Takeda Pharmaceutical Co Ltd (TAK) 2011 Q1 法說會逐字稿

Thank you for coming to attend at our first quarter financial results announcement for fiscal year ending March 2011 for Takeda.

I'd like to moderate the session today.

My name is Ohtsuki, Corporate Officer and Senior Vice President, Corporate Communications Department.

From our Company, as presenter and the respondents to the questions, we have Mr.

Ohkawa, PhD, Executive Vice President, Chief Scientific Officer, Mr.

Inoue, Corporate Officer and Senior Vice President, Corporate Strategy and Planning Department and Mr.

Iwasaki, Corporate Officer, Senior Vice President, Strategic Product Planning Department and Mr.

Takahara, Corporate Officer, Senior Vice President, Finance and Accounting Department.

First of all, regarding the outline of consolidated financial results for the first quarter of fiscal 2010 and the topics around the activities, we will have presentations.

And after that we will have the questions and answers sessions.

We have plenty of time prepared, so please don't hesitate to ask questions.

So, now please be prepared, having the presentation materials and the financial report, at hand.

Now, Mr.

Takahara and Dr.

Ohkawa, please.

First of all, Mr.

Takahara makes the presentation.

I am Takahara.

I'd like to make a report on the consolidated financial results, first quarter of the fiscal 2010.

This is -- it shows the outline.

As for the sales, the Nesina and Unisia and Vectibix were introduced into the Japanese market in June last -- this month.

That contributed a growth of sales in the United States.

We recorded a sales growth of Actos and Velcade and new products Dexilant and Uloric were introduced into the market last year.

However, net sales on a consolidated basis decreased by JPY24.3b, 6.4% to JPY354.7b from the same period of the previous year, due to the decreased sales in the United States.

Operating income decreased by JPY18.4b, 14.6% to JPY107.3b.

Decreases in selling, general and administrative expenses and R&D expenses could not offset the decrease in gross profit resulting from the decreased sales.

Ordinary income decreased by JPY33.8b, 24.5% to JPY103.8b due to the decreased operating income and unfavorable non-operating income and loss.

Net income decreased by JPY48.5b, 43.1% to JPY64.1b.

This decrease was mainly due to the decreased ordinary income, and because we enjoyed a tax saving in the first quarter of the previous year, resulting from reorganization of two subsidiaries in Ireland, while we had no such favorable factor during the first quarter this year.

Earnings per share excluding extraordinary income and loss and other extraordinary factors decreased by JPY65.10 from the same period of the previous year to JPY97.16.

Please look at the next slide.

Exchange rate fluctuations had a negative effect on our operational results.

Negative effects on net sales were JPY11.6b, JPY4.1b on operating income and JPY2.1b on net income.

The lower part of the slide shows how full year operating results will be affected by JPY1 depreciation of the yen value against major currencies.

Next slide.

Now details of changes in the net sales by business segment.

In the Ethical Drug business segment sales in Japan increased by JPY1.5b or 1.1% from the same period of the previous year, supported by Enbrel sales increase and introduction of Nesina and other new products into the market.

However, overseas sales decreased by JPY28.3b or 13.8% from the same period of the previous year.

As explained previously, sales growth of Actos and Velcade and new product, Dexilant and Uloric introduced last year, could not offset the negative effect of the stronger yen and decreased sales of Lansoprazole due to the expiration of its US patent protection period.

Net sales of the Consumer Healthcare business segment increased by JPY0.6b or 0.2% mainly due to the increased sales of Alinamin tonics and Benza series.

Net sales of the Others business segment increased by JPY2b or 8.9% mainly supported by sales expansion in Wako Pure Chemicals.

The graph in this slide shows the changes in the regional sales of ethical drugs on a consolidated basis.

Net sales by the entire Group decreased by JPY27b or 7.8% from the same period of the previous year.

Excluding the impact of the stronger yen, net sales decreased by JPY15.5b or 4.5%.

Regional changes are shown in this graph.

In Europe, excluding the exchange rate impact, sales increased by JPY1.2b.

Next I would like to explain the sales results of our major products.

Pioglitazone sales increased by JPY3.5b, Velcade sales increased by JPY1.3b and the Candesartan sales increased by JPY0.9b, while Lansoprazole sales dropped sharply by JPY31.2b and Leuprorelin sales also decreased by JPY1.8b.

