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

Now we'll start the presentation. Next slide, please. Good afternoon, everyone. This is Okamura. I'm quite sure that you are all busy, but thank you very much for your participation in this R&D meeting. In this October, our organization has changed. So today, we would like to introduce a new research organization structure. Next slide, please. This is the caution statement for this meeting. Definitely, you already read about this. I would like to skip. Next slide, please. Agenda for today. First, I will introduce the background of this reorganization and then Dr. Shitaka will explain the details. Next slide, please. Next. In the CSP Corporate Strategy Plan 2021 that we announced in May this year, in order to show how Astellas will overcome the XTANDI patent cliff and achieve sustainable growth we presented mid- to long-term goals that extend beyond, 2027 when the patent expires, 2030. So as a result, we believe that our current vision for the next 10 years has been largely understood. On the other hand, considering the uncertainties these days and also with a longer-term perspective, Astellas must continue to grow sustainably in 2030 and beyond converting scientific advances into value for patients. In order to achieve this, we need to implement and develop the focus approach and continue to create new and unique programs to constantly increase the value of our pipeline. In this process, this research organization plays an important role in creating new primary focuses as a source of future value. So it's quite important. Next slide, please. In this slide, I would like to talk about the background of the reorganization of the research organization structure in relation to the focus area approach and portfolio management. Based on the strategy of the FA, focus area approach, we have been proactively acquiring innovative technologies and assets from outside of the company rather than focusing only on our own technologies in order to supplement the elements necessary for strategy execution and have been executing a standard alliance with a quick decision making. In addition, we have succeeded in acquiring several biotech ventures with cutting-edge technologies as shown in the slide. As a result, we have a variety of programs that -- as you find on the right bottom. Our portfolio is well managed under the jurisdiction or the accountability of the CSTO in line with the strategy under the primary focus axis. Primary -- among this primary focus are interior primary focus. Prioritization is a matter of course, but also the very dynamism is also well implemented. In fact, we -- for example, ASIM, antigen-specific immunomodulation, that is also a primary focus. However, we believe that its role as -- to create programs have been completed, and we defined it as a new primary focus candidate, immune hemostasis, and are now working on it. As for go-no-go decision-making for new modalities actual decision-making is required. Instead of internally evaluating each project based on long-term preparation, we have developed a decision-making process for real-time project evaluation and portfolio management depending, both internal and external evaluation, which has been named, kachi, that is value in Japanese globally, and will start its operation in 2022. Also, on the left bottom, while maintaining autonomous program creation activities of each organization that was taken at the time of acquisition, it has become necessary to comprehensively manage the research face. Therefore, in April, we established a new CSCO and appointed Dr. Shitaka. And in October, we started a new research organization structure. So today, Chief Scientific Officer, Dr. Shitaka, will explain the details from here. Dr. Shitaka, please.

