Earnings Transcript for 4519.T - Q3 Fiscal Year 2024

Kae Miyata: Thank you for joining Chugai Pharmaceutical’s Earnings Call on the Financial Results for the Fiscal Year 2024 Third Quarter. I am Miyata from Corporate Communications Department. I would like to serve as your moderator today. Today, we have an on-site presentation, as well as a Zoom webinar. And today’s agenda is in the document distributed. And today’s call is going to be held in Japanese, but through the Zoom webinar, you will be able to listen to the simultaneous interpretation in English. Please find the interpretation mark at the bottom of the screen and select the language of your choice. We will take questions after the presentations. We plan to have 30 minutes for the question-and-answer session following the presentations. During the presentations, please allow us to mute your microphones. We thank you for your cooperation. Now, Dr. Osamu Okuda is going to present the fiscal year 2024 third quarter overview.

Osamu Okuda: Okuda, the President. I would like to give you the third quarter of the financial year 2024. Please take a look at Page 5. Up to the third quarter, we have achieved increased revenue and profit. Revenue increased by 3.7% year-on-year. This is a turnaround from the slight decrease in the revenue in the second quarter. Operating profit increased by 25.3% year-on-year. So it has continued to increase year-on-year. And both are higher than our original forecast. Domestic sales decreased significantly due to the completion of government supply of Ronapreve, which was recorded last year and NHI drug price revisions, as well as the impact of generics. Overseas sales and other revenue increased significantly, particularly due to exports of Hemlibra, the in-house product, to Roche and royalty income. Based on the strong performance, which exceeded original expectation, the initial forecast has been revised upwards to revenue of ¥1,150 billion and operating profit to ¥540 billion. Compared to the original forecast, revenue and operating profit have been revised upwards by ¥80 billion each. As for revenue and operating profit for the next fiscal year, at this moment, we are assuming that they will be at about the same level as the upwardly revised forecast for this fiscal year. The original announcement is scheduled for the end of January next year and there are some uncertain factors, but we will provide this information as a yardstick based on our current assumption. Please take a look at Page 6. This will show a breakdown of the difference between the original forecast of ¥1,070 billion and the revised forecast of ¥1,150 billion for revenue. Domestic sales are ¥0.8 billion lower than the original forecast, reflecting progress with each product and revision to our assumptions. For overseas sales, we expect Hemlibra and Actemra to exceed our original forecast. Hemlibra exports have been revised upwards by ¥36.7 billion due to growth in overseas local sales and increased demand and Actemra exports have been revised upwards by ¥21.2 billion due to the impact of biosimilars being lower than expected. Overseas sales overall have been revised upwards by ¥64.8 billion. Other sales revenue, royalties and profit share revenue represents an increase by ¥4.4 billion due to increased revenue related to Hemlibra. Other operating revenue represents an increase of ¥11.6 billion due to milestone payments from out-licensed products. The topline was revised upwards by ¥80 billion or 7.5% compared to the initial forecast. \ Please turn to the next slide. In 2024, significant progress was made in strengthening the foundation for the short- to medium-term growth, particularly with three of Chugai-originated products. PiaSky is our second product using the antibody recycling technology. With once every four weeks subcutaneous injections for PNH, we expect to reduce the treatment burden for patients. Next, as you can see at the center, NEMLUVIO, an antibody drug that inhibits IL-31, which causes itching. Our partner, Galderma, has obtained approval and a priority review in the United States for nodularis prurigo, and filing has been submitted in Europe. Filing was also submitted for an indication of atopic dermatitis in both the United States and Europe, with expectations for early itch relief and improvement with inflammation. Later, Kusano will present data on early efficacy and long-term effectiveness recently shared at EADV and others. The third is Alecensa, approved in Japan, the United States and Europe as the only ALK inhibitor for early-stage lung cancer treatment. It is expected not only to lower the risk of post-operative recurrence, but also to offer new treatment opportunities that may lead to cure. We will continue to provide unprecedented new value with Chugai-originated products like orforglipron and GYM329. Aiming for global product launches every year as outlined in TOP I 2030, we will strive to further contribute to global healthcare. That concludes my explanation. Thank you.

Kae Miyata: Next, I would like to invite Kusano to talk about development pipeline.