Please look at the next slide.

Details of changes in operating income are shown in this table.

Gross profit decreased by JPY26b or 8.5% due to the decreased sales.

The gross profit ratio dropped by 1.8 points, negatively affected by the stronger yen and the decrease in sales of Prevacid that has a high profit margin.

Overall, selling, general and administrative expenses decreased by JPY4.9b, mainly due to the decreases in amortization expenses related to intangible fixed assets and the goodwill and the favorable impact of the stronger yen, although partially offset by restructuring costs incurred in the United States.

R&D expenses decreased by JPY2.8b.

Consequently, operating income decreased by JPY18.4b or 14.6% from the same period of the previous year.

Please look at the next slide.

In the next slide, I'll explain the details of changes in the net income.

Net income for the current quarter decreased by JPY48.5b or 43.1% from the same period of the previous year, to JPY64.1b.

This decrease was mainly due to the decrease of operating income of JPY18.4b, decrease in non-operating income and loss of JPY15.4b as a result of revaluation loss recorded for the yen value appreciation and other factors, and the increase in taxes of JPY14.7b.

The effective tax rate on a consolidated basis for the current quarter was 37.5%.

This increased from the previous year's 17.7%, but as I explained previously because taxes were saved in the first quarter of the previous year due to reorganization of Ireland subsidiaries and we have no such favorable factors in the current first quarter.

Please look at the next slide.

Now I will explain our cash flow status in the current quarter.

Cash flow for the current first quarter resulted in a net outflow of JPY81.3b mainly due to income tax payment of JPY49.2b, payment for acquisition of tangible assets of JPY48.3b and the dividend payment of JPY62.6b.

Cash flow from operating activities resulted in an inflow of JPY38.9b.

Cash flow from investing activities resulted in an outflow of JPY21.2b and cash flow from financing activities resulted in an outflow of JPY63.7b.

Finally, I'd like to explain our full year forecast for the current year.

Fiscal 2010 forecast published in May 2010, in our announcement of net results for fiscal 2009, have not been modified.

As for exchange rates, the assumption of the dollar exchange rate has not changed at JPY90 to $1.

The assumption of the euro exchange rate has changed from JPY130 to JPY110 to EUR1 considering the recent movement of the yen value appreciation.

It is expected that these assumed exchange rates will have a negative impact on sales figures.

However, the drop in the euro value, which was very steep once, has slowed down and is picking up recently.

And during the current first quarter, some products recorded more sales than initially expected.

Accordingly, we believe that the negative effect of the exchange rate fluctuations of this level can be sufficiently covered by our management efforts for sales expansion.

Thus we will not modify the forecasts originally announced.

This concludes my presentation of business results for the first quarter of fiscal 2010.

Now our next report is made by Dr.

Ohkawa.

I am Ohkawa, the Chief Scientific Officer.

I'd like to introduce our main R&D activities after disclosure of the fiscal year 2009.

First I'd like to explain about Feraheme, the drug for iron deficiency anemia in chronically diseased patient.

The marketing authorization application was submitted to the European Medicines Agency in last June.

And this year the global Phase III clinical trial started for treatment for IDA regardless of the underlying cause.

It started in last June.

I will explain the profile of Feraheme in details later.

Next topic is about Lansoprazole.

The additional indication of Lansoprazole for prevention of the recurrence of gastric ulcer or duodenal ulcer during low dose aspirin administration was approved on July 23 by the Ministry of Health, Labor and Welfare.

And I'd like to show you the data of some development pipelines in detail, some of which were presented in the last ADA and ASCO meetings.

Next slide, please.

First I'd like to show you the data of TAK-875, which was discovered in Takeda's GPCR research.

This compound is the first-in-class compound and novel, highly selective agonist of GPR40.

It is the agonist of GPR and that has been developed to strengthen our diabetes franchise.

So it is a novel mechanism of action.

It is expected that TAK-875 has the potential as a safe and effective treatment for Type 2 diabetes by selectively improving glucose dependent insulin secretion with a low risk of hypoglycemia and pancreatic exhaustion, being different from sulfonylurea or glinides.

Phase I study data was presented in the ADA 2010 meeting.

