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Edited Transcript of 4568.T earnings conference call or presentation 31-Jul-19 6:00am GMT

Q1 2020 Daiichi Sankyo Co Ltd Earnings Call

Tokyo Aug 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Daiichi Sankyo Co Ltd earnings conference call or presentation Wednesday, July 31, 2019 at 6:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Toshiaki Sai

Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director

* Wataru Takasaki

Daiichi Sankyo Company, Limited - Corporate Officer & Head of R&D Div. and VP of Oncology Function

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Conference Call Participants

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* Fumiyoshi Sakai

Crédit Suisse AG, Research Division - Research Analyst

* Hidemaru Yamaguchi

Citigroup Inc, Research Division - MD and Analyst

* Seiji Wakao

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

* Shinichiro Muraoka

Morgan Stanley, Research Division - Research Analyst

* Tatsuyuki Arai

BofA Merrill Lynch, Research Division - Junior Analyst

* Yasuhiro Nakazawa

SMBC Nikko Securities Inc., Research Division - Senior Analyst

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Presentation

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [1]

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I'm Toshiaki Sai. Thank you very much for participating in Daiichi Sankyo's Conference Call despite your very busy schedule today. I'd like to explain our financial results for the first quarter of fiscal year 2019 we announced at 1 p.m. on July 31.

Please turn to Page 2. This is the agenda today. I will explain FY 2019 Q1 financial results and give you a business update. Then Takasaki, who has become R&D Division Head since April this year, will give you our R&D update. After that, we will entertain your questions.

Please turn to Page 3. This is an overview of our consolidated financial results for the first quarter of fiscal year 2019. Revenue increased to JPY 249.2 billion, up JPY 23.5 billion or 10.4% year-on-year. Cost of sales increased by JPY 3.2 billion year-on-year. SG&A costs decreased by JPY 2.5 billion. R&D expenditure fell by JPY 4.3 billion. As a result, operating profit rose to JPY 57 billion by JPY 27.1 billion or 90.5% year-on-year.

Profit attributable to owners of the company was JPY 43.3 billion, up JPY 19.4 billion or 81% from the same period last year. As for the currency rate, $1 was JPY 109.90. The yen depreciated by JPY 0.83 from the previous year. EUR 1 was JPY 123.49. The yen appreciated by JPY 6.57 from the previous year.

Please turn to Page 4. I'd like to use 4 pages from here to explain positive and negative factors for the revenue on a year-on-year basis. Revenue increased by JPY 23.5 billion year-on-year.

Let me explain the breakdown by main business unit. First, for our Japan business, including domestic prescription drugs, vaccine and OTC business, revenue expanded mainly due to direct oral anticoagulant, LIXIANA; anti-ulcer agent, NEXIUM; osteoporosis treatment, PRALIA; antiepileptic drug, VIMPAT; and type 2 diabetes drug, CANALIA; as well as Daiichi Sankyo Espha products, including authorized generics.

As for Daiichi Sankyo Healthcare, revenue declined by JPY 3 billion as we changed the accounting treatment from the second quarter of fiscal year 2018 for sales incentives, which were previously accounted for as SG&A expenses.

Revenue for Japan business as a whole increased by JPY 12.2 billion.

Next, let me explain our overseas business. The description on this page is excluding the ForEx impact. For Daiichi Sankyo, Inc. in the United States, revenue declined by JPY 3.2 billion partly due to a decrease in sales of Welchol for hypercholesteremia and type 2 diabetes.

As for American region, in the United States, revenue rose by JPY 7.1 billion due to the growth of generic injectables and Injectafer treatment for iron deficiency anemia.

Revenue was up JPY 1.1 billion for Daiichi Sankyo Europe due to the expansion of external sales.

Next, on ASCA business for Asia, South and Central America, revenue increased by JPY 4.4 billion due to Olmetec and Cravit, et cetera, in China. Revenue for ASCA business as a whole rose by JPY 6 billion. We booked JPY 2.5 billion we recognized as the first quarter portion of the upfront payment for DS-8201 as we signed the collaboration agreement with AstraZeneca in March 2019. The revenue decrease from the ForEx impact was JPY 2.2 billion in total.

