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

I would like to thank your participation despite the very hot weather. I would like to present our mid- to long-term strategy for sustainable growth. Before I begin, I would like to express my heartfelt condolences to those who lost their lives in the recent Kumamoto earthquake and extend my sincere sympathies to all those affected by the disaster. We sincerely hope for the safety of all those in the affected areas and for a swift recovery. Let me start explaining our mid- to long-term strategy. This is the executive summary for the second quarter of FY 2026. We are now entering a new phase of growth, where our existing business continued to deliver stable performance, while our next-generation growth drivers are beginning to take shape. Reflecting the solid business performance of Pharma and NC businesses, we have revised up our full year consolidated revenue forecast to JPY 2.725 trillion and our operating profit forecast to JPY 470 billion. The development of future growth drivers is also progressing steadily. Given the stronger-than-expected launch uptake of VOYXACT for IgA, we have significantly revised up its full year forecast from JPY 25 billion to JPY 60 billion. In addition, new data showing improvement in renal function have further enhanced the product value. Last week, centanafadine SYMTRIYO, another next-generation growth driver was approved in the U.S. as a first-in-class treatment for ADHD. With this approval, the development of our next-generation growth driver in the CNS has entered a new stage. Through such progress in business and enhanced cash generation capability for the future, we will further promote investment in our core therapeutic areas, including psychiatry, neurology and autoimmune field. Furthermore, as a shareholder return initiative alongside accelerated growth investment, we have decided to raise the annual dividend by JPY 60 to JPY 200 per share this year. Today, I will explain our mid- to long-term strategy and progress of our next-generation growth drivers. To help you understand our mid- to long-term strategy, I'd like to highlight that the earnings foundation supporting our growth strategy is now more robust than ever. By providing unique solutions to address social issues and further developing our key growth drivers, we have realized business expansion. In addition, we also have diversified these growth drivers to build a business foundation that balances both stability and growth. As a result, the business profit before R&D, an indicator of earning power of our business has steadily improved, generating cash exceeding our initial expectations during the fourth MTMP. Looking ahead to growth beyond the fifth MTMP, we will continue to make proactive investment to drive future growth. Alongside the expansion of VOYXACT and the SIMTRIYO, we will advance the remaining next 8 assets in the late stage and cultivate next-generation growth drivers, including TSND-201 acquired through the Transcend acquisition. Through robust cash generation from pharma and NC businesses, we will further accelerate growth investments supported by our strong cash generation capabilities and further reinforce our sustainable growth cycle. From here, I will explain our business development strategy in psychiatry and neurology. In psychiatry and neurology, while the wide range of treatments available and pharmacological interventions have contributed greatly to patient care, treatment satisfaction remains low and additional treatment options are needed. Since the launch of ABILIFY, we have accumulated extensive knowledge and expertise through the clinical development and commercialization of treatments across a broad range of psychiatric and neurological disorders. This experience is a key competitive strength of ours, particularly in the field where the hurdles to clinical development are exceptionally high. Looking ahead, we will continue to advance existing treatment approaches while embracing new science based on differentiated MOA with the aim of transforming the treatment paradigm itself. We'll enhance patient satisfaction in areas with significant unmet needs, such as treatment-resistant depression and PTSD. By pursuing innovative science that has the potential to transform future treatment paradigms while leveraging the experience and expertise we have built over many years, we aim to maximize both patient benefit and product value. We'll provide more details on the rationale for our focus on this area as well as our mid- to long-term strategy at a briefing scheduled for September, which will be announced shortly. Next, I'll explain SIMTRIYO, which we expect to become a next-generation growth driver in psychiatry and neurology area. In ADHD treatment in the U.S., efficacy is a key consideration in treatment selection. However, due to issues such as tolerability, a large number of patients discontinued treatment within 1 year. In addition, nearly half of adult patients have comorbid anxiety, requiring more complex treatment decisions in real-world clinical practice. For recently approved SIMTRIYO, we conducted a study in patients with comorbid anxiety, a patient population typically excluded from the conventional clinical trial, taking into account the patient backgrounds that are closer to real-world clinical settings. Efficacy was observed against core symptoms as early as week 1 and sustained throughout the study period. It also demonstrated statistically significant improvement in anxiety symptoms, which are a key issue in clinical setting. We position SIMTRIYO as an important treatment option with the potential to bring new value to ADHD treatment. We expect SIMTRIYO can provide not only clinical efficacy for patients, but also help reduce the burden on their families. Next, I'll introduce 3 key strengths we have to establish autoimmune space as a next-generation core therapeutic area. The first is our development