Astellas Pharma Inc

Thank you very much for joining with our FY2023 earnings call, despite of your busy schedule. I'm Chief Communications and I am Officer Ikeda. I would like to serve as a moderator for today. Today, I will make a presentation that is followed by a Q&A session. The material is available on our website. In line with that, we are going to give you the presentation, including the Q&A. The simultaneous translation of Japanese and English is provided. The accuracy of the translation is not going to be guaranteed by us. As for the language, from the Zoom webinar screen on the menu, you can find the language. When you select the original language, in that case, you can listen to it without using the translation service. And for the material or presentation and answers and statement by the representatives for the company in the Q&A includes word-looking statements based on assumptions and beliefs in light, Thank you very much. The participants for here today is CEO, excuse me, President, Director, President and CEO Naoki Okamura, CSCO, Chief Scientific Officer Yoshitsugu Shidaka, Chief Medical Officer CMO Otadaki Taniguchi, the Chief Commercial Officer CCO Klaus Zeller, Chief Financial Officer CFO Atsushi Kitamura, We have five here as representatives from the company. Now, Okamura-san, please start your presentation.

Hello, everyone. I'm Naoki Okamura from Astellas Pharma Inc. Thank you very much for joining our FY2023 financial results announcement meeting. I have to be very busy scheduled today. This is a cautionary statement regarding forward-looking information. As this was explained by Keda earlier, I'm not going to read this page. Page 3 is the agenda for today. Starting from the next page, I will explain these topics in this order. On page 4, I will give you an overview of FI 2023 financial results. Revenue increased year-on-year and exceeded a full-year forecast revised in the third quarter. Externally, sales increased by about 90 billion yen year-on-year, contributing to the achievement of a full-year forecast. Sales of PADSEF, Zospata, Vioza, and Izaway combined increased by about 70 billion yen year-on-year, contributing greatly to sales expansion as growth drivers. SG&A costs increased year-on-year, mainly due to the impact of iveric bioacquisition and investments in growth drivers. We achieved efficient cost management through timely assessment of resources. Earned the expenditure was on track. Core operating profit decreased year-on-year, mainly due to the impact of ivory bioacquisition. On the other hand, core operating profit exceeded the full-year forecast revised in the third quarter. On page 5, I will explain FI 2023 financial results. Revenue increased to 1,603,700,000 yen, up 5.6% year-on-year. We achieved 102.7% of a full-year forecast. Core operating profit was 184.6 billion yen, down by 35.6% year-on-year. We achieved 112.6% of our full-year forecast. You can see the Forex impact on the right-hand side of the table. There was a positive impact on revenue by 96.3 billion yen and on core operating profit by 19.1 billion yen. The bottom half of this page shows the full basis results. In the right bottom of the table, we included other expenses booked in the fourth quarter. We booked 56.3 billion yen in payment loss for intangible assets of 8808 and Evrenzo. In addition, we booked 8 billion yen due to fair value increase of contingent consideration for Zolbetaximab. As a result, operating profit was 25.5 billion yen, down by 80.8% year-on-year. Profit decreased to 17 billion yen, down 82.7% year-on-year. On page 6, I will explain FY2023 financial results of our main products. First, about Xtandi. Sales expanded in all regions despite more than 10 years on the market. global sales increased to 750.5 billion yen, up by about 90 billion yen, or 14% year-on-year. Even excluding forex impact, Xtendi achieved about 6% growth year-on-year. In the United States, which is the biggest market, based on Embark study results, M0 CSBC additional indication was approved in November last year. We have been able to confirm the penetration of this additional indication and the ripple effect on other indications as well. Volume, excluding the so-called PAP, patient assistance program, grew steadily by 4% year-on-year. Pat says global sales increased to 85.4 billion yen, up by 92% year-on-year, realizing nearly two-fold growth. Performance was in line with our full-year forecast, which was revised significantly upward by nearly 20 billion yen in the second quarter. In the United States, the market penetration of the first-line indication was a major driver. Demand more than doubled year on year. Also, NCCN guidelines, which many physicians are referring to when they decide prescription, were updated last month. The level of recommendation for PADSEF as a first-line treatment of MUC was upgraded from Category 2 to the highest recommendation level, Category 1. Globally, as a whole, the number of launched countries is increasing steadily. In FY2023, PADSEV was launched in additional 14 countries. The number of launched countries has expanded to 36 in total by now. Regarding Zospata, global sales increased to 55.1 billion yen, up 18% year-on-year. Sales expanded in all regions, in line with the full-year forecast revised upward in the second quarter. Sales