Sumitomo Pharma Co Ltd

TSE:4506

Earnings Call Transcript 2021-Q2

[Hiroshi Nomura, executive]

Thank you for taking time to join the financial briefing for Sumitomo Dainippon Pharma for the second quarter. My name is Hiroshi Nomura. I'm the President and CEO of Sumitomo Dainippon Pharma. This is a hybrid meeting of both face-to-face and remote. I really appreciate the number of you being here to listen to the financial results. I also appreciate your interest in our company. Your feedback has been instrumental in managing this company. And I am looking forward to your questions and comments today as well.

I have an acrylic shield in front of me, so may I remove my facial mask to give my presentation? Now I would like to begin my presentation. First is the financial results. Please go to Slide 3 for financial results.

As you can see on this slide, revenues were JPY 261.5 billion, an increase by JPY 30.9 billion. The increases came from growth of Equa/EquMet and Trulicity in Japan as well as LATUDA and APTIOM in the United States. SG&A expenses increased by JPY 4.8 billion. If you look at the right-hand side, the increase is primarily driven by Sumitovant, JPY 15 billion, so SG&A expenses actually decreased in real terms.

R&D expenses also increased because of JPY 13.8 billion from Sumitovant, so the expenses for the existing parts decreased, particularly Imeglimin and napabucasin. As a result of these, core operating profit was JPY 48 billion, an increase by JPY 3.2 billion from the same period last year.

As for the changes in fair value of contingent consideration, we recorded over JPY 40 billion last year due to the unsuccessful napabucasin pancreatic cancer study, delay in alvocidib development and termination of amcasertib. This year, this has been -- this item has been normalized and we did not make much progress in the pipeline development.

As for other nonrecurring items, we recorded almost JPY 20 billion in impairment losses last year for alvocidib and amcasertib. This year, that didn't happen. Last year, favorable changes in fair value of contingent consideration was bigger than impairment losses. This year, we didn't have those things. As a result, the operating profit decreased by approximately JPY 20 billion from the last fiscal year.

Regarding income tax, deferred tax asset was reversed due to failure in the pancreatic cancer indication study last year. As a result of this, net profit attributable to owners of the parent for the quarter was JPY 37.3 billion, almost the same level as the same period last year.

Next is Slide 4. Equa/EquMet and Trulicity increased revenues, as I said in my previous slide. On the other hand, the long list of products on the bottom continue to decrease over the years.

Next is Slide 5. This slide shows revenues in the North America and China segment. LATUDA increased by JPY 9.8 billion. APTIOM increased by JPY 2.5 billion. Those 2 products continue to perform strong. BROVANA and LONHALA MAGNAIR, our nebulized aerosol devices, due to a concern over infection, revenues did not exceed the same period last year. KYNMOBI has just been launched.

As for the China segment, MEROPEN decreased from the same period last year. However, looking at the trend in the first and the second quarter, we see improvement in the second quarter. We believe MEROPEN will recover for the full year.

Nevertheless, because of the COVID-19 situation in China, hospitals are securing beds and postponing surgeries, except for emergencies. And because people are washing hands and wearing masks, prevalence of community-acquired pneumonia is decreasing. And also, generic is preferred over branded products in China. For those reasons, MEROPEN sales have been affected.

Slide 6 shows comparison of the second quarter financial results between fiscal year 2019 and 2020. I will skip this slide.

Slide 8 shows financial forecasts. Although we just revised forecasts in July, we revised forecasts again because the situation has been changing. Revenues will increase by JPY 11 billion to JPY 506 billion primarily driven by LATUDA increases. I will explain the details in the next slide. SG&A expenses will be less by JPY 4 billion, JPY 2 billion in the U.S., JPY 500 million in Japan and JPY 900 million in China because the promotional spending is underspent, so we revised the SG&A expenses downward for the -- from the last forecasts.

Meanwhile, we believe we will spend R&D expenses according to the plan. Core operating profit will increase by JPY 14 billion, mainly driven by growth in LATUDA and underspending expenses.

