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Kae Miyata: Thank you very much for coming over to conference on financial results for the second quarter for the year ending December 2025. I will be leading today's session. I am Miyata from Corporate Communications IR Department. So today, we have the participants at the venue as well as on the Zoom. And today's agenda is shown on the screen at the venue as well as on Page 3 of the presentation materials. And today's conference will be conducted in Japanese, but we are also providing English on Zoom webinar as a simultaneous interpretation. [Operator Instructions] We plan on spending about half an hour for Q&A session, so feel free to ask your questions. [Operator Instructions] So now we want to pass the floor over to Mr. Okuda to talk about overview of the second quarter results. So we'll start the screen for a while, so please use this time for screen capture. So now we would like to begin the presentation.
Osamu Okuda: I am Okuda, CEO of the company. I would like to explain about our financial results for the second quarter of 2025. Please take a look at Page 5 of your handout. In the second quarter of 2025, domestic and overseas product sales increased, resulting in increased revenue and profit. Compared to the previous year, revenue increased by 4.6%. Operating profit increased by 3.5%, and net income increased by 2.1%. Given the steady progress made in the first half of the year, we expect to achieve our full year forecast. I will explain the details of revenue on next slide. Compared to the same period last year, revenue increased by JPY 25.6 billion, up by 4.6%. The breakdown is explained from left to right. Domestic sales were negatively impacted by NHI drug price revisions and the penetration of generics. However, sales of new products such as Phesgo, PiaSky as well as mainstay product, Vabysmo, increased by JPY 6.1 billion. Overseas sales increased by JPY 19.7 billion, as increases due to export volume and exchange rate and so forth, far outweighed the impact of a decrease in export prices. In particular, exports of Actemra to Roche increased significantly. Next, I would like to explain about R&D. This slide shows the status of important R&D milestone achievements this year for in-house development -- developed products. First, regarding orforglipron, our licensee, Eli Lilly announced the success of a global Phase III trial for type 2 diabetes in April this year and presented the result of that trial at the American Diabetes Association in June. As a result, we believe that the probability of success in development in diabetes and obesities has increased. We have confirmed the PoC for NXT007. Based on this data, development is progressing with the decision to start a global Phase III trial from 2026. In addition, new in-house projects, MINT91 and medium molecule product -- project, AUBE00, have begun Phase I trials. As a mid- to long-term management decisions aimed at accelerating early development in a flexible and a strategic manner, we have decided to discontinue in-house development of 5 projects out of our in-house pipeline that are in early stage. I will explain this in more detail in the next slide. Since the launch of TOP I 2030 in 2021, we have increased new projects through the RED SHIFT. As a result, in the past 4 years, we have enriched our early-stage projects with 9 projects of in-house discovered product entering clinical trials. On the other hand, some projects were taking time to develop. As a result of prioritizing our in-house pipeline products in the early development stage, based on the data obtained to date and the overall status of our portfolio, we have decided to suspend in-house development of 5 projects: LUNA18, SAIL66, SOF10, STA551 and AMY109. This decision will enable us to focus resources on more -- much higher priority projects, increasing the likelihood of achieving the goals set in TOP I 2030. Let me now cover LUNA18 and a mid-sized molecule project. LUNA18 confirmed our absorbability, an important concept for the midsized molecule platform. Furthermore, the biomarker analysis of tumor issue and adverse event profile suggested that LUNA18 was delivered to sales. On the other hand, concerns have risen that the pan-RAS GDP inhibitor, LUNA18, does not have a sufficient therapeutic window in clinical trials compared to competing products. According to the data accumulated from clinical trials of this agent and a promising clinical trial results of competitors pan-RAS GDP inhibitors, we have decided to shift our focus to the development of AUBE00 KRAS selective inhibitor that is likely to demonstrate a competitive advantage over LUNA18. AUBE00 is targeting solid tumors, and Phase I trials began in June. Kusano will provide more details later. In addition to AUBE00, progress is being made with a mid molecule -- mid-sized molecule portfolio as a whole, including a new project moving into the preclinical development stage for non-cancer indication targeting acute heart failure. In order to meet unmet medical needs, we will continue to focus on the development of medium molecule drugs, which is the third modality. Finally, I would like to touch on our new investments. In order to strengthen our pharmaceutical manufacturing process development functions that apply Chugai's proprietary technologies, we have decided to build a new research building UKX at the Ukima site. The total investment amount is JPY 80 billion. We will introduce environmentally friendly equipment, such as equipment to reduce fluorocarbons and CO2 emissions. In order to advance the promising drug candidate substances, continuously produced from drug discovery, research to clinical development, it is essential to quickly establish a manufacturing method for them as pharmaceuticals. So we are confident that the construction of this new research building will further strengthen the foundation for doubling R&D output, which is the goal of TOP I 2030. This is a summary of what -- of my explanation. And this is all for me.
Kae Miyata: Next, I would like to invite Kusano to explain about the status of the development pipeline. He will pause for a little while at the beginning, so please take this opportunity to capture the screen.
