Takeda Pharmaceutical Co Ltd (TAK) 2011 Q2 法說會逐字稿

Well, thank you very much for waiting. Now we are starting Takeda's conference for 2010 second quarter earnings report. Thank you very much for your participation today. My name is Ohtsuki from Corporate Communications.

Let me introduce our members here from Takeda. Hasegawa, President and CEO of Takeda Pharmaceuticals; Yamanaka, General Manager of Pharmaceutical Marketing Division; Ohkawa, Scientific Officer; Inoue, General Manager of Corporate Strategy and Planning; Takahara; General Manager of Finance and Accounting; Iwasaki, General Manager of Strategic Product Planning.

Now first, our CEO and President, Hasegawa will give you greetings.

Hello. Thank you very much for joining in this explanatory conference on the second quarter financial results for FY 2010, which is held at a relatively late timing of our day.

In order for us to ascertain a sustainable growth in the future, we positioned our 2010-2012 MRP as a plan for transition period, of taking leave of the past success and going into new Takeda and we have been implementing various strategies. FY 2010 is the first year of such and six months have passed in the plan. Both sales and profit have been progressing as per the plan.

For the details of the financial results, Mr. Takahara, our General Manager of Finance and Accounting Department, will explain later on.

Regarding our forecast for FY 2011 and onwards, we don't change the introduction timing of Actos generics in the US in or after August 2012. So we think that FY'13 is our performance bottom.

However, as a manager, I am not satisfied with the current outlook at all. We should minimize the decline of FY'13 and FY'15 performance should recover to at least FY'10 level. And even after that, toward FY'20, we should be able to sustain our growth at the rate of 10%. So such mid and long range vision should be realized and in order to achieve that as soon as possible, we have been making our utmost efforts.

We have been trying to enhance R&D productivity amongst all other things to survive as R&D driven pharmaceutical company.

First of all, our Shonan new research institute will be completed in February and with that opportunity we will reform our Pharmaceutical Research Division's research management, largely from a functional management system such as pharmacology or synthesis to matrix management system, adding another axis of franchise management.

And what we call task therapeutic area, research therapeutic team, functions will be strengthened and decision-making authority, including the ones on budgets, will be largely transferred to each task leader so that they can lead the planning and implementation of the strategy. Each task is comprised of about 100 members, so they can make quite quick decisions and execute those what have been decided.

As you know, on October 1st, we have assigned Dr. Paul Chapman, who has research and management experiences at Mega Pharma as General Manager of Pharmaceutical Research division.

Under the new leadership of Dr. Paul Chapman, we will actively hire external researchers so that the Japanese researchers will be able to learn different style of research approaches, management styles, mindsets. Combining them with Takeda's vision and strength, a synergy effect is expected.

On top of that, at the Shonan Research Institute, making use of the state of the art facility and the convenient location of just one hour distance from Tokyo, we will invite not only Japanese but also global excellent researchers and out of diversity, even more excellent creativity can be generated. And we will provide an environment so that researchers will be able to have open free discussions amongst the different organizations, the franchises, the specialties and not bound by past approaches, but to take challenge to novel approaches.

And TVI was announced today at 3 o'clock. And making use of that, we will actively invest into novel technologies, which will contribute to R&D, themes progresses and even lead to the future medical paradigm shift. We will also facilitate the research alliances with external resources.

For sales and marketing, we will strengthen our infrastructures where our presence is weak. In the couple of -- past two or three years, we have penetrated into new markets speedily and in those areas we have been accelerating the schedule of new product introductions so that each city and company can contribute to our performance quickly.

And Hirate, Corporate Officer, who joined us in April, was assigned to be the Overseas Operation Head as of August 1st.

And on October 1st, Dr. Frank Morich, who has experience at Bayer, will become International Operation Head, covering Europe and the US. And under these two managers' leadership, we would like to facilitate those activities that I have just explained.

And in China, this month, Tianjin Takeda will become our fully owned subsidiary. From now on, based upon our mid- and long-term strategy, we will make a drastic investment so that the marketing system will be strengthened in China, which was delayed so far. And we will accelerate the enrichment of product line-ups and establish our operation there.

In India, not only establishing our sales foundations but in any value chains including R&D and manufacturing we would like to make the most of the local operation of India. And we have been now preparing the Company establishment. And in our plan, in January next year, we will establish a new company in Mumbai.

And including both China and India, in order for us to maximize the potential of Asia for growth, we have assigned those new managers that I have just introduced to you. And not only those measures are to be implemented, but also making use of abundant cash resources, we will further strengthen our acquisitions and the pipeline enrichment activities.

