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Kentaro Asakura: Thank you very much for waiting. We will now would like to start Daiichi Sankyo's Financial Results Briefing for the Third Quarter of Fiscal Year 2024. My name is Asakura from Corporate Communications. First I will explain about language setting. This session will be conducted in Japanese and English and simultaneous interpretation will be provided. Please click on the interpretation icon at the bottom of the Zoom screen and select either Japanese or English or original audio. If you select original audio, you will hear the original audio. The Zoom screen displays the presentation material in Japanese or English depending on the speaker's language. The live webcast will display the presentation in Japanese. Both Japanese and English presentation materials are available on the Earnings Release materials page, IR Library of our corporate website. Please download them as necessary. Today's speakers are as presenters Ogawa, Executive Officer and CFO; Takeshita, Head of Global R&D; and Okuzawa, the Representative Director, President and COO; and Abe Corporate Officer and Head of R&D Division will join for the Q&A part, making a total of four members. First, Ogawa and Takeshita will give an overview of the third quarter results. After that, we will take your questions. Please note that today's briefing will be recorded. Now we will begin. Ogawa san, please.
Koji Ogawa: My name is Ogawa. Thank you for taking time out of your busy schedule today to attend Daiichi Sankyo‘s financial results briefing. I will now explain the consolidated financial results for the third quarter of fiscal year 2024 which we announced at 1:00 O’ clock pm today based on the materials. Please refer to Slide 3. We will present the consolidated investor results for the Q3 FY 2024 and forecast for FY 2024, the business update and the R&D update in that order. Dr. Takeshita, Global R&D Head will present the R&D update and we will take your questions in the end. Please see page 4. The slide shows the overview of FY 2024 Q3 results. Revenue increased JPY194.3 billion or 16.6% year-on-year to JPY1,367.6 billion. Cost of sales increased JPY11.1 billion year-on-year. SG&A expenses increased JPY82.7 billion. R&D expenses increased by JPY43.8 billion. As a result, core operating profit increased JPY56.8 billion or 33% to JPY229 billion. Operating profit including temporary income and expenses increased JPY53.8 billion or 27.6% to JPY248.3 billion and profit attributable to owners of the company rose JPY45 billion or 27.5% to JPY208.6 billion. As for the actual currency rate, the yen was JPY152.56 against the dollar, down JPY9.27 year-on-year and JPY164.82 against the euro, down now JPY9.54 year-on-year. Please see page 5. I will now explain the factors behind the year-on-year increase and decrease. Revenue increased by JPY194.3 billion year-on-year. I will break it down by business unit. In the Japan business unit, sales of Lixiana, a direct oral anticoagulant; Tarlige analgesic; and ENHERTU, an anti-cancer agent increased as did the sales of Daiichi Sankyo Healthcare, while again on realization of unrealized gain on inventories of Daiichi Sankyo Espha was also recorded. Sales of Daiichi Sankyo Espha products are no longer recorded from April 2024 following the deconsolidation of the company. As a result we had a negative JPY21.6 billion. Next I will explain the overseas business units. The slide excludes the impact for foreign exchange rates. In the oncology business unit sales increased by JPY83.7 billion due to growth in sales of ENHERTU in the US and Europe, sales of American Regent Unit increased by JPY7.6 billion mainly due to an increase in sales of genetic injectable drugs and Venofer for iron deficiency anemia treatment. In the EU Specialty Business, sales increased by JPY30.4 billion mainly due to sales growth of Lixiana and Nilemdo/Nustendi anti-hypercholesterolemine agents. The ASCA Business, which is in charge of Asia Latin America recorded an increase of JPY23.2 billion mainly due to the growth of ENHERTU, especially in Brazil. Revenue from upfront payments, development and sales, milestone payments etc related to the alliance with AstraZeneca and US MRK increased by JPY25.3 billion mainly due to the recognition of the second upfront payment for HER3-DXd received from US MRK in October last year as revenue from the third quarter. The overall impact of foreign exchange rate on revenue was JPY45.7 billion. Slide 6 shows the factors behind the increase and decrease in core operating profit. I will explain the JPY56.8 billion increase in profit by item. As explained earlier, revenue increased by JPY194.3 billion including a JPY45.7 billion increase due to the foreign exchange impact. Next, I will explain cost of sales and expenses excluding the ForEx impact. Although revenue increased, cost of sales decreased by JPY100 million due to an improvement in the cost rate because of a change in the product mix caused by factors such as an increase in sales of in house products such as ENHERTU and the elimination of sales of Daiichi Sankyo Espha products. SG&A. Expenses increased by JPY60.3 billion due to an increase in profit share with AstraZeneca for ENHERTU. R&D expenses increased by JPY30.7 billion due to an increase in R&D investments, including a rise in R&D headcounts in line with the progress of the development of 5DXd-ADCs. The increase in expenses due to the impact of ForEx was a total of JPY46.6 billion and actual increase in core operating profit excluding the impact of ForEx was JPY57.7 billion. Next, on Slide 7, I will explain the increase and decrease in profit attributable to owners of the company. As explained earlier, core operating profit increased by JPY56.8 billion including the ForEx impact. Temporary income and expenses decreased by JPY3 billion year-on-year due to a decrease in temporary income. In this fiscal year, we recorded gains on stock transfer of Daiichi Sankyo Espha and in the same period of the previous year we received lump sum payment from Novartis for a US patent infringement lawsuit against our US subsidiary Plexxikon as one-time