Miyata: Thank you very much for taking time out of your busy schedules to attend Chugai Pharmaceutical's FY 2026 Second Quarter Financial Results Presentation today. My name is Miyata from the Corporate Communications and Investor Relations Department. I'll be serving as today's moderator. Today's presentation is being held for investors, analysts and members of the media in a hybrid format combining an in-person presentation and a Zoom webinar. And please note that if the name displayed by the Zoom participant cannot be matched with the registration information, the participant may be removed from the webinar without prior notice. Today's agenda is shown on the screen at the venue, on the webinar screen and on Page 3 of the presentation materials. We'll proceed in accordance with this agenda. This presentation will be conducted in Japanese. Simultaneous English interpretation is also available via the Zoom webinar. Please also note that we'll allow time for screen captures before each presentation for those who wish to take them. We'll take questions together after all presentations have concluded. We have set up for approximately 30 minutes for the Q&A session. And we encourage you to actively ask questions. Now President and CEO, Okuda, will provide an overview of the second quarter of FY 2026. We'll pause briefly at the beginning, so please use this opportunity if you'd like to take a screen capture.
Osamu Okuda: Again, let's get started. I am Okuda, President and CEO. I will provide an overview of the second quarter of FY 2026. Please turn to Slide 5 of the presentation materials. For the first half of FY 2026, we recorded increases in both revenue and profit. This was driven by steady domestic and overseas product sales as well as a significant increase in other revenue. So given the steady progress made in the first half, we expect to achieve our full year forecast. On the business front, we filed 8 regulatory applications in Japan, making steady progress towards achieving our plan for the highest number of regulatory filings ever. We also initiated 2 Phase III studies for NXT007, which we expect to become a next-generation growth driver. All in all, both our financial performance and business activities progressed steadily during the first half. Next slide, please. This graph shows the changes in revenue compared with the same period last year. Revenue increased by JPY 84.8 billion or 14.7%. I will walk you through the items from left to right. Domestic sales increased by JPY 14.6 billion as growth in mainstay and new products more than offset the negative impact of the NHI drug price revisions and generic penetration. Offshore sales increased by JPY 40.5 billion as increases in export volumes and the positive foreign exchange impact more than offset a decline in export unit prices. In particular, export of Hemlibra for Roche and NEMLUVIO to Galderma increased. Other revenue increased by JPY 29.8 billion due to a significant increase in onetime income as well as higher royalty income, mainly related to Hemlibra and NEMLUVIO. Domestic sales, overseas sales and other revenue all increased, resulting in overall revenue growth. Next slide, please. Next, I will discuss 2 Chugai originated global new products that are important to our revenue growth over the short to midterm. NEMLUVIO is driving our revenue growth through export sales and royalty income. As announced in Galderma's financial results yesterday, global sales for the first half totaled USD 433 million. A share of new-to-brand prescriptions was approximately 42% for prurigo nodularis and approximately 9% for atopic dermatitis indicating continued strong momentum. In the U.S., NEMLUVIO is evaluated not only for its efficacy to reduce pruritus, but also for improving skin symptoms. That is leading to a high valuation by doctors and leading to prescription. Other than the U.S., we launched NEMLUVIO in European countries and for the -- some of the European countries and for these countries, we see a strong growth in the digital sales. And then other countries, we are now undergoing filing, and then we expect to drive sales going forward. Foundayo. For Foundayo, we launched this product back in April in the U.S. for the indication of obesity. And then we started to recognize the loyalty revenue based on the local sales back in the second quarter of this year. So this product is prescribed to patients who are naive to GLP-1 products, and then we will expand the overall obesity disease market. And for access, this will available not only by direct sales, but also a prescription via private insurance and medical -- Medicare is expected. And then we will expand the indication to type 2 diabetes and also in the U.S. and then expand the indication in countries other than launch in the countries other than U.S. And then next, we will share -- I will share the in-house project that will contribute to mid- to long-term grows. REVN24, well, we confirm biological POC among healthy adults in P1, and we are preparing for Phase II. We achieved a go criteria for Phase II. And then there is no -- we are now preparing for P2 targeting the post-cardiac surgery complication cases. There is no treatment available. And then we believe that there will be high unmet medical needs. So we will continue to work hard to provide this treatment to patients as soon as possible. And then across AQUA07, we achieved -- this is the third macrocyclic peptide project entering the clinical phase. And we received a fast track designation by the U.S. FDA in May. So this is -- utilizes our macrocyclic peptide technology and then the -- binds to a different location of fusion protein. And then this is allosteric inhibitor. And then we expect first-line usage of AQUA07 as a combination therapy with existing agent and efficacy in patients who develop resistance existing agents. Lastly, let me share basic policy for capital allocation. We will make an active investment for sustainable business growth. So in order to do that, we established strategic investment department to develop investment strategy, discuss individual initiative and lead promotion of investment. So this department will drive strategic investment based on mid- to long-term growth strategy and R&D strategy. And also, we will continue a stable dividend payout ratio to shareholders. For this year, our expected yearly dividend will be JPY 132 per share. This is an increase in ordinary dividend for 10 years consecutively. That is all for me.
Miyata: Next, Mr. Kusano will provide an update on the development pipeline. We'll pause briefly at the beginning. So please use this opportunity if you would like to take a screen capture.
