ESALY - Eisai Co. Ltd. (ESALF) Q2 2023 Earnings Call Transcript

Call Start: 02:00

Call End: 03:28

Eisai Co., Ltd. (ESALF)

Q2 2023 Earnings Conference Call

November 7, 2022 02:00 ET

Company Participants

Haruo Naito - Representative Corporate Officer and Chief Executive Officer

Ivan Cheung - Senior Vice President, Global Alzheimer's Disease Officer, President, Americas Region Chairman & Chief Executive Officer, Eisai Inc.

Conference Call Participants

Hidemaru Yamaguchi - Citigroup

Seiji Wakao - JPMorgan

Presentation

Unidentified Company Representative

Thank you very much for taking your time to attend Eisai Q2 Fiscal 2023 [ph] Financial Results Presentation. The presentation session is held in hybrid format, including in-person at the venue and online distribution presentation, flash report and reference materials are distributed to those who are attending in person. Those who are calling in, please download the presentation material from our website, and please click to advance the slides. Those of you who are watching live streaming, please continue to watch the screen.

I would now like to introduce the presenter today, Representative Corporate Officer and CEO, Mr. Haruo Naito.

Haruo Naito

Now, I would like to start our financial briefing session for the second quarter of FY 2022. The first page, on the right-hand side of this slide for the first half of this fiscal year, you can see the P&L results. The top line revenue was almost flat from a year earlier. To the right, you can see the amount of ForEx impact.

For revenue, the impact of weaker yen was positive and negative impact of weaker yen for profit. And P&L results are being reported now, but the first thing that I needed to mention is related to operating profit, JPY5.3 billion, which was only 9% of the level recorded last year. We'd like to take this opportunity to apologize for this. Reasons for this profit level, it's something that I'd like to explain first today. The main reason for this it's here related to the revenue in other business, the third line from the top, which was 10% of a year earlier, up JPY6.1 billion. Last year, JPY62.9 billion was recorded in other business in revenue. Last year, there was the revenue for partnership for more of 202. Therefore, there was the license income. Therefore, as a reaction to that, for this fiscal year, other business revenue significantly decreased. So this accounts for the reason why there was over 90% reduction in operating profit for this fiscal year.

The decrease in the revenue in other business was also due to the items of business development, which were anticipated to be recorded in the first half, which were delayed to the second half. And we can say that these items will be realized in the second half. for sure. So the revenue in the other business will recover to what was expected at the beginning of the year for the full year. Therefore, this decrease in operating profit is onetime. And we are sure that the profit level will recover in the second half. And the second line from the top, Pharmaceutical business revenue because of the weaker yen, it grew 18% from a year earlier. Excluding the ForEx impact, it grew 106% or 6% up from a year lie. Our overall main business, which is a pharmaceutical business, the revenue has stayed steady and strong. And R&D expenses accounted for 22.7% of revenue.

We have continued to make strong and positive investment in R&D expenses compared to the peers of the global top-tier companies, AD-related and lean R&D expenses have been made proactively. We have prioritized investment and resource allocation to these areas, including partners reimbursement, the R&D expenses ratio in the revenue was over 30%. This suggests that we have been making proactive investments in R&D expenses. SG&A expenses because of the strong impact by weaker yen, particularly the next line shows expenses regarding shared profit of LENVIMA paid to Merck. If you look at this, this was expanded by about 1.5 fold from a year earlier. This is the shared profit of LENVIMA paid to a partner. This shared profit of revenue in line with the expansion of revenue of LENVIMA, it is expected to increase as well. So this is the proactive investment. We believe that this will lead to the further strengthening of our collaboration relationship with partner.

Excluding this shared profit in the SG&A expenses, excluding the impact of weaker yen decreased slightly from a year earlier. Therefore, SG&A expenses have been well controlled. That is our understanding. As a result, operating profit was 9% of the recorded amount of last year at JPY5.3 billion. Profit for the period, as we reported in the financial briefing session for the first quarter, in order to correct the mile distribution of the funds, we conducted the received a repayment of the paid-in capital from a consolidated U.S. sub to the company and JPYJPY31.8 billion was recorded as the profit for the period because of the reduced tax expenses. And we have been able to maintain the very robust and healthy balance sheet and financial structure based upon which at the Board of Directors meeting held this year. This morning, we have resolved to pay JPY80 per share as a dividend for the first half.

Next page; I have said that the pharmaceutical business has been steady. And the driver for such steady growth is these 4 global brands; as you can see here, in particular, LENVIMA grew 40% from a year earlier to reach JPY128.2 billion. For Faicampa, Halaven, DeVega, for all of these products, we have been able to exceed the levels recorded last year. For DeVega, significant growth was achieved in Japan, which was about doubling the revenue from last year. And for Global Brands total revenue was JPY183.3 billion, which was up 40% year-on-year.

Next, by region as well as the current status of pharmaceutical business and OTC business as well. And for the left half, as I said earlier, the revenue of the pharmaceutical business grew steadily and also segment profit of pharmaceutical business, excluding the impact of weaker yen, up 15% from a year-on-year. Therefore, we have been able to grow the profitability as well as revenue in these segments.

On the right-hand side, you can see the growth of revenue by segments. In all 5 regions where we do businesses, we have been able to achieve the growth over last year, particularly Americas and EMEA, we could achieve double-digit increase in revenue. In Americas, over 40% growth in revenue was mainly driven by the growth of LENVIMA. Because of this impact, if you turn to the left-hand side, bottom left pie chart, this shows the share of the sales composition by region at Eisai. The blue portion at the bottom, America's share is shown here, which increased by 5 percentage points.

