Spirit AeroSystems Holdings Inc

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[Interpreted] My name is Ogawa. Thank you for taking time out of your busy schedule today to attend Daiichi Sankyo's financial results briefing. I will now explain the consolidated financial results for the third quarter of fiscal year 2024, which we announced at 1:00 p.m. today based on the presentation materials. Please refer to Slide 3.

We will present the consolidated financial results for the Q3 FY 2024. The forecast for FY 2024. The business update and the R&D update in that order. Dr. Takeshita, Global R&D Head will present the R&D update. And we will take questions in the end. Please see Page 4.

The slide shows the overview of FY 2024 Q3 results. Revenue increased JPY 194.3 billion or 16.6% year-on-year to JPY 1,367.6 billion. Cost of sales increased JPY 11.11 billion year-on-year. SG&A expenses increased JPY 82.7 billion. R&D expenses increased by JPY 43.8 billion. As a result, core operating profit increased JPY 56.8 billion or 33% to JPY 229 billion.

Operating profit, including temporary income and expenses, increased JPY 53.8 billion or 27.6% to JPY 248.3 billion, and profit attributable to owners of the company rose JPY 45 billion or 27.5% to JPY 208.6 billion. As for the actual currency rate, the yen was JPY 152.56 against the dollar, down JPY 9.27 year-on-year and JPY 164.82 against the euro, down JPY 9.54 year-on-year. Please see the Page 5.

I will now explain the factors behind the year-on-year increase and decrease. Revenues increased by JPY 194.3 billion year-on-year. I will break it down by business unit. In the Japan business unit, sales of Lixiana, a direct oral anticoagulant; Tarlige, an analgesic; and ENHERTU, an anticancer agent increased as did the sales of Daiichi Sankyo Healthcare, while a gain on realization of unrealized gain on inventories of Daiichi Sankyo Espha was also recorded.

Sales of Daiichi Sankyo Espha products are no longer recorded from April 2024, following the de-consolidation of the company. As a result, revenues were down JPY 21.6 billion. Next, I will explain the overseas business units. The slide excludes the impact of foreign exchange rates.

In the Oncology business unit, sales increased by JPY 83.7 billion due to growth in sales of ENHERTU in the U.S. and Europe. Sales of American Regent increased by JPY 7.6 billion, mainly due to an increase in sales of generic injectable drugs and Venofer for iron deficiency anemia treatment. In the EU Specialty business, sales increased by JPY 30.4 billion mainly due to sales growth of Lixiana and Nilemdo/Nustendi anti-hypercholesterolemia agents. The ASCA business, which is in charge of Asia and Latin America recorded an increase of JPY 23.2 billion, mainly due to the growth of ENHERTU, especially in Brazil.

Revenue from upfront payments, development and sales milestone payments, et cetera, related to the alliance with AstraZeneca and US MRK increased by JPY 25.3 billion, mainly due to the recognition of the second upfront payment for HER3-DXd received from US MRK in October last year as revenue from the third quarter. The overall impact of foreign exchange rate on revenues was JPY 45.7 billion.

Slide 6 shows the factors behind the increase and decrease in core operating profit. I will explain that JPY 56.8 billion increase in profit by item. As I explained earlier, revenue increased by JPY 194.3 billion, including a JPY 45.7 billion increase due to the foreign exchange impact. Next, I will explain cost of sales and expenses, excluding the ForEx impact.

Although revenue increased, cost of sales decreased by JPY 100 million due to an improvement in the cost rate, because of the change in the product mix caused by factors such as an increase in sales of in-house products such as ENHERTU and elimination of sales of Daiichi Sankyo Espha products. SG&A expenses increased by JPY 60.3 billion due to an increase in profit share with AstraZeneca for ENHERTU.

R&D expenses increased by JPY 30.7 billion due to an increase in R&D investments, including a rise in R&D head count in-line with the progress of the development of 5DXd ADCs. The increase in expenses due to the impact of ForEx was a total JPY 46.6 billion and the actual increase in core operating profit, excluding the impact of ForEx was JPY 57.7 billion.

Next, on Slide 7, I will explain the increase and decrease in profit attributable to owners of the company. As explained earlier, core operating profit increased by JPY 56.8 billion, including the ForEx impact. Temporary income and expenses decreased by JPY 3 billion year-on-year due to a decrease in temporary income. In this fiscal year, we recorded gains on stock transfer of Daiichi Sankyo Espha. And in the same period of the previous year, we received lump sum payment from Novartis for a U.S. patent infringement lawsuit against our U.S. subsidiary, Plexxikon as onetime income.

Financial income and expenses increased by JPY 21.9 billion year-on-year due to an improvement in foreign exchange gains and losses and an increase in interest income. Income taxes increased by JPY 30.7 billion year-on-year due to an increase in profit before tax and the absence of the impact of tax effect accounting in this fiscal year, which reduced income taxes last fiscal year following the decision to transfer Daiichi Sankyo Espha. As a result, profit attributable to the parent company increased by JPY 45 billion year-on-year to JPY 208.6 billion.

