Astellas Pharma Inc

Thank you very much for your coming to this ASTELLAS Q2Y2D FI24 Financial Results of ASTELLAS. I'm Ikeda, CCIRO Chief Communications and IR Officer serving as moderator for today. Today I make a presentation first that is followed by Q&A. The presentation is based upon the presentation material posted on our website. For question and answer as well, we are going to provide the simultaneous translation in English and Japanese. The accuracy of the translation is not guaranteed by ASTELLAS. Please do understand about that. The language can be selected mainly over Zoom webinar screen. If you select the original, then you can hear original voices without going through, without voice through the translation. Questionary statement. This material or representation by representatives for the company and answers in a statement by them for the company in the Q&A session includes forward-looking statements based on assumptions and beliefs in light of the information currently available to management and subject to significant risks and uncertainties. Actual financial results may differ materially depending on the number of factors. They contain information from pharmaceuticals including compounds under development, but this information is not intended to make any representations or advertisements regarding the efficacy or effectiveness. Now, let me introduce you the participants here today. The representative director, President and CEO, Naoki Okamura. Now, Chief Scientific Officer, Yoshitsugi Shitaka. Chief Merca Officer, Tadaaki Taniguchi. Chief Financial Officer, Atsushi Kitamura. Chief Commercial Officer, Klaus Zehler. We have five representatives here from Astellas. Now, I'll start the presentation, Okamura-san.

Hello, everyone. I'm Naoki Okamura from Mustela Pharma Inc. Thank you very much for joining our FI2024 second quarter year-to-date financial results announcement meeting out of a very busy schedule today. This is a cautionary statement regarding forward-looking information. As this was explained by Ikeda 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 FY2024 second quarter year-to-date financial results. Revenue increased by 22% year-on-year. Sales of strategic brands as a whole expanded to over 150 billion yen in total, exceeding expectations with a significant growth of over 90 billion yen year-on-year. As for SG&A expenses excluding U.S. extended co-promotion fees, ratio to revenue improved by 3.2 percentage points year-on-year through continued cost management with a focus on ROI. Core operating profits significantly increased year-on-year, mainly driven by growth of extended and strategic brands and continued cost management. Full year forecast of revenue and core operating profit was revised upward based on the robust second quarter year-to-date progress. As a result, we shifted from profit decline initial forecast to profit increase forecast. I've explained the details of our revised forecast on page 10. On page 5, I will explain FI2024 second quarter year-to-date financial results. Revenue reached 935.6 billion yen, up by 22% year-on-year. Core operating profit rose to 183.1 billion yen, up by 36.2% year-on-year. The bottom half of this page shows our full basis results. In the right bottom of the table, we included other expenses booked in the second quarter. We booked net foreign exchange losses of 12.2 billion yen associated with forex rate fluctuations. As a result, operating profit increased to 93.7 billion yen up by 69.9% year-on-year. Profit increased to 73.5 billion yen up by 105.3% year-on-year. Yes. On page 6, I will explain FI2024 second quarter year-to-date results of Xtendi and strategic plans, as well as a revised full-year forecast. First about Xtendi, global sales increased to 451.7 billion yen, up by 90.7 billion yen, or 25% year-to-year. Xtendi progress continues to be strong globally, driven primarily by the United States from the first quarter. In the United States, In addition to the growth of the overall market, the penetration of M0 CSPC indication and its ripple effects on other indications have continued to contribute to higher-than-expected sales growth. In ex-US regions, demand was as expected or exceeded expectations. We have updated our forecast based on the progress by now. In line with our initial guidance, we are anticipating three-month negative impact from US IRA Medicare Party redesign in the fourth quarter in the United States. Initially, we were anticipating the impact of 50 to 70 million dollars, but along with the revision of our forecast, we have updated the impact to 80 to 100 million dollars. Robust progress through the second quarter globally as a whole is expected to more than offset the negative impact from US IRA, Medicare Party redesign, so we have made an upward revision of our global full-year forecast to 859.7 billion yen. Sales of strategic brands supporting a future growth, namely Patsev, Isovay, Vioza, Vailoi, and Zospata, expanded to over 150 billion yen in total, with a robust growth of additional 90 billion yen or more year-on-year. We have made an upward revision of a full-year forecast by more than 40 billion yen in total, reflecting strong momentum overall. As a result, we are expecting growth to about 340 billion yen in FY2024. PADSEV global sales increased to 75.4 billion yen, up by 42.7 billion yen, expanding substantially with a growth of 131%. ISAVEI sales expanded to 28.1 billion yen, substantially exceeding initial expectations. Reflecting the respective robust progress, we revised the full-year forecast upward. I will explain the details on later slides. Global sales of BYOZA