Nxera Pharma Co., Ltd. (4565.T) Q3 2026 Earnings Call Transcript

Hironoshin Nomura: [Interpreted] It is time to start Nxera Pharma's Q3 FY 2026 Results Briefing and R&D Day. Thank you very much for joining despite your very busy schedule. I will be serving as the MC, Nomura, CFO of the company. Today, Chris Cargill, CEO of the company; COO and President of Nxera Pharma Japan, Toshi Maeda; CSO and the President of Nxera Pharma UK, Patrik Foerch, are attending. As usual, we have the simultaneous interpretation. Please set the language selection icon of the Zoom and you can listen to either Japanese or English. You can also hear the original speaker voice. Now according to the presentation materials, we will do the presentation. We have the Q&A after the presentation. We have the materials on the screen, and they are uploaded on the website. If you need them, please go through Investor Relations IR library and presentation to access the materials. As for the Q&A session, institutional investors and analysts and media people, you may raise question by raising hand. The other people may ask -- submit questions by Q&A button. We will respond to questions as long as the time permits. Let us move on to presentations. At the outset, Chris will talk about the operational highlights, then I will cover the financial results summary. Maeda will do the update on Japan APAC Commerce. Patrik will do UK R&D progress, and Chris will talk about the road ahead. Now please take a look at Page 5. Chris, over to you.

Chris Cargill: Thank you, Nomura-san, and thank you, everyone, for joining us today. If you remember one sentence from today, let it be this. Nxera is profitable in Japan. We are discovering in the UK, and we are partnered with the world. So I've got 3 messages here. First, we're profitable and we're growing. Nine-month revenue rose 27% to JPY 27.7 billion. Core operating profit was JPY 9.8 billion, already 126% of full year guidance, with JPY 7.1 billion from our Japanese business alone. Now in October, we added lucerastat for a rare disease called Fabry disease, and this will be our fourth product in Japan. Second, our science is something that partners are paying for. Partnered revenue was JPY 13.3 billion, up 63%. Seven molecules from our UK discovery platform are in partners' clinical trials with 1 in Phase III. And our partnerships carry more than USD 4.5 billion in potential milestones plus royalties. And thirdly, we are on track for 2030, more than JPY 50 billion of revenue and operating margin above 30% and at least 5 products in Japan. So 3 strengths, 1 company listed in Tokyo, and I'll return to this at the end of today's presentation. So we're profitable today, and we're building value in every part of the business through to 2030. Next slide, please. So here are the 9 months on one page. One fact stands out, Nxera is now profitable, and both our businesses are contributing. So on the left, revenue grew 27% from JPY 21.8 billion to JPY 27.7 billion. Reported operating profit was JPY 3.2 billion against a loss of JPY 5.9 billion a year ago. In the middle, our medicines in Japan. PIVLAZ helps prevent a dangerous narrowing of blood vessels in the brain after ruptured aneurysm. Sales of the product grew 10% to JPY 9.9 billion. QUVIVIQ for insomnia grew 43% to JPY 4.5 billion. And on the right, our partners, Neurocrine, Centessa, AbbVie and Lilly all paid us milestones as their programs advanced. Lilly acquired Centessa in a transaction worth up to $7.8 billion. Nxera is eligible for milestones and royalties across that whole orexin portfolio worldwide. And a new company licensed one of our GPCR programs for up to $275 million in milestones plus royalties and an equity stake. So a year ago, a loss, this year, a profit from both businesses. Please turn to the next slide. So in February, we made 5 promises for 2026, and here is where each one stands today. One, more than JPY 19.5 billion of sales from PIVLAZ and QUVIVIQ. And after 9 months, we are at JPY 14.4 billion, 74% of the target and on track. Two, at least one late-stage medicine for Japan and Asia Pacific, and we've delivered this with lucerastat. Three, one or more high-value partnerships, and this is in progress, and we will report when there is news. Four, at least 1 Phase II trial started by a partner, and this has been delivered. Three programs are moving into Phase II, NBI-'570 and NBI-'567 with Neurocrine and ORX142 with Lilly. And five, cutting costs by more than 10%, and we expect to be profitable for the full year. Core R&D is down 20% and core SG&A is down 11%. We are profitable after 9 months and ahead of the plan. So clear promises reported openly and profit ahead of plan is my summary. Hiro will now take you through the results in detail, including our forecast for the full year. Thank you, Hiro.

