Daiichi Sankyo Company, Limited (4568) Earnings Call Transcript

[Interpreted] Thank you for waiting. From now on, we would like to open Daiichi Sankyo's FY 2026 Second Quarter Earnings Call. And my name is Fujishiro, working as MC for today's session covering IL. First of all, about the languages of choice. In this session, we use both Japanese and English, so that you have a simultaneous translation service. [Operator Instructions]. Presentation decks are available to be downloaded on a corporate website, IR Library, earnings call related document. And so today, we have 4 speakers, Representative Director, President and CEO, Okuzawa; and also Ken Keller, the Board Member, Global Oncology Business Head; and John Tsai, Global R&D Head; and also Kodama, CFO of the company. First of all, Okuzawa, Ken, John will give you the overview of the year performance and our plan 7:00 PM will receive questions from investors and analysts. [Operator Instructions] This session is recorded. Please be aware of that. Let's get started. Mr. Okuzawa, the floor is you guys now.

[Interpreted] This is Okuzawa. Thank you very much for participating in Daiichi Sankyo's Financial Results Presentation Meeting today. I will now walk you through our consolidated financial results for the second quarter of FY 2026, which were announced today at 1:00 p.m. following the presentation material. Please turn to Slide 3. We will cover FY '2026 Q2 financial results, business update and R&D update in this order. Business update will be presented by Ken Keller, Head of Global Oncology Business and R&D update by John Tsai, Head of Global R&D. We will take your questions at the end of the session. Please turn to Slide 4. Highlights of the second quarter. Strong growth in our flagship products ENHERTU and DATROWAY drove revenue past the JPY 1 trillion mark by the second quarter. Progress is on track toward achieving record high full year revenue. Regarding operating profit, COGS ratio improved, and we are well on track toward a significant year-on-year increase in full year operating profit. Our consolidated forecast for FY 2026 remains unchanged from the forecast announced in July. For your reference, updated sales projections by product and unit are available in the supplementary materials. This slide provides an overview of our consolidated results for the second quarter of FY 2026. Revenue increased by JPY 191.9 billion or 19.7% year-on-year, reaching JPY 1,167.2 billion, Cost of sales increased by JPY 1.1 billion year-on-year. SG&A expenses increased by JPY 96.9 billion year-on-year. R&D expenses increased by JPY 23.2 billion year-on-year. As a result, core operating profit increased by JPY 70.6 billion or 46.9% year-on-year to JPY 221.3 billion. Regarding the CMO compensation fee included in the cost of sales although there was an increase resulting from a onetime payment we made to certain CMOs, foreign exchange adjustments and partial reversals of provisions recorded in FY 2025 for calendar years 2026 and 2027 resulted in JPY 16.7 billion decrease year-on-year, resulting in a total of JPY 4.3 billion. The onetime payment to certain CMOs was made to resolve any future potential shortfall between our supply plan and minimum purchase applications, thereby eliminating future uncertainties and risks associated with these contracts in a manner consistent with economic rationality. In addition to the JPY 4.3 billion booked in the second quarter, as already informed in the full year projection, JPY 80 billion CMO compensation fee related to calendar year 2028 is expected to be booked in the third quarter or later this fiscal year. But because we also expect additional reversal of the provision booked last fiscal year, the total amount projected remains the same. For details, please refer to Appendix Slide 26. Operating profit, which includes noncore income and expenses, increased JPY 49.6 billion or 34.4% year-on-year to JPY 193.8 billion. Profit attributable to owners of the company rose by JPY 20.7 billion to 15.8% year-on-year to JPY 151.5 billion. Quarterly EPS increased by JPY 12.67 year-on-year to JPY 83.22. Foreign exchange rates reflected a weaker yen against both the dollar and the euro. Slide 6, please. From here, I will explain the factors for increase and decrease year-on-year. revenue grew by JPY 191.9 billion year-on-year. Here is the breakdown by business unit. First, Japan business unit achieved sales increases in anticancer agents, ENHERTU and DATROWAY and pain treatment, Tarlige, but antiepileptic impact so generic employee and termination of the co-commercialization agreement. Antiplatelet agent, Effient, also saw generic entry and oral anticoagulant, Lixiana, was affected by NHI drug -- this resulted in Japan business revenue decrease of JPY 8.3 billion. Next, our overseas business units, excluding the foreign impact here. In the oncology business, driven