Shionogi & Co Ltd

TSE:4507

Earnings Call Transcript 2019-Q1

[Kenji Matsuo, executive]

Now I'd like to start my presentation on the financial results for the first quarter 2018. Please open Page 4 for the summary of the consolidated financial results. The columns explain full year forecast, the first half forecast, the first quarter results, progress against the first half forecast, and for your reference, the first quarter results in the previous year and the percentage of change year-on-year are also listed. The full year forecast remain the same as our guidance in the beginning of the year.

First, sales were JPY 88.5 billion and the progress against the first half forecast was 54%. Sales were up by 18% or JPY 13.5 billion year-on-year. Operating income was JPY 27.6 billion and the progress against the first half forecast was 62.1%. It went up by 72.9% or JPY 11.7 billion year-on-year. Ordinary income was JPY 37.9 billion and the progress against the first half forecast was 69.6%. Ordinary income went up by 80.1% or JPY 16.9 billion year-on-year. Profit attributable to owners of parent was JPY 31.9 billion and the progress against the first half forecast was 74%. It improved by 99.2% or JPY 15.9 billion year-on-year.

Sales and each profit measure are progressing smoothly towards the first half forecast. Each profit measure was higher than the level achieved in the past. Especially, ordinary income and profit attributable to owners of parent were higher for 8 and 3 consecutive years, respectively.

As you can see in the right bottom table, the average exchange rate for US dollars and GBP during the period were affected by a weaker Yen trend.

Let me move on to Page 5 and talk about the income statement. Sales of the first quarter were JPY 88.5 billion, up by JPY 13.5 billion year-on-year and the progress was 54%. The improvement was driven by income from Roche for Xofluza and an increase of royalty income from HIV franchise. On top of that, Shionogi Inc. in the U.S. received onetime payment.

Next, cost of sales was JPY 11.9 billion. The progress was 44.1%, a decline of JPY 8 billion year-on-year. As a result, gross profit was JPY 76.6 billion.

On the other hand, SG&A expense was JPY 49 billion and the progress was 52.9% and the cost went up by JPY 9.8 billion year-on-year. We strategically invested JPY 11 billion in our business during the first quarter from the R&D fund of JPY 20 billion established this year. The ordinary R&D spending was JPY 13.7 billion, and the progress was 54.7%. The R&D expense went down by JPY 3.3 billion year-on-year because of the absence of aggressive R&D investment we promoted until last year. We do not have the impact anymore, and we are now back to normal R&D investment level.

Selling and administrative expenses were JPY 24.3 billion, up by JPY 21 billion (sic) [ JPY 2.1 billion ] year-on-year.

In summary, total SG&A expenses were JPY 49 billion, an increase of JPY 9.8 billion year-on-year. As a result, operating income was JPY 27.6 billion, the progress was 62.1%, and it went up by JPY 11.7 billion year-on-year.

Non-operating income and expense was JPY 10.3 billion, an increase of JPY 5.2 billion year-on-year, but let me explain more details later. As a result, ordinary income was JPY 37.9 billion, an increase of JPY 16.9 billion year-on-year.

Page 6 is about year-on-year comparison and the main variation factors. First, sales increased by JPY 13.5 billion due to an increase of income based on milestone, as I mentioned earlier. Also, royalty income increased and we received onetime payment from Purdue for the termination of contract for Symproic. Sales of prescription drugs in Japan went down due to the expansion of generic products of Irbetan and Crestor. Cost of sales was negative JPY 8 billion year-on-year due to a decrease in sales and product mix change in Japan. It was also affected by a decrease in contract manufacturing sales year-on-year. As a result, gross profit increased by JPY 21.5 billion.

