Chugai Pharmaceutical

Thank you very much for taking time out of your busy schedules to attend Chugai Pharmaceutical's FY2026 Second Quarter Financial Results presentation today. My name is Miyata from the Corporate Communications and Investor Relations Department. I'll be serving as today's moderator. And today's presentation has been held for investors, analysts, and members of the media in a hybrid format combining an in-person presentation and a Zoom webinar. and please note that if the name displayed by the Zoom participant cannot be matched with the registration information, the participant may be removed from the webinar without prior notice. Today's agenda is shown on the screen at the venue, on the webinar screen and on page 3 of the presentation materials. We'll proceed in accordance with this agenda. This presentation will be conducted in Japanese. Simultaneous English interpretation is also available via the Zoom webinar. To select your preferred language, please click the interpretation icon at the bottom of the screen. Select Japanese to listen to the Japanese audio or English to listen to the English interpretation. After selecting your preferred language, click Mute Original Audio to listen only to the selected audio channel. Please also note that we'll allow time for screen captures before each presentation for those who wish to take them. We'll take questions together after all presentations have concluded. We have set aside approximately 30 minutes for the Q&A session, and we encourage you to actively ask questions. Please note that all participants will remain muted during the presentations.

Results presentation today.

My name is Miyata from the Corporate Communications and Investor Relations Department. I'll be serving as today's moderator. And today's presentation has been held for investors, analysts, and members of the media in a hybrid format combining an in-person presentation and a Zoom webinar. And please note that if the name displayed by the Zoom participant cannot be matched with the registration information, the participant may be removed from the webinar without prior notice. Today's agenda is shown on the screen at the venue, on the webinar screen, and on page 3 of the presentation materials. We'll proceed in accordance with this agenda. This presentation will be conducted in Japanese. Simultaneous English interpretation is also available via the Zoom webinar. To select your preferred language, please click the interpretation icon at the bottom of the screen. Select Japanese to listen to the Japanese audio or English to listen to the English interpretation. After selecting your preferred language, click Mute Original Audio to listen only to the selected audio channel. Please also note that we'll allow time for screen captures before each presentation for those who wish to take them. We'll take questions together after all presentations have concluded. We have set aside approximately 30 minutes for the Q&A session, and we encourage you to actively ask questions. Please note that all participants will remain muted during the presentations. Now, President and CEO Okuda will provide an overview of the second quarter of FY2026. We'll pause briefly at the beginning, so please use this opportunity if you'd like to take a screen capture. Okay, let's get started. I am Okuda, President and CEO. I will provide an overview of the second quarter of FY2026. Please turn to slide 5 of the presentation materials. For the first half of FY2026, we recorded increases in both revenue and profit. This was driven by steady domestic and overseas product sales, as well as a significant increase in other revenue. So given the steady progress made in the first half, we expect to achieve our full year forecast. On the business front, we filed eight regulatory applications in Japan, making steady progress towards achieving our plan for the highest number of regulatory filings ever. We also initiated Two Phase III studies for NEXT-007, which we expect to become a next-generation growth driver. Overall, both our financial performance and business activities progressed steadily during the first half. This graph shows the changes in revenue compared with the same period last year. Revenue increased by ¥84.8 billion or 14.7%. I will walk you through the items from left to right. Domestic sales increased by ¥14.6 billion as growth in mainstay and new products more than offset the negative impact of the NHI drug price revisions and generic penetration. Overseas sales increased by ¥40.5 billion as increases in export volumes and the positive foreign exchange impact more than offset the decline in export unit prices. In particular, exports of Hemlibrary for Rush and Nemluvia to Gaudema increased. Other revenue increased by 29.8 billion yen due to a significant increase in one-time income as well as higher royalty income mainly related to Hemuraibara and Nemuruvio. Domestic sales, overseas sales, and other revenue all increased, resulting in overall revenue growth. Next slide, please. Next, I will discuss... Two Chogai originated global new products that are important to our revenue growth over the short to mid-term. NEM LUVIO is driving our revenue growth through export sales and royalty income. As announced in Galderma's financial results yesterday, global sales for the first half totaled US$433 million. Its share of new to brand prescriptions was approximately 42% for prurigo nodularis and approximately 9% for atopic dermatitis, indicating continued strong momentum.

In the U.S., Nemlovio is evaluated not only for its efficacy to reduce pruritus, but also for improving skin symptoms. That is leading to a high valuation by doctors and leading to prescription. Other than the U.S., we launched Nemlovio in European countries, and for some of the European countries and for these countries, we see a strong... Thank you very much. Thank you very much. Thank you very much. We confirmed biological POC among healthy adults in P1 and we are preparing for phase 2. We achieved a goal criteria for phase 2. We are now preparing for P2, targeting the post-cardiac surgery complication cases. There's no Thank you very much. and we received a fast track designation by the US FDA in May. So this utilizes our macrocyclic peptide technology and then binds to different locations of alcohol. We will make an active investment for sustainable business growth So in order to do that, we established strategic investment department to develop investment strategy, discuss individual initiative and lead promotion of investment. So this department will drive strategic investment based on mid to long term growth strategy and R&D strategy. And also, we will continue a stable dividend payout ratio to shareholders. Aiming at 40, we will continue a stable contribution to shareholders. For this year, our expected yearly dividend will be 132 yen per share. This is an increase in original dividend for 10 years consecutively. That is all for me.

