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Executives

Hideki Hayashi – Representative Corporate Officer, CIO and Chief Product Creation Officer

Hajime Shimizu – Representative Corporate Officer and Chief Financial Officer

Ivan Cheung - Vice President, Deputy President of Asia Oncology Head and Lenvatinib Global Lead

Frank Ciriello – Vice President, President of Eisai Global Neurology Business Unit

Takashi Owa – Vice President, Chief Innovation Officer, Eisai Product Creation Systems

Hideshi Honda – Representative Corporate Officer and Asia Region President, President, Asia Region

Analysts

Ryoichi Urushihara – Nomura Securities

Atsushi Seki – Barclays Securities

Hidemaru Yamaguchi – Citigroup

Shinichiro Muraoka – Morgan Stanley

Atsushi Seki – Barclays Securities

Eisai Co Ltd (OTCPK:ESALY) Q1 2015 Earnings Conference Call August 1, 2014 3:30 AM ET

Operator

Thank you for waiting. The time has come. We would like to begin presentation of financial results for the First Quarter Fiscal 2014 by Eisai. Thank you very much for taking your time despite your busy schedule and despite the hot weather.

Please make sure you got all of the necessary materials are in front of you. There is a deck of PowerPoint slides, and there is a press report as a reference material and press release from today.

At Eisai, since fiscal 2014, IFRS International Financial Reporting Standards are adopted. Today's presentation is also based on IFRS. For the comparisons with past turns towards the end of the deck of slides, the first quarter last fiscal year changed from J-GAAP to IFRS and different analysis are included. This fiscal year, in the first quarter, we have IFRS-based numbers and for your reference, the slide is available to compare between J-GAAP and IFRS.

Now, I would like to introduce the attendees from Eisai, Corporate Officer and Chief Product Creation Officer, Mr. Hideki Hayashi; Representative Corporate Officer and Chief Financial Officer, Hajime Shimizu.

Today's presentations are in two parts. First part will be presented by Mr. Shimizu, CFO, mainly focusing on financial and Mr. Hayashi, Chief Product Creation Officer will discuss the drivers for growth. Without further ado, I would like to invite Mr. Shimizu, the CFO to present.

Hajime Shimizu

Thank you. Then, I would like to start our presentation. Please have the first slide. At the beginning of the fiscal year – therefore I would like to give you the overall picture for this fiscal year 2014.

As you see here, during this fiscal year 2014 we will make the strategic investments for return to a growth trajectory, we believe that this fiscal year is critical one. Since 2011 onward we have been running business under the mid-term management plan, HAYABUSA. We have been taking – making various initiatives for the transformation.

However, we believe that our initiatives have not been sufficient for growth trajectory. For fiscal year 2014, we will aim at further transformation in order to get back to the growth trajectory. So we'd like to make a corrective investment. I have listed three transformation initiatives.

First one is to expand and develop new growth drivers as for global brands, HALAVEN, anticancer agent, Fycompa, antiepileptic drug and BELVIQ for anti-obesity drug. In addition to these, as a candidate for anticancer drug, Lenvatinib. These four will be the priority brands that we will focus during this fiscal year.

As for R&D, we have recently done eight pipeline assets to be prioritized. We would like to continue our efforts to further accelerate the development of these products. In Asia, including China, as well as the strategic markets for us, Canada, Mexico, Brazil, Russia, Middle East and (inaudible) Eisai we’d like to continue to expand the business in these regions and areas.

The second initiative is to expand the business responding to the needs of global market. As you are aware, we have taken a global business metric system starting from May this year, globally oncology business as well as neurology business to be promoted and the business unit systems we have been promoting this business for the pharmaceutical, for the increase of the access to medicine.

We have started the production at Vizag, a plant in India of the DEC tablets for lymphatic filariasis patients, which is said to be 250 million in the world, so that we make contribute until the further access to medicine. And we have implemented a tiered pricing system in developing countries.

And a third initiative is introduced earlier from this fiscal year, we have changed from the J-GAAP to IFRS, which is a global financial reporting system to disclose our financial results.

Through these transformation initiatives for - we’ d like to give you the forecast for fiscal year 2014 consolidated financial performance. We expect that the revenue as well as the profit will be decreased. Further investment will be made more in the first half and from the second half, we will get back to the growth strategy - trajectory.

Revenue is expected to be 566 billion, operating profit JPY53 billion, profit for the period JPY35 billion, dividend JPY150 per share and pharma EBIT will be JPY174.5 billion. We will make utmost efforts towards achieving these. This is the actual performance for the first quarter. As was explained, as for the first quarter of fiscal year 2013 has been translated to the numbers based upon the IFRS.

