Astellas Pharma Inc

TSE:4503

Earnings Call Transcript 2018-Q3

[Chikashi Takeda, executive]

Good afternoon, ladies and gentleman. I am Chikashi Takeda from Astellas Pharma Inc. Thank you very much for participating today despite a very busy schedule. I'm going to spend about 20 or 25 minutes to give you an overview of our financial results for the third quarter of fiscal year 2017 and explain our initiatives to build resilience of sustainable growth, including the progress of our pipeline.

Page 2 is our cautionary statements regarding forward looking information. Page 3 is the agenda for today. First, let me give you an overview of our financial results for the third quarter of fiscal year 2014 (sic)[ 2018 ].

Please turn to Page 4. This shows the financial results on a core basis. Sales of the key products are progressing well, but sales related to long-listed drugs in Japan decrease substantially. Also, revenues related to the businesses we transferred such as dermatology and long-listed drugs declined compared to the previous year. As a result, net sales decreased to 0.6% year-on-year to JPY 999.4 billion. Core operating profits declined by 8.8% to JPY 220.5 billion. I will explain the detail on next page, but we have been on track towards the full year forecast we announced in October last year.

Page 5 shows our year-on-year sales analysis. This is a quarter for growth. Sales of the growth drivers XTANDI and OAB products combined increased. Sales of XTANDI rose in all regions. Betanis/Myrbetriq/BETMIGA also grew substantially, I will elaborate on this later.

On the other hand, sales of long-listed products in Japan decreased substantially, including Micardis whose generics were launched in June 2017. In addition, due to the global dermatology business transfer completed in the previous fiscal year and the long-listed drug business transfer completed this fiscal year, related sales dropped substantially year-on-year. As for ForEx, the yen depreciated against the U.S. dollar and the Euro as you know, which increased our revenues.

Since these are special factors, on an apples-to-apples comparison basis, it's appropriate to make the comparison by excluding these 2 items. As you can see with the red dotted line, sales decreased by 1.3% by excluding these impacts.

Page 6 shows our year-on-year core operating profit analysis. Next SG&A costs fell slightly. Co-promotion fees for XTANDI increased and we continue to make necessary investments. On the other hand, we also promoted the efficient use of our spending and the optimal resource allocation. R&D expenditure increased year-on-year. We increased our spending for the additional indication of enzalutamide rich stage development project such as gilteritinib project, we newly obtained through our acquisition such as IMAB362 and fezolinetant as well as our investment into new areas and modalities such as regenerative medicine and cell therapies. On the other hand, operational expenses at Agensys are declining where we announced the decision to wind down 3 such operations. Also in R&D, we have been engaging in activities by relocating our resources to make investment into future growth.

ForEx worked positively at a profit level as well. Our core operating profits decreased 2.6% year-on-year, excluding ForEx and business transfer impact.

Page 7 shows our financial results on a full basis. Like the core of basis results, we are also on track towards the full year forecast on a full basis as well. By the second quarter, we booked other income and other expenses, including impairment loss due to the review of IMAB362 development plan on our decision to wind down the research operations at Agensys, but no major expenses or income were incurred in the 3 months in the third quarter.

As for Tax, the tax reform in United States became a factor to slightly raise the tax rate, but our corporate tax rate as a whole was down compared to the same period last year. As a result, our operating profits decreased 22% to JPY 179.8 billion and quarterly profit for the period declined 20% to JPY 142.6 billion.

Page 8 is our cash flow analysis. Our profits decreased in the third quarter for the 9 months and due to factors such as impairment loss without cash payment. On a cash basis, our operating cash flow increased 16% from the same period last year. Cash generated in this way is being utilized to make business investment such as our acquisition of Ogeda, and to return profits back to shareholders through share buybacks.

