Takeda Pharmaceutical Co Ltd (TAK) 2007 Q4 法說會逐字稿

Good afternoon ladies and gentlemen. Thank you very much for participating in our Company's meeting. Starting from now, we would like to start the financial statement report on Takeda Pharmaceutical Company's fiscal year 2006. We are planning to have this meeting for 1.5 hours. Starting with the introduction of the participants from the Company, actually we have Mr. Hasegawa, the President of the Company. And left to him is Mr. Yamaoka, General Manager of Corporate Strategy and Planning. Actually he was transferred to this department this April. And next to him is Mr. Kitazawa, the General Manager of Strategic Product Planning. And then next to him is Dr. Miyamoto, General Manager of Pharmaceutical Development and Dr. Ohkawa, General Manager of Pharmaceutical Research. And here we have Mr. Takahara, General Manager of Finance and Accounting. My name is Yoshida, General Manager of Corporate Communications. So myself and Inoue from Corporate Communications are attending this meeting today. So in opening today's meeting I would like to ask Mr. Hasegawa to give us his presentation.

Thank you very much for attending our Company's financial results explanation meeting for the fiscal year 2006. So based on what we have announced yesterday, I understand that many of the people have written analyst reports on our results. And when I looked at them across the board, they have mentioned that fiscal year '06 result was what they had anticipated. And for the prospects for the fiscal year '07, that is conservative as usual. And the current issue is the enhancement of the pipeline and the counter measures for the patent expiration. I think that will summarize what the analyst briefing has mentioned.

But I have a different standpoint with regards to this conservative outlook because I do not agree with that. But as a result, as some analysts mentioned, our Company usually surpasses and overcomes our initial outlook for the fiscal year.

So from me, I would like to briefly explain about the result of the FY '06 and also what would be the plan for FY '07. And the first page of the material, I'm sure this is what you are quite familiar with so I'm going to skip that. And on page two, this is the result of the FY '06 and Mr. Takahara will give a detailed explanation. So I'm going to skip that. And for the '07, starting with the positioning of our fiscal year '07, I would like to start there.

For our Company that is a very important year for us leading up to the fiscal year '08. And from the longer perspective, this is a year to handle the tri-polar situation. So we need to invest as much as possible so that we will be able to enhance our pipeline, especially for the new high cholesterol media, TAK-475 and SYR-322 and Lansoprazole successor TAK-390MR. Those three products will be the ones which impact our nearest future. Those are the very critical products. So to get the early approval of those products, we are going to invest all the necessary resources for those three drugs.

So after we were able to get this approval of these three products as early as possible, then we will be standing at the start line of our new growth stage. So literally fiscal year '07 is the year that would sway our nearest future. So based upon what I have mentioned are three basic policies for the fiscal year '07. So I would like briefly to explain about this.

The first one is to build a growth strategy with a focus on our new generation flagship products, we need to get the approval as soon as possible. And next is the global marketing strategy. Rozerem, AMITIZA and ACTOS, we need to put our efforts in there.

For the ACTOS, once a day type metformin extended release with ACTOplus met XR. We are going to differentiate with Avandia family. And by doing that we are going to realize a 50% and more TDZ share regularly. Temporarily, we used to sometimes exceed 50% of the TDZ share. In the past this was not a sustainable growth. That was a fact in the past. So the comprehensive profile, thinking about our product line ups, we need to make this a regular thing.

And for the Rozerem, starting from February, we have started a co-promotion with TAP. And in the PCP, a market that the TAP has, and also it's a powerful network. By leveraging those on to the Rozerem's promotion, we believe that will be beneficial to the maximization of value of the product. And the contract that TPNA concluded with CSO expired at the end of March.

And with regards to AMITIZA, starting from March this year, we have -- actually beginning of the March we started a co-promotion with TAP. And TAP have strength in IgE and in PCP market. We are fully leveraged on this, and we are going to maximize the operative value of AMITIZA. So, as for the timing-wise, starting the co-promotion at the beginning of March. That was a very good timing I believe looking back because our competitors, Novartis Zelnorm, from the safety perspective they have suspended manufacturing -- sales of that product in U.S. So a part of the patient using Zelnorm is expected to shift to the AMITIZA. So that will be a potential growth in AMITIZA sales. And with regards to the impact, this is something I cannot mention now but at this point in time, probably 8% plus would be a share.

And in case of Zelnorm, for your reference, it was US$490m sales last year. But it was very difficult to break it down, but probably 70% of that would be CIBS and the remaining 30% would be constipation. Probably the ratio would be 7 to 3. So AMITIZA at the moment, with regards to CIBS, we are in the final stage of the clinical testing. So we are trying to get the approval as soon as possible but we haven't got the approval yet. Therefore for the meantime conversion target, we are going to target for the constipation. So some say that Zelnorm -- most of the Zelnorm sales may be able to convert it into the AMITIZA. That kind of a prospect was given but that kind of opinion was not raised internally, in house.

Next page please. And this is the second basic policy. That is to strengthen and review the strategies to accomplish the mid term plan. We are going to carry out those three items there. First is to enhance many of the pipelines that will contribute to the fiscal year 2015 in sales. Centered on our Tikarakobu strategy, that which means intensive investment for the selected projects, we will implement a variety of strategies such as in house research, in house licensing alliances and reinforcement of the research organization to create new products as soon as possible.

And the second one is maintenance and expansion of our presence in the tri-polar markets. In Japan, we aim to maintain the market leader position with a market share of -- it was about 8.3 -- it ended up at 8.0% last year, but for this year we are going to lift it up to 8.3%. This year we are going to target this number.

And in United States, ACTOS, Rozerem, AMITIZA, in all the products by achieving the growth or surpassing that of the growth, we are going to target for the double digit growth.

And for the ACTOS, starting from January last year, the Medicare Part D we have enjoyed a following wind from that. And furthermore, abundant bit (sic) lack of supply, that was another following wind for us. And due to that we have been able to achieve more than 30% growth from last year. But these kinds of temporary following wind will be no more there for this fiscal year so we cannot expect the same thing for this year. But for the ACTOS family of course, we are going to target for the double digit growth.

