Eisai Co Ltd

TSE:4523

Earnings Call Transcript 2018-Q4

[Operator]

Thanks for taking time out of your busy schedule to attend our financial results presentation. It is now time, we would like to begin fiscal 2017 financial results presentation by Eisai.

Please make sure that you have presentation materials distributed to you. Please find a deck of slides that will be used during the presentation and financial results, the financial report and reference materials. If any of the documents is missing, please raise your hand.

I would now like to introduce the director in attendance today, Director Representative Corporate Officer and CEO, Mr. Haruo Naito. Without further ado, I would like to ask Mr. Naito to begin the presentation.

[Haruo Naito, executive]

Now we would like to start presentation on the financial results for fiscal year 2017. Here you see Eisai's key goals. So what are they? Let's start my presentation from this. Our ultimate goal is to increase our contribution to patients. Needless to say, this is our goal and currently in the pharmaceutical industry, the mission for the industry is to bring about innovation, outcome, results of such innovation shall be delivered to those who in need of such innovation. In order to do so, expansion of access is also necessary. So these are 2 obvious goals for the industry, but strategies or means for realizing these goals depend on the company and a strategy may vary from a company to another and for our case , we would like to realize these objectives by partnership model.

Partners who have comparable capabilities will come together in order to realize these missions and ultimately, we will increase contribution to patients and maximize -- increase shareholders' value. During fiscal year 2017, in that sense, we believe we could form 3 very important partnerships. First, with Merck in the United States. In the era of cancer evolution, cancer may evolve. Maybe you may have a different understanding, but cancer is now entering into the era where cancer can be cured or in the era, cancer becomes more complex to be cured.

Even with prescription medicine, which is not very potent, so we are now entering into such cancer evolution era in order to significantly improve patient's QoL or to realize something or treatments, which can be a curing of the disease. We would like to pursue optimal and ideal combination therapies. That is what we'd like to pursue under the collaboration with Merck.

In April, in Dover, New Jersey, I visited the headquarters of Merck and I shared our sense of mission with the top executives of Merck there, a combination of Lenvima and KEYTRUDA and the data has been shown to be favorable and also the potential of Lenvima itself. On these points, we shared the same understanding. And I believe that many of you have visited the Merck headquarters. Ivermectin, you would find when you enter the headquarters building, which is discovered by Dr. Omura for the river blindness disease treatment, it is a very efficacious drug. Ivermectin, actually the patient's bust statue was displayed and the child of the father who passed away, who suffered from the river blindness is drawn by the child himself and such statue is displayed in the headquarters. And Ivermectin has been provided by Merck free of charge for those in need. And I have realized that we are sharing the sense of mission with a company.

With Biogen, during fiscal year 2017, we expanded the partnership agreement and what we aim under this collaboration is to contain the cost or contribute to reduction of the cost for the treatment of Alzheimer's disease, which is said to be JPY 110 trillion for next generation or first AD treatment shall be developed. And we'd like to expand access to such drugs and treatment. In this area, I believe we have shared our will with Biogen in this area.

Partnership with Nichi-Iko is mainly looking at Japan domestic market and we believe that community-based medical system will be promoted further; prevention, curing, care, treatment shall be completed within the community. The joint procurement of materials and supplies will be conducted. Actually, that will be -- might be conducted under the incorporated stock company model, B2B commercial transaction may be a main transactional floor in such situation. We'd like to be prepared together with Nichi-Iko by proposing a new business model.

Next, I would like to show you the P&L statement for fiscal year 2017. Actually for the first time in 11 years, we achieved double-digit growth in both revenue and profit and we are very pleased to see this result. This double-digit growth in profit was achieved while we continued to make investment securely in R&D. Revenue was JPY 600.1 billion, which was up 11% from a year earlier. Cost of sales, thanks to the contribution by Merck, has been reduced, therefore gross profit was increased by 16% from the previous year. R&D expenses accounted for 23.3% of the revenue and which have shown to increase about 20% year-on-year. And SG&A expenses have been reduced, though SG&A expenses are actually increasing, however, such increase has been contained within the change in the gross profit. So we have seen the good financial discipline.