Next, I would like to talk about our business forecast for fiscal year 2024. Please see Slide 9. Regarding the revenue, we have reduced the revenue forecast for DATROWAY due to delays in approval and launch in the lung cancer field. But we expect this to be covered by increased sales of main products such as ENHERTU, and therefore, we have not revised the forecast announced in October. Please refer to the supplementary materials for the latest forecasts for each business unit and the product.

Core operating profit and operating profit have not been revised from the forecast announced in October either. Meanwhile, profit before tax has been revised upward by JPY 15 billion to JPY 300 billion, reflecting an increase in financial income due to the improvement in foreign exchange gains and losses on a cumulative basis up to the third quarter, and the profit attributable to owners of the company has been revised upward by JPY 15 billion to JPY 240 billion. The exchange rates for the fourth quarter are assumed to be JPY 145 to the dollar, and JPY 155 to the euro. I will now explain our current outlook for the financial results for fiscal 2025.

Due to a change in the development strategy for DATROWAY in the second line treatment and beyond of non-small cell lung cancer, the number of target patients is expected to decrease more than initially expected for the time being. And the timing of approval is expected to be delayed from the initial schedule. As a result, we expect that product sales of DATROWAY in lung cancer in fiscal 2025 will be lower than those projected at the time of the 5-year business plan update in April 2024.

On the other hand, we believe that the decline in DATROWAY sales will be offset by the steady expansion of sales of mainstay products, such as ENHERTU. In addition, we will aim to achieve core operating profit at or above the level set at the time of the 5-year business plan update in April 2024 while controlling R&D expenses and others. Specific performance forecasts will be provided in April.

Next, I'd like to talk about business updates. Please see Slide 11. This slide shows the sales of ENHERTU. Fiscal year 2024 Q3 year-to-date sales grew, led by HER2+ breast cancer, second line treatment, and chemotherapy pretreated HER2 low breast cancer. And in all regions, sales achieved double-digit growth rate year-on-year increased by JPY 128.4 billion year-on-year to JPY 404.4 billion.

Product sales in FY 2024 are expected to increase in the U.S., and we expect JPY 539.9 billion, an increase of JPY 16.9 billion compared to the October forecast. The U.S. year-to-date product sales in Q3 FY 2024 were JPY 219.7 billion, up 35% year-on-year. We maintained the #1 share of new patients in breast cancer, gastric cancer, and lung cancer indications. For both HER2+ breast cancer second-line treatment and HER2 low breast cancer previously treated with chemotherapy, we gained more than 50% of new patients and maintained #1 share.

On January 27, in the U.S. time, we obtained the approval for chemotherapy-naive hormone receptor positive HER2 low or HER2 ultralow breast cancer. In Europe, sales increased 69% year-on-year to JPY 109.5 billion. Sales grew steadily, mainly in Germany, France, Italy and Spain. The share of new patients with HER2+ breast cancer in second-line treatment was approximately 70% in Germany and over 70% in France and Italy and over 80% in Spain, consolidating the top position in the market.

We maintained the top position in terms of the share of new patients with HER2 low breast cancer previously treated with chemotherapy in Germany, France and Italy. And in Spain, reimbursement began in November. In Japan, sales increased 33% year-on-year to JPY 23.5 billion. We are keeping and expanding the #1 new patient share in all indications of breast cancer, gastric cancer and lung cancer. The new patient share in the second-line treatment of HER2+ breast cancer has expanded to over 50%. And in HER2 low breast cancer previously treated with chemotherapy, expanded to more than 60%. Market penetration is progressing steadily.

In the ASCA region, sales increased 68% year-on-year to JPY 51.8 billion. Sales grew substantially, especially in Brazil and China. In China, approval was granted in October for HER2-mutated NSCLC. And for HER2+ breast cancer second line and HER2 low breast cancer post the chemotherapy, we attained the NRDL listing and reimbursement began in January this year.

In Brazil, in addition to a steady increase in prescriptions for existing indications, we received approval for HER2+ solid tumors in November. Product sales in the ASCA region include co-promotion revenues in China, Hong Kong and so on, where AstraZeneca records product sales. We will continue to work for further market penetration and expansion of the country's regions, where the product is available and to obtain new indications so as to deliver ENHERTU to as many patients as possible who need it. Next, I will discuss the approval of DATROWAY. Please see Slide 12.

We have received approval for the anti-TROP2 ADC DATROWAY in Japan and the U.S. DATROWAY is the second product approved on our DXd ADC platform following ENHERTU. The approval was obtained in December last year in Japan and in January in the United States. The indication is un-resectable or metastatic, hormone-receptor positive HER2- breast cancer with prior endocrine-based therapy and chemotherapy. 6 milligrams per kilogram of body weight is administered intravenously at 3 weeks intervals. The global product sales forecast for DATROWAY in fiscal year 2024 is JPY 400 million. We will contribute to more patients by providing a new treatment option for hormone receptor positive and HER2- breast cancer.