Regarding changes in fair value of contingent consideration, we forecasted JPY 24 billion in cost, assuming napabucasin and the legacy Tolero pipeline would make progress. However, given the progress of napabucasin and the Tolero pipeline, the spending will be about JPY 4 billion. So the difference is JPY 20 billion. As a result of these, the operating profit will be JPY 58 billion, an increase by JPY 34 billion from the previous forecasts.

Income tax expenses will increase by JPY 1 billion to JPY 36 billion. Although the operating profit will increase by JPY 34 billion, the income tax will increase by JPY 1 billion. This is because changes in fair value of contingent consideration does not help tax benefit. It does not affect income tax. And even though LATUDA will increase, the tax position today is that we don't pay tax in North America. However, transfer price adjustment will increase and will be paid to Japan. So the tax in Japan will increase. Net profit will be JPY 21 billion.

There are 2 subsidiary companies that are publicly traded in the U.S. They are not wholly owned subsidiaries, and when the equity is deducted, net profit attributable to owners of the parent will be JPY 42 billion. So the changes are bigger than the July forecasts. This is because of napabucasin reduction in expenses and changes in fair value of contingent consideration.

On Slide 9, I would like to explain the upward revision of LATUDA's sales forecast. The initial forecast was JPY 194.2 billion. In July, we revised downward by JPY 6.3 billion to JPY 187.9 billion, assuming that the unemployment rate would increase due to COVID-19 and we assumed some patients would change from private insurance to Medicaid or would not seek treatment in medical facilities.

In April, the unemployment rate was 14.7%, which was high. The third quarter projection is 17.5%. And the unemployment rate will improve to about 10% towards the end of fourth quarter. That was our assumption. When we look at August, September and recent data, the unemployment rate is about 8%, not in 2-digit numbers, so we revised the sales forecast for LATUDA again. The unemployment rate improved from July assumption.

And the other reason is an increase in 90-day prescription. Of course, 90-day prescription was available before. It's not something new, but it is increasing. As the 90-day prescription increases, pharmacies are building inventory so as not to cause shortages. These are helping LATUDA grow. So LATUDA sales will increase by JPY 11 billion from July forecasts and JPY 4.8 billion from the initial forecasts. The difference of JPY 4.8 billion is because of increased 90-day prescription and inventories, JPY 3 billion, respectively, and JPY 6 billion in total.

Meanwhile, the payer mix changed and the selling price decreased. Some of you have probably compared LATUDA revenue between the first half and the second half. LATUDA sales will increase by JPY 10 billion in the second half. I just said JPY 6 billion for 90-day prescription and inventory increases. However, these are onetime events through the second quarter and will not carry over to the third and the fourth quarters. If the 90-day prescription continues to be stable, the inventory will be stable. It does not mean the delay -- the days in prescription are increasing.

Some of the 90-day prescription through the second quarter is actually revenues that were also supposed to happen in the third quarter. We believe that the third and the fourth quarters will be neutral because the sales of the next first quarter will be part of the third and the fourth quarters. And the downside will be JPY 6 billion, and the payer mix will be JPY 4 billion. In total, JPY 10 billion downside in the second half, that is our projection for LATUDA.

Slide 10 shows the difference between July forecasts and revised forecasts. I think I have already explained the contents in my previous slide. This is just segment information, and I will skip this slide.

Let me move on to some topics. The first topic is regarding the sales structure for new products in North America. Myovant is expecting approval of relugolix at the end of the year for the prostate cancer indication and uterine fibroid indication in June next year. Urovant is expecting approval for vibegron also in December this year. We are working diligently to establish the sales structure in North America while leveraging existing infrastructure as much as possible. In other words, Sunovion's operational infrastructure will be effectively capitalized.

Of course, the field force and medical affairs have to be highly specialized. The area where synergies are being generated is in the sales back-office functions, so these parties entered into a commercial collaboration agreement to support wholesale trade and retail distribution. Without the agreement, Myovant and Urovant would have paid 2-digit fees related to wholesale trade.

Under the agreement, it's only single digit, which is a significant synergy. Under the agreement, we are able to avoid duplicate resources as well, and the savings from the trade fee are significant. A multi-specialty team of Sunovion will cover primary care physicians for vibegron. That's another thing we are working on under the agreement.

