Daiichi Sankyo Co., Ltd. (Ticker: DSNKY) announced a significant increase in revenue and operating profit during its FY2024 first quarter earnings call. The company's revenue soared by 24.3% year-over-year (YoY) to JPY436.2 billion, while operating profit jumped by 111.2% YoY to JPY93 billion.
The pharmaceutical giant highlighted the successful sales growth of its cancer treatment Enhertu across various regions and the promising developments of its 5-DXd-ADCs for breast cancer therapy. Daiichi Sankyo also discussed ongoing patent disputes, regulatory updates, and plans for expanding treatment indications for its products.
Key Takeaways
- Daiichi Sankyo's first quarter revenue and operating profit saw substantial growth.
- Enhertu's sales performance was strong in multiple regions.
- Significant progress was made in clinical studies for DXd-ADCs in breast and lung cancer.
- The company is navigating patent disputes and is actively preparing for regulatory submissions.
- Updates on clinical trials and upcoming investor relations events were provided.
Company Outlook
- The company expects to continue exceeding its initial plans in upcoming quarters.
- Daiichi Sankyo is preparing for regulatory approvals in Japan, the U.S., and Europe for its DESTINY-Breast06 study.
- The timing of approval for the HER3 DXd in the U.S. remains uncertain due to manufacturing facility issues.
Bearish Highlights
- Uncertainty surrounds the approval timeline for HER3 DXd in the U.S.
- The company did not provide specific timing for the loss of exclusivity (LOE) for Lixiana.
- DB-06's inclusion in the forecast is uncertain due to the timing of its application acceptance.
Bullish Highlights
- DESTINY-Breast06 study shows statistically significant and clinically meaningful progression-free survival in breast cancer patients.
- TROPION-Lung01 study indicates significant improvement in progression-free survival for Dato DXd in lung cancer.
- Valemetostat approved in Japan for peripheral T-cell lymphoma and [TALISH] approved in China for diabetic peripheral neuropathic pain.
Misses
- The company has not developed a plausible hypothesis for the differences in efficacy between certain products.
Q&A Highlights
- The focus for Enhertu will be on the progress of DB-03 and DB-04 studies in PanTumor.
- The molecular target for the next-generation ADC, DS-9606, is Claudin 6.
- No impact on FDA review is expected from a study not designed for verifying statistical significance.
Daiichi Sankyo is poised for a dynamic year ahead with multiple regulatory submissions and clinical trials in progress. The company's financial performance in the first quarter indicates robust growth, and its R&D pipeline promises further advancements in cancer treatment. However, the pharmaceutical firm must navigate regulatory uncertainties and patent disputes as it continues to expand its product offerings and treatment indications. The company's executives remain focused on strategic development and are monitoring the potential impacts of seasonal products and guideline inclusions on their business units. With upcoming presentations of overall survival data and a watchful eye on global markets, Daiichi Sankyo is set to maintain a strong presence in the pharmaceutical industry.
Full transcript - None (DSKYF) Q1 2024:
Unidentified Company Representative: Thank you very much for joining Daiichi Sankyo's Financial Results Presentation ought to be a very busy schedule today. I'm going to explain FY2024 first quarter of financial results. We announced at 1:00 PM on Wednesday, July 31st, at EST based on our presentation materials. Please turn to Page 3. This is the agenda for today. We'll cover FY2024 first quarter consolidated financial results, business update and R&D update in that order. R&D update will be explained by Toshinori Agatsuma, Head of R&D Division. We'll entertain your questions at the end. Please turn to Page 4. This is an overview of FY2024 first quarter consolidated results. Revenue increased by JPY85.3 billion or 24.3% year-on-year to reach JPY436.2 billion. Cost of sales increased by JPY1.4 billion from the previous year. SG&A expenses rose by JPY32 billion and R&D expenditure increased by JPY23.5 billion year-on-year. As a result, coopering profit increased by JPY28.4 billion or 63.9% year-on-year to reach JPY72.9 billion. Operating profit including temporary gains and losses increased by JPY48.9 billion or 111.2% year-on-year to JPY93 billion. Profit attributable to owners of the company increased by JPY28.4 billion or 49.8% year-on-year to reach JPY85.4 billion. As for the actual currency rates, the US dollar was JPY155.89, the yen depreciated by JPY18.52 million year-on-year. The euro was JPY167.88 the yen depreciated by JPY18.42 year-on-year. Please turn to Page 5. From here, let me explain positive and negative factors for our revenue compared to the previous year. Revenue increased by JPY85.3 billion year-on-year. I will explain its breakdown by business unit. First in Japan business unit. Due to the exclusion of Daiichi Sankyo Espha from consolidation, we no longer booked sales of its product from April, 2024. On the other hand, sales increased for direct oral anticoagulant, Lixiana, anti-cancer