I am Manabe. Thank you for attending this briefing today, despite the sudden notice. The information was released at 8:30 A.M. today. I will explain about a strategic collaboration with U.S. Merck for HER3-DXd, DS-7300, and DS-6000 using the presentation materials. Slide 3 describes what I will talk about today. First, I will explain the background and the significance of the strategic collaboration, followed by an overview of the collaboration. After the explanation, we will take your questions. Please refer to slide 4. First, I will talk about the growth strategy of our oncology business. In our fifth midterm business plan, announced in April 2021, we set four strategic pillars for sustainable growth. Of these, the strategic pillars for growth of the oncology business are: Pillar one, maximization of three ADCs, which refers to ENHERTU, Dato-DXd, and HER3-DXd.
Pillar three, identification and building pillars for further growth based on new growth drivers following three ADCs, and selection of post-DXd ADC modalities, and we have been working on them. In April 2023, two years later, we updated the fifth midterm business plan and announced the latest forecast of achievement. We communicated that oncology revenue is expected to achieve JPY 900 billion or more, or 150% of the plan in fiscal year 2025. The development of the three ADCs was progressing ahead of plan, and with the emergence of rising stars, DS-7300 and DS-6000, new growth drive candidates following three ADC, the R&D strategy was updated to five DXd ADCs and next wave. With aggressive investment, JPY 1.8 trillion, or 120% of the plan in R&D during the midterm plan period.
Slide 5 shows the environmental changes since April, when we updated the fifth midterm business plan. First, as a change in the internal environment, the DXd ADC franchise has been making further progress. In particular, HER3-DXd, DS-7300, and DS-6000, for which we have agreed a collaboration this time, have further enhanced their values with the accumulation of data. With respect to HER3-DXd, the success of the HERTHENA-Lung01 study, presented at the WCLC 2023, put on track the filing for regulatory approval and commercialization, and we are moving to the stage to plan further maximization. With regard to DS-7300, confirming the data on Small Cell Lung Cancer in the phase I/II study presented at the WCLC 2023 and ESMO 2023, we are now preparing the further development plan in earnest.
Regarding DS-6000, confirming the ovarian cancer data from the phase I study, which will be presented at ESMO 2023, we are preparing the future development plan in a full-fledged manner. In addition to these three products, we are also making steady progress in maximizing the value of ENHERTU and Dato-DXd, which are major contributors to the increase in projected oncology revenue in fiscal year 2025. DS-3939, our sixth DXd ADC, has also moved smoothly into the clinical stage. On the other hand, one of the changes in the external environment is intensifying competition in ADC development. We are proud that our DXd ADC products, such as ENHERTU, with our proprietary DXd ADC technology, have reaffirmed the great potential of ADCs.
Many oncology companies are focusing on ADC development, as we see at conferences such as ASCO 2023 and WCLC 2023, where we confirmed that competition for development is becoming even more intense. In light of these changes in the internal and external environment, we believe that there is a growing need to increase our capacity, resources, and the capability to maximize the DXd ADC franchise. Slide six, I will explain why we chose a strategic collaboration. We are always looking for the best ways to deliver innovative pharmaceuticals to more patients, more quickly, in line with our corporate mission of contributing to the enrichment of quality of life around the world, and continuously creating innovative pharmaceuticals addressing diverse medical needs.
Given the changes in the internal and external environment which I mentioned on the previous slide and the increasing need to expand capacity, resources, and capability to maximize the DXd ADC franchise. to develop more aggressive development plans, targeting broader patient populations, further accelerate development timelines, and mitigate the risk of delays." * This is good. * Wait, "more quickly: development". * If I use a colon, I should capitalize the next word if it's a complete sentence, but "development and commercialization on our own or strategic collaboration" is not a complete sentence. So lowercase "development" is correct. * Wait, "Slide seven". * Should it be "Slide 7"? * Rule: "Spell out numbers 1-9 in running text; use numerals for 10 and above." * "seven" is 1-9. So "seven" i
We'd like to gain the opportunities to contribute to patients in more countries and regions than we could ever achieve on our own. In addition, we will further expand our resources to create a favorable cycle for sustainable growth. Specifically, we'd like to allocate resources appropriately to the sixth DXd ADC, DS-3939, and the seventh DXd ADC, which expect to be the next growth driver following the five DXd ADCs, as well as the 2nd-generation ADC, DS-9606, and new concept ADCs. They are post-DXd ADC modalities and early-stage research projects. Thus, we will expand our resources to create a virtuous cycle for sustainable growth. Slide 8, I will explain about why we chose U.S. Merck as our partner. U.S. Merck is a world-leading oncology company with KEYTRUDA at its foundation.