And with regard to Rozerem or Rozerem and AMITIZA, at least for the -- we need to double the one that we got for the fiscal year '06. And in Europe starting from April, TPEU structure has established formally. And European market -- European business needs to be the third pillar of our business following the U.S. and Japan. And we have scouted Novartis' Mr. Di Nepi. So in other, TPEU we are going to -- we are thinking of organic growth to expand our business. And on the other hand, TPC, we are thinking of expansion using the M&A but it will be very difficult to actually do it.

We would like to thoroughly promote to strive for high productivity and efficiency which is one of the strengths of our Company. Regarding production, this year we will start full production of our bulk manufacturing plant in Ireland. And our global production structure with this new plant will pursue the high quantity, minimum cost and stable supply.

As for the global promotion, we will not try to maintain the industry practice but we would like to create a unique practice which is aggregate of the best practices from the three main markets, so that we can promote the products with our own marketing strategy. And we are now developing that marketing strategy right now.

The third management task is to develop a management system aimed towards renewed growth. The details are mentioned in this slide and we will establish the global management system for the growth stage, driven by the next generation products. And this global management system will be completed by fiscal '07.

The last one is to achieve qualitative improvement of the human resources pipeline. There is nothing more that I can comment on this. But what is -- we are now utilizing many programs in house and externally to develop personnel. And as we announced recently, we are cooperating with INSEAD in France to create a Takeda Leadership Institute, which is a global U.S., Japan and EU leadership institute which aggregates people from these three markets to train them for one year to become leaders for Takeda.

In this slide is a list of new products, which we are planning to launch in the U.S. in the coming years. And last year, if you compare with last year and the first half results, there has been no changes to this slide. The Phase III products are now progressing. And as for the 390MR, the last patient enrollment has been completed. So we have some progress, but there has been no change in this slide.

As for the global alliance and partnership, we are now partnering with these companies in various therapeutic areas. These are just examples of some of the alliances we have built. The specific details I'm sure you are already aware. If you have any questions, we would like to answer questions to give you more details.

As for the last -- our code of conduct, although we had a code of conduct in the past we would like to revise that and to focus on the five codes of conduct. As for Takeda-ism, we will -- we used to put it at the very top of this cone. But this code of conduct and management philosophy is already incorporated into Takeda-ism so that's why we changed the design of this chart. But there has been no essential change from this basic code of conduct.

That concludes my presentation and now Mr. Takahara will give you the consolidated results summary for fiscal '06 and the outlook for fiscal '07.

My name is Hiroshi Takahara. I would like to present to you the summary of Takeda's consolidated results for fiscal year '06 and outlook for fiscal '07.

As this table shows Takeda achieved a growth in consolidated revenues and profit in fiscal '06. Net sales grew for 16 consecutive years. Operating income grew for 15 consecutive years. Ordinary income and net income grew for two consecutive years. And the highest net sales and net income ever were recorded in fiscal '06.

Net income increased by JPY22.6b or 7.2%, absorbing the negative impact of the additional taxes of JPY57.1b paid and recorded during the first half of the year in connection with transfer pricing taxation. EPS increased by 9.2% from the previous year. Excluding extraordinary income, EPS increased by 8.1%. This exceeds the 7% annual growth, the target of our '06 to 2010 mid term management plan.

Before examining each item, I would like review two factors that had significant impact on consolidated results for fiscal '06. They are the growth of ACTOS and the impact of the weaker yen. The strong business performance in fiscal '06 was supported mainly by the remarkable growth of ACTOS primarily in the United States. As shown in this graph ACTOS sales amounted to JPY336.3b on a consolidated basis. This is a growth of JPY92.4b or 37.9% from the previous year.

In the U.S. Medicare Part D, which began in January 2006, contributed to expansion of the market. During the first half of the year, the market also experienced temporary shortage of competitors' supplies. In addition to these external factors, new products such as ACTOplus met and duetact contributed to net sales growth in TPNA.

Sales in TPNA increased significantly by US$584m or 32.8% compared with the previous year. In addition, due to the weaker yen, on a yen converted basis, TPNA sales increased by JPY75.1b or 37.1% as a result of the weaker yen. In Japan, Europe and Asia, strong sales growth around 40% was also achieved supported by the publication of several clinical evidences that have been publicized since last year.

Next I would like to talk about the currency translation impact. Average exchange rates during fiscal '06 were JPY117 to the dollar and JPY150 to the euro. The yen became weaker than the previous year by JPY3.7 and JPY12.2 respectively. As shown in this slide, favorable exchange rates increased net sales by JPY22.8b, operating income by JPY5.1b, other income by JPY10b and net income by JPY6.9b.

In the next slide, I will review details of the change in each item. First, let's see the changes in sales compared with the last year in each of our business segments. Net sales by the Pharmaceutical segment increased by JPY125b or 12.3%, supported mainly by the growth of ACTOS, as revealed previously. This growth includes JPY21.5b in Japan and JPY103.5b in overseas markets. Meanwhile transfer of the Beverage and Food business of Takeda Food Products Limited had a negative impact on sales of JPY32.5b. This impact includes a sales increase by JPY5b in the Consumer Healthcare business and a sales decline by JPY37.5b in the others category.

The positive impact on the Consumer Healthcare business was attributable to the fact that sales by Takeda to House Wellness Foods Corporation were included in sales to outside customers for the current year. In the previous year, this portion of sales was eliminated as internal transactions of such sales were made from Takeda to former Takeda Food Products. This negative impact of the transfer of the Beverage and Food business was more than offset by sales growth in the Pharmaceutical segment. Consequently, consolidated net sales for the Takeda Pharmaceutical Group increased by JPY93b or 7.7% from the previous year.

On the next slide I will explain the details of sales of Ethical Pharmaceutical Products in Japan. Sales of Ethical Pharmaceutical Products in Japan increased JPY21.5b or 4.3% offsetting the negative impact of the NHI drug price revision implemented in April 2006 and the introduction of generic drugs. In the diabetes drug area, which is one of our core business areas, ACTOS sales increased by JPY9.5b or 39.1% and Glufast sales increased by JPY700m. However, sales of Basen decreased by JPY7.8b mainly due to severe competition with generic drugs.

