Chugai Pharmaceutical Co Ltd

TSE:4519

Earnings Call Transcript 2018-Q1

[Toshiaki Itagaki, executive]

I'm Toshiaki Itagaki. Thank you for your time. Please turn to Page 2. This is a summary of our first quarter consolidated results of fiscal year 2018. Revenues and profits increased in the first quarter. Revenues core operating profits and core net income hit the record high for the first quarter. Our revenues increased to JPY 147.4 billion, up JPY 21.9 billion or 17.5% year-on-year. As for the breakdown, domestic sales, excluding Tamiflu, declined slightly overall by JPY 0.6 billion or 0.7% from the previous year despite continuous sales growth of our mainstay products, such as Actemra, Alecensa and Edirol.

On the other hand, overseas sales grew year-on-year by JPY 6.3 billion or 24.6% partly due to the growth of Actemra export to Roche, et cetera. Royalties and other operating income rose JPY 15.4 billion or 211% from the same period of last year due to onetime income from the transfer of long-listed products in the first quarter. With regards to cost, the ratio of cost of sales to sales improved by 0.7 percentage points to 50.9% compared to the previous year, mainly due to ForEx impact.

Operating expenses increased overall by JPY 3.2 billion, mainly due to the increase of R&D expenditure. As a result, our profits rose by around 50% from the previous year, as you can see, IFRS results and core results for operating profits and net income on this page. Core EPS or earnings per share was JPY 56.52.

Please turn to Page 3. Page 3 shows IFRS and core results calculated with nonrecurring costs or noncore items.

In the first quarter, noncore items of plus JPY 4.4 billion intangible assets were reversed at the operating profit level. You can find the breakdown on the right-hand side. These noncore items for intangible assets included JPY 0.4 billion, amortization of intangible assets and JPY 4.1 billion impairment. As a result, operating profit reached JPY 42.8 billion and net income amounted to JPY 31.2 billion on a core basis. I'd like to use these core results to explain from the following pages.

Please turn to Page 4. This page shows the financial overview of the first quarter between January and March. The first quarter results are highlighted in yellow. You can see the growth from the actual results of the same period of last year on the right in the table. Revenues increased to JPY 147.4 billion, up 17.5% from the previous year. If you look at 3 lines below, you can find domestic sales, excluding Tamiflu, which reached JPY 84.5 billion, slightly declining by 0.7% year-on-year. Export to Roche was JPY 27.4 billion, up 28.6% from the previous year.

You can find the breakdown of Tamiflu in 2 lines. Ordinary sales rose 36.1% from a year ago to JPY 8.3 billion. Government stockpiles, et cetera, were JPY 0.1 billion in the first quarter. Royalties and other operating income grew JPY 15.4 billion or 211% to JPY 22.7 billion due to onetime income from the transfer of long-listed products, et cetera. Operating expenses increased by 8.4% from the previous year to JPY 41.1 billion. As a result, our operating profit increased by 60.3% year-on-year to JPY 42.8 billion. The operating profit margin was 29%. The second line from the bottom is our net income, which grew by 65.1% year-on-year to JPY 31.2 billion.

Please turn to Page 5. This page shows our sales, excluding Tamiflu, between January and March this year. The left side shows sales by disease area. First, the top portion in blue, overseas sales, rose by 24.6%. You can find sales by products and year-on-year change on the right-hand side. Actemra, overseas as the top in blue, rose by JPY 5.4 billion in sales. Actemra export is performing well. There has been a substantial growth on the volume basis since last year. About 1/3 of this JPY 5.4 billion increase was due to the effect of the yen's depreciation.

The fourth one from the top, HEMLIBRA overseas, increased by JPY 0.7 billion in sales. We commenced HEMLIBRA export from the second quarter last year. So the first quarter sales are equal to year-on-year increase in sales compared to the previous year, which reached JPY 0.7 billion. Going back to the left-hand side, if you look at the domestic sales by disease area, the bottom portion in green, oncology, declined by 1.4%, including Rituxan, Tarceva and HER2 franchise.