Revenue for the first quarter stood at JPY132.8 billion, which was 87% of the previous year. As for the operating or excuse me, revenue as well as operating profit that will be explained in the following slide.

The cost of sales were JPY48.1 billion which accounted for 36.2% of this revenue which was up 6 percentage points from year earlier because of the drug price revision in Japan as well as the change in the global product mix.

R&D expenses were JPY29.1 billion and accounting for 21.9% of the revenue. Full year forecast for this is 21.5%. So therefore, we believe that this number is almost in line with the fiscal year plan. And SG&A expenses was JPY47.2 billion accounting for a 35.5% of revenues, a 2.4% increase from the same period last year.

We are making our prior investments strategically in the first half. Therefore this ratio is against the revenue is increased in the first half. However, we believe that this ratio will be in line with the plan at the 33% for full year. Operating profit was JPY8.5 billion. Profit for the period was JPY5.7 billion, pharma in which was JPY37.6 billion.

Next slide. And this is the breakdown of revenue migration. From the left-hand side, please look at the blue bar. This shows the revenue based upon IFRS for first quarter fiscal year 2013, JPY152.8 billion.

The red bars are positive factors and the pink bars shows decreasing factors. Most of the impact was seen because of the LOE of AcipHex in November last year in the United States JPY11.6 billion negative effects and the impact of a drug price revision in Japan was JPY5.4 billion. In total of all these factors, the revenue for this fiscal year – for the first quarter was JPY132.8 billion which was JPY20 billion less from the previous year.

Next, I would like to give you the breakdown of operating profit. Similarly, from the left-hand side, the blue graph is the operating profit for the first quarter of fiscal year 2013 based upon the IFRS, JPY18.6 billion. Red bar show the positive – increasing factor and pink or purple bars shows the decreasing negative factors.

For prior investment for the future growth, we are making the concentrated investment in three areas; for growth of the global brands of JPY1.5 billion and excuse me – JPY5.1 billion for expansion of global brands and JPY1.8 billion the acceleration of product creation of eight priority pipelines and JPY1.5 billion for (inaudible). And then operating profit for the first half for this year was JPY8.5 billion which was JPY10.1 billion decrease from the previous year.

Next slide is the last one, which I will explain today. At the financial disclosure, at the end of May this year, this is the forecast for fiscal year 2014. There has been no change or revision to the full year forecast.

Next, I would like to invite the Product Creation Officer Mr. Hayashi, who would explain the status of growth of our three global brands, the driver for growth.

Hideki Hayashi

I would like to talk about the global brand, the three products. JPY9.9 billion was the revenue for the first quarter which was 25% up from the previous year, which reflects the effects of proactive investments. Let me talk about the specific products.

First in the oncology area. For the first quarter, Halaven's revenue was JPY8.3 billion which was up 18% year-on-year. We have obtained approval in 54 countries in the world.

In Americas, in the United States for the HER2 negative type and increased the market share of third line plus the treatment achieving 17% up year-on-year growth.

In Europe, second line or earlier line treatment was approved and achieving the 29% year-on-year growth. And in Japan appeal for the efficacy for patients with HER2 negative type and we are trying to position it as the standard of care for the second line.

In Asia, launched in eight countries and we are maximizing the patient contribution through patient assistance programs. On the other hand for Aloxi, on May 27, we obtained approval for pediatric use in the US.

By this, we were granted the additional six months in the US market exclusivity until October 13, 2015. As for Lenvatinib, on June 26, we achieved submission in Japan. We are preparing the submission globally. As for Lenvatinib I would like to explain this product further in detail.

As for Fycompa, in France and Russia, particularly in EMEA, the number of countries where we got approval as well launched this product, particularly we have obtained approval in 39 countries in the world.

In Australia, we earned approval in May and we are trying to launch by the end of this fiscal year. In the United States, through about 90 representatives in neurology franchise, through the Speaker as a Bureau held at various places in the country, we are enhancing our efforts to educate physicians for increasing the prescription.

As for BELVIQ, since we started DRTV, particularly number of applications for the coupon has increased about 200% and the awareness has been significantly increased. And we have increased the number of sales reps by 200 and with the current 600 sales reps we are enhancing marketing activities in the United States. The weekly number of prescription in June this year was above 10,000.

On the other hand in Asia and in emerging markets included in this strategic market through active investments we are continuing growth. In the first quarter Asian revenues was JPY16.3 billion, 23% higher than the previous year on a year-over-year basis. Especially in emerging market, there was high growth Methycobal and other strategic products are growing. And in China, Internet retailing OTC business was launched. In Russia, in September last year, Halaven was launched.