Tsukasa Kusano: I am Kusano, the head of Project and Lifecycle Management Unit. I’ll explain the status of the development pipeline. Please take a look at Slide 9. First, I will present the topics for the third quarter. All of the approvals and applications are already announced. In terms of approvals, our in-house product, PiaSky, was approved in Europe in August for PNH. Also, for our in-house product, Alecensa, an expanded indication was obtained in Japan in August for the adjuvant treatment of ALK-positive early-stage non-small-cell lung cancer. As a result, PiaSky for PNH -- PHN and expanded indication of Alecensa for the adjuvant treatment of ALK-positive early-stage non-small-cell lung cancer were approved in Japan, U.S. and Europe as initially planned. And also, nemolizumab, which was out-licensed to Galderma, was approved in the U.S. in August for prurigo nodularis under the brand name of NEMLUVIO. For Roche products, we received approval for Evrysdi and Rituxan. In addition, we submitted applications for approval in August for SRP-9001, a gene therapy product for Duchenne muscular dystrophy and in September for Vabysmo for angioid streaks, which can cause visual impairment. Both products have been designated as regenerative medicine products for rare diseases and orphan drugs and are eligible for priority review. There are three trials that got started. As for RAY121, the in-house discovery project for anti-complement C1 recycling antibody that we explained in the previous earnings briefing, we started a global Phase 1b basket trial in August. This is for six autoimmune diseases and we are steadily making progress with the simultaneous development of multiple diseases. BRY10 is also an in-house discovery project. Unfortunately, we were unable to disclose the specific target diseases or mechanism of action at this time, but we have started Phase 1 trials for chronic disease. BRY10 is a clinical antibody designed by MALEXA, and this is the first project to advance to Phase 1 trial. MALEXA is Chugai’s proprietary AI-based antibody drug discovery support technology. For Roche products, a Phase 3 trial of the KRAS G12C inhibitor, divarasib, for the second-line treatment of non-small cell lung cancer was started. Next slide please. Now, we’ll discuss the removal of projects from the pipeline. Regarding SPYK04, an in-house project, we have decided discontinue development in-house and begin our out-licensing activities. Although we have not disclosed the mechanism of action until now, the MOA of SPYK04 is a rough-neck molecular glue. Molecular glue is a term for a small molecule compound that acts like glue to bind two or more proteins together. In addition, we have decided to discontinue the development of tobemstomig, a bispecific antibody that targets PD-1 and LAG-3, in light of the results of clinical trials conducted overseas by Roche. Next, the result of the study of nemolizumab, which were presented at the European Academy of Dermatology and Venereology EADV Congress in September, will be explained in more detail on the following slides. In the third quarter, we concluded licensing agreements with Roche for two projects. These two projects are the PI3K inhibitor inavolisib and anti-TL1A antibody, which I will also explain later. In summary, research and development activities are progressing in a variety of ways to continuously create innovative new drugs, including early drug discovery research, late-stage development, including regulatory submissions and drug discovery using AI. Next slide, please. Next, I’ll talk about the progress of major R&D events in 2024. Changes from the previous time are underlined and in bold letters. As I mentioned, we were able to obtain all of the approvals we had planned for this year for PiaSky and Alecensa. The readout timing of the SUNMO study conducted using mosunetuzumab and Polivy and MANATEE study conducted using combination of GYM329 and Evrysdi has been changed to 2025 as announced by Roche already. Next slide, please. In the next two slides, I would like to show you the characteristics of nemolizumab, also known as NEMLUVIO, overseas, including its early onset of action and long-term efficacy. First, let’s take a look at nodularis prurigo. The top part shows the results of post-hoc analysis of two Phase 3 studies presented at EADV up to day 14 from the start of the treatment. After treatment was started, there was an early onset of efficacy, with statistically significant and clinically meaningful improvements in pruritus observed as early as the second day or even first day. The lower graph shows the long-term data from the Phase 3 study for nodularis prurigo that was presented at the AAD, American Academy of Dermatology, in March. On the left, the percentage of patients whose pruritus improved over 52 weeks increased with the admission of nemolizumab, and nearly 90% of patients experienced complete or almost complete disappearance of pruritus. On the right, the overall evaluation of skin lesions also showed continuous improvement over 52 weeks. From this result, it was shown that this drug, nemolizumab, can be expected to further improve symptoms with long-term administration. In addition, although not shown here, similar results were obtained in improving sleep disorders and it was confirmed that safety was the same as before. Next slide, please. Next, atopic dermatitis. The top white row shows the results of post-hoc analysis of the two Phase 3 trials presented at RAD, revolutionizing atopic dermatitis in June, up to 14 days after the start of treatment. As with prurigo nodularis, statistically significant and clinically meaningful improvements in pruritus were seen as early as day two or even day one. The lower part shows the long-term data from the Phase 3 study for atopic dermatitis that was presented at EADV recently. Over 56 weeks, the overall evaluation of skin lesions on the left side and severity of the extent of skin lesions on the right side showed continuous improvement. In addition, although not shown here, similar results were obtained in terms of improvements in sleep disorders and we have confirmed that safety profile was the same as before. What is common to patients with atopic dermatitis and prurigo nodularis is poor sleep and reduced quality of life caused by pruritus. We expect the nemolizumab, which targets IL-31 signaling involved in pruritus and inflammation, will be an effective and convenient treatment for patients with these diseases around the world. Next, I will explain about inavolisib, a PI3K inhibitor, also in-licensed from Roche. This slide shows the mechanism of action of inavolisib. PI3K has multiple isoforms of proteins with partially different structures and it has a significant role to play. Our RG6631, this will be the best treatment options. On the right-hand side, as you can see, Phase 2b study results are shown. For the placebo injection, compared to the placebo injection, the high effectiveness was confirmed and we are planning for the global Phase 3 study to start soon. Next, I will explain about inavolisib, a PL3K inhibitor, also in-licensed from Roche. This slide shows the mechanism of action of inavolisib. PI3K has multiple isoforms of proteins with partially different structures. Among them, PI3Kα, in particular, is deeply involved in the proliferation and survival of cancer cells. inavolisib is a catalytic subunit of PI3Kα and is expected to exert a strong and lasting effect by selectively inhibiting the kinase activity of p110α, which is responsible for the main function of PI3Kα and promoting the degradation of the mutant p110α protein. By specifically inhibiting PI3Kα, it is expected to have less impact on other PI3K isoforms involved in physiological functions unrelated to cancer, reducing the risk of side effects. These are the results of the overseas Phase 3 trial of inavolisib. The overseas Phase 3 trial was conducted for recurrent breast cancer that is PIK3CA mutated positive, hormone receptor positive and HER2 negative. PIK3CA mutation positive breast cancer is a type of cancer where mutations in a PIK3CA age genes leading to constant activation of the PI3K, AKT, mTOR or PAM pathway promoting cancer cell proliferation and survival. In the overseas P3 trial, inavolisib was added to palbociclib, a CDK4 and 6 inhibitor, and fulvestrant, a selective estrogen receptor degrader, SERD, which are standard treatments for the PIK3CA mutation positive, hormone receptor positive and HER2 negative. A statistically significant and clinically meaningful improvement was observed in progression-free survival, which was included in the primary endpoints. Specifically, the combination group of inavolisib, palbociclib and fulvestrant reduced the risk of disease progression or mortality risk by 57% compared to the palbociclib and fulvestrant group. Evaluation of overall survival period was immature at this point, but showed a positive trend and follow-up will continue until the next analysis. PIK3CA mutation positive breast cancer has a poor prognosis and high unmet needs. Development of inavolisib is progressing ahead in Europe and in the United States. In the United States, inavolisib has been designated a breakthrough therapy by the FDA and approved on October the 10th of this year for PIK3CA mutated positive hormone receptor positive and HER2 negative locally advanced or metastatic breast cancer with a priority review designation. It is also under review for approval in Europe. In Japan, we will swiftly advance development to deliver this innovative drug to patients. Here are the future submission plans. Red stars indicate new additions and green stars indicate changes in submission timing. I would like to add one note. Regarding NXT007 currently in Phase 1 and 2 trials, it was previously listed in the Phase 1 category in the development pipeline slide, but has now been updated to Phase 2 with a submission planned for 2027 and beyond. This aligns with the transition to the patient part to obtain efficacy, safety and dosage setting data and rushes update to Phase 2, adding it to the submission plan table. The readout of the ongoing Phase 1 and 2 trial is planned for the next year of 2025, which will be the basis of our decision as to whether to proceed to Phase 3. A few reference materials are attached for your reference as needed. This concludes my presentation.

