Takeda Pharmaceutical Co Ltd (TAK) 2010 Q3 法說會逐字稿

(Interpreted) Let's start the conference call.

Please note that this conference call contains forward-looking statements and other projected results which involve known and unknown risks, uncertainties and other factors not under the Company's control which may cause actual results, performance or achievements of the Company to be materially different from the results implied by these projections.

During the presentations, all the telephone lines are listen-only mode and the question and answer session will be held after the presentation.

This conference call is being broadcasted through Internet online, but only for listen mode.

Now we start the conference.

Mr.

Ohtsuki, please.

(Interpreted).

Thank you very much for your participation into the conference call of third quarter financial results for fiscal year ending March 2010 of Takeda Pharmaceuticals Company.

My name is Hiroshi Ohtsuki, General Manager of Corporate Communications Department.

Now let me introduce today's presenters and respondents.

Mr.

Alan MacKenzie, Executive Vice President in charge of International Operations; Mr.

Masumitsu Inoue, General Manager of Corporate Strategy and Planning; Mr.

Iwasaki, General Manager of Strategic Product Planning and Mr.

Takahara, General Manager of Finance and Accounting.

Mr.

Alan's participation was not planned but there are many discussions related to healthcare reforms in US and there are drastic changes in the US market.

And I am sure that you are interested in the impact of those developments in US.

So he will be here with us to answer to your questions during the Q&A session.

First we start with a presentation on financial overview of the third quarter of fiscal year ending March 2010, then followed by the R&D activities.

After that we will have a question and answer session.

We believe we can provide enough time for that session.

Now we are starting the presentation.

Mr.

Takahara, please start.

(Interpreted).

Hello, this is Takahara.

Hello, everyone, and thanks for joining us.

It's my pleasure to present to you the summary of Takeda's consolidated results for the third quarter of fiscal year 2009.

So the first slide is talking about the overall result of the third quarter consolidated results.

Starting with the net sales, sales from the growth of Velcade and the launch of Kapidex and Uloric as well as additional one month of the attribution period of TAP and Millennium from previous year increased the net sales.

However, because of the negative impact of the appreciation of the yen, minus JPY60.8b, and the negative effect of the patent expiration of Prevacid in the US, net sales overall decreased by JPY74.8b or 6.2%.

On the other hand, mainly due to the in-process R&D, JPY163.5b incurred in the same period of the previous year and not recorded in this period, made operating income increased by JPY116.3b or 48.5% to JPY356.2b.

For net income, an increase in operating income and a decrease in taxes covered the decrease in extraordinary income resulted from the transfer of the Lupron business which is JPY73b, recorded in the same period of the previous year.

Thus net income increased by JPY90.6b or 53.7% to JPY259.1b.

Earnings per share, EPS, excluding extraordinary income and loss and other extraordinary factors increased by JPY13.33 to JPY384.04, compared to the same period of the previous year.

As you can see fluctuations in the foreign exchange rate had negative impact on the net sales, operating income and net income respectively.

Moving on to the next slide.

Now looking at the breakdown of changes in sales by business segments, we can see that net sales of ethical drugs decreased by JPY68.9b or 6.4% compared to the same period of the previous year.

Sales in Japan increased slightly by JPY4.4b or 1%.

As you can see the overseas sales of Candesartan and Pioglitazone have decreased due to the negative impact of appreciation of the yen.

Furthermore, sales of Lansoprazole decreased significantly due to the expiration of its patent in the US, in addition to the impact of appreciated yen.

On the other hand, sales of Millennium's Velcade have increased by JPY7.2b.

Nevertheless the total overseas sales of ethical drugs decreased by JPY73.3b or 11.2%.

Sales in the Consumer Healthcare decreased by JPY3.1b or 6.1%, due to a decrease in sales of Nicorette and other over-the-counter drugs.

This slide shows changes in ethical drugs sales by region.

These figures exclude sales of products for which Takeda acts as a distributor.

Takeda Group sales, as a whole, decreased by JPY63.8b or 6.5% from the same period of the previous year.

Excluding impact of the appreciation of the yen, sales increased in regions other than the Americas and the total Takeda Group's net sales decreased slightly by JPY3.4b or 0.3%.

