Ono Pharmaceutical Co., Ltd. (4528.T) Earnings Call Transcript & Summary

Good morning. Welcome to the JPMorgan Healthcare Conference. I'm Seiji Wakao, Japan Pharma Analyst at JPMorgan. And it's my pleasure to introduce Takino-san, CEO of Ono Pharmaceutical, and welcome him to the conference. Takino-san, please go ahead.

Thank you, Wakao-san, and hello, everyone. Let me start a brief introduction. I'm Toichi Takino, President and COO of Ono Pharma from Osaka, Japan and very much honored to be here to make a presentation at this JPMorgan conference. This is a great opportunity to introduce our company, Ono, as one of the attractive companies with high potential for future growth, we believe. Today, starting from quick corporate overview, I will touch on our promising growth drivers from our development pipelines together with our future outlook. This is forward-looking statements. And now starting from brief corporate introduction. By the way, this is our main research campus between Kyoto and Osaka. Nice picture, isn't it? Ono's history goes back to all the way, 1717. And this year marks our indeed 309th year. Over its long-term history, Ono has created numerous innovative medicines, including more than 10 prostaglandin-related products from around 50 years ago and the first in the world PD-1 antibody, OPDIVO launched almost 10 years ago. So while we traditionally focused on Japan or Asian markets, in the past, Ono is now expanding beyond Asia to global markets. In 2024, we acquired U.S. biotech Deciphera with a focus on its specialty products as well as sales channels in U.S. market and the European market. And thus, we are steadily building up our foundation as global company. Our drug discovery engine focuses on oncology, immunology and inflammation and neurology with a weight on diseases with high unmet medical needs. In addition to a variety of pipeline licensing arrangement from pharma and biotech all over the world, we very much actively engage in open innovation with academia and venture companies to acquire or get access to cutting-edge technologies to work on innovative drug discovery. Our top line sales used to be around JPY 150 billion, which is approximately USD 1 billion. But with our breakthrough product, OPDIVO, our revenue grew and literally had a breakthrough to around JPY 500 billion, roughly tripled in about 10 years. The pie chart here is our fiscal year 2025 revenue forecast and its breakdown. We are currently advancing our growth strategy based on 3 perspectives. The first is regarding OPDIVO, which currently accounts for about half of our sales revenue. We are implementing its life cycle management initiatives in anticipation of future patent expirations. These initiatives include the development of OPDIVO subcutaneous formulation, combination therapies and additional indications. The second perspective on your right-hand side here is expanding our global business through the acquisition of Deciphera. The third pillar as below is expanding our pipelines. We have made several positive progress recently, and the future looks quite promising. In recent years, we have set a high ratio of R&D investment and are very much actively investing to drive our next phase of growth. Now I will talk about the individual perspectives, OPDIVO, Deciphera, its products and new pipelines, respectively. OPDIVO has been approved for use against 14 types of cancers since its launch and its sales have been steadily increasing in Japan. Meanwhile, OPDIVO patents will begin to expire starting from the U.S. in 2028, followed by Europe in 2030 and Japan in 2031. However, its subcutaneous formulation was launched in the U.S. and Europe around a year ago and the royalties from Bristol-Myers Squibb for the subcutaneous formulation will be received for 10 years after their launches. So if switched to subcutaneous injections, we will continue to receive corresponding royalties, which with the same rate as IV formulation. Now before introducing Deciphera products, I will briefly give our background of Deciphera acquisition. To accelerate the growth of our global business to reduce reliance on OPDIVO, we acquired Deciphera in 2024. Through this acquisition, we not only expanded our pipeline with QINLOCK and ROMVIMZA, but also gained its clinical development and sales capabilities in the U.S. and Europe as well as Deciphera's unique kinase drug discovery know-how. We are currently carrying out post-merger integration activities by joining forces with Deciphera. Ono has expanded the number of countries where we can directly market our products and our commercial organization is steadily expanding its reach. On top of QINLOCK and ROMVIMZA from Deciphera, we acquired global rights for sapablursen from Ionis on the basis of our expanded global platform. In addition, we are now working with Deciphera on ONO-4059, a project originally from Ono and have prepared to file the NDA. More programs are following to leverage Deciphera's capability. Overall, PMI process is progressing quite smoothly and both Ono and Deciphera employees are working together enthusiastically. Now let me touch on variable products from Deciphera, QINLOCK and ROMVIMZA. QINLOCK was already approved in more than 40 countries for the treatment of gastrointestinal stromal tumor, GIST, in the fourth-line setting. We expect QINLOCK sales of JPY 36 billion this fiscal year, and sales are expected to grow further for a while. The peak sales for the current indication is expected to be around JPY 50 billion to JPY 60 billion. And our Phase III clinical trial is underway for potential expansion to the second-line setting and its patient enrollment has been already completed. The other product, ROMVIMZA, this was approved in the U.S. last February and also in Europe last September for the treatment of tenosynovial giant cell tumor, so-called TGCT. Prescription by oncologists are steadily increasing, and we now expect JPY 8 billion for this fiscal year's sales. For this indication, the peak sales are expected to be around JPY 60 billion. We are also developing a second indication, chronic graft versus host disease known as GVHD, and its Phase II study is currently in progress. We are expecting ROMVIMZA peak sales to reach over JPY 100 billion with both indications. Here is a brief update of clinical data from Phase III