Sosei Group Corp

TSE:4565

Earnings Call Transcript 2022-Q2

[Hironoshin Nomura, executive]

[Interpreted] We will now begin the webinar on the Sosei Group financial results for the second quarter of fiscal year 2022. Thank you very much for taking time to be a busy schedule to join us today. I am Nomura, CFO, and I will be the moderator for this session. Chris Cargill, CEO; and Matt Barnes, President of Heptares and the U.K. Head of Research and Development are attending today. Simultaneous translation will be provided. Please select either Japanese or English by clicking on the global icon in the lower right corner of the screen. If you choose off, you will hear the speaker's original voice.

Today, we will present the progress of our business with the materials in the first half, followed by a question-and-answer session in the second half. The presentation materials will be shared on the screen. They are also available on our website. If you'd like to obtain a copy of the materials, please click on to shareholder Investor Relations tab in the upper-right corner of our company homepage and select presentation materials and you'll be able to access the materials.

For questions, institutional investors, analysts and media will be requested to raise your hands in the QA session. All other participants are requested to submit their questions by clicking on the Q&A button. You may submit your question at any time during the webinar. We will answer as the time permits during the QA session in the second half of the session. If you are going to ask any questions, please try to install the app and then join the webinar because sometimes the browser-based have some technical problems.

Now we will now move on to the presentation. First, I will give you an update on the financial results for the first half of the year followed by an overall business updates from CEO Chris and R&D progress from President and R&D, Matt. And finally, Chris will explain our goals and the growth strategy for the current fiscal year and for the future. Now please go to Page 5.

This is the financial summary for the first half of the year through the end of June. Revenue was JPY 2.4 billion compared to JPY 3.1 billion in the same period last year. And operating loss was JPY 3.8 billion compared to a loss of JPY 1.8 billion in the same period last year. This is mainly due to the fact that as far as the period until the end of June is concerned, there were not many milestone payments from partners, resulting in lower revenue. And also we are accelerating R&D for stronger future growth as we had planned from the beginning of the period.

On the other hand, we have retained approximately JPY 54 billion in cash and cash equivalents, which continues to provide us with ample room for disruptive future growth through mergers and acquisitions and in licensing. In addition, the progress of our business since July 1 is not reflected in the second quarter results that we are announcing here. But as we have already released, since the beginning of August, we have received an upfront payment of approximately JPY 5 billion from a new truck discovery collaboration with AbbVie. We also received a milestone payment of approximately JPY 4 billion for the M4 agonist arrears to Neurocrine for schizophrenia, which advanced to Phase II trials.

Although our business model may not show much progress visible over a shorter period of time from outside, for example, until the end of June, I would like you to understand that our business is making solid progress along with steady progress in research and development. Furthermore, although AbbVie's revenue has been received in lumpsum in cash, it is to be recorded in the P&L in the third and the fourth quarter of this year and thereafter in accordance with IFRS accounting standards. The arrears Neurocrine is to be recorded in P&L in lumpsum in the third quarter.

Moving on to Slide 6. This slide is almost same as the summary slide showing the changes in revenue, operating profit and the core operating profit in the past 4 years. As explained, there were not as many milestone payments as in the previous year and overall revenue decreased. On the other hand, royalty income increased on a Japanese yen basis due to the depreciation of the yen against the U.S. dollar.

Since most of the revenue from our partners received in U.S. dollars, the depreciation of the yen against the U.S. dollar has a positive effect on revenue in Japanese yen terms. Operating profit and core operating profit also decreased. This is a result of the decrease in revenue as well as investments in our pipeline, aggressive investments in new strategic partnerships at the basic research stage in addition to the impact of the yen's depreciation against the pound and the inflation in the U.K. I will discuss this in more detail in the next slide.

Next, Slide 7. This slide shows the projected landing of R&D expenses and other G&A expenses for this fiscal year. There is no change in G&A expenses, but we have raised our R&D expenses by about JPY 1 billion from the previous range of JPY 5.75 billion to JPY 6.75 billion to JPY 6.75 billion to JPY 7.75 billion. As I mentioned earlier, and as you are aware, the impact of the global depreciation of the yen over the past 6-plus months, specifically the yen's depreciation against the pound sterling by about 6% since the beginning of the year has been a major factor.

