Astellas Pharma Inc

Thank you very much for joining this Q2YTD FY2025 Earnings Call by ASTELUS. I would like to serve as a moderator for today. I'm Chief Communications and IR Officer Kato. Thank you for this opportunity. Today, first of all, we would like to give you the presentation, and after that, we'll have Q&A session. On our website, presentation material is available, and in line with that, we are going to make a presentation. Including Q&A, we will provide you the simultaneous interpretation service between Japanese and English. For simultaneous interpretation service, we are not going to guarantee the accuracy of it. When it comes to the language for this meeting, you can select it from the Zoom webinar screen. And if you select the original, then you can listen to the original voices without hearing the interpretation voices. These are some notes. This material or a presentation by representatives for the company and answers and statements by representatives for the company in the QA session includes forelooking statements based on assumptions and beliefs in light of the information currently available to management as subject to significant risks and uncertainties. Actual financial results may differ materially depending on a number of factors. So please do understand about this. They contain information of pharmaceuticals, including compounds 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, or provide medical advice of any kind. Now I'd like to introduce you participants here. Representative Director, Presenter, CEO, Naoki Okamura. Chief Research and Development Officer, Tadaaki Taniguchi. Chief Commercial and Medical Affairs Officer, Klaus Sehler. Chief Financial Officer, Atsushi Kitamura. We have these four representatives here. Now, first of all, Okamura is going to start the presentation.

Hello, everyone. I'm Naoki Okamura from Stellas Pharma Inc. Thank you very much for joining our FI2025 Second Quarter Year-to-Date Financial Results Announcement Meeting out of your very busy schedule today. This is a cautionary statement regarding forward-looking information. As this was explained by Kato earlier, I'm not going to read this page. On page 3, I will explain the highlights of FI 2025 second quarter year-to-date financial results. Overall, we have made exceptional progress at performing expectations. We have made a significant upward revision of our full-year forecast. Driven by continued strong growth of our strategic brands, revenue increased significantly year-on-year, with underlying growth of 10% year-on-year, excluding Forex impact. As for SG&A expenses, thanks to the robust progress of SMT, Sustainable Margin Transformation, a company-wide cost optimization initiative, SG&A ratio improved by 3.1 percentage points year on year. Due to the growth of strategic brands and robust cost management through SMT, core operating profit rose significantly year-on-year, with underlying growth of 57%. Core operating profit margin increased by 7.9 percentage points year-on-year to reach 27.4%. Based on this exceptional progress exceeding our expectations, we revised our four-year forecast upward by 100 billion yen for revenue and by 80 billion yen for both core and full operating profit, respectively. Regarding pipeline progress, for PADSEV, we have unprecedented EV303 study data in MIBC, Muscle Invasive Bladder Cancer, and our SPLA for additional indication was accepted in the United States. As for focus area approach, we obtained promising initial data with ASP3082 and ASP2138, and registrational studies are now under preparation. Page 4 is the agenda for today. From the next page, I will explain these topics. Page 5 shows FI 2025 second quarter year-to-date financial results. Revenue, core and full operating profit all increased by about 100 billion yen year-on-year. Let me explain main items. Revenue reached 1 trillion 30.1 billion yen up by 10.1% year-on-year. Co-operating profit rose to 282.6 billion yen, up by 54.4% 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 co-operating profit. Underlying growth excluding this impact was 10% for revenue and 57% for co-operating profit, demonstrating a stronger growth. The bottom half of this page shows our full basis results. Operating profit was 199.4 billion yen, up by 112.8% year-on-year. Profit increased to 147.6 billion yen, up by 100.8% year-on-year. Page 6 shows FI 2025 second quarter year-to-date results of our main brands. strategic brands grew substantially, driven primarily by strong growth in PADSEF and VILOI. First, second quarter year-to-date sales of five strategic brands driving a status growth, namely PADSEF, ISAVEI, VIOZA, VILOI, and ZOSPATA, exceeded 220 billion yen in total, substantially up by 66.2 billion yen, or 43% year-on-year, Underlying growth, excluding Forex Impact, was 47%, 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 strong growth momentum to continue in the second half of FI 2025. Next, I will explain individual strategic brands and extended. Positive global sales increased to 102.5 billion yen, up by 27.1 billion yen, or 36% year-on-year. Robust global growth has been continuously driven by strong first-line MUC demand momentum. Regional expansion in the first-line indication is also making steady progress. First-line MUC approval expanded to 25 countries. We are expecting further expansion of countries with approval, as well as an increase in the number of countries where reimbursement will start. Mainly based on the robust progress in the United States and Europe and FI 2025 second half outlook, we revised our forecast upward by 10 billion yen to expect 210 billion yen on a full year basis. Next growth opportunity is expected from potential MIBC indication approval. EB303 study in cis-ineligible MIBC presented at ESMO the other day demonstrated extremely promising results exceeding our expectations. Based on these results, we already filed a submission in the United States. we are expecting contribution to sales post-approval. Furthermore, based on this exceptional data exceeding our expectations, we are analyzing the possibility of any upside to our sales forecast, including peak sales. Also taking into account the status of EV304 study for CIS-eligible MIBC, we will share our latest outlook as soon as we complete our analysis. As for either way, sales rose to 34.1 billion yen, up by 6 billion yen, or 21% year-on-year. On a quarterly basis, double-digit growth is continuously maintained, but patient affordability headwinds weighed on new patient starts and sales, so progress was lower than initially expected. Based on the second quarter year-to-date progress and FI 2025 second half outlook, we revised our forecast downward by 25 billion yen and are expecting 80 billion yen on a full-year basis. We revised our full-year forecast downward, but we are expecting continuous growth. Also from now on, one factor behind is new patient starts recovery. Although it's moderate, we are seeing signs of recovery in new patient starts from August. The share is also improving from the lower 50% level in June to the upper 50% level in August. Another factor is the use of GLADA2 open-label extension study data presented at AAO, American Academy of Ophthalmology, this month. Over three and a half years post-isovir dosing, increased benefit was demonstrated according to long-term efficacy data. In addition, favorable long-term data was obtained also in terms of safety and tolerability as well. By broadly disseminating this kind of data in the market, we will aim to further increase the awareness of the importance of treating RGA and the benefit of ISAVEI. You can find together two extension study data on page 34 and 35 in the appendix for your reference. Please refer to those pages at your leisure. We believe in the mid- to long-term potential of ISAVEI, and we are expecting that we can reach the peak sales forecast range. We have high expectations on ISAVE as an important growth driver for Stellis also into the future. Global sales of Vioza increased to 22.9 billion yen, up by 8.1 billion yen, or 55% year-on-year, demonstrating a solid growth continuously. We are anticipating this steady growth trajectory ahead in the second half of FY2025. With regards to Viroi, global sales reached 26.6 billion yen. Its outstanding performance is exceeding expectations. Due to active awareness campaign, we were able to realize exceptional colding 18 testing rate penetration and lower treatment discontinuation through appropriate information provision activities on adverse event management. regional footprint is expanding steadily with approval in 47 countries and launches in 26 countries by now. Based on this strong global momentum as a whole, we have made a substantial upward revision of our full-year forecast from ¥40 billion to ¥60 billion, which is 1.5 times compared to the initial forecast. Regarding Zospata, global sales reached 34.4 billion yen. There are some regional differences, but overall performance is largely on track. We are anticipating a moderate growth trend within the current indication of relapsed or refractory AML. As a future growth driver, top-line results for the additional indication in newly diagnosed AML are anticipated in the first half of FY2026. If approved, we can offer a treatment option to a new patient population, so we are hoping for contribution to sales. Last but not least, extended. Global sales increased to 477 billion yen, up by 25.3 billion yen, or 6% year-on-year. Sales expanded in all regions. Reflecting strong global performance as a whole, we revised our four-year forecast upward. Page 7 is about cost items. SMT initiative made more progress than our expectations. We realized cost optimization of about 16 billion yen in total for SG&A expenses and expenditure and cost of sales combined. Excluding U.S. extended co-promotion fees, SG&A ratio improved by 3.1 percentage points year-on-year. Let me explain a specific breakdown of SG&A costs and R&D expenditure. SG&A expenses fell by 1.3% year-on-year, trending at a similar level compared to the previous year. SG&A ratio was 26.9%. As SMT progress, we realized cost optimization of about 7 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 driving our future growth, we will continue to make investments needed for SMT execution in order to realize further cost optimization. and the expenditure decreased by 16.9% year-on-year. As a main factor behind, in addition to Forex Impact, we made progress in outsourcing costs reduction through insourcing development capabilities, including clinical trials, etc., under SMT, which led to cost optimization of about 7 billion yen. Furthermore, due to the completion of large clinical studies for strategic brands, clinical development costs decreased by about 6 billion yen. In addition, one-time co-development cost payment booked in FY 2024 was another factor for cost decrease year-on-year. In the second half of FI 2025 onwards, we are expecting expansion of investments aligned with primary focus progress. In April this year, we implemented R&D organization restructuring, enabling activities from research to development all throughout. By pursuing operational efficiency, we are creating a cycle of making investments needed for the future continuously. Page 8 is about the revision of FI 2025 full-year forecast. Based on the robust progress exceeding our initial forecast up to the second quarter, we have made a significant upward revision of revenue, core and full operating profit. We are expecting core operating profit margin of 24.1%, improving by 2.9 percentage points compared to the initial forecast. We revised our full-year forecast forex assumptions to 145 yen against the US dollar and 170 yen against the euro. From the third quarter onwards, we are assuming forex rates of 144 yen against the dollar and 172 yen against the euro. We have made an upward revision of revenue forecast by 100 billion yen, including 20 billion yen for Viroi, 10 billion yen for Patsef, and 70 billion yen for Xtandi. We are expecting revenue of 2 trillion 30 billion yen, exceeding the 2 trillion yen mark for the first time since the establishment of Stellas. We are expecting SG&A expenses, excluding U.S. extended co-promotion fees, to decline from the initial forecast. If we exclude Forex impact, reflecting robust progress of SMT, we are expecting 586 billion yen. As for the expenditure reflecting operational efficiency in R&D reorganization, we are expecting 322 billion yen.

