Astellas Pharma Inc. (4503) Earnings Call Transcript & Summary

[Interpreted] Ladies and gentlemen, thank you very much for your participation of this Corporate Strategic Plan 2021 and conference. I'm Huji from Corporate Advocacy & Relation. I'm serving us the moderator here today. It's the time to start at today's conference. This is the meeting conference for the investors and analyst, and this is on live and also teleconference. So there are 2 systems that you can select. For the live streaming, you can look at the presenters and presentation materials on the screen, but because of the nature of the system, the voice or the sound is a bit delayed. [Operator Instructions] The presentation is going in line with the presentation materials available on the website of Astellas. If you are attending this meeting via teleconference system, please prepare that in your hand. The participants are here today is Kenji Yasukawa, President and CEO; Naoki Okamura, Corporate Executive Vice President, Chief Strategic Officer and CFO; Bernie Zeiher, Chief Medical Officer. Bernie Zeiher is attending this meeting from the United States via telephone. The -- this material or a presentation by representatives of the -- for the company and answers and a statement by representatives for the company in the Q&A session includes forward-looking statements based on assumptions and beliefs in light of the information currently available to management and subject to significant risks and uncertainties. Actual financial results may differ materially depending on a number of factors. They contain information of pharmaceuticals, including compounds under development, but this information is not intended to make any presentations or advertisement regarding the efficacy or effectiveness of these preparations promoted and approved users in fashion or provide medical advise of any kind. The simultaneous translation is available, but accuracy of the interpretation cannot be guaranteed.