reached 14.8 billion yen, making a steady growth. Since the first quarter, we have continued to implement initiatives with a focus on ROI, number of launched countries has increased to 18 regional expansion has also contributed to sales growth reflecting the solid demand trend globally as a whole we have made an upward revision of a full year forecast As for Viro in Japan or Viro globally, sales for about four months since its launch in Japan in June reached 1.2 billion yen. This progress exceeded our initial expectations. Faster-than-expected market penetration, including 18.2 testing, has contributed greatly. Steady progress is being made towards regional expansion as well. Viro was approved in Europe in September and in the United States in October. It was launched in the United States last week. It will be launched from the third quarter onwards in the respective countries in Europe. In China, we are expecting approval in the fourth quarter. Reflecting the strong performance in Japan, we made an upward revision of a four-year forecast. We are expecting further sales growth along with regional expansion from now on. So Sparta performed well globally as a whole. Global sales increased to 34.8 billion yen, up by 32% year-on-year. Increase in FLIT3 testing, especially in the United States, has contributed to demand increase, driving the overall sales. Reflecting the solid progress through the second quarter, we made an upward revision of our full-year forecast. We're expecting continuous stable growth going forward as well. On page 7, I will explain a business update for PADSEV. Global sales of PADSEV grew more than two-fourths year-on-year, progressing well vis-à-vis our initial assumptions. The number of launch countries has increased to 39, out of which 11 countries have the approval of first-line metastatic urothelial cancer indication. Based on the robust growth trend globally as a whole, we have revised our full-year forecast upward. We are assuming different growth rates in different regions, but we are expecting continuous strong growth globally as a whole. Let me also explain the progress by region. First, in the United States, first-line indication based on EV302 study has penetrated rapidly in the market since approval in December last year, with new patient share approaching 55%. Due to already high penetration rate, we are expecting a more moderate growth going forward. We are not expecting growth to stop, but rather we are anticipating a mild but stable growth. In Europe, Prescription is rising in the second-line settings and beyond, where we are obtaining reimbursement. The additional first-line indication approved in August has also contributed to sales growth. For the penetration of the first-line indication, it is necessary to go through procedures to obtain reimbursement once again. So we are expecting full-fledged sales growth from FY 2025 onwards. In Japan, the additional first-line indication was approved in September. We are expecting PatSafe to serve as a growth driver from the third quarter onwards. In China, the indication in the second-line settings and beyond was approved in August. We are expecting future contribution to sales. Furthermore, the additional first-line indication is expected in the first half of calendar year 2025. We can expect further acceleration of sales after approval. In the international markets, the additional first-line indication was approved in multiple countries, such as Korea and UAE, contributing to sales growth. We are expecting further new launches and first-line MUC approvals from the third quarter onwards. Lastly, on this page, let me also touch on future growth drivers. We're expecting substantial first-line MUC sales contribution from ex-US regions on a full scale in FY 2025. Furthermore, next potential growth driver is the anticipated additional indication of MIBC, muscle-invasive bladder cancer. with top-line results expected in FY 2025 and sales contribution expected after approval. On page 8, I will explain business update for Aizabay in the United States. Aizabay has continued to perform well since the first quarter. Sales in U.S. dollars reached $184 million, growing steadily by 26% quarter on quarter. Market share has risen from about 35% in the first quarter to about 40% in the second quarter. Also, new patient share is estimated at about 60% in the second quarter, with a steady increase in the number of new patients. Given the fact that the competitor's product was launched about six months earlier, we think we are making great achievements. Over 143,000 vials have been shipped since launch. Adoption at new accounts is also making steady progress. As of the end of September, Isovay was available in over 1,300 retina accounts. Post-marketing safety profile remains consistent with clinical trial results without new safety signals observed. We believe physicians' high assessment of Isovay's safety profile is also contributing to its robust progress. In addition, from the 30th of September, new DTC campaign was launched across major channels, including TV and social media. We are aiming to raise disease awareness of GA, geographic atrophy, and highlight the importance of early treatment with Isovay. Only one month has passed since the start of the campaign, but we are already receiving positive feedback from retina specialists and patients. As a future outlook, we are anticipating the overall market expansion due to DTC campaign. From the third quarter onwards, based on the progress exceeding expectations through the second quarter, we have raised our target market share at the end of FY2024 from the initial 