Daiichi Sankyo Company, Limited (4568) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the JPMorgan Healthcare Conference. I'm Seiji Wakao, Japan pharma analyst in JPMorgan. And it's my pleasure to introduce Sunao Manabe, CEO of Daiichi Sankyo, and welcome him to the conference. The presentation will be followed directly by Q&A. Audience, you can submit questions any time by using Ask a Question on the data conference book. So please send your questions. For our Q&A session, Wataru Takasaki, Head of R&D Division, will join. With that, let me turn over to Manabe-san. Please go ahead, Manabe-san.

Thank you, Wakao-san. Good morning, colleagues. My name is Sunao Manabe, and I'm the President and CEO of Daiichi Sankyo. I'm joining this session from our head office in Tokyo. It is really unfortunate that this important conference has to be held in virtual format and that we could not meet in person. Before I start, I would like to thank everyone at JPMorgan for giving us this opportunity. I participated in this conference for the first time a year ago, and that was a very enjoyable experience. Please see Page 3. Today, I have 20 minutes to present an overview of Daiichi Sankyo, then our growth strategy and then how we aim to maximize shareholder value. Please go to Page 5. This is a summary of our current consolidated revenue, profit and expenses, and all numbers were estimated in October of last year. Our current annual revenue is between $9 billion and $10 billion. We are investing aggressively in R&D. More later on R&D investment. Page 6 is a slide on our comment leading to product, edoxaban, which is an anticoagulant. The product is growing strongly and globally, maintains the #1 position in specifically our direct oral anticoagulant markets, including in Japan. Slide 7 is a slide on our business in Japan. We have all different businesses, which are innovative pharmaceutical vaccine, generics and over-the-counter consumer health business. Majority of our business is innovative pharmaceuticals, and we have maintained the #1 overall market share in Japan over the last 4 years. We have multiple DS original products driving the business. Our sales lift are evaluated as most capable from the stakeholders. This strength help us in bringing competitive products from outside for further growth. Proceed with 9. This slide illustrates our current growth strategy. Back in 2016, we had confidence in our oncology pipeline. We set out to transform ourselves into an oncology leader and established a 10-year vision that reflected our ambitions for growth. The 5-year business plan we initiated in 2016 will be completed during the last quarter of our fiscal year 2020. So how did the 5-year plan go? Did it increase the value of Daiichi Sankyo? Are we improving the health and well-being of patients across the globe or was it merely an ambition? I believe we accomplished our goals. Let's see Slide 10. As you see, our share price increased by around 400% since 2016. While share price is not the only indicator of success, it is, of course, an important factor. And my own view is that we did pretty well with our 5-year plan. So what is behind the share price increase? Let me show you what drove this. Let's go to Slide 11. Our proprietary antibody drug conjugate project, or ADCs, another drug. The uniqueness of our ADC technology platform is duration of the effect and the technology that's specifically designed for that purpose. The slide shows all 7 characteristics of our technology platform, and we think that all of them contributed in making our ADCs unique. And given duration of response, duration of effect is direct and the most critical benefit of our ADC. Slide 12 shows our current R&D strategy. We called our strategy 3 and Alpha. And the 3 represent the 3 frontrunner of our current 7 ADC projects. Our #1 objective now is to maximize these 3 lead ADCs. We are allocating financial and human resources to the 3 ADCs with priority. For Alpha, which includes both oncology and oncology oral, especially specialty medicine, we are focusing on activities with potential to change the current standard of care. When products from Alpha show high potential value, we will allocate such financial resources and move them forward. Let me briefly take you through