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

[Interpreted] Everyone, thank you very much for joining this Q2 YTD FY 2025 Earnings Call by Astellas. I would like to serve as a moderator for today. I'm Chief Communications and IR Officer, Kato. Thank you for this opportunity. Today, first of all, we would like to give you the presentation. And after that, we'll have a Q&A session. On our website, presentation material is available. And in line with that, we are going to make a presentation. Including Q&A, we will provide you the simultaneous interpretation service between Japanese and English. For simultaneous interpretation service, we are not going to guarantee the accuracy of it. When it comes to the language for this meeting, you can select from the Zoom webinar screen. And if you select original, then you can listen to the original voices without hearing the interpretation voices. These are some notes. 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 the information currently available to management and are subject to significant risks and uncertainties. Actual financial results may therefore, differ materially depending on a number of factors. So please do understand about this. 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 or provide medical advice of any kind. Now I'd like to introduce your participants here. Representative Director, President and CEO, Naoki Okamura; Chief Research and Development Officer, Tadaaki Taniguchi; Chief Commercial and Medical Affairs Officer, Claus Zieler; Chief Financial Officer, Atsushi Kitamura. We have these 4 presenters here. Now first of all, Okamura is going to start the presentation.

[Interpreted] Hello, everyone. I'm Naoki Okamura from Astellas Pharma Inc. Thank you very much for joining our FY 2025 second quarter year-to-date financial results announcement meeting out of your very busy schedule today. This is a cautionary statement regarding forward-looking information. As this was explained by Kato earlier, I'm not going to read this page. On Page 3, I will explain the highlights of FY 2025 second quarter year-to-date financial results. Overall, we have made exceptional progress outperforming expectations. We have made a significant upward revision of our full year forecast. Driven by continued strong growth of our strategic brands, revenue increased significantly year-on-year with underlying growth of 12% year-on-year, excluding FX -- ForEx impact. As for SG&A expenses, thanks to the robust progress of SMT, sustainable margin transformation, our company-wide cost optimization initiative, SG&A ratio improved by 3.1 percentage points year-on-year. Due to the growth of the strategic brands and robust cost management through SMT, core operating profit rose significantly year-on-year with underlying growth of 57%. Core operating profit margin increased by 7.9 percentage points year-on-year to reach 27.4%. Based on this exceptional progress exceeding our expectations, we revised our full year forecast upward by JPY 100 billion for revenue, and by JPY 80 billion for both core and full operating profit, respectively. Regarding pipeline progress for PADCEV, we have unprecedented EV-303 study data in MIBC, muscle invasive bladder cancer. And our sBLA for additional indication was accepted in the United States. As for focus area approach, we obtained promising initial data with ASP3082 and ASP2138 and registrational studies are now under preparation. Page 4 is the agenda for today. From the next page, I will explain these topics. Page 5 shows FY 2025 second quarter year-to-date financial results. Revenue, core and full operating profit all increased by about JPY 100 billion year-on-year. Let me explain main items. Revenue reached JPY 1.030.1 trillion, up by 10.1% year-on-year. Core operating profit rose to JPY 282.6 billion, up by 54.4% 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, excluding this impact, was 12% for revenue and 57% for core operating profit, demonstrating a stronger growth. The bottom half of this page shows our full basis results. Operating profit was JPY 199.4 billion, up by 112.8% year-on-year. Profit increased to JPY 147.6 billion, up by 100.8% year-on-year. Page 6 shows FY 2025 second quarter year-to-date results of our main brands. Strategic brands grew substantially, driven primarily by strong growth in PADCEV and Vyloy. First, second quarter year-to-date sales of 5 strategic brands driving Astellas growth, namely PADCEV, IZERVAY, VEOZAH, Vyloy and XOSPATA exceeded JPY 220 billion in total, substantially up by JPY 66.2 billion, or 43% year-on-year. Underlying growth, excluding ForEx impact, was 47%, 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 are expecting the strong growth momentum to continue in the second half of FY 2025. Next, I will explain individual strategic brands and XTANDI. PADCEV, global sales increased to JPY 102.5 billion, up by JPY 27.1 billion, or 36% year-on-year. Robust global growth has been continuously driven by strong first-line mUC demand momentum. Regional expansion in the first-line indication is also making steady progress. First-line mUC approval expanded to 25 countries. We are expecting further expansion of countries with approval, as well as an increase in the number of countries where reimbursement will start. Mainly based on the robust progress in the United States and Europe and FY 2025 second half outlook, we revised our forecast upward by JPY 10 billion to expect JPY 210 billion on a full year basis. Next growth opportunity is expected from potential MIBC indication approval. EV-303 study in Cis-ineligible MIBC presented at ESMO the other day, demonstrated