Today, I'm going to explain the new research organization. But before that, let me briefly introduce myself. Now Slide 8, please. I joined the company in 1996 as a researcher and was mainly engaged in the CNS program for Alzheimer's disease and dementia. In 2012, I feel that there was a limit to continuity of the global category leader or GCL model and launched the Frontier Disease Research unit. I believe that the research approach I had in mind at the time, became the model for the current focus area approach. At that time, we began to focus on ophthalmology and muscle in the disease area, gene therapy and modality and mitochondria in the biology area. This have led to our current primary focus. After the acquisition of Ocata in 2016, I served as the President of AIRM for 5 years. During that time, I was also involved in the acquisition of Universal Cells and Xyphos and the development and execution of the cell medicine strategy in Astellas. Slide 9, please. In April 2021, I became Chief Scientific Officer, and my first task was to reorganize the Astellas research organization. Today, I would like to talk about the outline and concept of the reorganization, and then I would like to introduce some actual examples about the collaboration and the development internally. Slide 10. First of all, I would like to explain the concept of this organization -- reorganization. In the past, DDR or drug discovery research, was operated as hierarchical, function-based organization under the accountability of the DDR head. In the past 5 to 6 years, we have acquired several external bioventures, which are mainly under the accountability of the CEO as a separate organization from the DDT. While this has the advantage of allowing us to conduct our activities while maintaining autonomy, it also meant that Astellas research organization as a whole lacked a clear strategy, and it was difficult for the research organizations corroborate each other. As for the partnering functions, there were 2 functions in charge of early-stage and late-stage projects, and the department in charge of early-stage projects was located in the DDR. In this reorganization, the DDR was dissolved and all research organizations were consolidated under the CSCO and all product creation functions were unified as an agile in-house bioventures. About half of the personnel of the former DDR were cut out and placed in multiple internal bioventures, creating an environment in which each of them can operate with autonomy, just like the acquired bioventures. In addition, we have established new business departments to oversee overall research strategy, in red, and a system that allows the internal bioventures to support partnering and maximize the use of core pharmaceutical capabilities. In addition, we have decided to integrate the partnering function, which have been divided into 2 departments, into a single department. Slide 11, please. This is the new organizational chart. This -- so this is the new organization that the agile in-house bioventures that are responsible for product creation are shown in blue, the core pharmaceutical capabilities that support this are shown in green. Partnering is in orange. The new organization that integrates strategies and drives synergy is shown in red. The star shows the internal bioventures carved out from the old research or DDR. Slide 12, please. Today, I will explain about these 4 groups in detail. But before that, I would like to give you a general overview of the roles and collaboration of the 4 groups. First, the group responsible for product creation in blue. Again, this is a collection of internal bioventures. As for the organizational structure, we will adopt the so-called agile model and adopt a growth mechanism that mimics the ecosystem of external bioventures. AIRM, where I spent 5 years was a bioventure-derived organization, and it was an agile organization where various experts made the decisions quickly onsite through repeated trial and error. This is very effective in moving forward with the program of similar medicine, a new modality. In addition to cells, we are working on new modalities and new biology in the focus area approach. We thought that integrating the product creation units, including the former DDR into such an agile organization will be the key to success and increase the productivity of entire research organization. The gray group below shows the core capabilities that we have developed as a pharmaceutical company. The development and research, in green of the slide, includes leading platform technologies, regulatory sciences, translational sciences and such. And manufacturing functions, also our important core capabilities. In-house by ventures make the most of these capabilities to accelerate programs, encourage the probability of success and maximize value. The role of partnering group in orange is to quickly fill the technology and pipeline gaps of the internal ventures. So the external network is made use of here. Now part the bottom, these top 3 groups are integrated. They formulate the overall research strategy, then integrates the -- or are for driving synergies among the various organizations. Slide 13. Now let me explain each of color-coded group. First, the production creation units that I'd like to talk about. Slide 14, please. First, I would like to explain 2 issues in the function-led, hierarchical called organization that was adopted by the former DDR. So first, I will explain the two. So blue, green and yellow are the function organizations such as pharmacology, pharmacokinetics and safety in the drug discovery station functional groups, such as initial process development, process and formulation improvement and GMP manufacturing in the manufacturing stage. The first issue is a hierarchical decision-making. For example, drug discovery research is carried out by the lowest layer, but there is no delegation of authority and decisions on timing policies require approval within each department, which, in some cases, takes a long time to make. In addition, when challenging new modalities and various biology or diseases in the future, there may be cases where the manager or the department does not have the expertise, which make it difficult to make appropriate decisions. The second is business procedures, sequential procedures. In the case of established modalities, such as low molecular weight, compounds and experience the disease areas, the waterfall model was -- worked well, where each function executes their assigned takes individually and moves to the next process when the predetermined are criteria met. On the other hand, in the case of new modalities, it's difficult to pursue all the risks in advance and to set advanced product requirements to be met by each function or there are cases where unknown issues are faced in the back-end process, and we are back to square one. Slide 15, please. This is why we have integrated the organizational structure of the product creation unit into the agile style of bioventure. The center of the slide shows the schematic of agile model. Taking AIRM as an example on the right, stem scientists with expertise in cell differentiation and researchers with expertise in process development, manufacturing, safety, et cetera, are gathered here. In this way, the necessary experts are gathered according to the modalities and biology to be handled in each department. And the aim is to conduct research while making decisions autonomously within this group. In this model, people with various backgrounds and specialties are brought together according to the characteristics of the program, and the solutions to new problems are continuously refined through the process of trial and error. In this case, decision-making authorities delegated to the units in the field, allowing them to carry out their activities quickly and autonomously. In addition, as a result of autonomous activities, we expect to strengthen the organic connection between internal bioventures by mutually combining their advanced elemental technologies. Page 16, please. Each product creation unit follows a growth mechanism mimicking bioventure ecosystems. The research organization in the middle of this page represents how it grows. From incubation start-up to venture unit, each PCU is within Discovery Accelerator and it goes into an independent research engine. As is described beneath, along with its growth, research goals of each unit will shift from research platform establishment to lead program creation, and then to pipeline building, including clinical development candidates. In line with the growth of each unit, its headcount, the number of programs and the authority will expand. For example, selection of product candidates will be done as an important decision is delegated to each research engine head. Let me explain how to deal with the strategic stage. Each research engine is responsible for product creation in the current primary focus, while small- and medium-sized units within Discovery Accelerator engage in research activities that will lead to future primary focus. This growth mechanism urge in-house bioventure members to work on product creation with entrepreneurship and a strong sense of ownership. Page 17, please. This page shows an overview of the current 6 research engines. And they are doing autonomous activities at the sites on the map. And you can see the primary focus they are dealing with in red. Outstanding researchers in each field belong to each research engine as a CSO or SAB members attracting top talent, and we are continuing to grow as an organization. Ocata, we acquired in 2016, and Audentes we acquired in 2019, are increasing the number of researchers growing as AIRM and Astellas gene therapies. Respectively, we have more than 700 researchers in total for the 6 units at present. Discovery Accelerator has about 140 researchers right now. We will explain later. Page 18, please. Next, let me explain our structure for collaboration within divisions and with other divisions, which enables us to differentiate ourselves from external bioventures. As was explained in the overview, collaboration among internal venture units and our pharmaco capabilities can accelerate our programs, enhance the probability of success, maximize value and also differentiate ourselves from external bioventures. Two important pharmaco capabilities are shown here. One is applied research and operations and the other is pharmaceutical technology. Today, due to limited time, I will explain our collaboration with manufacturing function in detail. Page 19, please. I'd like to use 2 pages to explain the importance of early collaboration between