where we are with each of the 3 ADCs. First, DS-8201, our HER2 directed ADC on Slide 14; general efficacy result from the DESTINY-Breast01 study, the basis for post regulatory approval in the U.S. and Japan. This data was presented at the San Antonio Breast Cancer Symposium last month. And ORR is now at 61.4%. This is impressive when one remembers that the patient received the median of 5 prior regimens. The old patients received prior trastuzumab T-DM1 and 66% prior trastuzumab. Slide 15 is an important slide not only for DS-8201 and patients with breast cancer, but also for our ADC technology. These findings show the unique nature of our technology, delivering a unique durability of response, durability of effect. On the left-hand side is the monotherapy duration of tumor response. As you see, the median duration of response is at 20.8 months. On the bottom right, you see a table which shows the response results you saw on the previous slide. And in green is a key reference point. This is the PHP regimen, a global standard of care in first line HER2-positive metastatic breast cancer. This is from the CLEOPATRA study with triplet therapy of THP where the duration of response observed was 20.2 months, at 20.8 months in second line of treatment. And by monotherapy, our results are unprecedented in breast cancer and shows the unique nature of DS-8201. Please see Slide 16. Based on various data we have back then, when we work that, we could further maximize the value of this competitive product, DS-8201, by accelerating development and commercialization with a partner rather than doing everything by ourselves. We, therefore, ran the process to seek a partner and selected AstraZeneca. I am confident that we have chosen the best partner focused on global co-development and the co-commercialization strategy alignments. Slide 17 shows where we are with DS-8201 in commercial. We have launched DS-8201 with a breast cancer indication in U.S. and Japan last year with a brand name ENHERTU. CHMP recommended DS-8201 for approval in the EU for breast cancer last month. And we are expecting an approval in Europe soon. Gastric cancer indication has been added in Japan, and the U.S. FDA is reviewing this additional gastric indication with PDUFA date at the end of next month. Slide 18 shows the actual commercial performance of ENHERTU. Market penetration is strong in both the U.S. and Japan. In the U.S., further, the demand is in line with the forecast we established about a year ago before the pandemic. The demand is also strong in Japan, and we have increased the annual revenue forecast for current fiscal year by more than 20% in October. Slide 19 is the current clinical development plan we put together with AstraZeneca for DS-8201 in breast cancer in HER2 positive metastatic and early breast cancer. We have marched through Phase III trials as you see. In HER2 low, the DESTINY-Breast04 study is fully enrolled and is tracking to read out in fiscal year 2021. Slide 20 is gastric and lung. We are accelerating development for early treatment lines for HER2 positive gastric cancer. Lung is one of our focus area, too. Slide 21 is colorectal and other tumors. We are running combination studies with checkpoint inhibitors as well. Slide 22 is on safety. One area around safety that we are managing carefully is potential interstitial lung disease, or ILD. We have been running the safe use campaign for all clinical trials to minimize the potential risks. Here, you see the preliminary cumulative ILD data from Phase III monotherapy ongoing service. The graph shows a reasonably reassuring picture, and our ILD safe use campaign is working effectively. On Slide 23, you see the cumulative post-marketing pharmacovigilance reported data. The left is the U.S. and right is Japan, more than 1,000 patient-years exposure in the U.S. to fatal cases and 162 patient-years in Japan with no death reported. Now let's move on to DS-1062, our TROP2 directed ADC. Slide 25 is the efficacy data from the oncology Phase I lung cancer study that was presented at ASCO last year. Encouraging data and the update is planning at WCLC later this month. Slide 26 shows the spike upwards across the 3 doses. This shows patent clearly merchant volume being observed with DS-8201, which is excellent