Reflecting the strong progress in our core business, cooperating profit is revised upward by 80 billion yen from the initial focus, now expected to be 490 billion yen. Hubei's operating profit is also revised upward by 80 billion yen from the initial focus, now projected to be 240 billion yen. We continue to incorporate a certain amount into the focus for other expenses to prepare for risks such as impairment losses. Next, I will explain the progress of our pipeline. Page 10 shows the progress of key events expected in FY25 for our strategic brands. Particularly significant development, as shown in the center of the slide, is the successful completion of the PADSF EV303 trial and acceptance of its supplemental BLA in the U.S. Details are provided on the next page. Azabay was approved in Japan in September for the indication of suppression of GA growth in atrophic AMD. Aiming to rapidly deliver this treatment for severe GA with a higher need to Japanese patients, the development team engaged in constructive discussions with the authorities. This led to a submission based on overseas clinical trial results using the conditional approval system resulting in approval just seven months later. Furthermore, as noted in outside of the table, approval was obtained in Australia in October as well. We will continue to pursue further submissions in other countries and regions with the aim of delivering Azovay to patients worldwide. In addition, we presented efficacy and safety data from the GAZA-2 open-level extension study covering up to 3.5 years after administration of ISV at the AAO in October. The final analysis results of the Phase II glim trial of Vyloin in a pancreatic ductoid in the carcinoma or pre-duct became available, and the primary endpoint was not met. We are currently analyzing the detailed data. As part of the life cycle management of VILOI, the Phase III Lucerna trial evaluating its combination with pembrolizumab and chemotherapy in gastric cancer is ongoing. Page 11 shows the latest status of parts of MRBC development. For details, please refer to the materials from last week's online briefing on our oncology pipeline. The EV303 trial yielded unprecedented data, suggesting that the PADCF has the potential to become a new standard of care for cisplatin-ineligible MRBC. EV303 trial compared the efficacy and safety of PADCF plus pembrolizumab as adjuvant therapy before and after radical cystectomy. The current standard of care in patients with MRBC who were ineligible for or declined cisplatin-based chemotherapy. versus surgery alone. The figure shows the efficacy results from the first interim analysis. The left panel displays the primary endpoint, event-free survival or AFS, and the right panel shows the key secondary endpoint, overall survival or OS. Compared to surgery alone, the combination therapy group or ARMS showed a hazard ratio of 0.40 for EFS, representing a 60% reduction in the risk of tumor recurrence, disease progression, or death, and a hazard ratio of 0.50 for OS, indicating a 50% reduction in the risk of death. Subgroup analysis confirmed consistent improvements in EFS and OS regardless of age, sex, or PD-L1 expression status. The safety profile of the combination therapy arm was consistent with the previously reported trials, with no new safety concerns identified. Following the top-line results in August, we rapidly advanced the process for additional indications. Within just over two months, the USSBLA was accepted and granted prior review designation, with a target PDUFA date set for April 7, 2026. We're also progressing discussions with regulatory authorities in other regions toward submissions. Furthermore, the Phase III EV304 trial for cisplatin-treated MABC is ongoing, with interim analysis data anticipated in the latter half of fiscal year 2025. Page 12 for focus area approach. I will explain the progress on flagship programs. ASP3082, targeted protein degradation, and ASP2138, immunooncology, presented promising clinical trial data in October. While details were already explained during last week's online briefing, the following slides briefly recap the current status. Clinical trials for AT845 in genetic regulation and ASP7317 in blindness and regeneration are progressing as planned, with POC assessment still scheduled for the second half of FY25. The current status of other programs is summarized on slide 41 in the appendix. Page 13 explains the progress of SP30A2 and the primary focus targeted protein degradation. Specifically, SP30A2 has presented promising data in NSALC, or non-small cell lung cancer, and we have initiated preparations for registration studies targeting PDAC and NSALC. SB3082 has achieved POC in both PDAC and SCLC. This time, it presented clinical data for its monotherapy in second-line and later treatment settings for SCLC at an October Congress. Last week's online briefing preceded the Congress presentation, so we provided an explanation aligned with the abstract. Today, however, we will use the data presented at the Congress shown in the figure on the right. SCLC has a high unmet medical need. The objective response rate with the existing standard of care in the second line and beyond is reported to be in the single digits, reaching a maximum of around 18%. ASP308 monotherapy demonstrated significantly superior anti-tumor activity compared to a standard of care, achieving an ORR of 37.5% across all second line and beyond and 42.9% specifically in second and third line. Furthermore, the median duration of response was 9.72 months, and the median progression for survival of PFS in second and third line was 8.25 months, confirming sustained efficacy. The safety profile showed no major concerns, with no treatment-related adverse events leading to discontinuation observed at the data cutoff date. Development of ASP3082 across various hematopoiesis progressing for PDAC. Preparations are underway to initiate a pivotal trial for first-line treatment in the latter half of FY25, with data presentation also targeted for the latter half of FY25. For NRCLC, planning is ongoing to initiate a restoration of studies as early as possible. For CRC, colorectal cancer, the POC judgment remains targeted for the second half of FY25. Furthermore, research and development for follow-on programs is advancing. ASP5834, a pan-carious degradation targeting diverse carious variants, achieved its first subject dosing in August. Under the new R&D structure launched in April, the team achieved dispersed subject dosing in a record 27 days after the FDA IND clearance thanks to close cross-functional collaboration. We will provide progress updates as data becomes available from clinical trials. Page 14 details progress on SB2138 and primary focus immunooncology. Specifically, ASP.238 is demonstrating the benefit of subcutaneous administration in combination with the standard of care steadily progressing toward POC achievement. Phase I trials are currently underway for gastric and gastroesophageal junction adenocarcinoma, or GGEJ, as well as PDAC. These trials evaluated SB2138 as a monotherapy in combination with standard-of-care IV and subcutaneous across multiple treatment lines. Data presented at ESMO in October showed no major safety or tolerated concerns and supported combination with current standard-of-care. Furthermore, the ORR, when combined with the standard of care by a convenient biweekly subcutaneous administration, demonstrated high antitumor activity in gastric cancer at a 2,000-microgram dose, 62.5% in first line and 37.5% in second line. In the figure above right, the values indicated in red represent the clothing 18.2 expression levels for each subject. By low, it targets patients with high expression, 75 and above. This data confirms efficacy not only in high expression patients, but also in those with moderate to low expression levels, suggesting the potential to expand the patient population eligible for this treatment. A POC judgment is planned for the latter half of FY25 pending further data accumulation. Given the compelling data obtained thus far, we have initiated discussions on the development plan to enable a prompt execution of the registration trial following POC achievement. For clotting 18.2 targeted therapy, we aim to provide treatment options to a broader patient population. To strengthen our leading position, we are advancing the development of the antibody drug conjugate ASP546C in addition to ASP2138. Research and development of follow-on programs are also progressing. Multiple programs utilizing a similar mechanism of action, including the clinical stage ASB1002, are advancing, including by specific. Additionally, a research is advancing toward clinical trials for IADC. Immunostimulatory Antibody Drug Conjugate Utilizing New Antibody Modification Technologies. We will provide updates including detailed explanations as progress is made in each program. Page 15 shows today's key takeaways. The second quarter delivered exceptional financial results. Parts F and Y led the way with strategic brands demonstrating strong growth. SMT progressed well, achieving robust cost optimization. Based on this strong progress in our core business, we have reversed our full-year revenue forecast upward by 100 billion yen and both core and full operating profit by 80 billion yen. Our pipeline also showed robust progress. Parts have showed unprecedented data in the EB303 trial, significantly advancing its development for MIBC. In the focus area approach, promising data was obtained for ASP3082 and ASP2138, and preparations are underway to conduct registration trials. Throughout FY25, we will aim for further profit growth and enhanced pipeline value. At the end, I would like to announce upcoming events. On Tuesday, December 9, we plan to hold a discussion session with outside directors. At this session, we will explain the evolution of Astella's governance structure. Additionally, directors newly appointed in June will share their perspectives on joining the Astella's Board of Directors, as well as their experiences and impressions from their first 150 days in office. We encourage your participation. That concludes my presentation. Thank you very much for your attention.

