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Sumitomo Pharma Co Ltd
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My name is Hiroshi Nomura. I'm the President and CEO of Sumitomo Dainippon Pharma. Thank you for taking your time to join the conference call for the first quarter. I would like to thank you for your continued interest in our company. Your comments and feedback are helpful in managing our company.
We published the financial results today. I personally wanted to be here to take your questions because I'm sure you have questions for me to explain the significant gaps in the results when you compare with the same period of last year, what was the forecast.
First, Mr. Kashima will go over the presentation.
Please look at Slide 3. I would like to present the financial results for the quarter on IFRS core basis. The revenues were JPY 131.2 billion, down by JPY 2.7 billion from the same period of last year. Although China segment increased revenues, Japan and North America segments decreased revenues.
SG&A expenses increased by JPY 14.2 billion because of the increase in spending by Sumitovant companies as well as increase in intangible asset amortization. Meanwhile, R&D costs decreased primarily in oncology and Myovant. As a result of these, core operating profit decreased by JPY 15.8 billion from the same period of last year to JPY 8.5 billion. Operating profit decreased by JPY 15 billion from the same period last year to JPY 8.3 billion because changes in fair value of contingent consideration and other nonrecurring items did not change much in this and previous reporting period.
Net profit attributable to owners of the parent significantly decreased to JPY 4.8 billion, down by JPY 13.5 billion. For your information, the percent of progress has been slow for revenues and profit lines. However, we did not revise the full year forecast because we are expecting revenues from a new alliance deal in North America as well as increased revenues of new products.
Slide 4 shows revenues of Japan segment. Revenues were JPY 38.7 billion, down by JPY 1.1 billion from the same period last year. LATUDA and Trulicity increased revenues, while Equa/EquMet prices were revised downwards. And long-listed products decreased revenues. So overall, the revenues were down for the segment. The percent of progress to the full year forecast was 25.8%, which is on track.
Slide 5 shows revenues for North America and China. In North America, revenues were JPY 71.4 billion, down by JPY 2.7 billion from the same period of last year. The LATUDA revenues were JPY 51.4 billion, down by 3.1%. Through December last year, the shipment volume increased and inventory in the distribution system became high. It took until May this year to adjust the inventory, which caused the decline in revenues. We believe the revenues are back to normal in June. BROVANA decreased revenues due to loss of exclusivity in June. As for Sumitovant, in addition to ORGOVYX that was launched in January this year for the treatment of prostate cancer, GEMTESA was launched in April for overactive bladder, and MYFEMBREE for uterine fibroids in June. These 3 new products will grow revenues from now on, and the first quarter results were what we expected. For your information, the upfront payment from the relugolix alliance partner is included in others.
China segment increased revenues by 66.3% to JPY 8.5 billion. The shipment volume decreased due to COVID-19 in the same period last year. The percent of progress to the forecast is on track.
Slide 6 shows segment information. Japan segment decreased revenues, while SG&A spending restored from the same period last year when expenses were less due to COVID-19. As a result, core segment profit decreased by JPY 1.3 billion to JPY 6.7 billion. North America segment decreased revenues, while expenses increased due to Myovant and Urovant promotional activities in full swing as well as increases in amortization of intangible assets. As a result, core segment profit was JPY 18.1 billion, down by JPY 17.7 billion.
China segment increased revenues, which helped increase segment profit by JPY 1.6 billion, although expenses increased. Other regions decreased revenues because in the same period last year, revenues were higher due to increased inventory at the export destination.
Please go to Slide 8. I would like to go over the development status update. The table shows a list of development pipeline. The changes since May this year has been highlighted in red. I will explain more in the next slide. For your information, the generic name of SEP-363856 is ulotaront.
Please look at Slide 9. It summarizes the changes since May this year. In oncology area, DSP-7888 Phase II study in Japan has been changed to Phase III. ? DSP-0390 started Phase I study in Japan, in addition to the U.S. DSP-5336 started Phase I study for hematologic malignancies in the U.S. For more information, please review Slide 15. DSP-5336 is a novel compound created through a joint research project with Kyoto University.