As a result, operating profit was JPY 77.2 billion, which was up 31% from a year earlier. Profit for the year attributable to owners of the parent was up 32% from a year earlier. ROE was 8.8%. So called equity spread has turned into this positive side. Free cash flow was JPY 136.7 billion. We have been able to secure the largest scale of free cash in the industry. And as one of the indicator is showing financial integrity, net DER was minus 0.27, therefore, financial integrity has been further enhanced.

Next, using this waterfall chart, I'd like to explain breakdown of revenue migration due to the expansion of global brands, and also Japan business grew, and also business in China and Asia, which are growing markets have shown growth. So the pharmaceutical business as a whole has shown steady growth during the previous year and upside from the previous year was over JPY 30 billion.

As for ALOXI business in the U.S. due to the impact from patent litigation for the full year of fiscal year 2017, the revenue was decreased, which had adverse impact on the revenue, and through the collaboration with Merck, we received a onetime payment and so forth. This has been added to revenue in the amount of JPY 36.3 billion. So revenue increased by JPY 61 billion year-on-year to reach JPY 600.1 billion.

Now turning to operating profit migration. But before this, in pursuing the partnership model, I believe this is one of the advantages we enjoy, that is about our R&D expenses, for example, JPY 136.9 billion was recorded during the fiscal year 2016, but about JPY 19 billion was not included in this number. Therefore, the actual expenditure in the R&D activities was JPY 158.5 billion. So R&D expenditure has been changed -- has been made more efficient through collaboration.

Operating profit during fiscal year 2016 was JPY 59.1 billion, and organic upside through organic effort for growth has been added, and increase in R&D expenses has been subtracted and onetime payment received during fiscal year 2016, as gain from a bargain purchase following acquisition of EA Pharma shares has been subtracted, and also ALOXI profit decrease is subtracted and adding onetime payments related to collaboration with Merck, and operating profit increased by JPY 18 billion from a year earlier to JPY 77.2 billion.

Now turning to collaboration with Merck. In medical and commercial as well as collaboration in all the regions, we'd like to realize the benefits of collaboration as soon as possible. So we are making utmost efforts, but one of the core effort is, as you can see here, to expand the R&D efficiency significantly. Lenvima currently is indicated for monotherapy, but here you see the combination with everolimus, however, we are approved, the Lenvima is approved for 3 indications in 3 types of cancer. As soon as possible, and through combination with KEYTRUDA, we would like to obtain approvals for 11 indications in 6 types of cancer, that has been agreed upon already.

At the same time, targeting multiple indications in various cancer types, we are simultaneously carrying out Basket trial, and we are waiting to see how this will develop, and we aim to achieve 14 indications in 8 types of cancer. So comparing to the situation where we will develop standalone by ourselves, we believe that the value of Lenvima can be expanded significantly, in a overwhelmingly large scale.

[Technical Difficulty] Exciting partnership with Biogen for next generation AD treatment. Anti-A-beta protofibrils antibody, which was internally developed, this is also subject to a joint development with Biogen. In the second quarter this fiscal year, we expect final analysis results at 18 months from Phase II study. As soon as we have the data, we will provide information to you. Phase III studies for aducanumab are ongoing smoothly and last patient in is anticipated in mid-2018.

Elenbecestat, this is small molecule BACE inhibitor. MISSION AD1, AD2, these are 2 Phase III studies that are ongoing, and patient enrollment is accelerated. And we believe that patient enrollment will be completed on schedule. In May, investigators meeting was held in China. And in China, about 30 sites are to be opened, and site opening has started in China.

With respect to Elenbecestat Phase II study, Study 202 results will be obtained shortly. In the first quarter of fiscal 2018, we expect top line results at 18 months. The purpose of Study 202 is confirmation of safety, and in addition, there will be partial review of effectiveness. Amyloid PET data, brain amyloid PET data, and clinical data will also be included in top line results. As soon as we have the results, we'd like to inform you.

With Nichi-Iko, as I mentioned earlier, we will have a new business model focused on community-based medical system. What are we trying to do? There are the different therapeutic areas, for example, liver disease, we have a package of drugs that we can provide, and as Eisai Elmed, Eisai EA Pharma, Sekisui Medical, with all of these companies we have about 37 ingredients, including diagnostics.