Next, bone and joint in purple, grew by 5.9%. Specifically, sales increased for Actemra, the second from the top on the right, and the bottom to Edirol and Bonviva. Sales of renal diseases in yellow decreased by 3.6%. There is no specific product shown in yellow on the right-hand side, but sales declined by JPY 0.3 billion due to a negative growth of some long-listed products. Sales of others in gray decreased by 12.7% and no specific product in this category is shown on the right. This was due to a negative growth of long-listed products. A drug called rohypnol was transferred to Eisai last year. Due to these factors, our sales for others decreased by JPY 0.9 billion.

Page 6 shows Tamiflu sales trends. First, the upper right section in green shows sales for the flu season from the second half of our fiscal year to the first half of the next fiscal year, which is different from our financial year. This indicates the sizable flu season. The 2017 flu season had sales of JPY 13.9 billion, the biggest amount among these 6 seasons shown here. As for Tamiflu capsule, innovation premium was returned at the time of the NHI drug price revision in April 2016. The price was down by about 11%. Compared to the 2014 season with JPY 12.6 billion sales, this season was a big one with sales of JPY 13.9 billion despite the 11% downward revision of the NHI drug price.

As you can see in the January-March quarter of fiscal 2018, ordinary sales were JPY 8.3 billion. Our full year forecast we announced was JPY 5 billion, so the first quarter already had an upside of JPY 3.3 billion. As for government stockpiles, et cetera, JPY 0.1 billion was booked in the first quarter. The full year forecast we announced was JPY 0.6 billion, so we're expecting the remaining JPY 0.5 billion to be incurred in the second quarter and beyond.

Page 7 shows our operating profit between January and March this year. Operating profit increased by JPY 16.1 billion year-on-year. The biggest impact came from the JPY 15.4 billion royalties and other operating income as indicated by a big upward arrow in blue on the left top. Another factor was JPY 3.9 billion gross profit from sales. Sales rose by JPY 6.6 billion year-on-year. After costs, there was a contribution of gross profit from sales by JPY 3.9 billion compared to the previous year. Downward arrows are representing the expenses. With the 3 expenses combined, profits were pushed down by JPY 3.2 billion, meaning expenses increased that much.

You can find the breakdown on the right-hand side. There was an increase in marketing and distribution expenses, minus JPY 0.5 billion means a decrease in profits and an increase in marketing and distribution expenses by JPY 0.5 billion due to ForEx impact, et cetera. These are marketing and distribution expenses at the overseas sales subsidiaries. As we cannot hedge expenses at overseas sales subsidiaries, ForEx impact is directly reflected. The market in euro is trending in the direction of the yen's depreciation by about 10% compared to last year. That's why costs are rising after conversion into the Japanese yen.

On the expenditure increased by JPY 1.7 billion due to steady progress of projects, et cetera. Collaboration with IFRIC started in April last year, so that portion became a net increase in the first quarter this year. General and administration expenses, et cetera, increased by JPY 1 billion due to an increase in various expenses, including corporate enterprise tax. Corporate income tax was lowered, but corporate enterprise tax was being raised, which we have used as a main explanation. The pro forma standard taxation, per se, has remained at a high level and it has stopped rising. This time, we had an increase here because the actual amount of the added value base in the pro forma standard taxation increased due to a large onetime income.

Page 8 shows the progress in the first quarter against the forecast announced at the beginning of the year. Progress of the revenues at the top was 27.2%, which is slightly better than 23.5% in the same period last year. There are 2 reasons for that. First is Tamiflu, whose sales progress was 150%, meaning it was sold more than expected. Second reason is royalties and other operating income, whose progress was 52.8%. As repeatedly explained, onetime income from transfer of long-listed products on HIP list was recognized in the first quarter, making the progress against the full year forecast appear better. The progress is actually as planned. The progress of operating expenses was 22.6%, same level as last year and as planned. The progress of operating profit was 39.6%, which appears much better than last year due to the 2 factors that increased progress of the sales. But overall, the progress was mostly as expected.