Keytruda is the largest oncology product in terms of global sales in 2022 and is often used in combination with other oncology products in many cancer types. In addition, U.S. Merck has rich experiences in oncology, having strong development capabilities in terms of capacity, resources. We expect U.S. Merck contribute most to maximizing the potential of each of the three products in this collaboration. In addition, U.S. Merck has oncology operations in many countries, regions, and tumor types. We expect the contribution to expand the reach of the three products to a wider patient population. Based on U.S. Merck's strengths, combined with our strengths in science and technology and expertise in ADCs, we believe that we are the partners capable of creating the largest number of new standards of care.
Furthermore, U.S. Merck has several successful global partnerships in oncology, and we believe that U.S. Merck is a partner with the highest potential to achieve what we aim to achieve through strategic collaboration. On top of that, we selected U.S. Merck as our partner because they have the highest valuation of our three products, highest commitment to our success among the many oncology companies that have expressed interest. Next, I will give an overview of our strategic alliances. Please refer to slide 10.
Daiichi Sankyo will co-develop and co-commercialize HER3-DXd, DS-7300, and DS-6000 with U.S. Merck globally, excluding Japan. Regarding various plans for the future, we will establish joint committees, and development and commercialization strategies will be planned and implemented based on mutual agreement by the two companies. Please turn to page 11. With regards to development, we will co-develop as monotherapy and combination therapy for the three products.
U.S. Merck will be responsible for 75% of the first $2 billion of R&D expenses for each product, and the companies will share R&D expenses equally thereafter. In Japan, Daiichi Sankyo will solely commercialize and pay royalty to U.S. Merck.
Upfront payments will be $1.5 billion, respectively, for each of the three products, so $4.5 billion or JPY 675 billion in total. The timing and the amount of upfront payments we will receive for each product is described in the table on this page. Daiichi Sankyo will receive $0.75$ billion upon contract execution and the same amount 12 months after execution for HER3-DXd, $1.5$ billion upon contract execution for DS-7300, and $0.75$ billion upon contract execution, and the same amount 24 months after execution for DS-6000. U.S. Merck may elect not to pay the two upfront payments of $0.75$ billion each, that are due after 12 months for HER3-DXd and after 24 months for DS-6000, respectively.
If U.S. Merck opts out, the upfront payments already paid will be retained by Daiichi Sankyo, and rights related to such products will be returned to Daiichi Sankyo.
Received upfront payments will be deferred and booked as revenue, considering the estimated exclusivity period. In addition to upfront payments, Daiichi Sankyo will receive R&D expenses related refundable upfront payments of $1 billion or JPY 150 billion in total, including $0.5 billion for HER3-DXd and DS-7300, respectively. As I explained earlier, U.S. Merck will be responsible for 75% of the first $2 billion of R&D expenses for each product. Compared to equal sharing, U.S. Merck will bear $0.5 billion more than Daiichi Sankyo. For HER3-DXd and DS-7300, respectively, $0.5 billion will be paid upon contract execution as R&D expenses related refundable upfront payments. Prorated portion may be refundable in the event of early termination of development for both products.
As for DS-6000, U.S. Merck will bear $0.5 billion more than Daiichi Sankyo, compared to equal sharing, but 75% of R&D expenses will be paid by U.S. Merck as they are incurred. Accounting treatment is not yet determined, so we will make the announcement at an appropriate timing in the future. Daiichi Sankyo will receive sales milestones of up to $16.5 billion or JPY 2,475 billion. Sales milestones for each product will be up to $5.5 billion. Received sales milestones will be booked as revenue in the year of achievement. Please turn to page 13. Today, we have explained our strategic collaboration for HER3-DXd, DS-7300, and DS-6000.