durability. Please go to Slide 27. Similar to DS-8201, our view was that we could further maximize the value of DS-1062 better by accelerating development and commercialization with a partner. We ran similar process and again selected AstraZeneca. This collaboration will enable us to allocate resources rapidly with flexibility to earlier-stage pipeline projects when required. Slide 28 summarizes the current development activities for DS-1062. TROPION-Lung01 is pivotal Phase III study in post checkpoint inhibitor and chemotherapy in NSCLC. NSCLC first line is a key area, and we are considering combination of DS-1062 and current standard of care checkpoint inhibitors. Once we have confidence of our safety and preliminary efficacy through our Phase I combination studies, one, with pembrolizumab in collaboration with Merck; TROPION-Lung02; and the other with AstraZeneca's durvalumab, TROPION-Lung04, we should move to NSCLC first line. TROPION-Lung05 is for DS-1062 monotherapy with actionable mutation. For breast cancer and beyond, the triple-negative breast cancer Phase I has nearly completed enrollment. We have, thus, a substantial plan for breast cancer at large and other tumor cohorts are also planned. Moving on to U3-1402, our HER3-directed ADC. Slide 30 shows the highlights from our NSCLC EGFR mutant Phase I study and presented at ESMO last year. Both the waterfall and spider plots up here -- are coming here for our initial technology. Slide 31 shows our development activities for U3-1402. Our priorities are fast-to-market development in EGFR mutant and NSCLC as well as combination with osimertinib. HERTHENA-Lung01 is a pivotal Phase II study in advanced EGFR mutant and NSCLC. EGFR mutant lung cancer is a tumor type which we now have observed stable pathway expression. And U3-1402 offers unique opportunity post TKI and chem. We're also testing in Phase I the combination of U3-1402 with osimertinib. While this is a combination trial with AstraZeneca drug, we don't have co-development or co-commercialization collaboration with AstraZeneca for U3-1402. As you see on Slide 32, we currently have 4 more ADC projects, and 2 of them are now in clinical trials. We will find a way to make sure that this project get the resources they need. Slide 33 illustrates our R&D work for sustainable growth. We are advancing discovery research to create assets beyond ADCs by using a variety of modalities. We will effectively utilize external assets in this area. And for example, we entered into a strategic partnership with Ultragenyx last year for the nonexclusive use of the proprietary adeno associated virus-based gene therapy manufacturing technology. Please see Slide 34, and we are currently working to make -- to take advantage of our LNP messenger RNA modality as a COVID-19 countermeasure. DS-5670 is our messenger RNA COVID-19 vaccine. And with our original cationic lipid, our objective is efficient encapsulation of messenger RNA into nanoparticles and efficient delivery to cells. We are now focusing on moving the project forward in Japan. Finally, I have listed here a couple of slides to show our effort to maximize shareholder value, which is Slide 36. In maximizing shareholder value, shareholder return is always a high priority. During the current fiscal year, we have increased dividends and currently carrying out share buyback. In addition, we have decided on cancellation of treasury shares in next April. And Slide 37, the high priority is of small investments for future growth. With the current pipeline, we will be aggressive around R&D and capital investment. We will aggressively strive to maximize future profitability as well as shareholder value and sustainable growth. Finally, Slide 38, we are currently putting together a new 5-year business plan that start from the beginning of our next fiscal year, February 1, 2021. Core part of the plan will be our strategies to enhance the pipeline and the product portfolio of our 3 lead ADCs for sustainable growth. We are planning to present our plan in March or April. So please look forward to that presentation as well. This is all from me today. Sitting next to me is Dr. Wataru Takasaki, our Head of R&D division in Japan. We are ready to take any questions that you may have. Now back to you, Wakao-san.

