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

We would now like to begin the conference regarding Sumitomo Pharma's financial results for the fiscal year ended March 2023 as well as the change of representative directors and the change of President. Thank you very much for joining us today. Present today are Mr. Nomura, Representative Director, President and CEO; Dr. Kimura, Representative Director, Senior Managing Executive Officer; Dr. Ikeda, Member, Board of Directors, Managing Executive Officer; and I, Noguchi, will be the moderator today. Mr. Nomura will now explain the financial results for FY 2023 and about the change of the President. Mr. Nomura, could you, please?

Thank you very much. I will not present the change of CEO, but you can ask us about it during Q&A. I would now like to explain the financial results. The information on this page will be omitted since it was announced and explained to you on May 1. Here, you can see the financial results by product. Of course, in yen terms, there's a slight currency effect, but revenue from ORGOVYX, MYFEMBREE and GEMTESA has grown 71%, 105% and 49%, respectively, over the previous quarter. We have not reached the level of our expectations, but I think you can see that we are growing well. Here, you can see revenue in Japan. The sale of 2 subsidiaries, Sumitomo Pharma Food & Chemical and Sumitomo Pharma Animal Health, resulted in a significant decrease in consolidated revenue. The termination of the sales collaboration for Trulicity, which was already announced, has also resulted in a decrease in revenue. These are the major differences from the previous period. Here is a comparison of the FY 2023 results with the FY '22 results. I just presented the revenue figures in the previous slide. SG&A expenses in Japan have decreased significantly. This is due to a decrease in SG&A expenses as a result of the sale of 2 subsidiaries I mentioned as well as a decrease in bonuses and other expenses due to very poor financial performance in FY 2023. In North America, we have substantially reduced our headcount. In FY 2023, we have reduced 7 North American companies into 1 company, and we have reduced a lot of personnel, especially those in higher chief ex officer positions. In addition to this, there was a significant decrease in LATUDA sales promotions and other expenses, resulted in a decrease of JPY 56.5 billion. This is the trend in SG&A expenses compared to the previous year. This is the forecast slide for FY 2024. Before I talk about that, first of all, we have made structural reforms in the United States. As I have mentioned many times, if you look at our SG&A expenses in dollar terms compared to our FY 2022 results, you will see that they are down by about $500 million in FY 2023. In addition, we expect SG&A expenses in dollar terms to decrease by about another $500 million due to headcount reductions. Staffing has been drastically reduced from 2,200 to 1,200 employees. However, as I mentioned at the May 1 conference, we are reducing our workforce to the extent that it does not impede our sales activities. As we have said to you, we will also drastically reduce R&D expenses. In this context, we will focus on the development of 2 pipelines in the area of Oncology by implementing a well-balanced investment allocation. We will also focus on non-cryopreserved and cryopreserved cells for Parkinson's disease. In the Psychiatry and Neurology area, unfortunately, we have decided to out-license ulotaront and other compound to Otsuka Pharmaceutical, and we will continue to assess the potential of the early-stage compounds in Phase I. Overall, we are reducing the number of pipelines under development. Compared to 22 pipelines at the end of January, we are now 17 pipelines. We still have 6 pipelines in the Psychiatry and Neurology area, but these are still in the early stages of development. We will be examining which pipelines we will develop further. As such, we will focus on very limited pipelines. In line with that base, we will proceed from FY 2024 onward in North America, optimizing our workforce, make our organization leaner and select our pipeline very selectively. As I may have already indicated, we are projecting core operating profit of JPY 1 billion. Revenue is projected at JPY 338 billion with gross profit of JPY 200 billion. As already explained on May 1, SG&A expenses will be reduced by JPY 67 billion from the previous year through reducing personnel and other expenses. We will also narrow down our R&D expenses by JPY 41 billion to JPY 50 billion, as we reported on May 1. The forecast for other operating income and expenses is JPY 20 billion, which is due to an expected gain from asset sales. In the May 1 material, the rationalization impact of SG&A and R&D expenses was JPY 108 billion. The impact of increased gross profit from the 3 key products was JPY 24 billion, and the increase from other factors was JPY 2 billion. The JPY 2 billion was the net of other operating income and expenses, JPY 13.6 billion and the decrease in gross profit in Japan. Nonrecurring items are expected to be about JPY 1 billion with operating profit almost zero. This is due to the fact that the yen happened to depreciate to a little over JPY 151 at the end of March, and the exchange rate forecast for FY '24 is set at a stronger yen of JPY 145. This is a very technical calculation, and we do not know what will actually happen. However, under assumption, the bottom line is expected to be a deficit of about JPY 16 billion. However, we will aim for a significant improvement compared to the previous year. This is a comparison between FY 2023 and the forecast. The major initiatives are to reduce SG&A expenses by JPY 67 billion and to decrease R&D expenses from JPY 90.9 billion to JPY 50 billion. This is the revenue forecast by product. If you look at our forecast in yen terms, you will see that our foreign exchange assumptions remain largely unchanged, and we continue to grow. You may have thoughts about whether this target value in dollar terms can really be achieved. As I explained on May 1, we are running various simulations for impairment. We incorporate third-party views. This projected value is a little different from the views of such third parties. We are not making this judgment on our own, but rather based on the fact that third parties are making similar observations, and therefore, we believe those revenues are achievable. Details will be explained later. The above section is about the term that ended. For the current fiscal year, we are targeting revenue of $400 million. The difference from the previous year is $119 million in volume while the price difference will have a slightly negative impact. As noted here, we intend to achieve this figure by adding $20 million through our efforts to the $119 million increase due to the linear growth in demand. In particular, insurance coverage is changing, and some of the treatments