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

Good afternoon, everyone. Welcome to the JPMorgan Healthcare Conference. I'm Seiji Wakao, Japan pharma Analyst, JPMorgan. And it's my pleasure to introduce Manabe-san, CEO of Daiichi Sankyo and welcome him to the conference. Let me turn it over to Manabe-san. Manabe-san, please go ahead.

Thank you, Wakao-san. My name is Sunao Manabe, CEO of Daiichi Sankyo. Hello, colleagues. Thank you for showing interest in Daiichi Sankyo. Also, I'd like to thank JPMorgan for giving me as this opportunity. It was a great experience for me to participate in last year JPMorgan Conference. Then I am very happy to be here again. Let's go to Page 3. Today, I'll begin by providing a brief overview of Daiichi Sankyo. Then I will present our ADCs focusing on our 5 lead products, and I will take you through our latest R&D strategy. And lastly, I will cover our shareholder returns. Go to Page 4. Daiichi Sankyo is one of the leading Japan pharmaceutical companies, headquartered in Tokyo. For the current fiscal year ending March 31, 2024, we expect revenue of approximately JPY 1.6 trillion, an increase of 21% from the previous fiscal year. The forecast for core operating profit, which excludes temporary income and expense from operating income is JPY 155 billion, reflecting a growth of 26% from the previous fiscal year. Currently, Japan represents 37% of our total revenue, while North America and Europe account for 29% and 18%, respectively. Our revenue growth outside of Japan, particularly in the U.S., is primarily driven by the strong performance of our key product, the HER2-directed ADC, ENHERTU, which I will discuss in detail later. Next, I will present our ADCs. Please go to Page 6. Page 6 shows our proprietary DXd ADC technology, which is utilized for ENHERTU and other DXd ADCs that follow ENHERTU. As shown on the right part of the slide, there are 7 characteristics that make our DXd ADCs competitive, including the payload, which is optimized for ADC, high drug-to-antibody ratio and stable linker, which are all unique. Recent medical conferences, including ASCO, the American Society of Clinical Oncology, highlighted the focus of many oncology companies of ADC development. I believe that the competitive efficacy and safety profiles of our products, including ENHERTU, have been the driver behind this trend, and we are working to enhance our DXd ADC technology further. Page 7 shows the current development status of our 5 lead DXd ADCs. We are working with AstraZeneca for the first 2 ADCs and with Merck for the next 3 ADCs. Clinical development is progressing steadily for all 5 ADCs, and the value maximization is well on track. Let me briefly introduce an overview for each product. Page 8 shows the revenue growth of ENHERTU since its launch in the U.S. in January 2020. Revenue is growing strongly through rapid market penetration and indication expansions. And the global revenue for the current fiscal year is expected to reach JPY 433 billion, approximately a 70% increase from the previous fiscal year. ENHERTU is currently approved for specific indications in breast cancer, gastric cancer and non-small cell lung cancer in the U.S. For breast cancer, ENHERTU has established a strong leadership position in HER2-positive breast cancer and is making notable progress in HER2 low breast cancer, which is a new patient segment that we created and accounts for approximately half of all breast cancer cases. In addition, we expect to obtain a filing acceptance letter in U.S. for a new indication, tumor agonistic therapy for patients with HER2 expressing solid tumors with the current fiscal year, which is by the end of March. Page 9 shows the significant development progress for Dato-DXd on TROP2-directed ADC. Dato-DXd have shown promising results in 2 pivotal trials. TROPION-Lung01 is a Phase III study, comparing Dato-DXd to the current standard of care docetaxel in non-small cell lung cancer patients with or without actionable genomic alterations. Dato-DXd demonstrated a statistically significant improvement in progression-free survival compared to docetaxel. The data have been shared with the FDA, and we expect to obtain a filing acceptance letter in the U.S. within the current fiscal year. In addition, TROPION-Breast01 is a Phase III study comparing Dato-DXd to investigator choice chemotherapy in hormone receptor positive, HER2 low or HER2 negative breast cancer patients. We aim to establish Dato-DXd as the new standard of care TROP2 ADC in hormone receptor positive, HER2 low breast cancer and a new option for HER2 negative breast cancer. We plan to file this indication in the U.S. within the current fiscal year as well. Page 10 shows an overview of our strategic collaboration with Merck for HER3-DXd, DS-7300, DS-6000, which started in October of last year. Positive data in several tumor types, including lung and ovarian cancers, has enhanced the product value for the 3 products. At the same time, the competitive landscape in ADC development is