KYNMOBI was launched in September this year. This is a sublingual film for the treatment of OFF episodes of Parkinson's disease. Our approach is to focus on target doctors who are treating a number of Parkinson's disease patients to communicate morning OFF messages. So we are taking a strategic approach with about 80 reps. So we are making progress nicely with relugolix and vibegron. Things are going well as expected.

Please go to Slide 13. Next is about our sales activities in Japan. We established the CNS Sales Department. We call on psychiatrists across Japan, especially those practicing in large psychiatry hospitals. We understand the expertise required in the CNS area. It is important to provide information consistently given our limited resources and very important also to maximize LONASEN Tape and LATUDA.

So the Senior Director of the CNS Sales Department, who is also the Executive Director of the Sales & Marketing Division, will manage the CNS Sales Department directly. And that is Odagiri-san today. People make sure the stakeholders understand the intent of the CNS Department and how it will be managed. From a District Manager's point of view, they are now able to reallocate resources from CNS to existing products, Imeglimin, so we expect positive results from there.

Next is efficient and effective sales activities. Even before the COVID-19 pandemic, medical institutions were limiting access and we were working on alternative ways to approach prescribers. We are promoting digital innovation and promoting products and providing information to respond to different needs of physicians. The so-called iMR, that is remote sales reps, began promoting LATUDA in June and LONASEN Tape in October. Leveraging iMR is instrumental in helping physicians understand our product profile. As access issues continue to exist, we are also capitalizing on virtual reps in the area of diabetes and TRERIEF.

We also started initiatives to develop a new communication platform using XR* in cooperation with KDDI. As you saw in a recent press release, the idea is creating 3-dimensional contents that can be accessed using smart glasses. We are creating contents for LATUDA. VR goggles give you 360 degrees -- 3-dimensional images. The smart glasses, on the other hand, also give you 3-dimensional video of what you see from top to bottom and left and right. I have myself put on smart glasses and saw the LATUDA presentation, including the chemical structure and how a compound binds to receptors. It's a 3-dimensional video that we hope to develop more.

As for the real sales reps, we are most effective in delivering detailed calls for new product launches. Given the circumstances today, they will meet with the customers online, doing online interviews and briefing sessions as well as lectures. We are quite comfortable doing these initiatives in all districts, and we will continue to work with M3 and MedPeer and CareNet.

Next, to Slide 15. We don't have very many updates, I'm afraid, on the development pipeline. I'm sure many of you are wondering what's happening with napabucasin. As of October 21, about 74% of data have been cleaned. Some institutions, especially in Asia, are limiting access. We continue to collect data and clean data for final analysis so that we can announce the top line results by the end of the year at the latest.

On this slide, you see SMC-01 in Phase III. This is a joint development with Save Medical for mobile app for the diabetes management. This is in Phase III. That's the only addition to the list since the last update.

Next is Slide 16. As you saw in the recent press release, Sumitomo Dainippon Pharma, together with Sumitomo Chemical, established S-RACMO, a joint venture company to embark on the CDMO business in the field of regenerative and cellular medicine. The aim is to leverage Sumitomo Chemical's expertise in basic iPS and ES cell technologies and pharmaceutical contract manufacturing. We, Sumitomo Dainippon Pharma, have expertise in creating cultures with iPS cells as well as regulatory experiences. Bringing those expertise together, we are promoting the CDMO business.

We are currently under negotiation with CorneaGen for manufacturing corneal endothelial cells as well as developing a manufacturing method. After the press release, we have received interest and inquiries. The aim is to achieve over JPY 10 billion in sales by 2030.

Next is Slide 17. This slide summarizes our activities in the Frontier business. As I mentioned in the Phase III program earlier, a mobile app is being developed for the management of diabetes. The goal is to launch in Japan in 2022.

Next is a device to draw blood automatically with minimum pain. It's called OneDraw. The goal is to submit NDA in Japan in 2022. The aim is to use the device in the area of diabetes. Patients can draw blood at home and send that blood sample to a lab by mail. Very simple and convenient and very useful for patients.