Hironoshin Nomura: [Interpreted] Thank you, Chris. This slide summarizes our results for the first half of 2026, showing each revenue segment alongside its historical trend. This is a familiar format. The revenue went up against JPY 21.8 billion, increased by 27% to JPY 27.7 billion. The milestone revenue became JPY 11.8 billion from JPY 6.5 billion, and the product sales grew to JPY 14.4 billion from JPY 12.2 billion, respectively. The milestone revenue had progress in development, resulting in milestone among our key partners, Neurocrine, Lilly, AbbVie and Centessa. Product sales were covered earlier. So I will skip the figures here, but both PIVLAZ and QUVIVIQ delivered strong growth. On the profit side, we moved into black with JPY 9.8 billion in core OP and JPY 3.1 billion on IFRS basis. Although this was slightly lower than Q1, in Q3 the core was JPY 3.3 billion. On IFRS basis, it is black by JPY 1.2 billion. Now please move on to the next page. As usual, this is by business domain split into core OP and reported OP. On the far left, in blue is our platform business, which follows what you call biotech venture business model. Just to the right red is our commercial business, which follows pharma-style business model. Platform profit depends heavily on milestones from our partners and difficult for us to control. So we are controlling to grow the commercial business spread and stabilize our earnings. Until Q3, for both platform and commercial, we see the increase in revenue and the cost. Especially for SG&A and R&D, we have been able to reduce by 10%, 20%, and we are trying to generate a profit. Please move on to Page 11. This page is very close to the previous figure, but just the percentage. Compared to the year-on-year basis last year, this shows the progress against our guidance. The guidance uses the bottom of the range. So as a company, we are not evening out by quarter, but suppose that it is evened out since this is Q3, it will be 75%. Please do interpret that way. The message is basically the same as the previous slide. And as Chris said, we have steady progress. And going to the far right, if you take a look at the progress on IFRS basis, revenue is now 82%, which is good progress and cost is basically in line, roughly 3/4, and this is maintained at roughly 75%. This is very brief. But with this, I would like to conclude the financial part of Q3. Next, Maeda will explain Japan APAC business. Over to you, Maeda-san.

Toshihiro Maeda: [Interpreted] This is Maeda, COO. From here, I will explain our Japan and APAC business, starting with the status of 2 products we already sell. Next slide, please. Both the products we already sell are on track towards this year's full year targets. First is PIVLAZ. Sales for January to September were about JPY 9.9 billion, up 10% year-on-year, which is about 71% progress against the full year target. In March of this year, clazosentan practical dosing guide was released for use in clinical practice led by the academic society, and we will continue our commercial activities making full use of the guide. The second is QUVIVIQ, our treatment for insomnia. Sales for January to September were JPY 4.5 billion, up 43% year-on-year, which is about 82% progress against the full year target. Shionogi also revised their sales upward. And so we expect a further boost of the growth of QUVIVIQ overall. On overseas expansion, this month, we signed a license agreement with Synmosa for 8 APAC countries. In the rest of APAC, we expect a product launch in Taiwan from the second half of this year and South Korea next year, which we expect to further boost the growth of QUVIVIQ overall. Next slide, please. So third product, vamorolone, acts on the same receptor as conventional corticosteroid, but differs in its downstream effects. We aim to offer a new option to patients who need long-term treatment. Top line results from the GUARDIAN clinical trial showed markedly improved safety compared with corticosteroid. On the business side, we are focused on being able to leverage our existing commercial base. At the facility level, we expect a sales synergy of about 70% with PIVLAZ. On the development time line, we have agreed with the regulators in Japan and Korea that no additional clinical trials are needed before approval. In Korea, we completed the filing this month. And in Japan, we plan to file next year. In both Japan and South Korea, we plan for approval and launch during 2028. The graph on the right shows sales forecast in the U.S. and EU, which exceeds JPY 100 billion at peak. These are partner sales, not Nxera revenue. So please view them as reference information showing the product's potential. Next slide, please. This Wednesday, we signed a license agreement with Idorsia of Switzerland for the development and commercialization of lucerastat in Japan and APAC. Lucerastat is an oral drug for Fabry disease. The upfront payment is about JPY 1.3 billion. This is the amount that was pre-agreed when Nxera acquired Idorsia's Japan and Korea businesses in 2023. Nxera will co-fund part of the global clinical trials and will lead development in Japan. The strategic significance of in-licensing lucerastat comes down to 4 main points. First, it targets a rare disease, which is a focus area for us. Second, it is late stage and derisked with more than 6 years of data. So development risk is low. Third, it is a differentiated oral therapy with orphan drug designation in the U.S. and EU. And fourth, we enjoyed modest upfront. We see peak sales of over JPY 15 billion in Japan alone. Global NDA is expected as early as 2029, and the market launch in Japan is planned for the early 2030s. Next slide, please. Some supplementary explanation on Fabry disease. It is an inherited disease. Patients lack the enzyme, alpha-galactosidase A, that breaks down fatty substance called Gb3. As a result, Gb3 gradually builds up and damages the kidneys, heart and nervous system. There are currently 2 treatments. One is IV infusion that replaces the missing enzyme, which requires visits to the hospital every 2 weeks. The other is an oral drug that can be used only by people with certain genetic changes. Lucerastat has a different mechanism of action. Rather than breaking down Gb3, it reduces the amount of Gb3 that is made in the first place. Therefore, it could be widely used regardless of the type of genetic change. The Fabry disease drug market in Japan is about JPY 30 billion, while some estimates suggest that about half of diagnosed patients are not receiving treatment. Considering that many Fabry disease patients are of working age, we believe the need to switch from existing drugs that require hospital visits every 2 weeks to an oral drug is very high. So that was our latest information on lucerastat. Now Patrik will talk about UK development drug discovery status.

