Daiichi Sankyo Co Ltd Ord

Ladies and gentlemen, we would like to start FI 2025 Q2 financial result presentation. My name is Asakura, in charge of corporate communication. In this presentation session, we are going to use both Japanese and English. We have simultaneous interpretation service available, so please make sure you click on the language button to choose the language of your preference. We have Japanese, English, and original audio. If you select an original audio, you should be able to hear original audio. And on the Zoom screen, we are going to present both Japanese and English presentation material. And for the live streaming, we are going to present the Japanese presentation material. Our corporate website, our library, earnings score related material page carries the presentation material both in Japanese and English. And let me introduce today's speakers. We have Representative representative director and CEO Okuzawa. We have the head of global R&D, Takeshita. We have Ken Keller, who is the director and oncology business head. We have CFO Ogawa. First, Okuzawa and Takeshita will offer you the explanation of the highlights of the second quarter result, and we are going to receive questions from investors and analysts by 5 p.m. Media people can start asking questions separately from 10 minutes past 5 p.m. Today's session is going to be audio recorded. I would like to ask for your understanding in advance. Please, Mr. Okuzawa.

Okuzawa de gozaimasu.

Good afternoon to you. This is Okuzawa speaking. Thank you very much for your joining this financial results representation of Daiichi Sankyo. And now I would like to explain to you, based on the material of the unconsolidated financial result of the second quarter of FY25, which was announced externally on 1pm Japan Standard Time today. This is slide 3. I would like to first cover fiscal year 25 second quarter financial result and fiscal year 25 forecast business update and then R&D update. In this order, I'd like to present and as to the R&D update, I would like to ask Dr. Takeshita, the global R&D head to explain and we will be entertaining your question at the end. Please now look at slide four. This slide shows the outline of the FY25 second quarter financial results. The revenue was 975.4 billion yen, increased by 92.6 billion yen or 10.5% year on year. Cost of sales increased by 25.8 billion yen. and SG&A expenses increased by 51.3 billion yen increase and R&D expenses, the 23.5 billion yen increase year-on-year. As a result, co-operating profit was 158.6 billion yen declined by 8 billion yen or 4.8% year-on-year. Operating profit including the one-time profit and loss was 144.2 billion yen declined by 42.7 billion or 22.8% year-on-year and the profit attributable to the owner of the company was 130.8 billion yen declined by 15.9 billion yen or 10.8% year-on-year as to the result of the exchange rate One dollar is 146.04 yen and this is the 6.5 yen appreciation year-on-year and one euro was 168.6 yen and the yen depreciation by 2.13 yen year-on-year. And this is slide five. Now I'd like to talk about the factors contributing to the increase or decrease year-on-year revenue increased by 92.6 billion yen year-on-year. And now I'd like to show you the breakdown by the business units. Let me begin by Japan Business Unit and others. The Belsomula for insomnia and Datroy, which is the anti-tumor drug, And lixiana, direct oral anticoagulant, and talige for pain, and enhatu for anti-humor effect increased their sales. And this absorbed, realized the sales for, and realized the gains for Daiichi Sankyo ESFA, that was 11.2 billion yen, and also the decline by the vaccine business shrinkage, that was 6.1 billion yen, we had overall increase by 1.6 billion yen totally. And now let me talk about the overseas business units. And here we have excluded the impact by the foreign exchange. Oncology business increased by 69.7 billion yen due to the growth of the ENCHA-2 and also the contribution of the sales by Datraway. An American region experienced a decline of the sales by 7 billion yen for the decline of the injectophores and venophores for iron deficiency and anemia. And EU specialty business increased by 16.9 billion yen due to the growth of the niremidol and nustendi, which are hypercholesterolemia treatment increase. And in ASCA business which is in charge of the Asia and the Central and the South America, there was a growth of the in China and the Brazil mainly and that experienced 22.9 billion yen of increase. and upfront payment and regulatory and sales milestone etc. related to AstraZeneca and US Merck increased by 5.6 billion yen thanks to development milestone income with US EGFR a mutated NSCLC of that way and also upfront payment of the agreement of the strategic alliance with USMAC for 3 DXD ADCs booked. We have also received the second upfront payment of 750 million yen from MAC USD for USD for RDXD and from second quarter, third quarter this fiscal year through the end of expected exclusive period, it will be booked as revenue and the Forex impact was 17.1 billion yen negative.

Slide 6 shows the factors contributing to the change in core operating profit. I will explain about the background of 8 billion yen profit. As I explained earlier, sales decreased by 17.1 billion yen due to the FX impact. revenue increased by 92.6 billion yen and next I will explain cost of sales and expenses excluding the impact of FX. The cost of sales increased by 28.3 billion yen due to inventory write-down on Daiichi Rona and unqualified products and in addition the sales increased by 109.7 billion yen in real value excluding the impact of FX rate. SG&A increased due to increased profit sharing with AstraZeneca. This represent increase of 61.8 billion yen for R&D expense due to the progress of development of 5 DXD-80. R&D investment have increased by 30 billion yen. Total cost reduction due to exchange rate effect was 19.4 billion yen. Actual decrease in co-operating profit excluding the FX impact was 10.4 billion yen. Next, on slide 7, I will explain the change in net income. Co-operating profit, as explained earlier, decreased by 8 billion yen. including FX impact. Regarding one-off income and expenses, in the same period last year, a gain of the sale of Daiichi Sankyo SPA shares was recognized as one-off gain. However, this was no longer such impact from this fiscal year, and revenue decreased despite income related to the litigation with former Ranbaksi shareholders. In addition, due to the CMO compensation fee following the change in the launch date of R3DXD and the write-down of inventory for Datoway and R3DXD. Profit declined by 34.6 billion yen. Financial income and expenses increased. by 13.3 billion yen due to improvement in FX gains. Corporate tax declined by 13.5 billion yen due to a decrease in profit before tax and decrease in effective tax rate compared to the same period last year. As a result, profit attributable to the parent company for the period decreased by 15.9 billion yen year-on-year to 130.8 billion yen. Next, I will talk about our financial forecast for fiscal 2025. Please refer to slide 9. Revenue is revised upward by 100 billion yen from the April forecast to 2.1 trillion yen. This revision incorporates lower sales of Injectifer and Benefer at American region and decreased milestone income for Enhaz while reflecting the positive impact of weaker yen anticipated sales growth primarily driven by Datraway in Japan and U.S. and Airheart II in the United States. Cost of sales is expected to grow by 30 billion yen due to higher expenses from the upward revision in revenue forecast and FX impacts as well as inventory valuation losses for Daiichi Rona and unqualified products. SG&A are expected to increase by 65 billion yen due to FX impact and higher profit sharing with AstraZeneca associated with increased sales. R&D expenses are expected to increase by 5 billion, primarily due to FX impact. As a result, core operating profit is projected to be 350 billion yen unchanged from the April forecast. OPI is expected to decrease by 15 billion yen to 335 billion yen, reflecting the recognition of gains and expenses through the second quarter. Profit before tax and net income attributable to owners of the parents, reflecting the revision to OPI, are projected to be 355 billion yen and 288 billion yen, respectively. The FX rate assumptions for the third quarter and onward are 150 yen per US dollar and 170 yen per euro. The weaker yen against April forecast is expected to drive revenue by about 68 billion yen and the core operating profit by approximately 6 billion yen. With this revision to the forecast, we now expect to achieve four out of the five KPIs for FY2025, which is the final year of the fifth mid-term business plan, which are revenue, oncology revenue, core operating margin before R&D expense deduction, ROE, and DOE. The exception is core operating margin before R&D expense deduction. Regarding the core operating margin before R&D expenses, while the target was 40%, Unfortunately, it is expected to fall slightly short. This is because anticipated timing of receipt of a portion of Enhartu development milestone income is now in fiscal year 2026. We'll continue to make improvement as we move toward the sixth MTP. Next, let me share with you the business updates.

