Daiichi Sankyo Co Ltd

TSE:4568

Earnings Call Transcript 2022-Q2

[Operator]

Thank you very much for waiting. Now we'd like to start Daiichi Sankyo's Conference Call on Fiscal Year 2021 Second Quarter Financial Results. We are recording this session today. Thank you for understanding. Thank you for your understanding. Please start the meeting.

[Sunao Manabe, executive]

Manabe speaking. Thank you very much for joining Daiichi Sankyo's financial results announcement meeting out of your very busy schedule today. I'm going to explain our FY 2021 second quarter financial results we announced at 1 p.m. on Friday, October 29, Japan time, based on the presentation materials.

Please turn to Page 3. Today, I'm going to cover FY 2021 second quarter consolidated financial results, FY 2021 forecast and 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.

Please turn to Page 4. This is an overview of our FY 2021 second quarter results. Consolidated revenue increased to JPY 530 billion up JPY 49.8 billion or 10.4% year-on-year. Cost of sales increased by JPY 4 billion from the previous year. SG&A expenses rose by JPY 17.1 billion. And R&D expenditure increased by JPY 4.4 billion year-on-year.

As a result, core operating profit increased to JPY 82.7 billion, up JPY 24.3 billion or 41.7% year-on-year. Temporary income increased by JPY 2 billion year-on-year.

As a result, operating profit, including temporary gains and losses, increased to JPY 84.7 billion, up JPY 26.3 billion or 44.9% year-on-year. Profit attributable to owners of the company was JPY 62.5 billion, up JPY 10.8 billion or 20.9%.

As for the actual currency rates, the U.S. dollar was JPY 109.80. The yen depreciated by JPY 2.88 against the dollar year-on-year. The euro was JPY 130.89. The yen depreciated by JPY 9.60 against the euro.

Please turn to Page 5. From here, let me explain positive and negative factors for revenue compared to the previous year. Revenue increased by JPY 49.8 billion year-on-year. I would like to explain its breakdown by major business units. First, in Japan business, sales of Alzheimer's type dementia treatment, Memary, decreased with the launch of generics in June last year. Vaccine business revenue decreased due to seasonal influenza vaccine, but sales increased for direct oral anticoagulant, Lixiana; pain treatment, Tarlige; and anticancer agent, Enhertu. In addition, Daiichi Sankyo Espha; and Daiichi Sankyo Healthcare products contributed as well. So Japan business revenue increased by JPY 5.2 billion.

Next, let me explain our overseas business units. ForEx impact is excluded here. In Oncology business, sales of hypertension treatment, olmesartan, decreased, but anticancer agent, Enhertu, grew in the United States and was also launched in Europe in February this year. So revenue increased by JPY 6.7 billion.

Revenue for American region increased by JPY 16 billion as sales of iron deficiency anemia treatment, Injectafer; and generic injectables negatively affected by COVID-19 in the same period of last year made a recovery.

Revenue for EU Specialty Business increased by JPY 4.7 billion due to an increase in Lixiana sales in spite of a decrease in gain on sales from transferring long-listed products. As for Enhertu and Dato-DXd upfront payment and regulatory milestones related to a strategic alliance, revenue increased by JPY 2.7 billion due to factors such as the deferred revenue booking of Dato-DXd upfront payment starting from the second quarter of the previous fiscal year.

ForEx impact increased our revenue by a total of JPY 12.1 billion.

Page 6 shows positive and negative factors for our core operating profit. Let me explain the profit increase of JPY 24.3 billion by item. As I explained earlier, revenue increased by JPY 49.8 billion, including the increase of JPY 12.1 billion due to ForEx impact.

Next, I will explain cost of sales and expense items, excluding ForEx impact. Cost of sales was up just by JPY 3.4 billion. Revenue increased, but COGS ratio improved by changes in the product mix as sales increased for our in-house products such as Lixiana and Enhertu.

SG&A expenses increased by JPY 12.7 billion due to an increase in Enhertu-related profit sharing with AstraZeneca, et cetera.

R&D expenditure rose by JPY 1.9 billion because of an increase in R&D investments for the 3 ADCs, et cetera. Costs increased by JPY 7.5 billion in total due to ForEx impact.

Core operating profit increased by JPY 19.7 billion, excluding ForEx impact.

Page 7 shows positive and negative factors for profit attributable to owners of the company. As I explained earlier, core operating profit increased by JPY 24.3 billion, including ForEx impact. Temporary income and expenses increased our profit by JPY 2 billion year-on-year as we booked JPY 2.1 billion gains related to sale of Osaka logistics center to Taiyo Pharma Tech in June this year.