Thank you, Manabe-san. I'm going to start Q&A session. So if, audience, you have questions, please submit your questions by using Ask a Question on the data conference book. So firstly, I'll kick off with my question. So about outlook of profit growth in next 5 years, market seems to look for profit growth in next 5 years, judging from market consensus. So do you feel any gap between your outlook and market outlook in terms of profit growth? So I'd like to know what kind of stage you're assuming on the next 5 years, investment stage or growth stage? This is first question.

Thank you, Wakao-san. As you know, now Daiichi Sankyo's pipeline is very rich, thus, aggressive investment for R&D is critical for our future. Thus, in short term, we need aggressive book investment for R&D. I mean for a couple of years, following the aggressive investment, we may expand our profit. So please wait a while, then you can see our growth of our product.

Yes. I understand. So next about the revenue side of cancer in the U.S. for fiscal year 2025. So you have said, you're aiming for gross exceeding JPY 500 billion in cancer in the U.S. at FY 2019 second quarter financial presentation. And so yes, I think you have made a good progress on the development. And also in-house have showed good sales start. So how do you evaluate current progression towards your target fee or schedule?

Okay. Already, we have announced that our target revenue in 2025 from operating business is, as you said, JPY 500 billion. And now we see the current focus of our development of ADCs. Also we did very good to start of in-house business. Last -- now we are drafting our next 5-year business plan starting from this year April, I'd like to share our expectation for our target of revenue from oncology in that business plan. Please wait for a while.

Okay, okay. So a question about future year position on the oncology market. So do you have confidence to compete with Roche or some other big oncology players going forward?

Okay. I must say 2 things. First thing is, as I explained today, our ADCs' profile is excellent. We believe much, much better than others. Now this is the very, very competitive situation in that oncology field. Number two, through the collaboration of AstraZeneca, already we have expanded our capability for development and commercialization. And now on, we will continue to maximize our capability. But through this expanded capability in development/commercialization, I think we are very competitive with Roche and the other big pharma at least in the ADC field.

Okay. Yes. Okay. So you mentioned alliance of -- with AstraZeneca. So I want to know about partnering or in-house. So where -- I'd like to know whether you focus on partnering or in-house on the development and commercialization of ADC in long term. So do you have a plan to increase in-house projects in terms of profit? Please comment on this point.

Okay. Now we have collaboration for 2 ADC projects. Following ADC projects, we'd like to develop by ourselves. On owning ADCs, we have other types of oncology calling projects and other projects also. So following 2 partnership of AstraZeneca, I would like to develop others by ourselves to increase our revenue. Internally, we'd like to increase our capability in time.

Okay. So I have a question from audience. So about the IP of Seattle Genetics, so can you explain why you were the -- you are confident about the IP situation against Seattle Genetics?

Under arbitration or litigation, what we can share is very limited. I'll, Thus, briefly explain the clinical status. As you know, now there are 2 disputes between Astra and Seagen -- I'm sorry, Seagen and Daiichi Sankyo. Also when started 2 years ago, I think, Seattle Genetics, are now Seagen, is creating certain intellectual properties related to Daiichi Sankyo's ADC projects. However, Daiichi Sankyo is very confident that their claim is not valid. Thus, we file the DJ action. On the other hand, Seattle Genetics filed demand for arbitration. Now arbitration and integration are going simultaneously. We have significant progress in those -- in that dispute I'd like to share with you in due course. Our second one is -- last year, Seagen obtained a new patent. Based on the new patent, Seagen instituted the legal action of patent infringement against Daiichi Sankyo, I mean, October last year, I think. However, DS filed DJ action again in the District Court of Delaware in response to the Seagen's legal action. In addition, as we believe their patent itself is not valid, their new patent is not valid. This is our evaluation, and we're confident. Thus, DS initiated an action of post-granted review in December last year. Now very complicated, there are several disputes ongoing. Once we have any progress, we'd like to share in due course.

Okay, okay. I understand the situation. Yes. So next question about ADC pipeline. So you have 7 ADC products in your pipeline. So do you have any ADC products for DS-3939? Do you make effort to increase the number of ADC assets? If so, how many ADCs do you plan to enter into pipeline in next 5 years?

This is Wataru speaking. So now as I said, we have the 7 pipeline based on the -- our DXd ADC platform. So now we are thinking about the new generation of the ADC. But it is not time for us to share about the status of the new generation of ADC, the reason why there are no comments. So maybe then, the time is coming, we can share an update of the new generation of the ADC.

Okay. So if you can, so please comment on your ADC. So what will be improved in the next-generation ADC? And what are the problems with current ADC technology?

I think that we don't have any obvious problem on this current DXd ADC platform. However, we are figuring that another combination of the payload and linker. That is a new platform of the ADC. But I cannot say anything about the strongness or the weakness of the new-generation ADC at this moment. Sorry about that. But again, please wait a moment to issue the new ones.