becoming intense as I mentioned earlier, driven by 3 environmental changes, enhanced capacity, resources and capabilities have become necessity to maximize our ADC portfolio. We, therefore, determined that our strategic collaboration would be the best approach to deliver our innovative products to more patients more quickly. Through the collaboration, we are working to accelerate the development and to expand the possibilities for these 3 ADCs. In addition, we will allocate the freed up internal resources to our new growth drivers following our 5 lead DXd-ADCs. The financial terms are as shown on the bottom of this slide. Next, I will take you through our R&D strategy. Please go to Page 12. Page 12 is our R&D strategy, which we call 5DXd-ADCs and Next Wave. We have updated our R&D strategy from 3 and Alpha to 5DXd-ADCs and New Wave back in April last year. In line with the strong progress of our pipeline, our main objective now is to maximize the value of these 5 lead ADCs. For the ENHERTU and Dato-DXd, we will maximize their volume together with AstraZeneca. Additionally, now we have a new collaboration with Merck for 3 ADCs: HER3-DXd, DS-7300 and DS-6000, as I presented earlier. Through these collaborations, we will accelerate development and expand possibilities for these 5 lead ADCs. Page 13 shows our expand and extend strategy to deliver our innovation to more patients. When we say expand, we aim to target earlier lines of therapy and broaden our scope beyond the lung and the breast cancer. Especially in breast cancer, our clinical development plan is expanding nicely. Please see Page 14 for our efforts in breast cancer. Our breast cancer program is very comprehensive. ENHERTU shown in orange is approved for certain patients with HER2-positive and HER2-low metastatic breast cancer. For HER2-positive breast cancer, we anticipate promising results in earlier stage of therapy, which enables ENHERTU to contribute to more patients such as first line, adjuvant and neoadjuvant settings. In addition, we are also awaiting the result for the first line HER2-low setting from DESTINY-Breast06. Regarding Dato-DXd shown in blue, positive results were acquired from TROPION-Breast01 study in hormone receptor-positive setting, as I explained previously. In addition, multiple pivotal trials for triple-negative breast cancer in first line, adjuvant and neoadjuvant settings are underway. Last but not least, HER3-DXd shown in green, also showed efficacy signals in breast cancer, and we are currently evaluating the potential for HER3-DXd in breast. The right part of Page 15 shows our extend strategy that will contribute to the extension of our ADC franchise including other DXd-ADCs that follow lead 5 DXd-ADCs and next-generation ADCs. We are interested in evaluating our existing pipeline assets to determine how they can be combined with DXd-ADCs. This will provide us with the opportunity to further establish our presence in breast cancer, lung cancer and other solid tumors. We are actively pursuing sustainable growth with these R&D strategies by striking a well-balanced approach between investment for further growth and shareholder returns. Now, shareholder returns, please go to Page 17. Page 17 shows our shareholder return policy. By improving capital efficacy and by enhancing shareholder returns, we aim to achieve dividend on equity of 8% or more in fiscal year 2025, which exceeds shareholders' equity cost. We will enhance shareholder returns by dividend increase, taking account for profit growth and by flexible acquisition of our own shares. Page 18 shows the trend for our profit growth and dividend increase. As for annual dividend for fiscal year 2023, we expect an increase by JPY 10 per share from the previous fiscal year, given the profit growth driven by strong performance of ENHERTU and from the strategic collaboration with Merck. We will enhance shareholder returns in line with our shareholder return policy and will maximize our shareholder value. Finally, please go to Page 20. We are currently working on our 5-year business plan that started in fiscal year 2021 for sustainable growth. By accelerating the value of maximization for our ADCs, I am very confident that we will achieve our 2025 goal to become a global pharma innovator with a competitive advantage in oncology. We will continue to grow toward our 2030 vision. Which is to become an innovative global health care company, contributing to the sustainable development of society. This is all from myself. Thank you very much for your time and attention today. Mark Rutstein, our Head of Global Oncology Clinical Development [indiscernible] and myself are very happy to take any questions that you may have. Thank you.

Thank you, Manabe-san. So let's start the Q&A session. [Operator Instructions] So I'll start kick off my question. So could you comment the progress of midterm 5-year business plan? So I'd like to know the positive side and negative side of the progress of 5-year business plan based on the business result in 2023.

