© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
My name is Hisayoshi Kashima. I would now like to report on our financial results for the third quarter of FY 2021 and the current status of clinical development based on the presentation materials.
Please see Page 3. We are pleased to report our financial results for the first 9 months of the fiscal year ending March 31, 2022. Revenues increased by JPY 37.3 billion or 9.5% year-on-year to JPY 432.1 billion. Sales increased in North America segment, which benefited from the recognition of $270 million in revenue from the upfront payment for the alliance with Otsuka Pharmaceutical, and in the China segment, which recovered from the impact of COVID-19. In Japan, sales decreased slightly due to the NHI price revision.
SG&A expenses increased due to the full-scale implementation of sales activities at Myovant Sciences and Urovant Sciences as well as an increase in amortization of intangible assets. R&D expenses decreased mainly in oncology and Myovant Sciences. As a result, core operating profit decreased by JPY 13.6 billion to JPY 59 billion. Gain on sale of the company's Ibaraki plant was recorded in the same period of the previous fiscal year. However, as for other nonrecurring items, operating profit decreased by JPY 29.3 billion to JPY 58.2 billion as there was no such factor in the current fiscal year.
Profit before income taxes was JPY 65.6 billion, a decrease of JPY 14.1 billion compared to the same period last year, although it improved compared to operating profit due to the recording of foreign exchange gains from the depreciation of the yen at the end of the third quarter. As for income tax, the share of income tax expenses to income before income taxes for previous quarter increased due to an increase in losses of the Sumitovant subsidiary, for which no tax effect was recognized. As a result, net profit attributable to owners of the parent decreased by JPY 23.9 billion to JPY 46.4 billion. The full year forecast has been revised to reflect the situation to date, including the delay in the progress of LATUDA in North America and the progress of expenses. I will explain later.
Please see Page 4. Sales revenue in the Japan segment decreased by JPY 1.4 billion year-on-year to JPY 117.2 billion or 78.1% of the forecast. Excluding the impact of the NHI price revision of JPY 5.4 billion, sales would have increased. Sales of Equa/EquMet decreased due to the NHI price revision. And the progress of Trulicity has been slow due to competition and the impact of COVID-19, which reduced opportunities to receive and change medications. LATUDA is progressing almost according to the plan with significant sales growth. Sales of TWYMEEG, which was launched in September 2021, are included in Others due to its small scale.
Page 5 shows sales revenue for the North America and China segment. Sales revenue in the North America segment was JPY 250.7 billion, an increase of JPY 32.7 billion from the same period of the previous year-on-a-year basis, contributed to JPY 30 billion in upfront payment income from the alliance with Otsuka Pharmaceutical. In this table, it is included in Others.
Sales of LATUDA were JPY 157.1 billion, a decrease of JPY 3.4 billion from the same period of the previous year. In the same period of the previous year, shipments increased due to an increase in the number of prescription base and distribution inventory under the expansion of COVID-19 as well as inventory buildup prior to the price revision, while the current period saw a relative decrease in volume and average sales price. The progress has been low compared to the full year forecast at the beginning of the fiscal year.
BROVANA, whose exclusive sales period ended in June last year, also saw a significant decrease in sales. Revenue from the alliance with Pfizer and Gedeon Richter for relugolix is included in others. The China segment was JPY 27 billion, an increase of JPY 8 million. Shipments are recovering from the impact of COVID-19 in the previous fiscal year. The sales mainly for MEROPEN will be expected to exceed the full year forecast.
Page 6 summarizes the trends in medical insurance coverage and cumulative patient volume and number of prescriptions per month for ORGOVYX, MYFEMBREE and GEMTESA. Coverage of ORGOVYX and MYFEMBREE is growing steadily. As of January 2022, ORGOVYX has achieved 81% coverage in commercial and 99% in Medicare Part D. MYFEMBREE has obtained 83% coverage in commercial. GEMTESA has not yet grown its coverage as of January, but plans to gain a lot of coverage by the end of 2022.
Page 7 shows the results by segment. In the Japan segment, core segment profit decreased by JPY 6.1 billion to JPY 17 billion due to a decrease in gross profit and an increase in SG&A expenses, including sales expenses for TWYMEEG, which was launched in September. In the North America segment, core segment profit decreased by JPY 13.1 billion to JPY 91.5 billion due to increased selling expenses at Myovant Sciences and Urovant Sciences and the increased amortization of intangible assets despite increased revenue from upfront payment income from alliances. In the China segment, sales increased significantly and core segment profit also increased by JPY 4.4 billion.
