Sumitomo Pharma Co U/Adr

I am Toru Kimura, Representative Director and President of Sumitomo Pharma. Thank you for joining us today for the presentation of the financial results for Q2 of FY2025. I will then explain according to the materials. First, please go to page 3, the financial results for Q2 of FY2025 on a core basis. As you can see, revenue was 227.1 billion yen. Compared to the revised Q2 forecast announced in July, the increase is 20.1 billion yen. Compared to last year, this represents an increase of 46.4 billion yen. On the other hand, SG&A expenses and R&D expenses have been well controlled, with SG&A expenses down 4 billion yen and R&D expenses down 4.5 billion yen from the figures announced in July. Compared to the previous fiscal year, the amount of these items was 9.5 billion yen and 7.6 billion yen respectively, which is well controlled. Since we have recorded a 49 billion yen gain on the transfer of the China-Asia business, the total core operating profit is 96.1 billion yen. This is an increase of 26.1 billion yen compared to the projected figure in July. Operating profit was 96.2 billion yen, followed by a reversal of deferred income tax liability for income tax expenses of 6.1 billion yen, resulting in an interim net profit of 98.9 billion yen. This is a 42.9 billion yen increase. Both sales and profit were over the Q2 forecast announced in July, and we are issuing a press release today to announce the revised forecast. I would like to continue with an overview of Q2 financial results. I will first explain the revenue of our main products, starting with the figures for North America. Orgovix is doing very well with 69.1 billion yen. This is an increase of 33.6 billion yen over last year. or 95%. Jemtesa is also 43.4 billion yen, which is an increase of 18.1 billion yen, or 72%. Aptium had LOE, so the total amount was 10.7 billion yen, a decrease of 9.3 billion yen. We had originally projected a milestone of $500 million in sales for Orgovix in Q3, but since sales have been strong and we are now in Q2, we have included a milestone of $100 million or 14.9 billion yen. In total, sales in North America were 163 billion yen, a 58.8 billion yen or 56.4% increase over the previous fiscal year. I would like to continue by presenting the revenue from sales of our major products in Japan. First, Japan as a whole is down 6 billion yen to 46.9 billion yen. This is due to the fact that Ekwa Ekumet had their LOEs, and after last year's LOE of Tree Leaf, sales continued to increase but then gradually decreased. This has had an impact on our business. On the other hand, the sales of TWIMIG increased by 40.3% to 5 billion yen. Compared to the initial forecast at the beginning of the fiscal year, 54.7% as shown in the lower right hand corner indicates that we are making good progress. The next page shows financial results by segment. As shown at the bottom of the slide, the difference between the results of Q2 of last year and this year's results, Japan's sales decreased but the results of business structure reforms are showing results, and core segment profit increased by 1.7 billion yen. As mentioned earlier, sales in North America performing well alongside a 58.8 billion yen increase in revenue the results of structural reforms are also emerging here with effective control of SG&A expenses leading to a 39.1 billion increase in core segment profit. Since the China-Asia business was transferred to a joint venture with Marubeni Corporation in August there are some challenges comparing numbers with regard to the figures for Asia. Continuing on with the Q2 results, which were very strong, we have revised our financial forecast for the current fiscal year. Please see page 8. The forecast for revenue is 429 billion yen, an increase of 74 billion yen from the previous forecast. On the other hand, SG&A and R&D expenses were much lower in first half of the fiscal year, but are almost on par with the initial budget for the fiscal year. In other score basis, there is the 49 billion yen gain from the transfer of the China-Asia business that I mentioned earlier, and we are forecasting 97 billion yen in core operating profit. This is an increase of 41 billion yen over the initial figure. Finally, we are forecasting 92 billion yen in net profit attributable to owners of the parent, an increase of 52 billion yen over the initial figure. Both core operating profit and net profit are the highest figures we have ever achieved. Our forecast for FY 2025 is shown below, with figures for North America and revenue from sales of our main products. Orgovix is doing very well. and our revised forecast is 147.9 billion yen in yen terms and $1,020 million in dollar terms, which means that we expect to reach sales of $1 billion. As for sales of my family, which will be explained later as well, they are in line with expectations. Gem Tesser is up 2.4 billion yen to 85.3 billion yen. Exports to Europe, are also strong, so we have added exports which are expected to increase by 10.6 billion yen to 49.3 billion yen for total sales in North