[Interpreted] Hello, Yasukawa speaking. Today, thank you very much for joining the explanatory meeting on Astellas Corporate Strategic Plan 2021. I'm going to spend about 40 minutes to explain our corporate strategic plan, CSP2021. This is a 5-year plan for the period from FY 2021 to FY 2025. Page 2 is a cautionary statement regarding forward-looking information, so I'm not going to read it. Page 3. This is to review our history. In our vision we developed in 2015, we declared our deep commitment to be on the forefront of health care change to turn innovative science into VALUE for patients. From the GCL model, drug discovery model, we are going to change our drug discovery approach. Our business will also change over time. That was the nature of the declaration. In CSP2018, we made a common definition of value for patients internally. There is outcome that matters to patients divided by cost of the health care system of delivering those outcomes. Based on this common definition, the whole company was aligned to head into the same direction to promote this. As a result, the last 3 years, various initiatives on strategic issues have made steady progress including our R&D strategy focus area approach. We are confident that it was the right decision to promote value creation, and we are another step closer to realizing our vision. Page 4. On this page, I will give you an overview of CSP2020 (sic) [ CSP2021 ]. To realize our vision, CSP2021 and takes over the basic strategies of CSP2018. At the same time, with an intention to evolve and develop each strategic goal. As we strategic goal 1 on the upper left, enable patients to achieve better outcomes, we will work to maximize the value of our strategic products. The realization of this concept includes many strategic initiatives and elements, enhancing the development of a -- development function to enable the development and submission of late-stage projects without any delay; developing capabilities to develop high-quality dossier to complete the regulatory authorities' review within their time frame; strengthening the regulatory affairs function to shorten the time from the launch in the first country to the global rollout; furthermore, enhancing the capabilities of sales and marketing to develop and execute our refined launch plan to accelerate the pace of sales expansion after the launch. If you look at the course of our recent development projects, you can tell how high our overall comprehensive capabilities are. But we will continue to develop capabilities to address new therapeutic areas and modalities in pipeline because there are many new ones. Regarding strategic goal 2, translate innovative science into proven value, we will make focused investment of our management resources into multiple programs generated from our Focus Area approach to enhance our pipeline value. As for strategic goal 3, advance the Rx+ business, we will aim to commercialize multiple projects within this CSP period. In addition, strategic goal 4 has been set up. This -- that is to deepen our engagement in sustainability. In order to ensure that we can realize these strategic goals, we need to eliminate innovation-inhibiting factors and foster corporate culture to take a challenge on ambitious goals. Therefore, we newly set up organizational health goals this time. According to a simulation, if we can realize our strategic goals and organizational health goals, we can realize the 3 performance goals shown at the bottom of this page. At that time, we think we will have a valuation from the stock market of more than JPY 7 trillion market cap. Today, I will explain the rationale why Astellas management team think this way. Page 5. This page explains CSP2021 from a different perspective. We recognize, through our dialogue with you, that the capital market now has 3 concerns about the value of Astellas. First, whether there are any products which can offset the XTANDI patent cliff. Secondly, pipeline value. In particular, whether late-stage projects can be generated from a focus area approach. Thirdly, our profit margin, in particular, whether there is any room for reduction of SG&A costs. On the upper half of the slide, you can find deliverables 1 through 9, which we can gain, when we execute what we have positioned as major strategies in CSP2021. The bottom half of the page illustrates the economic value of these deliverables in the form of the composition of sales and budget items. If you can realize in FY 2025, the state shown in the middle and demonstrate a group of products expected to be launched towards FY 2030, we should be able to receive a market valuation that the market cap is more than JPY 7 trillion according to our story. I'm going to explain the 9 points shown on the upper half of the slide one by one using the following slides. You see the red highlights on the upper right. Those respond to the numbers of the deliverables 1 through 9. This page explaining the planned submission, timing of XTANDI and strategic product in the first country or region. As was explained on Page 4, to realize filing and submission as planned is a key point to realize our strategic goal 1. We already have high capabilities in this regard. We will implement submissions in the second country and beyond as well as negotiations with the regulatory authorities based on the strategy well developed for each product as well as additional indications. Regarding XTANDI, XOSPATA, and PADCEV, for additional indications in patients in earlier stages, we will run a cycle similar to the one for the initial submission to maximize the value. As for zolbetuximab, fezolinetant and resamirigene bilparvovec, which is very difficult to announce, so let me call it AT132 as a code. We are planning to file the first submission in fiscal 2022 for these products. Next, Page 7. Here, let me explain potential peak sales of XTANDI and strategic products. This time, we have updated the potential peak sales figures for XTANDI, fezolinetant and XOSPATA. We made an upward revision. For Evrenzo and AT132, we are newly disclosing the peak sales figures. For specific initiatives and outlook, please refer also to the appendix. In this presentation, I will explain the main points about the rationale why we think we can achieve peak sales in particular. First, XTANDI. We will leverage the abundant data and experiences based on clinical studies accumulated after the launch such as PROSPER and ARCHES. Differentiate against other treatment options and continue to strengthen its position as a first treatment option. Furthermore, we can expect the additional indication of prostate cancer in earlier stage M0 CSPC during the CSP period. Given its recent good sales performance, we are raising the peak sales forecast by JPY 100 billion to JPY 600 billion to JPY 700 billion. The second one is fezolinetant. In the United States, about 12 million women suffering from moderate to severe vasomotor symptoms, VMS. Since reports of safety concerns about HRT, hormonal replacement therapy, in '21, the novel patients to be treated has declined substantially and alternative treatments have been limited by now. Fezolinetant is a nonhormonal treatment long-awaited as a treatment option for VMS. It's first-in-class selective NK3 receptor antagonist. We considered the number of potential patients and unmet medical needs together with the recently available Phase III study results. We have raised the peak sales forecast by JPY 100 billion to JPY 200 billion to JPY 300 billion to JPY 500 billion. Internally, we are continuing to discuss our launch plans, [ ALWH ], Astellas leading women's health, had been formed by female leaders so potential patients and advocacy activities outside of the United States. We will continue to discuss our launch plan, including disease awareness activities for patients and such advocacy activities. We will continue to consider further product value enhancement and give you further update. Next, PADCEV. Based on the clinical study results obtained so far, also for urothelial cancer patients in earlier stages, where we are aiming to get approval in the future, we can establish its position as a first treatment option in each indication according to our story. So we forecast potential peak sales of JPY 300 billion to JPY 400 billion. We are already filed in Japan and in EU, as reported before. In the current fiscal year and beyond, we expect the rollout to other regions in addition to the United States, where it's already launched. The biggest growth driver during this CSP period is the first-line indication in metastatic urothelial cancer with ongoing clinical studies. Next, XOSPATA. After the launch, we are receiving high valuation from hematologists and oncologists in the treatment of patients with relapsed or refractory AML as well as the recommendations by in the Congress or the [ appealing ] societies. We are raising a peak sales forecast to JPY 100 billion to JPY 200 billion. During the course of the CSP, we expecting to get an additional education in early-stage patients. After the additional indication, we will aim for early market penetration. We will continue to enhance the product awareness and the FLT3 testing rate by identifying patients who can benefit from the value of XOSPATA. We will contribute to enhancing health care efficiency. Next, zolbetuximab. In more than 30% of gastric cancer patients, Claudin 18.2 was highly expressed, for zolbetuximab is a first-in-class antibody targeting Claudin 18.2. In first in first-line HER2-negative and Claudin 18.2-positive patients, we have drawn a main story that we can establish a