Kusano: Okay. Now we're starting. I am Kusano, Head of the Project Lifecycle Management unit. I will provide an overview of the development pipeline for the second quarter fiscal 2026. These are the key topics for the second quarter. Regarding approvals, Alecensa received approval for an additional indication for advanced and recurrent ALK fusion gene positive solid tumors. Avastin was also approved for neurofibromatosis type 2, while Rituxan was approved for adult onset frequently lapsing or steroid-dependent nephrotic syndrome. Regarding regulatory filings, Enspryng was filed in the United States for thyroid eye disease and was granted priority review designation. The FDA has set the PDUFA target action date for October 15. In Japan, we filed Gazyva for idiopathic nephrotic syndrome. And giredestrant for unresectable or recurrent breast cancer and for adjuvant and therapy in breast cancer. Tecentriq for maintenance therapy following definitive chemo radiotherapy in locally advanced esophageal cancer and sparsentan for IgA nephropathy. We also filed the drug component of the port delivery platform with ranibizumab for neovascular age-related macular degeneration and diabetic macular edema. And the medical device component had already been filed in March of this year. Regarding study initiations for our in-house product, NXT007, generic name zemocimig, we initiated 2 Phase III studies in hemophilia A. For the Roche originated product, CT-388, generic name, enicepatide, following the previously reported Phase III study in obesity without type 2 diabetes, Phase III study was initiated in patients with obesity and type 2 diabetes. Next, tominersen was removed from the pipeline following Roche's decision to discontinue its development for Huntington's disease. Regarding readouts, AVMAPKI in metastatic pancreatic ductal adenocarcinoma in a Phase Ib/IIa study, the overall response rate was 52% among 29 evaluable patients. In addition, the Phase III study of divarasib in second-line non-small cell lung cancer met its primary endpoint. At medical conferences, we presented Phase III data for PiaSky in atypical hemolytic uremic syndrome or aHUS, as well as Phase II data for emugrobart in spinal muscular atrophy, SMA and FSHD. Zemocimig, vamikibart and Gazyva received orphan drug designation. And this slide shows the key R&D milestones for 2026. The underlined and bolded items indicate changes since the previous earnings announcement, as I've explained so far. We'll also continue to make steady progress on the remaining milestones. Next, I will introduce AQUA07, an in-house developed allosteric ALK inhibitor. AQUA07 is the third clinical stage project to apply our proprietary macrocyclic peptide drug discovery platform technology, SnipeTide. We have just received confirmation that the first patient has been dosed in the study for ALK-positive non-small cell lung cancer today. First, please look at the diagram on the left. All currently approved ALK inhibitors are small molecule ATP competitive inhibitors. They bind into the ATP pocket, indicated by A in the diagram, and inhibit ALK activity involved in cancer cell survival and proliferation. In contrast, AQUA07 binds not to the ATP pocket, but to the allosteric site indicated by B in the diagram through a binding mode unique to macrocyclic peptides, which enables them to engage a broader surface of the protein, AQUA07 can target a side that is difficult for conventional small molecules to access, inhibit ALK activities from mechanism distinct from existing therapies. Next, please refer to the illustration on the right. Existing ALK inhibitor sometimes generates resistance around ATP pocket, thereby reducing the efficacy of the drug. AQUA07, on the other hand, it binds to different locations than existing drug. So therefore, we expect efficacy among cases with drug resistance. And also in the first-line treatment, we expect higher efficacy by using ALK AQUA07 together with -- as a combination therapy together with existing ALK inhibitor. Well, this AQUA07 received a fast track designation by U.S. FDA in May 2026. So we will aim to achieve a resistance -- overcome resistance and also improved treatment for patients with drug resistance. And also, we will continue AQUA07 development in order to achieve first-in-class and deliver this new product options to clinicians. Next, we -- I will talk about PiaSky, we are indicated for atypical hemolytic uremic syndrome, or aHUS. Let me share the development status. Well, recently, we conducted Phase III COMMUTE-a study targeting adults and adolescence as well as COMMUTE-p study targeting pediatric patients. The result of this study were announced in European Renal Association in June 2026. Primary endpoint was the complete remission rate at week 25 among our patients who are naive to complement inhibitor. The remission rate was 59.5% at COMMUTE-a study and 17.6% for COMMUTE-p study. Both of them were very good. And complete remission rate of 59.5% for COMMUTE-a study exceeded a predefined success criteria of 40%. The secondary endpoint was complete remission maintenance rate for patients who switch from eculizumab and ravulizumab. Then the remission maintenance rate was 100% for both studies, and then we confirmed the maintenance to efficacy to control disease for patients with -- from other agents to PiaSky. In addition to that, patients who are on dialysis -- naive patients who are on dialysis at baseline, in all cases, they discontinued dialysis. For safety profile, there was no difference from the already approved profile. And also as an exploratory endpoint, we conducted a survey to check treatment preference. According to the survey, 85% or higher rate of patients and also the caregiver, over 70% of caregivers who are taking care of the pediatric patients preferred PiaSky over existing treatments. We believe that convenience provided by subcutaneous injection form and reduction in burden evaluated highly by patients and its caregivers. So we plan to file a submission for approval in Japan, U.S. and Europe within this year. So we will continue our development activity so that we can provide this new treatment option to this rare and severe disease, which is aHUS. Next, I will be talking about the -- share the status of DONQ52. DONQ52 is a multi-specific antibody which is an in-house project developed by us targeting celiac disease patients. Through our go and no-go scheme, we accelerated the development speed, and currently, we are holding a Phase IIa study in U.S., Australia and New Zealand. Prevalence of this disease is about 1% and there is no treatment available. So we expect to contribute to this segment of patients suffering from celiac disease. As for Phase Ia/b study, Phase Ic study, we are considering publishing the data -- announcing the data in academic congresses. Lastly, this is the -- our submission schedule. The projects with blue star are newly added projects. And projects with green stars are the projects that -- where we changed the submission timing -- planning timing. And then divarasib, our second-line non-small cell lung cancer, based on the project status, progress of the project, we accelerated the filing timing from 2027 to 2026. And as for inavolisib, we now have a time line for regulatory filing for endocrine therapy-resistant breast cancer. And then also -- we -- based on the progress of the project, we changed application timing for endocrine therapy-sensitive breast cancer patients from 2028 to 2029. In 2026, we have the record high number of submission planning, but the progress so far is pretty good. So we expect we bring new treatment options to patients as soon as possible. Subsequent slides are for your reference. So please refer to the subsequent slides. That concludes my presentation. Thank you.