internal venture units and manufacturing function from the research stage, leading to our strength. Let's take cell therapy as an example. In the world of cell therapy, it is said that process is product to show its uniqueness. This means that changes in manufacturing process such as raw materials, culture method, et cetera, drastically affect the product characteristics such as efficacy. This is a world different from small molecules. In reality, when I was working at AIRM, I experienced a reduction in pharmacological activity of the cells when we changed from FDA-compliant materials to the ones based on PMDA's standard, even though they were the same raw materials. Usually, for small molecule compounds, we use a waterfall model for collaboration between research, process and formulation development and manufacturing functions. After handover of process for manufacturing from research to manufacturing, various changes may possibly occur, but we can handle as long as the structure is simple, like small molecules, and if you already have expertise and know-how for that modality. On the other hand, in the case of advanced biological products such as allogenic cell therapy products derived from pluripolent stem cells we are working on, the research team may optimize the process with efficacy as an indicator. But if we change manufacturing process, raw materials and formulations in the middle of development, it can be very difficult to demonstrate comparability vis-a-vis what was produced before. We may have no other choice but to go back to the initial research stage in some cases. Page 20, please. Therefore, in the case of advanced biological products, we take into account commercial production from research stage so that research and manufacturing can closely collaborate in agile model organization and proceed with research and manufacturing process development at the same time. This is a key to success. By doing this, we can avoid returning to the initial step in case of issues after the process handover to manufacturing. Also, in-house manufacturing capabilities enable flexible collaboration and know-how accumulation. We can accumulate capabilities in-house, which we cannot build just based on the model of outsourcing to CMO. This is going to be an effective model also for future DDS-integrated products such as gene therapies, messenger RNA and other products where formulation changes can lead to changes in product characteristics. At AIRM, Universal Cells and AGT, research and manufacturing functions are already co-located for collaboration as agile organization. More than 70% of the personnel at AIRM and AGT are members of technical and operations who report to me. Also at Tsukuba, mainly regarding DDS-integrated products, we are strengthening collaboration with "co-innovation, co-creation" as a slogan or tagline for the past few years. Also in the new organization, the research and manufacturing and collaboration will be further reinforced. Page 21, please. Next, let me talk about the integration between early-stage partnering and business development department. Page 22, please. Currently, there are 2 organizations in charge of partnering in our company. We divide the scope of responsibility by the stage of the projects. Early-stage partnering. ESP is responsible for early-stage projects, and late-stage projects are the responsibilities of business development or BD. The strength of early-stage partnering is the ability to identify great science. BD has strength in negotiations, deals and alliance management. However, the size and complexity of early-stage deals is increasing these days. For example, in order to acquire research deals in early stage, we access academia, for example. But once we begin negotiations, they want longer-term relationship, and we may have to negotiate economic conditions after commercialization in a lot of cases. So there is less difference compared to late-stage deals. And unnecessary processes may occur, like the handover of the deals between the 2 organizations and coordination of the opinions, which is time consuming. This is different from the research and manufacturing organization I mentioned before, but we begin to see issues by having 2 organizations soon. So we decided to integrate the 2 organizations as 1 partnering team from April 2022 to launch a new business development division. We hope that the internal process will be enhanced and the partnering speed will be further enhanced into the future more than now. Page 23. This page shows the network we have built in order to access potential partners in various stages. Through our 4 sites shown on the map, we have established a strategic network with academia, incubators and venture capitals globally. We have also made strategic investments in start-ups and biotech companies as well. As you can see on the right, we have successfully acquired assets and platform technologies in line with our strategy from research seeds to M&A by now. We hope that we can further leverage the network we have established under the new structure. Page 24. Last but not the least, I'd like to explain our structure to manage these organizations to drive synergies. Page 25. In the previous research management, the overall strategy was the near sum of the strategies of individual organizations, lacking flexibility in resource allocations in some cases. In other words, we have felt a great potential among different organizations, but we couldn't drive the synergies successfully. In terms of modalities, we have small molecules, antibodies, cell therapy and gene therapy. And we have world-leading research engines in their respective fields. We think there is some room for further improvement of productivity by driving their synergy. Due to a lack of sufficient information transmission, sometimes it was difficult to understand the status of activities from outside. Bioventures used to transmit information actively but no more information transmission once they were acquired by Astellas, in some cases. Of course, we may not be able to talk in a timely fashion about negotiations with the regulatory authorities, for example, but we think there is also some room for improvement here. Furthermore, it took time for the acquired organizations to enhance their value within Astellas. We wanted them to work at full speed after acquisition, but due to factors such as integration work after acquisition, there was some slowdown in some cases. Therefore, to resolve these issues, we have established an appropriate decision-making system, new office functions. As for strategies and resource allocation, we have established a new decision-making system called Research Leadership Summit. It consists of research division leaders who discuss the strategies of the entire research organization, collaboration among different functions, portfolio management and resource allocation. I chair this summit for decision-making. As for information transmission, particularly in research areas, we will enhance our communications so that we will be a company of choice by potential partners and great talent. Affiliate management function will support the integration and activities of newly joining research organizations. We have also established Research Architect Lead to drive the overall research transformation activities. Through these initiatives, we have established a structure to maintain our autonomous activities by internal venture units with a lot of diversity and to enhance synergistic value as a whole at the same time. Page 26. From here, I'd like to give you 2 examples of developing and operating internal venture units working in collaboration. Page 27, please. The first example is the collaboration in the CAR-NK family program. The pharmaceutical efficacy of CAR-NK is being confirmed in B-cell tumors, but there are issues with the products other companies are developing right now. We aim to overcome these challenges with our allogenic pluripolent stem cell products and aim to expand indications for solid tumor. In order to deliver the value we are aiming for, multiple advanced element technologies are necessary. You can see different technologies in different colors. First, clinical-grade pluripotent stem cells at AIRM would be turned into universal donor cells in order to avoid immune rejection. Here, Universal Cells' precise gene-editing technology using AAV vector would be necessary. Xyphos convertible CAR technology can target multiple cancer antigens, and this is used to integrate genes into UDCs. By using U Cells' gene-editing technologies, we established a process to differentiate the cells into NK cells. And technology is transferred to AIRM, Astellas' cell processing center, to enable GMP manufacturing of the target cells, cCAR-UDC-NK. And we have MicAbody to target cancer antigens. This is produced at Tsukuba. By combining RDs, we will have the final product. By combining the cutting-edge technologies from the respective units, we can create values that a single bioventure cannot follow. We have Universal Cell, Xyphos and others to be linked together to realize this. The second example is the growth of venture unit. Right now, we have 6 venture units generated at our research laboratories or research centers in Tsukuba, 2 of them, tumor-directed inhibition and specific Treg PF candidates. In terms of the strategic-stage primary focus candidates, we are promoting research so that these units can be primarily focus in the near future. At the bottom of the slide, you can see the PROTAC protein degrader tumor-directed inhibition venture unit is working on. Let me briefly explain its features. PROTACs have a structure to cross-link through a linker, POI binder and E3 ligase binder. The target protein, which could not have been a drug target -- or druggable target for the conventional inhibitor approach can be turned into ubiquitin by E3 ligase for degradation by proteosome not inhibition in order to block signaling and demonstrate efficacy. This internal venture unit has shown great performance internally over the past few years and is growing. I talked about ecosystems making external bioventures, and this is one of the units where we are reinforcing our internal investments. Page 29, please. This is my last page. This reorganization, we believe, will enable us to maximize value of the bioventures we worked on in the past, and we can generate a new primary focus and grow continuously bioventures and pursue synergy among organizations. In promoting focus area approach, we can have a more effective organization. That's all about the explanation of the new research organizational structure. Thank you very much.

