CHUGAI PHARMACEUTICAL CO.,LTD. Q3 FY2026 earnings call

• Financial Outperformance: Revenue and profit exceeded forecasts for the first nine months, with domestic sales boosted by a one-time front-loading of shipments ahead of ERP system implementation.
• Product Pipeline Updates: Hemlibra auto-injector development is on track for a global launch in 2027; regulatory filing was completed in Japan in August 2026. Enspryng received U.S. approval for thyroid eye disease. Divarasib demonstrated superior efficacy over competitors in Phase III trials for NSCLC.
• R&D Milestones: Cevostamab initiated Phase III studies for multiple myeloma. Lunsumio and sefaxersen met primary endpoints in Phase III interim analyses. Development of GYM329 for obesity was discontinued, but efforts will continue for SMA.
• Strategic Awards & Innovation: Three researchers won the Lasker Award for their work on Hemlibra, highlighting the company's commitment to frontier science and drug discovery capabilities.
• Open Innovation: Established a strategic investment group to enhance drug discovery through acquisitions and partnerships, aiming to introduce new assets by 2030.

Revenue increased by 17.2% to JPY 906.8 billion, driven by strong domestic and overseas sales. Domestic oncology sales reached JPY 204.8 billion (up 13.3%), with growth in Lunsumio and Phesgo offsetting declines in Avastin due to price revisions and generics. Specialty sales rose to JPY 201.1 billion (up 23.6%), supported by Hemlibra, Vabysmo, and Evrysdi. Overseas sales totaled JPY 500.5 billion (up 11%), driven by exports of NEMLUVIO, Alecensa, and Actemra. Other revenue, including royalties and milestones, increased to JPY 161.3 billion (up 28%). Operating profit grew 19% to JPY 536.1 billion with an operating margin of 50.2%. Net income reached JPY 384.7 billion.

• Full Year Forecast: Management expects to exceed the full-year forecast for both revenue and operating profit, citing strong performance in the third quarter and robust progress against initial targets.
• Hemlibra Export: Full-year sales are expected to align with the current forecast, with Q4 export plans already fixed.
• Actemra Export: Full-year sales are projected to exceed the forecast by more than JPY 10 billion, as Q3 results were very close to the annual target.
• Divarasib Filing: Plans to file for approval in Japan within the current year based on positive Phase III data.

• Price Revisions and Generics: Domestic sales face headwinds from National Health Insurance price revisions and increasing generic penetration, particularly impacting products like Avastin.
• Exchange Rate Volatility: While yen depreciation provided a JPY 40.6 billion revenue boost, fluctuations remain a risk factor for future overseas earnings.
• Operational Disruptions: The transition to the new ERP system caused temporary shipment stops in Japan, though this was managed via front-loaded shipments.
• Pipeline Uncertainty: Discontinuation of GYM329 for obesity highlights the inherent risks in drug development, although the company remains confident in its broader pipeline strength.

Q: Nomura Securities asked if the JPY 30 billion increase in domestic sales due to ERP replacement was a one-time event.

A: CFO Taniguchi confirmed it was a one-time adjustment resulting from front-loaded shipments before the ERP go-live, which would be reversed in Q4.

Q: Nomura inquired about the discontinuation of GYM329 for obesity and potential out-licensing.

A: CEO Okuda explained that while long-term data showed motor function improvement, consistent efficacy across patient groups was lacking. The company is pursuing both further Phase III studies for SMA and out-licensing opportunities.

Q: UBS asked about Foundayo royalty size and DONQ52 data disclosure.

A: CFO Taniguchi declined to disclose specific Foundayo royalty figures but noted they are part of 'other revenue.' CEO Okuda stated that DONQ52 Phase Ic data would focus on safety, tolerability, and biomarkers, not symptom scores.

Q: Citigroup questioned the impact of front-loaded domestic sales on costs and non-Roche royalty progress.

A: Taniguchi clarified the JPY 30 billion boost was domestic-only with no cost impact, affecting all products broadly. He also stated that non-Roche royalty progress is within expectations despite appearing slower than Roche's.

Q: JPMorgan asked how management views the stock valuation given strong fundamentals vs. market pessimism.

A: CEO Okuda acknowledged various factors affect stock price but emphasized Chugai’s attractive pipeline and promising projects for 2027-2028, urging faith in scientific execution rather than short-term market sentiment.