U.S. Markets open in 7 hrs 16 mins

Edited Transcript of 4506.T earnings conference call or presentation 30-Jan-20 10:59am GMT

Q3 2020 Sumitomo Dainippon Pharma Co Ltd Earnings Call

Osaka Feb 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Sumitomo Dainippon Pharma Co Ltd earnings conference call or presentation Thursday, January 30, 2020 at 10:59:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Hiroshi Nomura

Sumitomo Dainippon Pharma Co., Ltd. - CEO, President & Representative Director

* Hisayoshi Kashima

Sumitomo Dainippon Pharma Co., Ltd. - Senior Director & Corporate Controller

================================================================================

Conference Call Participants

================================================================================

* Fumiyoshi Sakai

Crédit Suisse AG, Research Division - Research Analyst

* Hidemaru Yamaguchi

Citigroup Inc, Research Division - MD and Analyst

* Kazuaki Hashiguchi

Daiwa Securities Co. Ltd., Research Division - Research Analyst

* Seiji Wakao

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst

* Shohei Oda

Morgan Stanley, Research Division - Research Associate

* Yo Mizuno

Tokio Marine Asset Management Co., Ltd., Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Hiroshi Nomura, Sumitomo Dainippon Pharma Co., Ltd. - CEO, President & Representative Director [1]

--------------------------------------------------------------------------------

This is Nomura, President and CEO of the company. Thank you very much for taking your time to listen to our presentation.

First of all, as announced on the press release, Sumitomo Dainippon Pharma completed the procedure for the formation of the strategic alliance with Roivant as of December 27, 2019. Today, we will be presenting the financial results for our quarter. And the impact by the alliance was reflected not on P&L, but on the balance sheet and the cash flow statement. The value of acquired assets and assumed liabilities on the balance sheet is provisional since the fair value evaluation has not completed yet, and the provisional figures and adjustments are being recorded as goodwill. We are expecting to present the results of ongoing fair valuation at the end of the fiscal year. Impact on our forecast on P&L will be presented later by Mr. Kashima.

Given the timing of the completion of the formation of the alliance with Roivant, I am expecting many questions on this matter to be asked during today's Q&A. So I'm here to answer these questions after the presentation. I'm looking forward to your questions and comments.

With that, I'd like to hand it over to Mr. Kashima for financial updates.

--------------------------------------------------------------------------------

Hisayoshi Kashima, Sumitomo Dainippon Pharma Co., Ltd. - Senior Director & Corporate Controller [2]

--------------------------------------------------------------------------------

I would like to present the financial results for the third quarter of fiscal year 2019 and the clinical development updates.

Please go to Slide 3. Let me update the status of the strategic alliance with Roivant. As per press release at the end of 2019, a procedure related to stock transfers was completed as of December 27, 2019, followed by the completion of payment to Roivant, a total of about USD 3 billion. Financing was secured by own resources and bridge loans, which is JPY 270 billion. Roivant established Sumitovant Biopharma Ltd. to which Roivant has transferred its ownership interest in 5 subsidiaries and Roivant's employees involved in its health care technology platforms. Sumitomo Dainippon Pharma acquired all shares of this newly established company.

This is accompanied by our acquisition of Roivant's health care technology platforms and 11% of Roivant's shares. As a result, we consolidated Sumitovant Group from the end of quarter 3 fiscal year 2019. The consolidation of the new company will not materially affect the consolidated P&L statement for the third quarter of fiscal year 2019.

Figures from Sumitovant Group were reflected in the statement, but please note that the value of acquired assets and assumed liabilities is provisional as the purchase price allocation procedure is not completed.

Financial impact of the early completion of the procedure on the consolidated financial results was reviewed and reflected on the full year forecast. I will touch upon these revisions later in the presentation.

Please look at Slide 4. I'd like to present the financial results for the quarter. Both revenue and profit increased from the same period last year. Total revenue was JPY 357 billion, up by JPY 10.1 billion or 2.9%. Revenue grew in Japan, North America and China segments. The performance is in line with the full year forecast. SG&A spending decreased from a year earlier, but is in line with the full year forecast. R&D expenses also decreased from a year earlier and is underspent. As a result, core operating profit increased by JPY 8.4 billion to JPY 64.3 billion, very favorable over the full year forecast.

There is no major factor to impact changes in fair value of contingent consideration as of the third quarter and reflected cost reversal were due to discontinued Phase III study for napabucasin pancreatic cancer in the first quarter, revised business plans for alvocidib and discontinued development for amcasertib, both in the second quarter.

