4528.T4528.TJPX
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Ryuta Imura: Thank you very much for attending ONO PHARMACEUTICAL CO., LTD.'s Financial Results Meeting for Q1 of the fiscal year ending March 2026 today. I am Imura from Corporate Communications, and I will be your moderator. As the time has come, we will hold the briefing in online format from now on. First, I would like to introduce the attendees from the Company: Itoh, Corporate Executive Officer and Division Director, Corporate Strategy and Planning, Business Management Division; Okamoto, Corporate Officer, Executive Director, Clinical Development; Kitada, Corporate Officer, Executive Director, Sales and Marketing; and Takahashi, Director of Oncology Business Division. Here are some of the details for today. First, Itoh, Division Director of Corporate Strategy and Planning, Business Management Division, will give an overview of financial results for Q1 of the fiscal year ending March 31, 2026, followed by an update on the progress of development products by Okamoto, Executive Director of Clinical Development; and finally, Kitada of Sales and Marketing will give an update on OPDIVO. Please refer to the materials which are already posted on the Company's website. Now, Itoh will give an overview of the financial results for Q1 of the fiscal year ending March 31, 2026.
Masaki Ito: I am Itoh from the Business Management Division. Thank you. Due to the acquisition of Deciphera last year, we are disclosing our core financial statements in order to show you the essential performance of our core business. Today's explanation will be given on a core basis. This is a summary of the financial results. Revenue increased by JPY9.9 billion, or 8.4%, from the same period last year to JPY127.5 billion, a solid performance and the highest sales ever recorded for a Q1 result. Domestic sales decreased slightly overall, with continued growth in FORXIGA tablets offset by a decline in OPDIVO due to intensifying competition. Overseas sales increased due to the inclusion of sales from Deciphera, such as QINLOCK, a treatment for gastrointestinal stromal tumors, and ROMVIMZA, a treatment for tenosynovial giant cell tumors, which were not recognized in Q1 of the previous fiscal year. R&D and SG&A expenses also increased YoY due to the addition of Deciphera's R&D and SG&A expenses, which were not recorded in Q1 of the previous fiscal year, respectively. R&D expenses, excluding Deciphera's R&D expenses, decreased from the previous year, and SG&A expenses, excluding FORXIGA's co-promotion expenses and Deciphera's SG&A expenses, were at the same level as in the previous year. Core operating profit decreased by JPY3.5 billion, or 10.1%, from the same period last year to JPY31.6 billion due to the inclusion of Deciphera's operating loss, which was not recorded in the previous period. I will now explain each item in detail. Revenue for Q1 of the fiscal year under review increased by JPY8.4 billion, or 10.6%, from the same period last year to JPY87.8 billion, and royalties and others increased by JPY1.4 billion, or 3.7%, to JPY39.8 billion, for a total of JPY127.5 billion, an increase of JPY9.9 billion, or 8.4%, from the same period last year. The following is a breakdown of the factors that contribute to the increase or decrease in sales revenue. The main reason for the increase was the recording of JPY10.1 billion in sales revenue from Deciphera. The three bar charts on the left, excluding this one, show that sales of domestic products decreased by JPY1.6 billion, while royalties related to OPDIVO and KEYTRUDA increased by JPY3 billion, or a net increase of JPY1.3 billion, despite the negative impact of the strong yen. This is an overview of domestic products by category. While sales of anti-cancer agent, OPDIVO intravenous infusion, decreased by JPY2.6 billion to JPY29.4 billion due to intensified competition, sales of FORXIGA tablet, a treatment for diabetes, chronic heart failure, and chronic kidney disease remained strong, increasing by JPY2.9 billion or 13% from the same period last year to JPY25.1 billion. Other major products include rheumatoid arthritis treatments, ORENCIA, for subcutaneous injection increased by JPY0.1 billion to JPY7 billion, anti-cancer agent VELEXBRU tablet increased by JPY0.3 billion to JPY3 billion, Parkinson's disease treatment agent ONGENTYS tablet increased by JPY0.3 billion to JPY2.3 billion, and secondary hyperparathyroidism treatment agent for hemodialysis patients, PARSABIV, for intravenous dialysis increased by JPY0.1 billion to JPY2.2 billion. On the other hand, sales of GLACTIV tablets, a drug for type 2 diabetes, decreased by JPY1.4 billion to JPY3.6 billion due to the NHI price cut, and sales of KYPROLIS for intravenous infusion, a drug for multiple myeloma, decreased by JPY0.3 billion to JPY2 billion. These are overseas sales and royalties. OPDIVO sales in Taiwan and South Korea combined totaled JPY3.3 billion this fiscal year, an increase of JPY0.2 billion from the same period last year. Sales of Deciphera's two products: QINLOCK, a treatment for gastrointestinal stromal tumors, totaled JPY8.9 billion, which is well in line with the initial forecast of JPY34 billion; and sales of ROMVIMZA, a treatment for tenosynovial giant cell tumors, amounted to JPY1.1 billion. Annual