Daiichi Sankyo Co Ltd

TSE:4568

Earnings Call Transcript 2023-Q1

[Hiroyuki Okuzawa, executive]

Okuzawa speaking. Thank you very much for joining Daiichi Sankyo's financial results presentation out of your very busy schedule today. I'm going to explain our FY 2022 first quarter financial results we announced at 1 p.m. on Friday, July 29, Japan time based on our presentation materials.

Please turn to Page 3. Today, I'm going to cover FY 2022 first quarter consolidated financial results and business update in that order. Then Wataru Takasaki, R&D Division Head, will explain R&D update. We will entertain your questions at the end.

Please turn to Page 4. This is an overview of FY 2022 first quarter consolidated results. Revenue increased by JPY 16.2 billion or 6.2% year-on-year to JPY 280.3 billion. Cost of sales decreased by JPY 10.5 billion from the previous year. SG&A expenses rose by JPY 15.1 billion and R&D expenditure increased by JPY 20.9 billion year-on-year. As a result, core operating profit decreased by JPY 9.3 billion or 21.3% year-on-year to reach JPY 34.4 billion.

Operating profit, including temporary gains and losses, decreased by JPY 11.4 billion or 24.9% year-on-year to JPY 34.4 billion. Profit attributable to owners of the company was JPY 18.9 billion, down by JPY 16.4 billion or 46.5%. As for the actual currency rates, the U.S. dollar was JPY 129.57. The yen depreciated by JPY 20.8 against the dollar year-on-year. The euro was JPY 138.10. The yen depreciated by JPY 6.15 against the euro.

Please turn to Page 5. From here, let me explain positive and negative factors for our revenue compared to the previous year. Revenue increased by JPY 16.2 billion year-on-year. I'd like to explain its breakdown by major business unit. First, in Japan business, sales increased for direct oral anticoagulant Lixiana; and pain treatment, Tarlige. In addition, Daiichi Sankyo Espha products contributed as well. But sales for proton pump inhibitor, Nexium, decreased with the end of joint sales promotion in September last year. Sales from vaccine business also declined. So Japan business revenue decreased by JPY 18.1 billion.

Now let me explain our overseas business units. ForEx impact is excluded here. In Oncology business, sales decreased for hypertension treatment olmesartan, where we signed a product transfer agreement in the United States in January this year, but anticancer agent Enhertu grew in the United States and Europe, so revenue increased by JPY 8.8 billion.

Revenue for American Regent increased by JPY 0.7 billion as sales decreased for iron deficiency anemia treatment, Injectafer. But sales increased for iron deficiency anemia treatment, Venofer, and generic injectables.

Revenue for EU Specialty business increased by JPY 2.8 billion. Gain on sales from transferring long-listed products decreased, but Lixiana sales increased. As for Enhertu and Dato-DXd upfront payment, et cetera, related to a strategic alliance, revenue we recognized increased by JPY 3.1 billion. We booked JPY 2.8 billion as regulatory milestone related to the approval of Enhertu for HER2-positive breast cancer in the second-line settings in the United States in May this year. ForEx impact increased our revenue by a total of JPY 17.3 billion.

Page 6 shows positive and negative factors for our core operating profit. Let me explain the profit decrease of JPY 9.3 billion by item. As I explained earlier, revenue increased by JPY 16.2 billion, including the increase of JPY 17.3 billion due to ForEx impact.

Next, I will explain cost of sales and expense items, excluding ForEx impact. Cost of sales decreased by JPY 14.2 billion. Revenue increased, but COGS ratio improved by changes in product mix as sales increased for our in-house products such as Lixiana and Enhertu.

SG&A expenses increased by JPY 7.9 billion due to an increase in Enhertu-related profit sharing with AstraZeneca, et cetera. R&D expenditure rose by JPY 14.4 billion because of an increase in R&D investments for the 3 ADCs. Costs increased by JPY 17.4 billion in total due to ForEx impact. Core operating profit decreased by JPY 9.1 billion, excluding ForEx impact.

Next, Page 7, shows positive and negative factors for profit attributable to owners of the company. As I explained earlier, core operating profit decreased by JPY 9.3 billion, including ForEx impact. Temporary income and expenses decreased our profit by JPY 2.1 billion from the previous fiscal year. In FY 2021, we booked JPY 2.1 billion temporary income as gains related to sale of Osaka logistics center to Taiyo Pharma Tech. But in FY 2022, we are not booking any major temporary income or expenses.