Please see Page 9. We would like to explain the revision of the full year earnings forecast. Sales revenue is expected to be JPY 554 billion, a decrease of JPY 24 billion from the previous forecast. Mainly in the North America segment, sales of LATUDA and other products were reduced. SG&A expenses were reduced by JPY 11 billion. The main reasons for this were a decrease in amortization expenses for MYFEMBREE in the current fiscal year due to an extension of the amortization period following the acquisition of a patent for its use and the reduction in sales-related expenses for Sunovion Pharmaceuticals and other products.
R&D expenses were reduced by JPY 3 billion, mainly in the oncology area. As a result, core operating income is expected to decrease by JPY 7 billion to JPY 57 billion, and operating income is expected to decrease by JPY 6 billion to JPY 55 billion. The exchange rate assumptions are JPY 110 to the USD 1 and JPY 17 to the CNY 1.
Page 10 shows the forecast by segment. In the Japan segment, core segment profit will be reduced by JPY 2.5 billion due to the downward revision of sales of Trulicity and other products as well as the recording of valuation losses on some products. In the North America segment, SG&A expenses will decrease due to the inclusion of lower depreciation expenses and cost savings. But the impact of reducing sales by approximately JPY 30 billion in total is significant, resulting in a downward revision of JPY 11.1 billion in core segment profit. In the China segment, sales of MEROPEN and other products have been revised upward, and core segment profit is also expected to increase by JPY 3.8 billion.
Page 11 shows the sales forecast by product for the Japan segment. We have revised downward our previous forecast of JPY 4.3 billion for Trulicity and JPY 1.4 billion for TRERIEF. Sales of REPLAGAL have been reduced due to the transfer of the manufacturing and marketing approval and the marketing rights in February this year. On the other hand, we have increased Others by JPY 4.9 billion, mainly reflecting the high progress in long-term listed drugs.
Page 12 shows the sales revenue forecast for the North America and China segments. Although the impact of distribution inventory has been resolved, LATUDA has not been able to make up for the delay until the second quarter. And in addition, the impact of lower unit prices in Medicaid and other areas has led to a downward revision of JPY 13.5 billion from the previous forecast. In addition, we have revised downward our Others sales revenue by JPY 14.2 billion.
In the midterm business plan, we have been actively pursuing alliances and have factored in revenue from alliances as an approximate number. But we have revised the revenue from alliances as the total revenue from alliances is now solidifying. A negative impact on sales of about JPY 11 billion, and on core operating income, of about JPY 6 billion will be seen. In China, MEROPEN, which was not subject to the centralized purchasing system during the current fiscal year, has been revised upward by JPY 5.3 billion.
Please see Page 14. I will explain the development status. This table lists the development stages of our development items. The changes from last October, are shown in red, and will be explained in the next slide.
Please see Page 15. The following is a summary of the changes made since last October. In the area of psychiatry and neurology, Japan, in addition to the U.S., has joined the global Phase III study of SEP-4199 for bipolar 1 depression and has initiated a Phase III study. Phase I study of DSP-0187 has been newly started in Japan. This is a new compound with a planned indication of narcolepsy, and its profile is summarized on Page 22 of the reference material. The development of DSP-1181 has been discontinued due to the failure to achieve the expected criterion as a result of the Phase I study.
In the area of oncology, the interim analysis of the Phase III study of DSP-7888 for glioblastoma, which was being conducted in the U.S. and Japan, was discontinued because the final analysis showed that it was unlikely to significantly prolong OS the primary endpoint of the study. In addition to the U.S., a Phase I study of DSP-5336 for hematological malignancies have been initiated in Japan.
In other areas, a Phase I study of KSP-1007 was newly initiated in the U.S. This drug is a new compound discovered through joint research with the Kitasato Institute, and its profile is summarized on Page 23 of the reference material. The planned indications are complicated urinary tract infections and complicated intra-abdominal infections. The development of SMC-01, a Type 2 diabetes management guidance application, was discontinued due to the failure to meet the primary endpoint as a result of Phase III study.
Please see Page 16. Regarding the product launch target, we have changed the launch target of ulotaront in the U.S. from FY '23 to FY 2024. The results of the Phase III study of ulotaront for schizophrenia will be delayed from the first half of FY 2022 to the second half of FY 2022 due to COVID-19. As a result, the schedule has been revised to application submission in FY 2023 and launch in FY 2024.
As for the Parkinson's disease cell therapy, the launch target has been changed from FY 2023 to FY 2024, following the completion in 2021 of the transplantation of the seventh and final patient in the investigator-initiated clinical study at Kyoto University. This concludes the explanation.
