Astellas Pharma Inc

FY2025 First Quarter Financial Results Announcement Meeting organized by ASTEDASH Pharma Inc. I have a very busy schedule today. I'm serving as a facilitator today. I'm Chief Communications and IR Officer. Ikeda, thank you for your time. After our presentation, we will move on to the Q&A session. We will present based on the presentation material posted on the website under IR Meetings. Including Q&A session, we have simultaneous translation between Japanese and English. We cannot guarantee the accuracy of simultaneous translation. Thank you for understanding. You can choose the language from the Zoom webinar screen menu. If you select the original sound, you can listen to the original sound without going through the simultaneous translation. This is a disclaimer today. This material, oral presentation by representatives for the company and answers and statements by representatives for the company in the current session includes forward-looking statements based on assumptions and beliefs in light of information currently available to management and subject to significant risks and uncertainties. Actual financial results may differ materially depending on a number of factors. They contain information on former protocols including compliance under development, but this information is not intended to make any representations or advertisements regarding the efficacy or effectiveness of these preparations, promote unapproved uses in any fashion, nor provide medical advice of any kind to its participants. CFO Atsushi Kitamura CRO Tadaoki Tanibuchi Chief Commercial and Medical Affairs Officer Klaus Zieder We have three members from our company. So we'd like to go into a presentation. Kitamura-san, please. Hello, everyone. I'm Atsushi Kitamura from Estella Pharma, Inc. Thank you very much for joining our FY2025 First Quarter 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. On page 3, I will give you highlights of FI 2025 first quarter financial results. FI 2025 first quarter made an exceptional progress, outperforming expectations off to a good start. In the first quarter, revenue increased substantially year on year, with underlying growth of 10%, excluding forex impact. Strategic brands significantly drove overall revenue growth, with underlying growth of 57%, excluding forex impact. As for SG&A expenses, thanks to the steady progress of SMT, Sustainable Margin Transformation, our company-wide cost optimization initiative, SG&A ratio improved by 4.2 percentage points year-on-year. As a result, Core operating profit increased substantially year-on-year, with underlying growth rate of 69%, excluding forex impact. Core operating profit margin rose by 9.5% year-on-year to reach 28.1%. As for pipeline progress, ASP3082, a flagship program in primary focused targeted protein degradation, achieved POC, also in NSCOC, following POC in pancreatic duct adenocarcinoma, PDAC. Furthermore, in order to enhance leading position in holding 18.2, we concluded an exclusive license agreement with Everpoint. Page 4 is the agenda for today. From the next page, I will explain these topics. On page 5, I will give you an overview of FY2025 first quarter financial results. Revenue reached $5. 105.8 billion yen, up by 6.9% year-on-year. Core operating profit rose to 142.3 billion yen, up by 61.1% year-on-year. The Forex impact is shown on the right-hand side of the table. Forex had a negative impact on both revenue and core operating profit. Underlying growth rate excluding this impact was 10% for revenue, and 69% for core operating profit, demonstrating a stronger growth. 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 first quarter. In response to determination of certain Zyforce-related programs, we reviewed asset value and booked impairment loss of 11.5 billion yen accordingly. In the end, operating profit was 94.6 billion yen, up by 86.8% year-on-year. Profit increased to 68.4 billion yen, up by 82% year-on-year. On page 6, I will explain FI 2025 first quarter results of our main products. Sales of strategic brands driving our growth, namely... Patsev, Aizadei, Dioza, Filoi, and Zospata exceeded 110 billion yen in just three months, substantially up by 36.7 billion yen, or 49% year-on-year. Underlying growth rate excluding Forbes Impact was 57%, showing a strong growth. Due to high profitability of these brands, They not just contributed to revenues, but also made a great contribution to profit growth on a consolidated basis as a whole. We are expecting this positive growth momentum to continue throughout FY2025. Let me also explain individual strategic plans. I will explain the details of Paxes, Isavay and Viroi on later slides. Global sales for PatServe increased to 55.5 billion yen, up by 17.1 billion yen, or 45% year-on-year. Robust growth momentum was achieved across all regions, with overall progress in line with expectations. As for Isovay, sales were 15.9 billion yen, up by 3.2 billion yen, or 25% year-on-year, achieving record high quarterly sales. Isovay has returned to growth trajectory after temporary growth slowdown in the second half of last fiscal year. Global sales of Vioza expanded in line with expectations to reach 9.6 billion yen up by 3 billion yen or 46% year-on-year. We are expecting steady growth moving forward as well. With regards to Viroi, global sales reached 14 billion yen. It has made an exceptional start exceeding expectations raising prospects for potential upside. Regarding Zostrata, global sales reached 17 billion yen, underlying growth excluding forex impact was 3%, making steady progress overall. As for Xtendi, global sales increased to 233 billion yen, up by 8.7 billion yen, or 4% year-on-year, with solid performance across all regions. With regards to ISAVEI, We organized an online meeting for investors and analysts on the 10th of July, Japan time. But I'd like to explain Isavay's first quarter progress in the United States once again on page 7. Sales of Isavay rose to $110 million, up by $29 million, or 35% year-on-year. After a temporary growth slowdown, As seen in the second half of the previous fiscal year, first quarter sales increased by 22% from the previous quarter with a return to growth trajectory. Isavay has continued to establish its position as the number one chosen treatment for new patient starts with GA, geographic atrophy. New patient start share is estimated at about 55% as the last six months average. This figure is calculated based on the insurance claims data, which represents Patients actually administered with Isavay, so we believe this reflects the real situation. Isavay is now available in over 2,000 retina accounts. Over 70,000 patients have been treated since launch. As we explained during the online meeting, in order to unlock GA market potential, we are promoting three drivers, educate retina specialists, educate patients, and educate upstream optometrists and ophthalmologists. Through these initiatives, we will further enhance GA diagnosis and treatment rates. We have been able to confirm that the solid growth trend is continuing also in July. We are expecting continued high growth in each quarter ahead. Also, a treated target patient population is expected to rise from the current 15% to over 35% by FY2029. On page 8, I will explain business update for Platyceps and Viral. First, about Platyceps. First-line metastatic urothelial cancer, MUC, is driving growth across all regions, and robust growth momentum has continued since last fiscal year. Particularly in ex-US region, first-line MUC uptake is progressing well. Sales rose substantially by 113% year-on-year. Also in the United States, underlying demand increased solidly by 12% year-on-year and by 7% quarter-on-quarter. The NCCN guidelines, which many physicians are referring to when they determine their prescription, were updated in March this year to position the combination therapy of POTSYS and Pembrolizumab as the only Category 1 therapy in MRUC as the first line therapy with the highest recommendation level which is also supporting the solid growth. First quarter sales include one-time inventory channel load benefit in the United States and China, both of which are in line with our plan. We are maintaining strong underlying growth, even excluding this impact. Overall, we are making progress as expected. Next, about siloing. Overall, we have made an exceptional start exceeding our expectations, raising prospects for outperforming the initial forecast. Thanks to our activities to proactively raise awareness and disseminate Clodium-18 testing, the testing rates are above benchmark for other biomarker tests. In addition, through appropriate information provision about potential AE management, discontinuation rate is also lower than our assumptions. These factors are contributing to the overall positive progress. We are also continuing to expand footprint steadily with launches in 25 countries by now. Particularly among them, Vital was launched in June in China with a big gastric cancer market. China launch was off to a strong uptake reflecting high armament medical use there. Aiming to ensure stable sufficient supply, we made strategic inventory build in the first quarter. Byboy is still in its initial stage after launch, but its progress to date is substantially exceeding our assumptions. We have high expectations for its further growth potential in the future. On page 9, I will explain cost items. Overall progress in costs as a whole was on track. Cost optimization through SMT has made steady progress. We realized cost optimization of about in total for SDNA expenses and R&D expenditure combined. Excluding U.S. extended co-promotion fees, SDNA expenses decreased by 7.7% year-on-year. Excluding Forex impact, SDNA cost fell by 2.6% from the previous year. SDNA ratio was 26.5%, improving by 4.2 percentage points year-on-year. As SMT progressed, we realized cost optimization of about 3 billion yen through continuous global organizational restructuring, reduction of mature products-related expenses and streamlining IT infrastructure, etc. In addition to investments to maximize the potential of strategic brands, we will continue to make investments needed for SMT execution in order to realize further cost optimization. On the expenditure decrease by 17.4% year-on-year, excluding Forex Impact, it was down by 13.2%. As a main factor behind, we made progress in outsourcing cost reduction through insourcing development capabilities including clinical trials, etc. under SMT, which led to cost of optimization of about 3 billion yen. Furthermore, due to the completion of large clinical studies, clinical development costs for strategic brands decreased by about 3 billion yen. In addition, runtime co-development cost payment booked in the first quarter of FIA 2024 was another factor for cost decrease year on year. In the second quarter onwards, we will expand the investments aligned with further expected primary focus PLC achievements From here, I will explain our pipeline progress. On page 11, I will explain the progress of strategic plans key events expected in FI 2025. Updates since the last financial results announcement are shown in blue. Regarding ISABAY, we had Phase 2 study top-line results data readout in Stargardt disease, where primary endpoint was not met. We will analyze the data in detail and determine our future direction. As for PADSIF, We comprehensively reviewed the data obtained so far from Phase II EV202 study in head and neck cancer and other solid tumors except for urothelial cancer, Phase I EV104 study in MIBC, non-muscle invasive bladder cancer. As a result, we decided to terminate our development for additional indications.

