Chugai Pharmaceutical

Ladies and gentlemen, thank you very much for attending the conference on FY 2020 for December financial results for Chugai Pharmaceutical. I am acting as a master of ceremony for today. My name is Miyata from IR department. We are holding this session in a hybrid manner. The agenda for today's presentation are shown on the presentation material page 3 on the screen in the venue. However, for those who are participating through Zoom webinar, you will be able to hear simultaneous translation. Please select the language of your choice by clicking the button at the bottom of your screen. For those who wish to listen to Japanese, please select Japanese. English, please select English. After selecting your preferred language, please click on mute original audio. At the beginning of each session, we are going to pose for a while for those to take a photo of the screen. We are going to take questions at the very end of the presentation. We allocate about 30 minutes for Q&A session.

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Now, Okuda will take you to the summary of year 2024 and outlook into 2025. We are going to pause for a while before the presentation of Okuda, so for those who wish to take screen capture, please do so.

Now, I'd like to start the presentation. I am Okuda, the President. I'll explain the summary of 2024 and the forecast for 2025. Please take a look at page 4 of the slides. The four-year results of 2024 exceeded the revised forecast for revenue, operating profit, and net income, with all figures reaching record highs. Revenue exceeded ¥1 trillion for the third consecutive year, and operating profit exceeded ¥500 billion for the first time. The operating margin also reached a record high of 47.5%. Regarding domestic sales, the completion of 81.2 billion yen government supply of Ronaprev in 2023 had a significant impact, while overseas, especially exports of Hemlaibra to Roche were particularly strong. In addition, other revenue increased, mainly due to income related to Himalaya and one-time income. Overseas and other revenue exceeded the decrease in domestic sales, and overall, the revenue increased. Compared to the revised forecast announced on October 25th, domestic and overseas sales and revenue or income related to Hemlibra were strong. As a result, the four-year results for 2024 exceeded the upwardly revised forecast, thus achieving increased revenue and profit. Next, I will explain the forecast for 2025. We expect to achieve record high revenue and profit, mainly due to growth in overseas sales with revenue of 1 trillion 190 billion yen, or plus 1.7%, or operating profit of 570 billion yen, or plus 2.5%. At the same time, we expect to maintain a very high operating margin. In the next slide, I will show you the trend in sales or revenue. Revenue is expected to increase by ¥19.4 billion or 1.7% in 2025 compared to 2024. Sales are expected to increase both in Japan and overseas. In Japan, the impact of NHI drug price revisions and penetration of generics were more than offset will be more than offset by growth in new products and main products, resulting in a slight increase of 1.4 billion yen. Overseas, the impact of lower export unit price of Hemlibra will be more than offset by revenue growth due to volume growth and foreign exchange effects, resulting in an increase of 18.7 billion yen. On the other hand, other revenue is expected to decrease by 700 million yen due to a decrease in one-time income and Akutemura-related income, despite an increase in income related to Himalaya. Next, I'll report on the review and results of our key policies for 2004. First, I'll talk about the red function for drug discovery and early development. In drug discovery, one project for mid-size molecules, which we are hoping will become our third pillar, has advanced to the preclinical development stage, and we have steadily established manufacturing technology for mid-size molecules, and antibody and small molecule projects have also progressed largely as planned. Next, early stage development, we accumulated experience from our own pre-POC projects, and as our ability to predict human responses improved, we started advancing in phases and developing multiple projects. On the other hand, as a result of the go-no-go decision, we decided to discontinue the development of Area 974 and discontinue development of Spike 04 in-house, and there were delays in some projects due to changes in the plan. In open innovation, we fully launched the Chugai Venture Fund and made three investments. Regarding R&D projects, at the bottom of the slide. In early stage development of in-house products, NEXT-007, AIMEE-109 advanced to Phase II last year, and BRI-10 began Phase I clinical trials, while GYM-329 began Phase I trials for obesity, and RAY-121 began a basket trial for six autoimmune diseases. In addition, in the late-stage development, as you can see in the next slide, three of our in-house products, Alicensa, PureSky, and Nemluvio, have achieved approvals, and including all these, 13 approvals and launches were made. including global approvals, and we are expanding our contribution to further treatment of patients. The number of projects in the pipeline, including Roche licensed products, is 21 in Phase 1, 6 in Phase 2, and 29 in Phase 3, and we continue to have abundant pipeline. In addition, there are four projects currently under regulatory review, and approvals are expected this year. Next, gross drivers. In Japan, although some products did not reach their targets due to the impact of competing products, Piascai and Fesco grew steadily and more than expected, and also exports of Hemlibra overseas also grew significantly. Finally, as for the business foundation, we have reviewed materiality in light of changes in the external environment, and we have been working to establish PHC solutions implementation system. Although there are issues with the development and acquisition of highly specialized human resources, the strengthening of our business foundation is progressing smoothly overall. The introduction of Aspire is an important company-wide project and as a result of our policy of making sufficient investments to ensure that there are no delays or problems, progress is on schedule, although the budget has been exceeded.

