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

[Interpreted] Ladies and gentlemen, we would like to start FY 2025 Q2 financial results presentation. My name is Asakura, in charge of Corporate Communication. In this presentation session, we are going to use both Japanese and English. We have simultaneous interpretation service available. So please make sure you click on the language button to choose the language of your preference. We have Japanese, English and original audio. If you select on original audio, you should be able to hear original audio. And on the Zoom screen, we are going to present both Japanese and English presentation material. And for the live streaming, we are going to present the Japanese presentation material. Our corporate website, IR library, earnings call related material page carries presentation material, both in Japanese and English. And let me introduce today's speakers. We have Representative Director and CEO, Okuzawa. We have the Head of Global R&D, Takeshita. We have Ken Keller, who is the Director and Oncology Business Head. We have CFO, Ogawa. First, Okuzawa and Takeshita will offer you the explanation of the highlights of the second quarter results, and we are going to receive questions from investors and analysts by 5:00 p.m. Media people can start asking questions separately from 10 minutes past 5:00 p.m. Today's session is going to be audio recorded. I would like to ask for your understanding in advance. Please, Mr. Okuzawa.

Good afternoon to you. This is Okuzawa speaking. Thank you very much for your joining this financial results representation of Daiichi Sankyo. And now we'd like to explain to you based on the material of the unconsolidated financial results of the second quarter of FY '25, which was announced externally on 1:00 p.m. Japan Standard Time today. This is Slide 3. I would like to first cover the fiscal year '25 second quarter financial results and the fiscal year '25 forecast, business update and then R&D update. In this order, I'd like to present. And as to the R&D update, I would like to ask Dr. Takeshita, the Global R&D Head, to explain, and we will be entertaining your questions at the end. Please now look at Slide 4. This slide shows the outline of the FY '25 second quarter financial results. And the revenue was JPY 975.4 billion, increased by JPY 92.6 billion or 10.5% year-on-year. Cost of sales increased by JPY 25.8 billion and SG&A expenses increased by JPY 51.3 billion increase and R&D expenses, JPY 23.5 billion increase year-on-year. As a result, core operating profit was JPY 158.6 billion, declined by JPY 8 billion or 4.8% year-on-year. Operating profit, including the onetime profit and loss was JPY 144.2 billion, declined by JPY 42.7 billion or 22.8% year-on-year. And the profit attributable to the owner of the company was JPY 130.8 billion, declined by JPY 15.9 billion or 10.8% year-on-year. As to the result of the exchange rate, $1 is JPY 146.04, and this is the JPY 6.58 appreciation year-on-year and EUR 1 was JPY 168.06 and the yen depreciation by JPY 2.13 year-on-year. And this is Slide 5. Now I'd like to talk about the factors contributing to the increase or decrease year-on-year. Revenue increased by JPY 92.6 billion year-on-year. And now I'd like to show you the breakdown by the business unit. Let me begin by Japan Business Unit and others. The BELSOMRA for insomnia; and DATROWAY, which is the antitumor drug; and LIXIANA, direct oral anticoagulant; and TARLIGE for pain; and ENHERTU for antitumor effect, increased their sales. And this absorbed the realized sales for unrealized gains for Daiichi Sankyo Espha that was JPY 11.2 billion and also the decline by the vaccine business shrinkage that was JPY 6.1 billion. We had overall increase by JPY 1.6 billion totally. And now let me talk about the Overseas Business Units. And here, we have excluded the impact by the foreign exchange. Oncology business increased by JPY 69.7 billion due to the growth of ENHERTU and also the contribution of the sales by DATROWAY. And American Regent experienced a decline by the sales by JPY 7 billion for the decline of the Injectafer and Venofer for iron deficiency and anemia. And EU Specialty Business increased by JPY 16.9 billion due to the growth of the NILEMDO and NUSTENDI, which are hypercholesterolemia treatment increase. And in ASCA business, which is in charge of the Asia and the Central and South America, there was a growth of the ENHERTU in China and Brazil mainly, and that experienced JPY 22.9 billion of increase. And the upfront payment and regulatory and sales milestone, et cetera, related to AstraZeneca and U.S. Merck increased by JPY 5.6 billion. Thanks to development milestone income with U.S. EGFR-mutated NSCLC of DATROWAY and also upfront payment of the agreement of the strategic alliance with U.S. Merck for 3DXd ADCs booked. And we have also received the second upfront payment of JPY 750 million from Merck USD for -- U.S. for R-Dxd. And from second -- third quarter this fiscal year through the end of expected exclusive period, it will be booked as revenue. And the ForEx impact was JPY 17.1 billion negative. Slide 6 shows the factors contributing to the change in core operating profit. I will explain about the background of JPY 8 billion profit. As I explained earlier, sales decreased by JPY 17.1 billion due to the FX impact. Revenue increased by JPY 92.6 billion. And next, I will explain cost of sales and expenses, excluding the impact of FX. Cost of sales increased by JPY 28.3 billion due to inventory write-down on DAICHIRONA and unqualified products. And in addition, the sales increased by JPY 109.7 billion in real value, excluding the impact of FX rate. SG&A increased due to increase profit sharing with AstraZeneca. This represents an increase of JPY 61.8 billion. As for R&D expense due to the progress of development of 5DXd ADCs R&D investment have increased by JPY 30 billion. Total cost reduction due to exchange rate effect was JPY 19.4 billion. Actual decrease in core operating profit, excluding the FX impact was JPY 10.4 billion. Next, on Slide 7, I will explain the change in net income. Core operating profit, as explained earlier, decreased by JPY 8 billion, including FX impact. Regarding one-off income and expenses, in the same period last year, a gain of the sale of Daiichi Sankyo Espha shares was recognized as one-off gain. However, this was no longer such impact from this fiscal year. And revenue decreased despite income related to the litigation with former Ranbaxy shareholders. In addition, due to the CMO compensation fee following the change in the launch date of HER3-DXd and the write-down of inventory for DATROWAY and HER3-DXd, profit declined by JPY 34.6 billion. Financial income and expenses increased by JPY 13.3 billion due to improvement in FX gains. Corporate tax declined by JPY 13.5 billion due to a decrease in profit before tax and decrease in effective tax rate compared to the same period last year. As a result, profit attributable to the parent company for the period decreased by JPY 15.9 billion year-on-year to JPY 130.8 billion. Next, I will talk about our financial forecast for fiscal 2025. Please refer to Slide 9. Our revenue is revised upward by JPY 100 billion from the April forecast to JPY 2.1 trillion. This revision incorporates lower sales of Injectafer and Venofer at American region and decreased milestone income for ENHERTU, while reflecting the positive impact of weaker yen anticipated sales growth primarily driven by DATROWAY in Japan and U.S. and ENHERTU in the United States. Cost of sales is expected to grow by JPY 30 billion due to higher expenses from the upward revision in revenue forecast and FX impacts as well as inventory valuation losses for DAICHIRONA and unqualified products. SG&A are expected to increase by JPY 65 billion due to FX impacts and higher profit sharing with AstraZeneca associated with increased sales. R&D expenses are expected to increase by JPY 5 billion, primarily due to FX impact. As a result, core operating profit is projected to be JPY 350 billion, unchanged from the April forecast. OP is expected to decrease by JPY 15 billion to JPY 335 billion, reflecting the recognition of one-off gains and expenses through the second quarter. Profit before tax and net income attributable to owners of the parent, reflecting the revision to OP are projected to be JPY 355 billion and JPY 288 billion, respectively. The FX rate assumption for the third quarter and onwards are JPY 150 per U.S. dollar and JPY 170 per euro. The weaker yen against April forecast is expected to drive revenue by about JPY 68 billion and the core operating profit by approximately JPY 6 billion. With this revision to the forecast, we now expect to achieve 4 out of the 5 KPIs for FY 2025, which is the final year of the fifth midterm business plan, which are revenue, oncology revenue, core operating margin before R&D expense deduction, ROE, and DOE. The exception is core operating margin before R&D expense deduction. Regarding the core operating margin before R&D expenses, while the target was 40%, unfortunately, it is expected to fall slightly short. This is because anticipated timing of receipt of a portion of ENHERTU development milestone income is now in fiscal year 2026. We'll continue to make improvement as we move toward the 6th MTP. Next, let me share with you the business update. Please look at Slide 11. This slide shows the ENHERTU sales performance. The global revenue of the second quarter of FY 2025 was JPY 318.4 billion, JPY 57.1 billion increase year-on-year. And in all major countries and regions, we have achieved the #1 of the share of the new patients in existing indications such as breast cancer, gastric cancer and lung cancer. We have established a position as a standard of care. And since the launch, quarterly revenue reached JPY 1 billion for the first time. And as to the whole year forecast, penetration in the chemo-naive hormone receptor positive and HER2 low or super low or ultra-low expression breast cancer market progressed more quickly than we have expected in U.S. and Germany. So we have updated the forecast to the JPY 694.2 billion, increased by JPY 32.1 billion versus April forecast. And this indication achieved the #1 share of the new patient in Germany. And also, this is a driving force in Germany, where it is launched only in Europe. And also, we have started promotion in August in Japan. Next, let me talk about the sales status of DATROWAY. Please look at Slide 12. Global product sales for Q2 of FY 2025 reached JPY 15.7 billion. Significant sales growth was achieved in the U.S. and Japan for hormone receptor positive, HER2-negative breast cancer with prior chemotherapy and in the U.S. for EGFR-mutated NSCLC exceeding expectations. Globally, the drug has already been administered to over 2,000 patients cumulatively. For both breast and lung cancer, unmet needs are exceptionally high, particularly in the third line and later treatments. Larger-than-expected number of patients received treatment and Q2 results significantly surpassed expectations. Therefore, the full year forecast has been updated to JPY 37.8 billion, up by JPY 16.2 billion from the July forecast. Sales for the breast cancer are progressing steadily in both U.S. and Japan. We are promoting knowledge of preventive care and treatment for side effects such as stomatitis and dry eye through educational activities targeting at HCPs. Furthermore, this indication has already been approved in over 35 countries and regions. For lung cancer indication, following the launch of promotion in the U.S. in June, it has already acquired new patients comparable to breast cancer within just initial 3 months, demonstrating a very strong sales ramp-up. We will continue to pursue deeper market penetration in existing regions and expand into new countries and regions while also expanding indications. Our goal is to deliver ENHERTU and DATROWAY as to many patients as possible who are in great need. Next, we will move on to the R&D update. I will now hand over to Takeshita, Head of Global R&D.

