Sumitomo Pharma Co Ltd

TSE:4506

Earnings Call Transcript 2023-Q2

[Hiroshi Nomura, executive]

Thank you for attending our financial results briefing.

As you are already aware, we have decided on and are forecasting a loss for Q2 and for the full year. We sincerely apologize for this loss and for the forecast loss for the full year. I would now like to give a presentation in line with the available slides.

Please see Page 3. Revenue was JPY 319.3 billion, an increase of JPY 25.6 billion. However, the impact of exchange rate fluctuations was JPY 38.8 billion, a very large impact. In Japan, sales have actually declined by about JPY 10 billion. This is due to factors including item returns and drug price revisions.

In the U.S., there is a considerable foreign exchange gain. As you will see later, we received USD 270 million from Otsuka Pharmaceutical in fiscal year 2021. So there is a difference in real terms. However, from the perspective of product sales, you will see that real sales are growing. As for China, we had anticipated that volume-based procurement would start in July 2022. But since it actually started in November, we have made an upward revision here.

Selling, general and administrative expenses grew in real terms, even excluding foreign exchange differences. This is based on an increase in sales expenses at Sumitovant.

Next, other revenue and expenses within the core. This figure is 0 because we have not yet been able to sell the assets, but it is included in the forecast. The change in fair value of contingent consideration is JPY 1.3 billion. which is the result of a review of the fair value of contingent consideration for TP-0903, the Beat AML program, which had an investigator-initiated clinical study, which was discontinued. The results of the review of the fair value of contingent consideration were in a positive direction.

Then regarding other nonrecurring items, as you know, we have impaired KYNMOBI, patent rights and other assets. That is JPY 54.4 billion. As a result, we are sorry to report an operating loss of JPY 28.9 billion. A large figure of JPY 49.9 billion in financial income and expenses is due to the foreign exchange gains of JPY 49.7 billion from the translation of our financial assets.

Pretax income is JPY 21 billion, while corporate income tax is JPY 36.3 billion. The situation here is a little bit irregular but the U.S. subsidiary has almost no taxable income, while the domestic subsidiary have taxable income.

The foreign exchange gains that I explained earlier, are very large so the tax burden is large in some cases. The amount of corporate income tax is very large compared to pretax income.

As a result, for the second quarter of FY 2022, there was a loss of JPY 15.2 billion. And the loss for the quarter attributable to owners of the parent was JPY 7.3 billion.

This slide covers the major impairment loss on KYNMOBI. This was in October 2016 when we acquired the Canadian company called Cynapsus for $635 million. The reason for the acquisition was that there was an unmet medical need at the time of episodes of Parkinson's disease. In contrast, the injectable apomorphine was available, but it was not used that much. Cynapsus anticipated that there is an opportunity and developed a sublingual film version of apomorphine. We acquired it.

Phase III study has not been completed, yet. So we continued with Phase III study. It was launched in September 2020. In addition, under COVID-19, we have worked to provide information to hospitals despite issues with access difficulties for both ourselves and patients. In spite of this, to date, sales have been in the single digits. We were aiming for a peak sales level of $500 million, but unfortunately, we were far below that level. We have been examining why this is the case. The reason for the poor sales and the revision of the revenue forecast is that the number of Parkinson's disease patients with the need for rescue drugs was different from what we had anticipated.

It's true that patients who have OFF episodes usually have these OFF episodes after about 5 years of taking L-dopa. For such patients, the frequency of L-dopa administration is increased in order to shorten the duration of OFF episodes as much as possible. We also thought that there might be demand for this type of treatment for patients with relatively mild Parkinson's disease. Therefore, we initiated -- we initially thought that there might be a great deal of unmet medical need for OFF episodes, but we found that this was not necessarily the case.

If we look at the percentage of patients with Parkinson's disease, who use OFF episode medications from January to December 2021, we find that only about 0.1% of patients use these medications, which is a very small percent of patients. The other thing is the safety profile, which we were very careful about during the due diligence at the time of acquisition. However, in the course of the Phase III studies, we heard that there are some patients who stopped taking this medication because of oral side effects.

