Thank you very much for joining Astellas Pharma's FY 2026 second quarter year-to-date financial results announcement meeting out of a very busy schedule today. I am delighted to serve as the MC today. I am Kato, Chief Communications and IR Officer. Thank you very much for your time. Today, after our presentation, we will move on to a Q&A session. Explanation will be made based on the meeting materials posted on our website.
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Let me introduce the participants today. Representative Director, President, and CEO Naoki Okamura. Chief Research and Development Officer Tadaaki Taniguchi. Chief Commercial and Medical Affairs Officer Claus Zieler. Chief Financial Officer Atsushi Kitamura. We have four members from our company. We now would like to go into the presentation. Okamura-san, please.
Hello, everyone. I am Naoki Okamura from Astellas Pharma Inc. Thank you very much for joining our FY 2026 second quarter year-to-date financial results announcement meeting out of a very busy schedule today. This is a cautionary statement regarding forward-looking information. As this was explained by Kato earlier, I am not going to read this page. Page three is an overview of FY 2026 second quarter year-to-date financial results.
Business performance made a strong progress, outperforming expectations. We have revised our full-year forecast upward. Continued progress was made in strengthening the pipeline across all stages. Revenue increased by 23% and core operating profit rose by 50% year-on-year. Both made a robust growth. Overall growth was driven by continuous strong strategic brands growth and by ensuring disciplined cost optimization.
Reflecting strong business performance exceeding expectations, we have made an upward revision of revenue by JPY 110 billion and core operating profit by JPY 80 billion. As a result, we are expecting core operating profit of JPY 700 billion and 30% core operating profit margin to be achieved. Our pipeline also made a solid progress. Regarding lifecycle management of strategic brands, PADCEV was approved for cisplatin-eligible MIBC, muscle invasive bladder cancer, in Europe.
VEOZAH submission was filed in Japan and China. FSD, first subject dosing, was achieved in phase III studies with setidegrasib for NSCLC, non-small cell lung cancer, and ASP2138 for gastric cancer. What we presented as VIR-5500 is now called ASP6958. In this program, POC was achieved in mCRPC, metastatic castration-resistant prostate cancer. Furthermore, three new programs, ASP388B, ASP2020, and ASP2767, advanced into clinical stage. Page four is the agenda for today.
From the next page, I will explain these topics. On page five, I will explain FY 2026 second quarter year-to-date financial results. The strong momentum from the first quarter continued into the second quarter as well. Across revenue, core operating profit, and full operating profit, significant growth was seen year-on-year. First, let me explain main items.
Revenue reached JPY 1,270.9 billion, substantially up by 23.4% year-on-year. Core operating profit increased to JPY 424.9 billion, up by 50.3% year-on-year, realizing high growth rate exceeding revenue. This strong profit growth was driven by the growth of strategic brands continuously. This was achieved by continuing to steadily make investments necessary for future growth and ensuring disciplined cost management across the company.
We were able to invest for growth and enhance profitability at the same time, which led to top-line growth and substantial profit expansion. Next, I will explain our full-basis results shown in the bottom half of this page. Regarding ASP5541 and the development in prostate cancer, based on the clinical trial data obtained so far, we decided to discontinue its development.
Accordingly, we booked impairment loss of JPY 26.4 billion as other expenses. Including this impact, operating profit was JPY 316.6 billion, up by 58.8% year-on-year, and profit was JPY 241.5 billion, up by 63.6% year-on-year. We achieved a substantial profit increase also on a full basis as well. In the first half of FY 2026, based on the growth of strategic brands, we were able to show strong progress, both in expanding revenue and enhancing profitability.
Page six shows FY 2026 second quarter year-to-date results of our main brands. Strategic brands continue to maintain strong momentum following the first quarter, driving overall revenue and profit growth for Astellas. First, sales of five strategic brands, PADCEV, IZERVAY, VYLOY, VEOZAH, and XOSPATA, exceeded JPY 330 billion in total, substantially up by over JPY 110 billion, or over 50% year-on-year.
All strategic brands achieved robust growth, demonstrating outstanding progress for strategic brands as a whole. PADCEV, in particular, grew at a pace exceeding the expectations at the beginning of the year, driving the growth of strategic brands as a whole. Other strategic brands are also progressing steadily in line with the initial expectations.
Based on these results, particularly the growth of PADCEV exceeding expectations, we made an upward revision of our full-year forecast for strategic brands as a whole from the initial JPY 610 billion to JPY 680 billion. According to Corporate Strategic Plan, or CSP 2026, we are aiming to more than double the sales of strategic brands by FY 2030 compared to FY 2025. Based on the results so far, we are progressing extremely well to achieve that goal according to assessment.
Next, I will explain the status of individual strategic brands and XTANDI. As for PADCEV, sales increased to JPY 158.3 billion, up by JPY 55.9 billion, or 55% year-on-year. Continued growth is driven by further penetration in global first-line metastatic urothelial cancer, in particular outside of the U.S., mainly in established and international markets. Steady progress is seen in reimbursement, which is leading to sales expansion.
In the U.S., market penetration of MIBC, muscle-invasive bladder cancer, is making steady progress, contributing to sales growth. On the other hand, in the U.S., market penetration has progressed rapidly, so the growth rate in the U.S. is expected to be milder gradually over time in the future. Based on the progress up to the second quarter, we made an upward revision of our full-year forecast for PADCEV.
Furthermore, we believe PADCEV has room for future growth. In the current peak sales forecast, we are not factoring in bladder-sparing MIBC, now under development, and sales contribution of MIBC in China, which is now under submission. Based on these new growth opportunities, we are reviewing peak sales forecast right now, so we will share that with you at an appropriate timing.
We are hoping that we will further expand business opportunities for PADCEV, both in terms of indications and regions. We are expecting further growth of PADCEV as an important product to drive Astellas growth also in the future. As for IZERVAY, sales rose to JPY 56.2 billion, up by JPY 22 billion, or 65% year-on-year, growing solidly in line with our initial expectations. Adoption among retina specialists is making steady progress continuously.
Treated GA, geographical atrophy, patient population is also increasing steadily. The expansion of prescribing physicians and an increase in the number of treated patients are leading to continuous sales growth. Also in the future, we will promote penetration among more retina specialists to achieve further growth by increasing GA treatment rate.
