Otsuka Holdings Co., Ltd. (4578) Earnings Call Transcript & Summary

Thank you very much for taking time out of your busy schedule to participate in our financial announcement. Now we would like to start the Otsuka Holdings Financial Results Briefing for FY 2024. This briefing is being held in a hybrid format of on-site meeting and Zoom webinar. First, let me introduce today's speakers. From the left, Makoto Inoue, President and Representative Director and CEO; Yuko Makino, Executive Director and CFO; Tomohiro Emura, Vice President in charge of IR, PR and Sustainability Promotion. And I'm Kogure of IR Department. We will start with the presentations in the order of this slide. And after all the presentations, we will have Q&A session. Simultaneous translation into English is available only for the presentation part. Today, we are planning a total of 1 hour and 15 minutes for the briefing. Thank you in advance for your understanding and cooperation. Now Makino will present the FY 2024 consolidated financial results.

Now I would like to present the consolidated financial results for FY 2024. There are the 3 agenda items I will cover. First, I will explain an overview of our consolidated results for 2024. Revenue increased 15.4% to JPY 2,329.9 billion year-on-year, largely attributable to increased sales of pharmaceutical and nutraceutical businesses. Business profit increased significantly by 37.7% to JPY 430.5 billion, absorbing the increase in SG&A expenses due to strong gross profit growth. Net profit increased to JPY 343.1 billion, which was significantly higher than the 2024 plan due to the strong business performance and the impact of onetime tax adjustments in the U.S. ROE was 13.4%, exceeding the initial target of 10.2%. We also achieved the ROE target set at the beginning of the fiscal year even if excluding the impact of tax adjustment that occurred in the fiscal year. In 2024, the first year of the 4th Midterm Plan, we were able to achieve record highs for revenue and all items of profit, mainly due to increased sales of main products and key drivers of pharmaceutical and nutraceutical businesses. Next, I will explain the year-on-year differences in business profit. Revenue increased by JPY 311.3 billion due to major contributions from Core 2, JYNARQUE, ABILIFY MAINTENA and overseas pharmaceutical business. The cost of sales ratio improved by 1.9 percentage point due to the increased share in revenue of homegrown high profit margin products and advances in, in-sourcing and production efficiency in nutraceutical business. SG&A expenses increased by approximately JPY 150 billion, but are generally in line with the plan. The main reason for the increase from the previous fiscal year were an increase in co-promotion fee due to higher sales of REXULTI, investment in disease awareness activity related to AD agitation and advertisement expenses related to Bonafide we acquired in the previous fiscal year. Other factors include investments in new products such as uRDN and ABILIFY ASIMTUFII. Share of profit of associates increased by JPY 13.2 billion, mainly due to the growth of consumer business. R&D expenses were almost unchanged from the previous fiscal year, excluding the impact of ForEx rate fluctuations. We are actively investing in assets that are next-generation growth drivers in the fifth midterm plan and onward, such as sibeprenlimab, ulotaront and JNT-517. As a result, business profit significantly increased by 37.7% to JPY 430.5 billion. Next, I will explain the revenue of pharmaceutical business. Pharmaceutical business is growing steadily as a whole, mainly with Core 2, ABILIFY MAINTENA, JYNARQUE as well as INQOVI and LYTGOBI of Next 8, which are expected to become growth drivers for the fifth midterm plan and domestic products. REXULTI revenue increased by 25.8% to JPY 267.4 billion due to enhanced promotion as the only drug for new indication of AD agitation and disease awareness activity, in addition to the prescription growth for MDD. LONSURF revenue achieved a significant increase of 30.3% to JPY 104.4 billion due to global prescription growth as the combination therapy with bevacizumab for colorectal cancer has been recommended in the treatment guidelines in multiple countries. Sales in Japan increased by 5.6% due to growth in clinical nutrition products and others such as Moizerto, ENTRESTO and Abraxane. As a result of the steady progress in each major product in line with the forecast, revenue increased by 17.1% to JPY 1.629 billion. Next, I will explain revenue in nutraceutical business. Nutraceutical business has newly added categories by social issues in the 4th Midterm Plan. And throughout the year, sales increased in all categories, mainly led by Women's Health. Revenue in the for Climate & Environmental Risk category increased by [ 8.2% mainly due to ] growth of POCARI SWEAT in Asia as long-running educational activity focused on hydration has been successful. Revenue in the Women's Health category increased by 52.3% as Bonafide contributed to sales from FY '24 and EQUELLE also grew due to improved awareness through our unique information provision activities. Revenue in the Healthier Life category increased by 19.3% as Nature Med expanded its market share and grew to become the leader of the U.S. nutritional supplement market. By area, overseas business expanded by 21.7% as a result of continued sales promotional activity of products that met the needs of each country. In each category, we were able to advance business in line with FY '24 plan. As a result, revenue increased by 15.2% to JPY 557 billion. Here is the consolidated financial forecast for FY 2025. As I explained, revenue is planned to increase by 2.2% to JPY 2.380 billion, driven by growth in pharmaceutical and nutraceutical businesses. Business profit before R&D expenses is planned to offset the negative impact of JYNARQUE's LoE by increased sales of growth drivers and is expected to be JPY 727 billion, in line with that of the previous year. Inoue will explain more about business profit later. Net profit is expected to be JPY 275 billion. For your reference, net profit increased by 5.5% compared to that of the JPY 260.6 billion without onetime tax adjustment in FY 2024. Although we are in an adjustment phase caused by the LoE of a major pharmaceutical product, we will aim for the ROA of more than 10%. We will continue to actively invest in R&D and aim for achieving performance targets while seeking medium- and long-term growth. Here, I will explain the repurchase and cancellation of treasury stock, which are shareholder return measures implemented in FY 2024. In August to -- from August to November 2024, we repurchased approximately JPY 50 billion of our company common stock and completed cancellation of all shares acquired by the end of FY 2024. We will continue to flexibly consider shareholder returns from multiple perspectives, taking into account business condition, cash and deposit health and indicators such as total shareholder return ratio. This is the summary of financial results I explained today. Also, please refer to the appendix for major financial information. That concludes the presentation on the consolidated results for FY 2024 and forecast for 2025. Thank you.