These were the main factors but in essence, KYNMOBI was widely taken up for the treatment of OFF episodes in patients with Parkinson's disease. On the other hand, there were competing agents. I will omit the name of the company and the product, but in FY 2021, it seems to have generated sales of approximately $30 million. We do not know whether this drug is at a very satisfactory level or not, but it is an inhaler of L-dopa. L-dopa was originally useful OFF episodes in Parkinson's patients. So it may have been used because of its high ability with that area.

We have not been able to fully analyze the specifics of this. But as I mentioned earlier, KYNMOBI has been struggling for a number of reasons. Based on these circumstances, we have made a sales forecast and has come to the conclusion that even if we continue to operate at this level, we will not reach a scale that will allow us to recover our investment. We spent $635 million on this acquisition. But unfortunately, we have been forced to write it down. We are going to discontinue the promotion of KYNMOBI and we are going to look for companies that are interested in the OFF episodes of Parkinson's disease in the future.

As for the sales reps who promoted KYNMOBI, some will move to working with GEMTESA, and the rest, unfortunately, will leave the company.

These are domestic sales. As I mentioned earlier, this is a decrease of JPY 10 billion compared to the same period last year. The other part is minus JPY 9.8 billion. Since REPREGAL was returned to Takeda Pharmaceutical Company Limited, there's a decrease of JPY 7.1 billion. The NHI price revision has an effect of minus JPY 6.2 billion overall. As for LATUDA, we are seeing relatively steady growth. We are also working to expand sales of LONASEN Tape, other or more by offering prescriptions that meet the needs of various patients, providing information remotely, holding vectors on the web and providing information on skin conditions, which is the most important part of the treatment.

This slide covers North America and China. The exchange rate has a large impact on sales of LATUDA. In U.S. dollar terms, sales of LATUDA are increasing. Then there is APTIOM and RETHYMIC. BROVANA has already reached loss of exclusivity, which unfortunately means a decrease in sales. ORGOVYX, MYFEMBREE and GEMTESA are all seeing increasing sales. The other part, as I mentioned earlier at the beginning is the $270 million that we received from Otsuka Pharmaceuticals, which is written here is the difference in comparison. Looking at the U.S. dollar figure alone, the decrease appears to be $135 million. But when converted to yen, there is a foreign exchange gain of JPY 35.3 billion. So the apparent increase in revenue is JPY 20.5 billion.

In the China segment, as I mentioned earlier, the volume-based procurement for both MEROPEN and LATUDA, which we had expected to start in July 2022, is starting in November, which results in a significant increase compared to our forecast. This is a segmented comparison with the same period of the previous year, which I will not explain.

This slide covers ORGOVYX. There has been a 20% Q-o-Q increase. The GnRH receptor antagonist, formulation in advanced prostate cancer has gained a 55% monthly market share. This means that it has gained more prescriptions than the competing injectable formulation. We are also very positive about the expansion of the market.

This slide covers MYFEMBREE. Sales have not grown that much yet, but they are up 55% Q-o-Q. Although only one company has launched a drug in the same category, more than half of all prescriptions, that is 67% of new patient prescriptions are for our product. This means that we are growing relatively steadily. We also received approval for endometriosis in August 2022. So we have been jointly promoting this with Pfizer since then.

This slide is on GEMTESA. The market share among beta 3 agonist at 11.3% has finally reached a double-digit level. It has always been said that the GEMTESA coverage is a little low. This is not reflected here, but starting from January 2023, the Medicare Part D coverage will be 28%. So it will the 58% here or about 60%. And towards the end of the fiscal year 2022, we plan to increase the commercial and Medicare Part D coverage here a little more to the upside.

Also, as I mentioned earlier, starting from October 2022, we have been working with a co-promotion partner 30 Sunovion sales reps who were working on KYNMOBI will be assigned here for a total of 80 people to be in charge of primary care. We have identified approximately 8,200 targets of hospitals and clinics of primary care physicians through targeting within Sunovion's territory. Therefore, we are going to strengthen primary care by promoting about 100 cases per person.

