Takeda Pharmaceutical Co Ltd (TAK) 2012 Q3 法說會逐字稿

(Interpreted). Please note that this telephone conference contains certain forward-looking statements, other projected results, which involve known and unknown risks, delays, uncertainties and other factors not under the Company's control, which make the actual results, performance or achievement of the Company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiment, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and time, number and type of transactions.

During the presentation from the Company all the telephone lines are placed for listening mode only and the question and answer session will be held after the presentation. This conference call is being broadcasted through internet online, but only on listening mode. Now we'll start the conference.

(Interpreted). Thank you very much for joining the conference call of Takeda's FY 2011 third quarter earnings report. My name is Hiroshi Ohtsuki, Senior Vice President of Corporate Communications Department. Let me introduce today's speakers and Q&A panel. Mr. Yasuhiko Yamanaka, Senior Vice President of Pharmaceutical Marketing Division; Dr. Frank Morich, Chief Commercial Officer; Dr. Tadataka Yamada, Chief Medical and Scientific Officer; Dr. Deborah Dunsire, President and CEO of Millennium, the Takeda oncology company; Mr. Inoue, Senior Vice President Corporate Strategy and Planning; Mr. Takahara, Senior Vice President of Finance and Accounting.

First we would like to start with the presentation of our financial overview of the third quarter of fiscal 2011 followed by a presentation of R&D activities. After that we will have a question and answer session. First we will start with a presentation from Mr. Takahara.

(Interpreted). I'm Hiroshi Takahara, Senior Vice President of Finance and Accounting. I would like to report on our consolidated financial results for the third quarter fiscal 2011.

First about sales. After the completion of acquisition at the end of September 2011, Nycomed sales were newly consolidated from last October, absorbing the negative impact from the yen appreciation of JPY37.3b. Thus the net sales increased by JPY46.5b or 4.3% to JPY1,127.6 trillion. On the other hand, gross profit, operating income, ordinary income and net income all declined mainly due to the increase of amortization expenses caused by business combination accounting associated with the Nycomed acquisition.

Next slide please. This is the comparison with the same period last year. There are three comparisons. One, changes in Takeda business excluding the Nycomed impact. Two, changes including the impact of legacy Nycomed. Three, effect of business combination accounting related to the acquisition of Nycomed.

Sales excluding Nycomed decreased, mainly due to the yen appreciation with a negative impact of JPY37.3b. Excluding the currency impact sales did not change from the previous year because the increase in new products offset the decline of Actos sales. The effect from the addition of legacy Nycomed sales is JPY83.9b. Thus total consolidated sales increased by JPY46.5b.

Operating income excluding Nycomed decreased by JPY32.2b due to the yen appreciation and the decrease in gross profit was caused by a change of product mix. In spite of a positive effect of JPY15.8b from Nycomed, total operating income decreased by JPY67.5b because of the JPY51.1b increase of expenses from the business combination accounting of Nycomed. The net income decreased by JPY54.9b due to the increase in tax due to the recent tax reform in Japan, and also due to the special factors relating to the business combination of Nycomed.

Next slide please. Let me explain the sales breakdown by business segment. In the domestic ethical drugs segment, sales of Nesina, Vectibix and other new products launched in fiscal 2010 and beyond have steadily increased, marking the domestic sales increase by JPY14.4b from the same period last year. For overseas sales excluding Nycomed decreased by JPY50.6b due to the decline of Pioglitazone amongst others. On the other hand, we have consolidated the sales of JPY83.9b from Nycomed from October to December.

Next slide please. This slide shows the changes in ethical drug sales by region. Sales increased significantly in Europe, Asia and other regions as a result of the acquisition of Nycomed, which maintains broad sales infrastructure in those regions. Especially sales in the emerging markets increased by JPY38.3b to JPY49.2b, which is more than four times the sales year on year. Sales in the Americas decreased due to the decline in sales of Pioglitazone and Lansoprazole. I will explain the status of the net sales of Nycomed later.

Next slide please. This slide shows the sales of our five major products.

Next slide please. I would like to explain the breakdown of changes in operating income. Gross profit was down JPY23.8b mainly due to the amortization of the step up of inventories in COGS for fiscal 2011 caused by business combination accounting related to the acquisition of Nycomed. SG&A expenses were up JPY43.9b due to amortization of intangible fixed assets and goodwill resulting from the acquisition and the consolidation of legacy Nycomed SG&A expenses. As a result operating income decreased JPY67.5b or 20.3% from the same period last year. Operating income excluding these special factors decreased by JPY21.4b.

