Takeda Pharmaceutical Co Ltd (TAK) 2007 Q1 法說會逐字稿

Good day everyone and welcome to conference call of first quarter financial results for fiscal year ending March 2007 of the Takeda Pharmaceutical Company Ltd. The conference call today is held based on presentation materials available at the Company's website. And we may suggest that you visit our website to see the presentation materials on the display. If you don't have, it's printed copies on hand. The conference call is scheduled to start at 9 pm Japan standard time.

Thank you for waiting we will now begin the teleconference.

[Technical difficulty] conference contains certain forward looking statement and other project results which involves known and unknown, risks delays uncertainties and other factors not under the Company's control, which may cause actual results, performance or achievements of the Company to be materially different from the results performance or other expectations applied by these projections.

Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security evaluations, competitive conditions and size number and timing of transactions.

During the presentation from the Company, all the telephone lines are placed for listening mode only and the questions and answer session will be held after the presentation. This conference call is being broadcasted through the Internet online but only for listen mode.

Now we start the conference with the presentation.

Thank you very much for your participation to the conference call on first quarter financial result for fiscal year ending March 2007 of the Takeda Pharmaceutical Company Ltd. I am Hirofumi Inoue, Senior Manager, Public Relations and Investor Relations of Corporate Communications Department of Takeda.

First I would like to introduce today's participants of three from Takeda. Mr. Yasuhiko Yamanaka, General Manager of Corporate Strategy and the Planning Department. Dr. Kiyoshi Kitazawa, General Manager of our Strategic Product Planning Department. Mr. Hiroshi Takahara, General Manager of Finance and Accounting Department.

Today, we will start with a presentation of financial overview of this first quarter, which is followed by the R&D update. After that, we will have a question and answer session and your question will be welcomed. I will let you know when the presentations are finished. And please do not hesitate to ask any questions for us.

So, now we will start the presentation, please prepare the presentation materials and also the earnings report in your hand.

Mr. [Matsuna] Please.

My name is [Statsi Matsuna]. Let me present to you a summary of the consolidated results for the first quarter of fiscal 2006.

Please take a look at slide number three. Slide number three shows the consolidate results for the first quarter of fiscal 2006. Net sales were JPY334.3b, up JPY20.9b or 6.7% over the same period last year. Operating income was JPY132.1b, up JPY0.3b or 0.2%. Ordinary income was JPY162.6b up JPY7b or 4.5%. And net income was JPY124.6b, up JPY9.4b or 8.1%. Extraordinary income was JPY38.2b up JPY5.7b or 17.7%. R&D expenses were JPY50.6b, up JPY16.1b or 46.6%. EPS was JPY141.3 up JPY11.1 or 8.5%.

As for the exchange rates in the first quarter, yen was weaker against the U.S. dollar and euro. The dollar rate rose from JPY108 to JPY115 per $1. And the euro rate rose from JPY136 to JPY144 per €1. Foreign exchange impact increased our net sales by JPY7.5b and increased our net income by JPY3b. Please go onto the next slide.

Slide number four shows the overview of the results for the first quarter. In April this year, the beverage and food business of Takeda Food Products, which is a subsidiary of Takeda, was transferred to House Wellness Foods Corporation, which is a joint venture with House Foods Corporation. The negative impact of JPY9.2b each, in sales from this transfer and the negative impact of drug price revision in Japan was more than offset by growth in ethical pharmaceuticals, mainly Actos by TPNA, which is our U.S. subsidiary. So, the consolidate net sales increased by JPY20.9b over the same period last year.

R&D expenses increased by JPY16.1b. This was mainly due to progress in the development of drug candidates. And the up-front payment of $105m for the exclusive right to develop and market Hematide outside Japan. Hematide was licensed from Affymax.

SGA increased by JPY4.9b, mainly due to recent product launches at TPNA. These increases were offset by higher growth profit and therefore operating income increased by JPY0.3b.

Non-operating income improved due to an increase of JPY3.9b in equity income from TAP pharmaceuticals, our U.S. joint venture with Abbott. And due to an increase of Jpy5.4b on interest income, which was supported by higher interest rates in the U.S. together with an increase of JPY5.7b in extraordinary income. Net income for the first quarter increased by JPY9.4b over the same period last year. Extraordinary income recorded in the first quarter is shown on the slide.

Please go on -- take a look at slide number five. Slide number five shows the breakdown of sales growth by business segments. Sales of ethical pharmaceuticals in Japan increased by JPY6.5b. This was supported by growth of major products, partially offset by negative impact on drug price revision, which was implemented April this year. Actos increased by JPY2.9b, Blopress by JPY2b, Takepron by JPY0.7b and Benet by JPY0.6b in the Japan market.

