Earnings Call: Q1 2018

Jul 31, 2017

This is Hirokawa speaking. Thank you for joining Daiji Sankyo Financial Conference Call today. I will explain about the first quarter financial results announced at one p. M. Today based on the conference call material. Please look at Slide three. I will touch upon following topics: FY 2017, the first quarter financial results major management related updates, including edoxaban, Japan business, INJECTVA progress and programs for China business growth. Then as R and D updates, I will mainly focus on the presentation at Annual Meeting of ASCO or American Society of Clinical Oncology And after that, I will entertain your questions. Let me begin by the financial results of the first quarter FY twenty seventeen. Please look at Slide five. Outline of FY twenty seventeen first quarter financial results. Consolidated revenue was JPY 239,100,000,000.0, minus 0.8% or JPY 1,900,000,000.0 yen year on year. Cost of sales increased by 2,500,000,000.0 yen SG and A expenses, 1,300,000,000.0 and R and D expenses, JPY 1,400,000,000.0 year on year. As a result, operating profit was JPY 40,300,000,000.0, 14.8% or JPY 7,000,000,000 decrease year on year. Profit before tax was JPY $42,200,000,000.03000000000 decline year on year. Profit attributable to owners of the company was JPY 29,200,000,000.0, 4.7% or JPY 1,400,000,000.0 decline year on year. Currency rate was JPY 111.1 to the dollar, JPY 2.85 depreciation from and 122.19 yen to the euro, similar to that of the same period previous year. Please look at Slide six. I will explain about the factors contributing to the increase or decrease year on year with three slides. Revenue declined by JPY 1,900,000,000.0 year on year, and its breakdown will be discussed a major business unit by unit. In Japan business, including innovative business, vaccines and OTC, Lexiana and anticoagulant made a major growth as well as Nexium, an anti ulcer agent and PRALIA and osteoporosis treatment, Daiji Sankyo esther products expanded sales. On the contrary, Olmedec, an anti hypertension agent and others decreased sales. Daiji Sankyo Healthcare increased sales also. Altogether, Japan business increased by JPY 8,900,000,000.0. Next, let me explain about the global business. Numbers here excludes ForEx impact. Daiichi Sankyo, Inc. In The United States had JPY 16,400,000,000.0 decrease due to sales decline in Olmeshartan, an anti hypertension drug with loss of exclusivity in October. On the other hand, Lutefold U. Increased by JPY 4,900,000,000.0 through growth in generic injectables and Injectofa and iron deficient anemia treatment. Despite contribution by Lixiana, Daiichi Sankyo Europe saw JPY 1,900,000,000.0 decrease due to decline in Omecetown sales. ASKA business covering Asia and Central And South America had JPY 800,000,000 growth. Positive impact by the yen depreciation was JPY1.8 billion in total. Now please look at Slide seven, which shows factors contributing to the operating profit variance. As has been said, revenue had JPY 1,900,000,000.0 decline despite JPY 1,800,000,000.0 positive ForEx impact. Next, elaborating on costs. Excluding ForEx impact and other special factors, cost of sales increased by JPY 1,800,000,000.0 through rising cost of sales ratio due to the change in the product mix with decline in OmeSaltan sales revenue. SG and A and R and D expenses increased by 700,000,000 yen and 900,000,000 yen respectively. Increase in expenses due to ForEx fluctuation was JPY 1,700,000,000.0 overall and breakdown wise, 600,000,000 on COGs, JPY 600,000,000 on SG and A and JPY 500,000,000 on R and D. Since there were no special factors on both this and the preceding quarters, operating profit in this third quarter was JPY 40,300,000,000.0, declined by JPY 7,000,000,000. Or excluding ForEx impact, it was JPY 7,100,000,000.0 net decline. Next, let me explain about the profit on Slide eight. Operating profit decreased by JPY 7,000,000,000. Financial income or expenses had JPY 4,000,000,000 reduction in expenses by ForEx gain. In addition, income tax decreased due to the decline of the profit before tax, resulting in profit attributable to owners of the company was JPY29.2 billion, declined by JPY1.2 billion year on year. Please look at Slide nine. This is yen based sales variance by major business units. Numbers on Slide six included the ForEx impacts, whereas here, the results include such impacts. While Daiichi Sankyo Inc. In U. S. And Daiichi Sankyo Europe had a negative revenue growth due to Omei salt and patent cliff. Japan business expanded its sales steadily as well as Daiichi Sankyo Healthcare. Overseas, Lutefold in The United States had major sales growth. Next, please look at Slide 10. These are revenue variances of major products in Japan. Main products such as Lixiana, Nexium and Pralia have made another good start this fiscal year. On the contrary, however, many long listed products are struggling more than the same period last year due to extending market erosion by generics. From here on, I'd like to give you an