Page 9, I'd like to expand our sales in 3 key areas. As you can see, with or without ForEx impacts, sales in other 3 key areas increased compared to the previous year. XTANDI which accounts for majority of sales in oncology rose by 16%, including the effect of the year's depreciation and by about 10% on a local currency basis. OAB in urology sales of Betanis, Myrbetriq, BETMIGA grew substantially in all regions by 30%, including the effect of the lower Yen and by 25% on a local currency basis.

Sales in transplantation are progressing steady as well -- steadily as well.

Page 10. I talked about the numbers. Next, I'd like to explain initiatives to build resilience for sustainable growth.

Page 11 is a slide familiar to you and this is the last year of our 3-year strategic plan. And this shows the total picture of initiatives we should focus on in the ongoing strategic plan, maximizing product value, operational excellence and also for the implementation of the new innovation.

Page 13, shows a more detailed analysis of XTANDI. Let me explain more details. Sales are growing steadily, extended sales hit the record high on our quarterly basis in the third quarter, in all regions.

Let me give you some additional explanation on a local currency basis about the United States is a largest amount of sales. Sales increased to 3% year-on-year in the 9 months up to the end of the third quarter. Focusing on the 3 month in the third quarter, sales grew by 21% year-on-year compared to the third quarter of 2016, and by 12% quarter-on-quarter from the second quarter of 2017. The total volume went up 25% year-on-year and 5% quarter-on-quarter respectively. According to analysis, our efforts are bearing fruit, such as activities to expand and reinforce our access to urologist, including Ocuravision with Pfizer's urology team and to remove [indiscernible] step therapy. The ratio of patient assistance program against the total volume is trending stably, at a level similar to the last quarter of fiscal year 2016. Namely, in the January-March quarter in 2017, in line with assumptions.

Page 14 shows the results. The status of our OAB franchise in urology, OAB as a whole has increased sales. VESIcare is slightly weakening globally, but Betains, Myrbetriq, BETMIGA continue to progress steadily in all regions, continue to achieve a double-digit growth in -- on a global basis.

Next creating innovation. So let me explain the progress of our pipeline, Page 16, shows the status of a pipeline by stage. We Astellas are building a robust pipeline as a foundation for our growth by combining external innovations with our own capabilities.

Regarding new molecular/biological entities marked with a circle, there are more than 30 or about 30 in our entire pipeline.

Page 17. Let me explain project, which have made progress or started since the previous results announcement. For the past 3 months, we made 4 filings during this period. We filed for an additional indication of enzalutamide in non-metastatic CRPC or Castration Resistant Prostate Cancer in the United States and Europe this month in January 2018. We also filed for blinatumomab, our joint development project with Amgen in Japan in adult and pediatric patients with ALL or acute lymphoblastic leukemia in Japan this month in January 2018.

Another filing this month ipragliflozin. We filed for an additional indication for type 1 diabetics in Japan this month for ipragliflozin. In November 2017, we filed for therapeutic extended-release formulation in Japan for degarelix for Prostate Cancer. IMAB362 entered Phase III. Also 2 new projects progressed to Phase II.

MA-0217, one of the 2 programs derived from Mitobridge we acquired recently entered Phase I for acute kidney injury. On the other hand, unfortunately, 4 projects in Phase I and Phase II were discontinued.

Now Page 18. This is the slide that you're familiarized with, I believe. The clinical trial of enzalutamide [indiscernible] prostate cancer as new indication is ongoing at a good rate. As it's been mentioned, the non-metastatic prostate cancer, that's something we are pursuing for the additional indication and the -- due to filing based upon the PROSPER study. And as I mentioned the other day, the further results from PROSPER study will be presented at ASCO-GU 2018, this February. On top of that, 2 phase III studies targeting metastatic hormone-sensitive prostate cancer HSPC and non-metastatic prostate cancer with biochemical recurrence making good progress.