TAK-875 appears to be safe and well tolerated, following the administration of every established dosage in the healthy Western and Japanese subjects in Phase I.

And once daily dosing regime is suggested.

Phase II studies are being conducted in Japan, US and EU and we will move forward, [stage up] to Phase III studies in fiscal year 2011.

Next slide please.

Now I'd like to introduce TAK-700 oral drug for treatment of prostate cancer that was discovered by Takeda.

This drug is a selective non-steroidal androgen synthesis inhibitor of 17.20 lyase enzyme, a key enzyme in the production of steroidal hormones.

17.20 lyase enzyme is a key enzyme in the production of the common precursor molecules for male sex steroid hormones which are synthesized in both the testes and adrenal glands.

This inhibitory activity makes TAK-700 a good candidate for development as a therapeutic agent for the treatment of castration resistant prostate cancer where persistent extra-gonadal synthesis of androgen results in progression of PSA and metastasis.

This slide shows the study of result of Phase I and II open label study presented at the American -- ASCO in this year.

In the Phase I portion TAK-700, over 300-milligram BID appears highly active and well tolerated in patients with the metastatic, castration-resistant prostate cancer.

And in the Phase II portion, the safety and efficacy of -- and the necessity for use of the -- concomitant use of prednisone are being further assessed in the Phase II portion of the study.

And TAK-700 is currently under the Phase II trial, and we will expect to start Phase III study in the end of fiscal 2010.

In this slide we would like to introduce about MLN8237 which is an oral selective Aurora A kinase inhibitor discovered by Millennium scientists.

MLN8237 selectively inhibits Aurora A kinase, which is among the Aurora kinases that are required for cell division and is expected to have high efficacy against the hematological cancer and solid tumors by oral administration.

Phase I data on this compound were presented at ASCO and showed safety and high tolerability.

We will continue evaluating the safety and the efficacy profile of MLN8237 in the Phase II studies.

Please look at the next slide.

We would like to introduce MLN9708.

MLN9708 is Millennium's proteasome inhibitor being studied in both oral and intravenous formulations.

The data reported at ASCO were on the IV formulation in patients with advanced solid tumors.

The Phase I trial, an open label, multi-center, dose escalation study was designed to determine the safety profile of IV MLN9708 to establish the maximum tolerated dose.

MLN9708 is expected to be more active and have broader activity against various tumors than Velcade.

Please look at the next slide.

Lastly, please let us introduce Feraheme for the treatment of iron deficiency anemia, IDA, which Takeda in-licensed from US based AMAG Pharmaceuticals Inc.

in March 2010.

The marketing authorization application for the treatment of IDA in adult chronic kidney disease patients was submitted to the EMA by AMAG in June, and we expect approval in fiscal 2011 in the EU.

MAA in Switzerland is also under preparation and it is expected to be filed in 2010.

We anticipate that the Feraheme can be differentiated from existing drugs because while other approved IDA iron formulations typically require five to ten administrations given over multiple weeks to received a standard 1 gram course of therapy, Feraheme needs fewer injections and office visits.

It may result in fewer missed treatments and greater achievement of a full therapeutic 1 gram course of iron.

In the EU alone more than 1m people have CKD and IDA.

Outside of CKD, an additional 4m people are estimated to have IDA.

The global registrational programs to expand the indication to include the treatment of IDA, regardless of the underlying cause, have been initiated since June.

We expect that Feraheme can provide physicians a new treatment paradigm for patients with iron deficiency anemia.

That is all.

Thank you for listening.

Now I would like to welcome questions from listeners.

Those who attend the conference in Japanese and in English you can ask questions.

Operator, please.

We have a question and answer session now.

(Operator Instructions).

The first question is from Mr.

Masuzoe of German Securities Company.

I'm Masuzoe, Deutsche Securities.

I have three questions.

First is about R&D expense, JPY62.1b in the first quarter.

Then second quarter is estimated to be JPY77.9b or any adjustment?

Is there any adjustment of the timing?

I'm Inoue.

You are asking if the budgets will be used within the first half?

The introductory budget is not -- in-licensing budget is not consumed yet overall annually.

Considering the number of projects and considering the probability of implementation, the budget will be used as scheduled in the first half.

And all through the year it will be spent as scheduled.

Second question.

