Lotus Pharmaceutical Co., Ltd. (1795) Earnings Call Transcript & Summary

Good afternoon everyone. I am very happy to present today our third quarter results. Lotus have reached TWD 4.5 billion, which represents the second highest quarter in our history. So it has been in the outstanding performance. The key driver for the performance has been Asian business in quarter 3. Our Asian business achieved 24% year-on-year growth contributed mainly by our three key markets: Korea, Taiwan and Vietnam. Vietnam, in particular, reached more than double the revenue compared to previous year. The key driver here was the launch of -- the performance of Buprenorphine, Suboxone which is internally developed and manufactured product. Taiwan has been also delivering very strong growth in third quarter, 45% compared to 2022. Key contributors for the growth in Taiwan have been the brand acquisition products, which were completed in the last 5 years. I refer here to Aclasta, Cialis, Alimta as well as Evista. In addition to that, we have seen also very strong performance in growth for our generic business in Taiwan. Korea has also significantly outperformed previous year, achieving 11% growth driven by a very strong performance across different product, therapeutic areas and especially our lead product, Qsymia. Overall, in the third quarter, we have launched 17 SKUs in across Asian Pacific markets. When it comes to export business, which, as you know, the key drivers here are buprenorphine/naloxone and [ lenalidomide ] in U.S. The third quarter compared to third quarter of 2022 was lower, which is easily explained by the fact that we launched in Q3 2022 lenalidomide in U.S. So Q2 2022, Q3 has been basically the stock build for the launch in the U.S. So it's really not representative to compare Q3 '23 versus Q3 '22. So what is more relevant in this case is to look at the year-to-date. So basically, year-to-date, export business has achieved growth of 14%, which is a very strong result, of course, driven by lenalidomide in the U.S. So we have seen volume uptake compared to 2022. And also, we have seen much better performance than we expected with buprenorphine/naloxone. Overall, in export markets, we launched 17 SKUs. Continuing with the numbers on the year-to-date basis, accumulated revenue reached TWD 13.5 billion, which represents 18% growth year-on-year. Our gross profit margin reached 59%, which represents 3% year-on-year growth. And accumulated EPS achieved TWD 14.9, which beats the historical records of the company. So going through the data, portfolio and pipeline. The key highlights in terms of regulatory lenalidomide was approved in Japan. So this is a significant achievement for Lotus. This is our approval in Japan since -- I believe since 2011 as a company. And of course, lenalidomide has significant market opportunity. The good news here is that we are actually among 2 generics approvals in Japan and with opportunity to launch on day one. Another important milestone is the approval of nintedanib Soft gel in Canada. So this is a very important product for us. So we are quite confident based on the market size, the market growth of the brand as well as our progress with licensing out nintedanib globally. That nintedanib will become one of our leading products in the next 3 to 5 years. And obviously, the approval in Canada is important milestone. In addition to that, we received approval for Sitagliptin/Dapagliflozin, which is a fixed dose combination developed internally and the product has been also launched in Korea market. So overall, we received 19 marketing authorizations in Q3, including, of course, export and Asia. On the business development side, the highlights that we finalize to 2 large deals for in-licensing of 505(b)(2) products from U.S. companies. I refer here to, first of all, deal for ADLARITY which covers Korea, Taiwan as well as Southeast Asia. So this is the only weekly Donepezil patch approved in the U.S. And we have secured exclusive price for already mentioned market. So overall market size of Donepezil in these countries is exceeding $180 million. So this is a lucrative opportunity because Donepezil is indicated, as you may know, for treatment of Alzheimer's disease, which is a disease with significant burden and significant also growth potential. The second big product to 50 (b)(2) product, which we licensed in Q3 is Vazkepa. Similar to ADLARITY, we have secure Asian rights, Korea as well as Southeast Asia. We are currently also negotiating to Taiwan to the scope of the territory. So this is the only pure EPA omega3 prescription