Good afternoon. Welcome to the JP Morgan Healthcare Conference. I'm Seiji Wakao, a Japan pharma analyst, and it's my pleasure to introduce Okamura-san, CEO of Astellas, and welcome him to the conference. Please go ahead, Okamura-san.
Thank you, Wakao-san. Hello, good afternoon, everybody. My name is Naoki Okamura. I'm President and Chief Executive Officer of Astellas Pharma, Inc. I'm excited to be back in the JPMorgan Healthcare Conference. I hope some of you know a little bit about Astellas, but probably there are some who for the first time started engaging with us. So I would like to talk about where we are today, where we are going to be in the near, mid, to long term, and more importantly, how we get there. Actually, we feel strong confidence in our growth trajectory in the longer term, so that I would like to share some excitement as well as the momentum that we feel today. So first of all, we have a very clear, simple vision, which is to turn innovative science into value for patients.
When we use this all-capital VALUE, it is clearly defined among the people at Astellas, which is outcomes that truly matter to patients divided by the costs to the entire healthcare system. It's not the cost to us. It's about the healthcare system. Therefore, if we are to explore increasing value, that means we try to create better outcomes for the patients and try to help manage the healthcare costs as the entire ecosystem. So we put patients at the center of everything we do at Astellas, and it has become our DNA as a company. So let me show you a kind of snapshot of where we are today. Our fiscal year starts at April 1st and ends at March 31st the following year. Therefore, the most recent full year for our accounting is what we call fiscal year 2024 that ended March 31st last year.
In FY 2024, we recorded JPY 1.9 trillion revenue, which is in accordance with the current foreign exchange. It is like $13 billion in revenue with JPY 392 billion operating profit, which represents 20.5%. And we have guidance for revenue as well as the operating profit for FY 2025, which is going to be JPY 2.0 trillion revenue with 24.1% operating profit. So that's the size. That's the scale of our company. And even though we are a company based in Japan, Tokyo, Japan, actually, we have a global outreach. As you can see at the bottom left, more than 85% of our revenue comes from outside of Japan. We are operating by ourselves in more than 70 countries, and we have good global commercial capabilities to deliver our outcomes to the patients all over the world.
And thirdly, I would like to point out we are investing 17%, 17% of our revenue back to research and development because we are exploring innovation, constantly exploring innovation, and it is required to reinvest part of our revenue back to our research and development. Astellas was created through the merger of two Japanese pharmaceutical companies back in 2005, 20 years ago. And at the time, Astellas was nobody in oncology. Neither of the combined companies had any oncology pipeline or in-market sales for oncology products. But after 20 years, now the oncology products are representing 75% of our revenue, and the strongest track record is the journey that we had with XTANDI, which is an over $6 billion prostate cancer drug.
Not only is it a privilege to have more than $6 billion prostate cancer drug, that has made the difference in the lives of over 1.3 million men with prostate cancer over time, but at the same time, we are acquiring many different capabilities to run this great product. For example, we have to have the brand maximization capability with the life cycle management. We have to have the global reach because prostate cancer patients are all over the world, and we have to ensure that the patients can get this drug. In order to do that, we have to have the good market access capabilities as well, so these capabilities will be a foundation to really have the strong growth of the next generation of our products, which consists of five strategic brands, as you can see on the slide.
From PADCEV, which is the bladder cancer drug, antibody drug conjugate, VYLOY, which is the most recent addition to our oncology pipeline for gastric cancer, XOSPATA, acute myeloid leukemia drug, IZERVAY for geographic atrophy secondary to age-related macular degeneration, and last but not least, VEOZAH, which is the first non-hormonal therapy for vasomotor symptoms of the menopausal women. So as you can see, each of them has a blockbuster potential, and we are confident that these five strategic brands are going to get us to the growth trajectory even after XTANDI. So we have deliberately executed the strategy to overcome the XTANDI loss of exclusivity. This is something that we knew that would come. So we deliberately created the portfolio of five strategic brands so that we have to kind of elevate the peak, flatten the dip. And then inflect to growth even after XTANDI loss of exclusivity.
