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

Thank you very much for joining FY 2025 First Quarter Financial Results Announcement Meeting organized by Astellas Pharma, Inc. out of your very busy schedule today. I'm serving as a facilitator today. I'm Chief Communications and IR Officer, Ikeda. Thank you for your time. After our presentation, we will move on to the Q&A session. We will present based on the presentation material posted on the website under IR meetings. Including Q&A session, we have simultaneous translation between Japanese and English. We cannot guarantee the accuracy of simultaneous translation. Thank you for understanding. [Operator Instructions]. This is the disclaimer today. This material or presentation by representatives for the company and answers and statements by representatives for the company in the Q&A session includes forward-looking statements based on assumptions and beliefs in light of information currently available to management and subject to significant risks and uncertainties. Actual financial results may differ materially depending on a number of factors. They contain information on pharmaceuticals, including compounds under development, but this information is not intended to make any representations or advertisements regarding the efficacy or effectiveness of these preparations, promote unapproved uses in any fashion nor provide medical advice of any kind. Today's participants, CFO, Atsushi Kitamura; CRDO, Tadaaki Taniguchi; Chief Commercial and Medical Affairs Officer, Claus Zieler. We have three members from our company. So we'd like to go into a presentation. Kitamura-san, please.

Hello, everyone. I'm Atsushi Kitamura from Astellas Pharma Inc. Thank you very much for joining our FY 2025 first quarter financial results announcement meeting out of a very busy schedule today. This is a cautionary statement regarding forward-looking information. As this was explained by Ikeda earlier, I'm not going to read this page. On Page 3, I will give you highlights of FY 2025 first quarter financial results. FY 2025 first quarter made an exceptional progress outperforming expectations off to a good start. In the first quarter, revenue increased substantially year-on-year with underlying growth of 12%, excluding ForEx impact. Strategic brands significantly drove overall revenue growth with underlying growth of 57%, excluding ForEx impact. As for SG&A expenses, thanks to the steady progress of SMT, sustainable margin transformation, our company-wide cost optimization initiative, SG&A ratio improved by 4.2 percentage points year-on-year. As a result, core operating profit increased substantially year-on-year with underlying growth rate of 69%, excluding ForEx impact. Core operating profit margin rose by 9.5 percentage points year-on-year to reach 28.1%. As for pipeline progress, ASP3082, a flagship program in primary focused targeted protein degradation achieved POC also in NSCLC following POC in pancreatic duct adenocarcinoma, PDAC. Furthermore, in order to enhance leading position in Claudin 18.2, we concluded an exclusive license agreement with EvoPoint. Page 4 is the agenda for today. From the next page, I will explain these topics. On Page 5, I will give you an overview of FY 2025 first quarter financial results. Revenue reached JPY 505.8 billion, up by 6.9% year-on-year. Core operating profit rose to JPY 142.3 billion, up by 61.1% year-on-year. The ForEx impact is shown on the right-hand side of the table. ForEx had a negative impact on both revenue and core operating profit. Underlying growth rate, excluding this impact, was 12% for revenue and 69% for core operating profit, demonstrating a stronger growth. The bottom half of this page shows our full basis results. In the right bottom of the table, we included other expenses booked in the first quarter. In response to the termination of certain Xyphos-related programs, we reviewed asset value and booked impairment loss of JPY 11.5 billion accordingly. In the end, operating profit was JPY 94.6 billion, up by 86.8% year-on-year. Profit increased to JPY 68.4 billion, up by 82% year-on-year. On Page 6, I will explain FY 2025 first quarter results of our main products. Sales of strategic brands driving our growth, namely PADCEV, IZERVAY, VEOZAH, VYLOY and XOSPATA exceeded JPY 110 billion in just 3 months, substantially up by JPY 36.7 billion or 49% year-on-year. Underlying growth rate, excluding ForEx impact, was 57%, showing a strong growth. Due to high profitability of these brands, they not just contributed to revenues, but also made a great contribution to profit growth on a consolidated basis as a whole. We're expecting this positive growth momentum to continue throughout FY 2025. Let me also explain individual strategic brands. I will explain the details of PADCEV, IZERVAY and VYLOY on later slides. Global sales of PADCEV increased to JPY 55.5 billion, up by JPY 17.1 billion or 45% year-on-year. Robust growth momentum was achieved across all regions with overall progress in line with our expectations. As for IZERVAY, sales were JPY 15.9 billion, up by JPY 3.2 billion or 25% year-on-year, achieving record high quarterly sales. IZERVAY has returned to growth trajectory after temporary growth slowdown in the second half of last fiscal year. Global sales of VEOZAH expanded in line with expectations to reach JPY 9.6 billion, up by JPY 3 billion or 46% year-on-year. We're expecting steady growth moving forward as