In the Americas, sales decreased by JPY4.2b or 0.9% excluding the impact of foreign exchange rates, despite the growth in the sales of Millennium's Velcade, the 6.2% growth in TPNA's Actos family products which is $139m and increased sales from the addition of Kapidex and Uloric to the product line in this period.

But Prevacid's 24.9% decrease in sales pushed down the total sales.

Now I would like to explain the sales results for Takeda Group's main products.

Although sales of Velcade increased by JPY7.2b or 27.3%, sales of our other four main products decreased on yen basis due to the appreciation of the yen.

Excluding the impact of the currency translation, Pioglitazone sales increased by JPY20.6b and Candesartan sales increased by JPY1.1b, whereas Lansoprazole sales decreased by JPY32.4b and Leuprorelin sales decreased by JPY1.8b.

This slide shows the details of changes in operating income.

Gross profit decreased by JPY68.2b or 6.9% due to the decrease in net sales.

Gross profit margin decreased by 0.6 points due to a negative impact of minus 0.9 points of the appreciated yen.

Although one month's difference in the attribution period of the TAP and Millennium mergers increased amortization expenses for intangible assets and goodwill by JPY1.1b, total SG&A expenses decreased by JPY16.2b, mainly due to the impact of appreciated yen.

In addition, R&D expenses decreased by JPY168.3b mainly because in-process R&D expense of JPY163.5b recorded in the previous year was not incurred in this period.

As a result, operating income significantly increased by JPY116.3b, compared to the same period of the previous year.

For your reference, as we can see on the right hand side of this graph, when these extraordinary factors are excluded, operating income decreased by JPY46.1b, due to decrease in gross profit.

Let's move on to the next slide.

Now let's examine in details of the changes in net income.

Although operating income for the period increased by JPY116.3b, without having the gains from the transfer of the Lupron business incurred during the same period of the previous year, extraordinary income decreased by JPY73b.

Nonetheless, tax burden decreased by JPY48.9b.

Thus the Company's net income came to JPY259.1b for the period, JPY90.6b higher than the same period last year.

With respect to taxes, due to the -- both the TAP and Millennium's mergers, the consolidated effective tax rate was higher as the 47.8% in the same period of the previous year.

However, in the current period, with the tax effect resulting from the merger of Takeda's manufacturing bases for drugs and drug substances in Ireland, and with the revision of Japanese tax law, where 95% of dividends paid by foreign subsidiaries became non-taxable, the total tax burden decreased and effective tax rate became 29.3%.

As stated on the right hand side of this slide, net income excluding extraordinary income and loss and other extraordinary factors increased by JPY1.2b, mainly due to this decrease of tax burden.

Next I will summarize Takeda's consolidated cash flow.

As we can see from this graph, net cash flow for this period ended with a positive inflow of JPY45b.

Lastly, regarding the forecast of the full year results, based on the current foreign exchange rates and our year-to-date operating results, at this point in time, we have not made any changes to our full year forecast announced in October, when we announced our second quarter financial report in October.

Net sales, JPY1,480b, operating income JPY395b, ordinary income JPY400b, net income JPY280b.

That is all from me.

Thank you very much.

(Interpreted).

My name is Masato Iwasaki, General Manager of Strategic Product Planning.

I would like to update the status of pipelines and R&D activities after the second quarter of fiscal 2009.

First, the recent progress is shown on this slide, for the development pipeline from the second quarter of FY 2009.

In addition to the implementation of product lifecycle management in lifestyle related disease area, we have started Phase III clinical studies on TAK-085 and Phase II on TAK-438 in Japan.

In the following slides, I'd like to briefly explain about TAK-875, which has entered into Phase II in US and EU for the treatment of diabetes and TAK-733 which has entered into Phase I.

Next slide please.

In this slide I'd like to introduce the feature of TAK-875.

This is GPR40 agonist.

The Phase II studies have been ongoing in Japan.

This time the Phase II studies in EU and US were also started.

GPR40 agonist induces insulin secretion through the receptors which are different from sulfonylurea receptors.

TAK-875's insulin secretion mechanism is dependent on intake of sugar and it is expected to have the same efficacy as sulfonylurea without damage to pancreas.

