Earnings Transcript for 4523.T - Q2 Fiscal Year 2025

Operator: Thank you very much for taking your time out of your busy schedule to attend the earnings announcement session by Eisai Company Limited. We would like to begin the presentation sessions of Financial Results and Business Update for Q2 Fiscal 2024. This is conducted in hybrid format combining in-person attendance and virtual attendance. Please find presentation material plus report and financial results. For those of you who are attending in person and those who are virtually attending, please refer to those materials on our website. The presenter is Mr. Haruo Naito, Representative Corporate Officer and CEO.

Haruo Naito: Now we'd like to begin our presentation on the Q2 results for fiscal year 2024. First, let us share with you the P&L. Revenue grew by 3% year-on-year to reach JPY385 billion. And if you look at the breakdown of the revenue, the pharmaceutical business grew by 5% year-on-year from the previous year. Steady growth was shown. But there were one-time revenue recorded last year in larger amount. Therefore, revenue decreased in the other business. So at 67% year-on-year, the gross profit increased by 3% year-on-year. R&D expenses accounted for the ratio, which was down by 1 percentage point. In terms of ratio to the revenue, of course while we are making proactive investment in development of our LEQEMBI business, we have been able to enhance the efficiency in investment in R&D activities. SG&A expenses increased. There were two reasons for the increase. As you see below that, because of the strong Lenvima business performance, therefore there were increased expenses regarding the shared profit of Lenvima paid to partner, which increased. And the LEQEMBI, it's still in the midst of being launched into the market. Therefore, due to these SG&A expenses increased. As a result of these operating profit was JPY27.8 billion, 87% of the previous year's level. Profit for the period was JPY21.7 billion which was 94% of the previous year's level. Next, now if I look at the breakdown of the revenue migration, the pharmaceutical business increased by JPY13.5 billion from a year earlier, as you see on the right hand side, recently, what we call 3 Ls

Operator: First, we will entertain questions from analysts and investors before taking questions from the press. If you have a question, please give us your name and affiliation before your question. If you have a question, please indicate by raising your hand. Yes, attendee seated in the second row, please.

Hidemaru Yamaguchi: This is Yamaguchi of Citi. Thank you for the opportunity today. Regarding the marketing -- current marketing for LEQEMBI. Thank you very much for ample supply with data. Please do not withdraw it. On this basis, we'd like to continue discussion with you. And one question I have regarding US market about infusion center that has been discussed earlier as well. And this time, you have mentioned a specific numbers, like 10,000, which will be increased to 20,000. And based upon the IV, of course, once SC is introduced, the status will be changed. But for the coming one year, do you think that the 10,000 can be increased to 20,000. This can be a bottleneck again. And based upon the 20,000, the sales trend will be estimated and assumed on this basis.

Haruo Naito: Earlier, I mentioned towards this -- at the end of this fiscal year, 19,000 infusion capacity has been already secured by contracting. And in fiscal year 2025, the number will be exceeding 26,000 in terms of the future capacity to be secured. By introducing IV maintenance therapy and infusion capacity will be allocated more towards initial treatment and increased sales will be supported by infusion capacity.

Hidemaru Yamaguchi: By FY 2025, we believe that the likelihood of securing enough capacity is already established. And then in the equation, I think [Ksene] (ph) is also considering the same thing. I believe that they will try to secure the infusion center capacity. So you mentioned that the 19,000 or 26,000 are already secured. Do you think that in taking into account the competitors' movement?

Haruo Naito: Thank you for your question. Yes, we have taken into account the movements by competitors in terms of securing the infusion capacity.

Hidemaru Yamaguchi: Thank you very much. SC is going to be very important. And SC-AI maintenance, submission has been already completed, and you are just waiting for the approval to be given. And then SC-AI initiation treatment. It is to be -- going to be approved, but have you completed the submission if you have any time line for submission, please share it with us.