Please look at slide 11. This slide shows the Enhartu sales performance.

The global revenue

of the second quarter of FI 2025 was 318.4 billion yen, 57.1 billion yen increase year on year. And in all major countries and regions, we have achieved the number one share of the new patients in existing indications such as breast cancer, gastric cancer, and lung cancer. We have established a position as a standard of care, and since the launch, quarterly review reached 1 billion yen for the first time. And after the whole year forecast, penetration in the chemo-naive hormonal receptor positive and super-low or ultra-low expression breast cancer market progressed more quickly than we have expected in US and Germany. So we have updated our the forecast to the ¥694.2 billion, increased by ¥32.1 billion versus April forecast. And this indication achieved the number one share of the new patient in Germany, and also this is a driving force in Germany where it is launched only in Europe. And also we have started promotion in August in Japan. Next, let me talk about the sales status of Datroy. Please look at slide 12.

The global product sales in the second half of 2025

Global product sales for Q2 of FI 2025 reached 15.7 billion yen. Significant sales growth was achieved in the U.S. and Japan for hormone receptor-positive HER2-negative breast cancer with prior chemotherapy and in the U.S. for EGFR-mutated NSCLC exceeding expectations. Globally, the drug has already been administered to over 2,000 patients cumulatively. For both breast and lung cancer, unmet needs are exceptionally high, particularly in the third line and later treatments. Larger than expected number of patients received treatment and QT results significantly surpassed expectations. Therefore, the four-year forecast has been updated to 37.8 billion yen, up by 16.2 billion yen from the July forecast. Sales for the breast cancer are progressing steadily In both U.S. and Japan, we are promoting knowledge of preventive care and treatment for side effects such as dermatitis and dry eye through educational activities targeting at HCPs. Furthermore, this indication has already been approved in over 35 countries and regions. For lung cancer indication, following the launch of promotion in the U.S. in June, it has already acquired new patients comparable to breast cancer within just initial three months, demonstrating a very strong sales ramp-up. We will continue to pursue deeper market penetration in existing regions and expanding to new countries and regions while also expanding indications. Our goal is to deliver and heart to and doctor away as to many patients as possible who are in great need. Next, we will move on to the R&D update. I will now hand over to Takeshita, head of global R&D.

Thank you very much, Okzawa-san. It's a pleasure for me to give you an update on important clinical trial data for the last quarter. Many of these clinical trials are ones that are presented in ESMO or sometimes from the World Lung Cancer Conference. The first slide is the DESTINY Breast 11. This trial and the DB05, which you will see next, represent a pair of clinical trials that bring N HER2 into early stage HER2 positive breast cancer. in a curative intent setting. So for these reasons, these are two important studies. And first, on Destiny Breast 11, this is a neoadjuvant study. And HER2 followed by THP before surgery resulted in a pathologic CR rate of 67.3% compared to the old standard of 56.3%. So this is a rather clinically meaningful and large improvement in the PCR rates. And we can also see on the right-hand side of the slide an early trend towards improvement in the event-free rate, even though this is a relatively immature set of data at this point, with a hazard ratio already of 0.56%. So this really represents the first positive global registration trial for a new agent in a neoadjuvant HER2 positive early breast cancer setting in over a decade. Next slide. This is the other part of the pair of clinical trials in early breast cancer, DB05. This is a clinical trial of the post neoadjuvant setting of N HER2 in patients who remain positive after the treatment with a neoadjuvant therapy. And in this clinical trial, we can see that the post neoadjuvant and HER2 resulted in greater than half the decrease in the risk of invasive disease occurrence or death compared to TDM1 with a hazard ratio of 0.47. So this really represents a second positive Phase III trial demonstrating superiority of NHER2 over TDM1, the first one being DB03 in a metastatic setting. The safety profile was good, and therefore we believe that between DB05 and DB11, these two studies bring NHER2 into the post-HER2 positive post-neuadjuvant setting as a second chance to achieve a cure and a potential for a new standard of care for eligible patients with this residual disease. Next slide. In addition, please note that there were many regulatory achievements in gastric cancer, breast cancer, and pan-tumor setting. And I also want to make sure to note that we have PDUFA dates coming up, first for the DB09 in January of 26. And DB11, you just heard about in May of 2026. Next slide. This is from the DATRA-OA program, TB02 clinical trial in the frontline setting for metastatic triple negative breast cancer. This is a clinical trial in the frontline setting in whom immunotherapy is not an option. And we can see that in this clinical trial, we see both positive PFS benefit as well as positive overall survival benefit. And overall survival benefit is with a hazard ratio of 0.79 and improvement by five months compared to the control arm with experimental achieving 23.7 months. This makes Daturaway the first and only therapy to significantly improve over survival versus chemotherapy in this patient population. And we believe that this sets the standard for a new potential standard chemotherapy in this patient population. Next slide. This is the results of a clinical trial called Begonia. This is an early phase 1B slash 2 study that was also presented as mole. This is the other half of triple negative breast cancer patients. And in patients, in this clinical trial, patients who were enrolled regardless of the PD-L1 expression, and it's important to note here that there is the addition of the durvalumab in addition to the DastroA in this Begonia clinical trial. And you can see here that the response rates are very impressive, with a response rate of almost 80%. But it's also remarkable that the spider plot shows very durable responses. And these are very encouraging. And as you know, we do have this exact combination, the doublet combination of Daturaway and Durvalimab being tested now in a randomized phase three study in a patient population. called TB05. This is an ongoing study, and we're very hopeful that we can replicate this outstanding data in a Phase III setting. Next slide. We also want to mention that we have initiated a new trial of DATCHER-A in bladder cancer, tropion urothelial 03. This is a new trial that's just started in October of 25, just this month, in patients with bladder cancer. And you can see that the natural way is really expanding beyond the lung and breast cancers that you are familiar with. Next slide. This is clinical data that was presented not at ESMO, but at the World Congress on Lung Cancer. And this is the ID8 lung 01 clinical trial, phase 2 single arm trial in patients with relapsed refractory small cell lung cancer. This is our first paper study for the IDXT program. And you can see that the response rate, the primary endpoint here was quite good. And we are interested in further pursuing this compound in small cell lung cancer and also we are having some conversations now with our regulatory agencies on this particular clinical trial data. Next slide. I do want to mention here that the safety profile of IDXT in this setting, in the clinical trial that you just saw, was quite good. And on the basis of these data, the safety data and the clinical data, the FDA did grant us that breakthrough therapy designation for IDXT in extended-stage small cell lung cancer back in August of 2025. Okay, next slide. This is the results of the REJOICE OVARIAN-01 study. It's a Phase II-III study in which, And at this point in ESMO, we presented data on various doses of RDXD in ovarian cancer, patients who have platinum-resistant ovarian cancer. And you can see that in all those levels tested, there is very good activity of the drug in ovarian cancer. And this allowed us to select the dose of 5.6 as the study for phase three portion of the study based on the combination of the efficacy and safety data that we accumulated in the study that you're seeing here. Next slide. Okay, so this is a summary of additional regulatory approvals and clinical trials data. And you can see that we have initiated three new studies and also that the DATCH relay was approved in China for the TB01 indication. Next slide. In the next few slides, I want to highlight for you some new trials that are starting in phase one stage. First is the DS3939 program, and this is the clinical trial data that was presented at ESMO. It's a phase one slash two trial, and this is really intended to understand the safety, mostly, of the drug. But you can also see that there is early activity we can see in patients with various types of cancers, including non-small cell lung cancer and ovarian cancer. So this is very encouraging that we are already seeing tumor shrinkage and efficacy in the setting of a dose escalation clinical trial. So we are very encouraged and we are hopeful that we can do further with this drug. Next slide. There are a couple of new additional trials that are being started. So the next one is DS3790. This is a DXDAdc. This is the seventh in our series of DXDAdcs. And this one is directed at a target called CD37. CD37, as some of you may know, is a B cell target. And so therefore, we are very interested in studying CD37 in B-cell malignancies, such as lymphoma. And so this is our, so we do intend to start the study in the second half of the current fiscal year. Next slide. DS9051. This is a new program in solid tumor. And this is our Dyche-Sankyo's first targeted protein degrader. So this is not an ADC, but it represents a totally different mechanism of action that is a targeted protein degrader. And we are very interested to initiate this clinical trial. We have not disclosed the target protein, but please do note that it is intended for prostate cancer. Next slide. Finally, the last one is DS5361. This is a quite unique mechanism of action. This is a small molecule NMD inhibitor. NMD stands for nonsense mediated messenger RNA decay. But typically, if there is a mutation in the gene that results in a nonsense mutation, that messenger RNA is spontaneously degraded through a mechanism known as non-sensor mediated messenger RNA decay. We have developed a small molecule that inhibits this decay. So therefore what this really means is that in many cancers where there is non-sense mutations, frame shift mutations that result in non-sense mutations, the messenger RNA remains intact and then therefore translated by the cell into proteins and peptides that are typically not expressed by that cell. So this results in expression, therefore, of neoantigens that are unique to the tumor cells. And so please consider that this small molecule NMD inhibitor, therefore, is an as an attempt to increase the immunogenicity of tumor cells, and therefore is in a class of what we have called immuno-oncology therapy. So this is a very exciting, very unique mechanism, and we are very excited to be initiating a study with this compound. Okay, next slide. Okay, so in terms of news flow for the rest of the year, this is shown here. You know, as I mentioned, we anticipate upcoming regulatory decisions with the PDUFA data already decided for DB09 and DB011. In addition, we are expecting data readouts as shown here on the right-hand side. And as the data become available, you'll see announcements from us. Okay, and that's all from me, and Sakura-san, back to you.

