Eisai Co Ltd

TSE:4523

Earnings Call Transcript 2022-Q3

[Unknown Executive]

[Interpreted] It is now time. We would like to begin financial results presentation for the third quarter fiscal 2021 by Eisai Company Limited. This presentation is live streamed. We apologize that this is only live streaming and telephone conference only. Those of you who are participating via telephone lines, please download the presentation material from the website and click to move the slide forward.

First part, financial part will be presented by Dr. Yanagi, CFO. And the second part, operational part, will be presented by Mr. Ivan Cheung, President of Neurology Business Group, and Dr. Owa, President of Oncology Business Group. Ivan Cheung will be presenting in English. If you're listening to Japanese channel, you will be listening to Japanese interpretation. If you're listening to English channel, you will be hearing Mr. Cheung himself.

Now, without further ado, I would like to ask Dr. Yanagi to start the presentation.

[Ryohei Yanagi, executive]

[Interpreted] This is Yanagi speaking, CFO. I would like to present the third quarter fiscal 2021 consolidated statement of income. Please turn to Page 2. Through expansion of partnerships model and Global Brands, double-digit growth in revenue and profits is continued. First, top line revenue. Revenue was JPY 565.3 billion. This was 13% increase year-on-year. Double-digit increase was achieved. A drug price revision in Japan in the generics of Lyrica impacted. However, these were more than offset by strong growth of Lenvima, one of the Global Brands. There was also JPY 45 million of upfront payment on MORAb-202.

Other business revenue includes the licensing related revenue. Excluding this, increase was 4% year-on-year. Lenvima has low cost of sales and Lenvima is growing and licensing revenue was also recorded. Cost of sales as a result was 22%. In comparison to global standard, the figure is a favorable figure. As a result, gross profit was JPY 441.2 billion, which was a growth of 17%, double-digit growth from the previous year same period. This 17% increase within that margin, the increase of expense is contained at 14%. As a result, we were able to achieve significant increase in both revenue and profit.

As for the breakdown of the expenses, R&D expenses was JPY 123.3 billion. This was a double-digit growth at 14% year-on-year and this is 21.8% of the sales. Mainly on Lenvima and Global Brands, we are investing resources proactively. Including partners' reimbursement, on a gross basis, R&D expenses was JPY 175.9 billion, which was 31.1% of the sales. In comparison to other global pharmaceutical companies, we are one of the companies that is very proactive in making R&D investments.

As for SG&A expenses, this was an increase of 20% at JPY 255.9 billion. As a percentage of sales, it may look somewhat abnormal at 45.3%, but this is also including share profit of Lenvima paid to Merck. And if positive expense is deducted, actual SG&A expense is JPY 190.4 billion, which is 33.7% of the sales, which is within the global range.

And excluding share of profit, SG&A expenses grew 16%. This also increased ADUHELM-related items. Other income and expenses include divestiture of rights for Zonegran. Operating profit as a result was JPY 74.6 billion, about 30% growth year-on-year. OP margin is above 13%. For your reference, for the 9 months, ROE is 11.2%. Equity spread exceeding 3% was ensured, creating values.

As for the balance sheet, we are still net cash positive, effectively debt free at more than JPY 1,200 trillion in cash. Net DER is negative 0.26x; equity ratio is 62.9%. For future investment and for shareholder return, we have sound financial position to achieve both at the same time.

Now, please turn to Page 3. This is the breakdown of revenue migration. Left box at the very top is the revenues for the 9 months from last year at JPY 498.3 billion, and below this chart, for this fiscal year, for the 9 months, revenue was JPY 565.3 billion, which was a growth of JPY 67 billion. Excluding licensing, pharmaceutical business total was growing at 4%.

On the right side, we have breakdown of the increase. Global Brands -- total of 4 Global Brands exceeded JPY 200 billion, at JPY 205.7 billion. This is increase of JPY 51.9 billion from the previous year. Lenvima grew strongly at JPY 103.8 billion -- correction, JPY 141.1 billion. Growth -- it grew by JPY 37.4 billion and this more than offset the impact of generics of Lyrica.

Other business options are listed below. MORAb-202 related BMS upfront payment, $450 million is included here. As for Lenvima related milestone in calendar year, sales target is achieved and milestone for that is recorded. $200 million was from last year. In this fiscal year, it is $300 million, an increase of $100 million. With that, revenue grew by JPY 67 billion.

Next slide please. This is Page 4, showing the breakdown of operating profit migration. Please turn to left box at the very top is operating profit from last year. For the 9 months, operating profit was JPY 57.7 billion, and below that, for fiscal 2021, from April to December, in the 9 months, operating profit for this fiscal year was JPY 74.6 billion, plus JPY 16.9 billion. JPY 7 billion positive FX effect was observed.

In the pharmaceutical business, growth was 6%. In our core business, the pharmaceutical business, we were able to increase both revenue and profit. Right side shows factors for increase and decrease. Revenue had already been explained on the previous page.

Regarding R&D expenses, Lenvima R&D cost increased by JPY 2.8 billion, but there was a regulatory milestone for approval of RCC in the U.S. of 75 million is included. Therefore, on a net basis, for Lenvima, more than JPY 10 billion is invested and we are also proactively investing in lecanemab.

On the other hand, turning to SG&A expenses, as explained earlier, there are costs related to ADUHELM and there is also Lenvima profit sharing, which also is included in SG&A expenses. Last year's profit sharing was JPY 47 billion, and for this fiscal year, profit share was JPY 65.6 billion. As Lenvima revenue grew, profit sharing increased by JPY 18.6 billion.

