Sumitomo Pharma : Oct. 31, 2023 Conference on Q2 FY2023 Financial Results transcript

Q2 Financial Results Briefing for FY2023

[Date]	October 31, 2023
[Time]	16:30 - 17:55
	(Total: 85 minutes, Presentation: 37 minutes, Q&A: 48 minutes)
[Venue]	Tokyo Head Office and Webcast
[Number of Speakers]	4
	Hiroshi Nomura	Representative Director, President and CEO
	Toru Kimura	Representative Director, Senior Managing
		Executive Officer
	Yoshiharu Ikeda	Member, Board of Directors, Managing
		Executive Officer
	Naoki Noguchi	Executive Officer, Vice President, Head of
		Corporate Communications

Presentation

Noguchi: Now we will now begin the financial results briefing for Q2 FY2023.

Thank you very much for joining us today.

Mr. Nomura will now explain the financial results for Q2 FY2023. Mr. Nomura, over to you.

Nomura: Thank you all very much for joining us today.

Given the time constraints, I would like to quickly explain the financial results.

As usual, this slide is a comparison with the same period of the previous year. As you all know, there are some major comparative obstacles, which I would like to explain separately. I would especially like to mention here that the other operating income and expenses here is the gain from the sale of Sumitomo Pharma Animal Health Co., Ltd.

Of the JPY20.6 billion non-recurring items, JPY20.3 billion consists of business structure improvement expenses in North America, which were incurred in the process of bringing the eight companies together.

The large amount of JPY30.4 billion in finance income and costs is due to foreign exchange gains on assets denominated in foreign currencies, which are arising from the weakening of the exchange rate.

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The figures on the leftmost side of the table are a cumulative plan that we have internally until Q2 FY2023, although this is a figure that we have not made public. Next figures are the results.

Here is the exchange rate. The plan is calculated at JPY130, and the results use the figure of JPY141 against U.S. dollar, so there is an exchange difference. If you look at the percentage of achievement here, which is real, sales revenue is 88%, which is a bit disappointing. I will come back to this later.

Gross profit was 83.5% of the forecast figure. Selling, general and administrative expenses were 96.4% of the forecast figure, a little higher than planned. Research and development expenses were also lower than anticipated. As I mentioned earlier, we sold Sumitomo Pharma Animal Health. We have a few more asset sales in the works, so part of our activity in this area has not materialized yet.

Looking in terms of the actual rate of achievement, if you look at it in monetary terms, the gross profit was down JPY13.3 billion compared to the plan, with most of that attributable to North America. In SG&A expenses, we see a figure of JPY2.6 billion above the plan. This increase includes foreign exchange, and again, North America is a significant factor.

The change for North America was JPY3.9 billion down, which means that the change is mostly in North America. In Japan and Asia, the actual results are roughly on par with the plan, with a large difference in North America, or rather, a negative difference in terms of sales revenue. As for SG&A expenses, this means that there is a positive difference in real terms.

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This is revenue by product.

Comparing it to the same period last year, it looks like it has grown very much. This is as planned. This is the cumulative amount in U.S. dollars through Q2 FY2023. Revenue for ORGOVYX® is USD138 million, which is 88.7% of our Q2 YTD plan.

MYFEMBREE® is at roughly half of its USD60 million target. GEMTESA® is at 72% of its $156 million Q2 YTD plan, at $112 million.

The numbers are a little low based on the full-year forecasts, because we are anticipating stronger figures in H2. This is how our cumulative H1 figures tend to look. In particular, GEMTESA® is a little low for various reasons, which I will explain later. ORGOVYX® is just about right. And as for MYFEMBREE®, this level of sales suggests some attention is necessary.

Then on this table, I just want to make a small comment that LATUDA® has now had its LOE, so this is the kind of difference. There is a bit of a difference in Others, because XOPENEX®, BROVANA®, and others have already been divested. It is structured in such a way that it was included until last year, but since it is no longer there, we can see that difference.

We have seen a very large decrease in yen terms compared to the previous year. The figure for LATUDA® has almost completely fallen off.

