Daiichi Sankyo Co Ltd Ord

This is Okuzawa. Thank you for taking time out of your busy schedule to attend Daiichi Sankyo's financial results presentation today. Now I will explain the consolidated financial results for the second quarter of fiscal 2024, which were announced at 1 p.m. today based on the materials. Please refer to slide 3. This is today's agenda. consolidated financial results for the second quarter of fiscal 2024, fiscal 2024 forecast, business update, and R&D update. I will follow this order. The R&D update will be covered by Takeshita, our global R&D head. We will take questions at the end. Please look at slide 4. This slide shows an overview of consolidated results for the second quarter of fiscal 2024. Revenue increased by 156.4 billion yen or 21.5% year-on-year to 882.7 billion yen. Cost of sales increased by 4.6 billion yen, selling general and administrative expenses increased by 53.2 billion yen, and research and development expenses increased by 27.3 billion yen year-on-year. As a result, core operating profit increased by 71.3 billion yen, or 74.8% year-on-year, to 166.6 billion yen. Operating profit, which includes one-time gains and losses, increased by 91.8 billion yen, or 96.6% year-on-year, to 186.9 billion yen, and profit attributable to owners of the company increased by 49.7 billion yen, or 51.2% year-on-year, to 146.7 billion yen. The exchange rates were 152.62 yen to the dollar, a depreciation of 11.62 yen year-on-year, and 165.93 yen to the euro, a depreciation of 12.55 yen year-on-year. Please refer to slide 5. From here, I will explain the factors behind the year-on-year changes. Revenue increased by 156.4 billion yen year-on-year, and I will explain the breakdown by business unit. First, Japan Business Unit. Sales of Daichi Sankyo ESFA products were no longer recorded from April 2024 due to the exclusion of the subsidiary from the scope of consolidation. On the other hand, sales of direct oral anticoagulant Lexiana, anti-cancer agent Enhartu, a pain treatment Tarije, the vaccine business and Daichi Sankyo Healthcare increased. and realized gains of unrealized gains of inventory assets related to Daichi Sankyo ESFA products were recorded, all in all resulted in an increase in revenue of 13 billion yen. Next is overseas business unit. Here the figures are excluding the impact of foreign exchange. In the oncology business, sales increased by 50.3 billion yen due to growth in sales of Enhatsu in the US and Europe. In American region, sales increased by 1.2 billion yen due to an increase in sales of generic injectables despite a decrease in sales of Venofar, a treatment for ion deficiency anemia. The EU specialty business saw sales increase by 22.8 billion yen due to factors such as growth in sales of Lixiana and Nilemdo-Nastandi, a treatment for hypercholesterolemia. The Aska business, which is responsible for Asia and Latin America, saw sales increase by 13.2 billion yen due to factors such as growth in sales of Enhatsu, particularly in Brazil. AstraZeneca and US Milk upfront payment and regulatory sales milestone revenue increased by 16.3 billion yen. This includes the recording of upfront payment, from the Strategic Alliance Agreement with U.S. Milk concluded in October last year for three DXD ADCs, including HER3-DXD. Please note that we received the second upfront payment of $750 million for HER3-DXD from U.S. Milk this month. From the third quarter of this fiscal year, we will record this as revenue over the expected exclusive sales period for HA3-DXD. The overall impact of foreign exchange on revenue was an increase of 39.6 billion yen.

Slide 6 shows the factors behind increase and decrease in co-operating profit. I will explain the 71.3 billion yen increase in profit by item. As I explained earlier, sales revenue increased by 156.4 billion yen, including 39.6 billion yen increase due to the foreign exchange impact. Next, I will explain the cost of sales and expenses, excluding the impact of foreign exchange. Regarding the cost of sales, despite increase in revenue, The cost of sales decreased by 7.1 billion yen due to the expanded sales of in-house development products such as NH2 and are shifting the product mix including the absence of the sales of Daiichi Sankyo Eswa which improve the cost of sales ratio. Selling general administrative expenses increased by 34.6 billion yen due to factors such as an increase in profit share with AstraZeneca related to In-How-To. Research and development expenses increased by 16.6 billion yen due to an increase in the number of R&D personnel in line with progress in the development of five DXC ADCs. The total increase in expenses due to foreign exchange effect was 41.0 billion yen, and the actual increase in core operating profit excluding foreign exchange effect was 72.6 billion yen. Next, on slide 7, I will explain these changes in net income. As I explained earlier, core operating profit increased by 71.3 billion yen, including the impact of foreign exchange. As for temporary income and expenses, a positive impact of 26 billion yen compared to the same period of the previous year due to the factors such as recording of gain on the transfer of DAI to S4 shares. Financial income expenses had a negative impact of 1.3 billion yen year-on-year due to the deterioration of foreign exchange gains and losses. For income taxes, in addition to the increased profit before tax, due to the absence of the tax effect, accounting impact associated with the decision to transfer Daiichi Sankyo ESFA in the same period of previous year increased by ¥40.8 billion compared to the same period of previous year. As a result, net income attributed to the parent company increased by ¥49.7 billion year on year. to 146.7 billion yen. Next, I will talk about the forecast for the fiscal 2024. Please refer to slide 9. For revenue, compared to the forecast announced in April, there was a decrease in sales of generic injectables at American reagents and a decrease in sales due to the delay in the launch of HA3 DXD in the U.S., Factoring in those factors, however, we expect an increase in sales, mainly from Luxiana and Enhatu, as well as the impact of foreign exchange due to the weakening of the yen. We have revised the forecast announced in April by 80 billion yen upward to 1,830 billion yen. Cost of sales is expected to increase by 15 billion yen due to the upward revision of the sales revenue forecast and increase in expenses due to the forex. Regarding SG&A, despite the decrease in expenses due to the receipt of arbitration expenses from CGEN following the finalization of arbitration decision, expenses increased due to the impact of foreign exchanges rates and also strategic investment in DX, IT expenses, and human capital. Therefore, we expect an increase of $25 billion in SG&A. While we expect an increase in R&D expenses due to the impact of foreign exchange rate, we have factored in a decrease due to the partial review of the timing of expenses, and we expect a decrease of 10 billion yen. As a result, we have revised our forecast for core operating income and operating income upward by 50 billion yen to 260 billion and 280 billion yen, respectively. Profit before tax will be 285 billion yen, 50 billion yen higher than the forecast announced in April, and net income attributed to parent company will be 225 billion yen, 35 billion yen higher than the forecast announced in April. For your reference, the exchange rate for the third quarter and beyond are assumed to be 145 yen to the dollar and 155 yen to the euro. The impact of the yen's depreciation on April forecast is expected to be approximately 37 billion yen increase in revenue and approximately 8 billion yen increase in core operating profit.

