Lilly Reports Fourth-Quarter 2022 Financial Results, Core Business Growth and Pipeline Advancements Support Strong Long-Term Outlook

On February 2, 2023 Eli Lilly and Company (NYSE: LLY) reported its financial results for the fourth quarter of 2022 (Press release, Eli Lilly, FEB 2, 2023, View Source [SID1234626764]).

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"2023 is an inflection point for Lilly – a chance to expand our impact on patients and growth potential as an R&D-driven biopharma company," said David A. Ricks, Lilly’s chair and CEO. "Over the course of this critical year, we hope to launch as many as four new medicines for challenging diseases, while advancing our next generation of molecules currently in Phase 3."

Anat Ashkenazi, Lilly’s executive vice president and chief financial officer added: "As we closed out 2022, Lilly demonstrated strong growth and achieved meaningful pipeline progress that included the launch for Mounjaro in type 2 diabetes. We expect to capitalize on this momentum and deliver mid-teen revenue growth for our core business in 2023 while remaining committed to investing in innovation, late-stage opportunities, manufacturing capacity, and our people."

Lilly shared numerous updates recently on key regulatory, clinical, business development and other events, including:

The U.S. Food and Drug Administration (FDA) approval of Jaypirca (pirtobrutinib) for adults with relapsed or refractory mantle cell lymphoma after at least two lines of systemic therapy, including a BTK inhibitor, under the accelerated approval pathway;
FDA issuance of a complete response letter for the accelerated approval submission of donanemab for early Alzheimer’s disease;
FDA and European Medicines Agency acceptance of regulatory submissions for Jardiance for adults with chronic kidney disease based on results from the EMPA-KIDNEY Phase 3 trial;
The initiation of a rolling submission in the U.S. for tirzepatide in obesity and FDA Fast Track designation for tirzepatide in obstructive sleep apnea;
The announcement that Jardiance is the first SGLT2 inhibitor to show statistically significant reduction in blood sugar levels in children and adolescents with type 2 diabetes;
Positive donanemab data from the first Phase 3 active comparator study in early Alzheimer’s disease, TRAILBLAZER-ALZ 4;
Plans to invest an additional $450 million and create at least 100 new jobs to expand manufacturing capacity at the company’s Research Triangle Park facility;
The acquisition of Akouos, Inc., which expands Lilly’s efforts in genetic medicines to include Akouos’s potential first-in-class adeno-associated viral gene therapies;
The fifth consecutive 15% annual increase in Lilly’s quarterly dividend, doubling since 2018;
A collaboration with EVA Pharma to establish local manufacturing capabilities to supply low-cost insulin to at least 1 million people by 2030, mostly in Africa; and
An initiative with Direct Relief to expand cold chain capacity in Africa, Latin America, the Caribbean and Southeast Asia.
For additional information on these and other important public announcements, visit the news section of Lilly’s website.

Financial Results

$ in millions, except

per share data

Fourth Quarter

%

2022

2021

Change

Revenue

$7,301.8

$7,999.9

(9) %

Net Income – Reported

1,937.7

1,726.1

12 %

EPS – Reported

2.14

1.90

13 %

Net Income – Non-GAAP

1,893.1

1,970.5

(4) %

EPS – Non-GAAP

2.09

2.17

(4) %

A discussion of the non-GAAP financial measures is included under "Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information (Unaudited)."

Fourth-Quarter Reported Results

In Q4 2022, worldwide revenue was $7.30 billion, a decrease of 9% compared with Q4 2021, driven by a 4% decrease from the unfavorable impact of foreign exchange rates, a 3% decrease due to lower realized prices, and a 2% decrease in volume. Excluding COVID-19 antibodies, revenue in Q4 2022 increased 5% and total worldwide volume increased 13%. Key growth products, consisting of Verzenio, Mounjaro, Jardiance, Taltz, Trulicity, Retevmo, Emgality, Cyramza, Tyvyt and Olumiant, grew 21% and represented 70% of revenue for Q4 2022.

Revenue in the U.S. decreased 10% to $4.66 billion, driven by a 10% decrease in volume with prices remaining relatively flat. Excluding revenue from COVID-19 antibodies, revenue in the U.S. increased by 11%, primarily driven by volume from key growth products.

Revenue outside the U.S. decreased 6% to $2.64 billion, driven by a 12% decrease from the unfavorable impact of foreign exchange rates and a 7% decrease due to lower realized prices, partially offset by a 12% increase in volume. The lower realized prices were primarily driven by the impact of government pricing in China from the volume-based procurement (VBP) for Humalog and the National Reimbursement Drug List (NRDL) formulary for certain products, particularly Verzenio and Tyvyt. The increase in volume outside the U.S. was largely driven by key growth products and approximately $130 million of one-time revenue associated with the sale of the company’s rights to Alimta in Korea and Taiwan.

Gross margin decreased 3% to $5.75 billion in Q4 2022 compared with Q4 2021. Gross margin as a percent of revenue was 78.8%, an increase of 4.4 percentage points compared with Q4 2021. The increase in gross margin percent was primarily driven by lower sales of COVID-19 antibodies, partially offset by lower realized prices and increased expenses due to inflation and logistics costs.

