Eisai Co Ltd

TSE:4523

Earnings Call Transcript 2019-Q4

[Unknown Executive]

Thank you very much for taking your time out of your busy schedule today. It is now time. We would like to begin financial results presentation for fiscal 2018 by Eisai.

Before I invite the speaker for presentation, I would like to ask you to confirm you have all of the materials in front of you. Please find the deck of slides that will be used during the presentation and flash reports and reference materials. If any of the document is missing, please raise your hand.

I believe there is no problem. Now let me introduce the presenter, representative, Director and CEO, Mr. Haruo Naito. Without further ado, I would like to invite the speaker to present.

[Haruo Naito, executive]

We would like to report to you the financial results for fiscal year 2018. But in March based on the recommendation from the independent data monitoring committee, we announced the decision that we made to discontinue the Phase III study for aducanumab. Although there have been a lot of support and expectation from you, but we could not deliver on such expectations. So we'd like to apologize for that.

Now we'd like to report to you the financial results for FY 2018. Here is the summary of P&L. What is most characteristics of the result is that the high potential of LENVIMA has come into blossom and started to come into bloom to contribute to the results. Revenue was JPY 642.8 billion, which was up 7% year-on-year.

The revenue of LENVIMA as well as milestone payment received from Merck and onetime payment from Merck added was JPY 128.1 billion. So that means that LENVIMA has exceeded to the level of over 1 billion asset, so there has been such a growth of LENVIMA. LENVIMA's asset 1 billion recorded in FY 2018 when -- in which fiscal year we are expecting to see that to grow to more than 1 billion. It is going to be very important point of focus, when we consider the future of our business in near future. And in gross profit level, our in-house developed a product, small molecule product LENVIMA, which has shown significant growth and contributing to the improvement of the product mix and also milestone onetime payment received, which contributed all to the improvement of the cost ratio. Gross profit grew by 15% year-on-year.

For R&D expenses, under our partnership model, partner bear some of the R&D expenses, which are included. But before subtracting the partner's share of R&D expenses, the actual spending was JPY 191.3 billion. Actual expenditure was JPY 191.3 billion. Comparing this amount on an apples-to-apples basis, there has been the net actual increase by JPY 37 billion in R&D expenses during this fiscal year. DMT for AD and there are various projects in our pipeline, which are being developed and we have been able to invest our resources into those projects.

SG&A expenses increased by about 4.9 percentage points, which included the profit-sharing, which is stipulated on the agreement with Merck, which was in the amount of about JPY 23 billion. Mainly in China, there has been investment of SG&A expenses, mainly in China in order to pursue potential of LENVIMA. Therefore, these expenses and expenditures have been very proactive.

Operating profit was JPY 86.2 billion, 12% increase from the previous year. Profit for the year attributable to owners of the parent was also increased by 22% from a year earlier. That was the overall result of the [ Eisai's ] financial results.

ROE was 10.4%. Under midterm management plan, EWAY 2025, we aimed at achieving double-digit ROE in 20 -- fiscal year 2020, but we have been able to achieve few years ahead of the plan. And we have been able to have free cash flow JPY 85.1 billion, which exceeded the JPY 43 billion as a total fund for dividend payment.

Financial strength was exhibited. The ratio of equity was 80 -- 58.6%. Therefore, we have further strengthened our soundness of financial strength and we are going to maintain the full year dividend payment at JPY 150, because JPY 80 per share year-end dividend has been approved at the Board of Directors meeting held today.

Here is the breakdown of revenue migration. There has been significant decreasing factors: JPY 18.3 billion as the impact of drug price revision in Japan and decrease in revenue of ALOXI, the JPY 37.8 billion because of the impacts by generic and JPY 55 billion inclusive of all these were main factors for decrease. But there was growth of all global brands, which have shown increase in revenue. In Japan, overcoming the impacts of drug price revision, Japan business could grow. And in China and Asia business were emerging markets, we have been able to secure growth. And also, payments associated with LENVIMA increased on a net basis by JPY 31 billion from a year earlier. Therefore, all in all, revenue increased by JPY 42.8 billion from a year earlier to reach JPY 642.8 billion.

Similarly, breakdown of operating profit migration is shown here. A similar trend was shown in operating profit as well. There are similar changes like there has been increase by JPY 8.9 billion year-on-year.

As I said earlier, as you can see on the right-hand side, here is the breakdown of R&D expenses. JPY 46.4 billion borne by partners added and then the total R&D expenditures was JPY 191.3 billion.

As for LENVIMA, in fiscal year 2018, JPY 62.6 billion was recorded, which is almost doubling the number reported in the previous year, 94% increase from a year earlier. And we have been able to see such a significant increase in all regions. And JPY 31 billion was recorded in China.

In China, LENVIMA has been granted the priority review. Therefore, the review was -- the approval was granted in November very early, and JPY 3.1 billion was recorded in the 5 months' period after launching fiscal year 2018. Therefore, at much faster pace than we expected originally, LENVIMA's growth was recorded in China. Under the current fiscal year, we are expecting to see the revenue of LENVIMA at JPY 116 billion for fiscal 2019. America or in the U.S.A., we are expecting to see almost doubling the number to reach JPY 78 billion, and we are planning to add a new indication for other cancer types.

