Edited Transcript of 4568.T earnings conference call or presentation 27-Apr-20 7:00am GMT

In the development of vaccines and therapeutics against COVID-19, we are trying to utilize our research power to the maximum. We have established a company-wide task force to promote these R&D activities. We are also participating in the ongoing initiative by AMED, Japan Agency for Medical Research and Development, to develop genetic vaccine against COVID-19. We are also implementing disaster relief initiatives. We are giving donations to WHO, among others, and giving supplies, such as donation of medicine, et cetera, to medical institutions. We are hoping that the COVID-19 pandemic will come to an end in the entire world as soon as possible. In the meantime, we will continue to work on measures to prevent infections with primary focus on safety and engaging in activities to assume responsibilities as a pharmaceutical company.

Next, let me explain our FY 2019 consolidated financial results. Please turn to Page 6.

This page shows an overview of our FY 2019 results. Our consolidated revenue reached JPY 981.8 billion, up JPY 52.1 billion or 5.6% year-on-year. Cost of sales decreased by JPY 21.4 billion from the previous year. SG&A cost increased by JPY 24.6 billion. R&D expenditure fell by JPY 6.2 billion. As a result, operating profit increased to JPY 138.8 billion, up JPY 55.1 billion or 65.8% year-on-year. Profit before tax rose by JPY 55.3 billion from the previous year to JPY 141.2 billion. Profit attributable to owners of the company reached JPY 129.1 billion, up JPY 35.7 billion or 38.2% year-on-year.

As for the currency rate, the U.S. dollar traded at JPY 108.75; the yen appreciated by JPY 2.16 against the U.S. dollar year-on-year. The euro traded at JPY 120.83; the yen was JPY 7.57 higher from the previous year.

As for the impact of COVID-19 infection spread on our business, there was an increase in sales on the revenue side as medical institutions and wholesalers tried to secure stable inventories. SG&A cost and R&D expenditure decreased, respectively, due to some restrictions on sales promotion and R&D activities. The impact on our operating profit is minor, but we have not performed a quantitative analysis.

Please turn to Page 7. Here, let me explain positive and negative factors for revenues compared to the previous year. Revenue increased by JPY 52.1 billion year-on-year. I’m going to explain the breakdown by major business unit.

First, in Japan business, including vaccines and OTC drugs, there was some impact to reduce our revenue. Our sales declined for anti-hypertensive agent, Olmetec; anti-inflammatory analgesic, Loxonin; and our vaccine business, also with a decrease in gain on sales of transferring long-listed products. On the other hand, sales increased for direct oral anticoagulant, LIXIANA; and pain treatment, Tarlige, launched in April last year; and also for Daiichi Sankyo Espha products, including authorized generics; and Daiichi Sankyo Healthcare product as well. So revenue for Japan business as a whole increased by JPY 15.2 billion.

Next, let me explain our overseas business. ForEx impact is excluded here. For Daiichi Sankyo, Inc. in the United States, revenue decreased by JPY 3.5 billion due to a decrease in sales of Welchol for hypercholesteremia and type 2 diabetes, and anti-platelet agent, Effient, despite the contribution of anticancer agent, ENHERTU, launched in January this year.

On the other hand, revenue increased at American Regent, Inc. in the United States by JPY 15.6 billion, thanks to the growth of Injectafer for iron deficiency anemia and generic injectables.

Revenue at Daiichi Sankyo Europe rose by JPY 12.9 billion, to an increase in LIXIANA sales despite a decrease in sales of Effient.

Next, for ASCA business in charge of Asia, South and Central America regions, revenue increased by JPY 16.3 billion as a whole as revenue rose by JPY 10.4 billion in China, mainly from Cravit and Olmetec. As for trastuzumab deruxtecan, for which we signed a collaboration agreement with AstraZeneca in March 2019, revenue increased by JPY 10.7 billion we booked and recognized for upfront payment and development milestone associated with the regulatory approval in the United States.

Revenue fell by JPY 15.1 billion as a whole from ForEx impact.

Next, please turn to Page 8. This page shows positive and negative factors for operating profit. Let me explain the increase of JPY 55.1 billion by item. As I explained earlier, revenue rose by JPY 52.1 billion, including a decrease of JPY 15.1 billion due to ForEx impact. Next, I’d like to explain expense-related numbers by excluding ForEx impact and special items. Cost of sales increased just by JPY 8.2 billion due to the improvement of cost of sales ratio by product mix despite cost increase by revenue increase. SGA cost increased by JPY 29.5 billion due to cost increase for the establishment of oncology business structure in the United States. R&D expenditure decreased by JPY 3.7 billion. Costs associated with the enhancement of oncology project development structure increased, but there was a decrease due to trastuzumab deruxtecan cost sharing with AstraZeneca. Costs fell by a total of JPY 11.7 billion due to ForEx impact. Costs decreased by JPY 25.3 billion due to special items compared to the previous year. I will explain the breakdown of the special items later. Operating profit increased by JPY 33.2 billion, excluding ForEx impact and special items.

Page 9 is the breakdown of special items. In FY 2019, we booked JPY 1.3 billion as restructuring costs in supply chain; JPY 6.3 billion as impairment loss of intangible assets related to MorphaBond, RoxyBond and Zelboraf; and JPY 8.2 billion as environmental expenditures related to the former site of our Yasugawa plant. But we also booked JPY 18.8 billion gain on sales of subsidiary associated with the transfer of our Takatsuki plant and JPY 10.6 billion gain on sales of tangible fixed assets. So costs decreased by JPY 13.7 billion. As a result, costs were down by JPY 25.3 billion from the previous fiscal year.

Next, I’d like to explain profit attributable to owners of the company on Page 10. As I explained earlier, operating profit increased by JPY 55.1 billion, including ForEx impact and special items. Income tax, et cetera, rose by JPY 19.8 billion year-on-year. Tax rate in FY 2019 was 8.6% partly due to the introduction of the consolidated taxation system. On the other hand, in fiscal year 2019, we booked additional DTA, or deferred tax assets, for future expected taxable income increase due to trastuzumab deruxtecan strategic collaboration, so we had negative figures for income tax, et cetera. So in FY 2019, income tax, et cetera, increased at a higher ratio compared to profit before tax. As a result, profit attributable to owners of the company increased to JPY 129.1 billion, up JPY 35.7 billion year-on-year.

Page 11 and 12 show yen-based revenue increase or decrease by major business unit and major product in Japan. Earlier on Page 8, I explained the status of each business unit by excluding ForEx impact. But here, the actual results include ForEx impact.

Next, I’d like to explain our FY 2020 forecast. Please turn to Page 14. We are targeting JPY 970 billion revenue and JPY 80 billion operating profit in FY 2020.

On Page 15, let me explain in comparison to the FY 2019 numbers, excluding special items. We’re expecting that sales of main products such as LIXIANA, ENHERTU and Tarlige will expand, but we are forecasting our revenue to decrease by JPY 11.8 billion due to impact from NHI drug price revision, Memary LOE, discontinuation of ActHIB and Rotarix sales activities, et cetera.