extremely promising results, exceeding our expectations. Based on these results, we already filed a submission in the United States. We're expecting contribution to sales post approval. Furthermore, based on this exceptional data exceeding our expectations, we are analyzing the possibility of any upside to our sales forecast, including peak sales. Also taking into account the status of EV-304 study for Cis-eligible MIBC, we will share our latest outlook as soon as we complete our analysis. As for IZERVAY, sales rose to JPY 34.1 billion, up by JPY 6 billion, or 21% year-on-year. On a quarterly basis, double-digit growth is continuously maintained, but patient affordability headwinds weighed on new patient starts and sales, so progress was lower than initially expected. Based on the second quarter year-to-date progress and FY 2025 second half outlook, we revised our forecast downward by JPY 25 billion and are expecting JPY 80 billion on a full year basis. We revised our full year forecast downward, but we are expecting continuous growth. Also from now on, one factor behind this new patient starts recovery. Although it's moderate, we are seeing signs of recovery in new patient starts from August. The share is also improving from the lower 50% level in June to the upper 50% level in August. Another factor is the use of GATHER2 open-label extension study data presented at AAO, American Academy of Ophthalmology this month. Over 3.5 years post IZERVAY dosing, increased benefit was demonstrated according to long-term efficacy data. In addition, favorable long-term data was obtained also in terms of safety and tolerability as well. By broadly disseminating this kind of data in the market, we will aim to further increase the awareness of the importance of treating GA and the benefit of IZERVAY. You can find the GATHER2 extension study data on Page 34 and 35 in the appendix for your reference. Please refer to those pages at your leisure. We believe in the mid- to long-term potential of IZERVAY, and we are expecting that we can reach the peak sales forecast range. We have high expectations on IZERVAY as an important growth driver for Astellas also into the future. Global sales of VEOZAH increased to JPY 22.9 billion, up by JPY 8.1 billion, or 55% year-on-year, demonstrating a solid growth continuously. We are anticipating the steady growth trajectory ahead in the second half of FY 2025. With regards to Vyloy, global sales reached JPY 26.6 billion. Its outstanding performance is exceeding expectations. Due to active awareness campaign, we were able to realize exceptional Claudin 18 testing rate penetration and lower treatment discontinuation through appropriate information provision activities on adverse event management. Regional footprint is expanding steadily with approval in 47 countries and launches in 26 countries by now. Based on this strong global momentum as a whole, we have made a substantial upward revision of our full year forecast from JPY 40 billion to JPY 60 billion, which is 1.5x compared to the initial forecast. Regarding XOSPATA, global sales reached JPY 34.4 billion. There are some regional differences, but overall performance is largely on track. We are anticipating a moderate growth trend within the current indication of relapsed or refractory AML. As a future growth driver, top line results for the additional indication in newly diagnosed AML are anticipated in the first half of FY 2026. If approved, we can offer a treatment option to a new patient population. So we are hoping for contribution to sales. Last but not the least, XTANDI. Global sales increased to JPY 477 billion, up by JPY 25.3 billion, or 6% year-on-year. Sales expanded in all regions, reflecting strong global performance as a whole, we revised our full year forecast upward. Page 7 is about cost items. SMT initiative made more progress than our expectations. We realized cost optimization of about JPY 16 billion in total for SG&A expenses, R&D expenditure and cost of sales combined. Excluding U.S. XTANDI co-promotion fees, SG&A ratio improved by 3.1 percentage points year-on-year. Let me explain a specific breakdown of SG&A costs and R&D expenditure. SG&A expenses fell by 1.3% year-on-year, trending at a similar level compared to the previous year. SG&A ratio was 26.9%. As SMT progressed, we realized cost optimization of about JPY 7 billion through continuous global organizational restructuring, reduction of mature products related expenses and streamlining IT infrastructure, et cetera. In addition to investments to maximize the potential of strategic brands driving our future growth, we will continue to make investments needed for SMT execution in order to realize further cost optimization. R&D expenditure decreased by 16.9% year-on-year. As a main factor behind, in addition to ForEx impact, 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 7 billion. Furthermore, due to the completion of large clinical studies for strategic brands, clinical development costs decreased by about JPY 6 billion. In addition, onetime co-development cost payment booked in FY 2024 was another factor for cost decrease year-on-year. In the second half of FY 2025 onwards, we are expecting expansion of investments aligned with primary focus progress. In April this year, we implemented R&D organizational restructuring, enabling activities from research to development all throughout. By pursuing operational efficiency, we are creating a cycle of making investments needed for the future continuously. Page 8 is about the revision of FY 2025 full year forecast. Based on the robust progress exceeding our initial forecast up to the second quarter, we have