And in this year, Zonegran and Fycompa, the two antiepileptic drugs were launched. In fiscal 2018 revenue target is JPY6 billion and business expansion is accelerated towards that goal. In the first quarter in product creation, Lenvatinib, HALAVEN and Fycompa, these in-house developed products have achieved major milestones.

Molecular target drug, Lenvatinib achieved the submission in Japan which was the first submission in the world in June for radioiodine-refractory differentiated thyroid cancer. For HALAVEN, we have gained approval for second-line treatment of MBC in EU. And for Fycompa, in Phase III study for primary generalized tonic-clonic seizures, primary endpoint was achieved in June. In the near future, these new products will be supporting Eisai's growth and these major milestones were achieved. I would further like to elaborate.

First regarding Lenvatinib. In June at ASCO, for radioiodine-refractory differentiated thyroid cancer, two study – select study results were presented. In comparison to placebo group, PFS in Lenvatinib treatment arm made a more than five times extension in prolongation and 65% was the response rate in comparison to 2% response rate in placebo.

There was a marked improvement and that there were also four complete response included in response - responders. At ASCO, Dr. Colevas of Stanford University mentioned that this is an amazing disease-free survival. A major adverse event or hypertension and diarrhea reported as adverse events and the degree of adverse event, the frequency were unchanged from previous reports.

Based on these results, for the first time, for the first in the world, in Japan, a submission was made for thyroid cancer indication in June and in the United States and Europe, preparation is underway to file a submission in August between 2014 to 2015, global approval is anticipated globally approvals are anticipated.

Lenvatinib is a in-house developed, selective tyrosine kinase inhibitor with a unique binding mode and a five RTK receptor tyrosine kinase are exhibited selectively and it is expected that it maybe implication on cancer types other than thyroid cancer and development is underway.

First of about First of all, hepatocellular carcinoma against sorafenib head-to-head competitive study is underway. Within this month, the last patient is anticipated in fiscal 2014 correction.

And for non-small cell lung cancer, two trials are underway and it was presented at ASCO for a lung small cell cancer 703 study was achieving good results and those results were presented at ASCO. For endometrial cancer, Phase II study is also underway and with active investment, we plan to accelerate developments of Lenvatinib.

As for HALAVEN, so far for metastatic breast cancer two phase 3 studies were carried out; 305 study and a 301 study were carried out, and these are integrated to analyze over 1800 cases which was presented at ASCO.

As shown here, overall and for HER2 negative and for triple negative, OS was significantly prolonged. With these results in Europe, in June – on June, the 30th approval for breast cancer second-line was obtained. In the United States, HER2 negative first-line and second-line patients were the target in a Phase III study with ACCRU network.

And currently, for triple-negative breast cancer a new adjuvant a Phase III study is being prepared. For non-small cell lung cancer and soft tissue sarcoma, global Phase III study is closely underway. Next is Fycompa, for partial epilepsy the approval is already obtained in 39 countries.

For primary generalized tonic clonic procedure, Phase III 332 study met primary endpoints which is the 58% reduction in frequency, ##% PGTC responder rate. With this, in the United States and Europe, requirements for – to file submission was satisfied, and therefore, within the second quarter fiscal 2014, for primary generalized tonic-clonic seizure is planned to file submission in the US and Europe.

In Japan, a 335 study for partial epilepsy results would be made available. And for generalized tonic-clonic seizure and for partial-onset seizure, in Japan we plan to file submission in 2015. And with this, Fycompa we will be covering about 80% of all epilepsy patients. I would now like to discuss pipeline that has supported our growth.

First is investigational E2006 in-house developed orexin receptor antagonist in adaptive design Phase II study. Primary endpoint, sleep efficiency and next-day residual sleepiness have shown good results. In going forward, we will consult with the authority and within this fiscal year, we plan to start the Phase II study.

Next-generation A-beta protofibril, novel monoclonal antibody about 2401 a Phase II study is also ongoing. And we plan to obtain top-line results in fiscal 2015. And in-house developed Betasecretase inhibitor E-2609 planned – there is a plan to initiate Phase II study for this drug in the first quarter fiscal 2014. For thrombopoietin receptor agonist Avatrombopag in chronic liver patients who will undergo elective surgical procedures, two Phase III studies are ongoing.

And for BELVIQ, domestically Phase I study was initiated. This is the last slide. Once again, in fiscal 2014 what we would like to achieve are shown here. In this fiscal year, to return to growth trajectory, in three areas, we will make proactive investments. The three areas are first of all, HALAVEN, Fycompa, BELVIQ, Lenvatinib, a multi-brand simultaneous expansion.