Patrik Foerch: Thank you, Toshi. Can we move to the next slide, please? Let me start with the value that our UK science is creating through our partnerships. Over nearly 20 years, our teams accumulated knowledge in GPCR drug discovery that helped us create a partnered portfolio that now includes 7 molecules in clinical development with 1 in Phase III. With Neurocrine, we have one of the largest muscarinic clinical pipelines. Direclidine is in Phase III for schizophrenia, alongside 3 other clinical muscarinic programs in schizophrenia, Alzheimer's cognition and psychosis. These programs generated this year USD 32.5 million milestones and have an overall value of USD 2.6 billion plus royalties. In our orexin collaboration, we have 3 programs in the clinic, which I will cover on the next slide. Overall, these clinical programs give us exposure to several important neuroscience opportunities, creating value for Nxera and for patients as our partners advance them in the clinic. For our discovery collaborations with AbbVie in neuroscience and Eli Lilly in diabetes and metabolic diseases, we generated milestones in excess of USD 20 million. Across our main partnerships, the headline potential economics exceed USD 4.6 billion plus additional royalties. In the first 9 months, the partner revenue was JPY 13.3 billion, and the discovery platform generated a core operating profit of JPY 2.7 billion over the same period. This is a strong demonstration of the strength of our NxWave platform, the value of our discovery collaborations, which contribute to the group profitability and help discovering novel medicine addressing unmet clinical need. And obviously, this clinical pipeline will deliver additional milestones in 2027 with a key milestone of Phase III data for direclidine in second half of '27. Next slide, please. The orexin field has moved forward significantly this year. During the summer, the FDA approved Takeda's first orexin agonist in narcolepsy type 1. This is an important validation of the biology and showing the potential to restore orexin signaling in disease. Lilly's acquisition of Centessa brings substantial resources and strategic focus to the orexin class of medicine that we discovered together with Centessa. The transaction was valued at approximately USD 6.3 billion with a further USD 1.5 billion linked to approvals beyond narcolepsy type 1. Lilly has described orexin as one of the most compelling mechanistic opportunities in neuroscience, acting as a master switch in the sleep-wake cycle and opening significant opportunities beyond sleep with the potential to explore the role of orexin agonist in ADHD and other neurodegenerative or neuropsychiatric conditions. At Nxera, we are very excited about the clear commitment from Lilly to these 3 molecules that are discovered through our collaboration utilizing our NxWave technology. Lilly is progressing ORX750 in narcolepsy type 1 and 2 and idiopathic hypersomnia, ORX142 in neurodegeneration and ORX489 in neuropsychiatry. We're eligible for milestones and low single-digit royalties across the portfolio globally. And based on Centessa's forecast, ORX750 alone is expected to reach sales in excess of USD 6 billion in 2040. Can we move to the next slide, please? Why does our platform continue to generate new opportunities? Because it is built on an unprecedented depth of GPCR data and experience that has accumulated over nearly 2 decades. The data set now includes over 500 structures for more than 62 receptors. We have more than 30,000 stabilizing mutations, over 5 million data sets for 150,000 compounds and many thousand synthesis routes that our scientists generated. Each new program adds to the data moat and helps us make faster and better informed decisions about what to test next. As we prove our platform continuously, we are measuring the impact on the speed of our discovery projects. When comparing to historic data, we reduced the time for hit finding activities by 50%, decrease the time for hit to lead phase by around 45%. Not only are we progressing our projects faster, we also generated structures for 69 receptors this year, 50% more than in 2025. The discovery portfolio, highlighting the efficiency of our NxWave engine. Together, these results show how our proprietary data and scientific excellence, combined with lean execution are translating into greater speed across all discovery stages to bring medicine into the clinic. Let me show on the next slide how we are implementing our AI activities into our drug discovery projects. Next slide, please. There's enormous interest in AI, and we are seeing very clearly the enormous potential AI brings to our industry. Equally, we see that a differentiating asset are the data, data that teach the models what to look for. In drug discovery, that means high-quality experimental evidence linked to receptor structures, mutations, assay results and associated chemistry. And Nxera has built that foundation over the last 20 years. 527 GPCR structures, more than 30,000 mutations, 5 million data sets associated to 30,000 molecules. This gives NxAQ a unique data moat and a very distinctive starting point for each of our targets versus models that are based only on publicly available data. The workflow puts this data to work, AI ranks the ideas, physics checks the short list and our chemists decide what to make. Our labs then test the molecules to confirm the predictions with our in-house Cryo-EM structures and every result feeds into the next round. And that closed learning loop is how we make better choices and generate data faster, all while maintaining the high level of quality of the molecules Nxera generated so far is well known for and respected across the industry. We have built this workflow and our first AI designed molecules are due for lab testing in the first half of 2027. Can we please move to the next slide? And let me close with our next wave of our oral programs focused on proven targets and very clear areas of patient need. In obesity, our amylin agonist is aimed at the still very large group of patients who are poorly served by today's GLP-1 medicines. Our broader next-generation obesity portfolio is exploring multiple targets to address limitations of current standard of care, the well-known side effects, muscle loss and also address about 50% of patients that are stopping treatment within the first year. All of that in a market that is estimated to be in the range of USD 200 billion. Beyond obesity, our small molecule TSHR negative allosteric modulator targets Graves' disease and TED with a validated mechanism and a strong fit for our Japanese commercial business. Our PTH1R agonist treats a proven receptor in hypoPT, a rare endocrine disease with very significant patient need. A very brief update about our clinical stage assets. We have completed the work to bring NXE'744, our EP4 agonist for IBD and NXE'149, our GPR52 agonist for schizophrenia to a Phase II-ready state. Both are ready for the next stage, and active partnering discussions are ongoing for each of them, as Chris has pointed out. NXE'732, our EP4 antagonist, is in Phase IIa with Cancer Research UK with interim data expected by the end of 2026. This gives a focused next wave of oral metabolic and endocrine programs alongside Phase II-ready assets with clear partnering potential. And with that, I'll hand over to Chris.

