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Edited Transcript of 4503.T earnings conference call or presentation 31-Oct-19 5:00am GMT

Q2 2020 Astellas Pharma Inc Earnings Call

Tokyo Nov 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Astellas Pharma Inc earnings conference call or presentation Thursday, October 31, 2019 at 5:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kenji Yasukawa

Astellas Pharma Incorporated - President & CEO

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Conference Call Participants

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* Hidemaru Yamaguchi

Citigroup - Analyst

* Shinichiro Muraoka

Morgan Stanley - Analyst

* Motoya Kohtani

Nomura Securities - Analyst

* Fumiyoshi Sakai

Credit Suisse - Analyst

* Hiroshi Tanaka

Mizuho Investors - Analyst

* Marcia Matamatazuki

- Analyst

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Presentation

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [1]

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Good afternoon, ladies and gentlemen. Today, thank you very much for coming to our meeting for us to announce our second-quarter financial results. So let me go into my presentation without any further ado. Page 2 is a cautionary statement, as [already] explained, so let me skip. Page 3, this is the agenda for today in my presentation.

Page 4, this slide gives you an overview of the consolidated results on a core basis. Revenues increased to JPY650.5 billion, up 0.5% year-on-year. Core operating profits rose to JPY168 billion, up 8.9% year-on-year. Core profits were JPY135.9 billion, up 8.9% year-on-year. Core EPS rose by 12.8%.

Next page please. This slide shows the year-on-year revenue analysis. The top, JPY647.1 billion, and the four lines beneath. As you can see there, sales of major products increased year-on-year. XTANDI, XOSPATA, mirabegron, global products had increased sales and Evenity launched in March and new product in Japan contributed to increased sales.

On the other hand, in the United States there is the LOE impact of Vesicare and Tarceva in the United States and termination of sales and distribution of Symbicort and KM bio products in Japan. These led to lower revenues. And this is within the range of what we expected in the initial assumptions.

And the yen appreciated higher than we expected, so there was negative impact on revenues. Therefore, as you can see above, we had a lot of increase in revenues, so the negative factor has been offset so revenues increased in the end.

Next page please. This page shows the year-on-year comparison of core operating profits. Sales in revenue increased, so gross profits also increased. SG&A costs -- with the growth of XTANDI in the United States co-promotional fees increased.

Other than the co-promotion fees for XTANDI, if you look at SG&A costs, there were product launch costs for XOSPATA and Evenity and pre-launch preparation cost for roxadustat and enfortumab vedotin. We invested for growth, so we have been able to invest in the areas where we need to invest as initially planned.

On the other hand, there were [many factors] to reduce cost which we didn't include in initial assumptions. As you can see in the middle of the slide, there was a reversal of a loss allowance related to a domestic partner. This led to a negative factor for SG&A costs. SG&A costs as a whole were almost the same with the previous year.

R&D expenditure, six key late stage projects have been progressing as planned; the progress rate is about 50%. Development costs increased compared to the previous year. We are expanding investment into new modalities and technologies based on the focus area approach such as regenerative medicine, cell therapy and immuno-oncology. So, core operating profits increased by 9% year-on-year.

This shows the full basis results. Up to the second quarter other income was JPY7.2 billion. Other expenses were JPY13 billion. In the first quarter we looked the fair value re-measurements on contingent consideration. We looked at the time of the Ogeda acquisition as other expenses.

In the second quarter there was no major noteworthy expense booking and JPY32 billion were incurred in the previous fiscal year. These were loss-related expenses and restructuring costs and this year compared to the previous year had less such expenses. So, the operating profits were JPY162.2 billion, up JPY27.9 billion, and profit was JPY128.5 billion, up 23.7% year-on-year. EPS rose by 28.1%.

From here on I'd like to talk about the status of individual mainstay products. First, from the top, XTANDI. In the second quarter JPY195 billion sales were achieved, up 19% year-on-year. There is a penetration in earlier stages of prostate cancer, so sales expanded steadily in each region.

Next, XOSPATA. In December last year in Japan and the United States this product was launched. Up to the second quarter JPY5.7 billion sales were achieved. In August, in the current indication in the NCCN guidelines, XOSPATA has been recommended as Category 1 product with the highest level of evidence level.

And Phase 3 ADMIRAL study data was published in the New England Journal of Medicine. With that we are trying to promote the penetration of all this product's features to hematologists and oncologists.

At the bottom you find mirabegron. In the second quarter JPY78.8 billion sales were achieved, up 15% year-on-year. In each region globally we are achieving double-digit growth. In order to increase disease awareness we are continuing the disease awareness activities. Based on the MOA of mirabegron we are trying to emphasize the great balance between efficacy and tolerability. We are establishing a position as a first line therapy.

Next, XTANDI, full-year forecast, related slide. Based on the trends after the second quarter, we are revising upward the full-year sales forecast of XTANDI. Initial forecast was JPY364.2 billion, upwardly revised by JPY19.7 billion to JPY383.9 billion. We are expecting 15% growth year-on-year.

You can see the level of revision for each region on the right-hand side of the slide. US established markets international we made an upward revision. In the United States, with the indication of M00PC, we are exceeding the initial assumptions and new prescriptions are expanding, particularly the volume growth exceeded the initial forecast at hospitals and public medical institutions.

In the established market in each region we are exceeding the initial assumption and prescriptions are expanding. Particularly in Germany prescriptions are expanding in M00PC in Spain and Italy, M00PC volume is expanding. In the international markets we obtained the indication of M00PC in Brazil, Colombia and South and Central America. In Russia the volume is exceeding the assumptions and expanding.

In the United States and established markets positive factors in the first half are expected to continue in the second half according to forecasts. As for the ForEx rate, we are expecting the yen to appreciate. So, globally we've had an upward revision of about JPY20 billion.

In spring last year we announced a JPY400 billion to JPY500 billion peak sales range for XTANDI and we are going to reach this range very soon. For the future in the Chinese market we are expecting sales as well. This is going to be a new driver for us.