sales are projected at JPY5 billion and are expected to grow as the number of patients increases. Sales by Deciphera have been a major driver in Q1. Next is core operating profit. Core operating profit decreased by JPY3.5 billion, or 10.1%, from the same period last year to JPY31.6 billion. While revenue increased by JPY9.9 billion as mentioned earlier, R&D expenses increased by JPY7.4 billion and SG&A expenses increased by JPY6.1 billion. We have also listed them by factor here. The major reason for the decrease in core operating profit is the JPY4.8 billion operating loss recorded by Deciphera. Excluding this, profit/loss was an increase of JPY1.3 billion. Here is an overall view of the consolidated core results. Revenue increased by JPY9.9 billion, or 8.4%, from the previous year to JPY127.5 billion. Core operating profit, here, decreased by JPY3.5 billion, or 10.1%, from the same period last year to JPY31.6 billion. Core profit for the period decreased by JPY3.9 billion, or 13.7%, from the same period last year to JPY24.8 billion. This is a summary of results on a full IFRS basis. There are no adjustments to revenue from sales on a core basis. It is JPY9.9 billion increase, or 8.4%, to JPY127.5 billion. There will be some adjustments in the following areas. In cost of sales, amortization of intangible assets and amortization of PPA inventory, which were excluded from the core basis, are included, so this adjustment exists between the core and full basis. There is no major adjustment in R&D expenses, but there is a reactionary decrease in SG&A expenses due to the recording of expenses related to the acquisition of Deciphera, which were excluded from the core basis in the previous fiscal year. Adjusted for these effects, operating profit on a full basis is JPY5.2 billion larger than on a core basis. It decreased by JPY8.7 billion, or 28.3%, from the same period last year to JPY22 billion, and profit for the period also decreased by JPY7.1 billion from the same period last year to JPY17.7 billion for the same reason. This is a reconciliation from the full to core basis in Q1 for the current period. As I mentioned earlier, the reconciliation item is mainly amortization expenses related to intangible assets in the cost of sales, which totaled JPY6.2 billion combined with the previous amount, and amortization expenses of JPY2.7 billion for the step-up in fair value associated with the acquisition of inventory. The total reconciliation is JPY8.9 billion. These are the major reconciliations. Here is the full-year forecast. As already announced in the financial results summary, there are no revisions to the earnings forecast for the current fiscal year. There is currently no change in the forecast for each of the revised products from the figures announced at the beginning of the period. Full basis, also for reference, the earnings forecast remains unchanged from the forecast announced at the beginning of the fiscal year. The above is a summary of our business performance. Thank you.
Ryuta Imura: Thank you very much. Next, Okamoto, Executive Director of Clinical Development, will give an update on the progress of major development pipelines. Thank you.
Tatsuya Okamoto: Hello again, everyone. I am Okamoto of the Clinical Development Division. I would like to mainly explain the changes since May 8 of this year, using the development pipeline progress materials posted on our website. First, here are the actual results and planned applications for approval. I would like you to look at the leftmost part. As you are aware, the combination therapy of OPDIVO and YERVOY has been approved in Japan for the first-line treatment of hepatocellular carcinoma, and the approval is updated with a blue box. The other three pending applications are ROMVIMZA in Europe, OPDIVO in combination with YERVOY for first-line colorectal cancer with MSI-H in Japan, and BRAFTOVI for first-line BRAF-mutant colorectal cancer in Japan. The review of these three cases is currently progressing smoothly. As previously announced, we received a positive opinion from the European Commission on July 28 for the approval of ROMVIMZA in Europe for the treatment for tenosynovial giant cell tumors. Next is the schedule for future applications. There will be two changes since the last time. As for the ONO-4538-86 study, a global Phase III study for preoperative and postoperative adjuvant therapy for bladder cancer, we have changed the application period from FY2025 to the next fiscal year due to the expected delay in obtaining the results. The application for approval based on the CheckMate 9DX study, a global Phase III study for the adjuvant therapy for hepatocellular carcinoma, has also been rescheduled for the next fiscal year because the results are now expected to be available later. That concludes my report regarding the status and schedule of regulatory filing for approval. I would like to explain the major changes in the development status of OPDIVO. As in the past, changes from the previous time are shown in red. First of all, the top row, preoperative and postoperative adjuvant therapy for non-small cell lung cancer, which is a combination with chemotherapy, has been approved in Europe and has been updated. Then, about the middle section. The first-line hepatocellular carcinoma therapy in combination