Please note that the current peak sales forecast for Isovay and PatSeptino include contributions from these indications. Therefore, we would like to emphasize that the results of this study are not expected to have an impact on the made-to-long-term sales outlook for other products. As future events, Isovay is awaiting regulatory decisions on its JNDA expected in the third quarter of 2023. Pat Staff is expected to have a readout of the internal analysis for both the Phase III EB303 and EB304 trials targeting MRBC in the second to fourth quarters. Pilar is expected to have a readout of the final analysis from the Phase II GLEAM trial for pancreatic ductal adenocarcinoma, or PDAC, in the second quarter. or notify you of any future updates when necessary. Other updates include the initiation of the Phase III Lysana study, rather, evaluating the efficacy and safety of viral in combination with pembrolizumab and chemotherapy were the first subjects to be ensured. PACE-12 provides an update on progress in the focus area approach. For each primary focus, progress made since the previous financial results announcement is highlighted in blue. ASP3082 in targeted protein degradation has achieved a proof of concept in non-small cell lung cancer. This marks the second PACE achievement following the PDAC. The next slide will provide an overview of the overall progress of the primary focus. As for ASP2138 in cancer immunotherapy, pre-spun trials for the post-judgment in FY25 is ongoing, with initial clinical data expected to be presented at ASMO in October. ASP7317 for blind dancing and erasure has published initial clinical data in May. Further details will be provided later. The current status of other programs is summarized in slide 28 of the Authentics. Page 13 provides an overview of progress in primary focus of targeted protein degradation. The flagship program, SB3082, has successfully achieved its second POC based on data from a first-line trial in non-small cell lung cancer second line and after. In conjunction with PDAC, discussions are ongoing toward early registration studies. The timeline for POC judgment for colorectal cancer remains unchanged with the second half of the FY25 targeted. We aim to present clinical trial data by the second half of the FY25. Following the POC judgment of ASP3802, We are actively advancing research and development of subsequent programs. SB5A34, the satellite from the top, was developed as a pan-K-RAS degrade targeting various K-RAS variants. In July, we obtained INT approval, enabling us to begin trials, aiming the first patient dose in the second quarter. We will provide further updates as they become available, including other programs. Page 14 describes the progress of ASB7317. ASB7317 is being developed as a replacement therapy for retinal epithelial pigment cells targeting the same indication as isobate GA secondary to AMD. The estimated number of GA patients worldwide is reported to be about 5 million. Currently, approved drugs are limited to complement inhibitors, and slowing disease progression of GA has been reported. ASP7317 is a direct replacement of retina, psoriasis, and pigment cells to damaged areas from outside of the body, potentially maintaining or restoring visual function. Currently, a phase 1B clinical trial for patients with GA patient is underway. and the initial data from this trial was presented at the Congress in May. Regarding safety to date, no intraocular inflammation has been reported in patients dosed with ASG7317, and no signs of cell rejection or graft failure have been observed. Regarding efficacy, The graph on the right shows the change in best corrected visual acuity with CVA over time in patients with a severe visual impairment following single dose of ASP7317 at an intermediate dose. Red indicates the steady eye, the eye that received the transplantation, and blue indicates the hollow eye, the other eye that did not receive the drug. During the 26-week observation period, study I showed a trend toward improved BCVA compared to the fellow I. Although the current data is limited to only three cases, we are proceeding with the planned enrollment of additional cases and remain on track to judge a POC in the second half of FY25. Page 15. is explaining the exclusive license agreement with EvoPoint, which we announced in a press release in May. Under this agreement, Acelis has obtained an exclusive license for the development and commercialization of XMW27011 worldwide, excluding mainland China, Hong Kong, Macau, and Taiwan. Note that our service has assigned the development compound number ASB546C to this asset, and this number will be used in future descriptions. The upfront payment under disagreement is $130 million, and the development milestones to be paid in the near term may be up to $70 million. Depending on the progress of the program, there may be additional milestone payments or royalties. ASD-5460 is an antibody drug conjugate, or ADC-targeting, of Clotin-18.2. The payload is a proprietary topoisomerase-1 inhibitor with an average drug-to-antibody ratio of 8. The linker that connects antibodies and drugs is Medlink's proprietary technology and is designed to be specifically clipped within tumor tissue. The FDA has granted fast-track destination for gastric cancer, and a phase 3 trial has recently commenced in China under the leadership of EverPoint. Astellas is currently planning to initiate a global phase 1B2 clinical trial. The figure on the right shows preliminary efficacy data from a phase 1B2 trial currently underway in China in patients with gastrointestinal GEJ adenocarcinoma. In this study, cases where 5% or more of tumor cells stained by immunohistochemistry were classified as clotin 18.2 positive. Compared to the reference value of 75% for biloy, patients with lower expression levels are also included for this study. As shown in the table, Doses exceeding 3 mg per kilo response rates exceeding 60% and disease control rates approaching 90% were observed. As shown in the figure, tumor regression was observed in most patients. The common treatment-related device events were hematologic and gastrointestinal disorders. Astellas has established a leading position, including 18.2 targeted therapy with VALOI and ASP2138. Through this collaboration, we have acquired a promising asset that further enhances this position. Going forward, we will validate the efficacy of ASP5460 in global clinical trials. Page 16. will explain the characteristics of each asset targeting gloating 18.2, including ASP546C, which was explained earlier. Finally, it is a monoclonal antibody that binds to gloating 18.2 on the surface of cancer cells, exerting an antitumor effect by activating immune cells that attack cancer. Clinical trials have demonstrated prolonged survival when used in combination with chemotherapy. For VILOI, as a first-in-class drug, activities promoting awareness over Clotin-18 testing have been executed, and it is aimed to become the standard of care for Clotin-18.2 positive gastric cancer. However, treatment is currently limited to patients with high expression, accounting for approximately 40% of gastric cancer patients. ASP213A is a bispecific antibody that binds to clothing 18.2 and CD3 on the surface of T-cells, and like by alloy, its antitumor affects and depends on the immune cells. By binding to CD3, it is expected to enhance the immune response by bringing T-cells and the clothing 18.2 expressing cancer cells into close proximity. Listen to symbol A. As high efficacy is demonstrated in the future clinical trials, it may be possible to expand the target population to include all clothing 18.2 positive patients, including those with low expression. Additionally, subcutaneous administration is currently being evaluated in clinical trials, and I think its usefulness is confirmed. It could provide more convenience for patients and healthcare institutions compared to IVs. SB546C is an ADC that exerts its antitumor effects through the direct action of the payload it carries. As shown in the previous slide, preliminary clinical data indicates a promising antitumor activity as a monotherapy. If further clinical trials are conducted globally and favorable data are obtained, we anticipate that a chemo-free arrangement may become possible. Furthermore, preliminary clinical data suggests that clothing 18.2% patients, including those with low expression, may be eligible for this treatment. We also believe there is potential to expand the indication to other tumor types beyond gastric and pancreatic, but that's all. That implies no more. As a front-runner in COVID-19 18.2 targeted therapy, we aim to maximize the value of VILO, and through advancing the involvement of ASP213A and ASP546C, we aim to provide multiple treatment options for a broader patient population. Page 17 summary of today's presentation. The first quarter of fiscal 2015 showed exceptional progress outperforming our expectations. We expect the positive momentum to continue throughout FY25. We expect our key strategic products to have continued strong momentum to drive overall revenue and profit growth. For the focus area approach, we will advance further POC judgment and flagship programs. We will accelerate research and development of primary focus, including follow-up programs in alignment with POC achievements. As for SMT, we will continue to pursue further cost optimization to generate growth investment and improve profit margin. Through these initiatives, we aim to achieve further profit growth throughout FY25 and enhance the value of our pipeline serving as a foundation for sustainable growth. While we have not revised our full-year focus in this earnings report, we plan to review our full-year focus in the second quarter earnings report, taking into account the strong performance through the first quarter and the progress for the future. That's all from me. Thank you very much for your attention.

