Sumitomo Pharma Co., Ltd. (4506) Earnings Call Transcript & Summary

Hello, everyone. My name is Hiroshi Nomura. Thank you very much for taking time out of your busy schedule, to attend or participate today. We issued several press releases at 1 p.m. In addition to the press release for the midterm business plan 2027, we issued the press releases regarding the earnings forecast for FY 2022 and the related dividend and then the dividend for FY 2023. In FY 2022, there were two major impairment losses. And due to these impairment losses, we managed to keep core operating profit in the black, but the net profit attributable to owners of the parent company was in the red. For FY 2022, we will pay a reduced year-end dividend of JPY 7 per share instead of the usual JPY 14 per share. And for FY 2023, we have announced the decision of paying no dividend due to a deficit in core operating profit. I'm sorry for this performance. We will strive to improve our business performance by firmly implementing our midterm business plan, which I will explain in the following slides. I will now explain the midterm business plan. It would take a lot of time to explain all the specific details. So I would like to provide a higher level of summary. We are striving to choose businesses and projects based on the mission. Based on this mission, we are discussing how we can improve our corporate value and realize social sustainability. On the left side of the slide, we have society where there are many issues and challenges. We have extracted material issues from them. And on the right side is our operating capital, how we can approach social issues. The operating capital is the lower part of this middle green part. We are committed to solving the social issues by using our 3 key operating capital of research and development, human resources and the global platform, as a single source of the capital. It is on this basis that we will develop innovative products and health care solutions. This is a roundabout way of saying that we are committed to developing innovative products and health care solutions, which will lead to the enhancement of corporate value and the sustainability of society. These are material issues. This is our #1 priority. We will develop innovative products and health care solutions. This may be similar to any pharmaceutical companies, but as I will explain later, we will contribute in specific areas, where we excel. The bottom right-hand corner, expansion of human capital and installment of corporate culture indicates that companies are created by their people. So it is only natural that the human capital of the company should be well developed. But it's still not good, if people are working in different directions. So by primary instilling the corporate culture, we can align everyone to the same direction. This may be easy, if it were only in Japan, but there are many challenges of doing this globally, so the impact of enhancing corporate value is extremely important for us. On the left, this is very similar to the expectations of society, but these material issues are stable supply of high-quality pharmaceutical products, the provision of high-quality product information and promotion of proper use, improving access to medicines and advocacy, respect for human rights, promotion of environmental initiatives, enhancement of corporate covenants, strengthening of risk management and pursuing compliance. Each of these has its own KPIs, which measures what will be accomplished during the period of the midterm. Although, there is a bit range because environmental issues cannot be settled within the period of the midterm. More information is included in the appendix. As for our response on the right side, you can see the social issues and changes in the external environment. This includes declining birth rate and aging population, which has been talked about for some time. A society with pandemic and complex, the advancement of medical needs and the emergence of various modalities and advances on the scientific and technological side. Value-based health care, which is the environment surrounding our business is also progressing. There's also the future of digital and real life. And people with a variety of values. In this context, we are simply talking about the development of innovative products and health care solutions, but let's take a look at the left side of the page and highlight innovative products in the area of psychiatry and neurology and oncology, where the contribution of the therapeutic effect of drug is low. We will offer treatment options in a variety of modalities, including not only small molecules, but also Regenerative Medicine & Cell Therapy, non-pharmaceutical solutions and medical devices and programmed devices. We will also contribute to improving the productivity of society by relieving the burden not only on patients, but also on their family and caregivers. From this perspective, we are committed to developing innovative products and health care solutions. Our vision is the same as the vision of the previous midterm business plan 2022, but the circle on the right side shows from the top of the right, prevention, diagnosis, treatment, long-term care and rehabilitation. Is this patient, but ordinary people follow these various journeys, the best thing would be to create a world without disease. But I think, it is important to create such a society where people can work as full-fledged member of society and be respected, even if they are ill. So this is just patient, but below that, it's a little hard to see, but there is community. Therefore, I would like to create a kind of community that is like an expanded version of global health. And although, calling it global health may be a bit too broad a term. I would like to expand a society, in which people can work even if they're ill. And outside of that society by expanding such activities, we will create a sustainable society. This is the chart that shows this idea. So what areas are we working on? We have been calling them psychiatry, neurology, oncology, Regenerative Medicine & Cell Therapy, Frontier business and infectious diseases, but we have further organized these areas. There are 3 areas now, psychiatry and neurology, oncology and other areas, including small molecules, Regenerative Medicine & Cell Therapy and non-pharmaceutical solutions and various other modalities. In short, we will focus on regenerative medicine, cell therapy and non-pharmaceutical solutions we are working on, as modalities that support these 3 areas and we will continue to focus on these 3 areas to build our leadership and become a global specialized player by 2033. Looking back at the previous midterm business plan 2022, there are some achievements and many things that were not accomplished. What we didn't achieve is the successful development of the large assets, especially at this upper growth engine. In particular, napabucasin, which is a successor to LATUDA is something that we worked very hard on, but unfortunately, it didn't work out. Also in the area of new products, KYNMOBI and LONHALA MAGNAIR, which we had hoped for peak sales of about USD 500 million each, but unfortunately, both products have been impaired. However, on the other hand, as mentioned above, the extension of LATUDA's exclusive marketing period through patent strategy is one of our achievements. On the left side of this, ORGOVYX, MYFEMBREE and GEMTESA, which were acquired through the strategic alliance with Roivant Sciences with some foresight that napabucasin would not work. And we were able to acquire these assets instead. Then, when we obtain the proof-of-concept POC for ulotaront and SEP-4199, we started working with Otsuka Pharmaceutical on development, which is a great achievement. We also were able to succeed in building a flexible and efficient organization across our corporate culture in Japan, using CHANTO to commit higher goals and accomplish them well. When we created a midterm business plan in 2018, digital transformation was just a buzz word. But in reality, expertise and technology we acquired from Roivant are driving our digital transformation. If I compare it to Sumo Wrestling, I would say that we have advanced firmly from the lowest [indiscernible] wrestlers. On the other hand, however, the strategic alliance with Roivant resulted in the formation of several companies and the structure in North America has become rather complicated. In that sense, there are various pros and cons, but unfortunately, we were not able to achieve our numerical goals in the final year of FY 2022. We initially stated that we would invest between JPY 300 billion and JPY 600 billion on M&A. In the end, we invested approximately JPY 600 billion by investing in the strategic alliance with Roivant and by making 2 listed subsidiary wholly owned subsidiary. This is just a numerical aspect. We regret to inform you that we were not able to achieve the results in FY '22, which is an unfortunate outcome. I will now begin to explain the midterm business plan 2027. This section sets forth a qualitative transformation of the business structure and business practices. We have been dependent on LATUDA only, but we will actively change this. The first step is to establish a revenue base that will support sustained growth. And the first priority is to achieve solid growth in 3 key products, ORGOVYX, MYFEMBREE and GEMTESA. Without it, the next 2 steps cannot be achieved. The second step is to bring our own innovation to fruition, we have changed our research structure, and I think we are now in a position to produce more unique products. So we are working on the early launch of late-stage development assets such as ulotaront SEP-4199 Regenerative Medicine & Cell Therapy and various other Frontier projects. We will look at later on to see, when we can put the product to the market. We will select assets in the early-stage development by using various biomarkers, so that we can find the signals as soon as possible. In doing so, we will select priority assets, including those with business potential and bring them to the late-stage development. We are going to make sure that these assets will support our growth in the mid-2030s and beyond. This includes the Regenerative Medicine & Cell Therapy business and the Frontier business. In short, we have been working on LATUDA alone. But from now on, we will support the growth of our business with various modalities in the psychiatry and neurology, oncology and other areas. The company will not be supported by LATUDA alone, but instead by multiple pillars. This next step is to change to a flexible and efficient business foundation, which we announced in the press release at the beginning of April, and will change the system in the North America largely. This announcement will also change the cost structure. Then we will promote the digital transformation, the X product. Then, we must firmly instill a corporate culture that includes group companies and overseas. As I mentioned earlier, our business really depends on its people. In short, we would like to visualize what kind of human resources we have, and where they are located so that we can allocate and effectively utilize variable -- valuable human resources, including the right people for the right jobs. This is a financial figure for midterm business plan, 2027. But sales of LATUDA will almost completely disappear in FY 2023. As sales of the 3 key products for ORGOVYX, MYFEMBREE and GEMTESA have not fully grown yet, core operating profit will be minus JPY 62 billion. This is our bottom. And for the fiscal year 2024 and 2027, we are hoping to somehow achieve the cumulative figures as we do here. The reason for writing the