From here, I will talk about the business update. Please look at slide 11. This slide shows the sales performance of EN-HER2. In the second quarter of fiscal 2024, product sales increased by more than double digits year on year in all regions due to growth in sales of second-line treatment for HER2-positive breast cancer and post-chemotherapy HER2-low breast cancer. and sales increased by 87.9 billion yen year-on-year to 261.3 billion yen. In the U.S., sales increased by 32% year-on-year to 140.1 billion yen. We maintained the number one share of new patients in all indications for breast, gastric, and lung cancers. In the second-line treatment of HER2-positive breast cancer, we have a new patient share of over 50% and we have also gained around 50% of the market for post-chemotherapy HER2-low breast cancer and we continue to contribute to the treatment of many patients. In April of this year, we obtained approval and began promotion of N-HER2 for the treatment of multiple solid tumors that are HER2 positive, and sales are steadily increasing for various types of cancer, including gynecological cancer. In Europe, sales increased by 80% year-on-year to 70.5 billion yen. Sales are steadily expanding, particularly in Germany, France, Italy, and Spain, and the company has secured the top position in the market with a share of more than 70% of new patients in Germany, France, and Italy, and more than 80% in Spain for the second-line treatment of HER2-positive breast cancer. In addition, the company has maintained its leading position in Germany, France, and Italy in terms of the share of new patients with post-chemotherapy heart to low breast cancer, and it has also become newly covered by health insurance in Spain. In Japan, sales increased by 50% year-on-year to 15.5 billion yen. We have maintained and expanded our position as the number one new patient share in all indications for breast, gastric, and lung cancers. The new patient share for second-line treatment of HER2-positive breast cancer is over 50%, and for post-chemotherapy HER2-low breast cancer, it is over 60%. Thus, N-HER2 is steadily progressing with the market penetration. In the Asuka region, sales increased by 96% year-on-year to 35.1 billion yen. Sales have grown significantly, particularly in Brazil and China. In Brazil, in particular, in addition to the steady increase in new listings by private insurance, we have acquired and maintained the number one share of new patients in the second-line treatment of HER2-positive breast cancer, and prescriptions for post-chemotherapy HER2-low breast cancer are steadily increasing, driving revenue growth in the ASCA region. Please note that product sales in the ASCA region include co-promotion income in China, Hong Kong and other countries and regions received from ASCA AstraZeneca, which books the sales in those countries. We will continue to work to further penetrate the market in the regions where we sell the product and expand the number of countries and regions where it is sold, while also working to obtain new indications and deliver ENHA to as many patients as possible who need it. Next, I would like to talk about the alliance with U.S. Milk regarding the development and commercialization of MK6070. Please refer to slide 12.

In August this year, we added MK6070, which is being developed by U.S. Milk, to the strategy collaboration agreement for the three DXDA-DC products with them. We will conduct joint development and joint promotion of MK6070 with U.S. Milk in all countries except Japan. We will evaluate a combination therapy with IDXD for small cell lung cancer and also consider combination therapy with other drugs. Development costs will be split equally between the two companies. However, development costs for combination therapy with the three DXC-ADC products will be handled within the framework of the development cost burden of the original agreement for the strategic collaboration with U.S. Milk, which was concluded in October last year. Specifically, for each product, U.S. Milk will bear 75% of the development cost up to $2 billion per product, and thereafter the two companies will share the development cost equally. Regarding commercialization, two companies will jointly promote sales in regions other than Japan and will share their gross profit and promotional expenses. In addition, product sales will be recorded by U.S. Milk. In Japan, U.S. milk will sell the products independently and will receive royalties. Manufacturing supply will be handled by U.S. milk. The consideration for this collaboration is $320 million. In addition to the quit rights worth $150 million under the original agreement for the strategic collaboration, $117 million in cash was paid to U.S. Milk as a one-time payment at the time of the contract. The consideration of $320 million or 46.5 billion yen will be recorded as an expense from the time of approval of MK 1670 through the expected period of exclusivity. In addition, the amount equivalent to the QID rights of 150 million dollars or 21.8 billion yen is being recorded as revenue from the second quarter of this fiscal year onwards over the expected exclusive period for the three DXDAGC products, which was appropriated as a collaboration consideration for MK6070. This collaboration supports our strategy of transforming the standard treatment for cancer patients around the world, and we also expect synergies with three DXD-ADC products, including iDXD. On slide 13, I will talk about other initiatives in each region. In September this year, we launched the messenger RNA vaccine for the Omicron strain, JN.1 of the COVID-19 vaccine Diterona in Japan. Also this month, we launched flu mist, a nasal spray, live attenuated influenza vaccine. It has been approved as a trivalent vaccine for two types of A and one type of B strains, and it is the first nasal spray seasonal influenza vaccine in Japan, and we have started supplying it in this season. As a Japanese pharmaceutical company, we will continue to contribute to the safety and security of the society and the health of people. Slide 14 is meeting information. In December, we will hold a meeting to exchange opinions on sustainability. I myself, Okuzawa, and Chief Human Resources Officer Matsumoto are scheduled to speak. We will send out an invitation to everyone when the details have been finalized. So from here, it's time for the R&D update. I'll hand over to Takeshita, our Global R&D Head.

