Eisai Co Ltd

TSE:4523

Earnings Call Analysis

LEQEMBI's Path to Profitability and Growth

The company plans aggressive expansion for LEQEMBI, currently treating over 2,000 patients, and expects treatment numbers to accelerate significantly. With strategies to simplify and expedite treatment pathways, the goal is to serve over 100,000 patients from FY 2026 onward. Profitability in the U.S. is targeted for fiscal 2025, aligning with increased spending and sales expectations for fiscal 2024. Looking farther ahead, a bold revenue target of JPY 1 trillion for LEQEMBI is set for FY 2030, signifying a long-term commitment to its growth and value maximization.

Strong Demand for LEQEMBI Amid Market Acceleration

The recent earnings call highlighted the company's effective funding strategies, including securing lower interest rates through a sustainability-linked loan to drive social good. One of the focal points of the discussion was LEQEMBI, a treatment for early Alzheimer's disease (AD), which has been approved in the United States, Japan, and China. Key indicators included the demand for the drug, supported by societal recognition of dementia as a major challenge. To meet this demand, the company launched a comprehensive approach in Japan that involved collaboration with healthcare professionals and utilization of an omnichannel strategy to collect data and determine next actions.

Advancements in Alzheimer's Treatment with LEQEMBI and ATN Framework

The company is actively engaged in enhancing treatment for Alzheimer's through the ATN (Amyloid, Tau, Neurodegeneration) framework. The next-generation anti-MTBR-tau antibody for AD is being tested in a Phase II/III trial aimed at expanding the target population. The combination of LEQEMBI and the anti-MTBR-tau antibody is expected to further improve treatment outcomes for patients.

Executing a Growth Strategy in the U.S. Market

In the United States, there is a concerted effort to establish and implement diagnosis and treatment pathways for LEQEMBI. Collaboration with neurologists, infusion centers, and PET/MRI technicians is crucial for expanding the usage of LEQEMBI. Although reaching a target of 10,000 patients by the end of the fiscal year is challenging, the company is seeing an increasing number of patients on treatment day by day, with expectations to further accelerate growth.

LEQEMBI's Global Expansion & Patent Protection

The company is optimistic about LEQEMBI's global expansion and expects further approval in the EU, Great Britain, Canada, Israel, and additional countries in the coming months. Additionally, they expressed confidence in their high-purity patent, which is crucial for extending the exclusivity of their oncology drug Lenvima. Past expectations of sales reaching JPY 500 billion, however, have been affected by clinical study challenges in lung cancer treatments.

Financial Forecasts and Commitment to Investment

Looking ahead, while specific numbers were not disclosed, the company is preparing its plan for next year and signaled ongoing proactive investment into LEQEMBI. There is an expectation of turning a profit particularly in the U.S. market in FY '25, indicating a confident outlook on its long-term growth and profitability.

Earnings Call Transcript 2024-Q3

[Operator]

[Interpreted] Thank you very much for taking time out of your busy schedule as well as in this bad weather to gather here for our meeting. Now it is time to start. Financial Results Presentation Meeting for the Third Quarter of FY 2023 for Eisai Company Limited. We are holding this meeting online as well as in person in a hybrid manner.

We have delivered the materials for your reference, the presentation material and financial briefs as well. If you are attending in person in the venue, if you are turning online, please view the screen. And I would like to introduce who are attending from the company, CFO, Mitsuru Shomon, Global AD Officer, Keisuke Naito. Now the floor is yours, CFO, Mr. Shomon. CFO, Shomon?

[Mitsuru Shomon, executive]

[Interpreted] I will report our consolidated financial results for the third quarter of fiscal year 2023. We achieved an increase in revenue and operating profit, thanks to the growth of Lenvima and Dayvigo and appropriate cost control and made good progress against our forecast for the fiscal year. Revenue was JPY 551.3 billion at 101% of the previous year's level. The breakdown of revenue is shown below.

Revenue from pharmaceutical business, our organic business was JPY 528.1 billion. The growth of the Lenvima and Dayvigo offset the factors decreasing revenue and the revenue was almost the same as the previous year at 99% due to onetime income from the execution of strategic options, which we have already reported.

Revenue from other businesses was JPY 23.2 billion or 162% of the previous year's level. Cost of sales was JPY 119.2 billion, accounting for 21.6% of revenue, down 3.9 percentage points from 25.5% in the previous year, due to an improved product mix and increased lump-sum payment income. Gross profit was JPY 432 billion, up 6% year-on-year.

Next, expense items. R&D expenses amounted to JPY 124.5 billion, up 3% year-on-year, but the ratio to sales was 22.6%, unchanged from the previous year. Actual R&D expenses after taking into account the amount borne by partners amounted to JPY 170.3 billion, 97% of the previous year's level, including profit sharing expenses of JPY 103.4 billion for Lenvima paid to Merck and a reimbursement of profit sharing expenses of JPY 17.8 billion for LEQEMBI received from Biogen. SG&A expenses were at JPY 271 billion, 99% of the previous year's level.

As a financial discipline, we controlled the increase of total expenses to be within the range of 6% increase of gross profit and with total expenses staying flat year-on-year [ or ] increased significantly to JPY 37.5 billion or 272% of the previous year's level. Profit for the period was JPY 30.8 billion, 75% of the previous year's level due to a decrease in income taxes in the previous year, resulting from a repayment of paid-in capital from a consolidated U.S. subsidiary.

As shown in the balance sheet items of the net DER and ratio of equity attributable to owners of the parent, the equity ratio, the financial soundness of the company continues to be solid. We promote a dividend policy that relies on financial soundness based on medium- to long-term balance sheet management rather than short-term PL. Our financial soundness is solid, and we will continue to pay dividends on a continuous and stable basis.

This slide shows breakdown of revenue migration. In addition to the growth of Lenvima and Dayvigo in the pharmaceutical business, we have achieved an increase in revenue due to onetime income from other businesses. As shown at the top left, sales revenue for the third quarter of fiscal year 2022 was JPY 546.2 billion. And for the third quarter of this fiscal year in the pharmaceutical business or our organic business, sales of Lenvima increased JPY 31.9 billion or up 17% from a year earlier, and the sales of Dayvigo increased JPY 9.2 billion or up 42% year-on-year, offsetting the revenue decreasing factors such as the transfer of commercial rights of Fycompa in the U.S. and the end of the partnership for HUMIRA in Japan, which is included in products other than about 4 items in the bar chart. Therefore, revenue in the segment was almost the same as the previous year.

