On February 4, 2021 Kyowa Kirin Co., Ltd. reported its Financial Summary (IFRS) Fiscal 2020 (Press release, Kyowa Hakko Kirin, FEB 4, 2021, View Source [SID1234574597]).
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1. Consolidated Financial Results for the Fiscal Year Ended December 31, 2020 (from January 1, 2020 to December 31, 2020)
(1) Consolidated operating results
(2) Consolidated financial position
(3) Consolidated cash flows
3. Consolidated Earnings Forecasts for the Fiscal Year Ending December 31, 2021 (from January 1, 2021 to December 31, 2021)
(1) Non-consolidated operating results(2) Non-consolidated financial position These financial results reports are exempt from audit conducted by certified public accountants or an audit corporation.
* Notice regarding the appropriate use of the earnings forecasts and other special comments The forward-looking statements, including earnings forecasts, contained in these materials are based on the information currently available to the Company and on certain assumptions deemed to be reasonable by management. As such, they do not constitute guarantees by the Company of future performance. Actual results may differ materially from these projections for a wide variety of reasons. For more information regarding our suppositions that form the assumptions for the earnings forecasts, please see pages 17 and 18 of the attachment, "
(5) Outlook for Fiscal 2021" in "
1. Summary of Business Performance and Financial Position."
1. Summary of Business Performance and Financial Position
Responding to the massive changes to the business and social environments occurring as a result of the global spread of the novel coronavirus disease (COVID-19), the Kyowa Kirin Group (the "Group") has been striving to provide stable supply of pharmaceuticals, which is a core mission of a pharmaceutical company, as an utmost priority, and while paying meticulous attention to preventing infection, carrying out activities such as information provision.
Furthermore, as this fiscal year is the final year of our FY2016-2020 Mid-term Business Plan, we set our sights on achieving a further leap forward as a global specialty pharmaceutical company through various initiatives including efforts to maximize the value of three global strategic products, strengthen global governance, and research and development for future growth. In addition to changes to healthcare environments and restraints on business activities across the globe due to the COVID-19 pandemic, the Group faced other extremely difficult environments, such as the lowering of drug price standards in Japan.
Nevertheless, the Group increased its revenues mainly due to the penetration of three global strategic products in US/EU market. In Japan, the Group launched Duvroq, an oral treatment for renal anemia, in August 2020. By utilizing our abundant experience in the field of renal anemia, we carried out activities to provide information on proper use of medication, giving utmost attention to safety.
The Group is seeing steady progress for the three global strategic products. Regarding Crysvita, we obtained approvals for its additional indication for tumor induced osteomalacia in the United States and for extending its indication to include X-linked hypophosphatemia in older adolescents and adult patients in Europe and there was an increase in formulations for self-administration at home in Japan. Regarding the treatment for mycosis fungoides and Sézary syndrome, POTELIGEO, we commenced sales in Europe, beginning with Germany in June 2020.
Furthermore, regarding NOURIANZ (generic name: Istradefylline (product name in Japan: NOURIAST)), which has already been launched in the United States, our application for approval regarding its indication for combination therapy for Parkinson’s disease was accepted in Europe. Concerning the voluntary recall of mitomycin that occurred in 2019, the Group received the report on the investigation from the Group Investigation Committee spearheaded by a third-party in January 2020, and formulated the recurrence prevention measures.
As matters of the highest priority for management, the Group has formulated three key management priorities to strengthen our foundation as a global specialty pharmaceutical company: creation of a strong production and quality assurance system, improvement of risk management and reformation of corporate culture.
The Group will work on those management priorities continuously and sincerely over the five-year mid-term business plan commencing 2021.
(1) Summary of Business Performance in Fiscal 2020
1) Overview of results The Group now applies the International Financial Reporting Standards ("IFRS") in line with its policy of expanding business globally, and adopts "core operating profit" as a level of profit that shows the recurring profitability from operating activities. Core operating profit is calculated by deducting "selling, general and administrative expenses" and "research and development expenses" from "gross profit," and adding "share of profit (loss) of investments accounted for using equity method" to the amount.
