cosmetics formulated using the Company’s proprietary functional ingredients,and engages in the Bio Medical business in licensing out chicken antibodies to pharmaceutical companies. The
Company is a fabless company that conducts R&D, marketing, and sales, established manufacturing methods
and production process, and monitors health and safety management while contracting out product production tooutside manufacturing partners.
Development of pharmaceuticals and functional ingredients that act on immunity, aging, and the nervous system

Source: The Company's results briefing materials

Looking at the trends in net sales and operating profit by business segment in the most recent five periods (FY7/18
to FY7/22), in the BtoB business, net sales and operating profit grew steadily alongside the increase in the numberof adopting companies. Meanwhile, Meiji Yakuhin began contributing to results in FY7/22. In the Integral’s BtoC
business, Newmo® Hair Growth Formula, which was launched on the market in November 2018, has become ahit product and is contributing greatly to earnings overall. In addition, Meiji Yakuhin’s Shiboranaito® GOLD also
contributed to results in FY7/22. The Bio Medical business is at the development stage and it records lump-sum
income relating to joint research and licensing as sales.

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06 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Business summary

Trends in net sales by business segment
BtoB business(¥mn)

BtoC business

Bio Medical business

70,00060,18560,000220
46,75250,000375

40,00051,88630,00043,52420,00010,00015,353
7 , 943
6,298

0

186

10,53236
1,608

FY7/18

8,523

231

12,591

1,777

2,575
FY7/20FY7/19

8,079

2,852
FY7/21

FY7/22

Note: Segment classifications and names changed as of 2Q FY7/22. The Accounting Standard for Revenue Recognition, etc.
applied as of FY7/22
Source: Prepared by FISCO from the Company’s financial results

Trends in operating profit by business segment
BtoB business

BtoC business

Bio Medical business

(¥mn)
7,000
81

6,000
5,000
4,000
5,575
3,000
2,000

638

1,000
0

174
713

605

21
288

573

1,660

799

770
-231

-45

-86
-1,000FY7/18

FY7/19FY7/20FY7/21

FY7/22

Note: From FY7/19, the Company changed the method of displaying Company-wide expenses and amortization of goodwill
to a method displaying the adjustment amounts. Figures for FY7/18 reflect this change.
Segment classifications and names changed as of 2Q FY7/22. The Accounting Standard for Revenue Recognition, etc.
has been applied since FY7/22
Source: Prepared by FISCO from the Company’s financial results

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07 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.

26-May-2023

2929 Tokyo Stock Exchange Prime Market

https://www.pharmafoods.co.jp/en

Business summary

Mainstay BtoB business product PharmaGABA® holds top share in
GABA production. Contributions also made by Meiji Yakuhin’s CMO
and CHC businesses
1. BtoB business
The BtoB business handles R&D and manufacturing of functional ingredients, health foods, pharmaceuticals, andother products and sells them to food and pharmaceutical manufacturers, distributors, and others. The Company’s
main functional ingredient products are PharmaGABA®, Bonepep®, Cerepron®, Runpep®, Pharma Biomix, HGP®,iHA®, and Moringa. Additionally, from 2Q FY7/22, Meiji Yakuhin’s contract manufacturing organization (CMO)
business and CHC business*, which sells functional foods, pharmaceuticals, and other products mainly in the
drugstore channel, as new manufacturing and sales channels, and from FY7/23, the Company’s own brand products
have been included. The Company maintains a policy of developing and expanding its own brand products as growth
drivers of the BtoB business segment.
*	Abbreviation for consumer health care (refers to selling pharmaceuticals, functional foods, and other products at

Searching for food and cosmetic functional ingredients from eggs

Source: The Company’s results briefing materials

Trends in net sales by item(¥mn)
FY7/21

FY7/22

FY7/23

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

Functional ingredients

334

518

501

754

252

431

391

633

375

440

OEM, NB, etc.