That's all as our presentation. We are going to entertain questions from the audience. If you have questions, please press the raise hand button at the bottom of your Zoom screen. If you're joining from your smartphone, if you tap details, raise hand function will be shown, so please press it. I will name you one by one. If your name is called, please unmute yourself on your screen, mention your name and your affiliation, and then ask questions. So we now would like to open the floor for questions. The first, Mr. Yamaguchi from City Group Securities. Mr. Yamaguchi, please. Can you hear me? I'm Yamaguchi from Citigroup. Yes, we can hear you. Thank you. First, about Padsave. The data was better than you expected. Global sales is going to be 400 to 500 billion yen. MIBC is ineligible or data was better than expected. In this area, what is going to be the potential impact? How will you better compare to your initial expectations? Thank you for your question. I will respond briefly, and then regarding sales forecast, Klaus may add. And the data per se, when necessary, can be explained by Taniguchi. First of all, as I showed on the slide, 303 study results, even we, non-experts, see the separation in the Kaplan-Meier curve, and the hazard ratio is 0.4 or 0.5. We don't see these numbers so often. We presented this at ESMO. In the first line of settings, we said the same. We made a presentation at Congress, and there was a standing ovation naturally in the audience. So we think we had unprecedented data. This great data exceeded our expectations. Is this going to lead to the sales forecast directly? Not necessarily. MIBC and the after metastasis in the urothelial cancer, MUC, it's not clearly separated completely. In the current indication, some part is covered. In the United States, if the additional indication is approved, how much we can expand the target patient population. It's difficult for us to say clearly how much we can expand. This ineligible patient population was studied in 303 study. Patients on cisplatin 304 study is ongoing. And we'd like to look at the distribution of these patients in detail to share our sales forecast with you. First, Taniguchi-san, anything from you? Thank you very much. For me, regarding this data, I'd like to add a bit. As Okamura explained, at ESMO, there was a very good response from the audience. First, the primary endpoint EFS hazard ratio was 0.40. This is unprecedented in terms of the risk reduction. Secondary endpoint overall survival. Consistently, 0.5 regarding secondary endpoint. Whether we could meet this in the interim analysis, but we made this much reduction, there was a statistically significant difference, clearly. And number three, PCR ratio was 57%, or even exceeding that level, and 8.6% for the control group. This much pathological CR. was seen at such a high probability. Such a drug is unprecedented. This was highly evaluated as well. So these are the three effects. And as for safety, But the pembrolizumab combination, it was consistent in terms of safety. In that regard, this data is very innovative and unprecedented. CIS ineligible was the indication unfit population at high risk. Or with a variety of complications, the drug could be utilized in such patient populations, so there are high expectations because of this.