of Vioza reached 7.3 billion, progressing in line with the forecast revised in the third quarter. Commercial lives covered, payer coverage, and important KPI for market access expanded to 50% as planned as of the end of March. On the other hand, HCP's perception of Vioza access and affordability remains low, which is a barrier to prescription. I will talk about our future initiatives and outlook when I explain FI 2024 forecast. ISAV is growing at a speed faster than our expectations. Sales reached 12.1 billion yen, exceeding the full-year forecast we announced after the launch in September last year. Accelerated momentum continues, and vial demand doubled from the third quarter to the fourth quarter. We estimate market share in the fourth quarter period to be about 25%. This is calculated based on the reported shipment volume data, as well as multiple market research. Given the fact that the competitive product was launched about six months earlier, we think this is a great achievement. More than 50,000 vials have been shipped since launch, and Isavay is now available in about 1,000 retina accounts. Post-marketing safety profile is reported to be consistent with the results of the clinical studies so far. The number of physicians highly evaluating the safety profile of Isovay is increasing steadily. Sales of Partsev, Zosparta, Bioza and Isovay are smitten to long-term growth drivers, increased by about 70 billion yen in total year-on-year. We are expecting further growth into the future as well. On page 7, I will explain cost items. Cost of sales ratio was 18.2%, improving by 0.7 percentage point year-on-year, mainly due to changes in product mix, and was on track. SG&A cost, excluding U.S. extended co-promotion fees, increased by 19.9% year-on-year, When Forex Impact was excluded, the year-on-year increase was 12.8% to about 58 billion yen. As main factors behind, SG&A cost increased by about 31 billion yen year-on-year. Due to the impact of Iverick Bio acquisition, Vioza-related sales promotion costs rose by about 40 billion yen year-on-year. On the other hand, sales promotion costs related to mature products such as Mirbegron decreased by about 8 billion yen year-on-year. We achieved efficient cost management through timely assessment of resources. The expenditure increased by 6.5% year-on-year, mainly due to Forex impact and iVertBio acquisition. We were on track in our spending. From here on, I will explain our initiatives for sustainable growth. On page 9, you can find an overview of major quarterly updates related to R&D. I will explain the details of extended strategic products and focus area approach on the following slides. In RxPLUS program, we initiated pivotal study for regulatory submission in Japan for Blue Star digital therapeutics for diabetes. On page 10, I will explain key events achieved in FI 2023 for Xtandi and strategic products. As an achievement in April, Xtandi was approved in Europe for the additional indication of M0 CSPC with biochemical recurrence at high risk of metastasis based on Embark study. As for PADSEV, a submission in China was accepted in March for the additional indication of first-line locally advanced or metastatic urothelial cancer based on EV302 study. VALOI was approved in Japan in March for clothing 18.2 positive unresectable advanced or recurrent gastric cancer. As for ISAVE, a submission for a label update was accepted in the United States based on 24-month data from Gather2 study. As other updates, we achieved first-subject, first-treatment in Phase 3 studies of VIOZA, Starlight-2 pivotal study for JNDA in Japan, and Starlight-3 long-term safety study in the fourth quarter. Also, towards a new additional indication, we decided to perform a Phase III study for induced VMS in breast cancer patients on adjuvant endocrine therapy. We will give you an update after the specifics of the study are decided. In FY2023, we achieved many important milestones such as approval of VILOI, VIOZA, and ISAVE, as well as approval of additional indications for Xtandi based on Embark study and PASIF based on EV302 study. We have made a lot of progress towards growth in FY2024 onwards. On page 11, I will explain the update for the past three months with regards to the progress of focus area approach projects in clinical trial. Primary focus project ASP2016 in genetic regulation, ASP2802 in immuno-oncology, and ASP4396 in targeted protein degradation newly entered the clinical trial stage. I will explain the details of these projects on the following page. As for ASP1570, the first project described here for primary focus immunooncology and ASP3082 in targeted protein degradation phase 1 dose escalation monotherapy cohort is ongoing. For both, no major issue including safety has been observed by now. The study of recommended dose is ongoing. The initiation of dose expansion cohort as the next step is expected in the first half of FY2024. As for ASP2138, the second from the top in immuno-oncology, dose expansion cohort has been initiated based on the data obtained from the Phase I dose escalation monotherapy cohort. We have not made any decision about data presentation plan at Congress and other forums for any of these yet. Once we make a decision, we will share that with you. As for ASP2074, the third from the top in immuno-oncology, we