by strong growth of ENHERTU and DATROWAY, revenue increased by JPY 114.3 billion. In the American region, in deficiency anemia therapies, Venofer and Injectafer and generic injectables sales decreased, resulting in JPY 25.4 billion revenue decrease. In the EU specialty business, growth of cholesterol-lowering agents, [indiscernible] was offset by a decline in Lixiana resulting in JPY 800 million revenue decrease. In the ASCA business, Asia, South and Central America, led by growth in ENHERTU, notably in Brazil, revenue increased by JPY 11.5 billion. In the upfront payment and regulatory sales milestone related to alliance with AstraZeneca and U.S. Merck. Regulatory milestones were recognized for ENHERTU approvals in the U.S. for HER2-positive breast cancer neoadjuvant adjuvant treatment and in Europe for first-line treatment resulting in JPY 26.6 billion revenue increase. The positive impact of foreign exchange on total revenue was JPY 73.9 billion. Slide 7 shows operating profit factors for change. As mentioned, the breakdown of the JPY 49.6 billion will be shown, and revenue grew by JPY 191.9 billion. Regarding cost of sales and expenses in cost of sales, due to revenue growth, other cost of sales increased by JPY 17.7 billion. On the other hand, due to a decrease in CMO compensation fee, the overall increase in cost of sales was limited to JPY 1.1 billion. SG&A expenses increased, reflecting the increase in profit share with AstraZeneca by JPY 96.9 billion. Regarding R&D expenses, due to weaker yen and increases in R&D investments associated with development progress for 5 DXd-ADCs and next wave R&D expenses increased by JPY 23.2 billion. Noncore income and expenses, mainly due to EU specialty business unit restructuring and impairment loss on paclitaxel increased by JPY 21 billion. Next, Slide 8 explains changes in profit attributable to owners of the company. Operating profit increased by JPY 49.6 billion as explained. Financial income expenses, mainly due to the deterioration in foreign exchange gains and losses were affected by JPY 20 billion. Income taxes, reflecting higher profit before tax increased by JPY 7.4 billion, following the partial share transfer of Daiichi Sankyo Healthcare in July this year. Profit attributable to noncontrolling interests has been recognized starting this quarter. Consequently, profit attributable to owners of the company increased by JPY 20.7 billion year-on-year to JPY 151.1 billion. Slide 9, on July 31, 2026, we submitted parcel corrections to our FY 2025 financial results to the Tokyo Stock Exchange. We take this matter very seriously, recognizing the significance to the reliability of our financial reporting. The issue stemmed from errors in data aggregation process, and we recognize that no structural issues were found that would compromise the effectiveness of the overall internal control system. Meanwhile, as recent business growth and globalization have made our organization and operational processes, more complex. The Board of Directors is not viewing this as an isolated event, but is discussing how to identify and oversee financial reporting risks in a timely and appropriate manner going forward. We are committed to enhancing the accuracy and reliability of our financial disclosures by regularly evaluating and monitoring both the internal control system itself and the effectiveness of the strengthened operational processes. Next, I will review the progress of our operational excellence program. This initiative is an enterprise waste transformation program designed to achieve our 2035 vision and the sixth medium-term business plan by focusing on strategic prioritization and resource allocation to fundamentally strengthen our profitability, competitiveness and organizational capabilities. This program consists of external expense optimization, process transformation through AI and structural transformation. External expense optimization is optimizing procurement processes based on unified data from our global ERP. Business process transformation through AI is developing multiple concrete use cases. Structural transformation is simplifying our organizational and business operating model. We are advancing the identification of high-impact areas and measures for profitability and are now in the pace of developing and executing detailed plans for each initiative. Through these efforts, we will create capacity to invest in DXd ADCs subsequent BGTs, AI and other priorities while securing the midterm plans profit trajectory by delivering the JPY 200 billion cost optimization committed at the plan's announcement. Internally, we have targeted benefits exceeding JPY 200 billion over 5 years, and any surplus will be reviewed for cash allocation based on comprehensive reviews of our financial standing. I will now hand over to Ken Keller, Head of Global Oncology Business, for the business update.