Yes, so the question that you asked is how this translates into a sales forecast. And there are a few considerations. Clearly, such an unprecedented data will help us convince physicians that this should be the new standard of care. in the labeled indication of locally advanced, and then after approval also in the MIBC indication. There is, however, a difference between the two. If you look at the clinical trial in MIBC, there are two parts to it. There is the so-called neoadjuvant use, so you give it before you do the cystectomy, the removal of her bladder, and then you have the adjuvant use, which is after the surgery has been done. In clinical practice, these two parts are likely to be different from the clinical trial setting, and we need to observe carefully exactly how the market adopts the usage of PATSF and PEMBRO in these two different phases of the MIPC. So that's things we still have to learn. And I think once we have more data points, we can make a more accurate sales forecast.

Thank you very much.

Thank you very much. Next question. A brief question. Again, this time performance was really good. However, from the mid-term perspective, Milaverglo and Extante are going to face the cliff of the patent. and next year and afterwards a new mid-term plan is going to be presented. So toward that, your foundational business is quite improved. So toward the next fiscal mid-term plan, this performance level and also SMT included, how do you view about it? Would you give us a comment? Thank you very much. We are still in the middle of the discussion about this, so I think it is inappropriate to come into the details about this here. However, the Xtendi and Milavegron, where the patent is expired, and we are going to extend their lives in order to cover the loss of those cells, we will do something including business development or BD. That's not something like that. Rather than that, We have the strategic brands in our hands. Those are getting stronger. So we would like to maximize its strength. So that's going to be the focus of the next midterm plan. That's what we expect, meaning that from the outsider's perspective, the breakdowns of the products are not really matters. Rather, the sales of the products will be reduced. That is one thing. However, we are already... having the three important strategic brand products in the growth phase. So we would like to maximize the value of that. That focus is going to be incorporated into the next mid-term plan. And also focus area approach, key products achieving the clinical POC or coming to the phase of the POC judgment. So for the next five years, those flagship going to get into the late phase of the development, and on top of that, the original focus area benefit, that is, when initial compound is successful, then with the same triangle, we come up with the follow-on programs. We introduced some of the follow-on programs today. So that will happen. So we have the five strategic brands, and on top of that, further ahead of the growth can be expected in these approaches, and if that is recognized in that way or so, it's going to be the one key aspect of the midterm plan. And the current product sales increase is a job needed to be done by Krausella, and the next preparation is Taniguchi's job, and Kitamura, who is here, needs to think about needs to think about changing the company with appropriate financial discipline in terms of the operation of this company based upon such background information. Thank you very much. Thank you very much. Now I would like to move on to the next question. That is JP Morgan. Mr. Wakao, please. Yes. Can you hear me? Yes, I can hear you.