Miyata: Next, Mr. Taniguchi will provide an overview of the consolidated financial results for the second quarter of fiscal 2026. We'll pause briefly at the beginning, so please use this opportunity if you'd like to take a screen capture.
Iwaaki Taniguchi: Let's get started, and this is Taniguchi speaking. And so now, I want to discuss the financial results for the second quarter of FY 2026. First, I would like to report that the revenue for the first half came to JPY 663.3 billion, an increase of JPY 84.8 billion or 14.7% year-on-year. Core operating profit was JPY 329.1 billion, an increase of JPY 57.1 billion or 21% year-on-year. And now I'll walk you through the details in sequence. Starting with revenue. So product sales came to JPY 566.5 billion, an increase of JPY 55.1 billion or 10.8% year-on-year. By region, domestic sales came to 237.9%, an increase of JPY 14.6 billion or 6.5% year-on-year. Strong performance by new and mainstay products more than offset the impact of NHI drug price revisions and generic penetration. Overseas sales came to JPY 328.6 billion and an increase of JPY 40.5 billion or 14.1% year-on-year, reflecting continued strong exports of mainstay products to Roche. Other revenue came to JPY 96.8 billion, an increase of JPY 29.8 billion year-on-year. This significant increase reflected higher onetime income and royalty income from Roche and third parties. I will now move on to the cost items. Cost of sales came to JPY 195.9 billion, an increase of JPY 20.7 billion or 11.8% year-on-year. The increase in absolute terms mainly reflected the significant growth in product sales. The cost of sales ratio increased by 0.3 percentage points year-on-year to 34.6%, mainly due to changes in the product mix. R&D expenses increased by JPY 3.9 billion year-on-year to JPY 90.2 billion, reflecting steady progress in drug discovery and early-stage development projects. SG expenses increased by JPY 3.6 billion year-on-year to JPY 49 billion. This was mainly due to higher promotional expenses for new products such as Lunsumio and Elevidys in the first quarter as well as increases in enterprise taxes and bonus accruals linked to profit levels. As a result, operating profit increased by JPY 57.1 billion or 21% year-on-year to JPY 329.1 billion, while the operating margin rose to -- by 2.6 percentage points to 49.6%. Finally, net income after tax came to JPY 238.4 billion, an increase of JPY 44.9 billion or 23.2% year-on-year, partly reflecting an improvement in net financial income and higher interest rates. Next -- the next slide shows the breakdown of changes in product sales. First, at the bottom, domestic sales, which is in dark blue, the oncology area came to JPY 117.4 billion, an increase of JPY 0.8 billion or 0.7% year-on-year. In terms of breakdown, the new product, Lunsumio, recorded higher sales, while Polivy also increased, following the approval in March of its combination therapy with Lunsumio. Sales of Phesgo also increased steadily, more than offsetting the decline in Perjeta. Meanwhile, Avastin continued to decline due to the impact of NHI drug price revisions and generic penetration. Sales in our specialty area came to JPY 120.5 billion, an increase of JPY 13.8 billion or 12.9% year-on-year. In addition to the mainstay products, Hemlibra and Vabysmo, the new product Elevidys also continued to grow steadily. Overseas product sales came to JPY 328.6 billion, an increase of JPY 40.5 billion or 14.1% year-on-year, driven by a significant increase in Hemlibra sales. The next slide shows the breakdown of the increase in operating profit. Starting from the left, for domestic sales, the significant increase in sales volume more than offset the impact of NHI drug price revisions and contributed positively to operating profit. For overseas sales, the increase in volume significantly exceeded a decline in export unit prices. So together with the positive foreign exchange impact, this contributed to the increase in operating profit, as expected. Other revenue also contributed positively to profit, reflecting an increase in royalty income from NEMLUVIO. We also began recognizing royalty income from Foundayo. Cost of sales, as I mentioned earlier, increased to some extent, reflecting the increase in product sales. And for -- just for your reference, the next slide shows the quarterly trends in cost items and operating profit. And then the next slide shows the quarterly trend in the components of revenue compared to the previous year second quarter or compared to the previous first quarter comparison. For the overseas sales, quarterly results tend to fluctuate to some extent due to timing differences in revenue recognition arising from timing of export shipments and other factors. So on this slide, we are showing our progress as of the end of the second quarter against the full year forecast announced with our financial results in January. Both revenue and profit are showing higher progress rates than in the same period last year. For the pharmaceutical business, we tend to see a bigger sales to come in a latter half of the year, in general. But currently, we are getting close to 50% progress right now for even the operating profit. So we are going quite strong this year compared to last year. Next, this slide demonstrates progress against initial forecast by segment and product. Compared to the previous year, as you can see, sales progress is higher in most of the main products. This page demonstrates the impact from foreign exchange rate as usual. So comparing with last year's actual rate, there was a positive impact of JPY 26.9 billion on revenue and JPY 19.8 billion on operating profit. If you compare this against Swiss franc, actual conversion rate shifted from JPY 171.31 to JPY 183.39 so it's about JPY 12 weaker yen compared to the previous year, which impacted positively on the performance. So next, this is a financial positioning. Well, the total asset is JPY 2,449.9 billion, which is down JPY 18.7 billion. This is due to reduced net working capital. And also, there was a special payout of a special dividend. So that reduced cash that decreased our total asset slightly. However, if you look at net assets, the total equity exceeded the payout of dividend. And so there was an increase by about JPY 20 billion when it comes to net assets. And then as a result, the equity ratio was 82.8%. There was an increase. And also, net cash compared to JPY 979.7 billion. So now there was a decrease of JPY 70.1 billion, and now net cash is JPY 962.6 billion. Well, accumulation of cash is progressing well. However, because of the payout of taxes and so on, there was a reduction by JPY 17.1 billion. Then this is the noncore adjustment, as usual. So the amortization, depreciation of intangible assets and also business building costs are excluded from the IFRS performance. So lastly, this is the major plans for major investment and status of each initiative. That's all from me. Thank you very much.