made a significant upward revision of revenue, core and full operating profit. We are expecting core operating profit margin of 24.1%, improving by 2.9 percentage points compared to the initial forecast. We revised our full year forecast ForEx assumptions to JPY 145 against the U.S. dollar, and JPY 170 against the euro. From the third quarter onwards, we are assuming ForEx rates of JPY 144 against the dollar, and JPY 172 against the euro. We have made an upward revision of revenue forecast by JPY 100 billion, including JPY 20 billion for Vyloy, JPY 10 billion for PADCEV and JPY 70 billion for XTANDI. We are expecting revenue of JPY 2.030.0 trillion, exceeding the JPY 2 trillion mark for the first time since the establishment of Astellas. We are expecting SG&A expenses, excluding U.S. XTANDI co-promotion fees to decline from the initial forecast if we exclude ForEx impact, reflecting robust progress of SMT, we are expecting JPY 586 billion. As for R&D expenditure, reflecting operational efficiency in R&D reorganization, we are expecting JPY 322 billion. Reflecting the strong progress in our core business, core operating profit is revised upward by JPY 80 billion from the initial forecast now expected to be JPY 490 billion. Full base operating profit is also revised upward by JPY 80 billion from the initial forecast now projected to be JPY 240 billion. We continue to incorporate a certain amount into the forecast for other expenses to prepare for risks such as impairment losses. Next, I will explain the progress of our pipeline. Page 10 shows the progress of key events expected in FY '25 for our strategic brands. Particularly significant development, as shown in the center of the slide is the successful completion of the PADCEV EV-303 trial and acceptance of its supplemental BLA in the U.S. Details are provided on the next page. IZERVAY was approved in Japan in September for the indication of suppression of GA growth in atrophic AMD. Aiming to rapidly deliver this treatment for severe GA with a high unmet need to Japanese patients, the development team engaged in constructive discussions with the authorities. This led to a submission based on overseas clinical trial results using the conditional approval system, resulting in approval just 7 months later. Furthermore, as noted in outside of the table, approval was obtained in Australia in October as well. We'll continue to pursue further submissions in other countries and regions with the aim of delivering IZERVAY to patients worldwide. In addition, we presented efficacy and safety data from the GATHER2 open-label extension study covering up to 3.5 years after administration of IZERVAY at the AAO in October. The final analysis results of the Phase II GLEAM trial of Vyloy in pancreatic ductal adenocarcinoma, or PDAC, became available and the primary endpoint was not met. We are currently analyzing the detailed data. As part of the life cycle management of Vyloy, the Phase III LUCERNA trial evaluating its combination with pembrolizumab and chemotherapy in gastric cancer is ongoing. Page 11 shows the latest status of PADCEV MIBC development. For details, please refer to the materials from last week's online briefing on our oncology pipeline. EV-303 trial yielded unprecedented data suggesting that the PADCEV has the potential to become a new standard of care for cisplatin ineligible MIBC. EV-303 trial compared the efficacy and safety of PADCEV plus pembrolizumab as adjuvant therapy before and after radical cystectomy, the current standard of care in patients with MIBC who were ineligible for or declined cisplatin-based chemotherapy versus surgery alone. The figure shows the efficacy results from the first interim analysis. The left panel displays the primary endpoint, event-free survival, or EFS. And the right panel shows the key secondary endpoint of overall survival, or OS. Compared to surgery alone, the combination therapy group or arm showed a hazard ratio of 0.40 for EFS, representing a 60% reduction in the risk of tumor recurrence, disease progression or death, and a hazard ratio of 0.50 for OS, indicating a 50% reduction in the risk of death. Subgroup analysis confirmed consistent improvements in EFS and OS regardless of age, sex or PD-L1 expression status. The safety profile of the combination therapy arm was consistent with the previously reported trials with no new safety concerns identified. Following the top line results in August, we rapidly advanced the process for additional indications. Within just over 2 months, the U.S. sBLA was accepted and granted prior review designation with a target PDUFA date set for April 7, 2026. We're also progressing discussions with the regulatory authorities in other regions towards submissions. Furthermore, the Phase III EV-304 trial for cisplplatin-treated MIBC is ongoing with the interim analysis data anticipated in the latter half of fiscal year 2025. Page 12 for focus area approach. I will explain the progress on flagship programs. ASP3082 targeted protein degradation and ASP2138 immuno-oncology presented promising clinical trial data in October. While details were already explained during last week's online briefing, the following slides briefly recap the current status. Clinical trials for AT845 in genetic regulation and ASP7317 in blindness and regeneration are progressing as planned with PoC assessment still scheduled for the second half of FY '25. The current status of other programs is summarized on Slide 41 in the appendix. Page 13 explains the progress of ASP3082 and the primary focus targeted protein degradation. Specifically, ASP3082 has presented promising data in NSCLC, or non-small cell lung