In Japan, we are pursuing the potential conversion of treatment. We have obtained those findings in the real-world setting in Japan. We are aiming at increase by 30% in Japan, EMEA at 50% growth. In China, about half of the people with HCC are said to be living in China. For low-income households, we have prepared a Patient Access Program in order to expand access to the drug. And in this fiscal year, we are expecting to see it to be listed on the National Reimbursement Drug List, so we are expecting to see further expansion of access. We are expecting to see almost triple the number recorded in the previous year to reach JPY 9.0 billion in China.

Over the past 1 year, through collaboration with Merck, what we have been doing -- we'd like to explain what has been achieved through collaboration. If you recall that during the fourth quarter of fiscal year 2017, we obtained agreement on the strategic collaboration agreement, and how fast we have been able to establish the collaboration in the frontline sales force activities and medical affairs and as [ chuck ] for acceleration, it has been quite hard process. Please understand that. But in -- what we call first wave countries or in 8 countries as listed here, we wanted to put more focus on establishing collaboration in these countries first.

First, in mobilization of sales force, how is that mobilization should be allocated between partners and when that should be done and how medical affairs collaboration can be started and in detail -- detailed planning was necessary. Of course, in these 8 countries, such efforts were initiated, mainly in medical affairs first and activities were rolled out to deploy frontline sales force people. And by the beginning of this fiscal year, we have been able to establish those structures in 8 countries as listed here.

On the right-hand side, you can see the growth of the revenue of LENVIMA on a quarterly basis. After collaboration has been established in the third quarter or fourth quarter, we have started to see rapid increase in revenue. Therefore, the effect of collaboration with Merck can be said to be very effective and significant. Although we have been doing various efforts, but in these last quarters, you can see the meetings which were held at various levels of organization and at various academic meetings related to oncology areas at Merck's booth or at Eisai's booth, we have exhibited our products and services like these and many visitors gathered around our booth for joint exhibition. Partnerships to be established quickly in the commercial aspect, which were the original plan, but all these efforts have been realized as expected and we believe that this has led to the results recorded so far.

Another point is of course related to research and development related to the collaboration between LENVIMA or combination therapy between LENVIMA and KEYTRUDA. How are we going to develop this? Recently, the Tsukuba Research Laboratories provided data. LENVIMA itself has the effect of immune modulation that has been reported in research at Tsukuba. LENVIMA, the TAM or tumor-associated macrophage can be reduced in its rate, so that cytotoxic T cells can be activated. That is 1 effect of LENVIMA. And another is, which is said to be an outstanding feature of TKI, FGFR inhibition. This is one of the features of LENVIMA as to reactivate interferon-gamma signaling pathway, so that PD-L1 expression can be upregulated or induced on the cancer cell surface. And these efforts have been reported by internal laboratory. Needless to say, PD-L1 low expression suggests that there will be patients where anti-PD-1 antibody cannot be efficacious, so LENVIMA's immunomodulation can provide an environment of immunology, so that anti-PD-1 antibody can be more efficacious.

And here is the demonstration as such about the results obtained from the Study 111 for combination therapy of KEYTRUDA and LENVIMA targeting 6 cancer types. Here is the waterfall chart comparing how large the tumor diameter change rate has been and this shows a very robust, truly robust effect demonstrated by this therapy. And these patients included 8 patients complete response was achieved.

And please look at these arrows. For those patients who are -- who have the microsatellite-stable status, which is said to be less efficacious for anti-PD-1 antibody and also the PD-L1 negative status patients. For all these patients, this combination therapy has brought about tumor shrinkage effect.

To expand the efficaciousness and its benefit of immuno-oncology and providing the benefit for patients as such is suggested by this waterfall chart.

At the time of conclusion of agreement, there were 13 studies targeting combination therapy with Merck, out of which 11 studies have been initiated and the remaining 2 studies are planned to be initiated in early course of this fiscal year. Therefore, during this fiscal year, except for basket trial, 12 pivotal studies will be concurrently proceeded during this fiscal year.

It's not really what is written in the agreement, but actually these will be put into place as a clinical trial or rather clinical trial, which will be the pivotal studies for a submission, so this is the result of our collaboration.

I mentioned earlier that conversion treatment was found in Japan, and I would like to discuss further about this. As you are aware of, Japan has advanced treatment of HCC [ viral ] related diagnosis and treatment are started from quite early on in Japan. And as for HCC, the survival time in comparison to Western countries is much longer. In various HCC treatment, there are curative treatments such as TACE, ethanol injection, HAIC and microwave MCT. Japanese doctors and clinicians discovered these or developed these treatments.

Against this backdrop, LENVIMA is used. With its antitumor effect, LENVIMA can shrink large tumors and convert treatment to curative treatment. And that is rapidly attracting attention these days. As we have reported already, this shows the tumor shrinkage effect of LENVIMA in Phase III study ORR, objective response rate, where tumor shrinkage was 40.3%. But in real-world data from Japan especially where LENVIMA is given at early timing of Barcelona classification, tumor shrinkage effect was over 80%. Tumor shrinkage was observed in over 80% of patients. So after shrinking large tumors, curative treatment may be used to further extend survival time or complete cure maybe in that and such potential is now [ open ]. Unresectable HCC may be converted to resectable HCC by early introduction of LENVIMA. Such conversion treatment was discovered in Japan, and we would like to deploy this globally.

LENVIMA has made a journey so far and this is the summary of this. Currently, LENVIMA is designated for 3 indications for breakthrough therapy by FDA. And there are some companies that are called oncology house and with 1 compound to have 3 breakthrough therapy designations. There are only 10 companies that have such a compound as noted in the footnote. Amongst the Japanese companies, we are the only one who has achieved this remarkable result.