Miyata: Thank you for your attention. So now we will move on to the Q&A session. So we will have Mr. Hidaka, Executive Vice President in charge of Sales, will be also present to respond to Q&A sessions. To allow as many participants as possible to ask questions, we kindly ask each person limit their questions to 2. We'll first take questions from those participating in person and follow-up by questions from participants joining via Zoom webinar. If you have a question here at the venue, please raise your hand. A microphone will be brought to you. So please state your company name and your name before asking your question. The first in the front?
Hidemaru Yamaguchi: This is Yamaguchi from Citi. My first question, maybe you don't have an answer to this question, but I need to ask you this about the Foundayo. And sales hasn't really started to contribute to your business, but I'm sure it's starting -- including from Q2. I'm sure you had your original prediction or forecast for the full year. So far, compared to your forecast, is there anything you can comment on the progress or the current status? That's my first question.
Osamu Okuda: Thank you very much for your question. Exactly on Foundayo sales will be basically handled by Eli Lilly. So hope you can ask them about the sales status. Overall, not just Foundayo, but as explained earlier, for during this first half, looking at the status during the first half, we are making a good progress, pretty good progress. That means for this fiscal year forecast, we believe we are able to accomplish the full year forecast for overall company.
Hidemaru Yamaguchi: My second question, I know this is a specific question. Sparsentan was applied so I think this is a proceeding in domestic market. I think you had a very high expectation, but can you comment on its potential in the domestic market on this?
Kusano: And for the question, sparsentan, currently in IGA, there are many different drugs available. So there are multiple new treatment drugs are under development right now. And this sparsentan, you can take once a day on an oral format and you are able to show the reduction in protein, and that is quite effective. So it is quite convenient and has a great effectiveness. So that's why there is a high expectation compared to other drugs available. So it's -- I think you come in earlier than the others, so you should be able to maybe get much bigger share in the market. Well, we have already applied for approval. So we can get this delivered to the patients as early as possible, so we can get a bigger penetration in the market.
Shinji Hidaka: This is Hidaka from sales. It's -- this is the renal area, which we haven't really been in the market for a while, as explained by Kusano. It has a very high potential. So we can well permeate throughout the market. So happy you can also have your expectation for this drug as well.
Miyata: Okay. So going to the next person next to the first person, please go ahead.
Kazuaki Hashiguchi: This is Hashiguchi from Daiwa Securities. The first question is royalty and profit share revenue. Well, in the appendix, there was a split breakdown with revenue from Roche. The first quarter, revenue, excluding Roche revenue, JPY 4.1 billion; second quarter, it was also JPY 4.1 billion. The revenue for NEMLUVIO was announced by Galderma. Compared to the first quarter, there was an increase in the second quarter. In Foundayo, you started to recognize the revenue from second quarter. Despite of that, there were no change in the numbers between quarter 1 and quarter 2. Could you just share reasons behind this?
Iwaaki Taniguchi: Well breakdown of the revenue is not to be disclosed. We don't disclose the split. I ask for your understanding. But this is a royalty revenue as you know, and then so we have a tiered agreement with partners and then the rate might change quarter-by-quarter. NEMLUVIO, relatively, progressed really well, and then this was the plan. Well, for the calculation, how we calculate this value, we don't disclose any method of calculation. I ask for your understanding.
Kazuaki Hashiguchi: Well, I asked this question. We're comparing 3 months to 3 months, JPY 4.1 billion and JPY 4.1 billion. And then I wonder if there was no difference between them.
Iwaaki Taniguchi: Well, for many different reasons, we didn't make changes to the number.
Kazuaki Hashiguchi: I understand. The second question is that the -- your policy on allocation on your resource on study and also reorganization, your -- the establishment of strategic investment department. So the capital allocation policy, as you explained, I think, stayed the same. But this new establishment of why did you think the establishment of this new department -- strategic investment department was necessary? Could you give us some explanation on why you established this new department? And also, my next question is that what do you expect to see from establishing this new department? How -- what can we expect from this division, new department?
