Astellas Pharma Inc. (4503) Q3 FY2026 Earnings Call Transcript & Summary

Thank you very much for your joining with us. This is the FY '25 third quarter earnings call. My name is Kato. I'm serving as the moderator for today. I am Chief Communications and IR Officer. Today, following our presentation, we will proceed to the Q&A session. The presentation will follow the presentation materials available on our website. The session, including Q&A, will be conducted with simultaneous interpretation in Japanese and English. Please note that we cannot guarantee the accuracy of the simultaneous interpretation. [Operator Instructions] This is some notes for today's presentation. This material presentation and answers and statement by representatives for the company in the Q&A session includes forward-looking statements based on assumptions and benefits -- or beliefs, rather, in light of the information currently available to management and subject to significant risks and uncertainties. Actual financial results may differ materially depending on a number of factors. They contain information 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. The participants for here today is Atsushi Kitamura, CFO, Chief Financial Officer; Tadaaki Taniguchi, CRDO, Chief Research and Development Officer; Claus Zieler, Chief Commercial and Medical Affairs, CCMAO. We have 3 of them with us here today. We start the presentation now. Kitamura-san, the floor is yours.

Hello, everyone. I am Atsushi Kitamura from Astellas Pharma Inc. Thank you very much for joining our FY 2025 third quarter year-to-date 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 Kato earlier, I'm not going to read this page. On Page 3, I will explain the highlights of FY 2025 third quarter year-to-date financial results. Strong momentum from the first half of FY 2025 continues. Based on this, we have made another upward revision of our full year forecast. Continued strong growth of strategic brands by over JPY 100 billion year-on-year has driven double-digit revenue growth. As for SG&A expenses, thanks to the robust progress of what we call SMT, sustainable margin transformation, our company-wide cost optimization initiative, SG&A ratio improved by 2.7 percentage points year-on-year. Due to the growth of strategic brands and robust cost management through SMT, core operating profit rose significantly, up by 49% year-on-year. Core operating profit margin increased by 7.1 percentage points year-on-year to reach 27.6%. Based on this strong momentum, like the second quarter year-to-date results announcement, we made another upward revision of our full year forecast by JPY 70 billion for revenue, by JPY 30 billion for core operating profit and by JPY 100 billion for full operating profit, respectively. Regarding our pipeline, there were 4 major important progresses. For PADCEV, as part of life cycle management of strategic brands, development for MIBC, muscle invasive bladder cancer, made a substantial progress. The additional indication based on EV-303 study was approved in the United States. Also in EV-304 study, positive top line results were obtained. Regarding VYLOY, promising combination data in gastric cancer was obtained. Phase III study for combination therapy is ongoing. As for focus area approach, for ASB-3082, promising first-line PDAC data was obtained. We plan to start Phase III study by March. Furthermore, regarding ASP2138, PoC was achieved in gastric cancer. Phase III study is now under preparation. Page 4 is the agenda for today. From the next page, I will explain these topics. Page 5 shows FY 2025 third quarter year-to-date financial results. Revenue and core operating profit, respectively, increased by about JPY 150 billion year-on-year. Full operating profit increased significantly as well. Let me explain main items. Revenue reached JPY 1,601.3 billion, up by 10.2% year-on-year. Core operating profit rose to JPY 442.1 billion, up by 48.6% year-on-year. The bottom half of this page shows our full basis results. Operating profit was JPY 333.9 billion, and profit was JPY 248 billion, both grew significantly year-on-year. Page 6 shows FY 2025 third quarter year-to-date results of our main brands. Sales of all brands increased across the board with strategic brand sales combined growing by over JPY 100 billion in total year-on-year. First, third quarter year-to-date sales of 5 strategic brands, namely PADCEV, IZERVAY, VYLOY, VEOZAH and XOSPATA exceeded JPY 350 billion in total, substantially up by JPY 109.3 billion or 45% year-on-year. PADCEV and VYLOY in particular, drove the strong growth. We are expecting total sales of strategic brands as a whole to reach close to JPY 500 billion on a full year basis. Also, these brands have high profitability and their growth made a great contribution to core operating profit increase. We are expecting further growth to continue in FY 2026 as well. Next, I will explain individual strategic brands and XTANDI. PADCEV, sales increased to JPY 162.6 billion, up by JPY 45.6 billion or 39% year-on-year. While robust global growth has been continuing, overall progress is exceeding our expectations, mainly driven by the strong trends in the United States and Europe. As a major progress in the third quarter, in November last year, based on EV-303 study, the additional indication of cis ineligible MIBC was approved in the United States. Uptake after approval is on track. And in December, PADCEV was included in the NCCN guideline many physicians are referring to. In addition, in EV-304 study in cis-eligible MIBC, positive top line results were achieved. We are now preparing for filing of submission. MIBC is expected to drive further growth of PADCEV in FY 2026. As for IZERVAY, sales rose to JPY 55.8 billion, up by JPY 11.4 billion or 26% year-on-year. New patient starts, which are important metrics are steadily increasing. IZERVAY continues to grow double digit quarter-on-quarter, both in terms of sales and volume. Overall progress is in