Thank you very much, Okuzawa-san. It's a pleasure for me to give you an update on the important clinical trial data for the last quarter. Many of these clinical trials are ones that are presented at ESMO or sometimes in -- from the World Lung Cancer Conference. So first slide is the DESTINY-Breast11. This trial and DB05, which you will see next, represent a pair of clinical trials that bring ENHERTU into early-stage HER2-positive breast cancer in a curative intent setting. So for these reasons, these are two important studies. And first, on DESTINY-Breast11, this is a neoadjuvant study and ENHERTU followed by THP before surgery resulted in a pathologic CR rate of 67.3% compared to the old standard of 56.3%. So this is a rather clinically meaningful and large improvement in the pCR rates. And we could also see on the right-hand side of the slide, an early trend towards improvement in event-free rate, even though this is a relatively immature set of data at this point with a hazard ratio already of 0.56. So this really represents the first positive global registration trial for a new agent in a neoadjuvant HER2-positive early breast cancer setting in over a decade. Next slide. This is the other part of the pair of clinical trials in early breast cancer, DB05. This is a clinical trial of the post neoadjuvant setting of ENHERTU in patients who remain positive after the treatment with a neoadjuvant therapy. And in this clinical trial, we can see that the post neoadjuvant ENHERTU resulted in greater than half the decrease in the risk of invasive disease occurrence or death compared to T-DM1 with a hazard ratio of 0.47. So this really represents a second positive Phase III trial demonstrating superiority of ENHERTU over T-DM1, the first one being DB03 in a metastatic setting. The safety profile was good. And therefore, we believe that between DB05 and DB11, these two studies bring ENHERTU into the post HER2-positive post neoadjuvant setting as a second chance to achieve a cure and a potential for a new standard of care for eligible patients with this residual disease. Next slide. In addition, please note that we -- there are many regulatory achievements in gastric cancer, breast cancer and pan-tumor setting. And I also want to make sure to note that we have PDUFA dates coming up first for the DB09 in January of '26 and DB11, you just heard about, in May of 2026. Next slide. This is for the DATROWAY program, TB02 clinical trial in the frontline setting for metastatic triple-negative breast cancer. This is a clinical trial in the frontline setting in whom immunotherapy is not an option. And we can see that in this clinical trial, we see both positive PFS benefit as well as positive Overall Survival benefit. And Overall Survival benefit is with a hazard ratio of 0.79 an improvement by 5 months compared to the control arm -- with experimental arm achieving 23.7 months. This makes DATROWAY the first and only therapy to significantly improve Overall Survival versus chemotherapy in this patient population. And we believe that this sets the standard for a new potential standard chemotherapy in this patient population. Next slide. This is the results of a clinical trial called BEGONIA. This is an early Phase Ib/II study that was also presented at ESMO. This is the other half of triple-negative breast cancer patients. And in patients -- in this clinical trial, patients who were enrolled regardless of the PD-L1 expression. And it's important to note here that there is the addition of the durvalumab in addition to the DATROWAY in this BEGONIA clinical trial. And you can see here that the response rates are very impressive with a response rate of almost 80%, but it's also remarkable that the spider plot shows very durable responses. And these are very encouraging. And as you know, we do have this exact combination, the doublet combination of DATROWAY and durvalumab being tested now in a randomized Phase III study in a patient population called TB05. This is an ongoing study and we are very hopeful that we can replicate this outstanding data in a Phase III setting. Next slide. We also want to mention that we have initiated a new trial of DATROWAY in bladder cancer, TROPION-Urothelial03. This is a new trial that just started in October of '25, this month, in patients with bladder cancer. And you can see that DATROWAY is really expanding beyond the lung and breast cancers that you are familiar with. Next slide. This is a clinical data that was presented, not at ESMO, but at the World Congress on Lung Cancer. And this is the IDeate-Lung01 clinical trial, a Phase II single-arm trial in patients with relapsed/refractory small cell lung cancer. This is our first pivotal study for the I-DXd program. And you can see that the response rate, the primary endpoint here was quite good. And we are interested in further pursuing this compound in small cell lung cancer. And also, we are having some conversations now with our regulatory agencies on this particular clinical trial data. Next slide. I do want to mention here that the safety profile of I-DXd in this setting, in the clinical trial that you just saw, was quite good. And on the basis of these data, the safety data and the clinical data, the FDA did grant us the breakthrough therapy designation for I-DXd in extended-stage small cell lung cancer back in August of 2025. Next slide. This is the results of the REJOICE-Ovarian01 study. It's a Phase II/III study in which -- and at this point in ESMO, we presented data on various doses of R-DXd in ovarian cancer, patients who have platinum-resistant ovarian cancer. And you can see that in all those levels tested, there is very good activity of the drug in ovarian cancer. And this allowed us to select the dose of 5.6 as a study for Phase III portion of the study based on the combination of the efficacy and safety data that we accumulated in the study that you're seeing here. Next slide. Okay. So this is a summary of additional regulatory approvals and clinical trials data. And you can see that we have initiated three new studies and also that DATROWAY was approved in China for the TB01 indication. Next slide. In the next few slides, I want to highlight for you some new trials that are starting in Phase I stage. First is the DS-3939 program. And this was -- this is a clinical trial data that was presented at ESMO. It's the Phase I/II trial, and this is really intended to understand the safety, mostly, of the drug. But you can also see that there is early activity we can see in patients with various types of cancers, including non-small cell lung cancer and ovarian cancer. So, this is very encouraging that we are already seeing tumor shrinkage and efficacy in the setting of a dose escalation clinical trial. So, we are very encouraged and we are hopeful that we can do further with this drug. Next slide. There are a couple of new additional trials that are being started. So, next one is DS-3790. This is a DXd ADC. This is the seventh in our series of DXd-ADCs. And this one is directed at a target called CD37. CD37, as some of you may know, is a B-cell target. And so therefore, we are very interested in studying CD37 in B-cell malignancies, such as lymphoma. And so, this is -- so we do intend to start the study in the second half of the current fiscal year. Next slide. DS-9051. This is a new program in solid tumor. And this is our Daiichi Sankyo's first targeted protein degrader. So this is not an ADC, but represents a totally different mechanism of action that is a targeted protein degrader, and we are very interested to initiate this clinical trial. We have not disclosed the target protein, but please do note that it is intended for prostate cancer. Next slide. Finally, the last one is DS-5361. This is a quite unique mechanism of action. This is a small molecule NMD inhibitor. NMD stands for nonsense-mediated messenger RNA decay. But typically, if there is a mutation in the gene that results in a nonsense mutation, that messenger RNA is spontaneously degraded through a mechanism known as nonsense-mediated messenger RNA decay. We have developed a small molecule that inhibits this decay. So therefore, what this really means is that in many cancers where there is nonsense mutations, frameshift mutations that result in nonsense mutations, the messenger RNA remains intact and then therefore, translated by the cell into proteins and peptides that are typically not expressed by that cell. So, this results in expression, therefore, of neoantigens that are unique to the tumor cells. And so, please consider that this small molecule NMD inhibitor, therefore, is an attempt to increase the immunogenicity of tumor cells and therefore, is in a class of what we've called immuno-oncology therapy. So this is a very exciting, very unique mechanism, and we are very excited to be initiating a study with this compound. Okay. Next slide. Okay. So, in terms of news flow for the rest of the year, that this is shown here. We -- as I mentioned, we anticipate upcoming regulatory decisions with the PDUFA date already decided for DB09 and DB011. In addition, we are expecting data readouts as shown here on the right-hand side. And as the data become available, you'll see announcements from us. Okay. And that's all from me. And Asakura-san, back to you.