Revised financial forecast for FY 2022. The forecast for revenue is JPY 604 billion. The real increase excluding the effect of exchange rate fluctuations is also shown here. Sales in Japan are forecast to decrease. This includes those of Trulicity because it will end in December 2022. So comparing conventional forecast, it will decrease. As for North America, the main products are in line with the forecast, but there are some onetime revenues that were not originally planned. As for China, as I mentioned earlier, the increase is due to the delay in volume-based procurement.

Forecast for selling, general and administrative expenses have also increased. This is because Myovant will be promoting endometriosis. So there has been a slight increase in cost for that. This was not originally included in the budget.

Next, other operating income and expenses are areas where there is an increase over the FY 2022 second quarter numbers. In Sunovion, LATUDA will be facing loss of exclusivity in February 2023. So we will continue to promote until just before that. Early in 2023, the sales reps will be displaced. So these costs are also included in this figure. Including these costs, operating profit is expected to be negative JPY 30 billion. And the net loss attributable to the parent is currently projected to be a negative JPY 15 billion. This is a segment-by-segment comparison of the forecast and the revised forecast, which I will skip over here.

This slide covers entering into a definitive agreement with Myovant to acquire all outstanding shares already Sumitovant owned. This is a positive initiative. In the meantime, we understand that ORGOVYX and MYFEMBREE are growing steadily. As you know, although we have the majority, we are not necessarily in a position to reflect 100% of our intentions in the management of the company. If we are to use the cash flow from ORGOVYX and MYFEMBREE for our future growth, we have no choice but to increase the share to 100%. We have been working to achieve this 100% conversion. We have agreed with the special committee of the other party to a definitive agreement at a price of USD 27 per share. The key funds will be provided in the short term by cash on hand and borrowings from the bank. The acquisition will not generate goodwill.

But rather, the difference between the noncontrolling interest in Myovant and the consideration paid which is probably more than the consideration paid will be treated as a decrease in capital surplus. So there will be no impact on the P&L in the future.

I did not include the impact of this acquisition of Myovant as a wholly owned subsidiary in the earnings forecast I mentioned earlier. Depending on the timing of the closing, various expenses such as contingency fees to advisers or liquidation of equity compensation earned by employees will be determined at that time. At this point, we believe it will happen in the first quarter of calendar year 2023. If that is shifted, it will be in FY 2023. At the moment, we are not necessarily clear on the timing of this. So it is not included in the forecast.

Next is research and development. The red text indicates that changes have been made in the area. Regarding the oncology area, you see many programs in red text. While previously grouping all solid tumors together, we now classify based on cancer type. We have a number of programs, but here, we would like to focus on TP-3654 program and DSP 5336 program. In the psychiatry and neurology area, we have DSP-0378. Details attached to the document. So I hope you will take a look at them later.

This is the development status. This is something that everyone already knows, and I will admit it because it will appear later. But this is the first time DSP-0378 has been visited here, DSP-6745, which is for psychiatric symptoms associated with Parkinson's disease has been discontinued. DSP-7888 is a cancer peptide vaccine. We have decided to stop the ongoing solid cancer studies, and we'll consider the future development policy. The status of TP-0903 is, as I mentioned earlier, the development policy for this agent itself is currently under review.

As for METGLUCO we are told that this indication was obtained through a public knowledge application in the context of making infertility treatment covered by insurance. KSP-1007 is a drug for AMR. It has the status of QIDP, which means that the approval review will be shortened and the so-called data protection period will be extended for 5 years. It is approved. This is a joint development with Otsuka Pharmaceutical.

There are some concern that the first indication schizophrerenia might be delayed. Because of the delay in recruiting patients due to Russia's invasion to Ukraine but we are now evaluating the possibility that the top line will be released by the end of 2023. According to this plan, the market launch would be in FY 2024. So it is expected to go as scheduled.

The second indication, adjunctive major depressive disorder has already been announced, and we have heard that a 2 group studies will be conducted. We are planning to conduct a study for the third indication of generalized anxiety disorder in which we will take the lead.

This slide covers major events in FY 2022. In the psychiatry and neurology area, as I mentioned earlier, a study of adjunctive major depressive disorder has begun. In the field of regenerative medicine services therapy, we began construction of a CPC in the U.S. in August 2022 to manufacture products derived from refining and other iPS cells. We intend to start manufacturing products using this equipment in FY 2024.