Yes, slide 32 is an introduction to future IR events. On November 28th, Japan Time, we will hold the Sustainability Opinion Exchange Conference. On December 16th, we will hold the Science and Technology Day. Once the details are decided, we will introduce you to the event. From here, we will move on to business questions. You can ask questions either in Japanese or English.

And if you have two questions, please ask them one by one. And we'd like to ask you to limit your question to two questions per person. And if you have a question, please use the raise your hand button on the bottom of your screen. And the first question is Yamaguchi-san for a city group.

This is Yamaguchi of Citi. Can you hear me? Yes.

This is Yamaguchi of Citi. Let me ask you my first question. And this is about the first half result, especially limiting to Q2 only.

As you have explained, the gross profits in relation to vaccine and also manufacturing-related matters

there was the increase of the cost, and also SG&A, there's an increase excluding the co-promotion related matters, and there are some specific and also very special increase, excuse me, and core versus the sales, there are a series of costs, and then And is it because that there is something which is unexpected, or is it kind of the one-time issue and your main business is going fine or not? That is my first question. Thank you very much for your question.

This is Ogawa speaking.

Yes, our main business is doing really fine. And how to, that way... and our major products are doing very nicely. And as to SG&A, and for Q2, and profit share part, naturally, due to the NH2 and the data way in relation to the profit share, that would be reflected and that there is no change at all. In other parts of the SG&A, and we call that is others, but you may see this is large. But if you look at the whole year for FY25, we also reflect the impact by the foreign exchange. So at the end of the year, we expect the 30 million increase And we have 19 billion. Therefore, that would be about 11 billion. So it is a slight increase. Therefore, SG&A, as we did before, oncology business to be supported. We need the infrastructure for that. And also investment to the organization and the human resources are continuing to be incurred. And I also would like to give some additional comment about our costs. And please refer to some supplemental material, and there is some adjustment table, and that is the translation from the core to the non-core. This time, well, we normally do not have an opportunity to ask you to refer to this document, so I would like to ask you to refer to that table, taking this opportunity, and I would like to explain based on that table, and we have one-time cost this time, 18.5 billion yen on a core base, in a core operating profit, that was a one-time cost 18.5 billion yen was booked and then this time on the bottom especially in this the material in the mid we have some nodes here and to show our current profitability core operating profit is disclosed and this time especially Based on the definition, one time that the large amount of the profit and loss is included and there is something which applies to this criteria, for example, and in this adjustment table, for example, There is a compensation to CMO loss, and that wasn't explained in the presentation. And this compensation was 12.7 billion yen. And in addition to that, this compensation, especially for the HER3 study result-based the changes and the strategies happened or made. And therefore, that way and her three inventory, the impairment or the loss is really due to these changes in strategies. And therefore, those are all regarded as the one-time changes or the repayment. Therefore, we have 17 billion yen. That is the largest one. And such a one-time amount the registered here therefore the full base adjustment took place and that was the SGNO and we have a 29.6 billion this is a huge amount and this is a prior to the cost sharing with the partner and adjustment of after the cost the sharing is reflected in that 12 billion or so and we have increase and decreases and the full base and core base adjustment there are some the adjustment major amount of the adjustment made so that may be a little bit difficult to understand but this is what we did and in a core base in the second quarter Dai Chirona and Enha 2 in the case of Enha 2

Especially in the manufacturing lot,

There are a series of the unqualified lots generated, and those are going to be disposed as from an inventory. Those are included in the non-core area. And to Enha II, the cores identified and also the countermeasure has been already taken, so this will not give any impact to the plan of the supply. And for Dai Churona, and there is a major reduction of the demand and therefore we have booked the inventory loss and this has been the lengthy explanation but that was the thing. And I'd like to have another short question. This is about Datroy doing very nicely and since we have Ken Kellerson with us, so we'd like to understand the situation, competitive situation, especially both in lung cancer and breast cancer situation in the United States, especially the competitive landscape.