and commercialization capabilities in the renal area cultivated through JYNARQUE. Leveraging this experience, we achieved the launch milestone in 7 years for VOYXACT that was at the preclinical stage when we acquired Visterra. We also have a competitive advantage on our commercial side through our strong network with nephrologists and our highly specialized sales force with deep expertise in the renal area. Our second strength is that we have enhanced our pipeline, not only through internal R&D, but also through external partnerships. The autoimmune is a therapeutic area where a single compound can be efficiently expanded into multiple indications. In addition to VOYXACT, we are strengthening our pipeline to reinforce our foundation for growth over the long term. Our third strength is our proprietary drug discovery platforms. Through the Visterra's half-life extension technology, we are advancing development of a long-acting injectable formulation for VOYXACT. We also obtained a promising nonclinical results for an IRF3 inhibitor, which is considered a different drug discovery -- difficult drug discovery target. And we aim to maximize therapeutic scope in the autoimmune area. These 3 strengths enable us to build a resilient business foundation that is not dependent on single product and can continue to create value over the long term. Going forward, we achieved the further growth in this area, leveraging technologies and our talents within the group. Next, I will introduce VOYXACT, which will drive growth in autoimmune disease. VOYXACT has received high expectations, not only from physicians, but also from patients. It's been growing steadily since its launch. Looking at prescription trend, we are seeing growth in prescription, not only for new patients, but also for switching patients, which indicates that better treatment options have been desired. We had set a target of more than JPY 100 billion by the final year of fourth midterm plan in 2028. However, based on the solid growth after launch, we are now aiming to achieve this target in 2027, 1 year ahead of the plan. To maximize the value of VOYXACT in addition to Sjogren’s disease, we are advancing development of additional indications with significant unmet needs, such as membranous nephropathy and FSGS. Since we obtained 2-year data demonstrating improved kidney function, we plan to present detailed eGFR data and safety overview at the upcoming conference on August 3. We believe this data will provide an important evidence to further support the continued growth of VOYXACT. We will leverage the expertise cultivated through JYNARQUE and our first-in-class advantage to advance the initiative aimed at becoming a leading player in this area. Our strength are not limited to pharmaceuticals, NC business also offers significant opportunities for growth, driven by commitment to addressing social needs. We are creating new value through POCARI SWEAT. In recent years, heat stroke has become a global issue, and it has also become a serious social challenges in the U.S. To promote heat stroke countermeasures in various everyday situations, we have established a Science Advisory Board composed of experts in the U.S. and communicate the need to reduce heat stroke risks. Rather than simply selling beverages, our approach is to enhance brand value by offering solutions to health-related challenges. By doing so, we aim to realize both social and business value. Today's presentation is not merely an update on our business performance. It outlines our road map to growth through 2035. The impact of LOE expected around 2030 is an important management issue. At the same time, the path to overcoming the impact is becoming clearer through the steady development of next-generation growth drivers such as VOYXACT. By integrating our own scientific capabilities with external science, we'll continue to create businesses rooted in the solution of social issues. As a total health care company that supports people's lives across both medical care and everyday wellness, we'll aim to achieve consolidated revenue of JPY 3.5 trillion in 2035 and strive to continuously enhance corporate value. That concludes my presentation. Thank you. Now I'd like to present the consolidated financial results for the second quarter of FY 2026. These are the 3 agenda items I will cover today. First, I will present an overview of our consolidated results. In the first half, growth was primarily driven by strong performance of global product in pharma business, REXULTI, LONSURF, and VOYXACT, as well as higher royalty income. Revenue was up by 12.8% to JPY 1.3324 trillion, while business profit rose by 17.3% to JPY 280.6 billion. Revenue and all profit items increased year on year, reaching record highs for a first-half period. Business profit reached JPY 264.7 billion even excluding the positive foreign exchange impact of JPY 15.8 billion, clearly showing the growth driven by underlying business performance. Business profit also significantly exceeded the first-half year plan, with a progress rate of 162.2%. Next, I'll explain the year-on-year variance of business profit. Business profit increased by 17.3% to JPY 280.6 billion. In Pharma business, despite the LOE for JYNARQUE, revenue increased due to the strong performance of REXULTI, LONSURF, and VOYXACT, as well as higher royalty income. In addition, revenue also increased in other segments, primarily in NC business, resulting in JPY 111.1 billion increase in gross profit. SG&A expenses increased mainly due to higher co-promotion fee coming from revenue growth in pharma business and increased expenses for new products such as VOYXACT and centanafadine. R&D expenses increased as development costs rose due to the Phase III progress for repinatrabit for treatment of PKU and quabodepistat, an anti-TB drug candidate despite lower expenses for ulotaront following the discontinuation of the MDD program. Excluding the impact of Forex fluctuations, R&D