Sosei Group Corp

TSE:4565

Earnings Call Analysis

Significant Revenue Growth and Strategic Partnerships Drive Positive Outlook

In the first half of FY 2024, the company saw a significant revenue increase to JPY 12.7 billion, up from JPY 2.1 billion last year, largely due to new partnerships such as Boehringer Ingelheim and milestone revenues from Neurocrine, Centessa, and AbbVie. Although operating profit remained a loss at JPY 3.6 billion, it improved from a JPY 4.1 billion loss last year. The firm anticipates reaching JPY 16 billion in PIVLAZ sales and expects Japanese NDA approval for daridorexant by year-end. The cash position remains strong at JPY 50.9 billion, supporting ongoing investments in R&D and SG&A.

Financial Performance Overview

In the first half of FY 2024, the company reported impressive financial growth, with revenues soaring to JPY 12.7 billion, a significant increase from JPY 2.1 billion in the same period of the previous year. This notable improvement is primarily attributed to successful new partnerships and increased sales of their product PIVLAZ, which was launched in the first half of this fiscal year. Core operating profit also turned positive at JPY 1.1 billion, contrasting with a loss of JPY 2.7 billion in the prior year. However, when including non-core operations, the overall operating loss was JPY 3.6 billion, a slight improvement from the loss of JPY 4.1 billion reported last year. The cash position remains strong, with JPY 50.9 billion, offering adequate support for ongoing investments.

Revenue Drivers and Future Potential

The primary driver of the revenue increase this year has been the robust performance of PIVLAZ, contributing JPY 6.5 billion in sales during the first half and targeting NHI sales exceeding JPY 16 billion for the full year. The sales growth is expected to continue following a successful event attended by over 1,400 key opinion leaders, highlighting strong market focus and engagement. Additionally, the company remains committed to expanding its portfolio with an emphasis on obtaining NDA approval for daridorexant in Japan, anticipated later this year.

Investment in R&D and Strategic Goals

The company has kept its R&D and SG&A expense guidance stable, indicating a strategic focus on fostering innovation. The ongoing licensing agreement with Boehringer Ingelheim, which included an upfront payment of EUR 25 million and potential total milestones of EUR 670 million plus royalties, illustrates a significant investment to enhance drug pipeline value. The leadership targets to in-license at least one advanced stage therapy by 2025, further diversifying their therapeutic offerings. They anticipate completion of a Phase II trial for their muscarinic M4 agonist, with results expected this quarter, which could significantly influence future revenue streams.

Clinical Trial Highlights and Product Pipeline

The firm currently maintains a robust pipeline, with three clinical-stage assets progressing. Notable efforts include trials for NXE-149, aimed at treating schizophrenia, and NXE-744, targeting inflammatory bowel disease that aims to improve mucosal healing. The company also continues to collaborate with Neurocrine for the M4 agonist and seeks to leverage its findings for broader applications across various conditions. With further updates anticipated in the second half of the fiscal year, the outcomes from these trials could bolster investor confidence and propel stock performance.

Marketing Strategies and Market Conditions

In regard to market execution, the company is preparing for the commercialization of daridorexant and aims to strongly promote PIVLAZ in Japan while gearing up for its introduction in South Korea. Given that the number of eligible operations is around 30,000 to 35,000 annually, with a prescription rate of 60% for PIVLAZ among eligible patients, there is considerable potential for growth. Despite slightly slower progress in PIVLAZ sales against last year's forecast, management is confident in achieving their full-year targets based on a cautious yet optimistic market assessment.

Challenges and Profitability Outlook

While the outlook seems positive, uncertainties remain due to the dependency on clinical trial outcomes and partnership developments. Management refrains from providing specific profit guidance, noting the unpredictable nature of their business model heavily reliant on external events. They remain focused on long-term goals but acknowledge the profitability journey will hinge on successful partnerships, clinical milestones, and market acceptances. Therefore, while breakeven on an IFRS basis is conceivable if all goes as planned, the likelihood remains low, suggesting a vigilant approach is warranted for prospective investors.

Earnings Call Transcript 2024-Q2

[Hironoshin Nomura, executive]

[Audio Gap]

For the first half of FY 2024. Thank you very much for taking time everybody scheduled to join us today. I am Nomura, CFO, and I will be the moderator. Today, we have Chris Cargill, CEO; Dr. Matt Barnes, President of Heptares and Head of U.K. R&D; and Dr. Satoshi Tanaka, President of Nxera Japan, Nxera Pharma Japan and Korea. Simultaneous interpretation is provided. Please click on the Earth icon in the lower right corner of the screen and select either Japanese or English. If you choose off, you will hear the speakers' original voice.

Today, we will explain the progress of our business using the material in the first half, followed by a Q&A session in the second half. The presentation materials will be shown on the screen and are also available on our website. If you want a copy, please access the website by selecting Presentation Materials and Video from the Investor Relations tab in the upper right corner of the website. Institutional investors, analysts and members of the media are welcome to raise your hands and ask questions during the Q&A session. For all others, please submit your questions via the Q&A button. Questions can be submitted anytime during the webinar and will be answered as much as time allows during the Q&A session later.