well. With regards to VYLOY, global sales reached JPY 14 billion. It has made an exceptional start, exceeding expectations, raising prospects for potential upside. Regarding XOSPATA, global sales reached JPY 17 billion. Underlying growth, excluding ForEx impact, was 3%, making steady progress overall. As for XTANDI, global sales increased to JPY 233 billion, up by JPY 8.7 billion or 4% year-on-year with solid performance across all regions. With regards to IZERVAY, we organized an online meeting for investors and analysts on the 10th of July Japan time. But I'd like to explain IZERVAY's first quarter progress in the United States once again on Page 7. Sales of IZERVAY rose to USD 110 million, up by $29 million or 35% year-on-year. After a temporary growth slowdown seen in the second half of the previous fiscal year, first quarter sales increased by 22% from the previous quarter with a return to growth trajectory. IZERVAY has continued to establish its position as the #1 chosen treatment for new patient starts with GA, geographic atrophy, new patient start share is estimated at about 55% as the last 6 months average. This figure is calculated based on the insurance claims data, which represents patients actually administered with IZERVAY. So we believe this reflects the real situation. IZERVAY is now available in over 2,000 retina accounts, over 70,000 patients have been treated since launch. As we explained during the online meeting, in order to unlock GA market potential, we are promoting 3 drivers: educate retinal specialists, educate patients and educate upstream optometrists and ophthalmologists. Through these initiatives, we will further enhance GA diagnosis and treatment rates. We have been able to confirm that the solid growth trend is continuing also in July. We are expecting continued high growth in each quarter ahead. Also, treated target patient population is expected to rise from the current 15% to over 35% by FY 2029. On Page 8, I will explain business update for PADCEV and VYLOY. First, about PADCEV. First-line metastatic urothelial cancer, MUC, is driving growth across all regions and robust growth momentum has continued since last fiscal year, particularly in ex U.S. region, first-line MUC uptake is progressing well. Sales rose substantially by 113% year-on-year. Also in the United States, underlying demand increased solidly by 12% year-on-year and by 7% quarter-on-quarter. The NCCN guidelines, which many physicians are referring to when they determine their prescription were updated in March this year to position the combination therapy of PADCEV and pembrolizumab as the only category 1 therapy in MUC as the first-line therapy with the highest recommendation level, which is also supporting the solid growth. First quarter sales include onetime inventory channel load benefit in the United States and China, both of which are in line with our plan. We are maintaining strong underlying growth, even excluding this impact. Overall, we are making progress as expected. Next about VYLOY. Overall, we have made an exceptional start exceeding our expectations, raising prospects for outperforming the initial forecast. Thanks to our activities to proactively raise awareness and disseminate Claudin 18 testing, the testing rates are above benchmark for other biomarker tests. In addition, through appropriate information provision about potential AE management, discontinuation rate is also lower than our assumptions. These factors are contributing to the overall positive progress. We are also continuing to expand footprint steadily with launches in 25 countries by now. Particularly among them, VYLOY was launched in June in China with a big gastric cancer market. China launch was off to a strong uptake, reflecting high unmet medical needs there. Aiming to ensure stable sufficient supply, we made strategic inventory build in the first quarter. VYLOY is still in its initial stage after launch, but its progress to date is substantially exceeding our assumptions. We have high expectations for its further growth potential in the future. On Page 9, I will explain cost items. Overall progress in costs as a whole was on track. Cost optimization through SMT has made steady progress. We realized cost optimization of about JPY 6 billion in total for SG&A expenses and R&D expenditure combined. Excluding U.S. XTANDI co-promotion fees, SG&A expenses decreased by 7.7% year-on-year. Excluding ForEx impact, SG&A costs fell by 2.6% from the previous year. SG&A ratio was 26.5%, improving by 4.2 percentage points year-on-year. As SMT progress, we realized cost optimization of about JPY 3 billion through continuous global organizational restructuring, reduction of mature product-related expenses and streamlining IT infrastructure, et cetera. In addition to investments to maximize the potential of strategic brands, we will continue to make investments needed for SMT execution in order to realize further cost optimization. R&D expenditure decreased by 17.4% year-on-year. Excluding ForEx impact, it was down by 13.2%. As a main factor behind, we made progress in outsourcing cost reduction through in-sourcing development capabilities, including clinical trials, et cetera, under SMT, which led to cost optimization of about JPY 3 billion. Furthermore, due to the completion of large clinical studies, clinical development costs for strategic brands decreased by about JPY 3 billion. In addition, onetime co-development cost payment booked in the