We need to maximize the revenue of our XTANDI as well as the strategic brands. We have to accelerate the pipeline so that they come to the marketplace as fast as possible. At the same time, in order to maintain our reinvestment to the research and development, we have to establish the financial discipline so that we can improve the profitability structure of the company. XTANDI, we have a co-promotion arrangement initially with Medivation, but now part of Pfizer. Therefore, we have to pay up almost 50% of our sales in XTANDI back to Pfizer. Now the five strategic brands, majority fully owned programs, that is highly profitable compared to the XTANDI situation.
Therefore, even with the kind of dip and regrowth trajectory of the top line, from the profitability standpoint, we will have much better operating profit margin structure, which we aim to reach 30% by fiscal year 2027 and sustain that 30% level going forward. Now let me shift gears to our lifeline, which is the R&D. Probably you hear many pharmaceutical companies define themselves by, for example, therapeutic area or the key technology platform, like we are an oncology company, we are an ADC company. But Astellas doesn't. We are taking a very unique research and development strategy, which we call focus area strategy. We start from biology that has a strong disease linkage. Then we try to identify the best modality to address that biology. And finally, we are figuring out who are the best patient population to benefit from the combination of this biology and modality.
Once this triangle of biology, modality, and disease is established, we believe we can produce multiple projects from that triangle by pivoting either points of the triangle. That's the beauty of our focus area approach. This is most likely the unique way of showing our marketed products and the pipeline. Usually, you see the table format. Why we created this chart? Because we try to show you that we have a good focus, especially for oncology. The majority of the products and pipeline are from oncology. But at the same time, we have an appropriately diversified portfolio, for example, of ophthalmology products and programs, rare diseases, as well as very selective specialty therapeutic areas. We are not trying to be as exclusively focused on some technology platform or the therapeutic area, but we have to have a decently diversified portfolio. That is our aim.
As I mentioned, once the triangle of biology, modality, and disease is established, we call it primary focus, and we have currently four primary focuses, starting with Targeted Protein Degradation, which is initially aiming for oncology indications. Secondly, Immuno-Oncology. We have a broad pipeline to address Immuno-Oncology. The third one is Blindness and Regeneration, which is mostly the cell and gene therapy targeting of ophthalmology indications. And last but not least, Genetic Regulation with the gene therapy. Let me take a couple of examples of how we use this Focus Area Approach and how this primary focus can strengthen our leadership position in some of the areas that we're in. First, let me talk about KRAS. Targeted Protein Degradation flagship program is targeting KRAS G12D mutation, which has become a relatively hot topic for the past couple of years.
We are addressing the used to be undruggable target, KRAS, by combining two small molecules with linkers. Astellas has a very strong legacy of small molecule medicinal chemistry. This targeted protein degradation is the best area for us to move forward and leverage our heritage of the medicinal chemistry. The leading pipeline ASP3082 has the KRAS G12D mutation targeting KRAS G12D mutation, but as I mentioned, once the primary focus is established, we hope that we can produce multiple projects from that triangle. As you can see, we have another follow-on program, which is ASP5834, just entered into clinic, and this ASP5834 is targeting not only one single mutation, but pan-KRAS mutated cancers. This is one of the data that we presented, and ASP3082, with the combination of the standard of care, presented a good overall response rate with a duration of efficacy.
We hope it's going to be longer. And because of the safety profile, we have the patients can tolerate this product so that they can complete the treatment cycle. And we have our Chief Research and Development Officer, Tadaaki Taniguchi, here. So after this presentation, if you have any questions about those programs, he will be able to address those questions. So the next example is the Claudin 18.2 franchise. We have the traditional monoclonal antibody product, VYLOY, which targets Claudin 18.2. The product is on the market already, and the product is receiving very strong support from the medical community. The issue, if there is an issue, VYLOY needs to be targeting relatively high Claudin 18.2 expression level. Therefore, we need to cover the entire spectrum of the Claudin 18.2. We started as part of the immuno-oncology primary focus, the bispecific T-cell engager with targeting Claudin 18.2.