I'm Hiroshi Nomura, the company's President. Thank you very much for taking time out of your busy schedules to participate in our conference call today. Our company has today announced a revision to our financial results for FY 2021. I am also participating in this conference call today because I expect that there will be many other questions from you. I would like to answer as many of your questions as I can.
First, regarding LATUDA in North America. What is your view for the third and fourth quarters? In the third quarter, the figure was JPY 56.1 billion. And I thought it wasn't so bad if I only look at the third quarter figures. As the downward revision for the full year was quite large, it will not grow so much for the fourth quarter. I think the average sales price will go down now because more people will be using Medicaid.
But is it correct to understand that the fourth quarter will be so bad because the unit price will fall rather than the volume? I think the numbers in the third quarter weren't so bad. So could you tell us a little more about the third and fourth quarters?
This is Hisayoshi Kashima. Thank you for your question. First of all, in terms of the annual comparison between the previous fiscal year and the current fiscal year, the price and the volume were about half and half, respectively, which the actuals are lower than the expectations. In the third quarter, there are a lot of shipments in December. So we expect that there will be some inventory adjustments in the fourth quarter as a reaction to that. And we think that the annual forecast will be within this range.
I understand. Secondly, in the North America segment, the ORGOVYX and Other segment has been revised downward from JPY 87.1 billion to JPY 72.9 billion. Is it correct to say that the JPY 11 billion in alliance revenue that was included in the initial forecast for the Others segment has been postponed to the next fiscal year because it has become difficult to form alliances this fiscal year?
Hiroshi Nomura is here. We have been talking about -- we have been talking with various companies about alliances, including alliances for SEP-363856, SEP-4199 and other products. So one of the things we did was to include a certain amount of consideration for alliances in our estimate. In addition, we originally planned to actively pursue alliances in our midterm business plan. So some of the considerations were factored in. However, I would like to refrain from commenting on whether it was -- it has shifted or not as I am not at liberty to do so now. But of course, we will continue to work on such partnership activities.
I understand. If that is the case, although the strategy of the alliance remains unchanged, is it correct to understand that the specific figure of JPY 11 billion has become difficult to factor in for this fiscal year? So it is no longer possible to give a specific figure, rather than saying that it will be moved to the next fiscal year or something like that?
I think that would be a good way to understand it.
I understand. The third and the final one, I think that the downward revision for ORGOVYX, MYFEMBREE and GEMTESA is probably about JPY 3 billion. In terms of the progress before the third quarter, which ones are being lowered in particular? And when you look at them individually, what is your company's view of each product?
Excuse me, whenever I explain something about these 3 products, I always cannot explain clearly, and I sincerely apologize. But since there are listed companies involved, it is difficult for me to make any comments about them. Myovant Sciences has already held a press conference or rather a telephone conference. So in that sense, I think you have a good understanding of the current situation, and I hope you can make assumptions based on the various information you have.
I understand. I understand the actual results, but I was wondering how your company's forecast was doing in relation to the actual results. Are you saying that you cannot tell us about that either?
Yes, I'm sorry. I'm afraid I cannot say anything about that. I'm very sorry.
First, regarding the change in the U.S. launch target for ulotaront. I think you mentioned that the timing of the Phase III result is now expected to be in the second half of FY 2022. I believe this was designated as a breakthrough therapy, so based on the FDA's review period, if the results are to come out relatively early in the second half of FY '22, it could be released just in time to go to the market in FY '23. Is it correct to assume that the changes have been already been made at this point for FY 2024 and that the results are likely to come out relatively late in the second half of FY 2022?
This is Toru Kimura. We had very high expectations for this project. But due to the COVID-19, we have to change our projections last fall as a result of a careful review of the current progress. We are currently saying the second half of FY 2022. I would like to refrain from commenting on further details today as there are some uncertain factors.
However, as you mentioned, this is a breakthrough therapy. So we took into account the fact that the review period will be shorter than usual and made a change to submit an NDA in FY 2023 and launch in the first half of FY 2024, as we mentioned earlier.
So the launch will be in the first half of FY 2024, right? Also, I would like to ask you again about your thought on the strategy for oncology. Phase III of DSP-7888, which has been under development turned out to be a disappointment. And there are very many of them at the moment, but I think you continue to see those that made into the later stage of development end up disappointing in the end. In light of the recent progress, I would like to ask you again how you are planning to invest resources in the oncology area, which is currently only in the early stages.
Nomura is here again. Thank you. The DSP-7888 did not work well for glioblastoma this time so it was discontinued. However, we have not given up on the potential of DSP-7888. And although it is described here as a solid tumor, it is still in progress and we are still expecting more from it. Although the DSP-7888 study did not go well this time, of course, we have collected data and blood samples from the patients, so we will analyze the data thoroughly to see what we can learn from it and how we can apply it to the other DSP-7888 study that is currently underway. That is what we will be thinking about.
