Eisai Co Ltd

TSE:4523

Earnings Call Transcript 2018-Q3

[Unknown Executive]

Thank you very much for taking your time, despite your busy schedule and despite the weather. It is now time. We would like to begin earnings presentation session for the third quarter of fiscal 2017 by Eisai Co., Ltd.

Before I invite the speakers for presentation, I would like to ask the audience to check whether all of the materials are distributed. Please find presentation slides that will be used today and press reports and reference materials. If any of the material is missing, please raise your hand.

Now I would like to introduce the directors in attendance today. Mr. Ryohei Yanagi, Senior Vice President and CFO; Mr. Ivan Cheung, Senior Vice President and President of Neurology Business Group; Mr. Terushige Iike, Senior Vice President and President of oncology business group.

Presentation today will be given by Mr. Yanagi -- the first part, the finance part will be given by Mr. Yanagi and the second half, operation part, will be discussed by Mr. Cheung and Mr. Iike.

Without further ado, I would like to turn the microphone over to the presenter.

[Ryohei Yanagi, executive]

I would like to brief you on the financial section. This slide, the Q3 year-to-date fiscal year 2017 consolidated statement of income. We have adopted IFRS. Revenue, operating profit, profit for the period, we could achieve all of these targets.

First, revenue was JPY 439.9 billion, which was 8% increase from a year earlier. This was mainly due to the growth of 4 global brands, LENVIMA, Halaven, Fycompa and BELVIQ, increased by JPY 14.6 billion. About half of the increase was acquired by this. And also global 4 brands group, 27% year-on-year. And cost of sales accounted for 35.5% of the revenue, which was an improvement from a year earlier. This was due to product mix improvement and also efforts to cut cost of sales. As a result of such, gross profit was JPY 283.7 billion, which was up 9% from a year earlier.

Currently, we are -- at Eisai are making proactive investments in our rich pipeline centering on dementia and oncology. Therefore, R&D expenses are -- were JPY 102 billion, which was 23% increase from a year earlier. And R&D expenses account for 23.2% of revenue, so we can say that we are one of the global pharma companies, which are most proactively investing resources in R&D.

Having said that, Biogen and other partners, from whom we received the reimbursement, and R&D expenses were controlled within business plan.

Our SG&A expenses due to the [ strategic] global brands, like LENVIMA, Fycompa as well as the marketing spend, which was proactively invested in growing market, such as Asia and China. Therefore, SG&A expenses were JPY 135.6 billion, up 5% from a year earlier. However, SG&A expenses now account for 30.8% of results, which was an improvement. And the increase of SG&A expenses was controlled within the increasing gross profit with financial discipline.

Other income and expenses. Last year, we booked a JPY 9.3 billion of gain from a bargain purchase of the EA Pharma shares, but there haven't been any extraordinary items this year, so far. Therefore, operating profit was JPY 46.7 billion. This number, JPY 46.7 billion, is 78% of the full year guidance of operating profit of JPY 60 billion. We have achieved the business plan.

Profit for the period attributable to owners of the parent, in a similar parallel, stood at JPY 28.1 billion. This was achieved after absorbing the impact of JPY 1.2 billion due to tax reform in the United States.

As for our core business -- meaning, core business means the revenue in pharmaceutical business units, the revenue grew 7% year-on-year with positive growth in all regions.

Regarding the profit in the segment of pharmaceutical business, which grew by 12% year-on-year. Double-digit growth was achieved. So in the core business, we could achieve the increase in the revenue and the profit as well. So we could see the steady growth in Q3 as well.

On this page, with the waterfall chart, we are showing a breakdown of revenue migration. Revenue for the 9 months a year earlier was JPY 409.2 billion, adding JPY 12 billion from growth of global brands and JPY 7 billion from Japan business, JPY 11.3 billion from China, Asia business. In total, we could increase revenue by JPY 30.7 billion to JPY 439.9 billion.

Next. On this waterfall chart, you can see the breakdown of operating profit migration. Last year, for the 9 months of the same period last year was -- operating profit was JPY 57.6 billion, adding JPY 11.2 billion from growth of global brands, JPY 4.2 billion from Japan business, JPY 3.8 billion from growth of China and Asia. However, as I said earlier, currently, at Eisai, we are making proactive investment in R&D in neurology and oncology franchise, so R&D expenses increased by JPY 19.1 billion from a year earlier. This included the impact of milestone payment of $50 million we received from Biogen last year.

For Alzheimer's disease project, as I said earlier, we accounted for JPY 9.3 billion last year as a gain from a bargain purchase following acquisition of EA Pharma Company. And the operating profit was JPY 46.7 billion. But excluding such impacts of a gain from a bargain purchase with EA Pharma and the milestone payment from Biogen. Respectively, OP also increased year-on-year, and we overachieved our business plans.

