Nxera Pharma Co Ltd

Good evening.

Thank you very much for your participation in our earnings call despite the late timing of the day. I will be serving as a facilitator today. I am Nomura, Head of Ireland Corporate Strategy, Sosei Group. Our participants today are Tamura, CEO, Christopher Kagyo, CFO, Miles Congrave, Chief Scientific Officer, and Matt Burns, the Head of Drug Discovery. We'll be covering the business situations of fiscal year 2021. And then in the last 30 minutes or so, we will take questions. And the presentation materials are available in our corporate website. So you can find from our IR presentation tab over our homepage if you need it at hand. And simultaneous translation service is available. There is an English selection or Japanese selection button with a globe sign at the bottom of the screen. You may choose either Japanese or English. And if you choose off, it is the speaker's original sound. And we are very sorry, but for the Q&A sessions, we'd like to divide you into two groups. For institutional investors, analysts, and the media, when it comes to the QA, please speak up. I'm muting the microphone. Others, you can ask questions at any time during this session from the QA button at the bottom of the screen. and we'll be responding to you as many as we can in the Q&A. And your registered name at the webinar will be attached to the questions, but it's not disclosed to the other participants. Now I'd like to start. Please look at the page five. Hello, I am Tamura, chairman and CEO. Since our founding, we keep our vision of becoming a global biotech champion, originating from Japan by solving the challenges of drug discovery. Japan has a world-class track record of increasing average life expectancy while reducing national healthcare costs. On the other hand, due to the low drug price policy, the price of drug is the lowest among the developed countries. As a result, major foreign manufacturers are deliberately delaying the development of their products in Japan in order to avoid being dragged down by the drug prices in Japan. When I first entered the pharmaceutical industry more than 40 years ago, there was a problem of a so-called drug lag, where new drugs approved in Europe and the US were not approved in Japan. After that, thanks to the efforts of the MHLW and the PMTA, the drug has since been considerably eliminated. However, we are now in an ironic situation where foreign manufacturers are voluntarily delaying the development of their products in Japan. The industry and the governmental agencies are working on a solution, but I think it is difficult to expect a quick fix. Reducing healthcare costs in an aging society is a prerequisite for healthy social development. In order for biopharmaceutical companies to grow in this environment, it is necessary to develop new drugs, mainly small molecules at low cost, and to have a strategy to meet the unmet medical needs that are truly needed. To that end, it is essential to capture untapped drug discovery targets. Next slide, please. About 400 GPCRs are said to be potential targets for drug discovery, of which about 25% or 100 have already been discovered. In 2018, sales of drugs targeting GPCRs was about 20 trillion yen. which is a very large drug discovery target accounting for about a quarter of the total sales of all drugs in the world on the other hand about 75 percent of them is still untapped and this is where we are focusing on our efforts however the question that naturally arises is why No drugs have been developed for 75% or about 300 types of GPCLs, even though it is such a great target. GPCLs have a very complex structure that crosses the cell membrane seven times. When conducting normal drug discovery, it is necessary to artificially create such GPCLs. in the laboratory by taking them out of the cell membrane without destroying their structure. However, such a complex structure inevitably collapses, which is why it is extremely difficult to develop drugs for the remaining 300 GBCOs, or about 75%. Therefore, we have developed a new method to analyze the structure of GPCLs by using STAR technology, which stabilizes the fragile structure, and to develop new tracks from it. That's our unique system and the source of competitiveness, and the reason why we have been able to conclude many licenses with major companies around the world. Next slide. Our star technology is our greatest strength, but our unique IT-based SBDD is also an excellent technology, as shown in this slide, which is proven by the results in the next slide. Of course, we have also introduced AI and machine learning to increase accuracy. Next slide, please. This is our drug discovery track record, and it shows the features I explained in the previous slide. We are the world leader in IT drug discovery for GPCRs. Currently, the main focus areas of disease are the neurology, immunology, and gastrointestinal. However, of course, we are facing competition. We are not resting on our laurels, but are introducing innovative technologies and expanding our partnerships with various companies to maintain and develop our top position. For more details, Myles Congrave and Matt Burns will explain later. Next slide, please. I'd like to touch on the relationship between biotech ventures and major pharmaceutical companies. For the last 20 years or so, about 70% of drug discovery has been done by venture companies, while the remaining 30% by major pharma. Venture companies have been playing a leading role in the discovery of drugs. In other words, they originally discovered them. On the other hand, the percentage of drugs sold by venture companies was about 20% in 2020. Roughly speaking, venture companies are the discoverers of 70% of the drugs, but only about 20% of the drugs are actually sold by them, and the remaining 50% are licensed to other major companies from which they receive upfront payments, milestone payments, and royalties. That is a business model, and our business model is exactly this type of licensing business model. After discovering a drug and conducting the initial development, we license it out to major pharmaceutical companies to earn income. Next slide. Against this background, the license agreement is important for many venture companies. This slide shows the data from Evaluator Pharma, a well-known database in the pharmaceutical and biotech industry, showing the list of top 15 pharmaceutical and biotech companies by the cumulative total license value from 2015 to the end of 2020. For example, The major companies are conducting those licensing. Therefore, AstraZeneca, which are major pharmaceutical companies, ranked at the top. And including these major companies, we are ranked seventh in the world, which is a very high position amongst approximately 2,100 analyzed. On the other hand, this amount is a sum of the upfront payment and milestone payments, and does not include a royalty income, which is a certain percentage of sales. So it is not necessary the entire amount. So that has to be a point to be noted. And on the left-hand side, we show after the 2015 March, the trend of the milestone payment. milestone outstanding amounts, it's been steadily increasing. Now I'd like to talk about the potential of our existing partnerships. Since the acquisition of Hectoris in 2015, we have been demonstrating the results. And this quarter, we made another large partnership with Neurocrime. In total, we have $4.4 billion balance of potential development and approval milestones for our existing partnerships, which we may receive this year and in the next 10 years. Sales milestone total $4.5 billion, which we may receive after product launch. In addition, royalties are expected to provide a fixed percentage revenue over time. Existing contracts have a maximum royalty rates in the mid 10% range. Total big sales of a single product in a targeted disease are calculated to be $4.3 billion annually. The total market for the target disease is $25 billion per year. So it is a big amount. And those market data details, it is found in the appendix. So please refer to them later on. Now, Mr. Chris Cargill will now explain the consolidated financial results for the fiscal year ending December 31, 2021.

Thank you very much, Tamara-san. Please turn to slide 13. Good afternoon, everyone.