So we will start the briefing. I will first explain the first half financial results, followed by Chris on the overall business update, Tanaka on Japanese and APAC business and Matt on the progress of R&D. Finally, Chris will explain our FY 2024 goals and events.

Please turn to Page 5 of the presentation. This is Page 5. This is the summary of the financial results for the first half of FY 2024. Revenue was JPY 12.7 billion compared to JPY 2.1 billion in the same period last year, while core operating profit was JPY 1.1 billion compared to a loss of JPY 2.7 billion in the same period last year. This was mainly due to new partnerships and milestone revenues, which were weak in the same period last year, including new partnership with Boehringer and milestone revenues from Neurocrine, Centessa and AbbVie in 2024. Operating profit on IFRS basis including non-core was loss of JPY 3.6 billion, a slight improvement from last year's loss of JPY 4.1 billion. We continue to invest for future growth. And with cash and cash equivalents of JPY 50.9 billion at the end of June, we have sufficient capacity to support these investments.

Slide 6, please. This overlaps with the summary I just explained, but the left side shows revenue and breakdown and changes in operating profit and core operating profit. And the right side shows the factors behind these changes. As an addition from the summary, revenue increased as PIVLAZ sales contributed from the beginning of this year, whereas last year, the contribution came from the second half of July after the acquisition. So this year, the revenue increased accordingly.

In terms of costs, in addition to R&D and SG&A expenses, JPY 1.6 billion non-cash cost of sales charge relating to PIVLAZ inventory. In other words, a one-off increase in costs of JPY 1.6 billion up to Q2 as a result of the M&A accounting process has a particularly large impact on operating profit and loss. Fair value assessment impact is expected to disappear during Q3 as the inventory from the acquisition will be fully shipped out.

Slide 7, please. Full year guidance on R&D and SG&A expenses remain unchanged from the beginning of the year, as evidenced by the option to license transaction with Boehringer Ingelheim announced in March this year, which was a large upfront payment of JPY 14 billion, including options that may be exercised next year. We will continue to increase the value of our pipeline by advancing our in-house R&D to Phase Ib rather than preclinical. In terms of SG&A expenses, we will also continue to promote PIVLAZ in Japan and carry out activities to commercialize daridorexant in Japan and prepare for a launch of PIVLAZ pilots in South Korea.

That concludes my brief summary of the first half financial results. Chris will now update you on the business. Chris, please.

[Chris Cargill, executive]

Thank you, Nomura-san. Good afternoon, everyone. I will now take you through the operational highlights for the first half of this year.

Please turn to Slide 9. So our first 6 months have been robust with a focus on implementing our 5 critical goals that are aimed at setting up the company for sustained growth opportunities. #1, we're targeting to continue the impactful launch and uptake of PIVLAZ to exceed JPY 16 billion in NHI sales. Now with an impressive JPY 6.5 billion already achieved in the first half, we anticipate further growth post a successful KOL event in June, which drew an attendance of over 1,400 key opinion leaders. #2, our goal is to obtain Japanese NDA approval for daridorexant. Progress is on schedule and we expect to receive updates in the latter half of this year. #3, aiming to acquire or in-license at least 1 advanced stage therapeutic for the patient population in Japan and APAC, excluding China. Negotiations are well underway as we are engaged in serious talks with potential in-licensing associates. #4, notably, we entered an exclusive option to license agreement with Boehringer Ingelheim concerning our GPR52 agonist and started the new Phase I trial with our in-house EP4 agonist program. #5, following the acquisition, we've effectively introduced our rebranded entity, Nxera Pharma, and are advancing our investments in various new technological systems and applications and decision-making processes, operational effectiveness and to facilitate future expansion.

Please turn to Slide 10. We've made substantial progress in the first half across all stages of our business, achieving important milestones, both independently and with partners. Investment continues in our target identification and validation efforts, aiming to discover novel targets essential for maintaining a robust pipeline. Notably, broadened our partnership with PrecisionLife for new drug targets in autoimmune disease. The latest [Technical Difficulty] includes our expansion into autoimmune disorders research after [Technical Difficulty] CNS disease campaigns, utilizing PrecisionLife's AI platform to unlock unique disease insights and [Technical Difficulty] application biomarkers.

In pre-discovery, our collaboration with AbbVie on the NxWave platform successfully delivered multiple GPCRs associated with neurological disease, resulting in USD 10 million of milestone income received. [Technical Difficulty] molecule advanced, thanks to our NxWave [Technical Difficulty] campaign, reclaimed sole ownership of our GPR52 agonist program, previous out-licensed to GSK. In early clinical development, we have seen 3 of our programs commenced Phase I trials; our proprietary EP4 agonist for IBD, a collaborative orexin 2 agonist or narcolepsy with Centessa and a muscarinic M1 preferring agonist [Technical Difficulty] symptoms, Neurocrine.