Next slide please. This is a breakdown of changes in net income. The operating income was down, but there was extraordinary income of JPY17.6b from the sales of underutilized real estate. On the other hand, the effective tax rate increased by 7.0 points due to the revaluation impact of deferred tax assets derived from the recent tax reform in Japan. As a result net income was down JPY54.9b or 25% from the same period last year. Net income excluding special factors, such as acquisition-related expenses, was down JPY30.8b from last year.

Next slide please. Now I will explain the cash flow. There has been a significant change in the cash flows of investing and financing activities because of the Nycomed acquisition that closed at the end of September. We had a cash outflow of about JPY1.03 trillion for the acquisition of Nycomed shares and a cash inflow of about JPY540b in loans for this acquisition.

Cash flow from operating activities was JPY248.2b, which is not a major change from last year and is more than enough to pay out dividends. Regarding dividends, there is no change to our 2011 to 2013 mid-range plan policy of annual JPY180 per share. We also intend to use the surplus cash to fully pay back our loans in five or six years. As of the end of December our loans were JPY540b.

Next slide please. Now I will explain our financial forecast for the year. We have revised forecast as shown on the right column of the slide based on factors such as earnings results in the first three quarters, revision of FX rates January/March JPY75 to $1 and JPY98 to EUR1, strategic restructuring to streamline the business, and the tax reform in Japan. Compared to the previous forecast in November we anticipate net sales to be down JPY30b, R&D costs down JPY15b, extraordinary income loss down JPY24.4b and net income down JPY40b. The main cause of the change in net sales is due to a decrease in Actos sales. Our forecast was revised lower by JPY21b.

Regarding extraordinary income and loss, we anticipate a loss of JPY42b from restructuring costs in Europe and in the US, as announced January 18. The extraordinary losses for this fiscal year will be calculated based on the progress of the restructuring process as of the end of March and are also subject to financial auditing. Therefore there is a possibility that they might be transferred into the next year's P&L. We also anticipate savings of JPY7b. Thus the net impact this fiscal year from restructuring would be a pre-tax loss of JPY35b.

On the other hand, we booked a profit from sales of underutilized real estate. The estimate tax payment increased by JPY20b due to write-off of deferred tax assets at the end of March 2012 derived from the lower effective corporate tax rates according to the recent tax reform in Japan. As a result we forecast a net income to be down JPY40b compared to the previous forecast.

The acquisition of Intellikine this January has little impact on P&L for fiscal 2011 because acquisition value of $190m will be booked as mainly intangible fixed assets.

You can see our revised JPY1 changed sensitivity of currency exchange in the bottom part of this slide. Next slide please.

Finally for your reference I will explain about the financial performance of legacy Nycomed. In comparison with the same period last year, which was before Takeda's acquisition, net sales in their main territories such as Europe, Canada and emerging markets are steadily growing as shown in this slide. EBITDA was EUR173m, up 11.1%. Leveraged by legacy Nycomed's business infrastructure we will maximize product value of our promising products and pipelines, and will rapidly realize top line synergies through smooth integration of both organisations.

This concludes my presentation. Thank you very much.

(Interpreted). Thank you. Next is a presentation from Dr. Yamada. He's going to talk about the topics regarding the R&D activities.

Hello, I'm Tadataka Yamada, Chief Medical and Scientific Officer at Takeda. Thank you for participating in our discussion on R&D activities during the second quarter of fiscal 2011.

We are in the process right now of structuring the R&D organization somewhat differently than in the past and at another time I will go into greater detail on how we have structured. But for the moment I do want to explain that the Strategic Product Planning Department of Takeda has now been amalgamated into the R&D organization and has been divided into three separate groups. One group that leads the therapeutic areas, another group called New Frontier Sciences that will explore opportunities for bringing important early scientific platforms into the Company, and then a third that will support the office function for R&D.

Mr. Iwasaki, who is currently the Head of the Strategic Product Planning Department, will support me in the Chief Medical and Scientific Officer office.

Now a critical element about the new R&D organization is focused on key principles that have a very narrow and pinpoint attention to patient needs. We believe that understanding the relationship with a patient will help us greatly as we try to make new products for them. One of the most important principles in this is to have a sense of urgency about what we are doing. Of course there are many patients who are suffering greatly but understand that we can do something to relieve their suffering. And an intrinsic appreciation of this will have a great motivating factor for our scientists.

