Santen Pharmaceutical Co Ltd

TSE:4536

Earnings Call Transcript 2019-Q2

[Shigeo Taniuchi, executive]

I will explain Santen Consolidated First Half Results for FY 2018, which was announced yesterday, November 7.

First is our value and mission. As we always explain to you, "Tenki ni sanyo suru" is our value. By focusing on ophthalmology, we contribute to the well-being of patients, their loved ones and consequently, to society. That is our mission. And Santen continues to do business under this philosophy and mission.

This shows MTP2020, our midterm plan from 2018 to 2020. Fundamental policy is to realize our long-term vision of becoming a specialty company with a global presence and to construct a path for sustainable growth beyond 2020. We aim to do the following, as shown on this slide. We aim to increase customer satisfaction, profitability and organizational capability to realize; one, global business strategy; two, product pipeline enhancement and development of new treatment options; and three, strengthen business base and efficiency improvement.

Since our announcement in June, and in Asia, India, U.S., I visited many sites in various business units and headquarters, I directly explained this plan. We have been rolling out activities to share and cascade this MTP2020 message in the organization. In order to deliver this plan, we had very active discussions and by realizing this plan, we hope to continue to contribute in global ophthalmology in a sustainable manner.

We work as one team. All the members in the organization, 4,000 of them altogether. And in Japan and Asia and India, we have been able to outperform the market growth as there'll be more detailed explanation provided latter. DE-117, a very ophthalmic solution was approved in Japan. And from the second half in the U.S., clinical trials of DE-109 and DE-117 are starting and we are preparing for that and some have started. And so we are making good progress in pipeline enhancement. So far, we had very good start for MTP2020.

Now I would explain summary of consolidated business results up to the second quarter FY 2018. First, about sales. Domestic sales are flat from the same period last year. Eylea and Diquas sales continued to grow, but there were some impacts from one-off channel inventory adjustment. And as you know, there was NHI price revision in April. So for the domestic sales, we have almost flat results. On the other hand, growth in overseas business in Asia and EMEA could offset some of this negative impact, as a result of our sales went up 3.2% for about JPY 3.6 billion from last year.

For operating profit, there were onetime factors in Japan and also the COGS ratio increased due to NHI price revision and products mix, but they were offset by overseas business growth and cost control in various businesses and functions. As a result, core operating profit showing the operating profit from the core business as well as IFRS space, full base operating profit were both more or less flat from last year. For the core base, JPY 24.1 billion and for the full base, JPY 20.8 billion.

Although the comparison to the same period last year shows flat growth against this. But against the full year target, we have made good progress as planned both on the core basis and full basis. You can see more detailed factors impacting sales up to the second quarter by business segment in comparison to last year to confirm our business sales, as I mentioned before, slightly decreased from last year because of the onetime factor of channel inventory adjustment and NHI price revision. But some key products such as Eylea and Diquas continued to grow. Excluding onetime factors such as NHI price revision, underlying sales went up by about 5%.

For OTC business, there was a negative impact from marketing campaign last year. And as you know, there was a transient decrease of inbound demand due to natural disasters, but there were -- they were offset by good growth of domestic premium products and we had some early launching of products. So the results were more or less flat.

For overseas, first, in Asia, Santen continued to expand its presence. On the yen basis, sales in China grew 31.2% and Korea grew 21.4% from last year. In EMEA, Europe, Middle East, and Africa, in those areas, by focusing on penetration of glaucoma and Dry Eye products, we continued to grow in key markets. Although some countries were impacted by one-off factors from last year, including discontinuation of low-profit products. As a result, sales were up 3.2% or JPY 3.6 billion from last year to mark overall sales of JPY 114.3 billion.

This shows core operating profit. For the domestic business, in spite -- of course, we try very hard to have good SG&A cost control efforts but because of the decreased sales, as was explained, operating profit went down slightly. Asia enjoyed more than 70% growth in profit, thanks to increased sales and lower COGS ratio.

EMEA business continued to enhance presence, but the profit was more or less flat due to the one-off impact of Russia's strong demand from last year. In the first half, domestic business had some significant negative factors but they were offset by overseas business. Overall results show JPY 24.1 billion, almost flat from last year and this is in line with the full year target announced in May.

