Daiichi Sankyo Co Ltd

TSE:4568

Earnings Call Transcript 2021-Q2

[Junichi Onuma, executive]

Now we'd like to start Daiichi Sankyo's Conference Call for FY 2020 Second Quarter Financial Results Announcement. I am Onuma from Corporate Communications Department. I'm delighted to serve as emcee today. Thank you for your time.

Today, Sunao Manabe, President and CEO, is going to give you an overview of our financial results. And then Wataru Takasaki, Head of R&D Division, will give you our R&D update. After the presentations, we will entertain your questions. Please note that we are recording this session. Thank you for your understanding.

President Manabe, please.

[Sunao Manabe, executive]

Manabe speaking. Thank you very much for joining Daiichi Sankyo's conference call despite your very busy schedule today. I would like to explain our financial results for the second quarter of FY 2020 we announced at 12:30 p.m. on October 30, based on our presentation materials. Today, I'm going to talk about our actions against COVID-19, FY 2020 second quarter consolidated financial results, FY 2020 forecast, and our business update, in that order. Then Wataru Takasaki, R&D Division Head, will give you our R&D update. We will entertain your questions at the end.

Page 3 is an update on our actions against COVID-19. We are participating in fundamental research supported by AMED and pursuing the development of a genetic vaccine, DS-5670 using Daiichi Sankyo's unique novel nucleic acid delivery technology. In August, we were selected to be a provider for MHLW's Emergent Initiative to Build Production Capacity for COVID-19 Vaccines. We will build production capacity at the production subsidiary, Daiichi Sankyo Biotech, and aim to build production platform technology in Japan that can accommodate not only COVID-19, but also emerging and reemerging infectious disease vaccines in the future.

Furthermore, at the end of August, we were also selected to be a company for AMED's drug discovery support program, development of a vaccine for the novel coronavirus disease. We are developing DS-5670 as one of the top priority projects, so that we can deliver a safe and effective vaccine as soon as possible. We are aiming to initiate clinical studies in around March 2021.

Next, let me talk about our FY 2020 second quarter consolidated financial results. First, this is an overview of the second quarter results. Consolidated revenue was JPY 480.2 billion, up JPY 600 million or 0.1% year-on-year. Cost of sales decreased by JPY 8.5 billion from the previous year. SG&A cost increased by JPY 18.2 billion. R&D expenditure rose by JPY 18.7 billion. As a result, operating profit was JPY 58.5 billion, down JPY 27.7 billion, or 32.1% year-on-year.

Pretax profit decreased by $20.1 to JPY 67 billion. Profit attributable to owners of the company was JPY 51.7 billion, down JPY 12.8 billion or 19.8% from the previous year. As for the currency rates, the U.S. dollar was JPY 106.92. The yen appreciated by JPY 1.71 against the dollar. The euro was JPY 121.29. The yen appreciated by JPY 0.12.

From here, I'd like to explain positive and negative factors for revenue compared to the previous year. Revenue increased by JPY 600 million year-on-year. Let me explain its breakdown by major business unit. First, in our Japan business, including domestic sales and marketing, vaccines and health care business, sales increased for pain treatment, Tarlige, which was launched in April last year. Sales also rose for Daiichi Sankyo Espha product, thanks to contribution by Memantine AG, Ezetimibe AG, et cetera, launched in June this year. However, sales of Alzheimer disease treatment, Memary, and direct oral anticoagulant, LIXIANA, and vaccine business revenue declined. And Daiichi Sankyo Healthcare product sales decreased due to COVID-19 impact, et cetera. So revenue decreased by JPY 10.5 billion for Japan business as a whole.

Next, let me explain our overseas business. Here, ForEx impact is excluded. Revenue for Daiichi Sankyo, Inc. in the United States increased by JPY 9 billion, thanks to the contribution by anticancer agent, ENHERTU, launched in January this year. On the other hand, revenue for American Regent in the United States decreased by JPY 8.4 billion due to decreased sales of Injectafer and Venofer for iron deficiency anemia and generic injectables due to COVID-19 impact, et cetera. Revenue for Daiichi Sankyo Europe increased by JPY 11.1 billion due to an increase in LIXIANA sales and the booking of gain on sales from transferring long-listed products in June.

As for Trastuzumab Deruxtecan and DS-1062 upfront payment and regulatory milestone in our strategic collaboration, revenue increased by JPY 1.5 billion due to the revenue recognition of DS-1062 upfront payment up to the second quarter this year. ForEx impact decreased our revenue by JPY 4.4 billion in total. Page 7 shows positive and negative factors for operating profit. Let me explain the profit decrease of JPY 27.7 billion by item. As was explained earlier, revenue increased by JPY 600 million, including the decrease of JPY 4.4 billion due to ForEx impact.

Next, I will explain expense items by excluding ForEx impact and special items. Cost of sales decreased by JPY 2.9 billion due to the improvement of COGS ratio by product mix. SG&A costs increased by JPY 9 billion. Cost decreased because of reduced business activities due to COVID-19, but expenses related to ENHERTU increased. R&D expenditure rose by JPY 19.5 billion due to an increase in R&D investments for 3 ADCs and our oncology development structure enhancements. Cost decreased by JPY 2.8 billion in total due to ForEx impact. Special items had an impact to increase our cost by JPY 5.5 billion compared to the previous year. I will explain the breakdown of special items later.