cancer, and we have initiated preparations for registration studies targeting PDAC and NSCLC. ASP3082 has achieved PoC in both PDAC and SCLC. This time, we presented clinical data for its monotherapy in second line and later treatment settings for NSCLC at an October Congress. Last week's online briefing preceded the congress presentation. So we provided an explanation aligned with the abstract. Today, however, we will use the data presented at the congress as shown in the figure on the right. NSCLC has a high unmet medical need. The objective response rate with the existing standard of care in the second line, and beyond is reported to be in the single digits, reaching a maximum of around 18%. ASP3082 monotherapy demonstrated significantly superior antitumor activity compared to standard of care, achieving an ORR of 37.5% across all second line and beyond and 42.9% specifically in second and third line. Furthermore, the median duration of response was 9.72 months, and median progression-free survival or PFS in second and third line was 8.25 months, confirming sustained efficacy. The safety profile showed no major concerns with no treatment-related adverse events leading to discontinuation observed at the data cutoff date. Development of ASP3082 across various tumor types is progressing for PDAC. Preparations are underway to initiate a pivotal trial for first-line treatment in the latter half of FY '25 with data presentation also targeted for the latter half of FY '25. For NSCLC, planning is ongoing to initiate the registrational studies as early as possible. For CRC, colorectal cancer, the PoC judgment remains targeted for the second half of FY '25. Furthermore, research and development for follow-on programs is advancing. ASP5834, a pan-KRAS degradation targeting diverse KRAS variants achieved its first subject dosing in August. Under the new R&D structure launched in April, the team achieved its first subject dosing in a record 27 days after the FDA IND clearance, thanks to close cross-functional collaboration. We will provide progress updates as the data becomes available from clinical trials. Page 13 details progress on ASP2138 in primary focus immuno-oncology. Specifically, ASP2138 is demonstrating the benefit of subcutaneous administration in combination with the standard of care, steadily progressing toward PoC achievement. Phase I trials are currently underway for gastric and gastroesophageal junction adenocarcinoma, or G/GEJ as well as PDAC. These trials evaluate ASP2138 as a monotherapy in combination with standard of care IV and subcutaneous across multiple treatment lines. Data presented at ESMO in October showed no major safety or tolerability concerns and supported combination with current standard of care. Furthermore, the ORR when combined with the standard of care by a convenient biweekly subcutaneous administration demonstrated high antitumor activity in gastric cancer at a 2,000 microgram dose, 62.5% in first line, and 37.5% in second line. In the figure above right, the values indicated in red represent the Claudin 18.2 expression levels for each subject. Vyloy targets patients with high expression of [ 75 and above ]. This data confirms efficacy not only in high expression patients, but also in those with moderate to low expression levels, suggesting the potential to expand the patient population eligible for this treatment. A PoC judgment is planned for the latter half of FY '25 pending further data accumulation. Given the compelling data obtained thus far, we have initiated discussions on the development plan to enable the prompt execution of the registration trial following PoC achievement. For Claudin 18.2 targeted therapy, we aim to provide treatment options to a broader patient population. To strengthen our leading position, we are advancing the development of the antibody drug conjugate, ASP546C, in addition to ASP2138. Research and development of follow-on programs are also progressing. Multiple programs utilizing a similar mechanism of action, including the clinical stage ASP1002 are advancing, including bispecific. Additionally, research is advancing toward clinical trials for iADC, immunostimulatory antibody drug conjugate utilizing new antibody modification technologies. We will provide updates, including detailed explanations as progress is made in each program. Page 15 shows today's key takeaways. The second quarter delivered exceptional financial results. PADCEV and Vyloy led the way with strategic brands demonstrating strong growth. SMT progressed well, achieving robust cost optimization. Based on this strong progress in our core business, we have revised our full year revenue forecast upward by JPY 100 billion and both core and full operating profit by JPY 80 billion. Our pipeline also showed robust progress. PADCEV showed unprecedented data in the EV-303 trial, significantly advancing its development for MIBC. In the focus area approach, promising data was obtained for ASP3082 and ASP2138, and preparations are underway to conduct registration trials. Throughout FY '25, we will aim for further profit growth and enhanced pipeline value. At the end, I would like to announce upcoming events. On Tuesday, December 9, we plan to hold a discussion session with outside directors. At this session, we will explain the evolution of Astellas governance structure. Additionally, directors newly appointed in June will share their perspectives on joining the Astellas Board of Directors, as well as their experiences and impressions from their first 150 days in office. We encourage your participation. That concludes my presentation. Thank you very much for your attention.