Other nonrecurring items were and are attributable to impairment losses from revised business plans for alvocidib and discontinued development for amcasertib in the second quarter and discontinued joint development for SB623 in the third quarter.

The operating profit, as a result, increased by JPY 34.6 billion to JPY 81.5 billion. Net profit attributable to owners of the parent increased despite the increase in the tax expenses, which is mainly driven by the liquidation of deferred tax assets of JPY 23.3 billion in U.S., triggered by the discontinued study for napabucasin in the first quarter.

Please go to Slide 5. This slide shows revenues in Japan segment. Revenue increased by JPY 3.6 billion from the same period last year to JPY 104.3 billion. Sumitomo Dainippon Pharma started Equa and EquMet distribution and revenue recognition in November 2019, which contributed to the growth in revenue year-on-year.

Trulicity and SUREPOST showed high-growth rate, whereas long-listed products such as LONASEN oral formulations and AIMIX significantly lost revenues due to generic penetration in the market. It is our disappointment that LONASEN patch didn't hit the forecast, and we made a downward revision on the full year forecast. We hope to see the growth of the product going forward.

Please look at Slide 6. I will now present the revenues in North America and China segments. The revenue in North America was JPY 195.7 billion on yen basis, up by JPY 5 billion or 2.6% year-on-year. This is driven by LATUDA and APTIOM. LATUDA's sales reached JPY 142.1 billion, an increase by 1.8% from a year earlier or by about 4% on local currency basis, excluding exchange rate impact. For your information, one pending LATUDA ANDA litigation was settled, leading to a resolution of all pending litigations in the United States as of today.

China segment hit JPY 20.2 billion in revenue, up more than 20% year-on-year. Growth in China is mainly driven by MEROPEN. Revenue outside of Japan, including export business, accounts for 63.4%.

Please go to Slide 7. I will present financial results for the quarter by segment. Japan segment revenue increased with the revenue recognition of Equa and EquMet, but core segment profit decrease by JPY 3.1 billion year-on-year due to the negative impact on gross profit, including loss in revenue from long-listed products.

North America segment increased revenue. Acquisitions in relation to the strategic alliance with Roivant Sciences include additional costs, but the total SG&A expenses decreased due to decreased costs for LATUDA ANDA litigation and reduced commercial investments for COPD franchise. All in all, core segment profit was up by JPY 7.7 billion.

China segment increased the revenue and booked profit growth by JPY 2.7 billion from a year earlier.

Please look at Slide 9. This slide shows the revised forecast. Exchange rate assumption is revised from JPY 110 to JPY 108.5 against the dollar, but we are expecting to be able to absorb potential negative impacts of strong Japanese yen. So the revenue forecast remains unchanged at JPY 475 billion.

We expect increases in SG&A and R&D expenses by JPY 5 billion and JPY 8 billion, respectively, due to the growth of subsidiaries in North America in relation to the strategic alliance with Roivant. As a result, core operating profit is revised downward by JPY 13 billion to JPY 64 billion.

Changes in fair value of contingent consideration reflect potential increase in expenses attributed to the progress in clinical developments in the fourth quarter. Other nonrecurring items only reflect minor changes despite the impairment loss of work in progress asset from discontinued joint development for SB623 in the third quarter since a certain assumption of loss was already factored in the previous forecast.

Operating profit is revised in commensurate with the revision of core operating profit forecast. For your information, you can see the impact on fiscal year 2019 forecast by the alliance with Roivant on the slide.

Please look at Slide 10. This is the revised forecast by segment. Japan segment is expecting incremental revenue of Trulicity and REPLAGAL. Therefore, the core segment profit is now forecasted to increase by JPY 1.7 billion from the previous forecast. Downward revision by JPY 7.9 billion is made to the core segment profit in North America due to the incremental SG&A expenses related to the increase in consolidated subsidiaries in the context of the strategic alliance with Roivant. Upward revision is made for China segment, driven by favorable performance of MEROPEN.

Please go to Slide 11 for the impact of performance by the alliance with Roivant. In the short run, due to the upfront investment, P&L will be negatively impacted. But in the mid- to long run, P&L will be impacted positively.

This slide shows an illustrative outline of the business performance, which hits the lowest in fiscal year 2021, followed by a recovery in fiscal year 2022.

Revenue is forecasted to drop in fiscal year 2023 due to the decline in LATUDA sales after the entry of generic version, but to rise in fiscal year 2024 and onward, driven by the growth of Sumitovant products and napabucasin.

