Daiichi Sankyo Co Ltd

TSE:4568

Earnings Call Analysis

Daiichi Sankyo Reports Strong Revenue Growth and Positive Adjusted Guidance

Daiichi Sankyo's fiscal Q2 saw revenue rise by 21.5% year-on-year to JPY 882.7 billion, largely driven by strong performances in oncology, specifically from products like Enhertu. Core operating profit surged by 74.8% to JPY 166.6 billion. Notably, the company raised its full-year revenue guidance by JPY 80 billion to JPY 1.83 trillion. This upward revision is influenced by expected sales increases for Lixiana and Enhertu, alongside favorable foreign exchange impacts. The adjusted core operating income forecast also improved by JPY 50 billion to JPY 260 billion, reflecting solid growth momentum.

Strong Revenue Growth Driven by Oncology Products

In the second quarter of fiscal 2024, Daiichi Sankyo reported a significant 21.5% increase in revenue year-on-year, amounting to JPY 882.7 billion. This growth was primarily fueled by strong sales in the oncology sector, particularly from their leading drug, ENHERTU, and the oral anticoagulant Lixiana. Sales of ENHERTU soared by JPY 87.9 billion, highlighting its expanding market presence, notably in the U.S. and Europe, where it captured significant shares of patients in various cancer treatments.

Core Operating Profit Experiences Remarkable Increase

Daiichi Sankyo's core operating profit surged by 74.8%, reaching JPY 166.6 billion. The increase is attributed to a favorable product mix and enhanced operational efficiency despite rising selling, general, and administrative (SG&A) expenses which rose by JPY 53.2 billion. The company's ability to maintain a healthy cost of sales, which only increased by JPY 4.6 billion amidst rising revenues, significantly contributed to this profit growth.

Revised Fiscal Forecasts Indicate Positive Outlook

Looking ahead to fiscal 2024, Daiichi Sankyo revised its revenue forecast upward by JPY 80 billion to JPY 1.83 trillion. This adjustment reflects anticipated sales growth from ENHERTU and Lixiana, bolstered by favorable foreign exchange impacts due to yen depreciation. The forecast includes expectations of a JPY 50 billion increase in core operating income, which has been adjusted to JPY 260 billion, and an upward revision of operating income to JPY 280 billion.

Investment in R&D and Market Expansion Strategies

Research and development expenditures increased by JPY 16.6 billion, indicative of Daiichi Sankyo's commitment to innovation and product development, particularly in the area of antibody-drug conjugates (ADCs). The company is actively pursuing new indications for its existing products like ENHERTU and has collaborations underway with U.S. MRK for ongoing drug development initiatives. Emerging therapies, such as MK-6070, aimed at small cell lung cancer and breast cancer, are also part of their strategic pipeline.

Emerging Challenges in Market Penetration and Regulatory Hurdles

Despite its successes, Daiichi Sankyo faces challenges, particularly with the delayed reimbursement approvals in Europe for ENHERTU. This has necessitated a cautious approach to projections regarding sales growth in the region, urging the company to adapt strategies in response to geopolitical and regulatory environments. Nonetheless, the overall forecast remains optimistic, backed by consistent performance in international markets like Brazil and China where ENHERTU commands significant market share.

Earnings Call Transcript 2025-Q2

[Hiroyuki Okuzawa, executive]

This is Okuzawa. Thank you for taking time out of your busy schedule to attend Daiichi Sankyo financial results presentation today. Now I will explain the consolidated financial results for the second quarter of fiscal 2024, which were announced at 1:00 p.m. today based on the materials.

Please refer to Slide 3. This is today's agenda. Consolidated financial results for the second quarter of fiscal 2024, fiscal 2024 forecast, business update and R&D update. I will follow this order. The R&D update will be covered by Takeshita our global R&D head. We will take questions at the end.

Please look at Slide 4. This slide shows an overview of consolidated results for the second quarter of fiscal 2024. Revenue increased by JPY 156.4 billion or 21.5% year-on-year to JPY 882.7 billion. Cost of sales increased by JPY 4.6 billion. Selling, general and administrative expenses increased by JPY 53.2 billion and research and development expenses increased by JPY 27.3 billion year-on-year.

As a result, core operating profit increased by JPY 71.3 billion or 74.8%, year-on-year to JPY 166.6 billion. Operating profit, which includes onetime gains and losses, increased by JPY 91.8 billion or 96.6% year-on-year to JPY 186.9 billion and the profit attributable to owners of the company increased by JPY 49.7 billion or 51.2% year-on-year to JPY 146.7 billion.

The exchange rates were JPY 152.62 to the data. A depreciation of JPY 11.62 year-on-year and JPY 165.93 to the euro, a depreciation of JPY 12.55 year-on-year.

Please refer to Slide 5. From here, I will explain the factors behind the year-on-year changes. Revenue increased by JPY 156.4 billion year-on-year, and I will explain the breakdown by business unit. First, Japan business unit. Sales of Daiichi Sankyo Espha products were no longer recorded from April 2024 due to the exclusion of the subsidiary from the scope of consolidation.

On the other hand, sales of direct oral anticoagulant Lixiana, anticancer agent Enhertu, a pain treatment Tarlige, the vaccine business and Daiichi-Sankyo Healthcare increased and realized gains of unrealized gains of inventory assets related to Daiichi Sankyo Espha products were recorded. All in all, resulted in an increase in revenue of JPY 13 billion.

Next is overseas business unit. Here, the figures are excluding the impact of foreign exchange. In the oncology business, sales increased by JPY 50.3 billion due to growth in sales of Enhertu in the U.S. and the Europe.

In American region, sales increased by JPY 1.2 billion due to an increase in sales of generic injectables, despite a decrease in sales of Venofer, a treatment for iron deficiency anemia. The EU specialty business saw sales increase by JPY 22.8 billion due to factors such as growth in sales of Lixiana and Nilemdo/Nustendi, a treatment for hypercholesterolemia. The ASCA business, which is responsible for Asia and Latin America saw sales increase by JPY 13.2 billion due to factors such as growth in sales of Enhertu, particularly in Brazil.

AstraZeneca and U.S. MRK upfront payment and regulatory sales milestone revenue increased by increased by JPY 16.3 billion. This includes the recording of upfront payment from the strategic alliance agreement with U.S. MRK concluded in October last year for 3-DXd-ADCs, including HER3-DXd. Please note that we received the second upfront payment of JPY 750 million that is for HER3-DXd from U.S. MRK this month. From the third quarter of this fiscal year, we will record this as revenue over the expected exclusive sales period for HER3-DXd. The overall impact of foreign exchange on revenue was an increase of JPY 39.6 billion.

