Daiichi Sankyo Co Ltd Ord

Ogawa speaking. Thank you very much for joining Daiichi Sankyo's financial results presentation out of your very busy schedule today. I'm going to explain FY2023 third quarter financial results we announced at 1 p.m. on Wednesday, January 31st, JST, based on our presentation materials. Please turn to page 3. This is the agenda for today. We will cover FY2023 third quarter consolidated financial results, FY2023 financial Forecast and annual dividend forecast, business update and R&D update in that order. R&D update will be explained by Wataru Takasaki, head of Tatan R&D. We will entertain your questions at the end. Please turn to page 4. This is an overview of FI 2023 third quarter consolidated results. Revenue increased by 225 billion yen. to reach 1,173.3 billion yen. Cost of sales increased by 52.9 billion yen from the previous year. SG&A expenses rose by 103.1 billion yen and R&D expenditure increased by 15.1 billion yen year-on-year. As a result, cooperating profit increased by 53.9 billion yen or 45.5% year-on-year to reach 172.2 billion yen. Operating profit including temporary gains and losses increased by 67.4 billion yen or 53% year-on-year to 194.6 billion yen. Profit attributable to owners of the company increased by 76.9 billion yen or 88.7% year-on-year to reach 163.6 billion yen. As for the actual currency rates, the US dollar was 143.29 yen, the yen depreciated by 6.76 yen a year. The euro was 155.28 yen, the yen depreciated by 14.68 yen. Please turn to page 5. From here, let me explain positive and negative factors for revenue compared to the previous year. Revenue increased by 225 billion yen year on year. I will explain its breakdown by business unit. First, in Japan business. Revenue increased by 57.9 billion yen, sales increased for anti-influenza viral agent Inovil, direct oral anticoagulant Lixiana, anti-cancer agent Enherd, pain treatment Tydege, and also for vaccine business, including COVID-19 vaccine Diterona, which I will explain later. Next, let me explain our overseas business units. Forex impact is excluded here. In oncology business, revenue increased by 97.2 billion yen due to the growth of Enhert in the United States and Europe, and the contribution of anti-cancer agent Van Vlieta launched in the United States in August last year. As for American region, sales decreased for iron deficiency anemia treatment, Injectifer, but sales increased for iron deficiency anemia treatment Venofa and generic injectables. So revenue increased by 1.3 billion yen. Revenue for EU specialty business increased by 12.1 billion yen as sales rose for Lexiana and hypercholesterolemia treatments Nidemdo and Stendi. In ASCA business responsible for Asia, South and Central American regions, revenue rose by 21 billion yen due to the growth of NHERTS mainly in Brazil. As for upfront payment and regulatory sales milestone, etc., related to alliance with AstraZeneca and USMARC, out of the deferred revenue related to upfront payment in a strategic alliance with USMARC for three DXD ADC products including HER3-DXD, We booked revenue for the period from the signing of the agreement up to the end of December. On the other hand, regarding multiple NHERT-related regulatory milestones achieved last fiscal year, we booked lump-sum revenue last fiscal year for the period from the signing of the agreement up to the milestone achievement, so this led to revenue decrease of 4.5 billion yen. Forest impact increased our revenue by 40 billion yen in total. Page 6 shows positive and negative factors for our core operating profit. I will explain the profit increase of 53.9 billion yen by item. As I explained earlier, revenue increased by 225 billion yen including the increase of 40 billion yen due to Forex impact. Next, I will explain cost of sales and expense items excluding Forex impact. Cost of sales increased by 44 billion yen due to the revenue increase. H&A expenses increased by 87.1 billion yen due to an increase in NHERT-related profit sharing with AstraZeneca, etc. R&D expenditure rose by 5.2 billion yen due to an increase in 5 DXDADC's R&D investments. Cost increased due to forex impact by 34.8 billion yen in total. Co-operating profit increased by 48.6 billion yen, excluding forex impact. Next, page 7 shows positive and negative factors for profit attributable to owners of the company. As I explained earlier, co-operating profit increased by 53.9 billion yen, including forex impact. due to factors such as lump sum payment received from Novartis following the settlement of Plexicon's patent infringement lawsuit. Temporary income expenses increased a profit by 13.5 billion yen a year. Financial income expenses, etc. increased a profit by 4.5 billion yen a year due to increase in interest income and improvement in investment securities valuation gains losses despite deterioration in forex gains losses. pre-tax profit increased, but due to the impact of the tax effect accounting associated with our decision to transfer Daito Sankyo ESFA, income taxes, etc., decreased by 5 billion yen year-on-year. As a result, profit attributable to