trial of ROMVIMZA in TGCT patients from ESMO 2025 last October. The data confirmed its robust and durable efficacy as well as preferable tolerability with 2 years treatment. We believe this preferable data will further strengthen the perception of ROMVIMZA and will lead to its further market penetration. From here, I'd like to move to topics related to our development stage pipeline. Here included the most updated entire pipeline in Ono Group. Ono's original pipeline is colored in blue, while orange colored was added with the acquisition of Deciphera and green colored was added through our recent additional business development activities. Our pipeline has been growing in a good balance over the past 1 to 2 years, as you can see. Here listed is a summary of news flow about our pipeline progress, including plans for the next fiscal year. Focusing on the future on right-hand side, we had a presentation about sapablursen at the ASH 2025 last December. We are aiming to present the Phase II data of ONO-2808 at Medical Congress later this spring, followed by Phase II data presentation also for ONO-4578 at Medical Congress in early summer later this year. In fiscal year 2026, we also aim to launch tirabrutinib in the U.S. and cenobamate in Japan. We look forward to sharing promising news within 1 to 2 years, including the results of total 7 Phase II studies for ONO-2020 and ONO-1110. Now I will feature tirabrutinib, sapablursen, ONO-2808 and ONO-4578 today. Tirabrutinib, this was launched under the brand name of Velexbru in Japan already. And we have prepared to file the NDA with Deciphera. Primary central nervous system lymphoma, PCNSL, is highly malignant form of non-Hodgkin lymphoma and account for about 4% of all brain malignant tumors. Approximately 2,000 people in the U.S. are diagnosed with PCNSL each year. And currently, there are no drugs approved for PCNSL, and the unmet medical need remains quite high. We expect that tirabrutinib can be launched in the U.S., hopefully around the end of this year. Sapablursen, this was acquired for its global right from Ionis, and we will be starting a Phase III study soon. Phase II data of sapablursen was presented at the ASH 2025 just last month, December. Polycythemia vera, PV, is a disease for which there are drug candidates further along in development, but peak sales of sapablursen are expected to be around JPY 50 billion to JPY 100 billion globally. Our brand-new drug candidate for neurodegenerative disease, ONO-2808 acts on S1P5 to reduce the accumulation of alpha-synuclein and its Phase II study is ongoing for the treatment of multiple system atrophy, MSA. We announced last October that efficacy signal was observed in the interim analysis of our Phase II study. We are now preparing for next study. MSA is a disease for which there is currently no standard of care, an area of high unmet medical need, and we estimate that there are 15,000 to 50,000 patients in the U.S. We expect to conduct a global trial together with Deciphera soon. ONO-4578, this is an EP4 antagonist designed to enhance cancer immunity. It is a compound that acts on prostaglandin, which we have been researching for many, many years. And when used in combination with OPDIVO, it has the characteristics of exerting an even greater antitumor effect. Unfortunately, we cannot provide details at this time point, but when added to the current standard of care, OPDIVO and chemotherapy in first-line gastric cancer, it has shown superior progression-free survival. We are currently conducting a Phase II trial also for first-line colorectal cancer. And so this is one of our promising drug candidates. The results of this gastric cancer Phase II trial are aimed to be presented at Medical Congress, as I said, and we expect to proceed with a Phase III trial globally. This slide summarizes our upcoming product launches expected after acquiring QINLOCK and launching ROMVIMZA and hopefully, tirabrutinib in 3 consecutive years, we plan to launch a series of clinical program, as I mentioned earlier, between 2028 and 2031. That is by the time OPDIVO patent expires in Japan. Meanwhile, we are also preparing to launch a subcutaneous formulation of OPDIVO in Japan before the patent expires in 2031. We are now very much excited about the potential and advancement of our pipeline, which we believe will strongly fuel for our next growth. With these products and pipelines into consideration, let's move to future outlook briefly. Here is an image of our revenue forecast for the next 10 years going forward, the patents of our current diabetes products in Japan and OPDIVO IV formulation will expire in stages in each country. However, as I mentioned today, with the life cycle management of OPDIVO, including a subcutaneous formulation, Deciphera products growth and the launch of a series of pipelines in the development stage. We are now on track to make up for the patent expiries of OPDIVO and achieve further growth. Lastly, I would like to touch on our capital allocation, R&D investment, strategic investment and shareholders' return. These 3 are unwaveringly important pillars for us. First, R&D investment is expected to continue to be around JPY 150 billion this year and next year. Now is the time to invest in our future growth, particularly in global clinical development as our investment in OPDIVO development is nearing completion. Second is strategic investment in which we have been focusing on M&A and pipeline expansion in recent years. And we have made around JPY 500 billion in the past 3 years. However, we still want to reinforce some more pipelines enriched at the scale of around JPY 100 billion. Third, regarding shareholders' return, we will continue our policy of progressive dividends with a target payout ratio of 40% and flexible share buyback. To close my presentation, we have been focusing on expanding our business globally and enriching our pipeline for the past few years, and we are making [indiscernible] progress. The OPDIVO patent expirations have been a concern, but now we see very much positive and promising signs towards next phase growth beyond OPDIVO. We are approaching the point where some exciting data will emerge from our pipeline this fiscal year or next fiscal year. So please keep us in mind and stay tuned for updates from us. Thank you for your attention.