Slide 6 shows the factors behind the increase and decrease in core operating profit. I will explain the JPY 71.3 billion increase in profit by item. As I explained earlier, sales revenue increased by JPY 156.4 billion, including JPY 39.6 billion increase due to the foreign exchange impact.

Next, I will explain the cost of sales and expenses, excluding the impact of foreign exchange. Regarding the cost of sales, despite the increase in revenue, the cost of sales decreased by JPY 7.1 billion due to the expanded sales of in-house development products such as ENHERTU and a shift in the product mix, including the absence of the sales of Daiichi Sankyo Espha, which improved the cost of sales ratio. Selling, general and administrative expenses increased by JPY 34.6 billion due to factors such as an increase in profit share with AstraZeneca related to ENHERTU.

Research and development expenses increased by JPY 16.6 billion due to an increase in the number of R&D personnel in line with progress in the development of 5 DXd-ADCs. The total increase in expenses due to foreign exchange effect was JPY 41.0 billion and the actual increase in the core operating profit, excluding foreign exchange effect, was JPY 72.6 billion.

Next, on Slide 7. I will explain these changes in net income. As I explained earlier, core operating profit increased by JPY 71.3 billion, including the impact of foreign exchange. As for temporary income and expenses, a positive impact of JPY 26 billion compared to the same period of the previous year due to the factors such as recording of gain on the transfer of Daiichi Sankyo Espha shares.

Financial income expenses had a negative impact of JPY 1.3 billion year-on-year due to the deterioration of foreign exchange gains and losses. For income taxes, in addition to the increased profit before tax, due to the absence of the tax effect accounting impact associated with the decision to transfer Daiichi Sankyo Espha in the same period of the previous year, increased by JPY 40.8 billion compared to the same period of previous year. As a result, net income attributable to the parent company increased by JPY 49.7 billion year-on-year to JPY 146.7 billion.

Next, I will talk about the forecast for the fiscal 2024. Please refer to Slide 9. For revenue, compared to the forecast announced in April, there was a decrease in sales of generic injectables at American reagent and a decrease in sales due to the delay in the launch of HER3-DXd in the U.S. Factoring in those factors, however, we expect an increase in sales mainly from Lixiana and ENHERTU as well as the impact of foreign exchange due to the weakening of the yen, we have revised the forecast announced in April by JPY 80 billion upward to JPY 1,830 billion. Cost of sales is expected to increase by JPY 15 billion due to the upward revision of the sales revenue forecast and increase in expenses due to the ForEx.

Regarding SG&A, despite the decrease in expenses due to the receipt of arbitration expenses from Seagen following the finalization of arbitration decision, expenses increased due to the impact of foreign exchange rates and also strategic investment in DX, IT expenses and human capital. Therefore, we expect an increase of JPY 25 billion in SG&A. While we expect an increase in R&D expenses due to the impact of foreign exchange rate, we have factored in a decrease due to the partial review of the timing of expenses, and we expect a decrease of JPY 10 billion.

As a result, we have revised our forecast for core operating income and operating income upward by JPY 50 billion to JPY 260 billion and JPY 280 billion, respectively. Profit before tax will be JPY 285 billion, JPY 50 billion higher than the forecast announced in April and the net income attributable to parent company will be JPY 225 billion, JPY 35 billion higher than the forecast announced in April. For your reference, the exchange rate for the third quarter and beyond are assumed to be JPY 145 to the dollar and JPY 155 to the euro. The impact of the yen's depreciation on April forecast is expected to be approximately JPY 37 billion increase in revenue and approximately JPY 8 billion increase in core operating profit.

From here, I will talk about the business update. Please look at Slide 11. This slide shows the sales performance of ENHERTU. In the second quarter of fiscal 2024, product sales increased by more than double digits year-on-year in all regions due to growth in sales of second-line treatment for HER2-positive breast cancer and post-chemotherapy HER2 low breast cancer, and the sales increased by JPY 87.9 billion year-on-year to JPY 261.3 billion.

In the U.S., sales increased by 32% year-on-year to JPY 140.1 billion. We maintained the #1 share of new patients in all indications for breast, gastric and lung cancers. In the second-line treatment of HER2-positive breast cancer, we have a new patient share of over 50%, and we have also gained around 50% of the market for post-chemotherapy HER2 low breast cancer, and we continue to contribute to the treatment of many patients.

In April of this year, we obtained approval and began promotion of ENHERTU for the treatment of multiple solid tumors that are HER2-positive and the sales are steadily increasing for various types of cancer, including gynecological cancer. In Europe, sales increased by 80% year-on-year to JPY 70.5 billion. Sales are steadily expanding, particularly in Germany, France, Italy and Spain. And the company has secured the top position in the market with a share of more than 70% of new patients in Germany, France and Italy and more than 80% in Spain for the second-line treatment of HER2-positive breast cancer.

In addition, the company has maintained its leading position in Germany, France and Italy in terms of the share of new patients with post-chemotherapy HER2 low breast cancer, and it has also become newly covered by health insurance in Spain. In Japan, sales increased by 50% year-on-year to JPY 15.5 billion. We have maintained and expanded our position as the #1 new patient share in all indications for breast, gastric and the lung cancers. The new patient share for second-line treatment of HER2-positive breast cancer is over 50% and for post-chemotherapy HER2 low breast cancer, it is over 60%. Thus, ENHERTU is steadily progressing with the market penetration.

In the ASCA region, sales increased by 96% year-on-year to JPY 35.1 billion. Sales have grown significantly, particularly in Brazil and China. In Brazil, in particular, in addition to the steady increase in new listing by private insurance, we have acquired and maintained the #1 share of new patients in the second-line treatment of HER2-positive breast cancer and prescriptions for post-chemotherapy HER2-low breast cancer are steadily increasing, driving revenue growth in the ASCA region. Please note that product sales in the ASCA region include co-promotion income in China, Hong Kong and other countries and regions received from ASCA AstraZeneca, which books the sales in those countries.

We will continue to work to further penetrate the market in the regions where we sell the product and expand the number of countries and regions where it is sold while also working to obtain new indications and deliver ENHERTU to as many patients as possible who need it.

Next, I would like to talk about the alliance with U.S. MRK regarding the development and commercialization of MK-6070. Please refer to Slide 12. In August this year, we added MK-6070, which is being developed by U.S. MRK to the strategic collaboration agreement for the 3 DXd-ADC products with them. We will conduct joint development and joint promotion of MK-6070 with U.S. MRK in all countries except Japan. We will evaluate the combination therapy with I-DXd for small cell lung cancer and also consider combination therapy with other drugs.