Thank you very much, and thank you to all of you for calling in to the R&D update section. Next slide. I would like to first give you the update on the five GXT ADCs, and the agenda for the rest of the talk is listed on this slide. Next slide. First, this is a summary of the regulatory achievements that has happened in the last quarter. First of all, in the HR positive and HER2 low or ultra-low breast cancer, this is the Bestany Breast 06 clinical trial. We have had the filing accepted in the EU. We achieved breakthrough designation in the U.S., and we have also had the filing accepted in the U.S. and priority review granted with a PDUFA date of February 2025. And also the filing has been accepted in Japan. In China, we achieved two approvals, one for HER2-positive gastric cancer and the second one for HER2-mutated non-small cell lung cancer. So these are the regulatory updates for the last quarter. Next slide. Now I would like to go over with you some new presentations that were presented at various conferences in the last quarter. First is the DESTINY LUNG-03 clinical trial, and shown here is a focus on HER2 overexpressing non-small cell lung cancer patients treated with N-HER2 monotherapy. And you'll see that both response rates and duration of response and progression-free survival are quite good. And I do want to remind you that in this patient population of HER2 expressing non-small cell lung cancer patients, we have already achieved regulatory approval as part of our tumor agnostic and tumor indication in various parts of the world. Next slide. Tropial lung 01, this is the randomized study of DATO-DXD versus docetaxel in the relapsed refractory non-small cell lung cancer setting. And as mentioned here, we did see a clinical meaningful trend in overall survival that was recently reported. And you'll see that the difference there is 14.6 months in a data arm and 12.3 months in the docetaxel arm. And many of you are aware that this is an ongoing submission with the FDA for the TL01 data set. Next slide. At the World Congress on Lung Cancer, this information was also presented by our collaborators, AstraZeneca team. This is data on what we call the QCS biomarker assay. This is a digital pathology assay which identifies in a predictive biomarker fashion patients who are likely to benefit from a data DXD. And you will see here in the data that this technology is able to select out a patient population that has a much better outcome compared to those patients without this particular biomarker. You'll see there's a particularly On the right-hand side of the slide where we see that the overall response rate is 36.8%. Medium PFS is 7.2 months with a data arm compared to four months medium PFS with a docetaxel arm. And, of course, also the patients who are negative for this predictive biomarker. We think that this is a major advance in the field of – not just ADX-T, ADCs, but major events in the field of oncology, and we expect that this digital pathology technology will be important in the future. Next slide. I want to also mention that we are continuing to further study data in various settings. in non-small cell lung cancer, including this study that's shown here in early stage non-small cell lung cancer, in which, in this NEOCO study, in which we showed that in interim results, there was an encouraging efficacy and manageable safety profile in a neoadjuvant setting, and this is really what we're talking about here, the ARM4, in which DATO, DXT was combined with Dervalumab. And you'll see here that in terms of the pathological CR rate, it was 34.1%, which is quite good with a reasonably manageable safety profile. So we're very interested in these data and really for further assessment in a clinical trial setting. Next slide. Now we're going to move on to data DXD breast cancer program. Atropium Breast 01 Clinical Trial. This is a study that was conducted in HR, hormone receptor positive breast cancer patients in a relapsed refractory setting. And as we reported, we did not achieve a statistical significance in the final overall survival analysis. although we did see a statistically significant and clinically meaningful improvement in progression-free survival. So this data set, TB01, has been submitted to the FDA, as I mentioned to you earlier. It is still under review, and the PDUFA date is February 2025. Okay, next slide. And in this slide, we describe yet another new study of a phase three study of data in the setting of early stage non-small cell lung cancer, in which the data is combined with the AstraZeneca by specific drug. And this is a very important study for us in terms of, yet again, another attempt to demonstrate the efficacy and utility of data in a randomized clinical trial. And this study has started or is planned to be starting in the second half of the current fiscal year. Next slide. We're gonna now move on over to the HER3-DXT program. And in this slide, we are reporting on for THENA Lung 01 and 02 trial. Previously, you will recall that we had submitted the HL01 clinical trial data set to the FDA as a regulatory approval application, and that we did receive, back in last summer, the CRL, complete response letter from the FDA due to manufacturer concerns. Let me just say that we are currently working diligently to resolve the feedback that we received as part of the CRL from the FDA as part of the HL01 clinical trial. For HL02 clinical trial, we demonstrated the statistically significant improvement in PFS, which is the primary endpoint, versus standard of care. And overall survival data at the time we presented the PFS data was immature, and we will continue to have the overall survival data mature to further assess the overall survival data. Next slide. Moving on to HER3-DXT in breast cancer. These are the results of the ICARUS breast cancer study. that was presented at the ESMO meeting earlier this year. This is an investigator-sponsored clinical trial conducted at the French Cancer Institute, the Institut Gustave Roussy. And you'll see here a very impressive activity of HER3-DXD in this hormone receptor-positive relapsed refractor-based cancer patients with a response rate of over 50%. and a median progression for survival of nine months. We are very interested in these clinical data, very impressive response data, and we're very interested, of course, in following up on these data with additional clinical trials with HER3-DXD in breast cancer. Next slide. Now we're gonna switch over to the IDXD program. This is also formally known as DS7300, where the ADC is targeting the antigen called B7H3. And at the recent World Congress on Lung Cancer, we reported the results of a dose-finding study in which two doses were studied, 8 milligrams versus 12 milligrams. And based on these data, we have selected 12 milligrams as a dose for future Phase III clinical trials. And at the 12 milligram dose that we were selected, the response rate is 54%. And you'll see here the median progression-free survival as well. And we are, of course, very interested and very impressed with these numbers. And we are now currently proceeding to a randomized clinical trial for this drug. Next slide. Here are some additional updates from the rest of the ADC program. In terms of the NHER2 program, we recently initiated a clinical trial called Destiny BTC-01. This is a Phase III combination study with the AstraZeneca by specific drug for BTC, biliary tract cancer, in the frontline setting. For the DATO program, we recently started a TL15 Phase III study as a monotherapy and in combination with osomertinib for EGFR-mutated non-small cell lung cancer. In the HER3 program, we have initiated, or excuse me, we are preparing to initiate a clinical trial that's called the MK1022. This is the Merck designation and therefore Merck. sponsored trial of the HER3-DXD in CRC, biliary tract cancers, and the hepatocellular carcinoma. And we are also doing some additional studies of HER3-DXD in non-sensory lung cancer in combination with chemotherapy and pebrolizumab in the frontline settings. And as for IDXT, you can see here that the Phase III study in small cell lung care has been initiated, as well as signal-seeking Phase Ib2 study in the frontline setting for small cell lung cancer. We are also very interested in studying this drug, IDXT, in the setting of not just small cell lung cancer, but non-small cell lung cancer as well, And we'll be doing that in the Keymaker U01 study for non-small cell lung cancer in a frontline setting. Okay, next slide. All right, so now we're going to move on to the next wave of our pipeline beyond the DXDA-DC. And first, the next slide, I'd like to report to you a compound that has a codename DFP. DS9606. We reported on the interim data of the phase one study at ESMO of this new drug. It's a very important drug for us because it represents the first of the next generation ADC, where the payload is no longer DXD, but the payload is something called a PBD. This is an alkylating agent, so therefore the mechanism of action is quite different from the DXT. And here we show that we are currently doing the dose escalation trial, and we are starting to see some preliminary evidence of efficacy in terms of tumor shrinkage in germ cell tumors, GE junction tumors, and non-small cell lung cancer in a small number of patients so far. I just wanted to remind you that this is still a dose finding phase one study. and so we are very interested in what happens to this study in the future. Next slide. You heard earlier that we are collaborating with Merck on a compound that is termed MK6070. This is a bispecific drug that is targeting DLL3. It's a well-known antigen expressed in small cell lung cancer. And this is very important from a strategic standpoint, because as I mentioned to you earlier, we have already obtained really very interesting, very good results with one of our DXDA DCs, the IDXD program, the DS7300 program. So now we have two drugs, a DXDA DC and this drug, DLL3 bispecific drug, that we have to further develop not just as monotherapy, but as combinations in small cell lung cancer. And we believe that this combination of MK6070 plus IDXT could be studied eventually in a frontline setting. But for now, we are starting to do a dose finding study in a relapsed refractory setting. Next slide. Okay, finally, next slide. I just wanted to give you a small advertisement for a science and technology day intended for our investors to give you more information about what we are doing from a science, research, and technology standpoint. The date is December 16th at 5.30 p.m. Eastern Standard Time. Also in Japan, it will be December 17th, Japan Standard Time. And the topics we intend to cover are the latest data that's been published or presented at conferences, R&D strategy, as well as current status of our manufacturing and direct supply. So we hope to have you join us then as well. Okay. Now, finally, let me just go over with you the anticipated news flow for the rest of the year. You'll see that the next planned major data presentation is a San Antonio Breast Cancer Symposium. This is going to be in early December. And at that time, we will give you an update on the DB06 clinical trial and also the DB08 clinical trial. The DB06 trial is just really a follow-up with additional, a longer follow-up of the clinical trial from the ASCO presentation. On the other hand, the DB08 clinical trial is a phase 1B clinical trial in a chemo-naive, a post-chemo setting in patients in combination with a capcitabine or a capistabine. In terms of regulatory decisions, we do expect to hear from the agencies on TL01 and TB01 sometime before the end of the fiscal year. And we also expect to hear something from the Japanese agency concerning our COVID vaccine program in the pediatric patient population. In terms of important data readouts, in the second half of fiscal year, we expect to see the top line results of destiny breast 11 and in the data program, the TB02 clinical trial in triple negative breast cancer. Okay, well, thank you very much.