Next SG&A expenses. First, selling and administrative expenses increased by JPY 2.1 billion due to an aggressive investment for the new product launch and upfront investment in IT to digitize Shionogi group. R&D expenses went up by JPY 7.7 billion, mainly due to completion of Xofluza's otherwise healthy study in fiscal 2017. Therefore, ordinary R&D expenses went down by JPY 3.3 billion. Meanwhile, as I mentioned earlier, we strategically invested JPY 11 billion. For example, we entered into a license agreement for non-tuberculosis mycobacterial diseases treatment drug with Hsiri, and new antidepressant with Sage. As a result, operating income was JPY 11.7 billion. Non-operating income and expenses were up by JPY 5.2 billion due to an increase in ordinary dividend for sales growth of HIV franchise and receipt of extraordinary dividend from ViiV. As a result, ordinary income was up by JPY 16.9 billion. Finally, extraordinary income or loss was up by JPY 2.7 billion due to sales of old factory of C&O in Nanjing, China. As a result, profit attributable to owners of parent was up by JPY 15.9 billion.

Next, consolidated sales by segments on Page 7. Sales from prescription drugs in Japan were JPY 25.4 billion for the quarter, down by JPY 11.9 billion year-on-year. The progress against the first half forecast was 48.6%. Sales from overseas subsidiaries and export were JPY 9.9 billion for the quarter, an increase of JPY 3.3 billion year-on-year. The progress was 72.4%, out of which sales from Shionogi Inc. in the U.S. were JPY 6.1 billion, an increase of JPY 2.6 billion year-on-year. The progress was 120.8%. This big change was affected by the change in our distribution policy of Symproic. We terminated our joint sales alliance with Purdue for Symproic. Accordingly, we received one-off income. Also, we are promoting business partnership with Duchesnay for Osphena, but the actual sales were JPY 800 million, a decrease of JPY 400 million year-on-year, with the progress against the first half forecast of 36.7%.

Sales from contract manufacturing were JPY 2.8 billion for the quarter, a decrease of JPY 700 million year-on-year. The decline is temporary for the quarter due to the order receipt timing for API manufacturing of dolutegravir. Royalty income as a total was JPY 48.3 billion, an increase of JPY 22.9 billion from the previous year. HIV franchise royalty income was JPY 24.5 billion, an increase of JPY 5.8 billion year-on-year. This is due to robust sales of Tivicay and Truimeq at ViiV. And royalty income from Crestor was JPY 5.5 billion. The progress against the first half forecast was 51.9%, which is in line with our expectation.

Other royalty income was JPY 18.3 billion, an improvement of JPY 17.2 billion year-on-year. The main factor was the income from Roche for the FDA approval of baloxavir marboxil in the U.S. As a result, sales as a total were JPY 88.5 billion, up by JPY 13.5 billion year-on-year.

Page 8 explains year-on-year comparison and main variation factor for sales by segment. As I explained earlier, royalty income increased. Overseas subsidiaries and export segment sales were up by JPY 3.3 billion because a decline of royalty income from authorized generic of FORTAMET in the U.S. was offset by onetime income of Symproic. Sales of prescription drugs in Japan were down year-on-year. Sales of our strategic products went up while sales were negatively affected by the expansion of generic competitors and NHI price revision. Let me explain further in the product section later.

Page 9 is about changes in distribution platform for Symproic in the U.S. Symproic is a treatment drug of opioid-induced constipation, and we had a strategic business alliance with Purdue to promote co-commercialization of the product. However, there was a drastic changes in the environment for opioid usage in the U.S. In October 2017, President Trump declared a national public health emergency. Based on this situation, Purdue took significant steps to transform their business model in the U.S. Therefore, we agreed to terminate our alliance. For the future, Shionogi Inc. has begun its own sales and the distribution of Symproic and is seeking a new partner with strong commercial capabilities.

