Takeda Pharmaceutical Co Ltd (TAK) 2007 Q3 法說會逐字稿

Thank you for waiting. We will now begin teleconference. Please note that this telephone conference contains certain forward-looking statements, not objective results, which involve known and unknown risks, delays, uncertainties and other factors that are out of 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 implied by these projections. Such factors include economic and market conditions, political events and investment sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions.

[OPERATOR INSTRUCTIONS].

[Interpreted]. Governed by volatility of interest rates, currency exchange rates, security valuation and competitive conditions and size, number and timing of the transactions. [OPERATOR INSTRUCTIONS]. This conference call is being broadcast through Internet on line. And now I would like to hand it over to Mr. Yoshida, the [inaudible].

[Interpreted]. Thank you very much for your participation to the conference call about the third quarter financial results for fiscal year ending March 2007 of Takeda Pharmaceutical Company Limited.

My name is Toyoji Yoshida, Director of Corporate Communications Department of Takeda. And now please let me introduce the schedule of the participants from Takeda. We have Mr. Hiroshi Takahara, General Manager of Financing and Accounting Department, Mr. Kiyoshi Kitazawa, General Manager of Strategic Products Planning Department and Mr. Yasuhiko Yamanaka, General Manager of Corporate Strategy and Planning Department.

First, we would like to start with the presentation on financial overview of the third quarter, which is followed by the R&D update. After that we will have a question-and-answer session and your questions will be welcomed. Please feel free to place as many questions as you like.

And now please have the materials for the presentations ready and I hope that you will be able to [view] those for the participation. And now, Mr. Hiroshi Takahara.

[Interpreted]. Hello everybody, my name is Hiroshi Takahara, General Manager of the Finance and Accounting Department. It's my pleasure to present to you a summary of Takeda's consolidated results for the third quarter of fiscal 2006. Please bear in mind that there are amounts that I will be presenting that are all cumulative amounts as of the end of the third quarter.

Now please take a look at page three. Net sales marked JPY1,003.8b up JPY68.6b or 7.3% over the same period last year. Operating income JPY382.8b up JPY36.2b or 10.5%. Ordinary income was JPY475.7b up JPY56.8b or 13.6%. Net income was JPY266.2b down JPY15.0b or 5.3%.

Extraordinary income increased [inaudible] all income of JPY40.4b. But posted net income and EPS for the nine months increased because we paid additional tax of JPY57.1b at the end of June 2006 to observe tax correction [notice] issued by the authority under the rule on transfer pricing taxation.

R&D expenses posted JPY139.4b up JPY23.3b, or 20.1% over the same period last year. The ratio of R&D expenses to sales was 13.9% up, 1.5 percentage points. But the yen against the U.S. dollar and the euro during the period had positive impact on the revenue by JPY17.9b, at net income by JPY6.2b.

Now I'd like to discuss the changes in sales compared with the same period last year in each of our business segments. Consolidated net sales by ethical drug business increased by JPY93.9b or 11.9%. Of the JPY20.1b was in Japan and JPY73.8b in overseas. [Inaudible] of Actos sales was significant, up JPY8.1b in Japan and JPY68.5b in overseas, accounting for almost 80% of the total increase in the ethical drugs.

As for other international strategic products accounted, Candesartan increased by JPY8.4b and Leuprorelin by JPY1.1b. But Lansoprazole decreased by JPY10.2b.

Here are the transfer of the beverage and food business of the subsidiary Takeda Food Products had negative impact of JPY25.8b on sales. A breakdown of this impact is a sales increase of JPY4.1b in consumer healthcare business which represents the sales of -- sales to [former] Takeda Food products that used to be excluded from consolidation, and the sales declined by JPY29.9b in the other businesses.

Despite this negative impact of the transfer, consolidated net sales for the Takeda Group increase by JPY68.6b or 7.3% from the same period last year supported mainly by the growth of Actos sales.

In the next slide I will explain the details of the sales of ethical pharmaceutical products in Japan. Sales of ethical products in Japan increased by JPY20.1b or 5.2% after the negative impact of the NHI drug price reduction last April and intensified competition in generics.

In the diabetes franchise, one of our core businesses, new evidence announced late last year that Actos reduced the risk of recurrent strokes and was effective for prevention of certain cardiovascular diseases. This is one of the factors to the sales increase Actos by JPY8.1b. However the sales are based on a decrease by JPY7.3b mainly due to the fierce competition from generic drugs.

