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

Thank you very much for your joining with us for the Astellas Sustainability Meeting 2024 despite of your busy schedule. I would like to serve as a moderator for today. I'm Ikeda, Chief Communications and IR Officer. Today, after an explanation for our company, we'll move on to the Q&A session. The presentation will be given in accordance with the presentation materials posted on our website. Simultaneous interpretation will be provided between Japanese and English, including Q&A session. Please note that we cannot guarantee the accuracy of the simultaneous translation. The line which can be selected from the menu on the Zoom webinar screen. This material of our presentation and answers and statement 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 including information of pharmaceuticals, including compounds and the development, but this information does not intend to make any representations or advertisements regarding the efficacy or effectiveness. Now I'd like to introduce you the participants for today the President and CEO Naoki Okamura, Head of Sustainability, Shingo Iino; Takashi Tanaka, Outside Director, Chair of the Nomination Committee, Chair of the Compensation Committee; Mika Nakayama, Outside Director, Chair of the Audit and the Supervisory Committee. Executive Vice President, the Chief People Officer and Chief Ethics and Compliance Officer, Katsuyoshi Sugita is not available here today. So when it comes to this -- his part of the presentation, pre-recorded presentation will be given. So now Okamura-san, please start the explanation. The floor is yours.

Hello, everyone. I am Okamura from Astellas Pharma Inc. Thank you very much for joining in this sustainability meeting despite of your busy schedule. This is a questionary statement for today's presentation. I will skip this reading since Ikeda explained it earlier. In the past 3 meetings, we have explained the progress of sustainability initiatives and their outcomes. In this fourth meeting, we will focus on the relationship between sustainability initiatives and enterprise value enhancement. Before we get into the main topic, I would like to explain Astellas' definition of sustainability and where sustainability initiatives are positioned in our daily activities. Page 4. I will first explain Astellas' definition of sustainability. As a member of society, we will naturally continue to address important sustainability issues such as climate change. On the other hand, since we are in a life science industry, the essence of sustainability is to contribute to society through our core business as well as the efforts will increase the trust of our stakeholders, which in turn will make Astellas more sustainable as a company, thereby creating a positive cycle that improves the sustainability of society. Creating such a positive cycle is what sustainability means to us. Through today's presentation, I hope to convey how Astellas' initiatives have an impact on society, and contribute to improving its sustainability as well as how they have an impact on improving our corporate value. Page 5, this is a logic tree for enhancing enterprise value. This logic tree visualizes how Astellas' financial and nonfinancial initiatives lead to improvements in corporate value. It was created in response to the needs of investors who wanted to see the relationship of these between Astellas' initiative and the improvement of corporate value and was disclosed in the integrated report in October 2024. We have presented it today for your review once again. Today of this logic tree, Sugita, CPO and CECO will explain the blue part. Iino, Head of Sustainability, will explain the yellow part. And Tanaka, an Outside Director will explain the green part. Specifically, Sugita will explain examples of innovations and results generated from the organizational health goals. Iino will explain the social impact of efforts related to the analysis of the relationship between human capital and governance enhancement and corporate value improvement as well as initiatives of collaboration and support for the health system enhancement. Tanaka-san will provide an update on the corporate governance in FY 2024 in relation to governance enhancement. Slide 6 is today's agenda. Please note that Sugita's part is pre-recorded presentation as is being explained. Thank you for your understanding. Now please watch the Sugita's presentation pre-recorded one first. [Presentation]