Next, this is the financial forecast for full year. In the second half this year, we are ushering in the era of lecanemab. We are entering in a very crucial period with a very tense and we have braced up ourselves with a strong resolve -- we're expecting to have revenue of JPY760 billion. R&D expenses and SG&A expenses will be controlled securely. And the revenue in the other businesses, which have been delayed to the second half, we are confident that we will recover in this line as well. And the operating profit will be JPY55 billion. Profit for the year will be JPY58 billion and JPY160 per share as dividend based on the robust balance sheet or financial structure will be achieved.

Now today, I would like to talk about Alzheimer's disease as well as the current status of lecanemab. If I may recap Alzheimer's disease, what AD is First, this disease is a progressive and fatal neurodegenerative disease, which accounts for approximately 70% of elderly people living with dementia. AD begins with slow cognitive and functional deterioration and then eventually leads to total loss of independence in the later stage. AD progresses from an asymptomatic preclinical stage to mild Cognate impairment or MCI to dementia and ultimately to death.

In the United States, AD, it's the sixth leading cause of death, very critical disease. Paso physiologically, amyloid plaques, neurofibrillary neuro and synaptic degeneration or neuro inflammation are confirmed in AD. 1 out of 3 people diagnosed with MCI progress to AD within 5 years, 1 out of 2 people diagnosed with ADR mild AD according to some reports. And what is the most conspicuous about this disease is that this disease poses a significant economic burden on health care system and the people living with AD and their families, burden taking care of the patients, particularly for families, informal costs or invisible costs are estimated to exceed the health care expenditures or nursing care expenditures provided by the public service and also bringing about the economic burden on the families, such as restricting the working hours of the family members who have to take care of their family as patients.

Next, in late September, top line results for Clarity AD for lecanemab, and I would like to give you the update since then. First, we initiated communication with FDA, PMDA, EMA, these 3 major regulatory authorities. We have been able to make and continue smooth communication with them. By the end of March next year or within the end of fiscal year 2022, we are aiming to complete submission for full approval in Japan, U.S. and EU. And CMS, managing Medicaid, Medicare, we have started negotiation with CMS as well. For ADDMT accelerated approval, CMS has made a very tough decision on the reimbursement. However, for full approval and so-called data with high-level evidence, if these have been brought forward and this decision can be overturned. This statement was also issued by CMS.

We believe that clarity AD data meet the requirements to be high-level evidence prescribed for by the CMS. So we are aiming to secure full reimbursement coverage in the United States. And we like to continue to have constructive dialogue with CMS going forward. The second bet point is related to the review under accelerated approval pathway in the United States, which is ongoing on track. PDUFA action date has been set for January 6 next year. So we expect that we will obtain approval by this date. And regarding the results from Clarity AD, how we are going to publish the results. We are preparing to submit for timely publication of the results in a peer-reviewed journal with high impact factor, which is ongoing steadily. This publication shall be coauthored by 12 eminent experts in the field of dementia, who are also investigators in Clarity and 7 experts from Eisai.

On November 29, CTAD Conference will be held in San Francisco. On the first day of the Congress and in the first session in the evening, 75-minute lecanemab septum will be held. I would like to share with you what will be presented then. The session will be chaired by Professor Takeshi was of the University of Tokyo. Professor at sub is the President of Japan Association of Dementia. And presentation one will be talking about the study design of Clarity AD.

Eisai Inc., Michael Irizarry will report. Eisai played the center role in preparing the protocol for all the lecanemab-related studies. And next, regarding the efficacy of lecanemab -- from Yale School of Medicine, Professor van Dijk will make presentation. Professor Van Dijk, as you may know, has experienced in most related to clinical research projects. And he is the authority -- leading authority in the AD field. Regarding safety profile of lecanemab, again, Dr. Saba, who is the leading authority in the safety research of AD, who will make presentation on safety and imaging, CSF plasma biomarkers, Dr. Bitman from Washington University will make presentation. He is the leading authority and of these biomarkers related to AD, and he is the leader of the DinTU. And for presentation 5, which will discuss context of Clarity AD results.

The overall data from Clarity AD will be discussed to explain what clinical meaningfulness are included in such data for patients and their families. So this is going to be the overall presentation. The speaker will be from Toronto Memory Program. Dr. Kohn will speak. Dr. Cohen is in the first line of a clinical practice as the behavioral neurology expert. Dr. Cohen has rich experience in real world. Therefore, he is appropriate for talking about the meaningfulness and significance in the real world. And he believes that it is very important to have such a clinical real-world meaningfulness.

And lastly, there will be a panel discussion and Q&A. So for Clarity AD, there will be multifaceted discussions on the Clarity AD as a whole in detail the data sets at this conference. As we have been telling you, what we believe is very important as regards to lecanemab, is to secure transparency of data. And I'd like to report to you today that we are making steady progress towards transparency of data. If I may recap what we may have said, I would like to talk about the origin and the characteristics of lecanemab.

On the left-hand side, you can see the origin and the development since then. Of course, ADDMT, started from this publication of the amyloid cascade hypothesis by Professor John Hale in 1992, which was published in general science. Then in 2001, from upsell University, Professor Lars long-held researched familial Alzheimer's disease in Sweden. And he found active mutation. On the right-hand side, mutation was found in 22 of amyloid beta, APP and in researching this Arctic mutation, we found that amyloid beta proto February were formed significantly and amyloid beta profibril was founded to be playing a central role in neurotoxicity. After that, in 2005, based on this Arctic mutation, the creation of a mouse-derived antibody was started since then Eisai participated in the joint research. Then in 2007, that mouse-derived antibody was humanized successfully and then gave rise to the lecanemab, which was the first only amyloid opera protofibril antibody with high affinity and asset activity for Pradera, which is explained on the right-hand side. In this diagram, a snake like figure shows APP amyloid pickers protein.