Osamu Okuda: Thank you for the question. Well, TOP I 2030 started in 2021. And then in TOP I 2030, there were 3 key drivers. One of them is open innovation. Open innovation, well, we really think in-house projects are very important. And of course, we do collaborate with academia, but we really think it's important to establish modality platform for drug discovery in-house to develop innovative medicines. And we have seen success in these initiatives. Looking around, chemical digital, and then we see a lot of our innovations in different areas. So we think that we need to expand our views collaborating not only with academia, but also with venture -- bio ventures, for example, to generate new value. So that's something that we have been working on. As part of this, we established Chugai fund, CBC. And also in the beginning of this year, Chugai partner office was set up in the U.S. and then it's in action already. So as we work on this open innovation, well, we considered in licensing, codeveloping, co-licensing and so on. However, we that we need to step one -- make a one step forward. That's the reason behind the establishment of department. For example, by conducting M&A, we acquire technology and then combining this new technology with our in-house technology, we could provide something new. And also to -- by collaborating with companies that have a target identification technology, we believe that we can deliver new value. And the other element is the change in our financial positioning. As our CEO mentioned, we have accumulated cash. So how to utilize, how to effectively leverage this accumulated cash, has been seen or question, I would say, internally. By leveraging this accumulated cash, we can improve -- increase of value and also by introducing assets, we can -- we believe that we can accelerate our growth. So that is why we established this new department -- strategic investment department to strengthen these initiatives.
Miyata: Okay. Next question. Ozaki from Nippon Keizai newspaper.
Ozaki: I think you also mentioned at the beginning a number of applications. You are planning to have the highest number of applications being filed this year. And last year -- at the end of last year, since then, looking at your presentation materials, the number has been changing slightly. And according to the latest number, how many are you planning for this year?
Kusano: Ozaki-san, thank you very much for your question. Can you please take a look at the chart. So versus under application, there are 9 items. And the first one left top, that is application in the United States. And this is not that we file. It's not as we file this, we exclude them. So currently, 8 are filed. And in 2026, going down, and we have -- are expecting 8 more being prepared. So looking at domestic market. We -- I think we can go up to 16. So at the beginning of the year, we mentioned 15, I think. But now we are adding this green item, divarasib, second line small cell lung cancer. So we actually accelerated this into this year instead of next year. So at the beginning of the year, we mentioned 15, but now it's 16.
Ozaki: Let me confirm. Tecentriq? Last -- at the end of last year, I think it was already filed, wasn't it? Tecentriq for the bladder cancer? Maybe different indication, I guess. Let me check then. And another question is Medicare and the NHI price is being introduced, I guess? And what is the impact on this? In the U.S. MFN price -- drug price issue. So the force introduction into Medicare. So MFN introduced to Medicare, I think that is in the plan. What is the impact of that? What do you think will be the impact?
Osamu Okuda: So the U.S. is leading this international reference pricing, I believe you're talking about it. So it's very uncertain when it comes to its forecast. So under such environment, what we are doing is we are trying to deliver innovative drugs over to patients in a continuous manner. So meaning, the situations are not really fixed right now confirmed at this point. So depending on the situation, there are many different stakeholders. Of course, the Ministry of Welfare as well, also the Patients Association, not just Ministry of Health and Welfare. So we need to have dialogue with all these different stakeholders in order to deliver innovative drugs over to the market, and we want to continue making efforts.
Miyata: Okay. So the person behind him, Go ahead, please.
Akinori Ueda: My name is Ueda from Goldman Sachs Securities. My first question is NXT007 and its Phase III study. Well, in global Phase III study, there was a head-to-head comparison with Hemlibra. Well, your -- do you seek to achieve superiority or dosing frequency or device convenience? So do you think you can promote switching with these convenience and dosing frequency? So what's -- could you tell -- share the more background behind this NXT007 project?
Kusano: NXT007. Yes, thank you very much for your question. In -- we have 2 -- in 2 studies, we started dosing, one is comparison with Hemlibra, the other is comparison with Factor VIII. So what was announced about this Phase III study is that the number of cases, 360 for the comparison with Hemlibra and 126 for comparison with Factor VIII. Well, superiority or inferiority, at this moment, we have not disclosed this information and also dosing frequency that has to do with our strategy. So at this moment, we don't disclose this information. I ask for your understanding.
Akinori Ueda: By the way -- well, about the device, well, it says drug device combination. Are you considering something like auto injector?
Kusano: Auto injector with higher convenience. Yes, we started the study with auto-injector.
Akinori Ueda: My second question is there -- well progress of cost of sales. If you look at the quarterly number, well, it seems that the cost of sales has increased. Well, export of Hemlibra and also product mix might be impacting this? Do you have any cause for increased cost of sales? Is it exchange rate change?
Iwaaki Taniguchi: Yes. Well, to put it simply, it's because of product mix change. And overall, as sales from developing countries increase, our cost of sales will increase. So it's product mix and the geographic mix. But it's just 0.3%. So I appreciate it if you could have a long-term view to look at the annual number of COGS.
Miyata: Next question then. Wakao from JPMorgan.