Kae Miyata: Last but not least, I would like to invite Taniguchi to talk about the fiscal year 2024 Q3 consolidated financial overview of core and core basis.

Iwaaki Taniguchi: I am Taniguchi, CFO. While the video is not shown properly. Well, I would like to explain about the results of the third quarter based on the core basis. First of all, revenue was ¥868.5 billion, year-on-year increase of ¥30.9 billion or 3.7%. Operating profit was ¥426.6 billion, or rather, a year-on-year increase of 25.3% or ¥86.1 billion. And the main factor behind the increase in sales was significant increase in export sales of products such as Hemlibra and Actemra. This growth in sales completely absorbed the impact of the loss of sales of ¥81.2 billion from Ronapreve and even exceeded it. Let’s take a look at the breakdown. Sales were ¥750.3 billion, an increase of ¥8.2 billion or 1.1%. Looking at the sales by region, domestic sales and overseas sales, but as for domestic sales, they were down ¥97.5 billion year-on-year. But excluding Ronapreve, the decrease was ¥16.3 billion. The main factors were the impact of NHI drug price revisions and penetration of generic drugs. Overseas, exports of products such as Hemlibra were strong and sales grew by ¥105.8 billion or 33.8% year-on-year. Other revenue increased by ¥22.7 billion or 23.8% year-on-year to ¥118.2 billion due to factors such as increase in royalty income from Hemlibra and one-time income. Now, the cost items. Cost of sales was ¥244.1 billion, a decrease of ¥76.1 billion or 23.8% year-on-year. The reason for this is that cost of sales of Ronapreve, which had a high cost of sales ratio had disappeared and the relatively low cost of sales ratio of our in-house products has increased. As a result, cost of sales ratio has improved by 10.6 points to 32.5%. Despite the impact of rising prices and higher personnel costs, we made efforts to improve efficiency, and R&D expenses increased by ¥6.2 billion year-on-year, as projects in drug discovery research and early development progressed smoothly. And as for SG&A expenses, they only increased to ¥1.1 billion year-on-year -- expenses by ¥1.1 billion year-on-year. Our other operating income decreased by ¥13.9 billion due to significant decrease in gains on sales of products transferred this year. As a result, operating profit increased by ¥86.1 billion year-on-year to ¥426.6 billion. The operating margin increased by 8.4 percentage points to 49.1%. Net income was ¥301.3 billion, increase of ¥51 billion or 20.4%. Next page shows the breakdown changes in sales. First, in the domestic oncology field, sales increased by ¥11.1 billion or 5.8% year-on-year. As for the breakdown, sales of Avastin decreased due to the impact of the penetration of generics products, but sales of the new products increased to a greater extent than the decrease in sales of Perjeta and Herceptin. In the specialty area in domestic market, the decrease in sales was ¥86.6 billion or 36.4%. But this was due to the decrease in sales of previously mentioned Ronapreve and Tamiflu, which is a large seasonal fluctuation trend. Excluding the decrease in sales of those two, sales were generally at the same level as the previous year. While overall sales were affected by the NHI drug price revision, sales of new products such as Vabysmo grew steadily. Overseas sales of products in gray increased by ¥105.8 billion or 33.8%, mainly due to growth in sales Hemlibra and four other core products. The next page shows the breakdown of increase in operating profit. The content of the slide has been enhanced since the previous quarter, with more detailed disclosure of information such as domestic and overseas breakdown and impact of foreign exchange rates. As for the domestic sales -- domestic ones, impact of NHI drug price revisions and impact of Ronapreve were the factors that led to the decline in operating profit. As for overseas sales, the increase in sales volume and positive impact of foreign exchange rates greatly exceeded the decrease in export unit prices and this was a factor in the increase in operating profit. Other revenue increased by ¥22.7 billion, an increase in royalties compared to the last year for Hemlibra, and one-time income such as milestone payments contributed to increase in operating profit. In addition, the significant decrease in cost of sales due to changes in the product mix was a major factor in boosting operating profit and there are some cost items increased, but the ¥86.1 billion increase was achieved. The next page is the trend of profit and loss items by quarter, by every three months. This has been shown since a year before and there are some ups and downs and timing delay in exports, but as you can see, in second quarter and third quarter, operating profit grew significantly because of export growth. Next page, likewise, every three months, from the third quarter last year, you see the sales composition. I’m not going to go into details, but the overseas sales products have made significant progress since the second quarter of this year. Please turn to the next slide. As I have explained, our performance this term has been extremely solid and considering the current situation, we have decided to revise our earnings forecast at this time. Details are as stated. Sales is revised upward