Hello, everyone. I am Sugita, CPO and CECO. I would like to explain about the innovation cases and the results that came out of OHG or the Organizational Health Goals. Page 8, when Astellas formulated the CSP 2021, we had deep and thorough discussions to realize the vision. We examined the specific issues that were hindering innovation and concluded the most important issue was to reform our organizational culture. Based on this issue, we developed OHG, Organizational Health Goals and I have been working to achieve them. The OHG has 3 key areas of focus innovation, talent and leadership and One Astellas. Today, I would like to present 3 examples of the business impact of our efforts to achieve the OHG, creating innovation, talent acquisition and development based on corporate strategy and unleashing talent potential and retention. Slide 9. To begin with, I will describe simultaneous global regulatory submissions of [ bylaw ] as an example of how our efforts to achieve OHG or Organizational Health Goal, have had a tangible effect on business innovation. Although it is difficult to compare head-to-head due to the different types of the data used in the submissions, in case of the global product in the past, it took more than two years from the initial submissions to complete them in multiple regions. Despite of such circumstances, we set an bold and ambitious goal of submitting more than 10 BLAs or Biologic License Application in 12 months. To achieve this goal, we identified the potential risks, developed countermeasures and engaged in appropriate and intelligent risk taking. For example, potential risk of simultaneous submission is handling inquiries from multiple regions at the same time, which is difficult with the current resource level. But we created efficient resource planning and reproducible core BLA dossier structure for the first submission. So that we could easily adapt them. This requires close collaboration within and across divisions as One Astellas, instead of hand off to the next department after one step was completed. Each divisions began working side by side at an early stage to escalate the hand off. As a result, 13 submissions were completed in FY 2023, which is significant. And of these, 4 major regions of the U.S., Japan, Europe and China, submissions were completed in 3 months, and this is unprecedented achievement. As of the third quarter of FY 2024, we had received an approval in 38 countries and launched in 9 countries. It is difficult to say contribution factors of this in a word that we believe one of the reasons is that we've already implemented our OHG1 brave ideas pursue ambitious outcomes and the OHG3, we excel as One Astellas internally. Slide 10. Second is about talent acquisition and development based on corporate strategy. In order to develop talent based on corporate strategies, we have started the development of next-generation leaders who will take on actual management issues. Astellas hires at the earliest possible stage, for example, at the -- as senior director level rather than the division head level, all of a sudden and promotes talent to move senior positions. We're developing them internally. As part of this process, we now have a next-generation leadership program. We selected 50 high-potential global leaders and conduct trainings for them. The training is characterized by its practical content that can have a direct impact on business rather than classroom trainings. The group will spend 6 months working on solutions to aid real difficult business issues that Astellas faces. Finally, all 50 participants made face to face and present their proposals to CXO and senior leaders and approved proposals will get into the business project phase. This time, 4 proposals were approved and these 4 are now in the process of consideration as projects. In this way, the next generation leadership program not only develops talent, but also brings together the wisdom of the high potential leaders to be immediately applied to business growth. This is one example of how we are promoting the talent and the leadership thrives, which is Organizational Health Goal, OHG2. Page 11. Lastly, but not leastly, talent potential and the retention challenges in number is explained. Astellas uses the global engagement service score as an indicator of the progress of our OHG, Organizational Health Goals initiatives. To date, key scores have steadily improved. Although it's just 1 to 2 points each year. However, this year's engagement score is 69. While we have been moving quickly to implement major organizational and institutional changes, we have not taken sufficient steps to deepen employees understanding. As a result, continued improvement in engagement scores is rather resulted in a 2-point decrease this time compared to FY 2023. We take these results seriously, share them openly and widely internally and take an action to improve it. As we continue to reform, we have identified the issue of communication, such as properly conveying the thoughts of top management and senior leaders to frontline employees when there are numerous changes. The score for change communication, our new item in this survey this time is the lowest in all. In order to address the areas that need improvement specifically, a task force has been informed -- task force team has been formed with members from HR, Digital and Communications divisions and the team is now already working on solutions. Currently, we are planning to provide a management education, focusing on change management, including training for leaders and managers close to the front lines to strengthen their communication skills. We believe that increasing employee engagement is very important to realize the full potential of our talent and to retain them. This is the last page of my part. So far, I have explained the impact on business of efforts to achieve Organizational Health Goal in 3 areas. Creating innovation, talent acquisition and development based on corporate strategy and unleashing the talent potential and retention. Our talent strategy does not exist apart from the corporate strategy. Talent strategies are part of our corporate strategies, and we are working to ensure an impact of them on our business. Fostering organizational culture is difficult to achieve in the short term and requires a long-term perspective. But as I explained today, there have been many cases where the mindset of OHG, Organizational Health Goal have taken root and employees have been put into practice, resulting in an impact on the business. Not all of them have been successful. And as I explained in the engagement score, there are scenarios that need more improvement and which we believe that we have shared openly. We would like to continuously contribute to realize the vision while implementing measures to address areas that need improvement. Next is the sustainability part. Iino-san, Head of seasonability will explain. Please start.