126

179

267

169

252

169

242

261

289

484

1,672

948

1,021

892

1,104

CMO
CHC
Total

460

698

769

924

504

869

466

465

312

172

3,143

2,048

2,382

1,869

2,201

Source: Prepared by FISCO from the Company's results briefing materials

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08 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Business summary(1) PharmaGABA®
PharmaGABA® is the Company’s mainstay product. GABA is a type of non-protein amino acid produced byanimals and plants and microorganisms, and is said to act as a neurotransmitter in the brain’s inhibitory system.
The Company separated the GABA-producing lactic acid bacteria in food and established a method of producing
GABA through a fermentation method, which it sells as PharmaGABA®. PharmaGABA® is able to display
functional claims, including relieving stress, reducing fatigue, improving blood pressure, and improving sleep
quality, and its adoption for foods with functional claims is growing. In the number of GABA notifications in the
foods with functional claims system at the end of February 2023, it ranked highest with 837 notifications (Company
data) and is maintaining a track record of adoptions. The growing adoptions of GABA by food manufacturers is
leading to an increase in orders for PharmaGABA® made by the Company, which holds the top share of GABA.
“PharmaGABA® has also been found to have other effects, including increasing muscle mass, improving cognitive
functions, and improving skin elasticity, and the evidence for it is further strengthening. The Company is also
selling it overseas and is aggressively expanding sales activities in North America, China, and other regions,and its adoptions are growing. In FY7/23, CENTR in the United States began selling beverages that claim toenhance cognitive function containing PharmaGABA® in California, Texas, and online, thereby marking the firsttime such beverages have been offered in North America. In South Korea, PharmaGABA® has been adopted by
Amorepacific Group's Vitalbeautie brand of beauty drinks. With PharmaGABA® having acquired halal certification,
the Company intends to fully launch sales in the Southeast Asian region where there are many Muslim people.
(2) Bonepep®
Bonepep® is a functional ingredient derived from egg yolk protein that was developed as a component to stimulatebone growth. A typical product that adopts it is Senobic sold by ROHTO Pharmaceutical.
(3) Cerepron®
Cerepron® is a functional ingredient derived from yeast as a skin whitening ingredient in food (active yeast extract
powder) that can be expected to have skin whitening effects. Demand for skin whitening is increasing particularly
in overseas markets, and its adoptions are growing mainly in Southeast Asia.
(4) Runpep®
Runpep® is a functional ingredient derived from egg white protein that was developed to be a component withblood vessel expansion and blood flow improvement effects. It is being adopted for products relating to improving
blood flow and reducing exercise fatigue, diet-related products, and male-function products.
(5) Pharma Biomix
Pharma Biomix is a feed supplement to help hens to lay folate-enriched eggs. Within Japan, it has been adopted
by JA.Z-TAMAGO. CO., LTD. for its “Shin-Tamago” and “Brown Shin-Tamago” products, and overseas, it has
been adopted by Pulmuone Co., Ltd. (Pulmuone) in South Korea for functional eggs.
(6) HGP®
HGP® is a functional ingredient derived from egg yolk protein that was developed as a component that stimulates
hair restoration and growth. Research results have been obtained that demonstrate the effects of taking the oral
formulation, and it is being adopted by Japanese manufacturers and others.
(7) iHA®
iHA® is a functional ingredient derived from egg yolk protein that was developed as a component stimulating
the production of hyaluronic acid. Research results have verified its effects in animal experiments, and it is being
adopted for the Company’s e-commerce sales products and the products of domestic manufacturers.

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09 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Business summary(8) Moringa
Moringa is known to be a superfood and since ancient times, it has been used as herbal medication in Indian
Ayurveda medicine. Research results have shown that it has an anti-aging effect, and it is being adopted for andused to create products in the foods and supplements fields.
(9) OEM and NB businessIn OEM business, in addition to selling various functional ingredients, the Company not only conducts outsourced
OEM production but also plans and sells products including health foods and supplements that utilize the evidence
cultivated in the development of functional ingredients, both in Japan and overseas, as an OEM business.
Under its policy going forward, the Company aims to expand the OEM and NB businesses for its own products
as an area of focus, thereby shifting from sales of functional raw materials to sales of end products. In FY7/23,
the Company began selling its new Meiseki Lab product, the first in a series of its own NB products, at major
convenience stores. The drink, which contains a maximum of 200 mg of GABA, is expected to help maintainpeople’s ability to think logically, which is said to decline with age. In addition, the Company also sells Muscle Lab,
which facilitates maintenance of muscle mass, and Sleep-enhancement Drink, which is useful for improving sleep
quality, as the second series of products. In March 2023, the Company concluded a capital and business allianceagreement with LB Co., Ltd., which has strengths in manufacturing long-life yogurt and lactic acid beverages.
The Company aims to expand its NB business, focusing on major convenience stores and drugstores, particularly
through joint development of beverages and other such products using functional ingredients.
As for the OEM business overseas, the Company has achieved expanded adoption of PharmaGABA® in North
America and South Korea, and in December 2022 concluded a memorandum of understanding regarding establishment of a three-company joint venture with respect to a health food factory in Vietnam, with FRT, owner ofVietnam's major pharmacy chain Long Chau Pharmacy, and SCG. Whereas this entails construction of a healthfood factory in Vietnam with plans to make sales through Long Chau Pharmacy, adjustments are to be madegoing forward concerning details such as scheduling regarding joint venture company establishment and factory
construction, as well as the investment ratio.
(10) CMO businessIn the CMO business, Meiji Yakuhin receives consignments to manufacture ethical pharmaceuticals and OTC
pharmaceuticals from pharmaceutical companies. Manufacturing inquiries have been trending upward at Meiji
Yakuhin following several business suspensions due to legal violations at multiple companies in the domestic
generic drug industry.
(11) CHC businessIn the CHC business, Meiji Yakuhin is selling its brand products to drugstores and other distribution channels.
Sales have also risen to cross-border EC distributors in recent years.