by ¥80 billion to ¥1.15 trillion compared to the initial forecast. We’ve also revised operating profit upward by ¥80 billion to ¥540 billion, and net profit by ¥52.5 billion to ¥388 billion, all upwards revisions. The main factor for this revision is the significant increase in overseas exports to Chugai-originated products, including Hemlibra and Actemra, and other one-time revenue was -- there was an upside as well. Those are the main factors. As I mentioned before, the sales cost, because of the sales mix, the low-cost products increased in the overall composition and forex impact as well. On the cost, there was not as much forex as expected. So, with the sales increase, the sales cost ratio remained the same, so that’s why we revised upward by ¥80 billion for both sales and profit. For the dividends, we will consider -- we will reconsider based on the revision and based on the progress towards the year-end forecast, but it remains undecided at this time. The next page shows the difference between the initial forecast and the revised forecast for sales by segment and major products for each major category. As you can see, the product sales, ¥64.8 billion, is the increased portion. The right-hand side shows the forecast by product. Hemlibra is generating upside compared to the initial forecast, as you can see. These are the impact of forex. This is the updated slide from last time. The left-hand side, C versus A, shows the actual rate comparison between last year and this year and its impact on sales and profit. And C versus B, in the middle, compared to the initial forex assumption, the actual forex is compared here. And those portions that is not -- that does not have the forward forex contracts, there has been some positive impact from that open position. So, these are the effects. And next page, these are balance sheets. The top side, the cash equivalent has been accumulated and AR has accumulated thanks to increased sales and long-term investment. The fixed asset has increased ¥2 trillion and ¥69.7 billion compared to December, ¥127 billion has increased. And the liability, there was a minus of ¥36.8 billion and there was an increase of ¥178 billion and equity ratio is now standing at 87%. And net cash, there is an increase of ¥106 billion and there is a detailed explanation on the next page and these are the cash. And why there is a significant increase? Well, this is based on the operating profit and the operating cash -- free cash flow is ¥340 billion or so. And deducting the cash dividend, there is ¥106.3 billion over the nine months. And over the nine months, there has been an increase, as you can see, as a result. Next page, please. And we have been discussing the core base performance, but this slide covers the non-core adjustments and impairment of intangible assets and other items, the business rebuilding costs and ERP is now being upgraded and there is a ¥5.2 billion recorded for that purpose and these are reflected in these numbers here. Next page, please. And this has been updated compared to the revised forecast and how the sales and profits and costs are progressing are shown on this slide. As you can see, 70% -- mid 70% to high 70%. This is for three -- remaining three months. So, these are the levels that we are looking at and we are comparing this against the progress rate we saw at the same period of last year. Next page shows the numbers based on revised forecasts, the progress rate that we are observing right now. There are some variances among products, but the remainder is just three months. And it looks the progress rate is somewhat lower for some of the categories, but we are confident that we will be able to achieve the forecast. Next page. This was included in appendix last time. This time, for products other than PiaSky, the actual performance up to third quarter and the growth rate in local sales have been reflected, Hemlibra grew by 10%, Actemra by 4%, Alecensa by 8%, Enspryng 62%. So these significant growth has been achieved and these are the overall situation of our business at this point in time. The last page, well, this is the same slide we have been showing for a while. These are the CapEx plans. For the time being at this point in time, these are the CapEx plans that have been authorized internally. That concludes my presentation. Thank you.

A - Kae Miyata: Thank you very much for your attention. I would like to move to the question-and-answer session. And as for Q&A, we also have Mr. Takano, Head of Marketing and Sales Division, is present as well. And in order to make sure that as many people as possible can ask questions, we can limit the questions to two per person. And the sound of the questions will be posted onto the website together with the presentation, so I’d like to ask for your kind understanding. So let me explain how to operate this. If you choose the language that you’d like to listen to, please click on the interpretation mark and if you wish to listen to Japanese language, please choose Japanese. And if you wish to listen to English, then please choose English. If you don’t set this up, then sound may not come out. So please make sure that you set up on this. Now I’d like to start taking questions. [Operator Instructions] So JPMorgan, Mr. Wakao, please go ahead and ask questions.