Currently, there are 4 AD DMT antibodies in clinical stages. The reasons of Affinity held by these 4 antibodies are shown in this diagram. As you can see, each of the 4 antibodies are recognizing different regions of APP, respectively. Lecanemab, as you can see in the bottom right corner in red characters, when amyloid beta is in the monomer state, lecanemab recognizes 1 to 16 of amyloid beta. But when amyloid beta aggregates and forms brought of fibrils and the -- its recognized 20 to 34, Therefore, as a result, protofibrils are more easily recognized and leading to high affinity. So this is the unique characteristics of lecanemab. Next, for success of lecanemab, Clarity AD, we believe there are 4 hours. At Eisai, we believe that these 4 right elements need to be realized in order to have success in drug discovery. This is what we have believed in.

And regarding these 4 arts, 4 rights, I'd like to explain hypothesis, right dosage and administration, and the right target population and right endpoint. These 4 -- well, this may be compared to ZixPuzzle; once there is a perfect combination of these puzzles we have experienced success in drug discovery and development. In this Clarity AD, for right hypothesis, amyloid beta protofibril playing a central part of neurotoxicity mind. And if we can suppress this, then we will believe that it will lead to the improvement of the clinical symptoms. And right dose, 10 milligram per kilogram biweekly without tyration. This dosage and administration were identified. This dose and administration. As we have reported to you several times, was based on the results from Phase II study, Study 201. Study 201 took as long as 6 years. Five doses were compared in controlled study against the placebo. Therefore, it took as a result in total 6 years. So it gave us a lot of frustration. But from the results of the study, we derived this dose and administration. We believe that this was one of the key success factors.

Now right population, MCI and mild AD and right end point over the past 20 years, regulatory authorities have reviewed CDR-SB in the post past. This was designated as the endpoint, primary endpoint. We believe that these 4 hours led to the success in Clarita. This is a busy slide, but what we consider to be important is shown in this slide. Clarity AD success and origination of lecanemab-related importance. The beginning of the lecanemab drug discovery was Arctic mutation discovery. This is a familial mutation. Starting with that discovery. Pathology, functional genetics were understood. And what is at the center of the pathology is above to fibril and clearance of A-Beta protofibril would suggest that as potential treatment and highly selective beta protofibril antibody was developed. And not only familial Alzheimer's disease, but sporadic Alzheimer's disease, which show similar pathology are also targeted -- and in sporadic Alzheimer's disease, effectiveness was shown.

And in drug discovery and development of lecanemab, this approach was taken, and we believe that this will be a new page in the chapter of drug discovery neurology area. 2014 development is underway. This is anti-tau antibody. Similar pathway is followed by E2814. This anti-tau antibody is looking at dominantly inherited AD mutation carriers. And from that analysis, it was found that within CSF, there is an MTB region containing Tau. And this was discovered to be increasing from early stage. MTBR tau clearance was expected to result in slowing down of clinical deterioration in not only DIAD but in sporadic Alzheimer's disease. And with that, the thinking development is underway. And specific tow specific to MTBR was developed, specific telo-antibody specific to MTBR was developed. And familial Alzheimer's disease trial is conducted by DIAD, but we are also conducting in-house Phase I study and sporadic Alzheimer's disease with a similar pathology, tauopathy treatment is what we would like to target towards maximization of value of lecanemab, multiple studies are ongoing.

First, regarding development of new administration methods. I would like to report that these developments are underway currently. Administration is intravenous dripping, patients will have to come to the hospital and receive Avid for a certain duration of time, which can be burdensome and at home for self-injection to enable self-injection, new administration method is developed. Clarity AD open-label extension study is conducted, and auto injection included subcutaneous administration sub-study is carried out. And we aim to file for regulatory submission in fiscal 2023. As shown in the second bullet, development of maintenance dosing regimen is also underway. Currently, it is biweekly. But after obtaining certain efficacy switch to monthly or once every 12 weeks or longer administration, maybe are considered in 201 OLE study.

As shown in the middle, we are bidding to collect evidence from long-term administration. The 2 OLE studies are planned for up to 5 years and 4 years each. In addition to early AD data that we have collected thus far for a moderate AD, what efficacy we can observe in terms of data can be collected. And INTUO next-gen study also plans to have long-term administration. As shown at bottom now as for earlier stage, in preclinical AD, a symptomatic AD will be targeted. This is a pet finding of bottom line or a slight increase in PET finding. These so-called preclinical AD stage before MCI will be targeted in Phase III study called AHEAD 345 study. This study is underway and 54 months of administration is planned. On a broader base of patients, we are planning to make a greater contribution.

Next, regarding amyloid diagnosis. This chart shows the current status. The top part is a very busy chart. In Japan and the United States for MCI and AD, PET CSF lag biomarkers are used for amyloid or tau and whether regulatory approval is given or not is shown and whether reimbursement is given or not, is shown. Regarding regulatory approval, circles or crosses are found in the cells, and you can see that the situation is mixed. As for reimbursement, currently for most of the diagnostics, crosses are the majority, they are not reimbursed. ADDMT, when aided EMTs are approved and launched at that time, there should also be regulatory approval for amyloid diagnostics and reimbursement should also be granted to amyloid diagnosis. This is a crucial factor in providing ADDM2to patients.