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10 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Business summary

BtoC business strengthens the product lineup led by Newmo® Hair
Growth Formula, with growth in new products as well
2. BtoC business
As an “invention company’s e-commerce business,” the BtoC business sells health foods and non-pharmaceuticalproducts (under the Tamagokichi®) formulated using the Company’s proprietary functional ingredients and cosmetics(including under the FUTURE LABO brand). Sales methods comprise direct sales to consumers through e-commerce
and wholesales to dedicated shopping channels. Furthermore, Meiji Yakuhin’s new repeat e-commerce businesshas been included from 1H FY7/22.
Main products include Tamagosamin® (iHA® formulation supplement for knee joints); non-pharmaceutical productNewmo® Hair Growth Formula (hair restoration and new growth stimulant); and Tamahada Lanshell® (cosmetic
cream formulated from active eggshell membranes), Tamahada Nou Mitsu®, and Derma QII® (keratin peeling gel)in cosmetics. In February 2021, the Company launched sales of Has V, a schedule III pharmaceutical, as phase 1of its entry into the pharmaceutical e-commerce market.
By item, Newmo® Hair Growth Formula, which promotes hair growth and restoration, has become a hit product,reaching No. 1 in sales in the hair care market in just two years since its launch and contributing greatly to overall
earnings. In addition, the Company has achieved growth also with products such as Eyelash Deluxe WMOA,
launched in FY7/22, and its DRcula series of medicated toothpastes. Going forward, the Company intends to expand
its product lineup around its mainstay Newmo® Hair Growth Formula.
Net sales by item in the BtoC business

Source: The Company’s results briefing materials

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11 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Business summary

It is necessary to be aware that the revenue structure of the BtoC business is a structure in which advertisingexpenses and sales occur in different periods. Specifically, advertising expenses are recorded at the time a newcustomer is acquired, but net sales are recorded continuously over the regular course. So, when the Company
focuses on acquiring new customers, this temporarily causes expenses to increase. However, repeat purchases
generated from the base of regular customers give rise to future profits.
The BtoC business’s revenue structure

Source: The Company’s results briefing materials

Bio Medical business develops a drug discovery business using its
proprietary ALAgene® technology
3. Bio Medical business
The Bio Medical business is a drug discovery business that uses ALAgene® technology, the Company’s proprietary
technology to produce antibodies derived from chickens, and a technology to develop bioactive peptides derived
from chicken egg yolk. Additionally, the Company is developing Intégrale’s Bio Science Business (proteomic analysis
business), which it assumed in April, 2022.

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12 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Business summary

Producing antibody pharmaceuticals from chickens

Source: The Company’s results briefing materials

ALAgene® technology is a foundational Company technology that makes possible the production of antibodies for
drug discovery target molecules that are difficult to produce using conventional technologies. The Company is using
this technology to conduct R&D into antibody pharmaceuticals indicated for patients with autoimmune diseases andmalignant tumors. In addition, Reprotite®, a peptide derived from chicken egg yolk developed by the Company,
has been successfully isolated and identified as a bioactive material involved in bone formation, and the Company
is developing it as an important pipeline candidate. Moreover, by combining ALAgene® technology and proteome
analysis technology, whose business has been transferred to the Company, it intends to further strengthen the
search for drug discovery targets and their identification in order to accelerate the development of antibody drugs.
Also, based on the technologies obtained from R&D relating to functional ingredients overall, the Company isconducting the LSI (Life Science Information) business, in which external companies outsource work such as
analyses and efficacy evaluation tests to the Company. It effectively utilizes its technological capabilities to support
the R&D of various manufacturers, mainly in the food industry, including by acquiring and analyzing data on functions,analyzing the components of various ingredients, and creating requests for finished products.
In terms of the business model, the Company progresses development up to the non-clinical trial stage, and fromthe clinical trials onwards, the pharmaceutical company to which the development-candidate antibody has been
licensed-out conducts the manufacture, development and sales. The Company receives license revenue, including
joint research lump-sum payments, lump-sum contract payments, development milestone payments, sales royalties
after the market launch, and sales milestone payments.
In the Autoimmune Disease Project*, which primarily addresses rheumatoid arthritis, the Company promoted joint
research with Mitsubishi Tanabe Pharma Corporation on antibody pharmaceuticals for two years beginning in
October 2018, which resulted in concluding an exclusive licensing agreement in January 2021. In addition, in April
2022, the Company was granted a patent in Japan for anti-PAD2 antibodies and in August was granted a patentby the United States Patent and Trademark Office for anti-PAD4 antibodies (already patented in Japan). It is now
moving toward licensing out in the next term.
*	The autoimmune disease therapy market is over ¥5tn (the Company’s estimate).

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13 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Business summary

4. Risk factors, feature of earnings, and countermeasures
The risk factors include competition, delays in responding to product development and technological innovation,
reliance on specific products, laws and regulations including the Pharmaceuticals and Medical Devices Act andFood Sanitation Act, and the protection of personal information.
Regarding competition, PharmaGABA®, which is the mainstay product in the BtoB business, holds the top share for
GABA production, so it appears that there are very few concerns about competition intensifying for the time being.
The risk factors in the BtoC business include the effects of consumer preferences and purchasing trends, the extent
of the reliance on specific products, an increase in advertising expenses and sales that are less than forecast.
Regarding reliance on specific products, the Company is currently highly reliant on Newmo® Hair Growth Formula,but it is actively promoting the development of new products, including Eyelash Deluxe WMOA, DRcula series, andShiboranaito® GOLD in an effort to reduce reliance risk by expanding its product lineup. At the same time, withrespect to advertising expenses, the Company is working to reduce related risks by responsively controlling theexpenses while observing sales, CPO*1, and LTV*2 trends.
*1	Abbreviation for Cost Per Order. It means the amount of advertising expenses required to acquire one customer.
*2	Abbreviation for Life Time Value.