We will now move on to the Q&A session. The first question is from Mr. Yamaguchi of City Group. I am Yamaguchi from City Group. Thank you for having me. My first question is about Ha3DXD. In the presentation, it was mentioned that the milestone payment from U.S. milk had been triggered, so I think it's good that we were able to confirm that. However, it's been about four months since the complete response letter was issued. Could you tell us what the current situation is and whether there are any anticipation about the scheduling for the future, such as whether it will be delayed by about a year or whether it will be delayed for a little longer?

Yes, in terms of the CRL and the manufacturing issues, we are working diligently with the manufacturer as well as the agency to resolve the issues identified. And in terms of our regulatory submission plans, we are still in discussion with our Merck partners. We both remain very interested in studying HER3-DXT in lung cancer patients. And once we have our regulatory plans and clinical development plans settled, we will be able to report back to you on this.

Thank you. Does that mean you will have to apply again?

Previously, you said that the application status would be maintained, although the CRL has been issued. But do you mean that you will have to reapply?

So technically, when we receive a CRL, that completes the submission process. So, yes, we would need to reinitiate a new submission. Okay.

And you don't know the timing of that yet?

We are discussing the regulatory strategy with our mark partners right now.

The second question is about data DXD. I understand that various clinical trials are progressing, and it may be difficult to comment on this, but I think there are some voices of concern in the market about the PDUFA data on 20th of December. So I'd like to ask what you think about the approval on 20th December based on the current communication with the FDA. And also, Although there doesn't seem to be an ODAC anticipated at the moment, but if there is any update on this, please let us know. With that, to ODAC.

So I can't comment really on the details of the regulatory discussions that we're having with the FDA. I think we should be able to give you some updates on this in the near future, but not today. In terms of the possibility of ODAC, You know, it's a little bit difficult to tell you exactly what the FDA is thinking because, you know, because we're not the FDA. But as a general statement, the FDA can request an LDAC at any time prior to the PDUFA date on any submission, not just the one that we're talking about today.