Financial income, expenses, et cetera, decreased the profit by JPY 7.3 billion year-on-year as we booked financial income of JPY 4.7 billion due a decrease in contingent consideration of quizartinib acquisition in the previous fiscal year, et cetera.

Income taxes, et cetera, increased by JPY 8.1 billion year-on-year due to an increase in pretax profit.

As a result, profit attributable to owners of the company increased to JPY 62.5 billion, up JPY 10.8 billion year-on-year.

Page 8 and 9 show revenue increase or decrease in Japanese yen by business unit and major product in Japan. Earlier on Page 5, I explained the situation of each unit excluding the ForEx impact, but here we are showing the results including the ForEx impact.

Next, let me explain our FY 2021 forecast. Please turn to Page 11. As we explained during the financial results announcement in July, we updated our assumptions on vials per infusion and treatment period per patient for HER2-positive breast cancer in the third-line settings in the United States. Enhertu sales forecast was revised downward against the forecast announced in April and demand for Inavir is falling. So we expect our revenue to decrease due to these factors. On the other hand, we expect our revenue to grow due to good performance of main products such as Lixiana and Injectafer and also due to ForEx impact.

Therefore, we have made an upward revision of our forecast announced in April by JPY 40 billion to JPY 1,030 billion. We now forecast an increase in cost of sales by JPY 10 billion as the costs are rising with revenue increase.

SG&A expenses are expected to increase by JPY 14 billion based on an increase in sales promotion expenses due to revenue increase and an increase by ForEx impact.

As a result, we have made an upward revision of our core operating profit forecast by JPY 20 billion to JPY 90 billion. Operating profit forecast has been revised upward by JPY 22 billion to JPY 92 billion as we booked as temporary income gains related to sale of Osaka logistics center in FY 2021 first quarter.

Based on the upward revision of operating profit and pretax profit numbers, our forecast of profit attributable to owners of the company has been revised upward by JPY 14 billion or to JPY 64 billion.

Next, I'd like to discuss the business update. Please look at Slide 13. Slide 13 shows the Enhertu performance. The Enhertu's sales has been increasing steadily due to its market penetration in launched countries. In the United States, cumulative results of the product sales in the second quarter of FY 2021 was JPY 19.7 billion or $180 million. The full year forecast is JPY 43 billion, which is $400 million.

The assumptions regarding the duration of dosing per patient in the third-line treatment of HER2-positive breast cancer and the number of vials used during dosing remain unchanged from the July announcement.

Growth in the target market is strong. The number of prescribed patients increased steadily in the second quarter, and it has been prescribed to more than 5,000 patients since its launch. The share of new patients continues to grow. And the share of new patients in the third-line treatment of HER2 breast cancer according to market research has expanded to the 40% range, maintaining the top share position.

In particular, the share of the [ non-brain ] metastasis group, which currently accounts for 70% to 80% of the breast cancer target market has expanded to the high 40% range -- 40% range. In addition, the share of new patients for the second-line treatment of HER2 positive gastric cancer has expanded to the 30% range. As the number of prescribed patients and the share of new patients are steadily expanding in the target market, we believe that the product strength of Enhertu is being accepted by prescribing doctors as planned. Furthermore, we are currently preparing for the acquisition of an indication for the second-line treatment of HER2-positive breast cancer and we expect that we will be able to contribute to the treatment of more patients in the future.

Sales in Europe are also doing well. Cumulative product sales for the second quarter of fiscal year 2021 were JPY 2.6 billion or $24 million. The full fiscal year forecast is JPY 6.2 billion or $58 million. The number of prescription patients is steadily increasing in Europe as well and it has been prescribed to more than 1,000 patients since its launch. The share of new patients in the marketed countries is also steadily expanding, and France and the United Kingdom each have the largest share in the current target markets. In addition, we are preparing for the acquisition of an indication for the second-line treatment of HER2-positive gastric cancer.

In Japan, the cumulative product sales for the second quarter of fiscal year 2021 were JPY 4.4 billion and are expected to be JPY 13.4 billion for the full year. It has been prescribed to more than 2,000 patients since its launch in Japan. And the share of new patients is expanding, and it was -- it has won the top share in each target market for breast cancer and gastric cancer.

In particular, the market share of the third-line treatment of HER2-positive gastric cancer has expanded to the 40% range and we believe that the product sales of gastric cancer will reach a level approaching that of breast cancer within this fiscal year.

Next is about Lixiana. Slide 14 shows trends in volume-based shares in each country. It is growing steadily in Japan and other Asian countries. And among them, the market share in China, which has been listed on the national medical insurance list and started to be reimbursed in March 2021 has risen. In Europe as well, it is growing steadily in major countries such as Spain, Italy, Germany and the U.K.