Costs of sales is expected to fall by JPY 17.4 billion due to a decrease in revenue and improvement of cost of sales ratio by product mix. We are forecasting an increase in SGA cost by JPY 20.2 billion due to an increase in expenses related to trastuzumab deruxtecan because of cost increase from gross profit sharing with AstraZeneca and sales promotion cost increase. As for R&D expenditure, we are forecasting an increase by JPY 30.5 billion, expecting an increase of R&D investments for the 3 ADCs and an increase in R&D expenditure to reinforce the development structure for oncology projects.

As a result, we are forecasting operating profit to decrease to JPY 80 billion, down JPY 45.1 billion year-on-year. The impact of COVID-19 is not reflected on our forecast as the situation continues to evolve and it’s difficult to make an accurate forecast of the timing of resolution right now. If you assume that restrictions on activities continue globally into the second quarter, there can be a negative impact of 3% to 5% or about JPY 30 billion to JPY 50 billion on our revenue, but at the same time, expense is expected to remain curtailed due to an impact on our business activities. Therefore, we’re expecting minor impact on our operating profit. Impact in case of prolonged infection spread will be considered separately. If we need to revise our forecast, we will disclose immediately.

Slide 16 shows the revenue from trastuzumab deruxtecan. The revenue in FY 2019 resulted in JPY 14 billion, with a total of the product sales in the U.S., the upfront payment and the regulatory milestone payment. The revenue in FY 2020 is forecasted to be JPY 39.2 billion due to the sales increase of the products in the U.S. Our strategic partnership with AstraZeneca also resulted in confirmed receipt of the consideration in the amount of JPY 162.7 billion in total.

Next, I’d like to speak about our business update. The first part is about the Japan business. Please go to Slide 19. As our new products, we have launched the following 3 products in Japan: Tarlige for pain treatment, MINNEBRO for hypertension treatment and VANFLYTA as a anticancer agent. We received an approval for another anticancer agent in HER2 in March 2020. With the launch of ENHERTU, we will further enhance the sales and the safety control system for the anticancer products in Japan.

In Slide 20, I’d like to introduce the overview and the marketability of Tarlige, which has been growing steadily since the time of its first launch. Tarlige is an Alpha 2 delta ligand drug product indicated for peripheral neuropathic pain. The number of patients with neuropathic pain in Japan is estimated to be 3.63 million, which includes 3.36 million patients with peripheral neuropathic pain. Among the peripheral neuropathic pain that Tarlige is indicated for, the number of patients who are treated with Alpha 2 delta ligand drugs is 1.74 million. The market size for neuropathic pain treatment drugs in FY 2019 was approximately JPY 160 billion, and that for Alpha 2 delta ligand drugs with Lyrica and Tarlige combined was approximately JPY 110 billion.

Slide 21 describes the sales status of Tarlige. Tarlige demonstrated a strong start-up, exceeding the sales plan. The revenue resulted in JPY 8 billion in FY 2019. There will be more growth expected in FY 2020, and the forecasted revenue will be JPY 16 billion.

In November 2019, the Supplementary edition of the Guidelines for Neuropathic Pain Drug Therapy stated that Tarlige, whose general name is mirogabalin, can be used as the same as Lyrica, whose general name is pregabalin, for the treatment of peripheral neuropathic pain. Since the long-term prescription has been allowed since March 2020, we believe that this will lead to a substantial contribution to more number of patients. In addition to an expanded indication of central neuropathic pain, we are currently working on the development of orally disintegrating tablets for the elderly and the patients with dysphagia.

The next discussion is about the U.S. business. Please go to Slide 23. As new products in the U.S., TGCT, tenosynovial giant cell tumor treatment, agent, TURALIO, was launched in August 2019, and an anti-HER2 ADC anticancer agent, ENHERTU, was launched in January 2020.

Slide 24 shows the sales status of ENHERTU in the U.S. The sales of ENHERTU has been showing a steady increase. Its revenue in FY 2019 marked JPY 3.2 billion, which exceeded our plan. Our co-promotion with AstraZeneca helped us achieve a product delivery to 780 accounts in 3 months after the launch, and 515 accounts among them repeated their purchases, indicating the steady growth of prescriptions to the patients. Including the risk management methods for ILD, we will properly communicate with health care professionals and patients about the risks and benefits associated with this product. We will increase the sales by aiming for the revenue of JPY 27 billion in FY 2020.

Next is about European business. Please go to Slide 26. In Europe, cholesterol-lowering treatment agents NILEMDO and NUSTENDI were approved by the European Commission in March and April 2020, respectively. NILEMDO is a single agent of bempedoic acid, and it’s a first-in-class oral ACL inhibitor. The clinical study confirmed that it reduces the LDL-cholesterol by 28% maximum compared to placebo by adding it on to an existing cholesterol-lowering therapy. On the other hand, NUSTENDI is a combination tablet of bempedoic acid and ezetimibe. The clinical study confirmed that it reduces the LDL-cholesterol by 38% compared to placebo in high-risk patients by adding it on to the maximum tolerated statin therapy.

Slide 27 shows 2 points of the significance of introducing both products. The first significance is to provide therapies that address high unmet medical needs. About 80% of the patients under statin treatment have not reached the guideline-recommended LDL-cholesterol goals yet, and they are reported to have an increased risk of a heart attack or stroke. The ESC recommends combining different treatments to help high-risk patients to control their blood cholesterol levels. By launching both products, we can deliver new therapies to lower their LDL-cholesterol levels.

Another significance relates to synergy in the cardiovascular area. By utilizing the business infrastructure effectively in the cardiovascular area developed by Daiichi Sankyo Europe, and by creating a synergic effect with the anti-coagulant, LIXIANA, we aim to increase the regional value in Europe.

Now I’d like to move to the discussion of edoxaban. Please go to Slide 29. I the product name in Japan is LIXIANA. It’s been maintaining the #1 sales share in the Japanese market, and it increased its share to 37% in the fourth quarter. Thereupon, the FY 2019 revenue resulted in JPY 83 billion, which was an increase by JPY 18.1 billion year-on-year. Although we will be impacted by the drug price revision in FY 2020, we expect a growth of JPY 17 billion year-on-year based on the old drug price.

Slide 30 illustrates the changes of the volume shares in different countries including Japan. The volume shares have been growing well in Asia as well as in the European countries. Consequently, the total of the global revenue results was JPY 154 billion, which was an increase of JPY 36.3 billion year-on-year. We are aiming to achieve a further increase in the volume shares, and we set our goal in FY 2020 to be JPY 163 billion. Since edoxaban was also launched in China in August 2019, we will strive to expand the volume in China as well.