in the catastrophic coverage do not incur an individual copayment, making it easier to use ORGOVYX. Another significant factor, as will be reiterated later, is that ORGOVYX has become a recommended position in the NCCN guidelines. We also help patients have meaningful discussions with their physicians about drug selection. This may sound very strange. But as you know, in the United States, what kind of treatment options patients want is a very powerful force in their treatment choices. We are committed to creating an environment that encourages patients to use ORGOVYX by educating them about their treatment options with oral medications and insurance coverage. We will strive to increase volume by doing so. As a result of our combination data, the NCCN guidelines now recommend relugolix as a combination drug, whereas previously only degarelix was recommended. This page describes MYFEMBREE. As for MYFEMBREE, a significant impairment loss was recorded in the previous fiscal year. In that context, we hope to achieve a revenue of $124 million in this fiscal year with an increase of $49 million from volume and $11 million from price. Of the $49 million due to volume, $30 million is an increase due to demand trend. Trend, of course, does not mean that it will increase if it's left alone. We are planning to add $19 million to the $30 million by conducting various marketing activities, as we have done so far. Until now, information provisional activities has been somewhat scattered. We will optimize sales force focusing on obstetrics and gynecology with a high volume of prescriptions for oral GnRH antagonist. We have optimized our sales team for this purpose. We are shrinking the number of people slightly, but by focusing more on high decile of customer, we will increase the efficiency of our sales activities. For the most part, oral contraceptives are used first for uterine fibroids and endometriosis, but there is some questions as to whether oral contraceptives are effective enough for uterine fibroids and endometriosis. We will make sure to inform medical professionals to use MYFEMBREE for such nonresponder cases first. We will also make every effort to convey such message, not only to medical professionals, but also to patients. The other is a Co-pay card. Co-pay cards are designed to lower the burden on patients. After all, with MYFEMBREE, you can finally realize the benefits and effectiveness of product after using it for a long period of time. The period was extended to 3 months to allow patients to experience the benefits of MYFEMBREE as much as possible. By doing so, we hope to increase loyalty to MYFEMBREE and to encourage patients to use it more. Here are prescription trends. Our share is 44% in total. But for uterine fibroids, it is already very large at 84%. Unfortunately, the market share in endometriosis is still 20% with AbbVie's ORILISSA accounting for a very large share. However, according to what we have heard, AbbVie's marketing focus on ORILISSA has been declining since April. Therefore, we will first strive to take as much share as possible from AbbVie in the area of endometriosis. For GEMTESA, we expect revenue of $380 million for the current fiscal year. The current estimate is that there will be a $175 million positive impact from volume while there will be a slight negative impact from price. As a preliminary note, this is based on the assumption that the generic MYRBETRIQ will only come in from Q4. In a situation where temporary injunction has already been lifted, we are forced to look a little more closely at what the impact will be. Therefore, we would like you to understand the impact of the projection has not yet been factored into this earnings forecast. Of the $175 million, $150 million is from marketing efforts to date and $25 million from additional efforts. We will also increase sales reps here, especially since primary care coverage was not adequate. We're also preparing for various promotional activities for the indication of overactive bladder with BPH, which is currently under supplemental NDA. We will also strive to reduce the slight negative impact of price and improved gross to net through contract negotiations regarding Medicare Part D. In Japan, unfortunately, revenue is expected to decrease by JPY 14.4 billion. As for Equa/EquMet, revenue of Equa is expected to decrease due to the expectation that the generic will be launched in about December. TRERIEF revenue is expected to decrease due to the impact of generics. As a result of the above, we unfortunately expect a JPY 14.4 billion decrease in Japan sales. As we also mentioned on May 1, the deadline for repayment of the JPY 145 billion bridge loan has been extended for now until the end of September. The money of about JPY 98 billion from the sale of Roivant Sciences share will be used to repay loans. At the briefing on the Mid-term Business Plan, we mentioned that we would like to resume dividend payments once core operating profit becomes profitable in FY 2024. However, we plan to pay no dividend due to our current forecast of JPY 1 billion, a very low level. We intend to review and announce our Mid-term Business Plan 2027 as soon as possible in light of the significant changes in our assumptions. Next, research and development will be explained. Changes since the January Q3 financial results conference call are shown in red. An application was filed for GEMTESA for the treatment of overactive bladder with BPH. For allogeneic iPS cell-derived product, we have started a company-sponsored clinical study for Parkinson's disease. For SMP-3124, Phase I of the clinical study for solid tumors has started. This will be explained later. In addition, Phase I of the influenza vaccine has begun. This is supplemented in the reference material. The next slide is what I just said in writing, which is about the company-sponsored clinical study in the United States on allogeneic iPS cell-derived dopaminergic neural progenitor cells. Like Kyoto University, we are conducting investigator-initiated study. But the major difference is that Kyoto University is using non-cryopreserved cells, while our company's clinical study is using cryopreserved cells. New compound SMP-3124 has newly come up to Phase I. The pharmacological mechanism is induction of cell apoptosis by checkpoint kinase 1 inhibition. Liposomal nanomedicinal encapsulation is expected to accomplish, strengthening the antitumor activity and weaken side effects by changing pharmacokinetics of the compound. We are moving forward with this in the hopes that this will be a new treatment option. If you have any questions, we will be happy to answer them later. Some of the milestones in this fiscal year's R&D are presented by area. This time, there's nothing that has already been completed, and it is up to us to determine how much we can accomplish this fiscal year. That is all I have to say. Thank you very much for your attention.

