Daiichi Sankyo Co Ltd

TSE:4568

Earnings Call Transcript 2020-Q2

[Sunao Manabe, executive]

I am Manabe. I'm truly thankful for your participation in Daiichi Sankyo Financial Results briefing despite your busy schedule.

I would like to explain our fiscal year 2019 second quarter financial result, which was announced today using the handouts material at your hand. Today, I would like to explain according to the agenda, firstly, fiscal year 2019 second quarter financial results, FY 2019 forecast. And FY 209 (sic) [FY 2019] business update, followed by 5-year business plan update. Then R&D Global Head, Mr. Koga will update on R&D activities. I'll take your questions after the presentation at the end.

Firstly, I would like to share the overview of FY 2019 second quarter financial results. Consolidated revenue is JPY 479.6 billion, which is JPY 32.7 billion increase from the previous year with 7.3% increase. Cost of sales increased by JPY 10.5 billion on year-over-year basis. SG&A increased by JPY 1.9 billion and R&D expenses decreased by JPY 7.8 billion. As a result, operating profit turned to be JPY 86.2 billion, JPY 28.2 billion more than year-over-year with 48.6% increase. Profit before tax is JPY 87 billion with JPY 28.4 billion increase from last year. And profit attributable to owners of the company is JPY 64.4 billion, which is JPY 20.4 billion more than year-over-year -- last year was 46.4% increase. And actual foreign currency exchange rates are as follows $1 -- USD 1 is JPY 108.63 with JPY 1.64 appreciation of the yen. EUR 1 is JPY 121.41, which is JPY 8.43 appreciation of the yen.

Please look at the Page 4. From here, I would like to explain factors, which contributed to the changes from results in the same term last year. Revenue increased by JPY 32.7 billion. And it's breakdown by major business unit is as follows: Firstly, our business in Japan including domestic pharmaceutical, vaccine and healthcare. Products that were playing central role to extend our sales are oral anticoagulant LIXIANA and Tarlige pain treatment drug and that was launched in April this year, and PRALIA for osteoporosis, antiepilepsy agent VIMPAT and CANALIA for type 2 diabetes and Daiichi Sankyo Espha product, including authorized generics. Profit in Japan increased by JPY 16 billion in total.

Next is overseas business. It is described, excluding impacts from currency fluctuation. Daiichi Sankyo, Inc. in the United States had JPY 6.8 billion decrease in revenue due to decreased sales of Welchol, the drug for treatment of hypercholesterolemia and also type 2 diabetes and also due to the Effient, the anti-platelet drug. On the other hand, American Regent in the U.S. increased revenue by JPY 10.9 billion with growth of generic injectables and the Injectafer, the drug for IDA.

Daiichi Sankyo Europe had a JPY 3.2 billion increase in revenue despite a sales decrease of olmesartan as the loss was covered by LIXIANA sales expansion.

Next is ASCA, which covers Asia and Central and South America. Sales increased in China by JPY 7.5 billion, mostly with Cravit and olmesartan. The total sales of ASCA business unit increased by JPY 11.7 billion, and DS-8201 for which the contract was signed by AstraZeneca in March this year. The JPY 4.9 billion was posted as a lump sum payment up to the second quarter and that pushed up the revenue.

For your information, FX fluctuation loss was JPY 7.2 billion in total business.

This slide shows the change factors for operating profit. I will elaborate the profit increase of JPY 28.2 billion by items. As explained earlier, revenue increased by JPY 32.7 billion, including JPY 7.2 billion loss from FX impact.

Now I will explain expenses, excluding ForEx impact and special items. Cost of sales increased by JPY 6.6 billion due to increased cost of goods associated with increased revenue. SG&A increased by JPY 11.8 billion, with impact such as personnel expenses in the U.S.

R&D expenses decreased by JPY 7 billion by initiatives such as DS-8201 cost-sharing with AstraZeneca. Expense reduction from FX impact was JPY 4.9 billion in total. As for special items expense in this term was JPY 2 billion less than last term. Excluding impact from FX and special items, the actual profit was JPY 28.4 billion. This is a breakdown of special items. In this fiscal year, JPY 1.3 billion of the supply chain system reorganization costs, and the JPY 3.8 billion of impaired loss of intangible assets for MorphaBond and RoxyBond were posted. However, there was JPY 10.6 billion expense reduction by sale of tangible fixed asset, which resulted in JPY 5.5 billion reduction in expenses. As a result, expenses were JPY 2 billion less than last year.

Now I'd like to explain about the pain business of the Daiichi Sankyo, Inc., which is a subsidiary company in the U.S. and that posted impaired loss. Sales efforts for Movantik was transferred to AstraZeneca in October and for MorphaBond and RoxyBond cancellation of license agreement was notified to Inspirion in September. With these actions, Daiichi Sankyo, Inc. exited the pain treatment business and focused on oncology and injectable iron business.

Next, I'll explain profit. As explained earlier, operating profit gain of JPY 28.2 billion, including impact from FX and special items. As corporate tax et cetera increased by JPY 8 billion, the profit attributable to owners of the company was JPY 64.4 billion, which is JPY 20.4 billion more than previous year.

And Slide 9 and 10 show the revenue of the major business units and major domestic products based on the yen. With Slide 4, I explained the situation of each unit, excluding ForEx impact. But these slides show the results, including ForEx impact.

Next, I will talk about fiscal year 2019 forecast. We are revising our full year revenue forecast upward by a total of JPY 15 billion to JPY 955 billion due to the good progress made by American Regent Injectafer and also LIXIANA in the domestic Japan business.

