Kyowa Kirin : Transcript of Results Briefing Fiscal 2024 First Quarter (0B)

Kyowa Kirin Co., Ltd.

Q1 Financial Results Briefing for the Fiscal Year Ending December 2024

May 7, 2024

Event Summary

[Event Name]	Q1 Financial Results Briefing for the Fiscal Year Ending December 2024
[Date]	May 7, 2024
[Number of Speakers]	3
	Motohiko Kawaguchi	Managing Executive Officer and Chief
		Financial Officer
	Takeyoshi Yamashita	Director of the Board, Senior Managing
		Executive Officer and Chief Medical Officer
	Yasuo Fujii	Managing Executive Officer and Chief
		Strategy Officer

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Presentation

Moderator: We will now convene an online meeting to discuss the Kyowa Kirin Company, Ltd. financial results for Q1 of the fiscal year ending December 31, 2024, which were announced at 15:30 today.

Please note the following prior to the start of the briefing. Please be advised that we will keep the names and company names of all participants today for a certain period of time as a list of participants.

Please also note that the content of this presentation will be available on our website as an on-demand stream and transcript. We would appreciate your understanding in this regard before making any comments.

The information presented today contains forward-looking statements. Please note that there is uncertainty due to various risks.

Today's speakers are Takeyoshi Yamashita, Director of the Board, Senior Managing Executive Officer and Chief Medical Officer; Motohiko Kawaguchi, Managing Executive Officer and Chief Financial Officer; and Yasuo Fujii, Managing Executive Officer and Chief Strategy Officer.

Today's online conference is scheduled for up to 90 minutes. We will provide an overview of the project and then we will take questions from the audience. Please download the documents from our IR website.

Kawaguchi will now give an overview of the financial results.

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Kawaguchi: I will now start with the financial figures for Q1 2024. Please see page five of the slide.

Compared to the same period last year, revenue was JPY105.6 billion, an increase of JPY12 billion, or 13%; core operating profit was JPY17.4 billion, an increase of JPY0.4 billion, or 2%; and quarterly profit was JPY14.6 billion, an increase of JPY1.9 billion, or 15%.

Core operating profit increased only 2% due to a significant increase in R&D expenses resulting from progress in the development of KHK4083 and the new consolidation of Orchard, while gross profit increased due to higher sales. Quarterly profit increased by 15% due to an increase in other income, mainly from gains on sales of fixed assets.

As for the percentage of progress toward the full-year forecast, revenue and gross profit were 22% and 23%, respectively, which are less than 25%, a quarter of the full-year forecast; however, as usual, revenue and profit tend to increase in H2, so the Q1 results were generally in line with our plan. SG&A expenses and R&D expenses are also relatively weighted toward H2 and are trending in line with the plan.

As a result, 20% progress has been made in terms of core operating profit. Quarterly profit progressed slightly higher than core operating profit, mainly due to gains on sales of fixed assets. As for the Q1 results, we made good progress against our plan in general.

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Next, please see page six. This is a YoY analysis of sales revenue by region.

As for Japan, Duvroq and Crysvita continue to show solid growth, and the initial response to Phozevel, a new product, has been favorable. On the other hand, sales in the Japan region declined 7% due to the impact of the NHI price cut last April, as well as a decrease in sales of G-Lasta, which was affected by biosimilars.

As for North America, sales grew by 26%, thanks to solid growth in Crysvita and Poteligeo, as well as the impact of the yen's depreciation.

For EMEA, sales revenues from 13 brands including Abstral were affected by the shift of sales revenues from product sales to sales royalties and license fees from last August, following the joint venture with Grünenthal in the Establish Pharmaceuticals business, while sales grew by 8% due to growth in the global strategic products, Crysvita and Poteligeo and the impact of foreign exchange rates.

APAC sales grew by 26%, led by growth in Crysvita and Taiwan's Nesp.

As for others, revenues increased by 42% due to an increase in royalties from Fasenra and upfront income from Boehringer Ingelheim, as well as revenue from sales of hematopoietic stem cell gene therapy from the newly consolidated Orchard.

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Now, please refer to page seven. Here is the situation by product in Japan.

Although the rate of progress appears to be relatively low relative to the plan, Crysvita continues to grow steadily with a 7% increase over the previous year.

