© 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.
Okuzawa speaking. Thank you very much for joining Daiichi Sankyo's financial results presentation out of your very busy schedule today. I am going to explain our FY 2022 third quarter financial results we announced at 1 p.m. on Tuesday, January 31, Japan time, based on our presentation materials. Please turn to Page 3. Today, I'm going to cover FY 2022 third quarter consolidated financial results and business update in that order. Then Wataru Takasaki, Head of Japan R&D, will explain R&D update. We will entertain your questions at the end.
Please turn to Page 4. This is an overview of FY 2022 third quarter consolidated results. Revenue increased by JPY 137.3 billion or 16.9% year-on-year to reach JPY 948.3 billion. Cost of sales decreased by JPY 5.8 billion from the previous year. SG&A expenses rose by JPY 75.1 billion, and R&D expenditure increased by JPY 72.6 billion year-on-year. As a result, core operating profit decreased by JPY 4.7 billion or 3.8% year-on-year to reach JPY 118.3 billion.
Operating profit, including temporary gains and losses increased to JPY 127.1 billion, up JPY 3.4 billion or 2.7% year-on-year due to an increase in temporary gains related to sales of a subsidiary, et cetera. Profit attributable to owners of the company was JPY 86.7 billion, down by JPY 7.6 billion or 8.1% due to an increase in income taxes, et cetera. As for the actual currency rates, the U.S. dollar was JPY 136.5, the yen depreciated by JPY 25.43 against the dollar year-on-year. The euro was JPY 140.60, the yen depreciated by JPY 9.98 against the euro.
Please turn to Page 5. From here, let me explain positive and negative factors for revenue compared to the previous year. Revenue increased by JPY 137.3 billion year-on-year. I would like to explain its breakdown by major business unit. First, in Japan business, Sales increased for direct oral anticoagulant, LIXIANA, and pain treatment, Tarlige.
In addition, as we explained for the second quarter, gains on sales of products in U.S. and EU contributed to Japan business responsible for the rights to these products, but sales decreased for proton pump inhibitor, Nexium, with the end of joint sales promotion in the previous fiscal year. So Japan business revenue decreased by JPY 22.2 billion.
Next, let me explain our overseas business units. ForEx impact is excluded here. In oncology business, Sales decreased for products transferred in August last year, but sales of anticancer agent, ENHERTU, grew in the United States and Europe, so revenue increased by JPY 52.3 billion. As for American region, sales decreased for iron deficiency anemia treatment, Injectafer, but sales increased for iron deficiency anemia treatment, Venofer. In addition, products of HPT, which we acquired in August last year, also contributed. So American Regent revenue increased by JPY 1.2 billion.
Revenue for EU Specialty business increased by JPY 6.8 billion due to an increase in LIXIANA sales. As for ENHERTU and Dato-DXd upfront payment, et cetera, related to a strategic alliance, revenue we recognized increased by JPY 16.6 billion.
We booked a total of JPY 15.7 billion as regulatory milestone related to the approval of ENHERTU for the indications we explained in the previous meeting, as well as the additional indication of EU HER2-positive gastric cancer, second line. ForEx impact increased our revenue by a total of JPY 72.3 billion.
Page 6 shows positive and negative factors for our core operating profit. Let me explain the profit decrease of JPY 4.7 billion by item. As I explained earlier, revenue increased by JPY 137.3 billion, including the increase of JPY 72.3 billion due to ForEx impact. Next, I will explain cost of sales and expense items, excluding ForEx impact. Cost of sales decreased by JPY 21.4 billion. Revenue increased, but COGS ratio improved by changes in product mix. Our sales increased for our in-house products such as LIXIANA and ENHERTU.
SG&A expenses increased by JPY 42.4 billion due to an increase in ENHERTU-related profit sharing with AstraZeneca, et cetera. R&D expenditure rose by JPY 45.3 billion because of an increase in R&D investments for the 3 ADCs. Cost increased due to ForEx impact by a total of JPY 75.6 billion. Core operating profit decreased by JPY 1.5 billion, excluding ForEx impact.
Next, Page 7 shows positive and negative factors for profit attributable to owners of the company. As I explained earlier, core operating profit decreased by JPY 4.7 billion, including ForEx impact. Temporary income and expenses increased our profit by JPY 8 billion year-on-year.