decided to terminate the project based on the clinical study data obtained by now. Regarding ASP0367 in primary focus mitochondria, we decided to terminate this program based on the clinical study data obtained by now. Multiple programs have been generated, but unfortunately, in any of these programs, we have not been able to demonstrate benefit in clinical study results. Based on these circumstances, we decided to dissolve primary focus mitochondria. So far, we have obtained knowledge and experiences through drug discovery in mitochondrial-related areas and new drug development for rare diseases. We will leverage this as important learnings and insights for evaluating disease areas where we will perform R&D in the future. On page 12, I will explain new clinical programs. ASP2016 is a recombinant AAV8 encoding human frataxin gene. This drug was created for cardiomyopathy as a target disease within 80808 gene therapy R&D program for various symptoms of free triataxia patients. Free triataxia is a hereditary disease caused by frataxin gene mutation. Currently, there is no curative treatment. More than 60% of the patients develop cardiomyopathy, which is a leading cause of death. ASP2016 was granted fast-track designation by USFDA in March 2024. We are hoping that single dose will result in the long-term expression of frataxin in the heart to improve the disease conditions. ASP2802 was created with Zyphos technology. This convertible CAR-T therapy has entered the clinical trial stage for the first time. It is comprised of autologous T cells and mica body directed to CD20. Mica body is a fusion protein which fuses a tumor antigen-recognizing antibody and an immune cell-binding antibody. According to the convertible CAR system, activity can be controlled with a meca-body dose, so benefits such as less long-term toxicity and prolonged response are expected. ASP2802, the first convertible CAR program, uses autologous cells harvested from patients. We are hoping that these clinical studies will also inform the development of future allogenic off-the-shelf programs. ASP4396 is a protein degrader targeting KRAS G12 demutant like ASP3082. The target protein is the same with ASP3082, but E3 ligase binder is different. With ASP4396, we achieved first-subject, first-treatment in Phase 1 study in April 2024, just 50 days after the acceptance of IND by FDA. Generally speaking, it takes about three months, so we achieved a much earlier timeline. By proceeding with the clinical study and accumulating data in parallel with ASP30H2, we are hoping that the development of targeted protein degradation platforms will be enhanced. On page 13, I'd like to review the progress of Corporate Strategic Plan CSP 2021 so far in line with the three performance goals. As for performance goal 1, we achieved extremely promising results in EV302 study for PATSEF above our expectations, and we feel more confident about the significant growth in the first-line settings. On the other hand, Bioza uptake is below our original assumptions. In addition, as an external environment factor, Medicare Part D redesign will start from January 2025 as one of the measures by the so-called IRA, Inflation Reduction Act, in the United States, which was not included in our original assumptions. This is expected to impact extended sales in the United States in the future. As a measure to secure revenue, we acquired Ivory Bio and a new growth driver, Isovay, which is growing at a speed higher than our expectations. Also, we are working on product value maximization through active life cycle management with indication expansion, including MIBC, muscle invasive bladder cancer for POTSF, and pancreatic adenocarcinoma for Viroi. Regarding performance goal 2, pipeline value, we started targeted protein degradation as a new primary focus, and multiple promising projects have been generated. On the other hand, POC has not been obtained yet in focus area projects so far. We are hoping that programs such as Potenza, A, AVC, and FX-322 would be launched early and contributed to revenue in 2030 as they were relatively advanced projects as of 2021, but we decided to terminate these programs as we could not obtain clinical study results showing benefit. In R&D, we are implementing a major reform of the organizational structure and operation, further strengthening the focused resource allocation to prioritize projects, and working on the acceleration of POC judgment. Also, through the acquisition of Propeller Therapeutics, we added to our pipeline PRL02, a next-generation androgen biosynthesis inhibitor, in order to be able to make up for the termination and the delay of early-stage development projects. As for performance goal 3, cooperating profit margin, we are able to control cost to a certain extent, but we recognize it was not enough to offset investments in new launch products. LexiScan generics have been launched earlier than expected, and we cannot rule out the possibility of mere background generic launches at risk. This is resulting in a major impact on our cooperating profit. From now on, we will review the allocation of our management resources. in a timely fashion and implement more stringent cost control while securing investment for future growth. We will focus on optimized operations through digital as well.