Seiji Wakao: Thank you very much. Wakao from JPMorgan. Can you hear me?

Osamu Okuda: Yes.

Seiji Wakao: Thank you. The first question, as President Okuda talked about forecast for the next fiscal year, the upward revised number would be the one that you would reach in the next fiscal year. But what would be increased and what would be decreased, especially exports of Hemlibra and exports of Actemra and other revenue, that is the reason for upward revision this time. What would happen to those items, especially?

Osamu Okuda: Wakao-san, thank you very much for your question. I can’t turn the video on. Yes, I was able to. Thank you for the question. The next fiscal year forecast, we are not in a position to give you details. But at this moment, what we can see is quite uncertain. So as Wakao-san said, Hemlibra and Actemra, and other performance forecast, there are a lot of uncertainties involved. So at this moment, we cannot give you any details at this moment. But at the end of January next year, when we will have earnings briefing, looking at the situation, we’ll come up with more details for next fiscal year’s forecast. I’d like to ask for your kind understanding.

Seiji Wakao: Understood. Thank you. Then one question. The same level as this year -- fiscal year’s level for the next fiscal year. So there are a lot of uncertainties, but at least you can reach that level or flat performance is expected. Is that true?

Osamu Okuda: I’m so sorry, but there’s a lot of uncertainty. So many different factors could change or subject to change. So just a yardstick for the moment is given as more or less the same as the forecast for this fiscal year. That’s how I put it.

Seiji Wakao: Thank you. Okay. Then another question. As for Actemra, the impact of biosimilar has been less than expected more recently. So how has it been analyzed in the last group? And also for the next fiscal year onward, what would be the forecast? And along with that, export sales, how are we supposed to forecast that? Can you elaborate more on that?

Iwaaki Taniguchi: Taniguchi speaking. Thank you for your question. As for Actemra, for this fiscal year, as I said, biosimilar entry has been weaker than expected or delayed. And as for the next fiscal year, it’s hard to say, but at this moment, if you look at the situation in the U.S., things are still weak, but that’s as far as I can go today.

Seiji Wakao: Thank you. And if that’s the case, then in the U.S., if the situation stays the same, then export sales won’t drop that significantly. Is that correct?

Iwaaki Taniguchi: Yeah. I think that is true. But for the next fiscal year, of course, we are now sorting out the things. So I would like to refrain from commenting.

Seiji Wakao: Well, another question. Why the impact of biosimilars was weaker or milder? The timing of the launch of biosimilar was just as expected. Then why was the impact was less? What was the factor?

Iwaaki Taniguchi: Well, it’s about other companies, so I may not -- I shouldn’t comment that much. But the way we look at this, that supply chain, especially the procurement of raw materials, there has been some bar that has been set higher or difficulty level has been enhanced.

Seiji Wakao: And also, price-wise, they -- have they been attractive enough? So they may not have put enough resources, but that was just an impression that I was under. So those factors may not change for the moment. Is that true?

Iwaaki Taniguchi: Well, for the moment, that is true, but I’m not sure about the next fiscal year.

Seiji Wakao: Thank you.

Kae Miyata: Next, we will take questions from Yamaguchi-san from Citigroup Securities. Please go ahead with your questions.

Hidemaru Yamaguchi: Can you hear me?

Osamu Okuda: Yes.

Hidemaru Yamaguchi: Thank you. This is Yamaguchi from Citi. First question is regarding the revision to the earnings forecast, the policy around that. The actual performance was reflected and it was a good thing that you made the upward revisions. As of the end of third quarter, the sales 10% and profit 30%. Unless there is a variance of this amount, there is no revision. But this time, the variance is not as much as 10% and 30% in sales and profit. But did you change any policies around revision to the earnings forecast?

Osamu Okuda: Thank you for your question. It is not a policy that we have, but this is the -- regarding the policy about the voluntary disclosure. How we are disclosing this should be in line with the expectation of the market, as well as the expectation of the investors. We wanted to meet the expectations of those outside stakeholders. It is not related to the change in management, but we would like to disclose as much as possible. The sales revision is 7.5% and it is close to 10%. So, considering the significance, we decided to revise the forecast. And in terms of the decision criteria, that needs to be adjusted depending on the situation of the world, as well as the expectations of the investors. So, we would like to be flexible in revisions, as well as disclosure.

Hidemaru Yamaguchi: Regarding the changes to the export sales of Hemlibra, the sales at the Roche and the shipment from your side, there is a time lag. In Q2, the volume was big. In Q3 as well, in terms of the value, it is on par with Q2. And Q4, the plan is half. So, in Q2, the local sales, especially in emerging markets, there is a building up of inventory and you needed to respond to that and this trend is going -- has been continuing in Q2 and Q3, and the situation will settle in Q4. Is that right? Please comment on the difference between the local sales, as well as the export timing?

Osamu Okuda: Well, as for the export, well, this is related to the Roche’s inventory status, but it is also dependent upon the shipment timing. While we are not shipping at the same time in each month, the factory situation and supply chain situations, we are sometimes doing bulk shipment, but sometimes do not do that. And as you can see, the financial results of Roche, the international growth rate is very high, so this strength and momentum has been evident in Q2 and Q3, and we question whether this trend will all of a sudden change in Q4. So, in terms of the situation, the overarching trend will continue for a while. The international growth is expected to continue, at least as far as we can logically estimate, this trend will continue.

