Takeda Pharmaceutical Co Ltd (TAK) 2013 Q3 法說會逐字稿

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

Such factors include economic and market conditions, political event and investor sentiments, liquidity at secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number, and timing of transactions.

During the presentation from the Company, all the phone 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 the internet online but only for listening mode.

Now, we start the conversation with the presentation.

Thank you very much for joining the conference call of financial results for the nine-month period ended December 31, 2012 of Takeda Pharmaceutical Company. My name is Christopher Hohman, Senior Vice President of the Corporate Communications.

We have members here, let me introduce them. Mr. Iwasaki, Director and Senior Vice President of the Pharmaceutical Marketing Division. Mr. Takahara, Senior Vice President of Corporate Finance and Control. Mr. Inoue Vice President of Corporate Finance and Corporate Controlling Department and Mr. Miyoshi, head of CMSO Office.

First, we will give you an update up to the third quarter and also we will cover topics in R&D. After that, we would have a Q&A session.

Please refer to the presentation materials at hand. First, Mr. Takahara, please.

I'm Hiroshi Takahara, Senior Vice President in charge of Corporate Financing and Controlling. I would like to report our consolidated financial results up to the third quarter fiscal 2012. This is the consolidated summary up to the third quarter FY 2012 compared to the same period last year.

Net sales went up by JPY61.5b or 5.5% to reach JPY1,189.1b. The operating income went down by JPY114.3b or 43.1% to JPY150.7b. The net income decreased by JPY21.7b or 13.5% to JPY138.9b. Let me explain more in detail in the following slide.

This shows changes in net sales by business segment compared to the same period last year. For the domestic ethical drugs contributions from the new products such as Nesina, Reminyl, and Azilva which was launched for this term. The new products made contribution but could not offset the negative impact of NHL price reduction of more than 5.5% and the decline in existing products such as Actos and Blopress. The sales decreased by JPY600m. For overseas, sales of Pioglitazone and Candesartan orders in US and Europe declined by JPY123.6b.

On the other hand, acquisition of Nycomed, URL Pharma and Mutilab pushed up sales by JPY182.4b. Altogether, overseas total sales went up JPY58.9b. Please note that Nycomed was acquired at the end of September in 2011 and consolidated only from October 2011. Therefore, Nycomed sales from April to September in 2012 were regarded as an increase through acquisition in our year-over-year comparison.

Next slide please, this slide shows changes in sales by product. Pioglitazone sales went down JPY127.8b and sales of other mature products such as Candesartan, Lansoprazole, Leuprorelin also dropped from last year, altogether a decline of JPY48.2b but sales of new products such as Nesina, Reminyl, Asilva in Japan and Colcrys, Dexilant, Uloric in overseas increased by JPY67.1b. Nycomed products boosted our sales by about JPY150b and Velcade sales from Millennium also increased. The sales other than for mature products and new products increased by JPY170.5b. Next slide please.

Now, let me explain ethical drug sales by region. Nycomed, with its broad business platform in Europe and emerging markets helped Takeda to increase sales in Europe, Asia, and the Middle East, Oceania and Africa. In Americas, sales of Pioglitazone significantly dropped in the US, however, we acquired URL Pharma and sales increased for Dexilant, Uloric and Velcade.

In Latin America, the legacy Nycomed business made a positive contribution and we also acquired Multilab; therefore, Americas as a whole, we just had a decrease of 6% from last year. Next slide please.

Let me explain sales of emerging markets, which we consider as our growth driver. Emerging markets include Latin America, Russia, CIS, Asia, and Middle East, Oceania and Africa.

Thanks to Nycomed and Multilab acquisitions and business growth in these markets, the sales increased about 2.3 times year over year to reach JPY151.1b which is about 14% of the total ethical drug sales of Takeda. For an apple-to-apple comparison, if you include sales of Nycomed and Multilab before acquisition, excluding the FX impact, then sales of emerging markets would show a robust growth of about 14% or JPY20.1b from the same period last year.

By region, Russia CIS would show about 19%, Asia about 18%, Latin America, about 17%. In particular, China on the local currency basis would show as high as 30% growth while the operating profit, likewise, on an apple-to-apple comparison to growth of the emerging markets as a whole would mark about 11%. China and CIS and Russia growth would be about 16%. Let me explain changes in operating income. First, the sales increase was JPY61.5b. In terms of the cost of goods sold, inventory step up to fair value was about JPY34.0b from the Nycomed acquisition last year whereas for this year, the amount was about JPY4b from URL Pharma and Multilab which reduced our COGS by about JPY30b. On the other hand, mainly because of the change in the product mix such as less contribution by highly profitable Actos, the gross profit margin went down by 1.3 points and the gross profit increase was just JPY30.0b.