And we newly established a Global Business Development function in Chicago. And this Global Business Development Head will report to myself. And currently, Anna Protopapas, who used to be the head of Millennium, is this Global BD head and Dr. Frank Morich, the IO head of Europe and Asia we'll have a close contact with him. And Anna Protopapas will cover Japan, Europe and also some in Asia. All global BD members will report to Anna. That way, activities will be managed and more speedy decision-making and executions will be implemented.

So we will take those measures to recover our performances. And also we have been promoting the manufacturing of a new influenza vaccine where there is an increasing social need and the research and development activities for cervical cancer vaccines, so that we will be able to fulfill our mission in the society as a pharmaceutical company.

I would like to make my sincere request to you for your continued warmhearted support to us. Thank you very much.

Next Takahara, General Manager of Finance and Accounting will give you the second quarter financial earnings report and also our outlook for the year.

This is Takahara. Let me report to you the consolidated financial results up to the second quarter fiscal 2010. This is the summary of Takeda's consolidated results up to the end of second quarter from April to September for FY 2010.

As for sales, Actos and Velcade grew in the US along with the new products, Dexilant and Uloric launched last year.

In Japan, newly launched products such as Vectibix, Nesina and Unisia pushed up sales in the domestic market.

However, Prevacid sales in US went down significantly because of the US patent expiration and the yen appreciation affected our top line negatively.

Therefore, consolidated net sales decreased by JPY41.4b, or 5.5%, to JPY714b.

SG&A and R&D expenses were down, but not enough to offset the decrease in gross profit resulting from the decreased sales.

Thus, operating income decreased by JPY20.9b, or 8.6%, to JPY221.6b.

In addition to the decreased operating income, the yen appreciation negatively impacted non-operating income and loss. Therefore, ordinary income also decreased by JPY29.4b, or 11.5%, to JPY225.5b.

Last year we had one-time positive tax savings because of the reorganization of two manufacturing subsidiaries in Ireland, but not this year. Therefore, net income decreased by JPY45.4b, or 24%, to JPY144.2b.

EPS, excluding extraordinary income and loss and other special factors, decreased by JPY65.29 to JPY213.50.

Next slide please. As shown in this slide, foreign exchange had negative effects on our numbers. Negative impact of JPY29.1b on sales, JPY10.2b on operating income and JPY7.1b on net income respectively.

Next slide please. Now I will explain changes in net sales by business segment.

In the Ethical Drugs segment, the sales in Japan increased thanks to Enbrel and newly launched Vectibix to mark an increase of JPY7.5b, or 2.7%.

However, the overseas sales decreased by JPY50.1b, or 12.4%, from the same period last year. As explained before, the sales growth of Actos and Velcade and new products Dexilant and Uloric introduced last year, could not offset the negative impact of the stronger yen and decreased sales of Lansoprazole due to the US patent expiration.

As explained in the -- sorry.

Net sales of the Consumer Healthcare business decreased by JPY1.1b, or 3.5%, year on year mainly due to the decreased sales of Benza.

Net sales of the other businesses increased by JPY2.2b, or 4.9%, from last year, mainly supported by sales expansion in Wako Pure Chemicals.

Next slide please. This slide shows changes in consolidated sales of Ethical Drugs by region. Net sales by the entire Group decreased by JPY42.7b, or 6.3, from last year. Excluding the impact of the stronger yen, net sales declined by JPY13.8b, or 2%.

You can see the changes by region. Americas and Europe declined. Asia was flat. But as you can see, excluding the FX impact, sales grew in Europe.

Next slide please. Now I would like to explain the sales of Takeda's major products. Pioglitazone was up JPY1.6b. Velcade was also up JPY2.7b. But Lansoprazole was significantly down by JPY55.7b. Candesartan and Leuprorelin were also down. But excluding the FX, Candesartan sales increased.

Next slide please. The gross profit is shown here. This is the details of changes in operating income. Gross profit was down JPY51.6b, or 8.4%, due to the decreased sales and the decrease in the profit margin by 2.5%. This is mainly because of the stronger yen and decreased sales of Prevacid, which has a higher profit margin.

SG&A expenses were down by JPY19.3b, due to the Group-wide cost reduction effort including TPNA and also because of the decrease in amortization related to intangible fixed assets amounting to JPY9.4b and favorable impact of the stronger yen.

R&D expenses were down by JPY11.4b.

Thus operating income decreased by JPY20.9b, or 8.6%, from last year.