Now please turn to Page 5. Operating profit increased by JPY 27.1 billion.

Let me explain each item. As I explained earlier, revenue increased by JPY 23.5 billion, including the JPY 2.2 billion revenue decrease from the ForEx impact. Cost of sales was up just JPY 2 billion due to the impact from the product mix, although revenue increased substantially.

SG&A expenses increased by JPY 9 billion, partly due to an increase in personnel costs in the United States. R&D expenditure was down JPY 4.2 billion, partly due to the impact of the DS-8201-related cost-sharing with AstraZeneca.

Costs decreased by JPY 1.1 billion in total from the ForEx impact. As for special items, costs decreased by JPY 9.3 billion compared to the previous year. I will explain the details on the next page.

Operating profit increased by JPY 19 billion, excluding the ForEx impact and special items.

Page 6 is the breakdown of special items. In the first quarter, we had JPY 1.3 billion restructuring costs in supply chain and JPY 10.6 billion gain on sales of fixed assets. As a result, expenses decreased by JPY 9.3 billion compared to the previous year.

In the next Slide 7, I'd like to explain the profit. Although the operating profit was increased by JPY 27.1 billion due to the increase of the income taxes by JPY 8.1 billion, the profit attributable to the owners of the company was JPY 43.3 billion, which is an increase of JPY 19.4 billion from the previous year.

Slides 8 and 9 show the changes of the revenues of the major business units and major products in Japan.

In the previous Slide 4, I explained about the status of each unit, excluding the foreign exchange impact. These slides, on the other hand, show the results that include a foreign exchange impact.

I'd like to discuss the major business update next.

Slide 11 describes our new products in the Japanese business. As our new products, we launched Tarlige for pain treatment in April and MINNEBRO for hypertension treatment in May. Also in June, we obtained approvals for an anti-cancer agent and a FLT3 inhibitor, VANFLYTA, and a nebulizer formulation of an anti-influenza agent, Inavir.

Please look at Slide 12. As part of the optimization of our business portfolio, we decided to transfer our business of the diagnostic imaging agents, including Omnipaque, to GE Healthcare. The marketing authorization rights and commercialization will be transferred in March 2020. The sales through the wholesalers of GE Healthcare will start in March 2022.

The slides after Slide 13 show the R&D update.

Now I'd like to ask the Executive Vice President of the R&D Affairs, Mr. Takasaki, to take over the discussion.

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Wataru Takasaki, Daiichi Sankyo Company, Limited - Corporate Officer & Head of R&D Div. and VP of Oncology Function [2]

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This is Takasaki. I'm going to discuss the update on our R&D today.

Slide 14 lists the content of today's discussion. Slide 15 shows the data from the DS-8201 Phase I breast and gastric cancer studies published on Lancet Oncology in the end of April 2019. In the Phase I study, the patients treated previously with many different agents were administered with DS-8201. We could confirm that it had very favorable efficacy in both breast cancer and gastric cancer. Although this is not on the slide, safety also concurs with the results we obtained in the past.

Slide 16 shows our submission plans for HER2+ metastatic breast cancer and gastric cancer. The submission preparation for the breast cancer in Japan, U.S. and Europe is right on track. As we mentioned during the corporate explanation meeting after ASCO, we are planning to submit for approval for gastric cancer in Japan in the first half of FY 2020.

From Slide 17, I'm going to introduce the data of U3-1402 presented in ASCO, the American Society of Clinical Oncology. This slide shows the study design of the Phase I study of NSCLC with an EGFR mutation. There was no preselection of the patients based on the HER3 expression. Instead, the patients were enrolled on the all-comer basis.

Page 18 shows patients baseline characteristics. All patients were treated with tyrosin kinase inhibitor, TKI, as prior therapy. 91.3% of them received prior osimertinib.

Page 19 is a safety summary. Despite platelet count decrease, et cetera, as dose-limiting toxicity, DLT, we have been able to confirm that the compound is generally well tolerated to date.