Regarding SG&A expenses, we're expecting an increase in costs by JPY 5 billion for the establishment of the oncology business structure. We are forecasting a JPY 15 billion decrease in R&D expenditure due to the cost-sharing with AstraZeneca related to DS-8201, et cetera. As a result, we are making an upward revision on our operating profit by JPY 25 billion to JPY 125 billion and profit attributable to owners of the company by JPY 18 billion to JPY 90 billion on a full year basis.

Next, I will give you a business update. First about edoxaban. Its product name in Japan is LIXIANA. It's maintaining the #1 sales share in the Japanese market. Its share is growing to 37.4% as of the second quarter of fiscal year 2019. The second quarter year-to-date revenue results increased JPY 11.7 billion year-on-year to JPY 41.8 billion.

This page shows the volume-based share trend, not only in Japan, but also in other countries. In Europe, edoxaban has been growing steadily in Belgium, Germany, Italy, Spain and U.K. In Asia, it's doing well in Korea and Taiwan. It's also making a solid growth in Brazil, where it was launched in August 2018. Global revenue results up to the second quarter of FY 2019 were up JPY 19.6 billion year-on-year to JPY 73.8 billion. The product was launched in China in August 2019. So we will work on its further expansion.

Next, on the launch of new product. We launched 4 new products in Japan, U.S. and China for the past few months. In oncology area, we launched 2 products, VANFLYTA in Japan and TURALIO in the United States. We strengthened the structure to establish a foundation for future oncology business.

Here, let me explain TURALIO, a new product in the United States. It was launched in August 2019 as the only therapy for TGCT, tenosynovial giant cell tumor. This is the first drug to provide a new treatment option for patients with unresectable TGCT without other satisfactory therapies. Treatment of TGCT by this agent has been designated as a high level category 1 evidence-based therapy by the National Comprehensive Cancer Network in United States in their NCCN Clinical Practice Guidelines in Oncology. To manage the risks of serious liver injury, we are implementing risk evaluation and mitigation strategy or the so-called REMS program, so that we can obtain prescriptions of this drug as certified health care providers.

Next, I would like to give you a 5-year business plan update. Over the past year, we have seen further increase in the value of 3 ADC projects, thanks to the strategic collaboration and the progress of clinical studies. Regarding DS-8201, we are expanding development plan by our strategic collaboration with AstraZeneca. Also, we were able to achieve a submission earlier than planned in Japan and in the United States. As for DS-1062 and U3-1402, we have steadily accumulated efficacy and safety data by the progress of Phase I study. As for DS-1062, there are possibilities of expansion to tumors other than lung cancer and also possibilities of expansion to tumors other than lung and breast cancer for U3-1402 as well as possibilities of fast-to-market by shortening the development period and the review period.

Let me explain the expansion of DS-8201 development plan. We have had rounds of discussions in detail with AstraZeneca about new clinical studies to be implemented since the strategic collaboration. Currently, 10 studies are in progress, but we are planning 16 additional studies within 1 or 2 years. So we plan to expand the development to at least 26 studies later, and Koga will explain the details.

Also, we will further expand our investments into ADCs in response to the situation of ADC franchise. As for capital expenditure, we will newly invested JPY 100 billion or more to be prepared for the increase in demand of ADC franchise's investigational drugs and products.

Concerning R&D investments, we will concentrate our investments on the 3 ADC projects. As you can see, the image at the bottom of this page. We will clearly prioritize our investments for others and substantially increase our investment into the 3 ADC projects. We will share costs with AstraZeneca about DS-8201, so Daiichi Sankyo's R&D expenditure in total will not be changed from before at around JPY 1.1 trillion for the 5 years. Also, we expect further growth in oncology business revenue based on the progress of the 3 ADC projects I explained earlier. When we announced the plan last year, we said JPY 500 billion by FY 2025, but we will aim for growth exceeding that level.

Last but not the least, I'd like to explain the direction of our 5-year business plan targets. Our next midterm business plan period, until FY 2022 will be positioned as prior investment period, and period for FY 2023 and beyond will be profit-expansion period. We will maintain our FY 2022 targets of JPY 1.1 trillion revenue and JPY 165 billion operating profit as is.

The next company-wide midterm business plan will cover the period between FY 2021 and FY 2025. We will develop further detailed targets and explain them to you in the future.

From here on, we will give you our R&D update. I'd like to hand over to our Global Head of R&D, Junichi Koga.

[Junichi Koga, executive]

I am Koga. Today, I would like to update on R&D activities. I often do something more than I planned, but let me show you this trophy. World ADC conference is held every year in San Diego, and I just visited there last month. And we never asked for it, but Most Promising Clinical Candidate Award was given to us. DS never made a donation to this academic congress and never had involvement. Pharmaceutical companies such as Genentech, AstraZeneca [indiscernible] Seattle Genetics [indiscernible] and small companies and Lonza and CMOs are members of this congress. And from such organization, we are acknowledged and awarded for the Most Promising Clinical Candidate. So it's a very good news to share with you.

So going back to the main topic. Now first, I'd like to update on DS-8201 submission plan. As it is already announced by press release, application for approval for the indication of HER2+ positive metastatic breast cancer as a drug for the third-line treatment and beyond was accepted in Japan in September and in the U.S. in October. In case of U.S., it takes 60 days from submission to accept us by FDA, but we received a notice from the FDA a few days earlier, and we have already started the communication with FDA immediately after submission. So it shows how much FDA expects to this project, and it is determined as a breakthrough product, and it takes 12 months at maximum in Japan for review. And PDUFA's date in the United States is planned for April 29, 2010 (sic) [April 29, 2020.] So the development progress is much faster than the original plan. So this application was realized in 4 years since the start of the clinical study, which is quite quick as biologics. We are actually and kind of amateur or not expert in biologics, but we get a very accelerated notification. Application for breast cancer in EU is planned for the first half of 2020. Application for gastric cancer in Japan is planned for the first quarter of 2020.

