Daiichi Sankyo Co., Ltd. (DSNKY) reported significant growth in its fiscal year 2023 financial results, with a 25.3% increase in revenue and a 59.3% rise in core operating income. The pharmaceutical company's strong performance was primarily driven by robust sales of its key products including Inavir, ENHERTU, Lixiana, Tarlige, and its vaccine business.
Daiichi Sankyo also highlighted the strategic alliances with AstraZeneca (NASDAQ:AZN) and U.S. Merck, which contributed to the revenue surge for ENHERTU. The company has laid out ambitious plans for further expansion and aims to become a top ten oncology company by 2030.
Key Takeaways
- Daiichi Sankyo's revenue rose to ¥1.6017 trillion, a 25.3% increase year-over-year (YoY).
- Core operating income saw a significant jump of 59.3% YoY, amounting to ¥195.3 billion.
- Sales of ENHERTU alone reached ¥395.9 billion in FY 2023, with a forecast of ¥508.4 billion for FY 2024.
- Strategic partnerships with AstraZeneca and U.S. Merck have been lucrative, particularly for ENHERTU.
- The company aims for sales of over $1 billion in Europe and ¥25.7 billion in Japan for ENHERTU in FY 2024.
- Daiichi Sankyo plans to increase its annual dividend per share by ¥20 to ¥50 for FY 2023.
- A share transfer agreement with Daiichi Sankyo Espha has been made to optimize the profit structure.
Company Outlook
- Daiichi Sankyo forecasts a sales revenue of ¥1.750 trillion and a core operating profit of ¥210 billion for FY 2024.
- The company expects oncology sales revenue to exceed ¥1 trillion by FY 2025.
- Plans are in place to invest in R&D for sustainable growth and to achieve an ROE of 16% or higher.
- Daiichi Sankyo aims to balance investment with shareholder returns, including increasing dividends and share repurchases.
Bearish Highlights
- The company acknowledges the challenges of forecasting the impact of the foreign exchange market on budgets.
- There is a projected negative impact of ¥10.7 billion due to tax accounting related to the transfer of Daiichi Sankyo Espha.
Bullish Highlights
- Daiichi Sankyo maintained its top market share for new patients with certain types of cancer.
- The company is conducting studies to expand ENHERTU indications for earlier lines of therapy.
- Revenue growth is expected to continue, driven by sales expansion and strategic alliances.
- Investments in DXd-ADC production facilities in Japan, Europe, and the US are planned to support growth.
Misses
- The company did not mention any specific misses in the financial results or forecasts.
Q&A Highlights
- Ken Takeshita clarified that the TL-08 delay is unrelated to the biomarker, with details to be disclosed by AstraZeneca.
- Hiroyuki Okuzawa discussed the company's strategy for managing long-term FX rate changes and vaccine production capabilities.
- The combination of Valemetostat and ENHERTU is being explored for superior efficacy in cancer treatment, with phase three studies planned.
Daiichi Sankyo remains focused on expanding its product portfolio, particularly ENHERTU, and investing in research and development to drive future growth. The company is also committed to creating shared value with stakeholders and enhancing shareholder returns through strategic financial management. With a promising outlook and strategic initiatives in place, Daiichi Sankyo is poised to continue its trajectory towards becoming a leading global healthcare company.
Full transcript - Daiichi Sankyo Co Ltd (DSKYF) Q4 2023:
Kentaro Asakura: [Foreign Language] Thank you for waiting. We would like to open Fiscal Year 2023 Financial Results Presentation. I'm Asakura of Corporate Communication. I will serve as MC. Concerning the language, in this presentation, we use both Japanese and English. We have simultaneous interpretation, so would you please click the icon of the interpreter logo at the bottom of Zoom (NASDAQ:ZM) and select Japanese, English or original audio. When you select original audio, you can listen to the original sounds and we would present the presentation materials in English or in Japanese depending upon the language used by the speaker and in the live demonstration, we would present the Japanese presentation materials. The materials are available on the IR library of our corporate website. Financial presentation related materials please download as needed. Today we have Okuzawa, the Representative Director, President and COO; Ogawa of Executive Officer and CFO; and Takeshita, Global R&D Head. First, Okuzawa and Takeshita will explain the presentation outline of the financial results of the fiscal year 2023, update of the fifth mid-term plan as well as the expected performance for the fiscal year 2024. We would take questions from the investors and analysts at 4:30 and the media question will be taken separately after 4:40.
Hiroyuki Okuzawa: I'm Okuzawa. Thank you very much for attending the FY 2023 financial results presentation for Daiichi Sankyo. We have announced FY 2023 result today at 01:00 p.m. I would like to before we go through the presentation as per the material. Please refer to slide three. This is today's agenda; FY 2023 consolidated financial result, business update, R&D update, five year business plan update, FY 2024 forecast. As for the R&D update, the global R&D head Takeshita will take you through the presentation. We are going to address your questions at the end. Please refer to slide four. This slide shows a summary of consolidated financial results for FY 2023. Revenue increased ¥323.2 billion, or 25.3% year-on-year to ¥1.6017 trillion. Cost of sales grew by ¥65.7 billion year-on-year. SG&A rose ¥157.2 billion, of which the profit share of DXD-ADC products increased ¥79.8 billion and other SG&A expenses rose ¥77.5 billion. R&D expenses grew by ¥27.6 billion. As a result, core operating income increased by ¥72.7 billion, or 59.3% year-on-year to ¥195.3 billion. Operating income, including one-time gains and losses, increased ¥91 billion, or 75.5%, to ¥211.6 billion and net income attributable to the parent company rose by ¥91.1 billion, or 83.8% to ¥207 billion. As for the actual FX rate, the yen was ¥144.62 to $1, a depreciation of ¥9.14 from the previous year; ¥156.79 to the euro, depreciation of ¥15.82 from the previous year. Please refer to slide five. From here I will explain the four factors behind the year-on-year revenue change. Revenue increased by ¥323.2 billion year-on-year. The breakdown by business unit is as follows. For the Japan business, sales of anti-influenza agent Inavir, anti-malignant tumor agent ENHERTU, a direct oral anticoagulant Lixiana and pain treatment Tarlige increased. And sales in the vaccine business including DAICHIRONA, COVID-19 vaccine, grew to drive the sales by ¥57.6 billion. Next, I will explain the overseas business unit. This section excludes the impact of FX rate. As for the oncology business, sales increased by ¥128.1 billion, mainly due to the sales growth of ENHERTU in the US and Europe and the contribution of Vanflyta, an anti-malignant tumor agent launched in the US and Europe in fiscal 2023. Sales of American Regent increased by ¥3.2 billion, mainly due to the sales growth of Venofer, an iron deficiency anemia treatment and GE injectables, despite decrease in sales of Injectafer, an iron deficiency anemia treatment. For the EU specialty business, sales increased by ¥19.7 billion, mainly due to sales growth of Lixiana and Nilemdo, Nustendi treatment for hypercholesterolemia. The ASCA business, which covers Asia and Latin America reported an increase in sales of ¥33.1 billion, mainly due to increased sales of ENHERTU, which grew mainly in Brazil. As for the upfront payment and development sales milestone related to the alliance with AstraZeneca and U.S. Merck, despite the decrease in development milestone for ENHERTU, sales milestone payment for ENHERTU increased. Deferred revenue of ¥12.9 billion related to the upfront payment for the strategic alliance with U.S. Merck for DXd-ADC products, including a HER3-DXd was recorded at sales revenue. As a result, it increased by ¥14.7 billion. The change in development and sales milestone for ENHERTU will be discussed in more detail later in this report. FX effect had an overall positive impact of ¥66.8 billion on net sales. Slide six shows the factors affecting the core operating profit. There is an increase of profit of ¥72.7 billion. As explained before, the sales revenue increased ¥323.2 billion including the ForEx impact of ¥66.8 billion. Now I would like to talk about the cost of sales and expenses, excluding the ForEx impact. The cost of sales increased by ¥53.1 billion due to the increase in the sales – revenue. For S&G expenses, there is an increase of the profit share with AstraZeneca due to the sales revenue expansion of ENHERTU and also there is the cost increase for the preparation of Dato-DXd, HER3-DXd and ENHERTU new indications, so this increased by ¥131.0 billion. R&D cost increased ¥10.2 billion due to the increase in R&D investment for 5DXd-ADCs. The ForEx impact affects ¥56.2 billion. Excluding this, the core operating profit increased by ¥62.1 billion. The slide seven shows the profit of this fiscal year. There is an increase of ¥72.7 billion including the ForEx impact. Temporary income and cost increased by ¥18.4 billion y-on-y and the temporary revenue and expenses increased by ¥5.4 billion due to the sales of the Kyushu Branch Building, ¥8.1 billion; Daiichi Sankyo Beijing transfer, ¥5.9 billion; as well as the payment of the settlement from Novartis (LON:0QLR) (SIX:NOVN) concerning the US patent infringement against Plexxikon, ¥26.4 billion. For temporary cost, there is the loss of Turalio of ¥14.2 billion. However, there is also the environmental expenses for the Yasugawa factory, ¥4.1 billion. So there is a decrease of the temporary cost of ¥13 billion. Concerning the financial profit and cost, there is the increase by ¥19.4 billion due to the improvement of the security evaluation. For corporate tax, there is an increase in the tax before tax profit, so there is an increase of the tax by ¥18.6 billion. Profit at the owners of the company increased by ¥91.5 billion to ¥200.7 billion. Slide eight and nine shows the sales increase decrease by the business unit and that major product in Japan. And in slide five, there is the unit situation explained