Tokyo Feb 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Eisai Co Ltd earnings conference call or presentation Friday, January 31, 2020 at 7:30:00am GMT

Eisai Co., Ltd. - Senior VP & President of Neurology Business Group

Eisai Co., Ltd. - Executive VP, CFO & Chief IR Officer

Eisai Co., Ltd. - VP and Chief Medicine Creation Officer & Chief Discovery Officer of Oncology Business Group

Eisai Co., Ltd. - Senior VP & President of Oncology Business Group

Daiwa Securities Co. Ltd., Research Division - Research Analyst

Nomura Securities Co. Ltd., Research Division - Senior Analyst

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst

Thank you very much for taking your time to attend the financial results presentation session by Eisai on the third quarter fiscal 2019.

Before we begin, there are some housekeeping announcements. Please make sure that you have the distributed materials in front of you. There should be a deck of slide that will be used in the presentation and flash report and related materials. If any of the document is missing, please raise your hand.

Then I would like to introduce the speakers today, Executive Vice President, CFO, Chief IR, Mr. Ryohei Yanagi; Senior Vice President and President of Neurology Business Group, Mr. Ivan Cheung; and Senior Vice President and President of Oncology Business Group, Mr. Terushige Iike.

Today's presentation will be made by Mr. Yanagi to cover the first part, which is financial part, and the latter part, operation part, will be presented by Mr. Cheung and Mr. Iike.

Ryohei Yanagi, Eisai Co., Ltd. - Executive VP, CFO & Chief IR Officer [2]

Now I would like to report it to you. On the part, covering the financials. Here is the Q3 9 months cumulative consolidated statement of income.

Revenue, top line, was JPY 486.1 billion, up 4% year-on-year. All global brands grew 44% from a year earlier. Growth driver, LENVIMA could reach the revenue of JPY 80.5 billion, increased by JPY 37.2 billion, 1.9x as much as last year, so almost doubled. And rapid growth of LENVIMA for a transfer of generic business, brought about the improvement of product mix, and cost ratio has improved or lowered to 26.2%.

As a result, gross profit was JPY 358.9 billion, up 10%, up from a year earlier. The double-digit growth was achieved, within the increased ratio of the gross profit. Within this increased ratio, the total cost increase ratio was controlled and financial discipline worked well, and OP grew about 30%.

And let me share with you the breakdown of expenses. R&D expenses were JPY 103 billion, which seems on the flat from a year earlier. But including partners reimbursement, actual R&D -- total R&D expenses were JPY 151.8 billion, 14% increase from year earlier. And this -- these expenses account for over 31% of revenue.

Among the top-tier Global 25 companies, we can say that we have been one of the most proactively investing company in R&D in the world. And SG&A expenses were JPY 188.4 billion, 12% increase and -- from a year earlier and SG&A expenses have account for 38.8% of revenue. Difference from a year earlier, the JPY 20 billion increase was mostly due to the payment to -- but due to the profit sharing related to LENVIMA. Therefore, given the robust growth in LENVIMA, a positive spending was made. Such cost of profit sharing with the Merck, excluding that impact, SG&A expenses were almost flat, and they accounting for 31% of revenue. And there is no much deviation from the median of global peer companies.

Operating profit was JPY 73.3 billion, up 30% from a year earlier. OP margin has exceeded a 15% mark.

During the third quarter, noteworthy things were the reversal of provisions on income taxes in the U.S., and there was increase in income taxes of the company following the repayment of trading capital from U.S. subs to the company to resolve the group's cash imbalance. Therefore, tax position improved significantly.

Bottom line profit for the period attributable to owners of the parent reached JPY 73.3 billion, 83% increase from a year earlier, a significant increase, and a 9 months cumulative reference value for ROE exceeded 15%, reaching global standard.

Looking at the balance sheet items. For this fiscal year, which we regard as a proactive investment year, and we are increasing the dividend by JPY 10 to JPY 160 per share for full year dividend. And the -- a little less than JPY 30 billion was expensed for capital investment in the past. But this fiscal year, we are doubling up to JPY 60 billion in CapEx, proactive investment is being made into ICT or ventures or a PP&E.

Therefore, net cash has slightly decreased, but net DER is minus 0.22. Therefore, net -- very significant net cash position is maintained, and the capital ratio is exceeding 61%. The debt free status is maintained. Therefore, we do not have any concerns on the financial strength. Therefore, we are achieving those proactive investment and dividend payments.