In a given community in the real world setting, what value can this package bring that is what we would like to show. Let's say in Okayama Prefecture, within Okayama Prefecture in the real world setting, when this package of drugs and diagnostics is brought, what value can we bring. We would like to show that with our method, and would like to promote such a drug package that is the model that we envision, and with Nichi-Iko coming into the picture of collaboration, we will also be able to include generics owned by Nichi-Iko in the package of drugs and diagnostics.

In case of liver disease, the number of drugs and diagnostics included in the package will double and for fracture/tumble, breast cancer, stroke/brain tumor, in these therapeutic areas we will be able to increase the number of drugs in the package substantially and dramatically increase the value of drug packages, that is what we expect. And in each community based on the real world data, we would like to demonstrate this in the real world setting and promote our package of drugs.

Now next flagship candidates are shown, neurology and oncology candidates are shown on this page. Most recent -- or most imminent in terms of submission is Lemborexant, dual orexin receptor antagonist, internally developed, and there are 2 studies for insomnia, one study will be completed shortly, and we plan to file submission before the end of this fiscal year for insomnia disorder in global submission.

There is also irregular sleep-wake rhythm disorder, where sleep is discontinuous or night and day is switched associated with Alzheimer's disease and dementia. To obtain that indication, Phase II study is ongoing. If this study is successful, Lemborexant will become a first-in-class to obtain such an indication. KAN Institute's first candidate is E6011, anti-fractalkine antibody, and for rheumatoid arthritis, Phase II study is ongoing very well.

In patients who are non-responders for biologics and non-responders to disease modifiers, the study is being carried out and for Crohn's disease, together with EA Pharma, Phase II study is under preparation. PDE9 inhibitor, E2027, has a certain mode of action and therefore we believe that it can be indicated for dementia with Lewy bodies and Phase II/III study has been initiated.

E2730 is a new mode of action epileptic drug. We have Fycompa, which we are using to take on a global challenge on epilepsy, and ultimate objective in epilepsy treatment is seizure freedom, to free patients from seizures, epileptic seizures, and how long that freedom is sustained will be crucial. So in that sense, completely new mode of action, Fycompa is achieving seizure freedom in many patients and their families.

And furthermore on top of that with the new mode of action epileptic drug, we need such new mode of action epileptic drug to sustain freedom of seizure. So we discovered epileptic drug with a new mode of action and study is ongoing.

Another point is about tau, which is one of the important aggressive factories in AD. Anti- tau antibodies are under development. In our case, there is a characteristic, which is that binding site is different from other anti-tau antibodies. Manufacturing of clinical materials has been started and preparation of clinical materials is underway and Phase I study is under preparation to be started within this fiscal year. As for oncology, MORAb-202 , eribulin, a Morphotek antibody, folate receptor of antibody, is linked. So this is a ADC, antibody drug conjugate, and linker payload and antibody are all developed by Eisai. So this is Eisai ADC through and through.

Mainly, in Japan, FRA expressing solid tumor Phase I study is ongoing. E7130, halichondrin analogue, eribulin and this one as well are derived from halichondrin, which is a very large moiety structure and active substance was discovered from halichondrin. E7130 is based on natural substance, which has a large structure to the left of eribulin and it shows stronger activity. Molecular weight is above 1000 and this is considered the middle molecule drug category.

Mainly in Japan for rare cancer, Phase I study has been started. H3B-6545 was discovered by H3 Biomedicine in Boston. This is ESR1 inhibitor to be indicated for ER positive breast cancer patients, Phase I/II study is ongoing smoothly.

And at the very bottom is E7386. CBP/Beta-catenin inhibitor, WNT signaling pathways, WNT pathways are deeply involved in resistance mechanism of [ IO ], that is what is considered. So this compound that has activation in WNT signaling pathway is expected to have strong synergy effect with IO. So we believe that this is a promising compound. And this is oral medication and Phase I study is ongoing.

In both neurology and oncology, we have promising candidates. We have businesses in 5 regions and for each of the regions, I would like to discuss billion topics. In all of these regions, Lenvima for HCC is expected to be approved and we are making preparations and at the same time with Merck, we would like to realize synergies and maximize synergies as soon as possible. That is the focus. In Japan, in addition, as noted in small letters at the very bottom, in addition to Lenvima, there is GOOFICE with EA Pharma and NAILIN with Sato Pharmaceuticals and MS product with Biogen and Humira, Lyrica, Nichi-Iko collaboration, a number of partnerships is underway, and we have to make sure that we are successful in each of these.

