Astellas Pharma Inc

Thank you very much for your joining with us. This is the FY25, the third quarter earnings goal. My name is Kato. I'm serving as the moderator for today. I am chief communications and IR officer. Today, following our presentation, we will proceed to the Q&A session. The presentation will follow the presentation materials available on our website. The session, including Q&A, will be conducted with simultaneous interpretation in Japanese and English, please note that we cannot guarantee the accuracy of the simultaneous interpretation. You may select your language from the menu on the Zoom webinar screen. If you choose the original language, you can view the presentation in the original audio without simultaneous interpretation. This is some notes for today's presentation. This material presentation and answers and statement by representatives for the company in the QA session includes forward-looking statements based on assumptions, benefits, or beliefs, rather, in light of the 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 of pharmaceuticals, including compounds under development, but this information does not intend 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. The participants for here today is Asushi Kitamura, CFO, Chief Financial Officer. Tadaki Taniguchi, CRO, Chief Research and Development Officer. Klaus Seuler, Chief Commercial and Medical Affairs, CCMAO. We have three of them with us here today. We start the presentation now. Kitamura-san, the floor is yours.

Hello, everyone. I am Atsushi Kitamura from Asteris Pharma Inc. Thank you very much for joining our FY2025 third quarter year-to-date financial results announcement meeting out of a very busy schedule today. This is a cautionary statement regarding forward-looking information. As this was explained by Kato earlier, I am not going to read this page. On page 3, I will explain the highlights of FI 2025 third quarter year-to-date financial results. Strong momentum from the first half of FI 2025 continues. Based on this, we have made another upward revision of our full-year forecast. Continuous strong growth of strategic brands by over 100 billion yen year on year has driven double-digit revenue growth. As for SG&A expenses, thanks to the robust progress of what we call SMT, Sustainable Margin Transformation, A company-wide cost optimization initiative, SG&A ratio improved by 2.7 percentage points year-on-year. Due to the growth of strategic brands and robust cost management through SMT, core operating profit rose significantly, up by 49% year-on-year. co-operating profit margin increased by 7.1 percentage points year-on-year to reach 27.6%. Based on this strong momentum, like the second quarter year-to-date results announcement, we made another upward revision of our full-year forecast by 70 billion yen for revenue, by 30 billion yen for co-operating profit, and by 100 billion yen for full operating profit, respectively. Regarding our pipeline, there were four major important progresses. For PADSEV, as part of life cycle management of strategic brands, development for MIBC muscle invasive bladder cancer made a substantial progress. The additional indication based on EV303 study was approved in the United States. Also in EV304 study, positive top line results were obtained. Regarding VILOI, promising combination data in gastric cancer was obtained. Phase III study for combination therapy is ongoing. As for focus area approach, for ASP3082, promising first-line PDAC data was obtained. We plan to start Phase III study by March. Furthermore, regarding ASP2138, POC was achieved in gastric cancer. Phase III study is now under preparation. Page 4 is the agenda for today. From the next page, I will explain these topics. Page 5 shows FI 2025 third quarter year-to-date financial results. Revenue and core operating profit respectively increased by about 150 billion yen year-on-year. Full operating profit increased significantly as well. Let me explain main items. Revenue reached 1 trillion 601.3 billion yen, up by 10.2% year-on-year. Corporate-in-profit rose to 442.1 billion yen, up by 48.6% year-on-year. The bottom half of this page shows our full basis results. Operating profit was 333.9 billion yen and profit was 248 billion yen. Both rose significantly year-on-year. Page 6 shows FI 2025 third quarter year-to-date results over main brands. Sales of all brands increased across the board, with strategic brand sales combined growing by over 100 billion yen in total year-on-year. First, third-quarter year-to-date sales of five strategic brands, namely Patsev, Izavei, Viroi, Vioza, and Zosparta, exceeded 350 billion yen in total. Substantially, up by ¥109.3 billion or 45% year-on-year, Padsafe and Viroi in particular drove the strong growth. We are expecting total sales of strategic brands as a whole to reach close to ¥500 billion on a full year basis. Also, these brands have high profitability and their growth made a great contribution to co-operating profit increase. We are expecting further growth to continue in FY2026 as well. Next, I will explain individual strategic brands and extended. Part 7. Sales increased to 162.6 billion yen, up by 45.6 billion yen, or 39% year-on-year. While robust global growth has been continuing, overall progress is exceeding our expectations, mainly driven by the strong trends in the United States and Europe. As a major progress in the third quarter, in November last year, based on EV303 study, the additional indication of cis-ineligible MIBC was approved in the United States. Uptake after approval is on track, and in December, PASSEV was included in the NCCN guideline many physicians are referring to. In addition, in EV304 study in CIS-eligible MIBC, positive top-line results were achieved. We are now preparing for filing a submission. MIBC is expected to drive further growth of PatSafe in FY2026. As for ISAFE, sales rose to 55.8 billion yen. up by 11.4 billion yen, or 26% year-on-year. New patient starts, which are important metrics, are steadily increasing. ISAVE continues to grow double-digit, quarter-on-quarter, both in terms of sales and volume. Although progress is in line with our expectations vis-à-vis our full-year forecast we updated in the second quarter, we continue to have high expectations on Isavay as one of the important growth drivers. With regards to Viroi, sales reached 46.1 billion yen, performing well at a pace higher than our full-year forecast we revised upward in the second quarter. Continuously from the first half, High chlodine-18 testing rates and lower-than-expected discontinuation rates are contributing to the overall good progress. We are meticulously conducting information provision activities about AE management. By focusing on the prevention of nausea and vomiting, particularly in the initial cycle, we believe we can reduce discontinuation and enhance treatment continuation rate. Regional footprint is expanding steadily, with approval in 48 countries and launches in 30 countries by now. Viroi, since launch, has been performing extremely well by now. We are expecting further growth also in FY2026 and beyond. Sales of Vioza increased to 35.2 billion yen, up by a 10.8 billion yen or 44% year-on-year, demonstrating a solid growth continuously. With recent new coverage starting in January this year, commercial lives covered expanded to about 80%. With improved access, we're expecting stable growth also into the future. A new non-hormonal drug was launched in the United States, but the launch impact as of now is in line with our assumptions. With the launch of another treatment in the same class, we are hoping that the market will expand further going forward. Regarding Zosparta, sales reached 53.5 billion yen. Overall, it's making steady progress. Top-line results are expected in the first half of calendar year 2026 for Phase 3 partial study with newly diagnosed AML as a potential new indication where we have high expectations as a future growth driver for Zosparta. If approved, we can offer this treatment option to a new patient population, so we're expecting contribution to sales. Last but not the least, Xtendi. Sales increased to 732.2 billion yen, up by 29.1 billion yen, or 4% year-on-year. Progress is exceeding expectations, driven by continued global demand growth. We're expecting Xtendi to reach its peak level in the current fiscal year. Page 7 is about cost items. SMT initiative is progressing ahead of a plan. We realized cost optimization of about 20 billion yen in total for SG&A expenses, earned expenditure, and cost of sales combined. We are fully on track to achieve FY2027 cost optimization target of 150 billion yen. Excluding U.S. extended co-promotion fees, SG&A cost ratio improved by 2.7 percentage points year-on-year. Let me explain a specific breakdown of SG&A costs and earned expenditure. SG&A expenses trended at a similar level compared to the previous year. SG&A cost ratio was 27%. As an SMT progress, we realized cost optimization of about 9 billion yen through continuous global organization restructuring, reduction of mature products related expenses and streamline 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 from next fiscal year onward. and the expenditure decreased by 12.9% year-on-year. As the main factor behind, in addition to Forex Impact, we made progress in outsourcing cost reduction through insourcing development capabilities, including clinical trials, etc., under SMT, which led to cost optimization of about 8 billion yen. Furthermore, due to the completion of large clinical studies for strategic brands, clinical development costs decreased by about 9 billion yen, One-time co-development cost payments booked in FY2024, etc., was another factor for the year-on-year cost reduction. Up to the third quarter, we were in a transitional period, with the completion of large clinical studies for strategic brands, moving on to prepare for new late-stage development studies. From now on, we are planning to initiate multiple Phase III studies. From the fourth quarter and FY2026 onward, we are expecting investments to increase. aligned with the progression to late-stage development.