And as I have explained today on major developments there will be active investments. And thirdly, in Asia and Russia, Brazil, these strategic markets to achieve rapid expansion and to strengthen our position in these markets. And with these, we are strongly determined to return to growth trajectory in terms of revenue and profit in fiscal 2015 and beyond.

So thank you very much for your kind patience.

Question-and-Answer Session

(Operator Instructions)

Operator

Ryoichi Urushihara - Nomura Securities

[Interpreted]

Thank you for your presentation. My name is Urushihara. I am from Nomura Securities. I have two questions. One is the status of the Aricept in the Japan and BELVIQ actual result for the first quarter in the United States. And comparing with your own plan, what was the status of the actual results, is it undershooting the plan or you have achieved the plan?

That is my first question. Second, regarding the status of the development of seven or eight or I think that will be very costly when you start the Phase III study. So, are you going to develop this agents as solely or are you tying up with other countries for the anticancer drugs in the world?

I think that's a combination therapy is always considered than the jointly developed and if you cannot join in such scheme and then you will may not be able to develop. So, for these, how are you going to tackle the indications for the lung cancer? So, please answer these two questions.

Unidentified Company Representative

[Interpreted]

First the comparison of the actual results. Again we see plans for Aricept in Japan and Mr. Den, who is responsible for Aricept business in Japan will respond to your question.

Unidentified Company Representative

[Interpreted]

At Eisai, I am responsible for Aricept at Eisai. My name is Den. Thank you very much for your question. For the results, during the first quarter for this year, for Aricept we do see the drug price revision in Ariol and also the erosion by generics in the DPC market and the government policy to promote use of the generic and we have factored in and those factored already.

However, compared to the assumption we had back in April. The erosion by generics was larger than we expected back in April. On the other hand three milligram and 10 milligram formulations, for 10 milligram in December last year, generics of 10 milligram was launched.

At the same time, we made an analysis internally, in comparing with other drugs which were launched at the same time for Aricept. The generic erosion against our Aricept has been lower than competitors’ drug. So what we can do and what something that can be offered by Eisai alone or only by Aricept, we have made a lot of efforts to promote those initiatives and I think that that has gained lot of understanding by families and patients.

And that brought about the effect to some extent and going forward there will be further impacts by the drug price revision therefore we need to take further steps to establish our marketing structure. The new marketing structure was launched since last fiscal year. In order to focus more on the medical regions. So we will enhance our efforts centering on what can be offered only by Eisai and Aricept.

Unidentified Company Representative

[Interpreted]

Thank you. Next, as for BELVIQ’S business in the United States comparing with the internal plans, I would like to invite Eisai, Global Neurology Business Unit President, Mr. Frank Ciriello will respond to your question.

Frank Ciriello

[Interpreted]

Thank you for your question relating to BELVIQ. We are very pleased with working in the obesity market one of the largest market in the world. In the first quarter, we were able to increase TRX or total prescription by approximately 40%. We’ve been able to achieve that through the utilization of what we call the Three P, physician, patients, and payers.

In the physician’s offices, we were able to increase our medical representatives by 200 now being able to reach 93,000 physicians. In the consumer market, and you can see this in the slide, the DRTV program, direct response television program has been aired over 12,000 times in the first quarter of fiscal year 2014.

Along with that, and if you look at the slide, to the right hand side of the slide, there is a column called Believe. Believe is the program that goes along with every single prescription that we provide for BELVIQ.

It’s a comprehensive support program for the obese patients with information on diet, exercise, as well as an in-bound and out-bound call opportunity. With that in mind, the last of the three Ps is the payers. We are pleased to continue to increase our coverage on the medical coverage with different organizations in the US and our goal for fiscal 2014 is to reach 70%. Thank you.

Unidentified Company Representative

[Interpreted]

Frank, one thing if I share, BELVIQ US is outperforming or underperforming the original internal budget. That is the main focus of his question.

Frank Ciriello

[Interpreted]

The BELVIQ in the first quarter reached JPY1 billion sales and we are on track toward our goal for the quarter. Thank you.

Ryoichi Urushihara - Nomura Securities

[Interpreted]

So once again Mr. Den, could you please ask for Aricept in Japan comparison with the internal budgets, what is the status of the result for the first quarter for Aricept, outperforming the internal budget?

Unidentified Company Representative

[Interpreted]

As I have reported, 23% is the progress rate compared with the full year budget. So a little behind the budget. That is because of the impact of the generics erosion. That was slightly larger than our original expectations.

Ryoichi Urushihara - Nomura Securities

[Interpreted]

Thank you very much for the clarification.

Unidentified Company Representative

Are you satisfied with the response?