cumulative total is that the timing of milestones from various partners is and such, it's not always clear. So even, if we give a special fiscal year, there may be a slight shift. So this is the way we have written it. Unfortunately, it's difficult to achieve 10% ROE during the period of this midterm. So we would like to aim for 10% from the next midterm. Then here, the ratio is to be less than 0.5% or the balance of interest-bearing liability is to be less than JPY 200 billion. We are also committed to making sure that the ratio of equity attributable to owners of the parent company to total assets is at least 40%. As I mentioned earlier, we will not pay a dividend in FY '23 because core operating profit is in the red. We have set a goal of returning to profitability in FY 2024 and beyond. And we are working towards that goal to resume dividend payout, and we are aiming for consistent dividend payout. Our current investment policy is basically to invest in our own assets, as we are no longer able to make large M&A deals. This graph is not exact, but representative of renewed growth imagined. The table presented earlier did not show the year FY 2024, but core operating profit was in the red in FY '23, and we are presenting FY '24 to show that we will work hard to make a profit in FY 2024. The thick green line above, shows the return on invested capital, which is the return on equity and interest-bearing liabilities, and it is 6.5%. The 6.5% is roughly the benchmark return in the pharmaceutical industry. So we have drawn a line using that. And we are looking at -- well, our core operating profit will be relative to that. We will strive to cross the green line in FY 2025 to FY 2027. Earlier, I mentioned 5 priority issues, and this is the first of them, strengthening business profitability. Here, as I mentioned earlier, we are integrating our North America subsidiaries. It looks like 7 companies, but in the middle circle, there are 2 companies Enzyvant and Spirovant. So in reality, companies will be integrated, Spirovant will be kept as a subsidiary. So the other 7 companies will be combined into one company. This is the capital structure, which is the form of Sumitomo Pharma and the U.K. holding company that will have the North America operating company and a Swiss IP holding company. The U.S. company has a Canadian subsidiary and Spirovant, which I mentioned earlier, is a gene therapy company with little affinity to the overall business. So it will remain independent. This is the leadership team of the North America operating company, the President and CEO is Myrtle Potter, Sumitovant Biopharma's current CEO, and these are the key management members. Ms. Adele Gulfo will be the person managing the 3 key products I mentioned earlier. On the development side, Dr. Armin Szegedi second from the left, that is in charge of CNS-related development. Then Dr. Jatin Shah is in charge of oncology-related development. By integrating North American subsidiaries, the left side of the chart shows that the U.S. will become one team the lean operating structure will be established and business and R&D will be accelerated through the use of unique data. Dr. McMahon will lead AACTR, which stands for advanced analytics, computational technology and research, and it has 2 functions, DrugOme and Digital Innovation. Both of which we obtained from Roivant. This function is to provide digital support for their sales and R&D activities, and there will be a dedicated team working on proprietary data utilization technology. In FY 2023, this combination is expected to generate $1.6 billion in sales. Then, there are $400 million in cost synergies, which we believe will not be fully realized until FY 2024. In FY 2023, there will still be a bit of a transition, so it is not possible to fully realize the synergies. So I believe the full $400 million will be an impact from FY 2024 onward. We need to raise the top line ORGOVYX and MYFEMBREE are also very easy to prescribe and are very good for patients, as they are administered once a day. As Roivant Sciences was a listed subsidiary, we have not been able to access company data directly, until now. In that sense, we have not been able to perform the various support tasks using digital technology that I mentioned earlier. We will work hard on various marketing and strategies using such data. This has already been done well in GEMTESA. And we will work to achieve the same results in ORGOVYX and MYFEMBREE. Then on the right, it says that we will establish a position by building new evidence. The efficacy and safety of the combination therapy will be verified. I believe that the results of the combined exam will be finalized this November 2023. And we are working with Pfizer to verify the cardiovascular event risks and the first patient in was in January 2023. We would like to move forward to obtain results as quickly as possible. As for safety verification of long-term administration in the case of uterine fibroids, we took long-term 2-year data and submitted to the FDA. In addition, we have taken 2 years of data on endometriosis, and we'll submit this soon. In essence, this is better to show the effect on bone density is totally different in terms of safety compared to drugs that simply block [ conathoropyine ] receptors. Our goal is to lift this data to the label. And as for MYFEMBREE, we are currently conducting a study to see, if it is effective as the contraceptive. If this works, I think we will have the last patient out in April 2025, and it will be enough to differentiate us from other drugs and from competing drugs. In addition, Ms. Adele Gulfo, as I mentioned earlier, was formerly an executive at Pfizer. And so, she will work closely with Pfizer to promote collaboration. We would like to improve our activities in the area of medication campaign, patient advocacy, patient and health care provider education and KOL management in order to improve our efforts in the area of ORGOVYX and MYFEMBREE, especially for MYFEMBREE. We would like to enhance our activities in this area. The business activities of GEMTESA are progressing in a manner that is slightly ahead of our expectations or projections. And we are determined to continue to expand the business by keeping up with this momentum. In Japan, the left-hand side of the page shows maximize the value of priority products and new products. As for the diabetes drug TWYMEEG, which is already on sale, it's a limited shipment. So we have a little disappointing results at the moment, but we are trying to maximize the value of the product. Secondly, in the middle, we will also be launching the regenerative medicine cell therapy business and Frontier business in the Japanese market. And we will make sure that we do our best in these areas as well. Third, we currently have about 1,000 medical representatives, and we would like to ensure that they are able to conduct activities that match the product lineup, and we will also be expanding into information provision activities using digital technology. As for strategic licensing and alliances, we have a sales force of about 1,000 people. And I believe that the power of these people is quite impressive. So we will continue to look for opportunities to demonstrate that power through alliances and other ways. There's China and Asia business. There are items shown as 1, 2 and 3. First, expansion of product lineup. MEROPEN has been the subject of volume-based procurement and lefamulin, a new community acquired pneumonia drug will be brought to market. And we are developing vibegron in China and Asia. We hope to launch it in China in FY '27 and in nature. We hope to manage to launch it in Taiwan in FY 2026. The maximize profit from products currently on the market. We will aim to maximize profits from the MEROPEN business. Although MEROPEN was subject to volume-based procurement, the impact was relatively minor. There is still some room for us to improve. So we will work hard on this. Third, strengthening the organizational function. With China, we are trying to strengthen cooperation with the global functions of development and production. As for Asia, the central function is located in Singapore, and we are talking about firmly strengthening the governance function in this area. This is regarding reaching our own innovations to fruition. We have 5 checkmarks on the left side of this page, which are important for our future growth. As for achieve successful launches of late-stage assets. Checkmark, we are trying to launch ulotaront. Also, as I mentioned earlier, we will firmly bring assets which are still in the early-stage development to late-stage development to support our earnings in the 2030s. Then we will create a stricter development candidates. Of course, as in the past, it is not enough to obtain approval from the pharmaceutical affairs authorities, but it is also necessary to create products with high value that can be used at that side. We intend to execute a full-scale launch of Regenerative Medicine & Cell Therapy, non-pharmaceutical solutions and such modalities. And there are the efforts in infectious diseases. This includes the case with influenza and antimicrobial resistant bacterial infection, and we are working on these initiatives. This shows what is supposed to be put on the market in FY 2027 and during the midterm period. In the third row from the top, allogeneic iPS cell-derived retinal pigment epithelial cells, it says retinal pigment epithelium tear. We have been calling it HV-related macular degeneration. We are changing it here a bit. We have changed the direction of the treatment of age-related macular degeneration to the expanded indications. So we are now focusing on retinal pigment epithelial tear, as we work on the cells with our obvious therapeutic effect first. As you all know, ulotaront does not act on the dopamine D2 receptors. So it is likely to have fewer extra parameter symptoms and metabolic side effects such as weight gain. Clinical results to date have suggested such a possibility, and we have also suggested that it may be slightly affected to negative symptoms. We have high expectations for the Phase III studies, which are expected to show results in the first half of FY '23. And we believe that could be a blockbuster that will surpass LATUDA with multiple indications. Next is the DSP-1083. Now they are still conducting an investigator-initiated clinical study at Kyoto University Hospital. There is a schematic drawing patients on the right. We are very hopeful that transplantation of the dopamine-neurol progenitor cell may be able to wind back the progression of the clinical conditions. We will then wait for the results of the clinical study at Kyoto University Hospital and proceed to start a clinical study in the U.S. in FY '23. As for the oncology, we invested a lot of resources in napabucasin because it was the second largest product after LATUDA. After napabucasin, we have been working on a way to move forward with early assets that show positive signals in the patient, such as TP-3654 and DSP-5336. As for TP-3654 on the left side, we made a presentation at ASH 2022 to talk about the signals, which include reduction of spleen, improvement of systemic symptoms and few adverse reactions such as platelet decrease. Because of this, we received a great deal of attention from our audience, and we have been able to recruit patients very quickly since then. And DSP-5336 is many incubator. And currently, the third product behind [indiscernible] oncology and [indiscernible] pharmaceuticals. POC for this agent and its mechanism of action being confirmed, but it is expected that the profile of this agent will differ greatly from agents to agent. So we will keep working on