Additionally, our [Technical Difficulty] Boehringer Ingelheim [Technical Difficulty] to license agreement for GPR52 agonist for which we've received EUR 25 million upfront with potential further milestone income amounting to EUR 670 million plus royalties. Our leading program is selective muscarinic M4 agonist Neurocrine, included a [Technical Difficulty] with Phase II data anticipated later [Technical Difficulty] significant advancements through both internal development and strategic partnerships.

Please turn to Slide 11. I want to emphasize our significant involvement in the most rapidly advancing [Technical Difficulty] in the pharmaceutical segment. [Technical Difficulty] let's recall that our collaborator, Neurocrine, is heading the development [Technical Difficulty] of the world's most extensive portfolio of small molecule muscarinic agonists. An important Phase II outcome for the M4 agonist, NBI-568, is anticipated later this year. Additionally, we've progressed a cutting-edge oral small molecule GPR52 agonist into Phase I trials targeted at schizophrenia and other related disorders. We finalized an exclusive option to license agreement with Boehringer Ingelheim concerning this groundbreaking compound. Targeting GPR52 might offer advantages against future schizophrenia treatments by possibly addressing not just to treat symptoms, but also enhancing cognitive functions.

Within metabolic disease, it's noteworthy that top pharmaceutical firms are intensifying efforts to enhance their portfolios, including the pursuit of convenient once-daily oral therapies for patients. Such treatments would offer a cost-effective alternative to today's complex peptide injectables, promoting quicker global development. Hence, our innovation is instrumental in aiding Pfizer and Lilly in their discovery of novel and next-generation oral small molecules, aimed at type 2 diabetes, obesity and potentially expanding to other [Technical Difficulty] liver and kidney diseases in the future.

Regarding sleep disorders, the development of orexin agonist is poised to target the cause of narcolepsy type [Technical Difficulty] that improve patient outcomes in NT1, narcolepsy type 2 and possibly other sleep-wake disturbances. Nevertheless, there is a remarkable development to avoid orexin agonist due to their intricate medicinal chemistry. For this reason, our NxWave structure-based drug design capabilities are empowering Centessa Pharmaceuticals to fulfill these needs through our collaborative orexin 2 receptor agonist, ORX750, which is actively moving through Phase I trials. In sum, with these swiftly evolving sectors of [Technical Difficulty] neuropsychiatry, metabolic diseases and sleep disorders, our strategic associations have placed us in an ideal spot to advance potential therapies for patients.

Please turn to Slide 12. So as illustrated here, our strategy involves an integrated approach to drug development life cycle, encompassing the initial stages of drug discovery, all the way to clinical trials and now the commercialization efforts in regions such as Japan and Korea. And our pipeline is poised for expansion. Nxera holds a leading position in GPCR structure-based drug discovery and is dedicated to ongoing innovation and the identification of new programs aimed at addressing significant unmet medical needs.

With the recent integration of Idorsia Japan in 2023 and the establishment of our commercial infrastructure in Japan, we are positioned to address the challenge of drug loss in Japan. Our strategy includes in-licensing foreign medicines for development and distribution to the Japanese market. Nxera is determined to be the preferred partner for [Technical Difficulty] technology firms looking to introduce specialty, hospital-based from rare products into the Japanese market, fulfilling our commitment to accelerate the delivery of innovative medicines to patients. Nxera's vision is to lead the next generation of medicine from Japan, for Japan and the world.

Tanaka-san, President of our Japan Pharmaceutical business, will now present his highlights for the first half. Please, Tanaka-san.

[Satoshi Tanaka, executive]

[Interpreted]

Thank you, Chris. So next, please. So I will talk about Japan, South Korea and APAC, where we stand in our R&D. As Chris said, sales of PIVLAZ growing steadily and it has become the standard of care for the prevention of cerebral vasospasm following the Subarachnoid Hemorrhage due to cerebral aneurysm and associated stroke and cerebral ischemic symptoms with a prescription rate of 60% of eligible patients. As Chris said earlier, SAH forum was held in June, and this was 1,400 healthcare professionals, which was a large scale for an event by one company. We will aim for further uptake going forward.

Next slide, please. So this is the daridorexant and orexin reception antagonist which has already been launched in Europe and U.S. under the brand name QUVIVIQ and NDA filing was submitted in Japan in October last year with launch scheduled for -- by the end of this year. The market share of orexin receptor antagonist is increasing year-by-year and already accounted for 22% of all sleeping pills last year with a steady increase this year.

Next slide, please. APAC businesses minimize our own investment as much as possible and reduce risk. For example, in South Korea, we are strong in working with global companies and have partnered with local subsidiary, Handok, a leading pharmaceutical company, for sales, marketing, promotion and distribution of PIVLAZ. And for in-licensing, to begin licensed products even more effective, we joined WODA and became the representative in Japan and South Korea. This enabled us to gain access to new drug candidates for rare diseases and establish a system to accelerate in-licensing to Japan and APAC.

Now Matt, please.