Profit decreased by JPY 20.6 billion, excluding ForEx impact and special items. This page shows the breakdown of the special items. In the second quarter of FY 2019, we booked JPY 1.3 billion restructuring costs in supply chain, JPY 3.8 billion impairment loss for intangible assets and JPY 10.6 billion gain on sales of fixed assets. So special items had an impact to decrease the cost by JPY 5.5 billion in total. But the lack of special items in the second quarter of this fiscal year had an impact to increase our cost by JPY 5.5 billion compared to the previous year.

Next, on Page 9, I will explain positive and negative factors for profit attributable to owners of the company. As I explained before, operating profit decreased by JPY 27.7 billion year-on-year, including ForEx impact and special items. Financial income/expenses, et cetera, had an impact to increase the profit by JPY 7.7 billion due to the recognition of JPY 4.8 billion financial income because of a decrease in contingent consideration of quizartinib acquisition and also due to improvement in ForEx gains and losses by JPY 3.5 billion. Income taxes, et cetera, decreased by JPY 7.3 billion year-on-year because of pretax profit decrease and also because of tax rate improvement due to the increase in tax credit for R&D expenses. As a result, profit attributable to owners of the company reached JPY 51.7 billion, down JPY 12.8 billion year-on-year.

Page 10 and 11 show revenue increase or decrease in yen by major business unit and by major product. Earlier on Page 6, I explained the situation of each unit by excluding the ForEx impact. But here, we are showing the results including the ForEx impact. Next, let me explain our FY 2020 forecast. For the revenue, the factors of increase include the sales increase due to the good sales of the new products such as ENHERTU and Tarlige as well as that we expect to recognize gain from the upfront payment for the strategic partnership agreement on DS-1062 with AstraZeneca entered into as of July. On the other hand, the factors of decrease are all attributed to the impact of the COVID-19 expansion. Specifically, we expect a revenue decrease caused by a holdback from medical consultation due to the expansion of COVID-19, the less prevalence of a seasonal flu with an increased hygiene awareness and the impact of revenue decrease with Injectafer, Inavir and Daiichi Sankyo Healthcare products, et cetera, caused by the diminished inbound demands.

Based on these factors of increase and decrease, we have revised the revenue forecast downward by JPY 10 billion, which resulted in JPY 960 billion. For the cost of sales due to the loss of disposal and valuation of inventory of some of the products, the cost is forecasted to increase by JPY 3 billion. For the SG&A expenses due to the increase in the stock price, the share-based remuneration offer to some employees in the U.S. subsidiary is expected to rise. Nevertheless, we forecast the cost reduction by JPY 8 billion in consideration of the expenditure restraint due to decreased business activities affected by the expansion of COVID-19.

For the R&D expenses, there was an increase of the R&D investment in the 3 ADCs as well as an increase of the share-based remuneration to the employees in the U.S. subsidiary, which led to our forecast of the cost increase by JPY 15 billion. Consequently, we made a downward revision of the operating profit by JPY 20 billion, resulting in JPY 60 billion. Although the forecast announced in April did not include the impact of COVID-19, the impact of COVID-19 and the strong R&D progress, exceeding the original plan, have been reflected in the forecast this time.

Although the expansion of COVID-19 is expected to affect negatively on our EBIT revenue, the restraint of the expenditure due to the impact on the business activities is expected at the same time. Therefore, we expect the impact of the COVID-19 expansion on our operating profit will be minor. However, if the social status of the infection exacerbates in the future, we will reconsider the impact at the time. Meanwhile, we took into the account of the factors other than COVID-19, such as the increase of the R&D investment on the 3 ADCs and the increase of the personnel expenses following the rise on the stock price, and we made a downward revision of operating profit by JPY 20 billion.

The profit before tax was revised downward by JPY 11 billion, by taking into account of the net financial income and expenses of the ForEx gains and losses, et cetera, until the second quarter, which resulted in JPY 69 billion. Also for the profit attributable to the owners of the company, the decrease of the profit before tax and the latest tax rate forecast are reflected in the downward revision of JPY 3 billion, resulted in JPY 53 billion.

Slide 14 is a summary of the breakdown of the revenue from Trastuzumab Deruxtecan and DS-1062. In the FY 2020 Q2 year-to-date results, the product sales of ENHERTU in Japan and the U.S. together was JPY 12.3 billion. The total sales, including the upfront payment for the agreement and the regulatory milestone payment, turned out to be JPY 17.7 billion.

For the FY 2020 forecast, since the product sales are strong in Japan and the United States, and the approval in Europe and the additional indication for gastric cancer in the U.S. are adding further to the regulatory milestone payment, we made an upward revision by JPY 7.9 billion from the forecast announced in April, ending with JPY 47.1 billion. Also, as for DS-1062, the confirmed upfront payment is JPY 105.5 billion. The FY 2020 Q2 year-to-date results is JPY 1 billion, and the FY 2020 forecast as of October is JPY 3.9 billion.

Next, I'd like to talk about the business update. The first topic is ENHERTU. Slide 17 shows the sales status of ENHERTU in Japan and the United States. ENHERTU has a strong start. As I mentioned before, we made an upward revision on the forecast of the product sales in FY 2020. The product delivery to approximately 1,600 outlets after 9 months of the product launch in January 2020 was achieved in the United States. The number of repeat outlets has been approximately 1,300. While we are still affected by a holdback from medical consultation due to the increase of COVID-19, ENHERTU units shipped to the accounts in October increased for more than 60% from the end of the previous fiscal year, and the increase in demand is also having an encouraging result.