With regards to VYLOY, sales reached JPY 45.9 billion, up by JPY 19.3 billion, or 73% year-on-year, also growing solidly in line with our initial expectations. In all launched regions, market penetration is making steady progress. Through further penetration of Claudin 18.2 testing and expansion of new patient share, we are expecting solid growth of its sales into the future as well. Sales of VEOZAH increased to JPY 30.7 billion, up by JPY 7.7 billion, or 34% year-on-year.
Impact from a competitor product is still within the range of assumptions. We are expecting VEOZAH steady growth in the future as well. Regarding XOSPATA, sales reached JPY 42.9 billion, up by JPY 8.4 billion, or 25% year-on-year. Globally, stable growth is continuing. Last but not the least, XTANDI. Sales increased to JPY 533.7 billion, up by JPY 56.7 billion, or 12% year-on-year.
This increase is mainly due to forex impact. Excluding forex impact, sales are at a similar level year-on-year. We revised our full-year forecast upward by JPY 20 billion, but this is because we are reflecting the change of forex assumptions. There is no change in our outlook on a local currency basis. From the third quarter onwards, sales are expected to decline due to the pricing impact associated with the IRA, Inflation Reduction Act, in the U.S., and the impact of the patent expiry in some countries.
In the second half, we are hoping that further growth of strategic brands will strongly drive the performance of Astellas as a whole. Page seven is about cost items. SG&A expenses, excluding U.S. external co-promotion fees and forex impact, were held flat year-on-year, while we steadily executed investments necessary for future growth.
As a result, the SG&A expense ratio improved by 3.4 percentage points year-on-year. In addition, our company-wide cost optimization initiative called SMT, Sustainable Margin Transformation, is also achieving the results steadily. In the first half, we realized cost optimization of about JPY 22 billion year-on-year for SG&A, R&D expenditure, and cost of sales combined.
Next, let me explain a specific breakdown of SG&A cost and R&D expenditure. SG&A expenses, excluding forex impact, decreased by 0.3% year-on-year. As strategic brands are growing substantially, while we increased our investments to grow them further, we are able to hold SG&A expenses flat at a level similar to the previous year. We see this as an outcome achieved through our SMT initiatives by now.
Specifically, in addition to efficiency benefits from global capability center establishment, AI, and digital capabilities, we actively implemented the standardization of promotional content and streamlined content development process. Through these initiatives, we realized cost optimization of about JPY 10 billion. While fully executing growth investments for strategic brands, we were able to offset the increase through cost optimization and hold SG&A expenses flat year-on-year, which we think is a great achievement.
R&D expenditure rose by 9.9% year-on-year, excluding forex impact. This is due to the steady progress in our pipeline development, mainly for setidegrasib, ASP2138, ASP546C, and ASP6958. Pipeline development costs increased by about JPY 11 billion. Also, in R&D expenditure, higher efficiency through SMT is making steady progress.
We are continuously making progress in outsourcing cost reduction through insourcing development capabilities, including clinical trials, et cetera, and prioritization of research stage programs, which led to cost optimization of about JPY 8 billion. We have been able to offset some of the increase in costs through efficiency benefits, while we ensure increasing pipeline investments. In the second half, as we will make progress in patient enrollment as clinical trials move forward, we are expecting expansion of further investments.
In this way, what we are promoting is not the mere cost reduction. By enhancing enterprise-level productivity, we are realizing high profitability while we make steady investments in necessary areas, such as strategic brands and pipeline. We will continue to secure investments in areas where we should invest, and at the same time, we will ensure cost disciplines and enhance productivity.
Page eight covers our revised full-year forecast for FY 2026. Based on strong progress at performing expectations through the second quarter, we have significantly revised upward our full-year forecast for revenue, as well as core and full basis OP. In particular, we expect core OP to reach JPY 700 billion, a level that will significantly surpass our previous record high. Furthermore, the core OP margin is projected to reach 30% for the first time in Astellas' history.
While we had set a target of 30% by FY 2027, this upward revision means we now expect to achieve it within the current fiscal year. In addition to revenue growth driven primarily by our strategic brands, the result of company-wide cost optimization efforts have clearly manifested a significant improvement in profitability, so we believe. Next, I will explain the details of the full-year forecast. First, foreign exchange assumptions.
We had initially assumed JPY 150 per dollar and JPY 180 per euro. However, we anticipate JPY 156 per dollar and JPY 177 per euro starting in the third quarter. Combined with the actual rates through the second quarter, JPY 159 per dollar and JPY 184 per euro, we have revised to JPY 181 per euro for full-year forecasts.
Regarding revenue, in addition to upward revisions to the full-year forecast for PADCEV and mirabegron, we have factored in the impact of the revised forex assumptions and revised our revenue forecast upward by JPY 110 billion from the initial forecast, and now expect it to be JPY 2.3 trillion. Next, regarding expenses, SG&A expenses, excluding copromotion fee for XTANDI in the U.S., is projected to be JPY 585 billion, reflecting that the enterprise productivity improvements are progressing at a faster than expected pace.
Excluding the ForEx impact, this level represents a decrease from the initial forecast. R&D expenses are projected to be JPY 360 billion, primarily reflecting the impact of changes in the ForEx assumptions, as progress is generally in line with expectations. Reflecting the strong performance in our core business, core OP has been revised upward by JPY 80 billion from the initial forecast and is now projected to be JPY 700 billion.
The core OP margin is expected to rise by 2.1 percentage points from the initial forecast, reaching 30%. Next, full-base OP. First, regarding other expenses, the initial forecast was approximately JPY 80 billion for the full year. Through the second quarter, we have recorded JPY 38.2 billion, including an impairment loss of ASP5541.
To revise the forecast, although there are no specific signs of impairment losses at this time, we have factored in an additional JPY 15 billion for the risk of impairment losses and so on. As a result, we now expect other expenses to total approximately JPY 95 billion for the full year. Reflecting this revision to other expenses, the upward revision to full-base OP amounts to JPY 65 billion, bringing the full-year forecast to JPY 460 billion.
This upward revision demonstrates that we are able to significantly increase revenue while simultaneously substantially improving profitability. We will continue to steadily build on our results in the second half to achieve our targets of a record-high core OP of JPY 700 billion and a core OP margin of 30% for the first time in Astellas' history. Next, I will explain our pipeline progress.