Next is digital devices for dementia and nursing care. We've been working with Aikomi to develop medical devices to relieve BPSD to assist in nursing care. Sumitomo, SOMPO and Aikomi agreed to collaborate on R&D and commercialization. The aim is to start marketing in Japan in fiscal year 2021 as nonmedical devices for nursing care, but we eventually hope to gain approval as medical devices in the future.

The last one is virtual reality for social anxiety disorder. In the U.S., Sunovion and BehaVR are working together to improve social anxiety disorder utilizing virtual reality technologies. Cognitive behavior therapy is standard of care, but VR content, together with CBT, will help improve patients' conditions. The initial approval will be as an unregulated nonmedical device. After we build data, we aim to conduct clinical trials to seek approval as medical devices from the FDA.

That is the end of my presentation. I went over the financial results for the quarter and financial forecasts for the full year as well as hitting some key topics. Thank you very much.

[Kazuaki Hashiguchi, analyst]

Hashiguchi from Daiwa Securities. I have a question about the napabucasin Phase III trial data. The results were supposed to come out in July initially. Now it's postponed to the end of December at the latest. So it's been delayed by 6 months or so. As I look at other pharma companies' clinical trials, it's rare to see 6 months' delay. I'm just wondering what's happening here. What is so unique about the napabucasin clinical trial versus other anticancer drugs? Why is such a long delay happening?

[Hiroshi Nomura, executive]

Thank you for your question. I don't know other companies' protocol and study sites, so I cannot make a comparison here. The medical institutions that are part of the napabucasin trial have, I'm sure, participated in other anticancer drug studies. Of course, we are not just waiting to see what happens, and the medical institutions are not lowering priorities of the napabucasin trial. Sumitomo Dainippon Pharma oncology is in control of the situation and working with study sites. The delay is simply the access issues due to COVID-19. I don't have the answer or anything beyond that.

Outside oncology, the SEP-856 study is slightly behind in patient recruitment. Napabucasin is not the only study that's been affected due to COVID-19, and I cannot speak for other companies.

[Kazuaki Hashiguchi, analyst]

My next question relates to the slow patient recruitment of SEP-856 that you just mentioned. I'm looking at slides 25 and 26 for product launch target. Not many new updates have been made on these slides. Which programs do you think will be delayed as far as you know today?

[Hiroshi Nomura, executive]

Thank you. Napabucasin is the only one that's been delayed. Patient recruitment for SEP-856 was affected by COVID-19, but that does not affect the launch target. At this point, we don't expect delays except for napabucasin. I would like to invite Kimura-san to also answer your question.

[Tatsuya Kimura, executive]

Just to add a few things, relugolix and vibegron are making progress according to plan without delays. As for regenerative medicine early-stage pipeline, we are planning on starting a clinical trial for the treatment of AMD, age-related macular degeneration, during the fiscal year. However, the study will probably not start this fiscal year. As for SEP-856, some hospitals were temporarily closed or limiting access, so it's been difficult, but we see signs of improvement.

[Takashi Akahane, analyst]

Akahane, Tokai Tokyo. I have 3 questions regarding the financial results for segment and key topics. On slides 4 and 5, you said diabetes treatment increased revenues, especially Equa/EquMet in Japan. In the U.S., LATUDA grew because the unemployment rate was better than expected. I guess that makes sense. My question is about China. Wuhan recovered from coronavirus before other cities, but the negative impact is really generic. Generic is preferred over branded product. Is that the reason? That's my first question.

[Hiroshi Nomura, executive]

The number of surgeries have decreased in China. Hospitals are reserving beds for the COVID-19 situation. Some surgeries are postponed unless they are urgent. The opportunities for Sumitomo's antibiotics product to be used have decreased as a result. I also mentioned the decrease of community-acquired pneumonia, so the use of MEROPEN for patients with pneumonia has also decreased.

The use of generic is probably #3 in terms of reasons for the decrease, but the impact is not visible enough to see in numbers. As I said before, MEROPEN hit the bottom in the first quarter but restored in the second and the third quarters. In the United States, LATUDA is performing strong. LATUDA is affected by unemployment when it's compared to the same period last year. Unemployment affected LATUDA negatively, but the prescription volume is strong even compared to the second quarter last year. Although there are competitors in the market, LATUDA prescription is not largely affected. The demand remains strong for LATUDA.