As for the relations of the dollar, the pound sterling and the yen, our companies affected broadly speaking. As such, that the weaker yen increases both revenue and cost. In addition, inflation in the U.K. has advanced to about 9% since the beginning of the year. A portion of the stock compensation previously classified as G&A expenses has been transferred to R&D expenses and current R&D is progressing well, all of which have contributed to the upward revision of our forecasted R&D expenses.

The unit depreciation and inflation also pushed up G&A expenses, but this was offset by the reclassification of RSU stock compensation, leaving overall G&A expenses unchanged.

So these are the financial summaries of our results. Now CEO, Chris, will then update you on the business. Chris, over to you.

[Chris Cargill, executive]

Thank you very much, Nomura-san. I will now provide an update on operational progress Before I hand over to Dr. Matt Barnes, who will talk in more detail regarding progress across our R&D activities.

Please now turn to Slide 9. So this slide very neatly shows the breadth and depth of our pipeline. This pipeline has the diversification of a big pharma company, however, it retains the upside growth potential of a biotech business. Our strategic use of partnerships and collaborations allows us to do more with our science with the goal of ensuring every possible innovation we can discover has the potential to benefit patients worldwide.

Several programs across the pipeline are now poised to advance into various clinical stages. So it is a very exciting time for Sosei and its innovations.

In the first half of financial year 2022 and as Nomura-san said, after the balance date of 30 June, 2022, we showed strong execution across all phases and collaboration types. All the programs with green and blue colored ticks have achieved recent milestones.

Please turn to Slide 10. As shown on the previous slide, I wanted to highlight the specific areas of strong execution across, one, our discovery research innovation areas; and two, our translational medicine and clinical development area. On the left-hand side, we continue to invest in new climates and collaborate with technology leaders in the United States to ensure that our research platform enhances its world-leading position in the GPCR field.

With new partner Verily, we have already identified multiple new GPCR targets of interest. With new partner Kallyope, we are putting our respective platform capabilities together to identify new GI targets of interest. With existing partner Genentech, we can confirm we have now achieved 5 milestones across multiple programs. And recently, after the balance date, we executed a new blockbuster multi-target discovery collaboration with existing partner AbbVie. This latest transaction is a testament to the world-leading science that we exemplify at Sosei Heptares and the priority that we place on patients living with high unmet medical need in neurology.

On the right-hand side, our partners made important progress in clinical development with major programs that we discovered. We also executed a new collaboration to maximize the potential of a new cancer therapeutic. Long-term partner Pfizer announced strong data for its Phase I GLP-1 agonist program for type 2 diabetes and obesity patients. There is now a good possibility that a Phase II trial will begin in the second half of financial year 2022.

New partner Neurocrine announced that the U.S. FDA accepted the IND for its M4 agonist program, targeting schizophrenia. There is now a good possibility that a Phase II trial will begin in the second half of financial year 2022. This program, part of the emerging Muscarinic class, has the potential to become one of the first new mechanisms in over 70 years to treat schizophrenia patients. Recently, after the balance date, we executed a new clinical development partnership with Cancer Research UK. This partnership allows us to advance a very large and complex cancer program with an experienced partner. This creative transaction structure is cost effective for us, and we retain ownership of the clinical data and the collaboration intellectual property generated.

Please turn to Slide 11. As I mentioned previously, our new multi-target neurology collaboration with AbbVie is another marquee transaction for us. The financials we receive are very strong. $40 million upfront, potentially a further $40 million over the next 3 years and then up to $1 billion plus over the longer term. We will work on 3 novel GPCRs associated with the major neurological disease, and work will begin immediately.

On the right-hand side of this slide, this chart details the amazing success we have had since we had acquired Heptares in 2015. Our investments to grow, scale and commercialize the platform have ensured that we are now one of the world's leading licensors of drug discovery innovation in a major target class of GPCRs.