The second aspect of our driving principles is the concept of innovation. Ultimately innovation is required to meet the many difficult unmet medical needs. Disorders such as Alzheimer's or psychiatric illnesses or cancer, or other severe problems such as obesity and diabetes can't be met with the existing therapies that we currently have. We have to drive innovation and of course it is only innovation that is rewarded by the marketplace.

A third key element is the idea of measurement. It's very easy to do our work every day and measure our output in terms of activity, but it's really output and outcome that's important. If we can't measure what it is that we're doing to support patient needs and be able to convert that to understanding how to bring value to the Company then we can't really be successful as an R&D organization.

And finally it is very clear in today's world that one can't succeed as an R&D organization by working as a silo-ed independent unit. Partnership is essential and being able to partner with biotechnology companies, with other pharma companies and with academia will be critical to our success in the future.

We think in terms of three different stages in our effort to increase R&D productivity. At the late stage we have to ensure that we can maximize and deliver the assets that we currently have. As I will relate in a later slide, there are many products that we have registered in the past year or will be registering in the next several years and we have to ensure that all of these products will become successful and reach their fullest possible potential.

In the mid-stage we really have to fill what I think is a substantial gap that we have had in our pipeline. Now we will do this of course by aggressive in-licensing, as evidenced by our recent deal to purchase Intellikine, but we have also been a great beneficiary of some assets that will have come in from Nycomed and can support our mid-stage portfolio, and we will aggressively move forward some of the exciting new assets that we have in our early stage portfolio.

And at the earliest stage we have a responsibility and opportunity to substantially invigorate the discovery organization. A key element of that is the model presented by some exciting biotechnology companies that have become part of the Takeda family. Of course, [Zurichs] and Millennium are two of those examples. The ability to capture the spirit and entrepreneurialism of the people in these organizations will be very, very important in providing a model for advancing our discovery organization.

On the next slide you can see the R&D pipeline stage-ups since I last spoke to you in November of last year. We have had five substantial approvals since then. Velcade in its subcutaneous form was approved in the US in January. Azilva, our newest angiotensin receptor blocker for hypertension, was approved in Japan in January. Edarbi TAK-491, again our angiotensin receptor blocker, was approved in December in Europe. An exciting new compound Edarbyclor, which is a fixed-dose combination of Edarbi with chlorthalidone, was approved in the US in December. And Feraheme for the treatment of iron deficiency/anemia was approved in Canada.

Three compounds have progressed to a filing with regulatory agencies. SYR-322, which is a combination of our DPP-4 inhibitor with Metformin, was submitted to the US Regulatory Authority. 491, which is Edarbi, has been filed for registration for hypertension in Brazil. And Dexilant in its modified release form has been filed for registration in the Philippines.

An important new product for the treatment of prostate cancer, TAK-700, has been advanced to phase III and a new vaccine for the prevention of infectious disease caused by diphtheria, pertussis, tetanus and with the addition of polio, has progressed to phase II.

On the next slide we have a number of new assets listed in the R&D pipeline which were not present when we last spoke to you in November. Three of these assets have come from Nycomed. Daxas, which as you probably know is a PD-4 inhibitor for COPD. Veltuzumab, an anti-CD20 monoclonal antibody, and MT203, another monoclonal antibody against GM-CSF, two very important biologicals, which have come in to support our immunology franchise from the acquisition of Nycomed. Two other assets, INK128 and INK1117, have been acquired through our purchase of Intellikine.

Next slide reiterates what we have presented in November about the pipeline. As you have seen in fiscal year 2011 Velcade, Edarbi and Edarbyclor, and Daxas were all registered. In FY 2012 we anticipate Adcetris, Nesina, Peginesatide and Dexilant in its dual delayed-release form, will be approved for registration in 2012. We have our partnered compound with Lundbeck, AA21004, for depression, we anticipate registration in 2013.

And then for the 2014 to 2015 timeframe we will have a group of products very important for the future growth of the Company. TAK-875 for diabetes; TAK-700 which I talked about before; MLN9708, which is a second generation proteasome inhibitor; Latuda, which is a partnered product for an atypical antipsychotic; another monoclonal antibody, MLN0002, against alpha-4-beta-7 integrin for inflammatory bowel disease; and TAK-438, an exciting compound for the treatment of acid-related disorders.