Now I’d like to talk about streamlining of our assets. Please go to Slide 32. Our company has been currently working to streamline our assets, and we generated JPY 154.5 billion of cash in total during the period of the 5-Year Business Plan from FY 2016 to FY 2019. Except a case in which we believed that the cross-shareholding shares can contribute to the increase of our corporate value, our policy is not to hold any listed shares in principle, and we sold JPY 22 billion for 12 brands in FY 2019. We will continue to sell the shares we still hold with careful consideration of the overall impact to the market. We have also gradually sold our real estate properties, which generated JPY 14 billion of cash this year. As for the business transfer, the transfers of Takatsuki plant and others generated JPY 37.1 billion of cash.

Lastly, I’ll discuss the shareholders’ returns. Please go to Slide 34. As you have been notified already, we have made a decision of the share split and the dividend increase today. As for the share split, in order to reduce the amount per investment unit, increase the share liquidity and expand our investor base, we will split the shares in the ratio of 1:3 on the record date of September 30. As for the dividend for the year ending March 31, 2021, although the interim dividend per share will be different from the year-end dividend per share due to the share split, the pre split based annual dividend is forecasted to increase from JPY 70 to JPY 81, which will be an increase of JPY 11 per share.

Slide 35 shows our shareholder returns policy and the changes during the period of the 5-Year Business Plan. As our policy for the shareholder returns from FY 2016 to FY 2022, the company has stated that the total return ratio shall be 100% or more by delivering the annual ordinary dividends of JPY 70 or more and by achieving flexible acquisition of our own shares. The ordinary dividend in FY 2019 was JPY 70 per share. The total return ratio in a single year was 35.1%, and the 4-year cumulative ratio was 84.2%. We will reinforce the shareholder returns by increasing the dividend per share in FY 2020.

The following slides will be about the R&D updates, and Dr. Takasaki, the Head of R&D division, will take over from here.

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Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [2]

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I’d like to give you our R&D update. First of all, I’d like to review FY 2019. As you can see on Page 38, we changed our R&D strategy in FY 2019 to the 3 and Alpha strategy from the 3-franchise strategy consisting of ADC franchise, AML franchise and breakthrough science. Due to the bigger potential of DS-8201, DS-1062 and U3-1402, we are aiming to prioritize R&D investments and resource allocation to the 3 ADCs and accelerate clinical studies. Projects other than the 3 ADCs are now called Alpha. We decided to focus on Alpha projects, which can change SOC.

Page 39 shows the achievements we made for the 3 ADCs in FY 2019. We made great progress from study initiation. Now to obtain the approval, the potential of the 3 ADCs has been substantially enhanced from before. I will explain the details later.

Page 40 shows the achievements for Alpha. Quizartinib was approved in Japan but was not approved in Europe and the United States, unfortunately. In response, we decided to redefine our AML strategy centering on quizartinib within our 3 and Alpha strategy. On the other hand, pexidartinib, our first oncology product in the United States, was approved and launched.

On Page 41, I’d like to give you an update on our 3 ADCs. Page 42 is a summary of DS-8201 progress. For breast cancer, DS-8201 was approved in the United States in just 2 months from FDA acceptance. We obtained approval in an extremely short period of time, just about 4 years and 3 months from the start of first in-human study. Also in Japan, DS-8201 was approved in about 6 months after the NDA. It was the third drug in Japan and the first for Daiichi Sankyo-approved under the Conditional Early Approval Program in Japan. For gastric cancer, we obtained top line results in January this year. In the interim analysis of the primary endpoint of ORR, objective response rate, and the secondary endpoint of OS, overall survival, in the study, DS-8201 demonstrated statistically significant and clinically meaningful improvement compared to the investigator’s choice of chemotherapy. The NDA is being planned during the first quarter of FY 2020 in Japan. Furthermore, the first EAP, expanded access program, of DS-8201 started in Japan from April as a study to be conducted from a humanitarian perspective.

Page 43 shows the results from collaboration with AstraZeneca. Prior to collaboration, we were planning 17 studies, but the number of studies substantially increased to 43 studies following the collaboration. We’re going to start the new studies from now on. In addition to the combination studies with I/O drugs and immune checkpoint inhibitors such as Opdivo and KEYTRUDA we talked about before, we’re going to start the study by adding DS-8201 cohorts to the ongoing IMFINZI combo studies conducted by AstraZeneca. We’re expanding I/O combo studies further.

Page 44 shows the progress of DS-1062 and U3-1402. As for DS-1062, Phase I study in NSCLC has progressed steadily. Interim data will be presented at ASCO this year. Next steps are under consideration, including the subsequent pivotal Phase II study and I/O combo studies. Also, for U3-1402, Phase I study in EGFR-mutant NSCLC has made steady progress. Interim data will be presented at World Conference on Lung Cancer, or WCLC, meeting, which has been postponed to January next year. In breast cancer, we completed patient enrollment for Phase I study, but we are revisiting our future development plan for breast cancer. On the other hand, we are considering pivotal Phase II study in EGFR-mutant NSCLC as well as studies in colorectal cancer as a new indication.

Page 45 is a summary of the progress of publications. For DS-8201, 5 publications were accepted by 4 major journals. Regarding the 3 ADCs, we actively presented data at major international conferences.

Next, I will give you our Alpha update from Page 46.

Page 47 shows our technology portfolio we presented during our R&D Day meeting in December last year. I would like to talk about cell therapy and gene therapy today.

Please go to Slide 48. We submitted an NDA in Japan in the end of March for Axi-Cel, which has been developed for the CAR-T cell therapy for relapsed and refractory B-cell lymphoma. This project has received an orphan drug designation from the MHLW, and we anticipate a priority review by the authority. As illustrated in the slide, this treatment goes through multiple steps before the patient is treated. We are currently organizing the manufacturing system and the supply infrastructure to prepare for the launch. Our plan is to pave the way for further development of regenerative medicine and cell therapy by utilizing our experience with Axi-Cel.

I’d like to introduce our initiatives for gene therapy from Slide 49 and after. We will specifically focus on the gene therapy using the adeno-associated virus, AAV, which is known to be the safest viral vector in the world of gene therapy. We will start from rare diseases caused by monogenic abnormalities, and we are scheduled to start multiple projects of clinical trials from FY 2024 and after. We will also work in parallel with the development of mass-production technologies, followed by expanding the area to serious general diseases where existing treatments are not sufficiently effective. I will explain our undertaking for the development of the AAV manufacturing technology in the following slides.

Slide 50 demonstrates the introduction of the technology from Ultragenyx Pharmaceutical. Manufacturing technology is the key to gene therapy. Ultragenyx has developed its own AAV production system using HeLa and HEK293 cells. Since they are experienced in clinical trials, can offer stable quality, have knowledge in mass production and have analytical techniques for quality control, we decided to adopt their technology. With this introduction of their technology, we are planning to establish our in-house manufacturing technology for gene therapy early on and start manufacturing the investigational drugs by the mid-2020s.