Daiichi Sankyo will work to reach more cancer patients around the world and deliver new treatment options in a broad range of cancer types more quickly to maximize our contribution, so that we will realize our purpose: contribute to the enrichment of quality of life around the world. That's all for my presentation. We will now entertain questions from the audience. Today, President and COO Okuzawa, CFO Ogawa, and Head of Global R&D Takeshita are also attending. Thank you very much. Now we are moving on to a Q&A session. First, Mr. Yamaguchi from Citigroup Securities, please. Yamaguchi from Citigroup Securities. Thank you. U.S. Merck is a good partner, and I was surprised to see the big size of the deal. I have two questions. The amount of upfront payment is the same for all three products, including HER3-DXd right now.
Could you please let me know peak year sales of each product based on the progress of each product, if you're sharing that information with U.S. Merck? That's my first question. Ogawa will respond.
Ogawa speaking. As for peak year sales, you can find the size of the three products' total sales in the press release. We don't have any other information we can disclose right now. The two companies will continue to examine and discuss the details of the development plans. Thank you. I have another question. As was mentioned in the presentation, for HER3-DXd and DS-6000, U.S. Merck may elect not to pay the two upfront payments. I think this is like a development milestone on whether development is going well as planned or not by them.
Regarding this term and payment, what will be discussed about the possibility for U.S. Merck to elect to pay or not to pay? Again, Ogawa will respond. Yes. Regarding the terms and conditions for U.S. Merck to elect to pay or not, we don't have information we can disclose. The timing will be 12 months after execution for HER3-DXd and 24 months after execution for DS-6000. That's all we can disclose for now. Understood. Lastly, I want to hear Takeshita-san's personal impression. Which product out of the three do you think will have the biggest peak year sales in your view? Takeshita-san, please.
The question was, I believe the question was, of the three compounds we have, which one is the most promising? Is that the question? Yes, for you. Yes. Okay. You know, I, you know, from a clinical standpoint, I have to say that all three are very, very promising and interesting drugs, each with its own different development path. Currently, I, if we look at the package of clinical trials that we are doing, they were all very attractive. From a patient number standpoint, you know, I do know the HER3 program is targeting lung cancer first. I think you're aware that there are so many more lung cancer patients than most of the other cancers that we are thinking about.
From patient numbers, maybe HER3 is the most important. In terms of the breadth of range of indication, at the 7300 program, the B7-H3 might be the one that has the broadest indication across them. But, you know, right now, I think the two earlier stage programs, 6000 and 7300, we have a lot to do before we really understand the potential of those two drugs. Unlike HER3, has it in clinical trial, so quite a fun time. I hope that answers the question.
Thank you. Lastly, I want a few words from Manabe-san. I'm sure you have had lots of discussions with the top executive of U.S. Merck. You have a relationship of trust with the top executive of AstraZeneca as well. This time you have formed collaboration with U.S. Merck. What about the relationship of trust with the top executive of U.S. Merck? I received another email today saying that the Japanese national flag is hoisted at the headquarters of U.S. Merck right now, and expressing hope to work together with us to deliver these three assets to patients as soon as possible. I think a lot of respect is shown to us, including R&D capabilities of Daiichi Sankyo. That's all for me. Thank you very much. Next, Mr. Wakao from JP Morgan Securities, please.
This is Wakao, JP Morgan. Congratulations on a great deal. I have several questions. First of all, please tell us a little more about the background of this collaboration and why you selected U.S. Merck. I'd like to know if it is correct that you brought the three products as a package to each potential company in the first place, and when did you start working on collaboration? I'd like to know more about Merck's evaluation and commitment to success, that you thought they were high. I'd like to know what Merck appreciated, and what do you mean by commitment to success? I'd like to know a little bit more about them. I'd like to take that question. This is Manabe. We have received offers from several companies. Each of them had different interests and different things to offer in collaboration.
As I mentioned today, if you look at what we have presented today, including financials and the global development capability, capacity, and resources, I think you will see that our products have been evaluated quite favorably. As I mentioned earlier, their respect for Daiichi Sankyo's products, the company, and R&D capabilities was most evident. We made a comprehensive decision. Although it took some time, we had a thorough internal discussion and finally selected Merck. I hope I answered to your questions. When did it start? I told you that it took some time, but there were various offers from the very beginning. As I said, there were several at different times, so I think you can understand. Understand very well. Thank you very much.