In Americas, Lenvima is expected to expand and as Lenvima expands, major market will be the Americas. Within the share of regions in Eisai, the share of Americas is expected to grow and that is mainly due -- that will be mainly due to Lenvima growth. As for Fycompa, in fiscal 2017 monotherapy indication was added. Furthermore, in this fiscal year, pediatric indication will be added and we would like to sustain the growth of Fycompa.

In China, Lenvima HCC is under fast-track review. Before the end of this fiscal year, we expect or anticipate approval. This is the market with the largest number of patients for HCC. In fiscal 2017, China had more than JPY 56 billion in sales and for the first time, the sales in China exceeded JPY 50 billion. China is achieving a very fast growth and in order to satisfy fast growing needs in China, new plant investment was made to build a plant in Suzhou and this will become operational this coming summer. Production capacity will be doubled.

In EMEA, in Europe, Lenvima and collaboration with Merck will be priority areas and at the same time, Brexit is coming to its final stage, and hard Brexit, even if it takes the form of hard Brexit, so that it will not become a hindrance. We are making various preparations including MAH transfers.

In Asia and Latin America region, in addition to Lenvima, Biogen's MS product, in this region we will be booking the sales. Eisai will be booking the sales, though we have to make sure that we will do a good job in relaunching Biogen's MS product.

This chart shows the share of each region in revenue. Today, I would like to draw your attention to China and Asia and Latin America and these 2 regions put together this year, in last fiscal year increased by 1.9 percentage point to 17.9% from 16% and this year, it will also be growing to close to 20%. So in Asia and Latin America and China region, we are seeing more revenue. This is the forecast for fiscal 2018. On a consolidated basis, we would like to make sure that we can enjoy growth in both revenue and profit through partnerships to sustainably enhance shareholder value.

Revenue is JPY 632 billion, 5% growth year-over-year and with optimized SG&A expenses, this should grow gross profit, and we will also be making adequate investments in R&D and with a strong fiscal -- financial discipline, SG&A expenses growth will be contained within the gross profit. And as a result, we expect double-digit growth in both operating profit and profit for the year. And EPS is projected to be JPY 200.9, return on equity is 9.5% and positive equity spread will further be enhanced. And for fiscal 2017, dividends per share for the year was approved to be JPY 150. And for fiscal 2018, we forecast that annual dividend to be JYP 150. This is the last slide, medium-term plan EWAY2025 is currently being implemented, and we believe that we have high certainty of achieving the objectives under this plan. And as for midpoint of [ EWAY2025 ] in fiscal 2020, the targets are revenue of JPY 800 billion or more,; operating profit of JPY 102 billion or more; and return on equity of 10% or more, and we believe the probability of achieving these was increased.

In prevention - cure - care, where we would like to make our contribution, so that we can become Medico Societal Innovator. And in next-generation AD treatment, we are collaborating with Biogen and for curative medicine and cancer, we are collaborating with Merck in the U.S. And we are also collaborating with Nichi-Iko for community-based healthcare. That is all. Thank you very much.

[Operator]

Now we would like to open the floor for Q&A session. [Operator Instructions]

[Kazuaki Hashiguchi, analyst]

Thank you for your explanation. My name is Hashiguchi, I'm from Daiwa Securities. Regarding your forecast for FY 2018, I have several questions about the -- firstly, about forecast, in your supplementary documents in the revenue forecast, including JPY 81 billion in other revenue, and perhaps this is associated with the deal collaboration with Merck, now is this the portion of revenue to be accounted for as such? And revenue received from Merck, in accordance with the progress in development, may be accounted for or may be delayed in recording under that, so from this forecast, are there any upside or downside risk from this current forecast? These are my first 2 questions.

[Haruo Naito, executive]

Thank you very much for your question. Our CFO, Mr. Yanagi is going to respond.