It is developed as a drug with low possibility of hypoglycemia and damaged beta cells of pancreas.

Unlike sulfonylurea, this drug is also expected not to lead to the secondary sulfonylurea failure.

The number of diabetes patients is increasing along with the change of lifestyle and if the disease remains untreated it causes serious complications.

The risk of cardiovascular diseases will be increased and some serious cases will develop diabetic retinopathy, which leads to the blindness and neuropathy which leads to necrosis and amputation of lower extremities.

Takeda has strived for the development of various oral anti-diabetics including Basen, Actos, Glufast, Alogliptin and Actos fixed dose combinations which can be administered to different stages to prevent progression and treat it.

By developing TAK-875 with new mechanism of action, we aim to add a new treatment option which can be used for concomitant therapy with existing drugs or which can be switched from the existing drugs for the patients who have little insulin secretion and damaged pancreas.

Next slide please.

In this slide, I'd like to introduce TAK-733, which has entered into Phase I in December last year.

TAK-733 is a highly selective, allosteric, non-ATP competitive inhibitor of kinase or MEK kinase.

MEK signaling pathway is activated in 50% of human cancers including colon, lung, breast, pancreas, melanoma, ovary and kidney and it plays an essential role in regulating both mitogenic and survival signals within tumor cells.

In pre-clinical models, inhibition of MEK by TAK-733, as a mono agent and also in combination with other drugs has a significant effect on the progression of tumor growth.

Next slide.

I'd like to introduce Conatumumab AMG 655, licensed from Amgen.

Conatumumab is a fully human monoclonal antibody agonist that targets death receptor-5 or DR5, which is involved in cancer cell apoptosis.

In Phase I study, Conatumumab monotherapy appeared to be well tolerated and had anti-tumor activity in Japanese patients with advanced solid tumors.

This study result was presented at the American Association for Cancer Research and National Cancer Institute, and European Organization for Research and Treatment of Cancer meeting in last November.

In this study, the primary endpoints are to assess the safety, tolerability and PK of Conatumumab in Japanese patients with advanced tumors that are refractory to standard therapy or for which treatment is not available.

The main study conclusions are Conatumumab administered up to 20 milligrams per kilogram once every two weeks generally appeared to be well tolerated in Japanese patients with advanced solid tumors.

The PK data supported once every two to three weeks dosing of Conatumumab.

A 14% reduction in solid tumors by response evaluation criteria was observed in subjects with non-small cell lung cancer in the 3 milligram per kilogram dose cohort.

Additional studies in several tumor types are ongoing now.

Next slide.

I will introduce SGN-35 licensed from Seattle Genetics in December 2009.

SGN-35 is an antibody drug conjugate targeting CD30 that is designed to selectively deliver its potent drug payload directly to CD30-expressing tumors resulting in targeted cell killing.

The linker system to attach synthetic highly potent drugs to antibodies is designed to release the drugs under specific conditions once inside target cells.

This approach is intended to spare non-targeted cells and reduce many of the toxic side effects of traditional chemotherapy.

In two Phase I trials, greater than 50% of patients achieved an objective response, including greater than 30% with complete remissions.

SGN-35 was also generally well tolerated.

Data from our Phase II pivotal trial in relapsed or refractory Hodgkin lymphoma which provides the basis for regulatory submission in EU in 2011 are expected in the second half of 2010.

We expect that SGN-35 represents a meaningful advance for the treatment of Hodgkin lymphoma as well as enhancing Takeda's presence in the EU and the rest of the world.

This concludes my presentation.

Thank you very much.

(Interpreted).

Now we would like to take questions from participants.

The Japanese conference, the participants and the English conference, the participants, we're going to receive the questions from those two groups in time.

So take -- hear from the operator.

We have a question and answer session now.

(Operator Instructions).

The first question is from Onozuka-san from JP Morgan Securities.

(Interpreted).

Hello?

Hi, can you hear us?

(Interpreted).

Yes, we can hear you.

(Interpreted).

I have several questions.

So the first question is the following.

With regard to your mid-term business plan, so I believe that you were mentioning that there is a possibility for you to revise the mid-term business plan.

But can I expect that you are not going to change your mid-term business plan till the full year results are coming out in May?

(Interpreted).