Ryoichi Urushihara - Nomura Securities

[Interpreted]

As for the Lenvatinib, regarding the development of the lung cancer indication, how to maximize the value of the product or drug?

Unidentified Company Representative

[Interpreted]

Mr. Hayashi will respond.

Hideki Hayashi

[Interpreted]

To maximize the value of Lenvatinib, regarding the indication of the lung cancer,

I think that it is the very appropriate question. I think we need to consider two points. A study 703, compared with the Best Supportive Care Phase II results which was announced at ASCO OS P value was 0.065. Therefore the value has not become mature yet and the result will be available in November. So, comparing the Lenvatinib monotherapy with Best Supported Care.

So we like to see in the results regarding efficacy as a monotherapy and for PD-1 and the combination therapy with PD-1, and particularly when it comes to lung cancer we have to consider a combination therapy. So patients with PD-1 or alliance with a company, which has PD-1 we like to consider various opportunities in developing our products in Lenvatinib going forward.

Ryoichi Urushihara - Nomura Securities

[Interpreted]

Thank you very much

Unidentified Company Representative

[Interpreted]

Will there be other questions please. Yes. At the front of the room please.

Atsushi Seki - Barclays Securities

Seki from Barclays. I have two questions. First is how then in Europe, on June 30, approval for the second line was given? And in the month of July, are there any expansion in prescription and sales, is already contributing in July?

Second question is about BELVIQ. Medical reps were increased to 600 representatives. With this number of representatives, is there any quantitative targets and if all these targets are not achieved, then are there plans to increase medical representatives to for example 800 or are there plans to find partners? Are there strategic options that are taken into consideration?

Unidentified Company Representative

[Interpreted]

Thank you for the question about Halaven in Europe beyond the second-line approval, the prescription and the revenues. Eisai Global Oncology Business Unit Deputy President, Ivan Cheung will address that question.

Ivan Cheung

Ivan Cheung from Global Oncology Business Unit. Thank you for your question. So after the approval by EMA on June 30, in July, we immediately launched in three markets. The UK, and Germany and also Austria.

And so far in July our Halaven sales including a second-line business is right on track. And we’ve already gotten feedback from the three countries where have physicians at site already adapting Halaven for a second-line.

So this is going very well and starting tomorrow, in August, we will, be launching second line indication in the four Nordic countries. So, this is the plan for the second quarter for a second line breast cancer in the Europe. Thank you.

Atsushi Seki - Barclays Securities

The other question, BELVIQ in the United States, medical reps were increased to 600 and after that, are there any quantitative objectives? If that can be shared with the audience and the objective, if they are not achieved in case or not likely to be achieved, what are the plans with regards to medical reps number or any strategic alliance?

Unidentified Company Representative

[Interpreted]

Regarding those questions, Mr. Frank Ciriello will address those questions.

Frank Ciriello

Ciriello, Global Neurology Business Unit. Thank you for your question. As I mentioned before, we have increased our representatives to 600. The importance of the number is specifically toward the number of physicians or targets we will be able to achieve, 93,000.

Of those about 75% of those are internal medicine or what we call primary care physicians which believe is they approve your target for BELVIQ at this particular point in time. What’s most important to us is that we have to take a look at the marketing mix.

We believe this is the right number of target in the representatives at this particular point in time. However, we need to supplement that with the other part of the marketing mix. The DRTV which is the consumer approach as well as the payer’s coverage.

We believe that all three together will provide the right opportunity for us. As it relates to partnership we always look at opportunity in the future, but our goal today is to grow the product in TRXs in the US market with our resources. Thank you.

Atsushi Seki - Barclays Securities

[Interpreted]

Thank you.

Unidentified Company Representative

[Interpreted]

Any other questions, please raise your hands.

Unidentified Analyst

[Interpreted]

Thank you. My name is (inaudible) from Tokyo Tokai. I have two questions regarding the performance. First question is related to the Page 19 of the presentation slide and the segmented profit and which is reviewed by top management on a regular basis.

And the profits in the United States and Americas and the development cost will be subject elated, and substantively the profit development to zero in Americas on BELVIQ and the clinical trials will be ongoing and so, what is the immature guideline which you can give? And in nature, the situation is totally reverse. So, is there any change to the strategy?

Unidentified Company Representative

[Interpreted]

Regarding the segmented profits, Mr. Shimizu, our CFO will respond to the segment profit question.

Hajime Shimizu

[Interpreted]

Thank you for your question. I am in charge of financials. My name is Shimizu. I would like to answer your questions. For Americas, in the United States, the performance was almost a breakeven in the first quarter.