Next slide please. Now I will explain the changes in the net income.

Operating income decreased by JPY20.9b. Non-operating income was down JPY8.5b and the tax increase is JPY16b, resulting in the net income decrease of JPY45.4b, or 24%, to JPY144.2b.

As I explained before, last year, the effective tax rate was as low as 20.1% thanks to the reorganization of Ireland subsidiaries. But this year we have no special factors as such. Therefore, effective tax rate was 35.4%.

Next slide please. Let me explain the cash flow. Cash flow for the second quarter resulted in a net outflow of JPY46.9b, mainly due to the tax payment of JPY65.6b and payment for the acquisition of tangible assets of JPY85.1b. This is associated with the construction of a new research facility and the dividend payment of JPY71b. FX loss due to the stronger yen was JPY60.3b.

Next slide please. Now I will explain our full year forecast for the current year. This slide compares our forecast announced in May against actual results for the first half of this year. Our initial FX assumption was JPY90 to the dollar and JPY130 to the euro and the sales forecast on that basis was JPY690b.

The actual exchange rate for the first half were JPY89 to the dollar and JPY114 to the euro, resulting in the impact of about JPY10b. But sales of Actos and Velcade in US were better than our forecast and domestic ethical drug sales grew very well, offsetting the negative FX impact and overall sales exceeded our forecast by JPY24b.

Please record that when we reported the first quarter earnings we explained that the sales forecast did not change in spite of the FX assumption to be changed to JPY110 to the euro because sales of some products had exceeded our initial forecast.

As for expenses, they were below our forecast mainly because timing of in-licensing cost recognition shifted to the second half and SG&A costs were lower. As a result, operating income exceeded our initial forecast by JPY41.6b and accordingly, both ordinary income and net income were better than our forecast.

Let me now explain our full year forecast based on the first half results.

First, about sales. Exchange rate was revised from JPY90 to the dollar to JPY80 to the dollar, an annual impact of about JPY45b. But, as I have stated before, some product sales exceeded our forecast. We believe good sales can absorb FX impact for the year. Therefore we maintain our sales forecast of JPY1.4 trillion for the year.

For R&D expenses, we factor in the stronger yen against the dollar and our forecast for the year is now JPY300 (sic - see presentation), down JPY100b from the initial forecast. This includes a strategic in-licensing cost and cost for the new research facility.

SG&A will be also down by about JPY10b, because of the yen appreciation and cost reduction efforts.

As a result, operating income is revised upward by JPY20b. Accordingly, ordinary income is revised upward by JPY20b, net income by JPY10b respectively.

In this slide currency translation effect in net sales is shown as minus JPY45.5b. For your information, in operating income, minus JPY14b and in net income minus JPY8.5b impact by FX.

Lastly, let me explain about dividend payout. For FY 2010, interim dividend will be JPY90 per share and for the year end we plan to pay out JPY80 per share, no change from our initial payout plan.

Thank you very much.

Now Mr. Ohkawa, Chief Scientific Officer will give you a talk regarding the second quarter of fiscal 2010, the topics around the activities.

I'm Ohkawa, Chief Scientific Officer. Allow me to now speak about the topics concerning our R&D activities that have emerged after the announcement of our financial results for the first quarter of fiscal 2010. And first of all, I would like to talk about the progress in the R&D pipelines after the last results announcement.

In October we filed an MAA for hypertension treatment drug, TAK-491 in Europe, following with an NDA in the United States.

In August, additional indication for Nesina, combination therapy with thiazolidinedione for Type 2 diabetes was approved by the Japanese Ministry of Health, Labor and Welfare.

In the same month, the MHLW approved an additional indication of Takepron Capsules 15 and Takepron OD Tablets 15 for prevention of recurrence of end stage associated gastric and duodenal ulcers. Takepron is the only medicine in Japan that was approved for this indication, as well as the indication of prevention of recurrence of gastric or duodenal ulcer during low-dose aspirin administration.

Meanwhile, Takeda Canada, which was established in 2009, received approval for GERD treatment, Dexilant in July and hyperuricemia treatment, Uloric in September.

Lastly, I'd like to refer to a new compound, TAK-960 whose Phase I study was started in September this year. TAK-960 is a potent selective inhibitor of PLK 1 that are critical to cell division. It has been confirmed that TAK-960 has potent anti-tumor activities in various demographic models by oral administration.