Thank you, Okuzawa-san. Hello. This is Ken Keller, I'm Head of the Global Oncology Business Unit. I'll provide an update on business performance beginning with ENHERTU. Next slide, please. ENHERTU delivered another quarter of outstanding performance. Global product sales reached JPY 464.5 billion, an increase of 45.9% year-over-year or JPY 146.1 billion. This performance demonstrates the strength of ENHERTU today and the scale of the opportunity still ahead. Growth in the second quarter comes from 3 clear drivers. First, deeper penetration in existing indications; second, expansion into new indications; and third, broader access for patients around the world. Importantly, this growth is broad-based. The U.S. region led with 55% year-over-year growth, followed by our ASCA region at 49%, Japan at 37% and Europe at 26%. In the U.S., we have launched 3 important new indications this year. In January, we launched the first line HER2-positive metastatic breast cancer indication, and this is based on DESTINY-Breast09. I'm happy to report the adoption has been impressive. ENHERTU has already become the market share leader and the new standard of care, and we expect adoption to continue as physicians gain experience with this regimen. This indication has also recently been approved in China, Japan and Europe. Based on the strength of the U.S. launch, we see a substantial opportunity, and we expect to replicate that success globally. Equally important is our progress in early-stage breast cancer, bringing ENHERTU into the early-stage curative setting has always been our goal. Since our first approval in late-stage advanced setting, we felt ENHERTU's greatest and biggest impact would be in the early treatment setting where cure was still possible. It is gratifying to us and the entire oncology community to now have launched ENHERTU in both the neoadjuvant and the adjuvant settings based on DESTINY-Breast11 and DESTINY-Breast05 in the United States. I am pleased to share with you that ENHERTU's adoption is increasing month after month in both settings. Based on the early adoption and the feedback from oncologists, we are confident that ENHERTU will soon become the market share leader and establish itself as the new standard of care in both settings. As I stated, these are potentially curative settings, which makes this expansion and our progress, especially meaningful both for patients and for the long-term growth profile of ENHERTU. We are also making progress in expanding access. Following extensive negotiations, I'm happy to report that ENHERTU has achieved public reimbursement in the United Kingdom for HER2 low metastatic breast cancer after chemotherapy. This provides access to approximately 1,000 patients who have been waiting for a new treatment option. ENHERTU has already transformed the treatment of HER2-positive metastatic breast cancer. As ENHERTU moves into earlier stages of disease and reaches patients globally, we believe its clinical impact and commercial potential will become even greater. ENHERTU's overall Q2 picture is one of accelerating growth as its addressable market continues to expand, and there is significant headroom. ENHERTU is nowhere close to the limits of its opportunity. Next slide. Now I'll turn to an update on DATROWAY's performance. DATROWAY is rapidly emerging as our next major growth driver. Q2 global product sales reached JPY 48.3 billion, an increase of JPY 32.6 billion year-over-year. Growth accelerated sequentially during the quarter, and we expect continued momentum throughout the second half of this fiscal year. In the U.S., market share continues to expand in the EGFR-mutated non-small cell lung cancer setting. As physicians gain experience with DATROWAY and their confidence in its clinical profile grows, we expect substantial growth in the coming years. Importantly, the experience gained from prescribing DATROWAY in this lung cancer indication will serve as a strong foundation as we're ready for the top line results of multiple lung cancer trials in fiscal 2027. Our May launch in the first-line PD-L1 inhibitor ineligible metastatic triple-negative breast cancer setting is progressing very well. Market penetration and new patient starts are increasing every month. Physicians are highlighting 3 important attributes in their treatment decisions. First, it's DATROWAY's unique overall survival benefit, it's doubling of overall response rate and its convenient dosing. At last week's ESMO meeting, we also presented new data on DATROWAY's CNS activity in triple-negative breast cancer based from our TROPION-Breast02 trial. This