Development costs will be split equally between the two companies. However, development costs for combination therapy with the 3-DXd-ADC products will be handled within the framework of the development cost burden of the original agreement for the strategic collaboration with U.S. MRK, which was concluded in October last year. Specifically, for each product, U.S. MRK will be 75% of the development cost up to $2 billion per product. And thereafter, the two companies will share the development cost equally.

Regarding commercialization, two companies will jointly promote sales in regions other than Japan and will share the gross profit and promotional expenses. In addition, product sales will be recorded by U.S. MRK. In Japan, U.S. MRK will sell the products independently and will receive royalties. Manufacturing supply will be handled by U.S. MRK. The consideration for this collaboration is $320 million. In addition to the quid rights was $150 million under the original agreement for the strategic collaboration, $170 million in cash was paid to U.S. MRK as a onetime payment at the time of the contract. The consideration of $320 million or JPY 46.5 billion will be recorded as an expense from the time of approval of MK-6070 through the expected period of exclusivity.

In addition, the amount equivalent to the quid rights of $150 million or JPY 21.8 billion is being recorded as revenue from the second quarter of this fiscal year onwards over the expected exclusive period for the 3 DXd-ADC products, which was [indiscernible] as a collaboration consolidation for MK-6070. This collaboration supports our strategy of transforming the standard treatment for cancer patients around the world, and we also expect synergies with 3 DXd-ADC products, including I-DXd.

On Slide 13, I will talk about other initiatives in each region. In September this year, we launched the messenger RNA vaccine for the Omicron strain, JN.1 of the COVID-19 vaccine, DAICHIRONA in Japan. Also this month, we launched Flumist a nasal spray live attenuated influenza vaccine. It has been approved as a Trivalent vaccine for 2 types of A and 1 type of B strains. And it is the first nasal spray seasonal influenza vaccine in Japan and we have started supplying it in this season. As a Japanese pharmaceutical company, we will continue to contribute to the safety and the security of the society and the health of people.

Slide 14 is meeting information. In December, we will hold a meeting to exchange opinions on sustainability. I, myself, Okuzawa and Chief Human Resources Officer, Matsumoto are scheduled to speak. We will send out an invitation to everyone when the details have been finalized. So from here, it's time for the R&D update. I'll hand over to Takeshita, our Global R&D Head.

[Ken Takeshita, executive]

Okuzawa, thank you very much, and thank you to all of you for calling in to the R&D update section. Next slide. I would like to first give you the update on the 5DXd-ADCs and the agenda for the rest of the talk is listed on this slide.

Next slide. First, this is a summary of the regulatory achievements that has happened in the last quarter. First of all, in the HR-positive and HER2-low or ultralow breast cancer. This is the DESTINY-Breast06 clinical trial. We have had the filing accepted in the EU. We achieved breakthrough designation in the U.S. and we have also had the filing accepted in U.S. and priority review granted with a PDUFA date of February 2025. And also the filing has been accepted in Japan. In China, we achieved two approvals, one for HER2-positive gastric cancer and the second one for HER2-mutated non-small cell lung cancer. So these are the regulatory updates for the last quarter.

Next slide. Now I would like to go over with you some new presentations that were presented at various conferences in the last quarter. First is the DESTINY-Lung03 clinical trial and shown here is a focus on the HER2 overexpressing non-small cell lung cancer patients treated with ENHERTU monotherapy. And you'll see that both response rates and duration of response and progression-free survival are quite good. And I do want to remind you that in this patient population of HER2-expressing non-small cell lung cancer, we have already achieved regulatory approval as part of our tumor-agnostic pan-tumor indication in various parts of the world.

Next slide. TROPION-Lung01. This is the randomized study of Dato-DXd versus docetaxel in relapsed refractory non-small cell lung cancer setting. And as mentioned here, we did see a clinical meaningful trend in overall survival that was recently reported. And you'll see that the difference there is 14.6 months in the Dato arm and 12.3 months in the docetaxel arm. And many of you are aware that this is an ongoing submission with the FDA for the TL-01 data set.

Next slide. At the World Congress on Lung Cancer, this information was also presented by our collaborators, AstraZeneca team. This is data on what we call the QCS biomarker assay. This is a digital pathology assay, which identifies in a predictive biomarker fashion, patients who are likely to benefit from Dato-DXd. And you will see here in the data that this technology is able to select our patient population that has a much better outcome compared to those patients without this particular biomarker. And you'll see this as particularly on the right-hand side of the slide, where you will see that the overall response rate is 36.8%, Median PFS is 7.2 months with the Dato arm compared to 4 months Median PFS with the docetaxel arm.

And of course, also the patients who are negative for this predictive biomarker. We think that this is a major advance in the field of not just ADXd-ADCs, but a major advance in the field of oncology, and we expect that this digital pathology technology will be important in the future.

Next slide. I want to also mention that we are continuing to further study Dato in various settings in non-small cell lung cancer, including this study that's shown here in early-stage non-small cell lung cancer, in which -- in this NeoCOAST study, in which we showed that in the interim results, there was an encouraging efficacy and manageable safety profile in the neoadjuvant setting. And this is really we're talking about here, the arm-4, in which Dato-DXd was combined with durvalumab. And you'll see here that in terms of the pathological CR rate, it was 34.1%, which is quite good with a reasonably manageable safety profile. So we're very interested in these data and really for further assessment in a clinical trial setting.

Next slide. Now we're going to move on to Dato-DXd breast cancer program, TROPION-Breast01 clinical trial. This is a study that was conducted in HR hormone receptor-positive breast cancer patients in the relapsed/refractory setting. And as we reported, we did not achieve a statistical significance in the final overall survival analysis. Although we did see a statistically significant and clinically meaningful improvement in progression-free survival. So this data set, TB-01 has been submitted to the FDA, as I mentioned to you earlier. It is still under review and the PDUFA date is February 2025.

Next slide. And we -- in this slide, we describe yet another new study of a Phase III study of Dato in the setting of early-stage non-small cell lung cancer, in which the Dato is combined with AstraZeneca bispecific drug. And this is a very important study for us in terms of yet again, another attempt to demonstrate the efficacy and utility of Dato in a randomized clinical trial. And this study has started or is planned to be starting in the second half of the current fiscal year.

Next slide. We're going to now move over to the HER3-DXd program. And in this slide, we are reporting on HERTHENA-Lung01 and 02 trial. Previously, you will recall that we had submitted the HL-01 clinical trial data set to the FDA for -- as a regulatory approval application and that we did receive back in last summer, the CRL, complete response letter from the FDA due to manufacturer concerns. Let me just say that we are currently working diligently to resolve these -- the feedback that we received as part of the CRL from the FDA for -- as part of the HL-01 clinical trial.