Now, please.

Thank you very much.

Regarding strategic brands, how do you assess those products as of now? You made an upward revision, but extending background before in the previous upward revision, if you look at the total sales, the 170 billion yen although the breakdown is different. And you're progressing according to your initial forecast EV303 is successful. And there are other factors as well. So what is your current assessment? And also the future outlook of strategic plans either way? How it's going to go up? That might be part of the question as well. Thank you for your question. I'd like to give you a rough overview where necessary clothes can add. As I mentioned before, how a status is going to be from now on, such mature products, how we can increase their value. from now on is one question, but we made an upward revision. If you look at the face value, these two may be covering the majority of the upward revision at a glance, but ISAFE unfortunately on a dollar basis, $750 million was revised downward to $550 million, but that reduction is covered by Patsev and Viroi. Because of their good performance, we are more than offsetting that decline. So, in total, there is no change in the strategic plans. You may say so from outside, but there are special circumstances for ISAVEI. And it may be difficult to perform as expected, but are we going to reduce the strategic brands? No. We would like to cover and more than offset this decline. And a status in the mid to long term need to grow. To that end, this is going to be very important. So in the world of pharmaceuticals, regulations may change, and there can be something unexpected. We often see such events in this sector. Instead of saying that this is what we can do only if there is something negative, we'd like to offset the negative and we can recover in the top line figures. And also, we'd like to do our best to control the cost and we'd like to achieve core operating profits. The bottom line, that's our discipline and how our management of the company should be. Anything additional from Klaus about individual products?

I think, Naoki, you've summarized it very well. I think the five strategic brands as a group have the potential to replace Xtandi and maybe even grow beyond that. I personally think the total potential is beyond that of Xtandi as a single brand. Now, the different brands will vary. and also in their phases. We see Vioza as a primary care, pretty much primary care product, with a much slower trajectory than an oncology drug, which has a very, very fast uptake. And we've seen that both with PADSEV and with VILOI now. So I think each therapeutic area has its own dynamic. But as a group, the potential of these products are, as I said, in my estimation, at least the size of Xtendi.

Thank you very much. Secondly, SMT initiative status is something I'd like to know more. In the second quarter, cost... reduction was achieved, and I'm very surprised. And regarding your plan, OP margin is to improve, so I think this was great. And SMT is making very good progress as of now. For OP, 30 percent or higher. What do you think in terms of this progress? You may have other hurdles to clear, or are you approaching the achievement, you may need to invest in R&D for some of the products. What is the current progress? Thank you very much. In the end, operating profit was revised upward. If you look at the guidance, 24.1% for operating profit margin. Are we satisfied? No, we are not completely satisfied yet. But still, in FY27, we are targeting to achieve 30%. Towards that goal, we are beginning to solidify our basis. That's how I feel. But it's not easy to improve just 5% overnight. So there are many things we have to do, as you pointed out. development cost would go back to the original number. So we shouldn't sacrifice the development cost. We have to do something else elsewhere. Anything to add from Kitamura-san?

Thank you very much. Regarding SMT, in the past I've already made an explanation saying that this is not the single year short period of time of activity. This is the regular I've mentioned that it's going to be 120 to 150 billion. And at the time of the announcement, it is clear that for the 70 percent, yes, we will do that, and we will execute the plan, and the remaining 30 percent idea is going to be generated. That was the approach. And currently, for this 150 billion yen internally, we accumulated our ideas, and they are going to be executed. That's the plan. That's the current status. Thanks to SMT, 40 billion yen of the impact was realized. And this fiscal year, throughout the year, we are expecting to be 20 billion yen for two years. It will be 60 billion yen. And the first half, it is 116 billion yen. So against the target of $20 billion, I think we are doing quite well. But as has been mentioned by Okamura, this is not an easy road. So we have to be steadily, we have to steadily execute the plans. So we have to have that in our mind. But as long as we do what we need to do, we definitely can see the result. Therefore, we have a commitment, we have a confidence about it. Understood. Thank you very much. Thank you very much. Next. Goldman Sachs Securities. Mr. Ueda, please. Goldman Sachs Ueda is my name. My first question is about the follow-up question is the currently discussed point. So R&D for this fiscal year, you changed the presumption for the Forex, meaning that there's a wide range of review or revisit during the quarter. So what did you do to come up with these big changes? And also in the current new plan compared to the initial plan, the accuracy was increased. So would you please make your explanation for these two points? Thank you very much. First of all, in my presentation, as I've already mentioned, in terms of ear-on-ear, the major clinical trials of the strategic brands completed it to as the first phase. So from an ear-on-ear perspective, in the last year, first quarter, one of cost increase was canceled. And because of that, seemingly, there was a decrease. But over all flow, depending on that, because of that, the cost is reduced. But toward the second half of 2025, the focus program achieved the POC. It will come to the later phase of the development, and this portion will come back. That's why we have this guidance. And on top of that, of course, we are doing the continuous work, but this time within the SMT and the strategy discussions, portfolio prioritization has started to be more and more rigorous. So with that, thank you. selected projects with the keen eyes will receive more and more investment. So our R&D investment usage is shown in that way. And also clinical trials, we overall relied on the external CRC, but those are currently conducted more and more internally. So outsourcing cost is reduced and that is replaced as the internal expenses. we seemingly, you see that the substraction calculation leads to this reduction level as a number. However, with a long-term perspective, with having this approach, we can realize more effective clinical trials, which leads to the shorter period of time of the study, and a clinical study design is going to be further precise, and with our execution of the studies, we can make the fine-tuning during the study. I think that's the way it should be for conducting clinical trials, and I believe we can realize that. And under Taniguchi, the R&D was separated, but now it's merged as one organization, so research division and the development divisions, those exchange between these two business units became smooth. Outsourcing changed to insourcing and it was just a simple deduction, come up with this number. Well, you see only this because it's just started. But for a longer time, thinking about the annexed plan, business plan, I think it's going to be more financially reflected into our actual business way of doing. Thank you very much.

