Eisai Co., Ltd.
Q4 2024 Earnings Call Transcript

Published: 16 May 2024

[Seiji Wakao - JPMorgan:]

[Kazuaki Hashiguchi - Daiwa Securities:]

[Fumiyoshi Sakai - UBS:]

[Akinori Ueda - Goldman Sachs:]

[Shinichiro Muraoka - Morgan Stanley:]

[Unidentified Company Representative:]

Thank you very much for taking your time out of your busy schedule to attend the financial results presentation session by Eisai Co. Ltd. We would now like to begin the meeting to present financial results from fiscal 2023. This will be held in hybrid format. Those of you who are in this room, please find four presentation materials, including the presentation deck, financial report and press release that was announced today and the start of the rolling submission for subcutaneous injection and change in the personnel -- or rather announcements of new appointments. I would now like to introduce the presenter, Mr. Haruo Naito, Representative Corporate Officer and CEO. Mr. Naito, the floor is yours.

[Haruo Naito:]

Let me start my presentation on the financial results for fiscal year 2023. Firstly, please look at the statement of income. Revenue stayed almost flat from a year earlier. The cost of sales has reduced by 3 percentage points. This is due to the ongoing effort for reducing costs and also the improvement of the product mix. As a result, gross profit was up 4% year-on-year and profitability has improved by 3 percentage points. As regards to expenses, such as R&D expenses, which accounted for 22 points of the revenue, that was the reduction by about 0.5 percentage points. Over the past 2 years or so, Oncology and Neurology Business Group R&D have been integrated. Human biology-based integrated approach has adopted for integration, and as a result, the benefits are now arising as the effect of such integration. Now for SG&A expenses, which have increased, the major driver for the increase was one thing due to the expansion of LENVIMA. Therefore, there was an increase of expenses regarding shared profit of LENVIMA paid to partner. Currently, we are making utmost efforts in development of LEQEMBI. So with these two major positive investments, we are making SG&A expenses increase. However, if you look at expenses in total, which was 1% up from a year earlier, so these have been controlled within the increase of gross profit. Therefore, operating profit was ¥53.4 billion, up 33% increase, which was a significant increase year-on-year. Profitability has improved as well. Profit for the year has decreased. However, in the previous year, there was the repayment of paid-in capital from a consolidated U.S. subsidiary. Therefore, there was the reduction of the tax expenses in the previous year. Excluding that impact, profit for the year should have increased. Therefore, there is no change to the sound structure of the financials. Given these, now take a look at the revenue migration. As you see in the headline, 3L

[A - Unidentified Company Representative:]

We will now open the floor for questions. We will have about 20 minutes of Q&A for analysts before opening the floor to members of the media. If you have a question, please give us your name and affiliation before your question. From analysts, investors, if you have a question, please raise your hand.

[Seiji Wakao:]

Thank you for your presentation. My name is Wakao. I am from JPMorgan. My first question is for this fiscal year 2024, revenue plan for LEQEMBI. Assumptions for the forecast as well as the reasons why you believe such target can be achieved by region. For the United States, $300 million, I think. The number of vials growing in a linear way achievable to reach this target number or do you have more rapid expansion, such exponential growth, inclusive of the number of potential eligible patients, the patients receiving treatment, please? And in Japan, it seems that you are performing well. According to the available materials, last year or this year, Eisai has shown the potential assumed the growth of the quarterly number of patients.

[Haruo Naito:]

By region, Mr. Haruna and Mr. [Yusa] are going to explain.

[Katsuya Haruna:]

