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Earnings Transcript for 4503.T - Q4 Fiscal Year 2022

Kenji Yasukawa: Hello, everyone. I’m Kenji Yasukawa from Astellas Pharma, Inc. Thank you very much for joining our FY 2021 financial results announcement meeting out of your very busy schedule today. Page 2 is a cautionary statement regarding forward-looking information. I’m not going to read this. Page 3 is the agenda for today. From Page 4, I’d like to go into the main topics. First, I will explain the major progress in the fourth quarter based on our strategic goals; organizational health goals; and performance goals set in corporate strategic plan, CSP, 2021. These 3 goals are not independent but complementary to each other, so they are intended to show the total picture on where our initiatives are positioned with respect to these goals and how they are progressing. We have -- nonfinancial information is also contained here. And the stock market is requesting for the disclosure of the nonfinancial information. It can be useful for the stock market to understand what we regard as meaningful progress. That’s why I’m sharing this with you
Unidentified Company Representative: Thank you very much. That’s all the presentation. We now would like to take questions from the audience. We can take your questions through teleconferencing system. You cannot ask a question through live streaming system. [Operator Instructions] The operator, please.
Operator: Mr. Yamaguchi from Citigroup Securities.
Hidemaru Yamaguchi: Can you hear me?
Unidentified Company Representative: Yes, we can hear you.
Hidemaru Yamaguchi: Yamaguchi from Citigroup. I have 2 questions. First, regarding the total picture, in the previous fiscal year, XTANDI co-promotion fees are excluded in your cost control, in the previous fiscal year. And there’s going to be a slight increase this fiscal year, so what are the factors behind why you couldn’t control last year? And what are the factors for the increase this fiscal year?
Unidentified Company Representative: Thank you for your question. So Kikuoka would like to explain.
Minoru Kikuoka: Your question is about XTANDI in particular.
Unidentified Company Representative: Excluding XTANDI. Sorry.
Minoru Kikuoka: Yes. As Yasukawa explained, in principle, there are one-off factors, including ForEx impact. That’s one factor behind. And also, as we mentioned before, towards the end of the fiscal year, XTANDI growth decreased, but still we decided not to constrain the proactive investments, as a management decision. On the other hand, what would constitute the rationalization? Streamlining investment for the future. By doing such investments -- as we said in the presentation, globalizing ERP requires troubleshooting. Honestly speaking, there were such needs as well, but in principle about what we decided to do, we have been implementing as scheduled so, in the current fiscal year and beyond, we will enjoy the benefits. And personally, I’m now joining this team. So if possible, as Yasukawa explained -- if you go to the first page of the appendix, there is a slide on Dansharism. I joined from March. [indiscernible] [Okamura] and the top management and I had discussions amongst us. There’s this so-called white space in English. Embedding innovation but pursuing efficiency, like a Japanese company, we added -ism to the Japanese word Danshari. Including our CXO overseas, we had discussions. This was well received. I’m not going to talk too much, but we have 3 steps to proceed, according to procedures for this process. Cost reduction does not necessarily come first, but we have to change mindsets to eliminate any waste. And for the management, this must be thoroughly discussed with their subordinates. I’m taking over this role from Okamura. I am joining the team and the company as a financial -- or dedicated person. If I don’t improve, there is no meaning for me to join. There are some shortages. Including the management, we have to ensure discipline. By doing this simultaneously in a more timely fashion, we can reduce our costs. I think we can do this. Sorry for my long answer. The investments, by now, will enter a stage for investment recovery. Then we can control the costs in this way.
Hidemaru Yamaguchi: Second, let’s extend the Q4 factor, centering on the U.S. Well, that -- things tend to happen in January to March, but at the same time, there’s a COVID and also the competitor situations explained by you. So the U.S. volume this time less than 20%. I don’t know if that is aggressive or not. The previous time, you are too aggressive. That’s why you couldn’t achieve that, but what about this fiscal year? How do you look at the United States? How do you look at the European market? Just a brief explanation is fine with me. Would you please explain that?
Unidentified Company Representative: Matsui would answer to that question.