In Q4 2022, research and development expenses increased 5% to $2.00 billion, or 27% of revenue, driven by higher development expenses for late-stage assets, partially offset by the favorable impact of foreign exchange rates and lower development expenses for COVID-19 antibodies.

Marketing, selling and administrative expenses increased 3% to $1.64 billion in Q4 2022, primarily driven by costs associated with launches of new products and indications, partially offset by the favorable impact of foreign exchange rates.

In Q4 2022, the company recognized acquired in-process research and development (IPR&D) and development milestone charges of $240.1 million. In Q4 2021, the company recognized acquired IPR&D and development milestone charges of $437.7 million, primarily related to a business development transaction with Foghorn Therapeutics Inc.

In Q4 2022, the company recognized asset impairment, restructuring and other special charges of $38.1 million, primarily related to acquisition and integration costs associated with the closing of our acquisition of Akouos, Inc. In Q4 2021, the company recognized asset impairment, restructuring and other special charges of $104.5 million, primarily related to impairment of an intangible asset from our acquisition of Loxo Oncology.

Operating income in Q4 2022 was $1.84 billion compared with $1.92 billion in Q4 2021. Operating margin percent, defined as operating income as a percent of revenue, was 25.1%, which includes a negative impact of approximately 330 basis points attributed to acquired IPR&D and development milestone charges.

Other income (expense) was income of $260.0 million in Q4 2022 compared with expense of $77.3 million in Q4 2021. The increase in other income (expense) was primarily driven by net gains on investments in equity securities in Q4 2022 compared with net losses on investments in equity securities in Q4 2021.

The effective tax rate was 7.6% in Q4 2022 compared with 6.2% in Q4 2021. The effective tax rate in Q4 2022 reflects the favorable tax impact of the implementation of the provision in the Tax Cuts and Jobs Act (the 2017 Tax Act) that requires capitalization and amortization of research and development expenses for tax purposes starting in 2022 and a net discrete tax benefit, partially offset by the tax impact of the mix of earnings in higher tax jurisdictions. The effective tax rate in Q4 2021 reflected a net discrete tax benefit and the tax impact of acquired IPR&D and development milestone charges.

In Q4 2022, net income and earnings per share (EPS) were $1.94 billion and $2.14, respectively, compared with $1.73 billion and $1.90 in Q4 2021. Q4 2022 EPS was inclusive of $0.23 of acquired IPR&D and development milestone charges compared with $0.39 in Q4 2021.

Fourth-Quarter Non-GAAP Measures

On a non-GAAP basis, Q4 2022 gross margin decreased 3% to $5.88 billion compared with Q4 2021. Gross margin as a percent of revenue was 80.5%, an increase of 4.4 percentage points compared with Q4 2021. The increase in gross margin percent was primarily driven by lower sales of COVID-19 antibodies, partially offset by lower realized prices and increased expenses due to inflation and logistics costs.

Operating income on a non-GAAP basis decreased $160.5 million, or 7%, to $2.00 billion in Q4 2022 compared with Q4 2021. Operating margin percent was 27.4% on a non-GAAP basis, which includes a negative impact of approximately 330 basis points attributed to acquired IPR&D and development milestone charges.

The effective tax rate on a non-GAAP basis was 7.3% in Q4 2022 compared with 8.5% in Q4 2021. The lower effective tax rate for Q4 2022 reflects the favorable tax impact of the implementation of the 2017 Tax Act and a higher net discrete tax benefit compared to the same period in 2021, partially offset by the tax impact of the mix of earnings in higher tax jurisdictions.

On a non-GAAP basis, Q4 2022 net income and EPS were $1.89 billion and $2.09, respectively, compared with $1.97 billion and $2.17 in Q4 2021. Q4 2022 non-GAAP EPS was inclusive of $0.23 of acquired IPR&D and development milestone charges compared with $0.39 in Q4 2021.

For further detail on non-GAAP measures, see the reconciliation below as well as the "Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information (Unaudited)" table later in this press release.

Fourth Quarter

2022

2021

% Change

Earnings per share (reported)

$ 2.14

$ 1.90

13 %

Amortization of intangible assets

.11

.19

Asset impairment, restructuring and other special charges

.03

.09

Net (gains) losses on investments in equity securities

(.19)

.06

Partial reversal of COVID-19 antibodies inventory charges

(.07)

Earnings per share (non-GAAP)

$ 2.09

$ 2.17

(4) %

Numbers may not add due to rounding.

Acquired IPR&D and development milestone charges

.23

.39

(41) %

Selected Revenue Highlights

(Dollars in millions)

Fourth Quarter

Full Year

Selected Products

2022

2021

% Change

2022

2021

% Change

Trulicity

$ 1,936.2

$ 1,883.7

3 %

$ 7,439.7

$ 6,471.9

15 %

Verzenio

808.0

404.1

100 %

2,483.5

1,349.9

84 %

Taltz

707.8

647.4

9 %

2,482.0

2,212.8

12 %

Jardiance(a)

612.3

431.9

42 %

2,066.0

1,490.8

39 %

Humalog(b)

548.3

601.7

(9) %

2,060.6

2,453.0

(16) %

COVID-19 antibodies(c)