Thank you very much. I am in charge with commercial aspect of LEQEMBI in the United States. My name is Haruna. I would like to give you the status of the LEQEMBI in the United States. First, as for forecast, current trend as well as what we explained today, the effect of the rolling out of our strategy being considered and the forecast is going to be with high probability. For the month of May, we believe that the performance is exceeding, therefore, we are very confident in achieving the plan. If I may supplement, for FY 2023, we focused on the establishment of pathways. Now we are transitioning to prescription expansion phase. As was explained in today's presentation, let me share with you some example on what we explained. At the site in Midwest in the United States, over 200 patients have received treatment and about -- a little less than 200 patients are also currently under screening. Therefore, growth is continuing. In even more accelerated manner, so-called loyalist bias, the sites with 51 more patients are expanding in number. There are also increasing number of potential loyalist candidate sites. And last week, we could have an opportunity to talk with a patient who is undergoing the LEQEMBI treatment. Before initiation of the treatment, the person said he was very frustrated because of the worry or fear of losing memory and also lowering of the ADL or activity level lowering that was felt strongly by the patient himself. But after initiation of LEQEMBI, his ADL could be improved. Also, he could start to see or fee zest for living, and he was pleased to have such changes. As regards to the infusion, to visit the hospital has become a routine of his daily living and this person has continued treatment with LEQEMBI over -- more than -- longer than one year. With this, we believe that we are very confident that this target can be achievable with high probability.

[Haruo Naito:]

Now [Mr. Yusa], who is responsible for LEQEMBI in Japan.

[Unidentified Analyst:]

Thank you very much, Mr. Wakao. As you said, in Japan, as has been already published in the press, that size of the market and also if we can achieve the number of patients by quarter, we believe that -- and we are confident in achieving ¥10 billion in Japan, particularly for this fiscal year 2024. So far, we have established a very strong relationship with KOLs that's why we have been able to successfully start the initial stage. But for this fiscal year 2024, first, for patients with MCI, we needed to raise awareness about the disease. The number of patients receiving prescription exceeds 70% in Japan. There are some sites, which have already treated AD patients moreover. We have touched about the potential number of patients in Japan. By adding the education to raise awareness of the disease, I think that the mild AD and MCI patients will start to seek treatment. With increased number of patients at each site where pathway will be established, capacity will be increased by such efforts. For this fiscal year 2024, there will be patients who will be receiving treatment for over 6 months then at the sites where they started the initial treatment and also follow-up facilities or sites where LEQEMBI will be dosed to patients, that means that even with the existing patient pool, capacity for treatment will be expanded. Therefore, with these in mind, we are very much confident in achieving the target in Japan in revenue.

[Seiji Wakao:]

I'd like to ask for further follow-up on the U.S. and Japan as well. Regarding the trend of the number of patients receiving LEQEMBI in the U.S., as of quarter 3 there are potentially 8,000 patients. What about the update? And 10,000 was also mentioned earlier, what is the current status?

[Haruo Naito:]

Wakao-san, regarding the number of patients, we would like to refrain from talking about the number of patients because it is quite difficult to actually grasp the number of patients. If the reimbursement claims data is available, that may be possible. But from calculating backwards from the number of vials shipped, we cannot reach accurate number of patients on treatment, for example. The number of vials shipped or sales data, these are real figures. Therefore, we would like to utilize such real data, real numbers to discuss if you could understand this. I don't know whether you agree with me, but that's our position.

[Seiji Wakao:]

Understood. All right. Need in the United States are increasing. If you could give us your gut feeling, I would like to seek your comment on that. Then for Japan, patients who are receiving treatment over -- for over 6 months, are there enough sites for receiving such patients.

[Haruo Naito:]

Okay. The gut feeling regarding the United States, Mr. Haruna is going to respond.

[Katsuya Haruna:]

Thank you for your question. I am in charge of LEQEMBI in the United States. My name is Haruna. Regarding the needs and also expectation for LEQEMBI going forward, we believe that it is rising. As has been introduced by our CEO, we are seeing an increase in revenue week by week. That has been obvious and shown in data. On a weekly basis, there is ongoing upward trend. Therefore, as gut feeling, we believe we are feeling very powerful growth. Thank you for your question.

[Haruo Naito:]

Thank you for your question. In Japan, follow-up sites for accepting or receiving patients who are receiving treatment for longer than 6 months.

[Unidentified Analyst:]

Yes, of course. In each region or area, we have started a discussion in order to prepare follow-up facilities and we are going to make adjustments as necessary in some regions. As you see in this diagram, regarding the area where we are going to establish follow-up facilities, we will hold the regional lecture meetings and initiating the sites as well as the follow-up facilities, how to refer the patients to follow-up facilities, and that explanation briefing session is being held throughout Japan. Therefore, I think that we will be ready to prepare follow-up facilities responding to those who are on treatment for over 6 months.