Page 8 is about the revised full-year forecast of FY 2025. Based on strong momentum, through the third quarter, we have again revised upward our full-year forecast for revenue, core, and full OPs. The core OP margin is expected to increase by 4.2 percentage points year-on-year to achieve 24.8%. Regarding foreign exchange assumptions, we have revised the full-year forecast exchange rates to 150 yen per U.S. dollar and 174 yen per euro. For the fourth quarter, we assume an exchange rate of 154 yen per U.S. dollar and 180 yen per euro. Revenue is projected to reach 2.1 trillion yen, an upward revision of 70 billion yen from the previous forecast. In the second quarter announcement, incorporating the upward revision of full-year forecast for Xtendi and Mirabegrum, as well as the impact of the change exchange rate assumptions. S&A expenses excluding U.S. core promotion fee for Xtendi are projected at 600 million yen, excluding the Forex impact. This is the similar level as the previous forecast. R&D expenses are projected at ¥315 billion, reflecting the prioritization of programs in the research phase. As a result, cooperating profit has been revised upward by ¥30 billion. From the previous forecast, we expect a cooperating profit to reach ¥520 billion, exceeding the ¥500 billion mark for the first time since Stella's inception. Next, full basis operating income. We have incorporated 30 billion yen into the latest focus under other income, including changes in the fair value of contingent conservation related to VILOI following the discontinuation of PDAC program booked in the third quarter. Additionally, we partially released 40 billion yen of other expenses, including an impairment loss risk previously booked at the start of the period, reflecting this in the latest forecast. As a result, full-year period in profit is projected at 340 billion yen. We will now discuss pipeline progress. Page 10, progress on key events expected in FY2054 of strategic products, strategic brands. Particularly significant advancement as shown in the center of the slide was approval in the U.S. last November for the expanded indication of PASF based on AV303 trial for cisplatin-ineligible MIBC patients. Noteworthy is the remarkable speed of disapproval, achieved just one month after the submission was accepted in October, more than four months ahead of the PRUFA date. Following the U.S., we submitted for this expanded indication in Europe in November and in Japan in January. Furthermore, the EV304 trial for cisplatin-eligible MRBC also made its primary and a point. Detailed data from this trial will be presented at the February ASCO-GU meeting. Very low data from the Phase II illustrious trial was presented at ASCO-GI in January. Details are provided on the following pages. As other updates, as noted in the table footer, we obtained favorable top-line results from the Phase III Starlight II study, the pivotal Japanese trial for VEOSA. We plan to submit for a regulatory approval in Japan after obtaining results from the Starlight III trial, evaluating long-term safety. Page 11 shows the latest status of V-Loy. We presented promising data at ASCO-GI, supporting its combination with immune checkpoint inhibitors plus chemotherapy. Cohort 4B of the phase 3 LASTRO trial evaluated the efficacy and safety of V-Loy in combination with nivolumab and chemotherapy for first-line treatment of gastric cancer. The median PFS, progression-free survival, the efficacy in a point was 14.8 months across the entire cohort, 18 months in patients with a clotting 18.2 high expression, and as indicated by the red line in the graph, 23.6 months in patients with both clotting 18.2 high and the CPS1 or higher. This significantly exceeded previously reported data for combination therapy with chemotherapy alone. Currently, the Phase III Lucerna trial is underway as a confirmatory study for the combination therapy. The Lucerna trial evaluates the efficacy and safety of the combination therapy of phylloepimbulism and chemotherapy in gastric cancer patients with clotting 18.2, high expression, and CPS 1 or higher who demonstrated the longest PFS in the illustral trial. And patient enrollment is progressing smoothly with interim analysis data expected to become available in FY27 or later. We anticipate that this combination therapy will further contribute to the treatment of gastric cancer, an area of high medical need, and maximize the product value or value. Page 12, regarding the focus area approach, we describe the progress of the flagship programs for each primary focus. For ASP3082, under-targeted protein degradation, clinical trial data for PDAC was presented at ASCO-GR in January. Details are provided on the following page. ASP2138 under immuno-oncology achieved clinical milestones by demonstrating proof of concept in gastrointestinal adenocarcinoma and GHEJ adenocarcinoma. This is based on the promising first-line data presented at ASMO last October. Preparations are underway to initiate the first three trials promptly. Clinical trials for ATA845 in gene regulation and ASP7317 in blindness and regeneration are progressing as planned, with the POC judgment still targeted by March. Page 13. Progress on ASP3082 and primary focus targeted protein degradation in Regarding ASP3082 for first-line PDAC pancreatic ductal adenocarcinoma treatment, promising data was presented as COGI, and we anticipate to initiate phase 3 by March. PDAC is a disease with a high amount medical need as a current standard chemotherapy-based treatment struggle to achieve sufficient efficacy. In evaluating ASP3082 in combination with chemotherapy as first-line treatment for PDAC, we observed a high anti-tumor activity on ORR, 58.3%, and DCR disease control rate of 83.3%. ORR stands for Objective Response Rate. The safety profile showed no major concerns yielding promising findings supporting further development in PDAC. Based on these results, preparations are underway for Phase III trial targeting first-line treatment of PDAC, scheduled to start by March. For NSCLC, development plans are being reviewed to initiate the registration of studies earlier. For colorectal cancer, POC judgment is anticipated by March. Regarding follow-on program progress, SB 5834, upon care as degradation induced, received first drug designation from the FDA for NSCLC. We anticipate this work will accelerate its development. ASP4396, which was being developed as a drug targeting the same K-RASG12T mutation as ASP3082, has been terminated based on data obtained to date. Going forward, we will focus development efforts on ASP3082, which has demonstrated promising data for this target. Page 14, today's summary. Strong momentum continued in the third quarter. Strategic brands maintained strong growth. Cost optimization through SMT progressed well, with the G&A ratio continuing to improve. Following the Q2 earnings announcement, we have made another upward revision of our full-year forecast of revenue by 70 billion yen, core OP by 30 billion yen, and full OP by 100 billion yen. Our pipeline also made a significant advancement. As for strategic brands, lifecycle management progressed notably for PartCF and Byloy. In the focus area approach, SB3082 and SB2138 progressed toward initiation of Phase III trials. We'll continue pursuing further profit growth and enhancing pipeline value. At the end, this is an update on upcoming events. Our annual sustainability meeting is scheduled for the 26th of this month. We present ASTELLA's sustainability philosophy-specific initiatives and the outcomes achieved through these efforts. We really encourage you to participate in it. Next, we plan to hold an R&D day in late March. This session will provide an in-depth explanation of our current R&D status and further direction. In late April, we will hold the FY25 earnings call. Then, in late May, we plan to hold a briefing on our next corporate strategic plan. We hope to demonstrate how ASTELUS will achieve sustainable growth beyond the expiration of extended exclusivity. Details for all these events will be announced as soon as they are finalized. We look forward to your continued interest. That's all from me. Thank you very much for your attention.