As was mentioned in the (inaudible), with regards to this mid-term business plan, this was established by the members of the Executive Committee, which was established in July last year.

And we have been considering about this to date.

And we are going to frame this framework and then lead this after the specific initiatives.

So for the latest we would like to announce this mid-term business plan in May when we are going to announce our full year results.

(Interpreted).

The second one is with regards to the changes to NHI.

So I believe you have received the informal letter yesterday.

Would you be able to disclose what the NHI is going to be?

(Interpreted).

We have this informal letter from the authority but we are currently reviewing that letter.

So at this point in time we won't be able to give you the specific comments on that.

(Interpreted).

Okay.

And the third question, maybe I missed it, but the sales of Kapidex and Uloric, I would like to know the breakdown of their net sales.

And also can I understand that the trend of the sales of those two drugs are in line with your plan?

And Kapidex, after the patent expiry of the Prevacid, we -- do you have any story about the switching?

Has it been progressing as smoothly as you had expected in the primary care area?

Could you comment on that?

With regards to Kapidex we launched in approximately March of this year and since then have seen very steady uptake of the product.

I'm particularly encouraged with the higher share being garnered with the gastroenterologists.

So we see almost a four to one relationship in the strength of the new prescriptions coming from gastroenterologists as opposed to primary care.

I would say that the gastroenterologists' share is slightly higher than what we might have expected and the primary care is lower than what we would have expected.

So it's a natural phenomenon where the specialists will lead the way and then ultimately pull up the primary care.

In this case, it's even a wider margin than we might have expected.

But we do expect that primary care will continue to move especially in now 2010 calendar year we have new formularies for Part D Medicare and for commercial plans which will help Kapidex in terms of its availability in the United States.

With regards to Uloric, a similar story actually, where we've seen very high uptake from the specialists, from the rheumatologists.

Rheumatologists now are in excess of almost 13% of the new prescription share which is higher than what we had anticipated.

Conversely primary care is only around 2.5%, 3% which is actually a little bit less than we would have expected.

But the same phenomenon where, where we believe the primary care share will come up from being pulled up by the specialist.

Also same phenomenon with Uloric and really any new products that are launched in the United States, it always is beneficial once the contracting and formulary cycle is reset, which typically is January 1.

So Uloric will also improve its position by virtue of being added to a number of important formularies and pretty good acceptance now in Part D and we expect that will have a bit of a favorable trend.

I'd say overall, Uloric is slightly less than what we had expected, Kapidex pretty close and with a belief that the new formularies are going to help with both of those products.

Thank you.

(Interpreted).

Do you have a sales breakdown?

(Interpreted).

For the sales numbers let me mention, for Kapidex for the -- up to the third quarter [$53m], Uloric [$33m].

(Interpreted).

Thank you very much.

(Interpreted).

Thank you.

Next question please.

(Interpreted) Next question is from Citigroup, Mr.

Yamaguchi.

(Interpreted).

Hello, do you hear me all right?

(Interpreted).

Yes, go ahead.

(Interpreted).

My first question is SYR-322 US study.

I understand things are going, moving on and I suppose next year you are going to have a mid-term analysis.

What about the enrolment pace?

Are you recruiting patients according to your plan?

(Interpreted).

So whether we are far ahead of the schedule?

(Interpreted).

Yes.

(Interpreted).

This is Iwasaki speaking.

We are moving as we expected according to the schedule.

(Interpreted).

Thank you very much.

And this is related to Onozuka, Mr.

Onozuka's question.

Let me confirm for Kapidex and Uloric, either is okay, but in the mid-term conference call you mentioned that the coverage may expand around the year end and the New Year.

And I wonder if the sales expanded towards the end of the year.

I want to confirm that and also Tier II ratio which is the majority of the customers I suppose.

Continued upward trend on total and new prescriptions toward the end of the year.

It didn't break the trend that it was on, that same kind of linear fashion.

Most of these formularies that were added -- and you call that the Tier II, which is the most important place to be because that's where most of the consumers are -- were improved pretty significantly especially on Uloric's side.

We have a very wide now -- since January 1, a very wide Tier II coverage.

And with Kapidex, we've got good commercial coverage and improved dramatically in Tier II and Tier III coverage for the Medicare Part D program.