Page 19, this is about the gilteritinib. In the treatment landscape of AML we've been conducting large scope study on the potentiality of this compound. This slide shows such activity. So we have ADMIRAL study targeting the highest unmet medical needs and other studies, including this ongoing according to the plan, towards the bottom of this the slide, you can find the detailed descriptions about those studies. This [indiscernible] received the orphan designation from the European Commission. As we've already promised you, it has received FDA fast track designation and Japanese Sakigake designation. So we're going to accelerate this development further with making use of such regulatory systems as specific to each country, and we would like to prioritize our resources allocation accordingly.

Now on Slide 20. Gilteritinib. We have another slide for that. Last December, the very first data from ongoing Phase I study in the treatment-naive AML patient was presented at ASH2017. That is [ process ] here once again, preliminary results suggest that gilteritinib can be safely combined with intensive induction chemotherapy. Also all available FLT3 mutation patients achieved composite CRs with gilteritinib in combination with intensive inaction of frontline chemotherapy. These positive results drives the further expectation of gilteritinib as first-line therapy for AML patients.

Page 21. This is about IMAB362 Phase III program. [ IMAB ] being the first-line therapy for gastric and gastroesophageal junction adenocarcinoma, 2 global Phase III studies are planned. One, on the left you can find is a combination study with FOLFOX mainly used in western nations, the other one is on the right. This is combination study with CAPOX, mainly used in Asia, including China, where frequency of gastric cancer is high. We are on the preparation phase and we would like to share the updated review when the time is appropriate.

Now this is Page 22. This is for the ROXADUSTAT development for CKD with anemia. Currently there are much phase III studies ongoing steadily. [ Ops ] is the European study for non-dialysis patients and there are two studies for dialysis patients in Japan. The data readout of these studies are planned in this fiscal year.

Slide 23. This summarizes the expected key pipeline events in FY2017. Here's the progress from the last announcement, the result of Phase III study ASP0113 to see the suppression of cytomegalovirus infection in hematopoietic cell transplantation patients has become available. As you put unfortunately, the both primary and secondary end points are not met. The phase II results are now available for ASP1707, which is rheumatoid arthritis and ASP7962 for osteoarthritis. Neither has achieved primary endpoints.

Slide 24. And this is also the slide which is repeatedly used for this kind of conference. This describes the -- our projects achieved POC. As you find in here, gilteritinib and enzalutamide and although I couldn't give you the detailed explanation for urothelial cancer and Enfortumab that come up with the promising data in the Phase I study and also we have fezolinetant as well, and we believe they are going to be the arm projects approaching our need to meet our long-term growth.

Next is Page 25. This is about the -- create innovation. Last time, with the closing of the Mitobridge acquisition and this is a slide for that. We have been trying to understand changes in the healthcare with more diverse perspective in order to continue to create innovation. Based on that we've identified hyper red areas to invest from the viewpoint of synthetic biology and modality. Mitobridge was acquired to enhance biology [ with ] mitochondrial drug discovery. We have 3 approaches to mitochondrial function such as gene regulation, NAD enhancement and dynamics. Pro-HSD's Mitobridge has already identified promising target molecules in the lead compounds to act on those. As is being introduced to you, we have two programs in the Phase I derived from Mitobridge and we have several other programs and we are aiming at starting a new clinical trial in a couple of years.

Page 27. These are activities to create social value or initiatives for access to health. So far, several initiatives have been conducted, but the very recent one is just briefly I'd like to touch upon here. That is described at rather bottom that is the -- a rice-based oral vaccine MucoRice. So this is the full party, a collaborative research agreement is closed so Tokyo, Osaki, Tokyo, our company and other organization are joining in this research activity, and we closed the agreement for the development of this product and so far, together with the Tokyo University, Cholera and enterotoxigenic e. coli are targeted for wide space oral vaccine and have been working hard for that research, and this time, we would like to go further ahead that is about the production and also the formulation technology, where we're going to research and develop with this joint effort. This project has been adopted by CiCLE's innovation for clinical empowerment and supported by AMED, a Japanese agency for medical research & development.