From here, I would like to explain about the FI 2024 forecast and CSP 2021 outlook. Slide 15. Before the FY24 forecast, I will explain the background of making the plan. Looking back at FY2023, because of the entry of generic of Lurexcan, the increase of expenses due to the acquisition of Ivercabio, the lower than expected progress of Biosa, as well as the booking of impairment losses and others, we have made multiple downward revisions on both a core and a full basis, and the management takes very seriously the fact that we were unable to meet the expectations of the investors as a result. Therefore, we have analyzed various scenarios for our FY24 forecast and formulated a more balanced plan that is both ambitious and achievable, taking into account risks and opportunities. For the FY24 forecast, we've done a lot of different scenario analysis, and taking into account risk and opportunities, we formulated a more balanced plan that is both ambitious and achievable. First, we updated our sales outlook for Vioza. As a result, we have been revising our peak sales forecast. The next, we factored in the impact of generic entry of Mira Begulun in the U.S. as we were aware that generic companies were already moving toward a market launch. As we believe that the formulation pattern for Mira Begulun is still valid, and we will continue to focus on the dispute. On the other hand, we expect the impact of the entry of generic Mira Begulun in the U.S. on revenue to be offset by the full-fledged growth trend. of strategic products. In addition, we announced in a press release today that the definition of core basis has been changed to more adequately reflect the profitability from core business. On a full basis, we factored in other expenses such as impairment loss in our initial focus to reduce the impact of unexpected downward revisions during the period. There are no specific indications of impairment at this time, and the estimate is based on the actual other expenses recorded in the past and the balance of intangible assets. I will explain the detail from the following slides. Page 16. I will explain our outlook for oncology products in FY24. First of all, we cast extended sales for FY24 to be 757 billion yen, an increase of 6.6 billion yen year-on-year. Global sales are expected to be at the same level as FY23 with XCUS offsetting the impact of the US IRA. While we expect growth in M0 CSPC prescriptions in the U.S., we anticipate a decline in the sales due to the three-month negative impact of IRA Medicare Part A redesign scheduled to be effective in January 2025. That is around $50 to $70 million impact. Outside the U.S., we expect sales to continue to grow mainly due to the growth of M1 CSPC, metastatic castration-sensitive prostate cancer. Parts set for FY24 is projected to be 151.2 billion yen, a significant increase of 65.9 billion yen year-on-year, and we expect progressive strong quarterly growth throughout the fiscal year. In the U.S., we expect that first-line indications will make a full contribution from the beginning to the end of the fiscal year. We also expect synergistic effects from the NSCC and guidelines updated in March, as I mentioned earlier, and aim to position it as a new standard of care in first-line treatment. Outside of the U.S., we anticipate the potential approval of an additional indication for first-line therapy based on the EB302 trial in Japan. The established markets and international markets by the end of the year and sales are expected to accelerate in each region once approved. Also, continued launch and reimbursement of the second line and afterwards around the world is expected. The spider's focus for FY24 is 60 billion yen, an increase of 4.9 billion yen year-on-year. We expect continued growth in existing markets centered on growth in the established markets. In the international market, We expect an increase in launch countries and a reimbursement which we expect will contribute to sales. Thank you very much. In Japan, we expect to launch in June. In the U.S. established markets and international markets in China, the approvals are assumed to be in the second quarter and onward, and we expect a contribution to global sales. In addition, pages 24 through 27 of the appendix provide a summary of the FY23 results and FY24 forecasts for each major product so you can easily compare them. Slide 17 is our focus for Vioza and ISAVE for FY24 and beyond. We expect a linear demand growth of Vioza throughout the year with a focus of 28.3 billion yen in FY24 and increase of 21 billion yen only. We aim for over 80% of commercial lives are key at KPI by the end of FY24. Physician perception of market access is related to both the quantity and quality of access, and once negative perceptions are formed, it takes time to improve. While progress on access has steadily improved since the third quarter of 2023, perceptions have yet to improve, and it remains a barrier to prescribe the drug. Market