On page 10, I will discuss progress on the lifecycle management of our strategic brands. We have achieved an important milestone of geographic expansion with PADCEV for MIBC and VEOZAH. First is about PADCEV. For cis-eligible MIBC, we obtained an approval in Europe in October based on the results of the EV-304 study. Next is VEOZAH. In Japan, we did filing in August based on global clinical trial data, in addition to the results of two phase III studies conducted in Japanese women.
In China, the submission based on data from clinical studies in Europe and the U.S., as well as bridging study conducted in China, was accepted in October. Regarding IZERVAY, we are planning additional clinical studies to support the European submission. We will provide further details as soon as they are finalized. On page 11, I will explain our pipeline progress.
Our pipeline has steadily progressed and expanded, ranging from early stage to late-stage development. We have achieved FSD, or first subject dosed, in two phase III trials and demonstrated POC for ASP6958. Furthermore, three new programs have entered clinical development. First, we achieved FSD in patient in the phase III study of setidegrasib for second-line or later treatment of NSCLC, as well as in the phase III study of ASP2138 for first-line treatment of gastric cancer.
We are making steady progress toward our goal of initiating 10 or more phase III or pivotal studies by FY 2030, which was set as a performance indicator in our CSP2026. Regarding setidegrasib, we presented data on treatment response and mechanism of resistance at the AACR Pancreatic Cancer Meeting held in September. Please refer to page 35 of the appendix for details on the data.
Next, regarding ASP6958, we achieved POC in mCRPC and have begun exploring options for late-stage development. Furthermore, three programs, ASP388B, ASP2020, and ASP2767, have newly entered the clinical development phase, and we have continued to expand our early-stage pipeline. In the following slides, I will provide details on the primary focus areas, immuno-oncology and blindness and regeneration, where we have seen multiple developments.
Page 12, I will update you the progress of primary focus area of immuno-oncology. In immuno-oncology, we have achieved key milestones in multiple programs, and with addition of new programs, our pipeline is steadily expanding. First, ASP2138. In August, we achieved FSD in a phase III study for ASP2138 as a first-line treatment for gastric and GEJ adenocarcinomas. We expect that a readout of this study be available in FY 2029.
For PDAC, a phase I study is underway, and we anticipate a POC judgment during FY 2026. Next is ASP6958. This is a dual-masked CD3 T-cell engager targeting PSMA, or prostate-specific membrane antigen. Based on phase I data obtained to date, we have achieved POC in mCRPC. A Fast Track designation was granted by the FDA in August. Based on these results, we are currently planning for a registrational study.
Next, I will explain our new immuno-oncology programs. ASP388B, developed through a collaboration with Sutro, is our second program following ASP2998 and utilizes a technology platform known as an immunostimulatory antibody-drug conjugate, or iADC. B7-H3-directed antibody is conjugated with two payloads, a cytotoxic topoisomerase I inhibitor and an immunomodulator STING agonist. In a phase I-B/II trial targeting solid tumors, we achieved FSD in September.
DAX-044 is a program for which we recently secured an exclusive option to obtain a worldwide license to develop and commercialize from Audax. This is a fusion protein that enhances the targeting specificity of interleukin-12. It utilizes Audax's proprietary technology and is designed to specifically exert the immunostimulatory activity of IL-12 within the tumor microenvironment. Audax plans to initiate a phase I trial in 2027, and we will consider exercising the option based on data obtained in the future.
We will continue to accelerate the development of these programs and focus on further strengthening our immuno-oncology pipeline. Page 13 outlines the progress of our primary focus area, blindness and regeneration. ASP2020 and ASP2767, our next-generation ophthalmology programs, have recently advanced into clinical development phase. ASP2020 is iPSC-derived RPE, or retinal pigment epithelial cell therapy, created using universal cell technology.
The target disease is Stargardt type macular dystrophies and aims to complement and/or replace RPE cells and improve vision. It is designed to avoid immune rejection by editing HLA, or human leukocyte antigen, genes using universal cell technology. Please refer to page 42 of appendix for an overview of the technology. In the phase I-B study, we achieved FSD in August. Additionally, the Fast Track designation and a rare pediatric disease designation was granted by the FDA.
Furthermore, within this program, we are exploring the automation of manufacturing using Maholo, a general-purpose humanoid robot introduced at the Cellafa, a joint venture with Yaskawa Electric. ASP2767 is an AAV-based gene therapy targeting optic neuropathy due to glaucoma by introducing two genes, BDNF, brain-derived neurotrophic factor, and its receptor, TrkB, into the eye to activate pathways that protect retinal ganglion cells to maintain visual function.
In the United States, we have begun enrolling subjects in a phase I/II clinical study. We also have obtained a Fast Track designation from the FDA. For the primary focus, we aim to create treatment options that not only slow disease progression, but also lead to the maintenance and the restoration of vision by leveraging new modalities such as cell therapy and gene therapy.
Today's key takeaways. The primary drivers supporting our robust financial performance were the Strategic Brands, which continued strong growth and drove the expansion of overall revenue and profits. Furthermore, as a result of thoroughly implementing disciplined cost optimization, we managed SG&A expenses to a level of flat year-on-year. Given the steady progress in both revenue growth and profitability, we have made a significant upward revision of full-year forecast.
As a result, we now expect to achieve the 30% core OP margin, a target set for FY 2027, within the current fiscal year. To realize the pipeline-driven growth outlined in CSP 2026, we are making significant progress toward establishing a profit structure that ensures stable earnings while making sufficient investments for future growth. Our pipeline has shown solid progress across all strategies, from early-stage development to lifecycle management.
We achieved multiple regulatory milestones in the lifecycle management of PADCEV and VEOZAH. We achieved FSD in phase III study for setidegrasib in NSCLC and ASP2138 in gastric cancer. ASP6958 achieved POC, and we have begun consideration for late-stage development.
Furthermore, ASP388B, ASP2020, and ASP2767 have newly advanced into the development stage, further expanding our pipeline in each primary focus area. To achieve the goals of our CSP 2026, we intend to maintain this momentum by focusing on creating and delivering greater value more rapidly. That concludes my presentation. Thank you for your attention.