Tsukasa Kusano: I am the Head of Project Lifecycle Management Unit. I would like to explain about the status of the development pipeline. Please refer to Page 13 of your handout. These are the second quarter topics. In terms of the launch and approval, except for the launch of the Evrysdi tablet, everything else has already been announced. In terms of the approval, we have 2 in-house developed products and 2 Roche products. As for the in-house developed products, we have AVMAPKI, which has been licensed out to Verastem Oncology. This is targeting the KRAS mutation positive recurrent low-grade serous ovarian cancer, and this has been approved under U.S. accelerated approval system. For Roche product, we have Elevidys, which is a gene therapy product for rare intractable Duchenne muscular dystrophy. And this is now approved for the ambulatory individuals whose age is between 3 and 8. We have 2 death cases on the ambulatory patients who is administered Elevidys. And also, we've had one death case, which is caused by the developed product by Sarepta using the same vector. Based on these death cases, FDA recommended the suspension of shipment of Elevidys to Sarepta. Here in Japan, we always pay most attention and priority to the safety of patients. And until the completion of the assessment of safety information, we are not going to resume the shipment of Elevidys, and we are going to continuously share information with the regulatory authority. Now Vabysmo has been approved in Japan for the first time for the indication of Angioid streaks. In terms of the filing, we have one in-house developed product and 2 Roche products has been stated in the list. For Lunsumio, we have applied indication expansion as the combination therapy with Polivy targeting a relapsed or refractory aggressive B-cell non-Hodgkin's lymphoma, and everything else has already been announced. In terms of the initiation of study, we have 3 in-house developed products and 2 Roche products. For in-house developed products, we have GYM329 targeting at obesity. In the combination therapy with tirzepatide, Phase II study of GYM329 has been initiated. Hemlibra had started Phase III study targeting at von Willebrand disease. Our mid-size molecule, AUBE00, which is our in-house developed product, has initiated a Phase I study targeting at solid cancer. The details will be laid out later. Roche product, Vabysmo, has started domestic Phase III study targeting at non-proliferative diabetic retinopathy. And inavolisib started domestic Phase I/II study targeting at PIK3CA-mutated breast cancer. Next is Readout, AVMAPKI has Phase II study, confirming the effective add-on treatment to SOC for the first-line treatment for pancreatic ductal adenocarcinoma. In this Phase II study, we have seen OS of 83% and confirmed efficacy signal. And next year 2026, our Phase III study will be initiated. In terms of conclusion of agreement, we work with Gero who has unique AI-based target discovery platform for age-related disease. We have concluded the joint research and licensing agreement. We will be using our own antibody engineering technology to discover new antibody drug candidate for age-related disease. Now removal from pipeline, as our CEO, Okuda, mentioned, with regard to the 5 early-stage in-house products based on the already generated data and status of portfolio, we have decided to discontinue in-house development. With regard to Roche product for tiragolumab, we have ongoing Phase III study targeting at esophageal cancer as a combination therapy with Tecentriq. Based on the study results so far, we have discontinued the development. For a medical conference, we have 5 in-house products and 1 Roche product. On top of the AVMAPKI, we have NEMLUVIO, which has been licensed out to Galderma. And this we have a long-term extension study for such NEMLUVIO targeting at atopic dermatitis and prurigo nodularis and showed a positive 2-year data. Orforglipron, we are targeting at adult type 2 diabetes whose glucose control is insufficient only by diet and exercise. And we have conducted Phase III ACHIEVE-1 study comparing against placebo in terms of efficacy and safety, and a positive result was presented in ADA 2025. Result is published in New England Journal of Medicine. We've submitted filing in May for Lunsumio. And in the combination therapy with Polivy targeting at relapsed or refractory aggressive B-cell non-Hodgkin‘s lymphoma, we have made an oral presentation in international lymphoma progress. NXT007 will be explained later in details. With regard to the open innovation last year in Boston, Chugai Venture Fund initiated full-fledged operation. In the past 3 months, we have made 3 additional investments. So since the foundation, we have completed investment into 6 companies so far. This is a list of major R&D events in 2025. Items highlighted are the changes from the previous earnings call. As I have explained earlier, with regard to Elevydis, Vabysmo, we have been granted approval. In terms of the initiation of study, as I mentioned earlier, GYM329 have started a Phase II study for obesity. Now this is the result of a Phase I/II study for NXT007. NXT007 has been under development as a treatment next -- next-gen treatment for hemophilia A. For the first time, we have presented the efficacy safety data targeting at hemophilia A patient in ISTH in June. First of all, efficacy, the graph to your left shows ABR annualized bleeding rate targeting for the hemophilia A patient by Hemlibra- naïve hemophilia A patient. In across all cohorts, prior to the administration, ABR has been dropped. In high-dose cohort B-3, B-4, the plasma concentrations reached the predicted normal range of FVIII-equivalent activity with no treated bleeds observed. Next is safety. A tolerability of NXT007 is good, and no serious adverse events related to NXT007 or thromboembolic events were observed. Antidrug antibody, ADA, was observed in 22 patients out of 30. However, many ADA did not impact PK. The number of ADA-positive patients at the final observation before the data cutout was reduced down to 10. As it shows, half of ADA was transient. The ADA was observed in 2 patients in a way that affected PK. However, ADA impacting PK, no ADA cross-reacting with hemophilia was observed. In 3 Phase III studies, which are expected to start in 2026, we are going to evaluate efficacy and ADA- related safety. Next, let me introduce AUBE00 pan-KRAS inhibitor, discovered in house. This is our second mid-sized molecule project that has advanced to clinical trials. As explained by Okuda earlier, we have decided to shift our focus from the pan-RAS inhibitor, LUNA18 to AUBE00 for cancers involving the RAS gene. Let me elaborate the background to this decision. There are 3 types of RAS genes; KRAS, NRAS and HRAS. KRAS is one of the most frequently muted oncogenes with genetic abnormalities. KRAS-mutated cancers are highly dependent on KRAS with active mutations to survive and grow. So inhibiting KRAS is expected to have an antitumor effect whereas normal cells survive and proliferate using signals not only from KRAS, but also from NRAS and HRAS. Therefore, AUBE00 was designed to selectively target KRAS and a wide range of KRAS genetic mutations. As a result, even if AUBE inhibits KRAS, NRAS and HRAS will act instead, minimizing the impact on normal cells. As a result, AUBE is expected to have a broad therapeutic window and to have a higher efficacy than LUNA18, which inhibits all RAS, including NRAS and HRAS. The nonclinical data on the right shows that in a xenograft model of non-small cell lung cancer, where LUNA analogs are not sufficiently effective AUBE00 induced tumor regression, demonstrating strong efficacy. As a result, we'll continue to work to deliver innovative medicines to patients as soon as possible in order to overcome KRAS mutated cancers, which have high unmet medical needs. Next is our in-house developed product ROSE12. As its mechanism of action is now available, so we'd like to take this opportunity to explain this. ROSE12 has an anti-CTLA-4 antibody that uses our proprietary switch antibody technology. CTLA-4 is one of the membrane proteins highly expressed in highly immunosuppressive regulatory T cells. It is known as an important therapeutic target in cancer, but controlling systemic side effects is a challenge when using drugs that target this molecule. ROSE12 is expected to exert an antitumor effect while suppressing systemic side effects by acting selectively on tumors using switch technology. In nonclinical trials using mice, the effective and safe doses of non-switched anti-CTLA-4 antibodies were similar, whereas the effective and safe doses of switched antibodies were approximately 30-fold higher, demonstrating a wide therapeutic safety margin. In the ongoing Phase I study, we are evaluating ROSE12 as a single drug and in combination with Tecentriq, and we hope that the switch antibody technology will provide high efficacy while providing a favorable safety profile. Following the cancellation of all projects, we would like to present the status of our portfolio for each modality. We continue to have a wealth of in-house developed projects. In particular, in mid-sized molecule drugs, which is our third pillar of focus, 2 projects are in a preclinical development stage and another 25 projects are in the drug discovery stage and are progressing smoothly. As referenced materials, we have attached slides at the back of this presentation that provide detailed information on small molecule drugs, mid-sized molecule drugs, antibody drugs and cell and gene drugs. So please review them as well. Finally, here's our projected submissions. Projects with light blue stars are newly added projects. The following slides are attached as reference materials. The appendix explains von Willebrand disease, for which Hemlibra has now begun its Phase III trial. So please review them as needed. This concludes my presentation.
