Eisai Co Ltd

TSE:4523

Earnings Call Transcript 2021-Q2

[Unknown Executive]

It is now time. We would like to begin financial results presentation for the second quarter fiscal 2020 by Eisai Company Limited. The presentation will be live streamed or can be heard on telephone lines. Those who are participating on the telephone lines, please refer to the deck of slides that are uploaded on the website of Eisai. Download them and click them yourselves.

Let me introduce the presenter today. Presenter is Representative Director and CEO, Haruo Naito. Now without further ado, presentation will begin.

[Haruo Naito, executive]

I would like to start the presentation on the financial results for the second quarter of fiscal year 2020.

On this slide, we are showing the consolidated statement of income for the first half. As you can see in the headline, during the period under review, there were impacts of COVID-19 pandemic globally. So it's not exaggeration to say that given these circumstances though, top line revenue was JPY 317 billion, up 6% year-on-year. We achieved increased revenue.

Cost of sales ratio was 25.1%, an improve of about 2.7 percentage points from a year earlier. This is mainly due to the improved product mix because of the expansion of in-house developed products. As a result, gross profit was increased by double-digit ratio from a year earlier. And the gross margin ratio was improved by 2.7 percentage points. So it has demonstrated a sound, robust foundation for profit generation.

R&D expenses. In our case, we receive partners' reimbursement. Including those reimbursement from partners, R&D expenses account for 30.7%. Therefore, among global peers, we are one of the companies which are allocating significantly into the R&D activities among the management resources. Oncology, neurology have been the 2 major areas where we have significantly allocated our resources.

SG&A expenses have expanded by about 1.9 percentage points in terms of ratio in the revenue. I would like to touch upon this later, but all of these expenditures were to capture the existing business opportunities or future business opportunities. To capture them, we have allocated resources. Therefore, these have been the proactive investments for future growth.

As a result, operating profit was JPY 34.1 billion, up 6% year-on-year. Profit for the period was JPY 25.8 billion. ROE was 7.6%, although this was the interim number. And at the Board of Directors meeting held today, we resolved interim dividend of JPY 80 per share.

Next slide. Here, we are showing the breakdown of migration in revenue. On the left-hand side, you see the actual results for the last fiscal year, JPY 299.3 billion. In each region, you see the status of changes in revenue.

In Japan business, minus JPY 6.2 billion in revenue. The number of products designated for premium to promote the development of new drugs has increased. However, because of the factors for decrease of revision of drug prices and the impact of COVID-19 negatively affected the business.

In Americas, there was a strong growth of LENVIMA. BELVIQ was discontinued. And although there were also negative impact of COVID-19, all these factors were overcome to grow by JPY 9.6 billion in Americas.

China business, during the first quarter, we believe there was significant impact to COVID-19. But during the second quarter, that impact was overcome and made up for, and there was an upside of about JPY 1.3 billion for the total first half.

Now turning to Europe. Even now, it has been affected significantly by the second wave of COVID-19 pandemic in this region. But given the strong growth of LENVIMA, we have had the upside of positive JPY 0.8 billion.

In Asia and Latin America business, mainly due to the termination of sales contract of Humira in Taiwan, the revenue was reduced by JPY 1.3 billion. And the COVID-19 impact is estimated to be about 5% of the revenue.

In the bottom right corner, you see the plus and minus in global brands. LENVIMA has shown very robust growth. As a result, revenue increased by JPY 17.8 billion year-on-year. Of course, this increase included onetime event, which was the transfer of rights for tazemetostat. There was the revenue received for that onetime event, had an impact of JPY 13.5 billion in increase to the revenue.

Next, I would like to share with you the breakdown of operating profit migration. From the left, JPY 32 billion was recorded as operating profit for the last fiscal year. And next to it, global brands expanded to contribute JPY 18.3 billion, has been -- which had shown the strong expansion.

And following 4 items are to capture the immediately available business opportunities or upcoming or future business opportunities to be captured by making these resource investments.

In July, Japan, and in June, in the U.S., DAYVIGO was launched and related costs for the DAYVIGO launch were incurred and R&D costs for LENVIMA. And the shared profits with partner has increased in line with the expansion of LENVIMA. And to capture the future opportunities in Alzheimer's disease franchise costs related to AD, we made these investments.

On the right-hand side, our onetime events contributed to the increase in operating profit is shown. As a result, all in all, there was an increase of operating profit by JPY 2.1 billion year-on-year.