That's all of our presentation today. We now would like to entertain questions from the audience. If you have a question... please press the raise hand button you can find at the bottom of the Zoom screen. If you're joining from your smartphone, if you tap details, raise hand function would be shown, so please press that. I'm going to name you one by one, so if your name, please unmute yourself on your screen, mention your name and your affiliation, and then ask your questions. Anyone with a question? Thank you for waiting. First, Mr. Yamaguchi from Citigroup Securities, please. Mr. Yamaguchi from Citigroup Securities. Can you hear me? No, we can hear you. Sorry. I'm Yamaguchi from Citigroup Securities. I have a few questions. Mr. Kitamura, you had a summary at the beginning and at the end. Q1 progressed very well. As for the cost, you said the cost was in line with the expectation. As for revenue, it was also in line with the expectations. There is some inventory available for some areas. Even excluding those factors, Q1 progress was very good as it seems. Is my understanding correct? Excluding special factors, is that in line with your assumptions or not? And you also talked about Q2. Could you explain once again? Thank you very much. First of all, first quarter was very strong. At the same time, overall, this was in line with expectations, but there are areas which is better than expected. Virally global performance, the speed of uptake externally was also very strong in its growth. On the cost side, in reality, SMT worked on certain measures, and we are harvesting its effectiveness ahead of the original schedule. So compared to our original forecast, this is working positively, better than expected, according to analysis. Thank you very much. As for extended, Medicare policy change could be affecting the product and since Q4, there was numerical guidance including such impact is still growing. The actual volume and the impact compared to the previous forecast, you are progressing well. So including the change of the policy is very important in this progress. First, I'd like to briefly give you a whole picture of Xtendi, and if there's anything additional, perhaps could mention. Xtendi is performing well, not just in the United States with medical party impact, but also globally as well. Our business is expanding with Xtendi, so that's the basis. Of course, in the United States, Medicare party impact exists. What's going to happen to the price is one question, but patient affordability issue, demand is very robust. In combination of these factors, we are maintaining the good performance.