Thank you, Wakao-san. Let me start from the positive side. As you know, currently, Daiichi Sankyo, business midterm plan is running starting from fiscal year 2021. As I explained you, our first numerical target when we started the midterm plan in fiscal year 2025 was JPY 1.6 trillion total revenue and JPY 600 billion from oncology. But based on the latest excellent performance of ENHERTU and the other projects, last year, our latest forecast revenue in 2025 is updated from JPY 1.6 trillion to JPY 2 trillion and JPY 900 billion from the oncology business. As such, in general, our midterm plan is progressing very well. And also, other than ENHERTU, Dato-DXd and the other 4, including other 3 ADCs, the progress of the clinical trials are on track. Also, we started a new collaboration with the Merck. Thus, again, our midterm plan is progressing well. In terms of negative part, I don't think we have a significant negative part at this moment. However, one of the issues is we'd like to identify next driver following ADCs for our future. Thank you.

And next about TROPION-Lung01. Probably everybody is interested here. We'd like to know how your evaluation of Dato-DXd has changed based on the result of TROPION-Lung01?

We are very confident about the Dato-DXd's potential. Mark, would you add?

Yes, sure. So based on the data of TROPION-Lung01, we believe that Dato-DXD has the potential to be an important drug for the treatment of non-squamous non-small cell lung cancer. We had a positive study in the intent to population. We could see the benefit was driven in the non-squamous population. And as Manabe-san mentioned, we have now filed that data package. And we do expect filing acceptance within fiscal year 2023 or by March 2024. But of course, our interest in Dato-DXd is not relegated to the second line setting in non-small cell lung cancer, right? We have a broad frontline program. We have 2 studies with Dato-DXd with pembrolizumab with or without chemotherapy, 1 in the PD-L1 less than 50% segment, 1 in the PD-L1 greater than 50% segment. These are studies TROPION-Lung07 and -Lung08. And we're now in the process of amending the TL08 study to increase the probability of technical success by capping the squamous population because, as I mentioned, benefit was driven by the non-squamous population in that study. But then going and looking beyond lung cancer, Manabe-san showed we have a broad program in breast cancer. We have a positive Phase III trial in the hormone receptor positive HER2 lower negative setting, TB-01 that's now filing. And then we have a very broad 4-pivotal trial program for Dato-DXd across all lines of therapy of triple-negative breast cancer. And then beyond that, we have early phase signal finding studies in GU cancer, gynecologic cancer, GI cancer. So this is an important asset for us, and we remain very focused on it.

Okay. And could you comment more color on the status of the filing of TL-01? So can I assume that its progress is in line with your plan? Or are there any difficulties?

Yes. So we don't usually comment on the specifics of the filing time lines. I would say so far so good. I can just say that we have filed, and we're looking for the filing acceptance within this fiscal year 2023. And it's hard for us to speculate on the indication and the response from FDA. But we, and as I mentioned, do believe that Dato-DXd could be a potentially practice-changing in the second line setting of non-squamous non-small cell lung cancer. And that's all that I could really comment now on the specifics of the regulatory process.

Any questions from the audience?

Taichi Noda from T. Rowe Price. Two questions. One for Manabe-san. You've got the Merck deal achieved, and it was a great sort of deal from my point of view. But with the cash coming in, I don't know, in yen terms, but the FORMAT USD 3 billion to USD 4 billion -- USD 4 billion to USD 5 billion cash in front of you, what is the sort of a way to spend? Are you going to keep it? Or you will do something with it? What's the sort of few -- sort of choices you have in your mind? That's the first question. And second question on the development programs. What's sort of priorities changed for HER3 and DS-6000, particularly? I saw some potential sort of movement in the HER3-DXd in the breast and also DS-7300, I think, given the squamous cell lung cancer didn't really go well for Dato, maybe you can do something with 7300. Just could you just elaborate on how those 3 assets will be developed over time?

To your first question, through the collaboration with the Merck, our internal budget and resources can be allocated to others. Of course, through the collaboration, we can get some cash. But under a current situation, Daiichi Sankyo's first priority is to invest our internal asset first. M&A and other investment would be a lower priority.