As for the future of the oncology area, it is true that there are only early-stage compounds available now, as you mentioned. As I have said before, we will try this out on a small number of patients. And only if there is a good response, we will proceed to the next stage. We would like to take a very slow approach. Although it has not yet been put into clinical use, it is still in the research stage, but a very interesting theme has emerged. In this sense, I believe that they still have a weapon to compete in the area of oncology. However, in terms of resource allocation, since the pipeline itself is in its early stages, we will probably not be able to allocate such a large number of resources for the next few years.
Thank you very much. Lastly, DSP-0187, a drug for narcolepsy that is now in Phase I, is an orally-administered orexin-2 receptor agonist. And it looks very similar to what Takeda Pharmaceutical is focusing on. Do you have any comments on what kind of differentiation you expect?
Toru Kimura will answer to you. I know that Takeda Pharmaceutical is putting a lot of efforts into orexin receptor agonists. In fact, we have been conducting independent research, and we only became aware of it when Takeda Pharmaceuticals patent was granted first. As a result, we are proceeding with a compound that has a completely different backbone or scaffold from the compound being developed by Takeda Pharmaceutical.
And as you know, Takeda Pharmaceutical's first compound was announced to be toxic to the liver. In this case, I think the profile will be completely different. On the other hand, although I cannot go into details today, we are thinking of moving forward with clinical development because we believe that we can differentiate our products in terms of their effects.
I would like to hear about your thoughts. You explained earlier, it was difficult to comment on the 3 products because of the situation with the other companies. But if the sales of the 3 products were to fall far short of your company's expectations, I think your company had originally assumed that the sales of these 3 new drugs would increase significantly in preparation for the -- to the patent cliff.
And that could be -- offset the loss to some extent. If these 3 products fall short of your expectations, and LATUDA patent cliff is likely to grow considerably, will you be actively considering the acquisition of new products or M&A?
Thank you for your question, Hiroshi Nomura is here again. As to the earlier question, there was a downward revision of JPY 3 billion with 3 products, but this is due to the fact that it was difficult to promote them sufficiently due to COVID-19. Access for sales reps were -- was also very limited, especially for ORGOVYX. Also MYFEMBREE was launched in June, but the peak of COVID-19 came soon after, so sales reps were not able to promote it directly until the beginning of October. And their activities were very limited. I think that had a big impact.
In the future, now that we are talking about the Omicron variant, we are also going to be relatively more active in the economy. I don't know how much the access of the sales reps that medical institutions will improve, but I think it will be better than before. In addition, I believe that the digital promotion skills using Zoom, Teams and others are improving. So I believe the various sales promotion issues related to COVID-19 will gradually be resolved. In that sense, although there was a slight gap this fiscal year, we are hopeful that we will be able to draw a certain growth curve in the future. Therefore, at the moment, we are not looking to acquire new drugs or anything like that, but rather to focus on measures to firmly grow these 3 products.
All right. I understand now. Lastly, regarding other regions, while you have revised upward the sales from JPY 10.3 billion to JPY 12 billion, you have revised downward your core operating segment profit from JPY 4.1 billion to JPY 2.9 billion. Could you explain why?
Do you mean other regions on Page 10, right? The timing of the transfer of our subsidiary in Europe was originally planned to take place a little earlier, but it was delayed a little. And the expenses incurred during that period were included, so the loss increased a little.
I didn't get a chance to participate at the beginning. So maybe you have already answered this question. But when Otsuka Holdings announced its downward revision last week, I think they mentioned in writing that R&D expenses had increased in relation to the 4 products in the alliance with your company. As I recall, you didn't mention R&D expenses in this section, so it is a neutral factor for your company. In the first quarter, I don't know whether you would spend that much or not. Is this understanding correct?
Yes, I think that's a good understanding.
I understand. So I guess this is a factor or circumstance of Otsuka Pharmaceutical. Another thing I would like to ask you is that last week, President Nomura-san, I think it was for the media, made a comment that after the LATUDA patent cliff, you would get through it in a year and then make a rapid recovery.
I don't know how accurate the numbers are, but I think that's what you said. On the other hand, the timing of the downward revision seems to be very bad. And I wonder what kind of intentions led to that statement. Maybe it wasn't the President's main intention. I would like to ask you about those things.