Secondly, I got the impression from what you said this time, that the timing of the launch of each product, the number of indications and the profits to be gained, will all be greater than if your company were to develop and market each on your own. Is it correct? Also, for each product, can you tell me about the color of the changes that can be obtained from the collaboration if they are different from each other? For example, I'd like to know what color in terms of the breadth of the expansion of indications. 7,300 is the most promising, or in terms of the timing of the launch, it is 6,000, and so on. Yes. In the second part, if you look at the amount for all three, they were evaluated at the same amount.
I believe that they were evaluated equally, although they are in different phases of the progresses of the trials. Sorry, may I have the first one repeated? Am I correct in understanding that the profit to be gained in each case will be greater than if your company were to go it alone? Yes, we'd like to work under that assumption, including clinical trials. Understood. Finally, I'd like to know the impact on the current midterm plan. In particular, I believe that you'll be in the profit expansion phase from the next fiscal year. I think this collaboration is very advantageous to you in terms of the development costs.
I was wondering if there is no particular change in your midterm plan, or rather, if there is a possibility that some of the development investment can be curbed in the short term and the profit could rather go up. President Okuzawa will answer.
Okuzawa would like to answer. We believe that we'll be able to achieve the projected targets for F.Y. 2025, the final year of the fifth Midterm Business Plan, which we presented in April of this year.
The detailed impact of the collaboration on the fifth midterm plan is still under scrutiny, and we will provide you with further information when the details are finalized. As for the R&D expenses you pointed out, Merck will pay 75% of the expenses up to $2 billion in the contract. I believe that this is a very beneficial contract for the management of our overall R&D expenses. Understood. That the next fiscal year is a profit expansion phase, that will not change. Is that correct? That's correct. There will be no change. Thank you very much. That's all. Next question, Mr. Muraoka, Morgan Stanley MUFG Securities, please. Hello, this is Muraoka, Morgan Stanley. Can you hear me? Yes, I can hear you. Thank you.
I have the impression that in this deal structure, the sales milestone is quite heavily weighted compared to the past 2 cases. It is an even greater weighting in the sales milestone than in Dato. Can you give me a little more background here? I wonder if you backloaded them because there are still lots of phase I, or if the potential is so great that a total of the 3 is several $billions, it says here. Looking at the amount of sales milestones, I wonder if it is a mistake of $10 billion. Please give us background to the extent you can. Ogawa, CFO, please. There are no development milestones this time, but this is a result of the contract negotiations. It is a result of our consideration on the forms of milestones to maximize the 3 products.
That's the background? No more. There is no milestones for the R&D, but we will receive R&D expenses related upfront payments. The sales milestones are quite significant in terms of weight, either because you make many detailed steps or because each step is very high. Can you comment on that? We have nothing we can disclose about the details at this time. I would say the details or the milestones for each amount of sales are set up with various tiers. Understood. As to how you proceeded with the contract, I have a follow-up question of Wakao-san's. That I remember seeing the ORR of more than 50% of DS-7300 at the WCLC, and I thought it was amazing. Is it correct to think that the deal went ahead at once when the data was presented at WCLC?
* "sudden change in strategy" - no number. * "deliver our assets to patients" - no number. * "maximize them" - no number. * "As I explained" - no number. * "I see" - no number. * "Lastly" - no number. * "Including the concept" - no number. * "Please tell us" - no number. * "Ogawa, CFO, will answer" - no number. * "We will continue to invest aggressively" - no number. * "growth in R&D and manufacturing" - no number.
We take into account working capital needs for cash, and in line with the shareholder return policy outlined in our midterm plan, we will enhance returns to shareholders. We will announce our future plan for cash allocation at the appropriate timing after we have finalized it, while keeping an eye on our performance and other factors. I understand. Thank you very much. That's all. Next question is from Mr. Tsuzuki, Mizuho Securities, please. I am Tsuzuki, Mizuho Securities. Can you hear me? Yes, we can hear you. Thank you very much for your explanation. I just have one point. DS-7300 is currently focused on small cell lung cancer, and you will expand into other cancer types, and the DS-6000 is focused on renal cell cancer and ovarian cancer.