Kae Miyata: Next, it's a presentation by Taniguchi on the consolidated financial results for the second quarter of 2025. He will pause for a while. So please take this opportunity to capture the screen.
Iwaaki Taniguchi: Now let us begin the presentation. I am Taniguchi, CFO of the company. I would like to explain about the consolidated result for second quarter of 2025. First of all, the second quarter 2025 revenue was JPY 578.5 billion, up by 4.6% or JPY 25.6 billion. OP was JPY 272 billion, up by JPY 9.2 billion or 3.5%. Let me explain about the breakdown of revenue. Now, out of revenue, sales was JPY 511.4 billion, which was up by JPY 25.9 billion or 5.3%. If you look at sales by region, domestic sales was JPY 223.3 billion, up by 2.8% or JPY 6.1 billion. The strong performance of new products and mainstay products outweighed the negative impact of the NHI drug price revision and penetration of generics. Overseas was JPY 288.1 billion, up by 7.3% or JPY 19.7 billion. If you look at the second quarter alone, Actemra export was extremely strong. And other revenue was JPY 67 billion, almost flat to the previous year. Although we have seen an increase in income related to Hemlibra, but on one-time income has dropped, and that's the reason why the revenue stayed flat to the previous year. Now, moving on to expense. Cost of sales was JPY 175.2 billion, up by 9.4% or JPY 15 billion. The sales increased, and the cost of sales also increased as a result. The cost to sales ratio compared to the previous year went up by 1.3 points. And now it has become 34.3%. The background is Actemra composition, which has relatively higher cost, has grown in second quarter. And SG&A has been impacted by the inflation and the personnel cost increase, but we've increased the operational efficiency, and it has come down by JPY 1.2 billion from the previous year. R&D cost reflected the strong progress of the early development projects and drug discovery researches and went up by JPY 2.3 billion from the previous year. Other operating income was down by JPY 400 million year-on-year. As a result, OP was JPY 272 billion, up by JPY 9.2 billion. OP margin was 47%. Net income was JPY 193.5 billion, up by 2.1% or JPY 4 billion. Next, this is the sales by product year-on-year. First, domestic oncology, it was JPY 116.6 billion, down by JPY 2.2 billion or 1.9% from the previous year. We were impact -- Avastin was negatively impacted by the penetration of generics. However, new product Phesgo sales outweighed the decline in Perjeta. Now, specialty was JPY 106.7 billion, up by JPY 8.3 billion or up by 8.4%. We were impacted by the NHI drug price revision in general. However, our mainstay products, such as Hemlibra, Actemra, Enspryng, Vabysmo, and new product, PiaSky have grown the sales. Now, overseas sales, as I mentioned earlier, Actemra increased the performance, and we were able to increase overseas sales by 7.3% or JPY 19.7 billion. This page shows the forecast of our mainstay product, which is Hemlibra and Actemra. So this is the full year forecast for those 2 products. Now, Hemlibra, in the second quarter, revenue of approximately JPY 38 billion shift, which was scheduled to be recorded or recognized in the late June, was delayed to July due to a delay in delivery procedures. This happened in the past, but we've had this in the second quarter. Now, Hemlibra global sales have been growing steadily, and shipment -- based on the current shipment schedule, we are expecting to go above the initially forecasted revenue by JPY 10 billion. Actemra, well, biosimilar penetration is delayed. And based on the current shipment trend, and based on the strong inventory needs, we believe on a full-year basis, we can overshoot our initial forecast by more than JPY 10 billion. Next page shows changes in OP. Last year, it was JPY 262.8 billion, and we are expecting an increase by JPY 9.2 billion this year. Now, domestic sales volume outweighed the negative impact of NHI drug price revision, and we expect that jump in OP. And as for overseas sales, export unit price has come down. And Hemlibra sales is growing particularly in emerging markets, but volume is actually growing more than that. And we also have positive impact from FX, and we are expecting JPY 19.7 billion increase in overseas product other revenue. Well, sales itself is growing, so cost of sales is also growing by JPY 15 billion. So total, we are expecting OP increase by JPY 9.2 billion from the previous year. Now, this is the structure of cost and profit by quarter. So these are the quarterly numbers, just so you know. There tend to be quarterly fluctuations as a result of delayed revenue recognition due to the timing of export. But if we compare Q2 this year and last year Q2, well, last year Q2, we had strong sales of Hemlibra. So against such higher bar to compare the -- this year's number has come down. So this page also shows the sales mix trend by quarter. Looking at the domestic, we saw the increase by JPY 6.4 billion year-on-year, as I mentioned earlier. Because of the impact of booking timing for the export, we have confirmed the drop in overseas sales here. This slide, as of Q2 results comparing to the forecast number announced at the beginning of the year, so we are showing the progress against the forecast here. So any -- all the items comparing to the progress rate as of last year, both sales revenue and profit, operating profit has generated positive numbers. So in terms of progress, I think we are having pretty good progress so far. This is shown by different segment and by product in terms of progress against the initial forecast as of now. As you can see, we see some strong area and weak area. But for the domestic oncology, the massive specialty and overseas by different segment comparing to last year progress, they all show positive results. So they're all showing good progress. This is FX impact. And last year's actual rates is utilized in this comparison. The far left is quite important. On revenue, we are showing plus JPY 23.3 billion; OP, JPY 22 billion positive impact. Comparing to last year, the -- especially against Swiss franc, we saw the yen depreciation. That is a major reason. And Swiss franc is our largest trading currency. And last year, Swiss franc was JPY 160.90 to CHF 1. And this became JPY 171.31 this year. So it's depreciated more than JPY 10. Next, the balance sheet situation. Total assets amounted to JPY 2,278. 