Hidemaru Yamaguchi: So, for Q4, instead of 50, 80 can be achieved. Is that right?

Osamu Okuda: Well, it is not true to say that we are making bulk shipment every month. It depends on the timing and the time. And the remainder -- for the remainder of two months, we would like to forecast as much as possible, but towards the end of the year, there will be a holiday season, for which we cannot have an accurate prediction. But as much as we can anticipate, the assumptions will be reflected in our plans.

Hidemaru Yamaguchi: Thank you.

Kae Miyata: Morgan Stanley MUFG Securities, Mr. Muraoka, please.

Shinichiro Muraoka: Morgan Stanley, Muraoka speaking. Can you hear me?

Osamu Okuda: Yes. We can hear you.

Shinichiro Muraoka: Thank you. I would like to ask about the pipeline. First of all, NXT007, earlier, as was mentioned, Phase 3, you could go to Phase 3 next year, based on the result of Phase 2. So, just recently, things have seemed to have been accelerated and while it had taken so much time up until recently. So, what was the factor for this accelerated process? Miv-8 was something that cautioned you, and you had in Roche. That’s what I was suspecting, but can you elaborate more on that?

Tsukasa Kusano: Thank you very much, Muraoka-san. Kusano speaking. I would like to pick that up. So, previously, and now, we are always trying to go forward with the study as fast as possible. So, during the COVID-19, the studies were less, but we are trying to maximize the speed, not the Miv-8, but we are making steady progress on our own, and Phase 1 and Phase 2 studies are ongoing. I expect it to have positive results and that would lead to Phase 3 next year.

Shinichiro Muraoka: So, the next-generation products, whether they can replace them, that is often talked about in the improved products. For PNH, it went well, but as for hemophilia, with the next-generation products, the conventional ones would be completely replaced. Would that be correct? Then, the Miv-8 could take over the share. That’s our concern, if that is the case. Can you elaborate on that? Thank you very much.

Tsukasa Kusano: So, as we have been saying from the last time, if you look at the result of Miv-8, especially, there’s no data that would show that it would overtake the Hemlibra. So, we are able to maintain the patients, and also, they were able to control the disease of the Hemlibra, so there’s no reason to switch over to Miv-8. But, NXT007, of course, it depends on future results, but the objective of NXT007 is normal performance as healthy adults. So, there will be blood bleeding that will be stopped and even children can live a normal life. That is the objective, and also, in terms of PK, this has been also well-received. So, Hemlibra and NXT007 could be used by different groups of patients, depending on their purpose. So, GYM329 is the next question. So, as for GYM329, you produce the products and then supply the products to Roche. Is that correct?

Tsukasa Kusano: Correct.

Shinichiro Muraoka: Is that correct?

Tsukasa Kusano: Yes. You’re correct.

Shinichiro Muraoka: If that is the case, then Roche is getting quite serious about this, and the production capacity, is it enough with UT3 or would you have to consider something even bigger?

Iwaaki Taniguchi: Taniguchi speaking. Thank you very much for your question, Muraoka-san. Well, at this moment, the project has a long way to go. So, as for the clinical material production capacity, we are on the conservative side and there shouldn’t be much of a problem. But, after the launch, to what order of magnitude we would have to supply, we have to determine. But of course, we can use CDMO, not just our own production capacity, so we can depend on various networks.

Shinichiro Muraoka: Thank you. Then, with regard to GYM, there is RT. The Scholar Rock SMA success the other day had a positive implication for you and Roche is talking about that. I was wondering why they are talking about that. But, that data score was 1.8 points out of 66, 1.8 improvements. Would that be enough? So, your expectation from MANATEE was higher. Would that be higher? So, is there any metrics that you have about this data?

Iwaaki Taniguchi: Thank you very much for your question, Muraoka-san. For Scholar Rock’s Phase 3 study result, that has been this mutating antibody in SMA has achieved a primary endpoint for the first time. So, we have the similar mode of action. So, for GYM329, I think this has been quite positive and the probability of success has been enhanced. And as for your question, so this is about the clinical study results of other companies, so we’re not in a position to comment on that, but 1.8, is it really big enough? Well, if you look at the data, the lower dose has positive -- more positive results compared to higher dose. How to interpret this is going to be what we would look at when we look at the sub-analysis. So, what would be the point in primary endpoint setting in our study, that is a confidential matter. So, at this moment, we are not able to disclose that.

Shinichiro Muraoka: Thank you. So, early next year, Phase 2 result from MANATEE will be out, right?

Iwaaki Taniguchi: Well, at what point in time in next year, we cannot say, but within next year, we’d like to come up with the result.

Shinichiro Muraoka: Thank you.

Kae Miyata: Next, Macquarie Capital, Tony Ren. Please go ahead with your question.