product approved by U.S. FDA as well as European authorities and the product is currently under registration in our targeted markets in Asia. The indication is hyperlipidemia. So this is obviously a market with significant opportunity more than 10 billion is worth the market of hyperlipidemia products in Asia. So we are very excited on the fact that we will bring this product to the patients here in Asia. On the licensing out part, we have finalized pomalidomide. Actually, it was launched also in South Africa. We have finalized 7 licensing-out deals and also we are quite happy to see that there's a very strong demand for lenalidomide in our biggest market in Latin America, Brazil. In terms of regulatory R&D and regulatory, we have submitted pomalidomide and tofacitinib dossiers in major markets across the globe, excluding U.S. We have also lenalidomide in Mexico, and we initiated 2 new R&D projects. Next slide. On this slide, give you an update on in-house developed products rollout globally. So in quarter 3, we have 9 approvals overall for the internally-developed products, which are already finalized. The key highlights I already mentioned. I would like to again highlight the importance of nintedanib. So the brand market is exceeding $3.5 billion. We have a secure partnership with leading global multinational companies, which are covering U.S., Europe, Latin America. Of course, we will launch the product in Asia. So again, this product will become our flagship internally-developed product in the next 3 to 5 years. So overall, the products that we are rolling out currently, which are, again, finalized as developments are addressing more than $10 billion market size. On the business development side, again, we have finalized three deals I already mentioned the two 505(b)(2) products. So in summary, we have currently 6 brand acquisitions, which are 5 of them commercial. One is under registration. This is Adcirca, which is in license from Eli Lilly. New chemical entities, we have two products which are already secured with rights, I refer here to Zepzelca and Alyssa. On the 505(b)(2) currently, we have finalized use for more than 20 products, 10 under registration, 11 already commercial. And for the biosimilars, currently, we have two products already commercial bevacizumab, teriparatide and three under registration, which are basically darbepoetin, adalimumab as well as the generic of biosimilar of Prolia. So there's a significant activity undergoing in terms of negotiations on the brand side, new chemical entities, 505(b)(2) as well as biosimilars. You can see we have more than 20 projects ongoing. And this demonstrates our commitment to continue to build hybrid portfolio pipeline, which will deliver profitable growth going forward. On the R&D pipeline execution update for Q3. So we -- as I said already, we have added two new products to the internal pipeline and without pomalidomide and tofacitinib in major markets. So this is -- these are the highlights. So overall, for the U.S. market, we have five products under development. One is in development, two are in clinical phase and two products are effectively approved, tentatively approved are nintedanib, midostaurin. For Japan, we have lenalidomide already approved, and we have one product under clinical development. Rest of the market's overall pipeline of 26 products. Overall addressable market size over $27 billion. So to give you a short update on the export business in Q3. Again, the highlight is obviously the lenalidomide approval in Japan, which is opening similar market size opportunity as overall EU. So we have -- I'm really happy that we managed to successfully bring this product to an end in terms of regulatory phase with our partner, Fuji. And again, we are on time to launch the product. So currently again, we are the second generic approved in Japan. And currently, there is no generic launch in Japan. So we expect that in addition to the two generics, including Lotus, Fuji also the brand will launch upon generic launch based on authorized generic. Year-to-date since we initiated licensing-out activity, which is the backbone of our export business. So we have signed 260 deals, which are covering 160 markets and covering 30-plus products, both products which are already finalized as developments as well as pipeline of course. And we are very happy to work with key companies as our customers, such as: Stada, Zentiva, Arco, Sandoz, globally also JAMP, Canada, Eurofarma, Latin America as well as Alvogen in the U.S. I'll hand over now to Bjartur to go through financials.