On July 19, U.S. time, the U.S. District Court for the Eastern District of Texas has entered judgment on the jury verdict, finding that Enhertu infringes Seagen's U.S. patent and awarding Seagen $41.8 million in damages. We are dissatisfied with this ruling, and are continuing to vigorously defend our rights and explore available remedies to contest. We have not booked provision for damages in FY 2022 first quarter and consolidated forecast figures.

Financial income expenses, et cetera, decreased our profit by JPY 6.2 billion year-on-year due to deterioration in ForEx gains and losses and investment securities valuation gains and losses. Income taxes, et cetera, decreased by JPY 1.3 billion year-on-year due to a decrease in pretax profit. As a result, profit attributable to owners of the company decreased by JPY 16.4 billion year-on-year to JPY 18.9 billion.

Slides 8 and 9 show changes in revenue of business units and major products in Japan on a yen basis. Slide 5 earlier explained the status of each unit, excluding the impact of foreign exchange rates. But these slides show the results, including the impact of foreign exchange rates.

Next, I will discuss the business update. Slide 11 shows the breakdown of Enhertu's revenue. In the first quarter of FY 2022, Enhertu's revenue, including upfront payments and regulatory milestone payments increased by JPY 21.4 billion year-on-year to JPY 37.4 billion. For FY 2022, we expect an increase of JPY 79.1 billion year-on-year to JPY 159.9 billion, with no change since the April announcement.

Product sales in the first quarter of FY 2022 increased by JPY 18.4 billion year-on-year to JPY 31.3 billion due to growth in the U.S., Europe and other regions. The sales situation in each region is explained on the next slide. Development milestones for the first quarter of fiscal 2022 were JPY 3.4 billion, an increase of JPY 2.8 billion from the same period last year. In May of this year, development milestone of JPY 2.8 billion was recorded following the approval of a second-line treatment for HER2-positive breast cancer in the United States.

Next, please see Slide 12. I will use 2 slides to explain the sales performance of Enhertu in each region. First, I will show you the performance of Enhertu in the United States and Europe. Due to steady market penetration and an additional indication, the product sales of Enhertu in the U.S. and Europe are growing steadily. In the U.S., product sales in the first quarter of FY 2022 were JPY 20 billion or $155 million, and we are targeting JPY 83.1 billion or $639 million for FY 2022.

As for current indications, in addition to the third-line treatment of HER2-positive breast cancer and the second-line treatment of HER2-positive gastric cancer, the second-line treatment of HER2-positive breast cancer was newly added in May of this year. Market share growth in each indication has also been favorable with the most recent new patient share in the third-line HER2-positive breast cancer treatment in the 40% range, maintaining the #1 position. The market share of new patients for second line HER2-positive breast cancer treatment, which is launched in May, is already in the 30% range and that of new patients for second-line HER2-positive gastric cancer treatment has also grown to the 40% range, giving it the #1 position.

As a major progress in May of this year, we obtained approval for the second line treatment of HER2-positive breast cancer and started promotion based on the DESTINY-Breast04 study data presented at ASCO, the American Society of Clinical Oncology in June, the drug was included in the U.S. NCCN guidelines as a recommended regimen for the treatment of low HER2-expression chemotherapy experienced breast cancer. We believe that Enhertu product strength has been steadily accepted by prescribers as we had planned.

Sales performance in Europe is also on track with sales of JPY 6.7 billion or $52 million in the first quarter of FY 2022. We are targeting JPY 23 billion or $177 million in FY 2022. In addition to the third-line treatment of HER2-positive breast cancer, the second line treatment of HER2-positive breast cancer was added to the current indications in July this year. The share of new patients in the countries where the product is marketed is steadily increasing with the U.K., France and Germany, maintaining the top share of new patients in the third-line treatment of HER2-positive breast cancer most recently. As the major progress in July this year, we obtained approval for the second line treatment of HER2-positive breast cancer and started its promotion.

