Daiichi Sankyo Co Ltd Ord

Ladies and gentlemen, thank you very much for your patience. Now we would like to start FI 2025 third quarter financial results presentation. I am from corporate communication. My name is Asakura. I will be facilitating today's session. In this presentation, we are going to use Japanese and English. We have simultaneous interpretation service available. Please click on the interpretation icon at the bottom of the screen and please select the language of your choice. If you choose original audio, you should be able to hear original audio. And then on the Zoom screen, on the live streaming, we are going to put up Japanese presentation material. we have uploaded Japanese and English presentation material in our library on our corporate website whenever necessary please feel free to download the material Today's presenters are Mr. Ogawa, Senior Executive Officer, CFO, Mr. Abe, Head of R&D Division, and Mr. Ken Keller, Head of Global Oncology Business. Now, Ogawa and Abe are going to take you through the financial results for the third quarter FI 2025, and then we are going to open the floor for the Q&A. Today's session will be recorded. I would like to ask for your cooperation. Now, Ogawa-san, please.

This is Ogawa. Thank you for participating in Daichi Sankyo's earnings briefing today, despite your busy schedule. Now I will explain the consolidated financial results for the third quarter of fiscal year 2025, announced at 15 o'clock today, based on the materials. Please look at slide 3. The content I will discuss today is as follows. Fiscal year 2025, third quarter consolidated financial results, business update, research and development update. The research and development update will be explained by ABI, head of the R&D unit. We will take your questions at the end. Please look at slide 4. These are the highlights of the current earnings. Our flagship products, the anti-cancer agents, Enherz and Datorway, continued to grow steadily, and revenue increased significantly. The cost-of-sales ratio improved compared to the second quarter, and core operating profit increased by 8.8% year-on-year. No additional major temporary expenses were incurred in the third quarter. There are no changes to the fiscal year 2025 consolidated earnings forecast from the October announcement. Please note that as reference information, the latest sales forecasts for each product are listed in the supplementary earnings materials. Although there are some movements in individual products, there is no change in total revenue from the October announcement. Please look at slide 5. This slide shows an overview of the fiscal year 2025 third quarter consolidated financial results. The revenue was 1,533.5 billion yen, an increase of 165.9 billion yen, or 12.1% year-on-year. Cost of sales increased by 13.8 billion yen year-on-year, SG&A expenses increased by 93.7 billion yen, and R&D expenses increased by 38.1 billion yen. As a result, core operating profit was 249.2 billion yen, an increase of 20.2 billion yen, or 8.8% year-on-year. Operating profit, including temporary income and expenses, was 233.8 billion yen, a decrease of 14.5 billion yen, or 5.9% year-on-year, and profit attributable to owners of the company was 200... 17.4 billion yen, an increase of 8.8 billion yen, or 4.2% year-on-year. Regarding actual exchange rates, the dollar was 148.75 yen, a yen appreciation of 3.81 yen compared to the same period last year, and the euro was 171.84 yen, a yen depreciation of 7.02 yen compared to the same period last year. Please look at slide 6. From here, I will explain the factors for increases and decreases compared to the same period last year. Revenue increased by 165.9 billion yen year on year. And I will explain the breakdown by business unit. First, for the Japan business unit and others. Sales of lateral way. Belsomla for the treatment of insomnia, and Lixiana, direct oral anticoagulant, and Tarije, the pain treatment drug, increased. On the other hand, sales of Inavio, influenza treatment drug, decreased, and unrealized profit on inventory of Daichi Sankyo ESFA was recorded as realized profit in the previous period, resulting in a revenue increase of 10.7 billion yen. The actual increase or decrease in the vaccine business, which is affected by seasonal demand after provision for returns, was an increase of 300 million yen. Next, I will explain the overseas business units. Here, the foreign exchange impact is excluded. Oncology business increased by ¥113.3 billion due to growth in sales of Enhatsu and contribution of Datoru to sales. American Regent decreased by 24.3 billion yen due to the impact of a generic entry for the iron deficiency anemia treatment, Vinafa, and the impact of price competition for Injectifa. EU speciality business increased by 13.6 billion yen due to growth in sales of Niremdo Nustandi for the treatment of hypercholesterolemia. ASCA business responsible for Asia and Latin America increased by 35 billion yen as NHTSA grew mainly in China and Brazil. Contract upfront payments and development sales milestones related to partnerships with AstraZeneca and US Mark in the third quarter resulted in an increase of 20.9 billion yen. We received development milestone income from AstraZeneca associated with approval for first-line treatment of HER2-positive breast cancer in the U.S. for Destiny Breast 09 and received a second upfront payment from U.S. Mark for RDXT, which were recorded as sales revenue. The foreign exchange impact on revenue decrease was ¥3.3 billion overall. Slide 7 shows the factors for increase and decrease in core operating profit. I've explained a 20.2 billion yen increase by item. As explained earlier, revenue increased by 165.9 billion yen, including a foreign exchange impact decrease of 3.3 billion yen. Next, regarding cost of sales and expenses. Excluding a foreign exchange impact, cost of sales increased by 12.4 billion yen due to increased revenue and the recording of inventory valuation losses for Enhatsu and others in the second quarter. SG&A expenses increased by 100.3 billion yen, mainly due to an increase in profit sharing with AstraZeneca. R&D expenses increased by 42.6 billion yen due to increased R&D investment associated with development progress of 5 GXT ADCs. The expense decrease due to foreign exchange impact was 9.7 billion yen in total, and the actual increase in core operating profit, excluding Forex, impact was 13.8 billion yen.