owners of the company increased by 76.9 billion yen year-on-year, to reach 163.6 billion yen. Page 8 and 9 show revenue increase or decrease in Japanese yen by business unit and by major product in Japan. Earlier on page 5, I explained the situation of each unit by excluding the Forex impact, but here we are showing the results including the Forex impact. Next, I will explain FI 2023 forecast. Please turn to page 11. Revenue has been revised upward by 30 billion yen from the October forecast to 1,580,000,000 yen to reflect the positive Forex effect by the yen's depreciation and sales increase of Inagil due to the outbreak of influenza and sales increase of Dijerona with 1.4 million doses we supplied in December. We are expecting cost of sales to increase due to the revenue increase and Forex impact. On the other hand, Due to the improvement in the COGS ratio by product mix changes, we are expecting cost of sales to increase by just 3 billion yen. We are expecting SG&A expenses to increase by 9 billion yen based on ADC production expansion. R&D expenditure is forecast to decrease by 7 billion yen by increase of cost sharing for three DXD ADC products with U.S. mark. As a result, core operating profit has been revised upward by 25 billion yen to 180 billion yen. Operating profit has been revised upward by ¥50 billion to ¥200 billion, mainly to reflect the temporary income increase due to payments received from Novartis following the settlement of Blessigon's patent infringement lawsuit. Pre-tax profit has been revised upward by ¥45 billion to ¥205 billion, mainly to reflect increase in financial expenses due to deterioration in forex gains, losses and others. Profit attributable to owners of the company has been revised upward by ¥40 billion to ¥175 billion. In response to the upward revision of pre-tax profit, a fourth quarter currency rates ¥145 for the US dollar and ¥155 for the euro, according to assumptions. Due to the ongoing yen's depreciation vis-à-vis our October forecast, Forex is expected to have an impact to increase our revenue and cooperating profit by about 8.5 billion yen and about 5.5 billion yen respectively. Page 12 is about the revision of annual dividend forecast. We will increase FY2023 annual dividend forecast per share to 50 yen. As of April last year, we were planning to increase annual dividend per share to 34 yen, up by 4 yen from FY2022. due to increased likelihood of achieving KPIs for FY2025 driven by sales growth of Enhert and others. As of October last year, we revised our plan to increase dividends by ¥6 to ¥40 compared to our April forecast, due to received upfront payment related to strategic collaboration with US Merck for three DXDADC products and strong performance of Enhert and others. Based on continuous strong business performance and ransom payment received from Novartis following the settlement of Prexicon's patent infringement lawsuit in the United States, we made an upward revision of FY2023 consolidated forecast. to 50 yen, up by 10 yen compared to our October forecast, and up by 20 yen from FY2022. We will continue to increase capital efficiency, further enhance returns to shareholders, and aim for DOE of 8% or higher in FY2025, which is set as a KPI in the fifth mid-term business month.

Next, I would like to talk about the business update. Slide 14 shows the breakdown of NHER2 revenue. The sales in the first nine months of fiscal year 23 grew by 136.3 billion yen year on year to 276.0 billion due to growth in the US, Europe and other regions. The sales situation in each country will be explained later. The development milestones are as follows. With the approval of the second-line treatment of herd-to-mutant NSCLC in Europe in October last year, the development milestone of ¥3.6 billion was listed in the third quarter of FY23 for development milestones achieved in the last fiscal year, the amount equivalent to those from the signing of the agreement to the achievement of the milestone was recorded as a lump sum revenue for the last fiscal year. As a result, it decreased by 9.7 billion yen from the same period last year to 10 billion. As a result, and her two total revenue, including upfront and quick related payments and development and sales milestone payments, was 294.4 billion yen, an increase of 126%. over the last year. The full year forecast for FY23 is 436.5 billion yen, an increase of 2.9 billion yen from the October forecast. Slide 15 and 16 show the sales of NHER2 in each country region. First, I would like to talk about the U.S. For the nine months was 162.8 billion or U.S. $1,136 million dollars 63 billion yen from the same period of the previous year. The full-year forecast for fiscal year 2023 is 226.3 billion, a decrease of 3.2 billion from the October forecast. Although we have lowered our full-year forecast slightly, the market share for each indication is growing steadily, and we have no concern about the future growth of the market. The current indications are as shown here. Market share in each indication remains favorable. The market share of new patients in the second-line treatment of