38.0

1,063.1

(96) %

2,023.5

2,239.3

(10) %

Humulin

234.0

298.8

(22) %

1,019.4

1,222.6

(17) %

Cyramza

277.8

270.4

3 %

971.4

1,033.0

(6) %

Alimta

236.6

434.9

(46) %

927.7

2,061.4

(55) %

Olumiant(d)

205.8

306.0

(33) %

830.5

1,115.1

(26) %

Basaglar

201.7

242.4

(17) %

760.4

892.5

(15) %

Emgality

175.6

161.5

9 %

650.9

577.2

13 %

Forteo

160.0

184.0

(13) %

613.1

801.9

(24) %

Mounjaro

279.2

NM

482.5

NM

Tyvyt

57.5

77.8

(26) %

293.3

418.1

(30) %

Retevmo

64.6

38.6

67 %

191.9

114.7

67 %

Total Revenue

7,301.8

7,999.9

(9) %

28,541.4

28,318.4

1 %

(a) Jardiance includes Glyxambi, Synjardy and Trijardy XR

(b) Humalog includes Insulin Lispro

(c) COVID-19 antibodies include sales for bamlanivimab administered alone, for bamlanivimab and etesevimab
administered together, and for bebtelovimab, and were made pursuant to EUAs or similar regulatory authorizations

(d) Olumiant includes sales of baricitinib that were made pursuant to EUA or similar regulatory authorizations

NM – not meaningful

Trulicity

For Q4 2022, worldwide Trulicity revenue was $1.94 billion, an increase of 3% compared with Q4 2021. U.S. revenue increased 5% to $1.53 billion, driven by increased demand, partially offset by lower realized prices. Revenue outside the U.S. was $409.8 million, a decrease of 6%, driven by the unfavorable impact of foreign exchange rates and to a lesser extent, lower realized prices, partially offset by increased demand. On a constant currency basis, revenue outside the U.S. increased 8%. Lilly experienced intermittent delays in fulfilling certain U.S. Trulicity orders during Q4 2022. Actions to manage strong demand across the company’s incretin portfolio, including measures to minimize existing patient impact in international markets, also affected volume.

Verzenio

For Q4 2022, worldwide Verzenio revenue increased 100% compared with Q4 2021 to $808.0 million. U.S. revenue was $552.7 million, an increase of 119%, primarily driven by increased demand. Revenue outside the U.S. was $255.3 million, an increase of 69%, driven by increased demand, partially offset by the unfavorable impact of foreign exchange rates and lower realized prices primarily due to the impact of the NRDL formulary in China.

Taltz

For Q4 2022, worldwide Taltz revenue increased 9% compared with Q4 2021 to $707.8 million. U.S. revenue increased 9% to $512.0 million, driven by increased demand, partially offset by lower realized prices. Revenue outside the U.S. increased 11% to $195.8 million, driven by increased volume, partially offset by the unfavorable impact of foreign exchange rates and lower realized prices.

Jardiance

The company’s worldwide Jardiance revenue for Q4 2022 was $612.3 million, an increase of 42% compared with Q4 2021. U.S. revenue increased 51% to $363.1 million, primarily driven by increased demand and to a lesser extent, an increased Q4 2022 royalty from Boehringer Ingelheim for exceeding certain annual thresholds. Revenue outside the U.S. was $249.2 million, an increase of 30%, primarily driven by increased demand, partially offset by the unfavorable impact of foreign exchange rates.

Jardiance is part of the company’s alliance with Boehringer Ingelheim. Lilly reports as revenue royalties received on net sales of Jardiance.

Humalog

For Q4 2022, worldwide Humalog revenue decreased 9% compared with Q4 2021 to $548.3 million. U.S. revenue increased 8% to $336.0 million, driven by higher realized prices due to changes in estimates for rebates and discounts in both periods. Revenue outside the U.S. decreased 27% to $212.3 million, driven by lower realized prices due to the impact of VBP in China and the unfavorable impact of foreign exchange rates.

Alimta

For Q4 2022, worldwide Alimta revenue decreased 46% compared with Q4 2021 to $236.6 million. U.S. revenue decreased 83% to $53.2 million, driven by decreased demand due to generic competition. Revenue outside the U.S. increased 63% to $183.4 million, driven by approximately $130 million of one-time revenue associated with the sale of the company’s rights to Alimta in Korea and Taiwan, partially offset by decreased demand due to generic competition, lower realized prices, and the unfavorable impact of foreign exchange rates.

The company expects continued volume and revenue decline for Alimta as a result of generic competition due to the loss of patent exclusivity in major markets.

Olumiant

For Q4 2022, worldwide Olumiant revenue decreased 33% compared with Q4 2021 to $205.8 million. U.S. revenue decreased 50% to $43.5 million, driven by a decline in utilization for COVID-19 treatment, partially offset by increased utilization for the treatment of alopecia areata. Revenue outside the U.S. was $162.3 million, a decrease of 26%, driven by the unfavorable impact of foreign exchange rates and a decline in utilization for COVID-19 treatment.

Emgality

For Q4 2022, Emgality generated worldwide revenue of $175.6 million, an increase of 9% compared with Q4 2021. U.S. revenue was $132.0 million, an increase of 9%, driven by increased demand and higher realized prices, partially offset by wholesaler buying patterns. Revenue outside the U.S. was $43.7 million, an increase of 8%, primarily driven by increased volume, partially offset by the unfavorable impact of foreign exchange rates and lower realized prices.