That is all as a presentation. Next, we would like to entertain questions from the audience. If you have a question, please press the raise hand button at the bottom of your Zoom screen. If you are joining from your smartphone, please tap details, and you can find raise hand, so please press it. I am going to name you one by one. If your name is called, please unmute yourself on your screen, and please mention your name and affiliation, and then ask questions. Now, we are going to take your questions. First, Mr. Yamaguchi from Citigroup Securities, please. Yamaguchi from Citigroup Securities. Can you hear me?
Yes. Thank you. My first question is about the revision of your full-year forecast. How much was the forex impact? Five strategic brands were combined in your disclosure. Your background, XTANDI, would be subtracted, and JPY 20 billion for main brands are shown.
This is mostly PADCEV, including forex impact. So, the revision of your forecast and also the situation by product. For details, Kitamura is going to explain. Forex impact is taken into account for all products as a volume. How much was the upward revision?
We do not disclose by product, but you are calculating, right? If you subtract how much for which product, it can be clearer for you. Anything to add? In principle, forex impact and forex sensitivity is not being disclosed. The dollar is fluctuating, and JPY 8 billion for revenue and JPY 2 billion for profit based on the U.S. dollar fluctuation. Against the initial expectations, yen is depreciating against the dollar. Simply put, for revenue, JPY 110 billion upward revision was made. JPY 60 billion-JPY 70 billion impact from the U.S. dollar fluctuation.
As for the core operating profit, JPY 80 billion is the upward revision. There is some forex impact here. Per yen, the sensitivity is more than JPY 2 billion for the core profit, operating profit. We have the sales increased, and we have cost management, so that is why our profit is increasing.
Thank you very much. For core operating profit, you cannot say how much clearly. For corporate profit, against the dollar, JPY 2.7 billion per yen in terms of the forex sensitivity.
So, a little less than JPY 2 billion is from the forex impact. We revised the corporate profit forecast by JPY 80 billion. So, forex impact is not so big.
Thank you very much. One more question. The initial pipeline, including the cell therapies, are increasing. ASP6958 is achieving POC. Timing might be too early, but ASP6958, what about its potential? Because of the XTANDI cliff, XTANDI portion is going to be decreased for prostate cancer.
How should I explain? Any target or peak duration? What do you think? Thank you for your question. Unfortunately, timing-wise, XTANDI, as an XTANDI successor, legacy created by XTANDI is not going to be taken over as is. Our capabilities would be leveraged, but at the same time, we would create a new market, and that is going to be the positioning. There is no other choice. XTANDI exclusivity will come to an end.
There is going to be LOE. When ASP6958 is going to be launched, XTANDI generics will become available in the market. So, we have to consider the positioning of this product. PSMA is the target, clearly. In your health checkup, this is being tested and measured. This is a clear target, but T-cell engagers targeting PSMA were difficult to be created, but with Vir technology, this is becoming feasible. So, rather than a novel target, if you do this is going to be a target for sure. We are going to take a challenge with a new technology.
Of course, potentially, treatment paradigm, going back to the initial phase of the treatment paradigm, and if it is possible to get the approval, it is natural that this will be a very big market. But technology is new, and this is not oral medication, and therefore, based upon the clinical trial result, we need to think where would be the positioning, and also the value that we have been saying, how we can provide that is something we need to consider.
We are in such a stage, and we are working on the planning of the later phase. If that is created, and just like other programs, at the time of the peak of how big our market would likely to be, it is possible to be communicated to you. Taniguchi-san, Claus-san, do you have any additional comment you would like to make?
To add, as Naoki said, XTANDI will be generic, and other ARPIs will be generic at the time of the launch. But there still is- Even after ARPI class treatment, there is significant unmet medical need in prostate cancer. So that is where we are targeting this agent. Because in a generic market, you can only create value if you target that patient population where there is still unmet medical need. So that would be my answer in addition to what Naoki has already said.
Yep. That-
Sorry.
If nothing from Taniguchi-san, that will be okay. Yes, Okamura covered everything. Thank you. Thank you for your question. Next, JP Morgan Securities. Mr. Wakao, please.
Thank you very much. JP Morgan, Wakao is my name. Thank you for this opportunity. First question is, well, you mentioned the centering around the strategic brands.
You made a great profit increase, and this result is really significant. Information is modified this time, and how this change would impact onto the capital allocation? You have a profit secured, and I believe that you are going to have sufficient cash flow. You think about the investment for your growth and then return to the shareholders. That is probably what you think.
Based upon your thinking or this situation for the dividend, JPY 2 or more of the dividend that is likely to be possible from this fiscal year or from next fiscal year, would it be changed? When you announced about the midterm plan, from the perspective of the return to the shareholders, even if the profit will be available, the dividend is going to be more toward the second half of the CSP or midterm plan. What is your current status?
Thank you for your question. Capital allocation policy slide is available on the screen, and we have not really changed these for many years. This is how we prioritize. As Wakao-san mentioned, first, we invest into the business and growth opportunity, and then stably, we increase the dividend. Still, if we have the sufficient cash in other ways, we will think about that return to the shareholders.
That is the priority order for us. Up until the second quarter, our result is really good, and full year, we made a revision. But we are not thinking to come up with a completely new policy of the dividend. So, in the beginning of the fiscal year or the time of CFC, we committed for the increase of JPY 2 per year for the dividend for continue for that for five years.
That is what we would like to fulfill. Depending on the situation and the full year financial result for fiscal year 2026, and we have sufficient cash, and we have excessive cash, and just keep it on the balance sheet, we are not going to do in that way. We might find other opportunities for the investment for the business, or we might return this to our shareholders.
Here, we are still in the midterm, and at this moment, we are not thinking to change our policies completely at the time of full year result, considering the situation at the time, and also thinking about the needs afterwards. We will consider how to return to our shareholders. That is what we would like to discuss.
I agree with what Naoki Okamura said. If I add, this is what we have been repeatedly saying regarding the dividend and shareholder return. It is not in the shorter term. It is not going to be changed because of the fluctuations in the results of our midterm, long-term, the cash flow, and also the funding.
We make a decision during the course of the CSP2026, we are going to increase the dividend by more than JPY 2 every year. So this is the minimum requirement for us. So we will continue to achieve great results to continue our growth investments and return profit back to the shareholders.