with ipilimumab was approved in Japan on June 24, as I mentioned earlier. In addition, we also received approval in South Korea and Taiwan in July last month, so we are updating this information. Also, at the bottom of the page, we have updated the subcutaneous formulation of OPDIVO, which was approved in Europe at the end of May. The indication for which the drug was approved in Europe is the same as that in the US, where the drug was approved earlier, and it is approved for all solid tumors in which ipilimumab is not used in combination with continuous therapy. These are the major development updates for OPDIVO. Next, I would like to talk about the progress of our oncology development pipeline excluding OPDIVO. The top row BRAFTOVI, and the next row QINLOCK. The implementation countries are written in red, but this is only because there were many entries, such as Japan, the US, Europe, and Australia, we have only revised those entries. For ONO-4059, tirabrutinib, the progress status has only been updated to data in use acquired. The US Phase II trial has two parts, Part A and Part B. Cohort Part B, which is a combination with standard treatment for first-line treatment, which is a combination with standard treatment for untreated patients, is ongoing. Next, I would like to talk about the EP4 antagonist ONO-4578. This is an international Phase II study, PoC trial for primary colorectal cancer. We have updated the information to include Japan and Europe as new countries participating in the trial. In addition, regarding 4578, we are currently conducting a Phase I clinical trial in Japan targeting hormone receptor-positive, HER2- negative breast cancer. We are continuing to follow up on efficacy data and have revised the timing for obtaining key data to FY2026. This is an international Phase II clinical trial for the primary treatment of gastric cancer, and results are expected to be available around autumn. We expect to obtain the main efficacy data in the fall of this year. For the others, ONO-0530, 4482, and 7427, only the description regarding the implementing country was rearranged. Next is the area of oncology. Although it has been removed from the table, regarding the Axl/Mer inhibitor ONO-7475, we had been conducting a Phase I clinical trial in Japan targeting non-small cell lung cancer patients with eGFR mutation positivity in combination with osimertinib, which is the standard treatment. However, due to strategic reasons, we have discontinued its development and have therefore removed it from the table. In addition, the results of a Phase I trial of ONO-7913 as a first-line treatment for pancreatic cancer and colorectal cancer were presented at the ESMO GI conference held in Spain in early July. Next, here is a summary of the development status of the non-oncology field. As previously announced in a press release on June 23, we have newly added povetacicept, a BAFF/APRIL dual antagonist, for which we have acquired development and commercialization rights in Japan and South Korea from Vertex of the United States. As for povetacicept, it is a compound that has newly entered the pipeline, and I will give you a brief overview of the compound later in this presentation. In addition, regarding other items, the top row is ROMVIMZA, followed by cenobamate in the next row. As with cancer, we have made necessary adjustments to the information regarding the area of implementation, but there are no other changes. In addition, we are conducting an international Phase II clinical trial of ONO-2808, an S1P5 receptor agonist, for the treatment of multiple system atrophy. As with the result for gastric cancer with 4578, we expect to obtain key efficacy data for this trial in the fall of this year. As I mentioned earlier, I would like to give you a brief overview of povetacicept. We have acquired its development and commercialization rights in Japan and South Korea from Vertex of the United States. Povetacicept is a recombinant fusion protein. It is intended for the treatment of autoimmune diseases, particularly those caused by B cells. This is a dual antagonist of BAFF and APRIL, which are thought to play an important role in the activation of immune cells in autoimmune diseases. We are currently developing a drug as the treatment of multiple severe B-cell-mediated diseases, including IgA nephropathy and primary membranous nephropathy. Of these, a global Phase III study for IgA nephropathy, including Japan, is underway. Povetacicept, in preclinical studies, has shown higher binding affinity to its target than other BAFF antagonists, drugs that inhibit only BAFF, APRIL, or both. As a result, excellent effects on B cell proliferation, differentiation, and antibody production have been observed. As you are all aware, a competitor's antibody drug against APRIL is currently being submitted to the FDA for the expected indication of IgA nephropathy. Povetacicept, as I mentioned earlier, has a different action in that it also inhibits BAFF, and we expect it to be positioned as a best in class drug for IgA nephropathy. This is all from myself. Thank you.
Ryuta Imura: Thank you very much. Next, Kitada of Sales and Marketing will give an overview of OPDIVO trends. Please note that these explanatory slides include some materials that are not available on our website. Thank you.