Slide 13 shows the sales performance of Enhertu in Japan and the ASCA region due to steady market penetration and expansion of the countries and regions where Enhertu is launched, Enhertu product sales in Japan and the ASCA regions are growing steadily. Actual product sales in Japan for the first quarter of FY 2022 were JPY 2.4 billion, and the company aims to grow sales to JPY 16 billion in FY 2022, with the addition of a second HER2-positive breast cancer indication expected in the second half of the year. The current indications are the third-line treatment of HER2-positive breast cancer and a third-line treatment of HER2-positive gastric cancer, the market share of new patients for each indication is steadily increasing, with the market share of HER2-positive breast cancer, third-line treatment and HER2-positive gastric cancer third-line treatment growing to the 50% and 60% levels, respectively, and each has achieved a top market share.

As a major progress in June of this year, it was included in the breast cancer guidelines as a recommended regimen for the second-line treatment of HER2-positive breast cancer.

Product sales in the ASCA region for the first quarter of FY '22 totaled JPY 2.2 billion. The product sales in the ASCA region include co-promotion revenues in Hong Kong, where AstraZeneca also records sales. The target in FY 2022 is JPY 6.3 billion. The current indication is the third-line treatment of HER2-positive breast cancer. And in June this year, the second line treatment of HER2-positive breast cancer was added in Brazil. Sales are expanding in Brazil, Hong Kong and Taiwan, where the product was launched in April.

We will continue our efforts to further penetrate the market in each region, expand the number of countries and regions where the product is available and obtain new indications in order to deliver the product to as many patients as possible in need of Enhertu.

Slide 14 presents our initiatives regarding product growth in existing businesses and products. First, let me talk about our Japanese business. In June, we launched REYVOW, a migraine treatment, for which we have a distribution agreement with Eli Lilly Japan. We launched a new dosage form, OD tablets, in May for our hypertension treatment drug, MINEBRO, which we have been marketing since 2019. We are making good progress in strengthening our product portfolio in Japan.

Next is about our European business. In June, we signed an agreement to divest the antiplatelet agent Efient. We will continue to strengthen the transformation to a profit structure based on new drugs.

The next part of the presentation is on the R&D update. I will hand it over to Mr. Takasaki, Head of R&D division.

[Wataru Takasaki, executive]

Takasaki speaking. Today, I'm going to explain our R&D update. First, an update on 3 ADCs. Please turn to Page 17. Thanks to the success of DESTINY-Breast04 study, we were able to pioneer HER2 low breast cancer as a new clinically meaningful patient segment, and demonstrate that Enhertu has the potential to become a standard of care. Enhertu met the primary endpoint and all the key secondary endpoints in the global Phase III study for patients with HER2 low breast cancer previously treated with chemotherapy.

Enhertu is the first and only HER2-directed therapy to demonstrate a survival benefit for patients with HER2 low breast cancer. In June this year, Enhertu was listed in the U.S. NCCN guidelines as a preferred regimen for HER2 low breast cancer previously treated with chemotherapy. About 50% of all the breast cancer patients are now reclassified as HER2 low.

As for regulatory submission status in each country, our filing was accepted in Japan and EU in June this year. Also in July, our filing was accepted in the United States and priority review was granted with PDUFA date of November 26. We are planning to file also in China in the second quarter of the current fiscal year.

Please turn to Page 18. I using 2 pages from here, I would like to show you DESTINY-Breast04 study efficacy data represented during the plenary session at ASCO. First, PFS data. The left panel shows PFS in patients with HR-positive HER2-low breast cancer. 49% reduction in the risk of disease progression or death versus chemotherapy. And median PFS was 10.1 months compared to 5.4 months with chemo.

The right-hand side shows PFS in all patients with HR-positive or HR-negative HER2 low breast cancer, 50% reduction in the risk of disease progression or death versus chemo. And median PFS was 9.9 months compared to 5.1 months with chemo.

OS data is shown on Page 19. The left shows OS in patients with HR-positive HER2 low breast cancer. 36% reduction in the risk of death versus chemo. And median OS was 23.9 months compared to 17.5 months with chemo. The right panel shows OS in all patients with HR-positive or HR-negative HER2-low breast cancer. 36% reduction in the risk of death versus chemo. And median OS was 23.4 months compared to 16.8 months with chemo.