Seiji Wakao: My first question is about export sales. So everything is going pretty much in line with the plan, as you mentioned, Hemlibra, and also NEMLUVIO included in others. This is according to the results by Roche, I think we were able to confirm very strong progress so far. And you're also showing a good progress rate in your performance. It seems like somewhat stronger than expected, but what is the actual situation?
Osamu Okuda: Thank you for the question. In a nutshell, very -- making a very good progress so far. For exporting, it's not the level out demand on a monthly basis. So towards the end of the year, we also order supply for 6 months or so. So it's been going quite stable. Right now, there is no -- it's not there yet to be able to make any revision to our business performance at this point. So we're making good progress.
Seiji Wakao: So in your plan, you don't really make revisions to your forecast? I know it's quite natural. But compared to the plan, so you are going stronger than the plan? What do you mean by making good progress so far?
Osamu Okuda: In the first half, the first 6 months is going as expected, slightly better than expected.
Seiji Wakao: I see. Second question, AQUA07. So the data fast track, I thought it was rare. So what type of data fast track that you got? And Phase I design, I think this is a combination use. So I just wonder why?
Kusano: Wakao-san, AQUA07 questions. Thank you very much for your question. Well, non-clinical situation with our fast track designation, we are very happy to get this designation. And according to data we submitted, we use ALK resistant impact and also existing ALK inhibitor combination impact and nonclinical data was provided. And so nonclinical data is to be disclosed at an appropriate timing. And also, as explained today, there is a new M&A and that was also appreciated.
Seiji Wakao: Understood. Well, I think. And next, Phase I clinical study. And so why this combination not being utilized?
Kusano: So this is also due to somewhat strategic reasons. So first, we want to start a combination use and in the future, ATP, TKI will be pursued. So we will create more data to allow that to happen.
Miyata: Okay. Next person, go ahead.
Miyuki: My name is Miyuki from Yaku Keizai Magazine. I have a question about Page 17. Well, projects under filing and then projects you plan to file. Sparsentan is in purple. Well, this is the third-party technology, and then I think it's rare for you to file an application for those in-licensed products. Is it a special case for you? Or do you plan to increase those types of filing?
Osamu Okuda: Let me answer this question. So I talked about capital allocation policy earlier. Well, assets in Japan, well, introduce assets and also acquire assets for the Japanese market is one of our strategies. So sparsentan type of filing, well developed products and then also if you see attractive products, we plan to acquire in-license those products. That's part of our strategy -- capital allocation strategy.
Miyuki: Understood. Well, one more question. Sorry, I didn't study much. So on 27 page, well, the Sigmart progress is 124%. Why do you think this is? Could you share the reason for this?
Iwaaki Taniguchi: Well, the progress. Yes, let me answer this question. Sigmart. Well, in China, so there are many things ongoing, like changes in reimbursement system. So originally, we were conservative about price change, and then some of them are pushed back, well, delayed. And then that's why our -- the actual were higher than our focus in the beginning of the term. So for long term, I think we will be overall on plan. However, for short term, we see a strong positive here.
Miyata: And the second from the front row, please?
Hashimomura: Elevidys, the progress, how do you view the progress at this point?
Shinji Hidaka: Let me answer to your question. This is Hidaka. Regarding Elevidys, in total, things are making good progress according to the plan, especially there is an age restriction. So first, this year, for those who are coming to 8 years old will be prioritized to make sure they would not miss any treatment opportunities, so we'll consider dosing those patients first. And by the end of the year, things are moving as planned pretty much. And institutions now we -- so there will be the first case to be starting one after another. So I think we are making good progress so far.
Hashimomura: Another question about R&D -- Elevidys R&D. So there is a testing ambulatory patients, that application will be for 2028. So there's no change, is that correct, with that timing?
Kusano: Hashimomura-san, thank you for your question. So nonambulatory indication, as you mentioned, currently, it is still on hold. So still continue to study. So that is why it's set at 2029 and beyond. And that for the ambulatory indication, for EU, we have not got the approval yet, so we continue to discuss with the regulatory authority. For the new and the ambulatory global Phase III is to be starting right now. That is in the plan.
Miyata: Any other questions from the floor? Please raise your hands if you have a question. Okay. So now we will take questions from online participants joining Zoom webinar. Okay. So the first question, Muraoka-san from Morgan Stanley, please?
Shinichiro Muraoka: This is Muraoka from Morgan Stanley. Do you hear me okay? I have a question about NEMLUVIO. Well, I don't need too much of a detail. However, I'm still wondering. I don't have any visibility why royalty value was flat. I didn't quite understand. And also the export volume comparing the first quarter and the second quarter, if you compare these 3 months, well we saw a decline. I was wondering why. And then were there any specific special transaction? If you said that there was a special transaction, I can understand, but I don't understand why, because it will make it difficult for me to develop a story going forward. So could you elaborate on this point?
Osamu Okuda: Thank you very much for the question. So basically, the local sales reported by Galderma and our export volume do not align all the time because for -- we have -- based on the binding commitment, we export and sell products to Galderma. But it does not -- it's not in parallel with local sales made by Galderma. So Galderma, they consider what's their safety inventory, appropriate inventory and then they make their purchase plan based on their strategy. So they don't -- these 2 things don't usually align. I ask for your understanding.
Shinichiro Muraoka: I understand. So it's not that the inventory level is very low? Are you aware?
Osamu Okuda: We don't hear anything. But what we do is based on the request for import, based on the shipment strategy, we will meet their demands and requests and export our products, but we don't know how much is their inventory level.