I can take that. Yes. So your second question was related to the future development of HER3-DXD and DS-6000 and DS-7300. So indeed, HER3-DXd the front -- the initial indication that we pursue, it's now received prior to review is in the later line of EGFR mutation-positive non-small cell lung cancer. But as we have presented previously, there's activity of HER3-DXD in really all the key segments of breast cancer. So we are considering different strategies, not able to disclose specifics. But this drug has potential in triple-negative breast cancer, hormone receptor positive breast cancer. And so we're certainly interested beyond just EGFR mutation-positive non-small cell lung cancer. Now for DS-6000, we actually have now on clinicaltrials.gov shown the entry of DS-6000, our CDH6 ADC into late-stage trial of platinum-resistant ovarian cancer. So we've shown our DXd in a population of 50 platinum-resistant ovarian cancer patients who are heavily pretreated for 4 lines, previous lines, was a 46% response rate. So that leads us to be very interested in this drug not only in the platinum-resistant setting where we've already launched a Phase II/III study that's on clinicaltrials.gov, but additionally in ovarian cancer more generally. And then you've asked about DS-7300. So this is our B7-H3 ADC. Its lead indication is small cell lung cancer. And within 2024, we will initiate pivotal trials in that setting. And that's simply because we've seen in early cohort of small cell lung cancer, heavily pretreated, we've seen an approximate 50% response rate. So that is why that's our lead indication. Now beyond that and based on the expression of B7-H3 and what we've shown publicly, the drug has shown activity in squamous non-small cell lung cancer, a small cohort, squamous esophageal cancer and also prostate cancer. So we're going to continue to study those areas and are considering development plans in all possible indications, including in squamous lung cancer, but more to come.

As it relates to Dato-DXd, can you update us on the use of potential TROP2 biomarker? And to the extent you are successful in identifying a product that works, could you amend the first-line Phase III trials to incorporate that?

Yes. So thank you. So Dato-DXD like our other DXd-ADCs is a targeted agent. So we certainly explore the possibility for a biomarker. Now TROP2 itself is very highly expressed in the target indication so far for Dato-DXd, that is non-small cell lung cancer and breast cancer. So despite that high expression, we do have exploratory efforts underway in all of our studies to look at the possibility, whether it be TROP2 expression or some other molecular parameter analyte that could help us predict response to Dato-DXd. But it is exploratory largely in the studies we're conducting. If we do find a predictive marker that we think is important, then absolutely, we would adapt our programs in such regard. Now I would also mention, though, that our partner, AstraZeneca, is running a study called AVANZAR. That's what Dato-DXd and durvalumab and carboplatin in the frontline of non-small cell lung cancer. And in that study, they're looking to validate an assay. They're looking to validate a TROP2 assay. So that could be something that comes along as well, but I would rather defer the questions to them on specifics of the development of that assay.

So relating to Dato, are there some competitors in TROP2 ADC area? So could you comment on the advantage of Dato-DXd compared to the other TROP2 ADCs?

Yes, so I mean, there are several -- well, I think there's -- there are now -- like the Kelun asset, which is partnered with Merck, is now in the pivotal trial setting of non-small cell lung cancer. And then, of course, there's TRODELVY, which is approved, the asset from Gilead. And it's hard to compare the assets from a safety and efficacy standpoint, because we really have no head-to-head data. But what we do know is -- I mean Dato-DXD is very active. And if we look from a cross-trial comparison, I believe we have a very competitive agent. And I think that relates to the DXd platform where -- and I think Manabe-san showed that slide. I mean, there are 7 key attributes of the DXd platform, and these were built -- these were designed specifically to overcome limitations of previous generations of ADCs. So I would say that we think our asset is quite competitive. We think it's a leading asset. Hard to make a clear comparison head-to-head without an appropriate head-to-head data set. But also, I would refer to the fact that we are quite advanced in our program. And so we have a lot of confidence in our program.

And so next about ENHERTU for [indiscernible] positive and HER2 low population, especially the strategy for the development on earlier line in DB-06. So recently you have presented data on DB-08. Is it correct to assume that you are more positive about the development of earlier treatment lines than in the past?

So we're definitely interested in studying ENHERTU in an earlier treatment line in DESTINY-Breast06, and DESTINY-Breast06 is in that HER2-low population where patients have not yet received chemotherapy. So we're interested in going earlier. We did present data from DB-08 that, as you mentioned, this is in HER2 in combination with endocrine therapy, either anastrozole or fulvestrant. I mean, what we could see is that the combinations are active and tolerable, but it was hard to really come to conclusions on efficacy given the fact that there are approximately 20 patients per cohort with the anastrozole combination and the fulvestrant combination. So really, we would have to do more research to understand the potential of ENHERTU in combination with endocrine therapy. That being said, we are very interested, as I mentioned, in studying that earlier hormone receptor positive HER2-low space. We're considering various options within HER2 currently. And we're just not prepared to share any specifics on that program, but you'll likely see more to come from us.