Our supplemental BLA submission for the third line for HER2-positive gastric cancer was accepted this week. We are granted with the Priority Review and PDUFA date is February 28, 2021. In Japan, it was launched in May 2020, and we obtained the third line indication for HER2-positive gastric cancer. We will continue to deliver ENHERTU only to the medical institutions that meet the doctor and facility requirements. We will have thorough safety management in delivery of ENHERTU to the patients.

Next is about edoxaban. Slide 19 shows the changes of volume shares by country. Korea, Japan and Taiwan in Asia are growing steadily. And Belgium, Germany, Spain, Italy and U.K. and Europe are also showing a strong market penetration. Thereupon, the actual global sales until FY 2020 Q2 increased by JPY 5.4 billion year-on-year, which resulted in JPY 79.1 billion.

Slide 20 shows the sales share changes in Japan. LIXIANA's price was brought down by the special expansion repricing in April 2020, and the sales share in FY 2020 Q1 decreased. However, the growth rate in April through September were #1, and the sales share as of Q2 was 33.3%, maintaining the top share in the market. As a result, the actual revenue in FY 2020 Q2 year-to-date was JPY 38.3 billion, which was a reduction by JPY 3.5 billion year-on-year. However, the year-on-year comparison based on the previous drug price turned out to be an increase by JPY 9.2 billion of the revenue.

I'd like to introduce the results from the elderly care AF study conducted in Japan by targeting the non-valvular AF patients who are very elderly at high-risk of bleeding on Slide 21. The study compares 50 milligrams of edoxaban with placebo. In terms of the efficacy, edoxaban significantly reduce the incidence of stroke and others compared to placebo. For the aspect of safety, the annual incidence of major bleeding was higher with edoxaban compared to placebo, but there was no clear difference between the 2 arms in the incidence of clinically relevant intracranial hemorrhage. This result was presented during the European Society of Cardiology Congress in August and has been also published in The New England Journal of Medicine.

We submitted a supplemental NDA in Japan in September 2020. We presume that there are more than 10,000 patients in Japan who are targeted in this study. Next is about an update on our Japanese business. We signed an agreement with Eli Lilly Japan today to co-promote a first-in-class migraine prevention drug, galcanezumab, in Japan. This product was approved in the United States in September 2018, and it has been sold under a commercial name of Emgality. It is currently sold in 20 countries worldwide.

The mechanism of action is that it is a monoclonal antibody designed to specifically bind to calcitonin gene-related peptide, CGRP, which is regarded to be associated with migraine, thereby inhibits binding of CGRP to its receptor. The target indication is suppression of migraine attacks, and the NDA was submitted in Japan in January this year. Daiichi Sankyo is responsible for distribution and sales under co-promotion with Eli Lilly Japan and will be booking for sales. We are aiming to contribute to the improvement of QOL of patients with migraine and to expand our product portfolio for the sustainable growth of our business in Japan through this sales partnership.

Next is about shareholder returns. We have decided to acquire and cancel our shares today. We will go ahead and acquire our own shares with a maximum aggregate acquisition cost of JPY 100 billion or with the maximum number of acquired shares to be 60 million shares. After that, we will cancel 180 million shares, excluding the shares to be used for stock option and the restricted share-based remuneration. We have indicated that our shareholder returns policy between FY 2016 and FY 2022 will include the total return ratio to be 100% or more by offering JPY 7 or more per year of ordinary dividends and having a flexible acquisition of our own shares.

Based on this policy, we decided to split 1 ordinary share into 3 shares as of the effective date of October 1, 2020. The dividend per share in FY 2020 will be JPY 81, which is an increase of JPY 11 based on the pre-split shares. Because of our decision made today to acquire JPY 100 billion of our own shares, the total return ratio from FY 2016 to FY 2020, based on the forecast in FY 2020 is expected to exceed 110%. We will continue to work on the growth investment on the 3 ADCs and optimization of our capital composition, leading to an enhancement of the shareholder returns.

The following presentation is about an update on R&D. I'll ask the General Manager of R&D, Mr. Takasaki, to take over from here.

[Wataru Takasaki, executive]

Takasaki speaking. Today, I would like to give you our R&D update. First, on 3 ADCs. Page 28 and 29 show a clinical development plan for DS-8201. Today, I'm going to talk about the studies highlighted in the orange box. First, an update on breast cancer. Let me explain the studies we started since the second quarter and their objectives. As was mentioned in the first quarter results announcement meeting, DESTINY-Breast05 is a Phase III study to make a head-to-head comparison between DS-8201 and T-DM1 in HER2-positive breast cancer patients with residual disease, even after surgery. We are planning to initiate this study soon. DESTINY-Breast07, our Phase I/II studies to confirm the efficacy of DS-8201 in combination with various antitumor agents in HER2-positive breast cancer in the second line and first-line settings. These are fundamental studies for development in early lines of therapy in HER2-positive breast cancer.