[Operator Instructions] And the first question is Yamaguchi-san for Citigroup.

This is Yamaguchi of Citi. Can you hear me? This is Yamaguchi of Citi. Let me ask you my first question, and this is about the first half results, especially limiting to Q2 only. As you have explained, the gross profit in relation to vaccine and also manufacturing-related matters, there was the increase of the cost. And also SG&A, there's an increase excluding the co-promotion related matters. And there are some specific and also very special increase, excuse me, and core versus the sales, there are a series of costs. And then, was that -- is it because that there is something which is unexpected? Or is it kind of the onetime issue and your main business is going fine or not? That is my first question.

Thank you very much for your question. This is Ogawa speaking. Yes. Our main business is doing really fine. ENHERTU, DATROWAY and our major products are doing very nicely. And as to SG&A and for Q2 and profit share part naturally due to the ENHERTU and DATROWAY in relation to the profit share, that will be reflected and there is no change at all. In other parts of the SG&A and we call that is others, but you may see this is large. But if you look at the whole year for FY '25, we also reflect the impact by the foreign exchange. So, at the end of the year, we expect the JPY 30 billion increase. And we have JPY 19 billion. Therefore, that would be about JPY 11 billion. So, it is a slight increase. Therefore, SG&A, as we did before, oncology business to be supported, we need the infrastructure for that and also investment to the organization and the human resources continue to be incurred. And I also would like to give some additional comment about our costs. And please refer to the supplemental material, and there is some adjustment table, and that is the translation from the core to the non-core. This time, well, we normally do not have an opportunity to ask you to refer to this document. So, I would like to ask you to refer to that table, taking this opportunity. And I would like to explain based on that table. And we have onetime cost this time, JPY 18.5 billion on a core base in our core operating profit. That was a onetime cost, JPY 18.5 billion was booked. And then this time on the bottom, especially in this -- the material, in the mid, we have some notes here. And to show our current profitability, core operating profit is disclosed. And this time, especially based on the definition, the onetime, but the large amount of the profit and loss is included. And there is something which applies to this criteria, for example, and in this adjustment table, for example, there is a compensation to CMO loss, and that has been already -- that wasn't explained in the presentation. And this compensation was JPY 12.7 billion. And in addition to that, this compensation, especially for the HER3 study result based the changes and the strategies happened were made. And therefore, DATROWAY and HER3 inventory, the impairment or the loss is really due to these changes in strategies. And therefore, those are all regarded as the onetime changes or the repayment. Therefore, we have JPY 17 billion. That is the largest one. And such a onetime amount registered here. Therefore, the full base adjustment took place. And that was the SG&A, and we have JPY 29.6 billion. This is a huge amount. And this is prior to the cost sharing with the partner. And adjustment after the cost sharing is reflected in that JPY 12 billion or so, and we have increase and decreases and the full base and core base adjustment. There are some -- the adjustment -- major amount of the adjustment made. So that may be a little bit difficult to understand, but this is what we did. And in the core base in the second quarter, DAICHIRONA and ENHERTU, in the case of ENHERTU, especially, in the manufacturing lots, there are a series of the unqualified lots generated and those are going to be disposed as from our inventory. Those are included in the non-core area. And to ENHERTU, the cause identified and also the countermeasure has been already taken. So this will not give any impact to the plan of the supply. And for DAICHIRONA, and there is a major reduction of the demand. Therefore, we have booked the inventory loss, and this has been the lengthy explanation, but that was the thing.