first quarter of FY 2024 was another factor for cost decrease year-on-year. In the second quarter onwards, we will expand the investments aligned with further expected primary focus POC achievements and enhance our in-house capabilities. So we are expecting cost increase. From here, I will explain our pipeline progress. On Page 11, I will explain the progress of strategic plans, key events expected in FY 2025. Updates since the last financial results announcement are shown in blue. Regarding IZERVAY, we had Phase II study top line results data readout in Stargardt disease, where primary endpoint was not met. We will analyze the data in detail and determine our future direction. As for PADCEV, we comprehensively reviewed the data obtained so far from Phase II EV-202 study in head and neck cancer and other solid tumors, except for urothelial cancer, Phase I EV-104 study in NMIBC, non-muscle invasive bladder cancer. As a result, we decided to terminate our development for additional indications. Please note that the current peak sales forecast for IZERVAY and PADCEV do not include contributions from these indications. Therefore, we would like to emphasize that the results of this study are not expected to have an impact on the mid- to long-term sales outlook for other products. As future events, IZERVAY is awaiting regulatory decisions on its JNDA expected in the third quarter of 2023. PADCEV is expected to have a readout of the interim analysis for both the Phase III EV-303 and EV-304 trials targeting MIBC in the second to fourth quarters. VYLOY is expected to have a readout of the final analysis from the Phase II GLEAM trial for pancreatic ductal adenocarcinoma or PDAC in the second quarter. We will notify you of any future update when necessary. Other updates include the initiation of the Phase III Lucerna trial evaluating the Lucerna study rather evaluating the efficacy and safety of VYLOY in combination with pembrolizumab and chemotherapy with the first subject dose in June. Page 12 provides an update on progress in the focus area approach. For each primary focus, progress made since the previous financial results announcement is highlighted in blue. ASP3082 in a targeted protein degradation has achieved proof of concept in non-small cell lung cancer. This marks the second POC achievement following the PDAC. The next slide will provide an overview of the overall progress of the primary focus. As for ASP2138 in cancer immunotherapy, Phase I trials for POC judgment in FY '25 is ongoing with initial clinical data expected to be presented at ESMO in October. ASP7317 for blindness and regeneration has published initial clinical data in May. Further details will be provided later. The current status of other program is summarized in Slide 28 of the appendix. Page 13 provides an overview of progress in primary focus of targeted protein degradation. The flagship program, ASP3082 has successfully achieved its second POC based on data from a Phase I trial in non-small cell lung cancer second line and after. In conjunction with PDAC, discussions are ongoing to the early registration studies. The time line for POC judgment for colorectal cancer remains unchanged with the second half of FY '25 targeted. We aim to present clinical trial data by the second half of FY '25. Following the POC achievement of ASP3082, we are actively advancing research and development of subsequent programs. ASP5834, the third line from the top was developed as a pan-KRAS degrader targeting various KRAS variants. In July, we obtained IND approval, enabling us to begin trials, aiming the first patient dose in the second quarter. We will provide further updates as they become available, including other programs. Page 14 describes the progress of ASP7317. ASP7317 is being developed as a replacement therapy for retinal epithelial pigment cells targeting the same indication as IZERVAY, GA secondary to AMD. The estimated number of GA patients worldwide is reported to be about 5 million. Currently approved drugs are limited to complement inhibitors and slowing disease progression of GA has been reported. ASP7317 is a direct replacement of retinal epithelial pigment cells to damage areas from outside of the body, potentially maintaining or restoring visual function. Currently, a Phase Ib clinical trial for patients with GA patient is underway and the initial data from this trial was presented at the Congress in May. Regarding safety to date, no intraocular inflammation has been reported in patients dosed with ASP7317 and no signs of cell rejection or graft failure have been observed. Regarding efficacy, the graph on the right shows the change in best corrected visual acuity, or BCVA, over time in patients with a severe visual impairment following single dose of ASP7317 at an intermediate dose. Red indicates the study eye, the eye that received the transplantation and blue indicates the fellow eye -- the other eye that did not receive the drug. During the 26-week observation period, study eye showed a trend toward improved BCVA compared to the follow eye -- fellow eye rather. Although the current data is limited to only 3 cases, we are proceeding with the planned enrollment of additional cases and remain on track to judge a POC in the second half of FY '25. Page 15 is explaining the exclusive license agreement with Evopoint, which we announced in the press release in May. Under this agreement, Astellas has obtained an exclusive license for the