Blopress sales increased by JPY5.7b from the same period last year. This is supported by our promotional activities focusing on numbers of clinical evidences, including case [G] that we published October last year, a head-to-head comparison with [Amorditin].

In June 2006, Takepron was approved for additional indication of non-erosive reflux disease from the regulatory authority. And, in December, marketing of Takepron for [ID], a new formulation started, consequently sales of Takepron increased by JPY1.9b. Leuplin sales also increased by JPY1.4b.

I would now like to explain the component of the change from the same period last year in the sales of our U.S. subsidiary TPNA. Sales of core product, Actos, increased by U.S.$493m or 37.9% compared with the same period the previous year. This significant increase is attributable to the effect of promotion based on its product profile and launching of new products into the market, such as ACTOplus met and Duetact.

External factors also contributed to this expansion, including the start of Medicare part D in January 2006, that has supported a growth of the oral anti-diabetic drug market, and a temporary supply shortage by the competitors.

Sales of Rozerem, which as launched into the market in September 2005, and its DTC or direct-to-consumer advertising started in July 2006 which increased U.S.$51m. And sales of Amitiza, which was launched in April 2006, was U.S.$31m.

Revenues from the co-promotion activities with Kos increased by $29m over the same period last year. Revenues of $18m from the co-promotion activities with Cephalon, which started in July 2006, also contributed to the growth of the sales results. As a result, the net sales by TPNA increased $622m or 45.6% year on year.

Translating into the Japanese currency, net sales by TPNA increase by JPY77.9b, or 15.9%, including JPY8.1b resulting from the positive impact of the weaker yen.

Next I would like to discuss the worldwide sales of our in-house ethical pharmaceutical drugs, including the sales at our equity affiliate companies. Global sales of in-house ethical drugs were JPY957.6b, an increase by JPY102b or 11.9% year on year.

By region, sales in the United States increased by JPY84.3b or 19.5%, supported mainly by the Actos sales growth in TPNA.

Sales in Europe increased by JPY2.2b, including the positive effect of JPY6.8b of the currency translations. Excluding this translation effect, the sales in Europe decreased mainly due to the decline in export of Lansoprazole to licensees resulting from the expiration of its patent protection.

Sales in Japan increased by JPY12.7b and sales in the Asian market increase by JPY2.8b.

By product, sales of Actos increase by JPY76.7b, Lansoprazole by JPY11.5b, Candesartan by JPY8.6b and Leuprorelin by JPY0.7b. Total sales of these four international strategic products increased by JPY97.5b or 12.8% year on year.

Now, slide number eight. I would like to explain details of the operating income. Gross profit margin ratio improved 1.9 points, supported by an increase in sales of ethical drugs and a high growth margin and the impact of transfer of the beverages and food business that has a relatively lower gross margin. Gross profit increased by JPY71.6b, which was higher than the sales increase.

R&D expenses increase by JPY23.3b or 20.1% over the same period last year, mainly due to the up-front payment of $105m paid and recorded in June 2006 for the acquisition of an exclusive license outside Japan for Hematide from Affymax, and other [inaudible] and alliances activities, as well as to the progress of other development activities.

Regarding SG&A it increased by JPY12b or 4.7%. The main factor for this increase was the increase in selling expenses related to TPNA's new products including Rozerem, ACTOplus met, Amitiza and Duetact, all launched into the market in and after September 2005.

Net operating profit increased by JPY36.2b or 10.5%. The operating profit ratio was 38.1%, an improvement by 1.1 point from the same period last year.

The next slide. I'll explain the details of the changes to the net income. Equity in earnings of affiliated companies increased by JPY3.5b, including a JPY3.3b increase in equity in the earning of TAP in the United States.

Other non-operating income increased by JPY17.1b. This increase was due to the improvement in financial revenues by JPY16.5b, mainly in Takeda America Holdings, our U.S. subsidiary, resulting from the rise of interest rate. Consequently net non-operating income, combined with the equity in earnings of affiliated companies, increased JPY20.6b. As a result, ordinary income increased by JPY56.8b or 13.6% from the same period last year.

After net income, before-tax adjustments increased by JPY64.6b due to the increase in extraordinary income by JPY7.8b, including the gain from the transfer of the beverage and food business. However, the negative impact of the additional tax of JPY57.1b were not fully absorbed by this improvement. As a result, net income decreased by JPY15b or 5.3% from the same period last year.