position as the first treatment option with potential peak sales of JPY 100 billion to JPY 200 billion. Next, Evrenzo. We're expecting further expansion in Japan. In addition, by rolling this out rapidly in EU and other regions, we will aim for JPY 50 billion to JPY 100 billion sales. As a first-in-class HIF-PHI, we will continue to promote market penetration through the dissemination of its new mechanism of action. Evrenzo is already available. In addition, efficacy has been observed in patients who need high dose in ESA treatment and those who have inflammatory diseases with low response, we will try to differentiate from our ESAs. AT132. Last month, we announced the loss impairment. After considering the delay in the approval timing in U.S. EU, et cetera, compared to our initial plan as well as risks and benefits and reviewing the target patient population, we forecast potential peak sales of JPY 50 billion to JPY 100 billion. We will continue to commit to safe development of AT132 for families and patients living with XLMTM without currently available therapies. For strategic products from fezolinetant to the bottom, excluding XTANDI, we're expecting the peak sales forecast of JPY 1 trillion in total. Next, Page 8. This page classifies each primary focus into lead projects by biology and modality. You see the name of the primary focus on the left. The second from the left, you see main biology modalities included in each primary focus based on the classification. On the right, you see colored circles, those are the modalities mainly used. The multiple projects in each category, in most cases, the flagship's compounder project, which is most advanced, that stage is shown. In purple, where middle color or light pink. For each primary focus, by FY 2025, you can see the [ no-go ] projects where you can make a [ no-go ] decision based on the clinical POC study results. As far as we can count, more than 30 projects, we'll be able to determine go or no-go decision based on POC study results. In the past, R&D meeting, we explained this before. The lead project on a certain platform, if you can obtain POC using the same technology platform, a subsequent POC project will be able to have a higher probability of success using the same technology platform, we have made public documents to introduce the progress of each primary focus. So please refer to that for details. We will update you on each project when milestones are achieved. As before, we will continue to acquire capabilities missing internally to do business with products generated from each primary focus. We will continue to introduce external assets considered essential to launch new primary focus and implement research collaborations and M&A. Next, Page 9. On this page, I'd like to explain the application of cell therapy platform used for multiple primary focuses. Each one of the assets have light blue circles. 11 cell types, circled in light blue, the cell types were still differential -- cell differentiation protocols have been established as of May 2021. By the end of the CSP period, differentiation protocols will be established in more than 20 cell types in total. We are expecting that we will reach the stage where we will be taking action for GMP manufacturing. As shown with star marks, during the course of the CSP period, IND can be submitted. Not only in the field of ophthalmology, but also in other primary focuses, we will create a situation where this cell therapy platform will be utilized. In particular, we are having high expectations about the first clinical stage for allogeneic UDC universal donor cells. UDC's lead project is immuno-oncology, convertible current NK cells using the technology from Xyphos we acquired in 2019, are scheduled to enter the clinical stage in FY 2022 to early 2023. Clinical trial material in these cell therapy projects can all be manufactured and supplied at a GMP-compliant ARM facility, which became operational in Westborough, Massachusetts, U.S.A. last year. We are confident that we are making steady progress towards realizing cell therapy that Astellas is aiming to achieve. Next, Page 10. I'd like to explain the application of AAV or adeno-associated virus based technology platform. The left half of the page shows the platform for genetic regulation. With the acquisition of Audentes in 2020, we acquired capabilities in AAV-based gene therapies. Recently, Phase I study of AT845 for Pompe disease has started. So 2 gene therapies project, originating from Audentes, are in the clinical stage right now. During this CSP2021 period, not only in the primary focus of genetic regulation, but also in blindness and regeneration, multiple AAV gene therapy projects are expected to enter the clinical stage. Also, we have GMP-compliant AAV manufacturing facilities. There aren't many such companies, but Astellas has the existing facility in South San Francisco. And also, we have a facility at Sanford in North Carolina to be in operation next year. We will be self-sufficient in the manufacturing of AAV drug substance and drug product from R&D to commercial in all gene therapy projects. As is shown on the right half of the slide, AAV-based gene editing technology is applied to manufacturing universal donor cells, in particular, in the cell therapy platform. By applying AAV technologies, gene therapy and cell therapy have become strongly associated. Having these platforms at the same time is the strength of Astellas. Through the organic application of these capabilities, we think we can create new innovations. Next, Page 12. This slide provides a revenue focus during Corporate Strategic Plan 2021 and beyond that we expect as a result of the efforts described so far. One of the achievement targets is that XTANDI and strategic products will contribute to revenue expansion and aim for JPY 1.2 trillion or more of revenue in FY '25. Revenue is expected to grow by about 8% per year during this period. Let us assume that there will be no entry of generic products of mirabegron and Lexiscan in the United States during this period. This is because the patent currently in dispute is expected to be valid during the period of the strategic plan. On top of that, here, I will explain the outlook for FY '30. Although XTANDI's sales will decline after the XTANDI patent cliff, we are confident that our strategic products will continue to contribute and offset that impact. In addition, as explained earlier, by promoting the focus area approach, we will acquire POCs for motor project as of FY '25 and expect the contribution of more than JPY 500 billion to sales from products derived from the focus area strategy in FY '30. As a result, as at present, the revenue in FY '30 is expected to be at the same level as in FY '25. As uncertainty is inherent in the research and development of new drugs, the result on the -- of the simulation as annotated at the bottom right of the slide is shown by the pink-dotted -- 25 percentile and the 75 percentile are described with the dotted line here. Page 12. This slide explains the outlook for transformation of SG&A cost structure. The items and the factors that increase investment are listed on the left side of the slide. And those that decrease coste are listed on the right side. During the period of this strategic plan, new launches of strategic products and additional indications are planned, and those are multiple. We will focus our investment on maximizing the opportunity for new launches. So also, the specific examples include disease awareness and sales promotion activities for new products such as fezolinetant and zolbetuximab, establishment of commercial organizational structure for the launch of cell and gene therapy products and IT digital investment to transform the current business. On the other hand, we will formulate and thoroughly promote the plan for cost reduction measures across the entire company. We have also worked on SG&A optimization in the previous strategy plan. According to the calculation of the results of the past effort, we have achieved a cost reduction of nearly JPY 100 billion over the past 3 years, of which, approximately JPY 80 billion was used for investment in priority projects. We believe that we have already achieved a certain level of efficiency through our efforts so far, but we are already aware that there is still room for further efficiency improvement. The product portfolio, which was organized during the previous strategic plan period, and this will be specialized in the future, centered on the global products originated from Astellas. As a result, it is possible to build an optimal commercial structure and optimize the commercial organization globally. Digitization, globalization of functions, adaptation to new work styles and such will also be seen as opportunities for efficiency improvement. As a result, we analyze that the increase in strategic investment will be absorbed by cost reduction and the absolute amount of SG&A expenses in FY '25 will be kept flat compared to FY '20. Page 13. This slide then describes the 6 agenda trends in core OP margins. First, I will explain the outlook for the financial structure in FY '25. The transitional trend of SG&A expenses is as explained on the previous page. As a result, the SGA-to-revenue ratio will decrease from 31% to 21%. It is difficult to anticipate changes in R&D expenses over the mid- to long term. Projects belong to new modality are expected to eliminate Phase III trials with the scale required for traditional synthetic medicines but will increase CMC-related costs because there is an impact onto the production, and that cost is incurred