Hello, everyone. I'm Iino, Head of Sustainability. I would like to explain 2 of efforts to improve sustainability. The first is visualizing the social impact of access to health initiatives. Specifically, I will introduce the case study of quantifying the social impact of the disease awareness program in Malaysia. The second is the impact of nonfinancial activities on enterprise value. I will explain the results of our study on the relationship between our nonfinancial activities and market capitalization, which we consider important as our enterprise value. Next, please. Page 14. First, let me explain the first point, quantification of social impact. As has been explained in the past, we are engaged in a variety of activities to improve access to health care on a global scale. We believe that we are making a social impact through these activities, but have not been able to visualize them. This year, we addressed this issue. One of the programs that support activities to strengthen health care systems and improve health literacy in countries and regions with a fragile access to health care, is the beauty and health program in Malaysia. Focusing on this, we have converted the social impact of the activity into a monetary value. This illustrates the social impact of this activity. In Malaysia, more than 60% of cancer patients are diagnosed at an advanced stage. On the other hand, due to the low awareness of cancer disease and culture backgrounds, the cancer screening uptake rate is low, which is one of the social issues. Two NGOs, the National Cancer Society of Malaysia, NCSM and Asia Cancer Forum, ACF have been working to address this issue, through the beauty and health program, a cancer awareness program. Astellas supports the Beauty and Health program by donating about USD 1 million. The Beauty and Health program raises awareness of cancer disease and promotes screening in local communities in Malaysia. The program is expected to improve the prognosis of cancer through early detection and treatment as an outcome. So far, the social impact of these activities has been discussed qualitatively that has not been easily quantified. We categorize the social impact into fair values and converted 3 of them applicable to this activity. Namely medical value, psychological value and economic value into monetary values. There are various methods for the convention, that the conversion of efforts to improve access to health care into monetary values is a very challenging task. As there are a few prior studies that can serve as a reference. The following is the results of our calculations. The Beauty and Health program conducts disease awareness activities, targeting 5 cancer types as described at the footnotes. But for this conversion, we calculated only a colorectal cancer which has the highest incidence rate in Malaysia and usable published data. Please turn to the next page, Page 15. Shows the results of monetary evaluation of the social impact by the Beauty and Health program. There are several assumptions. As is described at the very bottom of this page, the Beauty and Health programs, education and literacy initiatives related to cancer, reached 1 million Malaysian residents. As a result, 450 colorectal cancer patients were diagnosed and treated early and the impact was calculated based on the reduction in the number of cancer patients detected in Stages 3 and 4 from 75% to 55%. These were our assumptions. According to monetary valuation under these assumptions, social impact of $4.6 million or JPY 680 million is estimated to be generated as is shown as the total in the right bottom. Compared to our input of $1 million or JPY 150 million shown on the previous page, a simple calculation leads to ROI of 4.6x. If you look at the breakdown of the generated social impact by areas of impact described radically on this stage, the medical value accounts for the biggest portion of 61.4% was $2.8 million, followed by psychological value of $1.3 million, accounting for 29.1%. Economic value was relatively small. Economic value with income impact accounted for 7.9% was $400,000. Economic value with expenditure impact was 1.6% with $75,000. On the other hand, by target benefiting from impact shown horizontally, the so-called primary impact or direct medical impact on patients was the biggest -- was $2.8 million, accounting for 60.7% followed by secondary impact or indirect impact on patients which are guided for 36.3% with $1.7 million. This indirect impact on patients includes patients work productivity improvement and treatment related cost reduction. We found that there is a certain level of impact also on families and medical institutions, as treasury impact, as well as social security and the whole industry as quaternary impact. This time, there was a result -- these were the results focusing on colorectal cancer only, but not only including direct medical impact on patients, which is drawing attention in general, so far, but also including secondary impacts such as patients work productivity improvement as well as value for families and society, we believe that we were able to specifically and quantitatively show the possibility that social value of $4.6 million could be generated. On the other hand, there is also some limitation as we could not perform monetary evaluation of medical value and psychological value of [ quaternary ] impact, we believe these are the challenges we need to address in the future. Next, Page 16, I will explain the second theme. We, at Astellas, implement a variety of nonfinancial activities. All of these are important initiatives for the company, but it was not so clear how they are impacting our enterprise value. Also, some of the stakeholders are wondering how much Astellas nonfinancial ESG initiatives are linked to the enhancement of our enterprise value. So this time among our nonfinancial initiatives, we focused on human resources and organization and corporate governance, strengthening to analyze how much various activities related to those are relevant to market capitalization, which we regard as important as our enterprise value. In order to ensure the accuracy of the analysis, in addition to our data, we also used published data of about 1,700 companies listed on the Tokyo Stock Exchanges Prime Market. As for analysis items, we used market cap as objective valuable and human capital indicators and corporate governance indicators as explanatory variables. We performed the analysis with 4 analysis methods, namely correlation analysis, simulation analysis, contribution analysis and causal inference. We thought that by combining these 4 methods, we can obtain more robust results and analysis. We also believe that these are highly unique analysis methods, leveraging analytical capabilities of Astellas which is creating innovative health care solutions in its core business. So we named this approach the Astellas model. These analysis results suggested connection between market capitalization and the following indicators: for human capital indicators, mainly percentage of female managers, ratio of managers, employee job satisfaction and employee evaluation of corporate management, and 2 corporate governance indicators, average remuneration, Page 2 directors, and the number ratio of Outside Directors. Today, part of these analysis results, I will explain the representative results on the following 2 pages. Next page please. Page 17. The graph on the left shows the results of simulation analysis regarding the percentage of female managers. Based on the data of 1,700 companies listed on the Tokyo Stock Exchanges prime market, we use the machine learning model to analyze the relationship between the percentage of senior managers and market cap. Specifically, using our actual data from 2023 as a reference, we performed a simulation to see what kind of impact there can be on market cap when the percentage of female managers alone is changed from 1% to 60%. The results suggested that market cap rises when the percentage of female managers is between 25% and 40%. The graph on the right shows the analysis results of the contribution of financial and nonfinancial indicators to market cap. In contribution analysis, it's important to more accurately measure the contribution of each indicator to the market cap. So in order to avoid overestimation of contribution, we added financial and environmental indicators to the analysis. The level of each factors impact identified in the contribution analysis is shown here in a descending order with more impactful ones from the top. The impact of each factor was calculated by numerical values called Shap values. I'm going to skip the details, but Shap values indicate how much each factor raised or lowered the forecasted results from the average. The horizontal axis in the graph corresponds to the Shap values. We looked at how much contribution the percentage of female managers would demonstrate. Analysis results suggested, after financial indicators such as net profit, total equity, operating cash flow, average trade volume and gross margin rate, the percentage of female managers, which is a nonfinancial indicator shown in the red box is contributing to market cap. As for color coding in the graph, we are showing the numerical value of each indicator in the red and blue gradation. Specifically, if the indicator is closer to the maximum value, it's shown in red. If closer to the minimum, it's shown in blue. For example, if you look at the percentage of female managers, companies with a higher percentage shown in red are positioned on the right side of the graph, we can see the positive impact on their market cap. On the other hand, companies with a lower percentage shown in blue tend to have a smaller impact. This result supports the simulation analysis results where the percentage of female managers have a big contribution to market cap. And when it exceeds a certain level, impact will emerge. Next, on Page 18, I will explain the analysis results of causal inference. Causal inference is not the mere correlation analysis, but rather it's about the causal relationship between causes and results, when input is changed, the outputs changes accordingly. For example, in a causal analysis, in order to estimate the causal effect of each indicator as accurately as possible, analysis is performed by focusing on the exclusion of the impact of other factors. In the analysis, the panel data was utilized for financial and nonfinancial indicators of companies listed on the Tokyo Stock Exchanges prime market, were tracked for 11 years. So upon estimation of causal relationship, there was a need to take into account individual characteristics of each company in addition to factors that change over time. Therefore, we used the method called fixed effect model. We excluded the impact of each company's characteristics. In addition to financial indicators and then evaluated the impact of nonfinancial indicators, respectively. In this graph, please focus on the ratio of managers. In this analysis, a 1% increase in the ratio of managers leads to a 0.33% decrease in market cap, equivalent to about JPY 9.24 billion in the following year according to the results. Regarding the increase or decrease of the ratio of managers, flattening of the organization is a corresponding initiative on Astellas human resources and organization. At Astellas, we will use a number of layers from CEO to flatten the organization. By doing so, we are promoting faster decision-making and fostering an environment that generates innovation. Specifically, as shown in the diagram on the right, this is what we call span of control an initiative to secure at least a certain number of members, each people manager manages. Analysis results from causal inference showed that an increase in the ratio of managers has a negative impact on market cap. We're hoping that our initiatives to flatten organization will work positively on market cap in the end by promoting organizational health and further driving our business activities. Next page, please. Page 19 shows indicators suggested to be related to market cap, according to the data analysis results, which are also initiatives strengthened at Astellas. The upward arrow means that an increase in that specific indicator has a positive correlation with market cap, while the downward arrow means that an increase in that specific indicator has an negative correlations with market cap. Analysis results suggested the connection between the following indicators and market cap. There are 4 human capital indicators, namely the percentage of female managers, the ratio of managers, employee job satisfaction and employee evaluation of corporate management and 2 corporate governance indicators of average remuneration paid to directors and the number of ratio of Outside Directors. Using the 4 analysis unique to Astellas, we are able to obtain more robust new insights. We were able to identify items, which could potentially impact market cap among our initiatives, items specified in the guidelines, which we think was a great achievement. Lastly, I'd like to touch on limitation. There is a limitation to the number of data we have and the level of data disclosed by companies listed on the Tokyo Stock Exchanges prime market. So we think it's difficult to use these analysis results alone as absolute data in developing our future strategies. Enrichment of disclosed data, data accumulation and continuous analysis, et cetera, will enable more robust analysis. So through various analysis, we'd like to analyze non-financial activities, which could impact our enterprise value going forward so. Next, Page 20, this is my last page. Let me summarize the results of the 2 initiatives I explained today in association with the [ Logic 3 ]. First, I explained the results of monetary evaluation of the Beauty and Health program in Malaysia, one of the initiatives for strengthening health systems. We quantified the social impact which could not be visualized before. And it was suggested that social value of $4.6 million could be generated from an input of $1 million. Secondly, in our initiatives for human resources and organization and initiatives for strengthening corporate governance among Astellas financial activities, we identified initiatives with connection with market cap which represents our enterprise value. Analysis results using 4 models, unique to Astellas, suggested that 4 human capital indicators and 2 corporate governance indicators have connection with market cap. We try to consider nonfinancial initiatives we should refer to while aiming to enhance our enterprise value going forward or so. Next up is the last part of company presentation. Director, Takashi Tanaka, will talk about updates on Astellas Corporate Governance. Tanaka-san, please.