Page 20 shows our development plan for HER2 low breast cancer. We are now conducting DESTINY-Breast06 and 08 studies in earlier lines of HER2 low breast cancer. Then in DESTINY-Breast04 study and further development in earlier cancer is also under discussion.

Page 21 shows DESTINY-Breast06 and 08 study designs. DESTINY-Breast06 is a Phase III study in chemo-naive HR-positive HER2 low breast cancer. The study was initiated in August 2020. DESTINY-Breast08 study is a Phase Ib study in HR-positive or HR-negative HER2 low breast cancer. The objective of the study is to confirm safety and preliminary efficacy in combination with various drugs. We started the study in January 2021.

Page 22 is DESTINY-Breast03 Enhertu versus T-DM1 safety data update presented at ASCO this year. At ESMO last year, we presented data as of May 2021. And this year at ASCO, we presented data as of September 2021, about 4 months from ESMO presentation. No new safety signals were observed. No Grade 4 or 5 ILD occurred. The data has reinforced the established favorable benefit risk profile of Enhertu over T-DM1 in HER2-positive breast cancer.

Page 23 is about FY 2022 approval status for Enhertu. For HER2-positive breast cancer second-line indication, we obtained FDA approval in May based on priority review, Breakthrough Therapy designation and real-time oncology review program. We obtained approval also from EMA in July. Approval was also obtained in the countries joining Project Orbis in Brazil, Australia, Israel, Canada and Switzerland in the first half of FY 2022.

From Page 24, let me explain Dato-DXd. This page shows BEGONIA study interim data presented at ESMO Breast Cancer Symposium in May. BEGONIA is a Phase Ib/II study for triple-negative breast cancer first line for combination with duruvolumab. Responses were observed regardless of PD-L1 expression and confirmed ORR was 74%. Evidence of strong synergy was confirmed between Dato-DXd and duruvolumab, which supports further development in TNBC.

Please turn to Page 25. Let me talk about 2 new clinical studies for Dato-DXd. First, TROPION-Breast02. Like BEGONIA study, this is also a study in TNBC first-line. The study was initiated in June in patients who are not candidates for PD-1 PD-L1 inhibitor therapy. Secondly, TROPION-PanTumor02 study. This is a Phase I/II study in NSCLC and TNBC in Chinese subjects. The study started in July.

From Slide 26, we will discuss HER3-DXd. We presented data on breast cancer and non-small cell lung cancer at ASCO this year. This slide first shows data from the breast cancer Phase I/II study, which evaluated 3 cohorts. The first cohort was hormone receptor positive and HER2-negative breast cancer. The second was TNBC and the third was HER2-positive breast cancer. All cohorts demonstrated a clinically significant and sustained antitumor efficacy. The efficacy has been seen across a wide range of HER3 expression levels.

Slide 27 shows data from cohort 2 of the non-small cell lung cancer Phase I study. We presented data on EGFR-mutated non-small cell lung cancer at ASCO last year. This time, however, the data are for non-small cell lung cancer patients without common EGFR mutations. A shows the antitumor efficacy in patients with genetic mutations other than common EGFR mutations. And B shows the antitumor efficacy in patients without genetic mutations. The efficacy was confirmed in both patient groups.

From Slide 29, I will give an update on Alpha. First, I'd like to introduce the status of the rising stars, which are the projects that we have positioned as a potential growth driver next to 3 ADCs. The first one is DS-7300. Based on the results of the Phase I/II study, Part 1, we have selected advanced small cell lung cancer as a promising indication. Advanced refers to a type of cancer that has spread beyond the extent that it can be treated with radiotherapy or surgery and for which there is a high unmet need. A Phase II study was initiated in June to establish the optimal dose for the treatment of advanced small cell lung cancer.

Continuing to Slide 30, which reports on the progress of another rising star DS-6000. Interim results from the Phase I study show that DS-6000 is generally well tolerated and has demonstrated preliminary efficacy in patients with heavily pretreated advanced platinum-resistant ovarian and renal cell carcinoma. These data were presented at this year's ASCO. Enrollment of patients with ovarian and renal cell carcinoma is currently underway in the dose expansion part of the study.