Next, Mr. Kusano will provide an update on the development pipeline. We'll pause briefly at the beginning, so please use this opportunity if you'd like to take a screen capture. Okay, now we're starting. I am Kusano, Head of the Project Lifecycle Management Unit. I will provide an overview of the development pipeline for the second quarter fiscal 2026. These are the key topics for the second quarter. Regarding approvals, Alicensa received approval for an additional indication for advanced and recurrent ALK fusion gene positive solid tumors. Avastin was also approved for neurofibromatosis type 2, while Ritxan was approved for adult-onset frequently relapsing or steroid-dependent nephrotic syndrome. Regarding regulatory filings, in spring, I was filed in United States for thyroid eye disease and was granted a priority review designation. The FDA has set the PDUFA target action date for October 15. In Japan, we filed Gaziwa for idiopathic nephrotic syndrome, and Adjuvant for Unrespectable or Recurring Breast Cancer and for Adjuvant Therapy in Breast Cancer, Tocentric for Maintenance Therapy following Definitive Chemoradiotherapy in Locally Advanced Esophageal Cancer, and Sparcentum for IgA Nephropathy. We also filed the drug component of the port delivery platform with Ranibizumab for neovascular age-related macular degeneration and diabetic macular edema. and the medical device component had already been filed in March of this year. Regarding study initiations for our in-house product NEXT-007, generic name Zemosimic, we initiated two Phase III studies in Haemophilia A. For the Roche-originated product CT388, generic name Anisepatide, following the previously reported Phase 3 study in obesity without type 2 diabetes, Phase 3 study was initiated in patients with obesity and type 2 diabetes. Next, Tommy Nelson was removed from the pipeline following Rush's decision to discontinue its development for Huntington's disease. Regarding readouts of MAP-KI in metastatic pancreatic ductal adenocarcinoma in the Phase 1b-2a study, the overall response rate was 52% among 29 evaluable patients. In addition, the Phase 3 study of DIVAR-SIB in second-line non-small-cell lung cancer met its primary endpoint. At medical conferences, we presented phase 3 data for Kiyosukai in atypical hemolytic uremic syndrome, or AHUS, as well as phase 2 data for Emuropat in spinal muscular atrophy, SMA, and FSHD. Zemosimic, Vamikibat, and Gazaiva received orphan drug designation. This slide shows the key R&D milestones for 2026. The underlined and bolded items indicate changes since the previous earnings announcement, as I've explained so far. We'll also continue to make steady progress on the remaining milestones. Next, I will introduce Aqua07, an in-house developed allosteric ALK inhibitor. Aqua07 is the third clinical stage project to apply a proprietary macrocyclic peptide drug discovery platform technology Snipetide. We have just received confirmation that the first patient has been dosed in the study for ALK-positive non-small cell lung cancer today. First, please look at the diagram on the left. All currently approved ALK inhibitors are small molecule ATP competitive inhibitors. They bind to the ATP pocket indicated by A in the diagram and inhibit ALK activity involved in cancer cell survival and proliferation. In contrast, AQUA07 binds not to the ATP pocket but to the allosteric site indicated by B in the diagram. Through a binding mode unique to macrocyclic peptides, which enables them to engage a broader surface of the protein, AQUAT-07 can target a site that is difficult for conventional small molecules to access and inhibits alcohol activity through a mechanism distinct from existing therapies.