I think that your question was about that. And in the first place, as I said earlier, for this fiscal year, new products and for global core products, we are making productive investments. That was our original plan. So – in this first half profit, we had a plan for negative profit in the United States.

So, if we managed to achieve the breakeven point, we will continue to make a proactive investment going forward. Therefore, for the short-term we do not believe that there will be a sharp recovery in profitability. However, with the growth in revenues we believe that the profit will also fall off it.

Unidentified Analyst

[Interpreted]

Another question. For cost of sales, for the first quarter, the revenue grew 13%. The cost did not grow, of course, the cost of sales also increased because of the product mix and so, and the accurate sales increased by 9% and the cost was decreased by divesting the plant and I believe that I thought that you would have a better result than others in terms of better cost of sales.

Unidentified Company Representative

[Interpreted]

Mr. Shimizu, the CFO, will also respond to this question about the cost.

Hajime Shimizu

[Interpreted]

Thank you for your question. Well, I do not know much about the current situation, the cost ratio increased by six percentage points year-on-year. As I said earlier, this was affected by the drug price we begun that was the major factor.

Another factor, that’s due to the LOE, of VAT effects in the United States. And this has had an impact on the product mix change. The sales – if the sales of our in-house product increase and then the cost ratio will also increase.

As we pointed out, products in India, we are making proactive production in India to reduce the cost ratio, however have not made a fruit significantly. However, for the long-term, we believe that the contribution by the production in India will be further promoted. But for this fiscal year we have not seen that significant effect yet. Thank you very much.

Unidentified Company Representative

[Interpreted]

Next question please, yes, please.

Unidentified Analyst

[Interpreted]

(Inaudible) from Tokyo Kaijo Asset Management. I also have a question regarding pipeline. I may have asked this question before, but Halaven, second-line rather, the currently ongoing HER2 Negative breast cancer first-line and second-line Phase III study, what are the combination drugs?

I don’t think this is monotherapy and at the same time I also have a question regarding lung cancer, what are the drugs that are given in combination therapy?

Unidentified Company Representative

[Interpreted]

Line expansion of Halaven, oncology production – oncology product creation unit Mr. Owa will address that question.

Takashi Owa

[Interpreted]

Thank you for your question. First regarding cancer. Three women study was conducted in monotherapy settings and this was against - this was a head-to-head for combination therapy using Capecitabine.

And as for lung cancer this was also monotherapy in late line third line and beyond treatment of physician’s choice was the comparator. And four standard of care lung cancer treatments were compared against monotherapy Halaven and for second line approval for breast cancer and others these are monotherapy.

And as for ACCRU study, breast cancer, first-line, this is also monotherapy. If this is monotherapy and weekly Paclitaxel was the comparator.

Unidentified Analyst

[Interpreted]

When are trials to be completed and when is the submission target date?

Takashi Owa

[Interpreted]

Is it lung cancer?

Unidentified Analyst

[Interpreted]

First and second line breast cancer.

Unidentified Company Representative

[Interpreted]

These are trials conducted in the United States and cooperative group ACCRU and we are jointly conducting a study and as for the progress of the study, there are so many unknown factors and now in 2014 a study was started and usually studies will take about a three or four years time and then depending on the results, consultation and negotiation with the regulatory authorities will begin.

So, at the earliest timeframe may likely to be 2018 or 2019 but there are many uncertainties and it’s too premature to say anything concretely. ER positive lung cancer treatment triple negative, there are many new drug developments ongoing for these areas and there may be a competition for patients.

In particular for HER2 positive and ER positive ER estrogen receptor positive in these areas new drugs are being developed in competitive fashion. It seems that there is active developments going on with a number of new drugs.

On the other hand, for HER2 negative and triple negative there are new drugs, but triple negatives are one-time and even now there is an interest but PARP enzyme inhibitor development was quite active some time ago but it seems that it has quite down somewhat.

And we are not focused on observing clinical effect and therefore we do not believe that the progress of our study, the risk that – the progress of our clinical study is inhibited, it’s not too large in our view.

Unidentified Analyst

[Interpreted]

HER2 negatives may include the ER positives and ER negatives, is that correct

Unidentified Company Representative

[Interpreted]

Yes.

Unidentified Analyst

[Interpreted]

And one more question, then about Lenvatinib – lung cancer. On the price of five kinase and selective inhibitor effects on these formations, and selective targeting for these along cancer treatment, how is development tried out?

Unidentified Company Representative

[Interpreted]

Earlier, as Mr. Hayashi explained major strategy for lung cancer late line in monotherapy and immunotherapy, which is we see too much interest these days, combination with our immunotherapy that is also taken into consideration and your question was kinase inhibitory pattern how that can be utilized?