I understand. Finally, Enhart's sales forecast has been revised upward. Looking at the current situation, Europe has been revised downwards in local currency, and there was talks of Europe being slightly slower than expected from the first quarter. What is the cause of this? And although the forecast for the U.S. has been revised upwards, but growth has fallen slightly quarter on quarter. Is it correct to assume that this is a temporary slowdown due to the fact that the current indications are penetrating the market very quickly and that if the indications are expanded in the future, there will be another growth momentum? I will answer this question. Ogawa is speaking. Regarding NHARTS in Europe, the situation is different from the original plan as the reimbursement has been delayed in some countries. And this is affecting the figures, so we have updated them to take this into account. More specifically, those countries are Spain and the UK. And you know, in the U.S., the uptake is progressing steadily in both the HER2 positive and HER2 low categories, with a market share of over 50% in each case. And the use of pan-tumor is also steadily expanding. We always receive inquiries about whether DB06 will be included in the guidelines by the end of this fiscal year. But at this point, we are unable to estimate when this will happen. On the other hand, the PDUFA date has been set for the 1st of February 2025, so we have included this in our current forecast figures for MHR2 in the U.S. Thank you. Another question about Europe. You mentioned Spain and the UK, but are you referring to insurance reimbursement for H2O or second-line treatment? It's for H2O. H2O, I see. In the case of the U.S., are you saying that you are basing your performance forecast on the assumption that the drug will be approved on 1st of February on the producer date? Yes, that is how we have included it in our current forecast. I understand. That's all from me. Thank you. Next question is from Mr. Hashiguchi of Daiwa Securities. This is Hashiguchi speaking. Thank you for taking my question. My first question is about the TB01 trial for DatoDXD. You mentioned that you were unable to achieve statistical significance in the OS analysis. But could you tell us whether there was a positive trend numerically or not? In the past, when you presented the results of other trials, even when there was no statistically significant difference, I think there were times when you made some reference to how things were numerically or in terms of trends. But this time, there was no such reference. So I felt that you may not have obtained the results you were expecting, either numerically or in terms of trends.

Yes, so we haven't published or presented the overall survival data yet, so I hope that you will be able to wait until we can show you the data at an upcoming conference. But we are in discussion with the agencies on what we are seeing so far in terms of what was an interim analysis, and we need to really see what the final OS data looks like So it's a little bit premature to comment on exactly how we and especially how the FDA views our data so far.

This data is not included in the presentation schedule for the San Antonio Breast Cancer Symposium, but is there still a possibility that it will be announced before the producer date in January?

I think currently the plan is likely to be a no to your answer.

Thank you. One more thing. Regarding the collaboration with U.S. Milk on CAR3-DXD, I think that at the time of the contract one year ago, US Milk wanted to decide whether or not to pay the remaining upfront payment based on the situation over the next one year. And that's how the deal was structured. How do you understand the background to US Milk's decision to pay the remaining 750 million yen? I would like to know your interpretation of whether this is because US milk has become more confident about the marketability of EGFR mutation non-small cell lung cancer, or whether it is because US milk has become more hopeful about the potential of other types of cancer.

So, you know, let me, I am not from Merck, so I'm going to be in part speculating on what they are thinking. I believe that they remain highly interested in this HER3 asset. There's a lot of value in this particular asset. I just wanted to make, just to remind you that just in lung cancer, The majority of patients with lung cancer express HER3. I think the numbers in literature is something like 70% to 80%. So there's a lot to be done in the field of lung cancer alone. And as you are probably aware, HER3 is expressed widely in many other cancers besides lung cancer. So there's a lot for us to be doing in this partnership, and that is, I think, the reason why Merck remains highly interested as we are in this particular asset.

Thank you very much. That's all from me. Next question is from Mr. Wakao of J.P. Morgan Securities. Thank you. This is Wakao from J.P. Morgan. My first question is in terms of whether you can achieve NHR2's forecast in this term. I think that the inclusion in the NCCN guidelines is slower than expected, and in relation to this, do you think that if you can get approval first, you'll be able to achieve your current forecast, even if it is not included in the NCCN guidelines before approval? Or do you think that it is necessary to be included in the NCCN guidelines before approval? Thank you for your question, Ogawa. We will answer your question. The inclusion in the NCCN guidelines is certainly a very important event. But now that the timing of approval and PDUFA has become clear, we are basing our forecasts on the PDUFA at this point. And we do not expect there to be any significant changes in the figures, depending on whether the NCCN guidelines come before or after. Thank you. The second point is regarding the HER3 application and approval that Mr. Yamaguchi asked about earlier. My understanding is that there is currently a manufacturing issue and regulatory negotiations that you are dealing with. And I would like to know whether a solution to the manufacturing issue has already been found and whether the success of Herthena Lang 02 had any impact on the need to reapply. After all, there was talk about the approval could be obtained without the need for reapplication. So I was a little unsure about what had changed in the regulatory negotiations. So please let me know.

So I think in terms of the CMC manufacturing issues, you know, we are continuing to work on them. And I think... We've made a substantial amount of progress in resolving those issues. In terms of our regulatory strategy for HO01 plus HO02, as I mentioned to you earlier, we are still having those discussions internally with our MARC partners as well as with the FDA regulatory regulators. So we're not quite yet ready to give you what our plans are going to be with these two clinical trials yet.

How about from the perspective of whether or not the HL02 study success had an impact?

Looking at the total data set. You know, previously, in our previous submission, We always had for the FDA was HL01, but certainly in a future submission, now that we have the HL02, the agencies will certainly be interested in looking at the comprehensive data set available on this patient population.