[Seiji Wakao:]

Thank you very much. I don't think that you have explained this, but regarding the changes of the representative corporate officer, there will be two representative corporate officers. That has been released today. What is the background for this at this timing. Although it was mentioned in the press release, but why now? As the candidate to be the CEO after the current CEO, is this the plan for the company to consider the most powerful candidate as the next CEO, Keisuke Naito.

[Haruo Naito:]

Considering the business model and the networking and hiring of talents, these are very fundamental aspects of the company's business. We needed to change dramatically the conventional way of doing business. This is not something applicable only to Eisai, but applicable to -- commonly to all the companies in all industries. We -- also that there is a necessity to do so. Therefore, for the succession of CEO means the generational change. So tens of age should be the magnitude of change in succession. So in consultation with the Board of Directors, we are making thorough preparation for the change. As a part of which is, as announced today, to appoint a new representative corporate officer. Did you ask when CEO is going to be changed? Are you asking about that as well? I'm not able to respond to that question. We are now entering in the very invention expansion phase for LEQEMBI and also the patent extension period for LENVIMA as well. Therefore, at such a crucial, we'd like to refrain from making any comment on when the CEO is going to be changed.

[Unidentified Company Representative:]

Next question from the attendee seated at the front of the room.

[Kazuaki Hashiguchi:]

I'm Hashiguchi from Daiwa Securities. I have two questions on LEQEMBI. First, about the impact from the competitive product, what is your expectation? And how is that taken into account in the plan? The competitor's product may be approved in Japan as well as in the United States even within this month. What is the estimated impact in terms of volume and value?

[Haruo Naito:]

My response -- the responses may be long, but Keisuke Naito will respond first.

[Keisuke Naito:]

This is Keisuke Naito responsible for global LEQEMBI. I will be speaking at some length. There is no direct comparison between LEQEMBI and donanemab, and clinical protocols are different and I believe it is difficult to make a head-to-head comparison. But in order to evaluate the available data, there are certain characteristics of LEQEMBI that we consider to be important. First, regarding in the broad group of EAD patient as consistently safety and efficacy have been demonstrated. Rather than selecting most responsive patient group that is the most likely to respond, we consider it important to consistently show safety and efficacy in large group of EAD subjects. There has been no tau stratification, and irrespective of tau level, clinically significant results are shown. LEQEMBI not only in subset based on tau level, but in broad subject group of -- broad patient group of EAD, safety and efficacy have been demonstrated. And the second clinical benefit is suggested for people who are receiving early treatment. At least at last the fall in [indiscernible] subgroup, based on that data, according to our definition in low-tau patient, 60% of such patients, CDR-SB improvement included a very favorable clinical outcome was published at CTAD. Alzheimer's disease is progressive and irreversible neurodegenerative disease. And earlier the diagnosis and earlier the start of the treatment, the greater potentially the benefit. Therefore, in early stage in low-tau patient, favorable data was shown and that is the uniqueness of LEQEMBI. In addition, in low-tau patients, in order to identify low-tau patients, we are also focused on biomarker research. A liquid biomarker, we believe, will be enhancing the value of LEQEMBI. And the third is a favorable safety profile. There's no data comparing head-to-head LEQEMBI and other drug, but ARIA incidents and timing we consider to be different from drug to drug and that is also noted in the U.S. package insert. ARIA mostly caused LEQEMBI occur in early stage of the treatment and mostly asymptomatic and nonserious and that is shown in actual clinical usage. In AD/PD 2024 held in spring this year, Professor Lannfelt presented the results using human sample that showed lower binding of lecanemab to CAA than other anti-Abeta antibody. We believe that this scientifically supports the clinical study results. And the fourth is the efficacy, safety-related point. AD is progressive, chronic and neurodegenerative. Even after the removal of plaque, the disease continues to progress. We believe that this is very important in considering the treatment period. In case of LEQEMBI, until the complete on Clarity AD study, treatment-emergent ADA incidence was 10%. There is no effect of immunogenicity on efficacy, safety and pharmacokinetics. It is suggested that ADA is not a limiting factor for continued treatment. And regarding the efficacy and safety in case of continuous treatment over 18 months with LEQEMBI, Clarity AD open-label extension study, 24-month data was presented at CTAD last autumn. We expect to be able to present even longer-term results in future academic congresses. In order to reduce burden for the patients and caregivers, we are also developing SC-AI, which will be less burdensome on patients. We believe that because of these, we can be confident that LEQEMBI is the drug of choice for patients and HCPs. And we anticipated the launch of donanemab and have taken that into consideration to a certain degree in the revenue level of LEQEMBI going forward. But the four characteristics that I've discussed about LEQEMBI can be a very important advantage for LEQEMBI. As CEO discussed earlier in establishing pathway, we have made tremendous efforts on a daily basis with HCPs. Infusion centers, CMS payers, efficacy groups and various other stakeholders, with them, we have been able to build very strong relationship. Through commercial activities every day after the launch, we have continued to make efforts and we are confident of the evaluation of LEQEMBI in actual clinical use. Therefore -- and of course, we do anticipate that a gradual pace donanemab may increase here, but we are also confident that LEQEMBI will be able to maintain its strong share in the immediate quarters.