Great. Thank you for the question. So when we look at DATRAway, and I'll talk about the U.S. specifically, we're seeing very good adoption in both the HR positive HER2 negative space and also the non-small cell lung cancer space. There's two different dynamics going on. When you look at the lung cancer space, this is a large group of patients where there's not very satisfactory options today. and there's many patients who have gone through numerous treatments and they were waiting for something new. Datraway is filling that space today and we're seeing very nice uptake and reports of excellent experience. In the breast cancer space, Datraway is also doing well and I think what physicians are seeing is that this is a drug that they are finding they can manage the toxicities They're seeing that the schedule is advantageous compared to the competitor. And those two factors are really causing people to trial with the drug. And as they gain experience, we expect that is going to accelerate.

Thank you.

Thank you.

Next question.

Let me move on to the next question. Mr. Hashiguchi from Daiwa Securities, please.

Yes, thank you.

I am Hashiguchi from Daiwa Securities.

Similar question from myself. In terms of the core LP, inventory write-off, Are we expecting a similar inventory write-off going forward? And one north coast is called a non-core, but this is core.

So probably the similar write-off may happen again into the future. So with regard to Daiichi Rona, depending on the market situation, do you think it is likely to do another write-off of inventory into the future? And with regard to NHAR2, I know you have taken action already, but can you explain the background, why that happened, and what exactly did you do?

Do you have any information that will give me peace of mind?

Sorry about that.

I was muted. Thank you very much for your question. With regard to Daichi Rona, at this point of time, We have put this number, I mean, based on the latest information. When we see some changes in the future, there may be another write-off, but this is based on the latest, the best estimate. And with regard to NHAR2, the actions were taken and we have already identified the root codes and we have taken a measure to prevent the same thing to happen so you can rest assured that same thing will not happen I cannot deny the possibility you know at all for sure, but at this point of time, we have taken corrective measure. Now, my second question is regarding that pure whey breast cancer. It's progressing better than your expectation. Why is that? What is driving better than expected performance? And also, when you explain about the in-heart, you oftentimes refer market share. What about the natural way in breast cancer? What's your market share right now? And TROP2 ADC, you know, compared to the competitor, TROP2 ADC, how do you compare your product? Is there any more room that you can take share away from them?

Thank you for that question. So to answer your question, yes, there is lots of room to take more market share from the existing competitor, which is a drug called Tredalvi. Datua is really in its early stages of launching in the breast cancer space. The reasons why people are eager to try this drug is, number one, the efficacy looks very good in clinical trials. Number two, in the real world, Datraway has a very nice scheduling advantage, as it is dosed every three weeks. The competitor is dosed day one, day eight, day 21. So you can imagine the inconvenience of going to hospitals or clinics far more often. And number three, the toxicity profile of these two drugs, Datraway and Trodalby, they're different. And there's many physicians and patients who struggle with the toxicity of Trodalvi, being neutropenia and difficult diarrhea, which can actually cause febrile neutropenia and place patients at a higher risk for going to the hospital. And so they see Datraway as a more convenient, potentially an excellent drug, and they want to try it. And so that's why people are using it more than we thought. And I'm happy to report their experience is matching their optimism. And I think with the data that we shared at ESMO in the triple negative breast cancer space, that's going to add to the excitement of this product.

Thank you very much.

That's all from me.

Next question.

Ueda-san of Goldman Sachs, please. This is Ueda of Goldman Sachs. I would like to also ask you about the inventory write-ups. In a core base, Dai Chirona and Enha 2 were included, and what was the specific amount of money? And without this amount, then core base, the gross profit rate should have been the same as the level of the first quarter or not. Just roughly, what was the impact size?

Thank you for your question.

As to the sense of the size, with Enha 2, about 5 billion yen, and Daito Rona, about 5 billion. that was the rough size so that would be about 10 billion totally and in the second quarter and we have a high cost of the cost ratio as you understand and then with this 10 billion then then it is about a one percent increase of the uh the cost ratio and then uh this term we will not repeat the same situation as we expect. Therefore, in the third quarter and after, we will see the improvement of the cost ratio. Therefore, the cold year, we expect the rate of 21.9%. Thank you. This is a follow-up question of that. And in a core base, in the first quarter to the second quarter, The cost ratio seems to be worsening greatly, maybe by 5% or so. And the background is from first to second quarter, there wasn't any, however, the product mix greatly. So what was the contributor of this worsening by 5%? As far as we see, in the second quarter, vaccine sales was reflected. So that's why this contributed to the worsening of the rate of the cost. Understood. Thank you. Then, if that is the case, then the second question is about the modification of the plan. And the revenue, you have raised by 100 billion, so the core operating profit hasn't been changed. So with the Forex, there will be the increase by about 6 billion, and with Enha, two sales increase and so forth. Of course, there is the increase of the profit share, but in line with this increase, then there will be the increase of the profit also at the same time. So are there any offsetting factors? For example, Enhatsu Daichirona may be reflected, but what are the factors to offset so that the co-operating profit would stay flat? Thank you for your question. Yes, Enhatsu and Daichirona cost impact is, yes, one thing contributing to this. Another thing is the milestone income, and there is some shift of the timing. DB05 or 11, had expected its milestone payment for this fiscal year. However, that will be postponed to the next year. And 11, we have some results already, but there is some other shift expected. Excuse me, the milestone on the page 38 and how can I interpret the table and enhance milestone wise, then versus the April forecast development milestone was in positive number. How can I understand that? Thank you. Thank you very much for looking into the material very in detail. And as of April, the PB09 was not reflected. However, this is reflected this time. So, GB09, and based on the PDUFA January, we have made some changes. That is the situation. Then, the development milestone-wise, the number is positive. Therefore, rather, and the one-time impact of the cost and also the increase expected for the SG&A. So these are offsetting the increase by the increase of the sales and profit. That's correct. Excuse me, just a moment. Just a moment, please.

We are making some confirmation.

Please give us a few moments. Thank you for your understanding. Well, what I have stated was not really wrong. Yes, what I have stated correctly, about 10 billion yen or so, the milestone payment, however, As of April, when we made the announcement last time, well, this wasn't announced at the time, but this was reflected already in the forecast at the time, and the benefit date, however, hasn't been determined. So PD0511 milestone, wasn't disclosed in the financial documents at the time. However, this time we are now giving explanation additionally. So how you understood was correct. Oh, I understood. Thank you very much. This is the end of my question.

Next question is from UBS Securities. Mr. Sakai, please. Hello, this is Sakai from UBS speaking. One of profit and loss income related to the litigation with the former Rambaxi shareholder, 4.2 billion yen.