This slide compares the first half results from FY 2013 to 2018, both in domestic sales and operating profit before R&D. The FY '18 first half results showed some decline because of impact of negative factors, but we are actually making good progress to achieve target for the year. We will continue to focus on realizing market potential and capturing strong demand to achieve sustainable growth.

Next is business performance in Asia. As before, Santen products continue to penetrate in Asia, outperforming the market growth. In China and other countries in Asia, we continue to expand geographical coverage. The registration and launching of more than 30 products every year, we have tried to address local medical needs and we deliver our products to the patients in these areas. Last year, Diquas for Dry Eye was approved in China and shipment started in China in September. We make further efforts and contribution from these activities, we make stepwise growth for further mid- to long-term growth.

[Foreign Language] This is EMEA business performance. Growth continues driven by stronger market demands for glaucoma products and so on and market penetration of MicroShunt progresses with soft launch initiated.

In July, DE-76C (sic) [ DE-076C ] has obtained a manufacturing and marketing approval in Europe as an ophthalmic solution for symptomatic alleviation of vernal keratoconjunctivitis. Vernal keratoconjunctivitis is an orphan disease and this is mainly pediatric refractory severe allergic conjunctival disease or keratoconjunctival disease. Being a rare disease with small patient population, no therapeutics have been ever developed for this disease in Europe before. And this agent was launched in late October in U.K. after getting approval.

And we have wrote new therapeutics to those rare diseases, especially children and family members suffering from such diseases. We believe this is a quite unique achievement for the Santen group, developing drugs to respond clinical needs of -- a as a ophthalmology specialty company. And Ikervis sales is growing too. We execute strategic marketing programs with customer satisfaction as a core value to further penetrate these products to expand our presence in EMEA.

This is FY 2018 forecast. And the JPY 237 billion of revenue and the JPY 48 billion of core operating profit remain unchanged since May 9 announcement. And year-to-date results show smooth progress versus forecast. And lastly, this is the dividend forecast for FY 2018, annual forecast is JPY 26 per share, remaining unchanged since May 9 announcement. That's it for the outline of the second quarter of FY 2018 business results. And now I would like to briefly explain about EYBELIS ophthalmic solution for glaucoma and our ocular hypertension treatment approved in Japan in September.

In Japan, the number is rising of those newly recognized officially as visually impaired due to glaucoma. Thus, even though we have products already in market, still a new treatment option is always in demand. And EYBELIS -- or EYBELIS, are newly approved for manufacturing and marketing in Japan is an ophthalmic solution, a selected EP2 receptor agonistic effect, which is the world's first MOA for glaucoma and ocular hypertension treatment. The approval was based on this new mechanism action making this agent as another first-line therapy option after 20 years since the launch of Latanoprost in 1999.

In the clinical trial, non-inferiority of EYBELIS ophthalmic solution of 0.02% has been validated versus a standard cross solution of 0.005%, and IOP or intraocular pressure has been confirmed to stay stabilized for as long as 52 weeks. And IOP lowering effect has been demonstrated to non or low responders of other agents. And the so called non or low responders to such agent in the glaucoma treatment is always a problem and we believe it makes a significant contribution to glaucoma patient offering a new treatment option.

And of course, having launched the agent with new mechanism of action, we will proactively collect and disclose information of safety, making every efforts to promote proper usage and grow this agent as the world's first glaucoma and ocular hypertension therapeutics born in Japan, also developing elsewhere. This concludes my presentation.

[Unknown Executive]

[Foreign Language] Next Dr. Shams is going to report to you the status of research and development.

[Naveed Shams, executive]

Okay. Good afternoon. Please allow me to speak in English. I will give you a slow but steady update on our pipeline of products. There is much to talk about. Some of which you've just heard from Taniuchi-san. So we'll start with DE-117.

DE-117 in Japan is referred to as EYBELIS, was approved in September and we are currently in price negotiations before we launch this product officially. In addition to the launch of this -- approval and launch of this product in Japan, we have started 3 clinical trials in the United States. The 2 large pivotal trials and a 1 pivotal trial to look at the response of nonresponders to this DE-117 EP2 receptor agonist. Those trials are currently ongoing.

Next, I think in the same space is DE-126, which is in Phase IIb at this time. DE-128, which is our flagship device comp -- device for glaucoma patients is moving according to plan and we will stick to our commitment of launching in calendar of somewhere 2020, 2021. DE-109, sirolimus for noninfectious uveitis of the posterior segment is going to start the third trial this month. It is ready and posted on relevant websites. We are looking forward to completion of this third trial as soon as possible and this continues to show our commitment to the uveitis space as well as to sirolimus and the mTOR target.