perception analysis indicates that a significant increase in coverage will improve perception, so we will continue to make maximum efforts to expand coverage throughout the fiscal year. We'll also work to improve patient and HCP activation through necessary investments, including DTC. On the other hand, we'll continue to optimize the GNA as needed while keeping ROI in mind. In addition to our FI24 forecast, we have updated our PIXELS forecast. Based on the learnings and data obtained since the launch in May last year, as well as the latest market research, we have revised our initial assumptions and lowered our peak sales forecast from the previous range of 300 to 500 billion to the range of 150 to 250 billion yen. The original assumptions are based on pre-launch market research. The original assumptions were based on pre-launch market research, but we updated assumptions based on the findings and data obtained after the launch. The water revision is mainly due to changes in assumptions for access and price sensitivity, treatment rate, and class share. For access and price sensitivity, we have made more stringent assumptions to reflect the rate reality of plant type and patient sensitivity to price. The treatment rate focus has been revised downward to reflect the actual treatment rate in the BMS market as a whole, not just for Vioza. We have also changed our outlook for the share of the NK class in the BMS market that we expect to gain. Although we have lowered our peak sales forecast, we still expect a potential of more than 150 billion yuan, and we continue to see this as an important growth driver. We will take necessary actions to achieve new peak sales. ISFA's focus for FY24 is 46.4 billion yen, an increase of 34.3 billion yen year-on-year, and we expect full-scale sales expansion. The J-code coverage started on schedule on April 1st, and we expect to update the label by the end of the fiscal year. We are confident in our ability to grow as we are already seeing signs of an increasing prescribing trend, not only from existing prescribers but also from physicians who began prescribing after waiting for J-code coverage to become available. In addition to our regular sales promotion activities, we will continue to conduct disease awareness campaigns aimed at expanding the market and increasing awareness of the Azave brand. We expect quarterly sales growth throughout the fiscal year, and we are targeting a total patient share of about 40% by the end of FY24. Finally, the future outlook. We are progressing as expected toward our forecast of 100 billion yen or more for FY25, which we announced in our second quarter results. We expect sales to significantly outpace expenses, and we look forward to a full-fledged contribution to profits in the future. I would like to explain some of the key events we expect in FY24 for Xtendi and other strategic products. For Xtendi, we expect a decision from the Chinese regulatory authorities in the third quarter on its application for an additional indication for M1 SSBC based on the China Arches study. Regarding PADSF, we expect regulatory decisions in the second quarter for the second-line and beyond metastatic urothelial carcinoma based on AV203 in China and a third quarter for first-line metastatic urothelial carcinoma in Japan and Europe. Bylaw is on track to respond to the completed response letter received from the U.S. FDA in January and plans to resubmit the application in the first quarter. If accepted, a decision is expected in the second or the third quarter, depending on the classification of the reapplication as determined by the FDA. The regulatory decisions in other regions are expected in the second half of FY24 in Europe and in the fourth quarter in China. We currently expect top-line results from the Phase II setting in pancreatic garden carcinoma to be available in the fourth quarter as of now. If the data are favorable, we plan to proceed with application of an additional indication based on the results. ISAV has a target date of November 19th as Peru's target in the U.S. In Europe, we currently expect a decision from the authorities in the second half of FY24. The timeline may change depending on comments from the regulatory authorities, and we'll provide updates as appropriate. Thank you. On page 19, I will explain the outlook for POC judgment under the focus area approach. In the lead programs in each primary focus, for programs such as 8845 for genetic regulation, ASP2138 for immunology, ASP7317 for blood and cell regeneration, and targeted protein degradation, ASP3080, will advance to the POC review stage by the end of FY25. We expect that the success of these lead programs in obtaining a POC will enhance expectations for success of follow-on programs utilizing the same platform and bring the concept of the focus area approach closer to reality, which is to generate promising new drugs continuously. To accelerate the program creation and POC