I'll start Q&A session. [Operator Instructions] I'll kick off with my question regarding corporate value. Do you believe there is any gap between the mid- to long-term corporate value that the company envisions and the way the equity market currently values Ono Pharma? If so, which aspect do you see as most significant?

Yes. Thank you. Actually, there is some gaps, but gradually a little bit filled up probably 3 aspects. One is the too much pessimism about OPDIVO patent cliff. But as I explained already, the patent cliff is now, to a reasonable extent, mitigated by the subcutaneous switching. And the second factor is probably Deciphera's product demonstrating the good growth. Therefore, that performance, especially ROMVIMZA is now gradually getting understood by the people. And the third is our emerging new product candidate from the development pipelines are showing positive signal. So we are -- of course, we have lots of expectations potential, we believe, but it needs to be further reflected to the market assessment. So yes, there is a gap. But as I explained earlier, this is getting understood by people, I hope.

What's your view of the Bristol-Myers PD-1 VEGF strategy? And how does that impact Ono positively or negatively?

Yes. Thank you for your question. Actually, not only for the Bristol, but beyond PD-1, there is a big movement of bispecifics through PD-1, VEGF. But yes, it is coming. But at the end of the day, we are not sure to what extent it's going to change the standard of care already established by PD-1 plus, and of course, it requires lots of energy and may require lots of time. Therefore, I don't know whether this is really something we should concern too much or consider. So that's my current immediate response to your questions.

Any questions? Okay. So could you comment on the acquisition of Deciphera? How do you view the current situation compared with your initial expectation?

Yes. Thank you. So yes, direct answer to your question is we are very much satisfied so far about Deciphera's acquisition. Maybe 2 reasons. One is, as I said, the Deciphera's asset is now moving quite in a good shape, both QINLOCK, ROMVIMZA, especially ROMVIMZA at the beginning, market didn't show so much interest or convinced. But now it is getting well understood. So that is one thing. And the other side is, for us, it is very important for Ono to leverage their already established platform in the Western market, Europe and U.S. for our series of upcoming pipelines from Osaka. It is also progressing smoothly. Therefore, yes, we are very much happy so far, and then we expect lots from -- for future.

Okay. So next about OPDIVO cliff. I'd like to know your confidence to overcome OPDIVO cliff. Clearly, your pipeline is gradually becoming a strength robust. I'd like to know your view.