Blopress sales increased by JPY5.7b or 4.6% from last year. This was supported by more promotion of providing scientific information based on numbers of evidences including CASE-J study results published in October '06 comparing the product directly with Amlodipine.

In June '06, Takepron received approval for additional indication of non-erosive reflux disease from the Ministry of Health, Labor and Welfare. In December the marketing of Takepron for IV, a new drug formulation began. Consequently, sales of Takepron increased by JPY2.9b.

Leuplin sales also increased by JPY1.1b and sales of ENBREL also increased by JPY6.3b. We anticipate that ENBREL's further sales growth depends on -- we anticipate that ENBREL will further increase its sales because on April 27, we received a report from Wyeth that the registration for all case follow ups have been completed.

Now let's look at each component comprising the sales growth at TPNA. As explained in the previous slide, the size of ACTOS, which is one of our core products, grew significantly by US$584m or 32.8% from last year. In addition, sales of Rozerem launched in September 2005 increased by US$62m to US$88m. The initial sales target was almost achieved. AMITIZA, launched in April 2006 has expanded its share in the market with sales of US$49m for the year.

Co-promotion with TAP started in February 2007 for Rozerem and in March for AMITIZA. We believe that this initiative will further promote sales of these products. And the combined revenue from the co-promotion activities with Kos and Cephalon increased by US$46m contributing to the growth of the sales result. Consequently total sales by TPNA increased by US$742m or 39.5% from the previous year. On a yen basis, TPNA sales increased by JPY93.7b or 44.1% including a favorable impact of the weaker yen of JPY9.7b.

Next I would like to discuss worldwide sales of our in house Ethical Pharmaceutical Products, including sales at our affiliate companies accounted for by the equity method for which a goal is set in the 2006, 2010 medium term management plan. Global sales of in house Ethical Pharmaceutical Products were JPY1,254.1b, an increase of JPY127.4b or 11.3% over last year.

By region, sales in Americas, which account for more than 50% of total global sales, increased by JPY98b or 16.8% supported mainly by the ACTOS sales. Sales in Europe increased by JPY12.6b or 8.1%, including the positive effect of JPY11.1b in currency translation. Excluding this translation effect, sales in Europe remained almost the same as in the previous year. In Asia, sales growth was achieved in each country where we have our own sales channel. Total sales increased by JPY4.5b in Asia and by JPY12.2b in Japan.

The sales of in house Ethical Pharmaceutical Products were supported mainly by four international strategic products. As shown in this table, all four strategic products achieved sales growth in a yen basis.

Although the sales growth of Lansoprazole in Europe declined due to a patent expiry, total sales of Lansoprazole in overseas markets increased by JPY11b or 2.8% mainly due to expanded sales in the United States. Pioglitazone sales increased significantly mainly in the United States as explained at the beginning of this report. Worldwide sales including equity method affiliates increased by JPY92.8b or 38%. Candesartan achieved strong sales, both in Japan and in the overseas market. Total sales exceeded JPY200b, which is an increase by JPY15.5b or 8.1%. Leuprorelin sales increased slightly on a yen basis. On a local currency basis, sales decreased slightly due to the sluggish market and contraction, and intensified competition.

Aggregate sales of the four products increased by JPY121.6b or 12.1%. The four products accounted for 95% of total sales growth or JPY127.4b of the in house Ethical Pharmaceutical Products.

In the next slide I will explain the details of the changes in the operating income. Since gross profit margin improved by 1.9 points, gross profit increased by JPY95.4b, which was higher than the net sales increase. R&D expenses increased by 12 -- JPY23.4b [sic - see presentation] or 13.9% from last year mainly due to progress in development activities including SYR-322 and TAK-475 and to upfront payment recorded in June 2006 for acquisition of an exclusive license for Hematide from Affymax.

Selling, general and administrative expenses excluding R&D expenses increased JPY16.1b or 4.5% mainly due to the expansion of selling expenses related to new products in TPNA. As a result operating income increased by JPY55.7b or 13.8%. The operating profit ratio was 35.1%, an improvement by 1.9 points from last year.

Now look at the details of changes in our net income. Equity in earnings of affiliated companies increased by JPY12b. This increase includes an increase of JPY8.9b in equity in earnings of TAP in the U.S., which was partially due to the receipt of a settlement fee for the Eligard case. Other non-operating income increased by JPY32b from the previous year mainly due to an increase in financial revenue of JPY20.9b. As a result of these factors, ordinary income increased by JPY99.7b or 20.5%.

In addition extraordinary income increased by JPY7.8b from the previous year, which includes a gain from transfer of the Beverage and Food business, a gain from the partial transfer of Wyeth K.K. shares and a gain from transfer of shares of Mitsui Takeda Chemicals Inc. And consequently net income increased by JPY22.6b or 7.2% absorbing the negative impact from the payment of additional taxes of JPY57.1b.

Lastly I will explain the outlook for the consolidated results for the fiscal 2007. Net sales are expected to grow by JPY84.8b or 6.5% to JPY1,390b due to the continued growth of Ethical Drugs mainly in international strategic products. By product, even after the positive impact from Medicare Part D finished, it is expected that ACTOS sales will continue to grow with a growth exceeding 10% expected in sales of ACTOS in the U.S. and a mid teen growth expected in consolidated sales. We expect growth of about 10% in Candesartan sales, growth exceeding 10% in Takepron sales and growth exceeding 5% in Leuplin.

R&D expenses will increase by JPY36.7b or 19.0% to JPY230b. And SG&A expenses excluding R&D will increase by more than 5.0% due to the investment for new products at TPNA. This increase in R&D expenses will be fully absorbed by the sales growth. Consequently, it is expected that operating income will increase by JPY11.5b or 2.5%. Ordinary income will remain at the same level as in fiscal 2006 at JPY585b, since a decline in equity in earnings of TAP is expected.