But those are changes that are post January 1 and I would expect to see the impact of those in the coming weeks and months.

(Interpreted).

Shall we take the next question?

(Interpreted) The next question is coming from Urushihara-san from Nomura Securities.

(Interpreted).

Hello?

(Interpreted) Yes, you are in line.

(Interpreted).

I have three questions.

The first question is with regards to the news article on Nikkei this morning.

There is additional taxation imposed on [TDK] and you have JPY57b for that tax.

So can I understand that would this be the -- a source of the dividend for next fiscal year when we receive that back?

(Interpreted).

My name is Takahara.

For transfer of taxation with regards to the Prevacid, two years ago in July we have filed for the negotiations and two authorities are continuing for the discussion.

And according to OECD guideline, the negotiation needs to be -- reach an agreement within two years.

This is not mandatory but there is a guideline as such.

So our Company is expecting to see some kind of agreement reached by two authorities by end of this year.

So that's the current situation our Company is in.

And if this has reached an agreement and if we can get some of our money back, whether this will be allocated to dividend payout or not, that I believe that is your question.

With regards to the dividend, the fiscal year 2010 consolidated payout ratio is 45% is what we are aiming for.

So we have been saying that 45% of payout ratio is what we are going to target.

But whether we're going to add this return on tax as our dividend or not is something I cannot comment right now.

(Interpreted).

In the past I believe that I have heard that we had this idea of returning this money back to the shareholders in the form of dividend.

So can I understand that your idea has changed?

(Interpreted).

So let me elaborate that.

So if the two authorities reach an agreement in fiscal year 2010 and we -- it does not mean that we are sure that the negotiation will reach an agreement by end of 2010.

I'm just mentioning that there is a possibility that the negotiation would reach an agreement by end of the year.

But if we got this tax back, then that means that there will be a lift -- an increase in the net profit.

But, on the other hand, Takeda is saying that our payout ratio is targeting for 45%.

So that means that this net profit, which will be the basis of coming up with the payout ratio of 45%, will increase.

So that will be the one that we can say,

(Interpreted).

The third question is with regards to Vectibix.

This is going to be launching next year in Japan.

And this will be the third line for the colon cancer.

But what we are hearing is that there is some problem with irritation.

So are we going to try and get Vectibix or are you going to be very gradual in selling Vectibix while looking at the side effect?

(Interpreted).

This is Iwasaki speaking.

Regarding sales and marketing strategies, I can't give you any specifics today.

But we have MR sales reps dedicated to the oncology area.

So we provide good information for our marketing.

And that policy remains unchanged.

Thank you very much.

(Interpreted).

TAK-733 regarding this mechanism it is new.

But Pfizer has dropped this already.

I wonder, can you explain once again the characteristics.

Is that safety or it covers the wide cancer types?

What is the characteristics that you focus regarding 733?

(Interpreted).

This is Iwasaki speaking.

Well, as of now we are only at Phase I stage so we can't give you any definite answer now.

But MEK kinase selectivity is one of the characteristics.

And in that sense in terms of efficacy and safety we expect good result.

(Interpreted).

You are using mass and high dose to confirm safety?

(Interpreted).

Well, for the detailed data we do not really disclose.

So I can't comment on that.

Thank you very much.

(Interpreted).

That's all from me.

Thank you.

(Interpreted).

Let's move on to the next question.

(Interpreted) From Nihon Keizai Shimbun newspaper, Mr.

Madamatsu.

(Interpreted).

My name is Madamatsu.

Mr.

Ohtsuki, can you hear me?

(Interpreted).

Yes.

(Interpreted).

I have a question to Mr.

Mackenzie regarding US business.

Prevacid patent expiration and the sales going down, that can't be helped.

But when you look at the full year, what is the level of impact?

How much decline is it going to be?

And the second question is, US recession is impacting selection of drugs.

When you think of Actos, maybe the patients are buying lower diabetic drugs.

So maybe the recession in US can impact your US business.

What do you think about the impact of the recession on your business in the US?

And the third question is in the US business the profits may be hurt because of the recession.

And are you considering restructuring including some human resources?

So beginning with Prevacid.