In addition, there was a onetime income of JPY 12.3 billion from the transfer of all future economic rights for elacestrant and the revenue was JPY 551.3 billion, up JPY 5.1 billion year-on-year, securing 1% increase in revenue over the last year. This slide shows the breakdown of operating profit migration. While proactively investing in LEQEMBI, we have greatly improved the profitability by increasing revenues and reallocating expenses.

As shown at the top left, OP for the third quarter of FY '22 was JPY 13.8 billion. And for this third quarter of this year, OP increased due to growth of Lenvima and Dayvigo, a decrease in Fycompa related expenses in the U.S. as a result of rights transfer and reimbursement of lecanemab-related expenses received from Biogen although we reallocate expenses from the profit increase, due to the proactive investment in LEQEMBI.

The profit margin of the pharmaceutical business improved from 48.2% in the previous year to 51.1%, resulting in a profit increase of JPY 13.4 billion. Although R&D expenses for ADUHELM decreased by JPY 6.1 billion from the previous year. They increased from the previous year due to proactive investment in LEQEMBI and the receipt of a regulatory milestone for Lenvima of JPY 3.2 billion from Merck in the previous year, resulting in a negative impact on profit of JPY 3.1 billion.

Next is group headquarters management costs and other expenses. This includes ADUHELM-related losses and payment over shared profit of Lenvima to Merck, while ADUHELM related expenses decreased by JPY 8.9 billion from a year earlier and SG&A expenses and others were reduced shared profit of Lenvima to Merck increased by JPY 12 billion, which is a positive expenditure due to sales expansion of Lenvima with proactive investment and appropriate control of expenses. This item increased profit by JPY 4.9 billion. These factors increased the profit by JPY 15.2 billion, onetime payment in other businesses increased the profit further.

Even though we spent a total of JPY 75 billion in R&D and SG&A expenses for LEQEMBI, [ OP ] for the period was JPY 37.5 billion, JPY 23.7 billion higher than the previous year at 272% of the previous year's level. This slide shows the consolidated earnings forecast for FY 2023. There is no change from the disclosure made in November, while continuing to proactively invest in LEQEMBI, we expect to achieve JPY 741 billion in revenue, 100% year-on-year and JPY 51 billion in operating profit, up 27% year-on-year.

This slide shows our financial strategy for maximizing corporate value over the medium- to long-term. We believe that our intrinsic value equals financial value plus a Social Impact. And this slide shows financial value, Social Impact and the cost of capital, which is important, when considering corporate value.

First, regarding financial value. Our 10-year average PBR through 2023 is over 3.2x and our 10-year average PER is over 40x. We would not fall into a short-term mindset, but rather we'll take a medium- to long-term perspective in executing proactive investment in LEQEMBI to meet the expectations of our investors. We expect ROE for FY '23 to be 5.1% and the 10-year average ROE through FY '23 will be 8.7%. At present, we are aiming to create a positive equity spread based on at least 10-year average ROE, while flexibly increasing DOE to improve ROE in response to rapid growth in performance by LEQEMBI.

Next is Social Impact. Personnel expenses, which are expensed for accounting purposes, are investments in human resources and R&D expenses are investment intangible assets in R&D and IP, which are not recorded on the balance sheet, but are very important as nonfinancial capital and a leader to Social Impact.

Looking at the operating profits over the past 10 years, they have fluctuated significantly due to onetime factors. On the other hand, we have been continuously investing in human resources, R&D and IP. In other words, personnel and R&D expenses without restructuring them based on short-term thinking. Operating profit before personnel and R&D expenses, which is the sum of personnel and R&D expenses and OP is used as ESG EBIT, one of the evaluation indicators of executive compensation to strengthen nonfinancial capital and reduce risks for sustainable growth.

We also consider Social Impact as a new access of corporate evaluation, and we are promoting and disclosing the quantification of social and employee impact of LEQEMBI and DEC tablets. In addition, we are working to enhance our value creating creation platform in consideration of [ DE&I ], Diversity, Equity and Inclusion. And through these efforts, we will continue to demonstrate our progress in achieving social goods and the sustainability of our business model.

Next, cost of capital. We are working to reduce the cost of shareholders' equity by lowering the uncertainty of the future through initiatives to create social impact and the proactive disclosure.

With regard to the cost of debt, we were able to procure funds at a lower interest rate through the sustainability-linked loan in December last year. We will use these funds as well to efficiently realize social good. In addition to maximizing the value of LEQEMBI, we will continue to maximize our corporate value over the medium- to long-term through the development and launch of subsequent drugs in neurology area as well as the enhancement of nonfinancial capital and proactive disclosure. We would appreciate your continued understanding and support. This concludes financial part.

[Keisuke Naito, executive]

[Interpreted] From now on, myself, I am going to speak regarding the current status of the AD. I am Keisuke Naito, Global AD Officer because of the dry air, I have a sore throat, but please allow me to speak with this voice.

First of all, I would like to talk about Eisai's comprehensive pipeline strategy, which puts us at the frontier of Alzheimer's disease treatment. These are 3 important pathophysiologies of AD. A, abnormal amyloid aggregates, T, tau neurofibrillary tangles, N, neural/synaptic degeneration. Collectively, these are called ATN. We are conducting drug discovery and development based on the fundamental path of physiological framework of AD. Referred to as ATN.

LEQEMBI, which I'm going to talk about today is the beginning of this approach. Currently, we are targeting patients with early AD. Preclinical AD trials and the combination therapy trial with anti-tau antibodies are currently on underway. We believe that this drug will be the first step for mankind to fundamentally overcome this disease AD.

As for Tau, study of E2814 in Dominantly Inherited AD patients is ongoing. Eisai will continue to open the new page in the treatment of AD by linking the development results obtained along this framework to the elucidation of the pathophysiology of AD. Together with other patients and other families.