Now, I will explain our management policy for 2025, which consists of three policies. First, with regard to RET capabilities enhancement and value creation, we will focus on building technology platform and project creation, in addition to executing early judgments for the value of our own pre-polled projects based on the go-no-go criteria. and accelerating the development of valuable projects. Next, maximizing the value of lifecycle management projects. In addition to promoting the development of late-stage development projects and maximizing the value of new products and growth driver products, we will evolve our operating model toward an efficient and advanced business model. Finally, strengthening of the foundation under a new personal HR system launched in January this year will strengthen our foundation through various measures, including an HR strategy to achieve continuous innovation. Of these three major policies, We have identified four priority items that we will place particular emphasis on this year. The four are accelerating the maximization of DOC52 values, strengthening the hemophilia franchise, preparing for the launch and the proper use of maladies, and the proper operation of the new HR system. With regard to materiality, five years have passed since the initial establishment of the materiality, and in response to various changes in the environment, we have reviewed materiality last year. First, we organized and summarized materiality into 16 items, which are summarized under the three axes of challenge, co-creation, and commitment. In this new value creation model, we've clarified that materiality is the starting point and that we will link it to specific outputs and values provided through our business activities. Through this value creation model, Chugai Pharmaceutical aims to realize advanced, sustainable, patient-centered medical care that is a shared value between the company and the society. This year marks the 100th anniversary of Chugai's founding. Since its foundation, Chugai has carried on the idea of creating drugs that benefit the world. By continuously taking on the challenges of new drug discovery technologies from small human-sized molecules, biologics, and antibodies, and by establishing Chugai's unique technology-driven drug discovery approach, we've made innovative new drugs and contributed to solving unmet medical needs in a wide variety of ways. For the next 100 years to come, we will continue to expand our contribution to the global healthcare community and human health for the sake of the patients. In explaining our medium and long-term growth prospects based on changes from before the start of TOP12030 to the present, I would like to make some comments. Four years have passed since 2020. and the revenue structure has evolved dramatically. Please take a look at the graph to your left bottom. With regard to rush products, biosimilar has penetrated, and we have seen decline in investing and mature products. New products launched after 2021, such as Polibee, Everythi, Babismo, and Festival, however, have offset such decline and continue to provide a stable revenue base, while our own products mainly Himuraibara, have grown notably on global basis. Looking ahead into the future from short- to medium-term perspective, growth is expected to be proven by the three products that received global approval last year. In addition to this year, we will mark important milestones for NEXT-007 and GYM-329, as well as for the third-party launches such as R4 Glycron. These will be our growth drivers in the medium and long term. For rush products, a number of products are in late-stage development, including Lusumio and Elevides, which will be approved and launched this year. On the other hand, there are factors contributing to lower sales. For example, NHI price reduction in Japan and overseas and the impact of biosimilar on Actimura and appreciation of the yen, despite these factors, will accelerate sustainable growth over the medium to long term through the growth of our own products and continuous launches. Next, I would like to explain our basic policy on capital allocation. In our mission to contribute to the global healthcare through innovative medicines and services, we place highest priority on providing value to patients. At the same time, we consider stable shareholders' return to be also important. To achieve these goals, we carefully consider the balance between investment in growth to create shared value, including the creation and provision of innovative drugs and expansion of our value creation engine, our drug discovery platform and shareholder returns such as dividends to ensure optimal capital allocation. We are convinced that this policy will lead to our sustainable growth and enhance our cooperative value and will continue to strive for a balance between providing value to patients and returns to shareholders.

Next, I would like to explain about the dividend.

Reflecting the good performance in 2024, we plan to pay a year-end dividend of 57 yen per share, 16 yen higher than the forecast at the beginning of the fiscal year. As a result, together with the interim dividend of 41 yen per share, the annual dividend will be 98 yen per share. For 2025, we forecast an annual dividend of 250 yen per share consisting of an ordinary dividend of 100 yen per share and a commemorative dividend of 150 yen per share to celebrate our 100th anniversary to express our gratitude to our shareholders for their past support and understanding. will continue to strive to deliver innovation to patients around the world. We look forward to your continued support.

This is the summary.

And that's all from myself.