We have multiple gene therapy projects that are currently in a nonclinical phase. Slide 51 introduces the theme of our joint research with the Nagoya Institute of Technology. This project is about a gene therapy drug for retinitis pigmentosa. A healthy individual has photoreceptors in the retinal cells, but the photoreceptors in a patient with the genetic disease have fallen off, and a severe vision loss would occur as the disease progresses. However, letting the retinal cells express the new highly active photo-responsive protein, GtCCR4, which was discovered during our joint research with the Nagoya Institute of Technology, may help recover vision of the patient. We will accelerate this research so that we can realize early practice use of this innovative therapeutic drug by the patients.

The content of Slide 52 and after is related to ASCO. Slide 53 shows the results of ASCO’s adoption of our abstracts. The Phase II studies of DS-8201 on lung cancer and colorectal cancer will be oral presentations. The results from the pivotal Phase II study of gastric cancer and the sub-analysis results from the pivotal study of breast cancer will be poster presentations. The interim results from the Phase I study of DS-1062 on NSCLC is scheduled to be a poster presentation.

Slide 54 is an announcement of our company’s IR event in conjunction with ASCO. Dr. Manabe and Dr. Antoine Yver will be discussing the content of the presentations at ASCO. We’re going to have 2 same conference calls, one for Japanese investors and the other for overseas investors.

Slide 56 is a summary of the future news flow. For DS-8201, the breast cancer submission in Europe and the gastric cancer submission in Japan are scheduled to be in the first quarter of FY 2020. Submission for the oncolytic virus drug, DS-1647, has been delayed, and it’s been rescheduled to be in the first half of FY 2020.

The pages after Slide 57 are the appendices. They list our milestones and pipelines. Please take a look at them later.

That is all for my presentation.

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Questions and Answers

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Unidentified Company Representative, [1]

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Now Q&A session. First, Mr. Hashiguchi from Daiwa Securities.

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Kazuaki Hashiguchi, Daiwa Securities Co. Ltd., Research Division – Research Analyst [2]

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Hashiguchi speaking. I have a few questions. First, you shared your estimation that the impact of COVID-19 on your revenue could be as much as JPY 30 billion to JPY 50 billion. Could you please elaborate on this? Iron injectables were mentioned as a specific example. How much out of the JPY 30 billion to JPY 50 billion impact for that? Could you also explain products with relatively smaller impact, if any?

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Toshiaki Sai, Daiichi Sankyo Company, Limited – CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [3]

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Sai speaking. Thank you for your question. We’d like to refrain from disclosing detailed figures in a quantitative fashion. Curtailed visits to medical institutions by patients in Japan have quite a large proportion here. We also have to take into account some decrease in new patients on ENHERTU to a certain extent. Furthermore, Injectafer is another major element we need to consider. Due to its property as an injectable, there is some concern that it could be substituted by oral agents in an emergency like this. This is included in our assumptions for Injectafer and Venofer. Also, inbound demand for health care may decline. There can be a slight decrease related to ASCA. So we are factoring in these elements into the numbers. I hope I answered your question.

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Kazuaki Hashiguchi, Daiwa Securities Co. Ltd., Research Division – Research Analyst [4]

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Next on the impact on clinical trials. You mentioned that patient enrollment has been affected for some studies. Specifically, in what kind of studies have you seen relatively bigger impact? There may be no major impact on the ongoing studies. But I believe that the hurdle is higher for new study initiation. What is the current status of preparation for the planned ADC studies?

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Unidentified Company Representative, [5]

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Takasaki would like to respond.

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Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [6]

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As for ADC studies as a whole, some ongoing studies have been suspended for now, but there has been no major issue. We see progress for patients already enrolled. But on the other hand, as you pointed out, concerning new study initiation, we can proceed with our in-house planning at Daiichi Sankyo.

But when it comes to the preparation for site activation, we must give the top priority to physicians’ current activities in the clinical settings right now. So it’s difficult to make progress here. In some cases, we may have to accept some delay in new study initiation.

On the other hand, the clinical studies using healthy volunteers different from cancer studies. We are planning to postpone some of these studies to a certain degree. That’s all for me.

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Kazuaki Hashiguchi, Daiwa Securities Co. Ltd., Research Division – Research Analyst [7]

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According to the presentation and appendix slides today, we’re planning to start some studies in the first quarter. Should we understand that there can be a risk of delay for these studies as well?

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Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [8]

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For DS-6157 ADC for GIST, there is a slight delay.

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Kazuaki Hashiguchi, Daiwa Securities Co. Ltd., Research Division – Research Analyst [9]

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Recently, the study was planned in FY 2019. Now it’s planned for the first quarter. A slight delay has been seen and is already reflected under the schedule you shared today? Or there can be a further delay compared to the slides?

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Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [10]

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The former.

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Kazuaki Hashiguchi, Daiwa Securities Co. Ltd., Research Division – Research Analyst [11]

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Lastly, on R&D expenditure, half a year ago, you mentioned JPY 1.1 trillion for 5 years. The increase seems to be bigger this fiscal year. Have you changed your outlook of JPY 1.1 trillion or not?

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Unidentified Company Representative, [12]

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Sai would like to respond.

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Toshiaki Sai, Daiichi Sankyo Company, Limited – CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [13]

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In principle, we tried to maintain this level of JPY 1.1 trillion for the 5 years, or JPY 220 billion per year. So next fiscal year and beyond, it’s not going to increase as much as the current fiscal year.

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Kazuaki Hashiguchi, Daiwa Securities Co. Ltd., Research Division – Research Analyst [14]

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Is my understanding correct? Next fiscal year and beyond?

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Toshiaki Sai, Daiichi Sankyo Company, Limited – CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [15]

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We have an image to maintain this level or there can be a slight increase. But as of now, we have not changed our policy substantially.

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Unidentified Company Representative, [16]

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Next, Mr. Muraoka from Morgan Stanley MUFG Securities.

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Shinichiro Muraoka, Morgan Stanley, Research Division – Research Analyst [17]

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Muraoka from Morgan Stanley speaking. How should I see ENHERTU’s results and outlook for the current fiscal year in the United States? Can I understand that ENHERTU was growing steadily on a monthly basis in January, February and March? That’s one question.

Next, about the competitive product in the current fiscal year. The other day, tucatinib from Seattle Genetics was approved for the second-line settings in combination with Herceptin. Are you expecting some competition between this drug and ENHERTU? Or you are not seeing this as a competitive product?

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Sunao Manabe, Daiichi Sankyo Company, Limited – President, Group CEO & Representative Director [18]

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Manabe speaking. Thank you for your question. As we explained today, ENHERTU has made a good start. Having said so, we’d like to take some time and monitor the situation to see whether there is any tendency of a slowdown of new patient starts due to the impact of COVID-19. That’s my answer to your first question. Next, on the impact of tucatinib, could you wait for a moment, please?