Mounjaro

For Q4 2022, worldwide Mounjaro revenue was $279.2 million. U.S. revenue was $256.7 million. Mounjaro launched in the U.S. for the treatment of type 2 diabetes in June 2022.

Tyvyt

For Q4 2022, the company’s Tyvyt revenue in China was $57.5 million, a decrease of 26% compared with Q4 2021, driven by the impact of the NRDL formulary in China as well as increased competitive pressures and impacts from COVID-19 disruptions.

Tyvyt is part of the company’s alliance with Innovent. Lilly reports total sales of Tyvyt made by Lilly as revenue, with payments made to Innovent for its portion of the gross margin reported as cost of sales. Lilly also reports as revenue a portion of the gross margin for Tyvyt sales made by Innovent.

2023 Financial Guidance

The company has updated its tax rate and EPS guidance and reaffirmed all other elements of its 2023 financial guidance. The previous tax rate guidance of approximately 16% for 2023 assumed deferral or repeal of the 2017 Tax Act provision that requires capitalization of research and development expenses. Such a deferral or repeal did not occur in 2022. Given the uncertainty as to whether any change to this provision will be enacted in 2023, the company has updated the tax rate guidance to be approximately 13% and 2023 EPS guidance has been increased to the range of $7.90 to $8.10 on a reported basis and $8.35 to $8.55 on a non-GAAP basis. The company’s 2023 financial guidance reflects adjustments shown in the reconciliation table below.

2023

Expectations

Earnings per share (reported)

$7.90 to $8.10

Amortization of intangible assets

.45

Earnings per share (non-GAAP)

$8.35 to $8.55

Numbers may not add due to rounding

The company’s 2023 financial guidance does not include any acquired IPR&D and
development milestone charges either incurred or that may potentially be incurred in 2023.

The following table summarizes the company’s updated 2023 financial guidance:

2023 Guidance

Prior

Updated

Revenue

$30.3 to $30.8 billion

Unchanged

Gross Margin % of Revenue (reported)

Approx. 77%

Unchanged

Gross Margin % of Revenue (non-GAAP)

Approx. 79%

Unchanged

Marketing, Selling & Administrative

$6.9 to $7.1 billion

Unchanged

Research & Development

$8.2 to $8.4 billion

Unchanged

Other Income/(Expense)

$(200) to $(100) million

Unchanged

Tax Rate

Approx. 16%

Approx. 13%

Earnings per Share (reported)

$7.65 to $7.85

$7.90 to $8.10

Earnings per Share (non-GAAP)

$8.10 to $8.30

$8.35 to $8.55

Non-GAAP guidance reflects adjustments presented in the earnings per share table above.

Webcast of Conference Call

As previously announced, investors and the general public can access a live webcast of the Q4 2022 financial results conference call through a link on Lilly’s website at investor.lilly.com/webcasts-and-presentations. The conference call will begin at 10 a.m. Eastern time today and will be available for replay via the website.

Non-GAAP Financial Measures

Certain financial information for 2022 and 2021 is presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with U.S. generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the periods. Non-GAAP measures reflect adjustments for the items described in the reconciliation tables later in the release. This press release and related materials provide certain GAAP and non-GAAP figures excluding the impact of foreign exchange rates. Lilly recalculates current period figures on a constant currency basis by keeping constant the exchange rates from the base period. Beginning in 2022, presentations of non-GAAP financial measures do not include adjustments for upfront charges and development milestones related to acquired IPR&D. Non-GAAP financial measures for Q4 and fiscal year 2021 have been adjusted to reflect this updated presentation. The company’s 2023 financial guidance is being provided on both a reported and a non-GAAP basis. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business.

4Q22 Merck Other Financial Disclosures

On February 2, 2023 Merck & Co reported its fourth quarter 2022 financial results (Presentation, Merck & Co, FEB 2, 2023, View Source [SID1234626838]).

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2022 results

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Sesen Bio Files Investor Presentation in Connection with Pending Carisma Therapeutics Merger

On February 2, 2023 Sesen Bio, Inc. (NASDAQ: SESN) reported an investor presentation highlighting its value maximizing merger with Carisma Therapeutics Inc. ("Carisma") (Press release, Sesen Bio, FEB 2, 2023, View Source [SID1234626789]). The presentation can be found at www.SesenBioandCarisma.com.

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Highlights of the presentation include:

· The merger with Carisma delivers substantial and immediate value for Sesen Bio stockholders, which is meaningfully better than the alternative of dissolution and liquidation

o Expected special one-time cash dividend of approximately $70 million to be paid shortly after (and contingent upon) closing, $0.34 per share1.

o Additional potential cash upside via Contingent Value Right, including any potential proceeds from any sale of Sesen Bio’s legacy assets (including Vicineum) and from the potential $30 million milestone payment, $0.14 per share2, under the Roche Asset Purchase Agreement.

o Without the pending merger with Carisma, the most likely and feasible path for Sesen Bio would be a delisting from Nasdaq followed by a court-managed dissolution of the Company and a liquidation of assets.

o The Sesen Bio Board thoroughly considered dissolution and liquidation and determined there would be significant expense, delay and uncertainty.

o In a dissolution and liquidation scenario, only approximately 60%-90%3 of Sesen Bio’s cash balance, approximately $0.40-$0.60 per share, would be available for an initial distribution, which likely would not be available for six months or more after an additional stockholder vote. The full process could take up to three years in the Delaware court system to fully settle Sesen Bio’s potential future and unknown liabilities.