In other therapeutic areas, TWYMEEG was approved in Japan in June for the treatment of type 2 diabetes. It will be launched in September this year. The brand name for relugolix combination tablet in the U.S. is MYFEMBREE. While the brand name in Europe is called RYEQO. The uterine fibroids indication was approved in the U.S. in May and was launched in June this year. We also submitted sNDA for endometriosis in July. In Europe, relugloix combination tablet was approved for uterine fibroids in July and will be launched in Gedeon Richter territory from the second half of 2021.
As for China, we added Lefamulin to the pipeline list after acquiring the exclusive development and marketing rights from Sinovant in June. Based on the positive Phase III study results for the bacterial community-acquired pneumonia, we are currently preparing for NDA submission. The launch target is in fiscal year 2023. For more information about Lefamulin, please go to Slide 14.
Before I close, I would like to inform you, we'll be hosting R&D meeting for Frontier business at 1:00 p.m. on September 8, Japan time. The meeting will take place remotely, and we look forward to seeing you there.
This is the end of my presentation. Thank you.
Hashiguchi from Daiwa Securities. I have 2 questions. First is about the new alliance opportunity in North America. In May, you said you were getting closer to close the deal. Please explain what you have included in the forecast as a result of the negotiation of the deal. Are there any updates since the last time we met? You explained before why you need this deal. Are there any changes in the rationale behind this deal?
Thank you for your question. As I outlined the reasons for the deal, when I presented the revised midterm business plan, we need to overcome the challenges after loss of exclusivity of LATUDA. Because we cannot stop R&D activities, especially the development part, we decided to look for a partner to share development costs and development risks. When I gave the presentation in the financial briefing in May, yes, I said we were getting close to reaching an agreement, but it's taking more time to work on the details of the joint development framework and the summer vacation is slowing things down. We should be in a position to make an announcement in the second quarter by the end of September.
We are working on upfront payment and development cost sharing. If we sign an agreement early, the sharing of the development costs will start early. There has been some delay, but not significant impact. At this point, we have not revised the full year forecast as you heard in the presentation as well. I hope that answers your question.
So you are saying the forecast for the upfront payment hasn't changed, but sharing of the R&D cost is delayed. So there has been some impact in recognizing the development cost on your company. Is that what you're saying?
Yes. But the impact is not significant enough to revise the forecast.
I see. My second question is on SEP-363856, the generic name ulotaront, Phase III study for schizophrenia indication. There has not been updates on the clinicaltrial.gov lately. Have you completed patient enrollment? Or is it still ongoing? Also, when are you expecting to see the results of efficacy primary endpoint?
This is Toru Kimura. Let me give you some update on SEP-856. As I have explained a few times before, the study has been affected slightly by the COVID-19 pandemic. The delay has been a few months. However, we should be able to obtain results in the next fiscal year.
Are you still enrolling patients?
Yes. The enrollment is ongoing.
My first question is regarding the financial results. Earlier, you mentioned the upfront payment to be recognized in the second quarter. And overall, the progress is on track. What could be the significant impact that will affect your full year forecast, both positively and negatively? Of course, for example, the upfront payment in the second quarter will be a significant impact. And it sounds like based on what we said, you're expecting the upfront payment in the second quarter. Are there any other upside and downside risks that we should be aware of? For example, revenues of 3 new products ORGOVYX, GEMTESA, and MYFEMBREE. Anything else that will affect your financial performance?
Thank you for your question. You're right. The performance of the new products will affect our financial results for this fiscal year. The other thing would be LATUDA. As Mr. Kashima explained earlier in his presentation, we shipped LATUDA last year more than usual, and the stock level was higher at pharmacies. We budgeted LATUDA sales this year, assuming the inventory will be getting lower. That's why LATUDA had a slow start this fiscal year and revenues started to restore in June as we expected.
The performance of LATUDA in the upcoming months will also affect the financial forecast. The difference of revenues in JPY 10 billion versus JPY 20 billion will greatly affect profitability. So LATUDA will affect P&L. Since we've been promoting LATUDA for a long time, we are confident we can manage.
So LATUDA was slow in the first quarter due to the inventory adjustment. Do you think the downside risks will affect the remaining quarters?
We think we can catch up in the upcoming quarters to offset the slow progress of LATUDA in the beginning of this year. However, the risk could remain as a possibility.