line with our expectations vis-a-vis our full year forecast we updated in the second quarter. We continue to have high expectations on IZERVAY as one of the important growth drivers. With regards to VYLOY, sales reached JPY 46.1 billion, performing well at a pace higher than our full year forecast we revised upward in the second quarter. Continuously from the first half, high Claudin 18 testing rates and lower-than-expected discontinuation rates are contributing to the overall good progress. We are meticulously conducting information provision activities about AE management. By focusing on the prevention of nausea and vomiting, particularly in the initial cycle, we believe we can reduce discontinuation and enhance treatment continuation rate. Regional footprint is expanding steadily with approval in 48 countries and launches in 30 countries by now. VYLOY since launch has been performing extremely well by now. We're expecting further growth also in FY 2026 and beyond. Sales of VEOZAH increased to JPY 35.2 billion, up by JPY 10.8 billion or 44% year-on-year, demonstrating a solid growth continuously. With recent new coverage starting in January this year, commercial lives covered expanded to about 80%. With improved access, we're expecting stable growth also into the future. A new non-hormonal drug was launched in the United States, but the launch impact as of now is in line with our assumptions. With the launch of another treatment in the same class, we are hoping that the market will expand further going forward. Regarding XOSPATA, sales reached JPY 53.5 billion. Overall, it's making steady progress. Top line results are expected in the first half of calendar year 2026 for Phase III PASHA study with newly diagnosed AML as a potential new indication, where we have high expectations as a future growth driver for XOSPATA. If approved, we can offer this treatment option to a new patient population, so we're expecting contribution to sales. Last but not the least, XTANDI. Sales increased to JPY 732.2 billion, up by JPY 29.1 billion or 4% year-on-year. Progress is exceeding expectations, driven by continued global demand growth. We're expecting XTANDI to reach its peak level in the current fiscal year. Page 7 is about cost items. SMT initiative is progressing ahead of our plan. We realized cost optimization of about JPY 20 billion in total for SG&A expenses, R&D expenditure and cost of sales combined. We are fully on track to achieve FY 2027 cost optimization target of JPY 150 billion. Excluding U.S. XTANDI co-promotion fees, SG&A cost ratio improved by 2.7 percentage points year-on-year. Let me explain a specific breakdown of SG&A costs and R&D expenditure. SG&A expenses trended at a similar level compared to the previous year. SG&A cost ratio was 27%. As an SMT progress, we realized cost optimization of about JPY 9 billion through continuous global organizational restructuring, reduction of mature products-related expenses and streamlined 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 from next fiscal year onward. R&D expenditure decreased by 12.9% 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 8 billion. Furthermore, due to the completion of large clinical studies for strategic brands, clinical development costs decreased by about JPY 9 billion. Onetime co-development cost payments booked in FY 2024, et cetera, was another factor for the year-on-year cost reduction. Up to the third quarter, we were in a transitional period with the completion of large clinical studies for strategic brands moving on to prepare for new late-stage development studies. From now on, we are planning to initiate multiple Phase III studies. From the fourth quarter and FY 2026 onwards, we are expecting investments to increase aligned with the progression to late-stage development. Page 8 is about the revised full year forecast of FY 2025. Based on strong momentum through the third quarter, we have again revised upward our full year forecast for revenue, core and full OP. The core OP margin is expected to increase by 4.2 percentage points year-on-year to achieve 24.8%. Regarding foreign exchange assumptions, we have revised the full year forecast exchange rates to JPY 150 per U.S. dollar and JPY 174 per euro. For the fourth quarter, we assume an exchange rate of JPY 154 per U.S. dollar and JPY 180 per euro. Revenues are projected to reach JPY 2.1 trillion, an upward revision of JPY 70 billion from the previous forecast in the second quarter announcement incorporating the upward revision of full year forecast for XTANDI and mirabegron as well as the impact of the change in exchange rate assumptions. SG&A expenses, excluding U.S. co-promotion fee for XTANDI are projected at JPY 600 million. Excluding the ForEx impact, this is the similar level as the previous forecast. R&D expenses are projected at JPY 315 billion, reflecting the prioritization of programs in the research phase. As a result, core operating profit has been revised upward by JPY 30 billion from the previous forecast. We expect our core operating profit to reach JPY 520 billion, exceeding the JPY 500 billion mark for the first time since Astellas's inception. Next, full basis operating income. We have incorporated JPY 30 billion into the latest forecast under other income, including changes in the fair value of contingent consideration related to VYLOY following the discontinuation of PDAP program booked in the third quarter. Additionally, we partially released JPY 40 billion of other expenses, including an impairment loss risk previously booked at the start of the period, reflecting this in the latest forecast. As a result, full year operating profit is projected at JPY 340 billion. We will now discuss pipeline progress. Page 10, progress on key events expected in FY '25 for our strategic products -- strategic brands. Particularly significant advancement as shown in the center of the slide was approval in the U.S. last November for the expanded indication of PADCEV based on EV-303 