Please see Slide 31. We have introduced our DXd-ADC program, and we are pleased to announce that 5 of our researchers have been awarded the sixth bioindustry grand price by the Bioindustry Association of Japan for the development of the new generation antibody drug conjugate, DXd-ADC technology. This award is given for outstanding achievements that have contributed significantly to the development of bioindustry, and are expected to continue their contribution in the future.

The first time award was given to a Nobel Prize laureate, Dr. Tasuku Honjo, and this is the first time for a single company to receive the award, and we are very honored that the future potential of our DXd-ADC technology, in addition to HER2's past achievements that have revolutionized cancer treatment has been so highly recognized.

Please see Slide 32 for progress on oncology products within ADCs, including quizartinib in the QuANTUM-First study. This is a Phase III study for the first-line treatment of patients with acute myeloid leukemia with FLT3-ITD mutations. The combination group of quizartinib and standard chemotherapy demonstrated a twofold OS prolongation compared to the control group. Based on these results, we plan for regulatory submissions in Japan, the U.S. and Europe in the first half FY 2022.

Slide 33 shows the progress of DS-5670 and COVID-19 vaccine. A dose-finding Phase II study is underway regarding the frequency of the first dose. To date, no major safety issues have been observed, and sufficient induction of immunity has been confirmed after the second dose. We are considering conducting a Phase III study in Japan in the first half of this fiscal year.

Slide 34 shows the development of booster vaccination. Part 1 of the Phase II/III study has been completed. Data have been obtained, showing efficacy comparable to or better than that of the approved messenger RNA vaccine in neutralizing activities after 4 weeks of vaccination in both adults and the elderly. No serious adverse reactions at the injection site or systemic ones were observed. Based on these results, we have started Part 2 in May. Part 2 will be an active controlled non-inferiority study of an approved vaccine. Through this program, we will continue our efforts to establish a domestic production system for COVID-19 vaccine.

Please see Slide 35. I will introduce DS-2325, a newly initiated clinical trial. The target disease is Netherton syndrome, a rare inherited disorder of the skin. This disease is caused by mutations in SPINK5, a gene encoding LEKTI, a serine protease inhibitor protein expressed in the skin. In Netherton syndrome, loss of lectifunction causes increased activity of the serine protease KLK5, resulting in ichthyosis and atopic dermatitis. DS-2325 is expected to improve the symptoms of Netherton syndrome by suppressing the activity of KLK5, A Phase I study was initiated in June to evaluate the safety, operability and pharmacokinetics of the drug in healthy adults.

Slide 37 shows the upcoming news flow for FY 2022. At the World Conference on Lung Cancer in early August, we will present early interim data from the TROPION-Lung02 study of Dato-DXd. We will present the latest data with a cutoff in May of this year. Also, please look forward to ESMO in September, where we will present an update on the Phase I/II study of DS-7300. Other information shown includes the expected regulatory decisions, the planned regulatory submissions, the expected key data readouts and the planned pivotal study initiation. Please note that the time lines shown are current estimates and are subject to change.

Slide 38 onwards is the appendix. Please check back later for the milestones and pipeline lists.

That's all for my presentation.

[Operator]

Now the Q&A session. We'd like to entertain your questions. First, Mr. Yamaguchi from Citigroup Securities.

[Hidemaru Yamaguchi, analyst]

Yamaguchi from Citigroup speaking. Can you hear me?

[Unknown Executive]

Yes, we can hear you.

[Hidemaru Yamaguchi, analyst]

First, I have a question about your assessment of the first quarter results as a whole. In particular, gross profit margin seems to be trending much higher than your full year forecast. You sold some businesses and products. But if these one-off factors are excluded, your gross profit margin is almost in line with your full year forecast. Could you please comment on the good performance of your gross profit margin? This is my first question.

[Unknown Executive]

Thank you for your question. There are various factors. The progress of the top line results was a little less than 1/4 of the full year forecast. But on the other hand, there was a deep improvement of COGS by 5.6 percentage points year-on-year. The growth of our in-house products such as Lixiana and Enhertu was reflected positively in the product mix according to our analysis. As for costs, the progress of SG&A expenses and R&D expenditure is around 23%, 24%.

At the core operating profit level, we think we are achieving a decent percentage figure according to analysis.

[Hidemaru Yamaguchi, analyst]

Special items are included in the gross profit margin? I now have a good understanding about the good product mix as you explained.