Chris Cargill: Wonderful. Thank you, Patrik. Next slide, please. So Nxera essentially runs on 2 loops, and they connect everything that you've heard today. The first is a data loop. Our UK teams design medicines using nearly 20 years of our own GPCR data, and that's now combined with AI and physics. And every program adds to that data set. So the next one moves faster, and we have already roughly halved the time for early discovery. The second is a cash loop. We license global rights to partners such as Neurocrine, Lilly and AbbVie, and they fund late-stage development and pay us milestones and royalties. And in Japan and Asia Pacific, we bring medicines to patients, including medicines we in-license such as lucerastat. Together, product and partner cash funds our discovery. And so on this slide, we've got 5 commitments for the future: one, a lean specialty and rare disease business in Japan; two, larger partnerships; three, a focused oral pipeline of next-generation GPCR-targeted medicines; four, AI-led drug discovery projects; and five, more than JPY 50 billion of revenue at a margin above 30%. Both loops serve one purpose, more medicines for more patients in Japan and around the world. Japan's profits fund our discovery, our discovery attracts new partners and our new partners fund development. Please turn to the next slide. So what does this mean for the numbers? Well, our 2030 targets are unchanged, more than JPY 50 billion of revenue and an operating margin above 30%. We start from the JPY 28.8 billion in FY '24, and that means average growth of close to 10% per year, and the growth comes from 4 places. We grow from what we already sell. So PIVLAZ is the standard of care in Japan. QUVIVIQ has grown 43%, and we are adding new Asia Pacific markets. We will launch AGAMREE for Duchenne muscular dystrophy, a rare muscle disease that mainly affects boys, and we expect to launch in Japan in 2028. We add specialty and rare disease medicines like lucerastat, which will be in Phase III, and that will start the next wave and partners' economics, milestones today and royalties as those partnered medicines hopefully reach patients in the future. And the margin comes from how we are built as a company, a lean specialist sales force, new products that go to the same hospitals, high-margin royalties and cheaper discovery with a stop rule for every program. And beyond 2030, we aim for an operating margin of around 40% by 2035. So 4 drivers of growth, 4 drivers of margin, one target, more than JPY 50 billion at more than 30% margin by 2030. And finally, on the last slide, here is what you can hold us to. So as we look forward over the next 18 months, there's 3 events that matter most to us, and all of them are expected to occur in the second half of 2027. We expect the Phase III data for direclidine in schizophrenia from our partner, Neurocrine. There will be Phase II/III data for ORX750 in narcolepsy and idiopathic hypersomnia, chronic sleep disorders from our partner, Lilly, and there will be our filing for AGAMREE in Japan with the launch expected in 2028. Each one is a step towards new medicines for patients. Behind them is the full list. By the end of this year, we expect a new partnership or licensing agreement for either NXE'744 or NXE'149 and interim data for NXE'732, our cancer program with Cancer Research UK. And in 2027, the first lab test of our AI designed molecules from the AQ platform and lucerastat Phase III enrollment will begin, including in Japan. And of course, at any time, we can execute new partnerships and bring in new late-stage medicines for Japan. And we will report against every one of these as we have in 2026. This is our list, and you can hold us to it. So let me begin where I began, Nxera, profitable in Japan, discovering in the UK and partnered with the world. Thank you very much for your attention, and we will now take your questions.

