Kyowa Kirin : Transcript of Results Presentation Fiscal 2023 Third Quarter (text) (0B)

Kyowa Kirin Co., Ltd.

Q3 Financial Results Briefing for the Fiscal Year Ending December 2023

November 1, 2023

Event Summary

[Company Name]	Kyowa Kirin Co., Ltd.
[Event Name]	Q3 Financial Results Briefing for the Fiscal Year Ending December 2023
[Date]	November 1, 2023
[Number of Speakers]	4
	Motohiko Kawaguchi	Managing Executive Officer, CFO Head of
		Finance
	Yasuo Fujii	Managing Executive Officer, CSO Head of
		Strategy
	Yoshifumi Torii	Executive Officer, Head of R&D
	Tomohiro Sudo	Executive Officer, Head of Global Product
		Strategy

1

Presentation

Moderator: We will now hold a conference call regarding the financial results for the fiscal year ending December 31, 2023, of Kyowa Kirin Co., Ltd. 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 audio 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 and questioners are Motohiko Kawaguchi, Managing Executive Officer, CFO Head of Finance; Yasuo Fujii, Managing Executive Officer, CSO Head of Strategy; Yoshifumi Torii, Executive Officer, Head of R&D ; and Tomohiro Sudo, Executive Officer, Head of Global Product Strategy.

Today's conference call is scheduled up to 60 minutes. After explaining the overall financial results we take questions from the audience. Please download the documents from our IR website.

Kawaguchi: I will now explain the results for Q3. Please see page five of the slides.

Compared to the same period last year, revenue increased JPY22.3 billion or 8%, core operating profit was JPY60.9 billion, the same level as the same period last year, and profit increased JPY4.3 billion or 9%.

Core operating profit was at the same level as the same period of the previous year due to an increase in R&D expenses accompanying progress in the development of KHK4083, etc., while gross profit increased due to an increase in sales revenue.

2

The main reason for the increase in profit was a gain of JPY14.8 billion from the sale of 51% of the shares of a subsidiary and a gain from the valuation of the remaining 49% of the shares, following the start of a joint venture with Grünenthal in the European established pharmaceutical business in August, despite impairment losses associated with the discontinued development of RTA 402.

As for the percentage of progress toward the full-year forecast revised in Q1, first of all, 72% progress has been made in terms of sales revenue. Global strategic products, centered on Crysvita, continue to grow, and this is in line with our plan, as they tend to grow steadily in H2 of every fiscal year.

As for selling, general and administrative expenses, progress was 74%. The rate of progress appears to be higher than in previous years because profit-sharing expenses for Ultragenyx were included in SG&A expenses until April, before Crysvita began selling its own products in North America, but the progress is within the plan.

R&D expenses increased significantly by plus 16% YoY, but on a progress basis against the full-year plan, it is 65%. We plan to continue to invest in research and development, particularly in KHK4083.

As a result, 69% progress has been made in terms of core operating profit.

As for profit, 77% of progress has been made due to the aforementioned gains on sales of subsidiaries' stocks and valuation gains on residual interests.

Our consolidated performance up to Q3 so far has been generally steady along the planned line, and we expect to continue to achieve our sales growth centered on global strategic products and continued cost control in Q4, as well as a tailwind from the yen's depreciation, so that both sales revenue, core operating profit, and profit for the year are considered to be at a satisfying level to achieve our full-year targets fully.

I will now explain the YoY comparison, starting with sales revenue. Please refer to page six.

Here is a breakdown of sales revenue by region.

3

In Japan, despite continued growth in sales of Durvroq, Romiplate, and Crysvita, Japan region sales declined 2% due to lower sales of Nesp-AG and other products affected by the NHI price revisions in April 2022 and April 2023.

In North America, sales increased by 22% due to solid growth of global strategic products, especially Crysvita, as well as the impact of the yen's depreciation.

In EMEA, global strategic products such as Crysvita continued to grow, but following the establishment of a joint venture with Grünenthal in the established pharmaceuticals business, sales revenue from 13 brands, including Abstral, shifted from product sales to sales royalties and license fees in August and decreased by JPY2.3 billion.

In APAC, sales of Gran, which was subject to the national tender system in some areas of China, declined, but sales of Crysvita and other products, which were launched in Australia last November, grew, resulting in a 15% increase in sales.

As for others, sales increased by 23% due to continued growth in royalties from Fasenra and other sources.

Now, please refer to page seven.

Here is the situation by major product in Japan.

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

Durvroq continues to grow steadily and maintains the number one market share within its class.

Romiplate is steadily increasing its sales revenue due to market penetration with a 16% increase YoY.

Crysvita also continued to grow steadily with a 16% increase YoY.

4

Please see page eight.

This is the status of major overseas products.

Crysvita continues to grow in both North America, EMEA, and APAC with a 22% increase in sales over the same period last year.