Hashiguchi from Daiwa Securities. I have a few questions. I would like to know about your plans for GEMTESA and MYFEMBREE, 2 of your 3 key products. Regarding MYFEMBREE, you spoke about the introduction of Co-pay cards. On the other hand, your plan for this fiscal year assumes a positive price impact, how can we interpret this?

Last year, we saw some inappropriate use of Co-pay cards, which significantly pushed down the real price. As that normalizes, we expect the price side to be positive compared to the previous year.

You have been talking about the normalization of it for some time. I believe you had such issues last year as well, but what kind of initiatives do you plan to take this year?

We are constantly monitoring the use of Co-pay cards. The results confirm for now that there will be little unusual Co-pay card use, if any.

Regarding GEMTESA's earnings forecast, you explained that the increase due to the existing demand trend is $150 million. I don't quite understand the $150 million increase due to the existing trend in the current quarter since the previous quarter's actual increase was only $73 million.

Perhaps the term linear growth is not quite right. We estimate that it will increase by this amount. As I mentioned earlier in my presentation, we did the impairment tests for ORGOVYX and MYFEMBREE, respectively. At that time, also received a third-party opinion. Basically, the impairment test is using the third-party view. In our test, we tend to get slightly better. Even in that situation, the results of GEMTESA, ORGOVYX or MYFEMBREE have not made that much difference at the present time. We expect to achieve this level of performance. And in addition to that, we have some additional targets to work toward.

I understand. Finally, you expect to pay no dividend this fiscal year. But what are your thoughts on the conditions for resumption of dividend payments? Could you also comment on when you expect to achieve this at this stage?

Thank you. In terms of resumption of dividends, we are currently in a situation where our financial condition or rather the absolute value of our net assets is very low. Therefore, we will consider a resumption of dividends once our financial condition has recovered to a certain degree and we have a certain level of cash flow available to repay the current JPY 400 billion in debt. Therefore, rather than a temporary profit level, we will make a decision based on the overall financial condition, financial position and debt repayment status as well as future cash flow in a comprehensive manner.