Yukio Matsui: Thank you for your question. First of all, U.S. We see it relatively positively. Well, in February to March, since this COVID-19 pandemic -- newly prescribed patient. And that number was not really increased. That is one of the reason why we couldn’t achieve the target. And looking at their first report of February and March, there is improvement. So with that, we got relieved in the U.S. COVID situation has settled down to a certain extent and patients returned to the clinics. And just like Yasukawa mentioned a little while ago, in order to accelerate this momentum, from last year, with Pfizer in the United States, we’ve started a patient accelerator program. Patient with prostate cancer got their diagnoses as early as possible and understand the benefit of XTANDI. So this activation program has been promoted. This is another factor for the increase of our product in the market. And as has been mentioned, over the -- this settle down of COVID situation, our activities and Pfizer’s activity can be further accelerated. Therefore, from -- compared to the growth of FY ‘22 -- ‘21, FY ‘22, our plan is exceeding in terms of the growth level, so we are challenging a very aggressive and ambitious target. That’s how we view the U.S. market. Now about Europe. If you look at the number of the revenue -- or rather, sales, you might feel this is a bit too conservative, but the reason why we couldn’t achieve FY ‘21 target, the major reason for that, is that -- the delay of the reimbursement and also the impact of reimbursement. In order to get the new indications, just like the case in Japan, there has to be -- there is a request of a reduction of the pricing. That became the negative factor. And volume-wise, in Europe, there is about 16% increase planned. So again we have such ambitious plan, but the price impact that is incurred in FY ‘21 became the reasons for this single growth in the sales. But whichever the case is, our plan is always quite aggressive to set a target. That’s the way we would like to go.
Operator: Mr. Hashiguchi from Daiwa Securities.
Kazuaki Hashiguchi: Hashiguchi speaking. I have 2 questions. First, genetic -- gene therapy capabilities. There are 3 pipelines whose development are terminated altogether. The reason is that you couldn’t reach the expected efficacy level. And what do you think about the background in gene therapy, your ideal state of research for genetic therapies is not appropriate, shortage in capabilities? How should we think about the other pipelines? Any clues for this? Is it a factor just limited to DMD? Or is it something common to other pipelines? I’d like to hear about the factors behind.
Unidentified Company Representative: First, I’d like to respond. AAV, we’d like to transfect the target genes in the adeno-associated vector. The size of the genes is not always the same. Even if it’s the same DNA, depending on the base sequence, physical or chemical properties can be different, so technology-wise, it may be easier or sometimes more difficult, depending on the technologies. As for DMD, it’s rather difficult to transfect. Manufacturing was very costly. And also ODE was not so good. And what was completed was used in the clinical study. Can we beat our competitors in the future? The data did not indicate that it’s going to be possible. So because of these factors, for DMD, instead of pursuing further, we decided to terminate here. That was our decision. Is it just for DMD? If you ask that way, yes. We may face this kind of a difficulty, technical difficulties, in the future again. The follow-on project -- but as a gene therapy, is there any competitor or not? Any existing therapy, or not? If there is, how much efficacy has been confirmed for the existing therapy and technical difficulties must also be considered comprehensively together with those elements. There is no one who can talk about more specialized expertise today, so we will explain further when we have an expert.
Kazuaki Hashiguchi: Second question is about the forecast for the dividend. About the -- 1 year ago, JPY 50 with an increase of JPY 8. The pace is a bit -- greatly different from the previous situations. And we discuss if that is only onetime thing or this trend would increase -- or continue, rather. And at the time, you mentioned that there shouldn’t be the -- any hold or stoppage about this trend. I don’t know if my expression is accurate or not, but that’s what you mentioned, but this time the, yes, JPY 10 increase is not a reduction of the pace, rather, yes, accelerated. So this time, it was set as JPY 60. What’s the reason behind? Because we want to know how we can predict or to -- forecast the dividend now and toward the future.
Unidentified Company Representative: Thank you. Kikuoka is going to answer that question. Thank you for your question. Kikuoka is going to answer this question.
Minoru Kikuoka: So dividend. For the future, especially the level of that, especially that all depends on the revenue for now and then for the future, but the -- as has been conventional speaking, we have the capital policy set that is used for the growth, first of all; and basically for the dividend. However, continuously we would like to increase if it’s possible, depending on the profitability. As a result, the cash that we can have in our hands, 250 billion to 300 billion, that is something we would like to maintain. And that is a pre condition, and we can increase that. And we might do the share buyback in a quite a mobilized manner or a flexible manner. So in line with the CSP, if we can fulfill the increase of the revenue, we would decide the level of the dividend based upon the fluidity of the cash that we have. And this time, JPY 290 billion, that’s what we would like to aim at. And with that, as a condition, we expect that we can provide this level of the dividend, so we decided to increase by JPY 10. That’s all.