Finally, regarding IDXD and HER3-DXD, I think US milk is including the combination of these with pembrolizumab as the key maker sub-studies under this so-called umbrella study. But if positive data is obtained for each of these, I'm not sure if they are both stage 4, but it is correct. to say that you are aiming for the first line of NSCLC. And regarding HER3, I understood from Takeshita-san's earlier explanation that it is expressed in lung cancer, so I think it is reasonable. But IDXT has also been confirmed to be effective in SCLC. So is it correct to understand that it is also being developed in NSCLC based on sufficient rationale?

Yes, so Mark, we are very interested in having multiple shots on goal. So we have a couple of DXADCs where the target is expressed in certain types of non-small cell lung cancer. So this is the reason why we are going straight into the front line setting with two of these assets. And I think your question about why are we doing this with the IDXT, I think that was your question. And in earlier clinical trials that were reported already, we did see activity of IDXT in lung cancer types other than small cell lung cancer. So we are very, very interested in following up on that data. to see whether or not there is value in studying IDXT in non-small cell lung cancer.

Thank you very much. That's all from me. Next question is from Mr. Muraoka of Morgan Stanley MUFG Securities. Hello, this is Muraoka of Morgan Stanley. Thank you for taking my question. I think we have heard all the important points already covered, and I'd like to look at a small point about the figures. On the first page of the data book, in the breakdown of the PL revision, looking at the SG&A expenses, The SG&A expenses other than the ADC payment are 225.1 billion yen for the first half of the year, and the revised forecast is 490 billion yen, while the exchange rate hasn't changed much up or down. I remember that there were various problems with the figures before, and that's why they were revised. However, when I actually look at the figures, I can't help but feel that spending 260 billion or 270 billion yen in the second half of the year compared to 225 billion yen doesn't really make sense. Also, the stock price linked compensation in the U.S. seems unlikely to be that high at the current stock price. So could you please explain how you calculate SG&A expenses and what we should think about this? This is Ogawa speaking. Thank you for your question. I would like to make a comment. As you understand, there is a general trend that our company tends to spend more on expenses in the second half of the year. So that's one. And the main reason for the increase in SG&A expenses this time is the cost of the long-term incentives in the US that you mentioned earlier and that is certainly one of the factors. We also see the current increase in factors such as the cost of building up organizations for the growth of the cancer business and DX and IT investments and investments in global HR systems including these human capital investments. So these are the factors for the increase of SG&A. And as for the seasonal shift in the timing of the occurrence of these expenses, we have been working on improving the predictability of the timing of the occurrence and we would like to continue to improve this in the future. But the reasons I have explained are the main reasons. Thank you. In other words, Is it correct to assume that there is a high possibility that 490 billion yen, apart from the DXT profit sharing, will be used up for the reasons you have just mentioned? Or do you think there is a possibility that there will be some left over? We are always aiming to make accurate forecasts. However, it is not always possible to make 100% accurate forecasts every time. So we are working to improve the accuracy of our forecasts as much as possible. I understand. Thank you. Another thing is, in the current forecast, data is supposed to be approved in December and January, and the current forecast for that, which is 50 billion yen or so, is left as it is. But if there are any unfavorable results in December and January, is it correct to say that there are mechanisms in this budget that would be sufficient to absorb this amount, even if data cannot be launched this fiscal year, including the expenses that we have just discussed? Thank you for your question. We believe that we will be able to absorb the impact, and we have included this in the budget at this point in time. So if the unfavorable results you mentioned occur, we will try to absorb the impact as much as possible. Thank you. One last question. is about this revised budget. Again, the budget for sales of FEMT in Japan has been doubled, and I think this is because there are no generics available. Is it possible to expect that there will be no generics for a while after the next fiscal year? Or is it just by chance that we were lucky this fiscal year? As you understand, The biggest factor is that there was no entry of generics as we had expected in the current period. At the moment, we are assuming that it will be in or after fiscal 2025, but we are unable to say anything more precise at this point. I understand. Thank you very much. That's all from me.

Next question is from Ms. Haruta from UBS. Hello, I'm Haruta from UBS. Can you hear me? Yes, we can hear you. For tropion breast tear 1, a statistically significant difference was not achieved for OIS, and one of the reasons was the multiple ADCs included in HER2 were used after the patient had become not responding to the chemotherapy. Such situation might have been result of OST. Could you explain your thoughts on that? And also, suppose dystopian breast cell 1 is approved. In HER2-low patients, there may be an overlap with the population in DB04. Then, in real clinical settings, would DATO-DXD be used in ultra-low or HER2-negative segment?

Yes. Yes, in the clinical trial, we did not restrict how to treat patients in the control arm when they relapse in the clinical trial. So it is very certainly possible that these patients had access to NHER2 and possibly other ATCs. And we are very interested in that analysis, and we should be able to share the results of that to you at some upcoming conference. Now, in terms of the overlap in the patient populations between the TBON and HER2 program, and I think your question was how to make that distinction in the same patient population. And I think ultimately it's going to be up to the physician to determine Based on the clinical data available, which one is the best one for the patient? And, you know, it will be important for us to be able to provide as much information as possible to the prescribing physician so that they can make that selection.

Okay, thank you very much. Then what about the sequential usage? It can be also assumed, right?

Yes, you know, in theory, that is a possibility. And so to support that idea from a physician's perspective, they're going to want to understand the clinical data. So we are working on generating the clinical data to answer that question about the sequencing.

Understood. Thank you. My second question is, in developing ADC, I think a biomarker would be very important to know the patients who are likely to respond to the therapy. As for DatoDXD, TROP2 positivity was difficult to detect based on the conventional ICH, and therefore, it took a long time to develop the biomarker. But going forward, not only TROP2, but B7HC, Cadherin 6, for any ADCs, in order to know the patient who can be benefited most, biomarker development is going to be very important. What is your idea of developing biomarkers?