· Sesen Bio conducted a robust strategic review process to maximize stockholder value

o The Sesen Bio Board proactively initiated a comprehensive four-month review of strategic options, including evaluating merger, sale of assets, resumption of R&D and dissolution and liquidation of assets and wind-down of Sesen Bio.

o Conducted outreach to over 100 parties, resulting in 42 bids.

o Board negotiated with Carisma extensively, including additional due diligence activities with Key Opinion Leaders with expertise in solid tumors and cell therapy to analyze and understand Carisma’s pipeline and proprietary cell therapy platform.

1 Based on basic outstanding shares including unvested RSUs.

2 Amounts reflect potential payments in the future and have not been discounted. Does not include potential proceeds from the sale of Vicineum or the Company’s other legacy assets.

3 Based on precedent dissolution and liquidation processes and Company projections of potential liabilities and operating expenses.

· Sesen Bio stockholders stand to benefit from significant potential upside through ownership in combined company

o sesen Bio stockholders immediately benefit from owning 25.2% stake, $0.40 per share4, in the $357 million5 combined company with potential for significant long-term upside through Carisma’s proprietary CAR-M platform that could transform treatment for patients with cancer and other serious disorders.
o Combined company will be led by Carisma’s Board and management team, which has strong investor support, comprising of leaders within biotech, including AbbVie, Moderna, Wellington and TPG.
Sesen Bio urges stockholders to vote today "FOR" the value maximizing transaction with Carisma using the WHITE proxy card ahead of the March 2, 2023, Special Meeting of Stockholders.

Sesen Bio stockholders who need assistance voting or have questions regarding the Sesen Bio Special Meeting may contact Sesen Bio’s proxy solicitor, MacKenzie Partners, toll-free at 1-800-322-2885 or email at [email protected].

SVB Securities is acting as exclusive financial advisor to Sesen Bio for the transaction and Hogan Lovells US LLP is serving as its legal counsel.

Nippon Kayaku reported its Third Quarter of the Fiscal Year Ending March 31, 2023

On February 2, 2023 Nippon Kayaku reported its Third Quarter of the Fiscal Year Ending March 31, 2023 (Press release, Nippon Kayaku, FEB 2, 2023, View Source [SID1234626794]).

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Filing date of quarterly securities report: February 8, 2023
Scheduled date for start of dividend payments: –
Preparation of supplementary materials for quarterly financial results: Yes
Quarterly results presentation meeting: Yes (for securities analysts and institutional investors)

1. Consolidated Business Results for the First Three Quarters of the Fiscal Year Ending March 31, 2023 (April 1, 2022–December 31, 2022)
(Figures shown are rounded down to the nearest million yen.)
(1) Consolidated Operating Results
(Percentages indicate amount of change from the same period of the previous fiscal year.)
Net sales Operating income Ordinary income Profit attributable to owners of parent Million yen % Million yen % Million yen % Million yen % First three quarters of fiscal year ending March 31, 2023 153,627 11.2 19,062 9.9 20,994 11.8 15,241 8.4 First three quarters of fiscal year ended March 31, 2022 138,095 9.9 17,339 47.1 18,781 54.6 14,058 56.7 Note: Comprehensive income
First three quarters of fiscal year ending March 31, 2023: 17,699 million yen ((0.2)%) First three quarters of fiscal year ended March 31, 2022: 17,743 million yen (24.3%)

Profit attributable to owners of parent per share-primary Profit attributable to owners of parent per share-diluted Yen Yen First three quarters of fiscal year ending
March 31, 2023 90.62 90.60 First three quarters of fiscal year ended March 31, 2022 83.10 83.09
( 2) Consolidated Financial Position
Total assets Net assets Equity ratio Million yen Million yen % As of December 31, 2022 331,405 255,714 76.9 As of March 31, 2022 315,459 246,425 77.8
Reference: Equity As of December 31, 2022: 254,741 million yen
As of March 31, 2022 245,479 million yen

2. Status of Dividends
Dividend amount per share End of first quarter End of second quarter End of third quarter End of year Year Yen Fiscal year ended
March 31, 2022
Fiscal year ending
March 31, 2023 –
– 15.00
20.00 –
– 25.00 40.00 Fiscal year ending
March 31, 2023
(forecast) 20.00 40.00
Note: Changes to the most recent dividend forecast: None

3. Consolidated Business Results Forecasts for the Fiscal Year Ending March 31, 2023 (April 1, 2022–March 31,
2023)
(Percentages indicate amount of change from the same period of the previous fiscal year.)
Net sales Operating income Ordinary income Profit attributable to owners of parent Profit attributable to owners of parent per share Million yen % Million yen % Million yen % Million yen % Yen Full year 210,000 13.6 23,800 13.1 26,600 14.9 19,400 12.9 115.31
Note: Changes to the most recent forecast for consolidated business results: None

Notes
(1) Significant changes in subsidiaries during the first three quarters (changes in designated subsidiaries that result in changes in scope of consolidation): None