Hirokazu Kitada: I am Kitada from Sales and Marketing. Now, I will explain the trend of our main product, OPDIVO. Here are the notes. First, we show OPDIVO sales trends by cancer type. In the current fiscal year, we project JPY125 billion, an increase of JPY4.7 billion over the previous year, after bottoming out in FY2024. In order to achieve JPY125 billion, we will focus particularly on minimizing the encroachment of competitors in the gastric cancer area, maintaining our number one share of new prescriptions, and advancing the evaluation in the non-small cell lung cancer and esophageal cancer areas to achieve renewed growth. Although gastric cancer, which accounts for the highest percentage of sales, is facing a severe competitive environment and is affected to a certain extent by competing products, we have promoted activities to penetrate long-term follow-up data and real world data in Japan, etc. As a result, the latest new patient prescription share is 65%. We will continue to promote activities to achieve 70% by the end of the fiscal year. In addition, the Company plans to add a new indication for the first-line treatment of hepatocellular carcinoma in June and for the first-line treatment of MSI-H colorectal cancer in August this year, thereby maintaining its number one market share position in the gastrointestinal field. Next, we report on the status of esophageal and lung cancers that we should grow this year. First, esophageal cancer, here is the prescription ratio in patients newly treated for first-line treatment of esophageal cancer. For the first-line treatment of esophageal cancer, we believe that our greatest strength lies in our ability to propose prescriptions for each patient based on the characteristics of the two regimens: OPDIVO plus chemotherapy, and OPDIVO plus YERVOY. Although it entered the market six months after its predecessor, OPDIVO has been able to maintain a high share of 53% in new prescriptions. I will now explain the factors behind the 53% growth on the next slide. This chart shows the share of new prescriptions in the first-line treatment of esophageal cancer in the surgical field, which has been an issue. Currently, we are promoting the tumor shrinkage effect, which surgeons consider as important as long-term survival, and we see this as a growing share of new prescriptions. We will continue to establish the evaluation of the two regimens through lectures, webinars, and other activities regarding the results of the CheckMate-648 study and the Japanese analysis of the 45-month follow-up, in order to increase the share of new prescriptions in the internal medicine and surgical fields to 60%. Next, let me explain about lung cancer. As you are aware, safety concerns were raised in an investigator-initiated clinical trial conducted by the Japan Clinical Oncology Group, hereinafter referred to as JCOG, for the OPDIVO + YERVOY + chemotherapy combination regimen, the so-called 9LA regimen, and the decision to discontinue the trial was announced in press in April 2023. This led to a decrease in the use of OPDIVO + YERVOY + chemotherapy in the first-line treatment for lung cancer. As a countermeasure, we are working to establish the evaluation in PD-L1-negative patients in particular, as other treatment options have shown long-term survival benefits in PD-L1-negative patients with a poor prognosis. However, the current market share of new prescriptions of OPDIVO is 17% compared to the current year's target of 30%, which remains unchanged. In order to overcome this situation, we will utilize new topics in lung cancer. In addition to the previous CheckMate-227 study, this is a paper published in June of this year. Six-year follow-up data from the CheckMate-9LA trial has been published in ESMO Open. In this analysis, in a group of PD-L1-negative patients with poor prognosis on other treatment options, the combination of OPDIVO + YERVOY + chemotherapy resulted in a 20% six-year survival rate in the overall population, indicating that the majority of patients who were alive at five years were still alive at six years. Note that the five-year survival rate obtained with other treatment options recommended in the guidelines for PD-L1-negative patients is less than 10%. We believe that this once again proves the necessity of OPDIVO + YERVOY + chemotherapy combination therapy for long-term survival. Based on the above, in FY2025, we will focus our activities on PD-L1-negative for which we have solid evidence, increase the share of new prescriptions to 50%, and place the highest priority on establishing an evaluation. Through these activities, we aim to recover the share of new prescriptions not only for PD-L1-negative patients, but also for PD-L1-weakly positive and PD-L1-strongly positive patients to the level before the discontinuation of the US clinical study, and as a result, increase the share of new prescriptions for first-line treatment overall to 30% and contribute to long-term survival of patients with lung cancer. Next, we show the results of the CheckMate 9DW study for the first-line treatment for hepatocellular carcinoma, an indication that was added in June. The OPDIVO + YERVOY group showed high efficacy in overall survival, progression-free survival, and response rate, and the highest efficacy in each of these categories compared to conventional therapy. On the other hand, we have started activities to address immune-related adverse events, with safety as the first priority. The following table shows future targets for the share of new prescriptions for first-line treatment for hepatocellular carcinoma. As an initial response to our activities, we have received feedback indicating high expectations for their effectiveness. At the same time, we have set a target of 30% of new prescriptions in December 2026, one year and six months from now, because we need to work together to raise awareness against immune-related adverse events. Furthermore, as experience with its use accumulates and its high efficacy and safety measures become more widely accepted, we anticipate that it will make further strides as a first-line standard treatment for hepatocellular carcinoma. Finally, the marketability of OPDIVO and its prospects for the year 2025 are presented. In FY2025, there will be approximately 70,000 patients who have not yet received OPDIVO for existing indications, as shown in light blue. We will work to recover our share of new prescriptions, particularly in the large market for lung cancer. In addition, we will continue to strengthen our efforts in the gastrointestinal field, particularly in gastric cancer and esophageal cancer. As indicated in pink, we anticipate additional efficacy for OPDIVO in the first-line treatment of MSI-H colorectal cancer, for which approval has not yet been obtained. As the leading company in the gastrointestinal field, we are committed to maintaining our number one position and achieving sales growth for OPDIVO this fiscal year, with last fiscal year serving as the bottom line. That's all from me.
Ryuta Imura: Thank you very much. That is all for our explanatory slides.
Ryuta Imura: Now, we would like to take your questions. Several people have already raised their hands, but if anyone else has any questions, please press the Raise Hand button. We will call the respondents time to time. First, Mr. Yamaguchi from Citigroup, please go ahead.
Yamaguchi: Thank you very much. Thank you for your time. I would like to ask you about Deciphera's products. It seems like a good start, especially considering that both drugs will be growing in the future. QINLOCK seems to be doing well and ROMVIMZA seems like a promising product. It has only been three months since these two agents were started, but I wonder if you could tell us how you see the rate of progress against the forecast for this fiscal year, including the reputation of the local market.