And currently, we are also engaged in consultations with the authorities regarding PET as shown in the middle. Imaging authentication facilities are increasing in number and especially regarding amyloid PET, enhancing the number of related staffs will have to be achieved. And regarding CSF number puncture procedure is necessary. And through training sessions conferences, it is important to make lumber puncture procedure skill widely acquired. As shown at the very bottom, in the future, we expect a greater increase in number of patients in Asia. When we look at China and India, we believe that there can be a wide margin increase of patient population in these countries -- low-cost, convenient blood-based biomarker or BBM, will be essential in these regions. By accumulating real-world evidence, amyloid-cSF equivalent precision DVD blood biomarker-based diagnostics is what we would like to establish.

Now at Eisai itself, we have subsequent projects for Alzheimer's, which I would like to report now. Regarding the Panama, I have already reported to you so far. And next, as I mentioned earlier, we have anti-MTBR antibody E2814. This is in the middle of this schematic diagram and tau will be propagated in the -- and there are green parts on the bulk side of MTPA and antibody that has affinity to these are developed, which is E2814. By stopping the propagation, the accumulation of tau in the neural cells will be stopped or inhibited. That is the mechanism. E202,22511, both are aimed to regenerate synaptic functions. 851 is truck a binding snaps Regeneron. By regenerating axons it aims to regenerate synaptic activities. This is a small molecule agent. E2025 is an antibody, EphA4 antibody. It is an anti-EpHA4 antibody by activating this or EPA4 activation is known to cause synaptic retraction and those phosphorylation. By inhibiting that activation, retraction in phosphorylation are expected to be suppressed. And both of these are aiming at regenerating synaptic functions. This comes after proteopathy [ph]; this targets reactivation or regeneration of neural functions.

Next, further upstream, we have collaboration with academia, which are -- which is advancing. There is an exclusive collaboration between Eisai and academia. One is with KO Medical School in Japan. This is called ICD innovation lab for dementia. This receives full funding support from AMD. And from 2017 for 10 years, project is underway. KO Medical School, University School of Medicine, as you now has centenarian samples, samples of people over the age of 100 and 120 people at the age of 100, 110, 120 and data from these people are collected complete with medical records. And some of them have APOE4 positive data, but even at the age of 120 did not experience onset of Alzheimer's disease, such samples are also included. And these are quite precious assets.

In addition, related to KO, we have high-quality clinical samples. Based on these research is conducted, analysis using multiomics is carried out and IPS and human organize are also used with cutting-edge technologies and facilities. Between AMED, there are 3 milestones established. And the first milestone is from -- was achieved in fiscal 2021, which is brain clearance enhancement and related target, signature related signature was discovered. At Eisai itself, synthetic research will be initiated and preparation is made. Milestone to bring homeostasis improvement. A milestone 3 is a normal network application. On the right side, we have -- as shown on the right side, we have collaboration with University College on the UC in the United Kingdom.

For more than 30 years, we have engaged in collaboration with UCL in various forms. And we are having a full-fledged collaboration with UCL in dementia area, the RI Dementia Research Institute is a consortium of 7 universities and leading-edge researches conducted UCL is a core research institute of that consortium. Anti-MTBR tau-antibody that I've mentioned earlier, is an antibody that was found as a result of the UCL discovery. And next small molecule TREM2 function coordination for treatment of AD. And for Parkinson's disease, there are 2 small molecule compounds. One is related to mitochondrial homeostasis and the other related to lysosomal function. These projects are being launched.

As for Eisai R&D, starting from the second half of this year, this fiscal year, business groups, such as Oncology Business Group Neurology Business Group from discovery to development that we had these organizations. But as shown here, DHPL structure will be the structure that we will be shifting into. Deep human biology learning DHPL structure -- the target remains the same, AD and refractory cancers. However, drug discovery approach will be changed significantly. As shown at the top; there is a green box in blue Pablo boxes. Genome and various human biology data based drug discovery hypothesis will be pursued by these groups.

And in addition to integrated analysis of GenOn, based on these 5 angles, protein integrity, homeostasis, microenvironment dynamics, et cetera, these are upstream of biology and goes from these angles, we would like to aim at drug discovery and the basis of the hypothesis is the general information. And in the middle, there are pink bars and here are where the hypothesis will be tested. And what we consider world-class is our chemical chemistry capabilities, and that will be utilized to the maximum. There will be discovery validation and using the chemistry, optimal modality selection will be aimed at in these pink bar parts. And in the blue part, ultimately, we have to also prove in clinical development, our hypothesis and highly advanced statistical methods, we would like to utilize advanced statistical analysis method.

With AI ML of past data, for example, clinical trial without placebo arm may be designed or the number of participating patients may be reduced by substantial margin or the duration of the time for clinical study may be shortened substantially. And by conducting such studies, we would like to prove the hypothesis. And only we will be able to have high-quality clinical data biomarker and cohort data from these efforts, and they will be fed back in this cycle will be repeated. Now there are 2 last slides. Another important aspect of dementia is realization of inclusive society. people living with dementia should be able to live in comfort. And with the sense of security, we have to build such a society. From quite early on with various local governments, we have been cooperating with local governments in our efforts in this respect.

On the left side, employment support and give a prefecture and in Otarfectur in Taketaity, we are conducting EQQ driving and health classes. Elderly people, if they have to give up a driver's license, it will be very difficult to lead daily life. How it is important for elderly people to be able to drive for as long as possible. And that is what is dealt with by these classes. And 2 boxes in the middle show dementia screening in Bunkyo world or space creation project, where a house is rented, Together with our neighbor Atomi University, we are engaged in this project. And on the right side is [indiscernible] Center for dementia care promotion in Chizoka City [ph], people can consult about any questions regarding dementia.