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Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [19]

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Takasaki from R&D division speaking. Tucatinib is an oral tyrosine kinase inhibitor. Its mechanism of action is different from ENHERTU. Tucatinib was approved for HER2-positive breast cancer in the second-line settings. It will be compared against Kadcyla in the future. Tucatinib was approved for use in combination with Herceptin and capecitabine. On the other hand, Kadcyla has a payload called maytansine tubulin polymerization inhibitor. At any rate, our ADC with topoisomerase 1 payload can contribute to meeting unmet medical needs they can automate. Second-line studies are now underway. We’d like to have such data in competing against tucatinib. That’s all.

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Shinichiro Muraoka, Morgan Stanley, Research Division – Research Analyst [20]

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So you’re expecting competition to a certain extent, but you can compete sufficiently, correct?

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Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [21]

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Yes, your understanding is correct.

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Shinichiro Muraoka, Morgan Stanley, Research Division – Research Analyst [22]

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I also have a question about ASCA business in China. Looking at sales in China in the fourth quarter between January and March, it seems sales decreased by 4% in yen. I think business came to a halt in China in February. Can I understand that the impact was relatively mild? ASCA business in China can return to double-digit growth again in FY 2020?

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Unidentified Company Representative, [23]

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As you have seen the numbers, the impact has been just relatively mild so far. If you compare the fourth quarter on a year-on-year basis, it’s almost the same compared to the previous fiscal year. So we think it’s flat. The external environment is changing substantially in China, including drug price and health insurance, so we must watch carefully for the future.

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Shinichiro Muraoka, Morgan Stanley, Research Division – Research Analyst [24]

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Understood. Lastly, regarding vaccine against COVID-19, this is a messenger RNA vaccine, which I think is very similar to a vaccine by Moderna. What about your production capacity? But first of all, what could be your shortest time line in your view? Can I understand that you have secured enough production capacity?

——————————————————————————–

Unidentified Company Representative, [25]

——————————————————————————–

Takasaki would like to respond.

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [26]

——————————————————————————–

We have not been able to evaluate sufficiently yet. We’re going to consider production and time line from now on.

——————————————————————————–

Unidentified Company Representative, [27]

——————————————————————————–

Next, Mr. Wakao from Mitsubishi UFJ Morgan Stanley Securities.

——————————————————————————–

Seiji Wakao, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division – Senior Analyst [28]

——————————————————————————–

First, what’s your plan for ENHERTU in Japan? In the United States, it’s already marketed, and you are getting a good response. I believe you have a good plan for the current fiscal year. For Japan in FY 2020, I got the impression that the number is not so big in your plan. What assumptions are you including in this scenario?

——————————————————————————–

Unidentified Company Representative, [29]

——————————————————————————–

Sai would like to respond.

——————————————————————————–

Toshiaki Sai, Daiichi Sankyo Company, Limited – CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [30]

——————————————————————————–

Upon approval, we were told to provide information so that the drug will be used properly at medical institutions, which can ensure good adverse event management. Okay, surveillance is a mandatory condition to be met. These assumptions were included.

What’s important is how to properly provide safety information centering around ILD management for proper use of the drug. We’d like to promote its penetration carefully to a certain extent. You may get the impression that this JPY 1.5 billion is a small figure, but we’d like to take steps steadily to expand the product. That’s our basic philosophy.

——————————————————————————–

Seiji Wakao, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division – Senior Analyst [31]

——————————————————————————–

You are not factoring in the potential impact of COVID-19 in this JPY 1.5 billion figure. Is my understanding correct?

——————————————————————————–

Toshiaki Sai, Daiichi Sankyo Company, Limited – CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [32]

——————————————————————————–

Right. It’s not included.

——————————————————————————–

Seiji Wakao, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division – Senior Analyst [33]

——————————————————————————–

Okay. Understood. Next, according to your forecast, SG&A costs are going to increase by JPY 22.7 billion in FY 2020, more than I expected. ENHERTU has a big proportion here. I think about JPY 10 billion or half of the JPY 20 billion increase is due to profit sharing for ENHERTU. Could you elaborate on your forecast of JPY 20 billion increase in SG&A cost? I think some of the costs will be spent to establish the sales and marketing structure. Should I understand that SG&A costs will continue to rise in the next fiscal year and beyond, even excluding profit sharing?

——————————————————————————–

Unidentified Company Representative, [34]

——————————————————————————–

Sai would like to respond.

——————————————————————————–

Toshiaki Sai, Daiichi Sankyo Company, Limited – CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [35]

——————————————————————————–

We try to refrain from quantitative disclosure. But first, I would like to clarify our profit sharing with AstraZeneca you mentioned. We are booking the sales in regions such as the United States, where we do co-promotion with AstraZeneca, as you know. Gross profit after cost of sales is shared with AstraZeneca according to the agreement. The profit we share with AstraZeneca is being booked as SG&A costs on a profit and loss statement. That’s the first point.

Then sales promotion costs are being incurred. We are sharing sales promotion costs between the 2 companies. If there is a difference, we need to adjust, we are booking it as SG&A costs. Also for R&D expenditure, we’re sharing the same way with SG&A costs. The amount of adjustment is being booked as our R&D expenditure. That’s our approach to PL statement in the United States and other regions with co-promotion activities.

Needless to say, in Japan, we are doing this business on our own without profit sharing with AstraZeneca. A main factor for the increase in SG&A cost is an increase in sales promotion costs for DS-8201. Please allow me to skip the details.

——————————————————————————–

Seiji Wakao, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division – Senior Analyst [36]

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According to your forecast, we were expecting JPY 325 billion for SG&A costs in FY 2020; profit sharing is expected to rise in the next fiscal year and beyond. Sales promotion cost would increase to a certain extent in FY ’19 and FY ’20. Sales promotion costs will increase similarly in the next fiscal year and beyond. Should I understand that way? I should not think it’s going to be somewhat temporary.

——————————————————————————–

Toshiaki Sai, Daiichi Sankyo Company, Limited – CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [37]

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No. We must take this into account on a recurrent basis, in our view.

——————————————————————————–

Seiji Wakao, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division – Senior Analyst [38]

——————————————————————————–

Understood. One more question. Lastly, regarding the data you’re going to present at ASCO for DS-1062, the most recent data available is the data at the time of data cut-off in November last year. Data to be published in abstract will be data as of January or February. The deadline for submission to ASCO seems to be at the end of May. So the data you’re going to present at ASCO will include the progress for half a year since the currently available data? No particular impact of COVID-19 on this data? There is no possibility of no follow-up due to the impact of COVID-19? This is my last question.

——————————————————————————–

Unidentified Company Representative, [39]

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Takasaki would like to respond.

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [40]

——————————————————————————–

I’d like you to listen to our presentation after abstract disclosure for details. We will include 8-milligram per kilo for dose expansion and back-dosing data. There’s going to be a time lag from abstract submission, so we are hoping to present such data. There is a slight impact of COVID-19, but the impact is not so big as to prevent us from obtaining the data you want to see. So I hope you will look forward to our data.