Next, let me explain studies in HER2 low breast cancer. DESTINY-Breast06 is a study in HER2 low and HR+ breast cancer patients who have progressed even after endocrine therapy. This is a Phase III study to compare DS-8201 against the physician's choice of therapy in chemo-naive patients. We initiated the study in August this year. DESTINY-Breast08, our Phase I/II studies to confirm the efficacy of DS-8201 in combination with various antitumor agents in HER2 low breast cancer. These are fundamental studies for development in early lines of therapy in HER2 lower breast cancer.

Next, an update on gastric cancer. Let me explain the data in HER2 lower gastric cancer. The results from exploratory cohorts of DESTINY-Gastric01 study we presented at ESMO in September. In exploratory cohorts, we divided HER2 low expression into 2 groups based on immunostaining for evaluation. Confirmed ORR was 26.3% in cohort 1 with slightly more HER2 expression among HER2 low, and 9.5% in cohort 2 with less HER2 expression. Currently, no HER2 directed therapies are approved for HER2 low gastric cancer. Patients receiving these lines of therapy, the target population in the study, are mainly treated with chemotherapy agents.

ORR with those standards of care is around 10%. So higher antitumor effect was demonstrated compared to that. On the other hand, we will continue to verify our future development plan due to a small sample size. The results of primary cohorts in HER2-positive gastric cancer were already presented at ASCO in May this year. Safety data is shown here. There is no significant difference in safety profile compared to the previously reported DS-8201 safety information. One case of ILD was observed each from cohort 1 and cohort 2, respectively.

Next, let me explain DESTINY-PanTumor02 study. This is a basket study in HER2-expressing tumors as HER2 is said to be expressed in many tumor types in addition to breast, gastric, lung and colorectal cancer. HER2-positive rate is shown in a picture on the left for your reference.

From Page 35, I'd like to explain the interim results of Phase I study for U3-1402 in NSCLC presented at ESMO. This waterfall chart shows this change in some of diameters from baseline. Each bar represents the results of each patient. Tumor reduction was observed in about 2/3 of the patients. Different colors under each bar represent diverse mechanisms of resistance to occur after TKI dosing. U3-1402 demonstrated antitumor activity against any mechanism of resistance.

This page shows a list of efficacy data, spider chart and swimmer plot. Although patients with shorter duration of administration were included, early antitumor activity was observed, and ORR was 25.0%. 28 patients are ongoing with the study treatment and tumor assessment has not been confirmed in some patients, so ORR may be subject to change. Next page shows safety data. As you can see, U3-1402 is continuing to demonstrate a manageable safety profile. There were 3 ILD events.

Next is about an update on the Alpha project. As it has been announced on our press release, the Phase I trial of DS-1055, which is an antitumor immunity project, has started since October. This slide illustrates the part that DS-1055 works in the immune cycle. Unlike Opdivo or KEYTRUDA, it targets the regulatory T cells, also called Treg cells, which suppress immune responses. I will explain the specific mechanism of action on the next page.

Since Treg cells are regulated by Teff cells in the cancer environment, the immuno balance is tilted toward the immunosuppression side. GARP is known to have a selective expression on activated Treg cells and DS-1055 binds specifically to GARP. As a result, it reduces the activated Treg cells and the Teff cells original antitumor activity is recovered, leading to the death and the elimination of the cancer cells. This is the Phase I study design, which targets solid cancers including head and neck cancer, gastric cancer, esophageal cancer and others, which are known to have a large number of Treg cells.

We are also considering a concomitant use with an immune checkpoint inhibitor. The following pages cover the future news flow. We are scheduled to present results from the long-term study of DESTINY-Breast01 for DS-8201 and the results from the breast cancer study for U3-1402 at the San Antonio Breast Cancer Symposium in December 2020. We will also present the interim data from the DS-1062 lung cancer study at the World Conference on Lung Cancer in January 2021. We were supposed to submit DS-1647 in the first half of this fiscal year, but we are currently taking time to prepare for the submission. And the submission itself is expected to be in the second half of this fiscal year.

We'll do our best to complete the submission as quickly as possible for the sake of the patients waiting for this drug. Any updates from the previous quarter are indicated with an orange color. Please have a look at them later. Lastly, this is an overview of our R&D Day in this fiscal year. It will be held virtually this year by taking account of COVID-19. We are currently working on the content. We will notify you about the details later, so please look forward to it. Slide 45, and the following pages are an appendix. They are a list of the milestones in the pipeline tables on those pages. Check out those pages also later.

That concludes my presentation. I'd like to start taking questions from you. Let's get started.

[Operator]

Today, we have Manabe and Takasaki, who presented the slides. And also Toshiaki Sai, EVP and CFO, who are going to answer your questions. Now let's begin Q&A session.

[Kazuaki Hashiguchi, analyst]

Hashiguchi from Daiwa Securities. First, on sales of ENHERTU. You have made an upward revision of your full year forecast, both in Japan and in the United States. But the level of the upward revision is very different. The revision is bigger in Japan compared to the original forecast. What's your view on this background? Do you feel any difference between Japan and the United States in terms of competitive situations, the evaluation of the drug per se, et cetera? Could you explain, if any?

[Junichi Onuma, executive]

Manabe would like to respond.

[Sunao Manabe, executive]

Due to the initial year with sales, it's difficult to say how much we can expect. We made a little conservative estimation for Japan at the beginning. But we thought we can expect sales after monitoring the situation for a while. That's why we are revising.