[Ryohei Yanagi, executive]

Thank you for your question. I'm CFO Yanagi responding to your questions. For fiscal year 2018, as regards to forecast, the impact of Merck -- deal with Merck from the standpoint of fair disclosure, we are not disclosing all detailed numbers. However, as a mosaic information, we can provide some information. As you pointed out, Mr. Hashiguchi, in the reference materials that have been distributed to you today, the segment information revenue including the other revenue in the amount of JPY 81 billion, which includes not everything, however, onetime payment received from Merck and milestone payments that have been accounted for as revenue, that is included in our revenue forecast, and maybe many of you may have seen this already, Merck 10-Q for the first quarter has been filed with SEC. If you read through in details of the 10-Q, and then you will be able to see more specific information, so please refer to it. But one thing that I'd like to mention is there is a option, exercisable, to continue this collaboration. The onetime payment is expected to be $325 million for fiscal year 2018. Therefore, revenues received from Merck includes this $325 million already included, and furthermore, the sales associated milestone payment, the first threshold is to achieve the $5 million in revenue -- $500 million. According to the materials, we expect that $585 million, so we believe that this $500 million as the first threshold will be achieved. So the sales associates milestone will be received as well, but we are not disclosing the specific amount.

Furthermore, the development milestone, HCC has been approved in Japan as well already, however, HCC indication in the United States and the European markets development milestone related to the approval for HCC is also accounted for in the forecast calculation, this is not disclosing number. So all in all, this is included as a part of the other revenues. Now probability of success, continuation of this project is obvious in our understanding, and JPY 58.5 billion Lenvima global sales, we are confident to achieve this, and we are confident that we will achieve the approval for HCC indication.

So we believe that the probability of success is extremely high. So this total amount will be recognized onetime, timing for recognition may be varied from first quarter through fourth quarter. So the recognition maybe leveled out, so could you please revisit these numbers when we make a release on the financial results.

On top of this, the Lenvima deal with Merck this time, it's a kind of a quasi joint venture, and JPY 58.5 billion is estimated as the sales, and the revenue will be booked by Eisai and expenses are subtracted, and R&D expenses will be shared 50-50 with them. So full [ JPY 150 million ] has been already reimbursed as the advance receipt, and this has been booked and recorded on the balance sheet as expenses, and other remainder will be booked as such in accordance with the development of the research and development activities.

And [ firm ] EBIT, before the deduction of the R&D expenses, would be the similar number or close to this number. And this would be recorded in the 50-50 profit sharing like in the case of joint venture and from the SG&A expenses, the payment to be paid to Merck, it will be accounted for SG&A. And even with these, the revenue is expected to expand and quite low cost of sales ratio is expected for this project. Therefore, Eisai and Merck will have the win-win situation. So that we can have the very large profit benefit and I believe that the probability of success will be very high.

[Kazuaki Hashiguchi, analyst]

My second question is related to the status of development of combination with KEYTRUDA, given this deal with Merck, I believe that information about new trials are recorded in the document, Phase I/II studies for endometrial cancer, there is a potential the [ prompt ] review opportunity, do you think that such opportunity still continues? And the lung cancer is most expected and promising, I think you mentioned that and once the data, I think data should be disclosed, then that will promote the patient involvement further, and at the ASCO, upcoming ASCO, I don't think that you are going to disclose any data for lung cancer. But could you please give us your current status of the development of the lung cancer indication, and about the disclosure of data going forward?

[Haruo Naito, executive]

Thank you for your questions. Oncology business group Dr. Owa, who is in charge of science will respond.

[Takashi Owa, executive]

Thank you very much for your question, Hashiguchi. My name is Owa, I'd like to respond regarding endometrial cancer. Rapid approval potential is still being pursued. Currently ongoing study #111, Study 111, which is disclosed in detail in clinicaltrial.gov. Endometrial cancer cohort, we're continuing discussion and consultation with regulatory authorities with expansion cohort, we'd like to add and increase number of cases. I'm now going to disclose the specific numbers, but by increasing the number of cases, we'd like to accumulate data on cases. At the appropriate timing, we'd like to pursue the potential of the rapid approval and I believe that Mr. Hashiguchi already checked on this. Phase III study, study number is 309, Study 309 has been already initiated, which is also available on clinicaltrials.com. And this trial is led by Merck, which is already disclosed, and a Phase III study will be initiated. Phase II, even under the rapid approval, the fast-track approval, there'll be the wide study maybe required and market penetration will be promoted by getting a lot of data. So endometrial cancer has a very high unmet medical need. There are no other PD-1 or PDL1 agents entering into the market. So we'd like to accumulate the data and as you know, regarding the lung cancer, as you know, at the ASCO, I think you mentioned the ASCO at some academic conferences to be held by the end of this year, we are going to disclose the data.