Next, here is a breakdown of revenue migration. Last year, 9 months cumulative revenue was JPY 467.3 billion. And given the growth of 4 global brands, Japan, China, Asia business is through the revenue and LENVIMA associated milestone payments was JPY 225 million last year, but it has reduced to JPY 150 million this year. But we are expecting to reduce significant milestone payment in the fourth quarter. Transfer of shares of Elmed Eisai and due to other factors in the business development related factors, revenue increased by JPY 18.8 billion year-on-year to reach JPY 486.1 billion.

Next, please.

On this slide, you can see the breakdown of operating profit migration and this waterfall chart. And last year, OP was recorded at the JPY 57.1 billion, in parallel to the movements in revenue due to growth 4 global brands, Japan, China, Asia, we could record the steady growth in OP. And as I said earlier, milestone payments related to LENVIMA were slightly decreased, but we expecting to receive significant milestones in the fourth quarter. Due to the proactive spending, the increase of the shared profit paid by Eisai to Merck related to LENVIMA was JPY 20 billion, and R&D expenses were almost flat. And inclusive of the impact by BD-related factors and -- OP increased by JPY 16.2 billion year-on-year to reach JPY 73.3 billion.

R&D expenses may have seemed to be almost flat from a year earlier, but inclusive of the reimbursement from partners in the amount of JPY 48.7 billion. Therefore, actual spending was JPY 151.8 billion. Therefore, a double-digit growth was observed in the R&D expenses.

Towards the future, we are making the proactive investment in R&D, while we are -- we have achieving the 30% significant increase in OP. And I think this is the benefit of the partnership model.

On this slide, we are providing you with a full year forecast for earnings. Revenue will be JPY 680 billion. Operating profit will be JPY 110 billion. These have remained unchanged from the last announcement. As I said earlier, due to the improvement in tax position, the lines from profit for the year below have been revised upward. And the profit targets set for 2020 have been already -- will be achieved year earlier.

And in FY 2006, the profit for the year is going to record -- put a record high profit, exceeding the record in 2006, and ROE will exceed 15%; and DOE, 7%; and ROE, 15%, which is set under EWAY 2025 for 2025 will be achieved.

As I said earlier, with strong balance sheet, DOE will be regarded as KPI, and the dividend per share will be maintained at this JPY 160. We do not have any concern about that. Through these, we are trying to maximize enterprise value. We have -- I have covered the financial section, and as the source of the profit and revenue, operations will be covered by a responsible persons of oncology -- neurology and oncology after me.

--------------------------------------------------------------------------------

Ivan Cheung, Eisai Co., Ltd. - Senior VP & President of Neurology Business Group [3]

--------------------------------------------------------------------------------

Today, I would like to cover neurology product development status for the third quarter.

First of all, I would like to talk about aducanumab and BAN2401, and I'd like to give you the update on the development for aducanumab. Currently, Biogen is actively engaging with the FDA as well as regulators in Europe and Japan. And In order to complete regulatory filing in the U.S. as soon as possible, we are working with Biogen in preparation, and the protocol has been already filed with FDA for aducanumab. And we are coordinating and cooperating with Biogen.

On the other hand, for BAN2401 through collaboration with ACTC, AD prevention study is being planned. This study was named AHEAD 3-45. In this study, its real clearance of protofibril in participants -- in clinically normal participants, we are planning to study and evaluate the prevention of progression of brain pathophysiology.

Phase III cohort will include cognitively normal participants with intermediate levels of amyloid as determined by amyloid PET scan. And the A45 cohort will include participants with little to no cognitive impairment who have elevated levels of amyloid in the brain. These 2 cohorts will be enrolled in 1 single study, in this Phase III study. And we have already signed a contract with ACTC and targeting amyloid how neurodegeneration or biomarker panels by ATN will be used as endpoints, and we plan to initiate this Phase III study in this year, 2020. And Phase III study, Clarity AD, which is currently ongoing, targeting patients with early AD, which is ongoing steadily, in Japan, the U.S., EU and Asia. And by this year, we plan to complete patient enrollment, final readout of primary endpoint is targeted in the first quarter in fiscal year 2022.

In addition to these studies, Phase II open-label extension study will be conducted on the same patient population of the Phase II Study 201, given the positive results of the Study 201, open-label extension study has been already started for evaluating long-term safety and efficacy.

Next, here is the BAN2401 Study 201-OLE, the baseline data was published in CTAD in December last year. After the completion of the treatment with BAN2401, brain amyloid reduction at the end of core persists after BAN2401 discontinuation for amyloid PET SUVr. This chart shows the changes after the average of 2 years of treatment in Study 201.