Net income of JPY380b is expected in fiscal 2007, which is higher by JPY44.2b or 13.2% than in fiscal 2006 in which additional taxes were paid to tax authorities. In forecasting these operating results for fiscal 2007, it is assumed that the foreign exchange rates are JPY115 for a dollar and JPY155 for a euro. A JPY1 fluctuation in these exchange rates will have an impact of JPY3.7b on sales amount for dollars and JPY0.8b for euros and an impact of JPY1.3b on net income for dollars and almost no impact for euros.

That's all for me. Thank you.

Moving on, I would like to ask Mr. Kitazawa to give us an update on R&D pipeline updates.

My name is Kitazawa. So from me I would like to mainly give you an update on the progress of the R&D pipeline. So as you may already know, these are the core therapeutic areas, lifestyle related disease, oncology and urological disease, CNS, bone joint disease and gastroenterological disease. Those are the four core therapeutic areas in which we are carrying out our R&D.

So Franchise I, lifestyle related disease. This is the most important area for our Company now and also in the future. The progress in the development stage is indicated with blue and red arrows for third quarter and fourth quarter of fiscal 2006 respectively. Regarding ACTOS lifecycle management, the fixed combination dosage formed with sulfonylurea or SU in abbreviation was approved in November 2006 and January 2006 in the U.S. and EU respectively, which follows the approval of combination drug of ACTOS and metformin in June 2006 in EU. In addition, triple therapy of ACTOS, metformin and SU was approved in December 2006 in EU.

As for the reduction of the risk of macrovascular events in patients with Type 2 diabetes mellitus and preexisting macrovascular disease, the results from proactive study were added into the labelings in January '07 and February '07 in EU and the U.S. respectively. In Japan, the concomitant therapy with metformin was filed in January '07 and the Phase II studies for the concomitant therapy with insulin started in the fourth quarter of 2007. This is the Blopress LCM. Regarding Blopress or Candesartan, the fixed combination dosage form with diuretic and also the high dose are in the Phase III development. In the U.S. and the United States the TAK-491 which is the successor of Blopress is now in Phase II studies.

Now I will continue to talk about the Franchise I. The Phase III studies are ongoing for SYR-322 and TAK-475 and the Phase II studies in Japan for both products started. The TAK-593, [sic - see presentation] the Phase II studies for diabetic neuropathy started in the U.S. and EU following those for neuropathic pain, which had already started. The Phase II studies for the three markets have started for TAK-593.

Now I'd like to talk about the next area, which is oncology and urology. This area has growing market potential, especially in oncology. We licensed Hematide or AF37702 from Affymax in February 2006, for the Japanese market. And in June last year, we obtained the worldwide development and commercialization right. Many patients with cardiovascular diseases and diabetes suffer from CKD as their underlying disease progresses. Also Hematide helps address an important need in patients with cancer, where anemia is commonly seen in association with chemotherapy or cancer itself. Thus Hematide is highly compatible with Takeda's strategy to grow our core therapeutic franchises both in cardiovascular disease and diabetes and oncology. The addition of overseas territory will enable both Takeda and Affymax to further efficiently cooperate in advanced development activities towards early launch.

Then regarding EMD72000 humanized monoclonal antibody against the human [EGFRM] for treatment of cancer licensed from German Merck, the Phase II studies started in Japan. For the R-851 we obtained the development and commercial rights from 3M in the USA in March 2007.

The third area is CNS and bone joint diseases. Even with the launch of insomnia treatment Rozerem in the U.S. in September 2005, we still need to enhance the pipeline in this field because we believe that this field is rather weak in our Company. So we need to enhance the pipeline and the in licensing activities for this field in the future. The recent achievements in this field include the filing of Rozerem in the EU in March 2007 and the approval of once a week formulation of osteoporosis treatment Benet in Japan in April of 2007.

The last field is gastroenterology. This includes AG-1749, Takepron/Prevacid and the NERD and other IV formulation was approved in Japan. We obtained an additional indication for non erosive reflux disease in Japan in June '06. And the injectible formulation was approved and launched in Japan in December last year. Other achievements in Japan regarding Lansoprazole are filing for secondary eradication of Helicobacter pylori in August 2006 and the start of Phase III studies for NSAID-induced ulcers.

We would like to file in the USA as quickly as possible for the TAK-390MR. The TMX-60 which TAP is licensing, we are going to -- we have started additional Phase III studies.

Now I would like to give you more explanation about the concept of SYR-322. I'm sure you already know this is a product which is a DPP-4 inhibitor created by former Syrrx, that is Takeda San Diego now and it's orally taken treatment for Type II diabetes with new mechanism of action. We are doing the Phase III studies in the USA and Europe and we would like to file it as soon as possible in the USA first. As you know, we are not just pursuing monotherapy, but as you can see we are concomitant therapy with a variety of other anti-diabetics such as metformin, TZD and SU and insulin.

Next one is TAK-475. As we showed you earlier, this is a focus area for our Company. And in the world, many companies have developed these kind of drugs. But at the present moment, we are the top runner for these kind of drugs. The Phase III studies are ongoing in EU and U.S. and we would like to file and get approval for this drug as soon as possible.

This gives you the studies of licenses and alliances. Last year, we achieved six in license alliance activities or deals in fiscal 2006. We were successful in the in licensing activities of major drugs including Hematide. And for R-851 we were able to acquire all the rights from 3M. As for the -- we also signed deals for joint research with XOMA for antibody platform technology and with the Korean LG Life Sciences for anti-obesity field.

Now I would like to talk about the strengthening of IND engines. As you know the IND engine is something that we are trying to reinforce and that is why we have acquired Takeda San Diego and have put it in our Group. But in March this year we acquired Paradigm Therapeutics, now Takeda Cambridge, and Takeda Singapore, that has target identification and validation capabilities based on creation of genetically altered animals and to analyze their phenotypes. These two companies will contribute to improve overall Takeda's research capabilities as well as IND engines. The three R&D functions will have a synergy effect with each other. And as for the oncology area we have -- we are going to reinforce the antibody franchise including XOMA.

Now I would like to talk about Paradigm. In 1999, it was founded by some researchers in the University of Cambridge. And it has the world class target identification and validation capabilities based on genetic engineering and in vivo pharmacology. Using their capabilities, Paradigm has already developed a promising pipeline of novel drug discovery targets and compounds in the key areas of unmet medical need including pain, CNS disorders, prostate and breast cancer, diabetes, hyperlipidemia and obesity. These fields are much our R&D targets.