In FY 2021, we booked JPY 2.1 billion temporary income as gains related to sale of fixed asset, Osaka Logistics Center to Taiyo Pharma Tech. In FY 2022, we booked JPY 6 billion gains related to sales of Daiichi Sankyo Pharmaceutical Beijing, and JPY 3.3 billion gain on reversal related to the closure of Plexxikon, et cetera. Financial income expenses, et cetera, decreased the profit by JPY 1.7 billion year-on-year due to deterioration in ForEx gains and losses, et cetera. Income taxes, et cetera, increased by JPY 9.2 billion year-on-year due to an increase in pretax profit. Also, tax rate increased as we book tax expenses by using the simplified method in our quarterly account settlement.
As a result, profit attributable to owners of the company decreased by JPY 7.6 billion year-on-year to JPY 86.7 billion. Page 8 and 9 show revenue increase or decrease in Japanese yen, by business unit and major product in Japan. Early on Page 5, I explained the situation of each unit by excluding the ForEx impact. But here, we are showing the results, including the ForEx impact. Next, I will talk about our business update. Page 11 shows the breakdown of ENHERTU revenue. FY 2022 third quarter year-to-date product sales increased to JPY 139.7 billion, up by JPY 96.2 billion year-on-year due to growth in U.S., Europe and other regions. I will explain the sales performance in each region later. FY 2022 third quarter year-to-date regulatory milestone payment increased by JPY 18 billion year-on-year to reach JPY 19.7 billion.
With the approval of U.S. HER2-positive breast cancer second line in May last year, EU HER2-positive breast cancer second line in July, U.S. HER2-low breast cancer post chemotherapy and U.S. HER2-mutant NSCLC second line in August as well as the additional approval of EU HER2-positive gastric cancer second line in December last year, we booked a total of JPY 19.7 billion regulatory milestone payment. FY 2022 third quarter year-to-date ENHERTU revenue, including upfront and regulatory milestone payments totaled JPY 167.6 billion, increasing by JPY 112 billion year-on-year. Based on the good sales performance in the United States and Europe, we are making an upward revision of our FY 2022 full year forecast we announced in October by JPY 9.2 billion to JPY 250.9 billion. This forecast includes JPY 5.1 billion regulatory milestone payment related to EU HER2-low breast cancer post chemotherapy and JPY 13 billion sales milestone payment when product sales of $1 billion are achieved.
Slide 12 shows the quarterly sales growth of ENHERTU since its launch in the U.S. in the fourth quarter of FY 2019. Study market penetration and the addition of new indications have led to steady growth in product sales. In particular, the addition of new indications since the first quarter of FY 2022 has led to global product sales of JPY 60 billion in the third quarter of FY 2022. I'll use 2 slides from Slide 13 to explain the sales status of ENHERTU in each of the regions. The first is the performance of ENHERTU in the U.S. and Europe. Due to steady market penetration and the addition of new indications, sales of ENHERTU in the U.S. and Europe are growing steadily. As for the status in the U.S., product sales for the year-to-date third quarter of FY 2022 resulted in JPY 99.8 billion or $73.1 million.
For the full year of FY 2022, we have further revised our October forecast to JPY 141.6 billion or $1.05 billion, which is an increase of JPY 4.6 billion from the October forecast reflecting strong sales. The current indications are as shown here. Market share growth in each indication is also steady. The share of new patients in the second-line treatment of HER2-positive breast cancer has grown to nearly the 50% level, consolidating our leading position.
In the second quarter, we were not able to show the specific market share of post-chemo HER2-low breast cancer patients, which we started promoting in August last year. But in the third quarter, we have already achieved a top position with a new patient share in the 40% range. In the second-line treatment of HER2 mutant NSCLC, which we started to promote in August, the product has also shown steady growth in the target markets. We feel that ENHERTU's product appeal is steadily gaining acceptance among prescribers.
Sales in Europe are also on track. Product sales results -- for the year-to-date third quarter of FY 2022 were JPY 22.3 billion or $163 million. For the full year of FY 2022, we revised the forecast announced in October aiming for JPY 328 billion or $243 million, an increase of JPY 2.6 billion from the October forecast due to continued strong sales in the same way as in the U.S. new patient share in the countries where the product has been launched, is also steadily increasing.
The most recent new patient share in the second-line treatment of HER2-positive breast cancer has grown significantly to the 40% range in France and the upper 30% range in Germany and the product has already achieved a top position in France. As for major progress in December last year, we obtained approval for the second-line treatment of HER2-positive gastric cancer and started promotion in some countries.