It was a presentation by Kitamura. Next we are going to entertain questions from the audience. If you have a question, please press the raise hand button at the bottom of your Zoom screen. If you are joining from the smartphone, please tap details and you will find a raise hand, so please press that button. I will name you one by one. If your name is called, please unmute yourself on your own screen. Please mention your name and affiliation and ask your questions. So we now would like to entertain questions. First, Mr. Yamaguchi from City Group Securities, please. My first question is about the upward revision. In the second quarter, you made an upward revision. And once again, in the third quarter, this is a very positive message to the market. Mirror background, XTND, Forex and SMT R&D are the factors. The main factor is the upside of the important products on a four-year basis. Do you think you can have some room for another upward revision? We still have Q4. I'd like to confirm a bit. There was some noise. Sorry for that. We made another upward revision, and you'd like to ask about the factors behind Forex, Xtendi, and Mirror Background. We made another upward revision. After the third quarter, there was a very strong momentum. And we are seeing a lot of progress in cost optimization. We are seeing in the third quarter, everything to be updated to create another forecast? No. Rather, we create an annual plan and we check the progress in PDC cycle and at the end of the third quarter, we made a review if there is anything major in the third quarter and others can be updated. This time, up to the third quarter, we have seen a strong momentum. We didn't include everything into the upward revision. On a four-year basis, we selected some. What was a major factor? Overall, strategic brands are growing very strongly in accordance with our plan. We see some great performance. in a month or two months to come. We didn't touch on that very much. Mirabegron and Xtendi, clearly speaking, overachievement is continuing. So we decided to reflect it as well as the Forex rate. And also regarding the visible cost elements, we did some update. And full basis numbers are also revised upward. Full basis cost in the second quarter the visibility did not change much so we didn't change but at the end of the third quarter we reviewed and full basis costs had a higher visibility as well so we decided to reflect that as well with this in the fourth quarter Did we redo from the bottom up? Not really. We do what we need to do. And based on our plan for FY2026 and beyond, we are developing our plan. So thank you for your understanding. Okay, thank you very much. Thank you for your understanding. Just briefly, another question about ISAVE. In the second quarter, you made a revision and you said you are on track.