At left bottom, for your information, R&D expense breakdown is given. From partners, we have reimbursements and last year it was JPY 46.8 billion, and this fiscal year, JPY 52.6 billion. JPY 123.3 billion is R&D expenses on the profit and loss accounting-wise, but on gross basis, JPY 175.9 billion is invested in R&D. With the partnership model, we are able to spend 1.5x the R&D expenses on PL. And with the growth of Global Brands, we are able to increase both revenue and profit. That is the gist of profit and loss statement.

That concludes my presentation on the results from the first 9 months of this fiscal year. Next, on Neurology Business, Ivan Cheung will present.

[Ivan Cheung, executive]

This is Ivan Cheung from Neurology Business Group. Let me first give an update on ADUHELM, and then I'll explain the tremendous progress being made with lecanemab. As you can see in the top blue box on Slide 5, our top priority for ADUHELM continues to be enhancing the AD community's understanding of ADUHELM's clinical data. Our partner Biogen is on track to initiate the Phase IV post marketing confirmatory study called ENVISION this year in May and is in the final stage of publishing the Phase III data from EMERGE and ENGAGE.

We are encouraged by Biogen's action to reduce the price of ADUHELM based on feedback from stakeholders and we are pleased that the J-code is now in place for ADUHELM.

The critical matter now is how to improve drug access to ADUHELM and we urge CMS to reconsider its draft NCD with a proposed CED for monoclonal antibodies directed against amyloid by the April final decision, which I'll go into more details on the next slide about Eisai's position.

In Japan, with regard to the outcome by the first committee on new drugs to continue the liberation on the application of aducanumab. We are working closely with Biogen to actively engage with the PMDA to agree on the additional data requirements so that we can pursue the most expedited path going forward. In Europe, with regard to the negative opinion adopted by the CHMP, the re-examination process has been initiated.

Next slide, Slide 6, please. On January 11th, CMS released the draft NCD with a proposed CED that applies categorically to all monoclonal antibodies directed against amyloid and recommend restrictive coverage to only patients in randomized controlled trials approved by CMS or supported by NIH.

Eisai strongly opposes this draft NCD for a number of reasons as you can see on the right-hand side in the green box. First, we are greatly concerned that this action severely limits and delays access to FDA-approved therapies and directly calls into question the FDA's role in determining safety and efficacy of new drugs.

Second, the proposed CED exacerbates health inequities by restricting coverage to only individuals willing and able to enroll in randomized controlled trials in selected medical facilities. Third, application of CED for investigational therapies that are not approved by the -- not yet approved by the FDA pre-judges clinical trial data and labeling, and the assumption that drugs in this class are identical is wrong and unscientific.

Last but not least, it's unacceptable to the AD community why AD treatments are the only ones being discriminated against with such restrictive CED unlike other diseases such as cancers and HIV.

We strongly encourage CMS to reconsider its proposed decision on this NCD. During the 30-day open comment period, Eisai will make a formal response. CMS's final decision is expected to be issued by April 11th. And if we look at the case of lecanemab, we deeply believe that CED is not reasonable, necessary or appropriate based on Study 201 data, low rate of ARIA and the anticipated data readout from Clarity AD confirmatory trial later this year.

With that, let's go to Slide 7. Now let me turn to lecanemab, and I am very excited to report that we've made significant progress in the rolling BLA submission under the accelerated approval pathway. We remain very much on track to complete this BLA by the beginning of fiscal year 2022 in order to enable potential approval within calendar year 2022. Both the non-clinical module and the clinical module were already submitted to the FDA and we are having ongoing interactions with the FDA regarding these submitted modules.

The clinical module's primarily based on clinical, biomarker, and safety data from Study 201 Core and OLE, and as shown in the yellow box, we saw uniquely differentiated data in terms of amyloid clearance at just 3 months of treatment all the way to 18 months and low rate of ARIA-E.

In addition, blinded safety information from the confirmatory Phase III trial Clarity AD were included in the clinical module submitted to the FDA and will be updated for the FDA during the upcoming day 120 safety update. We are confident about the size of our safety database submitted for this BLA based on our interaction with the FDA.

Meanwhile, in preparation for potential approval and launch before the end of this calendar year, we are working intensely on additional publications from Study 201 and mechanism of action and health economics now of lecanemab for the AD company. Looking further ahead, we continue to aim for a primary endpoint readout from Clarity AD by the end of September this year in order to enable submission for full approval to the FDA within fiscal year 2022, which I will explain in the next slide.

Slide 8 please. I am equally excited to report a tremendous progress from Clarity AD, our confirmatory Phase III trial for lecanemab, to support full approval in the United States and the basis for submission for approval in Japan and Europe within fiscal year 2022. As you can see in the yellow box on the slide, this trial successfully completed enrollment of 1,795 subjects in March last year and more than 620 patients have already been transferred to the open-label extension OLE study, representing about 95% of the eligible patients from the Core study.

The lower-than-expected discontinuation rate in the Core study and the strong participation rate in the OLE study indicate high level of engagement from patients and their caregivers for this particular trial with lecanemab, even during the period of the COVID pandemic. In addition, we are very encouraged that ongoing reviews of Clarity AD by our independent DSMB have not identified differences in the safety profile of lecanemab, including ARIA, from what was seen in Study 201. Furthermore, we are very proud that approximately 25% of the total U.S. enrollment in Clarity AD consists of African-Americans and Latinx people living with early AD, which mirrors the diversity in the U.S. Medicare population.

Turning to China, a country with a large rising AD population, I am glad to report that we completed enrollment for the additional cohort of subjects required to a registration there during the previous quarter. And last but not least, we are on track to incorporate less frequent IV dosing regimen guided by blood biomarkers and subcutaneous formulation into the OLE study of Clarity AD later on this year.