without the impact of ForEx but here there is the ForEx impact included. Now on business update, let me offer you the progress in FY 2023 Progress towards “Maximize 3ADCs”. Please refer to slide twelve. Slide twelve shows a breakdown of ENHERTU sales revenue. In FY 2023, product sales increased by ¥188.4 billion year-on-year to ¥395.9 billion due to the growth in the US and Europe as well as other regions. For FY 2024, we forecast sales of ¥508.4 billion, up by ¥112.4 billion year-on-year. The sales in each country and region will be explained later. As for the development milestone, ¥3.8 billion was recorded in FY 2023 following the approval of a second line treatment for HER2 mutant non-small cell lung cancer in Europe in October 2023. However, development milestone achieved in FY 2022 was ¥12.4 billion, down ¥14.3 billion year-on-year due to the impact of the lump sum recognition as revenue in the previous fiscal year from the time contracts were signed to the time milestones were achieved. In FY 2024, we expect to record ¥9.4 billion in development milestone achieved in FY 2023, a decrease of ¥2.9 billion year-on-year due to the impact of recording the amount equivalent to approximately five years from the time agreements been concluded to the time the milestones were achieved as sales revenue in the lump sum. For the sales milestone for FY 2023, we've recorded $200 million or ¥29.6 billion at sales revenue in one lump sum due to the achievement of $2 billion in a single year product sales in the core promotion region with AstraZeneca in the fourth quarter of the current fiscal year. For FY 2024, we expect a sales milestone of $387.5 million or ¥56.2 billion to achieve single year product sales of $3.5 billion. As a result, ENHERTU revenue including upfront payments upon contracts and associated with Quid as well as development sales milestones for FY 2023 was ¥449.2 billion, an increase of ¥190.8 billion from the previous year. For FY 2024, we forecast an increase of ¥136.2 billion from the previous year to ¥585.4 billion. Slide 13 onward I use two slides describing the sales of ENHERTU in each country and region. First, sales in the US and Europe. For the United States, product sales in FY 2023 was ¥225.5 billion, or about $1.6 billion. For fiscal 2024, we are aiming for the sales of 266.6% billion yen, or more than $1.8 billion. Current indications are shown here. In April 2024, we received approval and started promotion for the indication of second line treatment of HER2 positive solid tumors, as the first anti-HER2 therapy approved across cancer types. Market share in each indication remained favorable. We maintain the market leader's position with the share of new patients with HER2 positive breast cancer in the second line being at approximately 60%. The market share of new patients with HER2 positive breast cancer previously treated with chemotherapy remained at about 50% maintaining the top position. We also maintained the top position in new patients for second line HER2 positive gastric cancer and second line HER2 mutated NSCLC, respectively. Other progress in FY 2023 include the NSC and guidelines for several types of cancer including endometrial cancer and cervical cancer. Sales in Europe is also strong. Product sales in FY 2023 were ¥101.9 billion or $740 million. In fiscal 2024. We aim the sales of ¥152.1 billion or more than $1 billion. Shares of new patients in each marketed country is steadily increasing and the share of new patients in France, Germany, Spain and Italy has expanded to the 60% level, maintaining a top position. The share of new patients with HER2-low breast cancer previously treated with chemotherapy also expanded to the 60% range in France and to approximately 50% in Germany, maintaining leading position. In the fourth quarter, we also achieved a top position in Spain and Italy. In fiscal 2023, we obtained approval and started promotion of the drug for the second line and beyond indications of HER2-mutated NSCLC. In addition, product was launched in Italy following Germany, France and the UK as well as Spain and it is showing steady growth in that country as well. Slide 14 shows the sales of ENHERTU in Japan and ASCA regions. In Japan, that sales in fiscal year 2023 was ¥23.9 billion. We try to achieve ¥25.7 billion in 2024. The new patient share is expanding steadily in each indication, HER2 positive breast cancer second line treatment has 40% for the new patient share, maintaining the leading position chemo treated HER2 low breast cancer has the 20% new patient share, again that number one position. HER2 positive gastric cancer third line treatment, the share was 70%, again number one position, HER2 mutated NSCLC second line treatment the new patient share was expanded to 40% level, obtaining the top position -- leading position. In the fiscal year 2023, HER2 mutated NSCLC second line and after indication was approved, we started the promotion and also in the lung cancer treatment guideline listed our product as the second line and later HER2 mutated NSCLC as the recommended regimen. In ASCA region in fiscal year 2023, the product sales was ¥44.6 billion. We tried to achieve ¥64 billion in fiscal year 2024. ASCA region sales include the joint sales promotion revenues in China and Hong Kong where the sales is listed for AstraZeneca and there are other areas like Brazil and China where the sales is growing very steadily. In fiscal year 2023, in China, there was a launch with the indication of HER2 positive breast cancer second line treatment and then we obtained the approval for indications for HER2 low breast cancer chemotherapy treated and we started promotion. In Brazil, HER2 positive gastric cancer second line treatment and HER2 mutated NSCLC second line treatment indication was obtained and promotion started. We would like to continue promoting that market penetration and expansion of the countries and regions where the product would be launched and we would like to offer in ENHERTU to the patients who need that. Slide 15 shows the outline of the strategic alliance with US Merck concerning the joint development and joint sales promotion for HER3-DXd, IDXd and DS-6000. Three product development has accelerated through this collaboration and we have expanded the new studies and we are trying to reinforce the resource allocation for growth drivers after 5DXd-ADCs. Now I would like to talk about the progress made in 2023, fiscal year 2023, for the existing business and product growth, please have a look at slide 17. Slide 17 shows the Lixiana share by the country and region. In addition to Japan, Korea and Taiwan, there is a steady growth observed in European countries including Belgium, UK and Italy. As a result, the global sales in fiscal year 2023 reached ¥287.7 billion, ¥43.8 billion increase y-on-y. Slide 18 shows the change in share by the amount by yen. Lixiana has decreased share in sales due to special expansion, repricing and drug price revisions. However, the sales increased steadily and we have expanded the sales share up to 47% at the fourth quarter of fiscal year 2023 and as a result the sales revenue increased to ¥115.6 billion, ¥10.4 billion above the previous year than the other activities in Japan. In 2019, anti-cancer agent Vanflyta was launched for the indication of relapsed or refractory FLT3-ITD mutation positive acute myeloid leukemia. In May last year, we obtained an additional indication for the first line treatment of FLT3-ITD mutation positive AML. Also in May last year, we launched a new formulation orally disintegrating tablet, OD tablet, of TARLIGE, a pain treatment originally launched in 2019. In December last year, we started supply of DAICHIRONA, Omicron XBB.1.5 adapted monovalent vaccine for COVID-19, which is the first messenger RNA vaccine made in Japan. By continuing to strengthen our product portfolio, we will further enhance our contribution to the patient. As part of our enhancing transformation into a profit structure focusing on patented drug, in May last year, we concluded a share transfer agreement with Daiichi Sankyo Espha, which handles our generic drug business in Japan. The buyer is Qol Holdings Corporation and the transfer price was ¥25 billion. Based on the transfer agreement, on October 1 last year and April 1, we transferred 30% and 21% of our shares, respectively. Since 51% of the shares have been transferred and Daiichi Sankyo Espha is no longer a consolidated subsidiary of the company, we plan to record a gain of approximately ¥16 billion from the transfer of shares as one-time income in the first quarter of FY 2024. Although we will be in charge of distribution from FY 2024 onward, for the time being, we will not record product sales of Daiichi Sankyo Espha products in our consolidated financial statements, but only revenues related to distribution operation. Slide 20 shows other initiatives in the US and Europe. In the US, we launched anti-cancer drug Abraxane generic in May last year and an anti-cancer drug VANFLYTA for the first line treatment of AML in August last year in US and in February in Europe. In Europe, as for Nilemdo and Nustendi, our European subsidiary, DSE and Esperion (NASDAQ:ESPR) entered into an amended agreement in January this year under which the manufacturing and supply rights will be transferred from Experian (OTC:EXPGF) to DSE. In March this year, based on the result of the CLEAR Outcomes study, we received a positive opinion from the CHMP, Committee for Medical Products for Human Use, recommending an additional indication for cardiovascular disease risk reduction, and we expect the value of Nilemdo/Nustendi to expand in the future. Next, I would like to talk about our progress in FY 2023 toward creating shared value with stakeholders. Please refer to Slide 22. Slide 22 shows the annual dividend forecast for FY 2023. In FY 2023, we plan to raise the annual dividend per share by ¥20 year-on-year to ¥50, mainly due to the strong performance of ENHERTU, as well as the receipt of an upfront payment in connection with the strategic alliance with Merck of the United States. We will continue to maximize shareholder value by improving capital efficiency as well as shareholder returns. Next part is the R&D update. I will now hand over to Takeshita, Global R&D Head.
