RaQualia Pharma : Summary of Consolidated Financial Results for the First Six Months of the Fiscal Year Ending December 31, 2022 (JGAAP)

Disclaimer: This translation is prepared and provided for readers' convenience only. This summary does not constitute any guarantee, and the Company will not compensate any losses and/or damage stemming from actions taken based on these statements. In the case that there is any discrepancy between the Japanese and English versions, the Japanese version is assumed to be correct.

August 15, 2022

Summary of Consolidated Financial Results

for the First Six Months of the Fiscal Year Ending December 31, 2022 (JGAAP)

Listed company's name:	RaQualia Pharma Inc.
Listed on:	Tokyo Stock Exchange (TSE)
Stock code:	4579
URL:	https://www.raqualia.com/
Representative:	Hirobumi Takeuchi, President and CEO
Contact:	Hidefumi Sugiyama, General Manager, Finance & Accounting Dept.	(TEL) [phone]
Scheduled date of filing of quarterly securities report: August 15, 2022
Scheduled date of dividend payment:	―
Supplementary documents for quarterly results:	Yes
Quarterly results briefing:		Yes

(Amounts are rounded down to the nearest million yen.)

1. Consolidated financial results for the first six months of the fiscal year ending December 31, 2022 (January 1, 2022 to June 30, 2022)

(1) Consolidated operating results (cumulative)

(Percentage figures represent changes from the same period of the previous fiscal year.)

	Net sales		Operating profit	Ordinary profit		Profit attributable to
			owners of parent
First six months ended	million yen		%	million yen	%	million yen		%	million yen	%
June 30, 2022	1,447		9.6	551	75.1	681		57.4	469	55.0
June 30, 2021	1,320		254.3	314	-	432		-	302	-

Note: Comprehensive income	Six months ended June 30, 2022:	457 million yen	[37.9%]
		Six months ended June 30, 2021:	331 million yen	[-%]
		Earnings per share (Basic)	Earnings per share (Diluted)
First six months ended		yen		yen
June 30, 2022		22.40		22.39
June 30, 2021		14.45		14.45

(2) Consolidated financial position
	Total assets	Net assets	Equity ratio
As of	million yen	million yen	%
June 30, 2022	5,936	5,258	88.4
December 31, 2021	5,234	4,788	91.3

Reference: Equity As of June 30, 2022: 5,248 million yen As of December 31, 2021: 4,777 million yen

2. Dividends

		Annual dividends per share
	First quarter-end	Second quarter-end	Third quarter-end		Fiscal year-end	Total
Fiscal year ended	yen	yen	yen		yen	yen
-	0.00	-		0.00	0.00
December 31, 2021
Fiscal year ending	-	0.00
December 31, 2022
Fiscal year ending			-		0.00	0.00
December 31, 2022
(forecast)

Note: Revisions to the forecasts of dividends most recently announced: None

3. Forecasts of consolidated financial results for the fiscal year ending December 31, 2022 (January 1, 2022 to December 31, 2022)

(Percentage figures represent year-on-year changes)

	Net sales		Operating profit		Ordinary profit	Profit attributable to	Earnings per
			owners of parent	share (Basic)
Fiscal year ending	million yen		%	million yen	%		million yen	%	million yen	%	yen
2,605		(6.2)	420	(40.6)		420	(51.3)	342	(54.7)	16.34
December 31, 2022
Note: Revisions to the	forecasts of results most recently announced: None

• As the Company conducts performance management on an annualized basis, forecasts of results over a six-month period are omitted.
• Notes
• 1. Changes in significant subsidiaries during the first six months ended June 30, 2022 (changes in specified subsidiaries resulting in the change in scope of consolidation): None
  2. Application of special accounting for preparing quarterly consolidated financial statements: Yes

Note: For more details, please refer to the section of "(4) Notes to quarterly consolidated financial statements, Application of special accounting for preparing quarterly consolidated financial statements" of "2. Quarterly consolidated financial statements and significant notes thereto" on page 10 of the attached material.

