Sawai Group Holdings Co Ltd

TSE:4887

Earnings Call Transcript 2022-Q2

[Kazuhiko Sueyoshi, executive]

[Interpreted] Thank you for participating in the financial results briefing despite busy schedule today. Now let's just give you an overview of the fiscal 2021 first half results. Please look at Page 2, overview. Despite the impact of the NHI drug price revision, both net sales and core operating income significantly exceeded those for the same period of the previous fiscal year due to increased sales of products launched in fiscal 2020 and increased the demand for Sawai Pharmaceutical products, driven by the supply to pace of products from other generic companies. As for the business in the U.S., both sales and core operating income decreased from the same period last year, impacted by competitor entries into key USL generic product market. As a result, the consolidated net sales were up by 7.9% year-on-year to JPY 97.302 billion. The core operating income was down by 8.3% to JPY 16.120 billion. Operating income was down by 1.4% to JPY 13.822 billion and profit attributable to owners of the parent was down by 12.8% to JPY 9.422 billion. Next on Page 3 is about core operating income analysis.

Whilst the gross profit in Japan was up by about JPY 3.3 billion, the core operating income increased by JPY 1.9 billion. This was because the increase of both advertisement expense and other expenses related to sales volume expansion resulted in boosting the SG&A expense by JPY 900 million. As for the business in the U.S. sees the gross profit was down by JPY 3.8 billion. The core operating income was down by JPY 3.4 billion. On the whole, the core operating income decreased by about JPY 1.5 billion over the same period last year. Page 4 shows operating income analysis on full basis. While the impairment losses were recognized in multiple items in [ LNG ] expenses in Japan, the profit on sales of the Denver side was recorded in the U.S. Thus, our consolidated operating income decreased by about JPY 200 million compared with the same period last year. Page 5 is sales by channel in Japan or unconsolidated shipment from the wholesaler to medical institutions. As a result of steady adoption of our main products and products launched in fiscal 2020, the sales increased by 17.1%. Page 6 is about sales by product launch year in Japan on unconsolidated basis. Although the sales of all products launched in each year increase, especially the sales growth of products launched in fiscal 2020 was remarkable. Page 7 is about U.S. sales analysis by segment.

In the U.S., the generic market situation remained very tough, particularly the sales of main products such as Chlorpromazine and Qudexy decreased significantly due to the impact of competitor entrants into the key USL generic product markets. On the other hand, the sales of planned products, mainly in Vigadrone, increased steadily as we launched 3 new products in fiscal 2021. Next on Page 8 is the performance of therapeutic agents for migraine, Zembrace and Tosymra. These are positioned as one of the key elements for business recovery in the U.S. The sales results for both products exceeded the initial plan for first half of fiscal 2021, where Tosymra sales activity was limited by the impact of COVID-19 and the revenue was slightly behind the plan due to lower-than-planned averaging price, but volume was in line with the plan.

From now on, we will promote improvement of ASP, utilize our distribution channels, such as pharmacies to make Tosymra cost effectiveness widely known and execute prioritized measures in order to expand the net sales. Page 9 is about the progress towards fiscal 2020 [ when ] forecast, while the sales in the U.S. were short of the initial forecast due to a sharp decline in sales of main generic products, the business in Japan grew steadily.

On consolidated basis, both net sales and core operating income slightly exceeded the fiscal 2021 first half forecast. However, considering the current business duration in the U.S. and unclearness of the business environment surrounding as in Japan, such as shipment adjustment caused by the supply stoppage of products from other generic companies, our full year forecast announced in May remains unchanged. Page 10 and after shows the progress of the midterm business plan start 2024. The first one is the construction of a new solid dosage from facility within Daini Kyushu factory that we announced last month. We decided to invest in the construction of a new solid dosage form facility to enhance our production capacity in response to growing demand for generic drugs and its further market expansion. Capital investment will be carried out for each step, and we plan to start shipment from April 2024. In the end, by adding extra 3 billion tablets production, we target to increase current production capacity of 15.5 billion tablet by 20% to 18.5 billion tablets per year. Page 12 is about the project to create a new USL factory in the U.S. that we explained before. The consolidation of the 2 manufacturing facilities into 1 connected to the headquarter aims to lower operating expenses and improved quality and efficiency.

Together with the repatriation of CMO products, positive net income impact is expected after 2023. The project is now almost on schedule and within expected budget. Page 13 is about Personal Health Record project, one of our new projects released in May. We started collaboration with Integrity Healthcare and Hitachi Systems on PHR business, which is expected to play even more important role as a personal health management tool, especially when online medical care becomes popular. Integrity Healthcare supplies their PHR management app, Smart One Health on OEM, and we have started its distribution and our brand name as [indiscernible] since last month. Patients can share their PHR data with their medical institutions and receive medical and nutritional guidance on our app. We also plan to expand the user scope to include companies, health insurance associations and local government by adding more values to this app, full monetization. Page 14 and after are refenced materials, including financial data, FDA under activity status and price trends. That's all for the brief outline of the fiscal 2021 first half results. Thank you for your attention.

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