(2) Adoption of special accounting methods for presenting the quarterly consolidated financial statements: None

(3) Changes to accounting policies and estimates and restatements
[1] Changes to accounting policies associated with revision of accounting standards or similar items: None
[2] Changes other than [1]: None
[3] Changes to accounting estimates: None
[4] Restatements: None

(4) Number of shares issued (common stock)
[1] Number of shares issued at end of the fiscal period (including treasury stock)
As of December 31, 2022: 170,503,570 shares
As of March 31, 2022: 170,503,570 shares
[2] Number of treasury stock at end of the fiscal period
As of December 31, 2022: 2,960,258 shares
As of March 31, 2022: 2,257,985 shares
[3] Average number of shares during the fiscal period (cumulative)
First three quarters of fiscal year ending March 31, 2023: 168,186,975 shares First three quarters of fiscal year ended March 31, 2022: 169,174,386 shares

*Quarterly summary financial statements are not subject to audit by a certified public accountant or audit firm.

*Analysis related to appropriate use of the business results forecasts, and other notes
(Disclaimer concerning forward-looking statements)
The information in this report constitutes forward-looking statements regarding future events and performance. This information is based on the beliefs and assumptions of management in light of information currently available to it at the time of announcement and subject to a number of uncertainties that may affect future results. Actual business results may differ substantially from the forecasts herein due to various factors. For matters pertaining to business forecasts, please refer to "(3) Analysis of Forward-looking Statements, Including Consolidated Business Forecasts" on page 3 of the Supplementary Information.
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(How to obtain the materials for the briefing on quarterly financial results)
We have scheduled a teleconference for securities analysts and institutional investors on Tuesday, January 31, 2023.
The materials for the briefing will be posted on the corporate website.
This document is an English translation of the Japanese-language original.
All financial information has been prepared in accordance with generally accepted accounting principles in Japan.

Supplementary Information

Contents

1. Qualitative Information Concerning Results for the First Three Quarters 2
(1) Analysis of Operating Results 2
(2) Analysis of Financial Position 3
(3) Analysis of Forward-looking Statements, including Consolidated Business Results Forecasts 3
2. Quarterly Consolidated Financial Statements and Notes to Quarterly Consolidated Financial Statements 4
(1) Consolidated Balance Sheets 4
(2) Consolidated Statements of Income & Consolidated Statements of Comprehensive Income 6
(3) Notes to Quarterly Consolidated Financial Statements 8
(Notes Regarding Assumptions for the Going Concern) 8
(Notes in Case of Significant Change in Shareholders’ Equity) 8
(Segment Information and Other Items) 8

1. Qualitative Information Concerning Results for the First Three Quarters
(1) Analysis of Operating Results
During the first three quaters of this consolidated fiscal year (April 1 to December, 2022), the global economy saw a return to normalcy from the COVID-19 pandemic. However, the sense of uncertainty increased even more as a result of the Russian invasion of Ukraine, increasing global inflation caused by high fuel and raw material prices, and the zero COVID policy in China.
The Nippon Kayaku Group launched KAYAKU Vision 2025, the new mid-term business plan beginning this fiscal year, amid such conditions, we are working to implement the roadmap to the vision specified for each business while advancing initiatives to address key company-wide issues aimed at achieving the vision.

As a result, net sales for the first three quarters of this consolidated fiscal year totaled 153,627 million yen, an increase of 15,532 million yen (11.2%) year-on-year. Sales in the pharmaceuticals business underperformed while the functional chemicals, safety systems, and other businesses outperformed the first three quarters of the previous fiscal year.
Operating income totaled 19,062 million yen, an increase of 1,722 million yen (9.9%) year-on-year. Ordinary income totaled to 20,994 million yen, an increase of 2,212 million yen (11.8%) year-on-year. Profit attributable to owners of parent was 15,241 million yen, an increase of 1,182 million yen (8.4%) year-on-year. Performance by business segment is as described below.

[Functional Chemicals Business]
Net sales reached 65,433 million yen, an increase of 6,888 million yen (11.8%) year-on-year.
The functional materials business as a whole outperformed the first three quarters of the previous fiscal year. The outperformance resulted from strong sales of MEMS and other resin composites, despite the decline in demand for epoxy resins used as semiconductor materials in consumer applications.
The color materials business as a whole outperformed the first three quarters of the previous fiscal year. This outperformance resulted from a rebound in market demand for colorants and ink for inkjet printers in industrial applications, despite the slowdown in colorants for inkjet printers for consumer uses and dyes for textiles.
The catalyst business outperformed the first three quarters of the previous fiscal year, due to strong orders, both in Japan and for exports overseas.
In the Polatechno business, demand for dye-type polarizing film was sluggish. However, demand was firm for components for X-ray analysis systems and the exchange rate on sales in foreign currencies was advantageous. This resulted in outperformance of the Polatechno business as a whole, compared with the first three quarters of the previous fiscal year.
Segment profit totaled 10,067 million yen, an increase of 527 million yen (5.5%) year-on-year. This increase resulted from growth in sales in the functional materials and catalyst businesses.