So including our Singapore subsidiary as a result of this acquisition we have changed the name of Paradigm to Takeda Cambridge and Takeda Singapore. This is going to be part of the global Takeda research and development efforts and they will be contributing to this going forward.

And this will be the last slide. The global research network, Takeda, in addition to Takeda San Diego, Takeda Cambridge, Takeda Singapore. So U.S., Japan and EU and also we are covering the Asian region so that we'll be able -- we have been able to establish a global R&D organization. So we believe that with this organization, we will be able to enhance our R&D activities efforts.

That's all for me thank you.

Thank you very much. Then after this, we would like to have questions from the floor. So when you have a question please raise your hand and mention your company name and your name. So starting with the person in the middle.

My name is Tamura from Schroders Research. So starting from the items related to the business. So there are Sumika and House that prove that you have transferred to the House. And what are -- and this year I understand that 10 ex-pats will be finalized. So for the non-medical or other subsidiaries other than those mentioned earlier, are you going to keep having them?

With regards to the non-medical organizations reform, for the business areas other than you have mentioned, we have a maximum of five-year joint ventures. And after that term is finished then the people will be moved over to the Company. And as for the stake, we are going to gradually reduce the minority stake that we have in that joint venture company and ultimately we will sell them all. And what remains, as you have mentioned, is agricultural chemicals. I believe that is the only one that is remain.

So how many people are still working for the major company, as to ex-pat?

So, at the moment?

Yes, that is true.

At the moment, just for the agricultural chemical, probably it's about 200.

Thank you very much. And then next to Mr Kitazawa, starting with the Hematide. This is anemia treatment drug using the erythropoietin. I understand that after you have the IV license, the landscape has changed. What kind of impact is your Company giving?

As you have mentioned, including FDA, all the regulation authorities for the high dosages use they are giving some alerts. And our Company, the partner company Affymax, together with them, based on this situation we are having a very close contact with the FDA and depending on -- as if necessary we are making a slight adjustment to the development plan.

Thank you very much. And then for the 242, I just want to know what is happening to the participation of the patients TAK-242.

For TAK-242, as I mentioned after the first stage we are going to have a combined second and third stage clinical tests in a global manner. And as a first step, I believe that we have almost completed the aggregation of the patient. So after looking at it -- after looking at the interim report from the first stage, we would consider how we are going to develop the next stage. And so we are currently preparing for that analysis.

That's all for me. Thank you.

Next, we would like to ask the question from the gentleman from the first row.

My name is Masuzoe from Deutsche Securities. I have several questions. One is related to development. First, I would like to ask about the SYR-322. Kitazawa, tell us are -- did you say that you are going to file for mono and combo simultaneously?

Not combo. I said concomitant therapy.

Oh, so combo will be done separately, right? Then, are you going to present some kind of data to the ADA this year? Why are you laughing?

Of course we are preparing for the filing and approval and so we already have a publication strategy that covers the basic data to the Phase III data. All the data has been fixed. What kind of academic society we will present to with what data is already fixed. But for now, because it's before the society meetings, please look at the abstracts.

My next question is regard to 475. You said also in your presentation that you were thinking both monotherapy and concomitant therapy with statin. When I look at the Phase II data, I doubted whether monotherapy would be possible. But, do you think it's possible?

Yes, we think it's possible.

Now I would like to ask the president, are you thinking of doing M&As of Japanese companies -- are you interested in buying Japanese companies?

This is a question that people always me. I regret to say that my answer always stays the same. My focus is overseas market, especially Europe. And so in Japan we have no intention of doing acquisitions.

Even if companies ask you to buy the company?

Well, it's very difficult to answer such a hypothetical question. Like I always say, I have four conditions with regard to M&As. So if two conditions are met, then we can start to at least consider them as candidates for M&A.

Next person, the person sitting at the very front.

Well my name's Yamaguchi from Citigroup. I have a question with regards to ACTOS. So, MERCK and GSK -- the large, mega pharmaceutical companies are proactively promoting this type of drug. So for your company, is your share of voice increasing? What is it at the moment? And for this year to what level are you trying to increase this? So I just want to know how focused you are in this product?

Well, share of voice of course Januvia after they have launched last year, our share of voice has declined. And at the moment TPNA are expanding their sales forces. So at least for the oral taken diabetic drugs we want to maintain at least about one quarter -- one-fourth of the share of voice in this market.

ACTO matrix XR [sic], you have briefly mentioned about that -- ACTOplus XR [sic]. So you said that you have given approval letter but you haven't launched it yet. But does that incorporate into this year's sales?

Well, that is not incorporated. Because the company called Watson -- that company is currently dealing with FDA so we are not in a position to make a comment on that. But at this point in time we haven't included the sales from this product into our forecast for this fiscal year.

And last question, you mentioned about the Takeda Origin promotion. You said that you want to share the global promotion ideas and in the domestic market you are doing the comprehensive MR and you have a different thing for the global market. So, do you have any specific idea how you can improve that capability?

I think there are several approaches that we could take. But at the moment what we are thinking is rather what we have accumulated in the Japanese market to be shifted over to the overseas market. To give you an example, one would be, as you have mentioned, our domestic sales force in PCP market, the portion, if we have 475, the metabolic syndromes triangle portion, we have hyperlipidemia and hypertension. So I think that this will be a favorite for us. But we need to show this actual result in Europe and American market. Otherwise they will go for the primary's call and secondary call and then following rate and if the new drugs come up, then they need to increase the sales reps and the detailing calls.

So similarly that can -- if we can get this type of very unique conditioning then we will be able to provide the unique selling method. And we are -- we have started to introduce this kind of concept to the overseas market already.

And the other point is that, similar to the quality management -- quality control, started out in the U.S. and then brought over in Japan and enhanced and then re-exported to U.S. Similar to that analogy of management, the concept started off in the U.S. But in pharmaceutical department within Japan we are trying to hold it to the higher degree. So we are thinking of exporting this to the overseas market. And pharmaceutical [risk comp] division we have send the people who have actually experienced that to the TPNA. And we have already done that so we are going to transplant this kind of concept to TPEU this year.

