Earnings Transcript for 4503.T - Q3 Fiscal Year 2023

Hiromitsu Ikeda: Everyone, thank you very much for your participation to this announcement of Q3 FY 2023 Financial Results Ended December 31, 2023. I really appreciate your participation. And I'm Ikeda, I would like to serve as a moderator. My name is Ikeda, Chief Communications and IR Officer. We are going to have presentation first, followed by Q&A session. Japanese-English simultaneous translation is available. However, for that translation, the accuracy is not guaranteed by Astellas. [Operator Instructions]. And today's presentation is based upon the material available on our website. This material or representation by representatives for the company and answers and statement by representatives for the company in the Q&A session includes forward-looking statements based on assumptions and beliefs in light of the information currently available to management and subject to significant risks and uncertainties. Actual financial results may differ materially depending on the number of factors. Please do understand about that. And they contain information on pharmaceuticals, including compounds under development, but this information is not intended to make any representations or an advertisement regarding the efficacy or effectiveness. The participants here today is Atsushi Kitamura, Chief Financial Officer; Yoshitsugu Shitaka, Chief Scientific Officer; Tadaaki Taniguchi, Chief Medical Officer; Claus Zieler, Chief Commercial Officer. We have all those four on the stage. Now please start the presentation, Kitamura-san.