On Slide 13, I will talk about the acquisition of intellectual properties for the anti-TA-MUC1 antibody. The anti-TA-MUC1 antibody is the antibody of our sixth DXd ADC or DS-3939 currently under development by Daiichi Sankyo. In 2018, we in-licensed exclusive rights to develop and commercialize gatipotuzumab anti-TA-MUC1 antibody as an ADC drug using our ADC technology from Glycotope.

DS-3939 is currently evaluated in a Phase I/II clinical trial targeting various types of solid tumors. In light of the product potential of DS-3939, we acquired the intellectual property rights of gatipotuzumab from Glycotope in December last year. The purchase consideration was USD 132.5 million or JPY 22 billion. This consideration satisfies all potential milestone payments as well as royalties as part of the 2018 licensing agreement. This consideration will be recorded as an expense over the anticipated exclusive sales period after the marketing approval of DS-3939.

Slide 14 provides information on Oncology business briefing. We will hold an Oncology business briefing in late February. CEO, Manabe; Oncology Business Unit Head, Ken Keller; and Oncology Business Heads for the U.S. and Europe will be on stage to explain the marketing strategies for ENHERTU and DATROWAY. We will share the details with you once they have been finalized.

Now for an R&D update, I will hand over to Global R&D Head, Takeshita.

Thank you, Ogawa-san. And it's a pleasure for me to give you the R&D update. Before I do, I would first like to introduce all of you to Dr. Yuki Abe, who is our new Head of a global research program and also the Head of R&D Japan division. He's a successor to Dr. Agatsuma who passed away, as you know, recently and Dr. Abe is therefore his successor.

[Interpreted] Hello, everyone. My name is Yuki Abe. I have been working on ADC research with my predecessor, Dr. Agatsuma for the past 15 years and have been responsible for the leadership and the management of the team. As the Head of the R&D division, I will work with my colleagues to further strengthen science and technology, which is our corporate strengths and discover and develop new drugs that can contribute to patients. Thank you. I will hand it to Ken-san.

Okay. Thank you very much, Abe-san. And of course, he will participate in these investor calls from time to time in the future. So thank you very much.

Okay. Now we can go on to the next slide. And we're going to give you some highlights of some recent news in all of our ADC programs. And first and number#1 is our first approval for DB06 in a new indication for breast cancer. You'll see that this is a new indication in particularly important because we are now in the HER2 ultralow breast cancer. You will remember that previously with the DESTINY-Breast06, we were able to demonstrate efficacy and safety and therefore, approval in the HER2-low patient population, and we are now further even lower than low into the ultralow And so therefore, we are covering more patients. And not only that DESTINY-Breast06 is an earlier line of therapy compared to DB-04.

This is depicted in the diagram on the right-hand side. This is a breast cancer disease map, and you'll see DESTINY-Breast06 outlined in red compared to the patient population that is -- that was a subject of DB04. So we are very excited with this new approval, and we hope to help many patients with breast cancer. Next slide.

In addition to breast cancer, ENHERTU is also making progress in DESTINY-Gastric05 clinical trial. This is a new trial, DG05, intended to demonstrate value of ENHERTU in the frontline setting for HER2+ gastric cancer. What you see here is the study design that we are -- all the clinical trial that we are conducting. This is a new study that recently opened, you'll see that the main cohort is the patients with high PD-L1 expression. The arms are Arm M1 with experimental arm with ENHERTU plus a combination of either 5-FU or capecitabine plus pembrolizumab.

And the control Arm M2 is a standard of care, which is Trastuzumab plus [ cisplatin ] plus -- [ cisplatin ] plus 5-FU, or oxaliplatin plus capecitabine and pembrolizumab. We do also have an exploratory cohort, you can see below in the lower half of the slide for patients with low expression of PD-L1.

I do want to mention here that this is -- so this is a study start of Q4 of fiscal year '24. But in addition, there is a second sister clinical trial called ARTEMIDE-Gastric01 study in which -- we are evaluating the combination of ENHERTU and rilvegostomig from AstraZeneca. This is the AstraZeneca bio-specific PD-1 plus [ TIGIT ]. Next slide.

In the DATROWAY program, I think you just heard that we have obtained approval -- first approval for DATROWAY in indication of hormone-receptor positive HER2- metastatic breast cancer. We have obtained approvals in the U.S. and Japan so far, and we are very excited to be moving forward in the breast cancer program with data program. Next slide.

In addition to the breast cancer program for DATROWAY, I do want to alert you to the news that I think many of you are already aware of, which is that we have changed our regulatory strategy based on the data that we have so far to focus initially on the EGFR mutated non-small cell lung cancer patients in the U.S. So this is going to be a filing that's already -- it has been filed already. It is based on the primary study of TROPION-Lung05 with supportive data from TL01. And we have already received from the FDA the Breakthrough Therapy Designation for this patient population with the data that we have obtained so far. And you can see that PDUFA date is July of 2025. Okay. Next slide.

These are the data that support our regulatory strategy to focus initially on EGFR-mutated lung cancer. You'll see here, this is the data that was presented recently, pooled analysis of EGFR-mutated patients from TL01 and TL05 and you'll see good response rates, PFS, et cetera, in this highly relapsed the patient population with a very high unmet medical need. Next slide.