Thank you very much, Petar. So first of all, I will go through the sales. So the financial performance of our company and the third quarter of this year remain very robust and in line with the expectations. So single quarter revenue reached TWD 4.57 billion, reflecting a 3% increase from the previous quarter, and that is also aligned with the analyst consensus of approximately TWD 4.6 billion. So year-to-date, for the first 9 months of the year, our net revenue reached approximately TWD 13.5 billion, indicating a 18% growth comparing to the same period last year. It's important to note that this quarter's revenue for Lotus appear 15% lower than the same quarter last year, which may raise some concerns for those who are unfamiliar with the our company's history. However, this decline has contributed to the circumstances surrounding the launch of lenalidomide in the U.S. in September 2022. So due to the settlement agreement limitations with the brand, Lotus and as U.S. partner had a limited timeframe in 2022 to sell the allocated full-year volume of the product, resulting in majority of the 2022 lenalidomide revenue in the U.S. being concentrated in the third quarter. So as we adopted a quarterly replenishment strategy in 2023 with lenalidomide in the U.S., our year-to-date comparison of the revenue in Q3 will be more meaningful, especially for the U.S. business. So therefore, firstly, in the U.S., our business experienced a quite remarkable 24% growth in the first 9 months of the year, driven by strong performance of the key products such as lenalidomide and buprenorphine/naloxone especially in the case of buprenorphine/naloxone despite the emergence of a fourth generic competitor, which was expected. [ Ingenus ] Pharmaceutical, that's the fourth generic competitor, their impact on our market share and net selling price was much less significant than anticipated. So as the last week of October from the prescription data, Ingenus had about 1% of the overall prescriptions. So also, we saw some potential opportunities related to buprenorphine/naloxone, for example, from Indivior's Q3 earnings for material saying that both accelerated share erosion in Q4 2023, reflecting underlying share loss due to anticipated formulary decisions together with assumed impact from fourth generic having entered the U.S. market. We anticipate the formulary decisions could mean changes in the market access that so far has enabled Indivior to maintain its 31% of the prescriptions in the U.S. market. So this could mean some opportunities in the future for Lotus. So additionally, there are positive developments in the litigation against Indivior or Indivior against Lotus. An agreement was reached for USD 15 million settlement. We have been, obviously, in this series of lawsuits for a very long time, Lotus and Alvogen against Indivior though we are very confident that we eventually prevail in all lawsuits. But considering the time, the cost and the risk of if losing, we find -- we found accepting the offer that Indivior made at this point of time is in our best interest. So we choose to settle. So now turning our attention to the export market outside the U.S. Overall revenue from these markets contracted by about 36% in the first 9 months. This was mainly due to in 2022, we had a launch of lenalidomide in the EU markets and we didn't have that in 2023. And also in 2023, the pricing in the EU markets became very competitive in the lenalidomide, though Latin America markets such as Brazil, remain very robust. So as Petar mentioned, this quarter, we submitted dossier to Mexico, which is another large Latin American market to be expected. So vinorelbine, other than lenalidomide grew 50% year-on-year and become currently second largest molecule in the export business followed by enzalutamide which is our molecule used for the treatment of prostate cancer and sunitinib, a product used for the treatment of gastrointestinal tumor and both grew very significantly year-on-year. Additionally, as many are aware, lenalidomide was approved in Japan and will be launched on schedule in Q4. Pomalidomide, the second-line treatment to lenalidomide had been approved in Canada, now in this quarter in South Africa, is being rolled out globally. Pomalidomide, the junior brother of lenalidomide, is also a USD 1 billion market. And this is the third largest molecule in our generic portfolio following the lenalidomide and nintedanib. Now moving to Asia. Our markets exhibited a very strong 24% growth for the first 9 months and maintained a similar growth rate in Q3. And notably, the Taiwanese domestic business experienced exceptionally strong growth. Today, Taiwan domestic revenue ranked the third place, trailing closely to CCPC and TTY in Taiwan, up from the seventh place 1 year ago. For the 9 months ending in September, Taiwan business grew for more than 70% year-on-year. Our successful model of combining big brand -- big pharma brand, generics, innovative and complex products have proven to be very effective, and we are to deploy this strategy increasingly in other Asian markets such as Korea and Southeast Asia. The Korean business also grew by 11% in Q3 and for 9 months, approximately 8% year-on-year growth and our other Asian businesses have also grown significantly between years. Notably, the Vietnamese revenue for the first 9 months have grown from TWD 95 million to TWD 217 million, 130% growth of backlog