Next. Slide shows the full year forecast on a consolidated basis for this fiscal year. There hasn't been any change to our business forecast. Revenue is estimated at 500 -- last year, the revenue was JPY 539.1 billion. And this year, we forecast that at JPY 575.5 billion, which is up 7% a year earlier. And operating profit increased from JPY 59.1 billion last year to JPY 60 billion with 2% increase from a year earlier.

Of course, there are uncertainties, such as the impact from the job price revision from April and the situation concerning generic version of ALOXI in the U.S. and fluctuations in foreign exchange rates. There are certain -- uncertainties surrounding us. However, we have already factored in the JPY 1.2 billion gain impact due to the U.S. tax reform. And utilizing the various real options, management would like to achieve this increase in both revenue and profit.

ROE is slated at 6.8%, which is not satisfactory level yet. However, we look to improving long-term -- needed to long-term positive equity spread, such as we'll look to the index, such as the 10-year average ROE in order to maximize the corporate value for the mid- to long term. And JPY 150 per share as the dividend is not -- had stayed unchanged.

And here is the gist of the balance sheet and cash flow, which supports the stable dividend in a summary format. First, regarding the items on the balance sheet. We have cash and securities significantly exceeding interest-bearing debt, which is a net cash position with JPY 57.4 billion. This is so-called debt-free status. Net DER is minus 0.1x. So-called equity is JPY 590.4 billion, which is almost JPY 600 billion. And the equity ratio is 56.3%, which is well above the threshold of 50%, which we are very much mindful of for optimal capital structure. So we have such a very sound balance sheet and we have maintained a very strong balance sheet to maintain our financial integrity.

Furthermore, as for the summary of cash flow statement because of the fluctuation of the capital -- working capital, we saw capital -- fluctuation in cash flow. However, quarter by quarter, at the global CFO meetings, we continued our efforts to improve cash convergence cycle globally, therefore, improved working capital significantly. Net cash from operating activities recovered to JPY 38.8 billion. As a result, free cash flow was JPY 28.4 billion.

In addition, there was the impact of the delay in the collection of the overdue accounts receivable of about JPY 5 billion because of the bank holidays towards the end of the calendar year. So that means the collection was late by 1 business day until the early January. Therefore, after excluding the impact of bank holiday, adjusted free cash flow was JPY 33.4 billion. This represent the 7% to 8% coverage of JPY 42.9 billion of estimated year-end dividend payment.

In principle, which means, free cash flow would almost cover the dividend payment. This is our basic principle, against, which, we have made a steady progress. Based upon such strong balance sheet and ample cash flow, we have become even more confident that we will maintain a stable dividend of JPY 150 per share, while making proactive investment for future growth. We have deepened our management confidence.

Next. This is the last slide on my part. I have talked about financial information. But now, on this slide, I would like to talk about, even a known financial capital information, we continued to the medium to long term and a sustainable value creation. For instance, our foundation of our operation is based on our corporate philosophy, hhc. Based upon such hhc, or contribution to patients, we are conducting various activities. Those related to contributions, the patients in our business can be viewed at ESG initiatives. So what kind of a normal financial return can be expected from investment of such known financial capital? Such known financial return can be related to these SDGs, 17 goals set by the United Nations. SDGs, or meaning, the -- resolving the social issues, the return can be in that form as well as the quantitative return in contributing to patients as touted in the corporate philosophy. That means that this is the return on capital for known financial capital. By increasing this, we believe that it will contribute to the medium- to long-term corporate value. So this is in line with our mission and the corporate philosophy. Our mission is to contribute to patients. But as a result of that, we believe that the long -- medium to long-term economic value will be also generated. That is on a corporate philosophy at Eisai.

And the nonfinancial ROC and also nonfinancial values, nonfinancial return and nonfinancial capital will be reflected in the future improvements in financial ROE in the medium to long term and in converging to increase of PBR and alternative index for shareholder value.

As of the end of December, Eisai's PBR was about 3x with market capital of JPY 1.9 trillion. A portion of PB ratio up to 1 equals net assets on accounting basis, which is a current financial capital of JPY 12.6 trillion as good value.

On the other hand, at the portion of PBR, exceeding 1 means value added, evaluated by the market, which was JPY 1.3 trillion for us. It is proven that this is positively co-related to known financial values derived from ESG or hhc or contribution to patients.

In another perspective of the financial theory based upon the portion is the -- the portion above the onetime PB ratio will be to the medium- to long term maximization of the ROE as well as the PBR. And therefore, it is consistent with the financial capital and the financial return. Therefore, nonfinancial capital and return can be integrated with the nonfinancial return on capital. Therefore, SDGs and ESG initiatives and the various activities of Eisai will be leading to the medium- to long-term enhancement of our corporate value. And as you can see here that we have some of our ESG and nonfinancial initiatives and extended valuations are listed here. For example, with the neurology and oncology, promising pipeline with a high expectation from the market maybe related to all stakeholders' interest. And we will have the speakers responsible for neurology and oncology to give you detailed update on pipeline.