Emulated reduction was founded to be almost maintained for about to 2 years on the average after discontinuation of BAN2401, and a treatment difference for clinical outcomes at the end of core appears to be maintained following BAN2401 discontinuation.

Given this data, but just BAN2401's potential disease-modifying effects.

Next, about new insomnia treatment, DAYVIGO, is what I'd like to explain. DAYVIGO is in-house discovered and developed dual orexin receptor antagonist. Last year, in December, in the United States, it was approved for treatment of insomnia, and in Japan, in January, approval was obtained.

DAYVIGO exhibits both OX1R, OX2R orexin receptors, thereby, alleviate excessive awake condition. And especially, it is involved in -- it has stronger inhibition effect in orexin 2 receptor, which is involved in suppression of no REM sleep.

There are 2 Phase III studies, SUNRISE 2 and SUNRISE 1. And insomnia -- correction, sleep onset and sleep maintenance were demonstrated with statistical significance. And in SUNRISE 2, long-term efficacy and safety were observed.

Sleep well, wake well, be well, will be realized by DAYVIGO, and there is no rebound insomnia, and for chronic insomnia, long-term treatment is possible. For insomnia patients, we aim to contribute to such patients with sleep disorder by improving their symptoms.

In the United States, we plan to launch following scheduling by the U.S. DEA. And in Japan, we plan to launch in the first quarter of fiscal 2020. There are social issues caused by insomnia disorder. Approximately 30% of adults worldwide have symptoms of insomnia, and up to 10% are diagnosed as insomnia, approximately 10 million in U.S. and approximately 4.5 million in Japan are receiving treatment for insomnia.

Poor sleep is associated with a wide range of health consequences, including hypertension, accidental injury, diabetes, obesity, depression, heart attack, stroke and dementia.

Disease risks may be elevated by poor sleep. Due to difficulty falling asleep and staying asleep, patients may suffer from fatigue, difficulty concentrating and irritability, and productivity may decline as a result. DAYVIGO seeks to decrease negative impact on society caused by sleep disorder to fulfill patients' unmet needs.

Turning to Fycompa next. In this -- in the past quarter, we were able to make progress in value maximization for patients. In China, in December 2019, for adjunctive treatment of partial onset seizure, we were able to launch Fycompa. Fycompa was designated for Priority Review. And after submission within 12 months, we were able to obtain approval. In Japan, in January this year, approval was given for additional indications -- the following 3 additional indications: monotherapy for partial onset seizures, pediatric use in partial onset seizures, new formulation of fine granules at the same time. In EU pediatric use in partial onset seizures is under review and LGS Global 3 study is steadily ongoing.

As for IV formulation, in the United States and in Japan, we aim to submit in early fiscal 2020, and and in EU within fiscal 2020. So with Fycompa, we are expanding launch countries and receiving approvals of new indications and new formations. And this provides new treatment options to patients with epilepsy.

This is my last slide. In neurology area, this is the development pipeline. After October last year, we were able to launch 2 products and obtain 5 approvals and initiate 1 Phase I study. And our neurology portfolio is steadily growing.

As you can see, as a pharmaceutical company, we are addressing because of AD amyloid tau in neurodegeneration, all of ATN as the only company to do so. We are approaching ATN, and we have a pipeline of disease-modifying drug that approaches ATN. Regarding tau, we have E2814 new anti-tau antibody, and we were able to initiate Phase I study. In AD, there are differences with other tau related disease. There is highly toxic MTBR, which tend to be aggregated in the brain, and MTBR or microtubule binding region fragments are increasing with reduced this characteristic. And MTBR fragments are certainly causing tau degeneration propagation by accumulating in brain.

And unlike other anti-tau antibody, E2814 can target MTBR fragments and maybe able to exhibit a strong disease-modifying effect according to our understanding. The achievements in neurology area in the third quarter was presented in my presentation. Thank you.

--------------------------------------------------------------------------------

Terushige Iike, Eisai Co., Ltd. - Senior VP & President of Oncology Business Group [4]

--------------------------------------------------------------------------------

Next, I would like to report on our progress in oncology area. In the beginning, as my colleague, Mr. Yanagi mentioned, LENVIMA achieved JPY 80.5 billion sales cumulatively over 3 quarters. This is a growth of 86% over the previous year, same period, which is a strong growth.

Americas were boosted by HCC, and last September, approval was obtained for endometrial carcinoma, which is an indication for -- endometrial carcinoma, which exacerbated for systemic therapy and the LENVIMA was the first drug in the United States to receive indication for this. And it is expanding smoothly, and in China, in Japan as well, HCC-led our sales.

