Eisai Co Ltd

TSE:4523

Earnings Call Transcript 2023-Q2

[Unknown Executive]

Thank you very much for taking your time to attend Eisai's Q2 Fiscal 2022 Financial Results Presentation. The presentation session is held in hybrid format, including in person at the venue and online distribution. Presentation, financial report and reference materials are distributed to those who are attending in person. Those who are calling in, please download the presentation material from our website and please click to advance the slides. Those of you who are watching live streaming, please continue to watch the screen.

I would now like to introduce the presenter today, Representative Corporate Officer and CEO, Mr. Haruo Naito.

[Haruo Naito, executive]

Now I'd like to start our financial briefing session for the second quarter of FY 2022. The first page. On the right-hand side of this slide, for the first half of this fiscal year you can see the P&L results. The top line revenue was almost flat from a year earlier. To the right, you can see the amount of ForEx impact. For revenue the impact of weaker yen was positive and negative impact of weaker yen for profit. And P&L results are being reported now. But first thing that I needed to mention is related to operating profit JPY 5.3 billion, which was only 9% of the level recorded last year. We would like to take this opportunity to apologize for this. Reasons for this profit level is something that I'd like to explain first today. The main reason for this is here related to the revenue in other business, the third line from the top, which was 10% of a year earlier at JPY 6.1 billion. Last year JPY 62.9 billion was recorded in other business in revenues.

Last year there was the revenue for partnership for MORAb-202, therefore there was a license income. Therefore, as a reaction to that, for this fiscal year other business revenue significantly decreased. So this accounts for the reason why there was over 90% reduction in operating profit for this fiscal year. The decrease in the revenue in other business was also due to the items of business developments, which were anticipated to be recorded in the first half, which were delayed to the second half and we can say that these items will be realized in the second half for sure. So the revenue in the other business will recover to what was expected at the beginning of the year for the full year. Therefore, this decrease in operating profit is onetime and we are sure that the profit level will recover in the second half. And the second line from the top, pharmaceutical business revenue because of the weaker yen, it grew 18% from a year earlier. Excluding the ForEx impact, it grew 106% or 6% up from a year earlier.

Our overall main business, which is our pharmaceutical business, the revenue has stayed steady and strong and R&D expenses accounted for 22.7% of revenue. We have continued to make strong and positive investment in R&D expenses compared to the peers of the global top tier companies. AD related and lecanemab R&D expenses have been made proactively. We have prioritized investments and resource allocation to these areas. Including partners reimbursement, the R&D expenses ratio in the revenue was over 30%. This suggests that we have been making proactive investments in R&D expenses. SG&A expenses because of the strong impact by weaker yen, particularly the next line shows expenses regarding shared profit of Lenvima paid to Merck. If you look at this, this was expanded by about 1.5 fold from a year earlier. This is the shared profit of Lenvima paid to a partner. The shared profit of revenue in line with expansion of revenue of Lenvima, it is expected to increase as well.

So this is the proactive investment. We believe that this will lead to the further strengthening of our collaboration relationship with partner. Excluding this shared profit in the SG&A expenses excluding the impact of weaker yen decreased slightly from a year earlier. Therefore, SG&A expenses have been well controlled. That is our understanding. As a result, operating profit was 9% of the recorded amount of last year at JPY 5.3 billion. Profit for the period; as we reported in the financial briefing session for the first quarter in order to correct the maldistribution of the funds, we conducted -- received a repayment of the paid-in capital from a consolidated U.S. sub to the company; and JPY 31.8 billion was reported as the profit for the period because of the reduced tax expenses. And we have been able to maintain the very robust and healthy balance sheet and financial structure based upon which at the Board of Directors meeting held this morning, we have resolved to pay JPY 80 per share as the dividend for the first half.

Next page. I have said that the pharmaceutical business has been steady and the driver for such steady growth is these 4 global brands as we can see here. In particular, Lenvima grew 40% from a year earlier to reach JPY 128.2 billion. For Fycompa, Halaven, Dayvigo; for all of these products, we have been able to exceed the levels recorded last year. For Dayvigo, significant growth was achieved in Japan which was about double the revenue from last year. And 4 Global Brands, total revenue was JPY 183.3 billion, which was up 40% year-on-year. Next by region as well as the current status of pharmaceutical business and OTC business as well. And for the last half, as I said earlier, the revenue of the pharmaceutical business grew steadily and also segment profit of pharmaceutical business, excluding the impact of weaker yen, up 15% from a year-on-year. Therefore, we have been able to grow the profitability as well as revenue in these segments.

On the right-hand side, you can see the growth of revenue by segment. In all 5 regions where we do businesses, we have been able to achieve the growth over last year particularly Americas and EMEA, we could achieve double-digit increase in revenues. In Americas over 40% growth in revenue was mainly driven by the growth of Lenvima. Because of this impact if you turn to the left-hand side bottom left pie chart, this shows the share of the sales comparison by region at Eisai. The blue portion at the bottom America's share is shown here, which increased by 5 percentage points. Next, this is the financial forecast for full year. In the second half this year, we are ushering in the era of lecanemab. We are entering in very crucial period with very tense and we have braced up ourselves with the strong results and we're expecting to have revenue of JPY 760 billion. R&D expenses and SG&A expenses will be controlled securely.