Moving on to the HER3 program. We want to indicate to you that we are making progress in our HER3 program. This is a new study that we are showing you here HERTHENA-Breast01 study in which we are combining trastuzumab plus HER3-DXd and then randomizing the patients into these 2 arms that you are seeing here. This is a Phase 1b/2 study. It's basically a signal seeking study as well as some clinical indication of these two different combinations. These are really based on the more recent breast cancer data from a monotherapy HER3 that we presented last summer at the ESMO meeting, in which we showed substantial activity of HER3-DXd in breast cancer. So we are very excited again to be moving forward with breast cancer for this ADC. Next slide.

Next slide, this one is the I-DXd program. This is also known as originally on DS-7300 target being B7-H3, and we have a new study, a Phase III study of I-DXd in pretreated advanced or metastatic esophageal squamous cell carcinoma. So this is a new indication that we are pursuing in a registration trial. This is a randomized study in which we are studying single-agent I-DXd versus a standard of care. Next slide.

In the R-DXd program, I think many of you are aware that we have a very robust program of R-DXd in ovarian cancer. But in addition to ovarian cancer, we are conducting a new study, which we call REJOICE-PanTumor01. So beyond ovarian cancer, we are studying a long list of cancers, endometrial cancer, cervical cancer, et cetera, in this clinical trial. And so these are really exploratory studies really designed to detect activity of our R-DXd in these cancer types. And this is a study that recently started enrolling. Next slide.

In terms of other clinical updates, I just want to mention to you that for the ENHERTU program, we are making good progress in developing a subcutaneous formulation, which we are doing with a collaboration with Alteogen, a Korean company. In terms of DATROWAY program, we have recently started a clinical trial, a Phase III combination study called TL12 for adjuvant therapy in non-small cell lung cancer, early-stage adenocarcinoma with high -- with poor prognosis, including ctDNA-positive at the completion of surgery.

In the HER3 program, we have an MK-1022 program, which is a Phase I/II study for colorectal cancer, biliary tract cancer and hepatocellular carcinoma. This is a MRK study, and we're very excited to be doing some signal seeking in these additional cancer indications.

For the I-DXd program, we plan to start 2 important studies. One is a KEYMAKER-U06 substudy in which you are studying a combination of I-DXd with pembrolizumab in the frontline setting for esophageal cancer. And second, we are starting a combination study of I-DXd with MK-6070, also known to many of you as the Harpoon bispecific. As you may remember, both of these drugs, the Harpoon bispecific plus the I-DXd, both have demonstrated very high activity in small cell lung cancer, and therefore, we are doing a combination of these 2 very active agents in small cell lung cancer.

And finally, we are very interested in the I-DXd and R-DXd, both in a KEYMAKER-U01 study for non-small cell squamous and non-squamous type to evaluate the efficacy and safety of these two agents compared to docetaxel. Next slide. Okay. Now next wave.

So in addition to these 5 ADCs that I just mentioned to you, we have many other programs going on, and I want to give you a brief update on those non-DXd ADC programs. First is the VANFLYTA program, the QuANTUM-Wild study. This is a clinical trial of our VANFLYTA drug in frontline AML saving in those patients who do not have the ITD mutation. This is based on early data from what's called the QUIWI study, which showed a substantial activity of VANFLYTA in patients without the ITD mutation, and therefore, we are studying this drug in the Phase I -- Phase III setting -- that in the clinical trial that you are seeing here. And this has started to enroll, and we are very hopeful to see the results of this in the very near future. Next slide.

This is an update on the EZHARMIA program, the EZH1 and 2 combination inhibitor. You'll see that we are studying a combination of this drug with pembrolizumab. And this is based on some very interesting laboratory observations that the EZH inhibition causes activation of T-cells and increased antitumor activity by T-cells. So therefore, it's a natural combination to study 2 immunotherapeutic drugs, the EZH drug as well as pembrolizumab. And so this is the clinical trial that we are conducting in non-small cell lung cancer in the frontline setting. Next slide.

Here is another new program that we are very excited about. This is DS-2243. This is not an ADC, but rather a T-cell Engager. Then this is a very interesting T cell engager in that it's a bi-specific T-cell engager in which the target is an HLA-A*02 restricted NY-ESO antibody. Now typically, these targets are detected and targeted using T-cell receptors. But this is a unique antibody in which it is able to recognize in an HLA restrictive manner, the targeted antigen, NY-ESO. And we are very excited to be able to start this clinical trial very soon, 2243. Okay. Next slide.

Okay. In terms of news flow, this is actually a very important slide. And I hope you'll agree that there's a lot of information on this particular slide. First of all, I want to alert you to some new data on the DATROWAY that's being presented at TB-01, the final OS data analysis. This is the ESMO virtual conference. It will be in the mid-February in a few weeks. Next, in terms of important regulatory decision, you'll see DESTINY-Breast06 in Europe, it would be very important. And also that, as I mentioned to you, the EGFR-mutated lung cancer submission, we should be receiving an FDA decision on this sometime over the summer.