Finally, we have conducted share buyback six times since May 2006. As of the end of the third quarter, 29m shares have been bought back at JPY213.5b. Our policy to prioritize investments in the business operations is unchanged. While Takeda may conduct further share buyback when it is appropriate, taking into consideration the business environment, capital requirements for strategic investments and other factors surrounding our company comprehensively. And the operational forecasts for the full year are unchanged from those announced in November 2006.

This concludes my presentation of the business results for the nine months ended December 31, 2006. And now Dr. Kitazawa, General Manager of the Strategic Product and Planning Department will report the recent pipeline update.

[Interpreted]. I'm Kiyoshi Kitazawa, the Strategic Products Planning Department. I'd like to introduce the products in our pipeline, which have progressed in stages since last October, time of the [inaudible], including what happened in January.

But first the lifecycle management event was suspended, just for your information. Now, the next stage refers to the progress of lifecycle management for Actos. The fixed combination [trials] of Actos and SU was approved in Europe under the brand name of Tandemact which will be launched first in Germany and the U.K., where price-approval process is not required under the regulatory authorities.

In Europe the treatment combination therapy of Actos with Metformin and SU was also approved in October last year.

Also we received positive opinion from CHMP, Committee for Medicinal Products for Human Use, for combination therapy of Actos with Insulin, where we received the information today. We received the approval ratification as of January 26. So the events that will lead to strengthen our market position in European countries.

Also, in Japan, the combination therapy of Actos and Metformin is being reviewed by the authority, filed in January, regarding the TAK-475 for treatment of hypercholesterolemia. In U.S. and Europe a phase III study is already ongoing. And in Japan, a phase II study was initiated in Japan.

Please turn to the next page. I introduce here some of the topics from the third quarter [here and now] using Actos. We have the results of the CHICAGO study. But here in November this was presented in the American Heart Association meeting. And in December it was cited in [inaudible]. The CHICAGO study was conducted for direct comparison of the effect of Actos versus glimepiride, an SU agent, on the progression of atherosclerosis in patients with type 2 diabetes not complicated with heart disease, so the comparison for the duration of 18 months.

And as an [index] for suppressing the effect on the progression of atherosclerosis carotid intima-media thickness, CIMT, was evaluated. This study result were not grades as statistically significant relative reduction in the progression of CIMT with Actos and other markers, such as [HMA1C] and lipid metabolism, the attributes of Actos were also observed.

These results suggest that Actos reverses the cardio vascular risk in diabetes patients.

Thank you very much for your attention.

[Interpreted]. Now we would like to receive questions. First we are going to collect the question from the Japanese participants and after that we would like to collect the questions from those foreign investors participating.

[Interpreted]. [OPERATOR INSTRUCTIONS]. Citigroup, Hidemaru Yamaguchi.

[Interpreted]. Hello, go ahead.

[Interpreted]. Regarding R&D expenses and how much of that is used, it looks like they are [ready to struggle] alone. There's no change regarding the budget and the actual expenses used for R&D.

[Interpreted]. My name is Takahara and I'll be answering that question. JPY215b was as of third quarter. And it's been achieved with 65%, relatively low. But in the fourth quarter R&D activities will be accelerated and there are some new movements going on. So, as of now, there's no change in JPY215b.

[Interpreted]. Okay, and even if you use all that and when you subtract JPY54b from the total, then the forecast is reduced, that price is that a very conservative amount or any other factors that can cause negative profit, including the increased R&D?

[Interpreted]. I don't think the numbers are conservative. Ordinary income is JPY54b -- JPY540b, as was expected. But as you know ForEx move, it's shifted towards weaker yen compared to the time where we made forecast. So if the current ForEx continues then we will upside of JPY10b for the sales and JPY4b for the profit.

[Interpreted]. Okay, I have some question regarding the pipeline. You have 475, which has -- which is -- sounds quite promising. When do you anticipate the clinical studies to be completed in U.S.?

[Interpreted]. My name is Kitazawa. Well, internally we have targets established, of course. But we can't disclose that information as of now.

[Interpreted]. And lastly with regard to sales for Rozerem, and you have mentioned about [inaudible] and then you have about 30 -- 0.3m, 300K, and it doesn't have enough volume there. Are you going to be going through some more investment so that will be able to promote the sales of Rozerem into the future?