agent and Enhertu and pain treatment, Tarlige and Daiichi Sankyo healthcare product. In addition, we booked realized gains on unrealized gains of inventory for Daiichi Sankyo Espha products. So revenue increased by JPY8.5 billion in Japan business unit as a whole. Next, let me explain our overseas business units. ForEx impact is excluded here. In oncology business, revenue increased by JPY23.2 billion, due to the growth of Enhertu in the United States and Europe. As for American region due to sales decrease for iron deficiency and anemia treatment Venofer, revenue decreased by JPY1.4 billion. Revenue for EU specialty business increased by JPY11.2 billion as sales rose for Lixiana and hypercholesterolemia treatment Nilemdo, Nustendi. In ASCA business, responsible for Asia, South and Central American regions, revenue rose by JPY5.9 billion due to the growth of Enhertu mainly in Brazil. As for upfront payment and regulatory sales, milestone, et cetera related to alliance with AstraZeneca (NASDAQ:AZN) and collaboration with U.S. Merck, we booked as revenue upfront payment related to a strategic collaboration with U.S. Merck for 3-DXd-ADC products including HER3-DXd. So revenue increased by JPY7.6 million. ForEx impact increased our revenue by JPY30.4 billion in total. Slide 6 shows the factors behind the change in co-operating income. I'll explain the items which contributed to the increase by JPY28.4 billion. As explained earlier, sales revenue increased by JPY85.3 billion, including an increase of JPY30.4 billion due to the effect of foreign exchange rates. First, I will explain about the cost of sales and expenses excluding the ForEx impact. Cost of sales decreased by JPY8 billion despite an increase in revenue due to an improvement in the cost of sales ratio resulting from an increase in sales of in-house developed products such as Enhertu and a change in the products mix resulting from the elimination of sales of Daiichi Sankyo Espha products. SG&A expenses increased by JPY17.4 billion, due to an increase in profit sharing with AstraZeneca for Enhertu. R&D expenses increased by JPY15.2 billion due to an increase in R&D investments, including an increase in R&D personnel in line with the progress of the development of 5- DXd-ADCs. The increase in expenses due to the impact of foreign exchange effects was JPY32.4 billion in total and the actual increase in co-operating profit, excluding the ForEx impact was JPY30.4 billion. Next, on Slide 7, I will explain the increase and decrease in profit for the year. As explained earlier, co-operating profit increased by JPY28.4 billion, including the ForEx impact. Temporary income and expenses increased by JPY20.5 billion year-on-year due to the recording of a gain on the transfer of Daiichi Sankyo Espha shares and others. Financial income and expenses increased by JPY9.1 billion compared over the previous year due to an improvement in foreign exchange gains and losses. Corporate taxes increased by JPY29.7 million year-on-year, due to an increase in profit before tax, while income taxes decreased in the first quarter of the previous year due to the impact of the tax effect accounting associated with a decision to transfer Daiichi Sankyo Espha, which effect is absent this year, as a result, co-operating profit of the parent company increased by JPY28.4 billion to JPY85.4 billion. Next, I would like to talk about business updates. Please look at Slide 9. This slide shows the sales of Enhertu. Product sales for the first quarter of FY2024, achieved double-digit growth rates in all regions year-on-year, led by the sales growth, mainly in second line treatment of HER2 positive breast cancer and post-chemotherapy HER2 low breast cancer, resulting in an increase of JPY47.9 billion to JPY129.6 billion. In the U.S., sales increased 34% year-on-year to JPY68.9 billion. The company maintained the number one share of new patients for all indications of breast, gastric and lung cancer. The share of new patients in the second line treatment of HER2 positive breast cancer is in the upper 50% range, while that of HER2 low expression breast cancer previously treated with chemotherapy is approximately 50%. We continue to contribute to the treatment of a large number of patients. Sales have also been steadily arising in several HER2 positive solid tumors for which we received approval and began promotion in April of this year. In the United States, as described in other progresses, NCCN guideline was updated in April and May of this year for 10 cancer types, including a biliary tract cancer. In Europe, sales increased 98% year-on-year to JPY35.2 billion. Sales grew steadily, especially in Germany, France and Italy. The new patient share for its second line of HER2 positive breast cancer is over 60% in Germany and Italy, over 70% in France and Spain maintaining the top position. The share of new patients with HER2 low breast post chemo increased to the 70% level in France and expanded to the 50% level in Germany and Italy and consolidating our number one position. In Japan, sales increased 78% year-on-year to JPY7.8 billion , the company has maintained and expanded its number one shares of due patients in all indications of