Any additional? Please, go ahead.

Yeah, thank you, Atsushi. And to your question, Yonaguchi-san, We're seeing a very strong performance of Xtandi across all geographies, and that continues to be driven, we believe, by our Embark data that we published about two years ago, and that positioning of Xtandi most probably the most effective molecule in this disease area, and certainly the one where we can claim to say that it has the broadest indications. That is just driving acceptance of Xtandi. Now, as Sushi just said, in the United States, of course, we have a special situation to the Medicare Part D, we have to give a higher discount to the Medicare Medicaid system, right? So our growth to net is impacted by that reform of the Medicare Part D design. However, what we are seeing is almost an acceleration of the volume growth, which has been strong, as you know, over the last two years, already on the back of the Embark data also in the United States. But with the Medicare Part D, essentially the Medicare Part D is doing what it was designed to do. It is lowering the copay that patients have to afford out of pocket, and it is allowing patients to take that copay and spread it over 12 months rather than having to pay it at once. That means more patients are able to access Xtandi from an affordability point of view that were not really able to access Xtandi before. And they probably went into generic options or a PAP program before. But that is why we're seeing paid demand on Xtandi growing so significantly in the United States. So just as a number, the Q1 growth, of paid demand for Xtandi was 33% versus the same quarter of the previous year. That's a very, very high growth rate of paid demand that we've always seen in the 20s, in the last quarters, but this is the highest we've seen recently.

Thank you very much. And the tariff factor is factored in to a certain extent. That's my understanding. So U.S. manufacturing is expected to be increased, and that trend is likely to continue. So now, new initiative, or in order to increase their production in the United States, what are the other things that they are trying to be done? But still, is there anything you are trying to do? Thank you very much. for pointing that question. Well, including the U.S., there's a lot of discussion that's ongoing. And currently, internally, we have task force teams to collect information, analyze them, and coming up with several potential scenarios so that we can discuss over those scenarios and the potential situations. I cannot tell you any specific numbers, but for us, U.S. business is extremely important. And to a certain extent, we are producing products in the United States. So for the future, new products, where they are going to be produced, well, when you think about it, you have to think about the situation in the United States. At this moment, nothing is fixed, so we are not sure what kind of scenario is actually happening. So I'd rather refrain from making a specific comment, but of course we are discussing about it internally. That's all. Thank you. Thank you very much. Shepi Morgan Securities, Mr. Wakau, please. Shepi Morgan Wakau is my name. Can you hear me? Yes. Thank you. This might be the follow-up question of Yamaguchi-san. First of all, in the second quarter, you are going to collect more information. So the plan, I think you made a detailed explanation. And when you are answering to Yamaguchi-san's question for the cost, from the earlier phase, you are going to harvest more specifically R&D, SG&A, What is it against the full-year plan and against the full-year plan? What is it likely to be if you go into space? As for the tariff in EU for the pharmaceutical products, it is 15%. You produce the products in Ireland, so that percentage is lower than Europe. the conventionally expected. So could you make some comment about this? If it is possible, please answer how you are going to incorporate this factor in the revised plan. Thank you very much. We didn't say the upward revision at all, but for this GNA We are harvesting the outcome from SMT and to what extent it is reflected into the revenue. And we use that as a fund to add a second, third quarter business for further investment. That kind of discussion is kind of ongoing internally. So there are the things that we have to push further or the things that we have to reduce further. So internally, we are very active discussing all those matters. For R&D, basically, in our initial plan includes the POC judgment that is coming in the later phase of the fiscal year. And depending on the timing, we need to think about the acceleration if it is necessary. And after SMT, what we learned is that The areas that we can harvest as early as possible, we would do that, and that is the positive factors for us. Just like having a discussion with Taniguchi. For example, if it's 3.082, we were able to get the POC, even the second POC. How can I fill this further? It's not something that we are going to cut everything through the effort. We come up with certain savings. That is going to invest further for further acceleration, or it's going to be reflected into the bottom line? That is the under discussion these days. That is the response to your first question. As for the tariff matter, 15% in EU, that is the... story that came up only recently, so is it really a true story, or what would happen in the case of Shetan? So we have to be cautious about such kind of information. If information is collected in the second quarter, we are going to reflect whatever needed to be reflected. So things, that will be decided only after things are all decided clearly, till then, internally, Well, we have downside. The downside is included for making the forecast. But against the buffer we have, the impact would be plus or positive or negative. That is continuously monitored internally. But we see a clear picture. Then we incorporate that so that we can report it to you. As a follow-up, six points.