Next page, this is about new products in the Japanese market. On the right bottom you can find eight new products in Japan. The total sales of new products were JPY27.8 billion in the second quarter. Evenity was not launched at this time of the year in the previous year. This is the main factor for increasing sales. It has a dual effect to promote bone formation and suppress bone resorption. And it's unique MRA and convenience are highly valuated.

In the second half this tendency is expected to continue, so in FY19 we are expecting JPY45 billion initially, but, based on the trends up until now, we made an upward revision. We are expecting JPY60 billion sales. In the spring last year we said that with the eight new products in Japan we are aiming for sales of more than JPY100 billion. We are approaching this range, so we are becoming more competent to achieve this goal.

This is the last slide before talking about the revision and other points we considered. On top if we look at the top bullet point page 8 through 10 we explained XTANDI, mirabegron, Evenity and other new products in Japan are exceeding the initial forecast on a full-year basis. There are one-off positive factors we didn't include in the initial forecast.

The transfer of three products in Asia to Daiichi Sankyo. This is going to be booked in the second half. And also there was an upward revision for Prograf in the United States. Because of the shortage of the generics, [original] Prograf demand has been raising. In the second half the situation is expected to continue.

Next expenses. As I said at the beginning, there was the reversal of loss allowance related to a domestic partner in the second quarter. Compared to the first half there are several factors leading to decreasing sales in the second half -- LOE impact of Vesicare and Tarceva more in the second half; termination of sale and distribution for Symbicort and KM bio products.

We will see the impact more in the second half, NHI price revision in October 2019 and lower sales prior to NHI price revision in April 2020. And also including the ForEx impact, we are revising our forecast on a full-year basis.

Next page please. First, from the revenues we made an upward revision by JPY32 billion to JPY1.256 trillion. Expenses including R&D expenditures were also reviewed. Core operating profits are revised upwards by JPY24 billion from the initial forecast and we're expecting JPY264 billion. Core profit is expected to be JPY214 billion, up JPY20 billion. Full base operating profit JPY263 billion, profit would be JPY210 billion.

Next, I'd like to talk about initiatives for sustainable growth, page 14. Let me explain our initiatives in China we are focusing on right now. There are four oncology development products including XTANDI and fezolinetant with a big market potential. There are several development programs in China in late stage right now. In order to promote the development of these programs without any delay, we will spend sufficient resources.

We are expecting approval of XTANDI within FY19 in the late 2020s. We are expecting the growth to reach JPY30 billion or so. The conditions for this, we should be able to get reimbursement and the ongoing studies should be all successful. So, these are the conditions to be met. And also all late stage projects should be successful again. In the late 2020s in China as a whole we can aim for JPY200 billion sales in China.

This is the progress of the six post-POC projects. I will explain the details on the next pages. Sorry for the busy slide. The underlined portion are the updates since the results announcement in July. Top left, enzalutamide, let me start there. M1 HSPC indication was filed in Japan, US and Europe. In the United States this is designated for priority review. The PDUFA date has been set for December this year.

Regarding China, in October we submitted sNDA for M0 CRPC additionally. And also regarding the indication M1 HSPC, we started Phase 3 study. In the middle in the top column, gilteritinib, after Japan and the United States, in Europe got approval in October in Europe.

Upper right, enfortumab vedotin, I will explain the details later on, so let me skip here. Next, in the bottom row, the left side, zolbetuximab, there are two Phase 3 studies and enrollment is making good progress.

In the middle roxadustat. In September in Japan we obtained approval for the indication of renal anemia in patients on dialysis. Right now we are negotiating the drug price. Additional indication of chemotherapy induced anemia in cancer, [studied new] treatment in Phase 2 study.

On the right bottom fezolinetant, we started a Phase 3 in US and Europe in patients with menopause-related vasomotor symptoms. We are starting the enrollment in the summer for long-term administration. So, we made a very good start. Also in China to start Phase 3 study we submitted IND to the authorities in China.

So, here I would like to talk about the updates of the development of enfortumab vedotin for mUC, metastatic UC. So, in this slide you can find the treatment status of metastatic urothelial cancer, and also you can find the targeted patient sub population and the clinical trials currently ongoing for this product.

On the right half you can find the platinum with and PD-1/L1a inhibitor pretreated mUC patients study result. In other words, for these patients there was no currently approved treatment. Phase 2 study, EV-201, cohort 1 data is used in (inaudible) life. This was wild and it has and it has done priority review. Status was granted by FDA and March 2020 is set as a PDUFA date.

And toward the left you can find the first-line therapy status. This is the first phase EV-103 study for the treatment naive and patients and enfortumab [vedotin] and pembrolizumab combination cohort data was announced at ESMO. Took place last month in Barcelona. From the next pages I'm going to talk about that.

The high ORR was observed in 32 patients out of 45, which accounts for 71% in enfortumab vedotin plus pembrolizumab cohorts and cisplatin in eligible patients with locally advanced or metastatic UC.

Next slide is showing reduction rate of the tumor size. Vertically this is the baseline changes of a tumor size, and horizontally you can find the individual patient data. And from the right to left this is lined up in the order of high tumor reduction. 93% of the patients experienced a reduction of their tumor size.

Toward the bottom, those with the dots, those are the patients were the cases, in total 32, in whom the ORR was observed. The yellow indicates the -- while this color indicates PD-L1 expression level in the PD-L1 expression is lower than even the treatment, exacerbation will take place. But in the combination of enfortumab vedotin, regardless the expression level of PD-L1, efficacy was observed.

Next page please. From here you can find the summary of the safety data, Grade 3 and about adverse events, increase of the [alipose], skin rash and also peripheral neuropathy were observed, but all of those are expected. In this study -- or before this study 201 study took place, that is enfortumab vedotin monotherapy treatment.

So, this side effect profile is equivalent to combination. Therefore with the combination new side effects or further enhancement of toxicity were not observed at all. Based upon this data together with the partner we are currently considering the programs for our Phase 3 study. And when time allows I'm very happy to introduce that to you.