[Matt Barnes, executive]

Yes. Thank you, Tanaka-san, and good evening, everyone. My name is Matt Barnes. I'm the President of Nxera Pharma U.K. and Head of R&D, and I will present our recent progress from the R&D area.

So please turn to the next slide. So building on the excellent progress made with key R&D milestones, as summarized by Chris, I would like now to draw your attention to the 9 active clinical programs that we have in collaboration with our strategic partners. We are pleased to see 2 significant milestones in our highly successful partnership with Neurocrine around a suite of muscarinic agonist programs for schizophrenia and other neuropsychiatric disorders. The Phase II study to investigate NBI-568 an oral selective M4 agonist as a potential new treatment for schizophrenia is progressing well. And in April, we received a $15 million milestone payment following the completion of a successful long-term toxicology assessment.

Furthermore, last week, Neurocrine confirmed they plan to communicate the output of this Phase II study by press release and conference call later this quarter. In addition, in May, we were pleased to see the M1 oral preferring agonist NBI-567 discovered by Nxera enter into Phase I clinical trials to treat neuropsychiatric conditions in patients with the 2 additional muscarinic programs progressing through Phase I clinical trials as planned. And finally, on this slide, we were also very pleased to see the progress of Centessa have made with our ORX750, a selective OX2 receptor agonist for narcolepsy as it entered Phase I trials in May this year. So in summary, we have a healthy clinical stage partner portfolio currently with 1 Phase II program and 8 Phase I programs.

Please turn to the next slide. So in addition to those highly successful collaborations, we have a rich internal portfolio of programs with 3 clinical stage assets and more than 10 earlier stage programs. I will now provide an update on these 3 clinical stage assets. So firstly, I would like to start with our novel first-in-class clinical stage GPR52 agonist program to address positive, negative and cognitive symptoms of schizophrenia. So in March this year, we announced an option to license agreement with Boehringer Ingelheim where we received EUR 25 million upfront payment with further milestone payments totaling up to EUR 670 million plus tiered royalties.

This slide provides some further context on NXE-149, which we believe represents a novel approach to treating schizophrenia. So with the acquisitions of Karuna by BMS and Cerevel by AbbVie, neuropsychiatry is attracting a lot of attention right now and we are pleased to have a clinical stage asset in this space. The unique feature of GPR52 is based on the receptor's co-expression profile with D1 and D2 dopamine receptors in specific areas of the brain, which leads us to a therapeutic hypothesis that GPR52 agonist may offer broader efficacy to address not only the positive symptoms, but also negative and cognitive symptomology also, which are not currently addressed with current antipsychotic treatment. And we have strong preclinical data that supports this hypothesis.

NXE-149 was developed using our NxWave platform and the Phase I study is proceeding as planned. The completion of the single ascending dose study is now completed and the interim pharmacokinetic profile of the asset is excellent and in line with our predictions. It has low variability, is approximately dose linear and consistent with once daily dosing profile. So we're really, really encouraged by this data. The multiple ascending dose study, including pharmacodynamic measures is now ongoing.

Please turn to the next slide. So on this slide, I would like to provide an update on our EP4 antagonist program for advanced solid tumors alone or in combination with checkpoint inhibitors. So PGE2 or Prostaglandin E2 is known to be secreted by some tumor types. And through the EP4 receptor leads to the suppression of the immune system and blocking of this response is hypothesized to reverse this immunosuppression and enhance the effect checkpoint inhibitors. The Phase I/IIa trial with NXE-732 was initiated approximately 1 year ago in collaboration with Cancer Research U.K. and is progressing very well and is currently being dosed as monotherapy and combination therapy in cancer patients with the interim pharmacokinetic profile of the asset is very encouraging and in line with predictions. [Indiscernible] U.K. are due to provide an update at the European Society for Medical Oncology later this year and Nxera will also provide a first public chemical disclosure at a symposium on GPCRs and medicinal chemistry in October.

Next slide, please. So finally, I would like to provide an update on our GI targeted EP4 agonist program, which is aimed at promoting mucosal healing in inflammatory bowel disease. So the current standard of care in IBD has a ceiling effect of around 40% response rate with no approved agents currently aimed at mucosal barrier defects. Based on a unique mechanism of action, EP4 agonists are hypothesized to bring benefits in IBD by both immunosuppression and promoting this mucosal healing, which is supported by our own preclinical data and previous signals of clinical efficacy which were limited by systemic safety.

We were pleased to announce in March this year that NXE-744, an oral GI targeted EP4 selected agonist, which was identified through our NxWave platform, commenced the first-in-human Phase I study in healthy volunteers. Dosing in the Phase I study is progressing as planned with the 6 single ascending dose cohorts currently underway and the second multiple ascending dose cohorts due to start imminently with no concerning adverse events noted to date. In June, we actually held a clinical advisory board where we received significant interest in NXE-744 from global key opinion leaders, providing us with confidence as we move forward in designing further clinical studies to help us understand the potential of this molecule, the first of which we intend to commence in 2025. So in summary, we've seen significant progress across all 3 of our internal clinical stage assets across a range of therapeutic areas.