Haruo Naito: Excuse me, I forgot to mention this. SC-AI is the new BLA because of the Biologic License Application, which is different for filing for IV. So it is equivalent to the submission for a new product. So independent submission has been filed. And the Part D of Medicare will be granted. Currently, it is included in the Part B. But Part D means that the distribution will go through the pharmacies. So new pricing will be considered. For SC-AI, as I mentioned briefly, the value will be much higher than the value of IV formulation, therefore from the standpoint of the value-based pricing, the price can be set upwardly, which is supported by enough logic. Therefore, for SC-AI formulation, new BLA in the new category for new pricing will be progressed. So that is what we assume for SC-AI. Regarding the submission and registration filing, I believe that includes the initiation treatment for SC-AI filing. Nakahama-san or Owa-san, could you please respond to the question?

Akiko Nakahama: Thank you very much for your question. My name is Nakahama. I am responsible for RA, regulatory affairs. SC-AI initiation submission has not been done yet. But for initiation, we are steadily progressing with -- in the discussion with FDA. We are exploring the optimal dose. We are discussing on this with FDA. And SC-AI maintenance treatment, we expect that approval will be granted in the first half of next year after getting that approval immediately, we will find the submission for SC-AI initiation. Thank you for your question.

Hidemaru Yamaguchi: So let me clarify. After getting approval for the maintenance and then you will start filing for the initiation.

Akiko Nakahama: Well, we have already commenced the consultation with the regulatory authorities and PK/PD monitoring data and SC-AI real-world the administration data will be combined in submission. Therefore, there's almost the same methodology for filing will be done with the SC-AI maintenance. Therefore the preparations are almost done. But the timing for the submission is after getting approval for SC-AI maintenance. We will switch to the SC-AI initiation filing. But we are aiming at getting approval by the end of fiscal year 2025.

Hidemaru Yamaguchi: Understood, thank you very much.

Haruo Naito: Attendee seated in the front row.

Seiji Wakao: I'm Wakao from JPMorgan. Thank you for taking my question. I also have a question regarding infusion centers. To begin with, up until the first quarter, I believe the progress was according to the plan. But this time, infusion center is the rate limiting factor, infusion center contract was delayed. Is that the reason why or looking at the past three months? Infusion capacity is the limiting factor, and you have confirmed that there is a need to increase infusion capacity. At the end of the fiscal year, it will be 18,000 to 19,000 capacity. In next fiscal year, 26,000 capacity, but 26,000 capacity, how many patients can you administer annually?

Haruo Naito: It is the same thing. Infusion capacity of 10,000 means that at that point in time, we are able to administer 10,000 patients. If we have 26,000 infusion capacity, at that point in time, we should be able to administer LEQEMBI to 26,000 patients. And as I presented, the overall demand is stimulated at a very fast pace. And if infusion capacity is not a limiting factor, more and more patients will be coming on to the pathway. And Wakao-san, as for your first part of the question, in the end, right now, IDN -- large institutions, there are more sites that are treating about 300 -- as many as 300 patients per site. And infusion capacities are at full capacity, and we began to recognize this recently -- relatively recently, Mr. Haruna, could you supplement?

Katsuya Haruna: Thank you. I'm responsible for LEQEMBI in the U.S. My name is Haruna. So your first question -- regarding your first question, at IDN, more patients are being prescribed LEQEMBI. And we also hear from IDNs about their desire to have off-site prescriptions -- prescriptions outside of their sites. Since last summer, and we have begun to enter into contracts with more. And we were able to complete that quickly and patients who are waiting are now beginning to receive infusion. And so these are the most recent developments.

Seiji Wakao: Thank you. If that is the case 26,000 infusion capacity, meaning 26,000 patients. I think that is still far short of what you're targeting. With the increasing demand, are you able to increase at a certain rate, infusion center number or less maintenance therapy or auto injection SC-AI approved. Is it going to plateau at a certain point in time?