Recently, we have disclosed the top line data from a Phase II study of TAK-449 -- 442. TAK-442 is an oral anti-coagulant biologically active Factor 10A inhibitor. TAK-442 placebo was dosed in subjects with recent acute coronary syndrome event in addition to standard treatment. The primary safety endpoint was defined as incidence of major bleeding events. In the lower doses there was a low rate of bleeding and in the higher dose groups, the bleeding rate was generally higher than that of placebo. The primary efficacy endpoint was a composite of cardiovascular events consisting of cardiovascular deaths, myocardial infarction etc.

The study didn't demonstrate a positive trend to reduce risk of cardiovascular events for TAK-442. Further analyses are underway to better understand the data as well as the possibility of other development strategies. Decisions are expected to be made as soon as possible.

Now please allow me to brief you on our recent R&D topics. For the ongoing 10-12 MRP, we will concentrate the investment of our management resources into new core therapeutic areas of metabolic and CV which focuses on obesity, diabetes and arteriosclerosis and oncology and central nervous system, CNS, for which no fundamental cures have been made available. We will focus on the development of innovative drugs in areas where medical needs remain largely unmet.

I would now like to take this opportunity to share the present progress of our pipelines in obesity and oncology as well as the new joint research initiatives that we hope will lead to the creation of novel drugs in the CNS area.

Let me begin by introducing our obesity pipeline. In September, Takeda and Orexigen Therapeutics entered into an exclusive partnership to develop and commercialize the obesity treatment Contrave in the North America region whose NDA was submitted to the USFDA by Orexigen.

Two components of the combination therapy act in complemental manner in the CNS. Contrave promotes weight loss by controlling the balance of food intake and metabolism. We believe that Contrave COR program data demonstrates that Contrave meets the agency standards for obesity drugs. Accordingly, we are communicating closely with Orexigen as it communicates with FDA in preparation for the upcoming advisory meeting slated in this December.

In addition to Contrave, an oral drug with a mechanism of action in the CNS, we will develop pramlintide/metreleptin injection with the neurohormonal mechanism that we in-licensed from Amylin last November in the US, where an estimated 75m people suffer from obesity each year.

In Japan we will continue with development of lipase inhibitor ATL-962 so that we can build up our franchise within the obesity area.

My next topic concerns our oncology pipeline. Firstly, I would like to introduce TAK-700 oral drug for treatment of prostate cancer, which was discovered by Takeda. We are planning to initiate Phase III trials which compare with the placebo in patients with metastatic castration-resistant prostate cancer or chemotherapy-naive metastatic castration-resistant prostate cancer. And we have been reported that administration to patients with chemotherapy-naive metastatic castration-resistance prostate cancer was started. Both studies are expected to complete in 2013 if patient registration would progress as scheduled.

TAK-700 inhibits the persistent extra-gonadal or synthesis of androgens which result in progression of PSA and metastasis. This inhibitory activity makes TAK-700 a good candidate for development as a therapeutic agent for the treatment of castration-resistant prostate cancer. We expect that TAK-700 could be a potential first in class or best in class 17, 20 lyase inhibitor, which has non-steroidal structure.

Secondly, I would like to talk about the top line results from two Phase II clinical trials for SGN-35 which we in-licensed from Seattle Genetics last December. The two single arm pivotal trials assessed the efficacy and safety of single agent brentuximab vedotin with one conducted for relapsed or refractory Hodgkin Lymphoma patients and another for relapsed or refractory systemic ALCL patients.

The two separate trials achieved overall response rates at the primary endpoints of these trials of 75% and 86% respectively as assessed by an independent central review. We are planning to announce more details of these trials at the oral session of the American Society of Hematology, which will be held in Florida this December.

Brentuximab vedotin is an antibody drug conjugate that targets the CD30. By selectively delivering the potent drug aricetin into CD30 expressing tumor cells, it may help to minimize the potential side effects of traditional chemotherapy while allowing for the selective targeting of such cancer cells. We will make a detailed analysis of the trial results and continue the discussions with the EMA for scheduled submission for marketing approval in 2011.

Next I would like to talk about our joint research project in the CNS area. On October 8, Takeda and Envoy Therapeutics formed a research alliance that aims to discover new drugs for schizophrenia. Takeda Research Investment Inc., whose name has been changed to Takeda Ventures Inc. as announced in today's release took notice of Envoy's innovation bacTRAP technology and invested in Envoy's first financing.

Combining the latest genetic engineering with the new molecular biology techniques, bacTRAP technology allows scientists to identify new drug targets by measuring the in vivo expression of translated genes in specific, medically relevant cell types among the many intermingled cell types present in the central nervous system, resulting in the isolation of cells.