[Kazuaki Hashiguchi, analyst]

So there is just a slight difference in your forecast between Japan and the United States. And the evaluation in the field is not so different, according to your understanding?

[Sunao Manabe, executive]

Yes, that's our understanding.

[Kazuaki Hashiguchi, analyst]

Secondly, you disclosed the initiation of Phase I study for DS-1055, and its mechanism was also explained. AbbVie is developing a compound with the same mechanism. I think you're starting later. How are you going to differentiate?

[Junichi Onuma, executive]

Takasaki would like to respond.

[Wataru Takasaki, executive]

Are you talking about AbbVie's ABBV-151 targeting GARP? Phase I study started in January 2019. This is to inhibit signals only for TGF-ß, since one of the multiple Treg immunesuppression mechanisms. In that sense, we think our DS-1055 has competitive edge as it can deplete Treg itself.

[Kazuaki Hashiguchi, analyst]

So you're saying that to begin with, the mechanism is slightly different, right?

[Wataru Takasaki, executive]

Yes. The target GARP is the same, but the mechanism is different.

[Kazuaki Hashiguchi, analyst]

Lastly, on the development status of DS-1062, some information on Phase II study is disclosed on ClinicalTrials.gov, such as 2 doses, 6 and 8-milligram per kilo to be studied. I think you increased the sample size to study 4-milligram per kilo also in Phase I. What's your perception of the dose setting right now? 4-milligram per kilo was studied, but the results were not so good.

[Junichi Onuma, executive]

Takasaki would like to respond.

[Wataru Takasaki, executive]

We are still in a stage to identify the dose setting by considering the mid- to long-term safety. We are not yet in a stage to share our finalized plan.

[Kazuaki Hashiguchi, analyst]

So do you mean that you have not decided to narrow down the dosage just the 6- and 8-milligram per kilo?

[Wataru Takasaki, executive]

Correct. 4-milligram per kilo cohort is still ongoing. We'd like to consider comprehensively in total.

[Akinori Ueda, analyst]

Ueda from Goldman Sachs Securities. First, I have a question on your revised forecast on Page 13. You mentioned an increase in R&D investments for 3 ADCs as a factor to increase R&D expenditure. Any particular upside in R&D expenditure for ENHERTU, for example? Could you elaborate on the details? Could you also explain when the DS-1062 development plan will be clearer after collaboration? And how we should look at the R&D expenditure level for next year and beyond?

[Wataru Takasaki, executive]

Regarding your first question about our forecast for R&D expenditure, the progress of studies such as DESTINY-Breast02, 03 and 04 for DS-8201 is exceeding our plan in the second quarter. This enabled the front-loading of the schedule by about 4 months for DESTINY-Breast02 and 04 studies. As for gastric cancer, use in the third-line settings was approved additionally in Japan and submission of sBLA was accepted by U.S. FDA. We are increasing our activities towards this, which led to an increase in cost.

Thanks to these efforts, we were able to accelerate our development for gastric cancer in the second-line settings. As for CRC, we have been making steady progress in our plan as we presented at ASCO, so we are exceeding the budget here as well. Regarding DS-1062, as we watched the status of competitive product, we started enrollment of patients with triple-negative breast cancer, also with steady progress. These projects and others are behind an increase in R&D expenditure.

[Junichi Onuma, executive]

Sai would like to add.

[Toshiaki Sai, executive]

You wanted to ask about our view on mid- to long-term R&D investments. In principle, we are hoping to communicate in the fifth midterm business plan, we are planning to announce in around March through April in 2021. We think we should focus on investments, particularly in the early half of the 5-year period. So we will consider this point and make active investments.

[Akinori Ueda, analyst]

What about the development plan for DS-1062 after collaboration? It will be clearer to a certain extent at the time of your midterm business plan announcement.

[Wataru Takasaki, executive]

Yes, you can understand that way. We think we can explain a little also during our R&D Day.

[Akinori Ueda, analyst]

Thank you. Secondly, I want to ask a question about your revised forecast for Venofer and Injectafer. The amount of reduction is bigger for Injectafer. What is your idea behind this? I think you have an assumption that there will be a recovery to a normal level in the second half. Can I understand that an outlook for recovery is already in sight?

[Junichi Onuma, executive]

Sai would like to respond.

[Toshiaki Sai, executive]

We observed a reduction of injectables for iron deficiency anemia, in particular, due to COVID-19 impact. It's recovering to usual prescriptions from around the latter half of the second quarter. On a whole year basis, there were reductions due to a decrease in the first quarter and at the beginning of the second quarter, but we are assuming a steady progress towards the second half, as was shown in the past.

[Akinori Ueda, analyst]

Thirdly, I have a question about the vaccine development schedule. According to Phase III, you plan to initiate clinical studies for your COVID-19 vaccine in around March next year. Around when are you aiming to launch this vaccine after implementing Phase III study, et cetera? Are you going to engage with your vaccine business with more focus for other vaccines as well going forward? Could you please explain your business policy?

[Junichi Onuma, executive]

Manabe would like to respond.