from the late-stage of R&D. And the probability of success at each stage will vary considerably depending on the modality. At this point, it is unlikely that the sufficient information has been secured, and we will continue to consider it in the future as well. So this is a background. This time, it looked a little different focus from the conventional one. As I explained earlier, we expect revenue growth of 8% during the period of Strategic Plan 2021. If R&D expenses are fixed at 19% rate of the revenue, then the absolute amount can be increased to JPY 350 billion. Even in that case, the results of this analysis says that we can aim for a core OP margin of 30% or more. Next is the outlook for 2030 -- FY 2030. As of FY 2030, the cost of co-promotion will no longer be incurred due to the expiration of the U.S. XTANDI patent. The revenue in FY '30 is assumed to be the same level as in FY '25. But the reduction in co-promotion costs shown in the yellow green part of the figure is effective enough. So the core OP also exceeds FY '25 in terms of ratio against revenue. The current expectation is that XTANDI's patent cliff can be overcome in terms of profit as well. Page 14. This slide discusses the seventh agenda, capital allocation based on the mid- to long-term profit growth. The basic policy has not changed. In other words, we will give top priority to business investment to achieve growth and will stably and sustainably improve dividends based on mid- to long-term profit growth. As I explained earlier, we will move toward a profit growth trend in earnest over the next 5 years. In FY '21, the first year of the strategic plan, we have raised the dividend increase of JPY 2 by 1 level to JPY 8, that is a 4x -- fourfold higher. And we believe that you can understand the background of this increase. During the period of CSP2021, we will basically aim to increase dividends at this pace based on profit growth. By focusing more on dividends than ever before, we believe that we will be able to give back to our shareholders who hold our shares for a longer period of time. We also recognize that this dividend increase plan will be the driver for reaching the market capitalization mentioned at the beginning. We would like to keep JPY 250 billion to JPY 300 billion on hand. And when excess cash are generated, we will continue to flexibly implement share buyback in the future. There is no change about this. Now Page 15, I would like to here explain the eighth agenda that is the Rx+ program. The period of CSP2021 will be the stage where the efforts for business creation so far will begin to bear fruit. This slide shows the time line for clinical trial initiation and the commercialization by product and service category. The top one, that is the -- our digital solution section, now aiming at reimbursement. Starting with the program, My Holter II for Holter ECG analysis in FY '21. We anticipate the commercialization of 5 or more projects by FY '25, including exercise support services and new ones not listed on the list. The second group. That is digital therapeutics, which aims for regulatory approval and reimbursement that's listed second from the top here. We expect that multiple projects such as BlueStar for diabetes will be commercialized by 2025. The third one, the pharmaceutical medical device combination. We anticipate the launch of multiple products by FY '30, including the [indiscernible] congestive agent, ASP5354 and in theranostics as well. The bioelectronics. It is expected that iota's implementable medical devices will go into clinical trials in FY '23, and the first launch will be in the late 2020s. Then Page 16. This shows the specific prospects for earnings -- contribution of our Rx+. In the coming few years, digital solutions and ASP5354 that can be commercialized at an early stage will start to contribute to profits. On the other hand, we will continue to invest in innovative technologies that can be new modalities, such as iota. As a result, while the scale of the entire Rx+ business is expanded, by 2025, it will achieve breakeven. That is, the profit from the Rx+ business will exceed the entire cost of activities, including research and development. After that, the revenue expanded -- increases, and we expect that the revenue sales reaching to mid- double-digit billion yen. Furthermore, in the 2030s iota's implantable medical device and other products got off to a good start as business and Rx+ business is depicted as the backbone that support Astellas in terms of profitability. Page 17. That's the last one, how to contribute to sustainability of society. Astellas has been engaged in various social contribution activities under the name of CSR management. However, last year, we reviewed our activities so far, and we have formulated a basic policy for sustainability where instead of CSR management that emphasized corporate social responsibility, we will continue to improve the sustainability of society and Astellas as well while considering ESG. In the CSP2021, this activity is set as a strategic goal for -- and the company-wide initiative will be started. We consider the 2 axes of value creation and value protection as activities to improve sustainability. Value protection is to reduce potential risks by responding to the demands of society and shareholders while complying with the regulations. Value creation is to carry out activities that provide value to society beyond regulations and required standards. In the future, under the CSP2021, we will contribute to improve sustainability of society and Astellas by further strengthening the value creation activities while carrying out the value protection activities. Page 18. This slide introduces 2 initiatives that are the focus of our value creation activities. In the future, we will expand activities that have synergistic effects with mid- to long-term business activities by making maximum use of Astellas' strength in manufacturing technology, clinical trial execution and such. The priority theme is Access to Health. As in ESG, means social. And the social initiative, Access to Health, is proud to have contributed to society through the development of new drugs and its stable supply. In the future, we will carry out activities that contribute to improving the access to health of patients, based on a comprehensive strategy from development to the market for providing access to health to address patient needs even in areas that are difficult to reach through our main segment of business currently. Another priority theme is Environment, especially climate change countermeasures. We will focus on this. At our Irish plant, we are using renewable energy and purchasing electricity derived from a hydroelectric power generation, and we recognize that those are well recognized by outsider. In the future, based on the TCFD recommendations, we plan to first publish the qualitative scenario analysis result in FY '21 and then the quantitative analysis in FY '23. This time, I talked about 2 notable goals, but in the future, we will widely publicize sustainability activities including other ESG factors and make Astellas' activities visible from the outside. Page 19. This is the last slide for today. In order to answer the 3 capital market concerns mentioned at the beginning, we have explained -- I have explained our efforts in Corporate Strategic Plan 2021. The first concern, that is the revenue growth. That is whether XTANDI's patent cliffs can be offset or not. By completing the development of strategic products in the next 5 years and launching them one after another, we can expect sales of JPY 1.2 trillion or more in total for XTANDI and strategic products by 2025. That's the explanation I made. The second concern is the pipeline value, especially whether the FA approach will produce possible products or not. About 30 or more projects created from Primary Focus will reach the stage of deciding POC, and we can expect sales contribution of JPY 500 billion or more in FY '30. So that factor was also explained regarding this concern. The third concern is profit, especially, there is -- whether there is room for reducing SG&A. While actively investing in new products that will support future growth, it was explained mainly the SG&A expenses in FY '25 in absolute value will be about the same as FY '20 through various cost-reduction measures. That was my explanation. As a result, we came to the conclusion that we can expect an average annual growth of 8% by FY '25 and aim to achieve a core OP margin of 30% or more, while securing a fair amount of R&D investment in assets that are emerging from the FA approach one after another. Furthermore, by FY '30, the products created from the Primary Focus strategy will grow to about JPY 500 billion level, and the burden of XTANDI co-promotion costs will be eliminated. So in the financial structure, the OP margin will be higher than in FY '25, so I explained. On the capital allocation page, I mentioned that increasing the pace of dividend increases and profit catching up with rising stock prices will be used as a driver to boost market capitalization. Regarding CSP2021, the keyword in Astellas is execution. Saying goodbye to the stage of exploring a business model, we are enthusiastic about [ ensuring ] finally maturing the business model by Focus Area approach. Over the next 5 years, we will achieve sustainable growth by ensuring that items 1 to 9 shown here are implemented. As a result, we believe that we can become a company that is valued with JPY 7 trillion of market cap as of FY '25. This is the end of my presentation. Thank you very much.