And -- and also, we are expecting to receive some indication of outcome of the TB-01 in Europe very soon. We have -- as I mentioned, we have already received approvals for TB-01 in Japan and U.S. Now on the right-hand side of the slide, what you'll see is the key data readouts, and there are many of them. And so really, what I want to really emphasize here is that this year, we have, like I counted 8 important key data readouts -- just in a period of 1 year, and so there will be a very exciting time for data for Daiichi Sankyo in fiscal year 2025. Okay. That's it for my side, and let me turn it back to [indiscernible].

[Interpreted] We will now move to the Q&A session. But before that, I would like to ask Okuzawa to give us a few words. Okuzawa was announced in the press release at 1:00 p.m. today, as the new Representative Director, President and CEO, effective April 1.

[Interpreted] Hello, everyone. This is Okuzawa. I feel very humbled to be taking on a significant responsibility of being CEO of Daiichi Sankyo from April. In order to achieve our purpose of contributing to the health and enriched lives of people around the world, we'll further enhance our strength in science and technology and further expand the company.

I will continue to carry on the science-based decision-making embodied by the current CEO Manabe and his unwavering sense of responsibility for patients and their families, and we'll commit to improving short-term and midterm business performance and realizing long-term and ultra long-term sustainable growth. Thank you for your continued support.

[Operator Instructions] The first question is from Mr. Yamaguchi, Citigroup.

[Interpreted] This is Yamaguchi from Citi. My first question is about the 5-year business plan that Ogawa-san mentioned briefly in the end of this presentation. You mentioned a little about exceeding the 5-year business plan. And the next fiscal year is right around the time the company has forecasted. The operating profit is 40%, including R&D and others whereas I felt that R&D was to be slightly saved. I'm wondering if that figure includes the increase in operating profit or if it is still unclear, could you please explain about one more time?

[Interpreted] This is Ogawa. Thank you for your question. I have explained without the slide this time. So as you said, this point is unclear. In conjunction with the announcement of financial results in April 2024, we have updated the financial KPIs for the final year of the 5-year business plan. In that update, we put JPY 2.1 trillion in revenues and 40% of core operating margin before R&D expenses, which is a 40% you mentioned, as expected achievement of KPI targets.

In the update, ROE is 16% and DOE is 8.5%. At the same time, we also introduced a forecast for R&D expenses. We estimated that total amount for FY 2024 and FY 2025 will be JPY 1 trillion, which is JPY 470 billion for FY '24 and JPY 530 billion for FY '25 at that time. And now I commented on the figures for FY 2025. I was talking about the KPIs of the 5-year business plan for fiscal 2025 updated in April. And regarding the KPI at that time; First, about the revenues of JPY 2.1 trillion, although we have changed the DATROWAY's development strategy. We believe that we are on track to achieve the total revenue scale of JPY 2.1 trillion. And next, about the 40% target. We believe we should be able to achieve it as well.

As for research and development expenses, we put JPY 530 billion as a forecast for FY 2025 at that time. We are thinking that we can manage to control this and keep it below JPY 530 billion. By doing so, we believe that we will be able to aim for an operating profit level higher than the figure we had assumed at that time.

[Interpreted] One more question, please. In the area of development milestones or regulatory issues, you withdrew TL-01 in Europe. What would you do on this? And the approval of HER3 in the U.S. has been delayed. You received a complete response in June last year and the 6 months have passed. What about this, please update on these two points.

[Interpreted] First, starting from the milestone side. Did you say the European milestone and development milestone.

[Interpreted] I meant rather the status of the TL-01 development in Europe.

Okay. And then about the status of the development, I'd like Takeshita to answer.

Yes. On the HER3 program, we are still in discussion with the FDA on the path for HL-01 and 02. And as of today, we don't have any more updates for you on that.

How about Europe? Tier1 withdrawn. How are you going to do? Are you going to do the same thing like FDA?

Yes. So for Europe, it's a similar discussion, and we don't yet have a firm decision on the European strategy, but we are -- of course, very much thinking about the similar strategy for Europe.

Next question is from Mr. Wakao, JPMorgan Securities.

Wakao from JPMorgan. My first question is about 5-year business plan that Mr. Yamaguchi just asked about the forecast. For the next fiscal year, revenues of JPY 2.1 trillion that you'll be able to manage to achieve it. And as I look into that, Oncology revenues are JPY 1 trillion. It explains that you changed the development strategy of TL-01 of Dato-DXd, but ENHERTU has been performing well. On the other hand, for DB-06, you obtained approval and sales will expand from now on. I think sales of ENHERTU are certainly doing well at the moment. But in the absence of Dato and with HER3 also lagging behind, can this figure of more than JPY 1 trillion be achieved? Or will the composition of the JPY 2.1 trillion be changed?

[Interpreted] Thank you for your question. That was missing in the previous answer. As you understand, the change in DATROWAY's development strategy is a major change from the update of the 5-year business plan as of April last year. We are still examining the extent to which we can cover by the expansion of ENHERTU. We'd like to let you know how close we can get to JPY 1 trillion in April as a result of our internal review.