Are there any more questions? Yes, the gentlemen on the very front row?

My name is Sakai from Credit Suisse. I would like to ask three questions about the new product. First, the ACTOplus met XR. I'd like to confirm is this Watson? Shouldn't it be Andrx?

No, it is Watson.

So you have the rights, from Watson, right?

Yes.

Yes, the first question is about SYR-322. The Novartis Galvus has been approved. But one condition for approval was that there should be additional testing done on patients with kidney disorder. That was the guidance given by the FDA. So with regard to SYR-322, what kind of impact do you expect this will make? Do you have any comments?

When we develop in house drugs, of course we look at the other developments done by competitors and we think of countermeasures. We look at what kind of messages were given by the FDA. We do a very strict analysis and we believe that there's no impact on the way that we are doing our development right now.

The next question is about the insomnia treatment drugs in the USA. The FDA asked the labels to be enforced for 13 items, including sleepwalking and sleepdriving. The label must be enforced according to the FDA. But unfortunately Rozerem is included as one of these drugs. I think the FDA is mixing Rozerem up or putting Rozerem together with the GABA drugs.

But would Rozerem be excluded from these drugs in the future?

Well, the FDA put all the insomnia drugs together. And as you said of course, we understand that the MOA for our drug is completely different. Compared to conventional insomnia drugs, we have achieved very significant improvement in safety. So right now, we are negotiating with the FDA this point. But what kind of judgment the FDA will finally make is something that don't know yet until we do more negotiation. But of course, we are not just accepting the FDA's remarks. We are fighting against it.

But the label hasn't changed has it?

No, it has not changed.

So you have sold off all the Wyeth shares. So now you don't have any relationship with Wyeth. But you still have contracts in place for licensed in drugs, right? Kitazawa-san just said that you want to enhance the CNS and FX3 is now in the filing process. And is this one of the projects that you have in place with Wyeth?

Yes.

Any other questions.

My name is Mita from Morgan Stanley Securities. With regards to TAK-475, this is a new franchise area. So probably you need to build your sales organization for this. But at the moment are you thinking of selling TAK-475 in U.S. by yourself? And also how you're going to build this sales organization, if you could mention that.

This is something related to the question referred by Mr. Yamaguchi. But at the moment TPNA, well to give you an answer, yes we are going to sell this product by ourselves, because it is time that we need to be able to sell this product by ourselves. We should not be relying on other companies. So we are going to sell by ourselves. But with regard to the sales force expansion, metabolic primary sales care -- sales force and metabolic specialty sales force, those are the two sales forces that we are creating at the moment. And of course those teams are going to be expanded in light of launch of TAK-475. And if we can get filing and approval of this product smoothly, then probably we may need to expand further about six months before the approval of this product.

I understand that 2,000 CSOs are lost in TPNA at the moment. So how -- what will be the appropriate number?

At this point in time it is very difficult to mention what will be the appropriate number for MRs, so please wait for a while. Because the product hasn't been launched to market so it is very difficult for me to comment on it.

And last question, with regard to Rozerem, I believe that you have made a slight change to DTC advertisement. So I just want to know what was the impact of that? And also are you going to proactively promote the DTC advertisement?

To be honest, for our Company this was a very new market segment for us in insomnia. And to go into a DTC-driven market it's our first experience. So we are in a stage of learning about the market. So with regard to DTC, at least for this year, we are going to invest into DTC with equivalent level from the previous year. And after seeing the result of this year we would like to think what we're going to do going forward.

My name is Urishihara from Nomura Securities. I just want to ask one question, with regard to SYR-322. How much of the entire body DPP-4 does it inhibit, according to the drug design?

If you use it in a concentrated dosage then it can be inhibited 100%, according to the POC data.

So you can inhibit it 100%?

Yes.

I have two questions. Because Yamaoka-san is here I would like to have your opinion, based on your experience. The Japanese MR, it is about 2,500 people of MR is available in Japanese market, due to the emergence of mega pharmas. According to your experience what would be the appropriate number? Of course depending on the sales that would be different, and depending on items that would be different. But your company's MR number, is it sufficient or not sufficient?

Well I was surprised to be named to answer this question. But to give you a black and white answer, that would be very difficult for me to make that. But this is my personal opinion and is not something I have asked the President to do or I haven't got an approval internally.

But just thinking about the domestic market, probably we would like to have a bit more of MRs. But this is not just a matter of our numbers on the other hand, because we need to guarantee the quality in increasing the number of MRs.

So at the moment the MRs -- thinking about the MR quality of our Company I believe that their evaluation is a bit low. So thinking about that, depending on the situation and depending -- in line with the launch of the new products, I think that about the appropriate MR number would be what needs to be done. Probably this is the answer I can give you. So probably approximately 2,000 MRs.

And the second question that I would like to address Okawa-san. Last year you debuted and I just want to know what's your thought about referring back to the past year.

I didn't make a grand debut but I made -- as I have mentioned in interim report, the first one is rebuilding of the system and to revisit the strategy. And those two are supported by -- this will be the result, but [inaudible] up and then we need to increase the number of new drugs. But in -- after year 2015 think about that future, the business capability needs to be enhanced. That will be very critical. And from that respect, as was mentioned in the slide IND, IND engine, additional of that -- for that we acquired the Takeda San Diego and Takeda Cambridge. So from that perspective we have been achieving some results for that. So the results, when I evaluate that, I think as a starting point we have made a very good start. But of course we need further distance to go to come up with a new product. So we would like to do that going forward.

So how long should we wait to hear a very good result are achieved by you?

Well, what I have committed to the President, Mr. Hasegawa, is that five new products to be launched in between year 2010 and year 2015. After year 2015 we need to be able to have an established organization to be able to produce one new product per year. That's the interim goal for us.

My name's Muraoka from Morgan Stanley. I'd like to talk about the two ARBs in your pipeline, the 536 and the 491. This is something I don't understand, but which one do you have more expectations for right now?