Please turn to Slide 12. As I mentioned previously, this partnership with CR UK allows us to advance a very large and complex cancer program with an experienced partner. As Sosei is not a specialist cancer company, ordinarily, this would be an extremely complex area for us in development. CR UK is a specialist clinical development partner for cancer, having delivered 6 registered cancer medicines around the world with corporate partners. CR UK provides the best access to doctors and medical infrastructure and expertise in major multicenter clinical trials through a cost-effective structure.

By choosing this creative transaction structure with CR UK, we can now advance an important potential cancer therapy that we, otherwise, might never have developed for patients. And furthermore, we retain ownership of the clinical data and the collaboration of intellectual property that is generated, which is important for us so that we can find a major partner for future late-stage clinical development and commercialization of this product. Creative advancement of scientific innovations to benefit patients is something that we're all very proud of at Sosei Heptares.

Please turn to Slide 13. So we continue to focus on moving wholly owned innovative programs into early clinical development to drive the next level of corporate value creation. In addition to the EP4 antagonist that we are advancing in partnership with CR UK, we continue to work hard alongside our strategic partner, Weatherden, to prepare the other 3 priority programs across neurology, immunology and inflammation for their potential to move into clinical development.

Concurrently, we are evaluating the emerging treatment landscape for each program and indication to ensure each program remains optimized for success within our new venture capital style framework for investing and advancing our R&D programs.

As you can see on this slide, the target product profile for each program is centered around convenience for patients with the focus being on delivering programs that meet a once-daily dosing profile.

I will now hand over to Dr. Matt Barnes, President of Heptares Therapeutics, the Head of U.K. R&D, to provide a more detailed progress update regarding our R&D activities. Thank you.

[Matt Barnes, executive]

Thank you, Chris. So I would like to continue with highlighting our significant progress in research and development in the first half of 2022 with a focus on some of our collaborations, but I will also touch on some recent and significant progress that has occurred in the last 2 weeks.

Next slide, please. So the first of these post first half year updates related to our novel muscular receptor agonist collaboration with Neurocrine Biosciences. As highlighted in the quarterly results presentation last week, Neurocrine has confirmed that it will initiate a placebo-controlled Phase II study to investigate NBI 568, formerly HTL-878, the selective M4 agonist, as a potential new treatment for schizophrenia later this year. This clinical development milestone figures a payment of $30 million to Sosei Heptares from Neurocrine. And NBI 568 represents the most advanced candidate under this multi-program collaboration but also of note is the intention to initiate Phase I studies on both a dual M1/M4 agonist and M1 selective agonist in 2023. And also just to note that Sosei Heptares is working extremely closely and effectively with Neurocrine on this particular collaboration.

Next slide, please. So a further post first half year update relates to our small molecule GLP-1 agonist, PF-532 and this collaboration with Pfizer. At the end of July, Pfizer included an update on this molecule as part of their quarterly results presentation. A snapshot of the Phase I data shows that PF-532 has a potential best-in-class oral GLP-1 profile with a rapid and robust reduction in glucose and body weight and importantly, from a single daily dose. Further data will be presented by Pfizer in September at the European Association for the Study of Diabetes meeting in Stockholm. PF-532 offers a potential best-in-class small module against an already validated drug target GLP-1, which has huge potential in indications such as type 2 diabetes and obesity.

Next slide, please. So I would also like to highlight progress in our other multi-target collaborations. I have already made reference to our collaboration with Pfizer which is listed at the top of the screen. And this includes the aforementioned GLP-1 agonist, PF-532, but this has been an incredibly productive collaboration and actually has produced 3 clinical stage assets since its inception 7 years ago. In addition, I would like to make reference to 3 other drug discovery-based collaborations with large pharma companies, so Genentech, Takeda and AbbVie.

These collaborations have been progressing extremely well over the last 2 to 3 years with early discovery milestones achieved with each partner. More specifically, in our Genentech collaboration, we've achieved 5 milestones since 2019 with targets for both small and large molecule drugs.

I would also like to draw your attention to a further post first half year update that Chris made reference to earlier, the announcement last week, which relates to a second collaboration with AbbVie. This multi-target collaboration aims to discover novel medicines targeting neurological diseases and follows the 2020 agreement focused on inflammatory and autoimmune diseases.

