Sumitomo Pharma Co Ltd

TSE:4506

Earnings Call Analysis

Sumitomo Pharma's Q2 FY 2024: Revenue Growth Amid Restructuring Challenges

In Q2 FY 2024, Sumitomo Pharma reported a revenue of JPY 180.7 billion, up JPY 28.1 billion from the previous year. Core operating profit is targeting JPY 1 billion, although the company faces a core operating loss of JPY 38 million. Key products ORGOVYX and GEMTESA showed strong sales in North America. However, challenges remain, including an early retirement program, expected to reduce workforce to 2,000 by December 2024. The bridge loan repayment has been extended to December 2024, and the company remains cautious about maintaining profitability next fiscal year without reliance on asset sales.

Strong Revenue Growth in Key Markets

In the second quarter of FY 2024, Sumitomo Pharma reported significant revenue improvements across its key products in North America and Asia. The company achieved JPY 104.2 billion in overall sales in North America, with individual product performances showing marked growth: ORGOVYX rose by 26% to JPY 35.5 billion, GEMTESA increased by 10% to JPY 25.2 billion, while MYFEMBREE faced challenges with only JPY 6 billion in sales. In Asia, specifically in China, MEROPEN posted revenues of JPY 23.7 billion, up JPY 2.9 billion from the previous year. These results reflect a 157% increase year-on-year for three key products, indicating a positive sales trajectory that surpasses initial forecasts.

Controlled Costs Amid Strategic Restructuring

Despite challenges, the company has effectively controlled selling, general and administrative (SG&A) expenses, reducing them from over JPY 160 billion to between JPY 100 and JPY 108.5 billion in the first half of the fiscal year. This prudent cost management is essential as the company navigates its ongoing restructuring efforts and implements an early retirement program projected to decrease its workforce significantly by December 2024.

Guidance on Future Performance

For the rest of FY 2024, Sumitomo Pharma is maintaining its core operating profit target at JPY 1 billion, which includes the anticipated JPY 20 billion from asset sales. Without those sales, the company is projecting a core operating loss of JPY 19 billion. Despite maintaining its earnings forecast, management emphasizes that they expect their three key products to continue growing steadily into the second half of the fiscal year. The company is hopeful about achieving break-even in core operating profit next fiscal year, with or without asset sales.

Impact of Medicare Changes and Product Strategy

The anticipated changes in the Medicare reimbursement framework are expected to positively impact ORGOVYX sales further, as patient out-of-pocket costs will be reduced starting January. This strategy is part of broader initiatives to maximize product sales and enhance profitability through innovative pipeline development in oncology and regenerative medicine.

Navigating Challenges and Uncertainties

While the company exhibits strong growth and promising prospects, it faces uncertainties, particularly concerning the completion and approval timelines for its regenerative medicine initiatives. For instance, the submission timeline for Parkinson's disease iPS cells has been delayed, leading to caution in projections of potential revenues and impacts on the bottom line. As such, Sumitomo Pharma remains vigilant about external market conditions, ongoing payer negotiations, and regulatory approvals.

Long-Term Vision for Global Leadership

As part of its long-term strategy, Sumitomo Pharma aims to establish itself as a global specialized player in the pharmaceutical industry over the next decade. The company is focused on innovative therapeutic areas, emphasizing the importance of a robust R&D pipeline. Management's goal is to achieve positive core operating profit this fiscal year to create a solid foundation for sustainable growth.

Earnings Call Transcript 2025-Q2

[Naoki Noguchi, executive]

We will now begin the presentation of financial results of Sumitomo Pharma for Q2 of FY 2024. Thank you very much for joining us today. We will be conducting a live webinar at Tokyo head office and from the venue.

I would now like to introduce today's attendees: Dr. Kimura, Representative Director, President and CEO; Mr. Sakai, Representative Director, Executive Vice President; Dr. Nakagawa, Member of the Board of Directors and Executive Officer; Dr. Ikeda, Managing and Executive Officer; and myself, Noguchi, your moderator for today. Thank you.

Dr. Kimura will now explain the Q2 financial results for FY 2024.

[Toru Kimura, executive]

Thank you very much for joining us today for the presentation of Sumitomo Pharma's financial results for Q2 of FY 2024. I will explain according to the materials.

The agenda for today's meeting is shown here on Page 3, and they include a summary of the financial results, the construction of the company, which is a very big issue for us, and our efforts in this area, followed by research and development, and finally, a Q&A session.

Here are the highlights of this fiscal year's financial results. I will explain the figures in more detail later on. So I will not go into them here, but we are making progress on revenues, costs and core operating profit in line with -- or even exceeding our forecasts.

In terms of challenges towards the reconstruction of the company, the early retirement program offer is being promoted in Japan at Sumitomo Pharma at this very moment. Starting in December 2024, we will operate with a workforce of 2,000 employees, and I will explain this in more detail later.

As you all know, we have extended the repayment date of the bridge loan until September 30, 2024. And we have been discussing with the financial institutions and Sumitomo Chemical what we should do from now on. We have completed the extension of the arrangement until the end of December 2024, and we are currently in discussion regarding the necessary refinancing.

Here are the operating results of the current fiscal year on a core basis. As you can see, revenue was JPY 180.7 billion, a significant improvement of JPY 28.1 billion from the previous fiscal year. Meanwhile, SG&A expenses and R&D expenses are under control. Here, we have shown the progress made against the forecast from May 14 of this fiscal year, which you can consider as almost equivalent to the budget.

Revenue has remained strong while SG&A expenses and R&D expenses are being controlled. As a result, we have managed to reach this point, although core operating profit for the current fiscal year is minus JPY 0 billion, actually a loss of JPY 38 million. We are targeting JPY 1 billion in core operating profit for the current fiscal year. And as I have indicated, this means JPY 1 billion in the core operating profit, including the sale of JPY 20 billion worth of business. This means that target excluding the sale of businesses is JPY 19 billion in core operating loss. I hope you will understand that this time. Now including the sales of businesses, core operating profit become minus JPY 0 billion.

As for nonrecurring items, operating profit was minus JPY 8.2 billion due to business structure improvement expenses of JPY 7 billion in Japan and the United States.

The big part is the financial income and costs here, and this shows that our subsidiary has liabilities denominated in yen. We have loans to our subsidiaries denominated in yen, and the exchange rate at the end of the period resulted in a foreign exchange loss. But this has almost disappeared today, and the exchange rate moves daily.

In Q1, this was a significant figure, but I explained that it has nearly disappeared as of that date. That's the situation we are in.

Here, we would like to explain the revenue of our main products in North America and Japan and Asia.

In North America, focusing on ORGOVYX, MYFEMBREE and GEMTESA as our 3 key products. And the revenue of ORGOVYX is JPY 35.5 billion, MYFEMBREE is JPY 6 billion, and GEMTESA is JPY 25.2 billion.

In order to show you how these figures compare with our original plan, I'm showing you a comparison with our plan up to Q2. ORGOVYX is plus 26%, and GEMTESA is plus 10%. Although MYFEMBREE is struggling a little, overall sales in North America amounted to JPY 104.2 billion, a significant improvement from the previous fiscal year.