Extending a cliff, a patent cliff in order to deal with that. I believe this is quite an important asset. So what you are doing currently or new initiatives you are trying to do, if there's something, would you please answer that? Thank you for your question. As has been pointed out, ISFA is extremely important land for us. So we're doing different activities. So rather than me talking, Klaus is going to explain what we are doing currently. Klaus, please.

Yes, Yamaguchi-san, thank you for your question. Let me just briefly sketch what we see in the US market for geographic atrophy. As you're aware, in the beginning of the fiscal year, we had a significant turbulence in the market. due to affordability issues with the foundations withdrawing. And that meant certain patients couldn't afford their copay. Since that time, we have seen demand coming back steadily. So we now have two quarters in a row where we see the underlying demand. So the the new patient starts growing by about 10% quarter over quarter. So that gives us the confidence that we will be able to achieve the forecast that we made at the end of Q2. Does that answer your question?

Yeah, thank you. Is there any new initiative we should have at the moment or not?

Not since our disclosure in forecast two. So at the end of Q2, you may remember that we had reorganized our market access team to provide better support for the retina clinics. That is ongoing and we see very good success from that. We're continuing to focus our promotion on on the retina specialists, because we think that that's the education that first needs to be embedded. And we're seeing good progress there. So there's nothing new, if you want. Of course, our DTC campaign is continuing to educate patients. So there's nothing new, but just a continuation of the activities we started after Q2.

Thank you very much, Yamaguchi-san. Let me make some additional comment. So Klaus was very modest. He just explained what should be done is done. But during the DTC, what is actually working? What kind of message is communicated? Of course, we have to make a new market as well. So the PDCA is turning around. In terms of the contents of what we are doing, we have to establish a market for that. We are working as a team effort. And also, this product is launched in Japan as well. So not only U.S., but also we are thinking about global expansion. So as a company, as a big world, we are currently working on that. Thank you very much. That's all. Thank you very much. Next. JP Morgan, Wakao-san, please. Yes. JP Morgan, Wakao, can you hear me? Yes, we can hear you. Please. Page 8 of your presentation. I have a question on the slide. SG&A and R&D expenses based upon the current currency level is quite suppressed. Seemingly, it's on the increase, but I have an impression that those are quite well controlled. And now my question is, next fiscal year SG&A excluding a standard co-promotion fee, Then how do you view about R&D on the expenses? For SG&A, with this Forex status, it is suppressed in this way. SMT is ongoing in a very smooth manner. In that case, absolute value basis. Next fiscal year, the direction will be on the decrease. And at the same time, R&D. for you are going to start some more pivotal studies, so it's likely to increase. That's the view that I have. Would you please make a comment?

