I am Manabe. Thank you very much indeed for your participation in this financial results presentation of Daiichi Sankyo despite your busy schedule. We made an announcement of the consolidated financial results of our FY 2018, and based on the handout, we'd like to make a presentation. These are the topics I'm going to cover. FY 2018 consolidated financial results and FY 2019 forecast, followed by the business update. After that, our newly appointed Global Head of R&D since April, Dr. Koga, is going to give us the update of the R&D. We will take questions from the floor. Let's start with the financial results of the 2018 fiscal year. Consolidated revenue was JPY 929.7 billion, down by 3.2% or JPY 30.5 billion down year-on-year. Cost of sales was a JPY 18.6 billion increase year-on-year. SG&A was down by JPY 24.2 billion, and R&D expenses were down by JPY 32.3 billion.
As a result, our operating profit was JPY 83.7 billion, up by 9.7% from last year or a JPY 7.4 billion year-on-year increase. Profit before tax was JPY 85.8 billion, up by JPY 4.8 billion year-on-year, and the profit attributable to owners of the company was JPY 93.4 billion, up by 55% or JPY 33.1 billion year-on-year. Actual exchange rate was JPY 110.91 for $1, a JPY 0.05 depreciation from last year, and JPY 128.40 per EUR. That was an appreciation by JPY 1.30 from last year. Next, four slides is going to give you the explanation of the factors behind ups and downs of the performance. Revenues declined by JPY 30.5 billion from last year. These are the breakdown as per our main business unit.
For Japanese businesses, including pharmaceutical, vaccine, and healthcare, in addition to the oral anticoagulant LIXIANA and the canagliflozin type 2 diabetes drug, we had gains on sales of transferring long-listed products as well as Daiichi Sankyo Espha product, including authorized generics. Thus, we had an increase of the revenue. However, we had expansion of the generics products. The antihypertension product, Olmetec, had a significant reduction in sales. We also had a reduction in revenue of antiulcer NEXIUM and anti-influenza Inavir and the analgesic and anti-inflammatory Loxonin. As Daiichi Sankyo Healthcare, they had a solid revenue, mainly based on the skincare product. However, due to the accounting practice changes, revenue declined. For Japan business as a whole, we had a decline of the revenue by JPY 20.7 billion. Let me move on to the overseas businesses. Those numbers exclude currency fluctuations.
Regarding the Daiichi Sankyo, Inc., U.S., they had a decline of the revenue by JPY 38.5 billion due to the reduced revenue of the Effient antiplatelet products and olmesartan antihypertension and hypercholesterolemia and type 2 diabetes products Welchol, where the generics entered in May 2018. Former Luitpold or American Regent, Inc. today, they had a JPY 12.3 billion increased revenue due to the growing Injectafer products. Daiichi Sankyo Europe, they had a declined business due to olmesartan. However, they had a growing business of LIXIANA. That's a JPY 10 billion increase of the revenue. ASCA in charge of Asia and Central South America, they had increased revenue by JPY 9.6 billion, mainly in China and Korea. Revenue declined due to currency fluctuations by as much as JPY 3.2 billion in total. These are the operating profit ups and down factors.
We had an increase of the operating profit by JPY 7.4 billion. These are the specific details. As I said before, revenues declined by JPY 30.5 billion, including currency fluctuations impact by JPY 3.2 billion. In terms of the expenses, excluding the currency and special items impact, cost of sales increased by JPY 2.8 billion due to the change in the product mix with the olmesartan patent expiry. SG&A reduced by JPY 14.9 billion due to the cost reduction efforts in the U.S. Expenses declined due to currency fluctuations by JPY 1.8 billion. Regarding special items, the expenses reduced by JPY 22 billion year-on-year. Excluding the currency and the special item factors, we had operating profit decline by JPY 13.2 billion. These are the special items breakdown.
Last fiscal year, we had expenses reduced by JPY 6.1 billion due to the sales of fixed assets, with impairment losses of 108 intangible assets and expenses for U.S. business reorganization, due to which we had expenses increased by JPY 33.6 billion. This fiscal year, expenses reduced by JPY 3.5 billion due to fixed asset sales. With impairment losses of intangible asset for JPY 15.1 billion regarding [audio distortion] and MOVANTIK, expenses increased by JPY 11.6 billion. Expenses finally declined by JPY 22 billion year-on-year. Let me talk about profit attributable to owners of the company. Operating profit increased by JPY 7.4 billion, including the currency and special item factors. With regard to financial income and expenses, last fiscal year, we had currency gains, but this fiscal year, we had currency losses due to yen appreciation. Thus, expenses increased by JPY 2.6 billion.
Corporate tax, along with the strategic collaboration with AstraZeneca for DS-8201, future expected tangible income is increased. As a result, deferred tax asset can be added. Thus, the corporate tax and so forth has reduced by JPY 28.8 billion. As a result, our profit attributable owners of the company was JPY 93.4 billion, up by JPY 33.1 billion year-on-year. In slide eight and nine, we discuss about major business unit and Japanese businesses in JPY currency. In slide four, I explained the unit-based situations excluding currency impact. However, in this page, we discuss the figures including currency impact. Let me talk about consolidated forecast for FY 2019. Our target for FY 2019 is going to be revenue JPY 940 billion and operating profit JPY 100 billion. Let me explain the comparison of the numbers to the fiscal year 2018, excluding special items.
