Eisai Co Ltd

TSE:4523

Earnings Call Transcript 2019-Q3

[Unknown Executive]

Thank you very much for taking your time today despite your very busy schedule. It is time. We would like to begin Eisai Co., Ltd. Financial Results Presentation for the Third Quarter Fiscal 2018.

Before I invite the speakers for presentation, I would like to ask the audience to check whether the documentations are in front of you. Please find the deck of slides that will be used during the presentation and flash reports and reference materials and news release that was issued today. If any of the document is missing, please raise your hand.

Now we'd like to move on. I would like to introduce the directors in attendance today. Mr. Yanagi, Senior Vice President, CFO and Senior IR Officer; Mr. Cheung, Senior Vice President, President, Neurology Business Group; Mr. Iike, Senior Vice President and President of Oncology Group. Today, the first part of the presentation -- finance part, will be given by Mr. Yanagi and the latter part, operation part, will be given by Mr. Cheung and Mr. Iike.

[Ryohei Yanagi, executive]

Now I will be covering the financial section of the presentation. In this slide, you will see the Q3 cumulative consolidated statement of income or P&L. Through our partnership model, we achieved increasing revenue and profit and proactive investments in R&D. First, top line. Revenue was JPY 467.3 billion. In Japan, there was the impact of drug price revision and a decrease in ALOXI revenue in the U.S., which were offset by milestones concerning LENVIMA in the amount of about JPY 25 billion from Merck and global -- growth of 4 global brands in the same amount and then we could achieve the 6% year-on-year growth.

Cost of sales accounted for 30.3%, which has been the improvement, but inclusive of the milestone payments and the improvement in the product mix have contributed to this result, as a result, gross profit of JPY 325.5 billion, which was a double-digit growth of 15% year-on-year growth. This -- within the 15% year-on-year growth in the gross profit, total expenses were controlled. We had such a financial discipline. Therefore, operating profit could grow double-digit growth rate of 22%.

R&D expenses were JPY 101.5 billion, which seems to be almost flat from year-on-year. However, inclusive of the partner share of R&D expenses, so-called real-world R&D, was JPY 133.1 billion, which was up 15% from a year earlier, large increase was observed, and R&D expenses accounted for 28.5% of the revenue. So we can say that we are in the top class of the global pharmas in terms of spending in R&D. So Eisai is one of the global pharma, which is most spending for the future growth.

SG&A expenses were JPY 168.1 billion, which was up 24% from a year earlier. Major factors for the growth were all positive factors. The profit-sharing cost with Merck for LENVIMA, JPY 16.2 billion, was included and LENVIMA, Fycompa. And by region, China and Asia, we have made a practice and promotional spending in these areas and the product, as a result, operating profit was JPY 57.1 billion, which was 22% year-on-year growth. OP margin was over 12%.

Bottom line was JPY 40 billion. Similarly, we have about 42% increase from a year -- significant increase in that profit. The ROE for the cumulative 9 months of 8.9%, exceeding 8% of the equity cost, generating positive equity spreads. And while continuing to invest for the future growth, we have been able to contribute to shareholder value creation. Nine months free cash flow was JPY 52.9 billion, exceeding significantly over the JPY 43 billion as expected annual dividend payments. Cash generation has been achieved.

On the balance sheet items, net equity ER was minus 0.28. The so-called equity ratio was 58.5%. Net cash, JPY 168 billion included. And then based on the optimal capital structure and at the almost conservative end of the optimal capital structure range, we have maintained a sound balance sheet.

Next page. I would like to give you the breakdown of revenue migration. Last year, revenue was JPY 439.9 billion for the 9 months. Hence, added -- adding the JPY 18.6 billion by global brands and a JPY 4.8 billion by Japan and a JPY 7.4 billion increase was achieved by the -- growing same business in China and Asia, adding JPY 25 billion for milestone payments for LENVIMA and offsetting the decrease in ALOXI revenue, we could achieve JPY 467.3 billion in revenue, increased by JPY 27.3 billion year-on-year.

Next, we can see the breakdown operating profit migration. Last year, cumulative 9 months operating profit was JPY 46.7 billion. In parallel with the revenue growth, global brands brought about and Japan and China Asia business also grew, increasing the profit for our core business and adding JPY 25 billion from the milestone payment for LENVIMA, affecting the bottom line and offsetting the ALOXI -- decreasing ALOXI profits. And although it was a positive spending, however, profit sharing cost with Merck JPY 16.2 billion was absorbed and JPY 10.4 billion increase was achieved to reach JPY 57.1 billion in the operating profit.

For your reference, R&D expenses seemed to be almost flat from a year earlier. However, as I said earlier, inclusive of the 36 point -- JPY 31.6 billion, including partners' share of R&D cost investing in the LENVIMA and other major projects and reaching the JPY 133.1 billion, a 15% year-on-year growth. Through partnership model, we have been able to make such a product investment in R&D, achieving the significant increase in operating profit.

Next, you can see the forecast for FY 2018. This time, the fourth quarter foreign exchange assumptions have been changed. Absorbing that impact and also we have been able to maintain the target numbers for the P&L which were announced in November, revenue is expected to be JPY 636.5 billion, up 6% from a year earlier; operating profit of JPY 90 billion, which is expected to be 17% increase from year earlier; OP margin is 14%; and the bottom line, JPY 60.5 billion, 17% year-on-year growth is forecast.