1. Changes in accounting policies, changes in accounting estimates, and restatements of prior financial statements
2. 1. Changes in accounting policies due to the revisions to accounting standards and other regulations: Yes
   2. Changes in accounting policies due to other reasons: None
   3. Changes in accounting estimates: None
   4. Restatements of prior financial statements: None

Note: For more details, please refer to the section of "(4) Notes to quarterly consolidated financial statements, Changes in accounting policies" of "2. Quarterly consolidated financial statements and significant notes thereto" on page 10 of the attached material.

1. Number of issued shares (common shares)
   a. Total number of issued shares at the end of the period (including treasury shares)

	As of June 30, 2022	20,973,181	shares
	As of December 31, 2021	20,955,142	shares
b. Total number of treasury shares at the end of the period
	As of June 30, 2022	50	shares
	As of December 31, 2021	50	shares
c. Average number of outstanding shares during the period (cumulative from the beginning of the fiscal year)
	For the first six months ended June 30, 2022	20,963,172	shares
	For the first six months ended June 30, 2021	20,951,592	shares

• Quarterly financial results reports are exempt from quarterly review conducted by certified public accountants or an audit corporation.
• Appropriate use of financial forecasts and other special remarks

(Caution concerning forward-looking statements)

Forward-looking statements provided in this document, including financial forecasts, are based on the information currently available to the Company and certain assumptions considered reasonable. Such statements are included without any guarantee as to their future achievement. Actual results, etc. may differ materially from the forecasts depending on various factors.

For the suppositions that form the assumptions for earnings forecasts and cautions concerning the use thereof, please refer to the section of "(3) Qualitative information regarding consolidated earnings forecasts" of "1. Qualitative information regarding settlement of accounts for the first six months" on page 4 of the attached material.

(Method of accessing supplementary documents for financial results and details of financial results briefing)

The Company plans to hold a financial results briefing for institutional investors and analysts on Wednesday, August 17, 2022, and for general investors on Thursday, August 18, 2022.

The Company plans to post the documents used at the briefing on its website promptly after the briefing is held.

Contents of attachment
1. Qualitative information regarding settlement of accounts for the first six months ......................................................	2
(1)	Qualitative information regarding consolidated operating results ............................................................................	2
(2)	Qualitative information regarding consolidated financial position...........................................................................	3
(3)	Qualitative information regarding consolidated earnings forecasts..........................................................................	4
2. Quarterly consolidated financial statements and significant notes thereto...................................................................	5
(1)	Consolidated balance sheet.......................................................................................................................................	5
(2)	Consolidated statement of income and consolidated statement of comprehensive income......................................	7
	Consolidated statement of income (cumulative).......................................................................................................	7
	Consolidated statement of comprehensive income (cumulative) .............................................................................	7
(3)	Consolidated statement of cash flows.......................................................................................................................	8
(4)	Notes to quarterly consolidated financial statements..............................................................................................	10
	Notes on premise of going concern ........................................................................................................................	10
	Notes on significant changes in the amount of shareholders' equity......................................................................	10
	Application of special accounting for preparing quarterly consolidated financial statements................................	10
	Changes in accounting policies ..............................................................................................................................	10
	Additional information ...........................................................................................................................................	10
	Segment information, etc........................................................................................................................................	11
	Significant subsequent event ..................................................................................................................................	11

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1. Qualitative information regarding settlement of accounts for the first six months

1. Qualitative information regarding consolidated operating results

1. Financial results

During the first six months of the fiscal year ending December 31, 2022, the Japanese economy experienced both improvement and deterioration in business confidence varying by industry sector and region amid a recovery trend in human flows and socioeconomic activities and as the spread of COVID-19 settled down to a certain degree.