Page 20 is efficacy waterfall chart. Antitumor activity was confirmed in all patients. We were able to confirm the antitumor activity also in patients with various resistance, which could occur after administration with TKI, such as osimertinib.

Page 21 is efficacy spider plot. More than 50% of the patients continue steady treatment with U3-1402.

From Page 22, let me explain DS-1062 data we presented at ASCO. This page shows the relapsed NSCLC Phase I study design. We are enrolling all-comer patients who didn't respond well to standard-of-care or relapsed without prior drop to selection.

One update since ASCO, we started the dose expansion cohort in July 2019.

Page 23 shows steady patient baseline characteristics, which were well balanced. About 90% of the patients were treated with prior immune checkpoint inhibitors.

Page 24 is a safety summary. DS-1062 is generally well tolerated to date.

Page 25 is efficacy spider plot by dose. We observed PR, partial response, in patients from 2-milligram per kilo and above. We confirmed PR in a dose-dependent manner. We also explained at ASCO, 3 subjects were added to the cohort 7 with 8-milligram per kilogram. PR was confirmed in all 4 cases.

From Page 26, I would like to share DS-1001 we presented at ASCO. This compound is a mutant IDH1 inhibitor. Mutant IDH1 converts alpha-ketoglutarate to 2-hydroxyglutarate, 2-HG. 2-HG is an oncometabolite. Its accumulation would lead to oncogenesis and tumor progression. Therefore, inhibition of mutant IDH1 enzymes could lead to a novel antitumor therapy. We are now implementing Phase I study in glioma patients.

According to the estimation, annually, there are about 11,000 glioma patients with IDH1 mutation in Japan, the United States and Europe.

Slide 27 shows the baseline characteristics of the patients. The patients were classified into 2 categories in this study. The first category of the patients were the ones with tumors detected using the contrast agent, and their lesions are found in the enhanced MRI. It is common among these patients to have high-grade gliomas like glioblastoma.

Another category was the patients with no tumors detected, and there were no lesions found using the contrast agent. A distinctive feature of this category is that there are relatively many patients with low-grade gliomas.

Slide 28 is a safety summary. Although one dose-limiting toxicity, DLT, was observed in the dose escalation phase, it didn't reach the maximum tolerated dose, MTD, even when the dose was increased to 1,400 milligrams BID. We have confirmed good tolerability up to this date.

Slide 29 is a waterfall chart of efficacy. In DS-1001, the overall response rate, ORR, of the patients with tumors detected using the contrast agent was 17%, and those with no tumors detected was 33%. The antitumor effect was found in both groups.

Slide 30 and after are about pexidartinib. The results from the Phase III ENLIVEN study was presented during ASCO last year. In ASCO this year, we presented the results of the long-term efficacy and safety.

This slide shows the results of efficacy. The ORR of pexidartinib presented at ASCO was 39%. The long-term results of the ORR, on the other hand, was increased to 54%.

Slide 31 is the safety data. The adverse event to be cautioned with this drug is hepatotoxicity. There was no new serious hepatotoxicity occurred after the eighth week from the beginning of the dosage. The application of this drug has been received in the U.S. and Europe. The PDUFA date, which is the completion date of the FDA review, is scheduled to be on August 3.

Slide 32 describes the upcoming milestones of the ADC franchise. The submission preparation for DS-8201 for breast cancer is moving along well. As for gastric cancer, the submission is scheduled to be in the first half of FY 2020 in Japan.

As for U3-1402 and DS-1062, we are planning to present them during the World Conference on Lung Cancer, WCLC, held in Barcelona, Spain in September. Once our presentations are confirmed, we will hold an explanatory meeting sponsored by us.

Slide 33 shows the upcoming milestones of the AML franchise and the breakthrough science. Quizartinib was approved in Japan on June 18. Unfortunately, we received a complete response letter, CRL, in the United States. We are currently carefully reviewing the content of the CRL and discussing the measures to take from now on. The results from the Phase III ENLIVEN study of pexidartinib was published on Lancet. The completion of the review in the United States is scheduled to be on August 3.