3 billion, reflecting an increase in cash and deposits and increase in tangible fixed assets such as factory facilities went up by JPY 69.9 billion. Net assets increased as well by JPY 83.6 billion to JPY 1,985.1 billion, reflecting accumulation of equity capital through profits. And this pushed up the shareholders' equity ratio to 87.1%. And net cash increased by JPY 31.3 billion from the end of '24 to JPY 1,027.6 billion. This slide shows the change in net cash, which I just mentioned and showing you there's some breakdown since last year, an increase by JPY 31.3 billion. The operating cash flow inflow from operating profit, we had an increase due to the decrease in net working capital and a decrease due to investment we had. And all in all, operating free cash flow came to be JPY 236.8 billion. And after deducting corporate taxes and dividend, cash increased by JPY 31.3 billion over the past 6 months. This slide shows -- we show this every time. This is showing our near-term capital investment plan, which has been approved internally. It includes the new capital investment project of JPY 80 billion at Ukima facility that was announced today. Next page, we've been only talking about on a core basis. This is IFRS basis results. So what the adjustment look like here? Intangible asset amortization, impairment, the business restructuring costs, ERP implementation. Also, the asset sales gain. In Q1, we sold R&D site -- ex R&D site in Kamakura. So those are all considered as adjustment. Last page, this is in-house global products. We have 5 products, including PiaSky, so -- showing a 6 months sales at Roche outside of Japan. And I hope you can use this info for your reference. This concludes my explanation. Thank you so much.
Kae Miyata: Thank you very much for your attention. So now we are moving on to Q&A session. With regard to Q&A, we also have Hidaka, Head of Sales, Senior Executive Director; and Takano, Head of Marketing and Sales to be present as well. In order to have as many questions as possible, I'd like to limit the questions to 2 per person. And also the sound of the presentation, questions and answers will be also posted to the website on a later date along with the presentation. And we'd like to take questions from those who are in the room, and then, we'll take questions from the Zoom webinar. Okay. So if you have questions, and those who are in the room, please raise your hand, and we'll bring you a microphone. Please state your name -- company name and your name and start asking your question.
Kazuaki Hashiguchi: My name is Hashiguchi from Daiwa Securities. My first question is related to tariff. From medium- to long-term perspective, when you think about supply chain, is there any possibility that you're going to make some changes? And also, it seems like the tax rate may gradually go up. But if a higher percentage of tariff is going to be imposed on the pharmaceuticals in the future, are you planning to ship out the pharmaceutical products to U.S. as a preparation -- I mean, to prepare for that to happen?
Unidentified Company Representative: Thank you very much Hashiguchi-san for your question. Yes, that was a question on the supply chain. Yesterday, Japan and U.S. have come to an agreement regarding the reciprocal tariff, so 15% is the decided percentage. Pharmaceuticals are not within the scope of this 15% tariff in early July, President Trump. For Pharmaceuticals, the U.S. is conducting survey to identify the exact percentage of tariff based on the trade law of 332, and maybe like 200% or so. There will be 1 or 2 years duration given to the companies to relocate the production base to U.S. To your second question, under such circumstances, for the pharmaceutical's product, what level of tariffs are going to be imposed? I mean, it's very difficult for us to foresee the expected percentage of tariffs, as Hashiguchi-san mentioned. If the percentage of -- we don't believe that the tariff percentage will gradually go up. But as Prime Minister Ishiba commented last night, if in the future when tariff is imposed, our country's priority will not be lowered compared to the other countries, so -- but still, for pharmaceuticals -- I mean, we still need to be carefully monitoring how things will go. And then coming back to your first question again, are we going to relocate production sites to U.S.? Or are we going to do a technology transfer to U.S.? Are we considering that? We are exploring and considering various options right now.
Kazuaki Hashiguchi: My second question. So you are not starting into the second point. So making changes in the supply chain, you are currently contemplating. But then maybe you can increase the production volume, and then, ship out to those who produce the product to U.S. in early phase to mitigate the potential risk of a higher tariff percentage. So you don't think about increasing the production volume.
Unidentified Company Representative: Well, again, I would like to just say that we are exploring different options.
Kazuaki Hashiguchi: My second question is related to Hemlibra improvement of convenience. I know you are trying to improve the convenience at ISTH, Novo Nordisk, with regard to the Mim8 device. The patients who are enrolled in clinical trials said that it's easier to use compared to Hemlibra and that data was presented. How do you -- what's your takeaway of this and the current initiative to improve the convenience of the drug? And what's the current status? So Mim8 information and our efforts to improve the convenience of Hemlibra. Those are the 2 questions.
Kae Miyata: Kusano-san, can you respond?
Tsukasa Kusano: Thank you, Hashiguchi-san for your question. Currently, for Hemlibra, we are developing AI. The timing is difficult for us to comment clearly, but in 1 to 2 years or so, we should be able to complete the development. And NXT007, we are developing a device for easy administration. So we should be able to fairly compete against Mim8. So that's the status right now.
Kae Miyata: Thank you so much. Next person, please.