With this, I would like to conclude my part. Thank you.

[Ivan Cheung, executive]

And from my part, I would like to discuss the third quarter performance for Neurology Group. First of all, I would like to talk about Fycompa, which has shown accelerated growth globally. I would like to report on the Q3 year-to-date, the revenue, which was JPY 10.5 billion, which have shown a high growth rate of 42% year-on-year. In America, in -- last July, we obtained approval for monotherapy use. Fycompa has clearly accelerated and it achieved the highest growth amongst new 2 brand prescriptions for all epilepsy treatments.

In Europe, as well, there was a significant development. Last year, new negotiation on insurance reimbursement pricement -- pricing became possible. Therefore, we could resume the commercial distribution of Fycompa in Germany in December last year. In Japan, due to the lifting of the restriction of administration in June, it grew to 4x as large as the sales of the previous year. Following the United States, the development towards acquiring the approval for the monotherapy use, which is steady ongoing. And we expect that the last patient in will be completed by the end of this fiscal year. It is said that there are about 9 million patients with epilepsy in China. In China, Phase III study conducted in Asia can be used in submission in China. Therefore, we aim at submitting in China in fiscal year 2018.

The epilepsy brands, as a whole, driven by Fycompa, BANZEL and Inovelon, Q3 year-to-date revenue grew by 26% from a year earlier, achieving JPY 33.8 million. Therefore, epilepsy brands have continued to show very high and steady growth.

Next, I would like to talk about BAN2401, which is anti-protofibril antibody (sic) [ anti-a-beta protofibril antibody ]. Currently -- we are currently carrying out Phase II trial with 856 patients with early AD for 18 months' as administration period. Regarding the results from the interim analysis at 12 months, which was released in our news release in December last year, to the effect that early success have not been achieved. There were such a report in the news release. However, today, I would like to share with you viable data that we have obtained to date.

Among the patients in highest dose arm who have continued on the administration for 12 months of -- 12 months that there were 2 patients in the arm who discontinued and who have unblinded in the trial. Amyloid level in the brain, which was positive before administration have shown reduction to amyloid to negative level, which was confirmed based upon PET imaging by 2 independent radiologists visually and even based upon PET SUVR, After 12 months' administration, the value was reduced to the level, which was lower than the mean value of control group. And regarding the outcomes and the CDR-SB and other clinical endpoint for these 2 patients were relatively stable over 12 months. This study, as per protocol, continues to be double-blinded until 18 months' analysis results would be available. And we are waiting for the comprehensive evaluation from the final analysis, including biomarker, efficacy and safety anticipated in the second half of this year.

Phase III studies are ongoing for elenbecestat and aducanumab. First, BACE inhibitor, elenbecestat, MISSION AD2 Phase III studies are ongoing steadily currently at 400 sites. Patient enrollment is underway. And before the end of this fiscal year, we plan to open 480 sites. Last year, in December, in China, from the authority, CTA approval was obtained. MISSION AD will be the first-ever study in China targeting prodromal AD patients in Phase III study. BACE inhibitor developments, success key is enrollment of patients in early disease stage, and this is ongoing as planned.

In December last year, opting was exercised from Biogen for aducanumab. ENGAGE and EMERGE studies, the 2 Phase III studies are ongoing steadily. And this year, we plan to complete patient enrollment. Last year, in November, in Boston at CTAD, aducanumab Phase Ib 3-year long-term extension data was presented. Aducanumab -- during the administration of aducanumab, amyloid played -- showed continued decrease, especially in 10 milligrams dose group. It reduced to negative level and was maintained at that level. CDR is the analysis, also showed that in comparison to placebo, usefulness was maintained.

Next-generation AD disease modifiers, we have high hopes for elenbecestat and aducanumab. With Biogen, we will maintain strong growth cooperation to accelerate development.

Next, I would like to discuss lemborexant, which is orexin receptor antagonist. Disease modifiers that I described earlier, together with disease modifiers, lemborexant aims to achieve AD total care. So lemborexant is a very important drug. Right now, development is ongoing for insomnia disorder. And there are 2 Phase III studies that are entering into the final stage. Study 304 targets older patients. This is a comparison study with zolpidem. Patients' sleep maintenance is objectively evaluated with polysomnography. 304 study is expected to have topline results in fiscal 2017, including Study 303. We are advancing the schedule for lemborexant and we plan to file submission in fiscal 2018. As for ISWRD, irregular sleep-wake rhythm disorder, targeting AD patients, Phase II study is ongoing steadily. And in this study, in order to make objective assessment of the results as shown in this photograph, actigraphy will be utilized. And we aim to obtain topline results in early fiscal 2018. As a result of lemborexant driving study, it was observed that there was no carryover effect on the following day. For older patients and for AD patients, natural sleep rhythm, we hope can be delivered with lemborexant.