For this fiscal year, ROE is expected to be 10%, and we expect that the 10% ROE targeted for fiscal year 2020, which is halfway through EWAY 2025, we'll be achieving this target 2 year earlier than planned; DOE, within the 7% to 8% range under the dividend policy, based on the optimal capital structure. And regarding DOE, we have been able to -- we will be able to maintain this level. And based on the strong balance sheet and natural cash flow, we'll be able to maintain a stable dividend of JPY 150 while making investments for the future growth. This is financial slide of my page.

I have been covering the financials information, but lastly, I'd like to talk about the importance of known financial information. Inside the core is in HCC or a corporate philosophy contribution to patients. Such HCC activity contributing to patients so -- which is a part of ESG, which will lead to the achievement of SDG. So-called nonfinancial ROC will be pursued through such activities. But we believe that this will be -- have a positive coordination with long term or financial ROEs.

By being recognized by the market, this will be translated to the PBR or the parameter for the corporate value. Here, you see the 10-year trends of Eisai's PBR. On vertical axis, PBR is metered. And on the horizontal axis, you see the 10 years and the blue portion under the onetime PBR and the net assets or book value on accounting basis or financial capital. But the red portion are exceeding the PBR, at one point, self-created goodwill or intangible values recognized by the market as market value added has the positive correlation with intellectual capital or human capital. For example, intangible or potential values are in company. For example, the Phase II results for BAN2401 obtained last year. And you saw in that, there is -- the value is recognized by the cloud -- market. And then that nonfinancial capital can be converted to market value added. Furthermore, like the milestones from Merck, by monetizing into cash and then reflect it on the financial statement and then MVA is converted to financial capital, like in ESG and the nonfinancial values, leading on transformative to the long-term corporate value. And we like to continue to run this positive cycle in order to increase the long-term shareholder value.

And the nonfinancial capital, or ESG, and the external evaluation is given, thanks to the investors and the shareholders, we received the IR Grand Prix Award from Japan Investor Relations Association and selected as a top company in the Best Visionary Stories 2018 by Forbes Japan and listed in 2019 Global 100 Most Sustainable Corporations by Corporate Knights. And we have been given the very high evaluation by external organizations as such.

However, the core of this corporate value, the nonfinancial financial capital is, we believe, resided -- staying in the portfolio for the neurology and oncology, which is a summation of the intellectual and human capital.

So I'd like to ask Mr. Ivan Cheung for the Neurology and Mr. Iike to explain oncology portfolio going forward. Thank you very much.

With this, I'd like to conclude my part.

[Ivan Cheung, executive]

I would like to cover the progress made in neurology portfolio. These are the topics I'd like to cover today, rich AD-related portfolio. In particular, we are aiming for a successful early development of the world's first potential disease modifier and holistic approach to dementia, which I will explain later. And furthermore, we are aiming to maximize patient contribution with 2 things, namely lemborexant and Fycompa, which I will explain later in detail.

First, I would like to talk about this project in -- we are developing jointly with Biogen, BAN2401 and aducanumab. BAN2401 and aducanumab, which are different from other anti-amyloid beta antibodies, which are selective -- very selective to amyloid beta protofibrils or the [ aggregating ] brain. These are IgG1 antibodies.

For BAN2401, I'd like to give you the feedback from meetings with major health authorities and the current status. From all major health authorities, a feedback acknowledged that Phase II, Study 201, showed robust data on dose-dependent reduction of amyloid plaque in the brain and preliminary evidence of slowing clinical evidence. As a result, the feedback also confirmed there is -- reconfirmed there is -- health authorities that a single Phase III study would meet the requirements for approval, and global confirmatory study will be initiated in patients with early AD in fiscal year 2018. In parallel, we will continue to seek, first, opportunities without health authorities for potential earlier approval. We initiated open-label extension of Phase II study, or Study 201, with over 200 patients, and a clinical data of top dose of BAN2401, 10-milligram per kilogram biweekly dose, will be obtained.

Phase III study for aducanumab, ENGAGE and EMERGE studies, which are ongoing, we completed the patient enrollment in July 2018 and expect to obtain final data from these studies in early 2020. On the other hand, as for approach to preclinical AD, we're planning to initiate a Phase III study and to evaluate whether early use of aducanumab can prevent or delay clinical onset of AD. And for BAN2401, we are -- examination to start the clinical study approach to preclinical AD has been also studied -- started.

Next, another products or projects which are -- is being developed jointly with Biogen, elenbecestat. Elenbecestat is different from other BACE inhibitors, which is a more -- elenbecestat is more selective to BACE1 than to BACE2. For Phase III studies, MISSION AD1, MISSION AD2, targeting patients with early AD, in December last year, the 7th Data Safety Monitoring Board, DSMB, was held. And monitoring was conducted on the efficacy of the cognitive data that are being monitored in other BACE inhibitors, and no cognitive safety signals have been observed for safety concerns. DSMB has recommended the continuation of the study, MISSION AD1 and AD2. We aim to complete the patient enrollment within -- by the end of this fiscal year. For elenbecestat as well, for the duration of the clinical study approach to the preclinical AD has been started.