40% to 50%. Based on the good performance so far and the latest outlook, we have revised our four-year forecast substantially upward. Very good performance has continued since launching September last year in the United States. We are expecting further growth. On page 9, I will explain SG&A and R&D expenses. Excluding U.S. external co-promotion fees, SG&A expenses increased by 10.2% year-on-year. When Forex Impact was excluded, SG&A expenses increased by 3.8% year-on-year. As a main factor behind, sales promotion costs increased for strategic brands, and Isavay in particular, by about 19 billion yen year-on-year. During the same period last year, Isovay was in a stage before full-scale investments, so this is a factor to increase our costs. On the other hand, sales promotion costs related to mature products decreased by about 6 billion yen year-on-year. Also, due to the global organizational restructuring implemented in FY 2023, including the reorganization of Japan Commercial, Cost fell by about 5 billion yen year-on-year. As a result, S&A ratio to revenue improved by 3.2 percentage points year-on-year through continued cost management with a focus on ROI and the expansion of strategic plans. and the expenditure rose by 21.4% year-on-year and by 15.4% when Forex Impact was excluded. As main factors behind, we have made investments in order to make progress in clinical trials for primary focus, immuno-oncology, and targeted protein degradation, and enhance in-house capabilities necessary for clinical development, resulting in an increase by about 13 billion yen year-on-year, One-time core development cost payment booked in the first quarter is another factor to increase our R&D expenditure. On page 10, I will explain FI 2024 revised four-year forecast. First, we revised our four-year forecast forex assumptions to 149 yen against the US dollar and 160 yen against the euro. From the third quarter onwards, we are assuming forex rates of 145 yen against the dollar and 155 yen against the euro. We have made an upward revision of revenue forecast by 150 billion yen to expect 1.8 trillion yen. We have factored in an increase of about 30 billion yen due to Forex impact, an increase of about 120 billion yen for extended and strategic plans. We are expecting 823 billion yen SG&A expenses as a whole. We have factored in about 15 billion yen due to Forex impact, about 40 billion yen as U.S. extended pro-promotion fees with an upward revision for extended in the United States and increase in pharma fee to be paid to the government. in accordance with sales amount in the united states which rose due to good performance we are forecasting early expenditure to reach 341 billion yen by factoring in an increase in development cost due to faster patient enrollment in the ongoing clinical studies for vital and diosa in addition to forex impact As a result, through sales growth for strategic brands exceeding expectations and stringent cost management, we are expecting core operating profit to reach 300 billion yen, changing from profit decline initial forecast to profit increase forecast. We are forecasting 80 billion yen for full basis operating profits by factoring in other expenses booked up to the second quarter. We are also incorporating a certain amount in our forecast for other expenses in case of potential risks such as impairment loss.

From here, I will explain our initiatives for sustainable growth. Page 12 summarizes key updates on R&D since the last financial announcement. The details of the strategic brands and individual programs of the FOCUS AIR approach will be explained in the following slides. Slide 33 in the appendix provides an overview of the partnership of AVEIDO-BIO, which is one of the primary focus in genetic regulation. Please refer to it if you are interested. RxPlus made progress in two programs. DGTIVA, our digital health solution for health failure management, has been certified by the FDA as software, as medical device. Preparations are currently underway for pilot sales in the United States. Regarding an implantable device from Iora Biosciences, early feasibility study of a program targeting underactive bladder was approved by the FDA for an IDE, Investigational Device Exemption, which is the equivalent of an IND for pharmaceutical products. On page 13, I will explain the progress of key events expected in FY24 for extended and strategic brands. I have indicated in blue the progress that has been made since the previous financial results announcement. PATSF was approved in China in August for the second-line treatment of MUC based on the EV203 study. In addition, an additional indication for first-line treatment based on the AB302 study was approved in Europe in August and in Japan in September. By law, it was approved in Europe in September and in the U.S. in October for the treatment of gastric adenocarcinoma and GHO, gastroesophageal junction adenocarcinoma. As announced during the press release of the day before yesterday, we have withdrawn the marketing authorization application submitted to the EMA based on the results of discussions with the CHMP in EMA. We remain confident in the clinical profile of ISAVE as we continue to believe that the clinical meaningful effect of ISAVE in the slowing progression of geographic atrophic lesions demonstrated in the clinical trials outweighs the risk. While geographic atrophy is a serious condition that can lead to irreversible visual impairment and blindness, there are currently no approved treatments outside the United States. We will continue to evaluate available options to bring eyes of aid to patients around the