Next, we'd like to invite Mr. Tanaka to talk about development pipeline. At the outset, there will be some still moments where you can take advantage of your screen capture. Thank you. Over to you. I would like to talk about the status of development pipeline. I am Tanaka, Head of R&D Portfolio Management Department. Please take a look at page 17. This is a summary of the topics of the fourth quarter. All approvals and applications have been already announced. First, we have Nemolizumab or Nemolibio, which was outlasted to Galderma in the U.S. It received approval for additional indication for atopic dermatitis. In Europe, the EMEA's CHMP issued a recommendation for approval for atopic dermatitis and prurigo nodularis. Rensumio received approval for use in the third-line treatment of follicular lymphoma. Next, we have the applications. We have Avtometinib, which we licensed out to Verastem Oncology. The application for accelerated approval in the U.S. for patients with recurrent low-grade serous ovarian cancer with KRAS mutations was accepted in December 2004. The target date for completion of the review is June 30, 2025. As for the start of the trials, we began the domestic phase 3 study of leucemia for treatment naive follicular lymphoma. As for the readout, the skyscraper 01 study of leucemia Chiragolma for first-line treatment of non-small cell lung cancer was discontinued, as in addition to failure to meet primary endpoints of PFS, OS had not been met either. Next, I'll present the two-year data from the EMBAG study of Delandistrogen Moxiparvovic, a gene therapy for Duchenne muscular dystrophy. The study showed statistically significant and clinically meaningful results in the North Star ambulatory assessment, time to rise, and 10-meter walk and run compared to the pre-specified external control group. In addition, no new safety signals were observed and it consistently demonstrated benefit. Other items removed from the pipeline are shown here. ERI-974 had been undergoing Phase 1 trial for solid tumors and hepatocellular carcinoma, but we have decided to discontinue the trials based on comprehensive evaluation of efficacy and safety to date. At medical conferences, we presented positive 4-year data from the Phase 2 clinical trial of Lunsimio in patients with relapsed or refractory follicular lymphoma Approximately 60% of patients who achieved a complete response were alive and in sustained remission at month 45. In addition, we announced 5-year data from the Phase III LARIC study of Polivy in treatment-naive diffuse large B-cell lymphoma. The data showed a favorable trend in OS in the ITT population, reinforcing the new standard treatment position. Enspring received orphan drug designation for AIE and MOGAD. The review period is expected to be shortened. In the area of open innovation, we have made three investments through the Chugai Venture Fund, which began full-scale operation in Boston last year, and steady progress is being made. And as announced in the press release today, and what is not shown here in the slide, As for AID351, GSK Global Health, the global health unit of GlaxoSmithKline in UK, we had concluded a collaboration agreement with them to advance development of AID351. I'll explain the details later. And this is a summary of the major R&D events for 2024. Changes from the last time are underlined and in bold. Despite some setbacks, such as delays in trials and development discontinuations, we believe that the results were generally satisfactory. we're able to achieve important milestones with our in-house double products such as alicensa which is one of our current growth drivers and piaskai which we expect to be a future growth driver and we have made steady progress toward future leap forward Next, I will explain the major events for 2025. For enhanced developed products, we are expecting a readout for the Phase 3 trial for AHUS for PiaSky, readouts for the Phase 2 trials for SMA and FSHD for GIMM 3-9, and for him libra a for next 007 are also planned all of these are important milestones for determining whether to move on to three trials or not in addition we plan to start a phase two study of gym 329 for obesity by the end of this year next i'll explain The AID359, which was created at Shugai Pharma Body Research , a research subsidiary in Singapore. AID351 is an antibody drug for dengue fever, which is one of the neglected tropical diseases. As previously said, we have concluded a collaboration agreement with GSK Global Health to advance the development of this product. Under this agreement, GSK will obtain a non-exclusive license to conduct activities aimed at initiating clinical trials of AID351. Dengue fever is a mosquito-borne fever that affects 400 million people approximately worldwide each year. When it becomes serious, it could be fatal and progress to dengue hemorrhagic fever or dengue shock syndrome. But there is still no established treatment for dengue fever. Every year, 500,000 patients worldwide become seriously ill and require hospitalization and treatment, and there is a high level of unmet medical needs. AID-351 is an antibody that can bind to all four different types of dengue viruses that cause dengue fever. With support from Global Health Innovative Technology Fund or GHEED Fund, the antibody was identified and optimized through collaboration between industry, government and academia in Singapore, including CPR, and is currently in the preclinical stage or is completed. with the preclinical stage. The unique aspect of AID-351 is that it is an antibody that combines both safety and efficacy in a voice of phenomenon known as antibody-dependent enhancement of infection, which is one of the causes of severe dental fever, by applying Chugai's proprietary antibody technology while also retaining its ability to eliminate the virus. It is expected to be developed as a treatment for early relief of symptoms of dengue fever and as a prophylactic for medical professionals and others who are at the risk of contracting secondary infections during outbreaks or severe cases of the disease. Neglected tropical diseases have threatened the health and livelihoods of many people. But to date, no effective treatments have been established. In order to fulfill our social responsibility in global health, we will work with GSK to develop innovative drugs to address this unmet medical needs.

Regarding the five reforms of the TOPAI 2030 growth strategy, I would like to explain about how to strengthen the go-no-go decision process because this has been the frequently asked question. Two life-form suitable has been promoting science-based go-no-go decisions. And as a result, many of the projects have processed to the phase 3 and been brought to the market. In the future, we will achieve both science and speed. We will continue to find the optimal development pathway for each project, even in the non-clinical stage, and evaluate the drug special in the shortest possible time. In addition to an increase in the number of projects due to improve the drug discovery capabilities, we are now able to see the potential of a drug earlier and more quickly, and we have improved human predictive capabilities, including a prediction of effective dose and safety profile. These efforts will enable us to maintain our high success rate after Phase 3, accelerate each project, and strategically allocate resources to ensure that we can continue to deliver the highest quality products to the market. As a result, we will be able to accelerate the launch cycle and make progress toward achieving Top i 2030. Specifically, we'll accelerate the high potential project and conduct early assessment to minimize development risk. For example, we'll promote efficient phase one study design based on precise dosage production, simultaneous development for multiple in early stage development, and accelerated evaluation of combination therapy. Six months have passed since the elaboration of this top-I strategy. and we will apply this strategy to new projects to promote speed. We have also applied this strategy to projects that had already started its development. As explained in the review of the priority direction, development of Area 974 was halted based on the clinical trial result, and we have stopped the in-house development of Spike 04 due to the result of the clinical trial. In 2025, we plan to make go-no-go decisions for more projects. We'll accelerate early development by making go-no-go decisions that combine science and speed and identify potential objects in the shortest possible time. This chart shows the market sales of major projects. Of the domestic sales, the orange in upper row shows the sales of in-house products, and the blue in the lower row shows the sales of rush products. You see the overseas sales ratio of the in-house products. For domestic sales, the reasons for any changes from the previous disclosure are given in the right-hand column. of the table. Of the overseas sales, Calderma expects the negative yield to reach $1 billion per year by the end of 2027, and after that, peak sales are expected to reach $1 billion, and after which peak sales will exceed $2 billion. And this slide shows the status of the portfolio for each modality. We continue to have an abundance of in-house projects, all of which are progressing well. In the third pillar of our focus, mis-sized molecules, two projects are in the preclinical phase, and 26 other projects are in the drug discovery phase. As a reference material, we have included a detailed status of low molecular medicine, mid-molecule medicine and antibody drugs, and cellular genetic medicines. Please refer to them as necessary. Here is a schedule for future filing. The blue star represents newly added projects. The slides which follow this page are attached as appendix, and this is the end of my presentation.

Thank you very much for your attention. Now, moving on to Taniguchi, talking about the full year results of 2024 on a consolidated basis. There'll be some still moments, so if you wish to make a screen capture, please take advantage of this moment. Now, over to you. Thank you very much. I will now explain the four-year results for 2024. These will be all shown in core basis as compared to the previous year, mainly. First of all, 2024 revenue. Revenue increased by 59.2 billion yen or 5.3% year-on-year to 1,170.6 billion yen. Operating profit increased by 23.4% to 556.1 billion yen. That is the first message that I'd like to convey. And then let me go into the details of revenue. The main reason for this increase in revenue was a significant increase in export sales of products such as Hemlibra overseas.