America of 313.6 billion yen. This is an increase of 65.4 billion yen compared to the previous forecast figure. Let me continue with a brief explanation of each product. Orgovix is doing very well, which is $473 million against the Q2 plan, or 133% of the achievement rate. Compared to the previous fiscal year, this is almost double the amount of the previous year. In particular, if you look at the bottom right hand side, we have broken down the contents and most products show good quantities. The fact that it is an oral drug and that it is very easy to take due to safety profile has become widespread. And at the same time, the maximum drug price has been capped at $2,000 by the RRA. Next is my February. As I mentioned earlier, sales were almost in line with our forecast, up 10% year-on-year. But as you can see on the lower left, we terminated our sales collaboration with Pfizer in Q4 of last fiscal year, the beginning of this year. Since then, we have been selling the products independently, and we have been devising sales strategies even while reducing our sales force. Until now, Pfizer and our company have invested the same sales force to expand the market. But now we are working on this alone, and we are also reducing our sales expenses to two-thirds of what they would have been. As a result, although sales appear to have remained almost flat, there has been a very significant qualitative change in the way profits are generated from single products. Next is Gemtesa. The achievement rate for Q2 of 2025 was 109%, which is 1.8 times that of the same period of the previous year, so we are doing very well. As I explained last term, due to the drug price issue, we have been negotiating on Medicare Part D about removal of the list of certain payers and we accept it to be removed from the list, this strategy has proven successful yielding positive results in pricing. Coverage that had previously dropped off is steadily returning. In terms of volume, while the beginning of this calendar year as well as last fiscal year's Q4 and Q1 fell below the previous year's levels. Starting from this year's Q2, we have returned to record highs. Forecast by segment is shown here on a core basis, and the difference from the previous forecast is shown at the bottom of the page. Again, North America is doing very well, and Japan is also becoming more profitable. Let me continue by explaining that we have been making a major effort since the 1st of October. Last fiscal year, while undertaking a very large-scale business restructuring, we also saw a decline in our product portfolio. Consequently, we implemented a regional sales structure domestically called the area system, assigning each MR a designated area and having them handle all of our products, CNS, diabetes, and others. We have been operating under this system since December of last year. On the other hand, since the beginning of this year, we have established sales alliances with Ziplion and Ziplion TRI for CNS and Ozempic and Wegovy for diabetes and obesity. So the number of products has increased and we have reverted to the previous regional rep allocation system. The reps in the CNS area will mainly focus on four products shown here and for diabetes, which also includes obesity. The reps here will now focus their sales activities on enhancing expertise around six products shown here. We apologize for any inconvenience caused to hospital doctors and others by the change in our sales structure, but we intend to continue to compete with the same highly specialized sales capabilities as before. Next, research and development. This is the overall table. Previously, we included a column for development regions, but since products are fundamentally globalized, regardless of where development occurs, we have removed the development region column. On the other hand, for regenerative medicine and cell therapy, each country has its own circumstances, so we have made a change to clarify state in which country the clinical trial is being conducted. There is one other major change which will be explained on the next page. Following are the major topics in clinical development. Topics since the first quarter announcement. First, in the psychiatry and neurology field, including regenerative medicine and cell therapy, we completed the regulatory submission for allogeneic iPS cell-derived dopaminergic neural progenitor cells on August 5th this year. based on data from the investigator-initiated study by Kyoto University. We are currently working to obtain approval by the end of this year. In oncology, Enzominev has already been administered as a single agent in a validation study and a pivotal study. In Japan, we have made great progress in completing the single-agent part of the pivotal study and agreeing on the design with PMDA, and we are in the process of presenting the Japanese data at the annual meeting of the Japanese Society of Hematology, as I will explain later. On the other hand, TP3654, Novicertib, was also presented at the Japanese Society of Hematology as an encore presentation. As for