for various new launches in Vietnam, especially vinorelbine soft gel. Our Thai business -- Thailand business, also grew by 15%. And overall, the Asian businesses, including export to Mainland China showed a very robust growth of 48% this year versus the same period last year during the first 9 months. So now moving to the financials. Actually, sorry, I have forgot one slide here. So the revenue contribution by different geographies remain very much in balance as of the Q3 of this year, approximately half of the revenue come from the export business. And this quarter is slightly more from Asian business, about 40 -- 54% and 46% coming from exports and the U.S. remains the largest export market and Korea remains the largest Asian market. And across the five largest therapeutic areas that we focus on, oncology and immunology occupies approximately 38% of our revenue and followed by central nervous system, which accounts for about 30% and then followed by primary care and lifestyle. And now we can move to the financials. So go straight to the gross margin. Gross profit for the quarter was TWD 2.65 billion, with a gross margin of approximately 58%. And the gross margin was comparable with those of previous quarters and though more delivery of buprenorphine and naloxone this quarter did lower the margin slightly. And operating expenses were higher this quarter versus the prior quarter, mainly due to the increased R&D expenses, and this is largely due to the impairment of a discontinued generic project of nintedanib. Despite of higher operating expenses our operating profit was TWD 1.48 billion with an operating margin of 32.4%. So for the first 9 months ending in September, the operating profit was TWD 4.76 billion with a margin of 35.2%. Now moving to the nonoperating side of the financials. The net finance cost this quarter was TWD 125.5 million, which is consistent with prior quarters. It is worthwhile to point out that during the last 12 months, the weighted average interest rate for Lotus only increased very marginally from 4.08% during the Q3 of 2022 to 4.15% now during Q3 of 2023, which is only a 7 basis point increase. And during the same period, the U.S. Federal Reserve in contrast increased its policy rate by 225 basis points. Lotus, therefore, have done exceptionally well to maintain a low cost of borrowing as well as a good amount of liquidity to fewer further business expansion. Additionally, we have also successfully finalized refinancing in Taiwan and Korea this quarter to greatly enhance our capability for large acquisitions while reducing overall financial cost. Now moving to the -- sorry, moving to the nonoperating gains. So this quarter, we recorded TWD 199 million of nonoperating gain which was mainly driven by the appreciation of U.S. dollars in Q3. As the group owns a significant amount of assets denominated in U.S. dollars, such as cash, AR and lots of investments, a more valuable U.S. dollars is honestly beneficial to the company. We believe that U.S. dollars will maintain its strength in Q4. However, there will be various hedging tools at our disposal to moderate as much as possible FX impact should the time start to turn the other way. So in summary, Lotus continued its impressive financial performance during the third quarter, and the net margin remained at 27%, consistent with the prior quarters of the year and TWD 4.76 of single quarter EPS was delivered during the quarter and TWD 14.19 EPS for the first 9 months, which is more than the business earned during the whole year of 2022. And so we are very proud to say that since 2018, this company had consistently added to close to TWD 2 billion of revenue every year over 5 years to the top line, while the net profit margin had consistently increased every year as well from 2% in 2018 to over 20% last year in 2022 and now over 27%. So this is quite remarkable growth of profitability. So moving now to the cash and the capital structure. The cash inflow from the operating activities this quarter amount to -- amounted to TWD 1.5 billion, which was approximately TWD 630 million more than the prior quarter, net of interest and taxes paid. The net inflow of cash on operating -- operations amounted to approximately TWD 1.36 billion this quarter. And cash on hand amounted to approximately TWD 2 billion at the end of the quarter, net debt stood at approximately TWD 9.49 billion, which is very similar to the end of previous quarter, which is TWD 9.39 billion. So comparing to the Q3 of last year, the net debt was approximately TWD 2.9 billion higher, and the additional debt was mostly deployed to acquire the brands such as Alimta and Cialis, which contributed largely to the company's business growth this year. And as of end of Q3 2023, the last 12 months EBITDA, LTM EBITDA stood at approximately TWD 6.4 billion, which is 21% higher than that of Q3 2022. And therefore, the net gearing ratio of the group only changed marginally from 1.33 to 1.48x. So additionally, the net debt-to-equity ratio has been steadily decreasing since Q1 of this year from 64% in Q1 to 57% now in Q3. In summary, we can say that the company remains very conservative in leverage. And as discussed earlier, it has maintained a relatively low cost of borrowing, which in this day and age is a very strong advantage to expand the business when the opportunity arises. Okay. Now, we're going to move back to Petar for the business outlook.