We hope to have a wide range of Claudin 18.2 expression patients can be subject to this bispecific T-cell engager. We also have a recently in-licensed ADC for Claudin 18.2 from a Chinese company, Evopoint, so not only traditional monoclonal antibody, bispecific engager, ADC programs so that we can have the unique leadership position in the Claudin 18.2 space. This is one of the data from ASP2138 in gastric cancer. Probably you cannot see it, but the color of the bar represents the level of expression of Claudin 18.2, so across different levels of Claudin 18.2, ASP2138 presented a good overall response, and if you can see the spider chart on the right-hand panel, we expect that 2138 is a much longer duration of efficacy, and we are using the subcutaneous dosing so that we can minimize the risk of safety profile of cytokine release syndrome.
On top of those, maximizing the brands and accelerating the research and development, we are committed to make the cost optimization initiatives. We are committed to deliver JPY 150 billion annual recurring benefit by FY 2027 so that it contributes to get to the operating profit margin of 30%. In order to navigate the companies through a significant transformation, of course, we need to have a strong management team as well as the board. As you see, Tadaaki comes from other companies in the pharmaceutical industry. Other members of the management team come from other companies or even other industries so that we can learn from those different companies, and the most recent board refresh added Andreas and Mark as the independent outside directors. This is for the first time for Astellas to have someone who has the pharmaceutical industry expertise on the board.
Just after six months, they are making significant contributions to the board dynamics and the interaction with the executive team. We really feel grateful for their experience, guidance, and valuable insights. In summary, I would like you to take away three major messages from me today. Number one, we are maximizing our revenue to address the XTANDI loss of exclusivity. Five strategic brands have a strong growth trajectory for now, and we are expecting them to continue to grow in the coming years. Number two, we are accelerating our pipeline so that we can deliver the product onto the marketplace as fast as possible from four primary focuses that we have. Number three, not only just maximizing the revenue or accelerating the pipeline, but we are committed to establish the financial discipline so that we can improve the profitability.
So by these levers, we are aimed to turn innovative science into all capital value for patients. And we believe that is creating a value for shareholders as well. Thank you very much for your kind attention. Thank you.
I start a Q&A session. From here, Taniguchi-san, Chief Research and Development Officer, will also be joining us. If you have a question, please raise your hand and wait for a microphone. First question from me regarding the stock price. How do you view the stock price's performance following the second quarter earnings announcement? The stock price has been performing very well in our view. As a CEO, how do you assess the key drivers behind this performance?
Thank you for the question. So under the current corporate strategic plan 2021, which is a five-year corporate strategic plan, we have three performance goals. And based on that, we created three initiatives, which are growth strategy, bold ambition for the pipeline, and three strategic margin transformation. So we have been doing these three initiatives constantly. And the current share price is probably the reflection of that we have started delivering against those performance goals. And looking back, a couple of years ago, we felt that we lost the trust from the investment community because of the different big sales guidance and not delivering against the commitment. But now, I feel, as I mentioned at the very beginning of my presentation, I feel the momentum that the investment community recognizes the delivery against our commitment, and that brings us somewhat trust back to Astellas.
That is my reflection to the current share price performance. Thank you.
Thank you. Any questions from the board? Okay. So I'd like to ask about how do you overcome the XTANDI LOE? Could you share the rationale and the level of confidence behind your views that the company can overcome the impact of XTANDI LOE and return to growth?
First of all, it is a privilege to have a $6 billion product that helped over 1.3 million patients around the world. Every single product has the loss of exclusivity. It is known far before that loss of exclusivity actually comes into place. Therefore, we have the deliberate strategy to create not the single product replacing XTANDI, but a portfolio or the group of products to really compensate the loss of XTANDI. We believe we have a good group of strategic brands, each of which has blockbuster potential, not like XTANDI. Those strategic brands, most of them are completely acquired or internally developed. Therefore, the profitability, the gross margin of the product is much higher compared to that of U.S. XTANDI.