In the Bio Medical business, a long period of time is required from the development of a new drug until its market
launch, so there is risk relating to future uncertainty (development delays, discontinuations, etc.). To deal with thisrisk, when developing a drug’s business, the Company cautiously determines factors such as its market potential
and the possibility of an actual market launch, and formulates a business plan for it covering a long period of time.

■ Results trends
In 1H FY7/23, despite losses having been record for each profit type,
results turned positive for the three months of 2Q due to factorsthat include effectiveness of advertising and contribution of new
products
1. Outline of results for 1H FY7/23
In the Company’s 1H FY723 consolidated results, net sales increased 21.9% YoY to ¥35,143mn, operating loss
was ¥883mn (¥2,032mn profit in the same period of the previous fiscal year), ordinary loss was ¥912mn (¥2,105mn
profit), and loss attributable to owners of parent was ¥914mn (¥1,561mn profit).

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14 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.

26-May-2023

2929 Tokyo Stock Exchange Prime Market

https://www.pharmafoods.co.jp/en

Results trends

Consolidated results for 1H FY7/23(¥mn)
1H FY7/22

1H FY7/23

Results% of total

Results% of total

28,821100.0%

35,143100.0%

21.9%

BtoB business

3,647

12.7%

4,071

11.6%

11.6%

BtoC business

25,15987.3%

30,923

88.0%

22.9%

14

0.0%

138

0.4%

880.0%Net sales

Bio Medical business

YoY

-

-

10

0.0%

-

Gross profit

23,03579.9%

28,386

80.8%

23.2%

SG&A expenses

21,002

72.9%

29,270

83.3%

39.4%

Operating profit (loss)

2,032

7.1%

-883

-2.5%

-

BtoB business

541

14.8%

700

17.2%

29.5%

BtoC business

2,070

8.2%

-857

-2.8%

-

Bio Medical business-138-985.7%-145-105.1%

-

-

-

-1

-10.0%

-

-440

-

-580

-

-

Ordinary profit (loss)

2,105

7.3%

-912

-2.6%

-

Profit (loss) attributable to owners of parent

1,561

5.4%

-914

-2.6%

-

Other (fund management, etc.)

Other (fund management, etc.)
Adjustment amount

Source: Prepared by FISCO from the Company’s financial results

Although net sales increased amid steady growth of the mainstay BtoB and BtoC businesses, the Company recorded
losses for each profit type due to ongoing aggressive investment in new product research and development andinvestment in advertising to promote growth. Gross profit on a Company-wide basis increased 23.2% YoY, andthe gross margin rose 0.9ppt to 80.8%. In addition, SG&A expenses were up 39.4% YoY, and the SG&A expenses
ratio gained 10.4ppt to 83.3%.
On a quarterly basis, 1Q (August–October 2022) net sales were ¥17,030mn and operating loss was ¥2,194mn.
Meanwhile, 2Q (November 2022–January 2023) net sales were ¥18,113mn and operating profit was ¥1,310mn. The
Company recorded losses in 1Q due to proactive investment made in advertising toward growth, but then recorded
a 6.4% increase in net sales in 2Q relative to those of 1Q due to factors that include effectiveness of advertisingand contribution of new products, thereby culminating in a shift to positive results facilitated by effective use ofadvertising expenses. SG&A expenses for 1Q were ¥16,020mn, up 75.8% YoY (of which, advertising expenses were
up 90.2% to ¥12,800mn), and SG&A expenses for 2Q were ¥13,250mn, up 11.4% (of which, advertising expenses
were up 13.0% to ¥10,035mn).

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15 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.

26-May-2023

2929 Tokyo Stock Exchange Prime Market

https://www.pharmafoods.co.jp/en

Results trends

Trends in quarterly results
Net sales(¥mn)

Operating profit (loss)

20,00016,21515,00010,00012,005

13,35513,003

15,228

16,135

17,03018,113

12,606

8,387

5,000

2,714

1,346

3,040
1,575

457

1,310

148

0
-1,100-1,428-2,194-5,000
1Q

2Q

3Q

4Q

1Q

2Q

FY7/21

3Q

FY7/22

4Q

1Q

2Q

FY7/23

Source: Prepared by FISCO from the Company’s results briefing materials

2. Trends by business segment(1) BtoB businessNet sales in the BtoB business increased 11.6% YoY to ¥4,071mn and segment profit rose 29.5% to ¥700mn. As
for net sales by item, sales of functional ingredients increased 19.5% to ¥816mn (of which, PharmaGABA® was
up 23.6% to ¥564mn), OEM, NB, etc. climbed 83.6% to ¥773mn, CMO business undertaken by Meiji Yakuhin
gained 19.4% to ¥1,996mn, and CHC business decreased 44.3% to ¥484mn. With PharmaGABA®, adoptionof GABA by food manufacturers continues to expand and its use also increased in the United States and South
Korea. In the OEM, NB, etc. category, there was an increase in sales of private-label brand (PB) hair growth formula
to drugstores. In the CMO business, the Company has been striving to improve profit margins by implementing
cost pass-through and narrowing down its range of products under contract amid mounting demand for substituteproducts due to quality issues among generic drug manufacturers. The CHC business encountered a decreasein net sales, but intensified its focus on new branded products for drugstores.