Next please refer to the illustration on the right. Existing ALK inhibitor sometimes generates resistance around ATP pocket, thereby reducing the efficacy of the drug. AQUA03 on the other hand binds to different locations than existing drug. So therefore we expect efficacy among cases with drug resistance. And also in the first line treatment we expect higher efficacy by using ALK AQUA07 together with as a combination therapy together with existing ALK inhibitor. Well, this AQUA07 received a fast track designation by US FDA in May 2026. So we will aim to achieve resistance, overcome resistance and also Thank you very much. We conducted Phase 3 Commute A study targeting adults and adolescents as well as Commute P study targeting pediatric patients. The results of this study were announced in the European Renal Association in June 2026. Primary endpoint was the complete remission rate Thank you very much. complement inhibitor. The remission rate was 59.5% at Commute A study and 17.6% for Commute P study. Both of them were very good. And complete remission rate of 59.5% for Commute A study exceeded predefined success criteria of 40%. The secondary endpoint was complete remission maintenance rate for patients who switched from eclizumab and labulizumab. Then the remission maintenance rate was 100% for both studies. And then we confirmed the maintenance to efficacy to control disease for patients switched from other agents to PSKI. In addition to that, patients who are on dialysis are Naive patients who were on dialysis at baseline, in all cases, they discontinued dialysis. For safety profile, there was no difference from the already approved profile. And also, as an exploratory endpoint, we conducted a survey to check treatment preference. According to the survey, 85% or higher Thank you very much. A reduction in burden evaluated highly by patients and its caregivers. So we plan to file a submission for approval in Japan, US and Europe within this year. So we will continue our development activity so that we can provide this new treatment option to this rare and severe disease, which is AHUS. Next, I will be talking about the shared status of DONG52. Thank you very much. holding a Phase 2A study in US, Australia, and New Zealand. Preference of this disease is about 1%, and there is no treatment available, so we expect to contribute to this segment of patients suffering from celiac disease. As for Phase 1A-B study, Phase 1C study, we are considering publishing the data, announcing the data in academic congresses. Lastly, this is our submission schedule. The projects with a blue star are newly added projects and projects with green stars are the projects where we change the submission timing, planning timing. and then DVALACYB, second line non-small cell lung cancer. Based on the project status, progress of the project, we accelerated the filing timing from 2027 to 2026. And as for INABOLICYB, we now have a timeline for regulatory filing for end-doctoring therapy-resistant breast cancer. Based on the progress of the project, we changed application timing for end-doctoring therapy sensitive breast cancer patients from 2028 to 2029. In 2026, we have the record high number of submission planning, but the progress so far is pretty good. So we expect that we bring new treatment options to patients as soon as possible. Subsequent slides are for your reference, so please refer to their subsequent slides. That concludes my presentation. Thank you.

Next, Mr. Taniguchi will provide an overview of the consolidated financial results for the second quarter of fiscal 2026. We'll pause briefly at the beginning, so please use this opportunity if you'd like to take a screen capture. Okay, let's get started. This is Taniguchi speaking. As now I want to discuss the financial results for the second quarter of FY2026. First, I'd like to report that the revenue for the first half came to 663.3 billion yen, an increase of 84.8 billion yen, or 14.7% year-on-year. Core operating profit was 329.1 billion yen, an increase of 57.1 billion yen, or 21% year-on-year. And now I'll walk you through the details in sequence, starting with revenue, as I just mentioned. So product sales came to 566.5 billion yen, an increase of 55.1 billion or 10.8% year-on-year. By region, domestic sales came to 237.9%, an increase of 14.6 billion or 6.5% year-on-year. Strong performance by new and mainstay products more than offset the impact of NHI drug price revisions and generic penetration. Overseas sales came to 328.6 billion yen, an increase of 40.5 billion or 14.1% year-on-year, reflecting continued strong exports of mainstay products to Russia. Other revenue came to 96.8 billion yen, an increase of 29.8 billion yen year-on-year. This significant increase reflected higher one-time income and royalty income from Russia and third parties. I will now move on to the cost items. Cost of sales came to 195.9 billion yen, an increase of 20.7 billion yen or 11.8% year-on-year. The increase in absolute terms mainly reflected the significant growth in product sales. The cost-to-sales ratio increased by 0.3 percentage points year-on-year to 34.6%, mainly due to changes in the product mix. R&D expenses increased by 3.9 billion yen year-on-year to 90.2 billion yen, reflecting steady progress in drug discovery and early-stage development projects. As share expenses increased, by 3.6 billion yen or near to 49 billion yen. This was mainly due to higher promotional expenses for new products such as Ren Sumio and Elvides in the first quarter, as well as increases in enterprise taxes and bonus accruals linked to profit levels. As a result, operating profit increased by 57.1 billion yen or 21% year-on-year to 329.1 billion yen, while the operating margin rose by 2.6 percentage points to 49.6%. Finally, net income after tax came to 238.4 billion yen, and increase of 44.9 billion yen or 23.2% year-on-year, partly reflecting an improvement in net financial income and higher interest rates. Next, the next slide shows the breakdown of changes in product sales. First, at the bottom, domestic sales, which is in dark blue, the oncology area came to 117.4 billion yen, an increase of 0.8 billion yen or 0.7% year-on-year. In terms of breakdown, the new product Lansumio recorded higher sales, while Polivie also increased following the approval in March of its combination therapy with Lansumio. Sales of Fesco also increased steadily, more than offsetting the decline in Progetta. Meanwhile, Vastin continued to decline due to the impact of NHI drug price revisions and generic penetration. Sales in a specialty area came to 120.5 billion yen, an increase of 13.8 billion yen or 12.9% year-near. In addition to the mainstay products Hemlibia and Vavismo, the new product Elvides also continued to grow steadily. Overseas product sales came to 328.6 billion yen, an increase of 40.5 billion or 14.1% year-on-year, driven by a significant increase in Hemlibra sales. The next slide shows the breakdown of the increase in operating profit. Starting from the left, for domestic sales, the significant increase in sales volume more than offset the impact of NHI drug price revisions and contributed positively to operating profit. For overseas sales, the increase in volume significantly exceeded the decline in export unit prices, So, together with the positive foreign exchange impact, this contributed to the increase in operating profit, as expected. Other revenue also contributed positively to profit, reflecting an increase in royalty income from Nemluvio. They also began recognizing royalty income from Foundayo. Cost of sales, as I mentioned earlier, increased to some extent, reflecting the increase in product sales. And just for your reference, the next slide shows the quarterly trends in cost items in operating profit. So the trends for every three months. and then the next slide shows a quarterly trend in the components of revenue compared to the previous year second quarter or compared to the previous first quarter, the comparison. For the overseas sales, quarterly results tend to fluctuate to some extent due to timing differences in revenue recognition arising from timing of export shipments and other factors. On this slide, we are showing our progress as of the end of the second quarter against the full-year forecast announced with the financial results in January. Both revenue and profit are showing higher progress rates than in the same period last year. For the pharmaceutical business, we tend to see a bigger sales to come in a latter half the year in general. But currently, we are getting close to 50% progress rate right now, even for the operating profit. So we are going quite stronger this year compared to last year. Next slide.