Although sales are declining due to the NHI price cut and the impact of competing products, sales of Nesp-AG are progressing well against the plan.

Durvroq grew steadily with a 37% increase over the previous year and maintained the number one market share within its class.

Phozevel was launched on February 20 and is steadily penetrating the market.

G-Lasta sales decreased by JPY1.3 billion, or 18%, from the previous year due to the impact of a biosimilars launched in November last year.

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Please see page 8. This is the status of major overseas products.

Crysvita continued to grow in North America, EMEA, and APAC, with a YoY increase of JPY8.2 billion, or 30%.

Poteligeo also continued to grow at 41% YoY. Sales in North America remained strong, and in EMEA, market penetration increased, resulting in higher sales.

For Libmeldy/Lenmeldy, subsequent to the new consolidation of Orchard from January 24, we have recorded JPY1.1 billion of Libmeldy's sales revenue in Europe. In March, we also received approval in the US as Lenmeldy.

Tech-licensing revenue increased by JPY2.8 billion, or 31%, from the previous year due to an increase in royalties from Fasenra and the recognition of an upfront licensing payment for a new compound licensed out to Boehringer Ingelheim in January.

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Please see page nine. This is an analysis of core operating profit.

Gross profit increased by JPY5.4 billion, or 7%, in line with the increase in sales revenue. Gross margin declined by 4% to 76% due to an increase in the cost of sales resulting from the recording of sales royalties since Crysvita began its own sales in North America last April.

SG&A expenses decreased by JPY1.6 billion, or 4%, as a result of the absence of profit-sharing expenses recorded after Crysvita's own sales in North America, despite an increase in personnel and other expenses associated with Crysvita's own sales in North America and the effect of foreign exchange rates.

R&D expenses increased significantly by JPY6.7 billion, or 40%, from the same period last year due to progress in the development of KHK4083 and the new consolidation of Orchard. The ratio of R&D expenses to sales revenue also increased by 4 percentage points to 22% from 18% in the previous year.

Gain and loss on equity method increased by JPY0.1 billion. The business of FUJIFILM KYOWA KIRIN BIOLOGICS Co., Ltd. continues to grow, but this is due to the impact of the reversal of deferred tax assets.

As a result, core operating profit increased by JPY0.4 billion compared with the same period of the previous year.

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Now, please refer to page 10. In this slide, I would like to show you the part below core operating profit.

Financial and Other increased by JPY2.1 billion. The increase is mainly due to gains on the disposal of fixed assets.

Business restructuring expenses include acquisition-related expenses of JPY0.9 billion related to the Orchard acquisition, as well as changes in the fair value of conditional consideration and other items related to the US approval of Lenmeldy, amounting to JPY1.3 billion.

As a result, profit increased by JPY1.9 billion compared with the same period of the previous year.

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Fujii: Next, Fujii will explain about the Commercial Update.

See page 12. First, we will start with Crysvita.

The graph at the bottom of the page shows sales revenue and the number of countries and regions where the product has been sold since its launch.

Q1 revenue for the entire global market is JPY37.8 billion, an increase of plus JPY8.4 billion or 28% growth compared to the same period last year.

Through evidence-based disease awareness activities, the company has made progress in penetrating patients, particularly adult XLH and TIO, and business growth through expansion of the number of countries and regions where the product is sold, as well as a boost from foreign exchange, has led to solid growth in sales and earnings.

Although the quarterly sales trend may look a little weaker than the previous quarter, Crysvita will grow from Q1 to Q4. Also, in Q1, sales are affected by seasonal factors, such as a reactionary decline from wholesale inventory buildup during the year-end and New Year holidays, and in the US, insurance renewal procedures at the beginning of the year may increase the burden on patients, resulting in a decline in sales. As a result, the progress rate against the plan tends to be low.

In addition to the increase in revenue due to the appropriate buildup of wholesale inventory to meet actual demand, Q4 2023 sales revenue includes an increase in sales in North America due to the recovery from the temporary decline in wholesale inventory at the end of Q3 following the label switch implemented in Q3 2023.

Since these are the reasons for the decline in revenue from the previous quarter, we are not concerned about achieving the fiscal year plan.

Currently, the number of new patients and pre-treatment patient enrollments are also growing steadily, with the number of new starting forms enrolled in the US and in Q1 up about 25% over the same period last year.

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