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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for waiting, ladies and gentlemen. I would like to begin Daiichi Sankyo's Financial Results Presentation of the First Quarter FY 2018. Thank you for joining us in the financial results presentation of the first quarter FY 2018. I'm from Corporate Communications. My name is Ogawa. I would like to serve as a moderator of this session.
Today, Representative Director and Vice President and CFO, Mr. Sai, is going to give us a presentation on our financial results, and we will also take questions from the floor. This is going to be live streamed. And this is going to be uploaded to the website of Daiichi Sankyo. And you can also follow the materials on the website. This meeting is going to be recorded and I ask you for your cooperation and understanding.
So let's begin. Mr. Sai, please?
I am Sai from Daiichi Sankyo. Once again, thank you very much for coming to our financial results presentation of the first quarter FY 2018 out of your busy schedule. We announced the results today at 1:00 p.m. Following the material for conference call, I would like to explain the results.
Please turn to Page 3. This is today's agenda. First, financial results of the first quarter FY 2018, then business update and R&D update. We'll also take questions after my presentation. First, let me explain the financial results of the first quarter FY 2018. Please turn to Page #5. This gives you an overview of the results. The consolidated revenue was JPY 225.7 billion, which is down JPY 13.4 billion or 5.6% year-on-year. The cost of sales increased by JPY 4.7 billion.
SG&A expenses decreased by JPY 5.2 billion and R&D expenses decreased by JPY 2.5 billion. All in all, the operating profit was JPY 29.9 billion, which is down JPY 10.4 billion or 25.7% year-on-year. Profit before tax was down JPY 12.6 billion to JPY 29.6 billion.
The profit attributable to owners of the company was JPY 24 billion, which is down JPY 5.2 billion or 17.8% year-on-year. Regarding the exchange rates, $1 was JPY 109.07, which is an appreciation of yen by JPY 2.03. EUR 1 was JPY 130.06, which is a depreciation of yen by JPY 7.87 compared to the same period last year.
Please take a look at Slide #6. With the next 3 pages, I will explain changes from the same period last year. Revenue suffered a decline of JPY 13.4 billion. Let me show you the breakdown of that result by each business unit.
First, Japan business, including prescription medicine, vaccine and OTC products, enjoyed revenue expansion in the direct oral anticoagulant LIXIANA, PRALIA for osteoporosis, Daiichi Sankyo Espha's authorized generic products, such as olmesartan and Rosuvastatin as well as Daiichi Sankyo Healthcare. On the other hand, affected by the expansion of generics usage, Olmetec's revenue declined significantly and other products were also affected by the NHI price revision, which all in all has led to a decline of the business in Japan of JPY 4.8 billion.
Now about overseas business. This page's explanation exclude ForEx impact. Daiichi Sankyo, Inc. in the United States saw a decline in revenue of anti-platelet Efient, Welchol for hypercholesterolemia and type 2 diabetes due to a generic entry back in May and olmesartan for hypertension, leading to an overall decline in business of JPY 13.8 billion. On the other hand, Luitpold in the U.S. enjoyed a growth in revenue of their iron products, Injectafer and Venofer, in total of JPY 1.6 billion.
And Daiichi Sankyo Europe enjoyed a revenue increase of JPY 2.3 billion, driven by the expansion of LIXIANA sales. ASCA, which covers Asia and South and Central Americas, increased its revenue by JPY 0.5 billion and overall ForEx impact of yen depreciation amounted to JPY 0.8 billion.
Please turn to Slide #7. There are the changes up and down of the operating profit. As already explained, revenue decreased by JPY 13.4 billion, including a ForEx impact of JPY 0.8 billion. Expenses are explained excluding ForEx impact. The cost of sales increased by JPY 5.2 billion, driven by a shift in the product mix due to the loss of exclusivity of olmesartan. SG&A expenses decreased by JPY 5.5 billion, driven by the cost reduction realized through restructuring efforts in the U.S.
R&D expenses decreased by JPY 2.3 billion due to completion of Phase III studies of mirogabalin and others. Cost reduction due to ForEx impact was JPY 0.4 billion. All in all, the operating profit decreased by JPY 10.4 billion to JPY 29.9 billion. If the ForEx impact on the revenue is included, the operating profit was down by JPY 11.5 billion.