Poteligeo also continued to grow at 24% YoY. Sales in North America remained strong, and in EMEA, sales increased due to the expansion of the number of countries where the product was launched and its market penetration.

Nourianz also continues to grow steadily in the United States.

Technology revenues are Fasenra and benralizumab, and royalties here increased by JPY3.8 billion and progressed favorably.

5

Please see page nine.

This is an analysis of Core operating profit.

Gross profit increased by JPY9.4 billion in line with the increase in sales revenue. Gross margin was 75%, 2% lower than the same period last year, due to an increase in cost of sales resulting from the recording of sales royalties since the start of Crysvita's own sales in North America on April 27.

Selling, general and administrative expenses increased by JPY2 billion due to an increase in personnel expenses and other expenses associated with this in-house sales of Crysvita in North America, in addition to a JPY6.2 billion foreign exchange impact, despite the impact of the absence of profit-sharing expenses recorded after Crysvita's in-house sales in North America, which amounted to JPY11.3 billion.

R&D expenses increased by JPY7 billion, mainly due to progress in the development of KHK4083, for which a global Phase III study is being conducted with Amgen.

Equity in earnings of affiliates decreased by JPY0.4 billion. This is because, in the same period of the previous year, we had the effect of additional recognition of deferred tax assets at FUJIFILM KYOWA KIRIN BIOLOGICS, we call it FKB.

As a result, core operating profit was JPY60.9 billion, the same amount as the same period last year.

6

Please turn to page 10.

In this slide, I would like to show you the part below core operating profit.

You can see the balloon there, and it shows a JPY3.9 billion increase in finance and other. The main reason for the increase was a gain of JPY14.8 billion from the sale of a 51% stake and a gain from the valuation of a 49% remaining interest in the European established pharmaceuticals business joint venture completed on August 1.

On the other hand, there are some negative factors such as an impairment loss of JPY8.3 billion due to the discontinuation of RTA 402 development, which was recorded in Q2, a provision for loss on contracts due to closing costs for discontinued clinical trials, and an increase in business structure improvement expenses in Europe, which, in total, resulted in a net increase of JPY3.9 billion.

As a result, quarterly profit increased by JPY4.3 billion from the same period last year to JPY53.6 billion.

7

Sudo: Now, Sudo will continue with the commercial update.

Please move on to page 12.

The graph on the left side shows the sales trend of Crysvita in chronological order since its launch in 2018.

First of all, sales in North America are progressing as planned, with an increase of 22% YoY. Both the number of patients being treated and those in the pre-treatment stage are increasing steadily, and the market is growing strongly.

Although sales for the quarter appear to be a little weak, we believe that this is due to transitory factors that will be resolved by the end of the year, as mentioned a little earlier, and we are not greatly concerned about it.

Ultragenyx's labeled products were still in stock at the wholesale level, but we made a swift transition from Ultragenyx labeled products to the Kyowa Kirin labeled products all at once in September, after the transfer.

At that time, a lump-sum allowance for sales returns was recorded for the inventory before returns at the end of September, but at the end of September, the corresponding sales were not partially recorded, resulting in a temporary negative factor.

Although the current level of wholesale inventories has temporarily declined, this negative factor is expected to gradually recover and decrease toward the end of the year.

Furthermore, as you can see in the graph, in Q4 of 2022, an extreme wholesale buildup was confirmed last year at the end of the fiscal year, but this year, we will work to avoid inventory levels that deviate too greatly from actual demand this fiscal year.

Next is Europe. Market penetration is also steadily progressing, with sales up 15% YoY through Q3. As I explained in Q2 financial results for the previous fiscal year, we are slightly behind our plan overall due to

8

price adjustments in Germany and other factors, but we will continue our efforts to expand the adult market and penetrate the market.

As for Japan, we are generally making progress as planned at the beginning of the year. We are currently strengthening various activities to further expand the market, and we hope that you will have high expectations for us in the future.

We will move on to page 13.

Sales of Poteligeo in North America have been on track as planned, and we are continuing our activities to penetrate the market, such as evidence-based marketing, patients in the early phase and in the early consultation, and awareness-raising activities for blood test implementation, and we are steadily penetrating the market.

In terms of sales in EMEA, the number of patients is increasing at a faster pace than in the US, and although we are seeing steady growth, it is still slightly behind the plan.

Each country has its own issues, but there are some differences, such as the price of the public insurance institutions, which have various systems such as mandatorily discounts, and the price and the drug administration period per patient, which is a little shorter than expected in some cases.

In addition to continuing educational activities to encourage patients to start treatment earlier, we have begun to improve our system while also improving our marketing activities as appropriate. We would like to continue our steady activity.

Finally, about Nourianz. In the US, as Kawaguchi mentioned earlier, we are achieving steady growth as planned.

We would also like to strengthen our promotional activities by aiming to improve the quality of communication with medical professionals through information provision activities focused on cases in which the characteristics of the drug are most likely to be demonstrated.

9