For the fiscal year ended December 31, 2020, revenue was ¥318.4 billion (up 4.1% compared to the previous fiscal year) and core operating profit was ¥60.0 billion (up 1.0%). Profit attributable to owners of parent was ¥47.0 billion (down 29.9%).
The increase in revenue was the result of steady growth of global strategic products in North America and EMEA and strong sales in Asia, mainly in China, despite the impact of lower revenue in Japan from the reduction in drug price standards and the switching to Darbepoetin Alfa Injection Syringe [KKF], an authorized generic of NESP, a renal anemia treatment drug, among others. The negative effect on revenue from foreign exchange was ¥2.9 billion.
The increase in core operating profit was the result of an increase in gross profit due to an increase in overseas revenue, despite an increase in selling, general and administrative expenses, and a decrease in share of profit (loss) of investments accounted for using equity method. The negative effect on core operating profit from foreign exchange was ¥1.3 billion.
Profit attributable to owners of parent decreased as a result of the absence of the profit from discontinued operations recorded in the previous fiscal year, despite lower business restructuring expenses and impairment losses in addition to an increase in core operating profit.
2) Revenue by regional control function
Revenue in Japan decreased year on year because of the significant impact of switching to Darbepoetin Alfa Injection Syringe [KKF], an authorized generic of NESP, a renal anemia treatment drug whose patent has expired, in addition to the impact of the reductions in drug price standards implemented in October 2019 and April 2020, despite the growth in sales of new product groups.
Darbepoetin Alfa Injection Syringe [KKF] achieved rapid progress in switching from NESP, a renal anemia treatment drug.
Duvroq, an oral treatment for renal anemia, was launched in August 2020, and it is penetrating the market favorably. Revenue from Patanol, anti-allergy eye drops, and ALLELOCK, an anti-allergy agent, decreased as a result of smaller pollen counts and the impact of the suppression of examinations, etc. due to COVID-19.
Revenue from ORKEDIA, a treatment for secondary hyperparathyroidism, increased. Meanwhile, revenue from REGPARA, a treatment for secondary hyperparathyroidism, decreased due to factors such as switching to ORKEDIA and the impact of rival products.
Revenue from ROMIPLATE, a treatment for chronic idiopathic thrombocytopenic purpura, increased as a result of receiving approval of its indication for treatment of patients with aplastic anemia who have had an inadequate response to conventional therapy, in June 2019.
Firm growth in revenue was realized for G-Lasta, an agent for decreasing the incidence of febrile neutropenia, and Rituximab BS [KHK], an anticancer agent.
In December 2019, Crysvita, a treatment for FGF23-related diseases, and HARUROPI, a Parkinson’s disease treatment patch, were launched and they have been penetrating the market favorably.
Revenue in North America increased year on year due to the steady growth of global strategic products.
Revenue from Crysvita, a treatment for X-linked hypophosphatemia, has been growing steadily since its launch in 2018. Approval for additional indication for treatment of tumor induced osteomalacia was acquired in June 2020.
Revenue from POTELIGEO, an anticancer agent, stayed at the same level as in the previous fiscal year, due to the impact of the COVID-19 pandemic.
NOURIANZ (product name in Japan: NOURIAST), an antiparkinsonian agent which was launched in October 2019, has been penetrating the market favorably.
Revenue in EMEA increased year on year due to the steady growth of global strategic products.
Revenue from Crysvita, a treatment for X-linked hypophosphatemia, has been growing steadily as the number of countries where it has been released has been increasing since its launch in 2018. Approval for sale with the extended indication for older adolescents and adults was acquired in September 2020.
In Germany, sales of POTELIGEO an anticancer agent, was launched in June 2020, and it has been penetrating the market favorably as the number of countries where it has been released has been increasing.