And the revenue in the other businesses, which have been delayed to the second half, we are confident that we will recover in this line as well. And operating profit will be JPY 55 billion. Profit for the year will be JPY 58 billion and JPY 160 per share as dividend based on the robust balance sheet or financial structure will be achieved. Now today, I would have to talk about Alzheimer's disease as well as the current status of lecanemab. If I may recap Alzheimer's disease, what AD is. First, this disease is a progressive and fatal neurodegenerative disease, which account for approximately 70% of elderly people living with dementia. AD begins with slow cognitive and functional deterioration and then eventually leads to total loss of independence in the later stage. AD progresses from an asymptomatic preclinical stage to mild cognitive impairment or MCI to dementia and ultimately to death. In the United States, AD is the sixth leading cause of death.

Very critical disease. Pathophysiologically, amyloid plaques, neurofibrillary tangles tau, neural and synaptic degeneration or neuro-inflammation are confirmed in AD. 1 out of 3 people diagnosed with MCI progress to AD within 5 years, 1 out of 2 people diagnosed with AD have mild AD according to some reports. And what is the most conspicuous about this disease is that this disease poses a significant economic burden on health care systems and the people living with AD and their families burden of taking care of the patients, particularly for families. Informal costs or invisible costs are estimated to exceed the health care expenditures of nursing care expenditures provided by the public service and also bringing about the economic burden on the families such as restricting the working hours of the family members who have to take care of their family as patients.

Next, in late September, top line results for Clarity AD for lecanemab and I would like to give you an update since then. First, we initiated communication with FDA, PMDA, EMA; these 3 major regulatory authorities. We have been able to make and continue smooth communication with them. By the end of March next year or within the end of fiscal year 2022, we are aiming to complete submission for full approval in Japan, U.S. and EU. And CMS, managing Medicaid and Medicare, we have started negotiation with CMS as well. For AD DMT accelerated approval, CMS has made a very tough decision on the reimbursement. However, for full approval and so-called data with high level evidence if this has been brought forward, then this decision can be overturned. This statement was also issued by CMS. We believe that Clarity AD data meets the requirements to be high level evidence prescribed for by the CMS.

So we are aiming to secure full reimbursement coverage in the United States and we'd like to continue to have constructive dialog with CMS going forward. The second block point is related to the review and the accelerated approval pathway in the United States, which is ongoing on track. PDUFA action date has been set for January 6 next year so we expect that we will obtain approval by this date. And regarding the results from Clarity AD, how we are going to publish that results. We are preparing to submit for timely publication of the results in a peer-reviewed journal with high impact factor, which is ongoing steadily. This publication shall be co-authored by 12 eminent experts in the field of dementia who are also investigators in Clarity AD and 7 experts from Eisai. On November 29, CTAD conference will be held in San Francisco. On the first day of the Congress and in the first session in the evening, 75-minute lecanemab session will be held.

I would like to share with you what will be presented then. The session will be chaired by Professor Takeshi Iwatsubo of the University of Tokyo. Professor Iwatsubo is the President of Japan Association of Dementia. And presentation 1 will be talking about the study design of Clarity AD, Eisai Inc.'s Michael Irizarry will report. Michael will play the central role in preparing the protocol for all the lecanemab related studies. And next, regarding the efficacy of lecanemab. From Yale School of Medicine, Professor van Dyck will make presentation. Professor van Dyck, as you may know, has experience in most AD related clinical research projects and he is the leading authority in the AD field. Regarding safety profile of lecanemab, again Dr. Sabbagh, who is the leading authority in the safety research of AD, who will make presentation on safety. And imaging CSF, plasma, biomarkers; Dr. Bateman from Washington University will make presentation.

He is the leading authority of these biomarkers related to AD and he is the leader of the DIAN-TUs. And for presentation 5, which will discuss context of Clarity AD results. The overall data from Clarity AD will be discussed to explain what clinical meanings are included in such data for patients and their families. So this is going to be the overall presentation. The speaker will be from Toronto Memory Program, Dr. Cohen will speak. Dr. Cohen is in the first line of a clinical practice as the behavioral neurology expert. Dr. Cohen has rich experience in real world. Therefore, he is appropriate for talking about the meaningfulness and significance in the real world and he believes that it is very important to have such clinical real world meaningfulness. And lastly, there will be panel discussion and Q&A. So for Clarity AD, there will be multifaceted discussions on the Clarity AD as a whole in detail the data sets at this conference.

As we have been telling you, what we believe is very important as regards to lecanemab is to secure transparency of data and I'd like to report to you today that we are making steady progress towards transparency of data. If I may recap what we may have said. I would like to talk about the origin and characteristics of lecanemab. On the left-hand side, you can see the origin and the development since then. Of course AD DMT, it started from this publication of the amyloid cascade hypothesis by Professor John Hardy in 1992, which was published in journal Science. Then in 2001 from Uppsala University, Lars Lannfelt researched familial Alzheimer's disease in Sweden and he found Arctic mutation. On the right-hand side, mutation was found in 22 of amyloid beta APP and in researching this Arctic mutation, he found that amyloid beta protofibril were formed significantly and amyloid beta protofibril was founded to be playing the central role in neurotoxicity.

After that, in 2005 based on this Arctic mutation, the creation of the mouse derived antibody was started. Since then, Eisai participated in the joint research. Then in 2007, that mouse derived antibody was humanized successfully and that gave rise to the lecanemab, which was the first only amyloid beta protofibril antibody with high affinity and selectivity for protofibril, which is explained on the right-hand side. In this diagram a snake-like figure shows APP amyloid precursor protein. Currently, there are 4 AD DMT antibodies in clinical stages. The reasons of affinity held by these 4 antibodies are shown in this diagram. As you can see, each of the 4 antibodies are recognizing different regions of APP, respectively. Lecanemab, as you can see in the bottom right corner in red characters, when amyloid beta is in the monomer state, lecanemab recognizes 1 to 16 of the amyloid beta. But when amyloid beta aggregates and forms protofibrils, it recognizes 20 to 34.