Thank you. Building hybrid pipeline portfolio has been one of our key pillar and actually reasons for company's success during the last 5 years. So while we have been building up different pillars, including 505(b)(2) brand acquisitions and in licensing complex as well as new chemical entities, biosimilars and 505(b)(2). So from the bottom to the top here, you can see the building blocks that help us to achieve double-digit growth momentum in four consecutive years. You can see here that in the left blue bars, Lotus R&D has been dedicated mainly to generics and 505(b)(2) pipeline development. While our business development has been focused on -- clearly on new chemical entities, biosimilars as well as brand acquisitions and partially 505(b)(2). So the key strategy for us is that business development as well as R&D, they complement each other in delivering our pipeline products and the end goal again is to build a hybrid portfolio, which is [ deliquescent ] for achieving profitable growth of the business. In terms of therapeutic areas, we have, let's say, five key therapeutic areas. I'll start, of course, with oncology, including immunology. So this is our largest therapeutic area, which is accounting for more than 40% of the revenue on a year-to-date basis. Here, of course, the flagship product is lenalidomide, which is generic internally developed and manufactured by our facility in Nantou. I would like to highlight here that we have internal capability to develop manufacture also soft-gel products. So we have already two products commercial vinorelbine and enzalutamide and 2 products, which are in the pipeline, approved in some markets like midostaurin, nintedanib. So soft gel is considered as a complex generics. So there are only a handful of companies which has this technology. And we have more products actually now in the pipeline more in an early stage. So for sure, this is an area which will be continuously subject of development and the infusion of new products. In terms of new chemical entities, so far, we have Zepzelca. It's an innovative oncology product for lung cancer, which is one of our key subcategory in the oncology. So this product has been already approved and launched in Taiwan, but we are also looking after several other opportunities to add on mainly, again, in lung cancer as well as prostate cancer, which are the key two categories of the oncology for us. We have, so far, three products in the category of biosimilars for oncology, immunology. Bevacizumab, which is already a commercial product in Korea, Taiwan; Denosumab, this is a biosimilar of Prolia. This is -- as you know, this product comes with two indications: one is osteoporosis, one in oncology. So we have recently secured the Asian rights for this product and for both indications. So this is going to be one of our key biosimilar launches in the next 5 years in Asia. In addition to that, we have also rights from Alvotech for adalimumab, which is about to be launched in Korea markets in Southeast Asia. Obviously, the brand acquisitions are a significant focus area for us. So we have finalized successful [indiscernible] deal with Eli Lilly on Alimta. We have also strategic partnership with AstraZeneca in Korea, which is covering the prostate cancer franchise, Casodex, Arimidex and Zoladex and also we have rights for main -- for pain management Kapanol. this is morphine sustained release proprietary product, which is mainly used for oncology patients. At the beginning of the year, also, we in-licensed 505(b)(2) product in oncology and in hematology category of oncology, which will be launched in the next 3 to 5 years in some of the key markets in Asia. The second biggest therapeutic area for us is CNS. And obviously, the key driver here for the performance in year-to-date is buprenorphine and naloxone in the U.S. market. Also, we have seen a very strong performance with trazodone in China and Taiwan, also partnership with Luye on Seroquel as well as with Orion's Stalevo and Contam. So these are proprietary products. We have, as you know, secure rights for Gralise, already launched