is important because up to 1/3 of patients with triple-negative breast cancer, eventually develop brain metastasis, an area where there is significant unmet need and very limited treatment options. These data showcased the CNS efficacy of DATROWAY in triple-negative breast cancer patients with baseline brain metastasis. The trial demonstrated that DATROWAY significantly improved progression-free survival, response rates, and CNS disease control compared to investigator's choice of chemotherapy. The median CNS progression free survival reached 9.5 months with DATROWAY compared to 2.6 months with chemotherapy. This data underscores the potential of DATROWAY as a first-line treatment option for triple-negative breast cancer patients. Now I attended ESMO and the physician feedback on these data was highly encouraging. Based on that feedback, we believe these findings further strengthen DATROWAY's clinical profile and will inform and strongly influence future treatment decisions. DATROWAY's global expansion is also accelerating. It was approved in Japan on September 16 for first-line metastatic triple-negative breast cancer. It achieved public reimbursement in Germany for first-line triple-negative breast cancer, supporting European growth. And it was launched in Brazil in August. DATROWAY now has multiple growth engines, increasing U.S. adoption, expansion into additional indications, new clinical evidence and a growing global footprint. DATROWAY is becoming an increasingly important contributor to our oncology growth with substantial potential still to be unlocked. This foundation will position DATROWAY strongly for its upcoming clinical data catalysts expected in fiscal '27. Next slide, please. Now I'd like to talk about the recent collaboration with Summit. Our collaboration with Summit Therapeutics is a strategically important step in maximizing the potential of DATROWAY. Together with AstraZeneca, we will evaluate DATROWAY in combination with ivonescimab across multiple tumor types, including lung cancer and breast cancers. The collaboration will begin with a Phase III study in first-line triple-negative breast cancer. Our ambition is to establish DATROWAY as a backbone of treatment across multiple cancers and combinations will be an important part of achieving that ambition. DATROWAY brings a TROP2 directed DXd ADC together with ivonescimab's dual targeting of PD-1 and VEGF. This gives us an opportunity to investigate this differentiated treatment regimen across multiple tumor types. We believe the next era of oncology will be defined not only by better individual medicines, but increasingly by the right combinations for the right patients. This collaboration is an example of how we intend to move with speed, use external innovation and strategically work with partners to maximize the value of our pipeline. Next slide. Daiichi Sankyo has built world-class science. We must now ensure that our commercialization capabilities are equally world-class. Our portfolio is entering a new phase. We will have more indications, more markets and more launches to manage. We will have more than 20 registrational trials expected to be read out over the next several years. Together with a significant number of early-stage assets advancing through our pipeline. At the same time, the pharmaceutical environment is increasingly interconnected, a pricing or access decision in one market can influence value in many others. This creates an unprecedented opportunity to bring more medicines to more patients. It also significantly increases the value at stake. To capture this opportunity, our commercial model will evolve. Effective April 2027, we will operate as one global commercialization organization, bringing our regional businesses and our global commercial functions together under one unified accountability. This change will support faster and better decisions more efficient resource allocation, it will elevate launch readiness and allow us to build better capabilities to deliver more consistent world-class execution across markets. It will also strengthen collaboration internally between commercial, R&D and our technology unit. In the new commercialization organization, our responsibility and commitment is to convert our expanding pipeline into sustainable, global revenue and operating growth, delivering greater value for patients, Daiichi Sankyo and our shareholders, all with a singular goal of ensuring our medicines reach the right patient at the right time, every time across the globe. I'll now turn it over to John Tsai, our Head of Research and Development.