I think that is a very important point. In lung cancer worldwide cooperative groups are looking at new genetic marker diagnosis, a RET mutation or EFGR – FGFR mutation in the next few years time in tailored medicine for a specific patient, because of certain mutation redundant thus specific treatment, such orientations will become more pronounced.

And you may can readily see from the data that we have Lenvatinib without doubt can be the world’s best or world’s greatest tyrosine kinase inhibitor, where FGR is attached it is not simply best-in-class, but it can be first-in-class and by pursuing this area, the other company's tyrosine kinase inhibitor may not be able to treat especially for FGR.

There is mutation in cancer and for new genetic diagnosis maybe used and Lenvatinib use maybe accelerated or accelerated review maybe potential with narrowly focused patients.

Today, since we do not have evidence, we cannot discuss in too much detail, but, such directions in the future will be taken into consideration as important. So that Lenvatinib can be important treatment.

Mr. Owa, the title of Mr. Owa is Chief Innovation Officer, I would like to correct make that correction. Any other questions please. If not for the time being, we have some questions from the person Mr. Yamaguchi from Citigroup. You raised, you asked some questions through the conference system. So could you please mention your questions. Mr. Yamaguchi from Citigroup please. Can you hear us? Yes.

Hidemaru Yamaguchi - Citigroup

[Interpreted]

I have two questions. Management staffing is taking place in China. Is it something like the clean-up project -- clean-up adjustment project in China?

Unidentified Company Representative

[Interpreted]

As for China, we could say clean up, clean up campaign, I mean, like the GSK is adapted by the regulatory authorities in China, so, the President in Asia region Mr. Honda will respond to your question.

Hideshi Honda

[Interpreted]

My name is Honda. It has nothing to do with that campaign.

Hidemaru Yamaguchi - Citigroup

[Interpreted]

Understood. My question, for either Italy or Pacific will be utilized in the second half. I understand that but for the full year as well as second half, the progress rate is low. So given the current situation, do you think that you will be able to achieve the full year targets?

Unidentified Company Representative

[Interpreted]

The full year – as for full year target, Mr. Shimizu will answer your question.

Hajime Shimizu

[Interpreted]

As I said – explained already, as for the result for the first quarter which was almost in line with our original plan, so, we believe that – we expect that full year results will be also in line with our plan.

Hidemaru Yamaguchi - Citigroup

[Interpreted]

Thank you, understood.

Unidentified Company Representative

[Interpreted]

There is also a question from participants through telephone line Ms. Muraoka from Morgan Stanley please. Can you hear us?

Shinichiro Muraoka - Morgan Stanley

[Interpreted]

Yes, this is Muraoka from Morgan Stanley speaking. About R&D expenses, the other day, Dainippon Sumitomo, A-3201, you have discontinued and the payment due to that discontinuation is that included in R&D expenses?

Unidentified Company Representative

[Interpreted]

Mr. Hayashi will address that question.

Hideki Hayashi

[Interpreted]

No, it is not included.

Shinichiro Muraoka - Morgan Stanley

[Interpreted]

So no payment is incurred, sir, because of discontinuation?

Hideki Hayashi

[Interpreted]

No, there are no payments due to discontinuation or withdrawal from 3201.

Shinichiro Muraoka - Morgan Stanley

[Interpreted]

About pipelines, about Lenvatinib – lung cancer, AstraZeneca and there are many good drugs that are effective on 2709 mutations and there are also drugs that are attracting attention and in comparison to these drugs, what is the difference of Lenvatinib? How is Lenvatinib differentiated?

Unidentified Company Representative

[Interpreted]

Thank you for the question. As I mentioned earlier, PD1 immunotherapy is changing lung cancer treatment. And therefore synergistic effective between PD 1 and Lenvatinib we would like to confirm that is our hope.

And with multiple companies, PD 1 PD IR being developed and with those companies, during the research and tie-up included, we would like to look into the possibility of a combination therapy of lung cancer. We would like to seriously consider pursuing these.

Shinichiro Muraoka - Morgan Stanley

[Interpreted]

The third generation TKI. Sorry, I wasn't clear in my question. That is the question.

Unidentified Company Representative

[Interpreted]

Then Mr. Owa should address that question.

Takashi Owa

[Interpreted]

Yes, this is Owa speaking. Thank you for the question. The future TKI developments competition as you have mentioned in the question in the third generation TKI in a cancer – in lung cancer especially, a newly found mutation and specific kinase mutation through next generation sequencing will these will be identified as the next generation sequencing.