I understand. So DB-06 is just about to start. But looking at the progress so far, it may be possible to make up for DATROWAY with ENHERTU. That's your view. Is that correct? I would like to verify how much we can fill the gap for DATROWAY. Understood. The situation is widely [indiscernible] verification, to understand. Secondly, I couldn't quite see the point of the revision of the earnings plan for this fiscal year. As I look at the individual products and add up all the disclosed information, it will be about JPY 30 billion or JPY 31 billion upward revision and JPY 5.1 billion, the downward revision for milestones and others. Therefore, at the net level, we should be looking upward revision. However, operating profit is unchanged. I'm not quite sure what the reason is for this, which makes me wonder if there are any other negative factors. How should I understand this?

Thank you for your question. We have other negative factors at this time. Vaccines, which we consider to be a major uncertainty factor. Even taking this into account, regarding upside factors you have just mentioned, whether they will go that far or not, there are still uncertainties. It was definite registration where we would have considered an upward revision if we could have. But we have left it unchanged this time because of the uncertainty in vaccine.

I understand. I think this may be related to this. But the cost ratio in the third quarter looks deteriorating very much not year-on-year, but quarter-on-quarter and other sales in the third quarter look as if they are in the negative. Is this because of the vaccine? Is it unrelated to the vaccine. If not -- I'd like to know the cause behind?

As you have guessed the cost ratio in the third quarter looks high due to the seasonal factor of [indiscernible] vaccine whose cost ratio is high. This has an impact on the overall results.

Is that a negative factor, including DAICHIRONA?

[Interpreted] Yes, it is.

Understood. Lastly, I would like to know about TL-05, a Phase Ib trial in the same target patients as the AVANZAR trial. As I heard that QCS analysis will be conducted. I'd like to know whether you are going to announce it or not. At this point, you may say you can't make an announcement after all. But I'd like to know about it. What is the point of doing this? I assume it would be to decide thresholds. Can you tell us about this? That's all.

Yes. On the question of how high QCS to the AVANZAR study. No, we haven't really published anything or have made any public announcements on this regard. It is very important to note that AVANZAR is a study in which QCS will be applied. And we do think it's a very important part of our overall lung cancer strategy for data.

So it's unclear or you are not going to tell us. Understand.

Next question. Mr. Barker, Jefferies Securities.

Steve Barker, Jefferies Securities. I'd like to ask you about I-DXd. Today, you presented new findings in esophageal cancer and the recently initiated small cell lung cancer. I'd like to know what percentage of patients express the B7-H3 receptor in these cancers? And whether you screen patients for this expression and recruit the patients?

Yes, that's very interesting. That question. So in both of these studies, we are aware that most, if not all, patients express some level of B7-H3. So for this reason, the clinical trials are designed so that we are enrolling all comers regardless of the B7-H3 expression status.

Next question, is [ Mr. Klose ] from Nikkei Newspaper.

I am Mr. Klose from Nikkei Newspaper. I'd like to ask President Okuzawa about the change of the CEO announced today. First of all, I'd like to ask you about your accomplishments over the past 2 years since you became President in 2023? And what's your aspiration? What you'd like to do as CEO.

Thank you for your question. I was appointed CFO in 2021. It was the first year of the 5-year business plan. I served as CFO for 2 years. And then in the final year of the 5-year business plan in 2023 and now in 2024, as COO, I have been leading the fifth -- 5-year business plan for a total of 4 years, together with CEO Manabe. During that time, we made a major decision to form a strategic partnership with Merck. We reached this decision after carefully listening to the opinions of various organizations within the company and examining the pros and cons.

I have also committed myself to strengthen human capital in my capacity as President and the COO. And in my first year in that capacity, I visited all organizations and offices in Japan. And from my second year, I visited offices in the U.S., Europe, China, and other overseas locations, reaching out to almost 90% of the company's employees. I have talked about Daiichi Sankyo's, current status and the future vision in my own words, trying to foster an innovative and inclusive corporate culture. As we move forward, next year, will be the final year of the fifth 5-year business plan to which I have committed myself. We are receiving many questions today. My first priority is to ensure the achievement of the KPIs of the fifth -- 5-year business plan. At the same time, we have also started discussions and reviews. On the next 5-year plan, starting in 2026 next 5-year business plan.

I am determined to take the lead in this to achieve our goal of becoming a global top 10 company in the field of Oncology by 2030. At the same time, going beyond 2030, with a view to sustainable growth. I'd like to work with Abe to further strengthen our drug discovery capabilities. As CEO, I'd like to make a strong commitment to these. Thank you.

Next question is from Muraoka-san from Morgan Stanley MUFG Securities.

[Interpreted] This is Muraoka from Morgan Stanley. First, I have a question for Ogawa-san. I think you probably didn't answer [indiscernible] question earlier. But the figures for the remaining other businesses after subtracting all the segments are strange. I think vaccines are a matter only within the Japanese business. So the other portion after subtracting it seems like there is a strange drop of about JPY 20 billion. But is this something we don't need to worry about a number that is common for your company that we don't need to worry about? Or is it a part of the big change in the outlook? Or is it a buffer. Please explain that point.