As you know, regarding DS-8001 (sic) [DS-8201], DS signed a collaboration agreement with AstraZeneca at the end of March. And detailed discussions are held for a new study plan. The potential of DS-8201 includes different types of cancers and wide range of treatment from early treatment to the third-line treatment. So therefore, we prioritized studies and review the study plan from various perspectives so that it will have a higher chance of success. And currently, we are working together with AstraZeneca. So the review is still ongoing. So today, I will show you the number of studies that will be starting in a year or 2. And then also of the area of treatment that is subject to this agent. As mentioned by Mr. Manabe, 10 studies are ongoing currently. And 16 new studies are being planned. The details of 3 -- these studies will be introduced on R&D Day in December. And [indiscernible] will also join R&D Day. So we will share this new information in Tokyo and then also with New York.

I was going to mention actual kinds of cancers, but actually, it's shown in the slide. From now, I would like to introduce you the data of DS-1062 and U3-1402 that are presented at the WCLC, World Conference on Lung Cancer. This slide explains the Phase I study design of DS-1062 for relapsed NSCLC. So this study enrolls unselected patient with relapsed or refractory NSCLC without prior selection by expression of TROP2. And TROP2 expression is observed at the high chance in various kinds of the cancers, especially in lung cancer, there's 80% of the TROP2 expression chance. So we can assess the chance of TROP2 in the future.

The next slide. So this is the summary of safety data. In dose-limited toxicity study, mucosal inflammation and stomatitis were observed at a 10 milligrams per kilogram. It's strange to say it was expected in a way. There are some cases with a TROP2 expression on the skin, and we anticipated this adverse event, and it was observed at 10 milligrams per kilogram. So that means this onset of adverse event was expected from the lung clinical study. So we determined the maximum toxical dose as 8 milligrams per kilogram. And then due to onset of these adverse events, it was judged that further dose escalation is difficult and 8-milligram per kilogram was selected as MTD and the recommended dose in escalation part in Phase I study. So we received many inquiries after WCLC. And 8 milligrams per kilogram is recommended dose in dose escalation part, but not decided as the final dose. Dose will be determined after confirming efficacy and safety data from now on.

Next slide, there are many inquiries about lung-related adverse events with DS-1062. And this is a summary. At first, based on our experience from DS-8201, signs and symptoms of suspected ILD, such as cough, shortness of breath, fever, pneumonia are categorized as adverse event of special interest and cases are reported and collected in a timely manner. At the point of time when it is reported by investigators, there are cases with signs and symptoms of suspected ILD and not a definitive diagnosis of ILD. All collected cases are sent to external ILD adjudication committee to evaluate whether it can be confirmed as ILD. And it is related to study drug. This is a common procedure for all studies in DS-8201, DS-1062 and U3-1402 and will be applied to all future studies in other ADC projects.

So [TDL, TDS Technology] and then also the relationship with the ILD will be proven later on. At the bottom of the slide, you see the table that shows the summary of the DS-1062. Now 5 cases are reported as lung related adverse event. And one of them was judged by the ILD adjudication committee as death due to respiratory failure from disease progression and not ILD, and it is not related to study drug.

Remaining 4 cases are obtained after data cutoff at WCLC and still waiting for the evaluation by adjudication committee. Evaluation results will be available by the end of November. So I should be able to update on details at R&D Day in December.

Next, this is a spider plot by different doses to identify efficacy. At the time of WCLC, partial response was observed in 12 subjects. At 8 milligrams per kilogram that was selected for escalation part, 5 out of 7 cases showed personal response and -- those all [ come ] without the TROP2 screening in Phase I study. Those patients who received the I-O treatment or standard of care before, that we can see this much of efficacy in the Phase I study in dose escalation period.

Next slide. I would like to show you the data of U3-1402. This is a design for Phase I study for NSCLC with EGFR mutation. In this study, we don't select patients by prior screening by HER3 expression.

Next page, please. This is a safety summary page. As DLT or dose limiting toxicity platelet count decrease occurred, but we have been able to observe tolerability profile for now. So MTD, maximum tolerated dose has not been reached. It is still possible to further increase the dose.

Next page. This is efficacy waterfall chart. The tumor activity was demonstrated in patients other than 1 case. Like DS-8201, the situation is similar, and we also confirmed antitumor activity in patients with various resistance, which could develop after dosing with TKI, tyrosine kinase inhibitor such as osimertinib, HER3 is the target. So this is its feature. In the dose expansion part, 5.6 milligram per kilo has been selected as RDE, recommended dose for expansion.

Next page, please. Next, I'd like to explain Phase I/II study of our fourth ADC DS-7300. DS-7300 is antibody-drug conjugate targeting B7-H3. It has a selective drug-antibody ratio, DAR, as 4, the same as DS-1062 in the design. B7-H3 is highly expressed in various tumors, such as head and neck, esophageal, NSCLC and prostate cancer. Its high expression is associated with poor prognosis in some cancers. Another thing I should mention is that functions of these B7-H3 remain to be fully elucidated, but still, as a molecule family, PD-1, PD-L1, for example, these are molecules similar to those according to understanding. In that sense, it's likely to be involved in immune regulation in Phase I/II study and also in the future clinical research, or we can get new insights.

One subject has already been enrolled, can we say that. The study endorsing has started already, could I say that? Next, this page shows DS-7300 Phase I/II study design. There are 2 parts, dose escalation and dose expansion parts. In the dose escalation part, as you can see on the slide, we are planning to enroll patients with various tumors types shown on the slide. In the dose expansion part, we are focusing on several tumor types. In both parts, there is no prior B7-H3-based patient selection. The study has already started.