An important development in Pioglitazone was that in January we received official notice from the European Commission that they have adopted EMA's opinion confirming Pioglitazone-containing medicines as a valid treatment option for appropriate type 2 diabetes patients. Actos is not recommended for use in patients with active bladder cancer and it should be used with caution in patients with a history of bladder cancer. And in the EU it will be contra-indicated in patients with bladder cancer or with a history of bladder cancer. But, in any case, the risk/benefit ratio is such that Actos remains a valid treatment option for patients with type 2 diabetes.

One of the exciting developments of Takeda has been the establishment of a Vaccine business division. This business division's mission of course is to contribute to the improvement of global public health. Vaccines are the least expensive option for dealing with health issues by preventing them with low-cost interventions. Our vision is to strengthen the Japanese business in the first instance, but to leverage Takeda's global presence to extend the vaccine business and opportunities to new markets, especially in the developing world, and most importantly to establish a robust pipeline of new vaccines to both adults and children.

We will continue to develop the Sabin-IPV-containing combination pediatric vaccines. And we're actively engaged in discussions to co-market vaccines from established suppliers and to build a portfolio of novel vaccine candidates and vaccine development platforms through alliances. We will have a very active business development effort with the aim of territory expansion and we are investing substantially in research and development in manufacturing of vaccines.

Thank you very much.

(Interpreted). Thank you very much for your attention. Now we would like to start the Q&A session. We would like to entertain your questions. For those of you who are participating you can address your questions either in English or in Japanese.

We will now begin the question and answer session. (Operator Instructions). The first question is from Citigroup Securities. Mr. Yamaguchi, you can go ahead.

(Interpreted). Hello. Yamaguchi here. The first question is about consolidated vision in forecast. Sales excluding FX JPY26b downward revision. I could not quite hear, but Actos sales was down how much, did you say?

(Interpreted). This is Takahara speaking. Hello. From November forecast Actos sales is expected to be down JPY21b. So the rest, JPY5b is lower to revision of other minor items [suchlike] and R&D down JPY15b. SG&A does not change from the previous forecast. For SG&A JPY500m downward revision.

(Interpreted). I see. So together the impact on the operating income is neutral.

(Interpreted). That's right.

(Interpreted). Regarding dividend, it says here and when I read this statement I understand, and some people they are clear that you are going to lower your dividend. Many people say that. So let me confirm your policy on dividend. Operating cash flow or cash flow from operating activities is double the total amount of dividend payment. Therefore EPS, even when is below JPY180, you will not reduce your dividend, is that right?

(Interpreted). As I stated before, in the mid-term plan from '11 to '13, JPY180 for the dividend per share. That was stated and explained to you in our mid-range plan. And regarding that statement, we have no plan to change.

(Interpreted). And regarding the base to support the dividend, if you have enough cash flow from operating activities. So that supports your dividend.

(Interpreted). That's right.

(Interpreted). And my last question, TAK-700, I would like to know if you have information. One of the competitors MDV3100 had good result and Janssen's product is already in the market. And TAK-700, what is the competitive advantage against those competitive products?

And the phase II, OS benefit or PFS benefit, overall survival or progression-free survival, regarding that data, what was the outcome? I would like to know that. Could you answer as much as you can please?

From Millennium taking your question on TAK-700. TAK-700 is a 17,20 lyase inhibitor and it preferentially inhibits the production of testosterone without the same level of impact on the production of cortisol that a drug like Abiraterone, which inhibits a different axis which includes the 17 hydroxylase enzyme. So Abiraterone will always need to be taken with a steroid to supplement the cortisol.

TAK-700 has the possibility to be taken without a steroid in earlier prostate cancer. In the metastatic trials that we have ongoing, two phase III global trials in prostate cancer patients whose disease has metastasized, who have either received chemotherapy and failed or have not yet received chemotherapy, in those two settings with metastatic patients TAK-700 is used with a steroid because the steroid actually has an anti-cancer effect in of itself. But as we move into earlier prostate cancer we anticipate it would be used without a steroid with concomitance -- avoiding the concomitant side effects of the steroid.

The results with MDV3100 were very good and we anticipate that these two products, TAK-700 and MDV3100 could have similar outcomes but could also potentially be used together in that the mechanisms of hormone suppression are different and therefore may be combinable for an even greater result.

We anticipate that TAK-700, while it will not be first to market outside of Japan, could still have the opportunity to be first to market in Japan. And as you saw our announcement earlier, we have now included the first Japanese patients into the global phase III trials. I hope that gives you some background to your question.