At the end of my response I'm going to let Takahara san maybe give us the more specific financial answer to your question.

But in terms of what's happened since patent expiry, it's been pretty much as we expected.

The share and volume has dropped very, very quickly.

And the only small change to what we expected was that we don't yet have a generic for Prevacid solutab which is the oral dissolving tablet.

So there we're maintaining volume pretty much on the same trend that we were at.

But the capsules are dropping very quickly.

And we will probably see some terminal share in the very low single digits.

But pretty much as expected.

With regards to the recession and overall impact, it would appear that actually, now that we're in a full second year of it behind us, that actually the markets in terms of demand has kind of settled down a little bit.

The diabetes market had declined year-over-year for oral diabetes agents.

And this year, I'd say in the past 12 months coming back to very low single digit growth, but not declining any more.

The PPI market, which is very much dominated by generics including the Prevacid generic now, has also returned to a low single digit growth.

And then the Uloric market, the gout market, is maintaining its kind of 3% or 4% growth rate that it has.

So for the major markets that we're in I would say they've stabilized.

And demand is reasonably consistent, with generally in almost every market more accentuation towards generic drugs.

So if we see anything we see some acceleration in generic drugs.

But overall I think the markets have stabilized.

As far as the effect of that on the US business, we have shifted around some resources especially in this past year, with two major new products that we're launching, both Kapidex and Uloric.

So we've taken -- we've shifted some effort off of the more large solid business like Actos, and moved a little bit of that over to the new products, so that we can increase our voice for these critically important brands at the time when they are very promotionally sensitive.

But that's really all we've done in terms of our structure.

It's been more of a tradeoff and shifting within the Company rather than anything more than that.

Takahara san, maybe you can answer -- follow up on the financial question for Prevacid.

(Interpreted).

Can you hold on?

I would like to add some comments.

So this is Takahara speaking.

With regards to Prevacid's sales forecast for this year, about a 30% decrease from the previous year is our forecast at the moment.

So did I answer your question with this?

(Interpreted).

Then let's move on to the next question.

(Interpreted) Next is Okada san from Toyo Keizai Shimpo-Sha.

(Interpreted).

So this is Okada.

Can you hear me?

(Interpreted).

Yes.

Please go ahead.

(Interpreted).

Well, my question is with regards to your forecast for next fiscal year.

Japanese domestic market we're going to see the NHI revision.

And there is some movement in Actos.

In US the patent expiry of Actos is going to happen.

So we expect that there will be a significant drop in later half of next year.

So I just want to know what will be the trend that you are envisioning at the moment.

And the second question is that for Prevacid the volume and the share has decreased, is what I've heard from Mr.

MacKenzie.

So I just want to know the actual number.

And the third question is related to the first question.

That is that what are you going to do with the Actos patent expiry?

(Interpreted).

My name is Inoue.

So the first question is the -- your forecast with regards to the -- our progress for the year 2010.

Actually this is taking a part in this mid-term business plan that we're currently compiling together.

And so, as usual when we are going to announce our full year result of 2009 in May, we would like to explain about our focus for 2010 at that time as well.

On Prevacid and what's actually happened.

From a market share perspective, before the loss of exclusivity in November it was about 13% market share.

Currently it's approximately 4%.

So that's happened since November.

(Interpreted).

So what about the pricing?

Pricing wise?

Could you repeat the question on pricing?

(Interpreted).

So after the Prevacid patent has expired, what kind of changes are we seeing in terms of the Prevacid pricing?

So the generic price is somewhere under $1.

And the branded pricing remains as it was before.

(Interpreted).

Thank you very much.

Hello?

This is my last question.

After expiration of Actos, what are the measures that you are planning?

What are actions after the Actos expiration of patent?

(Interpreted).

This is Ohtsuki speaking.

Can you explain much more on that?

(Interpreted).

Next year, November, Actos expires in US.

And if nothing is done, sales would be declining.

So what are your measures to support sales of Actos after expiration?

(Interpreted).

This is Inoue.

Thank you very much for the question.

So your question is so-called 2010 issue, after the patent expires what are the actions we take.

Right, okay.

That is indeed one of the focus of our mid-term plan.

Of course we are thinking of many options.