Next to is about pursue operational excellence.

Page 29. In order to -- let's [indiscernible] do with environmental changes and to solidify mid to long-term continuous growth scenario. This is allocation we've reviewed from scratch and we will promote further improvement over operational quality and efficiency. The left half of this slide describes [indiscernible]. So as for the investment priority that is always considered and what kind of capabilities are necessary to be gained, those are also discussed. And for that purpose what would be the optimized organization. Those are all considered and also the cost of the structure -- ideal cost structure is another theme for their discussions within the scope of operational excellence, we've been working on those. On the right half, you can find the major initiatives of FY '17. For this, continuously without spoiling our effort we would like to continue to do our best.

And now let's move on to Page 31. This is about the profit distribution policy. Repeatedly, we've shown you this slide, but once again, FY '17, annual dividend is expected to be JPY 36 per share to JPY 1 up from FY '16. The share buybacks were implemented from July to October last year to gain about JPY 70 billion. And as we've announced today, we've decided to do another round of share buybacks from [ first of ] March 23, with upper limit of 42 million shares, JPY 60 billion.

Slide 32. Just so as we turn innovative science into the value for patients on the forefront of healthcare change to realize our sustainable growth. For that purpose, we'll try to optimize allocation of management resources and investment into the growth drivers to establish competitive edge for us.

Page 33. Here have one additional slide for upcoming conferences. First, the announcement on conference for financial results for FY '17 will be April 26, according to our plan that is before the Golden Week holiday season, [ and this is the second ] in the past that is about -- although we haven't really specifically decided how to call it, that is about the conference for the next -- our strategic plan and this will be a planned as May 22, one month after the financial results announcement. Details will be introduced to you later on.

So this is the end of my presentation, thank you.

Next, we would like to take questions. Please.

[Operator]

[Operator Instructions] Citigroup, Mr. Yamaguchi.

[Hidemaru Yamaguchi, analyst]

Can you hear me?

[Chikashi Takeda, executive]

Yes.

[Hidemaru Yamaguchi, analyst]

My first question is about the third quarter alone. I have a question about the third quarter. Last year, in the third quarter, the yen's depreciation continued and there was an impact on the growth ratio, but still you had increased revenues and profits for the first time after long time. Looking at the Q3 alone, there's a factor of the COGS ratio, but there's a trend for the increased revenues and profits. Do you think this is going to continue for the future? Or it may be due to the fluctuation, ups and downs, of the profits. What do you think?

[Chikashi Takeda, executive]

COGs is affecting the profit as one factor for our company. In the COGS, unrealized profit, more specifically yen's depreciation may continue until the end of the quarter, then there can be huge impact of the COGS on to sales. [ But this year fix this up alone ] because the ForEx is difficult to explain. But first on sales, for growing product and growth drivers, we're expecting an increase in our sales and revenues according to budget formulation for next fiscal year.

[Hidemaru Yamaguchi, analyst]

You're talking about March 2019 fiscal year right?

[Chikashi Takeda, executive]

Yes, I'm talking about the future. I think your question was about the future, so I was talking about the next fiscal year. And also IMAB Phase III was explained. I haven't looked into the details that, but clinical.gov (sic) [ ClinicalTrials.gov ] may have some information as well, I think.

[Hidemaru Yamaguchi, analyst]

A first-line treatment takes some time.

But when do you target to finish this?

[Mike Kitagawa, executive]

I'm Kitagawa from Project Management. ClinicalTrials.gov, we haven't disclosed information on the ClinicalTrials.gov yet so I cannot explain the details today. But the start of the study is going to be second quarter of this year according to plan.

[Hidemaru Yamaguchi, analyst]

When is it going to finish?

[Mike Kitagawa, executive]

As of now, we are not in a position to mention. So please wait for the disclosure on the ClinicalTrials.gov This year in the quarter here, April or June or July, September, April-June period.