breast cancer, gastric cancer and lung cancer. Market penetration is steadily increasing with a share of new patients with HER2 positive and second line and post chemo HER2 low breast cancer increasing to more than 50%. In the ASCA region, sales increased 122% year-on-year to JPY17.8 billion. Sales grew substantially, especially in Brazil and China. Product sales in the ASCA region include co-promotion revenues recorded by AstraZeneca in China, Hong Kong, and others. We will continue our efforts to achieve further market penetration and expand the number of countries, regions for the product launch, as well as to obtain new indications and provide Enhertu to as many patients as possible who need it. Next, from Slide 10, I will discuss other initiatives in each region. Please look at Slide 10. First, an update in Japan. Anti-cancer agent Ezharmia launched for the treatment of patients with relapsed to refractory Adult T-Cell Leukemia Lymphoma, ATLL in 2022 was approved for the treatment of adult patients with relapsed to refractory peripheral T-cell lymphoma, PTCL in June this year. In addition, in July, decision was made to transfer distribution rights of anti-insomnia treatment, Belsomra from MSD to Daiichi Sankyo. We will be responsible for sales and promotional activities for Belsomra from October 1, 2024 onwards. Next, an update in EU. In May this year, cholesterol lowering agent, Nilemdo, Nustendi was approved for treatment to reduce the risk of adverse cardiovascular events. With this approval, Nilemdo, Nustendi has become the first and only non-statin LDL cholesterol lowering treatment indicated for primary and secondary prevention of cardiovascular events. Page 11 shows major updates on patent disputes. Regarding the arbitration on our ADC technology, final award issued by an arbitrator has been finalized in May this year. The following months in June, based on the final award, Seagen’s has paid Daiichi Sankyo about $47 million or about JPY7.5 billion in connection with the attorney's fees and costs. The payment has been booked as reversal of SG&A costs in FY 2024 first quarter financial results. As for disputes regarding Seagen’s U.S. patent, after we announced our financial results in April, there was an update on the PGR, post-grant review decision. In January this year, the USPTO rendered a final written decision in validating all challenged claims of Seagen’s U.S. patent in the PGR. In May, Seagen’s filed a notice of appeal to the U.S. Court of Appeals for the federal circuit, seeking revocation of this decision. This is the only Seagen’s patent cited in the lawsuit claiming infringement by Daiichi Sankyo, which we appealing. We will address the situation in order to maintain the PGR decision. From here on, we have R&D update. I will hand over to Toshinori Agatsuma, Head of R&D Division.
Toshinori Agatsuma: I'm going to talk about R&D update. First, an update on 5-DXd-ADCs. Page 14 shows the main clinical studies and indications of DXd-ADCs in breast cancer. As a major progress, in FY2024 first quarter, we obtained data from Enhertu DESTINY-Breast06 study in chemo naive HR positive HER2 low breast cancer patients and presented the data at ASCO 2024. I'll explain the details on later slides. Regarding Enhertu, in HER2 positive breast cancer first line DESTINY-Breast09 study in HER2 positive breast cancer, DESTINY-Breast05 study as adjuvant therapy in high-risk patients, and DESTINY-Breast011 study as new adjuvant therapy are making steady progress. As for Dato DXd, we found a submission based on TROPION-Breast01 study data in HR positive, HER2 negative breast cancer in the second line and third line settings. Review is ongoing in Japan, U.S., and Europe. As you can see in the field of breast cancer, we are establishing new treatments and expanding indications to meet the unmet medical needs of more patients and DXd-ADCs presence is increasing steadily. On page 15 and 16, I'll explain DESTINY-Breast06 study data represented at ASCO in June. DESTINY-Breast06 is a Phase 3 study evaluating the efficacy and safety of Enhertu compared to the treatment of physician's choice in patients with HR positive HER2 low or HER2 ultra low breast cancer after one or more treatments of endocrine therapy. DESTINY-Breast06 study covers about 85% of HR positive and HER2 negative breast cancer by previous definition, which consists of 60% to 65% of HER2 low patients and 20% to 25% of HER2 ultra low patients. According to the estimation. Please look at Slide 16. In the DESTINY-Breast06 study and HER2 demonstrate a statistically significant and clinical meaningful progression for survival, which is a primary endpoint and in the study the primary endpoint, the median PFS, in HER2 low was 13.2 months with a hazard ratio of 0.62. The ITG population, a combination of patients with low HER2 and HER2 ultra low showed equally favorable results and safety findings were consistent with a known profile. Based on the results of the study, we are now preparing for submission for approval in Japan, the U.S. and Europe to establish a treatment for a wider range of early stage HER2 low breast cancers. Slide 17 shows data from the interim analysis of the DESTINY-Breast07 trial