[Kazuaki Hashiguchi:]

Second question between initial and maintenance treatment, what is the distinction between the two in your submission? After how many doses will it be a maintenance dose? Or what is the degree of reduction of amyloid plaque that is required to switch to maintenance dose?

[Haruo Naito:]

That question will be addressed by Dr. Lynn Kramer.

[Lynn Kramer:]

Yes. Thank you. I'm Dr. Lynn Kramer. I'm the Clinical -- Chief clinical Officer at Eisai. We are discussing with health authorities the duration that would be needed with initial therapy before converting to maintenance therapy. We expect that to be in the 18 to 24-month time frame, but that's a review issue related to discussions with health authorities, which would include PMDA, for example, and FDA. Thank you.

[Unidentified Company Representative:]

The person in the third row, please.

[Fumiyoshi Sakai:]

My name is Sakai from UBS Securities. I'm sorry, I still wanted to ask a question about LEQEMBI. You have shown numbers for LEQEMBI, spending ¥110 billion for this fiscal year considering the SG&A expenses and R&D as a total and then this accounts for 20% of the total SG&A and R&D expenses. So are you -- do you want to continue this level of spending? pathway has been established and SC will be introduced. The remainder of work is how the drug is going to be used. Expansion of indications and monitoring on the safety will remain. Then the investment or expenditure is expected to reduce or do you need to maintain a certain level of investment? You touched upon competitors. Competitors are making a lot of money with different drugs. So maybe they can double, but they can invest, double the amount of Eisai's investment in the initial year after launch. So not maybe -- you don't have to talk about if. But if we are -- you are making excessive investment into LEQEMBI, some analysts and investors may be concerned. So that's why I think is hovering down dragging your share price down. How do you think?

[Haruo Naito:]

Mr. Sakai, you always ask us very difficult question to answer. So I am wondering what to offer in my answer. For example, in fiscal year 2025, product P&L of LEQEMBI in the United States will be turned into the black ink. The global product P&L, LEQEMBI product PL will be achieved in 2026. Of course, we have to be careful in investing resources. For example, manpower resources in the United States has reached almost maximum level. In my opinion, therefore, we do not intend to further increase more than to date. And in Japan as well, we do not intend to increase further than the current level. In other major areas, which is Europe, in Europe, as well, by reallocating the manpower from Oncology to Neurology, we do not intend to increase the total manpower. Therefore, we do not think that there will be further expansion of SG&A expenses. I believe that we are at the peak in expenditures for SG&A for this fiscal year. In R&D expenses, preclinical A3-45, now once we see the completion of last patient in, in these studies, then the R&D expenditures will end the peak. Therefore, I think that this fiscal year is going to be the peak for both SG&A and R&D expenditures. And in '25, we would like to turn into the blank ink in the United States. In the following year, we would like to turn into term profitable in global markets.

[Fumiyoshi Sakai:]

Understood. You have not taken into account the sales in Europe, but SAG, Science Advisory Board, Neurology, once review is done and then approval is expected. However, regarding the reimbursement, which may be delayed. Therefore, you do not incorporate the number in the revenue for this fiscal year, right?