At the far right, you can see the status of R&D expenses. As I said earlier, we received reimbursement from partners which is shown in yellow part. Overall, total R&D expenses seem to have decreased, but this is mainly due to the elenbecestat -- the termination of the elenbecestat project, BACE inhibitor project, last fiscal year. This was the main reason for the decrease.

Now turning to the business. First, we would like to share with you our initiatives related to COVID-19 pandemic. In the top half of this slide, we would like to report to you what we are doing about treatments.

First, eritoran. We used to develop this as a candidate treatment for severe sepsis. We reached Phase III study, however, could not meet the endpoint. So this was the theme of development. This eritoran is antagonist for a toll-like receptor 4, which is at the most upstream of various cytokine gene expression signaling.

So the COVID-19-associated pneumonia and cytokine storm is thought to be the cause for such pneumonia, and this is expected to stop cytokine storm at the very upstream. And this has been developed until Phase III. Therefore, the safety profile for this candidate has been completed. And this is now being developed under the international consortium called REMAP-COVID. And clinical research studies have been started and actual administration in patients have started.

E6011, which is -- was discovered by KAN Research Institute as anti-fractalkine monoclonal antibody. Angiopathy is known to be the frequently observed symptom of COVID-19 infection, and it is expected to be effective in tackling this. And this has been adopted by AMED, and it is being considered to be introduced into clinical trial.

In bottom left, development of treatment agents. Screening utilizing chemical library under the scheme of Bill & Melinda Gates Foundation. Our unique naturally derived compound library has been provided to the scheme, with several potential candidates identified.

In bottom right, there is a collaboration for the development of vaccines. Former Boston research laboratories have succeeded in discovering adjuvant to vaccine. Utilizing this adjuvant, the COVID-19 vaccine research is being conducted by Canadian company, VBI Vaccines. And we understand that the clinical study is underway -- clinical study discussion is underway.

Next, I would like to talk about clinical stage pipeline for AD. Today's Eisai, the drug development and discovery for Alzheimer's disease is based upon this scheme. At the top, on the horizontal axis, AD continuum. This is the continuum of disease progression in Alzheimer's disease, which is shown in the horizontal axis.

On the vertical axis, ATN, pathophysiological hypothesis is shown. This is hypothesis of pathophysiology. Based upon these 2 axes and the domains, we are implementing drug creation. Preclinical AD, early AD and AD are included in the AD continuum, like this disease is expected to progress.

Early disease and amyloid aggregates on the vertical axis. The domain, covered by this, aducanumab is positioned here, amyloid beta antibody. And preclinical AD, if you go back to preclinical AD in AD continuum and you see BAN2401 or that is named in -- under INN as lecanemab, which is positioned here, anti-amyloid beta protofibrils antibody.

And ATN, T, T in the ATN, tauopathy. Of course, this project is covering the entire ATN. But for -- particularly for this tau, our in-house developed an anti-tau antibody, E2814, for which Phase I study is ongoing.

And next N, neurodegeneration. In the domain covered by this, here, first-in-class synapse regenerant. Synapse regeneration is expected to be the efficacy, an in-house small molecule compound of E2511 Phase I study has been initiated. This E2511 is targeting early AD and later stages of AD continuum. We expect that this will be efficacious in addressing these stages.

At the bottom, dementia with Lewy bodies, which is set to account for about 20% of all dementia. The drug creation is shown here. And cyclic GMP is expected to be reduced, and that has been confirmed based on the human biology.

PDE9, which is associated with the cyclic GMP, by inhibiting this, it is aimed at maintaining cyclic GMP level. That is the pharmacological effect.

Now E2027 is now in the Phase II/III study which is ongoing.

First, for aducanumab. As has been already announced in the United States, the application has been filed with FDA, and it has been granted a priority review with a PDUFA action date set on March 7, 2021, but it may -- it may be granted the expedited review for this BLA. Actually, this Advisory Committee meeting will be held tomorrow, where discussion will be conducted.

In Europe, for EMA, Marketing Authorization Application has been accepted by EMA and we believe that the review is underway. With PMDA, pre-submission formal consultation meeting was held, and we are preparing for NDA in Japan. With other additional key markets, we have started preliminary consultation discussions with regulatory authorities.