The sales growth

It completely absolved the impact of the loss of sales of non-approved COVID-19 drugs to the Japanese government worth 81.2 billion yen and actually exceeded it. Looking at the breakdown of revenue, first of all, the sales were 997.9 billion yen, an increase of 23.4 billion yen, or 2.4%. If you look at the sales by domestic sales and overseas sales, for domestic sales, it decreased by 96.9 billion yen year-on-year, or 17.1%. So as I said, the loan approve 81.2 billion yen that was posted last year. is now gone, but the decrease would be 15.7 billion yen, excluding loan-approved, and the main factors were the impact of energy direct price revisions and penetration of generic products. And overseas, export products such as Hemlibra were strong, and sales grew by 128.3 billion, or 28.9 billion yen, And also other revenue, including royalty income and one-time income, actually increased mainly because of him level uh income as 272.7 billion yen will increase of 35.8 billion 26.2 percent next i'd like to move to the cross items cost of sales decreased to 338.1 billion yen a year by 73.9 billion or 17.9%. So sales increased but cost of sales decreased. Why? The reason for this is that cost of non-approved, which are the high cost of sales ratio, has disappeared and relatively low cost of sales ratio of in-house products has increased in the sales mix. So relative increase and changes in the product mix actually reduced the cost of sales. And the cost of sales ratio has improved by 8.4 point to 33.9%. And regarding R&D expenses, due to the steady progress of projects in drug discovery research and early stage development, it increased by 14.1 billion yen year-on-year. And SG&A expenses, despite the impact of rising prices and personnel costs, we made efforts to improve efficiency, and the increase was limited to just 200 million yen year-on-year. Now, other revenue decreased by 13.4 billion yen a year due to the significant decrease in gains on sales of products transferred this year because that was posted in large amounts last year. As a result of these factors, operating profit increased to 556.1 billion yen, or an increase of 105.4 billion yen, or 23.4%. And operating margin increased to 47.5%, or 7.0 point increase. And if you decrease, the net income was 397.1 billion yen, increase of 63.5 billion yen or 19% year-on-year. And EPS, 241 yen and 38.6 yen increase year-on-year. And let me go into the breakdown of changes in sale products. First of all, this is the Ionia comparison. So there are oncology and specialty business units in Japan. As for oncology, the sales decreased by 4.8% or 12.5 billion yen. Sales of Avastin decreased due to the impact of penetration of generic products, 16 billion yen. And the sales of new products, first of all, increased by 22.8 billion yen. The paracetamol and paracetamol decline, that comprises this FD-Fixtos combination, but it was offset by that. And the specialty sales decreased by 84.4 billion yen. Luna, please. 82.4. 1 billion yen. And Tamiflu, from around December last year, influenza had been in outbreak, but in 2023, the previous year, there was much more outbreak. Because of that impact of Lernaprev and Tamiflu, it declined, but actually without that, 2.2 billion yen increase would have been achieved. There was a division in NHI drug price, but Babismo and Plasky are steadily increasing as a new product. And overseas sales, 120.3 billion yen increase. It was because of Hemlibra and four main products increase.

So...

210.4 billion yen increase, and Alicensa and Actemra that has reached LOE actually avoided the penetration of Biosimilar, which was delayed. The next page shows the breakdown of increase in operating profit. From 450.7 billion yen to 556.1 billion yen, there is a change. There is an impact of natural drug price revisions, but non-approved are the main factors. But on the other hand, there was an increase of 120.3 billion yen in overseas sales. The more sales in the open countries, emerging countries, the cost, the price would be lower. But there are also positive impacts of increase in volume and the positive impact of foreign exchange rate. From 2023 to 2024, 66.9 billion yen impact was seen. And other revenue, the royalty income increased. And hemlibra is the main one, but there are others. And local sales increased, and that has increased the royalty income. At expenses, the 73.9 billion yen in cost of sales declined, but there were R&D expenses increased slightly. So overall, 105.4 billion yen increase was achieved. The following page shows the trend in profit and loss item for every three months from the fourth quarter 2022. So by quarter, there are timing changes in export shipment. But in the quarter three, operating profit was quite high, as you can see. And as compared to operation of fourth quarter in 2024 and 2023, 19.4 billion yen increase was achieved in operating profit. But I will explain in more detail in the next stage. But in terms of quarter four to quarter four, in other revenue, in between 23 and 24, a 13 billion yen increase was achieved. But this is a revenue mix. So as you can see, the second quarter and third quarter actually have seen relatively larger sales as compared to the other quarters. The next 24. The actual results, and as I explained, the revised forecast at the time of earnings results for the third quarter, and ¥80 billion was upward revision for both revenue and profit, and ¥20.6 billion in sales and ¥16.1 billion in profit. ahead of those revised forecast. 7 billion yen in sales in domestic market. That was achieved because of the strong sales after the third quarter. So 7 billion yen in domestic sales and 4.9 billion in overseas. And as for royalty, the fourth quarter, large sales overseas were ahead of the sales, of the expectations, so hemlibra income increased. But cost of sales and expenses are mostly as expected, so 16.1 billion yen increase. And so in the third quarter, the guidance was changed. So compared to that, what was the actual results? a 7 billion yen increase, a specialty for 5.3 billion yen, Hemlaiba, Tamiflu and Babisuwo.

And this shows the effect impact. In 2023, actual rate is shown, and then in terms of the sales, 91 billion yen. And OPEC-based, we've had a positive impact due to FX rate by 76.4 billion yen. And exchange rate against the Swiss flan, we have seen one yen depreciation of yen. Next is balance sheet as of the end of 2024. due to the increase of sales, working capital increased, and we've made capital investment.

And the net cash went up. 257 billion yen.

And the total asset was 2 trillion yen and 208.4 billion yen. And the liability remains almost the same. And the net asset has grown up to 1,901.5 billion yen.