the product in Korea. This is a product which we in-licensed from out in U.S. And I already mentioned that we in-licensed ADLARITY. It's a weekly donepezil patch, which will be launched in the next 3 to 5 years in all markets in Asia, which we are operating. Obviously, the most interesting product in terms of potential is NRX. So this is a deal which we already announced. So this is a product which is currently undergoing Phase II studies in U.S., and we are looking forward to see the outcome of this study during second quarter of next year. In terms of categories in CNS, our key focus areas are depression, bipolar disorder, also Alzheimer's disease as well as neuropathic pain and, of course, anti-addiction for buprenorphine and naloxone. The third biggest therapeutic area, which contributes around 24% on a year-to-date basis, the revenue is -- it's a bit large as a scope of products, so it's -- we call it primary care and lifestyle. Primary care includes a few categories, which is cardiovascular, which is quite big, also diabetes, also quite large. And on the lifestyle, we are including here in our definition, mainly anti-obesity products, which is our key therapeutic area in Korea as well as products like Cialis, which is indicated for erectile dysfunction. So here, we have quite large pipeline products, mainly in the 505(b)(2) and also in the generics. So I would like to highlight Qsymia, recently signed Vazkepa. The fixed dose combinations in Korea were [ rosuvastain ] [indiscernible] also sarpogrelate sustained release which has been one of the most successful launches for us in Korea. And of course, the [ plain ] generics in [indiscernible] our base, which are our key product line in Korea. So in terms of future launches, the biggest drivers will be Adcirca, which is again 505 -- sorry Adcirca which is license product from Eli Lilly; Vazkepa, which is 505(b)(2) product between license during Q3 as well as semaglutide injection. The four biggest therapeutic area for us is women health care. So here, we are improving in the definition, oral contraception, also products for menopause as well as osteoporosis. We have a significant number of existing products, which are contributing a big part of the revenue as well as profitability. I refer here to acquired brands like Mercilon, Aclasta and Evista. Also, we have two biosimilar products, one already commercial, teriparatide and Denosumab, which is recently secured. One new chemical entity on the market, which is innovative oral contraceptive Alyssa launch at the end of 2022. And of course, we have also a number of discussions both on the brands 505(b)(2) as well as generic and in-licensing. Nephrology is a very interesting therapeutic area. It's not as big as oncology, CNS or primary care, but it's a very interesting because of the fact that it's a relatively niche also with quite less competition. So here, we have our flagship product, which is branded product Kalimate in Korea based on partnership with [indiscernible]. We have Erythopetine, of already commercial in Korea and we have secured rights also for Southeast Asia for darbepoetin alfa biosimilar. This is a low-acting erythropoietin, so we believe that it will be the only biosimilar, which we can launch in the next 2, 3 years in Southeast Asia. And earlier this year, we have also in-licensed Renazorb. It's an interesting 505(b)(2) product from a U.S. company. We are expecting to launch a product in Korea by 2025. Next slide. In the last 3 years, Lotus top line showed double-digit growth year-on-year, and this was mainly coming from geographical expansion and also rolling out our oncology and CNS pipeline, of course key drivers being lenalidomide and buprenorphine/naloxone in U.S. Meanwhile, we have also strategically diversified our portfolio from a pure-play generic-focused company to a hybrid platform, including branded products, new chemical entities, biosimilars as well as 505(b)(2). From the growth of the portfolio, we have seen a steady growth in -- especially in the complex product line. You can see in the first 3 quarters of the year, 