also presented at ASCO. In this study of first-line pretreatment of HER2 positive breast cancer in HER2 demonstrated good efficacy and durability with and without pertuzumab. The objective response rate, ORR for each arm was 76% for monotherapy and 84% for the combination arm. The safety profile of Enhertu and pertuzumab combination were consistent with their individual known profiles. The data from this interim analysis provide further confidence for the ongoing Phase 3 DESTINY-Breast09 study. We will proceed these studies to address unmet needs in HER2 positive breast cancer. Slide 18 provides an introduction to a new Phase 3 study of Enhertu in non-breast cancer types based on data from the DESTINYPanTumor02 and other studies and HER2 has a cross approval in the U.S. for HER2 positive metastatic solid tumors for patients who have received prior therapy and have no alternative treatment options. The DESTINY-BPC01 study is a Phase 3 study that compares the efficacy and safety of HER2 alone or in combination with Valemetostat, a byte antibody, which is in clinical development by AstraZeneca and with chemotherapy for the first line treatment of biliary tract cancer based on good outcome from DESTINYPanTumor02. The trial is scheduled to start in the first half of fiscal year 2024. Slide 19 shows the major clinical trials and indications for DXd-ADCs in lung cancer. In the lung cancer field, we are look working to establish new treatments and expand indications with four compounds and HER2, Dato DXd, HER3 DXd and IDXd. Today, I would like to explain the progress of the TROPION-Lung01 study data from clinical trials leading to TROPION-Lung7 and Lung08 and Lung15, a new Phase 3 study. Please see Slide 20, which describes the progress of the TROPION-Lung01 study. In TROPION-Lung01, Dato DXd demonstrated statistical significant improvement in PFS compared to deruxtecan in patients with non-squamous NSCLC in the second line or later treatment group. The approval review based on this data is currently underway in Europe and the United States, and the PDUFA date in the United States is set for December 20 of this year. The primary analysis results of overall survival OS obtained in May of this year showed a clinical meaningful improvement in non-squamous NSCLC. We remain confident that Dato DXd will establish a new treatment options for patients with non-squamous NSCL in the second line and beyond, and have submitted all OS data to the regulatory authorities and are continuing discussion to obtain approval. On page 21, I will explain the results of TROPION-Lung02 study represented at ASCO. TROPION-Lung02 is a Phase 1 study to evaluate the safety and tolerability of the doublet of Dato DXd and pembrolizumab over the triplet with platinum based chemotherapy in first line NSCLC without actionable genomic alterations. As is shown in the right table, we set cohorts in line with the degree of PDL-1 expression and evaluated the doublet and the triplet. We confirmed durable anti-tumor activity across all levels of PDL-1 expression in both arms. In particular, the doublet regimen in patients with PDL-1 expression of 50% or higher showed robust data in spite of the small sample size. No new safety signals were observed. As Phase 3 studies of Dato DXd, TROPION-Lung07 and TROPION-Lung08 studies are ongoing by PDL-1 expression levels. We believe that data strongly supports the continuation of these two studies. On Page 22, I will explain our new Phase 3 study for Dato DXd TROPION-Lung15 study. This is a study to evaluate the efficacy and safety of Dato DXd with or without osimertinib in EGFR muted NSCLC in the second line settings and beyond after prior osimertinib treatment. Primary endpoint is PFS and the study will start in the first half of FY2024. Page 23 shows the review status of HER3 DXd in the United States. Based on HER3 Lung01 study data, our filing was accepted by FDA in December last year. FDA issued complete response letter for BLA in June this year. Due to findings pertaining to an inspection of a third-party manufacturing facility, FDA notified that they did not approve HER3 DXd by the PDUFA date, June 26 this year. The complete response letter did not identify any issues with the efficacy or safety data submitted. Withdrawal and resubmission of the BLA is not required. We will work closely with FDA and the manufacturer to address the feedback as quickly as possible. A majority of regulatory submissions in countries and regions outside the United States will be done with upcoming HERTHENA-Lung02 study data as originally planned. Page 24 shows other progress of five DXd-ADCs. I will explain the start of three new studies. First, Ideate DXd. In May this year, TROPION-Lung10, a Phase 3 combination study with Rilvegostomig for PD L1 expression of 50% or higher than NSCLC first line started. In addition, TROPION-Lung14, a Phase III combination study with osimertinib for EGFR mutant NSCLC, first line, also started in May. As for IDXD, ID8 PanTumor01, a Phase 2 study for solid tumors in the second line settings and beyond, started in May. From Page 25, I will explain the next wave of progress. Slide 26 shows the progress of each project. Valemetostat was approved