And at the end of the net cash increased up to 996.1 billion yen.

Operating the free cash flow was plus 493.4 billion yen, reflecting our performance. and we deduct corporate tax and dividend payment and so on we have seen increase in cash position of tangible fixed asset of 50.4 billion yen was also recognized capital efficiency is quite important this is a change of From 2023, ROIC increased by more than 8%. This is exceeding the 7% threshold. This is the forecast for this fiscal year, which was already explained by Okuda, so I would like to skip the details, but the revenue is expected to grow by 1.7%, which is 19.4 billion yen overseas. And domestic, we have an impact of a generic entry and NHI price increase. However, due to the product increase, we are going to make an increase in the growth. Overseas, Hemura is expected to grow. And Nemurubio is also expected to grow. Actemura is impacted by the biosimilar growth.

So we expect some drop.

And cost, R&D, SG&A, development fee cost, SG&A and R&D cost mainly are expected to stay, but so OP expected to be 570 billion yen. and that all is expected to grow by 2.5 percent and income is expected to be 4 billion and this is in the comparison against the actual of 2024 domestic one point plus 1.4 billion yen oncology such as For oncology, we see some impact by generics on Avastin, and Olivi is expected to grow. Speciality product is expected to grow by 9.9 billion yen. Expected will come from Vavismo, Piascai, and Hemoribula. Other sensor overseas are expected to grow as well.

Finally, this is an appendix, but you see IFRS-based financial numbers.

7.9 billion yen business restructuring costs include new SAP implementation. And intangible asset wise, we have technology, so we need to incur depreciation. And next page.

shows the major investment and the current plan.

The major cap exit approved by the executive meeting are shown here.

Now we have added PeerSky.

This is the status of our in-house global products. This shows the actual performance and local sales and export sales.

And that's all from myself.

Thank you very much for listening.

I would like to move to question and answer session. In Q&A, there will be two more people to answer questions. Hidaka, the Vice President of Supervisory Responsibility for Marketing and Sales, and Digital Transformation Unit head, Suzuki. And there's a joint release by three companies, our company SoftBank and SoftBank Institute Intuitions today. In order to have as many people as possible asking questions, please let us limit the questions to two per person. And also the presentation as well as question and answer session will be posted onto the website on a later date of our company. We'd like to take questions from the people in person in the venue, and then take questions from those who are participating on Zoom webinar. Now, if you have any questions, if you're in the room, please raise your hands. The microphone will be brought to you, so please identify yourself and your affiliation first before asking questions. The person in the first row, please. The microphone will be brought to you. from Daiwa Securities. The first question is about pipeline. this year the priority items include dunk phase 2 initiation and next phase 3 initiation preparation and also in the presentations you said that gym 329 phase 2 for obesity will be initiated of those for each to an extent you have seen the decisions made for initiation. The previous phase, which must be the reason for the next phase initiation, has not been disclosed. But as far as you see, to what extent do you have the confidence of being able to initiate actually? And also, is it also part of your wishful thinking? And also, compared to the previous Lee, you said that you are going to accelerate your development. So those you have not decided yet whether to be able to start the next phase, you may also start preparation for the following phase. Is that what is included for each of those? you answer that question thank you very much for the questions donk next and jim I think those are the three, the in-house original developed product and milestone that are expected and has already been fully decided. Or is it just the preparation because of acceleration of development? Well, don't face two. initiation? Well, at the moment, we are conducting phase one study and data is coming out. And based on the data, we would do the interpretation and then move on to phase two so this is as usual steps so on in terms of timing we can start preparation for phase two as we do so we can expect the phase one data to come out and as for next phase one two is also being conducted and the result will come out and we are at the timing of being able to move to the next phase So the second part of your question, in order to accelerate the speed, you're assuming that the result will be positive. We are starting the preparation, as you have guessed. We're not saying that we know the result, but based on the result that will come out, we would make decisions. For the next one, James 329. What about phase two for obesity? Well, phase one was done in last year, so with regard to phase two, the combination study is going to be started. Thank you. Then the next question is about dividend. So 250 yen. includes 150 commemorative dividend for this year. If you can look at the other companies, the commemorative dividend is used for increasing dividend, but usually the following year, the comparable dividend will be paid even though there is no commemorative dividend. so that there will be no decline in the dividend received. So when you increase the dividend, you say this is under the auspices of a commemorative dividend, but actually you would increase further in the following year. So when you look at the cash flow forecast from your company, the 250 yen dividend per year per share It's really an unusual level of dividend because of this 100th anniversary. Or do you think that it's highly probable that you can continue to maintain this level years after that? So let me explain. This commemorative dividend in total 250 yen, but 150 yen out of that is a commemorative dividend and ordinary dividend is 100 yen. So if you can distinguish that, that would be appreciated. To celebrate the 100th year and thank the support and cooperation from the shareholders, we are paying 150 yen more. And then ordinary dividend would be 100 yen. and we are going to pay stable dividend, which is about ordinary dividend. Yes, there is additional comment from CFO. No, nothing more. But actually, we're not familiar with other companies' practice, but we do make distinction between these two. But we look at the current financial position, we have made this decision. So we're not able to talk about the future. So 45% payout ratio for ordinary dividend. But other than that, we're not in a position to comment any other part.

Thank you. Please raise your hand if you have any question.

Hi, I am from UBS Securities. You are now trying to accelerate drug development. This has been your challenge in the past one, two decades. When I look at page 23, And when I look at your news release regarding the collaboration with SoftBank SP Institute, I wonder, you know, what is the realistic probability of you accelerating drug development speed? At the same time, I think you are contemplating whether Japanese subject phase one is really necessary. In that case, what will be the expected impact? And is it really viable or not? Can you please comment on the feasibility of this project or impact of this project? By when are we able to start seeing a tangible result of this project? In terms of the acceleration of our development process or enhancement of the Go-No-Go decision, Tanaka will answer to that. And with regard to the collaboration with SoftBank, I would like to ask Suzuki to respond to your question. And if I have any additional comment, I would like to cut in. Well, thank you very much for your question. I am Tanaka speaking. Go no go decision enhancement. How do we apply our strategy to do so? Well, existing projects and future new projects. Yeah, who are entering in clinical development and phase or all of those projects that we are going to apply this strategy and some of the project.