Seiji Wakao: Wakao from JPMorgan. My first question on Page -- Slide 34. It's about the export of Hemlibra. Now, looking at Roche results today, they show very good results. But in Q2, number was low. There was a surprise. According to Investor Relations, a large amount actually got delayed into July. That's what we heard. So the amount was quite big, wasn't you believe? And how much it was? If they came into June, then what would have been like in second half? And because of this delay, what happens to second half? So please share those information.
Unidentified Company Representative: In Q2, in June, about JPY 38 billion or so was originally planned, but that got delayed into Q3 in July. So if we had this JPY 38 billion in Q2, what happens for the remaining 6 months? The remaining 6 months, as I mentioned earlier, compared to the full-year forecast, it looks like we have an upside of over JPY 10 billion. So JPY 38 billion -- even if you deduct JPY 38 billion from this number, then still you see a positive upside. So originally, if you had JPY 38 billion in June for the second half, you had a bigger upside. Now, compared to JPY 318.6 billion for the full year, in either way, we will have seen over JPY 10 billion upside. So this delayed JPY 38 billion will be the incremental for the second half, yes, that's right.
Seiji Wakao: So what was the reason for delay?
Unidentified Company Representative: So basically, I believe you have to catch up with the demand because there's a very strong demand. So why there was a delay? We did see such a timing delay in the past a few times. So because of the booking -- revenue booking according to IFRS, not just according to the shipping, they have to be delivered, and the risk must be transferred over to the other party to book revenue. And you're going to have to go through a very complicated documental -- documentary process to go through the custom duties because of the cross- border procedure, and you have to go through the quality check, and that is quite complicated. We need to prepare resources, or many other reasons, it is possible to see a potential delay for this process. And it's just happened this time.
Seiji Wakao: So this upside of over JPY 10 billion, is it because of the strong demand in the market?
Unidentified Company Representative: Yes. Overall, yes, the end market strength is seen, and we are also seeing demand for inventory.
Seiji Wakao: So you're not adding the inventory because of the tariff situation?
Unidentified Company Representative: No, that's not the case.
Seiji Wakao: My second question is the LUNA18. So the reason for the failure of LUNA18, can you clarify that? Because of the pan-RAS that we weren't able to get good balance against the safety profile. Or what is the reason? Can you clarify that? And AUBE00, compared to LUNA18, looks like it is a better product potentially, a KRAS inhibitor that's been developed right now compared to that. What would be the profile expected for AUBE?
Unidentified Company Representative: Wakao-san, thank you very much for your question. LUNA18, regarding its negative aspect, exactly, as you mentioned, the LUNA18 with the pan-RAS inhibitor, not just for KRAS, but also NRAS and HRAS, all RAS will be inhibited. And so for many kinds of different cancer types, we can expect a potential impact. But the safety window extensive enough, whether that can be insured or not was a major challenge. But at the same time, looking at the competitive product in the market status, the competitive products are showing pretty good results in the clinical studies. So according to the results obtained from the current clinical studies, comparing to those competitors' study results, we are not able -- we started to see a concern of not being able to ensure enough amount of the treatment window. So that's why making it more difficult for us to differentiate from the others. Therefore, as we reshuffle the portfolio, as introduced in today's presentation compared to LUNA18, we believe there is much higher possibility of being able to show the competitive advantage as pan-RAS inhibitor against LUNA18 with this AUBE00. That's why we decided to suspend the development. And AUBE00, this is the second midsized molecule drug discovery, so what do we learn from LUNA18 is going to be quite important to develop this AUBE00. As we were going through development of LUNA18, we were able to confirm a good overall absorption ability. Also, we have seen the indication of transfer into inside the cells, especially the oral absorption ability along with the dose increase of LUNA18, we were able to confirm the increased level of the dose inside the blood. And also, we are able to also observe on a human compared to what we confirmed on mice in terms of absorption capability. MAP kinase signal pathway downstream, there are 5 molecules, and the amount of messenger RNA occurrence are also confirmed to be reduced. So our midsized molecule inside the cells in terms of oral absorbability -- absorption ability also doesn't flow inside the cell, will be also implemented on AUBE00. That's why we still maintain very high expectation for AUBE00. So right now, we have to see how it goes. Unless we go through the clinical trials, what we learned from LUNA18, all this, based on this experience, we will verify them completely in a Phase I study. So in conclusion, as Okuda-san also mentioned, are making good progress with the midsized molecules. But on the other hand, AUBE Phase I ending time will be in 2030. So it seems like it's going to be delayed by about 5 years.
Seiji Wakao: Looking from outside, as an outsider perspective, I don't think it's making most progress. What is your intention of mentioning that you're making good progress so far? What is the difference from our understanding?
Unidentified Company Representative: For each drug, some -- there could be a potential delay, but there are 2 -- we have now 2 drugs in the preclinical, also even before that stage and one is cancer-related, one is non-cancer-related. And we have 2-research-level drug projects, so of course, we haven't been able to introduce the drugs to come to the clinical stage. However, there are many midsized molecule projects going on at preclinical stages or beyond that.
Seiji Wakao: So you're saying it's taking longer time than you have increased potential projects?
Unidentified Company Representative: Yes.
Unidentified Analyst: I am from [ Nikkei BP ]. My name is [ Yokoyama ]. I have a question. Based on this data, you are going to submit filing PFS, which is a primary endpoint at 18 months, Kaplan-Meier curve is almost overlapping. And for OS, there is no significant difference, it's immature. But hazard ratio is 0.96% compared to LEAP. It's not as good. So what's your expectation on this?
Unidentified Company Representative: Thank you very much for your question regarding TALENTACE. So for TACE PFS -- TACE PFS is met, but OS is not met. So currently, we are not -- we are going to refrain from submitting the filing. We are going to look at the result of the analysis next time. And if OS looks good, we are going to move on to the actual filing.
Unidentified Analyst: Inavolisib finally started to move. I was expecting earlier move. But inavolisib, you have a proven data, and I was hoping to get this product available in Japan. And you don't list this in the filings list. I was wondering when is the expected timing for the submission of filing.