Is it still difficult for you to answer when that might be?

Yes. That is still difficult. As I mentioned earlier, I think there is a process to review the Mid-term Business Plan one more time. In this context, we will once again consider a resumption of dividend payments after reviewing the future development of cash flow and financial position.

Sakai from UBS. First, at the May 1 briefing, you, Mr. Nomura, also mentioned that you had taken in a third-party opinion in conducting the impairment test. By third party, do you mean an auditing firm? Or did you take into account the opinions of the KPIs in creating the sales estimates? What kind of person or organization is it? Of course, it must be a reliable source. Moreover, since your company accepted it, I believe that these people have a certain amount of responsibility and that the figures are based on some degree of thoughts. Could you explain about this to us?

This is not an auditing firm. The auditing firm is KPMG AZSA, and KPMG AZSA determined whether the impairment test we have performed is appropriate. Therefore, we do not use the audit firm for creating the sales estimates. The methodology is based on various parameters such as market growth, market share going forward, what happens if we increase sales reps, what happens if we change targets, et cetera. Based on those, our U.S. subsidiary made their forecasts. The third party then made separate estimates. For example, of growth in demand or sales growth due to increased sales reps. They created their own forecast based on the super imposition of such differences in their views. In terms of which estimates we should trust more for impairment testing, we believe we should choose the more conservative one. The Board of Directors also discussed at length what sales projections should be placed on the impairment test. As a result, it was decided that it would be appropriate to use an externally calculated conservative view. Therefore, we used it.

So in layman's terms, the third party means consultants?

In layman's terms, it means consultants. We used experienced consultants for such sales projections.

I understand. I have 2 more questions. Since the listing of ORGOVYX in the NCCN guidelines, already took place in February, I would expect to see some changes in prescriptions in March, April and May. However, the outside vendor data we see does not show much change. I would like to know what is happening now in the field and any other insights.

I think it will take some time for such data to be reflected. We're also in the process of monitoring the situation closely. There was no significant change in the trend until March. But we have received information that there was a change in April, although it is only preliminary data. However, sales in the U.S. may rise or fall from month to month. But there's also a business custom to balance the books by quarter. I do not say something rash, we have obtained such data. We intend to strengthen our monitoring in this area in the coming year, checking whether our measures are progressing as we expect.

It seems that the recombination of reps has been done to some extent, but do you feel that you are getting a good response?

Yes, we are currently feeling a handful of positive results, but would like to continue to closely monitor the situation in the future. I believe it is a bit premature to judge whether the response is solid or not.

I understand. Also, a new anticancer compound SMP-3124 was introduced this time. I'm not familiar with science, and I'm not sure of the mechanism. Basically, this is based on kinase, right? You mentioned that you're going to decide on the type of cancer, but what organs are you currently targeting as suitable organs for this type of drug? You are still currently in Phase I/II, so it may be too early to ask. The fact that you are presenting it here means that this is probably a very promising addition to your company's portfolio. I also understand that this is the only novel mechanism in your Oncology portfolio. Can you tell us a little more about the future of this and how you will lead future development, including whether you will develop this in-house or not?

Thank you for your question. I, Ikeda, will explain. First of all, regarding cancer types, we are trying various cancer types in the nonclinical phase. For example, very clear efficacy data has been confirmed for various major solid tumors such as ovarian cancer, breast cancer and non-small cell lung cancer. Based on those data, we are planning to select the most appropriate cancer type by having such patients participate in Phase I and exploring what that actually looks like in humans. I think it will be a great deal of budget requirement to add it all up. In any case, we believe that this is an agent that can enter a large market for a reasonable amount of money. As for how far we will go in-house, our current focus for the 2 compounds are on hematologic malignancy. And the scale of the clinical studies is relatively small, but we believe that the scale will be larger for solid tumors. Naturally, depending on which diseases and cancer types we develop in-house, we will be approached by other companies when good data become available. I hope we can discuss things again at that stage.

Let me just add a little background on our expectations. This is a novel substance and the patent term is long enough. In creating liposome formulations, we convert substances that have already shown efficacy in clinical studies into a form that can be easily encapsulated in liposomes. We're using something that has already been clinically confirmed to be effective for the major skeletal parts, but has been halted due to safety issues. In that sense, if the liposome formulation successfully acts as a delivery, I think we can expect anticancer activity. In fact, we are now starting clinicals during which we will confirm that.