As a result, the cumulative global revenue for the second quarter of fiscal year 2021 was JPY 99.2 billion, an increase of JPY 20.1 billion from the same period of the previous year. Revenue for the full fiscal year of 2021 is expected to be JPY 196.7 billion, which is an increase by JPY 30.7 billion year-on-year.

Slide 15 shows the changes in the market share in Japan on a monetary basis. Although the sales share of Lixiana decreased in the first quarter of fiscal year 2020 due to the drug price reduction by the special expansion recalculation in April 2020, the market share expanded again after that. And the sales share as of the second quarter of fiscal year 2021 was 37.1%, maintaining the top share in that quarter.

As a result, the cumulative revenue for the second quarter of fiscal year 2021 was JPY 44.8 billion, an increase of JPY 6.6 billion from the same period of the previous year. Revenue for the full fiscal year of 2021 is forecasted to be JPY 93 billion which is an increase by JPY 15.6 billion year-on-year.

In August, additional dosage and administration were approved in Japan for elderly nonvalvular atrial fibrillation patients with a high bleeding risk, who previously was difficult to be prescribed with oral anticoagulants due to concerns about bleeding. It is estimated that there are more than 10,000 elderly patients with nonvalvular atrial fibrillation who have a high risk of bleeding and are difficult to treat directly with oral anticoagulant, and we expect that we can contribute to even more patients in the future.

Slide 16 introduces the new products in Japan. In August 2021, we entered into a commercialization collaboration agreement with Eli Lilly Japan for lasmiditan succinate, a treatment drug for migraine attacks. After obtaining approval in the United States in November 2019, this product has been sold under the product name of REYVOW and is currently sold in 4 countries around the world.

Lasmiditan selectively binds to and activates serotonin receptors, which have been shown to be associated with migraine pathology, thereby suppressing central pain transmission and overactivity of the trigeminal nervous system. It suppresses the release of neurotransmitters involved in migraine from the trigeminal nerve.

We have already completed the submission in Japan with the goal of obtaining an indication for migraine. Under joint sales promotion with Eli Lilly Japan, we will be in charge of distribution and sales and we'll book the sales related to this product. We aim to contribute to improving the QOL of more migraine patients through the total care support for migraine with the migraine attack suppressant, Emgality, in which the 2 companies have already formed a commercialization collaboration. Going forward, we will continue to expand our product portfolio for sustainable growth of our domestic business while making effective use of external resources.

Next, our R&D update. I'm handing over to R&D Division Head, Takasaki.

[Wataru Takasaki, executive]

Takasaki speaking. Today, I'm going to give you our R&D update. First, the highlights of our presentations at ESMO 2021 held last month. Please turn to Page 19. At this year's ESMO, we reported unprecedented data that can change the treatment of breast cancer patients and further demonstrate the strength of our unique ADC technology across multiple cancers. Specifically, we made 4 late-breaking presentations for Enhertu and Dato-DXd and presented for the first time the clinical data of DS-7300, the fourth DXd ADC under development.

This page shows the results of Enhertu DESTINY-Breast03 study presented at a Presidential Symposium, which demonstrated unprecedented highly statistically significant and clinically meaningful improvement in PFS compared to T-DM1. No serious ILD/pneumonitis was observed and manageable safety profile was demonstrated. So we are able to show definitive evidence that this is going to be a new standard of care for HER2-positive breast cancer in the second-line settings.

Please turn to Page 20. At ESMO, we demonstrated transformative potential of Enhertu across multiple HER2 targetable cancers, such as NSCLC and gastric cancer as well as breast cancer. This page shows the efficacy data of Enhertu DESTINY-01 and DESTINY gastric-02 studies presented at a late-breaking session. The data showed the potential for the first time that HER2-directed ADC may demonstrate tumor response in patients with HER2-mutated NSCLC. Durable tumor response was also demonstrated for the first time in Western patients with second-line HER2-positive gastric cancer.

Page 21 shows the subgroup analysis results of DATO-DXD Phase I study presented at a late-breaking session and the interim analysis results of the DS-7300 Phase I study explained in an oral presentation.

In Dato-DXd TROPION-PanTumor01 study, a subgroup analysis was performed in NSCLC patients with AGA or actionable genomic alterations. As ORR 35% was demonstrated, we could deepen our confidence in ongoing Phase II TROPION-Lung05 study for the same patient population.

As for DS-7300, we presented the interim analysis results of the Phase I dose-escalation part of the study, which showed promising early clinical activity in heavily pretreated patients with several types of advanced solid tumors as well as tolerable safety with no DLTs observed. This provides preliminary evidence that targeting B7-H3 with DS-7300 may become a new treatment strategy across several types of cancer where current therapeutic options are limited.