Ken Takeshita: Thank you very much Okuzawa san. This is Ken Takeshita, Head of R&D, and I'm pleased to give you an update from the R&D side. This slide is a summary of the R&D major accomplishments for fiscal year 2023. Many of you will remember that quite recently we had been talking about maximizing 3ADCs and identifying pillars for further growth as the Alpha program. However, because of the success of our DXd-ADC program, we have expanded the number of ADC's from 3ADCs now to 5DXd-ADCs that are listed in green here, HER2 Dato that you're familiar with as well as the three new ones, HER3, IDXd, and DS-6000. So we now refer to our entire program as 5DXd-ADCs and the next wave and the next wave, of course, is in light blue. This includes additional compounds and pipeline drugs in oncology as well as specialty medicine and vaccines. Next slide; so I'm going to now first focus on the progress we're making in our ADC programs, and I'm going to be going over with you some very important clinical data that we have presented over the last year or so. First is the NHER2 program, DESTINYPanTumor02 study. This is a clinical trial in which patients with HER2 positive tumors of various types that are listed here, various gynecological cancers, bladder cancer, biliary tract cancer and pancreatic cancer were enrolled in this clinical trial. You'll see the data here. Very good response rates in many of these indications and this data set led to an FDA approval of ENHERTU as the first tumor agnostic HER2 directed therapy in unresectable or metastatic HER2 positive solid tumors in April, with the HER2 positivity being defined as 3+. And in fact, the data was so impressive that even before the approval, these data DESTINYPanTumor02 data resulted in US NCCN guidelines that listed in HER2 as a treatment option for HER2 positive cancers at the IHC (LON:IHC) level of not just 3+ but also 2+ in many of these cancer types. Next slide. In addition, I want to report to you that a ENHERTU program is expanding treatment opportunities beyond Japan, US and EU to include especially indication expansion in China on the basis of various clinical trials in the HER2 low based breast cancer patient population, HER2 positive gastric cancer in a third line setting and HER2 mutant non-small cell lung cancer in the second line setting. So these are really major progress that we are making in our China program. Next slide. Now we switch over to the Dato program and just to give you a very brief update on the TROPION-Lung01 trial data. This data was presented previously at ESMO 2023 and we have filed this data for non-squamous, non-small cell lung cancer second plus indication in the US in February 2024 and in March of 2024 we filed the same data set in Europe. So we are awaiting a decision from the various regulatory agencies. And as you can see here, the PDUFA date in the US is December 20, 2024. Next slide. Next in terms of the new studies in the Dato program, I would like to describe a new study called TROPION-Lung10 ten study. This is a new phase three study, combination study of Dato Plus, a drug that comes from our AstraZeneca partner. This is a bi-specific drug that targets both PD-1 as well as TIGIT. And you can see the study design here, it's a randomized study with three arms, the bottom cohort being the pembrolizumab control, the second arm is the bispecific antibody only, and of course at the very top is the combination of Dato plus the bispecific, this combination that we're most interested in. The target patient population is non-small cell lung cancer in a frontline setting previously untreated with the high PDL-l expression. Okay, and I do want to mention to you just that note that on the lower right corner that the primary endpoint in this study is PFS and OS in a biomarker defined TROP2 positive patient population. This study is slated to start in the first half of 2024. Next slide, TROPION-Lung14 study. This is another new study in the Dato program and this is a phase three randomized study targeting patients who have the frontline EGFR mutated, locally advanced for metastatic non-squamous, non-small cell lung cancer. This is a new study that started enrollment actually this month. And this is a study design with a randomized two arm study, the control being the osimertinib alone which is a standard of care currently and the experimental arm is a combination of osimertinib plus the Dato program. And first subject in has already been achieved. And this is a very important study that allows us to keep pace with the competition in this patient population along with the other TROP2 directed ADCs that are being studied by other sponsors. Next slide. In the breast cancer field for the Dato program I'm very happy to report to you that the filing for the Dato based on the TROPION-Breast01 study has been achieved for the treatment of hormonal receptor positive HER2 low or negative breast cancer in US, Europe, China and Japan. This is a data that I think many of you are familiar with from ESMO 2023 and you can see here now that the PDUFA date in the US is listed as January 29, 2025. Next slide. Next, we are going to shift to the HER3 program and describe to you what progress we are making in the HER3 program. So based on the HER3 Lung01 study data, which was the phase two, single arm study of HER3 DXd in patients with EGFR mutated relapsed, non-small cell lung cancer, the data has been submitted for approval, and the PDUFA date on this submission is June 26, 2024, just a few months from now. I also want to mention to you that we have additional studies that are going on. The HERTHENA-Lung02 study, which is a phase three randomized study, which is in progress to obtain top line results in the second half of 2024, and also the PanTumor01 HERTHENA study, which started enrollment in March of 2024. Finally, I want to make sure to mention that the NDA review from the H-L01 study is progressing very smoothly and I think it is reasonable to say that we are on track to meet the PDUFA date. Next slide. In terms of what additional things we are doing in our DXd-ADC program, we're very interested in combinations of our DXd-ADCs with various internal assets that make sense from a scientific standpoint. And here you see one example of a unique combination, novel, novel combination, in which a DXd-ADC is combined with a drug called Valemetostat. Valemetostat, as you remember, is our EZH1/2 dual inhibitor. And since the target of the drug is EZH, it is thought to be a drug that modifies the chromatin structure. Based on preclinical data, we can see very interesting synergies between Valemetostat stat and all of our DXd-ADCs. So you can see here in this clinical trial that we're reporting to you we have started this combination study initially starting as a phase one dose escalation combination study, and then eventually we will take this combination for signal seeking in various key indications for which we have approval, or about to have approval for both ENHERTU and Dato. Next slide. Okay, next slide. Okay, now I would like to give you an update on the two additional DXd-ADCs, the ones that are now partnered with our Merck alliance partnership in the IDXd program, also formerly known as DS-7300 targeting the antigen B7-H3. This is just a review of the data that we have previously presented at ESMO last year showing that this drug appears to have activity in small cell lung cancer, esophageal squamous hype lung cancer, prostate cancer, as well as squamous type non-small cell lung cancer. These are very important data and we are very happy to report to you that we have initiated a new phase three study of this drug in small cell lung cancer called the IDeate-Lung02 study in relapsed small cell lung cancer which compares IDXd versus physician choice and this is scheduled to start for enrollment in the first half of fiscal year 2024. Next slide. In addition, in this IDXd program, in addition to what I just mentioned to you about the phase three study in the relapse setting, we are of course very interested in studying this compound in the front-line setting and these are some combinations that we are studying now or about to study in the front-line setting in small cell lung cancer. These are for example, combination of IDXd with Atezolizumab, which is really a drug that has been approved in a maintenance setting for small cell lung cancer. Next slide. Finally, we do believe that this drug IDXd, because of the pattern of expression of the target antigen B7-H3, which is broadly expressed in many cancer types, we have initiated a phase two study targeting multiple solid tumors using this study design you are seeing here. There's a whole long list of the solid tumors that are being enrolled and studied in this trial and it is hoped that this drug IDXd will show activity in all of these solid tumors. Next slide. In the DS-6000 program, this is another DXd ADC targeting the antigen cadherin-6. We are continuing to pursue the very promising data that we have reported already in platinum