And on top of that, we are trying to establish the real financial discipline so that we can, even on top of those efforts, we try to improve our profitability. So as I show you the chart of crisscrossing, declining XTANDI, and the growing strategic brands, from the top-line perspective, it looks like we have a dip. But from the profitability standpoint, we continue to grow our profit so that we can meet our shareholders' expectation.
Thank you. Any questions? Okay. So please await our microphone.
Could you comment on the first year or so of sales of VEOZAH and how you're thinking about that product?
Thank you. We first thought VEOZAH is a kind of different product from other prescription medicines. But eventually, we noticed that VEOZAH is another prescription drug. So we had to go through convincing the prescribing doctors. We have to have the payers negotiate it. Then we have to go to patients to increase the disease awareness. When we noticed this VEOZAH needs to be another prescription medicine, we downgraded our peak year sales. But after that, the VEOZAH sales performance is on track. And we are diligently following those three steps of convincing the prescribing doctors. We are going through all the negotiations with the payers. And then we try to have the disease awareness campaign to encourage patients to talk to their doctors. I think it is not as quick as we originally expected. But after the revision, VEOZAH is following the on-track performance of our expectation.
We have significant confidence in the disclosed peak year sales numbers for VEOZAH. Does that answer your question? Thank you.
Thank you. Any other questions?
Thank you. Thanks for the presentation. My question is, as you focus on strategic brands, XTANDI, and the three main priorities you have there, how is Astellas thinking about talent products, whether they're still patent protected or already post-LOE? Thank you.
Thank you. Those products continue to be important cash generators, that's for sure. For example, PROGRAF, after, I don't know, 15 years of patent expiration, PROGRAF is generating over $1 billion cash year-over-year. So we are not saying that we stopped doing anything for those mature products. But from the strategic standpoint, we want organizations to focus on those new strategic brands because we have to maximize the value of those programs. So as far as we have the patients who need our products, of course, we continue to support those programs. But from the strategic focus prioritization standpoint, we will shift our focus to those new strategic brands. Thank you.
Any other questions?
Yeah. I'd like to discuss about gross 30%. So as XTANDI approaches LOE in 2027, how do you plan to achieve and sustain a gross margin of 30%?
As I mentioned, because of the co-promotion arrangement with Pfizer, we have to pay back 50% of the U.S. XTANDI sales, which is close to 10%, 11%, 12% of the entire company revenue. As XTANDI goes loss of exclusivity, of course, we are getting rid of this 10%-ish payout of our entire revenue. So as I mentioned, we are shifting from the 50% profitable XTANDI U.S. to largely in-house developed or fully acquired programs. So the profitability will be significantly better compared to XTANDI versus those five Strategic Brands. So it is not easy to get to 30% and sustain that 30% after XTANDI. But it is manageable. It is doable. We are committed to get there and sustain the 30% core operating profit margin.
Okay. So let's move into the pipeline discussion. So I'm interested in ASP3082. You presented the PDAC data for ASP3082 at ASCO GI. How do you plan to differentiate this asset versus competing programs like Revolution Medicines? Today, Revolution Medicines updates their first-line PDAC data. We believe your first-line data appear competitive with favorable safety profile. How do you view this in your positioning?
Thank you. Yeah. First of all, I am no scientist, but I would like to point out there are significant differences of the mode of action. Revolution Medicines' program is inhibitor, whereas ours is a targeted protein degradation. So the entire protein KRAS is going to be destroyed to be efficacious. And this difference of mode of action, at least from our clinical study, we have confirmed that this mode of action is actually happening in the human body. That will be reflected on the clinical data in the future. But still, we are in the early days of clinical development. So we haven't presented compelling difference between inhibitor and protein degrader. But with that, we have Tadaaki probably. He can make additional comments about the difference between those two.