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

[Interpreted] I'm Yamaguchi from Citigroup. Yes, we can hear you. First, about PADCEV. The data was better than you expected. Global sales is going to be JPY 400 billion to JPY 500 billion. MIBC is Cis-ineligible, or data was better than expected. In this area, what is going to be the potential impact? How better compared to your initial expectations?

[Interpreted] Thank you for your question. I will respond briefly. And then regarding sales forecast, Claus may add. And the data per se where necessary can be explained by Taniguchi. First of all, as I showed on the slide, 303 study results, even we are not experts, see the separation in the Kaplan-Meier curve and the hazard ratio is 0.4 or 0.5, we don't see these numbers so often. We presented this at ESMO. In the first-line settings, we said the same. We made a presentation at Congress, and there was a standing ovation naturally in the audience. So we think we had unprecedented data. This great data exceeded our expectations.

[Interpreted] Then is this going to lead to the sales forecast directly?

[Interpreted] Not necessarily. MIBC and after metastasis in the urothelial cancer, MUC, it's not clearly separated completely. In the current indication, some part is covered in the United States.

[Interpreted] If the additional indication is approved, how much we can expand the target patient population?

It's difficult for us to say clearly how much we can expand. This ineligible patient population was studied in 303 study. Patients on cisplatin 304 study is ongoing. And we'd like to look at the distribution of these patients in detail to share our sales forecast with you. First, Taniguchi-san, anything from you?

[Interpreted] Thank you very much. From me, regarding this data, I'd like to add a bit. As Okamura explained, at ESMO, there was a very good response from the audience. First, the primary endpoint, EFS hazard ratio was 0.40. This is unprecedented in terms of the risk reduction. Secondary endpoint, overall survival, consistently 0.5. Regarding secondary endpoint, whether we could meet this in the interim analysis, but we made this much reduction. There was a statistically significant difference clearly. And number three, PCR ratio was 57%, or even exceeding that level and 8.6% for the control group. This much pathological CR was seen at such a high probability. Such a drug is unprecedented. This was highly evaluated as well. So these are the 3 effects. And as for safety, PADCEV pembrolizumab combination, it was consistent in terms of safety. In that regard, this data is very innovative and unprecedented. And Cis-ineligible was the indication of it, population at high risk. Or with a variety of complications, the drug could be utilized in such patient population. So there are high expectations because of this.

Yes. So the question that you asked is how this translates into a sales forecast. And there are a few considerations. Clearly, such an unprecedented data will help us convince physicians that this should be the new standard of care in the labeled indication of locally advanced, and then after approval also in the MIBC indication. There is, however, a difference between the two. If you look at the clinical trial in MIBC, there are two parts to it. There is the so-called neoadjuvant use. So you give it before you do the cystectomy, the removal of the bladder. And then you have the adjuvant use, which is after the surgery has been done. In clinical practice, these two parts are likely to be different from the clinical trial setting. And we need to observe carefully, exactly how the market adopts the usage of PADCEV and pembro in these two different phases of the MIBC. So that's things we still have to learn. And I think once we have more data points, we can make a more accurate sales forecast.

[Interpreted] Brief question. Again, this time, performance was really good. However, from the midterm perspective, mirabegron and XTANDI are going to face the cliff of the patent. And next year and afterwards, a new midterm plan is going to be presented. So toward that, your foundational business is quite improved. So toward the next fiscal midterm plan, this performance level and also SMT included. How do you view about it? Would you give us a comment?