I think it was Malaysia hospital group.

So the litigation was filed with them.

The founder has shares, but you took some court action to make sure that the founder does not sell the shares.

But then IHH is claiming that they are producing some losses in total of 200 billion yen. And this litigation income is positive, but this is a legal procedure. I'm not sure if you can comment on this, but 200... billion yen. This number, when it's misunderstood by the market, that will lead to the scary situation. So I just wanted to clarify what's going on. Thank you.

IHH subsidiary NTK has made a

it has made a complaint and this is the amount of the compensation based on their complaint and we believe what they are saying it does not have any ground so we cannot agree with them we are going to challenge them we are proceeding with the you know legal procedures whereby we make a reasonable statement what they are saying with it we believe is groundless 4.2 billion yen income this time with regard to that. So far more than 50 billion yen loss litigation. The total we expect was 50 billion and finally we were able to receive 4.2 billion out of 50 billion.

Is the income received separate from the IHH?

Is it still dealt at the Tokyo District Court?

Is that the situation right now? Yes, that's our understanding, yes.

Thank you very much.

Another question from myself.

Question for Kera-san. Can I see Datterway finally taking off? You said third line, fourth line for breast cancer, non-small cell cancer, and taking some shares from True Therapy. Given all these comments from you, fourth line, third line, and fourth line, that way is being used regardless of TROP2 positive or negative.

Yes, the indication is not TROP2 specific. So the indication for breast cancer is HR positive, HER2 negative, regardless of TROP2 expression. Doctors aren't testing for TROP2 expression today. So it's agnostic to that. And you're correct. We're getting usage in the third and fourth line. It's growing. Every week we look at the scripts. And so we'll see that adoption continue to grow. And the same is true in the non-small cell lung cancer space. We're getting late line use today. And there's no testing for TROP2 in that space as well.

That remains to be the use for third line and fourth line use then.

Yes, today that's where most people are using it. As they gain experience, I fully expect that it will move earlier and earlier. And just as a reminder, the triple negative breast cancer data that we shared at ESMO, that's first-line metastatic patients, triple negative. That's first-line. And I think when people look at that data and they see the safety profile, that's going to really add confidence and assurance to move this drug up earlier and earlier.

Right. OK. Thank you very much.

Next question. of JP Morgan, please.

This is Nakao speaking.

My first question is about the American region situation. As you say, in the second quarter, the result was rather poor. And this term, the plan has been downward corrected. And what are the factors? And also, please tell me the future prospect.

Thank you for your question. And so far, especially in terms of injectifer, we had so many challenges to overcome.

One thing was high-dose market itself has a very severe competition, and competition is getting severer. And with that as a backdrop, an injectifer usage is now on the decline. So, we have forced to change the sales forecast. And for Lenovo, yes, there is a high demand and also we have some significant share. However, the competition appeared in August. The generics were approved and the three companies had launched their generics. So, well, the impact side so far is still limited, but after the third quarter and onward, there will be the pressure to the volume and price are expected. So considering all those factors, we have decided to make a downward correction of the forecast. Thank you. Listening to your explanation, for the Venofa, there are some generics already available. Therefore, the future is not really bright. And for injector, the situation is getting very difficult. So injector and Venofa at American region expect a decline. And then for how you can maintain with the generic injectables, would that be the policy? Yes, that is the situation. And further, on behalf of the American Asia region, we expect to make them as an ADC manufacturing site, and we are making investment. Until the end of fiscal 27, we plan to start up the manufacturing over there, so it will be having more importance in that area.

Thank you.

My second question is about the new projects, just briefly. 3790 and 1951, and 3790 for the DXDC advantage to the hematology, and when CDM is the target, and 5361 in summer, You said that you are going into the immuno-oncology, and is it one of the immuno-oncology drug?

Yes, so let me answer the quick answer first. 5761, yes, it is part of our immuno-oncology program for sure, yes. And your second question about the 3790 program, I think the question was why was this chosen as our target? And we did choose this because it is a very specific B-cell target. And it is somewhat different from other types of B-cell targets such as CD20. So it allows us for some differentiation versus other targets. And we do think that this is going to be a very interesting one to study with a DXT-ADC platform based on... a huge amount of preclinical data that we have generated so far. And also the fact that there exists already at least one ADC in a B-submalignancy called polyV. So there is that precedent also. So I think we're very hopeful to see very interesting data with this new compound.

Thank you very much.

Let me move on to the next question.

Sogi-san from Bernstein, please.

Thank you. A couple of questions to Dr. Takeshita. So, first of all, you know, the data where you have just, you know, disclosed that now you are initiating FADE3 tropion urothelial 03. You know, you presented a very good, strong data in your first line at ESMO. So, you know, this totally makes sense. And also, you know, this doesn't appear to include patient selection based on QCS. So, so far, you know, looking at a different cancer type, it looks like, you know, the non-small cell lung cancer is the one that requires the QCS-based patient selection. What is the current, you know, your current hypothesis that what, you know, what kind of, you know, the factor that makes the QCS-based patient selection required for the DATO-DXT?

Yes. So yes, you raise a very interesting biological and clinical question in that yes, in some diseases like breast cancer, we don't seem to need a biomarker selection, whereas in lung cancer, we are proposing to use this very fancy one called the QCS digital pathology technology. So I think your question was what makes certain cancers require biomarker and why others do not require. I think that's your question. Yes. And, okay, to be very frank, it's a lot of, I don't have a very good biological explanation for this. And, in fact, what we are doing is with each indication, we are testing to see whether or not a biomarker is needed or not, and then proceeding to do randomized studies in registration setting once we have that understanding of whether or not a biomarker is required.

Thank you. The second question is around new assets beyond ADC. So for ADC, we understand that you have a long-term effort to really – the improved modality, and now you're expanding the assets through that modality. What will be your differentiated strength in these new type of assets? Is it a really modality-based, which you have differentiated in a modality-based, or something else?

Yes. So we are a modality-based company. When I say modality, we're talking about a platform like the ADC platform. And once we are, because we are very good at generating ADCs, we can generate all kinds of ADCs, not just ADC dependent on the payload of DXT, but many other payloads, many other linkers. So that is one important part of our longer-term research strategy. But in today's presentation, you can also see an emergence of yet another modality. For example, with this TPDs, the targeted protein degraders. That is yet another modality that we are very interested in. It's a modality that other companies have also invested in, but that we too are very interested in this part. And then immuno-oncology. that the 5361 program, it's an immunoncology program, but you can see that it's a very different type of approach to immunoncology compared to most other companies in a sense that we are using really a very novel way to increase neoantigen presentation by tumor cells. So I do want to mention, therefore, that, yes, we have all kinds of ADC modalities, but we are expanding to other types of modalities. Thank you.

Thank you very much.

Next question.

Barker from Jefferies Securities.

