Otsuka Holdings Co Ltd

TSE:4578

Earnings Call Transcript 2020-Q1

[Yuko Makino, executive]

Before I start, I would like to express our deepest sympathy to those who have been affected by the new coronavirus infection. At the same time, we pay our heartfelt respect to the health care professionals who are struggling daily to diagnose and treat patients and all those who are putting forth their best efforts to prevent the spread of the disease.

Otsuka Group has been offering support that only Otsuka, a total health care company can do in all the countries and regions where we operate based on the individual situations and needs. And we will continue to do so going forward. Also, we apologize for any inconvenience caused by our 2-week delay in announcing the first quarter results for FY 2020.

Now I would like to explain the consolidated business performance for the first quarter of FY 2020. Please look at Page3. These are the 5 items I would like to cover today.

Slide 4, please. First, the overview of the results of the first quarter fiscal year 2020. The impact of COVID-19 on the first quarter consolidated results was minor. Later, I will explain more on the situation up to May as well as our initiatives to address the situation based on what we have grasped so far. Our 4 global products in the pharmaceutical segment strongly grew by 36.1% year-on-year, contributing to the consolidated results. Business profit before R&D expenses, one of the important performance indicators rose 24.1% from the previous year. Both business profit and net profit increased significantly by 51.2% and 96.9% year-on-year, respectively.

Slide 5, please. This compares the business profit this year to last year. As was explained earlier, 4 global products, our homegrown assets in the pharmaceutical segment, contributed to the revenue increase of JPY 25.6 billion. Business profit soared by 51.2% to JPY 50.5 billion, which gives us strong confidence that our earnings potential is being clearly enhanced. For your reference, upward and downward factors by business segment are shown in the appendix.

Slide 6, please. This shows revenue and business profit by segment. Our pharmaceutical segment saw robust growth both in revenue and business profit of 13.2% and 53.9%, respectively, driving the consolidated revenue and profit increases. Next, let me explain specifics of our pharmaceutical and nutraceutical, NC-related segments.

Page 7, please. First, revenue of pharmaceutical segment. Sales of 4 global products were up by 36.1% year-on-year to JPY 110.1 billion, continuing to make a significant contribution to overall revenue increase. As a result, sales revenue grew by 13.2% to JPY 237.1 billion.

Slide 8, please. This shows a summary of the NC segment revenue. In the functional beverage category, POCARI SWEAT sales decreased due to the backlash of expanded demand due to influenza in Japan the previous year. In the functional food category, sales of N&S grew on a local currency basis due to the soaring demand for nutraceutical and health foods for household consumption. Also plant-based food products by Daiya are showing a robust sales increase.

Meanwhile, our vitamin and supplement business was down from last year due to the intensified competition in the U.S. market. But the demand has been rising since March because of the growing health consciousness among consumers amid the spread of COVID-19 infection. Overall, revenue of NC segment was down by 3.2% year-on-year to JPY 70.6 billion.

Slide 9, please. This shows consolidated performance forecast for FY 2020. As for the impact of COVID-19 on our business performance for the second quarter onward of FY 2020, we are currently analyzing the situation with the assumption that the society will be affected on a long-term basis. Therefore, at this point, we have not made any changes to our plan. So far, this has been the consolidated financial results for the first quarter of fiscal year 2020. From here, I would like to explain the impact of COVID-19 and measures that we have been taking.

Slide 10, please. As I mentioned, the impact of COVID-19 on the first quarter results was minor. But the impact has gradually been becoming evident since March. In this slide, I will explain the current situation up through May as we understand it. Otsuka Group, as a health care company, puts patients and the people as our first priority, and we have continued our business operations with the aim of delivering on our mission to ensure the stable supply of our products, including pharmaceutical products.

So far, our product supply system has been maintained with no issues. In our pharmaceutical segment, we have seen immediate impact on the number of prescriptions of our new products and others due to voluntary restrictions and limit of sales and promotional activities. Also, the influence on the timeline of some clinical trials is seen because of the pause of patient enrollment and so on. We are preparing for the restart of the trial conduct while considering the situation in each region.

In the nutraceutical segment, sales of some products have been negatively impacted due to restricted outdoor activities. On the other hand, because of heightened health awareness and increased household consumption, demand for other products are increasing. In this difficult situation, we are also striving to put our best efforts towards social contribution that only Otsuka can make.

Slide 11, please. Next, let me explain our initiatives toward a post-COVID-19 era. In the pharmaceutical segment, we will introduce new approach to promote our products by utilizing new IT technology to provide health care professionals with information they need without our sales reps having to visit hospitals in person. Also to reduce infection risk of patients through hospital visits, we are implementing a new service to dispatch health care professionals such as nursing staff. In our nutraceutical segment, we will continue to contribute to people's health by offering new opportunities for consumers to enjoy our brands with unique functionality and features and creating new values to address the needs of the new era.