[Hidemaru Yamaguchi, analyst]

My last question, sorry for my lack of common sense. Governance, you're going to change your structure because of the governance. There's a wording here, but including your capacity, how your business or way of doing your business is going to change?

[Chikashi Takeda, executive]

Thank you for the question. We have already the board of -- we have a company with board of auditors. This structure, according to the company, actually there are many requirements what must be discussed that early Board of Directors also established. As of now, looking at the situation right now, the Board of Directors require certain discussions on the management strategy and also supervision functions -- supervisory function must also be performed. That's also another role. And we have not -- there is a possibility that we have not been able to spend enough time on this. Against this backlog, we are doing this. And also the business environment is changing a lot, so a lot of things are happening in the front line. So on the execution side, according to the current framework, we have to escalate many things to the Board of Directors and that can be dedicated to execution side for speedy and more efficient decision-making. As for the Board of Directors, setting that aside, they can focus on the main themes where they should play a more important role by spending more time. That's something we'd like to pursue. So the most appropriate format can be a company with the board of auditors and other committees. So this is going to be discussed. There was a reservation to have discussions at the general shareholders meeting.

[Operator]

Next, UBS, Mr. Seki.

[Atsushi Seki, analyst]

Seki from UBS, I have a couple of questions. First of all, that is about extended competitor. As a blinatumomab manufacturer, the source of this October to December is quite stabilized, and with the latest study result, it's impacting improvement themselves according to their explanation. And you have principal study result as well. So before the approval FY '18, do you think you can expect the level of the contribution of this product on to the overall sales revenue? That's the first question.

[Chikashi Takeda, executive]

This fiscal year and also this 2018 calendar year you are talking about?

[Atsushi Seki, analyst]

Yes.

[Chikashi Takeda, executive]

At least before the approval gained or granted, we are not expecting some reaction will take place in the market.

[Atsushi Seki, analyst]

Second, this is not directly related to this financial announcement, but Mitobridge that you acquired. What's the trigger of the milestones that you decide to acquire this company. For example, is there any good positive clinical data available that is a sign for the future success of the business?

[Chikashi Takeda, executive]

Well, 2013, first, we came to the agreement of joint researcher with the certain level of the investment with Mitobridge. Then the example, there are two Phase I programs, those are progressed and with this joint R&D, they have a great insight of mitochondria and also they have great experience of the drug discovery. Those are the triggers of studying the -- this acquisition activity.

[Atsushi Seki, analyst]

And next modality CAR-T and that there is M&A taking place regarding CAR-T these days. What's your attitude towards CAR-T. 2015, Bellicum BPX-601 is what you've licensed in the past. And what's the kind of progress level? And as modality, what do you -- how do you see the CAR-T ?

[Chikashi Takeda, executive]

Just a moment, we would like to double check. So please wait a moment. So you mentioned about license in -- licensing product, Bellicum, B-E-L-L-I-C-U-M, Bellicum. Unfortunately, we haven't got the insight here. So IR department is going to follow up that information with you later.

[Atsushi Seki, analyst]

This might be a strange question, but as you know, this time you are going to advance your governance at Astellas. Is there any possibility that the outside of your company person is going to be the candidate of next CEO or so?

[Chikashi Takeda, executive]

I don't have the answer to that question with me. But theoretically, of course, we are not going to exclude that kind of approach, but I don't have any direct answer to that.

[Operator]

Next, Daiwa Securities, Mr. Hashiguchi.

[Kazuaki Hashiguchi, analyst]

Hashiguchi speaking. I have two questions. First, XTANDI in the United States, I would like to know the status.

[Chikashi Takeda, executive]

In the third quarter for the three months year-on-year compared to the previous quarters, sales increased by 12% and the total volume increased by 5% quarter-on-quarter. 12% and 5%.

[Kazuaki Hashiguchi, analyst]

What is the factors behind this difference? And also PAP?