Next, Inoue will talk about the progress and outlook for the 4th Medium-Term Management Plan.

My name is Inoue, and I have been assumed the role of CEO since this January. First of all, I would like to say a few words by way of greeting to everyone. With the aim of providing well-being as a total health care company, as we have been doing up until now, we will promote management with a sense of speed even more than before so that we can create innovations that lead to sustainable growth and provide the products and services that are ahead of the changing times. And by strengthening the foundation for realizing that growth, we will steadily implement the 4th Midterm Plan and make sure to make investments that anticipate future growth. Today, I would like to explain the progress and the future outlook for the 4th Midterm Business Plan. This is today's agenda. First, I would like to explain again the positioning and the KPIs of the fourth MTMP announced in 2024. We have positioned the 4th Midterm Management Plan as 5 years to expand our businesses and promote investment that will lead to sustainable growth. In terms of business performance, we aim to minimize and shorten the profit adjustment phase due to LoE of our main product after 2026 and achieve our business performance target for 2028 by returning to growth stage as quickly as possible. FY 2025 would be an important phase for the development pipeline that supports our sustainable growth. We will respond quickly and flexibly, assuming various scenarios, and work with the determination to meet the needs of many patients and their families. Next, I will explain the factor analysis of changes in business profit in FY 2025. In FY 2025, while JYNARQUE, one of our main products, is affected by the loss of exclusivity, growth drivers in pharmaceutical and nutraceutical will contribute to offsetting the impact of JYNARQUE LoE. As a result, gross profit is expected to increase by JPY 19.6 billion, by about JPY 36 billion after excluding the ForEx rate impact, showing a steady progress of business performance. At the same time, we will increase SG&A expenses to promote growth investments such as new indications and new products in pharmaceutical business as well as Women's Health and expansion to new areas in nutraceutical business. As for R&D expenses, we plan to invest aggressively in growth drivers that will drive growth from the fifth midterm plan onward as we start new clinical trials for repinatrabit and zipalertinib and others. As a result, business profit in FY 2025 is planned to be JPY 375 billion, which is about JPY 45 billion higher than FY 2025 plan in the 4th Midterm Plan even after excluding ForEx rate impact due to the steady growth of the business as a whole. While maintaining the growth trend centering on growth drivers, we will continue to invest in future growth and make efforts to get back on track for regrowth at an early date. From the next slide, I will explain the specific progress of pharmaceutical and nutraceutical businesses on provisions of well-being through unique value creation and growth strategies from a long-term perspective. First, pharmaceutical business update. These are the major development events for our main assets from FY '25 to early '26. As I explained earlier, we have many development and regulatory events important for sustainable growth coming up in FY 2025. In the press release last month, we announced that zipalertinib has met its primary endpoint in Phase II study. We plan to continue discussions with regulatory authorities in multiple countries on filing for accelerated approval in the second half of this year. There are other events for many other assets that will be growth drivers for the fifth midterm plan and beyond, so today, I will focus some of them. First of all, with regard to REXULTI, we are promoting sales activity positioning the product as the only approved drug for AD agitation in the U.S. Since its launch, we have received many comments of gratitude from patients, caregivers and we strongly feel that REXULTI is not only helping improve patients' symptoms, but also helping reduce the burden on caregivers. So far, we have been working steadily on disease awareness and promotion activity and have seen strong prescription growth. To ensure further growth, we also strengthened our sales structure in July last year and aggressively promoting the product with the hope of contributing to as many people as possible. To maximize REXULTI's product value, we are also taking on a new challenge of PTSD for which no new drugs have been approved for more than 20 years. As we announced the other day, the PDUFA action date, which had been set for February 8, has been postponed and Advisory Committee meeting is scheduled. We believe this is a great opportunity to discuss with experts the benefits that REXULTI can offer for this disease with high unmet needs. In addition to AD agitation, we are confident that REXULTI has the potential to contribute to solving social issues related to PTSD as well. Next, I would like to explain centanafadine under development for the treatment of ADHD. Continuation of treatment is a major challenge in ADHD as patients tend to discontinue or change medication due to adverse events. Centanafadine has