Through this joint research project, we will accelerate our drive to understand the unknown disease mechanism and to search for drug targets. We will work on the creation of innovative drugs that can bring about a fundamental cure over this serious disease where there is a high unmet need for patients.

My last topic will cover vaccines, whose demand is on the rise in our contemporary societies. On October 12, Takeda and the Japan Health Science Foundation, entered into a license agreement concerning exclusive use of the Kanda HPV vaccine patent rights.

Invented by Dr. Tadahito Kanda, formerly of Japan's National Institute of Infectious Diseases, the Kanda HPV vaccine is an innovative vaccine that is expected to be effective against all well-known 15 high risk HPV that can cause cervical cancer. So far, it has been confirmed that the Kanda HPV vaccine is effective against six variations of high risk HPV including the Type 16 and 18 which are often identified in cervical cancer patients. Every year some 270,000 people die from cervical cancer worldwide and more than 99% of the critical causes are attributed to HPV infection.

Because conventional HPV vaccines cannot cover all high risk HPV, we will pour our utmost efforts into research over the Kanda HPV vaccine which has the potential to cover all 15 types, thus commercializing vaccines that meet this unmet need.

This is all from me today. Thank you very much for your kind attention.

Thank you very much. We would like to entertain questions. Those who are here on the floor and those who are connected through the telephone, we'll entertain your questions. If you have a question please mention your name and affiliation. First, from the floor here, please raise your hand.

Yamaguchi from Citigroup. I have two questions. For the mid-term plan, '10, '11, '12, calmness before the storm and you will have the bottom in '13. '11, '12, '13, you have the bottom and you disclosed that. And how are you going to go for the next six months regarding your bottom of the performance?

Well regarding the mid-term plan, we have shortened the period for three years. It's going to be a rolling three year plan. That's how we are doing. So for the next year, of course that's going to be the next three years, based on 2011. And that's how we disclose our information regarding how we go about it. And the FY 2013 to be the bottom, if things are as it is, it could happen. But we want to make sure that it does not. We want to do our best that it doesn't happen really.

And regarding 1.7% growth rate for the domestic ethical drugs sales growth, it is rather low. Takepron sales is going down. I understand you have new products. But regarding sales force, sales reps, I have a sort of different impression. What is your view on this domestic sales?

Yamanaka from Sales. For the growth rate being rather low for the domestic market, as you know in April, NHI re-investment revision was -- we were very much impacted, much more impacted by the average pharmas.

Including long-listed items discount I think the market pharmas average was 6.5, but ours was much more discount by 1 percentage point or 2 percentage point. So maybe volume-wise we are selling, but price-wise and amount-wise we are very much impacted because of this revision.

And especially Takepron's prices were down, you mentioned. And regarding the Takepron it was impacted by this long-listed item list. And until we have additional indication, generics impact could be somewhat significant. After April, you know the volume base scoring or calculation system is in place, therefore negative impact for us. But for the second half we have two additional indications and these are only held by us Takeda. This is also blessing for the patients. And for sure Takepron will be plus 3% growth for the year. Thank you.

Thank you for your question. Please limit the number of questions you ask at one time to two.

I am [Matsuda] from Deutsche Securities, Masuzoe. I would like to ask a question about Hematide. I think it was around the beginning of October, if Affymax is filing the submission, then from Johnson & Johnson, there may be a lawsuit brought by patent. How would you consider this situation?

I would like to answer to that question. This is a patent related issue, so I don't think it's appropriate for us to make a comment here.

And Mr. Takahara, I'd like to ask you some numbers. In the first half SG&A, you reduced the costs and the performance was better than the plan. And looking at the second half ForEx, as you explained, will have an impact, yen appreciation. Therefore SG&A will be reduced by JPY10b and as a result the result will be revised upward. But comparing this with the first half, I think that the performance should be even more better. But is this just like 50-50, the impact of the ForEx and the cost cuts? Could you elaborate on that?

The reduction of expenses or costs in the first half compared with the last year was about JPY5.5b from ForEx. And other than that, one is regarding TPNA. We could reduce the costs because of restructuring efforts. And on a local currency basis, I think JPY30m reduction was achieved including the restructuring expenses in local currencies basis. I think it was about JPY7.7b reduction.

Other than that, intangible asset amortization was reduced, which was explained in our presentation. Top Company revision was done in 2008 and at that time we counted intangible assets. And out of that amortization there is patent related issues, or portions and which was finished the amortization last year in November. Therefore, comparing that with this fiscal year first half, there is about JPY9.4b.