Next, about early maximization of near-term opportunities to help expand patient contributions. I would like to discuss lemborexant and Fycompa. SUNRISE 1, SUNRISE 2, 2 Phase III studies, yielding favorable results. And based on those results, in December last year, we submitted NDA to U.S. FDA. Lemborexant brings favorable sleep onset and does not have much carryover effect and has reduced the risk of nighttime fall, and this is a potential next-generation treatment of insomnia with much expectations attached. We plan to submit to regulatory authorities in Japan in Q4 fiscal 2018, in other regions in fiscal 2019, and we plan to initiate local Phase III study in China in fiscal 2019.

Turning to the new generation anti-epileptic drug, Fycompa. Quarter 3 fiscal 2018 YTD revenue is JPY 14.3 billion, 36% year-on-year growth. In all regions, double-digit growth was achieved. Furthermore, regarding Japan, this year in January, monotherapy, pediatric and fine granules formulation, regarding this, for these 3 topics, we were able to file submission simultaneously in Japan. As for Phase III study, Study 342, in comparison to existing epileptic drug, which were used to the established criteria for efficacy, and in comparison to criteria for efficacy, 52%, the Fycompa was able to achieve seizure freedom exceeding that level and was able to achieve a favorable results. In China, in January this year, because of clinical benefit, in comparison to existing epileptic drugs, Fycompa was designated for priority review.

Moreover, in order to contribute to patients from early on, Fycompa is making good progress. We are making good progress with Fycompa. As we discussed at the outset, we aim to present a slow-disease progression and improve functional recovery in patients in various disease stages of AD, and holistic approach is taken to dementia. It is not just targeting of amyloids. But in the brain, there is a tau protein and anti-tau -- antibody targeting tau protein, E2814, is also being developed. We plan to initiate Phase I study in fiscal 2018. And E2814 is discovered from joint research with UCL, University College London. It is able to identify unique epitope targeting tau propagation.

Regarding dementia patients, these drugs also help to relieve the symptoms. This is also important. And before onset of cognitive disorder, there are sleep disorder and behavioral disorder. We have lemborexant for sleep disorder, E2730, and E2082 for behavioral disorder and E2027 to improve cognitive disorder. All of these drugs are in Phase II study already.

And about regeneration of synapse and modulation of synapse or neural activation, we have E2511 and EphA4 product. These are in preclinical study. At the same time, we're also looking at dynamics of protective mechanism in the brain with Keio University. We have EKID, Eisai-Keio Innovation Lab for Dementia, and we are actively promoting work here. And we are looking at centenarian/dementia cohort to conduct a research of brain organoid and omics, and we are pursuing reverse translation research.

Furthermore, we are also focusing on immunotherapy. In Cambridge, United States, we have a new research lab, G2D2, where data science is used to study genetics kinetics, and we are taking a new drug discovery approach, immuno-dementia. We have industry-leading AD-related portfolio, and we are further enriching this portfolio.

This is my last slide. In neurology, in the interim plan, the target is summarized here. We aim to expand contribution in sleep disorder and epilepsy, and we would like to enrich AD-related pipeline. And we aim to realize mid- to long-term corporate value creation. Through partnership model, we aim for successful early development and improvement of probability of success.

That is all for my part. Thank you very much.

[Terushige Iike, executive]

I would like to discuss oncology. First, about revenue and profit of LENVIMA, I would like to give you an update, and then I would like to discuss cancer evolution and treatment evolution. IO, immuno-oncology, to overcome the weakness of immuno-oncology or to expand the usefulness of immuno-oncology, we have various efforts and I would like to discuss 3 approaches.

First, this is revenue performance, YTD up to Q3 fiscal 2018. Revenue of JPY 43.3 billion was achieved. This is 85% growth year-on-year, and this is serving as a driving engine for growth of revenue for the company.

In China, LENVIMA was launched as the first in-house anticancer agent, and it received the indication. And in November, the drug was launched. Initially, annual revenue forecast was JPY 500 million. But in 2 months after launch, JPY 1.7 billion revenue is already achieved. We had a very good start. And turning to Americas. Since June last year, we started co-commercialization with Merck, and we also obtained additional indication for HCC and expanding indication phase. As for Japan, the mother market, we have real-world data for HCC and Phase III REFLECT study response rate is -- are reproduced or exceeded in real-world data from numerous reports.

Systemic pharmacological therapy, patients may not have been candidates for such a therapy, but as a result of LENVIMA, patients are now able to receive such therapy. And as a result, we are making upwards revision of annual revenue forecast for fiscal 2018 from JPY 60 billion to JPY 64 billion.

Turning to the first point under the topic of treatment evolution, Merck's PD-1 antibody KEYTRUDA and LENVIMA are given in combination in these programs. PD-1 antibody, as you know, has 2 markers to predict the efficacy, one is PD-L1 status and the other is tumor mutational burden. How much attenuation of genetic mutation there is, is measured in this indicator. If the latter is high, there's a mutant protein from cancer, which is recognized as neoantigen, and will lead to a immune hot status. In other cases, it will be immune colder status. And there is a problem in overcoming PD-L1 status by combining KEYTRUDA and LENVIMA.