[Unknown Executive]

There is no special item. For top line figures, we no longer have Nexium, and we are affected by the NHI drug price revision. There are such negative factors. Still, we think we are doing quite well.

[Hidemaru Yamaguchi, analyst]

Right. Understood. Secondly, about Enhertu. If I ask you everything, it may be confusing. So I want to ask you about your results and the progress against your full year forecast. Japan may look weak, but an additional indication is expected. Given future growth, U.S. is quite strong, and the same is true in Europe, in my view. Regarding the results and your forecast, excluding ForEx impact, could you please comment by region for Japan, U.S. and Europe?

[Unknown Executive]

We feel that Enhertu is growing very steadily as a whole. This growth will accumulate towards the second and the third quarters and the end of the current fiscal year. Design-wise, it's going to be heavier later in the fiscal year. That's one thing I can say. As for Japan, in comparison among the regions, the progress is a little bit weaker. But in autumn, in around November, we are expecting approval of the second-line breast cancer indication. So we are planning a bigger growth from that timing and beyond in the second half to reach JPY 16 billion.

In the United States, even prior to the approval of the second-line indication, Enhertu has been prescribed a lot in line with the NCCN guidelines.

[Hidemaru Yamaguchi, analyst]

What about HER2 low breast cancer?

[Unknown Executive]

We will identify from now. Due to an advantage of U.S.-specific guideline-based pre-approval prescription, we can expect a lot for the future. In Europe and ASCA regions, growth is more than expected. In Europe, Germany is outstanding. Given the status of prescription in the United States and other launched markets as well as a steady flow of clinical data presented at various congress meetings, expectations went up high prior to approval. And then post-approval, prescriptions have been increasing a lot. We understand that's also the situation in Brazil as well.

So we think Europe and ASCA regions are performing higher than expected. We are keeping the same annual product sales guidance as a whole from April for now. But depending on the future situation of HER2 low in the United States and other factors, we could possibly expect an upside.

So we are confident that you can expect a lot from our conference call on our FY '22 first half financial results presentation.

[Operator]

Next Mr. Wakao from JPMorgan Securities.

[Seiji Wakao, analyst]

Wakao from JPMorgan speaking. I have 3 questions. First, about DESTINY-Breast08 study you presented today. This study is going to complete in August next year according to the clinicaltrials.gov. When will this data become available? Based on the results, you will go into new Phase III studies. Is my understanding correct that you will check the results and then start Phase III studies in earlier lines of therapy?

[Unknown Executive]

We could hear you on and off. Sorry, could you repeat your question once again?

[Seiji Wakao, analyst]

I want to know the timing of DESTINY-Breast08 study data availability. And also, the timing of Phase III studies in more lines of therapies, including first-line in combination with hormonal therapies or CDK4/6 inhibitors, maybe, I don't know which combination it will be. Based on DESTINY-Breast08 study results, you will initiate Phase III studies. Is my understanding correct?

[Unknown Executive]

Thank you for your question. We are now discussing our plan, including the sequential order of the studies. As we mentioned, we are planning to aim for early lines of therapy, including the ones not yet described on the presentation slides. As soon as we finalize the entire plan, we will share that with you.

[Seiji Wakao, analyst]

Can I understand that Phase Ib results will become available next year?

[Unknown Executive]

For now, we are assuming next year and beyond.

[Seiji Wakao, analyst]

Understood. Secondly, I want to ask you about your way you're thinking behind TROPION-Lung02 study you are going to present at WCLC. And TROPION-Lung08 study initiated based on Lung02 study. In Lung02 study, according to the abstract, you were able to confirm the add-on effect on top of KEYTRUDA plus chemo. In Lung08 study, combination of Dato-DXd and KEYTRUDA is being studied. Two drugs here instead of triple regimen because you are more confident of better efficacy with these 2 agents compared to KEYTRUDA plus chemo, based on Lung02 study data? Is my understanding correct?

[Unknown Executive]

We are planning 08 study with PD-L1 expression of 50% or higher in the first-line settings with pembrolizumab. I think your question is how 02 study results are reflected in your design of 08 study. We included as many options as possible in 02 study, so we will watch the data on results as we proceed, and we will incorporate that in interpreting 08 study data.