Therefore, as a result, protofibrils are more easily recognized and leading to high affinity. So this is the unique characteristics of lecanemab. Next, for success of lecanemab, Clarity AD, we believe there are 4 Rs. At Eisai, we believe that these 4 Rs, 4 right elements needs to be realized in order to have success in drug discovery. This is what we have believed in. And regarding these 4 Rs, 4 rights, I'd like to explain. Right hypothesis, right dosage and administration, and right target population and right endpoint. These 4 -- well, this may be compared to a jigsaw puzzle. Once there is a perfect combination of these puzzles, we have experienced success in drug discovery and development.

In this Clarity AD, for right hypothesis, amyloid beta protofibril playing the central part of neurotoxicity in AD and if we can suppress this, then we believe that it will lead to the improvement of the clinical symptoms and right dosage 10 milligram per kilogram biweekly without titration. This dosage and administration were identified. This dose and administration, as we have reported to you several times, was based on the results from Phase II study, Study 201. Study 201 took as long as 6 years. 5 doses were compared in controlled study against the placebo. Therefore, it took as a result in total 6 years. So it gave us a lot of fluctuation.

But from the results of the study, we derived this dose and administration. We believe that this was one of the key success factors now, right population MCI and mild AD and right endpoint over the past 20 years. Regulatory authorities have reviewed CDR SB in the post lab. This has designated as an primary endpoint. We believe that these 4 Rs led to the success in Clarity AD. This is a busy slide, but what we consider to be important is shown in this slide. Priority AD success and origination of lecanemab related importance. The beginning of the lecanemab drug discovery was arctic mutation discovery. This is a familial mutation starting with discovery. pathology, functional genetics were understood. And what is at the center of the pathology is A-beta protofibril and clearance of A-beta protofibril would suggest that as potential treatment and highly selective A-beta protofibril antibody was developed.

And not only familial Alzheimer's disease, but sporadic Alzheimer's disease which show similar pathology are also targeted. And in sporadic Alzheimer's disease, effectiveness was shown. And in drug discovery and development of lecanemab, this approach was taken and we believe that this will be a new page in the chapter of drug discovery in neurology area. E2814 development is underway. This is anti-tau antibody. Similar pathway is followed by E2814. This anti-tau antibody is looking at dominantly inherited AD mutation carriers and from that analysis, it was found that within CSF, there is an MTBR region containing tau and this was discovered to be increasing from early stage. MTBR tau clearance was expected to result in slowing down of global deterioration in not only DIAD, but in sporadic Alzheimer's disease. And with that, the thinking is underway and specific taus specific to MTBR was developed -- specific tau antibodies specific to MTBR was developed.

And the familial Alzheimer's disease trial is conducted by ILiAD, but we are also conducting in-house Phase I study in sporadic Alzheimer's disease with similar pathology. [indiscernible] treatment is what we would like to target. Towards maximization of value of lecanemab, multiple studies are ongoing. First, regarding development of new administration methods. I would like to report that these developments are underway currently. Subcutaneous administration is intravenous dripping. Patients will have to come to the hospital and receive IV drip for certain duration of time, which can be burdensome. And at home for self-injection -- to enable self-injection, new administration method is developed. Clarity AD open-label extension study is conducted and open injection included, subcutaneous administration substudy is carried out. And we aim to file for regulatory submission in fiscal 2023.

As shown in the second bullet, development of maintenance dosing regimen is also underway. Currently, it is bi-weekly, but after paying certain efficacy switch to monthly or once every 12 weeks or longer interval administration maybe are considered in 201-OLE study. As shown in the middle, we are waiting to collect evidence from long-term administration. The 2 OLE studies are planned for up to 5 and 4 years each. In addition to early AD data that we have collected thus far for moderate AD, what efficacy we can observe in terms of data can be collected. And DIAN-TU Tau NexGen study also plans to have long-term administration. As shown at bottom now as for earlier stage in preclinical AD, asymptomatic AD will be targeted. This is a PET finding of borderline or slight increase in PET finding. These so-called preclinical AD stage before MCI will be targeted in Phase III study called AHEAD3-45 study. This study is underway and 54 months of administration is planned.

On a broader base of patients, we are planning to make a greater contribution. Next, regarding amyloid diagnosis, this chart shows the current status. The top part is a very busy chart. In Japan and the United States for NCI and AD; PET, CSF blood biomarkers are used for amyloid or tau. And whether regulatory approval is given or not is shown and whether reimbursement is given or not is shown. Regarding regulatory approval, circles or crosses are found in the cells and you can see that the situation is mixed. As for reimbursement, currently for most of the diagnostics crosses are the majority. They are not reimbursed. AD DMT -- when AD DMTs are approved and launched, at that time there should also be regulatory approval for amyloid diagnostics and reimbursement should also be granted to amyloid diagnosis. This is a crucial factor in providing ADMT to patients.