Slide 34 is an announcement on the R&D Day of this year. We will hold a simultaneous R&D Day for the first time in 2 locations in Tokyo and New York this year. We will provide the same content on both days. We're currently working on the agenda. Please look forward to it.

The slides after Slide 35 are the appendix. The list of our milestones and pipelines are presented there. Please take a look at them later. That is all for my presentation.

Now we'd like to take questions from the listeners. Please go ahead.

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Questions and Answers

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Operator [1]

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Mr. Yamaguchi from Citigroup Securities.

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Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [2]

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Can you hear me?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [3]

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Yes, we can hear you.

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Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [4]

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First, you are making very good progress against your forecast, but there seems to be some difference among expense items. Overall, there are some items which may lead to an upward revision on a full year basis as well as others which are just seasonal. Could you explain those factors?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [5]

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First of all, revenue increased substantially by JPY 23.5 billion. Roughly speaking, there are 4 main factors, as is written on Page 4. Please refer to that page. Our Japan business, including Daiichi Sankyo Espha, was performing well and making a good start. That's the first point.

Secondly, LIXIANA sales are increasing globally. Revenue was up JPY 11.4 billion globally, including Japan. And at ARI, American Regent, Inc., Injectafer is continuing to do well. Injectables had an upside, including what we couldn't fully assume in our budget. Revenue increased by JPY 5.5 billion just from ARI alone.

Lastly, the fourth factor is ASCA business, particularly in China, due to the growth of Cravit, Olmetec, et cetera, and so Cravit we couldn't ship smoothly previously. And finally, we were able to clear it all at once in the first quarter. That's why revenue increase is standing out.

Operating profit increased by JPY 27.1 billion. We had JPY 10.6 billion gain on sales of Nihonbashi building. Due to the collaboration agreement with AstraZeneca, we had booked JPY 2.5 billion we recognized as the first quarter portion of the upfront payment from AstraZeneca. This is cost-free and is directly booked into profit. There was also the impact of R&D cost-sharing with AstraZeneca.

AstraZeneca-related factors increased our revenue by a few billion yen. The rest is about JPY 10 billion, which were not special items. But as I said before, there were sales we could forecast as well as sales we couldn't fully assume like the sales for ASCA.

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Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [6]

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Is this going to continue on a full year basis?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [7]

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It's difficult to say anything definitive right now. So we'd like to keep our current forecast for now.

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Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [8]

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I see. One thing I'd like to confirm with regards to the R&D cost-sharing. Currently, cost sharing is not included in your full year forecast, but cost-sharing is recognized, so this kind of a gap or difference is going to continue. Is my understanding correct?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [9]

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Yes, you're right. We are discussing with AstraZeneca to reach agreement on the development plan targeting around the end of September. After that, we will make a decision on cost-sharing, so it's not going to be necessarily the case where profit is regarded as positive and expenses as negative. If the number of R&D projects increases, the total R&D cost will also go up. Therefore, we cannot comment on this right now as we don't know yet.

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Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [10]

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Okay, understood. I have 2 more questions. Could you share the actual results and outlook for Tarlige and MINNEBRO?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [11]

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We are not disclosing the actual results, but they made a good start.

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Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [12]

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Understood. Lastly, regarding R&D, you received CRL, complete response letter, for crizotinib in the United States. You should know what is the factor for CRL. Could you please explain?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [13]

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We cannot comment in detail, but we will look at QuANTUM-First study results to discuss how to respond for relapsed and refractory AML.

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Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [14]

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Think about your future action, right?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [15]

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Yes.

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Operator [16]

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Next, Mr. Muraoka from Morgan Stanley MUFJ Securities.

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Shinichiro Muraoka, Morgan Stanley, Research Division - Research Analyst [17]

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Muraoka from Morgan Stanley. Regarding your presentation on DS-1062 in particular, at WCLC, you were managed to include the data on the highest dose of 10-milligram just in time, correct? This is my first question.