development and commercialization of XNW27011 worldwide, excluding Mainland China, Hong Kong, Macao and Taiwan. Note that Astellas has assigned the development compound number, ASB546C to this asset, and this number will be used in future descriptions. The upfront payment under this agreement is $130 million, and the development milestones to be paid in the near term may be up to $70 million. Depending on the progress of the program, there may be additional milestone payments or royalty. ASP546C is an antibody drug conjugate or ADC targeting Claudin 18.2. The payload is a proprietary topoisomerase 1 inhibitor with an average drug-to-antibody ratio of 8. The linker that connects antibodies and drugs is MediLink's proprietary technology and is designed to be specifically clipped within tumor tissue. The FDA has granted fast track designation for gastric cancer and a Phase III trial has recently commenced in China under the leadership of Evopoint. Astellas is currently planning to initiate a global Phase Ib/II clinical trial. The figure on the right shows preliminary efficacy data from the Phase I/II trial currently underway in China in patients with gastoric GEJ adenocarcinoma. In this study, cases where 5% or more of tumor cell sustained by immunohistochemistry were classified as Claudin 18.2 positive. Compared to the reference value of 75% for VYLOY, patients with lower expression levels are also included for this study. As shown in the table, doses exceeding 3 milligrams per kilo response rates exceeding 60% and disease control rates approaching 90% were observed. As shown in the figure, tumor regression was observed in most patients. The common treatment-related adverse events were hematologic and gastrointestinal disorders. Astellas has established a leading position in Claudin 18.2 targeted therapy with VYLOY and ASP2138. Through this collaboration, we have acquired a promising asset that further enhances this position. Going forward, we will validate the efficacy of ASB546C in global clinical trials. Page 16 will explain the characteristics of each asset targeting Claudin 18.2, including ASB546C, which was explained earlier. VYLOY is a monoclonal antibody that binds to Claudin 18.2 on surface of cancer cells with an antitumor effect by activating immune cells that attack cancer. Clinical trials have demonstrated prolonged survival when used in combination with chemotherapy. For VYLOY as a first-in-class drug, activities promoting awareness of Claudin 18 testing have been executed and it is aimed to become the standard of care for Claudin 18.2 positive gastric cancer. However, treatment is currently limited to patients with high expression accounting for approximately 40% of gastric cancer patients. ASP2138 is a bispecific antibody that binds to Claudin 18.2 and CD3 on the surface of T cells. And like VYLOY, its antitumor effects depend on immune cells. By binding to CD3, it is expected to enhance the immune response by bringing T cells and the Claudin 18.2 expressing cancer cells into close proximity. Based on this MOA, if high efficacy is demonstrated in the future clinical trials, it may be possible to expand the target population to include all Claudin 18.2 positive patients, including those with low expression. Additionally, subcutaneous administration is currently being evaluated in clinical trials and if its usefulness is confirmed, it could provide more convenience for patients and health care institutions compared to IV. ASP546C is an ADC that [ exhaust ] its antitumor effects through the direct action of the payload it carries. As shown in the previous slide, preliminary clinical data indicates a promising antitumor activity as a monotherapy. If further clinical trials are conducted globally and favorable data are obtained, we anticipate that chemo-free enrichment may become possible. Furthermore, preliminary clinical data suggests that Claudin 18.2 positive patients, including those with low expression may be eligible for this treatment. We also believe there is potential to expand the indication to other tumor types beyond gastric and pancreatic ductal adenocarcinoma. As a frontrunner in Claudin 18.2 targeted therapy, we aim to maximize the value of VYLOY and through advancing the development of ASP2138 and ASP546C, we aim to provide multiple treatment options for a broader patient population. Page 17, summary of today's presentation. The first quarter of fiscal '25 showed exceptional progress outperforming our expectations. We expect the positive momentum to continue throughout FY '25. We expect our key strategic products to have continued strong momentum to drive overall revenue and profit growth. For the focus area approach, we will advance further POC judgment and flagship programs. We will accelerate research and development of primary focus, including for programs in line with POC achievements. As for SMT, we will continue to pursue further cost optimization to generate growth investment and improve profit margin. Through these initiatives, we aim to achieve further profit growth throughout FY '25 and enhance the value of our pipeline serving as a foundation for sustainable growth. While we have not revised our full year focus in this earnings report, we plan to review our full year focus in the second quarter earnings report, taking into account the strong performance through the first quarter and the progress for the future. That's all from me. Thank you very much for your attention.