[Interpreted]. For promotion and for Rozerem, like we mentioned last year, in the middle of July we went through the -- we went through DTC activities. And until the middle of November we have conducted the DTC. And during that time we have been able to get a growth in the prescription volumes as well.

And there was a vacation period in the Americas, and therefore when we take a look at the effect DTC we decided to halt it for one. So we ended it at the middle of November. But from January again we are going to be resuming DTC. And so -- with that the new patient will be using Rozerem. And I believe that is going to be the trigger for that usage.

And for the new patient for Rozerem, how we will be able to correctly understand the safeness and the effectiveness so that we will be able to have and continue its usage, those are the areas that we're going to be concentrating our activities on.

[Interpreted]. Thank you.

[Interpreted]. Okay, next question will be from Deutsche Securities Mr. [Martin Bauer].

[Interpreted]. My name is Martin Bauer. I have three questions. First question which is relevant to Mr. Yamaguchi's question. In the fourth quarter you would have to spend JPY75.6b across the lifecycle management activities. Could that have some different plans than anticipated. In the end, I'm sure you have very good forecast. And including ForEx moves, if the profit for the current estimate is -- it is exceeding, are you going to increase the dividend? Is that the idea if the numbers are better than your expectation?

[Interpreted]. My name is Takahara. Regarding the dividend, we haven't made any decisions. Therefore we cannot provide any comments today.

Regarding the dividend payout ratio, the numbers shown already that is 33% so that is the basic assumption for us.

[Interpreted]. So you will make judgment definite when the full year is completed.

[Interpreted]. Yes, that's right.

[Interpreted]. One more thing, you talked about the JPY10b net and JPY4b and the net profit levels. And so to recap on that for this fiscal year on annual basis the dollar and euros sensitivity, could you refer to those?

[Interpreted]. On an annual basis the dollar, with JPY1 change, it's going to be JPY3.4b on sales and JPY1.9b on the net profit level different. And for euros, if there is JPY1 difference and then JPY0.7b on sales and there is no impact to the net profit.

[Interpreted]. And lastly, the JANUVIA United States situation. The other day, I forgot if it was 40m or 42m in the medical net that Merck -- that JANUVIA came out into the market, and with that, JANUVIA Merck, if that comes out and at the current moment. How do you feel about the impact from JANUVIA and Merck? Do you feel that it's going to be a competition or do you think that it is going to be a competition to Actos?

[Interpreted]. For JANUVIA, these are types of the medication that we are going to consider. And this going to be another choice for the diabetic. And the MOA is going to be different, EPSP inhibitors, [inaudible] for inhibitors and I think that is going to have certain effectiveness. But I believe that there is going to be an increase to competition against Actos.

However, at the moment [TCT] class share does not see a negative impact for us for TVT. And also we've got the Metformin. And Metformin share is going down at the moment. So I don't see any kind of an impact with this one drug to the Actos. So, in a sense, the market, OTC market is going to be revitalized because there is more choice, at least that's the kind of an impact that we are going to be seeing.

[Interpreted]. And this may be difficult to answer because it's different company, how did you feel about this $14m in sales? Do you feel that -- does it look like its they're a bit high?

[Interpreted]. It's a different company so it's difficult for us to comment on whether this $14m is high or not. And I would like to not comment on that because it is about this a different company.

[Interpreted]. Thank you.

[Interpreted]. Thank you very much. Next question from [Nomura Securities], we start with [Ruchi Hannah].

[Interpreted]. I have two questions.

[Interpreted]. Go ahead.

[Interpreted]. The first question, regarding Actos, the U.S. net quarter sales, $640m. Is that the number for the third quarter in U.S. sales?

[Interpreted]. My names Takahara. $640m is the right number, yes.

[Interpreted]. Compared to [ERM] change, 40% increase was a significant increase. And compared to 540 there is much increase. Is there any special reason? The first quarter was 6m, so that was the main reason for the raised sales posted. Any special reason for the third quarter increase?

[Interpreted]. My name is Yamanaka. There is no particular special factor for this great increase. As you know, the Medicare part D, in terms of volume and price, that was the main factor. That was a positive factor. And also for [inaudible] and other data was used. And also we received -- well received in the market, we've had very good move in the market, and that's the reason why we could achieve JPY640m.