Muraoka from Morgan Stanley. Could you tell us a little more about your forecast of JPY 1 billion in operating profit for the current fiscal year? There's a gain of JPY 20 billion from the sale of assets, which is a significant improvement from the previous fiscal year. How does this improvement work quarterly? If possible, please tell us when the gains on asset sales will occur and how operating profit, excluding those gains will improve from quarter-to-quarter. For example, around Q4, would you see breakeven on a 3-month basis or not? And would the deficit continue until the final quarter excluding asset sales? It will be helpful if you could share your assumptions in this area.

The assumption is that SG&A and R&D expenses will significantly reduced, either through last year's measures or in this year's budget. We believe that this will be realized every quarter or every month. And I think you will see it with each passing quarter. However, although we closed the CNS R&D in March, some activities in collaboration with Otsuka Pharmaceuticals remain, and we believe that there will be some increase or decrease as a result. We have not yet decided on the timing for the sale of assets. However, given the circumstances, we hope to implement it as far ahead of the end of the fiscal year as possible. We expect sales to increase with each passing quarter, and we hope to see the fact of cost reductions with each passing quarter, bringing us into the black on a quarter-to-quarter basis in Q4. We hope to be able to explain this with clear figures as we see future developments.

The Mid-term Business Plan runs through FY 2027, so that would mean 4 years, including the current term. When could you share it with us?

When I said that we would explain the quarter-by-quarter forecast after careful examination, I meant that I assumed that we would explain them after creating a new Mid-term Business Plan and making clear forecasts. As announced in today's press release, the management structure will undergo major changes from June onward, and we are considering formulating a new Mid-term Business Plan within this context. In that sense, we believe that Q1 and Q2 are a bit early to introduce new plans. We have not set a specific timing, and we'll try to report as soon as it is decided.

By the way, I believe there will be a review of MYFEMBREE and ORGOVYX in the sixth year of the contract with Pfizer. Considering the major impairment of MYFEMBREE this time around, it seems difficult to see how the contract can really be extended around 2026. Do you anticipate such risks several years down the road?

I cannot explain the details of the contract, but we have a contract for both ORGOVYX and MYFEMBREE together, as I said. ORGOVYX is progressing well. And we believe that Pfizer will be reasonably satisfied with the overall contract. I think the situation is the same for Pfizer with MYFEMBREE underperforming. We will consider this and other trends this fiscal year, especially since we are restarting in April with a new sales structure. As for what happens after 5 years, it is for Pfizer to decide. However, I believe that a lot will depend on how well sales of ORGOVYX and MYFEMBREE go until then.

Yamaguchi from Citi. This question relates to the third party mentioned in the earlier question. It is clear that the assumptions have changed between the time that GEMTESA forecast was created and now. I think from the outside looking in, if the impact of this is quite a bit, you might be forced to make some revisions. In that case, until now, it was sales of Roivant or Myovant, and therefore, could not be corrected. But from now, it will be your company's product. Therefore, I believe your company will constantly review its forecast. Assuming that you may consider incorporating the third-party opinions if the situation of the 3 key products changes in Q1 or Q2, at what timing such as in first half or second half of the year do you intend to make revisions? Sorry for the question assuming of revision, but could you -- could there be a review on a quarterly basis?

Thank you for your question. I think you are mainly saying this in anticipation of a change in the GEMTESA situation. The impact on sales will become apparent in Q2 at the earliest. Therefore, we expect to revise our sales forecast after that time. One thing I would like to add is that last fiscal year, we made Myovant a wholly-owned subsidiary. And with the announcement of the Mid-term Business Plan, we issued a sales forecast, which was revised downward many times during the year. We have issued an internal projection based on the figures since July when we actually had control of sales, and we are only 2% or 3% off from those figures. Therefore, we believe that our current sales forecast is not that far off the mark. However, when there are external factors such as those you just mentioned, I believe that we must make corrections, if necessary, accordingly.

I understand. I would like to ask one more question, especially about executive appointments, which you have no comment on at the point. It says that the company will work on various measures to turn around its performance and we'll receive human resources support to restore its performance as soon as possible. I wonder if the new President Kimura and others could comment on the major differences between the new structure versus the previous structure, can you comment on how the system will be structured?