[Kazuaki Hashiguchi, analyst]

Why are we delayed in disclosing the data?

[Haruo Naito, executive]

Regarding the registration of the patient, because we put them priorities on other types of cancer. The registration involvement of patient have been delayed and the combination is the immune-oncotherapy and DOR, duration of response -- DOR, 8 months. So it is very critical information.

[Kazuaki Hashiguchi, analyst]

How much exceeded this threshold?

[Haruo Naito, executive]

So without getting this data, it will be meaningless to disclose any data. So we are pursuing, such a robust data, including this DOR with 8 months, we'd like to disclose the data as soon as that data becomes available. Any other questions?

[Atsushi Seki, analyst]

I am Seki from UBS. Thank you for the presentation. I have 2 questions, first about R&D expenses. According to this year's plan, is there reimbursement from Merck, not the actual amount, but how is it accounted for and from other partners like Biogen, is there a reimbursement? What will be the change in activities in reality, in actuality?

[Haruo Naito, executive]

Thank you for the question. Our CFO, Mr. Yanagi, will respond.

[Ryohei Yanagi, executive]

Thank you for the question, I am Yanagi, CFO. As for R&D expenses, forecast for this fiscal year is JPY 147 billion, 5% increase year-on-year. There is after reimbursement of R&D from partner, that is already deducted, so from Merck and from Biogen, reimbursement from Merck and Biogen are larger and, therefore, if reimbursement is added, then R&D expenses are much larger, so it will be equivalent to double-digit growth in R&D expenses. To address your question, R&D sharing by Merck and Biogen, this is a R&D contra account, and so that is how reimbursement is accounted for.

[Atsushi Seki, analyst]

Thank you very much for that very clear response and the second question is about competition in combination therapy of Lenvima. Incyte IDO failure was much talked about, I am sure, and chance for IOIO combination or IO in other therapy combination, the positioning of Lenvima may have become -- the prospect for Lenvima may have become better. Could you comment on this?

[Haruo Naito, executive]

Thank you very much for that question. Dr. Owa will respond.

[Takashi Owa, executive]

Thank you for the question, Mr. Seki. Regarding other companies including failure, it is very difficult for me to comment, but what is the strength of Eisai, what is favorable for Eisai amongst IO therapies? What is considered a champion? One of the champions is, for example, Nivo-ipilimumab combination, including a drug from Ono Pharmaceutical, that is a drug with much attention. In comparison to that, Lenvima and KEYTRUDA combination, what is the difference? The beauty of Lenvima is that it's not dependent on PD-L1 expression, and it's not dependent on instability of microsatellite. In many ways, the PD-1 antibody, PD-L1 antibody or pembrolizumab, it is difficult to be effective. The environment is improved by Lenvima to make it more effective, so even with Nivo in the primary cases, there is not the response, but poor response renal cancer. The best response is only about 20% PD, but for RCC data that we've disclosed for Lenvima- KEYTRUDA combination. Primary patients who are non-responders, 30 patients -- out of 30 patients, it was only 1, as we announced in fiscal -- so this CR is 97%, almost all of the patients are showing some response. So we are able to make non-responders to respond with KEYTRUDA -Lenvima combination. I think that is important difference.

[Fumiyoshi Sakai, analyst]

My name is Sakai, I am from Credit Suisse. Well, Dr. Owa, you mentioned that it is difficult for you to make comments on other companies, fair, not in oncology, but about Alzheimer's. Merck's [ verubecestat ] data, I think I'm sure you have seen the data. It's BACE -- and during the first quarter of 2018, the Phase II will be disclosed in the first quarter of 2018. According to the data given by Merck and there are a lot of toxicity demonstrated, comparing to your drug and I believe that you have made such comparison with the agent by Merck, I believe that you are going to disclose data in due course, so could you please give us your comment that may be helpful for us.

[Haruo Naito, executive]

Thank you for your question. In response to your question, Mr. [ Tuno ] from Neurology Business Group will answer.