For SG&A, there was an increase of expenses associated with Nycomed acquisition and an increase in amortization of intangible fixed assets and goodwill. Altogether, SG&A increased by JPY102.5b from last year. For R&D thanks to the expanded late stage projects, the spending was up JPY41.8b. As a result, operating income was down JPY114.3b or 43.1% to JPY105.7b (sic - see presentation "JPY150.7b"). Excluding the special factors associated with M&A of about JPY104.6b, the operating income was down JPY106.2b or 29.4% to JPY255.3b.

Next slide please. Net income was down JPY21.7b to JPY138.9b from the same period last year. The breakdown of the change includes a decrease of operating income of JPY114.3b and extraordinary income/losses also negative down JPY3b from last year. On the other hand, we received a tax refund of JPY45.6b mainly related to the transfer price tax of Prevacid transactions which reduced our tax payment by JPY95.1b.

As a result, net income was down JPY21.7b or 13.5% from last year. Excluding extraordinary loss gain of special factors, net income was down JPY52.7b or 23.9% to JPY167.6b. Details are provided in the appendix.

Next slide please. This is the cash flow at the end of the first quarter. Operating cash flow was JPY222.8b of which the income tax made a positive contribution of JPY27.2b because of the two factors.

The first factor is the tax fund as was explained in the previous slide. The positive contribution of JPY45.6b was made related to the transfer of price tax of Prevacid transactions. The second factor is APA or Advanced Pricing Agreement of Actos transactions between tax authorities in Japan and US, making a positive impact of JPY66.7b. Based on APA, we received -- we received a tax refund in the US which will be paid to the tax authority in Japan. We received much of the refund in the third quarter and this will be paid to the Japanese authority as an additional tax payment in May this year.

Because of the difference in the timing of tax refund in the US and tax payment in Japan, the cash flow up to the third quarter showed a positive impact. The amount of the refund from the US and the tax payment in Japan is more or less the same so the net impact from APA is almost neutral in terms of cash flow. The impact on consolidated P&L up to the third quarter and for the year is also minimal. Next slide please.

Lastly, I will explain forecasts for the year. Compared to the forecast announced in October, we expect that domestic sales of Nesina, Azilva, and overseas sales of Dexilant will be below our plan. But so far, the Actos sales in the US decline was better than our estimate and we expect the yen to be weaker than our forecast in October. Therefore, we expect to achieve our October sales forecast of JPY1,550b.

For the operating income, we have achieved already JPY150.7b from April to December but we expect the fourth quarter operating income to be smaller compared to the previous quarters. This is because we expect the domestic ethical drug sales will drop partly due to the increased channel inventory for the year-end holiday season which means that there is a demand in Q4 and termination of marketing contracts of some products from Pfizer at the end of Q3. Also, there will be an increase in spending towards the end of the fiscal year.

In SG&A, sales and promotion costs will increase mainly for new products and late-stage projects are making steady progress which will increase our R&D expenses and the year-end depreciation will also push up our expenses. Based on these factors, we maintained the October forecast of JPY160.0b for the operating income.

This concludes my update. Thank you.

(Interpreter) Next is a presentation from Mr. Miyoshi.

My name is Tsudoi Miyoshi, Head of CMSO office. Today, I will talk about updates related to R&D activities. The topics I will cover are recent R&D pipeline stage-ups, data presented at the American Society of Hematology meetings and the acquisition of Envoy Therapeutics. Next slide, please.

I would like to introduce a recent stage-up in our R&D pipeline. Starting at the top of the list, Alogliptin was approved in the United States on January 25 of this year for monotheraphy or Nesina, and also in fixed-dose combination with Actos and in fixed-dose combination with Metformin, Oseni and Kazano respectively. I will talk about this in more detail on the next slide.

In Japan, we have received approval for a once monthly formulation of the biphosphonate agent, Benet. This new formulation was -- from the once-daily Benet to which we have marketed since 2002 and the once-weekly Benet which we have marketed since 2007. And to further improve the benefits and convenience of the patient. In Europe, we have commenced a Phase 3 trials of Adcetris in front line Hodgkins Lymphoma and front line Mature T-cell lymphoma.

On the next slide, I will explain more. As I have explained, in Alogliptin family, the data obtained from the EXAMINE trial, we have submitted this to the United States FDA and we have gotten approval and therefore, this is the first DPP4 inhibitor to have cardiovascular outcomes data. And as you know, in Japan, the monotherapy Nesina was launched in 2010 and Liovel, that is the fixed dose combination with Pioglitazone, launched in July 2011 and we are very pleased and also honored that we are now able to provide this drug to US patients.