Financial target in fiscal year 2022, which is the last fiscal year in the latest midterm business plan, will be revisited in fiscal year 2020, and we plan to present revised figures later in a separate meeting.

Please go to Slide 13. I will explain development pipeline status. This is the list of development compounds and phases. Changes made since October is highlighted in red and will be presented in the following slide.

Please look at Slide 14. The slide summarizes change points since October. In psychiatry and neurology, Japan started Phase I study for DSP-1181. This is a novel compound created by Sumitomo Dainippon Pharma, using Exscientia's AI technologies, and the proposed indication is obsessive-compulsive disorder. This compound has a potent full agonistic activity for serotonin 1A receptors and is expected to have a long half-life. Therefore, it is suggested that it has strong efficacy over a long period of time.

In other therapeutic areas, for Imeglimin, we obtained positive top line results from Phase III study, which was TIMES 2 for monotherapy and combination therapy with other hypoglycemic agent at 52 week for type 2 diabetes. I will present the results more in detail in the following slide.

As of December 27, 2019, 6 compounds were newly added due to the closing of the strategic alliance with Roivant.

Please look at Slide 15. This slide summarizes the results of TIMES 2 study for Imeglimin. In the study, Imeglimin met the primary endpoints by demonstrating safety. Imeglimin was generally well tolerated and adverse events were similar to previous studies. Imeglimin also demonstrated efficacy by reducing HbA1c from the baseline, 52 weeks after the administration, both in mono and combination therapy. We plan to submit NDA in fiscal year 2020 in Japan based on 3 Phase III results from TIMES 1, 2 and 3.

Please go to Slide 16. This is the summary of relugolix prostate cancer Phase III study results. In the study, relugolix met primary endpoint with 97% of men achieving sustained testosterone suppression through 48 weeks. Relugolix also achieved all 6 key secondary endpoints with p-values of lower than 0.0001.

In terms of safety, relugolix was generally well tolerated, with half the rate of major adverse CV events compared to leuprolide acetate, 2.9% in relugolix group versus 6.2% in leuprolide group.

We plan to submit NDA in the U.S. in the first quarter in fiscal year 2020, based on the results from the study. That data will be submitted for presentation and publication in the first half of calendar year 2020.

That concludes the presentation.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Kazuaki Hashiguchi, Daiwa Securities Co. Ltd., Research Division - Research Analyst [1]

--------------------------------------------------------------------------------

I'm Hashiguchi from Daiwa Securities. My first question is around the financial impact from the strategic alliance with Roivant. What do you expect would be the impact for the next fiscal year? The impact you presented today was only for a quarter. Is it reasonable to apply a simple calculation and quadruple these figures to quantify the potential impacts on the next fiscal year? Goodwill seems to be the only intangible assets and amortization of goodwill does not seem to be expected in this case, but how about amortization of platform moving forward? How much do you think it will be?

--------------------------------------------------------------------------------

Unidentified Company Representative, [2]

--------------------------------------------------------------------------------

On the point of the impact on the next fiscal year, Sumitomo Dainippon Pharma, Sumitovant and their 5 subsidiaries are currently in the process of budget planning. So I don't have anything that I can share with all of you at the moment. Fiscal year also starts in April in overseas subsidiaries. In fiscal year 2019, subsidiaries we just acquired needed R&D investments. But as they completed submission for vibegron and plan to do so for relugolix, expense structure is expected to change with the shift from R&D spending to commercial spending. But we don't know how the structure and intangible assets are going to change at this moment of time, and we are currently running the process of evaluation to find these out. I appreciate your understanding.

--------------------------------------------------------------------------------

Kazuaki Hashiguchi, Daiwa Securities Co. Ltd., Research Division - Research Analyst [3]

--------------------------------------------------------------------------------

My next question is about the allocation of investments to the Sumitomo Dainippon Pharma Group as a whole. The company has presented the long-term plan earlier, but how will that change after the completed acquisition of Roivant's subsidiaries? As it is presented on Slide 11, profit is forecasted to drop for 2 consecutive fiscal years. But how do you plan to manage investments to your business?

--------------------------------------------------------------------------------

Unidentified Company Representative, [4]

--------------------------------------------------------------------------------

It is true that we don't have ample resources. So it is important that we prioritize for optimized resource allocation.

--------------------------------------------------------------------------------

Kazuaki Hashiguchi, Daiwa Securities Co. Ltd., Research Division - Research Analyst [5]

--------------------------------------------------------------------------------

What do you say about R&D spending. The long-term plan proposed JPY 450 billion for R&D investment, but will it be revised?