Yes. Thank you. The answer is yes, we are confident. Of course, OPDIVO was really a great program. We were really so lucky to be able to come up with these opportunities from the -- our open innovation historically together with Kyoto University and Medarex and now Bristol. Yes, that's great. And it brought us with a variety of upside. So a lot of cash creation. And then thanks to that, now we are in a position to be able to leverage for the future growth investment. Now the cycle is in that traditional phase. And -- but as I mentioned, Deciphera's acquisition was just as we expected, moving in a good direction and in a good form. And our pipelines are now almost ready to be stepped into the Deciphera's vehicle. So yes, it's now really in a good shape. So that's my feeling.

I have a question. So if you go back to Slide 19, your current regional strategy, your pipeline portfolio looks distinct from like APAC, including Japan, with U.S. and Europe market because you -- obviously, you acquired Deciphera recently. But moving on, would that change your long-term licensing strategy? That means you're going to leverage Deciphera's sales and commercial forces and having U.S. presence so that you don't keep it your own portfolio and leverage your commercialization rather than out-licensing to big pharmas?

So you said '18, '19?

'19, yes. If you look at -- you have more monoclonal antibodies and ADCs, your own pipelines, including Japan and APAC, while you have Deciphera's recent portfolio in Europe and U.S., right? So you have different portfolio in the different regions.

Yes. Thank you. Actually, right now, our mainstream is set in this way. We would like to best use our capability just acquired from Deciphera in the Western market for our upcoming product or product candidates. But as you recognize, for example, GIST, QINLOCK, TGCT, ROMVIMZA and PCNSL for tirabrutinib may be followed by some specialty products. But if we come up with rather wider major indication or therapeutic categories, in that case, we might think about the partnership, yes, on the top of our in-house -- best use of our in-house commercial capabilities. But -- so once again, the mainstream for us for the time being is set to be the -- our own development, registration and the launch. But it doesn't exclude deny the partnership in the future.

So I'd like to discuss about the 4578 and 2808. Still data has not been announced, but I direct your confidence and expectations to both products.

Thank you. So actually, it's kind of a big frustration for me not to be able to share the -- our excitement from the positive signal from Phase II proof-of-concept study at this time point because of relationship with upcoming Medical Congress. But we -- but in the meantime, we are trying to push forward our next trial preparation, including the authorities consultation and so on in due course. Therefore, that means we are very much confident about the potential performance, both safety-wise and efficacy-wise.

Could you share your peak sales estimation...

So yes, our feeling right now, gut feeling is both could be aimed around the size of JPY 100 billion for both programs if these are successful or even beyond. But right now, probably it's early to tell.

Regarding 4578, do you see potential for expanding into other tumors?

Yes. Thank you. Exactly. So right now, gastric showed the, yes, powerful outcome. But now we are also conducting another proof-of-concept type signal detection trial for CRC, colorectal. Therefore, if we got the encouraging data from the CRC trials, we also push forward CRC frontline setting, hopefully. But the details are, of course, just an idea right now.

Do you have a chance to expand tumors other than CLC and gastric?

So potentially, yes. But the current impression from our [indiscernible] Phase I feasibilities, these are the main bodies. But of course, we might have further expanded potential. But yes, too early to tell, Thank you.

With your EP4 antagonist, prostaglandin PGE2, that target is also implicated in pain, osteoarthritis. Are you looking at non-oncology indications as well?

So we -- as our history mentioned, we have been abundant knowledge and the experiences and the expertise nonclinically and clinically in the field of prostaglandin. And now we come up with this direction. Therefore, the value and feasibility possibility for this direction is the most promising. That's the answer to your question. Yes.

Any other questions? I'd like to know about the advantage for 2808, some product in MSA.

Yes. Thank you. So 2808, this is S1P5 agonist. MSA, there is no treatment, but not same, but ALS is a good example to have an image of MSA disease. So within, say, for example, 10 years Banksy, they're going to come up with death. But there is no fundamental treatment. Therefore, if our compound shows the positive signals in our pivotal studies again. So this is going to be big breakthrough for patients and the neurodegenerative diseases. And MSA is somehow characterized by alpha-synuclein accumulation. But as you know, alpha-synuclein related neurodegenerative diseases, there are some more. Therefore, further expansion might be theoretically possible, but it's too early to tell.

Okay, thank you. It's time to wrap up. Thank you so much for taking the time.

Thank you so much.