Next, please. Here, is the current status of America regarding LEQEMBI. This shows the map of U.S. showing the number of patients waiting for LEQEMBI treatment in each state as confirmed by our field representatives, there are approximately 2,000 patients currently receiving treatment with LEQEMBI based on the communication between our field representatives and physicians, we know that there are approximately 4x greater number of patients on the waiting list than the current number of patients receiving the treatment.

So we understand that there is a great demand from patients as well. Based upon our various activities to date, we believe that as the diagnosis and the treatment pathways are established and implemented smoothly such infrastructure is implemented smoothly, then we will be able to administer LEQEMBI to these patients, who are waiting for the treatment.

Therefore, in the coming few months, we expect that the number of patients, who can receive this treatment will increase rapidly. If you can look at this map, we have identified areas with particularly large numbers of patients waiting for treatment such as New York, California and Florida, and we will use this information to increase the resources in the field. As we have been introducing to you, neurologist account specialists, the sales reps specialized in neurology and [ nurse ] will be increased so that we can deliver LEQEMBI to as many patients as possible.

Next, I would like to discuss some indicators showing the sense of expectations for LEQEMBI in various markets. The number of vials was around 8,000 orders received in December. And as you can see in this graph, total number of orders placed is steadily growing as a background factor as shown, 2.9 in diagnosis and treatment pathway after the pathway is established, around 4,000 patients are receiving LEQEMBI, which is 2.9-fold increase from pre-approval stage. And now as for the testing, it has grown by fivefold after the reimbursement of insurance.

And the number of IDNs that received the P&T approval has increased already 55 IDNs are placing orders showing steady progress. As for major insurance system in the United States coverage is 100% for Medicare and Medicaid and 70% for commercial insurance resulting in securing access for around 90% of people, who are potentially eligible to receive treatment for AD in the United States. As you can see from this, the total number of orders and background factor indicators are all growing. Along with this, we believe that LEQEMBI is steadily penetrating the market.

This slide shows the number of patients, who continue to receive LEQEMBI treatment as of the end of January in weekly sales performance. Left is the number of patients on LEQEMBI. And the right side, rather left pink part shows the number of patients. 2,000 patients are only LEQEMBI and the right side, the blue graph shows weekly sales and recently, weekly sales reached $1.5 million. Within the graph there are red dotted lines, and these are showing the trends that are becoming steeper after PET insurance reimbursement decision. As I have shown earlier, there is a need from medical institutions and the patients, and we believe that demand growth will further accelerate.

Now in the United States, health care market has numerous stakeholders, which makes it a complex market. and the needs are different from stakeholder to another. Therefore, the key is to provide information in integrated, coordinated fashion to each of the stakeholders, we are addressing specialized staff that can accommodate different needs, but so that there will be a coordinated approach. As shown in the middle of the slide, we have NAS, Neurology Account Specialists or NAS. And this NAS team is the central hub. And NAS is the command post coordinating activities with various teams in the A side to meet the various needs of different stakeholders in the U.S. health care system.

On the right side, this is one example. On the left side, this is one example. This is IDN in Southeast United States and NAS is serving as a hub here and MSLs are also involved. Market access team is also involved to provide information to various stakeholders in the IDN.

At this IDN, within the institution, there is a dedicated coordinator, who oversees the processes of diagnosis to treatment. And with IDN and our team are supporting and collaborating each other, which is characteristic of this example. As you can see in this example, there is a patient navigator, a dedicated coordinator and this person is responsible for MRI scheduling, monitoring, APOE4 testing, genetic testing consultation, prescription and LEQEMBI administration and not only in terms of processes, but amongst different staff from front desk managers, nurses and prescribing physicians within the institution, there are various stakeholders.

And they are also coordinated to enable smooth diagnosis and treatment pathway. Within this IDN, 82 patients are continuing to receive LEQEMBI treatment. And our team is working as one team to provide support. The right side is an example of community hospital in Northeast, the United States. This hospital has 12 efficient shares with one neurologist and 2 practice nurse practitioners. It is a small community hospital. And in this case, we are establishing a hub in a different way from our team, NAS is assigned to provide support on medical resources and ARM is providing information on insurance reimbursement after full approval. RTLL also became involved, who coordinate , which is a team to coordinate community KOLs.

And nurse practitioners and community primary care physicians, neurologies and neighboring hospitals and 80 patients are served by nurse practitioners, who are working as a hub. And we have -- be managing or the processes of diagnosis to treatment is managed in a team structure by this community hospital. And in relatively short period of time of about 4 to 5 weeks on average, from referral treatment is possible. There are these [ fairs ] different go-to-market patterns in the United States. And based on the stakeholder, we are addressing the need flexibly. These are just examples of our go-to-market model in the U.S.

To summarize, we are engaged in these activity through these activities. We are meeting the needs from the health care sector and also from the patients, we see growing needs from both and we are establishing a structure to address those needs. And we would like to continue with this accelerating trend.

Currently, 2,000 patients are on LEQEMBI and 10,000 is the target, which is rather challenging, but over the medium- to long-term, with triaging with the BBBM and confirmatory testing, we would also like to be able to expand our business also with the maintenance administration and subcutaneous formulation to provide more convenience to patients and we are making progress towards these medium- to longer-term milestones. Regarding LEQEMBI, we will be creating value and adding value, and we are making steady progress.

Next, please. Next, from here, I would like to turn to Japan. But before that, once again, I would like to discuss our history and efforts in Japan in dementia. In Japan, in 1983, dementia discovery, drug discovery started, which led to Aricept. And we launched Aricept in Japan. And at the time, dementia was called senility. Aricept was launched in 1999. Aging was thought to be the cause of senility and dementia was not considered a true disease and people wondered if it should be treated with a drug.

And however, dementia is a disease, not simply aging and it requires not only medical intervention, but there is other care. And through multidisciplinary fashion, such comprehensive care is required to treat dementia. These activities are also supported by the government of Japan. And our Orange Plan was established and local comprehensive care center is established. And the concept of co-existence is also launched.

Last year, Basic Act was enacted and Prime Minister Kishida also is holding a council on dementia and advocating early intervention treatments and the promotion of research and development, which is on the agenda of the council. As for the dementia, this is now recognized as a major social challenge. And to address this social challenge in a solution-driven fashion, we are addressing this with the awareness that it is a social challenge.