--------------------------------------------------------------------------------

Unidentified Company Representative, [6]

--------------------------------------------------------------------------------

R&D investment will go up, but it will not be a simple net increase from acquisition.

--------------------------------------------------------------------------------

Kazuaki Hashiguchi, Daiwa Securities Co. Ltd., Research Division - Research Analyst [7]

--------------------------------------------------------------------------------

My last question is on funding policy. The company was planning to finance the deal by using bridge loan until long-term loan is secured, along with other options. Could you give us an update on this?

--------------------------------------------------------------------------------

Unidentified Company Representative, [8]

--------------------------------------------------------------------------------

We plan to take subordinated loan then to bridge loan until permanent financing is obtained.

--------------------------------------------------------------------------------

Kazuaki Hashiguchi, Daiwa Securities Co. Ltd., Research Division - Research Analyst [9]

--------------------------------------------------------------------------------

So the company is not planning to raise funding through equity financing?

--------------------------------------------------------------------------------

Unidentified Company Representative, [10]

--------------------------------------------------------------------------------

It will depend on the funding environment in the future, but equity financing is not our plan at this moment of time.

--------------------------------------------------------------------------------

Seiji Wakao, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [11]

--------------------------------------------------------------------------------

I'm Wakao from Mitsubishi UFJ Morgan Stanley. My first question is about the forecast on expenses in relation to the alliance with Roivant. If we simply quadruple the increased expenses of JPY 15 billion, which is forecasted for a single quarter from January to March, the total fixed costs for a year moving forward would be JPY 60 billion. Would the cost be more or less than this? I understand your assumption on the shift of the expense structure from R&D to commercial, but would it be possible for the company to reduce spending with efficiency?

--------------------------------------------------------------------------------

Unidentified Company Representative, [12]

--------------------------------------------------------------------------------

Acquired subsidiaries have been R&D-focused companies. So they have been able to run a business with a small number of people. Upon expected launches of products, we plan to leverage the existing commercial platforms in the group. But we will need to hire those who will be working in the field to cover areas of specialty. That is why we forecasted the incremental spending, especially on commercial and marketing.

--------------------------------------------------------------------------------

Seiji Wakao, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [13]

--------------------------------------------------------------------------------

Does that mean these subsidiaries acquired from Roivant will become commercial-focused companies after R&D is completed and products enter the market?

--------------------------------------------------------------------------------

Unidentified Company Representative, [14]

--------------------------------------------------------------------------------

Myovant and Urovant are companies with prelaunch assets, but they are listed companies. So I'd like to refrain from making any comments on them, as I do not intend to make a big impact.

--------------------------------------------------------------------------------

Seiji Wakao, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [15]

--------------------------------------------------------------------------------

My next question is around your forecast on revenue and profit growth, starting fiscal year 2023. What do you expect are driving this growth? It says on the slide that the growth is driven by the growth of napabucasin and Sumitovant products, which are relugolix and vibegron. Considering the size of the expected growth, it doesn't seem to be achievable only with the growth of these products.

--------------------------------------------------------------------------------

Unidentified Company Representative, [16]

--------------------------------------------------------------------------------

In the U.S., we will have APL indicated for off episodes associated with Parkinson's disease and SEP-856. In Japan, we are expecting launches of Imeglimin and LATUDA. Assets from the existing pipeline are also expected to contribute to the company's growth.

--------------------------------------------------------------------------------

Seiji Wakao, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [17]

--------------------------------------------------------------------------------

Could you also tell us why the company decided to discontinue the joint development of SB623? It was my impression that the asset was positioned as one of main drivers for the company? Was it due to R&D challenges such as timeline or a competitive landscape?

--------------------------------------------------------------------------------

Unidentified Company Representative, [18]

--------------------------------------------------------------------------------

Top line results became available about a year ago, and we run data analysis with SanBio system. SanBio and Sumitomo Dainippon Pharma have also been engaged in discussions to assess the future course of direction, but Sumitomo decided to return the license. But it is our hope that SanBio's development for the treatment of TBI is carried through successfully. We hope for the best because we want to see a success in the development of regenerative medicine.

--------------------------------------------------------------------------------

Seiji Wakao, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [19]

--------------------------------------------------------------------------------

During the clinical development, the company ran a unique study of stereotactic intracranial injection of SB623 cells. What was the experience or knowhow that the company earned through the program that you can employ for your assets in the pipeline?