And I'd like to have another short question. This is about the DATROWAY, doing very nicely. And since we have Ken Keller-san with us, so we would like to understand the situation, competitive situation, especially both in lung cancer and breast cancer situation in United States, especially the competitive landscape.

Great. Thank you for the question. So when we look at DATROWAY, and I'll talk about the U.S. specifically, we're seeing very good adoption in both the HR-positive/HER2-negative space and also the non-small cell lung cancer space. There's two different dynamics going on. When you look at the lung cancer space, this is a large group of patients where there's not very satisfactory options today. And there's many patients who have gone through numerous treatments and they were waiting for something new. DATROWAY is filling that space today, and we're seeing very nice uptake and reports of excellent experience. In the breast cancer space, DATROWAY is also doing well. And I think what physicians are seeing is that this is a drug that they are finding they can manage the toxicities, they're seeing that the schedule is advantageous compared to the competitor. And those two factors are really causing people to trial with the drug. And as they gain experience, we expect that is going to accelerate.

Let me move on to the next question. Mr. Hashiguchi from Daiwa Securities, please.

I am Hashiguchi from Daiwa Securities. Similar question from myself. In terms of the core OP, inventory write-off, are we expecting the similar inventory write-off going forward? And one-off cost is not -- is called non-core, but this is core. So probably the similar write-off may happen again into the future. So, with regard to DAICHIRONA, depending on the market situation, do you think it is likely to do another write-off of inventory into the future? And with regard to ENHERTU, I know you have taken action already, but can you explain the background why that happened? And what exactly did you do? Do you have any information that will give me peace of mind?

Sorry about that. I was muted. Thank you very much for your question. With regard to DAICHIRONA, at this point of time, we have put this number. I mean, based on the latest information when we see some changes in the future, we -- there may be another write-off, but this is based on the latest best estimate. And with regard to ENHERTU, the actions were taken, and we have already identified the root cause, and we have taken measure to prevent the same thing to happen. So, you can rest assured that the same thing will not happen. I cannot deny the possibility for sure. But at this point of time, we have taken corrective measure.

Now my second question is regarding DATROWAY breast cancer. It's progressing better than your expectation. Why is that? What is driving better-than-expected performance? And also -- when you explain about the ENHERTU, you oftentimes refer market share. What about DATROWAY in breast cancer? What's your market share right now? And TROP2 ADC, compared to the competitor, TROP2 ADC, how do you compare your product? Is there any more room that you can take share away from them?

Thank you for that question. So to answer your question, yes, there is lots of room to take more market share from the existing competitor, which is a drug called TRODELVY. DATROWAY is really in its early stages of launching in the breast cancer space. The reasons why people are eager to try this drug is, number one, the efficacy looks very good in clinical trials. Number two, in the real world, DATROWAY has a very nice scheduling advantage as it is dosed every 3 weeks. The competitor is dosed day 1, day 8, day 21. So, you can imagine the inconvenience of going to hospitals or clinics far more often. And number three, the toxicity profile of these two drugs, DATROWAY and TRODELVY, they're different. And there's many physicians who -- and patients who struggle with the toxicity of TRODELVY being neutropenia and difficult diarrhea, which can actually cause febrile neutropenia and place patients at a higher risk for going to the hospital. And so, they see DATROWAY as a more convenient, potentially an excellent drug, and they want to try it. And so, that's why people are using it more than we thought. And I'm happy to report their experience is matching their optimism. And I think with the data that we shared at ESMO in the triple-negative breast cancer space, that's going to add to the excitement of this product.

Next question. Ueda of Goldman Sachs, please.

This is Ueda of Goldman Sachs. I would like to also ask you about the inventory write-off. In the core base, DAICHIRONA and ENHERTU were included. And what was the specific amount of the money? And without this amount, then core base, the gross profit rate should have been the same as the level of the first quarter or not? Just roughly, what was this impact size?

Thank you for your question. As to the sense of the size with ENHERTU, about JPY 5 billion and DAICHIRONA, about JPY 5 billion. That was the rough size. So that will be about JPY 10 billion totally. And in the second quarter, we have a high cost of the cost ratio, as you understand. And then with this JPY 10 billion, then it is about a 1% increase of the cost ratio. And then this term, we will not repeat the same situation as we expect. Therefore, in the third quarter and then after, we will see the improvement of the cost ratio. Therefore, the whole year, we expect a rate of 21.9%.

This is a follow-up question of that. And in the core base in the first quarter to the second quarter, the cost ratio seems to be worsening greatly maybe by 5% or so. And the background is from first to second quarter, there wasn't any, however, the product mix greatly. So, what was the contributor of this worsening by 5%?

As far as you see, in the second quarter, vaccine sales was reflected. So that's why this contributed to the worsening of the rate of the cost.

Understood. Then -- if that is the case, then -- excuse me, the second question is about the modification of the plan. And the revenue, you have raised by JPY 100 billion. So the core profit -- operating profit hasn't been changed. So, with the ForEx, there will be the increase by about JPY 6 billion. And with ENHERTU sales increase and so forth, of course, there is an increase of the profit share, but in line with this increase, then there will be the increase of the profit also at the same time. So, are there any offsetting factors? For example, ENHERTU, DAICHIRONA, may be reflected, but what are the factors to offset so that core operating profit would stay flat?

Thank you for your question. Yes. ENHERTU and DAICHIRONA cost impact is, yes, the one thing contributing to this. And another thing is the milestone income, and there is some shift of the timing. DB05 or 11 had expected its milestone payment for this fiscal year. However, that will be postponed to the next year. And 11, we have some results already, but there is some other shift expected.

Excuse me. So the milestone on the Page 38 and how can I interpret the table and ENHERTU milestone-wise, then versus the April forecast, development milestone was in positive number. How can I understand that?

Thank you very much for looking into the material very in detail. And as of April, there wasn't -- the DB09 was not reflected. However, this was -- this is reflected this time, so DB09. And based on the PDUFA January, we have made some changes. That is the situation. Then the development milestone-wise that the number is positive. Therefore, rather the onetime impact of the cost and also the increase expected for the SG&A. So, these are offsetting the increase by the increase of the sales and profit. That's correct. Excuse me, just a moment. Just a moment, please. We are making some confirmation. Please give us a few moments. Thank you for your understanding. As I have just -- well, what I have stated was not really wrong. Yes, what I have stated correctly, about JPY 10 billion or so the milestone payment occurred. However, as of the April, when we make announcement last time, well, this wasn't announced at the time, but this was reflected already in the forecast at the time. And the PDUFA date, however, hasn't been determined. So, DB05, 11 milestone wasn't disclosed in the financial documents at the time. However, this time, we are now giving explanation additionally. And yes, so how you understood was correct.