Regarding revenue, it increased by JPY 10.3 billion in total as out of upfront payment for DS-8201, JPY 10 billion is booked for this fiscal year as deferred revenue. Cost of sales will be down by JPY 19.5 billion as gains on sales of Takatsuki plant will be booked for JPY 90 billion. Regarding SG&A, sales of Nihonbashi building would help reduce expenses by JPY 10.6 billion. We anticipate expenses increase for our oncology business unit reorganization. Thus, SG&A will be up by JPY 2.8 billion. Regarding R&D expenses, we anticipate JPY 21.3 billion increase due to the progress of the clinical trials of DS-8201 and other new ones. OP expecting JPY 100 billion, up by JPY 4.7 billion year-on-year. With regard to the impact by the strategic collaboration for the DS-8201, nothing else but the deferred revenue portion of upfront payment is included in the fiscal year.
As we have a progress with AstraZeneca discussion and be ready with the new development plans, we will let you know.
I'd like to discuss the major business update. First update is on edoxaban. The product name in Japan is LIXIANA. It achieved number one sales share in Q3 in the Japanese market, it increased the share to 33.2% as of Q4. Consequently, the revenue results in FY 2018 was JPY 64.9 billion, which was an increase of JPY 19.6 billion year-on-year. The share will continue to increase in FY 2019. We target the revenue to be JPY 77 billion. This slide shows the changes of the shares in volume, not only in Japan, but also in other countries. In Europe, Belgium, Germany, Italy, Spain, and U.K. are showing steady growth. In Asia, Korea and Taiwan are in good condition. Also, in Brazil, where the product was launched in August 2018, it has been going up steadily.
The global revenue results in FY 2018 was JPY 117.7 billion, which was an increase of JPY 40.6 billion year-on-year. We will seek further expansion in FY 2019, in which our target will be JPY 149 billion. As for edoxaban, we have been conducting many trials as part of its life cycle management. This is a list of study names related to edoxaban. By targeting patients with a variety of clinical backgrounds in the randomized controlled studies, we are expanding our scientific knowledge. Also, as for ELIMINATE-AF, we gave a presentation during the late breaking session at the European Heart Rhythm Association. We are making steady progress in accumulating the results.
The objectives of these studies are also to collect the real world data, and the clinical trials are also conducted. With knowledge and experience we accumulated on edoxaban, we will let the patients with different clinical backgrounds to be able to use it, and we will aim to maximize the value of edoxaban. I'd like to proceed to the topic of Japan business. In Japan, we launched Tarlige, which is a therapeutic drug for peripheral neuropathic pain, in April this year. We are also launching MINNEBRO, which is a therapeutic drug for hypertension, next month. I'd like to explain about the slimming of our assets. The first topic is on the reduction of cross-shareholding shares. In principle, our company does not own listed shares. As for the shares we currently own, we will sell them off gradually by considering an overall impact to the market.
We sold 10 stocks for JPY 14.3 billion in FY 2018. As for the properties, we also sold our non-core assets for JPY 11 billion in FY 2018. For the gain on sales of business transfer, we transferred the long-listed products for JPY 6.3 billion in profit. The gains on transferring the Takatsuki plant for JPY 19 billion and selling the Nihonbashi building for JPY 10.6 billion will be booked in FY 2019. Finally, about the shareholder returns. Our shareholder returns policy from FY 2016 through FY 2022 clearly indicates that the annual ordinary dividends are JPY 70 or more, in addition to the flexible acquisition of our own shares, and the total return ratio will be more than 100%. In FY 2018, the ordinary dividends will be JPY 70.
The total return ratio will be 40.8% per single fiscal year, and the 3-year cumulative is 114.8%. Now, Dr. Koga will discuss the R&D update in the following presentation.
Thank you. This is Koga. I succeeded the position of the head of R&D from Dr. Glenn Gormley in April this year. I look forward to working with you. Today, I'm going to give you the update of the global R&D progress. These are the agenda of my talk today. Results of our FY 2018 to start with, progress of DS-8201 and the Sakigake Designation of DS-3201 and DS-1647 phase II study results, new phase III study of mirogabalin, upcoming milestones, ASCO IR events. Let me start with the results of the fiscal year 2018. In this fiscal year, we've had many achievements for DS-8201.
This slide talks with the phase I studies and shows our achievements for breast, lung cancers and concomitant therapy with IO and collaborations. The phase I, we made presentations of the data for several cancer types in ASCO and other main congresses. We have completed enrollment of the subjects for the pivotal phase II study, DESTINY-Breast01, for the subject with the prior treatment of T-DM1. We also studied the phase III direct comparison study for second-line T-DM1 and phase III studies for HER2-low expression. We studied studies with nivolumab, a concomitant therapy for IO, we made a strategic partnership with AstraZeneca in the month of March, as in this slide. This is the results of the oncology projects.
We made a presentation of the results of the breast cancer phase I study for U3-1402, second ADC for the first time in ASCO, the data shows the ones close to the early stage of DS-8201, we made NDA for quizartinib global oncology product in Japan, U.S., and Europe, we made NDA for pexidartinib in U.S. and Europe. In the specialty medicine area, we've obtained approval for the Japanese market for mirogabalin, where the clinical studies started for the first time after integration and for esaxerenone, which has the last project number from before the integration. Let me talk about DS-8201 progress. This slide shows the studies schedules for DS-8201 today. As I said before, we have discussions with AstraZeneca with regard to the ongoing studies for DS-8201 as well as the new ones to start.
I shall discuss about gastric cancer phase II studies to be carried out in Europe and the U.S. to you. Let me explain that later on in details. Let me talk about progress of DS-8201. The first indication to be is the metastatic breast cancer third line. Let me talk about our preparation status for NDA.