DE-122, the endoglin receptor antagonist is in Phase II and we look for data sometimes in the January, June of -- time frame of 2019. Next. Diquas, which was approved earlier in China was recently launched, in -- as of September 2018. This also is going to, I hope, play a major role in support of the Santen business in China. The Cyclokat/Ikervis program, as you heard, is doing well and making good progress. An abbreviation of that product profile is now launched as Verkazia in Europe.

Epinastine, which is again a key product that the R&D team is trying to reformulate and retest and reapprove. We think it was filed in September of this year and we're looking for approval somewhere in the middle to end of 2019. DE-127 is our myopia program. Myopia is a big problem in many parts of the world, especially Asia. And so we are expecting results from this Phase II trial that we started in the second half of fiscal 2019.

So I look forward to addressing any questions you might have. Thank you very much.

[Unknown Executive]

[Foreign Language] That's all for the presentation. We now move to the Q&A. If you have a question, please raise your hand. We will pass you the microphone.

[Unknown Executive]

[Operator Instructions] Any questions, please.

[Akinori Ueda, analyst]

From Goldman Sachs Securities, my name is Ueda. I have 3 questions. First question is for Asia business and the reason why you have very good business in Asia. This year, there was review of reimbursement in China, that may be impacting and this is really from the core business growth? And against the midterm plan, it seems there is some upside growth as I see it so far. And what are the reasons for this upside?

[Shigeo Taniuchi, executive]

Thank you very much for the question. For the reason for the good business in Asia, China is the biggest factor, as mentioned, higher lane. This product is enjoying good growth as was mentioned. Review of reimbursement in China and the competitors' product went off the list and the -- that increased our share. So that's one of the reasons for the growth. It is exceeding our plan, but underlying growth has been already strong and we are accelerating the growth against the midterm plan and we expected good result. And so far, we even have very good growth. But I think going forward, it might sort of settle down, but still we would enjoy good growth going forward and Diquas is another driver. It's in the Dry Eye category and we want to capture this opportunity in the Dry Eye area.

Thank you very much. Regarding the review of reimbursement list, before it was 5 years and 7 years cycle. But this year, it's going to be reviewed in a few years and this competitive advantage will continue for the next few years is in your expectation, while the central government's review will come a bit later. So I think for the time being, this will continue, as for profits level, there would be some changes and updates and reviews. We will watch the situation carefully and for Diquas, we will continue our sales promotion and we hope to enjoy good steady growth for the time being.

[Akinori Ueda, analyst]

For the second question, 109, and the study design of DE-109. That's my question. For the primary endpoint, you have a standard procedure. That's my understanding. And by this design, before you had load those comparatives, do you think you're more likely to have a difference. In the follow-up period, it was 5 months and now it's shorter to 3 months. What's the impact of this follow-up period?

[Naveed Shams, executive]

So first of all, the trial design, although we did not apply for protocol assistance from the FDA, we did have very good conversations with the agency before finalizing the study design. Clearly, having a placebo arm is going to, we think, be helpful to clearly differentiate any effect that might have from the active compound. The duration of the study, I think we were also able to convince the agency that we need to bring this drug to the market as soon as possible as the unmet need for noninfectious uveitis still exists. And based on our data that we had already submitted, they agreed that just 2 injections, 1 at baseline and 1, 2 months later will be sufficient to determine the efficacy of the product. For safety, as you know, we have a lot of data anyways that has been accumulated during the program. The study actually will be 6 months in duration, but the primary endpoint is going to be at 3 months. So our goal, of course, is to get this product approved as quickly as possible and be successful. We don't want to fail again. So we think it will be helpful, the design.

[Akinori Ueda, analyst]

[Foreign Language] My last question is R&D expenses for the next year. What is your idea regarding this point? Phase III for DE-117 and DE-109, you have more trials in the U.S. and you have JPY 25 billion for R&D expenses. Do you think you can manage? Or do you think there will be an increase in R&D spending?

[Kazuo Koshiji, executive]

Koshiji speaking. As of now, our outlook for this year, it will be the same as this year. If there could be some factors that increase expenses, maybe plus JPY 1 billion, that would be the range of increased R&D expenses versus sales or absolute amount and very different from the plan, would not be anticipated for FY '19 and '20. [Foreign Language] That's it.