And also in December, the drug was launched in Spain earlier than expected, showing a smooth start. In January of this year, the drug was approved for the treatment of post-chemo HER2-low breast cancer and promotion of the drug has started in some countries. Slide 14 shows the sales status of ENHERTU in Japan and the ASCA region. Due to steady market penetration and expansion of the number of countries and regions where ENHERTU is available, product sales of ENHERTU are growing steadily in Japan and ASCA. Product sales in Japan for the year-to-date third quarter of FY 2022 resulted in JPY 8.5 billion.
The share of new patients in each indication is steadily increasing with the share in the third-line treatment of HER2-positive breast cancer, expanding to the 50% level and the share in the third-line treatment of HER2-positive gastric cancer maintaining the 60% level. Each has achieved a top market share.
In addition, in November last year, we obtained approval and started promotion for the second-line treatment of HER2-positive breast cancer. We have a feeling that this indication is also well underway. Based on the actual prescriptions of ENHERTU today, we have revised our full year forecast for FY 2022 to JPY 12.4 billion, a decrease of JPY 3.6 billion from the October forecast.
Product sales in the ASCA region for the year-to-date third quarter of FY 2022 resulted in JPY 9.2 billion. Product sales in the ASCA region also include co-promotion revenues in Hong Kong, where AstraZeneca records sales. For the full year of FY 2022, we have revised the forecast announced in October, aiming for JPY 13.6 billion, an increase of JPY 1.5 billion from the October forecast reflecting continued strong sales.
As for current indications, in addition to second and third-line treatment of HER2-positive breast cancer, post-chemo HER2-low breast cancer was added in Brazil last November. As the main progress, the product was launched in Korea in January this year. These indications are second and third-line treatment of HER2-positive breast cancer and third-line treatment of HER2-positive gastric cancer. We will continue to work for further market penetration in each region and expansion of the countries and regions where the product is available as well as acquisition of new indications in order to deliver the product to as many patients as possible who need ENHERTU.
On Slide 15, I'll discuss other initiatives in each region. In Japan, we launched the anticancer agent EZHARMIA for the treatment of relapsed or refractory adult T-cell leukemia lymphoma, ATLL, in December last year. This is the world's first drug discovered and launched by us as a selective inhibitor of EZH1 and EZH2 histone methyltransferases that are expressed in many hematologic cancers and involved in the progression of hematologic cancers. We will contribute to patients by providing a new option in the treatment of relapsed or refractory ATLL.
With regard to our process human somatic cell product, YESCARTA, we have agreed to amend the partnership agreement signed between Daiichi Sankyo and Kite in January 2017 to transfer our manufacturing authorization to Gilead Sciences during 2023. We expect that this agreement will expand our supply capacity of the drug and enable us to make further contributions to patients with hematologic cancers in Japan. In Europe, the Phase III CLEAR Outcomes trial evaluating Nilemdo, a treatment for hypercholesterolemia in reducing the risk of cardiovascular events in statin-intolerant patients or those at high risk of cardiovascular disease met its primary endpoint. Details will be presented at the future conference. Slide 16 is an announcement of the ENHERTU business briefing. FY 2022 marks a leap forward for ENHERTU with the addition of many new indications, starting with second-line HER2-positive breast cancer and including post-chemo HER2-low breast cancer.
In order for you to fully understand in ENHERTU's growth potential going forward, we will be holding an ENHERTU business briefing. Speakers will include CEO Manabe; and Ken Keller, who is the Global Head of Oncology Business Unit. We will inform you the schedule and other details when they are finalized. The next part is the R&D update. I'll hand it over to Mr. Takasaki, General Manager of the R&D division.
Takasaki speaking. I'm going to talk about R&D update. First, an update on 3 ADCs. Please turn to Page 19. This page shows DESTINY-Breast03 study data we presented at San Antonio Breast Cancer Symposium, SABCS in December last year. The data is as of July 2022, an update since ASCO in June last year.
In this comparative study of ENHERTU and T-DM1 as a second-line treatment in patients with HER2-positive recurrent metastatic breast cancer, ENHERTU reduced the risk of death by 36% and compared to T-DM1. Median PFS with ENHERTU was 28.8 months, 4x longer than T-DM1. Confirmed ORR was 78.5%, 1 in 5 patients experienced CR. The safety profile was consistent with previous clinical trials of ENHERTU in breast cancer, groundbreaking survival support ENHERTU as the second line standard of care in HER2-positive breast cancer.