Page 9 shows the progress of sales of each product against the full year forecast. Notable products here are, first, Herceptin and Rituxan on the left. Their progresses are somewhat better than last year's progress, but they will be affected by the NHI drug price revision due to the return of the new drug development premium. Then the progress in the first quarter against the full year forecast for such products usually appear better, and it is also true for these 2 products.

Beneath Rituxan is Alecensa. It is a strategic product, which grew significantly over the last year. Its progress, however, was 17.6% and seems a little slow, but its forecast has been quite aggressive and thus, making the progress appear rather slow. But we are convinced that the growth is quite robust. On the right side overseas, the progress of Actemra overseas was 32.1% and looks good, and the progress of Alecensa is 14.4% and rather slow compared with last year, but export products are not shipped constantly every month, but rather produced by batches and shipped according to the orders from Roche. Therefore, when you look at the amount in a quarter, there are significant fluctuations depending on the timing of the shipments and the progress against the focus stays within expectations.

Page 10 shows the impact from foreign exchanges. Sales to Roche is in Swiss franc basis, purchase from Roche is in Swiss franc basis and there are some materials that we purchase from Genentech in U.S. dollar basis. For those major transactions, we hedged about 80% by the end of last year, so our focus is based on the exchange rate of weighted average of 80% hedged rate and 20% expected rate in the market. As for the first quarter, majority of the transactions are based on the hedged rate and as a result, the impact of around the exchange rate on operating profit was almost 0, as shown on the left. That is all from me.

Thank you. Next, Hirose will explain about the development pipeline.

[Minoru Hirose, executive]

This is Hirose from R&D portfolio department. I'd like to explain about our development pipeline status in the first quarter. Please take a look at Slide #12. This is a list of pipeline products in oncology, bone and joint and renal areas as of April 24. Red stars mark the projects with changes from the last announcement in February. In oncology, 2 projects, RG7802 and RG7828, enter the portfolio. As photo-centric, Phase III study for HCC has been started and in addition, it was also filed for the first-line therapy for NSCLC.

In bone and joint, Edirol was filed in China. Slide #13 shows a list of our pipeline products in autoimmune, neurology and the other areas. RG7935 in neurology area licensed in from Roche newly enter the portfolio. In addition, in other area, in-house developed products of Amy109 also entered the portfolio.

Next, I'd like to discuss the development status from Slide #14. TECENTRIQ was launched last week on April 18 with the indication on unrestrictable advanced or recurrent NSCLC. Also in March this year, it was filed for the first-line treatment of unrestrictable advanced or recurrent NSCLC in combination with other antitumor drugs. And participation in the global Phase III study for HCC in combination with Avastin started this month.

Please turn to Slide 15. With regard to ACE 910, HEMLIBRA, approval for patients with hemophilia A with factor VIII inhibitor was obtained in Europe in February and in Japan, in March. Approval in the United States was already obtained in November last year, so now we obtained the approval in 3 regions of Japan, U.S. and Europe. In addition, for patients with hemophilia without inhibitors, breakthrough therapy designation was granted by U.S. FDA. The breakthrough therapy designation was the second one for HEMLIBRA, following hemophilia A with inhibitor and 6 1 for our in-house products.

Edirol was filed in China in February for planned indication of osteoporosis. Please proceed to Page 16. RG7802 or CEA TCB is a bispecific antibody against CEA CD3 in-licensed from Roche. Phase I study in Japan started in January this year. Its mode of action was already explained at the last time we announced our business results. Next, as for RG7828, CD20 TDB, Phase I study in Japan for hematologic tumors started in March. I will explain the details later. RG7935 is an anti-alpha-synuclein antibody also introduced from Roche. Phase I study in Japan started in February this year. I will explain the details for this project later also.

Please turn to Page 17. AMY109 is an antibody project utilizing our own antibody technology. Phase I study was started for a planned indication of endometriosis. Mechanism of action is not to be disclosed for now. The development of RG3637 or lebrikizumab has been discontinued. As for activities towards commercialization of Foundation Medicine's products in Japan, we have concluded a sublicense agreement for exclusive commercialization rights in Japan. Also, FoundationOne CDx was filed last month.