Hironoshin Nomura: [Interpreted] Thank you, Chris. And then let us move on to the Q&A session. Those of you who are institutional investors, analysts, and media, please use the raise hand function. [Operator Instructions] Wada-san from SMBC Nikko Securities.

Hiroshi Wada: [Interpreted] The first question I have is fiscal -- this quarter, you have profit. And for next quarter and the quarter after, will it be possible to continue profit? You have Neurocrine, Centessa. And on the last slide, you have a milestone and you will have the Phase III data available in the second half. So you will begin to have the royalty from 2028. And what will be the position for next fiscal year? That is the first question I have.

Hironoshin Nomura: [Interpreted] It's about figures. So let me respond at the beginning. This is an important point. And can we stably generate profit? It seems like this year is a good year. I understand that is your question. Speaking from the conclusion, we cannot guarantee that. But the next fiscal year, we have multiple milestones, as you can see on the slide. In addition to that, we have the possible new partnerships expected in the second half, and you might wonder that we only have 2 months to go. But this is an area we are focusing at the moment. So from that background, the existing partners and new possible partners, combining the milestones together after next fiscal year, we should not have any issue for generating profit. Of course, we may be influenced by the timing of the milestone. But as Wada-san, you pointed out, one point is that once we have the Phase III results next year, if we go successfully, we will have a royalty revenue for UK business. And on the other hand, the commercial will continue to increase as we showed you. So personally, we believe we can generate profit next year. And as the time passes by, the hurdles or the volatility will diminish. That is my view. I hope I answered your question.

Hiroshi Wada: [Interpreted] Yes. And another question is about partnership. In principle, the commercial business will have a stable profit. And for pipeline, including lucerastat, you should be able to generate more profit. The negative factor will be platform business milestone. It may drag slightly. But for the new partnership, I believe that it will become the backup. So I believe that I can expect to see the continued profit. But I think you have some candidates for drugs. So can we hear about that?

Hironoshin Nomura: [Interpreted] Yes, since this is new partnership, I would like to ask Chris to explain. So Chris, you are on mute, but do you think you can explain?

Chris Cargill: Yes, certainly. Thank you for the question. Let me begin with one statement I heard, which is that our platform could be a negative drag. I just want to be clear, we never think that our drug discovery platform will be a negative drag. Our drug discovery platform is incredibly unique amongst small and midsized Japanese pharmaceutical companies, and it is continuously generating new seeds and new assets that have the potential to create amazing value for shareholders. So I just want people to understand that there is a lot of value tied up in our drug discovery platform. Now to your question on partnerships, our ongoing partnering discussions are going well, and we are actively working towards another transaction. And that won't be the only transaction. We see potential for additional partnerships and near-term milestones in FY 2027 next year as well. So that concludes my response. Thank you.

Hironoshin Nomura: [Interpreted] Thank you. Yes, I am well aware of that and your core technology. I understand the value of your core technology is there. It may drag figures next fiscal year, but that's a trivial remark. That's all. Wada-san, thank you. And if I may elaborate one more point, there is so much focus on the new partnership for this fiscal year. But next fiscal year, we are going to have more partnerships, and we may have some that will close this year, and we can continue next year. So we would like to continue to make effort. And combined with what was discussed, we will continue to have the growth of the platform, and we are also expecting to see the growth in commercial as well. That was additional comment. We'll move on to the next questioner, Jefferies, Yamakita-san from Jefferies.

Miyabi Yamakita: [Interpreted] Yamakita from Jefferies speaking. I have first question, QUVIVIQ. So Shionogi's sales is growing steadily as you showed, they revised upward. Your sales has some ups and downs, it seems, but royalty ratio is increasing, and there are some ups and downs in shipment. Is that understanding correct? So if you could give us a little more color to this?

Hironoshin Nomura: [Interpreted] So this is about Japan commercial business. So Maeda will explain. Maeda-san, over to you.

Toshihiro Maeda: [Interpreted] So simply put, you are right. Royalty is monthly QUVIVIQ market sales. That is the basis for the calculation. So if there is an upside, the upside will come in the following month. The big part is our product supply. And this is planned beforehand. And so just because the market goes up, the manufacturing cannot change immediately. There is a slight time lag. And therefore, this year, Shionogi sales target is up, revised upward, and that will be reflected in the supply volume next year.

Miyabi Yamakita: [Interpreted] Understood. Second question is about Wada-san's -- connected to Wada-san's question. So about your out-license going forward, your clinical stage, you have multiple candidates, compounds. And so the out-license, maybe 1 per year, I think, will be the frequency. I think it's safe to say. Now going forward, you will develop and sell in-house. Is that your target? Then your in-house development up to Phase II or Phase III, it depends, I think. But for the in-house development and out-license, what is the judgment criteria? How do you decide which to go for?