In HCC, tumor size may be large or tumor number maybe too many, and local therapy may not be suitable for such patients. LENVIMA can be given to shrink tumors. And then curative local therapy, including TACE may be applied, and this is called conversion therapy. Already in Japan, about 60 patients are undergoing this conversion therapy.

As for EMEA, Germany is showing the fastest growth. And in Russia, LENVIMA was listed in the national guideline and is also growing at the pace similar to Italy and France. For this fiscal year, LENVIMA sales is expected to exceed $1 billion.

This month in the Journal of Clinical Oncology, Phase I/II study results of combination between LENVIMA and KEYTRUDA were published. There are 6 types of cancer that were targeted for the study. As shown in this waterfall block, there is tumor a shrinkage observed, and safety profile is showing that the safety is manageable. In case of RCC, tumor shrinkage or overall response is 70% and duration of response is 20 months, and therefore, good results are obtained. And patients who die from cancer are most of the patients die from lung cancer, and NSCLC accounts for majority of the lung cancer, ORRs 33%, DOR was 11 months.

We do not (inaudible) based on previous therapy in these studies. Most of the patients who participated in the study may have received the immuno checkpoint the drug, including KEYTRUDA. Despite that, ORR and DOR as high as these were achieved. In multiple types of cancer, a combination of LENVIMA and KEYTRUDA, cancer was -- cancer back bone therapy, that is our belief, and we are carrying out studies for submission. Pivotal studies are underway. This is the development of combination therapy with KEYTRUDA, but in neck cancer first-line study included 12 studies have been initiated. One study that is remaining, which is second line for head and neck cancer, is under preparation. And 2 days ago, clinical trial disclosure was made so we were not able to include that in this slide. There is one more trial that is added, that is for HCC in combination with TACE. This TACE is transcatheter chemoarterial embolization (sic)

[transarterial chemoembolization] and in combination with LENVIMA, KEYTRUDA, TACE, the study will be carried out. And this was not included initially in our contract with Merck. But in HCC, there is an outstanding usefulness observed in combination therapy. And last year, after consultation with the Merck, the 2 parties decided to start this study. And 6 types of cancers are covered by LEAP-005 in basket-study style, triple-negative breast cancer, gastric cancer, included 6 sites of cancer are included. The ASCO, the other day -- Japanese doctors announced the results of 69% of ORR for gastric cancer for combination therapy with KEYTRUDA, and LEAP-005, in which Japanese doctors announced investor-initiated trial results, and we will be getting results from LEAP-005 as well.

So about next steps, we would like to consult with our partner Merck.

Turning to China, which is our important region. For HCC indication, JPY 10.7 billion revenue was accumulated in Q3 fiscal 2019, exceeding revenue in Japan and EMEA. Through collaboration with MSD, we are expanding contribution to patients, mainly in city areas by increasing commercial resources and by increasing coverage, and in regions and to small and medium-sized hospitals, through utilization of e-marketing, we would like to expand patient access.

As for thyroid cancer -- differentiated thyroid cancer, global Phase III is already completed. And based on the results, submission was accepted by the authority. As for the thyroid cancer incident in China, approximately 190,000 new cases are diagnosed. And that number in Japan is 20,000. So in China, it is almost a tenfold. And there is a strong unmet medical need. And we are making utmost efforts in our response to the review process by the authority.

For Halaven, this is Eisai in-house developed compound. And in January the 12, we had a launch event. After launch in December 2019, approximately 370,000 new cases of breast cancer are diagnosed in Japan. So this is about 5x that in Japan. And a Fareston hormonal therapy for breast cancer has been launched in China since 9 years ago. Using that base, we would like to build for Halaven to Chinese patients.

Next, E7090 fibroblast growth factor receptor inhibitor. FGFR 1, 2, 3 selective inhibitor is E7090. At Tsukuba Research Laboratories, using LENVIMA discovery know-how and compound library, E7090 was discovered and developed. Phase I expansion part result was published at ASCO-GI the other day. FGFR2 mutation biliary tract cancer or gastric patients -- gastric cancer patients are included in this expansion plan. And those was 140-milligram in the earlier dose escalation part. Higher dose was considered, however, biomarkers suggest that sufficient efficacy is obtained at 140 milligram and that is why this dose was selected. Red bars are biliary tract cancer. Out of 6 of 5 are tumor shrinkage and 1 had stable disease, so strong efficacy was observed.