Right now, we too haven't come to a decision of which we would be more successful. They're both in Phase II right now. With animal testing, we have obtained some differentiating data, but we need to look at the final Phase II results and we also need to consider speed to determine whether there is more potential for one drug and we should focus on that drug or whether we should launch both drugs onto the market. But for now, we haven't come to that conclusion yet.

My next question is about Glufast. This year or just recently, you received the approval for the concomitant therapy with Basen, but I think your target for this year is only JPY4 billion. Can't you do better than that? What is the reason why you cannot achieve more than JPY4 billion?

We agree with you absolutely. We think we can do much better than that. That's why we are telling the sales force to achieve more than that. But we just need to look at how things go. One thing -- one reason is that the patient segmentation is a little similar with Basen. And so we need to create a clear segmentation of the patient market to make it easier for people to use the drug. We hope that people have high expectations and look forward to the drug. We have made a clear commitment to Kissei Pharmaceutical, so we will do our best.

My last question is about Hematide, I'm sure things -- I know that things have changed for cancer, but the development plans for kidney anemia, has it changed? Is it correct to believe that you can enter Phase III this year?

Yes, we will enter Phase III this year, although that's a very challenging type goal. We are doing our best to achieve that goal. And not just for cancer, but also for the kidney, the general safety is an issue, because with regard to the high dose and long-term administration, the FDA has issued an alert. And so we need to keep that in mind as we do our development.

Thank you very much.

Yes, can you go to the very back of the room?

My name is Shimura from UBS Securities. So I have three questions. One -- I'm sorry, I haven't learned about this, but in ADA, GABA and non-GABA, I understand you're going to present an abstract. But would that would be leading up to some action to FDA? That's one question.

Excuse me, I couldn't understand your question. Can you rephrase that question for me?

This time the GABA drug and non-GABA, FDA are saying that those are the same and they are presenting warning. And if -- I believe that you're going to present about the GABA and non-GABA in ADA. So are you going to come up with some kind of differentiating property so that you would be able to talk FDA into?

Well, the dependency are clearly different between GABA and non-GABA. But what FDA is concerned at the moment is that it's insomnia drug itself. But it's sleep-driving -- that kind of -- some kind of odd behavior may be made. That's the kind of alert that FDA is making. And as Kitazawa-san mentioned, and by -- in case of Rozerem, we don't have any single example that show that kind of behavior. So we need to accumulate that kind of a result and then evidence that. And in the mechanism wise I believe that FDA are understand -- FDA understands this. So that's -- we need to be steadily talk with the FDA. But from the scientific wise, all the experts understand about MOA of this drug.

In same development line ACTOS 536 -- 583 -- 536, well, you were in a Phase III and you were expensing a lot and year 2010. So are you going to spend just for the purpose of the bridging? Or does this combination would enter into some new area? So I just want to know your strategy with regards to the 536 -- 536 combination drug.

So ACTOS and 536, 536 is ABRD -- ARB, excuse me. And what we are focusing is ACTOS lifecycle management, whether there's a combination drug can be -- how this combination drug can be used. And as you have mentioned with regards to ACTOS, we are about to see expiration with the patent. So by making it to a combination drug, we would like to maintain and enhance the potential of the product by inviting the ACTOS into this lifecycle.

So specifically you're investing this much of amount of investment into Phase III, so I believe that your assumption is that there is a bigger potential lying ahead. So what are the potentials that you're thinking?

So your good question is referring with regards to the expected sales. Well, as you may know, the hypertensive and diabetic areas, there are many patients in those areas. So to give you a specific number, we are not in that position now.

So -- but as a disease area, those two, a very big market. But say that if just limit to those patients who have two indications, then please understand that the target population isn't very large. Starting from April 2008, I don't know in what form it will be.

But senior peoples' nursing care insurance -- that kind of topic is rising. But out of your top 15 items, I believe that there are many of the products will be impacted from this change of insurance system. So how are you looking at the impact of this insurance system and revision to your products?

Well, there are many discussions taking place around that topic. But nothing has been decided actually. They are flying up the balloons and the discussion has just started. So I do not think that this new system will be implemented from year 2008.

But anyway, the suppression of the medical fee due to the lack of financing, I believe that will be happening and that will put a pressure on to the drug. So what are the countermeasures that we are going to take for the comprehensive payment of the medical treatment? I'm not sure what we are going to do. But we, having this stance that we are going to thoroughly consider about it going forward.

I apologize. I forgot to mention that there are overseas shareholders that are participating in this meeting. So after the audience here have asked their questions, there are some people waiting overseas. So we would like to go on to the overseas shareholders after that.

I'm Onozuka from JP Morgan. I'd like to ask just one question. I'm now looking at the share within the ACTOS family. But it seems that the ACTOplus met and the duetact shares are not increasing within the ACTOS family. Is that -- was expected? Or did you expect that when XR is launched, that this share within the family would change dramatically?

Well, if we compare ACTOS and Avandia first of all, and combining the single agent and combo, then Avandia has 51% of the market and ACTOS has 49% of the market. Of that 49% of ACTOS, 45% is ACTOS single. Avandia's 51% contains 40% of single Avandia. So that means that the base compound profile is better or stronger with ACTOS.

But also the launch of the combination drug was delayed and the dose flexibility of the combination drug is a little bit weak with ACTOS. And that is -- are the reasons why the single agent has a bigger share within the family, compared to Avandia.

So when XR is launched, you want to achieve share change like -- to make [inaudible] Avandia?

Yes, that is what we are expecting. But ACTOS, for first time can express the feature [2D] for combo as well. So, I think that will be a competitive advantage for us.

With regard to the lifecycle management, if the single therapy has a high percentage of your ACTOS family share, then it will be quite risky when the patents expire.

We don't think that is necessarily the case because, as I said in another meeting, the 536 and the 322 or the 475 drugs are all protected by patents. These are the best-in-class products for hyperlipidemia, hypertension, and high blood glucose.

We are the only company that can combine these any way we want. This has two implications. One is, we can have a head start. And secondly, when the drug is sited like USA, where the drug price is flexible, then we can have a more flexible drug price strategy. We can raise it or reduce it as much as we want -- however we want. For example, before patent expiry, we might have one drug price and after expiry can have another drug price. So there are concerns like you said. But I think we can cover that with a good strategy.