[Sunao Manabe, executive]

We are hoping to initiate clinical studies in around March next year. Now we are discussing with the regulatory authorities what studies will be required in the future. The government wants to make vaccines available to the society as soon as possible in many ways by early implementation of clinical studies. On the other hand, some say that Phase II and Phase III studies will be required due to safety concern. We will watch the status of other vaccines ahead of us and discuss Phase III study and the future launch with the regulatory authorities. We are developing our messenger RNA vaccine with Daiichi Sankyo's unique technology right now. Of course, this can be applied to diseases other than COVID-19 infections, so we try to treasure this as part of our vaccine business for the future.

[Operator]

Next, Mr. Muraoka from Morgan Stanley Securities.

[Shinichiro Muraoka, analyst]

Muraoka from Morgan Stanley Securities. Regarding your operating profit forecast of JPY 60 billion, you already achieved JPY 58.5 billion. So I'm not sure about this level. Considering your spending in the next 6 months, you tend to have more profits in the third quarter and less in the fourth quarter. Then at the end of the third quarter, your operating profit would substantially exceed JPY 60 billion, but land at JPY 60 billion level after 12 months in the end. Should I have such an image?

[Toshiaki Sai, executive]

As you pointed out, based on our usual spending pattern, profit peaks in the third quarter and drops substantially in the fourth quarter in usual years, according to the tendency. We are assuming a similar pattern here, and we are not expecting any change in the overall tendency.

[Shinichiro Muraoka, analyst]

As for your R&D expenditure forecast of JPY 243 billion, it's included in your budget, but you may not spend that much due to cost-sharing as was the case with ENHERTU before. Is there any such possibility with this figure?

[Toshiaki Sai, executive]

We think this is our current forecast as of now. As Takasaki mentioned before, in studies with good progress, we'll continue to go smoothly. Including the front-loading and the acceleration of our schedule, we can expect this level of R&D expenditure.

[Shinichiro Muraoka, analyst]

So this is the number after reflecting factors such as cost-sharing for DS-1062, correct?

[Toshiaki Sai, executive]

Yes.

[Shinichiro Muraoka, analyst]

Understood. Also, I want to ask you about your view on the data readout next year. There was a chart on Page 28 and 29 on DS-8201, in particular. Looking at where the arrows are pointing, there is almost none in the first half of the fiscal year, but there are, including HER2 low, from the middle of the fiscal year through the second half. Should I assume that there is not going to be a lot of data readout in the first half of next year?

[Junichi Onuma, executive]

Takasaki would like to respond.

[Wataru Takasaki, executive]

We can expect data readout from DESTINY-Breast02 study, a head-to-head comparison against T-DM1, right. That may be the only one as of now. The rest will come in the second half. Yes, your understanding is correct.

[Shinichiro Muraoka, analyst]

Understood. Lastly, regarding your vaccine against COVID-19, DS-5670, logistics and distribution can be challenging if storage temperature of minus 70 degrees celsius is required, like Pfizer's vaccine. If that's going to be the case, do you have to make a lot of efforts to prepare and address the situation, although it may be too early to say?

[Sunao Manabe, executive]

Manabe speaking. Temperature control usually required for flu vaccines will be fine.

[Shinichiro Muraoka, analyst]

Then you're going to use the current distribution system for flu vaccines?

[Sunao Manabe, executive]

Yes. That's our assumption.

[Fumiyoshi Sakai, analyst]

Sakai from Crédit Suisse Securities. DS-1062, anti-TROP2 ADC was not explained, maybe because you have just formed a collaboration with AstraZeneca. But needless to say, the external environment, the competitive environment, is likely to change dramatically due to Gilead Sciences. I am hoping that this will accelerate your development policy and your plan with AstraZeneca. You are prioritizing lung cancer for the time being and initiating studies in TNBC, triple-negative breast cancer, as well. This is clearly mentioned in the materials and mentioned by you. But are there anything else you need to accelerate next? Please share, if any.

Also, I have a little concern about TROP2 expression level. Its relationship with response may not be so strong as HER2. Do you have any analysis related to this? This is my first question. Secondly, I couldn't hear clearly what Mr. Manabe said. But when he explained the capital structure, including share buybacks at the end of his presentation, he said you will enhance efficiency. Sorry, this may not be an appropriate question. I understand you're buying back your own share for JPY 100 billion, over 3% of the issued shares. But if you divide JPY 100 billion, the average purchase price per share is just JPY 1,600 or so. How are you going to implement share buybacks? These are 2 questions from me.

[Junichi Onuma, executive]

Takasaki will respond to your first question.

[Wataru Takasaki, executive]

Earlier, we talked about triple negative breast cancer, as you mentioned. We are hoping to explain the details of the clinical development plan during our R&D Day. We are discussing with AstraZeneca right now, so please give us some more time. As for biomarkers and correlation with TROP2 expression, the ongoing study is an all-comer study. So in that sense, we will judge from that study and implement other studies by TROP2 based patient selection, if necessary. We have a position that we'd like to proceed by carefully watching the current all-comer study data.

[Fumiyoshi Sakai, analyst]

Understood. Biomarkers, all-comer study and doses. You are going to select from the 3 doses you are using right now, 4, 6 and 8-milligram per kilo, right?

[Wataru Takasaki, executive]

Yes, your understanding is correct.

[Junichi Onuma, executive]

Manabe would like to respond to the other question.

[Sunao Manabe, executive]

What I explained earlier was on the page with an overview of the acquisition of our own shares, the acquisition of JPY 100 billion comes first. A total number of shares to be acquired is shown on the slide, but this is just a maximum number. Is it clear?