Oko-san, thank you very much. Regarding the numbers for next fiscal year, We will explain the details when we announce the FY2025 full-year results. But basically, we should continue the good momentum, and we are trying to develop a plan for revenue and profit increase. SMT is optimizing the cost by 20 billion yen this year. We have a still balance to go, so we have to handle this. That's important. We do have a plan, so we have to increase the accuracy of our execution so that we can front-row our planning. What about SGA's cost in the end? For me to say this is going to be the situation, it's not appropriate. But needless to say, we have to clarify where to increase and where to reduce. Based on the SMT philosophy, there is a huge room for reduction. We are assuming that we are going to work on it. As for the expenditure, clearly, late-stage development is something we are going to move on to, so there's going to be an increase there. Overall, to what extent we can offset. So in the budgeting process we are discussing right now, increasing the revenue. Because we increase the revenue or increase the R&D, it may not lead directly to R&D cost increase. So how we can take measures to optimize our costs first? This fiscal year, last fiscal year, that's how we have been addressing, so that approach is not going to change in principle. Regarding these specific numbers, please wait for some more moment. I have a follow-up question. SMT target is 150 billion yen. its effectiveness will be higher in FY2026 rather than compared to FY2025. That's my understanding. You will have sales promotion, but it doesn't mean that you have a new drug to be launched. So SMT effectiveness can be seen more easily in terms of the balance. Am I wrong? SMT effectiveness Up to FIA 2027, we are going to reduce the cost by 150 billion yen. And 40 billion out of that was done last year. This year's plan was 20 billion yen. On a cumulative basis, it's going to be added up. On a cumulative basis, this year's target... 40 billion last year and 20 billion this year, so that's 60 billion yen in total. We had to do this by the end of March, according to our plan, and right now, as of December last year, we reached 60 billion yen cost reduction. We have 90 billion yen to go to reach 150 billion yen target. So how to do this is the SMT's approach and philosophy. What we are discussing right now is as follows. How we can... Realize the remaining part in the next fiscal year at an accelerated pace. Late stage development studies will be initiated, as you said. And as a company, it's not a net increase, but rather we can manage the cost to a certain degree. Understood. At any rate, it's working well. My second question. SP3082, I have a question. SP3082, ASCOGI had a presentation about good data. Revolution Medicines are the competitors. The data was similar according to the presentations. How you can differentiate is something I'd like to know. One element is going to be the speed. Anything else as well? 4396 was discontinued. 4396 had higher expectations at certain timings, so terminating this program, what's the intention behind? 3082, our data is better, that's why you terminated 4396. 3082, our philosophy. including the competitive edge against the competitors. On that point, first, Taniguchi is going to explain. Let me explain first. 3082, particularly from the differentiation perspective, compared to Revolution Medicine's products, Vibration medicines, drugs, oral KRAS inhibitors, 3082, and their products are completely different. Our agent is targeted protein degrader. Protein with KRAS mutation is going to be degraded by agent. The target is the same, but MOA is different.

Then, how it is represented within the clinical data? Of course, we have to look to the data, especially, or needless to say, when it comes to the protein inhibitor. The resistance against inhibitors quite frequently reported, so we have to have our eyes on it. And at the same time, our protein degradator against the 3082, the summer resistance is under the research in our end as well. Likely to be the biggest difference is the continuation level of the efficacy. We are going to accumulate more data to look at the sustainability of the effect as well. And in our knowledge, the The first-line study of the pancreatic cancer hasn't been started by the competitor, so we would like to accelerate our speed so that we can start the combination treatment with the chemotherapy for the pediatric pancreatic cancer. The prognosis is quite poor, so we would like to start clinical trials as early as possible so that we can deliver a better result. therapies to the patients. And 4396, termination of the development. For 4396, KLAS G12D is the target. So it is exactly the same target as 3082. The one difference is E3 ligands is a celebrant type. So 3802VHL With that, it is quite different. 4396 and 3082 efficacy are compared according to our original plan. If there are some differences, we are going to consider about that. That was our plan. We haven't opened the data yet, but 4396 data is not better than 3082. So because 3082 is more advanced compared to it, so we decided to prioritize 3082 in terminating 4396. Understood. Thank you very much. Thank you very much. Next. Goldman Sachs Securities. Ueda-san, please. Thank you. Ueda from Goldman Sachs Securities. Thank you very much for this opportunity. First question, that's about the progress of SMT. I have additional question about that. Currently, you are a co-OP margin, FY27, 30% is the target. And currently, I think your progress level is more than you've expected, or this effect of SMT is way more effective than expected. Is that how you view? Please explain about this. Thank you, Wada-san. SMT, by FY27, 150 billion yen benefit is what we would like to realize. than within two years, 40 and 20 in total 60 billion, so the speed is not extremely fast. Rather, With the water scope, we see that it's in line with the plan a little earlier than planned. Last year, it was 40 billion. But we achieved, we worked toward only the lower hanging fruit because it came up with the result quickly. But on the other hand, transformation type of the measures, that takes a bit more time. Last year, we've been working on the planning before coming up with the result. And from this year, that transformation realizing measures that started to be working or operating. Because this is a transformation, so it takes a relatively longer time. And for those, you have to change something. So you have to spend a certain level of money. That's why including that current is $20 billion. Without such an initial investment, it could be more beneficial. But currently, we are focusing on transformation part now. So it's not extremely faster than expected. Basically, it is on track of the plan. But if you look into more details, there was something that we could be more accelerated in terms of the speed. So that is exactly currently what we are working. Thank you very much. Understood. My second question.