[Seiji Wakao, analyst]

Understood. Lastly, I would appreciate your comment on arbitration decision. According to Seagen's conference call this morning, the decision is expected in mid-2022. So there seems to be no change in the time line. Do you have the same understanding about the time line?

[Unknown Executive]

We cannot clearly say when will be the concrete timing of a decision in the arbitration case. If there is an important progress, we will disclose at an appropriate timing, so please wait until then.

[Seiji Wakao, analyst]

It's not taking a longer time compared to before, correct?

[Unknown Executive]

Right. That's not the case. It's up to the arbitrator. There's nothing in particular required from our side, and we are just waiting right now.

[Operator]

Next, Mr. Muraoka from Morgan Stanley MUFG Securities, please.

[Shinichiro Muraoka, analyst]

Muraoka from Morgan Stanley speaking. Can you hear me?

[Unknown Executive]

Yes, we can hear you.

[Shinichiro Muraoka, analyst]

I view that Enhertu sales are accelerating steadily. Regarding $15.5 million in the United States, for example, how was sales accelerating in April, May and June? If you can give me numbers, that would be great. Is it an increasing trend or still with ups and downs? I appreciate numbers, if possible, but give me an image if you cannot disclose numbers.

[Unknown Executive]

Thank you for your question. As you said, sales are growing steadily. In that sense, you can understand that there is a smooth increase month after month. But sorry, we are not disclosing specific figures.

I wonder if the approval of the second line in May has accelerated significantly. And if it can be considered that it has already accelerated sufficiently from around that time. After all, the second line approval is a big trigger. In that sense, the speed has increased tremendously. And I hope you can understand that the growth based on the guidelines before approval is accelerating a little.

[Shinichiro Muraoka, analyst]

With that, the guidance for this fiscal year, right now, we are at JPY 105 billion in core operating profit. As it was mentioned earlier, I feel that there is room for an upside in HER2. Although expenses are also rising very early this year, I feel that even taking into account of the increased expenses, there's further upside in profit if you can receive your change for the growth of Enhertu?Or am I jumping to a conclusion too quickly?

[Unknown Executive]

In the area of FDA, there is the factor that the profit share with AstraZeneca will increase in proportion to the sales of Enhertu. In R&D, we had a solid start for the first quarter. Our R&D team is working very hard, and we expect steady progress in the clinical development of 3 ADCs and the rising stars for which we have a lot of work to do. In that sense, it is difficult to expect much of a downturn in the expense side of the business. And our major expectation is to make a margin by raising the top line.

[Shinichiro Muraoka, analyst]

Understood. I just want to ask one quick question about the November 26 PDUFA for HER2 low. When it is approved at this time, can we assume that the diagnostic agent for HER2 low is fully available at that stage?

[Unknown Executive]

As for the diagnostic agent, we are currently trying to create a definition of HER2 low, and we're working to make it available in time.

[Shinichiro Muraoka, analyst]

As I recall, the partner Roche has also prepared for this, and there shouldn't be any problem making it available?

[Unknown Executive]

Correct. As you mentioned, we have a partnership with Ventana, a Roche Group Company, to develop companion diagnostics for IHC 2+, ISH- and IHC 1+ breast cancers, and we are planning for regulatory submission in time.

[Operator]

Let's move on to the next question. Mr. Sakai from Credit Suisse Securities.

[Fumiyoshi Sakai, analyst]

This is Sakai from Credit Suisse. As you just mentioned, the definition of HER2 low is going to be defined through an agreement with the FDA. You have given us a figure of 50% of new breast cancer patients. And if we include HER2-positive patients, we can cover about 70% of them according to a simple addition. Please tell me if I understand it correctly.

[Unknown Executive]

Yes, your understanding is correct.

[Fumiyoshi Sakai, analyst]

Okay. I would also like to ask 2 more questions. On Page 37 in the section of future news flow. I'm rather arbitrality thinking that TROPION-Lung1 of Dato-DXd would have more impact. I believe this was mentioned by President Manabe, during the fourth quarter presentation that it will be completed by October '22. Sorry, I can't catch that well, but I think that's what he said. I believe the patients are still being recruited. If so, I'm not sure if the data readouts for the second half will be ready in time. There was a case where the readouts were delayed in the past. So I'm a little concerned about that. Can you explain where you stand at this time?