Page 10 explains sales of prescription drugs in Japan. First, strategic products. Cymbalta grew steadily on a volume basis and sales were JPY 6.1 billion, an increase of JPY 400 million year-on-year, although it was significantly affected by the NHI price revision this spring. Sales of Intuniv, which was introduced last May, were JPY 1.1 billion, an increase of JPY 800 million year-on-year, with a progress of 57.3%. Sales of influenza family of Xofluza, Rapiacta and Brightpoc slowed down year-on-year because the pandemic ended earlier this year compared to the previous year. Sales of strategic products, including OxyContin and Symproic, were JPY 9.6 billion, an increase of JPY 1 billion and the progress was 47.3%. Sales of new products including Actair, Mulpleta and Pirespa were JPY 11 billion, an increase of JPY 900 million with a progress of 47%. Sales of Crestor and Irbetan were affected by the penetration of generic drugs. Sales of Crestor was JPY 2.6 billion, a significant decline of 78.1% or JPY 9.4 billion. However, the progress was 49.6%, which is within our expectation. Irbetan franchise sales were JPY 1.9 billion, a decline of 48.5% or JPY 1.8 billion year-on-year. These 2 factors are the main cause of decline in sales in Japan. As you can see, our new products are steadily growing but sales of prescription drug in Japan declined by JPY 11.9 billion as Irbetan and Crestor sales declined due to penetration of generic drugs. However, we managed to control the figures in line with our budget and especially, Crestor sales volume has been gradually stabilized. So we believe the sales will bottom out soon.

Finally, growth by strategic products on Page 11. As I mentioned earlier, Cymbalta was affected by NHI price revision. However, prescription is growing, especially in pain field, resulting in a 20% increase year-on-year. We focused our sales resource on Intuniv as the ban on long-term treatment was lifted on June 1, 2018. Therefore, Intuniv sales have grown steadily after June. As for the influenza family, we launched BRIGHTPOC Flu·Neo, a highly sensitive rapid diagnosis kit in July. Accordingly, we are now providing a comprehensive solutions from diagnosis to treatment, which transcend the support for influenza family prior to the 2018 to 2019 flu season.

Now I'd like to conclude my presentation on the overview of the first quarter result of fiscal 2018.

I would like to explain the upward revision of our consolidated forecast on Page 12, which was announced on July 23rd.

Please open Page 13. This page shows 3 major factors driving forecast changes since the beginning of fiscal 2018. As we expect Xofluza HR study to be completed earlier, we plan to receive income from Roche ahead of schedule. As I explained earlier, we had one-off income during the first quarter, and we plan to invest more to expand our new growth drivers. Still, we aim at increasing income and profit while we expand our investment for the future. Therefore, we are now making an upward revision of our forecast for the first half as well as the full year.

Page 14, shows our revised forecasts. First, the forecast for sales for the first half has been revised upward to JPY 168 billion, up JPY 4 billion. The full year sales forecast was raised JPY 1.5 billion to JPY 348 billion. This will translate into a revised revenue increase of JPY 3.3 billion year-on-year. The forecast for operating income has been increased JPY 3.5 billion to JPY 48 billion for the first half, and JPY 1 billion to JPY 120 billion for the full year. This will lead to a revised profit increase of JPY 4.8 billion year-on-year.

The forecast for ordinary income has been raised JPY 6.5 billion to JPY 61 billion for the first half and JPY 4 billion to JPY 144 billion for the full year, resulting in a revised profit increase of JPY 5.3 billion year-on-year. The forecast for profit attributable to owners of parent has been increased JPY 5.5 billion to JPY 48.6 billion for the first half and JPY 3.5 billion to JPY 114.5 billion for the full year. This will lead to a JPY 5.6 billion profit increase year-on-year. Bottom right shows exchange rates, which remain unchanged.

Page 15 shows our revised statement of income. Let me explain some of the highlights in the first and second half. The sales forecast for the first half was raised JPY 4 billion to reflect Roche payment, which has been brought forward from the second half to the first half as well as the onetime payment from Purdue. As a result of obtaining Roche's payment in the first half, we lowered our sales for the second half by JPY 2.5 billion bringing about a net increase of JPY 1.5 billion for the full year. There was no need to revise cost of sales because the revision to the sales forecast only involved a milestone payment from Roche and the extraordinary revenue from Purdue. Based on our forecast so far, we fine-tuned the figures by lowering JPY 0.5 billion for the first half and full year, respectively. Under SG&A expense, R&D expenses rose JPY 1.5 billion for the first half because the clinical study of S-033188 has proceeded earlier than expected. However, we kept the forecast for R&D for the second half unchanged, considering Symproic post-marketing clinical study and expanded investments into next generation growth drivers.