——————————————————————————–

Unidentified Company Representative, [41]

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I’d like to move on to the next question. It is Mr. Yamaguchi from Citigroup Securities.

——————————————————————————–

Hidemaru Yamaguchi, Citigroup Inc, Research Division – MD & Analyst [42]

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This is Yamaguchi. Please excuse me for asking you a similar question from the previous one. But in the conference last year, I believe that was at WCLC. In the initial abstract phase, you put an embargo. And at the real trial or in the real one, you presented the data. I think you employed this method last year so that there will be no confusion. But for DS-1062 in ASCO, that’s not what you will do. You will present the data at different timings, do I understand it correctly?

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [43]

——————————————————————————–

Excuse me, this is Takasaki. When you said different timings, what do you mean by that?

——————————————————————————–

Hidemaru Yamaguchi, Citigroup Inc, Research Division – MD & Analyst [44]

——————————————————————————–

I’m sorry, but I believe there was a time last year when you put an embargo on the abstract and postpone the disclosure of your data. What I mean by embargo is that I think there was a time when you didn’t publish your data during the time of the abstract.

In my recollection, you disclosed the data altogether at one time during the real thing, but you are not going to do the same thing at ASCO. The data for the abstract will be published as the data for the abstract, and different data will be presented at your poster presentation at ASCO. I think that’s what Mr. Wakao was asking previously. And my question is, if you don’t have a choice of putting an embargo this time?

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [45]

——————————————————————————–

Correct. Your understanding is correct.

——————————————————————————–

Hidemaru Yamaguchi, Citigroup Inc, Research Division – MD & Analyst [46]

——————————————————————————–

So there will be no embargo?

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [47]

——————————————————————————–

Correct. That’s what we are planning to do.

——————————————————————————–

Hidemaru Yamaguchi, Citigroup Inc, Research Division – MD & Analyst [48]

——————————————————————————–

Okay. I understand. Also, although I’m moving away from the topic of financial results a little bit, I’d like to ask you about the national stockpile project to prepare for novel influenza. It’s not about the novel coronavirus. Although there are less people than the initial time of the application, you apply for the vaccine project to produce a vaccine for all the population of 130 million people in Japan. You received money from the national government, and I assume you have the capacity now.

My question to you is, if you do have the capacity right now? Or it could be an idling capacity. And I guess it could be the novel coronavirus or the novel influenza since they are pretty much the same. If one brings a vaccine there, and I’m sorry, I don’t remember if that was JPY 30 million or JPY 40 million, but you do have the production facility that you allocated, and that allows you to produce the vaccines in half a year or so. Do I understand it correctly?

——————————————————————————–

Unidentified Company Representative, [49]

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Correct. Daiichi Sankyo does have the capacity for 23 million people, but this is only for novel influenza. And it cannot be diverted immediately to the next use.

——————————————————————————–

Hidemaru Yamaguchi, Citigroup Inc, Research Division – MD & Analyst [50]

——————————————————————————–

So even though you might have some discussions with the government in the future, you are not able to move it to that size so easily?

——————————————————————————–

Unidentified Company Representative, [51]

——————————————————————————–

Correct. That’s how I understand it.

——————————————————————————–

Hidemaru Yamaguchi, Citigroup Inc, Research Division – MD & Analyst [52]

——————————————————————————–

Understood. About TURALIO, I’m sorry to ask you another detailed question. But the revenue for TURALIO is not disclosed here. Is that because the revenue for TURALIO is still small? Is that the one in the U.S.?

——————————————————————————–

Unidentified Company Representative, [53]

——————————————————————————–

Correct. It’s so small that we haven’t disclosed it yet. You are right.

——————————————————————————–

Hidemaru Yamaguchi, Citigroup Inc, Research Division – MD & Analyst [54]

——————————————————————————–

Understood. Lastly, you also mentioned that the first EAP started in Japan. I didn’t understand what you mean by the EAP in Japan. What is it?

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [55]

——————————————————————————–

This is Takasaki. I think the question is about the Expanded Access Program. Yes. Actually, the patients who have been enrolled in the clinical trial under this program will continue to be enrolled in the trial. And that is — actually, it has not been approved yet. So for the indications which have not been approved yet, that’s how we carry out for the time being.

——————————————————————————–

Hidemaru Yamaguchi, Citigroup Inc, Research Division – MD & Analyst [56]

——————————————————————————–

Oh, I see. And a drug is given to the patients as an investigational drug for the time being, and it’s free of charge?

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [57]

——————————————————————————–

Yes. Your understanding is correct.

——————————————————————————–

Hidemaru Yamaguchi, Citigroup Inc, Research Division – MD & Analyst [58]

——————————————————————————–

Understood. Lastly, about the next ADC, does your R&D have any plan of disclosing the next ADC somewhere in the plan of your fiscal year?

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [59]

——————————————————————————–

Well, it’s still in the phase of nonclinical study. And I think what you mean by the next ADC is about a different platform?

——————————————————————————–

Hidemaru Yamaguchi, Citigroup Inc, Research Division – MD & Analyst [60]

——————————————————————————–

Yes, yes.

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [61]

——————————————————————————–

Well, it’s not ready yet.

——————————————————————————–

Unidentified Company Representative, [62]

——————————————————————————–

I’d like to move on to the next question. The next is by Mr. Ueda from Goldman Sachs Securities.

——————————————————————————–

Akinori Ueda, Goldman Sachs Group Inc., Research Division – Equity Analyst [63]

——————————————————————————–

I’m Ueda from Goldman Sachs Japan. My first question is about U3-1402. In the slide, you mentioned that the future development plan is under reconsideration for breast cancer. I would like to ask you about the specific points of your reconsideration. Please also tell us about the development of a new biomarker, if any, to predict the efficacy, including the HER3 expression.

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [64]

——————————————————————————–

Yes. I’m Takasaki, and I’ll answer this question. As for our reconsideration in breast cancer, as you know, HER3 is a new target. Among the HER family, HER3 is characterized to have a variety of regulating functions, which makes it susceptible to variability by disease and by treatment. So biology of breast cancer still has some gaps to fill in before we can reasonably establish a strategy to move forward. That’s the reason why we have undergone some reconsideration as it was described to you.

——————————————————————————–

Akinori Ueda, Goldman Sachs Group Inc., Research Division – Equity Analyst [65]

——————————————————————————–

Understood. Are you also developing a biomarker or anything like that?

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [66]

——————————————————————————–

Yes. We are also working on the fast development of a biomarker. We have not come up with any organized content that I can report to you yet. But when the time comes, we will let you know.

——————————————————————————–

Akinori Ueda, Goldman Sachs Group Inc., Research Division – Equity Analyst [67]

——————————————————————————–

Understood. My second question is about your understanding of the competitors. I believe Immunomedics has launched a product approved for an indication for the triple-negative breast cancer. They are also developing a product for NSCLC and others.