And as -- what with [Actos] (inaudible) is also one of the actions we take.

But at this moment we can't give you any specific answer.

Thank you very much.

(Interpreted).

Next question please.

(Interpreted).

From Deutsche Securities, Masuzoe.

(Interpreted).

This is Masuzoe.

(Interpreted).

We hear you all right.

(Interpreted).

My first question.

So you have three quarter, and you would have to spend more than JPY100b for R&D.

Do you have any specific items to use that money?

(Interpreted).

This is Takahara speaking.

Regarding R&D, until December we have consumed 70% or a bit lower.

Although the pace is a bit slow, but we are considering new licenses.

And also those items in late stage of development are being accelerated.

Therefore in the fourth quarter we wouldn't be spending much R&D, but for in-licensed products it really depends on situations.

For the full year we would be spending JPY310b.

Thank you.

(Interpreted).

And for the sales down 5.8% and operating income down 26.6% for Q3.

But this is mainly because of Prevacid expiration of patent?

(Interpreted).

Yes, Prevacid, the patent is the biggest contribution to this decline.

(Interpreted).

ACTOSplus metXR what is the current status for this?

(Interpreted).

ACTOSplus metXR?

(Interpreted).

Yes.

(Interpreted).

I couldn't hear you.

(Interpreted).

Yes.

This question is about XR launching timing is delayed, although we heard that it's coming soon, coming soon.

But what's the actual situation about XR?

(Interpreted).

We, of course, are preparing for launching.

So for launching we are preparing ourselves.

I can't really say any more than that.

(Interpreted).

Maybe within this quarter you are launching, or maybe six months you are going to launch?

Can you be a bit more specific?

(Interpreted).

Within FY 2010, in the first half of FY 2010 we hope to achieve launching.

(Interpreted).

Thank you very much.

(Interpreted).

Thank you.

Then we would like to take next question.

This is Sakai san from Credit Suisse.

(Interpreted).

My name is Sakai from Credit Suisse.

(Interpreted).

Yes, we're hearing you.

(Interpreted).

I have two questions.

One is to Takahara san with regards to tax rate, 29% until third quarter.

For this fiscal year, due to the integration of our factories and also about deferred tax reduction of the dividend coming from the overseas subsidiaries, so because of that the effective tax rate went down.

But can I understand that this trend will continue into next fiscal year as well?

In that case that means that the source of the dividend will increase.

And would that be regarded as -- would that not be regarded as a special factor.

But are you going to pay that out as a dividend to the shareholder, which would be included as 45% of the payout ratio.

(Interpreted).

This is Takahara speaking.

Well, the consolidated effective tax rate until third quarter was 29.3%.

And this fiscal year, right now we are expecting this effective tax rate to be 30% or so.

And this tendency whether it will continue into next fiscal year or not was your question, I believe?

But this fiscal year of effective tax rate of 30% includes the tax effect of the integration of the Ireland factories.

And that is accounted as a 7 point.

So next fiscal year and beyond, if we disregard that special factor, then the effective tax rate was 30%.

But actually it is 7 points will be added on to this 30% effective tax rate.

So we presume that the effective tax rate for next fiscal year and beyond will be 35% to 37%.

(Interpreted).

So when you said there's a payout ratio of 45%, what was the assumption of your effective tax rate then?

(Interpreted).

So when we calculated the 45% payout ratio, we did not have any assumption to the effective tax rate.

Back then our consolidated effective tax rate was 40% or so.

That's my recollection.

(Interpreted).

So are you willing to include the changes of that effective tax rate to be accounted as the dividend payout?

(Interpreted).

Well, we do not directly link them together.

But what we are saying is that we would like to see that in the dividend as well as the profit level.

(Interpreted).

Next question is about the changes to the diabetes drugs usage in your domestic market.

According to the report the DPP4 pricing is going down is what we are hearing.

But on the other hand Novartis came up with Galvus.

And GLP-1 would be coming out as well.

So the market environment will see a fierce competition.

So the sales to Actos, what is your perspective on that?

Until the third quarter Actos has seen a double digit growth.

But when you are anticipating the trend of the Actos, what can you tell us about that.

And SYR-322 Alogliptin is coming into market this year.

But do we need to anticipate that you are going to fight over pricing as well?