expenses were generally in line with the previous year's level. As a result, the growth of global products more than offset the impact of the LOE for JYNARQUE and business profit increased by JPY 41.4 billion year-on-year despite the continued proactive investments for future growth. I will explain the performance of Pharma business. Revenue increased by 14.1% to JPY 951.6 billion. Although the launch of the generic JYNARQUE had a negative impact of about JPY 46 billion, overall revenue increased due to growth in global products, higher royalty income and strong VOYXACT performance. Sales of Rexulti increased by 24.7% to JPY 193.1 billion, driven by prescription growth for MDD and AAD in both in the U.S. and Japan. Sales of ABILIFY MAINTENA and ASIMTUFII increased by 19.2% to JPY 149.5 billion, mainly due to prescription growth in the U.S. Clinical Nutrition recorded a 26.6% increase, reflecting the start of IV solution business in the U.S. in May last year. VOYXACT sales far exceeded the first half plan, driven by strong prescription growth due to promotional activity, leveraging our relationship with renal specialists built through JYNARQUE. Overall, pharmaceutical business is progressing above plan across all major products. Next is the NC business. Revenue increased by 8.7% to JPY 300.1 billion. Growth was driven mainly by For Women's Health and For Healthier Life categories. Sales in the -- for the climate environmental risk category increased by 6.3% to JPY 105.4 billion. POCARI SWEAT achieved growth driven by robust performance in overseas market. Nutrition & Sante in Europe reported strong growth from the demand of major brand and favorable Forex impact. Sales of women's health category increased by 9.6% to JPY 31.8 billion. In Japan, EQUELLE showed revenue growth as the number of prescription customers increased through broad information sharing activities and seminars. Meanwhile, Uqora achieved revenue growth following the launch of test marketing at new retail stores. Sales of -- for Healthier Life category increased by 15.5% to JPY 127.1 billion. Nature Made in the U.S. also increased, supported by customer-focused promotional activities. Next is the progress and outlook for Pharma business. The Global 10+ 2 assets, which serves as the key drivers in the fourth midterm plan are progressing steadily. Due to delayed generic entries for JYNARQUE in the U.S. and ABILIFY MAINTENA in Europe relative to our initial assumptions, revenue for Pharma is now expected to reach JPY 1.934 trillion, up by JPY 195 billion from the plan we announced in February. Next, I will explain the progress and outlook for NC business. Revenue is expected to reach JPY 623.5 billion, up by JPY 8.5 billion from the initial plan announced in February. Performance is progressing largely in line with the plan. Led by the 3 social issue-based categories outlined in the midterm plan. We'll continue to maintain the strong momentum of both Pharma and NC businesses and work toward achieving the revised full year targets. From here, I will explain our consolidated outlook for 2026. Based on the first half performance of both Pharma and NC business, we have revised up our full year forecast by JPY 205 billion to JPY 2.725 trillion and business profit by JPY 115 billion to JPY 470 billion. Furthermore, business profit announced in July is expected to be JPY 450 billion, even after adjusting the Forex rates to those for the February forecast, indicating that the business performance remains solid, even excluding Forex impact. In addition, business profit is expected to exceed the 2025 results on a constant currency basis. Please refer to Page 28 and 29 of appendix for details. Lastly, I'll explain shareholder returns. Based on our policy of stable and continuous shareholder returns, we have steadily implemented the progressive dividends and shareholder return measures based on our MTMP. Any cash upside from business operation versus the MTMP is allocated first to growth investments. Thereafter, shareholder return indicators and cash allocation considerations are comprehensively assessed. During the 3-year period from 2024, cash generation is expected to exceed the MTMP target by about JPY 345 billion. Together with the JPY 200 billion cash carryover from the previous midterm plan, a total of JPY 545 billion has been allocated in a balanced manner. Of this amount, growth investments have increased by about JPY 240 billion versus the midterm plan, reflecting the proactive investment in R&D and external asset acquisition. And incremental shareholder returns, we have already increased the annual dividend by JPY 20 per share and executed share repurchases totaling JPY 120 billion in 2025. Next is the shareholder return through increased dividend, supported by our strong business momentum, successful launch of VOYXACT, approval of centanafadine and development progress of assets like zipalertinib and continued growth of NC business, confidence in the group's future growth has been increasing. Accordingly, we have decided to set the interim dividend for 2026 at JPY 100 per share, resulting in a planned annual dividend of JPY 200 per share, including the year-end dividend. As a result, total shareholder returns over the 5-year period of the fourth midterm plan are expected to increase by JPY 230 billion to JPY 610 billion. We'll continue to maintain a balanced allocation between growth investment and shareholder returns with the aim of sustainably increasing corporate value. This concludes presentation on consolidated financial results and shareholder returns. Thank you. I would like to discuss updates on pharmaceutical development and growth drivers. I will cover these 5 items today. This shows the key development progress achieved in the second quarter of FY 2026. The first highlight is VOYXACT. In July, we announced the top line results from the 2-year eGFR analysis of the Phase III study. The results were extremely