And this is about RCC and endometrial carcinoma. Interim data are shown, which were previously published. And irrespective of PD-L1 status of prior treatment history, tumor response was observed. For these 2 types of cancer, last year, from U.S. FDA, Breakthrough Therapy Designation was given, and the Phase II studies are carried -- Phase Ib/Phase II studies are carried to collect clinical data. And we are also in consultation with the regulatory authority.

This is also a combination of LENVIMA and KEYTRUDA, and this was announced at the conference last year. This is an interim data for NSCLC. Response rate was 33%. Duration of response median was 10.9 months, and median PFS was about 6 months.

In particular, another PD-1 antibody, nivolumab, patients who were previously treated with the nivolumab, even in such patients, tumor shrinkage was observed. And irrespective of PD-L1 status, tumor response, tumor shrinkage were observed. Right now, with Merck, jointly, Phase III study, 3 studies are being prepared to be started, two studies are first line and the third study is the second line. And we plan to start these studies soon.

This shows the overview of KEYTRUDA LENVIMA -- LENVIMA-KEYTRUDA combination therapy program, and 2 types of cancers have received the Breakthrough Therapy Designation from FDA. And as for the first line for endometrial carcinoma, the study was started, and a global partnership was concluded with Merck. And the 2 parties agreed with the development timeline, and it is proceeding according to the timeline or, in some cases, earlier than the timeline. Together with the commercial partnership, this is partnership for clinical development and this is also progressing quite successfully.

I would now like to turn to the second of the cancer treatment evolution, the use of splicing platform to develop novel therapy. This is almost the first time that we -- I'm reporting this. And last year, we signed agreement with BMS. H3 Biomedicine is our research subsidiary in Massachusetts, the United States. This company has a strength in splicing, and BMS is also very strong in immuno-oncology and such as was concluded between the 2.

As for the detail of the partnership, we share -- once again, there is an expression, neoantigen therapy. What is unique is that this is not looking at DNA, but messenger RNA level, where there's a splicing. And with that small molecule, splicing is modulated, and abnormal protein peptide that can serve as neoantigen will be created. That is the concept.

H3 Biomedicine has the series of splicing to grab discovery platform. It has compound library. And on its own, H3 Biomedicine has developed assay systems and splicing modulation patterns analytics capability, or bioinformatics capability, and spliceosome protein in slow molecule. How they interact is analyzed through structural analysis, through these capabilities and in conjunction with Bristol-Myers Squibb. As soon as possible, H3 Biomedicine would like to identify candidate compound.

Third topic is our first-ever ADC, Antibody Drug Conjugate, MORAb-202. Cancer cell surface antigen, folate receptor alpha is the target of this antibody, and eribulin payload is conjugated. First thing, in Japan, first-in-human dose escalation for the Phase I study is being carried out. So far, [indiscernible] usual dose in eribulin equivalent, in terms of that, the dose is only half of that level. But in many patients, tumor shrinkage has been observed. And at the right timing, we would like to present at academic conferences. And high unmet medical needs on cancer types, such as triple negative breast cancer, other types of cancer, will reach -- we would like to develop this drug through partnership. We would like to pursue strength of immuno-oncology and expand the potential with our drugs and regimens.

Thank you very much.

[Unknown Executive]

I would like to open the floor for Q&A session. First, we like to receive questions from the...

[Unknown Analyst]

On Page 8, the BAN2401, Phase III is mentioned here. Of course, dose-depending -- dependent reduction amyloid plaque in the brain and a slowing clinical evidence, that has been acknowledged by FDA, and the biomarkers may have been very important. What has been focused by FDA? And what is the study design on over 1,000 patients are necessary, like we saw in the traditional project? Well, diagnostics, and I think that if it's okay for you to explain this, I think that the diagnostic can be a bottleneck. So could you please explain what you're going to use?

[Unknown Executive]

Thank you for your question. SVP Cheung is going to explain.

[Ivan Cheung, executive]

So I will answer the first part of your question, and the second part of the question, I will ask Tsuno-san to supply the answer. So on the first part of your question, with regard to the FDA's feedback, I believe it's quite clear that the FDA believes the data from Study 201 is probably the most promising data set they've seen so far. And as a result, in terms of for approval, only one single Phase III will be required for approval. And I believe that's a reflection of what has been Study 201. And regard to the Phase III, Tsuno-san will explain why. In addition to your question about diagnostics, I will start by saying that, obviously, against Study 201, we studied 5 doses. In this Phase III, we'll not be studying 5 doses. We'll be studying the best dose for BAN2401. Tsuno-san, do you want to answer the second part of the question please?

[Masanori Tsuno, executive]

My name is Tsuno. I'm in charge of clinical research. Phase III design outline will be posted on the clinicaltrial.gov (sic) [ clinicaltrials.gov ]. Early AD will be the target patients and diagnosis. Amyloid beta positive patients will be enrolled. As for other parameters in Study 201, we have observed the CSF and the PAP as well. We have observed the various parameters, and those have been already incorporated. And probably towards the future, there will be various ideas. However, for now, well, we are -- we'll be able to provide you with the details when the outlined is finalized.

[Ivan Cheung, executive]

Obviously, as part of the Phase III design, as I explained earlier, we're also under discussion with the authorities about potential earlier submissions before the "for approval". And that, of course, will also be part of the Phase III design that we have to think about. So we'll present the overall plan soon once we have all the information. Thank you.