Okay, thank you very much for that question. And I absolutely completely agree with your assessment. that biomarker development and especially this digital pathology technology is going to be very important for our ADC program. We can see that already with the AstraZeneca program, the digital pathology technology has been extremely helpful in identifying patients who can benefit greatly from DATO-DXT. And that same principle applies to other ADCs that we have, not just in the AstraZeneca program, but also in the Merck program. And I think you're probably aware now that you can sort of imagine in the future a situation where a physician, the prescribing physician, sends off a lung cancer biopsy for digital pathology analysis. And, you know, based on, let's assume that there's a lot of progress in digital pathology data, not just for data but other ADCs. You can kind of imagine now that with a digital pathology technology, that might be a way for a physician to know which ADC will this patient benefit from the greatest. That's a very realistic possibility as a future application of our digital pathology technology.

Thank you. Understood well. Next question is from Mr. Wada from SMBC. Hello, I'm Wada from SMDC. Can you hear me? Yes. I would like to ask a mechanism of action of ADC. There are a couple of points I would like to ask. First, with regards to a biomarker for DAT or DXD, in case of NH2, H2 positivity was initially said to be 20%, and then the efficacy range was now covering low and negative. On the other hand, when I look at DatoDXT, in NSCLC, generotrope 2 expression levels is set to be around 60% initially, and then ultra-low is added. I think in such case, you may not need to select patient based on the expression level. Are there differences between breast cancer and lung cancer pathologically, maybe? Are there any knowledge about this point?

Yes, okay, so let me answer that question first. The differences that we are seeing now in the biomarker component of our ADC program with Ben-Herd 2 versus the DATO, The fact that with HER2, all we had to do was use IHC and go for the HER2 low and ultra low. That seemed very simple. Whereas in the DATO program, the TROP2 antigen, we did not see much correlation with IHC. But we can finally see this now with the digital pathology technology. That difference, we believe, reflects a difference in the biology of the target now. And particularly in a CHOP2 program, when we do the digital pathology technology, what we are really looking at is not just expression of that antigen on the cell surface membrane, but also the amount of internalization of the antigen into the cytoplasm. And so the digital pathology detecting not just the cell membrane staining, but also cytoplasmic staining. So you can see that the digital pathology takes into account what is the biology and intracellular processing of the cell surface proteins. And it's certainly very possible. that we are going to be looking at something very similar for the other antisense that we are looking at here, the HER3 or B7H3, et cetera. So, you know, it's an emerging field, a very exciting science to be studied using this neuropathology.

Thank you very much. One more question. It is about your partnership with USMALC, MK6070. What is your expected synergy effect from that? In SCLC, USMALC is investigating a combination of MK6070 and chytruda, and in terms of the mechanism, there seems to be synergy. when T-cell engages, that is enhanced by unblocking the PD-L1, so I think there seems to be synergy, but in combination with IDXD, what is expected synergy based on the mechanism of action? Are there? Personally, I think by causing immunological response, the T-cell engager is even more activated.

So far, what you have understood that... And I think your thinking is correct. And here is the biology that we are imagining, which is that the IDHD causes tumor cell death and release of tumor antigens, neoantigens. And in some ways, results in immune response, which can be potentiated or increased by drugs such as the MK6070 bispecific drug, or even Keytruda. So that is our current working hypothesis. And we believe that this hypothesis is correct based on our experience in combining DXDA DCs with immuno-oncology drugs such as PD-1 agents. A combination of a PD-1 plus a DXDA DC appears to show synergy in terms of efficacy in both animal models as well as in clinical trials, I think. Thank you.

Thank you very much. Next question is Mr. Mamegano from BOBA Securities. Hello, I'm Mamigano from BOBA Securities. Can you hear me? Yes, we can hear you. I'd like to clarify one thing. It is about our DXT. When I look at the clinicaltrial.com, the recruitment seems to have been completed. I think the enrollment started this February, so accrual was quite rapid. Am I correct to understand that patient recruitment progressed quickly? faster than you estimate? And if so, you think the top line result can be obtained earlier than as well?

So I just want to confirm that I think you're referring to the ovarian cancer clinical trial. Is that correct?

Yes. Ovarian study, that's I'm referring to. Okay.

Yes. So that particular ovarian cancer clinical trial is ahead of schedule. And so we do anticipate that we will see some interim analysis data ahead of schedule.

Okay, thank you very much. Next question is from Mr. Sogi from Bernstein Securities. Thank you very much. I have a few questions. First, HAR3-DXD collaboration with U.S. Milk has been decided to continue, and regarding the milestone payment, I did the calculation quickly, and it seems that the amount is divided in the 8 years period. Does this mean the LROE of HAR3-DXD assumed to be 7 years ahead or 8 years ahead? Ogawa will answer to the question. I think that can be the assumption based on such calculation, but for us, it will be deferred during the exclusivity period, and we are not disclosing how long that period is. So we cannot give you exact answer to that question now. But I understand that assumption is possible based on that calculation. Thank you very much. And also, this time you made upward revision for AHA2, but a profit share with AstraZeneca is slightly reduced. Could you tell us the background to this? For the profit share with AstraZeneca, Well, the part we reduced is, or biggest reason is that a timing shift in Europe. Compared with the original plan, the reimbursement is being delayed, as I have explained in my presentation. So that was reflected in the reduction in profit sharing projection. Understood. Thank you very much.

So next question is for Takeshita-san about DS9606. So we understand this is a new ADHIT platform, and so it has a different payload as well as the cleavable linker that you have actually disclosed previously. So it also looks like, you know, so Clotin-6, what we understand is it's not expressed on the cancer cells, but rather, you know, it's expressed in junctions of, you know, the multiple cancer cells. And so for this type of, you know, the ADC with a cleavable linker, is it, you know, to target this type of, you know, non-on-cancer cells? the antigen, so that now you have, you know, two type of ADC. One can, you know, the target, you know, the antigen on the cancer cells, while, you know, this is a new one that can, you know, target the antigen that are present in the proximity or, you know, the tumor microenvironment of cancers. This is the kind of, you know, the rationale of your drug development.