Unidentified Company Representative: Thank you very much for your question on inavolisib. Currently, Phase I/II study has been initiated, and we are promoting the clinical trial in a rush manner. And as you have pointed out, this has been approved outside of Japan and also in Europe. And at ASCO, OS data was presented. So we would like to bring this product as soon as possible to Japanese patients. We would like to complete Phase I/II study, and we would like to do a bridging to Phase III study so that we can submit filing. We do our best. So sometime next year. Sorry, I cannot comment on the timing, but we will take actions as soon as possible.
Kae Miyata: And next person in -- behind the same -- in the same row.
Akinori Ueda: Ueda from Goldman Sachs Securities. And my first question is about LUNA18 and AUBE00. Well, LUNA18, so clinical testing, I thought -- I think it seems like you're making very cautious steps in moving forward with clinical studies, including safety profile, and this would be the very first mid-size molecule technology. I guess, you've been quite cautious in proceeding with this project. So looking at -- has there been any concern about the safety and also the molecule -- mid-sized molecule so far? And I think it's possible. Do you think you can obtain a data result for the mid-sized molecules mostly on a plan? You're talking about 2030, but you may expect to see the results earlier than that.
Unidentified Company Representative: Ueda-san, thank you very much for your question. For LUNA18, as we have been talking about regarding safety profile, there was a concern area. So that's why, as mentioned in the past several times in Phase I study, so those limit -- toxicity testing were also conducted with a cautious manner and that's what took so long. And the more detailed result to come out on papers all to be presented at the academic conference. And that just like in the past, the Ras/MAP kinase was inhibited to cause the result of some symptoms. And so the drug effective side effects are expected. Seems like also some mid-molecule specific side effects are not confirmed. So I don't think there is any concerns on that point. But more details to be shown at the academic conference or on papers. For the AUBE, so we have learned a lot from the LUNA. So we have conducted many Phase I trials for the different anti-tumor drugs. We try our best so that we can complete this Phase I trial as soon as possible, earlier than LUNA.
Akinori Ueda: And your second question is about the U.S. tariff situation. Just a qualitative information. So you're part of Roche Group, so reviewing the production footprint or the supply chain, would there be any merit or advantage or if you can actually take some flexible actions to address those areas?
Unidentified Company Representative: Thank you for your question. You may already know this, as part of the Roche Group, in the U.S. market, there are multiple manufacturing operations in the U.S. market. So we can -- also, there is an option of leveraging on these facilities as an option as the part of the group. As I mentioned, there are many different options. So including them, we will look into different options.
Fumiyoshi Sakai: I am Sakai from UBS. ROSE12, the mechanism seems to be very complicated and difficult. So Treg is like a boom. Nowadays, it's gaining a lot of attention, but I think there is a difficulty being reported. So you have a switch antibody technology, so you can make switch on and clear -- make off clear. Without increasing Treg, you can improve the immunity. And then you use Tecentriq together with ROSE12 to further enhance efficacy.
Unidentified Company Representative: Thank you very much, Sakai-san, for ROSE12 question. This time we use a switch antibody technology. ATP, adenosine triphosphate, expresses highly in cells and with and without antibody combined or not combined. So it's not about the volume of Treg, ROSE12 may more likely to be binding to Treg or not. So in tumor cells, when ATP is large or big in quantity, we can catch Treg more, and in healthy cell, ROSE12 does not function, and that is the mechanism of action. So while maintaining good safety, we can dose up, that's the design.
Fumiyoshi Sakai: So you're talking about solid tumor this time. So the expression of Treg does matter when we talk about solid tumor, right?
Unidentified Company Representative: Yes. 30x efficacious. That was proven in the mouse. Yes.
Fumiyoshi Sakai: And in -- you have dropped 6 R&D development projects.
Unidentified Company Representative: No, not 6.
Fumiyoshi Sakai: I've been following your company for a long time, but I think this is your first time to drop so many development projects at the same time. What's the reason behind? I know you have richer early pipeline. Is that the only reason? Or is there any changes in your R&D policy, if there is any particular background, please enlighten me?
Unidentified Company Representative: Thank you, Sakai-san, for your question. Dropping this number of projects at once has never been done before in Chugai. TOP I 2030 started in 2021. And the core strategic concept is the RED SHIFT. We reinforced red function. And we are going to increase the R&D project number. And at the end of the day, we are going to launch one global product a year. That's the strategy. But now we've generated load of projects, and they went into preclinical and clinical phase. In the past, you have pointed this out, and we've had a discussion internally, but depending on the project, we had to proceed R&D development very thoroughly. We had to generate a load of data. But as a result, in some project, the timeframe got longer than our initial expectation. And in order to address that, has been explained per each project go or no-go decision criteria was clearly set. And when a milestone is met based on the data and based on the competitor's data, we make go or no-go decision. So that's the strategy we've been upholding. But then, in the meanwhile, the number of projects has gone up quite a bit. The question is, do we want to stay fully focused on the development of all those many projects with the full resources? Well, even before go, no decision or milestone achievement timing, we look at the clinical and nonclinical data, especially competitiveness, safety and efficacy and PK. We look at those data, and then, we prioritize the different projects. And then if -- and then, we've decided to discontinue those 5 projects who have the least priority. As a result, I guess the researchers were in a way inspired. Well, as we did the prioritization work, well, our researcher has been working on the development project based on the science. So based on the data, we say -- I mean, we look at competitiveness, safety, efficacy assessment, and then, we did the prioritization work, and that was well understood. And by doing this prioritization work, we were able to narrow down on more promising projects. And for those promising projects, now, we are able to accelerate the development, and we can allocate more resources and money behind those projects. So by dropping those projects, now we have more opportunities.
Unidentified Analyst: This is [indiscernible] Newspaper. Talking about the construction of the R&D facility, can you repeat about the R&D facility?
Unidentified Company Representative: UKX, you're talking about?
Unidentified Analyst: Yes. So JPY 80 billion investment is quite a large number, I believe. So for the midsized molecule, the antibody modality research would require this level of investment. What is the reason for this amount of the investment? And also, you are trying to reinforce the development function, but what do you expect as a result of having this new facility?