[Unknown Executive]

Thank you very much for your question. I am in-charge of clinical development. My name is [ Tuno ]. According to New England Journal of Medicine, paper was issued and [ CTAT ], the results were disclosed in November and verubecestat, the [ said activity ] is that, it is the differentiation. We believe with BACE 2 and BACE 1 and we were surprised to see that data in BACE 2. So there are a lot of unknown about the BACE 2, but BACE 2 itself, according to the publication, precursor protein that leads to the production of amyloid beta, that is the same about BACE 1, but further digestion takes place. But in BACE 2, which you said not found in brain, it is generated in cells, amyloid beta [ 41 ] is further degraded and cleared by the enzyme. And in 2012 paper, this could be -- BACE 2 inhibitor can be used as a treatment for Alzheimer's disease suggested by some scientists. So BACE 2 can really be inhibited.

[Fumiyoshi Sakai, analyst]

Is it a good idea to inhibit BACE 2?

[Unknown Executive]

So in that sense, our BACE 1 inhibitor has a high selectivity to BACE 1 and also if I may comment on other companies' products, Eli Lilly and J&J and also Novartis is developing BACE 1 drugs, but I believe that they are all pursuing the high selectivity to BACE 1.

[Fumiyoshi Sakai, analyst]

So how much impact is given by BACE 1?

[Unknown Executive]

In terms of the clinical data, that has been obtained, which is not known yet but with the safety profile that has been shown on our real patients, we believe that our candidate has different profile from other companies, and I think that is the maximum that I can offer you today. And the Study 202 data will become available soon, so inclusive of such data, I hope that we can have another opportunity to discuss with you.

[Fumiyoshi Sakai, analyst]

Clinicaltrials.com or so, we may be able to find, what is the number of patients in Study 202?

[Haruo Naito, executive]

About 70.

[Fumiyoshi Sakai, analyst]

So about 70. I don't think that we would be able to see the differentiating data in efficaciousness only the safety. Safety and [ CSS ] data and PET data are also obtained.

[Haruo Naito, executive]

The PET data not variable, and it's not the parameters that will fluctuate a lot without doing anything, so I think that such data related to biomarkers will be very important. Thank you very much. Are there any other questions?

[Unknown Attendee]

I'm [ Fujiyoka Takako ] ScienceDaily Newspaper. Parkinson's disease [ ME2125 ] is under preparation at the time of our licensing in, I believe you were thinking of indication for dementia with Lewy body, but what is the time frame for development for indication of DLB?

[Haruo Naito, executive]

Your first part of the question was not audible, could you repeat?

[Unknown Attendee]

From Meiji [ confectionery ], you have licensed in Parkinson's disease drug.

[Haruo Naito, executive]

Thank you for the question. Mr. Kimura from Neurology Business Group will respond.

[Teiji Kimura, executive]

So your question is about MAO-B inhibitor. Well. Thank you for your question. I'm Kimura, responsible for research in Neurology Business Group. It is a MAO-B inhibitor, dopaminergic and transporter are affected. And that will be the biggest impact in neurotransmitter in Parkinson's disease. But as you've mentioned in DLB, dopaminergic degeneration and neurotransmitter degeneration occur and there will be various activities. And therefore, there is a potential for DLB, but as far as evidence is concerned, we felt that there should be Parkinson's disease, Parkinson's disease should be first.

[Unknown Attendee]

So there is [ again ] for you to consider DLB?

[Teiji Kimura, executive]

Yes, we would like to internally consider.

[Haruo Naito, executive]

Thank you very much.

[Hidemaru Yamaguchi, analyst]

My name is Yamaguchi, I'm from Citigroup. Well, if I may ask you a kind of nasty question, given this deal with Merck, and I think the numbers have been changed, and it's okay to see such changed numbers, but if you add/subtract these, and do you think that you have become bullish or bearish, excluding the impacts of the Merck collaboration?

[Haruo Naito, executive]

Thank you for your question. Mr. Yanagi, CFO, will respond.