By going to the center, this is the last slide. For 25 years since the approval of Aricept, people living with Alzheimer's disease and their families kept asking us when will the next drug come out. We have never forgotten the serious expressions in interfaces and sparks in their eyes, not even for a moment. Just the other day in August. In the United States, there was a relocation of a U.S. entity to Natale, and we had an opening ceremony, and we also invited people living with Alzheimer's and their families. And at the ceremony, the families asked when will the next drug come out. And I answered that we will be able to provide information of the results at the end of September. And the person living with Alzheimer's sons right next to us, was looking at me quite intently and ask me, are you sure?

And this is quite momentous. It is a very strong expectations and I felt a very strong sense of responsibility to fulfill that expectation. We are doing our utmost to obtain approval of lecanemab -- and drugs are able to show value only when drugs are taken by people who need the drug, and we are determined to do our utmost to realize that to realize access. And we are working with various parties to find ways to help people living with dementia and their families. They've safely with peace in mind. The -- what Eisai can do may be limited and small, but we are working with industry, government and academia towards this end. Thank you.

Question-and-Answer Session

Unidentified Company Representative

Now, we'd like to open the floor for Q&A session. First, I would like to take questions from those who are in this venue. And afterwards, we will take questions from those who are participating online. Please utilize microphone and state your name and affiliation before asking a question. Please raise your honey. If you have any questions. To the left in venue, a gentleman in the second row, please.

Unidentified Analyst

This is Kohtani [ph] from Nomura Securities. Thank you very much for your presentation. On Page 8, light endpoint was discussed. So I wanted to ask your question; CDS, this is slightly used university to evaluate the clinical symptoms but there is only one company which is using totally different endpoints. So going back to ADCOMS. In the Phase II autocom was used as the primary endpoint and without having a consensus from the regulatory authorities. So you changed the CDR-SB outcome. CDR-SB is the basis for this complex compound endpoint. So the cognitive function as well as the behavioral functions included. And which are similar to CRS. So once again, could you please explain why regulatory authorities did not admit of the outcomes?

Unidentified Company Representative

It is composite IARS composite endpoint may not be accepted by the regulatory authorities has been used widely and for many years. Therefore, for regulatory authorities, we wanted to evaluate based on CDR-SB. That was the main reason. AdCom, as you know, this is the composite score created by Eisai. So as a secondary endpoint, Adcoms was admitted Therefore, CDR-SB was set as the primary endpoint, and there are 4 secondary endpoints. So as an overall data set for all these end points, we believe that a very important result were derived. Am I answering your question?

Unidentified Analyst

DRS is different from ADCOMS. So do you think there is a higher chance that the regulatory authorities will accept that IRD? I did not understand what it is. ADRS.

Unidentified Company Representative

As you know, this endpoint is related to dressing as well as cleaning of the room and preparation of meals, take a walk or payment at the time of shopping or whether or not the person could go for shopping, there are 18 items in the activities of daily living, which are evaluated rated by caregivers. So this endpoint is very important end point. As we reported earlier, this has been shown to have the remarked a suppression of the decline of the clinical symptoms. If with such a clear efficacy and then a clear decline of the suppression of the clinical decline and then this shows the clear efficacy of the drug. And STAT context, this is the last session for the overall summary. This endpoint is discussed will be discussed as a very important endpoint. This is only to summarize, but in our discussion with various key opinion leaders about top line results. The sub endpoints is we are sure will be taken up by them as a very important endpoint. Therefore, we believe that this is a very important secondary endpoint.

Unidentified Analyst

ADC SDL, I think that is what you are referring to. Well, I don't want to spend a lot of time. Well, I don't want to confirm what is written in the weekly magazine, but this is the news in the United States. That news; after recanumab, there was 100 patients who passed away because of the cerebral hemorrhage. And that person said that it was related to the Caneva. But this will be judged by the DSMB. So according to your publication, your opinion is different. The MI and also other stroke and several falls were reported and anticoagulants were prescribed additionally. So according to this report by the company, could I have your take as a company on this matter?

Unidentified Company Representative

May not be related a lot. I mean amyloid-beta antibodies is related to AE and ARIA. So what is the mechanism relating to the cerebral hemorrhage Aducanumab and then 9 cases of mortality after ARIA-E, well, there were no such reports related to such events. So I think that you can more strongly negate that possibility. As for this case, this is related to the personal information of the patient. Therefore, I'm afraid I'm not able to mention any detail of the background. But for this particular case, when this happened, the company, of course, securely followed up on this case, and we reported to the regulatory authorities and independent data monitoring committee made a deliberation and came up with the judgment -- and they said that there was no need for amendment, significant amendment of the protocol. However, once again, you needed to emphasize the notes to be taken. That was the instruction from the committee. So based upon which we have continued for the overall progression of this clinical trial as well as the requirements for regulatory submission, we do not believe that there has been any significant impact. explanation for Simona.

Unidentified Company Representative

Next question, please. Yes, attendee seated in the second row on the window side.

Unidentified Analyst

I'm Sakai [ph] from Credit Suisse. I have 2 questions. First, PDUFA date, January 6, I think this remains unchanged. And after that, you will file a full package submission, I think it will be in 3 months' time around by March. And then official approval is expected. But if approval is given on PDUFA date and when you file a full package until full package approval is given, there is some lead time. And what do you plan to do during that time?