Understood. Based on the current progress, as Okamura-san said, cash flow is in excess and making business investments or return, make shareholder returns, you may be heading into that direction, or am I wrong?
During the CSP, in the coming four years, we can earn JPY 4.3 trillion, and we would make investments into businesses and R&D. We would use the money flexibly. So, we are developing a plan based on this, and regarding business development opportunities, if it is a deal where we can add value, we may decide to invest. What we have said before, and six months results are good right now, it is not going to start anything different compared to what we have said. That is what myself and Atsushi Kitamura said.
Understood. My second question is about the pipeline. ASP2138 phase III is starting. ClinicalTrials.gov, FY 2029 is the primary completion. Any room for acceleration? That is what I would like to know. The SONAR study is being performed. Recruitment was very fast to complete, and it was 20 months earlier than scheduled. Accordingly, Astellas is where you are leader, and you have the know-how for enrollment or recruitment. Regarding the phase III study, you can advance the schedule of recruitment. I think you can expect that, perhaps. What do you think?
Thank you for your question. This is true for the SONAR study from April last year. By function, we are managing the organization. This is the patient access. We have a cross-functional team, asset maximization team is the name we use. We give a lot of authority delegation based on the newest data in the field, how they can create a larger value more rapidly. One of the achievement is the SONAR study, very quick enrollment completion.
Needless to say, regarding ASP2138, asset maximization team will consider how to create a bigger value more quickly. They are considering very seriously, and there is room for acceleration there. Furthermore, SMT, as I said in the context of SMT, up until now, contract research organization was where we depended upon in the conduct of the clinical studies. We are trying to insource because these are our own products, so we would like to proceed faster.
The determination of the employees would be resulting in the progress of the program. There is such a momentum and a possibility of acceleration regarding ASP2138. Taniguchi is going to explain.
Thank you very much. ASP2138, as Okamura presented already, phase III study enrollment has started. For the time being, it is progressing well. Needless to say, from now on, competition is very intense.
We will do our best to enroll patients and complete the recruitment as soon as possible for this program as well. Regarding the status of enrollment, based on the progress, we are hoping to report to you.
Thank you very much.
Primary completion was 2031. I think this is too long. Like SONAR, in one year or so, recruitment may be over. I should not think about that possibility. It depends on the situation. Competition is intense, including CLDN18.2, intensifying more, so we have to take that into account to select better sites as we proceed. For the time being, it is progressing well, so you can count on us. [Foreign language] Thank you very much. That is all. Thank you. Next, Goldman Sachs Securities. Ueda-san, please.
Ueda from Goldman Sachs. Thank you very much for this opportunity. First question. You revised the plan this time, and some tentative factor for this fiscal year, and also some factors likely to be favorable for the profit next year and afterwards. I would like you to sort them out. This time, you have the mature products factor and also including the strategic basis, you can expect for the next year and afterwards, and also cost reduction efficiency. Considering your performance for the next fiscal year, would you please sort out the favorable factors for that?
Thank you for your question. Where should I start? Regarding revenue, first of all, XTANDI, as has been mentioned within the presentation, the volume basis or the net growth basis, we have hit the peak already. Because of the Forex impact, we had certain positive or the plus. In the case of the U.S., in the fourth quarter, that is, January from the next year, based upon the IRA, the price is going to be changed, and that impact is taken into account for this guidance this time.
Skipping strategic plans, let me talk about something else first. mirabegron, as you know, with the generic manufacturers, we came to the agreement, and the things are settled. Therefore, we are on an upside at this time, but it is not going to be continued forever. When mirabegron patent is expired, then this will be replaced with a generic erosion.
For the long-term perspective, you need to think in that way. For strategic plans, first of all, PADCEV, there are two different dynamics mixed up. Meaning, first of all, the first-line addition is expanding in the regions other than the U.S.
This is a real sense of underlining growth driver. On top of that, in the U.S., MIBC is uptaken in a very accelerated manner or speed. That growth of both added, that is why seemingly it is a great growth. However, MIBC in the U.S. is going to hit the plateau at a certain point of time. This growth will be gradual later on, and first-line growth in the regions other than U.S. is going to grow further.
But in the bladder-sparing and the situation of the China in the first line are not taken into consideration. Therefore, for the long-term perspective, we still have a lot of potential of the growth. For this, when we come to the certain final perspective of the forecast, then we can let you know.
Vyloy, IZERVAY, VEOZAH, we have planned a trajectory of the growth, and I think that is followed currently. Of course, the situation of the competitors, like IZERVAY in Europe, what we should do is under consideration. For the long-term perspective, further, the growth trajectory and its direction could be changed. However, so far, our forecast or our growth is just in line with our forecast or forecasted trajectory.
About the expenses, with this explosive growth of strategic plans will be settled at a certain point of time, and then the cost or expenses necessary to grow strategic plans will be reduced or declined. But in FY 2029 to 2030, that is the next phase where those derived originally from focus area will come into the market. And there, we have to think about the investment for the preparation of the commercial launch rather than the development.
We have the disciplined cost management based upon SMT, which is considered to be continued further. And then the settled down strategic plans costs are going to be replaced with the preparation of the next phase generation products launch. When we have more products, the more cost we will face. No, we would like to avoid that.
[Foreign language] As for SMT, in four years, JPY 150 billion was a commitment, but in CSP 2026, in FY 2026 and 2027, we would add three more years to achieve JPY 200 billion cost reductions as a commitment. We are making steady progress against this goal and commitment. In initiative like this, if we track, it may seem like a reduction, but it doesn't hit the PL goals, and we have a structure not to have such a situation.
Regarding the savings, we will have profits on PL. That is going to be desirable. Sorry for long explanation, but in CSP 2026, in our external announcement, we showed the following. Extended LOE slope will occur. If you look at the revenue as a whole, it's in the declining phase, but we will increase the money we can use.
With disciplines, we would use the money for growth investments. At the same time, we are hoping to achieve profit. We are now on track, and we are already on track, or we are beginning to be on track, according to assessment. As Naoki Okamura said, I agree with him regarding the cost and the operations. The profit-making capabilities is being established. Using the money, how to link this to the next growth is important.