To get there though, within this quarter, we will first introduce less frequent IV dosing regimen into the OLE phase for Study 201 and we will complete the Phase I study of our subcutaneous formulation. However, as you can see, we continue to be confident about the outcome from Clarity AD and very much look forward to a data readout in September.

Next slide, Slide 9 please. We have a clear vision that the specific role for lecanemab in this new AD-DMT era is to create the simplest patient journey. As shown in the pink bars on the left, we envision a simpler diagnostic pathway through digital cognitive tests such as Cognigram in the comfort of people's homes and simple blood test for amyloid confirmation.

Moving to the green box in the middle, we envision a simpler treatment process because lecanemab is the only anti-amyloid beta antibody that requires no titration and the upcoming availability of subcutaneous formulation to allow self-injection.

Moving to the yellow box on the right, we envision a simpler monitoring system, driven by lecanemab's favorable safety profile such as low rate of ARIA, and because of our extensive works with blood-based biomarkers to guide when to reduce frequency of dosing and when to stop dosing for lecanemab.

Although not all these elements will be available by the initial launch in the U.S. under the accelerated approval pathway, we very much look forward to putting this together, the simplest patient journey together, that is only made possible with lecanemab at a time of full approvals across major markets.

Next slide, Slide 10 please. This is my last slide and it summarizes why we believe lecanemab will emerge as the most comprehensive therapy in the new AD-DMT era. Our conviction in lecanemab is rooted in 4 pillars. #1 is the early AD indication, which we believe lecanemab has a uniquely differentiated profile and could potentially be the first therapy to receive full approvals across major markets. #2 is the preclinical AD indication, which we believe lecanemab could be first to market. #3 is lecanemab's patient friendly dosing approaches. And #4 is lecanemab's position as a backbone therapy in combination regimen. I already explained about #1 and #3. So let me update #2 and then #4 further.

In preclinical AD, as shown in the upper right box, our Phase III AHEAD 3-45 trial in collaboration with ACTC is enrolling well in over 100 sites globally. This cutting-edge trial has what we believe the most modern biomarker characterization for the A3 population versus the A45 population and also dosing paradigm tailored to the A3 population versus the A45 population.

With regard to the combination regimen, as shown in the lower left box, we believe lecanemab potentially has the best profile in terms of both efficacy and safety as well as dosing approaches to become the backbone therapy in combination regimen. Lecanemab was selected as the base anti-amyloid therapy in the DIAN-TU nex -- in the DIAN-TU Tau NexGen Phase II, III study for DIAD subjects, which is now actively enrolling into both the symptomatic, tangle spread cohort and the asymptomatic tau accumulation cohort. We are continuing to evaluate other proposals to potentially combine lecanemab with other novel agents to further combat this devastating disease.

This concludes my presentation. Thank you very much for your kind attention.

[Unknown Executive]

[Interpreted] Now with regard to the Oncology Business, Dr. Owa would like to present.

[Takashi Owa, executive]

[Interpreted] Now Owa would like to report to you Oncology Business. So first of all, with regard to the Lenvima sales revenue, please take a look at the left-hand side bar graph. FY 2021, the third quarter, JPY 141.1 billion global sales was achieved, which is 36% year-on-year growth. So Japan's originated blockbuster of Lenvima has been achieving the very powerful growth.

When you look at the sales in Americas region, in the same time previous year, the sales was JPY 62.2 billion, which grew to JPY 82.6 billion, up by JPY 20.4 billion, driving the overall growth. As for China, centering around HCC indication, achieved 84% of the growth year-on-year, and also for EMEA as well as Latin America and -- or the Europe as well as in Latin America and Asia, 40% of the increase was achieved. And so for the important contributions of Lenvima to the patients is the approval for this Lenvima in combination with the KEYTRUDA.

And here you see the 2 projects that are currently ongoing. One is, the advanced endometrial carcinoma and that is FPST that is following the prior systemic therapy. In U.S., in Europe, as well as in Japan, last year in July, November and December, the approval is granted. And in response to this, in January of this year, the pivotal -- the Phase III study, the 309 Study was published in New England Journal of Medicine.

And in Asia and Latin America, based upon this pivotal study, we are currently in the submission phase and also for China, the Phase III's the LEAP-001 study. The first line study is currently ongoing. For the second one is the advanced RCC for the first-line. In the United States as well as in Europe, the approval is granted in August and November. Currently in Japan, this is currently under review by the health authority. Actually, tomorrow on [indiscernible] this is going to be reported in the special -- the New Drug Committee to be organized tomorrow, and also as in Latin America, in January, the -- it was granted the approval in Taiwan and also in other countries, this is under review.

So with the contribution with Lenvima and other indications in, for the calendar year, we expect we achieved $1,400 million of the sales for Lenvima and achieved the sales milestone and have received a $300 million of milestone payments. And for other milestones, I can report to you that we are pretty much on track.

And the next slide. So as you know, in order to maximize the patient contribution in oncology field, we really need to capture the position as the standard of care, and so for Lenvima to really achieve the leading positions and we are aiming at all of these -- the cancer indication. One is the hepatocellular cancer. So this unresectable HCC patients would be the target and this is going to be the Lenvima and monotherapy, to be followed by a TACE and this is the conversion therapies being looked at in this study, and which was approved before this in January the 20th at ASCO-GI meeting. And as you can see that the response rate, this is high as 94.6% and the complete response rate was 66%. Very high level of the response rate was reported. And also Lenvima in combination with KEYTRUDA and [indiscernible] in combination with TACE and also MK-1308, that is Lenvima and also the [indiscernible] combination therapy is being studied.