Most of the things already explained by Okamura, if I may add one thing, insourcing of clinical trials Through insourcing, we can reduce outsourcing costs we paid before, and then we should develop our own system. AI and automation is fully leveraged for further cost reduction. And also the speed of enrollment, where are the patients and how much, which institutions we should go to, we want to roll this out globally. By doing this, Further business and clinical trial efficiency can be enhanced as well as the acceleration of the speed. And then we can reduce a further cost reduction as well. So we're expecting an increase in the late stage development. Cost would also rise as much as possible. We'd like to enhance the cost efficiency so that we can cover. Thank you very much. As a follow up question, originally, compared to the initial forecast, in terms of the gap compared to the initial forecast, overall, all the items are progressing smoothly. Should I understand that way? Basically, that understanding is fine. Okay, understood. Thank you very much. Secondly, Regarding the U.S. business environment, how do you see it right now? Up until now, regarding the tariff, the situation is still unclear. And it was difficult for you to comment, as you said before, but right now, you have a large exposure to the United States, including the risk of being imposed a tariff. How are you addressing the situation or how are you planning to address the situation from now on? And also, including MFN, the drug prices, how do you see the risk factors? I'd like to hear from you. Thank you very much. First, as for the tariff, At one point in time, we didn't know what could happen. From there, the situation is settling a lot. I shouldn't say that's our assessment, but we are feeling relieved. As we said before, from your perspective, status revenue times US ratio times COGS times tariff, it's going to be a huge amount, you may say so. But in reality, what we sell in the United States, a majority of those products are manufactured in the United States, as we said before. If that's the case, the denominator is small, where tariff is going to be imposed. So it's not going to be a huge amount. That's our response. But the tariff might be imposed. There can be such an announcement into the future. So we have a supply chain. And by understanding our supply chain, if there's going to be any grave impact, as I said before, our profit should not decrease. And if the profit may decrease, where are we going to recover elsewhere? We should start such discussions. And also, the MFN pricing, most favored nation pricing. As you might have heard in the press report, 17 companies received letters. This does not include Stellis, in particular Pfizer. reached agreement with the authorities or the government, according to the media report. We didn't receive such a letter, so we don't know what are the contents of the letter, but in the industry, through a variety of routes, what is being communicated in the letter is captured by us. Regarding the agreement with the government and Pfizer, we don't know the details, but we can assume and imagine what's going on and what's being done. Before we receive a letter, nothing will be done by us, or overreaction and doing a lot of things too much in advance, rather monitoring the situation to take necessary action where necessary. Of course, experts in the company gather to form a team, and they're monitoring the situation all the time. If we need to take action, if it's time to take action and move forward, the team will come to the executive management team so that we can discuss and take the best action. Understood. Thank you very much. That's all from me. Thank you very much.

Thank you very much. Next question. Nomura Securities, Mr. Matsubara, please. Thank you, Matsubara speaking. Can you hear me? Yes, we can hear you. Now please start. First question, that is about SMT. In the previous discussions, SMT was is exerting its strength. And if that is so, then this fiscal year we are going to see further cost reduction. Thank you very much. Originally 20 billion is our plan and to the second quarter we came to the 16 billion and can we achieve 32 billion? The calculation is not in that way. What is decided is steadily being conducted. That's one thing. However, we've been always looking for something else we can do. So if we make a certain evaluation for a certain idea, even a certain advanced investment is necessary, then still we try to secure SMT. So in the first two quarters, what's been planned is already realized, and you came up with the cost reduction. But at the same time, you can think about the investment to the next idea. So we have to take the balance of reduction and investment. So that is going to be a final end of FY25. Of course, they planned 20 billion yen. That is something we would like to secure. But at the same time, something might go beyond. Is that going to be reflected in the profit? It's not necessarily so. So please do understand in that way. Kitamura-san, please. What Okamura mentioned is exactly right. Again, this is a repetition. SMT is not a single year, but rather multiple year programs. So there are some things that should be done with a short period of time and made to long term. Those are going in a parallel manner. If some things can be realized in an accelerated manner, then we can get the benefit in the earlier phase. That's true. Understood very well. Thank you very much. Next question is about Bioza. On slide page 6, it is true that the competition is available, so that is the market competition considered. But the competitor has less blood, not necessary to do the blood testing, and no specific for the driving in the case of the It is an attempt. And what do you think about it? Yes, of course, there's an advantage for the predecessor. Our level is not the perfect of good, but we've been doing our activities. So definitely the advantage as the first comer or pioneer for this. And within just one sentence, what I wanted to say is that Another company, or the competitor rather, is very strong in this treatment area. And we are not really so. So compared to us doing the business in this field alone, together with them, the two companies toward the same target of patients with the same efficacy products, we can do the patient educational awareness increase activities. With that, I think we can increase the awareness more. However, They are very strong in this field. So until then, we have just players in the market, but now we have two, and they have experience. So the share is going to obviously smaller. But to what extent we can have growth? To what extent of the market share we can have, that is, of course, something that we can tell from the data. But clinical data is well controlled. A total number of the subjects are controlled. So the competitor launch their products and what kind of data will be available in the actual market or real market. I think that really decides the competitive situation of these two companies. Klaus?

Yes, I think two points. One Naoki already made very, very well, which is this is a market we have to develop. And two companies developing a market is always much better than a company doing it alone. So I think in that sense, the entry of a competitor actually helps grow the class. The other point I would make is that the label that Ellen Zenitant has received in the US takes into account the fact that this particular molecule acts on two receptors, the NK1 and the NK3. So they have a warning on inducing sleep. So we will not know how the market will react to that. That is not something that's in our label. You pointed out that they have less liver monitoring. That is true, but that's what we also had when we began this journey. So what real-world evidence will then produce over time, because remember, these liver incidences are very, very rare. You don't see them in clinical trials. You only see them in real-world practice. So again, only time will tell how that really plays out in the marketplace. Yes, very clear.