[Haruo Naito:]

I think this has been already published, so I can say this. SAG was held once. However, because of the review of other drugs, European Court of Justice, because of the background of reviewers, some of them had the experience of getting involved in the review of competitors' products, thus it was ruled not acceptable. Therefore, the members of the SAG was reviewed again and then it was founded to be problematic. Therefore, a result of the previous SAG meeting was canceled. With new members again, SAG will be held again. We have not heard of the date yet. But inclusive of that, for EMA in the first half of this fiscal year 2024 -- towards the end of the first half of this fiscal year, the results will be provided. The result of the review will come around at the end of the first half. In Israel, for example, the sales is being generated, although it is minor. The drugs are purchased in the United States and that is included in the number for Europe. But massive recording of the sales is not included in this number.

[Unidentified Company Representative:]

Next question, please.

[Akinori Ueda:]

I'm Ueda from Goldman Sachs. First question is about your plan and your assumption for cost of goods sold. This year -- this fiscal year, you assume that the cost of goods sold will increase. Are there onetime factors leading to that? Or for this year, I think that there will be increase in LEQEMBI, is there an impact from changing product mix?

[Haruo Naito:]

That answer the question will be addressed by Mr. Tamura.

[Kazuhiko Tamura:]

I am Tamura responsible for production. Thank you for your question. As you rightly mentioned, in this fiscal year, LEQEMBI sales and cost of goods sold are estimated here. In comparison to the actual -- from last fiscal year, cost of goods sold is higher this fiscal year and that is because of a slight deterioration in the mix. Thank you for your question.

[Akinori Ueda:]

As a follow-up. In the future, as volume increases, do you expect improvement, substantial improvement?

[Kazuhiko Tamura:]

Once again, Tamura speaking. Going forward, regarding the cost of LEQEMBI, large part of the cost is accounted for by drug substance and partner, Biogen, that we have been working on reduction of costs through various different measures. I would like to cite some examples. Right now, drug substance is a manufacturer, the Swiss plant of Biogen. This plant is highly automated. By continuing to produce drug substance at some scale, we expect cost reduction. Yield improvements may be also achieved through process improvement and we are making efforts towards that end. The trend we anticipate is a declining cost over medium to long term. As for formulation, the second CMO is already launched as a second place of production and we expect the initiation of production. That will also will be -- that will also be reducing cost over the medium to long term. With these efforts, we are reducing our cost of goods sold.

[Unidentified Company Representative:]

In the interest of time, we would like to now turn to media for their questions. If you have any questions in the media, please raise your hand. We do not see any raised being -- hand raised in this venue. So we are receiving questions from those participating online. Mr. Muraoka of Morgan Stanley.

[Shinichiro Muraoka:]

My name is Muraoka, I am from Morgan Stanley. Regarding expenses for LEQEMBI, you said that this fiscal year is the peak in expenditure. How much is included in the guidance for this fiscal year? Actual result was ¥110 billion and ¥60 billion before that and ¥150 billion in total of two companies. So how much is included in the budget. Could you please give us a ballpark?

[Haruo Naito:]

Mr. Asano is going to respond to the question.

[Toshitaka Asano:]

My name is Asano. I am in charge of planning. Regarding the complete numbers, we would like to refrain from disclosure. But SG&A expenditure will be over the level recorded in last fiscal year.

[Shinichiro Muraoka:]

So as SG&A expenses will be up, but R&D expenditure will be down, is this correct?

[Toshitaka Asano:]

We'd like to refrain from specifying numbers, but SG&A expenditures are expected to be more than the record in last fiscal year.

[Shinichiro Muraoka:]

Understood. I'd like to ask you another question, if I may, please. Regarding the subcutaneous rolling BLA submissions have been initiated. But if you continue and then approval of the subcutaneous formulation in the United States, when can we expect to get that before summer next year or even earlier than that? What is the image?

[Haruo Naito:]

Dr. Lynn Kramer is going to respond.