We shared already in the end of last month that we are going to accelerate a BLA in the U.S. to the first half FY 2019. Originally, we schedule NDA in Japan in 2020. However, we will accelerate it to second half FY 2019, and that may be accelerated further on. For Europe, the original schedule stand. We plan, in the first half FY 2020. In the U.S., it is designated as the Breakthrough Therapy, therefore, estimated review period is 6 months after the acceptance of the filing. In Japan, review period will be 12 months at maximum. Therefore, the launch could be sometime within the FY 2020 at earliest. Let me talk about the standard treatment flow of breast and gastric cancer.
In here, we want to show you for which lines we are conducting trials for DS-3201 and where, which lines we want to challenge going forward. The slide shows the treatment flow of the HER2 positive breast cancer. At the moment, we are carrying out DESTINY-Breast01, DESTINY-Breast02 studies for the subject of metastatic breast cancer third line. We also carry out DESTINY-Breast03, aiming at T-DM1 replacement for second line. Pink boxes represent first line metastatic breast cancer. In addition to that, we have discussions with AstraZeneca regarding post-neoadjuvant studies, just like the KATHERINE. When we have our clear plans for clinical trial, we will let you know. Slide 36 and 7 talks about HER2 low expression treatment flow. There is no definition such as HER2 low expression, as you see.
The slide 36 shows the HER2 negative hormone positive flow, and 37 shows HER2 negative and hormone negative treatment flow. We carry out DESTINY-Breast04 studies for last line for those patients. For HER2 low and hormone positive patients, we want to aim earlier line, and we have discussion with the AstraZeneca. Once details are up, we will let you know. Slide 38 shows the treatment flow for the gastric cancer patient. Third line studies are going on in Japan and in Asia. We have discussion with AstraZeneca aiming for the second line. The gastric cancer studies have been conducted only in Asian countries so far. However, we will start the phase II studies for third line gastric cancer patients in Western countries in second half. Let me give you the details from the next slide. The gastric cancer is prevalent in Asia.
However, like in this graph shows, the number of the patients in the U.S. and five countries in Europe is greater than that of Japan. Gastric cancer is an extremely refractory cancer. Its prognosis is even worse than that of breast cancer, and we know that it is also easy to acquire drug resistance. Maybe those factors have some influence that when we looked at the past study results of similar drugs, they demonstrated lower efficacy in Westerners than in Asians. We concluded that in gastric cancer study, it is better to confirm the efficacy and the safety by region, and the study should be separated from those on Asians. This study of gastric cancer phase II in the U.S. and Europe is scheduled to commence in Q2. I would like to continue to the next topic of the Sakigake designation of DS-3201.
DS-3201 is a compound that inhibits the histone methylase of EZH1 and EZH2 required for the maintenance of cancer stem cells. They are expected to eradicate the cancer stem cells and suppress the cancer relapse. The EZH1 and EZH2 inhibitor has a possibility of becoming first-in-class. Currently, the phase I study is being conducted on non-Hodgkin lymphoma, including the peripheral T-cell lymphoma. The graph you see was presented during the American Society of Hematology (ASH) two years ago. As the graph shows, the efficacy was demonstrated with two PTCL patients at that time. Currently, there are approximately 10 PTCL patients enrolled in this study. This drug has received a Sakigake designation for the treatment of PTCL. DS-3201 is our company's fourth product designated for Sakigake. I would like to switch the topic to DS-1647, which is a cancer virus and an oncolytic virus, G47Δ.
G47Δ is an innovative oncolytic virus discovered and developed by Professor Todo of The Institute of Medical Science, The University of Tokyo. In this modification, the herpes simplex virus type 1 (HSV1) was controlled to grow exclusively in cancer cells by genetic recombination. Our company has developed treatment for various solid cancers, including glioblastoma, in collaboration with Professor Todo. The overview of the study is shown on the next slide. The interim analysis of the phase II investigator-initiated study was conducted in July last year, and the study was stopped early after the efficacy of the drug was confirmed. The result of the interim analysis was presented by Professor Todo during the AACR-JCA Joint Conference.
The result of the efficacy was that the primary endpoint marked 92.3% as the one-year survival rate. In the secondary endpoint, the PFS was 8.6 months. As for the safety, the incidence of side effects that required prolonged hospitalization was 12.5%, demonstrating high safety. With these results, we are planning to file an application for approval in the first half of FY 2019. This product has already received a Sakigake designation from the Ministry of Health, Labour and Welfare in Japan. I would like to draw your attention to the overview of the new phase III study on mirogabalin. Mirogabalin was successfully approved for the indication of peripheral neuropathic pain this year, and it was launched in April this year. Neuropathic pain consists of the peripheral and the central classifications. The current indication is only for peripheral. We have started the new phase III study on central neuropathic pain.
If the indication can be expanded to the new category due to the results from this study, we will be able to deliver this drug to all the patients with neuropathic pain. Lastly, I'd like to discuss the upcoming milestones and the IR events. During ASCO, held in Chicago in the U.S. in June, we will offer oral presentations on U3-1402 and DS-1001. We will offer a poster presentation on DS-1062. Previously, during ASCO, we conducted an on-site conference call to explain the details of our presentations at ASCO. This year, we will provide an additional on-site conference call for the investors who are attending ASCO in Chicago. We will let you know as soon as these two events are confirmed.
As for DS-8201, we will file an application for approval for the third-line metastatic breast cancer treatment in the first half of FY 2019 in the U.S. and in the second half in Japan. The results from the ongoing phase II registration study will be presented during the San Antonio Breast Cancer Symposium in December. Quizartinib and pexidartinib will be submitted to the Oncologic Drugs Advisory Committee for discussion on May 14th. As for DS-1647, as I mentioned before, it'll be filed for approval in the first half of FY 2019 in Japan. The appendix pages include a list of milestones in FY 2019 and a table of pipelines. Please take a look at them later. That concludes my presentation.