Atsushi Kitamura: Hello, everyone. I'm Atsushi Kitamura from Astellas Pharma Inc. Thank you very much for joining our FY 2023 third quarter financial results announcement meeting, although we have a very busy schedule today. This is a cautionary statement regarding forward-looking information. As this was explained by Ikeda earlier, I'm going to skip this page. Page three is the agenda for today. Starting from the next page, I've explained these topics in this order. On page 4, I will give you an overview of FY 2023 third quarter financial results. Revenue increased year-on-year, but was behind the full year forecast we revised in the second quarter. XTANDI and XOSPATA was in line with the full year forecast revised upward in the second quarter. PADCEV was in line with the full-year forecast, revised significantly upward in the second quarter. Also, potential peak sales forecast was revised upward, incorporating the robust results of EV-302 study. On the other hand, regarding VEOZAH, overall initiatives are progressing, but demand trails internal expectations. Full-year forecast was revised downward. IZERVAY demonstrated encouraging first full quarter performance since launch. This progress made us feel confident about its future growth. SG&A and R&D expenses were on track. Operating profit was behind the full-year forecast, mainly due to the performance of VEOZAH. Take taking these factors into account, revenue and operating profit full-year forecast was revised downward. On page 5, I will explain FY 2023 third quarter financial results. Revenue increased to ¥1.1891 trillion, up 2.1% year-on-year. The ForEx had a positive impact of ¥58.8 billion. Core operating profit was ¥149.6 billion, down by 36% year-on-year. The ForEx had a positive impact of ¥13.8 billion. Due to the impact of the acquisition of Iveric Bio as well as LEXISCAN generic, core operating profit was significantly lower year-on-year. The bottom half of this page shows our full basis results. In the right bottom of the table, we included other expenses booked in the third quarter. In the third quarter, we booked ¥18.4 billion as organizational restructuring cost on a global basis. This impact was already factored into a full year forecast we revised in the first quarter. As a result, operating profit was ¥74.1 billion, down by 59.1% year-on-year. Profit decreased to ¥50.3 billion, down 65.3% year-on-year. On page 6, I will explain XTANDI and XOSPATA business update. First about XTANDI. Global sales increased to ¥460 billion, up by 9% year-on-year, in line with the full year forecast, revised upward in the second quarter. In the actual business performance, even excluding forex impact, XTANDI achieved about 5% growth year-on-year. Sales expanded in all regions and XTANDI is still growing more than 10 years on the market. In FY 2023, we're expecting sales close to ¥720 billion, exceeding the ¥700 billion mark on a full-year basis. In the United States, based on EMBARK study results, M0 CSPC additional indication was approved in November last year. We are expecting contribution to future sales. On the other hand, Medicare Part D redesign will start from January 2025 as one of the measures by the so-called IRA, Inflation Reduction Act. The redesign is expected to increase the amount to be paid by companies and we are assuming impact on our sales. We're still examining the specific level of potential impact. We hope to provide guidance in Q4 earnings. Regarding XOSPATA, global sales increased to ¥41.3 billion, up 14% year-on-year, in line with full-year forecast revised upward in the second quarter, like XTANDI. XOSPATA is expanding steady even in the current indication. We are expecting the achievement of our full-year forecast. On page 7, I will explain PADCEV business update. PADCEV global sales increased substantially to ¥55.6 billion, up by 68% year-on-year. Performance is in line with our full-year forecast, which was revised upward by nearly ¥20 billion in the second quarter. The United States, in particular, contributed the most to global sales expansion. This is driven by the market penetration of first-line cis-ineligible mUC based on EV-103 study approved in April last year. In addition, in December last year, first line mUC additional indication was approved based on EV-302 study for both cis-eligible and cis-ineligible patients. What's noteworthy is an incredible speed up to approval. Approval was granted only two weeks after the FDA filing acceptance. We believe that FDA also highly evaluated the robust data of EV-302 study. We're expecting significant sales contribution in FY 2024 and beyond, driven by the penetration of the robust EV-302 study data and further expansion of eligible patient populations. In Europe, reimbursement started in three new countries, including Spain, which is a big market. We have obtained reimbursement in a total of 13 countries where now we're expecting further sales contribution. Furthermore, we updated potential peak sales forecast for PADCEV, incorporating the robust results of EV-302 study, which even exceeded our initial expectations, we revisited our market share assumptions. We made an upward revision of potential peak sales forecast from ¥300 billion to ¥400 billion to ¥400 billion to ¥500 billion yen. We aim to achieve ¥500 billion with PADCEV as important growth driver. Peak sales forecast is disclosed as in-market sales, not Astellas revenue. This is calculated as a total of sales booked by Pfizer for the Americas plus sales booked by Astellas for ex-Americas. Indications in early clinical phase are not included in peak sales forecast, such as NMIBC, no muscle invasive bladder cancer, and other solid tumors. So depending on the future progress, there can be an upside for peak sales forecast. Based on progress, we will also update you on peak sales forecast at an appropriate timing. Just for your reference, you can find the image of economic conditions with Pfizer in the right bottom of this page. Schemes vary slightly by region, but we are assuming profit sharing on a global basis. Both the current progress and the outlook are extremely positive. We're expecting PADCEV to serve as a solid growth driver in FY 2024 onwards. On page 8, I will explain VEOZAH business update. Third quarter year-to-date sales were ¥3.6 billion or $25 million. Overall initiatives are making steady progress, such as market access and DTC activities. We feel more confident about the future product potential of VEOZAH. On the other hand, with regards to FY 2023 initial update, demand trails internal expectations and the actual results so far behind our initial assumptions. There are two main factors for demand lower than expected. First, the impact of DTC activities we started in October last year, and so the actual demand is lower than expected. The level of interest among consumers and HCPs is rising steadily with DTC activities. We are very confident about the direction of our initiatives. On the other hand, for women who have seen our DTC activities to actually ask HCPs about VEOZAH, the timeframe is longer than our initial assumptions. As a result, it's taking longer to impact the demand increase. Secondly, many HCPs feel that VEOZAH's occurrent payer coverage is not enough. Total lives covered are expanding steadily, but based on market research, more HCPs than we assumed have a perception that the current coverage progress is not enough to actively prescribe VEOZAH, which is impacting the uptake. Full-year forecast of $375 million, we decided to keep in the second quarter, has been revised downward to $50 million by incorporating the demand ramp delay due to these factors and by reassessing the timing and pace of the full scale growth curve we expected in the fourth quarter. Next, I will explain the latest progress. So market access, total lives covered expanded to about 35% as of the end of December last year. Payer discussions are ongoing right now. We're expecting over 50% payer coverage by the end of FY 2023. Regarding the effectiveness of DTC activities, we have received a lot of positive response. The level of interest among consumers and HCPs is going up steadily compared to the time before the initiation of DTC activities. In particular, activation of consumers and HCPs is an important progress. According to market research, 70% of women reported high intent to ask HCPs about VEOZAH. Also, 76% of HCPs report they're extremely willing to prescribe VEOZAH. We believe activation is important for the growth of VEOZAH. We'd like to aim for further [Technical Difficulty] in this regard for the future as well. As for our future initiatives, in order to address HCPs' perception that payer coverage is not enough, we will promote information provision to HCPs by the sales force in an accurate and timely manner on the progress of the expanding payer coverage. In DTC activities, we will broadcast a VEOZAH TV spot, focusing on the product brand during the Superbowl in the United States. More than 100 million people watch the Superbowl every year. Last year, we ran a VMS disease awareness related TV commercial and received a lot of reaction. We are hoping to reproduce such success. Regarding the future outlook, we are expecting a further increase in the percentage of lives covered and continued momentum from commercial investments in FY 2024. Mid to long term and peak sales outlook will be reviewed based on the progress of overcoming HCPs perception that coverage is insufficient, and we will provide guidance at an appropriate timing. Lastly, update on Europe. We obtained approval in December last year. The product was launched in a total of seven countries, including Germany and UK. We even aim to increase launch countries and obtain reimbursement in various markets. On page 9, I will explain IZERVAY business update. About the progress since launch, IZERVAY was launched in the United States in September last year. Sales in about four months since launch were ¥5.3 billion. This is an encouraging performance after launch, despite being before permanent J code and label update. This progress was great and made us feel more confident about its future growth. Since launch, more than 17,000 vials have been shipped and became available in over 920 Retina accounts. In particularly, the GATHER2 data released at AAO 2023 in November last year was highly evaluated by specialists and accelerated growth in IZERVAY usage was confirmed after the presentation. Based on the reported shipment volume data, we estimate market share in the third quarter period to be about 20%. Taking into account the fact that it's just about four months since launch, we think this is an extremely positive number. Safety profile so far in the real world settings has been consistent with clinical trial results according to the report. We remain confident about the product profile of IZERVAY. Next, about DTC activities aiming to increase awareness of the IZERVAY product brand and GA as a disease shown on the right hand side of the page. Since the approval of IZERVAY, we have been running out branded campaign for IZERVAY. We have achieved 55% brand awareness among GA patients post launch. As for disease awareness campaign for GA, we formed partnership with two time Emmy award winning actor Eric Stonestreet, who shared his personal connection with GA in a peer effort. These initiatives turned out to be successful and contributed to 56% awareness of GA among dry AMD patients. Lastly about the future outlook. We're expecting two major milestones in FY 2024. First, we received confirmation of permanent J-code effective April 1 this year. The other is that we are anticipating approval of label update within FY 2024. We're expecting significant growth in FY 2024 driven by these upcoming milestones. Together with PADCEV and VEOZAH, we're expecting IZERVAY to contribute to sales as an important growth driver for the future. Next on page 10, I will explain cost items. As is shown in the table, cost of sales ratio was 18.4%, improving by 1 percentage