Next, this slide demonstrates progress against initial forecast by segment and product. Compared to the previous year, as you can see, sales progress is higher in most of the main products. This page demonstrates the impact from foreign exchange rate as usual. So comparing with their last year's actual rate, there was a positive impact of 26.9 billion yen on revenue and 19.8 billion yen on operating profit. If you compare this against Swiss franc, actual conversion rate, Shifted from 171 yen 31 cents to 183 yen 39 cents. So it's about 12 yen weaker yen compared to the previous year, which impacted positively on the performance. So next, this is a financial positioning. Well, as a total, total asset is 3 trillion and 449.9 billion yen, which is down 18.7 billion yen. This is due to reduced net working capital. And also, there was a special payout of a special dividend. So that reduced cash, that decreased total asset slightly. However, if you look at net assets, Net assets, the total equity exceeded the payout of dividend. And so there was an increase by about 20 billion yen when it comes to net assets. And then as a result, the equity ratio was 82.8%. There was an increase. And also net cash compared to 979.7 billion yen. So now there was a decrease of 17.1 billion yen and now net cash is 962.6 billion yen. Well, accumulation of cash is progressing well. However, because of the payout of taxes and so on, there was a reduction by 17.1 billion yen. This is the non-core adjustment as usual. So the amortization, depreciation of intangible assets and also business rebuilding costs are excluded from the budget. Thank you for your attention. So now we'll move on to the Q&A session.

So we will have Mr. Hidaka, Executive Vice President in charge of sales, will also present and to respond to Q&A sessions. To allow us as many participants as possible to ask questions, we kindly ask that each person limit their questions to two. Please note the audio of your questions together with the presentations will be posted on our website at a later date. and we'll first take questions from those participating in person, followed by questions from participants joining via Zoom webinar. If you have a question here at the venue, please raise your hand. A microphone will be brought to you, so please state your company name and your name before asking your question. The first, not front. This is Yamaguchi from Citi. Thank you very much for explanation. My first question, maybe you don't have an answer to this question, but I need to ask you this about the founding. And that sales hasn't really started to contribute to your business, but I'm sure it's starting, including in from Q2. I'm sure you had your original prediction of forecast for the full year. So far, compared to your forecast, is there anything you can comment on the progress or the current status? That's my first question. Thank you very much for your question. Exactly. On Fundayo's sales, would be basically handled by Eli Lilly. So I hope you can ask them about the sales status. Overall, not just found a year, but as explained earlier, during this first half, looking at the status during the first half, we are making a good progress, pretty good progress. That means for this fiscal year forecast, We believe we are able to accomplish the full year forecast for overall company. Anything to be added? I think that answers the question. Thank you very much. My second question, I know this is a specific question. Sparse Selton was applied. So I think this is proceeding in domestic items. I think you had a very high expectation, but can you comment on its potential in the domestic market on this? Ayamuchi-san, thank you very much. For the question, spartacentum. Currently in IGA neurophobia, there are many different drugs available. Endoceline mechanical drug, Atola Center, or Iptacopan, and also April antibody. So there are multiple new treatment drugs under development right now. And this spartacentum, Thank you for watching! It's utilized so we can reach out to the patient who's not getting enough effect in existing treatment. And this can also protect the renal functions as well. So it is quite convenient and has a great effectiveness. And so that's why there is a higher expectation compared to other drugs available. So I think you come in earlier than the others, so you should be able to maybe get much bigger share in the market. Well, we have already applied for approval, so I hope we can get this delivered to the patients as early as possible so we can get bigger penetration in the market. This is Hidaka from N-Sales. This is the Reno area, which we haven't really been in the market for a while, as explained by Kusano. It has a very high potential share. So we can well, you know, permeate throughout the market. So I hope you can also have your expectation for this drug as well. Thank you very much. Thank you so much.