Kazuaki Hashiguchi: Compared to the past 250 billion to 300 billion, that is where you would like to achieve. And the share buyback and dividend balance, you -- the balance, the weight is going more toward the dividend. Is this understanding right?
Kenji Yasukawa: Yasukawa speaking. If you look at Page 36, on the top, you can see the description. The second is the continuous increase of the dividend level. Number three is flexibly execute share buyback. So in this order, we are executing what we are supposed to do.
Operator: Mr. Muraoka from Morgan Stanley Securities.
Shinichiro Muraoka: Muraoka from Morgan Stanley speaking. Can you hear me?
Unidentified Company Representative: Yes.
Shinichiro Muraoka: Core operating profit of JPY 290 billion, how to achieve this figure. XTANDI in U.S. and in Europe, you have ambitious numbers for both regions. To reach JPY 290 billion, I would like to ask about the buffer. If XTANDI cannot grow that much, where are you going to make ends meet? Cost-wise, considering ForEx, it can be a difficult figure to achieve. If you cannot grow XTANDI, how are you going to achieve this? How should we think?
Kenji Yasukawa: Thank you for your question. Kikuoka would like to respond first.
Minoru Kikuoka: Thank you for your question. So this is about if. There can be some additional comments from Matsui later. We think we can achieve this figure with XTANDI, but it may not be perfect. In that case, how to curtail costs is going to be an issue. I would be involved. And we would run a PDCA Cycle. We want to control SG&A costs. We overspent in the fourth quarter, unfortunately. We learned a lesson here. Instead of every quarter, as soon as possible, we’d like to identify the growth of the product. In case we face a situation as you mentioned, we’ll try to strengthen controlling our costs. For example, we’d like to ensure such flexibility. In CSP2021, we showed our direction. We have no intention to change that direction, but we’d like to be very flexible, yes. I think this is my responsibility as CFO, so we have to identify what can be upfront and what cannot be upfront. That is the concept of Dansharism. It may be very abstract, but this is what we have to do. And in 1 month, 1.5 months after joining the company, I think I feel confident that we can do this. That’s all.
Shinichiro Muraoka: [Foreign Language] the separation of the cost that you mean, but considering the ForEx, you did maximum effort for the separation of the costs. But even from here, there is still room for the separation through Dansharism. Is it okay to interpret -- Kikuoka-san, you see that possibility is still there.
Minoru Kikuoka: Yes. As has been explained, this time listening to the opinions from the field, I myself is still on the learning phase, but as you can understand from expecting the situations; for example, ERP. That’s what I call as sample. With introducing that, the conventional business process can be improved, but of course, we see some distortion. And that is whether we have to put more investment as -- that will be the expenses. Of course, that is done, and there is the -- a certain coordination internally. With that, we see the outcome from this effort. Yes, the troubleshooting would -- costly to a certain extent. However, if we overcome that, we believe that we can suppress the expenses further through these troubleshooting activities. That’s all.
Unidentified Company Representative: Yasukawa-san, did you want to say something about costs?
Kenji Yasukawa: No.
Unidentified Company Representative: Matsui would like to add.
Yukio Matsui: I cannot -- may not be able to provide information with a message but for main product. As an Astellas policy, we’d like to have a stretched target we’d like to aim for at the highest level so that we can aim for it. In FY 2021, this is what we worked on in U.S. and Europe. Unfortunately, we were behind, unfortunately, but within these goals, Japan and China exceeded the goals. In the business environment, there may be unexpected positive aspect as well. I may be optimistic, but there can be such events. As Kikuoka mentioned, more than before, on a quarterly basis, priorities should be reviewed. We should run a PDCA Cycle, more than before, to see how we allocate our money and whether we need additional measures or not. As the management team, we would go deeper and more actively. Now Kikuoka has joined the management team and we are going to execute this. Whether there is any buffer, there is no clear buffer, but in this way, we’d like to achieve these challenging targets.