it even though we are the third in line. This is our current pipeline as of April, which is shown in the circle on the left. It is becoming a bit difficult to proceed with all of this on our own. We would have to narrow down our R&D expenses as well since it will be difficult to manage profit and loss. As I mentioned at the beginning of this presentation, we are going to accelerate development by selecting signal and biomarkers in the pipeline that have potential and high marketability. We will divide the pipeline into 3 categories. The pipeline to be developed in-house, those we still require of involvement, which will be co-development. And those that we leave entirely to others, which will be out-licensed. We would like to avoid this person of resources as much as possible and concentrate on development. This slide shows what are -- what we are currently doing in the psychiatry and neurology area. The horizontal axis is psychiatric diseases and the vertical axis is neurodegenerative diseases. The future growth area is the thick arrow in the middle and I think something like psychiatric symptoms associated with neurodegenerative diseases will come in here. The white square shows assets that have become projects. I can't show you the specifics because they are not yet in clinical studies. But I would like to show you that it square stands for 1 project. In that sense, there are many promising assets. So how do we tackle drug discovery? Within psychiatry and neurology and oncology, the progress of translation on system, the promotion of data-driven drug discovery and the pursuit of chemical modality are the key to drug discovery. It sets our strength only in the translational system, but these 3 are all our strengths. Translational system is a particular strength of ours. In particular, as you know, the translational system is used to successfully connect the nonclinical and clinical phases of assets. And by making good use of clinical information, for example, using patient-derived iPS cell technologies and neurocircuit technology, as shown here on the left side of the psychiatry and neurology area. We can get closer to the essence of clinical conditions. This will help us to find new targets. For example, the pursuit of original target and mechanism of action on the upper left-hand side is connected to the concept, including TAAR1 activation, suppression balance and so on. Therefore, I would like to see the progress of translational system and the promotion of data-driven drug discovery, which is what we originally did utilizing in silico. In addition, we have established a digital infrastructure through our strategic alliances with Roivant as mentioned earlier. So we will use our own data and external data for drug discovery. In the area of chemical modalities, we are firmly committed to a drug discovery approach, starting with small molecule drug discovery. As for the Regenerative Medicine & Cell Therapy business, open innovation is one of our strengths. And we believe that we are the front runner in the practical application of iPS cells and our #1 in terms of manufacturing capability. Therefore, we will leverage the strengths of our company to move from single cells at the bottom to 3-dimensional tissues and organs, and from central system to ophthalmic organs at the part to peripheral organs from Japan to the global market. This is our plan for expanding this project. Now I should mention the size of the business. In the final year of the midterm 2027, we would like to reach at least JPY 10 billion. And in FY 2022, the fiscal year of the next midterm, we would like to manage to reach JPY 100 billion. I'm sure that our business in the U.S. will contribute greatly to building on that. And there is the Frontier business, pictures on the left this shows a patient journey and how we, as a company, can contribute to that. On the right side, there is the core business area, which is the pharmaceutical business, and we are thinking of advancing this Frontier business by working on prevention, diagnosis, treatment, long-term care and rehabilitation in such areas where we can create synergy, with the core business area. The picture shows the market right now in FY '27, we hope to exceed JPY 20 billion. As mentioned earlier, we would like to increase the scale of the project to around JPY 100 billion by FY 2032. This is what, we will be put on the market in the next 5 years. Purple boxes show the product is being marketed as a medical device. I mentioned at the beginning, infectious diseases, we are currently involved in treatment for AMR bacterial infections, malaria vaccine and universal influenza vaccine. In terms of on innovations, we have KSP-1007 for AMR, bacterial infections and adjuvant for vaccines. In these areas, such as AMR bacterial infections, malaria, and then influenza and other social issues, we will use external funding to promote research and development. We're talking about strengthening group governance. This is very much connected to the combination of North America subsidiaries. On this left side, I believe that by placing the same functions within each organization, as close a cooperative relationship as possible, information will be disseminated thereby leading to efficient objective information gathering and prompt execution in each region. In addition, in terms of horizontal organization, we are trying to put in place a system that will enable the group to make optimal decisions and timely decisions. In terms of collaboration by organization, we are talking about collaborating with the Global Head of Office, Sumitomo Pharma. We will develop reporting lines, establish rules on responsibilities and authority and committees. Then we will collaborate, coordinate global functions and what will be strengthened or things like strategy, planning, business development, finance, R&D and CMC. The middle part below, that is still about making decisions while cooperating with each other. The bottom part shows sales and marketing, which are different in each region. So will be localized. In addition, we will establish a global management committee to discuss various issues, and to make the best decisions for the group, with the participation of management members in North America. And this is the R&D side. At the bottom, we have our in-house exploratory research compounds, which report up to the Global Research Management Committee. The Global Research Management Committee's function is to look carefully at the scientific appeal and clinical value of the research, even if it is an initial research phase. And it means, what it means to the company since the company's resources are being used to conduct the research. Then, there are in-licensed compounds and our early-stage development pipeline. There is no specific governance body here. And although this is in formal, the management will keep track of how the company's initial development assets are currently doing. And then, there is by business area committees. This strategy unit is a global organization that we have here in Japan, as well as in North America. We have a variety of things that the entire company wants to do in each area region, and we will play a coordinating role to promote optimal decision making for the group. They will be brought to each of the business area meetings. The global management committee will make the final decisions regarding strategies such as budget, portfolio and so on. And we are also talking about the X, which we will be working hard on. The technology on the right is in-house technology acquired through strategic investments, and we will make full use of it. The global head office will orchestrate the X in North America, Japan and China as well. In addition, we will be sure to incorporate new technologies as well as existing bonds. We are trying to transform into a data-driven organization that propels itself autonomously, or to put it simply an organization where digital is the norm, where working with such data is the norm. This is for Sumitomo Pharma, but what about the human resources for this. Citizen data scientists are people who can analyze data using rudimentary statistics and machine learning techniques. The goal is to have 100 citizen data scientists by FY 2024. Citizen developers are those who can create the system itself, and our goal is to have 150% by FY 2027. We also will have several scrum masters, who are in charge of facilitation and coaching. AACTR is the advanced analytics computational technology and research division, that I mentioned earlier. We also have a U.S. digital organization at the bottom of the list. And with the help of such a normalization, we will promote a total of 150 projects in Japan and the U.S. in 1 year. Sumitomo Pharma aims to have 10% of its employee become core, the ex personnel who will be the starting point of such operational efficiency improvement and value creation. This is a schematic picture of what we have done with regard to GEMTESA and we'll do elsewhere. Finally, there is the instilling of corporate culture and human resource strategy. Of course, as you can see here, business growth and individual growth are 2 wheels that go together to increase corporate value. This, of course, provides value to society. The business growth side includes the management strategies, while the individual growth side includes human resource strategies, in the current midterm business plan, 2 of these strategies are considered to be human resource strategies building that the human resource portfolio, empowering diverse human resources and maintaining a sense of unity and high engagement within the group. We are building up our human resource portfolio to visualize human resources, and this is limited to Japan only, but we are developing leaders and the experts and then the succession plan, which will apply globally. In terms of empowering diverse human resources, we are also working on to align assessment criteria within the group. And although, this is only in Japan, we are increasing the percent of male taking childcare leave and female managers. Regarding the sense of unity and high engagement within the group, we will continue to work on making sure that philosophy is well instilled. The personnel structure also fit in the human resource strategy. The combination of group companies in the U.S., which will take place as of July 1, 2023, we'll reduce the number of employees by about 500, bringing the total number of employees to about 1,800. One challenge here is that as you can see in the map of the United States on the left, there are many circles and each one is a base. Therefore, rather than having the headquarters in location and everyone working there, there are people in various functions across various locations. For example, some executives are here in Brisbane, but those team members are in other locations. So it will be important for each executive to keep their line of business together to make the projects are successful. This is a philosophy that we will be instilling across the organization. The mission is the one you saw at the beginning of these materials and the values that newly created. Patient first always with integrity and one diverse team. Then there are sudden declaration of conduct. It is written CHANTO at the bottom in pale green. This is in line with our previous midterm business plan, which called for the creation of corporate, but corporate culture in which we commit ourselves to high goals, work hard to achieve them and carry these goals through to completion. We will continue to instill this in accordance with our philosophy. I hope this explanation of our midterm business plan is helpful. Thank you very much for your kind attention.