[Ryohei Yanagi, executive]

Thank you for your question. I'm Yanagi, I'm the CFO. Excluding the impacts of Merck deal, so pre and post, what would be the change? Well, it's very difficult to answer that question on the apple-to-apple comparison, although many people ask us that question. And R&D and intellectual property, and human resources on ESG or non-financial capital is true, that have been accumulated, that have been transformed into the capital, the financial capital through the collaboration with Merck, intrinsic value total will not be impacted at all. So I think it will be related to the risky logic as Professor [ Leb ] of New York City University mentioned in the recent publication. So at this current moment, we are not able to discern the pre and post impact. And the management's real option being considered and the cash flow and capital have been already taken into account. And regarding the fiscal year 2017, compared with fiscal year '16, simply excluding the impacts of Merck deal, of course, P&L have been calculated internally. As for revenue excluding collaboration with Merck still would have increased, including the impacts by collaboration with Merck, revenue would have increased as well. For operating income, it is also risky to compare simply, but with simple comparison superficially, operating profit would have been decreased, but as you may remember there was various extraordinary factors, such as the gain from bargain purchase of the EA Pharma shares, JPY 9.3 billion, and from Biogen, elenbecestat Phase III start, the milestone payment received in EA Pharma, GOOFICE, the [indiscernible] pharma milestone has been received by EA Pharma. And excluding these and actually the revenue slightly increased, and profit also slightly increased. And if you could refer to the numbers in the pharmaceutical segment, the revenue increased 4% your-on-year and 8% increase -- 8% -- profit increased to 8%, so even without the Merck deal, the revenue and the profits increased at the same time. And R&D expenses, the operating profit before subtracting the R&D expenses, still we believe the number would have been increased significantly, even without the Merck deal. On organic basis, we would be able to say that though we have achieved both growth in revenue and operating profit and profit line. So going forward, we believe that we would have been able to continue growth revenue and profits, and there maybe complex factors included in the profit lines. So it's difficult to determine, which impact should be incorporated. However, could you please understand that as a basic key tone, we would have been able to increase the base revenue and the profit without Merck deal. Lastly AstraZeneca, we believe that they have formed a similar deal or collaboration for olaparib, and in your case you are collaborating on LENVIMA.

[Hidemaru Yamaguchi, analyst]

In the future, such investment in a partnership may collide or interfere with each other, I think that scientifically speaking do you think such a potential of [ cross-crossing ].

[Haruo Naito, executive]

Well, thank you for your question. Dr. Owa will respond.

[Takashi Owa, executive]

Thank you for your question. This is only a theoretical assumption. Yes, there is such potential. If I may give you only keywords, as you know, Yamaguchi, in the [ ILO ] therapy, immunogenic cell, so cell death, it's not a simple cell death or apoptosis through immune cells, the cancer cells will be killed, so these will be developed, olaparib is a PARP inhibitor. Therefore, it's the DNA repair, homologous DNA repair, it's a very unnatural process not found in nature. So those potential immunogens will be developed, these will become antigen to activate dendritic cell and also T cells. And on the other hand Lenvima, as I said earlier, is known to improve the cancer micro environment, and the cancer will be placed under stress, and immunogenic cells are derived with a different mechanism, [ IO ] therapy will be activated by Lenvima. Olaparib, for example, is strong in treatment of ovarian cancer and breast cancer. In these cancer types in the future, Lenvima maybe indicated for as well. So there are no issues under our collaboration agreements. Thank you very much.

[Operator]

Yes. We almost are running out of time. On the phone, we have a participant, who has a question. Mr. Muraoka of Morgan Stanley. Mr. Muraoka, can you hear me?

[Shinichiro Muraoka, analyst]

Thank you. This is Muraoka from Morgan Stanley speaking. I'm sorry, I cannot participate in person. I have one question, the other day, profit guidance was issued up to 2020 on average about JPY 100 billion of operating profit was mentioned, this time it was JPY 89 billion and in 2019 and 2020 in these fiscal years, can I interpret that operating profit will exceed JPY 100 billion?

[Haruo Naito, executive]

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

[Ryohei Yanagi, executive]

I would like to respond. I'm Yanagi, CFO. Thank you for your question. In fiscal '18, it will be JPY 86 billion and basically we expect the trend of increased revenue and increased profit to continue. So in fiscal 2020, we believe that operating profit will be above JPY 100 billion and on average, we would like to achieve that. Earlier in CEO's presentation towards the end, targets for 2020 was mentioned, a revenue of JPY 800 billion and operating profit of about JPY 102 billion and ROE of 10% were mentioned as targets under EWAY and we would like to achieve these sooner. Mr. Muraoka, does this satisfy your question?

[Shinichiro Muraoka, analyst]

Yes, thank you very much.

[Operator]

Time has come, we would like to conclude the financial results presentation session by Eisai. Thank you very much for coming today. We would like to ask for your continued support for our company. Thank you for calling.