Any question?

Congratulations on the data. Heidi Wang, OBI Pharma. 2 questions. One is a small one related to the TROPION-Lung01. And as you know that FDA prefers to see the OS data. So I see the great PFS data, but I presume that you also have provided the OS data. And the second question is related to, I see how you lay out the entire clinical program for ENHERTU, which is very impressive including the early lines. But the question is that how are you going to position your subsequent ADCs in a pipeline to find niche or go beyond what you're building for ENHERTU into an empire?

Yes. So great questions. And yes, so with respect to TROPION-Lung01, overall survival is a dual primary end point in that study, and it certainly will be of interest to the regulatory agency. But we're not commenting on our regulatory strategy and how it relates to providing OS and the timing of that. But I can say that for certain, both PFS and OS will be examined by regulatory agencies. And with respect to the fact that, yes, ENHERTU now is being studied across various segments of breast cancer and then we do have additional DXd ADCs which are active, such as HER3-DXd in breast cancer. So we're looking carefully at appropriate sequence. We're trying to understand. One of the key questions for us is to understand would resistance to ENHERTU and the DXd platform, would that be target-mediated resistance or payload-mediated resistance? And the answer to that question would help us understand how to sequence the ADCs. We also consider potentially rational combinations of ADCs, including in breast cancer. So a broad translational campaign to try to address the question you stated, because certainly, when a drug is as successful as ENHERTU and is capable of meeting unmet need in a broad population of patients, we absolutely have to think what is going to be next. And then lastly, in regard of that, we're developing multiple next-generation ADCs, where we vary the structure, we look at different targets, payloads, et cetera. We actually do have a next-generation ADC, are in the clinic DS-9606. So I gave a broad answer to show you that we're very interested at sequence, combinations and next generation.

Okay. Do you have a question about ADC. So while other companies also focus on ADCs, so I'd like to know the advantages of Daiichi Sankyo ADC technologies.

Yes. So I think yes, certainly acknowledge that there's an intense interest in ADCs now. I mean I think it's an exciting time in the industry. And I think in the end, that's going to be good for patients and for oncologists, right? Because they're always looking for better treatments. I think that Daiichi Sankyo has been a pioneer and a leader in the ADC field and definitely seeks to continue to lead. We showed -- one of Manabe-san's slides had the 7 key attributes relating to payload and linker in different aspects, which have really given the DXd platform a competitive advantage. And we can see really from the growing evidence base that's there, what is capable from the DXd platform. That is now ENHERTU is approved -- has 4 clinical indications and hopefully, more on the way. And Dato-DXd now has the 2 positive Phase III trials in lung cancer and breast cancer, respectively. HER3-DXd is now under priority review for -- based on a pivotal Phase II study in the second line -- I'm sorry, in the third line plus of EGFR mutation positive non-small cell lung cancer. I also answered a question earlier that DS-7300, our B7-H3 ADC is now entering -- going to enter pivotal trials in small cell lung cancer. Our DXd, our CDH6 ADC is already in a Phase II/III study in ovarian cancer. And we now have a sixth DXd ADC DS-3939, a Mucin1 ADC that's in the clinic. So there's now a comprehensive database in support of the success of this DXd platform. Now beyond that, the same scientists that built the DXd platform, that's the basis of these 5 late-stage ADCs that will all soon be in pivotal trials, all 5 of them. Those same scientists are looking in a data-driven way aggressively at next-generation ADCs. And what can we do beyond DXd, right? And so that is a huge focus of our company.

2 minutes left. And finally, could you comment on balance between profit and R&D investment? Your company plans to enter a period of profit growth starting new fiscal 2024, which is ahead the number of clinical trials related to ADCs is expected to continue to increase. How do you balance the R&D investment with profit?

Okay. In our fiscal year 2025 goal, one of them is the 40% of operating profit before R&D expense. We have not changed that goal yet. We will keep that 40% of [indiscernible] target. Of course, we -- our profit is growing. On the other hand, our investment is also more than expected when we planned. But both are growing, then we'd like to finally keep 40% of our target.

Okay. So it's time to close. I really appreciate your comment. Thank you for joining us. Thank you so much.

Thank you.