At various levels from CEO to -- and at every level, we have very close communication with Merck, and commercialization and additional indications that were expected at the time of the signing of the contract are now being implemented steadily. And as a result, total -- maximum up to USD 5.76 billion of financial consideration is stipulated in the contract. And by the end of March 2019, $1.38 billion of that has already been recognized.

And in addition to S200 million from option exercise, regulatory milestone and sales milestones are expected to be fulfilled and we expect payments as a result. This shows oncology pipeline and this is a color-coded pipeline. LENVIMA and immune modulation-related themes are shown STING agonist. For bladder cancer, et cetera, as new I/O, there is much expectation for STING agonist and this is in Phase I.

We also have in-house small molecule compound and cancer driver gene theme. These are some darker in color, and these are eribulin platform-based compounds.

Halichondrin derived natural material-derived small molecules are included here. And this uses the pinnacle of the organic chemistry knowledge today, and we have various eribulin asset as a result, one of which is MORAb-202. Eribulin is the payload and antibody is folate receptor alpha antibody. These are combined with a linker to create ADC. And for many solid tumors, we are beginning to see good results and results will be announced at upcoming ASCO and halichondrin analog, this is almost a middle molecule size and halichondrin itself is the platform for this new theme and splicing modulator area is another area, H3B compound is in phase I.

Next, I would like to turn to neurology and Alzheimer's disease. First, we have very strong determination and strategy, which is to become the first to develop and deliver disease-modifying treatment for Alzheimer's disease. We are strongly determined to deliver world's first disease-modifying treatment for Alzheimer's disease. That is the determination of the management.

How is BAN2401 different from other antibodies? Only BAN2401 is specifically selective to protofibril. BioArctic developed BAN2401. When they considered the idea of BAN2401, it was based on certain idea, which was Arctic mutation from A-beta 1 to 41. 22nd is mutated to glycine. Such mutated amyloid is implanted into mouse. And from the antigen, antibody was obtained and it was humanized and that became BAN2401. So Arctic mutation amyloid produced -- is prone to produce protofibril. And therefore, from the beginning, BAN2401 within the cascade of A-beta is focused on protofibril. So this is an antibody that is designed in such a way, this is a remarkable difference from other antibodies.

A-beta is a [indiscernible] monomer, to dimer. There's transformation and this has selectivity to A-beta aggregation. It does not have much selectivity to monomer.

Out of aggregated species, there is a data that shows high selectivity to protofibrils. And in comparison to fibrils, BAN2401 is more selective by 10 to 15x protofibril. And according to recent study, protofibril shows most toxicity amongst A-beta aggregate species and are potentially associated with neurodegeneration. So the major substance is protofibril and BAN2401 is an antibody against protofibril.

Clarity AD is the name of the study. This we believe is going to be the last clinical trial for BAN2401. This is the Phase III study, which is ongoing. The outline of that study had already been presented before. Around 1,600 subjects will be enrolled. As for administration method, there will be 1:1 ratio between active arm and placebo arm. So 1 arm will be around 800 subjects. Targeted subjects are similar to 201 study, early Alzheimer's disease patients.

As for the dose, in 201 study, dose that showed most -- the dose that was most effective is used, so one dose will be used and biweekly administration will be used. There is no titration. So from the first dose, effective dose will be used.

800 subjects will be included in 1 arm. And in 201 study, 10 milligram per kilogram of BAN2401 was used in 201 study and 5x as many patients will be included and will be dosed at that level in this Phase III study. As for endpoints, primary endpoint is CDR-SB and these are also major secondary endpoint including ADCOMS and ADAS-Cog.

This study has completed Quality Sites selection, and patient screening has been initiated and we expect the first dosing quite soon. To support filing, single Phase III study is now being initiated. And final readout of primary endpoint is targeted to take place in the first quarter of fiscal 2022.

Why was CDR-SB used -- selected as primary endpoint? In 201 study, CDR-SB showed 26% less decline in progression of disease over placebo. Superiority was not shown, but this suggested clinically meaningful efficacy or it suggested clinically meaningful improvement. And this behavior was similar to the primary endpoint in 201 study ADCOMS. And this study is the Phase III study and statistical power will be stronger because of subject number, which is about 5x larger with CDR-SB with statistical significance. We aim to show efficacy with 16 -- around 1,600 subjects.

From cognitive and executive functions, CDR-SB is widely used to show the measurement of these functions. And that is primary endpoint.

CDR-SB in Study 201 Phase II showed clinically meaningful improvement. And this time in Phase III study, we would like to make sure that we are able to show statistical significance. That is how Clarity AD is designed and CDR-SB also have widely used endpoint.

Next, turning to elenbecestat. There are 2 Phase III studies: MISSION AD1 and AD2 and database of these 2 studies will be combined. I would like to discuss the significance of the combination of the databases. With the integration of the data, we will have a single database with around 2,100 subjects, so this is going to be a very large database.

As a result, naturally, there will be higher statistical power and higher probability of success. Those can be expected and MISSION AD1 and MISSION AD2 are mirror studies with same protocols, and the same team is responsible for both studies. So combination of the 2 studies into single database is fully feasible and this is not a post hoc change. This is a prespecified change before results are made available. Please understand that this is prespecified. And by combining these 2 into single database, we can improve efficiency of submission and shorten the time for preparation of materials for submission. So we seek possibility of earlier submission with integration of the database and to increase probability of success with increased study power. We are strongly determined to succeed in developing AD DMT. And based on that determination, we have decided to combine the databases and final readout of primary endpoint is expected in fiscal 2021 in the first quarter.