Hello, everyone. I'm Takashi Tanaka, an Outside Director. I serve as the Chair of the Nomination Committee and the Chair of the Compensation Committee. I will talk about FY 2024 corporate governance updates at Astellas. Today, Ms. Mika Nakayama, another Outside Director is also in attendance. She will respond to questions later during the Q&A session. Page 22. I became an Outside Director at Astellas in June 2021. In June 2023, I took office as the Chair of the Nomination Committee and the Chair of the Compensation Committee. Ms. Nakayama became an Outside Director in June 2022. She has served as the Chair of the Audit and Supervisory Committee since June 2024. Page 23. As the first topic, the ratio of female directors on the Board of Directors increased from 27% as of June 2023 to 45% as of June 2024. At present, we have 11 board members and 6 of them are male and 5 are female. Astellas agrees with the challenge of 30% by 2030, proposed by [indiscernible]. We have worked on initiatives to enhance the ratio of female directors and promote the diversity on the Board of directors. The Japanese government set the numerical target of 30% or higher as the ratio of female by 2030, in its intensive policy for gender equality and the employment of women 2024, the composition of our Board of Directors for FY 2024 meets this numerical target. The second topic is the appointment of an independent Outside Director as the Chair of the Audit and Supervisory Committee. In June 2024, Ms. Nakayama, who is attending today took office as the Chair of the Audit and Supervisory Committee. Up until FY 2023, in-house full-time audit and supervisory committee members served as a Chair of the committee, but with the enhancement of support year after year from the audit and supervisory committee office established in 2020, the foundation has been established for independent Outside Directors to serve as the Chair of the committee. This fiscal year, and independent Outside Director was appointed as the Chair for the first time, making the independence of the audit and supervisory committee even clearer. The third topic is to further enhance independent Outside Directors objective oversight. I will explain the details on the following pages. On Page 24, I will explain our new initiatives by independent Outside Directors, the establishment of EPM, Enterprise Priority Monitoring Group. In order to further make sure of a midterm growth, we have set and are working on the 3 enterprise priorities, the so-called CEPs which are closely aligned with our performance goals in the corporate strategic plan, CSP 2021. In order to further strengthen the independent Outside Director's objective oversight of the 3Ps in their objective capacity, EPM hasn't established. EPM has 3 objectives. First, deepening the understanding of independent Outside Directors regarding the current status and outlook of our initiatives. Number two, achieving enhanced monitoring of the progress by the Board of Directors. Number three, exchange and coordination of opinions for the independent Outside Directors to provide oversight and advice as the Board of Directors. All independent Outside Directors are EPM members. I, Tanaka, serves as a Chair, Ms. Nakayama is the Co-Chair. Activities started from November last year. And we plan to continue activities until the end of FY 2025 when the ongoing CSP 2021 period will be over. In principle, our meeting will be held on a monthly basis. Next page, please. Page 25 shows an overview of our governance structure including EPM. EPM is a new initiative we have launched within the existing Outside Directors meeting, which we call [indiscernible] in Japanese. Outside Directors' meeting, [indiscernible] is attended by independent Outside Directors only. It supports an open and constructive exchange of opinions among Outside Directors. It's held monthly. It also serves as an opportunity for direct communication with the full-time audit and supervisory committee members and external financial auditors as well. EPM has been newly launched based on this meeting. To the Board of Directors overall progress of CSP 2021 is reported by management and is supervised by the Board of Directors. The progress of the 3 enterprise priorities, 3 EPs of particular importance is reported by management to EPM. In their objective capacity, independent Outside Directors deliberate these matters. If there is a need for advice based on expertise, we would also consider using external advisers. By reflecting those discussions on the Board of Directors, deliberations and supervision, we are further enhancing Outside Directors objective oversight. That's all for me about corporate governance update. During the upcoming Q&A session, in our capacity as an outside director, I together with Nakayama-san will respond to your questions. Thank you very much.

