Daiichi Sankyo Company, Limited (D4S.F) Earnings Call Transcript & Summary

Good afternoon. Welcome to JPMorgan Healthcare Conference. This is Seiji Wakao, Japanese Pharmaceutical Health Care Analyst. It's my pleasure to introduce Okuzawa-san, CEO of Daiichi Sankyo. Welcome to him conference. Please go ahead.

Thank you, Wakao-san. Hello, colleagues. I appreciate your interest in Daiichi Sankyo. I would like to express my sincere gratitude to JPMorgan for providing the opportunity to present at this remarkable conference today. My name Hiroyuki Okuzawa and I have taken on the role of CEO at Daiichi Sankyo since April 2025. It is a privilege to stand before you today and share our vision and progress as we strive to contribute to enrichment of quality of life around the world. First, I will start with a brief overview of Daiichi Sankyo. Next, I will introduce you to our ADCs, focusing on our DXd-ADC technology that is currently the main driver of our company's growth led by ENHERTU and DATROWAY. Following that, I will talk about our Science and Technology, focusing on our exciting new multi-modality strategy. Finally, I will conclude with our shareholder return policy and our strong commitment to enhancing shareholder value. With that road map in mind, let's begin with the first part, the overview of Daiichi Sankyo. Daiichi Sankyo is a global pharmaceutical company headquartered in Tokyo, Japan. For the current fiscal year ending March 31, 2026, we expect revenue of approximately JPY 2.1 trillion, an increase of 11% from the previous fiscal year. Our forecast for core operating profit, which excludes temporary income and expenses is JPY 350 billion, reflecting a growth of 12% from the previous fiscal year. We generate approximately 70% of our revenue outside of Japan, particularly in the United States. Our growth is primarily driven by the strong performance of our key products, the HER2-directed ADC ENHERTU and TROP2-directed ADC DATROWAY, which I will discuss in detail later. As you may be aware, the DXd-ADC technology created Daiichi Sankyo's proprietary technology platform, which is currently being evaluated in clinical development programs across 7 different ADC assets. This robust technology platform has generated 2 launched products, which are ENHERTU and DATROWAY approved in multiple indications. In addition, I-DXd has demonstrated promising clinical outcomes in small cell lung cancer and R-DXd has shown favorable efficacy and safety profile in ovarian cancer. Most recently, DS-3790 is about advance to the clinical stage for hematological malignancies. We believe these products will also provide meaningful therapeutic benefit to the patients in need. As for external evaluation of the DXd-ADC technology, 5 DXd-ADCs have received breakthrough therapy designation from FDA. Most recently, in December last year, ENHERTU DESTINY-BREAST05 study was granted BTD making the 14th BTD for our DXd-ADCs. The DXd-ADC platform has been widely acknowledged. In November last year, we won the best ADC platform technology award at the 12th Annual World ADC Awards, recognizing our DXd-ADC technology as the Best ADC platform capable of creating new standard of care for cancer patients. We will further leverage our Science and Technology to maximize our contributions to the patients with our DXd-ADC platform. Our oncology foundation is built on the strength of ENHERTU. ENHERTU has become the standard of care and achieve market share leadership in the HER2-positive second-line metastatic breast cancer indication, the HER2 low metastatic breast cancer indication. The HER2 mutant non-small cell lung cancer, and HER2 to second-line gastric cancer indication. Impressively, in every country and region where it has launched it has become the market share leader and the new standard of care in less than 12 months. Global net sales in the second quarter of the fiscal year 2025 totaled JPY 160 billion, growing 24% versus a year ago. All regions are contributing to this growth, led by the United States with more than half the total revenue. ENHERTU has made a historic mark in the community of oncology and is now poised to have an even bigger impact in 2026. This performance is a result of ENHERTU's exceptional clinical profile and the strength of our medical and commercial organizations and our alliances. To date, almost 200,000 patients from across 85 countries and regions have now benefited from ENHERTU. Now I will describe the opportunity of the new growth of ENHERTU's HER2 first-line metastatic breast cancer indication that was