I’d like to know what your perspectives will be for the impact on the DS-1062 development and its position after the launch. Also, if Immunomedics’ product gets an indication for HER2-negative, do you think we should be watchful of its competition against ENHERTU? Can you tell us about Daiichi Sankyo’s view on competition?

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [68]

——————————————————————————–

Yes. I’m Takasaki, and I’ll answer this question. As for the competitors’ products, their indications are different from ours. So we have different indications as well as that we have a different ADC platform. We are targeting a very high level of the activity that they have.

So in that sense, our indications are different, and our platform is different. Therefore, we don’t feel any specific threat from the competitor at this point in time. Furthermore, we are moving forward with NSCLC. And depending on the results, we’re hoping to expand it to different indications as well.

——————————————————————————–

Akinori Ueda, Goldman Sachs Group Inc., Research Division – Equity Analyst [69]

——————————————————————————–

Understood. Lastly, I would like to know the situation with Inavir. It is currently showing a downward swing in the planned percentage. I think it is partly due to the reduced rate of influenza in the fourth quarter. Can you describe the market factors and the changes of the market shares from the third quarter to the fourth quarter? And the plan for this year does not seem to be as large as the plan you had in the beginning of last year. Can you tell me what your assumptions are?

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Sunao Manabe, Daiichi Sankyo Company, Limited – President, Group CEO & Representative Director [70]

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Yes. I’m Manabe, and I’ll answer this question. As for Inavir, it has been showing a steady recovery among other anti-influenza drugs. On the other hand, however, it’s probably because of the impact of the novel coronavirus that everyone has become so sensitive about infectious diseases that it reduced the influenza market by 53% comparing to the previous year. This resulted in the revenue you see in FY 2019. As for the market share in FY 2020, we believe that we will be able to secure approximately the same level as before. But it’s quite difficult to predict the spread of the infection, so we can only give you a forecast just for now.

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Unidentified Company Representative, [71]

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I’d like to move on to the next question. It’s Mr. Arai from Merrill Lynch Securities.

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Tatsuyuki Arai, BofA Merrill Lynch, Research Division – Junior Analyst [72]

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I’m Arai from Merrill Lynch. I have 2 questions regarding DS-1062. On Slide 44, it says that the next step for DS-1062 is under consideration. I think that the level of information disclosure here has been better than before. But where it says with or without mutation in the lines of TKI or EGFR, for example, are they referring to existing mutations? Or do they mean any new mutation? I’d like to understand this point clearly.

Also, there is a line that says pivotal study. Does that mean that with this Phase II pivotal study for NSCLC without mutation, you want to make a regulatory submission if you get good results? Or if you want to make the study design in such way, it will be helpful if you can explain about these points clearly.

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [73]

——————————————————————————–

Yes. I’m Takasaki, and I’ll answer your questions. First, about the question of mutations. We are considering the existing mutations. And the reason why we wrote pivotal study in this slide was because, depending on the status of the data, we want to make a regulatory submission with this pivotal study if we get good data.

——————————————————————————–

Tatsuyuki Arai, BofA Merrill Lynch, Research Division – Junior Analyst [74]

——————————————————————————–

Understood. I believe in the past, the efficacy of DS-1062 was not consistent across the patients. You might be considering the administration of DS-1062 to a group of patients with a certain mutation by implementing precision medicine. I was thinking about the possibility of such screening of patients after Phase II. But as far as I can tell from the current press release, you are not screening the patients according to the TROP2 mutation, for example. But your pivotal study will rather enroll a large group of patients without mutation altogether. Is my understanding correct?

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [75]

——————————————————————————–

Yes. That is correct for those without mutation, but we are still discussing the details, and it might have a slightly different outlook depending on the data we get.

——————————————————————————–

Tatsuyuki Arai, BofA Merrill Lynch, Research Division – Junior Analyst [76]

——————————————————————————–

Understood. I have one more question about U3-1402. Although WCLC was postponed, I also thought that you might have an opportunity at ESMO instead, but you’d rather want to wait till WCLC in January. I’m wondering if there is a reason to it. For example, your clinical trial is not going as well as you expected? Or do you have any other factors? Or is it simply because your contract make you wait until WCLC in January? I would appreciate it if you can explain the reason why you are waiting until January.

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [77]

——————————————————————————–

Yes. This is Takasaki, and I’ll answer this question. We are still discussing if we want to do our presentation at ESMO. We haven’t come to any conclusion yet.

——————————————————————————–

Tatsuyuki Arai, BofA Merrill Lynch, Research Division – Junior Analyst [78]

——————————————————————————–

But is it still a possibility?

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [79]

——————————————————————————–

Yes, it is still under discussion.

——————————————————————————–

Unidentified Company Representative, [80]

——————————————————————————–

I’d like to move on to the next questions. Mr. Sagehashi from Jiho.

——————————————————————————–

Yoshinori Sagehashi, [81]

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I’m Sagehashi from NIKKAN YAKUGYO. I have one question. You included the revenue decrease due to the drug price revision in the revenue forecast of FY 2020. You are planning to have a so-called midyear accounting in April 2021, which is next year. But the rules, including the target scope, have not been decided yet. Now it seems that we are not even sure if this revision will be actually take place anymore. What was your assumption of the form of implementation of the midyear revision? How did you translate that into actual values? What was your expectation of the actual level of reduction in percentage? I’ll appreciate your responses.

——————————————————————————–

Unidentified Company Representative, [82]

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Our forecast related to the drug price revision is JPY 35 billion in total. My response is extremely simple.

——————————————————————————–

Unidentified Company Representative, [83]

——————————————————————————–

I’d like to move on to the next question. It’s Mr. Sakai from Crédit Suisse Securities.

——————————————————————————–

Fumiyoshi Sakai, Crédit Suisse AG, Research Division – Research Analyst [84]

——————————————————————————–

I’m Sakai from Crédit Suisse. Maybe it’s taking a long time, so let me ask you about 3 things related to ENHERTU. It’s about Slide 16 in your presentation. The upfront payment used to be somewhere around JPY 150 billion, but the figure this time is JPY 149 billion. I think the number of projects are listed in the table towards the end, and the number increased from 17 to 47. I believe the contract is an umbrella cover, and I don’t think the number of the projects would increase or decrease. If this is a success, it may decrease. But am I correct to assume that this doesn’t fluctuate along with the changes? This year’s regulatory milestone payment towards the bottom of the table is JPY 900 million, but the total consideration received is JPY 13.7 billion. This figure of JPY 13.7 billion includes the progress during this year. That means the figure will increase to some extent at every progress in the future. Am I correct? I’m talking about the table on Slide 16.

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Unidentified Company Representative, [85]

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First of all, the upfront payment will not change for that reason. And the milestone includes the third line for breast cancer. That’s how I understand it.

——————————————————————————–

Fumiyoshi Sakai, Crédit Suisse AG, Research Division – Research Analyst [86]

——————————————————————————–

So am I correct to say that this JPY 13.7 billion includes the progress this year?