[Chikashi Takeda, executive]

Regarding PAP, it just has been trending stably from the beginning of the year or the term.

[Kazuaki Hashiguchi, analyst]

So what's your future outlook? I'd like to receive your comments on this.

[Chikashi Takeda, executive]

As for the difference, first, volume and also sales. Just a moment, please. Sorry to keep you waiting. The difference here is because of a variety of factors. The year-end -- term-end -- year-end inventory has been increasing a bit, that's one factor, I can't miss that.

[Kazuaki Hashiguchi, analyst]

If you are to mention just one, that is a major factor?

[Chikashi Takeda, executive]

Yes.

[Kazuaki Hashiguchi, analyst]

What about your outlook of PAP?

[Chikashi Takeda, executive]

Based on the results so far for the 9 months, a similar trend is being expected in our view.

[Kazuaki Hashiguchi, analyst]

Okay. My second question is about cash management and your philosophy, I'd like to confirm.

[Chikashi Takeda, executive]

From before, according to my understanding, cash at hand is going be JPY 300 billion to JPY 400 billion, which you think is appropriate and you make investments for growth using that money and also return profits back to shareholders.

[Kazuaki Hashiguchi, analyst]

In the third quarter, your cash position, free cash flow will come in. The cash might be below JPY 300 billion if you buy back your shares. So what is going to be your appropriate level of cash management and share buybacks.

[Chikashi Takeda, executive]

We have done a JPY 70 billion and JPY 60 billion additionally, so it's going to be quite a large amount on an annual basis.

[Kazuaki Hashiguchi, analyst]

So what about the background behind this decision? So could you comment as far as possible.

[Chikashi Takeda, executive]

Okay. The cash we'd like to keep all the time. And the cash balance, we didn't change our philosophy so much. JPY 300 billion or JPY 350 billion, a little less than JPY 300 billion is also in our sight. In the past, it was somewhere between JPY 300 billion and JPY 350 billion we have maintained so far. This time, share buyback decision was made because of this and also investment efficiency. There are some indicators or index for investment efficiency. By taking these into consideration, we have decided to implement this.

[Operator]

Next, Goldman Sachs Securities, Mr. Ueda.

[Akinori Ueda, analyst]

Goldman Sachs, my name is Ueda. The first question from me, that is about the XTANDI situation. So cooperation with Pfizer is going quite well. So the penetration of this product into urologists, what's the current update? Second question, PAP forecast, well, Pfizer mentioned compared to the previous year it's likely to be reduced to a certain extent. But how do you view about this PAP?

[Chikashi Takeda, executive]

Thank you for your question. First, urologist in the United States success from them. In the third quarter, continuously the sales is expanding, record high, 1,700 is the number that we see and Zytiga, about 1/3. That's our forecast. Those are the numbers. And PAP, Pfizer made such comment and of course we are aware of that. But for us, the kind of information available to us is not enough to mention. So basically looking at the trend in the past, we are going to make judgment for the future. If that is the case, we believe that the -- our situation is going to be more or less similar. This is what we think.

[Akinori Ueda, analyst]

The second question that is about the level of R&D. It's been -- up until the third quarter relative -- compared to the previous year or combination of years, I believe the number is relatively high. And also you have reached late-phase development program [indiscernible]. So this fiscal year, do you think this level is aligned with the full year plan and concerning the next year and afterwards. And if you have this much of the late-phase portfolio, you still do the control and can maintain the current R&D expense levels? Or do think it is likely to increase more?

[Chikashi Takeda, executive]

First, this quarter, as you know, as we believe that our R&D cost has been expected. And the next term and afterwards, we believe that we can control at a certain level. If that's not possible, then we are going to make the effort for the containment of the expenses. We would like to avoid the big reduction of the profit due to such factor. Anyhow, for the next year budgeting, we are working on that and we can inform you about that around April.

[Operator]

Next, Morgan Stanley Securities and Mr. Muraoka.