--------------------------------------------------------------------------------

Unidentified Company Representative, [20]

--------------------------------------------------------------------------------

We didn't have many opportunities to interact with neurosurgeon in the past, but we have been able to build a relationship with these doctors and institutions that we haven't gotten a chance to. The company will continue our R&D activities in neurology. So I'm looking forward to leverage it going forward.

--------------------------------------------------------------------------------

Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [21]

--------------------------------------------------------------------------------

I'm Yamaguchi from Citi. I'd like to clarify the size of the financial impact on the forecast. The slide says that in relation to the alliance with Roivant, the core operating profit is impacted downward by JPY 19 billion. But the downward change made on the core operating profit as a full year forecast is JPY 13 billion, which does not add up. Does it say that the company plans to partially offset the impact by the growth from segments like Japan and China?

--------------------------------------------------------------------------------

Unidentified Company Representative, [22]

--------------------------------------------------------------------------------

JPY 4.1 billion out of JPY 19 billion of expenses in relation to the alliance with Roivant was already factored into the previous forecast. The remaining JPY 15 billion or so is what we reflected this time around, of which JPY 2 billion is expected to be offset by cost containment in Japan and other segments. This is where JPY 13 billion is coming from, which is reflected on the figures for the last quarter of the fiscal year.

--------------------------------------------------------------------------------

Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [23]

--------------------------------------------------------------------------------

Does it mean that this additionally-forecasted expenses will be concentrated and spent in this fourth quarter and this fourth quarter only?

--------------------------------------------------------------------------------

Unidentified Company Representative, [24]

--------------------------------------------------------------------------------

That's not what we intended to say. As I explained, change in cost structure and future P&L management will be taken into consideration for forecasting moving forward.

--------------------------------------------------------------------------------

Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [25]

--------------------------------------------------------------------------------

I understand that some of second-generation subsidiaries are publicly listed and the fact that Sumitomo Dainippon Pharma needs to be mindful when you make comments on their businesses. But I'd like the company to describe and present potential synergies across the group, especially among Myovant, Urovant and Sunovion so that we can see that in the presentation. Synergy is expected as the company is making investments through these U.S. subsidiaries.

--------------------------------------------------------------------------------

Unidentified Company Representative, [26]

--------------------------------------------------------------------------------

First of all, and once again, spending will not be simply added in commensurate with the addition of subsidiaries. Sunovion's sales rep may not be fully shared with Sumitovant because Sunovion's reps are specialists in CNS. But we will share and utilize whatever platform that is available, including back-office function. We can generate synergies by sharing functions.

--------------------------------------------------------------------------------

Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [27]

--------------------------------------------------------------------------------

My next question is around the midterm business plan. You mentioned that the company plans to revisit the long-term business plan, but when do you plan to represent the revision?

--------------------------------------------------------------------------------

Unidentified Company Representative, [28]

--------------------------------------------------------------------------------

I do not want to pinpoint the timing because it would put a lot of pressure on our colleagues at global corporate strategy. Also given the human resources at hand, we'd like to put the first priority on the management of the new company. I hope to be able to present it in summer, but we will not be able to do so at the beginning of the next fiscal year, I'm afraid.

--------------------------------------------------------------------------------

Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [29]

--------------------------------------------------------------------------------

My last question is about DSP-1181. I thought it's an interesting project because the AI technology accelerated drug discovery process. Could you tell us more about how the technology from Exscientia contributed to the program?

--------------------------------------------------------------------------------

Unidentified Company Representative, [30]

--------------------------------------------------------------------------------

In our work at Sumitomo Dainippon Pharma, we are targeting our monoamine GPCR. And to find that target, we applied their AI platform called Centaur Chemist, which helped us to discover the best monoamine GPCR. We started our research activity in 2014, and we were quite fast in identifying candidate compound, but we completed the exploratory research phase very quickly, thanks to the technology. The technology was used for drug designing.

--------------------------------------------------------------------------------

Fumiyoshi Sakai, Crédit Suisse AG, Research Division - Research Analyst [31]

--------------------------------------------------------------------------------

I'm Sakai from Crédit Suisse. I'd like to draw President Nomura's attention for my question. With the alliance with Roivant, the company now has 5 second-generation subsidiaries with 900 additional employees in the group. As the head of this organization, have you been intriguing communication with CEO of Sumitovant and other leaders? How about the organization of different systems such as compensation? How do you manage it and has it been so far?