other topics, we have received samples up to four weeks after the second dose of the universal influenza vaccine, and we are presenting some of the results of the post-treatment follow-up. This will also be explained with the illustration later. This is the data on efficacy of Enzominev in Japanese population with cancer. The total number of the Japanese population are shown around the middle, and even when focusing solely on the Japanese population, the results obtained are nearly identical to the data in the far right of the overall population column. This will be the last of my presentations. This shows the results of the universal influenza vaccine. First of all, as a result of the follow-up observation for four weeks after the second dose, no serious adverse events or deaths were observed, and the most frequently observed adverse events were pain at the injection site and headache, which are the side effects that are frequently happening with vaccines. On the other hand, as shown on the right, the data show that the titer of attacking antibodies increased as expected as the amount of adjuvant was increased. In the future, follow-up observation after one year is a matter of course. and we will use this collected sample to determine the most crucial factor across reactivity whether it reacts to a different type of virus than the antigen it was immunized with or We are also looking forward to confirming whether antibody-dependent cytotoxicity or ADCC activity can be observed in vitro by the end of this year. And we hope to have such data by the end of the year. That is all the explanation from me. from JP Morgan. Thank you for your time. First, please tell us about the difference between your revised plan for second half of this fiscal year and second half of the previous plan. Fundamentally, we expect top-line growth in the second half, with previously scheduled milestones shifting from second half to the first half. However, looking at the profit side, the plan only projects about 900 million yen in core operating profit for the second half. Can you please elaborate a bit more from the perspective of how this compares to the original plan? Yes, thank you for your question. That is precisely the case. The first half saw excellent results and this momentum carried directly into the annual core operating profit and net income. This base is somewhat conservative due to the fact that first half saw the transfer of the China-Asia business and the LOE of Aptium, which were significant events. On the other hand, as I explained earlier, the figures for the cost portion, SG&A and R&D expenses are almost the same as in the first half. We are also taking a conservative view of the situation, partly because of President Trump, but also because of the fact that there may still be instability. However, as you know, the temporary factor will end in the first half of this year, and from second half of this year, the results will be the result of our current capabilities in a sense. Initially, we received comments suggesting we might post a loss in the second half, but based on the figures we are seeing now, we can achieve a solid profit. Through our efforts, we hope to exceed the 900 million Japanese yen. Thank you very much. I understand that you have factored in various risks and are being conservative in your approach. But where exactly are you being conservative? Is it sales or expenses? The point we are being most conservative is on the cost side. For example, we have explained that R&D expenses were 4 billion yen short in first half of the fiscal year, but we are going to spend 44 billion yen as planned for the fiscal year. If so, we will accelerate our R&D activities only in the second half, and we are actually forecasting that. But as I said, we are somewhat conservative in our estimates as to whether the numbers will reach this level. Sales figures remain exceptionally strong, but as you know, there are uncertainties such as the entry of generic versions of Mirabel Grom. Therefore, we are presenting figures that we are confident we can achieve. I understand. Incidentally, regarding this R&D expenditure, based on your current explanation, it seems the actual amount will likely fall short of the planned figure. Consequently, should any delays in development There was no delay in development, but there was a delay of a few months because we had to make some modifications to the protocol when we started the insomniac validation test and pivotal phase. On the other hand, we have already started enrollment and administration, and we hope to catch up in the future. Thank you very much. The second question is about the trend of three key products. I understand that all of them are doing well, especially Orgovix. Orgovix, while it may be influenced by RRA, is clearly highly effective and safe when taken orally compared to existing drugs, as you mentioned. Therefore, I don't really anticipate its growth slowing down once the RRA effect runs its course. However, I wonder whether the current trend will continue steadily going forward.