[Interpreted] That's all for the presentation. We now would like to take questions from the audience. [Operator Instructions]

[Operator Instructions] [Interpreted] Today, our Chief Medical Officer, Bernie Zeiher, is joining. When he responds to a question, there's going to be a simultaneous translation into Japanese, but the company cannot guarantee its accuracy. Thank you for your understanding. The first question is from Citigroup Securities, Mr. Yamaguchi.

[Interpreted] Hello, can you hear me?

[Interpreted] Yes, we can hear you.

[Interpreted] I'm Yamaguchi from Citigroup. I have two questions. First, first of all, it was a very [ energetic ] decline, which [ I like ] but there are two questions I can ask today. Today, the [ fezolinetant ] upper limit has been raised. Looking at the data, which is close to commercial launch, and you talked about the market survey. By looking at the data, you have not disclosed what is the range in your confidence level. So how much it accounts for in the raising of your forecast? What is the breakdown even if it's quantitative.

[Interpreted] Well, that's a very difficult question. It's difficult to say how much percentage. I cannot say so. Looking at the data, we'll be surprised personally, I was not surprised. I said it a few times, fezolinetant Phase IIb study and Phase III study had a similar patient population, so the endpoints are the same. So the results were as expected. Safety concern in Phase IIb existed. By -- in doing away with the high dose, according to the data up to 12 weeks, we have good data. So the concern has been eliminated that much. That's how I view it. But market side is to be -- reproduction may not be believable, then there may be some addition. We had rounds of meetings to discuss this, there can be a further room for further upside in my view. Thank you. Please, when this was presented in the meeting -- when we are stagnated in the meetings or discussions, hard to sell fezolinetant only older or middle-aged men, we're discussing can we go anywhere. Women -- female leaders around the world are gathering. The market has not been formed in some countries, but what kind of disease awareness campaign for patients should happen? Who could be influencers? How we should approach the government? We are -- they are considering those issues very proactively and actively. So in each country, when we have a plan, we would like to explain to you.

[Interpreted] The second question is mirabegron. This is patent-related, so you may not be able to share the details. But at 2023 and '24, the patent is expired, but that is not included in here. Putting the details aside, the patent will continue to 2025 -- '25 to '30, it will be ended. But this is anyway, excluded from this a CSP2021. What's the precondition to plan in this way?

[Interpreted] Mirabegron, physical property or the in vivo or behavior is quite poor as compound, and the formulation can maintain the current efficacy and safety. Therefore, the patent is really significant. Then this formulation patent is available to 2025. So that is the foundation of this information.

[Interpreted] Next, Mr. Hashiguchi from Daiwa Securities.

[Interpreted] Hashiguchi from Daiwa Securities. Sorry, I have a poor understanding. So I may be repeating what you have explained. Sorry for that. First, Slide 13. SG&A cost and R&D expenditure, I'd like to confirm how you think about it, sales target, revenue targets, depending on the progress of R&D, may fluctuate upward or downward, but SG&A cost, 21% of revenue will be considered more important to control where maintaining the absolute amount is going to be more important. As for R&D, JPY 350 billion after XTANDI patent expiry to make sufficient investment into focused areas. Is that important? Or core OP margin target must be achieved? So you think R&D in 19% of revenue is more important? Which is the case?

[Interpreted] Hashiguchi-san, thank you very much for your question. I'd like to respond. First, SG&A cost, 21% does not have any particular [ meanings ] but 380 -- JPY 390 billion in fiscal year 2020, the absolute amount in those years will be kept down in a flat fashion. That is our plan. So if revenues grow, accordingly, the ratio against revenue is going to be smaller. After the probability adjustment, if the revenue with weight adjusted, it's going to be 21%. As R&D expenditure, as Yasukawa said, new modalities will emerge one after another. So how to implement clinical studies? How much platform technology we will win and in what scale. Including those issues, it's very difficult to come up with an outlook or forecast. For each project, what is the development plan? What is the CMC plan? Based on that, roughly, at a similar level in 2020, if you multiply by 19%, JPY 350 billion, I think which is sufficient enough, we have this much R&D expenditure for R&D. Still, we will be able to achieve core operating margin of 30% of revenue. SG&A cost, the absolute amount will be almost flat cost of goods and extended co-promotion fees in green will go up or down in accordance with the revenue. So as an officer in charge of finance, if you cannot achieve revenue R&D expenditure, should not be spent as much as JPY 350 billion, then we can achieve the core operating profit margin of 30% sufficiently. So we still have a certain level of buffer. But still, we can achieve cooperating profit margin of 30%.

[Interpreted] Well understood. Second, fezolinetant sales forecast and the causes of this upward change. This may be a repetition. But according to the U.S., Yasukawa-san, Phase III study result is not so much different from what is expected in 2018. So the reason of this upward changes or modification is that then at the time in a Phase III primary endpoint, probability of success, well, that is -- that was discounted, but that is eliminated this time. But the fact for this decision making is not changed, but the process of coming up this forecast is different. That's why as a result, this number is upward modified. Is this understanding right way?