Next question is from UBS Securities, Mr. Sakai, please.

This is Sakai from UBS speaking. One-off profit and loss. The income related to the litigation with the former Ranbaxy shareholder, JPY 4.2 billion. IHH, sorry, I think it was Malaysia's biggest hospital group. So the litigation was filed with them. Ranbaxy Chairman -- Founder has shares, but you took some court action to make sure that Founder does not sell the shares. But then IHH is claiming that they are producing some losses in total of JPY 200 billion. And this litigation income is positive, but this is a legal procedure. So, I'm not sure if you can comment on this, but JPY 200 billion, this number, when it's misunderstood by the market, that will lead to the scary situation. So, I just wanted to clarify what's going on?

IHH subsidiary, NTK has made a complaint, and this is the amount of the compensation based on their complaint. And we believe what they are saying, it does not have any ground. So, we cannot agree with them. We are going to challenge them. We are proceeding with the legal procedures whereby we make a reasonable statement. What they are saying, we believe it is groundless. JPY 4.2 billion income this time. With regard to that, so far, more than JPY 50 billion loss litigation -- the total we expect was JPY 50 billion. And finally, we were able to receive JPY 4.2 billion out of JPY 50 billion.

So, this is the income received separate from that litigation. This IHH litigation is still dealt at the Tokyo District Court. Is that the situation right now?

Yes, that's our understanding, yes.

Another question from myself. Question for Keller-san. It's nice to see DATROWAY finally taking off. You said third line, fourth line for breast cancer, non-small cell cancer and taking some shares from Trodelvy. Given all these comments from you, fourth line, third line and fourth line, that way is being used regardless of TROP2 positive or negative.

Yes. The indication is not TROP2 specific. So the indication for breast cancer is HR-positive, HER2-negative regardless of TROP2 expression. Doctors aren't testing for TROP2 expression today. So, it's agnostic to that. And you're correct. We're getting usage in the third and fourth line. It's growing. Every week, we look at the scripts. And so, we'll see that adoption continue to grow. And the same is true in the non-small cell lung cancer space. We're getting late-line use today, and there's no testing for TROP2 in that space as well.

That remains to be the use for third line and fourth line use then.

Yes. Today, that's where most people are using it. As they gain experience, I fully expect that it will move earlier and earlier. And just as a reminder, the triple-negative breast cancer data that we shared at ESMO, that's first-line metastatic patients, triple negative. That's first line. And I think when people look at that data and they see the safety profile, that's going to really add confidence and assurance to move this drug up earlier and earlier.

Next question, Wakao-san of JPMorgan, please.

This is Wakao speaking. My first question is about the American region situation. Injectafer and Venofer, as you say, in the second quarter, the result was rather poor. And this term, the plan has been downward corrected. And what are the factors? And also, please tell me the future prospect.

Thank you for your question. And so far, especially in terms of Injectafer, we had so many challenges to overcome. One thing was high-dose market itself has a very severe competition and competition is getting severe. And with that as a backdrop and Injectafer usage is now on the decline. So, we have forced to change the sales forecast. And for Venofer, yes, there is a high demand and also we have some significant share. However, the competition appeared in August, the generics were approved and the three companies had launched their generics. So well, the impact size so far is still limited. But after the third quarter and onward, there will be pressure to the volume and price are expected. So considering all those factors, we have decided to make a downward correction of the forecast.

Listening to your explanation about the Venofer, there are some generics already available. Therefore, the future is not really bright. And for Injectafer, the situation is getting very difficult. So Injectafer and Venofer at American Regent expect a decline. And then how you can maintain with the generic injectables, would that be the policy?

Yes, that is the situation. And further, on behalf of American Regent, we expect to make them at the ADC manufacturing site, and we are making investment towards the -- until the end of fiscal '27, we plan to start up the manufacturing over there. So they -- it would be having more importance in that area.

My second question is about the new projects just briefly. 3790 and 9051 and 3790 for the DXd ADC advantage to the hematology and [indiscernible] and the 5361 in summer -- you said that you are going into immuno-oncology. And is it one of the immuno-oncology drug?

Yes. So let me answer -- the quick answer first. 5761, yes, it is part of our immuno-oncology program, for sure. Yes. And your second question about the 3790 program, I think the question was why was this chosen as our target. And we did choose this because it is a very specific B-cell target. And it is somewhat different from other types of B-cell targets such as CD20. So it allows us for some differentiation versus other targets. And we do think that this is going to be a very interesting one to study with the DXd-ADC platform based on the huge amount of preclinical data that we have generated so far. And also the fact that there exists already at least one ADC in a B-cell malignancy called POLIVY. So there is a precedent also. So I think we're very hopeful to see very interesting data with this new compound.

Let me move on to the next question. Sogi-San from Bernstein.

I have a couple of questions to Dr. Takeshita. So first of all, the DATROWAY -- you have just disclosed that now you're initiating a Phase III TROPION-Urothelial03. You presented a very good strong data in your first line at ESMO. So this totally makes sense. And also, this doesn't appear to include patient selection based on QCS. So so far, looking at different cancer type, it looks like the non-small cell lung cancer is the one that requires the QCS-based patient selection. What is your current hypothesis that what kind of the factor makes QCS-based patient selection required for the Dato-DXd?

Yes. So yes, you raised a very interesting biological and clinical question. Yes, in some diseases like breast cancer, we don't seem to need a biomarker selection, whereas in lung cancer, we are proposing to use this very fancy one called the QCS digital pathology technology. So I think your question was what makes certain cancers require a biomarker and why others do not require. I think that's your question. And okay, to be very frank, it's a lot of -- I don't have a very good biological explanation for this. And in fact, what we are doing is with each indication, we are testing to see whether or not a biomarker is needed or not and then proceeding to do randomized studies in registration setting once we have that understanding of whether or not a biomarker is required.

The second question is around new assets beyond ADC. So for ADC, we understand that you have a long-term effort to really improve the modality and now you're expanding the assets through that modality. What will be your differentiated strength in these new type of assets? Is it a really modality base, which you have a differentiated modality base or there's something else?

Yes. So we are a modality company. When I say modality, we're talking about a platform like the ADC platform. And once we are -- because we are very good at generating ADCs, we can generate all kinds of ADCs, not just ADC dependent on the payload of DXd, but many other payloads, many other linkers. So that is one important part of our longer-term research strategy. But in today's presentation, you can also see an emergence of yet another modality. For example, with this TPDs, the targeted protein degraders, that is yet another modality that we are very interested in. It's a modality that other companies have also invested in, but we too are very interested in this part. And then immuno-oncology, the 5361 program, it's an immuno-oncology program, but you can see that it's a very different type of approach to immuno-oncology compared to most other companies in a sense that we are using really a very novel way to increase neoantigen presentation by tumor cells. So I do want to mention, therefore, that, yes, we have all kinds of ADC modalities, but we are expanding to other types of modalities.