(Interpreted). Thank you very much. And just one more question, a short question. Is that alright?

(Interpreted). Please be brief.

(Interpreted). Okay, then later maybe. Thank you very much.

(Interpreted). Thank you very much. We would like to entertain the next question.

Mr. Muramatsu from a Nikkei newspaper is the next person.

(Interpreted). Thank you. I am Muramatsu. Can you hear me? Thank you. I would like to ask a question to Frank Morich and also a question to Mr. Takahara. First to Dr. Morich, I would like to ask you, this time that you have announced a restructured [organization] or the reduction of the number of staff in the Western countries, so Europe and the US, what is the meaningfulness of doing this at this time whereas you will be expanding the organization in emerging markets? So if you have -- could you share with us your future vision, how you are going to expand or reduce the human resources in those different regions?

This is Frank Morich speaking and I hope I understood your question correctly. We are eliminating jobs in developed markets reacting to the market conditions. In particular in Europe we're suffering from price cuts from new regulations like health technology assessments and I don't think we are alone in reacting appropriately with reducing our sales force capacities. The cuts that we're doing in the R&D area in Europe are the result of an extensive analysis that has been performed under the leadership of Dr. Yamada so that is I think pretty much in line with, I would say, industrial practice and market dynamics.

The anticipated increases in emerging markets are simply justified by the market dynamics. If you look at the last slide in Takahara-san's presentation about the development of Nycomed, legacy Nycomed, you see that with the exception of META, which is driven by the political unrest in that region, we have in almost all areas -- with the exception of, as I just described, Europe -- we have double-digit growth. And we see like most companies that most of the growth in the pharmaceutical markets will come from these areas and we want to fully participate in that growth. And that was after all one of the or the main driving force behind acquiring Nycomed and we see that fully playing out in the numbers as they are summarized in the last slide of Takahara-san's presentation.

I hope that answers your question.

(Interpreted). Yes, thank you very much. Next I would like to ask a question to Mr. Takahara. Because of the acquisition of Nycomed you had the borrowings and we heard already about these borrowings. And once again I would like to ask your estimate or plan for your paying back to those borrowings in the mid and long term.

And also for the future growth of Takeda you explained to us that it's necessary action but in order to improve your financial capability. Could you comment on that? Currently, what is your idea?

(Interpreted). I'm Takahara. I'd like to respond to your question. For the past 30 years or so we didn't make any borrowings. But in acquiring Nycomed this time we did and that attracted attentions from the people. But looking back our history so far, depending upon our business expansion, we issued company bonds or we increased the number of shares or we also obtained loans from the banks. So it's not really true that we didn't have any borrowings in the past.

But after a certain while, I think it's about 20 years or so that we had intermissions that we didn't have any borrowings, but this time it's JPY570b borrowings. And in October we repaid JPY30b. Therefore the remaining amount is JPY540b.

Then in how many years we'll be able to pay this back. Depending -- looking at the current cash flow in estimate in five years or in worst cases in six years we think that we will be able to make a full payback. Because even after we pay the dividend of JPY180 per share, in five years or six years I think that we'll be able to pay all of them back. Of course for strategic investment in R&D activities we assume that we continue the investment of JPY300b and also we will make a payment of dividend. And with them currently we think we'll be able to pay them back in five or six years.

(Interpreted). The rating was downgraded. But towards the future growth of Takeda from the financial perspective, could you comment on?

(Interpreted). It is true that our rating went down. It's regrettable. But the current rating compared with other global pharmaceutical companies, I think it's still at a high level in our view. And after 2015 and onwards we need to achieve the sustained growth and for that we made investments. Therefore temporarily the rating went down but I think that is something that we have to accept and in the near future we believe that we are strong enough to come back to the former rating.

(Interpreted). Thank you very much.

(Interpreted). Next question please.

(Interpreted). From Nomura Securities, Mr. Urushihara.

(Interpreted). Hello.

(Interpreted). Yes, we hear you.

(Interpreted). Thank you. I have two questions. The first to Takahara-san. R&D is JPY280b, but for the next year what's the level of R&D? So far you've been talking about JPY300b level, but do you think it would be about JPY200b level for the next year?