in June of this year in Japan for the treatment of relapsed or refractory peripheral T-cell lymphoma. And [TALISH] was approved in China for diabetic peripheral neuropathic pain or DPNP. And lastly, for DAICHIRONA. Filing was accepted in Japan for Omicron strain booster vaccination in children aged 5 to 11 years. In May, the package insert was revised based on an notice issued by the Ministry of Health, Labor and Welfare, allowing for a single administration to patients aged 12 years or older. In June, partial change application was accepted as a vaccine against the strain selected by MHLWs for the fiscal year. Next, information on our upcoming IR events. Please see Slide 28. Our IR event for WCLC and the European Society for Medical Oncology, ESMO, will be held virtually on September 17 at 9 PM Japan time. Ken Takeshita, Head of Global R&D, and Head of Global Oncology of Clinical Development, Mark Ratstein, will be the speakers. The main presentations at both conferences will be announced in the news flow. Slide 29 and beyond show the future news flow. Please look at Slide 30. The conference presentation scheduled is shown on the left. At WCLC in September, we will present the initial data of the DESTINY-Lung03 study and interim data of the ID8-Lung01 study. At ESMO, also held in September, we'll be presenting the gynecological cancer data of the TROPION-PanTumor03 study and the first data from the Phase 1 study of DS 19606 our second generation ADC. I hope you are looking forward to them. The expected timing of major events is shown on the right, as shown in the middle, the DESTINY-Breast06 study is expected to be approved in Japan and Europe in the first half of this year and the United States in the second half. In addition, the main data of HERTHENA-Lung02 for HER3 DXd is expected to be available in the first half of this year. Slide 31 and the rest are the appendix, so please refer to them later. That is about all from myself. From here, we will answer your questions. Thank you very much.
Operator: [Operator Instructions] First Hidemaru Yamaguchi from Citigroup Securities.
Hidemaru Yamaguchi: First, I'd like to ask you about the progress of results. Of course, I do understand that there is some extraordinary profit including gain on stock transfer of Daiichi Sankyo Espha as well as ForEx impact, but you are making a very good progress. Your company has a tendency of higher costs spent in the second quarter than the first quarter, but still you're making a very good progress compared to your assumptions. Good progress is being made. Correct? First, I appreciate your comment on the progress in the first quarter.
Koji Ogawa: The first quarter was progressing well. It is true that good progress is being made in some areas. We are exceeding the initial plan going forward. We will monitor the situation in the second and the third quarters. Business units have different upside and downside. We will identify those and we'll revise the forecast if necessary.
Hidemaru Yamaguchi: Secondly, I want to make a few confirmations about Dato DXd top line OS data is already presented. I assume the details of OS data will be presented at WCOC or ESMO, but it was not included in your evangelist. You have not yet decided to present OS data in detail or is it going to be presented somewhere?
Toshinori Agatsuma: Due to the embargo policy of the academic societies, we cannot share specifically which Congress right now, but we are planning to present at either of the upcoming meetings in Autum.
Hidemaru Yamaguchi: You also talked about HER3 DXd, I understand clearly that resubmission is not required, but sometime has passed since the announcement. What's the current status? How much time is required to resolve the issue from outside? I feel that it did not take a long time. If resubmission is not necessary, when will be the timing of the approval of HER3 DXd in the United States?
Koji Ogawa: How much time we are expecting until resolution of the issue? Currently, we are not in a state to answer that question specifically. We are working closely with the manufacturing facility in question in order to resolve the issue as soon as possible. That's all we can share for now. As for sales forecast, as you can see in supplementary materials, we have not made any revision. As of now, it's difficult to predict the timing. That's the reason why, we try to update at an appropriate timing. That's all for me. Thank you very much.
Operator: Next, Mr. Wakao from JPMorgan (NYSE:JPM) Securities, please.
Seiji Wakao: In your response to Yamaguchi's questions, you mentioned that you will identify upside and downside and make a revision accordingly. Could you please elaborate on those upside and downside factors? I thought downside may mean that the approval of HER3-DXd could be delayed, resulting in a shift in the timing of sales. A - Unidentified Company Representative
Koji Ogawa: We do not have information to give you a concrete explanation right now, but one possible downside risk could be seasonal products, such as influenza and vaccine business. On the other hand, DB06 could be an upside. Going forward, we'd like to judge by taking into consideration the situation of HER3-DXd also.
