Nxera Pharma Co Ltd

We will now begin the webinar on the Sosei Group financial results for the second quarter of fiscal year 2022. Thank you very much for taking time out of your busy schedule to join us today. I am Nomura, CFO, and I will be the moderator for this session. Chris Cargill, CEO, and Matt Burns, President of Heptares and UK Head of Research and Development, are attending today. Simultaneous translation will be provided. Please select either Japanese or English by clicking on the globe icon in the lower right corner of the screen. If you choose off, you will hear the speaker's original voice. Today, we will present the progress of our business with the materials in the first half, followed by a question and answer session in the second half. The presentation materials will be shared on the screen. They are also available on our website. If you would like to obtain a copy of the materials, please click on the shareholder investor relations tab in the upper right corner of our company homepage and select the presentation materials. and video to access the materials. For questions, institutional investors, analysts, and the media will be requested to raise their hands in the Q&A session. All other participants are requested to submit their questions by clicking on the Q&A button. You may submit your question at any time during the webinar. You will answer as the time permits during the Q&A session in the second half of the session. If you are going to ask any questions, please Try to install the app and then join the winner because sometimes the browser based have some technical problems. Now we will now move on to the presentation. First, I will give you an update on the financial results for the first half of the year, followed by a novel business update from CEO Chris. and R&D progress from President and R&D head Matt. And finally, Chris will explain our goals and growth strategy for the current fiscal year and for the future. Now, please go to page five. This is the financial summary for the first half of the year through the end of June. Revenue was 2.4 billion yen compared to 3.1 billion yen in the same period last year, and operating loss was 3.8 billion yen compared to a loss of 1.8 billion yen in the same period last year. This is mainly due to the fact that as far as the period until the end of June is concerned, There were not many milestone payments from partners, resulting in lower revenue, and also we are accelerating R&D for stronger future growth, as we had planned from the beginning of the period. On the other hand, we have retained approximately 54 billion yen in cash and cash equivalents, which continues to provide us with ample room for disruptive future growth through mergers and acquisitions. and in licensing. In addition, the progress of our business since July 1st is not reflected in the second quarter results that we are announcing here. But as we have already released, since the beginning of August, we have received an upfront payment of approximately 5 billion yen from a new track discovery collaboration with App-V. We also received a milestone payment of approximately ¥4 billion for the M4 agonist licensed out to Neuroclin for schizophrenia, which advanced to Phase 2 trials. Although our business model may not show much progress visible over a short period of time from outside, for example, until the end of June, we would like you to understand that our business is making solid progress, along with steady progress in research and development. Furthermore, although Appy's revenue has been received in a ransom in cash, it is to be recorded in the P&L in the third and fourth quarter of this year and thereafter, in accordance with IFA's accounting standards. Whereas Neurocrime's is to be recorded in P&L in a ransom in the third quarter. Moving on to slide six. This slide is almost same as the summary slide, showing the changes in revenue, operating profit and core operating profit in the past four years. As I explained, there were not as many milestone payments as in the previous year, and overall revenue decreased. On the other hand, royalty income increased on a Japanese yen basis due to the depreciation of the yen against the US dollar. Since most of the revenue from our partners are received in US dollars, the depreciation of the yen against the US dollar has a positive effect on revenue in Japanese yen terms. Operating profit and cooperating profit also decreased. This is a result of the decrease in revenue, as well as investments in our pipeline, aggressive investments in new strategic partnerships at the basic research stage, in addition to the impact of the yen's depreciation against the pound and the inflation in the UK. I will discuss this in more detail in the next slide. Next, slide seven. This slide shows the projected landing of R&D expenses and other G&A expenses for this fiscal year. There is no change in G&A expenses, but we have raised our R&D expenses by about 1 billion yen from the previous range of 5.75 to 6.75 billion yen to 6.75 to 7.75 billion yen. As I mentioned earlier, and as you are aware, The impact of the global depreciation of the yen over the past six-plus months, specifically the yen's depreciation against the pound sterling by about 6% since the beginning of the year, has been a major factor. As for the relations on the dollar, the pound sterling and the yen, Our company is affected, broadly speaking, as such that weaker yen increases both revenue and costs. In addition, inflation in the UK has advanced to about 9% since the beginning of the year. A portion of stock compensation previously classified as GA expenses has been transferred to R&D expenses, and planned R&D is progressing well, all of which have contributed to the upward revision of our forecasted R&D expenses. The unit depreciation and inflation also pushed up GA expenses, but this was offset by the reclassification of RSU stock compensation, leaving overall G&A expenses unchanged. So these are the financial summaries of the results. Now, CEO Chris will then update you on the business. Chris, over to you.