Unidentified Company Representative

As you know, that period of time is such that for accelerated approval product, CMS has quite stringent limitations in terms of reimbursement. And for Medicare, we will have to follow that limitation. But in markets other than Medicare prescriptions may be written and we will respond. And when necessary, as necessary, we would also like to start patient assistance program. Does this answer your question?

Unidentified Analyst

Does that mean that basically it will be reimbursed? Medicare and Medicaid reimbursement, do you expect that to start next year?

Unidentified Company Representative

The current NCD, the determination -- decision determination change occurs only after there is a full approval; that is my understanding.

Unidentified Company Representative

Next question; the person in the first row to the left.

Unidentified Analyst

My name is Hashiguchi; I'm from Daiwa Securities [ph]. I have 2 questions. First one is related to the SC formulation for lecanemab. In -- by the end of the fiscal year 2023, you are aiming at finding a submission in which regions? And the data is sufficient for filing. What kind of data do you think will be required based upon the concept of the regulatory authorities. So are you saying that you are expecting to file by the end of the fiscal year 2023? Or regarding the discussion about the conditions to be met with the regulatory authorities are yet to come?

Unidentified Company Representative

Ivan Cheung is going to respond to your question.

Ivan Cheung

Thank you very much for we have had very productive conversations with various regulatory starts, including the FDA so that we now have confidence with a plan to file within fiscal year 2023. As you may remember, we've already reported out the availability Phase I results. And right now, in the OLE portion of Clarity AD, we are enrolling individuals into the subcutaneous cohort, which will give us the necessary DMPK information as well as safety information. As you may remember, we reported out previously that we believe the subcutaneous formulation could further reduce the area because of the C-max of the subcutaneous formulation, while maintaining the same C-average for this formulation. So the plan is quite clear now with the regulatory authorities on the data package requirements, and we will file within FY 2023 to the major authorities.

Unidentified Analyst

My second point is related to your plan of the revenue in other businesses. you have revised down your forecast this time. Does this reflect any changes in your strategy? It means that there were some business development related events. Are there any changes in such planned BD events or changes in the number of BD projects, although the number of projects have stayed unchanged, but the value of such BD projects have changed.

Unidentified Company Representative

Regarding this question, Mr. Kosaka is going to respond.

Unidentified Company Representative

This is Kosaka speaking. I'm in charge of strategy. Thank you for your question. Could you please stand up? There are several projects with the probability of success are being discussed. Timing of the realization and whether or not these will be carried out are being discussed. And based upon that, we have also factored in the strong and robust growth in the real business. And we have made up of this plan. And as we have reported, JPY55 billion, operating profit will be realized based upon the realization of these projects. Mr. Hashiguchi, as you know there are innate risks in each of the onetime events. What was planned in the first half have been delayed to the second half. But with a very high chance, we will be able to realize this. But the numbers that we have presented are baseline, the minimum that we like to achieve; please understand as such. So if possible, we would like to aim at further upside with the onetime revenue. So I hope that you will take these numbers as such.

Unidentified Analyst

As a follow-up question, if possible, I would appreciate if you could answer this question as well. According to the original plan, the sales milestone of LENVIMA were not included. But this time, the revenue projection for LENVIMA has been revised upward according to explanation. The sales milestones are also included in the plan. Is this correct understanding?

Unidentified Company Representative

As for LENVIMA sales milestone, we are pursuing -- we will continue to pursue sales milestone for DENVIMA in the second half. We have had various discussions. We are continuing to pursue this.

Unidentified Company Representative

Next question?

Unidentified Company Representative

Yes, attendee in the first row on the windows side, please.

Unidentified Analyst

IS [ph] from Nikkei Newspaper. I have 2 questions regarding the earnings results; in the latest quarter, it is down by 90%. What were the causes? And why do you think that you'll be able to achieve recovery in the second half? That is my first question.

Unidentified Company Representative

That question will be answered by Mr. Jason [ph], CFO.

Unidentified Company Representative

My apologies, I was not able to hear your question very clearly over here. Could you repeat your question?

Unidentified Analyst

So the first half operating profit was down by 90%. And why do you think that you are able to achieve a target in the second half. Could you elaborate on the factors behind this?

Unidentified Company Representative

Thank you for your question. On that point and generally about profitability, I would like to supplement. Regarding the second quarter, low level of operating profit was the result. And as for the reasons as our CEO just explained, in the first half, we expected business development-related milestone, but these were postponed to the second half of the year. So this is a temporary factor. And as actual results, this will be realized in the second half. And therefore, we have no concerns about the full year results. As for profit, in comparison to the previous year, profit declined. And in the previous year, we had a large revenue from business development. And that business development did not occur in the first half and overall profit declined.

As for the overall structure right now, as you know, we are investing actively for future growth, including research and development investments. And the percentage of R&D to the revenue in the first half was 22.7%. This is the actual basis. And as announced today, on a full year basis, the forecast is 21.9%; amongst global top-tier companies, this is a high level. And over short term, this will be pushing down operating profit. But we would like to continue 20% R&D spending to revenue level for the short term. And I would like to bring it to around 15% over the medium to long term.

In AD-oncology and neglected disease areas centering around these areas in important projects for future growth, we would like to continue to make investments. As for another type of growth investment, as our CEO mentioned in the second quarter, expense regarding shared profit of LENVIMA paid to Merck increased. This is a positive expense to advance partnership, investment is made, such as this. And in the future, this will be leading to enhancement of operating profit, and this is an investment for growth, and we are confident that this will lead to achievements. If I may repeat, the low level of profit in the second quarter is temporary. And pharmaceutical business lately is showing robust growth. And in addition, in the second half, strategic option, we expect will be realized. And therefore, we have no concerns in achieving the full year forecast.