So that concludes my section highlighting our progress in the U.K. R&D area in 2024 to date. Now I think it's back to Chris.

[Chris Cargill, executive]

Thank you, Matt. Can you hear me? Apologies for the network issues that I had earlier, but hopefully, the audio is clearer now.

So Slide 23. As a summary of our 2024 goals, we've significant -- we've secured a significant new partnership and commenced an in-house Phase I study. We're moving towards achieving JPY 16 billion in PIVLAZ NHI sales, obtaining JNDA approval for daridorexant in Japan, incorporating a late-stage program into our pipeline for development in Japan and APAC and furthering our post-merger investments in various innovative technologies and applications.

Please turn to Slide 24. The year 2024 is expected to continue our growth and investment momentum with key developments anticipated in the next 6 months. We're specifically awaiting a Phase II top-line data read-out of NBI-568, the muscarinic M4 agonist partnered with Neurocrine for treating schizophrenia expected this quarter, a positive result would be a major event. Additionally, we are highly anticipating Japan's NDA approval for daridorexant on insomnia treatment, which could offer another transformative drug to patients in Japan later this year. Thank you.

That concludes today's presentation, and we will now take questions from the audience.

[Hironoshin Nomura, executive]

[Interpreted]

Thank you very much, Chris. We will now take questions. As I mentioned earlier, institutional investors, analysts and media members, please use the raise hand button to let us know your questions. I will mention your name. So if your name is called, please and mute yourself. We are using an interpreter. So if you could speak at a moderate speed, we would appreciate it. And other members, please use the Q&A section. So please raise your hand if you have questions.

Let me name the first questioner, JPMorgan Securities, Wakao-san.

[Seiji Wakao, analyst]

[Interpreted]

This is Wakao from JPMorgan. I have 2 questions. First, so by the second half, M4 agonist will come, 568. So in your IR blog and Neurocrine conference call this was mentioned. So first numbers. Placebo adjusted, you are aiming for Delta 8, you mentioned. Where did this 8 come from, I want to know more? Are you saying this in relation with your competitors or you think this is the goal that you can achieve from the data that you have at hand? So that's my first question.

[Hironoshin Nomura, executive]

[Interpreted]

So Matt Barnes will answer that question. Matt, could you go?

[Matt Barnes, executive]

Yes. Thank you for the question, Wakao-san. Yes, so this delta of 8 that you mentioned, which is an 8 point reduction in the PANSS score, which is the clinical -- one of the clinical end points for this study. So this has really been highlighted by our partners, Neurocrine as a figure. And it's really based I think on the competitors, as you mentioned. So if you look at the data from KarXT and [indiscernible] clinical studies, what you'll see there is a range of reductions in the PANSS score from 8 to 12 roughly across various clinical studies. So that delta point of 8 is really based on that range of efficacy that's been seen from other competitors, I understand. So thank you for the question.

[Satoshi Tanaka, executive]

[Interpreted]

So just one additional comment from me. So thank you for reading our blog. This is what Neurocrine said. But in the past, PANSS delta was around 12 -- Karuna Therapeutics. It was around 12. But if you look at the -- in Karuna Phase III, this delta is now down to 8. This is not that the drug is less effective. Placebo tends to rise M4 agonist. We don't start from where we don't know if it's effective or not. But now it is a very focused area. That's the -- that's how the overall category is moving into, so the doctors have higher expectation. And so the effectiveness is high, but the delta becomes smaller. So that's why recently, it's down to 8. In our test, in our study, if we can clear this threshold, we can be in a good position vis-a-vis Karuna in terms of efficacy.

[Seiji Wakao, analyst]

[Interpreted]

Understood. The patient data is Phase II, but from your past data, you think you can at least achieve 8?

[Satoshi Tanaka, executive]

[Interpreted]

No, that's not the case. No is the answer.

[Seiji Wakao, analyst]

[Interpreted]

Okay. I will wait for the result then. And one more question, if I may, 522. Maybe I am not up-to-date, but for 522 in Phase I, I think you had obesity patients in Pfizer pipeline is just diabetes. And so obesity -- no more possibility for obesity? Is obesity gone or this is because Pfizer's development priority changed?

[Hironoshin Nomura, executive]

[Interpreted]

So first, Matt, could you start? And if Chris could add if there's anything to add. So Matt, please.

[Matt Barnes, executive]

So yes, not much to add, I'm afraid. So yes, we've not really received any further communication from Pfizer about the directionality of 522. Obviously, there's been some recent disclosures around danuglipron, which is a molecule that doesn't fall under our collaboration. But yes, 522, I mean, it's a GLP-1 agonist. So even though it's listed as diabetes, I guess, it could have potential in other areas, but that will be for Pfizer to determine in its strategy in the metabolic space.

Chris, I don't know if you want to add anything further?

[Chris Cargill, executive]

Yes, nothing further to add. It's currently listed as type 2 diabetes, but clearly, there would be indication expansion potential like all other GLP-1 agonists. However, Pfizer have not said anything, as Matt just explained. Thank you for the question.