Next question is from Barker-san from Jefferies Securities.

Steve Barker from Jefferies. I'll ask my question in English, if that's okay. My first question is about capital allocation. In May this year, you got approval to buy back JPY 200 billion of shares, which you haven't executed. And my understanding is that you wanted to preserve your cash, for example, for acquiring new assets. But it's already October. What's going to happen between now and the end of this fiscal year? Is it possible that you will not buy back the shares and you also will not acquire any new assets?

Thank you for your question. Let me ask in Japanese. And as to the share buyback, that was your question. And is there any possibility that we are executing that or not by the end of the term. As we have explained, it depends upon the stock price level and so forth and things are decided comprehensively to find the right timing and the right way to do things. So if the right timing comes, then we would execute. But the important point here is that towards the goal -- future, we have to make investments, and we have to allocate cash for that. And also, we have to invest to R&D and CapEx also, and this should also be carried out in good balance. And also acquisition of the external assets could also be one of the options. So if opportunity arises, then we also would like to allocate the fund. So we will make a comprehensive consideration to decide the timing and to execute the plan.

My second question is related to R&D. So DS-9051 protein degradation. I was wondering if you could talk a little bit about how you see this asset fitting into the bigger picture. Do you see potential for this asset in particular or other protein degradation assets to be combined with your ADCs?

Yes. So strategically, we think of this 9051 in 2 different ways. One is that it is our first one in our series of TPDs, the targeted protein degraders. So from that standpoint, it's a very important first step for our TPD program. And as I mentioned, there is interest of this compound to target prostate cancer. And as you know, we have some additional compounds and assets that are active in prostate cancer. So in the longer term, we can imagine various combinations that might be interesting and really also another way for us to establish ourselves in a specific disease such as prostate cancer in a way that we are well established now in breast cancer.

So you say you have a series of TPD programs. So we should expect to see more programs like this come into the clinic?

I think in the future, you can expect to see more, yes.

From Morgan Stanley MUFG Securities, we have Mr. Muraoka.

I am Muraoka from Morgan Stanley. I have a question to CEO, Mr. Okuzawa. Earlier, Mr. Ogawa was commenting on buyback. And based on what I have heard from Mr. Ogawa, I have a follow-up question. Your stock price dropped quite significantly today and almost the same level as pre-summer level. I know you are inclined to buy something, but I really appreciate if you can execute another buyback in this timing. Is there anything that you can comment?

Mr. Muraoka, I understand what you are expecting of us. Well, we investigate all possibilities, and we make a decision of cash allocation, and share buyback is one of the options, but that is not the only option. And in terms of the shareholder return, as I have mentioned from previous time, I am committed of DOE 8.5% and more. And this is the commitment that I made as a top management, and that is always sitting in my mind. So as I mentioned in my presentation, important KPI like DOE 8.5% and more regardless of the share buyback execution, this is the commitment that we have. I would like to reiterate that once again.

JPY 3,600 is not the level of share price, which drives or triggers share buyback. Sorry, I cannot say anything about that. We are not following the short-term up and down of our share price.

With regard to the onetime cost, which is the CMO compensation fee, I think this is related to HER3. The launch is delayed. So you need to pay CMO compensation fee. That I think I understand. But due to the compromised quality of CMO service, you are not really able to receive approval in a timely manner. Would it be not fair that you pay compensation fee to CMO? Can you explain.

Thank you very much for your question. HERTHENA-Lung01 study. In this study, we've asked CMO to handle complete response letter as a result of the FDA audit. And then we told you that, that issue has almost been resolved. And your point is indeed valid. And probably this CMO didn't have a good quality of service. But HER3-DXd is not approved yet for initial lung cancer. Following a confirmatory study, HERTHENA-Lung03 didn't meet our expectation. That was the major reason. But this was unfortunately due to the lack of performance of our compound. CMO and our relationship is as follows. We have certain expectation on technology on CMO, and we have a demand forecast based on such, we need them to produce high-quality product in a timely manner, and that's the trust relationship we thought we had. And based on what happened, basically, we thought that we may need to pay cancellation fee as such. That's why we booked this number. But DXd ADC other than our HER3 may exist and this is a partnership with Merck. From Merck's perspective, how can we use the same CMO in a different manner. It's a multifaceted discussion that's needed, and we thought that this is a reasonable landing point for all the stakeholders.

The next question is from Tony Ren-san from Macquarie.

Tony Ren from Macquarie. Can you guys hear me?

Yes.

Okay. So first question is to Mr. Ken Keller-san. Slide #12, the DATROWAY revenue. I wanted to ask you if you could possibly give us a sense of the revenue mix between lung cancer and breast cancer. I think I heard you saying that they're about equal between lung cancer and breast cancer. Just want to confirm that I heard correctly.

Yes. Thank you for the question. And you are correct. When we look at the U.S. marketplace where we have both indications, actual revenue is pretty close to 50-50 at this time. We believe the number of patients are about the same because the length of therapy between those 2 indications in terms of progression-free survival is about 6 months for both. So we think that is a good proxy since revenue is about equal there. We think it's about a 50-50 split right now. I would say that the early adoption of lung cancer gives me the feeling that we're going to see the lung cancer market grow even more than the HR-positive/HER2-negative breast cancer space as we look at the next couple of months at least. Does that answer your question?

Yes, it does. But obviously, the breast cancer, you guys have the first-line triple negative coming, right?

Yes. My comment was exclusive to the HR-positive/HER2-negative. When we get the triple-negative breast cancer indication, based on the profile of the drug, there we saw a doubling of overall response rate. The competition today cannot offer that. We saw really impressive progression-free survival. We saw, obviously, the only drug in that space to deliver overall survival. And then you've got some of the convenience advantages I spoke about earlier. I expect this drug to do very well in that space.

Yes. Absolutely. That's the feedback that I heard from ESMO as well. A number of KOLs told me that they think they will switch from TRODELVY to [indiscernible]. Next question to Dr. Takeshita. This is about your new asset in urothelial carcinoma, your TROPION-Urothelial03 study? This is obviously looks like it's being attempted in the post-[indiscernible] and pembro setting. They have roughly about 55% market share in frontline -- within the U.S., they have roughly about 55% market share in frontline metastatic urothelial carcinoma because it's actually quite a toxic combinatorial regimen, not to mention the financial toxicity, quite expensive regimen as well. Are you guys looking to target the remaining 45% as well, patients who are just using chemo combinations?

Yes. Thank you for that question. And yes, we are -- that's certainly under consideration.

Next question is from SMBC Nikko Securities. Mr. Wada.