As a result, the full year R&D expense forecast was raised JPY 1.5 billion. We strive to control our selling and administrative expenses to save JPY 0.5 billion in the first half. We project SG&A expenses to be up JPY 1 billion for both the first half and the full year. As a result, operating income was raised JPY 3.5 billion for the first half, lowered JPY 2.5 billion for the second half and raised JPY 1 billion for the full year. Non-operating income was revised to reflect an increase in the temporary dividend from ViiV as was reported in the first quarter. Ordinary income was raised JPY 6.5 billion for the first half, lowered JPY 2.5 billion for the second half and raised JPY 4 billion for the full year. That concludes my explanation on revised forecasts.

Now I would like to move on to shareholder return.

Page 17 outlines share buyback and cancellation of treasury shares. Under the current medium-term business plan, we have taken measures for stable shareholder return, such as annual dividend increase and share buyback, coupled with cancellation of treasury shares for the past 2 consecutive years. To further enhance shareholder return, to drive capital efficiency and to maximize our value by executing flexible and agile capital policy, we are going to buy back shares and cancel treasury shares. We will buy back a maximum of 8.6 million shares, with a maximum total cost of JPY 50 billion, in a period between July 31 and December 20, 2018, then 9 million shares will be canceled on January 31, 2019.

With that, I'd like to conclude my presentation.

[Takuko Sawada, executive]

My name is Sawada. I'd like to report our progress on strategic investment and pipeline.

First, progress on strategic investment. As Mr. Matsuo presented earlier, we have allocated a budget of JPY 20 billion for the full year or JPY 15 billion for the first half on strategic investment. Of those, we have completed an investment of JPY 11 billion in the first quarter. Today, I'd like to present 2 major collaboration projects that we have launched in the quarter. First, as we issued a press release on May 31, we entered a license agreement with Hsiri to acquire global rights to develop and commercialize compounds for tuberculosis, TB, and non-tuberculosis mycobacterial, NTM, diseases, both of which are growing issues in the infection area. Second, as was announced in a press release on June 14, we entered into a strategic elaboration with Sage to acquire an antidepressant with novel mechanism of action. We obtained exclusive rights to develop and commercialize the compound in Japan, Taiwan and South Korea. We expect that this compound has a high potential for other indications, including sleep disorder.

Next, I'd like to introduce individual products or partnership agreements. First with Hsiri. We acquired a right for compounds that have efficacy on both TB and NTM diseases. With those, we'll be able to address global unmet needs in dealing with the growing problem of multidrug-resistant TB. Moreover, we may be able to deliver a drug for NTM diseases, which has become a big issue in developed countries. Currently, there is no existing drug specifically indicated for NTM diseases, and the drugs currently used for NTM diseases are not so effective. As the number of NTM patients grows, there are growing needs in the area. We'd like to further develop promising anti-NTM compounds that we obtained through our partnership with Hsiri. To address the TB HIV co-infection issue, we would like to actively explore possibilities, not only by utilizing Hsiri compounds, but also developing S-004992, which was discovered by our group company in China, C&O, and leveraging other resources such as TB Alliance and to GHIT Fund.

Next, a novel antidepressant from Sage. The internally assigned number for the compound is S-812217. The product has a novel mechanism affecting inhibitory neurons. As the bottom chart indicates, the drug has a rapid onset and starts to show a significant difference with placebo as early as 24 hours. It also has a strong efficacy demonstrating greater symptom improvement compared to placebo than existing drugs. It also sustains its efficacy, even after cessation of administration. Combining all of these, the drug could trigger a paradigm shift in the entire treatment of depression. FDA already designated it as a breakthrough therapy. We'd like to develop the drug in Japan as a novel antidepressant following Cymbalta. For that, we'd like to initiate a clinical study in Japan by the end of 2018.