income. Financial income and expenses increased by JPY21.9 billion year-on-year due to an improvement in foreign exchange gains and losses and an increase in interest income. Income taxes increased by JPY30.7 billion year-on-year due to an increase in profit before tax and the absence of the impact of tax effect accounting in this fiscal year which reduced income taxes last fiscal year following the decision to transfer Daiichi Sankyo Espha. As a result, profit attributable to the parent company increased by JPY45 billion year-on-year to JPY208.6 billion. Next, I'd like to talk about our business forecast for fiscal year 2024. Please see Slide 9. Regarding the revenue we have reduced the revenue forecast for Datroway due to delays in approval and launch in the lung cancer field, but we expect this to be covered by increased sales of main products such as ENHERTU and therefore we have not revised the forecast announced in October. Please refer to the supplementary materials for the latest forecasts for each business unit and product. Core operating profit and operating profit have not been revised from the forecast announced in October either. Meanwhile, profit before tax has been revised upward by JPY15 billion to JPY300 billion, reflecting an increase in financial income due to the improvement in foreign exchange gains and losses on a cumulative basis up to the third quarter, and profit attributable to owners of the company has been revised upward by JPY15 billion to JPY240 billion. The exchange rates for the fourth quarter are assumed to be JPY145 to the dollar and JPY155 to the euro. I will now explain our current outlook for the financial results for fiscal 2025. Due to a change in the development policy for Datroway in the second line treatment and beyond of non-small cell lung cancer, the number of target patients is expected to decrease more than initially expected for the time being and the timing of approval is expected to be delayed from the initial schedule. As a result, we expect that product sales of Datroway in lung cancer in fiscal 2025 will be lower than those projected at the time of the mid-term plan update in April 2024. On the other hand, we believe that the decline in Datroway sales will be offset by the steady expansion of sales of mainstay products such as ENHERTU. In addition, we will aim to achieve core operating profit at or above the level set at the time of the mid-term plan update in April 2024 while controlling R&D expenses and others. Specific performance forecasts will be provided in April. Next I would like to talk about the business update. Please see slide 11. This slide shows the sales of ENHERTU. Fiscal year 2024 Q3 year-to-date sales grew led by HER2+ breast cancer second line treatment and chemotherapy pre-treated HER2 low breast cancer and in all regions sales achieved double-digit growth rate year-on-year increased by JPY128.4 billion year-on-year to JPY404.4 billion. Product sales in FY 2024 are expected to increase in the US and we expect JPY539.9 billion, an increase of JPY16.9 billion compared to the October forecast. The US year-to-date product sales in Q3 FY 2024 were JPY219.7 billion, up 35% year-on-year. We maintain the number one share of new patients in breast cancer, gastric cancer and lung cancer indications for both HER2+ breast cancer second line treatment and HER2 low breast cancer previously treated with chemotherapy. We gained more than 50% of new patients and maintained number one share. On January 27th, in the US time, we obtained the approval for chemotherapy naive hormone receptor positive, HER2 low or HER2 ultralow breast cancer. In Europe, sales increased 69% year-on-year to JPY109.5 billion. Sales grew steadily mainly in Germany, France, Italy and Spain. The share of new patients with HER2+ breast cancer in second line treatment was approximately 70% in Germany and over 70% in France and Italy and over 80% in Spain, consolidating the top position in the market. We maintained a top position in terms of the share of new patients with HER2+ breast cancer previously treated with chemotherapy in Germany, France and Italy and in Spain reimbursement began in November. In Japan, sales increased 33% year-on-year to JPY23.5 billion. We are keeping and expanding the number one new patient share in all indications of breast cancer, gastric cancer and lung cancer. The new patient share in the second line treatment of HER2+ breast cancer has expanded to over 50% and in HER2 low breast cancer previously treated with chemotherapy expanded to more than 60%. Market penetration is progressing steadily. In the ASCA region, sales increased 68% year-on-year to JPY51.8 billion. Sales grew substantially, especially in Brazil and China. In China, approval was granted in October for HER2 mutated NSCLC and for HER2+ breast cancer second line and HER2 low breast cancer post chemotherapy, we attained the NRDL listing and reimbursement began in January this year. In Brazil, in addition to a steady increase in prescriptions for existing indications, we received approval for HER2+ solid tumors in November. Product sales in the ASCA region include co-promotion revenues in China, Hong Kong and so on where AstraZeneca records product sales. We will continue to work for further market penetration and expansion of the countries regions where the product is available and to obtain new indications so as to deliver ENHERTU to as many as possible who need it. Next I will discuss the approval of Datroway. Please see slide 12. We have received approval for the anti-TROP2 ADC Datroway in Japan and the US. Datroway is the second product approved on our DXd ADC platform following ENHERTU. The approval was obtained in December last year in Japan and in January in the US. The indication is unresectable or metastatic, hormone receptor positive, HER2 negative breast cancer with prior endocrine-based therapy and chemotherapy. 