[Interpreted]. Okay, my last question. This is relevant to Mr. Martin Bauer's question about how in the fourth quarter [inaudible] JANUVIA is well known and penetrated amongst patients. There is comment raised there among the specialists. Actos and JANUVIA, when you -- how are those drugs used, i.e. do you think that since JANUVIA was introduced in the market, do you think the situation has changed among the specialists? Can you focus on the specialist use of those, these new drugs coming into the market normally?

[Interpreted]. Of course pharmaceutical companies try to start promotion from the opinion leaders. And therefore Merck has started that way. As you mentioned, they went to specialists. They focus their promotion in among the specialists. And first they try to get position there, and then to the GPs. That, I suppose, is their way of thinking.

[Interpreted]. Beyond that we [inaudible] leaders whether they use JANUVIA or not in the initial penetration. How is the penetration of JANUVIA? Is it faster than you had expected?

[Interpreted]. And [Abandia] was launched around the same time. And when you compare the launching timing, you compare the launching of Actos in other areas, and when you consider the JANUVIA situation, I don't think Merck is particularly out there falling over the other drugs of the same class.

[Interpreted]. Thank you.

[Interpreted]. [Mr. Kammerer] from [inaudible]. Please mention your name.

[Interpreted]. [inaudible] from [inaudible]. About the JANUVIA impact and the diabetic oral drug question first. In the [inaudible] market I heard that there is a ratio of the off-label but your Metformin took the official label. So, what kind of an impact does that have?

And also will that become a handicap or a difficulty or a challenge for JANUVIA? And also a type of the diabetic patients how severe that they are -- what kind of patient is taking JANUVIA? If there any trend or tendency of what kind of patient is using JANUVIA, would you let us know please?

[Interpreted]. My name is Kitazawa. First of all, you talked about the off-label use. There are a lot of off-label usage. With regard to that, the sales reps for each of the companies is forbidden from doing that kind of an activity. And from our understanding, the doctors are using them on -- they might be using it on their own. But still, our understanding is not that the market is increasing because of that kind of an impact.

And combination usage with Metformin, as you know, in the United States, Metformin is the basic drug or the first choice for the diabetics. So the combination with that, when the new drugs come out into the market, is always an indication for combination usage.

[Interpreted]. And essentially that is the kind of patients?

[Interpreted]. Well we -- it's very difficult to comment regarding the competitors' products. But based on the disclosed information, clinical effects should be [significantly] lower and the potency of that, Actos, Avantia, [TV] compared to JANUVIA is stronger potency. Then JANUVIA, that, I think is the general understanding of that [inaudible].

In terms of edema and increase of bodyweight, they would try to differentiate from the other -- themselves from the other drugs. And when it comes to that point, it is up to the doctors who would prescribe this drug.

[Interpreted]. I have a question to Mr. Takahara. Your profit is moving 1.9 points and that you have now excluded the food and beverage business. Can you explain more of that number?

[Interpreted]. 1.9 points and 1.2 is the impact from the transfer of food and beverages.

[Interpreted]. Thank you very much.

[Interpreted]. Let's introduce your next questioner. Mr. [Takai] from Credit Suisse.

[Interpreted]. Hello my name is [Takai]. Hello. I have three questions. First, you wanted -- you decided not to do the -- you did not announce that there is now going to be any share buybacks, but are you not going to do it when the share goes up. So when are you going to be doing it or are you not going to conduct anymore share buybacks for this fiscal year? So, would you clarify your stance and the position you are against a share buyback?

[Interpreted]. My name's Takahara. And regarding the share buyback, we have always said that whether there be a funding need or a business environment, those are considered comprehensively so that we will be able to diligently do share buybacks. Because of that, at this moment in time, when it's going to be done and to what extent is something that I would refrain from commenting on.

[Interpreted]. Thank you. And do you -- you have mentioned about the Rozerem. Rozerem's new version DBC I have looked at it. It's true that it's clear, it's a completely clear message from the previous one. But now the Rozerem share is improving gradually. And does that mean that DBC was effective? Is that your understanding? Or is that the impression?

I get the impression that it is. And if that's the case then, in the future, if it's going to be hitting the peak at 3% or somewhere around there then are there going to be some kind of a strategic poise that you are going to be partnering with the sales discipline? It's been two years since it went into the market so I have a feeling that it is starting to -- it's not going to be effective or attractive as a new drug, per se. How do you feel?