Next is the use of endometriosis approval. Next in the frontier business, we have launched the MELTz Neurorehabilitation device for hand/fingers. Regarding the VR content for Mental Health, there are some delays here. That concludes my explanation based on the materials. Thank you for your attention.

[Kazuaki Hashiguchi, analyst]

Thank you for your presentation. My name is Hashiguchi from Daiwa Securities. First of all, regarding the revised forecast for this fiscal year, I understand that you have revised the U.S. sales upwards in U.S. dollar terms, but I think you explained that this was mainly due to the change in assumption regarding the onetime payment. I was wondering if you could comment to the best of your ability on how you will raise or lower your forecast for MYFEMBREE, ORGOVYX and GEMTESA.

[Hiroshi Nomura, executive]

Yes. Thank you. There is no specific changes for MYFEMBREE, ORGOVYX or GEMTESA.

[Kazuaki Hashiguchi, analyst]

You mean you haven't changed it?

[Hiroshi Nomura, executive]

That's right.

[Kazuaki Hashiguchi, analyst]

Also, I believe that you have indicated in the past that you would consider various measures to support earnings in FY '23 when performance is expected to be at its worst. Since you are forecasting a loss for the current fiscal year as well, is there a possibility that such things will be implemented ahead of schedule in the second half of this fiscal year and beyond.

Also, is there a possibility that some upward swing factor will emerge in the future, that is not included in the current forecast? I think there are a lot of projects that will take place this year and next year and depending on the deal, there may be other parties. So the timing may be this year or next year. What are your thoughts at this point in time on what you're going to do from this year to next year and how you're going to tackle these projects that are not extension of past projects?

[Hiroshi Nomura, executive]

Yes, in terms of the upside to core operating profit, I didn't go into details about the asset sales earlier in the forecast. But we have already sold $75 million worth of assets. And we have already sold the Sunovion LOE that came in. We also mentioned that we will be selling priority review vouchers. We are also considering the sale of assets, although I cannot be more specific. This is the upside.

Then as for the potential downside, as I mentioned a little earlier in the section of making Myovant subsidiary, depending on the timing of making it a subsidiary, we may have to purchase the potential shares held by employees, which would be an expense. Then there will be things like employee retention, onetime success fees for advisers and so on.

Therefore, there are 2 possibilities. One is to slightly increase the upside and the other is to increase the cost.

[Kazuaki Hashiguchi, analyst]

In what you just said, I got the impression that the upside was already in your forecast.

[Hiroshi Nomura, executive]

There are some asset sales that are not included in the forecast. As you mentioned earlier, we are in the process of discussing with this matter with the other party, but whether it will be resolved by the end of this fiscal year is still under undetermined factors. So as I mentioned earlier, the sale of Sunovion's items that have already reached LOE and the sales of priority review vouchers are already in our forecast. In addition, we are in the process of selling other assets.

[Kazuaki Hashiguchi, analyst]

My last question is about the sales structure of the Japanese business. I've asked about this before. But your products are being returned to the originator. Do you have any ideas on how to prevent contraction of the business? Or when considering the regional balance between the U.S. and Japan, do you think that Japan has no choice but to have a reduced role to some extent? Could you tell us your thoughts on this?

[Hiroshi Nomura, executive]

I don't necessarily think it's the case that the Japan business will contract. Yesterday, we had such questions from the press. The contract with Eli Lilly Japan, will expire at the end of December 2022, but I believe that the capabilities of our sales force or rather our sales reps are well understood by our partners. Therefore, I believe that there may be more opportunities for this partnership. However, if there is a time when a partnership will eventually run out or come to an end, I think it will be difficult to continue such a bank. This may not be immediate, but in the long run, we will have our own product coming out for the psychiatry and neurology area.

While launching our own product, we will also launch product of the regenerative medicine cell therapy in FY 2024 if all goes well. And then the Frontier business products will also emerge. In this context, I think that gradually shifting the business type a little bit over a long period of time is one option to consider. Thank you very much.