Thank you very much, Nora Sun.

I will now provide an update on operational progress before I hand over to Dr. Matt Barnes, who will talk in more detail regarding progress across our R&D activities. Please now turn to slide nine. So this slide very neatly shows the breadth and depth of our pipeline. This pipeline has the diversification of a big pharma company However, it retains the upside growth potential of a biotech business. Our strategic use of partnerships and collaborations allows us to do more with our science, with the goal of ensuring every possible innovation we can discover has the potential to benefit patients worldwide. Several programs across the pipeline are now poised to advance into various clinical stages, so it is a very exciting time for SOSE and its innovations. In the first half of financial year 2022 and, as Nora-Sun said, after the balance date of 30 June 2022, we showed strong execution across all phases and collaboration types. All the programs with green and blue coloured ticks have achieved recent milestones. Please turn to slide 10. As shown on the previous slide, I wanted to highlight the specific areas of strong execution across one, our discovery research innovation areas, and two, our translational medicine and clinical development area. On the left hand side, we continue to invest in new targets and collaborate with technology leaders in the United States to ensure that our research platform enhances its world leading position in the GPCR field. With new partner Verily, we have already identified multiple new GPCR targets of interest. With new partner Calliope, we are putting our respective platform capabilities together to identify new GI targets of interest. With existing partner Genentech, we can confirm we have now achieved five milestones across multiple programs. And recently, after the balance date, we executed a new blockbuster multi-target discovery collaboration with the existing partner, AbbVie. This latest transaction is a testament to the world-leading science that we exemplify at Circe Heptares and the priority that we place on patients living with high unmet medical need in neurology. On the right-hand side, our partners made important progress in clinical development with major programs that we discovered. We also executed the new collaboration to maximize the potential of a new cancer therapeutic. Long-term partner Pfizer announced strong data for its phase one GLP-1 agonist program for type 2 diabetes and obesity patients. There is now a good possibility that a phase two trial will begin in the second half of financial year 2022. Neuparten Neurocrine announced that the US FDA accepted the IND for its M4 agonist program targeting schizophrenia. There is now a good possibility that a phase two trial will begin in the second half of financial year 2022. This program part of the emerging muscarinic class, has the potential to become one of the first new mechanisms in over 70 years to treat schizophrenia patients. Recently, after the balance date, we executed a new clinical development partnership with Cancer Research UK. This partnership allows us to advance a very large and complex cancer program with an experienced partner. This creative transaction structure is cost-effective for us We retain ownership of the clinical data and the collaboration intellectual property generated. Please turn to slide 11. As I mentioned previously, our new multi-target neurology collaboration with AbbVie is another marquee transaction for us. The financials we receive are very strong. $40 million up front, potentially a further 40 million over the next three years, and then up to a billion dollars plus over the longer term. We will work on three novel GPCRs associated with the major neurological disease and work will begin immediately. On the right hand side of this slide, this chart details the amazing success we have had since we acquired Heptaries in 2015. Our investments to grow, scale and commercialize the platform have ensured that we are now one of the world's leading licensors of drug discovery innovation in the major target class of GPCRs.