[Interpreted] Thank you very much. We are still in the middle of the discussion about this. So I think it is inappropriate to comment to the details about this here. However, the XTANDI and mirabegron where that the patent is expired and we are going to extend their lives in order to cover the loss of those sales, we will do something, including business development or BD. That's not something like that. Rather than that, we have the strategic brands in our hands. Those are getting stronger. So we would like to maximize its strength. So that's going to be the focus of the next midterm plan. That's what we expect, meaning that from the outsider's perspective, the breakdowns of the products not really matters, rather the sales of the products will be reduced. That is one thing. However, we are already having the three important strategic brand products in the growth phase. So we would like to maximize the value of that. That focus is going to be incorporated into the next midterm plan. And also focus area approach, key products achieving the clinical PoC, or coming to the phase of the PoC judgment. So for the next 5 years, those flagship are going to get into the late phase of the development. And on top of that, the original focus area benefit that is when initial compound is successful, then with the same triangle, we come up with the follow-on programs. We introduced some of the follow-on programs today. So that will happen. So we have the 5 strategic brands. And on top of that, further ahead of the growth can be expected in these approaches. And if that is recognized in that way also, it is going to be the one key aspect of the midterm plan. And the current product sales increase is the job needed to be done by [indiscernible]. And the next preparation is Taniguchi's job and Kitamura, who is here -- is -- need to think about -- needs to think about changing the company with appropriate financial discipline for -- in terms of the operation of this company based upon such background information.

[Interpreted] Now I would like to move on to the next question. That is JPMorgan, Mr. Wakao.

[Interpreted] Regarding strategic brands, how do you assess those products as of now? You made an upward revision. But XTANDI, mirabegron before in the previous upward revision. If you look at the total sales, the JPY 470 billion, although the breakdown is different. And you're progressing according to your initial forecast, EV-303 is successful and there are other factors as well. So what is your current assessment? And also the future outlook of strategic brands, IZERVAY how it's going to go up? That might be part of the question as well.

[Interpreted] Thank you for your question. I'd like to give you a rough overview where necessary, Claus can add. As I mentioned before, how Astellas is going to be from now on XTANDI, mirabegron, such mature products, how we can increase their value from now on is one question. But we made an upward revision. If you look at the face value, these two may be covering the majority of the upward revision at a glance. But IZERVAY, unfortunately, on a dollar basis, $750 million was revised downward to $550 million, but that reduction is covered by PADCEV and Vyloy. Because of their good performance, we are more than offsetting that decline. So in total, there is no change in the strategic brands. You may say so from outside, but there are special circumstances for IZERVAY and it may be difficult to perform as expected. But are we going to reduce the strategic brands? No. We would like to cover and more than offset this decline. And Astellas in the mid- to long term need to grow. To that end, this is going to be very important. So in the world of pharmaceuticals, regulations may change, and there can be something unexpected. We often see such events in this sector. So instead of saying that this is what we can do only, if there is something negative, we'd like to offset the negative, and we can recover in the top line figures. And also, we'd like to do our best to control the cost, and we would like to achieve core operating profits and the bottom line. That's our discipline and how our management of the company should be. Anything additional from Claus about individual products?

I think, Naoki, you've summarized it very well. I think the 5 strategic brands as a group have the potential to replace XTANDI and maybe even grow beyond that. I personally think the total potential is beyond that of XTANDI as a single brand. Now the different brands will vary and also in their phases. We see VEOZAH as a primary care -- pretty much primary care product with a much slower trajectory than an oncology drug, which has a very, very fast uptake, and we saw that -- we've seen that both with PADCEV and with Vyloy now. So I think each therapeutic area has its own dynamic. But as a group, the potential of these products are, as I said, in my estimation, at least the size of XTANDI.

[Interpreted] Secondly, SMT initiative status is something I'd like to know more. In the second quarter, cost reduction was achieved, and I'm very surprised. And regarding your plan, OP margin is to improve. So I think this was great. And SMT is making very good progress. As of now, core OP, 30% or higher. What do you think in terms of this progress, you may have other hurdles to clear? Or are you approaching the achievement? You may need to invest in R&D for some of the products. So what is the current progress? Thank you very much.