This is Hiroshi Nomura. Thank you for your question. I think what was said on the media was that the situation will be very severe in FY 2023. But after that, the 3 products I mentioned earlier will grow and we will be able to recover from the big drop of LATUDA. Therefore, I understand that I was explaining about the top line movement and that the profit and loss will be compared to a certain extent by, let's say, FY 2025. I don't think there is any particular relevance between the downward revision of the financial forecast that we announced today and the financial results for FY 2024 and beyond.
I think you have a target of JPY 60 billion for the next fiscal year and JPY 120 billion for FY 2025 in the revised midterm business plan. You've made some revisions this time, but there are some bumps in the road and LATUDA is down because it's not doing well. But from a midterm business plan perspective, I'm not sure if you need to make any major changes there. Listening to you, I don't think it's necessary at all. But what do you think about that?
From a midterm business plan perspective, I think it is difficult -- it's a difficult question to answer whether we need to revise the figures for FY 2025 now. We believe that our performance in FY 2025 will be highly dependent on the growth of ORGOVYX, MYFEMBREE and GEMTESA, which I mentioned earlier. So it depends on how these 3 products will grow in FY 2022, '23 and '24. At this point, I'm not sure if we need to revise the figures for FY 2025 that we mentioned earlier. I don't know whether we should call it the new with coronavirus or after coronavirus. But I believe that the key to our success lies in how much we can expand with these 3 products.
How about JPY 60 billion for FY 2022? It will be next year?
As for FY 2022, we are in the process of combining the budget, so I would like to refrain from mentioning that.
I understand. Also regarding ulotaront, you've had a few delays, but the COVID-19 situation has almost run its course. And this is the final form of delay. Or do you think there will be more delays with possible variables to be considered? I have heard the same thing before, but are you going to introduce the development of the new indications with Otsuka Pharmaceuticals? These are 2 questions.
Kimura will answer to you. As for the impact of COVID-19, Japan is still not in the process of picking up, but Europe and the United States have been certainly picking up a little. On the other hand, in the global clinical studies, we have entered patients, many patients in countries other than the U.S. And of course, there are many countries where the situation is very bad. On the other hand, as a result of careful examination of the current situation, we have decided on timing, as I mentioned earlier. So as far as we can predict, we are proceeding with the launch in the first half of FY 2024, as I mentioned. We are hoping that the environment will improve so that we can proceed with the project on that schedule.
As for the second and the third indications with Otsuka Pharmaceutical, there are -- they are also a specialized company. So they have already agreed on what indications would be best based on the same data. However, we are currently working on other measures to increase the value of the product and the details of the clinical study protocol. We hope to be able to introduce this information to you when we announce our full year financial results.
I see. So you are likely to be able to introduce us the option of additional indication?
Yes, that's right.
The first point is, I don't know if I'm hearing this wrong, but I was a little concerned about the fact that the share of GEMTESA, even in January, the coverage rate has not changed that much in the places where they are prescribing. I thought the U.S. usually decides on the new formulary at the beginning of the year in January.
But why is this supposed to go up over the course of the year? Is there anything you can explain about that? At the same time, from the precedent point of view, what do you think about GEMTESA? I think it was quite difficult this time because of COVID-19, but I would like to know if there is any change in your expectations for GEMTESA? This is the first question.
Thank you for your question. The insurance coverage is expected to increase to some extent by the end of this fiscal year or the end of March. So we are not that worried about it. And the people who are working on this are specialists in this area, as you know. So I think they are making good progress.
As for GEMTESA, our subsidiary, Urovant Sciences sales reps and Sunovion Pharmaceutical sales reps share the responsibilities for promotion. And I think they are doing a very efficient job. GEMTESA has a very powerful predecessor, but I think we have been able to differentiate from it in many ways. So we are confident that GEMTESA will become a large-scale product as we had originally hoped, and that has not changed at all. Therefore, we will make every effort to grow this well.
Regarding the second question, Myovant Sciences has already made an announcement, and when I look at; the content of their announcement, they disclosed quite a bit of detail about both ORGOVYX and MYFEMBREE. In particular, in case of MYFEMBREE, the sales are still small but the share of prescriptions among new patients has increased to 45% and other information. Is there any problem in writing the same kind of information on your slide or something that has already been published? I think it would probably be more friendly for everyone.
I don't think it is a problem to include in our slides those that have already been published. If it is more convenient for you, we will consider the slide presentation in that direction.
I think it's more convenient, or rather, your company's corporate reputation depends on these 3 drugs. So I think you should appeal to us as much as possible. I'm sorry, but this is just a suggestion.
Thank you very much. We would like to put a lot of effort in this area. And it is absolutely true that we would like you to understand this as well. So we will think about how to put this on our slide and present it at the next opportunity. Thank you. Thank you very much.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]