Thanks, Ken. This is John Tsai, and I'm going to give you the updates from R&D over the last quarter. Next slide, please. We start with the results of DESTINY-Lung04 where we released these results at the World Congress of Lung Cancer in early September. In this study, ENHERTU versus standard of care, which is platinum pemetrexed doublet plus pembro demonstrated a statistically significant improvement in progression-free survival with a hazard ratio of 0.63. This is in first-line patients with advanced HER2 mutated non-small cell lung cancer, and the results represented a 6-month improvement in medium progression-free survival. In the primary analysis ENHERTU monotherapy reduced the risk of disease progression by 37% and a medium progression-free survival of 14.3 months versus 8.3 months for the platinum pemetrexed doublet with pembro. The results were demonstrated and consistent across subgroups, including prespecified subgroups in patients with brain metastases, smoking status in HER2-mutated status. At the time of the analysis, the overall survival was less than 50% mature. While there was no observed overall survival benefit at this early time point, the OS also did not favor ENHERTU, but we did see greater use of HER2 therapies in the control arm. Next slide, please. I'd like to give you some regulatory updates for ENHERTU. First, for DESTINY-Breast09 in the first-line HER2 mutated metastatic breast cancer setting with ENHERTU plus pertuzumab, which demonstrated a decreased risk of disease progression or death by 44%. This was approved in China in August. And in September, we received the approvals in Japan and the EU. Next, in DESTINY-Breast05, which is in the HER2-positive early breast cancer adjuvant setting, which demonstrated a reduced risk of invasive disease or death by 53%, this was approved in China and EU in October. Lastly, for ENHERTU in the HER2 pan-tumor solid tumors, this was approved in China and also in October, and this was based on 4 Phase II trials across a broad range of solid tumors. With that approval in China, that equates to 10 indications for ENHERTU in China. Next slide, please. Now I'd like to go over the updates for DATROWAY. For DATROWAY and TROPION-Breast02, which is in the first-line metastatic or unresectable triple-negative breast cancer setting, this was approved in the U.S. in May of 2026. Following that, we received approval in the EU in July approval in Japan in September and in China in October of this year. For TROPION-Urothelial04, which is in high-risk muscle-invasive urothelial cancer, we started the study, and the first subject was dosed in August of this year. Moving on to I-DXd. We voluntarily withdrew the filing for the accelerated approval of I-DXd in extensive stage small cell lung cancer in September. This was based on discussions with the FDA, where the data from our Phase II ID8-01 study did not support an accelerated filing in discussions with the FDA. We continue to enroll patients in ID802, our Phase III trial and the enrollment of this study is nearly complete. Next slide, please. Here, I'd like to share some additional data for R-DXd, which was shown at ESMO just this past week. This is an update of REJOICE-Ovarian01 and Phase II/III trial. And the results shared here is from all patients treated in the Phase II dose optimization study of the REJOICE-Ovarian01. This is data that has longer follow-up than what we've seen before. And the results demonstrated further improvement in duration response, progression-free survival and patient reported outcomes. We also demonstrated efficacy in patients with CDH6 greater than 1% biomarker. Based on this, we're moving forward with the 5.6 milligrams per kilogram, and these results demonstrated an overall confirmed overall response rate of 49.7% and a median progression-free survival of 7.9%, with a balanced safety profile of 5.8% low-grade ILDs. To note, there were no grade 5 ILDs at this dose. Next slide, please. We continue to advance our DXd ADC platform in the ovarian cancer space. You can see here that ENHERTU continues to advance in the HER2+ first-line maintenance study in DESTINY-Ovarian01. In addition to REJOICE-Ovarian01, we also are advancing REJOICE-Ovarian04 in the platinum-sensitive ovarian cancer second-line space, we're advancing REJOICE-Ovarian04 in the platinum-resistant ovarian cancer space in the first-line maintenance setting and also REJOICE-Ovarian05 in the platinum-sensitive ovarian cancer, second-line induction and maintenance patients who are PARP progressors. These are our advancements in just the ovarian cancer space. Go to the next slide, please. For the news flow in 2026, the majority of these data readouts remain the same. There is one change, which is highlighted in blue here. That is the change in AVANZAR, which we'll report out in calendar year first half 2027. And specifically, it will be in the first quarter of 2027 calendar year. One last thing before I conclude my remarks, I'm proud to say that we received the international Pre-Galeun Award for ENHERTU as the best technology product, and this is an award that's given out every 2 years by the Gallium foundation. This is the second award granted to ENHERTU following receipt of the National Pre-Galian USA Award for Best Technology product in 2024. We're very proud to receive this matter, and this was received yesterday. With those, I conclude my remarks. Go to the next slide, please.