Next page, this is ADC franchise summary, to show the grand status. As I explained on earlier slides, applications for DS-8201 for breast cancer were accepted in Japan and the United States. If the review progresses well, we're expecting the launch in the next fiscal year. And the results of pivotal Phase II study used for the submission will be presented already on December 11 at San Antonio Breast Cancer Symposium. For gastric cancer, we're planning to file NDA in Japan in the first quarter of FY 2020. For DS-1062 and U3-1402, we are accumulating efficacy and safety data steadily. Dose expansion parts are now ongoing for both studies. We will present our new development plan on R&D Day in December.

Regarding DS-7300, we started Phase I/II study in October 2019.

Next, I'd like to give an update on DS-3201. This is a chemical product. DS-3201 is a dual EZH1/2 inhibitor. It's a dual inhibitor to demonstrate effect to stop tumor growth. We are hoping this is going to be a new novel antitumor therapy. Phase I clinical studies are in progress for various cancer types right now. We received SAKIGAKE designation of -- for the peripheral T-cell lymphoma, adult T-cell leukemia lymphoma Phase II studies [ will be started ], and we made the decision to do so. Adult T-cell leukemia and lymphoma and lymphoma Phase II study information can be found in the appendix, the so-called ATL. In Western Japan, Kyushu and Shikoku, more incidents, higher incidents. This is unique to Japan, and this cancer is often seen in Japan. Once it develops, it's difficult to treat and progression is fast. It's caused by human T-cell leukemia virus type I, HTLV-1. We are hoping to provide a good treatment for this. And also, non-Hodgkin lymphoma, we'd like to roll this out globally as well. Based on interim results will be announced at ASH in December, American Society for Hematology meeting in December.

Here, AML Franchise and breakthrough Science, 2 franchises. after ADC, I would like to give you an update on AML franchise and breakthrough science update. We launched quizartinib as VANFLYTA in Japan on the 10th of October this year. But unfortunately, we received a negative opinion from the regulatory authorities in Europe following a CRL in the United States. Future plan for U.S.-EU will be determined with the results of the first-line study, QuANTUM-First, that has already completed enrollment.

Pexidartinib was launched as TURALIO in the United States in August this year. It's already being provided to the patients as well.

Next, lastly, announcement on R&D Day 2019. This year, we will organize this, not only in Tokyo, but also in New York as well, for the first time. Contents will be the same for both days, according to our plan. We plan to explain our new R&D strategy and updated development plans for DS-8201, DS-1052 and U3-1402.

Slide 41 and beyond are appendix, list of major milestones and RDA pipelines can be found, so please refer to them at your leisure. Thank you very much. That's all for me.

[Unknown Executive]

Now, we'd like to take some time for questions and answers. [Operator Instructions]. Is there any question from the floor.

[Hidemaru Yamaguchi, analyst]

I am Yamaguchi from Citi. The first question is about the target of the next 5-year business plan. You just updated on the plan, but for the next 5-year business plan, that is starting from March 2022, and when will you announce the next 5-year business plan?

[Sunao Manabe, executive]

Yes. We will discuss and decide the details of the next 5-year business plan next year. So at the end of fiscal year 2020, which is March or April of 2021, we will disclose.

[Hidemaru Yamaguchi, analyst]

And as for the target of fiscal year '22, will it be maintained? Or will you revise it?

[Sunao Manabe, executive]

We will keep it as is. But in the discussion for the next business plan, we will discuss it again. So as announced last year, we believe it is very important as top management commitment. So we want to have a thorough discussion. Maybe we will discuss this later more.

[Hidemaru Yamaguchi, analyst]

You have a concrete business development plan for DS-8201? But for DS-1062, and 1402, it may be depending on the strategy, but is there a possibility of partnership? The media quoted that it may be possible to develop those projects stand-alone without a partner. But what do you think?

[Sunao Manabe, executive]

Yes, this is a frequently asked question. Firstly, about the DS-8201 in order to maximize the value of the product, we decided partnering. For 1402 and 1062, for those projects as an option to maximize the value, partnering is possible, but we just started Phase I study and top line result is not available yet. So we want to wait for this data and have further discussion. And regarding 7300, clinical study has started. It just started.

[Hidemaru Yamaguchi, analyst]

But what about the first read out? Do you think you cannot disclose the data in ASCO next year?

[Unknown Executive]

Well, we just enrolled 1 case only. So we are not sure to what extent we can disclose data, but if we can observe efficacy from a lower dose, maybe we can disclose data next year, but it's too early.

[Hidemaru Yamaguchi, analyst]

And another point, GPO for just Q4. Is it going to be in your assumption.

[Unknown Executive]

It can be in the fourth quarter according to current plan.

Any other questions? Yes, please.

[Kazuaki Hashiguchi, analyst]

Hashiguchi from Daiwa Securities. Midterm outlook. The meaning of maintaining, could you elaborate to a certain extent, if not really examine, but you calculate the numbers as a result. If you think you can achieve sales and profit, not very different from those numbers, have you checked those in saying that you're going to maintain? Or as of now, you haven't examined the details yet, just you haven't reviewed. What's the meaning of you to say maintaining?

[Sunao Manabe, executive]

We are presenting this to you, not without any discussion of the numbers. We have been discussing and explaining based on certain assumptions. However, in terms of accuracy, particularly, we still need to discuss 1062 and 1402 as well. So we hope to discuss these in more detail as part of the midterm business plan discussions. We are showing this with such intention behind.

[Kazuaki Hashiguchi, analyst]

On Page 19, can you explain this page? Maybe, I might have misheard, but 1062 and 1402 development period and the review period can be shortened in -- according to your perspective. What do you mean by shortening the review period? 8201, it was designated SAKIGAKE and breakthrough therapy, but 1062 and 1402, I haven't seen such announcements. What do you mean by saying so?