trial for cisplatin ineligible MIBC patients. Noteworthy is the remarkable speed of this approval achieved just 1 month after the submission was accepted in October, more than 4 months ahead of the PDUFA date. Following the U.S., we submitted for this expanded indication in Europe in November and in Japan in January. Furthermore, the EV-304 trial for cisplatin-eligible MIBC also met its primary endpoint. Detailed data from this trial will be presented at the February ASCO GU meeting. VYLOY data from the Phase II ILUSTRO trial was presented at ASCO GI in January. Details are provided on the following pages. As other updates, as noted in the table photo, we obtained favorable top line results from the Phase III STARLIGHT 2 study, the pivotal Japanese trial for VEOZAH. We plan to submit for regulatory approval in Japan after obtaining results from the STARLIGHT 3 trial, evaluating long-term safety. Page 11 shows the latest status of VYLOY. We presented promising data at ASCO GI supporting its combination with immune checkpoint inhibitors plus chemotherapy. Cohort 4B of the Phase III ILUSTRO trial evaluated the efficacy and safety of VYLOY in combination with nivolumab and chemotherapy for first-line treatment of gastric cancer. The median PFS, progression-free survival, the efficacy endpoint was 14.8 months across the entire cohort, 18 months in patients with Claudin 18.2 high expression. And as indicated by the red line in the graph, 23.6 months in patients with both Claudin 18.2 high and CPS1 or higher. This significantly exceeded previously reported data for combination therapy with chemotherapy alone. Currently, the Phase III LUCERNA trial is underway as a confirmatory study for the combination therapy. The LUCERNA trial evaluates the efficacy and safety of the combination therapy of pembrolizumab and chemotherapy in gastric cancer patients with Claudin 18.2 high expression CPS 1 or higher who demonstrated the longest PFS in the ILUSTRO trial. Patient enrollment is progressing smoothly with interim analysis data expected to become available in FY '27 or later. We anticipate that this combination therapy will further contribute to the treatment of gastric cancer, an area of high unmet medical need and maximize the product value of VYLOY. Page 12, regarding the focus area approach, we describe the progress of the flagship programs for each primary focus. For ASP3082 and targeted protein degradation, clinical trial data for PDAC was presented at ASCO GI in January. Details are provided on the following page. ASP2138 and immuno-oncology achieved critical milestones by demonstrating proof of concept in gastric adenocarcinoma and GEJ adenocarcinoma. This is based on the promising first-line data presented at ESMO last October. Preparations are underway to initiate Phase III trials promptly. Clinical trials for AT845 in gene regulation and ASP7317 in blind and regeneration are progressing as planned with the PoC judgment still targeted by March. Page 13. Progress on ASP3082 and primary focus targeted protein degradation regarding ASP3082 for first-line PDAC, pancreatic ductal adenocarcinoma treatment, promising data was presented at ASCO GI, and we anticipate to initiate the Phase III by March. PDAC is a disease with a high unmet medical need as the current standard chemotherapy-based treatment struggles to achieve sufficient efficacy. In evaluating ASP3082 in combination with chemotherapy as first-line treatment for PDAC, we also observed high antitumor activity and ORR of 58.3% and DCR, disease control rate, of 83.3%. ORR stands for objective response rate. The safety profile showed no major concerns, yielding promising findings supporting further development in PDAC. Based on these results, preparations are underway for Phase III trial targeting first-line treatment of PDAC scheduled to start by March. For NSCLC, development plans are being reviewed to initiate the registrational studies earlier. For colorectal cancer, PoC judgment is anticipated by March. Regarding follow-on program progress, ASP5834, a pan-KRAS degradation, received fast track designation from the FDA for NSCLC. We anticipate this will accelerate its development. ASP4396, which is being developed as a drug targeting the same KRAS G12D mutation as ASP3082 has been terminated based on data obtained to date. Going forward, we will focus development efforts on ASP3082, which has demonstrated promising data for this target. Page 14, today's summary. Strong momentum continued in the third quarter. Strategic brands maintained strong growth. Cost optimization through SMT progressed well with SG&A ratio continuing to improve. Following the Q2 earnings announcement, we have made another upward revision of our full year forecast of revenue by JPY 70 billion, core OP by JPY 30 billion and full OP by JPY 100 billion. Our pipeline also made significant advancement. As for strategic brands, life cycle management progressed, notably for PADCEV and VYLOY. In the focus area approach, ASP3082 and ASP2138 progress towards initiation of Phase III trials. We'll continue pursuing further profit growth and enhancing pipeline value. At the end, this is an update on upcoming events. Our annual Sustainability Meeting is scheduled for the 26th of this month. We will present Astellas' sustainability philosophy, specific initiatives and the outcomes achieved through these efforts. We really encourage you participating. Next, we plan to hold an R&D Day in late March. This session will provide an in-depth explanation of our current R&D status and further direction. In late April, we will hold the FY '25 earnings call. Then in late May, we plan to hold a briefing on our next corporate strategic plan. We hope to demonstrate how Astellas will achieve sustainable growth beyond the expiration of XTANDI's exclusivity. Details for all these events will be announced as soon as they are finalized. We look forward to your continued interest. That's all for me. Thank you very much for your attention.