20% growth year-on-year in Asia, mainly has been delivered by innovative products, which is including products like Alimta, Cialis, Evista, Aclasta as well as some of the 505(b)(2) products and biosimilar products. So this, again, underlines the importance of focus of the company to secure more complex products because, again, we believe that our success so far and our success in the future will be determined by ability of the company to secure and to launch successfully complex products in Asia as well as in the export market. So this remains a top priority both for the business development, which is the key contributor here, but also for our R&D. So 2024 business outlook, we would like to take the opportunity to inform investors about the key focus areas, what to expect in '24. We are quite optimistic that we will have very strong growth in the export markets because of the fact that lenalidomide is quite successful so far, and we are quite confident that we can achieve based on our setup in the U.S. year-on-year growth, which will result in substantial growth of the revenue in export markets. The buprenorphine/naloxone regardless of the competition, we believe that we'll continue to be a major product for our business. It's a product which is extremely complex as development, also some manufacturing. And as you can see, some of the companies which managed to receive approval and to break through the litigation couldn't launch or couldn't supply the market with adequate [indiscernible] because of the complexity associated with the supply chain. So in addition to that, we have also diversified our supply chain by adding new manufacturing sites and new API suppliers, which will also improve our profitability. So again, we are quite optimistic that buprenorphine/naloxone will play significant part of our business in '24. In addition to these two products, obviously, we'll continue to roll out our internal pipeline of products globally. And the key focus will be on nintedanib, pomalidomide as well as tofacitinib. I mean we also believe that there will be significant growth momentum coming from lenalidomide in '24 in particularly in new markets, launches like Japan, like potentially Mexico as well as other markets in Latin America, same applies for enzalutamide. In Asia, we are also quite optimistic that we'll be able to continue with organic growth in our key markets like Korea and Taiwan based on the existing products as well as some of the launches in 2023 second half as well as 2024. We are really in a very well position both in Korea and Taiwan to achieve this. Southeast Asia, obviously, is a cluster of markets which is under transformation. So we have been putting a lot of efforts in securing products, rolling out, registering products and also scouting for opportunities. So we are optimistic that in addition to organic growth -- significant organic growth, we will also be successful in some of the external growth opportunities in Southeast Asian markets like Thailand, Philippines or Vietnam, which will give us significant growth there and we'll be able to secure adequate critical mass. And last but not least, we are, of course, looking forward to see the Phase II results of NRX in the U.S. So the progress with the study with enrolling the patients is quite good. And so we will have the results and -- or by meeting with U.S. FDA in second quarter of 2024. So again, this could be a game changer. And I would like to highlight that for time being, until we see the results of Phase II and meeting with the U.S. FDA for Lotus, this is a risk-free deal, right, which is very important. So I would like to quote again with the fact that we have exceptionally strong Q3 2023. And if you look at the year-to-date result, our net profit not only surpasses our full year net profit from 2022, but also sets a new historical high. And I would like to use the opportunity to thank our employees for the great achievements and commitments during -- not only in Q3 but also year-to-date. So looking forward to a successful end of the year and, of course, major success in 2024.