point year-on-year and was on track. SG&A cost, excluding US extended co-promotion fees, increased by 20.4% year-on-year. When forex impact was excluded, the year-on-year increase was 14.6% or about ¥49 billion. As main factors behind, the impact of Iveric Bio acquisition was about ¥20 billion. VEOZAH-related sales promotional costs rose by about ¥30 billion year-on-year. On the other hand, sales promotion costs related to mature products, such as mirabegron, decreased by about ¥6 billion year-on-year. We reduced investments in mature product actively and allocated resources to important growth drivers we should invest in, such as IZERVAY and VEOZAH. We're on track in our spending. R&D expenditure increased by 5% year-on-year and increased by 1.6% when forex impact was excluded. With the Iveric Bio acquisition, we booked R&D expenditure of about ¥8 billion and we use it as planned. On page 11, I will explain the FY 23 revised forecast. We have revised our full-year revenue forecast downward by ¥46 billion to ¥1,562 billion, incorporating the current progress of VEOZAH. The foreign exchange rates and the revenue of products other than VEOZAH have not been revised from the full-year forecast disclosed in the second quarter. SG&A expenses are expected to be ¥731 billion, a reduction of ¥6 billion. In alignment with the reassessing the timing and pace of demand ramp up of VEOZAH, we have revealed some investments timing that we have planned in this fiscal year. We will continue to invest to maximize the product value of VEOZAH, but we will do so after carefully examining the optimum timing for the greatest return on investment. R&D expenses are expected to be ¥286 billion, with a reduction of ¥4 billion yen. The production – cost of commercial inventory of IZERVAY, which was included in R&D expenses in the second quarter, will be recognized as inventory assets as a result of our [indiscernible] examination of its accounting treatment and the impact of this change has been incorporated. As a result of the above cost review, the impact of the downward revision of VEOZAH has been partially mitigated and the operating profit is expected to be ¥164 billion yen. On a full basis, operating profit is estimated to be ¥83 billion, mainly due to the core base revision. From here, I will explain our initiatives for sustainable growth. Page 13 summarizes the main updates regarding R&D since the last financial announcement. Over the past three months, there have been a number of important progress, particularly with a regulatory submission for XTANDI and the key strategic products. Details are provided in the following slides. Page 14. Here I describe the progress of the key events expected in FY 2023 for XTANDI and key strategic products. Progress since the last announcement is shown in red. XTANDI received approval in the US in November last year for the additional indication of M0 CSPC, a non-metastatic castration sensitive prostate cancer with a high risk of biochemical recurrence based on the EMBARK study. Regarding PADCEV, based on the EV-302 study for the additional indication of first line treatment of locally advanced metastatic urothelial carcinoma, the filing in the US was accepted in November last year and the approval was granted in December. The filing for additional indications in Europe and Japan were also accepted in January. As for zolbetuximab, in January, we received our complete response letter from the US FDA. I'll provide an update about this later in this presentation. VEOZAH was approved in Europe last December. For IZERVAY, we submitted a US label update application in January based on 24 month data from the GATHER2 study. Other updates are listed on the side of the chart. For VEOZAH, we will conduct Phase 3 studies with the aim of regulatory submission in Japan. SKYLIGHT 2, a pivotal study, and SKYLIGHT 3 to evaluate the long term safety will be studied in the fourth quarter. Regarding XOSPATA, after reviewing the top line results of the Phase 3 MORPHO study for post-HSCT maintenance acute myeloid lymphoma, together with additional analysis and consideration, we have decided to discontinue the development based on the result of this study. By accelerating the implementation of measures in each project, we were able to accomplish all the key events planned for FY 2023 as of January. Page 15. We have made progress in the late stage pipeline with full regulatory approvals for new indication or region received during the quarter. I will discuss these in more detail. XTANDI, it is the first novel hormonal therapy receiving US FDA approval for M0 CSPC. Based on the result of the EMBARK study, XTANDI is now approved for monotherapy, as well as combination with a gonadotropin-releasing hormone analog. Regarding the addition of new indication for PADCEV, we expect that this will be a new treatment option to transform the current standard of care for decades and will bring significant value to patients in the first line treatment of locally advanced or metastatic urothelial carcinoma. In addition, as I mentioned earlier, PADCEV was approved in less than three months after the top line results read out of EV-302 study and incredibly only two weeks after the sBLA accepted by FDA. VEOZAH was also approved in Europe as the first-in-class no hormonal treatment. Vasomotor symptoms associated with menopause are known to be a common unmet medical need not only in the US, but in many other countries as well. And this approval gives us the opportunity to serve more women suffering from this condition. CRESEMBA has an additional indication for pediatric patients with very high unmet medical needs. In addition, pediatric exclusivity was granted by the FDA extending its market exclusivity period by six months in the US. We hope that these achievements will help maximize the value of each product. On page 16, I will provide an update on the status of zolbetuximab. In only January, we received a complete response letter from the FDA informing us that the FDA could not approve zolbetuximab by the target date due to unresolved deficiencies following the pre-licensing inspection of the contract manufacturing organization's, or CMO, facility. On the other hand, the FDA has not raised any concerns related to clinical data, and is not requesting any additional clinical studies. Let me explain our action plan in light of this situation using a diagram in the middle. We are currently working closely with the FDA and the CMO as well to address the findings. Once Astellas confirms that the CMO's response is complete, we will submit the -- resubmit the BLA and a new PDUFA date will be identified upon FDA acceptance. The FDA will then conduct an inspection of the facility and decide whether or not approval is granted. The target date for BLA's resubmission is the first quarter of FY 2024. Now, in parallel to that, reviews of applications outside of the US are continuing as planned. Regulatory agencies around the world conduct their reviews independently, and the review decisions are based on the different requirements and expectations of each regulatory agency. This incurs no impact on other Astellas products. We'll keep you updated on any developments as they occur. On page 17, I will provide an overview of the current status of the focus area approach projects in clinical phase. There have been no major changes in the past three months, and each project continues to progress in clinical studies. Of this, ASP1570 and ASP2138 in primary focus immunooncology and ASP3082 in targeted protein degradation are aiming to obtain early data readouts in Phase 1 monotherapy dose escalation study ongoing during FY 2023. We are prioritizing the three projects as the lead projects for each approach and expect to obtain data that will lead a POC in FY 2024 or later. Since the studies are still ongoing, we are unable to provide a specific status at this time, but we will provide updates as soon as they become available at an appropriate timing such as when we announce financial results. On page 18, I will explain recent examples of open innovation initiatives such as the activities at research stage and at early development stage. As part of activities at research stage, we focused on incorporating external innovation and cooperation through collaborations with academia and other companies and contributions to life science ecosystems. As part of these efforts, we are leveraging open laboratories and have established a SakuLab-Tuskuba and TME iLab in Tsukuba and Kashiwa-no-ha areas in Japan. SakuLab-Tuskuba is an open innovation center established in the Astellas Tuskuba Research Center, and is equipped with experimental facilities that can be used immediately after move in. Academia and startups that move in here will have the opportunity to network with other users and with Astellas researchers, in addition to support from various Astellas experts. The TME iLab was established in the Kashiwa-no-ha area as an open innovation center for cancer microenvironments and in an interactive cancer where researchers from inside and outside the company can freely discuss and advise their research. The Kashiwa-no-ha area is in close proximity to the National Cancer Center and many of Japanese leading advanced medical facilities in academia, and we expect to promote collaboration by maximizing the advantage of this. On the right side of slide is activities at early development stage. We have entered into a five year strategic collaboration with the Mass General Brigham, MGB. MGB is based in Boston and provides medical education as a teaching hospital at Harvard University. At the same time, MGB is known as one of the top biomedical research institutions in the world, conducting a wide range of translational and exploratory research. Through this collaboration, the two companies aim to combine their expertise and knowledge to accelerate the early development of innovative therapies. The collaboration has agreed to initially focus on Astellas' core R&D areas of oncology, rare diseases and cellular medicine and gene therapy. We expect the partnering with a highly specialized academic institutions such as MGB will help us to better understand disease and modalities, optimize clinical trials and accelerate the early development of relevant primary focus areas. We also expect that Astellas' presence in Boston area, one of the world's leading life science area, will be further reinforced, which creates new opportunities for open innovation. On page 19, I will explain a summary of our progress to date in FY 2023 and our outlook. So far, in FY 2023, revenue and core operating profit have been below our initial focus due to the LEXISCAN generics and Iveric Bio acquisition as well as lower than expected progress in VEOZAH. On the other hand, we made significant progress in the development of key strategic products, including the launch of VEOZAH and IZERVAY and the new indication of PADCEV. We have achieved a number of important milestones which we expect to become full-fledged growth drivers from FY 2024 onward. VEOZAH has been slow to ramp up due to the fact that many physicians feel that insurance coverage is insufficient, which is a barrier to prescribing. In response, we will work to further expand insurance coverage and promote the active and timely provision of information to physicians, which will lead to full scale growth. In addition, while ensuring investment in growth drivers, we have begun considering various measures to improve margins, strictly control expenses and a revision of our planning process. As the CFO, it is my responsibility to ensure that these initiatives are carried out. We'll provide details of these initiatives at an appropriate time in the future. As a result of the above, we expect to achieve an increase in revenue and profit in FY 2024. We hope to show that we will be able to achieve sustainable growth from FY 2024 onward with the setting FY 2023 as the turning point. That is all. Thank you very much for your attention.