--------------------------------------------------------------------------------

Hiroshi Nomura, Sumitomo Dainippon Pharma Co., Ltd. - CEO, President & Representative Director [32]

--------------------------------------------------------------------------------

It has just been over a month since the launch of the new organization. I've spoken to Myrtle, CEO of Sumitovant, in person many times, and I know her capabilities and leadership. I am confident with her capabilities in leading Sumitovant subsidiaries. I have also had a lot of face-to-face meetings with other leaders, including Chief Medical Officer, Head of BD and Head of Digital Innovation, to get to know their personalities and Sumitovant more. We'll both send expats from global corporate strategy to help us better understand and communicate with Sumitovant. All of these help us to stay well connected. I haven't had frequent chance to meet and speak to CEOs of vants in person, but I know them well. I'm looking forward to seeing more opportunities for communication with them as well as with outside directors.

To your question on compensation. Existing compensation system will be respected for the time being, but it is our challenge on how to revisit the system. Going forward and through communication, we will focused -- we will remain focused on addressing challenges we have, launching 2 products successfully and leveraging platforms such as DrugOme and Digital Innovation to deliver results. Global data design was also established in the organization with 10 colleagues, who are expected to work hand-in-hand with other -- with their counterparts in Sumitovant for collaboration.

--------------------------------------------------------------------------------

Shohei Oda, Morgan Stanley, Research Division - Research Associate [33]

--------------------------------------------------------------------------------

I'm Oda from Morgan Stanley. My first question is on Slide 11. And please help me understand the size of the midterm business plan and how to read the graph. Does this chart say that you could hit 0 profit at some point?

--------------------------------------------------------------------------------

Unidentified Company Representative, [34]

--------------------------------------------------------------------------------

This is an illustrative graph, just to give you an idea of revenue and expense growth. Expenses would be bigger than revenues in fiscal year 2021, followed by the profit gain in fiscal year 2022. We will develop a strategy to manage P&L, of course, but the chart was intended to show the trend.

--------------------------------------------------------------------------------

Shohei Oda, Morgan Stanley, Research Division - Research Associate [35]

--------------------------------------------------------------------------------

After LOE of LATUDA, the company would lose its revenue of JPY 200 billion. According to the slide, relugolix and vibegron will drive the growth to deliver on the midterm business plan. Is this a base case scenario?

--------------------------------------------------------------------------------

Unidentified Company Representative, [36]

--------------------------------------------------------------------------------

Our base case scenario is to achieve the forecasted growth from revenues of relugolix, vibegron and napabucasin as well as APL and 856 in the United States, and lurasidone and Imeglimin in Japan.

--------------------------------------------------------------------------------

Shohei Oda, Morgan Stanley, Research Division - Research Associate [37]

--------------------------------------------------------------------------------

I'd also like to ask about R&D spending. It's forecasted to go up by JPY 9 billion for the fourth quarter, which would be about an increase of JPY 40 billion a year in a simple calculation. The company proposed JPY 450 billion for R&D investments in the midterm business plan. Do you plan to revise it and increase the total investments?

--------------------------------------------------------------------------------

Unidentified Company Representative, [38]

--------------------------------------------------------------------------------

We will not apply a simple calculation and add everything up on top of the original plan. We will prioritize to manage R&D spending and P&L.

--------------------------------------------------------------------------------

Shohei Oda, Morgan Stanley, Research Division - Research Associate [39]

--------------------------------------------------------------------------------

Do you plan to present your plan on resource allocation at R&D meeting coming up in March? Any presentation on revised strategies for napabucasin after discontinuation of Phase III study for pancreatic cancer, for example?

--------------------------------------------------------------------------------

Unidentified Company Representative, [40]

--------------------------------------------------------------------------------

We plan to present on the overview of our R&D activities, but we won't present and discuss figures and resource allocation in detail during that meeting.

--------------------------------------------------------------------------------

Yo Mizuno, Tokio Marine Asset Management Co., Ltd., Research Division - Analyst [41]

--------------------------------------------------------------------------------

I'm Mizuno from Tokio Marine Asset. My question is around Imeglimin's TIMES 2 study. Imeglimin combination therapy with GLP-1 didn't demonstrate a strong efficacy as combination therapy with DPP4 or monotherapy. How do I translate the variance?

--------------------------------------------------------------------------------

Unidentified Company Representative, [42]

--------------------------------------------------------------------------------

Data are being analyzed for further assessment at the moment. But if you take a look at the result of reduction in fasting glycemia level, combination with GLP-1 also demonstrated the efficacy. So we believe that the efficacy is comparable across the treatments at the moment.

That concludes our presentation. Thank you for listening.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]