Okay, so going to the next person next to the first person, please go ahead. This is Hashiguchi from Diver Securities. The first question is loyalty and profit share revenue. Well, in the appendix, there was a split breakdown with revenue from Roche. The first quarter, revenue excluding Roche, revenue 4.1 billion. Second quarter, it was also 4.1 billion yen. The revenue for Nemlubio was announced by Gardelma. Compared to the first quarter, there was an increase in the second quarter. and Foundeo, you started to recognize the revenue from second quarter. Despite of that, there were no change in the numbers between quarter one and quarter two. Could you share reasons behind this? Well, breakdown of the revenue is not to be disclosed. We don't disclose the split. I ask for your understanding. But this is a royalty revenue, as you know. And then so we have a tiered Agreement with partners and then the rate might change quarter by quarter. Nemlubio relatively progressed really well and then this was the end plan. Okay, so the rate might change in a tiered basis. If that's the case, that might increase the number in quarter two compared to quarter one. Well, from quarter one to quarter two, excluding boss revenue, you said generally too much. Well, Thank you very much. Thank you very much. Thank you very much. To see from establishing this new department, what can we expect from this division, new department? Thank you for the question. Well, TopEye 2030 started in 2021. And then in TopEye 2030, there were three key drivers. One of them is open innovation. Well, we really think in-house projects are very important. And of course, we do collaborate with academia, but we really think it's important to establish modality platform for drug discovery in-house to develop innovative medicines. And we have seen success in these initiatives looking around chemical, digital, and then we see a lot of innovations in different areas. We think that we need to expand our views. Thank you very much. We considered in-licensing, co-developing, co-licensing, and so on. However, we think that we need to make a one-step forward. That's the reason behind the establishment of the department. For example, by conducting M&A, we acquire... Thank you very much. So how to utilize, how to effectively leverage this accumulated net cash has been a theme or a question, I would say, internally. By leveraging this accumulated cash, we can improve, increase our value, and also by introducing assets, We believe that we can accelerate our growth. So that is why we established this new department, Strategic Investment Department, to strengthen these initiatives. Thank you very much. That's all for me.

Okay, next question. Ozaki from Nippon Keizai newspaper. I think you've mentioned at the beginning the number of applications. You're planning to have the highest number of applications being filed this year. And last year, at the end of last year, since then, looking at your presentation materials, the number has been changing slightly. According to the latest number, how many are you planning for this year? Ozaki-san, thank you very much for your question. Can you please take a look at the Zabuton chart? So where it says under application, there are nine items. And the first one left top, that is application in the United States. And this is not that we file. It's not us who file this. We exclude them. So currently eight are filed. And in 2026, going down, and we are expecting eight more being prepared. So, looking at domestic market, I think we can go up to 16. So, at the beginning of the year, we mentioned 15, I think. But now, we are adding this green item, Devarosib, second line, small cell lung cancer. So, we actually accelerated this into this year instead of next year. So, at the beginning of the year, we mentioned 15, but now it's 16. Thank you. Let me confirm. Tessentric, At the end of last year, I think it was already filed, wasn't it? Tessentric for the bladder cancer? Maybe different indication, different indication, I guess. Let me check then. Thank you. And another question is Medicare, MS. and the NHI price is being introduced, I guess. What is the impact on this? Can you repeat the question? In FDA, it was difficult to listen to your question. Can you hear me okay? Okay, so in the US, MFN price, drug price issue, so the forced introduction into Medicare, So MFN introduced to Medicare. I think that is in the plan. What is the impact of that? What do you think will be the impact? So the U.S. is leading this international reference pricing. I'm sure I believe you're talking about it. So it's very uncertain when it comes to its forecast. So under such environment, what we are doing is we're trying to... Thank you very much. So we need to have dialogue with all these different stakeholders in order to deliver innovative drugs over to the market, and we want to continue making efforts. Thank you. Thank you for your answer.

Okay, so the person behind him. Go ahead, please. My name is Ueda from Goldman Sachs Securities. My first question is NEXT-007 and its phase switch study. Well, in Global Phase III study, there was a head-to-head comparison with Hemlaibla. Well, yours, do you seek to achieve superiority or dosing frequency or device convenience? So do you think you can promote switching with this convenience and dosing frequency? So what's, could you tell, share the more background behind this NXT 007 project? Next 007, yes, thank you very much for your question. In two studies, we started dosing. One is comparison with hemoglobin, the other is comparison with factor VIII. So what was announced about this Phase III study is that the number of cases, 360 for comparison with hemoglobin and 126 for comparison with factor VII. Well, superiority or non-inferiority, at this moment, we have not disclosed this information. And also dosing frequency, that has to do with our strategy. So at this moment, we don't disclose this information. I ask for your understanding. By the way, well, about the device, well, it says drug-device combination. Are you considering something like auto-injector? Thank you very much. Well, export of hemlobular and also product mix might be impacting this. Do you have any cause for increased cost of sales? Is it exchange rate change? I will hand this question to CFO. Yes, well, to put it simply, it's because of product mix change. And overall, as sales from developing countries increase, cost of sales will increase. So it's a product mix and the geography mix, but it's just 0.3%. So I appreciate it if you could have a long-term view to look at the annual number of cogs. Thank you very much. That's all from me.