Operator: [Operator Instructions]. Mr. Yamaguchi from Citigroup Securities please.

Hidemaru Yamaguchi: I have a few questions about VEOZAH. First, payer coverage is an issue, as you mentioned. Right now, payer coverage is not making progress. There is a delay. What's the biggest reason behind? That's my first question. I have a few questions about VEOZAH, so I will ask later. What's the reason? Why there is no progress in payer coverage? Number two. Patients awareness is increasing with DTC, but they're not making visit to HCPs. Why? That's my second question. Certainly, you are going to examine the details [indiscernible]. At what time are you going to examine the details? So these are my three questions about VEOZAH.

Atsushi Kitamura: First of all, I'd like to briefly respond and then, of course, we'll make additional comments afterwards. First of all, payer coverage for VEOZAH, it's not really delayed, but as of the end of December last year, we made progress up to 35% and this year over 50%. So we are making progress as planned. But on the other hand, we are making progress, but from HCPs perspective, there may be no progress or there is such a perception among HCPs. So we'd like to provide information in a timely fashion that we are making progress and we need to do these activities. So it's not behind, but we are making progress in line with the plan, but we have not been able to overcome their perception. As for DTC awareness, it's on the rise, but why it's not reflected on to the actual demand, there are two major things, in our opinion. First, looking at DTC, people will become interested in VEOZAH and they may want to use it. I'm talking about women, and they go to HCPs to get the prescription. We thought that it's going to take about two months, but actually it's taking longer in reality.One more point. The physician/HCPs' prescription, it may be difficult to prescribe right now because there is such a perception, they are not prescribing so much. As for the timing to examine the details of the volume and sales, there are a few things I'd like to mention. First, we will implement the action, including payer coverage, when it's going to increase exceeding 50%. And then what way the physicians and HCPs' perception really change, we have to identify. Claus, anything to add from you?

Claus Zieler: I would like to emphasize what Atsushi just said. Our payer coverage is actually progressing to plan. We have said in the last call and in the call before that that we were aiming to reach more than 50% payer coverage by the end of the fiscal year. By the end of December, we had reached 35%. By the end of January, we're already north of 40%. So we're fully on track if you draw a line in terms of the payer coverage that we set out to achieve. However, we're seeing that HCP perception is lagging the real coverage. So that's an opportunity for us with our sales force to educate physicians on the options for coverage that exists today. And our sales force is doing that. And we're reinforcing our efforts there. So there's a difference between payer coverage progressing and the perception in the HCP community, which is not up to date with that progressing coverage. So that's the issue that we have to address now. As to the DTC, again, as Atsushi said, we're actually very, very happy with how the DTC is working. You can see it on the page that Atsushi presented with the increase in awareness, both in consumers and in HCPs, but we're particularly encouraged with the intention. So the increase in high intent of women, that increased from 50% in September to 70% in December, that's a 20 percentage point increase in one quarter. And same for the HCPs, from the mid-60s, we had 64% extremely willing to prescribe in September, that's increased to 76% in December. Again, more than 10 percentage point increase. So the DTC is working. But we are seeing delays, for instance, in the time it takes women to get an appointment with an HCP. That's more than 40 days. So, the timing of the awareness and the intention translating into a consultation and then a prescription is simply longer than we had anticipated. Last call, we were estimating two months for that to translate. We're now estimating more likely three to four months. Yeah? So that's just the delay in women who want to consult, being able to consult and get a prescription from their HCP.

Hidemaru Yamaguchi: Then let me ask you one additional question. That's regarding the CLIA coverage. I understand about that quite well. So, your view and the HCPs' view or perceptions are different. So to put it in the reverse way, of course, education is important. But HCP perception, what is the percentage of the physicians consider that the coverage is sufficient? This is the opposite way to ask you the question.

Claus Zieler: Yes, exactly right. We're asking the same question right now. So, let us get back to you next quarter with more details on that because we're doing some research on exactly the question. What's the threshold where HCP say, oh, yes, now I feel free to prescribe. So let us wait for that data to come in and we'll share that with you next call.

Hidemaru Yamaguchi: One more question. Just briefly, you have CSP which is ongoing. IZERVAY, VEOZAH, slightly behind. You were revisiting our peak annual sales forecast, the CSP as a whole is going to be reviewed, do you have such an opinion?

Atsushi Kitamura: As of now, CSP 2021, we haven't changed our plan. We would like to work on it. Regulatory, when we announced the second quarter results, IZERVAY, in 2025, including the amortization of intangible assets, including that for IZERVAY, considering that impact, core operating profit, 30% can be difficult to achieve. On the other hand, IZERVAY and other products, they will continue to grow in 2026 and beyond. After XTANDI LOE, for sustainable growth, these are important factors, so we will continue to work on these products. VEOZAH figures, now this will have a big effect on the achievement of CSP 2021. As Claus said before, we have to identify the progress of VEOZAH. We'd like to closely watch the situation.

Operator: Next, Daiwa Securities, Mr. Hashiguchi, please.