decision, R&D has made significant reform to its organization and operational model for development projects with proactive delegation to teams to enable faster decision-making. In addition, we are reviewing the use of external resources and strengthening our internal capabilities to more effectively and efficiently promote development in new modalities and disease areas in which we have little experience. In addition to these measures, we will further strengthen resource allocation to priority projects and focus on POC decisions. Page 20, I will explain the change in the definition of core basis. In addition to the old adjustments, amortization of intangible assets, gain on the divestiture of intangible assets, and a share of profit or loss of investments accounted for using equity, methodology have been newly excluded as new adjustment items from old core definition starting in FY24. This is because the acquisition of Iberica Bio has resulted in a significant increase in amortization of intangible assets, which makes it difficult to adequately represent profitability under the old definition. We believe that the new definition of core basis will more appropriately show the company's profitability and ensure comparability with the global pharmaceutical companies. For reference, the lower part of the slide shows a change in cooperating income reflecting the new definition. Now, you can see that the acquisition of Iberic Bio has significantly increased the amount of amortization of intangible assets and the ratio to revenues compared to FY23. Page 21. The decrease in sales of Mirabegron is expected to be offset by sales growth of Pazer, Fiosa, and Azave, which are expected to increase by 120 billion yen year-on-year. SG&A expenses are expected to be 757 billion yen. SG&A, excluding co-promotion expenses for extend in the U.S., is suspected to be 568 billion yen, an increase of 22.8 billion yen year-on-year. The main reason for this increase is the necessary investments in growth drivers such as Parsev, Bailoi, Vioza, and Azeve, which are expected to increase by about 35 billion yen year-on-year. On the other hand, we continue to reduce expenses for mature products, which is expected to decrease by about 9 billion yen a year. In addition, we expect to realize cost reductions of about 10 billion yen as a result of global organizational restructuring implemented in FY23, including a review of sales structure in Japan. R&D expenses are expected to be 317 billion, an increase of 22.8 billion yen, Year on year, we will continue to invest in strength in primary, focus on R&D functions in general. On the other hand, we will also review our portfolio to reduce costs. We will strictly prioritize allocation of management resources and investment growth areas, while thoroughly reviewing expenses that will not contribute to future growth and value enhancement. As a result, cooperating income is expected to be 250 billion yen, a decrease of 26.9 billion yen year-on-year, and a cooperating margin is expected to be 15.2 percent, a decrease of 2.1 percentage points from the previous year. Although the impact of generic mirror background in the U.S. will be factored in. We will prioritize expenses thoroughly and minimize the decrease in cooperating margins. The lower part of the slide shows a forecast on a full basis. Operating income is projected to be 48 billion yen year-on-year. We expect amortization of intangible assets of 140 billion yen to be a major adjustment item that is excluded from the core basis. Thank you very much. remain confident about future profit growth and have increased our dividend forecast to 4 yen per share. On the page 22, I would like to explain the CSB 2021. In light of the progress made so far on the three performance targets outlined in the CSB, we believe that it will be difficult to achieve the targets for FY25. On the other hand, the original theme of the CSB 2021 is to build a structure that can overcome the patent expiration of Xtendi. and we believe that it is extremely important to firmly establish such a structure during the remaining period. In terms of revenue, the main growth drivers are passive, ISV, BUSA, and Baylor. We expect total sales of strategic products to nearly double to 300 billion yen in FY24. In FY25, we expect this figure to triple to 500 billion yen. We expect profits to grow along with this success growth with a core open margin expected to rise from 15.2% in the FY. 24 forecast to the low 20% range in FY 2025. We believe that the initiatives and milestones shown on the right side of this slide will be particularly important for the future growth of our priority strategic products. We will continue to pursue a core OP margin of 30% as our goal by steadily advancing these initiatives. If we succeed in acquiring a POC for primary focus program by the end of FY25, we expect to build a pipeline that will enable sustainable growth. Thank you very much. That's all from me.