Thank you very much. This is all as a presentation from the company side. Now we would like to entertain your questions. [Operator Instructions]. Now please start.

The first question is from Hashiguchi-san, Daiwa Securities.

Hashiguchi speaking. The first question is about the submission activities for [indiscernible]. And there, you explained about the acceleration of the speed. If the quality is the same, of course, speed up is really welcome. But when it comes to by [ LOI ], FDA provided to you the notification of the completion of the review, but gaining the actual approval was delayed. As for the recent case, in the case of IZERVEY the change of the package insert took place because of the question about the result of the statistical analysis, which leds to the delay. Of course, there are outside factors, not only your internal factors. For example, it seems that you had the causing factors outside of your company. But including the management for the outsourcing partners. I just wonder if this is speed up or acceleration in sacrificing the quality. Would you please elaborate more on this point?

Thank you very much for your question. First of all, the speed up might sacrifice the quality. That is exactly what we are paying attention on to. Earlier is not always the better. So of course, earlier is better. But at the same time, I would like to enhance the quality. On the other hand, the cases that you pointed out [indiscernible] or IZERVEY have complete responsible rate from FDA is we received and first of all, [ by LOI ], the other party, audit issue happens among the outside manufacturing companies. That was the cause. So CRA is given to us because of the acceleration of the speed. It's not really the case. And we've been conducting the discussion with the FDA in the case of IZERVEY. The final conclusion was that CRL, which was a great surprise for us in ideal like situation, if it is necessary to revisit and redo once again, then there should have been the pre-dialogue with the authorities. So this is not because of the speed up. That's what I think.