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

My first question is about the upward revision. In the second quarter, you made an upward revision. And once again, in the third quarter, this is a very positive message to the market. Mirabegron, XTANDI, ForEx and SMT R&D are the factors. The main factor is the upside of the important products on a full year basis. Do you think you can have some room for another upward revision? We still have Q4.

I'd like to confirm a bit. There was some noise. Sorry for that. We made another upward revision, and you'd like to ask about the factors behind ForEx, XTANDI and mirabegron. We made another upward revision. Up to the third quarter, there was a very strong momentum. And we are seeing a lot of progress in cost optimization we are seeing. In the third quarter, everything to be updated to create another forecast? No. Rather, we create an annual plan and we check the progress in PDCA cycle. And at the end of the third quarter, we made a review. If there's anything major in the third quarter and others can be updated. Now this time, up to the third quarter, we have seen a strong momentum. We didn't include everything into the upward revision on a full year basis. We selected some. That was a major factor. Overall, priority strategic brands are growing very strongly in accordance with our plan. And we see some great performance. And in a month or 2 months to come, we didn't touch on that very much. Mirabegron and XTANDI, clearly speaking, overachievement is continuing. So we decided to reflect it as well as the ForEx rate. And also regarding the visible cost elements, we did some update. And full basis numbers are also revised upward. Full basis cost in the second quarter, the visibility did not change much. So we didn't change. But at the end of the third quarter, we reviewed and full basis costs had a higher visibility as well. So we decided to reflect that as well. With this, in the fourth quarter, did we redo from the bottom up? Not really. We do what we need to do. And based on our plan for FY 2026 and beyond, we are developing our plan. So thank you for your understanding.

Okay. Just briefly, another question about IZERVAY. In the second quarter, you made a revision and you said you are on track. XTANDI cliff. In order to deal with that, I believe this is quite an important asset. So what you are doing currently or new initiatives you are trying to do? If there's something, would you please answer that?

Thank you for your question. As has been pointed out, IZERVAY is extremely important brand for us. So we're doing different activities. So rather than me, Claus is going to explain what we are doing currently. Claus, please?

Yes, Yamaguchi-san, thank you for your question. Let me just briefly sketch what we see in the U.S. market for geographic atrophy. As you're aware, in the beginning of the fiscal year, we had a significant turbulence in the market due to affordability issues with the foundations withdrawing, and that meant certain patients couldn't afford their co-pay. Since that time, we have seen demand coming back steadily. So we now have 2 quarters in a row where we see the underlying demand, so the new patient starts growing by about 10% quarter-over-quarter. So that gives us the confidence that we will be able to achieve the forecast that we made in -- at the end of Q2. Does that answer your question?

Yes. Is there any new initiative if you have at the moment or not?

Not since our disclosure in forecast too. So at the end of Q2, you may remember that we had reorganized our market access team to provide better support for the retina clinics. That is ongoing, and we see very good success from that. We are continuing to focus our promotion on the retina specialists because we think that, that's the education that first needs to be embedded, and we're seeing good progress there. So there's nothing new, if you want. Of course, our DTC campaign is continuing to educate patients. So there's nothing new, but just a continuation of the activities we started after Q2.

Thank you very much, Yamaguchi-san. Let me make some additional comment. So Claus was very modest. He just explained what should be done is done. But during the DTC, what is actually working, what kind of message is communicated? Of course, we have to make a new market as well. So the PDCA is turning around in terms of the contents of what we are doing. We have to establish a market for that. We are working as a team effort. And also this product is launched in Japan as well. So not only U.S., but also we are thinking about global expansion. So as a company, as a big world, we are currently working on that.

Next, JPMorgan, Wakao-san, please.

Page 8 of your presentation. I have a question on the slide. SG&A and R&D expenses based upon the current currency level, is quite suppressed. Seemingly, it's on the increase, but I have an impression that those are quite well controlled. And now my question is, next fiscal year, SG&A, excluding XTANDI co-promotion fee, then how do you feel about R&D -- for R&D expenses. For SG&A, with this ForEx status, it is suppressed in this way. SMT is ongoing in a very smooth manner. In that case, absolute value basis, next fiscal year, the direction is -- will be on the decrease. And at the same time, R&D, you are going to set some more pivotal studies, so it's likely to increase. That's the view that I have. Would you please make a comment?

Regarding the numbers for next fiscal year, we will explain the details when we announce the FY 2025 full year results. But basically, we should continue the good momentum, and we are trying to develop a plan for revenue and profit increase. SMT is optimizing the cost by JPY 20 billion this year. We have still balance to go. So we have to handle this. That's important. We do have a plan. So we have to increase the accuracy of our execution so that we can front-load our planning.

What about SG&A costs in the end?

