Eisai Co., Ltd.
Q4 2021 Earnings Call Transcript

Published: 12 May 2021

[Unidentified Company Representative:]

It is now time. We would like to begin fiscal 2020 financial results presentation by Eisai Co., Ltd. Presentation will be livestreamed and will also be distributed over telephone line. Those who are participating via telephone line, please refer to the slides after downloading the slides from our website. And please click to advance the slide. I would now like to introduce the presenter today, Representative Director and CEO, Mr. Haruo Naito. Mr. Naito, please.

[Haruo Naito:]

Thank you. This is Naito speaking. We'd like to give you a presentation on financial results for fiscal year 2020.

[Unidentified Company Representative:]

We would now like to enter questions.

[Unidentified Company Representative:]

Now the first person, Mr. Yamaguchi from Citigroup Securities.

[Hidemaru Yamaguchi:]

This is Yamaguchi speaking. I have 2 questions. The first question is about the precondition assumptions for your guidance. Lenvima milestones year-on-year, a little less than JPY 40 billion will be recovered. And R&D increased by JPY 10 billion, so SG&A will be increased. But the operating margin seems to be rather low. Other than these factors, do you think that there are any factors in profits comparing in last fiscal year and this year, like what happened in last year will be lost and so forth? Any changes from last year? Could you please share them with us? In SG&A, aducanumab in the U.S., I think costs have been incurred. How much of such cost incurred is -- are included in this SG&A line? These are the 2 questions.

[Unidentified Company Representative:]

Thank you for your questions. Mr. Yanagi, CFO, is going to respond to your questions.

[Ryohei Yanagi:]

Mr. Yamaguchi, thank you very much for your question. This is CFO Yanagi responding to your questions. First, regarding the fiscal year '21 company guidance, are there any extraordinary or specific line items which may affect the income or profits? We do not expect any extraordinary large items, but as you pointed out, which shall be included in the other business, including milestones by segment. If you look at the guidelines, over JPY 100 billion was recorded in '19. But in '20, a JPY 60 billion level was recorded. And furthermore, in FY '21, it's going to be a little less than JPY 100 billion. So as you pointed out, milestones to be received from Merck will be changed. So that is the difference. But having said that, it was less in fiscal year '20, but it will be returning to the cruise level or pace in '21. So it's not extraordinary item. But overall, the status of the development, new products and business development beyond budget or adaptive budgeting process, in which we would like to consider the potential of various real options so that we can provide a best estimate as of now. That's what we have presented today. So these are not to be considered finalized. Please consider that there are items which are not fixed and others which are already fixed. And another item is -- ultimately, which is related to OP margin, but as we said, aducanumab-related SG&A expenditures, for this item, as we explained earlier, the real options are being considered in order to maximize our contribution to future patients. So we are making the proactive investment to maximize that, and for example, which includes the issues related to access and diagnosis and those preparation-related costs for environment for launch. And more specifically, numbers are not disclosed related to line item. But the earnings call suggested that fiscal year, calendar year difference is considered as well, and it's only level of the tens of billions of yen SG&A shall be invested. Overall, P&L structure for fiscal year '21, to maximize the value of Lenvinma, R&D expenditures shall be invested. At high level, we think that it may peak -- reach the peak. And R&D expenditures for lecanemab will also reach the peak. Therefore, 23.5% of the sales will be spent for R&D expenditures. SG&A as well, for maximization of value of Lenvinma and for next-generation AD-DMT and maximization of the contribution to patients in the future, we are making proactive investment of 47.1% of the SG&A ratio. So in both, it's about 70%. So almost the OP margin is on the single digit, although the double-digit growth is to be planned for the profit growth. However, the one single-digit growth number is recorded in the profit line. But we are going to maximize the value for the medium to long term. And the SG&A and R&D expenditure ratio, we believe that we are peaking out in fiscal year 2021, and these will be converging to the average of the global pharma. And OP margin going towards 20% level, and we expect that the OP margin will continue to improve. They're not going into short-termism, but from the medium- to long-term perspective, we are making proactive investments to maximize the future corporate value. If I may add further, such proactive investment and stable dividend payment shall be sustained both based upon the financial integrity. We have maintained such 65% of the equity ratio and JPY 190 billion level on net cash. And the credit rating has been put to AA- and stable dividend and such productive investment can be sustained. And customer contribution to patients as well as the maximization of the corporate value can be maintained from the medium- to long-term perspective.

[Haruo Naito:]

This is Naito speaking. If I may go into details, I would like to add just one point. For Lenvima, the full year annual sales-based milestones, we said that we lost some of the expected milestones during fiscal year 2020, but this is not the end. In the 2021 as well, we have same target threshold in sales where we will be allowed to try to get those milestones even during the year. Thank you very much.

[Unidentified Company Representative:]

Next, Mr. Kohtani from Nomura Securities.