Regarding the effective tax rate, in the first quarter, I think compared with the usual situations, there were some extraordinary factors, and 37.5% you stated.

Throughout the whole year is it the level that you anticipate, or can we expect a lower level like 35%?

I am Takahara speaking.

In the first quarter, it was 37.5%.

That's a little higher than usual.

The reason is that the R&D expenses statement timing is a little delayed and that's not deducted from taxable items.

And throughout the year, our expectation is that it will be around 35%.

Domestic ethical drug business comparing with the previous year, it seems to be a little bit delayed.

Is there any particular reason or is the items affected by the introduction of the new drugs?

I am Inoue.

You are right, Mr.

Masuzoe.

Last year June three and in July two products -- three products were put.

So that it will increase gradually towards the latter part of this year.

And we will make efforts so that the existing items will not be affected.

The reason for the smaller figures of the first quarter doesn't need to be concerned.

Right, thank you.

Thank you very much.

We would like to move on to the next question.

The next question is from Mr.

Muramatsu of Nikkei Newspaper.

Thank you.

I am Muramatsu.

Can you hear me?

Thank you very much.

I'd like to talk about the sales status of the major products.

At the time that the full year announcement was made, regarding the sales estimate, Mr.

Hasegawa mentioned about the numbers.

But because of the litigation impact, you said that it is difficult to estimate.

But given the status of the settlement, how do you foresee the generics sales launch and timing?

I am Inoue speaking.

Regarding -- at the time of the announcement of the MRP and the ten year plan, as for the timing of the launch of generics of Actos, it's not changed.

It is August 2012, so it's not changed.

Regarding litigation situations, since the end of April till today, regarding Actos single agent, Dr.

Reddy's and Wockhardt, these two companies issued newly Paragraph 4.

We re-filed the litigations against them and currently the cases are pending.

Including Teva, now in total three companies are remaining unsettled.

But it's not affecting our focus at all since the ones that we announced at the full year financial results.

Thank you.

Let's move to the next question.

Our next question is from Citigroup Securities, Mr.

Yamaguchi.

Hello.

The first question, Mr.

Takahara you mentioned that the negative influence of the euro will be offset by the increase of other areas.

This is Takahara.

As I mentioned, at present JPY110 could -- would be necessary if I say conservatively.

But it's JPY113 to JPY114 at present.

And if this becomes JPY110 -- JPY114 then [JPY150b -- JPY16b] or JPY5b negative influence would be incurred.

But that could be covered by other items, concretely speaking.

Currently Actos in the United States, Velcade, Dexilant, Uloric, these drugs, looking at the figures, sales of the first quarter only, they are doing better than our anticipation.

On top of that regarding Actos in the US, I think it's been the case for two years.

Concerning Avandia there is newses and information distributed.

And looking at the prescription, one cannot see really the specific responses yet.

But if you think that it's really performing well, then do you think that Actos will be able to perform even better than today, or it's already incorporated into the current status, therefore the future status will not be so much changed.

No, I think in the early stages it's performing well and amongst those items or products Actos is included.

And when we had our full year announcement, it was almost 3% growth compared with the last year.

For one point, I think pricing is the issue.

We raised the price in April and the number of prescriptions have not changed.

But the number of tablets per prescription, because with the increase of the [main] orders, it increased.

So it's growing better or larger than our plan.

So it is too early to say this, but I think we expect now that -- we expect 3.5% growth.

But in terms of Avandia, although we have the shift from the Avandia to Actos, I think it's still [immature] to state anything particular.

So our estimate is 3.5%.

Rozerem is not included.

What about those Nesina?

And could you give a comment on those items qualitatively?

This is Iwasaki.

In the domestic market, those are delivered to the medical institutions.

And it is difficult to make a judgment at this time whether it's progressing more or less.

But they are highly appreciated.

DPP-4 inhibitors, comparing with people in the West, are very effective for Japanese population.

And in our Company, the diabetic franchise has been very strong and we are very positive in making a good progress in sales.

And combination use of alpha-GI is only Nesina of our Company, so our outlook is very positive.

Regarding Rozerem for Japanese people, we believe it's particularly good for Japanese people.

We received enquiries from many doctors and our outlook is very positive.

Thank you.

I would like to ask a final question.

Regarding Hematide, I think that we have seen the preliminary results already.