In Japan, revenue was JPY 52.8 billion, slightly down from the previous fiscal year. But this is due to the end of the exclusive sales period for TRERIEF in June this year. In addition, there is a JPY 3.1 billion impact of the NHI price revision on the segment as a whole. So this figure includes that. On the other hand, TRERIEF is doing relatively well compared to our original plan. This reflects the progress against the annual plan. And as you can see, the domestic market is trending positively.

In Asia, MEROPEN in China is doing well, totaling JPY 23.7 billion, up JPY 2.9 billion from the previous fiscal year. This is 60.9% of the plan. As a result, each segment, Japan, North America and Asia, is performing very well compared to the original forecasts. Segment income was JPY 25.1 billion: JPY 6.3 billion in Japan, JPY 7.4 billion in North America and JPY 11.4 billion in Asia.

At the bottom, we have compared the results with FY 2023. In Japan, revenue has decreased slightly due to the reasons mentioned earlier, but the effective control of SG&A expenses led to a JPY 400 million increase in core segment profit. In North America, while revenue has been growing very rapidly, the curbing of SG&A expenses has been effective, resulting in an improvement of approximately JPY 50 billion.

On the other hand, while there were some criticism regarding whether our initial forecast could be achieved, we have been performing better than we expected. However, for reasons I will explain shortly, we are maintaining our full year performance forecast at this time.

First, regarding revenue. We anticipate that our 3 key products will continue to grow steadily in the second half of this fiscal year. On the other hand, early retainment program offer is now being implemented in Japan. This will result in a very large reduction in personnel, including sales force, so we see a certain downside risk.

In terms of costs, we believe that both SG&A and R&D expenses can be kept at the same level as in Q2. As a result, we believe that core operating profit, excluding other operating income and expenses, will be roughly on par with the Q2 results at the end of the fiscal year. On the other hand, the business transfer for which we included JPY 20 billion in the initial forecast is now 0 by Q2. In fact, we are in discussion with several projects, each of which is of a certain scale, and earnings may fluctuate greatly depending on the success or failure of the projects or the amount of money involved.

Our budget was originally a very small absolute value of JPY 1 billion. So we are considering a very large swing. We cannot predict the confusion that may be caused by such fluctuations, and this is one of the reasons why we have left our earnings forecast unchanged.

Regarding nonrecurring items and financial income and costs, we have accounted for the business structure improvement expenses associated with the early retirement program offer for those who applied by September within Q2 of this fiscal period. However, those who applied in October will be accounted for in Q3. So there will be some remaining negative factors.

There are many uncertain factors regarding financial income and costs, as I explained earlier, such as very large movement in foreign exchange rates. So we have decided to leave our earnings forecast unchanged at this time. We intend to provide a solid forecast in the Q3 financial results briefing.

I would like to continue by explaining our efforts to reconstruct. We are in a situation where we must first rebuild our company, and I have presented a brief strategic scenarios for regrowth. First of all, our goal is to achieve profitability through short-term intensive measures. And at the same time, we would like to put the company back on track for regrowth by bringing new development pipelines to market.

In 10 years, we aim to firmly establish ourselves as a global specialized player. We will continue our research and development activities in areas of oncology, psychiatry and neurology and regenerative medicine and cell therapies businesses while also creating new value.

We have divided the period into 3 major periods, with the first goal of firmly laying the foundation for regrowth in the current and next fiscal years. First, we announced our goal to achieve positive core operating profit for this fiscal year and to turn our bottom line profit positive by the next fiscal year. We will be moving forward with these objectives in mind.

After that, we have set aside a period of time to ensure the commercialization of R&D, especially priority investment pipelines, as the next-generation revenue base. After that, we have planned a 3-phase approach to achieving our goal of becoming a global specialized player similar through a business structure centered around innovations of our own origin.

First of all, as I mentioned earlier, for the immediate business reconstruction, we are proceeding with the goal of achieving a V-shaped recovery by decisively implementing drastic structural reforms in a short-term and concentrated manner. And our target is to quickly return core operating profit and bottom line profit to profitability this fiscal year and next fiscal year. As I explained earlier, we believe that there is still room for growth in maximizing the value of 3 key products at an early stage.

On the other hand, we will proceed with good cost management. At the same time, in our R&D efforts, we will focus on selecting and concentrating our pipelines, prioritizing early market launches and dedicating resources to the area of oncology, psychiatry and neurology and regenerative medicine, cell therapies businesses, as previously mentioned.

On the other hand, in terms of financial position, we have a very high level of borrowings, so we will improve free cash flow. At the same time, as we move forward with selection and concentration in our business areas, we will also streamline our assets by selling nonessential and non-urgent assets. We would like to create the foundation for regrowth in the current and fiscal years through a comprehensive short-term and concentrated approach.

Here is the progress of the project. The first step is to expand revenue, particularly in the United States. We have shown the revenue of our 3 key products in the United States on the half of fiscal year basis. Compared to the first half of last fiscal year, it has increased by 157%, and when compared to our plan for the first half of this fiscal year, it is up by 13%. This indicates that we are progressing smoothly, as illustrated on the left.

On the other hand, as a result of group-wide efforts to trim costs at all cost, SG&A and R&D expenses for the first half of this fiscal year were reduced from over JPY 160 billion in the previous fiscal year to JPY 100 billion or JPY 108.5 billion in the first half of this fiscal year. This will continue well into the second half of this fiscal year, as I mentioned earlier.

Here is the situation for each of the 3 key products. ORGOVYX, a drug for prostate cancer, grew by 70% year-on-year, mainly in terms of shipping volume. The growth is primarily driven by an increase in volume. This growth has been supported by the new Medicare Part D and IRA drug reimbursement systems that have been implemented this year, which have provided a tailwind for us, resulting in increased volumes. We have been doing well since 2021, and we expect to continue to grow.

Next is MYFEMBREE. We are struggling a bit here, although only 75% of the JPY 52 billion planned for the first half was achieved, this is still an increase of more than 30% compared to the previous fiscal year.

The main challenge we face is the difficulty in achieving substantial volume growth. We have 2 indications, endometriosis and uterine fibroids. In the case of endometriosis, we have not been able to expand our market share as anticipated. However, we are seeing some growth, and we will continue to carefully monitor our market trends moving forward.

On the other hand, it has become very difficult to achieve our initial plan, so we are somewhat giving up on this fiscal year's target.

On the other hand, GEMTESA is performing well with a 9% increase over the plan and a 47% increase over the previous fiscal year. In particular, in terms of pricing, we have experienced a tailwind from a lower burden of the coverage gap compared to our forecast at the beginning of the fiscal year, and we have exceeded our plan. We were concerned about the introduction of a competing generic product, and we have received some questions from our stakeholders. But so far, there has been no impact.

Two graphs are shown around this area, the number of prescriptions or how many prescriptions were prescribed to completely new patients.

In the red dotted line below, the market environment has changed dramatically due to the launch of competing generic products in these dotted areas. Our product is growing steadily.

On the other hand, sales of beta3, a drug with similar efficacy have increased all at once when generics came out, but you can see that ours are increasing steadily regardless of the sales of generics.

Next, the slide indicates that the new structure will start in December. We have implemented the early retirement program in Japan. As a result, the structure and organization have become leaner, and the essence of the R&D and the sales and marketing divisions, particularly large organization, is summarized here.