[Interpreted] Slide 23 shows the upcoming IR event. On November 25, Japan Time, we will host the sustainability meeting. Additionally, we plan to hold an R&D-focused IR event within FY 2026. Details will be announced as soon as they are finalized. We will now move on to the questions-and-answer session.[Operator Instructions]

[Operator Instructions] We will move on to the first question. Citigroup Securities, Mr. Yamaguchi.

[Interpreted] My name is Yamaguchi. The first question I have is directly to Ken-san. And that all way TMBC in that indication, it's doing well. And so then PD-L1. No question about that. The your competitor product, got the indication. And so that away is limited to PD-L1 ineligible. And till there would be is easier to use given this? Is it impactful to the performance or not impactful? And so this is about new detail. I'm sorry about that. This is my first question.

Thank you very much for the question. So in the United States, when we look at DATROWAY and the triple-negative breast cancer indication, the real drivers of choice today are overall survival, overall response rate, ease of use and then another factor that comes in there is comfort with the drug and habit. And so in the United States, our competitor was launched before we were. And so today, physicians are gaining experience with DATROWAY in our new indication. And I can say the feedback is very positive. And so specifically your question about is the broader indication or the lack of it making an impact, very much at all. It's more about the comfort of physicians who have been using that competitive product. Now they're trying data. And I think as they try, you'll see adoption accelerating even further from here.

[Interpreted] The second question to Kodama-san and the CMO payment compensation and that was explained previously, up to Q2 and the full year result, like those are not changed and as they are changed. And up to Q2, what is going on and to JPY 80 billion plus or minus for the full year, like a long-term expectation is something I would like to ask you.

[Interpreted] Thank you for the question. And the CMO compensation, and in Q2, so status. And also for the full year, JPY 80 billion was announced, whether those numbers stay the same, not that be the question. And so Slide #26 probably. And Okuzawa already explained. And in FY 2025 -- or if telling year '26 and '27, we have reserves. And so we have ForEx at play, and it fluctuates because of that. And so that at the end of the fiscal year, you might have a negative impact due to stronger. On the other hand, part of CMOs in the future, so we are making lump-sum payment for the future cancellation and so that we are getting additional amount, but in calendar year 2028, in terms of the reserve, and that is expected to be JPY 80 billion and no change to that number for the time being, and our original assumption was a negotiation and that is in progress. And so we are managing the situation. And one additional information is ForEx. And because of the fluctuation, the amount might come up or come down.

Next question, UBS Securities, Mr. Sakai, please.

[Interpreted] This is Sakai from UBS Securities. And this CMO compensation fee, I have additional question to Kodama-san. I-DXd, withdrawing of the application submission. This means that the supply necessary will become less. And looking at FY -- calendar year '28, no change you said just now, which means because this is a not big indication, not affected. -- not affecting JPY 80 billion. Is this the right way to look at it? And then in the balance sheet, inventory is increasing. Is this commercial inventory what kind of inventory? I think we had booked for that in the past, but can you explain further?

[Interpreted] Thank you very much for your question. Two questions. One with CMO compensation, ID8 withdrawal of the submission impact, plus the other is inventory increase of about JPY 100 billion. You were asking about this content. And now CMO compensation fee. Impact by I-DXd -- and as you are right, I-DXd, yes, the impact is not that big from I-DXd. And in the future, we will be expanding our applications. We are conducting various studies to broaden our applications considering this aspect, what we had already prepared for, the timing of starting to use what we pared for will be a bit later, but we do not expect any significant or meaningful impact right now. And the second question was about inventory. Yes, you're right. R&D related and clinical tire-related inventory, they were expensed when they took place and the increase in the inventory is basically the commercial inventory. And as we may have explained a number of times for DXd ADCs, the manufacturing period is quite long, and we are preparing for future sales. And we are manufacturing for future sales, the DXd ADCs. And because we are seeing ENHERTU sales expansion are preparing inventory a bit beforehand, that is why you are seeing a start of inventory increase.