Compared to your internal plan, lower. STNA costs, others on the expenditure. As for the tariffs, according to a recent media report, compared to your assumptions, it's not going to be higher than that. Is my understanding correct? For the other part of the question, I am told I shouldn't mention this or comment, according to IRR members, but it's not very much different from what you think, because We are factoring in a certain level of risk, but not so much. Okay. Fixed costs compared to your internal plan, lower in the first quarter. We are able to achieve reductions earlier than scheduled. Okay. Secondly, ISAV numbers have been shared, and I was able to understand. What about the monthly trends? That's something I'd like to know. growth and sales on a monthly basis there is something we can see in July or June compared to May more than 10% growth particularly growth was seen in the month of July in June in June growth sales net sales compared to usual any gap that's something I'd like to know and our growth sales results, if you know. That trend is continuing also in July. Since July and onwards, based on the trend, net sales are also going to increase. Could you share anything? Thank you for your question. The numbers Wako-san is saying, what are you referring to? What's the difference compared to our numbers, is the question. For the details, it's difficult to respond. But on our end, also in July, we see growth still. That's what we can say.

Any further comments? Kuchi, please.

Yeah. So thank you for your question. I mean, I think there are a few things to note. First of all, this quarter was the strongest quarter for ISERPAY since launch. So the expectation that we set out in our last earnings call that with the label update that was accepted by the FDA in February, we would return to the growth curve that we had before the CRL, that is starting to bear out and this quarter is the first positive data point that we're returning to growth. And as you can see, it's a very substantial growth with a 22% quarter-on-quarter evolution. So I think the overall trend picture that we had imagined is intact in terms of returning to growth. And as Atsushi said, The preliminary data from July further underlines that this trend is continuing and is in line with our expectations. Now, when we look at demand, we actually had expected a slightly stronger picture in this quarter. Which is why we said in the previous IR call in early July, this quarter was slightly behind our expectations. And that's mostly due to inventory fluctuations. So inventory was a little bit lower. We have changed the distribution system, and we have gotten some returns because of that. So that's why this number is slightly lower than we had expected. But what's important is that the underlying demand trend is recovering from that CRL period where it had stagnated and is returning to the growth phase exactly as we had imagined. Right.

Okay, understood. Lastly, one more question about most favored nation status. I have a question on that. In reality, the target price, I don't know, it's U.S. government or any other organization, any contact with them about the target price? How do you see the most favored nation status in terms of the feasibility? Any comment from your side? That's all for me. Thank you for your question. Regarding MSN, most favored nation status. Based on the facts, on the 12th of May an executive order was signed. Within 30 days the targets or goals are going to be communicated according to the announcement but as of today From the US government, we haven't received any notice or notification and we haven't started any discussions with the US government as of now. That's the current status. What is going to happen in the future, as soon as we receive the notice, we will examine the contents and consider what to do. As of now, we haven't received any notice and we haven't started any discussions with the government yet. What about the feasibility? Whether that is going to be realized or not, what's your view? As of now, in the current stage, there's nothing I can comment, so please allow me to refrain from commenting. Understood. That's all from me. Thank you very much.

Goldman Sachs Securities. Mr. Weda, please. Goldman Sachs Weda is my name. Thank you very much. Thank you very much. My first question is also related to the tariff. This might be the follow-up question, but currently as a seller, what kind of contributions are you doing? For example, for the United States, you are now building up the inventory. And also you mentioned that for the future perspective, you are considering a lot of things, but, for example, changing the manufacturing size or you make the further investment to the United States. What kind of items are on your list for further consideration regarding tariffs? Thank you for your question. Of course, we are not just waiting without doing anything. For a short-term perspective, what we can do, including the build-up of the inventory, what should be done at what point of timing? Well, in the ordinary SNOP process, we are working on that. The investment into the United States. Again, the U.S. is the biggest market for R&D. supply chain, including for those who have a lot of business in the United States. So for those, what we can say is that conventionally we are working for that. Then furthermore, what kind of labor we are going to now make use of, what should be pushed at what point of time. For this remaking, there are still a lot of uncertainties. And unlike other industries, we cannot change supply chain so easily or quickly. So including that, we still are having the discussions internally. Thank you very much. Second question, that is about R&D. R&D costs or expenses? And in April, your management system was changed, so that is also impacting R&D. for R&D cost, what kind of impact your experience? Well, R&D expenses from this level is quite low. And as we mentioned, if the POC of several projects are achieved, then it will be further accelerated. So is it online or is it still underperforming compared to your plan? That's what I want to know. In April, for the R&D primary focus lead, those are going to be integrated to have a new management system. So with this kind of organizational changes, what kind of impact have you experienced? If this new management is going to be steady state, then cost or expensive status is going to be further accelerated for the better situation. Thank you for your question. So briefly, first I'd like to talk about the cost of expenses. After that, Taniguchi is going to make a detailed question as for costs or expenses, as has been pointed out. The foundation, what we have, is the reduction is better than we've expected or planned. So it's accelerated. That's a positive factor for us. On the other hand, we are going to accelerate R&D, POC, what gained or achieved. Therefore, so that we are going to accept this fund, we are going to spend several money for that. For the new organization, what has changed for that, Taniguchi is going to make a comment. Now, I'll talk about the cost-related matters, including the current R&D organization. For the change of the organization this fiscal year from April 1st, this new organization, a system was launched or started, and with that, as has been mentioned, primary focus leads research as well as development. They become one organization. With that, needless to say, certain synergy, including cost reduction, was able to be achieved. But at this cost, in the first quarter, that is low, just like Akita Amada explained. Since last year, internalization of the clinical trials is ongoing on. And with that, we were able to reduce outsourcing costs, and that is more than we expected. I think this is the biggest factor.