6mg per kg of body weight is administered intravenously at 3 weeks intervals. The global product sales forecast for Datroway in fiscal year 2024 is JPY400 million. We will contribute to more patients by providing a new treatment option for hormone receptor positive and HER2 negative breast cancer. On slide 13, I will talk about the acquisition of intellectual property rights for the Anti-TA-MUC1 antibody. The Anti-TA-MUC1 antibody is the antibody of our sixth DXd ADC, or DS-3939, currently under development by Daiichi Sankyo. In 2018, we in-licensed exclusive rights to develop and commercialize gatipotuzumab Anti-TA-MUC1 antibody as an ADC drug using our ADC technology from Glycotope. DS-3939 is currently evaluated in a phase 1/2 clinical trial targeting various types of solid tumors. In light of the product potential of DS-3939, we acquired the intellectual property rights of gatipotuzumab from Glycotope in December last year. The purchase consideration was $132.5 million or JPY22 billion. This consideration satisfies all potential milestone payments as well as royalties as part of the 2018 licensing agreement. This consideration will be recorded as an expense over the anticipated exclusive sales period after the marketing approval of DS-3939. Slide 14 provides information on Oncology Business Briefing. We will hold an Oncology Business Briefing in late February. CEO, Manabe; Oncology Business Unit Head, Ken Keller; and Oncology business heads for the US and Europe will be on stage to explain the marketing strategies for ENHERTU and Datroway. We'll share the details with you once they have been finalized. Now for an R&D update I will hand over to Global R&D Head, Takeshita.
Ken Takeshita: Thank you, Ogawa San. And it's a pleasure for me to give you the R&D update. Before I do, I would first like to introduce all of you to Dr. Yuki Abe, who is our new Head of Global Research Program and also the Head of R&D Japan Division. He's a successor to Dr. Agatsuma who passed away, as you know, recently and Dr. Abe is therefore his successor.
Yuki Abe: Hello everyone. My name is Yuki Abe. I have been working on ADC research with my predecessor Agatsuma for the past 15 years and have been responsible for the leadership and management of the team. As the Head of the R&D division, I will work with my colleagues to further strengthen science and technology which is our corporate strength, discover and develop new drugs that can contribute to patients. Thank you. Now hand it back over to Ken San.
Ken Takeshita: And of course he will participate in these investor calls from time to time in the future. So thank you very much. Okay, now we can go on to the next slide and we're going to give you some highlights of some recent news in all of our ADC programs. And first, and number one, is our first approval for DB-06 in a new indication for breast cancer. You'll see that this is a new indication and particularly important because we are now in the HER2 ultralow breast cancer. You will remember that previously with the DESTINY-Breast06 we were able to demonstrate efficacy and safety and therefore approval in the HER2 low patient population, and we are now further even lower than low into the ultralow and so therefore we are covering more patients. And not only that, DESTINY-Breast06 is an earlier line of therapy compared to DB-04. This is depicted in the diagram on the right hand side. This is a breast cancer disease map and you'll see DESTINY-Breast06 outlined in red compared to the patient population that was a subject of DB-04. So we are very excited with this new approval and we hope to help many patients with breast cancer. Next slide. In addition to breast cancer, ENHERTU is also making progress in DESTINY-Gastric05 clinical trial. This is a new trial DG-05 intended to demonstrate value of ENHERTU in the frontline setting for HER2+ gastric cancer. What you see here is the study design that we are -- of the clinical trial that we are conducting. This is a new study that recently opened. You'll see that the main cohort is the patients with high PD-L1 expression. The arms are Arm M1, which is experimental ARM with ENHERTU plus a combination of either 5-FU or capecitabine + embrolizumab and the control Arm M2 is a standard of care, which is Trastuzumab + cisplatin + -- excuse me, cisplatin + 5-FU or oxaliplatin + capecitabine and pembrolizumab. We do also have an exploratory cohort, you can see below in the lower half of the slide, for patients with a low expression of PD-L1. I do want to mention here that this is -- so this is a study start of a Q4 of fiscal year 2024, but in addition there is a second sister clinical trial called ARTEMIDE-Gastric01 study in which we are evaluating the combination of ENHERTU and rilvegostomig from AstraZenetica. This is the AstraZeneca bispecific PD-1 + TIGIT. Next slide. In the Datroway program, I think you just heard that we have obtained approval -- first approval for Datroway in indication of a hormone receptor positive, HER2 negative metastatic breast cancer. We have obtained approvals in the US and Japan so far and we are very excited to be moving forward in the breast cancer program with data program. Next slide. In addition to the breast cancer program for Datroway, I do want to alert you to the news that I think many of you are already aware of, which is that we have changed our regulatory strategy based on the data that we have so far to focus initially on the EGFR mutated non-small cell lung cancer patients in the US. So this is going to be a filing that has been filed already. It is based on the primary study of TROPION-Lung05 with supportive data from TL-01 and we have already received from the FDA the Breakthrough Therapy Designation for this patient population with the data that we have obtained so far. And you can see that PDUFA date is July of 2025. Okay, next slide. These are the data that support our regulatory strategy to focus initially on EGFR mutated lung cancer. You'll see here -- this is the data that was presented recently, pooled analysis of EGFR mutated patients from TL-01 and TL-05 and you'll see very good response rates, PFS, et cetera in this highly relapsed patient population with a very high unmet medical need. Next slide. Moving on to the HER3 program, we want to indicate to you that we are making progress in our HER3 program. This is our new study that we are showing you here, HERTHENA-Breast01 