[Hidemaru Yamaguchi, analyst]

Yamaguchi from Citigroup. My first question, I think there are a lot of activities taking place right now in the midterm business plan. And you mentioned that the next fiscal year will be tough after factoring in these activities. I guess it depends on M&A activities, but could you tell us when we expect to announce the midterm business plan?

[Hiroshi Nomura, executive]

Yes. As you just pointed out, it depends on the M&A. So for example, I think, it usually happens in February 2023. But in this case, that may not be possible. Therefore, we expect to have an opportunity to explain the new mid-term business plan when we announced our financial results in May.

[Hidemaru Yamaguchi, analyst]

Also, the Myovant contract is already signed, and I think it is almost completed. But you also bought Eurobond in the process. Could you talk about any possible plans to make Myovant a subsidiary if the timing was right? I'm not sure about the timing of the decision given the company is still in the red and buying would rather reduce profit. What was the reason for that decision?

[Hiroshi Nomura, executive]

Thank you. The timing of this is that we originally thought that, well, ORGOVYX was fine. For MYFEMBREE, uterine fibroids and endometerosis would be roughly 1:1 ratio in sales. Therefore, if we did not gain approval for endometriosis, MYFEMBREE would go would only go about half as far as we had thought it would. Although it turned out not to be the case, we thought it would be very important to get this approval. Therefore, we made preparation from the time when approval was obtained or not and we're ready to take action as soon as the approval was obtained.

[Hidemaru Yamaguchi, analyst]

Okay. And lastly, regarding ulotaront, it is likely that the top line will be available in second half of 2023?

[Hiroshi Nomura, executive]

Dr. Ikeda would you like to take this question?

[Yoshiharu Ikeda, executive]

Yes, it will be in 2023.

[Hidemaru Yamaguchi, analyst]

In second half of the year?

[Yoshiharu Ikeda, executive]

Yes, the market launch will be in FY 2024.

[Hidemaru Yamaguchi, analyst]

You mean within FY 2024 the fiscal year to March 31, 2025?

[Yoshiharu Ikeda, executive]

Yes. So probably early 2025. In terms of calendar years, we believe so.

[Hidemaru Yamaguchi, analyst]

Okay, I understand. In addition to schizophrenia, there is also adjunctive major depressive disorder and GAD. I understand that schizophrenia is small in terms of patients and potential, but I would appreciate it if you could give me a rough idea of the potential market for the major depressive disorder and also generalized anxiety disorder.

[Hiroshi Nomura, executive]

In case of major depressive disorder, it is not necessarily true that there is satisfaction with existing medications. With existing drugs, simply raising the dosage can lead to various safety issues and other problems. However, since ulotaront has a mode of action that is different from existing drugs, it is expected to have a sufficient add-on effect. And I believe that we will be able to capture a large market in the adjunctive major depressive disorder. As for generalized anxiety disorder, I think there are still many issues with existing drugs in terms of their safety profile. We believe that ulotaront we'll be able to solve such problems to some extent. And we believe that it will be sufficient to meet unmet medical needs in terms of efficacy and safety.

[Toru Kimura, executive]

As Mr. Nomura explained in terms of future importance, of course, it depends on the drug price and insurance coverage. So I will refrain from mentioning numbers now. But in terms of the number of patients, these are -- there are solid statistics. For example, schizophrenia, as you know, is around 1% of the total population. And in the U.S., it is estimated at 1.6 million or 1.7 million people have been diagnosed with the disease. In contrast for aMDD or major depression, the number is 17 million in the U.S. and 2 million in Japan.

Core GAD or generalized anxiety syndrome the number is about the same, although slightly less, 13 million in the U.S. and over 1 million in Japan. For each of these satisfaction with existing drugs is very low. In the case of GAD, in particular, there is still lack of a proper branded drug. So we are in agreement with Otsuka Pharmaceutical that if ulotaront can demonstrate the pharmacological effect, we expect and provide safety, we -- it will lead to a major business.

[Hidemaru Yamaguchi, analyst]

Finally, just briefly, I think you took Breakthrough Therapy designation. Is it still ongoing? If so, is there some ways you can make use of it or use it to accelerate development?