Unidentified Company Representative: So UKX, JPY 80 billion investment, if it's appropriate or not, if it's -- so I think that was the question. Like I said, within the RED SHIFT strategy, now we started to see increasing number of projects and antibody drugs and mid-sized -- small-sized molecules are being focused more to appropriately produce all these clinical drugs at the appropriate timing, and the compounds that we are developing are quite complex at the same time and much -- and faster delivery also. We need to establish a production methodology as quickly as possible, and that was a major challenge. And, of course, antibody mid-sized molecule products are increasing, and we will need more spaces. We need more resources. At the same time, in the existing facility, we won't be able to accommodate them all. Therefore, we decided to build this UKX at this size. This is an R&D facility to develop production engineering technology. So if JPY 80 billion is appropriate or not, I know it is a quite large number, and we, of course, went through the bidding process and compared different prices, and we selected a more reasonable -- reasonably-sized project. And we also looked into similar facilities outside of Japan and how much it costs to those facilities, and we compare to their numbers. And we confirm this number we are talking about isn't too far off of what was invested in other facilities. And lately, we are experiencing inflation, price increases and labor cost increases, and the construction cost has increased a lot compared a few years ago. That is also another truth. And we got quotes. We actually received quotes a few years ago. But ever since then, we got requotes recently. We saw huge increases in natural costs, so just because having this investment is very high, it doesn't really lead us for not making this decision to investment. And we think this is an essential part of accomplishing TOP I 2030 targets. And just to elaborate more, also in Ukima Facility, there are several buildings available. And since they are getting older, so we want to consolidate them into a bigger facility, so we can be more efficient in communication at the same time. That is another purpose. I forgot to mention this in this UKX R&D facility is also being friendly to environment. We try not to utilize fluorocarbon as much as possible. We want to have zero exposure to fluorocarbons and zero CO2 emissions. And we have factored -- we have tried to accommodate if those impact into this building, and that is also another reason for seeing a higher cost.
Kae Miyata: Next, we would like to entertain questions from the online participants. You can click on Raising Hand button at the bottom of your screen. I will pronounce the name of the person who can ask a question. And when your name is pronounced, please state your name and affiliation and start the question. From Morgan Stanley, MUFG, Muraoka-san, please.
Shinichiro Muraoka: My name is Muraoka from Morgan Stanley. My first question is related to the export of Actemra and Hemlibra. On a full-year basis, there is a possibility to overshoot the forecast by JPY 20 billion in total. On top, I was looking at the numbers presented by Galderma. NEMLUVIO seems to be selling quite well. Can we expect upside from NEMLUVIO? This is the type of drug that you need to carry a high level of inventory. But looking at this number so far, it seems like we can expect some upside.
Iwaaki Taniguchi: Thank you very much, Muraoka-san. This is Taniguchi speaking. Hemlibra, Actemra, I said more than JPY 10 billion, not JPY 10 billion. So the export to Galderma based on the current sales pace of Galderma, it's actually been accelerated, but we haven't quantified the potential upside impact as a result, so if we have more visibility and information, we would like to update you in the next earnings call. NEMLUVIO is growing more than I have expected.
Shinichiro Muraoka: GYM329, when I look at the presentation by Roche, Zepbound combination therapy, Phase II, GYMINDA, details has been laid out, and I looked at the clinicaltrial.gov site, and I thought this is quite interesting, a 48-week Zepbound combination therapy study, 24 weeks extension is going to be the monotherapy. So combination therapy only 48 weeks, and remaining is monotherapy. Compared to the other myostatins, this is quite a unique way of using the drug or design. What is the reason for this unique study design? And what is the expected best-in-class unique profile? Can you explain about your intention behind this unique study design?
Unidentified Company Representative: Thank you very much, Muraoka-san. Yes, GYM329 Phase II study, initially 48 weeks, the investigation drug will be administered together with [indiscernible]. Low-dose, mid-dose, high dose, there are 3 doses to be compared. And on top, we have a placebo arm. And then following 24 weeks in all arms, total deposit will be suspended. But for high-dose, only GYM329 will be extended for 24 weeks. That's a clinical trial design. Incretin, as you know, once administration is stopped, body weight is expected to increase, but then GYM329 follow-up is given, the body weight increase can be suppressed. So that's something we are expecting to see in the maintenance therapy period.
Shinichiro Muraoka: When massive mass goes up, and then, we don't see any rebound of the body weight. Sorry, one quick question. For the actual financials, in export, you didn't have any impact from tariff, meaning that the Roche didn't decide to increase the inventory volume in April to June?
Unidentified Company Representative: As far as I understand, Roche didn't do that.
Kae Miyata: Next from Citigroup Securities, Yamaguchi-san.
Hidemaru Yamaguchi: I'm Yamaguchi from Citi. The canceled project among them, the switch antibody was one of them, I believe. And now you are talking about the switch antibody project STA551, I believe. The reason for the cancellation of this, can you explain? And also, the concept of switch antibody, was it also available in the project or not? Can you comment on this project?
Unidentified Company Representative: Yamaguchi-san, thank you for your question. STA551, regarding this project, the target molecule was the CD137. And so STA551 to be combined with the CD137, that was also part of the mechanism. And as a result, in a clinical study, result cannot be disclosed at this point. But without the switch function, CD137 antibody, it would not have delivered -- reached to the level of dose is actually confirmed, so the -- I think efficacy was confirmed to some level, but more details will be presented at the academic conference anyway. But on ROSE12, as mentioned before, the Treg's CTLA-4 is targeted on the Treg. So it's a completely different target. So with this STA551 cancellation, and looking at the portfolio level, we made the decision. The switch antibody expectation, also the ROSE12 expectation won't be affected. So the details to be confirmed in data. As we see -- so you saw improved tolerability, but you didn't see a clear efficacy, I believe, that's what you saw. As of now, at this point, we are not able to disclose detailed data yet. And so later, please refer to them in papers or the academic conference.
Hidemaru Yamaguchi: Another quick question. As Muraoka-san also asked this NEMLUVIO. So this is a part of the other revenue, right?