Okay. I understand. So next, I want to know about ILD. So at Slide 22, you have shown ILD data, including ongoing Phase III, which are DESTINY-Breast02 or second-line therapy; Breast03 or second-line; and Breast04, HER2 low operation. So judging from this data, I think you have strong confidence on the data of this Phase III in terms of ILD is correct. Do you have any concern on the safety of these Phase III programs at the moment?

Yes. We are very confident. You are right. So -- and also with the good management system for the ILD makes the awareness at high level and also we're asked on a vision to make sure that a good process to find out the ILD. So those kinds of campaign is now -- they're working well. So we are very confident to manage ILD.

Okay. So more so about DS-8201. So you have showed strong confidence in success of DS-8201 to positive HER2 line setting or R&D event in this -- today's presentation. So could you comment on the setting for HER2 low? Do you have any confidence in this setting? Please comment on your opinion. Or was is it saying?

So now we are conducting the marquee and people correspondents for the HER2 low in the breast cancer. But that these are -- the DESTINY-Breast is on hold. So still, we are waiting to having the results. So the timeline for the top line is in our fiscal year 2021. And then maybe the -- coming soon -- the data will come soon, but then please wait again for a moment.

Okay. So...

Then we can be confident about the HER2 roll strategies in the breast cancer.

Okay.

Okay. So next, question about -- so clinical trial data. So today, I see the reference data, so now I was asked about opens. So can you comment on big data? DS-1062 for -- in NSCLC, ORR was around 5% and disease control ratio was 80%. And also briefly comment on DS-8201 who had zero expression in NSCLC treatment. So ORR was -- study were 25%. This data was lower than cell mutation, HER2 mutation data. So can you please comment on this point?

Okay. So the -- first, the second question. So you are asking about the ORR in 8201 NSCLC?

Yes.

So yes. Then the -- sorry, sorry but the points?

So I would -- please share your comment source on this data. Are you satisfied with data or disappointed with -- or we should wait after presentation?

Yes. Yes. Please wait for my presentation. We are very confident about the data of ORR in the math -- I'm sorry, I'm talking about DS-1062. So now that we have a good data for the [indiscernible]. Those are the 27%, I think, 25%, 26%, respectively. So those numbers are of very good shape for the coming pivotal studies in the NSCLC.

Okay. So we have -- I have a lot of question about DS-5141 for DMD. So about -- yes, so could you comment on the future plan of this program? And -- so could you give a hint to -- sorry, please comment on the future plan on this project.

Yes. Just to cut on our top brand in the last December, last month, but still we are evaluating the result of the operating results. So we need a little time to think about our efficacy and safety. However, regarding the safety, I would just say the clinical study was conducted very safely. So those are one of the key elements from the outcome. So now that we are doing evaluation of the [indiscernible] and also the skipping activities. Maybe the -- in due course, we can share that. We'll have to present that and analyze.

All right. Okay. So 3 minutes left. So I got -- I want to ask 2 questions. First question from audience. So how will you prioritize your resource on some of these programs outside ADC?

Okay. Now with correlation with AstraZeneca, R&D expense has been reduced. Remaining budget and the resources are allocated to other projects. [indiscernible] projects.

Okay. And this last question about future view of the company. So where are we? So are you trying to become an ADC company? Or do you try to expand your technologies, having more broader vision in longer term?

To realize our 2025 vision to be a global company innovator with a complete advantage in oncology. ADC is the most important of assets. However, beyond the ADC, beyond 2025, we would like to survive. We need sustainable growth for that purpose of that objective. We don't like to limit ourselves to the ADCs only nor oncology only. We'd like to find out other pillars for our sustainable growth other than ADC.

Okay. Thank you again. So I think I asked everything, so thank you for your time. So now the time of project has come. So we'll have to close this Q&A session. Well, thank you very much for your time, Manabe-san and Takasaki-san. I appreciate your presentation and Q&A. I hope to see you soon.

Thank you, Wakao-san. Thank you very much.

Thank you.