Next, I'd like to share the top line results for the high-risk study as part of Global Phase III study for Xofluza. Page 22 outlines the study design. We selected high-risk patients who were within 0 to 48 hours from onset, as we did in Otherwise Healthy study. We enrolled subjects aged 12 or older to perform the global study including the Southern Hemisphere. The number of cases was 2,184. After randomization, patients were administered with either a single dose of Xofluza, 40 milligram for those weighing less than 80 kilograms or 80 milligram for those weighing 80 kilograms or above, placebo, or Oseltamivir 75-milligram, twice-daily for 5 days. That was the design of the study. Primary end point is shown below. Key secondary endpoints were antiviral effects and incidence of influenza-related complications. The latter was specific for the high-risk study.

Page 23 summarizes the top line results of the study. As was announced in our press release, we were able to achieve the primary objective. Thus Xofluza became the first anti-flu drug ever to demonstrate superior efficacy in high-risk patients in time to improvement of influenza symptoms compared with placebo in a clinical study. The drug showed superiority over placebo in the 2 key secondary endpoints, namely antiviral effects and incidence of influenza-related complications. Moreover, in the change in viral titers and duration of viral shedding based on viral titers, Xofluza demonstrated superiority to Oseltamivir, as did in Otherwise Healthy study. As for safety, the drug is well tolerated, showing a similar safety profile as in Otherwise Healthy study. Details will be presented at upcoming medical meetings. The results of high-risk study proved to be a further testament to the great efficacy and safety profile of Xofluza and valuable for the next flu season.

Page 24 summarizes the progress of our pipeline in the first quarter of 2018. Please have a look.

That concludes my presentation. Thank you very much for your kind attention.

This concludes our presentation. Now we'd like to entertain questions from the floor.

[Operator]

Now I'd like to invite Mr. Yamaguchi from Citigroup.

[Hidemaru Yamaguchi, analyst]

First question is about Xofluza's HR study at the end of your presentation. You said the details will be explained at upcoming medical meetings, but how was the superiority in time to improvement of influenza symptoms compared to Tamiflu?

[Takuko Sawada, executive]

It's not bad.

[Hidemaru Yamaguchi, analyst]

Next question is about the numbers included in the first quarter and the first half. Sorry, I'm a little confused here but regarding milestone income from Roche, you said some amount will be shifted from the second half to the second quarter. That's why the first half figure has been changed. But the first quarter figure was also very high due to filing.

[Kenji Matsuo, executive]

Milestone income in the first quarter related to the filing has been already incorporated in your guidance.

[Hidemaru Yamaguchi, analyst]

So it is in line with your expectation? Shall I consider them separately?

[Kenji Matsuo, executive]

Yes, you're right.

[Hidemaru Yamaguchi, analyst]

Finally, general question. Royalty in the first quarter tends to be a little lower due to the threshold. Based on my calculation, however, royalty rate may have gone up, but it may be due to ForEx. Has the royalty rate changed? Or has the threshold changed a bit?

[Kenji Matsuo, executive]

No change in the royalty rate. The threshold will be lifted in the fiscal year. The impact was reflected in the first quarter positively.

[Hidemaru Yamaguchi, analyst]

It will be lifted from this fiscal year, right?

[Kenji Matsuo, executive]

Yes.

[Hidemaru Yamaguchi, analyst]

Lifted, meaning there's no threshold. Right?

[Kenji Matsuo, executive]

Right.

[Operator]

Next question is from Mr. Hashiguchi, Daiwa Securities.

[Kazuaki Hashiguchi, analyst]

This is Hashiguchi. Question on S-812217. Can you please talk about your target schedule for filing and launch, for example. If you disclose such information.

[Takuko Sawada, executive]

I think they are about to start Phase III.