[Takashi Akahane, analyst]

My second question is regarding segment income. I'm looking at the supplementary financial data. The segment income did not increase for Japan, although revenues increased. Is this because Equa/EquMet are not profitable? In North America, however, it grew by JPY 8.8 billion or 14%. Is this because of LATUDA?

[Hiroshi Nomura, executive]

Now with regards to Equa/EquMet, we didn't say they are not profitable products. Novartis achieved nearly JPY 50 billion in NHI price basis. We continue to promote Equa/EquMet, and the profit we gain is within our promotional efforts. The income we achieve is not as high as the income we get from in-house-developed products. Meanwhile, LATUDA continues to grow in North America. And cost as a percent of sales is low for LATUDA, helping the segment income.

[Takashi Akahane, analyst]

My last question is about sales activities in Japan. You're offering different ways to interact with physicians under COVID-19 through remote dedicated reps, real reps, and you also mentioned CareNet and the M3 channels. How are your sales activities quantitatively allocated? What proportion of sales activities are taking place in which channels?

[Hiroshi Nomura, executive]

We don't have data to show you. With access issues before and after COVID-19, we've been trying to understand the best way to reach out to our customers. We can meet some customers face-to-face, but that's not always the case. According to the recent data we have, we can visit about 50% of the institutions.

And customers have different needs to receive information. Some prefer face-to-face, while others are comfortable with meeting on Zoom or iMR. Some prefer getting information from MedPeer, M3 or CareNet. Different customers have different needs. We just want to be ready to address those needs so that we can provide information in any means. We are investigating where the needs are. Perhaps the needs are different in each therapeutic area.

[Fumiyoshi Sakai, analyst]

Sakai from Cr篓娄dit Suisse. My first question is about revised forecasts for LATUDA. In the last forecast in August, I believe you estimated 25 million to 40 million people losing their jobs in the United States, and that would cause patients on LATUDA to change payers from either Medicare or commercial insurance to Medicaid. In the revised forecast, that prediction was not necessarily true. Of course, unemployment rate affects payer mix. I just want to understand the extent of the impact. Do you have any numbers? LATUDA payer mix is, I believe, 36% in Medicaid and about 30% in Medicare, and the rest is commercial. Has this changed?

And also, as a follow-up question, in the presidential election, the debate is whether the Medicare eligibility should be lowered from 65 to 60 years old. Have you done any simulation if this actually takes into effect?

My next question is for Kimura-san about SEP-363, 856 and DSP-1181 studies. Why did you start these studies in Japan? I thought it would make more sense to do these studies in the U.S. So please explain why. And my last question is regarding Roivant shares. You were going to acquire 11% of shares at JPY 1 billion. As far as I can see in the cash flow, I don't see that happening. Did you acquire the shares, and are you moving on to utilizing the VX Technologies?

[Hiroshi Nomura, executive]

Okay. I will start from the last question first. We acquired Roivant shares last fiscal year, that's why you don't see them this year. JPY 1 billion was recorded to acquire Roivant shares and JPY 2 billion for 5 bank companies and drugs owned and the digital innovation and digital infrastructure platform. These transactions completed last year. With regards to LATUDA payer mix breakdown, I don't have details of changes. We monitor ASP to understand the changes in payer mix. We will provide information once it becomes available. And Kimura-san?

[Tatsuya Kimura, executive]

Yes. Regarding the DSP-1181 and SEP-856 development pipeline and the reason why we started the 1181 program in Japan, we've been running early clinical research and clinical studies over the last few years in the U.S. in the therapeutic area. That has been the case. However, the Japan team also is gaining experience and insight. We decided to do a Phase I for DSP-1181 because the end point involves measuring pupil size, which we can handle very well in Japan.

As for SEP-856, it's an interesting asset. We're excited about it. The clinical trial in Japan has been delayed. After Phase I is completed in Japan, we will catch up the global Phase III. That's where we are today.

