Sumitomo Dainippon Pharma : Nov. 01, 2022 Investors Meeting Presentation for Q2 FY2022 transcript

Sumitomo Pharma Co., Ltd.

Analysts Meeting of 2nd Quarter Financial Results FY2022

[Date]	November 1, 2022
[Time]	15:00 - 16:00
	(Total: 60 minutes, Presentation: 29 minutes, Q&A: 31 minutes)
[Venue]	Tokyo Head Office and Webcast
[Number of Speakers]	4
	Hiroshi Nomura	Representative Director, President and CEO
	Toru Kimura	Representative Director, Executive Vice
		President
	Yoshiharu Ikeda	Member, Board of Directors, Senior
		Executive Officer
	Kimihiro Kamano	Corporate Communications

Disclaimer Regarding Forward-looking Statements

This material contains forecasts, projections, goals, plans, and other forward-looking statements regarding the Group's financial results and other data. Such forward-looking statements are based on the Company's assumptions, estimates, outlook, and other judgments made in light of information available at the time of preparation of such statements and involve both known and unknown risks and uncertainties. Accordingly, forecasts, plans, goals, and other statements may not be realized as described, and actual financial results, success/failure or progress of development, and other projections may differ materially from those presented herein. Information concerning pharmaceuticals and medical devices (including compounds under development) contained herein is not intended as advertising or as medical advice.

Myovant Sciences Ltd. ("Myovant") is listed on the New York Stock Exchange, and the Group beneficially owns approximately 52% of the outstanding shares of Myovant. ORGOVYX® (relugolix), MYFEMBREE®/RYEQO® (relugolix combination tablet) are owned by Myovant. This material contains information about Myovant, which is based on information disclosed by Myovant. For more information on Myovant, please visit https://www.myovant.com.

Additional Information and Where to Find It

This material may be deemed to be solicitation material in respect of the proposed acquisition of Myovant by Sumitovant and Sumitomo Pharma. In connection with the proposed acquisition, Sumitovant, Sumitomo Pharma and Myovant intend to file relevant materials with the SEC, including amended Schedule 13D filings and a transaction statement on Schedule 13E-3 with respect to Sumitovant and Sumitomo Pharma and a proxy statement on Schedule 14A with respect to Myovant. The definitive proxy statement and Schedule 13E-3 transaction statement will be sent to Myovant's shareholders and will contain important information about the proposed transaction and related matters. SHAREHOLDERS OF MYOVANT ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING SUMITOVANT'S AND SUMITOMO PHARMA'S TRANSACTION STATEMENT, MYOVANT'S PROXY STATEMENT AND ANY AMENDMENTS OR SUPPLEMENTS THERETO, AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC, CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain the documents free of charge at the SEC's web site, http://www.sec.gov, and Myovant shareholders will be able to obtain free copies of the proxy statement and Schedule 13E-3 through the Investor Relations page of Myovant's website, www.myovant.com.

Participants in the Solicitation

Sumitovant and its directors and executive officers, Sumitomo Pharma and its directors and executive officers, and Myovant and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the holders of Myovant common stock in respect of the proposed transaction. Information about the directors and executive officers of Myovant is set forth in the proxy statement for Myovant's 2022 Annual Meeting of Shareholders, which was filed with the SEC on July 28, 2022. Investors may obtain additional information regarding the interest of such participants by reading the proxy statement regarding the acquisition when it becomes available.

Presentation

Kamano: We will now begin the presentation of Sumitomo Pharma Co., Ltd.'s financial results for Q2 FY2022. Thank you very much for joining us today.

Today, we would like to proceed with our Tokyo Head Office and a live webcast and conference call from our Tokyo Head Office.

First, a point to keep in mind. Today's explanation will be based on the presentation materials posted on our website. After the presentation, there will be a question and answer session. Please understand that we may not be able to answer all questions due to time constraints.

I would now like to introduce today's attendees.

Mr. Nomura, Representative Director, President and CEO. Dr. Kimura, Representative Director, Executive Vice President. Dr. Ikeda, Member of Board of Directors, Senior Executive Officer. Finally, I am Kamano, from Corporate Communications. Thank you.

Mr. Nomura will now present the financial results for Q2 of FY2022. Mr. Nomura, thank you.

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Nomura: Thank you for attending our financial results briefing.

As you are already aware, we have decided on and are forecasting a loss for Q2 and for the full year. We sincerely apologize for this loss, and for the forecast loss for the full year.

I would now like to give a presentation in line with the available slides.

Please see page three.

Revenue was JPY319.3 billion, an increase of JPY25.6 billion. However, the impact of exchange rate fluctuations was JPY38.8 billion, a very large impact.