Next, please. Against this backdrop, we are providing LEQEMBI. We believe that now the timing is right, when we held a Japan kickoff meeting on January 20. This is not just an internal meeting, but we had participation of the physicians in-person 500 participated and virtually 800 participated. A total of 1,300 people participated in this kickoff meeting for Japan and physicians, who participated in the trials gave presentations on clinical diagnosis area management and community collaboration and how to interact with people with AD, there was a very comprehensive active discussion.

This is a go-to-market structure in Japan and information provisioning structure in Japan, first 56 dementia area specializing MRs are meeting with top [ fourth ] leaders in Japan to provide overall information on LEQEMBI and to collect information and they are supporting the establishment of diagnosis and treatment pathway. There are local collaboration medical -- regional cooperation medical reps and MSLs, who support diagnosis and treatment pathway establishment, total of 852 are approaching in all directional fashion, oncology reps are also visiting radiologists.

There are various different stakeholders in Japan to be able to meet their needs, we are also meeting with them and also sending e-mails to them. And we are collecting the data from these meetings and e-mails and store the data in the data lake to analyze. So we are able to determine the next action using this omnichannel approach.

Next, progress after the launch. There is an [ OUG ] , and we are supporting the development of diagnosis and treatment pathway, and we are seeing steady progress here, although it is taking time because of OUG. And under OUG, in addition to physicians who meet the requirements, the -- seminars are given 800 to 900 facilities meet the requirements. And physicians have to have 10 years or more of the experience of treating a dementia and they also have to receive seminars from the Japan Society for dementia research, Japanese Psychogeriatric Society and ARIA training as well, which is organized by Eisai. And about 100 patients are now on LEQEMBI in Japan after the launch.

And by March, there is going to be about 300 patients, who will be on LEQEMBI and as shown in this graph, there are facilities that have concluded the confirmation documents to receive delivery of LEQEMBI, we expect that number to increase further. Now development of optimal treatment and diagnosis pathway here, region-by-region conditions are different. But roughly speaking, there are 2 different patterns.

First of all, the pink part and blue part, they show different patterns. First, the pink part. Clinical psychology test, MRI, Aß test infusion. These are processes in the initial introduction and it can be done by physicians and local universities or core hospitals will do this initial introduction and after which, there will be referral and collaboration with local community institutions.

Blue pattern is where a physician will complete the process other than Aß testing. Aß testing will be provided in the community facility. In this case, or in both of these cases, there is a need of collaboration within the community, which is very important, especially in blue pattern from initial infusion after 6 months even outside of the initial infusing facility, infusion will become possible.

This is a crucial factor follow-up facility pathway establishment also is in need of support, depending on the situation in each local area. Those are the 2 basic patterns, but there are different needs from one locality to another. We would like to make sure to support those different needs through collaboration and would like to complete establishment of diagnosis and treatment pathway for around 800 facilities before the end of the fiscal year.

Now as I mentioned regarding Japan, we are also making efforts to build dementia ecosystem and pharmacology treatment alone is not sufficient in many cases, is combination with digital perfect. That is not the case. We need various different -- various other approaches. However, digital can be an important means and use of digital technologies is pursued by Theoria technologies and aging high-risk consultation treatment to preparation for care. These are different stages different from disease staging, and this is one way to look at this. And in each of these stages, we would like to utilize capabilities of our group companies.

For example, in aging stage, we have a Click-Karte, where information can be provided on patients' information and NOU KNOW is a simplified brain health examination application which can be used in higher risk stage and there may be awareness of a condition and that may lead to that person seeking consultation or treatment.

And then at the consultation treatment stage, we can also evaluate the treatment effectiveness, et cetera, with the AI tools that are being developed. And for preparation of care, we would also like to utilize tools, since the patients are now connected with the institutions are providing care in the consultation and treatment stage. We would like to continue to use Sasaeru app to continue to connect the patients and caregivers and other specialists.

As shown in pink, we are also collaborating with various different industries. And in various different stages, we would like to relieve anxieties of patients. Over medium- to long-term, major impact is expected in the treatment of preclinical AD, the globally the population of preclinical AD is estimated to be JPY 135 million. And here, we expect -- 350 million is the estimated population where we expect to be able to make a huge patient contribution.

These are earlier-stage patients and the symptoms are more difficult to detect BBBM, blood biomarkers and simplified as screening through BBBM to become more widely available is very important. If BBBMs become more widely available, then it also means that lecanemab treatment will become possible for many more preclinical AD patients. And the BBBMs -- further development of BBBMs is necessary. And in the early stage of AD continuum in the preclinical AD, we would like to make contribution to patients.

As shown at the outset, these are the keys in ATN, which is to develop a fundamental treatment and this is the next-generation anti-MTBR-tau antibody. The MTBR-tau propagating species are captured in the extracellular space, leading to potential treatment by inhibiting the spread of neurofibrillary tangles. The POM is such that MTBR-tau243, biomarker specific for tau neurofibrillary tangles in AD was reduced by E2814 administration in DIAD patients. .

As Tau NexGen, Lecanemab, and E2814 combination regimen is tested in Phase II/III trial. Target population is scheduled to be expanded to not only DIAD, but Sporadic AD patients based on MTBR tau pathophysiology in combination with anti-amyloid antibody, higher clinical efficacy will be pursued in broader population will be targeted so that we can establish the next-generation AD standard of care. And as I mentioned briefly, new BBB, new biomarkers for Aß and tau, development of such new biomarkers will be also key to enable earlier treatment and we will continue to put our efforts in these areas.

This is my final slide. LEQEMBI is the world's first AD treatment targeting Aß in the ATN framework. It has been approved in the United States, Japan and China for the treatment of early AD and establishment of new diagnosis and treatment pathway has just begun. By cooperating with stakeholders, we aim to establish simple diagnosis and treatment pathway to deliver LEQEMBI to all who needed through achieving smooth operation in clinical diagnosis, Aß testing, infusion, area monitoring, Aß testing, including PET, CSF, BBBM, infusion, ARIA monitoring as well as realizing of maintenance therapy and subcutaneous formulation and enabling a wide use of BBBM.