Next is results of clinical trials and conferences on Page 18. With regard to the global Phase III study or IMpower150 study for first-line therapy for NSCLC with TECENTRIQ, we have announced that interim analysis showed statistically significant improvement in OS with the addition of TECENTRIQ versus Avastin plus chemotherapy. Extension of OS was commonly observed in all major subgroups, including stratified groups by expression status of PD-1. Results of subgroup analysis for PFS with the addition of TECENTRIQ was presented at AACR this month.

Next is Page 19, again for TECENTRIQ. It was announced that results of global Phase III study or IMpower131 study for first-line therapy for advanced or recurrent NSCLC showed statistically significant improvement in primary endpoint PFS with the addition of TECENTRIQ versus chemotherapy. Also, we announced that the results of global Phase III study IMmotion151 study for the first-line therapy for RCC showed the combination of TECENTRIQ and Avastin reduced the risk of disease progression or death by 26% compared to sunitinib in patients with PD-L1 expression.

Next, from Page 20, I'd like to use 2 slides to explain about RG7935 anti-alpha-synuclein and the antibody and RG7828 CD 20 TDB. RG7935 is being developed for the planned indication of Parkinson's disease. It is a progressive neurodegenerative disorder with the wide spectrum progressive motor and no motor symptoms. It is thought to be caused by aggregated pathogenic forms of alpha-synclein being transferred from cell to cell, resulting in spreading neuronal death in the brain. RG7935 is a monoclonal antibody specific to aggregated alpha-synclein and is hoped to bind and clear alpha-synclein aggregates, protect the neurons and delay or stop the disease progression.

Slide 21, please. RG7828 CD20 TDB is a bispecific antibody that binds to CD3 of T-cell and CD20 of B-cell. It activates T-cells by cross-linking with CD20 and induces immunologic reactions against tumors by inducing T-cells. It is also expected to be efficacious against indolent cancer cells and chemotherapy-resistant cancer cells. Fc region of the antibody was engineered to eliminate the ADCC functions. In that sense, its mode of action is different from that of Rituxan and obinutuzumab. The last slide shows our projected submission in the future. That is all from me. Thank you.

[Unknown Executive]

Mr. Seki from UBS securities, please.

[Atsushi Seki, analyst]

I have a few questions. First, I'd like to ask you about HEMLIBRA export. We announced the 2017 full year results before. You said that you'd adopt the market price once the price becomes stabilized. What's your outlook for the price stabilization as of now? That's my first question.

[Toshiaki Itagaki, executive]

Thank you for your question. Regarding HEMLIBRA export, our forecast this year is JPY 2 billion. To explain the first quarter results, there still remains instability with the retail price. So we will be exporting based on the price agreed to by Roche and Chugai for the time being. As of now, we will still continue our export based on the price agreed to by Roche and Chugai. We are not expecting a price review within this year.

[Atsushi Seki, analyst]

In other words, are you saying that the retail price was still unstable between January and March this year? Is my understanding, correct?

[Toshiaki Itagaki, executive]

When we say unstable, it depends on areas and regions to sell. We have approval only for inhibitors for now, but when it's also approved for noninhibitors in the near future, what would happen to the price will depend on the indications and the areas. I used that expression unstable in that sense.

[Atsushi Seki, analyst]

Also my second question about HEMLIBRA, there were 2 cases of death in the expanded access in March. Roche explained at that time, it was not aware of that. I fully understand these are not related to the drug but do you have any update on the situation?

[Minoru Hirose, executive]

Hirose from R&D portfolio speaking. Let me respond. There have been 5 cases of death in total for HEMLIBRA, including the 2 cases you mentioned. Causality with the drug was ruled out in all cases as you suggested.

[Atsushi Seki, analyst]

Last year, there was a case of refusal of blood transfusion. Anything you can share with us, including such background?

[Minoru Hirose, executive]

The remaining 4 cases were compassionate use, so we cannot talk about patient profiles.