resistant ovarian cancer. Based on these data, we have initiated a new phase two/three study called REJOICE-Ovarian01 study. This is for a platinum resistant ovarian cancer that started enrollment in April of 2024 and these are really based on all the very strong data that's coming from our phase one study. Okay, next slide. I do want to make sure to remember to mention that in addition to our DXd ADCs, we also have other programs going on. First one is a Vanflyta program, the quizartinib. It is approved now in the countries shown below based on the QuANTUM-First study for the FLT3 positive ITD positive AML in the frontline setting. Valemetostat, also known as EZHARMIA, is an EZH1/2 dual inhibitor that I mentioned to you earlier. This drug is already approved in Japan for the treatment of a relapse refractory adult T-cell leukemia lymphoma. And now based on the new study VALENTINE-PTCL01 study, we have submitted the data for approval in Japan for the treatment of relapse refractory PTCL peripheral T-cell lymphoma. Next slide. And to complete the picture, here are additional programs that we have going and a progress update. DS-3939 this is a MUC1 directed ADC or DXd-ADC. DS-1471 is the anti-CD147 antibody. This is not an ADC but a naked antibody DS-1594 this is a Menin-MLL binding inhibitor in AML and we have discontinued development of this program. For the vaccine program, I think you heard already that we have achieved approval in Japan for the RNA based COVID vaccine and we have also filed for approval of a mixed measles-mumps-rubella vaccine. In the specialty medicine area, I would like to mention three programs. 1211 this is a TNAP inhibitor for the potential treatment of Pseudoxanthoma elasticum. And from a very early study, we are seeing some positive top line results from phase two study. DS-7011, this is an anti-TLR7 naked antibody for the intended for the treatment of systemic lupus. And finally, DS-2325, this is a KLK5 inhibitor that's been designed to target a particular gene that is abnormal in a syndrome called Netherton syndrome, but it also has much broader potential applicability in various skin disorders. Okay, next slide. Okay, so in terms of some news flows and upcoming conference call for the investor community, I do want to mention that at ASCO this year, we do intend to have an investor relations conference call at the time and date shown on this slide. Next slide. In terms of what you can expect from a news flow standpoint, this slide lists the fiscal year news flow, including some data disclosures and publications coming at the upcoming ASCO meeting at the end of May in Chicago. Here's a list of all the ENHERTU and Dato that is anticipated to be made public at that point. We also expect a number of regulatory decisions coming in the fiscal year 2024 in ENHERTU program, the Dato program, the HER3 program, as well as the Valemetostat program. And finally, in terms of key data readouts, here is a list of important data coming from the ENHERTU program, Dato program as well as the HER3 program. Okay so with this, let me turn it over to the next speaker for the five-year business plan update.
Hiroyuki Okuzawa: [Foreign Language] So I want to make the five year business plan update. I am Okuzawa. Please have a look at page 46. This slide shows the target for fiscal year 2025 for this mid-term plan and the four strategic pillars to move on to the growth stage -- continuous growth stage. The strategic pillar will be explained with utilizing the next two slides and I would like to explain the progress made during the three years after 2021. First, 3ADC maximization to be realized. Concerning ENHERTU during the last three years there is a second line treatment for HER2 positive breast cancer and the chemo treated HER2 low breast cancer and NSCLC were obtained as indications and it was obtained the indication for second line treatment of HER2 positive solid tumor as the first lung cancer and tumor anti HER2 treatment and the value of the product is expanding. And also, there is an increase in the number of countries and regions where the product is approved and the market penetration is expanding. And HER2 sales has been expanded above the planned goal. And in addition to this HER2 positive breast cancer, first line treatment DB-09 study and other indication expansion is moving. And Dato DXd is used and there is a submission made for the hormone positive HER2 low breast cancer or negative breast cancer and HER3 DXd is submitted for the third line treatment of EGFR mutated NSCLC. We may be able to provide the treatment options for the patients and we are also conducting the studies to expand the indication for earlier lines of therapy. HER3 DXd together with IDXd and DS-6000, we have accumulated the favorable clinical study data and we are shifting to the stage where the product value is maximizing. We have a harsher competition in ADC development so in order to maximize the ADC franchise we have to enhance the capacity, resource and capability in order to provide the product to as many patients at an earlier stage, earlier timing, we started the joint development with Merck through a strategic alliance and the new development plan is expanding rapidly. For the existing business and product growth, the sales of Lixiana is expanding with the higher value of product. Tarlige, Venofer, Nilemdo/Nustendi is growing steadily and it is contributing to the creation of the capitals for the return to the shareholders and for the investment for continuous support. The transformation to new business structure is expanding steadily. There is a launch of new products such as Emgality or Ezharmia, and also there is a transfer of product after the exclusivity has expired in regions and countries and Daiichi Sankyo Espha stock is transferred. In that way, we are enhancing the profitability. American Regent and Daiichi Sankyo Healthcare profit is growing steadily and it would reach half of the consolidated core business revenue in 2024. Please have a look at page 48. There is a growth further development in the future growth pillars for IDXd and DS-6000. We have accumulated the favorable clinical study data. Product potential is enhanced so we put it as a growth driver after 3ADCs. IDXd is developed for SCLC. DS-6000 is developed for platinum resistant ovarian cancer. We are accelerating the development through the strategic alliance with Merck. And the second generation ADC, DS-9606 clinical study was started and COVID-19 messenger RNA vaccine Daichirona approval was obtained and we realized the supply of the vaccines. There is a steady growth in the selection of the post DXd-ADC modalities. The co-creation of value with stakeholders; concerning this, there is a growth of revenue through the growth of ENHERTU. There is a strategic alliance with Merck and there is a one-time lump sum payment at the time of the closure of the agreement and we decided to increase the dividend after second consecutive years. Omicron XBB.1.5 monovalent vaccine Daichirona is supplied and we are trying to prepare for the pandemic risk. The value chain as a whole is also working on. We are working on the value chain environmental load reduction and we try to make 100% renewable energy use for the electricity we are using in our business. There is the workshop with the management and all the employees and we are trying to deepen our understanding of three modality of behavior, which is the core culture of Japan -- of Daiichi Sankyo and we are trying to promote these activities and we are trying to nurture one DS culture across that nationality and culture. As shown before, the four strategic pillars of the fifth mid-term plan is making steady progress and we are more confident to achieve the goal for the fiscal 2025. Now I want to talk about our expectation on the achievement of KPI for the fifth mid-term plan. Please have a look at slide 49. We expect revenue of ¥2.1 trillion in FY 2025, up by ¥100 billion from the ¥2 trillion forecast as of April 2023 due to unexpected revenue in the oncology field. Although SG&A is expected to grow in line with the revenue growth, we continue to aim at 40% of core operating profit ratio before R&D expense by improving the cost of sales ratio due to changes in the product mix, and by efficiently and effectively executing expenses. As the pipeline potential is steadily expanding, we will aggressively invest into R&D for sustainable growth. However, we will continue to aim for ROE of 16% or higher by balancing cash allocation with shareholder returns. We expect the dividend on equity ratio DOE to be 8.5% and higher, up from the 8% or higher we had expected as of April last year, by improving capital efficiency and enhancing shareholder returns. The currency rate assumptions for the KPI forecast as of April 24 are ¥145 to the dollars and ¥155 to the euro. Please refer to slide 50. Oncology revenue in FY 2025 is expected to be more than ¥1 trillion. The revenue forecast for Dato DXd in FY 2025 has decreased from the April 2023 level