Next, an update on our 3 ADCs. Page 23 is about our development of Enhertu in HER2-positive breast cancer. Regarding DESTINY-Breast03 study, I mentioned earlier we obtained the data in August. Based on that data, we were great the designation for Real-Time Oncology Review by FDA.

In September, we were granted Breakthrough Therapy designation by FDA. Filing is planned to the health authorities in the third quarter of the current fiscal year.

In HER2-positive breast cancer, first-line and postneoadjuvant studies are ongoing, and we are planning a new adjuvant study as well. The results obtained from DESTINY-Breast03 study are significantly increasing their confidence in all of these studies.

Page 24 is about our development of Enhertu in gastric cancer, NSCLC and others. For HER2-positive gastric cancer, filing is planned in the third quarter of the current fiscal year in Europe based on DESTINY-Gastric01 and 02 study data.

We also started -Gastric06 a study in China in the third-line settings in September. We did not talk about our development of Enhertu in China before, but development in China is currently underway in rest and gastric cancers and AstraZeneca's outstanding strength in China is fully leveraged.

Since clinical data for Chinese patients is basically required for filing in China, Chinese patients have been enrolled in DESTINY-Breast03, -04, -05 and -06 studies for breast cancer and DESTINY-Gastric03 and -04 studies as well as -Gastric06 study I mentioned earlier for gastric cancer.

Next, about HER2-mutated NSCLC. We were granted Breakthrough Therapy designation by FDA for development in the advanced metastatic second-line settings and beyond. We obtained promising efficacy data as was shown on an earlier page. Funding strategy is now under discussion with the health authorities. As for development in the advanced metastatic first-line settings, we are planning to start Phase III DESTINY-Lung04 study in the third quarter of the current fiscal year to compare Enhertu against standards of care.

Slide 25 is about the development of Dato-DXd non-small cell lung cancer. In September, we signed a contract with Merck to conduct the TROPION-Lung08 trial. This study is targeted for the first-line treatment of NSCLC without actionable gene alterations and with high expression of PD-L1. It's a Phase III study comparing the combined effect of Dato-DXd and pembrolizumab with the pembrolizumab monotherapy.

The current standard of care is immunotherapy or a combination of immunotherapy with platinum. But about 40% to 60% of patients have advanced disease, so a breakthrough treatment approach is needed. We hope that the combined treatment of Dato-DXd and pembrolizumab will be a new therapeutic approach.

I'd like to continue to an update on Alpha. From Slide 27, I will talk about the discontinuation of the DS-6157, the fifth DXd ADC targeting GPR20. Please see Slide 28. GPR20 is one of the orphan G protein-coupled receptors and is highly expressed specifically in gastrointestinal stromal tumors, GIST. GIST is a mesenchymal tumor of the gastrointestinal tract and is a rare disease with an incidence of 1 to 2 in 100,000. It occurs mainly in the stomach and intestine and is caused by mutations in the KIT and PDGFRA genes.

In the dose-escalation part of the Phase I study in GIST, safety was evaluated at 6 doses from 1.6 to 12.8 milligrams per kilogram, but no clear efficacy signal was observed for GIST. So we decided to discontinue the development of DS-6157 without moving to the dose-expansion part. We are currently conducting a detailed analysis of the factors for nonresponsiveness, such as the expression of target antigens and pharmacokinetics. So far, we have not seen anything to impact the development of other DXd ADCs. Phase I data will be presented at the conference in the next fiscal year.

Please see Slide 29. I'd like to talk about DS-5670, which is a COVID-19 messenger RNA vaccine by Daiichi Sankyo. The unique feature of DS-5670 is the design of the antigen. It targets the receptor-binding domain, RBD, instead of the full spike protein of SARS-CoV-2. One of the advantages of targeting RBD is that it is shorter than the overall length of the spike protein, allowing nucleic acid to be encapsulated in LNP in an efficient and stable manner. The other point is that the risk of enhancement of infection is considered to be low because there are a few pathogenic epitopes compared to the full length of the spike protein.

Please see Slide 30. Infection occurs by the interaction between RBD, which is a spike protein of the coronavirus and ACE2, which is a surface receptor of host cells. There are leg-like structures such as hip, knee and ankle in the domain other than RBD. This domain has also been found to play an important role in the binding of RBD and ACE2.

When using the full spike protein antigen of variance, the domains other than RBD may affect the immunogenicity of the neutralizing epitope in RBD. On the other hand, when the RBD antigen of variance is used, it is not affected by mutations in domains other than RBD.