Next slide, please. So now turning towards our achievements in the first half of 2022 with respect to strategic growth. We continue to make excellent progress by investing or collaborating in novel technologies in the areas of new target identification and validation. In addition to our collaboration with Inveni-AI, which was initiated last year, in 2022, we have announced collaborations with both Verily and Kallyope.

Identifying and validating new GPCR drug targets, combined with our core technologies and new molecule identification through internal methods or via collaborations, provides huge potential for maintaining a full, healthy and sustainable early pipeline of projects.

Next slide, please. So let's look at some of the strategic collaboration partners in more detail. So as I mentioned, we have established 2 key partnerships in the last 6 months. So firstly, in January 2022, we signed a deal with Verily to identify new GPCR drug targets and then subsequently generate novel drug candidates in immune-mediated diseases. The research collaboration combines Verily's immune profiling capabilities and Sosei Heptares' platform and structure-based drug discovery capabilities to identify GPCRs expressed in immune cells and enhance our understanding of their functional relevance and potentially prosecute them as potential drug targets in immune-mediated diseases.

Secondly, in May 2022, we entered into a collaboration with Kallyope to identify and validate novel gastro intestine or GPCRs for drug discovery. The agreement will leverage Sosei Heptares' GPCR diversified compound library and GPCR expertise with Kallyope's brain access platform which includes an organoid phenotypic screening approach. Novel GPCR drug targets emerging from this collaboration will provide new opportunities for potential therapeutic intervention in gastrointestinal diseases.

So that concludes my section, highlighting our significant progress in research and development over the last 6 to 7 months. I will now pass back to Chris, who will highlight our objectives for 2022. Over to you, Chris.

[Chris Cargill, executive]

Fantastic. Thank you very much, Matt. Please turn to Slide 21. So as I mentioned earlier, we have made excellent progress for the year-to-date around our 2022 objectives. On this slide, I'd like to highlight what we have achieved so far.

So for our organic growth objective #1, we committed to executing at least one new high-value collaboration, and we have achieved this by executing a new multi-target neurology partnership with AbbVie. We -- our organic growth objective #3, we're committed to further enhancing R&D, and we have achieved this via our strategic collaboration with Weatherden to support R&D transformation planning and growth as well as to support our plans to build a powerful translational medicine capability.

And with regard to the strategic growth objective #4, we committed to collaborate and invest in new technologies with platform synergies. And we have achieved this with our new partners, Verily and Kallyope as we together hunt for the next generation of innovative drug targets. We continue to work hard to achieve all the other priority objectives as soon as possible.

Please turn to Slide 22. So lastly, I would like to show a conceptual example of the evolutionary direction for Sosei's drug discovery business. Over the past 7 to 8 years, since Heptares was acquired in 2015, we have invested to scale and commercialize the platform and to add new capabilities in drug discovery and preclinical development.

As we look ahead to the year 2030, we are focused on further expanding these existing capabilities but also adding new ones. So the greatest area for potential organic growth will come from building a strong and powerful translational medicine capability. And this is a process that we have already started. You can see this image demonstrated on the left-hand side of the chart.

Growth in translational medicine capabilities such as biomarker strategy and experimental medicine will allow us to deliver highly differentiated, clinical-stage programs with data packages derived from patients. As we move these translational medicine-led programs into early Phase Ib or IIa clinical trials, we also expect the direct outcome to translate into much larger partnership economics going forward and therefore, also corporate value expansion. And you can see the image demonstrated on the right-hand side of the chart.

A real world example of this strategy being executed was our transaction last year with Neurocrine to license our muscarinic programs, and we would very much like to do more collaborations of this size and scale in the future. A longer term will involve identifying novel drug targets, validated by proprietary technology and data-driven platform collaborations for us to then creatively and cost effectively advance into early clinical trials in patients. We expect this strategy to strengthen our position as one of the world's largest providers of innovation across GPCRs and other target classes.

That concludes my section, and we will now move to Q&A. Thank you.

[Operator]

[Interpreted] [Operator Instructions]

Now first, Mr. Tsuzuki, Mizuho Securities.

[都築 伸弥, analyst]

First question about the muscarinic program. P2 study start milestone. Upfront milestone is 30 million you obtained, I understand. And for this fiscal year, if you achieve a first in human, for instance, can you expect another opportunity of receiving a milestone?