[Seiji Wakao, analyst]

[Interpreted]

So just a clarification. So this diabetes has been mentioned, has it been diabetes all along or it's diabetes and in Phase I -- obesity was included in Phase I or -- so from your standpoint, you've heard that it's always been diabetes all along and so no change there?

[Satoshi Tanaka, executive]

[Interpreted]

Let me briefly explain that. So regarding the indication, Pfizer decides. And so I understand that there are small differences, but we are not focusing on that point when we communicate with them. And to repeat our message, as Chris said, in GLP-1, it's not just effective. We cannot just say it's effective only for diabetes or only for obesity. So this is about the Pfizer internal matter. So it's difficult to comment. But I do not think there is any big change.

[Hironoshin Nomura, executive]

[Interpreted]

Now we would like to move on to the next questioner. Daiwa Securities, Hashiguchi-san.

[Kazuaki Hashiguchi, analyst]

[Interpreted]

This is Hashiguchi speaking. PIVLAZ, I would like to ask a question about PIVLAZ. Page 14 on the slide, you have shown a quarterly status of the drug. And last year, in the first half against the full year forecast, 43% was the progress. This year, against JPY 16 billion in the plan, you -- it's 40% progress, right? Earlier, the comment was that the sales was robust, but it seems so that the progress rate is a bit lower compared to the last year. Can you explain the reason? Please make a comment on the level of probability of achieving the full year target?

[Hironoshin Nomura, executive]

[Interpreted]

I think Tanaka-san should be answering that question. Tanaka-san, over to you, please.

[Satoshi Tanaka, executive]

[Interpreted]

Thank you very much for the question. For the full year, number of patients for Subarachnoid Hemorrhage, there is no change in the number of patients, monthly number of patients and the number of patients this year. There has been a change. So it looks as though that the number is smaller for this fiscal year. But in reality, for the past 2 to 3 months, the number of patients have increased quite significantly. So because of that the ratio of surgeries is not going to change. We do believe that the full year forecast is achievable. I'm not really sure if I've answered your question. Monthly patients -- number of patients on a monthly basis compared to last year has come down. And in the second half, it is possible to catch-up. Was that your answer?

[Kazuaki Hashiguchi, analyst]

[Interpreted]

Yes. Okay, understood. That's all for me.

[Hironoshin Nomura, executive]

[Interpreted]

So next question, Dion-san, Pathology Associates.

[Unknown]

Congratulations on fantastic results. I just have 2 quick questions. The one again on NBI-568. And much excitement on the Neurocrine call around the compound, but they did not elaborate on the dosing that they intend to use. Now I wonder if you have any comments on that just given the extensive preclinical work that Nxera has done specifically regarding M4 selectivity? And what do you think about the dosing of the drug relative to competitors? That's the first question.

And then secondly, I was just wondering if, Matt, you mentioned 744. And given the competitive landscape in IBD and how that is really becoming much, much more competitive, do you think you've got an edge there relative to oral Interleukin-23 inhibitors and the likes? And maybe you mentioned mucosal healing that may be the answer. But just any comments that you may have on that, please?

[Hironoshin Nomura, executive]

[Interpreted]

So, Matt, could you go first and then Chris. Matt, please.

[Matt Barnes, executive]

Thanks for the question, Dion. So taking the first one on NBI-568. So you asked about the doses and the selectivity. So as we mentioned, I think Neurocrine, they quite -- they laid this out quite nicely in their conference call last week. So they're not really disclosing any details about the trial design, but they will do so. I think the intention is to do so when they press release and do a conference call on the output of the Phase II study. So you'll find out more about that at that time.

For 744, internal EP4 GI targeted agonist program, So you're absolutely right. So we see the differentiation here very much around that mucosal healing. So this is not just another anti-inflammatory. So a lot of the agents that are approved in IBD or anti-inflammatories, such as what you mentioned, IL-23, anti-TNFs, ENTYVIO, they're all effectively anti-inflammatory mechanisms. We have -- with EP4, we have dual mechanism. So we have some immunosuppression mechanism, but the -- probably the most interesting and different is this mucosal healing. So no current treatment really addresses this. And it still remains an unresolved sort of treatment area, which is not really covered off by approved agents.

So we understand that this is what those global key opinion leaders really got excited about when we discussed this at our Clinical Advisory Board Meeting. So yes, so that's -- we would see this very much as a combination agent to some of those biologics or those other anti-inflammatories. So we really want to push that ceiling that I mentioned of around 40% efficacy. So hopefully, that addressed those 2 questions.

[Hironoshin Nomura, executive]

[Interpreted]

Now let us move on to the next question. From Mizuho Securities, Tsuzuki-san.

[都築 伸弥, analyst]

[Interpreted]

My name is Tsuzuki from Mizuho Securities. So with regards to the closing accounts, R&D, SG&A are the questions I have. So we have the weak yen and against your plan. Now that the first half is over, the progress rate is lower I believe. Are you going to the lower limit or are you going to use it at full and go to the upper limit? That's my first question.