Until now, we have 3 divisions: The Drug Research Division for research and nonclinical testing, the Development Division for clinical development and the Technology Research & Development Division for CMC and formulation and manufacturing process. We took this opportunity to undertake a major organizational reform by combining the 3 divisions into one, making the entire organization leaner while creating an R&D structure that would allow us to proceed with everything from research to development and launch in a single integrated manner.

Previously, when transitioning between divisions, there were often delays and miscommunication. This time, with an integrated operation, we aim to be somewhat leaner while significantly increasing productivity compared to before. Our strategy is to first focus on the 2 oncology compounds that are close to market launch, as well as on the development programs for the regenerative medicine. Following that, we aim to advance the development programs for small molecules in oncology and psychiatry and neurology to support the next generation.

The Sales & Marketing Division is the foundation of our domestic business. However, the early retirement program has made the organization very lean. We would like to reorganize division's functions and branches to improve productivity with an efficient organization. 19 departments will be reduced to 10 departments, and 12 branches nationwide will be reduced to 7 branches. The number of sales team, which used to exceed 1,000, is to be reduced to 620. And the number of medical reps, which currently stands at 770, is to be reduced to 450, resulting in a considerably slimmer structure.

In order to cover the entire country, we are using a therapeutic area-based approach, where sales reps specialized in CNS being assigned to CNS and reps specialized in diabetes being assigned to diabetes. So in some hospitals, different sales reps from Sumitomo come and go depending on the specialty, but we will change that to an area-based approach because the number of reps will be reduced.

For example, in Shinagawa, Tokyo, representatives will cover a broader area, allowing them to handle both CNS and diabetes responsibilities. This marks a significant change in our approach. We believe that we can provide information that meets the needs of our customers and that our reps, who are very enthusiastic and highly performing, are capable of providing information on drug -- on any drugs, although it is difficult to expand the scope of their areas.

The corporate department, which I have not detailed here, will be streamlined and made more efficient by merging related functional departments and reducing the number of divisions from 18 to 13.

The other is a change in the structure of the regenerative medicine and cell therapy business. We have had various discussions with Sumitomo Chemical, and we believe that under our current financial position, it will be very difficult to expand our regenerative medicine and cell therapy business while continuing to focus on oncology and psychiatry and neurology. We must not slowdown in any of these areas and especially in regenerative medicine and cell therapy, where there are significant synergies with Sumitomo Chemical.

The Sumitomo Chemical Group will formally develop it into a global business of more than JPY 100 billion by the 2030th as we had originally planned. To that end, we plan to increase Sumitomo Chemical's take in the S-RACMO CDMO business.

Additionally, while we are still discussing and have not made an announcement yet, we intend to advance drug discovery and development in regenerative medicine and cell therapy through a joint venture with Sumitomo Chemical, similar to S-RACMO, and we are currently working on the organizational design for this initiative. In this way, Sumitomo Pharma can continue to invest in R&D and production facilities and further accelerate commercialization. And we, as the frontrunner, can make maximum use of our technology and expertise for business expansion.

Maintaining such infrastructure functions is crucial. While doing so, we will also have the flexibility to discuss and arrange future business structures with Sumitomo Chemical. The benefit of having Sumitomo Chemical as a partner are significant, and we are eager to move forward with this collaboration.

Next is R&D. This is the list of major developments, but there are no changes, so I will move on.

The main topics of clinical development are listed here. In the area of psychiatry and neurology, which also includes the field of regenerative medicine and cell therapy, one example is allogeneic iPS cell-derived dopaminergic neural progenitor cells, and another program is regenerative therapy for Parkinson's disease. The investigator-initiated study at Kyoto University has concluded, and we are preparing for the application based on that data.

While we initially aim for NDA submission and obtaining approval within FY 2024, we have begun to review our submission target in light of the recent discussions with PMDA. Meanwhile, the results of the investigator-initiated study are being prepared for the publication from Kyoto University, so you'll be able to see the data in the application. Please ask Kyoto University about this.

On the other hand, the first transplant of retinal pigment epithelial cells into a patient in Japan was successful.

In the oncology area, we have been calling DSP-5336, but it now has a generic name, enzomenib. A cohort study with other drugs has been started in the U.S., and the Ministry of Health and Labor and Welfare has given us open drug designation.

In December, we will be presenting our clinical data at the American Society of Hematology. The target disease is acute myeloid leukemia.

What we call TP-3654 has the generic name, nuvisertib. We are making good progress and plan to present the latest clinical data at the American Society of Hematology in 2024.

New oncology compound, SMP-3124, is now in the clinical phase and is being administered to patient in the U.S. and Japan. This SMP-3124 is not just a low molecular compound but a liposome-encapsulated nanomedicine in which the compound is encapsulated in liposomes. This contains an inhibitor of CHK1, a protein kinase that we are targeting. And we expect that this will reduce side effects and increase efficacy.

On the other hand, in China, we were conducting a Phase III study called vibegron but unfortunately, the bridging study was unsuccessful. So we are now reconsidering our development strategy.

Also in China regarding lefamulin, we have submitted a local manufacturing application in May and August 2024. So we hope to be able to put products on the market next fiscal year.

This is the end of the presentation. Thank you very much for your kind attention.

[Naoki Noguchi, executive]

Thank you, Dr. Kimura.

[Kotaro Kusaka, analyst]

My name is Kotaro Kusaka from Daiwa Securities. I would like to ask a question from a credit perspective. The phrase eliminating of excessive debt, curious at the bottom of Page 12, I don't think there are currently any loans that will mature after 2026. So I understand that as a declaration of intent for a first call on the subordinated debt. Am I correct in my understanding?

[Toru Kimura, executive]

Mr. Sakai, go ahead.

[Motoyuki Sakai, executive]

I'm sorry, what do you mean by the declaration of intent? Where are you? If you could explain again for me.

[Kotaro Kusaka, analyst]

I think the only interest-bearing debt maturing between 2026 and 2032 is subordinated debt.

[Motoyuki Sakai, executive]

Yes, that's right. It is in 2027 and 2030.

[Kotaro Kusaka, analyst]

So we can take this as a repayment or rather, a first call of the subordinated debt? That's my understanding.

[Motoyuki Sakai, executive]

There are various conditions for making a call. So I naturally believe that allowances must be made within that scope of those conditions.

[Kotaro Kusaka, analyst]

Next, on Page 13, it says strengthening financial position, repayment of borrowings. Does this mean that you are referring to extended bridge loans? or something else?

[Motoyuki Sakai, executive]

Are you asking about Page 13? It is not necessarily the case that we are referring to that specifically.

[Kotaro Kusaka, analyst]

I understand.

[Toru Kimura, executive]

I would like to add something regarding the first part of your question on eliminating excessive debt. We are currently scheduled to repay the subordinated debt that you asked about, but we will also create a repayment plan for the money we are borrowing now, so we will repay the debt during this period.

[Seiji Wakao, analyst]

My name is Seiji Wakao from JPMorgan. First of all, I would like to ask you about sales of asset. Is it likely that the JPY 20 billion projected at the beginning of the term can be achieved during the remainder of the term? Can you tell us a little bit more of your current progress?