[Interpreted] Thank you for your question. It's not a buffer, so you don't need to worry about it, and we don't think there is anything extra, which we didn't include there. If there is anything that we haven't explained in the information we have released, we'd like to explain it later to you. There is no buffer therefore, in particular.

[Interpreted] I understand. So even if the sales forecast changes by about JPY 20 billion, we don't need to worry too much about the impact on profit. Is that correct??

[Interpreted] Yes, we don't think there is any big risk there.

[Interpreted] I understand. Second question is on R&D. Congratulations on the approval of DB-06. I'd like to ask how the medical field and practice will change in the future. If it becomes available for ultralow, will it be used in medical practice without HER2 testing? Or will the guidelines change -- for example, even if it were to change, since every one with breast cancer undergoes HER2 testing anyway. Should we think of it as not having any significance? What are the upsides we can expect coming from this? There is no negativity associated with this, but what are the upsides?

Yes. So yes, you're absolutely correct that one wonders where there's any more need to test for HER2 expression in these breast cancer patients who are candidates for ENHERTU therapy. I think that, technically, that will be an off-label use, and it's really up to the physician to make that decision. Our label clearly says that they have to be -- at least have the ultralow, which is -- what we all that -- I don't know, 0+ level of expression. So it's a little bit difficult to predict how this new indication will change the field, particularly with respect to the pathological assessment of breast cancer. I think we're just going to wait to see how things go in the next few months, and we can report back to you then.

[Interpreted] Next question is from Sakai-san from UBS Securities.

[Interpreted] This is Sakai from UBS Securities. I have 2 questions. One is about DS-2243, which you introduced today? I believe you are running a combination study with Merck's MK-6070 and with your DS-7300, whose name has changed in Phase I/II. The DS-2243 has a different mechanism and target engagers. So I think the cancer types will probably be different and various development strategies will be considered from now on. I'm sorry for the very general question. But what are you aiming at with DS-2243? What will you be targeting? As it says here, this shows extremely high binding affinity in sites other than the test is. Could you please tell us about the differences between this and the collaboration with Merck given such characteristics.

Sure. So yes, the major scientific differentiation is the target. The bi-specific that we are collaborating with Merck has a target of DLL3. This is a target that's predominantly expressed in small cell lung cancer. And so therefore, it's a natural drug to be developed in small cell lung cancer, especially not just as a monotherapy but also in combination with our B7-H3 ADC, as I indicated earlier.

For this new T cell engager from us that DS-2243, the target is at NY-ESO, the antigen is called NY-ESO. So it has a very different antigen expression pattern and that is expressed in various tumors, such as sarcomas and certain types of non-small cell lung cancer. So that's where the difference is. And that -- so -- we do expect that the development path for 2243 will be substantially different from the development path for the DLL3 T-cell engager.

[Interpreted] Understood. So does that mean that the development priority will shift to DS-2243?

I think it's a little bit difficult to talk about priorities. I think for 2243, we need to get this compound into the clinic and see how active it is in various cancers, sarcoma, small cell lung cancer, et cetera. And then we can make a determination of whether or not we want to prioritize this one versus some other one. But for now, because we have so much outstanding data on both DLL3 T-cell engager and the DS-7300 B7-H3 ADC, our main priority is those two compounds going into small cell lung cancer.

[Interpreted] Understood. I have one more simple question. I am really embarrassed to ask such a basic question. But in the ENHERTU presentation, there is a section called NCCN guidelines listing and updates. This lists various cancer types, but how these other cancer types are handled in practice. There are various cancer types such as occult primary, pancreatic adenocarcinoma and others, which are not indications of ENHERTU. But how are these types listed in the NCCN guidelines handled by U.S. physicians, I'd like to know?

Okay. So the NCC (sic) [ NCCN ] guideline is, let's call it a compendial listing. And so in the absence of official approval of regulatory approval if a drug is listed on the compendial listing, it is reimbursable by insurance. So the NCC (sic) [ NCCN ] guideline is -- it's really formulated by a group of academic oncologists who create these guidelines. Now the -- a lot of the NCCN guideline is based on clinical trial data as well as the approval status of the drug.

And so these various types of cancer that's listed as part of the NCCN guideline update. A lot of this was based on the pan tumor clinical trial for ENHERTU. You remember that recently, we received in the U.S. a pan-tumor approval for cancers with IHC expression of 3+ or greater. And in that list of cancers, all these cancers are listed here in NCCN guidelines. That was part of our IHC 3+ FDA approval. What is a little bit different within the NCCN guideline compared to what's in our label is that for many cancers, the NCCN guideline also includes the IHC 2+ as well as a 3+. So that's an actually important difference for many patients. I hope that answered your question.

Yes. Okay. I need to dig in a little bit more, but you're not going to actively promote all these non-approved tumors, right? So it's a physician's choice, if you like.