Hironoshin Nomura: [Interpreted] So this is about strategy in most parts. So Chris, if you could start answering the question and then Patrik, if you have anything to add. So Chris, could you start off?

Chris Cargill: Certainly. Thank you. Thanks, Yamakita-san, for your question. It is very difficult to commit to exactly one licensing transaction per year. As you know, the timing of these very difficult negotiations is very difficult to control. However, I think if you look at our track record as a company and as a team, over the journey, we would average almost one major licensing transaction per year. So it is certainly a goal, but it is a hard one to commit exactly to. For this year, as I mentioned previously, in my previous question, the ongoing partnering discussions are going well. So we are actively working towards another potential transaction this year, and we do see potential for additional partnerships next year. And so we will be absolutely striving to do a major partnering transaction every year where we can. Now the second part of your question is the important one. In order to do major partnering transactions, you need to have programs or potential products that have value. And so we have a pipeline, and we will actively move that pipeline into early clinical development. And by that, I mean Phase I, Phase Ia, Phase Ib, expanding from volunteers sometimes into a small patient cohort. In terms of which ones we decide to move forward internally versus which ones we decide to out-license, I mean, if we look at this page, for example, amylin, a small molecule amylin program, is clearly not something targeted for obesity and chronic weight management. This is not something that we ourselves as a company are best positioned to do late-stage clinical development or even commercialize outside of Japan. And this is a program we are very deliberately planning to take into early clinical development. And then we would license it out to a major multinational company that is capable of developing and commercializing it. Now if I look at the other programs in our pipeline, for example, the TSH program or the PTH program, these are programs that are, I believe, well suited for us to take them forward in clinical development in Japan. So we would go into Phase I, and then maybe at the end of Phase Ib, we would seek a partner for the worldwide rights outside of Japan and APAC. However, we would keep the rights for Japan and develop them ourselves. So that is how we're thinking about it. If it's something we can do well in Japan, we keep the program, we develop and we commercialize. And if it's not, then it's something suitable for out-licensing with a major multinational company, then that's what we will do. That's the strategy, and I hope that, that was clear. Thank you. That concludes my response.

Hironoshin Nomura: [Interpreted] Thank you, Yamakita-san for your questions. Let us move on to the next question. [Operator Instructions] We have only few hands. But since this is a good opportunity, we would like to take questions from chat. The first question is the sales of PIVLAZ. On a full year basis, 5% increase is expected in revenue so far compared to last year, there is 10% growth on a year-on-year, and it is expected to exceed our guidance. What is your view? Maeda-san, can you respond?

Toshihiro Maeda: [Interpreted] Yes. Thank you. On PIVLAZ, in Q4 from October to December, we have more cases in wintertime. So we are setting our target higher. So there's a possibility for exceeding the guidance, but I think it will be basically on track. Thank you.

Hironoshin Nomura: [Interpreted] [indiscernible] of JPMorgan.

Unknown Analyst: [Interpreted] Can you hear me?

Hironoshin Nomura: [Interpreted] Yes.

Unknown Analyst: [Interpreted] [indiscernible] from JPMorgan. So this is connected to Wada-san's question earlier about partnering partnership. So the 2 products partnership, we have 2 months left this year. But in the material, the expression has changed a bit. So the partnership is progressing and the discussion is ongoing. It says in the last material, it said with few companies. So for EP4 is the probability rising, I think. So the 2 products, partnership progress or the probability of achieving by the end of this year, if you could -- I know it's negotiation, it's difficult to say much, but if you could give us a little more detail, I'd appreciate it.

Hironoshin Nomura: [Interpreted] So Chris, if you could, please.

Chris Cargill: Sure. Thank you for the question. Look, I mean, all I can really say is we are getting closer to the end of the year, which means we are getting closer to the end of negotiations. So we're very happy to be in the position that we are in. And I can't tell you whether the probability is rising or not because I cannot speak for the other parties involved in discussions, except to say that we are closer to the end than we are to the beginning. So hopefully, that answers your question. Thank you.

Unknown Analyst: [Interpreted] So which one of the 2 are progressing or now you're coming to the end, what kind of risk should we anticipate or be prepared for on the partnership about the amount, the value, any changes in the value compared to the ones in the past? Anything else you could share with us?

Chris Cargill: Thank you for the question, but no, I can't share any more information. I can't. Obviously, I can't tell you which asset and I can't tell you valuation. So we will keep that information confidential until there is potentially information to disclose publicly. Thank you.

Hironoshin Nomura: [Interpreted] Thank you. This is negotiation, so we cannot talk about the scale. But one point, according to the materials of Q2, it's above JPY 1 billion. And that is the indicator. And I think that will be the yardstick. It's already public information. So allow me to elaborate on that. Thank you. Now Yamakita-san, you're raising hand again. Yamakita-san from Jefferies Securities.