That's all from us. Now I would like to entertain your questions. The questions are acceptable only through the telephone line. You cannot ask questions from live streaming. When your order comes, operator is going to call out your name. So when you entry for your questions, please wait. While you're waiting, of course, you can listen to what's going on in the meeting. Now please start.

[Operator Instructions] So from the Japanese line Citigroup, Mr. Yamaguchi would like to ask a question.

The first question, that is about evaluation. In the case of venture market and such, including the stocks, our share price are the indicators for the evaluation. So mimicking those who are exposed to them and you increase the evaluation internally, and in a sense, more competition-based salary will be given to your employees. But once again, for that evaluation part, due to this reorganization, the evaluation system or the ways of evaluating will be different greatly.

Evaluation of the employees or human resources that we have, I believe that's your question. Well, first of all, conventional system will be maintained from this December NOL. But in the future, the overseas bioventure mimicking type of the evaluation ways might be incorporated into our new organization. The second question might be related to the -- in the very beginning, Okamura-san mentioned about the kachi, where real-time evaluation would take place. So with this change and project value change and evaluation of the project, those are all connected. Thank you for the question. They have to be linked or connected all. Otherwise, it's going to be meaningless. For example, the clinical trials are started in the clinical trials POC was established. Well, that is happening in the earlier phase, and foreseeing the project in other phases is possible. So the different departments would start to collect the information, and if we achieve certain milestone and all the data are all combined to reevaluate. But each project or each department -- or each project would do that with a different timing. When it comes to portfolio management that happens once in a year, twice in a year, three times in a year. That is the conventional way. But as you see, the projects have been advanced quite quickly, and also those with the superior technological platform can gain further to go ahead. In that case, the order method of spending 6 months of their valuation is not really quick enough. For the each compound has each compound event, and each -- that kind of time valuation should be done. For example, not only with internal information, but if there are some news, including good and bad, for the outside products are to be used for the factors of our evaluation. The evaluation of one project will be changed, then the portfolio priority will be changed. If priority will be changed, then the resource and investment allocation will be different. That's been all -- is going to be always turning around. That's what we are aiming at, understood?