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16 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.

26-May-2023

2929 Tokyo Stock Exchange Prime Market

https://www.pharmafoods.co.jp/en

Results trends(2) BtoC business
The BtoC business reported ¥30,923mn in net sales (up 22.9% YoY) and a ¥857mn segment loss (\2,070mn
profit in the same period of the previous fiscal year). On the sales front, Newmo® Hair Growth Formula continued
to perform well, and growth of new products such as Eyelash Deluxe WMOA and those of the DRcula series
contributed to results. Meanwhile, the BtoC business recorded a segment loss due to aggressive investment
in advertising (up 46.3% YoY to ¥22,771mn). However, net sales set a record high on a quarterly basis in 2Q(November 2022–January 2023) due to the effects of investment in advertising, thereby culminating in a shift topositive results in terms of segment profit.

Trends in quarterly results in the BtoC businessNet sales

Segment profit (loss)(¥mn)
18,00015,09515,00012,567
10,97912,0009,000

12,054

12,091

13,06813,147

15,827

13,579

7,922

6,000
2,798
3,000

3,012

1,103

1,818

1,243

251

0
-3,000-1,339
1Q

2Q

3Q

4Q

1Q

2Q

FY7/21-1,247

-184

3Q

4Q

FY7/22-2,100
1Q

2Q

FY7/23

Source: Prepared by FISCO from the Company’s results briefing materials

The Company began aggressively investing in advertising for new products while emphasizing CPO, an indicator ofcustomer acquisition efficiency, and LTV, a profitability indicator, and, as a result, the number of regular customers
as of January 31, 2023 was 1,050,880 (834,139 at the end of the previous year). Repeat purchases from thiscustomer base continue to expedite profit generation and raise profit levels. Going forward, the Company intends
to mitigate risks associated with the advertising expense burden by balancing such expenses while keeping aclose eye on sales, CPO and LTV trends.

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17 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Results trends

Trends in advertising expenses and number of regular customers in the BtoC business

Source: The Company’s results briefing materials

By item, there was steady growth in sales of new products in support of mainstay Newmo® Hair Growth Formula,and Newmo® Hair Growth Formula itself also performed well, with sales hitting ¥13,708mn and volume topping
18 million units (as of December 24, 2022). Other sales were ¥4,230mn attributable to Shiboranaito® GOLD,¥2,930mn for Eyelash Deluxe WMOA, ¥997mn for Newmo® Supplement, ¥969mn for Tamagosamine®, and¥849mn for DRcula whitening gel.
(3) Bio Medical business
The Bio Medical business reported ¥138mn in net sales (up 880.0% YoY) and a ¥145mn segment loss (¥138mn
loss in the same period of the previous fiscal year). The segment did not record lump-sum income relating to joint
research and a licensing contract with Mitsubishi Tanabe Pharma, but its Olink Target service for analyzing trace
amounts of proteins in the proteome analysis contract services business performed well. The segment seeks tostrengthen its new drug development pipeline, particularly with respect to autoimmune diseases and fibrosis,
and furthermore aims to acquire new drug modalities enlisting alliances with ventures through subsidiary CVC.
3. Financial condition
At the end of 1H FY7/23, total assets increased ¥2,715mn from the end of the previous fiscal year to ¥33,875mn.
This was mainly due to a ¥4,130mn increase in cash and deposits and a ¥943mn decrease in notes and accounts
receivable – trade. Total liabilities at the end of 1H FY7/23 climbed ¥4,038mn to ¥28,122mn mainly because of risesof ¥811mn in accounts payable-other related to the increase in advertising expenses and ¥2,000mn in short-termborrowings following implementation of borrowing based on a commitment line agreement enlisting the syndicate
method. Total net assets decreased ¥1,322mn to ¥5,752mn due to recording loss attributable to owners of parent
and dividends paid. The equity ratio hence dropped 5.7ppt to 17.0%.

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18 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Results trends

The Company’s overall balance sheet has ballooned as sales have increased sharply, and its equity ratio continues
to trend toward a decline, but the Company also continues to expedite profit generation and raise profit levels
through aggressive investment in advertising. Moreover, the increase in interest-bearing debt has not been a factor
putting pressure on profits. For these reasons, FISCO believes that there are no concerns regarding the Company’s
financial soundness. In September 2022, the Company concluded a commitment line agreement for a total of¥7.6bn (three-year agreement) through the Bank of Kyoto <8369>, its main bank, and five regional banks. It can beconcluded that this reflects the positive evaluation given to the Company’s track record in drug discovery, functional
ingredient research and development, and e-commerce sales as well as the high regard the banks have for thefeasibility of its Medium-Term Management Plan aimed at expansion in the healthcare domain.
Consolidated balance sheet(¥mn)
End of FY7/20