Tony Ren: Hi, there. This is Tony Ren from Macquarie. First of all, congratulations on a set of very strong data for the third quarter. This is my first time participating live on your briefing call, so I appreciate the opportunity. So, a couple of questions from me. The first one is hemophilia, NXT007. So, I attended the Roche Pharma Day in London, and I was very pleasantly surprised when they said they will release the Phase 2 NXT007 data. And then on Wednesday night, we were even more surprised when they say that they expect the data to be Phase 3 enabling, which is another positive step forward. That being said, in my estimation, you should be able to run a Phase 3 program fairly quickly, given historically you’ve run these Phase 3 studies only about six months of dosage, right, dosing the patients for six months. So, just curious, why do you expect the biologic license application to be in 2027 and possibly later, but not in 2026? It feels a little bit longer than I would have expected.

Osamu Okuda: Tony Ren-san, thank you very much for your question. First off, Phase 1 and Phase 2 test results. In next year, we will be able to disclose the data as we need to determine whether or not to move on to Phase 3. At what timing will we be able to move on to Phase 3? Of course, we’ll be working throughout these clinical testing so as to deliver the solution to patients as fast as possible, whether it’s going to take three months or six months, we cannot -- we would like to refrain from disclosing the timing at this point in time.

Tony Ren: Okay. Understood. So, a key selling point from Novo Nordisk Mainnet is their dosing schedule, which appears to be more convenient, as well as the subcutaneous auto-injection. Would you be able to comment on the dosage form and the frequency at this point for NXT007?

Osamu Okuda: Thank you very much for the question. So, Phase 1 study with the healthy adults was conducted, and NXT007, the period is -- has been extended to 10 weeks and it has been elongated. And going forward with the further test, we would like to consider the optimal frequency. At this point in time, we cannot comment on that, but based on the test results from Phase 1 and 2, we’d like to consider the optimal dosage frequency going forward. Thank you.

Tony Ren: Okay. Great. Thank you. So, my next and the last question before I jump back into the queue is on obesity and GYM329. So, typically, we see similar trial designs in the same indication, but in this case, in spinal muscular atrophy, your MANATEE studies and the Scholar Rock SAPPHIRE studies are quite different. Notably, you have decided to combine GYM329 with Evrysdi. I just wanted to see what is the thinking behind that trial design using two agents versus doing a single agent study of GYM329. And Roche also commented on Wednesday night that they believe the Scholar Rock agent and GYM20 -- GYM329 are very similar antibodies. So, now that you’ve seen the SAPPHIRE study succeeded, are you planning to design a similar trial -- Phase 3 trial using the SAPPHIRE design?

Osamu Okuda: Thank you for the next question. First of all, the GYM329 and risdiplam combination rationale is that risdiplam [ph] is -- has been already approved. In terms of the action, this will increase the central nerve function and this will be effective for nerves and genes. And as for the SMA patients, their muscle has been weakened. So, with the GYM329, we are targeting to increase their muscle and we believe that the combination therapy has a certain rationale from that perspective. With regard to MANATEE testing, those patients who are able to work and who are not able to work, and for each age group, we are conducting the testing. And as for the protocol for Phase 3, based on the results of the MANATEE study, we’d like to consider the optimal protocol for Phase 3.

Tony Ren: Okay. Very good. Yeah. Thank you for providing the answers. Yeah. I’ll get back into the queue.

Kae Miyata: Thank you very much. Next, SMBC Nikko Securities, Wada-san. Mr. Wada, please.

Hiroshi Wada: Wada from SMBC Nikko Securities. Can you hear me?

Osamu Okuda: Yes.

Hiroshi Wada: The third-party out-licensing project is what I’d like to ask about. Well, GYM329 obesity Phase 1 data, is there any plan to disclose that? The combination study is going to be started, right? So, what about that?

Osamu Okuda: Mr. Wada, thank you very much for your question. So, the Phase 1 data is ongoing. The data is not going to be disclosed. But the next year, GYM329 combination study is planned to be started.

Hiroshi Wada: So, what is the agent that you’re going to combine the GYM329 with?

Osamu Okuda: We have yet to decide.

Hiroshi Wada: Thank you. And then the next question. Avutometinib, so, SPYK04, RAF-MEK molecular glue, as that compound, you’re going to do the out-licensing. What is the difference from this drug compound? Avutometinib has a mode of action. RAF-MEK clamp is what you mentioned. But is this an extension of the compound or development -- further development stage?

Osamu Okuda: Thank you for your question. So, avutometinib, as for that, it has been out-licensed for the last time. So, as for the details of the compound, we cannot answer the question. But SPYK04, that has been decided to be out-licensed, like in avutometinib, RAF-MEK inhibitor. I mentioned a mode of action slightly, but RAF-MEK molecular glue, RAF-MEK bonding will be stabilized. And inactivated RAF-MEK complex will be formed and then RAF-MEK signal will be inhibited and RAF-MEK dependent tumor will be attacked. So, SPYK04 and avutometinib, in terms of molecules, they are quite similar.

Hiroshi Wada: So, I ask this question because in terms of platform, you can create a group of molecules. Is there any platform that you have that can be used for something other than RAF-MEK?

Osamu Okuda: Thank you for your question. So, as for the early research direction, I’m so sorry, but we are not in a position to disclose that strategy. So, we’d like to refrain from commenting on that.

Hiroshi Wada: Understood. Thank you.

Kae Miyata: Thank you. Next, Daiwa Securities, Hashiguchi-san. Please go ahead.