And currently, we are also engaged in consultations with the authorities regarding PET as shown in the middle. Imaging authentication facilities are increasing in number and especially regarding amyloid PET, enhancing the number of related staff will have to be achieved. And regarding CSF, lumber puncture procedure is necessary hence through training sessions conferences, it is important to make lumber puncture procedure skills widely acquired. As shown at the very bottom, in the future we expect a greater increase in number of patients in Asia. When we look at China and India, we believe that there can be a wide margin increase of patient population in these countries, low-cost, convenient blood based biomarker or BBM will be essential in these regions. By accumulating real world evidence, amyloid PET, CSF equivalent precision BBD, blood biomarker-based diagnostics is what we would like to establish.

Now at Eisai itself, we have subsequent projects for Alzheimer's, which I would like to report now. Regarding lecanemab, I have already reported to you so far. And next, as I mentioned earlier, we have anti-MTBR tau antibody E2814. This is in the middle of this schematic diagram and tau will be propagated in the -- there are green parts on the both side of MTBR tau and antibody that has affinity to these are developed, which is E2814. By stopping the propagation, the accumulation of tau in the neural cells will be stopped or inhibited. That is the mechanism. E2025, E2511, both are aimed to regenerate synaptic functions. E2511 is TrkA binding synapse regenerant. By regenerating axons, it aims to regenerate synaptic activities. This is a small molecule agent. E2025 is an EphA4 antibody. It is an anti-EphA4 antibody. By activating this -- or EphA4 activation is known to cause a synaptic retraction in tau phosphorylation. By inhibiting that activation, retraction in phosphorylation expected to be suppressed.

And both of these are aiming at regenerating synaptic functions. This comes after proteopathy. This targets the activation or regeneration of neural functions. Next, further upstream we have collaboration with academia which is advancing. There is an exclusive collaboration between Eisai and academia. One is with Keio Medical School in Japan. This is called EKID, Eisai Keio Innovation Lab for Dementia. This receives full funding support from AMED from 2017 for 10 years. Project is underway. Keio Medical School -- Keio University School of Medicine, as you know, has centenarian samples. Samples of people over the age of 100, 110, 120; people at the age of 100, 110, 120; and data from these people are collected complete with medical records and some of them have APOE4 positive data, but even at the age of 120 did not experience onset of Alzheimer's disease. Such samples are also included and these are quite precious assets. In addition, related to Keio, we have high quality clinical samples.

Based on these, research is conducted. Analysis using multiomics is carried out and iPS cells and human organoids are also used with cutting edge technologies and facilities. Between AMED, there are 3 milestones established. And the first milestone is from -- was achieved in fiscal 2021, which is brain clearance enhancement and related target -- related signature was discovered. At Eisai itself, synthetic research will be initiated and preparation is made. Milestone 2 is brain homeostasis improvement and Milestone 3 is a neural network activation. On the right side, we have shown -- on the right side, we have collaboration with University College London UCL in the United Kingdom. For more than 30 years we have engaged in collaboration with UCL in various forms and we are having a full-fledged collaboration with UCL in dementia area. DRI, Dementia Research Institute, is a consortium of 7 universities and leading edge research is conducted. UCL is a core research institute of that consortium.

Anti-MTBR tau antibody that I've mentioned earlier is an antibody that was found as a result of the UCL discovery. And next small molecule TREM2 function coordination for treatment of AD. And for Parkinson's disease, there are 2 small molecule compounds, one is related to mitochondrial homeostasis and the other related to lysosomal function. These projects are being launched. As for Eisai R&D as Eisai itself, starting from the second half of this fiscal year, business groups such as Oncology Business Group, Neurology Business Group from discovery to development we have these organizations. But as shown here, DHBL structure will be the structure that we will be shifting into, Deep Human Biology Learning, DHBL structure. The target remains the same, AD and refractory cancers. However, drug discovery approach will be changed significantly. As shown at the top, there is a green box and blue pale boxes. Genome and various human biology data based drug discovery hypothesis will be pursued by these groups.

And in addition to integrated analysis of genome based on these 5 angles; protein integrity homeostasis, microenvironment dynamics, et cetera; these are upstream of biology and growth from these angles we would like to aim at drug discovery and the basis of the hypothesis is the general information. And in the middle, there are pink bars and here are where the hypothesis will be tested. And what we consider world-class is our chemistry capabilities and that will be utilized to the maximum. There will be discovery validation using the chemistry, optimal modality selection will be in that -- in this pink bar part. And in the blue part ultimately, we have to also prove in clinical development our hypothesis in highly advanced statistical methods. We would like to utilize advanced statistical analysis method. With our AIML of past data, for example clinical trial without placebo arms may be designed or the number of participating patients may be reduced by a substantial margin or the duration of the time for clinical study may be shortened substantially.

And by conducting such studies, we would like to prove the hypothesis. And only we will be able to have high quality clinical data biomarker and cohort data from these efforts and they will base it back and the cycle will be repeated. Now there are 2 last slides. Another important aspect of dementia is realization of inclusive society. People living with dementia should be able to live in comfort and with a sense of security. We have to build such a society. From quite early on with various local governments, we have been cooperating with local governments in our efforts in this respect. On the left side, employment support in Gifu Prefecture and in all the Prefecture in Takeda City, we are conducting Iki-Iki driving and health classes. Elderly people if they have to give up a driver's license, it will be very difficult to lead daily life. How it is important for elderly people to be able to drive for as long as possible and that is what is dealt with by these classes.