study, in which we are combining trastuzumab + HER3-DXd and then randomizing the patient into these two arms that you are seeing here. This is a Phase 1b plus 2 study. It's basically a signal seeking study as well as some clinical indication of these two different combinations. These are really based on the more recent breast cancer data from a monotherapy HER+ that we presented last summer at the ESMO meeting in which we showed substantial activity of HER3-DXd in breast cancer. So we are very excited again to be moving forward with breast cancer for this ADC. Next slide. Next slide, this one is the IDXd program. This is also known as -- originally known as DS-7300 target being B7-H3. And we have a new study, a Phase 3 study of IDXd in pretreated advanced or metastatic esophageal squamous cell carcinoma. So this is a new indication that we are pursuing in a registration trial. This is a randomized study in which we are studying single agent IDXd versus standard of care. Next slide. In the R-DXd program, I think many of you are aware that we have a very robust program of R-DXd in ovarian cancer. But in addition to ovarian cancer, we are conducting a new study which we call REJOICE-PanTumor01. So beyond ovarian cancer, we are studying a long list of cancers, endometrial cancer, cervical cancer, et cetera, in this clinical trial. And so these are really exploratory studies, really designed to detect activity of R-DXd in these cancer types and this is a study that recently started enrolling. Next slide. In terms of other clinical updates, I just want to mention to you that for the inherited program, we are making good progress in developing a subcutaneous formulation which we are doing with a collaboration with Alteogen, a Korean company. In terms of Datroway program, we have recently started a clinical trial, a phase 3 combination study called TL-12 for adjuvant therapy in non small cell lung cancer, early stage adenocarcinoma with poor prognosis including ctDNA-positive at the completion of surgery. In the HER3 program, we have an MK-1022 program, which is a phase 1/2 study for colorectal cancer, biliary tract cancer and hepatocellular carcinoma. This is a MRK study and we're very excited to be doing some signal seeking in these additional cancer indications. For the IDXd program, we plan to start two important studies. One is a KEYMAKER-U06 substudy in which you are studying a combination of IDXd with pembrolizumab in the frontline setting for esophageal cancer. And second, we are starting a combination study of IDXd with MK-6070, also known to many of you as the Harpoon bispecific. As you may remember, both of these drugs, the Harpoon bispecific plus the IDXd, both have demonstrated very high activity in small cell lung cancer and therefore we are doing a combination of these two very active agents in small cell lung cancer. And finally, we are very interested in the IDXd and R-DXd both in KEYMAKER-U01 study for non small cell squamous and non-squamous type to evaluate the efficacy and safety of these two agents compared to docetaxel. Next slide. Okay, now next wave. So in addition to these five ADCs that I just mentioned to you, we have many other programs going on and I want to give you a brief update on those non-DXD ADC programs. First is the VANFLYTA program, the QuANTUM-Wild study. This is a clinical trial of our VANFLYTA drug in frontline AML setting in those patients who do not have the ITD mutation. This is based on the early data from what's called a QUIWI study which showed a substantial activity of VANFLYTA in patients without the ITD mutation and therefore we are studying this drug in the Phase 1 -- excuse me, Phase 3 setting in a clinical trial that you are seeing here. And this has started to enroll and we are very hopeful to see the results of this in the very near future. Next slide. This is an update on the EZHARMIA program, the EZH1 and 2 combination inhibitor. You'll see that we are studying a combination of this drug with pembrolizumab. And this is based on some very interesting laboratory observations that the EZH inhibition causes activation of T-cells and increased antitumor activity by T-cells. Therefore it's a natural combination to study two immunotherapeutic drugs, the EZH drug as well as pembrolizumab and so this is the clinical trial that we are conducting in non-small cell lung cancer in the front line setting. Next slide. Here is another new program that we are very excited about. This is DS-2243. This is not an ADC but rather a T-cell Engager. This is a very interesting T-cell Engager in that it's a bispecific T-cell Engager in which the target is an HLA-A*02 restricted NY-ESO antibody. Now typically these targets are detected and targeted using T-cell receptors, but this is a unique antibody in which it is able to recognize in HLA restrictive manner the target antigen NY-ESO and we are very excited to be able to start this clinical trial very soon, the 2243. Okay, next slide. Okay, in terms of news flow, this is actually a very important slide and I hope you agree that there's a lot of information on this particular slide. First of all, I want to alert you to some new data on the Datroway that's being presented by TB-01, the final OS data analysis. This is the ESMO virtual conference. It'll be in mid-February, in a few weeks. Next, in terms of important regulatory decisions, you'll see DESTINY-Breast06 in Europe it'll be very important. And also, as I mentioned to you, the EGFR mutated lung cancer submission, we should be receiving FDA decision on this sometime over the summer. And also we are expecting to receive some indication of outcome of the TB-01 in Europe very soon. As I mentioned, we have already received approvals for TB-01 in Japan and US. Now, on the right hand side of the slide, what you'll see is the key data readout. There are many of them. What I want to really emphasize here is that this year, we have -- I counted eight, eight important key data readouts just in a period of one year and so there'll be a very exciting time for data for Daiichi Sankyo in fiscal year 2025. Okay, that's it for my side and let me turn it back to Asakura San.