[Unknown Executive]

As stated in the news flow, it's scheduled to be in the second half of this year. But since this is an event-driven study, we will not know for sure until it's closer to that time. For now, we have not changed our target to be in the second half of the year.

[Fumiyoshi Sakai, analyst]

Do you know when the last patient in will be or you don't know yet?

[Unknown Executive]

We are not in a position to disclose this information at this time.

[Fumiyoshi Sakai, analyst]

All right. I understand. I'd like to ask one last question briefly to Mr. Okuzawa. Due to the depreciation of the yen, other companies are experiencing elimination of the unrealized, which is quite transient. But it is a factor that causes the cost of sales to fluctuate. In the case of Daiichi Sankyo, we don't hear much about this, but do you think there is a possibility that this part of the cost will increase in the process of sales growth in Enhertu in Europe and the United States? For example, how is Daiichi Sankyo manage in such a situation? And also, could you tell me how much of this elimination was in the first quarter?

[Hiroyuki Okuzawa, executive]

Thank you very much. Sales of Enhertu are progressing very well, and the inventory may accumulate in the U.S. and other countries. On the other hand, we are currently following accounting procedures in our internal roles. And we are taking sufficient care to avoid any auditees in this area. Although I do not know the situation of other companies, we do not expect that the further depreciation of the yen will have a significant negative impact on our cost of sales this fiscal year.

[Fumiyoshi Sakai, analyst]

Is that something that you can address by hedging since you mentioned accounting?

[Hiroyuki Okuzawa, executive]

I'm sure that there are various situations at other companies, but we are proceeding in accordance with the accounting method we are currently using. And as far as we are concerned, nothing of the kind you are concerned about is likely to happen.

[Operator]

Let's move on to the next question. Ms. Kumagai from Mitsubishi UFJ Morgan Stanley Securities.

[Naomi Kumagai, analyst]

I'm Kumagai from Mitsubishi UFJ Morgan Stanley Securities. Can you hear me?

[Unknown Executive]

Yes, I can hear you.

[Naomi Kumagai, analyst]

My first question is on Enhertu. The PDUFA for HER2 low-expressing breast cancer is November 26. Is that in the $639 million planned for this quarter? Or is it that you are thinking conservatively partly due to the off-label use?

[Unknown Executive]

First of all, as to whether or not low HER2 expression is included, the answer is that it is included to a certain degree. In the case of the U.S., we have to carefully monitor how many prescriptions will be made in accordance with the guidelines until November before the approval. That is exactly what the oncology business unit is currently trying to determine the situation in the field. If the PDUFA date in November is followed by approval, we can expect to see an acceleration in the speed of the process as was the case with the second line.

[Naomi Kumagai, analyst]

Understood. How about non-small cell lung cancer? Is that in there?

[Unknown Executive]

Yes, that is also included to a certain extent.

[Naomi Kumagai, analyst]

Understood. Also, I didn't think I was giving a due date for PDUFA other than it is in the second quarter. When will it be? It's for non-small cell lung cancer.

[Unknown Executive]

For NSCLC, it will be August 16.

[Naomi Kumagai, analyst]

One last point. I recall that the transfer of long-term sales in the U.S. was that the transferee would start selling in July. But I'm not sure if that is happening at this time. Am I correct in assuming that the gains from the transfer will come in after the second quarter? Please confirm.

[Unknown Executive]

I believe we had previously given guidance for July, but there has been a slight delay, and we are now expecting it to be in August. We assume that profits will come in, in the second quarter.

[Operator]

It's almost time for us to finish. So I will let the next questioner be the last one. Mr. Hashiguchi from Daiwa Securities.

[Kazuaki Hashiguchi, analyst]

This is Hashiguchi. In the first quarter, I believe the tax rate is a little higher. It seems a little higher than your forecast for the full year. What are the factors behind this? And could you tell me if your full year forecast has changed?

[Unknown Executive]

As you pointed out, the tax rate for the first quarter is a bit high due to the calculation of the tax credit. However, after the second quarter, the tax rate will return to the normal rate. So we expect that the tax rate will be around 20% for the entire year.

[Operator]

So this is the end of the Q&A session. Thank you for your attendance today. This concludes today's meeting. Thank you all for your participation today.

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