For me to say this is going to be the situation, it's not appropriate. But needless to say, we have to clarify where to increase and where to reduce. Based on the SMT philosophy, there is a huge room for reduction. So we're assuming that we are going to work on it. As for R&D expenditure, clearly, late-stage development is something we are going to move on to. So there's going to be an increase there. Overall, to what extent we can offset? So in the budgeting process, we are discussing right now. Increasing the revenue because we increase the revenue or increase the R&D, it may not lead directly to R&D cost increase. So how we can take measures to optimize our costs first. This fiscal year -- last fiscal year, that's how we have been addressing. So that approach is not going to change in principle. Regarding the specific numbers, please wait for some more moment.

I have a follow-up question. SMT target is JPY 150 billion. Its effectiveness will be higher in FY 2026 rather than compared to FY 2025. That's my understanding. You will have sales promotion, but it doesn't mean that you have a new drug to be launched. So SMT effectiveness can be seen more easily in terms of the balance. Am I wrong?

SMT effectiveness up to FY 2027, we are going to reduce the cost by JPY 150 billion. And JPY 40 billion out of that was done last year. This year's plan was JPY 20 billion. On a cumulative basis, it's going to be added up. On a cumulative basis, this year's target, JPY 40 billion last year and JPY 20 billion this year. So that's JPY 60 billion in total. We had to do this by the end of March according to our plan. And right now, as of December last year, we reached JPY 60 billion cost reduction. We have JPY 90 billion to go to reach JPY 150 billion target. So how to do this is the SMT's approach and philosophy. What we are discussing right now is as follows: how we can realize the remaining part in the next fiscal year at an accelerated pace. Late-stage development studies will be initiated, as you said. And as a company, it's not a net increase, but rather, we can manage the cost to a certain degree. But anyway, it's working well.

Understood. My second question, ASP3082, I have a question. ASP3082, ASCO GI had a presentation about good data. Revolution Medicines are the competitors. And the data was similar according to the presentations. How you can differentiate is something I'd like to know. One element is going to be the speed. Anything else as well? 4396 was discontinued. 4396 had higher expectations at certain timing. So terminating this program, what's the intention behind? 3082 data is better. That's why you terminated 4396?

3082, our philosophy, including the competitive edge against the competitors. On that point, first, Taniguchi is going to explain.

Let me explain first, 3082, particularly from the differentiation perspective compared to Revolution Medicines' products, Revolution Medicines' drugs, oral KRAS inhibitors. 3082 and their products are completely different. Our agent is targeted protein degrader. Protein with KRAS mutation is going to be degraded by agent. The target is the same, but MOA is different. Then how it is represented within the clinical data? Of course, we have to look to the data, especially needless to say when it comes to the protein inhibitor, the resistance against inhibitors quite frequently reported. So we have to have our eyes on it. And at the same time, our protein degrader against the 3082, some resistance is under the research in our end as well. Likely to be the biggest difference is the continuation level of the efficacy. We are going to accumulate more data to look at the sustainability of the effect as well. And in our knowledge, the first-line study of the pancreatic cancer hasn't been started by the competitor. So we would like to accept our speed so that we can start the combination treatment with the chemotherapy for the PDAC. For PDAC or pancreatic cancer, the prognosis is quite poor. So we would like to start clinical trials as early as possible so that we can deliver better therapies to the patients. And 4396 termination of the development. For 4396, KRAS G12D is a target. So it is exactly the same target as 3082. One difference is E3 ligase is cereblon type. So 3082 VHL with that, it is quite different. 4396 and 3082 efficacy compared according to our original plan. If there are some differences, we are going to consider about that. That was our plan. We haven't opened the data yet, but 4396, the data is not better than 3082. Because 3082 is more advanced compared to it, so we decided to prioritize 3082 in terminating 4396.

Next, Goldman Sachs Securities, Ueda-san, please.

Ueda from Goldman Sachs Securities. First question, that's about the progress of SMT. I have additional question about that. Currently, your core OP margin, FY '27, 30% is the target. And currently, I think your progress level is more than you've expected or this effect of SMT is way more effective than expected. Is that how you view? Please explain about this.

Thank you, Ueda-san. SMT, by FY '27, JPY 150 billion net benefit is what we would like to realize. Then within 2 years, JPY 40 billion and JPY 20 billion in total, JPY 60 billion. So the speed is not extremely fast. Rather, with the wider scope, we see that it's in line with the plan a little earlier than planned. Last year, it was JPY 40 billion, but we achieved -- we worked toward only the lower-hanging fruits because it came up with the result quickly. But on the other hand, transformation type of measures, that takes a bit more time. Last year, we've been working on the planning before coming up with the result. And from this year, that transformation realizing measures started to be working or operating. Because this is a transformation, so it takes a relatively longer time. And for those, you have to change something. So you have to spend a certain level of the money. That's why including that time is JPY 20 billion. Without such initial investment, it could be more beneficial. But currently, we are focusing on transformation part now. So it's not extremely faster than expected. Basically, it is on track of the plan. But if you look into more details, there was something that we could be more accelerated in terms of the speed. So that is exactly currently what we are working.

My second question, the trend of the main brands in the United States. In the quarter between October and December, XTANDI at the end of the year did not have a high level of sales unlike usual years, PADCEV in the United States. Quarter-on-quarter, it was almost flat according to my image. Any sense of deceleration? Or what's the current trend of the businesses here?