obtained last month. There are 24,000 patients across the G7 countries. Today, 30% of these patients never receive a second-line treatment mainly because their disease advances too quickly to a point that the physicians and patients decide to stop treatment. This insight underscores the urgent need to treat with very best drug immediately and the remarkable benefits of ENHERTU in the treatment of first-line HER2-positive metastatic breast cancer cannot be overstated. In DESTINY-BREAST09 ENHERTU, in combination with pertuzumab reduced the risk of disease progression or death by 44% compared to the standard of care, taxane, trastuzumab and pertuzumab. ENHERTU provided over 40 months of progression-free survival, adding more than a full year free of progression compared to today's well-regarded standard of care. ENHERTU is viewed as the most effective drug in this setting by the overwhelming majority of oncologists. This belief coupled with urgency to treat with the best drug from the start and the feedback from the oncology community that we received leaves us very confident that ENHERTU will be quickly embraced by the oncology community and become the new standard of care of these patients. I will now transition to an update on DATROWAY, our second DXd-ADC. In the U.S. DATROWAY is approved for HR-positive HER2-negative metastatic breast cancer patients and EGFR-mutated non-small cell lung cancer patients. In Japan, it is the first TROP2-ADC approved for HR-positive, HER2-negative metastatic breast cancer patients. Global DATROWAY net sales have now exceeded JPY 10 billion in the second quarter. In the U.S. Second quarter revenue was JPY 7 billion, growing 113% versus the previous quarter. In Japan, second quarter revenue was JPY 3 billion, growing 59% compared to the previous quarter. Early experiences, as reported by oncologists have been extremely positive in both regions. Oncologists are becoming more and more comfortable and confident every time they prescribe this medicine. These early experiences will benefit DATROWAY greatly when it receives its expected triple-negative breast cancer indication. The clinical data in triple-negative breast cancer is viewed as best-in-class by most oncologists, and we believe it has the potential to become the new standard of care. Let's talk a little bit about the expected triple-negative breast cancer indication. For nearly 15 years, there has been no new treatment advances in the first-line metastatic triple-negative breast cancer for patients who are PD-L1 negative. Metastatic triple-negative cancer -- breast cancer, it's the most aggressive breast cancer, breast cancer subtype with fewest treatment options. 5-year survival is only 15%. There are 16,000 patients in G7, 1 out of 2 patients never receive a second-line treatment. So there is a significant urgent unmet need. DATROWAY's TROPION-Breast02 trial demonstrated a statistically significant and clinically meaningful improvement in progression-free survival. It uniquely delivered a statistically significant improvement in overall survival. It doubled the overall response rate. We shouldn't forget that DATROWAY provides a very convenient, once every 3-week dosing, which is a significant advantage compared to the other TROP2-ADC in the market. This is a full picture of where Daiichi Sankyo is going. In the past 5 years, we have made a successful transition into oncology. We start our next 5 years from a position of strength. Daiichi Sankyo has now reached a data-rich growth catalyst-rich moment with our new highly meaningful new indications expected for ENHERTU and DATROWAY in 2026. Behind these, there are numerous other new pivotal trials reading out over the next few years, as shown in this slide. This clinical development program creates a continuous stream of new launches across at least 4 ADCs every year through 2030. These pivotal registration trials offer the opportunity to help nearly 6x as many patients live longer, better quality of life and even bring more cures to patients across the global oncology community. Our ADC technology continued to advance across antibodies, linkers and payloads. We are enhancing tumor specificity through improved target selection. Fc engineering and novel antibody designs. Developing conjugation methods for precise DAR control and researching payloads with mechanisms distinct from DXd. With more than 15 years of ADC research, we have accumulated deep expertise and insights into antibodies, targets, linkers, and payloads. This foundation is our core strengths. Building on this, we