Page 20 shows DESTINY-Breast02 study data. This is a comparative Phase III study of ENHERTU and TPC, treatment of physician's choice as a third-line treatment in patients with HER2-positive recurrent metastatic breast cancer. The patient population is the same as DESTINY-Breast01 Phase II study, which led to the first approval for ENHERTU. Also in this study, ENHERTU demonstrated statistically significant and clinically meaningful improvement in PFS and OS versus TPC. Favorable benefit risk profile was reconfirmed.
Page 21 is gastric cancer update. In December last year, ENHERTU was approved in EU for patients with HER2-positive unresectable advanced recurrent gastric cancer in the second-line settings. The approval was based on the results from Phase II study for second-line treatment in HER2-positive gastric cancer DESTINY-Gastric02 in North America and Europe and Phase II study for a third-line treatment, DESTINY- Gastric01 study in Japan and Korea. On this page, you can find DESTINY-Gastric02 study data we presented at ESMO in September last year. Overall, our primary endpoint was 41.8%, and DoR was 8.1 months. ENHERTU was approved for the second cancer type following breast cancer by EMA.
Page 22 explains clinical and regulatory progress for ENHERTU. In November last year, we obtained approval for HER2-positive breast cancer in the second-line settings in Japan. In December last year, ENHERTU was recommended for approval in EU by CHMP for HER2-low breast cancer post chemo. As a result, this indication was approved in EU in January.
As for HER2-mutant NSCLC second line, filing was accepted in Japan in December last year and in EU in January this year. The patient population eligible for treatment with ENHERTU is expanding steadily in breast cancer. And at the same time, the indication is also expanding to tumor types other than breast cancer.
From Page 23, we give you an update on Dato-DXd. First, I will show you the interim analysis data of TROPION-PanTumor01 study, HR-positive and HER2-low or negative breast cancer cohort, which we presented for the first time at SABCS. In this study, to Dato-DXd showed encouraging and durable efficacy in patients with HR-positive and HER2-low or negative breast cancer who previously received multiple lines of treatment. It also demonstrated a manageable safety profile. This data has raised confidence in ongoing TROPION-Breast01 study.
Page 24 shows the interim analysis data of TNBC cohort in the same TROPION-PanTumor01 study. ORR was 32% in all patients and 44% in topo I inhibitor-naive patients. Results demonstrate manageable safety profile and encouraging efficacy following the previous presentation. In TNBC, TROPION-Breast02 study with Dato-DXd as first-line treatment is ongoing right now. TROPION-PanTumor01 study data supports this Phase III study.
Page 25 shows the data of the combination arm of Dato-DXd and durvalumab in BEGONIA study presented at SABCS. In this study, ORR was high at 73.6% in the first-line settings for TNBC patients with durable response for a longer period of time. The results demonstrate a compelling response and support further investigation of combination therapies in first-line advanced metastatic TNBC and early-stage disease. We will continue to accelerate our development.
From Page 26, I will explain the status of clinical studies in oncology, mainly with the 3 ADCs and major events anticipated in FY 2022, fourth quarter and beyond. First, in breast cancer. Regarding ENHERTU, DESTINY-Breast06 study for first-line HER2-low breast cancer is ongoing. Top line results are anticipated in the first half of FY 2023. In addition to HER2-low patients, this study also targets patients with even lower HER2 expression. As for Dato-DXd, we started TROPION-Breast03 study in December last year in TNBC following neoadjuvant therapy.
Slide 27 shows the steady progress and upcoming events in the lung cancer area. The HERTHENA-Lung01 trial for HER3 DXd in EGFR-mutated NSCLC is scheduled to receive top line results during this quarter. The top line results for the TROPION-Lung01 study were expected in the second half of the fourth quarter of the current fiscal year, but are now expected in the first quarter of the next fiscal year. Enrollment of the study has been completed, and this change is due to the timing of the events to be analyzed. The TROPION-Lung07 study in patients with non-squamous NSCLC with less than 50% PD-L1 without actionable genomic alterations was initiated in January of this year. Both breast cancer and lung cancer studies are progressing steadily, and we expect further DXd ADC breakthroughs in the next fiscal year, building on the results of this year's studies.