Shinichiro Muraoka: I understand. And then the other thing is DONQ52. Well, now you entered Phase IIa, which is a good news. Well, it's been 4 years since you started Phase I. I think this project is taking a long time. I think everybody is saying so. So can you explain why it took as long as 4 years? And then also, do you think that can -- we expect that this will accelerate from this point? So let me understand how to interpret this trial.
Kusano: Thank you very much for your question on DONQ52. As you know, celiac disease, the -- there's no investigational drug approved for the indication of celiac disease. This is a completely new area, disease area. So we took time to complete Phase I. In addition to that, as we reported the other day, gluten challenge. So this is to intentionally give gluten to patients. So this was a very challenging study. So this is a new area and then this study is being conducted outside of Japan. So that's why it may have taken longer time. However, as I said today, now we entered Phase IIa. And then we believe that we can accelerate the process going forward. Specifically, this project targeting celiac disease, we invited a renowned immunologist, clinical immunologist. So he sees patients, and he supports this study as well. And then please, I expect that this will accelerate going forward.
Shinichiro Muraoka: In the next page, well, after 2029 in the time line, DONQ is here. So does that mean that you expect to enter Phase III in 2028? What's your expected time line?
Kusano: Thank you for the question. At this moment, it depends on the result of Phase IIa currently ongoing. Well, we are not aggressive when we make this plan. But once we see the data result, I'm sure that the subsequent study will be accelerated. We would like to make sure that we confirm proof of concept as soon as possible.
Miyata: Next question from UBS Securities. Seki-san, please?
Seki: This is Seki from UBS. Regarding capital allocation, I have 2 questions. First question, your stock price has been declining slightly. So is it possible for you to conduct share buybacks? It's not if you intend to do. I'm asking if it's possible to conduct share buyback? So depending on such a restriction, for example, from the market and Roche your buyback, to have the same ratio? Will that be possible? Have you assessed that possibility? That would be my first question.
Iwaaki Taniguchi: Seki-san, thank you for your question. This is Taniguchi speaking. If it's possible or not, it is possible, I believe. But of course, there are many stakeholders, and we need to find the best return to the shareholders. So we need to have such a comprehensive review to decide. And that's why we decided to go ahead with a special dividend this time. And we also had a 45% payout ratio as part of the common dividend -- ordinary dividend, and that's what we are proposing. It is possible technically. But as mentioned earlier, the ratio of floating stocks in TSC is also monitored. And based on the condition, we chose the most relative option by providing a special dividend.
Seki: So this strategic investment department that was newly built. So it's very unlikely to assume purchasing the pipelines as is. I think it's going to be a technical technology that you'll be purchasing. How much are you looking at in terms of size? If it's a great quality technology, can you actually go for maybe a few hundred billions of yen to be spent?
Osamu Okuda: So regarding the size, depending on the cash level of being accumulated and also the cash needed to sustain business operations, and based on those conditions, we will -- we have certain assumption of the investment amount. And at this point, we are not able to share specific numbers.
Miyata: Next from Macquarie Capital, Tony Ren, please?
Tony Ren: Tony Ren from Macquarie. My first question is about your Vabysmo sales. So yesterday, Roche reported fairly, I would say, Vabysmo sales, right? But in Japan, your Vabysmo sales grew 25.8%, right, in the first half of this year. So can you explain why this drug is doing so much better in Japan compared to what Roche reported? Yes, that's my first question.
Osamu Okuda: Well Vabysmo sales, domestic Vabysmo sales, I will have Hidaka -- Mr. Hidaka to explain about that. But this is under Roche responsibility. Outside of Japan sales, which is under Roche responsibility, we don't make a comment.
Shinji Hidaka: So let me make a comment about the Japanese market. Well, it's been 3 years since the product was launched. Last year, in May, pre-field sellings was launched, and then that really accelerated the sales. Especially indication is alvio. For alvio, Vabysmo is used much more than we had initially expected. So that's why domestic sales has been going quite well. At this moment, well, as of June, 30%, we have a market share of over 30%. So we would like to make sure that Vabysmo, we would like to make sure that the Vabysmo feature benefits will be well communicated to doctors.
Tony Ren: Okay. Very good. Then I would like to ask you about your AQUA07, again, the allosteric ALK inhibitor. So my understanding is that you -- in the front line, you are looking to combine it towards lorlatinib, right? Have you seen -- can you comment on the toxicity profile? Lorlatinib has a bit of toxicity, right, higher cholesterol levels, some CNX toxicity. Have you seen any toxicity of your AQUA07 that you think would contribute to additive toxicity?
Kusano: Tony Ren, thank you very much for your question about AQUA07. At this moment, looking at the nonclinical test study result, both as a single therapy or as a combination therapy, we haven't identified any serious side effects. However, we need to administer this drug to a patient to see what's really -- what might be a risk. So we will conduct a study to confirm the efficacy and toxicity both as a single therapy and also as a combination therapy.
Miyata: Sanford C. Bernstein Securities, Sogi-san, please?
Miki Sogi: NXT007. So you're talking about this EBITDA future growth driver. So where are you looking at the growth driver target businesses?
Osamu Okuda: Just according to our assessment, we have Hemlibra having quite large share with NXT007 Phase III to be successful once we get approval to be launched. What will be the positioning of this NXT007. Depending on the patients, and some patients could be good with Hemlibra, may not be able to get a good result with Hemlibra. Also with the patient with high activity who needs much stronger drugs could be actually switching from Hemlibra. But also at the same time, it is currently true to the situation, but there are many patients who are satisfied with Hemlibra. So if you look at them in total, so the sales of Hemlibra, certain patients will be switching over to NXT007. And if NXT007, it's going to be the incremental sales. In addition, we can expect some incremental sales. So that's why we consider that as a growth driver.