Turning to PDE9 inhibitor. E2027 aims to improve cognitive function by inhibiting PDE9. PDE9 enzyme is inhibited by E2027. By doing so, cGMP level in the brain will be increased to reduce cognition symptoms and PTSD, such as hallucination.

Amongst dementia patients, about 20% are DLB patients, dementia was Lewy body. DLB patients is found to have higher level of PDE expression and lower cGMP level in the brain. With E2027, in comparison to other PDE9 inhibitors, E2027 is the most potent drug. Cyclic GMP increase, in comparison to other PDE9 inhibitors, which is 1.5x, E2027 has demonstrated 3x increase in cGMP. Phase II study is carried out and to improve successful -- success probability, novel criteria for diagnosis and electronic clinical outcome assessments are used. And cGMP versus biomarkers and symptom changes, including hallucination are scheduled to be used for analysis. Currently, only Aricept is indicated for DLB. And DLB is a disease with very high unmet medical need. We would like to accelerate the development of E2027.

Next, I would like to turn to E6011, anti-fractalkine antibody. E6011 is unlike anti-TNF-alpha antibodies and other existing drugs. It has a mechanism of action that works in upstream of information cascade. For rheumatoid arthritis indication, we have 2 Phase II studies ongoing steadily. Study 201 and Study 202 have completed last patient in. In next fiscal year, in the early part of next fiscal year, we are scheduled to obtain topline results. Phase II study will not only look at clinical results. There is biomarkers that will be analyzed. In particular, productive biomarkers will be analyzed. And if we select the patients where high efficacy are expected with predictive biomarkers, we may be able to utilize personalized medicine.

As for Crohn's disease indication, EA Pharma is in partnership with AMED and academia, and we are accelerating creation of biological drug from Japan. Next year, we plan to start Phase II study in the next fiscal year, and the drug was selected as AMED CiCLE program. E6011 may be used in patients with various inflammatory disease and is -- have a huge potential to give hope to those patients.

This is my last slide. We, In Neurology Business Group, are proud of this pipeline. And from patient perspective, we are taking a holistic approach. And in the 3 areas, we are making robust progress. We are most focused on dementia area, disease modifiers, and drugs that transform symptoms are being developed at the same time, proactively. We believe that we are the only pharmaceutical company that has such a holistic pipeline for dementia.

For epilepsy, we have -- we are a innovation leader, and we are not only pursuing LCM for Fycompa, but synoptic function and modulator with novel mechanism of action, E2730, and next-generation AMPA receptor antagonist, E2082, based on human biology. We are targeting epileptogenesis. This is a very difficult target, but we would like to take on that challenge.

In neurology -- and beyond neurology, we have high hopes for our assets. Within the next 12 months, topline results are anticipated in some of the developmental topics, 1, 2, 3, 4, 5, 7, we have such topics numbering 7. We would like to achieve multiple successes. And as soon as possible, we would like to make contribution to the patients and their families. Thank you.

[Terushige Iike, executive]

I would like to present oncology business. This is Iike speaking. We have 2 global brands in oncology, LENVIMA and Halaven. The 2 drugs together achieved sales of JPY 54.1 billion. In terms of sales and profit, they are showing stronger presence.

As for LENVIMA, thyroid cancer, in that indication, LENVIMA maintains top share in the United States.

In renal cell carcinoma, second-line treatment indication, Novartis everolimus or Afinitor is used in combination in this regimen. The other day, the U.K. NICE issued recommendation for LENVIMA. This is combination of drugs from different companies, and this is quite exceptional for NICE to issue recommendation for such a combination therapy. And we believe this is a testament to the benefit of this combination therapy. And first-line -- first Phase III -- first line for Phase III is under preparation. Halaven is also chemotherapy and in Japan, since about 5 years ago, we have top share.

In comparison to the previous year, 23% of growth was achieved. Cumulatively, up to the third quarter, we have achieved high level of growth. Our medical representatives are in consultation with the breast cancer specialists. And within breast cancer treatment, the scheme and algorithm, what contribution house-in can make, what position in house-in can have, have been communicated very well to doctors, and we believe that the growth is a result of that close communication.

Next, turning to hepatocellular carcinoma indication of LENVIMA. As we have reported earlier, we have achieved almost simultaneous submission in 4 regions globally, and we are maintaining a good communication with the regulators of all these 4 regions.