due to the revision of target patient based on the result of the TL01 zero one study and the revised timeline of the TL08 study. On the other hand, we expect further increase in revenue of ENHERTU in the breast cancer market based on the results of DB-03 and DB-04 trials. Mainly due to the impact of increased revenue from the upfront payment received from the strategic alliance with US Merck for HER3-DXd, IDXd, and DS-6000, we expect oncology sales revenue to exceed ¥1 trillion in FY 2025, up ¥100 billion from our April 2023 forecast. Slide 51 shows projected R&D expenses. Total R&D expenses for FY 2024 and 2025 altogether are expected to be about ¥1 trillion, about ¥150 billion up from the estimate as of April 2023, mainly due to the start of trials of 5DXd-ADCs compared to the forecast as of April 2023, we expect a decrease in the share of development costs associated with the strategic alliance with US Merck for HER3-DXd, IDXd, and DS-6000 but we will actively invest these resources in R&D for sustainable growth. And with respect to ENHERTU, we aim to maximize product value by initiating new studies based on DPT-02 study result and three product development cost was decreased compared to a year ago. And we continuously make investment into the resources for ENHERTU. We aim to maximize the product value by initiating new studies based on the DPT02 study result, DS-3930 and following DXd-ADC products and other next wave product groups, we are going to accelerate the development and we are going to develop a next growth pillar following 5DXd-ADC. In addition, ENHERTU indication addition, Dato-DXd, HER2-DXd launch related new evidence creation, information dissemination, and the other medical affairs activities will be expanded and we are going to accelerate the 5DXd-ADCs by expanding the R&D resources. We are going to further enhance the R&D structure which will lead to the cost increase of R&D. Slide 52 shows the cash allocation to investment in growth and shareholder returns. The source of cash allocation during the midterm management plan period, which is the cash on hand at the beginning of the fifth midterm management plan, plus operating cash flow before deduction of R&D expenses for five years is expected to be approximately ¥3.7 trillion, an increased of ¥600 billion compared to the forecast as of April 2023, mainly due to the receipt of upfront payment for the strategic alliance with US Merck. And the increased cash allocation will be used to increase R&D and CapEx for the future growth and strengthen shareholder returns. We plan to allocate about ¥1.950 trillion, an increase of ¥150 billion from the April 2023 forecast to R&D expenses, which will place priority on the Dato ADC development. CapEx will increase by ¥200 billion in FY 2024 and 2025 combined. The main application is to strengthen the production system and a large portion of this increase will be for CapEx to strengthen the DXd Dato production system. The company will respond to the growing demand for DXd-ADC, which has been fueled by the steady growth of the ENHERTU business, progress in the development of ENHERTU Dato-DXd and the conclusion of a strategic alliance with US Merck for HER3-DXd, IDXd and DS-6000, as well as progress in their development. We will continue to invest in our own production facilities and in external CDMOs in a balanced manner. Regarding our own production facilities for DXd-ADC, we'll also invest in Daiichi Sankyo Europe's Pfaffenhofen Plant and American Regent’s New Albany, Ohio plant. We intend to further strengthen shareholder returns by increasing dividends in line with profit growth and by flexibly repurchasing owned shares. The dividend forecast for FY 2024 and share buyback will be explained later today. Over the past three years, product value of ENHERTU has greatly exceeded our original plan. Following ENHERTU, we plan to realize the launch of Dato DXd and HER3-DXd in FY 2024. In addition, strategic alliance with US Merck will rapidly expand the development plan for HER3-DXd, IDXd and DS-6000, which is expected to significantly enhance product value. In order to achieve our goals for fiscal 2025 and realize our vision for 2030, we intend to achieve sustainable growth while maintaining a balance between investment and shareholder returns necessary for future growth. Now I would like to talk about the innovative solution provisions and we would like to contribute to the higher enrichment of quality of life around the world. Lastly, but not least, I would like to talk about the fiscal year 2024 forecast. Please have a look at the slide. 56. In fiscal year 2024, there is the sales revenue of ¥1.750 trillion, core operating profit will be ¥210 billion, and that sales revenue would be realized through the expansion of the sales of ENHERTU, Lixiana and Tarlige. Also, there is an increase in the deferred revenue through the strategic alliance with Merck. So we would have the operating revenue of ¥1.750 trillion, ¥148.3 billion over the previous year. The sales cost will be reduced by the cost improvement and there is a decrease of ¥19.8 billion expected. For SG&A, the sales expansion of ENHERTU would increase the profit share and we would have the resource investment into the oncology business and we try to make an investment to the DX/IT, human resources as well as the strategic investment, and there is an increase of those expenses by ¥47.7 billion. For R&D, we are focusing on 5DXd-ADCs, which has a high potential, and we also make further investment in R&D so that we can make a further growth. And we would enhance the medical affairs activities to enhance the product value and it would increase -- our research and development cost would increase by ¥105.7 billion. Core operating profit would increase by ¥14.7 billion to ¥210 billion. Operating profit would increase by ¥18.4 billion. Fiscal 2024 we have the temporary revenue through the transfer of stock of Daiichi Sankyo Espha; however, there is no temporary cost calculated, so we would have more operating profit than core operating profit. And before tax revenue would be ¥235 billion, minus ¥2.2 billion over the previous year. The revenue for this year would be reduced because of the tax accounting in relation to the transfer of Daiichi Sankyo Espha but in fiscal year 2024, we don't have that effect, so there is an increase in the cost related to taxation. So we would have the negative revenue of ¥10.7 billion to ¥190 billion. Exchange rate was calculated as ¥145 per dollar and ¥155 per euro. Slide 57 shows the annual dividend. As mentioned before, we are trying to increase the dividend and fiscal year 2024 we are expecting to provide the annual dividend of ¥60. Please have a look at slide 58. In order to improve the capital efficiency, we decided to obtain our own treasury stock. We would obtain the treasury stock up to 55 million stocks or that ¥200 billion between the 26 April 2024 through 15 January 2025. All these stocks will be paid back as of the 31 January 2025. We have an increase in the dividend and flexible acquisition of our own stocks so that we may have a DOE of 8.5% or over, which is above our goal or our objective of 8% or higher. We are going to enhance the capital efficiency and enhance the shareholder returns. We would like to maximize the value to the shareholders. Now we would like to answer the questions.
Operator: From here onward, we would like to move on to the Q&A session. [Operator Instructions] The first question is from Citigroup Securities’ Yamaguchi san, please.
Hidemaru Yamaguchi: Can you hear me? Thank you. This is Yamaguchi speaking from Citi. My first question is related to ENHERTU sales forecast for this fiscal year. Penetration is quite high and in US the deemed -- nominal growth may slow down. However, that's within your expectation. For FY 2024 [Indiscernible] are included, however, penetration is already high, so you're expecting a growth to be slowed down and the P6 when it's introduced, can we expect acceleration of the momentum once again?
Hiroyuki Okuzawa: Thank you very much Yamaguchi san for your question. As you mentioned, that's our plan in ENHERTU in US. There has been a progress in indication, but before DB -- it's before DB-04, so we are expecting a modest progress, but in Europe and the other regions, the indication approval will be late from US, but reimbursement will come in, so probably they may catch up with the growth in US or even existing see the growth of US. So FY 2024 we believe ENHERTU will strongly grow.
Hidemaru Yamaguchi: Thank you. The next question is on Dato DXd. As mentioned before, the HER3 study is making a very good progress. And what about that Dato DXd? Are there any information you can disclose to us?
Hiroyuki Okuzawa: It is also concurrently ongoing and either the -- we do have the PDUFA date that's been announced and I do not expect that that date is going to change based on how the discussions are going.
Hidemaru Yamaguchi: The TROP2 positive study was started. TROP2 biomarker selection, was that an issue?