Understood. I have one more question. As one example, you talked about CAR-NK. As you said, in this field, you had technologies at different locations or whether you can combine them to work together. Looking from outside, I was wondering when this can be integrated to be used. CAR-NK-UDC, you're talking that you can realize this in this field. CAR-NK, NK itself, this is some are in the clinical studies. Takeda, Helios and others are also working in this field. So to demonstrate your competitiveness in this field, it's important to have clinical studies at an earlier timing. The progress of this project when are they used, enter the clinical stage? And when can we see? If possible, could you elaborate on the timing of the clinical stage?

In May, when we had a meeting in the CSP 2021 documents, this program was included in there. FY '22, '23 approximately, we can enter the clinical stage. According to the wording you used there, the situation has not changed since.

From Japanese line, Mr. Hashiguchi from Daiwa Securities.

There are several questions. The first question. The focus area approach concept that you have currently, how long will it be continued to be included for the interpretation of your direction, including the current reorganization? There are 4 primary focus and each has triangle. And there is a primary focus lead for each 4, and it has delegation to do the activities. I believe that's your explanation. But now product creation unit. I don't know if there are 6 or there are 7 of them, but each has each organization. Now the conventional primary focus 4 are no one-to-one relationship with this new production creation unit. And there are 4 primary focus. And for cell therapy that is understood as the common foundation covering multiple units, but the positioning of this cell therapy is now discussed outside. For example, AIRM and Universe Cells, you have 2 separate organizations. So to what extent of your conventional explanation should be reset and introduced this new idea? Could you reorganize those?

Focus area approach was there is no change on it. Focus area approach has biology, modality and unmet medical needs, creating one triangle. And the foundation of those triangle modalities, needs, modalities, biologies, so those factors are considered. So that is a selected triangle with those perspective. And if the triangle is made, that is considered as the primary focus. Primarily, focus lead, the role of that is that each program become -- each program candidate to the clinical, that is covered by the lead. Primary focus itself has triangles, and there must be same biology, but the modality might be different. So within one primary focus, there are multiple programs. And the benefit or beauty of the primary focus is that if the flagship makes success, then there are followers. So from there, multiple programs will emerge. So considering that, primary focus lead itself, well, the one certain triangle combination of primary focus becomes the candidate as a first compound. And that achieves the clinical proof of concept, then that goes to other's hand, but there will be another program coming from the source. So the role of the lead is going to continue for a longer time. Details will be explained by Dr. Shitaka. But for example, within accelerators, there are some senior units, meaning that primary focus are already established. And there are following triangles to try to be identified. Or if you have already established triangles, then the followings will be generated. Would you please show up the slide with the -- all boxes? So what I'm talking about is AIRM to Mitobridge. I'm talking about these 6. And on the very right of the blue, that is Discovery Accelerator looks like one unit, but there are many start-up types of units. And they are looking for the -- each top point of each triangle for the focus. So that's what Discovery Accelerator would basically do. So trying to identify those components. So Ocata was acquired and AIRM got started for cell therapy. At that time, that is -- we consider that is the smallest organ outside access is possible. And we have the immune patent, so the ophthalmology is what we've started. Then Universal Cells was acquired of the shell product became available. So we expanded the scope outside of ophthalmology. Then we have Xyphos acquired. So in oncology, cell therapy is possible to be used. And also just has been press released, mitochondria biology is also where that the cell therapy is used for the program. Such program is under the consideration. So cells -- is one -- cell is one of the modality. So focus area approach triangle includes -- so as just a part of it. And with that, to what extent or in one way of the unmet needs are contributed with that? We can find the various possibilities. So AIRM or Universal Cells, they produce the cells for Xyphos. So in the process, the gene editing is conducted by Universal Cells. That's what it will be. Any additional comment?

As Okamura said, there is no change in our focus area approach. As you can see on Page 16, This one, we have strategic stage and research organization on this page. Regarding the strategic stage, within primary focus area, strategy development and implementation would be done by PFO. As for the execution to produce product, research engine and venture units are responsible. It's not one-on-one. As was mentioned, gradually. For example, on Page 17 AIRM has entered the areas from ophthalmology to cell therapy. Initially, blindness focus area, it was almost one-on-one relationship before. But using this as a cell platform, it's expanding internally. Mitochondrial cell therapy is an area of interest. Immuno-oncology, also would like to handle this. So it's no longer one-on-one anymore, but rather, this is something we take positively. So internal platform is being leveraged among multiple PFs. So we think this is a good direction. That's all for me.