I am Wada from SMBC Nikko. I have a basic question. Your ADC technology is differentiated from other companies in what way? Like can you talk about the point of differentiation together collaborated with Innovent. And they also have been focusing on ADC, and there are many other Japanese companies developing ADC. So you have ADC technology and uncleavable linker technology. Your [indiscernible]-specific conjugation can selectively bind drug, but I feel like your ADC technology is being caught up by competitors. But 5 ADCs, I think, is highly differentiated and very competitive. But for the rest, I think there are other players who are looking into the same technology. So I wonder what's your major point of differentiation.

So our research group has been working on ADCs of various sorts for many, many, many years. And so we have a whole library of linkers, payloads and binders. And so currently, in the DXd-ADC program, we are well underway in the development of those DXd-ADCs, the first-generation ADCs. And that has incorporated the best of the linker technology and best of the payload that we have in the DXd series. And in addition to that, I have to say that our major differentiator compared to competition has to do with time. I think we are far ahead of what other company is doing, especially when we look at [indiscernible]. Now in the future generation of ADCs, as I mentioned, we have a whole library of linkers and payloads. And based on all the biology that we understand with these payloads and linkers, we can create new drugs where the linker releases the drug sometimes not in the cell, sometimes on the cell, sometimes just outside of the cell, sometimes the right microenvironment. We can create all those new different ADCs just simply based on bearing the linker. The same thing with the payload. We have a variety of payloads that we can use. Sometimes they are cytotoxic in a way that DXd is, but we have additional biological targets and other targets and other types of payloads that are not necessarily small molecules that we can use to create new entities and new ADCs. So I think that's really our major advantage in that we have invested a huge amount of research in the ADC space.

And this time you've introduced a new program on Page 29. This is the frameshift mutation inhibitor that sounds quite novel. I think in the past, you were developing a cancer vaccine. And I was wondering maybe that kind of triggered the development of this new program. And my question is to confirm as follows; so through this inhibition, the neoantigen -- cancer-specific neoantigen [indiscernible] activated killer cells so that we can identify the tumor cancer easiluy?

Correct. And specifically, we are targeting what we would call frameshift mutations, which are very common in cancers. Frameshift mutations typically results in shifting of the triplet read-through of the amino acid codons and resulting sooner or later, typically in a termination codon. The drug allows read-through of that termination codon to produce additional sequence of amino acids that are not typically coded in the normal genome. So these are really the genesis of the neoantigens we're talking about that's very specific to that cancer cell. And as noted on that slide, we can also see that combination of this drug with a checkpoint agent such as PD-1 really enhances the immunologic system to recognize and eliminate tumor cells, at least in animal models.

Next is the last question. From JPMorgan Asset Management, [indiscernible].

This is [indiscernible] from JPMorgan Asset. Can you hear me?

Yes.

I have two questions. The first question is about the numbers. Well, it is rather complicated, but the core operating profit, and there is some comparison of the challenges. Then this year, you have JPY 10 billion of the valuation losses. And then last year, you have JPY 12.2 billion of the realization of unrealized profit. Therefore, the JPY 1.2 billion, there is a difference between last time and this time. Am I correct to interpret such way? Well, can you please explain such things because that is rather complicated. So I'd rather you to explain it more in detail.

Thank you for your question. Let me apologize that our explanation was not that complete. Unrealized profit in the past fiscal year and this year, the increase and the decrease of the revenue, and there is JPY 11.2 billion contributing to the negative growth of the revenue. Yes, that was one of the factors. So versus the previous year, this is really the difference coming from that. And also about the cost of the sales, and the core operating profit, in the presentation slides, there is some description on Page 6. And then we have an increase of the cost of sales. And in this cost of sales increase, about JPY 10 billion due to ENHERTU and [indiscernible] valuation loss included in here. So these factors have been explained. So these are the factors of the changes or the variabilities in the core operating profit. So in other words, I'd like to confirm separately. But in the past year, last year, there was a core, but there was a onetime unrealized profit. That is JPY 11.2 billion that included last year. But on the contrary, this year, it is a core, but there is some specific loss of [indiscernible].

Therefore, there are the differences between this year and last year of JPY 21.2 billion.

Yes, you are right.

Another question is about the R&D. DS3790 and CD20 is expressed in [indiscernible]. Therefore, [indiscernible] is working on the ADC or DLBCL, as I recall. However, their ORR wasn't that promising. But on the other hand, in your case, when I checked at clinicaltrials.gov, you are not limiting to DLBCL, but you just said the hematological malignancy. So you recruit a very wide variety of patients. And it only says the hematological malignancy assessed and you do not say DLBCL. It's not limited to DLBCL. So why don't you limit it? Why do you develop -- why can you develop to cover a whole range of different hematological malignancies?

B-cell malignancy as a category includes not just DLBCL, but many other types of lymphomas such as follicular lymphoma, mantle cell lymphoma, marginal zone lymphoma. So there are many types of B-cell malignancies besides just DLBCL. So that's one. And in fact, there's another B-cell malignancy called chronic lymphocytic leukemia, which also happens to be CD37 positive. So this is the reason why the resignation of hematologic malignancy is used in the clinicaltrials.gov listing.

There are other people raising hands. But unfortunately, we have exceeded the scheduled time. So with this, we would like to conclude the Q&A session part 1 of this financial results reporting. And please contact our IR members so that your question will be answered later. Thank you very much for your time. And after this, at 5:10 Japan Standard Time, we would like to start the question-and-answer session of the people from the press. Thank you. [Break]

Ladies and gentlemen, thank you very much for waiting. Now we would like to start the Q&A season with the media. We have representative President and CEO, Okuzawa, and Head of Global R&D, Dr. Takeshita. And we have Ken Keller, Director and Head of Oncology business. We have Ogawa, CFO of the company. [Operator Instructions] First question is from Nikkei BP, Mr. [indiscernible].

This is [indiscernible] from Nikkei Biotechnology & Business. I have two questions regarding R&D. First question is about pipelines dropped from the list of key pipelines. I have been comparing the list of key development pipelines as of last October with the list as of this July. And 2 clinical studies seem to have been dropped from this year's key pipeline list. These are TROPION-PanTumor02, which was at Phase I/II stage in China. And the other is DS-1055, which was at Phase I in Japan and the United States. So could you kindly share the reasons why these have been removed from the list?

Yes. For the DS-1055, we have terminated that program due to lack of efficacy we saw in that Phase I clinical trial. And on the PanTumor trial, I actually do not believe that we have terminated a PanTumor program. So I think I'm pretty sure that it's continuing to doing a survey in pan-tumor setting. So I think it is still going on.

Okay. And my second question concerns the DS-5361 mentioned on Slide 29. Has the first in human study already commenced? And if not, could you please let me know the anticipated study date?

Yes, 5361 program, it just started this month, October 2025.

Next question is from [indiscernible].

This is [indiscernible] of Nikkei, can you hear me?

Yes.

Up to two questions, right?

Yes, two questions per person, please.