Yes, it's Steve Barker from Jefferies. I'll ask my question in English if that's okay. My first question is, about capital allocation in may this year you got approval to buy back 200 billion of shares which you you haven't executed and my understanding is that you wanted to preserve your cash for example for acquiring new assets uh but it's already october um What's going to happen between now and the end of this fiscal year? Is it possible that you will not buy back the shares and you also will not acquire any new assets? Thank you.

Thank you for your question. Let me ask in Japanese. As to the share buyback, That was your question, and is there any possibility that we are executing that or not by the end of the term? As we have explained, it depends upon the stock price level and so forth, and things are decided comprehensively to find the right timing and the right way to do things. So if the right timing comes, then we would execute. But the important point here is that towards the goal, future, we have to make investments, and we have to allocate cash for that, and also we have to invest to R&D and OPEX also, and these should also be carried out in good balance. And also acquisition of the external asset could also be one of the options. So if opportunity arises, then we also would like to allocate the fund. So we will make a comprehensive consideration to decide the timing and to execute the plan.

Thank you. My second question is related to R&D. So DS9051, protein degradation. I was wondering if you could talk a little bit about how you see this asset fitting into the bigger picture. Do you see potential for this asset in particular or other protein degradation assets to be combined with your ADCs?

Yes. Strategically, we think of this 9051 in two different ways. One is that it is our first one in our series of TPDs, the targeted protein degraders. So from that standpoint, it's a very important first step for our TPD program. And as I mentioned, there is interest of this compound to target prostate cancer. And as you know, we have some additional compounds and assets that are active in prostate cancer. So in the longer term, you can imagine various combinations that might be interesting and really also another way for us to establish ourselves in a specific disease such as prostate cancer in a way that we are well established now in breast cancer.

So you say you have a series of TPD programs, so we should expect to see more programs like this come into the clinic?

I think in the future you can expect to see more, yes.

Understood. Thank you.

Let me move on. From Morgan Stanley MUFC Securities, we have Mr. Muraoka, please.

Thank you very much.

i am from morgan standee i have a question to ceo mr okzawa earlier mr ogawa was commenting on buyback and based on what i have heard from mr ogawa i have a follow-up question your stock price dropped quite significantly uh today and almost the same level as the pre I know you are inclined to buy something, but I really appreciate if you can execute another buyback in this timing. Is there anything that you can comment? Mr. Muraoka, I understand what you are expecting of us. Well, we investigate all possibilities and we make a decision of cash allocation and the share buyback is one of the options, but that is not the only option. And in terms of the shareholder return, as I have mentioned from previous time, I am committed of DOE 8.5 and more. And this is something, this is a commitment that I made as a top management, and that is always sitting in my mind. As I mentioned in my presentation, you know, important KPI, like a DOE, 8.5% and more, regardless of the share buyback execution. This is a commitment that we have. I would like to reiterate that once again. Thank you.

Thank you very much.

It's not the level of share price which drives or triggers share buyback. Sorry, I cannot say anything about that. We are not following a short-term up and down of a share price.

Thank you.

With regard to the one-time cost, which is the CMO compensation fee, I think this is related to R3. The launch is delayed, so you need to pay CMO compensation fee. That I think I understand. But due to the compromised quality of CMO service, you are not really able to receive approval in a timely manner. Wouldn't it be not fair that you pay compensation fee to CMO?

Can you explain? Thank you very much for your question.

In this study, we've asked SCMO to handle complete response as a result of the FDA audit. And then we told you that that issue has almost been resolved. And your point is indeed valid. And probably this CMO didn't have a good quality of service. But R3-DXT is not approved yet for initial lung cancer. But following confirmatory study, Harsena-Lang O3 didn't meet our expectation. That was the major reason. But this was unfortunately due to the lack of performance of our compound CMO and our relationship. is as follows. We have certain expectation on technology on SCMO and we have a demand forecast based on such. We need them to produce a high quality product in a timely manner. And that's the trust relationship we thought we had. And based on what happened, Basically, we thought that we may need to pay cancellation fee as such. That's why we booked this number. But, DXD ADC, other than our HAR3, may exist, and this is a Merck partnership with Merck. From Merck's perspective, how can We use the same CMO in a different manner. It's a multifaceted discussion that's needed, and we thought that this is a reasonable landing point for all the stakeholders. Thank you.

The next question is from Tony Rensan from Macquarie. Please go ahead.

Hello, Tony. I'm from Macquarie. Can you guys hear me?

Yes.

Okay, perfect. Yeah, thank you for taking my questions. So first question is to Mr. Ken Kellerson. So on number 12, the natural way revenue, I wanted to ask you if you could possibly give us a sense of the revenue model. mix between lung cancer and breast cancer. I think I heard you saying that they are about equal between lung cancer and breast cancer. Just wanted to confirm that I heard correctly.

Yes, thank you for the question and you are correct. When we look at the US marketplace where we have both indications, actual revenue is pretty close to 50-50 at this time. We believe the number of patients are about the same because the length of therapy between those two indications in terms of progression-free survival is about six months for both. So we think that is a good proxy since revenue is about equal there. We think it's about a 50-50 split right now. I would say that the early adoption of lung cancer gives me the feeling that we're going to see the lung cancer market grow even more. than the HR positive HER2 negative breast cancer space as we look at the next couple of months at least. Does that answer your question?

Yes, it does. But obviously, the breast cancer, you guys have the first line triple negative coming, right?

Yes. My comment was exclusive to the HR positive HER2 negative. When we get the triple negative breast cancer indication, based on the profile of the drug, where we saw a doubling of overall response rate. The competition today cannot offer that. We saw really impressive progression-free survival. We saw, obviously, the only drug in that space to deliver overall survival. And then you've got some of the convenience advantages I spoke about earlier. I expect this drug to do very well in that space.

Yeah, absolutely. And that's a feedback that I heard from Esmo as well. A number of KOLs told me that they think they will switch from Chodelvi to the actual way. Next question to Dr. Takashita. This is about your new asset in your filial carcinoma, your tropion, your filial 03 study. This is obviously like it's being attempted in the post-passive and PEMBRO setting. They have roughly about 55% market share in front line within the U.S. They have roughly about 55% market share in front line metastatic urothelial carcinoma because it's actually quite a toxic product. combinatorial regimen, not to mention the financial toxicity, quite expensive regimen as well. Are you guys looking to target the remaining 45% as well, patients who are just using chemo combinations?

Yes, thank you for that question, and yes, that's certainly under consideration.

Okay, perfect. Thank you.

Next question is from SMBC Nikko Securities. Mr. Wada, please. Hello, I am Wada from SMBC Nikko. Thank you.

I have a basic question. Your ADC technology is differentiated

from other companies in what way? Like, can you talk about the point of differentiation? Takeda collaborated with Innovent, and they also have been focusing on ADC, and there are many other Japanese companies developing ADC. So you have ADC technology and uncreavable linker technology. You have site-specific conjugation.

You know, can selectivity bind drugs?

Like, I feel like your ADC technology is being bought up by competitors, but five ADCs, I think, is highly differentiated and very competitive, but for the rest, I think there are other players who are looking into the same technology. So I wonder what's your major point of differentiation?