R&D will become more active, and we will make investments. For that, we have SMT to create more room for investments to grow strategic brands. For the past two, three years, we have done so. This is going to be the same story. We have the profit-making capabilities at the basis. We'd like to use this to accelerate our growth.
So this time, in CSP 2026, rather than a single-year basis, we are talking about the five years. Transformation requires such a time to change the portfolio. During this period, we would like to build. That is how we are proceeding. This is in the first six months. As a CFO, I think these are the strong results. Understood. Thank you very much for the meticulous explanation.
My second question is about your agreement with the U.S. government for the improvement of the access in the United States. What about the impact on the business results? There is no disclosure, so it might be difficult to comment. Any additional investments to be required? Risk factors easier to control? They are becoming more manageable? Anything qualitative is going to be fine. Any potential impact on your business performance? Any comment from you?
Thank you for your question. The details can be added by Claus. First, from me, geopolitically, many things are happening right now in the United States. U.S. administration is ironing out various measures. That is one of such movement. If it is beyond our control, we should not make a fuss. Where we can control, we would like to do business solidly, but at the same time, we have to monitor the trends, performing a scenario analysis.
That is what we are doing right now without any failure. We would like to be flexible and easy to change. If there is a negative impact, we would like to recover somewhere else. That is the stance we would like to create for the company. Specifically, according to my view and perspective, various impacts are being expected by various companies.
But for us, for the time being, no negative impact we do not have to assume, but still it is going to be fine for us. That is how we are doing business right now. Claus, anything to add?
Yeah, I think in the GENEROUS agreement that we signed with the U.S. administration, we were able to satisfy the expectations of the U.S. government and maintain our access to the Medicaid population in the U.S. with, as Naoki already said, a non-material impact to our business.
[Foreign language] Understood. Thank you very much. That is all from me.
[Foreign language] 。 Thank you. Next, UBS Seki-san, please.
UBS Seki is my name. Thank you very much for your explanation. I have two questions. First, how to think about SG&A expenses? The first half with the sales revenue, 11% increases, and SG&A is almost flat. Regarding the revenue, the Forex impact is excluded, though. This means that for the commercial model, you do not need to invest for that? This is unlikely in other companies. For example, if this is true, then other companies are spending too much money. So incremental SG&A return or other companies maybe spending too much. What do you think about it?
Thank you for your question. I rather refrain myself from comparing with other companies, but what I can say here is that XTANDI, that is JPY 950 billion sales per year, that kind of a product that we have, in that case, the discipline for the cost is going to be eased and relaxed. As a company, as a historical record, we had eased and disciplined for the cost management, so we try to make it more tight. That is why the cost is not really increasing .
That is my interpretation. Other companies are spending too much, or Astellas found a very good method to deal with it. We do not interpret in that way. Compared to our past, we are now more disciplined for the cost management, and with a small investment, we can bear the bigger return. That method, that is not really the magic. We just made a very appropriate prioritization, and the new plan is leading to the executions. I think our approach is making success.
That is that I understand. Thank you very much.
I think a consultant will make certain drawings, so I am looking forward to it. Kitamura speaking. Let me make additional comment. SG&A expenses excluding Forex impact is flat, 0.3% reduction, and sales-wise, it is a 14% increase excluding Forex. Our management is working well. Looking at in a mesh manner, we are increasing SG&A in some area, for example, Strategic Brands like PADCEV, and in other countries as well. We are doing line extension, for example, VEOZAH in Japan. We have done the submission, and same is applied for China. For that, we have done a lot of preparation
We spend money for the areas where we need to spend money, but there are other areas not needed to do so. We have to take a good balance. We reduce the spending, but no impact onto the sales, so with increasing the operational efficiency, with increasing the productivity, we can reduce the expenses. We are doing such management. SG&A-wise, it is flat year on year. It is not the one way of the cost cutting. In that sense, we can say that our approach is working quite well.
Of course, we invest in the area where we need to invest, and there are four pillars in SMT, and one of them is increasing ROI in commercial marketing. For their commercial-related expenses, market access-related expenses, based upon the analysis of ROI, we make them or ship them to the higher level. We have to be smart for the investment and cost management. We have two approaches, and they are working quite well.
Thank you very much. The second question is about PADCEV. Peak sales, revenue, peak revenue forecast is revisited, that is bladder-sparing, China excluded. VOLGA announced in ESMO. How do you see the impact of VOLGA?
VOLGA is with IMFINZI, but when KEYTRUDA is used and used in the neo adjuvant, but not used for adjuvant in terms of the PADCEV, could you explain the dynamics of plus and minus? Claus?
The VOLGA trial that, as you referenced, was presented at ESMO, was a long-awaited result from our end, and it actually strengthens the positioning of PADCEV in the perioperative space, because we now have evidence in the cis-ineligible population that PADCEV not only works in combination with KEYTRUDA, but also with IMFINZI.
This is a very important data point for doctors who may want to combine PADCEV in the future, once VOLGA is approved and in the label, with a different IO agent than KEYTRUDA. Of course, we do not have data yet in the cis-eligible population. The combination that we have in our label with KEYTRUDA covers the entire MIBC combination.
That is a very strong data set, and that is why we are standard of care in that combination, both in the label and in our guidelines across the world. We do not expect VOLGA to materially impact the positioning of PADCEV. If anything, it will even strengthen the positioning of PADCEV in that space.
Understood. Thank you.
Thank you very much. Next, Morgan Stanley MUFG Securities, Mr. Muraoka, please.
Thank you very much. Muraoka from Morgan Stanley. Regarding the future concept of business results, I would like to ask you a question. This may be a nearsighted view, but on a quarterly basis, how should we look at your operating profits? As was explained, January-March period, XTANDI price will decline, so nothing we can do about it.
What about the third quarter? Some people may refrain from purchasing in the third quarter and fourth quarters. Operating profit in the third and the fourth quarter. The level of the first quarter may be difficult to be exceeded if you look at the quarterly basis. That is how I feel. Next year, in August, the patent is going to expire in the U.S. April, June, and July, September, quarterly operating profit will decline on a quarterly basis. Should I think that way? Because of the growth of the five Strategic Brands, it can be offset? Sorry for a vague question. I know that. Any advice you can give to me?