update on major management topics. First, edoxaban update. Please turn to Page 13. This page shows the trend of our sales share in the Japanese market. Edoxaban's share has expanded steadily to exceed 20% in the first quarter. It's narrowing the gap against the top two products as well. Turning to Page 14. This shows not our sales share, but our share in terms of the number of prescription sheets for new patients. This is regarded as an important indicator, which will lead to future sales growth. Edoxaban has continued to be in top position since March, and its share expanded to 34.2% as of May. Please go to Page 15. This shows the situation in Germany and South Korea. Our sales share has continued to expand steadily since launch in both countries. Next, on Page 16, you can find an update on life cycle management for edoxaban. Based on the results from ENSURE AF study, which was completed last year, we received a positive opinion from the European CHMP. Following this, the Pathology and Method of Administration section of SMPC was updated to clearly describe how to administer edoxaban to an NVAF or nonvagular atrial fibrillation patients undergoing cardioversion. About twenty four percent of the newly diagnosed AF patients are estimated to undergo cardioversion according to some reports. So we believe physicians can use edoxaban for such patients with more confidence than ever in the future. Next, I'd like to give you an update on our Japan business. Please turn to Page 18. In July, PRALIA was approved for additional indication of rheumatoid arthritis on top of osteoporosis. Denosumab's approval for RA is the first in the world. PRALIA became the first product to have both indications. About forty five percent of RA patients are complicated with osteoporosis according to some reports. So we believe that the competitive edge will be enhanced. We also obtained approval for Canaria combination tablets. This is a combination product of Canaria and Canaglu tablets, two agents created by Mitsubishi Tanabe Pharma Corporation for Type two diabetes emeritus. Daiichi Sankyo will do marketing of the product, while the two companies work together to co promote Canaria to provide information to medical institutions. This is the first approval of a DPP-four inhibitor, SGLT2 inhibitor combination drug in Japan. Next, please turn to Page 19. We developed Narrowapid and Narrow Source tablets for cancer pain as unapproved drugs and indications with high medical needs in Japan, and we started marketing in June. We are also strengthening our authorized generic business. We launched authorized generics of MYCURIS and its combination product in June. Also, we will launch Omesartan OD tablet and Crestor Ozlight generics in September, ahead of competitors' generics. Next, I will give you an update on Injectafer. Please turn to Page 21. This page shows the trend of monthly revenues of Injectafer and its share in the IVR market. The graph on the left shows the monthly revenues of Injectafer. Revenues have been expanding further under the integrated team of Daiichi Sankyo Inc. And OITBORD, launched in January. Most recently, monthly revenues in June reached $26,200,000 The graph on the right shows our share in the IV iron market. Injectafer has been increasing its share substantially to reach 32.2%. Our market share, including Injectafer and Venofer, has grown to about 75%. We are hoping that we can expand the market and further increase our share by growing Injectafer. On Page 22, let me give you an update on Injectafer Life Cycle Management. As was explained a little during the top management presentation in May, we started Phase III study in heart failure patients with reduced ejection fraction complicated with iron deficiency. We reached agreement with FDA on Special Protocol Assessment, or SPA, to agree in advance on our study design, primary and secondary endpoints as well as analysis plans. Ion deficiency is said to be a comorbid condition in up to fifty percent of five point eight million heart failure patients in The United States. So we are expecting there are big market potentials. In addition to heart failure, Phase II study is also ongoing to evaluate the efficacy and safety of Injectafer for the treatment of RLS or restless leg syndrome in patients with iron deficiency anemia. RLS is a disease condition with an irresistible urge to move legs and uncomfortable sensation such as tingling and itching. Next, let me explain about our programs for China business growth, where sales is growing in recent years. Please look at Slide 24. We have maintained an expanded alliance with optimal partners for each individual products, aiming at building efficient sales and marketing structure. Initially, sales promotional activities, excluding major cities, were done by our partners. In April 2016 and always, co promotion has expanded to major cities towards maximization of product revenue and profits. As a result, we have achieved 15% year on year revenue growth in FY 2016. We will aim at more than 20% growth in