[Hironoshin Nomura, executive]

[Interpreted] Thank you for your question. This is about R&D but also overall business, therefore, I'd like to ask Chris, CEO, to answer the question, please.

[Chris Cargill, executive]

Sure. Thank you, Nomura-San. Thank you for your question. The question related to if we have a first-in-human start, and that would relate to the other programs as part of that collaboration. So either the dual muscarinic M1/M4 agonist or the M1 agonist.

As was highlighted in Neurocrine's presentation, there is no plans to start first-in-human studies this financial year. And so, therefore, we cannot expect a milestone for that progression in this financial year. However, they did say in their presentation that they are working towards potentially beginning first-in-human studies next year. And therefore, if one of those trials does begin, yes, we can expect a milestone for that progress if it happens. That concludes my answer. Thank you.

[Unknown Executive]

[Interpreted] Let me add some comments. As Chris mentioned, and it's shown on this slide, Neurocrine for Phase I study is planning for the next year for dual M1/M4 and selected M1 that is according to this slide. And if that goes as planned, then we will receive milestones. And probably develop milestone JPY 1.5 billion. That is a huge amount. So you are interested in knowing so much money at what timing we would be receiving. I think that was the question. That is a quite a reasonable question. We can't mention the timing. However, the amount would be bigger per project or we have more in this -- not in this year, but in future, we may receive those milestone and the total would be JPY 1.5 billion. This, I hope, answered to your question.

[都築 伸弥, analyst]

[Interpreted] Yes. Another question, GLP-1 agonist. Of course, the academic presentation would be important. On the other hand, Pfizer, they have their GLP agonist that they developed on their own. And your GLP-1 agonist head-to-head of those 2 compounds in Phase II. And I suppose that the result would be very important. Is my understanding correct regarding the LP-1?

[Hironoshin Nomura, executive]

[Interpreted] So Matt, the Head of R&D, would answer to this question.

[Matt Barnes, executive]

Yes. Thank you very much for the question. So you're right. So Pfizer has 2 GLP-1 agonist small molecule programs. So this is really the first data that we've seen on the Sosei Heptares molecule, the 532. It is -- I think Pfizer will be very interested in comparing these 2 molecules. There are already some data that allows some comparison, which is very useful. It does appear that there may be some advantages with the 532 molecule, such as the once-a-day daily dosing which might fit with this best-in-class profile that they mentioned on top of this slide here. But I would imagine that they would be thinking about doing a head-to-head study in Phase II. I think they, in their commentary during their results presentation, they mentioned doing this and potentially selecting the winner to go forward into Phase III studies. That concludes my answer. Thank you.

[都築 伸弥, analyst]

[Interpreted] My final question is that in FY 2022, I think you had a plan of in-licensing any molecules in the late-stage development. And also, the -- at least, one, the preclinical discoveries and R&D productivity increase. So I'd like to know more in detail about the progress of those 3 points.

[Hironoshin Nomura, executive]

[Interpreted] Chris, please answer.

[Chris Cargill, executive]

Thank you very much for your question. I'll start with preclinical candidate. Yes, we are very much on track, and I would expect that by the end of the year, we certainly will have nominated a new preclinical candidate from our pipeline, and we're very excited about that. We will disclose information around that after the event has occurred, of course, towards the end of the year.

In terms of the in-licensing question, this is a very good question, we continue to aggressively pursue opportunities. And I can confirm that we have conducted due diligence on a number of potential projects. We have not found the perfect project yet for us. However, the team continues to search far and wide for the right product profile to bring into the company. This remains a core area of focus for us. But we do not have anything to announce in the first half related to this. Thank you. That concludes my response.

[Unknown Executive]

[Interpreted] Mr. Tsuzuki also mentioned the move to the prime market TSE. As planned, we are making preparations for that. But as we have explained to you, Tokyo Stock Exchange will have the final say. So we can't really say as of now how it's going to be like this is the plan and so forth. We apologize for that, but we are aiming to be listed in prime markets.

And as for the timing, first quarter 2023, so January to March period could be a possibility, but it's a possibility, and it does not guarantee that it is to be achieved. It is up to TSE. We want to have good communication with TSE to achieve this.