Thank you. Thank you, CEO, Mr. Petar; and also Vice President, Mr. Shen for the very comprehensive presentation on results and outlook. And now we are moving to a Q&A session. We will have our operator Brian to introduce how to raise questions on our platform. And we'll have Susan, the IR to host the Q&A session. Thank you. Thank you, Brian.

[Operator Instructions] And now over to you, Susan.

Okay. So also any investors have the question, please raise your hand and also or text in the Q&A section, so that we can answer your question. Okay. So the -- one investor would like to understand the management team regarding to the since -- in 2023, Lotus has seen a very strong growth from the lenalidomide. And so how about the momentum for the Japanese and also the U.S. lenalidomide progress in 2024? And how is business confidence on that for the management team?

So for the U.S., we are quite confident again that it will be actually a very solid performance with significant year-on-year growth based on volume growth, while maintaining the price. For Japan, obviously, this is a new market for us, and Japan as market size is far away from U.S. as an opportunity. So Japan is similar to EU. As a market size, the brand has sales of close to USD 400 million. So we are in a pretty good position here because we are, again, in the first wave. Of course, there will be competition both from generic as well as authorized generic from BMS. But I mean, we are quite excited, again, from the fact that this is our first launch in Japan since long time, and we will do our utmost to make it success.

Thank you, Petar. So there's another question coming from the investor regarding to everyone knows that Lotus has a solid position in the Korean market and we had Qsymia for macro weight management product. However, in the market relatively we have been seeing that there is a competitor providing the new type of products, GLP-1 or there are some other players providing the new type of the medicines for the weight management. So how is the competition situation will rise afterwards? And how is the view about the management team?

I mean, our view is that, first of all, these are not new products as a mechanism of action, right. Effectively, Wegovy is GLP-1 inhibitor similar to exactly like Saxenda, which is already existing competitor, right, for Qsymia since a couple of years in Korea. So we think that -- I mean, Qsymia has a significant value preposition, and we'll be able to continue with the growth because of a number of reasons. First of all, I mean the product has already very well established brand awareness among physicians, among users. Also, pricing-wise, the product is much more economical compared to the new competitors. Based on our information, I mean, this is a very important factor here because obesity drugs in Korea as in many other markets are not reimbursed. So it's 100% out-of-pocket costs, and this is a chronic treatment. So the cost here is significant. So that's why I'm saying that our price advantage is quite significant. The third thing is we don't expect that Wegovy will reach the market in Korea until second half of 2024 because of the supply issues at Novo Nordisk has been facing across different geographies. And our intel also is that they have been -- they are looking to acquire actually manufacturing sites in Asia to enable them to manufacture the product here, right. So this is something that they are currently working on. With regards to Eli Lilly product, Mounjaro, so this product is unlikely to be approved or launch in Korea prior to 2025. So -- and the last factor, which is very important here is also the side effect profile. I mean GLP inhibitors, they have also quite significant side effects like associated with chronic use like nausea and vomiting. And typically, their users are -- which are not able to sustain these side effects, they prefer to go to Qsymia. Also, Qsymia is an oral product versus injectable. So I think in general, Asian patients, they prefer to take oral products over the injectables. So overall, I mean, we believe that -- I mean, we have a great product, which is obvious, and we are quite confident that we will perform better than previous year, regardless of potential where we will launch in Korea due to the reasons which I already explained.

Thank you, Petar. So there's another question regarding to the financial guidance regarding to the fourth quarter. As investors know that Lotus has an investment in the U.S. partners, and there is some expecting to see the interest income to be booked. So how much will be the amount will be booked in the fourth quarter? And how investors can view on this investment?

Bjartur will take this.

Okay. So -- we expect the investment income to be similar or higher than the prior year. So as a reference, in 2022, we recorded approximately TWD 286 million of investment gain last year. And so a simple rule of thumb is to calculate 20% per annum of the amount invested, which was approximately USD 55 million. Of course, the exact valuation exercise annually is a lot more complex when considering that this investment is not just a bond, but more like a convertible bond. So our preferred shares can be compared to approximately 13.14% of common shares in average in U.S., for example. Let's say, in 2025, that average can be publicly listed or floated in U.S., let's say, for $1 billion of valuation and our share would be worth about USD 131 million, just as a kind of a reference. So the convertible instrument valuation is more complex to value and has more factors to consider and a simple bond yield. But what I kind of said was true as a simple rule of thumb and 20% will be good enough for the time being.

Thank you, Bjartur. So due to the time constraints and that will be the final question just that if the management team has the numerical guidance regarding to the 2024?

Do you want me to take it? Yes. So basically, as in the past years, we normally give the details of our outlook for the new year during our earnings call in March, which we basically gave the performance of the past year, full year results, and we also provide our outlook for the new year and explain to the investors why we look at the year in that fashion. So Petar did mention what are the main things to look out for in 2024 in the last part of the presentation. We will give, however, more detailed the numbers associated to those factors in March.

Okay. Thank you Bjartur. So we are closing this meeting, and we appreciate all the participants who joined the meeting with us. And also special thanks to UBS and to the participants in the meetings for us, and thank the speakers, Petar and also Bjartur to present for the investors who know us well. So we would like to take this opportunity to thank everyone, and thank you for the meeting. Thanks.

Thank you. Thank you, Bye-bye.

Bye.

Thank you all. Let's conclude Lotus Pharmaceutical's Third Quarter English Results Conference Call. Thank you.