Haruo Naito: I think infusion capacity is used most by oncology. Most oncology patients receive infusion. Next is RA and it is buying for allocation of infusion capacity with these therapeutic areas. AICs are for-profit organizations. And if LEQEMBI infusion ensures greater profit then it's possible that there may be more allocation for LEQEMBI. Inclusive of that, we are reviewing contracts, revising contracts and entering into new contracts.

Seiji Wakao: So you expect to be able to increase infusion capacity. About the revised forecast, my final question. LEQEMBI sales was lowered in your forecast and Lenvima increased, but fixed cost others have remained unchanged. Lenvima increased, LEQEMBI decreased. When I look at these, LEQEMBI gross profit, I think is possible to be guessed. And that's the same as what I guessed in the beginning of the fiscal year, but I think it's lower than the ordinary antibody drugs. I would like to understand if my estimate is correct. And next fiscal year onward, with the increase in demand, do you expect improvement in margin? In manufacturing, I think there was a comment before on the past occasion, I would like to seek clarification this time again.

Haruo Naito: Globally, LEQEMBI will start to contribute to profitability from fiscal 2026, as I have discussed before. And the US will be turning profitable in fiscal 2025. But unfortunately, there is not a certainty. There has been a delay as I described. So in the US, we believe that it will be turning into profitability in fiscal '26. But in China and in Japan, we would -- we will be turning to profitability in fiscal 2025. Fiscal 2025, LEQEMBI overall profitability in comparison to fiscal '24 should be much improved. Globally, also in the United States, in fiscal '25, we had full field force deployment in fiscal 2023 and 2024. But after the establishment of the pathways, and we have completed most of the efforts needed to establish the pathway, and we believe that we will be able to reduce resources for that. And therefore, in fiscal 2025, we can be more selective in resource expenditure and investments. And therefore in fiscal '25, China, Japan, profitable. And in the US, unfortunately, one year later, but profitability should be improving. And in fiscal '26, we expect to turn profitable, including in the U.S. and globally.

Seiji Wakao: As for OP margin, I think there will be improvement, but about gross margin or can I expect improvement in cost of goods?

Haruo Naito: Manufacturing cost, I take it that, that is your question. As for manufacturing, well, drug substance, drug product. As for drug substance, Biogen is producing. And as for drug product or formulation, we use a part of Biogen's plant, but after expansion of volume, we are able to use a third-party facility, and we expect to be able to use a third-party facility about the cost reduction.

Seiji Wakao: In a very rough manner, could you elaborate on that?

Kazuhiko Tamura: I am Tamura, responsible for manufacturing. As our CEO mentioned, regarding drug substance, right now, in Solothurn, Switzerland, a Biogen plant, drug substance is produced. This is a highly automated facility. And cost is being reduced by averaging. Yield improvement is expected based on the new process that is being developed, and we expect to be able to produce a lower cost. As for drug product, as CEO commented, we have concluded a contract with European CMO. Manufacturing has been started. And by using such CMO, we believe we should be able to control costs even better.

Haruo Naito: As for drug substance, as Mr. Tamura mentioned, at the cutting-edge factory in Solothurn, Switzerland, it is being produced and the facility is run at full capacity. Also in North Carolina, Biogen has a factory in Research Network Triangle -- Research Triangle Park, and we are planning to be able to use that. And that North Carolina facility has been depreciated and therefore, cost is lower. And we would like to be able to increase the volume of batch produced there so that overall cost can be reduced. As for formulation, the third party, I think it's a German CMO, we already have contract with that CMO. So we believe we should be able to substantially decrease costs for drug product. Thank you very much.

Operator: The person in the front row, please, have the floor.

Kazuaki Hashiguchi: My name is Hashiguchi. I'm from Daiwa Securities. Regarding your explanation of the status in the U.S. of the LEQEMBI, and you mentioned that the amyloid beta testing is not a limiting factor. And the BBM could be a key factor. And for those people who will receive the treatment and the impact on the sales will not be dramatically significant. Is this correct understanding? And in Japan, you have already established a structure and organization. And out of those people who saw the consultation with doctor, there is only 3% or so of the patients who have initiated treatment. And in infusion capacity, limiting factor is resolved. And in order for you to increase the sales further and in top left of the Page 10 and 600,000 people, how you are able to increase that size further? For example, you may want to consider DTC usage, at which timing, what kind of measures are you going to implement?