Page 8 explains the profit of the term. Though the operating profit decreased by JPY 10.4 billion, it was partially offset by the income tax rate reduction in the U.S. amounting to the cost reduction of JPY 7.8 billion. As a result of this, the profit attributable to owners of the company was JPY 24 billion, which is a decrease by JPY 5.2 billion year-on-year.
Page 9 and 10 look at revenue increase and a decrease on a yen basis for major business units and the major products in Japan. On the previous Slide #6, we showed you the revenue by each business unit excluding ForEx impact. But here are the revenue results including ForEx impact. Now let me give you an update on the business in the first quarter. Page 12 is on the direct oral anticoagulation therapy, LIXIANA. During FY 2017, the product enjoyed a steady growth in the Japanese market, extending its market share significantly. This momentum has been kept during FY 2018. And we are #2 in the market share on revenue as of the first quarter of this year. In Slide 13, we will introduce to you our efforts to challenge cancer pain in July. When trying to control cancer pain and the drug is no longer effective, you switch to next opioid. And this is recommended as a global standard under the WHO guidelines.
We launched Naruvein injection in May, fentanyl citrate [ tape ] for 1 day Daiichi Sankyo in June. And we are rich in product lineup. We can offer diversified options to the patient. And opioid analgesics can be prescribed at all therapeutic departments where cancer patients are being treated. And they are considered important bridges to establishing cancer businesses.
Slide 14 explains partial transfer of long-listed products. Daiichi Sankyo and Daiichi Sankyo Espha plan to transfer 41 products to Alfresa Pharma from March 2019 and then focus and concentrate more on oncology businesses. Resources are also going to be more prioritized.
Now let us discuss U.S. Luitpold Pharmaceuticals businesses in the United States. On the left-hand side, iron injection market in the United States is shown. Injectafer continues to expand its share. It's the red bar, Venofer in purple bar. These two account for more than 75% of the market. As we announced in May, Luitpold will change its company name to American Regent from January 2019. This is product brand name and is already widely penetrated in the market.
From Slide 16, we talk about R&D. Slide 17 shows major pipeline in oncology area. Please look at Slide 18. We review the terminologies related to HER2 as shown here. The table shows classification and DS-8201 and correlation when no expression HER2 is added. What was classified as HER2- is as follows: [ IHC 3+, IHC 2+ ], ISH-, IHC 1+ and HER2 low expression.
Slide 19. This is the current development plan of DS-8201. Today, in the red box, there is Phase I study, which we would like to explain. And there is HER2 low expression study, Phase III study. And I would like to explain the study.
Slide 20 is study design for Phase I. At ASCO Meeting held in June in Chicago, out of Part 1 and 2, we presented cases treated with 5.4 or 4 milligrams per kg. Slide 21 shows patient demographics. Heavily treated cancer patients are enrolled in the study and the median tumor size is around 6 centimeters. Patients with advanced cancer are also enrolled in the study.
Slide 22. This is a waterfall graph showing efficacy. Each bar represents 1 patient. And they are lined up from right to left based on their tumor size. You can see from the graph that results were good for any type of tumor. Overall response rate was 49.3%. Slide 23 shows efficacy data including secondary endpoint. Response rate was high for HER2+ breast cancer compared to before. And this time, for low expression breast cancer, the response rate was 50.0%, similar to 54.5% of HER2+ breast cancer. HER2 low expression breast cancer median PFS was 12.9 and well beyond 1 year. HER2+ breast cancer increased in number and stable with a progression and have not, therefore, reached PFS. Slide 24. This is a table of AE, which increased by more than 10%. They were generally low in grade. AEs were higher and more frequent in GI and hematology.
Now let's take a look at adverse events of special interest on Page 25. Interstitial lung disease and pneumonitis together were reported in 24 cases, including 5 fatal cases. All ILD and pneumonitis cases are under evaluation of ILD adjudication committee.