FY 2017. Please look at Slide '25. This shows production capacity augmentation in line with China business growth. New production line for Clavit injectables at Beijing factory began its operation in January 2017. In Shanghai factory, new production facility for solid formulations is planned to start its operation in FY twenty eighteen. We will satisfy growing demand in China business through these programs. Now let me talk about the progresses in R and D. Please look at Slide 27. These are the Phase III study results of mirrogaplin, press announced on June 30. We have conducted five Phase III studies globally for three indications. We have announced this time the results of three studies on fibromyalgia in U. S. And Europe and one study on postherpetic neuralgia in Japan and Asia. All three studies on fibromyalgia failed to achieve the predetermined endpoints. Whilst postherpetic neuralgia study successfully achieved its intended endpoint. We plan to announce top line results of the remaining study on diabetic peripheral neuropathic pain by the September. Future regulatory filing strategies and timing will be announced after we obtain this result. Detailed data will be presented at major academic congresses in FY twenty eighteen. Please look at Slide 28. We made presentation on the progress of ADC franchise, one of our focus therapeutic areas at ASCO or American Society of Clinical Oncology in June. We have presented progress in Phase I study of DS-eight 201, a HER2 ADC, a flagship asset of our ADC franchise and preclinical study of its immune activating capability. We have also presented the study design of the ongoing Phase III study of U3-fourteen oh two at HER3 ADC. Now I will elaborate on these three points. Please look at Slide 29. Using ASCO presentation slide, I will explain about the progress of Phase I study of DS-eight thousand two hundred and one. This is a waterfall chart showing best percentage change of tumor size from baseline or before the DS-eight thousand two hundred and one treatment. Each single bar represents an individual patient arranged in descending order of percentage of tumor size shrinkage from right to left. Bias are color coded, breast cancer, gastric cancer, HER2 positive, HER2 low and other cancers. Most patients with variety of cancer types saw tumor shrinkage. The dotted line on the bottom of the graph represents 30% tumor size reduction from baseline cutoff value of response of the drug. Approximately half of the patient responded to DS-eight thousand two hundred and one. Please look at Slide 30. This is a table of overall response rate. Totally, response rate was approximately forty point two percent. Forty five point seven percent overall response rate was observed in breast cancer patients with prior treatments with TDM-one KELSILA standard of care. Payload substance of GS8201 is CP211, Irinotecan modified compound. Forty four point four percent overall response rate was observed in gastric cancer patients with prior treatment with CPT-eleven. Please look at Slide 31. On this graph, vertical axis represents percentage change of tumor size and horizontal axis duration of treatment. We have confirmed that tumor reduction began at early timing of treatment and its effect was sustained in addition. Please turn to Page 32. This graph shows tumor shrinkage and progression free survival. Medium PFS reached forty five point four weeks in breast cancer patients. About eighty percent of the patients are continuing with the treatment as indicated with a white arrow at the tip of the yellow bars. So there is a possibility that there can be further prolongation of PFS. Turning to Page 33, median PFS reached twenty seven point three weeks in gastric cancer patients. About half of the gastric cancer patients are also continuing with the treatment. Please turn to Page 34. This table shows the incidence of adverse events. As an indicator of severity, events are graded from Grade one through five, and the five is the severest. Although hematological disorders and GI disorders were both observed, the incidence of Grade four adverse events was very low. No Grade five adverse event occurred. In particular, with regards to GI disorders often reported with CPT-eleven, Irinotecan, no Grade four GI adverse event occurred with our compound. No dose limiting toxicity was observed. Please turn to Page 35. This shows the analysis results related to DS8201's immune activation capabilities, which we presented in a poster session at ASCO this year. We analyzed the mechanism action of combination benefit of DS8201 hundred one and anti PD-one antibody by using genetic mouse model. Even when tumor cell was re challenged, it was rejected in mice whose tumor was cured with DS-eight thousand two hundred and one treatment. Therefore, we were able to confirm its immune activation capability. This finding suggests that DSH201 has immune activation capability and may have additional benefit by combination with immune checkpoint inhibitors. As the additional benefit in combination with