[Operator Instructions] First, Mr. Yamaguchi from Citigroup Securities.

Yamaguchi from Citigroup Securities. Can you hear me?

We can hear you. Sorry.

I'm Yamaguchi from Citigroup Securities. I have a few questions. Mr. Kitamura, you had a summary at the beginning and at the end. Q1 progressed very well. As for the cost, you said the cost was in line with the expectation. As for revenue, it was also in line with the expectations. There is some inventory build for some areas. Even excluding those factors, Q1 progress was very good as it seems. Is my understanding correct? Excluding special factors, is that in line with your assumptions or not? And you also talked about Q2. Could you explain once again?

Yamaguchi-san, thank you very much. First of all, first quarter was very strong. At the same time, overall, this was in line with expectations, but there are areas which is better than expected by VYLOY global performance, the speed of uptake. XTANDI was also very strong in its growth. On the cost side, in reality, SMT worked on certain measures, and we are harvesting its effectiveness ahead of the original schedule. So compared to our original forecast, this is working positively and better than expected according to analysis.

As for XTANDI, Medicare policy change could be affecting the product. And since Q4, there was a numerical guidance. Including such impact, you're still growing the actual volume and the impact compared to the full year forecast, you are progressing well. So including the change of the policy, what about XTANDI's progress?

First, I'd like to briefly give you a whole picture of XTANDI. And if there's anything additional growth could mention. XTANDI is performing well, not just in the United States with Medicare Part D impact, but also globally as well. Our business is expanding with XTANDI. So that's the basis. Of course, in the United States, Medicare Part D impact exists. What's going to happen to the price is one question. But patient affordability issue, demand is very robust. In combination of these factors, we are maintaining the good performance. Claus, if you have any addition, please go ahead.