[Interpreted] I see. And then my second question is for John-san. Do the existing DATROWAY data such as immunotherapy like in long-term PFS tail? I mean -- because we're wondering like AVANZAR delayed readout reflect a slower event [indiscernible] beyond the medium with the median PFS largely unchanged. With [indiscernible] hazard over time, be a reasonable assumption here?

Thanks for your question. It's very helpful. We're eagerly awaiting the results of the AVANZAR just like everyone else. Given that the study continues to be blinded, we don't have the insights specifically around AVANZAR and the curves. I think once the results are available, we will have much better insights. I'm sorry that I don't have the details, but we don't because the study is currently blinded. We don't have any insights on what those curves look like. So as soon as we have those, we'll be glad to share with them. Thank you.

[Interpreted] The next question is from JP Morgan Securities, Mr. Wakao.

[Interpreted] JP Morgan, Wakao speaking. I have a question to John. AVANZAR, the readout is delayed so that the event accumulation is getting delayed. On the other hand, AVANZAR clinical study protocol in that version 3 and after event occurrence has not been changed in the protocol, is that right understanding? And so the previous change was at the introduction of QES. Is my understanding correct?

Yes. I'm happy to give you some insights about the AVANZAR. As you know, AVANZAR is designed to evaluate both the non-squamous intention to treat unselected population and the biomarker positive population. This is designed to have co-primary endpoints for both PFS and OS. And because OS is an important endpoint for first-line non-small cell lung cancer patients for approval for regulatory agencies around the world, we included OS as one of the co-primary endpoints. The primary endpoint analysis for PFS is timed so that we should have sufficient maturity to characterize the overall OS trends. And we have not conducted any PFS interims in this trial. This is an exception to the rule of disclosure of interims. We usually do not discuss interim results. But in this specific situation, we're sharing that we did not conduct any interims in this study. These are some of the insights that I can share regarding the way that we've looked at and evaluate AVANZAR from a study standpoint.

[Interpreted] No change to the event weight, and so I understand you are not conducting interim, but the event occurrence rate, what is going on there? Your assumption hasn't been changed?

That's correct. We have not made any event assumption changes, we continue to advance the study as we originally intended.

[Interpreted] The second point, Dato lung cancer and AVANZAR PFS accumulation is lagging behind. And so PL-07, probably it might happen in that study. But as of now, for the readout is expected in FY 2027, and so in the study in assumption, of course, there might be a range, but it is lagging behind a little. And so PL-07, if there isn't any, then our clinical trial design issue was there or the population or a regimen issue. Can you give me some kind of hint why that is the case?

Thank you for your question. I'll reinforce that the primary endpoint analysis for AVANZAR is for progression-free survival, PFS. That should allow us to have sufficient maturity to characterize the overall OS trends. So in that respect, that's how we've powered AVANZAR. For PL-07, we continue to progress as we've always intended, and there's been no changes in the design. So overall, we continue to have those time lines with a slight delay in AVANZAR.

[Interpreted] Next is Morgan Stanley MUFJ Securities, Mr. Muraoka, please.

[Interpreted] This is Morgan Stanley, Muraoka speaking. First, I want to ask Kodama-san. This time, the second quarter results was very good. At the time of the first quarter, without noise, your fundamental business result was great. My question is, what should we expect for the third quarter? I want to confirm what you expect for the third quarter? I know that you don't have quarterly based guidance, but there is this JPY 80 billion payment. This could take place both over third quarter or fourth quarter and maybe fourth quarter portion may be bigger. And the usual pattern is that in the third quarter, you would say that profit has already topped the full year forecast. And the fourth quarter would be a bigger [indiscernible] loss and end the year, not as big of OP loss than usual years, but is this how I should imagine the year to go?