This slide shows the number of urothelial cancer population per year. Out of 56,000 metastatic UC, those subjects did to the medical treatment as first-line is total 49,000 [in just 7] total. When we announced a strategic plan last year the expected peak sales of enfortumab was going to be around JPY50 billion to JPY100 billion, but at that time first-line number was not included. We consider only about the second line and afterwards patients.

Including first-line treatment patients the number of the patient is doubled and also we can expect longer duration of a therapy. However, in that case that would be the higher pressure onto the pricing in many countries. Considering all those factors currently for the potential sales at peak is under the scrutinization. Currently so far JPY100 million to JPY200 billion range is what we would be expecting to be increased.

So next is roxadustat, the development status in Japan. As has been mentioned, in September we received the approval for renal anemia in patients on dialysis into September. The price is currently under discussion. We are expecting the product is going to be launched in this November. The product name is Evrenzo.

The MOA of this drug is different from that of current standard of care such as ESA. Rather it improves anemia with activation of HIF or hypoxia inducible factor, which received a [novel award] in physiology and medicine. For those on non-dialysis based upon the current (inaudible) ongoing clinical trial results, we are thinking about the supplemental NDA submission in Japan.

From here I'd like to talk about focus area approach. This slide shows the immuno-oncology pipeline that is one of Astella's primary focuses. So, for this immuno-oncology pipeline, details are going to be explained in the R&D meeting expected to be held in December, December 10, so please expect that. And today, however, out of these I would like to make a bit of expression about aAVC, or artificial adjuvant vector cell.

This is our new and potential cancer platform that we consider. So, there's a high expectation on that and with Riken we came up with the license agreement for the joint research. On the right bottom you can find the schematics of the mechanism of activation of aAVC. aAVC is established using allogeneic cells by carrying the following: target tumor antigens, CD1d and alpha GalCer.

This alpha GalCer is a-Galactosylceramide. This is a type of sphingolipid lipid. With administration of aAVC, the a-Galactosylceramide over the aAVC activated the natural killer T cells. These activated natural killer T cells attack the cancer cells. That is innate immunity and the activated natural killer T cells not only attack the cancer cells but also aAVC cells as well.

And after that within aAVC cancer antigen is released. And the released cancer antigen is presented at the dendritic cell and there those are fragmented and expressed over the dendritic cell surface. And that is recognized by a T cell and those are matured as the antigen specific killer T cells that attack the targeted cancer cells. This is adaptive immunity.

And also some of the antigen specific cytotoxic T cells differentiating long-lived memory T cells. When tumors relapse the memory T cells becomes antigen specific cytotoxic T cells and attack the tumor cells. So, long-term effect as part of the adaptive immunity is something we are expecting.

The current flagship [compound] into here is ASP7517 and this is aAVC loading going 1 -- WT1, a tumor antigen highly expressed in AML. And currently a Phase 1 study -- a Phase 1/2 study in AML and MDS has got started. With the exchanging cancer antigen other cancers can be also targeted. And in reality multiple aAVC program where other than WT1 are loaded are under the preclinical study or research basis.

This is another focused approach. This is ASP1128 categorized with mitochondria biology. Mitobridge is the company who has a specialty in here. After some of the joint research for a couple of years, we acquired Mitobridge. And with this we can now conduct multiple programs for the kidney as well as the muscles.

So, mitochondria biology is one of our four primary focuses. This ASP1128 is a selective PPARδ modulator. As you can find at the bottom, the MA transcription is modified with the administration of this and those three physiological and two pathological activities would take place.

For example, the β-oxidation improvement and mitochondria biogenesis, glucose oxidation, reduction of inflammation, reduction of fibrosis. So, this is something we can utilize for the clinical setting. And based upon that, we selected AKI or acute kidney injury.

This is very much of the disease that leads to the increased morbidity and mortality. And AKI occurs in up to 30% of cardiac surgery patients and 2% to 6% of these cases require dialysis. And no approved therapies are available for either preventing or treating AKI.

Currently the Phase 2 clinical trial was conducted targeting the -- those under the CABG or the valve treatment. And with this we currently are able to discuss with the FDA because this is designated as fast-track. Therefore, we believe that we can conduct the very (inaudible) development. Although it is not written here, today we published a press release that is about the agreement with Pandion in the United States.

The primary focus that we have this for as follows: cancer immunity, mitochondria; regenerative medicine; or antigen specific immune modulation. And we came up with the agreement of with Pandion with regards to the technology or ASIM. And this exclusive collaboration utilizes Pandion's platform to discover novel tissue specific immunomodulators for type I diabetes and other autoimmune disease targeting the pancreas.

This is still research basis, so I cannot tell you the details, but at the appropriate timing I would like to update you. So, these are the key events expected within this fiscal year and we would like you to keep your eyes on our progress on this.

With using the following two slides, I would like to introduce you to the update of Rx+ program. In the second quarter Rx+ business commercialization is considered and for that purpose there were two collaborations was agreed. First of all, Health Mock Lab, a virtual framework for industry academia collaboration with Yokohama City University and Tokyo University of the Arts, that has already launched.

As part of the Rx+ program we are also aiming to create and commercialize new digital healthcare solutions and this digital care solution has a different approach from the medicines. Therefore the problems not easily solved by the medicine can be solved. But there is the problem of the continuation of the usage. That is considered as unmet need. So, in order to solve that we are expecting the function of gamification.

Using technology of gamification we would like to introduce a new healthcare solution which can be continued with pleasure. So, this kind of a health care solution idea is continued to be generated and commercialized. That is a capability we are expecting.

Next one is the joint research and development agreement with iota Biosciences, Inc. This is ultra-small implantable medical devices. This is implantable devices that can be implanted into the clear site of the mechanism of action. Therefore efficacy is quite clear and also the systemic side effects sometimes observed with the medicine can be expected to be smaller.

But for the implementation usually requires an invasive procedure. But this iota Bioscience specific components can be generated. Therefore even for the implantation the -- it is minimally invasive and also in some cases it can be also minimally explanted. This is where we are expecting the treatment for the body with electric signals and we are going to consider the detailed specification so that we can come up with a plan of preclinical trial. And also we want to consider research usefulness there.