And certain kinase inhibitor is maybe effective on certain mutation kinase. And then developments maybe accelerated in the Phase I and Phase II maybe combined in single study for approval to be obtained.

That maybe possible. And Astellas is making efforts and Pfizer, ALK translocation targeted drug development is underway and the second or third follower may appear. And in case of Lenvatinib as shown in the slide, VEGF is the progress and – but other than that, RET and FGER we believe that inhibition of these are also important.

Regarding RET, RET translocation focused study is carried out in Phase II study and that’s for FGER FGFR 1G amplification or FGER3 translocation are reported. And vis-à-vis these mutations AstraZeneca other companies may have a compound, but Lenvatinib has characteristics that are not found in others.

By focusing on this, we may be able to differentiate and maybe able to accelerate our developments. We believe we are pleased about all these possibilities.

Shinichiro Muraoka - Morgan Stanley

[Interpreted]

Thank you. And Orexin S-2006 insomnia drug, safety or efficacy, which is the most important characteristic for this drug?

Unidentified Company Representative

[Interpreted]

Mr. Hayashi will address that question.

Hideki Hayashi

[Interpreted]

My understanding is that, efficacy is more important. REN sleep and non-REN sleep, the ratio between the two will not be changed. So quality of the sleep it will not be changed and you can sleep.

That is the characteristic and in comparison to conventional drug, this is the superior profile. So, in comparison to Lunesta, it’s more efficacious and at the same time, in comparison to Lurasidone, it is milder in terms of safety. Orexin receptor inhibitor, it is a new mechanism of action.

So without deteriorating the quality of sleep, sleep can be induced, that is the type of new insomnia drug that we would like to develop in the form of 2006.

Unidentified Company Representative

[Interpreted]

Are there any other question? And Mr. Seki, again.

Atsushi Seki - Barclays Securities

[Interpreted]

Sorry for asking questions for the second time. My name is Seki from Barclays Securities. Regarding your explanation about Lenvatinib and the PD-1 immuno-oncology combination therapy for lung cancer, at ASCO, nivolumab and TKI combination therapy for metastatic RCC, and due to some adverse drug reaction, it was not very much favorable results.

At TKI, which was presented at the ASCO conference, do you think that there are any ground for differentiating your Lenvatinib from this or do you think it was due to the PD-1, which was used in the combination therapy for that particular drug at ASCO?

Unidentified Company Representative

[Interpreted]

Dr. Owa will respond.

Takashi Owa

[Interpreted]

As for the grant related to a mechanism, I think that you are well-versed in this area, because your question was like a expert’s question. PD-1L: is something that I would like to explain first.

PD-1L and VEGF TKI in combination therapy will provide us a very interesting data going forward in terms of maximize – believe that there is a ground, PD-1L for not only inhibiting a PD-1 but also for endothelial cells, expresses the CD-80 the another antigen on the cell membrane will be inhibited.

Therefore PD-1L antibody will inhibit the CD-180. So in the micro environment of cancer, VEGF is expressed overly and damage and then the situation will be too match PD-1L used.

Cancer cells don’t wanted to be killed by PD-1L therefore, the secretion will be increased to present from its best and in order to survive. So this is explained by the Del Herbert’s team at the Boston’s Cancer Research Institute obviously made a publication on this PD-1L antigen and a TK-1 agent.

For example, Avastin antigen and a small agent molecule sutent and sorafenib and this has been developed in the clinical trials as well. Avastin is most advanced with the favorable data with less toxicity data in a TKI and a sutent and sorafenib has been developed in studies.

We believe that these are in different class, because inhibiting so many kinases therefore off-target toxicity maybe potential cause. And Lenvatinib a selective drug for different tyrosine kinase. So we believe that by suppressing the toxicity effect, we believe that the efficacy can be expected, but combination – as combination is also potential.

But TKI, about the three TKI data are also published in the Congress Meeting. The toxicity, the kinase inhibitor inducing a drug effect which will be amplified. So therefore we have to be very carefully looking at the toxicity in Lenvatinib for example proteinuria, or fatigue, those two adverse drug reactions in combination therapy with PD-1 antibody we need to carefully look at the potential drug reactions with the Lenvatinib.

But as I said earlier, Lenvatinib is highly selective and inhibiting five tyrosine kinases. So, if this can function favorably and then we can exhibit the efficacy highly while suppressing the toxicity.

Atsushi Seki - Barclays Securities

[Interpreted]

Thank you very much.

Unidentified Company Representative

[Interpreted]

Are there any other questions please, if not, if there are questions later, please contact PR Department and IR Department. With this, we would like to conclude the presentation session of the first quarter fiscal year 2014 financial results. Thank you very much.

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