Next, anti-amyloid beta protofibrils antibody, lecanemab. For your information, L is taken from the name of Professor [ Langeveld ] Uppsala University in Sweden, and E is from Eisai and CA is from creation. This is how this candidate has been named lecanemab.

For early AD patients, regulatory trial Phase III study quality AD. Although some sites were affected by COVID-19 pandemic, but almost -- most of those sites have resumed the study. And the form of infusion is utilized on behalf -- instead of the infusion at hospital or utilizing the telemedicine, we have tried to minimize the delay. Completion of patient enrollment and the final readout of primary endpoints are as planned. And we estimate that these will be completed by the end of second quarter of fiscal year 2022. This has stayed unchanged.

And targeting patients with preclinical AD, Phase III study AHEAD 3-45, through collaboration with ACTC. In addition to the U.S., but in Japan, Singapore, Australia and Europe, we plan to initiate the study in over 100 sites. In the United States, first infusion has been achieved already. Lecanemab, as I said earlier, is positioned in the upstream to cover up to early AD and the AD continuum. That is how we are going to position this drug in development.

Next, novel anti-MTBR Tau antibody, which is related to the tau and the hypothesis E2814. Currently, Phase I study is steadily ongoing. Although it is a very busy slide, I'm sorry about this, but in the top left corner, you see tau protein horizontally from N terminal to C terminal. This is tau protein. And there are various binding sites and various anti-tau antibodies targeting various binding sites of the tau protein are being developed.

Our E2814, as you can see in the red part, microtubule binding region, MTBR, is specifically engaged by this antibody E2814. This MTBR, what does it stand for? And what is it? And that is represented in the schema below. Tau is propagating through synaptic cleft. And tau fragments associated with the propagation is MTBR in our understanding. Therefore, these antibodies are associated with the trapping of the taus in the synaptic cleft, which are associated with the propagation. Therefore, neurofibrillary tangles, NFT, can be prevented or reduced because this is thought to be caused by this propagation of tau.

On the right-hand side, as a human biological evidence, various in-brain tau peptides are shown. What is shown in red related to patients with AD. And on the tau fragments, which are reported to be increasing in the patients with AD, are these MTBRs. In AD patients, based on human biology evidence, MTBR, which is associated with propagation, should be reduced in order to mitigate the tauopathy. This is the expectation we have for this antibody.

And this is the in-house developed novel synapse regenerant, E2511. Currently, Phase I study has been initiated. In AD continuum, if you look at the schema, and top half of the schema on the right-hand side, cholinergic neurons are significantly vulnerable in AD and known to be causing the synaptic degeneration or damage.

And as you can see in the schema for functional neuron, TrkA is expressed here. However, it is known that significant decrease of expression TrkA is happening. And therefore, the degenerative changes are taking place.

E2511, as you see in the third bullet, E2511 binds to this TrkA and turns on the survival and signal synapse regeneration of cholinergic neurons and it is expected to enhance restoration of damage to neuron, or these damages of the neuron will be reversed back to the left on the schema. And as you can see, potentially, it is expressed to suppress brain atrophy caused by neurodegeneration. We are expecting these effects will be exhibited by the small molecule compound.

We aim to develop new concept of synapse regeneration in the development of AD therapies. We have a very high expectation to this new candidate.

Now changing the subject to LENVIMA. This year's forecast is JPY 158 billion. To achieve this target, we are making good progress.

On the left side, there is a bar graph, describing the first half performance of LENVIMA. In all of the 5 regions, growth was achieved, 136% or 36% (sic) [ 136% ] year-on-year growth was achieved with a revenue of JPY 68.5 billion.

On the right side, performance by region is given. Central role is played by the biggest market, Americas. Revenue was JPY 41.9 billion. Growth was 48% year-on-year, very strong growth was recorded.

Regarding Americas, I will discuss in more detail. We are maintaining #1 share in HCC and indication for endometrial carcinoma was obtained. There were various upside events driving the growth in Americas.

Turning to China. Growth of close to 30% was seen in HCC. We have introduced new patient assistance program to reduce out-of-pocket burden. And China market is growing.

As for EMEA, although impacted by COVID-19, countries where the drug is indicated is increasing. In order to prevent infection, oral drug for cancer treatment is recommended. And we were able to achieve close to 30% growth year-on-year. And we are maintaining high share in HCC and EC.