Next is the capital allocation. There was no changes about the policy priorities to the investment for the business growth area. And we introduce you to the new agreement with Pandion and also [Ios] and we are always looking forward to such kind of new opportunities of the investment. And we are expecting the dividend of JPY40 that is a 2 (inaudible) increase, although we are in the forecast of the profit decrease.

And as has been announced today, we are going to do another share buyback that is limited to the JPY50 billion, JPY32 million shares. Duration of the acquisition is from November 1 to January 31. We are going to continue to work for the improvement of the capital efficiency and shareholder return.

This is the last slide. As we mentioned, we are going to plan to have R&D meeting focusing on the immuno-oncology on December 10. We acquired Potenza which came up with the mini development candidates for immuno-oncology and also (inaudible) University, another potential asset is going to be introduced there. So, we expect as many participants will be there as possible. That is all. Thank you very much.

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Unidentified Company Representative [2]

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Thank you very much. We now would like to take some questions from the audience. If you have a question please raise your hand. We will name you.

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Questions and Answers

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Hidemaru Yamaguchi, Citigroup - Analyst [1]

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Hidemaru Yamaguchi from Citigroup. Sorry for a detailed question, to begin with roxadustat drug price. It's outside of the rounding. Can you go out of the rounding? Is it going to be within the rounding? It seems that you cannot answer this question, but still allow me to assess.

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [2]

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At (inaudible) we know there are such discussions. Roxadustat is a new therapy becoming available, so discussions are occurring, so we know that. And at (inaudible) specifics are going to be discussed and it's about the bundled payment. We cannot comment further than that.

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Hidemaru Yamaguchi, Citigroup - Analyst [3]

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And my second question, XTANDI is doing well. You made an upward revision for the future. PROSPER had a lot of impact this time. And after this in December you have ARCHES and EMBARK one after another. You have shown us numbers from before, but what is the impact of PROSPER right now? And EMBARK and ARCHES will also come. What is going to be the impact on the target population? What is going to be the size? Could you explain?

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Unidentified Company Representative [4]

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In total, as Yasukawa explained earlier, JPY400 billion to JPY500 billion is the range this product is aiming for. In the United States the number of patients we are assuming, we don't have an accurate figure, but according to assumptions there's a certain number we have on our mind -- M0 patients, 30,000 patients. That is our understanding. M1 is busy, little more than 30,000 or 35,000 patients according to understanding.

So, it's in the stage of the regulatory discussions, so we don't know clearly. But we'd like to establish a position there so that it would contribute to sales expectations. That's our expectations.

And XTANDI, of course pricewise the increase in the US is the biggest. But percentagewise there is growth in international market like Latin America and Middle East and there the growth rate was [mis-]expected. So rather than thinking about just the specific types of the patients, the treatment itself is not really (inaudible).

There are many cases where the [presence] of cancer is discovered in the later phase. The United States or the Western European countries are different, therefore we need to also take their different [actual] approach for the market development for such new markets.

Hidemaru Yamaguchi

Now enfortumab vedotin, you are thinking about the line change, but as discussed in the conference call, I think you're done the development for the other cancer types in (inaudible). Are you thinking about all the development for other cancer types?

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Unidentified Company Representative [5]

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Yes, we just started the trials.

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Hidemaru Yamaguchi, Citigroup - Analyst [6]

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What specifically have you started?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [7]

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You're talking about enfortumab vedotin, right?

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Hidemaru Yamaguchi, Citigroup - Analyst [8]

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Yes.

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [9]

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For that currently there are several phases that are ongoing for some of the cancer types or tumor types active for expressed cancers. For those, for how we should proceed the development, that is under the consideration together with the partners.

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Hidemaru Yamaguchi, Citigroup - Analyst [10]

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Let me ask you once again, cost reduction -- next fiscal year is the midterm and probably this year, well JPY20 billion -- JPY20 billion including costs and that is going to be -- surface in the next fiscal year. But the overall environment has been changing. Cost reduction effort, that is not really mentioned, but throughout the next fiscal year on track you are toward the target of reduction of JPY20 billion?

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Unidentified Company Representative [11]

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In the beginning we came up with a number of JPY30 billion. And this April, at the financial announcement this fiscal year, we mentioned that we can achieve about 40% of that. And with that progress level we are going as has been planned. So, our target, original target, JPY30 billion cost reduction, we believe we can achieve that target.

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Hidemaru Yamaguchi, Citigroup - Analyst [12]

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Thank you very much.

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [13]

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The number I mentioned it a little while ago, if I refer to the material immune therapy I would see new patients in the united states 20,000 in 1HPC, 38,000 that is the number of the new patients expected in the United States.

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Unidentified Company Representative [14]

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Next person with your question, person in the fourth row.

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Unidentified Analyst [15]

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Good morning. My name is [Widda]. First, I'd like to ask you questions about XTANDI. This time in the United States on a local currency basis regarding the [gross seats] based on the actual demand or any impact of the inventory or the stock. Could you talk about the quarterly trends? And the business is good particularly because of M0 as a focus. Any other factors behind the good business? Could you comment on this?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [16]

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Thank you for your question. First of all, particularly in the inventory or special purchasing patterns, did we have such factors? We haven't recognized such factors in the United States. So, we think this is based on that the actual demand.

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Unidentified Analyst [17]

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Then PROSPER data was published and other than that what were the factors behind?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [18]

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We have PROSPER, the Company as a whole is trying to introduce the benefits of the PROSPER data. And on top of that -- well, we are not promoting this, but at academic society activities this year at ESMO, [YUDI] and also at ASCO Internet data and Arches data were published or announced -- or presented.

And XTANDI -- there seems to be some trust or confidence in XTANDI as a brand. We are not promoting, but overall a sense of trust and confidence in this product has been enhanced. That is working positively for us according to our understanding.