[Fumiyoshi Sakai, analyst]

Then you will implement share buybacks for JPY 100 billion. That's your commitment. Is my understanding, correct?

[Sunao Manabe, executive]

Yes, that's right.

[Hidemaru Yamaguchi, analyst]

Mr. Yamaguchi from Citigroup Securities. My first question is, I believe, ENHERTU's share of the third line in the United States is pretty high. If you have any updates on the share in the U.S. and the share in Japan, please tell me.

[Sunao Manabe, executive]

I'm sorry, but I don't have the data right now.

[Hidemaru Yamaguchi, analyst]

I see. Then I'll move on to the second question. If you figure out the answer later, please let me know. Now here's my second question. Since SABCS will happen before the R&D Day, I think you will get a lot of attention. But 8201 is rather an update, I believe, but U3's data of breast cancer became unstable for a time in the past. There was a guiding in the R&D Meeting last year that the explication will be lower a little bit. Well, the data for this year's SABCS focus on slightly a different direction from last time? Or are you not able to say 1 way or the other? If there's anything you can share with us about the points to pay attention to at SABCS, I appreciate it.

[Toshiaki Sai, executive]

Thank you for your question. As for the introduction at San Antonio, our intention is to demonstrate the data after enough amount of the patient data is accumulated, and we don't intend to include such message as an overall plan of the 1402 development at the time. I'm not supposed to talk about some part of the details. But we want to be very organized with the disclosable messages before the conference.

[Hidemaru Yamaguchi, analyst]

Understood. And lastly, I'd like to ask about 2 legal issues with Seagen, or formerly known as Seattle Genetics. One relates to the joint research with them in the past. And the second is about the possibility of infringing a newly issued patent, I believe. These are legal issues, and you have a counterpart. And I assume that there are some parts that you cannot comment at all. But please explain briefly about your take on them. And if you have any idea of the time frame for resolving these cases, please.

[Sunao Manabe, executive]

Yes. About the information I can introduce here is limited. First, in the case from last year, they claim that the ADC patent owned by Daiichi Sankyo belongs to them. It's currently an ongoing case with the consideration of bringing it to an arbitration or a litigation. For the very recent one, it's so recent that they obtained a patent on October 20th. And they claim that Daiichi Sankyo infringes that patent. In fact, we even doubt the establishment of this patent itself. And we believe that it's not established. Even if it is established, we don't believe we infringed their patent.

[Hidemaru Yamaguchi, analyst]

How about the timing? Are you able to foresee any time frame for the arbitration or litigation?

[Sunao Manabe, executive]

It will take some time. And about when it will be, I'll report to you if there is any progress, including the time frame.

[スティーブン・リュー, analyst]

Yes. This is Steven Liu from CLSA Securities. I'd like to ask you a question on behalf of Tony Ben (sic) [ Ren ]. Actually, my question relates to the previous question on Seattle Genetics litigation. I guess you can't disclose a lot of things, but are you going to book it as an allowance on the balance sheet? Or is it going to be reflected by using a different method? Let's start from there.

[Sunao Manabe, executive]

Daiichi Sankyo does not believe that their claim is valid. We are not considering what you just said.

[スティーブン・リュー, analyst]

Okay. Understood. My second question is about the method of managing an interstitial lung disease, ILD. Dr. Antoine Yver mentioned that a steroid is used in this case. But can you tell us about the progress of your new development?

[Wataru Takasaki, executive]

This is Takasaki. I'd like to comment on this. I'm sorry, but I'd like to understand the question better. Is this question about the management of ILD?

[スティーブン・リュー, analyst]

Yes, yes. It's about the way to manage ILD.

[Wataru Takasaki, executive]

Your understanding as to the treatment upon the incidence of ILD is fine. Also, we are having a campaign. It's a campaign that cuts across broad indications to increase the awareness among patients and health care professionals and to have a faster discovery of the disease. We are getting good results from this campaign because ILD is detected and treated during the low-grade stage. We are not talking about an increase or a decrease of the number of ILD. But rather, we are trying to prevent the progress of the disease to a serious ILD. We try to prescribe 8201 properly before it becomes serious so that we can bring the patient to an environment where the treatment can continue. So far, the ILD incidents before the launch has been suppressed extremely well, and there is no serious patient. I believe the management has been going well.

[Junichi Onuma, executive]

Next question is by Mr. Yonezawa from Yomiuri Newspaper.

[Tomofumi Yonezawa]

I'm sorry but this is digressing from the financial statement. But my question is to President Manabe. The Japanese government today requested the top people from the 3 economic organizations to offer distributed holidays during the end of the year and the new year period. I'd like to ask you about how your company took this request and how it is going to handle this request.

[Sunao Manabe, executive]

Yes. Thank you for your question. For the time being, we are not going to set up any additional holidays, and we will not facilitate the paid vacations either so far. However, I'm planning to call for an effort to prevent infections and health management from the end of the year to the new year. As for the work-related issues, to avoid any crowd, the last meeting in the end of the year has been, of course, canceled. We are also thinking about restraining ourselves from the courtesy visits to our business partners in the end of the year and the new year. The issue remained here is the first week in the beginning of the year. Any meetings during that period should be refrained. And I think it's okay for an individual to decide if he or she wants to use the paid vacation, if necessary.