[Unknown Analyst]

Then in a nutshell, there will be -- sometime in the future, there will be interim analysis to be conducted?

[Ivan Cheung, executive]

We are working on a number of scenarios. That's not the only scenario -- number of scenarios that we are continuing to work on with the authorities. And we hope to present a comprehensive plan once we've analyzed all those feedback from the authorities as well as our internal design work of the plan going forward. Thank you.

[Unknown Analyst]

Unfortunate results have been disclosed recently. And regarding that, I'm going to confirm with you whether my thinking is right. Amyloid data, there are 3: monomer mark, oligomer and the fibrils. Oligomer is negative or detrimental to the brain because, physically, they are existent in various place, and the intervening does not descend. Then maybe there will be a lot of dark holes in the brain in the end, and then oligomer with -- the other data will be more rampant than oligomer. And on the AD, 0.1% of [indiscernible] infiltrating to the brain, and the oligomer and the monomer are targeted as well in terms of the lack of the selectivity, inviting an IgG4. Therefore, microglia is not clearing. But for your aducanumab, which is recognizing the oligomer but not monomer and so it's IgG1, therefore, microglia will absorb. Is this my understanding correct?

[Unknown Executive]

Thank you for your question. Regarding your question, from Neurology Business Group Chief Discovery Officer Kimura, in charge of science, will response to your question.

[Teiji Kimura, executive]

I am in charge of the Neurology Business Group. My name is Kimura. Thank you very much for your question. Yes, exactly as you described, that is a way of thinking. Regarding the data from the crenezumab study, particularly oligomer or soluble oligomer, specificity was very high for that type of oligomer. Still, I think that, that concept is supported by that data for crenezumab. Therefore, I think the results recently is not surprising for us. And then according to the publication, crenezumab and -- there are only -- the difference between the crenezumab and the solanezumab are 2 amino acids. That was disclosed in a publication in 2016. And the BACE inhibitor, elenbecestat and lanabecestat, looking at all those inhibitors and the cognitive function were deteriorating. Professor Vassar. And then the knockout mouse was observed, and its [ action ] guidance was derailed or impacted. Therefore, rather than the -- not completely knockout in the mouse, that will be better -- provide a better result. And then in your case, the 15-milligram and then those -- and I think that amyloid data has been reduced by 17 -- 70% or so. And I think that this track may be difficult to be develop, and I think that it will be very difficult to adjust.

[Unknown Analyst]

Well, you mentioned that there are no concerns or signal related to the safety concerns. But what is your take on the safety profile of this drug?

[Unknown Executive]

Thank you very much. Mr. Kimura will respond.

[Teiji Kimura, executive]

Thank you for your question. Regarding BACE, at CTAD held in November last year, there was a fierce discussion on BACE, and experts concluded that, as you mentioned earlier, the dose was very high. And almost 100% inhibitor, it will be dangerous in terms of safety. That was the conditional knockout data published by Professor Vassar and sprouting in the downstream axon have been impacted. That was suggested. But BACE inhibitor is not workable at all. No, that was not the conclusion. Of course, the dose setting is very important. That was the conclusion by KOLs. And at this time, our projects and another company, these were considered to be having no Phase III profile issues. And verubecestat and other companies' projects have the programs with cognitive function. And I'm not able to give you more detailed information. However, biologically, we believe that our agent is based on the different biological mechanism of action. So I'd like to give you -- we would like to give you more details in the presentation to be held on academic congress. Thank you very much.

[Unknown Executive]

Next seated in the middle row please.

[Kazuaki Hashiguchi, analyst]

I'm Hashiguchi from Daiwa Securities. About AD portfolio, preclinical approach. There was a mention of preclinical approaching AD portfolio. Could you discuss in more detail? Could you elaborate on this? Aducanumab and elenbecestat, what is the time line for each for start of the study? Is this going to be monotherapy or combination therapy, including sequential therapy? Other companies are looking at genetic background and focusing on high-risk patients, in some cases, I believe. But what is the view of Eisai in your preclinical development?

[Ivan Cheung, executive]

First question, I'm going to start first, and then we'll ask Tsuno-san to add to that. So as you heard from Biogen last week already, the aducanumab Phase III preclinical AD is on the planning, to start. Of course, the design is still in progress, and both Eisai and Biogen hope to present the plan later on when we have the detailed design. With regard to the entire portfolio strategy, as you -- your question was -- obviously, the advantage of data in Biogen versus other companies is because we have a portfolio. We have 3 options here that we would like to figure out how to synergistically and strategically position that in the preclinical AD space. And as you may know, the preclinical AD space, they're not only talking about secondary prevention. We are also looking to primary prevention. This data is quite long, and that discussion -- we just initiated, good discussion right now. I have no more to offer from our end at this moment until we have detailed design. But one point we did mention, obviously, the approach involve many factors, including genetics and specific algorithms in selecting those patients. Those are important works in progress right now. So Tsuno-san, if I may ask, you could add additional expert details. Thank you.