Kazuaki Hashiguchi: First question is about VEOZAH. Information provision to HCPs will be reinforced. And then these issues could be resolved. Do you think that it's going to be happening, payer coverage? And the conditions for patients to receive payer coverage, if these conditions are complicated, you have to simplify these conditions. Otherwise, the coverage ratio may increase, you may not be able to resolve the issues. So what kind of patients and what kind of background are patients can receive coverage in order to ease the conditions? Rebate can be expanded to simplify the coverage, what is your view about the simplification of these?

Claus Zieler: I don't think we are changing our approach to payers at this point in time. There is no need for us to do rebating the way you suggested. Our payer coverage is progressing. It's progressing according to plan. Yes, HCPs have not perceived that yet. But they will over time. We know that HCP perception tends to lag this kind of progress because, of course, it takes time for them to be informed when a payer coverage contract comes in. But we are continuing exactly on the same approach. And we're very confident that we will deliver on the more than 50% payer coverage that we aimed for by the end of fiscal 2023. So I would suggest that, next quarter, when we talk again, we concentrate on the question of has HCP perception caught up with the progress that we're making on payer coverage rather than now addressing the question of what changes do we have to make to our approach to payer coverage.

Atsushi Kitamura: Second question is about IZERVAY, about the update of the label. Toward the backside of the material, it says that, in January, the submission is done for the label update.

Kazuaki Hashiguchi: But what kind of the contents of this label update and to what extent of impact of that is likely to be incurred? Would you please explain about them?

Atsushi Kitamura: At AAO, the data is presented. And according to that, from the beginning, once the two months of the administration becomes possible or 12 months, the restriction of the administration is going to be now lifted up and released.

Kazuaki Hashiguchi: Seemingly, there might be certain risks for that. But would you please explain your view about that?

Atsushi Kitamura: IZERVAY labeling update. First of all, briefly, I would like to explain. After that, Taniguchi is going to explain you the details. What we are aiming at with this update is the restriction of duration of administration which is currently 12 months. That is what we would like to lift up. And also, once monthly schedule is what we would like to extend to once in two months. Of course, ultimately, what kind of level we can gain is all depending on the authority review, so we just have to wait. However, our intention is just what I mentioned.

Tadaaki Taniguchi: Let me make some additional comment. So, IZERVAY GATHER2 study is basically I believe what you are talking about, and the GATHER2 study itself is a 24-month study. And this shows the separation of the geography atrophy, which is statistically and also clinically significant. So, IZERVAY is [Technical Difficulty] therapy showing that level of the efficacy. We're using that data, therefore. Just like Kitamura explained, in January, we did the resubmission for the label update. So, first, this 12-month restriction of the administration is intended to be extended to 24 months. And on top of once-monthly data, once in two-month data is now submitted. And so that, both way of administration is possible. We are now trying to update the label. Of course, the final result is depending on the outcome of the authority review, so I'm not going to talk about that. But the review is ongoing currently.

Kazuaki Hashiguchi: So once in two months in the GATHER2 study, well, the first one is monthly. And from the mid, it was a switch to once in two months and there was no data that administration is once in two months from the beginning. Your resubmission is targeting the once two month administration from the very beginning of the treatment.

Tadaaki Taniguchi: But, ultimately, of course, we have to do the discussion with authority that we are providing the GATHER2 data. And at the end of what is going to happen can be updated later on.

Operator: Next, Morgan Stanley MUFJ Securities, Mr. Muraoka, please.

Shinichiro Muraoka: I have a question about VEOZAH and IZERVAY. First about VEOZAH. Production will start in two months, but it's taking three months as was presented. In other words, according to your sales plan for this fiscal year, it's going to increase towards the end. If it's behind in January-March period, it's going to increase and then there's going to be a faster increase from April-June. It's just the timing being shifted at a later time point. Is not the right picture I can draw? Can I have a such a simplified understanding? For example, according to the table you showed before, you need to sell ¥40 billion in April-June period. Do you still have such a plan? That's my first question. Regarding VEOZAH, I'd like to briefly comment. Regarding the initial forecast for FY 2023, before starting DTC activities, we wanted to sell a certain volume and after DTC activity initiation relatively rapidly, it will drive the after demand. These were assumptions. Regarding the first point in the previous call, it didn't come so much. Now, regarding the pickup after the initiation of DTC activities, as you pointed out, the timing of resulting after demand is shifted and being delayed and HCPs' perception may be a barrier to prescription. So, there is one additional parameter. So, what is going to happen to this and something we have to watch? HCPs' perception, you were talking about it continuously. Have you missed any other factors, no such possibility?

Claus Zieler: I do believe the two factors that we have mentioned are the ones that play a role here. So one is the HCP perception of coverage, which is lagging behind our real progress. And the other is the timing in the activation of the DTC. When a woman decides to consult a physician, how much time does it take for her to make an appointment and to actually get a prescription? That timing is just longer than we had anticipated previously. So those are the two factors we've identified. And we believe that the HCP perception factor will normalize over time. Of course, the question of how much time does it take for a woman to book an appointment, I think that's probably going to be a static factor from now on. I hope I answered your questions, but to confirm those are the two factors we have identified.

Atsushi Kitamura: The second is going to be about IZERVAY. So October-December, ¥2.9 billion. So compared to Syfovre, the situation is getting better. There is a strong growth in the US.

Shinichiro Muraoka: But now question is about the EU. Syfovre is facing difficulty in the European market. That is not the company's reasons. But the Apellis, the company is saying this is due to the authority. So what about you, Astellas, in the case of – in terms of the European market? Are you looking at it in the same way as Apellis or do you think that is some sort of a misunderstanding, therefore, you can get the approval in European market? And on top of that, there is ¥150 billion other than US. So if you face the difficulty in Europe, to what extent of the impairment risk you're going to incur?

Atsushi Kitamura: Thank you for the question. That is about the European approval. Therefore, I make a brief explanation, which is followed by Taniguchi. Syfovre negative opinion is issued. And we have, of course, recognized that. We cannot assume the decision by the authority. Therefore, we work within the information available for us now. But if we're looking at the clinical trial study, as you know, IZERVAY is aiming at the GA for which the treatment is not available these days. And the consultation with the authority is on track. But of course, we cannot assume what kind of judgment or decision they will make.