[Interpreted] A little while ago, I explained my own feeling as well. The Phase IIb study, when that was ended, the safety concern. Well, Phase II, there are wide ranges of the dose, so the higher dose was eliminated. So mid and the lower dose are used for Phase III study. And there, safety concern is really eliminated. That was unknown at the time, but that concern is gone now. So if there's a problem about the safety, then this can be used only for the quite severe patients. But because of this situation, even moderate patients can be the subject of using this drug. I think that is one situation. And this is the disease area that the treatment is not really given for a longer time. So there are people who are not aware that you are having this disease or people are not aware that this is the curable disease. Believe there are many such kind of patients. So think about pyramid. At the very bottom, you see the whole patient population, and there's a very mild patient, no treatments necessary, but moderate and above. So very mild patient is at the very bottom of the pyramid, and those who require the treatment located in the second story or above. And out of those, how much person goes to the clinics? So those who do not come to the clinics are eliminated from that overall population and go to the hospitals, right diagnosis. Based upon the diagnosis, right treatment is given, and automated at the end of fezolinetant is selected. So there are filters, moderate filters to come to the end. And at each stage, with this effort, we can get a further higher percentage of the patients. So we've been thinking of brainstorming in that way. So with this and that activities, we can enhance the awareness of the disease. More patients go to the hospitals or we do. Well, this is NK3 antagonist, and that should be well educated amongst the doctors and how -- what should we do. Well, we had long-term thinking about that and our plan was brushed up. That's the history.

[Interpreted] Next, Mr. Sakai from Crédit Suisse.

[Interpreted] I'm Sakai from Crédit Suisse. The first question. This may be a question in a different capacity, but market cap of JPY 7 trillion. What are the assumptions to calculate the figure? So could you explain the background for the calculation of this figure? That's my first question.

[Interpreted] Sakai-san, thank you very much. Various approaches were taken. Needless to say, we use our own information to look at the existing products and pipeline compounds, and analysts have a valuation to build a model, we have internal valuation methods. And also, the current stock price and also correlation up to 2025, if we evaluate, there can be a lot of cost and value to be realized after timing in the nearer future. Taking in these elements into consideration, what are the valuations based on those figures, from outside, what is going to be the market cap, we drive this as well. Looking at the competitors. In Japan, we -- if we say we don't care about the market cap, it may not be true, but it doesn't mean that we don't want to be behind or ahead of a particular company in terms of market cap. Market cap, vis-à-vis the current profit and the future growth. If you multiply those to come up with market cap, 1.5x, 50% increase in the current profit and future growth, including visibility and probability, multiplied by 1.5, then, 2.25, JPY 3 trillion times 2.225 is JPY 7 trillion. So it's a rough calculation considered by a person like me. We Considered such dynamics. Including this on our mind, we developed a CSP, as Yasukawa explained, for various agendas items, to give an answer to each. Maybe in FY 2025, our target of JPY 7 trillion can be reached. It's not a dream far away. That's a strong belief, and we decided to announce this in CSP2021. I hope that I was able to explain -- to respond to your question clear. Dynamism was the word I heard. So thank you very much.

[Interpreted] And R&D JPY 350 billion. FY '25 plan includes that as an assumption. If you use R&D cost to that extent or not is dependent on the progress now toward the future. But if you use whole -- that amount, how much will be allocated for which modality? I believe you have such information. But why I'm interested in cell therapy, because cell therapy is a quite new modality for Japanese companies. If you developed one thing, you need to have the normal cells and abnormal cells from the patients, and you have the cell banks or chemical banks. So that is a cumbersome process you have to go through, and that is included in your R&D plan? Or this might be outsourced? Because in the United States, there are multiple such companies. So you can make use of them. So rather you focus or specialize in more for the manufacturing, what's your idea about this?

[Interpreted] Can you show the slide relevant to that? Well, as you can find in here already, there are 18 cells from the stem cell differentiation and protocols with what kind of culture condition with PH temperature, how many days you make it rest and what will be generated. Such kind of protocol is already available. And in our Westborough facility, in compliance with GMT -- GMP, we can have it or make it, that's a capability that we have. As I explained, FY '25, about the 20 cells are realized and those are possible to be produced based upon GMP facility. That's what we would like to achieve. And probably, the question is not that. That -- your question is about the one step before that, that's about the research. So it's not only ARM who have achieved scientist within ARM. And also, we have doctors in academia, so there are relationship among them. So with such researchers for [ white ] disease, what kind of cells possible to contribute for the cure and what disease what is happening in genes -- the cells? Is it the function changes? Abnormality? Such kind of research is currently ongoing together with them.

[Interpreted] So FY '25 and afterwards, for this on the modality or segment, ample amount of investment will be given for the mortality or the research area? I'm asking because this is basically the in-licensed technologies. I think -- so therefore, I just wonder, as a head office Astellas, what would you do?

[Interpreted] well, research sources below somewhere else as well, but the cell differentiation protocol are internally generated. So this is something we can proud of. And with the -- and this is not the small tube-level generation with a couple of million cell level is necessary. In the case of I and for systemic administration. Per patient, will have to generate more than 100 million of the cells. So you have to have a certain level of the manufacturing method and a platform. That is the great asset for us. And in order to make use of that, we established the facility in Massachusetts.

[Interpreted] And what percentage does this research account for amount of our R&D?

[Interpreted] oh, that's difficult to say because the approval for the clinical trials differs depending on the countries and each authority do not have much of the experience yet. So this is uncertainty. So the amount of -- if that is uncertain, then we don't know how much of the cells are necessary to be generated for R&D as well. Having said that, cell, this drug -- that's why the visual loss is taking place. You want to cure that but sometimes, it takes a longer time to lose your eyesight, and you have to follow many years for find the efficacy in the case of molecular therapy. So the retinal degeneration type of a disease, you have to follow up for many years. That's why it is really costly. However, in this case, lost cells can be supplied. So immediately, you can gain the result. Therefore, you can learn about the result within a couple of dozens of years. And also, another factor is of -- about the approval or the decision making of the authority. So there are multiple uncertainties here yet. That's why I explained it in that way.