Masaki Ito: As for QINLOCK, I think both drugs are coming along at a good pace, faster than expected. In particular, ROMVIMZA sales are now JPY1.1 billion in Q1, and I believe they are coming in faster than expected.
Yamaguchi: Do you have any factors for QINLOCK? Is there a reason like Medicare Part D, Medicare re-setting, or competitors? I'm not sure.
Masaki Ito: With regard to QINLOCK, excluding the negative impact of the IRA, the number of patients is growing and continues to grow on a volume basis.
Yamaguchi: So, you were aware of the negative factor of IRA, but there has been an increase in volume that overcomes that negative factor, and has this phenomenon also been observed at other companies? How should I look at it?
Masaki Ito: Other companies?
Yamaguchi: I'm sorry. I often hear about such phenomenon in other companies, and I just wondered if it is happening in your company as well.
Masaki Ito: I see. Although growth may appear to be a little sluggish when compared to the previous year, I think we are doing well in this respect, although I am not talking about the accounting point of view.
Yamaguchi: Thank you very much. Regarding OPDIVO, you mentioned about new indications in H2, and that the area of esophageal cancer is doing well. Regarding Q1, is it correct to say that things are not going as planned, particularly with regard to the lungs? Please tell us about the evaluation in Q1.
Hiroyuki Takahashi: Takahashi will answer your question. First of all, you are referring to the Q1 situation of lung cancer, right?
Yamaguchi: Overall, I think Q1 was underachieved, but I think the area where it was underachieved was probably lung cancer. Let me confirm this point.
Hiroyuki Takahashi: As Kitada mentioned earlier, the growth in lung cancer was sluggish, which is true as a result. First, the decline in gastric cancer caused a decrease in the share of new prescriptions for the carryover from last fiscal year, resulting in a delay in acquiring new patients. We have improved our current 65% share of new prescriptions, but we believe the biggest reason is that we have not yet been able to cover the carryover from the past. In addition, although esophageal cancer has been performing well, we have yet to acquire reevaluation for lung cancer, which is a large market. I hope I have answered your question.
Yamaguchi: Thank you very much. This means that in order to achieve the full term, you have to work a little harder on the drop in the gastric cancer area, and the same goes for lung cancer. Is it correct to assume that you can recover from this for the full year?
Hiroyuki Takahashi: We are in a very difficult situation. The share of prescriptions for new patients with gastric cancer, which was once close to 80%, has dropped to 57%. However, we have been able to recover to 65% in Q1, and we would like to maintain our goal of reaching a 70% share of new patient prescriptions by continuing to push forward with our activities. In addition, in the gastrointestinal field, we have hepatocellular carcinoma and MSI-H colorectal cancer for which we expect to obtain approval, and we will thoroughly try to be reevaluated in lung cancer along with them for some gains. In the PD-L1-negative segment, the OS was nearly double that of other conventional IO preparations and checkpoint inhibitor regimens. I believe that we, as a pharmaceutical company, have a mission to deliver these products to patients in this segment. We continue to face a very difficult situation here, but we will continue to work diligently. This is all from myself.
Yamaguchi: Thank you very much. Lastly, sorry. About the one for BAFF/APRIL from Vertex. Did it say that test continues until FY2028 for domestic applications? After this? Please provide guidance on the timing of domestic applications.
Tatsuya Okamoto: Thank you. I'm Okamoto. We are currently conducting Phase III, so we have described the main data acquisition, etc. However, we think it is too early to say when the application will be submitted at this time, so we would appreciate your patience.
Yamaguchi: Does that mean it could be faster than this, doing intermediate analysis or something? Or is it still unsure because you have just bought it?
Tatsuya Okamoto: Rather than "we don't know" because we have just bought it, we are still really in the process of implementing Phase III so I would like to refrain from saying when at this point.
Yamaguchi: I see. That is all. Thank you.
Ryuta Imura: Thank you. Next, Mr. Hashiguchi from Daiwa Securities, please go ahead.
Hashiguchi: I am Hashiguchi. Thank you. The share of new prescriptions for OPDIVO for gastric cancer had fallen to 57% but has recovered to 65%. Where has this recovery mainly come from? First of all, please let us know which regimen you think you can take to increase the level to 70%.
Hiroyuki Takahashi: Takahashi will answer your question. First of all, the fact that the percentage once dropped to 57% is almost entirely due to the impact of VYLOY. Currently, they have increased their share in new prescriptions to about 20%. In cases where this has been most affected, there are approximately 40% of patients with Claudin-positive, so considering the current 20% share in new prescriptions, we estimate that VYLOY accounts for about half of these prescriptions. First, this part, clearly Claudin-positive, which means VYLOY, but for us, there are also patients with CPS10 or higher mixed in. The first issue is to create an environment in which patients can use the different types of drugs according to their backgrounds. In addition, as for KEYTRUDA, the same IO formulation. As for KEYTRUDA, new prescriptions remain around 10%. Now that the indication has been added for HER2-positive patients, I think there is a possibility that the drug will gain a little momentum. Regarding gastric cancer, we have a selection period of two and a half years, so based on the accumulated experience of doctors with the choice of OPDIVO for HER2-negative patients, we believe that it is possible to achieve a 70% success rate by continuing to provide reliable information based on long-term data and five-year follow-up data. This is all from myself.