Kentaro Asakura: We will now move on to the question and answer session. But before that we announced in our press release at 1 O’ Clock pm today, Okuzawa is appointed as Representative Director, president and CEO effective April 1. Okuzawa would like to make a few remarks.
Hiroyuki Okuzawa: This is Okuzawa and starting from April, I'll be taking this heavy responsibility of CEO of Daiichi Sankyo. The purpose is to make a contribution to the rich and healthy life for the people in the world. Our science technology needs to be further strengthened so that we will too make another step of growth and development in our company. And the current CEO Manabe, actually embodied science and technology decision making and having the unwavering commitment to the patient and their friends, we would like to continue to achieve their short-term performance as well as the long-term performance results. I'd like to ask for your continued support and cooperation. Thank you.
Kentaro Asakura: Thank you very much. And I would like to start taking questions.
Operator: [Operator Instructions] The first question is from Yamaguchi san from Citigroup, please.
Hidemaru Yamaguchi: [Foreign Language]
Koji Ogawa: Hi, this is Ogawa. Thank you very much for your question. I would like to explain this time without slides. I gave you that explanation therefore it might be ambiguous, but in April 2024 we make the financial results briefing and in time with that, in this final year of the five year business plan concerning financial KPI we updated and in that update made then revenue is JPY2.1 trillion and R&D expenses -- the core operating profit 40% before deducting R&D expenses. 40%. These are the set KPIs and we expect to achieve them and those were updated and ROE 16%, DOE 18.5%. And at the same time, concerning the expected R&D spending, we also talked about it. It's JPY1 trillion for both the fiscal year 2024 and 2025, so JPY470 billion for FY24 and JPY530 billion for FY25. Those are the numbers that we announced back then. And currently concerning the numbers for FY25, I made a comment and in April, the five year business plan was updated. And back then KPI was talking about the revenue of JPY2.1 trillion. Although there was a change of strategy in terms of that ROI, we believe that we will be able to achieve the total revenue. And next about 40% core op, I think that we can also say that we'll be able to achieve this 40%. And R&D expenses, as an estimate, we discussed JPY530 billion for FY25, regarding this number, we have been controlling the expenses so that we'll be able to control R&D expenses within that number. And by so doing, the operating profit, the assumption back then should be surpassed and I think we should be able to progress towards that goal. Thank you very much.
Hidemaru Yamaguchi: I had another question. Development milestone or regulatory part TL-01 Europe, but this time I think it's withdrawn, so what is your plan as a next step and HER3 witness approval, I think it's delayed. Last year in June, I think a complete response was provided and what is the current situation? I'd like to have these two points update.
Koji Ogawa: Thank you very much. First, talking about the milestone, I'd like to respond. Talking about the European development milestone, did you say European milestone?
Hidemaru Yamaguchi: No, no, TL-01 development status in Europe or for Europe.
Koji Ogawa: Thank you. Then Dr. Takeshita will answer to your questions.
Ken Takeshita: Yes. On the HER3 program, we are still in discussion with the FDA on the on the path for HL-01 and 02. And as of today we don't have any more updates for you on that.
Hidemaru Yamaguchi: How about Europe tier 01 withdrawn? How are we going to do? Are we going to do the same thing like FDA?
Ken Takeshita: Yes. So for Europe it'll be -- it's a similar discussion and we don't yet have a firm decision on the European strategy, but we are of course very much thinking about the similar strategy for Europe.
Hidemaru Yamaguchi: Okay, thank you. I do understand.
Operator: Next question from JP Morgan, Wakao San, please.
Seiji Wakao: I am Wakao from JPMorgan. Thank you for this presentation. This is a follow up on Yamaguchi San’s question on your forecast in the mid-term business plan. So JPY2.1 trillion for the revenue and it's within the reach. If you look at the contents, it's JPY1 trillion for oncology and that Dato-DXd TL-01 has been withdrawn, but then ENHERTU is doing very well. But what about DB*06? It's been approved and sales is going to expand. And ENHERTU sales is very good right now, but Dato-DXd, in the absence of that and HER-3's delay, can you really do JPY1 trillion for oncology or within JPY2.1 trillion, co you have a different composition now?
Koji Ogawa: Thank you for your question and I think I missed to answer this part of the question in the previous question as you have rightly understood Datroway development plan has been changed and as of April last year we had an update of mid-term business plan and that is a major factor that's different now and to what extent ENHERTU can make up for that. So that is under consideration right now and this is a very important key factor for us to see whether we can do JPY1 trillion or not. And we'll be able to make some kind of announcement in April.
Seiji Wakao: So DB-06, this is a future thing, but if you look at the progress so far, ENHERTU can probably make up for the loss of Datroway. Is that your understanding?
