Wakamoto Pharma 4512
There has been notable investor activity surrounding Wakamoto Pharma recently. On February 27, 2025, it was revealed that Asset Value Investors, a UK-based activist investor, had acquired over 6% ownership in Wakamoto. Earlier, on February 6, 2025, the company announced that Rhoto (4527) had become its largest shareholder, increasing its stake from 3.19% to 11.46%.
While Rhoto’s interest in Wakamoto appears to be strategic, one might wonder—what potential do Asset Value Investors see in Wakamoto?
To provide context, who exactly is Wakamoto?
The company is well-known for its over-the-counter gastrointestinal medicine, “Kyoryoku Wakamoto,” which inspired its name. However, its main revenue sources are the ophthalmic surgical aid “MaQaid” and prescription ophthalmic drugs for glaucoma. The company is also fostering its mail-order business, including the medicinal toothpaste with lactic acid bacteria, “Avanbeads,” which was released in 2005. It plans to strengthen the mid-term export and overseas operations of “Kyoryoku Wakamoto” and “MaQaid.” The production/shipment of a major glaucoma treatment drug has been halted due to safety concerns since 4/23 but it is advancing the development and sales of introduced ophthalmic drugs and intraocular lenses. In 2020, the company entered into a comprehensive business partnership with Rohto Pharmaceutical, aiming for collaboration in the development and sales of ophthalmic drugs and lactic acid bacteria.
Wakamoto stats:
MC: Y10Bn
PE 133x
PB 0.89x
Capital ratio: 78.3%
The following three points could explain Asset Value’s involvement. I’d love to hear your thoughts on this:
1. A potential return to profitability.
Wakamoto incurred operating losses from FY3/19 through FY3/22. It generated operating profits of ¥141 million in FY3/23 but turned negative in FY3/24 with a loss of ¥195 million. FY3/25 is expected to see another loss of ¥170 million, but operating profits are projected to rise to ¥300 million in FY3/26.
Reasons for losses for FY3/19 – FY3/22
The pharmaceutical industry has faced—and continues to face—a challenging environment due to efforts to curb medical expenses. Wakamoto has also struggled with heightened competition, as customers have shifted to generic versions of its flagship ophthalmic products. Additionally, COVID-19 adversely impacted sales of Kyoryoku Wakamoto, particularly among inbound tourists.
FY 3/23
The sale of Kyoryoku Wakamoto rose sharply post-Covid and the company regained its operating profits.
FY3/24
The company has suspended the supply of its product “MaQaid Ophthalmic Injection 40mg” due to unsatisfactory results in the shipment judgment test, which has led to the company generating operating losses. The company raised the selling price of Kyoryoku Wakamoto for the first time in 32 years.
Operating losses are anticipated for FY3/25, but the production halt is expected to be lifted in FY3/26, resulting in positive operating profits for the same fiscal year.
2. A strong balance sheet supports an improvement in shareholder returns.
The company aims to reduce its strategic shareholdings (cross-shareholdings) to 10% or less of net assets by FY3/28 (compared to 20.3% in FY3/23).
Regarding shareholder returns, the goal is to maintain stable dividends and achieve a dividend payout ratio of 50% or higher.
The company targets a ROE of 8.0% or higher in FY3/28, aiming to achieve a P/B of 1 or higher.
3. Promising product portfolio
1) Wakamoto possesses a library of approximately 1,200 strains of lactic acid bacteria. There is a very high demand from both domestic and international sources for using these lactic acid bacteria as raw materials.
2)’Kyoryoku Wakamoto’ product originated from compressing and producing beer yeast. Subsequently, Wakamoto succeeded in producing vitamin B2 using a microbial cultivation method and developed and sold antibiotic-resistant lactic acid bacteria. The company plans to utilize our company’s bacterial strains, cultivation techniques, and formulation technologies to develop various functional foods, pharmaceuticals, food products, and cosmetics in the future.
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