For HL-02 clinical trial, we demonstrated a statistically significant improvement in PFS, which is the primary endpoint versus standard of care. And overall survival data at the time we presented the PFS data was immature and we will continue to have the overall survival data mature to further assess the overall survival data.

Next slide. Moving on to HER3-DXd in breast cancer. These are the results of the ICARUS breast cancer study that was presented at ESMO meeting earlier this year. This is an investigator-sponsored clinical trial conducted at the French Cancer Institute, the Institute of Gustave Roussy. And you'll see here very impressive activity of HER3-DXd in this hormone receptor positive relapsed/refractory breast cancer patients with a response rate of over 50% and a median progression-free survival of 9 months. We are very interested in these clinical data, very impressive response data and we're very interested, of course, in following up on these data with additional clinical trials with HER3-DXd in breast cancer.

Next slide. Now I'm going to switch over to the I-DXd program. This is also formerly known as DS-7300, where that ADC is targeting an antigen called B7-H3. And at the world -- at the recent World Congress on Lung Cancer, we reported the results of a dose-finding study in which two doses were studied, 8 milligrams versus 12 milligrams. And based on these data, we have selected 12 milligrams as a dose for future Phase III clinical trial. And at the 12-milligram dose that we were selected, the response rate is 54% and you'll see here the median progression-free survival as well. And we are, of course, very interested and very impressed with these numbers. And we are now currently proceeding to a randomized clinical trial for this drug.

Next slide. Here are some additional updates from the rest of the ADC program. In terms of the ENHERTU program, we recently initiated a clinical trial called the DESTINY-BTC01. This is a Phase III combination study with the AstraZeneca bispecific drug for BTC, biliary tract cancer in the frontline setting. For the Dato program, we recently started a TL15 Phase III study as a monotherapy and in combination with osimertinib for EGFR mutated non-small cell lung cancer. In the HER3 program, we have initiated -- or excuse me, we are preparing to initiate a clinical trial that's called the MK-1022. This is the MRK designation and therefore, MRK sponsored trial of the HER3-DXd in CRC, biliary tract cancers and hepatocellular carcinoma.

And we are also doing some additional studies of HER3-DXd in non-small cell lung cancer in combination with chemotherapy and pembrolizumab in the frontline setting. And as for I-DXd, you can see here that the Phase III study in small cell lung cancer has been initiated as well as signal-seeking Phase Ib/II study in the frontline setting for small cell lung cancer. We are also very interested in studying this drug, I-DXd in the setting of not just small cell lung cancer but non-small cell lung cancer as well and we'll be doing that in the KEYMAKER-U01 for non-small cell lung cancer in the frontline setting. Okay.

Next slide. All right. So now we're going to move on to the next wave of our pipeline beyond the DXd-ADCs. And first, the next slide. I'd like to report to you a compound that has a code name DS-9606. We reported on the interim data of the Phase I study at ESMO of this new drug. This is -- it's a very important drug for us because it represents the first of the next-generation ADC, where the payload is no longer DXd but the payload is something called a PBD. This is an alkylating agent. So therefore, the mechanism of action is quite different from the DXd. And here, we show that we are currently doing the dose escalation trial and we are starting to see some preliminary evidence of efficacy in terms of tumor shrinkage in germ cell tumors, GE junction tumors and non-small cell lung cancer in a small number of patients so far. But I just want to remind you that this is still a dose-finding Phase I study and so we are very interested in what happens to this study in the future.

Next slide. This -- you heard earlier that we are collaborating with MRK on a compound that is termed MK-6070. This is a bispecific drug that is targeting DLL3. It's a well-known antigen expressed in small cell lung cancer. And this is very important from a strategic standpoint because as I mentioned to you earlier, we have already obtained really very interesting, very good results with one of our DXd-ADCs, the I-DXd program, the DS-7300 program. So now we have 2 drugs, the DXd-ADC and this drug, DLL3 bispecific drug that we have to further develop not just as monotherapy, but as combinations in small cell lung cancer. And we believe that this combination of MK-6070 plus I-DXd could be studied eventually in the frontline setting. But for now, we are starting to do a dose-finding study in a relapsed/refractory setting.

Next slide. Okay. Finally, next slide, I just wanted to give you a small advertisement for a Science and Technology Day intended for our investors to give you more information about what we are doing from a science, research and technology standpoint. The date is December 16 at 5:30 p.m. Eastern Standard Time. Also in Japan, it will be December 17, Japan Standard Time. And the topics we intend to cover are the latest data that's been published that were presented at conferences, R&D strategy as well as current status of our manufacturing and drug supply. So we hope to have you join us then as well.

Okay. Now finally, let me just go over with you the anticipated news flow for the rest of the year. You'll see that the next planned major data presentation is the San Antonio Breast Cancer Symposium. This is going to be in early December. And at that time, we will give you an update on the DB06 clinical trial and also the DB08 clinical trial. The DB06 trial is just really a follow-up with additional longer follow-up of the clinical trial from the ASCO presentation. On the other hand, the DB08 clinical trial is a Phase Ib clinical trial in a chemo-naive post-chemo setting in patients in combination with capecitabine or capivasertib.

In terms of regulatory decisions, we do expect to hear from the agencies on TL-01 and TB01 sometime before the end of the fiscal year. And we also expect to hear something from the Japanese agency concerning our COVID vaccine program in the pediatric patient population. In terms of important data readouts, in the second half of fiscal year, we expect to see the top line results of DESTINY-Breast11 and in the data program, the TB02 clinical trial in triple-negative breast cancer. Okay. Well, thank you very much. And...

[Operator]

We will now move on to the Q&A session. The first question is from Mr. Yamaguchi of Citigroup.

[Hidemaru Yamaguchi, analyst]

[Interpreted] I am Yamaguchi from Citigroup. My first question is about how 3DXd in the presentation, it was mentioned that the milestone payment from U.S. MRK have been triggered. So I think it's good that we were able to confirm that. However, it's been about 4 months since the complete response letter was issued -- could you tell us what the current situation means and whether there are any anticipation about the scheduling for the future, such as whether it will be delayed by about a year or whether it will be delayed for a little longer.

[Ken Takeshita, executive]

Yes. In terms of the CRL and the manufacturing issues, we are working diligently with the manufacturer as well as the agency to resolve the issues identified. And in terms of the -- our regulatory submission plans, we are still in discussion with our MRK partners. We both remain very interested in studying the HER3-DXd in lung cancer. And once we have our regulatory plans and clinical development plan settled, we will be able to report back to you on this.

[Hidemaru Yamaguchi, analyst]

[Interpreted] Does that mean you will have to apply again? Previously, you said that the application status will be maintained, although the CRL had been issued. But do you mean that you will have to reapply?