remain committed to creating a new ADC and will continue to lead the field of antibody drug conjugates. As next ADC technology platform candidates, we are developing modified PBD ADC technology as well as STING agonist ADC technology, incorporating cancer immunotherapy concept. The first assets based on these platforms, DS-9606 and DS-3610 have already entered clinical trials. We are also actively conducting research for other innovative ADC concept beyond these ADC technologies. Next, I will present our Science and Technology. I will now provide an overview of our immunotherapy research for cancers. Why are we investing in immuno-oncology or IO? The rationale lies in the fact that cancer immunotherapies exemplified by immune checkpoint inhibitors have demonstrated sustained effects in preventing cancer recurrence which is so to be attributable to the acquisition of immune memory. Furthermore, IO approaches have the potential to offer a new treatment opportunities for tumor types that exhibit low sensitivity to existing therapies. In addition, we aim to achieve curative outcomes through complementary pharmacological effects by combining cancer immunotherapy with DXd-ADC. Over the past decade, we have conducted extensive research to identify signaling pathways and various molecules that activates cancer immunity as drug discovery targets, resulting in the creation of multiple development candidates and the establishment of our proprietary IO franchise. While today's presentation only shows you a portion of our work, as illustrated on this slide, we are pursuing cancer immune activation through multiple mechanisms. Since DXd-ADC's include apoptosis in cancer cells, and thereby serve as a trigger for immune activation, we anticipate complementary effects when combining IO franchise agents with DXd-ADC's in addition to their antitumor efficacy as monotherapy. As part of our multi-modality strategy, we are advancing innovative drug discovery using diverse approaches, including antibody-based therapies such as ADCs as well as medium-sized molecules, nucleic acids, gene therapy, glycoengineering and messenger RNA vaccines. On the left, within our ADC platform, we have created multiple novel ADC technologies, including the DXd-ADC platform. Through the development of innovative medicines, leveraging varieties of modalities, we are committed to transforming standard treatments for a broad range of diseases, including cancer, and we'll continue to pursue this goal through daily research efforts. Please go to Slide 20. This slide shows our In-House Global ADC Manufacturing Sites. Currently, Daiichi Sankyo has 13 manufacturing sites globally. In Japan, we have 4 sites. Globally, we are building ADC manufacturing capabilities -- capacities at 3 sites in Germany, China and the United States. Here, I will talk about shareholder returns. By improving capital efficiency and by enhancing shareholder returns. We aim to achieve fiscal year 2025 target for dividend on equity of 8% or more, which exceeds shareholders' equity cost. We will enhance shareholder returns by dividend increase, taking profit growth into account and through flexible share buybacks. We plan to increase the annual dividend for 4 consecutive years, taking our profit growth into account. By realizing dividend increase, we expect to achieve DOE of 8.5% or more in fiscal year 2025, which exceeds our original target. We are more confident today than ever before that our work over the next few years will cement Daiichi Sankyo's position as a true global oncology leader. We are currently at the last year of our current 5-year business plan and with the start of our new fiscal year in April this year, we plan to announce our new 6, 5-year business plan. Leveraging our greatest strength, science and Technology, we will continue to prioritize maximizing the barrier of the DXd-ADC's. Through challenging new innovations, we will strive to contribute to the patients and achieve sustainable growth. That concludes my presentation for today. I hope this overview has given you a variable insight into Daiichi Sankyo's current position, our innovative ADC technology, our evolving multi-modality strategy and our strong commitment to delivering enhanced shareholder returns. At this point, I would like to invite my colleague, Ken Takeshita, Global Head of R&D, to join me in -- for Q&A session. Ken brings extensive expertise, and we'll be happy to address any questions or comments you may have. Thank you all very much for your time and attention. We look forward to your questions.