Next point is what we announced in our press release last Friday, which concerns ACTC, Alzheimer's Clinical Trials Consortium. Southern California University, Harvard University and other major Alzheimer's disease-related clinical research institutions are included in the consortium, about 30 of them comprise the consortium.

AD prevention studies are the focus of ACTC. And this time, in 2 prevention studies, drugs elenbecestat and BAN2401 were selected. The other day in the information meeting, dementia with Wider Scope Strategy was discussed.

Regarding dementia, we believe that this is 1 scope high-risk healthy subject to serious AD patients. If that is the scope, the earlier mentioned Clarity AD and MISSION AD studies are targeting early AD part. And we can expand the scope even wider to cover earlier stage, that is the significance of A3 and A45 study.

A3 and A45, these are the brand names by ACTC. And from abbreviation, A3 stands for Ante-Amyloid Prevention in Alzheimer's Disease Trial. It stands for 3 As in the title of the study. And A45 study is also an abbreviation of a longer study title. And the target for A3 study is as shown here. Brain amyloid is negative and there is no cognitive impairment, but individuals with high risk of AD including age and background individuals with high risk of AD are the target, but we can say that these are healthy subjects. And there are 2 dosages of elenbecestat that will be used. And endpoints include biomarkers and Wider Scope PACC. This was a scale developed for prevention study. And as for A45 study, A-beta in brain is positive, but there is no cognitive impairment and BAN2401 will be used first. And then sequentially, next elenbecestat will be given. So this is a sequential regimen, which is the world's first ever regimen. Endpoints include ACC and biomarkers.

With biomarkers, we may be able to consider the possibility of submissions. This shows the pipelines in neurology including Alzheimer's. With proteinopathy in protein accumulation area, we have elenbecestat and BAN2401. These have become much wider in scope. As for tau antibody, to inhibit tau [indiscernible] this is right before going into clinical stage. And what is most advanced is lemborexant. This is a dual orexin receptor antagonist for insomnia disorder. Submissions have been already filed to U.S. and Japanese authorities and [indiscernible] associated with Alzheimer's for that POC was completed.

This purple part is about transformation of symptoms. We have dementia with Lewy bodies and drugs to improve the symptoms for that. And epilepsy is also seen in many dementia patients, and we have new mode of action candidates. And synapse-related themes are also right before going into clinical stage.

This is the last part of the presentation. I would now like to discuss the topic of business model transformation.

Under the 3rd Industrial Revolution, data-driven business is to be developed and we consider this to be very high priority in the 4th Industrial Revolution. And there are 2: One is data establishment and the other is platform establishment. The 2 are, of course, closely related. In terms of data establishment, we would like to enhance data science and develop data lake. And we also would like to improve data management including personal information and data governance.

And furthermore, algorithms will be developed. For example, Data Driven Drug Discovery and Development, 5D, world is what we would like to realize in terms of platform establishment. Platform -- on the platform of Eisai by allowing access to many people, we may be able to offer greater benefit to patients and families in comparison to when we do this alone. And there is also IoT, regional collaboration and application implementation included under platform establishment.

Dementia ecosystem is [indiscernible] we are building out not only in Japan, but in the United States as well. That will also be done under the platform establishment. And across the board, data platform-related partnership will be supporting these efforts.

And last week, we issued a press release about collaboration with Allm and this is the first of such efforts. With various start-ups, we would like to partner with them in the past to find drug fees in neurology and oncology we sought partnership. However, in addition, we would now like to partner with start-ups in data platform field. And over 5 years, we would like to make investment of about JPY 15 billion. And such efforts will support across the board including both data establishment and platform establishment.

This is the last slide, fiscal 2018 -- fiscal 2019. DMT for AD and immuno-oncology will be the keywords and revenue forecast is JPY 680 billion, 6% growth year-on-year. And this includes our anticipation of further growth of LENVIMA and R&D expenses that will be booked on P&L is JPY 154 billion. However, including partner's share, it will be over JPY 200 billion R&D expenses on an apple-to-apple basis. And therefore, operating profit is expected to be JPY 103 billion. And under EWAY 2025, the target year to exceed JPY 100 billion in operating profit was 2020, but this may be achieved 1 year in advance. This will be 20% growth and profit for the year JPY 72.5 billion. ROE is 11.2%. Positive equity spread is over 3%, with which we would like to contribute to shareholder value creation.

And with that, I would like to conclude my presentation. The dividend per share is expected to be JPY 150, correction.

Next, we would like to open the floor for questions. First, we will entertain questions from participants in this room before opening the floor for telephone participants.

If you have questions, please use the microphone and please give us your name and affiliation before stating the question. If you have question, please raise your hand.

[Kazuaki Hashiguchi, analyst]

My name is Hashiguchi. I'm from Daiwa Securities. As for aducanumab, as you mentioned, what will be the potential change into business strategy compared to what you expected with aducanumab project? And I think that there has been increased risk for the future of the growth of the business. And what changes will be made to the portfolio management? And regarding the profit and loss projection, for example, revenue of the option rights execution and R&D expenses, reimbursements and the aducanumab cost may be incurred at the time of discontinuation of the project. And LENVIMA, early timing as well and AD DMT development maybe delayed. So that means that the impact will come to be reflected on the profit and loss projection for the period, but we haven't heard of any changes to be made to the business strategy. So could you please elaborate on the potential impact of that?