One more point. On Page 17, at the right bottom, you can see the PCU headcount growth. Gene therapy unit has a lot of members, followed by AIRM, in terms of the headcount. This headcount composition, do you think is already optimized? At the time of the acquisition to the acquired company, how many people were they? By adding them up, I think there is a great impact from that addition. Into the future, you'd like to increase the headcount strategically in some areas, and you may consider reducing the headcount in some areas. If any, please share such details.

For example, former Ocata, the predecessor of AIRM, when we acquired, a little more than 30 people existed in this organization. Now we have more than 200 people. So this is based on our needs and the number of programs in-house. Accordingly, we are increasing the headcount. We don't have extra people or people in excess, but in line with the program, we are increasing the headcount there. The same is true with gene therapy as well. So in principle, after the acquisition, instead of reducing the headcount, depending on the number of programs and the utilization of the programs, the headcount is increasing accordingly.

From Japanese line, Credit Suisse Securities, Mr. Sakai, please.

Sakai from Credit Suisse. There are 2 questions. First of all, product creation unit. Several years ago, company in Koshikawa proposed this type of organization. And at that time, they considered that the unit should be depending on the therapeutic areas, low molecule weight, so the CNS and oncology. Organizations are vertically created, and from there, drug discovery to development throughout. Without any changes, the development will take place. But this time, your PCU, each are individual, but at the same time, they merge together to create something. But what about the development afterwards? Because of the time constraints, you might have skipped it. But Okamura-san, as you mentioned at the very beginning, new modality, cell, genes and process. If you say process is the product, I think mostly, it will be completed within the CU, but the way in that sense, that will -- the development will be changed? Is that understanding right?

Well, this reorganization, well, you consider about internal needs and also the status. And we decided this way will be the best for us. That's why we decided to do this reorganization. Our current unit situation, is considered. We have the manufacturing -- research and manufacturing gathered together in most of the cases. But with the expansion of the pipeline, some units are needed to conduct their business. And for them, how agile aspect is incorporated, that will be the near-future discussion.

That means, as a result -- so development part is not reorganized or not changed at all?

Right. This reorganization does not include development.

This may offend you, but in your case, among your mainstay products, in-licensing products have become very large. This is true. Maybe in other words, you have been able to identify great products. But in terms of in-house drug discovery, it's not satisfactory. At least for me, according to my judgment. But you acquiring bioventures and you started new modalities, and you're incorporating this in-house. From here, if you have your own internal drug discovery and your in-house development product to lead to enhancement of the product manufacturing, is that the view of the management?

Yes, you're right.

Next, from the Japanese line. Mr. Ueda from Goldman Sachs Securities.

I'm Ueda from Goldman Sachs Securities. My first question is as follows. Regarding the environment and the mindset of the researchers, what about the changes? What's your view on this? Right now, you are changing the organizational structure, you explained today, to be practical. The working environment and the mindset are important. You talked about KPIs and the assessment and evaluation are not going to change, as you said. But on Page 15, as you can see here, there are a lot of overlaps. Per person, how many had -- one person have to wear. Without synergy, you may not afford to do this? Do you have sufficient number of people who can drive synergy? Otherwise, as you can see on Page 25, you cannot leave the previous model of just the near sum of individual strategies. What's your view on this?

Thank you very much. Overlapping among a unit none. Each individual belongs to one unit, dedicating themselves 100% in principle. As for the overall mindset, with this reorganization, the biggest change was in the organization of research at Tsukuba in Japan. We had a hierarchical, function-based model changing to an agile model. So the mindset is expected to change as well. A stronger ownership and commitment and entrepreneurship must be kicked with external -- vis-a-vis external bioventures. We shouldn't be defeated in terms of quality and speed. We have to change the mindset in that direction. Such changes are already occurring, and we'd like to promote these further into the future.

So for such changes, are you going to think about the reformation of your hiring strategies system?

Well, first of all, internal bioventure if we have, then we need to have somebody who can lead it not only from the scientific perspective, considering the future business model as well. The person who can lead like EIR type of the human resource -- or the position is what we might have to hire somebody from outside or start-up level unit so that it can be vertically setted up outside scientists, who would serve as principal investigator. May be a dedicated role or might not be dedicated. But anyhow, such a leader class is currently why we already started our approach.

The point two that is about the Slide 12, that is the value enhancement with utilizing your own facility of the manufacturing. And you talk about the advanced element technologies. What's your view about that? And what do you think about it from the perspective of global competitiveness?

There are many. For example, using AI and compound metabolism prediction, efficacy projection and antibody designing that is where we can enjoy the scale merit or benefit with the amount of venture units can utilize such kind of technology. That's why we can invest. So that's one of the example of robotics or biopharma informatics. So those are included within this advanced element technologies.