From Page 26, I will explain about DS-8201 for HER2 low expression breast cancer. This graph was presented at ASCO Meeting demonstrating efficacy of this agent for HER2 low breast cancer in a format of spider chart. The vertical axis represents change from baseline of tumor size, and the horizontal axis represents treatment duration. Each line represents the patient's result. The longer the treatment duration is, the better patients tend to respond to the drug. Based on this data, a Phase III study in HER2 low breast cancer will start soon. Now please take a look at Slide 27. The proportions of patients by our classification of HER2+, low and negative are compared with the conventional classification. HER2+ breast cancer accounts for about 20% of all metastatic breast cancer. HER2 low metastatic breast cancer accounts for around 44%. And put together with HER2+, it amounts to 64% all together.
Now please take a look at Page 28. Among HER2 low population, hormone-receptor positive patients account for 37%. We will start a Phase III study in the second half of this fiscal year targeting this population of patients.
Now from Page 29, I will explain about our second ADC presented at ASCO named U3-1402. This slide shows a study design and the patient background of the ongoing Phase I/II study. The target of this study is HER3+ advanced, unresectable or metastatic breast cancer. Slide 30 contains a waterfall plot and a spider chart for efficacy. Overall response rate of U3-1402 was 47%, which is quite similar to the data of DS-8201 presented at ESMO for the first time 2 years ago. The payload and the linker of U3-1402 are exactly the same as those of DS-8201. Thereby, we judge that our ADC technology is applicable even when the antibody part is replaced. Slide 31 shows advanced events reported in 15% or more of the patients in terms of hematology and liver function tests. Dose-limiting toxicity was seen in 4.8, 6.4 and 8 milligrams per kilogram doses. But maximum tolerated dose has not been reached. For more details of DLT, please look at the slide. Serious adverse events were reported in 11 cases. But most of the adverse events were of Grade 1 or 2 and considered manageable so far. Page 32 provides future data points of DS-8201 and the U3-1402. Page 33 provides a list of our ADC franchise. We signed an option agreement with Glycotope during FY 2017. Since then, we have carried out a preliminary exploration of a possibility to apply our ADC technology to anti-TA-MUC1 antibody. As announced yesterday, we exercised our option to have exclusive rights to develop and commercialize this agent throughout the world. Through this agreement, we've added the seventh project on our ADC franchise. We'll continue to explore ways to maximize the potential of our proprietary ADC technology.
Page 34 presents a summary of my explanation on ADC franchise. For DS-8201 for HER2+ breast cancer, our base case is to have a filing during FY 2020. But we'll try to bring that date forward to during FY 2019. For HER2 low breast cancer, as efficacy comparable to that for HER2+ was demonstrated, we will start a Phase III study shortly. As for U3-1402, a study data for breast cancer was presented at ASCO for the first time. And that was very similar to the initial data of DS-8201. Based on these results, we believe our ADC technology is portable even with different antibodies. And finally, our ADC franchise has expanded to 7 projects now onboard through our licensing agreement with Glycotope.
From Slide #35, I would like to explain our quizartinib. This shows a treatment flow of AML, the patient journey and which line of treatment our 2 Phase III studies of quizartinib are targeting. Today, I will give you an update on QuANTUM-R study for relapsed and refractory AML.
Slide 36. In June, we attended EHA Meeting, European Hematology Association Meeting. This is QuANTUM-R study results. Patients with prior prognosis, relapsed/refractory AML, cancer [indiscernible], hematopoietic bone marrow transplant patient that is a very important issue for them.
Slide 37 discuss efficacy data. Quizartinib arm compared to chemotherapy, mortality risk was reduced by 24%. Primary endpoint was OS, overall survival. And median OS was 4.7 months for chemotherapy arm. It was 6.2 months for quizartinib. And 1-year survival, chemotherapy arm, 20%, quizartinib, 27%.
Slide 38. This is a list of exploratory endpoints. [ And for the ] transfer rate to hematopoietic stem cell transplant from relapsed and refractory AML patient, it was substantially higher for quizartinib arm than salvage chemotherapy arm. Slide 39 is on safety, especially on QT prolongation. Two subjects discontinued due to QT prolongation. However, there was no Grade 4 QT prolongation. There was no tolerability issue either. With such results, latter half of 2018 fiscal year, we plan to file globally for this drug. From Slide 40, it is pexidartinib. There are about 38,000 people suffering from tenosynovial membrane giant cell tumor, or TGCT. And they are benign tumors but there is no drug approved for this indication. Standard care is incision.