And 2 boxes in the middle show dementia screening in Bunkyo Ward or space creation project where a house is rented. Together with our neighbor Atomi University, we are engaged in this project. And on the right side is Kakekomachi Shichiken-cho Center for dementia care promotion in Shizuoka City. People can consult about any questions regarding dementia by going to this center. This is the last slide. For 25 years since the approval of Aricept, people living with Alzheimer's disease and their families kept asking us when do the next drug come out. We have never forgotten the serious expressions in their faces and sparks in their eyes not even for a moment. Just the other day in August in the United States, there was a relocation of a U.S. entity to Nutley and we had an opening ceremony and we also invited people living with Alzheimer's and their families.

And at the ceremony, the family asked when will the next drug come out. And I answered that we will be able to provide information of the results at the end of September. And the person living with Alzheimer's, who was right next to us, was looking at me quite intently and asked me are you sure? And this is quite momentous. It is very strong expectations and I felt a very strong sense of responsibility to fulfill that expectation. We are doing our utmost to obtain approval of lecanemab. And drugs are able to show value only when drugs are taken by people who need the drug and we are determined to do our utmost to realize that, to realize access. And we are working with various parties to find ways to help people living with dementia and their families live safely with peace in mind. What Eisai can do may be limited and small, but we are working with industry, government and academia towards this end. Thank you.

[Unknown Executive]

Now we'd like to open the floor for Q&A session. First, I would like to take questions from those who are in this venue and afterwards we will take questions from those who are participating online. Please utilize microphone and state your name and affiliation before asking a question. Please raise your hand if you have any questions.

[Motoya Kohtani, analyst]

This is Kohtani, Nomura Securities. On Page 8, right endpoint was discussed so I wanted to ask you a question. CDR-SB, this is slightly used university to evaluate the clinical symptoms, but there is only one company which is using totally different endpoints. So going back to ADCOMS. In the Phase II, ADCOMS was used as the primary endpoint and without having a consensus from the regulatory authorities so you changed to CDR-SB. ADCOMS CDR-SB is the basis for this compound endpoint so the cognitive function as well as the behavioral functions are included and which are similar to CDR-SB. So once again, could you please explain why regulatory authorities did not admit of the ADCOMS and is composite iADRS composite endpoint may not be accepted by the regulatory authorities?

[Haruo Naito, executive]

CDR-SB has been used widely and for many years. Therefore, for regulatory authorities, they wanted to evaluate based on CDR-SB. That was the main reason. ADCOMS, as you know, this is the composite score created by Eisai. So as a secondary endpoint, ADCOMS was admitted. Therefore, CDR-SB was set as the primary endpoint and there are 4 secondary endpoints. So as an overall data set for all these end points, we believe that very important results were derived. Am I answering your question?

[Motoya Kohtani, analyst]

IADRS is different from ADCOMS so do you think there is a higher chance that the regulatory authorities will accept that iARDS? I did not understand what it is, iADRS?

[Haruo Naito, executive]

As you know, this endpoint is related to dressing as well as cleaning of the room and preparation of meals, take a walk or payment at the time of shopping or whether or not the person could go for shopping. There are 18 items in the activities of daily living, which are evaluated rated by caregivers. So this endpoint is very important endpoint. As we reported earlier, this has been shown to have the remarked suppression of the decline of the clinical symptoms with such clear efficacy and then clear decline of the -- suppression of the clinical decline and then this shows the clear efficacy of the drug. When we see that context, this is the last session for the overall summary. This endpoint is discussed -- will be discussed as a very important endpoint. This is only my summarize. But in our discussion with various key opinion leaders about top line results, this sub endpoint we are sure will be taken up by them as a very important endpoint. Therefore, we believe that this is a very important secondary endpoint. ADC- SDL I think that is what you are referring to.

[Motoya Kohtani, analyst]

Well, I don't want to spend a lot of time. Well, I don't want to confirm what is written in the weekly magazine, but this is the news in the United States. That news after lecanemab, there was a person -- patient who passed away because of the cerebral hemorrhage and that person said that it was related to lecanemab, but this will be judged by the DSMB. So according to your publication, your opinion is different. The MI and also other stroke and several falls were reported and anticoagulants were prescribed additionally. So according to this report by the company, could I have your take as a company on this matter? And may not be related a lot. I mean amyloid beta antibodies is related to ARIA-E and ARIA-H. So what is the mechanism relating to the cerebral hemorrhage aducanumab and then 9 cases of mortality after ARIA-E while there were no such reports related to such events. So I think that you can more strongly negate that possibility.

[Haruo Naito, executive]

As for this case, this is related to the personal information of the patient. Therefore, I'm afraid I'm not able to mention any detailed background. But for this particular case when this happened, the company of course securely followed up on this case and we reported to the regulatory authorities. An independent data monitoring committee made a deliberation and came up with a judgment and they said that there is no need for significant amendment of the protocol. However, once again you needed to emphasize the notes to be taken. That was the instruction from the committee so based upon which we have continued. For the overall progression of this clinical trial as well as the requirements for regulatory submission, we do not believe that there has been any significant impact.

[Fumiyoshi Sakai, analyst]

I'm Sakai from Credit Suisse. I have 2 questions. First, PDUFA date January 6, I think this remains unchanged and after that you will file a full package submission I think it will be in 3 months' time around by March and then official approval is expected. But if approval is given from PDUFA date and when you file full package until full package approval is given, there is some lead time. And what do you plan to tell during that time?