world, including in Europe. In Europe, in addition to the process of centralized marketing authorization based on a single submission through the EMA, there are also multiple application processes that involve individual procedures for each member country. We will consult with the authorities in each European country to confirm what application processes are possible and consider what we can do. As we haven't started the consultation with authorities yet, we are unable to provide any specific information regarding the future direction or timeline at this point. We'll provide an update once the situation becomes clearer, so please wait for further information. I would also like to touch on the risk of impairment losses on ISABE, which is of great interest to the investors. We have booked $1.1 billion in intangible assets outside the U.S. for ISABE. We will re-evaluate the asset value and perform appropriate accounting procedures. In revaluing the asset, what we need to consider factors such as the availability of the submission processes and our target countries in Europe, as well as the fact that sales are exceeding expectations in the US and the competitive environment is different from the assumptions made at the time of acquisition. In addition, the target region for disaster is outside the US, and the possibility of submissions in countries and regions outside Europe that we are currently considering will also be reflected in the evaluation of the asset value. Today, I cannot give you any specific answer about whether or not there will be an impairment losses or if there is the scale of the loss, but since We have already factored in other expenses such as the risk of impairment losses into our full-year focus. We believe that even if an impairment loss were to occur this fiscal year, we would be able to absorb a certain amount of it. Slide 14. Page 14, I will now explain the progress of the focus area approach. The programs that are in the clinical trial stage and have been updated since the previous risk announcements are indicated in blue. Primary focus immunoncology, ASB1570, initial data, including phase 1 data, was presented as a poster at the ESMO in September. SB3082 in targeted protein degradation was presented orally at ESMA as well on initial data from the phase 1 trial. We introduced the details of the data at the briefing session held on September 27th, so please see the materials from the link if you are interested. ASP2016 in genetic regulation received rare pediatric disease designation and orphan drug designation from FDA in August 2024 and September 2024, respectively. ASP5502 in immune hemostasis in primary focus candidate achieved the first subject-first treatment in phase 1 trial since September. Please refer to Appendix 931 and 932 for an overview of each Primary Focus Flagship Program marked with a star mark. As I have explained so far, the overall business has been steadily progressing through the second quarter. I will now explain the mid-term initiatives that are supporting this favorable progress, as well as the latest outlook based on these initiatives. and the situations. On page 16, I will first explain the overview of midterm initiatives. In the second quarter, we were able to show good progress, including significant growth of strategic brands, the acquisition of encouraging initial data from ASB 3082, and an improvement in the SG&A ratio to revenue, which led to an upward revision of the full year focus for revenue core P. In order to ensure successful implementation of the CSB21, we have established the three enterprise priorities that are closely linked to our performance targets, and we have begun to work on this in a full-fledged manner from this fiscal year. As an overview of each is shown on the right side of the slide. First, growth of strategic brands is essential for expanding future revenue, and the growth strategy is an initiative to maximize their potential. Next, the bold ambition is an initiative to accelerate R&D for lifecycle management of strategic brands and the focus area approach in order to improve pipeline. And sustainable margin transformation is an initiative to pursue cost optimization in order to achieve our target of a cooperating margin of 30%. We have set KPIs for each initiative and are steadily implementing them as a priority issue while rigorously monitoring the progress. Based on the results through the second quarter, we are seeing positive results from these initiatives. In the following slides, I will explain the initiatives and the latest outlook for each of three enterprise priorities. On page 17, first I will explain the initiatives to maximize the potential of strategic brands, which are extremely important to expanding future revenue. The total sales of our strategic brands through the second quarter have grown to over 150 billion yen, achieving growth that exceeds our initial forecast. At the beginning of the fiscal year, we expected sales to grow to 300 billion yen for the full year, but based on the strong progress and the latest forecast, we believe we can aim for 340 billion yen. In order to further accelerate growth, we are introducing a new operating model by brand level. We have already started introducing this in the US from July, and it is already showing results in accelerating sales growth in the US market. By shifting from a hierarchical organization to a cross-functional organization by products, and the commercial organization's senior management work with each product team, we are now able to promote our faster decision-making. We will continue to expand this model in regions outside the