Next question then. Wakao from JP Morgan. My first question is about export sales. So everything is going pretty much in line with the plan, as you mentioned. Hemolibra, Actibra, and also Nebulivir included in others. This is according to the results by Roche and Valdevo. I think we were able to confirm very strong progress so far. And you're also showing a good progress rate in your performance. Seems like somewhat not stronger than expected, but what is the actual situation? Thank you for the question. In a nutshell, making a very good progress so far. For exporting, it's not the level out amount on a monthly basis. So towards the end of the year, we also order supply for six months or so. So it's been going quite stable right now. It's not there yet to be able to make any revision to our business performance at this point. So we're making good progress. So, you know, So in your plan, you don't really make revisions to your forecast. I know it's quite natural, but compared to the plan, so you're going stronger than the plan. What do you mean by making good progress so far? In the first half, the first six months, it's going as expected. Slightly better than expected? I see. Thank you. Second question, Aqua07. So the data fast track, I thought it was rare. So what type of data fast track that you got? And phase one design, I think this is a combination use of the Loliatinib. It's the reason why this Loliatinib is selected. Looking at the data so far, Sloatinib could be also reasonable choice. And so I just wonder why. Makao-san, AQUA07 question. Thank you very much for your question. For non-clinical situation, we got first track designation and we are very happy to get this designation. And according to data we submitted, we use a and also existing ALK inhibitor combination impact and non-clinical data was provided. And so non-clinical data is to be disclosed as an appropriate timing. And also as explained today, there is a new MLA that was also appreciated, understood well, I think. And next, phase one clinical study, And so why are the sensors not being utilized? And so this is also due to somewhat in the strategic reasons. So first, we want to start the combination use of low achieve. And in the future, ATP, ALK, TKI, including our sensor, we pursued. So we will create more data to allow that to happen. Thank you.

Thank you. Okay, next person, go ahead. My name is Miyuki from Iyaku Keisai Magazine. I have a question about page 17. Well, projects under filing and then projects you plan to file. A spouse intern is in Propol. Well, this is the third-party technology, and then I think it's rare for you to file an application for those in-licensed products. Is it a special case for you, or do you plan to increase those types of filing? Let me answer this question. So I talked about capital allocation policy earlier. Well, assets in Japan, well, Thank you very much. Capital Allocation Strategy. Thank you. Understood. Well, one more question. Sorry, I didn't study much. So on 27 page, well, the SIGMART progresses 124%. Why do you think this is? Could you share the reason for this? Well, the progress... Yes, let me answer this question. SIGMAT. Well, in China... So there are many things ongoing like changes in reimbursement system. So originally we were conservative about price change and then some of them are pushed back, well delayed. And then that's why the actual were higher than our focus in the beginning of the term. So for long term, I think we will be overall on plan. However, for short term, we see a strong positive here. Thank you very much.

And the second from the front row, please. Ashimomura from Nikan Yakugyo. It'll be this, the progress. How do you view the progress at this point? So LVDs progress to be explained by Hidaka-san. Let me answer to your question. This is Hidaka regarding LVDs. In total, things are making good progress according to the plan, especially there is an age restriction. So first, this year, for those who are coming to eight years old, will be prioritized to make sure they will not miss any treatment opportunities. So we'll consider dosing those patients first. and by the end of the year, things are moving as planned pretty much. And institutions now, so they'll be the first case to be starting one after another. So I think we are making the progress so far. Another question about the R&D, LVDs, R&D. So there's a testing ambulatory patients, the application will be for 2028. So there's no change. Is that correct for that timing? Can you bring out the tile chart regarding this ambulatory capability for LVDs? 29, sorry, 29. Yeah, right top. Shimomura-san, thank you for your question. So non-ambulatory indication, as you mentioned, currently still on hold. So still continue to study. So that is why it's set at 2029 and beyond. But for the ambulatory indication, for the EU, we have not got the approval yet. So we continue to discuss with the regulatory authority for the new ambulatory global phase 3 is to be starting right now. That is in the plan. Thank you.