End of FY7/21

End of FY7/22

End of 1H
FY7/23

Change10,096

20,944

31,15933,875

2,715

Current assets

7,437

17,93323,513

26,136

2,623

Non-current assets

2,659

3,010

7,645

7,739

94

5,188

12,47824,084

28,122

4,038

Current liabilities

2,837

10,97822,79525,283

2,488

Non-current liabilities

2,350

1,499

1,288

2,839

1,551

4,907

8,465

7,074

5,752

-1,322

Shareholders’ equity

4,895

8,455

7,024

5,605

-1,419

Capital stock

2,033

2,038

2,042

2,042

-

48.6%

40.4%

22.7%

17.0%

-5.7ptTotal assets

Total liabilities

Total net assets

Equity ratio

Source: Prepared by FISCO from the Company’s financial results■ Outlook
For FY7/23, the forecast for higher net sales and profits remains
unchanged, with upside potential brought about by rationalization of
investment in advertising
1. Outlook for FY7/23
For its FY7/23 consolidated results, the Company has maintained its initial forecasts which project net sales toincrease 18.0% to ¥71,000mn, operating profit to increase 10.3% to ¥1,191mn, ordinary profit to edge up 0.3%
to ¥1,268mn, and profit attributable to owners of parent of ¥886mn (loss of ¥374mn the previous term). Whilecontinuing to focus on M&A and alliance-building, the Company plans to establish overseas sites and aggressively
expand, but it expects to offset the expenditures by achieving increased sales in all segments. Although the Company
recorded losses in 1H, FISCO thinks it highly likely that the Company will attain its initial forecasts considering thenotion that it shifted to positive results in the three months of 2Q in part given the effectiveness of advertising andcontribution of new products, and the notion that its management team has firmly expressed its commitment to
optimizing advertising and improving profit margins.

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19 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.

26-May-2023

2929 Tokyo Stock Exchange Prime Market

https://www.pharmafoods.co.jp/en

OutlookConsolidated outlook for FY7/23(¥mn)
FY7/22

FY7/23Results% of sales

Forecast% of sales

60,185100.0%

71,000100.0%

BtoB business

8,079

13.4%

8,600

12.1%

6.4%

BtoC business

51,88686.2%

62,000

87.3%

19.5%

Net sales

YoY
18.0%

220

0.4%

360

0.5%

63.6%

Operating profit

1,080

1.8%

1,191

1.7%

10.3%

Ordinary profit

1,264

2.1%

1,268

1.8%

0.3%

Profit (loss) attributable to owners of parent

-374

-0.6%

886

1.2%

-

Bio Medical business

Source: Prepared by FISCO from the Company’s financial results and results briefing materials

2. Outlook by business segment(1) BtoB businessIn the BtoB business, the Company is forecasting sales of ¥8,600mn, a YoY increase of 6.4%. In functional
ingredients, it will strengthen overseas sales and build a production system overseas, with respect to which theCompany concluded a memorandum of understanding in December 2022 regarding establishment of a joint
venture company with respect to a health food factory in Vietnam. The Company plans to accelerate its shift fromfunctional raw material sales to end product sales and will transition from contract production for private brands
to sales of products under its own brands. Most recently, the Company launched sales of its new Meiseki Lab and
Muscle Lab products. For mainstay PharmaGABA®, it plans to receive large-scale orders. The CMO business of
Meiji Yakuhin is expected to be operating at full capacity.
(2) BtoC businessIn the BtoC business, the Company is forecasting sales of ¥62,000mn, a YoY increase of 19.5%. Newmo® Hair
Growth Formula is expected to remain firm, with the Company making changes to its advertising. New products
such as Eyelash Deluxe WMOA and those of the DRcula series are also expected to continue their growth.
Meanwhile, the Company will apparently act in a manner that is responsive to sales, CPO, and LTV trends withrespect to advertising expenses.
(3) Bio Medical business
Sales in the Bio Medical business is expected to increase 63.6% YoY to ¥360mn. The Company will expand
its contract services for next-generation proteome analysis for major pharmaceutical companies, while moving
forward on antibody drug development for new diseases.

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20 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en■ Growth strategy
Aiming for net sales of ¥100.0bn in FY7/26 through initiatives tocreate new value
In its Medium-Term Management Plan 2026, the Company has established “new value creation 1K” as a goal, andthrough initiatives to create new value (new products, new markets, and a new organization), seeks to be a company
with net sales of ¥100.0bn by FY7/26. Looking at a breakdown of this goal, it is targeting ¥70.0bn in growth fromexisting businesses and over ¥30.0bn from new value creation, and it has committed to an average sales growthrate of 20% or higher and a 20% total payout ratio, including share buybacks, through to FY7/26. Regarding profit
levels, the Company will conduct business development through FY7/26 without concern over a decline in profit
margin each year and intends to expand in scale while boldly taking on risk. Through this, it is aiming to create astructure that can secure an average operating profit margin of 10%.
1. Creation of new products
For the creation of new products, to create the next hit products to follow up products such as PharmaGABA®,
Newmo® Hair Growth Formula, and Derma QII®, the Company is advancing R&D including to develop new
ingredients (wine ceramide, Lipi Smart®, sialo sugar chains, egg placenta, and eggshell membrane peptides),new applications and effects (a brain function cocktail theory drink, Moringa, Wellmune, Banafine, and collagen
eggshell membrane peptides), and next-generation antibodies. It is also developing products for the scalp and skinfield (creating active components for non-pharmaceutical products, hair restorer formulas, wrinkle improvers, egg
placenta, and ELLE brand cosmetics), pharmaceutical e-commerce field, and oral care field.
In July 2021, the Company concluded a sales agreement with Mitsui Sugar Co., Ltd. of the Mitsui DM Sugar Holdings<2109> Group for Lipi Smart®, which is a functional foods ingredient that suppresses absorption of triglycerides andcontains sesame as a raw ingredient. Through joint development with Mitsui Sugar, the Company has developed
a proprietary technology (patent pending) to manufacture Lipi Smart® from sesame. Through this, it launched a
product onto the metabolic market for the first time. Most recently, the Company has been encountering growthwhen it comes to its own NB brand merchandise launched by the BtoB business (Meiseki Lab, Muscle Lab) andnew products of the BtoC business (Eyelash Deluxe WMOA, the DRcula series, Shiboranaito® GOLD). As such,FISCO deems that the Company is making favorable progress in the creation of new products.
2. Creation of new markets
For the creation of new markets, the Company will advance initiatives for the expanding health market, including tostrengthen brands and develop overseas markets (US market, China market through cross-border EC, and Southeast
Asia market through halal certification), deepen the e-commerce business in the domestic market (develop new
products and services that utilize the D2C platform of 1,000,000 people), shift the business orientation from BtoB
to BtoC (develop the Company’s own brand products for the distribution networks of drugstores and convenience
stores), conduct initiatives for SDGs (create upcycle markets for unused resources), and enter the health support
devices and medical devices fields (health devices, facial beauty devices, measuring devices, and hearing aids).