Miyabi Yamakita: [Interpreted] I'm sorry to ask questions second time. This is a follow-up from the previous question. And I asked about the criteria for making judgment of out-license or on proprietary, but how about out-license or spinout? Is there a possibility for particular assets for out-license or spinout?

Hironoshin Nomura: [Interpreted] Yes. Thank you for the questions. This is related to strategy. So can I ask Chris to respond?

Chris Cargill: Yes, absolutely. Thank you, Yamakita-san. I think I have addressed this topic on previous calls, but let me try and be very clear. When we, as a company, create a new program with potential value for patients, and we have completed, for example, Phase I, our #1 goal if this is a product that we are unable to develop or commercialize ourselves because the development plan is very expensive and complex and because it requires commercialization in North America, for example, then our #1 strategy is to do a licensing deal. We find a big pharma company that can take that program forward, we will do a licensing deal. Now not every program or potential product that we create is always suitable for a large pharmaceutical company. Sometimes those companies don't have interest in the mechanism of action or they don't have interest in the modality or they don't have interest in the therapeutic area. However, venture capital investors are prepared to take more risk, and we have found that if we cannot license potential products, then sometimes the next best way to ensure that our medicine continues to be developed and can make a difference for patients is to partner with the venture capital community, and that is exactly what we did earlier this year when we licensed a GPCR program to a venture capital fund. And then together with that venture capital fund, we raised a $60 million Series A, and that program is now advancing through preclinical and into clinical development. It's a wonderful example of another way that we can move our innovations forward so that in the future, hopefully, patients have more potential opportunity for new therapies. So if we -- I guess, to summarize your question, if it is not a transaction that is suitable for licensing, we then always look at the potential, can we work with the venture capital community to move this program forward. And that will always be part of our thinking. I guess the only thing that has changed in the last 3 years is following the acquisition of Idorsia Japan and Korea, we now have an absolutely amazing late-stage development and commercialization business in Japan for specialty and rare disease products. And so in that pipeline that you can see on this slide, the TSH program and the PTH program these are programs that we are able to develop and we would be able to commercialize in Japan. So that would be a good example of programs that we hope in the 2030 and beyond time frame can become internally discovered programs that will make a difference for patients in Japan. And outside of Japan, we will utilize partners to get those products developed, approved and hopefully launched. Thank you. I know that was a long response, but hopefully, it's helpful for you to understand our thought process around how we move the pipeline forward as fast as possible.

Miyabi Yamakita: [Interpreted] I have one question about figures, and that is commercial 74% for sales and revenue and cost of goods is 66%. And can you talk about those 2?

Hironoshin Nomura: [Interpreted] Yes. Thank you very much for your question. So since these are figures, I will respond simply. In terms of the progress of revenue, 74%, but the cost of goods progress is low. I think that is the question. Relatively speaking, there are 2 reasons. We are working on cost reduction activities continuously, and this is functioning quite well. So rather than what we have been looking at this conservatively, we don't require as much cost as necessary. And the second one is related to that as well. As we have been explaining, depending on quarter, as you can tell, for example, we provide a lot to Shionogi. And because of such reasons, it just seems that way. But overall, we are reducing cost compared to the beginning of the year. So it's not bad, but we do have some fluctuating factors.

Miyabi Yamakita: [Interpreted] Those are all my questions.

Hironoshin Nomura: [Interpreted] So next, [indiscernible] Toyo Keizai.

Unknown Analyst: [Interpreted] [indiscernible] from Toyo Keizai. Can you hear me?

Hironoshin Nomura: [Interpreted] Yes.

Unknown Analyst: [Interpreted] So I have 2 questions. First is the in-license to Japan. This year, vamorolone, lucerastat, 2 products. In your medium-term vision, you are saying 5. So one more remaining. By next year, can you front-load in-licensing around next year? I know, including the ones you're negotiating, is there a possibility you can do another one next year? And lucerastat, the way you sell in Japan, will you do this yourself or through partnership? Vamorolone, according to what you said, is specialty and it has commonality with PIVLAZ. And so I think you will do this yourself, I would assume. But lucerastat, how will you sell sales method in Japan? If you could give us more information, that is my first question.

Hironoshin Nomura: [Interpreted] Thank you very much. So the first point from me and the second one from Maeda-san. So first of all, about in-licensing, we did 2 this year. When will the next one be? When will that be? To be honest with you, vamorolone was the deal last year and announced was this year. Lucerastat, there is an option right. So whether it's an in-licensing, we did put a checkmark in-licensing, but it's a borderline. So our answer is we want to continue being aggressive. And like licensing out, this has the other party. So it's difficult to say. But if possible, one more this year would not be a surprise or first half next year, we will have more probability, more clarity. It's difficult to see the time line because it's a negotiation, but we are being aggressive. So that is the second point. And the next point, Maeda-san, lucerastat, please?