Shinichiro Muraoka: Another question, last question from me. That’s about XTANDI. The U.S. number is not strong enough. I understand about the PAP situation, but what about competitors? Is there impact of Lynparza?
Unidentified Company Representative: I don’t think so. It’s too early.
Shinichiro Muraoka: But when you say competitors, what do you mean? Is it Novartis radio labeling product you’re talking about?
Unidentified Company Representative: No. Kind -- our understanding or recognition is that, if we look at it in Q4, Zytiga generic, that is growing unexpectedly. And [indiscernible] is growing gradually. What was most surprising for us is Zytiga generic that is growing more than we have expected in the fourth quarter. Those are the competitors we are talking about.
Unidentified Company Representative: It is true, the generic prescription-wise. That is quite understandable.
Operator: Mr. Sakai from Credit Suisse Securities.
Fumiyoshi Sakai: Sakai from Credit Suisse. Regarding your main products, you set stretch targets. According to our policy, if there is any exception, it can be PADCEV, PADCEV in the United States. Seagen, in November and December, they issued a guidance. You’ve -- about half of the U.S. revenue you are booking. Considering this, the numbers would be consistent between the 2 companies. The Seagen numbers are rather conservative according to some, but depending on the changes in the Seagen guidance, your numbers can also be revised throughout the year or every quarter. Should I understand this way? I’d like to confirm.
Unidentified Company Representative: Thank you for your question. Matsui would like to comment.
Yukio Matsui: First of all, regarding the evaluation, Seagen, has its own evaluation and assessment. We also have our own assessment. And analysts would look at the speed of penetration for this drug. Analysts expect this should be faster. That’s -- we are grateful for that, but as we have been saying from before, the line extension or the expansion of the indications, particularly the first-line settings, until the first-line additional indication, it would not increase so much, according to our forecast. There’s a slide here. In summer last year, there was one thing -- there was a cis-ineligible patient. This is not such a big patient population. The most important segment is the cohort K, as you’re expecting. So in FY ‘22, first, in the United States, that is going to grow. In Europe, why so late in spite of the approval obtained? You may wonder. In Europe, as you know, even if approval is won, drug pricing listing is going to be done in the respective countries. In EU5, Germany and U.K., you can market earlier because of the free pricing. In other countries, to obtain the drug price, it takes time. In the case of France, early access program can enable us to book sales, but in many countries, it takes time. If you take this into consideration on a full scale, for this product to grow, we think it’s going to be in FY 2023 or beyond. In FY 2022, it may look very conservative, but regarding this drug, in Europe, the drug price listing requires time. But taking that into consideration, these are very aggressive targets for us. That’s all from me.
Fumiyoshi Sakai: Understood. 2 brief questions about the pipeline and fezolinetant Asia MOONLIGHT study. As Yasukawa-san explained, placebo effect was higher. This means that this is the area that is most difficult to explain, so when FDA asks about this, what would you do? Is it possible for you to prepare backup data? I don’t know if that is possible, but that is one of my biggest concerns, so would you please explain? The second question [indiscernible] zolbetuximab event-driven study. And submission will be delayed from FY ‘22 to FY ‘23, but is this the very final time line that you drew? Is this understanding right? Please explain about that.
Unidentified Company Representative: Thank you for the question, for these 2, these development-related questions. So Bernie would answer these questions. Bernie, please.
Bernie Zeiher: Yes. Thank you for the questions. First, with regard to fezolinetant and the MOONLIGHT study, as Yasukawa-san explained, there was a higher-than-expected placebo response. We are investigating it. We’re continuing to investigate it. And we will have explanations that we could share with FDA, if it comes up, and a couple of things that were already mentioned that were different about this study. Number one is the dose. It only included the 30-milligram dose. It didn’t include the 45 milligram. And I think the other is really the location and the patient population. We know there’s ethnic differences in the reporting of hot flashes. And this likely contributed to some of the higher placebo effect, but we will be prepared to explain that to FDA. I think most importantly, though, which is always a big concern for FDA in this population, is that there were no new safety signals identified in this study. So I think that’s very encouraging and, I think, will be important for FDA in their review. Now shifting to zolbetuximab. As you mentioned, the 2 Phase III studies are both event-driven, and as we described, the current best estimate is that they will read out in the third or fourth quarter of this fiscal year. We continue to monitor the events. And these are our best estimates of when those -- we will have sufficient events to close the studies and to look at the readouts. So obviously things can change, but those are our best estimates now. And assuming it again is in that third or fourth quarter, that would then mean that our filing would be in fiscal year ‘23.