Please see Slide 31. Neutralizing activity against variance was measured using the cynomolgus monkey's plasma. Although the data were based on a limited number of 4 monkeys per group, neutralizing activity was also confirmed for each SARS-CoV-2 variant.

Please see Slide 32. In March of this year, we started a placebo-controlled Phase I/II study in healthy Japanese adults and elderly people and obtained the top line results this month. No major safety issues are observed by 4 weeks after the second dose in 142 patients who completed the second dose. In addition, it has been confirmed that the neutralizing antibody titer and the IgG antibody titer have increased. We are currently conducting a detailed analysis of the obtained data. As mentioned above, the results suggesting the potential as a COVID-19 vaccine were obtained from the Phase I/II study, and we will proceed with the further development of DS-5670.

Slide 33 shows future development plan for the DS-5670. The Phase II study will begin in November of this year to confirm safety and determine the dose for the Phase III study with a study drug of which process has been optimized for more stable quality. After that, the active controlled Phase III trial is scheduled to start later this year.

We are still in discussions with the authorities regarding the specific content of the study. The time of commercialization will be the same as the time previously announced. We are aiming for some time within calendar year 2022.

Next is the announcement about R&D Day. Please see Slide 35. As usual, we will hold the R&D Day in December this year. The time and date is from 7:30 a.m. to 9 a.m. on Wednesday, December 15, Japan time. Manabe and Takeshita will be on stage and it will be held virtually.

Next is about this year's news flow. On Slide 37, in addition to the topics to be presented at the San Antonio Breast Cancer Symposium and the American Society of Hematology in December, it describes the major milestones such as this year's regulatory decisions, planned regulatory submissions, key data readouts and planned pivotal study initiation. The parts shown in orange are additions from those shown in the first quarter financial results.

At the San Antonio Breast Cancer Symposium, we will update data from the Dato-DXd TNBC cohort released in May of this year. In addition, we are planning to submit an indication of adult T-cell leukemia and lymphoma with DS-3201 in the second half of this year. We plan to present the submission data from the Phase II study at the American Society of Hematology.

Slide 38 and beyond are an appendix. We have posted a list of milestones and pipelines there, so please have a look later.

That is all for my presentation. From here on, in addition to Takasaki and Manabe, CFO Okuzawa will answer your questions. So let's get started.

[Operator]

[Operator Instructions] First, Mr. Hashiguchi from Daiwa Securities.

[Kazuaki Hashiguchi, analyst]

Hashiguchi from Daiwa Securities. I have questions about your development. First about Enhertu development you explained on Page 23. This time, the description of the perioperative period in the left bottom includes neoadjuvant only, where Phase III study is planned. Previously, slides like this had a description of both adjuvant and neoadjuvant in parallel. You have discontinued your development in the adjuvant setting, so lowered its priority, is my understanding correct? If that is the case, what strategic decision have you made? Please explain.

[Wataru Takasaki, executive]

Takasaki would like to respond. We have not changed our plan. In order to make the content well understood, we developed the presentation materials and explained based on that flow.

[Kazuaki Hashiguchi, analyst]

In other words, out of the Herceptin sales in the perioperative period, you maintain a strategy to win your market share from both adjuvant and new adjuvant settings, correct?

[Wataru Takasaki, executive]

Yes. You can understand that way. Thank you.

[Kazuaki Hashiguchi, analyst]

I have another question. In TROPION-Lung08 study for Dato-DXd in combination with KEYTRUDA mentioned on Page 25, you're targeting high PD-L1 expression. What level of expression are you talking about here specifically? What about the possibility of starting first-line NSCLC development in patients other than the target population in TROPION-Lung08 study in the near future.

[Wataru Takasaki, executive]

Takasaki would like to respond. As for high PD-L1 expression level, 50% or higher is the current standard in the United States and Europe. We are planning to enroll subjects with high PD-L1 expression of 50% or higher. The standard of care in Europe and the United States is pembrolizumab monotherapy right now. It's used in patients twice as much compared to combination with chemotherapy. We think that is a standard of care in the United States and EU. First, we will compare the combination effect of Dato-DXd against the standard of care. Also in TROPION-Lung02 study, the pembrolizumab and pembrolizumab plus platinum agent arms as well. Based on the results we are planning another Phase III study corresponding to Lung08 study. That's the overall framework.

[Kazuaki Hashiguchi, analyst]

Around when can you start the combination study of using pembrolizumab chemotherapy and Dato-DXd? Also, if it's going to take some time, pembrolizumab plus DXD in PD-L1 high expressors compared to that regimen with chemotherapy, is there any difference in the level of your certainty as of now? Our certainty, you mentioned, is yet to come.