In R&D, we are moving ahead in building up a next-generation clinical trial platform, utilizing IT tools with the aim of improving trial conduct efficiency as well as quality of the data. Another initiative that had started is the development of easy-to-use, highly useful diagnostics that make full use of our R&D know-how. In this manner, we will advance our original initiative further and take on challenges to create values to deal with the new changing lifestyle and contribute to better health worldwide.

That concludes my presentation on the results for the first quarter fiscal year 2020 and COVID-19 impact and our initiatives.

[Tomohiro Emura, executive]

I'd like to report to you the pharmaceutical development update. These are the 4 agenda items today. The table summarizes the key development progress as of the end of March 2020. We have started a new initiative for new coronavirus diagnostic test. We also have obtained exclusive development and commercialization rights to license in bempedoic acid, a treatment of hypocholesterolemia, from the U.S. company Esperion Therapeutics.

ASTX727 started a Phase III study for the treatment-naïve AML, acute myeloleukemia, in Europe from January this year. OPC-214870 launched a Phase I study for epilepsy in February this year. As indicated in the margin, 2 brexpiprazole development programs were discontinued: one for MDD in China for strategic reasons and another for bipolar disorder in the U.S. and Europe based on the study results.

Next, I would like to introduce some of our key topics. The first one is vadadustat. Vadadustat is an oral treatment of anemia associated with chronic kidney disease in dialysis phase currently being developed by Akebia Therapeutics. This company, which has nephrology-focused development and commercialization capabilities, announced positive top line results from its global Phase III program.

In the two clinical trials, the efficacy and the safety of vadadustat were evaluated in comparison to darbepoetin alfa injection in dialysis-dependent patients with renal anemia. Vadadustat met the primary efficacy endpoint of the study, demonstrating non-inferiority to darbepoetin alfa as measured by mean change in hemoglobin within the target range between baseline and the primary as well as secondary evaluation period. Vadadustat also met the primary safety endpoint, defined as non-inferiority of vadadustat versus control in time to first occurrence of MACE, major cardiovascular adverse events.

I'd like to introduce another topic, brexpiprazole. Brexpiprazole, by its mechanism of action, is classified as SDAM, serotonin dopamine activity modulator. The product is marketed with indications for schizophrenia and adjunctive therapy of MDD in the U.S. and schizophrenia in Japan and Europe. In an effort to maximize the value of the product, various development programs are ongoing, including additional indications of agitation in Alzheimer's disease, PTSD, post-traumatic stress disorder, and borderline disorder as well as new long-acting injectable formulation.

Today, I would like to highlight 2 programs which started in the fourth quarter of last year, focusing on specifics such as the disease state, patient population and the current treatment. PTSD is an anxiety disorder associated with frightening or shocking experiences, such as natural disaster, accident, violence and crime, which result in long-term mental stress and damage, causing trauma, feeling of distressing fear to such experience. Although there are about 17 million patients in the U.S., paroxetine and sertraline are the only drugs with this indication. We hope that brexpiprazole will serve as a new treatment option. Based on the positive Phase II data, Phase III clinical trials are underway.

Borderline personality disorder is characterized by inability to control emotion and impulse and instability of interpersonal relations with an estimated patient population of 3.5 million in the U.S. The first-line therapy is psychotherapy, and no drug has been approved for this condition. But SSRIs and atypical antipsychotics are used off label. The ongoing Phase II studies started in October last year with the aim to become the first approved drug for this disease. We will further work on value maximization of brexpiprazole through our challenges to address unmet treatment needs in the psychiatric and the neurological space.

This shows completion timeline of major Phase III programs. In addition to vadadustat, which I presented today, we also announced positive Phase III top line results of fremanezumab for the prophylactic treatment of migraine in January and difamilast for treatment of atopic dermatitis in March. Studies circled in red are scheduled to be completed by the end of 2020. Impact of the new coronavirus on the programs is currently under scrutiny. As for AVP-786, additional Phase III studies for agitation in Alzheimer's disease will start in June. There are numerous programs with great potential to realize sustainable growth. We will make sure to take steady steps to advance them towards successful outcomes.

This last slide shows major projects planned for NDA submission and Phase III advancement in FY 2020. 5 projects are planned for submission and 4 projects are expected to migrate to Phase III. For your reference, major development pipeline by therapeutic area is shown in the appendix.

With that, I would like to conclude my presentation on the pharmaceutical development update.

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