I would like to analyze through an analysis, or by disintegrating this, the quarterly XTANDI sales in the U.S., as you said, because of the repricing, some may decide not to purchase, and they may want to purchase after the price decrease. Such U.S. dynamics, I would like to hear the view from Claus.
Yeah. I think, Naoki Okamura, you've hit the nail on the head. The transition from Q3 into Q4 with what will the urologist in the U.S. purchase and how much inventory will they hold, and just before the price decrease from the IRA impact and after, is a little bit difficult to model. What we do know is that we have a strong momentum in the market going into Q3.
That will continue. Then we will hit that wobble between Q3 and Q4, and then things are expected to stabilize after the IRA price impact then becomes clearer. As you correctly mentioned, the next inflection point then is in August of 2027, so in the fiscal year 2027, when XTANDI loses its exclusivity in the United States.
Let me just remind you that at that point, we will not only start seeing generics enter and thereby erode the revenue of XTANDI in the U.S., but that will also then start affecting our profit share agreement with Pfizer. So remember, in the U.S. specifically, we have a 50/50 profit split with Pfizer due to our co-promotion agreement in that market. So, not all of the revenue that is lost will be on our account. It will be shared on a profit basis with Pfizer. So, that does introduce an element that dampens the impact of the U.S. erosion for our bottom line.
[Foreign language] Thank you, Claus. U.S. XTANDI behavior is taken into account based on that on a quarter-on-quarter basis. What is going to happen to the core operating profit? This is not something to be disclosed on a quarterly basis, but Atsushi Kitamura may want to say something. So, Atsushi Kitamura, please. [Foreign language]
Thank you. Muraoka-san, I would like you to have a bit longer perspective. Probably there are about four major dynamics. First of all, the Strategic Brands, and there's XTANDI and PADCEV, and how these products are going to be grown. So, growth curve is one thing. XTANDI, IRA, with a longer perspective, we have IRA and LOE and the transitions of them. The third dynamic is what we want to do in a good manner.
That is the R&D acceleration will make the sufficient investment for that. As has been pointed out a little while ago, acceleration of the enrollment of the patients. So, in a word, acceleration for the growth investment, and also the cost optimization or SMT, and the speed of cost optimization. So, about these four are intertwining each other to come up with a forecast.
For this, in a short-term perspective, which one is going to be which strength and what level of the speed? That is the important point. Those are all important thing, but within this CSP 2026, we would like to double strategic brands and cost of result optimize and investment is accelerated, so that we can increase the size of the sales of the pipeline for the sale future.
That is in our mind for our business management. It would be really great if we could have a bit longer-term perspective. I am sorry about that.
I have another question. This might be also short-sighted, but today we had the interim election in the U.S., and Democratic Party took the majority now.
I haven't done really the simulation yet, but based upon this result, or in the industry as a whole or your company-wise, whichever we find, but because of this result, you would see this type of opportunities increased or risk could be increased. If you could share with us something with that regards, that would be really helpful.
Thank you very much for your question. Even Muraoka-san, you cannot do the analysis, right? That's why it's very difficult for us to mention something. However, under the Trump administration, affordability and also innovation-free right is not acceptable, that position. Regardless the administration or who take the administration, which party is going to be the majority, in a long-term perspective, I think that part wouldn't be changed probably. However, as specific measures, where would be the forecast to introduce the measures?
With that point, that is probably in the case of Democrats, Democratic Party, probably they would go more toward the affordability with a wider scope, so they will introduce the measures accordingly. Then relationship with that, with our pipelines and our product mix, that's the matter. What I want to say is that what if type of the speculation wouldn't be done in ourselves, so we wouldn't prepare for that. We do analysis of the scenario, so that we can be quick and resilient enough at the time when something happened.
Yes, that's always what we think about. But at this moment, Democratic Party is majority, so it's likely to be this. That's why we have to prepare this and that. I am not thinking about doing something like that. In the U.S., in government affairs, we have the teams to be specialized in analysis on that.
I am sure that they are going to do the analysis and they're looking at the result. The management will think about what to be done based upon the pros and cons and execute them and make them as the measures. Counting the vote has been progressed, but it's not been ended. It might take long to settle down. So, I am not thinking we'll do something right after this from next day.
Thank you very much. It was very good information for me.
Thank you. Thank you. Next, Nomura Securities, Matsubara-san, please.
Matsubara speaking. Can you hear me?
Yes, we can hear you.
Thank you very much. Thank you for the presentation. Corporate in profit, 30% to be achieved. Congratulations on the good results. I would like to ask you a question about the market in China. In March 2026, you changed the sales strategy in China, and there was variability among quarters. There are profits in the third quarter and not much in the second quarter. This time, PADCEV, VYLOY, profits are booked for the second quarter as well. Any change in the trend or dynamics?
No change in the dynamics. What you're probably seeing is the fact that on the new launched products, specifically VYLOY and PADCEV, we book our sales in China when we import into the country. That's a different model that we have for the time being versus the older products where we book, as is normal, we would book when we sell to a wholesaler.
That introduces, of course, volatility in the numbers we report for China for the newly launched products because we ship in batches into the country. When you look at data that is our sales to wholesalers, so the local sales, that's very much a smooth trend and very much on track with our expectations in China.
There is a difference between the numbers that you see and the numbers that we see internally, simply because we have a different model in the newly launched products in terms of how we book and how we report our sales.
Thank you very much. My second question is about DAX-044. You have the option exercise, and some time has passed. You are changing from cold tumor to hot tumor, so I think this can be an interesting product. When you exercise the option right, tumor-specific action is seen, like cytokine storm is not going to occur so much according to the description.
Background of the MOA and your non-clinical data, what about the synergy and how you can apply this technology?
Before I respond, DAX-044 is the topic of your question, right?
Yes, DAX-044.
I would like to make a correction. We just got the option right. Exercising the option right is going to happen in the future perhaps. Audax is going to conduct clinical studies in Australia mainly. We will see the results to decide whether to exercise the option right or not for licensing. Is that clear? We have not exercised the option right yet.
Okay, understood.
Based on this assumption, regarding the scientific question, Taniguchi is going to explain.
Regarding 044 by Audax, IL-12 antibody, as you know, there is an effect of immune activation for the future. Cold tumor may be effective. This may be effective in cold tumor, but if this is administered systemically, cytokine syndrome and other various side effects may occur, as we can tell.