[Shinichiro Muraoka, analyst]

I'm Muraoka from Morgan Stanley. I have a follow-up question on the expenditure. You would like to avoid major dip in profits. That is possible next fiscal year, but fiscal 2019 and beyond?

[Chikashi Takeda, executive]

You cannot avoid a big dip. R&D expenditure can be controlled at the certain level.

[Shinichiro Muraoka, analyst]

Is that going to be fine?

[Chikashi Takeda, executive]

Sorry, R&D expenditure Phase III project may overlap. Because of this increase, we want to avoid undermining our profits. I talked about the next fiscal year, we have to look at the environment to set the goals and the figures. But we have to make R&D investments to a certain extent, where necessary, because of the -- with the sales decrease, we cannot avoid profit decrease as well. But we will make utmost efforts, so that our plan would be acceptable and understandable to you. This is about the future, so when we announce our midterm business plan in May, how to show numbers clearly or whether to show you clear numbers at the timing, we can provide you with a certain -- some guidance.

[Shinichiro Muraoka, analyst]

Understood. And also XTANDI?

[Chikashi Takeda, executive]

Compared to the competitors, here, 50% increase; for competitor 20% for XTANDI. [ Latitude ] alone can be used to explain how this difference or some other explanatory elements behind.

[Shinichiro Muraoka, analyst]

Please share your analysis.

[Chikashi Takeda, executive]

Just a moment. This may not be a direct answer to your question, but gradually, Zytiga for metastatic CRPC, they began activities outside of this as well so it's difficult to talk about the business we are losing there. But within the indications we have obtained, we don't think we are losing against them. And we have a more information from the analysis team, if there is anything, we'd like to share with you.

[Shinichiro Muraoka, analyst]

From your perspective, the PROSPER label would be approved and M0, non-metastatic, if you're able to go to such institutions, you have expanded the basis for early-stage patients and you can expect further acceleration and you think there are such signs in the market sufficiently.

[Chikashi Takeda, executive]

If you look at the current market, instead of making adjustments, if the indication is going to expand to early prostate cancer patients, the size of the business and the pie of the entire business is going to expand. In that sense, there is no change. So with PROSPER, we'd like to get the approval as soon as possible for activity so that this leads to higher sales.

[Operator]

Nomura Securities, Mr. Kohtani.

[Motoya Kohtani, analyst]

Kohtani from Nomura Securities. Can you hear me?

[Chikashi Takeda, executive]

Yes.

[Motoya Kohtani, analyst]

First question, this is just a confirmation. Around October 2018, Zytiga generic might be launched and the shortest view, and of course, the mechanism is completely different. But Pfizer as well asked the question about the Zytiga generic, the combination with the steroid or the monitoring necessity is different to what they've said. But considering the kind of severe situation, payers might promote this product to -- or generic to the patients. But what are your views about the impact of Zytiga generic?

[Chikashi Takeda, executive]

Thank you for your question. And also top of those two, the full control -- direct control is another thing that the businesses will consider. But of course, the difference of the profile is, one, strength for us. But again, the price, this is definitely we have to think about.

[Motoya Kohtani, analyst]

Depending on -- meaning that depending on the situation, you might change price?

[Chikashi Takeda, executive]

Well, including pricing strategy, we need to consider in a total perspective if the market situation changed. This is not only unique to the XTANDI, but we are going to have such a view for the approach.

[Motoya Kohtani, analyst]

The second question, this is also about XTANDI. The upper flutamide [indiscernible] result and the comparison with your product is gaining attention, I believe. And looking at the ClinicalTrials.gov, it seems that the patient population is mostly exactly the same, so aiming at the similar type of the patients. Is this right? That's the first thing. And second, that is about CRPC and M0 or non-metastatic. If that is so, the first-generation nicotinamide investment is something we need to do the comparison, but metastasis-free survival of that drug is not available, the information. So we want to hear what did you do with the first-generation drug? And if you can overcome -- do you think you can overcome such problem at the second generation?