[Sunao Manabe, executive]

We have not received any official agreement from the regulatory authorities yet. But the possibility of breakthrough therapy or SAKIGAKE designation is not 0. And also, we'd like to bring it to usage as soon as possible. That's why we made the earlier statement.

[Junichi Koga, executive]

If I may add, application for 8201 based on Phase I/II studies, there have been accelerated procedures even prior to breakthrough therapy designation. We try to accelerate the execution of the clinical studies and submitted the applications. Because of the remarkable efficacy, we could file a submission as a third line or last-line treatment. We think we can expect 1402 and 1062 efficacy and safety to be comparable to 8201 depending on target diseases.

Therefore, one open-label Phase II study can be implemented, such an approach could be possible for example. We don't know whether we can finish in 4 years, but we think we can shorten the time frame and file our submissions.

[Kazuaki Hashiguchi, analyst]

And lastly, Tarlige, the actual results. How do you expect the results for Tarlige? Could you give us a quantitive figure?

[Unknown Executive]

Our assumption is JPY 3.3 billion, and the outlook for full year is not disclosed. But just for the quantitive explanation, within this ethical product development, we introduced many new products so far. And we actually get best response from the market. So we get the comments that this product has the best response from the market. So we have a big expectation to this product, and we cannot say anything more. So the best response from the market.

[Kazuaki Hashiguchi, analyst]

That means do you think it will create the biggest of sales in Japan?

[Unknown Executive]

Well, at the start-up of the newly launched product, we'll have a very good start. So I believe the start-up of the sales right after the launch will be as good as we expect it, but we cannot share any specific figures now.

[Unknown Analyst]

I'm [indiscernible] from Mitsubishi UFJ Morgan Stanley Securities. First, about Page 23. This time, you have classified the period into prior investment period and profit expansion period. Previously, when you reviewed your midterm business plan targets, you drew a picture with an increasing trend between FY 2020 and 2022. It was leveling off between March 2019 and March 2021, then followed by growth. This time, during the prior investment period, there seems to be a dip at some point in time during that period. You have a picture like this because operating profit has an upside in the current fiscal year for March 2020 with a high hurdle to clear right now. Is my understanding correct? Revenue target is JPY 1.1 trillion, no change from before. So I believe how you're going to use your expenses will not be different. Am I correct? Or is there any possibility that you may spend more because of the mention of JPY 1.1 trillion? Could you please elaborate?

[Unknown Executive]

We reviewed our midterm business plan in October last year. We raised our goals of JPY 1.1 trillion revenue and JPY 165 billion operating profit for FY 2020, the last year of the fourth mid-term business plan. But as of October last year, there was a delay by 2 years. So we wanted to maintain these goals for FY 2022.

Regarding the blue arrow at the bottom, we will be mostly maintaining the JPY 1.1 trillion target as is. So on the expenditure, we will not change according to understanding. We should say that the operating profit target could be more difficult than the revenue target. We announced our forecast for FY 2019 today, but for FY 2020, we will examine the numbers again, and at the end of the current fiscal year, we'd like to share as well as for FY 2022. When we draw a picture like this, people tend to ask whether it's remaining flat or going up. You can understand our intention is reflected a little here for the prior investment period.

[Unknown Analyst]

Number two. Page 27. 8201, you have additional studies to be performed after the strategic collaboration with AstraZeneca. On R&D Day, more details will be explained? More specific targets? The lines of therapies? Or HER2+ positive or not? Specifics and the concrete content of the studies will be shared? To what degree would you be able to share?

[Unknown Executive]

We cannot make a commitment right now. But from here, in breast cancer, 7 studies in breast cancer; 2 studies in gastric cancer; and a certain number in lung cancer.

[Unknown Analyst]

According to this classification, when we are going to go into adjuvant therapy? What about early lines of therapy?

[Unknown Executive]

That's still under discussion -- with AstraZeneca. We'd like to discuss, and we will make the announcement about what we are able to reach agreement on. And AstraZeneca will also make the announcement. I hope I didn't confuse you, but the picture may be a bit confusing to you.

[Unknown Analyst]

So we see the number of studies. We understand that. And maybe you just explained, but this timing to finish the -- those studies, like breast studies and then also the gastric cancers, is there any possibility that you may end those additional clinical studies earlier than the plan?

[Unknown Executive]

It's difficult to answer because it's quite highly competitive situation. Maybe it's a little bit different topic. But for ADCs, probably there's 70 to 80 items and conducting more than 100 studies right now. So in such a situation, well, as we see the advantage of the DS-8201, we will accelerate the studies more. And then also the name value and the technology and medical affairs capability of AstraZeneca will be utilized so that we can accelerate the studies even more. But the concrete idea of timing cannot be mentioned now.

But in general, we try to accelerate the studies.

[Unknown Analyst]

And at last, about AstraZeneca. So there is studies utilizing their products, maybe they want to use [indiscernible] for example. But those are studies using the AstraZeneca product as a concomitant studies. So what is the situation?

[Unknown Executive]

Of course, their TKI and I-O drugs, we are discussing right now. But we don't know -- we cannot tell you when we will make an official announcement. But of course, we are considering every possibility.

[Unknown Analyst]

You will not announce that on R&D Day?

[Unknown Executive]

Maybe we can disclose the personal information, but we cannot make a commitment now.

[Akinori Ueda, analyst]

From Goldman Sachs Security. My name is Ueda. I have a question about Page 21, about R&D investment. So in this diagram, so for DS-8201 and other products, so there's some difference in investment amount. And then DS-3201 with other products, and it seems like those products will have a less amount of investment. Or what is the priority of the investment? And comparing to 8201, when we look at the other projects, what about the speed of the development? Do you think it takes more time for other programs?