The trend of the main brands in the United States. in the quarter between October and December extended, at the end of the year, did not have a high level of sales unlike usual years past in the United States. Quarter on quarter, it was almost flat, according to my image. Any sense of deceleration? What's the current trend of the businesses here? Thank you for your question. So I'd like to briefly respond, and then I'd like to hand over to Klaus later so that you can have more information. What you have said is different from our perspective. As for PADSEF in the United States also, there is very good progress being made. In the third quarter, that is continuing as well on a continuous basis. Externally, in terms of the volume, there is a strong demand growth which is continuing, so there is no slowdown in our viewpoint. Klaus, anything to add from you?

You're absolutely right. Padserv is continuing to surprise us positively. You noted the very fast approval by the FDA of the MIBC, the 303 MIBC indication, and we're already seeing uptake in that indication. It's been included in CCN guidelines. So all of that is going very, very well. Please do note, however, that our experience with PADSEV has consistently been that we see a very fast uptake in the first six months and then a very sharp plateau as we penetrate the relevant patient population. And I think that's exactly what's happening right now. The uptake right now is faster than we expected, which is why we're saying it's above expectations. But there will be a plateau after about six months as we penetrate the new patient population completely.

Thank you very much. What about Xtandi?

So Xtandi is continuing at an amazing pace for a drug that's on the market for almost 14 years now. So the underlying demand growth in paid demand in the U.S., but also outside of the U.S., is continuing at a double digit pace. So in the US, more than 20% demand growth in paid demand. So that's continuing. However, we do see a consistent slowing of the increase in paid demand from the high 20s and 30s to now the lower 20s. So you're right, there's some slowing. But it's still at an amazingly robust pace, which is why we're increasing the guidance of externity at this point in time.

OK, understood. Thank you very much. I was able to understand clearly. That's all from me. Thank you very much. Thank you very much. Matsubara-san from Nomura Securities, please. Matsubara from Nomura Securities. Can you hear me? Yes, we can hear you. Thank you very much. My first question is about Vioza. There is now a competitor, but it's within your assumptions in terms of the progress. If I look at the third quarter, the growth rate is slowing a bit. A new patient starts and the existing patients, Vioza and the competitor's product. What about the shares and how it's going to grow? I'd like to hear about your assumptions, a status assumption. Matsubara-san, thank you very much. Regarding Vioza, I'd like to briefly comment. If there's anything to add, I'd like to ask Klaus to comment. As for Vioza, basically it's on track. As it's described here, there is now a competitor which is launched, but the real impact to be judged will require more time. But as of now, It's not very different from our assumptions as of now. This is a new non-hormonal drug. So it's important to create a market here. And we have been working on this by now. One of the important elements here is access. How to enhance and increase access? We have been working on this in January this year. New commercial coverage started, and it's now 80% coverage by commercial lives coverage. So we'd like to continuously increase further. Klaus, anything to add from you?

Yeah, so I think there are three factors to note on Vioza. And Vioza is just chugging along. It's very consistent in the underlying demand growth. So it's fully on track and in line with expectations, especially in the United States. Now, as... Kitamura-san noted, it's very early days to judge the market share distribution between the competitor and the user. We do have now 80% of lives covered in the US from a market access standpoint. And that gives us a very good basis, which the competitor first has to establish. So I think it will be some time before we can fully judge how the market decides between the two products. Right now, it's fully aligned with our expectations, as Kitamura-san said. I think the more important factor, however, is how will two companies trying to develop this market, how will we be able to displace the SSRIs and the other off-label non-hormonal drugs in this market? Remember, Viola right now only has about 14-15% of the non-hormonal market. So there's a lot of room to grow. And I think two companies working on that will be more effective than one company alone. So that is what I really would like to watch as the new year unfolds. The third factor maybe just to complete is the question of different monitoring requirements and different side effects like the somnolence that our competitor has. We don't know yet how that will play out, but we can say for Viosa that the wobble in the market that we had when we had the label update on the liver monitoring, in the US that has washed out and we're back on that growth track. Ex-US, where the label update came later, we're seeing the same pattern replay, right? A certain uncertainty in the market, then a stabilization, then a reuptake of the growth. So we're seeing exactly the the same pattern ex-US as we had in the US just with a delay in timing. So that's why I say it's in line with our expectations because we're seeing the same pattern replay in the ex-US markets. I hope that answers your question.

Thank you very much for your response. Next is 8845, and in the fourth quarter, you are going to judge their POC. And adenovirus is administered, and I just want to confirm if any liver... adverse event has not taken place and the stability is maintained for 13 years or so. I think that's been mentioned. So, considering the risks, I would like you to explain about this liver toxicity matter. Let me explain about that. AB8 factor is utilized as the gene therapy. That is AT845, and this is targeting Pompe disease. And currently, the patient enrollment is completed, and we're just waiting for the data becomes available. For liver toxicity, of course, we don't say there is no liver toxicity at all. Just like other AB8, the increase of the liver enzyme is observed in a couple of or some cases. But so far, it is not really a big issue. Therefore, as has been planned, the end of March, by the end of March, data is going to be collected and we make the final analysis looking at the balance of efficacy and safety. Then we are going to make a judgment on the POC. Understood. Thank you very much. Thank you very much. Next, Sanford C. Bernstein, Sogi Sun, please. Thank you. First question, that's about Pat Seth. Number and updated guidance. If you look at that Q3, you showed a strong growth. But for Q4, the growth level is a bit lower according to your guidance. That's my understanding. In a full year guidance, you think there's a potential for further upside? Or Q3, Q4, for the facing, are there any background?