And on the right-hand side of the slide, you can see the Phase 3 data that we have submitted to the FDA. Next slide, please.

I will now introduce to you the data of MLN9708, presented at the American Society of Hematology or ASH for short, held in Atlanta in December last year. Let me talk about the MLN9708. This is the oral proteasome inhibitor. It is a single oral weekly dose and we are conducting ongoing registration-supportive clinical trials, include two Phase 3 trials for relapsed/refractory multiple myeloma and relapsed/refractory primary AL Amyloidosis. There are five more trials in start-up including Phase 3 in front line multiple myeloma.

The graph on the right shows as a result of Phase 1/2 trial that was conducted in patients with previously untreated multiple myeloma with a regimen of MLN9708 in combination with standard doses with lenalidomide and dexamethasone. The patient receiving MLN9708, lenalidomide, and dexamethasone had shown the primary endpoint is 90% of overall response rate. And 58% achieved very good partial response or better and 23% achieved CR or Complete Response.

This part of this clinical trial is still ongoing and we will continue to (inaudible) in the point of overall response rate and the response -- duration of response and progression free survival. Next slide, please.

There was also data at ASH about Adcetris. This is the antibody drug conjugate from Takeda has in-licensed from Seattle Genetics. In the EU, Adcertis received a conditional approval in October last year for Adcetris as a treatment for relapsed/refractory Hodgkin's lymphoma and relapsed/refractory systemic anaplastic large cell lymphoma. At ASH, there were 18 abstracts about Adcetris including three oral presentations. I would like to briefly introduce the contents from two of these oral sessions.

On the left, we have the data for the frontline Hodgkin's lymphoma Phase 1 study. Adcetris plus ABVD and this saw a complete remission of 95% and Adcetris plus AVD saw complete remission of 96%. In the patients receiving Adcetris plus ABVD, there was incidence of pulmonary toxicity and we have therefore halted the co-administration of Adcetris and the bleomycin.

The design of the current ongoing Phase 3 study in front line Hodgkin's lymphoma that started in November last year with Adcetris plus AVD which have shown good tolerability and no pulmonary toxicity to date. In newly diagnosed Hodgkin's lymphoma, current frontline standard of care is ABVD, adriamycin, bleomycin, vinblastine and dicarbizine. However, bleomycin has been shown to cause pulmonary toxicity. With ABVD alone, you should - expect to see a complete response rate of 70% to 80% which is quite good. But there is also pulmonary toxicity up to 25%.

Next, on the right-hand side of the slide, we have the data for Phase 1 for front line Mature T-Cell lymphoma assessing Adcertis with CHP which is a CHOP therapy -- cyclophosphamide, doxorubicin, oncovin, prednisone without oncovin. In this trial, there was 100% objective response including 88% complete response and 12% partial response. This compares to an overall complete response rate in anthracycline-containing regimens such as CHOP therapy of somewhere in the 39% to 53% range so it's a very positive result and supports the Phase 3 trial so the frontline mature T-Cell lymphoma that was initiated last month.

Next slide please. We have acquired Envoy located in the state of Florida in the United States back in November last year. The company's bacTRAP technology enables the identification of protein-generating genes selectively expressed in specific cell types without isolating such cells which are presumed to be relevant to disease. And that identification is new drug discovering target. The technology is especially powerful in tissues of the brain where many cell types are intermingled as well as other namely non-CNS disease areas.

In addition to bacTRAP technology database analytic technology, Takeda gains access to Envoy's pre-clinical CNS assets including program for Parkinson's disease and cognitive impairment associated with schizophrenia. Next slide, please.

This slide indicates our approval schedule for each region. We have successfully obtained all the scheduled approvals in the major countries in the fiscal 2012. I would also like to point out that the PDUFA date for the Lu AA210004 also known as Vortioxetine, a drug which we -- in-licensed from Lundbeck of Denmark would be October 2 of this year. Next slide please.

This is the final slide. And this final slide is to remind you of Takeda's R&D value and mission. Value is Takeda is pharmaceutical company committed to the discovery and the development of innovative solutions addressing unmet medical needs of patients through R&D investment.

Thank you very much for your attention.

We would like to entertain your questions. You can ask questions either in Japanese or in English.

We have a question and answer session now. (Operator Instructions).

Hello, do you hear me?

Yes.

My first question is not related to financial results. In the interim report, you were talking about company-wide cost reduction measures. What is the current situation and update for the next fiscal year, please?