Unidentified Company Representative: Yes. This is part of the overseas. There's other section. And so that's part of this other under overseas.
Hidemaru Yamaguchi: So looking at this, this number, it seems like there's no major change in Q1 and Q2. So what Galderma is saying to the investors are not really reflected into these numbers or there is -- because of the other -- under the other sector? Is it invisible?
Unidentified Company Representative: I think it's going to come stronger towards the end of the year again. So there is a potential increase expected towards the end. It could be actually stronger than what you expected. There is, yes, such a potential.
Kae Miyata: Next from Macquarie Capital, Tony Ren-san, please.
Tony Ren: Perfect. So this is Tony Ren from Macquarie. A couple -- so first, a couple of questions on your Hemlibra next-generation product, NXT007. Specifically, I want to ask about the dosing. So in the Phase I/II study, you guys used every 4-week dosing. Previously, you guys had hinted that you might be able to dose it at much longer intervals, possibly every 2 to 3 months. So just wanted to see why did you decide to settle with a far more frequent monthly every 4-week dose? Would that be the dose you will take into Phase III trials? And also in the future, do you think you can get -- extend the dosing interval longer to more than 4 weeks? So that's on NXT007. The second question is on the gene therapy, Elevydis. So you guys had it approved in June -- in May in Japan, in -- sorry, in ambulatory patients. So just want to see how many patients have you dosed? Have you given the gene therapy, too, in Japan? And have there been any patients in the non-ambulatory situation receiving the gene therapy?
Kae Miyata: Thank you very much. Kusano would like to respond to your questions.
Tsukasa Kusano: Thank you very much, Mr. Tony Ren, for your question. With regard to dosing frequency of NXT007, in terms of the future regimen, unfortunately, there is nothing I can comment on. We are sorry about that. But half-life is quite long. So we -- there is a possibility that we can extend the interval between dosings. And with the high half-life, the change in PK between peak and trough can be controlled better. So in the future trials, we will be investigating into the dosing frequency. Now if I may, I would like to move on.
Tony Ren: Sure. Yes, please.
Unidentified Company Representative: And next, Elevydis. Japanese dosing experience or usage experience. Currently, in Japan, from age 4 to 7 ambulatory Duchenne muscle dystrophy patient is enrolled in the clinical trial. And actually, we have enrolled 5 patients as such so far. Those are the 5 ambulatory patients. And on ambulatory patients, targeted clinical trial is participated by Japan. And 4 Japanese subjects have been enrolled. But the clinical trial targeting at non-ambulatory patients are blinded. So we do not know whether they are randomized to placebo group or active drug group. That's all.
Tony Ren: Okay. Perfect. Yes. If I may just have a quick clarification, so I just want to confirm that I heard you saying that you will increase your guidance for Hemlibra and...
Unidentified Company Representative: Sorry, Tony-san, we would like to limit the number of questions to 2 per person. Sorry about that.
Miki Sogi: Sogi-san from Sanford Bernstein. So U.S. tariff impact, so you're looking at different options right now. So this is a question related to the assumptions you have. So the cost came out to be quite high this time because Actemra overseas export was -- I think you mentioned, so U.S. genetic facility was utilized, and you outsourced manufacturing for Actemra. I think you mentioned that before. Is that the reason why you saw the higher cost? If that's the case...
Unidentified Company Representative: Now, in the U.S., if pharmaceutical is going to be also in the scope of the tariff in the future, and Hemlibra production could be also transferred over to U.S. potentially. And when that happens, as far as we heard from Roche, they're saying that manufacturing capacity wise, it seems like they have enough capacity right now.
Miki Sogi: And compared to the capacity by Roche, then you may outsource the manufacturing to Roche capacity. Would that be also possible? If that's the case, just like with Actemra, that could actually increase the cost at the same time. Would that be true?
Unidentified Company Representative: Of course, this is just one of the options. And I just wanted to know if there is such a possibility as well. I have Taniguchi to answer this question.
Iwaaki Taniguchi: Sogi-san, thank you very much. For Actemra cost, it came out to be higher from a relative perspective. It's not just because of the genetic site issue. There's multiple impacts. So antibody production of Actemra cost was high regardless of the site location. So there are other elements as well. And regarding manufacturing sites, as Okuda mentioned earlier, there are different options available. And we are looking at them from different perspectives right now. So we haven't really decided to set out a certain direction forward. It depends on the actual tariff being imposed and also manufacturing costs compared to the costs we have right now, the labor costs, personnel, the property costs will be also confirmed, if it were outside of the U.S., what happens. So we also need to factor in all these elements to make a decision. So at this point of time, it's quite difficult for us to give you a clear answer to your question.
Miki Sogi: And next question, SAIL66, I think, trispecific T-cell engager product, you decided to discontinue this product. So this T cell engager, trispecific T-cell engager modality itself had a challenge. Is that the right understanding? What is the reason for your decision to discontinue this? And this trispecific T-cell engager, what is your thinking going forward for this?
Unidentified Company Representative: SAIL66 was your question. So regarding SAIL66, Claudin-6 was the target in a tumor, also on T-cell, CD3 and CD137 triple-specific antibody to be bonded to both of them. And this is -- dual-Ig technology is utilized. The Claudin-6 and also CD3 on T-cell went through to result the -- an effect. And also [indiscernible] responded to the cell, so it can actually have a continuous activity to see stronger results to antitumor activity. And as mentioned, the results will be presented in the paper -- upcoming paper, also in an academic conference. And regarding triple-specific antibodies, dual-Ig technology, we have ALPS12 drugs right now. This is for small cell lung cancer and neurosecretion cancer. So this is the target, and they also utilize dual-Ig technology, and testing for these are underway still right now. So dual-Ig technology will be further pursued.
Kae Miyata: We are afraid that we will have to close Q&A session since we have come to the scheduled end of time. With this, we would like to conclude earnings call for the second half of 2025. Due to the time limitation, we were not able to entertain all the questions. For those additional questions, please reach out to IR department of our company. The contacts are shown in the last page of your handout. Thank you very much for your participation despite your busy schedule.