Thank you for your question. So I'd like to briefly respond. And then I'd like to hand over to Claus later so that you can have more information. What you have said is different from our perspective. As for PADCEV in the United States also, there is a very good progress being made. In the third quarter, that is continuing as well on a continuous basis. XTANDI, in terms of the volume, there is a strong demand growth, which is continuing. So there is no slowdown in our viewpoint. Claus, anything to add from you, please?

Yes, no. You're absolutely right. So PADCEV is continuing to surprise us positively. You noted the very fast approval by the FDA of our -- the MIBC, the 303 MIBC indication. And we're already seeing uptake in that indication. It's been included in the NCCN guidelines. So all of that is going very, very well. Please do note, however, that our experience with PADCEV has consistently been that we see a very fast uptake in the first 6 months and then a very sharp plateau as we penetrate the relevant patient population. And I think that's exactly what's happening right now. The uptake right now is faster than we expected, which is why we are saying it's above expectations, but there will be a plateau after about 6 months as we penetrate the new patient population completely.

What about XTANDI?

So XTANDI is, I mean, continuing at an amazing pace for a drug that's on the market for, what is it, almost 14 years now. So the underlying demand growth in paid demand in the U.S., but also outside of the U.S. is continuing at a double-digit pace. So in the U.S., more than 20% demand growth in paid demand. So that's continuing. However, we do see a consistent slowing of the increase in paid demand from the high 20s and 30s to now the lower 20s. So you're right, there's some slowing, but it's still at an amazingly robust pace, which is why we're increasing the guidance of XTANDI at this point in time.

Matsubara-san from Nomura Securities, please.

My first question is about VEOZAH. There is now a competitor, but it's within your assumptions in terms of the progress. If I look at the third quarter, the growth rate is slowing a bit. New patient starts and the existing patients, VEOZAH and the competitor's product, what about the shares and how it's going to grow? I'd like to hear about your assumptions, Astellas' assumption.

Matsubara-san, thank you very much. Regarding VEOZAH, I'd like to briefly comment. If there's anything to add, I would like to ask Claus to comment. As for VEOZAH, basically, it's on track. As is described here, there is now a competitor, which is launched, but the real impact to be judged will require more time. But as of now, it's not very different from our assumptions as of now. This is a new nonhormonal drug. So it's important to create a market here. And we have been working on this by now. One of the important elements here is access. How to enhance and increase access? We have been working on this. In January this year, our new commercial coverage started, and it's now 80% coverage by commercial lives coverage. So we'd like to continuously increase further. Claus, anything to add from you?

Yes. So I think there are 3 factors to note on VEOZAH, and VEOZAH is just chugging along. It's very consistent in its -- the underlying demand growth. So it's fully on track and in line with expectations, both -- especially in the United States. Now as Kitamura-san noted, it's very early days to judge the market share distribution between the competitor and VEOZAH. We do have now 80% of lives covered in the U.S. from a market access standpoint. And that gives us a very good basis, which the competitor first has to establish. So I think it will be some time before we can fully judge how the market decides between the 2 products. Right now, it's fully aligned with our expectations, as Kitamura-san said. I think the more important factor, however, is how will 2 companies trying to develop this market, how will we be able to displace the SSRIs and the other off-label nonhormonal drugs in this market. Remember, VEOZAH right now only has about 14%, 15% of the non-hormonal market. So there's a lot of room to grow, and I think 2 companies working on that will be more effective than one company alone. So that is what I really would like to watch as the new year unfolds. The third factor, maybe just to complete is the question of different monitoring requirements and different side effects like the somnolence that our competitor has. We don't know yet how that will play out. But we can say for VEOZAH that the wobble in the market that we had when we had the label update on the liver monitoring, in the U.S., that has washed out, and we're back on that growth track. Ex U.S., where the label update came later, we're seeing the same pattern replay, right? A certain uncertainty in the market, then a stabilization, then a reuptake of the growth. So we're seeing exactly the same pattern ex U.S. as we had in the U.S. just with a delay in timing. So that's why I say it's in line with our expectations because we're seeing the same pattern replay in the ex-U.S. market. I hope that answers your question.

Next is AT845. And in the fourth quarter, you are going to judge the PoC and adenovirus is administered. And I just want to confirm if any liver adverse event has not taken place and the stability is maintained for 13 years or so, I think that is being mentioned. So considering the risks, I would like you to explain about this liver toxicity matter.

Let me explain about that. AAV8 vector is utilized as the gene therapy, that is AT845 and this is targeting Pompe disease. And currently, the patient enrollment is completed, and we're just waiting for the data readout becomes available. For liver toxicity, of course, I wouldn't say there is no liver toxicity at all. Just like other AAV8, the increase of the liver enzyme is observed in a couple of -- or some cases. But so far, it is not really a big issue. Therefore, as has been planned, the end of March -- by the end of March, data is going to be collected and we make the final analysis, looking at the balance of efficacy and safety, then we are going to make a judgment on PoC.