In the pharmaceutical industry, while sales growth in Japan was sluggish, a number of companies achieved increases in both sales and profits due to strong sales mainly overseas of their mainstay products. The reform of the NHI (National Health Insurance)drug price system, which took place at the same time as the April NHI drug price revision, included adjustments toward positive evaluation of innovation. However, it also included harsh measures such as setting the premium rate to zero for new drugs with low disclosure of manufacturing costs. It has also been pointed out that the so-called "drug lag," a situation in which new drugs developed outside of Japan do not reach Japan easily, is resurfacing. It has been suggested that this is due to the increasing number of instances where Japan is not included in clinical trials of new drugs conducted by companies outside of Japan.

Under such conditions, the Group achieved the following financial results during the first six months.

Regarding human drug products, sales of K-CAB® (generic name: tegoprazan)-a drug for gastro-esophageal reflux disease

marketed by HK inno.N Corporation (headquarters: Seoul, South Korea, "HK inno.N")-in South Korea performed well, continuing from last year, with sales in the first six months from external prescriptions of 60.6 billion won, an increase of 21.1% compared with the same period of the previous fiscal year. In addition, in May 2022, HK inno.N began marketing a new orally disintegrating tablet dosage form of K-CAB®.

Regarding the global development of tegoprazan, in China, HK inno.N (South Korea)'s Chinese licensee Shandong Luoxin Pharmaceutical Group Stock Co., Ltd. (headquarters: Shandong, China) received manufacturing and marketing approval for the indication for erosive gastro-esophageal reflux disease from the Chinese authority in April 2022. In addition, HK inno.N concluded a license agreement with Dr. Reddy's Laboratories (headquarters: Hyderabad, India) for seven countries in Asia, Eastern Europe, and Africa, including India. As a result of this progress, the Company received a lump-sum payment for achievement of these milestones.

In the Philippines, Metro Pharma Phils. Inc. (headquarters: Manila, Philippines), a licensee of HK inno.N, received marketing approval for four indications including erosive gastro-esophageal reflux disease in May 2022, and is in preparations to launch marketing.

Also, in the U.S., HK inno.N completed Phase I clinical trial. Braintree Laboratories, Inc. (headquarters: Massachusetts, U.S.), a licensee of HK inno.N, will proceed with clinical development, and a new clinical trial is expected to be initiated within the year. In Japan, where the Company holds the rights, we are preparing for the next stage of clinical trials in order to achieve rapid and efficient development and approval.

With regard to pet drugs, sales were strong for GALLIPRANT® (generic name: grapiprant), which is a drug for osteoarthritis in

dogs, and ENTYCE® (generic name: capromorelin), which has an indication for anorexia management for dogs, and ELURA®

(generic name: capromorelin), which has an indication for weight loss management in cats with chronic kidney disease, all of

which were licensed to Elanco Animal Health Inc. (headquarters: Indiana, U.S.).

Regarding licensed programs, pre-clinical studies have started for the TRPM8 blocker licensed to Xgene Pharmaceutical Co. Ltd. (headquarters: Hong Kong) in the fiscal year ended December 31, 2021. In addition, regarding the retinoic acid receptor alpha agonist (tamibarotene/TM-411/SY-1425) discovered by consolidated subsidiary TMRC Co., Ltd. ("TMRC") and licensed to Syros Pharmaceuticals Inc. (headquarters: Massachusetts, U.S.), notification has been received from the European Patent Office that a use patent has been granted for a cancer stem cell growth inhibitor jointly applied for by TMRC and the National Institute of Advanced Industrial Science and Technology. Other licensed programs are also in the pre-clinical development stage or later at licensee companies.

For programs in preparation for licensing, business development activities have steadily progressed while utilizing face-to-face meetings, online conferencing, and other tools. Also, pre-clinical studies for the ghrelin receptor agonist, developed in-house by the Company, are progressing.