[Unknown Executive]

For DS-8201, as you see in this table, this is a investment from Daiichi Sankyo and AstraZeneca. So we'll have more investment for 8201. And followed by 1062 and 1402. So currently, we give the highest priority to 3 ADC projects. So then, if we have budget, of course, we want to spend more on the fourth and the fifth priority, but we have to have good priorities to make a successful development. So that's why this is said here. But for the fourth priority and beyond, if we find project as more -- have a successful chance, maybe we consider another pipeline with other companies.

[Akinori Ueda, analyst]

So about the speed of development. So as an image, other projects will be proceeded more slowly?

[Unknown Executive]

Oh, that's not the idea. Because for other projects, for non-ADCs, there are other pipelines for our non-cancer projects. So we finished a major project in a non-cancer area. And we are now in the basic research again. So it seems that the investment is less in those non-cancer projects. But we are also making efforts to create a new pipeline after 2025. So it's not that we will slow down other projects. And then for DS-1062, as it moves on to the next phase, we will see better ideas in a year or 2 as we have a better outlook for those projects. And then we will decide the investment in those projects. So whether we will utilize our internal budgets or maybe seeking for external collaboration, and we will decide later on. But we never -- it's not our intention to slow down other projects.

[Akinori Ueda, analyst]

Secondly, I have a question about your shareholder return policy. This was not mentioned today, but the total return ratio will be 100% during the course of the current midterm business plan. You can expect a lot from oncology agents. Can I understand that there is no change in that policy?

[Unknown Executive]

Yes. Based on what we announced until FY 2022, we promise the total return ratio of 100%. So there is no plan to change it as of now.

[Akinori Ueda, analyst]

My third question. In the United States. You are exiting and reorganizing the pain treatment business in the United States, but in Japan, regarding your business strategy, focusing on certain therapeutic areas or OTC generics, what to do with them? You had a full lineup to generate value, no change in that policy? Or for the next midterm business plan, are you going to discuss further, including a review, what's the positioning? Regarding the domestic Japan sales and marketing, we have a lot of products in our lineup. We have more products and so we will have oncology products to sell. And so how we would be able to launch? At what timing we have what product?

[Unknown Executive]

We'd like to change our sales and marketing structure accordingly. We have quite a large number of products right now. We are not expecting any immediate change.

[Akinori Ueda, analyst]

[indiscernible] we are discussing this all the time. What is the optimal business portfolio for Daiichi Sankyo?

[Unknown Executive]

We're continuing such discussions. As of now, there is no particular decision we have made. So this is going to be a continuous discussion.

[Unknown Analyst]

I am [indiscernible] from Nikkei Biotech. I have 2 questions about the developing project. The first question is about the [indiscernible] virus for cancer treatment, 1647. You were planning to submit for approval in the first half of the 2019, but it is changed to the second half. What is the reason why you changed the timing? That was the first question. And second question. You are developing CAR-T cells development. And as [indiscernible] is listed in a drug price, is there any submission plan for the future?

[Unknown Executive]

Thank you for your question. So the first question, so-called oncolytic virus got a very good clinical result, and it was already announced. However, regarding the production, it is taking time. So the production was available in University of Tokyo, but we have to make further efforts in our production plant. So we are working on this improvement right now. And so we want to file submission as soon as possible. But the most difficult part, the clinical part, is completed already. So once we address the situation, then we will apply for approval.

As for the CAR-T, drug price was determined. Drug price in Japan is not as high as U.S. or EU. So you may question about the contribution to sales. However, with this drug price, there is no impact on the timing for application for NDA. So originally, you planned to submit for approval by the end of 2019 for CAR-T. It's by the end of fiscal year 2019. That's the target.

[Unknown Analyst]

First, on Page 22, you have specific numbers for oncology business revenue. Did you add up individual products to come up with these numbers? Or is this just a tentative image, as you indicated earlier, particularly for FY 2022 and 2025? You mentioned JPY 40 billion in FY 2020, quizartinib is in trouble a little bit. So we can just see pexidartinib only. What numbers are included in here?

[Unknown Executive]

FY 2020, denosumab is included in here, I think, JPY 40 billion. We think that this is the size of revenue we can achieve.

[Unknown Analyst]

How much is denosumab here?

[Unknown Executive]

JPY 20 billion.

[Unknown Analyst]

That's one thing. And regarding the size of the bubble or circle, is it based on our cost savings?

[Unknown Executive]

As [indiscernible] said, internally, we have been working very hard to calculate by ourselves. As of now, well, we have the midterm business plan announcement. We would be able to share these numbers.

[Unknown Analyst]

What about crizotinib?

[Unknown Executive]

Crizotinib, this one is ongoing. So based on the results, we will decide. But in our franchise, we have to de-prioritize clearly.

[Unknown Analyst]

De-prioritize, did you say?

[Unknown Executive]

Yes.

[Unknown Analyst]

Next. Page 20 -- sorry, 27. Specifically, 8201 plan. There are many tumor types here you are addressing, including others. If that's going to be the case, 1062 and 1402, you need fine-tuning for tumor types to make the R&D expenditure more efficient.

In lung cancer, it might be faster to collaborate with AstraZeneca, in my view, because they have TAGRISSO and they have a lot of know-how and expertise. Including that, 1062, and 1402 development, how should I understand this table, including fine-tuning possibilities?

[Unknown Executive]

8201, first. All possible scenarios are being discussed with AstraZeneca as we move forward. 1062 and U3-1402, on our side, we also pursue all possible ideas. There can be some overlaps with 8201 or there may be some points we should pay attention to.

[Unknown Analyst]

Are we going to do this in-house?

[Unknown Executive]

That would be one of the issues we need to address.

Another thing we have to consider is that 8201, HER2 is the target; 1402, HER3 is the target; 1062, TROP2 is the target.