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21 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Growth strategy

Of these initiatives, to develop the US market, the Company is aiming to acquire GARS (Generally Recognized asSafe) certification from the FDA (US Food and Drug Administration) for PharmaGABA®. By acquiring the FDA’s
GARS certification, it will widen its current target of supplements to general food and beverages. This will lead to its
adoption by major food and beverage manufacturers in the US, which can be expected to result in its rapid growthin the US market. In addition, the Company’s efforts in seeking to tap the Southeast Asian market have involved
conclusion of a memorandum of understanding regarding establishment of a joint venture company with respect toa health food factory in Vietnam, as mentioned previously. Meanwhile, the Company apparently has its sights set
on expanding into Southeast Asian markets other than Vietnam in the future.
Regarding creating an upcycling market for unused resources, the Company intends to harness unused naturalingredients and utilize technology for new value creation from natural products in farming. Specifically, it created
the Agri-Nutrition Basic Plan in September 2021 with Sanyo Chemical Industries that integrates the development
and technological capabilities of both companies aimed at solving the global farming crisis. The Company has
begun verification tests aimed at building a new farming system in Shintomi Town, Miyazaki Prefecture in 2022,
and plans to develop high value-added crops with enhanced yields, resilience, and functionality using biostimulants that combine technologies from both companies in 2024, begin sales via the Company’s e-commerce sales
channel of high-performance health foods and cosmetics made from unused portions of high-value-added crops
in 2025, expand target crops and promote sixth sector industrialization and brand formation in 2026, and develop
a sustainable farming system in 2030.
The Company also announced its entry into the fiber and plant vitalizing agent markets through advanced utilizationof eggshell membranes as a new unused resources upcycling business in December 2021. Through this upcycling,
it aims to convert the 260,000 tons of eggshells thrown away annually in Japan into high-value-added products andthereby contribute to the realization of a sustainable society. The Company is currently in negotiations with a major
manufacturer looking toward engaging in sales involving Ovoveil eggshell membrane fiber in 2023. In addition, in
July 2022, the Company jointly invested with ENESO Holdings in ENEGGO, which manufactures liquid fertilizers
from eggs, and signed a business alliance agreement with GreenTechno21 Co., Ltd. and its subsidiary ENEGGO.
Through this, it will procure eggshells and eggshell membranes on the largest scale in Japan and work to bolster its
chemicals business, which includes eggshell membrane fiber, liquid fertilizers, and other products.
Up-cycle of unused resources

Source: The Company’s results briefing materials

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22 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Growth strategy

3. Creation of a new organization
For the creation of a new organization, the Company will develop initiatives including conducting reforms for theorganizational, personnel, and hiring aspects, such as providing salary levels enabling employees to work withpeace of mind and incentives for growth; developing and strengthening the Global Solution Team, including building
overseas manufacturing and overseas sales bases; and conducting M&A and entering into alliances. Within these
initiatives, the Company will utilize cash on hand and its financing framework for M&A and alliances, and has set
its sights on companies with a sales scale of ¥10.0bn in relation to new products and markets. In January 2023,
the Company established and initiated operations of PF Visionary Fund, a limited liability investment partnership.
The Company will accordingly draw on investments in startup companies in seeking to accelerate innovation in the
antibody drug discovery and healthcare business.
4. FISCO’s opinion
Because the Company’s earnings level has changed substantially on the strength of Newmo® Hair Growth Formula,
there are some in the market who believe it is a company whose performance varies depending on hit products andadvertising investment in its BtoC business. However, in the BtoC business, new products that support Newmo®
Hair Growth Formula are growing steadily, and with PharmaGABA®’s dominant share and expansion of the CMO
business in the BtoB business and expectations for drug discovery and development in the Bio Medical business,efforts are being made to reduce the risk of dependence on hit products. Business results for the immediate future
may vary depending on the level of investment in advertising, but through new product and new market creation andactive business development, FISCO believes the Company has high potential for medium- to long-term growth.