Hashiguchi: Sorry. From 57% to 65%, where did you take it from to recover?
Hiroyuki Takahashi: We believe that our emphasis on the fact that Claudin-positive patients with CPS10 or higher showed a tendency to respond well to IO agents resonated with doctors.
Hashiguchi: So you mean you got back what was once taken by VYLOY partly, right?
Hiroyuki Takahashi: Yes. We believe you can think of it that way.
Hashiguchi: Thank you very much. The second point is that you presented the data on magrolimab at the conference. Given that such data has been compiled to some extent, what are your thoughts on the future development policy? I know it is not easy since development overseas has stopped, but I would like to know what you think about it.
Tatsuya Okamoto: Thank you. I'm Okamoto from Development. What we presented at ESMO GI regarding 7913 was a pancreatic cancer first-line treatment, standard chemotherapy, and combination of this magrolimab and OPDIVO. Then, for the first-line treatment of colorectal cancer, we also added OPDIVO to the combination therapy with standard treatment, and we have announced the results of this study. We are now in a situation where we are positively considering the next process. Regarding colorectal cancer, as for a trial targeting colorectal cancer called Trial 04, we received the Best Poster Award and received various questions on the day, so we have a positive impression of it. We are constantly monitoring the data, and we are actively considering the situation while keeping an eye on the Company's pipelines, portfolio, and other factors. We apologize for not being able to disclose any further information at this time.
Hashiguchi: Thank you. That is all.
Ryuta Imura: Thank you. Next, Mr. Wakao from JPMorgan Securities, please go ahead.
Masaki Ito: As you can see, domestic sales and overseas sales are as you confirmed. Overseas sales are slightly ahead of our forecast, so we hope to exceed our annual target. As for domestic sales, OPDIVO is currently struggling a bit, but we are hoping to bring it in line with the plan, and we are aware that there are both positive and negative factors regarding sales as you have confirmed.
Wakao: What about in terms of operating profit?
Masaki Ito: Regarding operating profit, even at the core operating profit, we are planning on target or for a slight increase this fiscal year. As we explained earlier, Q1 of this fiscal year saw a YoY decline, but this was due to the fact that Deciphera's performance was not included in the YoY comparison. At the moment, we have made progress at a rate of slightly more than a quarter of the total, but we would like to make a solid investment for growth and land at a level that is even with the current level. We are not at the point where we are extremely strong, but we are almost going according to plan.
Wakao: I understand very well. Thank you. The second is about ROMVIMZA. Regarding the faster-than-expected pace, I would like to know what factors are behind it, and I would like to know more about the pace, whether it is quantitative or monthly movement, if you can give me more information.
Tatsuya Okamoto: Thank you. Okamoto from Development will answer your question. First, regarding ROMVIMZA, one of the reasons for exceeding expectations is that, as you know, drugs that have been approved in advance have warnings attached to them, but ROMVIMZA does not have such warnings. Since this is not a fatal disease, there may be patients on a waiting list, but I have heard that in addition to patients on the waiting list, prescriptions for switching from other drugs are also progressing, which was not originally anticipated.
Wakao: I understand. A bit more, what about the pace? How do you describe it? So, since you only have actual sales results for one quarter, it is difficult to see at what pace they will rise in the future, so can you give us some more tones?
Tatsuya Okamoto: Thank you. It is difficult for us to say what the pace is. One is that, unlike cancer, we believe that the so-called long-lasting nature of the administration is a characteristic of the disease. On the other hand, although the number of diseases and the number of patients themselves are not that large, the number is steadily increasing, and the prescription period and administration period for individual cases are becoming longer. We believe that the growth will be steady.
Wakao: I understand. So, is it correct to understand that the unexpected increase in the number of patients waiting for treatment and switching from other prescriptions, as you mentioned, is continuing?
Tatsuya Okamoto: I hope that it will continue.
Wakao: Thank you very much. Finally, I would like you to tell me about povetacicept. I would like to know the background behind you saying, "best in class," and if it is possible to apply in Japan with the data from the interim analysis. Also, it would be helpful if you could suggest the amount of the contract temporary payment. As you mentioned in terms of whether it is best in class, I think the inhibitory activity of povetacicept is quite good. I think it is good; on the other hand, there is still rather little clinical data, so I am not quite sure if it is best in class or not. If there is any data that only your company has seen, I would like to you to tell us why it is best in class based on some more data. Please let me know if you can or cannot make it with the intermediate analysis of the UPCR.