It was difficult to put this to practice. Audax has new technologies which we want to use to have a protein or antibody to be bound to cytokines in the blood to prevent the adverse events or adverse reaction. When it reaches the area around the tumor, IL-12 effect can be seen by this technology. The target is cold tumor first.
PD-1 and other checkpoint inhibitors were difficult to demonstrate effectiveness in these tumors, and we can expect how much effect we can see with this product based on our pipeline. Needless to say, T-cell engagers are what we have. Combination with T-cell engagers can be promising for the future. Needless to say, PD-1 product, PD-L1 products, and antibodies as well, there are many of them in the market, so combination with them can be a possibility into the future.
First of all, as Okamura explained, Audax phase I study results is something we would like to see, and in what kind of patients and what is going to be the target tumor and what is going to be the combination which would work best. We would like to consider those points, and we will decide whether to exercise our option right or not. We would like to make a comprehensive decision.
Thank you for your explanation. That is all from me. Thank you.
Thank you very much. Next, Sanford C. Bernstein, Sogi-san, please.
Thank you very much. First is about PADCEV and the bladder-sparing MIBC under the development and the clinical trial of that. Would you explain who will be their target patients? And this is stage 2 patient? And what is the percentage of the patient of this cancer be the target for this development?
Taniguchi is going to explain to you.
The indication of bladder sparing, the target is MIBC. With that, we just started the study. For MIBC, we have PADCEV pembrolizumab combination, and also the cystectomy. Then PADCEV pembrolizumab, AZD. It is likely that such treatment will be adopted more and more. For the bladder cancer, the most difficult hardship is the decline of QOL with the cystectomy.
We thought about the bladder sparing and decided to start this study. Again, the target patient is MIBC. Therefore, the clinical trials, those not indicated for the cystectomy are rejected. Those who rejected cystectomy, those are going to be the target population for this trial, and we just started the enrollment. If that is the case, within MIBC patients, those who reject cystectomy or those who are ineligible for cystectomy, how much proportion of that? The specific patient population, Claus is going to explain about that.
Thanks for the question, Sogi-san. The way to think about it is, as Taniguchi explained, if we can get a label for PADCEV in a bladder-sparing modus of usage, it would extend the number of cycles of PADCEV in this MIBC setting, in the perioperative setting, before a cystectomy is done. So, it is a significant extension of our duration of treatment in this setting.
So that is very attractive, of course, both to patients, because they do not want to lose their bladder, but also for the usage of PADCEV in this setting. Now, you have to remember, MIBC is a minority of the usage of PADCEV, right? We have always been very transparent with you that this is about a 20% addition to the PADCEV business. The main line is still the first-line PADCEV business. But in that MIBC setting, commercially speaking, the bladder-sparing trial would grant us a significant extension of the duration of treatment and our expectations.
[Foreign language] Thank you very much. The next is about Claudin 18.2. You have ADC, and you have T-cell engager on that, and other companies are coming up with the favorable result of Claudin 18.2 in ADC. But in T-cell engager and ADC, between these two, how your approach of the development would be different?
Thank you for your question. I will start first, and if additional explanation is necessary, specialist will do so.
The target population of VYLOY is those with a higher expression of Claudin 18.2, most basically over 75% of the expression. It is limited to that. T-cell engager ASP2138, this expression rate is lower or mid-level. Even for those patients, we would like to provide this Claudin 18.2. We would like to provide this treatment. That is the biggest value we feel.
With ASP2138, with the subcutaneous administration, we can realize the convenience for the HCPs and the patients, but at the same time, the biggest side effect of the T-cell engager is a T-cell excessive activation. But with making it as a subcutaneous, we might be able to suppress such excessive activity. We have such a working hypothesis.
That is the biggest difference between VYLOY and ASP2138. When we have ADCs, what is going to happen? We have to see the actual clinical trial data. We shouldn't just imagine without looking at the data. But according to which, ASP546C, we have the clinical data. If this happens, it is going to be the great combination, or with chemotherapy would not be needed. Claudin 18.2 ADC alone can treat the disease.
That is going to be a benefit for the patients. In this way, we are hoping to differentiate, and we are designing the clinical studies right now. As you can see on the slide, VYLOY and ASP2138 would expand the patient populations. Then ASP546C will come. Hopefully, we would like to achieve chemo-free, and that is going to be the best for patients as well.
Anything to add?
Okamura already covered most of the things.
2138 T-cell engager, there is something unique here, needless to say, regarding ADC, targeted antibody. With topoisomerase payload attached, it would go to the target tumor for the T-cell engager portion. Because of the CD3, T-cells would be activated. By doing so, immuno-oncology area would be reinforced.
There is a possibility of extending OS, according to our opinion. We have to see the actual data from now on. In the LUCERNA study, or prior to LUCERNA, we have another study in phase I-B, VYLOY and PD-1 combination extended PFS and OS. So what we can expect for the future is CD3 portion and P in T-cell engager and checkpoint inhibitors can be used at the same time as PD-1.
How much it would contribute to OS extension for the future, as Naoki Okamura explained, Claudin 18.2 targeted ADCs, ASP546C, we would like to bring this in advance so that we can create a chemo-free regimen in the future. This is still in phase I.
As soon as data becomes available, whether this is going to be possible or not, how we can treat gastric cancer in the best way, and we think that patients can choose the right treatment for them. Thank you.
I have a follow-up question. VYLOY and ASP2138, Claudin 18.2 expression level is different for the target population. ASP546C is still in the early development phase. VYLOY, ASP2138 target population and ASP546C target population may overlap. Is my image correct?
Put it this way. The VYLOY population is about 35% to 40% of gastric patients, of Claudin 18.2 expression patients. Those are the ones with 75% more expression. So we are right now only being able to treat 35% to 40% of that Claudin 18.2 population. 2138 opens a target population of another 35% because these are the low to medium expressors. ASP546C would target the entire population with a chemo-free regimen. That is how you have to think about the target populations.
[Foreign language] Thank you very much.
Thank you very much. Many people are still raising their hands, but time has come. So with this, we would like to close today's explanatory meeting here. Thank you very much for many questions, and thank you very much for your attendance as well.