Tadaaki Taniguchi: I would like to make some addition just briefly. As Kitamura explained, European IZERVAY and actual review are ongoing. I cannot talk about other company situation. However, for us, for IZERVAY, Japanese Phase 3 pivotal study was conducted and a GA, geographical atrophy, progress was suppressed at the 12 month point in a statistically significant manner. And this is only one kind of such track. And the data was announced in November. And 24-month post administration, the GA progress was statistically significantly suppressed. Again, in that sense, this is a very faster drug. And a safety perspective, we have a consistent data, robust data and looking at both the GATHER1 and GATHER2 data, the data is consistent with the safety information that is readily available. So, ultimately, including Europe and looking at globally, this Japanese pivotal study safety and efficacy balance is reviewed for the final decision. So, what we can say here is that, in Europe, the review is ongoing in a similar manner.

Atsushi Kitamura: Apellis mentioned that the unconceivable outcome or endpoint was requested by their authority [indiscernible] but your data shown is in line with the expectation or the request of the authority in Europe. Based upon the consultation with them, you understand it in that way, right?

Atsushi Kitamura: Well, so far, there is no critical point out or mentioning from the authority. There are 120 queries and answers prepared. Therefore, if we can make some update about this at an appropriate timing, I would like to inform that.

Operator: Next, Goldman Sachs Securities, Mr. Ueda, please.

Akinori Ueda: My first question is about PADCEV. You made an upward revision of the peak sales forecast. The forecast assumptions have changed a lot from the previous time on a local currency basis. What's your view? What other changes in your opinion on a local currency basis? EV-301 study, based on that, you explained the situation. So what's your opinion resulting in the upward revision of peak sales forecast?

Atsushi Kitamura: Page 35. What has changed the peak sales forecast for PADCEV significantly, rather than forex rates, it's EV-302 data, in our opinion. If you look at this page, you can see a large number of eligible patients. As for mUC, we were able to obtain our approval. This is a big driver for us.

Claus Zieler: If I could add, I think you have to think about PADCEV in three steps. First, we got approval of the second line indication. So second line, a doctor had to treat first with basically with cisplatinum or with avelumab. That was the basis of our launch. Then in April this year, only in the US, only in the US, we received approval of the EV-103, which is a first line indication, but only for part of the population, only for the part of the population that is cisplatin ineligible. Yeah? So that's only part of the first line indication. And that is what provided already such good growth in this year in the United States. And we updated you on that in the last quarterly call. We revised our FY 2023 forecast upwards on the basis of that very strong uptake in that partial first line indication in the US. Now in combination with pembro, we have the full first line patient population available to us. So both cisplatin ineligible, but also cisplatin eligible. Yeah? That really opens up the whole field of first line treatment for a doctor. And given that we had such a strong echo in the ESMO Congress when we presented the data to physicians, we really think that this has the potential to change practice in a very significant way. And that is what's causing now our optimism and our upward revision because we now have this very strong data for the entire first line population that a doctor can see. So I hope this stepwise fashion of thinking about the PADCEV patient populations helps on why we have updated you first with an upward revision for FY 2023 results in last quarter based on fast uptake of EV-103, which is only partial first line, and now we are updating you for the peak sales because of the robust data of EV-302, which gives the doctor access to all patients in first line with PADCEV and pembro combination. So I hope that explains.

Akinori Ueda: Second question, towards the end of the examination by Kitamura-san, the process of the planning is part of your consideration. The planning process change is part of your consideration. I think that's what you mentioned. But, currently, what kind of issues do you see for the planning process? And in what way you would like to revise? What's your perspective about this?

Atsushi Kitamura: First of all, I'm not saying that the current way is not good at all. Rather, that we would like to reinforce current process. Especially regarding new products, including timing, there are always uncertainties. So we would like to look at them in a range or based upon scenario. And when we have beforehand what kind of actions we should make, in that sense/scenario, planning is something we can review. And in a timely manner, we need to make the appropriate decision making. And depending on the necessity, we are going to accelerate every allocation of the resource. That's also something we'd like to do. So, basically, it's about scenario setting. And also, the speed of decision making. Those are something we see more room that we can work on to reinforce it further.

Operator: Next, JPMorgan, Wakao-san, please.

Seiji Wakao: First, it's about VEOZAH. Thank you for the explanation so far. And there's a delay compared to the initial plan. I understand about that. And FY 2024, ¥300 billion that you are – [indiscernible] the ¥300 billion that you are aiming at, and I believe, currently, it's very difficult to achieve. So how do you view about it? And next is about how to use the expenses. For this fiscal year, partly, you reduce some, but next fiscal year and afterwards, VEOZAH SG&A, how you are going to allocate that? There's a delay. So you would like to catch it up. In the case, you think about increase of SG&A and or rather you're not going to increase that with efficient usage of the expenses or there might be the reduction in SG&A overall?

Claus Zieler: Yes, we have a delay, but we're still very confident in the potential of this drug. There's a huge unmet medical need in this market, and we're tapping that unmet medical need as a pioneer. We're creating the market. That takes some time. So, our investment will continue until we see that our assumptions may have to change. Right now, I can tell you, our investment level is appropriate, both on the field force side and on the DTC side. And we intend to continue that also in the future, including in FY 2024, as appropriate to drive the value of this brand. Let me just confirm, Wakao-san , whether I've answered your question.

Seiji Wakao: In other words, there's a possibility that you ought to increase the SG&A cost and so on for this next fiscal year and afterwards?

Claus Zieler: [Technical Difficulty].

Seiji Wakao: Now second question is about the IZERVAY competition. There is about [Technical Difficulty] percent of the market share that are currently with the competition. Compared to that, what's your current the status of your product? The market itself is growing. So it seems that there is no fierce competition about getting the market share. But for Syfovre, how it's evaluated? How do you evaluate that compared to Syfovre in terms of their getting market share?

Claus Zieler: I would give you the following consideration. We've been on the market promoting a survey since September. So, until end of Q3, fiscal year Q3, that gives us four months on the market. In the last three months, so in the full quarter, October, November, December, we achieved what we estimate to be a 20% market share. Yeah? That's based on the public information available of what Syfovre has shipped and what we have shipped. And if we put all that together, we estimate approximately 20%. That's overall market share. Yeah? Taking into account that we entered the market six months after Syfovre, that means the new-to-brand market share in the last quarter must have been significantly higher than 20%. So our estimation is that we are extremely competitive in the new patient capture with IZERVAY because that's the only way you would get a 20% market share within essentially the first full quarter on the market.