From Slide 28 is the update on Alphas. Please see Slide 29. I'll update you on the status of DS-5670, the COVID-19 messenger RNA vaccine. First, I'll discuss the development of booster vaccination. In November last year, we obtained the top line results of the Phase I/II/III study that aim to verify the noninferiority of DS-5670 to the approved COVID-19 messenger RNA vaccine and the study met its primary end point.
Based on the results, we submitted an application for the original strain vaccine in Japan in January this year. The clinical study for the primary vaccination with the original strain is still ongoing. The clinical study for the subvariant vaccine is scheduled to start in the first half of the next fiscal year.
On the next Slide 30, I'll present the details of the booster vaccination Phase I/II/III study. This is data from the noninferiority verification part of the study, which was presented at the Japanese Society of Vaccinology. This study verified the noninferiority of DS-5670 to an approved messenger RNA vaccine in the third booster vaccination in healthy adults and elderly subjects who had completed the primary vaccination with an approved messenger RNA vaccine.
The lower limit of the genomic meaningful rise in neutralizing activity after 4 weeks of treatment with the study drug was greater than the non-inferior already [ emerging ], statistically demonstrating noninferiority to control arms. Rates of TEAE and severity were comparable to those of control arms.
Slide 31 shows the study process and approval status of other alphas. YESCARTA, processed human somatic cell product was approved in Japan last December for the second-line treatment of relapsed or refractory large B-cell lymphoma. The regulatory submission for Tarlige and ?2? ligand was accepted in China this month for diabetic peripheral neuropathic pain.
There have been 2 progresses in the rare disease project. Last November, DS-1211, a TNAP inhibitor began a Phase II study in patients with PXE. DS-2325, a KLK inhibitor is being developed for the indication of Netherton's syndrome, a rare disease that mainly affects the skin and hair. The drug received an orphan drug designation from the FDA last December.
From Slide 32 is the future news flow. Please see Slide 33. At the Japanese Society of Medical Oncology to be held from March 16, there will be data updates from the dose escalation and dose expansion parts of the Phase I study of HER3 DXd for a selected cohort of patients with EGFR-mutated NSCLC. ENHERTU expects to receive approval in Japan and Europe for post-chemo HER2-low breast cancer by the end of this fiscal year. In addition, it is expected to receive approval in Japan for the second-line treatment of HER2-mutant NSCLC in the first half of the next fiscal year. Quizartinib is also expected to be approved for the first-line treatment of acute myeloid leukemia in Japan, the United States and Europe by the end of FY 2023. In addition, FLUMIST, a nasal influenza vaccine is expected to be approved during this fiscal year. From Slide 34 onward is the appendix. Please check back later for a list of milestones and pipeline. That's all for my presentation. Now we'd like to take your questions. Thank you for your cooperation.
Now Q&A session. First, Mr. Yamaguchi from Citigroup Securities.
Yamaguchi from Citigroup. Can you hear me?
Yes, we can hear you.
Thank you. First, about increasing sales of ENHERTU in the United States and Europe. And the revision of your full year forecast and the forecast for Japan. Could you please explain the reason for each just briefly?
Thank you for your question. First, with regards to HER2-positive breast cancer, second line and HER2-low breast cancer in the United States and second-line HER2-positive breast cancer in Europe. The new patient share is increasing steadily in these indications. In addition, in Europe, we were able to obtain the approval for HER2-low breast cancer earlier than expected. That's another factor. Also in the ASCA region, mainly in Brazil, sales are increasing. Due to these factors combined, we made an upward revision of FY 2022 product sales forecast. As for Japan, the new patient share itself is making steady progress, but reflecting the real-world usage, we made a downward revision of our sales forecast.
Sorry for asking a detailed question. When you say real-world usage in Japan, are you talking about the number of patients? Or is this about the body weight issue or the duration of treatment, which were mentioned in the past. Could you please explain, if possible?
Regarding our FY 2020 full year forecast, we reviewed the numbers announced in October and revised our forecast downward by JPY 3.6 billion to JPY 0.4 billion. I mentioned the real-world usage. In Japan, ENHERTU was launched about half a year later than the United States. As we wanted to ensure appropriate measures against IOD, we said strict conditions on medical institutions handling the product.
All-case surveillance was also implemented under such circumstances. It's going to be almost 2 years since the launch. Within a certain time frame for evaluation, we reviewed our sales forecast model vis-à-vis the real-world usage and adjusted on the first model. We appreciate your understanding.