[Atsushi Seki, analyst]

Next, I have a question to Mr. Itagaki about ROOI, royalties and other operating income. I'm sure this includes the transfer of long-listed products to biopharma in the first quarter. You may not be able to disclose the actual value, but was the first quarter ROOI in line with your assumptions vis-à-vis your full year forecast? Or was it higher or lower than you expected?

[Toshiaki Itagaki, executive]

It was in line with our expectations.

[Atsushi Seki, analyst]

Let me ask you 2 brief questions. SKY clinical study was suspended temporarily in Europe and there were 2 cases with smart to moderate adverse events. Is my understanding correct that you're still continuing your development? Any particular issues?

[Toshiaki Itagaki, executive]

Hirose is going to respond.

[Minoru Hirose, executive]

As we said, 2 subjects developed mild to moderate adverse events. According to the assessment by investigators in charge, these were nonserious events. Both subjects recovered from their symptoms without any after-effect. They have resumed administration and are continuing with the study drug. That's the situation.

[Atsushi Seki, analyst]

Lastly, about AMY109, this is an antibody, your proprietary technology was applied to this antibody. It will be highly appreciated if you can share it with us, if any.

[Minoru Hirose, executive]

It was described that Phase I study will enroll 80 healthy subjects.

[Atsushi Seki, analyst]

I thought 80 may be a little too many for a Phase I study. What do you think?

[Toshiaki Itagaki, executive]

First, regarding the antibody technology, we're using our proprietary Smart antibody technology. As for your second question about the sample size in Phase I study, we are sorry, we cannot comment on the specifics.

[Unknown Executive]

Mr. Hashiguchi from Daiwa Securities.

[Kazuaki Hashiguchi, analyst]

First, about HEMLIBRA, it may be difficult for you to comment as Roche has not announced its results yet, but how do you see the recent status of penetration among patients and physicians as far as you know? Of course, there can be things that are better or worse than you initially thought. Could you please comment on your assessment?

[Toshiaki Itagaki, executive]

Roche is going to announce its first quarter results the day after tomorrow, and we don't know their numbers ourselves. But as long as we are hearing, treatment is penetrating steadily as initially planned.

[Kazuaki Hashiguchi, analyst]

In your response to an earlier question by the previous analyst, you mentioned what would happen to the price when it's extended to noninhibitors? According to my understanding, the price is set in the United States and others by having the future line extension for noninhibitors already in site. Are you suggesting that you don't rule out the possibility for you to review the price depending on the situations?

[Toshiaki Itagaki, executive]

No. That was not our intention. Of course, regarding the price in the Roche territory, Chugai is not in a position to say anything about it. But generally speaking, we don't know the price yet, as it will depend on regions and indications. But still, we have to continue our export, including initial stock. Until we can identify the situation and until both parties become convinced, we will have to continue to export based on the current pricing.

[Kazuaki Hashiguchi, analyst]

My last question. You filed submission for Edirol in China. What marketing and distribution scheme are you considering as an option right now?

[Toshiaki Itagaki, executive]

Itagaki speaking. Both Chugai and Roche have presence in China, but we are going to discuss marketing and distribution from now on. We don't have anything, in particular, we can talk about at the moment.

[Kazuaki Hashiguchi, analyst]

You have your own presence. If you are to sell on your own, you can get all the revenues in that case. But, on the other hand, is there any possibility that marketing and distribution expenses may be bigger than the current level at one point in time?

[Toshiaki Itagaki, executive]

It will depend on the marketing and distribution scheme, so we don't know yet, including these issues, we are discussing internally right now.

[Unknown Executive]

Mr. Yamaguchi from Citigroup Securities.

[Hidemaru Yamaguchi, analyst]

Regarding HEMLIBRA export, there seems to be a good progress in your comparison against the full year forecast. Is my understanding, correct?

[Toshiaki Itagaki, executive]

Itagaki speaking. With regards to export, like Actemra and Alecensa, it's not something to ensure a certain volume constantly on a monthly basis. It may look good due to JPY 0.7 billion versus JPY 2 billion on a full year basis but this is just in line with our plan.