[Atsushi Seki, analyst]

Seki from UBS. My first question is about OTC inbound in Japan and in Osaka, there are many Chinese that's coming back, but also in Hokkaido, they are having difficulty to get more Chinese tourists. And what is the status quo right now? And in coming January next year, and there is some more research for the purchasing for somebody else and so please discuss the -- your expectation through that too?

[Kazuo Koshiji, executive]

And as to the inbound, the purchasing currently and centering on Osaka area, and we have a impact by the order of JPY 100 million and I don't know how long it will continue. It's so difficult to make the focus, but it seems like sales might be stay rather smaller than before. But overall -- and we are launching new products with a higher -- premium price to products for Japanese customers. And therefore, we do not think we would have large impact from launch. And another thing is that, the Chinese change or revision of the law starting from January, we know that. And what this gives an impact to the purchasing activities over the ophthalmic solutions. It's still unclear to say anything.

[Atsushi Seki, analyst]

My next question is about DE-109. And when I look at clinical.gov and trial.gov and the primary completion is the February of '21, and I was just wondering, you take so long to register 200 subjects. And with the agreement with the FDA, you have changed the severity level of the patient to be included. And this Phase IIIa is the special protocol assessment, SPA, or not?

[Naveed Shams, executive]

Well, thank you for your question. Last question first, this is not a SPA. However, as I mentioned, we've had deep discussions with the FDA on -- before we finalize the protocol. Your question about the trial design in the -- we are going to have a reading center involved in making sure that we get the right patients into the study. That is critical for our success, and however, unfortunately, it may slow down some of the recruitment because now we are going to get very good patients into the trial. So that is the driver for the time line. And the third question, I forgot, sorry, but you had one more.

[Atsushi Seki, analyst]

The finish of the severe?

[Naveed Shams, executive]

So that has not changed, I -- we can discuss it later but it's the same inclusion, exclusion criteria.

[Atsushi Seki, analyst]

So did you agree with the FDA?

[Naveed Shams, executive]

Yes. Yes, of course. It is the same inclusion, exclusion, except we added a reading center assessment to remove the bias from the physician in recruiting the patient.

[Atsushi Seki, analyst]

[Foreign Language] The third question -- for your answer -- the third question again goes to Dr. Shams, in the DE-117, a Spectrum 5 Study for nonresponders or the refractory patients and I recall that this study result won't be used for the submission of filing. And in Japan, the Spectrum 3 and 4 will be used and the 5 things should be included in the label but you have decided it shouldn't be included for the submission package. Why?

[Naveed Shams, executive]

So this is -- the first objective is to provide the drug as quickly as possible to the patient. The third trial is to convey a good data to the patient based on our Japanese experience that nonresponders to other products, especially the standard of care or the other FP receptors agonists is -- this product is going to have been very helpful to those patients. The Japanese study was smaller and we need a good, robust set of data to be able to have a discussion. So the idea is not to exclude it from the label. The idea is to register the product as soon as possible with the data we have. If this data is available, we will consider a complete data set in the package. If it's not available, it should not result in the slowing down of the approval process.

[Unknown Analyst]

Sato from Schroders. My question about pipeline. The way how to read the materials here, you say Asia, does that include China? Or China is excluded from Asia when I read this material? I wonder, I ask this because DE-117 and other products, how they are going to be developed in China and in other countries in Asia?

[Naveed Shams, executive]

My headset actually broke. So I may not have understood your question. But your point -- I think your question has to do with how do we deal with China from a development perspective?

[Unknown Analyst]

Yes. You compound something of that novel class, I'd like to know if Chinese development is already ongoing for DE-117 or its...?

[Naveed Shams, executive]

So Chinese development is not ongoing for DE-117 at this time. However, unlike in the past where the approval process for an IND used to be very long, that has changed. And therefore, our working hypothesis is also -- has to be amended. That means that every time we developed a plan for a product, we consider China as a major market for Santen. However, logistically speaking, again, it depends on the strategic need of the business and so we will make the drug available to address the business needs in China according to our plan. But China is not excluded anymore if -- simply because it was taking too long or anything like that. So we will have to do a planned program for China in China. That's for sure. But we will have a lot of data to support that sort of initiation in the Chinese market.