Thank you. Any other questions from the floor? Please raise your hands if you have a question. Okay, so now we will take questions from online participants joining Zoom webinar. For those who are using Zoom webinar using your laptop or tablet, please use a raise a hand function. Thank you very much. We will call your name, so please state your name and affiliation. So if you're joining from the phone, if you want to cancel your question, please push star five. Okay, so the first question, Muraoka-san from Morgan Stanley, please. Yes, thank you for this opportunity. This is Muraoka from Morgan Stanley. Do you hear me okay? Yes. I have a question about name Rubio. Well, I don't need too much of a detail. However, I'm still wondering. I don't have any visibility why loyalty value was flat. I didn't quite understand. And also the export volume, comparing the first quarter and the second quarter, if you compare these three months, well, we saw a decline. I was wondering why. and then were there any specific special transaction if you said that there was a special transaction where transaction I can understand but I don't understand why because I don't it would make it difficult for me to develop a story going forward so could you elaborate on this point? Thank you very much for the question. So basically the local sales reported by Galdelma and our export volume do not align all the time because based on the binding commitment, we export and sell products to Galdelma. but it's not in parallel with local sales made by Galderma. So Galderma, they consider what's their safety inventory, appropriate inventory, and then they make their purchase plan based on their strategy. So these two things don't usually align. I ask for your understanding. I understand. So it's not that their inventory level is very low. Are you aware? Yes. Thank you. Thank you. Thank you. So, let me... Thank you very much for your question on DONG52. As you know, celiac disease. There's no investigational drug approved for the indication of celiac disease. This is a completely new area, disease area. So we took time to complete phase one. In addition to that, as we reported the other day, gluten challenge. So this is to intentionally give gluten to patients. So this was a very challenging challenge. Thank you for watching! This project targeting celiac disease, Dr. Dan Defer, who is a renowned immunologist, we invited this doctor. Well, he's an incumbent immunologist, clinical immunologist, so Thank you. In the next phase, well, after 29, after 29 in the timeline, donk is here. So does that mean that you expect to enter phase 3 in 2028? What's your expected timeline? Thank you for the question. At this moment, it depends on the result of Phase 2A currently ongoing. Well, we are not aggressive when we make this plan, but once we see the data result, I'm sure that the subsequent study will be accelerated. We would like to make sure that we confirm proof of concept as soon as possible. Thank you very much. That's all from me.

Next question from UBS Securities, Seki-san, please. Thank you for your explanation. Regarding capital allocation, I have two questions. First question, your stock price has been declining slightly. So is it possible for you to conduct share buybacks? It's not if you intend to do. I'm asking if it's possible to conduct share buybacks. So depending on such a restriction, for example, from the market and flush, you buy back to have the same ratio. Would that be possible? Have you assessed that possibility? That would be my first question. Sekisan, thank you for your question. This is Taniguchi speaking. If it's possible or not, it is possible, I believe. But of course, there are many stakeholders and we need to find the best return to the shareholders. So we need to have such a comprehensive review to decide. And that's why we decided to go ahead with a special dividend this time. and we also had a 45% payout ratio as part of the common dividend, ordinary dividend, and that's what we are proposing. It is possible technically, but as mentioned earlier, so the ratio of floating stocks in our TSC is also monitored and based on the condition, we chose the most relative option by providing a special dividend. Thank you very much. So this strategic investment department was newly built. So it's very unlikely to assume purchasing the pipelines as is. I think it's going to be a technical technology that you'll be purchasing. How much are you looking at in terms of size? If it's a great quality technology, can you actually go for maybe a few hundred billions of yen to be spent? Yes. Regarding the size, depending on the cash level being accumulated and also the cash needed to sustain business operations, based on those conditions, we have certain assumption of the investment amount. At this point, we are not able to share specific numbers. Thank you. Thank you for the question.

Next, from Macaulay Capital, Tony Ren, please.

Hi, Tony Ren from Macaulay. Thank you for taking my question. My first question is about your vabismal cells. So yesterday, Roche reported a fairly, I would say modest vabismal cells, right? But in Japan, the abysmal cells grew 25.8% in the first half of this year. So can you explain why this drug is doing so much better in Japan compared to what Roche reported? Yeah, that's my first question. Thank you.

Well, Vavismo sells, domestic Vavismo sells. I will have Hidaka, Mr. Hidaka, to explain about that. But this is under Roche responsibility. Outside of Japan sells, which is under Roche responsibility, we don't make a comment. So let me make a comment about the Japanese market. Well, it's been three years since the product was launched. Last year in May, Pre-filled cylinder was launched and then that really accelerated the sales. Especially indication is Alveo. For Alveo, Babismo is used much more than we had initially expected. So that's why domestic sales has been going quite well. At this moment, well, as of June, 30%, we have a market share of over 30%. So we would like to make sure that the Babismo feature benefits will be well communicated to doctors.

Okay, very good. Then I would like to ask you about your AQUA-07, again, the allosteric ALK inhibitor. So my understanding is that in the front line, you are looking to combine it with lorlatinib, right? Have you seen... Can you comment on the toxicity profile? Lorlatinib has a bit of toxicity, right? You know, higher cholesterol level, some CNX toxicity. Have you seen any toxicity of your AQUA-07 that you think would contribute to additive toxicity? Yes, Mr. Donirei.

Thank you very much for your question about AQUA07. At this moment, looking at the non-clinical test study result, both as a single therapy or as a combination therapy, we haven't identified any serious side effects, however, adverse events. However, we need to administer this drug to a patient to see what's really what might be a risk. So we will conduct a study to confirm the efficacy and toxicity both as a single therapy and also as a combination therapy.

Thank you very much.