[Interpreted] Next, Mr. Wakao from JPMorgan.

[Interpreted] Wakao from JPMorgan. First, Page 28, fezolinetant. I have a question to you. You already explained, but peak sales figures were raised for fezolinetant. I was able to understand the reason. What about the start of the sales? In FY '25, 70%, 80% of the peak sales will be reached by then. Based on explanations, the target population includes those who haven't visited hospitals yet. According to your assumptions, initially, it may take time for the initial uptake. But according to this, initial uptake can be fast. What are the factors behind for the quick initial uptake? This is a primary field. There can be SG&A costs in the field. Across your entire company, fezolinetant, promotional expenses could be spent, but you can reduce in other areas. So the total figure would not change so much. Fezolinetant and SGA cost and the relation between the two, that's my first question.

[Interpreted] First, rapid uptake. Moderate and severe patients only would be incorporated to come up with these figures we can achieve in our view. As we have said, mild -- or those in between mild and moderate, how to capture them, and in areas other than the United States. Disease awareness for the patient is necessary and how do we negotiate with the government how they're going to react. Based on these factors, there can be further uptakes or upside. We are still considering this.

[Interpreted] Understood. What about SGA cost?

[Interpreted] As for SG&A costs, I'd like to explain. As Yasukaw-san understood, fezolinetant, we will receive a large amount of money for its new launch. Such costs will be spent. But on top of today, no, that's not the case, but we will eliminate costs which are not necessary right now, but we will add fezolinetant. And overall, it's going to be flat. That's how we would like to explain. In the explanation by Yasukawa, it was included, but it's difficult to explain. So once again, I'd like to boast. If you look back in CSP2019, when we announced the plan in 2019, at the time of the announcement, our measures to curtail the cost, which already started, had some achievement. In CSP2019, we had a new measures to reduce the cost. There is another bucket. The second bucket is JPY 30 billion. And I said we can achieve JPY 40 billion. I had a slip of the tongue to say this. In the end, we calculated again the second bucket, about JPY 50 billion. The original bucket, which was already in existence, a little less than JPY 50 billion. So JPY 100 billion expenses have been reduced according to the results, JPY 100 billion reduction. But overall, SG&A costs may not look reduced. You may hear from here, JPY 100 billion was not entirely reduced, but the money we're able to generate here. JPY 80 billion for primary focus on new technology platforms, we made reinvestments in those areas. The net reduction is just JPY 20 billion. Similarly, in the CSP2021, we are going to do something similar, and we're going to reinforce this further. April 1, we have a new person, first of all, in charge of strategy implementation. Under him there is a section, transformation office, to track the progress across the company, their work streams for different functions and those people will curtail the cost or try to optimize the cost. They have identified initiatives to optimize the cost. And based on the plan, whether we have been able to realize benefits that is going to be tracked. We already created such a mechanism on framework. So fezolinetant, we require a lot of money, but we will have cost-saving measures in parallel to make up for that.

[Interpreted] Well understood. Second, primary focus potential, JPY 500 billion and above or more. Please give us some -- give me a bit of the information. That is clear these days. But as you mentioned, Page 31, this is JPY 500 billion -- sorry, it's not 31. Page 8. Out of the 31 projects, how many projects are included in this? And also, what is the probability of success? And within this JPY 500 billion, what is the highest potential that you are expecting? So looking at this Page 8. In 2030, it's not the case that all of these are launched, but the probability of success. Some are already in a clinical phase, but there are many in the earlier phase. So probability of success is assumed to be quite low and which one is the most effective one? Universal cell, NK is what you mentioned. So what is the most potential one out of this?

[Interpreted] So this is the group of those before POC. So it's not something that they are already succeed. So probability of success is multiplied, and those are calculated to JPY 500 billion. So FY '30, it's not a reality, some will survived and some are going to be discontinued. In the mid of development, that is going to be 0. So looking at 10 years ahead, it is all the way like this. Time passes and achieving POC, then the probability will go up and this bus are going to be quicker. And some are eliminated from here. So such a repetition will take place.

[Interpreted] Then which one is the one that you think most potential?

[Interpreted] Well, in the one that -- we can face the POC immediately is the adjuvant vector and aAVCs or oncolytic virus in immuno-oncology. So we can see the timing of the judgment of POC earlier for this. I'm very looking forward to it.

[Interpreted] So with the that 31 project and you came to the number of JPY 500 billion?

[Interpreted] Well, those 31 projects multiply the probability of success. Although the data is not full yet, so as a target product profile, this is not a fixed product profile, but target product profile basis. Expected sales is multiplied with the probability of success and added all of those come to this number.

[Interpreted] Let me make the additional comment. Okamura speaking. Now please show Slide 11. So as you'll find in the previous chart, we have to go ahead at certain level. Otherwise, we cannot come up with a number in 2021. The plan includes, however, the -- this [ all ] 30 might not be included in the future. And as Yasukawa explained on the right bottom, you can find the amount to cover in the simulation description. All of those are on an early phase. So from that phase to the cells, you accumulate the probability, and that would not achieve 10%. So if the sales is expected to JPY 10 billion, then looking at FY '30, [ currant ] color. But only 10 -- JPY 1 billion is included. But the JPY 1 billion cannot be realized because expected number is JPY 10 billion, so it will be JPY 10 billion at 0. There are so many of such disbursed around here. And in order to look at the settlement, we've done the assimilation. All these compound success, not success as a variables, we changed the conditions for the calculation. Then, I suppose, a certain case of simulation of success and failure. We've done such kind of different calculations. So for example, 1,000 times. And the 250s sales is the bottom. The 25th and the 750s sales, the range is the light gray pinkish dotted one. That range is described in FY '30. So because that is a way toward the future. So this RevPAR is definitely not possible to be established, but with a 50% of the probability, we might be able to settle down somewhere in this gray bar. That's a result of the simulation. So the sales could be at the level of FY '25, or there might be some addition of some hundreds of billions. So within this range, we can settle with the 50%. That is our simulation.