So the design of this ADC, so the linker is a little bit different, as you mentioned, and also the target, Clotin-6, it's a component of tight junction between cells, but mostly in tumor cells and not in normal cells, and that's where the selectivity of the drug is also derived from. So, yes, it's a very different way to think about the ADCs compared to our DXT-ADC program. But we are very excited from a scientific standpoint based on the preclinical data we have seen so far and also the limited amount of clinical trial data that we have.

Oh, thank you. No, that's actually very helpful to understand. So does that mean that, you know, Clodin-6 is not expressed outside of the cancer cell? You said that it's expressed inside the cancer cell.

No, it's expressed outside of the cancer cell. So there are, so cancer cells tend to stick to each other. And this particular protein is part of the the junction between the tumor cells. So these are on the outside of the cells and not inside.

Great. Thank you very much for the clarification. Thank you.

The next question is from Michael Nedelkovich-san from TD Cohen. Please go ahead.

Thank you for the questions. I have three, if you'll allow me. My first relates to positioning of your ADC portfolio, similar to a previous question, but this time in EGFR mutant non-small cell lung cancer. Both Datto DXD and HER3 DXD have shown compelling data in EGFR mutant non-small cell lung cancer. So how do you plan to position these two agents in this indication? Are you considering combination or sequencing? And to the extent that sequencing of the two drugs might be pursued, do you worry about cross-resistance given that they share a payload?

So, first of all, your last question about sequencing, that is still a question that is not fully explored. So, you know, I can't give you a definite yes or no answer on how we deal with sequencing until we have some clinical trial data to look at. And in terms of how we view our strategy of our DXA disease in the EGFR-mutated lung cancer patient population, you know, I think it's ultimately going to be how strong is the data with each of these assets. And at the moment, neither one of them are approved in EGFR-mutated lung cancer patients, but, you know, we will try very hard to generate enough data so that certainly the the regulatory agencies, but also the prescribing physician can decide which is the best one for you to use in a particular patient.

Thank you. My second question relates once again to the TBD platform. Can you elaborate on the rationale for building out this ADC platform? DXD has proven itself to be a powerful warhead, and there are, of course, more tumor-associated antigens that could be pursued. So is this simply diversifying the pipeline and leaving those stone unturned, or are there specific reasons why you chose to pursue a PBD-based payload?

So an important consideration of PBD is that it's a very different drug than DXT, durexotecan. DXT target is an enzyme called topoisomerase. It's a DNA-binding enzyme. So it's involved in DNA metabolism. PBD is an alkylating agent. So it's a drug that puts alkyl groups on many, many things in the cell, including various proteins. So it's not specifically a DNA metabolic drug. but a protein-alkylating drug. And so you can see that the mechanism of action is very different. So we do anticipate that it will have very different clinical properties from the DXD ADCs simply because the payload is different.

Understood. Thank you. My last question is, once again, on the data DXD true beyond lung O1 filing. You mentioned that FDA could convene an ODAC any time prior to the PDUFA. If the FDA does choose to convene an ODAC, would you consider that a positive development because it would mean the agency is strongly considering the application, or would you take it as a negative development because it would mean the agency has potential concerns about the application?

Well, you know, it's very difficult to read the minds of the FDA regulators. So I... I'm not going to be able to answer your question in a firm yes or no on this. You know, a lot of times when an FDA convenes an ODAC, they have a specific question that's directed at the ODAC committee members. And that's probably going to tell us, you know, or what is the FDA thinking about or what are they worried about. But as I said, you know, we're not quite there yet. So I think we're going to have to sit down and wait about the ODAC question.

Understood. Thank you so much for your time.

The last question is from Tony Renson from Macquarie. Please go ahead.

Hi there. Yeah, thank you for taking my question. So my last question is on your partnership with Merck, the DLL3, by specific, Merck MK6070. So last week at the ENA 2024 triple meeting, we saw Chinese biotech Xilab They have a licensed drug from MediLink, ZL1310, demonstrated very high response rates of 74% in DLL3-selected small cell lung cancer patients. Obviously, some of that response rate is unconfirmed. So I see that in your study with Merck, you guys are also exploring a DLL3 enrichment strategy. So I just want to get a sense from you, what is your current thinking on the DLL3 biomarkers? Are you guys using, for example, IHC versus NGS? Any thinking there? in terms of any threshold, because my belief is that the DLL3 is also nearly ubiquitously expressed on small cell lung cancer. So that's my first question on the DLL3 combinatorial strategy with the Merck Harpoon asset. The next question is on AstraZeneca's China. You guys probably heard that, you know, their China head is under investigation in China. So just curious, you guys mentioned that before, and her to revenue. It's doing very well in China. I just want to get a sense out of the ASCA revenue, what percentage is from China. Yeah, thank you.

Okay, I can, I will answer the biomarker question. So it's a bit early in our DLL3 program to tell you what is our biomarker strategy. But certainly in modern oncology drug development, exploration of predictive biomarkers to be used in clinical trials and possibly in the setting of a regulatory filing to select a specific patient population for cancer indications. I think that's very much on the minds of all of us here. So, yes, we will be exploring biomarkers and that we may or may not eventually have to use the predictive biomarker strategy for our DLL3 by specific.

So, regarding the ASCA business, in the China business, it Almost, I would say, 40%, a little less than 40% of our ASCA business at the moment overall. And for us, it's a core promotion revenue we receive. So it's not really the net sales, but that's the impact on the revenue at the moment.

Okay, so for Enher2 in China, you guys receive co-promotion revenue from AstraZeneca.

That's correct.

Okay, yeah, perfect.

Okay, that's it for me. Thank you.

Now we are coming to the closing time, so we would like to end the Q&A session with investors and analysts. Thank you very much for your attention and participation today.