(Interpreted).

For the domestic market -- well, let me first talk about the US.

As you know, as we have reported for the diabetic area, frankly diabetics, because of the recession situation, is rather challenging.

But in Japan, because of the universal coverage of insurance, the situation is very different.

And new agents are coming into the market.

Then according to the Japanese guidelines, compared to overseas, more strict glucose control is required.

And DPP4 promotion done by two companies would expand the market itself.

And also in terms of concomitant therapy DPP4 is not directly lowering glucose levels right away.

So we expect the market itself is expanding.

So in that perspective Actos can play a very good role especially for cardiovascular specialists, atherosclerosis effect and easy to use.

And so there are more wider usage of Actos, therefore not negative effect.

Regarding 322, you mentioned that it is coming out in the first half of this year.

But review is ongoing.

We of course wish that it's coming early.

But as of now we can't tell you when it's going to be coming into the market.

(Interpreted).

Actos, Januvia and the Novartis products you are promoting very -- are they promoting very much?

What is your view?

(Interpreted).

We don't have detailed analysis, so we can't really say anything definite now.

But DPP4, this class of agent is not used as a first line from the very beginning.

When new agents are coming, then quite often it is added to the existing drugs.

So in terms of prescription, I think many are taking this agent together with the other agents.

And therefore the pricing, because of strategic purposes we can't disclose anything specific.

Thank you for your understanding.

And GLP-1 is IV.

So you don't have to worry too much about competition.

Especially in Japan GLP-1 or IV for the doctors, and also for the patients' side, what should I say, they are not really using infusions very actively because there would be a differentiation of which agent to use, depending on the conditions.

Thank you very much.

(Interpreted).

So due to time constraint, the next question will be the last question that we can take.

(Interpreted).

Next question is coming from [Namoto san] from Nikkei.

(Interpreted).

My name is Namoto from Nikkei.

I have a question to Takahara san.

(Interpreted).

Yes, please go ahead.

(Interpreted).

I want to ask questions with regards to the cash in hand.

Compared with some time back, the cash it has decreased.

But still you have JPY750b or so.

And due to M&A or the dividend payout, so I just want to know how you're going to allocate your cash in hand at the moment.

(Interpreted).

So this is Takahara.

So let me answer your question.

So cash in hand as at the end of December is at JPY807.4b.

And in Japan JPY248.7b.

And in US dollars it reached JPY449.8b and euro is JPY52.6b and others is JPY6.2b.

So the usage of this cash.

As we have been saying, our first priority is to use this cash to enhance the pipeline and also to enhance the overseas business platform.

So we are going to spend cash on the strategic initiatives.

And the second priority will be to use our cash for a stable dividend payout.

And for the strategic investment and a stable dividend, after we paid our cash to those two priorities, we want to hold the JPY500b reserve for our working capital.

And if there is an excess to this amount, then we would like to use that money for a share buyback so that this will contribute to the increase in shareholders' value.

So we haven't changed this direction at all.

(Interpreted).

Thank you very much.

And next question is that the full year rate for the foreign exchange, if this level stays, then what is your forecast with regards to your revenue and profit based on this current foreign exchange rate?

(Interpreted).

For the foreign exchange for full year basis JPY93 for dollar and JPY132 for euro.

That's our assumption for full year basis.

And with the sensitivity of JPY1 difference, the impact of that in case of US dollar to the topline is JPY6.2b.

Net profit is JPY1b.

And for the euro, net top line is JPY800m and net profit is JPY200m.

So that would be the impact of JPY1 difference.

(Interpreted).

So for this third quarter about JPY60b or so has reduced -- has declined.

So what would be the full year term?

(Interpreted).

So we are expecting a JPY58b minus from the previous year on a full year basis, because last year we have seen a -- after fourth quarter we have seen the euro to be increase in -- decrease in yen.

So we are going to see a JPY58b decrease from the previous year on the top line.

(Interpreted).

So thank you very much.

With this I would like to close the conference call for the third quarter of FY 2009.

Thank you very much for your participation.

I hope that you're going to support our Company going forward as well.

Thank you very much.

Thank you for taking your time.

That concludes today's conference call.

You may now disconnect your lines.

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.