In Japan, sales have actually declined by about JPY10 billion. This is due to factors including item returns and drug price revisions.

In the US, there is a considerable foreign exchange gain. As you will see later, we received USD270 million from Otsuka Pharmaceutical in fiscal year 2021, so there is a difference in real terms. However, from the perspective of product sales, you will see that real sales are growing.

As for China, we had anticipated that volume based procurement would start in July 2022, but since it actually started in November, we have made an upward revision here.

Selling, general and administrative (SG&A) expenses grew in real terms, even excluding foreign exchange differences. This is based on an increase in sales expenses at Sumitovant.

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Next, other revenues and expenses, within the core. This figure is zero because we have not yet been able to sell the assets, but it is included in the forecast.

The change in the fair value of contingent consideration is JPY1.3 billion, which is the result of a review of the fair value of contingent consideration for TP-0903, the Beat AML program, which had an investigator-initiated clinical study, which was discontinued. The results of the review of the fair value of contingent consideration were in a positive direction.

Then, regarding other non-recurring items, as you know, we have impaired the KYNMOBI® patent rights and other assets. That is JPY54.4 billion.

As a result, we are reporting an operating loss of JPY28.9 billion.

The large figure of JPY49.9 billion in financial income and expenses is due to the foreign exchange gains of JPY49.7 billion from the translation of our financial assets.

Pre-tax income is JPY21 billion, while corporate income tax is JPY36.3 billion. The situation here is a little bit irregular, but the US subsidiary has almost no taxable income, while the domestic subsidiary has taxable income. The foreign exchange gains that I explained earlier are very large, so the tax burden is large in some cases. The amount of corporate income tax is very large compared to pre-tax income.

As a result, for the second quarter of FY2022 there was a loss of JPY15.2 billion, and the loss for the quarter attributable to owners of the parent was JPY7.3 billion.

This slide covers the major impairment loss on KYNMOBI®.

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It was in October 2016 when we acquired a Canadian company called Cynapsus for USD635 million. The reason for the acquisition was that there was an unmet medical need at the time: OFF episodes of Parkinson's disease. In contrast, the injectable apomorphine was available, but it was not used that much. Cynapsus anticipated that there was an opportunity and developed a sublingual film version of apomorphine. We acquired it.

The Phase III study had not yet been completed, so we continued with Phase III study. The product launched in September 2020.

In addition, under COVID-19, we have worked to provide information to hospitals despite issues with access difficulties for healthcare providers and patients. In spite of this, to date, sales have been in the single digits.

We were aiming for a peak sales level of USD500 million, but unfortunately, we were far below that level. We have been examining why this is the case.

The reason for the poor sales and the revision of the revenue forecast is that the number of Parkinson's disease patients with a need for rescue drugs was different from what we had expected.

It is true that patients who have OFF episodes usually have these OFF episodes after about five years of taking Levodopa/Carbidopa. For such patients, the frequency of Levodopa/Carbidopa administration is increased, in order to shorten the duration of OFF episodes as much as possible. We also thought that there might be a demand for this type of treatment for patients with relatively mild Parkinson's disease.

Therefore, we initially thought that there might be a great deal of unmet medical need for OFF episodes, but we found that this was not necessarily the case.

If we look at the percentage of patients with Parkinson's disease who use OFF episodes medications from January to December 2021, we find that only about 0.1% of patients use these medications, which is a very small percentage of patients.

The other thing is the safety profile, which we were very careful about during the due diligence at the time of acquisition. However, in the course of the Phase III studies, we heard that there were some patients who stopped taking this medication because of oral side effects.

These are the main factors, but in essence, KYNMOBI® was not widely taken up for treatment of OFF episodes in patients with Parkinson's disease.

On the other hand, there were competing agents. I will omit the name of the company and the product, but in FY2021, it seems to have generated sales of approximately USD30 million. We do not know whether this drug is at a very satisfactory level or not, but it is an inhaler of L-DOPA.L-DOPA was originally used for OFF episodes in Parkinson's patients, so it may have been used because of the drug's high affinity with that area.

We have not been able to fully analyze the specifics of this, but as I mentioned earlier, KYNMOBI® has been struggling for a number of reasons. Based on these circumstances, we have made a sales forecast and have come to the conclusion that even if we continue to operate at this level, we will not reach a scale that will allow us to recover our investment. We spent USD635 million on this acquisition, but unfortunately, we have been forced to write it down.

We are going to discontinue the promotion of KYNMOBI®, and we are going to look for companies that are interested in the OFF episodes of Parkinson's disease in the future.

As for the sales reps who promoted KYNMOBI®, some will move to working with GEMTESA®, and the rest, unfortunately, will leave the Company.

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