Sales of ethical pharmaceuticals, in the overseas markets increased by JPY23.7b including a favorable foreign exchange impact of JPY9. -- excuse me JPY7.5b. Though sales of lansoprazole were dropped in Europe due to patent expiration. The total sales in the overseas markets increased largely mainly due to the expansion of TPNA's Actos.

Sales of consumer healthcare business, decreased by JPY0.1b. Mainly due to decrease of Alinamin tablets, which is one of its major products. Sales of other businesses decreased by JPY9.3b due to the beverage and food business transfer. Impact of this transfer was JPY9.2b decrease. The overall net sales increased by JPY20.9b compared to the same period last year.

Please look at slide number six. Slide number six shows the breakdown of sales growth in TPNA. Net sales of the Actos family, including Actoplus Met increased by $184m or 43.2% and recorded $611m for the first quarter. This significant increase was due to market expansion resulting from the introduction of Medicare part D, in January this year, temporarily increase in commercial pipeline inventory, a temporary supply shortage of a competing product.

Net sales of Rozerem, which was launched September last year was $16m. And net sales of Amitiza, which was launched April this year was $5m. Total margin revenue from costs increased by $11m. All added up, net sales of TPNA increased by $215m or 48.9% and recorded $655m for the quarter -- for the first quarter. In yen, net sales of TPNA increased by JPY27.6b or 58.3%, including a favorable foreign exchange impact of JPY4.5b.

Please look at slide number seven. Slide number seven shows the breakdown of our in-house ethical pharmaceuticals sales. Please note, that the sales of TAP Pharmaceuticals and other equity-method affiliates are included. Total sales for the first quarter was JPY311.7b, an increase of JPY28.4b or 10% over the same period last year. Excluding a favorable foreign -- excuse me, excluding a favorable foreign exchange impact of JPY10.9b, increase was JPY17.5b.

Sales in the Americas increased by JPY24.7b or 17.6% mainly due to the expansion of Actos. Excluding a favorable foreign exchange impact of JPY9.2b, increase was JPY15.4b. In Japan, sales increased by JPY3.0b or 3.1%, supported by expansion of Actos and Blopress. Sales in Asia increased by JPY0.7b or 17.1%. Sales in Europe remained flat, though sales of lansoprazole decreased. Excluding a favorable foreign exchange impact, sales decreased by JPY1.6b in Europe.

These are not shown on the slides but the breakdown by products are - lansoprazole decreased by JPY3.7b; Actos increased by JPY28.7b; candesartan increased by JPY3.1b and luproreline increased by JPY1.5b. The total sales of these four products increased by JPY29.6B or 11.8% over the same period last year.

Please go onto slide number eight. Slide number eight shows the overview of the operating income. Although sales increased by JPY20.9b, cost of sales decreased by JPY0.4b. And therefore, gross profit increased by JPY21.3b. And the gross profit margin improved by 1.5 bases, 79.1%. This was mainly due to the growth -- sales growth of ethical pharmaceuticals, which have higher margins together with a transfer impact of the beverage and food business, which had lower margins.

R&D expenses increased by JPY16.1b, this was mainly due to progress in the development of drug candidates and the upfront payment of $105 for Hematide. SGA increased by JPY4.9b, mainly due to recent product launches at TPNA. All added up, operating income increased by JPY0.3b or 0.2% and recorded JPY132 -- excuse me, recorded JPY132.1b for the first quarter.

Finally please look at slide number nine. Slide number nine shows the overview of net income. Net non-operating income increased by JPY6.7b. This was due to an increase of JPY4.6 in equity income of affiliates including an increase of JPY3.9b in TAP pharmaceuticals. And was also due to an increase of JPY21.b in other non-operating income. This was mainly because interest income increased by JPY4.8b at TAH, our holding company in the U.S., higher interest rates being the reason.

Operating income and non-operating income combined, ordinary income increased by JPY7b and also including the increase in extraordinary income, which was JPY5.7b. Net income for the first quarter increased by JPY9.4b or 8.1% from the same period last year.

The first quarter profit may seem favorable to the forecast we announced in May. Main reasons are, favorable exchange rates and a slightly slower accrual of SGA and R&D expenses. However, we have not changed the interim or the fiscal 2006 forecast from those announced in May. This is because we expect SGA and R&D expenses to catch up and exchange rates to return to original forecast level. As an example of our catch up in SGA, TPNA has started T.V. commercials for Rozerem from this July.