[Interpreted]. My name's Yamanaka. And the prescription increasing because of the DBC regarding that, I believe it has -- DBC has become an entry point for the new patient. And with regard to these drugs, as you know, for the clinical drugs, the patient is going to be asking for usage of these that becomes an entry point. And therefore I believe this is a market that is directly linked to patient.

And therefore the patients are responding to the DBC activities. And, as you said, once they experience this drug usage through the DBC, how they are going to be continuing on that use into the future is the area that we have not been able to penetrate yet. It's only been one year and three months, by the way. It's not two years.

And Rozerem's new MOA is now being used and there is no side effect from the other drugs. And that kind of -- and by having them use it continuously for 10 days to two weeks, so they will be able to feel the effectiveness, that kind of an education activity is something that is still lacking in the market. And that is the area that we are trying to focus on.

And so, how well we will be able to have the new patients use Rozerem on a continuous basis stably for the new patients, this becomes a major point and if we consider then that is an area that we are focusing on. And, like you said, we are not considering partnering with any major players at the moment.

[Interpreted]. Okay. And if you sell it in Japan, I feel that it is going to become -- are you confident that it is going to be a major drug that is going to be winning over the competitors domestically? Once it is going to be sold in the Japanese market, which is not lunched yet, and if you have your power, I feel that this is going to be selling well in Japan as well. How do you feel?

[Interpreted]. Thank you for the compliment. Well, I can't evaluate it at the moment. But, in that sense, the U.S. and the Japanese drug difference is going to be there. So, that is going to impact how well it's going to do.

[Interpreted]. Thank you. And also one more. In general TAK475, is it going to go to -- be working on the cholesterol patents and similar statins, are you going to be combining the use of statins? Or no? It's not good -- or it's not going to be used with -- in combination with statins or so the specialists say. So, in that sense, what kind of judgment call are you going to be making for that?

And also in the Blopress? So, Phase III has completed -- the Phase III completion and the approval with the diuretic drugs, how do you -- would you be able to let us know about the timeframe with the diuretic and Phase III?

[Interpreted]. TAK475 and statin usage, yes the [pass rate] can be shared upstream and downstream, that's the difference. And when both drugs are used there could be [energetic] efficacy. That's our assumption. And we have already started several clinical trials. And we hope expected results will be achieved through the clinical trials.

Regarding Blopress in Japan, we have applied once in the past and unfortunately we had to add the additional trials in Phase III. Therefore we withdrew the application. We are now conducting the additional Phase III studies and we hope we can experiment control for our Phase III studies.

[Interpreted]. So you won't be able to comment when the clinical studies will be completed?

[Interpreted]. We cannot disclose that information at this moment.

[Interpreted]. Thank you very much.

[Interpreted]. Thank you the next question please.

[Interpreted]. From [Nero] Securities [Mr. Nioshi]. Go ahead.

[Interpreted]. My name is Nioshi from Nero I have just one question regarding Actos. Actos in U.S., the growth is very high with significant numbers, but very favorable. Next year, or for the next fiscal year, what is the expected growth in the U.S. market? If you can provide a guidance, that would be much appreciated. So, that's the only question I have.

[Interpreted]. My name is Yamanaka. I will answer that regarding Actos. As we just pointed out this year, for calendar year '06, enjoyed very good growth. We had quite good positive factors and started with much energy to promote the 29% growth before the nine months. This is based on local numbers. That is the level of the growth.

But, as we just mentioned, this year the Medicare Part D impact would be disappearing. Therefore, from January to March, probably the momentum may not last that strong. Further factors would see growth of 20 -- mid 20% after [that net] and including other Actos family products, at 13% growth is the expectation.

Then what happens after that, when you would like to have your guidance, the impact, that's not easy to answer. But for '07, the Actos family, we hope to achieve two-digit growth. So that is our determination.

[Interpreted]. No further comments. Thank you.

[Interpreted]. Without going into the details, two digit, are you thinking of a higher level two digit or it's going to go down significantly?

[Interpreted]. When I'm saying two digit, I'm saying that it's not a single digit. So, it's going to be -- I hope that we will be able to secure a 10%.

[Interpreted]. So, on the flip side, the growth rate is going to drop. Or it's not going to have that much of a momentum or the momentum will slow down?

[Interpreted]. I can't say anything definitive. But Medicare Part D impact had over 10% or somewhere around 10% over what it is. And on top of that Actos, well, there is going to be the marketing impact, plus Medicare Part D, both of them combine added to the high growth rate.