[Kazuaki Hashiguchi, analyst]

Is there a possibility to join them as a part of the global clinical study? Or is it going to follow regular clinical study steps in Japan as Phase I, II and III? Can you please talk about the overview of the development plan if possible?

[Takuko Sawada, executive]

They are about to start Phase III study now, so it will be difficult for us to be involved at this moment. But maybe we don't have to follow each clinical study step one by one. We think there is other way.

[Kazuaki Hashiguchi, analyst]

Do you disclose filing and launch schedule as of today?

[Takuko Sawada, executive]

Not yet.

[Kazuaki Hashiguchi, analyst]

I see. There was a presentation on depression today. It seems that they are developing for various indications. What is your take on that? Do you plan to develop for other indications in parallel, or prioritize depression?

[Takuko Sawada, executive]

We have Cymbalta. So we want to prioritize depression. At the same time, we'd like to maximize the value of the compound. So we hope to consider the possibility for the next indication proactively by monitoring data overseas.

[Operator]

Next is Mr. Sakai, Crédit Suisse.

[Fumiyoshi Sakai, analyst]

This is Sakai. 2 questions. The balance of the first half and the second half. As you explained, you will receive early payment from Roche. The difference from your previous guidance is basically the one-off income received from Purdue in the first half due to termination of alliance for Symproic. But in the first half -- I didn't hear you clearly, but I think you said, you have more R&D expenses related to clinical study. That is the ground for the upward revision. The reason why I am asking you this question is because your Crestor and Irbetan business in Japan is directly affected by the patent expiration. I think the situation will be normalized in early next year. You already mentioned that volume is becoming rather stabilized. Then we can see the situation and the stock price better. Sorry for my long statement, but this is my first question. Can you please comment?

[Kenji Matsuo, executive]

Thank you very much. As you pointed out, we revised our full year sales guidance up by JPY 1.5 billion. This is due to one-off income received from Purdue during the first quarter. But as I mentioned earlier, this was offset by the fact that Shionogi Inc. received less than expected royalty for our FORTAMET AG from Teva due to intensifying competition with generic. That is why the upward revision is JPY 1.5 billion. Also, we increased R&D expense by JPY 1.5 billion to maximize our opportunities for Xofluza development and to conduct market research for Symproic after the launch due to termination of the alliance.

[Fumiyoshi Sakai, analyst]

I see. As a result of these factors offsetting each other, you have this full year guidance. Ordinary income is slightly up because of the dividend of ViiV. Right?

[Kenji Matsuo, executive]

Yes. We received onetime income during the first quarter. The dividend payout threshold has been changed from this fiscal year. This is the reason why the first quarter figures slightly increased temporarily.

[Fumiyoshi Sakai, analyst]

I see. Question on to ViiV. When you released Juluca, you said the impact to the result of this year is minimal in the press release. However, GSK already recognized GBP 24 million of Juluca sales. Based on the assumption that the sales will increase in the future, how do you receive the royalty? Can you please explain the economic conditions if possible? Accordingly, can you please explain the milestones? Is it related to the product launch in Europe or study results?

[Kenji Matsuo, executive]

I didn't mean much when I commented on the release of Juluca and the financial impact. What I wanted to say was that the impact would be minimal in the sense that we would not have to make any guidance revision based on the Tokyo Stock Exchange disclosure policy.

[Fumiyoshi Sakai, analyst]

Do you mean something is included?

[Kenji Matsuo, executive]

No.

[Fumiyoshi Sakai, analyst]

I see. What about the remaining?

[Kenji Matsuo, executive]

As of now, there's nothing we can share. We'd like to properly address the situation by monitoring the financial results of GSK and ViiV.

[Fumiyoshi Sakai, analyst]

I see. And the generic impact in Japan, any comment?

[Kenji Matsuo, executive]

I believe the business of Crestor and Irbetan will be normalized around the second half of this year or early next year.

[Fumiyoshi Sakai, analyst]

But it sounded like Crestor will be stabilized starting from later this year. I just want to know the timing of stabilization?