Understood. The first question, just a request for clarification and confirmation. As to the inventory write-off and DAICHIRONA and HER2 were the major cause. And why did that happen? You have already illustrated the cause. And can you please elaborate on this as much as you could?

Thank you for your question. So both of them, they have different reasons. For DAICHIRONA, we originally planned -- the usage rate and also the immunization rate declined so that the raw materials and products were decided to be used any -- won't be used any longer, so they were written off. And as to ENHERTU, in the course of the manufacturing, there were some lots which were unqualified for shipment. The cause was identified in the manufacturing process and the measures to avoid the recurrence has already been taken and implemented. Therefore, we do not expect any recurrence of such problem, and that has been already confirmed. So those are the expected write-off in relation to these.

Another question is about onetime -- the CMO inventory loss -- excuse me, CMO, the compensation. And can you please explain it again briefly because I couldn't get it completely.

Thank you for your question. CMO, the damage compensation HER3-DXd product future development strategies have been greatly changed. So -- and also, we have completely changed the launch program or schedule. And we have decided not to handle that product for some time. Therefore, we have decided to ask CMO to cancel that allotted manufacturing line. And for CMO, they actually have some capacity saved for us, but that capacity won't be used. Therefore, we were forced to pay the cancellation fee for that, and that will be the JPY 12.7 billion.

Understood. So what do you mean by the change of the development strategies?

HER3-DXd this year or fiscal year, we have decided to withdraw our filing to the authority. So in relation to that, for the moment, we will postpone the launch far ahead in the future. Therefore, that is the major change of the development strategies. And we have changed the launch schedule also at the time.

Next question is from us [indiscernible].

This is [indiscernible] speaking. Can you hear me?

Yes.

China ADC, I have a question in relation to that. I do understand your strengths. But the Chinese ADC technology, how do you describe their threat and advantage or strengths? And I think they're catching up with the production capacity, not only R&D capability. They are setting up a lot of production capacity right now. How do you see those movements?

Yes. So as you are aware, there are a number of ADCs that are being developed by Chinese biotech companies, and they are being reported now at various conferences. Many of them have similar targets and similar payloads and similar linkers, but they're not identical to the ones we use. I think many of them are what we would call fast followers that once a target linker or payload has been validated by another company, there is a fast follower strategy that many of these Chinese biotech companies are following, to immediately begin their Phase I and highly abbreviated Phase II program before launching into a much larger clinical trial, all within China. For us, it's very difficult to understand whether or not the Chinese data is directly comparable to what the clinical trial data could be expected in a much larger global setting, in part because of the differences in the standard of care between China and the rest of the world. And so I think it's -- really from a patient standpoint, of course, it's very nice to have options. But in terms of -- I think you're talking about competitiveness, I do want to make sure to mention that typically, from a time line perspective, we are going to be ahead of the fast followers. They actually -- as I mentioned, they are following us. And our major emphasis is on clinical trials that are being executed, not just in a single country like China, but in various parts of the globe.

Well understood. In terms of the production capacity, not only R&D capability, like how do you see their production capacity?

So you're asking how do we see Chinese companies efforts to expand their production capability in China, correct?

Yes.

We do work with multiple number of CMOs. And going forward, we can continue to work with the best CMO. So not only capacity, but also high quality is quite important for our CMO selection. So again, we are always looking for the best CMO based on such criteria.

So you will also use CMO to expand your production capacity, not just fully reliant on your own capacity.

Well, our own capacity, external capacity in terms of the breakdown of those two, well, we would like to increase the percentage of our internal production capacity going forward. That's the direction.

On top of what's been planned, is there anything that you are seeking for as a next investment opportunity?

No.

Next question is from [indiscernible].

[indiscernible]. Can you hear me?

Yes, I can hear you.

Listening to the discussion with analysts, the external assets could also be purchased. And do you have any specific idea or candidate to purchase? If you have anything considering, please tell me.

Thank you for your question. Our activities of the business development is something which is always the active, such as the licensing in, acquisition of the technologies from outside and so forth are included. And as you know, in the fifth midterm plan, we have a rich pipeline internally. And then we would be making investment internally for R&D. And the 5-DXd center, the pipeline potentiality is very high now. And then in the next 6 MTP, and we believe that we can now see the flourishing pipeline with this. But on the other hand, our growth speed is quite fast in past 5 years of this MTP, and revenue has doubled from JPY 1 trillion to JPY 2 trillion. And in the next 5-year midterm plan period, the top line will further grow as we expect. So in such a scale of the business and also the rapid growth, the speed of the company size and the scale, then in Tokyo discovery team have very talented people, and they will find very important compounds and others one after another. And Takeshita-san just shared a part of it a sneak preview so to speak, an in-house growth engine is something that we have a lot of expectations. But in addition, it will be combined with the possible or potential acquisition from outside. And that will be one of the major points in the next MTP.

And then what will be the potential target?

Well, in principle, we will focus mostly in the oncology area, but we are not really limited to that. In terms of developmental phase for the late-stage assets, 5-DXd-ADC will be the mainstay. And also, we have a quite rich pipeline or program in the later stage. Therefore, rather, we would like to find an asset in much earlier stages, which we can grow in 5 years. And then we can expect the late clinical development or the launching in the 2 MTP ahead after 2030. That is what we're thinking about.

And one more question about DAICHIRONA, the declining immunization rate. And of course, the maintenance of the manufacturing capability is important. But in the new Takaichi administration, safety and health security is one of the major focus with them. And then what do you expect from Takaichi administration?

Thank you very much. The new Prime Minister, Takaichi, has a very encouraging words, and we feel it was very encouraging to us. And Daiichi Sankyo has a messenger RNA vaccine of COVID-19, and we were the first to develop domestically the vaccine against it. And for enhancement of the public health in Japan and also cope with the pandemics, we would like to continue to make great contribution. We are quite motivated to that. And in addition, including DAICHIRONA and COVID-19 vaccine, last year market situation, quite -- frankly speaking, it was quite difficult. And the immunization rate was not as high as we had expected due to the shrinkage of the subsidy from the local authorities or national government. That was one of the factors of declining immunization rate. And COVID-19 is still the threat for the public health in Japan, and we will confirm to that positioning and the government support to promote the immunization or the variety of economic assistance and also the support from the government would like to seek to support us as a provider of the vaccine so that we can fulfill our mission.

Due to the time limitation, the next question will be the last from [indiscernible].

Can you hear me? This is [indiscernible] speaking. I have a simple question, basic question, if I may. Earlier, you talked about CMO compensation fee. I think this is related to the withdrawal of application in U.S. And when I look at the current pipeline, Japan, U.S., Asia, Europe, in those regions, is development program still going on? Or is there any plan to terminate?

I think you're referring to our HER3 program. And certainly, we are continuing to develop this drug, HER3 ADC in many different settings besides just lung cancer. We have a major program that we started in breast cancer, and there are other cancers that are of interest to us. So yes, certainly, this program is continuing.

Thank you very much. Unfortunately, time has come to an end. So this would conclude the Q&A session with the media. Thank you very much for your participation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]