[Toru Kimura, executive]

First of all, the JPY 20 billion itself was included for certain sense of scale. But we are currently discussing a variety of ways to make the scale of the asset sales more substantial. So please understand that a reasonable amount of the asset sales will be included in Q4. However, since we have a counterpart and the amount will not be determined until a contract is signed, so we have not included anything at this point.

[Seiji Wakao, analyst]

So it will be in January to March period by Q4?

[Toru Kimura, executive]

We have multiple projects ongoing, somewhere up to Q4 or some will be closed just end of Q4.

[Seiji Wakao, analyst]

I understand. For something of the size, would you issue a press release? Regarding this JPY 20 billion, would it be correct to say that the feeling of the certainty of achieving the asset sales has not changed from the beginning of the period?

[Toru Kimura, executive]

In terms of scale and asset sales, the probability has not changed.

[Seiji Wakao, analyst]

I understand. That won't be delayed. That's my understanding.

If that's the case, in Q1, I think you said that there was an upward revision of JPY 10 billion against the internal plan, but I would like to know how much the cumulative total of the first half of this fiscal year is above the internal plan. And if that does not change the outlook for the second half, is the company making good progress with respect to the top line? And if we think on a net basis, if we assume the asset sales will go well, can we expect the possibility of upward revision of the core basis at some point, perhaps Q3?

[Motoyuki Sakai, executive]

I will take the question. Sakai is here. First of all, I would like to remind you of our forecast for the full year. We said that the core operating profit will be JPY 1 billion, but we added JPY 20 billion for the sales of businesses, which has been the topic of the discussion now. In other words, we had factored in considerable amount of the negative minus in other areas, amounting to close to JPY 20 billion. .

As Dr. Kimura explained earlier, the first half results are 0, not including gains on sales of businesses. So you can guess from that figure.

Regarding the sales of the businesses, as Dr. Kimura explained earlier, there is a specific project that we are negotiating. The scale of the projects varies. So if a contract is signed for projects that falls within the scale that should be disclosed, we will naturally announce what needs to be announced. In light of this, if it is necessary to revise performance in Q3, we will naturally do so.

[Seiji Wakao, analyst]

What I wanted to know is you mentioned that the Q1 period was JPY 10 billion upswing on the core operating profit in Q1. I wanted to know if this is still the case as of Q2. If everything goes well, would you make forecast revision?

[Toru Kimura, executive]

I explained approximate terms in Q1. So I will not give you the target for core operating profit for Q2. But on Page 6, there is a figure for the percentage of progress against May 14's forecast for FY 2024. Although we have not included figures for core operating profit, I hope you can see from our current situation that sales, especially from the 3 key products in North America, are growing. Revenue from sales in the first half was 53.5% of total sales.

On the other hand, we are determined to keep SG&A and R&D expenses at half in the first half at the same level in the second half as we guided. I hope you understand.

[Seiji Wakao, analyst]

I understand. So the part from the sales of the asset is added to the profit. That's my understanding.

Finally, I would like to ask about ORGOVYX and GEMTESA. I think your company assumes that the impact of the next year's Medicare reform will be positive, especially with regard to ORGOVYX. Is there any change from your original assumption?

Also, I believe that you're currently negotiating this payer for the portion of gross to net that will be covered by your company from the next fiscal year. How is the progress? I would like to know if it's likely to settle as your company expect, or if there are any changes, positive or negative?

[Toru Kimura, executive]

The market is as strong as we expected or even stronger. Mr. Nakagawa is in charge of North America.

[Tsutomu Nakagawa, executive]

I will take your questions. Yes. There was a change that you just asked about, which is that patient out-of-pocket will be limited to a certain degree starting this January. Since this amount will be further reduced starting next January, we believe that we will work for the advantage of ORGOVYX, and that remains the case. .

Payer negotiations are progressing, as you said. They are not going contrary to our expectations, and we believe there will be progress, as we expect.

[Seiji Wakao, analyst]

Then with regard to the chart that you have provided, there is no particular change from the assumption. So from the gross to net perspective, I believe that the volume will increase in the next fiscal year, and we'll grow even more. That's my understanding.

And I just want to know one more thing since ORGOVYX is performing well. I'm concerned about the probability of milestone may come in sooner than expected. Can you comment on this? Should we assume next year for the milestone?

[Tsutomu Nakagawa, executive]

Having milestone too early would not be an issue, but anyhow, we originally agreed on the calendar year in the contract, and our assumption is to receive the milestone from Pfizer in fiscal year 2025.

[Shinichiro Muraoka, analyst]

My name is Shinichiro Muraoka from Morgan Stanley. I would like to ask about MEROPEN in China. I think the company absorbed the negative VBP. This has happened a few times before, but at the beginning of the period, there will be talk of it being tough always. And this time now that you have a good upswing in the interim, what should we be thinking about for the next fiscal year and beyond? This is also relevant as Asia is now the most profitable segment in terms of profit. So I would like to understand.

[Toru Kimura, executive]

Yes, indeed, we were very concerned about MEROPEN when it was first included in the volume-based procurement. On the other hand, the price of the drug has not decreased as much as we had expected because the drug is now recognized as a very necessary drug for the Chinese society and for public health. Since the volume-based procurement, we'll review prices on a regular basis, every 3 years or so, we expect to see a slight decrease in prices the next time the review takes place. It is not that we had very optimistic expectations, but that we were lucky.

[Shinichiro Muraoka, analyst]

So the review is on the 3-year cycle then? Will the next one be 2025? I don't know the details of this, please. Let me know if you know.

[Toru Kimura, executive]

The last time was in June 2022, so the next time will be next fiscal year or the fiscal year after -- we will check. The basic policy is for a review once every 3 years, but the authorities have a deal of discretion, and we have expectation that we will not be on the list for 2025.

[Shinichiro Muraoka, analyst]

I understand if it is the next fiscal year, that means as of next May, we will have to look at this conservatively.

[Toru Kimura, executive]

Yes, that's right. If it starts next fiscal year, but we have already discussed our forecast for the next fiscal year, and it has not appeared in the forecast, so maybe it shifted in a -- more than 1 year.

[Shinichiro Muraoka, analyst]

I understand. I also have to ask you about the next fiscal year. Based on the current momentum, I understand that you have indicated that for operating profit will be in the black next fiscal year. I know that what you have written down here is a positive in bottom line profit even without asset sales. Is it correct to say that you are looking at returning all 4 quarters to profitability?

[Toru Kimura, executive]

I'm not going to go as far as to say each quarter, but if we can maintain the momentum of this fiscal year, we believe that we can achieve profitability in core operating profit next fiscal year even without asset sales.

[Shinichiro Muraoka, analyst]

Finally, with regard to iPS cells for Parkinson's, what more specific points have surfaced? And why do you think the timing of the submission is now out of sight, please? Give me some insight.

[Toru Kimura, executive]

It is difficult to give specifics at this time. But as we have repeatedly stated, we initially said that we would obtain approval with a conditional and time-limited approval in this fiscal year. However, in talking with the PMDA, it seems that we have some tasks to do. We are going to do further work to publish evidence supporting the efficacy and possibilities of this treatment technique. Once we do that, we are continuing discussions with the PMDA and have decided to withdraw the target submission date of the end of this fiscal year.