And so we have been able to see a 30% or more growth with just that single drug. And if we think about it from April, March for FY'07, with that against the questions about what it is going to be happening, we believe that the growth is going to be quite a high figure.

[Interpreted]. I understand. And this is a question for Takahara San. I understand the figures, and those were for the accumulations of the first quarter to third quarter. So, in the third quarter only, SG&A, if I take a look at that, then year on year, excluding the R&D, it's a slight increase. And out of that, with regards to the sales expenditure, could you elaborate a little more on the changes or the fluctuations of the sales expenditures or the sales expense?

[Interpreted]. My name is Takahara. In the third quarter only, the sales and the SG&A was 8.8% growth year on year. And it was JPY11.2b in growth. And out of this, the R&D was JPY9.4b gross. So, if we are to take out the R&D expense, then the SG&A is an increase in JPY2b. So, it's flat year on year.

And the increase factor is that TPNAs have increased and because of that, the [inaudible] -- the co-promotion [inaudible] has increased. And what did you say about TPNA?

[Interpreted]. TPNAs periodic growth which was a new product-related marketing expense increased and the increase factor and the decrease factor is basically offsetting one another, is that correct?

[Interpreted]. There are more increase factors, a little bit. There is a slightly -- the increase factor was a bit higher compared to the decrease factor.

[Interpreted]. Thank you very much.

[Interpreted]. Next question. From [Micon] Securities, [Mr. Tanaka].

[Interpreted]. My name is Tanaka from [Micon]. I've a question -- I have two questions regarding Actos. Medicare Part D impacted 10% according to your previous comment, more than 10%. Then there are prescriptions. When you divide the growth by the number of prescriptions, I see an increase of 13%. Is that a decrease of discounts by Medicare Part D? Is that how -- is that the reason for this number?

[Interpreted]. My name's Yamanaka. Medicare Part D impact, regarding that, by that, the number of prescriptions increased. So that is volume increase. And also we [date] reduction was also caused because of that shift. And those two factors are combined. And that resulted in 10%. That is our understanding. So, when [inaudible] is settled, the rebate rates could be -- the [inaudible] rates will disappear. But the outlook from Medicare [inaudible] next year, yes, that impact and will be reduced.

[Interpreted]. Okay. Regarding JANUVIA, I have a question. When you look at the growth of a new prescription, I understand that it is changing to a single-digit [details]. So there's not much combination of JANUVIA with Actos. Is that your understanding?

[Interpreted]. Well, the combination [is told in] JANUVIA and Actos combination therapy. As I just mentioned before, I have -- we don't have the data. And I'm sure Merck don't have the data yet either. So we don't know the next strategies in detail, but as they are [available to use], they don't have that option.

[Interpreted]. I have another question. In Europe, [inaudible] and when that is approved, what would be the impact in Europe?

[Interpreted]. Based on the proactive data, we have various -- we have various additional indication and [inaudible] in Europe. Where have a positive result, we consider the impact is significant. With respect to significant numbers, we are not yet able to tell you specifics.

[Interpreted]. Thank you very much.

[Interpreted]. I am sure there are more question from the Japanese [inaudible] but we would like to invite English-speaking people to ask questions. And if there is more time, then we will come back to the Japanese people. So, John, please take care of that please.

Thank you. We will now move to the Q&A session involving investors. [OPERATOR INSTRUCTIONS]. There appears to be no further questions from foreign investors. Back to you, Mr. Yoshida.

[Interpreted]. So, we would like to get back to the Japanese audience. Is there any further questions from the Japanese audience?

[Interpreted]. I'd like to introduce the next questioner from Morgan Stanley, [Mr. Mita].

[Interpreted]. It's Mita. Hello. How do you do? With regards to impact from Medicare, Actos may have become an impact, but I think it also impacted Takepron as well. And this year, could you tell us about the United States Takepron guidance? And I think Europe is going down at the moment overall. So how are you taking a look at everything in a comprehensive manner?

[Interpreted]. Yamanaka. Takepron in the United States, well, it's called Prevacid. As you know, on the volume base, its share dropped because -- the share dropped because of the generic drugs gaining momentum. And on the prescription basis as well, the volume has decreased.

And, like I mentioned, Medicare Part D has impacted it. By transferring from Medicaid to Medicare the rebate rate decreased. Because of that there was an impact to its pricing and on the net sales and Prevacid is then positive -- has ended up in a positive figure. So we had that kind of an impact to that.