Revenue in Asia/Oceania increased year on year, reflecting strong sales particularly in China.
Revenue from REGPARA, a treatment for secondary hyperparathyroidism, increased year on year due to market expansion in China.
Revenue from Others decreased year on year.
Revenue decreased year on year due to a decline in other income such as original equipment manufacturing despite an increase in technology out-licensing such as royalties revenue from AstraZeneca in relation to benralizumab. 3) Core operating profit
Core operating profit increased year on year due to an increase in overseas revenue mainly from global strategic products, despite a lower gross profit due to a decrease in revenue in Japan, and an increase in selling, general and administrative expenses associated with sales of global strategic products.
(2) Summary of Consolidated Financial Position for Fiscal 2020
Assets as of December 31, 2020, were ¥801.3 billion, an increase of ¥16.8 billion compared to the end of the previous fiscal year.
Non-current assets increased by ¥23.0 billion to ¥358.8 billion, due mainly to increases in purchase of intangible assets associated with in-licensing of development products, and in deferred tax assets.
Current assets decreased by ¥6.1 billion to ¥442.5 billion, due mainly to a decrease in cash reserves (total of cash and cash equivalents and loans receivable from parent) due in part to the purchase of intangible assets, despite large increases in cash and cash equivalents due to the impact of shifting the entire amount of loans receivable from parent to the loans with loan periods of three months or less included in the scope of cash and cash equivalents.
Liabilities as of December 31, 2020, were ¥102.9 billion, a decrease of ¥3.3 billion compared to the end of the previous fiscal year, due mainly to a decrease in income taxes payable.
Equity as of December 31, 2020, was ¥698.4 billion, an increase of ¥20.1 billion compared to the end of the previous fiscal year, due mainly to an increase due to the recording of profit attributable to owners of parent, despite a decrease due to the payment of dividends as well as a decrease in exchange differences on translation of foreign operations resulting from the impact of exchange rates, etc. As a result, the ratio of equity attributable to owners of parent to total assets was 87.2%, an increase of 0.7 percentage points compared to the end of the previous fiscal year.
(3) Cash Flow Summary for Fiscal 2020
Cash and cash equivalents as of December 31, 2020, were ¥287.0 billion, an increase of ¥266.3 billion compared with the balance of ¥20.8 billion as of December 31, 2019, mainly as a result of the impact of shifting the entire amount of loans receivable from parent to the loans with loan periods of three months or less included in the scope of cash and cash equivalents. The main contributing factors affecting cash flow during the current fiscal year were as follows:
Net cash provided by operating activities was ¥39.5 billion, a 26.4% decrease compared to the previous fiscal year. Major inflows included profit before tax from continuing operations of ¥52.3 billion and depreciation and amortization of ¥20.5 billion. Major outflows included income taxes paid of ¥28.7 billion.
Net cash provided by investing activities was ¥252.6 billion, compared with net cash used in investing activities of ¥0.9 billion in the previous fiscal year. Major inflows included a net decrease of ¥285.6 billion in loans receivable from parent. Major outflows included ¥25.1 billion for purchase of intangible assets, and ¥10.1 billion for purchase of property, plant and equipment.
Net cash used in financing activities was ¥26.0 billion, a 45.1% decrease compared to the previous fiscal year. Major outflows included dividends paid of ¥23.6 billion.