Seiji Wakao: I might have missed, but I'd like to ask you the last question. To start, Medicare Part D redesign was mentioned. I'd like to hear more about the redesign, Medicare Part D to start from 2025 and the impact on your product?

Claus Zieler: [Technical Difficulty] referring to XTANDI because that's the major impact we see from the Part D redesign that the Biden administration has put into legislation. So when we think of Part D redesign, the first thing to consider is that this takes effect in calendar year 2025. So from 1 January, 2025. So we are now talking about the fiscal year Q4 of FY 2024. So that's the first consideration. The second consideration is that this is a very complex change, which affects both the Medicare as a government institution reimbursing, it also affects the plans in the United States and it affects what manufacturers have to pay and it affects what patients have to pay. So you have four factors going on at the same time. Patients have to pay less, plans have to pay more, manufacturers have to pay more and Medicare is shifting what they pay. Trying to really estimate, pinpoint estimate how all these factors play out is going to be very, very difficult. So what we have done so far is just mathematical calculations based on the publicly available information from who pays more and who pays less. We have not simulated or we're in the process of simulating how does behavior now also change in the marketplace as patients pay less and other players have to pay more? That's a very, very difficult exercise to do. So please understand that, right now, all we are informing about is the factual mathematical calculation of what we know from the changes that kick in on 1 January in 2025.

Seiji Wakao: So, there can be quite a certain level of negative impact. Should we assume that? You're still calculating all the details, right, but do you have any assumption?

Claus Zieler: From the simple mathematical calculations, we assume that not only Astellas, but all manufacturers will have a certain extent of negative impact affecting gross to net? But as I said, there may be counteracting factors based on how behaviors change in the market, which we cannot estimate at this point in time.

Operator: Next, UBS, Haruta-san, please.

Kasumi Haruta: Now question is about IZERVAY. The vasculitis issue, there is one case of vasculitis in the past, but after that, there are any such cases? Is there any report of vasculitis or so after that? If that happened, what kind of feedback did you get in the case of Syfovre and IZERVAY as well? If the frequency is low, because unmet medical needs is high, the market itself is growing, is there any feedback from the doctors? If there is any, I would like to learn about that?

Atsushi Kitamura: As for the safety profile, it is consistent with the clinical study result. There is one case of off-label usage, but the second case afterwards, retinal vasculitis was not reported. There is no post launch adverse event report of such. So, the result is consistent with the result we gained from the clinical trial.

Kasumi Haruta: Then complement inhibitor for that mechanism itself in AAO questionnaire shows a bit of the negative way to look at it. Now, is there any change about that?

Tadaaki Taniguchi: AAO, there is a report about their negative perception on this complement inhibition. Is there any change about that? Let me respond to that. As Kitamura explained, I think the question is basically about the safety, but so far, for the IZERVAY, there is no report of retinal vasculitis at all. And in a clinical trial as well, we've done GATHER1 and GATHER2, and there is no report of the retinal vasculitis. That's where we are. The drug itself, regarding IZERVAY, C5 is targeted, RNA aptamer is the modality and other competitor is peptide. And us, this is the intraocular administration. And the kit for that, there is the appropriate provisioning. So, there is a such a difference. So, although the same target is targeted, however, based upon the available information for us, it seems there is no negative impression onto our product.

Kasumi Haruta: So, zolbetuximab, CRL was received, there is a slight delay in your schedule, but as of now, peak sales impact is none as of now. This is maybe about the situation after approval for gastric cancer. CPS less than 5 is going to be the target in this market. Is that what you're going to target, Claudin 18.2 biomarker, and how are you going to increase the awareness of this? Do you have any information you can share right now?

Claus Zieler: It's a very good question [Technical Difficulty] testing for Claudin 18.2 varies considerably from market by market. We have markets, particularly in East Asia, where Claudin 18.2 testing awareness is very high. And we do not foresee problems with including that in testing. We have other markets, more Western markets, where we have to educate doctors much more on Claudin 18.2 testing. Now, the program we've designed addresses both the awareness with doctors once we're able to promote the product, but we also will have a program working with pathologists and the labs that have to do the testing because you actually need the awareness on both sides, right? You need it with the prescribing physician, you also need it with the pathologist and the lab that has to do the testing. So those programs are in place. And we're ready to educate physicians as soon as we get approval.

Kasumi Haruta: Regarding any comment on the patient segments

Claus Zieler: Could you repeat your question please?

Kasumi Haruta: Claudin 18.2 is going to be important. In particular, CPS 5 or less. Under 5 is the target population which could enjoy benefit from your product. What do you think of this? Target population with a CPS under five is not the target population with your drug?

Claus Zieler: We will target the population in accordance with our label. So, yes, we are targeting below 5, if that is your question. Now, if you're looking for specifics within that population, we would have to get back to you with more details. I'm sorry, maybe I'm not 100% understanding your question.

Operator: Next, Bank of America Securities, Mamegano-san, please?

Koichi Mamegano: I have two questions. First of all, VEOZAH, this might be a bit – a future thing. The competitor from Bayer, elinzanetant, the clinical trial is said to be successful, and probably next year is going to be launched in the market. So what's your view about the competition? The market is still on the process of the expansion. So this competition is going to be work positive way for your product? What kind of view do you have? And also, is there any benefit for first comer or not? That's the first question.

Atsushi Kitamura: Probably last time, Okamura mentioned the same kind of thing. With having the competition, there is both positive and negative. First, the market is getting bigger. That is one big positive impact. And, first, the market is getting bigger and how we can gain the market share is one important thing. So we would like to increase our owner brand awareness, although we're not the first-comer. Claus, do you have any additional comment? No. Thank you.

Koichi Mamegano: Second question, regarding earlier development, the early data readout, you can get that for three projects this fiscal year. For this early data readout, you're planning to get POC, but for those early data readout, when they are going to be disclosed, when can we know about this early data readout?

Atsushi Kitamura: As has been mentioned, it's appropriate timing, but Shitaka is here. Or Taniguchi is going to give you the response.

Tadaaki Taniguchi: Regarding the early data readout, basically, Phase 1 dose selection, dose setting, 15070 [ph] and 21383 [ph], 082 [ph], we are doing that dose selection study for those three. And based upon the result, I would like to decide the most appropriate dosage. We are on the phase now. So first, we decide the clinical dosage. And once that is fixed, we would like to consider about the disclosing that in some publication or so. But as of now, we haven't decided when and which Congress we will present that or not. So I cannot give you any specific answer. But for the early data readout, that is completely on the plan.