[Sunao Manabe, executive]

We will obtain that data while we confirm safety, which will lead to the start of LUNG08 study.

[Kazuaki Hashiguchi, analyst]

What about the timing to start the study also including chemotherapy in combination?

[Sunao Manabe, executive]

We are not disclosing the timing to start the study.

[Kazuaki Hashiguchi, analyst]

Okay. Understood. That's all for me.

[Sunao Manabe, executive]

If I may add, based on the results from the arms we set in TROPION-Lung02 study, we will plan a Phase III study for pembrolizumab chemotherapy plus Dato-DXd in combination.

[Operator]

Next Mr. Yamaguchi from Citigroup Securities.

[Hidemaru Yamaguchi, analyst]

Yamaguchi from Citigroup. Can you hear me?

[Sunao Manabe, executive]

Yes. We can hear you. Thank you.

[Hidemaru Yamaguchi, analyst]

As always, about your full year forecast, the ratio between the first half and the second half in the forecast. In your case, the first half results have a tendency to have a higher proportion in the full year forecast. That tendency is almost the same in the current fiscal year as well. You have achieved in the first half more than 90% of your full year forecast. There's going to be almost no profit in the second half based on your plan. Do you think these numbers are fine? Or can you still make profit in the second half, so there can be some upside as well. It's always difficult to tell in your case. What do you think?

[Sunao Manabe, executive]

A pattern in usual years is also going to be the same this fiscal year to a certain extent. This time, we have made an upward revision of our forecast. So we think that's going to be an appropriate landing at this moment in time.

[Hidemaru Yamaguchi, analyst]

Okay. Understood. Secondly, this is related to earlier questions. When I saw your press release about LUNG08 study, I understood you are developing -08 study plan based on -02 study. I don't think it's disclosed yet, but including your comments earlier, with some degree of certainty after our analysis of -02 study, you will design -08 study in collaboration between the 2 companies and then design a separate study for chemotherapy.

Because of this flow, when you develop -08 study plan, you already have some certainty about -02 study. That's what I can assume based on common sense. Is my understanding correct?

[Wataru Takasaki, executive]

Takasaki would like to respond. Efficacy data has not become completely available from -02 study yet. Data is beginning to emerge right now. As for -08 study, it will take time. So we will ask the regulatory authorities to review -02 study while we develop a -08 study plan. In that sense, we will proceed at risk in some areas, and we will also combine our nonclinical data to decide to start -08 study. Another important factor is that we are beginning to confirm the safety of the combination. That's true.

[Hidemaru Yamaguchi, analyst]

I see. I thought -02 study data would be presented at ESMO, but it wasn't. Around when can we see the data?

[Sunao Manabe, executive]

Presentation at congress or upcoming society meetings somewhere next year. We just have such a rough schedule right now.

[Operator]

Next, Mr. Muraoka from Morgan Stanley Securities.

[Shinichiro Muraoka, analyst]

Muraoka from Morgan Stanley. You mentioned there will be an update on Dato-DXd in triple-negative breast cancer at San Antonio Breast Cancer Symposium. I have a related question.

In May, ORR was 43%. According to the logic by Dr. Antoine Yver, the longer use, the higher efficacy. Can we expect ORR to be better? This is my question about Dato-DXd.

I wonder whether you will present data from DB03, DESTINY-Breast03 stratified analysis, in particular, detailed data about brain metastasis at San Antonio Breast Cancer Symposium. I'm hoping to see more comparison against [indiscernible]. What about that possibility?

[Sunao Manabe, executive]

Regarding Dato-DXd, we presented preliminary data before. At San Antonio, we will present further updated data. As for DB03, when and where to present subgroup analysis data is now under consideration.

[Shinichiro Muraoka, analyst]

Does that mean there is a possibility of data presentation at San Antonio as well?

[Sunao Manabe, executive]

Yes. It's one of the possibilities, but we cannot clearly say when it's going to be.

[Shinichiro Muraoka, analyst]

Next, I have a question about Enhertu in China. Seagen acquired RemeGen's HER2 ADC in China, which I think was already approved and launched for use. I don't know its data in detail, but I think Enhertu will enter the Chinese market after this as a latecomer. How are you going to compete? Where do you think you can differentiate sufficiently? Could you elaborate on this, please?

[Sunao Manabe, executive]

We recognize that the product you mentioned, RC48 obtained conditional approval for gastric cancer in the third-line settings in China. Looking at the third-line gastric cancer study in Chinese patients, it seems they obtained results almost comparable to our DB06 study results. For your reference, the ORR was 23.6%. PFS, 4.1 months and OS 7.5 months. This is the data we are aware of.