So our research group has been working on ADCs of various sorts for many, many, many years. And so we have a whole library of linkers, payloads, and binders. So currently in the DXD ADC program, we are well underway in the development of those DXD ADCs, the first generation ADCs. And that has incorporated the best of the linker technology and best of the payload that we have in the DXD series. And in addition to that, I have to say that a major differentiator compared to competition has to do with time. I think we are far ahead of what other companies are doing, especially when we look at N-HER2. Now, in the future generation of ADCs, as I mentioned, we have a whole library of linkers and payloads. And based on all the biology that we understand with these payloads and linkers, we can create new drugs where the linker releases the drug sometimes not in the cell, sometimes on the cell, sometimes just outside of the cell, sometimes the right microenvironment. We can create all those new different ADCs just simply based on varying the linker. The same thing with the payload. We have a variety of payloads that we can use. Sometimes they are cytotoxic in the way that DXD is, but we have additional biological targets and other targets and other types of payloads that are not necessarily small molecules that we can use to create new entities and new ADCs. So I think that's really our major advantage in that we have invested a huge amount of research in the ADC space.

Thank you. And this time you've introduced new program on page 29.

This is the FrameShift mutation inhibitor that sounds quite novel. I think in the past you were developing a cancer vaccine, and I was wondering maybe that kind of triggered the development of this new program. And my question is, to confirm as follows. So through this inhibition, the neoantigen, cancer-specific neoantigen, PD-1 activate killer cells so that we can identify the tumor cancer easily.

And specifically, we are targeting what we would call frame shift mutations, which are very common in cancers. Frame shift mutations typically results in shifting of the triplet read-through of the amino acid codons and resulting sooner or later typically in a termination codon. The drug allows read-through of that termination codon to produce additional sequence of amino acids that are not typically coded in the normal genome. So these are really the genesis of the neoantigens that we're talking about that's very specific to that cancer cell. And as noted on that slide, we can also see that combination of this drug with a checkpoint agent such as PD-1 really enhances the immunologic system to recognize and eliminate tumor cells, at least in animal models.

Thank you very much.

I'm looking forward to the data readout. Thank you.

Next is the last question from JP Morgan Asset Management.

Sawada-san, please.

Thank you.

This is Sawada of JP Morgan Asset. Can you hear me? Yes.

I have two questions.

The first question is about the numbers. well it is rather complicated but the core operating profits and there is some comparison the challenges or then this year you have a 10 billion yen of the liberation losses and then last year You have 12.2 billion yen of the realization of the unrealized profit. Therefore, the 21.2 billion, there is a difference between last term and this term. Am I correct to interpret in such a way? Well, can you please explain such things? Because that is rather complicated, so I'd rather you to explain it more in detail.

Thank you for your question.

Well, let me apologize that the explanation was not that complete.

Unrealized profits in the past fiscal year,

And this year, in the increase and the decrease of the revenue, there is 11.2 billion yen in the contributing to the negative growth of the revenue. Yes, that was one of the factors. So, versus the previous year, this is really the difference coming from that. And also about the cost of the sales and the co-operating profits, In the presentation slides, there is some description on page 6. And then we have an increase of the cost of the sales. And in this cost of sales increase, about 10 billion yen due to Anhartu and Dai Chirona. evaluation loss included in here. So these factors have been explained. So these are the factors of the changes or the variabilities in the core operating profits. So in other words, I would like to confirm separately, but in the past year, last year there was a core, but there is a one-time and realize the profits. That is 11.2 billion yen. That included last year. But on the contrary, this year, it is a core. But there is some specific loss of . Therefore, there are the differences between this year and last year over 21.2 billion yen. Yes, you are right.

Thank you.

Another question is about the R&D. 37 and 90 and the cd20 is expressed in the cell therefore the review farmer is working on the adc for dlbcl as i recall however their orr wasn't that promising but on the other hand in your case And when I checked at the clinicaltrial.gov, you are not limiting to DLBCL, but you just say the hematological malignancy. So you recruit a wide variety of the patients. And it only says the hematological malignancy assessed, and you do not say DLBCL. It's not limited to DLBCL. So why don't you limit it? Why do you develop? Why can you develop to cover a whole range of different hematological malignancies?

B-cell malignancy as a category includes not just DLBCL, but many other types of lymphomas, such as follicular lymphoma, mantle cell lymphoma, marginal zone lymphoma. So there are many types of B-cell malignancies besides just DLBCL. So that's one. And in fact, there's another B-cell malignancy called chronic lymphocytic leukemia, which also happens to be CD37 positive. So this is the reason why the designation of hematologic malignancy is used in the clinicalchild.gov listing.

Thank you very much. This concludes my question. There are other people raising hands, but unfortunately, we have exceeded the scheduled time. So with this, we would like to conclude the Q&A session part one of the financial results reporting. And please contact our IR members so that your question will be answered later. Thank you very much for your time. And after this, at 5.10 Japan Standard Time, we would like to start the question and answer session of the people from the press. Thank you.

Ladies and gentlemen, thank you very much for waiting.

Now we would like to start the Q&A session with the media. We have Representative President and CEO Okuzawa and the head of global R&D, Dr. Takeshita, and we have Ken Keller, Director and Head of Oncology Business. We have Ogawa, CFO of the company.

If you have any question, please press raising hand button at the bottom of the Zoom screen. When your name is pronounced, please unmute yourself.

And after you are done with your question, please put the raise hand button off. So now floor is yours.

First question is from Nikkei BP.

Mr. Yamaji, please.

Good day. This is Norika Yamaji from Nikkei Biotechnology and Business. I have two questions regarding R&D. First question is about pipelines dropped from the list of key pipelines. I have been comparing the list of key development pipelines as of last October with the list as of this July, and two clinical studies seem to have been dropped from this year's key pipeline list. These are Tropion Pantomor 02, which was at the Phase 1-2 stage in China, and the other is DS1055, which was at Phase 1 in Japan and the United States. So, could you kindly share the reasons why these have been removed from the list? Thank you.

Yes. For the DS1055, we have terminated that program due to lack of efficacy we saw in that Phase 1 clinical trial. And on the pan-tumor trial, this is for the I don't, you know, I actually do not believe that we have terminated a pan-tumor program. So, I think, I'm pretty sure that it's continuing, doing a survey in a pan-tumor setting. So, I think it is still going on.

Okay, thank you. I will check again. And my second question concerns The DS5361 mentioned on slide 29. Has the first in human study already commenced? And if not, could you please let me know the anticipated study date? Thank you.

So the 5361 program, it just started this month, October 2025.

Thank you.

Next question is from Nihon Kei by Keizai Shinbun. Morikuni-san, please. This is Morikuni of Nikkei. Can you hear me?

Yes.