Thank you very much. Thank you very much. Next. We'd like to receive questions from USB securities. Mr. Sakai, please. Sakai from UBS. Speaking. Initially, sorry for a negative question, but Viroi didn't work in PDAC. You're now examining the details of your data. Cloding 18.2 and any learnings in association with Cloding 18.2 as the reason for the failure of the study. ASP2138, this is also Cloding 18.2 targeting PDAC. You're planning a clinical development including these compounds. Could you give us an update on this? That's my first question. Thank you very much. Well, it's technical and expert, so I shouldn't say too much. But I'd like to hand over to Taniguchi from the beginning. Thank you very much. First of all, Viroi, a green study for PDAC. It was a phase two study. but a randomized trial in Phase II. If the results are good, it could be registrational so that we can file a submission. That's how we were discussing with the regulatory authorities. In this study, biloy and a first line, pancreatic cancer, chemotherapy combination, and chemo monotherapies were compared. This was close to POC study. We are analyzing the results of the study through the analysis in what kind of patients there was a good response and in what kind of patients no response. We can know more details by analyzing. So in the GLEAM study, we haven't made public the results yet. Once we are able to analyze the details with a deeper understanding, then we'd like to share And regarding the results of the study, ASP2138 targeting chlodine 18.2. This is a bispecific antibody. This is CD3 of T-cell engager is also added to this bispecific antibody, ASP2138 in PDAC. How this any potential impact on PDAC with this compound, CD3 T-cell engager portion, how it's going to affect PDAC. In clinical studies, Phase 1B right now, we are studying that part. We haven't published the data yet, but in the near future, once we collect the data, we will announce the results, including our future outlook. this by specific antibody and virally, and the differences between the two can also be examined. So, once we have the data, I will explain such a perspective as well. So you haven't changed your way of thinking in the development concept. As a concept, the GLEAM study, SP2138, any direct impact? I could say no impact. Understood. Thank you very much.

Another question is about your response of the mid-term plan. Okamura-san, you mentioned that the... very reinforced or they're strong or something like that. But if that is the case, the number you come up with might be drastic. That is a bit of the concern that I feel. You are working on making the numbers, so you would not probably disclose anything specific. But the comment you made a little while ago is probably your honest thinking. And based upon that, we have to also come up with the focused on our numbers so do you think is it okay that we approach in this way? Thank you very much. We get learnings every day. For example CSP 2021 review is currently ongoing and based upon that we are going to come up with the next plan. Frankly speaking over-promise, under-perform, that such criticism is what we've already accepted. And so that we can avoid the repetition of that, we can place a more disciplined and well-balanced plan, corporate plan, that is going to be announced. In that sense, Kitamura is looking at the numbers with a perspective. and a class as well based upon that number is calculated and coming up with. So you can feel safe about that as well. Understood. Thank you very much. Thank you. Next, Morgan Stanley, MUFG. Mr. Muraoka, please. Thank you very much. I'm Muraoka from Morgan Stanley. Okay. I think almost all the questions are covered already. Just one question. It was like this last year, so it'll be okay this year. This may be a bit mean question, but that is about ISAV. Impairment loss risk is the question. Last year in the second quarter, it was okay in Europe, but in the third quarter, impairment loss was incurred. And this time, the USOs is a relatively bigger reduction. And looking at this number, thinking about the future value, impairment and loss-triggered risk is likely to be higher compared to three months ago. I wouldn't say, of course you cannot say it's all right, no problem. However, how can we evaluate these potential risks? Thank you very much. The evaluation base is the sales prediction and a forecast that Klaus is going to make additional comment if necessary. But the way of my description is that When a valuation is conducted, the uncertainty is increased. That's the current status. So if you ask me impairment loss is higher at this moment, I wouldn't think that impairment loss risk is higher. But for the valuation, compared to what we've originally considered, kind of situation is lower. That is true. So if this is going to be recovered, or ultimately this will decide the trajectory of ISAVE, that's something we have to always have sharp eyes. And just like Klaus mentioned, peak cells, we do not think that we have to revisit it right away.

So undoubtedly there's in the U.S. market a dynamic on the affordability part where part of the patients can't afford the co-pay that they need to contribute for their injections. That is different from saying, from when we look at the peak potential and the size of the market that we can still develop in this disease. So one is a timing effect, the other is the question of what's the potential of this agent in the geographic atrophy market. I'm very confident that the long-term potential for ISERVEI is intact. The question, how do we solve the current dynamic in the U.S., is a tactical problem that we are working through, and we hope to find solutions in time to come.

Thank you very much. May I?