Slide 41 shows ENLIVEN Phase III efficacy data presented at ASCO in June. In most of the patients, there were more than 30% tumor shrinkage and ORR was 39%. So I believe that pexidartinib may become a first-in-class drug for patients not eligible for operation. Slide 42 shows graph and photo showing efficacy. Not only how it looks but pain is substantially improved.
Slide 43 is safety data. In ENLIVEN study, there were 8 cases discontinuing the treatment due to AE of liver. Hepatotoxicity was seen in other trials too but we plan to have submission in the U.S. in the latter half of 2018. So we plan to have good communication with U.S. officials.
Slide 44 is quizartinib and pexidartinib summary. Quizartinib can be used for AML, relapsed and refractory FLT3-ITD mutation. And compared to the salvage chemotherapy, OS was improved. And with this data, 2018 latter half of the year, we plan for global submission. And today, I was not able to go into the detail, but first-line study is proceeding smoothly. Pexidartinib can be used for TGCT patients who cannot be recommended for the operation. The first-line in -- first-in-class submission is made in the United States. And Slide 45. This shows our R&D Day for this year 2018, December 12, from 15:00 to 17:00. We look forward to your participation. And Slide 46, this is appendix list. I hope you will refer to that later.
And presentation is now finished from my side. I would like to now accept your questions. There are other members with me as well to be able to respond to your questions. Thank you for your attention.
[Operator Instructions] So here is the first question from Citigroup Securities, Mr. Yamaguchi.
I'm Yamaguchi from Citigroup Securities. Can you hear me?
Yes.
My first question is on disposal of long-listed products. I'm wondering where this disposal is reflected on your financial statement?
We are still discussing with our accountant how to account for the disposal. Therefore, it's not reflected yet.
Okay. So you have not reflected it on your financial statements. But this disposal was not included in your original FY 2018 outlook, was it?
You are talking about the original projection?
Yes. No, so this item is new and to be added in the future, right?
Yes. How exactly? We don't know yet. But you're right.
Okay. So towards the midyear, in order to keep up with the midterm planned performance goal, you will pursue a variety of business development options. You made that remark when you presented your results for FY 2017. And I think this disposal is a part of it. Would you consider a similar move in the future? Could you briefly comment on this?
Yes, Mr. Nakayama said that we would do everything we could possibly do. And this disposal is a part of such consideration. And going forward, we will take possible steps as such options become available to us.
Okay. On a different topic, DS-1602 (sic) [ DS-1062 ], TROP2. A clinical study has started, I guess. Like you have given us an ORR data for HER3, could you do the same? When can we expect an ORR data readout for DS-1602 (sic) [ DS-1062 ] ?
For this question, Mr. Koga will answer.
This is Koga speaking. I'm Head of R&D. Well, it's not exactly easy to tell you when. But we are hoping to give you some kind of indication of the data before the end of the financial year but I can't promise you that, what, you mean about TROP2, right?
Yes. And you said before the end of the financial year. By that, you mean this financial year?
Yes, we are hoping to report some data about this project.
Lastly, DS-7300. It's not entered Phase I yet, is it?
No, not yet.
And which cancer type do you target? You have not announced it yet, have you?
No, not yet.
We are going to take next questions from Mr. Seki, UBS Securities.
I am Seki from UBS. I have some questions. First, you've divested long-listed products to Alfresa, not to Espha. And given this decision, I'd like to know about the future positioning of Espha. Is it going to become non-core? And what about your approach to OTC business? Any comments, please?
About Daiichi Sankyo Espha, some of their long-listed products have been disposed. But Espha will continue to focus on the authorized generic pipeline for their business. So there has been no change in the positioning of Espha. And about OTC, you've seen the revenue of the business already. But anyway, we do not have any particular plan of changing our approach to OTC as of now.
My second question is in the World Lung Meeting to be held in Toronto, you plan to present a data on lung cancer. On Page 22, you showed us a waterfall plot for non-small cell lung cancer for about 10 patients. But the data you will present in September, will it include more patients?
Yes, you're correct.