So first of all, for RCC and after getting the approval in the United States in January last year, the first-line market share has been expanding rapidly and also in Europe as the EAU as well as at ESMO, Lenvima or the Kisplyx and the KEYTRUDA combination therapies are now newly recommended for the first-line. And also HIF-2 alpha inhibitor, that is belzutifan, and also MK-1308A, a combination therapy, again, they're all currently being studied in Phase III studies.

And the third indication is endometrial cancer. Now, U.S. NCC guideline is being recommended in the second line with the Category 1, the evidence for -- in combination with KEYTRUDA, and also in Japan, including DNA mismatch repair enzyme deficient patients, that is for all-comer basis, the approval is granted. And also the first-line LEAP-001 study patient enrollment has been completed and so the study is progressing and ready to come up with the top line results.

Here on this slide, you see the 4 of the lead studies that have already completed last patient in. So one is the LEAP-002 for HCC, the first-line, and also 006 LEAP study, the non-small cell lung cancer, and also LEAP-001 study that's endometrial cancer and also LEAP-003 study, the melanoma studies, and they're all looking at the PFS or the overall survival as the primary endpoint.

That is to say that this study design can really replace the current first-line therapies. And so after achieving the last patient in and there was no judgment of futility given and it is progressing very rapidly and that is to say that there was no judgment that this would not be able to achieve the primary endpoint. So this shows how hopeful these studies are.

And as for this final readout, as is reported in clinicaltrial.com and the LEAP-002 studies is expected to come out in July this year and also 2 years -- in 2 years' time, and in April and the report is expected [indiscernible] but also we are expecting some interim analysis for some of the studies. So based upon the disclosure we will -- once we get the positive results from these studies, we'd like to keep you informed. So from 2022, the very important LEAP studies data are expected to come out one after another and therefore I think that we are ready to make a very strong step forward into the future.

So in this slide, the oncology pipeline. So following the Lenvima-KEYTRUDA combination therapy as indicated, the key to that is that through this Lenvima-KEYTRUDA combination studies, we have been able to collect the various clinical data and we have been able to better understand the mechanism of resistance to IO therapy and we'd like to live with that, especially the CBP/beta-catenin pathways or FGF pathways have been very much drawing attentions.

So the first one is E7386. This is the medium molecule CBP/beta-catenin inhibitors, they are inhibiting the protein's interactions and agent's chemistry is really putting all our efforts into this oral agent and already the clinical POC has been established. One is that the clear -- the tumor shrinkage effect has been demonstrated from the various carcinomas, and also very important pharmacodynamic, the biomarkers changes have been identified from the genes as well as from serum. The gene biomarker is AXIN2, the biomarker. The protein is FGF2, the biomarker. Based upon these biomarkers, the Lenvima in combination with E7386 or the KEYTRUDA in combination with E7386, 2 of these Phase Ib studies are currently being carried out for some of the carcinoma.

The next asset is E7090. That is the new type-V bound [ FGR1,2,3 ] inhibitor. With regard to E7090, the clinical POC has been confirmed in Phase I study. So very clear, the tumor shrinkage effect has been obtained. So 6 of the [ FGR2 ] positive biliary tract carcinoma patients and 5 PR was reported.

And also another important pharmacodynamic biomarker is FGF23 and hydroxyzine vitamin D and phosphate and the clear elevation of this biomarker, serum biomarkers have been confirmed. So based upon this, so FGFR2 HER2 positive biliary tract cancer's pivotal study is currently ongoing and also fulvestrant, exemestane in combination with E7090 is being carried out for the patients who are ER positive and HER2 negative breast cancer patients.

This is my last slide. And here we are discussing the update of MORAb-202. MORAb-202 is the very first Eisai's ADC, the antibody-drug conjugate. So for this MORAb-202, the antibody part is Eisai created farletuzumab, and that is -- the target antigen is the folate receptor alpha. This is -- like for lineage-dependent cancer like serous cancer as such the variants or endometrial or peritoneal cancer, we see the high level of expression of folate receptor alpha and of course the payload is eribulin.

So eribulin has a very unique bystander effect, and based upon this compound profile, this can demonstrate a certain effect that is detailed in the form of ADCs. It is internalized into the cancer cells and with the enzyme, the linkers would be truncated and then eribulin would be accumulated at very high level, having this cytotoxic effect. And then from the dead tumor cells, it will be efficiently released antigen for the cancer microenvironment, especially this mesenchymal cancer-related fibroblast, it does have a very strong suppressive effect. So it does have a very unique bystander effect.

And so with this kind of very superb drug profile, we have entered into this strategic partnership with BMS. And based upon this alliance partnership and we are currently discussing with BMS so that we can start the pivotal study in 2022.

As for the MORAb-202, the patients who have been heavily pre-treated, especially ovarian, endometrial, some triple-negative breast and non-small cell lung cancer patients, we have been able to demonstrate a very clear antitumor effect in order to optimize the efficacy and safety through the right dosing regimen and we would like to get ready to move into the global pivotal study for this compound.

[Unknown Executive]

[Interpreted] Next, with regard to the full year, the financial forecast, I'd like to ask Dr. Yanagi to present.

[Ryohei Yanagi, executive]

[Interpreted] Once again, Yanagi, the CFO. I would like to go over the consolidated financial forecast. Please refer to the Slide 16. Here, you see the FY 2021, the financial forecast. So with the continued growth of Lenvima and also the continued investment into AD-DMT in a financially disciplined manner that would continue, so the sales revenue is JPY 730 billion, which is 13% growth from the previous year.