As for Asia and Latin America, Asia HCC experts gathered in APPLE, where consensus guideline discussed HCC, recommending LENVIMA strongly. For endometrial cancer, combination therapy with KEYTRUDA is expanded in a number of Asian countries, with approval from a number of Asian countries. And we would like to make sure to achieve the annual target of JPY 158 billion.

Now turning to the important market for LENVIMA, which is the United States. For endometrial cancer, hepatocellular carcinoma, renal cell carcinoma and thyroid -- differentiated thyroid cancer, for these 4 cancer types, LENVIMA is indicated.

At right top call number situation is given, including in-person and digital calls. April, May and June because of the impact of the pandemic, situation was very difficult. However, including face-to-face calls, it is now on the recovery trend.

Starting from October this year, with Merck, regarding EC and HCC, our efforts will be enhanced to increase call level back to pre-COVID level, we have reached agreement with Merck on this. And for EC and HCC, we are sure that we will be able to make further progress.

At right bottom, for each cancer type, revenue ratio by indication is given. Endometrial cancer was added in the first half of this year. Regarding RCC, there is a benefit of reducing the infection by using oral cancer drug. And for DTC, we are maintaining share.

Regarding LENVIMA, in fiscal 2025, JPY 500 billion level is the target. And LENVIMA/KEYTRUDA combination therapy LEAP studies are underway to contribute to additional indications. Currently, there are 11 studies ongoing, as shown here, for submission purposes, conducted as randomized controlled studies.

In the middle of this slide towards left, what we plan to prove our usefulness for is shown. And a number of new patients for these cancers are shown. For each of the cancer type, large number of newly diagnosed patients exist each year, lung cancer, hepatic cancer, bladder cancer, kidney cancer, endometrial cancer, head and neck cancer and melanoma. For each of the cancer type, Phase III study is underway. There are 3 RCC, 2 HCC and 2 EC studies. So 3 NSCLC studies, 2 HCC study, 1 RCC study and 2 EC studies. Basket trial on mostly solid tumor has yielded good results, which was presented at ESMO 2020.

Of that, I would like to report further on NSCLC. For systemic treatment-naive patient, LEAP-006 study was conducted. In the safety run-in part, 13 subjects were enrolled with a response rate of 69%. We were able to obtain very robust results. And this was presented at ESMO 2020.

In the main part of the study, in the comparative control part, we are making good progress in enrolling patients. In addition, in LEAP-007 study, first-line PD-L1 positive study, and LEAP-008 study, in the second-line study, in these studies as well, we are also making good progress in enrolling patients. This major cancer type lung cancer is also an area where we are making efforts to make contribution.

On this slide, basket trial details are given. Colorectal cancer, gastric cancer, ovarian cancer, in the late-line refractory cancer types, trials are conducted and favorable results are expected. We would like to expand the number of subjects to further our research.

Now, I would like to change gears to discuss structural reform in the regions. First, turning to Japan. Within Eisai Japan, Deputy President was named. HX headquarters and ADF promotional headquarters are established under the Deputy President. HX headquarters stands for Health Care Professional Engagement Transformation headquarters.

Digital will be thoroughly utilized to provide various information to medical professionals and to engage in closer exchange with medical professionals. Under these headquarters, there are a number of departments, starting from Digital Solution Department. And as shown in the small bullet points, patient information will be received, and that information will be processed together with our data to come up with useful information and daily life related data, or digital medicine like digital solution can be offered. This will grow in importance. So department responsible for these efforts was established as Digital Solution Department to introduce, plan and promote digital solution and to build P3 model.

Next is Field Force Support Department. During the COVID pandemic, there were various restraints on sales activities. Digital communication tool grew in importance as a result. CRM, Customer Relationship Management, is used and implemented, and there are various tools and programs to support CRM implementation to enhance digital communication capabilities. That will be the responsibility of Field Force Support Department.

And the third is Digital Marketing Department. These very digital tools will be utilized by this department. And rather than in-person, digitally, information will be communicated to a certain group of experts. That is the Digital Marketing Department.

And Real-World Data Marketing Department was also established. Medical institutions have real-world data, and we will also be engaged in analyzing and utilizing that information to generate various useful information. Coroban is a system to prevent fall and such a system is an example of efforts by this department.

At the center, ADF Promotion Headquarters stands for Alzheimer's Disease Franchise Promotion Headquarters. Various efforts are to be realized, including brand management.