[Haruo Naito, executive]

Revenue contribution by LENVIMA in 2020 to '21 through to 2025, we expect to see continuous expansion of the revenue contribution by LENVIMA. And the degree of contribution by LENVIMA will be exceeding what we originally expected. So there has been upside to what we expected. That's one thing. And for aducanumab, which was very regrettable for us. But as we have said, for elenbecestat, during -- in the first quarter of fiscal year 2021, we're expecting to see readout. And BAN2401, we are anticipating readout of the results 1 year later -- in 1 year. And those other than aducanumab, there will be 1 to 1.5 year time lag. For aducanumab, we are going to establish integrated database in order to shorten the period where there will be no contribution by aducanumab, so we are going to have such an integrated data analysis. So the job by aducanumab, most of which will be covered by LENVIMA contribution and a delay in aducanumab can be offset by elenbecestat and BAN2401 that will be the overall strategy.

[Kazuaki Hashiguchi, analyst]

Sir, I do have follow-up question for BAN2401 study plan. Even before aducanumab result came out, I think the plan was already prepared. I understand the drugs -- 2 drugs are different. However, the co-development concept were similar, so if you have any new lessons learned from the aducanumab, are you intending to make any modification to the plan for the development of -- today, any major lessons learned, which have been already reviewed from aducanumab? Or do you think that -- regarding the development plan, do you think that you are intending to review that plan going forward?

[Unknown Executive]

Mr. Tsuno is going to respond. Mr. Tsuno, who is responsible for the clinical aspects of the neurology business development group.

[Masanori Tsuno, executive]

Thank you for your question. As for aducanumab, the top line has been resolved -- reported. As Biogen has announced that currently, analysis is still ongoing as of today, therefore...

[Kazuaki Hashiguchi, analyst]

As far as we know about the PRIME results, are there any changes or impacts that are a cause to the protocol change?

[Masanori Tsuno, executive]

Well, with the Clarity AD study, we believe that we can go with the current protocols. Of course, there -- whenever there is a data generated newly, and then that will be digested to maximum and as necessary, protocol may be revised at such a situation. However, currently, we do not see such potential at all.

[Kazuaki Hashiguchi, analyst]

And then you said that you are expecting first dosing soon, and are you going to suspend that at all?

[Masanori Tsuno, executive]

No, we do not intend to do that.

[Fumiyoshi Sakai, analyst]

Sakai from Crédit Suisse. I have 2 questions. First, for this fiscal year, about JPY 103 billion operating profit that you're forecasting, there is a table at the end of the presentation material. What I am driving at is your milestone payments, payments from partners. Milestone payment this time accounts for a large majority, and earlier, I think it was shown on the table on Page 10, JPY 22 billion plus milestone. Is this already included in the plan, the plus, minus? I think because it's -- the milestone there are increased and decreased, what are the assumptions for fiscal 2019 forecast?

[Unknown Executive]

Mr. Yanagi will respond.

[Ryohei Yanagi, executive]

Yes, this is Yanagi, CFO, speaking. For forecast of fiscal 2019, Merck's milestone payments are included in the forecast. LENVIMA sales forecast is JPY 116 billion. This is sales from ordering course of business. And how -- so milestone, this include tangible assets as human resources, various resources that will be realized through contribution from Merck, which will be reflected in the sales. But JPY 200 million of option exercise, that's onetime payment and plus a regulatory milestone and multiple sales-based milestones are taken into account. And there's a reference, Page 9, in financial report, segment by segment, the sales forecast under others column. Fiscal 2018, JPY 79.2 billion and fiscal 2019, JPY 103 billion. This is not all milestone but a larger -- large parts will be milestone and increase is 30%. And from that, you may be able to estimate that this is product information, but such an extension on this, Sakai, we'll be able to come to a certain estimate. Milestone payment is expected to be larger to be reflected in sales based on realization from tangible assets.

[Fumiyoshi Sakai, analyst]

Well, I'm not so experienced. I -- there was an earlier question on business strategy, but regarding your business strategy, I don't think there is any doubt, but what I am concerned a little about is Biogen. Listening to the conference call, there is -- was much pressure from analysts, especially on collaboration between Biogen and Eisai, they will have to incur cost in advance. In -- at Eisai, you always have close communication, open communication with Biogen or if Biogen leaves, you may be able to enjoy 100%. So how do you look at this? I hope I -- this doesn't sound like a cross-examination.

[Ryohei Yanagi, executive]

Partnership is based on contract, as you're already very familiar with, and the contract is concluded for each product, and the details are stipulated including how expenses will be shared and the limits and when opt-out is possible or not possible, these details are all stipulated under the contract. So based on the contract, we will have to carry out a discussion. We do not -- we are not hearing anything negative from Biogen, and at various levels, we have very good communication with Biogen. And Michel, CEO of Biogen, I often have face to face and telephone conversation, and Eisai in the United States has very good communication with Biogen development group also has very good communications team as well. So as far as communication is concerned, I don't think there is any problem between Biogen and Eisai.