been able to demonstrate sustained symptom improvements for up to 52 weeks in an open-label extension study in adults with ADHD. As the first-in-class drug with MoA, high safety and tolerability as well as ideal PK profile for ADHD treatment, we believe it has the potential to address the current treatment challenges. Clinical pharmacology study and the long stability study are also progressing well, and the preparation is underway for regulatory submission planned for -- by the end of this year. Next, I would like to introduce the expansion of our specialty business. Utilizing the experience and know-how we have accumulated through development and the sales of JYNARQUE for ADPKD, we are focusing on the specialty business with medium- and long-term growth in mind, and we generated much progress in FY 2024. We will work on the specialty business with high unmet needs by acquiring products that will serve as a growth driver for the fifth midterm plan and beyond through corporate acquisitions and alliances. I would like to talk about sibeprenlimab, one of the most important assets in the specialty business. Last year, we announced positive interim analysis results of its Phase III study for IgA nephropathy. We discussed the results with the FDA and are working toward an early regulatory filing. We plan to file as a formulation of prefilled syringe to enable safe administration at home. We plan for quick global expansion as the first-in-class anti-APRIL antibody with the advantages of once-every-4-weeks administration and expectedly high safety and tolerability profile. In addition, as part of the -- its LCM strategy, we have decided to advance its development in Sjogren's Syndrome. We will continue our efforts to maximize its product value as a growth driver for the fifth midterm business plan. Next, I will talk about repinatrabit, which was acquired through the acquisition of Jnana Therapeutics. The treatment of PKU, phenylketonuria, requires strict dietary restrictions of protein to minimize phenylalanine intake and there are still issues with efficacy and safety of the existing drugs used for treatment, leaving many patients unable to take medications. PKU patients are classified as either classic or mild type according to the phenylalanine concentration in their blood. And for various reasons, only a part of these patients are able to receive drug treatment. Since repinatrabit has different MoA from existing drugs, we expect repinatrabit to be a drug that can contribute to all types of patients, including those who currently cannot be treated. We are planning to start Phase III study in the first half of this year with the aim of launching it during the 4th Midterm Plan. We will make sure to develop it into a future growth driver. Next is NC business update. First, let me talk about the progress of business performance. In the revenue plan for FY 2025, NC business as a whole is expected to increase 4.5% from the previous year to JPY 582 billion due to the contribution of new categories set forth in the 4th Midterm Plan, and we are working to solve social issues from a global perspective. As for the progress of categories, we plan to make progress in all categories faster than the growth speed estimated in the 4th Midterm Plan. In particular, we will focus on growth strategy in the field of Women's Health, including Bonafide, and plan to expand sales significantly. For Healthier Life, which supports the growth of MC business, we will increase production capacity through the full scale operation of a new plant in Ohio to meet the soaring demand of gummy preparations and solidify our position as the #1 brand in the U.S. market. We will continue to pursue global expansion, creation and the development of next-generation product and work to further expand our business scale. In the field of Women's Health in North America, we are contributing to solving various issues with 3 brands: EQUELLE, Uqora, which supports women in urological field; and Bonafide, which addresses multiple needs in women. After acquiring Uqora in 2021, we expanded our sales channel to CVS and Walgreens and continued to well-being by solving more issues specific to women. As for Bonafide, we launched Thermella in September 2024. The brand is characterized by its product development approach based on scientific evidence, such as conducting clinical trials to confirm efficacy. Together with medical professionals who talk with the women seeking better solution, we will develop a trusted brand and address unmet needs in women's health. Lastly, I will explain the strategy of NC business. The same as up until now, we will continue to enhance the value and reputation of our business by continuing its high-margin strategy based on its brand value. While aggressively making upfront investment to further expand its business scale, we will manage investment from mid- to long-term perspectives, such as global expansion of POCARI and many other products with unique characteristics so that we will be able to maintain high level of profitability and promote our business. This concludes explanation of our pharmaceutical and nutraceutical business. This is the summary of my presentation. We would appreciate your continued support. Thank you very much for your attention.