We would like to take questions from the floor. Mr. Manabe, who made the presentation today, President and COO, and Mr. Koga, Global Head of R&D, will respond to your questions. As needed, Mr. Nakayama, Chairman and CEO, and Mr. Sai, CFO, are going to respond to questions.
Yamaguchi from Citi. First question is about AstraZeneca deals. I have clarifications. You said that you're going to share R&D expenses. According to what you said today, you haven't defined so much of the deals, therefore, the numbers today are not including those factors. Is that right?
Yes.
Within the fiscal year, if you have progress with the deals, perhaps half of that money might be booked in the middle. Is that right?
Please look at Page 12. First of all, in this fiscal year 2018, nothing is booked. For the fiscal year 2019, a JPY 21.3 billion increase of the R&D expenses are booked. A majority of that is for DS-8201, as you understand. For that part, we are yet to discuss with the partner. The amount might increase possibly. All those things are to be discussed going forward, so I can't share with you.
This is only increments, therefore, true expenses will be much higher.
Yes. A majority of the increments are for DS-8201.
The second question, as to the JPY 10 billion recognition for this fiscal year, you had paid in over JPY 140 billion. About half of them, JPY 74 billion, has been received, and then that will be prorated over the period, over seven years, I believe. That part is booked. Is that correct?
I think your understanding is slightly different. Let me explain once again. Upfront payment was $1.35 billion, or JPY 150 billion approximately. For that part, over the exclusivity period in the U.S., although we do not discuss about patent as yet. However, for that period, we are going to book as deferred revenue JPY 150 billion, but it will be about JPY 10 billion for a year. That will be the impact. For fiscal year 2018 financial results-
On PL, since the deal was made on the 29th of March, there is almost no impact on the PL for this year. Only JPY 100 million positive impact on the revenue. If you look at the balance sheet, both our assets and liabilities area, we had a positive impact of JPY 150 billion each. For cash flow, nothing for fiscal year 2018. For the FY 2019, for the cash flow, half the money will be received for as much as JPY 75 billion. We have received it for this year. The remainder of the half will be paid in the next year. For PL, JPY 10 billion prorated amount will be recognized as revenue. JPY 10 billion booked every year after that. Correct. Lastly, as for the DESTINY-Breast01 data to be presented in San Antonio, filing will be coming earlier than that.
That means a top-line result will be available earlier than that. In terms of the sequence of the announcement, would you be giving us the indication that top line is a positive, for instance, before the presentation in San Antonio? Is that the sequence of the information release for itself? In terms of the novelty of the information, the contents of the presentation in San Antonio will be including our new information, and whether or not we're going to openly discuss about it prior to that is another story. We have not decided whether we should announce the top-line results before San Antonio presentation. You're going to file before that, right? Without you cannot. Right. That is correct.
I'm Hashiguchi from Daiwa Securities. I have a few questions. In your forecast of this year, the sales by American region is almost flat. It had a double-digit growth last year. What are the factors that make you assume that the growth will stop?
Sorry, what page are you on? Sorry.
Is it about this year? Yes, I'm looking at page four of the supplementary document.
Yes. As for the revenue, Injectafer is still in good condition. Since the shipping volume of competing products decreased at one time, it is showing the growth. Although the competing products have already come back to the market, it is still moving along quite well. According to my understanding, I'm not aware of any particular negative trends in this case.
Understood. In the development plan of DS-8201, I saw a lot of lines that indicate "Under discussion." Can you tell me what it means? Is it the case where you have already stated or started the detailed consideration of exactly what and where you are going to do, and the studies that can be started in one or two years will be the ones you mention today? Considering the eternity, I assume that things will change depending on the situations. In a bit longer perspective at this point in time, what you want to do in the future are pretty much what you presented today. Is that what you mean? Can you tell me what you mean by under discussion?
As you know, we will have a joint development with AstraZeneca. After entering into an agreement in March, we have set up a variety of meeting structures. Of course, there are a high-level executive committee, a development committee, or a supply chain. There are many factors involved, and there are things such as how we can utilize their capabilities, what they want to accelerate, and what we want to accelerate, et cetera. There are certain things we coincide with each other, and there are, of course, certain things we don't coincide with each other. All that being said, we are currently working closely to establish our priorities in that situation. As for the expression of under discussion, we want to do everything by ourselves, by all means. Of course, we can't do everything by ourselves and things got delayed.
With this initiative, maybe we could move up things faster. That's easy to imagine. In order for two companies to work together, we need to have a run-up phase to establish a good relationship, first of all. Once that is done, I believe we could create an opportunity to demonstrate something concrete one after another after being "under discussion.
I don't think I understood very well. In any case, what you have in your perspective during the run-up phase would include those purple boxes in your presentation today. Am I correct?
Yes, that's what I meant.
Understood. Here is my last question. As for the DESTINY-Breast studies, can you tell me the results from the interim analysis of the DESTINY-Breast02 and the DESTINY-Breast03 studies? In these studies, are the study designs structured in a way that they allow an early termination by achieving the efficacy? I don't remember clearly about this, I don't believe they are structured in that way. At the same time, the current situation is that, for lack of a better term, we have been whipping them so that the studies will not be delayed. We are working hard on them. Understood. That's all for my questions. Thank you.
Other questions? Monthly Mix, Mochizuki. As for FY 2018 results, the Almotriptan revenue reduction is quite hitting hard your results. Would you please give us a comment, Dr. Manabe?
OLMETEC revenue decline. Well, we are operating in this sort of era, patent exclusivity going off, meaning we have a replacement of the products. For that part, we would have to accept. What we can do is to provide new products to innovate SOC. In terms of the forecast for FY 2019, OP JPY 100 billion target is right there, we are approaching the achievement of the mid-term business plan target finally.