With regard to efforts in the discovery research stage, we are promoting efforts to generate development candidate compounds in our internal projects. In the first six months, we newly initiated joint research in collaboration with SOCIUM Inc. (headquarters: Chuo, Tokyo, "SOCIUM"), using SOCIUM's proprietary disease database and AI-driven drug discovery platform to explore indication potential for intractable and rare diseases with the aim of strengthening the value chain in drug discovery research for specific compound(s) owned by the Company. In addition, for the purpose of validating a new modality concept, we worked with STAND Therapeutics Co., Ltd. (headquarters: Minato, Tokyo, "STAND") to underwrite a portion of share acquisition rights issued by STAND and for application of STAND's proprietary technology related to intracellular antibodies (stable cytoplasmic anti-body: STAND) to drug discovery research.

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Accordingly, financial results for the first six months, the reporting period, were as follows. Business revenue for the period was 1,447 million yen (up 9.6% year on year), operating profit totaled 551 million yen (up 75.1% year on year), ordinary profit totaled 681 million yen (up 57.4% year on year), and profit attributable to owners of parent was 469 million yen (up 55.0% year on year). Business revenue mainly consists of milestone income of 434 million yen (down 42.0% year on year) and sales royalty income of 699 million yen (up 43.2% year on year). On the other hand, total business expenses were 895 million yen (down 10.9% year on year). This total mainly consists of cost of business revenue (104 million yen, a 40.2% decrease from the same period of the previous fiscal year), research and development expenses (528 million yen, a 6.4% increase from the same period of the previous fiscal year) and other selling, general and administrative expenses (262 million yen, a 21.4% decrease from the same period of the previous fiscal year).

1. Research and development activities

Research and development expenses of the entire Group during the first six months were 528 million yen. For the first six months, there were no material changes to the research and development activities.

1. Qualitative information regarding consolidated financial position

1. Analysis of assets, liabilities and net assets

Assets

Total assets as of June 30, 2022 were 5,936 million yen, an increase of 702 million yen (up 13.4%) from the end of the previous fiscal year. This is mainly attributable to a decrease in accounts receivable - trade, and contract assets of 380 million yen, an increase in cash and deposits of 820 million yen, and an increase in leased assets of 180 million yen.

Liabilities

Total liabilities as of June 30, 2022 were 678 million yen, an increase of 231 million yen (up 52.0%) from the end of the previous fiscal year. This is mainly attributable to an increase in lease obligations of 200 million yen, a decrease in accounts payable - other of 54 million yen, and an increase in income taxes payable of 73 million yen.

Net assets

Total net assets as of June 30, 2022 were 5,258 million yen, an increase of 470 million yen (up 9.8%) from the end of the previous fiscal year. This is mainly attributable to the recording of profit attributable to owners of parent of 469 million yen and a decrease in valuation difference on available-for-sale securities of 11 million yen.

Consequently, the equity ratio was 88.4% (down 2.9 percentage points from the end of the previous fiscal year).

1. Analysis of cash flows

The balance of cash and cash equivalents ("net cash") as of June 30, 2022 amounted to 2,845 million yen (compared with 2,133 million yen a year earlier), an increase of 604 million yen (up 27.0%) from the end of the previous fiscal year.

The respective cash flows in the first six months and the factors thereof are as follows.

Cash flows from operating activities

Net cash provided by operating activities was 609 million yen (up 65.6% year on year). This is mainly attributable to the recording of profit before income taxes of 676 million yen and depreciation of 69 million yen, a cash inflow from a decrease in trade receivables of 380 million yen, and a cash outflow from an increase in prepaid expenses of 124 million yen.

Cash flows from investing activities

Net cash used in investing activities was 92 million yen (down 75.3% year on year). This is mainly attributable to payments into time deposits of 200 million yen, purchase of investment securities of 351 million yen, and proceeds from sale of investment securities of 315 million yen.

Cash flows from financing activities

Net cash used in financing activities was 1 million yen (down 75.8% year on year). This is mainly attributable to repayments of lease obligations of 16 million yen and proceeds from long-term borrowings of 13 million yen.

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