Yes. Thank you, Atsushi. And to your question, Yamaguchi-san, we're seeing a very strong performance of XTANDI across all geographies. And that continues to be driven, we believe, by our EMBARK data that we published about 2 years ago and that positioning of XTANDI as most probably the most effective molecule in this disease area and certainly the one where we can claim to say that it has the broadest indications that is just driving acceptance of XTANDI. Now as Atsushi just said, in the United States, of course, we have a special situation the Medicare Part D, we have to give a higher discount to the Medicare system, right? So our gross to net is impacted by that reform of the Medicare Part D design. However, what we are seeing is almost an acceleration of the volume growth, which has been strong, as you know, over the last 2 years already on the back of the EMBARK data also in the United States. But with the Medicare Part D, essentially, the Medicare Part D is doing what it was designed to do. It is lowering the co-pay that patients have to afford out of pocket. And it is allowing patients to take that co-pay and spread it over 12 months rather than having to pay it at once. That means more patients are able to access XTANDI from an affordability point of view that were not really able to access XTANDI before. And they probably went into generic options or a PAP program before. But that is why we're seeing paid demand on XTANDI growing so significantly in the United States. So just as a number, the Q1 growth of paid demand for XTANDI was 33% versus the same quarter of the previous year. That's a very, very high growth rate of paid demand that we've always been in the 20s in the last quarters, but this is the highest we've seen recently.

And the tariff factor is factored into a certain extent. That's my understanding. So as manufacturing is expected to be increased and that trend is likely to continue. So now new initiative in order to increase the production in the United States, what are the other things that they are trying to be done. But as Astellas, is there anything you're trying to do?

Thank you very much for pointing that question. Well, including the U.S., there's a lot of discussions ongoing. And currently, internally, we have task with teams to collect the information, analyze them and coming up with several potential scenarios. So that we can discuss over those scenarios and the potential situations. I cannot tell you any specific numbers, but for our U.S. business is extremely important. And to a certain extent, we are producing products in the United States. So for the future, new products, where they are going to be produced. But when you think about it, you have to think about the situation in the United States. But at this moment, nothing is fixed. So we are not sure what kind of scenario is actually happening. So I'd rather refrain from making a specific comment. But of course, we are discussing about it internally.

JPMorgan Securities, Mr. Wakao, please.

JPMorgan Wakao is my name. Can you hear me?

Yes.

This might be the follow-up question of Yamaguchi-san. First of all, in the second quarter, you are going to collect more information. So top line, I think you made a detailed explanation. And when you are answering to Yamaguchi-san's question for the cost from other phase you are going to harvest more specifically, R&D, SG&A, what is it against the full year plan? And against the full year plan, what is likely to be if you go in this phase? As for the tariff in EU for the pharmaceutical products, it is 15%. You produce products in Ireland. So that percentage is lower than the conventionally expected. So could you make some comment about this? If it is possible, please answer how you are going to incorporate this factor in the revised plan.

Wakao-san, thank you very much. We didn't say the upward revision at all. But for the SG&A, we are harvesting the outcome from SMT and to what extent it is reflected into the revenue and we use that as a fund to the second, third of quarter business for further investment. That kind of discussion is current ongoing internally. So there are the things that we have to push further or the things that we have to reduce further. So internally, we are very active discussing on those matters. For R&D, basically, in our initial plan includes the POC judgment that is coming in the mid- to later phase of the fiscal year. And depending on the timing, we need to think about the escalation if it is necessary. And after SMT, what we learned is that the areas that we can harvest as early as possible, we would do that, and that is the positive factors for us just like having a discussion with Taniguchi. For example, ASP3082, we were able to get the POC, even the second POC, how we can accelerate further. It's not something that we are going to cut everything through the effort, we come up with the certain savings that is going to invest further for further acceleration or it's going to be reflected into the bottom line. That is the under discussion these days. That is the response to your first question. As for the tariff matter, 15% in EU, that is the story that came up only recently. So is it really the true story or what would happen in the case of Japan. So we have to be cautious about such kind of information. If information is collected in the second quarter, we are going to reflect whatever needed to be reflected. So things that will be decided only after things all decided clearly. Till then, internally, well, we have downside. The downside is included for making the forecast. But against the buffer we have the impact will be plus or positive or negative, that is continuously monitored internally. But we see a clear picture, then we incorporate that and so that we can report it to you.