Next question is about the setting APM. Probably, I was not understanding it quite well. And you have the conventional [ Sotoyakai ] or Outside Directors meeting. But what was missing there? Now you have this EPM, with having this EPM compared to the past? What would be the addition. Would you please explain about the more? And you introduced this kind of new system. That's -- probably you might feel that the conventional Outside Director's meeting might not be sufficient. You might feel in that way, that's why you decided to set up EPM. Would you explain about the background?

Tanaka speaking, Hashiguchi-san, thank you very much for your question. First of all, about the objectives of setting APM, I believe you see the slide here now. And on this slide, you see the 3 company-wide priorities. And within the Board of Directors meeting, we've been discussed that we have to do that the further thorough tracking will be necessary. The conventional Outside Directors meeting, the discussion and coordination for a wider perspective. But when it comes to EPM, we prioritize the 3EP. So we specialized in 3EPs for their discussions and that result is going to be fed back to the Board of Directors meeting. That is the objectives of this meeting. So the function of [ Sotuyokai ] Outside Directors' meeting is insufficient. That might be the question. But in EPM, in a more intensive fashion discussions will be performed to deepen the understanding and perform closer monitoring. So I hope you understand. And also, if you look at this diagram on the left, as you can see there, where necessary, external advisors with expertise may be asked to give us their advice. So that, I think, is a difference. I hope you understood.

The 3 EPs. What are the 3EPs, that described somewhere?

On this screen, on the right, you can find the 3EPs are. This is the 3EPs.

Next, Wakao from JPMorgan Securities.

Wakao from JPMorgan speaking. I have 2 questions. First, on Page 11, I have a question. Engagement score was down. And you talked about the action to be taken. But can you take countermeasures sufficiently? And cost reduction program will be performed. So there would be further transformation and organizational capabilities can be maintained sufficiently. Because of the cost reductions, no more risk of further reduction. On this page, regarding the change communication, this score was the biggest issue to be addressed. I wonder where it's described. This will lead to an improvement. So I was not clear. So could you please explain? And including the data in 2021, there was a peak in 2023, and there's a decrease in 2024. So for the past one year, anything happened. Transformation was ongoing. So I was concerned about the decline in the past year. So what happened? And cost reductions and additional transformation will occur. Can you maintain organizational capabilities? That's something I also would like to know.

Thank you for your question. Today, Sugita is not attending. So I'd like to respond from my side, first of all, engagement score, in the current fiscal year was down, there are multiple various factors behind. As a cost of it, transformation did not start just this year, we are doing transformation all the time. On the other hand, Global Engagement Survey timing and various measures to be shown to employees. And the timing, Global Engagements Survey, as you know, perhaps depending on the countries. There is a difference in the trend of the scores. The results may be built in some countries are not so much in other countries because of the employee mix, there can be a variability in the scores as a tendency. And also regarding the questions, regarding the transformation, communication and transformation, regarding those questions. Because we hear such an opinion, this was added. This question was added in 2024. So can we evaluate all the scores equally? Not necessarily, as part of the assumptions I'd like to explain. Various transformations, in particular, cost reduction will have an impact on organizational capabilities. The details of transformation and in implementing the transformation, the leaders will take the lead, how they're going to take a lead. It will depend on those aspects. So it should not be the cost reduction for the sake of cost reduction. It doesn't make sense. So companies capabilities must be maintained or even enhanced based on such assumptions, we try to curtail and optimize our cost. And that's what we mean by cost reduction. So there are 3EPs. The third one is sustainable margin transformation. It must be sustainable. That's the assumption. It's not just me and cost reduction for any items. Sustainable margin transformation, and I talk about it, most of the people say we are going to reduce the headcount. No, that's not the case. Clinical studies were mostly performed by depending on CROs, but we are now on the way to do it in-house. Large clinical studies if you are to do so, it's more efficient to ask a CRO to support us. But if you look at the current future portfolio, we can do this on our own. We can communicate with investigators directly then that's good for the studies per se. And also, we can enhance the understanding of products. So we had a conclusion that it's better to do this internally. So by having the development work internally, we need more people and personal cost would increase, but we can reduce outsourcing costs for CROs. On a net basis, the margin will be higher. So that's what we mean by sustainable margin transformation. So our transformation, growing organization capabilities overnight or change fatigue, so to speak. Because of a transformation one after another people may be fatigued, we hear such a voice. So we have to capture such voice and take necessary measures. There should be more damage on the organization. And we shouldn't lose the capabilities we have. So we have to be very careful in doing this.

Understood. In that case, there is the transformation factoring kind of ongoing one. But as of this moment, it is okay, not thinking about. It is okay, not going down further from this status as though there is a voice of the transformation fatigue. Yes, we are going to work on that to avoid such a situation. Well, no explanation today, but I would like to ask you about the supply chain. More specifically about the tariff in the United States, plus 25% for the pharmaceutical products as well. And as for this point, is there any impact to Astellas? And once this 25% tariff is -- becomes realistic in real, do you think you can counter with this situation, and you can minimize the impact of that.