[Hidemaru Yamaguchi, analyst]

And sorry for a similar question, but I have 2 brief questions about pricing. Next year, you will get the indication for noninhibitors. Although you're not expecting it this year, when this will be launched globally, the price is going to be stable, correct?

[Toshiaki Itagaki, executive]

What I can answer now is as follows, while we announced the results of the previous year, we replied that we'd like to do this early. As of now, we can say that early timing will not come by the end of this year.

[Hidemaru Yamaguchi, analyst]

So you're saying that it will not happen in 2018, correct?

[Toshiaki Itagaki, executive]

That's right.

[Hidemaru Yamaguchi, analyst]

Okay. And also Alecensa is progressing well, both in terms of domestic sales and export. But you said that the progress is a little slower compared to your plan. Overseas is export but in Japan, is it going to trading rapidly among existing patients? Or its market share has stopped rising? Any gap compared to your marketing assumptions?

[Tadahiko Sato, executive]

Sato speaking. Thank you for your question. Alecensa's share has already exceeded 80% and has stabilized at the high level. As for the status of progress in our plan, as Itagaki mentioned earlier, we are formulating a very aggressive plan this year, but it's progressing well in line with our expectations according to understanding.

[Hidemaru Yamaguchi, analyst]

Also lastly, about AMY109, OB/GYN is an area, which Chugai and Roche haven't focused a lot before, relatively speaking. Will Roche play a main role in the development in and outside of Japan or will Chugai develop this compound to a certain extent?

[Minoru Hirose, executive]

In principle for our in-house project, we will obtain proof-of-concept about ourselves. So we're assuming that we will conduct clinical studies ourselves. When we approach someone at a certain timing in the future. In principle, we will approach Roche first.

[Shinichiro Muraoka, analyst]

This is Muraoka from Morgan Stanley. My question is about AMY109. According to the design of clinical study in [indiscernible], healthy males and healthy females are recruited. It is for endometriosis. You include males in Phase I study because this compound has a potential for other diseases, also for males?

[Toshiaki Itagaki, executive]

In terms of the mechanism, males are included just as our usual study design in general. Not thinking of additional indications in the future so it doesn't mean much right. You can understand so.

[Shinichiro Muraoka, analyst]

Next is about numbers. The difference of R&D expenses between IFRS and the core results is JPY 4.1 billion. It is quite significant. You explained the development of anti-IL-13 was discontinued. I assume it is because of that, that the number is so large. Would you please discuss the background of such a large number, if you may?

[Toshiaki Itagaki, executive]

Mr. Muraoka, it is related to impairment, but I'm sorry that we are not able to disclose the details, but I could give you a little hint. It is not only due to the discontinuation of the development. We always calculate the present value of the product from the future value and compare what we capitalized and recognize impairment, if necessary. So please understand, this includes a wide variety of things.

[Shinichiro Muraoka, analyst]

My last question is about SKY59. I understand the situation. Can we expect the restart of the development for this? Or do you need to take a long time to consider?

[Toshiaki Itagaki, executive]

As for sky, as I mentioned earlier, we are now getting ready for restart.

[Shinichiro Muraoka, analyst]

Then we can keep our hope, right?

[Toshiaki Itagaki, executive]

Yes.

[Unknown Executive]

Next, is Mr. Sakai from Crédit Suisse.

[Fumiyoshi Sakai, analyst]

This is Sakai. With regard to the profit margin in the first quarter, you mentioned that there was an impact of NHI drug price revision or a holding off of Alecensa. It is 49.1% and it seems rather low as a profit margin before the price revision. According to your plan, you expect the similar margin level to continue after April. Please confirm if my impression is correct in that the margin level for the first quarter was rather low.

[Toshiaki Itagaki, executive]

Mr. Sakai, where is the number 49.1%?

[Fumiyoshi Sakai, analyst]

It is on the third page of the supplementary materials, cost of sales ratio against sales. I just did subtraction.

[Toshiaki Itagaki, executive]

This is Itagaki. Let me clarify again. Core cost of sales as a percentage of sales is 50.9% in the first quarter. Yes, compared with the full year core results from last year, it is almost flat growth.