We are currently considering what kind of schedule and time line we will follow in the future. If our plan progresses quickly, it will be next fiscal year, and we will announce that again after we have made our plans.

[Shinichiro Muraoka, analyst]

In other words, is it my understanding that as early as next fiscal year, it is not a matter of the quality of -- or the size of the clinical data that it's taking long in other areas?

[Toru Kimura, executive]

Yes, the clinical data is expected in a very small study with only 7 cases. The discussion is about how to interpret the conditional and time-limited approval.

[Kazuaki Hashiguchi, analyst]

Hashiguchi from Daiwa Securities. I would like to confirm some facts about the bridge loan. Is it correct that the deadline has now been extended to the end of December 2024 for JPY 145 billion? Am I correct also in understanding that together with the JPY 60 billion in loans originally due at the end of December 2024, the repayment of JPY 205 billion is currently due at the end of December?

[Motoyuki Sakai, executive]

Yes, that is right.

[Kazuaki Hashiguchi, analyst]

So how should we understand the reason for this extension? I think it's possible to interpret this in various ways, but I understand that your company originally intended to refinance the loan. It is not impossible to interpret that the financial institutions did not agree to refinance the loan. If that is the case, could you please explain a little more about why it was extended, such as that your company's construction plan requires more elaboration? Or you are waiting for a third-party's decision related to this? So please provide some explanation.

[Motoyuki Sakai, executive]

Yes. I'm not sure if I can give you a full answer to your question. But basically, we are going to enter into a new loan agreement that includes a bridge loan of JPY 145 billion and the loan for repayment in December 2024, as you pointed out. We are currently discussing with the company and the financial institutions to conclude a new borrowing agreement, although we will need to consult with the financial institutions to determine how long the loan will be stable or how long it will last.

We have sold our shares in Roivant and have surplus cash from that sale. We are currently discussing with the financial institutions what kind of formations it will take and how it will finance us in the future, taking into consideration the repayment of those funds.

So this will not be decided straight away. Therefore, we have postponed the bridge loan until December 2024. And we are currently discussing how to proceed with the next round of borrowing. I'm sorry if that does not completely answer your question.

[Toru Kimura, executive]

Just to add one more thing. I understand that the reconstruction plan of the company with the current figures I explained today have been favorably received.

[Fumiyoshi Sakai, analyst]

My name is Fumiyoshi Sakai from UBS. I have one question. I would like to ask you about S-RACMO in the field of iPS cells. I would like to ask you about the overall recommendation rather than individual projects. I understand that it has gone from my majority to minority and that Sumitomo Chemical has taken the majority. Is this in the form of a capital increase? Or has your company sold shares to Sumitomo Chemical? Will there be any financial impact from this change? So that's number one.

I also heard for the first time that a new company will be established in the new fiscal year. I was wondering if the investment ratio itself will remain the same even after the new company is established. For example, would the company increase its capital or take other measures in order to add high value-added businesses? I think Sumitomo Chemical is expressing its intention not to keep up its production capacity or technology for iPS cells technology. In what ways would you be involved in this area as a minority company? If you could give me the future outlook with this? Maybe I have asked three questions.

[Toru Kimura, executive]

Thank you for your question. In terms of capital relationship alone, we are in the minority, and Sumitomo Chemical manages all operations. The company itself is managed as an independent company. .

Regarding regenerative medicine S-RACMO, in particular, is a CDMO contract manufacturer. The company was set up 3 or 4 years ago and has been consistently growing and profitable. Sumitomo Chemical is also engaged in the small molecule business in API bulk pharmaceuticals as CDMO. And we believe that our business is similar to that of Sumitomo Chemical. Sumitomo Chemical is growing in the area of small molecule business, as CDMO and increasing its capital.

On the other hand, the new company, which you is that you heard for the first time, has actually been announced by Sumitomo Chemical on April 30 in its future restructuring plan. We have indicated here that it will be implemented by the end of this fiscal year.

Sumitomo Chemical will probably be the major player here, while we will be in the minority. Sumitomo Pharma has the knowledge, know-how and the technology to handle sales. In addition, as explained earlier, we will also be responsible for the pharmaceutical functions such as regulatory affairs becoming a kind of center of that functionality. So we will continue to be responsible for the main part of the activities.

On the other hand, S-RACMO or the new company, and the SMP itself must be organically connected in order to proceed. So we will proceed with this -- with the understanding of Sumitomo Chemical.

Meanwhile, in order to expand regenerative medicine and cell therapy business in the future, research and development expenses and investment in production facilities will continue to increase. If Sumitomo Chemical is a majority company, we'll be able to exclude it from our P&L, reducing the burden on us. There is an important financial benefit, and the company is continuing with the policy.

[Fumiyoshi Sakai, analyst]

Just to confirm, is it my understanding that the recapitalization of S-RACMO will have no impact on cash transfer or on P&L, and that 2 companies will continue to exist in parallel with the transition to the new company?

[Toru Kimura, executive]

Yes, that's right. First, the 2 companies will continue to exist in parallel. Regarding the establishment of S-RACMO, we have been holding 51% of the shares of S-RACMO to Sumitomo Chemical's 49%. On October 1, we changed our shareholding by transferring more than 10% of the shares to Sumitomo Chemical.

[Fumiyoshi Sakai, analyst]

So the financial impact of that will be reflected in the second half?

[Toru Kimura, executive]

Yes, that's right. As it was October 1, it was not included in this quarter.

[Fumiyoshi Sakai, analyst]

So this will be disclosed later?

[Toru Kimura, executive]

It's not a large amount, so we may or may not disclose the amount, but it will be included.

[Hidemaru Yamaguchi, analyst]

My name is Hidemaru Yamaguchi from Citi. I have a similar question to Mr. Wakao's. I would like to ask one more time about the relationship between the original setup for the full year and the cell businesses. Since progress is solid at the moment, it looks as if you will be able to achieve your original plan of JPY 1 billion in the core business. In other words, although you originally included the sale of businesses, it appears from outside that the original company forecast could be achieved without it. .

Regarding the handling of the sale of businesses, you mentioned that it's a matter of who you're working with. In terms of achieving the forecast for this fiscal year, is there room for a decision to be made that you don't have to do it now, but can leave it for later? Or is there no possibilities of that?

[Toru Kimura, executive]

No, none whatsoever. We had already started to discuss the specifics of the plan, and we have been working on improving our financial performance while moving forward with the plan. We were able to deliver the financial performance. In the meantime, we must reveal our company based on the plan that was in place anyway.

[Hidemaru Yamaguchi, analyst]

Understood. One more time -- one more point. The simple answer is fine, but the number of reps have been reduced considerably. It means that you can -- you have to change the way you promote. And I think the number of costs will significantly decrease because you still have quite a bit of diabetes drugs that require call volume. If this happens, your domestic sales strength will be a little weaker. Is that something that cannot be helped? Are you changing the way you promote, including digital? What's the downside? What do you expect for the downside?

[Toru Kimura, executive]

The sales team operated on a therapeutic area basis, but they are now adopting a geography area-based approach. Where reps are assigned to certain areas to facilitate their activities. We are aiming to keep a number of calls per rep as high as possible. But if the number of calls actually decreases, it will be unavoidable. As a result, we expect that domestic earnings will decline to some extent in the second half.