That is pretty difficult question to answer. The question was what to expect in the third quarter and fourth quarter. And when we divide between third and fourth quarter, what is the picture of the PL to expect the split between third and fourth quarter. This is how I understood your question. And as Muraoka-san said, the past pattern of Daiichi Sankyo is when we look back in the fourth quarter, we were weak, both in revenue and with the impact of NHI price revision in Japan, and there is also inventory adjustment. We had the seasonability and COGS, inventory disposal loss and valuation loss were usually determined in the fourth quarter. Expenses wise, in the fourth quarter, expenses were heavy in the fourth quarter. And this trend, I think, does continue to apply this year, too, but will this mean a loss? I wonder, but comparing between third quarter and fourth quarter, in the third quarter, we booked bigger profits and weaker profit in the fourth quarter. This is the trend we also expect at the end of the year, at the end of the calendar year, like Christmas and beginning of the New Year, what is going to be the inventory adjustment, some years earlier. And in other years later, it is a bit difficult to control. But for expenses from the third quarter to the fourth quarter, expenses are expected to increase. This is my expectation.

[Interpreted] Then the JPY 80 billion, this will be heavy in the fourth quarter. Is that right rather than third quarter?

[Interpreted] As of now, more heavy as a matter of probability in the fourth quarter, but the key is to the CMOs, the 2028 manufacturing plan. What is the agreement timing of 2028 manufacturing with the CMOs. From the calendar year end to the beginning of the new calendar year, the agreements will take place. And how we discuss with the CMOs will be factor. But what we expect now is more towards the fourth quarter.

[Interpreted] And I have one further question. That is for John Tsai-san. This time, AVANZAR will become next calendar year first half according to AstraZeneca disclosure, TLO 7, AstraZeneca's disclosure-wise, also calendar year first half, no change which means AVANZAR and TLO7, both almost the same timing, I'm wondering. Is this the right timing gap? First half of the year means both will be -- possibly be submitted together to ASCO. Is this the expectation and the current scheduling? Can you give me more color?

Sure. Thank you for your question. As you correctly stated, the results for AVANZAR will be in the first quarter calendar year of 2027, and AVANZAR will be around the same time. It will be in the first half calendar year of 2027. So they are timed very closely together. We have not looked at the specific timing for submissions to various congresses, but we will be very prompt in sharing these results out of major Congress. We've not decided which Congress to share this with. But as soon as the data is available, we will be sharing it at an upcoming congress. So we will not delay. Thank you.

[Interpreted] Next question is Tony Ren, Macquarie, please.

Okay. Perfect. Yes, a couple of questions to John. So the first one is about the CNS activity of your DXd platform. It -- I was at ESMO as well. And it appears to me that one of your competitors, a leading competitor, they refused to recruit any patients with CNS disease into their studies. And I think that's your big differentiator. What -- so John, could you explain to me how do you think about what makes 1 topoisomerase, 1 ADC to have CNS activity, whereas another one doesn't. So that's my first question.

Yes. Thank you for your question. As you correctly stated, we released results at ESMO of both the CNS activity for ENHERTU as well as for DATROWAY, and we've seen very good activity for our DXd ADCs for CNS activity, particularly those patients who had brain metastases. Specific to your biologic question, of understanding exactly why this works in what happens with competitors. Certainly, we don't comment about why competitors actually have excluded patients from their trial. But we are very happy with the results that we've seen in the CNS activity. We don't know if this is a buy standard effect or what we've seen is that the DXd ADCs have very strong effects in terms of the results that we've seen when you actually are an the monoclonal antibody, whether these are around TROP2 patients for DATROWAY or HER2 patients because we do know that there's HER2 receptors and TROP2 receptors in various organs throughout the body. So as we've seen these results, we do see this activity, and it is a differentiated activity for our DXd ADCs. Thank you.

The second question is about ovarian cancer. So you obviously are going with KATHERINE6 approach, right? And we also see some news announcements at ESMO without data, just top line news about poly receptor alpha. How do you think about these 2 somewhat overlapping sub-patient populations in ovarian cancer?

Yes. The ovarian cancer space, as you noted, has seen really good results, and this is great for patients, both with folate receptor alpha targeted agents as well as for CDH6 ADCs. We've seen very good results with CDH6. They are differentiated in terms of the results. I think we will find out more as patients begin to see the responses from these 2 different classes of agents. I'll also note that there are differences in the AE profiles. And I believe this is going to be also another point of differentiation. But I do think that there will be further classification and understanding of ovarian cancer across these different groups and different classes of agents.

Do you think one class would be positioned ahead of another?