Blue is gastric cancer. Perhaps other than FGFR2, other factors may be contributing to proliferation of cancer. There seems to be cancer heterogeneity in gastric cancer, more so than in biliary tract cancer.

FGFR2 fusion, biliary retract cancer, on this, we received SAKIGAKE designation from MHLW last year. In consultation with the authority, we have decided to conduct a joint Phase II study, jointly between Japan and China, and this has already been started. In the 3 months, we were able to launch one product and one submission and initiation of one Phase III, one Phase II and one Phase I studies in oncology, E7766 STING agonist.

This is a Phase I study. Two Phase I studies will be run in parallel, and one is injection in the tumor and the other is injection in bladder for bladder cancer patients. And breast cancer in HCC pipelines are also making progress for early development products, and combination with KEYTRUDA in LEAP study series, we expect results of one after another from LEAP studies this year and next year for these types of cancer so that they can serve -- so that the therapy can serve as a backbone therapy, we would like to work together with Merck. That concludes the oncology presentation part.

Then I would like to summarize at the end. Today, the three speakers have presented. Eisai's operations and financials are currently very robust and making strong advances. EWAY 2025 vision is medical societal innovator. For example, as explained today, next-generation AD treatment is medical innovation. And that is based on ecosystem, which is quite inclusive, and this can turn into a massive social innovation, and we are making steady progress in implementing such a business model. And as a result, EWAY 2025, at the time of 2025, ROE of 15% level should be achieved in stable fashion and that probability of success is being enhanced. Furthermore, over extremely long term, beyond 2025 -- even beyond 2025, there should be contribution to enterprise value due to a rich pipeline filled with next-generation product candidates and progress is made.

At Eisai, long-term sustainable growth of enterprise value is pursued. And amongst stakeholders, we hope that we continue to receive your support.

With that, I would like to conclude. Thank you very much.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Unidentified Company Representative, [1]

--------------------------------------------------------------------------------

Next, we would like to open the floor for questions. First, we would like to entertain questions in this room before receiving questions from participants over the phone. If you have questions, please do use the microphone, and please give us your name and affiliation before your question. If you have questions, please raise your hand.

--------------------------------------------------------------------------------

Motoya Kohtani, Nomura Securities Co. Ltd., Research Division - Senior Analyst [2]

--------------------------------------------------------------------------------

My name is Kohtani. I am from Nomura Securities. I have three questions about oncology. First, ASCO-GI, as you said that IIS EPOCH 1706 and 29 patients included. Therefore, 69% was the response rate and that the sample size were very small, but although -- but it was not a coincidence. And with the monotherapy KEYTRUDA, the response was 15%. And then with the chemotherapy -- and then only 45% -- with the chemotherapy, 40%. And with the chemotherapy 45% -- 5% was the response rate. Please let me know.

LENVIMA monotherapy in gastric cancer, what kind of data was published? Are there any such data and VEGF and PD-L1 antibodies? And do you think that there has been a powerful synergy with PD-L1 antibodies like the KEYTRUDA?

Probably, it will be difficult to file solely based on this study data. But I think you mentioned earlier, this is with Merck, LEAP or we did include it in the basket trial being conducted with Merck is adding such a study. And then how this addition will -- may have an impact on your clinical development?

--------------------------------------------------------------------------------

Unidentified Company Representative, [3]

--------------------------------------------------------------------------------

Thank you for your question. Dr. Owa, who is in charge of science of oncology. Dr. Owa is going to respond to questions.

--------------------------------------------------------------------------------

Takashi Owa, Eisai Co., Ltd. - VP and Chief Medicine Creation Officer & Chief Discovery Officer of Oncology Business Group [4]

--------------------------------------------------------------------------------

Thank you very much, Mr. Kohtani. Regarding your first point, LENVIMA monotherapy data for gastric cancer. What kind of data do we have for LENVIMA monotherapy , for example, with 20 or 30 patients with gastric cancer, we do not have any data for monotherapy. But so far, Phase I study were conducted for LENVIMA and that there were gastric cancer patients involved. And for -- even for monotherapy, there were partial response. That data is available, but there is nothing taken from this data because the sample size was not large enough.

--------------------------------------------------------------------------------

Motoya Kohtani, Nomura Securities Co. Ltd., Research Division - Senior Analyst [5]

--------------------------------------------------------------------------------

And so how should we interpret this data?

--------------------------------------------------------------------------------

Original post:
Edited Transcript of 4523.T earnings conference call or presentation 31-Jan-20 7:30am GMT - Yahoo Finance