Could you tell us what you are thinking at this point?

If you look at the monthly sales by months, as you can see here, they have been rising since the turn of the year this year, around Q4 of 2024. I don't think this growth trend will accelerate dramatically going forward, but there is still plenty of potential. So I expect it to continue growing. Specifically, since we have Mr. Nakagawa handling North America, I will have him provide his comments. Yes, Nakagawa speaking in charge of North America. As you have just pointed out, I believe that Orgovix originally had very good product characteristics. Furthermore, with the cap on patients' out-of-pocket expenses being lowered, I believe this is creating a tailwind. How long this trend will continue will depend on our sales efforts to make various doctors and patients aware of the power of our products. We are working with Pfizer to develop a sales strategy to ensure that this trend continues for as long as possible.

Thank you very much.

Can you tell us about your current patient share and how much you think you can increase your market share? In terms of how far the peak will extend in the future and in terms of the peak in the overall market, the current trend is a little off our forecast and we are now reassessing the situation. At present, we are not in a position to answer much about future peaks. I understand. I think the patient share now is a little more than 10%, I believe. In terms of the current situation, it amounts to over 10%, yes. Finally, if you could briefly tell us about the status of the licensing activity for insomniac and the research regarding the timeframe within this fiscal year, is it correct to understand that there will be no change in the timeline? Kimura speaking, we are in the process of working on this project. And since we have a partner, we cannot go into details, but I hope you will understand that we are moving forward so that we can make a presentation to you by the end of the fiscal year.

I understand.

Do you have any hints as to whether the goal by the end of the fiscal year is becoming tougher or more realistic? that this involves contract negotiation and various factors such as unexpected delays at the very last minute can arise, but I cannot be overtly optimistic. However, as I mentioned, our goal is to strive to report to everyone within this fiscal year, and I hope you understand that we are working hard towards that end. Very well understood. Thank you. That is all. I'm Steven Baker from Jefferies. Thank you very much. I would like to ask about sales and sales milestones for Orgovix. Based on my understanding, I believe the next milestone will be when you reach $1 billion in annual revenues. Since Q2 sales are already at $473 million, I expect you'll likely achieve that milestone sometime next fiscal year. I understand that the scale is $300 million. Is that correct? I think it was $325 million, but we have not announced the sales forecast for the next fiscal year. But the sales for the current fiscal year have already exceeded $1 billion, and this is counted based on the calendar year. So although there is a slight deviation, we believe the probability of achieving next year's milestones is now very high. Thank you. Regarding insomniac and resertive, do you expect to present the data at ASH the month after next? Yes, all of these are oral presentations and we will be happy to provide the data. We believe we can present data on the resertive for combination therapy. I understand that you would like to license this out as well, but is your company going to hold the rights to co-development or joint marketing? We do not generally anticipate licensing out either compound. Instead, we are seeking partners within the framework of joint development and joint sales with our company. I understand. Thank you very much. Hashiguchi from Daiwa Securities. Thank you for taking my questions. I would like to ask about expenses, including SG&A expenses and R&D expenses. Since you say conservative repeatedly, I'd like to understand more about how much more or less likely it is to increase in the second half compared to the first. For example, while you held back spending a bit in the first half, you want to spend more in the second half, taking into account the strong performance of sales. Or, as you mentioned earlier regarding Orgovix, there is still room for promotion to increase its penetration. In that sense, if you want to increase spending and invest more, So if you have a clear idea of what you would like to increase, could you please introduce it to us? I imagine some of us might be thinking that just listening to the story, the first half and the second half weren't any different at all. Regarding the areas where you consider to increase the spend, I thought it would be better to discuss them to somewhat compare to the first half, which is why I'm asking. Yes, I will start my explanation first and then ask Mr. Sakai to add any additional information if there is any. First of all, we are not considering anything special for the second half for both R&D and SG&A expenses. We are still in the process of restructuring, so our basic stance is to use expenses in a controlled and managed manner. On the other hand, as I mentioned a little earlier, one of the reasons for the shortfall in R&D expenses is the slightly delayed start of the insomniac filter study. Since we have opened nearly 100 sites, we have the budget, the money to accelerate the process. So we want to encourage the research development to accelerate the process. So we have left the numbers as they are. Mr. Sakai, if you have anything to add.

Yes, Sakai speaking.