United States. In order to accelerate the growth of strategic brands, we are also focusing on life cycle management, LCM initiatives. We are accelerating the progress of clinical trials for expanding indications, and we expect this to contribute to an additional sales growth on top of the existing indications. We expect to receive top-line results for vialoy and pancreatic adenocarcinoma this fiscal year, PADSF and MIBC in FY25, and exosporin treatment naive AML in FY26. In addition, LCM initiatives that are expected to achieve milestones in FY26 and beyond are shown on slide 30 of the appendix. Our strategic brands are making steady progress towards achieving about 500 billion in sales in FY25, and we expect further growth from FY26 onwards. We will maximize their potential through our new operating model and are looking forward to their potential sales contribution of LCM. On page 18, I will explain our outlook for the focus area approach. At the announcement of our FY23 financial results in April, we announced that we plan to advance four flagship programs in each of our primary focus areas, namely ASB 3082 for targeted protein degradation, ASB 1384 for immuno-oncology, AD 845 for genetic regulation, and ASB 7317 for blind and SAM regeneration to the POC judgment stage by the end of FY25. In order to accelerate POC judgment, we are working to build an Azure organization structure and strengthen our in-house capabilities in early development. The chart in the middle of the slide shows the expected timing of the POC judgment for each program. We expect to have the POC judgment timing in the fiscal half of the calendar, the first half of the calendar year 2025 for SB3082, in the first half of the fiscal year 2025 for SB2138, and in the second half of fiscal year 2025 for 84845 and SB7317. To date, the focus area approaches being in a phase of divergence as we have explored the potential of each platform. In the future, depending on the results of the POC judgment, the current primary focus will move to a phase of convergence phase, and we will strive to improve the value of the pipeline by investing management resources preferentially in primary focus that have achieved clinical POC. The R&D portfolio will be constantly reviewed and prioritized based on the technical difficulty and value of the programs and will be turned over repeatedly. We expect that the programs created through the focus area approach will progress and contribute to sales in the 2030s, bringing about sustainable growth. On page 19, I will explain sustainable margin transformation. As I have explained so far, our strategic plans have entered a growth phase that will contribute significantly to sales expansion. We can also see expansion from fiscal 2025 and onwards, and we are becoming more confident that they will grow to a scale that will make up for the decline in sales due to the loss of exclusivity for extending. In R&D, we have entered that stage of POC judgment for the four flagship programs in our primary focus. Depending on future developments, we will invest management resources in priority areas to drive growth in the 2030s. To support the growth and investment, ensure sustainable growth after the loss of exclusivity for extended expiry, It will be important to work on optimizing our coastal structure. Since Kitamura took up his new position as CFO, we have been working to control costs in a disciplined manner. But at the point where we review our efforts and optimize the cost to achieve over the next four years, which is between 120 and 150 billion yen. I'm going to explain that with this slide. On the left side of the slide, we have divided the specific measures for cost optimization into four categories. The progress of these measures is being monitored strictly under the strength and management system to enhance the effectiveness of each measure. In addition, many of the measures have already completed the planning phase and have moved to the implementation phase. For example, in clinical development operations, we enhance our in-house capabilities for early development while minimizing outsourcing. In addition, in order to further consolidate and streamline global operations, we are considering establishing a global capabilities center with the aim of building a flexible resource provision system for the entire value chain and all functions that support it as needed. We are also working to improve manufacturing costs through manufacturing scale-up and yield improvement through a review of manufacturing process. We will continue to implement these measures from FY24 to FY27. As a result, we aim to achieve cost optimization of 120 to 150 billion yen on a company-wide level by the end of fiscal year 2027 as an expected annual effect. Of this, an annual equivalent of 40 billion yen is expected to reach by the end of this fiscal year. The resources generated from here will be used for growth investment, such as further sales promotion of strategic brands, lifecycle management initiatives, and the stage development of prioritized primary focus products after POC. And we will continue our effort to secure mid-term profits by increasing profitability. Page 20. This slide summarizes initiatives we'll focus on in the mid-term, as explained so far. We'll commit to these initiatives, which include maximizing the potential of strategic grants, focusing on prioritized primary focus products, and increasing the pipeline value, as well as pursuing cost optimization to improve profitability and aim for further growth after extended loss of exclusivity. This concludes my presentation. Thank you for your attention.