And I think you have been now comparing the first half and the second half. And regarding the second half, if it's compared with the first half, the characteristics point is that the R&D expenses will be up by about JPY50b. There are two major factors. One is that as the research institute will start operations in the second half, so there is about JPY1.7b expenses regarding this new operation start-up in the second half.

Another one is in-licensing expenses. In the first half, we didn't have such cases, but in the second half about JPY15b of in-licensing costs. And overall, R&D expenses is about JPY50b more in the second half compared with the first half.

What about the SG&A expenses?

In the second half, SG&A expenses compared with the first half is up by JPY14.7b. The reason is as Yamanaka told you earlier. In the second half we plan to produce new products. And those sales and marketing expenses will be larger than that of the first half. And just like in the case of R&D expenses, there are some items whose introduction timing shifted from the first half to the second half. Therefore JPY14.7b, or roughly speaking JPY15b, more SG&A expenses in the second half, compared with the first half.

Thank you very much.

Regarding Hematide patent let me comment. Masuzoe san asked, this is a hypothetical question so it's difficult to answer to that question. On the other hand of course we are prepared for the worst case scenario. If that happens, of course we prepare ourselves and we have full discussion about it.

Any other question?

Sonohara from Nikkei Newspaper. US Actos on local basis is going up in sales. Price was high. Then also are there any other reasons why the sales is very good for US Actos?

And in the Blopress and Actos, you have stopped development efforts. And can you explain the background. And items have changed and what are policies and what are strategies regarding some of the reshuffling of the development items.

First about Actos let me explain. As you said, yes we raised prices. And this is indeed matured product. Per prescription number of tablet is increased, mail order is increased. Walgreen promotes 90 day administration. So that's the reason why there is an increase.

For the first half it was very good. What about the second half and the full year you may be wondering. Actos, against our plan is about we said in the beginning 3% growth. And after the first quarter we thought it may be higher than that. And for the full year, the growth would be more than 5%. But second half will grow more. Sorry, the first half will grow more and the September 30 there wasn't much release of products because of inventory adjustment. Even considering that, Actos sales is exceeding our expectation and Avandia's effect is also incorporated.

Yes, Mr. Iwasaki please.

Actos and Blopress are a combination item as you know for glucose and hypertension. We have very good data and we had no problem with safety. But regulatory policy is changed. In the requirement for submission you have to have new studies. This is a requirement from the regulatory authority. Considering various factors, we decided to stop, discontinue, the development of this item.

Regarding Actos let me add, as Inoue mentioned, wholesalers' inventory level is higher for our products and that is impacting the numbers. Thank you very much.

Next lady please.

I'm [Sei] from [NHK]. I'd like to ask a question regarding the strong yen to President Hasegawa. I think that you have also received a great impact from the yen appreciation in these financial results, but do you have any counter measures?

And there are some people viewing that this strong yen situation will continue for a long time. And if the JPY80 against the dollar level will continue for some time, how would you think and what is your view regarding approved rate level of ForEx between Japanese yen and the dollar.

Well your final question is difficult to answer. Foreign exchange and stocks we have to ask to the market. So we business managers should just operate our businesses based upon the foreign exchange rates emerged in the markets. Therefore I don't think it's appropriate for me to make a comment on that level.

But then what sort of a hedge do we have at our Company for the foreign exchange fluctuations? Basically there is no way of conducting hedges. Sales is generated in each local areas and it will be converted into Japanese yen each time. So if yen appreciates, then we will have a direct impact from them to our financial results.

But regarding the expenses, as Takahara told you, majority of our development works are carried out in overseas areas. So when it is calculated back into Japanese yen we will also have some favorable impact as well. But overall, of course, we will have negative impact because of this exchange.

And if JPY1 changed against the dollar then I think it's -- how much was it, JPY5.8b, JPY2.5b -- so net sales JPY5.8b -- JPY5.7b and then JPY1.5b for operating income and JPY800m for the net income. And it's difficult for us to take any countermeasures. Thank you very much.

We take questions from other channels, from the other venue. Yes go ahead.

JP Morgan Securities, Onozuka. I have two questions about headcount cost, labor cost. As you explained in the beginning of the year you have some slash in the number of people. For the first half the headcount is not really reduced. Of course that includes restructuring cost and so forth. But in the second half the HR slashing would impact your expense much more?

As I said before, at TPNA, in the first, half we had restructuring. Of course, for the early retirement we have expenses incurred, but that was absorbed and JPY30m reduction in SG&A on local currency basis. For the second half I don't have the exact numbers but much of restructuring has been recognized already in the first half. So if the other expenses are the same, we can have more positive impact of restructuring. We always say for this year, conservatively looking, negative impact of restructuring would be breakeven more or less and the actual impact, positive impact, would be coming in the next year.