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Unidentified Analyst [19]

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Thank you very much. Additional question on XTANDI. What is the ratio of the prescriptions by urologists right now?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [20]

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By urologists, compared to the previous quarter there is a further increase. Urology doctors -- 4,000 doctors in the United States are prescribing this. We confirm this percentagewise. It hasn't changed much, around 26% according to a report from the United States.

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Unidentified Analyst [21]

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The second question is about China. Greater China, the trend is increased revenue. I think there is no big change about that. But you explained about the development and also enhancement of the regulatory affairs-related matters. So, at the timing of the pipeline products launched you are going to accelerate your activities there.

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [22]

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Well, mainly this year is we are focusing on the activities for the development and also regulatory affairs. After that external affairs is also needed to be enhanced in terms of the function to have. Sales wise, with looking at the progress, we are going to think how we are going to do.

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Unidentified Analyst [23]

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So, this JPY200 billion as a target set as this, do you have any specific landmark events you are thinking about to accelerate your activities?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [24]

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Well, the first one is XTANDI of course. And the second, considering the nature of the Chinese market, the turning point is IMAB, our gastric cancer drug, success or failure. That's going to be another big turning point for us.

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Unidentified Analyst [25]

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Thank you very much. The last question, Rx+ program is a question. So, you pointed out gamification as well as medical devices. As a pharmaceutical company you -- what kind of value do you think you could provide for this kind of modality?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [26]

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Thank you very much. First of all, gamification itself, while if it's a patient or pre-disease patients, whatever the case is, so that the things -- the treatment can be continued, we can make use of the gamification or gaming. Because usually you stop after three days, but with game types of fun you might be able to continue.

Well, at this point of business we can line up all the types of the patients and also the pathology and also where should we change. So considering that we developed the drugs. Therefore that kind of approach can be made use of for the medical device development as well. And all collaboration for that as well we are saying the same thing.

They have technologies but where those technologies can be used or how the safety and efficacy can be proven -- because iota is a smaller technology company, therefore Astellas' strengths can be made useful in that area.

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Unidentified Analyst [27]

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Thank you very much, that's all from me.

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Shinichiro Muraoka, Morgan Stanley - Analyst [28]

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I am Muraoka from Morgan Stanley. Thank you very much. About XTANDI, I want to ask more questions. The second quarter 27%, you said this is based on the actual demand. In the first quarter 18%, [6 points] for of the enterprise and actually it's 0%, and this time it is 27% vis-à-vis [82]%.

So, you have that much increase based on the volume it is growing. That is our understanding. So, this momentum is going to continue in October/December period and beyond? You said 27% for the volume right? Quarter-on-quarter 13% I think. I said year-on-year, 22 -- or 21 rather, 21, sorry.

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [29]

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Basically in the second half the volume I think is going to continue to grow. But as you know, in the fourth quarter, as usual, Medicare and other coverage gap issues, a rebate would be incurred every year. In the fourth quarter every year it is not going to grow on a value basis. That is an event we are factoring in and forecasting. So, based on this we had the revision of our sales forecast.

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Shinichiro Muraoka, Morgan Stanley - Analyst [30]

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HSPC approval -- positive impact for January-March have been factored in?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [31]

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Yes, we factored this in. But as I said -- we said before it's the end of the year. We're expecting this at the end of the year, so three months. So as of now we are not expecting great expectations here.

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Shinichiro Muraoka, Morgan Stanley - Analyst [32]

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And mirabegron?

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Unidentified Company Representative [33]

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Mirabegron is what we are paying more attention to. In Japan it has just started, but in the US market mirabegron [will remain less] a goal for mirabegron.

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Shinichiro Muraoka, Morgan Stanley - Analyst [34]

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How much impact and how do you see it in terms of the competition?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [35]

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Mirabegron approval would be in 2020 or 2021, so more than a year to go. In that sense, β3, new drug for β3 to expand. So, it would work positively for us in that respect because of β3.

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Shinichiro Muraoka, Morgan Stanley - Analyst [36]

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But are you going to lose your market share substantially because of this?

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Unidentified Company Representative [37]

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Given the current circumstances in Japan we don't think it's going to be a major negative factor for us as of now.

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Shinichiro Muraoka, Morgan Stanley - Analyst [38]

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The last question, roxadustat in Japan. Japanese level, if we look at [care play], that thrombotic risk is highlighted. Marketing wise is it likely to be a big negative factor or the doctors are not really so much -- paying so much of their attention onto it?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [39]

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As a pharmaceutical company, of course, safety and communication about the safety is one of the most important things. So, we earnestly communicate that. With having that warning then a switch from [ASA] and a new approach there might be the negative impact. But that is already taken into the focus that we have kindly.

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Shinichiro Muraoka, Morgan Stanley - Analyst [40]

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Thank you very much.

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Motoya Kohtani, Nomura Securities - Analyst [41]

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I am Kohtani from Nomura Securities. First question, which page was it? I don't remember. One-off expense items, page 11 I think. Could you explain again the size of each? If it's difficult to explain that way, how much in total? Could you explain? That's my first question.

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [42]

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Yes, here, transfer of three products in Asian region to Daiichi Sankyo, JPY9.6 billion. Upward revision of US Prograf, it's difficult to quantify this because recently generics had a shortage in the US market and other manufacturers were trying to fill it out, as well as other generic manufacturers. If still there is a shortage, Prograf would be used.

Volume wise we have certain assumptions, but in which segment this is going to be used it's difficult to forecast. In terms of pricing there are uncertainties. At any rate the current forecast or outlook, around JPY6 billion in our view, approximately.

On expenses, 2016 we had a domestic partner. Based on the agreement we paid expenses on their behalf and it could become accounts receivable. That's why we had an allowance we booked.

And looking at the situation of the business and the financial status of the e-partner, we reversed all of the lost allowance amount and JPY8 billion has been the reversal of lost allowance amount.

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Motoya Kohtani, Nomura Securities - Analyst [43]

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What about the China JPY200 billion toward the end of 2020? So, how now the [firm] will be impacted? And China extent, I don't know when will be the expiry of the patent. Probably just like other areas, going to be like 2029 that it's going to be expired? So, I just really wonder XTANDI grows but the patent expired and IMAB comes in, there would be the fractionation about the business result or do you think it's going to be linear growth?