I know.

We have already started early assessment of efficacy. And we have already started effort to simultaneous development for multiple number of therapeutic areas. So science-based project decision What kind of development pathway is most suitable to what kind of project? But it's been 10 years since the establishment of translational research division. So we have accumulated know how from the past clinical research activity. So based on such the setting up the most optimum timeline for development activities, been now realized. So we would like to continue doing so. In your question, what is the timeline in order for us to see the tangible result? Well, as Tanaka mentioned, this criteria has already been applied to the existing projects. And this strategy will also apply to the newly added projects. So as we work on more number of projects, we should be able to see more tangible result. And to your second question, in relation to the collaboration with SoftBank, Suzuki would like to respond. Thank you for your question. I am from a digital transformation unit. My name is Suzuki. The collaboration with SoftBank and SB Intuitions We got to the basic agreement for the partnership with those companies and would like to make some comment. How can we shorten the development timeline through this collaboration? Well, when I look at the report issued by MITI, by utilizing GenAI, we may be able to shorten the timeline by four years in general. And this year, we are focusing on the clinical development operations to further optimize. So we will start the study and see what will be the probable impact. Mr. Sakai, I think you have asked one more question, which is regarding the necessity of Japanese subjects to be involved in the phase one study. And as Tanaka explained about the chugai pharmaceutical original product, so no impact. When it comes to the licensed in-product from Russia, We may be able to skip phase one with Japanese population, but it's a project by project, and we need to consult with the authority to see if Japanese phase one is really necessary or can be skipped. My next question, I think, goes to Taniguchi. In the fourth quarter, and the profit-sharing number amount increase quite a bit. And I'm sure you will say, sorry, we can't comment on that. But indeed, it has gone up. Why? I think it's due to HEM Libra. But in the rush earnings, they didn't really talk a lot about HEM Libra. They didn't disclose a lot of numbers for HEM Libra. So I would like to ask Taniguchi-san to explain about the reason. Is there any change in the rate or has there been any change in the threshold? Like a global price should have come down, right? But still, this number is quite big. The rush is holding conference this evening, but January and December numbers are already available. So if you look at... The delta as of the end of Q3 and Q4, you should be able to analyze for him. But Q4 was better than our expectation.

Again, I cannot comment on specific product.

But this is a Roche external sales, basically, which formed strong. It's not like we have changed the contract. It's a tiered reality. So when the number exceeds a certain threshold, the rate will go up.

But I can't comment any further on that.

But when the volume grows and then even at the same percentage, it can grow. Thank you. Thank you very much.

If you have any questions, please raise your hand. to those of you who are in the room, in person. No more questions? Then we'd like to move to the participants through Zoom webinar. If you use PC and tablet PC to participate, please click on a raise hand function at the bottom of the screen. If your turn is here, then your name will be called, and the secretary will ask you to unmute yourself. Please identify yourself and your affiliation before asking questions. If you'd like to cancel the questions, please... Push the function of lower hand and if you are participating in telephone, hash and Q9. And if you wish to cancel the questions, also push hash and 9. From JP Morgan, Mr. Wakao, please ask your question.

from JP Morgan.

Can you hear me? Yes. The first question, it's third quarter, the changes from the third quarter for the forecast for this year. At the time of third quarter, there's a forecast, but there has been changes. At the time of third quarter, for this year's forecast, 540 billion yen is the previous one, and you said that this is going to be flat. but the 570 billion yen for core operating profit guidance. So there is a 30 billion yen increase. So I'd like to know about this change from the third quarter. If you look at the rush earnings, Hemlibra, Actemra, end sales, final end sales has been strong. So maybe this has been reflected. Am I right? If that is correct, then Hemlibra and Actemra, what sort of level that you're looking at in this year? Thank you very much. Taniguchi speaking. At the time of third quarter, yes, we said 540 billion yen or around that. That's what Okuda said. And we learned 570 billion yen. So basically what is strong is the export sales. So it has been stronger than we had expected. Akutemura, Hemuraibara. Well, starting from Akutemura, the entry of biosimilar How do you look at that? Well, from October last year, so in our view, of course, our export and local sales from Russia are not exactly consistent, but the inventory is in short supply, so maybe there'll be more in export. But as for Hemlaibra, there is a very strong number, especially international sales, so there could be some room for upside. Does that answer your question? Thank you. As for Hemlibra, the follow-up question, up to third quarter, international was about inventory build-up. That was the reason for international sales increase. We had thought that in the fourth quarter the sales could be flat. That's what equity market had expected. But actually it has going to increase this year. Is it only for international or would it be also seen in the US? I'd like to know by country breakdown. And also peak sales that you have shared with us do have room for growth for Hemlibra. So can we expect an increase in export sales for Hemlibra as well? Well, for this year, well, I cannot go into details. So there might be some misunderstanding that there's a buildup of inventory. behind the international sales. Well, up to third quarter, according to the disclosure of Roche, I think in terms of actual sales, it has been increasing. So there is a pure net increase that we can expect. But it doesn't mean that international sales are weaker. So continuously, there will be some growth in the U.S. especially, and that has led our export sales as well. And from next year onward, it's too early to tell, because we have to look at the competitive environment to make a comprehensive decision. So I'd like to refrain from commenting further. Thank you. The second question. There are several no-go, no-go decisions to be made for several items. So what would be specifically the ones that you're looking at? In the document, for example, in type 32, so in antibodies, there are several projects, and of those antibodies, Those that are in the clinical studies, are they the go-no-go decision? And Luna18, what is the status? And Donk, from early last year, I think you were engaged in out-licensing activities, but now you're more focused on in-house development. So from the out-licensing activities perspective, have they encountered some challenges? So with the data that you have, you may not be able to do outsourcing as you had expected, and that's why you are more focused on in-house products. Is that true? Well, I'd like to answer the question on dunk and which one is subject to go-no-go decisions. Well, Tanaka will answer the question. As for DONC, as I explained earlier, phase one clinical trial is underway and in parallel, licensing partners are being looked for and that has been done since last year. So as we look for potential partners, what we've decided is that we on our own can conduct phase two study to maximize dunk value. So and also as we by us actually conducting phase two trial, we can accumulate our insights and experiences. So those are the two reasons why we have decided to conduct phase two study on our own. For the second question, Tanaka will answer which one of those projects will be subject to go-no-go decision this year. Tanaka speaking. So I was asked to answer this question, but at this moment we're not in a position to comment on which one will be subject to go-no-go decision. And Luna 18? Well, as for Luna 18, The combination dose escalation study and the monotherapy study is underway, and we are not in a position to talk about any progress or results. I'd like to thank you for answering that. From 2035, whether you can get EPOC or not, I think that was the target. But this is not part of the milestone for this year, so I would understand that there is not going to be any changes in particular this year. Well, at this moment, we would like to refrain from answering that question. Well, thank you.