Thank you very much. Factor Xa, TAK-442, you did not have much efficacy. But regarding your development policy, as a mono agent, do you consider to develop furthermore, or is it going to be a back-up agent, although it may be a bit too early. There is 236 and so as a category you need to review once again? Which is your thinking at the moment?

As I said before, the final conclusion needs to be weighed indeed because we have huge volume of data, what about for the high-risk patient and so forth. So we need to analyze furthermore based on the data.

ACS standard care, aspirin and clopidogrel are more often used and rather satisfactory in terms of efficacy. CV events can be reduced to 4% or so. And to add one more agent, although it may be very good, but to have extra benefit is getting increasingly difficult. Therefore of course our policy will be coming out as final conclusion, but for ACS development is getting more and more challenging.

As a compound, compared to other companies' compound it is not inferior. But as I said before, the standard of care is changing and that is impacting our policies. And also in the therapeutic area how we want to move ahead will be further analyzed, and we will disclose our policy when the time is right. Thank you for your question.

I'm Yamamoto from Nikko Cordial. I'd like to ask you one question. Anti-obesity drug development, is it really a medical need? I think there is such a view. FDA is escalating its hurdle because I think that FDA doesn't consider this as a medical need. President said that there is a social mission to develop vaccines. And anti-obesity drug by inputting the managerial resources of a large amount, is it really pharmaceutical's social mission? Is there really medical needs? Could you comment on that?

Well when we consider pharmacological therapies, if a patient was into serious situations, for instance if in the case of diabetes, then there should be of course the treatment development to be done for the serious ill patients. But rather than that we have to consider how to treat early stage patients. The fundamental reasons, or cause of diabetes and so on, are obesities. And there are some differences between Asian and others, but by controlling obesity, we will be able to prevent the onset of diabetes or the hypertensions. Therefore, by reducing obese people then I think, from the medical economics viewpoint, there will be a benefit. And also there will be a benefit for the patients.

But if it is a compound based upon some innovative concept, then I can understand that. But is it really a meaningful to make such a development efforts having such a good -- great deal of resourcing input?

Well FDA I don't think consider that it is a medical -- it doesn't meet a medical need, but the safety have to be always assured. And we always top prioritize the safety and would like to develop a compound with the guarantee of safety. But of course, safety only is not good enough; we have to have effective compound. Currently KinExA and [rodocaselin] have some safety issues and approval or not has been under discussion. And we develop compounds focusing on safety. Thank you very much.

If I make one comment here, obesity is somewhat different from the conventional diseases. It has to be probably considered from a different viewpoint. But the cause like obesity, lifestyle disease or CV diseases will be developed in the downstream of the progress. So at the stage of obesity how many people will develop into lifestyle diseases, that's unknown.

From such a perspective, well it is different from the currently established diseases. Therefore, when FDA looks at the risk/benefit balance, there should be clear benefit as there is guarantee of no risk, otherwise it's difficult to get an approval for the compound. In that way the hurdles are enhanced.

So amongst our pipelines we have the ones based upon the conventional approaches but we also have some collaborative researches with the LG areas. New mechanism of action of compound is also underway. And as Ohkawa explained to you with the slides regarding recently in-licensed items, that's somewhat on the extension line of the existing items. But we believe that there's a high probability that that can pass the hurdle. So especially the PDUFA I think that we will be able to successfully pass the hurdle in August.

Now I think that there's question from Osaka.

From (Inaudible). SYR322 in the US how is the development update and when is your -- when do you think it can be launched.

Examine study CV outcome study is ongoing. Enrollment has been going smooth according to the plan. If the progress is as it is within 2011, we can file. And in the early timing of 2012 we hope to get approval.

Thank you very much. From Tokyo.

Sakai from Credit Suisse. I have two questions. One I think is a question that I should ask to the President. Recently, you have been hiring the external people like out of the project and the members of Steering Committees. Are you hiring these people or trying to make some changes, or because there are some new emerging needs you are hiring those external people because maybe that you don't have good personnel within Takeda's current organizations. If you have any ideas behind it please explain that to us.

Whether or not we do not have good human resources within Takeda, well we do have. But as Mr. Iwasaki told you, there is a division head or Corporate Officer, Dr. Hirate or Dr. Frank Morich. Regarding these people, they can better fulfill job requirements in each position, that's why we decided to assign them taking place of the former persons in those positions. Therefore, for the areas where the Takeda's internal human resources cannot fill those job requirements, then we fill them by making use of external resources.