[Haruo Naito, executive]

As you know, that period of time is such that for accelerated approval product, CMS has quite stringent limitations in terms of reimbursement. And for Medicare, we will have to follow that limitation. But in markets other than Medicare, prescriptions may be written and we will respond. And as necessary, we would also like to start patient assistance program. Does this answer your question?

[Fumiyoshi Sakai, analyst]

Does that mean that basically it will be reimbursed? Medicare and Medicaid reimbursement, do you expect that to start next year?

[Haruo Naito, executive]

The current NCD determination -- decision determination change occurs only after there is a full approval. That is my understanding.

[Kazuaki Hashiguchi, analyst]

My name is Hashiguchi. I'm from Daiwa Securities. I have 2 questions. First one is related to the SC formulation for lecanemab. By the end of the fiscal year 2023, you are aiming at filing a submission in which regions? And the data sufficient for filing, what kind of data do you think will be required based upon the concept of the regulatory authorities? So are you saying that you are expecting to file by the end of fiscal year 2023 or regarding the discussion about the conditions to be met with the regulatory authorities are yet to come?

[Haruo Naito, executive]

Ivan Cheung is going to respond to your question.

[Ivan Cheung, executive]

We have had very productive conversations with various regulatory parties including the FDA so that we now have confidence with a plan to file within fiscal year 2023. As you may remember, we've already reported out our availability Phase I result and right now in the OLE portion of Clarity AD we are enrolling individuals into the subcutaneous cohort, which will give us the necessary TD and TK information as well as safety information. As you may remember, we reported out previously that we believe the subcutaneous formulation could further reduce the ARIA-H because of the Cmax of the subcutaneous formulation while maintaining the same C average for this formulation. So the plan is quite clear now with the regulatory authorities on the data package requirements and we will file within FY 2023 to the major authorities.

[Kazuaki Hashiguchi, analyst]

My second point is related to your plan of the revenue in other businesses. You have revised down your forecast this time. Does this reflect any changes in your strategy? It means that there were some business development related events. Are there any changes in such planned BD events or changes in the number of BD projects? Although the number of projects have stayed unchanged, but the value of such BD projects have changed.

[Haruo Naito, executive]

Regarding this question, Mr. Kosaka is going to respond.

[Mitsuo Kosaka, executive]

This is Kosaka speaking. I'm in charge of strategy. Thank you for your question. Could you please stand up? There are several BD projects which the probability of success are being discussed. Timing of the realization and whether or not that these will be carried out are being discussed and based upon that, we have also factored in the strong and robust growth in the real business and we have made up a business plan and as we have reported, JPY 55 billion operating profit will be realized based upon the realization of these projects. Mr. Hashiguchi, as you know, there are innate risks in each of the onetime events. What was planned in the first half have been delayed to the second half, but with a very high chance we will be able to realize this. But the numbers that we have presented are baseline, the minimum that we would like to achieve. Please understand as such. So if possible, we'd like to aim at further upside with the onetime revenue. So I hope that you will take these numbers as such.

[Kazuaki Hashiguchi, analyst]

As a follow-up question, if possible, I would appreciate if you could answer this question as well. According to the original plan, the sales milestone of Lenvima were not included. But this time the revenue projection for Lenvima has been revised upward. According to explanation, the sales milestones are also included in the plan. Is this correct understanding?

[Haruo Naito, executive]

As for Lenvima sales milestone, we are pursuing. We will continue to pursue sales milestone for Lenvima in the second half. We have had various discussions. We are continuing to pursue this.

[Unknown Attendee]

I'm Oniji from Nikkei Newspaper. I have 2 questions regarding the earnings results. In the latest quarter it is down by 90%. What were the causes and why do you think that you'll be able to achieve recovery in the second half? That is my first question.

[Haruo Naito, executive]

That question will be answered by Mr. Yasuno.

[Tatsuyuki Yasuno, executive]

I'm Yasuno, CFO. My apologies, I was not able to hear your question very clearly over here. Could you repeat your question?

[Unknown Attendee]

So the first half operating profit was down by 90% and why do you think that you are able to achieve target in the second half? Could you elaborate on the factors behind this?

[Tatsuyuki Yasuno, executive]

Thank you for your question. On that point and generally about profitability, I would like to supplement. Regarding the second quarter, low level of operating profit was the result and as for the reasons. As our CEO just explained, in the first half we expected business development related milestone, but these were postponed to the second half of the year. So this is a temporary factor and as actual results, this will be realized in the second half and therefore, we have no concerns about the full year results. As for profit, in comparison to the previous year profit declined.

And in the previous year, we had a large revenue from business development and that business development did not occur in the first half and overall profit declined. As for the overall structure right now, as you know, we are investing actively for future growth including research and development investments and the percentage of R&D to the revenue in the first half was 22.7%. This is the actual basis. And as announced today, on a full year basis the forecast is 21.9%.

Amongst global top-tier companies, this is a high level and over short term this will be pushing down operating profit. But we would like to continue 20% R&D spending to revenue level for the short term and would like to bring it to around 15% over the medium to long term. In AD, oncology and neglected disease areas centering around these areas in important projects for future growth, we would like to continue to make investments.

As for another type of growth investment, as our CEO mentioned, in the second quarter expense regarding shared profit of Lenvima paid to Merck increased. This is a positive expense. To advance partnerships, investment is made such as this. And in the future, this will be leading to enhancement of operating profit and this is an investment for growth and we are confident that this will lead to achievements. If I may repeat, the low level of profit in the second quarter is temporary and pharmaceutical business lately is showing robust growth. And in addition, in the second half strategic option we expect will be realized and therefore we have no concerns in achieving the full year forecast.