Finally, I'd like to once again confirm your approach to partnering for R&D. My question is not about in-licensing but rather about out-licensing. Your pipeline is very rich. So be it the ADC franchise or other area, is it your intention to develop everything internally like you did with edoxaban? ADC is your flagship, therefore, do you want to develop everything internally? Or are you willing to also consider maximizing the value of each asset, therefore sometimes resorting to outside capabilities? What is your thought on this now?
Well, business is not my field. But maximizing the value and the fastest way of value creation of our assets are essential. From this viewpoint, for some assets, internal develop may be the best but maybe not for others. And ADC franchise is not an exception. We have to see also what kind of party may be interested in which asset for business, for patients and also for our company's growth. The best approach will be explored. So that means we are not closed to outside options. Rather, we intend to openly explore a variety of options.
You have said that some assets could be best developed internally and others not. How do you determine that?
Well, for example, what company may express interest, how capable they are and can we tap on our own strengths partnering with them? These are the criteria in R&D. But if we are to develop everything internally, that would mean so much investment to be made. Is it worth doing it? I don't really have a clear-cut measure. But we will prepare such measures or yardsticks to decide. Well, sorry, my answer may be too vague. But this speaks to how difficult it is to make such decisions. Well, just add to Mr. Seki's question, let me add, we are focusing on oncology and the ADC franchise, AML franchise and pexidartinib, which are all potential breakthrough therapies. These are the 3 pillars we have selected to focus on. And actually, we have licensed out other oncology assets in order to focus. So we are looking for opportunities to license in but also license out altogether.
Now we would like to take next questions from Mr. Hashiguchi from Daiwa Securities.
I'm Hashiguchi. I have two questions. First, back in April, about some important initiatives to support your profit, according to what you said back in April, you disclosed some of these initiatives by the end of the first half management presentations. Given this time line, would you say that apart from the long-listed product transfer, you still have other measures to be taken?
Yes, we are exploring a variety of options. And we still plan to announce some of those at the management presentation at the end of October for the second quarter results. The time line has not changed.
And so you mean you have other options to be considered by that time, right?
Yes, we are considering different options.
My second question is about Page 47, Appendix, which shows FY 2018 R&D milestone events. Overall, what strikes me is a number of delays in some projects, vis-Ã -vis the original plans. What are the factors for these delays? In oncology, 2 have some -- well, so many projects underway all at the same time make quite -- maybe quite a new experience to you. So your plans may have been too optimistic. Is this the only reason for the delays? Or are there any common issues whose negative effect may linger on? Is that the case?
Well, such comment is quite hard on my ears. But anyhow, for instance, DS-8201 is very efficacious. Therefore, the duration of treatment in the clinical studies tend to be long. Different from other areas, clinical trials in oncology are very difficult in many ways and we are grappling with that right now. And also clinical trials in oncology require different things which go beyond our experiences. For instance, parallel development of biomarkers and translational new way of data generation and et cetera. These are all new to us. But these will form our infrastructure and strengths for any future development in oncology. And because we want to build such strengths, we do not shy away from these challenges. So there may be some delays, slight delays in my viewpoint. But we are trying to be patient because we believe going through such difficult experiences, we can turn them into our strengths. That's how I would like you to look at it. Of course, because there are so many projects, we need to add human resources not only in Japan but also in the West. And manufacturing capacity ramp-up needs to be addressed. So we are working on these fronts in earnest. Did I answer your question?
Yes, I understand.
Now we move on to next question from Crédit Suisse Securities, Mr. Sakai.
I am Sakai. Hello, can you hear me?
Yes.
First of all, the first quarter, you're moving ahead. SG&A is not so good. You're not using that. That is my impression. In the first quarter, the results I believe that is the same line. Can I confirm that with you as was the sales? Due to Welchol influence from the U.S., it's maybe a little weak. But for the financial results, there's a tendency over the years, they tend to have a lot of payment towards the year-end. And therefore, on the profit basis, it is, I believe, within what we assume. And for R&D, you are using as planned.
Yes, for R&D and for the general items, I don't think there's anything special.
Okay. And in your pipeline, there are two things I want to ask you about. One thing is Page 25. I am concerned with P1, I'm concerned with safety. Interstitial pneumonia and death cases, it took a lot of time for you to evaluate. And when -- about when are you able to make it public? What is the timing for that? When will you be able to make it public?