Koji Ogawa: Yes, to what extent we can fill the gap produced by Datroway. This is under consideration right now, but then it's under consideration, so there is possibility that ENHERTU can do that.
Seiji Wakao: And in terms of the revision, I couldn't fully understand understood the point because for each product, if you put all together, I think JPY31 billion upward revision is possible and milestone is JPY1.1 billion revision downward. So all in all, net-net it has to be upward revision but then you have not changed operating profit. I didn't really understand the reason why. So are there any other negative factors at play? How could I understand this?
Koji Ogawa: Thank you for your question. Yes, other factors, There are some negative factors we are looking at like one is vaccine, this is actually one big uncertainty and considering that still the potential factor for upward revision, is it possible or not? There are still certain uncertainties there, but as much as possible we would have liked to consider the upward revision. However, because of the uncertainty regarding the vaccine business, we have not changed the operating profit and in relation to that, in the third quarter, the cost of sales ratio has really deteriorated looking at QonQ not YonY.
Seiji Wakao: And if you look at the other sales revenue, it looks like it's a negative figure. And is it due to the vaccine sales, sluggish vaccine sales or that's nothing to do with the vaccine?
Koji Ogawa: Well, yes, actually you're right. For the third quarter the cost of sales seems quite high and it's because of the seasonal factor inner bill and vaccine. These played a role because they have high cost of sales and that affected the overall cost of sales.
Seiji Wakao: What about DAICHIRONA, is that also included? Is that also a negative factor?
Koji Ogawa: Yes, yes.
Seiji Wakao: Okay. And finally AVANZAR study and the same population phase 1, 04 study and you are using QCS and are you going to use it or not? Are you able to make an announcement regarding that or not? And what is the significance of doing that? I think you are trying to set the threshold for that but I'd like to once again know a little more about that.
Ken Takeshita: To the AVANZAR study, we haven't really published anything or made any public announcements on this regard. It is very important to note that AVANZAR is a study in which QCS will be applied and we do think that's a very important part of our overall lung cancer strategy for data.
Seiji Wakao: Okay, so you're not making announcement so you are not going to let us know. Okay, that's all, thank you.
Operator: Next question, Jeffries Securities, Barker San please.
Stephen Barker: Hi, Barker from Jeffries Securities. Regarding IDXd, I'd like to ask you a question. The ESCC and B7-H3, the newly started new clinical trials introduced today, in that tumor type, what is the percentage of patients expressing the DB783 expressions? And I want to screen this expression level and recruit patients for those studies.
Ken Takeshita: Yes, that's very interesting question. So, in both of these studies we are aware that most if not all patients express some level of B7-H3. So for this reason the clinical trials are designed so that we are enrolling in all comers regardless of the B7-H3 expression status.
Stephen Barker: Thank you very much. That's all.
Operator: Next question from Nikkei, Kurose san, please. Nikkei Newspaper.
Taito Kurose: Thank you. I am Kurose from Nikkei Newspaper. I have a question to Okuzawa san regarding the new appointment as CEO. So back in 2023 you became President and in the past two years what are the focuses of your work and what's your aspiration going forward as new CEO? Thank you.
Hiroyuki Okuzawa: I became CFO back in 2021 and that was the first year for the fifth mid-term business plan and I was CFO for five years and in 2023, 2024 as COO, I worked on this mid-term business plan. For the total of four to five years, I have been leading this mid-term business plan together with CEO, Manabe. And during this time we had a major decision made which is the collaboration and partnership with MRK and then different organizations within the company. I listened to them and then I evaluated pros and cons to come to the conclusion for that partnership. And then in the chair of President and COO, I myself forecasted and committed to the enhancement of human resources development. And in the first year of being appointed, I looked at all of their functions within Japan and from the second year, US, Europe as well as China, I visited all of their sites and I covered almost 90% of the employees in terms of market reach and explain with my own words the current state of Daiichi Sankyo and the future vision of the company. And through doing that, our innovative and inclusive corporate culture has been nurtured and that was always at the back of my mind. And going forward, talking about my aspiration, I have always been committed to the future fifth mid-term business plan and next year will be the last year of this plan. We have been attracting a lot of questions about this plan today as well, so I would like to make sure that we achieve all of the KPIs of this plan, so that's the first top priority. And then starting 2026, we need to have the next five year mid-term business plan and the discussions for that have already started. So I would like to lead the discussions and by 2030, in oncology, we would like to become one of the top 10 companies in the area of oncology, so I would like to solidify that target. And beyond 2030, sustainable growth needs to be secured and together with Abe San, I would like to enhance our power to discover and develop drugs even further and I'd like to make very strong commitment in doing that as a CEO.
Taito Kurose: Thank you very much.
Hiroyuki Okuzawa: Thank you.
Operator: Next question, Morgan Stanley MUFG Securities, Muraoka San please.
Shinichiro Muraoka: Thank you very much. Muraoka, Morgan Stanley. I have a question to Ogawa San first and it is also a follow up of Wakao San's question maybe that there are some points not answered. Deducting all the segments, the others business part numbers seems somewhat strange and I think vaccines, it's understandable, however, there is about JPY20 billion a downward change seen in the numbers. Do we have to worry about this too much or is there any major changes in your forecast or is it a kind of a buffer? Please tell this on this point.