Muraoka from Morgan Stanley.

I would like to confirm the basic premise of this midterm business plan. Regarding R&D expenses, I think there are many people in the market think that cost reductions are very important, but I cannot find any sort of guideline for R&D expenses.

Thank you for your question. Forecast R&D expenses are about JPY 390 billion, over 5 years. Within that, I am sure that the per year figure will fluctuate considerably. I see that would mean an average of just under JPY 80 billion per year. The forecast figure for the previous fiscal year was JPY 98 billion. So it will be a reduction, but not [indiscernible] reduction. Some years are very tight, and it depends on the year. Therefore, it is not that they are all at the same level, but rather that some years are lower than others and some years are more or less the same.

Okay. Similarly for SG&A expenses, I think the forecast for FY 2020 (sic) FY 2023 is JPY 308 billion. I understand that their personnel reductions totaled 500 people in the U.S., but there is not much else that can be attributed to cost reductions.

To begin with, the JPY 308 billion originally included all the various expenses in LATUDA, so those will be eliminated as well as costs related to KYNMOBI. Given that, there will be large-scale cost reductions to the order of $400 million, we are currently considering JPY 308 billion, but we would like to keep the figure of around bottom of the JPY 200 billion range.

Okay. Is it correct to say that the new fiscal year, which is basically just beginning, will be the least costly you are already saying that there will be a JPY 40 billion surplus in FY 2024? So there is -- that is where the investments will increase again. Is it correct?

Yes, that is right. However, when a new product comes out, such as ulotaront, there will be a certain amount of expense involved, we would like to manage the expense as much as possible.

Okay. I think it's at JPY 460 billion in revenue with JPY 40 billion surplus for FY 2024. This is based on the assumption in Sumitomo Chemicals management update of less than 2 months ago, at the beginning of March that the total of the 3 key products will exceed JPY 200 billion or something like that. This is about almost the same assumption that you have made for this midterm.

It is roughly the same assumption, yes.

I see. I read that there will be quite a few milestones in there, but I wonder, if it's possible that if milestones were excluded from this JPY 40 billion, it will come down to around the breakeven level.

No, it wouldn't go as low as breakeven. It will be a reduction of less than half. I can't go into many details, but I think we can say that.

Okay. And lastly, I wonder, if this midterm business plan includes any discontinuous actions, such as mergers and acquisitions or the sales of -- sale of assets? Or is it assembled into the options, we know now?

Something like M&A is not included. We are not considering any large purchases. However, we have been selling assets that have reached LOE. For example, so I would like to ask you to consider the possibility of such a sale.

Has the profit from such a sale being factored into the quarter?

Yes, that's what I mean.

Are there any questions from anyone? We will now like to take questions from online participants. Hidemaru Yamaguchi from Citigroup.

My questions may overlap with those of Mr. Muraoka. Regarding the SG&A expenses, you mentioned earlier that the synergies are generated in the U.S. But is this mainly due to a reduction in the number of bases? Can you give us a breakdown of the synergies or how they came about?

The synergies are, for example Sumitovant, which has various administrative departments and Myovant, Urovant Sciences, Enzyvant and Spirovant, all of which have their own CEO, administrative department, CMO and so on. On the other hand, Sumitomo Pharma America Holdings, Inc. has Sumitomo Pharma Oncology, Inc. and Sunovion Pharmaceutical Inc. So there is a lot of similar organizations there. There are many such redundancies, so we need to reduce those, and also reduce the number of CXOs. That is the main thing. Of course, in some places, the offices themselves will be closed.