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Unidentified Company Representative [44]

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Well, first of all, Harnal, four plus seven impact is strongly received by this product. So, in these terms, rather than maintain this business with so much of the resource [rather OAB], this care the (inaudible) market expansion is where we put more resource. So that resource allocation has already got started.

Prograf and (inaudible) [graft], that is also likely to be impacted. But just like other areas for this drug, there is a very subtle impact onto the (inaudible) concentration. So, the business is unlikely to be reduced drastically just like the case of Harnal. So, current drug products are going to be reducing sales gradually.

However, on the other hand, XTANDI and other, these products, [unlike] you see on the screen, if they are approved according to our expectation -- in line with our expectation and also future named products mainly for the oncology segment. [MRDa] is revisited once in two years. Oncology product is reviewed once in a year.

Therefore in good timing, if the list addition for MRDa has taken place and that is really favorable timing for us, then just like Yasukawa mentioned, for example, [zovamkicimab] epidemiology wise, because in China there is relatively many gastric cancer patients that also contribute to the push-up of this JPY200 billion. That is how we are expecting.

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [45]

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Today peak forecast for each product is not going to be disclosed within this meeting today. 28 to 30 is going to be the timing of the product sales hits the peak. Of course, we need to do the negotiations with the Chinese authority, what kind of studies are necessary, how long it will take for conducting those requested studies and also the approval review process that is also not fixed. So, there is uncertainty there as well. So, that is going to be disclosed at a prepared timing. So, so far that's all that we can tell.

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Motoya Kohtani, Nomura Securities - Analyst [46]

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What about the Chinese patent situation XTANDI?

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Unidentified Company Representative [47]

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Just like other areas, that patent day is going to be expired in China as well on the same timing on other areas. Well, 2026 is the timing of the expiration of the XTANDI patent.

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Motoya Kohtani, Nomura Securities - Analyst [48]

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aAVC on page 24, you explained at the end. This is a very interesting idea and the (inaudible) to do is a hot topic in immuno-oncology, but I have a concern. aAVC, if I search, I find information about Riken researchers and nothing else. If you just do this in Japan alone I wonder, but also in the United States this kind of a research is ongoing.

Are there similar ideas like including virus in the -- antigens in the virus that have active -- the double activation in other regions as well? This is not a virus, but this is a cell from the kidney. So that's a correction and how many similar technologies?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [49]

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We are not in a stage to comment on this, so we will also study more so that we can respond to your question in the future.

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Unidentified Company Representative [50]

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Here we would like to entertain questions from another site. Then we will take a question from the audience first, and then take a question from those who are participating through the teleconference.

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Fumiyoshi Sakai, Credit Suisse - Analyst [51]

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I am Sakai from Credit Suisse. Regarding new product, two questions. (inaudible) China, the questions. Evenity, in the initial shipment there was no impact. And steadily you are growing up to the second quarter. In Japan patients at high risk of fracture was an indication.

I thought you were making a careful start, but collaboration with Amgen would be successful. That's one factor. Could you explain what is happening specifically in the Japanese osteoporosis market? Could you explain?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [52]

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As you say, this is exiting our initial assumptions and we are penetrating in the market at a rapid pace.

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Fumiyoshi Sakai, Credit Suisse - Analyst [53]

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The target patient population who should use the product, have they changed?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [54]

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No, they haven't changed according to understanding. As you pointed out, patients at high risk of fractures and also, as you know, there was a warning which was added at a pharmaceutical company. Astellas, what we tried to do first is to communicate the risks appropriately to the new doctors. Still if the doctors think it's necessary to use the product to the patients, this is what we are trying to ensure.

But still there is a dual effect and the convenience, once monthly -- the convenience of this product when we make a sales forecast, as you pointed out, we place importance on safety first. So, it must be used in the appropriate patients. We are expecting this will update.

But regarding the profile of this drug, the speed was faster than we expected. The target total patient population hasn't changed, but the degree of penetration was faster than we assumed in the prescription. That's our understanding of the current status.

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Fumiyoshi Sakai, Credit Suisse - Analyst [55]

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Understood. Thank you very much.

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Unidentified Analyst [56]

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Your (inaudible) study result, I haven't read all of that yet. But top line wise against the (inaudible) it is affective and also OS is good. So, I think the result was really good. Based upon such a result, what do you think about the current potential of this drug?

Do you think the potential will be further improved or increased? Or such kind of a good result is already expected to [calculate] the (inaudible) cells. I know that multiple Phase 3 ongoing and probability of success is also increased I believe. What do you think?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [57]

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Relapsed refractory, so in the area of salvage, yes, that result is what we have expected and so therefore the progress level is within our expectation that the bigger market is a usage before that relapsed refractory level. And a clinical trial there is still on going so the result is not available yet. And other companies are also developing it that area as well.

So, as of now for total potential, we do not think the current information is now sufficient enough to change the expectation. I think the kind of level is already observed level. [Roxadustat] in China, AstraZeneca has -- the right was transferred to AstraZeneca.

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Unidentified Analyst [58]

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I know that, but so many patients are enrolled in the study and the result is good. That is my understanding. But within this, your Greater China strategy, what do you think about the product right in China? Do you think with [Fibrogen], do you still have the room to negotiate about the product right in China? What's your current relationship with that company?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [59]

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Well, with that product -- well, there is no plan currently to renegotiate about the product right with AstraZeneca and Fibrogen as well.

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Operator [60]

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Any questions from the conference call participants? We are going to entertain questions from the (inaudible) teleconference. (Operator Instructions). I think there is no one who wants to ask a question. So, back to the meeting room. Anyone with a question? Person in the second row please.

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Unidentified Analyst [61]

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(Inaudible) Morgan Stanley. My name is [Loco]. First I would like to ask you a question about XTANDI. XTANDI is doing very well. They are a competitive product as well. So the impact of competitive products, I'd like to hear your views. Darolutamide from Bayer for example.