From prevention to treatment, we would like to provide a comprehensive solution not limited to pharmacological treatment. And we will also accelerate establishment of a comprehensive dementia ecosystem to offer branded options from prevention to treatment, including solutions beyond drugs.

Thank you for your attention. .

[Operator]

[Interpreted] Now we would like to open the floor for Q&A session. Analysts and investors from the floor will be received first, and then we'd like to receive questions from the media. If you would like to ask a question, please mention your name and your affiliation first. Among analysts and investors. Do you have any questions? The person by the window, please have the floor.

[Seiji Wakao, analyst]

[Interpreted] My name is Wakao. I'm from JPMorgan. My first question is about the current status in the United States of LEQEMBI. And over the coming several years, what is going to be your forecast of the demand in the world?

[Unknown Executive]

[Interpreted] Keisuke Naito Sun has explained, 10,000 patients in the United States seems to be a little bit challenging. So I think that it is taking more time than expected. According to the newspaper report in '25 to '26, and the demand will exceed the supply, therefore CDM will be utilized. So the demand forecast in the world and also ramp-up of the supply to meet the demand, I believe that you have become more confident. So could you please give us your take?

Mr. Yasuno, who is in charge of the U.S. will respond to your question about the current status in the U.S.

[Unknown Executive]

[Interpreted] Yes. Thank you for your question. I am in charge of the U.S. market. My name is Yasuno. Let me explain regarding the current status in the U.S. As Mr. Naito explained that LEQEMBI in the United States is penetrating steadily into the market.

At various medical institutions, establishment of diagnosis and treatment pathway and also operation and implementation of those pathways are being accelerated. And the growth is also accelerated in line with that. LEQEMBI is a very new class of drug. As you know, therefore, our team is trying to establish from scratch, awareness raising of the disease and diagnosis, administration and ARIA monitoring. Wide-ranging diagnosis and treatment pathway is being constructed through collaboration with relevant facilities and institutions.

As we explained today in details, utilizing the slide deck and the NAS, who is playing a role as a quarter back in the field, the neurology account specialists, who are working with the various stakeholders, neurologist and the infusion center and nurse practitioner and the PET MRI technicians together with these multi-stakeholders, they're engaging with them in order to develop the diagnostic methodology such a cognitive function measurement, Amyloid ß testing and administration method and ARIA monitoring and also the referral from neurologists to infusion centers.

Through these discussions, they are considering how smoothly diagnosis and the treatment pathway can be established and implemented smoothly. Today, we shared with you 2 examples in the United States. Such initiatives are taking place at various places in the United States. And we have heard that the start of the treatment with LEQEMBI is increasing day by day at various institutions.

As we introduced today, currently, a little over 2,000 patients are receiving treatment with LEQEMBI as of today. Regarding the target of 10,000 patients for this year, we have set this number as the target for this year. However, as of today, this seems to be a challenging target. However, IDN or community neurologists readiness is steadily enhancing. Therefore, in the coming several months, we believe that the number -- increase of the number of patients on treatment will be accelerated.

That is our expectation. I mentioned -- we mentioned the number of patients, who are waiting for the treatment today and such patients will start to receive LEQEMBI gradually. And on top of that, not only the targets for this year, but we are taking the medium- to long-term plan for expanding the great value of LEQEMBI like SC formulation as well as the simplification of the blood-based biomarker and also the diagnosis and treatment pathway can be accelerated as well as simplified and then over 100,000 patients from FY 2026 onward.

And by expanding indication to include preclinical AD, we expect to see further contribution to the patients, many more patients. Therefore, we are making a steady progress towards the increase of value of LEQEMBI in the medium- to long-term. And achieving the 10,000 patients by the end of this fiscal year seems to be the end of this fiscal year, at the end of March.

[Unknown Analyst]

[Interpreted] But maybe what -- by 1 or 2 months delay or like you will be able to achieve this target by April or May?

[Unknown Executive]

[Interpreted] Well, honestly speaking, there are so many patients who are waiting for the treatment. So as soon as possible we would like to establish that treatment pathway, so that we can contribute to the patient -- 10,000 patients or more. So I don't think that there will be much delay from that plan.

[Unknown Analyst]

[Interpreted] My second question is about the update on the SC formulation development?

[Unknown Executive]

[Interpreted] By the end of March, I understood that we were planning to file for submission were JPMorgan Healthcare Conference was held at that meeting. Biogen people said that the 6-month data have been already submitted. However, 12 months data are going to be submitted for consultation. That's what they said.

[Unknown Analyst]

[Interpreted] Is it going to be changed to what you already mentioned? Or do you think that you are making proactive discussion with the authorities? Could you please comment on that?

[Unknown Executive]

[Interpreted] For that question, Dr. Lynn Kramer is going to respond from the United States.

[Lynn D. Kramer, executive]

Yes. Thank you. This is Lynn Kramer, the Chief Clinical Officer. Regarding the subcutaneous formulation, the 6-month data was presented at CTAD as you mentioned and that was from the Clarity [ AD OLE ].

We demonstrated that the PK and PD of this SC formulation is comparable to that of the IV, which we believe is strong support for the potential of the SC formulation. We are having a meeting with the FDA regarding the subcutaneous regulatory strategy and submission and expect to finalize our approach at that meeting. We do plan to submit in this fiscal year by the end of March 2024. Does that answer your question?

[Unknown Executive]

Are you satisfied? Is the answer -- yes. Next question, please.

[Kazuaki Hashiguchi, analyst]

[Interpreted]. I'm Hashiguchi from Daiwa Securities. First question is about the number of patients, who are waiting to receive LEQEMBI in the United States. 2,000 multiplied by 4. So you expect about 8,000 patients to be waiting.

And what is -- how is this trending since last year? I do not understand the definition of patients, who are waiting. So out of these patients who are waiting, how much percentage of patients will actually receive LEQEMBI? What is your expectation? And how long do you expect it to take before patients receive LEQEMBI?

[Unknown Executive]

[Interpreted] That question will be addressed by Mr. Yasuno.

[Unknown Executive]

[Interpreted] This is Yasuno, responsible for the U.S. business. As for the number of patients, who are waiting to receive LEQEMBI, that is based on our NAS in the field. The team of NAS, each individual on the team is covering facilities and physicians and through engagement of our NAS, they are gathering information of how many patients are waiting to receive LEQEMBI also from each individual doctors and based on the understanding of the doctors, NAS is collecting information.