Tatsuya Okamoto: Thank you. I'm Okamoto from Development. First, I mentioned earlier that we expect it to be best in class. As you have just mentioned, clinical data cannot be compared side by side, at least in separate trials, so therefore, when considering solely from a mechanism-based perspective, we believe that it is important to inhibit BAFF in combination with APRIL, rather than inhibiting APRIL only, and we expect that this approach will enable us to be best in class on the MOA basis. Besides, regarding whether or not it is possible to apply for approval with an interim analysis, this is a matter related to the application strategy, so as in the past, we would prefer to refrain from answering at this time. We are not currently disclosing the economic terms of the project, so we would appreciate your patience here as well.
Wakao: In the cash flow, there is a rather large amount for the acquisition of intangible assets, but is this unrelated?
Masaki Ito: This is due to the significant impact of sapablursen, which was announced in March.
Wakao: I understand. Thank you. That is all.
Ryuta Imura: Thank you. Next, Mr. Muraoka from Morgan Stanley MUFG Securities, please go ahead.
Muraoka: Thank you. This is Muraoka from Morgan Stanley. I am afraid I am asking twice what others have already asked. Regarding ROMVIMZA, in just three months, although it is still only three months' figures, Daiichi Sankyo's TURALIO grew slightly YoY to JPY1.1 billion. Your company also has JPY1.1 billion. You say that you were able to make the switch smoothly, but looking at the numbers on the surface, it's not clear to me. For example, as a breakdown of JPY1.1 billion, what is the percentage of patients on the waiting list, what is the percentage of new patients, and what is the percentage of those who have switched the prescription, and what kind of ratio this will be in the future? I would appreciate it if you could give me a little more detail on these points.
Tatsuya Okamoto: I am Okamoto of Development. Thank you. As I said before, I am sorry, we need to examine the point of your question closely within our company. According to the report from Deciphera, there were patients on the waiting list for treatment of benign diseases for which there was no other treatment available. On the other hand, as you pointed out, there are warnings attached to the preceding drugs, so they are not so widespread, but there has been some switching of such patients. However, the problem is that the breakdown and details are currently being scrutinized within the Company. We do not have the data to provide you with at this time. I'm sorry. Company Representative If I may add, as for existing treatment, not only TURALIO, but those who have been treated with TKI, existing treatment from there, there may be a switch from there. Yoshioka I see. I understand that. Thank you. It would be very helpful if you could give us some more colorful information after three months. Another question is about your future strategy in the diabetes area, where patents have just started to expire. The point is, though, what about the GLP-1 opportunity? Both Lilly and Novo have been pursuing a partnering strategy in Japan for a long time, and your company has such a strong diabetes franchise. As for your company, I think that if there is an opportunity for co-promotion, you go for it, or better yet, you should go for it. So far, there hasn't been any talk of that. Did you raise your hand but ultimately decide not to go for it, or did you think from the start that the conditions were unfavorable and decided not to go for it, or are you going to reduce the sales of diabetes in the future? What is your company's direction? Company Representative Thank you very much. I will answer your question. About the partnership. Of course, we have been focusing on diabetes, so we have a desire to do so, but specifically raising our hand or making a concrete proposal would involve contractual matters related to the partnerships, so I cannot comment on that here. As you mentioned, we have been working in the diabetes field for a long time and it is an area where we are strong, but I hope you will forgive me not saying if we have raised our hand or that we are doing something about it.
Muraoka: I understood. Thank you. Sorry, just one more point. In the data book, there are sales by region, Japan, US, Asia, and Europe. Europe grew significantly from JPY500 million last year to JPY2.4 billion this fiscal year. Was this related to Deciphera, or was there an increase in royalties? It didn't sound right to me.
Masaki Ito: In this Q1, Deciphera is newly included, so the sales in the European region are included.
Muraoka: Most of the plus JPY2 billion is from the European sales by Deciphera; is this royalty-like income? Company Representative They do sell locally, so.
Operator: Right. I understand that. Sorry, I didn't study hard enough. Thank you. That is all.
Ryuta Imura: Thank you. For next question, Mr. Ueda of Goldman Sachs, please go ahead.
Ueda: This is Ueda from Goldman Sachs. I would like to start by asking about the progress of gross margin and SG&A expenses. In Q1, the gross margin was lower than planned and SG&A expenses seem to have progressed relatively well, but this is due to the product mix, such as the progress of FORXIGA, and co-promotion expenses will also decline as FORXIGA declines, so basically, progress is in line with the plan. Is that correct?
Masaki Ito: Regarding SG&A expenses, yes, they are almost in line with the plan. Did you say gross margin or operating profit?
Ueda: I think the gross profit margin is probably a little lower for Q1 than you have planned for the full year.
Masaki Ito: There are no major factors that would cause gross profit margins to fluctuate significantly in the future, so we do not expect to see much variation. For now, we see it as planned.
Ueda: I understand. Thank you. And secondly, I would like to know about the Povetacicept sales. Your Company's FORXIGA will also see its patent expire in the future. If you can maintain the current system for this renal field and lead to the launch of this development product. Could you tell us about your thinking on the sales structure in the renal field?
Ueda: Thank you. In that sense, is my understanding correct that you can bring new drugs to the market without much revision of the system?
Hirokazu Kitada: You are quite right.
Ueda: I understand. Thank you. That's all from me.