As for the four-year forecast, as I said at the beginning, revisiting everything to update now, we saw the strong momentum and updated some elements. If you look at the numbers by brand for strategic brands, we have the same numbers as before. We are not expecting a slowdown in the fourth quarter. But rather than updating that, we wanted to reflect on what's working well right now to discuss what are we going to see for the next fiscal year. That's how we are stirring our operations on a full year basis. If we update everything, the numbers might be different, but we do whatever we need to do in the current fiscal year and how to address the further growth next fiscal year. So that's how we're discussing. Thank you for understanding. Okay. Next, about the costs. From the fourth quarter, the cost and expenditure will increase because you will shift to more investments. full year and year-to-date numbers can be compared, then in the fourth quarter, a little less than 100 billion yen will be spent, according to my understanding. In 2026, phase three in oncology would be initiated. At that pace, Are you going to proceed? Is my understanding correct? And also, you have SMT initiative. It would take time for transformation and initial investment period will transition to harvest the fruits. How it's going to be offset into the future? Let me start with SMT. Your basic understanding is correct. Upfront investments are being made. So we are going to recover those investments. So you're right. However, we have things to do in the remaining two years. So we would recover investments and we make another investments to recover the investments. So this is a series of activities. It's not just for a short term in a single year, but this is more continuous activity. So, for each product, you are right, but overall, it's going to be slightly different. In the end, by FY27, we are going to optimize the cost by 150 billion yen. Regarding the expenditure in the fourth quarter, you may think the number looks large. We understand your concern. What about the space, including the outlook for next fiscal year and so forth? We'd like to explain when we announce our forecast next fiscal year. It's not 1,000 times 4. Understood. Thank you very much. Thank you very much. Next, UBS Securities. Seki-san, please. Seki from UBS Securities. Thank you very much for your presentation. On page 24, I have also a question about SMT. It's now 150 billion yen without the lower limit of 120 billion yen. 30% co-operating margin is going to be achieved even after extending LOE. Our confidence level is enhanced. The answer is yes. In the summer of 2023, we started SMT. In 2024, we disclosed this activity to you. At that time, multiple year plan was developed. Back then, what we can do and there are other elements we are not sure about. So 70% was the plan. and the remaining 30% gap must be filled. We worked on the execution together, and to build our ideas, we have accumulated that much. Our confidence level is higher? The answer is yes. If we do this after extending LOE, is it going to be sufficient? No, maybe. FI27, up until FI27, before externally LOE starts, we are going to do this. After LOE, we have to address that situation, and the state of the company after LOE must be discussed, so this is not going to be the end of the story. By FY2027, this is what we are going to do as a preparation, but once it starts, or after it starts, what's the aspirational state of the company? we would develop a new corporate strategic plan, which we are discussing in May this year. We will explain further details. Thank you very much.

We are looking forward to May. Next question is about Xtendi. This is extremely big product. Therefore, some possibilities in Japan, US, Europe, the generic market launch is going to be delayed. Could that kind of a scenario is conceivable? How do you view about it? Could you repeat your question once again? Well, that's Extendi. In this pharma world, after the exclusivity expired, generics are not going to be launched in a timely manner. Do you view that it's also possible for Extendi as well? Thank you very much. I make the brief comment if there's additional clouds, please. Well, first of all, Because of LOE, everything is done. It's not really so. How we can continuously provide the value of this drug, that is extremely important point. Having said that, this is again a very big product and there are the matters of generics to be launched. So our corporate plan is not the assumption that we can protect completely. Of course, we have a certain assumption, but it's not something that we are looking at a situation that is on a decrease of the sales. We are thinking about the countermeasures to what extent we can protect extending. That is also something we are discussing under the new strategic plan. Klaus, do you have any additional comments?

Yes, a few considerations maybe. I think the first consideration is that the patent that we have, the compound patent for Xtandi, expires at different times in different geographies. In FY26, we'll already see patent expiry in some geographies like Brazil, like Turkey, like Korea, China. Then 27, the patent expires in the US, 28 in Europe. But we do have some geographies like Japan, which you mentioned, which go all the way to 2030. And there are some other geographies as well, which have a very, very long patent life. So the first comment I would like to make is that this is not one timing, but it's more a curve as different geographies where the patent expires come into play. We do expect generics to enter as soon as they can because it is a big asset and it is a big market. And we've seen that also with abiraterone when abiraterone went generic. However, The other thing I would like to mention is that we have two formulations in the market, a capsule formulation and a tablet formulation. For the tablet, we have a formulation patent which extends the life and the protection of the tablet into the early 30s. Now, how the market is going to play between capsule generics and protected tablets is going to be a tricky analysis, and we're working on that right now. But we do see some potential to maybe protect extended partially with the formulation patent on the tablets that we have in place.