Next, by the third quarter, you're almost achieving the full year forecast. There was also such a trend in the past. Particularly in the previous fiscal year, there was a substantial deficit in the fourth quarter. It seems that you are on track to achieve the company forecast. On the other hand, just looking at the third quarter alone, costs increased and profit decreased overall.
Many investors may feel worried vaguely about an increase in the costs. Regarding the cost up to the third quarter, R&D expenditure and SG&A costs, in particular, I understand profit sharing with AstraZeneca and your investments are in 3 ADCs are factors behind. But are these costs in line with assumptions or exceeding your assumptions. I'd like to get a sense of this.
Thank you for the question. Looking at the third quarter year-to-date figures, SG&A costs totaled JPY 75.1 billion and R&D expenditure, JPY 72.6 billion. With these 2 cost items combined, it's close to JPY 150 billion. There was a huge ForEx impact of about JPY 60 billion for these 2 items combined, that's one thing.
Towards, the fourth quarter, as you said, in our past account settlement, there was a continuous trend to go into the deficit in the fourth quarter. At the same time, the size of the deficit was increasing in the past. To address the situation, we decided to ensure good expense control.
As for R&D expenditure, we are almost on track. We feel we have been able to control our activities on spending. So we're not expecting a big increase in costs in the fourth quarter. That's one point. As for the top line numbers, according to a historical trend, some customers refrained from purchasing before the NHI drug price revision in Japan. There was a large decrease in the fourth quarter.
Top line revenue declined and cost spending exceeded the level we are controlling. These 2 factors at the same time resulted in a deficit in the past. But as for the top line figures, thanks to the good performance of ENHERTU, we made an upward revision. This is going to be slightly different from usual years in the past. So this time, we think we can close the fourth quarter in the black.
In other words, unlike usual years, you think you can achieve your forecast also on a full year basis as well. Is my understanding correct?
Yes, you're right.
Lastly, you mentioned that the timing of Dato's TROPION-Lung01 readout is shifted from the fourth quarter to the first quarter. As you explained a bit, enrollment was on track, but there is a slight delay due to the onset of events. No other major impact. This is just a shift of 3 months, but I think this is an important point. I appreciate your additional comment, if any.
Thank you for the question. Enrollment is over in a global study other than in China. This is not very different from our original plan. But as you mentioned, this is an event-driven study, and there is a slight delay in the onset of the event. Originally, we were expecting the cutoff at the end of March, close to the end of the fiscal year. The timing is being shifted to the first quarter, but we think we have been able to minimize the delay.
Let's move to the next question. JPMorgan Securities, Mr. Wakao.
This is Wakao from JPMorgan. My first question is a bit related to the 5-year business plan, but let me confirm the outlook for the next fiscal year and beyond. I understand that ENHERTU is doing well on the top line and is growing steadily. I understand from Mr. Yamaguchi's question that you are also doing a good job of cost control. Considering this, I believe that you will enter a period of proper profit expansion from the next fiscal year onward as planned in the past.
If you were to revise the 5-year business plan to add a little more cost, I think that would change our view. Since that revised 5-year business plan has not yet been announced, what you can comment on may be limited, but what should we think about profit, sales cost and the balance between profits and sales for the next fiscal year and beyond?
Sure. The first half of the 5-year business plan is positioned as a period of investment and the second half as a period of profit growth. And this major perspective remains unchanged as we approach the end of the first 2 years of the 5-year business plan. In that sense, 2023 will be exactly the turn of the 2 periods. We ask for your understanding that this will be a year in which we will follow the trend of profit growth towards the second half of the year. On the other hand, I mentioned that the impact of foreign exchange rates has been extremely large this time as well. While both SG&A and R&D expenses have been increasing, the impact of foreign exchange rates and the yen's depreciation are factors that we did not anticipate when we drew up the 5-year business plan 2 years ago. What will happen to the exchange rate in the future? Although the Japanese yen has been appreciating a little recently, it's still considerably weaker than the rate we set in our 5-year business plan. So we regard this as an uncertain factor.
Understood. So the only variable factor is the exchange rate, and the outlook is changing from the next fiscal year, R&D expenses. In other words, there is no change in policy now such as expanding R&D investment further than before because R&D is going well. Is that correct?