In China, there was a major change in the regulatory system in October last year for China in case of foreign companies filing NDA. Before an NDA is filed, exemption for a local study in China had to be applied for and had to be approved. But from October 1 last year, this step was eliminated. And under that new system, for us for the first time, and I believe for the first time in the industry as a whole, we made a filing. And in December, we were designated for priority review and approval by CFDA. LENVIMA HCC indication will be achieved for the first time in LENVIMA. And half of the HCC patients are in China. We would like to be able to make contribution to patients from early-stage in HCC, and we would -- we are also filing submission in other regions one after another.

What is shown in the table below is LENVIMA HCC Phase III study, Study 304. This is a preference analysis results. Imaging assessment is done by the investigator as per protocol, and that is the final data. But as for additional reference information, independent reading was found, and this will be presented in the academia. Two independent readers, assessors, separately will be assessing. And if the reading results are the same, that will be adapted. If reading results are different, the 3rd independent reader will make the assessment. As a result of this independent assessment, investigators' judgment wasn't supported.

Next, LENVIMA. This is in combination with anti-PD-1 antibody. This shows the development status of that program. In clinical trials with LENVIMA, environmental will be made sure that the PD-1 antibody will be more effective, and tumor macrophage is suppressed, according to our research results which were presented. And in clinical setting -- in clinical use, we are seeing favorable results. First, RCC, renal cell carcinoma. Last year in fall at ESMO, we were able to present a high ORR. With U.S. FDA, we have consultation, and breakthrough therapy designation was granted by the FDA. Phase II study will have increasing number of patients. In fiscal 2019, in the middle of fiscal 2019, we expect to have results. And based on those results, in the United States, we would like to utilize the path of accelerated approval, and confirmatory study positioning is likely. And the Phase III study, for that purpose, is already globally underway. As for endometrial carcinoma, inhibitor cellular carcinoma, similar to RCC, we will be adapting a similar strategy. And the Phase II part has been expanded in terms of number of patients, so that we can aim at accelerated approval.

Next, Halaven. This is in combination with pembrolizumab or KEYTRUDA, and interim results are shown. Response rate is 26.4%, ORR is 26.4%. Especially with previously treated with chemotherapy patient, ORR is 22% in triple-negative breast cancer, in almost similar patient subpopulation. In Halaven monotherapy in the past, ORR was about 12.5%. With KEYTRUDA in monotherapy, ORR was 5%. And so the results suggest synergy effect. PD-L1 positive and negative, patients in negative population, ORR was 22.4%. In comparison to combination program with other PD-1 antibody, we believe that this shows a differentiation. We are already in consultation with the FDA, and we will be increasing the number of patients enrolled, especially, we will increase by about 100 patients on the second line. We would like to accelerate our regulatory pathway by doing so.

Next is MORAb-202. This is our first ever ADC, antibody-drug conjugate. There is a payload, and payload is eribulin itself. Eribulin for Halaven platform is utilized, and we are also using antibody technology of Morphotek in this ADC in Japan. For the first time in the world, we have started clinical trial. Folate receptor alpha is expressed in triple-negative cancers, such as breast cancer patients will be the target.

Next, this shows the overview of the pipeline. Since 3 months ago, there were those that moved up in the pipeline, including tazemetostat or E7438. This is a EZH2 inhibitor. It inhibits one of histone methyltransferase called EZH2. EZH2 mutant hematological cancer will be the development target. And E7130, halichondrin analogue, they will be in -- is also in this class. And in Japan, we will start a clinical development there first, and first patient enrollment may begin before the end of this month. This is a joint research with Harvard University, where this drug was discovered. The color -- purple color shows the small molecules. Halichondrin is medium molecule, and antibody and ADC and Biologics. We have multi modalities and diverse combination. And with those, we would like to aim -- to achieve cure for cancer. Thank you.

[Kazuaki Hashiguchi, analyst]

[Foreign Language] I'm Hashiguchi from Daiwa Securities. I have 2 questions. First is about the business performance. In the third quarter, you mentioned that you have achieved the plan. However, every year, the trend is that in the fourth quarter, sales profit decline and expense increase and operating margin is lower as a trend. And if -- this year also, if the same pattern applies as in, the trend may be that the sales and profit are maybe lower. But towards achieving full year obstructive, will it be different from the usual trend in the fourth quarter?

[Ryohei Yanagi, executive]

This is Yanagi speaking.

[Unknown Executive]

Mr. Yanagi, CFO, will respond to that question since this relate to the performance.