Thank you so much for your question. Regarding SG&A expenses, since last year, we have been particularly cautious about expense execution. There are departments in charge, both in Japan and the US, have maintained considerable discipline in this regard. So there is a tendency for expense execution to lag somewhat. I believe that during last year's interim results as well, the figures were lower in the first half and increased in the second half. While I don't recall the exact numbers, I think second half figures were higher. we originally anticipated a slight increase in the expense execution during the latter half of the fiscal year. Although I won't mention them individually, there is a forecast that there will be special expenses for licenses only in the second half, for example. Okay, so you are anticipating the possibility that additional costs may be incurred by the licensing that were not included in the first half? That is what is happening in relation to sales. Okay, thank you. One more point on page 24. I'm now looking at the revised forecast for Japan business. There is 34.7 billion yen for others, an increase of 5.1 billion from the previous 29.6 billion yen. And two reasons are written on the right side of this page. Can you give us a better picture of how much impact each of these had? And... I would appreciate any hints as to whether there are no particular negative factors or if these two items make up the breakdown of 5.1 billion yen or which one is larger. First of all, I cannot tell you about the figures based on the sales tie up for Ozempic because we have promised not to disclose it at this time. But exports of Meropen to Pfizer and Latuda to Latin America are doing well, which accounts for a large part of 5.1 billion yen. OK, so would you say that the impact of this fiscal year is limited with regard to Ozempic? I think the word limited should be well suited, but we are not able to disclose the figure itself at this time. So I hope you understand. Thank you very much. That is all. Wada, SMBC EcoSecurities. Thank you for taking my questions. Although you have already described it in the presentation materials, regarding whether IPS cell approval in Japan is likely to happen within FY 2025, I would like to ask for your assessment specifically whether you have a clear view on the timing This is a matter for discussion with the regulatory authorities, so we cannot decide it on our own. However, as we have stated, we believe approval within this fiscal year is achievable. Accordingly, we are preparing our entire company structure with the assumption that sales will commence next fiscal year. Thank you. I recognize that there may be competing products globally. Could you please clarify your competitive advantages development strategy and key differentiators against those competitors? Did you say globally? Yes. Okay, so in the United States, clinical trials like the one using ES cells are ongoing. the clinical trial is being conducted by an affiliate of Bayer called Blue Rock, and since that company is ahead of us in North America, we are now working to accelerate our clinical trials in North America. On the other hand, in terms of superiority, many aspects of the products are very different, and head-to-head comparisons have not been made. The results of the preclinical trials were published in the form of papers in Nature, this past April, and they also yielded similar findings. It is not possible to say specifically that this one is inferior or superior to the other.

Thank you.