As a follow-up, fixed costs compared to your internal plan are lower, SG&A costs, others and R&D expenditure. As for the tariffs according to a recent media report compared to your assumptions, it's not going to be higher than that. Is my understanding correct?

For the other part of the question, I'm told I shouldn't mention this comment according to IR members. But it's not very much different from what you think because we are factoring in a certain level of risk, but not so much.

Okay. Fixed costs compared to your internal plan are lower than lower in the first quarter.

We are able to achieve reductions earlier than scheduled.

Okay. Secondly, IZERVAY numbers have been shared, and I was able to understand. What about the monthly trends? That's something I'd like to know. Gross sales on a monthly basis, there is something we can see in July or June compared to May, more than a 10% growth, particularly growth was seen in the month of July -- in June. In June, gross sales and net sales compared to usual, any gap. That's something I'd like to know. And our gross sales results, if you know, that trend is continuing also in July. Since July and onwards, based on the trend, net sales are also going to increase. Could you share anything?

Thank you for your question. The numbers Wakao-san is seeing, what are you referring to? What's the difference compared to our numbers is the question. For the details, it's difficult to respond. But on our end, also in July, we see growth still. That's what we can say. Claus, further comment, could you please?

Yes. So thank you for your question. I mean, I think there are a few things to note. First of all, this quarter was the strongest quarter for IZERVAY since launch. So the expectation that we set out in our last earnings call that with the label update that was accepted by the FDA in February, we would return to the growth curve that we had before the CRL, that is starting to bear out. And this quarter is the first positive data point that we're returning to growth. And as you can see, it's a very substantial growth with a 22% quarter-on-quarter evolution. So I think the overall trend picture that we had imagined is intact in terms of returning to growth. And as Atsushi said, the preliminary data from July further underlines that this trend is continuing and is in line with our expectations. Now when we look at demand, we actually had expected a slightly stronger picture in this quarter which is why we said in the previous IR call in early July, this quarter was slightly behind our expectations. And that's mostly due to inventory fluctuations. So inventory was a little bit lower. We had changed the distribution system, and we have gotten some returns because of that. So that's why this number is slightly lower than we had expected. But what's important is that the underlying demand trend is recovering from that CRL period where it had stagnated and is returning to the growth phase exactly as we had imagined.

Okay. Understood. Lastly, one more question about most favored nation status. I have a question on that. In reality, the target price, I don't know, it's U.S. government or any other organization, any contact with them about the target price? How do you see the most favored nation status in terms of the feasibility? Any comments from your side? That's all for me.

Thank you for your question. Regarding MFN, most favored nation, status. Based on the fact, on the 12th of May, an executive order was signed within 30 days, the targets or goals are going to be communicated according to the announcement. But as of today, from the U.S. government, we haven't received any notice or notification. And we haven't started any discussions with the U.S. government as of now. So that's the current status. What is going to happen in the future? As soon as we receive the notice, we examine the content and consider what to do. As of now, we haven't received any notice and we haven't started the discussions with the government yet. What about the feasibility? Whether that is going to be realized or not, what's your view? As of now, in the current stage, there's nothing I can comment. So please allow me to refrain from commenting.

Goldman Sachs Securities, Mr. Ueda, please.

Goldman Sachs, Ueda is my name. My first question is also related to the tariff. This might be a follow-up question. But currently, at Astellas, what kind of countermeasures are you doing? For example, for the United States, you are now building up the inventory. And also, you mentioned that for the future perspective, you are considering a lot of things, for example, changing the manufacturing size or you make the further investment to the U.S. United States. What kind of items are on your list for further consideration regarding tariff?