Now regarding the European Phase II study results I think in the US Seattle Genetics Millennium has introduced this, but what about the duration of the rights between the US and Japan?

And also your presentation at the ASH I think it's calling attentions, but it's not so widely announced. Is it because of embargo issue?

First regarding the relations of the rights, currently we hold the right in Europe only. And concerning the results of study that will be announced in ASH, we have very positive data. So like the conventional oncology development, if Phase II data results is positive, then we would like to facilitate our activities for the filing submission.

And you also have the probability in the US?

Yes. And that's Seattle's idea, yes. Thank you for your question.

We have one person from Osaka. Please start Osaka.

[Sahi] from Asahi Newspaper. About vaccine business I have a question. At the end of August you stopped flu vaccine but you decided to take it up once again and HPV vaccine license agreement was made. Corporate social mission may be a part of the reason, but vaccine business you re-evaluated the business in vaccine. And what do you think is the potential? What would be the growth outlook and when and how? If you have rough ideas could you share that with us?

Of course social mission plus business opportunity is what we pursue. Vaccines, as you know, prophylaxis, as a part of the prophylaxis, especially for pediatric application volume driven type of business and like [pregnant] innovative vaccines are there. So there are two types volume wise and also the innovation. And we have some items in the pipeline and also some products.

In emerging markets we may have business opportunities. In that case we want to be very active. In parallel, as we said so-called universal vaccines, very innovative breakthrough vaccines, we will be actively pursuing that category as well, and the Kanda vaccine was introduced in my presentation. Thank you very much.

If I may add comments. Maybe you remember this last year H1N1 influenza was endemic. WHO made declaration and as a part of action for that Japan could not produce sales there for emergency input. And then May last year we had last part of the dialogue between the government and us, and I was the Vice Chairman of Pharma Association in Japan.

Japan is considered to be the leading country, at least in Asia, in terms of medicine and pharma, but we need to input vaccines from outside and that is a shame. Unless Japan buys, those vaccines could have gone to other developing countries. And that situation needs to be addressed in partnership between public and private. And the Minister Mr. Masuzoe has agreed on that.

And some companies volunteered to have cell base, culture base endemic vaccine business and they tried to pursue development of vaccine. And by the first half of next year there is advisory committee assigned by the government and this committee will select two or three companies from pharmas in Japan. They will assess qualification and dozens of billions of money will be granted to establish plant as a part of their grand system and that process is ongoing.

For the cell based culture, Baxter is one of the leading companies and we are using Baxter's technology. And Czech, Baxter has a plant in Czechoslovakia and -- in Czech Republic, and we are transferring that technology to our Hikari plant. And we hope to be -- or we are sure we will be the last two or three companies who develop vaccines in Japan.

Now I would like to take the last question please.

I'm Mizuho from Daiwa [Short-term] Capital Markets. I would like to ask a question about the new products launch in Japan. Nesina was delayed by six months compared with [Genevia]. And may I take this not disturbing the business?

And also the Rozerem, do you think that the Japanese market is different from the American market?

Well actually it's seven months delayed. And it was launched in June this year. But as you know Actos base then grew fast, those are diabetes line-ups in our product line up. And depending upon different diabetic patients' needs, I think we can provide those line-up of products.

And there is also an emerging need for DPP-4 inhibitors in the market. And from a long-term perspective, we believe that could become a favorable factor for us too. And alpha-glucosidase and thiazolidinedione concomitant use was proved for Nesina. But of course with SU and pigonide concomitant use is also filed for approval. And if we can get an approval and if the limitation for two weeks administration is uplifted, then from the summer of 2011 I think we would expect the further growth.

And Rozerem it's been launched three months ago in July. And I think it's attracting much attention in the market. We would like to make steady efforts to expand the sales, different from benzodiazepine and non-benzodiazepine compounds. As a matter of fact it does not have side effects of conventional solid base. So if we go very steadily, well basically we don't have any directly-competing products.

So as to which concept we will go for physicians, in our idea it will be positioned as the one to adjust with cycle of sleeping and awakening and thus improve the insomnia which is a remote cause of lifestyle diseases. And that is our ultimate image of our product. It will take time but it is different from the US for sure, so it will grow.

Thank you very much. We have extended this program by 10 minutes, but thank you very much for being with us until the end of this meeting. With this we would like to conclude this explanatory meeting. Thank you very much and I would like to ask for your continued support and cooperation to us.

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