Next, Sanford C. Bernstein, Sogi-san, please.

First question, that's about PADCEV. Year-to-date number and updated guidance. If we look at that, Q3, you showed a strong growth. But for Q4, the growth level is a bit lower according to your guidance. That's my understanding. And full year guidance, you think there is a potential for further upside or Q3, Q4 for the phasing, are there any background?

As for the full year forecast, Sogi-san, as I said at the beginning, revisiting everything to update? No. We saw the strong momentum and updated some elements. If you look at the numbers by brand, for strategic brands, we have the same numbers as before. We are not expecting a slowdown in the fourth quarter. But rather than updating that, we wanted to reflect what's working well right now to discuss what we are going to see for the next fiscal year. That's how we are steering our operations on a full year basis. If we update everything, the numbers might be different, but we do whatever we need to do in the current fiscal year and how to address the further growth next fiscal year. So that's how we are discussing. Thank you for understanding.

Okay. Next, about R&D costs. From the fourth quarter, R&D cost and expenditure will increase because it will shift to more investments. Full year and year-to-date numbers can be compared. Then in the fourth quarter, a little less than JPY 100 billion will be spent according to my understanding. In 2026, Phase III in oncology would be initiated. At that pace, you're going to proceed? Is my understanding correct? And also, you have SMT initiative, and it would take time for transformation and initial investment period will transition to harvest the fruits. How it's going to be offset into the future?

Let me start with SMT. Your basic understanding is correct. Upfront investments are being made. So we are going to recover those investments. So you're right. However, we have things to do in the remaining 2 years. So we would recover investments and we make another investment to recover the investment. So this is a series of activities. It's not just for a short term in a single year, but this is more continuous activity. So for each product, you're right. But overall, it's going to be slightly different. In the end, by FY '27, we are going to optimize the cost by JPY 150 billion. Regarding R&D expenditure in the fourth quarter, you may think the number look large. We understand your concern, but what about this space, including the outlook for next fiscal year and so forth? We'd like to explain when we announce our forecast next fiscal year. It's not [ 1,000 ] times 4.

Next, UBS Securities, Seki-san, please.

Seki from UBS Securities. On Page 24, I have also a question about SMT. It's now JPY 150 billion without the lower limit of JPY 120 billion. 30% core operating margin is going to be achieved even after XTANDI LOE?

Our confidence level is enhanced. The answer is yes. In the summer of 2023, we started SMT. In 2024, we disclosed this activity to you. At that time, multiple year plan was developed. Back then, what we can do and there are other elements we are not sure about. So 70% was the plan. The remaining 30% gap must be filled. We worked on the execution together. And to build our ideas, we have accumulated that much. Our confidence level is higher. The answer is yes. If you do this after XTANDI LOE, is it going to be sufficient? No, maybe. FY '27 -- up until FY 2027, before XTANDI LOE starts, we are going to do this. After LOE, we have to address that situation. And the state of the company after LOE must be discussed. So this is not going to be the end of the story. By FY 2027, this is what we are going to do as a preparation.

But once it starts -- or after it starts, what's the aspirational state of the company?

We would develop a new corporate strategic plan, which we are discussing. In May this year, we will explain further details.

We are looking forward to May. Next question is about XTANDI. This is extremely big product. Therefore, are there some possibilities in Japan, U.S., Europe, the generic market launch is going to be delayed. Could that kind of a scenario is conceivable? How do you view about it?

Could you repeat your question once again?

Well, that's XTANDI. In this pharma world, after the exclusivity expired, generics are not going to be launched in a timely manner. Do you view that is also possible for XTANDI as well?

I will make a brief comment. If there is additional, Claus, please. Well, first of all, because of LOE, everything is done. It's not really so, how we can continuously provide the value of this drug? That is an extremely important point. Having said that, this is again a very big product, and there are the matters of generics to be launched. So our corporate plan is not the assumption that we can protect completely. Of course, we have a certain assumption, but it's not something that we are looking at situation that is on a decrease of the sales. We are thinking about the countermeasures to what extent we can protect XTANDI? That is also something we are discussing under the new strategic plan. Claus, do you have any additional comments?

Yes, a few considerations maybe. So I think the first consideration is that the patent that we have, the compound patent for XTANDI expires at different times in different geographies. So in FY '26, we'll already see patent expiry in some geographies like Brazil, like Turkey, like Korea, China, then '27, the patent expires in the U.S., '28 in Europe. But we do have some geographies like Japan, which you mentioned, which go all the way to 2030. And there are some other geographies as well, which have a very, very long patent life. So the first comment I would like to make is that this is not one timing, but it's more a curve as different geographies where the patent expires come into play. We do expect generics to enter as soon as they can because it is a big asset, and it is a big market. And we've seen that also with abiraterone when abiraterone went generic. However, the one -- the other thing I would like to mention is that we have 2 formulations in the market, a capsule formulation and a tablet formulation. For the tablet, we have a formulation patent, which extends the life and the protection of the tablet into the early 30s. Now how the market is going to play between capsule generics and protected tablets is going to be a tricky analysis, and then we're working on that right now. But we do see some potential to maybe protect XTANDI partially with the formulation patent on the tablets that we have in place.