encouraging, demonstrating not only stabilizing the kidney function over 2 years, but also improvements in renal function. I will touch upon more details later. As for other progress, INQOVI or INAQOVI received approvals for additional indication of AML in both in the U.S. and Europe. In addition, sibeprenlimab was approved in China for IgA nephropathy. Several projects also advanced to the next stage of development. Phase III studies were initiated in Japan for casdatifan in renal cell carcinoma and for the combination of futibatinib and zimberelimab in biliary tract cancer. In the U.S., TSND-201 entered Phase III for PTSD. Centanafadine Phase II/III study was initiated in China and ARC-02 entered Phase I in the U.S. As an event after the end of the quarter, centanafadine received approval in the U.S. This shows the key projects scheduled for regulatory filings and Phase III starts this year. The projects highlighted in red are those that have advanced to the next stage during the current fiscal year. This is an overview of key projects under regulatory review. The ones highlighted in red obtained approval during the current fiscal year. Sibeprenlimab was approved in China in June. However, activities related to inclusion in the national reimbursement drug list are required prior to commercialization. Therefore, we expect it will take half a year at least before launch. Now I would like to provide updates on key products. I will begin with VOYXACT. The left shows the 12-month interim analysis results presented at the ERA meeting in June, while the right shows the 24 months top line results announced this month. In the 24-month data set, VOYXACT achieved a statistically significant stabilization of kidney function versus placebo based on the change from baseline in eGFR. Furthermore, a significant improvement was also confirmed in the annualized eGFR slope. Importantly, the rate of annualized kidney function decline was reduced to a level consistent with the physiological decline regarded by the KDIGO guidelines as a treatment target. These findings suggest not only a slowing of kidney function decline, but also the potential for long-term improvement in renal function. We believe these data further support the potential of VOYXACT as a disease-modifying treatment. The data also suggests that the selective APRIL inhibition may substantially reduce the risk of progression to kidney failure. We believe these results will serve as important evidence supporting our ongoing filing for full approval in the U.S. Detailed numerical data and figures will be presented at the GlomCon in Hawaii at 11 a.m. local time on August 3. We are very pleased to be able to share these positive top line results, which represent a major step forward for VOYXACT. Next, I would like to discuss centanafadine, with brand name SIMTRIYO, which was approved in the U.S. this month. Centanafadine is a first-in-class NDSRI that inhibits reuptake of 3 monoamines, norepinephrine, dopamine and serotonin. It has a novel MOA distinct from currently available ADHD treatments. Its efficacy has been demonstrated across multiple Phase III studies conducted in both pediatric and adult patients, which have confirmed significant improvements in core symptoms as well as favorable tolerability profile. Furthermore, post-hoc analysis from adult studies showed improvements in associated symptoms of ADHD, including executive function deficit and emotional dysregulation, which continue to represent significant unmet need. About half of adult ADHD patients are reported to have comorbid anxiety. Centanafadine efficacy was also confirmed in patients with comorbid anxiety. Accordingly, we expect centanafadine has the potential to become a new treatment option for ADHD patients, addressing not only core symptoms, but also associated symptoms and the need for patients with comorbid anxiety. Following scheduling by the U.S. DEA, the commercial launch is expected in 2026. Next, I would like to discuss key updates in oncology. As shown on the left, during the quarter, we achieved steady progress across multiple development stages, including approval, regulatory filing, Phase III start as well as progress in our ADC pipeline. On the right, we highlight progress in our ADC pipeline. A Phase I study for ARC-02 started in patients with non-Hodgkin’s lymphoma. This is the first ADC utilizing proprietary AraLinQ linker technology acquired through Taiho acquisition of Araris. We view this study as an important validation not only of ARC-02 itself, but also of the AraLinQ platform technology. We will carefully assess its utility. In addition, ARC-401, the second ADC from the platform, incorporates 3 different payloads and is expected to offer a broader therapeutic window than existing ADCs. Preparations are underway for an IND submission within 2026. This summarizes the overall progress of our growth drivers, including the assets discussed today. The areas marked an update or added in red represent the key developments in this quarter. Going forward, we will continue to prioritize development activities and promote our efforts to create innovative products that can support sustainable growth. This is the last slide of my presentation, showing an overview of the expected completion for key Phase II and III studies. The items highlighted in red indicate the major changes since our previous disclosure. Several new Phase III studies have been initiated and our late-stage pipeline continues to expand steadily. Going forward, we will focus our efforts to successfully bring these assets to approval and commercialization, fostering them into a new generation of products that will support our mid- to long-term growth. For details of our pipeline asset by therapeutic areas, please refer to the appendix. This concludes my presentation on updates on pharmaceutical development and growth drivers. Thank you very much for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call]