[Ryohei Yanagi, executive]

Actually, it is a moving target that we are following, and there are other variables, number of variables. Management has the current estimate, but that is subject to a number of variables. But there were years with different patterns, and our sales and profit were mostly strong in the fourth quarter in some of the years. But there is a direct price revision this year, and there is also generic issue of ALOXI in the United States, so there are some uncertainties this -- in this fiscal year. 78% of operating profit of the annual target is already achieved, so we have made a steady progress. There is also exchange rate fluctuation, but we have also already digested the impact from the tax reduction in the United States. So there are pros and cons, and there is -- there are multiple uncertainties. But by line item, by product, there may be underachievement and overachievement. But overall, on a consolidated basis, we would like to achieve these numbers. And including potential partnership that -- with players' consent from the third party, and that is also one of the uncertainties. So in view of all of these, we would like to achieve a full year target. But what is encouraging to us is, as I've mentioned earlier, there are global 4 products -- 4 global products led by LENVIMA that are the drivers of the growth, and it has achieved a 27% growth so far. And on the part of the management, it is quite encouraging to see our key products growing. In any event, overall, including a real option, which may be exercised on a consolidated -- on a whole basis, we will still aim to achieve the full year projection -- full year target, and we will not change the target.

[Kazuaki Hashiguchi, analyst]

Second question is about BAN2401. This time, you have shown the results from 2 patients. Let's begin with these 2 patients. Why were they discontinued? And why were their case opened? And 10 milligram per kilo every 2 weeks seems to be a high dose in terms of safety. What information have you been able to obtain? And this time, data is obtained only for these 2 patients. If you have other data, including that, what is your impression?

[Unknown Executive]

Thank you for the question. That question will be addressed by Mr. Cheung.

[Ivan Cheung, executive]

Thank you for the questions. To your first question, for the protocol, there are a number of reasons why one subject may discontinue. As you know, this study is still ongoing and being applied. So as much as possible, to ensure the data integrity of this entire program, I cannot give you the answer to your first question. But I want to jump to the last question because it's related to the first question. Most of the subjects, if they continue, they tend to continue at the beginning of the program with this population. Discontinuation after 12 months of treatment are quite rare. Now in this case, this is interesting because per this protocol, we take the PET scan at baseline, at 12 months and at 18 months. So the patient, for those reasons, for protocol, is unblinded. Let's say, in month 6 -- we don't know what happens to their amyloid track level. So very rare this happens. In this case, 2 cases happened unblinded. And then with regard to your question about safety profile, very soon, at the 18-month analysis, you'll see the entire picture. But I will try to give you one answer. For the antibodies, of course, the question often asked is about ARIA-E. Now I don't think it's prudent for me to give you the clear answer here. But what I would say is, of course, yes. We do see ARIA-E in this program, but not as much as what you see from some other antibody programs. So I would say moderate level of ARIA-E is observed in this program, so far, but not a lot. So I apologize I cannot give you a lot of answers because this study is still ongoing. Thank you.

[Atsushi Seki, analyst]

My name is Seki. I'm from UBS. Neurology and oncology, I have one question each for these regard endpoints, such as ADCOMS and the CDR relatively stable over 12 months for 2 patients. So do you have any sense with why the clinical endpoints are stable? And also, based on your -- the best estimate? So when do you plan to present this Phase II data?

[Ivan Cheung, executive]

[Foreign Language] Thank you for your question. So first of all, 2 subjects. So I think it's typical to draw a conclusion on 2 subjects, especially with regard to the clinical scores. I think for biomarkers and PET imaging, it's very clear what you see going from amyloid positive to amyloid negative. For those subjects, when we look at the ADCOMS and CDR Sum of Boxes, they are relatively stable compared to what you might see, for example, in the end database, for example. But again, it's only 2 subjects, so I don't want to kind of draw a conclusion just based on 2 subjects. Now with regard to your question about the presentation of these Phase II data, of course, as we explained earlier in the second half of this year, we will have the top line data of the 18-month analysis. And then we will, of course, hope to make a late recur or some kind of a presentation at the next Congress subsequent to the top line results. Thank you.

[Atsushi Seki, analyst]

Okay. So I wondered because you mentioned the positive signs based on the 2 patients in their subjects. Anyway...

[Ivan Cheung, executive]

Yes, yes. Because I believe this is the first time for BAN2401 that we are showing you the target engagement because we and Biogen strongly believe being able to impact the amyloid level from a clearance perspective. Because if you look at the difference between aducanumab and solanezumab, you can see a major difference there. When you can actually clear the amyloid and cause the amyloid level to go from positive to negative, you have a very good chance of impacting the clinical scores, like CDR Sum of Boxes. And that's the reason why we believe in different 2 cases. Being able to show that correlation between biomarkers and the clinical score is important.

[Atsushi Seki, analyst]

[Foreign Language] I have another question to Iike-san regarding LENVIMA combination therapy with the KEYTRUDA for RCC. Accelerator approval will be aimed. Have you already reached the consensus agreement with the FDA regarding the pathway for submission and approval?