Our Enhertu DG01 This data presented at ASCO includes ORR, 42.0%; and PFS, 5.6 months; OS, 12.5 months. Given this data, we just believe in our efficacy and promote a gastric cancer development.

[Shinichiro Muraoka, analyst]

Understood. In other words, even if your entry is later than their product, you're confident enough that you can overturn the situation for sure, correct?

[Sunao Manabe, executive]

Yes. Your understanding is correct.

[Operator]

I'd like to move on to the next question. The next questioner is Mr. Ueda from Goldman Sachs Securities.

[Akinori Ueda, analyst]

First of all, I'd like to know about the progress made in the plans in the U.S. and European, especially in the situation shown on Page 13 of Enhertu. First of all, regarding the United States, I understand that the plan was basically left unchanged this time. But looking only at the trends in the first and second quarters, I think it will be necessary to accelerate further in the second half. Can you tell me what you think about the downside risk and so on?

Also regarding Europe, I think the trend was to lower the plan once in 1 quarter and then raise it in the next quarter. But can you let us know what discussions took place to reach the current plans?

[Sunao Manabe, executive]

This is Manabe, and I will answer this question. First of all, in the United States, we have lowered the forecast a little bit in the first quarter. After that, the result of DB03 came out, which was a good result, but we haven't changed the original schedule. On the other hand, in the third quarter, in the fourth quarter, we expect that it could be an upside rather than a downside. That is the United States.

Also, as to the forecast changes in Europe, we don't intend to raise or lower the number so much, but it is very difficult to predict at the start and we were aware of a possible slight error. But since the number of patients exceeded 1,000 this time, we had a feeling that the accuracy of forecast had improved more or less. So we've changed the forecast from $52 million to $58 million.

Overall, both Europe and the United States are moving as expected or even better.

[Akinori Ueda, analyst]

My second question is about the COVID-19 vaccine. You have disclosed the top line results on Page 32, but I would appreciate it if you could give us some more detailed comments on that.

For example, about the part that says that neutralizing antibody titer was confirmed. How do you compare that with those who have recovered from COVID-19 or with any other messenger RNA vaccines?

Also, how do you compare the safety and the frequency of fever between your vaccines and any other vaccines I appreciate your comments even if they are qualitative.

[Wataru Takasaki, executive]

This is Takasaki, and I'll answer this question. Qualitatively, I think we have confirmed everything you have just said.

Regarding the antibody titer and safety, we consider that enough data are available to move forward.

I'm sorry, but we have not disclosed the results of the detailed analysis yet, but we are confident that we can move forward because we have a plan to decide the dose during Phase II and continue to Phase III.

[Akinori Ueda, analyst]

Then what kind of timing do you plan to disclose in this area?

[Sunao Manabe, executive]

So far we have not decided when to disclose Phase I/II studies with ongoing top line results. We will share that information when it becomes available for disclosure.

[Akinori Ueda, analyst]

Understood. Finally, I have another question on vaccine. On Page 33, there is Phase III of the active controlled study I assume that you have been guiding the same thing that other companies are also doing. I think that there is a possibility, for example, that you might want to jointly unify the active drug groups by working together with a domestic company currently undergoing with the same development?

[Sunao Manabe, executive]

This is Manabe, and I'll answer this question. For the time being, each company has been developing its own vaccine independently. So there is no specific plan like that. But we have been discussing what to use as an active control and requesting that the level of the titer increase for regulatory approval should be the same across the board.

[Operator]

I'd like to move to the next question. The next questioner is Mr. Sakai from Credit Suisse Securities.

[Fumiyoshi Sakai, analyst]

This is Sakai from Credit Suisse. About the development of Enhertu in China, you've made an announcement on gastric cancer and breast cancer this time. Please tell us if you have already incorporated about what to do with other cancer types, including lung cancer into your collaboration with AstraZeneca.

[Sunao Manabe, executive]

Yes. We have been discussing about them, of course, and we do have a direction considered together with AstraZeneca as a company. But at this stage, we are not in a situation where we can disclose something for indications other than breast cancer and gastric cancer. We'll share that information when the time comes to disclose it.

[Fumiyoshi Sakai, analyst]

I understand the situation, but is there any particular reason why lung cancer was not the priority? I personally thought that lung cancer should come first as a priority point, but what do you think?

[Sunao Manabe, executive]

According to the scenario of our development so far, both the United States and Japan are doing breast cancer and gastric cancer in that order. So we have been proceeding in China in the same order.

[Fumiyoshi Sakai, analyst]

I see. I understand. I have 2 more questions briefly. Now President Manabe has said that Enhertu sales in the United States as well as in Europe may have room for upside in the third and fourth quarters.