We have this much cost reduction effect. And also, for 5406C, from EVO Point, we will develop a new development plan. And as I've mentioned, 308... in PDAC and lung cancer, we are going to accelerate such clinical studies as well. So in towards the latter half of the current fiscal year, we would promote and accelerate development, which we'd like to focus on. We'd like to allocate our costs in those areas under this structure. Understood. Thank you very much. That's all from me. Mamegano-san from VOA Securities. Can you hear me? Yes. Oh, sorry. Mamegano from VOA. I wanted to ask you a question about R&D. 3082 achieved POC in lung cancer for an RPDAC as well. And how are you going to proceed after POC achievement around when? you can talk about at the next stage. That's my one question first. And also, I have another question. Patsev NMIBC study is to be terminated. What's the reason why? Earlier, you might have explained. If that's the case, sorry, but I'd like to confirm. Thank you very much. So I would respond. First, 3082, as you said, in PDAC and NSCOC, a POC was achieved in both indications. So we will publish the data from now. The abstracts should be accepted first, then when to publish which data can be shared. Phase 3, Registration Tutorial, would be considered, needless to say, we have to accelerate. When, at what timing, what kind of studies should be initiated? Into the future, once we determine our plan, we are hoping to explain. We are accelerating so that we can start early, and we are making such efforts internally, so Once such a timing comes, we can explain. And as for POTSYF, non-muscle invasive bladder cancer, you are talking about, right? Regarding this study, we are working with Pfizer to implement the study. And the data is being finalized. and we had a variety of discussions about the safety and efficacy and the data and we also just the competitive situation right now comprehensively decided not to proceed with the development. That's the decision by Pfizer and Acelus. Thank you very much. Additionally, in the second quarter onwards, MIBC interim analysis results will be announced. There's going to be no impact on that part. MIBC is already in phase three. Enrollment is over and final events are being collected and we are waiting for analysis results. Of course, regarding MIBC, it's not a monotherapy but a combination with pembrolizumab mainly as a regimen. Regarding NMIBC, our termination decision in NMIBC would not affect MIBC indication. Understood. Thank you very much. Thank you very much. Next. Morgan Stanley, MUFG Securities. Mr. Muraoka, please. Thank you very much. Murioka from Morgan Stanley speaking. First, I have a question to Kitamura-san. Second quarter, you said that you may not necessarily make an upward revision in the second quarter, but I believe that it can be an upward revision. I felt such a nuance because of the good results. I have a question. If the profit figures are going to increase, the dividend payout 74 yen up by 4 yen. Is that going to be the plan or the dividend? 78 yen. You may slow down the dividend payment, but what's your plan? I'd like to hear your view on your thinking behind the dividend. Regarding the dividend, according to the principles of capital allocation, to say to you, for growth, we should make investments for growth. Expenses or investments can be a question, but finally, as Taniguchi said, we have good signs of science, so we have to invest in those areas for sure. Stable return to shareholders as part of those measures, we have a dividend, and It's not the decision in a single year. We have to look at the situation multiple years. In order to strengthen balance sheet, we would repay debts. And we're doing those things a lot. Because of the good results in the first quarter, are we going to increase the given payment and increase the pace of given payout? Not necessarily. Of all, we have to judge.

I understand.

The profit momentum is really good. So the guidance for this year, you might think that the guidance dividend is too low. It's not like that. Well, 4 yen, it's just like last year, 4 yen increase of a dividend. So there's no change since last year. Seemingly, the performance is good. That's why there's increase or decrease. It's not something like that. For a certain period of time, we offset the cash flow to make a decision. Also, this is related to stock prices. The yield of the dividend is to a certain extent. That's why with those decision-making factors, the four-year increase is not changed. So there is consistency here. Of course, a lot of factors incorporated. Capital allocation, principal class balance sheet, enhancements. those are considered in a comprehensive manner, and the discussion is always ongoing. Thank you very much. Data book, the country-wide sales is what I refer to. In China, 29.4 billion YOR plus 100 million yen in China, and the strategic build-up of the inventory is what they are trying to do. So my question is, plus 10.8 billion? Out of this, what kind of the strategic build-up of this inventory? It's not necessarily the number. Just can I, could you tell the situation? Well, I cannot tell you the overall amount, but a third, for example, I think it's the same thing. But basically, China is a big market in the past. It was launched last year in China, and this June, by the way, So in that perspective, our focus brand or strategic brands, the setting for selling them is well prepared. Klaus, do you have any comments?

Yeah, I mean, you have to differentiate between... the established portfolios, so Tacrolimus and Extendi and Sospata and the launch products, right? And when you launch products into a large market like China, you need to build a certain inventory because you just don't know how quickly the uptake will be. So that's what we did. So we've made sure that we imported into China, both for Padserv and for Vailoi, which are the two launch brands, sufficient amount of goods. That has been registered as sales upon import, and that's what you see. Now, over time, we will then, of course, be able to judge more clearly what is the in-market demand, and we'll update you when we have those numbers.

Thank you very much. One last question for me. Isabel, in the United States, If the sales is low, it might end up with impairment loss. That's what I often talk with the other investors. But if this momentum continues, $4 million impairment loss risk is not necessary for us to discuss. We don't need to worry about that kind of impairment loss. Could you make a comment about this? Thank you very much. The ICVAE. And I just say the intangible asset is self-right, and it is started to be depreciated. So the remaining value is now on the decrease. And it's just like the crowd mentioned. The growth momentum is returned. And treatment rate, 15%. And for that, we would like to increase it to over 35%. If that happens, we don't need to worry about implement laws. Thank you very much. That's all. Thank you very much. Next. Thank you very much. First of all, the question is about PASF. That's the fiscal year. Quarter over quarter PASF. Your sales is quite flat. That is my understanding. So just your demand basis, the growth is about 12%. So for a quarter. Consecutively, it's been flat, but now 12%. That means that there are some changes that happen, and the CCNA guideline is updated. That contributes to the increase of new patients. Could you explain the background of this situation? Demand.

Demand. In the previous fiscal year, in reality, there was a change of the distributor to have some inventory built, excluding that 7% growth has been recorded in reality. As you pointed out, NCCN updated guidelines is one factor to contribute, and there is a very strong momentum by taking a high market share to be maintained and also to be expanded.