So including license income and also with this growth of Lenvima, we have seen this product mix improvement and so we would expect the level parallel to Q3 and also the cost -- very low cost of sales can be achieved. And as a result, the gross margin would achieve a double-digit increase. And so with this 113% of the growth in the sales revenues and we can expect the very good operating income and the gross margin increase is going above this. And so operating income is expected to be JPY 78 billion, which is 50% higher than in the previous year. So there is no change to the forecast from the previous announcement. And ROE in this period is 8.4%, creating the positive equity spread. And with the strong balance sheet, we are confident we can continue with the dividend of JPY 160 with this good positive and financial discipline.

Now lastly, I'd like to go over the last page, Page 17. And I'd like to share this with you as my concluding remarks. You have already heard from the presentations on Neurology and Oncology business from Ivan Cheung as well as Dr. Owa. And so for the respective businesses, we have witnessed very steady growth and the pipeline is becoming ever more enriched.

On top of that, and I have tried to explain some of the financial numbers, but we have had the first 9 months a very favorable performance and also there is a very favorable forecast for the full year FY 2021. So based upon the strong balance sheet, we do have a very solid financial fitness, so based upon that, and we would like to continue with the mid to long-term proactive investment into the future under this condition.

When we look at the current share price, I must say unfortunately, this is very much dissociated from the intrinsic value of a company, and it is pretty much towards green. However, under this COVID-19 pandemic, which is really becoming a major social issue around the world, however, in the field of dementia that we are working on, again, almost in line with this COVID-19 pandemic and this will pose the most -- major challenges for us and we are really working for this very serious challenge that is in front of us.

As Ivan Cheung mentioned, we have complete confidence into the lecanemab that we have in this field and we have discussed the scientific aspect, strategic aspect, and regulatory aspect related to this project. But at the same time, this social goodness based upon the corporate activities is something that we want to pursue.

And from this perspective ESG, we believe that ESG lecanemab is something that we can really contribute to the patients, not only that it can really alleviate the concerns and the burden for the caregivers and their family members. And also when you think about access to medicines, and again, for the emerging markets that really represent the predominant population of the world. And for all of these aspects, we believe that we can bring about tremendous goodness to them. So we think that we can create great societal impact. So this is pretty much in line with the ESG spirit. And also this is going to bring about the mid to long term -- the corporate -- value creations. And so this is the great potential of lecanemab that we are expecting.

And also based upon that, we believe that the current share price is showing some dissociation from this intrinsic value that we can bring about. So we want to continue with our efforts. We would like to achieve the milestones one after another. And then we'd like to be fulfilled accountability and through that we'd like to continue with our efforts to achieve the mid to long-term corporate values and sincerely hope that you would also extend the mid to long-term support to your company.

With this, we'd like to conclude this financial presentation. Thank you very much.

[Operator]

[Interpreted] We will now move on to Q&A session. We will be taking questions from those who are participating via telephone line. [Operator Instructions] First question is coming from Mr. Yamaguchi, Citigroup Securities.

[Hidemaru Yamaguchi, analyst]

[Interpreted] Can you hear me? Can you hear me? This is Yamaguchi.

[Unknown Executive]

[Interpreted] Yes, we can.

[Hidemaru Yamaguchi, analyst]

[Interpreted] I have 2 simple questions. First is about the progress in the financial performance and full-year forecast. Dr. Yanagi, CFO, presented various aspects. Up to Q3, progress has been strong, I think in the company's forecast in comparison to original forecast, milestones might see an upside. As for full year forecast, after Q3, performance was strong, but why is there no reflection of that in the full year forecast and full year forecast is unchanged?

[Unknown Executive]

[Interpreted] Thank you for your question. Dr. Yanagi will respond.

[Ryohei Yanagi, executive]

[Interpreted] Mr. Yamaguchi, thank you very much for your questions. This is Yanagi, CFO. As you rightly mentioned, full year forecast, operating profit forecast is JPY 78 billion. And for the 9 months, JPY 74.6 billion is the amount of the operating profit and progress rate has been very high, as you pointed out. And as Mr. Yamaguchi pointed out, in comparison to the business plan of the company, performance is an outperformance -- outperforming a strong performance, but this time, we have decided not to make up for a revision on the full year forecast.

Continuously, for Lenvima and [ AD-DMT ] in a disciplined fashion, investments will continue. In the fourth quarter, there are some uncertainties in terms of market environment. In consideration of these factors, this time, we concluded that the change will not be a material one. So because of the principal of materiality, although we expect some upside, we decided to keep the forecast unchanged.

There are also very proactive investment and market condition changes, but confidently -- with confidence, we would like to achieve these numbers, the full year forecast. With Biogen under collaboration, ADUHELM is pursued and expenses are absorbed and we are achieving these strong results and it is noted in the financial report, with Ajinomoto, we have EA Pharma, which is a joint venture and structural reform. It has been absorbed. That impact has been absorbed. We are taking all of these into consideration and you might consider this somewhat conservative, but we have kept the forecast, full-year forecast unchanged, which we are able -- which we believe we are able to achieve in -- confidently.

[Hidemaru Yamaguchi, analyst]

[Interpreted] Secondly, I have a question regarding timing. In Ivan san's presentation about lecanemab, regarding accelerated approval timing, in the beginning of fiscal 2022 was the wording that was used. According to the guidance so far, the guidance was before June 2022. So it may be in the same April to June quarter 2022, but between April to June 2022, you plan to file submission and that remains unchanged? Or is it brought forward closer to April? Is it -- is there a possibility that filing might be somewhat earlier, closer to April?

[Unknown Executive]

[Interpreted] That question will be addressed by Ivan Cheung. Mr. Cheung? Ivan, can you hear us? So please wait for a moment.