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I would now like to explain each of these three key products individually.

As I mentioned earlier, for ORGOVYX®, the actual result was USD138 million against a plan of USD155 million, which means that we achieved almost 89% of our sales plan for Q2 YTD FY2023. In volume terms, it is negative USD23 million. In price terms, it is positive USD6 million.

It is about 85% of the budget for Q2 YTD FY2023 in volume terms.

In price terms it is a bit positive. It says that this is due to lower prior quarter adjustments tied to coverage gap liability in Medicare Part D. In essence, it is due to the payer mix, which is why it is a bit price-positive.

We have to decide what we will do in the future, and we have to adopt a marketing strategy to increase sales by volume. Some points are written here, but for urology clinics with in-office dispensing, it is used in 19% of ADT market.

This came from an analysis by our digital team. This is because the sales reps will be informed by prescription data that a patient has been prescribed a GnRH antagonist, or that a patient with prostate cancer has visited, and this information will be passed on to the sales reps in that area. The reps can then make sure to visit the doctor at the right time.

We also know in advance what kind of patients are prescribed GnRH antagonists. ORGOVYX® is tablet, but competitor treatment is injectable. We know in advance what kind of treatment they are receiving, which is very useful in terms of talking with doctors about various things.

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In addition, we have not had sufficient access to academic and integrated delivery network, which account for 50% of the ADT market, so we have appointed strategic account managers and are actively working on this issue.

However, for hospital purchasing, we are not dealing with doctors, but with purchasing managers of treatments. Since we are trying to access such people and have them use ORGOVYX®, in short, I am not sure if it will be effective immediately, since there will be various timing issues, such as the revision of hospital formularies and so on. We are working very hard in this area, and I think it will produce results.

We are also working with urology clinics, for example, that have only been providing injectable treatments, and are very familiar with Medicare Part B insurance claims, while ORGOVYX® is a Medicare Part D insurance claim. We are working to support the procedural aspects relating to these different types of insurance claims.

Also, some of these insurance policies require prior approval. We are also working to support such procedures in effort to reduce barriers to prescriptions.

At the bottom of the page is the elimination of out of pocket for medical expenses in catastrophic coverage starting next year. Catastrophic coverage, at the top of the list, has a 5% personal contribution until this year, but not after next year. So, since the drug costs are such and such, and this is for cancer treatment, if the drug costs are somewhat higher than the individual cost, once you get through to some extent, then the individual cost will no longer be incurred. In that sense, we believe that this kind of thing would also make it easier to prescribe ORGOVYX®.

As for price, since this is a payer mix, I believe that the current trend for gross to net will continue. However, that is beyond our control, so we are taking measures to somehow increase the volume in this way.

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The sales figure of MYFEMBREE® is almost half the plan for Q2 YTD FY2023. Sales are minus USD24 million by volume, and minus USD7 million by price.

In volume terms, we achieved roughly 64% of the budget for Q2 YTD FY2023. Again, this is almost half in the plan for Q2 YTD FY2023, which means that in price terms it was considerably below plan.

The reason for this is described here. MYFEMBREE® is covered by commercial and Medicaid and prescribing on Medicaid increased more than expected in commercial. We also use Co-pay cards to make it easier for patients to use MYFEMBREE®, but the Co-pay card program is used in a slightly different way than we intended, and this has caused the prices to deteriorate a little. This is the reason for the reduction in price terms.

However, as mentioned below, monitoring of Co-pay card usage and reinforcing of proper use have been progressing, and I believe such concerns are gradually disappearing.

In the area of GnRH antagonists for NBRx, MYFEMBREE® has a very large share of the market for uterine fibroids (85%), but the share for endometriosis is still not as large as it should be. There was also a bit of a delay in getting to market.

The market for GnRH antagonists related to uterine fibroids is growing as expected, but not as fast as we had hoped, which we believe is another reason why we have not achieved our volume target.

In line with our strategy and outlook, we believe MYFEMBREE® has the potential to be the standard of care for uterine fibroids and endometriosis, and we are working hard to achieve this.