From the Japanese line, Mr. Kohtani from Nomura Securities.

First, reorganization concept. I'd like to ask a fundamental question. I haven't thought about organizational salaries. In Japanese companies, mostly, they have the conventional method after reorganization. Your ventures formed independently and various functions are easy to use. What I'd like to understand is compared to U.S. companies, how novel this kind of organization structure, it is? This will lead to the future acquisition of bioventures into the future? That's the most important. Not just to obtain money. You cannot beat Merck or Pfizer. So Japanese company must be selective in such a case. You have to consider ways. As you Okamura-san said before, you have to solicit companies who want to be acquired by a Japanese company to do so by venture acquisition, and then you can grow together. You have to create such a mechanism. So is my understanding correct that this reorganization will contribute to that respect?

As for the U.S. companies in general -- under general benchmark, I don't have such data myself, but at least in our industry right now, the number of drugs approved by U.S. FDA in terms of the performance, more than half is from bioventures. It may be about 70%, depending on how you count. Such early discovery competitors are bioventures in our view. And what's good about them can be incorporated in our structure. That's one background. And whether this will lead to the next acquisition into the future, if you can see our organizational chart, you can tell. Very new companies can be added easily for the blue. We can add the company we acquire to the blue, then you can automatically be a member of our group according to the structure. Of course, affiliate engagement has been newly established. So regarding the new acquisition, it's very easy to handle according to this new organization. And also acquisition, triggering our next -- new acquisition, we have such an experience. We purchased a company in cell therapy already. Those who would like to work with AIRM at the time of the acquisition of Universal Cells. That was one motivation of the other party, Xyphos, because of AIRM and U Cells, they would like to work with us. So this is the first level -- or the second level of technologies in one building are the sequence is important. We acquired Audentes for gene therapy. This can be on the second stage and the third stage. We need such technologies. And also [ androgen ], we announced would be the technology on the second stage or the second level. So this can induce a very good cycle for us.

Mr. Kohtani, please. Okamura speaking. Let me add 2 points. First of all, today, Chief Scientific Officer, Shitaka and we are talking about the reorganization of the research organization under Shitaka as Chief Scientific Officer. If other ventures want to work with Astellas or not, it's not just a matter of the research organization. Development, pharmaceutical technology and others would be involved. Intellectual properties, legal are necessary as well. Various functions, which are small. Organization cannot handle who you would like to partner with will be decided based on this. Just looking at this page, to see whether the next collaboration or next M&A will come, that may be a little more biased. Another point is as follows. After the acquiring of a company, it's independent compared to the Astellas Research Institute, Astellas organization. And it's under the CEO. After acquisition, it's like independent, as is. If you acquire and if you incorporate and absorbed into the original organization, you wanted to get it and you acquired it. It's incorporated into the order organization. There is an immune reaction, and it's gone somewhere. After the acquisition of a company, you have to maximize and leverage the company we acquired. It must be completely independent. And somewhere in between, complete early independent and the complete absorption. We have to find the optimal point in between. And in this acquisition around here in between, in this case, around here, we have to go through trial and errors to accumulate our know-how, then we can have synergy from the acquisition to demonstrate value. So it's not too simple. We cannot generalize in a simple fashion. That's what I thought while listening to your comments.

Understood. My intention of the question may not be really straight forward. But the point, too, this may be also a bit of the track of this announcement. But in oncology, what is hot is rather than CAR-NK, PROTAC is collecting more attention. Arvinas is the originator for clinical development of this. And thalidomide drug is analyzed as a result. E3 binder is ligated nearby, and we will be getting degradation for the protein is considered to remove holder proteins. And recently, Pfizer and Arvinas worked together for the development of ARV-471. This is a very hot area. More than a dozen is in clinical development currently. Androgen receptor, estrogen receptors, it seems that currently, they are working for such an existing mechanism. So if the area is already competed -- crowded in this way, you have to add something unique. So against the already known mechanism E3 binder is attached or rather, you would like to find a new novel target for further development of this kinase.

Well, the ordinary inhibitor approach, if that is sufficient for the certain targets, yes, we can follow that. So conventional inhibitor approach, but that is not sufficient to make a drug. And if the target is not targeted with the convention drug, then product is used. If the target is new or not, well, as a target that is, to a certain extent, validated but still undruggable. There are something like that existing. So that will be the target of our priority. Did I answer your question?

That means -- so ARV-110 already developed, and the structure is disclosed. And it looks like thalidomide, that is where E3 binder is added in terms of the structure. So the binding pockets have to be there as they pertain. So in a word, it seems like the extension of the conventional inhibitor. With this example, RAS or KRAS is possible? Well, other than to see, there is no further pockets, so I think it's impossible. What do you think about this way of thinking?

Well, that might be the area where we might be able to get breakthrough. The pocket might be a bit shallow. However, product might be valuable. That's what we think.

From the Japanese line, JPMorgan Securities, Mr. Wakao, please.