[Unknown Analyst]

Lung cancer or gastric cancer, if we talk about certain tumor types, the target of the drugs, where we should deliver the drugs? The target is different. So what should be the positioning?

[Unknown Executive]

We're still in Phase I. We're still searching for this. In the case of HER2, HER2 high or low, we have to test as we proceed.

[Unknown Analyst]

What about TROP2? We don't have to do the same?

[Unknown Executive]

Maybe. It may not be necessary. 1402, in a study state at this level, but with [indiscernible] therapy there can be a high expression. Then various treatment schemes may exist. There may be schemes we haven't said yet. There can be new therapeutic areas which may emerge. So we have a very robust tools we have right now. So we have to search for this into the future. Sorry, it may not be right to the point, but there are a lot of oncologies we have not been able to illustrate. Three ADCs. If they're in the development stage simultaneously, it's difficult to discuss the overlap of indications. 8201 was a hit. We already started partnering. And both parties are trying to maximize this. That's at the top. The indications will be decided accordingly. And then we consider the second ADC and the third ADC. Instead of doing this all at once, it's easier. 1062, lung cancer. [indiscernible] but we should aim for it. Based on these conditions, instead of simultaneous, it's easier to develop a strategy more easily.

[Unknown Analyst]

I am an editor of the pharmaceutical journal, and my name is [indiscernible]. And in this briefing, you get this negative figures in the U.S., but what is the outlook for the second half or the full year?

Well, in the U.S., the U.S. market is the biggest market in the world. And then I believe the oncology development is progressing very well. So what is the outlook for the second half of this first full year and the full year? And when the trend will be upward in the U.S. market?

[Unknown Executive]

Thank you for your question. In the U.S., we have 2 subsidiary companies. One is Daiichi Sankyo, Inc. In the past, we had [indiscernible] and more products in the market. We have a major business. But most of them actually expire the packets already. So Welchol, Effient, or it's not just the off the patent products, but the Savaysa, LIXIANA, edoxaban are sold in the U.S. But for those products, we cannot expect the rapid increase or growth in the future. So we will have a slow shrink in the future. But for American Regent, we have a Injectafer and the generic injectables. And then those products are quite successful. For Injectafer, we will have a competitor's product in the future probably. So we have to look at the competitor's movement. But up until 2027, we have patent. So American Regent will be the very important source of revenue. So when we consider the U.S. market, Daiichi Sankyo, Inc. will shrink the original business, but they will have oncology business from now on. So the actual main product will be different. And for American Regent, generic injectables and Injectafer are leading sales in U.S. market. For those, ADC franchise will be developed in the future. And as they start the business in the U.S., they will be sold by Daiichi Sankyo, Inc. Yes, the revenue will be posted under Daiichi Sankyo, Inc.

[Unknown Analyst]

Another question about crizotinib. In Europe, there was a negative feedback. But in Japan, it is approved. So in U.S. and EU, is there a difference in the approval policy? And how do you see the difference?

[Unknown Executive]

It is difficult question to answer. In the United States and Europe, there is a similar drug from Astra. So Astra's drug is developed and approved in advance already. In Japan, the environment is not so different. But our efforts and explanation made a very good result in Japan. But in the United States, our presence to FDA cannot be communicated sufficiently. So that was the situation. However, the drug profile is sufficient. Actually, in ODAC in U.S., we received good comments from physicians. And as we proceed clinical development, there are some questions about the quality of the clinical development as published already. So our explanation in this part was not smoothly accepted. So it may not be a direct answer to your question, but because of the combination of these situations, we get this result.

If I may add, I was engaging in R&D for a long time. In the past, if FDA gives approval, other regulatory authorities also approved. Otherwise not. Japanese regulatory authorities responded by checking the reaction of FDA. In discussing pros and cons fully, we know that the responders and patients who are waiting for our product, so PMDA has reviewed our filing from that perspective. They were able to make judgment without taking the reaction of the other regulatory authorities. We are grateful.

[Unknown Analyst]

Lastly, the former President and Mr. Manabe, the current President, as a policy, noncore business reorganization has been talked about. Nihonbashi building is being sold in the current fiscal year. Is this already completed? Or is it going to continue? Noncore business sales, how much is this going to continue for Daiichi Sankyo noncore -- how to look at noncore assets, is the question.

[Unknown Executive]

Regarding real estate properties, we still have real estate properties. Regarding noncore business, it's shrinking. So there is no change in that direction. So then where and when we should hit into that direction. We have to look at PL and overall business situation. And our BS, we have to consider comprehensively. So it doesn't mean that it's already completed. So we'd like to continue our discussions.

[Unknown Analyst]

I am [ Mochizuki ] from [ Mix ]. I have a question about domestic market. Firstly, for confirmation, Olmetec impacts have been influenced on financial settlements. The impact of Olmetec is over now? It seems like impact is much smaller this year. But is it over? So new product Tarlige is penetrating into market very quickly according to some data, but how do you want to develop this product furthermore in the future?

[Unknown Executive]

As for Olmetec and other long-listed products, we still have some more long-listed products. And this time -- so once the prescription exceeds 80%, then the drug price will be revised. But our long-listed products did not reach the level of 80%. It is about 60% to 70%. And Olmetec is also close to this level.

And regarding Tarlige. New patients are using Tarlige and also the existing patients. For those patients who were on the conventional treatment but could not have a good response or some patients are not satisfied because of the side effect. So those existing patients are using Tarlige.

So we believe Tarlige is a very good drug, and we have data to support it. So as we continue communicating data to prescribers accurately, the value of the product will be well understood.

[Unknown Analyst]

I also had a question about LIXIANA. It is growing very rapidly. What is the factor?