[Interpreted]. But looking at the '07, it's flat or it is steep, will it decrease or is it going to be flat?

[Interpreted]. Like I mentioned earlier, at the moment Medicare has been launched, and there is no positive impact from the Medicare, and it's cost impact.

[Interpreted]. And you mentioned about the Lansoprazole? So, Europe's downward trend is going to be continuing. Is that correct?

[Interpreted]. Unfortunately, in the European market, excluding part of the country, like France, in the European major countries at the latter half of '05 the [time] has completed and expired. And because of that there has been more generic drugs that came into play. And because of that, there was an impact to us as well. And because of that we have -- our share -- our volume has dropped.

And Lansoprazole, there is going to be an impact to that in Europe. And we would have to be able to swap over into the [OD] tablets domestically. But we would try to minimize the effects from that. But it is true that there is going to be an impact -- a downward trend.

[Interpreted]. And the next, Blopress, domestically? There are more competitors and there was [inaudible] price listing changes -- revisions this year as well. So, comparatively speaking, there are new companies that emerged domestically as well. So what kind of growth are you envisioning into the future?

[Interpreted]. My name is Yamanaka. The '07 plan is going to be compiled from here on, so I can't give you a clear answer for the future. But for the forecast, this fiscal year on an accumulative basis, it's 5.9% for the nine months. So it's increased. And for the '06 forecast as well, we are going to be anticipating or securing a 5% growth.

And, as you know, for Blopress, within the hypertension market and the price level, it is a top drug. And [ARB] market itself is going to be expanding. And in that, the hypertension drug is regarded as 100 and we -- our shares are still increasing. So, it's not just a very limited competition within ARB, but the Blopress' efficacy and its usage is -- and based on the base case evidence is going to be contributing to a stable usage. And that is going to be continuing on into the future. So, within the hypertension, while the ARB rate is increasing, the Blopress is going to be growing stably. That will by my answer.

[Interpreted]. There is not other pharmaceutical companies to develop combination tablets [inaudible]. Do you have any option like that? Maybe you have developments already ongoing?

[Interpreted]. Regarding our major products, we always consider those products from the lifecycle management. We consider every possible option for our development. Therefore, that option that you mentioned is in our perspective [inaudible].

[Interpreted]. Last question?

[Interpreted]. [SYR322], what is the progress now?.

[Interpreted]. I don't have any specific comments. [SYR322], developments are ongoing steadily.

[Interpreted]. Thank you very much for all the questions. We allocated time for one hour for this conference call. So, if you don't mind we will accept the last question now.

[Interpreted]. The next is [Wito San] from Nomura.

[Interpreted]. Wito San from Nomura. I have two questions. First is SYR322, and with regard to how it responded at the skin. Was that the skin on the rodent?

And also with regard to the application timing, it is going to be the first half of '08 for [BMT]. So, are you going to be aspiring to be able to apply quicker than this timing, at the beginning of '08 or the first half of '08?

[Interpreted]. With regard to -- there was a skin response on the monkeys in the other companies' research before our 322. At the moment there has not been that kind of an evidence that has been shown.

And the second question, the application timing, like I said, we are going through the development. And it is progressing steadily. So as quickly as possible we would like to be able to place the applications first in the United States, but the timing is something that I cannot disclose at this moment in time.

[Interpreted]. I understand. And another thing, the TAP, T-A-P, business transfer on the Abbott side, the comment nuance has changed. I think the momentum has increased. But if there's going to be an M&A then is it just going to be just a simple acquisition or is it possible to have some kind of a scheme?

For example, [inaudible], half of them is going to be paid as royalty. With a contract we will be able to buy it easily and, with that, is there going to be the impact -- just this impact on the transfer fees or are there going to be some kind of an impact to the P&L because of that kind of a scheme? Is that possible? If there is that kind of a scheme existing then could you let us know?

[Interpreted]. With regard to TAP, at this moment in time, nothing is decided and there is nothing I will be able to comment on.

[Interpreted]. I understand. Thank you.

[Interpreted]. Thank you very much. Thank you very much for your active participation. Now it is time to close. And we would like to close the conference call for the third quarter of FY06. Thank you very much for your participation.

Portions of this transcript that are noted "interpreted" were interpreted on the conference call by an Interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.