Hiroyuki Okuzawa: Current TL-01 clinical trial, the TROP2 biomarker is of course of interest to the FDA, but it is not critical to the submission. On the other hand, in the new trial that we discussed earlier today, there is an important component of the TROP2 biomarker.
Hidemaru Yamaguchi: With regard to your outlook into R&D expense, the Merck's burden is growing, but the total R&D seems to be growing on a net basis. So the total R&D is, I think, growing excluding FX impact. So more than additional burden on Merck, I think R&D cost is increasing.
Koji Ogawa: Yes, this is Ogawa speaking. FY 2024, 2025 total R&D expense ¥1 trillion. That's our forecast. And due to the weak yen impact, we have ¥100 billion impact compared to April 2023 and then other incremental factor is investment into 5ADC. This is continuing. And the medical affairs function is being reinforced, going to be stranded [Phonetic]. So this is an investment into the capability and at the same time this is an investment to generate new evidence and also early access program. Beyond 5ADC, we have investment planned. So altogether, this is the amount of investment planned for two years.
Hidemaru Yamaguchi: Thank you very much. That's all.
Operator: Next question Mr. Wakao of JP Morgan please.
Seiji Wakao: Wakao of JP Morgan, thank you. My question is the R&D development. R&D development is enhanced and from this year it is the phase of expansion. But through you -- are prioritizing the R&D investment, so the profit standard or profit level is a little bit suppressed. Am I right? You are trying to expand the profit and the future profit level, are there any changes in the profit level you are expecting to have? And page 51, ENHERTU study is to be started. DPT-02 study results will be a basis of the start of that experiment of this study.
Hiroyuki Okuzawa: Thank you very much Wakao san. Concerning the R&D cost and the profit growth, shifting to the growth increase or profit growth, ENHERTU growth and expansion is further possible. Further expansion is possible. And also there is the collaboration and alliance with Merck. So R&D plan is expanding greatly. And as mentioned today, 3939 or 5DXd and other internal assets are also enhanced. So we have a lot of growth opportunities within the company. That's the decision we made and that's why we decided to continue making positive and active investment. And bottom line of the profit shift would be fiscal year 2025. That's something we would like you to expect. And concerning the other n ENHERTU, Takeshita will answer the question.
Ken Takeshita: I think the question was DESTINYPanTumor02 study and this is a global, multicenter, open label phase two study for ENHERTU in HER2 expression tumors. And as we mentioned earlier, the data was used to gain approval in a broadened indication of HER2 positive cancers at the 3+ level or greater. And these data were really the basis for many additional clinical trials in the frontline setting, in the various cancers that were studied in the PanTumor study, most notably the gynecological cancers. So these are really additional investments in clinical trials in the frontline setting. And of course, I do want to mention that the details of these new studies will be announced to you in the future when we are ready to make the details public to you.
Seiji Wakao: Thank you. In relation to Takeshita sans comment, the new study is for PanTumor, so you are -- are you initiating like several independent studies separately or this type of like a early phase basket type of clinical trial? Is that what you are planning?
Ken Takeshita: Strategy in the frontline setting but -- so I think we could just wait for that when we are ready to make that announcement.
Seiji Wakao: Thank you very much. My second question is related to Dato DXd overseas first line treatment and development plan TROPION-Lung08 first and then TROP2 to the one to be initiated this time. With regard to TROP2 positive, you set up the primary endpoint and also you have other clinical trial going on. So for the first line setting, TROP2 positive is the main focus for your clinical development. Is that correct?
Ken Takeshita: Let me try to answer your second question. First question was about the use of the TROP2 biomarker and the details of this particular biomarker that we are using and very interested in. We have not disclosed that. A lot of that information comes from our partner, AstraZeneca. So we are going to wait for our partner AstraZeneca to be ready to disclose the details of this biomarker strategy to all of you. In terms of your first question, which was about what are the reasons for the delay that we are reporting now for TL-08, what I can say to you today is that there are a multitude of reasons behind this delay. We have not really disclosed the details of the delay, but just to say here today that it is due to multiple factors.
Seiji Wakao: The TROP2 biomarkers is the simple TROP2 expression. It is not a simple expression, higher expression of TROP2 or have you identified several biomarkers? And TL-08 is delayed, is it the strategic delay on your side, or there are various factors and that you try to make it as scheduled but there is a delay?
Ken Takeshita: Yeah. The TL-08 delay is not specifically linked to the biomarker that you mentioned, I think -- of course, however, I do want to mention that we are very interested in understanding the biomarker as it might be applied to TL-08 or even TL-07, of course. But in terms of the details of biomarker, again I ask you to please wait for announcements and public disclosure of the information on the biomarker from our partner AstraZeneca.
Seiji Wakao: Thank you very much.
Operator: Next question, Morgan Stanley (NYSE:MS) MUFG Securities’ Muraoka san, please.
Shinichiro Muraoka: Good afternoon, I'm Muraoka of Morgan Stanley. My question is related to R&D cost and the future perspective of the R&D. In the previous presentation, you made the correction for the outlook for FY 2025, so R&D would be 450, so it would be 350, that's what you mentioned, but the figure you mentioned would be 310 when I made the simple calculation. The growth of R&D is bigger so that core business revenue profit will be lower. But will you please -- you are going to expand the value of Dato DXD, correct. Is it the correct understanding?
Hiroyuki Okuzawa: Thank you very much, Muraoka san, for your question concerning the 5DXd-ADCs potential expansion. Specific planning -- we have made specific ideas and we have a lot of ideas to expand the value Dato DXd. In addition to 5DXds, there are internal assets and there are promising internal R&D assets we have. So we would like to make an investment so that we can develop those pipelines and after fiscal year 2026, long term and very long term sustainable development will be assured, and that's why we make a decision, as mentioned before, and that is reflected in a forecast for the revenues.
Shinichiro Muraoka: For our reference, it is not a very good timing, but ¥470 billion. Are there any possibilities that you may not consume all those budgets? And you have more than 500 employees in the US, so you may be able to utilize those budgets. Do you think that you have a high probability of using all these budgets?
Hiroyuki Okuzawa: Yes, correct. That's the basic understandings. However, there is a big influence of the foreign exchange market, so it is very difficult for us to make a correct forecast how the ForEx would affect.
Shinichiro Muraoka: For DB-06, I would like to confirm one thing. Ultra low population is included in the secondary endpoint. Ultra low, even if it doesn't show good efficacy, but still you will be able to achieve the primary endpoint, so if you look at the DB-06 only for ultra low primary -- if you can achieve primary endpoint at IHC low, you can still make a submission. Is that a correct understanding?
Hiroyuki Okuzawa: Actually that the clinical trial is not specifically focused on ultra low, but the agency and of course us, in the primary endpoint, will be looking at the total patient population that enrolled in a clinical trial, which is far more than just the ultra low.
Shinichiro Muraoka: Thank you very much. Understood. That's all from me.
Operator: Next question Mamegano san of BOA Securities. Mamegano san is not here. So UBS Securities’ Mr. Haruta please -- Ms. Haruta please.
Kasumi Haruta: Haruta of UBS Securities. The first question, ¥200 billion and there is a very big announcement. And so far you have studied the possibilities, but this is the decision you made. At this point in time, what is the background behind this? Before the submission or the approval for this period, it is very difficult to purchase the treasury stock, but the road restriction period, we would like to know the background of your purchasing your own stock.
Hiroyuki Okuzawa: Thank you very much Ms. Haruta. We decided to purchase our own stock and the timing and the background behind this is the question and the fifth mid-term plan and there is a big plan and we are going to make investment for growth and we have to balance it with the return to the shareholders. And in that situation, ENHERTU is growing very strongly above our expectations and it becomes a pillar to support us. And also there are other DXd-ADCs who are growing. So 5DXd-ADCs have been promoted through our collaboration, strong collaboration with AZ, AstraZeneca and Merck. So we would like to further support the future growth and we can be confident in our future growth, and that's the background behind our decision made to purchase our own stock. And of course the basic reason is that the legal conditions were satisfied. Thank you.