[Akinori Ueda, analyst]

I am from Goldman Sachs securities. My name is Ueda. I wanted to ask a question about the design for study for BAN2401. Now primary endpoint is CDR-SB and for ADCOMS, assessment on ADCOMS, I think that you have seemed to be very confident on that, and what kind of discussion you have had with FDA in order to set up this endpoint. Could you please explain that?

[Unknown Executive]

The person in charge of the Neurology Business Group, Mr. Tsuno is going to respond to your question. Mr. Tsuno is in charge of clinical affairs.

[Masanori Tsuno, executive]

My name is Tsuno. Regarding the CDR-SB, this parameter has very high sensitivity to MCI and widely used therefore. This parameter itself is very effective, useful. And we -- it does not mean that we have lost our confidence in ADCOMS. We are still a big fan of ADCOMS. So in the future, this will be one of the very important endpoint for MCI in the future. So in the Clarity study, the protocol, as a key secondary endpoint, we have adopted ADCOMS. ADCOMS is known to have a very high sensitivity. For example, in subsets. In subset, the level of sample size tends to be smaller. In such situation, it can be very sensitive with p values to provide information regarding the profile of this drug, but it's our confidence. As we explained earlier, what is the constituting mainly the ADCOMS is the executive function and the quality of function, 6 items of CDM -- CDR Sum of Box and if -- that's in a CDM, we've added and -- in order to increase the accuracy, the rate -- rating has been done, and CDR Sum of Box is substantively the same as ADCOMS.

[Akinori Ueda, analyst]

My second question is about LENVIMA business in China. About your assumptions, you're expecting to have the product to be listed on the national reimbursement list this fiscal year. And once that is on the national insurance reimbursement list, then I believe that you can assume further expansion of the revenue in China. So at which timing are you expecting to see that on -- listed on the national drug price? And in what years from today -- how many years from today are you going to expecting to see the fruitful expansion of the revenue? And also in terms of volume and sales, could you please give us some numerical guidance?

[Unknown Executive]

Mr. Okada, who is responsible for China business is going to respond.

[Yasushi Okada, executive]

Thank you very much. I am responsible for China business. My name is Okada. Regarding your question, LENVIMA in China, the national reimbursement list at around the end of calendar year, we'd like to have the product drug to be listed on the national reimbursement list. Once that is approved, and then there will be the negotiations started with provincial government and based on -- once that is listed on the provincial reimbursement list, and then the pricing is expected to be halved, by about 50%. So that is the assumption for accounting for this projection in revenue. And how many times we're expecting to see an increase of the revenues? Well, of course, the affordability will be improved dramatically and in patients with HCC in China, the very large number of that patients today we see are located in China. Therefore, we can expect several multiple times, and now we're expecting it to reach JPY 9 billion, but I would say that this can be regarded as a conservative side. So we'd like to see more than this, exceeding by far this number in actual results.

[Akinori Ueda, analyst]

My last question is about the forecast for the R&D expenses in the future. During this fiscal year, aducanumab development has been discontinued, but still you are increasing the R&D expenses and you are -- you have said that you are going to make proactive investments in LENVIMA development. Why are you seeing the increase in R&D this fiscal year and also what would be the guidance for next fiscal year onward?

[Unknown Executive]

Thank you for your question. For your question, Mr. Yanagi, CFO, is going to answer.

[Ryohei Yanagi, executive]

Thank you for your question. My name is Yanagi. I am CFO. For aducanumab development, which was discontinued, the R&D expenditures can be reduced. Of course, that is true, but -- for example, JPY 103 million in operating profit as a guidance for this fiscal year. R&D expenditure decrease for aducanumab is accounted for, but on the other hand, lemborexant buyout was incurred, and therefore lemborexant development costs and promotional cost will -- are expected to be increased and AD and BAN2401, elenbecestat that AD additional incremental trial-related expenses are to be incurred. So on a net basis, at the end of March this year, there was a upside of JPY 1 billion, JPY 102 billion increased to JPY 103 billion by JPY 1 billion. So that is the result we reached to be disclosed in May. Regarding R&D expenditures, as you can see, accounting for 22.7% of the sales and 7% up from a year earlier at JPY 154.5 billion, as CEO presented, reimbursement from partner, particularly in AD and LENVIMA, there is sharing of the expenditure by partner, will be invested in these 2 areas. So the R&D expenditure would exceed JPY 200 billion overall and accounting for over 30% of the revenue and expecting to see double-digit increase from a year earlier. So although, all the financial discipline suggested that the R&D expenditures should be within 20% to 25% of the revenue including the partner's share, and it will be expected to exceed 30%. And probably, R&D ratio of sales is about 15%. So 30% ratio of R&D in sales is -- shows that we are among the top-tier companies particularly in LENVIMA and AD. We are one of the companies, which have the strongest commitment to R&D expenditure, while maintaining the financial discipline. We'd like to continue to maintain our dividend.

[Unknown Executive]

Are there any other questions? Although, we are running out of time, but we are still seeing 5 people raising their hands. So we'd like to ask you to go through one by one.

[Yo Mizuno, analyst]

Mizuno from Tokio Marine Asset Management. I have 2 questions. First, about A3 and A45 studies for Alzheimer's. The development cost for these 2 studies are going to be paid entirely by the licenser, and I hope this is not a bad omen, but BAN2401 elenbecestat, if in case, the studies fail for these 2 drugs, if A3 and A45 studies aren't successful, is it possible to still commercialize these drugs?

[Unknown Executive]

Thank you for your question. Mr. Tsuno will address the question. Correction, Ivan Cheung will address the question.