Second is value. This group will be also engaged in Asian region, pricing strategy, improvement of access, patient assistance program review. In addition, PET and CSF and future blood diagnosis, dissemination will be responsibilities under this Value Department.

And the third is hAC, h area coordination. For each medical region, there will be a network built between family doctors and specialist doctors, diagnostic network and treatment network included. The network building will be the responsibility of hAC.

And below, Network. Eisai currently has dementia cooperation agreement with 167 partners, including with local municipalities. And various efforts with these partners will be promoted by this network, including brain performance enhancement effort and improvement to delay shift to NCI.

On the right side, under Chief Digital Officer, CX Headquarters was established. CX Headquarters stands for Consumer Experience Transformation Headquarters. For dementia ecosystem, we have easiit, and easiit will be implemented by this headquarters. We would like to expand the number of members under easiit and there will be personal health record input by members, including information on diet, walk -- walking and sleeping. And such input can be made more convenient, we would like to develop IoT and other technologies for that purpose. That will be done under marketing department. And part of it is a simple checking of brain performance. This is a digital tool called NouKNOW, and this is already marketed.

NouKNOW can be used in insurance industry or in financial service industry, construction, retail, automotive, fitness, cosmetics and other industries. We are collaborating with providers in these different sectors using NouKNOW. Partnership with these multisectoral partners will be pursued to further improve convenience of these services. And that is done under planning and partnership department. As represented by NouKNOW and easiit, we would like to enhance and improve our ecosystem and would like to add products and services.

At the right bottom, there are navy blue boxes including Conversion Science. At the center of this ecosystem is the data, clinical trial data, cohort data that will have to be converted to be input into this ecosystem, and that will be done under Conversion Science. Digital data will be developed. Maintaining digital infrastructure, et cetera, and digital security, system security will be the responsibility of Tech Squad.

As for easiit that I've already explained and as you already may know, the characteristics of easiit are shown at the very top. It is an ecosystem to link daily living domain and medical domain. And the purpose is, as shown at the very bottom in the message, to increase awareness of disease and allow for early access to consultation and to bring about behavior modification. We would like to eliminate chasm.

In the daily living domain. PHR, including data on sleep, diet and walk, will be input by people. And this also will include NouKNOW information regarding the assessment of brain performance. The easiit part in the daily living domain is where we have collaboration alliance with DeNA. And current health data visualization and output and useful information to improve brain performance. And in the future, we would also like to be able to provide information that will be useful in prevention of dementia onset or prediction of dementia onset.

And the core part is, as shown in the middle, including the latest biomarker information on dementia treatment, high-quality clinical trial results and external cohort data, together with AI algorithm, the data part is the core part.

And in the Medical Domain. From medical professionals through digital media, et cetera, various information will be input, as shown on the right, and that information will be processed. And patient information can be shown on the dashboard. Treatment effects can be visualized. And side effect detection, imaging diagnosis assistance are also possible output.

In Japan, in the second half of the year, even during the COVID-19 pandemic, we would like to continue to expand contribution to patients. DAYVIGO will offer new option to patients suffering from insomnia. And digital included information dissemination is underway steadily.

For rheumatoid arthritis, new JAK1 treatment, Jyseleca, will be co-promoted with Gilead Sciences. We are seizing this very important opportunity to co-promote Jyseleca in the second half of the year.

In the United States, oncology, epilepsy, insomnia and AD are the 4 franchises that we are growing in the United States.

Turning to China. There are active developments in China. On the left side, there are pie charts shown to indicate the sales performance in China. Year-on-year growth is 3%, overcoming COVID pandemic impact. And the blue part in the pie is expansion with global brands, which increased from 16% to 22% as a ratio of total. And these global brands are shown on the right up; LENVIMA, HALAVEN and Fycompa.

As shown on the right bottom, in China, long-term products are also as important as these global brands. Through government centralized procurement system, long-term products are purchased. Regarding Methycobal, we were successfully -- we were a successful bidder in government centralized procurement system. And Methycobal will be procured in a priority fashion by 16 provinces, improving access by patients dramatically.

At the right bottom box, Benxi Plant in Liaoning Province is shown in photograph. Generic product in China will have to be qualified before a very stringent [ BE ] evaluation. Benxi Plant's Loxoprofen passed that qualification and we expect growth going forward.