My second question is regarding R&D costs for Sumitovant. Because the development of the relugolix and vibegron is coming to an end, I thought the R&D spending will decrease quarter-on-quarter, but the actual spend has been flat since the fourth quarter and the first quarter. Should I expect JPY 6 billion in R&D spending in the next quarter as well? Or are you going to reduce it?
There are about 5 vant companies under Sumitovant. These companies have development pipeline, some of them are early stage. Even the approved products require some R&D costs for studies to build scientific evidence. For example, our ORGOVYX combination therapy. We also need to build more evidence for MYFEMBREE. Although the spending is not going to be as high as running a pivotal study, some degree of R&D costs will be necessary.
I understand. My last question is about the 3 new products. You said the launch uptake is on track. But for me, the uptake seems to be slow, especially given the circumstances of your midterm. When are you expecting to see them ramping up? Is it in the second quarter or the third quarter? When should we expect to see increases in revenues for these products?
Thank you for your question. In the U.S., I hear the COVID-19 situation has been improving. But Sumitovant sales reps as well as Pfizer reps were doing detailed calls remotely in April and May. Starting June, they were able to promote face-to-face more often. That's probably affected revenues.
Given the profile of ORGOVYX, the uptake would be -- would not be high from the beginning. However, I'm confident the team will meet the budget for the year. I would like to note that the spread of new variants is challenging. I hear that in the news in the U.S. We just need to watch out. But if everything goes well, the revenue goals will be achieved.
Sakai from Crédit Suisse. I have 2 questions. First is regarding your investment in Roivant. If I remember correctly, you own 12% of shares of the firm. I heard the company was going public. What are you going to do after the company go public?
Thank you for your question. Right now, Roivant is a privately owned company without much liquidity. When the company goes public and the liquidity improves, there are options for us to consider. While keeping the strategic alliance with Roivant, we will consider how to best utilize the JPY 100 billion investment we made. In other words, Roivant is in the process of going public. It's premature to discuss this because it's not publicly traded company yet. All I can say is that there are many options for us to consider.
Once Roivant becomes a public company, and of course, you don't know the percent of shares you would be holding at this point. But would you be involved in management of the company? Or are you going to stay as an alliance partner?
We will not be involved in managing the company. We have one Board of Directors represented, but as an outside Board member who is not directly involved in managing and operating company.
My next question is regarding the development program 4199. In the last financial briefing in May, you said the Phase III study would start as soon as it's ready. The pipeline list shows it's still in Phase II, however, do you have any updates, any new insights that you obtained before you begin the Phase III study, such as ways to reduce placebo effect. Please give us some update on this program.
Thank you for your question regarding our 4199. The last time I said we are close to starting a Phase III trial, but it's true the study hasn't studied yet. We are getting very close to initiating the Phase III study. We should be able to make an announcement.
With regard to the placebo effect in this therapeutic area, 4199 had some placebo effect in the prior phase. We are planning the next phase by using our technologies and expertise to minimize the placebo effect. Once the Phase III study starts, we will let you know more.
I look forward to more information then.
My first question is about gross profit margin for North America in the first quarter. I'm guessing the gross profit was low probably because of LATUDA sales, but please explain the reasons. And in this fiscal year, the budget for gross margin was 89% for North America, that seems to be low to begin with. Please explain why.
The cost as a percent of sales in North America was 7.2% in the first quarter last year versus 11.1% in this reporting period. That's an increase by 3.9%, driven by decline in LATUDA. LATUDA's cost of sales is low, but the revenues decreased in this quarter, while the cost as a percent of sales for Sumitovant products, it's relatively high. So the product mix affected the gross profit ratio.
We also recognized slight losses for devaluation of aging inventory. And the unrecognized profit of LATUDA, in other words, inventory at Sunovion has been recognized in this reporting period, but the gross margin was low. These are the reasons for higher cost as a percent of sales.
For the full year outlook, the product mix will affect as Sumitovant products will increase shares in North America revenues. And due to the profit sharing with Pfizer, the cost as a percent of sales will increase.
This is very clear. My second question is also on the financial results. The tax rate seems to be high. Please explain why should we expect higher tax rate for the midterm as well.