[都築 伸弥, analyst]

[Interpreted] Just one question regarding the previous question. Preclinical products to be licensed in by the end of this year, not late candidates. You mentioned by the end of this year, you would license in. Is that preclinical product or what?

[Chris Cargill, executive]

Let me answer that, Nomura-San. No, no. I think perhaps there was some misunderstanding. The preclinical candidate is our own discovery innovation. That is against the target that we have been working on for a number of years that will be produced from our platform capabilities. So this is a program that is entirely discovered by Sosei Heptares. And we will nominate a preclinical candidate from multiple potential molecules towards the end of this year. We are confident that we can achieve a new preclinical candidate program from our platform.

Moving to strategic growth with regard to in-licensing. This is very much focused around bringing in a late stage product or potentially even an approved product in other jurisdictions such as the U.S. or Europe, in-licensing that product for the Japanese market. So we are not talking about a preclinical stage program. We are talking about clinical stage programs and potentially even programs that are already approved by the FDA or the EMA. This is part of our longer-term plan to begin building a significant business in our home market of Japan. That concludes my response. Thank you.

[Operator]

[Interpreted] Next is Mr. Matsubara, Nomura Securities.

[Matsubara, analyst]

[Interpreted] This is Matsubara, Nomura Securities. I have 2 questions. First question is about the GLP-1. I think it might be difficult for you because it's not a long-term followed up. But what is the competitive advantage when you compare this to Novo's compound?

[Hironoshin Nomura, executive]

I would like to ask Matt, R&D Head, to answer the question, please.

[Matt Barnes, executive]

Yes. Thank you very much for the question. I think the honest answer is that we will find out more detail about 532 at Pfizer's presentation at the European Association of the Study of Diabetes in September. We know that the Novo compound, the oral GLP-1 peptide, it has very low bioavailability, which is typical for most sort of peptide drugs. So I would imagine if it's consistent with the more of a small molecule profile that we should see some improvements in the pharmacokinetics and the exposure of the drug that you get in the blood. But we will wait and see what Pfizer tells us at this meeting in September. Thank you. That completes my answer.

[Matsubara, analyst]

[Interpreted] Another question regarding 4 projects and with the CR UK, you don't have any specific milestones. And next year, you will have a clinical project and you will have more increased R&D cost. Can you comment on that?

[Hironoshin Nomura, executive]

[Interpreted] This is for CR UK, Matt will answer to this question.

[Matt Barnes, executive]

I'm sorry, can you repeat the question?

[Matsubara, analyst]

[Interpreted] For in-house development and clinical studies, you have no milestones from CR UK. And the next year, you will have more R&D projects, and you would probably have more increased R&D costs, is that right?

[Chris Cargill, executive]

Maybe perhaps, Matt, let me take that and then you can add.

[Matt Barnes, executive]

That sounds good, yes.

[Chris Cargill, executive]

Thank you for your question. Of course, with our strategy of advancing more of our own assets into early clinical development, we expect R&D costs to increase, and we have explained this to the market already. However, our approach at Sosei Heptares is to be creative regarding how we advance our programs. And earlier, I mentioned that this very novel potential cancer therapeutic is a program that would be very complex. It would be across multiple tumor types, a basket type trial in multiple clinical centers. Ordinarily that is not a trial that Sosei Heptares could afford. However, because of our use of creative transaction structures, we can now progress this program in a very cost-effective fashion.

And the difference -- just to give an example, if we were to do that program over, say, 5 years, on our own without a partner, the cost might be in excess of $30 million or $40 million. Instead, because of our partnership with CR UK, we expect that the cost of this clinical trial, probably over a 4- or 5-year period will be closer to somewhere between $10 million and $15 million. So that is an amazingly creative way to advance a novel program to benefit cancer patients with a partner. And that is an example of the approach that we use across our pipeline. And I cannot rule out in the future that we may choose to progress some of our other wholly owned programs in similar ways. That concludes my response.