■ Shareholder return policy
Targets total shareholder return ratio of 20% including acquisitionsof treasury shares as shareholder return policy
The Company’s basic policy for returning profits to shareholders is, based on its business policy of achieving both
corporate growth potential and profitability, to actively return profits to shareholders through dividends and othermeans, while continuing to expand investment for aspects such as R&D, advertising and M&A. Based on this policy
and considering maintaining a balance between investing in growth, securing financial soundness, and strengthening
returns to shareholders, it targets a total shareholder return ratio of 20%, including acquisitions of treasury shares.
Based on this policy, in FY7/23 the Company plans to pay an annual dividend per share of ¥20.0, the same amountas the previous fiscal year (dividend payout ratio: 65.6%, total shareholder return ratio: 99.3%). In addition, in order
to raise capital efficiency and execute a flexible capital policy based on business conditions, the Company conducts
share buybacks, and in October 2022, it acquired 242,200 shares (total acquisition cost of ¥299mn).

We encourage readers to review our complete legal statement on “Disclaimer” page.

23 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Pharma Foods International Co., Ltd.
2929 Tokyo Stock Exchange Prime Market

26-May-2023
https://www.pharmafoods.co.jp/en

Shareholder return policy

Dividend per share and dividend payout ratio(¥)

Ordinary dividend per share (left)
Dividend payout ratio (right)

Commemorative dividend (left)
65.6%

28.0

2 5 .0

24.0

60.0%
5.0

2 0 .02 0 .0

20.0
16.0

50.0%
35.7%

40.0%

12.0

30.0%
8.5

20.0

20.0

20.0

8.0
4.0

70.0%

20.0%
8.5

18.9%

10.0%

0.0

0.0%
FY7/20FY7/21

FY7/22

FY7/23 E

Source: Prepared by FISCO from the Company’s financial results■ Initiatives for ESG and SDGs
As the Company’s business itself involves the development and sales of food and cosmetic functional ingredients andproducts made from naturally derived raw ingredients that relate to people’s life activities and health maintenance,
its business is consistent with the SDGs. It formulated the Sustainability Basic Policy in December 2021 and isbolstering initiatives in ESG (environment, social, governance) management and SDGs. The Company presents asustainability vision of meaningful prosperity and health in an era with lives spanning 100 years and intends to makeefforts so that its own business growth contributes to realization of a sustainable society as a company that provides
comprehensive support in health maintenance. Key issues (materiality) are enhancement of people’s QOL, upcyclingof unused resources, and respect for diversity. Through its responses to these issues, the Company aims to achieve
its sustainability vision and further enhance corporate value.
Joint research on improving cognitive functioning through food was launched in April 2022 with a team of vasculardementia specialists from the National Cerebral and Cardiovascular Center. The research is aimed at removing brain
waste, promoting cerebral circulation and activating nerve cells through a “brain function cocktail” that includes
GABA. Also, as mentioned above, the Company began a new upcycling business using eggshell membranes, and its
eggshell membrane fiber has been drawing attention, being featured on TV programs and the like. The Company alsoplans to exhibit at the Osaka Pavilion on the theme of “Eggs Save Earthlings” at World Expo 2025 in Osaka, Kansai.

We encourage readers to review our complete legal statement on “Disclaimer” page.

24 24

Disclaimer
FISCO Ltd. (“FISCO”) offer stock price and index information for use under the approval of theTokyo Stock Exchange, the Osaka Stock Exchange and Nikkei Inc.
This report is provided solely for the purpose of offering information, and is not a solicitationof investment nor any other act or action.
FISCO prepared and published this report based on information which it considered reliable;
however, FISCO does not warrant the accuracy, completeness, fitness nor reliability of thecontents of this report or the said information.
The issuers’ securities, currencies, commodities, securities and other financial instruments
mentioned in this report may increase or decrease in value or lose their value due to influence
from corporate activities, economic policies, world affairs and other factors. This report does
not make any promises regarding any future outcomes. If you use this report or any information
mentioned herein, regardless of the purpose therefor, such use shall be made based on yourjudgment and responsibility, and FISCO shall not be liable for any damage incurred by you asa result of such use, irrespective of the reason.
This report has been prepared at the request of the company subject hereto based on theprovision of information by such company through telephone interviews and the like. However,
the hypotheses, conclusions and all other contents contained herein are based on analysis
by FISCO. The contents of this report are as of the time of the preparation hereof, and are
subject to change without notice. FISCO is not obligated to update this report.
The intellectual property rights, including the copyrights to the main text hereof, the data
and the like, belong to FISCO, and any revision, reprocessing, reproduction, transmission,
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FISCO and its affiliated companies, as well as the directors, officers and employees thereof,
may currently or in the future trade or hold the financial instruments or the securities of issuersthat are mentioned in this report.
Please use the information in this report upon accepting the above points.

◾ For inquiry, please contact: ◾

FISCO Ltd.
5-13-3 Minami Aoyama, Minato-ku, Tokyo, Japan 107-0062
Phone: 03-5774-2443 (IR Consulting Business Division)
Email: support@fisco.co.jp