[Pharmaceuticals Business]
Sales totaled 39,293 million yen, a decrease of 453 million yen (1.1%) year-on-year.
Pharmaceuticals in Japan underperformed the first three quarters of the previous fiscal year. The underperformance resulted from the impact of drug price revisions, despite the launch of DARVIASⓇ Injection, a new drug for blood cancer, in August 2022 and growth in sales of the new generic anti-cancer drug PEMETREXED for I.V. Infusion and ALAGLIOⓇ granule packets, a photodynamic diagnostic agent.
Sales of active pharmaceutical ingredients for the Japanese domestic market and exports outperformed while sales of contract production and diagnostic drugs underperformed the first three quarters of the previous fiscal year. Segment profit totaled 6,944 million yen, an increase of 46 million yen (0.7%) year-on-year.

[Safety Systems Business]
Sales reached 40,951 million yen, an increase of 7,679 million yen (23.1%) year-on-year.
The domestic business as a whole underperformed the first three quarters of the previous fiscal year. This underperformance resulted from a year-on-year decline in sales of airbag inflators owing to low demand from automobile production cuts caused by the shortage of semiconductors and other factors, despite growth in sales of micro gas generators for seatbelt pretensioners.
The overseas business outperformed the first three quarters of the previous fiscal year in sales of airbag inflators, micro gas generators for seatbelt pretensioners, and squibs, as demand rebounded from the slump caused by policies to combat the COVID-19 pandemic implemented in different countries and despite increasing global inflation and the impact from the shortage of semiconductors.
Segment profit reached 6,165 million yen, an increase of 1,447 million yen (30.7%) year-on-year, owing to the rebound in demand and growth in sales boosted by the weakening yen.

[Other]
Sales were 7,949 million yen, an increase of 1,417 million yen (21.7%) year-on-year. The agrochemicals business overall saw a year-on-year increase in domestic sales and exports. Sales in the real estate business were flat year-onyear.
Segment profit totaled 1,536 million yen, an increase of 121 million yen (8.6%) year-on-year.

(2) Analysis of Financial Position
Total assets were 331,405 million yen, an increase of 15,945 million yen from the end of the previous consolidated fiscal year. The main increases were in raw materials and stores, an increase of 8,110 million yen; merchandise and finished goods, an increase of 7,362 million yen; notes and accounts receivable-trade, an increase of 3,631 million yen; and cash and deposits, an increase of 3,055 million yen. The main decrease was in securities, a decrease of 8,965 million yen.
Liabilities were 75,691 million yen, an increase of 6,657 million yen compared to the end of the previous consolidated fiscal year. The main increases were in short-term loans payable, an increase of 7,428 million yen; and notes and accounts payable-trade, an increase of 5,304 million yen. The main decrease was in current portion of bonds payable, a decrease of 4,000 million yen.
Net assets were 255,714 million yen, an increase of 9,288 million yen compared to the end of the previous consolidated fiscal year. The main increases were in retained earnings, an increase of 7,667 million yen; and translation adjustments, an increase of 3,310 million yen.

(3) Analysis of Forward-looking Statements, including Consolidated Business Results Forecasts
We expect the future business environment surrounding the Nippon Kayaku Group to bring a greater return to normalcy from the COVID-19 pandemic. However, the Russian invasion of Ukraine and increasing global inflation from high fuel and raw material prices pose the risk of an economic downswing.
Under these conditions, the Nippon Kayaku Group aims to respond flexibly to changes in the business environment and pursue optimal use of operating capital to increase the shareholder value, expand existing businesses in global growth markets, accelerate the development of new businesses and new products, and enhance profits.
There has been no change in the consolidated business results forecasts for fiscal year ending March 31, 2023 announced on July 29, 2022.

2. Quarterly Consolidated Financial Statements and Notes to Quarterly Consolidated Financial Statements
(1) Consolidated Balance Sheets

As of March 31, 2022 As of December 31, 2022
Million yen Assets
Current assets
Cash and deposits

38,459 41,514 Notes and accounts receivable-trade 60,719 64,350 Electronically recorded monetary claims-operating 1,868 2,469 Securities 15,186 6,220 Merchandise and finished goods 36,784 44,146 Work in process 1,149 950 Raw materials and stores 17,901 26,012 Other 3,832 4,946 Allowance for doubtful accounts
Total current assets
Non-current assets
Property, plant and equipment
Buildings and structures, net (57) (54) 175,843 190,556

43,469

43,716 Machinery, equipment and vehicles, net 26,923 26,221 Other, net
Total property, plant and equipment
Intangible assets Goodwill 18,667 19,804 89,060 89,742
3,016
2,624 Other
Total intangible assets
Investments and other assets Investment securities 4,569 4,166 7,586 6,790
33,511
34,767 Net defined benefit asset 4,572 4,716 Other 4,949 4,894 Allowance for doubtful accounts
Total investments and other assets
Total non-current assets Total assets (63) (62) 42,970 44,316 139,616 140,849 315,459 331,405

As of March 31, 2022 As of December 31, 2022
Million yen Liabilities
Current liabilities
Notes and accounts payable-trade

18,011 23,316 Short-term loans payable 3,176 10,605 Current portion of bonds payable 4,000 – Accounts payable-other 9,617 9,745 Income taxes payable 2,997 1,995 Other
Total current liabilities
Non-current liabilities Bonds payable 7,956 6,910 45,760 52,573
8,000
8,000 Long-term loans payable 1,474 800 Net defined benefit liability 380 439 Other
Total non-current liabilities Total liabilities
Net assets
Shareholders’ equity Common stock 13,419 13,877 23,273 23,117 69,034 75,691