[Ivan Cheung, executive]

Yes, I can hear you. Okay. Okay. Thank you very much for the question. Compared to the last time when we made the statement about completing the BLA within the first half of this calendar year, as I mentioned earlier, we have made significant progress with this rolling BLA, which gave us more confidence to complete this BLA earlier. And hence, the beginning part of the first quarter of fiscal year 2022 is our updated target. Thank you.

[Operator]

[Interpreted] Next question, Mr. Kohtani from Nomura Securities.

[Motoya Kohtani, analyst]

[Interpreted] This is Kohtani, Nomura. Can you hear me?

[Unknown Executive]

[Interpreted] Yes.

[Motoya Kohtani, analyst]

[Interpreted] I have 2 questions. First is lessons learned from ADUHELM. In January, NCD -- draft NCD was announced by CMS and it's like a second FDA. I don't think CMS has authority to make such decisions, and what have led to these very complex issues?

Personally, I think that there are 3 problems with ADUHELM. First is, 1 study succeeded, but 1 study failed. And most of the people were not able to understand the picture fully. And the second is the pricing of ADUHELM is -- price was to be halved in December. That have been the starting price. And the third is, researchers, experts, almost no researcher expert is supporting ADUHELM. With the Clarity study complete, perfect data are expected and secondly, appropriate pricing is -- should have been the starting price. And the third is in peer-reviewed journal, papers have to be published. Unless there are papers, expert researchers have no basis to make judgment on.

And it may be difficult for you to answer, but regarding ADUHELM, there have been a series of confusions. And what are the lessons learned and what can you apply as lessons learned in lecanemab's development? On the 3 points I raised and on other points, could you share your view with us?

And regarding safety profile, you've mentioned that safety profile is expected to be same as 201, which means that ARIA-E incidence is about 10%.

[Unknown Executive]

[Interpreted] The question will be once again addressed by Ivan Cheung.

[Ivan Cheung, executive]

Thank you very much for your question. And I believe you have 2 questions. On the first question, thank you for your advice. Much appreciate it. I think, firstly, we should understand that the circumstance for lecanemab is a bit different from the circumstance of ADUHELM. As you may remember, the accelerated approval of ADUHELM basically became public at the date of approval. The AD community was not prepared for the accelerated approval outcome.

For lecanemab, from day 1 last year when we initiated the rolling BLA, it is well known that this will be an accelerated approval. So I think that's the first major difference. And the second major difference is the Phase III confirmatory trial readout is only several months away, later on this year.

So these are the 2 major differences in the circumstances. And I'm saying this because 1 important point, as you pointed out, is the public's transparent understanding of the clinical data and the regulatory situation. And for lecanemab, as you pointed out, with regard to the publication, the accelerated approval application for lecanemab is based on Study 201 and the results of Study 201 was already published almost a year ago in a peer-reviewed journal for the public to go through all the data. So that's the first point.

And the second point, I agree with you that how to ensure the most optimal and appropriate access to as many eligible patients as possible is critically important in this space of Alzheimer's disease. And for lecanemab, I would say that we are confident, how we're going to do that and get it right.

Third point, I would point now, I mentioned on my Slide 9 earlier, for lecanemab, because of its differentiated profile, we have this vision and we believe it's our responsibility in Eisai, and it's lecanemab's specific responsibility to create the simplest patient journey for this new AD-DMT era. We believe this is critically important for the society.

Now, to your second question on ARIA-E in Clarity AD, what I can say is, in Clarity AD, we have independent safety monitoring board and mechanism in place where we check the timing, frequency, and severity of side effects. And if there is any deviation compared to what we saw in Study 201, then such a reporting must occur to the FDA. And so far that hasn't occurred and that's why we remain confident that the safety profile of lecanemab, including ARIA remain consistent of what we saw in Study 201 and we are very encouraged by this situation. Thank you.

[Motoya Kohtani, analyst]

[Interpreted] But a last point, and I would like to ask about the Lenvima sales in the United States. And when you look at the Q3, it is increasing by as much as JPY 10 billion in the United States and I think that the first line share is really increasing. So to what extent the share of the first line is really expanding. And that kind of information would be very helpful because this is a highly competitive area. So for the HCC, the LEAP-002 study, there is a preceding compound, we do have the benchmark to compare with that. And so the most latest share conditions and also how to distinguish from the competitive regimen.

And also for the HCC cabozantinib and Opdivo combinations, our COSMIC studies, the results had already come out last year and they were not able to show the benefit. And also you are using in combination with KEYTRUDA and so it was non-inferior to sorafenib. And so COSMIC-132 was -- 312 was not the positive studies, but what do you think about your current conditions?

[Unknown Executive]

[Interpreted] Thank you very much. Owa would like to respond to your questions.

[Takashi Owa, executive]

[Interpreted] As to the progress in the United States, as you have pointed out, the growth of the HCC is very significant. As for the specific market share numbers, I do not have the specific number with me. So I cannot share that with you. But if you can refer to the number of script versus the previous year, that is by the end of the calendar year December.

And when you look at the new script, there is a two-fold of increase. So there is a market increase in the number of script. In terms of the share, as you know that in the field of RCC, the TKI class Inlyta is really the market leader and also immune checkpoint therapies, the Opdivo and KEYTRUDA competing with each other, but our strategy is that Inlyta in the TKI field, that's the kind of positions that we would like to overcome, but we don't know the exact number, but definitely the Lenvima market share is growing and coming closer to the target.