(4) Research and Development Activities The Group continuously and actively invests resources in research and development activities. We aim to advance both a technological pillar that can build a platform for applying various modalities and discovering innovative drugs and a disease pillar that continues to provide "only-one value drugs" for diseases for which there are no effective treatments while utilizing the disease science accumulated by the Group thus far, build a highly competitive pipeline, and provide new drugs with life-changing value worldwide. For the fiscal year ended December 31, 2020, the Group’s research and development expenses totaled ¥52.3 billion, and our progress in the respective disease fields of our main late-stage development products are as follows. ("◆" indicates the progress made during the fourth quarter of fiscal 2020.) Nephrology KRN321 (product name in Japan: NESP)
In June 2020, we obtained approval of its indication for treatment of renal anemia in patients receiving hemodialysis in China. Oncology KRN125 (product name in Japan: G-Lasta)
In February 2020, we started a phase I clinical study in Japan related to the development of an automated injection device for decreasing the incidence of febrile neutropenia in patients receiving cancer chemotherapy. ME-401 (generic name: Zandelisib)
In North America, Europe, Asia, and Oceania, we are currently conducting a phase II clinical trial for treatment of follicular lymphoma. (In April 2020, we concluded an agreement with MEI Pharma on global license, development, and commercialization.)
In October 2020 in Japan, we started a phase II clinical trial for its indication for treatment of relapsed or refractory indolent B-cell non-Hodgkin’s lymphoma (excluding small lymphocytic lymphoma, lymphoplasmacytic lymphoma, and Waldenström’s macroglobulinemia). KW-0761 (product name in Japan, U.S. and Europe: POTELIGEO)
In December 2020, we applied for approval of its indication for treatment of mycosis fungoides and Sézary syndrome in South Korea. Immunology and allergy KHK4827 (product name in Japan: LUMICEF)
In June 2020, we obtained approval of its indication for treatment of plaque psoriasis in China.
In November 2020 in Japan, we obtained partial change approval for approved indications relating its treatment of ankylosing spondylitis and non-radiographic axial spondyloarthritis. Central nervous system (CNS) KW-6002 (product name in Japan: NOURIAST; product name in U.S.: NOURIANZ)
In Europe, an application for approval of its indication for combination therapy with levodopa-based regimens for adult patients with Parkinson’s disease experiencing "off" episodes is currently under review (application accepted in January 2020). Other KRN23 (product name in Japan, U.S. and Europe: Crysvita)
In February 2020, in the U.S., we obtained approval for partial changes to our biologics license application for approval of its indication for treatment of tumor induced osteomalacia that cannot be curatively resected or localized, and in June 2020, we obtained approval of its indication for treatment of tumor induced osteomalacia that cannot be curatively resected or localized for adult patients and pediatric patients who are two years of age or older.
In September 2020, we obtained approval of its indication for treatment of X-linked hypophosphatemia in adolescent and adult patients in Europe.
In September 2020, we obtained approval of its indication for treatment of FGF23-related hypophosphatemic rickets and osteomalacia in South Korea.
In September 2020, we applied for approval of its indication for treatment of tumor induced osteomalacia in China.
In December 2020, we applied for partial change approval for our biologics license regarding its indication for treatment of tumor induced osteomalacia in Europe.
(5) Outlook for Fiscal 2021
Consolidated financial earnings forecasts for fiscal 2021 are for revenue of ¥351.0 billion (up 10.3% compared to the current fiscal year), core operating profit of ¥65.0 billion (up 8.4%), profit before tax of ¥64.0 billion (up 22.5%), and profit attributable to owners of parent of ¥50.0 billion (up 6.3%).
Although we expect impacts such as a reduction in drug price standards scheduled for April 2021 in Japan, revenues are expected to increase compared to the current fiscal year due to significant growth in the global strategic products Crysvita, POTELIGEO and NOURIANZ overseas. Moreover, although we are planning to incur an increase in selling, general and administrative expenses in order to maximize the value of global strategic products and rapidly establish competitive global business bases and a significant increase in research and development expenses in association with advancements, etc. in late-stage development projects (R&D expense ratio will increase from 16% to 19%), core operating profit is expected to increase due to growth in overseas revenue.
A year-on-year increase is forecasted for profit before tax as a result of a decrease in other expenses in addition to an increase in core operating profit.
A year-on-year increase is forecasted for profit attributable to owners of parent despite an expected increase in income tax expense.