anti PD-one antibody was confirmed based on the study results, we will pursue active partnering to confirm combination benefit in human. Please turn to Page 36. This is the Phase onetwo study design for HER3 ADC U3-fourteen oh two in HER3 positive refractory metastatic breast cancer, which we presented in a poster session at ASCO this year. This study has three parts: dose escalation, dose finding and Phase II parts. In the dose escalation part, we escalate the dose in stages to confirm the maximum tolerated dose. In the dose finding part, we confirm the recommended dose, which will be used in Phase II study. Cohort one dosing in the dose escalation part has been completed by now. Cohort two dosing is continuing steadily. Page 37 shows our future schedule for DS-eight thousand two hundred and one. The next data disclosure timing will be at ESMO in Madrid in September. We are planning to publish results for HER2 positive solid tumors, including CRC, other than breast and gastric cancer. Also at the San Antonio Breast Cancer Symposium this in December, we will publish detailed data on HER2 positive and HER2 low breast cancer. As for the schedule of our future pivotal studies, we plan to start global study in HER2 positive breast cancer from the 2017. We will start the pivotal study in Japan and Korea in HER2 positive gastric cancer from the third quarter. Next, Page 38 shows a future schedule for U3-fourteen oh two. We plan to implement two Phase I studies at the same time. Top line results for HER3 positive refractory metastatic breast cancer will be available in the 2018. We plan to start Phase I study in EGFR mutated NSCLC from the third quarter of FY 'seventeen. Please turn to Page 39. Lastly, information on Raichi Sankyo R and D Day for the current fiscal year. It will be held on the afternoon of Wednesday, December 13, at our head office building in Hombashi, Tokyo. As usual, Doctor. Glenn Gormley, Senior Executive Officer, Global R and D Head and Doctor. Antoine Ivel, Global Head of Oncology R and D, Head of Daichi Sankyo Cancer Enterprise will also attend with our top management. At the end of my presentation slides, you can find tables of major R and D milestone events and major R and D pipeline for your reference. That's all from me. My colleagues are also attending today, so we are going to entertain your question from here on. Thank you very much. COMPANY REPRESENTATIVE:] Hello. Can you hear me? Yes. This is Yamaguchi of Citigroup. First question. First quarter operating profit was 40,300,000,000.0 yen SG and A expenses were rather soft compared to the whole year forecast. Impact from OmeSatin will emerge, as I understand. Your company's operating profit progress against the whole year forecast is usually higher according to the number Compared to the annual forecast, please tell me how you evaluated this progress. UNIDENTIFIED Yes, it's true. Progress was nearly 40% on the operating profit basis. But as you know, usually spending tends to be executed later. And as a result, proceeds in the first quarter every year. Although first quarter profit proceeds the forecast, we assume more expenses might be executed later in the year, so we won't change the initial annual forecast. Understood. Two more questions on the pipeline, please. On cusatinib, last forecast interim analysis would take place in the first quarter. And this time, interim analysis is mentioned. And top line results will be announced in the first quarter next fiscal year. Do you have any update? Now let me answer. Interim analysis and futility analysis and so on were done for cusatinib. And based on that data, a monitoring committee instructed us to carry on the cusatinib trial. Top line results will be announced in the first quarter next fiscal year as is written here. Based on the interim analysis, data monitoring committee requested us to continue the clinical trial. Though I'm not that well versed, a trial could be terminated early when results are too good or too bad, right? But in this case, trial will continue. Yes, you are right. Understood. On mirrogabalin, status of top line was just as you have mentioned. Of course, there remains more data analysis. But in principle, it looks very difficult to continue global development with this indication. Is that consistent with your observation, especially in U. S. And Europe? In Europe and The U. S, we originally thought fibromyalgia as the first indication. We conducted three studies on fibromyalgia, and they could not achieve endpoints, and we consider it will be very difficult to file for approval for fibromyalgia indication. On the other hand, post hepatic neurology study in Japan has resulted in a good data. Result of diabetic neuropathic pain study will be available by the September, and we'll make a decision taking into consideration of the results. Diabetic neuropathic pain had good Phase II results. We'll decide on the overall strategies considering these results once they are available. Understood. Thank you. I'm Seki from UBS. I'd like to ask you a