Miki Sogi: Yes, that's what I meant. Also the switching from Hemlibra, when that happens, meaning the NXT007 is slightly higher in price. Is that because of that higher price?
Osamu Okuda: It doesn't really make sense to switch because of the higher price. The price is higher when you switch to the NXT007, there can be a gross additional revenue sales. But let me explain this. Hemlibra having a quite large share already. So switching from this existing share, and there are those patients who continue on Hemlibra. And those patients who hasn't used Hemlibra and Factor VIII preparation patients, there are several clients. But they may start using NXT007 or maybe Hemlibra. So those are the options. So there could be new patients and they are switching patients from Hemlibra. So those will be increasing in total in terms of number of patients.
Miki Sogi: Understood. Okay. So switching from Hemlibra -- switching to NXT007 from Hemlibra. Can that be considered as a growth?
Osamu Okuda: Talking about the price -- at this point, it's very difficult to make any comment about the price. If this can be a growth or not, we don't know yet. But at least, the sales would not be declining. That's what we are forecasting right now.
Miki Sogi: I see. My second question, AQUA07. So ALK-positive non-small cell lung cancer. There are pretty good drugs available and which are providing clinical benefits to patients right now. And now we are talking about this ALK inhibitor, allosteric inhibitor is going to be introduced, which is different from what's available right now. What is our strategy? So adjuvant or the first line, if you use this, by having a combined therapy. So by extending the treatment period of the second line, it would maximize the value -- commercial value of this product. Is that the right understanding?
Kusano: Sogi-san, thank you very much for the question on AQUA07. For this AQUA07, this is for first line and second line. So in either treatment, we can expect better results in effect because for the first line, the combination treatment is considered. The connecting location, the inhibitors are utilized in different locations. So if we combine them together, those treatments, the emergence of the resistance change can be actually suppressed. So compared to the existing drug, PFS will be longer, probably. And that is a further longer PFS than the current first line that is available. So that's one strength. And the second line, it's going to be on single treatment. The current ALK inhibitors are pretty good drug available. But still, you tend to have a resistance as well. So this is the first time to actually act on non-ATP pocket area, different location. So if this truly works well with the existing drug for those patients regard resistance to the existing drug. So this AQUA07 can actually generate enough effect by single use. So that's why we can see the improved efficacy both in first line and second line.
Miyata: Next, from Nihon Keizai Shimbun, Ms. Nakada, please.
Nakada: From Nihon Keizai newspaper. My name is Nakada. Well, your performance, the impact of our foreign currency exchange rate. I would like to ask an impact. So weaker yen, well, higher dollars are progressing. And then do you -- what you see impact? How much do you see an impact on weaker yen? And then what do you think is an appropriate exchange rate?
Iwaaki Taniguchi: Well, systemically, weaker yen both in terms of revenue and profit have a positive impact, as you see on this slide. Well, recently, well, yen was weaker against Swiss franc that have made a positive impact on our performance. But long-term perspective, what will happen? And then if there is any ideal exchange rate, to that question, we are not in a position to answer this question. I hope that this clarifies your question.
Miyata: So next from SMBC Nikko Securities, Wada-san, please.
Hiroshi Wada: This is Wada from SMBC Nikko Securities. I am asking you -- I have a question about AQUA07 once again, going back to AQUA07. So the first line -- so with the allosteric ALK inhibitor, we have zambriks and asiminiv. So these are used for the first line. They started with the second line and then they're now utilized on the first line and single use. But can you once again talk about the first line you're talking about combination therapy? And would that be also a single use also considered in the future beyond the second -- sorry, for the first-line therapy?
Osamu Okuda: Well, thank you very much for asking a question on AQUA07. Now for the first line, single use drug is also effective, I believe. But as I mentioned earlier, we think combination therapy will be better because it can reach a different location. So you can approach to a different location. So comprehensively, we can actually weaken the mechanism to generate resistance on each location. So different approaches utilized by using this combination therapy, I think it would be considered better. Of course, single drug is okay. But with the combination, we have this assumption of having longer PFS.
Hiroshi Wada: ATP connection point can be the area which can actually change a lot. But with the allosteric AQUA07 connection point, do you have any study tested to tend to have mutations at the location?
Kusano: So it's possible to have resistance dislocation for AQUA07, but how much resistance is generated is we still don't have the result. So we want to confirm through the clinical studies.
Hiroshi Wada: Another question, DONQ52. If it's possible, I think you were looking at licensing out there. So what is the possibility and what is the current status of negotiation of licensing out this drug?
Kusano: So DONQ52 question. Thank you very much. For a specific project, whether to license in or out, we want to refrain from commenting on that. So currently, we are conducting Phase IIa study and we want to complete this properly. Then based on the result, we want to start looking at where to license out.
Miyata: Okay. So we have covered all the questions. So now we will conclude question-and-answer session. Thank you. With that, we will conclude our FY 2026 quarter 2 financial performance announcement meeting. For questions that were not answered, please contact our communication IR department. In the last page of the presentation slide, you have the phone number and our e-mail address. Thank you very much again for your time and participation. That concludes the session.