14,932

14,932 Additional paid-in capital 15,759 15,794 Retained earnings 195,566 203,233 Treasury stock
Total shareholders’ equity
Accumulated other comprehensive income
Unrealized holding gains on other securities (2,624) (3,463) 223,633 230,498
9,818
9,164 Translation adjustments 10,630 13,940 Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets 1,396 1,138 21,846 24,243 945 973 246,425 255,714 315,459 331,405
(2) Consolidated Statements of Income & Consolidated Statements of Comprehensive Income
Consolidated Statements of Income

First three quarters of fiscal First three quarters of fiscal year ended March 31, 2022 year ending March 31, 2023
Million yen Net sales 138,095 153,627 Cost of sales
Gross profit on sales
Selling, general and administrative expenses
Operating income
Non-operating income Interest income 89,883 100,640 48,211 52,986 30,871 33,924 17,339 19,062
123
381 Dividend income 777 852 Equity in earnings of affiliates 271 – Foreign exchange gains
Other
Total non-operating income
Non-operating expenses Interest expense 54 517 534 611 1,761 2,362
77
95 Equity in losses of affiliates – 47 Other losses
Total non-operating expenses
Ordinary income
Extraordinary income
Gain on sales of non-current assets 241 287 319 430 18,781 20,994
1,392
479 Gain on sales of investment securities Gain on change in equity
Total extraordinary income
Extraordinary loss
Loss on disposal of non-current assets 183 413 – 123 1,575 1,015
445
385 Loss on valuation of investment securities
Total extraordinary loss
Profit before income taxes
Income taxes-current 57 3 503 388 19,854 21,621 4,208 5,209 Income taxes-deferred
Total income taxes
Profit
Profit attributable to non-controlling interests
Profit attributable to owners of parent 1,531 1,116 5,740 6,325 14,114 15,296 55 54 14,058 15,241

Consolidated Statements of Comprehensive Income

First three quarters of fiscal First three quarters of fiscal year ended March 31, 2022 year ending March 31, 2023
Million yen Profit 14,114 15,296 Other comprehensive income
Unrealized holding gains on other securities
(23)
(654) Translation adjustments 3,687 3,316 Remeasurements of defined benefit plans (31) (259) Share of other comprehensive income of companies accounted for by the equity-method Total other comprehensive income Comprehensive income (3) 1 3,629 2,403 17,743 17,699 Comprehensive income attributable to: Owners of parent
Non-controlling interests

17,634 109
17,638
61
. (3) Notes to Quarterly Consolidated Financial Statements
(Notes Regarding Assumptions for the Going Concern)
No items to report

(Notes in Case of Significant Change in Shareholders’ Equity)
No items to report

(Segment Information and Other Items)
I. First three quarters of the fiscal year ended March 31, 2022 (April 1, 2021– December 31, 2021) 1. Information on sales and profit (loss) by reportable segment
Reportable segments Other (Note 1) Total Adjustments
(Note 2) Consolidated
(Note 3)
Functional chemicals business Pharma-
ceuticals business Safety systems business Total Million yen Sales
Sales to third parties 58,545 39,746 33,272 131,563 6,531 138,095 – 138,095 Intersegment sales and transfers 106 0 – 106 78 184 (184) – Total 58,651 39,746 33,272 131,670 6,610 138,280 (184) 138,095 Segment profit 9,539 6,898 4,718 21,156 1,414 22,571 (5,231) 17,339 Note 1: "Other" indicates a business segment that is not included in the reportable segments, including the agrochemicals business and real estate business.
Note 2: The 5,231 million yen downward adjustment to segment profit reflects a negative 5,237 million yen in corporate expense not allocable to the reportable segments and 5 million yen in eliminations for intersegment transactions. The corporate expense is mainly a general and administrative expense that is not attributed to the reportable segments.
Note 3: Segment profit has been adjusted to correspond with the total operating income as shown in the consolidated statements of income.

II. First three quarters of the fiscal year ending March 31, 2023 (April 1, 2022– December 31, 2022) 1. Information on sales and profit (loss) by reportable segment
Reportable segments Other (Note 1) Total Adjustments
(Note 2) Consolidated
(Note 3)
Functional chemicals business Pharma-
ceuticals business Safety systems business Total Million yen Sales
Sales to third parties 65,433 39,293 40,951 145,678 7,949 153,627 – 153,627 Intersegment sales and transfers 122 0 – 122 82 204 (204) – Total 65,555 39,293 40,951 145,800 8,032 153,832 (204) 153,627 Segment profit 10,067 6,944 6,165 23,177 1,536 24,714 (5,652) 19,062 Note 1: "Other" indicates a business segment that is not included in the reportable segments, including the agrochemicals business and real estate business.
Note 2: The 5,652 million yen downward adjustment to segment profit reflects a negative 5,673 million yen in corporate expense not allocable to the reportable segments and 21 million yen in eliminations for intersegment transactions. The corporate expense is mainly a general and administrative expense that is not attributed to the reportable segments.
Note 3: Segment profit has been adjusted to correspond with the total operating income as shown in the consolidated statements of income.