When you look at the number of script issued, so this is my first response to your questions about RCC. And as for the HCC cabozantinib and nivolumab's combination, COSMIC study and also LEAP-002 study to be compared, so as for the cabozantinib and Lenvima, and from my perspective, I believe that they are completely different compounds in TKI, especially for the HCC [ FGR ] pathways is extremely important for -- in terms of the tumorigenicity as well as the cancer prolifcations and this for the cabozantinib does not inhibit FGFRs, but we believe that lenvatinib can really achieve the distinction there.

And also for the lenvatinib, the REFLECT study's non-inferiority result. So anti-tumor effect of lenvatinib in the real world setting, we believe that we have been able to demonstrate the very strong effect for lenvatinib. So the Lenvima and KEYTRUDA combination therapy, we believe can be the standard of care in this field because of the very long overall survival extension. So again, this is a published data, but the July of this year, the final analysis is expected to come, and currently, we have not really corrected the information in the clinicaltrial.com. So again, we expect that very long overall survival data is expected, just we have seen with RCC. Thank you.

[Operator]

[Interpreted] Next question is Akahane -- Mr. Akahane of Tokai Tokyo Securities.

[Takashi Akahane, analyst]

[Interpreted] Can you hear me?

[Unknown Executive]

[Interpreted] Yes. Please start.

[Takashi Akahane, analyst]

[Interpreted] I have 2 questions. I have 1 question regarding ADUHELM and the second question is about the financial performance. Regarding aducanumab approval and insurance coverage, not about these, but strategically what you're doing in terms of lobbying activity et cetera. Looking at the appendix, the expense is JPY 32.1 billion and up to the second quarter, it was JPY 14 billion or so. So you are spending much on lobbying activities and educational outreach activities. What are your strategies in terms of lobbying activities? And outreach and education expense is growing, but what is the strategy?

[Unknown Executive]

[Interpreted] Thank you very much for your question. That question will be addressed by Ivan Cheung.

[Ivan Cheung, executive]

Thank you very much for an important question. In the United States, both Biogen and Eisai for many years are very much involved in many projects with patient efficacy groups in terms of education, in terms of supporting communities. Those efforts are of course very much a big part of the activities for ADUHELM. And of course critically important for both Eisai and Biogen to continue outreach to members of Congress, to the CMS to really explain our perspectives and our position on why improving drug access to ADUHELM is so important for the Medicare beneficiaries in terms of an equitable and a fair access to an FDA approved therapy, the first AD-DMT approved by the FDA. All these are extremely important activities that have been going on every day for the past many, many months. Thank you for your question.

[Takashi Akahane, analyst]

[Interpreted] And the next question is about performance -- financial performance. For these activities, JPY 32.1 billion is spent and in the fourth quarter last year it was JPY 3.5 billion and there is also a milestone payment for 201 Study at JPY 49.6 billion. And is that why you assume that in the fourth quarter, revenue and profit will not grow so much or are you simply being conservative?

[Unknown Executive]

[Interpreted] Thank you for your question. Mr. Masaka, Executive Officer, will respond.

[Teruyuki Masaka, executive]

[Interpreted] Mr. Akahane, thank you very much for your question. Simply put, the JPY 8.5 billion operating profit forecast is as a result of the one-time expense and growth offsetting each other. Lenvima growth -- strong growth is expected as positive factor. As for a negative factor to strengthen our business foundation, we are incurring restructuring cost and strengthening our foundation and there is also lecanemab related expenses. And taking all of these into account comprehensively, our forecast remains at JPY 78.5 billion for operating profit.

[Operator]

[Interpreted] The next question is Mr. Hashiguchi from Daiwa Securities.

[Kazuaki Hashiguchi, analyst]

[Interpreted] I'm Hashiguchi. I have 2 questions. Your partner Biogen with regard to the ADUHELM situations, they have indicated that they are going to work on the very significant structural reform, but you haven't referred to that. Of course I know that you have the lecanemab, but how should I understand the difference in the policy between the 2 companies? Do you have different perspective on lecanemab or the environment surrounding the area other than AD, would that be very different between the 2 companies or could you please explain the difference in terms of such policies differences between the 2 companies?

[Unknown Executive]

[Interpreted] With regard to the questions, Dr. -- Mr. Ivan Cheung is going to respond.

[Ivan Cheung, executive]

Thank you very much for the question. In the United States, as you said, Biogen takes the lead on ADUHELM commercialization and Eisai takes the lead on lecanemab commercialization. With regard to ADUHELM, majority of the people deployed for the launch belong to Biogen and so the restructuring of the cost structure for ADUHELM going forward in terms of people -- you mentioned restructuring. In terms of people, that is really what Biogen needs to work on from that perspective. Not that much on the Eisai side and that's why we didn't talk about that earlier.

Now for lecanemab, we will be taking the lead so we will be deploying majority Eisai people, Eisai talent to do that. And from a policy standpoint, we clearly understand the stages of the launch. First stage is the accelerated approval launch and then the second stage will be the full approval launch, which these 2 we expect to happen are pretty close within a year. So this is our approach to the launch, which we believe is critically important. Once again the 3 points I mentioned earlier in the previous question. One, around the transparency and understanding of our clinical data; 2, about how to really improve drug access; and 3, creating the simplest patient journey with lecanemab. These are the 3 key points we'll be working on.

[Kazuaki Hashiguchi, analyst]

[Interpreted] One more question is about Page 8, lower part of Page 8. OLE study of lecanemab and points to be confirmed. Dosing frequency is to be reduced with a new dosing regimen according to the slide. In comparison to other anti-amyloid beta antibody, I believe lecanemab has shorter half-life without sacrificing efficacy to reduce dosing frequency, I would assume it's not easy using blood biomarker is also mentioned. Could you elaborate on the use of blood biomarkers?