Another point about China is -- or another topic about China is our partnership with Jing Dong Group, which is a very strong platform -- group in China. The joint venture was established with Jing Dong Group. Jingyi Weixiang Health Industry Development Limited Company that appears in the Middle East, the joint venture. Dementia-related one-stop digital service platform will be built.

Jing Dong has an excellent network and has a very strong track record in e-commerce. Eisai also has a wealth of knowledge in Alzheimer's disease and dementia, and disease understanding can be enhanced, self-awareness can be enhanced, online clinical work can be improved and nursing care referral will also be supported. On the malls, merchandise of various products will become possible. This is centering around China. For dementia patients and for their families, we would like to offer one-stop digital service and we would like to take the first step in building dementia ecosystem in China.

Now lastly, I would like to share with you full year forecast. Leveraging expansion of LENVIMA, as shown in the headline, and towards 2025, we will be entering into the second half of EWAY, called EWAY Future, and we will be making active investments.

Revenue forecast is JPY 719 billion, 3% growth year-on-year. And we will continue to grow gross profit. And we will be making active investment of resources through the use of cost of sales. As a result, operating profit forecast is JPY 88 billion. Profit for the year forecast is JPY 67 billion. ROE forecast is 9.7%. Annual dividend per share of JPY 160 is something that we have confidence achieving.

With that, I would like to conclude. Thank you very much for your attention.

[Unknown Executive]

We would like to start the Q&A session. We would like to invite questions first from those participating through telephone conferencing system. [Operator Instructions]

I am going to name the person who is ready to ask a question. First person to ask a question is from Citigroup Securities, Mr. Yamaguchi. Mr. Yamaguchi of Citigroup, please have the floor.

[Hidemaru Yamaguchi, analyst]

This is Yamaguchi. Can you hear me?

[Unknown Executive]

Yes, we can.

[Hidemaru Yamaguchi, analyst]

This is Citi's Yamaguchi. I have one question. It may be complex in my way of asking this question. But regarding the FDA's Advisory Committee, yesterday evening, there was a briefing document published -- released. And in usual briefing document, typically, harsh comments may be appearing. I have never read through all the documents, but scientific evidence is touched upon neutrally. But for successful study, that will be okay. But for unsuccessful studies, how are we going to combine them in order to get the data for supporting your submission?

And that is the discussion in the briefing document. It's very difficult to ask this, but once you saw it, and towards the end of this week, there will be the voting by the Advisory Committee. For you, Mr. Naito, I know that you are confident, but inclusive of what is happening immediately -- recently, well, so I know that you are not in a position to make comments, but inclusive of the plan and progress made to date with Biogen regarding the development of aducanumab, could you please give us your take on the current status? Anything -- any comment will be welcomed.

[Haruo Naito, executive]

Thank you very much for your question. Exactly, as you pointed out, Advisory Committee meeting will be held tomorrow. So it is right before us. So we are at such a moment waiting for the committee. So I don't think I'm in a position to make any comments. So currently, we would like to refrain from making any comments now.

But if I may give you one comment as my personal observation, please allow me to say that. And I would like to share my personal thoughts looking back at the history of new drug development in Alzheimer's disease. Aricept, our drug, was first approved in the U.S. in 1996. This was the start of the history. And after that, in 2003, memantine was approved as the most recent one, as regards to the approved drugs in Alzheimer's disease. Over the past 17 years -- 17 years until today, there has been a long duration of blank without any new drug approved. And we look forward to a good discussion at the Advisory Committee meeting to be held tomorrow.

And regarding the clinical trials for aducanumab, there have been many patients, other stakeholders like caregivers and clinicians, investigators, we'd like to thank all those stakeholders around the world who have participated in aducanumab clinical trials.

[Hidemaru Yamaguchi, analyst]

After the voting by Ad Com, if you could share your personal thoughts once again on that occasion, I would appreciate it.

[Unknown Executive]

Next, we have Mr. Kohtani from Nomura Securities. Mr. Kohtani?

[Motoya Kohtani, analyst]

This is Kohtani from Nomura speaking. Can you hear me?

[Unknown Executive]

Yes.

[Motoya Kohtani, analyst]

Aducanumab and Ad Com information I've reviewed and biomarker cognitive function, behavior function, improvement in NPI 10, agitation and other psychological symptoms, significant improvement were shown. And exceptionally persuasive was the wording from FDA which I also can agree. I don't think you will be able to comment on this briefing document. So I would like to ask in a different way about ENGAGE study, which was a failure. And this was a surprise to me. First progressor. Because of faster progressor, efficacy was not proven in high dose in placebo. And in low dose, there were only 4 or 5. But in high dose group, there were 9 fast progressors. There is only a difference of 4 subjects.