When you are talking about making it public accurately, I don't have that figure right now. But as you may know, there are many Japanese suffering from interstitial pneumonia, more in Japanese. And how are we going to control that? That is quite important. I think that's the most important thing now. And it is important to have leadership globally. But at the same time, Japanese doctors who are going to play a leadership role. We are now looking into the incident further and we are serious about it.
And the doctors say that there is efficacy as we go over that, going beyond that. And how can we use the drug? What should we be careful? How should we use a drug that is not what we are discussing with the doctors? Before the second quarter, you will be able to have some kind of evaluation from the committee or with oncologists if you are having some kind of communication with [indiscernible], you're going to be able to present some kind of direction or indication?
Well, we need to confirm with [indiscernible]. I cannot say until then, I'm sorry.
Now quizartinib, you presented updated figures this time and fast track basically is what is granted. And is that submission this year or next year? And from the oncology franchise view, that means this is going to be the fastest launch in the U.S., if everything goes flat -- smoothly. And AML is a niche market, Novartis, [indiscernible], these big companies are in the market. And how are you going to sell the products? Especially in the United States, you implemented restructuring your organization. You try to restructure, so you need to again redo the structure. And do you have any kind of thoughts on it?
I would like to answer the question. In the United States, as you stated, the portfolio was reviewed. So the people who were there left the company. But we reestablished oncology business again. So we have many experienced representatives coming to our company. Again, I will not say how many but we have medical affairs people. And we are now evaluating people, calling people. And we are sure that we will be able to have launch preparation.
I don't have data right now, so maybe it's difficult to respond. But [indiscernible] of Novartis, I think that may be your first competitor. And what would you say in order to take offensive? Well, this is quite unique. So even if you say they are oncologists specialists, you said medical affairs people. You need to pull out people from very limited number of specialists. Yes, as you say, it's now kind of in [ miles ] with -- they visit only oncology. It will be very specialized and limited. And how are we differentiating against competitors? Is that something we need to consider from now as something we need to consider the high sensitivity and selectivity? And how is that going to be evaluated? We want to appeal that to the doctor, including the mutation, right?
Yes.
Next question from Morgan Stanley, Mr. Muraoka.
I am Muraoka from Morgan Stanley. HER2 low expression Phase III study design. Can you elaborate more the study design, subjects, comparator, primary endpoint and number, more information, please? I'm sorry. There's a howling effect. I was not able to catch your comments in the beginning. 8201 HER2 low Phase III study design is what I asked.
Study design, HER2 low, we are not disclosing that at this moment. Please understand.
Okay. Supplemental information data [ pick ], the last page. U3-1287 Phase II is discontinued. There was no good result. It was not ADC. And the reason for not assuming, not getting that result because it was not ADC. Is that a good understanding?
Yes. Yes, that is acceptable. When we were conducting the trial, HER2 expression [ dropping ] biomarker response. And we were looking for other better target with the lung cancer. And when that was not sufficient, when we were not having patient selection in head and neck cancer, we were expecting good data but we were not able to get any data. And then we used ADC, [ 1787], we were having more expectation. So we decided that 1287 need to go, need to stop. So we decided to do something else.
Just one more question. Herceptin biosimilar is likely to come out. Is it going to be only stomach cancer or also for breast cancer? If you can let us know.
We did make submission for both. But I want to refrain from making more comments. If I may comment for biosimilar submission and approval, if we go without full data, how much is it going to be granted? There are differences. How much needs there are? It will depend on the situation and what kind of information is presented. How is it going to be utilized? And that is something we need to learn more. And we want to pioneer the usage of Herceptin biosimilar, we want to make submission and we want to have good discussion with the authority. So there is no one correct answer. We want to build it up from now on.
Last question from Citigroup, Mr. Yamaguchi.
I forgot to ask one question. The voice is howling. Can you hear?
Yes.
I'm sorry, I'm insistent you make public the transfer money from that deal. It doesn't mean that's going to be total cost?
Well, I cannot answer you right now. We are now discussing how to deal that. The transfer amount, that's not going to be profit as it is or that is my understanding.
Yes, I understand.
Now it's time to end the Q&A session. Thank you very much for your attendance and we look forward to working with you in the future. With this, we would like to close the meeting. Thank you again for coming to this meeting.