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Uterine fibroids are associated with hypermenorrhea, so oral contraceptives such as pill are typically used firstly. We continue to drive awareness of MYFEMBREE® as the first management option where treatment is not effective by oral contraceptives.

This is especially important because it is very important to know when to use MYFEMBREE®. As part of this, we continue to drive patient awareness and educational materials easy-to-understand instructions to ensure the best possible understanding and appropriate use of these products.

Since pain is a main complaint of endometriosis, we want to make sure patients are aware of their options, including MYFEMBREE® which can effectively treat associated pains with proper use. We plan to continue efforts of communicating treatment benefits to key HCPs in this space to increase awareness of MYFEMBREE® which we believe will also support uptake efforts.

We will also work with Pfizer Inc. and the Advanced Analytics team, a DX initiative, to optimize in terms of field force deployment and targeting.

I have found that it is not always appropriate to have sales reps at doctors' offices a lot, or to have sales reps placed where there are a lot of patients. We are aiming to ensure this is still handled well. However, this has to be done together with Pfizer, so it will take some time. This will actually be deployed in around Q4 FY2023.

In the meantime, we are also considering the possibility of supplementing our efforts by bringing in virtual sales reps for certain territories where current capabilities may be stretched a bit thin.

We have expanded our focus to both uterine fibroids and endometriosis to support addressing unmet patient needs in these key areas. We will work with Pfizer to make sure that we can do that as effectively as possible.

Also, although it is not mentioned here, there is also the issue of prior approval as a barrier to prescriptions. We are considering providing support for procedures relating to this.

Through this kind of activity, we aim to increase awareness as well as market share of MYFEMBREE®.

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Next, GEMTESA®.

GEMTESA® is a bit disappointing seeing that the achievement rate is 72% against plan for Q2 YTD FY2023. In volume terms, this is minus USD14 million. In price terms it is minus USD30 million. However, in volume terms it is 98% of budget for Q2 YTD FY2023.

We are losing out in price terms because of the increase in the percentage of volume in Medicare Part D here and the fact that but commercial has decreased and Medicare Part D has increased.

As I mentioned earlier, the payer mix in terms of price is not controllable, so we have to find solutions to potentially increase the volume. We recognize that awareness levels are not what they should be for this product.

Primary care and long-term care facilities account for 45% of prescriptions for overactive bladder, and we will raise awareness here.

We are also considering the use of additional digital media to provide information on how patients use GEMTESA®, as well as share impressions of the product, similar to ongoing digital advertising efforts we perform via the web and in clinics. We also plan to enhance awareness raising activities in key areas as part of Bladder Health Awareness Month in November 2023 which is not only for overactive bladder, but also for bladder cancer and many other related diseases.

We will also work to raise awareness among doctors, patients, as well as additional long-term care facilities to support increase in volume.

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In terms of prices in the future, this is a little complicated, but prices are expected to improve to some degree as the Coverage Gap in Medicare Part D lowers in Q4 of FY2023 compared to other quarters. After one year, Medicare is expected to be refreshed and we will start from the deductible again from scratch. This means that the Company contribution will be less than in other quarters. We think that the so-called average price will improve, and that this price will move somewhat in a positive direction.

As for the three key products, the results for Q2 FY2023 are as you have just seen. We are now working hard on the ground to achieve improvement, especially in terms of volume, through various measures.

Some people have asked whether we are going to revise our forecast, but it is difficult to say what kind of forecast we should make at this stage, so we have left the current forecast unchanged as for the end of Q2 FY2023.

However, while recognizing that there are various downside risks, we are firmly committed to implementing our strategy for the three products I just mentioned.

This is main sales items in Japan and Asia.

This is also a YoY comparison, so there are some comparative obstacles. If you look at the comparison with the forecast, you will see that Equa®/EquMet® is a bit low. I think we are a little behind in this area.

The achievement rate for TWYMEEG® is 62.9% of the forecast, which gives us the impression that we are making a bit of progress against forecast while we are very inconvenienced by the limited shipments. These shipment issues are of course an inconvenience to medical institutions and patients. We have managed to

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