[Unknown Executive]

[Interpreted] That question will be addressed by Ivan Cheung.

[Ivan Cheung, executive]

A great question. At the CPAT Congress last year in November, we presented the 5-year trajectory of blood biomarkers, both A beta 42:40 ratio and p-tau181. So the concept here is after the initial 18 months of treatment, you’re not only the brain amyloid level measured by PET, but also the blood biomarker levels are coming down to a level near amyloid negativity. So after 18 months, we don't believe you have to keep giving the biweekly dosing to maintain the plateau level of, in this case, the blood biomarkers. So the concept is in that post 18 months maintenance stage to maintain the blood biomarker level at that low level.

We don't believe because of all the works that we have done so far in the PK/PD modeling, you don't have to give biweekly. You can give a lower frequency. And actually, as mentioned -- as written on Slide 10, actually we also have the OLE phase for Study 201. So we are going to be first testing this new less frequent dosing regimen in the Study 201 OLE, which is happening very soon within this quarter. We will test a couple of different less frequent dosing regimen and based on that, we'll pick the one or more to go into the OLE phase for Clarity AD. So those are the steps. And to answer your question specifically, we have confidence based on all the work that we do, after 18 months we don't have to give biweekly for sure.

[Operator]

[Interpreted] The next question from Nikkei, Mr. Akama.

[Kenya Akama, analyst]

[Interpreted] I am Akama from Nihon Keizai Newspaper. I have 2 questions. The first question is to Dr. Yanagi. So about the potential lecanemab that you have emphasized at the very end of your presentation. And so far for the lecanemab cliff in the year 2026 and including the potential of ADUHELM, I think that you have built up the story to go over this. But now the ADUHELM is faced with this kind of situations. Now of course that's a growth story, you have to really wait for the full-fledged growth of Lenvima. But as with the lecanemab growth on the standalone basis, would you be able to go over the offset that you would achieve or the lecanemab would be able to go over the offset? This is the first part of my question.

[Unknown Executive]

[Interpreted] Dr. Yanagi would like to respond to that question.

[Ryohei Yanagi, executive]

[Interpreted] So maybe since you have covered many different points and I think you were referring to somewhat of a bigger picture so I probably have to respond to you from a little bit of a bigger picture. And so my concluding area was pretty much a sort of qualitative statement that I think your question is referring to that. That is to say that of course I refer to the big potential lecanemab. So for the scientific aspect or DS marketing aspect, if you're looking for that quantitative data, perhaps Ivan Cheung should be responding to you. But just in terms of storyline images and then related to the latter half of your question.

Now when you think about the Lenvima patent cliff and again would it have the kind of potential that would be able to overcome this offset from the Lenvima. And it's not really apple to apple the comparison. Lenvima including the social contributions and we are really expecting to achieve the very big sales with this compound. But of course when it comes to lecanemab again, it is not even launched in the market and so the formal sales forecast is something that we have not disclosed. So I would like to refrain from making any comments on that.

But when you think about the very innovative potential so next-generation AD-DMT is exactly the kind of the solutions to the social challenges, which is paramount to the COVID-19 challenges and for the patients, for the family members and the economy of the societies.

And again it can really have the enormous potential to overcome those great challenges. So of course you cannot really make apple-to-apple comparisons, but from a little different dimensions. Again the kind of things that you could never really take for granted for the conventional drugs and that much of upside is something that we are expecting from this product. And so that is really the point I was really trying to make in my concluding remarks. And as for this peak sales forecast for lecanemab, if that is what you're after, then of course I would like to refrain from responding to that. However, all of these unimaginable social challenges, that's where we are really trying to bring the impact of investment. And I think this is a compound that has that much of the great potential. That's how I would like to respond to your questions.

[Kenya Akama, analyst]

[Interpreted] Second question, this may be perhaps to be addressed by Mr. Ivan Cheung. Lecanemab before the end of fiscal 2022, you plan to file a submission in Japan, EU and U.S. But what about China? I believe a study is making focus. Before the end of fiscal 2022, is it difficult to file submission in China? If so, what is the timing for China?

[Unknown Executive]

[Interpreted] Ivan Cheung will answer.

[Ivan Cheung, executive]

It's a great question. As I explained earlier, we are very glad that we completed enrollment of the additional cohort in China in Clarity AD in the previous quarter. So this is an 18-month duration trial and that's why submission in China -- a submission for approval in China within fiscal year '22 will not be possible. Obviously fiscal year '23 will be a very important target for us to see how we can take the earliest action in terms of a regulatory filing in China. We are still working on the time line, but please be assured that China is an extremely important market for lecanemab. And I believe Clarity AD is the first Phase III AD-DMT trial to complete enrollment in China. We are very proud of that.

[Kenya Akama, analyst]

[Interpreted] So regarding study in China, is there a possibility that this may move along faster than ADUHELM?

[Ivan Cheung, executive]

With regard to ADUHELM, it's public information that the EMERGE and ENGAGE Phase III program did not enroll subjects in the country of China. And as a result, the Biogen team is continuing to have conversation with the Chinese authority on the path forward for ADUHELM in China, of course seeking the most expedited and reasonable path forward. That is still not yet determined. And as a result, while we have a rather -- I would say a rather clear time line for lecanemab in China, the timeline for ADUHELM in China is still not certain. So unfortunately, I'm not able to answer your question.

[Unknown Executive]

[Interpreted] Thank you. Unfortunately, we have run out of the time. So I would like to end the Q&A session. And with this, we would like to conclude today's financial presentation. I would like to thank you very much for joining with us for this session and I'd like to ask for your continued support. Thank you.

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