And what is your view to the clinical trials in terms of the potential of Hematide over non-dialysis CV risk?

Have you changed your views?

No, Takeda with Affymax, we have been reviewing this.

So, as of today, it is difficult for us to answer to your questions specifically.

But (inaudible) is actually well assessed.

Therefore please give us more time.

Then I think in the near future, we'll be able to establish our policy and we'll be able to give some announcement.

Thank you very much.

That's all.

Let's move to the next question.

The next question is from [Mr.

Kanematsu] of Nikkei, please.

Good evening.

I am Kanematsu of Nikkei.

Regarding the influenza vaccine for which you received a grant from the government, could you give us the outline of your plan as much as you can?

I am Iwasaki of SPPD.

First, the first grant application was made.

So shall I talk about that?

Yes, and within what you can -- within the range that you can announce.

The contents of the first grant is for the establishment of the platform for development production of the new influenza vaccine.

And we use the cell culture method -- we plan to develop the cell culture method to further develop the technology.

But for the second application we have not had the conditions for application, so it's too premature.

But, as you know, we have been working in the field of vaccine since 1946.

We are only one Company that has been working with the [facility] of production.

And the fact that the government issued the first grant application and the fact that we have it, of course we are thinking to take the next step.

In terms of the way to continue your business development, can you make a comment?

Please give us a bit more time that --

When can we get your answer?

Well, requirements, pre-requisites of the second application have not been informed and that's deeply related to what we do with the alliance with the doctors.

And that the timing of release has been delayed and it took more time than the application of the first application was finalized.

But you plan to apply for the second grant?

Excuse me, I didn't hear you.

So you will be able to make announcement by the time that prerequisites of the second application is issued from the government?

Are you asking if we plan to make application?

When the government releases the prerequisites or requirements of the second grant application, you will be able to make announcement about your plans?

Well, excuse me, but I am not sure how to answer.

But the second application will not be issued far later, because the government wanted to have the preparation for the production -- development and production of the vaccine.

That was the intention of the first application.

And by the time that the second application prerequisites are announced, announcement from Takeda will also be made.

We'd like to move on to the next question please.

The next question is from Mr.

Sakai of Credit Suisse Securities.

Mr.

Sakai, please.

Thank you.

I am Sakai.

Yes, I can hear you.

I may have misheard.

But regarding TPNA and TGRD, the restructuring progress.

Could you tell me the current status, how much progress you have made so far?

Inoue speaking.

At the time that we announced the MRP, we announced its restructuring programs.

And we have completed that.

And in June, we already gave an announcement and we talked to the people who will be subject to these programs.

And there are [50] days, legally set time period for the salary payment, it's already finished.

It will be complete in the middle of July.

Then the number of headcounts to be reduced, have you finished?

Yes, as we planned.

And that will be having an impact, positive effect on the next fiscal, right?

Yes, as I told you, for this year we need to make a temporary payment for their leaving the Company.

That will offset this cost reduction.

But a little -- compared with our expectations, the temporary payment will be a little smaller.

You talked about the domestic sales area.

And currently I think you have roughly 1,800 MRs, and probably one-third of them have never experienced the new product sales.

And if they are abruptly assigned to those new products, don't you think that you would cause any confusions among MRs, to be active.

Have you seen any such confusions?

I'm Iwasaki from the Strategic Product Planning Department.

I don't see any confusions.

As you told, we have increasing number of young MRs, so, a so-called mentor system is adopted.

When they make a call to university hospitals or big hospitals, we have some support systems and educational systems for MRs.

So we emphasize those training systems.

And we have a scientific section, which is in charge of the training and when it comes to the capability of these functions, we are highly confident.

Therefore I think that it's smoothly proceeding.

Thank you.

Thank you very much.

Thank you very much.

Now let's move on to the next question.

The next question is from Mr.

Urushihara of Nomura Security Company.

Please.

I am Urushihara.

I have one question.

Regarding the current policy you have, do you have a plan to move to the dividend payment per quarter?

I am Takahara.

As to the dividend payment per quarter, we considered it in the past.

But at present we do not have a plan to do that.

Thank you.

Thank you.

Thank you very much.

We'd like to go on to the next question.

The next question is from Mr.

Matsuyama of [Bloomberg].