[Interpreted] Next, BofA Securities. Mr. Arai, please.

[Interpreted] Slide 13, financial or structural outlook. My first question here is PADCEV. The fees you pay to [indiscernible]. You need to pay fees to them, depending on the revenue in Japan. Is that included in the COGS?

[Interpreted] Sorry. To be more precise, I don't remember correctly. XTANDI co-promotion fees, it's handled in the same way. So I think it's included in the SG&A cost, based on my assumptions. It's going to be launched in Japan and you in the future. There's going to be fees. That's included in the JPY 390 billion, and you're going to reduce other expenses to maintain the same level. Sorry. Sorry. By the way, as you say, outside of the United States, only book revenue in those countries. Cost-sharing is reflected on to the SG&A costs. U.S. PADCEV. We don't put the revenue there. About 50% of the revenues as cost are received to us for profit sharing, that is included in the top line. So cost ratio is 0. SG&A cost, sales promotion cost is almost 0. It's bartering. It's too easy to think that it's included in the SG&A cost because of the profit sharing globally.

[Interpreted] This may be a follow-up for the previous question. So FY '22, you have a new project, and many items are going to be commercialized and contributed the sales in -- afterwards. And fezolinetant and others, I think you have assumptions. So what's the conditions to come to this plan?

[Interpreted] Sorry, I don't quite understand your question. So the start-up is quite steep. So how it was decided? Is that your question?

[Interpreted] Yes.

[Interpreted] So this is dealt by the sales function and comes to this stage from target product profile based upon their clinical trial data. There is a shift toward the real [ fezo ] product profile. And based upon that product profile, in the first year, how much of the patient can be secured. So their confidence is reflected in here. As I've mentioned about the pyramid, fezolinetant and also zolbe the first year and the second year, after the launch, the disease is aware already diagnosis is given already. And the doctors also aware of the drug and target patients and among such kind of target patient population, how much percent can be secured. That is calculated by the sales function. That's all. Thank you very much. We're approaching the end of the meeting so this is going to be the last person to ask questions.

[Interpreted] Next, Morgan Stanley MUFG Securities, Mr. Muraoka.

[Interpreted] I'm Muraoka from Morgan Stanley. Earlier, Okamura-san talked about 30% operating margin. There is even a buffer there. I'm not going to pick up on the small wording, but I'd like to confirm 8% CAGR sales growth, OP margin is 30%, JPY 550 billion. I can calculate R&D. There is some buffer. If that's the assumption, JPY 550 billion operating profit, you can calculate based on this, there's still some buffer, but still you can achieve this figure. Is my understanding correct? And also, mirabegron, Lexiscan, LOE, would not happen during this period. Core operating profit will continue to rise in the coming 5 years. Can we envision that? That's my first question.

[Interpreted] How should I explain? I said there is even a buffer, JPY 1.8 trillion, 30% of that. 30% to 35%, it will go up to -- no, I didn't -- that's not what I mean. But if you can't achieve JPY 1.8 trillion, if it's going to be JPY 1.6 trillion, 30% of that, how to handle SG&A cost flat in absolute terms. And the expenditure, 19% could be reduced a bit. Like if we can generate JPY 50 billion cash, then we can achieve 30%. That's the meaning of the buffer I mentioned. I hope I responded to your question, with this explanation continuing to rise. Page 14. Could you show Page 14? If we show this clearly, many people may ask questions, but it's rather ambiguous. Towards the right, there's a dotted line to the right. This is not completely different from the inclination of overall forecast. This is how we are forecasting.

[Interpreted] Meaning the absolute value is impacted by the sales to a certain extent?

[Interpreted] Yes. If the sales is greatly reduced with a certain event, I would say -- I'm sorry. That's why our core OP margin 30% cannot achieve. That kind of excuse is something I don't want to make. Therefore, R&D that is a relatively high amount, and that's going to be a buffer. So if your sales can be achieved, we decrease the R&D cost to a certain extent. By doing so, we might be able to achieve 30%. That's what we are saying.

[Interpreted] AT132, JPY 50 billion to JPY 100 billion. After loss impairment, you reviewed the target patient population to have a sales forecast of JPY 50 billion to JPY 100 billion. 300 times -- JPY 300 million, perhaps, is my assumption correct?

[Interpreted] After the filing in '22, the value of this project could be raised substantially by any additional value up studies is shown at the very last slide, 5 to 18 years old, the value would be enhanced substantially from 5 years old, up to under 18 years old. So the next study is going to be very critical and decisive. Initially, Bernie is going to talk about 5 to under 18 years old patients, and the future plan will be explained by Bernie. Bernie, please.

Yes. Thank you for the question. This is Bernie Zeiher, the Chief Medical Officer. So for AT132, there is the ongoing study, which is for children under 5, and we would like to complete the dosing and ensure some of the safety. And then as soon as we've assured that, there will be a subsequent study that will investigate children who are aged 5 all the way up to 18, so first is -- and it won't be all the way to the submission. It's more just to assure safety with the dosing at the -- of the younger children. And then the second study will then allow us to potentially expand the label and identify whether the product is safe and effective in the older children as well.

[Interpreted] That was it. Thank you very much. That's all from me. With this, we'd like to close this meeting today because time is up. Thank you very much for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]