[Toru Kimura, executive]

The best use of this would be to speed up the approval process after the application is submitted. In that case, revenue of LATUDA will be gone in the U.S., and we are in a very difficult situation. But I think that, that place where we can get such an approval review more quickly, than with ordinary drugs is the place where we can see the most visible effect.

[Hidemaru Yamaguchi, analyst]

The Breakthrough Therapy designation is still valid, right?

[Toru Kimura, executive]

Of course.

[Fumiyoshi Sakai, analyst]

Sakai from Credit Suisse. What is the route that the funds will be raised to make Myovant a wholly owned subsidiary, and will this be funded in the U.S. or in Japan? Naturally, with interest rates rising, I don't think it is possible to arrange financing as in the past. I know that the next fiscal year is a difficult time, but I wonder if raising these funds will weigh on your ability to hold off on so-called strategic investments. Could you first tell us how you are thinking about this area, including the use of the balance sheet.

[Hiroshi Nomura, executive]

Yes. The procurement route, we have quite a bit of U.S. dollar funds for this. We received transfer pricing adjustments and other payments in the form of U.S. dollars from the sales of LATUDA. In addition, we have U.S. dollars. The consideration for the sales of LATUDA from Japan in U.S. dollars, so we have U.S. dollars in some of our own funds. The rest of the money is in yen and then borrowed from banks, which are yen funds. Interest rates are lower in Japan, but the gain is very big at this moment. So there is a weight on that side of the equation. Therefore, we will probably be able to verify the efficiency of our investment in Myovant under the weak yen situation.

As for you mentioned of strategic investment, I think it will be very difficult to make large investments at least around in 2023 to 2025. For our part, we are working to bring ORGOVYX, MYFEMBREE and GEMTESA to the blockbuster level. And we are also working to bring ulotaront to market. In FY 2024 in Japan, we will commercialize the treatment of Parkinson's disease using iPS cells. We also have a variety of frontier business products, and we are planning to bring these to market as well. We will focus on doing those things first. We will also continue to grow programs that will support the mid-2030s and beyond, such as those at the Phase I study or a preclinical stage. We will continue to develop our own products during this period while conducting selective prioritization.

Although we must also ensure that this is them properly. At this point in time, I think it is unlikely that such a major investment of money in other areas will occur.

[Fumiyoshi Sakai, analyst]

Okay. Thank you. Also, regarding your R&D portfolio, you have announced the discontinuation of several development projects. I think the risk of development in the area of oncology and psychiatry and neurology was an issue. I think the idea is to share risk with Otsuka Pharmaceutical as a partner and I wonder with ulotaront, you will continue to focus on these 2 core areas in the future. I don't mean to say that this is a contraction, but I think it will be a good time to reevaluate investment in general, not just in Japan.

[Hiroshi Nomura, executive]

Yes. Thank you. Let me start with the oncology area. There seems to be a lot in the pipeline. As I mentioned earlier, we have TP-3654 and DSP-5336 and we will focus on these 2. Within the data, we are working to move forward with areas where signals are shown. We have several other drugs in the pipeline and we will administer them to a small number of patients. If they do not produce a strong signal, we will stop using them as soon as possible. Therefore, I hope you understand that we are already doing almost all of the 2 things, as I mentioned earlier with regard to the oncology area.

It is particularly challenging, but we have set a goal of taking approval for these 2 compounds within 5 years. As for the psychiatry and neurology area, of course, it would be difficult for us to do everything or to do everything that has gone up to Phase I study in this order as we have done in the past. So we will identify the pipeline in roughly 3 categories, those that we do ourselves, those that we do with a third party and those that we licensed to a third party.

ulotaront is in the second category that I mentioned earlier and the orexin receptor agonists is in the third. As for the first area, we will now proceed to carefully assess what to do with this category.

If you have anything to add regarding research, Dr. Ikeda, please do so.

[Yoshiharu Ikeda, executive]

As Mr. Nomura just mentioned, our strategy is to properly assess its clinical signal, prioritize then and select the items to invest in.

[Shinichiro Muraoka, analyst]

Muraoka from Morgan Stanley. What will happen to the goodwill or other intangible assets associated with Myovant when it becomes 100% owned by your company? The Investor Relations person also explained that the goodwill and intangible do not increase, but I'm not sure how to sort that out. If there is a change in the amount of goodwill intangibles, this will have an effect on core operating profit. So I would appreciate some clarification on this.