Yes. Our current thinking is that we'd like to basically control this investment as its disciplined since we have a total R&D investment of JPY 1.5 trillion for the 5 years of cash allocation, as outlined in the 5-year business plan. We'd like to determine the value of the product based on the new information and data in a data-driven way, such as that a good signal is obtained during Phase I of a new pipeline. We are looking forward to seeing what the future holds.
Understood. My second question is about the status of ENHERTU in the U.S. You mentioned that new patients with HER2-low are in the 40% range, and it's going well. As of the second quarter, no details were disclosed, partly because it was not yet clear whether the growth will be sustainable. But now that you have disclosed the details, is it correct to say that the market penetration of HER2-low is not a temporary phenomenon, but that sales have started to increase and that the market share is growing steadily? Can you tell us a little more about the color of this part of the story?
Sure. Thank you. We were able to get data on the status of HER2-low in the U.S. This new patient share has expanded to the 40% range despite the fact that the phenomenon started only a short time ago in August, Naturally, this is a top market share, so we are seeing such a rapid rise.
This is a segment where there have been no promising treatments and there are many patients on the waiting list. We know that there is some bolus effect involved, but even if we exclude that, the startup has been very smooth, which is why we had such a strong impression in terms of numbers this time.
Okay. Lastly, regarding TROPION-Lung01, I understand that there has been a slight slippage. But Am I correct in understanding that the data coming out is only for progression-free survival among the co-primary? I was thinking that if this data is absolutely good, there is a possibility to submit an application. Please tell me if there is any change from that understanding.
Yes. We will analyze the PFS plus we may be able to capture OS trends as well. We will include that as well and make an overall decision on whether or not to submit an application. As you said, it will be data from each PFS.
Next, Mr. Muraoka from Morgan Stanley MUFG Securities, please.
Hello. Muraoka from Morgan Stanley. Regarding your results, I was able to understand the background for keeping your company forecast unchanged. But if I take a closer look in more detail, ENHERTU product sales numbers in the United States in U.S. dollars remained flat comparing the third and the fourth quarters. As for ForEx, due to a slightly higher yen and the expenditure may decrease in value. What I want to say here is that there can be quite a lot of room for an upside for JPY 120 billion continuously. That's the only way I can see. Is my view too much?
Thank you for your question. This time, we think JPY 120 billion core operating profit is quite reasonable, in line with the forecast we have been sharing with you. As for the top line revenue, we are very pleased to see that ENHERTU is performing steadily in the United States and Europe.
But on the other hand, if you look at Japan, regarding ENHERTU, Emgality, Inavir, et cetera, we are revising our forecast downward a bit. We have taken this into consideration as well. We have been able to control R&D expenditure very well.
As for sales promotion costs and SG&A costs, we can predict to a certain degree, an increase in ENHERTU related profit sharing with AstraZeneca. If there's going to be any variance or underspending in cost, it can be sales promotion expenses we will use by ourselves.
Having said so, we feel ENHERTU has a great potential in engaging oncology sales promotion. We are aiming to further reinforce our activities to maximize the product value. We are expecting a good execution of the activities. So we think overall, JPY 120 billion is a reasonable level in our view.
I have an additional question on that. ENHERTU product sales figures in the United States are almost flat. Comparing the third and the fourth quarters in U.S. dollars according to your assumptions, I still do not have a clear understanding of the quarterly performance trend of this drug yet, but we often see a quarter-on-quarter dip between January and March for anticancer agents of other companies. Is this something we should also assume to a certain degree for your case as well? Or can we still expect a sequential growth originally under usual circumstances?
Originally, under usual circumstances, we also expect a sequential growth, as you mentioned. With regards to the performance from the third to the fourth quarters, wholesalers responded to demand before Christmas and shipped the products in the United States. We think that's 1 regional factor behind.
Understood. Also, the third quarter COGS ratio on PL seems a little high to 28.8%, close to 29%. ENHERTU is going well, and you're receiving milestone payment. What is the background? Any one-off factor here?
No. Nothing major in particular.
Let's move to the next question. Daiwa Securities, Mr. Hashiguchi.
This is Hashiguchi. It was announced that Mr. Okuzawa would assume the position of President on April 1. Mr. Manabe will continue as CEO and Mr. Okuzawa has traditionally been CFO. So of course, there may not be such a big change briefly, but what is Mr. Okuzawa's determination or motivation as you look to the future? Based on Mr. Okuzawa's own background, please tell us what kind of impact you can make.
