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.