[Hiroshi Nomura, executive]

Yes. Thank you very much. There is no impact on goodwill. In short, as I mentioned earlier, this is the equity section of the balance sheet, I believe. I guess you call it a controlling interest, and that is the part of Myovant's business that we do not have. The amount we are acquiring this time is $1.7 billion, which will be converted into yen. And the difference between the amount and noncontrolling interest will be deducted from capital surplus. Therefore, I think the current exchange rate would probably mean that the capital surplus would be negative.

However, there are several ways to present this information. In the case of negative capital surplus, some companies carry over from retained earnings to erase the negative capital surplus, while others present it as it is, I think this area is still a matter of further consideration. Therefore, there is no impact on goodwill.

[Shinichiro Muraoka, analyst]

Current amortization is about JPY 20 billion to JPY 30 billion every year, and I think this is affecting core operating profit. Exchange rate fluctuation will have an effect in the future too, but would it be correct to assume that it will not significantly change?

[Hiroshi Nomura, executive]

Yes. It is, I think it is correct to say that there is no change in the current patent right for goodwill.

[Shinichiro Muraoka, analyst]

Also, you mentioned earlier that the next fiscal year will be tough, and that is only natural. But I think you mentioned before during the small meeting with Mr. Nomura that you expect to see a recovery in the following fiscal year, the fiscal year ending March 2025 because sales of new products in the U.S. will exceed JPY 100 billion. Am I correct in my understanding that the deficit in core operating profit for 2 considering fiscal years is unlikely?

[Hiroshi Nomura, executive]

Yes, the scenario I'm currently envisioning is that the sales structure in North America will also change. In other words, the position of Sunovion, which we depended on will now change and this time to Sumitovant. In that sense, I believe that selling, general and administrative expenses will also change to some extent. Then ORGOVYX, MYFEMBREE and GEMTESA will also have a hard time during FY '23, but we'll show some growth once FY 2024 comes around. In this context, we believe that we can achieve growth in sales, rationalize expenses to some extent and adjusted R&D expenses appropriately, we should be able to achieve profitability in core operating profit in FY 2024.

This is also something we are considering in our current midterm business fund, and we are in the process of confirming the projected figures.

[Shinichiro Muraoka, analyst]

Okay. Lastly, regarding the additional indication for ulotaront. I missed it the other day with Otsuka Pharmaceutical. But why is agitation of Alzheimer's disease not included among the indications?

[Toru Kimura, executive]

Yes. The most important feature of ulotaront is that the suppresses negative symptoms which is now attracting attention. We also considered that it would be easier to expand our business if we could broaden the scope of our activities into the area of depression rather than peripheral symptoms of Alzheimer's disease. As I mentioned, there are difficulties in the regulatory path for peripheral symptoms, including clinical studies. And so we decided to work with Otsuka Pharmaceutical on the development of these 2 diseases.

In addition Otsuka Pharmaceutical will be in charge of adjunctive MDD which is their specialty, and we will be in charge of GAD operations.

[Shinichiro Muraoka, analyst]

Okay. Thank you very much. Did you say the agitation of Alzheimer's disease is difficult because regulatory issues? I couldn't hear you very well.

[Toru Kimura, executive]

Yes, that's right. Is it better? Can you hear me okay?

[Shinichiro Muraoka, analyst]

Yes, I can. I'm sorry, but when you say that Alzheimer's agitation is difficult from a regulatory standpoint. Do you mean that you are aware of the various problems that other companies are having with it?

[Toru Kimura, executive]

That's part of it, yes. It is not easy to define a regulatory path, but if there is a precedent, we know that we can get an indication if we conduct a clinical study and obtain data in certain ways. However, there are many things that we have to consider when taking on a new challenge or taking on a challenge with a new mechanism.

In the case of Alzheimer's agitation, there is a great medical need, and we would like to do something about it in another program. But we have decided that it is not appropriate for ulotaront.

This concludes the presentation of the financial results. Thank you very much for your time today.

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