[Hironoshin Nomura, executive]

[Interpreted]

So let me briefly explain. In terms of SG&A, as you said, the progress rate is lower than against the full year plan. We haven't been -- we haven't -- we didn't have to spend so much. But in the second half, daridorexant is going to be approved and there will be activities related to that and there will be increase in SG&A. So therefore, we believe that there will be acceleration of the spending.

However, as you mentioned, are we going to go to the upper limit for the full year? I do not think so. I think we'll go closer to the lower limit. R&D has a similar idea. R&D expenses, we did not have an impression that we haven't spent too much. However, we will be accelerating the spending towards the end of this fiscal year. So we'll be in line with the range in our plan. I hope I've answered to your questions.

[都築 伸弥, analyst]

[Interpreted]

Yes. And another question. Now that we are in mid-August, I would like to know the probability of making the business profitable. For your company to become profitable, what do you need is my question. For example, GPR35, would that to be licensed out, could be an example or it depends on M4 agonist results? So please share with me if you have any scenarios or stories of making your business or the company's performance profitable?

[Hironoshin Nomura, executive]

[Interpreted]

So I would like to provide an answer and ask Chris if he has anything to add. As you said, our performance is highly dependent on the events. That is something that can be avoided as an R&D type venture. So we cannot avoid that. So as Tsuzuki-san correctly mentioned, so the trigger of milestones, I cannot really say. But as you have imagined, there are some milestones I talked about, for example, progress of important clinical studies or new collaborations. If those events -- if we have those events, if that's the best case, IFRS basis consolidated operating income would reach breakeven. That could be a possibility. But as I said, those milestones cannot be controlled, are not controllable.

And I said that because -- I said that the scenario that as mentioned is if everything goes well. So we do not believe that probability is very high. We explained that on Page 27, non-core cost has increased for this fiscal year, to be specific. M&A-related one-off, increase in cost of goods and integration-related costs have already incurred. So on IFRS basis, if we include the costs that are not controllable, we believe we cannot -- the probability is low.

Chris, do you have anything to add?

[Chris Cargill, executive]

Yes. Look, I mean, I feel like sometimes we say the same thing every year. We don't provide profit forecast or profit guidance because a large part of our business model is dependent on partners and those events are they're outside our control. So as Nomura-san said, if everything goes right, then there could be a good outcome. However, what we are focused on, first and foremost, is investing in novel programs to create exciting medicines for patients and generate long-term value for the company.

Of course, if every partnered event works, that's great. But I think we all understand the probabilities of success in this industry. And so the reason we don't provide profit guidance is, because as I said, a lot of this is outside of our control, but we do obviously hope to perform as best we can under -- when it comes to the things that we do control.

[都築 伸弥, analyst]

[Interpreted]

I have one more question I would like to ask, if I may. M4 agonist, when I listened to the conference call of Neurocrine, it seems though that they're confident about the safety, according to my impression. Phase I -- after Phase I, you licensed out and you were able to achieve the milestone with long-term tox study. So if you have any additional information about the safety of this compound, please let me know? And they said that they're going to hold a conference call after the data is available, but are you thinking of doing the same? Also I have 2 questions.

[Hironoshin Nomura, executive]

[Interpreted]

So I think I would like to ask Chris to answer that question. Chris, over to you, please.

[Chris Cargill, executive]

Certainly. I mean, on the first question, you are correct. Neurocrine said on their recent earnings call, but they were not aware of any safety or emerging adverse event issues. So from that perspective, it would appear that they are confident. With regard to when the data is released, will we host a conference call. No, we won't, but we will obviously put out a press release. We have to remember that the compound is now owned by Neurocrine under license. They plan to do a press release and they plan to do a conference call. So we will be informed by the information that they disclose.

[Hironoshin Nomura, executive]

[Interpreted]

Time is running out. So we want to answer the questions that came in through the comments. So first question, Neurocrine's pipeline -- Idorsia pipeline, there's the Cenerimod and Lucerastat. Those have been up in rights. And where do you stand in the execution of the opt-in rights?

So Chris, could you answer that question?

[Chris Cargill, executive]

Yes, certainly. We continue to have discussions with Idorsia. And we are also internally working through both of those molecules to assess the development pathway in Japan and also their potential to be effective medicines for patients in Japan. So discussions actually on both are ongoing and we've got a little bit more work to do, but we would expect that we would have updates for investors by the end of the year.

[Hironoshin Nomura, executive]

[Interpreted]

I would like to take one more question. On the 26th of August, there was a plan for a regulatory council meeting and it was mentioned about QUVIVIQ. And please give us an update on that. Tanaka-san, can you answer that question?

[Satoshi Tanaka, executive]

[Interpreted]

Thank you very much for the question. As you know -- so these drugs become agenda of the meeting, which means that PMDA is going to make a report on their evaluation and they have -- they're going to put together a document to be submitted to the Ministry. So this is -- there's going to be an approval provided. There's going to be an approval.

[Hironoshin Nomura, executive]

[Interpreted]

So let us move on to the next question. UBS Securities, Sakai-san.