Thank you for your question. Of course, we are not just waiting without doing anything. For short-term perspective, what we can do, including the buildup of the inventory, what should be done at what point of timing? Well, in the ordinary S&OP process, we are working on that. The investment into the United States, Again, the U.S. is the biggest market for us, R&D, supply chain, including for those, we have a lot of business in the United States. So for those, what we can say is that conventionally, we are working for that. Then furthermore, what kind of lever we are going to now make use of what should be pushed at what point of time? For decision-making, there are still a lot of uncertainties. And unlike other industries, we cannot change supply chain so easily or quickly. So including that, we still are having the discussions internally.

Second question, that is about R&D, R&D costs or expenses. And in April, management system was changed. So that is also impacting for R&D cost, what kind of impact you experience? Well, R&D expenses from this level is quite low. And as we mentioned, if the POC of several projects are achieved, then it will be further accelerated. So is it online or it is still underperforming compared to your plan? That's what I want to know. In April, for the R&D primary focus, those are going to be integrated to have a new management system. So with this kind of organizational changes, what kind of impact have you experienced? If this new management is going to be steady state, then cost or expenses status is going to be further accelerated for a better situation?

Thank you for your question. So briefly, first, I'd like to talk about the cost of expenses. After that, Taniguchi is going to make a detailed question. As for costs or expenses, as has been pointed out, the foundation what we have is the reduction is better than we've expected or planned. So it's accelerated. That's a positive factor for us. On the other hand, we are going to accelerate R&D. POC were gained or achieved. Therefore, so that we are going to accelerate this further, we are going to spend -- save money for that. For the new organization, what has changed for that, Taniguchi is going to make a comment.

Now talk about the cost-related matters, including the current R&D organization. For the change of the organization this fiscal year from April 1, this new organization system was launched or started. And with that, as has been mentioned, primary focus lead research as well as development, they become one organization. With that, needless to say, certain synergy, including cost reduction was able to be achieved marginally. But this cost in the first quarter that is low, just like Kitamura explained. Last year, internalization of the clinical trials is ongoing. And with that, we were able to reduce the outsourcing cost and that is more than expected. I think this is the biggest factor. We have this much cost reduction effect. And also for ASP546C from Evopoint, we will develop a new development plan. And as has been said, ASP3082 in PDAC and lung cancer, we're going to accelerate such clinical studies as well. So towards the latter half of the current fiscal year, we would promote and accelerate development, which we'd like to focus on. And we'd like to allocate our costs in those areas under this structure.

Mamegano from BofA Securities.

Can you hear me?

Yes.

Mamegano from BofA. I wanted to ask a question about R&D. ASP3082 achieved POC in lung cancer for PDAC as well. And how you're going to proceed after POC achievement around when you can talk about the next stage. That's my one question first. And also, I have another question. PADCEV's NMIBC study is to be terminated. And what's the reason why? Earlier, you must have explained if that's the case, sorry, but I'd like to confirm.

Thank you very much. So I would respond. First, ASP3082, as you said, in PDAC and NSCLC, a POC was achieved in both indications. So we will publish the data from now. The abstract should be accepted first, then when to publish which data can be shared. Phase III registrational trial would be considered. Needless to say, we have to accelerate when, at what timing, what kind of studies should be initiated into the future. Once we determine our plan, we are hoping to explain. We are accelerating so that we can start early. We are making such efforts internally. So once such a timing comes, we'd like to explain. And as for PADCEV, non-muscle invasive bladder cancer, you're talking about, right? Regarding the study, we are working with Pfizer to implement the study. And the data is being finalized and we had a variety of discussions about the safety and efficacy and the data. And we also adjust the competitive situation right now comprehensively decided not to proceed with the development. That's the decision by Pfizer and Astellas.

Additionally, in the second quarter onwards, MIBC interim analysis results will be announced. There's going to be no impact on that part?

MIBC is already in Phase III. Enrollment is over and final events are being collected, and we are waiting for analysis results. Of course, regarding MIBC, it's not monotherapy, but combination with pembrolizumab mainly as a regimen. So regarding NMIBC, our termination decision in NMIBC would not affect MIBC indication.