Koji Ogawa: Thank you for your question. I’d say you don't have to care this too much. It is not buffer and this is not really a big concern point meaning that I do not have any extra information in this regard and if there is anything that we are missing the sufficient explanation in a presentation, I would be happy to cover that, but there's nothing special. So even if having some JPY20 billion difference here in the forecast, it won't have any major impact on the revenue forecast.
Shinichiro Muraoka: That's right. We don't see any major risks there. Thank you. My second question is about R&D, DB-06 approval, congratulations. And going forward, in the medical practice there will be, I think, changes, if it becomes available for outer law, even HER2 testing missing, do you think that your product will be utilized in the practice or the guideline will be changing or at any rate everyone will get HER2 testing therefore it's not a big issue. How should we view this? I believe that there is no negative but what are the positive degree of this approval?
Ken Takeshita: Yes. So yes, you're absolutely correct that one wonders whether there's any more need to test for HER2 expression in these breast cancer patients who are candidates for in HER2 therapy. I think that technically that will be an off-label use and it's really up to the physician to make that decision. Our label clearly says that they have to be at least have the ultralow which is what we would call, I don't know, zero plus level of expression. So it's a little bit difficult to predict how this new indication will change the field, particularly with respect to the pathological assessment of breast cancer. I think we're just going to wait to see how things go in the next few months and we can report back to you then.
Shinichiro Muraoka: Thank you very much. That's all.
Operator: Next question is from UBS Securities. Sakai San, please.
Fumiyoshi Sakai: Thank you. I am Sakai from UBS Securities. I have two questions. First DS-2234 with MRK, MK-6070 and DS-7300, I think a combination a trial phase 1/2 is ongoing right now and DS-2234, the target engagers are different, therefore probably the target cancer types may be different and you'll be exploring that. What is the target of having this DS-2234? I'm sorry about this, a very broad based question but what would be your target going forward? Outside of [Indiscernible] there is a very high binding and including that kind of a characteristic and is there any difference in concept in this collaboration with MRK?
Ken Takeshita: Yes. The major scientific differentiation is the target. The bispecific that we are collaborating with MRK has a target of DLL3. This is a target that's predominantly expressed in small cell lung cancer. And so therefore it's a natural drug to be developed in small cell lung cancer, especially not just as a monotherapy, but also in combination with our B7-H3 ADC, as I indicated earlier. For this new T-cell Engager from us, the DS-2243, the target is NY-ESO, the antigen is called NY-ESO, so it has a very different antigen expression pattern and that it is expressed in various tumors such as sarcomas and certain types of non small cell lung cancer. So, that's where the difference is, so we do expect that the development path for 2243 will be substantially different from the development path for the DLL3 T-cell Engager.
Fumiyoshi Sakai: Thank you very much. Understood. So the priority is really going to be shifting towards 2243.
Ken Takeshita: I think it's a little bit difficult to talk about priorities. I think for 2243 we need to get this compound into the clinic and see how active it is in various cancers, sarcomas, small cell lung cancer, et cetera, and then we can make a determination of whether or not we want to prioritize this one versus some other one. But for now, because we have so much outstanding data on both DLL3 T-cell engager and the DS-7300, the B7-H3 ADC, our main priority is those two compounds going into small cell lung cancer.
Fumiyoshi Sakai: Thank you very much. I have another question, and it's a very basic question. I'm sorry and it's a kind of a rudimentary question. And in HER2 material, NCCN guideline updates are written and there is a list of a lot of different cancer types here. And how are you handling those updates? Like the pancreatic cancer and also other adenocarcinoma, small bowel adenocarcinoma, you don't have indications for that. And how American physicians are treating those other cancer types?
Ken Takeshita: That’s what's called a compendial listing. And so in the absence of official approval of -- regulatory approval, if a drug is listed on the compendial listing, it is reimbursable by insurance. Now - so the NCC guideline is, it's really formulated by a group of academic oncologists who create these guidelines. Now, a lot of the NCCA guideline is based on clinical trial data as well as the approval status of the drug, so these various types of cancer that's listed as part of the NCCN guideline update, a lot of this was based on the PanTumor clinical trial for ENHERTU. You remember that recently we received in the US a PanTumor approval for cancers with IHC expression of 3 plus or greater and in that we had a list of cancers, all these cancers that are listed here in NCCN guideline that was part of our IHC 3+ FDA approval. What is a little bit different in the NCCA guideline compared to what's in our label is that for many cancers, the NCCA guideline also includes the IHC 2+ as well as the 3+, so that's an actually important difference for many patients. I hope that answered your question.
Fumiyoshi Sakai: Yes. Okay, I need to dig in a little bit more. But you're not going to actively promote all these non-approved tumors, right? So it's a physician's choice if you like.
Ken Takeshita: That's correct. We do not actively promote the use of ENHERTU in patients where we do not have an indication. But the physicians are very free to refer to the NCCN guideline on making decision on how to treat their patients.