BBB penetration is less seen as -- toxicity is less according to them. Is this going to be a competition for XTANDI or BBB penetration? It's not a concern in the clinical setting. So you think it's not going to penetrate so much. What you think of the competition?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [62]

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In the United States it was approved in July or August. Just a few months have passed since the approval in the US. So, we are still watching the situation. If you look at the drug profile, the points you have mentioned could be what we may not have, but if we look at our data and our history regarding the drug, we think there's a difference just on the confidence into the product.

So, we'd like to monitor how this is going to be used in the clinical settings. But we don't think that it's going to be a major threat to our product as of now.

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Unidentified Analyst [63]

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XTANDI's idea when they are administered, the CNS brain toxicity is not a big concern upon administration or is this actually an issue?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [64]

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No, XTANDI side effects -- when you use XTANDI, the biggest concern or question is fatigue. BBB penetration leading to CNS adverse events, it's not a major issue, at least as far as I know.

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Unidentified Analyst [65]

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I see. My second question, roxadustat.

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Unidentified Company Representative [66]

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Roxadustat, the original or the potential of the developer in the beginning is not only for the non-dialysis but the dialysis patients can enjoy the benefit of this drug. For non-dialysis we might be able to dig up further patients.

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Unidentified Analyst [67]

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Considering those and also concerning the formulation and also the data, the non-dialysis place might be highly potential for this drug. Is this what you think as well? Or those on dialysis with the currently available data, you think there are factors that this drug is going to be widely used for that kind of patient as well?

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Unidentified Company Representative [68]

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Well, at least in Japan, as you know, indication this time is the anemia patients on dialysis and not on dialysis (inaudible) and afterwards. Therefore here we would like to establish the positioning of this drug for the patients on dialysis. But as you mentioned this drug, this is the oral medicine. This -- compared to ESA this is one of the biggest benefits. So, in that perspective we think there's a potential on non-dialysis as well.

While the number of the patients was currently the dialysis patients who require the treatment of renal anemia is around [298,000] in Japan once again. And non-dialysis 370,000 or 380,000. And duration of the treatment and concerning all those factors in total, at least in Japan, probably the number of the patients is a bit increased on non-dialysis place or area, just a little bit. So, there's the possibility of potential for further expansion of the usage in non-dialysis that is highly likely.

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Unidentified Analyst [69]

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7517 aAVC is the question next I want to ask you. WT1 is a target. And WT1, in the past it was sort of trendy or a trend, but it is not really so these days. Why WT1 now? Probably we can have started with that, but why WT1 now? And you've tried it with various antigens, but what's the appropriate antigen?

What is it or whatever antigen is adaptable or some size restrictions or the (inaudible) is better or encapsulation is better? There are barriers. So, there might be the [appropriate action] type, too. You have any idea about that?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [70]

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Well, currently this is under the research still, which is good, is now something we can tell because we don't have data. So, we want you to wait for that information. However, there are the areas or the cancers where the (inaudible) level is low or treatment is not available. That is where we would like to make use of this technology. And I cannot tell you the history why WT1 is the first. I'd rather refrain from making a comment about this.

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Unidentified Analyst [71]

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Okay, understood. That's all from me. Thank you very much.

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Unidentified Analyst [72]

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From Merrill Lynch my name is (inaudible). I have three questions. First the overall question. In 2018 you announced your strategic plan. What are you trying to do, have been making progress? There is a very visibility of growth in enfortumab vedotin growth story in China, fezolinetant, and there are various of valuations.

But still the patent expiry for XTANDI. Now you have a possibility insight to overcome that issue with your pipeline. Or do you need to have new drugs purchased from outside to overcome the patent expiry of XTANDI? What's the current outlook?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [73]

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2019 is going to be either bottom year as we have continued to say since a few years ago. Basically Tarceva LOE, we know that, and also six key late stage projects. And they have not contributed to the Company as a whole significantly. Yes, so 2019 can be the toughest year for us. Actually in spring, according to the initial forecast, sales 6.3% decrease, core operating profit 13.8% decrease, as we have been saying.

But today we made a revision compared to last year -- revenues minus 3.9% -- minus 2.5% for the core operating profit. Foreign exchange rate on the yen is appreciating. If there is no change in the currency rate, then revenues minus 1.7%, core operating profit minus 2.7%, as you can tell based on these calculations.

So, we made a first -- we said that this is going to be the year of the patent [grief], but we have less (inaudible) management of XTANDI we worked very hard to tackle. Vesicare mirabegron, we tried to promote switching and the group of only products in Japan, we tried to launch them as soon as possible. So, these are the three things we have been trying to do. And also there are one-off factors, several of them.

So, the value of the patent cliff should be a shallow as possible and it must be as short as possible and we have been able to do this. Starting from next year we have roxadustat and enfortumab vedotin. And contributing -- will continue to -- will start to contribute to the United States so the scenario we have drawn can be realized.

In the late 2020s XTANDI patent will be expired. What's going to happen without XTANDI? 73E17, a cell therapy, or immuno-oncology we are going to explain in December. Some may develop and grow. It's going to be a necessary condition for the very long-term growth.

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Unidentified Analyst [74]

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My second question, ASP1127 which received a fast-track designation, more specifically what's the number of the patients in the United States? Is there any number that can be useful for the potential valuation? Would you please share that with us? And also timeline for the development.

Phase two is going to be finished probably in the mid-of the next year. When do you think that is going to be available for us in order to get the approval? Is it necessary to do a (inaudible) Phase 3 study? Please explain the current development strategy?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [75]

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Fast-track designation, that is quite impactful. And reason why is that, because thanks to that with FDA and we can have a swift communication, timely communication. Before AKI, in the past -- there is no successful products in the past for the development.

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Unidentified Analyst [76]

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So what is the endpoint? What's the level of the information necessary or data necessary for the approval? Those are the very first questions we have. Therefore if early approval is possible what will be the size of Phase 3?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [77]

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Those are still unknown, therefore when it's going to contribute to the management side, that we cannot tell you. And then, well, Phase 2 study preparation is about to be started, so the readout is going to be available around 2020 -- the second half of 2020 according to the current plan.