A completely different note, and this is the last question for me. Regarding the framework for the insomniac and the research of collaboration, since your company is aiming for development partnership, I imagine you envision the R&D expenses being split 50-50. Is that understanding correct? I wanted to ask you about this. What I wanted to ask is about what would happen to the r d expenses for instance if you are able to secure development partnership early on and the partner were to push development very aggressively could that lead to a substantial increase in r d expenses well first of all as you said as a framework whether it will be 50 50 or 40 to 60 that depends on the other party but we are thinking of sharing it between both parties on the other hand if the development plan becomes too extreme it could lead to the situation you just described. Naturally, we would establish a joint development committee and negotiate the development plan together. We are also formulating plans to maximize each party's interests. The increase will not be that extreme. On the other hand, it is certain that costs will increase if we are to proceed with development within disciplined R&D budgets. It becomes essential for us that the other party bear the increased portion. We are looking for a partner who can work well with us in that sense. I understand. Thank you very much. Sakai from UBS. Mr. Kimura, I believe you mentioned that starting in FY2026, your company's capabilities will be put to the test. That said, you also suggested the possibility of a milestone payment of $325 million next year upon achieving the short-hold from Pfizer. And regarding the remaining residual value of share transfer from Marubeni, I believe it amounts to approximately 27 billion yen. My first question is whether it can be finalized in FY2029. Yes, we recognize that the milestone-based interim payments remain a significant factor for us going forward, and we do not operate solely on our actual abilities alone, so we kindly ask that this point not to be misunderstood. Also, for the China-Asia business, cash of 27 billion yen is expected in the future, and we have included all of it in our P&L this time. On the other hand, while the timing is set for three years from now, the contract allows for some flexibility in the timing. Therefore, I cannot specify the exact quarter of which year at this time. Please understand that the target date is three years from now. So you're saying that this is deferred revenue or something? And is it recorded on an annual basis? Well, it is very complicated. So I asked Mr. Sakai to answer this. Yes, Sakai speaking. Thank you for your question. Although only 60% of the shares were transferred to consolidated financial statement purposes, the method used on the income statement calculates them 100%. This is the current practice under international accounting standards, so it is not a matter of deferral or anything like that. Okay, so would it be correct to say that everything will be processed in the financial statements for the fiscal year ending March 31st, 2026? Basically, yes. Until we receive the second payment, there is a possibility that unrealized gains or losses may appear. So if you ask whether they will never appear at all, I cannot say they will never appear. However, please understand that fundamentally, the gains are recognized in the lump sum. Okay, thank you. Another thing I was a little concerned about in 2029 is that I think the substance patent for Orgovics will expire in 2029. And if so, under the current rules, this would be the target of IRA Part B, I think there is a possibility of being a target of reform for Orgovix. Since this is a growth to net, we cannot estimate how much it will impact your company's sales, but I don't believe it will result in increased revenue. Please allow me to confirm whether this perspective is correct. Since the price negotiations will start soon, in the previous year, meaning 2028. Okay, I will try to explain and then Mr. Nakagawa will provide the additional details. We anticipate that the negotiation of that nature will come up around that time. On the other hand, regarding the timing of the impact, we believe it will be a little later than you just mentioned. Mr. Nakagawa will explain the current sensitivity, including its magnitude. Yes, Nakagawa speaking. I'm in charge of North America operations. First of all, in terms of the time period, I think the trigger is that the drug has been on the market for about seven years rather than a patent. As you pointed out, we assume that this will be a target of negotiations and we recognize that it will be a negative factor for certain level of sales. So we are positively considering how we can increase our market share by them and how we can overcome this obstacle. Okay, so I'm a little concerned about the third milestone payment from Pfizer. I suppose that's the minimum you would want to secure. It is 2029 or 2028, so there is still a time frame, for lack of a better word, a probationary period. Is that correct? Regarding the conditions for the third milestone, we are unable to disclose them, so it is difficult for us to provide specific details. However, as you mentioned, our approach is to generate revenue as early as possible and secure as many milestones as feasible. That is how we are proceeding. I understand. Thank you very much. Muraoka from Morgan Stanley. I'm asking this question while I don't fully understand, I'm afraid. Regarding the relationship between the quarter's guidance and the partnership of Indomenev and Nevisertiv, if partnering for these two drugs is finalized by March, this likely isn't included in the current revised forecast. If finalized, it would trigger a one-time gain leading to an upward revision. If both are finalized, it would trigger two upwards revisions. revisions in theory or formally, would it be possible? Yes, formally, as you understand, if we proceed with the contract based on current projections, a upfront payment should likely be forthcoming. However, we have not factored this in. I understand. I'm just wondering what kind of partner you would like to work with. In other words, since you cannot afford to increase your dependence on Pfizer any further, I wonder if Pfizer is the one excluded, no matter how advanced the cancer is. I apologize for this oddly preconceived question, but is that the right way to think about it? In terms of our partnership strategy, we are not excluding Pfizer or anyone. Rather, we are considering the most suitable partner for maximizing the potential of each of the two cancer products. I understand. I would like to ask about milestones for Orgovix in the next term, next April and beyond. I think the probability of achieving $1 billion is very, very high. But when creating forecast for the next period, should I only include it once? I feel given the current momentum that it would be safer to include it twice. I'm saying this because, though you have not mentioned it, if I think the five milestones of $500 million each are set, even if two come in next year, it wouldn't be surprising given the current momentum. Actually, I think it would be better to anticipate that way so as not to deviate from your company's guidance for the next fiscal year. Please let me know what you can within the scope of what you can disclose. Well, there is nothing I can say at this point. We would like to prefer to get the milestones in the next fiscal year, but since we have not yet prepared sales forecasts for the next fiscal year and cannot disclose the trigger for the next milestone, We are unable to provide any further details at this time. We hope you will create a forecast for our company that includes this information. Well, I was just wanting to confirm and so as to avoid creating a negative surprise. Well, unfortunately, I cannot say for certain at this time. One thing, $1 billion for the calendar year figure I mentioned earlier, we now believe has a very high probability of occurring. I understand. Thank you very much. That's all. This concludes the presentation of Sumitomo Pharma's financial results for Q2 of fiscal year 2025. Thank you very much for your participation today.