Thank you for the question. I don't know if it's all of a sudden, but relatively speaking, only recently that discussions got started. So we are going to do the further elaboration on that. We are more complicated global operation. So it's not really the situation whether we produce the products on local, and that is used at the same local area. So some products are not produced in the United States. So the such products are imported from outside. And if the tariff is applied for that, then we have to, of course, think about the countermeasures for that. But for example, having the factory established in the United States, that kind of thing is we cannot do. So we are going to have some thinking about the supply chain and if there is some tariff is supplied, we do not bring that effect on to the price of the products of the customers, we have a lot of ways that we could think about. Well, we've closed a certain factory in the United States. So in order to deal with this tariff situation, all the products still are going to be produced within one factory in the United States. Of course, that is not happening as Wakao-san you know. So we are not thinking about dealing with the situation in that way. I see. So this is not the financial call. So this might not be the right place to ask you, but qualitatively, there might be certain if this tariff is applied. There might be a certain impact. Well, in this meeting, I cannot say how big or the small or the impact would be or the amount is bigger or lower. Maybe it will be explained in other opportunities.

Next question is Mitsuhi [indiscernible].

[ Koguchi ] is speaking. Can you hear me? So taking this opportunity, I would like to ask a question to Iino-san. Social impacts, monetary variation is, where I got impressed. But this is JPY 680 million. That is the amount of the social impact. How can I interpret this? The output outcome against the input and quantification for that -- in that sense, I understand about this. But this absolute monetary amount, how should we interpret that? How do you want us to interpret? Would you please explain about it? That's the first question from me.

[ Koguchi-san ] thank you very much for your question. That is a very important point in a question. As I've explained in the presentation, so far, to the countries or the regions where the health care is fragile, we provide the support so that the health system can enhance. And for the purpose, the donation is done multiple times from Astellas. Yes, we do such kind of activities and initiatives, but we don't know. We didn't know the impact of such a donation, of course, we have said, thank you very much. It was useful, but actual monetary amount as the contribution from us and to what extent of value that is linked to do is not visualized because we wanted to see that, for the first time, we decided to this calculation. So it's about JPY 160 million is the investment that we've done, and this is the activities for 5 different types of the cancers and this calculation this time is focusing only on the colorectal cancer. We focused on this because the data is relatively available in the market for the calculation. Annual result, this is [indiscernible] of the result. So with this support, in Malaysia, we were able to realize a positive impact, and that was visualized in that sense, this is meaningful that we think -- in that sense, 4.6x of the impact, you had certain effect, which you think is, in fact, important and you want to start understand that point. Yes. I hope you understand that way.

Understood. You will increase tumor types and programs in other countries, you're going to do something similar. Personally, I hope so, but the available data cannot be found so easily in the world. Without such data, even if I want to do this, I cannot. That's the reality. Understood. So it may be up to the judgment by CEO, perhaps. Next number 2, the relationship between the nonfinancial indicators and market cap. The percentage of female managers in this way, you found a relationship or connection. The ratio of female managers in Japan is low, which is a challenge for you. Because of this supporting data, you're going to work on this more. So are you declaring such intention.

Thank you for your question. Let me respond. Of course, in Japan, the ratio of female managers in Japan is still low. That's the actual situation. So we will continue to make efforts in this regard. On the other hand, appointing female to managers because they are female or if there are male and female candidates selecting female candidates with priority. No, there should be equal opportunities between both genders, when we appoint them, the individual capabilities and the past experience and their motivation for work would be evaluated fairly to determine whether we will appoint them to certain positions. The ratio of female managers -- in order to increase the ratio, increasing the number of female managers should not happen. So we shouldn't put the card before the horse.

Lastly, I'd like to let me know how to break this. The average remuneration Page 2 directors, there was a positive correlation there. But the remuneration may be very big, but a market cap may not increase for certain companies. How should I think -- how should I read? I'd like to hear your view.

Right, 1,700 companies listed on the Tokyo Stock Exchange prime market were analyzed, and these are the analysis results. So among them, as [indiscernible] said, some may not match these results, but as a result of the data analysis, these were the outcome we saw. And as I mentioned, when I talked about limitation, the number of data, even if we collect data from 1,700 companies, it's not rich. Just for 11 years, we have to increase our data further. Otherwise, we cannot say anything accurate. Thank you very much for challenging initiatives.

Next [ Asset Management ] Yatsunami-san, please?

Today I have 2 questions to you. First, as [indiscernible] asked on Page 16, financial indicators on the enterprise value, you analyze the relationship and thank you for sharing the results. According to the explanation, there's still some limitation to the available data. So based on this, reflecting this onto your corporate strategy, you cannot do so yet, as I understood. According to your analysis by now, human resource capital, human resources and also corporate management, how you're going to turn this into KPIs, specifically? Do you have any idea?