[Hiroshi Tanaka, analyst]

Tanaka from Mizuho Securities. May I ask about napabucasin? You mentioned 74% of data have been cleaned. Is the rest of data sitting in Asia? Do you see any differences in countries?

[Hiroshi Nomura, executive]

One of the differences is countries, the rest of data are in Asia or America. Even within America, some regions have limited access to study sites. The same goes to Asia as well. Some hospitals are not allowing access. That's where we see some delays. Over time, we are able to visit more and more institutions, or we can perform data cleaning remotely in more of the institutions. So I think we will make good progress in cleaning the remaining 26% of the data.

[Hiroshi Tanaka, analyst]

And you said the top line results will be available by the end of the year at the latest. After that, you will announce the new midterm business plan. Is that the plan? Can we expect to hear the midterm plan in April?

[Hiroshi Nomura, executive]

We would like to present the midterm business plan as soon as possible. The midterm business plan is not only affected by napabucasin, but also the strategic alliance with Roivant. Fiscal year 2022 is not a so-distant future. You are probably most interested in post-LATUDA. We will be ready to present our midterm business plan. If napabucasin results are taking longer, we need to come up with ways because it's not good to take too long to revise the midterm business plan.

[Hiroshi Tanaka, analyst]

Can we expect to see the plan in the spring time?

[Hiroshi Nomura, executive]

Yes, I hope so.

[Hiroshi Tanaka, analyst]

And I'm looking at your securities report, where intangible assets of relugolix and vibegron are mentioned. Relugolix patent terms is only through 2029. Will it be amortized evenly?

[Hiroshi Nomura, executive]

Relugolix substance patent is through 2029. But the patent in women's health and prostate cancer are different. For women's health, the patent is until 2029. The women's health indication is not a monotherapy. It's a fixed-dose combination therapy with hormonal therapy. That patent is investigated for exclusivity.

[Hiroshi Tanaka, analyst]

My next question is whether you revised Sumitovant forecasts or not and because it's not available on the slide.

[Hiroshi Nomura, executive]

No. Sumitovant forecasts are the same, although expenses will be slightly lower.

[Hiroshi Tanaka, analyst]

So 2 indications will be approved in December. You already recorded JPY 3.7 billion for upfront payment of the license agreement. On top of that, you're expecting 2 more products. Do you think you will exceed JPY 4 billion?

[Hiroshi Nomura, executive]

We are hoping to launch new products by the end of the fiscal year. We don't know however exactly when we can expect revenues in the initial uptake, so we included minimum sales in the forecasts. If the uptake is faster, we see more sales if there are no delays for any reasons. The sales this year will remain at JPY 3.7 billion. It's a matter of timing.

[Hiroshi Tanaka, analyst]

My last question is regarding the second indication for SEP-856. When do you decide the second indication? As was the case for LATUDA, bipolar indication following schizophrenia indication helped to increase the sales for LATUDA. The second indication is important because it affects the pricing, so I'm wondering when you would choose the second indication for SEP-856.

[Hiroshi Nomura, executive]

It's true that the first indication with LATUDA was schizophrenia. Many patients with schizophrenia are treated under Medicaid, which pushes down the price. Patients with bipolar depression are mostly covered by commercial insurance. It's not that we increased price without stopping because the initial prices were different to begin with. It's true that the mode of action is new with fewer akathisia side effects, but that alone is not going to be enough to win the entire schizophrenia market. So the second indication is important for us. I will ask Kimura-san to respond.

[Tatsuya Kimura, executive]

SEP-856's second indication is an important topic for us. We are having discussions each day as we speak. We even talk about the third indication as well as the second indication. We don't know when to decide because we don't have a hard deadline yet. It's an interesting asset. The more we analyze data, the more we learn that we could have more indications as possibilities. And that makes our internal discussions more complex. Once we know the direction, we will let you know.

[Shohei Oda, analyst]

Oda from Morgan Stanley. I have a question about LATUDA. The ASP didn't decrease much, so the price decrease is now included in the second half forecasts. The decline of revenues from the first to the second half is because of the 90-day prescription and inventory increase rebound.