[Ken Takeshita, executive]

So technically, when we received a CRL, that completes the submission process. So yes, we would need to reinitiate a new submission.

[Hidemaru Yamaguchi, analyst]

[Interpreted] And you don't know the timing of that yet.

[Ken Takeshita, executive]

Yes, that's -- we are discussing the regulatory strategy with our MRK partners right now.

[Hidemaru Yamaguchi, analyst]

[Interpreted] The second question is about data DXd. I understand that various clinical trials are progressing and it may be difficult to comment on this, but I think there are some voices of concern in the market about the PDUFA date on 20th of December. So I'd like to ask what you think about the approval on 20th December based on the current communication with the FDA? And also that doesn't seem to be an ODAC anticipated at the moment, but if there is any update on this, please let us know regard to ODAC.

[Ken Takeshita, executive]

So I can't comment really on the details of the regulatory discussions that we're having with the FDA. I think we should be able to give you some updates on this in the near future but not today. In terms of the possibility of ODAC, it's a little bit difficult to tell you exactly what the FDA is thinking because we're not the FDA. But as a general statement, the FDA can request an ODAC at any time prior to the PDUFA date on any submission, not just the one that we're talking about today.

[Hidemaru Yamaguchi, analyst]

[Interpreted] I understand. Finally, ENHERTU sales forecast has been revised upward. Looking at the current situation, Europe has been revised downwards in local currency, and there was talks of Europe being slightly slower than expected from the first quarter. What is the cause of this? And although the forecast for the U.S. has been revised upwards but growth has fallen slightly quarter-on-quarter. Is it correct to assume that this is a temporary slowdown due to the fact that the current indications are penetrating the market very quickly and that if the indications are expanded in the future, there will be another growth momentum.

[Hiroyuki Okuzawa, executive]

I will answer this question. Okuzawa speaking. Regarding ENHERTU in Europe, the situation is different from the original plan as the reimbursement has been delayed in some countries. And this is affecting the figures. So we have updated them to take this into account. More specifically, those countries are Spain and the U.K. And you know in the U.S., the uptake is progressing steadily in both the HER2-positive and HER2 low categories with a market share of over 50% in each case. And the use of pan-tumor is also steadily expanding.

We always receive inquiries about whether DB06 will be included in the guidelines by the end of this fiscal year. But at this point, we are unable to estimate when this will happen. On the other hand, the PDUFA date has been set for the 1st of February 2025. So we have included this in our current forecast figures for ENHERTU in the U.S.

[Hidemaru Yamaguchi, analyst]

Another question about Europe. You mentioned Spain and the U.K., but are you referring to insurance reimbursement for HER2 low or second-line treatment?

[Hiroyuki Okuzawa, executive]

It's for HER2 low.

[Hidemaru Yamaguchi, analyst]

HER2 low, I see. In the case of the U.S. are you saying that you are basing your performance forecast on the assumption that the drug will be approved on 1st of February on the PDUFA date?

[Hiroyuki Okuzawa, executive]

Yes, that is how we have included it in our current forecast.

[Operator]

Next question is from Mr. Hashiguchi of Daiwa Securities.

[Kazuaki Hashiguchi, analyst]

This is Hashiguchi speaking. My first question is about the TB-01 trial for Dato-DXd. You mentioned that you were unable to achieve statistical significance in the OS analysis. But could you tell us whether there was a positive trend numerically or not?

In the past, when you presented the results of other trials, even when there was no statistically significant difference, I think there were times when you made some reference to how things were numerically or in terms of trends. But this time, there was no such reference. So I felt that you may not have obtained the results you are expecting, either numerically or in terms of trends.

[Ken Takeshita, executive]

Yes. So we haven't published or presented the Over Survival data yet. So I hope that you will be able to wait until we have -- we can show you the data at an upcoming conference. So -- but we are in discussion with the agencies on what we are seeing so far in terms of what was an interim analysis, and we need to really see what the final OS data looks like. So it's a little bit premature to comment on exactly how we and especially how the FDA views our data so far.

[Kazuaki Hashiguchi, analyst]

This data is not included in the presentation schedule for the San Antonio Breast Cancer Symposium. But is there still a possibility that it will be announced before the PDUFA date in January?

[Ken Takeshita, executive]

I think currently, the plan would be -- is likely to be a no to your answer.

[Kazuaki Hashiguchi, analyst]

One more thing. Regarding the collaboration with U.S. Merck on HER3-DXd. I think that at the time of the contract 1 year ago, U.S. Merck wanted to decide whether or not to pay the remaining upfront payment based on the situation over the next 1 year. And that's how the deal was structured.

How do you understand the background to U.S. Merck's decision to pay the remaining JPY 750 million?

I would like to know your interpretation of whether this is because U.S. Merck has become more confident about the marketability of EGFR mutation non-small cell lung cancer or whether it is because U.S. Merck has become more hopeful about the potential of other types of cancer?

[Ken Takeshita, executive]

So let me -- so I am not from Merck, but I'm going to be in part speculating on what they are thinking. I believe that they remain highly interested in this HER3 asset, that there's a lot of value in this particular asset. I just want to make -- just to remind you that just in lung cancer, the majority of patients with lung cancer express HER3. I think the numbers are in the literature -- something like 70% to 80%. So there's a lot to be done in the field of lung cancer alone. And I assume you are probably aware, HER3 is expressed widely in many other cancers besides in lung cancer. So there's a lot for us to be doing in this partnership. And that is, I think, the reason why Merck remains highly interested as we are in this particular asset.

[Operator]

Next question is from Mr. Wakao of JPMorgan Securities.

[Seiji Wakao, analyst]

This is Wakao from JPMorgan. My first question is in terms of whether you can achieve Enhertu's forecast in this term? I think that the inclusion in the NCCN guidelines is lower than expected? And in relation to this, do you think that if you can get approval first, you'll be able to achieve your current forecast, even if it is not included in the NCCN guidelines before approval? Or do you think that it is necessary to be included in the NCCN guidelines before approval?

[Unknown Executive]

Thank you for your question. Ogawa, will answer your question.

[Koji Ogawa, executive]

The inclusion in the NCCN guidelines is certainly a very important event. But now that the timing of approval and PDUFA has become clear, we are basing our forecast on the PDUFA at this point. And we do not expect there to be any significant changes in the figures, depending on whether the NCCN guidelines come before or after.

[Seiji Wakao, analyst]

The second point is regarding the HER3 application and approval that Mr. Yamaguchi asked about earlier. My understanding is that there is currently a manufacturing issue and the regulatory negotiations that you are dealing with.