[Masanori Tsuno, executive]

Mr. Cheung covered almost all of the ground, and I'm wondering whether I should be getting into the details. Options were discussed, amyloid positive, those patients with accumulation of amyloid and what to do about genetic background. But in order to identify high risk, we have to look at the genetics background. The genetic background may be targeted in selecting patients, but that is a rare disease. So ApoE4, we will be, I think -- we will be considering that as an option. And in case of amyloid positive, and when you look at the data of this antibody, there's a dramatic clearance. What -- the term that we use is washout because of dramatic clearance. And what happens next is a natural question. As you pointed out in your question, sequential may be one of the options. Combination can also be an option and BACE inhibitor and antibody, how are they going to be differentiated in terms of usage. So the options that you mentioned, we are discussing these various options. As soon as we have overall picture, we would like to communicate to you.

[Kazuaki Hashiguchi, analyst]

When do you hope to begin?

[Ivan Cheung, executive]

Aducanumab, Phase III study in preclinical AD, the timing is ongoing already. And for BAN2401 and elenbecestat, we discussed earlier, those exploration has just begun. So at this moment, the only item we could confirm is the Phase III study for aducanumab on the timing right now. The others will come actually as a full plan. Thank you.

[Kazuaki Hashiguchi, analyst]

I have a question for Mr. Yanagi. Sometime ago, medium-term business plan operating profit target was JPY 120 billion in 2020, but you've mentioned the hope to achieve this ahead of schedule. But in view of recent developments, is this unchanged? Does this remain unchanged? You have a very rich research and development. And even if research and development expenses are increased, I do not see that as a problem. But what is the latest view?

[Ryohei Yanagi, executive]

Thank you very much for your question. In the past, publicly -- announcements were made including newspaper articles and JPY 100 billion OP target in 2020. The business decision is to be able to achieve this ahead of schedule, but there is also some disclaimer. Precise business plan is now under development. And every year, in earnings flash report, operating profit forecast is given for the following business year. But as far as vision is concerned, we would like to achieve JPY 100 billion level as soon as possible. Looking at the fundamentals, this year, operating profit is JPY 90 billion. And because LENVIMA is performing very well, I think that there is a potential. But as Mr. Hashiguchi mentioned, we shouldn't fall prey to short-term return. We have to focus on maximizing corporate value over medium to long term, and we will be actively investing in R&D, as Mr. Hashiguchi mentioned. So there is that migration. Pharma EBIT, that will be growing. But allocation of R&D, depending on the allocation of higher R&D, to what extent that there will be allocation, the numbers will change. And currently, the business plan is being developed. So in May, forecast number for full year basis will be announced, and please check the numbers there. Of course, we will be making sure to invest in R&D in efficient and effective fashion, but that will be done from medium to long-term view and looking at the revenue and profit, the progress so far. And what we are planning to have in terms of milestone from Merck option, JPY 325 million and milestone -- when sales of JPY 500 million is achieved, total JPY 375 million is expected in the fourth quarter. So it's about JPY 41.3 billion approximately. In view of that, I think we are making very good progress or it might appear that we are making a good progress. But we are also actively investing in R&D. And technically, aducanumab R&D portion of Eisai will increase from 15% to 45% beginning this January. And Phase II/Phase III studies are under way for aducanumab and for LENVIMA as well, and so we are focused the most on maximizing corporate value over medium to long term. So please look at the announcement of the forecast made in May. But as for the vision, we do have an aspiration to achieve the vision of JPY 100 billion as soon as possible.

[Atsushi Seki, analyst]

My name is Seki. I'm from UBS Securities. My first question about -- were comments by Mr. Cheung earlier. I would like to clarify before for approval and the potential earlier approval. Does it mean accelerated approval?

[Ivan Cheung, executive]

While we have continuously getting additional feedback from health authorities, so we are analyzing those feedback right now, including impact around potential earlier approvals opportunities. Now before for approval, we're working on the plan right now, and we hope to explain the plan at the next location shortly. So I hope we'll be just a little bit patient until we can share the full plan. Thank you.

[Atsushi Seki, analyst]

At the previous briefing session, FDA, Study 201, explaining opportunities are available, you mentioned, there have been -- several times, you are expecting to have several meetings with FDA. But have you done all of these meetings?

[Ivan Cheung, executive]

We are having discussions with the FDA. We have not completed all the meetings yet. It's not one meeting. It's a series of meetings. We haven't completed all the meetings yet. But we have, of course, gotten additional feedback, and we're working on those feedback right now. So I -- again, please be more patient, and we'll present the plan at the next location on this matter. But I think we did have one concrete outcome from those conversations so far, which is to confirm that, for approval, we only need one single Phase III study, which is a testament to the promising data from the Study 201. Thank you.

[Atsushi Seki, analyst]

I think in the U.S. LENVIMA is a growing very significantly. The incremental part is due to the closing the HCC. Well, would you provide the disclosure by indication?

[Unknown Executive]

Thank you very much for your question. Mr. Iike is going to respond to your question.

[Terushige Iike, executive]

Thank you for your question. By indication, revenue by indication or forecast of the revenue by indication is not disclosed by us. Regarding LENVIMA HCC, it's contributing most to the incremental portion but -- for the thyroid cancer. And obviously, the second line also are increasing. Therefore, for all these 3 indications, LENVIMA is growing. Thank you very much.

[Unknown Executive]

Next question please.

[Fumiyoshi Sakai, analyst]

I'm Sakai from Crédit Suisse. I have 2 questions. First is a simple question. As I listen to the discussion so far, info for clinicaltrial.gov is updated. I believe the details will be given and essential to look at the clinicaltrial.gov. But as far as timing is concerned, when will the data be updated? Is it before the information meeting in March or after the March information meeting? If you could comment on that point.