May I add? Sorry. Yes, please. Last year, regarding ISAV, impairment loss, the trigger was whether we can get the approval or not. It was about that probability. Now, as you know, Isobay intangible assets in U.S. and outside of U.S. as we are registering U.S. intangible, because of the launching you noticed already, we're going to sell it out, including the competitors. Our drug is also a new treatment. How to develop the market is the main task for us. It's our job. Klaus is going to do a good job, according to him, so we think we can do it. Of course, there is a big asset number on the balance sheet, so I have to evaluate and assess it. I will do so. The company's stance has not changed. And we had impairment loss, which was incurred last year, but the root cause is different. So please understand. Thank you very much. One more question, if I may. Earlier, you talked about CSP, Mid-Term Business Plan. I know you would say don't ask so many questions on this. Regarding the dividend, I understand the message that there can be a decrease, but the dividend level during the course of the next CSP on an absolute basis, do you think you can maintain the amount? Can we feel assured? Sorry. What do you mean by decline? What are you talking about? The top line may decrease on a temporary basis. If you're talking about it, yes, you're right, but that may not necessarily... lead to a decline in the bottom line. Regarding the specific numbers, in May next year, CSP 2026 will be announced according to plan, so please wait till then. And I think this is Kitamura's scope of responsibilities, but I also have my own views, so allow me to speak. Regarding the dividend, Just increasing the dividend would not happen. And also, even if the company's overall performance is good or bad, it's not something we should change dramatically. I'm talking about the dividend. For the past few years, by now, intentionally... The dividend level may be too low to increase it to a competitive level, so we increased the dividend at quite a fast pace. But from now on, for the company's growth in the longer term, we'd like to gradually increase the dividend in line. That's Stellar's basic stance. In the next five years, with the next CSP, there's going to be some dip in revenues. So we have no intention to decrease the dividend because of that. So in that sense, you can feel assured. Kitamura-san, please. As Okamura said, I may be repeating myself, but a stable Return to shareholders is an important factor as part of the capital allocation, according to understanding we are doing this already, so it's not going to change in my view. But on the other hand, when it comes to dividend, how much e-profit do we have? Cash flow is better or balance sheet is better, so are we working on this? meticulously. Whatever is going to happen, we should have funds for investments for stable growth and we have to have a stable return to shareholders. This is my including my personal view. I think this is an important factor. It's not going to change substantially according to my assumptions. Understood. Thank you very much. That's all from me. Thank you very much. Next. Macaulay Capital Securities, Tony Lenson, please.

Tony, I'm from Macaulay. Can you guys hear me?

Yes, yes, we can.

Okay, perfect. Thank you very much for the opportunity. The first question is a simple one on gross profit margin. Your cost of sales in the first half appears to be increasing faster than revenue, which probably suggests that the gross margin is declining a little bit. I just wanted to understand why that might be the case.

Thank you. So I think the simple answer to your question is the change in the product mix. But if you would like to know a little bit more in detail, I will pass the baton to Atsushi.

Yeah, it's all about product mix.

Perfect. Yeah. And understood. Yeah. The second question and my last question is about your ASP 2138. It appears to me that you guys are really pursuing this clinical asset as part of combination therapies, but not as monotherapy. At ESMO 2025, which I attended, I think the monotherapy response rate was fairly modest. And the KOLs who I spoke to also think that the duration of response was good, but probably not good. not something that knocked it out of the park. So just what's your thinking about using ASP2138 either as combination or as a monotherapy? Thank you.

Thank you very much for the question. I will ask Taniguchi-san to answer those questions. Thank you, question.

So, as you described, if you take a look at in one therapy of 2138, the ORL is relatively modest, but, you know, it's around the 15% range. But I think this is quite consistent what we've seen in other CPI, such as, you know, PD-1 or PD-L1 inhibitors. So, and it's also seen a very similar tendency that we see once tumor actually responded, the, you know, duration of response is longer. This is exactly what we've seen in other immunology product. So, when I think in there, this is also quite encouraging data from monotherapy. By saying that, you know, if you're thinking about PD-1, most of the case is actually coming to the area line in combination with other agent, like chemotherapy or, you know, ADC, as you see in a and . So, what we believe is that, you know, Thinking about the development of 2138, we believe that it makes sense for us to go into the earlier line in combination with the current standard of care. So that's what we believe this is the space that we can actually working on. But I'm thinking that this is also based on the data coming up from phase one, current ongoing phase one. So please wait. The data is coming up. But I think, you know, we believe that these data we actually shown in ESMO is quite encouraging.

Okay, understood. Yeah, very clear. A combination in earlier line with other current status of care. Yeah, thank you very much.

Thank you. Thank you very much. Because of the time, I would like to ask the next question. It's the last question. Thank you very much. MIBC, Commercial Potential. How do you view about that? I would like you to explain more details. To simply put the patient number times market share times duration of therapy times price. It seems it's not that simple. Listen to you. First line, early line treatment overlapping and actual clinical practice, adjuvant, neoadjuvant, usage differentiation seems also complicated. So could you be a little bit more specific about this? And also on top of that, this adjuvant, neoadjuvant for MIBC, Regarding first line and second line, the number of the patients, including their China major markets number, were disclosed. But for MIBC, China is excluded according to the description here. Is this significant? Would you please explain about these two points?

Your first question, your understanding is correct. We do research. We should be able to respond with responsibility. Then I would like to respond to your question. So please give us some more time. Till then. And I don't know the background of the second question. Klaus, do you know the background for the second question?

I would have to come back. On China, yes, I would have to come back.

Sorry, among the participants today, we do not have a full understanding of the background, so we'll come back to you through our IR team at a later date. Okay, next about Isavay. I have a question. Isavay, of course, you're going to expand the market from now on. You're still on the way. On the other hand, this year, From the first half, Good Day is a charity foundation for patients on Medicaid, patient support. Funding is no longer available, and there was such an impact on your business. So what's the current status right now?

Yeah, so you're absolutely right. The drying up of the foundation funding in the United States is causing some patients to drop off from therapy because they simply can't afford the co-pay that the foundations picked up in the past. Now, we see that both in the geographic atrophy market. We also see that in the wet AMD market. And what we see the retina clinics doing in the U.S. is trying to adjust to that new situation. I mean, remember, it's not all the patients who can't afford the copay. There's still 70% or something like that. It's an estimate, but it's at least 60% of the patients who can afford the copay. So I think it's a question for the clinics now. to understand when they accept patients, how do they deal with a patient that can afford versus what support mechanisms are available for patients who can't afford. That's the turbulence in the market that we're seeing right now. We believe also on the basis of past analogs that the market will learn how to triage that and how to provide the right solution for different patient types. How long that will take and what the curve after that will be, that is the part that I'm still exactly struggling with. That's why we've been more cautious to take down the projections for this year.

Great, thank you. So if we did have funding this year, would that fill the gap that you currently lowered in your guidance?

Well, it would for the coming quarters, but we have lost time, so I don't think the original forecast is realistic simply because of the timing element that we have within a fiscal year.

Thank you very much.

Now time has come, so with this we'd like to close today's explanatory meeting. Thank you very much for joining us today.