[Fumiyoshi Sakai, analyst]

[Interpreted]

This is Sakai from UBS. So I have a question to Tanaka-san, PIVLAZ and daridorexant. In your earlier response, you said that the patients in Japan is not increasing, if I heard you right. On the other hand, the number of surgery is increasing. Is that the right understanding? And on Page 14 diagram, there is the seasonality with the Subarachnoid Hemorrhage, I think it tends to increase in Q4 during winter time. So Dr. Tanaka, from your observation, from now going forward, this bar graph will flatten? Ceiling will be limited? Should we prepare for that scenario?

And for daridorexant, August, there's a task force in the past. And if it will be approved in September and October? Nomura-san, you said that the pre-launch cost is included in the expenses this year. And there's the upfront -- on Page 15, there is the advanced product, the launch is quite quick. So how do you think of the sales strategy of daridorexant? So those are the 2 questions.

[Satoshi Tanaka, executive]

[Interpreted]

So I would like to start off. Thank you for the question. It's been 3 years since we started our activity in this domain. As you rightly said, the number of patients increased during the winter. We thought that was the case. But for last year and this year, I mentioned that the number of patients per month is changing because the seasonality is not very evident. The number of patients for the full year remains unchanged though. The number of operations increased. The number of hospitals that we visit is on the rise, for sure. They're rising and PIVLAZ's adoption is increasing. And so the number of operation increase and our number is increasing. So around 30,000 to 35,000 is the number of operations a year. So compared to that, we think we still have much room to grow. That's all for PIVLAZ. I hope this answers your question?

[Fumiyoshi Sakai, analyst]

[Interpreted]

Yes. So a number of operations, how many institutions are there that can conduct the operation?

[Satoshi Tanaka, executive]

[Interpreted]

Around 4,000 facilities.

[Fumiyoshi Sakai, analyst]

[Interpreted]

And you have access to all 4,000 sites?

[Satoshi Tanaka, executive]

[Interpreted]

Yes, to all -- almost all sites and they are adapted to almost all of them.

And to your next question on daridorexant, as Nomura-san said, August 26 to the task force means the approval will be around September. So once the approval starts, the drug promotion can be publicized. So as Nomura-san said, we will basically conduct the promotion activity so that will be adopted. So as of now, you cannot talk much about the product appeal. We did 120 sites -- did the clinical trial. So we will start to have those 120 sites adapt as the first step.

[Fumiyoshi Sakai, analyst]

[Interpreted]

Understood. So it will be those sites mainly. And GPR52, the GPR agonist, I have not looked at the link, I'm sorry. And so maybe my question is not to the point, but as a Phase I MAD test study results, the next step I think is within sight. So will you go to Phase II by yourself? So if you could share with us your plan going forward. I'm asking you this because schizophrenia is related. So I wonder how you will address this area, including partnering.

[Hironoshin Nomura, executive]

[Interpreted]

So Matt, if you could answer that question, please?

[Matt Barnes, executive]

Yes, I'm happy to. Thank you for the question. So we mentioned this deal that we did earlier this year with Boehringer Ingelheim around the option for license. So our intention and it is consistent with our business model is to try to take our assets internally to at least a Phase II ready point of view. And so that's our intention with this particular molecule. And then, of course, as part of that agreement, Boehringer Ingelheim has the option to license at that particular stage. So thank you for the question. I hope I answered it.

[Fumiyoshi Sakai, analyst]

So it's still -- for Boehringer Ingelheim, it is still optionality, it's not really confirmed deal yet?

[Matt Barnes, executive]

So it's an option to license deal. So what that means is they pay EUR 25 million upfront for the option to license it at a later date. And that will obviously depend on some pre-agreed criteria that we generate as part of our clinical development work.

[Chris Cargill, executive]

Sorry, if you don't mind me adding, Matt. As Matt has said, Boehringer Ingelheim has the exclusive option to license. So depending on the clinical data that is generated following the current trial, if they want to license it, they have essentially the first look. And if they choose to license it, they will pay out EUR 60 million further. If they choose not to, then the program remains out and we can choose to advance it ourselves or we can choose to find another partner. But Boehringer Ingelheim has the first option to execute that license.

[Fumiyoshi Sakai, analyst]

Do you have any timeframe for that?

[Chris Cargill, executive]

Yes. We expect that all going well, we will be through the rest of the current clinical development program by the end of next year. So as we head towards the end of 2025, Boehringer Ingelheim should be assessing the clinical data and coming towards the decision as to whether or not they choose to execute a license with us.

[Hironoshin Nomura, executive]

[Interpreted]

Sakai-san, thank you very much. So we did receive many questions on the chat box and thank you very much for that. But unfortunately, it is now time to conclude today's conference call. All the questions that were not answered, we will provide answers in the official blog. Please give us a little time for us to provide responses. And today's briefing will be available to watch, the video will be available on our website. Thank you everyone for joining us.

With this, I would like to conclude the earnings briefing for the first half of fiscal year 2024. Thank you, all.

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