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Unidentified Analyst [78]

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Thank you very much. And for enfortumab vedotin, indication expansion potential, EV11 study was performed. And other than urothelial cancer you are developing in other indications as well. And clinical study data has been presented before or not? If you are going to present, if you have such a plan, when it's going to be presented? If you have such information could you share with us?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [79]

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In (inaudible) EV101 enrollment was completed. Ovarian cancer [NECOC] are included as indications there. And the data, according to the information I have at hand, study completion readout in the disclosure 2020 -- late 2020, according to this information, including the data (inaudible) for expression, unmet medical needs would be taken into consideration. And the next tumor types other than urothelial cancers we are trying to pursue.

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Unidentified Analyst [80]

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Thank you very much.

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Hiroshi Tanaka, Mizuho Investors - Analyst [81]

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Tanaka from Mizuho Securities. Focus area approach, I have two questions. Today, you didn't mention this, but earlier, as the President said, 7317, in the R&D meeting last year out of 150 cases P1b, nine cases. Next year or the year after next in spring it's going to be over. What is the current status? And next year at what timing you will have the results?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [82]

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RP7317 program, as you said, it has just started. First case, new sales are being used and the first case was enrolled in April this year. We are making progress in the cohorts, but as of now we don't have sufficient information to change since the previous announcement. So, as of now the time line we publish before there's going to be some kind of readout according to forecast right now.

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Hiroshi Tanaka, Mizuho Investors - Analyst [83]

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Nine cases have been already enrolled?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [84]

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Not yet.

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Hiroshi Tanaka, Mizuho Investors - Analyst [85]

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Understood. And my second question, in December I should ask this question perhaps, but Potenza, three immuno-oncology antibodies. If you look at the clinical study sites, the sample size seems to be increasing. Tumor types may not be determined yet. I think you're going to determine from their own, but in December can we hear such information in a December meeting?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [86]

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Depending on the program we focus on certain tumor types where we may have a broader inclusion criteria to see a response to which kind of tumor types we're going to explain one by one in December.

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Hiroshi Tanaka, Mizuho Investors - Analyst [87]

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Thank you very much. That's all from me, thank you.

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Marcia Matamatazuki, - Analyst [88]

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[Marcia Matamatazuki] is my name. My question is about Japanese market. Last year you reduced the hemo (inaudible), the number of medical reps is also decreased, but you are growing in the Japanese market including a new product. So, now for the future what do you think about the sales organization taking into consideration the launch of new products?

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Unidentified Company Representative [89]

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Thank you for your question. I just wonder how I can answer to your question. I would like to hear from the President, what do you see about the Japanese market currently?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [90]

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Well then from me first. Well, the human [risk] allocation was changed. As I introduced to you already, we have the approach of optimization in line with the portfolio. That's why we are changing the organization within the very tough competition of our new products are communicated to the physicians, thanks to the great effort of our medical reps and evaluate that. Also our (inaudible) products are well evaluated by the doctors, medical professionals. So, that's the impression I have.

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Marcia Matamatazuki, - Analyst [91]

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Well, then, do you think you're going to revisit the organization -- sales organization?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [92]

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Our sales organization -- this might be a repetition, but because we have portfolio and also you need to think about internal/external environments, depending on the necessity we are going to change it. So, the organization is always evolving.

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Marcia Matamatazuki, - Analyst [93]

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(Inaudible) going forward roxadustat and other new products will be launched. How do you look at the domestic market towards the second half of the fiscal year?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [94]

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Right now we have products which are doing well. That situation is going to continue. In the second half there's going to be an NHI drug price revision in April next year. So, some people may wait to hesitate to purchase before the drug price revision.

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Marcia Matamatazuki, - Analyst [95]

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Roxadustat market penetration, how do you see this? I wanted to ask this.

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Unidentified Company Representative [96]

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This is a first-in-class drug. In that sense there are doctors, many doctors who are interested in this. But on the other hand there are many doctors who are still careful. As we have been saying, the drug price is still under negotiation with the regulatory authorities.

Regarding the speed of penetration and the acceptance level, the drug price would also affect this point. In that sense we do have our expectations, but we'd like to bring this innovation to the Japanese patients. We'd like to focus on that and we'd like to focus on the appropriate information commutation. And also gamification, that's the end.

Marcia Matamatazuki

Including Japan and the United States, industry academia and -- the industry academia and the government what your plan for the future?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [97]

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Rx+, instead of the systemic progress we have ideas from time to [time]. We try to make progress on individual ideas, which are sporadic. We have an Rx+ promotion department. We developed the business department, but what kind of society we are aiming for what kind of solution we should try to develop. We are now discussing this point once again.

So, in the near future we will have something more systemic and more organized. And we have to consider how to communicate this, what kind of thing we are aiming for in the near future. We have shown you something very ambiguous, but there will be a day when we will be able to send more clearly the messages.

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Unidentified Company Representative [98]

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We are approaching the end of the meeting so we will take one more question from the audience.

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Unidentified Analyst [99]

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Sorry, SNBC (inaudible) Securities. My name is (inaudible). Just one simple question. This year you changed your forecast. What about the cost ratio in your image? In the first half cost ratio has been reduced, but considering the impact of the unrealized profit it is rising. There are many in-licensing products in Japan. So, what about the cost ratio compared to the previous fiscal year? Could you give us some clue how you see this?

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Kenji Yasukawa, Astellas Pharma Incorporated - President & CEO [100]

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In principle, as you said, product mix is changing a lot. So, in terms of the cost to sales ratio, it's a factor to push them up. But overall there's a slight decrease. I think that is going to be landing compared to 37.5% in the previous year.

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Unidentified Analyst [101]

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Previous year 22 point -- sorry, so it's going to be lower than that? Okay, understood.

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Unidentified Company Representative [102]

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With this we would like to close this meeting. Thank you very much for coming despite a very busy schedule. Thank you very much.