Thank you.

Understood. Thank you very much. That's all from me. Thank you very much. Thank you. Next, SMBC NICO Securities. Wada-san, please. SMBC NICO Securities, my name is Wada. Can you hear me? Yes. Please start. Full base operating profit increase is my question. Impairment loss risk, and that is released partially. I think that's what it is about, but would you please explain the background of that? This time, focus area approach for programs coming up with the favorable result of that data, and that impairment loss risk are likely to be now lower down. And when it comes to strategic brands, Isabel, Viosa, they are on track. So impairment allows risks. I think there are no supporting backgrounds for that. That's how we look at it. But the question is, Please explain the background of this. That's one thing.

Focus area approach with four programs. If you achieve POC in March for everything, next school year, you can move on to late stage development. Is there any such possibility? Thank you very much, Wada-san, for your question. Full basis review. Core. Core. was increased in the second quarter and also in the third quarter as well for the upward revision. Because of the increase in the core, the fall was also increased in the second quarter. After three months, we reviewed everything and we were conservative in developing the initial numbers so we could review. We are checking the progress of various programs and projects, but it has not achieved a POC. We cannot guarantee that it's going to work for sure, but the assets in question, what about the probability of each? That's how we check. It's not just about the impairment loss, but there was a change or re-measurement of the fair value on contingent consideration. In sum, we review non-core cost. an additional 100 billion yen forecast for revenue as our assumption this time after upward revision. If we achieve POC for all four programs, are we going to go to phase three in next fiscal year? That's our wish, yes. One more question, SP3083. There was a mention of the discontinuation termination of 4396 E3 ligase, which is cerebrum. Did you see the deprecation in 4396 E3 ligase can be seen here? We haven't disclosed the data yet, so I'd like to refrain from touching on the details. As we said, 3082 and 4396, the difference is the E3 ligase. What would be the results? I know you're very interested. As soon as we have the data, including 4396, we are hoping to disclose as soon as possible. Okay, understood. Thank you very much. That's all from me. Thank you very much. Due to the limited time, the next question is going to be the last question. Morgan Stanley, MUFG Securities. Mr. Muraoka, please. Thank you very much. Muraoka from Morgan Stanley speaking. MFN Tariff, I have a question to you. Western major companies by the end of the year were able to settle. But for Japanese companies, no one has mentioned this yet at all. For your company, on a standalone basis, have you negotiated already and you have an outlook? Or by country, it's negotiated in group by country? You may say that you cannot tell us at all, but in the near future, can we expect that this is going to be settled, resolved? Because you have a high proportion of your business in the United States, and Medicare, I am very concerned. Thank you very much. As you said, there are things we can tell you, and there are things we cannot tell you. Thank you for your understanding. Megafarmers, are discussing with the US government. So we are monitoring. And as of now, an official letter has not been received by us as of now. So that's the status right now. Internally, as we said from before, there are a variety of potential scenarios. So we are discussing such scenarios. Still, there's nothing we can comment as anything specific as for the tariff. As we said in the previous meeting, we have U.S. business whose size is quite large. We have a large proportion of manufacturing in the United States. That's like 70%. We don't know about other companies, but for us, given the current status of our supply chain, tariff, is going to be a big obstacle for us. We don't think so according to analysis, but this is a very important topic. So internally, we are discussing and doing simulations right now to respond to your question. Thank you very much.

And one more question. This is the second big revision, upward revision. The question is dividend. In the beginning of the fiscal year, you came up with the level of dividend and that is maintained. What's the background of not changing it? Thank you for your question. Basically, our principle for capital allocation hasn't been changed. We continue to invest with the growth and at the same time to the shareholders who are going to return in a stable manner. If there is an excessive We are going to purchase a share so that it can be returned to the shareholders and a very good buyer is acquired and the net is increased and that is considered to be returned according to the active capital allocation. And for the dividend, it's not something that we are thinking with just one year performance. We are considering for a couple of years when we think about the cash flow. So it was good this year. That's why it will be increased. Next year, it was not really good, so it reduced. It's not something like that. So that is our basic principle for capital allocation, and we stick to that. That is how we are. Understood. Thank you very much. One last question from me. That is a follow-up question by Watterson a while ago. That's about ISAV. It is about impairment loss related. I would like to confirm a special about ISAVE. This time the range of the impairment is reduced and ISAVE business is ongoing quite well. So ISAVE U.S. impairment loss proportion is not something that you have as a concern for the operation? Thank you. For ISAVE, there's no change. We have to continue to grow it as well, and we are working on the initiative one by one. We do not think. Of course, we don't think that the cells would be flat as it is. Of course, we have to grow it further. That as assumption, we do our activities, but we haven't seen any big impairment loss risk. And XUS. Well, it's been mentioned that the approval here in Japan is also granted, and also the launches of Celsius started, and this is an asset not amortized, but it is now in that process. So, well, the ISAV, the situation is ongoing quite well. Thank you very much. Thank you very much for giving us so many questions, but time's up. With this, we would like to close this earnings call. Thank you very much for your participation.