That's correct. We do not actively promote the use of ENHERTU in patients where we do not have an indication. But the physicians are very free to refer to the NCCN guideline to -- on making a decision on how to treat their patients.

Next question is from Mr. Wada from SMBC Nikko Securities.

This is Wada from SMBC Nikko Securities. I have two questions. The first one is on Page 31 in the news flow section, I'd like to ask about the timing of the readout of the results of the AVANZAR study. When I look at the other ENHERTU sections, it says the first half or second half of FY '25. But when I look at the AVANZAR study section, it says the second half of CY 2025. So I guess the results will be released between July and December? Or maybe around July or September rather than between October and March. Could you tell me about the timing of the readout of the results of the AVANZAR study?

[Interpreted] Okay. This is the AVANZAR study that is being run by AstraZeneca and it refers to the calendar year, which is what the AstraZeneca company is using not the fiscal year that begins in April, their calendar -- their fiscal year actually starts in January. So that's how -- why it's expressed the way it is.

Understood. One more question. I'd like to ask about the T cell engager DS-2243. I would like to ask about the proportion of patients who are eligible and how generally applicable this technology is. This technology uses an antibody that detects NY-ESO-1 peptide that is restricted by HLA-A*02. So what about HLA-03 or HLA-24. I guess, only about 20% of Japanese people are eligible for this, if it's just HLA-A*02. So I'd like to ask whether it can be applied to other HLAs. I have the impression that it is quite difficult to obtain an antibody that detects peptide that binds to HLA. I'd like to know whether that is possible?

Yes. So this antibody is designed to detect this HLA restricted antigen complex with NY-ESO. So -- and this -- the HLA restriction of A02 was chosen because it is really the most common HLA type. And so the way you asked designed was really designed to capture as many patients as we can.

[Interpreted] I also think that epitopes are different for each person. So which epitopes are used in NY-ESO-1. For example, even in HLA-A*02, I think that the target patients may be narrowed down, depending on the epitope. How should we think about this?

Okay. So the epitope that is detected by the antibody should be the same. So really, the -- the HLA complex plus the epitope is -- should be the same because that's how the -- the T-cell engager and the binder part, the antibody detection portion is -- that's how it was designed. So it's the same.

[Interpreted] Well, I think it is possible that the epitopes presented by the NY-ESO-1 protein differ from person to person. And I'm concerned that this could narrow down the patient population even further. What are your thoughts on this?

So okay. So there may be variations in the expression level of the particular epitope that patient's tumor expresses, because as you know we're talking about NY-ESO, not the whole protein but peptides. But -- the -- in general, when these HLA restricted antigens are expressed, they can be detected at even though the expression level may be very, very low. So these are very special antibodies that we are using here. So I would expect that in terms of expression level, it will be my guess -- because we haven't really yet done the clinical trial, but it will be anticipated that even low levels of expression will be detected by the binder that we're using here.

[Interpreted] Understood. Finally, just to confirm, regarding how generally applicable this technology is. Can we say that your company has the technology to capture antibodies that bind to epitopes of other intracellular targets?

I don't -- I think we have -- we're not able to comment on the amount of research we're doing with these HLA restricted antigen programs. But it is, of course, a very interesting way to target cancer cells for sure.

Due to time constraints, this will be the last question. Sogi-san from Sanford Bernstein.

So this is a question regarding I-DXd program. So there are a few things. So I-DXd that now you are saying that there will be a Phase II readout from the ongoing I-DXd. I think IDL-01. Is this the results coming from the additional 70 patients you added to the initial ongoing program? And also the based on that data, is it there's a possibility that you might consider the filing for accelerated approval for the third-line plus small cell lung cancer? So that's one question.

And then secondly, and also you also mentioned about the combination study with I-DXd plus MK-6070 for relapsed and refractory small cell lung cancer. But we felt that actually the alternatively this combination can be or should be tested for first line setting. So this Phase Ib/II design does not necessarily exclude the possibility that this combination will be tested in first line in a pivotal trial. So that's -- those are the questions for I-DXd.

Okay. So on the I-DXd program, I think your first question was whether or not any of the currently ongoing clinical trials could be -- could lead to a submission for approval. And I think that's -- I guess that is a possibility. It really depends on the data, and we have to see the data first. But I hope you appreciate that we are very impressed with the activity of this drug in small cell lung cancer. So we just have to wait to see what the data shows. And in terms of your other question about whether or not we have any interesting moving into earlier lines of therapy for small cell lung cancer. The answer, of course, is absolutely yes.

Okay. And finally, for your T-cell engager bi-specifics, DS-2243. Is this the modality coming from Daiichi Sankyo. And you do have a modality platform beyond this one particular module?

Okay. So this is a result of an internal research efforts. And I think it's a bit premature to say whether or not this is part of our modality strategy, but really to say that this is a very interesting and unique product of our internal research. We're very proud of this.

[Interpreted] Well, we've exceeded the scheduled time, so we will end the Q&A session. Some people still have their hands up. But since we've exceeded the line, I would appreciate it if you could direct any questions to IR representative. Well, that's all for now. Thank you very much, everyone, for today.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]