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [18]

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Thank you for your question. As for WCLC, we submitted our abstract, but whether it's going to be accepted or not will be announced on August 2 or later. So you will know that's not timing. For the time being, we are planning to give an update on the dose escalation part of the lung cancer study. In other words...

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Shinichiro Muraoka, Morgan Stanley, Research Division - Research Analyst [19]

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Sorry, I didn't understand clearly. Do you mean 10-milligram data will be available in time? And when did you or will you submit your abstract?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [20]

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Please wait, we are checking. Today, we don't have information at hand on the timing of abstract submission, but you can check the abstract title on August 2 or later. You can also check new content to see whether 10-milligram data is included or not.

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Shinichiro Muraoka, Morgan Stanley, Research Division - Research Analyst [21]

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As for one-off items, you had gain on sales of Nihonbashi building. You're also planning JPY 19 billion gain on sales of Takatsuki plant. In the second quarter or the third quarter, could you say roughly when this will be incurred?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [22]

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I think this will be booked in the third quarter this fiscal year.

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Shinichiro Muraoka, Morgan Stanley, Research Division - Research Analyst [23]

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Understood. Other than these 2 items, no more sales of your assets for the time being, correct?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [24]

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Nothing in particular.

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Shinichiro Muraoka, Morgan Stanley, Research Division - Research Analyst [25]

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Lastly, regarding Cravit in ASCA business. Mr. Sai, you said the issue was cleared all at once. There was a lot of stock, which was cleared in the April-June period. There can be some decrease in reaction in the July-September period. Is that what you mean?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [26]

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Sorry. My expression may not have been appropriate. There was no special meaning behind -- I mean, shipment was not very smooth before, but it's now going well.

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Shinichiro Muraoka, Morgan Stanley, Research Division - Research Analyst [27]

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Is this going to continue from the second quarter and beyond?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [28]

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It's also related to supply-demand situation, so it's difficult to tell.

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Operator [29]

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From Crédit Suisse Securities, Mr. Sakai.

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Fumiyoshi Sakai, Crédit Suisse AG, Research Division - Research Analyst [30]

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I'm Sakai. I'm sorry that I might sound like I'm nitpicking, but it's about sharing the cost of the R&D expenses with AstraZeneca. In your comment, Mr. Sai, you mentioned that the amount of reimbursement will be determined around September, followed by a formal decision on the exact amount of the burden to take. I'd like to ask you what the nature of this amount would be this time. That's the first question I have.

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [31]

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It's purely for the purpose of calculation. Ultimately, the settlement will be made after everything is confirmed. So it's still preliminary.

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Fumiyoshi Sakai, Crédit Suisse AG, Research Division - Research Analyst [32]

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Is it correct to say that this will happen in the second quarter again if everything will be determined formally in September?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [33]

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I believe a certain amount will be in place.

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Fumiyoshi Sakai, Crédit Suisse AG, Research Division - Research Analyst [34]

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If that's the case, well, what I'm trying to ask you is that if there's the -- if that's the case, since the factors such as an annual forecast, the partnership with AstraZeneca and also perhaps the mid-term business plan, which may lead to an anticipation of the recurrence, are hardly taken into consideration. And you mentioned that you will review them and will consider if you want to make an announcement. You are not going to change this policy. Is my understanding correct?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [35]

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Only when we get an agreement for the development plan can we actually tell how much it will cost us and how much the settlement cost will be. At this point in time, we do have a certain amount in place, including the preliminary one. The ultimate figure will be confirmed probably in the end of September, I assume. As for the figure that consists of many different factors, we hope that we will be able to provide an explanation on the entire picture in the end of October during the second quarter settlement.

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Fumiyoshi Sakai, Crédit Suisse AG, Research Division - Research Analyst [36]

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Understood. I have 2 more questions simply on the pipelines about 1062, about the expression of TROP2. This time, it's all commerce, and I think these are also presented during ASCO. I believe these are the same data. If I remember correctly, you mentioned that the expression with TROP2 is quite high in NSCLC. Can you tell me? And I'd like to confirm how high this expression will be.