I'd like to ask a question about the Discovery Accelerator. By letting us know about this, when you have a new ventures seeds program in the future, I think that they are going to go into the future. As for the Drug Accelerator, 140 people belong to this organization, as was mentioned. The current number of the headcount, and how this is going to increase into the future? And what are the original themes for them? How they're going to come up themes? And how are you going to refresh the drug Discovery Accelerator? In case of new ventures, you have funding. If you don't have money, they're going to die. And this kind of refreshment of the organization is going to be important. So that's why I'm asking.

As for the Discovery Accelerator according to this chart, the left 2/3, 140 people working here. On Page 28, specific venture units shown, there are 6. For individual venture unit, going back to Page 16, 10 to 30. In total, we have about 140 working within these 6 units. As for the future metabolism of the organization, for incubation start-up, at that stage, research platforms will be established and not on a stand-alone. We think we can have multiple, then it stand into a venture unit. As you can imagine, the earlier, the probability of success is smaller. So incubation startup has quickest cycle, followed by venture unit. In terms of the change of the content inside, we are developing rules internally to manage this. So on Page 16. Programs 1, 2, those are not within what's divided. The number of the programs, sorry, talking about. The number of the programs? Well, one incubation or start-up deal with the program, so the themes. That's the number of the programs.

What about the number of the incubations?

I cannot come up with a number out of -- from our mind, but there are about 30 people. And the number of the researcher is 1 to 5. So this is more than the number of venture unit. So 140, and there are the members in Tsukuba. There are about 1,000 people in Tsukuba working. So in the future, they would shift to the Discovery Accelerator.

How are you considering about the allocation of your resources human resources?

Well, when it comes to the organization of churn -- or by the way, we don't have the Tsukuba organizational chart, but we don't have 1,000 people there. So in Tsukuba, we have the research and development. That is this green. And that's the biggest department. There are about 300 people. And also, we have accelerator immuno-oncology. In those blue units, there are more than -- a little more than 200. That's the current situation.

Drug discovery -- Discovery Accelerator and incorporation and external technologies. What's your idea about this combination? When you have ventures in-house, they can become independent as a research engine, so technologies based outside may not be necessary. On the other hand, depending on the things you may need external technologies. For the future, when you incorporate outside technologies, how do you do this considering your in-house ventures? From the management, when you need external technologies, are you going to do so? Or for projects and teams, they can become independent and in-house technologies alone may be enough to enter the clinical stage?

As we did before, we'd like to incorporate bringing outside technologies. There can be big biotechs or smaller start-ups or academia-level discovery fees for joint research, of course. As I touched during my presentation, in every stage, from outside necessary fees and technologies will be incorporated, we'd like to consider these possibilities into the future as well. If you are to acquire a start-up, then internally, as we showed the growth mechanism through these processes, we'd like to grow them into a research engine. That's what we are considering right now.

Thank you very much. So media people are participating. So we would like to entertain questions from them. And also because of the time it's running out, I would like to make it as a last question for the meeting. From Japanese line, Nikkei BP, Mr. Hashimoto, please.

So the evaluation of the people was asked already. So my question might be overlapping with that, but I would like to ask you. So you acquired several companies so far and how to treat people, the way of hiring people amongst those companies. Even though they are under the Astellas, but such system hasn't been really integrated or unified or has been touched upon. So internal venture from Tsukuba, originator from Tsukuba for the time being. The way to treat them or the way of hiring them will not be different?

Well, we acquired overseas about companies. And after that, they follow the Japanese Astellas HR system. Semi supply for AIRM, Universal Cells as well. So similar or grading applied. In that way, they are managed.

The new way of the evaluation or the new ways of treating the people will be the coming things. For example, some -- when milestone is achieved, then special bonus might be paid?

Well, we haven't been really in the stage to execute such approaches. So basically, the research organization members, regardless of the locations, they are all managed under Astellas HR system.

Understood. If so, again, including this internal ventures, including overseas companies, so the human resources exchange amongst those ventures might not be hindered and smoothly conducted?

Your understanding this right.

Another question. Depending on the progress of the projects, you may need more people, and the need for such people may be reduced in a flexible fashion within the system. Is there any place to pull extra people or people in excess? Which is the department or division where you can pull people?

In principle, we don't have any people in excess. The company is evolving all the time, and the capability we need is also changing every day. So we have to refresh the necessary headcount and necessary capabilities and the matching of the people or the talent. There should be a good match. So organization to pull excessive personnel, we are not planning to establish certain organization.

As an image, incubation start-up, resource may concentrate there, correct?

For example, if we have a research engine, we thought it's going to be successful, we increased the headcount. But unfortunately, it may not be working so well as expected. Dozens of people have nowhere to go. We cannot rule out such a possibility. Even in such a case, as with the case with external biotech ecosystems, they can find a job at other bioventures to demonstrate their capabilities there. So that's the market principle. Within this organization, this is something we also have to consider.

Thank you very much. With this, we'd like to close this meeting. Thank you very much for your participation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]