[Unknown Executive]

Iike is responding.

[Terushige Iike, executive]

Thank you for your question. That will be determined after we get data. We are seeking accelerated approval, and so that does not mean that the FDA has approved the accelerated approval pathway.

[Atsushi Seki, analyst]

Sorry. Based upon the Study 111, are you going to file a submission? Is this correct?

[Terushige Iike, executive]

Yes.

[Atsushi Seki, analyst]

Then you are already preparing for the submission, right?

[Terushige Iike, executive]

Currently, we are still adding subjects to be enrolled. And breakthrough therapy designation has been granted, yes, I understand that. But in the near future, regarding submission, it will be started in the near future. So that's what we would like to pursue.

[Unknown Executive]

Are there any questions?

[Akinori Ueda, analyst]

It's Ueda from Goldman Sachs. I also have 2 questions. First question is about R&D expenses, variable of R&D expenses. I believe you have made a good progress until so far this year, this fiscal year. In comparison to the plan for this fiscal year, do you believe that you will be able to control until -- at the end of the fiscal year? And in comparison to the sales, R&D spending is at a high level, and there will be a drop price revision impact expected in the next fiscal year. And as you have a more pipeline in the later stage of development, to what extent can you permit increase in the R&D expense level?

[Unknown Executive]

Thank you for the question. Mr. Yanagi will respond.

[Ryohei Yanagi, executive]

This is Yanagi, CFO, speaking. First, about this year's -- this fiscal year's trend of R&D spending, as I've mentioned earlier, it is a 23% larger than the previous year, a large growth. And the biggest party is from elenbecestat. And this -- and lemborexant Phase III is in the peak stage, so it's going. As for elenbecestat, that there was also milestone payment last year. LENVIMA, a development expense is also growing. So for actual clinical trials for priority projects, in a positive way, we are making concentrated investment. So that is the first point we would like you to understand. And the second point is that, be it Lemborexant or Alzheimer's projects, that we are pursuing partnership. So there is already a -- more than JPY 10 billion of returned expenses for development expenses. So we are able to control the R&D expenses within the plan. And we will also be proactively pursuing R&D in the fourth quarter, but we will also be returning the expenses from the partners, which is our way of risk-hedging. And we will be prioritizing on the projects, and we will also consider various schemes for R&D. And we'll also exercise various management options, including real option. And by doing so, we would like to achieve this year's target. As for 23.2% of R&D expenses, the percentage of sales, that this is a higher percentage. For a large pharmaceutical, it's 10% to 15%. And for a medium-sized companies, it's 15% to 20%. And that is published by [ REZA ] as a global benchmark. But our level is in excess of this level, so it is quite a high level. But on the other hand, there is a trade-off with the revenue -- between revenue and fiscal discipline. But we should not be [ short-termist ], and this is -- we are taking medium- to long-term views. And we have a strong balance sheet and ample cash flow, so we have no concerns of spending these large R&D expenses this year. But over the medium to long term, as we've mentioned, next year, there will be a drop price revision in the next fiscal year. And so we expect the R&D expenses to be at a high level. But around this level, around the 24% or less as a percentage of sales, is the expected highest level of R&D expenses, under which we will try to control R&D expenses. And there will be 4 global brands that are showing growth, and sales and profits will be increasing. And then R&D expenses, eventually, we expect that will come down to 20% or below 24%. So this is not based on short terms. We have to conduct simulation based on medium term to long term for growth potential. We have to maintain growth prospects. And for the present and for the future, we have to make a fast investment. And we have to make sure that there is a trade-off and balance with financial integrity, and we believe we are adequately controlling with the financial integrity. Currently, we will be able to do so in the future. That is our conviction.

[Akinori Ueda, analyst]

Second question is about LENVIMA. It has granted priority review and approval in China. And how will be commercializing? What is the time line for commercialization in China? And for marketing, is there any need for investment?

[Unknown Executive]

Thank you for the question -- that question. Mr. Owa will respond.

[Takashi Owa, executive]

Thank you for the question. I'm Owa from Oncology Business Group. First, China. LENVIMA hepatocellular carcinoma, the submission status was the question. And for the first time, we were given this designation of priority review and approval and the consultation with the regulatory authority. I think we haven't experienced this before. But regulatory environment in China is evolving very fast, and we do not have -- except the date of by when we expect to obtain approval. But we would like to proactively consult with the regulator about the priority review and approval in a similar way as in other Western countries. Asian data and Chinese data, we -- or Asian data, we have favorable data and data already presented at the Congress. And leveraging these favorable data, we would like to have a proactive discussion with the regulator that is -- are audited.

[Unknown Executive]

[Foreign Language] For the other part of your question about marketing, Mr. Kai is going to respond.