[Unknown Executive]

Thank you for your question. Mr. Tsuno will respond.

[Masanori Tsuno, executive]

Mr. Cheung is saying that there will be disclosure before the end of this fiscal year. According to the regulation, I -- we expect the updated data to be uploaded on clinical government -- clinicaltrial.gov.

[Fumiyoshi Sakai, analyst]

I also have a question on LENVIMA. Merck is looking at adjuvant. I think that will be explored going forward. And in connection with LENVIMA, what are the plans for Eisai in terms of its relationships with Merck? So far, as far as the announced packages are concerned, adjuvant, I don't think was included.

[Unknown Executive]

Thank you for the question. So Owa responsible for Science in Oncology business will address the question.

[Takashi Owa, executive]

Thank you for your question. This is Owa speaking. But first, I must disclose information. Adjuvant setting is not included, as you correctly pointed out. But immune checkpoint inhibitor, I think we cannot stop the turn that -- start to be using adjuvant. In the newly discussion may take place with Merck and how expense may be shared may be discussed, we do not deny this possibility at all and what potential there is. Those of us who are in the science field are discussing what potential there may be.

[Unknown Executive]

Any other question?

[Akinori Ueda, analyst]

My name is Ueda. I'm from Goldman Sachs Securities. I have 2 questions. My first question is about LENVIMA in China. In the first 2 months, you achieved JPY 1.7 billion, and I think that it is -- was impacted by the initial shipment. And going forward, regarding the reimbursement from the health insurance and when -- how many years do we have to wait until we see the full-fledged declaration in the revenue? Or can we expect that to be seen from this year or next fiscal year onward?

[Unknown Executive]

Thank you for your question. Mr. Okada, who is in charge of the China business, is going to respond.

[Yasushi Okada, executive]

Thank you for your question. I am in charge of China business. My name is Okada. Thank you for the question. Of course, initial shipment in HCC was launched on the 9th of November, and the initial shipment was done. And of course, the inventory was cycled twice, and I believe that such shipment is ongoing steadily. Of course, when it is lifted on the reimbursement under the national health insurance scheme and then I believe that we will see the revenue growth in different order, but it really depends on the negotiation with the health authorities in calendar year 2019. If possible, by the end of calendar year 2019, we like to see LENVIMA to be listed on the reimbursement list in China in HCC treatment in China, including pays, and surgical operation therapies are provided in most patients. That is the environment. Because China has adopted a guideline, which is different from Barcelona guideline, and we hope that LENVIMA will be used as a first line. If we can see a change in the treatment paradigm in China and about half of the patients in the world are in China, therefore, we will -- we believe that, that will substantially contribute to the growth in the top line. That is our plan or assumption.

[Akinori Ueda, analyst]

My second question is about R&D expenses for next year onwards. In the fourth quarter, there will be about JPY 10 billion increase in R&D expenses. And do you think that the R&D expenditure will be increased towards the end of the year, that, namely, in the fourth quarter, as usual, years and Alzheimer's disease and there will be a change in the sharing of the cost to be borne by the -- by Eisai? Or do we need to be cognizant of the -- about that number about 4x higher than what has been mentioned?

[Ryohei Yanagi, executive]

Thank you for your question. Regarding R&D expenses, we are making proactive investment in the focused projects, so LENVIMA and Alzheimer's 3 project in the pipeline. So this fiscal year, in the fourth quarter, we will see more expenditure. Aducanumab share in the pattern is changed from a 15% to 45%, and also, Phase III project's ongoing on the LENVIMA as well and elenbecestat. And that does not necessarily mean that we will always consume the R&D expenses in the fourth quarter every year. But regarding the -- it's not beyond budgeting theory, but we like to be flexible. We will spending -- be spending base on the actual need. So it depends on the progress of the clinical studies. And the BAN2401, for example, Phase III design was planned and the cost estimation that -- when we are going to actually spend. So these will all affect, therefore, we cannot say that we will always make more expenditures in R&D in the fourth quarter, but that some portion may be spent. But we will always depend on the actual need for expenditure. But towards the end of the fiscal year, we will be spending more as proactively in R&D. But as the core pharma profitability or pharma EBIT before deducting the R&D expenses, we'd like to secure such core profitability. And we will receive the payments from partners, and in real world, there will be about a 30% increase in the actual expenditure. But on a net basis, I think that within 25%, that will be the general assumption. Therefore, while making the profit investment in R&D activities and securing profitability with double-digit ROE, while -- at the same time, we will pursue the medium to long-term corporate value and long-term shareholder value. And we are ready to pursue all these. It is difficult to predict. However, it will depend on the progress in the various projects and also the study design and budgeting. Please review those. But for next fiscal year, as I said earlier, we like to report to you further details in the meeting to be held in May. Thank you very much.

[Unknown Executive]

Next question, please.

[Takashi Akahane, analyst]

I am Akahane from Tokai Tokyo. I have one questions. Up to the third quarter, you have increased revenue in JPY 8.7 billion in the third quarter. This is down by more than 50%, and this is 63.5% in comparison to annual budget. If there is JPY 42 billion of royalty, it's going to be about JPY 92 billion or so. But in terms of progress so far, in the third quarter, is this in excess of the budget? So in the fourth quarter, losses are expected. And if there's a plus alpha, that will be added on top?