(Interpreted). JPY280b for this year, but, as I said before, Intellikine acquisition was about JPY15b. And we acquired shares of Intellikine, therefore it's not for this year's booking. So surely this is JPY300b level. And for FY 2012 and onwards what do we do? For the time being we will maintain JPY300b for R&D and that policy has not changed.

(Interpreted). Thank you very much. The second question is related to Mr. Yamaguchi's question. Actos sales is down JPY21b, of which how much in Japan and how much in US? Can you give me a breakdown of the decline?

(Interpreted). This is Takahara speaking. Domestic 1.5b. US 235m.

(Interpreted). I see. So for the first quarter US Actos sales in dollars, a quarter on quarter 30% reduction is your estimate.

(Interpreted). It may not be quite answering to your question, but US Actos for this year, for the full year 312m, that is the forecast -- sorry, 3.12b. I'm calculating now and I only have the number for the full year. So let me get back to you later.

(Interpreted). Thank you very much. That's all.

(Interpreted). We'd like to move on to the next question.

(Interpreted). Next is Mr. Seki, Barclays Securities.

(Interpreted). Hello.

(Interpreted). I can hear you.

(Interpreted). Thank you. I'm Seki from Barclays. I'd like to ask you two questions. The first question is regarding the mid and long term cash flow. Nesina and SYR-322 are very effective in the US. And the PDUFA is the April 25. And could you give us as much as you can the preparation, progresses or your anticipations and expectations for the PDUFA?

We are not sure what you were asking because we had a little bit of disturbance here in the translation system. We are having a PDUFA date which is in April 25 and we are in full preparation mode, commercially, medically, to be prepared for that PDUFA date. I hope that answers the question because I'm not sure that I understood it completely.

This is Yamada. Maybe I can expand on it. The PDUFA date, April 25, will be for both Nesina and Nesina Actos combination and we anticipate that we will have approval of both. In December we will have a PDUFA date for the Actos Metformin combination.

(Interpreted). Are you satisfied? Please wait for a moment.

(Interpreted). I'm Takahara. Regarding the question asked by Urushihara, the fourth quarter's Actos estimated sales, it's 683m. Is that okay?

(Interpreted). He is not connected online.

(Interpreted). So Mr. Seki, are you satisfied?

(Interpreted). Yes, thank you. Next question goes to Dr. Yamada, regarding the assessment of performance of R&D activities you mentioned in your presentation. When you assess the performance, do you consider that you may sort out strategically the pipeline that you have?

I'm not sure I understood the question. In measuring performance we are going to focus on value creation and one of the best measures of value creation is proof of concept and competitiveness. So we are going to establish a metric which is a value-based metric based upon our ability to create proof of concept and competitive molecules. We believe that from that point the anticipated success rate in phase III clinical trials will be in the neighborhood of 50%. So R&D's performance will be measured on value creation rather than activity measurements.

(Interpreted). I see. Thank you.

(Interpreted). Thank you very much. Next question please.

From Credit Suisse Securities, Mr. Sakai.

(Interpreted). This is Sakai speaking.

(Interpreted). Yes, we hear you.

(Interpreted). I have two questions. One is a simple one. Regarding balance sheet, Mr. Takahara did not mention anything. So Nycomed's acquisition all consolidated and that was in the announcement. Regarding asset valuation, it was already done by auditing the office or are there any activities still need to be done?

And deferred asset is increased. Can you explain that?

(Interpreted). This is Takahara speaking. So business combination accounting, whether that is all completed or not is the question right? Nycomed's assets are all completed with [valuation evaluation] and it is consolidated at fair value. But, as you know, in case of a large scale acquisition it takes time to consolidate. In business combination accounting you are supposed to complete in one year according to the standard. So together with the accountant, accounting office, tentatively we have agreement, but in details, in specific, we still have various calculations ongoing. So whether that is really finalized, if that's the question, it's not completely finalized. Especially goodwill evaluation and others, there could be some adjustments still going on.

And deferred tax assets is increased and you're asking why. According to the business combination accounting practice, intangible asset, including IT and sales, marketing rights, regarding those assets you [apply] tax effect accounting and gross-up approach is taken, and that is reflected in the deferred assets. And because of that practice deferred tax assets is increased.

(Interpreted). So with amortization this will decrease, right?

(Interpreted). Maybe I did not explain that well. So the asset is now posted in debt and on credit there is also deferred tax liability. And with the amortization progresses and then it will be reversed back.

(Interpreted). I see. So the increase is only because of that accounting practice.

(Interpreted). That's right.