This is one of the reasons why we were taking a cautious approach to the second half despite the favorable first half. However, I don't think there will be as much of a decrease in the number of calls because we have very talented reps who have remained with us.

[都築 伸弥, analyst]

Shinya Tsuzuki from Mizuho Securities. I would also like to ask you about DSP-1083. In the 7 patient data, the Kyoto University also demonstrated some improvement in the motor scale scores, conferences and symposiums. I'm thinking of the background of delaying the application this time and perhaps -- you're looking at historical data in the historical record since it is an unblinded study with 1 dosing group or looking at survival. I have the impression that the original clinical data is not required, but I want to know what the situation is here. Since you originally said that you were aiming for an application by the end of September, I was wondering if you could give us some more information on timing as well, please?

[Toru Kimura, executive]

I have heard that Kyoto University has only presented the data at a very informal overseas meeting of specialists, and that was a closed meeting, so I'm not sure if they have presented data more formally. Please check with the university. I have no knowledge of that.

Regarding the application, I would like to refrain from mentioning specifics about timing or the content of the project at present. However, I would like to repeat based on the discussions that we have decided to drop the March target, and we are considering what to do in the future based on discussions. However, we're very positive about the data itself, and I'm sure that everyone will be able to see the data presented by Kyoto University in the near future. We will also be working on the new submission targets in the meantime.

[都築 伸弥, analyst]

I would like to clarify that no further clinical data also are necessary?

[Toru Kimura, executive]

Could you repeat again? What did you say?

[都築 伸弥, analyst]

You don't need repeat trials or additional trials. Am I correct?

[Toru Kimura, executive]

We believe that we have sufficient data for conditional and time-limited approval. But in terms of formal approval, we are aware that we will eventually have to implement something on the larger scale.

[都築 伸弥, analyst]

Understood. One more question was about data presentation at ASH on TP-3654. I was wondering what should -- what we should look up for in terms of new data?

[Toru Kimura, executive]

Thank you for your question. The clinical study is progressing well, and additional subjects are being added. I believe that the data will help convince everyone of the safety and efficacy of our compound.

I would like to take this opportunity to go back to the previous questions about China's price revision for MEROPEN. As I said, it happens every 3 years. However, in China, the government operates on discretion, and we just hope that we will not be on the list for 2025.

[Hiroshi Wada, analyst]

My name is Hiroshi Wada from SMBC Nikko Securities. I'd like to ask you two questions. I was under the impression you could revise the midterm business plan by the end of this year or this fiscal year, and that this would be based on sales performance of your 3 key products and actual SG&A expenses. When do you anticipate that this revision will take place?

Also, talking about the pipeline, the development of protein-protein interactions for menin inhibitors, I think there is enzomenib, which is a small molecule drug targeting this protein-protein interactions. And I wonder if it can be made into a platform as a technology for this. I was wondering if your company has a technology to obtain other compounds that target protein-protein interactions.

[Toru Kimura, executive]

First of all, the current midterm business plan 2027 is very far from the actual situation. We are currently working on the medium- to long-term plan, which we are calling the long-range plan, and we are considering internally how to present it to you. I am considering presenting it to you in some form by the end of this fiscal year. I think it will have to be in the form of a rather compact midterm business plan. That is the way we are thinking right now.

As for enzomenib, unfortunately, we do not have a specific platform technology for that, which is a protein-protein interaction inhibitor, but we are taking on the challenge in this area by making full use of our organic services technology and have produced good compound. I believe that we can use this for other examples.

What about the specific basic technology for protein-protein interactions inhibitors? Dr. Ikeda, could you say a few words on this?

[Yoshiharu Ikeda, executive]

There are a variety of technologies available today to specifically inhibit protein-protein interactions. However, there are -- these are not the technologies used for DSP-5336. However, since we have DSP-5336, we naturally have the technology to create an analyzed structure of the target protein on the computer and to analyze its crystal structure.

[Unknown Attendee]

[ Kozaki ] from Kokusai Shogyo Publishing. In the oncology area of the main topics of clinical development, there are various other Phase I drugs in the early development stage. What is the reason why you chose SMP-3124? I'd like to know what percentage of cancers have CHK1 as a driver gene, if you have any figures or statistics?

[Yoshiharu Ikeda, executive]

In the oncology area, there are 3 compounds listed here, and there are several others, but these are the ones that are most advanced in development. Based on the current data, we have high expectations for them. As for SMP-3124, although it is a liposome formulation, we believe that it can be a platform technology for our company. If the concept of this agent is proven, we'll be able to develop various compounds by changing what we put in the agent. We actually already have some candidates. If we are able to achieve this, we'll be in a position to talk more about other candidates in the future.

There are various equivalent pathways for CHK1 such as ART and WEE1. Each of them has its own characteristics, good points and bad points, and we are currently targeting CHK1 among them.

[Toru Kimura, executive]

I just want to correct one thing. The section lists the topics where the progress has been made in the second quarter.

[Unknown Attendee]

And are you pushing for this one in particular?

[Kotaro Kusaka, analyst]

Yes. We are pushing for it. But what I have done here is not to show how much we are pushing for it, but to organize the progress that has been made in the past 3 months.

[Unknown Attendee]

[ Yoshimizu ] from Iyaku Keizai. I have two questions. First of all, regarding the number of the early retirements today, a number of 700 employees is 100 below the initial estimate. Are you considering any free recruitment?

[Toru Kimura, executive]

We have announced the number as 700, but in fact, we assume that during the period, there will be some retirees, mandatory retirees and voluntary retirees. So the number is almost 700 including such employees. Therefore, we are not thinking of the recruiting.

[Unknown Attendee]

If you include that, you attain the target accurately? If you include mandatory retirement and such?

[Toru Kimura, executive]

Indeed, yes, we have achieved the goal.

[Unknown Attendee]

Secondly, there is a lot of talk about whether or not your parent companies, Sumitomo Chemical will sell or not sell. But is it correct to say that the current various plans are based on the premise that the company will operate as a member of the Sumitomo Chemical Group?

[Toru Kimura, executive]

The current plan, as you say, is realizing the goal to exist independently as Sumitomo Pharma. I don't know what others are saying, but I have heard that Sumitomo Chemical discussed it. For us, we would like to be open about everything and consider whether or not there are any advantages for us. But I would like to reiterate that we have presented a plan to proceed independently.

[Unknown Attendee]

I understand on Page 20 of the presentation, how should I interpret this phrase, while flexibly considering and determining the business structure, including the Pharma business?

[Toru Kimura, executive]

I think you are referring to regenerative medicine. We may, for example, increase or decrease our shares depending on the situation. But if Sumitomo Chemical is the counterpart, we'll be able to discuss various options, including increasing our shares. Of course, I'm not denying the possibility of a third party coming in at this point in time.

[Unknown Attendee]

[ Ando ] from Nihon Keizai Shimbun. As was mentioned earlier in the explanation of the Parkinson's disease iPS cells project, what you are discussing most is how to ensure the conditional and time-limited approval can be a transferred to the formal approval process, which has not been done in the past by other companies. Is it correct to say that it has taken some time to discuss how to do this, taking into consideration the guidelines that have been published and established?