Concerning cash flows from operating activities, net cash provided is expected to be higher in the next fiscal year than the current fiscal year as profit before tax is expected to be higher and the payment of income taxes is expected to be lower compared to the current fiscal year.
Concerning cash flows from investing activities, the Company expects a decrease in net cash used compared to the current fiscal year mainly because of an expected decrease in cash used in the purchase of intangible assets. Regarding strategic partnering, M&A and other strategic investments for acquiring drug discovery technologies and pipelines, the Company will evaluate and conduct investment using a flexible approach.
Concerning cash flows from financing activities, the Company expects net cash used to be at the same level as the current fiscal year. As regards the purchase of treasury shares and the sourcing of funds, we will remain flexible and act as appropriate for the economic and funding environment. As a result of the above, cash and cash equivalents as of the end of fiscal 2021 are expected to be higher compared to the end of fiscal 2020.
(6) Basic Policy on Profit Distribution: Fiscal 2020 and Fiscal 2021 Dividends The Company regards the return of profits to its shareholders as one of its key management priorities. The basis of the Company’s policy regarding the distribution of profits is to pay dividends stably in light of a comprehensive consideration of factors including consolidated results and dividend payout ratio for each fiscal year, while also increasing its retained earnings for future business development and other purposes. We plan to improve our capital efficiency by acting rapidly with regards to purchase of treasury shares.
The Company intends to use internal reserve funds for investments required to drive new growth, such as those in research and development, capital expenditures, and our development pipeline’s expansion that are expected to contribute to the improvement of our future corporate value. Concerning the dividend policy, in the FY2016-2020 Mid-term Business Plan, the Company sets its target consolidated dividend payout ratio at 40% and sets a policy of ensuring stable and continuous increase in the level of dividend payment in line with growth in profits. In accordance with the above-mentioned policy, the Board of Directors has resolved to pay a year-end dividend for fiscal 2020 of ¥22 per share.
As a result, we expect to increase dividends for the fourth year in a row. The annual dividend is expected to be ¥44, an increase of ¥2 compared to the previous fiscal year, including an interim dividend of ¥22. With respect to the year-end dividend, we plan to submit a proposal at the 98th Ordinary General Meeting of Shareholders to be held on March 24, 2021. As the dividend policy in the FY2021-2025 Mid-term Business Plan, the Company sets its target consolidated dividend payout ratio on core EPS at 40%. The Company intends to ensure stable and continuous increase in the level of dividend payment in line with growth in profits. In accordance with the above policy, for the fiscal year ending December 31, 2021, we expect to pay an annual dividend of ¥46 per share, an increase of ¥2 compared to the current fiscal year, consisting of an interim dividend of ¥23 and a year-end dividend of ¥23. For details of the "core EPS," refer to "(5) Outlook for Fiscal 2021."
2. Basic Rationale for Selection of Accounting Standards The Group has applied IFRS from fiscal 2017 to enhance the international comparability of its financial information in the capital markets, and unify the process of the Group’s accounting.
3. Consolidated Financial Statements and Significant
Notes Thereto
(1) Consolidated Statement of Financial Position
(1) Consolidated Statement of Financial Position (continued)
(2) Consolidated Statement of Profit or Loss and Consolidated Statement of Comprehensive Income Consolidated Statement of Profit or Loss
(3) Consolidated Statement of Changes in Equity
(3) Consolidated Statement of Changes in Equity (continued)
(4) Consolidated Statement of Cash Flows
(5) Notes to Consolidated Financial Statements Notes on going concern assumption No applicable items. Segment information, etc.
(1) Outline of reportable segments As the Bio-Chemicals business was categorized as a discontinued operation effective from the previous fiscal year, the Group omitted information by reportable segment as the Group consists of only the one reportable segment, which is the Pharmaceuticals business.
(2) Information about products and services Breakdown of revenue from external customers by product and service is as follows.
(3) Information about geographical areas
(4) Information about major customers