[Chikashi Takeda, executive]

Kitagawa is going to answer your question.

[Mike Kitagawa, executive]

The patient population is almost similar, that's also what we think. And as has been disclosed the other Day, ASCO GU, in February 8th, we are going to do the presentation so detailed information can be available there. The population difference level for nicotinamide in ASCO-GU is also -- they also make a presentation, so it's going to be presented there. But unfortunately, the first-generation data is not available even with us. I'm sorry about that.

[Motoya Kohtani, analyst]

And the last question. IMAB362, Phase III has just got studied, that is a good news, but they took a longer time for the -- that you're making and one of that reason is biomarker. And looking at original study, Claudin 18.2 detection, well, that is a manual check. Paraffin, FFPET, is used so this is [ AHC ] testing, which is cumbersome. So for the testing, the same method is used for this clinical trial as well? Are you thinking about different methods for the Claudin 18.2 positivity detection?

[Chikashi Takeda, executive]

Thank you very much for your question. Kitagawa is going to answer your question.

[Mike Kitagawa, executive]

As for CDx, companion diagnostics, that is different from what we've used in the Phase II study. That's what we believe.

[Motoya Kohtani, analyst]

If that is the case, what about the validation of the method? Is it possible to complete the validation for companion diagnostics in this short time period?

[Mike Kitagawa, executive]

Basically, that is already validated. CDx anyway are going to do the Phase III with that. This is the blood test or tissue test. Blood is used or tissue is used. Basically, tissue is used. Immunohistochemistry is used.

[Operator]

Crédit Suisse Securities, Mr. Sakai.

[Fumiyoshi Sakai, analyst]

Because of the time, I will ask just one question. Your domestic market, the local products in Japan in particular, every quarter it's deteriorating. In the industry, there is a review of the new drug premiums. I understand that you have to make the assumptions. Just looking at your achievement and results, is it possible to rebuild the business as you're worried. Particularly in the midterm business plan, you haven't decided the name of the next midterm business plan yet. [ MRs ] might be revisited. You have to reform the domestic business or market, otherwise this can be a drag on your results. And Repatha can be a representative product as a symbol. The coming studies, LDL will be lowered according to the data. And despite self-injection availability, sales are not increasing. Is this because of the issues with the sales and marketing capabilities. There are many restrictions such as [ familial ] or secondary responders. So based on the third quarter results, how do you see the domestic market? If you can explain the numbers to a certain extent, that would be highly appreciated as well.

[Chikashi Takeda, executive]

Repatha is taking sometime. As something I've said for a long time, we don't have good numbers yet. We have to continue to make efforts together with Amgen and AABP continuously. And another major theme you're asking -- your question, this is not just limited to Japan, but under a variety of themes, we have to discuss operational excellence. I gave you some examples.

[Fumiyoshi Sakai, analyst]

The external environment is changing. Is there's anything we have to change because of the external environment and also internal circumstances?

[Chikashi Takeda, executive]

On a 0 basis, we have to consider. It's not just about Japan alone in my comments, but we are able to confirm this or if there is an early warning sign, we already made 2 major transformations. This is something in general.

[Fumiyoshi Sakai, analyst]

Early warning signs have not been detected yet according to your understanding right now? Or are you talking in general.

[Chikashi Takeda, executive]

Regarding the Japanese market, it's in the sluggish phase, that's evident because of the numbers. But there are some new products being launched. So we are going to see the situation of those generally speaking. It shouldn't be too late in anything. So we'd like to have a very good sensor to be sensitive, and where necessary, we will take necessary measures. So in May, you can go deeper from the general statement. If there's anything we can share, we are going to incorporate in a presentation in May.

So thank you very much for participating in our conference call today. We appreciate your continued support and cooperation. Thank you very much. For attending.