question about your philosophy on U. S. Business as a whole. We don't know what will happen to CL-one hundred eight you licensed in from Charlstone Laboratories Inc, but I have the impression that Daiichi Sankyo Inc. Doesn't have many products to sell in The United States. Could you explain your current view on your U. S. Business as a whole and paying franchise in The United States? This is my first question. Regarding your U. S. Business and paying franchise, we thought of Pain franchise before launching cancer products. But mirageblin study results were not so good in its first indication of fibromyalgia, so we have to revisit approach once again. But the study results in Japan were good, so we can make a judgment on mirogabalin itself based on that study. We thought mirrogabalin could be a main pillar of our pain franchise in The United States, but the study results are not so good. So we have to review our way of thinking with regards to our business in The United States, including mirrogabalin study results. And also regarding opioid in the pain franchise in The United States, FDA held public hearings on opioids on July 1011, so we have a better understanding of thinking behind opioids. Therefore, we'd like to consider further based on these. Secondly, I have a question about safety regarding DS-eight thousand two hundred and one results you presented at ASCO this year. I think there was alopecia. Of course, I don't think this is life threatening at all, but the biggest patient population will probably be in the adjuvant settings. According to physicians, alopecia can become one major factor in selecting drugs. In the adjuvant settings, the annual recurrence rate is around three percent. Is this alopecia preventable by optimizing the dose in the future? What's your impression? The sample size was small in the study, so safety data is limited. And this time, refractory patients who could not be treated with existing agents anymore were included. Because of this, there was good data and good response, but as you said, we believe we have to think about these issues, including the dose. But this safety data obtained at the dose, which we believe could be quite effective, suggests that events are rather mild. When conducting an adjuvant therapy, not only the dose, but also the regimen are important. Currently, it's once every three weeks. There can be a difference if you consider the regimen at the same time. But regarding the safety data, as you know well, gastric cancer patients who didn't respond to Irinotecan as prior therapy did respond to our compound. So our product was effective, but there was no Grade four GI disorder frequently reported with Irinotecan. Grade three, just a little. The incidence of diarrhea was just 0.8. So also in this regimen, side effects can be very mild. We believe we can think about dosing and administration for the adjuvant settings once again. My last question, you used wording active partnering for additional benefit with anti PD-one antibody. What's the current partnering in refractory and adjuvant settings? It can be difficult for the adjuvant settings as the study can be on a large scale. I read such analyst reports. We are already discussing these issues internally. At any rate, we'd like to make our utmost to discuss how to maximize the ADC franchise and its flagship, DSH201 early. There can be many different questions, but we will start Phase II study in refractory patients soon. This can be done on a stand alone basis, but we'd like to consider a variety of things for future potential. That's all from me. Thank you very much. This is Hashikuji of Daiwa speaking. I have two questions. Though not explained, according to the reference data set, submission of Eternasept Biosimilar was decided to be discontinued due to inability to keep stable commercial supply. Phase III is almost completed, and I'm surprised to hear the decision. I wonder why you couldn't see that much earlier. Please explain why you have made such a decision at this timing. We must establish commercial manufacturing process of Etonacept biosimilar. Original product still has several patents. Later, other companies have been granted patents for efficient production, which neither existed at the start of the project nor seemed possible to be granted. This required us to establish commercial manufacturing method circumventing their patents. However, had we tried, we couldn't reduce cost and high cost was the bottleneck. In Japan, the price of biosimilar is 70% of the originator product, better pricing than generics. However, naturally, when originator price goes down, biosimilar price will also decline proportionately. They keep going down together every other year or every year, which will be debated from now on. We couldn't achieve sufficient cost reduction to sustain such price cut. Considering commercial viability and stable supply, we've come to such a conclusion. Understood. My second question is on future data disclosure of A201. You said you will present colorectal cancer