Mr.

Matsuyama, please.

Thank you.

I am Matsuyama.

You introduced the pipelines and there you touched upon TAK-875.

Regarding the global diabetes treatment drugs, including the ones in the pipelines and also the ones in the market, how this particular compound is positioned?

Could you tell it to me?

And are there any other companies pursuing the same target?

And from the development viewpoint, do you think that this area is a busy area so that many players are working actively?

Regarding the positioning of this compound, it has a strong insulin secretion action, and it is a secretion of insulin dependent on the glucose level.

So therefore it wouldn't cause any hypoglycemia.

So in that sense sulfonylurea, SU agents will be switched to this compound.

That is how we focused on this compound.

So all across the board I expect that SU will be switched to this compound.

Regarding the other players activities, the similar GPR agonists, several of them are available.

Some are advanced, some others aren't.

So our GPR40 agonist, I think there are two similar compounds, which are behind our compound.

GPR119 I think is also developed by another company.

Would it cause the body weight reduction?

It's still in Phase II.

So as of this present stage whether or not the weight reduction is caused we haven't confirmed.

Therefore it is too early for us to answer to this question.

But it's quite clear that it will not increase the weight.

(Operator Instructions).

The next question is from Mr.

Mita of Morgan Stanley, MS.

This is Muraoka.

Good evening.

I have a question about pipeline.

The drug that is similar to Velcade, 9708 oral drug, but it's not Velcade.

Different compound right?

And oral proteasome inhibitor Phase II data was reported by Onyx and they -- there's (inaudible) lot of.

Comparing with that what is the advantage and disadvantage of your compound?

Well, we are in Phase I and it's premature to make an assessment, a comparative assessment.

But Millennium, as you know, is the originator of proteasome inhibitor, and this compound there was developed based on their research.

We are very confident.

Onyx Company's drug, that can be a risk for development of your development?

I'm afraid it's premature to make such a comparative assessment at this time.

Thank you.

That's all.

Thank you very much.

(Operator Instructions).

Next question comes from Mr.

[Namoto] of Nikkei Newspaper.

Mr.

Namoto please.

Hello?

Mr.

Namoto please.

I am Namoto.

You released today new information regarding the strengthening of the global sales and marketing systems.

And you will set up the officers for Americas, Europe and so on and Asia.

And Frank Morich and Mr.

Hirate, why did you call in those outside people to take those positions?

I am Inoue from the Corporate Strategy and Planning Department.

Thank you very much for asking a very good question.

Concerning this global operating systems, we now have the overseas or international sales officer position as a newly established position.

And it's been one year since this position is created.

Talking about Asia, I think that the nature of the markets are different from Europe and America.

And also we'd like to really put emphasis on Asia, especially on China.

And because Alan MacKenzie left, we decided to let Mr.

Hirate join this organization.

As you know he has plenty experiences of the management and international operations, therefore covering China and also the other parts of Asia.

We would like to grow our operations and sales in those regions.

And Frank Morich, he also started on the Takeda Global Advisory Board last year.

And we had four advisors and he was one of them.

And he has originally a background of science.

At Bayer, he had experiences of management of the companies, and he has quite a deep insight in European and American markets.

So we thought that he is quite an appropriate person for this position.

So we decided to have him joining in this office.

Therefore, it's not because they are from external sources, but trying to find some appropriate persons, we came up with these two people.

In the case of Mr.

Hirate, I think he also experienced the vaccines launches at the (inaudible), and you also have your project of vaccines.

And is there any meaning that you have now (inaudible) for your vaccine product launches?

I am Iwasaki from Strategic Product Planning Department.

On a global scale, whether or not we will launch on the market vaccine products, as Mr.

Hasegawa told already to the external audiences, in which countries, what products and when, we are not ready to make any announcement.

But when the time comes, then which products, in what formulations, for which country the first, we will make an announcement.

Okay, thank you very much.

Thank you very much.

There seems to be further questioners, so I'd like to conclude the questions and answer session.

And this concludes the conference call for the first quarter financial results of the fiscal year ending March 2011.

Thank you very much for attending this conference call and we would like to ask for your further assistance and cooperation.

Thank you very much.

Thank you for taking time.

That concludes today's conference call.

You may now disconnect your lines.

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.