[Ryohei Yanagi, executive]

It's quite complex. So to the extent possible, I'd like to sort things out. First, in the third quarter, the 3 months of third quarter, if you look at that quarter on a stand-alone basis, operating profit was down from the same period the previous year. That was the question. Six point -- the JPY 6 billion early retirement special expenses were incurred. And as for the difference between last year and this year, LENVIMA-related profit sharing in SG&A is about JPY 8 billion for the third quarter alone. And ALOXI-related profits, it is also some billions of yen. In view of this -- as for the main business, we are maintaining strong performance. But because of these extraordinary factors, in the third quarter, it is down from the same quarter of previous year, in the third quarter. But double-digit growth, as forecasted, are to be ensured on an annual basis. As for the full year basis, as Mr. Akahane pointed out, JPY 90 billion is the operating profit target for the year. And so far, JPY 57.1 billion is achieved and 2 point -- JPY 32.9 billion is the difference. Option exercise by Merck, JPY 325 million milestone and milestone -- when JPY 500 million sales is achieved, it's JPY 50 million, so milestone of JPY 375 million or JPY 41.3 billion, if that is taken into account, it's going to be still loss-making situation for the 3 months. So ForEx assumption was also changed, and there was a significant negative impact. But despite that, PL profit has not been revised. So this is, in effect, an upward revision of the PL forecast, and the biggest factor is R&D. Aducanumab share of expenses increased, about 15% to 40%, and we will be investing in priority projects. And what will happen to the exchange rate and China-U.S. trade relations, in view of these risk factors, there are uncertainties. And in view of materiality, we have not revised the current forecast, but we have come to that conclusion. So in flexible fashion, we would like to review and would like to make all-out efforts to achieve the forecast.

[Takashi Akahane, analyst]

Next question is about generic. Eisai has been quite positive about generic. But you have spun off the generic. In Biogen, you are partnering with the development. But when we look at Biogen's products, they are mostly biosimilar, and the profit generated from by biosimilars are spent on the development of AD drugs for generics. What is the position of Eisai?

[Unknown Executive]

Thank you for your question. Regarding the current question, Mr. Hayashi/will answer.

[Hideki Hayashi, executive]

Thank you for your question. I am Hayashi, responsible for Japan business. Regarding biosimilars, we do not have a plan at the moment to venture into biosimilar. But with Nichi-Iko, we have a strategic partnership, and Nichi-Iko has a biosimilar subsidiary. And in this context of a strategic partnership, is there a possibility? We'd like to address that flexibly. And from April onwards, our -- Elmed Eisai will be integrated with Nichi-Iko. And including that generic, we will be looking at comprehensive package, and we'll develop plans. So we do not deny the possibility of having biosimilars.

[Unknown Executive]

Thank you very much. In the interest of time, one last question please.

[Tomoya Shimizu, analyst]

My name is Shimizu. I'm from Tokio Marine Asset Management. I have 2 questions. Well, it can be combined into one question. Regarding Fycompa, you expanded indications by getting approvals for these. And what is the positioning of this drug in the treatment pipeline? How do you see the future changing this? And LENVIMA, together with Merck, you are going to step 3 -- Phase III study with Merck for the lung cancer. But in lung cancer, Merck is the king in this specific area and for these 3 Phase III studies are planned with them. And are you going to capture the patients who are missed? Or do you think that these are the necessary projects for the -- increasing further the revenue in order to catch up with the Roche?

[Unknown Executive]

Dr. Owa is going to explain the second question. And the first question, Cheung is going to respond.

[Ivan Cheung, executive]

Approved patients. And actually, the guidelines are not so specific to each molecule. And for the entire company, for Fycompa, our goal is to stay clear. We want to move into new onset epilepsy with our monotherapy strategy, because that's the majority of the market. And as we've announced in the press release in 342 Study, we have very, very good seizure-freedom data, over 6 months, the treatment-naïve patients, which we will, later on in the year, present those data in a Congress. But that's going to be a major strategy to significantly grow Fycompa much faster going forward. Thank you.

[Takashi Owa, executive]

Thank you for the question. There are planned 3 clinical studies for lung cancer, as you pointed out. For example, for the first line, [indiscernible] I mean, bevacizumab will be added on to chemotherapy, and Roche regimen will be added. Bevacizumab, or Avastin, will be added. So -- while if we pursue the efficaciousness and the survival and the response and LENVIMA will be the key. But that is the regimen by Merck. And regarding another first-line PD-L1 positive, [ cut of the ] TPS over -- 0.1% or over, and this response is over the chemotherapy, but adding the lenvatinib. And then there will be the more -- further adjuvant effect. And then for longer term, and there will be a maximization of the benefits for patients. And for second line, a similar theory can be applied. So in order to compete against Roche and in order to pursue further efficaciousness, LENVIMA, we'll be the -- providing the further efficaciousness and benefit. And that is the decision made by Merck. That is what we believe.

[Unknown Executive]

Thank you for your questions. I believe that there are further questions from you, but through IR and PR, you can contact us later on for further questions.

With this, back to conclude the briefing session on the results, financial results of the Eisai Co., Ltd. Thank you very much.