Thank you. Now, just talking about competitors as KRAS G12D, as Naoki mentioned, competitors actually have inhibitor. We have a degrader. And degrader is actually first-in-class in targeting a KRAS G12D. So if you're looking at the recent presentations, just last week at ASCO, we published the first-line and second-line PDAC data. And obviously, the biggest advantage of our product is really safety profile, which is because targeting purely G12D compared to RMC is more targeting pan-KRAS. It's quite different. The secondly, I must say that we've seen a pretty good duration of response, particularly in our second line. But we also have combination with modified FOLFIRINOX in the first-line, pancreatic cancer.
We also started seeing a good duration of response because, as you see, pancreatic cancer is always challenging that to have, of course, one is that enough response to shrinkage, but also how to maintain this tumor shrinkage that translates into the longer survival is going to be extremely important, so I think that still needs to work out, but I think there are a lot of advantages to the degrader over the inhibitor, but I think we will also go into report once we have more data coming up from our clinical trial.
Okay. Thank you. Any other questions?
So regarding Claudin 18.2 asset, given the strong market penetration of VYLOY and the encouraging results from ASP2138, your expectations for Claudin 18.2 asset appear to be increasing. Could you share your view on this potential?
Thank you. As I mentioned, we are about to establish the very strong leadership position in the Claudin 18.2 space with VYLOY for high expression level patient population with T-cell bispecific T-cell engager for the entire coverage of the Claudin expression level with a much safer profile with the subcutaneous dosing. And we added Claudin 18.2 ADC, which maybe chemo-free treatment is possible if successful based on the clinical study. So those are the overall strategy that we dominate the Claudin 18.2 space. But Tadaaki, if you have any additional comments, please.
Yes. So, Claudin 18.2. Again, last week, we had ASCO GI here in San Francisco. We disclosed the ILUSTRO study, which is actually a triple treatment of gastric cancer, first-line gastric cancer, with VYLOY and CPI plus chemotherapy, which is actually showing remarkable efficacy to extend PFS to 40.8 months compared to VYLOY plus chemo is around 8-9 months. And checkpoint inhibitor plus chemo is around 7-8 months. So this is a significant improvement of duration response by combining VYLOY plus CPI and chemotherapy. And we already started, by the way, a phase three trial based on this because this is an open-label trial. We know the high-level results. We haven't seen any event in the last three or four months. But we decided to disclose now because we think that just waiting another event doesn't make sense. So that's a huge differentiation of VYLOY.
But also, as Naoki mentioned, we have 2138, which is the bispecific targeting same Claudin 18.2 with CD3 T-cell engager, which is also showing very promising data in first-line gastric cancer. But I think it is a much broader population because VYLOY is just specifically focused on Claudin high, which is a 70% higher. But if you are looking at 2138, as Naoki just presented. Regardless of the Claudin expression, we see the profound efficacy and long duration response, which is remarkable. So many KOL we met during the ASCO GI is so excited with the data. I think this is going to be a very important treatment in the future of gastric cancer and other GI cancer. But thirdly, we also have 546 Claudin 18.2 targeted ADC, which is the collaboration with Evopoint. And we are going to start a trial pretty soon outside of China.
And this late-stage product also showing really strong data, particularly late line of gastric and pancreatic cancer with a high response rate and longer duration. So these are three products that we are actually going to continue to bring to the GI cancer. And we continue to be a leader in this space.
Thank you. We have only one minute. So Okamura-san , could you share a few closing remarks?
Thank you. As you can see on the slide, let me summarize that we have three points that you can take away. One, we are trying to maximize the revenue, especially the five strategic brands over XTANDI. We are trying to accelerate our pipeline. We have already declared two clinical POCs for ASP3082, one for pancreatic cancer, and then the non-small cell lung cancer. We are waiting for another three clinical POCs to come within the quarter. Not only the revenue or the R&D, we are trying to establish the financial discipline so that we can improve our profitability to get to the core operating profit margin of 30% in FY 2027 and sustain that over time. We are trying to innovate, turn innovative science into outcomes that truly matter to patients divided by the cost to the entire healthcare system.
We believe that is the viable way to create and deliver value to shareholders as well. Thank you very much for your attention.
Thank you. Thank you very much for your time. I appreciate your presentation and Q&A. I hope to see you soon. Thank you.
Thank you.