As organizations, what is your target again, please?
Well, our oncology products are not yet there to contribute our results. We have a base business, a product that edoxaban that is number one and in Daivobet as well.
In Japan, we have base businesses, we want to maintain number one market share positions going forward. Of course, including our licensed-in product, we would like to keep our positions in the Japanese market, please expect on that.
You're expecting of the Japanese market quite highly going forward, is that right?
Although the situation is tough, therefore, we wouldn't expect a very aggressive growth here. However, the majority of the revenues coming from the Japanese market, therefore, we want to sustain this business.
Lastly, in terms of the asset streamlining, you have a long list of product transfer and non-core areas being streamlined. Of course, oncology will be growing as core businesses. What is your thinking on that? Plus, do you have plans to reduce the number of people for streamlining?
The core area as a science, if that is the question, Dr. Koga will support later on that. Of course, oncology, that is the focus, plus the rare disease, immunology areas, those will be the non-oncology focus areas to be. As I said before, we have a 2025 vision, oncology product for that is quite good. We need to keep seeding for oncology businesses going forward. The core of the businesses will be mainly coming from innovative products. Of course, we do have businesses in Japan, we need to provide products that satisfy a variety of the needs in this market as well.
Back again to the reduction of those assets. You talked about Nihonbashi building sales. Do you have any plans for the personnel reduction?
In terms of the non-core asset sales, we do have a strategy, and we have continued along with that strategy, the Nihonbashi building sales is one of those efforts. As a result, well, asking about the downsizing, we have no plans at the moment for such a thing. For the time being, you're going to maintain what you have today. Correct. Thank you.
I'm an editor of the Journal of Pharmaceutical Business. My name is Idaka. Thank you for your presentation today. As for 8201, you entered into a global partnership with AstraZeneca. Once again, I'd like to know the points that made you decide to choose AstraZeneca as a partner. After all, why AstraZeneca? I also would like to know if you received any other inquiries from the companies other than AstraZeneca. That's the first question I have.
As for 8201 we have mentioned since long time ago that we have been conducting a broad search for a new partner. In fact, a few major companies raised their hands. Among all those companies, what was important to us was that in this project, we wanted the company to regard highly of the compound, or rather that we wanted the company to have a fair assessment on the compound.
In addition to that, if we work together, we will be able to deliver the drug to the patients as much faster. Judging from these two aspects, we concluded that AstraZeneca was the best for us.
Thank you. In the future, when it is launched in Japan, the U.S., and Europe, I believe Daiichi Sankyo will be in charge of Japan, but AstraZeneca also has a Japanese subsidiary in Japan. Are you going to have any changes to the areas of sales? Are there anything you and the Japanese subsidiary of AstraZeneca are considering so far?
We have no changes. As it was planned initially, the structure is that Daiichi Sankyo will have an exclusive sales in Japan and will pay the royalty. Okay. Thank you. I have one more question.
Currently, AT01 has been making a very good progress, it is at last making a final approach to the launch of the product. Meanwhile, you had a large-scale personnel reshuffle of your officers in April this year. Dr. Koga, who gave a presentation today, has assumed the top position of R&D. There was also a lot of changes to the officers in the U.S. For example, the head of the U.S. corporate division was fulfilled by a former vice president, Mr. Ogawa, who had moved to the U.S. What it means is that since this is such an important time for the company, that you wanted to have a new lineup of the management. Is that correct? Can you explain the idea behind this large revision of the management personnel at this point in time?
As for the personnel reshuffle, we have been asked to have generational changes since long time ago. For Dr. Glenn Gormley, we have had a discussion of letting a younger person take over his position sometime in the future, and we decided that now would be an appropriate time for such replacement. Mr. Ogawa and Mr. Fukuoka have gone to the U.S. this time. There have been some organizational changes within DSI. While oncology will be our mainstream in the future, the U.S., Japan, and Europe, especially the U.S. and Japan, will get engaged with a lot of work together in the future. The idea behind this was that the Japanese management will be part of it, and the coordination between Japan and the U.S. will be even tighter than before. Thank you. This will be my last question. It's about the sale of your non-core business.
You mentioned the buildings today, but are you going to continue this in the future? Also, sometimes in March, a certain information journal published a news article on your plan to sell the healthcare division. Are you considering the sales of Daiichi Sankyo Healthcare and Espha, which engage in businesses directly, sometime in the future?
I have been saying that we will sell our non-core assets and we'll focus on core businesses. We have been taking some measures every time. In the future, although nothing has been decided yet, what we discussed initially was to strengthen our core. If the core becomes stronger, we will reorganize the non-core, just like the relationships between the right side and the wrong side, we will be able to focus on the core even more.
The more we become focused, the more things there will be for us to consider in the future. However, we have not decided anything as to what you mentioned. Thank you.
Goldman Sachs Securities, Ueda. I have two questions. One is about clarification of the numbers. FY 2018, R&D expenses were lower than the plans. Why is that? For FY 2019 plans, you have the upfront payments and those gains on transfer. In reality, your profitability level might be smaller because of that. The last year, you had midterm plans updates, and you mentioned that you would perhaps have an operating profit around JPY 80 billion up until 2020, although you have a focus on oncology in the meantime. Since the update of midterm plans, any changes since then?