[Lynn Kramer:]

Yes. Thank you for the question. I'm Lynn Kramer, Chief Medical Officer. As you recognized, the subcutaneous autoinjector maintenance therapy rolling submission was initiated a day ago. And in that submission, we have requested a priority review. We won't know whether our priority review is granted until we hear from the FDA that the dossier is formally accepted, which takes about 60 days. And at that time, we would know whether we have a priority review or not. If we are granted priority review, that would mean we would expect approval 6 months after -- approximately 6 months after that. So that's all I can say at this time.

[Haruo Naito:]

Rolling submission was initiated, so various modules will be made in a rolling manner. And the final submission will come in October. So then the time schedule, as has been explained now, is expected for the completion of the review.

[Shinichiro Muraoka:]

Well, it was hard to hear. So by October, rolling submission will be completed. And within 2 months, the rolling priority review will be confirmed, and then 6 months, will kick off from that.

[Haruo Naito:]

Please check with the secretariat later.

[Unidentified Company Representative:]

Are there any questions from the members of the media?

[Unidentified Analyst:]

I'm [Bano] from Nikkei newspaper. I have a question on China. This fiscal year, do you expect ¥3 billion revenue under other. PET, CSF are not widely available in China, but you still expect this level of revenue? How will BBBM be used? And who will be the patients that will be able to receive treatment?

[Haruo Naito:]

Mr. Okada will respond.

[Yasushi Okada:]

I'm Okada responsible for China business. Thank you for your question. As for the figure, ¥3 billion, this is a number in the pie chart presented by Mr. Naito, CEO. Mostly ¥3 billion is from China, but that also includes Europe. So China, per se, is smaller than ¥3 billion. And as presented today using the slides, centering on BBBM, screening will be carried out in China. That is the plan that we are pursuing. There are three approaches to screening. Patients who actually come to hospitals in comparison to those healthy, high-end patients are target for screening. Then as a result of the screening, there will be a pathway to seek consultation and care, the medical institutions. PET and CSF are not so widely available, and therefore, we are preparing for BBBM. As for scientific validity of BBBM as a screening method with Chinese KOLs, including retrospective data, we are preparing a paper publication. It is not that what we are doing in China is exceptional. Based on scientific data, we are making efforts to establish BBBM as a scientifically valid screening method.

[Unidentified Analyst:]

Who will be the target.

[Yasushi Okada:]

Those who will be identified through the screening and it will not be covered under an IDL immediately after the launch. So it will be out of the pocket. Therefore, a drug price will be high at around ¥3 million. So in China, I believe our initial target will be high-end people. People who are living in the cities on the coastal regions, such high-end people will be the initial targets. That is already sufficient, and we have begun activities and potentially we expect a very large number of potential target patients.

[Unidentified Analyst:]

One more point, if I may, and this is a clarification question. Subcutaneous switch. By 2026, I thought Mr. Naito, CEO, mentioned that you expect switching to be completed by fiscal 2026. Do you mean that approval is expected by 2026?

[Yasushi Okada:]

Launch and approval are being pursued with the target timing of fiscal '26.

[Unidentified Company Representative:]

From [Kakoho], Watanabe-san could you please unmute yourself?

[Unidentified Analyst:]

My name is Watanabe, I am from [indiscernible]. Can you hear me?

[Unidentified Company Representative:]

Yes.

[Unidentified Analyst:]

As a follow-up on the question of the previous person regarding manufacturing system, the plant in Switzerland and the second side of production, CMO has been contracted. I'm sorry, I may have misheard. I'd like to clarify. So that means that the CMO, drug substance will be produced as well or filling into vials will be conducted by the second site at CMO. Is this correct? This is my first question. And the name of the specific CMO may not be disclosed, but Japanese company or is it foreign capital affiliated or in each -- which region the production will be conducted. Could you please share with us such information.

[Haruo Naito:]

Mr. Tamura is going to respond.

[Kazuhiko Tamura:]

Thank you very much for your question. My name is Tamura, I am in charge of manufacturing. For drug substance, the U.S. plant of Biogen is being developed as the second site for drug substance. For drug product, CMO in Europe is going to be utilized and it is being ramped up.

[Unidentified Company Representative:]

Unfortunately we have run out of time. We would like to conclude the financial results presentation session. If you have further questions, please contact IR or PR of Eisai. With that, we would like to end today's presentation session. We thank your attendance.