Okay. So there is a link between that and the headcount reduction by 500.

Yes, there is.

Okay. Next, regarding the figures for FY 2023 and FY 2024. It may not be possible to give a detailed answer until closer to the time. But between FY '23 and FY '24 sales are forecast to increase by JPY 100 billion and profit by over JPY 100 billion. Can you tell me again the factors behind this?

Within the JPY 100 billion increase in revenue, there is, of course, the increase in product sales and then, there is a milestones. In addition, between FY 2023 and '24, I mentioned earlier that the full synergy of $400 million will be realized in FY 2024. So expenses will also go down. In outline, there is the basis for the revenue and profit increase of $100 billion -- JPY 100 billion.

Okay. So the company's forecast shows this minus JPY 62 billion and JPY 40 billion. So it is correct to say that you will work hard to achieve these figures?

Yes, that's what we are going to do.

Okay. I think the business environment in Japan is quite challenging, and I believe that many companies are implementing early retirement plans. I wonder, if your company has made any moves to reduce fixed costs or considered something like early retirement plan in Japan?

In Japan, for example, we have reduced the number of so-called contract reps, but we have not reduced the number of our employees. As I mentioned earlier in my explanation, we have about 1,000 reps now. Once we destroy that kind of capability, it is very difficult to revise it. Therefore, the scenario in this midterm business plan is that we would like to look for various opportunities for alliances and aim for a place, where we can somehow use field force.

So you're saying that you're aiming for the in-licensing of a product sales alliance, which could cover diabetes or something like that, whether it is included in the figures or not, is that correct?

Yes, we will aim in that direction. It doesn't have to be diabetes, though. Sales reps in the U.S. are already specialized in a given area or put it another way, that is all they can do. On the other hand, our sales reps have a very high learning capability. Although, we have been dealing with diabetes up until now, we can handle something different. So, if there is such an opportunity, we would be happy to go for it. Do you have anything else Mr. Yamaguchi?

No.

Wakao from JPMorgan.

I would like to ask you about Slide 16. It shows the figures for FY 2023. I understand that the core operating profit is down significantly because of the decline in revenue, but why is operating cash flow negative JPY 130 billion?

So this means that there are still various outstanding liabilities related to reserves, for example, for LATUDA. And the total amount of such payments will be about that. Looking at the operating cash flow situation, I'm a little concerned about the cash situation, at the end of the next fiscal year.

I know that you are also borrowing this fiscal year. So -- can you tell us what the situation will be like next fiscal year?

We have a financial allowance. So, I hope you understand that there is no need to worry about that.

Understood. There's also the JPY 100 billion decrease in revenue in FY '23 and '24 period. In your answers to previous questions, I believe that the 3 Sumitovant-related products are important. And that milestone will be added on top of them. Now as we look at the trend so far, I am still concerned about their growth. The difference between the current consensus in the market and the revenues in FY '24 will be about JPY 80 billion. Based on the track record so far, I think the consensus is that it won't grow that much. My question is whether the various initiatives that you have explained today will really lead to this kind of growth? How likely are you to achieve this? If this is not accomplished, I think your company will be in a difficult situation again in FY '24.

I think you're right, but we don't really know how consensus is made for what the basis is. So I cannot comment on it. When we acquired Myovant in the first place, we consider the extent to which this potential actually exists. We were not the only ones to investigate this, but we also included experts from outside in this area. It was in this context that we acquired Myovant. In such a process, we, for our part, have set our goals based on the fact that we think there will be a certain amount of potential. Therefore, I think we may be stretching ourselves. It's our bad habit when it comes to setting goals, but we will do our best to achieve them, and we will do everything we can. Certainly, when it comes to ORGOVYX and MYFEMBREE, the growth so far has been a little bit different to what we had expected. However, now that we have these 2 products, we have set these goals in order to make a strong effort to expand them. Of course, this does not mean that those who came before us were not doing their jobs properly. And there was also an idea that the market consensus sales scale was enough for revenue goal, but from our point of view, we thought there was a little more potential. For our part, we would like to work hard to realize what potential...

Okay. As a follow-up at this point, is it possible to see from the performance in FY '23, whether you will reach the level your company is aiming for FY '24? Normally, I would imagine that, to some extent, to meet your company's goal, FY '23 will be a strong year and FY '24 will be another strong year.

I think you're right, we are keeping an eye on this trend in FY '23. Naturally, Ms. Gulfo, who was shown in the slide on the far left is aware of this. And the CEO, Ms. Potter, is aware of it as well. In this context, we are determined to do our best in FY '23. This will form a launch pad for FY '24 and '25. We're seeing it as that kind of step.

Yes. Thank you. I apologize for being so persistent but I'm not sure if you will be able to achieve the '24 sales goals. I hope you watch it. But if you do not, do you have a plan to generate profit through further cost reductions or through some other means?

Thank you. If we were to fall short, I think it depends on the degree of difference. It also depends on the time period over which we would be falling short. At that point, we'll make a decision based on the potential of the product and we consider how far we can grow. I think you're right in pointing out that the scale is too large, then some measures must be taken to deal with it. Let's move on to the next question.

Barker from Jefferies. I think it is attractive the midterm business plan 2027 set high goals. However, I would like to ask a little more about the assumptions underlining your forecast of a JPY 40 billion turnaround in the next fiscal year? I understand that milestone revenues will be included, but I think it is possible that milestones for ulotaront approval on the collaboration with Otsuka will be included and that relugolix-related sales milestones will be included as well. So if you could provide some details, please, could you comment on this?

The milestones will be what you just said. Is that okay?

The second question is about the goal figures for ROIC and ROE on Page 16. Is that a 4-year average or, for example, can we expect higher figures as be approach FY 2027??

This figure is a 4-year average.

Thirdly, your company made Myovant, which was listed in the U.S. into a wholly owned subsidiary. If your parent company wanted to make your company a wholly owned subsidiary, how would you see it from your point of view? Would there be any resistance from your company?

Well, I don't think I can say anything about whether there will be any resistance or not. I'm sorry. I'm not sure how to answer this question. I cannot talk to the probability of that happening. But I think I have seen similar things happen at other companies. I don't think there is any particular resistance but rather, in terms of not violating the interest of minority shareholders, if I takeover were to occur, for example, I think it is important to discuss whether the share price is appropriate or not. I'm afraid I cannot give a simple answer to that question. Let's move on to the next question.

Hashiguchi from Daiwa Securities. My first question is about the core operating profit goal for FY '24 through FY 2027. If the cumulative total is JPY 192 billion or more, the average per year will be JPY 48 billion. This is not much growth from the core operating profit of JPY 40 billion in FY 2024. What do you understand to be the reason for the small project that the increasing profits after FY 2024 despite a sales revenue CAGR of more than 12%?

Yes. Thank you for your question. Yes, I think it is true that it's difficult to increase profit even if sales increase. Regarding cost of sales or rather the products we expect to increase in terms of sales are ORGOVYX, MYFEMBREE and other such products. As you know, profits on such products are split 50-50 with Pfizer and sales of ulotaront are also forecast to increase, but this will also be split 50-50. For this reason, although sales are increasing, it's not easy for profits to increase as was the case of LATUDA, where profits increased sharply as sales increase. Therefore, even if sales increase to some extent, the growth in profit will be a little sluggish, and that is how I think it will appear.