(Interpreted). And the second question is about Daxas. Daliresp, is that the name of the product brand you use in the US?

Daxas probably has the highest potential from Nycomed. Forest is taking care of marketing and 8m is the sales for the quarter. In Europe Merck I think acquired the marketing right. What's the situation of Daxas in Europe?

In US NICE --- in UK NICE and NICE did not quite recommend and therefore they are asking additional clinical trials. I read that article. So can you explain Daxas situation briefly? Thank you.

This is Frank Morich speaking. You're right. We did not get NICE approval this time around. The reason is that --

(Interpreted). I know that. But other than UK, in how many countries do you sell and what's the total of sales? Do you have any numbers? Thank you.

Yes, I just wanted to explain why we didn't get the Daxas approval. But maybe I don't need to do that.

We have, right now we have approvals in Germany, France, Spain, and -- if you're referring to Europe -- and Italy. And we're selling it there and we're selling it alone. As a result of the Nycomed acquisition we have negotiated with Merck and reversed the deal. The Daxas asset is, as we speak, a completely owned, at least in Europe a completely owned asset by Takeda. And we have for 2010, that's the only number that I have here, we have -- sorry, I'm just looking for the right number. We're switching back and forth between Japanese and (multiple speakers).

(Interpreted). Maybe later. Just let me know the number. That's fine, thank you.

Thank you very much.

(Interpreted). Thank you very much. So we will let you know later on. Go to the next question please.

(Interpreted). Next is Mr. Mita from Morgan Stanley MUFG.

(Interpreted). Thank you. I'm Mita. Thank you very much. I have two questions. One is regarding Nycomed. Actos and other Takeda's products, does Nycomed already handle those products or if not yet then what is your plan for Nycomed to start handling those Takeda's products including Actos?

This is Frank Morich speaking again. It's a mixture. We have countries where we have already a rather advanced situation as far as the cooperation of legal entities is concerned. For example in Mexico where the legacy Takeda products are in kind of a contract sales organization handled by the Nycomed organization. We have in Brazil, for example we have changed the registration processes completely from the Takeda daughter to the Nycomed organization present there. There are numerous examples. We're progressing as fast we can and I think it's fair to say at this point in time that we are pleasantly surprised by what we're seeing. The integration is progressing faster as we had initially anticipated.

(Interpreted). Thank you very much. Next question is regarding Nesina. Now it's getting more vitalized in Japan and it's an FDC with Metformin. Do you have any specific plan how you are going to start the FDC in Japan and also if you have any plan to distribute that in the US? Could you also share with us your plan and also the Europe?

(Interpreted). I'm Yamanaka from Sales. Thank you very much for your comment that Nesina is now growing.

And Nesina's FDC with Actos and Liovel was launched last year. And domestically Metformin it's not the first line. So Nesina Metformin FDC for the time being in Japan it's not developed. And it's TAK-472 and that is a DPP4 inhibitor weekly administration oral. We also have the compound 875. And we would like to consider those mixtures and we would like to approach with the optimal therapeutic options. Thank you very much.

(Interpreted). And what about the progress or plan in the US and Europe?

The PDUFA date for the Nesina Metformin combination is in December of 2012. We anticipate that this will be a very important product in the portfolio of diabetes products for Takeda US. In Europe it's in phase III research right now. There are some additional studies that were required for the Nesina Metformin combination in Europe. We anticipate filing in 2012.

(Interpreted). So the filing in Europe is 2012.

(Interpreted). Yes, that's right.

(Interpreted). From Frank there will be some additional comments regarding Daxas, the countries where Daxas is sold.

The countries where Daxas is approved and where we have a price are US, Germany, Spain, UK -- UK, we just discussed the situation about NICE -- Italy, Scandinavia, Greece, Brazil, Argentina, Canada. And others among them are, without the price approval, Korea and Russia. And the reason why we have reduced our prognosis for the second half mainly has to do with the difficulties in getting a reimbursement price done, which has to do with the fact that we have to, in certain countries do the combination studies showing an effect on the back of what is now standard therapy, which wasn't standard therapy when the phase III program for Daxas was started.

(Interpreted). Thank you very much for many questions. If you have further questions please let us know at Takeda Corporate Communications. The time is up for the conference call so with that question we would like to conclude now. Thank you very much. We are now closing the third quarter conference call for FY'2011. Thank you very much for your participation.

(Interpreted). Thank you for taking time to join today. That concludes the 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.