Seiji Wakao: For HER3D XD, a possible change would be just sales based on the timing of approval, correct? Upfront payment related to U.S. markets refusal rights or continuation of the development would not change according to your assumptions, right? You have not changed your assumptions from before, correct?
Koji Ogawa: Right. We have not changed our assumptions from before. With the recent complete response letter, there is a question whether U.S. Merck will exercise its right to opt out or not. How it will be related to this question? We cannot comment on our end. We have not changed our thinking from before.
Seiji Wakao: Also, I would like to know more about the progress of Enhertu. The Q1 performance of Enhertu exceeded your plan. In particular, it seems to me that, the United States is making a solid progress. Which tumor type is growing? You explained cancer types across the board, but any particular tumor type that is growing? A - Unidentified Company Representative
Koji Ogawa: With regards to Enhertu, as is explained in supplementary materials, there is some difference in the progress rate by region. The progress rate in Europe is slightly lower compared to the original plan. In the United States, it's mostly progressing well. In Japan and Asuka, progress is exceeding the expectations. If there is any other comment I can make here. There was a question during the financial results presentation before regarding sales in already approved sales in already approved HER2 positive and HER2 low cancer. Based on DB-03 and 04 studies. How we can grow sales as there is some room for further growth? At that time, we responded to that question. I could not make a good reply at that time according to my memory. Back then, we responded that doctors or prescribers will be classified through segmentation into high users, low users, no users, and medium users. We could divide them into three or four categories, focus on medium users and low users, and implement promotion and education activities. As we explained before, this focus strategy is proving effective as we are actually feeding. This is an example of HER2 positive cancer. We'd like to increase our market share also in HER2 low segment in the United States.
Seiji Wakao: But DB-06 patient population is not increasing in number right now? Correct.
Koji Ogawa: As for DB-06, without the inclusion in NCCN guidelines, there will be no reimbursement, which is a big hurdle to clear. So we are not expecting a big impact to them.
Seiji Wakao: Do you have any idea about the timing when Enhertu is included in NCCN guidelines?
Toshinori Agatsuma: We cannot tell. As of now, we can just comment that we are hoping for an inclusion in the guidelines as soon as possible.
Operator: Next, Mr. Hashiguchi Daiwa Securities, please.
Kazuki Hashiguchi: About your development strategy for EGFR muted NSCLC, Dato DXds TROPION-Lung14 studies started and TROPION-Lung15 study will start. It seems that you are reinforcing development in the segment. Then, what will be the positioning of HER3 DXd? You partner with AstraZeneca for Deto and with U.S. Merck for HER3. U.S. Merck has just paid half of the upfront payment and can decide from now whether to pay the remaining half? You are increasing investment in Dato in this patient segment. I wonder, how U.S. Merck will perceive this? And I feel there is some risk here. What is your thought and what kind of discussions are you having with U.S. Merck right now? This will not be a risk factor for a decision by U.S. Merck in October.
Koji Ogawa: We believe that making efforts to deliver the best treatment to patients with unmet medical needs is regarded as a general principle. We will first pursue that approach when data becomes available later, we would consider what kind of best contribution we can make and develop the overall strategy. As of now, we have not been able to collect data required for decision making. That's why we are in a situation like this right now. So we will discuss later on.
Operator: Next, Mr. Muraoka from Morgan Stanley (NYSE:MS) MUFG Securities, please.
Shinichiro Muraoka: First, about TROPION-Lung07 and 08 studies. I am pleased that you showed your confidence once again today. What is the current time line? It's not so clear to me. It was described somewhere that the AVANZAR top line results are anticipated in the second half of 2025. As for the timing of 07 and 08 study readout, there was a slight delay before, as I remember. But what is the current time line you're assuming?
Toshinori Agatsuma: The sequence of data readout would be AVANZAR-07 study and then 08 study in this order, according to our current plan for now. That's all from me. 07 study data could become available in calendar year 2025 or FY2025. Based on the current plan, AVANZAR in 2025, 07 in 2026 and 08 in 2028.
Shinichiro Muraoka: You are talking about calendar year, correct? Or fiscal year?
Toshinori Agatsuma: Sorry, fiscal year.
Shinichiro Muraoka: One more question. I would like to ask you about the future outlook of Lixiana, as sales are growing. Regarding the timing of LOE, life cycle and extension and those possibilities in the markets in Japan and Europe, what should we assume? I believe you can observe this with your ADCs sufficiently. Could you please share your current outlook?