Next, on slide 8, I will explain the profit attributable to owners of the company. As explained earlier, core operating profit increased by 20.2 billion yen, including the impact of Forex. Regarding temporary revenue and expenses, Again, as explained at the second quarter briefing in late October, same period last year included temporary income from the sale of shares in Daichi Sankyo SFA. However, this year, we don't have such impact. Although there were incomes related to litigation with former shareholders of Rambaxi, overall income decreased. Furthermore, there was a ¥34.7 billion negative impact due to CMO compensation fee associated with the change in the launch timing of Har3DXD, as well as write-down of inventories of Datraway and Har3DXD. Financial income and expenses contributed positively to earnings by 9.5 billion yen mainly due to improved FX gains and losses. Income taxes and so on decreased by 13.9 billion yen reflecting lower pre-tax income and a lower effective tax rate compared to the same period last year. As a result, profit attributable to owners of the company increased by 8.8 billion yen year-on-year to 217.4 billion yen. Next is business update. Please turn to slide 10. This slide shows the sales performance of Enhartu. Global product sales for the third quarter of FY2025 increased by 102.4 billion yen year-on-year to 506.8 billion yen. New patient share remains number one in all major countries and regions for existing indications such as breast cancer, gastric cancer, and lung cancer. Regarding the new indications, we've started promotion for first-line treatment of HER2-positive breast cancer in the U.S. last December, driving growth in new patient share. In China, we've initiated promotion for hormone-positive heart 2 low or ultra-low chemo-naive breast cancer patients in December, followed by promotion for second-line treatment of heart 2 positive gastric cancer in January. The NCCN guideline has seen new additions and updates for multiple cancer types. First, N-HER2 has been newly added as a Category 1 recommendation for adjuvant therapy in HER2-positive breast cancer with high recurrence risk. For HER2-positive metastatic breast cancer, HER2 monotherapy was already recommended as first-line therapy based on data from the DESTINY Breast 03 trial, a second-line trial which demonstrated extremely high efficacy. Additionally, based on data from the DESTINY Breast 09 trial, combination therapy with pertuzumab has been newly added with a Category 2A recommendation. For HER2-positive uterine cancer, in addition to existing recommendations for endometrial cancer, N-HER2 has been newly listed with a Category 2A recommendation for endometrial carcinosarcoma. For HER2-positive esophageal and gastric cancers, the recommendation level has been elevated from Category 2A to Category 1. NHAR2 is already listed in the NCCN guidelines for numerous cancer types and is recommended for use. We'll continue to generate data to pursue further new listings and category updates. Next, I will explain the sales status of Datraway. Please refer to slide 11. Global product sales for the third quarter fiscal 2025 reached 31.6 billion yen, representing 83.8% of the October forecast. In addition to steady market penetration for the breast cancer indication in Japan and in the US, the lung cancer indication rapidly gained market traction in the US, significantly increasing the number of new patients. Globally, prescriptions were issued to over 3,000 cumulative patients, approximately 1.5 times more than the end of the previous quarter. Sales growth significantly exceeded expectations in both the U.S. and Japan, with lung cancer indication particularly driving sales in the U.S. Given these circumstances, we've updated our four-year forecast to 47 billion yen, up by 9.2 billion yen from the October forecast. For both breast cancer and lung cancer, prescriptions have expanded beyond projections. This is primarily due to much higher than expected unmet needs, especially in the third line and later, leading to prescriptions for more patients than expected. Additionally, awareness among healthcare professionals regarding AE management, such as stomatitis and dry eye, an area where we have focused on since the launch, has increased and experience is being accumulated. Furthermore, Dr. Wei has seen new additions and updates in the NCCN guidelines. For triple negative breast cancer, it's been newly added as a category 2A recommendation for first-line treatment. For EGFR-mutated MS-COC, recommended EGFR mutation coverage has been expanded from the existing category to A-listing, widening the opportunity for that way to make further contribution. We'll continue to pursue further market penetration in existing sales regions and expand into new countries and regions while advancing efforts to obtain new indications. We're committed to delivering NHER2 and Dr. Wei to as many patients as possible who need these medications. Slide 12 shows an update on a C-Gen U.S. patent dispute related to our ADC. Last December, the U.S. Court of Appeals for the Federal Circuit issued a ruling reversing the district court's decision that ordered us to pay damages and royalties to Cijun, finding that Cijun's U.S. patent was invalid. The court issued a ruling affirming the U.S. Patent and Trademark Office's decision that CJEN's U.S. patent is invalid, dismissing CJEN's appeal. We highly value this ruling by the court.