Are you asking about our company structure?

Yes.

As stated in the press release, the first major change is the structure of the Board of Directors. I am the only one remaining among the current internal members of the Board of Directors. The CEO of the U.S. operations was replaced by a Japanese in April, and Mr. Nakagawa is in charge of the U.S. as a member of the Board. We would like to steer the U.S. business while maintaining a firm grip on the U.S. business and increasing its visibility. Also, Sumitomo Chemical, the parent company that has guaranteed our debt, will send one person to the Board of Directors as a Representative Director and Executive Vice President. One person from Sumitomo Chemical will also join the Board as a Non-Executive Director. This will significantly change the structure of the Board of Directors.

Wakao from JPMorgan. My first question is about turning a profit, which has been touched on in the previous discussions. Although a Mid-term Business Plan is currently being formulated, do you still consider it is uncertain for your company to become profitable? You have narrowed down fixed costs considerably, and I believe you have narrowed down to a level where your business could be profitable. As for the topline, the third party has been brought in to review it. So I think that to some extent, the timing for turnaround to profitability is becoming clear. I also wondered if adjustment will be made depending on the timing of penetration of generic of mirabegron for your products such as GEMTESA. How do you envision the timing of return to the profitability? Please tell us about the case considered without the gain on sale of assets in the current year.

We expect to be profitable on the bottom line in the next fiscal year. In the next fiscal year, we intend to move forward so that both core operating profit and income, including asset sales will be in the black.

However, while I believe that the sales milestone should also be considered as revenue, I think you mentioned last time that the sales milestone will be included in the next fiscal year. Even without sales milestones, will the company be profitable in the next fiscal year?

I think it is on the borderline whether we are able to make a profit without a sales milestone. But I do not think it is impossible. As you mentioned, we would like to release detailed figures while also looking at the figures for the current fiscal year.

My second question is about finances. The repayment of the JPY 145 billion bridge loan was extended until September, and the sale of Roivant is to be used for this purpose. It is my understanding that there is a problem for this JPY 145 billion. If there are any loans that will mature and need to be repaid over the next few years, could you tell us the timing and the amount of those repayments as well as what the funds will be allocated by to the extent possible?

I cannot explain the specifics right now. While we have about JPY 98 billion in cash from the sale of Roivant shares, we also have the challenge of a JPY 145 billion long-term loan. In addition, there is a bridge loan for Roivant deals and other loans, which will be repaid as we move forward. Last fiscal year was very difficult for us in terms of cash flow. But as I have already mentioned, cash flow will improve from the next fiscal year onward. Therefore, we would like to manage this area in consultation with the parent company and financial institutions. I think we will be taking very good care of those areas over the next few years.

Let me check. As I recall, there was a repayment of debt arranged at the time of the Roivant acquisition of about JPY 60 billion each for the current and the next fiscal years. Is this still there?

Yes. I believe that JPY 60 billion is due for repayment this fiscal year and JPY 65 billion next fiscal year.

I understand. Finally, let me ask about cancer. You mentioned that you were going to concentrate on oncology and regenerative medicine. But I don't think you have a good track record in oncology. Please tell us about your company's capability in oncology. As I recall, you mentioned at the last briefing that you are also looking into partnering. So I don't think you will be doing everything in-house, but I think the track record is poor. So it is difficult to see how this can be accomplished. I also think there's a possibility of partnering in TP-3654 for myelofibrosis. Please let me know the timing of this partnering.

In terms of our capabilities in oncology, we certainly don't have a large product. However, fortunately or unfortunately, the TP-3654 and DSP-5336, for which we have a high expectation, are still in the early development stage. We would like to make the compounds more effective, increase its value and consider how it can be combined with other products. However, as you mentioned, oncology is a tough field, so I think it is necessary to consider some kind of partnership with other companies in order to maximize its value.

As Dr. Kimura just answered, within the scope of our R&D capabilities, we are basically aiming to obtain approval and launch DSP-5336 in FY 2026 and TP-3654 in FY '27. When we present these 2 compounds at conferences, other companies show very strong interest. We would like to consider various possibilities depending on the conditions if such an offer is made. We're keeping an eye on the status of our development.

Regarding TP-3654, I think you mentioned last time you were going to proceed with the next study, whether it was Phase III, Phase II, pivotal or something else to add on to the existing drug. Is there any update on that?