Thank you. Up to two questions, right? Yes, two questions per person, please. Understood. The first question, just a request for your clarification and confirmation, and as to the inventory write-off, Dai Chirona and Enhatsu were the major cause, and why did that happen? You have already elucidated the cause, and can you please elaborate on this as much as you could? Thank you for your question. For both of them, they have different reasons. For Daitrona, we originally planned the usage rate and also the immunization rate declined, so that the raw materials and products won't be used any longer, so they were written off. And as to Enha 2, in the course of the manufacturing, There were some lots which were unqualified. The cause was identified in the manufacturing process and the measures to avoid the recurrence has already been taken and implemented. Therefore, we do not expect any recurrence of such problem and that has been already confirmed. Those are the expected write-off in relation to these. Thank you for the clarification. Another question about one time the CMO inventory, the loss, excuse me, CMO, the compensation. And can you please explain it again briefly? Because I couldn't get it all completely. Thank you for your question. For CMO, the damage compensation per 3DXD project product future development strategies have been greatly changed. So, and also we have completely changed the launch program or schedule. And we have decided not to handle that product for some time. Therefore, we have decided to ask CMO to cancel that allotted manufacturing line. And for CMO, they actually have some capacity saved for us, but that capacity won't be used. we were forced to pay the cancellation fee for that and that would be the 12.7 billion yen.

Understood.

So what do you mean by the change of the development strategies?

Thank you. H3DXD this year or fiscal year.

We have decided to withdraw our filing to the authority. So in relation to that, for the moment, we will postpone the launch far ahead in the future. Therefore, that is the major change of the development strategies. And we have changed the launch schedule also at the same time. Understood. Thank you.

Next question is from ,, Yoshimizu-san, please.

Hello, this is Yoshimizu speaking.

Can you hear me? Yes. China ADC, I have a question in relation to that. I do understand you're strange, but the Chinese ADC technology, how do you describe their threat and advantage or strength? And I think they're catching up with the production capacity, not only R&D capability. They're setting up a lot of production capacity right now. How do you see those movements?

Yes, so as you are aware, there are a number of ADCs that are being developed by Chinese biotech companies, and they are being reported now in various conferences. Many of them have similar targets and similar payloads and similar linkers, but they're not identical to the ones we use. I think many of them are what we would call fast followers, that once a target linker or payload has been validated by another company, there is a a fast follower strategy that many of these Chinese biotech companies are following to immediately begin their phase one and highly abbreviated phase two program before launching into a much larger clinical trial all within China. For us, it's very difficult to understand whether or not the Chinese data is directly comparable to what the clinical trial data could be expected in a much, much, much larger global setting, in part because of the differences in the standard of care between China and the rest of the world. And so I think it's so, you know, really from a patient standpoint, of course, it's very nice to have options. But in terms of, I think you're talking about competitiveness, I do want to make sure to mention that typically from a timeline perspective, we are going to be ahead of the FAST followers. They actually, as I mentioned, they're following us. And our major emphasis is on clinical trials that are being executed, not just in a single country like China, but in various parts of the globe.

Thank you very much.

Well understood. In terms of the production capacity, not only R&D capability, like how do you see their production capacity? So you're asking how do we see Chinese companies, you know, effort to expand their production capability in China, correct? Yes. We do work with multiple number of CMOs and going forward we can continue to work with the best CMO. So not only capacity but also high quality is quite important for our CMO selection. So again, we are always looking for the best CMO based on such criteria.

Thank you.

So you will also use CMO to expand your production capacity, not just fully reliant on your own capacity. Well, our own capacity, external capacity, in terms of the breakdown of those two, Well, we would like to increase the percentage of our internal production capacity going forward. That's the direction. On top of what's being planned, is there anything that you are seeking for as our next investment opportunity? No. Thank you very much, Dr. Takeshita, for a thorough explanation. Thank you.

Next question from Kurose-san of Nihon Keizai Shinbun, please.

Good afternoon.

Kurose of Nihon Keizai Shinbun. Can you hear me? Yes, I can hear you. Thank you. Listening to the discussion with analysts, And the external asset could also be purchased. And do you have any specific idea or candidate to purchase? If you have anything considering, please tell me.

Thank you for your question.

In the activities of the business development is something which is always the active such as the licensing in acquisition of the technologies from outside and so forth are included. And as you know, in the fifth midterm plan, we have a bridge pipeline internally, and then we will be making an investment internally for R&D. and the 5D DXD center, the pipeline potentiality is very high now. And then in the next six MTP, and we believe that we can now see the flourishing pipeline with this. But on the other hand, our growth speed is quite past in past five years of this mtp and the revenue it has doubled from 1 trillion to 2 trillion yen and in the next five year midterm plan period the top line will further grow as we expect in such a scale of the business and also the rapid growth uh the speed of the company's size or the scale, then in Tokyo discovery team have very talented people and they will find very important compounds and others one after another and Takeshita-san just shared a part of it as a sneak preview so to speak, an in-house growth engine is something that we have lots of expectations. But in addition, it would be combined with the possible or potential acquisition from outside. And that would be one of the major points in the next MTP. And then what would be the potential target? Well, in principle, we will focus mostly in the oncology area. We are not really limited to that. In terms of developmental phase for the late stage assets, 5DX, DADC would be the mainstay and also we have a quite rich pipeline or program in the later stage. Therefore, rather we would like to find an asset in much earlier stages which we can grow in five years and then we can expect the late clinical development or the launching in the two MDP ahead after 2030. That is what we're thinking about. Thank you very much. And one more question about the Dai Chirona. the declining immunization rates. And of course, the maintenance of the manufacturing capability is important. But in the new Takaichi administration, and safety and the health, the security is one of the major focus with them. And then what do you expect from Takaichi administration? Thank you very much. The new Prime Minister Takaichi, has a very encouraging verse and we feel it was very encouraging to us. Daiichi Sankyo has a messenger RNA vaccine of COVID-19 and we were the first to develop domestically the vaccine against it. And for enhancement of the public health in Japan and also cope with the pandemic, we would like to continue to make great contribution. We are quite motivated to do that. And in addition, including the corona and COVID-19 vaccine, last year market situation. quite frankly speaking was quite difficult and the immunization rate was not as high as we had expected due to the shrinkage of the subsidy from the local authorities or national government that was one of the factors of declining immunization rate and the COVID-19 is still the threat for the public health in Japan and we will confirm to that positioning and the government support to promote the immunization or the variety of economic assistance and also the support from the government would like to seek to support us as a provider of the vaccine so that we can fulfill our mission. Thank you very much.

Due to the time limitation, the next question will be the last. From Nikkan Yakugyo, Narita-san, please.

Hello, can you hear me?

This is Narita speaking. I have a simple question, basic question, if I may. Earlier, you talked about CMO compensation fee. I think this is related to the withdrawal of application in U.S. And when I look at the current pipeline, Japan, U.S., Asia, Europe, in those regions, is development program still going on or is there any plan to terminate?

I think you're referring to our HER3 program. And certainly we are continuing to develop this drug, HER3ADC, in many different settings besides just lung cancer. We have a major program that we started in breast cancer, and there are other cancers that are of interest to us. So yes, certainly this program is continuing.

Thank you. Understood. Thank you very much. Unfortunately, time has come to an end, so this would conclude the Q&A session with the media. Thank you very much for your participation today.