Operator: Next, Sanford, C. Bernstein, Ms. Sogi, please.

Miki Sogi: I have two questions about VEOZAH and one question about IZERVAY. First about VEOZAH. Private health insurance coverage, so seven months after the launch and between seven to nine months, during this magic period, you need to increase the coverage. Otherwise, it is going to be difficult in the later period. This year, by the end of March, just 50% in private insurance coverage. I'm concerned about it. Next fiscal year and beyond, how much you can grow from 50%? And about VEOZAH, promotion costs may remain high for a long period of time. That's my concern. From last year, an increase of ¥30 billion due to VEOZAH. Considering this factor, this year, of course, DTC started in October and after. But on a full year, you are not doing activities on a full year basis. You have a lot of money for DTC activities in 2024, ¥50 billion or so may spent. It may not be over in just 2024. Various product will enter the market and you will continue these activities further. Then this product will be breakeven in 2026 or 2027 according to my assumption. I'd like to hear your view on this. Last but not least, I have a question about IZERVAY. Syfovre in February last year was launched on a full-year basis. $275 million were the sales according to J.P. Morgan presentation. Given that factor, $160 million or so could be reached by IZERVAY. But you mentioned ¥11 billion, which is much lower than $160 million. Competitively, new-to-brand share is being captured by your product. Why, compared to Syfovre, it's lower?

Atsushi Kitamura: First about VEOZAH, two questions about VEOZAH and one question about IZERVAY. For the details, Claus is going to respond. But regarding IZERVAY, as we mentioned, from April and beyond, the J-code will become available and label update will be made and approved. So there is a room for a lot of growth. The numbers may look weaker, but next fiscal year and beyond, it's going to grow well.

Claus Zieler: Let me first add to the IZERVAY comment from Atsushi. I firmly believe that we are very competitive with our new patient capture with IZERVAY versus Syfovre. You have to consider that, in a disease where there was no treatment, the first to market will capture the so-called bolus patients, so the patients that are waiting. And that gives them a base that they can carry forward. Now, for us to capture, as I said, 20% of the overall market in the first full quarter after launch, our new brand capture has to be extremely competitive. It's difficult to estimate right now because we don't have the data. I think you're being a little bit too careful on what we are capturing in the US market with IZERVAY right now. So that would be my IZERVAY comment. On VEOZAH, I believe your question was, when do we breakeven and what's the investment going forward and what's the curve? I would beg you for some patience as we figure that out. But, again, I think you are being very critical with the numbers and your projection of breakeven. I do think we will pleasantly surprise you with some news. But what we need to do before we can pleasantly surprise you is we need to understand exactly how the pick-up curve in the next quarter or so really develops because that gives us a robust basis for informing you on what is the trend that we anticipate for FY 2024 and beyond. And I would like to wait for that data before we start talking about what's the year that we break even and what's the projection of the sales. So if you permit me, let's try to debate that in three months' time.

Miki Sogi: I actually have another question regarding the commercial payer coverage. So you're expecting that the coverage to achieve the 50%. But, usually, major boost of coverage should happen between seven and nine months after the launch. And that is exactly the time we are in right now. And I'm a little bit wondering how much more it would go after this 50%, after this in the magic period of seven to nine months?

Claus Zieler: We are exactly in that period, that seven to nine months, as you said. So, there are quite a few contract negotiations that are going on right now. I don't want to speculate and I don't want to give information that's not appropriate. But we are exactly in the period that you described with some negotiations going on, which could make a major impact. So let's leave it at that for now and let's talk in three months what progress we've made on the payers.

Operator: Nomura Securities, Mr. Matsubara.

Hiroyuki Matsubara: I have a question about IZERVAY. In your presentation, after GATHER2 study data presentation, prescription increased. The study said that compared to placebo, there was no improvement of the visual acuity in GATHER2, but GA area was suppressed and also safety is highly evaluated. Secondly, about zolbetuximab, the reexamination period is up to quarter two, but regarding the findings, the issues are going to be resolved, Claudin 18.2 bispecific antibody is under development by you. So how am I going to differentiate zolbetuximab as that antibody, bispecific antibody?

Atsushi Kitamura: This is about GATHER2 study. Taniguchi is going to respond.

Tadaaki Taniguchi: First from me about IZERVAY, GATHER2 data was presented and sales [indiscernible] and the question is why. As we mentioned earlier, GATHER2 data is important because, as of 24 months, the primary endpoint, GA progression was suppressed, statistically speaking, for the first time. That's a very meaningful data in that regard. And also safety, it's consistent with the past data. There was no onset of or report of retinal vasculitis. So the results were consistent with the past results. Physicians might have felt relieved by looking at that data. As we can imagine, because of this, the results were taken positively. But how they captured the data will become available into the future as well. Next about zolbetuximab. CMO, contract manufacturing organization, is that vendor. The findings by FDA, we are discussing to address the findings as soon as possible. On the part of CMO, they also regard this as very important and they are doing their best to address the situation. So as I mentioned before, next fiscal year, in the first quarter, we can re submit our filing, and that's what you're aiming for, as we are proceeding with the discussions. ASP2183, Claudin 18.2 and CD3 bispecific antibody ASP2138 and how to differentiate this from zolbetuximab. That was your question, right? Claudin target is the same, but 2183 is T cell engager, CD3. So, according to expectations, we have to look at the data from now on, but for more broader patient population, this drug can become more meaningful. Phase 1 study is ongoing right now. So, maybe look at the safety and efficacy to discuss how this drug is going to be used or this drug can be used in combination as well as the indications we are discussing right now. Once the future direction is determined, we'd like to share more with you.

Hiroyuki Matsubara: Additionally, the visual acuity improvement by IZERVAY, is there any particular comment from the HCPs?

Atsushi Kitamura: Putting aside if it is from doctors or not, but as you know, although it's a post hoc analysis, but for IZERVAY, 12 months after the treatment, for example, visual acuity, there are more than 15 data improvement for the IZERVAY and there is a 50% suppression. On top of the IZERVAY GATHER2 data is including the sub analysis under the analyzation. So, we're looking at –such kind of data is probably divided too by the HCPs as well.

Operator: Thank you. We are behind this time to close this session. Therefore, with this, we would like to close today's earning call. Thank you very much for your participation.