[Yasunobu Kai, executive]

My name is Kai. I'm in charge of Oncology Business Group. I'd like to respond to you with the other half of your question. As has been explained, within 1 year or so, we expect that the approval will be obtained. That is our target. Actually, in China, [ Fasdon ], another anticancer is already launched. And there is a business group which has been already established in China. But the time of launch of the HCC, MR sales rep system will be established. And medical studies, MSL, needed to be increased in China. So that is what we'd like to do. And with the achievement of these, we would like to be prepared for the launch. Thank you very much.

[Unknown Executive]

The time is pressing, and we are almost at 5 o'clock, so maybe we can entertain last question.

[Fumiyoshi Sakai, analyst]

My name is Sakai. I'm from Crédit Suisse. I have only one question. I don't know whether you're going to respond to this question today. But Ivan Cheung, on the 25th of January, New England Journal of Medicine carried the editorial to the effect that the amyloid beta treatment in the Alzheimer's disease. It was a paper and amyloid beta hypothesis. Also, I was very skeptical about this theory. However, when it comes to the prevention of the accumulation of amyloid beta in the brain, they also have said that there needs to be the measures for -- such as the combination therapy to tackle this accumulation of amyloid beta in brain. Of course, if you have not read this, then you can respond to this question later. BAN2401 is the primary endpoint, was not met. And I think it can be said as almost a favor. So I'd like to know whether or not you are preparing for next steps or not.

[Unknown Executive]

[Foreign Language] Thank you for your question. Cheung will respond.

[Ivan Cheung, executive]

First, and then I'll ask, probably, Kimura to add his opinion. So first of all, to the last part, about BAN2401, I think the truth will be unveiled very soon, in a few months, so I don't want to get into too much explanation about why we think the 12-month interim analysis was not achieved. Because as we explained many times, that hurdle was very high. It was always an 18-month study, and a 12-month interim analysis is to allow us to be able to start the Phase III earlier, given the need for this population. But it doesn't have happen. It did not happen. From our perspectives, from everything we have seen so far, we are still very confident about the 18-month analysis. But again, the truth will be unveiled in a few months, and I am definitely very excited and looking forward to that moment, to be able to stand and explain to you about the actual data of the 18 months. With regard to the amyloid hypothesis, of course, we continue to be a strong believer. We do understand now that the clearance mechanism, which is the antibody, and then the production mechanism, the base inhibitor, they likely will work for different stages of the population. You mentioned about prevention, which we do believe will be a very good target down the road for the BACE inhibitor. But for the clearance mechanism or for the antibody, I think it is a bit different just because of the fact that they can cause the amyloid level to come down pretty drastically. So we're talking about combination in the future. What's the definition of combination? Do we use them together? Or do we use them kind of sequentially? Do you use one and then the other and then you go back? So there are many possibilities that we can explore going forward, and that's why having a broad pipeline of what we have is an important for the future of Alzheimer's disease treatment. But Kimura-san, if you have anything to add, please, with regard to the paper?

[Teiji Kimura, executive]

[Foreign Language] Thank you very much for your question. I am in charge of the research in Neurology business. My name is Kimura. Of course, so far, amyloid targeted drug or drug-targeting amyloid, which has been -- failed in clinical trials, so far, and there has been some opinions which are negative to the treatment of such. Of course, there are side effect. But still, we believe that, theoretically speaking, it is known that amyloid is very significant in this disease. And the data here is, in clinical trials, what kind of patients should be the target? Whether or not those patients are appropriately selected with the appropriate dose and appropriate period and also the endpoints needed to reflect the clinical benefit? It's never such a perfect protocol. The clinical trial can be successful, otherwise, it will fail, and we are responding to such challenges. And whether or not amyloid does that much, I think that our results can prove that. As has been mentioned at preclinical AD, I think that is -- our prevention will be a very attractive protocol. But we are targeting as well the early AD, and I believe that the clinical benefits will be -- and efficaciousness will be shown in this phase as well. Combination therapy, of course, in Alzheimer's disease, which is a very complexing mechanism, and the production of amyloid can be delayed, or accumulation of the amyloid can be cleared. These will not be -- perfectly cure the disease. It's not so simple to be cured, so we need to think about a combination with other treatment with different mechanism. Therefore, not only amyloid mechanism, but also we are also considering other mechanism of this disease in preparing our pipeline and what kind of combinations would be the best. That is what we would like to explore based upon the data we will see in the preclinical and the other human evidence going forward. Thank you very much.

[Unknown Executive]

[Foreign Language] Thank you very much. Are there any other questions? No further questions. Then it is time we would like to conclude the earnings presentation session for the third quarter 2017 by Eisai Co., Ltd. Thank you very much for coming today.