Fumiyoshi Sakai: Right. Okay, very clear. Thank you very much.
Operator: Next question, SMBC Nikko Securities, Wada San please.
Hiroshi Wada: SMBC Nikko Securities Inc. Can you hear me okay?
Koji Ogawa: Yes, we can. Thank you.
Hiroshi Wada: I have two questions. In page 31, AVANZAR study results publication, what is the timing. Looking at ENHERTU’s, it's like in the first half or second half of the fiscal year but AVANZAR study it says second half of FY 2025. Is it like from July to September time frame? That's my assumption. So could you tell me the timing of publication of AVANZAR study results? Okay.
Ken Takeshita: This is the AVANZAR study that is being run by AstraZeneca and it refers to the calendar year which is what the AstraZeneca company is using, not the fiscal year that begins in April. Their calendar -- their fiscal year actually starts in January, so that's how why it's expressed the way it is.
Hiroshi Wada: Understood. Thank you very much. Another question is about DS-2243 T-cell Engager. Looking at the patients, how many patients do you have or what kind of percentage of patients do you have this expression. and HLA-A2 NY-ESO peptide is detected by this antibody, I think and how broadly indication will be. So the indicator HLA-24 or 03 or A-A02, I think it's only 20% in Japanese patients, so it is applicable to other HLAs because if it is antibodies binding to this HLA-02 that seems to be challenging.
Ken Takeshita: This antibody is designed to detect this HLA restricted antigen complex with NY-ESO. And the HLA restriction of A2 was chosen because it is really the most common HLA type. And so the way it was designed was really designed to capture as many patients as we can.
Hiroshi Wada: Thank you very much. And epitope I think varies from person to person. Within NY-ESO, which kind of epitope would you use? And even in HLA-A2, I think depending upon epitope, the target patient may be further limited. Is that right?
Ken Takeshita: That is detected by the antibody should be the same. So really the HLA complex plus the epitope should be the same because that's how the T-cell Engager and the binder part, the antibody detection portion, that's how it's designed, so it's the same.
Hiroshi Wada: Depending on the person, NY_ESO amongst these proteins, I think there could be different epitopes detected. And as a result I am worrying that there will be a further narrow down of the patient population.
Ken Takeshita: There may be variations in the expression level of the particular epitope that a patient's tumor expresses, because as you know, we're talking about NY-ESO, not the whole protein, but peptides. But, in general, when these HLA restricted antigens are expressed, they can be detected even though the expression level may be very, very low. So these are very special antibodies that we are using here. So I would expect that in terms of expression level, it would be my guess because we haven't really yet done the clinical trial, but it would be anticipated that even low levels of expression will be detected by the binder that we're using here.
Hiroshi Wada: Thank you. And just for final confirmation, regarding generalization of this technology, five or nine epitope binding antibodies I think is the antibody that you have. So it could be generalized, right?
Ken Takeshita: We're not able to comment on that -- on the amount of research we're doing with these HLA restricted antigen programs, but it is of course a very interesting way to target cancer cells for sure.
Hiroshi Wada: I agree. Thank you very much. That's all.
Operator: Due to the time limitation, the next one is going to be the last question. Sogi San from Bernstein, please.
Miki Sogi: Thank you very much. Can you hear me okay?
Koji Ogawa: Yes.
Miki Sogi: So this is a question regarding IDXd program. So the, a few things, so IDXd, now you are saying that there will be a Phase 2 readout from the ongoing IDXd -- I think Ideate-El01. Is this the results coming from the additional 70 patients you added to the initial ongoing program and also based on that data, is there's a possibility that you might consider the filing for accelerated approval for the third line plus small cell lung cancer? So that's one question. And the secondly, and also you also mentioned about the combination study with the IDXd + MK-6070 for relapse and refractory small cell lung cancer. But we thought that actually -- alternatively this combination can be or should be tested for a first line setting. So this phase 1B/2 design does not necessarily exclude the possibility that this combination will be tested in first line in pivotal trial. So those are the questions for IDXd. Thank you.
Ken Takeshita: Okay, so on the IDXd program and I think your first question was whether or not any of the currently ongoing clinical trials could lead to a submission for an approval. And I think that's a -- I guess that is a possibility. It really depends on the data and we have to see the data first. But I hope you appreciate that we are very impressed with the activity of this drug in small cell lung cancer, so we just have to wait to see what the data shows. In terms of your other question about whether or not we have any interesting moving into earlier lines of therapy for small cell lung cancer, the answer of course is absolutely yes.
Miki Sogi: Okay, thank you finally for the T cell Engager bispecifics DS-2243, is this the modality coming from Daiichi Sankyo and you do have the modality platform beyond this one particular molecule?
Ken Takeshita: Okay, so this is a result of an internal research efforts and I think it's a bit premature to say whether or not this is part of our modality strategy, but really to say that this is a very interesting and unique product of our internal research. We're very proud of this.
Miki Sogi: Thank you very much.
Kentaro Asakura: We already surpassed the expected closing time, so we would like to close and finish Q&A. We understand that there are still people raising their hand, but please give questions to our investor relations.
Operator: Thank you very much for your attendance today. We would like to conclude the briefing.