[Takuko Sawada, executive]

Authorized generic was launched last September. Other generic products were launched in December. Since our forecast was not accurate enough, we had a major financial impact last fiscal year. We've been tracking the figure and, as Matsuo mentioned, there's no big impact as of today. It is within our budget, and it is getting stabilized recently.

[Fumiyoshi Sakai, analyst]

I see. If we have less downside risks, that's okay?

[Takuko Sawada, executive]

You're right.

[Motoya Kohtani, analyst]

This is Kohtani from Nomura. I'd like to ask about a topic brought up at Gilead and GSK teleconferences. Looking at the current trends for Truimeq and Tivicay, while your share in the overall TRx remains the same, the share in NBRx, or new patients, has been eroded by bictegravir. GSK explained that the shares are almost the same in their conference call, but I believe that bictegravir has recently overtaken yours. Considering all these factors, my understanding is that Truimeq has been switched and that Tivicay is concomitantly used with Descovy maintaining its own share. Therefore, I believe, the actual situation is quite opposite of your description. Although we are unable to delve into the trends, at what point will they reach equilibrium? In terms of NBRx share, in comparison with bictegravir, how far will it go before seizing to full? Could you please share your view? That is my first question.

[Takuko Sawada, executive]

Unfortunately, we are not in a position to express an opinion that is entirely different from GSK. Shionogi is unable to make its own comment on that matter. We apologize.

[Motoya Kohtani, analyst]

At this point in time, would it be fair to say that all you can do is to wait until bictegravir stops growing its share?

[Takuko Sawada, executive]

No. With regards to bictegravir, generally speaking, various data have shown its efficacy. Gilead is, of course, capable of business operations with excellent and formidable sales capability. However, it fails to fully examine effects of long-term use of the drug, making it pregnable. It is up to whether prescribing doctors see this as a significant issue and how seriously they demand for data for long-time use. The key is to be able to administer a drug for 4 to 5 years without causing any resistance. Once such data is obtained, we would then have to examine how complete our resistance-related data is for ViiV 2-drug combination.

[Motoya Kohtani, analyst]

I understand. My second question. Gilead recently mentioned GS-6207 in Phase I, which is a capsid inhibitor with a new mechanism of action. Because it remains in the blood for about 90 days, after a single subcutaneous administration, it can be developed as a formulation for subcutaneous administration once every 3 months. In that case, it could compete with cabotegravir. Although I don't know the details of capsid inhibitors with a novel mechanism of action. Because it is a new mechanism, I assume that they will take time to develop such a new type of product. Am I right in saying that Shionogi's cabotegravir has a lead and will stay ahead of the race quite significantly? That is my second question.

[Takuko Sawada, executive]

With bictegravir, I mentioned that we must examine the emergence of resistant strains after a long-time use. Meanwhile, the product is structurally similar to dolutegravir and is an integrase inhibitor, that is mechanism-wise reliable. The level of demands for bictegravir and for a completely novel drug to be examined for the emergence of resistance after a long-time use is likely to differ significantly. It will be quite challenging for them to present such data. In that sense, it will take quite a long time for them to establish their grounds. In the meantime, we believe that we will be able to obtain data on cabotegravir. Another point to consider is that Gilead has been persisting in a 3-drug regimen. However, a triple therapy cannot be made into an injectable form. Thus, we would like to closely watch how Gilead would fill the logical gap.

[Hiroshi Tanaka, analyst]

This is Tanaka from Mizuho. I have 2 questions. The first is pertaining to the 100-week results for Juluca, which were presented the other day. It was reported that 89% of the subjects maintained viral suppression, and three cases showed NNRTI resistance. Were these results satisfactory for Shionogi? I have not seen long-term comparative tests before. Could you please enlighten me on how to interpret further data on year 3 or year 5 going forward?

[Takuko Sawada, executive]

Of the 3 cases you mentioned, 2 became virus free upon administration. The remaining one had pre-existing NNRTI mutations before enrolling in the study. Thus the case has never been our target patient, to begin with. In that sense, the results were in line with our expectations.