In terms of results of 2018 fiscal year, R&D expenses ended up lower than the past years because in the previous year, we had a CL-108 impairment losses booked. Because of that, we had an impact on the positive side for profitability for this year. For fiscal year 2019, like on page 12, JPY 21 billion. Higher number planned than the fiscal year 2018. As I said before, majority of those will be the increments for DS-8201. However, that will be dependent on the plans for R&D with AstraZeneca. Therefore, I can't really say if it will be up or down. Of course, we are going to share the efforts, meaning it will be positive for profitability. However, we have other projects like DS-1402. We can divert those investment into other project as well.
We need to see the situation in totality in order to judge the R&D expenses finally for the fiscal year 2019. This is what we can share as of today. FY 2018, the number is lower than the plans.
What is the factors behind it? For the FY 2019 R&D
Expenses and others too. For instance, we have upfront payments, gains on transfer sales, so forth. I think including all those factors, the real OP will be JPY 60 billion or so. However, in the midterm plans, you said that you're going to sustain JPY 80 billion operating profit up until 2020. What is the reason behind it? As to the plans, which page are you referring to? For instance, in the appendix R&D expenses, 95% or 94.5% are against the plan.
Excuse me. Let me respond to your questions. For this term, one of the reasons is COF projects where we shift it people, and we streamlined our expenses as much as we could. We did so, and we had enrollment delays, and we needed to catch up for some of the projects. Because of those reasons, this is what we have done.
We are trying to support those areas today. Excuse me. FY 2019. Yes, for the midterm plans, we had our image shown, but it is different, right? For instance, this year we had a big impact by the revision of the drug prices again, and we had about JPY 48 billion. Excluding special items and others, in real terms, the tough situations will continue.
Thank you. Second question. That is about returning back to the shareholders. Since the indication for the midterm plans, you have a collaboration for 8201, aggressive activity for the asset streamlining, and still you have more than 100% of the total return ratio to continue. You have a very good items coming out for oncology now, and you may like to prioritize those ideas. You may like to focus more on the investment on the businesses. That's one idea.
Those gains from the streamlining of the assets could be utilized for the shareholder returns. That's another thing, could you explain, are you thinking on that?
Let me explain, and perhaps CEO and COO may add some more later on. We are committed as of today up until 2022 to provide 100% of the total return ratio. That is our promise. As in the slide here, in last year, FY 2018, up until that year, we've achieved 114% total return ratio. Going forward up until 2022, we would like to keep up our policy of a total return ratio to be 100% or more for that period. In terms of the investment on the businesses, we have a capacity of about JPY 500 billion, as I said before. We will stay positive and aggressive in investing, depending on the profitability levels going forward.
We would not hesitate investing more on oncology businesses. Mr. Sai explained our basic policy, factors we have is such that one is the agreement with AstraZeneca about development plans, how it will come out, we will scrutinize the plans, we have to think ahead again. Probably, sometime in the first half this upcoming fiscal year, we will be able to look into that.
This is Muraoka from Morgan Stanley Securities. About the "under discussion projects" of A201 from page 35 to page 38, which you discussed as the projects you want to do, especially in the first half of it, you have six or seven purple boxes. That's too many. If possible, can you tell me which one of them will be your top priorities?
Of course. Developing a drug to become the first-line drug is our ultimate goal.
We believe that DS-8201 has that potential. To reach that goal, we need to do it as if we are climbing up the stairs. For that reason, I listed a few things such as the 3rd line or a concomitant use. Of course, what we really want to do would be something like KATHERINE, for example. Our goal is to bring it to the very top stage in any case, where the physicians and the patients can use the therapeutic drug immediately. Please understand that we are climbing up the stairs for that purpose. The post-neo-adjuvant is where you are aiming to reach in the end, but that is not something you can jump at right away. I'm sure you can't do it right away. No, we can't do it right away. That's the way it is.
Understood. Thank you.
As for the sales plan of your domestic main products this year, can you explain their implications? It's about Memary and Inavir. If I remember correctly, Memary will have its generics in December, I think. It says plus 3%. Does that mean that the launch of the generics will be postponed a little bit? Inavir was struggling last year, but it's growing this year. Is that because you think you can expect another competitive advantage of it? Can you explain? First, we don't expect much of the generics impact on Memary. That's one thing. About Inavir, it suffered from a lot of impact from XOFLUZA, but influenza actually ended up quite early this year, which might have helped with the recovery. We took that into account to come up with these figures. That was rather not about the competitive environment, but it was influenza and XOFLUZA.
That is something very hard to explain because we have some promotion matter recently. After all, we believe that if the positive aspects of our drug are recognized, we believe that we can achieve these figures. Understood. Lastly, during the ASCO presentations, U3 was presented orally and 1062 was presented by poster. Did you have any implications in this arrangement or not? No, they were simply chosen by the Secretariat Bureau of ASCO. We didn't decide which one was more important than the others or which one should be selected. With the data set we submitted, ASCO decided that this deserves to be oral, and they decided that DS-1062 should be a poster presentation. They gave us their instructions. This whole thing could be reversed next year. Is it correct to assume that you want to draw people's attention to U3?
Well, I want to draw everyone's attention to all of them. In some cases, the poster presentations can be unexpectedly better than oral ones. I better stop there. Thank you very much.
Thank you. Arai from Merrill Lynch Securities. I have questions about DS-8201, HER2 positive treatment flow and the number of the patients indications. Thank you very much for giving us the input. In terms of the number of the patients with the metastatic breast cancers, how did it go in the past? What is the upcoming expectations of the number of those people? Because Herceptin, Kadcyla will be utilized for adjuvant. What is the changes of the metastatic breast cancer treatment over the years? Could you give us the explanation?
I'm not the best person to explain that. At least Herceptin and T-DM1 treatments may not satisfy the needs completely. That is clear. At the same time, HER2 low expression patients, for instance, the diagnostics method is used today. Diagnostics range isn't really defined clearly. Many patients have struggles at the moment. Because of that, DS-8201 get attention by people. Sorry, my answer is rather qualitative. I need to learn more about it.