And about Phase III study of BAN2401, there is only one dose. And so there -- I don't think there is a problem of lack of those in the ENGAGE study. But if there are unbalance of fast progressors, same problem can occur. In Phase III study of BAN2401, how are you responding to the lack of balance of faster progressors? If there are abnormal distribution, are you able to analyze -- to eliminate that imbalance?

[Unknown Executive]

Well, thank you for your question. Neurology Business Group President, Ivan Cheung, will address the question.

[Ivan Cheung, executive]

Thank you very much, and this is Ivan Cheung, Neurology Business Group. With regard to this matter, I would point out a few things for you. Number one, in the Clarity AD study, yes, there is only one dose. That's a high dose, but please remember that the Clarity AD study for BAN2401, there is no titration. So it's a flat dose, high dose, from the very beginning. That's point one.

Point two is if you look at the sample size power, because we only have one dose in the study, the sample size is, I would say, very, very robust to ensure that we can detect the most appropriate efficacy signal, taking into consideration a number of different potential factors, including the 1 that you just mentioned. So these are the 2 points I want to refer you to.

[Unknown Executive]

Are you satisfied with the answer, Mr. Kohtani?

[Motoya Kohtani, analyst]

Yes. I have a second question. I'd like to ask you a question about LENVIMA. Melanoma second-line, LEAP-004, LEAP-005 indication. In principle, I think that the treatment has not been established for these patients. So increasing the number of patients, and I think that you will be able to file for approval. LEAP-006 study, you have obtained a very good data comparators in Tecentriq plus Avastin [indiscernible] 25 Opdivo plus Avastin and about 60% ORR has been shown in this study. So the LENVIMA is utilized, and I think in terms of the side effects, and I think you will have unfavorable position.

[Unknown Executive]

Regarding this question -- thank you for your question. Oncology Business Group, who is in charge of Science, Dr. Owa is going to respond.

[Takashi Owa, executive]

Mr. Kohtani, thank you very much for your question. As you pointed out, melanoma, LEAP-004 in a basket trial in each type of cancer included in the basket trial and aiming at increasing the number of patients to be enrolled and to make that more robust in order to explore the potential of approval, we will explore them.

And at the same time, the endpoint is made as the endpoint in the large-scale study. And comprehensively, we'd like to explore the potential of getting approval, and we would like to initiate discussion with the regulatory authorities.

LEAP-006, targeting the all-comers study for lung cancer. Yes, as you said, antibody medicine Avastin -- Avastin and LENVIMA are compared for HCC. And the SDRs, the inhibition, it can be expected only with LENVIMA. And that is shown as a significant inhibition by biomarkers as well. We have understood that. Therefore, in terms of efficaciousness, we will be able to differentiate against Avastin. And from this preclinical data, as well as the comparison within other types of cancer with higher response rate and a longer survival period, and I think that we will be able to explore these for potential approval.

[Unknown Executive]

Next, we have Mr. Hashiguchi from Daiwa Securities. Mr. Hashiguchi?

[Kazuaki Hashiguchi, analyst]

This is Hashiguchi from Daiwa Securities. Page 4 about AD-related expense, JPY 7.4 billion decline. This is AD-related. In the first quarter, I don't think this description was given. Is this a temporary expense? Or as shown on Page 16 and Page 17, to prepare for a launch, because of these efforts to prepare for launch, there is going to be a continuous expense. And as of now, the expense level as indicated on Page 4. That is my first question.

[Unknown Executive]

Thank you for your question. CFO, Mr. Yanagi, will respond.

[Ryohei Yanagi, executive]

Thank you for your question. I'm Yanagi, CFO, speaking. Regarding Page 4 waterfall chart, AD-related expense of JPY 7.4 billion. As you correctly pointed out, for AD products, to prepare for launch, personnel costs, cost of goods sold are all included here, and this is not a onetime special factor. And depending on the circumstances in the future, Alzheimer-related next-generation product preparation related costs will be incurred. And in some cases, may be incurred in accelerated fashion. So this cost, I believe, will be continuously shown during the quarterly results going forward.