Haruo Naito: Hashiguchi-san, regarding your first half year question, have you ever received a PET test? No? I have gone through PET tests many times. I do not intend to be confirmed on the amyloid beta negativity. But anyway, PET test is really burdensome for -- particularly for elderly people. And of course, there is issue of exposure to radiation. So considering this risk and the cost considered, PET has been quite burdensome on the pathway. And turning to CSF, which could be invasive because you needed to stick needle and procedure can be done by a limited number of operators. So for the current amyloid beta confirmative testing, PET CSF have become the burdensome procedures on the pathway, therefore it is significant to reduce and streamline that part. And if the diagnosis can be done by PCP, if I may dare to refer to the currently popular obesity drugs, that is a CAI drug and the prescribers are mostly PCPs, and specialists are not prescribing. PCPs or nurse practitioner in the United States, part of the nurses are allowed to prescribe. Therefore, that drug is prescribed by those professionals. And then the drugs can be -- can spread so quickly as we saw. So there is such a significance. And regarding the second half of your question, as you said, now it has doubled to 600,000, and it's stuck and this issue bottleneck will be resolved soon. And what we -- do we need to do? There are two things. First is for PCPs in the United States, we need to support their increased knowledge or awareness about this disease. And at the level of PCPs, they will be able to do certain level of diagnosis, Alzheimer's or Lewy bodies type of -- or cerebrovascular type of dementia. They will be able to diagnose to that level. And I think that the level of PCPs needs to be enhanced. That effort will be started from next fiscal year. The approach to PCPs will be started in the United States. Once PCPs can obtain certain level of knowledge and then DTC will be considered. For example, through SNS, social networks, utilizing such media, we may consider data consumer campaign from 2026 onwards, and PCP approach will be started from FY '25 and in fiscal year 2026, we will consider starting DTC in the United States.

Kazuaki Hashiguchi: Thank you very much, I have another question. With SC initiation treatment a little earlier, a smaller size trial was published, and there was an impression as shown by the data suggesting that slight increase in the ARIA incidence. And the efficacy of SC-AI is the equivalent to IV infusion. And before approval is granted in 2025, for such clinical question, do you think that there can be an additional clinical trial data to respond to such clinical questions?

Haruo Naito: Ogawa-san, would you please respond to this question?

Tomo Ogawa: My name is Ogawa. I am in charge of the clinical development in Japan and Asia. Thank you very much for your question. Regarding the SC initiation dosing in the clinical trials, it is for the administration is being tried. And in early next fiscal year, before submission is filed, we will be able to summarize the data. And based upon, which we will file for submission and then -- so that we can secure the delivery of the new formulation to patients. Thank you very much.

Operator: Attendee seated in the second row on the window side.

Kasumi Haruta: Haruta from UBS Securities. I also have a question regarding pathway in the US. And regarding the number of patients. You have shown that the number of patients is increasing but up to the PCP level. From PCP level to the time that it takes from PCP to the patient receiving administration, it seems that it takes about six months. But your efforts, how shorter can that be made? And from informed consent to patients who are being administered, and there is also reimbursement procedures and other issues that need to be addressed. But can you broaden the funnel?

Haruo Naito: From PCPs to neurologists, the patients who are referred and it takes about six months for a referral process. This process has been a time-consuming process, and this hasn't -- there hasn't been much change here, and quite a large number of patients who visited PCPs are being referred to neurologists. Actually, referral rate in Japan is much lower. So the flow is such that it is left up to the specialists. And in AD diagnosis and treatment, we would like to utilize more PCPs. Because of this referral, neurologists are busier and we are also looking at referral duration. There has not been much improvement yet. From informed consent to actual infusion, and was your question about simplifying this process? Mr. Haruna, can you address that question?