In the KATHERINE studies, you work on the post neoadjuvant and Herceptin, Kadcyla are used. Are there any unmet needs area where the DS-8201 can enter and satisfy? What is the area for the unmet needs for that?
Speaking of the profile of the products, the target is HER2. That's all the same. The quality of the payload is very different. As was shown before, DS-8201 has a very stable profile in the bloodstream, and it is very safe. In the solid tumor, it shows the bystander efficacy, meaning between the cells it can move on demonstrating efficacy. We do have the head-to-head studies going on at the moment. Those profiles will be, if the profile is well demonstrated in the clinical setting, I think there is a good chance for that. We need to
Check on that. Usually we expect longer clinical studies like four or five years studies needed for that. However, do you have any development of the primary endpoint that may accelerate the studies?
To my knowledge, no. Because of that, we need to go step by step going up the stairs. For the patients who had been treated with the Herceptin and T-DM1, though, had the recurrence once again. We have a good efficacy with that, and we can learn a lot from that. ASCO onsite conference is three hours long. That is unusual, but do you have any other updates other than U3 and 1062?
Depends. Sometimes we are in preparation for that. In R&D, they are discussing how far we should talk in that conference. That means we have so much we want to share with you. We are having discussions with Antoine at the moment.
Thank you. I'm Onishi from Chiyoda Keizai. I have two questions. On page 12, where it says SG&A, it says the cost increase for the establishment of the oncology business structure. Specifically, since it says the Nihonbashi building will be approximately JPY 10 billion. If I calculate the balance, will the cost for this oncology business construction increase considerably? Since you say it's cost increase, so I assume it'll increase. Is it going to increase as high as JPY 10 billion or even more? Also, can you explain the content of it more in detail? This is not going to stop here. In the future when you have many things to offer, including DS-8201, this will be something like step 1. You will need to increase your headcounts, for example. Does this content imply that you will have more and more cost increases in the future?
I'd like to start first. When it comes to the establishment of the oncology business structure, I believe the U.S. is the largest. In addition to that, we have a global structure such as global marketing, global medical affairs, which are hiring people and they will continue to do so in the future. Especially in the U.S., they need to actually develop the sales structure and must start the training as soon as possible. These are costs for the oncology sales structure in the U.S. and Europe. As you mentioned, this is where a lot of investment that will be made here. That is the first step. Considering that this business will expand in the future, this will not stop here. In some cases, you need to increase the cost even more in the future. Is that a right way of interpreting it?
We haven't been able to estimate or plan to that extent, but the main part of the structure will be established by them. I can't tell you the specific number of MRs, but we won't need a structure like when we were selling edoxaban. The headcount will be smaller. I don't have an impression that this will be a double of the amount in the increase. My second question is about the ratio of SG&A. I also hear that people are suspicious about the SG&A in the financial statement. I have a feeling that Daiichi Sankyo's SG&A didn't decrease that much. Do you also recognize this to be still too much? About the cost reduction, we have been working on it as a corporate project on a daily basis. However, we believe that this figure is something we still need to continue to challenge.
We don't regard this as an abnormal figure since there are many special factors associated with it. I don't see it too much for the direct spending.
Sakai from Credit Suisse. Let me ask again about DS-8201. AstraZeneca conference call said that HER2 high expression plus HER2 low expression will be the targets out of the breast cancer patients, they are going to expand for other types as well, including mutations. Of course, they are envisioning concomitant therapy with Tagrisso and Imfinzi. Mr. Nakayama said that we want to solidify the plans in the first half. How much of the package are you going to solidify then? For instance, the translational research included for HER2 low expression patients with AstraZeneca. Are you thinking that much for the first half this year? AstraZeneca is the giant in the oncology, if you have concomitant therapy studies, you may be dominated by them, and that could be a risk.
How do you hedge against that? I don't know if they say HER2 high, but as for DS-8201, in the respect of the translational research, we do have a very high level, and we do understand that way in discussions with AstraZeneca. We have areas where we have a very well matching interest with AstraZeneca. Sometimes we have a high interest, they have low interest or the other way around. Then, depending on how our interests are like, how we are engaged may be different, and I do have freedom in a way, and I wouldn't have to worry about being dominated by the other. In a way, the benefit of the development jointly is that rather than working on our own, we could achieve a higher sales target at earlier timing with earlier approval.
As AstraZeneca was saying, of course, as you said, AstraZeneca is very strong in oncology, that can be beneficial for us to raise our organization as well. My answer may not be responding to your question, this is what I can say. The risk of the partnership is both parties insist themselves too much, causing the fights over the territories. In this case, it is a full-fledged partnering, we always have a policy to take the better one to maximize the deliverable, we have a total agreement on that point. One more question regarding the impact on P/L. When you agree something with AstraZeneca, that will be an event triggering the milestone payment to you. Then how are you going to disclose such a payment or impact on P/L with us?
Both companies release the information, impact on P/L be disclosed to us at the same time, because in this term, we only have JPY 10 billion. Going forward, the agreement in discussion would not necessarily lead to the impact on P/L straightforwardly. We have total development plans, we will make progress along with that. We will have the development milestone triggered when we have achievements. We talked about total plans, that will be an indication to you. The rest is at what timing, when, what achievement is coming up. Of course, these will be as per the total plans for development both together. Then we will go along with that.
I'm Nomura from Nikkei BP. I have two questions. You want the top share with LIXIANA in Japan. It is doing well, not only in Japan but also worldwide. I'd like to know your understanding of the factors that are contributing to the growth of shares in LIXIANA in Japan and overseas. Recently, I believe you have enhanced the evidence, you are undergoing with different studies. Can you tell me if there are any points that are specifically important among the evidence you have obtained so far?