Next question is from Mr. Yamaguchi from City Group Security.

Can you hear me? Yes. Thank you.

My first question is related to Next.007, Phase 2.

What is the timing of that top line?

I think there are some major academic society meeting such as World HEMO. But will you be able to make some presentation based on the Phase 2 result of Next 007? So I would like to understand when you are planning to present the result of Phase 2 for Next 007. At this point of time, I I cannot comment on the timing of the presentation of phase two study. But I think you are confident in this profile. This has a potential to do better than a hemoglobin, right? As a concept, anticoagulation. should be able to achieve the non-hemophilia level and that is the concept which remains unchanged and the second question oh sorry go ahead In the Phase 1 study, we were able to confirm long half-life, which is 10 weeks. My second question is related to go-no-go decision, which has been the focus of today's session. For meat-sized molecules, It seems like it's taking longer than expected, not just the Luna 18, but should we expect some impact as a result of a go-no-go decision on mid-sized molecule?

Yes, please. Thank you for your question.

Tanaka would like to respond. Are we applying a go-no-go decision on mid-sized molecules? Well, basically, for any project, we are going to apply this go-no-go decision approach. So mid-sized molecule included, right? So you should be able to accelerate the speed of the development for mid-sized molecule, yes. Enhancement of the speed is the goal of science-based go-no-go decision. So yes, that's all from me. Thank you. Oh, this is Taniguchi speaking. For NEXT-007, I think you kind of asked the peak sales of NEXT-007. If you look at page 12, it says over 3 billion Swiss flan. That's the category we are referring to. Is this 3 billion? Well, we are saying over 3 billion.

So more than $3 billion.

Thank you.

That's all from me.

Next, Jeffries Securities, Parker-san, please.

Hi, Jeffrey Shoka and Stephen Barker.

Stephen Barker, for the forecast for this year and the revenue and profit forecast, the municipal, the review, export and royalty income, how much you have incorporated in this year's forecast. Taniguchi speaking. Thank you for the question. As for Nemorivio, it has not reached a threshold yet, so it is part of the others in the disclosure. If you look at the data book, There are items like others. The overseas sales, there's others, and that is what includes Nemuribio. But how much of that is Nemuribio is not disclosed, and the breakdown information is not subject to disclosure. But the sales in others, from this year to next year, there will be more than doubling of increase. And a majority of that is from NEM Libio. Thank you. Then other revenue and royalty income. Well, HEM Libra was the main reason, as you said. But for this year, export to HEM Libra, if you look at the value, There is not much increase in royalty income increase. Well, the other revenue is 172.7 is last year. There's not much change, but actually mix has changed. I cannot disclose that, but there are products that are slowing down, but there's also one-time income that is included, so there's some increase and decrease. So we cannot talk about which product is growing and which product is slowing down. So end spring overseas sales for this year, local sales, what would be in that one? Well, in terms of end spring, the sales scale is smaller compared to Hemlaibra and Akutemura, much smaller, and the timing of shipment and export. It's not happening like every month or every two months, not regularly. So because of the timing of the shipment and exports, there were some changes and fluctuations in numbers in the past, but this is also what is happening in this year. Thank you.

Thank you very much. Next is from Akari Capital.

Tony Ren, please.

Hello, can you hear me?

Okay, perfect.

Okay, perfect. Yeah, so just a couple from me. So you guys alluded to that in 2025, in terms of exports of hemp Libra to Roche, there will be a unit price reduction. I just want to get some understanding of the magnitude of the unit price reduction here. So if I look at slide 53, You can see that there is a column called year-on-year, a year-on-year column. The hand Libra export appears to be growing at 44.9%. But if you look at the revenue forecast of 324.2 billion Japanese yen, that's about a 5% increase. So would it be correct to assume that there will be roughly... a 40%, 39, 40% average price reduction on hand Libras sold to Arash. This feels quite large of a price reduction. So that's my first question. The second question that you guys alluded to a few times, that GIM 329, you will start a combination study in obesity. I just want to see if you have any thinking about what would be the combination partner. Would that be one of the incretin GLP-1s from Roche and the Carmel Therapeutics? Yeah, thank you.

Thank you very much for your question.