And I would like to know whether a solution to the manufacturing issue has already been found? And whether the success of HERTHENA-Lung02 had any impact on the need to reapply? After all, there was talk about the approval could be obtained without the need for reapplication. So I was a little unsure about what had changed in the regulatory negotiations? So please let me know.

[Sunao Manabe, executive]

So I think in terms of the CMC manufacturing issues, we are continuing to work on them. And I think we've made a substantial amount of progress in resolving those issues. In terms of our regulatory strategy for HL-01 plus HL-02, as I mentioned to you earlier, we are still having those discussions internally with our market partners as well as with the FDA regulatory -- regulators. So we're not quite yet ready to give you our -- what our plans are going to be with these 2 clinical trials yet.

[Seiji Wakao, analyst]

How about from the perspective of whether or not the HL-02 study success had an impact?

[Sunao Manabe, executive]

Looking at the total data set. In previously -- in our previous mission, we always had for the FDA was HL-01. But certainly, in a future submission now that we have the HL-02, the agency will certainly be interested in looking at the comprehensive data set available on this patient population.

[Seiji Wakao, analyst]

Finally, regarding I-DXd and HER3-DXd, I think U.S. Merck is including the combination of these with pembrolizumab as the key maker sub studies under the so-called UMBRELLA study. But if positive data is obtained for each of these, I'm not sure if they are both Stage 4, but it is correct to say that you are aiming for the first line of NSCLC?

And regarding HER3, I understood from Takeshita-san's earlier explanation that it is expressed in lung cancer. So I think it is reasonable. But I-DXd has also been confirmed to be effective in SCLC. So is it correct to understand that it is also being developed in NSCLC based on sufficient rationale?

[Sunao Manabe, executive]

Yes. So Merck, we are very interested in having multiple shots on goal. So we have a couple of DXd-ADCs that where the target is expressed in certain types of non-small cell lung cancer. So this is the reason why we are going straight into the frontline setting with 2 of these assets.

And I think your question about why are we doing this with the I-DXd. I think that was your question. And in earlier clinical trials that we reported already we did see activity of I-DXd in lung cancer types other than small cell lung cancer. So we are very, very interested in following up on that data to see whether or not there is value in studying I-DXd in non-small cell lung cancer.

[Operator]

Next question is from Mr. Muraoka of Morgan Stanley MUFG Securities.

[Shinichiro Muraoka, analyst]

This is Muraoka of Morgan Stanley. I think we have heard all the important points already covered. And I would like to look at a small point about the figures. On the first page of the data book, in the breakdown of the PL revision. Looking at SG&A expenses. The SG&A expenses, other than the ADC payment, are JPY 225.1 billion for the first half of the year, and the revised forecast is JPY 490 billion, while the exchange rate hasn't changed much, up or down. I remember that there were various problems with the figures before and that's why they were revised.

However, when I actually look at the figures, I can't help but feel that in JPY 260 billion or JPY 270 billion in the second half of the year compared to JPY 225 billion doesn't really make sense. Also, the stock price linked compensation in the U.S. seems unlikely to be that high at the current stock price. So could you please explain how you calculate SG&A expenses? And what we should think about this?

[Koji Ogawa, executive]

This is Ogawa speaking. Thank you for your question. I would like to make a comment. As you understand, there is a general trend that our company tends to spend more on expenses in the second half of the year. So that's one.

And the main reason for the increase in SG&A expenses this time is the cost of the long-term incentives in the U.S. that you mentioned earlier, and that is certainly one of the factors. We also see the current increase in factors such as the cost of building up organization for the growth of the cancer business. And DXd and IT investments and investments in global HR systems, including these human capital investments. So these are the factors for the increase of SG&A.

And as for the seasonal shift, in the timing of the occurrence of these expenses, we have been working on improving the predictability of the timing of the occurrence and we would like to continue to improve this in the future. But the reasons I have explained are the main reasons.

[Shinichiro Muraoka, analyst]

In other words, is it correct to assume that there is a high possibility that JPY 490 billion, apart from the DXd profit sharing will be used up for the reasons you have just mentioned? What do you think there is a possibility that there will be some left over?

[Koji Ogawa, executive]

We are always aiming to make accurate forecasts. However, it is not always possible to make 100% accurate forecasts every time. So we are working to improve the accuracy of our forecast as much as possible.

[Shinichiro Muraoka, analyst]

I understand. Another thing is in the current forecast, Dato is supposed to be approved in December and January. And the current forecast for that, which is JPY 50 billion or so is left as it is. But if there are any unfavorable results in December and January, is it correct to say that there are mechanisms in this budget that would be sufficient to absorb this amount even if Dato cannot be launched this fiscal year, including the expenses that we have just discussed?

[Koji Ogawa, executive]

Thank you for your question. We believe that we will be able to absorb the impact and we have this in the budget at this point in time. So if the unfavorable results you mentioned occur, we will try to absorb the impact as much as possible.

[Shinichiro Muraoka, analyst]

One last question is about this revised budget again. The budget for sales of EFIENT in Japan has been doubled. And I think this is because there are no generics available. Is it possible to expect that there will be no generics for a while after the next fiscal year? Or is it just by chance that we were lucky this fiscal year?

[Koji Ogawa, executive]

As you understand, the biggest factor in that is that there was no entry of generics as we had expected in the current period. At the moment, we are assuming that it will be in or after fiscal 2025, but we are unable to say anything more precise at this point.

[Operator]

The next question is from Ms. Haruta from UBS.

[Kasumi Haruta, analyst]

Hello. I'm Haruta from UBS. Can you hear me?

[Ken Takeshita, executive]

Yes, we can hear you.

[Kasumi Haruta, analyst]

For TROPION-Breast01, a statistically significant difference was not achieved for OS. And one of the reasons was the multiple ADCs, including Enhertu was used after the patient had become not responding to the chemotherapy. Such situation might have been a result of OS. Could you explain your thoughts on that?

And also suppose this TROPION-Breast01 is approved in HER2 low patients, there may be an overlap with the population in DB-04. Then in your real clinical settings, would Dato-DXd be used in ultra-low or HER2-negative segment??

[Sunao Manabe, executive]

Yes. Yes, in the clinical trial, we did not restrict how to treat patients in the control arm when they relapse in the clinical trial. So it is very certainly possible that these patients had access to Enhertu and possibly other ADCs. And we're -- we do -- we are very interested in that analysis and we should be able to share the results of that to you at some upcoming conference.

Now in terms of the overlap in the patient populations between DB-01 and HER2 program, and I think your question was how to make that distinction in the same patient population? And I think ultimately, it's going to be up to the physician to determine, based on the clinical data available, which one is the best one for the patient. And it will be important for us to be able to provide as much information as possible to the prescribing physician so that they can make that selection.