Further comment, please. Go ahead.

Thank you for your question. So I would like to go back to the uptake curve that we've been discussing with you on several occasions, where PADSTEP is quite particular. It ramps up very, very quickly. Within six months, we come to a shoulder where then the progression of the brand in the market starts flattening off. And that's exactly what we've seen. We've always said after that shoulder, we would be in the mid-single digits in terms of growth rate, and that's exactly what we've seen. We believe that in the United States, in the first-line indication for European real cancer, we're now starting to be pretty much at the peak market share that we can imagine. In the outside of the U.S., That's where we still see – we're still in that steep take-up curve. So that's where we see much higher growth rates because we haven't hit that shoulder yet. So because the U.S. launched first, we're a bit more progressed in terms of the uptake curve, and we're in that more – single-digit growth phase that I believe will continue in the future. I don't think we're going to see double-digit growth in this indication in the future in the U.S.

Thank you for your clarification. Thank you. Next, regarding the pipeline products, KLS targeting protein degraders. I have a question to you. KLS targeted degraders, G12D, two for G12D, Tantavis, IND is approved, and the first patient trial is going to start. To begin with G12D, you have two similar products. For the future, in the end, you're going to converge into either of the two programs or pan-KRAS. Compared to the G12D products ahead of you, what kind of development are you considering to differentiate from the existing or the degraders ahead of you? So I'd like to respond. First of all, KRAS G12D We have two products, 3082 and 4396. Regarding the two, these three ligase, so that's the difference between the two, and the physical property is also different, so these two molecules are under development in phase two. 3082 has been discussed from before. Already, in two tumor types, we achieved POC. for registration study, we are going to proceed. As for 4396, what are we going to do with this? Physical properties are slightly different. Right now, PDAC, lung cancer and CRC are the indications right now, but we will see the results and the data to proceed in parallel or Are we going to decide whether to discontinue this product? We will discuss. We are collecting data right now. Once we are able to collect the data, and once we make a final decision, we'd like to communicate to you. Pancreas 5834. Pancreas covers not just K12D, but other K-RAS to be degraded. it's more broad indications which could be possible. For example, in PDAC, about 90% of the pancreatic cancer, a certain KRAS mutation is being seen according to the publication, so more broad pancreatic cancer or PDAC coverage could be possible. As for lung cancer, 25 to 30% of lung cancer have a certain KRAS mutation, according to my memory. G12D in lung cancer is about 5%. So more broad lung cancer indication can be targeted by us.

5, 8, 3, 4, just a time. of IND that is accepted, so clinical trial is going to be started. So in that way, we'd like to prepare the situation to get more data. G12D mutation target, that's the set point to move to the pancreas as well. Is that because you've changed the ways of thinking? Or G12D degradator? The development itself is easier. What's the background of this? As a product, if it is easy or not, that's one thing. But of course, if the target is wider, the efficacy on the tumors and the safety is also different. Currently, we know that based upon the clinical data. So using such kind of information as a reference, we are working for the development for both. And also, we get opinions from the experts for this field. Further targeted products are better to be developed fast. That is one opinion that we received. But from the perspective of the patients, wider indication is better for ease of use for patients and doctors. That's why we are working on the development for both. Thank you very much. Thank you very much, Sogi-san. Next. Nomura Securities, Matsubara-san, please. Matsubara from Nomura Securities, can you hear me? Yes. Thank you. First, the question is about MSA and NAS. In a previous comment, you said that you don't have any particular discussions currently with the United States, but looking at the other overseas pharmaceutical companies, in order for the negotiation with the U.S. government, you are thinking about the direct sales to the U.S. market. Are you thinking about the direct sales in the U.S. market? As we mentioned earlier, We don't have the specific information yet, therefore it's very difficult to make a comment. In that situation, if you say this and that, that is not so meaningful. The next question about the VALESA, VALEL, come up with the Arizona tent, and the approval was delayed by three months. That is a positive situation for you. However, in other markets, the competitor's product is already launched, and also the test requirements are lower than Vioza. What is this situation affecting onto your performance? What's your view? Well, just like you mentioned, the PDUFA was postponed. So we were thinking about the that you're making depending on the label that they are granted, but it is likely that that is going to be delayed. In some of the countries, this competitive product is approved. That's what we know, but that is not impacting onto the discussion about changing the direction of honor because the U.S. market is too big for us.

Thank you for the question. I want to... emphasize that the label that we've seen for L-ingenitant in the UK is very, very, very similar to the label that we had at launch. Remember that the liver side effects is a very rare side effect that has not been seen in clinical studies, neither in the Bayer compound nor in our own compound. So what you are seeing today in the label that Bayer has obtained in the UK is really almost identical to the label that we had when we launched because the liver side effects simply have not been observed yet in real practice. So the question then becomes what happens over time? Will elixir over time accumulate the same AEs that we saw as we started building a patient base, or will they not? So the real question is, is it a class effect or is it not a class effect? We will not know that for a number of months, if not maybe six months, nine months, something like that. So I think this will be... there's something where you can't expect us to say, oh, now the label has been published, now we know exactly what the impact of NMZN will be in the competitive behavior with Vioza. But it's a picture that will become clearer over a medium-term time frame as more beta is gathered. The other thing I would like to say is actually I welcome the entry of BEA with another NK antagonist. It's not exactly the same target that their molecule has versus the NK3 that we target very, very specifically, but it is also a non-hormonal treatment for vasomotor symptoms, we know that that market is very large. We also know that that market takes time to develop. With two companies communicating and educating in this marketplace, I think this market will grow more quickly than if one company does it alone. So you have to see, in my mind, the entry of BEA both as a competition to our position with Vioza, but also as a benefit for the development of the market as a whole.

Thank you very much. Additionally, your Vioza, when it was approved in the United States, there was a delay by three months. Then, what kind of discussions did you have with FDA? Why there was a delay? As far as you can share, could you talk about it, if possible?

You're smiling, so maybe you want to say something.