Koji Ogawa: With regards to Lixiana edoxaban, we are not disclosing the timing of LOE. As of now, we cannot comment on the timings and the relevant strategy.
Shinichiro Muraoka: What about the possibility of growth with LCM? Can we have expectations? Or is it better not to expect so much there?
Koji Ogawa: Right now, we are doing what we can do as much as possible. There is nothing new we can comment beyond that.
Operator: Next question, please. From the UBS Securities, Ms. Haruta, please.
Kasumi Haruta: First, let me confirm a little bit about Enhertu. This year's plan includes mainly the progress of DB-03 and 04 in PanTumor. Those are the main. And you said that DB-06 has an upside. But let me confirm how much of this upside is included in the plan?
Toshinori Agatsuma: As for DB-06, we are unable to predict the timing at all. So we are not expecting it to be included in the current forecast. In that sense, if that NCCN guidelines are published within the fiscal year, we hope for a positive impact.
Kasumi Haruta: By the way, the timing of the application for DB-06 in the United States is the second half of fiscal year 2024, but Japan and Europe are filing first. Is there any reason why the United States is not first, as I think it is an important market?
Toshinori Agatsuma: Could you please repeat the question?
Kasumi Haruta: The timing of the application in the United States is later than other regions, but I was wondering if there's any background or reasons to this?
Toshinori Agatsuma: This depends on the timing of application acceptance and there were only differences in timing.
Kasumi Haruta: So we don't need to worry too much about that.
Toshinori Agatsuma: That's right
Kasumi Haruta: In regarding Dato DXd, TROPION-Lung01 showed good results in non-squamous cases. PFS was extended by two months compared to chemotherapy, and OS also improved with clinical significance. Your company says that this is clinical significant but is it something that oncologists can fully accept? Chemotherapy has had strong side effects up until now, and there have been no new treatments other than chemotherapy for non-squamous cancer. So I think that if Dato DXd were to be introduced, it could be fully accepted. Could you please explain your thinking on this?
Toshinori Agatsuma: We have actually heard various feedback from physicians and we agree with what you have pointed out. We believe that the results are meaningful and impactful.
Kasumi Haruta: Have you heard anything about side effects or the advantages of Dato?
Toshinori Agatsuma: There's nothing particularly unique about this study per se, and we believe that the safety profile is comparable to other studies.
Operator: Next question is from [Tony Rensson] from Macquarie.
Unidentified Analyst: The first two questions are on Dato and then I have one for Enhertu. So the Dato questions are, so first of all about TROPION-Lung01. So during the AstraZeneca briefing last week, so Susan Delbraith suggested that the FDA could possibly request an advisory committee meeting before the December 20th PDUFA date. Is this something that you guys can confirm? The other one is that, I noticed on Slide #19 that, you guys added the AVANZAR study. I recall, at the presentation at the ASCO in 2022 in Chicago. Kenichi Takeshita told me that, you guys were not participating in the AVANZAR study, and that was completely a study run by AstraZeneca. Has that changed? Are you guys now participating, paying for part of the AVANZAR study? That's the two questions on Dato. My question on Enhertu is about DESTINY-Breast11. We understand that this trial is supposed to read out by the end of fiscal year 2024. Now we also know that recently, the FDA ODAC meeting on AstraZeneca's, AEGEAN study suggested changes to trial protocol in the neoadjuvant setting, separating it from adjuvant setting. Has that changed your DESTINY-Breast11 progress, in any way? That's my question on Enhertu.
Toshinori Agatsuma: I believe you asked me three questions. I would like to confirm them. The first one is about the possibility of holding an ODAC or an Advisory Board or Advisory Committee meeting. We are unable to inform you of the possibility of an ODAC at this time. We would appreciate your understanding. Regarding the second question about AVANZAR, is it right? I understand that you are asking about Daiichi Sankyo's position on this. Basically, this is a study led by AstraZeneca and the form of the conduct of the study has not fundamentally changed. However, I think I have shown you a map of potential first line therapies for lung cancer. This is a study that is in a very important position within that disease map. So I have included it in the map this time. I'm sorry, could you repeat your third question, please?
Unidentified Analyst: Sure. So your DESTINY-Breast11 trial, it is in the neoadjuvant setting in Enhertu before surgery, preoperative setting. Recently, when the FDA ODAC committee is reviewing AstraZeneca's study, it's a trial called the AEGEAN study, and they criticized AstraZeneca's trial design by combining the new adjuvant therapy with adjuvant therapy and the suggested changes to all the trials in the perioperative setting. Obviously, DESTINY-Breast11 is a new adjuvant trial. Is your DESTINY-Breast11 affected by the ODAC recommendation on the AEGEAN study?