The income tax or pretax profit in the first quarter was extremely high, about 90%. This was driven by Sumitovant Group. Of course, the company posted losses and the pretax income was negative. Meanwhile, Sumitovant Group has not recognized tax feedback. So tax deductions were not recognized. They are treated as a profitable company like DSP. So the higher tax rate was applied. That's what's happening for profit before taxes and income tax expenses. For the full year, the trend will continue.
My last question is regarding GEMTESA. What is your sales strategy? Because the generics are also available in this market and Mirabegron is a competitor for branded product. Are you targeting patients treated with Mirabegron or patients on generics or both?
Thank you for your question. The generics are anticholinergics and anticholinergics mitigations can cause risk of dementia. Vibegron does not affect in this area. We cannot compare versus Mirabegron because we haven't done a head-to-head trial. However, if you compare what's on the label, we think we are comparable to Mirabegron in the competition. Of course, the generics have price advantages. Despite the risk of dementia, the prices are important, particularly in the U.S. but the competition versus the branded product, Mirabegron, we believe we are comparable.
I have a question about my MYFEMBREE in Europe for uterine fibroids. I forgot the brand name for Europe though. The indication has no limitation for duration of use. Why was it the case in Europe? What advantage do you think you would have because of no limitation?
Thank you for your question. We don't know why no limitation was imposed for duration of use, probably because it was supported by long-term safety data. We are not sure of the extent of the effect in the promotion for not having limitation because we haven't done much promotions yet.
My second question is on ORGOVYX in the U.S. In the fourth quarter, the revenues were JPY 400 million, and the first quarter was JPY 1.2 billion. So the revenues tripled quarter-on-quarter. I do see revenues increasing. Nevertheless, the uptake is slow to achieve the full year target. Previously, you outlined the marketing challenges, for example, switching from Lupron Depot in Part B to Part D takes time. The promotional activities are now happening face-to-face, more so than remotely. Are you making progress in the reimbursement activities? Or is it taking time to negotiate with medical institutions?
Thank you for your question. As we explained during the Sumitovant meeting, leuprolide is mostly prescribed at doctors' offices. These offices purchase depot so that they can provide injections to patients. Likewise, ORGOVYX will be dispensed at doctors' offices. So we need to have an agreement in place with each doctor's office. That's an important activity, and we are making good progress in this area.
Barker from Jefferies. Regarding the upfront payment through a new alliance, I have a question. At Myovant financial briefing, they mentioned alliance with Pfizer in Europe for relugolix in oncology area. Is this the deal you are referring to? Or is it different?
Thank you for your question. When we entered into an agreement with Pfizer last year, we knew they have such an option, but we are talking about the different alliance opportunities, and we included that in the forecast.
Kohtani from Nomura Securities. I have 2 questions. First is about LATUDA. Going back to May last year, you presented conservative guidance for LATUDA, partly because of changes in payer mix, you expected an increase in Medicaid. Later, you revised forecast upwards because I think Medicaid enrollment would not suddenly increase within 6 months' time frame.
Today, however, if you look at Medicaid data, the enrollment increased by 10 million people since March last year to 81 million people. So my question is, I would like to understand the current payer mix for LATUDA. Is Medicaid increasing? If the trend continues, perhaps you would have to reduce the price in 2022 and later, although, of course, you don't have very much time left before loss of exclusivity. So this is my first question.
The payer mix for LATUDA hasn't changed and the price hasn't changed either.
In other words, although Medicaid enrollment is increasing, payer mix for LATUDA would not change for next year.
That's right. Medicaid and payer mix for LATUDA hasn't changed.
I see. My next question is regarding DSP-5336. I thought I've heard of the name somewhere before called MLL. And actually, it reminded me of SNDX-5613 by Syndax Pharmaceuticals that's in clinic phase. It looks like Johnson & Johnson is also doing something in this area. So could you tell me what's your advantages over these more advanced programs? This is my last question.
You are right, there are existing 2 or 3 programs in the clinical development for Menin-MLL and DSP-5336 has been added in this area. Of course, we have to demonstrate efficacy and safety in clinical trials. Our plan is to demonstrate wider safety margin in clinics. This way, we will have competitive advantage.
Why do you think DSP-5336 can demonstrate a wider safety margin?
The mechanism inhibits for in protein-protein interactions and the structure of the compound helps establish broader safety margin.
Thank you.