My name is Miyoshi from Merrill. I would like to ask this question to Mr. Hasegawa. In the TPNA, you mention that the good Japanese practice of sales activity, you are going to transplant that to overseas. But for TAP, are you thinking of a similar thing for TAP?

Well, I gave you two examples earlier. For the knowledge management, that is applicable. But for the primary care result triangle, to promote this smoothly, that kind of product lineup is not there for TAP yet, so I think that would be a bit difficult.

And one other thing, the knowledge force management, in case of TPNA, we can force them to do that, but TAP is a -- since it is a joint venture, we will be able to introduce our ideas, but all rests in TAP management, whether they are going to actually execute that or not.

And 475. You mentioned that you are going to sell that by yourself. But assume that this goes smoothly, then the launch of 475 and 322. Probably the launching time in between those two would not be that far. Then, at the very beginning of the launch, I believe that you need to invest a lot of manpower there. So are you thinking of reusing the CSO staff temporarily, like what you have seen with Rozerem? Is that a feasible assumption or are you not going to do that, and rather are you going to just deal the selling of those two products with in-house sales forces?

At the moment, in launching those two products, as you have mentioned, the time -- we hope that the timing will be at the same -- almost the same. But on the other hand, that would be a headache to our Company. So about using CS or not, we are not going to deny the option of using the CSO. But we haven't actually looked this into detail yet. So currently our intention is to go ahead by our own resources only.

And 475 and the statin combination one, so how much delay is there with the combo from the single one?

Well, unfortunately, I am not allowed to mention about that. But our Company understands the importance of the fixed dose combination. So with regards to that, we believe that this is the utmost important in our effort and we are developing this product.

So in the President's presentation material, 475/statins are mentioned there. And statin, there is a dot. So does that mean that you are dealing with a multiple statin or is that dot irrelevant?

Well, that is a frequently asked question. But when Zetia was launched, and when we are launching this 475, the landscape of the selling market was totally different. When Zetia was launched, there was no product that was at patent expiry. But when we have launched -- we are going to launch it, there will be many patent expiries.

So thinking about that, whether we are going to partner with other companies, at this point in time we are thinking that it would be good for us to partner with anyone available.

So that decision will be made down the road.

Yes, well, but if we were to partner with some company, then we need to determine that we needed to make that decision at this point in time. So in other words, there is no possibility for that at the moment.

My name is Sakakura from Mitsubishi UFJ. I would like to ask a basic question about 475. The mechanism of action is different between statin and squalene. The statin has a mechanism of action like -- such as the up regulator of the LDL receptor. That is the main MOA. But for the 475, does it have some kind of affect on the LDL receptor or any other gene that is related to the LDL receptor? I'm sure you have already finished that kind of study. So what kind of conclusion did you come to?

I'm sorry, there is no person in this venue that can give you a precise answer to that question.

Well, what I wanted to ask was if the 475 also has some kind of up-regulating function against the LDL receptor, then it would have the same mechanism of action as statins. And because you already know that it doesn't have that kind of function, you are trying to go for the combination therapy with statin? Is that correct? That's the only point I just wanted to check. That's why I asked this question.

There is a basic MOA difference. But, another important point is by doing a combination therapy, there may be some benefits in the clinical therapies. Because ultimately the patients that were solely on statins, but were unresponsive to statins, may have enjoy some benefit by combining statins with the 475. That point is the biggest point or objective for developing this combination drug. Although, we have not obtained all the data yet, we have seen from some data, that we can enjoy this kind of benefit. So this is something that we also have to think about, as well as the basic MOA difference.

It's almost time. But we would like to take one last question if there is any. So there are two people raising hands. So we will finish with those two. So starting with this gentleman.

My name is Nakazawa from Mitsubishi UFJ Securities. I have two brief questions. One is to address Mr. Hasegawa. For the SYR-322 and TAK-475, your main strategy in the U.S., you mentioned that you are going to go ahead with this by yourself. For example, in case of Rozerem and AMITIZA, is there a possibility for you to co-promote with TAP?

Well, of course that option is there on the table. But we are not sure what will be the state of TAP at the time of the launch. So we need to consider that, looking at the situation.

That's exactly the answer what I had expected to hear from you. And the second question is to Mr. Miyamoto. As Mr. Urushihara mentioned that the inhibitor of the DPP-4. So you mentioned that 100% that you can inhibit the human -- 8 -- DPP-4. But DPP-7 and 8, if that -- if it affects to that, then there might be some side effects on the skin. So I just want to know that selectivity. Compared with other drugs, is there any advantage on this product?

Well, I won't be able to give you a clear answer, but for the skin disorder especially with -- is especially the one side we are seeing with GABAs. At the moment, with 322, we are not seeing that kind of a side effect. So from the perspective of safety, I think we are leading.

So in a basic level, compare your selectivity with other competitors. Have you done that comparison and have you found that your drug is the best?

Well, I don't have that data with me so I cannot give you the clear answer for that question.

Thank you very much.

This will be the last question.

My name's Muraoka from Morgan Stanley. I apologize that this is my second question. I don't know whether this is directly related to your Company. But this is with regard to the patent strategy in the U.S.A. I think there was recently a Supreme Court order ruling that raised the hurdle for the unobviousness [sic] of the patents. What I want to say is that I think it will become more difficult to get patent protection formulation changes. I don't know whether this is exactly the case. But, are there any views in your companies or some analysis in your companies with regard to this ruling? This may be a complete misunderstanding on my side.

We know that with regard to medicine, medical practices or administration methods or different formulation changes. We haven't heard that there are any changes in the US with regard to medical practice or administration changes or formulation changes. But we have heard that US will shift from the prior discovery principle to the prior filing principle. But it has already been rejected by the Congress twice. So, we don't know whether this will be the final principle. But Japan and EU is backing this up. So even if we make a compromise on the grace period that the US is insisting for, we really like this kind of change in the principle to happen.

Speaker statements on this transcript were Interpreted on the conference call by an Interpreter present on the live call. The Interpreter was provided by the Company sponsoring this Event.