Thank you, Okuzawa-san. I start Q&A session. And I have 2 questions for Okuzawa-san regarding midterm business plan. I believe that the growth achieved during the HIF's midterm business plan, which concluded in fiscal year 2025 has been symbolized by the success of DXd-based ADC agency franchise. With only a few months remaining in the current midterm business plan, how do you reflect on this phase?

So thank you Wakao-san. So current 5-year business plan is a time for us. A rapid and significant growth and transition from a cardiovascular company to oncology company. In the first 5 years, our revenue doubled from JPY 1 trillion to JPY 2 trillion and our profit have tripled. And this growth was realized mainly the significant growth of ENHERTU, our first DXd-ADC. So we are developing these DXd-ADC platforms and not only for ENHERTU, but for other DXd-ADC, in total, 5 DXd-ADC's. We successfully launched the second DXd-ADC DATROWAY that is also growing nicely and both products we are collaborating with AstraZeneca. And we have the other 3 DXd-ADC partnered with U.S. Merck and co-development is going smoothly. And not only this 5 DXd-ADCs, we have still the 6th and 7th DXd-ADCs, both unpartnered and as I presented new modalities are now coming into the clinical stage. So those are the remarkable success in clinical development and commercialization. And thanks to the success, we are now foreseeing, achieving the main financial KPIs for the current 5-year business plan, and including the ROE and the DOE target. And also, we increased the dividend in the 4 consecutive years in the past and we will continue the enhancement of shareholder returns for future.

For this question, has you planned to announce the 6th midterm business plan in April? What will be the key pillars of the new midterm business plan?

Yes. So first pillar will be the continued growth of 5 DXd-ADC's. These are the near-term growth opportunity. So for realizing that we continue the investment in clinical trials and also commercial and medical affairs activities. And second, we are going to establish our own capacity and capability to pursue the key clinical trials by ourselves. We have good candidates like 6th DXd-ADC or 7th DXd-ADC's and so on. So therefore, this will be the second pillar to become the standalone global clinical development player in oncology. And third, we are aiming at the identification of new breakthrough generating technology after DXd-ADC's. Our Tokyo Discovery Research team is working on various candidates of next BGT. And with that, we aim at the sustainable growth even beyond 2030. And last but not least, we would like to continue the enhancement of shareholders' return including dividend growth with flexible share buybacks.

Any questions from the floor? Please raise your hand if you have question. Please?

I have 1 comment and 1 question. First of all, your TROP2 targeted DATROWAY is superior to the other TROP2 targeting 100% due to your linker payload, which is the gold standard. My question is about the STING agonist after the MERSANA trial that had kind of disastrous outcomes. And I don't know if you can disclose, but what are you doing differently that you haven't entered these problems.

Okay. Thank you very much for that question. So it's a bit difficult for me to give you all the details of why we think it's different. But there is -- I think it's very important to note that the linker, as you mentioned, for the TROP2 program. It's also key to understanding how to administer these STING agonist in DCs. Yes, okay.

Any other question? Following this question, I have one question on your TROP2 DATROWAY. Increasingly consensus that ENHERTU will continue to scale further. Could you share your expectations for DATROWAY, the DXd which has been showing a solid sales momentum...

Yes. So as you just heard, the DATROWAY, the TROP2-ADC is already approved in certain indications in EGFR-mutated lung cancer and certain types of breast cancer and at least in breast cancer. We have many more Phase III clinical trial readouts in triple-negative breast cancer, particularly the PD-L1 positive patient population. And so the early data that we can see from the AstraZeneca conducted BEGONIA study, really suggests that this combination of a checkpoint inhibitor plus TROP2, you see the DATROWAY it's really a great combination for these patients with triple negative. So we can all expect that really great results from these ongoing Phase III studies. In addition, we do have a very important earlier line programs EGFR-mutated lung cancer as well as in the non-EGFR-mutated the frontline clinical trials -- we have -- in totality in lung cancer between these EGFR-mutated patients in a non-EGFR-mutated patients. We have about half a dozen different front-line lung cancer study. So we are very much heavily invested in DATROWAY for lung cancer. When I say we're talking about the partnered programs. So AstraZeneca and Daiichi Sankyo both, we are very much very interested in this drug in lung cancer.