Taniguchi would like to respond to your first question. With regard to the Himuraibara, from 23 to 24, it has grown by 44.9%, and from 24 to 25, we are not expecting that much growth. Like 5.4% revenue growth, we are expecting from 24 to 25. Volume and effects will affect on top of the unit price. And the detailed break one is not disclosed. Unit price comes down. That's because the percentage of emerging markets will grow. Then the unit price will come down. However, for emerging market, volume will grow. So plus minus net for this fiscal year, we are still expecting a positive growth. the magnitude of the decline of unit price in terms of that we are not expecting a big decline of unit price. And for the GM329 obesity combination study, What is the combination drug? That's your question. At this point of time, we haven't decided on that, but incretin is one option we are looking into as a combination drug.

Okay, you know, if I could, yeah, thank you very much on both. If, you know, if I could just tag on one more. So you guys alluded to that last time that the biosimilar ectamera had some supply chain issues. The, you know, now that the whole GLP-1 supply chain issue, particularly with Elividis tiered zapata has been resolved, do you have any update on your biosimilar ectamera competitors? has their supply chain issue being resolved?

Are you talking about Actimra?

Actimra Biosimilar.

Correct.

We cannot make comment on the situation of the other company, that Actimra biosimilar, on top of the supply chain issue, there are other factors such as the price of biosimilars and other composite factors are affecting. And also in some of the market, Actimra, which is the branded product, are preferred by rheumatologists. In 2024, the entry of the biosimilar were slower than our expectation. And for 2025, what will be the speed of the entry? I cannot make any comment. But if you look at our sales forecast, we are setting up somewhat conservatively the forecast for 2025, anticipating some entry of biosimilars in 2025.

Okay, understood. Very good. Thank you.

Thank you.

Morgan Stanley, MUFC Securities. Mr. Muraoka, please.

Thank you very much.

Morgan Stanley, Muraoka. Can you hear me? Yes. Thank you. Now, I'd like to ask about DONC. Just for clarification, you were looking for partners, but in order to increase value, you are going to conduct Phase 2 on your own. That's how I understood. So POC, Phase 1C, based on the results of POC and Phase 1C, and you showed the results to potential partners and you decided that you will not be able to find any partners or on the other hand, you actually thought that it would be more interesting for you to take this up on your, well, Okuda speaking. Thank you for the question. We're still conducting phase one that is underway. And also, as for those strategic issues, we'd like to refrain from answering that or commenting. Well, thank you. In the last pipeline, Dank is part of that. So Roche is just showing this as information of the subsidiary. Yes, that is correct. There is no fact that we have licensed out Donk to Roche. Thank you. Now, the second question, the first quarter that we are now in, how you look at that, the fourth quarter that was over, On a quarter-on-quarter basis, well, because of the third quarter, well, on a quarter-to-quarter basis, the numbers dropped. But January through March, there could be some reactionary effect. And also, first quarter, one year before, had a slow start. So, this first quarter, you are making steady start, even though the things seem to be flat. Well, I think that probability of hearing that result at the end of the first quarter is high. Would that be correct? january 30th is today so it's only it's been only one month so we don't know what is going to happen for the remaining two months it's very difficult to just figure out and so in terms of level of probability or confidence i would like to refrain from commenting on that well The way I put the question was wrong. Well, including the remaining two months, is there anything that you can expect, like changes in inventory or some one-time factors that could be something that we should be mindful of, either positive or negative factors within the information that can be disclosed? Nothing in particular. Okay. Thank you.

Thank you. Thank you very much. Can you hear me?

Your channel to Japanese.

I think you are in the right channel right now. I have switched to Japanese time. Thank you. I have a couple of questions. First of all, page 6, overseas, from this year to next year, what is going to be the change? And when I look at the overseas sales export unit price, sales volume impact are shown.

The balance seems different from the past.

Price reduction impact for export net price seems to be high. So my first question is that the impact is coming all from human library in terms of export unit price and sales volume and with the human library, international market volume seems growing, but in terms of the overall sales, amongst the sales of the Hume Library, majority of them are coming from US and Europe. So at the end of the day, unit price impact, I would assume to be very limited, although there might be some price lowering pressure, but I'm surprised to see this price impact. Export unit price within your scheme of defining export unit price. Is there any case that sales volume will exceed the impact of export unit price? this question this is not only driven by him percentage contribution of him library is high but when you look at the international market that rush itself has actimera which is growing our sensor is also growing

So all of them are contributing.

As long as we have international exposure, this unit price impact will give us some impact. And we have contract per product. And I cannot... comment or disclose the contract for specific product, but it's not like it's eternally fixed. It's a contract between two parties, so as long as two parties agree, if necessary, we can make amendment or changes. But for the specifics, I cannot comment.

The size of this arrow

doesn't really have big significance. So I know some people measure the size of this era, but it's not really a meaningful thing to do. From 23 to 24, compared to the change between those two years, it seems like 24 to 25, the size of the change is bigger now. And with regard to the product development strategy, You have a valid drug development strategy. What kind of KPIs do you follow to see that your strategy is functioning well or not? This is Tanaka speaking.

I would like to confirm your question.

Are you talking about a go-no-go decision KPI?

So you are going to promote go-no-go decision.

You're going to speed up the right decision-making process. And I was wondering how you measure the effectiveness or success of such go-no-go decision. Is there any KPI? Thank you. With regard to the go-no-go decision, it's not like we have set forth clear KPIs.

We don't have such KPIs.

When go-no-go decisions are thoroughly executed, our development cycle should see faster speed. So the decision on discontinuation of the project can happen earlier.

In that case, that is your KPI?

No, we don't have a specific KPI for that. Understood. Thank you.

Thank you very much.

With that, we'd like to conclude the Chugai Pharmaceutical of earnings briefing on the year ending December 2024. Those questions that were left unanswered, please contact Public Relations and IR on a separate basis. There is contact information at the end of the presentation slide in terms of telephone number and email address. Thank you very much for your presence despite your busy schedule today. That concludes our meeting. Thank you.