Yes. Thank you. Also, when you say $400 million in cost synergies in North America, is it my understanding that this is about JPY 40 billion in cost savings in FY '24 compared to the actual results for FY 2022?

Yes, the comparative year is FY '22.

Thank you very much. I also have a question about the pipeline you introduced today. I would like to ask about TP-3654 for myelofibrosis. You write about the possibility of combination use of other drugs. However, I feel that if it is used in combination with other drugs, the advantage of reduced platelet loss will be diminished. What kind of drugs are you planning to use in combination with the drug? And at the time of its initial launch in FY 2027, are you considering using it in combination with other drugs? Or are you considering using it as a monotherapy at first?

Thank you. Ikeda san will take your question.

Thank you. I am happy to talk about TP-3654. We have written about this in the appendix. And there are some distinctive results. If you could take a look at Page 60 of the appendix, I think you see points 1, 2 and 3. Your question is about point 3, a small decrease in platelet count. Certainly, this is currently being done by selecting patients with relapsed or refractory populations after treatment with, for example, JAK inhibitors. Among these, we are seeing these very promising results even with our single agent. It's true that the decrease in platelet count is low for our compound. We will not know what will happen when it's used in combination with a JAK inhibitor, for example, until we try it. However, as we have said, we have not seen a worsening of the decrease in platelet counts with our compound alone.

Thank you very much. In that case, for FY '27, is it likely to be a monotherapy first?

Yes. In our launch plan, we would like to start with monotherapy. However, as Mr. Nomura explained earlier, we have received various offers from companies at ASH that have already launched their product in the market. So we would like to consider the possibility of combination therapy in the future.

Thank you very much. Finally, I would like to ask you about the sales outlook for regenerative medicine and cell therapy products. Regarding HLCR011, as you explained earlier, you're first aiming to launch to market in relation to retinal pigment epithelium tear, but the number of eligible patients will be small. After that, you are looking at the expansion of the indication, which, in your opinion, will bring a significant potential for growth. As for DSP-1083, well, the target is to launch to market in FY '24, the expected growth to blockbuster status is in FY 2030, which is quite far away. What would trigger it to be a blockbuster in the process?

Thank you. Kimura san will take your question.

Thank you. First of all, I would like to talk about the HLCR011. As you mentioned, we would like to start with a clinical study for retinal pigment epithelium tear. Up until now, mainstream clinical study using these cells are focused on regenerative diseases such as age-related macular degeneration. Degenerative diseases progress slowly, and it takes a long time to see an effect in such diseases and the effects can be difficult to quantify. Retinal pigment epithelium tear is an acute condition, and we aim to produce clear effects in a short time. On the other hand, since the number of patients is not so large, we have not forecast a large amount of sales. This is shown in the table here after approval. The other is that the Parkinson's disease treatment will be approved in FY 2024 and major growth is expected after 2030. However, looking at cases in Japan, the number of patients and the number of hospitals that can actually perform transplant is limited, so we are taking a conservative approach. On the other hand, when we obtain approval in the U.S., we will be able to expand at once, taking advantage of our experience in Japan. This treatment is also expected to spread in Japan at the same time, so the initial start-up appears to be a little slow.

Let's move on to the next question.

Hashimoto from SMBC Nikko Securities. In your earlier explanation, I think you said that the payment of LATUDA liabilities is still included in the negative operating cash flow for FY 2023, but if this is eliminated in FY 2024, for example, what level of profit in FY 2024 will be required to make the operating cash flow positive? Conversely, what is the risk of negative operating cash flow remaining until FY 2024?

Thank you for your question. So you would like to know the risk of an operating cash flow deficit by FY '24?

Yes.

The operating cash flow for FY 2023 will be in the red, partly because core operating profit is in the red. And also there are still rebates and other reserves and provisions to be paid with respect to LATUDA, as I mentioned earlier. In FY 2023, there's also the payment of Japanese corporate taxes for FY '22. And so restructuring costs in the U.S. In this sense, the deficit in operating cash flow is larger than the deficit in core operating profit. However, we believe that this is a special situation applying to FY 2022 and FY 2023. We expect core operating profit to be in the black and operating cash flow to turn positive in FY 2024. Therefore, I hope you understand that this is just another example of the fact that operating cash flow is larger than the deficit in core operating profit due to special circumstances in FY 2023.

Okay. I think you mentioned earlier something about stretching the sales of ORGOVYX for FY 2024. I think you mentioned that if core operating profit itself is positive, operating cash flow will turn positive. But if you don't reach that goal, do you have the capacity to implement some kind of plan B? Or would that sort of action require new borrowing? What do you think is the level of your company's resource capacity for the 2024 fiscal year and beyond?

If sales goals are not achieved, it's possible to sell the assets, as I mentioned earlier. So I think that is possible.

I'm sorry. So in that case, the resource will be the funds from the sale of assets?

I think you're asking about the hypothetical situation mentioned earlier, where core operating profit is in the red because sales are not achieved as expected.

Yes, that's right.

In that case, I think there will be steps such as asset sales. For our part, we would like to avoid or rather must avoid posting a loss in core operating profit for 2 consecutive years, and we will do our best. Thank you for your question. Are there any other questions from investors and analysts, on site in Tokyo office, anyone? If not, we would like to move on to questions from the media. [Operator Instructions].

[indiscernible] from NHK. I would like to ask you a little more about the clinical study of allogeneic iPS cell-derived retinal pigment epithelial cells, which came up in another question earlier. You mentioned that the change from age-related macular degeneration to retinal pigment epithelial tear was due to the fact that the effect is easier to see in an acute disease. I'm sorry for my ignorance, but what kind of mechanism or effect could be expected in the condition like so-called retinal detachment or retinal tear?

I would like to take your question. It is quite different from retinal detachment. And in most cases is a symptom associated with age-related macular degeneration. As you know, the retina has light sensing tissue. The outermost layer of cells is called the retinal pigment epithelium, a single layer of dark-colored pigmented cells. And this can break and shrink in disease states. It is known that this can occur in many patients who are undergoing treatment for age-related macular degeneration when the condition deteriorates, because the retinal pigment epithelial cells themselves are lost in a certain retinal area. The symptoms can be recovered relatively quickly by cell transplant. Since there is currently no cure or treatment for this condition, we believe that this will be a welcome news for patients.

What is the current situation with the clinical study design? I understand that you're knowing the -- you're not going -- I understand that you're going to change the target disease during this period, but what do you think about the impact on the progress or delays in the clinical study?

We have not announced this to the outside world until now, but all our plans have been in progress for many years now. So the changing indication announced to the outside will not delay our clinical study plans. In terms of the design of the clinical study, I cannot give you the details. But we would like to place patients who will be transplanted with cells versus who will undergo a natural course of treatment, so that we can demonstrate both efficacy and safety in the clinical study.

And is it still a little difficult for you to tell us specifically what symptoms, what age group and how many people will receive transplant?

We would like to present those details after the actual clinical study has begun.

One last point, I'm sorry. But I understand that the clinical study for age-related macular degeneration was scheduled to be conducted in FY '22, but now it has been switched this way and as you said, there has not been a single case of transplantation, right?

Well, before we even talk about transplantation, we have not applied for the clinical study, so we will soon apply for the clinical study, then we will start recruiting.

Next question please.

Ando from Nikkei. I think your company and Healios K.K. have been working together on a clinical study for age-related macular degeneration, which overlaps a bit with what you just said. Is it correct to say that the preparation for this study will continue as is? Also is the retinal pigment epithelial tear study being done completely independently of Healios?