and other HER2 positive non breast cancer data at ESMO. So do you mean that there will be no update on non breast cancer until San Antonio? For ESMO, variety of research is being done currently for non breast, nongastric cancers. Data from such analysis will be presented at ESMO. And at San Antonio, we'll make comprehensive presentation on breast cancer studies, including various patient types, HER2LO, for instance. In terms of the data presented at ASCO, many subjects are still on treatment now. Further long term follow-up will not be specifically presented at ESMO, right? At ESMO, we plan to present data other than those breast cancer. At San Antonio, we'll comprehensively present breast cancer data, including those available later in the future. The abstracts aren't published yet, and I can't refer to the specific now, but once they are published, please check them out. Understood. That's it. Thank you. I'm Sakai from Credit Suisse. I have two questions about your pipeline. First, on mirogabalin. What is the learning effect? I'm sure you had high expectations. But on the other hand, I hear that it's now getting more difficult to develop compounds with new mechanism of action against pain, including the development of the protocol. You may not have completed the sufficient analysis yet just with top line results. But based on the results this time, how do you perceive your paying franchise overall? That's a very difficult question. First, in pain, endpoints can be very subjective. If you administer a drug for a long time in a study, how accurate individual assessment by patients can be in comparison from the previous pain may become an issue. So we have to consider the objectivity of pain endpoints as there can be a lot of variability and noise. This time, we had three studies in FM, but it might have been better if we had more detailed segmentation of FM as disease conditions. FM is a syndrome and it's not a disease caused by a single pathogenesis. A patient population with a lot of heterogeneity might have been included. So this may have been an issue together with the subjectivity of endpoints. On the other hand, we had very clear and beautiful results in PHN. So we have deepened our confidence about the efficacy in pain. But we are feeling once again that there can be risks associated with nonobjective endpoints in long term clinical studies in pain. Another question. What's the future development schedule for DS-five thousand one hundred forty one in DMD or Duchenne muscular dystrophy? Could you elaborate on any specifics, if possible, including the situation overseas? First of all, the Phase onetwo study in Japan must be completed to come up with study results. In April, DS-five 141 was designated under the SAKIGAKE designation system. If results are good, PMDA's review could be accelerated. As you can see at the bottom of Page 40, top line results will be available approximately in the fourth quarter of this fiscal year through the first quarter of next fiscal year. We are using exons keeping nucleic acid medicine technologies here. Daiichi Sankyo has unique technologies to chemically modify nucleic acids to enhance stability. So we believe we can use this methodology to take a challenge on various intractable and congenital diseases. We think making this study a great success is going to be our first step we need to make. If this Phase III study is successful in Japan, you will have consultation meetings with PMDA, and you may file for approval in terms of the time frame? Of course, yes. This is an intractable disease. Our compound is designated under the SAKIGAKE system. And we are going to implement a Phase onetwo study Even if we try to implement a large scale Phase III study, there aren't many patients. And this is related to muscular dystrophy specific exons, so filing could be possible if we have good results. This is Muraoka of Morgan Stanley. Time is limited, so just one question, please. R and D expenses shows good progress. It may exceed JPY 1,900,000,000.0. More in the mid and long term, looking into the next fiscal year and onwards, since cancer R and D is so expensive, may I expect the increase of R and D expense in the future? First of all, R and D expenses made a smooth start. Project cost declined compared to the previous year slightly. As we mentioned, cancel R and D spending is progressing, while we had mirrogabalin last term. Cancel will be the main focus from now on. At the end of fiscal year, when we compare the forecast with the actual spending, we see that we have a tendency to leave some amount remaining unspent. We want to improve that. In the longer term, cancel R and D will progress and then we'll have to revisit the project prioritization with more stringent criteria. As to the maximization, including ADC, we will consider external collaboration, including partnering. In nononcology area, if feasible, for instance, when a very large scale Phase III study is considered in a certain therapeutic area, we may have to collaborate with external parties.