And this is the number that is calculated in this bottom-up fashion. And the number that we are sharing with you today is as of the middle of January, and it has changed, since then, as of now. And in comparison to before, day by day, the number is increasing.

And as for the definition, neurology specialists, have diagnosed a cognitive function disorder and have determined the person to be eligible to receive LEQEMBI, and those are early AD patients. And as for the time line, there are those who may be able to receive within 1 month or within 2, 3 months. That is all.

[Kazuaki Hashiguchi, analyst]

[Interpreted] Do you expect most of the patients are waiting will in the end, receive LEQEMBI?

[Unknown Executive]

[Interpreted] That is how it is understood by the physicians.

[Kazuaki Hashiguchi, analyst]

[Interpreted] As for the Slide #2, as for the sharing of the profit of LEQEMBI, it seems that in comparison to the previous fiscal year, it seems that expenses increasing, profitability is deteriorating. What is your future outlook? When do you expect the peak will be reached for the spending? Has it already picked and profit and loss of LEQEMBI, when do you expect that to hit bottom?

[Unknown Executive]

That question will be addressed by Mr. Shomon.

[Mitsuru Shomon, executive]

[Interpreted] This is Shomon, CFO. Let me address that question. First, please speak into the microphone. My apologies. I hope you can hear me, okay. First, about operating profit level, it may be declining. What's the question? After full approval of LEQEMBI, we are accelerating the spending on LEQEMBI and that is why that is happening. As for LEQEMBI in the United States, we would like to turn profitable in fiscal 2025. That is the time line that we are expecting.

So in fiscal 2024, do you expect a temporary deterioration and is spending near its peak or do you continue -- do you continue to expect the increase in spending in fiscal 2024? Spending will increase, but we also expect increase in sales. So we do not anticipate a much change in profit and loss.

[Operator]

The person in the front row, please.

[Fumiyoshi Sakai, analyst]

[Interpreted] My name is Sakai from UBS. According to your explanation today, your initiatives have been explained in details.

And on the other hand, I think the information meeting led by your CEO, FY '30, the JPY 1 trillion in revenue is expected for LEQEMBI in FY 2030. In order to maximize the LEQEMBI's value for the longer term, but JPY 1 trillion may be taking its own course. But once you have disclosed that this number, I believe that you needed to verify how you are making progress against your target.

Although it seems to be far into the future. But we continue -- we are not able to say that as an excuse. So JPY 1 trillion. So it's like an uphill struggle in English phrase, so towards that number, so based upon that, if there is any other opportunity at the next time of the financial briefing, perhaps you could give us more detailed -- your analysis or realistic view about the achievability, for example, the target number for 3 years from today, and then I will be able to understand how you mean -- what you mean by this long-term value maximization of LEQEMBI.

[Unknown Executive]

[Interpreted] I would like to ask Keisuke Naito to respond.

[Keisuke Naito, executive]

[Interpreted] Thank you very much for your question. As I have mentioned, there is an ATN framework not only LEQEMBI, but we have a much longer view or time frame in order to overcome this disease of AD.

In that process, for example, there are numbers to as a passing point but we -- as I said earlier, we are in the middle of infrastructure establishment, which may take time and also the market situation will change over time. So in response to those changes, as I explained in my slides, there are KPIs as indicators, including the information about the environment. These could be presented to you as appropriately.

[Fumiyoshi Sakai, analyst]

[Interpreted] Understood. On Page 7, there was the table -- a map of the U.S. showing the areas with the higher number of the rating patients because of the success of your initiatives ongoing or rather in other areas, you are not doing much for establishing the infrastructure, I believe that the states in the United States are rather independent and the demographics are different from state to state.

So based upon this map, you presented what message should we understand in order to predict or have a guideline -- guidance for the future of the company?

[Unknown Executive]

Mr. Naito is going to respond. But rather, Mr. S, I would like to supplement.

[Keisuke Naito, executive]

[Interpreted] I would like to supplement. Both are true regarding your question. The states with the [indiscernible] will be promoted in order to increase the numbers of the patients, who are waiting, but we have some prediction available based upon the current information. That's what I wanted to mention.

[Unknown Executive]

I don't have any supplementary comments. I would -- it's not that these states with the [indiscernible] are the places where we are not doing well. But overall, we have the field network covering the entire U.S., but because of the difference in the Democrats, there are some differences, but our field team is covering the entire nation of the U.S. So thanks to their efforts, we have obtained this information for [indiscernible].

[Hidemaru Yamaguchi, analyst]

From Citigroup Securities, Yamaguchi-san, please, who is participating online. Can you hear me?

[Unknown Executive]

Yes.

[Hidemaru Yamaguchi, analyst]

I have 2 quick questions. First, above the cumulative number of patients, who continue to be on LEQEMBI, thank you for sharing that information. Looking at this, after PET reimbursement, it is trending upward.

But according to a simple calculation, maximum maybe even 40,000, 50,000 beyond 10,000 or 4,000 or 5,000 and not rather 10,000. So it seems to be more difficult than just challenging. So you may be able to barely reach 10,000 or so? And is that why you're keeping that target? What you mean by challenging looking at this number, it seems that 10,000 target is quite difficult. What is your take on that number?

[Unknown Executive]

[Interpreted] Mr. Yasuno will respond.

[Unknown Executive]

[Interpreted] I am Yasuno responsible for the United States. As you pointed out, a trend line, if that is extended linearly, that may be the calculation that ve indicated. But today, we have shown Green line and Red line and the steepness of the line is different.

It's becoming steeper. January and today, the number is 2,000. But just a few minutes ago, according to the latest information, in just 1 week, the patient number has increased by a few hundred so the steepness of the line will become even steeper. That is what we expect. That is our expectations. But to reach 10,000 remains challenging. That is true.

[Hidemaru Yamaguchi, analyst]

[Interpreted] Second question on a different topic about Lenvima about the patent extension. And towards settlements to be reached with a generic manufacturer, I understand that there are discussions ongoing. But regarding the extension of patent, is there any interaction with the generic manufacturer? Is there any update?