Lastly, Emura will give you the pharmaceutical development update.

I would like to present an update on our pharmaceutical development. I will cover these 4 topics today. This table shows the key progress in the fourth quarter of FY 2024. zipalertinib, which is described as a highlight, met its primary endpoint in Phase IIb study in patients with non-small cell lung cancer harboring specific gene mutations. Details of the study results will be presented at a future international conference. After discussions with the FDA, we plan to file for U.S. approval in the second half of FY 2025. Adacolumn was approved in Japan for the treatment of sepsis. Bempedoic acid has been filed for regulatory approval in Japan for the treatment of hypercholesterolemia and familial hypercholesterolemia. Donidalorsen has been filed for regulatory approval in the EU for prevention of recurrent attacks of hereditary angioedema. A pivotal clinical study for ONB-01, a Software as a Medical Device for treatment of PTSD has been initiated in Japan. A Phase I study for SEP-380135 acquired from Sumitomo has been initiated in the U.S. In addition, ulefnersen, which is under development for ALS caused by mutation of fused in sarcoma gene has been added to the pipeline through licensing from Ionis Pharmaceutical. The projects shown at the bottom have been discontinued due to strategic reasons. Key projects scheduled for NDA and MAA submission and Phase III transition in FY 2025 are shown. All scheduled submissions and Phase III transitions were completed by the end of the year. Key projects currently under NDA and MAA review are shown here. The project in red have been approved during 2024. As we have already announced, a Psychopharmacologic Drug Advisory Committee meeting will be held on brexpiprazole's sNDA for additional indication of PTSD. The date of the meeting has not been determined yet, but we currently expect it in the first half of FY 2025. The PDUFA action date for PTSD indication for brexpiprazole, which was set on February 8 this year, expects to be delayed until after the committee's review. We are confident that this indication for brexpiprazole will be approved and will work to deliver this new therapy to patients as soon as possible. This slide shows key projects scheduled for NDA, MAA submissions and Phase III transitions in FY 2025. We are planning 5 regulatory filings and 5 Phase III study starts. Growth drivers during the 4th Midterm Plan period consists of 10 global assets and 2 licensed-out products called Global 10 Plus 2. In addition, among the Global 10 Plus 2, we have positioned a group of product expected to be the next growth driver for the fifth midterm plan beginning FY 2029 as Next 8. We plan to start Phase III studies or file for approval for many of these Next 8 assets in 2025 and will steadily build a foothold toward achieving mid- to long-term sustainable growth. To achieve sustainable growth, we have been taking a number of strategic steps, including strengthening our drug discovery platform and forming alliance with external partners. We will organically link these initiatives to deliver innovations to the world and accelerate efforts to contribute to solving social issues. This [ concludes my presentation on the pharmaceutical development ] updates. Thank you very much for your attention.

This is the end of the English translation. For Q&A session, please refer to the written script to be posted on our website later. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]