And as CEO mentioned, that is considered as a baseline, and we would like to aim to achieve an upside. If I may add another point, we expect the strategic option realization in the second half. And regarding business development and strategic option and milestone receipt, these onetime revenues, we consider these onetime revenue as a result of our investment in R&D and commercial investments, we consider this to be returns on our investment and a reward for our efforts in actual business. And inclusive of these, we believe that profitability is not necessarily low. I'm sorry, I'm long-winded, but over medium to long term, our main organic business should achieve high profitability. We aim to achieve higher profitability in main organic business.

By digitalization, all operations will be made smarter; that will be one of the key measures. In R&D, AI, machine learning will be utilized to improve agility of clinical research and reduce time required for clinical research, we believe this will contribute to improved efficiency in R&D spending.

Unidentified Analyst

I have a second question regarding FX. In Americas, I believe in revenue and in profit, currency level is working positively. And what are your views on the current level of exchange rate [ph]?

Unidentified Company Representative

Once again, Jason speaking. Thank you for your question. On a full year basis, as we have announced in our forecast, the exchange rate assumed is JPY143 to the dollar. That is the basis of our full year forecast. Is this high or low? It is difficult to say. I don't think anyone has the right answer, but currently, that is the assumption that we have adopted. As for dollar-yen exchange rate and its impact on our business results, this is included in the reference material, when yen depreciates by JPY1 to the dollar, JPY1.6 billion plus in revenue and negative JPY1.2 billion in operating profit; that is the impact.

Unidentified Company Representative

I think we can take all the questions from those who are raising hands. So, we will take two -- there are three, okay. We will take three questions from the venue, and we will go to those who are participating online. The next question.

Unidentified Analyst

My name is Susan Simam [ph]. We haven't been able to participate in the announcement of the results of [indiscernible] congratulations. And it started from the research on the familiar AD and lecanemab was discovered and developed, and I'm glad to hear that today. And a familial Alzheimer's disease, those people living with familiar AD. Well, they have cooperated for research. But still, they were not able to participate a subject in the clinical trials. To resolve that issue, Daian [ph], the international research cohort was created and then trial unit were combined so that those people with FAD can participate. And I think that's what Professor Lassman [ph] mentioned. And for lecanemab the familial and hereditary AD, MCI or mild familial AD were not included in this trial. But once approved, and then indication, do you think indication will include a familial AD or mild cognitive impairment or mild that this main share, do you think that these will be included as the population who will be indicated for this economy?

Unidentified Company Representative

Thank you very much. Indications to be granted from regulatory authorities will decide. Well, for [indiscernible] the Alzheimer's disease was simple indication, therefore, covering a very broad indications. That's my understanding. Then sporadic as well as familial AD may be included in the education. Of course, amyloid beta confirmation will be necessary as a condition for that.

Unidentified Company Representative

Next question, please?

Unidentified Analyst

Thank you very much for the presentation. Wade [ph] from World Business Satellite TV Tokyo. I have 3 questions. And this is in relation to your earnings results. On a full year basis, you expect to achieve forecasted results. Today, at Keidanren, there was a press conference and increasing wage what's requested I think that was the gist of the press conference by Keane. What are your views? And I believe the message was that to increase wage by increasing base salary. This fiscal year, what did you do in terms of base salary, even with the increase in wage do you think you are able to achieve full year forecasted results?

Unidentified Company Representative

Mr. Miyazaki [ph] is going in, who is responsible for Human Resources Development.

Unidentified Company Representative

I will respond to your question; this is Miyazaki, HRD [ph]. Can you hear me?

Unidentified Company Representative

Yes, we can.

Unidentified Company Representative

Thank you very much for your question on wage increase in base salary increase. Regarding base increase in salary on a year-end form basis to increase base salary that is not considered at the moment. For this fiscal year, we have not increased the base level of salary as for increasing wage. In addition to regular increase in monthly wage, we also have performance-linked bonus and bonus and increase in remuneration will have personal performance reflected and we have adopted a total compensation to reward the performance by our people. And so the level of performance in expertise area, competitive area, we would like to review these areas.

Unidentified Analyst

A follow-up question; onetime payment. With a onetime payment, you are planning to increase compensation to maintain motivation and to retain people. Is that the correct understanding?

Unidentified Company Representative

That question will also be answered by Mr. Masa.

Unidentified Company Representative

Thank you for that question. Onetime compensation is also not considered, but in the future, for expertise areas, we plan to conduct a review of the compensation structure.

Unidentified Company Representative

Thank you very much. The second question from the venue, please.

Unidentified Analyst

My name is [indiscernible]. I have one question. Aricept [ph] indicated for the dementia with low bodies and the result of a reexamination. What will be the potential impact on your business performance? And against the placebo, there was no significant difference in the primary endpoint. Could you please give us what do you think about this result?

Unidentified Company Representative

Well, Mr. Ogawa will respond to the second question regarding the dementia. Mr. Ogawa is going to respond.

Unidentified Company Representative

I am Ogawa. I am in charge of the development in neurology area in Japan. Thank you for your question. There was no significant difference obtained in the endpoint. But on the other hand, we have conducted the various studies and trials in the development. Overall, the improvement in the cognitive function was observed in those programs. So partial amendment is to be made to continue. And there haven't been any further requirements from the regulatory authorities. So based upon this evidence, we would like to have a discussion and communication with prescribing doctors as well as the patients.