Kenji Yasukawa: Thank you, Bernie. Yasukawa speaking, if I may add a bit. As for zolbetuximab, until recently, patient recruitment was not over. Due to COVID-19, recruitment was affected. And as for the events, events did not occur at the speed we expected. Patient recruitment is now over, so one parameter has been gone. So now, just about the occurrence of events, we are tracking this. We don’t think the speed is going to change dramatically from now. It’s not absolute, but compared to before, we are making an estimation with a higher accuracy than before. Regarding fezolinetant, we had similar multiple experiences, Vesicare, mirabegron, in the Western studies, positive; and Asian studies. In this way, we couldn’t meet statistical significance according to the past experiences in the United States, Japan and Western regions. We didn’t experience any impact on the submission in other regions. As you can see on the top of Page 12, MOONLIGHT is a non-IND study for Western submission. Safety data will be included, but efficacy data will not be asked for. That’s all from me.
Unidentified Company Representative: Thank you. We have limited remaining time. I would like to entertain questions, as many people as possible. Therefore, we would like to answer just one question per person.
Operator: Nomura Securities, Mr. Kohtani, please.
Motoya Kohtani: Kohtani from Nomura Securities. Can you hear me?
Unidentified Company Representative: Yes.
Motoya Kohtani: I have to ask only just one question. So my question now is about iota development. So this IDE is planned in FY ‘22, or so the technical issues for the practical use is already solved. That’s -- I assume that’s a small device. You don’t need to change batteries. And the indication is not really described, but the [indiscernible] [NAV] stimulation is possible. Even the technology improvement is done. What about the competitiveness? Well, this is a small device, no necessity of the battery changes. And also this is implanted device. And you’re doing first-in-human study. The next will be Phase III. If so, FY ‘25 would be the timing of the launch. What do you view about this?
Kenji Yasukawa: Yasukawa speaking. Thank you for your question. Technically speaking, I think this product is already in a very high level of the completion in the development, but this is very first type of the product for us, so for the commercialization, what do we have to be mindful is need it to be concerned. IDE is equivalent to IND, so we are close to the start of the clinical trials. And for considering marketing, GMP-equivalent areas are needed to be considered, especially with the perspective of what is necessary to be done more. For that, we need to negotiate with the authorities. The length of clinical trials, even internally, we haven’t really approved the plan yet, so here I cannot tell you when will be the last timing of the -- or when will be the closing of the clinical trial, but I also consider that this is not the conventional type of development like a Phase I, II or III. So I hope that launch will be around FY ‘25. This is the expectation from me as President.
Operator: Mr. Ueda from Goldman Sachs Securities.
Akinori Ueda: Ueda from Goldman Sachs Securities. I’d like to ask you questions about assumptions for your SG&A plan
Unidentified Company Representative: The first question will be answered by Matsui. The second question will be answered by Kikuoka.
Yukio Matsui: First, I’d like to confirm your question. XTANDI co-promotion fees are very high, so you’d like to understand why, anything behind. We have an bullish, aggressive target for the sales. And that’s all, no other factor to increase the co-promotion fees. The active investments and proactive investments, before Kikuoka, I’d like to comment
Minoru Kikuoka: If I may add. Proactive investments, when we say it, I think fezolinetant is going to be our main product. With such products -- and we had been completing a series of investments in the previous year for ERP, deployment to other sites. We’d like to do this, but the biggest element of the proactive investment is -- was explained by Matsui, for the next fiscal year to prepare for the full-scale launch. Commercial functions are making proactive investments. We’d like to examine these investments in detail. If they would contribute to the enhancement of corporate value, we can increase them and reduce other investments. We can be flexible by running the PDCA Cycle. I hope you understand our approach. That’s all from me.
Unidentified Company Representative: Thank you so much. I’m sure that you are still waiting for asking questions, but that is the time. And with this, we would like to close this earning call. Everyone, thank you very much for your participation.