I have additional question on DATROWAY's [indiscernible]. Market is interesting data read out on AVANZAR. And how do you assess the probability of success, AVANZAR, TL-07, TL-08 which target fast-growing lung cancer with [indiscernible] DXd and I expect to read out in 2026.

So in DATROWAY lung cancer program, the non-EGFR-mutated patient, this is what we're talking about. We have right now 3 different studies, which combine DATROWAY with either a PD-L1 drug or a PD-1 drug in pembrolizumab or durvalumab. And in those studies, we are incorporating this very important predictive biomarker that which we call the QCS biomarker that was developed by AstraZeneca. This is a digital pathology biomarker. And in the relapse setting, this biomarker works very well. And so because we have this access to this incredible digital biomarker, we think that the probability of success is quite good in the front-line lung cancer patient population.

Any question? Okay. Going back to medium-term business plan. Okuzawa-san I have one question. So could you share your outlook on R&D investment under the 6 midterm business plan? And how you intend to balance R&D investment with operating profit?

So we foresee the continued growth for the R&D investment because we have rich pipeline not only for the partner programs, but for our own unpartnered programs. So if we look at the balance between R&D spend and profit because of the LOEs of some key products like LIXIANA, in the first half of the coming 5 years, we would face the slight decline of the profit. So more R&D, continuously investment but in the second half of the coming 5 years, we will come back to the recovery phase of also the profit. So by the end of the next 5-year plan by 2030, we will see the good balance between R&D and also operating profit and the margin ratio will be improved as compared to today's margin. That is our rough sketch of next 5-year plan.

Any question? So Takeshita-san, could you share your expectations for ADCs beyond ENHERTU and DATROWAY. And are there any pipeline assets that you believe could have ENHERTU-like potential beyond ENHERTU?

Okay. So let me just make a comment about what we have in our pipeline beyond ENHERTU and DATROWAY. So it's very important to just really talk about our research development strategy. And we're what we call a platform strategy. So platform refers to the base construct of an ADC with an antibody linker and the payload. And all of you now are witnessing our very first platform technology that we developed. This is a DXd-ADC technology. And we can see that with the DXd platform, we have been able to generate many, many drugs that are either approved or likely to be approved. Right now, I think it's reasonable to say that of the many DXd-ADC's we have from the platform, we have enough data from the 5 of them to say reasonably that 5 out of 5, the success rate is 5 out of 5 with Phase III. And so that's the platform strategy that we're doing. Now the next platform, as you heard is another -- different payload. And then we have another payload with a different platform, and we have more coming. And so this is what you can expect from us in terms of our productivity from our resource programs. And we've been doing this with ADC research for 15-plus years. We got incredible amount of knowledge in linkers, and payload as well as, of course, the binders. And so this is what we're doing, generating many different platforms for the future.

Just a quick question. So regarding the -- obviously, the research and also the multiple pipelines and successful pipelines that you have, with the JPY 1.9 billion investment globally that you've made in terms of the manufacturing facilities globally, do you anticipate that being the future strategy for Daiichi Sankyo, where you build in-house manufacturing capabilities? Or do you plan to also outsource some of your manufacturing capacity to partners such as CDMOs or CMOs, et cetera?

So in the current 5-year business plan, we decided to make investment in both our in-house manufacturing capabilities and external CMO network. And with that, we successfully manufactured and supplied ADC products. And in the coming next 5-year business plan, -- our direction would continue means to make use of both internal and external because we have 5 DXd-ADCs. But beyond that, our direction is to make use of more internal in-house manufacturing capabilities and less dependency to CMO. That's a long-term direction.

So sorry. So there's no time. So we tried to wrap up this Q&A session. Thank you for your time. I appreciate your presentation and Q&A. I hope we see you soon. Thank you so much.