Toshihiro Maeda: [Interpreted] Thank you for the question. So lucerastat, basically, we are thinking of doing sales in-house. Roughly speaking, vamorolone launch for the pediatrics and for the neurology, we will have the doctor's network. And there will be a big overlap. Lucerastat will have a big overlap. It is an inherited disease. It's more for male and pediatrician may continue seeing taking care. So we haven't gotten so much into detail, but it may overlap with vamorolone. And in terms of number of patients, vamorolone, the muscular dystrophy, we think about half is the patient size. So with vamorolone team, they can cover lucerastat, I think.

Unknown Analyst: [Interpreted] Understood. And my second question is muscarinic. Next year, the long-awaited Phase III test data will come. I am looking forward to it. On the other hand, Bristol, that is ahead. Cobenfy, it's been a year since launch, but it seems like they're off to a slow start. It seems like they're having some difficulty. So when your drug is approved, what will this -- how will this impact you? And what is the difference, your strength? Will you play to your strength that they don't have? What is your view?

Hironoshin Nomura: [Interpreted] Thank you very much. So this is about R&D. So Patrik, if you could start off and then Chris, if you could add something if you do.

Patrik Foerch: Yes, absolutely. Very good question. To be clear, we have a different mechanism between Cobenfy and our muscarinic compound from the pharmacology, we are very confident that our molecule will have superior efficacy and safety ratio. Therefore, we believe we cannot do a direct comparison between our molecule and the competitor molecule. Second, we all know in this type of neuroscience clinical trials, it is absolutely critical to run these trials very efficient with very stringent criteria. And I would say from what we've seen with Neurocrine, they are undisputed experts in this area. They're executing these trials very, very efficiently. They are preparing a very comprehensive package that would differentiate our molecule versus Cobenfy. So we are very confident that there is a very significant market in an indication that is undisputed, still underserved and there is a very considerable patient need remaining. Chris, anything you want to add?

Chris Cargill: I mean, just one thing, and it's a bit of a reminder of the history of both of these medicines or potential medicine. Cobenfy is a combination of xanomeline, which is a drug that is active over the M1 and M4 receptors, but also active over M2 and M3, which causes side effects and tolerability issues. Our molecule was discovered using our structure-based drug design platform and our StaR technology to only activate the receptors of interest, M1 and M4. There is no activity over M2 and M3, which causes GI and cardio side effects or tolerability issues. And we think that could potentially -- I'm only talking anecdotally, but if you do some research into Cobenfy, you may find some commentary that physicians are experiencing some tolerability issues in the GI region with their patients, and that could be one of the potential factors slowing down its launch. We do not expect to have those same issues with our product, which is being developed and will be launched if it is successful by our partner, Neurocrine. So there is a different approach, which Patrik touched on earlier. But the key difference is we specifically designed a molecule to be active over M1 and M4 and not M2 and M3. So that would be my summary addition. Thanks, Nomura-san. Thanks, Patrik.

Hironoshin Nomura: [Interpreted] Thank you for your questions. In the interest of time, but since this is a good opportunity, we would like to take one last question from the chat. So this is a question to Chris. The stock option plan, the long-term incentive plan that was announced the other day, what is the background for setting this? And what is the aim for setting that the stock option plan? Chris, can you respond?

Chris Cargill: Certainly, I can respond. I mean, the first thing I would say is the plan is obviously set by the group's Compensation Committee, which does not -- for this particular topic does not include me. However, the intention is very clear. We want to incentivize -- as a company, we want to incentivize management and the plan should pay out only if every shareholder and our employees that own shares win. So it is a pay-for results type plan. Nobody gets anything unless the share price grows. The higher levels of the plan are deliberately very stretching and nothing can be realized for a minimum of 3 years. I think the other thing that the committee is responding to here is we are a company that is always trying to market ourselves in North America. We want special U.S. biotech institutions to own shares in our company. And they want to see management have a meaningful stake in the company. And if we can do this, we can drive much more significant international shareholder demand, which will drive the share price, which will fund more science. And the other thing I would add is that this plan has been carefully considered over a number of years. I know that the committee worked with an independent external firm to design the plan and it's been worked on for a number of years. The committee and the Board of Directors, excluding myself, have reviewed it. And the major shareholders of our company were consulted on aspects of the plan. And so for anybody that is a shareholder, whether you're an investor, whether you're an employee, we are all in the same boat that the plan is designed to reward everyone if significant value is created. So that's how I would describe the logic and the process and how it came to be.

Hironoshin Nomura: [Interpreted] Thank you. There are so many other questions on text, but we already exceeded the scheduled time. So we would like to conclude the briefing for today. For the questions we could not respond during the time allocated, we would like to respond in our official blog. It may take some time, but we will respond. As for this presentation, for this briefing, we will upload the video. Thank you very much for bearing with us. And with this, we would like to conclude the briefing for Q3 of 2026. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]