[Unknown Analyst]

I think I understand that now that Diquas is already launched in China according to this material. There is no ongoing project in China but you are thinking about it?

[Naveed Shams, executive]

Yes, so we have plans going on in China, for example, the Taptiqom studies are going on in China. But for this -- these new products that we are talking about, China is included in the planning of the process but we have not started anything yet. That does not -- please don't make that assumption that it's excluded. It's not excluded. It's just a matter of priorities in setting of goals.

[Shigeo Taniuchi, executive]

[Foreign Language] Let me add comments. In the previous regulatory environment tafluprost and Diquas doing clinical trials and get approval and launching. In the past few years, regulations changed. It used to be very time consuming but with new regulations, there was a change and we are watching and we have been waiting for positive result and we are seeing some pathways to move forward with Taptiqom or we have a new -- we would be changing to the new planning based on the new regulatory environment in China.

[Unknown Analyst]

In relation to that, I have my third question. Budget control. I understand you are very strict in budget control and to bring the products fast in the best fastest way in China may be difficult. And if you continue, do I expect the corporate culture as before? Or do you think it's possible to accept some exceptions because China is a growing market?

[Shigeo Taniuchi, executive]

Basically, as Shams mentioned, going forward, in the new Chinese regulatory environment, we want to accelerate a plan in China maybe standalone or as a part of global. That means, we try to have early development not necessary always wait until the development is completed in the developed countries. So we want to accelerate the process in China as well.

[Hidemaru Yamaguchi, analyst]

Yamaguchi from Citigroup. And you haven't announced the midterm -- the financial result but as laying in China and also others growing and also of -- that you are having some problem with OTC, may be. That I think you are in line with the -- as you scheduled, but if you have any -- the growth or the ups and downs, please tell me.

[Shigeo Taniuchi, executive]

Okay. Koshiji is going to explain.

[Kazuo Koshiji, executive]

And we haven't disclosed the midterm number. And compared to the budget, there are any ups or downs as you have just pointed out. In Asia, there is a much better results for both revenue and operating profit in the second quarter. And as to the major downside is, as has been pointed out and OTC business and due to the natural disaster and also the -- due to the slowing down of the inbound sales. And these are giving negative impact to the progress. And as to other factors, in domestic business, and also, European business, both of them are progressing as to the plan and then what happens in the whole year basis. And when we look into the balance between the first and second half and in the latter half, there is overweight for all the spending and the revenue therefore the profitability gets slightly smaller. However, as far as this fiscal year is concerned, compared to the regular year, we have suppressed the -- we are going to suppress more the spending. Therefore, in the second quarter in a core operating profit basis, we have reached 50% of the progress and towards the second half, we think we can make a good start and we believe that we can also go very smoothly in the latter half of the year too. Did that answer your question?

[Hidemaru Yamaguchi, analyst]

Yes. My second question is about EYBELIS and in Japan, you said this could be the first-choice treatment. And of course, the price assumption will be determined after the cross negotiation is over, but including in Japan and also elsewhere, if there is any. And if you have any image of the peak sales, please tell me. How much would be the peak sales in Japan or elsewhere?

[Shigeo Taniuchi, executive]

At this moment, in the United States and in the Asia, we are considering how to carry out business there depending upon the result of the clinical trial and therefore, we do not have any specific numbers to tell you at this moment. It's premature -- too premature to say that. But as on behalf of the Santen, we have many products, MSD products for glaucoma and those are the very important pillar for our business and also we have Taptiqom and tafluprost on top of that. Therefore, naturally, the glaucoma is a very important central pillar for us. Therefore, in Asia, and also, in the United States, we would like to make glaucoma also the pillar of the business in those areas too.

[Hidemaru Yamaguchi, analyst]

My third question is a confirmation of the -- your answer to other question and the primary completion timing of the DE-109 study? So you include all the -- what you have said. That in -- proper timing will be the 2021 and of course, some company may make the timing quite aggressively or conservatively. But according to you, you say that reasonably, it would be the 2021, that's my interpretation what you have answered. Am I correct?

[Naveed Shams, executive]

That's a -- that's reasonable to expect in 2021. Yes.