Yes. Thank you, Mr. Hashiguchi. Well, since this is the occasion of the financial results presentation, I'd like to be brief on that topic. As you mentioned, Mr. Manabe and I have been working together as CEO and CFO until now. As we are at the turn of the 5-year business plan and the company's policies are consistent, and I hope that you will kindly understand the new appointments as part of our efforts to strengthen the executive structure.
Okay. Please also tell me one more thing briefly on the performance. Compared to the full year plan, the tax rate is still higher as of the third quarter. But should we expect the full year forecast to be slightly higher?
Yes. The same situation as in Q2 is continuing and since the tax amount is now calculated using the simplified method, the tax rate is expected to be about 22% for the full year when all calculations are made in line with the actual conditions.
Let's move to the next question. JPMorgan Stanley Securities, Ms. Kumagai.
This is Kumagai. Can you hear me?
Yes, I can hear you.
Regarding the 5-year business plan, can you tell us a little bit about the possibility of updating the numerical targets? I think ENHERTU is doing very well and the outlook Dato is improving. I also understand that the assumptions for the exchange rate have exchanged a bit since you created the plan.
Yes. Currently, it is under close examination. And now that the Q3 financial results have been finalized, we will proceed to examine and formulate the budget for the next fiscal year, FY 2023. In the process, we like to have a certain outlook for 2024 and 2025, the latter 3 years of the 5-year business plan and then finalize the budget and business plan for FY '23. As you mentioned, the exchange rate has changed significantly from 2 years ago when the 5-year business plan was formulated, and we are currently examining this and other factors.
Understood. One more question about Emgality in Japan. I think this is the second time you have pulled back on the plan. What was different from your original plan?
Well, first of all, Emgality currently holds the top share of the anti-CGRP antibody market with a 51.7% share, we believe that this is the result of the steady penetration in the market, especially among the specialists. On the other hand, the estimated number of migraine patients in Japan is 8.4 million. In light of this, I doubt that the situation is yet sufficiently penetrated. We are evaluating the situation from these 2 aspects, and this is how we are currently doing.
Next, Mr. Ueda from Goldman Sachs Securities.
Ueda from Goldman Sachs Securities. First, I would like to ask you about the trend of the COGS ratio. In the third quarter, the COGS ratio increased compared to the first and the second quarters. According to assumptions, it's going to improve again in the fourth quarter. Is still there any special factor behind this up and down fluctuation? Should we assume any downside risk on a full year basis?
Basically, this is due to the product mix. We have LIXIANA and the rapid growth of ENHERTU. Year-on-year, the COGS ratio improved by about 5 percentage points. which is exactly a reflection of the product mix. We will also examine the details of the ups and downs by quarter separately. But comparing FY 2021 and 2022 on a full year basis, the improvement of the product mix has clearly led to the improvement of the COGS ratio, raising the gross profit in this structure.
Understood. Secondly, I have a question about your COVID-19 vaccine. From next fiscal year, you are planning to start clinical study for BA.4 and 5 subvariant vaccines. When you manufacture a vaccine against variant viruses, how speedily can you enter the clinical studies in your structure from the time of obtaining a genome sequence. If you develop vaccines against variants for the future, is the structure enabling you to provide vaccines against the latest variant strains like other global companies?
Thank you for your question. In your first question, you're asking about a sense of speed. We ran 2 clinical studies with original strains and addressed variant strains. In the meantime, we are accumulating nonclinical data and start research at the same time we see emergence of variants. In response, immediately after that, we can enter the clinical stage as we already have accumulated experience with original strains. So in terms of the sense of speed, you can say we are comparable to Western companies. We have not been able to calculate within how many months we can enter the clinical stage, but we are starting clinical studies on variance within FY 2023. Based on that, you can imagine we are developing a plan in less than a year and executing the plan. So we think we have that level of speed.
About the other question, vaccines to deal with the next variants. Next one is going to be bivalent vaccine against BA.4 and 5, we think bivalent vaccines will be the mainstay. So we would like to accumulate know-how bivalent vaccines so that we can deal with the future variants. It may depend on whether the variant will be drastic or not. But in that respect, we are taking a messenger RNA strategy to develop a variety of plans without being swayed too much by the variant. So we think that's a benefit for us.
Time has come, so we are closing this meeting. Thank you very much for your attendance today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]