Kasumi Haruta: My second question is related to TROPION-Lung01. We are waiting for OS data, but FDA received the finding for non-squamous cell cancer and the result we are expecting for the result on the overall patient population if superiority is not shown, but if superiority is shown only for non-SQ, would that still be accepted? I guess best case is to show significant difference for total patient population as well as non SQ, but how should we approach this?
Hiroyuki Okuzawa: As you may remember, in the prior data set that was disclosed already, the PFS data was positive in the overall patient population and not just the non-squamous. But with the agency, as you know, we have said to the agency that we are focused really on the non-squamous because that is our best data set. But in terms of the details of how the agency will interpret the overall survival data and how it affects our position or likelihood of an FDA approval, we're not really able to comment on that. These are confidential discussions that we are having with the regulatory agencies.
Kasumi Haruta: I understand. Thank you very much for your answer.
Operator: The next question, BOA Securities’ Mamegano san, please.
Koichi Mamegano: Sorry, I'm Mamegano. I have one question. This is an update for the mid-term plan, and this time for DOE, 8.5% or higher and that's the update you made. Concerning the ROE, there is no change made and you decided to purchase your own stock for ¥200 billion. ROE is not mentioned because there is some decline from the original plan. What's the situation on ROE?
Hiroyuki Okuzawa: This time ROE KPI was not made or was not changed. Of course, there are some upside possibilities and 16% or higher, that's what we mentioned and the guidance has not been changed a lot, and that's why we haven't made any changes. Concerning DOE, including purchase of our own stock, there won't be a rapid growth of revenue or profit in a short term, however, it would be an investment for future growth. And we have a high expectation to the future growth and we would like to try to balance it with the return to the stockholders and that's why we changed DOE to 8.5% or higher.
Koichi Mamegano: Okay, thank you. So we can have a higher expectation on that. Thank you.
Operator: Next question is from Sanford Bernstein, Sogi san, please.
Miki Sogi: Thank you. I have a couple of questions to Takeshita san. So, first of all, the question around the new study, the TROPION-Lung10. So for this one, I'd like to understand, are you getting the subpopulation analysis with TROP2 positive patients? Are we able to see the data at some point? And also on the combination partner, [Indiscernible], the bispecific for PD-1 and TIGIT. So we understand that there are some combination studies ongoing by different companies for the combination of PD-1 or PDL-1 and TIGIT. So what is the signing rationale of making it as a bispecific? What is it important to have the simultaneous binding to these targets with one molecule? So that's fourth question.
Ken Takeshita: Okay, so the first question about the TROP2 biomarker, and as I mentioned, it's something that our partner, AstraZeneca, has developed and we haven't -- and the data has not yet been made public. So we're going to have to ask you to wait until you see the data in public, and then we can discuss further about how we are applying this biomarker to TL010. Okay, now, in terms of the TIGIT, it's a TIGIT bispecific also to include the standard, I guess, more the standard checkpoint PD-1. And it's because it basically it allows us to hit two targets with one molecule, and if you could just think of it as that, that you can do two things with a single drug, that would be sort of a simple way of thinking about bispecific. And, it's very fortunate for us that our partner, AstraZeneca, had in their pipeline a TIGIT molecule, so that we can be competitive as the non-small cell lung cancer field moves into TIGIT as a very potentially very important treatment modality in the treatment of lung cancer. So it's just a way -- the TIGIT bispecific is just a way to give -- allow us to hit two targets with one drug.
Miki Sogi: Great. Thank you very much. And the second question is around combination of ENHERTU and also the Dato with Valemetostat. So it feels like, if you look at the target indication, these studies seem to be a little bit redundant because the target, cancer types, have been already addressed by the monotherapy of these drugs. So what is really the scientific rationale or the preclinical data that you see to really support this study? And also, is your partner, AstraZeneca, funding these studies?
Ken Takeshita: Okay, so the scientific basis for this combination is really coming from various preclinical models in which these two drugs were combined. We do see a lot of synergy between the two drugs. We don't yet know exactly what is a molecular mechanism for the synergy between these two drugs. Our current speculation is that Valemetostat, being an epigenetic agent acting on a chromatin, allows easier access of the ENHERTU to the chromatin that the DXd payload on the inheritor to the chromatin by the Valemetostat allowing more of an open configuration of the chromatin so that the DXd drug can access the DNA targets of the drug. So that is currently the working hypothesis for this combination. And why are we doing this combination? Let me try to answer that question. Yes, we are studying cancers that are already approved within HER2. So with this combination, therefore, what we want to achieve is efficacy that is superior to ENHERTU alone. So you can imagine that in the future, if we were to do -- let's say, for example, that this combination that we're seeing here, looks quite good from an efficacy standpoint, perhaps better than single agent ENHERTU or Dato, then you can imagine in the future we will be conducting a randomized phase three study in which the control arm now is ENHERTU or Dato, depending on the indication, and the experimental arm will be the combination of the DXd-ADC with Valemetostat. So you can kind of see now that it is a way to, of course, improve the outcomes on patients with solid tumors. And at the same time, from an overall pipeline perspective, it allows us to offer to patients yet another drug, Valemetostat, for the treatment of solid tumors such as breast cancer, gastric cancer, lung cancer, for example.
Miki Sogi: So then – sorry, no, that's great then. So Valemetostat pretty much sounds like a chemo if it is targeting the chromatin. Is that a right way to think about it?
Ken Takeshita: No, it's not a chemotherapeutic agent. It's what we call an epigenetic agent. It targets a protein found in the chromatin. It's not a cytotoxic agent, but it acts on a particular target, a protein target that's involved in chromatin configuration.
Miki Sogi: Thank you. And then final -- yeah, no, great. Thank you for the clarification. And then final question is, so is AstraZeneca funding these combination study?
Ken Takeshita: Okay, now, so this one, I don't remember this now for sure, but do you know? Yes. Okay. Yes, I think they are funding part of the study. I don't quite remember -- part of this, yes. They are funding part of this study, is what I'm told, but I don't quite remember that very much.
Miki Sogi: Thank you very much. Yes, thank you very much for the answer. Thank you.
Ken Takeshita: Okay.
Operator: We have already exceeded 4:30 finish time, so we would like to conclude Q&A with the analysts and investors. I do understand that some people are still keeping their hands raised, but please reach out to IR Department of the company later. Thank you very much, everyone. From 4:40 Japan time, we are going to have a Q&A session with the media and journalists. So, media and journalists, you can stay on this line. Thank you very much for waiting. We would like to have the Q&A with the media and journalists. The speakers are Okuzawa, the Representative Director, CEO; and the CFO, Ogawa; and Takeshita, Global R&D head. [Operator Instructions] Your first question, [Indiscernible] please.
Unidentified Analyst: Can you hear me?
Hiroyuki Okuzawa: Yes, we can hear you.
Unidentified Analyst: Thank you very much. I have a question. 2025 will be the last year of this fifth midterm plan and you have made that changes and it is over the ¥1 trillion. In HER2 presentations you stated that you want to be the top ten in oncology. And if you reach the ¥1 trillion, the top ten will become visible and it is accessible to be a top ten. What will be the timing?
Hiroyuki Okuzawa: Thank you very much [Indiscernible] for your question. We want to be a top ten company in the field of oncology and this is the question you raised. And currently when we look at the sales levels of different companies in 2025 we reach ¥1 trillion. Even if that is what we reach, we may not be in top ten in fiscal year 2025. However, there are very promising pipelines we have in oncology and ENHERTU have already achieved a lot of sales growth. And there are products which would follow ENHERTU and it is very promising at this moment. So we think that by 2030 we would be a member of the top ten -- global top ten in the field of oncology. That's what we are expecting right now.
Unidentified Analyst: Thank you.
Operator: [Operator Instructions] Next question is from Jiho [Phonetic], Horiguchi [Phonetic] san, please.
Unidentified Analyst: Hi, my name is Horiguchi from Jiho. Can you hear me okay?
Hiroyuki Okuzawa: Yes.
Unidentified Analyst: In the earlier -- sorry, I was not attending the Q&A session with the investors. Please forgive me if I repeat the similar question, but on page 40 you talk about your oncology DS-1594, whose development was suspended, 1594. What is the reason for the discontinuation of this program?