First of all, we have maintained a relationship with Healios under a joint development agreement. In this situation, we have already set a direction for the past 2 to 3 years that we are proceeding with the clinical study. The actual strategy and tactics are being discussed and agreed upon with Healios. Our plan, as I mentioned, is to demonstrate the safety and efficacy in retinal pigment epithelial tear and then to take on the challenges of age-related macular degeneration, dry and wet. As you know, there are many regenerative medicine and cell therapy products for which it has been difficult to demonstrate efficacy. So priority is to demonstrate efficacy and safety first.

Thank you very much. Is it correct to say that this retinal pigment epithelial tear study will fall under the framework of the joint development with Healios?

Yes. The whole thing is within the framework of the joint development with Healios. In reality, however, Sumitomo Pharma will play a central role in the manufacturing of cells and the implementation of the clinical study.

Also, it is easier to see the effect in retinal pigment epithelial tear, and that is why you are starting with this condition. But as for age-related macular degeneration, there are patent issues as well. And if you just wait and see, it will also take more time and money. So you are trying to start where you can start. Is that what it is?

There has been a little talk about patents, but those are patents related to the manufacturing process and changing indication will not change the situation in any way. So apart from that, we have repeatedly said, we would like to select patients for which -- for whom we can show clear results in a short period of time.

Thank you very much. I would also like to ask about Parkinson's disease. Although the anticipated blockbuster status will be in FY 2030, I think this is a very bold prospect. I am unsure about how simple the transplantation process will be. And by that point, gene therapy may be progressed quite significantly in the U.S. in the meantime. I wonder if those types of therapy might be competition by that point. In this context, can you tell me the source of your confidence that this will be a blockbuster?

Even with gene therapy, in the case of Parkinson's disease, it means administration and the infection in the brain. The neurosurgeons that we speak to are confident that within the field of neurosurgery, the surgical procedure itself is by no means difficult. In this sense, if the safety and efficacy can be demonstrated in clinical study, we believe that many patients will use the product. When the product is approved in the U.S., we would like to conduct sales activities to encourage widespread recognition, including in academia.

Thank you for your questions. So let's move on to the next question from the media, please.

Ebisawa from Jiho. Someone mentioned earlier about selling assets if things don't go well in FY 2024 and beyond. What kind of specific assets can be sold?

Thank you for your question. I believe that we will be selling off such assets that are approaching loss of exclusivity. In the previous fiscal year, we sold XOPENEX, BROVANA and other such assets. In the future, we will be considering similar assets.

There was also a graph showing the growth of new products in the green area in the long term from FY 2027 and onwards. What kind of product are you envisioning in addition to the regenerative medicine and cell therapy for Parkinson's disease?

Are you asking from FY 2027 and onward? In addition to regenerative medicine and cell therapy, there will be new indications for ulotaront such as adjunctive MDD and generalized anxiety disorder. If all goes well in the latter half of the 2020s, SEP-4199, a compound for bipolar depression is scheduled to be launched. In that sense, new products will appear and I think they will become a force to boost sales.

Lastly, you have been saying for some time that the number of sales reps will not be reduced to below 1,000. If there is an operating deficit in FY 2024, for example, will it be impossible to retain that many reps? Do you still think they have an important role in licensing products?

Do you mean if we end up in the red in FY '24? Of course, we look closely at profit and loss by region. But in that sense, North America will be in the red, while, Japan is in the black. That is true even under the current circumstances. Therefore, I don't think there is any need to go to the trouble of restructuring the company that is already profitable. So if we don't achieve it even in 2024, it is a North America problem. If we look at the picture by region, we see that Japan is in the black. China is also in black and North America is largely in the red. Next person, please. The person over there.

[ Sakata ] from Yakuji nippo. I'd like to ask you about the acceleration of DX. One of the topics was the incorporation of advanced technology. Within that theme, the Metaverse came up. What kind of work do you think is possible to introduce this? Or has it been -- has it already been introduced? Another topic of discussion recently has been interactive generative AI, which has been attracting a lot of attention. In your opinion, in which areas might it be possible to exploit this technology? Have you implemented it anywhere already?

The Metaverse is still a trial. We are currently conducting a trial as a method to provide information to health care professionals. These activities have a focus in Japan. You also ask how we are using ChatGPT. We have a digital team in the U.S., and we are using the same technology. However, I have heard that even with ChatGPT, there are some erroneous results. So I don't think we can trust the system fully, but I am aware of its use as 1 of the tools used at work.

Would you be able to comment on what you are using it for?

I'm not fully aware of that. Are there any other questions from the floor, from the media?

[ Hanzawa from Iyakukeizai ]. On Page 28 of the presentation, you mentioned strengthening business profitability and establishing a firm profit base with respect to the China and Asia business. There was a recent incident in which Astellas Pharma employee was detained in China. What is your company's future plans for establishing the profit base? Is there anything that you have changed in your efforts as you move forward in response to this detention?

Our current Head of China operations has a great deal of experience in China. In that sense, it seems that they are well aware of such dangerous boundaries. When such a Japanese national was detained the other day, we immediately contacted China office, but our representative told us that he has been providing our Japanese expatriates with daily guidance to prevent such a situation from happening. So I don't think there's anything in particular that to change in our business activities. Of course, we have heard that the law has changed a little in China recently. So we have to be very careful about how it is implemented. I understand that our Chinese head is well aware of this. So they will be very careful in their business activities and we'll protect our expatriate staff from Japan. Thank you for the question. Are there anyone else from the floor?

[ Morita from Iyakukeizai ]. Regarding the Japan business, I would like to know what kind of sales trend you are predicting from FY 2023 and onwards?

In terms of trends, the National Health Insurance Price will be revised every year recently, which I think says something about the situation. We are starting to see a negative trend. In response, we work in regenerative medicine and cell therapy, the Frontier business and keep the level of the revenue flat. Are there anyone else? Next person, please.

Iwasaki from the Chemical Daily. In the area of future growth, I would like to ask you about the drug discovery research. You mentioned that you're working on a wide range of modalities and selecting the most suitable modality for this midterm business plan. It may be possible to use technology from another company. What is the current status of these activities? And do you have any plans for CVC type activities in the future, bringing technology from outside?

Ikeda san will take your question.

As you can see on Slide 37, we are working with academia and the Japan Pharmaceutical Manufacturers Association, as well as with some biotech companies, which are not mentioned here to conduct joint research on modalities and to introduce technologies. And we would like to continue to do so in the future.

Is this activity limited to Japan market or are you involved in this kind of activity overseas?

In terms of modalities, our focus is mostly in Japan at the moment, but we are not denying the fact that we -- there are many overseas companies. We are looking for such innovative modalities on the global scale in the form of open innovation.

Thank you for the question. Are there any other questions from the floor? If not, we like to start taking questions from online participants.

[ Ishii from Suikotsushin ]. I have 2 questions. First, what has been the impact of the COVID-19 pandemic on the launch of ORGOVYX and MYFEMBREE? Second, what are your aspirations for the third of the start of new midterm, Mr. Nomura, CEO of the company?