[Ivan Cheung, executive]

Thank you for your question. For A3 and A45, the ACTC organization has funding from the NIH and some other philanthropic organizations. At the same time, of course, a big sponsor from a funding perspective and most importantly from a operational perspective, such as regulatory interactions, those will come from Eisai. So I hope that answers -- of course, from Eisai, meaning also sharing between Eisai and Biogen for contract between both companies. With regard to your second question on elenbecestat, we have confidence of MISSION AD. Thank you.

[Yo Mizuno, analyst]

One more point. Lemborexant, you no longer have a partner, and is there any change in commercialization strategy. Is Eisai going to do this single-handedly?

[Unknown Executive]

Regarding this question, Ivan Cheung will respond.

[Ivan Cheung, executive]

Yes, you're correct. We will proceed independently. We are very confident how to do that. Thank you.

[Motoya Kohtani, analyst]

My name is Kohtani from Nomura Securities. I have a question about LENVIMA and Alzheimer's disease. First about LENVIMA. Looking at the sales of placebo and RCC, accounts for the very large portion, and it is very important disease in Merck and Eisai. Regarding the submission for RCC first-line, you have not made any mention of that, the KEYTRUDA and the Inlyta combination was already approved on April 22 by FDA and the placebo was already approved. So therefore, there may be some encroaching in the market, so have you ever taken into consideration. So what is the current status of this?

[Unknown Executive]

Dr. Owa, who is in charge of science affairs of Oncology Business Group is going -- who is to respond to your question.

[Takashi Owa, executive]

Thank you very much Mr. Kohtani for your question. Regarding BTD, as the BMS regimen of doublet and Inlyta and the KEYTRUDA combination therapy approved, but BTD, it has not been canceled yet. Because our works through therapy designation said that there was no prescription about the line, KEYTRUDA-lenvatinib combination therapy, RCC indication for which Breakthrough Therapy Designation has been granted. Therefore, we have a wide-ranging designation. Of course, regulatory environment may be changed. Of course, we have taken into account. That means the 2 regimens that have already been approved, so OS endpoint. And in that situation, please refer to clinicaltrials.com. Primary endpoint, progression-free survival in that case, and then don't they have to look at the OS. It's not about our case. It's going to be the matter of the discussion with FDA. And if BT is held, and that means that we are able to have a flexible exchange of opinion with FDA. So if necessary, we may have to change our strategy or some areas, we have to continue to push through and a Phase III study is ongoing, but there will be a readout delay. However, at the earliest points possible, we'd like to bring about the filing of the submission. That is the current status.

[Yo Mizuno, analyst]

So what about your confidence level against competitors? KEYTRUDA and Inlyta, which was shown the discontinuation, 31% of the patients have discontinued because of the hepatotoxicity AE and risk PD-L1 positive and associated INC and PD-L1 positive status is not the [indiscernible], and so that is the case of Xtinib.

[Takashi Owa, executive]

Yes [ oligomers ] is the status, and I think it is not the necessary information. Often, the O/I, the 42% primary PD and then 23%, as I said, the progression-free survival endpoint is not used. It's only exist on the OS. So for each endpoint, we would like to aim at seeing the superior achieved for that, and the KEYTRUDA and Inlyta, ORR is 49%. Although it's 30%, so [ erode ]. And on the same basis comparison, independent review came up with 67% in the independent ORR, so we are exceeding them. We are able to compete against them, and ORR 16 months Inlyta and KEYTRUDA. So that means that we will exceed that. We're aiming at the 17 or 18 months. In OS, we haven't obtained the data yet, but we would like to see, at the end, we'll exceed the competitors in all endpoints, and as I said about the toxicity grade 3, grade 4, I think accounting for 20% liver toxicity was observed and a 13% due to the liver toxicity had to discontinue the trial.

So you would like to pay a close attention to our data as well in that sense. In other types of cancer, if you look at the data, KEYTRUDA and LENVIMA combination, liver toxicity has not been suggested to be enhanced, and I think you referred to that data through the presentation made at ASCO. We are confident about that.

[Yo Mizuno, analyst]

Lastly, about aducanumab, according to Biogen's conference call, brain amyloid beta was clearly decreased, and over time and in a dose-dependent manner, the amyloid beta was decreased, and I think it's very harsh condition for your hypothesis, amyloid beta hypothesis. But to a positive side, aducanumab recognized oligomers and fibrils, and fibrils is deprived and of course, the [ membrane pattern ] will be decreased and BAN2401 protofibril alone, and then ARIA-E will not occur. So that is the going to be the differentiation.

Aducanumab, that is the recognized protofibril and BAN2401 only recognizing protofibril, and ARIA-E and the PET is decreased. I think I see BAN2401 differentiation from other antibodies, and I think you are expecting to show, do you think that such data differentiating the BAN2401 form other antibodies will be presented?

[Unknown Executive]

Managing officer, Mr. Cheung is going to respond.