[Toru Kimura, executive]

There are several points for discussion. So one is that PMDA is now thinking very hard about how to grant for approval, assuming approval with a conditional and time-limited.

[Unknown Attendee]

Can you say anything about other points?

[Toru Kimura, executive]

I'm not able to get into specifics here, but we think the data is good. And we will continue to discuss it with the PMDA as we have everyone look at it and discuss it broadly. Until now, we had a policy of discussing data while not releasing it, but we have organized -- reorganized our approach so that we will proceed with publication as publication and application as applications.

[Unknown Attendee]

I'm not sure if it's just that Kyoto University won't release the data or publish, that things won't move forward unless they release data of papers. Which comes first?

[Toru Kimura, executive]

Sorry, there is no link between the two. I was simply referring to the timing issue. Assuming an initial approval at the end of March, we plan for the approval to go ahead first and then we would present later afterwards. However, the publication of the data is proceeding as originally planned, so please understand, the situation is now reversed.

[Unknown Attendee]

If it is the kind of discussion we just had, I have a feeling that it won't take that much time. But I was wondering if you are talking about next fiscal year or the next fiscal year at the earliest, with the possibility of taking a year or 2, depending on the case. I was wondering if that takes a year or 2?

[Toru Kimura, executive]

We are hoping to achieve this as soon as possible, but we are considering various tactics and strategies as we look ahead.

[Unknown Attendee]

I understand. Also in the area of R&D, R&D expenses have decreased by 40% and the number of employees and personnel has decreased from 560 to 440. With such decreases in resources, it seems that research capability will be limited somewhat. Could you comment on the situation?

[Toru Kimura, executive]

We're in a situation where we have to be very patient with the department employees in charge of research and development.

As I mentioned on another occasion, the amount of JPY 50 billion, down 40% from the JPY 90 billion or so in the previous fiscal year. It's still in large part to the dissolution of the late-stage chemical development in North America itself because of the success of the ulotaront project. It is true that we have a strict control of the expenses, but it's also true that they are not as large as they appear.

[Unknown Attendee]

As for the division of roles, S-RACMO, as you mentioned, is a CDMO-like company? Will the new company also do research and development.

[Toru Kimura, executive]

Yes, that is exactly the image I have. We intend to entrust the business of regenerative medicine and cell therapy to this new company in the future. However, at the start, it will really be the R&D-only company. But in the long run, if all goes well, we are discussing the direction I just mentioned.

[Unknown Attendee]

Would that mean a significant portion of the R&D personnel that remain at the end office would also be transferred?

[Toru Kimura, executive]

Regarding regenerative medicine, a considerable amount of talent is moving in this direction. On the other hand, in the case of drugs, especially regenerative medicine, employees from various fields are involved just regularly affairs and CMC. It's practically impossible to bring all of them to the new company. So we are currently building cooperation with the company organically, as mentioned also in the slide.

[Unknown Attendee]

[ Tani ] from NHK. I have another question about Parkinson's disease. First of all, I'd like to ask you how you perceive the revised timing for the application for approval? I'd like to know whether you recognize that the schedule has been delayed from the beginning, whether you think this level is still within the expected range? Or whether you think the situation is becoming increasingly difficult? What's your perception?

[Toru Kimura, executive]

In a nutshell, I think it is later than originally expected.

[Unknown Attendee]

On the other hand, you said earlier that the 7 patients you have now are showing what you expected and you're getting good data. However, the fact that the PMDA does not agree means that you do not agree on the interpretation, or in other words, it's difficult to obtain conditional and time-limited approval. Or is it an issue of clearing hurdles in preparation for the formal approval? I wonder if you could comment a little more about the discussion?

[Toru Kimura, executive]

Since this is a question with the PMDA, I would like to refrain from giving too many specifics, but I think there is a difference in the condition of the regulatory authority versus the sponsor or developer.

[Unknown Attendee]

What do you mean the difference in conditions?

[Toru Kimura, executive]

It's different perspectives. It's about different interpretations of the same data. Or to put it another way, what kind of possibilities exist based on the data presented.

[Unknown Attendee]

So your company has not changed its view that the current data is sufficient in this situation?

[Toru Kimura, executive]

Yes, that's right. Ourselves and the Kyoto University doctors who conducted the clinical study who I believe are the world's leading expert in this field, share exactly the same understanding.

[Unknown Attendee]

One last point. How then can we break out of the situation in the future? What do you think about where you can find the learning point if the number of subjects is not increasing? Where would you find a point of agreement for what this would be possible?

[Toru Kimura, executive]

That is exactly what we are considering now.

[Unknown Attendee]

[ Sakata ] from Yakuji Nippo. I'm sorry to revisit this topic again. This is about the iPS cells. I understand that there are guidelines published from the Ministry of Health in March. Does this mean that the interpretation of the evaluation is required to be very strict in comparison data that is now available or clinical data or historical data? And based on the when you look at the next round of full approval, is it correct to understand that you are asking for a very rigorous clinical study plan and evaluation of efficacy?

[Toru Kimura, executive]

With very little data with 7 patients, I think the point is not so much about 1 or 2 points, but about how do you think about this more comprehensively. I will refrain from discussing the specifics, as it is difficult to discuss without data.

[Unknown Attendee]

[ Kurose ] from Nihon Keizai Shimbun. Sorry to be so detailed in the section on iPS cells. Am I correct to say that the plan for application for approval, we think for 2024, will be withdrawn?

[Toru Kimura, executive]

Yes, that's right. We're currently reviewing the application and reconsidering the timing for application.

[Unknown Attendee]

Regarding the establishment of the new company with Sumitomo Chemical, you see any particular impact on future plans in the regenerative medicine and cell therapy related areas. Any impact on the schedule?

[Toru Kimura, executive]

We do not believe this will have any impact on the schedule, especially in the area. Specifically, there are some internal procedural things that may delay the process by a couple of weeks, but both parties have confirmed that there will be no major impact.

[Unknown Attendee]

One more point regarding Mr. President Iwata's comment that Sumitomo Chemical's management priorities and business strategies today. With regard to Sumitomo Pharma, Mr. Iwata has said that a new framework is necessary for sustainable growth of Sumitomo Pharma, and Mr. Iwata is considering various options such as finding a partner or a third party. With regard to this partner search, am I correct to say that Sumitomo Chemical is not alone in this search? You, Sumitomo Pharma, is also making some moves in the search?

[Toru Kimura, executive]

We are not thinking of making a move on our own, but if there is a candidate for such a partner, we will consider the benefit of such a move. If [indiscernible], we will consider what the benefit will be for us. We will discuss it with in advance. I'm sure that Sumitomo Chemical will take the same approach in the process. They're not going to just bring a partner to us. We'll discuss together.

[Unknown Attendee]

[ Ishii ] from the Iyaku Tsushin. From your experience with early retirement program in the U.S., are there any lessons learned that can be applied to domestic sales in Japan?

[Toru Kimura, executive]

Mr. Nakagawa, would you like to take this question?

[Tsutomu Nakagawa, executive]

As Mr. Kimura mentioned earlier, many of the remaining employees have a solid level of engagement with the company. Our current focus is to motivate them to promote our products.