Ken Takeshita: I think the question you're asking is DS-1594. This is the Menin binding inhibitor which was thought to be possibly developable in AML and other hematological malignancies. And the reason for discontinuation was because of a lot of competition with other Menin inhibitors in the field, which resulted in substantially lower enrollment and interest among the patients and investigators in our program and this resulted in substantial shift in the timelines, and for this reason, this was the reason for discontinuation of the drug.
Unidentified Analyst: Thank you very much.
Operator: Next question. [Indiscernible], please.
Unidentified Analyst: [Indiscernible], can you hear me?
Hiroyuki Okuzawa: Yes.
Unidentified Analyst: I have a question. I haven't heard the explanation a lot and what would be the capital investment? And you said in Japan, Europe and us you are talking about this. So what plant and what you are going to do in what plant in Japan? Would you please explain what kind of capital investment you are going to make in the factories production facilities in Japan, US and Europe? And ¥800 million capital investment up to 2025. After fiscal year 2026, what would be your plan? What is the size of the capital investment after fiscal year 2026?
Hiroyuki Okuzawa: Thank you very much [Indiscernible]. Concerning the capital investment, this time in the cash allocation we made additional ¥200 billion and it is focused on DXd-ADC productions. There are several investments we are going to make to produce other products and as Daiichi Sankyo Group and also outside the Daiichi Sankyo Group, there are production facilities and for the Daiichi Sankyo production centers are where we are going to make productions. In Japan, the Japanese factories, all Japanese factories in Japan are involved in the production of DXd-ADCs, so they would be the target of the investment. For Germany. Daiichi Sankyo Europe, DSE Europe have been factories, concerning this DXd-ADC capital investment has been made and we have expanded the production facilities and we would reinforce it. And in the US, there is a factory in Ohio. This is the factory of American Regent Inc. This is the subsidiary of our company. The generic injection drug was produced in that factory. But the DXd-ADC production would be made so that they can be a part of the global supply chain and that's the decision we made.
Unidentified Analyst: Thank you. And from FY 2026 onward, what will be the expected magnitude of CapEx?
Hiroyuki Okuzawa: Well, for the time being, DXd-ADC pipeline is seeing a strong development progress. So in order to capture that demand, we are going to continue the current investment momentum.
Unidentified Analyst: Thank you very much.
Operator: [Operator Instructions] The next question [Indiscernible] san, please.
Unidentified Analyst: Can you hear me?
Hiroyuki Okuzawa: Yes, I can hear you.
Unidentified Analyst: [Indiscernible]. My question is the sales and the sales revenues and the profit is increasing and I would like to ask Okusawa san to comment on the financial results. And also some of your product reimbursement would be changed, so does that affect your future -- production of futures activities?
Hiroyuki Okuzawa: Thank you very much [Indiscernible] san. First of all, the domestic reimbursement, a long-term listing in the formula, Lixiana, Tarlige and ENHERTU, these drugs would be listed for a long period and the system would not be affecting us first of all.
Unidentified Analyst: And for 2023 financial statements, how to look at this financial results?
Hiroyuki Okuzawa: We have a higher achievement than expected, especially in the field of profit. It is above ¥50 billion over the original budget. And there is the collaboration and agreement was made with Merck in October. So there is a one-time payment made, lump sum payment made. And so these are the advantages in our revenue and profit. In addition to this, our major product, including ENHERTU, the oncology products and primary business Lixiana and others, they are making a very solid growth. So our main business have made a lot of achievements and this would affect the revenue increase and profit increase of the single year, but not limited to the single year, it would allow us to lay the foundation for the future growth and that is really important for our long-term and ultra long-term growth.
Unidentified Analyst: Thank you very much.
Operator: [Operator Instructions] Next question is from Bloomberg, Telukina [Phonetic] san please.
Unidentified Analyst: Hello. Hi, this is Telukina from Bloomberg. I would like to ask you question related to the FX rate. How do you see the current FX rate? And when you look at your FY 2023 performance, what kind of impact did you see and what kind of impact are you looking into in FY 2024 and how are you prepared for the long term FX rate change? Do you need to take any actions?
Hiroyuki Okuzawa: Thank you very much for your question. With regard to the FX impact, well, FX does not make major impact on revenue. And in this times presentation material, we are saying that on OP level compared to revenue, R&D cost in us is to be spent quite significantly, so we do not expect a major impact on OP and FY 2023 FX impact ¥56.2 billion, negative impact on profit, and revenue ¥66.8 billion impact -- positive impact on revenue. So this positive was somewhat offset, negative ¥56.2 billion and FX sensitivity for FY 2024 has been presented and on the revenue side, $1 move would mean ¥4.3 billion, €1.02, ¥2.3 billion and core OP wise minus 200 million to the dollars and plus 300 million to the euro and that's the FX impact. It's very difficult to navigate through this FX change. It's not easy work for us, but we will continuously monitor the FX move and try to achieve a high accuracy in our forecast.
Unidentified Analyst: Thank you.
Operator: Next question. [Indiscernible], please.
Unidentified Analyst: Sorry, this is the second time I ask questions. I have another question. First is the messenger RNA vaccine, Moderna (NASDAQ:MRNA) now have a messenger RNA vaccine plant built in Kenya and COVID-19 is subsided and the demand is reducing. So at Daiichi Sankyo you have the Saitama production facility to be re-enhanced. So what is your prospect for the production facilities for vaccines and how do you look at the decline in the demand for COVID-19 vaccines? Or can you use that same system or the same technology to produce different vaccines other than COVID-19? So we would like to hear your strategy on vaccine production.
Hiroyuki Okuzawa: Thank you very much for your question of vaccine production. Last year we got the approval and we started the supply of DAICHIRONA. And we have 1.4 million injection value of product is shipped and supplied. And the target or the objective of the production facility enhancement is to reach 20 million vials. And Daiichi Sankyo Biotech is located there and we are enhancing the production capacity there. Of course, the COVID-19 pandemic may take place. It is very difficult to predict what kind of mutant variant would come, but we had several years being affected by pandemic of COVID-19. We have to be prepared for the future pandemic. And we think that we have made an agreement, national agreement, that we have to be prepared for the coming pandemic, and vaccine production capability should be maintained, including Daiichi Sankyo. And we have been supported so that we could have a good foundation for the production of vaccines when needed. And DAICHIRONA production capability should be further improved. And as mentioned by you, not limited to the COVID-19 vaccines, but we also have to consider the new modalities and messenger RNA technology can be used to produce seasonal flu vaccines or the flu vaccines, or we may be able to have a combined vaccine, a combination of vaccines of flu, seasonal flu and COVID-19. And so we have to enhance the R&D capability as well as the production capability. This is important for the health security for the Japanese population and we would like to contribute to that.
Unidentified Analyst: Thank you very much. Well understood.
Operator: Next question from Iyaku Keizai, we have Sakaguchi [Phonetic] san, please.
Unidentified Analyst: Thank you. This is Sakaguchi speaking. Can you hear me?
Hiroyuki Okuzawa: Yes.
Unidentified Analyst: On page 47 you talk about the transformation and you talk about sale of share of Daiichi Sankyo Espha. Daiichi Sankyo Healthcare, how is it going to be positioned into the future?
Hiroyuki Okuzawa: Well, thank you very much for the question related to Daiichi Sankyo Healthcare. In today's presentation I briefly mentioned that follows. Within the Daiichi Sankyo Group, Daiichi Sankyo Healthcare is steadily generating a profit and they are making a contribution to the group. And after several years of COVID-19 pandemic importance of self medication is better understood or recognized by Japanese national, the Japanese people. On top of that, we have 2030 vision. As a part of such vision, we would like to become a global healthcare company and we would like to respond to each individual needs of consumers using DX/IT technology. We would like to introduce new services. So from that perspective, in the area of treatment, Daiichi Sankyo Healthcare has made contribution but even in the area of prophylaxis or the prevention of the disease, the positioning of Daiichi Sankyo Healthcare remain quite important within the Daiichi Sankyo Group. So, Daiichi Sankyo Healthcare’s positioning within the group will remain unchanged.
Unidentified Analyst: Thank you very much.
Operator: So it is time to -- it is the prompt time to close this Q&A session with the media and journalists. Thank you very much for your participation today.
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