I would be very happy if you could give us a timeline of when the other cancer types will be decided. Please answer as much as you can, Mr. Takeshita.
a compound sentence: "...as we speak, and some of the data..." * So I keep it. * Wait, let me re-read the whole thing one more time. * "Yes. We are already currently exploring other indications for both 7300 and 6000. As we accumulate more data, we will be able to disclose that to you. I anticipate that it's going to be in the very near future, I think, because we are generating interesting data as we speak
Thank you very much. By in the near future, do you mean next year? Sorry, maybe I can't ask such a niche question, but do you envision that we will know what kind of cancer, for example, in the next year or so? Or will it take a few years?
Okay. I cannot give you a specific date, but I do not think it will take several years. That would be much shorter than several years.
I understand. Thank you. Next question is from Mr. Mamagano, BofA Securities, please. This is Mamagano, B.O.J. Can you hear me? Yes, I can hear you. Thank you. Congratulations today. I think it's a great deal. I'd like to ask you about the potential of the 3 products. Looking at the upfront payments of the contract, it is divided into 2 payments. From Merck's perspective, it includes an option right. It is more like a development milestone, but for DS-7300, it will be received in a lump sum. Concerning this, I think they have a high expectation for 7,300, in my view. This order, I mean, HER3-DXd is next year, and DS-6000 is 2 years later. I wonder whether Merck wants to make a decision after seeing the data. If you could give us some comments, please. First, Ogawa, CFO, will answer.
I can only say that it is the results of the contract negotiations. As I mentioned earlier, on each product, U.S. Merck and we agreed to this kind of results, having reviewed each product stage of development, what is running, what we can see, and the further potential. I don't think there is anything more I can explain to you. I understand. Thank you. I'd like to change my question a little bit. Is there any data timing around here, like a year later for HER3, or two years later for 6,000? If you have any planned, please let me know. Please answer this as best you can, Takeshita-san.
I'm sorry, but would you repeat the question again, please?
HER3-DXd is supposed to receive the remaining $750 million after one year, so I am wondering if there will be some kind of clinical trial data available after one year. Please let me know if there is some kind of a milestone or any clinical trial events.
Okay. I understand. The question is about the HER3 program. As you know, our initial indication for HER3 is the EGFR-mutated non-small cell lung cancer patients in a relapsed setting. We already announced that about the results. I think the results we have already seen in conferences and that we are preparing the BLA for that now. In addition, there are additional plans to further conduct clinical trials in the same patient population, but in earlier lines of therapy in EGFR-mutated non-small cell lung cancer patients. I think you can also see that because HER3 and HER2 are often co-expressed as heterodimers between HER3 and HER2, there is a large number of potential indications for HER3 ADC.
These are the future potential clinical trials that we will be doing and that will likely lead to additional indications in the future. I hope that answers your question.
Thank you. Next question, Ms. Sogi, Sanford Bernstein, please. Thank you. Congratulations on this great deal. I have a couple of questions. Regarding the three ADC assets covered by this deal, we believe that we are at a stage where it is difficult to get a full picture of clinical program from the data of phase I and phase II to the later stage, including HER3-DXd, which is the most advanced. I'd like to know what you are thinking about this point. Also, based on this, with Merck, several phase II clinical trials will be conducted in the future to determine which cancer types and patient types these products will be developed for as a result of this collaboration. Is this understanding correct? Thank you. As much as you can, Takeshita-san, please answer.
Yes. You know, I think in terms of clinical data already announced and presented at conferences, you are correct that the HER3 program is the most advanced, where we can clearly see a path for registration in the EGFR stage of 1,007. However, there, we do have additional clinical data in many other cancers, but not just HER3, but also the 7300 and the 6000. These are not yet publicly announced or disclosed data, but these are the data that we have discussed with our Merck partners. Based on these early data, we have created a clinical development plan that in some cases, or in many cases, will be interpreted into clinical trials.
These are clinical development plans that are based on the currently available clinical data available as of today, which is different from the non-clinical data that's already been publicly disclosed.