[Interpreted] In the end, operating profit was revised upward. If you look at the guidance, 24.1% for operating profit margin. Are we satisfied? No. We are not completely satisfied yet. But still, in FY '27, we are targeting to achieve 30%. Towards that goal, we are beginning to solidify our basis. That's how I feel. But it's not easy to improve just 5% overnight. So there are many things we have to do. As you pointed out, development costs would go back to the original number. So we shouldn't sacrifice the development cost. We have to do something else elsewhere. Anything to add from Kitamura-san?

[Interpreted] Thank you very much. Regarding SMT, in the past, I've already made an explanation saying that this is not the single year short period of time of activity. This is the regular activities. I've mentioned that it's going to be JPY 120 billion to JPY 150 billion. And at the time of the announcement, it is clear that for the 70%, yes, we will do that and we will execute the plan and the remaining 30% idea is going to be generated. That was the approach. And currently, it is JPY 150 billion internally, we accumulated our ideas and they are going to be executed. That's the next phase. That's the current status. Thanks to SMT, JPY 40 billion of the impact was realized. And this fiscal year throughout the year, we are expecting to be JPY 20 billion for 2 years, it will be JPY 60 billion. In the first half, it is JPY 16 billion. So against the target of JPY 20 billion, I think, we are doing quite well. But as has been mentioned by Okamura, this is not an easy road. So we have to be steadily -- we have to steadily execute the plan. So we have to have that in our mind. But as long as we do what we need to do, we definitely can see the result. Therefore, we have a commitment. We have a confidence about it.

[Interpreted] Next. Goldman Sachs Securities, Mr. Ueda, please.

[Interpreted] Goldman Sachs, Ueda is my name. My first question is about -- the follow-up question is the currently discussed point. So R&D for this fiscal year, you changed the presumption for the ForEx, meaning that there's a wide range of review or revisit during the quarter. So what did you do to come up with these big changes? And also in the current new plan compared to the initial plan, the accuracy was increased. So would you please make your explanation for these two points? Thank you very much.

[Interpreted] First of all, in my presentation, as I've already mentioned, in terms of year-on-year, the major clinical trials of the strategic brands completed their first phase. So from a year-on-year perspective in the last year first quarter, one-off cost increase was canceled. And because of that, seemingly, there was a decrease. But overall flow, depending on that -- because of that, the cost is reduced. But towards the second half of 2025, the [ Focus Area ] program achieved the PoC. It came to -- will come to the later phase of the development, and this will come back. This portion will come back. That's why we have this guidance. And on top of that, of course, we are doing the continuous work. But this time, within the SMT and strategy discussions, portfolio prioritization started to be more and more rigorous. So with that, selected projects with the keen eyes will receive more and more investment. So our R&D investment usage is shown in that way. And also clinical trials, we overall relied on the external CRC, but those are currently conducted more and more internally. So outsourcing cost is reduced. And that is replaced as the internal expenses. So seemingly, you see that the subtraction, calculation leads to this reduction level as a number. However, with a long-term perspective with having this approach, we can realize more effective clinical trials, which leads to the shorter period of time of the study and clinical study design is going to be further precise. And with our execution of the studies, we can make the fine-tuning during the study. I think that's the way it should be for conducting clinical trials, and I believe we can realize that. And under Taniguchi, the R&D was separated, but now it's merged as one organization. So research division and the development divisions, those -- exchange between these two business units became smooth. Outsourcing changed to in-sourcing and it was just a simple deduction, come up with this number. Well, you see only this because it's just started. But for a longer time, thinking about the next plan, business plan, I think it's going to be more financially reflected into our actual business way of doing. Taniguchi-san, please?

[Interpreted] Thank you very much. Most of the things already explained by Okamura. If I may add one thing, in-sourcing of clinical trials. Through in-sourcing we can reduce outsourcing costs we paid before. And then we should develop our own system. AI and automation is fully leveraged for further cost reduction. And also the speed of enrollment, where are the patients and how much -- which institutions they should go to, we want to roll this out globally. By doing this, further business and clinical trial efficiency can be enhanced, as well as the acceleration of the speed. And then we can reduce further cost reduction as well. So we're expecting an increase in the late-stage development and costs would also rise. As much as possible, we'd like to enhance the cost efficiency so that we can cover.

[Interpreted] As a follow-up question, originally, compared to the initial forecast, in terms of the gap compared to the initial forecast, overall, all the items are progressing smoothly. Should I understand that way?

[Interpreted] Basically, that understanding is fine.