Thank you for your question. During the COVID-19 as ORGOVYX was exclusively a drug for oncology, limitations on access to medical institutions did affect sales. In women's health, patients were not going to medical institutions and we heard that this too had an effect. This is not currently a major obstacle. So we expect more activities in the future. As for my aspirations for the midterm 2027, we have been focusing on LATUDA so far. And LATUDA has reached loss of exclusivity. But we have been unable to connect it to the next growth pipeline, which is something that we regret very much. We are aware of products such as ORGOVYX, MYFEMBREE, GEMTESA and ulotaront where patent and loss of the exclusivity issues are likely to become significant in the mid-2030s, although ulotaront will be a little later. I think it is important for us not to have a repeat of what happened with the LATUDA loss of exclusivity. So although there are many arguments about the potential of ORGOVYX, MYFEMBREE and GEMTESA, we are committed to developing them as key products. Meanwhile, in R&D, we will invest resources in pipelines that have potential and create multiple pipeline that will support our company in the 2030s. We will provide solutions in various forms, not focusing exclusively on compounds, cells or tissues or non-pharmaceuticals. In this way, we will see our growth. This is why we have created this midterm business plan, which is different from how Sumitomo Pharma traditionally operated. Thank you for the question. Next person, please, from online.

[ Chiboshi from Jiho ]. In the revenue forecast, the compound annual growth rate from FY 2023 to FY 2027 is 12%. Based on this rate, what are the forecast sales in FY 2027 in value? I would like to confirm what the breakdown is between North America and Japan?

As for a breakdown of the numbers to give me 1 second, I would say roughly JPY 600 billion. Of that, about JPY 100 billion is from Japan. The rest is from North America and a little bit from China and Asia. Broadly speaking, that is our image.

Thank you very much. In FY 2027, you're anticipating sales of about JPY 500 billion in North America, China and Asia, subtracting the part for Japan. You just mentioned JPY 100 billion for Japan. To what extent are you including ulotaront in the forecast?

As of FY 2027, ulotaront figure is -- Kimura san, do you have the number?

As of FY 2027, ulotaront, we only have figures for schizophrenia indication, but we think it will be a few million U.S. dollars, so less than JPY 20 billion.

Just to clarify which indication would that be for?

That will be schizophrenia.

Thank you for the question. Next person, please.

Jimbo from Nikkei. I would like to confirm the financial goals that you have provided. You have provided the cumulative total from FY 2024 to FY 2027, but I could not find any figures specifically for FY 2027. Do you have that number?

We have not prepared any figures or as I mentioned at the beginning, the timing of sales may differ slightly depending on the timing of milestones. I mentioned earlier that we are forecasting revenue in FY 2027 of around JPY 600 billion. Core operating profit is expected to be around JPY 40 billion, although there will be a variety of factors to consider.

Thank you. Also regarding the disclosure of dividend payout, you said that you expect to resume dividend payout in the fiscal year ending March 31, 2025. I think you also mentioned that core operating profit is expected to return to the black. Is it my understanding that this will lead to a resumption of dividends because you expect to return to the black on a full basis?

Yes, I believe you're correct. Thank you for the question. Let's move on to the next person.

[ Mochizuki from MIX ]. I would like to ask you about DX. You mentioned the goal of a data-driven organization that propels itself autonomously. Can you say more about the characteristics of such a company? Also, could you give me some concrete examples of changes in working practices and value creation? Also with relation to so-called data scientists, I believe the figure of 10% of employees was mentioned. Is this referring to employees who are capable of handling data or have strengths in data?

The citizen data scientists and citizen developer courses are a kind of training that ensure the right level of human resources. We are also engaged in activities to train digital experts within the company. Overall, digital technology can be used by anyone who has the data and can analyze it and use it well to make various decisions. You don't have to be special in handling data. The employees can find new insights from data on a daily basis. So that's what we are aiming for. On the slide, we are talking about some kind of qualification here. But on the other hand, by training our employees who are strong in data, as you mentioned, we are trying to position ourselves in such a way that our employees who do this digital work are not only specialized individuals. This leads to the point I mentioned earlier about the data-driven organization that propels itself autonomously. We would like our employees to be self-disciplined and independent. Such employees will be able to analyze data and make decisions. We'll become an organization where employees don't do things when they are told to do. They just don't do things only when they are told to do, but rather take the initiative and do things proactively as a matter. Of course, the data-driven modernization that proposes itself autonomously is a way of saying that this is not something special and that we will develop into the company where the use of digital data is the norm. Therefore, this is very closely linked to human resource development.

I'm sorry, 1 more point. But you mentioned earlier that you will not reduce the number of reps in Japan. What are the thoughts on rep personnel development? You mentioned data driven management in your midterm business plan.

Are you asking about how to train and develop field reps?

Yes, that's right. My questions have 2 parts. One, in terms of the structure, whether the structure will be changed without reducing the number of reps and the other in terms of human resource development, if possible.

In relation to the data-driven management, 1 of the things we are doing is to make good use of digital technology in our normal sales activities and to provide information this way. We are currently focusing on diabetes, psychiatry and neurology and rare diseases. We expect that the frontier business and the regenerative medicine and cell therapy business will also emerge in the future. Under such circumstances, I believe that some reps will study sales activities in these new fields and shift to such areas as well. And there's also a new partnership in the area of rare diseases, so there might be a shift in this area. In that sense, if the content or quality of business changes, the knowledge and skills required of field reps will also change. And we will provide training accordingly. In the interest of time, we -- the next person will be the last person to ask question.

[ Kuriyama ] from Yakuji Nippo. I would like to ask you a helicopter view question from a bigger picture point of view. I understand that you have been developing your business based on your midterm business plan, which has been complied in 5-year increments based on what will be developed in the future. How would you sum up these past 5 years? What do you anticipate in the next 5 years and even in the 5 years after that? I would be grateful if you could comment on that.

For the first half of the midterm business plan 2022, we had LATUDA. That was good because it was profitable. But in the second half, it was a tough situation as we had to -- we had no alternative to LATUDA as it headed towards the loss of exclusivity. In the last 5 years, and of course, 5 years is too short to succeed in research and development, but we didn't have new launches. Although some promising new products such as ulotaront blossomed during the 5-year period, there were no products that were launched during the 5 years. We recognize that the midterm business plan 2027 will not be an easy period either. As some analysts have already pointed out, some wonder whether our sales goals can really be achieved. Therefore, our financial forecast is based on a certain assumption of sales. And it is important for us to achieve it. To accomplish it, it will be a hard 5 years in terms of maintaining a firm top line using the U.S. organization, and it will be inevitably be necessary in the next 5 years. The process of finding and implementing a front top line will be hard. On the other hand, in terms of research and development, as I have said many times before, we cannot rely on 1 product as we did with LATUDA. Many modalities will be created from now on, and it will be a challenge for us to transition new assets in the late-stage development of this period. I think it will be a very difficult 5 years. In that sense, I believe that the next 5 years will be quite hard, both in terms of raising the top line and in research and development. Therefore, if we can successfully overcome this 5-year period, we will be able to achieve a certain level of sales from the 3 key products for the next 5 years with the launch of ulotaront, SEP-4199, regenerative medicine and cell therapy products and nonpharmaceutical solutions from frontier business, we will be able to achieve some acceleration here. I believe that the next 5 years will be a period of relatively steady growth. In any case, if we do not make good progress over this 5-year period, we will not be able to attain what we want in the next 5 years. The management in Japan, the management in the U.S., the management in China and everyone else are determined to make a firm commitment to this.

Thank you for all your questions. This concludes the presentation of Sumitomo Pharma's Midterm Business Plan 2027. Thank you for joining us today.