Thank you very much. Looking at the upfront payment terms, it overlaps with Manabe-san's question, but I understand that the expectations for DS-7300 are different compared to others. HER3-DXd, for which there is already quite a bit of data available, but do you think that Merck considers the risk to be low for 7300, or it has high expectations? Could you give us some background on this? We have been asked this question on this point repeatedly, and I think you may not be satisfied with the answers, but I believe that they have consequently evaluated all three highly in total. Each phase is different. As Takeshita mentioned earlier, we'll be able to tell you when the top-line will be released.
If you put the top-line results of our R&D and the payment side by side, you may get different answers, but you'll be able to see it. Allow me answer in this way. Thank you very much. One last question. You have collaboration track record with AstraZeneca, but you chose Merck as a partner. Having listened to your discussion, I understand that Merck is a great partner, but the reason why you didn't choose A.Z. is that, for example, A.Z. is developing ADCs, targeting B7-H4, which is, of course, a different target, but it is very close to the target of DS-7300. Is it one of the reasons you didn't partner with A.Z.? I can't give you specifics, but we received proposals from several companies, each in a different form of proposal.
Among them, we chose the one based on which proposal would maximize our three product the most. Thank you very much. Next, Mr. Tony Ren from Macquarie, please.
Thank you for taking my question, and congratulations on the Merck deal. Just a quick clarification question from me. Maybe I'm not understanding this correctly. There appears to be a small discrepancy between the press releases from you guys and Merck. In your press release, you guys said for, I hope I'm pronouncing this correctly, raludotatug deruxtecan, DS-6000, Merck will be responsible for 75% of the first $2 billion of R&D expenses. Now, if I look at your English slide presentation, slide 11 and 12, there you said Merck will be responsible for 75% of the first $2 billion of R&D expenses for each product, and appears to refer to HER3-DXd and 7300.
Just wanna see if my understanding is correct and if there is indeed a discrepancy. The other question is that, you know, I do find this arrangement a little bit more complex than usual. You know, especially with basically the U.S. dollar $1 billion worth of refundable R.&D. upfront payment. Just want to see if you could provide a bit more color on that. First one is about the discrepancy in the languages, and then the second one is about the refundable R.&D. related front payment, which is not something that I typically see, please.
Chief Ogawa will respond. First of all, sorry for the confusion between the Japanese and English versions. We apologize for that. Regarding the thinking behind the R&D expenses related refundable upfront payments, setting aside the upfront payment portion for now, Merck will be responsible for 75% of the first $2 billion of R&D expenses for each product, according to the agreement. For HER3-DXd and DS-7300, $0.5 billion will be paid respectively upon contract execution as R&D expenses related refundable upfront payments. In other words, a total of $1 billion will be paid upfront. Regarding the ratio of 75% versus 25% up to the first $2 billion of R&D expenses, the same is applicable to DS-6000 as well. For DS-6000, 75% of R&D expenses will be paid by Merck as they are incurred.
Okay, great. Yeah. I am in Madrid for the ESMO conference, and I look forward to seeing your data presented on Sunday and Monday for these assets. Yeah, congrats again.
Next, Mr. Muroka from Morgan Stanley Securities, please. Sorry, this is my second time. Thank you for this opportunity. I believe the proposal from U.S. Merck was the most attractive to you. This will enable you to grow these assets bigger at a faster pace. Could you please elaborate on the specific details, such as a certain proposal or combination you found attractive? Is it possible to share some episodes, if any? It's difficult to respond, but Muroka-san, if you were in a position, you would also have chosen U.S. Merck, correct? If you say so, I would say U.S. Merck is a good partner. What kind of an attractive proposal did you receive? As an outsider, I cannot fully imagine what it's like. I try to imagine, but it's just my imagination.
As I touched on this a bit during my presentation, we'd like to deliver a variety of new standards of care. As you know, by doing additional combination studies, for example, U.S. Merck is already providing a lot of standards of care, which we have found very attractive. Understood. Thank you. This may be the same question from a different angle, but developing these three assets in combination with KEYTRUDA for first-line NSCLC, for example, can be a possibility. In other words, development which can compete directly against Dato-DXd could possibly occur. Takeshita-san, could you respond as far as you can?