[Kasumi Haruta, analyst]

Okay. Then what about the sequential research? It can be also assumed right?

[Sunao Manabe, executive]

Yes. In theory, that is a possibility. And so to support that idea, from a physician's perspective, they're going to want to understand the clinical data. So we are working on generating the clinical data to answer that question about the sequencing.

[Kasumi Haruta, analyst]

Understood. My second question is in developing ADC. I think a biomarker would be very important to [ narrow ] the patients who are likely to respond to the therapy. As for Dato-DXd, TROP-2 positivity was difficult to detect based on the conventional [ ICH ]. And therefore, it took a long time to develop the biomarker. But going forward, not only TROP-2, but B7-H3, cadherin-6 for any ADCs in order to know the patient who can be benefited most, biomarker development is going to be very important. What is your idea of developing biomarkers?

[Sunao Manabe, executive]

Okay. Thank you very much for that question, and I absolutely completely agree with your assessment. That biomarker development and especially this digital pathology technology is going to be very important for our ADC program. .

We can see that already with the AstraZeneca program, the digital pathology technology has been extremely helpful in identifying patients who can benefit greatly from Dato-DXd-ADC. And that same principle applies to other ADCs that we have, not just in the AstraZeneca program, but also in the Merck program.

And I hope -- I think you're probably aware now that you can sort of imagine in the future a situation where a physician -- the prescribing physician sends off lung cancer biopsy for digital pathology analysis. And based on -- let's assume that there's a lot of progress in digital pathology data, not just for Dato but other ADCs. You can kind of imagine now that with the digital pathology technology, that might be a way for a physician to know which ADC will this patient benefit from the greatest. That's a very realistic possibility as a future application of our digital pathology technology.

[Operator]

Next question is from Mr. Wada from SMBC.

[Hiroshi Wada, analyst]

Hello. I'm Wada from SMBC. Can you hear me?

[Hiroyuki Okuzawa, executive]

Yes.

[Hiroshi Wada, analyst]

I would like to ask mechanism of action of ADC. There are a couple of points I would like to ask. First, with regards to a biomarker for Dato-DXd, in case of Enhertu, HER2 positivity was initially said to be 20%. And then the efficacy range was now covering low and negative.

On the other hand, when I look at Dato-DXd, in NSCLC, general TROP-2 exploration levels is set to be around 60% initially. And then ultra-low is added. I think in such case, you may not need to select patients based on the expression level.

Are there difference between breast cancer and lung cancer pathologically, maybe, are there any knowledge about this point?

[Sunao Manabe, executive]

Yes. Okay. So let me answer that question first. The differences that we are seeing now in the biomarker component of our ADC program with Enhertu versus the Dato. The fact that with Enhertu, all we had to do was use IHC and go for the ultra low -- HER2 low and ultra-low that seemed very simple. Whereas in the data program, the TROP-2 antigen, we did not see much correlation with IHC, but we can finally see this now with the digital pathology technology. That difference, we believe, reflects a difference in the biology of the target now.

And particularly in a TROP-2 program, when we do the digital pathology technology, what we are really looking at is not just expression of that antigen on the cell surface membrane but also the amount of internalization of the antigen into the cytoplasm. And so the digital pathology detecting not just the cell membrane staining, but also cytoplasmic extending.

So you can see that the digital pathology takes into account how the -- what is the biology and intracellular processing of the self-service proteins. And it's certainly very possible that we are going to be looking at something very similar for the other antigens that we are looking at here, the HER3 or B7-H3 et cetera. So it's an emerging field, a very exciting science to be studied using digital pathology.

[Hiroshi Wada, analyst]

One more question. It is about your partnership with Ms. Merck MK-6070. What is your expected synergy effect from that? In SCLC, U.S. Merck is investigating the combination of MK-6070 and KEYTRUDA. And in terms of the mechanism, there seems to be synergy. When T cell engages that is enhanced by unlocking the PD-L1. So I think there seems to be synergy. But in combination with I-DXd, what is expected synergy based on the mechanism of action, are there? Personally, I think by closing immunological response, the T cell engager is even more activated. So far, what you have understood.....

[Sunao Manabe, executive]

I think your thinking is correct. And here is the biology that we are imagining, which is that the I-DXd causes tumor cell death and release of tumor antigens, neoantigens. In some ways, results in immune response, which can be potentiated or increased by drugs such as the MK-6070 bispecific drug or even KEYTRUDA. So that is our current working hypothesis. And we believe that this hypothesis is correct based on our experience in combining DXd ADCs with immuno-oncology drugs such as PD-1 agents. A combination of a PD-1 plus a DXd ADC appears to show synergy in terms of efficacy in both animal models as well as in clinical trial setting.

[Operator]

Next question is Mr. Mamegano from BofA Securities.

[Koichi Mamegano, analyst]

I'm Mamegano from BofA Securities. Can you hear me?

[Unknown Executive]

Yes, we can hear you.

[Koichi Mamegano, analyst]

I would like to clarify one thing, it is about R-DXd. When I look at the clinicaltrial.com, the recruitment seems to have been completed. I think the enrollment started this February. So accrual was quite rapid. Am I correct to understand that patient recruitment progressed faster than you estimate? And if so, you think the top line results can be obtained earlier than as well? .

[Sunao Manabe, executive]

So I just want to confirm that. I think you're referring to the ovarian cancer clinical trial. Is that correct?

[Koichi Mamegano, analyst]

Yes, ovarian study, that's what I'm referring to.

[Sunao Manabe, executive]

Okay. Yes. So that particular ovarian cancer clinical trial is ahead of schedule. And so we do anticipate that we will see some interim analysis data ahead of schedule.

[Operator]

Next question is from Mr. Sogi from Bernstein Securities.

[Miki Sogi, analyst]

I have a few questions. First, HER3-DXd collaboration with U.S. Merck has been decided to continue. And regarding the milestone payment, I did the calculation quickly, and it seems that the amount is divided in the 8-year period. Does this mean the LOE of HER3-DXd assumed to be 7 years ahead or 8 years ahead?

[Unknown Executive]

Ogawa will answer to the question.

[Koji Ogawa, executive]

I think that can be the assumption based on such calculation, but for us, it will be deferred during the exclusivity period. And we are not disclosing how long that period is. So we cannot give you exact answer to that question now, but I understand that assumption is possible based on that calculation.

[Miki Sogi, analyst]

And also, this time, you made upward revision for Enhertu, but our profit share with AstraZeneca is slightly reduced. Could you tell us the background to this?

[Koji Ogawa, executive]

For the profit share with AstraZeneca, well, the part we reduced is or our biggest reason is that a timing shift in Europe. Compared with the original plan, the reimbursement is being delayed, as I have explained in my presentation. So that was reflected in the reduction in profit sharing projection.