[Matt Barnes, executive]

Thank you, Chris. And maybe I can just add some extra color to this. So I think this is really about sharing the risk as well as the cost, as Chris has mentioned, the CR UK collaboration. So this is part of what they call their clinical development partnerships scheme. And so CR UK is a nonprofit organization. They're not driven by revenues in a commercial way, like a lot of companies would be. Their reasoning for doing this collaboration is because they place more emphasis on patient need than commercial value.

And so they've done this, as Chris mentioned earlier, I think with at least 6 other products that have actually gone to market. So it's not a new scheme. They've done this with other biotechs and pharma companies. And it really does -- from our point of view, it really helps, I think, share the cost and the risk. But it also adds, I think, a quality stamp to the clinical development program. CR UK is a very well networked organization with access to many clinical centers to conduct those studies. So I think it's a real win-win partnership in many ways. Thank you. That concludes my answer.

[Unknown Executive]

[Interpreted] Thank you very much. And I would like to also briefly explain with CR UK. Out of those 4 programs, we have been working with them only for EP4 antagonist. And it is a strategic partnership, and we keep our ownership. Therefore, we don't receive any milestone payment from CR UK. However, in this partnership with CR UK would like to progress the development, the clinical development. And then after that, we may consider out-licensing. But during the course, the cost can be shared or borne by the CR UK. And in that sense, it is quite cost effective for us.

[Matsubara, analyst]

[Interpreted] And lastly, about the R&D expenses increase. Talking about this fiscal year, FX affected a lot. But what will be the level in the next fiscal year and beyond?

[Unknown Executive]

[Interpreted] Well, it will depend on the progress of the programs. However, with the CR UK and with other organizations, as we move more in a way of proactive efforts then, well, I am not sure whether or not the total cost will be lower. However, we'd like to continue to manage the cost within the appropriate range. That's all for me.

[Hironoshin Nomura, executive]

[Interpreted] Matsubara-San, did answer to your questions?

[Matsubara, analyst]

[Interpreted] yes, I could understand very well.

[Hironoshin Nomura, executive]

[Interpreted] then I see some others raising their hands. And also, I see lots of questions placed in the Q&A box. And I forget to tell this to you that even if you make entries, the -- it's only us, me looking at your questions but not the other participants. So I'd like to pick up some in the Q&A box. First, including today, the stock market is quite volatile. It's fluctuating a lot. So concerning stock price, what is your view? And also your shareholder structure, this might be more important. What is your outlook, your view on your company's shareholder structure, please? Please, Chris.

[Chris Cargill, executive]

Sure. Thank you for the question. I think it is fair to say that not just for Sosei Group, but also other biotech companies listed on the mother's exchange, that we collectively do not have the level of institutional ownership that we would like. We are well aware of this associate Group Corporation, and that is why one of the key plans for us going forward is our engagement with the Tokyo Stock Exchange to hopefully see if there is a path for us to move our listing to TSE Prime, where there is a much larger institutional ownership of stocks and companies.

We would very much like to move to prime. However, as Nomura-san said earlier, really, the decision about that is up to the Tokyo Stock Exchange. I am extremely proud of all of our employees particularly in our Japan office who have been working tirelessly for months to try and make this vision happen for us. However, if it doesn't happen and we are to remain on mothers, the best way for us to increase the institutional ownership in our company is by progressing our pipeline, advancing the science and spending time on the road, explaining to institutional investors about the value that we can bring them in the future, the world-class science and the life-changing medicines that we are discovering and developing.

If we continue to execute on our business plan, I have absolutely no doubt that institutional interest will follow. We are, in the scheme -- the grand scheme of biotech companies still a very young company. Most of our pipeline, as it sits today, is preclinical moving into the clinic. So we are a young company. We've got so much growth potential to go. And we think if we can continue down the path, the institutional ownership and interest will follow. That concludes my response. Thank you.

[Hironoshin Nomura, executive]

[Interpreted] Chris, I think that answered the question. Next, let's have questions from those who raised hands. SBI Securities, [ Mr. Kawamura ].

[Unknown Analyst]

[Interpreted] My name is Kawamura. Regarding AbbVie's new collaboration, I have a question. According to press release, at [ median ] for upfront and the recognition will be prorated to certain period to a certain extent. What is the proportion for this year? And for older, how long or how many years do you receive? Then for the upfront, how much do you expect this year and for near-term milestone, how much proportion do you expect to receive? Just a rough idea, please?