Now if the Board of Directors meeting held today would resolve that during the period from August 1 - September 6, 2006, together we will acquire it's own shares from the market with the maximum limit of 14m shares or a total amount of JPY100b.

Thank you very much for your attention.

Now Dr. Kitazawa, General Manager of Strategic Product Planning, will now summarize the recent pipeline updates.

Thank you, I'm Kiyoshi Kitazawa. First, updates, Takeda's R&D pipeline for the first quarter of this fiscal year.

Please look at the page eleven. This summarizes the progress of pipelines up, in Japan. AG1749 lansoprazole this is a [PPA]. We have obtained a new indication of non-erosive reflux disease. In the U.S., the fixed dose combination of Actos plus SU were [inaudible] for the type 2 diabetes. We got our approval from the FDA at the end of last week. The product name, it's a bit of a difficult one to pronounce, but [Duetax]. And then phase III studies for the fixed-dose combination of Actos/TAK-536 in the U.S and for the combination product of high dose TCV-116 and diuretics in the U.S -- no, sorry in the E.U. [haven't been started]. Then phase II studies for our antihypertension [variant] TAK-491 in both U.S. and Europe, and for our malignant tumor treatment. EMD72000 in Japan, were initiated.

On to the [inaudible] and licensing side of business. In the U.S co-promotion for Provigil, a wake-promoting agent been just started now, with Cephalon. And Hematide, an agent for anemia, and also HuL2G7, an anti-malignant cancer agent [inaudible] Affymax and Galaxy respectively.

In addition, although it's not mentioned here, Takeda announced today about Tavocept. [Inaudible] this project that is including the option for the termination of license from BioNumerik. This forms current phase III result both in the [inaudible] and breast cancer studies.

Then our direct expense. Some of the major products progress. First one, phase II TAK-491, another ARB has entered into the phase II studies both in the U.S. and the E.U. TAK-491 is expected to show a strong antihypertensive agent effect and to have superior profile in improving the insulin resistance and also proteinuria improvements.

As you know, ARB are becoming the mainstream for the treatment of antihypertensive treatment. TAK-491 is expected to support the expansion of our U.S. [Geotec] franchise established by Actos. And also in Europe, we believe this enhance Takeda's presence in the cardiovascular drug market established by candesartan.

Then page 13, Takeda has started the U.S. phase III studies for combination drug of Actos and TAK-536. This is also another novel ARB candidate discovered by Takeda. In the U.S. about 60% of diabetic patients are reported to be complicated with hypertension. That means we expect this combination product will contribute to controlling patient conditions of diabetic patients with hypertension. We are also expecting this product will strengthen our Geotec franchise in the U.S. market established by Actos.

Page 14 summarizes Hematide. Takeda has obtained already, the [profound interest] rights of [inaudible] commercialization of Hematide from Affymax this February. And now we have obtained worldwide rights of this product in June. Hematide is a synthetic peptide, [inaudible] receptors of [erythropontin] a hormone that stimulates red blood cell formation. Hematide promotes red blood cell production. We expect that it will improve symptoms of patients with anemia induced by chronic kidney disease and cancer chemotherapy.

This drug is very important for Takeda because our major area, cardiovascular, diabetes and now we are planning to expand to oncology. In that sense this is one of the priority candidates for Takeda. That's why Takeda has obtained exclusive worldwide rights to develop and commercialize the HuL2G7. A humanized anti -- hepatocyte growth factor antibody, HGF, from the US company Galaxy Biotech. HuL2G7 blocks the activities of hepatocyte growth factor [inaudible] mediate production, metastasis and androgenesis of malignant tumors. It is a recombinant humanized monoclonal antibody and expected as a novel drug for various site of tumors. Although it is still in the pre-clinical stage, we hope our R&D effort will provide this drug to the patients as early as possible.

Thank you that is the end of my presentation.

Now the presentation regarding Takeda's first quarter financial result for fiscal year ending March 2007 has been finished. Next we will like to move to the question and answer session. We'll start the session.

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We now have a question and answer session. [OPERATOR INSTRUCTIONS].

I believe that's a hint that the presentation was so wonderful that there is no questions to be asked.

[OPERATOR INSTRUCTIONS].

This is MC again, if you have any questions please do not hesitate to ask any questions for us. Now we would like to end the conference we don't have any questions so we would like to end the conference. We would like to express our sincere appreciation for taking the time to attend this conference. Also we all want to thank you for all of your cooperation in the past and we are looking forward to increased opportunities of communicating with you in the future. Thank you very much.

Thank you for attending the conference. We finish the conference call.