[Motoya Kohtani:]

This is Kohtani from Nomura speaking. First question, regarding Lenvima. Lenvima-KEYTRUDA RCC first-line data was shown. I think we shouldn't be comparing with other clinical trials. But in VEGF inhibitor in combination with a PD-1 antibody, there are 4 trials, including Lenvima, and patient background is similar. Risk category, gender and age are quite similar. So ORR, CRR, PFS and DOR, in all of these, your drug, Lenvima, exceeds other drugs. And in adverse event, hypertension or hand-and-foot syndrome are less frequently occurring. Is there any factor leading to this? And LEAP-002 study for HCC was also discussed. And I think anytime, interim analysis result is expected. Melanoma, LEAP-004 interim analysis, it was 21% and CBR was 65%. Until the end of the completion of data analysis from the full trial, will submission not be possible?

[Unidentified Company Representative:]

Thank you for your question. Dr. Owa, responsible for oncology, will respond.

[Takashi Owa:]

Thank you, Mr. Kohtani, for your questions. First, about RCC, what you pointed out is correct. And if we intentionally find a weakness, we may be able to find a weakness, but this may sound boastful, we cannot find a weakness, any weakness as far as I know. But well, is there any problem with the safety? But QOL-related data will be presented one after another at the academic conferences, and please keep paying attention to these. As for CER once it is obtained, there may be relapse or recurrence of cancer. There is such concern. But how CRR is sustained, we are following in detailed fashion, and we will be providing information one after another. And so please keep paying attention to what we will be able to provide in terms of information. And as for HCC, anytime, we may have a result from interim analysis, as you correctly pointed out. I'm very much looking forward to seeing that data. Now lastly, about melanoma trial, thank you for raising that. In view of our recent FDA position with ORR data alone, it may not be sufficient to file submission. But LEAP-003 study for first-line is underway and is making good progress. In combination with that, we would like to consider melanoma in both first-line and the second-line setting.

[Motoya Kohtani:]

Follow-up question about the VEGF inhibitor and PD-1 antibody combination, various other data are also coming out. So in HCC, it seems to be very effective -- in RCC, it seems to be very effective, but not so in HCC or melanoma. Is there any scientific reason?

[Takashi Owa:]

The answer

[Motoya Kohtani:]

I have a question regarding aducanumab, but I don't think there will be an answer forthcoming. So instead, on 2401, I have a question, and there's solanezumab from Lilly. So aducanumab safety-related issues, this is because of ARIA-E concern that highest dose was not reached in many patients, and therefore, patients who advanced quickly. And I think there is also a lack of reproducibility in CDR-SB. And when we look at BAN2401, if we see whether these apply, ARIA-E is 10%, very low. So highest dose is achieved. And second point, at the other day at the earnings session, it wasn't disclosed, but to fast-advancing patient, it's also applied. So the rest is reproducibility of CDR-SB 0.5 and 1.0. So what is 0 and 1 point -- what is 0.5? And what is 1.0? It has to be determined in a very precise manner. So clinical -- clinicians training will be very important. And Eli Lilly's results added new DRS valuation item because of some questions about this. And how are you training health care providers in measuring CDR-SB? So this is a question regarding reproducibility of CDR-SB for your drug.

[Unidentified Company Representative:]

Neurology Business Group President, Ivan Cheung, will respond.

[Ivan Cheung:]

Thank you very much for your question. This is Ivan Cheung. And you're correct, training of all the sites and the staff working at the site on these endpoints, such as CDR-SB, is a core component to the excellent conduct of any Phase III large-scale trial. And that's why we spend a lot of time and effort in, first of all, securing the highest-quality sites around the world and also conduct a very detailed training on -- with all the sites. And last but not least, also having ongoing monitoring efforts to make sure that we don't see any, for lack of a better phrase, outliers or underperforming site with regard to this matter. We are probably one of the very few companies in the industry who know how to do this. And we are confident in the Clarity AD trial for BAN2401, for example. Thank you.

[Unidentified Company Representative:]

Thank you very much. Next is Mr. Sakai from Crédit Suisse Securities.

[Fumiyoshi Sakai:]

I have only one question. Aducanumab PDUFA date scheduled in June, I know everyone is aware of this, and the outcome will be given reflecting on that. And what sort of corporate actions are you envisioning to be taking going forward? Until the outcome is seen, it will be difficult for you to decide on the actions. But based upon the result to be seen going forward, I think that there will be some kind of a release or announcement from the company. But what are you currently considering? I know that this is based on the collaboration with Biogen. But are there any plans or ideas regarding how you are going to take course going forward?

[Haruo Naito:]

Thank you very much, Mr. Sakai. This is Naito speaking. For instance, for diagnosis and PET and TFS and blood, if we just take the diagnosis portion, there are various players. Therefore, with these players, we needed to keep close communication so that we can take appropriate regulatory actions. And our processes aiming at getting approval for reimbursement, we have to make those preparations. As has been shown by these areas, in various areas, we needed to prepare sound foundation or structure or capabilities. Because we are the company which is dealing with 4 AD-DMT compounds, we believe that this is something that Eisai must cope with, and we are going to cope with these initiatives going forward.

[Fumiyoshi Sakai:]

Understood. Anyway, you are waiting for the results, conclusion from PDUFA -- on PDUFA date. So I am also looking forward to it.

[Unidentified Company Representative:]

Now it is time to finish. I'm sorry to call the day. But however, now we'd like to close the conference. We would like to close today's briefing session for the financial results. Thank you very much for taking time out of your busy schedule to participate in this call.