So, thank you very much for your question. How to understand about the results of this analysis this time, well, the sustainability or digital divisions for them, they did a really challenging thing, and I recognized and acknowledged their efforts. But as for this result. From here, rather than that we did this result in order to identify what should be done or rather we wanted to review what we have done is really heading toward the right direction. So this is used as a verification of what we've done that has to be more sufficient or the method of the analysis should be more appropriate size. So those 2 are both sides of the coin. So in this situation, is it okay to make a further investment based upon this result. We haven't really convinced that level yet. So this might be the repetition, but start of control to be expanded so that we can have the flat organization. We thought that is important. And with that management percentage, is heading towards the opposite direction of the enterprise value. We learned that so at least what we've done is not a wrong thing. At least we were able to verify that. So please interpret this in that way.

I see, so to the capital market, so that you can have a certain KPI that can be shared with the investment market. Do you think you will make it?

Well, if we can capture even the smaller delta. In that case, this could be reflected into the KPI. It might be not really good to say about this in front of Iino-san [indiscernible], but this is a yes quantification, but it is not that precise. So we are not going to -- we think it's better not rush to reflect in this KPI.

Thank you very much. But sharing this result is really or is meaningful for the investors, because this is giving us the certain view. Now about Page 25, EPM, the outside advisors are going to be utilized, just like Tanaka mentioned, external advisors, so if it is possible, I didn't understand if you have done this already or this is about the future, but in what situation this external advisors are used, are going to be used? Could you share with us some specific examples?

Thank you very much for your question. Let me answer your question. First of all, EPM activities. Well, has got started November last year. Roughly monthly, we are having the activity. And if we may use external advisors or not, as of this moment, we didn't use the external advisors as you see as needed, so it's the situation. We have Outsider Directors in this number, and you can see the metrics here and people from various fields, the members, and when things are difficult to understand only by ourselves, then in the case as needed, we receive advice from experts, please do understand in that way. That's all from me.

When we look at this because you have pharmaceutical companies, so the scientific information for the pharmaceutical industry like M&A or development cases or transactions, if they are necessary to be discussed within the directors meeting, you might seek for the external advisors opinions of the advise. Is that the case?

Well, as of this moment, we haven't been that level of the specificity phase, there might be the possibility. However, but at this moment, we haven't identified specifically just like you said.

I understand. Thank you very much. That's all from me. Thank you very much.

Next question, Morgan Stanley Securities, Muraoka-san, please.

Hello, Muraoka from Morgan Stanley speaking. Engagements today, as -- the question earlier. In the appendix slide. Looking at those pages, I was really surprised. Page 27 and onwards specific items, individual items are shown. You talked about communication, which is new additional questions. So I was able to understand that. And also -- the trust in management and growth opportunities, and also the promotion policy, if I were the management, I would be shocked because of the decrease in certain items. Okamura-san said that there can be some items, which may change in course. A single survey will change the direction, that might be a question, but how do you perceive the survey results as management, maybe Outside Directors as well, how do you see these results? What's your perception. I would like to hear your view. Thank you very much.

We perform the survey. So we take the results very seriously, particularly there was a big change for some of the items. And in order to identify the causes behind by having subgroups, we have interviews and exchanging opinions as well. So as CEO, if you ask me whether I'm happy, no. But that does not start anything. So what am I going to do next? This should be seen as an opportunity for the next step? What can be improved further, is that something I'm considering every day. Then, how do I see perceive this from outside, [indiscernible] would like to comment on these results. Looking at the result, a reduction in score, including the management, we have to take it seriously. For the past 1 year or 2, HR measures and organizational change, looking at such a situation at Astellas, the responses reflect the candid opinion of the employees. If they face such a big transformation, if the score goes up, that's not natural from our side. So on a temporary basis, I think this is a natural flow or course among employees. And the management in order to improve the scores have to consider the measures to be taken, and they need to focus on the deep understanding and negative results or decrease are not so good, but I hope that they would come up with better measures for the future. Thank you very much.

As Mr. Okamura-san explained, there is some difference among different countries. I was able to understand it. But what about the particular difference among Japan, U.S. and Europe, leading to the differences. If you give me includes that would lead to better understanding next time. I don't have specific data at hand. So in my discussions with Sugita, please listen. This is based on my ambiguous memory, Japanese employees may account for majority. Japanese employees not just our company, but in an engagement survey like this, they are rather conservative. Even if they're happy, they may say, it's usual normal as a trend. But on the other hand, China and Latin America, Central and South America or Southern Europe tend to have a highest score and here is such a trend or tendency and if the sample size is at a certain level higher, we may specify who responded how. So we don't evaluate by groups or divisions, unless they have a certain number. If they have a bigger number of people, what happened in that group in that year may have an impact in sales and marketing, if there is something in sales in Japan that would affect the bigger group. So the results could be affected.

Thank you very much. Now I have a better understanding. Another question that is about the tariffs issue. That tariff issue was asked in the previous questions, and there was the answer about the absorption of that portion with the reduction of the cost and so on and so. Of course, I understand the situation is not clear. Nothing has been decided. But as to one of the countermeasures, you didn't mention about the increase of the price. Increase of the price is one of the important options. Of course, it's not easy to simply say about the increase of the price. But why didn't you say that?

Right, increase the price is not something simply and easily stated. So I rather would not refrain from talking about that today.

It's time. So with this, I would like to close this Sustainability Meeting 2024. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]