[Kazuo Koshiji, executive]

[Foreign Language] And let me also add 2 more points. And against budget, what is it like. And actually, I have explained the -- as for the operating profit, but as to the net profit, after tax, the tax amount was actually much lower than we have expected. And according to your handout, on Page 18, of your presentation material, a 26.3% in the last year and this year will be 27.4%. That is the ratio and of course, this would be 25.6%. The -- this excluding the one-time effect and in 26 point -- so it should be lower than 26.5% finally in actuality. And therefore, the bottom line of the profit is actually progressing more than we have expected. And in addition as to the R&D spending forecast, the question was asked and R&D spending is one of the prioritized spending for our company. Therefore, there's no change in that stance. And as you have pointed out, the Phase III products are increasing. And among them, we also may have to revise the spending. So the total amount might not be changed but we would like to prioritize spending so that we can get profit out of that. And that is one of the programs in the midterm plan.

[Fumiyoshi Sakai, analyst]

[Foreign Language] Sakai from Crédit Suisse. My first question, I'm not going to pick up on your wording but my question is that Taniuchi, you mentioned soft launch in EU a control launch was the used words, and it was provided free and it means soft launch means some revenues and when is the timing for the hard launching?

[Shigeo Taniuchi, executive]

Thank you very much for remembering my word from last time, controlled launch was not free of charge, given we actually sell in the clinical trial sites where the target for the continued supply and that's how we switched. And now the soft launch this time is expanded provision toward hard launch of base launching. We identify about more than 100 sites in the provision of the products have expanded in September, this year there was an academic meeting of ophthalmologic operations and we -- as we introduce this product for more broad-based ophthalmologist and we will promote our sales as a marketing and training of doctors and to be also expanded infrastructure for that hard launching timing would be -- of course, we need to look at the situation in market and we are looking at '20 or '21 launching in line with the U.S. launching.

[Fumiyoshi Sakai, analyst]

My question -- this question in the FDA, were this is a device so that means 3 to 5 years. The efficacy would be going down. I think you know that but the FDA currently is saying follow up period of 1 year is okay or this in 2-year follow up period?

[Naveed Shams, executive]

So just to make sure I understood your question, you're asking about the follow-up period whether 1 year for the MicroShunt is okay or whether 2 years is okay? Currently, the agreement with the FDA is 2 years. Yes. And based on that, we have provided you with time lines on when we can launch. So yes, that's the agreement right now.

[Fumiyoshi Sakai, analyst]

[Foreign Language] My last question. Page 9 and 10 and you show the graph there. The Asia -- so Asia is good. You are enjoying good growth and this slide shows it very well. Profit margin in EMEA is much lower than the growth in Asia OTC, and of course, domestic R&D needs to be covered. And so it may look very high or big. But you are thinking or reviewing more profitability to boost profitability in Europe in order to have investment in U.S., you need good source for investment. Are there any room for improvement of profitability in Europe? And this is -- if it's core base, then intangible amortization is not included, so whether this slide includes that or not?

[Shigeo Taniuchi, executive]

Regarding the last question, in Europe, it's not included. It's not broken down into European number for the amortization. For European business, well, first of all, recent JPY 7.5 billion profit before R&D and there are some one-time factors here and then, which are very low COGS and that was exceeding our expectation that pushed profitability. And for Asia, as Koshiji mentioned, in the second half the expenses would be more shifted in the second half. So in the first half, you have big numbers for various reasons. And compared to Europe, how is the situation. As you mentioned, for the European business profitability and the challenges, we think there are rooms for improvement. First, regarding manufacturing cost for the past few years, this tech transfer to Japanese site or sites in China, we have been doing that and so far, we are seeing some of the procedures completed and when their profit contribution happens it -- there would be some delay but during the midterm plan, we would start seeing some good contributions. So COGS improvement first, that's the first step and that's being done. And organizational optimization and cost efficiency has been done in the past, we had investment for start up of those initiatives. SGA ratios should be well controlled with good target. That's what we are doing locally and also from headquarters, we are watching that very carefully. And in Asia, of course, there is room for efficiency improvement. We want to further improve profitability in Asia. So for overseas business, we are aware of some of the points you mentioned.

[Takashi Akahane, analyst]

[Foreign Language] I'm Akahane from Tokai Tokyo. I have a question. And I have heard the overall financial results and also there is a growth in Asia, as you have pointed out, and profit before R&D is JPY 7.5 billion in Asia. And as you have explained, that if we look into the main products, that will include Hyalein, a growth -- a 60% of Cravit, 22% growth. So non-Asian decline are all offset-ed by the Asian growth and then after the appreciation it is still growing. What I want to say is that the Asian profit margin is 37.5%, an increase by 10 percentage point and it is selling very nicely. And here it's growing by 60% and if it will grew further, then this growth may be somewhat diluted. Am I correct to interpret in such a way?