[Unknown Attendee]

Yes. I'm [ Izaka ], and I'm an editor from [ Iyako Kezasha ]. I have 2 questions. I have 2 questions. One is about COVID-19 vaccine. Aside from your own development, AstraZeneca is developing a vaccine that is considered to be the most advanced one in the development worldwide. And they have a partnership with the Japanese government by offering a commitment to the supply. And I believe Daiichi Sankyo was discussing about joining that supply plan. I wonder what happened to that discussion. I'd like to ask you about it. If you have been already stepped down from that discussion, please tell me the reason.

[Sunao Manabe, executive]

Right. AstraZeneca and the Japanese government have been discussing about it, including the volume of supply. It depends how much AstraZeneca can supply, but Daiichi Sankyo would like to cooperate with them in terms of the vaccine preparation, including vial filling or even packaging. So basically, Daiichi Sankyo itself is keeping a passive attitude instead of having any discussions with the government or coordinating with other manufacturers in the industry, et cetera.

[Unknown Attendee]

You are not working aggressive at this moment?

[Sunao Manabe, executive]

Right. The discussions between AstraZeneca and the government come first. Once they decide on the supply volume and the timing, Daiichi Sankyo will take its position to cooperate with them.

[Unknown Attendee]

If that's the case, there is a vaccine you are developing by yourself. And there is AstraZeneca's vaccine. It may be possible for Daiichi Sankyo to supply to both?

[Sunao Manabe, executive]

For our vaccine, the clinical trial will be from March next year. It will take some time to conduct a thorough study after that to ensure safety. For AstraZeneca's vaccine, once the original solution is imported and supplied to Japan, it will be launched in an early stage.

[Unknown Attendee]

Okay. That means you have not reached any conclusion yet, correct? Daiichi Sankyo has not decided clearly if we want to be involved with manufacturing and supply of AstraZeneca's vaccine?

[Sunao Manabe, executive]

No, no. We will cooperate with them, but not on manufacturing. As I mentioned earlier, it's about vial filling and packaging. AstraZeneca will take the responsibility of handling the original solution.

[Unknown Attendee]

Well, AstraZeneca will be in-charge of the original solution. And what does Daiichi Sankyo do?

[Sunao Manabe, executive]

Manufacturing is involved in many different ways in filling the vials and packaging them before they are shipped out. It's quite difficult.

[Unknown Attendee]

I see. I understand. And I have one more question. There is a table to show the amendment to the forecast on Page 13 of your explanatory document. Under the factors of the revenue decrease, Inavir is included among the ones that have been impacted by COVID-19. I understand that there is a forecast of less prevalence of influenza due to the increase of COVID-19 infection. However, if I look at the forecast of Inavir described in the supplemental document, I'm afraid the drop is way too big. The forecast is reduced by almost 50%. Please explain the background of this a little more.

[Sunao Manabe, executive]

It's almost a flu season, but we hardly have any prevalence this year. People are wearing masks, washing hands and having much increased awareness for hygiene in Japan, which is leading to an extreme reduction of the flu. Everyone still wants to take a precaution to get vaccinated, but our forecast includes the expectation that the flu incidence will be suppressed greatly. Some people mentioned that they move away from it because it's an inhaler. As long as there is no incidence, they don't care if it's oral or inhaled. I believe the onset may be coming down.

[Unknown Attendee]

I'm Takagi from the Nikkei Newspaper. I'd like to ask President Manabe. Daiichi Sankyo was established in 2005, and it's been 15 years as of the end of September. Based on your recent performance, when you reflect on the merger between Daiichi Pharmaceutical and Sankyo, what do you think you have done so far? And what have you been able to achieve? I think you are currently working on a new midterm business plan for the future. But President Manabe, please tell me your opinion about the upcoming issues to be resolved and the matters to be handled in the future.

[Sunao Manabe, executive]

Yes. First of all, since we wanted to launch edoxaban and maximize it as soon as possible, we organized large-scale clinical studies. So we will get those results first. For the recent ADC development, we have been delivering the news in different occasions. And I'm sure people around ourselves are aware of it. First, the payload was from the former Daiichi Pharmaceutical. And the antibodies were owned by the former Sankyo. And it took 10 years to become an ADC and ultimately, ENHERTU. The research capabilities owned by the 2 drug discovery companies had a synergic effect which generated ENHERTU, I believe.

Our 2025 vision holds up the idea of being an advanced global discovery company with its strength in oncology. Since we have so many ADCs nowadays, we are confident that we can achieve it. In the next FY 2021 midterm business plan, we hope to launch 3 ADCs and anything that comes along after that. However, we took 10 years to launch ENHERTU. After that, we hope that we can find something that can satisfy our future during the midterm plan. We are currently exploring new things, including many different modalities.

[Unknown Attendee]

It's been already 15 years. So am I correct to recognize that the merger between the 2 companies has advanced much more or has been completed, and you are now one company?

[Sunao Manabe, executive]

After the integration an increasing number of people joined our company. After 15 years, as you said, we are now moving toward a very good direction. And I think we have already completed such a process. Thank you.

[Junichi Onuma, executive]

It seems that there are no further questions. So that concludes the financial results presentation by Daiichi Sankyo. Thank you so much for your participation.