Ryuta Imura: Thank you. The time has come, but since two of you have already raised their hands, I would like to continue. Mr. Sakai from UBS Securities, please go ahead.
Sakai: Excuse me. I'm Sakai from UBS. I would like to ask you two questions. One is about sapablursen, whose name was mentioned briefly earlier. I'm not sure if it will be your competitor, but Takeda has been successful with the same indication, and they are quite optimistic, projecting peak sales of USD1 billion to USD2 billion. In contrast, your contract is extremely modest, and although the application is the same, it is an orphan, but on the other hand, it is a fast-drug designation. I see from the documents that there will be a lead-out during FY2025. Do you think it is possible to apply for this at the end of Phase II or at the end of the current trial impressions, depending on the data? This is nucleic acid, but who will be the manufacturer? In other words, the only treatment available is phlebotomy, so I think the marketability will vary greatly depending on how the price is determined. Is that up to your company or is there still some joint work left to be done with Ionis? Could you tell me more about that?
Tatsuya Okamoto: Thank you. I'm Okamoto from Development. First, regarding sapablursen, up to Phase II, the licensor which is Ionis; for us, we are the licensee, will conduct the trial. After that, since we have acquired the worldwide rights, we will implement Phase III. As you pointed out, there may not be a large number of patients, but here we are considering the strategy of implementing Phase III to obtain approval, the normal standard strategy, including past cases, etc. As for the Takeda's case, the points to know are basically the same. We discussed sapablursen in our previous opportunity, but although the modality and approach are different from them, the target is the same as the leading drug rusfertide, so we believe that its chances of success are extremely high, in other words. Sorry, what was the purpose of your question about the NHI price?
Sakai: I think this also has to do with manufacturing costs. I heard, partly, if phlebotomy becomes the target, the drug price becomes extremely low, so the idea behind this is that we still need to wait for Phase III to be completed. Then, according to Mr. Okamoto's explanation.
Tatsuya Okamoto: Regarding the patients in this target group that we initially identified using keywords, we believe that the significance of this target lies in reducing the number of phlebotomy, as it significantly impairs their quality of life. Certainly, if patients had phlebotomy, which is the end, it would be difficult to use the cost of the procedure as a basis for calculation. Usually, after all, from the perspective of improving quality of life, which is not the way to think about it.
Sakai: I see. Thank you. I'll ask just one more question due to time constraints. I just counted the number of pipelines, and your company has 23 pipelines coming up. It's just the number of items, though. I wonder if it is time to narrow down the options, or should you continue with the current number for the time being and review the situation, including R&D costs control, just before the expiration of OPDIVO's US patent in 2028? Could you please let us know if you have any thoughts on that at this time?
Tatsuya Okamoto: Thank you. First of all, we received a compliment, or should I say a compliment, about the number of pipelines. On the other hand, as Mr. Sakai pointed out, we basically believe that we urgently need to fill the late-stage pipelines first. That part will be filled in with licensing-in products. On the other hand, in the early phase, we have been working to detect drug efficacy as reliably as possible while keeping costs to a minimum. For example, in oncology, we have conducted many trials centered on OPDIVO, so we can detect a certain level of efficacy without references, or rather, we can make in-house judgments. We are also focusing heavily on taking biomarkers. We believe that this will allow us to determine Go/No-Go in a relatively compact test at an early stage. At this point, as for the early phase, we hope that all phases will advance, but in reality, some will be eliminated. We do not think it is necessary at this time to narrow down the pipelines from a different perspective, as pointed out by Mr. Sakai.
Sakai: I understand. Thank you.
Ryuta Imura: Thank you. Last but not least, Mr. Wada of SMBC Nikko Securities, please go ahead.
Wada: Excuse me. Thank you. I'm Wada from SMBC Nikko Securities. What I would like to ask is about the OPDIVO royalty. Bristol has also launched a subcutaneous injection, and sales are reported to be around USD30 million in Q1. If the OPDIVO royalty from this is included in this term, if its royalty is included, at this point in Q1 we have been informed that there may be upward or downward revisions, and also about approval, I would like to ask whether the timing of this has been factored into your outlook, or whether your assessment is likely to change over the full year.
Masaki Ito: Regarding royalties, it is included in this Q1, but it is not a major part of the annual forecast, so this part is outside the scope of the forecast.
Wada: So you mean it is not included in the current term for now?
Masaki Ito: No.
Wada: I see. So, you have actually signed a contract that you include it.
Masaki Ito: Yes.
Wada: I understand. Am I correct in saying that it is contracted to include it, but you do not include it in the forecast?
Masaki Ito: You're right.
Wada: I see. Thank you.
Masaki Ito: Sorry. As you have confirmed.
Wada: Thank you.
Ryuta Imura: Are you okay?
Wada: That's all. Thank you.
Ryuta Imura: Thank you. Now, it is a little after 3:00 PM, but we have finished all the questions, so I will now conclude the question-and-answer session. This concludes the financial results meeting for Q1 of the fiscal year ending March 31, 2026. Thank you very much for your participation today. [END]