Yes, I think it is a possibility that we may look into non-small cell lung cancer combinations with at least one or more of these three assets with KEYTRUDA. I mean, it all depends on really what is the clinical data done, and we do wish to take our best drug or drugs into the lung cancer patient or any other cancer for that matter. Yes, I think the answer is yes to your question.
Understood. At any rate, I also think it's important to maximize the overall asset value. I hope you will find the best answer for the sake of the patients. That's all from me. Thank you very much. Next, Mr. Barker from Jefferies Securities, please.
Yes, Steve Barker from Jefferies. Thanks for taking my question. I have two questions about the financial arrangements. I understand that you are booking JPY 3 billion, or you will... Sorry, you will receive JPY 3 billion US dollar upfront payment upon execution of the contract, but that will be recognized as revenue over the exclusivity period. For example, if the HER3, if you think it's got a 15-year patent lifetime, then you'll start booking that revenue from this quarter over 15 years. That's the first question. Then the second question relates to the $1 billion of refundable R&D related to the first two assets. Can you just explain how we should think about that?
Is that money, that it's cash that's gonna come in, but then you have to pay it back, or is it revenue? Some details, please. Thank you.
CFO Ogawa is going to respond. Regarding how to book upfront payments, as we touched on this during the presentation, received upfront payments will be deferred and booked as revenue over multiple years, considering the estimated exclusivity period. For DS-6000 and HER3-DXd, there will be upfront payments 24 months and 12 months after execution, respectively. From that timing onwards, these payments will also be deferred and booked as revenue. In this case, time passed since the contract execution will additionally be taken into consideration for deferred booking in the first year. As for your question about R&D expenses related refundable upfront payments, accounting treatment is not yet determined as of now. As soon as we decide, we will announce it to you. As for HER3-DXd and DS-7300, $0.5 billion respectively will be paid.
25% portion of R&D expenses will be paid by using these R&D expenses related refundable upfront payments. However, accounting treatment is yet to be determined as of now. Understood. Thank you. Next, Ms. Haruta from UBS, please. Haruta from UBS speaking. I have just one question. U.S. Merck has a lot of experience in oncology. There are ADCs like TROP2 and Morab ADCs, but U.S. Merck does not have ADC assets so much. U.S. Merck is evaluating your ADCs very highly. How are you planning to share capabilities related to R&D for ADCs? Allow me to ask you this broad question. As this is about R&D, Takeshita will respond.
This agreement includes some very limited amounts of collaboration at the research level, really those involving the same target as the ones in the three ADCs that we were talking about. There's no fundamental research collaboration on ADC in general, including those that involve some of our targets or same targets. Those may be part of the agreement. You know, some of the details still need to be very understood from both sides and complete.
numerals for 10 and above." * This is so specific. I'll use "two" and "three". If I use "2" and "3", I am ignoring a very specific rule. * Wait, "Q&A". * "As this was mentioned a few times during Q&A, I want to confirm." * Is "Q&A" an acronym? * "Q&A" stands for "Question and Answer". * Is it an acronym? Some say yes, some say it's just an abbreviation. * If it's an acronym, it has 2 letters. * Rule: "Always use periods for acronyms with fewer than three letters (e.g., U.S., U.K., D.C., L.A., N.Y.)". * I'll use
Yamada from Nihon Keizai Shimbun speaking. Can you hear me? Yes, we can hear you. Thank you. Just one question from me. As part of the background for this collaboration, you mentioned changes in the business environment. As was mentioned, Daiichi Sankyo has paved the way for ADCs. As a result, ADCs are drawing more attention. Under these circumstances, the competitive environment is intensifying, as you said. This time, you need collaboration because competitors are developing their ADCs at a faster speed. Have you judged that it will be necessary to collaborate with U.S. Merck to increase the speed of your development? Can I ask you about the link between the intensifying competitive environment and this collaboration in detail? First of all, with this collaboration, we want to increase our speed. This is what we are always thinking about.
As for competitive environment, in the stage of clinical trials, if the target is the same, it's quite difficult to recruit patients. In these areas, we think competition is intensifying. Understood. Thank you very much. Now, time is up, and we are closing this meeting. Thank you very much for your time today. Thank you very much.