Katsuya Haruna: Thank you for your question. I'm Haruna, responsible for LEQEMBI in the US. There are 20,000 patients who have given informed consent and then 10,000 patients have gone through reimbursement check with payer. This is cumulatively from January to September. And there are also patients who are giving informed consent who have yet to go through reimbursement check with payers. So the 10,000 people who have gone through reimbursement check, that number should increase. I cannot give the number for the month of October but we have seen much increase. And in October, also a larger number of patients are receiving drug starting a new treatment. It is not that 10,000 have dropped-off. From informed consent to reimbursement check, there are still patients who are transitioning phase between the two.

Kasumi Haruta: Second question is about CHMP status in Europe. After new reporter is named, do you think that you can expect things to be more positive in the UK, excluding ApoE4 homozygous patients, indication was approved. And do you expect that direction may also be reviewed in positive fashion by Europe. And could you also discuss other regulators?

Haruo Naito: With EMA, we have very good communication, and we have been exchanging data. ApoE4 homo patients, if they are excluded how will data look, including that and also new data for long-term treatment and what is happening in the real world. We have improved communication with the EMA and sharing that information, and we are responding to inquiries from EMA. That is the current situation.

Kasumi Haruta: Understood. Thank you.

Operator: We would like to receive questions from the media. If you have any questions, please raise your hand. All right, the person in the third row from the front, please have the floor.

Unidentified Analyst: My name is Susumu Shimoyama. I am a nonfiction writer. On Page 10, regarding the AD pathways in the United States on this diagram. First, people will see consultation with PCP. And then easy cognitive testing will be conducted and then referred to neurologists. 500,000 people will be referred to neurologists and MMSE and CDR testing will be conducted. And then the number of people will be reduced to approximately 50,000 people and the remaining -- the 450,000 people are supposed to proceed -- progress to the moderate severity. So those people with moderate severity have seen PCPs in the first stage?

Haruo Naito: Cerebrovascular dementia or DLD well, so these 500,000 people include patients with various types of dementia. And out of which we narrow down to the patients with early AD, the number of people has reduced to this level. But cerebrovascular type or Lewy body dementia with Lewy body can be screened.

Unidentified Analyst: Without PET CSF, I believe that PET CSF must be conducted to screen them out. So the reduction here to 500,000 people to -- 50,000 people. The disease stages have progressed to later stages. The neurologists are capable of differentiating among those different types of dementia.

Haruo Naito: You mean the progression?

Unidentified Analyst: No. Cerebrovascular, the dementia with Lewy body and AD.

Haruo Naito: Haruna-san, do you have any comments to add?

Katsuya Haruna: Yes. Thank you very much for your question. So all of these are mild and moderate and the progressed patients are not included in these 500,000 people. Yes, all of these 500,000 people are patient with mild diseases. But as I said earlier, dementia with Lewy body and Cerebrovascular type of dementia are included -- therefore -- because PCP cannot differentiate them, therefore at the cognitive testing, the first stage after referral to neurologists and other types of tests are conducted here. Therefore, differential diagnosis is given. And then if the Alzheimer's disease, it was the diagnosis and then amyloid beta confirmatory testing will be conducted. So Alzheimer's disease is screened. Therefore, that's why the number has significantly reduced here.

Unidentified Analyst: I'm sorry, again, Alzheimer's disease is diagnosed after the confirmation of the accumulation of amyloid-beta through PET or CSF. After confirming the accumulation of amyloid-beta and then Alzheimer's disease can be definitely diagnosed in my understanding. So according to your explanation, the decrease from 500,000 to 50,000, amyloid -- before amyloid beta confirmatory testing is done, is it possible to see whether patients are diagnosed -- should be diagnosed with the amyloid -- the Alzheimer's disease?

Katsuya Haruna: Right. Amyloid beta confirmatory testing to screen and narrow down the eligible patient for LEQEMBI treatment.