[Unknown Executive]

[Interpreted] Dr. Owa will respond.

[Takashi Owa, executive]

[Interpreted] Mr. Yamaguchi, thank you for your question. This is Owa speaking. First, about the expiry of substance patent of Lenvima. And Yamaguchi-san's question is about how purity patent. But as for a pediatric development, progress is smooth, and we expect a 6-month extension of patent in both the United States and Europe.

And in 2025, will there be loss of exclusivity. We don't think so. And what is important -- another point that is important is high purity patent. The other day, at the earnings session for the first quarter, as we discussed during that session, we are very confident of this high-purity patent Lenvatinib is a drug that we carefully developed.

And we have given much thought on how best to use this and competition patent and high-purity patent, we have a degree of confidence, as for the pending litigation in the United States about the patent and the progress thereof, this is a major issue. And we are not in a position to disclose information. So I would like to refrain from providing an update on that litigation.

[Unknown Executive]

[Interpreted] Next, Mr. Muraoka from Morgan Stanley.

[Shinichiro Muraoka, analyst]

[Interpreted] This is Muraoka of Morgan Stanley. My first question is related to the earlier question about the short supply in 2025, which was reported in the Nikkei newspaper, because I don't think that there was a response to that question.

So I would like to ask that again. And the Swiss plant in Switzerland or Biogen were set to be able to supply for one million patients. And I don't think that there is any issue of the short supply. So I would like to ask you whether you think my understanding is incorrect or [ SC ] formulation outsourced to [ Terumo ]. I think that is mixed together. So could you please explain again?

[Unknown Executive]

[Interpreted] For that question, Mr. [ Tamura ] is going to respond.

[Unknown Executive]

[Interpreted] Mr. Muraoka, could you please take off your mask. Yes. Thank you very much for your question. I am in charge of manufacturing. My name is [ Tamura ]. For maximization of valuable [indiscernible], we needed to have the ample capability for manufacturing to secure a stable supply of the product.

As you asked in your question, currently, our partner, Biogen, we are collaborating with them so that the active ingredients and also packaging and formulation and production. For these matters, we are collaborating with them. And as Biogen to [ Swiss ] plant, we believe that they have a large capacity for manufacturing and until 5 years from today, we believe that their production capacity will be enough.

But in order to respond to a potential further increase in the demand, the second site or the second site for manufacturing may have to be considered and which we have already started as the pharmaceutical manufacturer. We have to take pride in being the manufacturer of a product such as LEQEMBI. We would like to ensure stable supply of LEQEMBI going forward.

[Shinichiro Muraoka, analyst]

[Interpreted] My another question is about your forecast for next year. Earlier, Mr. Shomon said, the bottom line will not be affected a lot because it is expected to stay flat. So regarding the cost expenditures, JPY 110 billion for both companies and out of which JPY 75 billion have been spent this year? And also, what are with have the forecast of the profit and JPY 110 billion may be increased to JPY 140 billion to JPY 150 billion next year, based upon the current forecast. So is this the correct understanding?

[Unknown Executive]

Mr. Shomon is going to explain.

[Mitsuru Shomon, executive]

[Interpreted] Well, thank you for your question. Let me respond to your question. Regarding the specific numbers. We are now currently in the process of preparing the plan for next year. Therefore, we'd like to refrain from making any specific comments. But for LEQEMBI, we will continue to make proactive investment into LEQEMBI going forward as well. Thank you for your question.

[Shinichiro Muraoka, analyst]

[Interpreted] So not expecting a peaking out next year, but above the level spent in '24, you're expecting to spend more in '25. Is that correct?

[Mitsuru Shomon, executive]

[Interpreted] We have forecast of the revenue or sales. But going forward, we'd like to look into the plan for expenditures. So FY '25, particularly in the United States, we believe that we will be making profits.

[Unknown Executive]

[Interpreted] Due to time constraints, we would now like to take questions from the members of the media. If you have questions, please raise your hand. Yes. Yes, please.

[Unknown Attendee]

I'm [indiscernible] writer. I have 2 questions. First, the conditions of approval by the U.S. FDA included APOE4 status of patients to receive administration of LEQEMBI. I believe the APOE4 testing was a condition. In Japan, using MRI, APOE4 test is done away with.

But in the United States, in reality, in actuality, after confirming APOE4 status, and so patients will also have the knowledge of this, which means that there is an involvement of genetic [ counts wares ] before administration begins. Is that the case? And can this be a hindrance? There are not too many genetic counselors? Can this be an obstacle?

[Unknown Executive]

[Interpreted] Mr. Yasuno will address that question.

[Unknown Executive]

[Interpreted] I'm Yasuno, not responsible for the United States. FDA approval condition does mention APOE4 testing, but it is not that administration is prohibited unless APOE4 testing is done.

And therefore, it will not be -- it is not an obstacle to give LEQEMBI. And there are patients who are undergoing APOE4 testing and there are those, who because of their intentions do not receive APOE4 testing in reality, and it doesn't pause as an obstacle at all. I thought FDA condition was up way for status testing. It was recommended. It is not a conditional for LEQEMBI administration.

[Unknown Attendee]

[Interpreted] I see. The second question, China, the U.S. and Japan, you already have approval. And according to Reuters, in China, in June, administration will begin in other countries, especially in the EU and in the U.K., when do you expect to receive approval? Could you provide an update?

[Unknown Executive]

[Interpreted] That question will be addressed by Dr. Lynn Kramer.

[Lynn D. Kramer, executive]

Yes. Thank you for the question. I'm Lynn Kramer, the Chief Clinical Officer. We expect approval in a number of countries, including the EU, Great Britain, Canada, Israel and some additional countries over the next few months.

[Unknown Executive]

[Interpreted] Are there any questions? Please raise your hand if you have any? The person in the second row from the front.

[Unknown Attendee]

[Interpreted] Thank you. My name is [indiscernible]. I'd like to confirm with you the current status in Japan. On Page 17, about at 800 medical institutions in Japan, there will be a diagnosis and treatment pathway to be established. So these are considered to be the core initial medical institutions or including the hospitals in the vicinity, in the community of those core hospitals accounted as 800? Or [indiscernible], is going to respond because I am in charge of the Japan commercial activities.