HER2-positive breast cancer has increased to approximately 60%. Maintaining a market leadership position, the market share of new patients with HER2-low breast cancer previously treated with chemotherapy also remained at approximately 50% and number one in the market. The company also maintained its leading position in new patients for second-line HER2-positive gastric cancer and second-line HER2-mutant NSCLC. Furthermore, following endometrial cancer and cervical cancer in September, head and neck cancer in December 2023 and ovarian cancer this month were included in the NCCM guidelines. Sales in Europe are also on track. The sales for the first nine months of fiscal 23 increased by 42.4 billion yen from the same period of the previous year to 64.7 billion yen. The full year forecast for 2023 is ¥94.5 billion, an increase of ¥1.7 billion from the October forecast. The share of new patients in each market to the country region is also steadily increasing. The share of new patients with HER2-positive breast cancer in second-line treatment is in the 60% range in France. and 50% in Germany and Spain, maintaining the leading positions. In Italy, the share of new patients increased to the 60% level, achieving the market leader. The share of new patients with chemotherapy-treated breast cancer with low HER2 expression was in the 40% range in Germany and 30% range in France, with the market leader's positions. Slide 16 shows performance of N-HER2 in Japan and the ASCA region. Sales in Japan for the... Nine months and December 31, 2023 were 72.7 billion, up 9.2 billion yen from the same period of the previous year. The full year forecast for FY23 is 22.8 billion yen, an increase of 1.3 billion yen from the October forecast. In November, the HER2 mutant NSCL-C second-line and later treatment was approved as a recommended regimen in the guidelines for the diagnosis and treatment of lung cancer. The share of new patients in each indication is steadily increasing. The market share of new patients in the second-line treatment of HER2-positive breast cancer is increasing. 40%, maintaining the leading position. The share of the new HER2-positive breast cancer patients pretreated with chemotherapy has also increased to approximately 20%, the market leader. The market share of HER2-positive gastric cancer third-line treatment is also about 70%, consolidating the leading position. The share of new patients in the second-line HER2 mutant and the CLC is also expanding steadily. Sales in the Asuka region for the first nine months were 30.8 billion yen, an increase of 21.6 billion yen from the same period of the previous year. The full year forecast for fiscal year 23 is 40.3 billion yen, an increase of 2.4 billion yen from the October forecast. The sales in Asuka region include the promotion revenue in China, Hong Kong and other markets where AstraZeneca booked the sales. Sales in the region are favorable with significant revenue growth in Brazil, China and Taiwan and others. In November, the drug was approved in Brazil for second-line treatment of HER2-positive gastric cancer and second-line treatment of HER2-mutated NSCLC and started sales promotion. We will continue to strive for market penetration and expansion of countries, regions, and obtain new indications. Thus, we will deliver in HER2 to as many patients as possible who need it. Slides 17 and 18 show the major updates of the patent disputes. First, I would like to talk about the U.S. patent dispute over U.S. subsidiary Plexiclin. This is in relation to Novartis BRAF inhibitors of HINDA. Plexiclin filed a claim in the U.S. District Court and Novartis filed an appeal to the U.S. Court of Appeal. In December last year, Plexiclin and Novartis entered into a comprehensive settlement agreement As a result of this settlement, Plexiglas received lump sum payment of 182 million US dollars or 26.1 billion yen from Novartis, resulted in the dismissal of Novartis' appeal. The amount received was recorded as temporary income in the third quarter of the current fiscal year. Next, I would like to inform you of ADC technology-related dispute with Cijun. The arbitral tribunal rendered the final award in November last year. The final award followed and incorporated the August 22 decision by the arbitrator and required Cijun to pay $46 million of the cost of the arbitration. This award confirms that arbitration court totally denied that Cijun's claim. With this decision, the arbitration proceedings were concluded. In this slide 18, I would like to talk about the dispute regarding CJIN's U.S. patent. The U.S. District Court in Texas ruled in October last year in the first instance. In November last year, we filed an appeal. In addition, we filed a request with the U.S. Patent and Trademark Office for a post-grant review to examine the validity of the patent on the grounds that CJIN's U.S. patent is invalid. And this month, US Patent and Trademark Office rendered final written decision that Seijin's patent is invalid. We appreciate this decision. The patent is the only patent on which Seijin found basis for the claim in the pending patent