However, the reason for the downward revision in the first quarter, the assumption of the number of vials and the change of the assumption of the administration period may affect the second and third quarters as well. I think what the president meant about the downward revision during the first quarter was that it was inconsiderable or that it could be overcome in most part. Can you explain why you can expect an upside in the third and fourth quarters.

[Sunao Manabe, executive]

First of all, what I talked about the first quarter was that the target is the third-line patients. If the number of the second line or any other indications increases, the patient population will naturally change. So I meant to say that we shouldn't take it too negatively at the beginning.

After that, as for the indication itself, although we haven't received anything yet, the results for the second line have been quite good and the physicians have a good impression. ILD control has been also pretty good since it went to the real world. And I think our campaign has been successful. When we put those 2 together, I'd rather be hopeful than dwelling on the downside.

[Fumiyoshi Sakai, analyst]

That's what I meant in my statement. Understood. And the ILD control means the control of the doses of steroids -- the usage of steroids. That will be all about running a campaign and so on, including provision -- providing various information. It includes everything from identifying a patient early and stopping the medication or giving the treatment you just mentioned.

My last question is about vaccines. Your booster plans are as shown here. And what is your prospect of cross-vaccination in the future? It will be the third line or later, but can you tell us what you currently think about the area.

[Sunao Manabe, executive]

As for our booster plan, we will consider a single product or a booster study using our own vaccine rather than considering any crossing.

[Fumiyoshi Sakai, analyst]

In other words, you are not considering any cross vaccination or any integrated trial of that sort? Or can this be a clinical trial?

[Sunao Manabe, executive]

I believe we will have to finalize it by working with the authorities. But for now, we are planning to use our own vaccine.

[Operator]

The next questioner is Mr. Wakao from Morgan Stanley Securities.

[Seiji Wakao, analyst]

This is Wakao from JPMorgan. First, please tell us about the R&D costs. In the case of your company, I think you tend to increase your R&D expenditure in the second half. However, in terms of the R&D cost balance, the expenditure is currently JPY 100 billion or JPY 109 billion in the first half, but the plan is to be JPY 262 billion. So you are planning to spend about JPY 153 billion in the second half. But considering the past situation, it seems that you are planning to largely increase the expenditure, especially in the second half.

But could you tell us the reason why you spent so much in the second half. I know you have discussed a pivotal study starting from here, et cetera, but there is not much correlation between this amount and the study to start. I wasn't sure why this cost was to be spent so much in that study. Please tell us about this point first.

[Wataru Takasaki, executive]

This is Takasaki, and I'll answer this question. It's rather because it was not used up during the first half and the gap between the second half and the first half may seem large in appearance. Regarding the first half, there are some parts that have not been used up, such as the CDx plan or some parts that need to be fixed in the operation.

If you understand that way, you will know that the gap between the first half and the second half is smaller than what it appears to be in the numbers.

[Seiji Wakao, analyst]

Okay. Now I understand that you will use the amount that you did not use in the first half in the second half?

[Wataru Takasaki, executive]

Your understanding is correct.

[Seiji Wakao, analyst]

Got it. Also, I'd like to know about DS-6157, which has been discontinued this time. You mentioned that this has no effect on other ADCs, but is it simply an antibody issue that didn't work?

I also think that there are problems with antigens as well. I suppose it was originally established as an antibody and then it was carried out while the activity against the antigen was visible. So I'd like to know in more detail the reason why this didn't work.

Also since other ADCs are working well, I can somehow understand that it doesn't affect other technologies and products. But if there is any impact or if there's anything else we see that could have implications on others.

[Sunao Manabe, executive]

In the case of ADCs, one thing is to figure out how much to target the antigen expressed on cancer cells and internalization is also another factor. In that sense, we have made a certain hypothesis to proceed with research and development of DXd ADCs.

On the other hand, the target of DS-6157 has the least expression among the projects we have worked on so far. In that sense, I don't think there is any major qualitative problem with our platform, but it is rather attributed to the target-oriented part. However, we would like to study the details, including the pharmacokinetics going forward. We will share the data with you once they become available. We are planning to attend an academic conference in the next fiscal year, so I hope to share the data there.

[Seiji Wakao, analyst]

Well understood. Finally, I think the progression-free survival in DESTINY-Breast03 didn't meet the endpoint. Although it may depend on the event, but when will be the next update? When can we expect to have the final data? That's all for me.

[Sunao Manabe, executive]

It's still undecided. We will share the information when the timing is confirmed.

[Operator]

The scheduled end time has arrived. This concludes the Q&A session. Thank you for your participation today. Thank you very much. Today's meeting is now closed. Thank you, everyone, for joining us today.

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