[Fumiyoshi Sakai, analyst]

Yes. I assume there are various changes like change of product mix in the first quarter, but it is not affected by the NHI price revision. I assume the level in the first quarter should be a little higher and then with the impact of price revision, the full year forecast is developed. When you see the impact of price revision going forward, cost of sales was increased. Is this an appropriate level for the first quarter?

[Toshiaki Itagaki, executive]

I see what you mean. Cost of sales ratio versus sales in the full year is 50.6%.

[Fumiyoshi Sakai, analyst]

Compared with that, since first quarter results are not affected by the price revision, you are suggesting the cost ratio should be lower or in other words, the profit margin should be higher. This is what you're saying, right?

[Toshiaki Itagaki, executive]

Well, as for the first quarter, the cost of sales ratio versus sales is as we expected in the first quarter. Tamiflu accounts for a large share and although export was good, results of domestically purchased products were getting worse. So the product mix is not the same and positive things offset negative things and 50.9% was as we expected.

If it is within your expectation, it is fine. And you expect the impact of the price revision after April. Prices of purchased products will also be adjusted based on the NHI price revision as usual. And when you consider the growth of our in-house products in the second half, we believe that the cost of sales ratio versus sales is not very different between the first quarter and the remaining 3 quarters, even with the price revisions this year.

[Fumiyoshi Sakai, analyst]

Just a confirmation, as for Roche products, the share of burden for products undergoing the price revision remains unchanged, right?

[Toshiaki Itagaki, executive]

Yes.

[Fumiyoshi Sakai, analyst]

Two more questions, please. As for SKY59, you mentioned before that there will be data readout in the third or fourth quarter. Is it going to be delayed? Also, as for ERY974, which was not discussed today, it is in Phase I, and you said dose escalation was going on. Am I correct to understand that dose escalation has been completed?

[Toshiaki Itagaki, executive]

As for SKY, we will try to minimize the impact of hold and catch up with the schedule, but there'll be a little delay. As for ERY, dose escalation is still going on, although, I'm not able to discuss the details.

[Fumiyoshi Sakai, analyst]

This is Phase I, and still not completed?

[Toshiaki Itagaki, executive]

Right.

[Unknown Executive]

Next question is from Mr. Akahane, Tokyo Tokai Research Institute.

[Takashi Akahane, analyst]

Just one question. On Page 7 and 8, if you look at the progress, sales excluding Tamiflu is slightly slow. Progress of Tamiflu is quite high and progress of royalties are more than 50% due to long-listed products. So in the first quarter, royalties and Tamiflu was good. Is my understanding, correct?

[Toshiaki Itagaki, executive]

Yes, exactly.

[Takashi Akahane, analyst]

This affects the profit?

[Toshiaki Itagaki, executive]

Yes, of course.

[Takashi Akahane, analyst]

And Page 7, JPY 3.9 billion sales increase is shown. What contributed to this most? Tamiflu?

[Toshiaki Itagaki, executive]

This number is growth. Tamiflu was good compared with focused, but the profit here is the year-over-year comparison. Tamiflu sales grew only JPY 2.2 billion year-over-year and its gross profit does not account for a major part of JPY 3.9 billion growth. Major reasons were increase in exports and impact of foreign exchange, as shown on the right.

[Takashi Akahane, analyst]

You mentioned that HEMLIBRA was as expected, but when you look at the progress of export in Roche, it is 27.5%. So this also drove the sales. Is this correct?

[Toshiaki Itagaki, executive]

If you compare year-over-year, Actemra grew significantly and its contribution to gross margin is great.

[Takashi Akahane, analyst]

Another question. In addition to NHI drug price revision, the assessment of hemodialysis is varied among different institutions depending on the efficiency from April. Hemodialysis is 2,010 points, but in the worst case, it is going to be 1,900 points.

I don't think hemodialysis is very profitable and the situation is going to be more difficult. Does it have a significant impact on your business?

[Toshiaki Itagaki, executive]

We assume some impact. As for ESA, the trend may be that it is replaced by lower-priced products.