[Hironoshin Nomura, executive]

[Interpreted] Let me answer to this question because this is a financial matter. How much we received this year, sorry, but we cannot comment on that. But if I may suggest regarding upfront, why it is divided into quarters where we will provide various works for AbbVie and milestone in the initial phase would be JPY 40 million and the works value would be -- partly, it is included in upfront payments according to the accounting growth. So upfront payment, some of that would be in lumpsum and recognized.

But then the rest, when we provide services for AbbVie, we received the payment according to our work, according to the IFRS accounting rule. So going forward of upfront payment, the service we provide for AbbVie will be received by us in 2 to 3 years. And then upfront to us and -- so in upfront payment, there is really upfront payments. And then there are prorated payments in a divided manner. You can consider the past examples. It's not so much different.

And for near-term milestone payments over the next 3 years, probability is high. And of course, this is still the full clinical stage. We received JPY 40 million according to the agreement. So it's not that we can't guarantee possibly 100% of that amount. But failure at this stage is not very likely. And according to our past record, probability of success is high. So over the next 3 years, we would receive JPY 40 million for the near term milestone. That is the breakdown of the payment that we would receive.

[Unknown Analyst]

[Interpreted] And the second question, regarding adenosine A2A antagonists and that is for AstraZeneca. It seems they are suffering in oncology and in neurological areas, some Japanese company decided to withdraw. So I want to know how you are planning regarding this collaboration with an AbbVie adenosine A2A.

[Hironoshin Nomura, executive]

[Interpreted] Matt from R&D, can you comment? And then other comments, Chris can add. So first, Matt, please.

[Matt Barnes, executive]

Yes. Thank you very much for the question. So yes, so I think we acknowledged that the A2A asset, the clinical set in [indiscernible] was removed from AstraZeneca's pipeline, I think, back in November last year. And at the time, we mentioned that we very much respected their decision. And we really felt that it was related to a pipeline portfolio review they have, AstraZeneca have. It's a big interest for them. Oncology, of course, they have many competing assets.

And we also said that we would remain open to discussions with them about regaining the rights in order to reevaluate on our own in clinical development or potentially to be licensed as an opportunity. That was more than 6 months ago now. And you're right, things -- there have been some other changes and other related adenosine assets have been reading out. There was a recent study in Parkinson's, I believe, and also some further oncology-related readouts. I think all we can say right now is that we have been reviewing the potential opportunities for this asset if we were to push ahead with the reversion, and we continue to do that evaluation. Chris, I don't know if you want to add anything.

[Chris Cargill, executive]

Yes, sure. Not much, but just to confirm what you already just said, Matt, and that is together with our own people in our translational medicine team and together with the staff at Weatherden, we have conducted a strategic review of the A2A program. And as Matt said, we know exactly what we will do with it. We have a plan. What we now need to focus on is securing a reversion agreement with AstraZeneca once that has been concluded and the asset program is back in Sosei's hands. We can then move forward with our plans, and we look forward to updating you in the future when we're able to. Thank you.

[Hironoshin Nomura, executive]

[Interpreted] Kawamura-San, did you get the answer?

[Unknown Analyst]

[Interpreted] Yes.

[Hironoshin Nomura, executive]

[Interpreted] Now thank you very much for all of you asking us many questions. As far as I see it, there are still 60-some questions. However, it is 2 minutes to the expected closing time. So we feel so sorry that we couldn't answer to all the questions. As we have done so far in our official blog and so on, would like to provide answers to your questions later on. So if you have any questions, please add your questions in the Q&A box. And also in the questionnaire form that you will see after this, you can also make entries of your questions.

And also in our company's homepage, the video of this earnings call will be also uploaded. And in the slide towards the end, there is some animation that is to explain about the strategy, but I didn't notice that, I'm sorry that my talk and measure didn't match well. But in the PDF, which will be available in our home page, it doesn't carry animation. So I think you should be able to receive the materials without any problems. So that's all for this webinar. Thank you very much for your participation.

So with this, we conclude our earnings call for the first half of FY 2022. Thank you very much.

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