And as CEO mentioned, that is considered as a baseline and we would like to achieve an upside. If I may add another point, we expect the strategic option realization in the second half and regarding business development and strategic option and milestone receipt, these onetime revenues -- we consider these onetime revenues as a result of our investment in R&D and commercial investments. We consider this to be the returns on our investment and reward for our efforts in actual business.

And inclusive of these, we believe that profitability is not necessarily low. I'm sorry, I'm long-winded. But over medium to long term, our main organic business should achieve high profitability. We aim to achieve higher profitability in main organic business. By digitalization, all operations will be made smarter. That will be one of the key measures. In R&D, AI machine learning will be utilized to improve agility of clinical research and reduce time required for clinical research. We believe these will contribute to improved efficiency in R&D spending.

[Unknown Attendee]

I have a second question regarding FX in Americas. I believe in revenue and in profit, currency level is working positively. And what are your views on the current level of exchange rate?

[Tatsuyuki Yasuno, executive]

Exchange rate? Once again Yasuno speaking. Thank you for your question. On full year basis, as we have announced in our forecast, the exchange rate assumed is JPY 143 to the dollar. That is the basis of our full year forecast. Is this high or low? It is difficult to say. I don't think anyone has the right answer. But currently that is the assumption that we have adopted. As for dollar-yen exchange rate and its impact on our business results, this is included in the reference material. When yen depreciates by JPY 1 to the dollar, JPY 1.6 billion plus in revenue and negative JPY 1.2 billion in operating profit. That is the impact.

[Unknown Executive]

I think we can take all the questions from those who are raising my hand. So we will take 2 -- well, there are 3. Okay. We will take 3 questions from the venue and then we will go to those who are participating online.

[Unknown Analyst]

My name is [indiscernible] We haven't been able to participate in the announcement of the results of Clarity AD and congratulations and it started from the research on the familial AD and lecanemab was discovered and developed and I'm glad to hear that today. And familial Alzheimer's disease, those people living with familial AD. Well, they have cooperated for research, but still they were not able to participate as subjects in the clinical trials.

To resolve that issue, DIAN, the international research cohort was created and then trial units were combined so that those people with FAD can participate and I think that what Professor Lars Lannfelt mentioned. And for lecanemab, the familial and hereditary AD or MCI or mild familial AD were not included in this trial. But once approved and then indication, do you think indication will include familial AD or mild cognitive impairment or mild dementia? Do you think that these will be included as the population who will be indicated for this lecanemab?

[Haruo Naito, executive]

Indications to be granted, regulatory authorities will decide. Well, for ADUHELM, the Alzheimer's disease was simple indication therefore covering a very broad indication. That's my understanding. Then sporadic as well as familial AD may be included in the indication. Of course amyloid beta confirmation will be necessary as a condition for that.

[Unknown Attendee]

Thank you very much for the presentation. [ Ms. Miyazaki ], World Business Satellite TV Tokyo. I have 3 questions and this is in relation to your earnings results. On a full year basis, you expect to achieve forecasted results. Today, at Keidanren there was a press conference and increase in wage was requested. I think that was the gist of the press conference by Keidanren. What are your views? And I believe the message was start to increase wage by increasing base salary. This fiscal year what did you do in terms of base salary? Even with the increase in wage, do you think you are able to achieve full year forecasted results?

[Haruo Naito, executive]

Mr. Masaka is going in -- who is responsible for human resources development. will respond to your question.

[Teruyuki Masaka, executive]

This is Masaka, CHRO. Can you hear me?

[Unknown Executive]

Yes, we can.

[Teruyuki Masaka, executive]

Ms. Miyazaki, thank you very much for your question on wage increase and base salary increase. Regarding base increase in salary on a full year basis to increase base salary, that is not considered at the moment. For this fiscal year, we have not increased the base level of salary. As for increasing wage, in addition to regular increase in monthly wage, we also have performance-linked bonus and increase in remuneration will have personnel performance reflected and we have adopted the total compensation to reward the performance by our people. And so the level of performance in expertise area, competitive area, we would like to review these areas.

[Unknown Attendee]

A follow-up question. Onetime payment. With a onetime payment, you are planning to increase compensation to maintain motivation and to retain people. Is that the correct understanding?

[Haruo Naito, executive]

That question will also be answered by Mr. Masaka.

[Teruyuki Masaka, executive]

Thank you for that question. Onetime compensation is also not considered. But in the future for expertise areas, we plan to conduct a review of the compensation structure.

[Unknown Analyst]

My name is [indiscernible] I have one question. Result indicated for dementia with Lewy bodies and the result of a [ weak ] examination. What will be the potential impact on your business performance? And against the placebo, there was no significant difference in the primary endpoint. Could you please give us what you think about this result?

[Haruo Naito, executive]

Well, Mr. Ogawa will respond to the second question regarding the dementia with Lewy body. Did you hear? For that question, Mr. Ogawa is going to respond.

[Tomo Ogawa, executive]

I am Ogawa. I am in charge of the development in neurology area in Japan. Thank you for your question. There was no significant difference obtained in the end point. But on the other hand, we have conducted the various studies and trials in the development. Overall, the improvement in the cognitive function was observed in those programs. So partial amendment is to be made to continue and there haven't been any further requirement from the regulatory authorities. So based upon this evidence, we would like to have a discussion and communication with prescribing doctors as well as the patients. And regarding the impact on the business performance, Mr. Ujiie, he's going to answer your questions.