——————————————————————————–

Unidentified Company Representative, [87]

——————————————————————————–

Like I said, it only includes the third line for breast cancer, but nothing else. So nothing else is included.

——————————————————————————–

Fumiyoshi Sakai, Crédit Suisse AG, Research Division – Research Analyst [88]

——————————————————————————–

I understand.

——————————————————————————–

Unidentified Company Representative, [89]

——————————————————————————–

Let me add more to this point. This will be recognized as a deferred income apportioned evenly over the years until the expiration of the patent. As Dr. Manabe mentioned, this development milestone is only about the third line, and this same amount will continue to be booked going forward. Furthermore, if any new indications are added later, the portion will be added on top of it every year. That is the overall picture.

——————————————————————————–

Fumiyoshi Sakai, Crédit Suisse AG, Research Division – Research Analyst [90]

——————————————————————————–

Understood. So JPY 13.7 billion only refers to the part of breast cancer this time?

——————————————————————————–

Unidentified Company Representative, [91]

——————————————————————————–

Correct.

——————————————————————————–

Fumiyoshi Sakai, Crédit Suisse AG, Research Division – Research Analyst [92]

——————————————————————————–

Does that mean that if you have more development milestones in the future, you are still reluctant to disclose the details of them, correct? Are you able to show us some kind of a breakdown?

——————————————————————————–

Unidentified Company Representative, [93]

——————————————————————————–

We will disclose them as the actual performance in accordance with the progress of the development. That should be understood.

——————————————————————————–

Fumiyoshi Sakai, Crédit Suisse AG, Research Division – Research Analyst [94]

——————————————————————————–

Understood. Also about ENHERTU for HER2 low. I think there was a description of the data disclosure in Q4 of 2022 in the attachment of the financial results document. This may have to do with the priority on HER2-positive, but I have a feeling that this has been moved back to a later timing than what I heard before. If I’m not understanding it correctly, can you tell me if that was due to some kind of a factor?

Also, I have one more last question. It’s about ENHERTU’s price in the U.S. It’s about $13,000 per month. I assume that this was set by an average weight. What is the stage of your current price negotiation with managed care? Specifically, I think your main focus this year is on the private insurances. Please describe your progress. Those are my 2 questions.

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [95]

——————————————————————————–

This is Takasaki. I will respond to the first question about HER2 low in DS-8201. We are not intentionally delaying the trials. We have an operational issue, which has been delaying our time line. That’s all.

——————————————————————————–

Fumiyoshi Sakai, Crédit Suisse AG, Research Division – Research Analyst [96]

——————————————————————————–

Are you having a hard time recruiting patients? Or patients are not recruited? Tell me where you stand as well.

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [97]

——————————————————————————–

Sure. It’s not that we are not recruiting at all, but it’s just not going as fast as we expected.

The price of ENHERTU is over $13,000 per month, as you mentioned, so it’s over $140,000. As for the access, since we want to reduce the financial burden on patients, we are currently working very hard to negotiate this point.

——————————————————————————–

Fumiyoshi Sakai, Crédit Suisse AG, Research Division – Research Analyst [98]

——————————————————————————–

Understood. So that is also included in the forecast of this year, which is JPY 27 billion?

——————————————————————————–

Wataru Takasaki, Daiichi Sankyo Company, Limited – Executive Officer and Head of R&D Division [99]

——————————————————————————–

Yes. That’s how I understand it.

——————————————————————————–

Unidentified Company Representative, [100]

——————————————————————————–

I’d like to move on to the next question. It’s Mr. Hashimoto from Nikkei BP.

——————————————————————————–

Unidentified Participant, [101]

——————————————————————————–

I’d like to ask you about Slide 50, which is about the introduction of the gene therapy technology from Ultragenyx, and establishing an in-house manufacturing facility. Am I correct to assume that you are establishing the manufacturing facility in Japan?

——————————————————————————–

Unidentified Company Representative, [102]

——————————————————————————–

Yes. Your understanding is correct.

——————————————————————————–

Unidentified Participant, [103]

——————————————————————————–

Okay. Also, when I look at this illustration, it looks like an incubator tower to me. Are HEK293 and HeLa cells in suspension culture? Is my understanding correct?

——————————————————————————–

Unidentified Company Representative, [104]

——————————————————————————–

I’m sorry, but it has to do with our technology, and I’d like to refrain from responding to this question.

——————————————————————————–

Unidentified Participant, [105]

——————————————————————————–

Okay. I’d like to ask you one more question. It’s about DS-1647. You mentioned that this has been falling behind the schedule, but you are finally able to carry on with the regulatory submission. And I remember that the reason for this delay had to do with an issue caused by the consigned manufacturer.

Now am I correct to say that, because you can see that the problem with this manufacturer is coming to a close, you are able to carry on with the regulatory submission?

——————————————————————————–

Unidentified Company Representative, [106]

——————————————————————————–

Yes. This issue was discussed with the regulatory authority as well, and we have been getting close to the conclusion of how data should be captured. That’s why we decided to make the date clear. That’s all.

——————————————————————————–

Unidentified Participant, [107]

——————————————————————————–

Well, you didn’t replace the manufacturer, but now you are beginning to see a better prospect to some extent. Am I right?

——————————————————————————–

Unidentified Company Representative, [108]

——————————————————————————–

Yes, your understanding is correct.

——————————————————————————–

Unidentified Company Representative, [109]

——————————————————————————–

I’d like to move on to the next question. It’s Mr. Eguchi from Asahi newspaper.

——————————————————————————–

Eisuke Eguchi, [110]

——————————————————————————–

I have a question to President Manabe. It’s about ENHERTU. I believe it will be launched around May in Japan. Can you tell us once again about your enthusiasm and expectation for this product launch in Japan?

——————————————————————————–

Sunao Manabe, Daiichi Sankyo Company, Limited – President, Group CEO & Representative Director [111]

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Yes. For Daiichi Sankyo, this will be a new drug with a lot of our expectation. Since the results from the clinical studies are also impressive, we want to take advantage of this opportunity to organize Daiichi Sankyo’s oncology infrastructure. All the employees and the sales teams in our company are extremely excited and looking forward to the launch. However, on the other hand, there’s also ILD, and we want to make a careful move going forward by communicating the right information and with a lot of excitement.

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Eisuke Eguchi, [112]

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And please tell me one more thing. About the approval in the U.S., I believe you generated the revenue of JPY 3.2 billion by the end of the fiscal year. Can you tell me how the patients reacted to ENHERTU, specifically?

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Sunao Manabe, Daiichi Sankyo Company, Limited – President, Group CEO & Representative Director [113]

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As I presented today, we received very positive responses from the physicians on site. As a result of this, the number of the hospitals where the products are delivered is increasing faster than we expected, and the number of the hospitals where we can deliver multiple number of products is also increasing. So we take it very positively. But on the other hand, there is also an issue of ILD, and we have been extremely careful with the information we provide to the physicians.