[Shigeo Taniuchi, executive]

As to the capacity of the supply, the China is growing as we have expected and this is a challenge. And we are making the capital investment in China also as well as in Japan and we started production in China and high-speed line is now being introduced. And we are making investment but additionally not to increase the production cost. And production cost stays rather flat and we would like to switch into the high-speed line so that we can secure the capacity and that is how we cope with the demand in China.

[Takashi Akahane, analyst]

And Hyalein 60% growth is due to the drop down of -- drop out of the competition. And so the whole year growth will be the 45%.

[Shigeo Taniuchi, executive]

Yes, that would be the right number.

[Motoya Kohtani, analyst]

[Foreign Language] Kohtani from Nomura Securities. When you look at the first half, DE-117 launch in Asia growth those are some factors impacting MDPF, multi-dose preservative-free. And in Europe, you were saying some continues will be brought to the market and when would that be? And would that be something in the pipeline? Is it possible to see this development in one way or other?

[Shigeo Taniuchi, executive]

From our self multi-dose P -- MDPF container, regarding that, currently Cosopt and tafluprost are using those containers. We either got approval or we just started launching. And in Asia, we are preparing for that and we need to go through regulatory issues. We don't have the time line yet, but in the midterm, we want to introduce those products in Asia. It is true that it's not mentioned in the pipeline. So we want to improve on that.

[Motoya Kohtani, analyst]

Thank you very much for your opinion. Multi-dose products, while you have various containers and they are not really prevalent. It's not user-friendly. That's my perception. But your product have improved on that.

[Shigeo Taniuchi, executive]

While as of now, in Europe, we start having products using this type of container, but the -- it's only to a certain extent of all products. The reason is for unit dose is dominant. And in that case, regarding a switch acceptability in the market is not so strong. And the -- there are various few tests in the container and unit sterilization methods. So it's not for all the multi-dose products. So for the switch, we need various tests or sometimes because of adhesion, we can't achieve convergence. So there are some technical challenges. And the third point is that the container is more excessive because the structure is more complex. So we need to look at economic value of that versus, of course, the patient's value. So we are assessing that. We are not switching other product to this type of container. As for convenience, compared to regular multi-dose containers, it may be a bit hard or you may have a few drops instead of one drop. So we need to make improvement in consultation with the container manufacturers. We are making efforts to improve this furthermore.

[Motoya Kohtani, analyst]

My next question is to Dr. Shams. So I'm sure you've seen some of the data that I think Allergan has reported on the Bimatoprost SR, a sustained release product. I think it's a intracameral injection of Bimatoprost. And I think they showed in their Phase III data that they had a sustained reduction of IOP. And even they -- they even reported that I think a patient had IOP reduction for a year after 1 injection. So this will probably go through I think they said that they're going to apply for submission in 2019, second half. And so your DE-117 will probably compete, I guess, more or less, with this product. So I'm trying to understand how you're going to subdivide the market between DE-117 and this product. That's number one. Number two, I think you're also working on a intracameral injection. I don't think you've -- you yourselves have disclosed this but I think your partner has. I think Duract has mentioned that they are working with Santen. So I'm just curious whether -- what's the status of your implant project is. That's the third question.

[Naveed Shams, executive]

So I -- as far as your question about the competitor's product, they have announced some data. I think they need one more trial before they can file. And I will just summarize it as by saying that it's not very intimidating. It's -- I think more work is needed, and we are continuous -- we continue to learn from not just Allergan's development but other people's development as well. And it is in Santen's interest to compete in the space of drug delivery. We continue to work on different options. The goal is to really to make this as efficacious, as safe, as friendly to the patient. And so our approach is we will test many different ways of delivering the product and then choose the best way forward. And so yes, we would be interested, but up to this point, we haven't seen anything that is impressive or productive in the long run.

[Akira Kurokawa, executive]

[Foreign Language] Thank you very much. We have exceeded the scheduled time. So with this, we would like to conclude today's -- the session to report the financial results of the second quarter of FY 2018. Thank you very much for your attendance.