Thank you. Sanford Stevenstein Securities, Sagi-san, please. Thank you. Next 007. So you're talking about this would be the future growth driver? So where are you looking at the growth driver target businesses? Sorry, I wasn't able to hear your question clearly. Can you hear me okay? where the business is coming from to drive the growth. So I want to hear your view on that. Let me explain the background of this question. I think I kind of get what you want. Understood. Thank you. Just according to our guests, we have Himalaya Bra, having a quite large share. With Next 007 Phase 3 to be successful once we get approval to be launched, what would be the positioning of this Next 007 phase? I think that was the question and the cells and whether that can actually also boost the overall contribute to the cells depending on the patients and some patients could be good with Hemolibra may not be able to get a good result with Hemolibra also with the patient with high activity who needs much stronger drugs could be actually switching from Hemolibra But also at the same time, it is currently true to the situation, but there are many patients who are really satisfied with Hemolibra. So if you look at them in total, so the cells of Hemolibra, certain patients will be switching over to NEXT-007. And if NEXT-007 is going to be the incremental cells, in addition, we can expect some incremental cells. So that's why we consider that as a growth driver. Yes, that's what I meant. Also, the switching from him live run, when that happens, meaning the next 007 is slightly higher in price, is that because of the higher price? It doesn't really make sense to switch because of the higher price. Himalaya Bra Thank you very much. Understood. Okay. So switching from Hem Libra, switching to Next 007 from Hem Libra, can that be considered as a growth? Talking about the price? At this point, it's very difficult to make any comment about the price. If this can be a growth or not, we don't know yet. But at least... The sales would not be declining. That's what we are forecasting right now. I see. My second question, Aqua07. So, ALK positive non-small cell lung cancer. Okay. There are pretty good drugs available and which are providing clinical benefits to patients right now. And now we are talking about this ALK inhibitor, allosteric inhibitor is going to be introduced, which is different from what's available right now. What is the strategy? So adjuvant or the first line, if you use this, if the lobreda is utilized in the second line by having a combined and And therapy, so by extending the treatment period of the second line to maximize the value, commercial value of this product, is that the right understanding? Sogi-san, thank you very much for question on AQUA07. For this AQUA07, this is for first line and second line. So in either treatment, we can expect better results and effect. Because for the first line, the combination treatment is considered. The connecting location, the inhibitors are utilized in the different locations. So if we combine them together, those treatments, so the emergence of the inhibitors, Thank you very much. So this is the first time to actually act on non-ATP pocket area, different location. So if this theory works well with the existing drug for those patients who got resistance to the existing drug, so this AQUA-07 can actually generate enough effect by single use. So that's why we can see the improved efficacy both in first line and second line. I understand very well. Thank you very much. Thank you.

Next, from Nihon Keizai Shinbun, Ms. Nakada, please. Ms. Nakada, do you hear me? Yes. Ms. Nakada. Do you hear me okay? Yes. From Nihon Keizai newspaper, my name is Nakada. Well, your performance, the impact of foreign currency exchange rate, I would like to ask an impact. So weaker yen, well, higher dollars are progressing. And then do you see what... How much do you see an impact on weak yen? And then what do you think is an appropriate exchange rate? Thank you for the question. CFO will answer the question. Well, systemically, weaker yen, both in terms of revenue and profit, have a positive impact, as you see on this slide. Well, recently, Yen was weaker against CISFran that have made a positive impact on our performance. But long-term perspective, what will happen? And then if there is any ideal exchange rate to that question, we are not in the position to answer this question. I hope that this qualifies your question. Thank you. Understood.

Next, from SMBC Nikko Securities, Wada-san, please. This is Wada from SMBC Nikko Securities. Thank you for taking my questions. I have a question about AQUA-07, once again, going back to AQUA-07. So the first line, with the allosteric inhibitor, we have Sembrix and Asimenev. So these are used for the first line. They started with the second line, and then they're now utilized on the first line in single use. But can you once again talk about the first line, you're talking about combination polytherapy, and would that be also a single use also considered in the future beyond the second, sorry, for the first line therapy? Well, thank you very much for asking question, Aqua07. For the first line, a single-use drug is also effective, I believe. But as I mentioned earlier, we think combination therapy would be better because it can reach a different location. So you can approach to a different location. Comprehensively, we can actually awaken the mechanism to generate resistance on each location. So different approaches utilized by using this combination therapy, I think it would be considered better. Of course, single drug is okay, but with the combination, we have this assumption of having longer PFS. ATP connection point can be the area which can actually change a lot. But with the allosteric AQUA07 connection point Do you have any studies tested to tend to have mutations at the location? So it's possible to have resistance at this location for AQUA07, but how much resistance is generated is we still don't have the end result. So we want to confirm through the clinical studies. Thank you very much. Another question, Donk52. If it's possible, I think I believe you are looking at licensing out this. So what is the possibility? What is the current status of negotiation of licensing out this drug? So Donk52 question, thank you very much. For specific project, whether to license in or out, we want to refrain from commenting on that. So currently we are conducting phase 2A study. We want to complete this properly. Then based on the result, we want to start looking at where to license out. Thank you. Thank you so much.

Okay, so we have covered all the questions. So now we will conclude question and answer session. Thank you. With that, we will conclude quarter to 2022 financial performance announcement meeting. For questions that were not answered, please contact our communication IELTS department. In the last page of the presentation slide, you have the phone number and our email address. Thank you very much again for your time and participation. That concludes the session.