For TP-3654, we are currently working on a study with 2 kinds of JAK kinase inhibitors.

When will this begin?

This will begin in FY 2024.

Hashiguchi again. I'm sorry, I have an additional question since there seems to be some time left. I understand that you are planning to obtain conditional and time-limited approval for the development of dopaminergic progenitor cells for Parkinson's disease in Japan by the end of fiscal year. Are these non-cryopreserved cells?

These are non-cryopreserved cells.

If so, what is the assumed production and supply capacity?

Even if approval is obtained, we believe that it will be conditional and time-limited approval. And in that case, there will be a limit to the number of patients who can receive the transplant or in the case of regenerative medicine, it will inevitably be a surgical transplant, which will limit the number of hospitals that can perform such procedures. Based on that assumption, we will have at most 20 to 30 patients per year. In fact, we expect the number to be less than that, especially in the first year. We have enough production capacity to do that.

Wada from SMBC Nikko Securities. I would like to ask you about one point regarding the results by region in the forecast by segment on Page 11. I believe you mentioned previously that you are trying to turn a profit in each region first. Looking at the core segment profits for the current fiscal year, they are all projected to be in the black. I would like to ask if the approach will continue for the foreseeable future. And as sales in Japan will decline, I suspect that the company will be in the red in the next fiscal year or so. I know it is a little early to ask about the next fiscal year and beyond, but I would like to ask you about your thinking on this.

Thank you. As you mentioned, we are working to improve profitability in Japan, North America and Asia. In this context, we are taking steps to ensure that the performance of our U.S. business will improve significantly from the last fiscal year to the current fiscal year. Our Japan business has always been profitable, and we will manage to remain profitable this fiscal year as well. On the other hand, as you have just asked, we are considering that the sales in Japan will drop at least once in the future. In response, we are currently putting a lot of efforts into in-licensing products, but it is difficult to do so in the Japan market. We believe that the Japan business structure must be firmly restructured.

Yamamoto from the Asahi Shimbun. First of all, I would like to ask Mr. Nomura and Mr. Kimura for a few words each about the fact that you had to forecast a loss for this fiscal year. On another note, what should we think of the change of the president at this time? I would like to ask you both about the aim of this.

I would like to express my sincere apologies for our shareholders for the loss forecast for this fiscal year. However, as I mentioned on May 1, we are making every possible effort to reduce costs by JPY 108 billion, while at the same time, working on the growth of our 3 key products. And we are still now forecasting bottom line loss for the current fiscal year. We would like you to understand that we are doing everything we can. As the President of Sumitomo Chemical, Mr. Iwata said, the company is in the midst of the unprecedented crisis. And in order to overcome this crisis, we need to work under a new structure with the support of human resources from Sumitomo Chemical. It would not be a new organization if the president was the same. For this reason, Mr. Kimura will be the President. Also, as Mr. Kimura mentioned earlier, in North American business, it's very important right now, so Mr. Nakagawa, who is the President responsible for North America operation, will join the Board of Directors. And since our management division was a bit weak, we invited the Executive Vice President in charge of Management Administration from Sumitomo Chemical to join us as a Nonexecutive Director. This -- the purpose of this change, including the change of President is to establish a system to overcome future difficulties through this new structure. We are really sorry that the bottom line will be in the red again this year. In any case, we are doing everything we can. And as Mr. Kimura mentioned earlier, we are now moving forward internally to achieve core operating profit and bottom line profitability next year without having to sell any assets.

My point is almost the same as what Mr. Nomura just said. We believe that a major path has already been created for how our company will address this LATUDA cliff under Mr. Nomura's leadership. In particular, the structure in North America was greatly improved last year, including 2 restructurings. And while SG&A expenses are being controlled, we are now in a position to incorporate 2 agents into 3 products and to increase sales of 4 products, including RETHYMIC. We will make this a reality by firmly implementing it under the new structure from this fiscal year onward. At the same time, as you have already asked, unexpected things can happen in the business, and we would like to rebuild the business while dealing with such unexpected situations. On the other hand, we were fortunate to have Sumitomo Chemical guarantee our debt. In this context, the basic situation is that we must further deepen our cooperation with Sumitomo Chemical. We would like to proceed together with the people from Sumitomo Chemical, who will join our management team while maintaining good communication with the parent company.