[Miki Sogi, analyst]

So next question is for Takeshita-san about DS-9606. So we understand this is a new ADC platform. And so it has a different payload as well as the cleavable linker that you have actually disclosed the previously. So it also looks like the Claudin 6, what we understand is it's not expressed on the cancer cells, rather it's expressing in the injunctions of immunological cancer cells.

And so for this type of the ADC with a cleavable linker, is it to target this type of known cancer cells, the antigen so that now you have 2 type of ADC. One can the target the antigen on the cancer cells while this is a new one that can target the antigen that are present in the proximity or the tumor microenvironment of cancer? Is the kind of the rationale of the -- of your -- the drug development?

[Ken Takeshita, executive]

So the design of this ADC, yes, so the linker is a little bit different, as you mentioned. And also the target Claudin 6, it's a component of a tight junction between cells, but mostly in tumor cells and not in normal cells, and that's where the selectivity of the drug is also derived from. So yes, it's a very different way to think about ADCs compared to our DXd-ADC program.

But we are very excited from a scientific standpoint based on the preclinical data we have seen so far and also the limited amount of clinical trial data that we have.

[Miki Sogi, analyst]

That's actually very helpful to understand. So does that mean that Claudin 6 is not expressed outside of the cancer cell? You said that it's expressed inside the cancer cell.

[Ken Takeshita, executive]

No, it's expressed outside of the cancer cell. So there are -- so cancer cells tend to stick to each other. And this particular protein is part of the junction between the tumor cells. So- but these are on the outside of the cell and not inside.

[Operator]

The next question is from Michael Nedelcovych-san from TD Cowen.

[Michael Nedelcovych, analyst]

I have 3, if you'll allow me. My first relates to positioning of your ADC portfolio. Similar to a previous question, but this time in EGFR mutant non-small cell lung cancer, both Dato-DXd and HER3-DXd have shown compelling data in EGFR mutant non-small cell lung cancer. So how do you plan to position these 2 agents in this indication? Are you considering combination or sequencing? And to the extent that sequencing of the 2 drugs might be pursued, do you worry about cross-resistance given that they share a payload?

[Sunao Manabe, executive]

So the first of all, your last question about sequencing, that is still a question that is not fully explored. So I can't give you a definite yes or no answer on how we deal with sequencing until we have some clinical trial data to look at.

And in terms of how we view our strategy of DXd ADCs in the EGFR-mutated lung cancer patient population, I think it's ultimately going to be how strong is the data with each of these assets. At the moment, neither one of them are approved in EGFR-mutated lung cancer patients, but we will try very hard to generate enough data so that certainly the regulatory agencies, but also the prescribing physician can decide which is the best one for you to use in a particular patient?

[Michael Nedelcovych, analyst]

My second question relates once again to the PBD platform. Can you elaborate on the rationale for building out this ADC platform? DXd has proven itself to be a powerful warhead, and there are, of course, more tumor-associated antigens that could be pursued. So is this simply diversifying the pipeline and leaving no stone unturned? Or are there specific reasons why you chose to pursue a PBD-based payload?

[Ken Takeshita, executive]

So an important consideration of PBD is that it's a very different drug than DXd, deruxtecan. DXd target is an enzyme called topoisomerase. It's a DNA-binding enzyme. So it's involved in DNA metabolism. PBD is an alkylating agent. So it's a drug that puts alkyl groups on many, many things, including the cell, including various proteins. So it's not specifically a DNA metabolic drug but protein alkylating drug. And so you can see that the mechanism of action is very different. So we do anticipate that it will have very different clinical properties from the DXd ADCs simply because the payload is different.

[Michael Nedelcovych, analyst]

Understood. My last question is once again on the Dato-DXd TROPION-Lung01 filing. You mentioned that FDA could convene an ODAC any time prior to the PDUFA. If the FDA does choose to convene an ODAC, would you consider that a positive development because it would mean the agency is strongly considering the application? Or would you take it as a negative development because it would mean the agency has potential concerns about the application?

[Ken Takeshita, executive]

Well, it's very difficult to read the minds of the FDA regulators. So I I'm not going to be able to answer your question in a firm yes or no on this. A lot of times when an FDA convened an ODAC, they have a specific question that's directed at the ODAC committee members. And that's probably going to tell us -- or what is the FDA thinking about or what are they worried about. But as I said, we're not quite there yet. So I think we just have to sit down and wait about the ODAC question.

[Operator]

The last question is from Tony Ren san from Macquarie.

[Tony Ren, analyst]

So my last question is on your partnership with Merck, the DLL3 bispecific Merck MK-6070. So last week, at the ENA 2024 triple meeting, we saw Chinese biotech Zai Lab and they have licensed the drug from MediLink, ZL-1310, demonstrated very high response rates of 74% in DLL3-selected small cell lung cancer patients. Obviously, it's some of the response rate is unconfirmed. So I see that in your study with Merck, you guys are also exploring a DLL3 enrichment strategy. So I just want to get a sense from you what is your current thinking on the DLL3 biomarkers? Are you guys using for example, IHC versus NGS? Any thinking in terms of any threshold?

Because my belief is that DLL3 is also nearly ubiquitously expressed on small cell lung cancer. So that's my first question on the DLL3 componentry strategy with the Merck Harpoon asset.

The next question is on AstraZeneca's China news. You guys probably heard that their China head is under investigation in China. So just curious, you guys mentioned that for Enhertu revenue, it's doing very well in China. I just want to get a sense out of the ASCA revenue, what percentage is from China?

[Sunao Manabe, executive]

Okay. I can -- I will answer the biomarker question. So we're -- it's a bit early in our DLL3 program to tell you what is our biomarker strategy. But certainly in modern oncology drug development, exploration of predictive biomarkers to be used in clinical trials and possibly in a setting of a regulatory filing to select a specific patient population for cancer indication. I think that's very much on the minds of all of us here. So yes, we will be exploring biomarkers, and we may or may not eventually have to use a predictive biomarker strategy for our DLL3 bispecific.

[Hiroyuki Okuzawa, executive]

So regarding the ASCA business, in the China business, it's almost -- I would say 40%, a little less than 40% of our ASCA business at the moment overall. Enhertu, for us, it's core promotion revenue we receive. So it's not really the net sales. but that's the impact on the revenue at the moment.

[Tony Ren, analyst]

Okay. So for Enhertu in China, you guys receive co-promotion revenue from AstraZeneca?

[Ken Takeshita, executive]

That's correct.

[Operator]

Now we are coming to the closing time. So we would like to end the Q&A session with investors and analysts. Thank you very much for your attention and participation today.