DAIICHI SANKYO COMPANY,LIMITED Q2 FY2026 earnings call

• Financial Strength: Revenue surpassed JPY 1 trillion for the first time in Q2. Operating profit and profit attributable to owners are on track for record highs, with full-year forecasts unchanged.
• CMO Compensation Strategy: A one-time payment was made to resolve supply uncertainties. An additional JPY 80 billion compensation fee for calendar year 2028 is expected in Q3/Q4, offset by provision reversals, keeping the full-year projection stable.
• ENHERTU Growth Drivers: Growth is fueled by deeper penetration in existing indications, expansion into early-stage breast cancer (neoadjuvant/adjuvant), and broader global access including UK reimbursement.
• DATROWAY Momentum: Rapidly emerging as a major growth driver with expanding US market share in NSCLC and strong adoption in triple-negative breast cancer (TNBC). CNS activity data from TROPION-Breast02 was highlighted as a key differentiator.
• Commercial Organization Reform: Effective April 2027, Daiichi Sankyo will unify regional and global commercial functions into a single global organization to improve decision-making speed and launch efficiency.
• Operational Excellence Program: Focusing on external expense optimization, AI-driven process transformation, and structural simplification to deliver JPY 200 billion in cost savings over five years.
• Internal Control Review: Addressed recent corrections to FY2025 financials caused by data aggregation errors, confirming no structural issues but committing to enhanced monitoring processes.

Revenue increased by JPY 191.9 billion (19.7% YoY) to JPY 1,167.2 billion, driven primarily by the Oncology segment. ENHERTU sales reached JPY 464.5 billion (+45.9% YoY), and DATROWAY sales reached JPY 48.3 billion (+JPY 32.6 billion YoY). The Japan Business Unit saw a revenue decrease of JPY 8.3 billion due to generic competition and price revisions. Overseas segments showed mixed results: Oncology grew by JPY 114.3 billion; ASCA grew by JPY 11.5 billion; while the American region decreased by JPY 25.4 billion and EU Specialty decreased by JPY 800 million. Foreign exchange provided a positive impact of JPY 73.9 billion on total revenue. Core operating profit rose 46.9% YoY to JPY 221.3 billion.

• Full-year consolidated forecast remains unchanged from July announcements.
• CMO compensation fee for calendar year 2028 is projected at JPY 80 billion, with booking likely concentrated in Q4.
• Management expects typical seasonality where Q3 profits are stronger than Q4, which often sees heavier expenses and inventory adjustments.
• ENHERTU sales milestones exceeding JPY 90 billion are expected to be booked in Q4.

• Supply Chain & CMO Risk: Mitigated through one-time payments and future compensation fees, though foreign exchange fluctuations may impact final costs.
• Clinical Trial Delays: AVANZAR readout delayed to H1 2027; I-DXd accelerated approval withdrawn pending Phase III completion.
• Regulatory & Financial Reporting: Recent internal control weaknesses regarding data aggregation require ongoing oversight improvements.
• Competitive Pressure: Generic entry affecting legacy drugs (Vimpat, Effient) and competition in oncology spaces (e.g., PD-L1 ineligible TNBC).

Q: Analyst asked if DATROWAY's limitation to PD-L1 ineligible patients impacts performance compared to competitors with broader indications. / A: Ken Keller stated that physician comfort, overall survival benefits, and ease of use drive adoption more than indication breadth. As physicians gain experience with DATROWAY, they are switching from competitors, leading to accelerating adoption despite the narrower label.

Q: Analyst questioned the timing of the JPY 80 billion CMO compensation and its split between Q3 and Q4, noting past patterns of weaker Q4 profitability. / A: CFO Kodama confirmed that while the total JPY 80 billion remains unchanged, it is probabilistically heavier in Q4 as agreements with CMOs for 2028 manufacturing take place near year-end. He also noted that significant ENHERTU milestone payments (>JPY 90 billion) will further burden Q4 results.

Q: Analyst asked about the reason for withdrawing I-DXd’s accelerated approval submission and how it affects competitive positioning against GSK. / A: John Tsai explained that FDA discussions indicated Phase II data did not support accelerated filing. They withdrew to pursue the nearly completed Phase III program, which offers a clearer benefit-risk profile. Differentiation lies in efficacy and safety profiles compared to bispecifics in the small cell lung cancer space.

Q: Analyst inquired why AVANZAR PFS accumulation is lagging and if the clinical protocol or event rates changed. / A: John Tsai clarified that the study design and event assumptions remain unchanged. The delay is due to the study powering for OS as a co-primary endpoint, requiring longer follow-up for maturity. No interim analyses were conducted, and futility checks passed.

Q: Analyst asked about the strategic rationale for combining DATROWAY with ivonescimab (PD-1/VEGF bispecific) and whether they are waiting for AVANZAR data before proceeding. / A: John Tsai stated that complementary mechanisms (ADC cytotoxicity + VEGF/PD-1 inhibition) offer potential synergy. While they are designing combination trials now, upcoming data from AVANZAR and other studies will inform future strategies. They aim to establish DATROWAY as a backbone therapy across multiple tumor types.