In the product profile, it's once daily. We also have robust data for safety. Just recently, a certain person told me that since this is a kind of a drug that requires continuous dosage, it increases the risk dramatically if one forgets to take it. A once-a-daily intake is very beneficial. A person who actually takes it told me that. This, we believe, is the best part of the product profile that has been well accepted by the patients. We pursue the same benefit in Japan and overseas. In addition to this, we are accumulating the data, including the real-world data in the LCM. If we can identify how much efficacy it has in the real-world clinical practice, on what patient it is effective and how safe it is, we will accumulate more of those data to publish.
Thank you for that. If it's once daily, I think rivaroxaban is the same, but have you been able to obtain any new advantage over rivaroxaban, or have you not?
I think it has been compared against many others, including the safety profile.
Thank you for that. I have one more question regarding CAR-T. You are currently conducting phase II. Can you please tell me approximately when you started the study?
Yes. I believe the administration started last year, if I remember correctly. Our CAR-T I don't know to what extent I can disclose the technical information. In any case, it has an advantage that the manufacturing period is very short, and our policy is to set up the manufacturing facilities in Japan as quickly as possible. However, CAR-T has a lot of complicated issues, such as drug pricing. Despite that, the clinical study has been ongoing as scheduled right now.
Is it correct to assume that as soon as the phase II study of CAR-T is completed, you will go ahead and file for the application for approval?
Yes.
Do you know approximately when that will be if the data has been nearly confirmed?
The current situation is very complicated, hopefully we can file it sometime this year. I'd like to refrain from giving you any clear answer about this.
Other questions?
Ebisawa from [Nikko Yakudo]. I have three questions. In the general shareholders meeting in June, Mr. Nakayama will be stepping down from the position of the CEO. What is the meaning of that? Until when would Mr. Nakayama keep the representative positions of the company, demonstrating the leadership for the business?
Growing the successors is one of the top most important jobs in the company, and we've been talking with the people outside of the company, and we've decided so because this is going to be the good timing. Of course, this is the matter of the general shareholders meeting, therefore, I cannot say much about it. However, if I get reelected, of course I would like to support the business. So the representative role would be taken away in June, is that right? Nothing is decided.
It is yet to be decided, and that will be disclosed sometime later at the time of the general shareholders meeting. Right after the meeting, there will be the board of directors meeting where the decisions will be made.
Next question is about MSL. You have 14 MSLs at the moment, and you have a plan to increase the number of them. How many of them would it be if that is the case? What is the changes in the business environment which made wanted to do so? Which part of the presentation are you looking at? MSL?
We are working on the oncology, therefore, the medical affairs force will be strengthened. That's what we want to do. How many more? We do not disclose the number. Of course, we need to think about the balance between the MR in number.
We will think about that along with that. However, what is the scale of the MSL force you're talking about? We do have a variety of discussions. Once we are ready, we would let you know.
Third question is about Inavir. This year, we had hot topics about drug resistance. With regard to the drug resistance to Inavir, what is the characteristics of that?
There is no drug resistance against Inavir reported.
I'm Mizuno from Tokio Marine Asset Management. I'm sorry to be so inquisitive about DS-8201. If an accelerated application has become available, I believe it means that you have resolved the issue of manufacturing capacity. In your discussion with AstraZeneca about what you are going to do next, have you reached a conclusion that the manufacturing capacity will not be your bottleneck? I'm sure you have discussed about the expansion of the facilities. Since you are getting a lot of money, do you ever consider things like accelerating the expansion?
I'd like to speak from the technical and regulatory aspects. The manufacturing factors would include the materials such as antibodies, linkers, and payloads. These materials are expanding continuously. However, according to the regulation, if any of the facilities was not listed in the initial application, we will need to explain and justify its comparability.
What method do we have to make an accelerated application and approval? Are we going to implement it after we get the data that makes it available? We have been working on these strategies quite a bit, and the reason why we could accelerate it, not only in the U.S., but also in Japan, was because our strategy has become solid. Of course, we invest internally, and we try to increase our options for external CMOs. We will coordinate with AstraZeneca about the application date and the approval timing in our preparation, I think.
Just want to confirm that if the first application for the approval in the U.S. is approved, all the CMC-related matters will be applicable to the future indications?
What FDA does recently is that they skip that part and for expanded indications, as long as the clinical data are good, it is very likely that the FDA review will be much faster. Is it correct to say that that's what is to be expected?
Yes, that's a correct understanding. Even if it is in Europe or in the U.S., if you are adding a manufacturing facility, in that case, naturally there might be a preliminary review, and you need to get an appro val every time.
Also, there was a part in your presentation that I couldn't follow about gastric cancer in the U.S. and Europe. Is the purpose of those studies to be able to file for application, or is it because you need to conduct phase II and phase III anyways?
It is to be able to file for application.
I'm sorry, I have one more question. Edoxaban in Europe is doing really well, but if oncology is growing so much internally in your company, it could be possibly a kind of fragmented business. Is it correct to assume that this will not be your non-core business, or is it still possible to be non-core business in a certain case?
Well, now in Europe, Edoxaban has been making up entirely for the reduction in Olmesartan quite well. Of course, we will aim to expand the oncology area. Edoxaban is an extremely important drug as a base. Until we lose the exclusivity, we like to deliver it to the patients as much as we can.
Thank you.
Are there any other questions? We have a little more time for questions. It seems that there are no further questions. That concludes today's financial results presentation.
Thank you very much for your attendance.