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [37]

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Yes. As you mentioned, the expression with TROP2 is found broadly, but if you just look at the lung cancer, TROP2 is expressed in 70% to 90% of the lung cancer in my understanding.

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Fumiyoshi Sakai, Crédit Suisse AG, Research Division - Research Analyst [38]

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Understood. So even if it's on an all-comer basis this time, you are able to cover most of them, correct, although your end is still small?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [39]

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Yes, that's what we expect.

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Fumiyoshi Sakai, Crédit Suisse AG, Research Division - Research Analyst [40]

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Okay. One more question, sorry. I'd like to ask you about glioma. I apologize that I haven't studied enough about brain tumor, and I don't have a good understanding of it yet. But is it correct to say that there is no treatment today?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [41]

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Correct. We don't believe there is any standard of care for it, although where we stand with our competitor is another story, but, yes, there's no standard of care today.

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Operator [42]

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I'd like to move on to the next question.

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Tatsuyuki Arai, BofA Merrill Lynch, Research Division - Junior Analyst [43]

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This is Arai from Merrill Lynch Japan Securities. My first question is about the dose setting of DS-1062. You will start the dose escalation part from July 2019. Please let me know what your plan would be for the amount of dose you are going to apply in this study.

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [44]

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I'm still not able to comment about the details of the dose today, but we will consider both the safety and the efficacy to determine the dose eventually.

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Tatsuyuki Arai, BofA Merrill Lynch, Research Division - Junior Analyst [45]

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Understood. And is it correct to assume that your presentation in the WCLC was an extension of the presentation of ASCO, meaning that the period of observation was longer in this study?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [46]

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Yes, the data cut-off date for the one presented at the previous ASCO was May 2019. We are hoping to update the data from that period of time.

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Tatsuyuki Arai, BofA Merrill Lynch, Research Division - Junior Analyst [47]

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Understood. And similarly, you are not going to disclose the details related to U3's dose setting or dose expansion at this time?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [48]

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Yes, that is correct.

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Tatsuyuki Arai, BofA Merrill Lynch, Research Division - Junior Analyst [49]

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Understood. And as for this one as well, is it correct to assume that this has a longer observation period than the ones presented during ASCO?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [50]

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Yes, I don't see any problem with your understanding.

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Operator [51]

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I'd like to move on to the next question, Mr. Wakao from Mitsubishi UFJ Morgan Stanley Securities.

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Seiji Wakao, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [52]

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I'm Wakao from Mitsubishi UFJ Morgan Stanley Securities. My first question is about SG&A. The progress of your SG&A and what you plan for this year is JPY 285 billion. I'd like to know what the result was from the first quarter. There were some special items included, and you landed with JPY 63.2 billion. When the special items are included -- excluded, it's JPY 73.8 billion. If this JPY 73.8 billion will be flat and continues into the second quarter and after, I believe, it will be roughly landing with JPY 285 billion. On the other hand, after the second quarter, according to what I have seen so far, you will be presumably on the increasing trend of the SG&A. If that will be the case. I was thinking that you might go beyond JPY 285 billion. Is there anything about suppressing the SG&A during the progress in the first quarter or in the upcoming second quarter and after?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [53]

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As for SG&A, we have a tendency. We have our timing for payment, and we did have an increasing trend in the fourth quarter in the past, and I believe we will probably follow the same trend this year. As for the SG&A this time, certain things have been coming in and going out. For example, the profit from Nihonbashi building is included here. The taxes from the previous time didn't occur this time. And it's true that there are a variety of special items here, but I see them to be pretty much right on track, as we planned. I don't believe there is anything I need to specifically comment here.