[Interpreted] Okay. Understood. Secondly, regarding the U.S. business environment, how do you see it right now? Up until now, regarding the tariff, the situation is still unclear. And it was difficult for you to comment, as you said before. But right now, you have a large exposure to the United States, including the risk of being imposed tariff, how are you addressing the situation? Or how are you planning to address the situation from now on? And also the -- including MFN, the drug prices, how do you see the risk factors? I'd like to hear from you. Thank you very much.

[Interpreted] First, as for the tariffs, at one point in time, we didn't know what could happen. From there, the situation is settling a lot. I shouldn't say that's our assessment, but we are feeling relieved. As we said before, from your perspective, Astellas revenue times U.S. ratio times COGS times tariff, it's going to be a huge amount, you may say so. But in reality, what we sell in the United States, a majority of those products are manufactured in the United States, as we said before. If that's the case, the denominator is small where tariff is going to be imposed. So it's not going to be a huge amount. That's our response. But the tariff might be imposed. There can be such announcement into the future. So we have a supply chain and by understanding our supply chain, if there's going to be any great impact, as I said before, our profit should not decrease. And if the profit may decrease, where are we going to recover elsewhere? We should start such discussions. And also the MFN pricing, most favored nation pricing, as you might have heard in the press report, 17 companies received letters. And this does not include Astellas. In particular, Pfizer reached agreement with the authorities or the government according to the media report. We didn't receive such a letter. So we don't know what are the contents of the letter. But in the industry through a variety of routes, what is being communicated in the letter is captured by us. And regarding the agreement with the government and Pfizer, we don't know the details. But we can assume and imagine what's going on and what's being done. Before we receive a letter, nothing will be done by us or overreaction and doing a lot of things too much in advance, rather monitoring the situation to take necessary action where necessary. Of course, experts in the company gathered to form a team, and they are monitoring the situation all the time. If we need to take action, if it's time to take action and move forward, the team will come to the executives, management team so that we can discuss and take the best action.

[Interpreted] Next question Nomura Securities, Mr. Matsubara, please.

[Interpreted] Thank you, Matsubara speaking. First question, that is about SMT. In the previous discussions, SMT is exerting its strength. And if that is so, then this fiscal year, we are going to see further cost reduction?

[Interpreted] Originally, JPY 20 billion is our plan and to the full second quarter, we came to the JPY 16 billion. And can you achieve JPY 32 billion? The calculation is not in that way. What is decided is steadily being conducted. That's one thing. However, we've been always looking for what else -- other -- something else we can do. So if we make a certain evaluation for a certain idea, even a certain advanced investment is necessary, then still we try to secure SMT. So in the first 2 quarters, what's been planned is already realized, and you came up with the cost reduction. But at the same time, you can think about the investment to the next idea. So we have to take the balance of reduction and investment. So that is going to be a final end of FY '25. Of course, the planned JPY 20 billion, that is something we would like to secure. But at the same time, something it might go beyond. Is that going to be reflected in the profit? It's not necessarily so. So please do understand in that way. Kitamura-san, please?

[Interpreted] What Okamura mentioned is exactly right. Again, this is a repetition. SMT is not a single year, but rather multiple year programs. So there something should be done with a short period of time and mid- to long term. Those are going in a parallel manner. If at times things can be realized in an accelerated manner, then we can get the benefit in earlier phase. That's true.

[Interpreted] Understood. Next question is about VEOZAH. On Slide -- Page 6, it is true that the competition is available. So that is the market competition considered. But the competitor has less -- not necessary to do the blood testing and specific for the driving in the case of the elinzanetant. And what do you think about it?

[Interpreted] Yes, of course, there's an advantage for the predecessor, our level is not perfect, but we've been doing our activities. So definitely, there are advantage as the first comer or pioneer for this. And within just one sentence, what I wanted to say is that another company, or the competitor rather, is very strong in this treatment area, and we are not really so. So compared to us doing the business in this field alone, together with them, the 2 companies toward the same target of patients with the same efficacy products, we can do the patient educational awareness increase activities. With that, I think, we can increase the awareness more. However, they are very strong in this field. So until then, we are the -- have the just player in the market, but now we have two and they have experience. So the share is going to be obviously smaller. But to what extent we can have -- to what extent of the market share we can have, that is, of course, something that we can tell from the data. The clinical data is well controlled, total number of the subjects are controlled. So the competitor launched their products and what kind of data will be available in the actual market or real market. I think that really decides the competitive situation of these two companies. Claus?