Yeah, I mean, it's really impossible to answer that question because it's a decision of the agency. In their internal processes, we don't have insights into... why they decide to ask for an additional 90 days. Maybe the reviewer fell sick and had to come back. We don't know all these things. Please accept that. That's not something that a company that is making the application would ever understand. It's the decision of the agency to ask for more time. It is based on their own internal processes, the time they need to make an assessment. We're not privy to that information.

Understood. Thank you very much. Matsubara-san, thank you very much. Next. UBS Securities. Mr. Sakai, please. Sakai from UBS speaking. I have two questions. First, the forecast revision was mentioned in the first quarter. Listen to your explanation. Strategic brands are growing, and the profit has more impact on your background and progress. Legacy products. The profit is almost 100% for these products. On the other hand, strategic brands, there's still promotion costs needed. So the profit upside, in the results could be seen with program and mirror background, which we need to watch closely. There's no mirror background generics, but if there are generics in the second quarter and beyond, what would be the impact? If I can calculate, I can tell, what kind of risks should we assume? That's my first question to you. Sakai-san, thank you very much for your question. First, we'd like to sell strategic brands, for sure, that's the most important thing, so we are working on this To do so, with SMT, we have additional funding so that we can invest to continue a good cycle, which we think is very important. If you look at year-on-year progress, what is the biggest profit driver? Like last year, strategic grants, growth, I should say. So that's our first priority. At the same time, for Xtendi, as There was a question and Klaus responded. It's doing very well. And we have to discuss, we are discussing SOE, LOE, but we are doing whatever we can right now. Because of the big business, there is a positive impact. As for mature products, how to maintain, how to protect those products is a question. Mirabetric, Mirabetric in the United States, for example, there are generic versions. So... what kind of action we are going to take to protect our products. So this is a strategy for defense, which is working very well right now. Last year, to a certain degree, we factored in some level of risk. Against the initial forecast, we were able to achieve a lot of upside, and we're continuing a similar defense strategy. So sometime we will have LOE, of course, As Sakai-san pointed out, if you calculate, you may be able to tell to a certain degree. But I will watch that. But based on the assumption that is going to happen, we plan to grow our strategic plans to build a foundation for growth. That's our first priority. And we will continue this into the future as well. We are big on generics. There are two generics by two companies. You can prevent the further entry of generics other than the two, the formula or formulation patterns. We have litigation action we are taking, so there is a favorable decision for us right now. Of course, generics companies may appeal additionally, but for the time being, there is a favorable decision for us. When? Actually, it's going to be in February next year or beyond. In February and beyond, you will see the outcome of the litigation. The litigation will start in February and beyond, and then we will see the results. After that, February 9th, that's the start of the litigation or trial. One more point. I have a question to Taniguchi-san, quoting 18.2. As a new biomarker, it may not be new, but as a biomarker, it can be very useful, according to the rising assessment of this. Your products, which page was it? You have three modalities right now, monoclonal antibody and bispecific antibody. ADC this time your future strategy modality would be expanded is that going to be the direction or three modalities would have a deep dive what's your view and expansion of tumor types including 18.2 expressing cancers include a lung adenocarcinoma and what else bladder cancer which is seen as promising. Are you going to address those with your ADC?

One more question.

So this deal with EvoPoint, the U.S. pharmaceutical companies acquire the Chinese biological companies, the smaller companies in the earlier phase. They are trying to And I believe that this is very first time for you to acquire the company in that sense. So, Taniguchi-san, for the Chinese biological companies, do you think that this kind of a trend is going to be further accelerated, especially from Japan as well? And as Stella, are you going to enrich further on this kind of approaches to Chinese market or Chinese companies? Thank you. Thank you for your question. the modality of Cloudyn 18.2, just like you mentioned, Vyloy, ASB 2138, and Everpoint, ASB 546C. We have those three. Are we going to increase the modalities further more? Well, so far, with using these three different modalities, Modalities, we are thinking about the supplement strategies for Cloutin 18.2. By the way, it's already launched, and Cloutin 18.2 here, high express Cloutin 18.2, highly expressed tumor types. We believe we can expect this business a lot. So the clinical trial is started, and gastric cancer checkpoint inhibitor, chemotherapy, combination study is preceded so that more useful and more efficacious drug is what we can realize. For 2138, this is by specific antibody. CD3 is added as a T cell engager. So this CD3 compared to a viral, for example, how how cautious it would be. In order to learn that, phase one study is ongoing. That data is going to be available soon, so based upon that result, for what kind of patients would be targeted, so that this ASP2138 could be active enough within our portfolio targeting cloud in 18.2. When the result becomes available, we would like to talk more about this. Four, five, six in China already have a point. It's going to start the FH3 study. It has very robust data for gastric cancer. and also the pancreatic cancer as well for the second line and afterwards. So we would like to promote the development in other countries than China. That is under the conservation currently. And the second question, that is about the pancreatic cancer or PDAC or gastric cancer. Other than those, what would be the strategies including that? we are going to have more considerations, especially to what level of cloud in expression level would require what kind of modalities or what kind of combinations. Those are all related. So depending on the discussions throughout the future, further wider indications on top of gastric cancer and PDAC, would be a conceivable scenario. So once, around the time the data becomes available, how we are going to horizontally expand this could be possible to be explained to you. The third one, question, that is a biological company in China. Well, this time we have a license agreement with Apple Point. And while we are working day to day, Biologic company in China or tech company in China, they come up with new modalities or new drugs developed, especially for China's market, and we see more and more companies emerged. This time we came to the agreement with Avopoint, about U.S. biotech companies, But on top of that, as I've said, throughout the world, such a biotech startup companies are candidates for the collaboration if there is any opportunity. So in China, such a biotech industry is quite matured, is the impression that we have. So in the future... further collaboration with China auction companies will be taking place if there's any opportunity. Thank you very much. Thank you, Mr. Sakai. I'm sure that you still have many questions, but the time is up. So with this, we would like to close this earning course. Everyone, thank you very much for your participation.