Toshinori Agatsuma: I guess you are asking if there has been any impact on our DB-11 strategy following the ODAP recommendation under Vervalumab in AZ. No, basically, there has been no change. We're going to continue.
Unidentified Analyst: Since I have four, if I may just add on one more. Your next generation ADC, DS-9606, we found online that there was a suggestion that the molecular target is Claudin 6. Is this something that you can confirm?
Toshinori Agatsuma: Claudin 6 is the target in this ADC.
Operator: The next question is from Michael Nedelcovych from TD (TSX:TD) Cowen.
Michael Nedelcovych: I have two. My first relates to Dato DXd. As has been noted, the pivotal frontline lung cancer trials are now well underway. Can you provide any insight into the biomarker plan? Have you, for example, built into the trials any predefined biomarker subgroups that could form the basis for a filing? And then my second question relates to your long-term R&D plans. You have built a world-class ADC platform. Are there any plans to apply this technology to therapeutic areas beyond oncology, for example, by testing ADCs in immunology?
Toshinori Agatsuma: I will answer the second question first. I think your question was about how we are thinking about activities other than oncology in our strategy to create new ADC technologies within our long-term strategy. Regarding this question, we are developing technologies at the research level that utilize various payloads as new generation of ADCs. Some of these are of course, oncology related and we are also working on those in other areas. As for your first question, I think you were asking about the stages of biomarker preparations. AstraZeneca and Daiichi Sankyo are currently deepening discussions on this topic. We may be able to discuss this at an appropriate time in the future, but at this point we are not able to talk about it.
Operator: The last question is from Simón Arango Baquero from Bernstein Research.
Miki Sogi: Sorry, I think the name was wrong. I am Sogi from Sanford Bernstein. I have a quick questions regarding Dato TL01. You said that OS was not statistically significant this time, but when I think about the hierarchy of statistical testing, this is not very positive. So I think that this is the reason why statistical testing of PFS or OS in non-squamous patients is not possible. Could you tell us if this could actually be an obstacle to the approval by the FDA?
Toshinori Agatsuma: With regard to the OS in the TL01 study, the study was not designed to verify the statistical significance of subgroups in the first place. Because of this, we have used the term clinical significant effect. I would like to ask if there is a part that I did not answer.
Miki Sogi: I understood very well. That is because of the study design. But do you think this could be a bottleneck during the FDA's review this time?
Toshinori Agatsuma: I think the honest answer is that it is not something we can determine at this point in time. So we cannot say anything about it.
Miki Sogi: The data of TOP 2, the data competitor in non-small cell lung cancer was presented at ASCO, and the results showed that data works in non-squamous patients but not in squamous patients. While the data of Gilead (NASDAQ:GILD)'s Torodelvi, Merck and Calon’s MK2-870 showed efficacy, which was not related to histology. Regarding these two products, they have the same antibody, which is different from Datos and that linker is also a hydrolyzable linker, which is different group of products from Datos, if I may say so. So what is your company's hypothesis regarding the difference in the expression of these different characteristics?
Toshinori Agatsuma: This is a subject of a great interest to us, and we are currently conducting research on it. On the other hand, we have not yet fully developed a plausible hypothesis. However, as you pointed out, Ms. Koji, the linker is different and the antibodies are also different. The data suggests that the overall pharmacokinetics of the candidate compounds are very different because of the different payloads. It is very interesting to see the impact of these compounds on non-squamous and squamous cancer. But we are not yet in a situation, where we can conduct research with a solid scientific hypothesis. We are gathering information, therefore, from various angles and we are working hard to formulate and verify a hypothesis that seems to be correct. One last thing, please. AstraZeneca mentioned at their R&D meeting the other day that they are going to use a new biomarker, a machine-learning approach called continuous scoring. They said that, this approach will especially be applied to Dato. We are waiting for the data to be announced within 12 months this year, but I think that this new biomarker approach will be very important for ADC targeting in the future.
Miki Sogi: Since AstraZeneca is taking a lead in this area, are you considering this kind of a new biomark approach for three ADC in which Merck and your company are partners?
Toshinori Agatsuma: We are very interested in the identification of biomarkers or rather as an approach to creating a selection criteria. On the other hand, we don't know about the level of maturity of the technology yet to be used in clinical practice and we are currently in the process of verifying it in clinical settings. We are interested in this, as one of the possibilities, but I think we need to pursue the possibility of another biomarker as well.
Operator: Now that we have reached the end of the scheduled time, we will conclude the financial results presentation. Thank you very much.
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