[Unknown Executive]

Is this a question about the Japanese market? Of course, it is -- thanks to our sales capability, but the biggest factor is the nature of this product, which is a OD tablet. It's oral disintegrating tablet. The patients can take it without water. So that is the advantage of LIXIANA because it is important that the LIXIANA will be prescribed to every patient who have difficulty to swallow. So for those patients, oral disintegrating tablet is a good advantage and well accepted.

[Unknown Analyst]

Lastly, about crizotinib. In the U.S. and Europe, you received negative feedback for approval. Is there impact on Japanese market and also the positioning of the product in Japan?

[Unknown Executive]

Originally, the market for crizotinib is small. So even it is approved, but there is not much impact on revenue. If we cannot get the first-line indication based on QuANTUM-First, crizotinib's sales will not grow. But as I said before, the patients waiting for this, for sure. As long as they're able to use it, even though the impact may not be so big, we are hoping to contribute to these patients.

[Tatsuyuki Arai, analyst]

I am from Merrill Lynch. My name is Arai. I have one question only. ADC technologies. Licensing out of ADC technology to monetize to get profit short-term in the revised midterm business plan. For FY 2022, R&D costs will rise and 8201 and 1062 as well?

There is a higher evaluation of these compounds. And you have a great linker and payload technologies, and other companies' antibody technologies can be combined or added for joint development. Such a strategy for monetize the ADC technology can be a possibility. Regarding these strategies, what's your current view? I'd like to hear your thinking?

[Unknown Executive]

Yes. We have been taking such a strategy from before because ADCs are available in the world. There is T-DM1 technology. Even if we say our technology is great, if there is something else, which is already established, it's difficult. So we wondered whether we can work with other companies. Since the disclosure of a patent, we have been taking action. Recently, we also handle other companies' antibodies. They're not in the clinical stage yet. So that's why it's not included in the slides, but there would be time when we would share such information. We are taking such action already.

But we are too busy with our products, I mean, our researchers. Are we going to expand this area substantially? That's a difficult, separate question, but we're already taking such action.

[Shinichiro Muraoka, analyst]

Morgan Stanley. My name is Muraoka. So to ask Page 27, 8201 chart. How do you read this chart? Other than breast cancer, gastric cancer CRC and NSCLC second line or first line. Up to that level, in December, you can explain the details. So are there really in such state?

[Unknown Executive]

First line, not yet. Not yet for first line. But to make it larger, we should go to earlier lines as much as possible. Earlier lines of therapy. There's one thing we have to be careful about is safety, ease of use and safety. But about safety is a question.

We accumulated our experiences. Early onset of adverse events to be controlled. If that happens, we can go to earlier lines, but towards maximization, earlier lines are important. So we are discussing right now. To what extent? Why it is not too clear, but that's the message we are discussion -- we are having discussions.

[Unknown Analyst]

8201, just briefly. Advisory committee, is that going to be a possibility before April 29? Or is it better to just wait for April 29?

[Unknown Executive]

It's not my decision. During the course of the discussions, you can imagine [indiscernible].

[Unknown Analyst]

Could you give me any clue?

[Unknown Executive]

Well, I should not be a person to give you a clue, but maybe I should stop here.

[Yo Mizuno, analyst]

I am Mizuno from Tokio Marine Asset Management. I have 3 questions. Firstly, about the Page 21. You mentioned the JPY 100 billion of the CapEx in the future. This is for linker and payload, I assume. And what about the location? For the geographical risk hedge, are you planning to build a new plant somewhere in the future? And in the future, when the demand jumps up, what about the demand and the supply balance for the DS-8201 and 1062? And because of the partnership with AstraZeneca, do you have to give a priority and supply the linker to 8201?

[Unknown Executive]

This is about investment, we must make an investment in various areas, including antibody, linker, payload and conjugations. So we are discussing internally and also involve the external parties like a CMO. We want to consider geographical perspective, but it's difficult to identify the candidate locations. As I mentioned earlier, 8201 must be maximized together with AstraZeneca, and there's no change for that. So currently, we are taking many different initiatives to prepare sufficient production for clinical use and commercial products and IP.

[Yo Mizuno, analyst]

Second question about Page 27. The plan for DS-8201. As a principle, you are going to use ADC to replace chemotherapy. And you mentioned that combo of the nivolumab and pembrolizumab, but it's not proceeding very well. Is that because of the AstraZeneca's PD-L1 because you have PD-L1 that is serving an obstacle?

[Unknown Executive]

No, that's not right. Well, the treatment has to be in a combination with I/O all the time? We must consider that again. ADC and I/O is a very reasonable combination. So first, work on the disease with ADC quickly and then improve immune system in the body and maintain the treatment effect. So ADC plus I/O is quite reasonable, but now we are seeing sufficient efficacy from ADC stand-alone, so we should focus on that also, but I am not excluding the idea.

To answer your first question. DS-1062 and DS-8201, we have sufficient production capabilities for these products. And we have to be ready for the further increase of the demand and there is an antibody production capability available around the world. So we should consider which area, which site should be used first.

So in summary, we have a sufficient preparation to supply commercial launch plan and also the IPs.

[Yo Mizuno, analyst]

Last question about the R&D expenses was actually decreased in this fiscal year because of the cost sharing with AstraZeneca? Or -- so there is a cost sharing with AstraZeneca, but is there anything else, any other initiatives, internal initiatives to reduce R&D expenses?

[Unknown Executive]

As for R&D expenditure. In terms of the payment by AstraZeneca, it has not been made public by us, but this time, on Page 5, JPY 7 billion, decreasing costs. This is mostly due to cost-sharing with AstraZeneca. Sorry, it's qualitative, but thank you for your understanding. Thank you.

Any other questions. It's almost time. So we'd like to close this meeting here. Thank you very much indeed for coming today.