[Hiroshi Nomura, executive]

Yes. The difference between the first and the second half is primarily driven by the 90-day prescription and pharmacy inventory.

[Shohei Oda, analyst]

If the 90-day prescription continues to be at the current pace, the inventory level will not go down suddenly. So do you think that revenues will be better than the forecast? Do you mean the revenues will be higher when the inventory level goes down?

[Hiroshi Nomura, executive]

What I was trying to say is that the 90-day prescription is increasing and the pharmacy inventory level is not decreasing. In other words, if the current pace is maintained at the end market, there is no reason to reduce pharmacy inventory. Yes, if the 90-day prescription continues, the pharmacy inventory level will not decline. So that's our forecast.

[Shohei Oda, analyst]

My next question is about the relugolix endometriosis indication. NDA submission will be filed with SPIRIT extension study data that's ongoing. Is this correct?

[Hiroshi Nomura, executive]

Yes. The plan is to submit NDA after the SPIRIT extension study data become available.

[Shohei Oda, analyst]

I believe the SPIRIT extension study was due to complete in December this year. According to the ClinicalTrials.gov, that's been postponed by another year until December next year. Is this because of COVID-19?

[Hiroshi Nomura, executive]

I don't know the details. It's not my understanding that the delay will be that long, even with COVID-19 impacts. They are a publicly traded company, so I don't want to comment much. But it's not my understanding.

[Shohei Oda, analyst]

You said both vibegron and relugolix are making progress according to the plan. The press release announced results of relugolix not achieving statistical superiority for prostate cancer survival compared to leuprolide. How is this going to affect your revenue projection for prostate cancer indication? The survival data not demonstrating statistical superiority had lowered your sales expectations perhaps?

[Hiroshi Nomura, executive]

The stock price of Myovant Sciences decreased slightly when the press release was issued. There was a sense of disappointment in the market. If the study demonstrated statistical superiority, that would have been nice to have. That result alone would not change our projection. And it's demonstrating noninferiority. And relugolix has many differentiation points over leuprolide. The revenue projection hasn't changed for us.

[Hidemaru Yamaguchi, analyst]

Yamaguchi from Citi. My first question is regarding assumption for revised forecasts. What is the difference between the initial second half and the revised second half in a nutshell? In other words, was the forecast revised based only on the positive first half results, or both the first and the second half are better than the initial forecasts?

[Hiroshi Nomura, executive]

Thank you for your question. We normally revise both the first half and the second half so that we are looking at the full year once again. We revise forecasts based on the recent results and trend.

[Hidemaru Yamaguchi, analyst]

My next question is about the co-promotion agreement and sales structure between Sunovion and Urovant company. Sunovion's financial results are available as a North America segment. Myovant and Urovant are part of it. The co-promotion deal and expenses will be recorded in Sunovion's financial statement, or will they be handled under intercompany transactions?

[Hiroshi Nomura, executive]

It's an internal transaction. We own 54% of Myovant shares. Anything beyond that will not be eliminated and will be on P&L. Urovant is 74%, so the remaining 26% is other shareholders. That part will hit our P&L.

[Hidemaru Yamaguchi, analyst]

I see. My last question is about SMaRT for the new CDMO business. The mid- to long-term sales will be over JPY 10 billion. What is the uptime today for the SMaRT manufacturing facility? And what will be the uptime when you reach over JPY 10 billion in sales?

[Tatsuya Kimura, executive]

There are 3 sites in SMaRT. We call them suites. One of them is running in full swing at 100% capacity. 2 of them are probably 50% uptime. During clinical trial, we don't have to manufacture products constantly. For example, 10 subjects are enrolled, and we manufacture for the 10 patients and wait for the results. So we have time. And the S-RACMO are also using the facility to be ready for CPC contract manufacturing.

[Hidemaru Yamaguchi, analyst]

So will you establish a different function in the future?

[Tatsuya Kimura, executive]

Yes.

[Hidemaru Yamaguchi, analyst]

So the manufacturing facility is SMaRT in the beginning and one more in the future?

[Tatsuya Kimura, executive]

Yes.

[Hiroshi Nomura, executive]

Thank you.

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