And regarding the impact on the business performance; [indiscernible] is going to answer your question.

Unidentified Company Representative

Thank you for your question. As has been explained earlier, we have not received any additional requirements from the authorities. Therefore, the impact -- potential impact may be minor. I have one comment I would like to make regarding the dementia with low bodies. Drugs with indication for dementia with Lewy body is very rare. Of course, in Japan, Aricept is the only such drug. Obtaining this indication was after the expiry of the patent in Japan. This is where we have -- we take pride. Therefore, even with the entry by generics; this indication was also granted for generics as well. But above all, we wanted to deliver whatever available drug to the patients who are needing the drug for DLB. So that's why we decided to obtain the indication approval for this. Usually, after expiry of patent or LOE, Usually, the pharmaceutical companies do not conduct any work to obtain additional indication. But we believe that the fact that we obtained this additional indication should be monumental in our history. Therefore, if you have some things right in your Toyokai Magazine, I hope that you will mention that.

Unidentified Company Representative

Since we would now like to take questions from those who are calling in. [Operator Instructions] We have Yamaguchi-san from Citigroup Securities.

Hidemaru Yamaguchi

Yamaguchi-san from Citi. Can you hear me?

Unidentified Company Representative

Yes.

Hidemaru Yamaguchi

This is Yamaguchi from Citi. I have 2 questions. First, regarding FITA presentation, that will be on the following day morning, Japan time. And maybe I should ask the Sitad [ph] Conference itself, but do you think that nonregistered audience will be able to listen, I'm sure many people are very interested in the presentations. I would like to ask if Cheung [ph] to answer that question.

Ivan Cheung

Thank you very much. This is Ivan. So, you can be sure that we are making the appropriate arrangement to make sure that such important event can be viewed by all the interested parties. So we will follow up with everyone on this topic. Don't worry.

Unidentified Company Representative

Thank you. Next question is from JPMorgan, Mr. Wakao. Mr. Wakao from JPMorgan. Do you hear us?

Seiji Wakao

This is Wakao of JP Morgan speaking -- from me, I have a question about an communication with CMS has been started. Now for coverage, could you please give us your feeling that you have felt so far? Regarding the results of the secondary end points, which will be announced on the set that data have not been submitted to the authorities, but there may not have been any progress in that. But if there is anything, please share it with us. And also the traditional approval will be obtained. And then there will be discussion to be initiated for full coverage. So what is going to be the time line? According to Biogen, they said that it will take about 9 to 12 months. Have you started communication or aducanumab which was deliberated for NTD? And then, I saw that this could be accelerated further.

Regarding this question, Avatan [ph] is going to respond.

Unidentified Company Representative

Thank you very much for your question. You are correct that we have been in conversations with the CMS. For example, we have already shared a number of important information, and we'll continue to do so very shortly, including, of course, the most important item, which is the Clarity AD data. We are actually very reassured by the collaborative tone of the CMS in reviewing the Clarity AD data in an expeditious manner. And with regard to our time frame, as you know well, of course, the CMS will require full approval to make that official decision. We do believe this will be on an expedited process. The time frame you mentioned is a standard time frame post full approval in general. But in this case, it's very different. You may remember that even though the NCD is for the class, the lifting or amending the CED will be on an individual drug basis.

So once again, I can reassure you that the conversation and the action plan with the CMS has been very proactive on both sides. And we are obviously confident with the CLARITY AV data, which you will see more at CTAD hitting primary endpoint or the key secondary endpoint as early as 6 months, all highly statistically significant and more such as the expected safety profile. All these elements, of course, will be under consideration for the CMS. And also this trial is very unique because it has a rather well represented population from a diversity perspective, from a co-mobility inclusion perspective to reflect the Medicare population as much as possible. So we have confidence to have a positive outcome with the CMS upon full approval to lift or amend the CED to drive wide access in the Medicare population in the United States.

Unidentified Company Representative

Thank you very much. This will be the final question. Muraoka [ph] from Morgan Stanley Securities.

Unidentified Analyst

Can you hear me? This is Muraoka [ph] from Morgan Stanley. Can you hear me? Yes, we can. You have 2 questions. First, about next fiscal year, I would like to understand how you plan to spend your money. I believe to improve access. Next year, you will be proactively spending SG&A. Do you plan to make major investments? That is my first question. And the second question is about the manufacturing of lecanemab. I believe it is already announced that Biogen will be manufacturing lecanemab, but is it sufficient? Is there any plan to outsource contract to outside manufacturing of lecanemab.

Unidentified Company Representative

Thank you for the questions. Regarding the next fiscal year plan, Mr. Udi [ph] will respond.

Unidentified Company Representative

Thank you for your question. Right now, access strategy, commercial strategy are carefully considered at this stage. And we are currently not at a stage to describe a clear numbers, but necessary investments will be proactively pursued with our partner. Thank you for your question. Regarding the manufacturing of lecanemab, Ivan can will respond.

Ivan Cheung

Thank you very much for the question. You are correct that drug substance will be manufactured by Biogen at the state-of-the-art facility in Solothurn. As you may know, that facility has flexibility to scale up going forward as necessary. And at the same time, of course, for manufacturing planning for such important therapy for patients, additional backup sites will, of course plan accordingly. We have no concern for the capacity to manufacture lecanemab [ph].

Unidentified Company Representative

With this, we would like to conclude today's session. Thank you very much for participating in this session out of your busy schedule. Thank you very much. We hope you will continue to support us.

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Eisai Co., Ltd. (ESALF) Q2 2023 Earnings Call Transcript