On a consolidated or annual performance, this is also reflected. So cost of goods sold is growing at double digit. This is an intentional increase in cost. Cost of goods sold is growing at double digit, and that includes this AD-related cost. And this is a very positive future investment.

[Kazuaki Hashiguchi, analyst]

Regarding LENVIMA sales, my next question is about LENVIMA sales. The progress to date is 43% in comparison to full year plan, and the second quarter is lower than the first quarter result. What is the probability of achieving annual target?

And sales milestone forecast is given on Page 34. What is the probability of achieving these milestones?

[Unknown Executive]

Thank you for that question. Oncology Business Group President, Mr. Iike, will respond.

[Terushige Iike, executive]

Mr. Hashiguchi, thank you for your question. As for annual forecast of JPY 158 billion, there is no change about this full year target, annual target, as mentioned by Mr. Naito, CEO, during the presentation. In the first quarter, we were impacted by COVID pandemic in the United States and other regions as well. But in particular in the United States, we were not able to have face-to-face contact with our customers. And there are speaker programs or national broadcast programs, and temporarily they were put on hold. But after summer, these programs were resumed.

And in the second half of the year, actively, together with Merck, we are engaged in activities in the second quarter, especially in the United States, for HCC in actual clinical practice. Real-world evidence will be utilized based on actual clinical practice. And since it's an oral agent, everolimus for RCC, in combination with everolimus, another oral agent in RCC is also showing growth. And therefore, in the second half, we believe that we are able to fully catch up and achieve annual target.

And therefore, regarding the milestone-related revenues, we expect to achieve these milestones with Merck. We are working as one team. Thank you for your question.

[Unknown Executive]

Thank you very much. With the constraint of time, we would like to entertain one last person from Morgan Stanley Securities. Mr. Muraoka, could you please have the floor?

[Shinichiro Muraoka, analyst]

This is Muraoka speaking. I'm from Morgan Stanley. As a follow-up to the question asked by Mr. Hashiguchi for LENVIMA, and second quarter seems to be a little weaker. Is it because of the fluctuation of the inventory level? Were there any such specific reasons? Or rather, it is just a little weaker than expectation, therefore, as you said, the various measures will be taken to increase? Could you please elaborate on that response again?

[Unknown Executive]

Thank you very much for your question. We'd like to ask Mr. Iike to respond.

[Terushige Iike, executive]

Thank you very much for your question. Particularly during the first quarter, mainly in the U.S., newly diagnosed patients had reduced consistently as a temporary phenomenon. So that means that there was a little time lag in transitioning of the inventory into sales. The access or visit by patients to medical institutions is recovering. Therefore, I think that this will be positively working to the second half.

[Shinichiro Muraoka, analyst]

I have another question regarding aducanumab. And then after passing through the review and getting the approval, after getting through the Ad Com, and if there is a need for PET and subsidies for the testing or maybe you are coming up with the support program for tests, and I know the number of sites is not enough, how are you going to have a steady ramp-up? I the initial stage of launching, I do not see any answer by myself, but I don't think that the widely available diagnostics, it's not launched yet and what measures are you thinking about as far as possible? Could you please share with us any ideas?

[Unknown Executive]

Thank you for your question. I would like to call up on Mr. Kimura, who is going to respond, in charge of science of Neurology Business Group.

[Teiji Kimura, executive]

Thank you for your question. My name is Kimura. I am from Neurology Business Group. Regarding your question about PET, how we can improve the access to PET test. We understand that, that will be necessary. And in-brain amyloid positivity is judged by PETs and CSF and also centesis in the lumbar spine. And we are thinking about this. As far as possible, PET, CSF and PET and [ N ] access shall be increased, and we are taking various measures to increase the access.

And furthermore, blood. In the end, of course, PETs and CSF measurement shall be replaced by this blood testing. That's what we are expecting to see. But before that, by having blood testing, I think higher-risk patients will be accessing the PET or CSF testing. It's beneficial in terms of health economics. And it is also beneficial, thinking about the burden on patients, and CSF access will be restricted. So such various measures will be taken. And those patients with higher risk will have access to prescription of aducanumab. For that purpose, we are thinking about various measures.

[Unknown Executive]

It is now time. We would like to conclude financial results presentation session on the second quarter of fiscal 2020 by Eisai Company Limited. Thank you very much for your time. Thank you for your participation.

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