[Hiroshi Tanaka, analyst]

Next year, when year 3 data will be available, are you expecting a viral suppression to be in the later half of 80%?

[Takuko Sawada, executive]

Yes. That would be desirable.

[Hiroshi Tanaka, analyst]

I understand. My second question is pertaining to S-600918. I believe that you have initiated a Phase II crossover study for chronic cough. Will IPF patients be included in the subjects?

[Takuko Sawada, executive]

Basically, they will not.

[Seiji Wakao, analyst]

This is Wakao from Mitsubishi UFJ Morgan Stanley. I'd like to ask about Symproic. I understand that Shionogi has terminated the prior alliance with Purdue and is now looking for a new partner. Will Symproic have a better perspective once Shionogi switches to a new partner from Purdue, who is facing drastic changes in environment? Or, alternatively, does the termination of the alliance reflect a bigger changing landscape that surrounds opioid? That means, even with a new partner, will Symproic have a more challenging outlook than previously thought? That is my first question. Also, I gather you are currently choosing a partner. You are, maybe, in a negotiation phase. But when are you likely to find a new business partner? I know this involves the other party and is a sensitive matter, but could you tell us the time frame to the extent you can?

[Kenji Matsuo, executive]

It is true that we face tough challenges in the drastically changing environment for opioid use. So our forecasts cannot be as optimistic as before. However, patient groups, including those who suffer pain caused by cancer, are raising their voice. They can rarely get opioids prescribed, even though taking opioids is their only option to alleviate pain. Therefore, the situation may marginally improve, but we will be more or less affected by the overall decline in opioid consumption. Purdue had a tough time for doing business because the very topic of opioids itself was banned at medical institutions. Purdue struggled because they were unable to decouple Symproic from opioids. Once we find a new appropriate partner, this situation is likely to improve. Having said that though, opioids are still prescribed to certain patients, less than half of whom are suffering from constipation. So there is a need to address. In terms of timeframe, ideally, we'd like to sign on a new partnering agreement by the year-end.

[Shinichiro Muraoka, analyst]

This is Muraoka from Morgan Stanley. I'd like to ask about ViiV dividend. You mentioned that this was a onetime change. The amount seems to be around JPY 3 billion, I gather. Could you please give us the exact amount, if possible? That is my first question. In your presentation, you stated that the threshold for a ViiV dividend resource was changed. Could you please elaborate a little on that? Also, is my understanding correct that the dividend resource level has also being raised for the second quarter and onwards?

[Kenji Matsuo, executive]

Yes, you are right. The range of the onetime dividend was within the range you mentioned. On the threshold, dividend resource is calculated based on the amount of cash or cash equivalents above a certain threshold. That threshold was lowered in fiscal 2018. As a result, we received the increased dividend this year.

[Shinichiro Muraoka, analyst]

Does the revision take place once a year?

[Kenji Matsuo, executive]

It was this time only.

[Shinichiro Muraoka, analyst]

I see. My other question is pertaining to the sales of Xofluza in Japan. I understand it was around 0 between April and June this year. Did you have any returned products? Also, do you anticipate any returned products for July to September period?

[Kenji Matsuo, executive]

Thank you very much for your question. Although we had some returned Xofluza products, we foresee no more returned products in the upcoming period.

[Shinichiro Muraoka, analyst]

My last question is regarding Symproic in the U.S. Shionogi has regained full rights to Symproic from Purdue. The situation may change once you find a new partner. But assuming Shionogi alone will handling Symproic for the time being, how much additional fixed cost will be accrued with the product? Could you give us some quantitative cost-wise estimate?

[Kenji Matsuo, executive]

For the time being, Symproic will be handled internally, costing us a certain level of SG&A, especially for the second half. That is partly reflected in the revised budget that we announced today.

With this, we'd like to conclude our conference call. Thank you very much for taking time to attend this briefing. Thank you.