The product profiles have not changed. So even though we have a smaller number of reps, we will consider and implement the most efficient strategy that shows off the strong points of our products. We're asking them to do their best with a high level of engagement. In the U.S., we have reduced the number of headcount considering that as was explained today, we have achieved a certain level of sales. I believe we'll be able to achieve the same in Japan.

[Unknown Attendee]

[ Kamio ] from [ MIX ]. You mentioned the early retirement program this time reduced the number of headcount by 600 or 700 in total. I would like to know how much this will reduce SG&A expenses starting in December? How much will it reduce personnel costs in FY 2025? I thought I heard someone from Sumitomo Chemical mention a figure of JPY 10 billion. Is that correct?

[Toru Kimura, executive]

I think that number is almost correct. In addition to labor costs, there are inevitably costs associated with the headcount involved in businesses. And we estimate that total cost will be around JPY 10 billion.

[Unknown Attendee]

Understood. Also, I'm sorry, this is a bit too detailed. But I would like to talk about the Japan sales team. You mentioned that the sales team will be based on area system in order to cover the whole nation with a system of about 450 reps. What is your image of how you divide the area and allocate resources?

[Toru Kimura, executive]

Up until now, the structure was based on the disease area, which means that the CNS reps who are visiting CNS-related hospitals in a certain area, a relatively large one. And there are also reps working in the same area for diabetes in the same community, but the hospitals were different. Now we fixed the scope of coverage in each region, and 1 rep is now in charge of CNS, diabetes and other drugs in a given region. So that's what it is.

[Unknown Attendee]

Understood. Also, will the number of sales offices remain the same?

[Toru Kimura, executive]

We are also reducing the number of branches, which means that the number of sales offices will also decrease. We understand that there will be approximately 50 sales offices. The figure will be 50 sales offices for the time being.

[Unknown Attendee]

[ Masuda ] from Yomiuri Shimbun. Regarding Parkinson's disease, just to confirm, the timing of your company's application for approval is not linked to the publication of the Kyoto University paper. Is it correct to say that the publication of the Kyoto University paper is likely to come first?

[Toru Kimura, executive]

Perhaps I didn't word it right, but I think the Kyoto University announcement will be earlier than our approval. Kyoto University is in the process of submitting the paperwork. So please understand that it has not yet decided on what date it will be published. I understand that it has already been posted and is in the process of being revised.

[Unknown Attendee]

So is it your understanding that there is likely to be an announcement from Kyoto University prior to gaining approval?

[Toru Kimura, executive]

So I don't know if you know anything about the timing of that area. And it is normal for some of the top scientific journals take years to revise, but we are not making that adoption.

[Unknown Attendee]

Understood. Also, one more point, will the delay in the timing of application and acquisition have any impact on the clinical study in the U.S.?

[Toru Kimura, executive]

There is no impact. On the other hand, we are considering further acceleration in the U.S., taking into account the slight delay in Japan. There are 2 clinical studies already underway.

[Unknown Attendee]

I think that the clinical study led by the University of California San Diego is going to transplant the first patient by the end of the fiscal year, is that correct?

[Toru Kimura, executive]

Yes, that has not changed.

[Unknown Attendee]

And you have not yet set the date for this fiscal year?

[Toru Kimura, executive]

It has not been decided yet.

[Unknown Attendee]

[ Chiboshi from Jiho ], Nikkan Yakugyo. I'd like to ask two questions. First of all, regarding domestic sales. You mentioned that you're slipping down the domestic business through early retirement. I think you had announced before that you are considering in-licensing products to rebuild the domestic business. However, now that the business is going to be streamlined preservable, will the consideration of whether or not to in-license a product to be put on hold?

[Toru Kimura, executive]

We would like to in-license product if the opportunity arises. We are considering the sales tie-up of some kind and are currently negotiating with various parties. On the other hand, the change from the reps of 770 to 450 will inevitably limit the number of detailed calls that we can deliver. So I think there will be differences in potential projects that we can handle.

[Unknown Attendee]

In that case, when you say in licensing opportunities, would it still be in the area of CNS and diabetes?

[Toru Kimura, executive]

I think we can be more flexible in terms of disease areas, partly because we have moved to area-based cells structure.

[Unknown Attendee]

One more point, regenerative cellular medicine. I have not been able to confirm whether or not your company has -- or will establish a base in the Nakanoshima Qross in Osaka, but I assume that you will be opening a base there. I wonder what you see the positive effect on your business?

[Toru Kimura, executive]

We have established a base there. For us, Nakanoshima Qross is a very attractive place. But we are based in Osaka, which is nearby. So we are thinking more in terms of the satellite shop in Nakanoshima.

[Unknown Attendee]

I understand. So it may be that it's too close and not that beneficial, but is there anything that you can tell why it's attractive?

[Toru Kimura, executive]

Yes, Nakanoshima Qross has the advantage of providing a place where people can easily consult with [ venture ] companies and medical institutions, including [ CiRA ] Kyoto University at the early stages of their project. It is also a place where seminars and lectures can be held.

I think it will become a center for regenerative medicine in the Kansai region. We can easily get there from Osaka. So we are considering commuting there whenever we have the chance.

[Unknown Attendee]

[ Seii ] from Asahi Shimbun. Sumitomo Chemical announced its financial results today, and I understand that the small molecule drug discovery business of Sumitomo Pharma has been removed from the group's priority companies as of October 1, 2024. I have heard that there was a statement that this is not included in the group's long-term vision. What kind of conversation has taken place within the group on this topic? And what are your views on the head of the group on this?

[Toru Kimura, executive]

I cannot comment on that because I didn't hear about it myself. But I know that within Sumitomo Chemical's business field, the new company and the main body of SMP, including CDMO for regenerative medicine and cell therapy are classified in different areas. I believe that this is simply a direct link to the business of the main part of the Sumitomo Chemical. As I mentioned earlier, regenerative medicine is a business that is very unique in terms of production technology. So I was wondering if it's a relationship with Advanced Medical Solutions.

On the other hand, small molecular pharmaceuticals are exactly where the pharmaceuticals are, and there are no other companies besides Sumitomo Chemical that are engaged in pharmaceuticals. However, from our point of view, as I have said repeatedly, the 2 cannot operate unless we are organically connected. So I guess it depends on how each of us views the other.

[Unknown Attendee]

In other words, within the group, Sumitomo Chemical is now focusing its support there, and Sumitomo Pharma is focusing its effort there. And by doing that, you can coexist. Is that your view?

[Toru Kimura, executive]

Yes, that's right. It is true that Sumitomo Chemical has provided and will continue to provide solid support to Sumitomo Pharma, including debt guarantees. But in terms of business synergies, Sumitomo Pharma is independent.

[Unknown Attendee]

Just to confirm again, there was no particular discussion with Sumitomo Chemical about removing this as a priority business, was there?

[Toru Kimura, executive]

No, that's not how I see it. We have not talked about it, but I am aware that we are not in any particular dispute. And we are getting along very well with each other. Mr. Sakai, would you like to?

[Motoyuki Sakai, executive]

I agree with what Mr. Kimura said.

[Naoki Noguchi, executive]

This concludes the presentation of Sumitomo Pharma's financial results for Q2 of FY 2024. Thank you very much.