Unidentified Analyst: No, I understand that, that test is conducted to find the patients with Alzheimer's disease. But MMSE or CDR, the amyloid -- the Alzheimer's disease can be definitely diagnosis?

Katsuya Haruna: BBM can be also utilized.

Unidentified Analyst: All right. Because of the BBM utilization. I see, understood. Thank you.

Operator: Would there be any other questions? Yes, participants seated in the back of the room, please.

Unidentified Analyst: I'm [indiscernible] from Yomiuri Newspaper. Thank you very much for the presentation. I have a question regarding Japan. It's Page 19, around Page 18 or 19. In the pathway in Japan, according to what was presented earlier, there are about 600 in early AD diagnosis and treatment and 800 follow-up facilities have agreed. Is this moving part of the initial expectation? Or is this progressing according to your expectation? How should I understand the situation in Japan?

Haruo Naito: OUG, Optimal Clinical Use Guidelines. Under the guidelines, it is almost in-line with our expectation or slightly ahead of our expectations. We have to follow OUG, but without OUG, the pace could have been quicker. But there is no use in that. And Mr. [indiscernible], responsible for Japan business, could you make additional comments?

Unidentified Company Representative: I'm [indiscernible], responsible for LEQEMBI in Japan. Our CEO, Mr. Naito responded, and as he responded under OUG, Optimal Clinical Use Guidelines. First regarding the size of the patient population this year, in comparison to what we have reported to MHLW, it is slightly higher or almost in line. As for 600 facilities that are administering LEQEMBI, and 800 follow-up facilities, that number is also almost according to the plan. But every day, the number of facilities is increasing, and it's close to 900 follow-up facilities as of October. So the number of facilities is also increasing every day.

Unidentified Analyst: I forgot to ask this, but not just a number of sites, but are number of patients is also trending according to the plan?

Haruo Naito: It is slightly ahead of the plan or expectations.

Operator: The person in the back row, please, have the floor.

Unidentified Analyst: My name is Sakata of Yakuji Nippo. I have the similar question. You mentioned that you are progressing in-line with the plan. 800 follow-up sites, they have consented to receiving patients. So receiving patients, there may be some bottlenecks. Could you please give us your take on potential bottlenecks?

Haruo Naito: Thank you very much for your question. [indiscernible] is going to respond.

Unidentified Company Representative: Regarding the reception of the patients, are there any bottlenecks? As you pointed out, not all the hospitals or sites are ready to receive patient for follow-up. It takes a burdensome workload. And once you receive one person, there needs to be one person to be assigned to watch and for general practitioners, particularly they needed to do some preparations. And to health care professionals, we are asking them to bear their burden with the passion to treat patients with Dementia. Therefore, they agreed to receiving patients for follow-up. And the GP or hospitals fit -- the ratio between the GP and the hospitals who are open to receiving the follow-up patients are 50 to 50. Therefore, so many GPs are ready to receive those patients. So as you pointed out, there are some issues, but we have specializing MRs or sales reps in the field. Therefore, they are trying to resolve the issues one by one in order to better the situation.

Unidentified Analyst: Thank you very much. So you mentioned that the number of hospitals, 800 has been increased to 900. So are there any things that they needed to prepare or having those requirements, they are ready to receive patients?

Unidentified Company Representative: Right. For a patient to be increased we would like to see triple the number of sites who can receive. And towards that goal, we are making the steady progress. And then throughout the nation, if you look at the sum of areas, and there are some areas where we needed to do more in follow-up. For such specific areas, we will talk to the doctors who will be responsible for follow-up. And those who are responsible for initiation, as CEO mentioned earlier, we would like to have the exchanges of information through visits by the sales reps.

Unidentified Analyst : Thank you very much.

Operator: We have gone overboard with the time. We would like to take one final question. Are there any other questions? If not, we would like to end today's financial results presentation session. Thank you very much once again for your attendance.