infringement lawsuit. In the next slide, we show the other regional initiatives. In Japan, COVID-19 vaccine Daichirona, Omicron strain XBB.1.5 monovalent vaccine, was supplied as the first messenger RNA vaccine made in Japan last December. As a Japanese pharmaceutical company, we will continue to contribute to the safety and security of the society and health of people. In Europe, we announced that our subsidiary DSC and Esperian signed an amended agreement this month. The manufacturing and supply responsibilities are transferred from Asperion to DSE. In addition, DSE has acquired the rights to develop and market the three drug combinations in Europe and in other regions. Furthermore, DSE will lead the regulatory affairs with the European Medical Medicines Agency for the additional indication of neuromodustandy based on the clear outcome study results. As a result of this contract amendment, DSE will pay Asperian $125 million, $100 million upon execution of the amended agreement, and $25 million after EMA's approval of the additional indication. There is a difference of opinion regarding the requirement for development milestone payments based on the results of the clear outcome study as Perrion had filed a lawsuit against DSC. However, Asperian dismissed the pending litigation against DSC due to the results of this new agreement. Slide 20 is on meeting information. In February, we will hold an ESG meeting. Speakers will include Kama, outside director and chairperson of the board, Manabe Sio, Okusawa, COO and Fukuoka Chief Strategy Officer. In March, we will hold an NHER2 business briefing. The speakers will be Manabe, CEO, and Ken Keller, Global Head of Oncology Business Unit. We will inform you of the details when they are finalized. Now, we would like to present the R&D update. I will now hand over to Mr. Takasaki, Director of the R&D Division.

Takasaki speaking. I'm going to talk about R&D update. First, an update on five DXD ADCs. Please turn to page 23. This is a repost of the DestinyPlanTumor02 study data we presented at ESMO last year. The study was performed in advanced solid tumors in the second line settings and beyond, where HER2-directed therapies are not yet available, such as HER2-expressing solid tumors, including endometrial, cervical, ovarian, and biliary tract cancers. ORR, a primary endpoint, was 37.1% in all patients. and 61.3% in patients with IHC3+. Clinically meaningful response was confirmed in both groups. In addition, safety profile was consistent with the known profile, including ILD. We included in the submission package this data, Destiny CRC02 study, and other data, under the real-time oncology review program. Our filing was accepted by USFDA and priority review was granted for tumor agnostic therapy in HER2-expressing solid tumors in the second-line settings and beyond. PDUFA date is set for the 30th of May, 2024. From page 24, let me explain two new Phase III studies for DATO-DXT. First, tropion breast 04 study. Tropion breast 04 is a phase 3 study in patients with previously untreated stage 2 or 3 triple negative breast cancer and hormone receptor low, HER2 low, or negative breast cancer. We started the study in November last year. We are evaluating the efficacy and safety of neoadjuvant DatoDXT plus duvalumab, followed by adjuvant duvalumab with or without chemotherapy, compared to pembrolizumab-based neoadjuvant and adjuvant therapies. Primary endpoints are pathological complete response, PCR, and event-free survival, EFS. Next, on page 25, I will explain another new phase 3 study, tropion breast 05 study. This study is evaluating the efficacy and safety of DATO-DXD alone and in combination with durvalumab in patients with first-line PD-L1 positive, locally recurrent, inoperable, or metastatic TNBC versus chemotherapy plus temblorizumab. Like tropion breast 0.4, this study also started in November last year. Primary endpoint is PFS, progression-free survival. From page 26, I'm going to use two pages to explain the progress of HER3-DXT, which is the potential first HER3-directed cancer drug in the world. First, the current status of HERCINA LUNG-01 study. In this study, HER3-DXT demonstrated promising efficacy across diverse mechanisms of EGFR-TKI resistance and across a broad range of pretreatment HER3 membrane expression. In December last year, under the Real-Time Oncology Review Program, a filing was accepted by USFDA based on the study results, and priority review was granted. PDUFA date is set for the 26th of June, 2024. In EGFR-mutated NSEOC, a sena-lang02 study is ongoing in the second-line settings. Top-line results are expected in FY2024. Also, Phase 1b study in combination with osmertinib is ongoing in earlier treatment line. On page 27, I will explain HER3-DXD's new Phase II study. HER3-NAPA Tumor 01 is a study aiming to expand indications to new tumor types. We will evaluate per cohort new tumor targets selected based on our in-house non-clinical research and other data. We are planning to start the study first in melanoma, squamous cell carcinoma of head and neck, and HER2-negative gastric cancer in FY2023.