Kazuaki Hashiguchi: This is Hashiguchi. Thank you for taking my question. My first question is regarding the dividend forecast. While you changed it to undetermined, the business environment has been evolving significantly, as you mentioned. ¥82 forecast was disclosed earlier and what has changed since then? As I heard your presentation, I wasn’t sure about that and the profit forecast revision will be considered in the future. Is that right or the capital policy remains unchanged, but the earnings forecast and strategic investment needs may change? As for the business performance, the next fiscal year will be on par with this fiscal year. That was what clearly mentioned. So, the strategic investment needs may increase in the future. At least, that’s my impression. And could you elaborate further on these points?

Iwaaki Taniguchi: This is Taniguchi. Thank you. As for the upward revision of the business performance based on this, of course, the net profit and BS [ph] may change. But what’s going to happen by the end of year, we’d like to monitor that and we would like to consider dividends. And at the time we are disclosing this fiscal year’s performance, we’d like to talk about this. Other than that, at this point in time, we cannot make any comments, unfortunately. Compared to the beginning of the fiscal year, we have now completed the third quarter and we believe that the probability of achieving the full year forecast has increased. But when it comes to dividend, you changed the description to undetermined. Well, in the past, when we made the revisions in -- as of the end of third quarter, we also changed the dividend forecast to undetermined. So, the full year net profit is something that is not finalized. So, based on that net profit, we’d like to discuss dividends.

Kazuaki Hashiguchi: GYM329, sales potential is the second question I’d like to ask. As for Roche, they have been showing the forecast between CHF0.5 billion to CHF1 billion. And up until last year, it was about CHF1 billion. So, I believe this is effectively a downward revision. How do you understand the revision and if you have any different views, would you be able to share that?

Osamu Okuda: This is Okuda. Thank you for the question. In terms of our understanding, I am sorry, we have difficulty turning on the camera, sorry, in terms of my under -- our understanding as it’s shown in my slide, at this point in time, GYM329, Roche’s forecast, SMA, FSHD, between CHF0.5 billion to CHF1 billion and obesity-related sales forecasts are not included in this number. That’s something that we wanted to share. So, the unit is Swiss franc, not the U.S. dollars. Compared to one year ago, can you comment on the change from one year ago? As far as I know, the sales forecast explained by Roche is between CHF0.5 million to CHF1 million. That’s all we have in terms of the information.

Kazuaki Hashiguchi: Thank you.

Kae Miyata: Mr. Haruta from UBS Securities, please. Ms. Haruta.

Kasumi Haruta: Haruta from UBS Securities. Can you hear me?

Osamu Okuda: Yes.

Kasumi Haruta: One question. GYM329 obesity study. At the moment, with SMA, a small group of patients are targeted, but obese patients, once they use the GYM329, those should be increased higher. But with the sweeping antibody, you can suppress the dose to some extent. But if you combine this, then the muscular strength is weakened in the elderly people, but that is a demand that is coming from elderly people. So you -- are you going to also consider enrolling those types of patients as well?

Osamu Okuda: Thank you very much for your question, Ms. Haruta. As you rightly pointed out, we are now having a discussion with Roche. Roche is now running Phase 1 study. So, healthy, overweight people is looked at for PKPD and tolerability and safety. So, not -- instead of SMA, for obese patients, what would be the right dosing is now being sought out with this study. That is ongoing.

Kasumi Haruta: So, what about elderly people with less strength in their muscles? So, how are you looking at targeting those people with reduced strength of muscles?

Osamu Okuda: Well, inclusive of that, the results of Phase 1 and various data will be taken into account to consider Phase 3.

Kasumi Haruta: So, the Phase 1 of these three GYM study, once this is over, then you’re going to start a combination study for GYM next year. Is that correct?

Osamu Okuda: Well, whether it is going to be sequential or in parallel, we have not disclosed yet. But as for Phase 3, of course, you have to look at the Phase 1, for next clinical study, we have to take a look at the result of Phase 1 closely to decide.

Kasumi Haruta: Thank you. Then to change the gears slightly, nAMD gene therapy in Roche earnings in regions other than Europe and U.S., they are starting up quite well in sales. But what about the demand in Japan? Skipping a drug is not used by some patients and that would be the demand coming from. But Evrysdi SMA patients, sales network could be used even though the diseases are different. Are you going to use that network as well?

Junichi Takano: Takano from Marketing and Sales. Thank you for your question. As you said, the new therapies we are going to enter and gene therapy is quite complex and you need a quite complex system and mechanism involved, including Evrysdi RCD. The neuromuscular disease is something that we are working on and market launching plan is going to be worked out based on that.

Kasumi Haruta: Well understood. So basically, exon skipping drug cannot be used by some patients and that is going to be the target basically. Is that correct?

Junichi Takano: Correct. So based on indication, we are going to launch the product.

Kasumi Haruta: Thank you.

Kae Miyata: We are very sorry that we are approaching the allocated time. So we’d like to take the next question as the last question. AllianceBernstein Securities, Sogi-san. Please go ahead. Can you hear us? Okay. Can you hear us? We are very sorry. We are not hearing you. We are very sorry, but we have come to the end of the allocated time. So we’d like to close this Q&A session. Now we’d like to close the earnings call for the Chugai Pharmaceutical for fiscal year 2024 third quarter. For those questions we weren’t able to answer, please reach out to Communications and IR Department with your questions and the contact details have been provided at the last page of the presentation materials. Thank you very much for taking the time out of your busy schedule to attend these earnings call. Thank you.