[Unknown Executive]

[Interpreted] Thank you for your question. Let me respond. As you said, the slide before that, these are the facilities, 800 to 900 facilities who are expected to introduce in an initial phase based upon the investigation done by our field force, we are updating this number. But at around 800 facilities, we are going to establish the treatment pathway first.

[Unknown Attendee]

[Interpreted] So by the end of March, the 400 will be achieved as target. And currently, about 40 physicians are prescribing and administering the LEQEMBI to patients. So I think that it is a kind of smaller number than expected. So what is your view?

[Unknown Executive]

[Interpreted] is going to answer that question again.

[Unknown Executive]

Regarding 400 patients are targeted for this fiscal year, yes, this LEQEMBI was launched on December 20. And after the New Year's holiday, and I believe that in the number of business days, it's about 1 month after launch. And the optimal use guideline was issued at the same time as the launch.

And therefore, it was really challenging for establishing diagnosis and treatment pathway after that. And by the end of last year, about 10 people the patient received treatment and also the number of facilities, which are capable of treating with LEQEMBI are increasing and because of the impact of preparation required under the OUG, it is taking time, but we are very confident in achieving this 400 patients to receive treatment.

And prescribing physician, number of prescribing physician, it seems to be a little bit smaller than expected. The adoption has been decided by over 200 medical institutions and also ordering number of vials ordered is actually greater than the number of orderings by the existing already treating medical institutions. Therefore, we expect that the number of prescribers will increase as well.

[Unknown Executive]

Next question, please.

[Unknown Attendee]

[Interpreted] [indiscernible]. On Page 16, fiscal '24, LEQEMBI patient forecast is given 7,000 patients. And with the drug price, it's about JPY 21 billion. Is that the expected size of sales?

[Unknown Executive]

[Interpreted] Mr. [indiscernible] will respond.

[Unknown Executive]

Once again, this is [indiscernible] speaking. 7,000 patients and how many hundreds of millions of yen will that be in terms of sales? At the end of the fiscal year, 7,000 patients are to be on drug. But of course, starting -- when a patient has started receiving treatment, the number will be very different, even though the same drug price may be applied. So I will refrain from answering that question. But next year, we would like to make sure that we deliver our LEQEMBI to 7,000 patients.

[Unknown Attendee]

[Interpreted] One more question about Lenvima. Maximum sales of JPY 500 billion was mentioned in the past, but there were study termination for LEAP studies. And after these events, what is your take on this JPY 500 billion expected sales?

[Takashi Owa, executive]

[Interpreted] This is Owa, Chief Scientific Officer. First of all, as you have pointed out last year, in lung cancer, first line, second line LEAP-006 and 008 studies and in other studies, where Merck was bleeding clinical operations in 6 LEAP studies, one after another, made the primary endpoints were not achieved and some were stopped before completing the studies and patients participating in the trials, their families and medical professionals and shareholders, we were not able to meet the expectations of these various stakeholders.

And we are learning a very important lesson from here. And I would like to apologize for that. But with the clinical responsible persons of Merck, we have been scrutinizing the cause of these. And KEYTRUDA combination with Merck's new drug, there are many Phase IV studies underway.

For example, for gastric cancer and HCC and esophageal cancer for GI cancers in first line and fast-growing RCC in new regimen, first-line, second-line studies in Phase III are also ongoing.

That is the state of the clinical development. Commercially, Lenvima and KEYTRUDA combination is used in endometrial cancer and in RCC treatment and sales is driven from these indications earlier, as [indiscernible] was mentioned in the question and answer, there is also high purity Lenvima patent, taking all of these into consideration, how should we change our sales target. Currently, we are scrutinizing all of the information and after that is done, we would like to provide an update.

[Unknown Executive]

The person in the second row from the back, please have the floor.

[Unknown Attendee]

[Interpreted] My name is [indiscernible] . If I may repeat a question about your target of 10,000 patients, which is challenging. After starting administration, have there been any issues that you have identified? And for that in the United States, are you taking any measures against that?

And in the Japanese market, you have 400 patients as a target, and you said that you are confident in achieving this in the Japan market as well. Have you ever identified any issues after starting administration with LEQEMBI in the United States?

[Unknown Executive]

[Interpreted] For the U.S. could you please respond Mr. Yasuno.

[Unknown Executive]

[Interpreted] Yes, Yasuno speaking. Let me respond to your question. In the U.S. After starting administration, have there been any issues we identified? No. As we explained today, before starting administration, the diagnosis and treatment pathway establishment is really different from one institution to another medical center.

IDN and community neurologists, we are working with them both. And also it differs from a region to another. And how many collaborating hospitals, one particular core hospital has in the community. So based upon different situations, diagnosis and treatment pathway needs to be established. And that is a very complex process. That is exactly what they are doing in each region and right now starting to implement and operating that pathway, which is expected to be accelerated going forward. If you could understand such.

[Unknown Executive]

And regarding the status in Japan, Mr. [indiscernible] is going to answer.

[Unknown Executive]

Yes. Thank you for your question. [indiscernible] is going to respond. As have been explained about the U.S. status. In terms of establishment of the pathway in Japan, we believe that we shared exactly the same issue here in Japan as well.

The issues that are becoming visible now is, for example, for those patients, who may be potentially diagnosed with MCI, we needed to have a strategy to entice them to seek doctor's consultation, as you know, because those patients with MCI do not feel any obstacles in their daily lives. Therefore, we have to take measures so that they can be enticed to seek the consultation of the medical professionals.

Regarding collaboration among medical institutions, we believe that we are making acceleration and there has been an acceleration in the collaboration and other potential challenges are, for example, asking patients to see and visit hospitals every 2 weeks. For those patients with the mild dementia as well as MCI, these could be very positive way and also CDR diagnosis, if you do -- would like to do this totally and then it will be very difficult, but CDR to be done accurately by preparing the materials for precise CDR. So these are the measures that we are implementing.

[Unknown Executive]

[Interpreted] Next will be the final question. I see a hand from online participant from online participant. [indiscernible].

[Unknown Attendee]

[Interpreted] Earlier, there was already an answer to my question.

[Unknown Executive]

[Interpreted] We would like to bring to close today's earnings presentation session. Thank you very much for your attendance.