Next, SMBC Nikko Securities, Wada-san, please.

SMBC Nikko Securities, my name is Wada. Can you hear me?

Yes, please start.

Full base operating profit increase is my question. Impairment loss risk and that is released partially, I think that's what it is about. But would you please explain the background of that? This time, focus area approach for programs coming up with the favorable result of that data and that impairment loss risks are likely to be now lowered down. And when it comes to strategic brands, IZERVAY, VEOZAH, they are on track. So impairment loss risks, I think there are no supporting backgrounds for that. That's how we look at it. But the question is, could please explain the background of this? That's one thing. Focus area approach with 4 programs. If you achieve POC in March for everything, next fiscal year, you can move on to late-stage development. Is there any such possibility?

Thank you very much, Wada-san, for your question. Full basis review. Core was increased in the second quarter and also in the third quarter as well for the upward revision. Because of the increase in the core, the full was also increased in the second quarter. After 3 months, we reviewed everything, and we are conservative in developing the initial numbers. So we could review. We are checking the progress of various programs and projects. But it has not achieved a PoC. We cannot guarantee that it's going to work for sure. But the assets in question, what about the probability of each, that's how we check. It's not just about the impairment loss. But there was a change or remeasurement of the fair value on contingent consideration. In some, we review noncore costs and additional JPY 100 billion forecast for revenue as an assumption this time after upward revision. If we achieve PoC for all 4 programs, are we going to go to Phase III in next fiscal year? That's our wish. Yes.

One more question, ASP3082. There was a mention of the discontinuation and termination of 4396 and E3 ligase, which is cereblon. Did you see the depreciation in 4396 E3 ligase can be seen here?

We haven't disclosed the data yet. So I'd like to refrain from touching on the details. As we said, 3082 and 4396, the difference is the E3 ligase. What would be the results? I know you're very interested. As soon as we have the data, including 4396, we are hoping to disclose as soon as possible.

Due to the limited time, the next question is going to be the last question. Morgan Stanley, MUFG Securities, Mr. Muraoka, please.

Muraoka from Morgan Stanley speaking. MFN tariff, I have a question to you. Western major companies by the end of the year were able to settle. But for Japanese companies, no one has mentioned this yet at all. For your company, on a stand-alone basis, have you negotiated already and you have an outlook? Or by country, it's negotiated in group by country. You may say that you cannot tell us at all. But in the near future, can we expect that this is going to be settled and resolved because you have a high proportion of your business in the United States and Medicare, I am very concerned?

Muraoka-san, thank you very much. As you said, there are things we can tell you and there are things we cannot tell you. Thank you for your understanding. Mega pharmas are discussing with the U.S. government. So we are monitoring. And as of now, an official letter has not been received by us as of now. So that's the status right now. Internally, as we said from before, there are a variety of potential scenarios. So we are discussing such scenarios. Still, there's nothing we can comment as anything specific. As for the tariff, as we said in the previous meeting, we have U.S. business whose size is quite large. We have a large proportion of manufacturing in the United States, that's like 70%. We don't know about other companies, but for us, given the current status of the supply chain, tariff is going to be a big obstacle for us. We don't think so according to analysis. But this is a very important topic. So internally, we are discussing and doing simulations right now to respond to your question.

And one more question. This is the second big revision, upward revision. The question is dividend. In the beginning of the fiscal year, you came up with the level of dividend and that is maintained. What's the background of not changing it?

Thank you for your question. Basically, our principle for capital allocation has been changed. We continue to invest for the growth and at the same time to the shareholders, we are going to return in a stable manner. If there is an excessive fund, we are going to purchase our shares so that it can be returned to the shareholders and Iveric Bio is acquired and the net is increased and that is considered to be returned according to the capital allocation. And for the dividend, it's not something that we are thinking with just 1 year performance. We are considering for the couple of years when we think about the cash flow. So it was good this year. That's why it will be increased. And next year it was not really good. So reduced. It's not something like that. So that is our basic principle for our capital allocation, and we stick to that. That is how we are.

Understood. One last question from me. That is a follow-up question by Wada-san a little while ago. That's about IZERVAY. It is about impairment loss related. I would like to confirm, especially about IZERVAY. This time, the range of the impairment is reduced and IZERVAY business is ongoing quite well. So IZERVAY U.S. impairment loss proportion is not something that you have as a concern for the operation?

For IZERVAY, there's no change. We have to continue to grow it as well, and we are working on the initiative one by one. We do not think -- of course, we don't think that the sales would be flat as it is. Of course, we have to grow it further. That is an assumption with our activities, but we haven't seen any big impairment loss risk. And ex U.S., well, it's been mentioned that the approval here in Japan is also granted and also the launches of sales is started, and this is an asset not amortized, but it is now in that process. So for the IZERVAY, the situation is ongoing quite well.

Thank you very much for giving us so many questions. The time is up. With this, we would like to close this earnings call. Thank you very much for your participation.