[Ivan Cheung, executive]

Thank you for your question. At the AAIC, to your last question, more data will be presented. But there have been some data presented with regard to your question. Aducanumab thus bind to protofibrils but unlike BAN2401 here, which you see a very big difference between finding to protofibril versus finding to fibril as you see on the slide, aducanumab does not look like this. And I do want to address your beginning part of your question about what you heard at the Biogen conference call. I will say 2 things based on that conference call. Number one is we now know that potentially, seeing the reduction of amyloid burden in the brain may not be the only marker to predict clinical improvement. One thing that's very special in this BAN2401 Study 201 is we collected CSF biomarkers because CFS biomarkers such as neurogranin, neurofilament light chain, these are the biomarkers that are directly be testing the brain cell damage, the neuroma cell damage and death in the brain. And that is the most direct -- that's another direct linkage to the clinical symptom decline. So that is very important. That's number one. So we believe in to see both amyloid burden reduction and the neuroma cell death, CSF biomarker's improvement to be confident about this drug's ability to slow down progression of Alzheimer's disease, that's number one. Number two, on the Biogen conference call, you heard Biogen talked about the EMERGE, ENGAGE results are time-dependent and dose-dependent. That's what you heard. And you heard from Naito CEO earlier in his presentation in the Clarity AD trial design, we are using the highest dose with no titration. So we are of course have to believe that you have to give the highest dose at the very beginning with no titration to cause an effect over 18 months. So 18-month duration is the one to wait too long. So that's another important point. That's all I have. Thank you.

[Unknown Analyst]

[indiscernible]. About business model, I have a question in the fourth industrial revolution, data-driven business model has to be constructed. That was what was mentioned. In dementia, and in other areas, you have product package and you have developed an ecosystem. In -- on top of that by having a data. What you see ultimate vision that you have? And as competitors, do you expect a new competitor such as insurance? Is that the nature of your business model. Could you discuss in more specific terms.

[Unknown Executive]

The ecosystem that we envision, the biggest characteristic is that with the parties involved, we would like to have a direct 2-way communication. We would like to establish a 2-way communication. For this fiscal year, with about 1 million people, we would like to develop a system, so that we can have direct communication with about 1 million parties involved, and so there will be much interaction and exchange of information. But we also have to comply with various regulations, so we would like to carefully consider the substance, but that will be 1 part of the platform. And based on our knowledge and findings in real world data, we have accumulated much data. Using that data and applying algorithms, we would like to be able to predict and provide prognosis or advice for lifestyle. These are benefits that we would like to offer for medical professionals and for nursing care professionals or sport gyms, and various different parties may be able to come on top of our platform, so that they can improve their services that they offer to end consumers. That is the rough outline of our system -- ecosystem. But data management and governance will be extremely important. So we have to have a strong team to look after that aspect. In Japan, we have agreement on dementia with about 150 local municipalities and residents who live in these local municipalities. We'll be major part of the ecosystem that we will be developing. That is the overview.

[Unknown Analyst]

I have another question. As such business model is developed, I expect that consumer research that will be necessary will change and various companies are implementing early retirement package and many companies are saying that the type of human resources that they require is changing. Do you have any views?

[Unknown Executive]

IT literacy and data-related literacy will become increasingly important. And as you know, human resources in these areas are in acute shortage, and there is a very competitive environment. But I think people come to an area where they find interesting. We have data related to dementia, and I think of all of the world, we have the most interesting high-quality dementia related data in relation to Aricept with double-blind Phase III only, we have about data 9,000 pieces of data that are stored in our data lake. In addition, we have various other real-world data, and we also have DMT-related newest biomarker data. So I think this can be quite interesting data from data science perspective as well, and I believe that these may be a way to attract talent.

[Unknown Analyst]

My name is [indiscernible]. I'm from [ MKV ]. LENVIMA, I think scientific mechanism was very interesting. In your explanation, in 2025 -- until 2025, you are expecting to see continued growth, and based on this mechanism, the combination therapy with other antibody, the anti-PD-1 antibodies, so in other collaboration or combination with other companies' products about Wilcoxon, do you see any upside by that or to what extent are you expecting to see further growth?

[Unknown Executive]

Thank you very much for your question. Mr. Iike will answer your question.

[Terushige Iike, executive]

Thank you for your question. I am in charge of oncology. My name is Iike. As you pointed out, anti-PD-1 antibodies our other I/O therapies in -- because LENVIMA has immunomodulation effect for enhancing the I/O as partner, not only the current partner agent, KEYTRUDA, we are not limited to that but in combination with LENVIMA, we are also having our in-house project as well going, owing to signal moderator specifically. That is also held in our pipeline. So we'd like to see embodiment of the synergistic effect.

[Shinichiro Muraoka, analyst]

Muraoka from Morgan Stanley. First about Clarity AD study. Looking at its time schedule, if there is an interim analysis including security analysis, what is the time line that you expect? And A3 study of elenbecestat, 2 doses -- 2 dosages, so 15-milligram and what is the other dose? That is the second question. And the last question -- or these are the 2 questions that I have.

[Unknown Executive]

Mr. Tsuno will address the questions.

[Masanori Tsuno, executive]

About interim analysis, we have a very rapid enrollment anticipated in our plans, so I would like to refrain from commenting on the time schedule. About A3, I think that was the second question. Lower dose, we are going to have discussions with ACTC going forward. There is one dose, which is 15 milligram, and the DSMB was finished, and MISSION AD study is progressing well. Although, that is not a very scientific way of characterizing it. So based on that, in earlier stage, generally speaking, lower dose may be considered, but we have to consult with ACTC, and, decision will be made through consultation. So once a decision is made, we'd like to provide you with the information. So those are below 15 milligrams that is more likely. Thank you very much.

[Unknown Executive]

Thank you very much, and we apologize for going overboard with our time. With this, we would like to conclude the presentation session of financial results for fiscal 2018 by Eisai. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]