[Shin Ujiie, executive]

Thank you for your question. As has been explained earlier, we have not received any additional requirements from the authorities. Therefore, the potential impact may be minor. I have one comment I would like to make regarding the dementia with Lewy body. Drugs with indication for dementia with Lewy body is very rare. Of course in Japan, Aricept is the only such drug. Obtaining this indication was after the expiry of [indiscernible] in Japan. This is where we have -- we take pride. Therefore, even with the entry by generics, this indication was also granted for generics as well.

But above all, we wanted to deliver whatever available drug to the patients who are needing the drug for DLB so that's why we decided to obtain the indication approval for this. Usually after expiry of patent or LOE, usually the pharmaceutical companies do not conduct any work to obtain the additional indication. But we believe that the fact that we obtained this additional indication should be monumental in our history. Therefore, if you have some things to write in your [ Toyoki Magazine ], I hope that you will mention that.

[Operator]

[Operator Instructions] We have Yamaguchi-san from Citigroup Securities. Can you hear me?

[Hidemaru Yamaguchi, analyst]

Yes. This is Yamaguchi from Citi. I have 2 questions. First, regarding CTAD presentation. That will be on the following day morning Japan time and maybe I should ask the CTAD conference itself. But do you think that nonregistered audience will be able to listen? I'm sure many people are very interested in the presentations.

[Haruo Naito, executive]

I would like to ask Ivan Cheung to answer that question.

[Ivan Cheung, executive]

You can be sure that we are making the appropriate arrangement to make sure that such an important event can be viewed by all the interested parties. So we will follow up with everyone on this topic. Don't worry.

[Operator]

Next question is from JPMorgan Mr. Wakao. Do you hear us?

[Seiji Wakao, analyst]

This is Wakao of JPMorgan speaking. From me, I have a question about lecanemab. Communication with CMS has been started now for full coverage. Could you please give us your feeling that you have felt so far? Regarding the result of the secondary endpoints, which will be announced on the CTAD, that data has not been submitted to the authorities, but there may not have been any progress in that. But if there is anything, please share it with us. And also when additional approval will be obtained and then there will be a discussion to be initiated for full coverage. So what is going to be the timeline? According to Biogen, they said that it will take about 9 to 12 months. Have you started communication for aducanumab which was deliberated up for NPD and then I thought that this could be accelerated further?

[Haruo Naito, executive]

Regarding this question, Ivan Cheung is going to respond.

[Ivan Cheung, executive]

Thank you very much for your question. You are correct that we have been in conversations with the CMS. For example we have already shared a number of important information and we'll continue to do so very shortly including of course the most important item, which is the Clarity AD data. We are actually very reassured by the collaborative tone of the CMS in reviewing the Clarity AD data in an expeditious manner. And with regard to our time frame, as you know well, of course the CMS will require full approval to make that official decision. We do believe this will be on an expedited process. The time frame you mentioned is a standard time frame post full approval in general, but in this case it's very different. You may remember that even though the NCD is for the class, the lifting or amending the CED will be on an individual drug basis.

So once again I can reassure you that the conversation and the action plan with the CMS has been very proactive on both sides and we are obviously confident with the Clarity AD data, which you will see more at CTAD hitting primary endpoint or the key secondary endpoint as early as 6 months, all highly statistically significant and more such as the expected safety profile. All these elements of course will be under consideration for the CMS. And also this trial is very unique because it has a rather well represented population from a diversity perspective, from a comobility inclusion perspective to reflect the Medicare population as much as possible. So we have confidence to have a positive outcome with the CMS upon full approval to lift or amend the CED to drive wide access in the Medicare population in the United States.

[Operator]

This will be the final question. Muraoka-san from Morgan Stanley Securities. Can you hear me?

[Shinichiro Muraoka, analyst]

This is Muraoka from Morgan Stanley, Can you hear me?

[Unknown Executive]

Yes, we can.

[Shinichiro Muraoka, analyst]

I have 2 questions. First about the next fiscal year, I would like to understand how you plan to spend your money. I believe to improve access next year, you will be proactively spending SG&A. Do you plan to make major investments? That is my first question. And the second question is about the manufacturing of lecanemab. I believe it is already announced that Biogen will be manufacturing lecanemab, but is it sufficient? Is there any plan to outsource contract to outside manufacturing of lecanemab?

[Haruo Naito, executive]

Thank you for the questions. Regarding the next fiscal year plan, Mr. Ujiie will respond.

[Shin Ujiie, executive]

Thank you for your question. Right now access strategy, commercial strategy are carefully considered at this stage. And we are currently not at the stage to describe clear numbers, but necessary investments will be proactively pursued with our partner.

[Haruo Naito, executive]

Regarding the manufacturing of lecanemab, Ivan Cheung will respond.

[Ivan Cheung, executive]

Thank you very much for the questions. You are correct that drug substance will be manufactured by Biogen at the state-of-the-art facility in Solothurn. As you may know that facility has flexibility to scale up going forward as necessary and at the same time of course for manufacturing planning for such important therapy for patients, additional backup sites will of course be planned. Accordingly, we have no concern for the capacity to manufacture lecanemab.

[Unknown Executive]

With this, we would like to conclude today's session. Thank you very much for participating in this session out of your busy schedule. Thank you very much. We hope you will continue to support us.

[Portions of this transcript were spoken by an interpreter present on the live call.]