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Seiji Wakao, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [54]

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Okay, I understand. My second question is about U3. I guess I just need to check the abstract, but in terms of what is most likely to come out in the future, since there was no presentation regarding the part of 5.6 milligrams during the previous ASCO, I assume that we might be able to see the cohort data in the future. Is my understanding correct? Also, as for HER3, it's all commerce, and I believe all the patients are assessable. Although it's on an all-comer basis, you will analyze the HER3 expression in the end, and we might be able to see that HER3 data sooner or later. Are you analyzing the HER3 data? And are you planning to publish the data in the future?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [55]

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I'd like to respond to the second question first. We do have a research going on with respect to biomarkers, but I cannot comment as to if we are going to include the data in the presentation at this point in time. And about the possibility of 5.6 milligrams, we believe that it's very likely dosed in the dose expansion study.

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Seiji Wakao, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [56]

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Okay, understood. Also, as for the other ADC franchise pipeline products, including 7300 and 6157, I think you have updated the information that these studies will start within this year for 6157 for GI. You will conduct what is listed here. But for 7300, for example, can I expect a drug in the cancer type to be announced during your R&D Day? If you already know the timing of the announcement on the details of 7300 and 6157, please let us know.

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [57]

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Yes. For the indications for DS-7300, I'm not able to answer it now, but I believe that we will be able to give you some comments on the R&D Day, although it's not confirmed yet, but that's where we stand.

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Operator [58]

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(Operator Instructions) Next, Mr. Yamaguchi from Citigroup Securities.

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Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [59]

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Sorry, I forgot to ask this question earlier. May I?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [60]

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Yes, please.

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Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [61]

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According to Page 16, gastric cancer submission is planned in Japan for the first half of FY 2020. It's underlined in red as an update. I think this information was already included in your presentation at ASCO, so no change since then, correct? Just for confirmation.

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [62]

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Yes, your understanding is correct.

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Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [63]

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Okay, understood. One more question. Sorry to ask again, but generic injectables are doing well at American Regent because of the very good market environment. The more you manufacture, the more you can sell. Is that the situation?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [64]

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Sales of an injectable launched in the second quarter of the previous fiscal year contributed. Also, competitive products were out of stock.

This market is fluctuating a lot. ARI can address the situation very quickly, which is our strength.

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Hidemaru Yamaguchi, Citigroup Inc, Research Division - MD and Analyst [65]

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I see. So there can be ups and downs, but structure-wise, you're ready to act quickly, correct?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [66]

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Yes.

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Operator [67]

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I'd like to move on to the next questions. Mr. Nakazawa from SMBC Nikko Securities.

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Yasuhiro Nakazawa, SMBC Nikko Securities Inc., Research Division - Senior Analyst [68]

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This is Nakazawa. I'd like to confirm a few things about the amount of reversal from AstraZeneca. When I look at the figure, my impression is that it seems that you had approximately JPY 4 billion to JPY 5 billion returned to you. And is it correct to say that the double of this amount is roughly equivalent to the R&D cost for DS-8201? Or is it true that the amount of the reversal this time has not been paid in full yet? Please let me know. Let me confirm my understanding, if you don't mind.

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [69]

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I'd like to refrain myself from disclosing the amount of any individual development cost. However, please note that most of the year-on-year decrease was increased from sharing the R&D cost. That's all I can comment now.

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Yasuhiro Nakazawa, SMBC Nikko Securities Inc., Research Division - Senior Analyst [70]

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Okay, okay. Certainly, I understand. I'm sorry about that. Also, about DS-1647 on Slide 33, a while ago in a trade magazine, if I remember correctly, there was a discussion about a little bottleneck in the production and the submission timing was going to be delayed as well. But do you already have a clear outlook of the issue? And is your current probability of submission considered to be high?

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [71]

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Well, I think I can say that we are aiming this to happen in the second half of this fiscal year. And your understanding that we will take some time in the production is correct. And as for the probability, it is still too broad to mention at this time. I appreciate it if you can take it just as a target.

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Operator [72]

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It seems that there are no further questions, so that ends the question-and-answer session.

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Toshiaki Sai, Daiichi Sankyo Company, Limited - CFO, Executive VP, Head of Corporate Strategy & Management Division and Representative Director [73]

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Thank you so much, everyone.

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Operator [74]

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With that, this concludes today's meeting. Thank you so much for all your participation.

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