2014, 20% that's the operating income level. And the project started three months ago there are various factors and we have looked at every cost aspect, S&G and R&D, everything we check and we look at operating model that we aim for a global company. We will have a lean structure to be a profitable company and also procurement costs including raw materials and indirect materials and every procurement activities we need to achieve savings. And that will be ongoing in parallel. And for March and April, we will continue discussion and by that time, where we have the next plan announcement, we would like to show it clearly to you.

So in the midterm announcement timing, you will be able to explain?

Yes, that's right.

Thank you very much. And my second question. Regarding IFRS accounting, what are your steps? The guidance still seems rather vague, what is the current status?

Regarding introduction of IFRS, I would like to share with you what we are thinking. In May, when we announced the year-end results and for the announcement of the midterm plan, we will continue to use JFRS as before. But end of FY 2013, we target to introduce IFRS, therefore, along with J-GAAP, just for reference, we will disclose numbers on the basis of IFRS.

So J-GAAP base will continue for some time but in the meanwhile, IFRS-based numbers, whether we will disclose that or not, we are still discussing that. For FY 2013 financial announcement, we will have IFRS numbers, along with that, for actual or FY 2012, we will also show IFRS-based numbers. That is our plan.

Thank you. Just one confirmation, in May this year, you would announce the numbers for March 2014 so that will come together with IFRS numbers?

That is right. Otherwise, although we say a switch at the end of 2013, then if we show IFRS while you are used to the GAAP numbers, you would get confused. So there will be a sort of transition period where we have both numbers for the sake of convenience so we will show both standard JGAAP and also IFRS. But which is the main official number, well, end of 2013, FY 2013, IFRS will be the official numbers for us.

And regarding Nesina family, what's the positioning in the US. And you have CV data, and having said that, actually it's being used for a very long time, so Actos will expire -- have expiration of the patent protection, and so what kind of strategy are you going to employ for this product family?

The positioning in the United States was the question of Nesina family, three products namely. And when we obtain the approval, we have announced already, that for these three drugs, will also be positioned. We're listening to the idea and the input of the key opinion leaders and we have started the contact with payers and TP USA, and actually have many products to handle. And amongst them we'd like to allocate the resources, the human resources in appropriate manner. And of course, we have strategies, and we would like to brush up those strategies so that we like to position it eventually appropriately so that the -- for DPP-4, we would like to get the strategies to win, and we are now brushing up the strategies. And to this purpose, we would like to spend some time to put this plan into practice so TP USA is now trying to -- now working very hard to finalize it.

So it's now under consideration, so you are not able to make announcement right now?

That's right.

Thank you very much.

Next question please?

This question comes from Nihon Keizai Shimbun, Mr. Muramatsu. Mr. Muramatsu, now you have the floor.

This is Muramatsu speaking from Nihon Keizai Shimbun. Do you hear me?

Yes.

I'd like to ask two questions. The first question is related to the Nesina question by [Yamaguchi-san]. You have a Nesina strategy but also you will also incorporate the strategy for TAK-875, and by losing the patent production at Actos, you have to fill the gap with this. And to what extent that gap of diabetes franchise being lost through the patent expiration? How can we fill up that gap and what is the potentiality?

Thank you very much for your question. Yes, indeed, that is really the most important core or heart of the strategy. So now we are in the process of considering that seriously. And this diabetes franchise, as we have just pointed out, quite unfortunately, and we say that we'll launch Nesina in time with the launch of the generics, but we have [contrib] and others available. Therefore, that's why we are being very deliberate in considering the plan. So please wait a few more -- a little bit more time.

And I think, however, it's very difficult to fill the gap of the Actos completely with this new launch.

But what is its -- the potentiality, including 875?

Well, we are not really ready to comment about that, unfortunately.

Thank you for the answer. This is my second question now. In your beginning message, your President said the cost optimization and also he mentioned the enhancement of the productivity of the development and including global R&D and the clinical trial, and that will be something out in the near future. But what are the actual other plans you have in mind in relation to those initiatives?

And business processes, especially in R&D process, have -- the things you have asked question. And in the latter half of 2014 -- 2012, the first IND project was launched, and benchmarking with others was done. And our time to IND was actually longer than our competitors. And we have investigated where the problem lies, and as a result, each individual project has very high quality, but in pursuing high quality and in time to go to the next stage or stage up, there are so many hurdles to overcome, and that actually took us a long time. And therefore the project member decided to improve those issues, including R&D and CMC team together, and they have concluded that process can be shortened from 2.5 years to -- 1.5 years to one year. And in 2013, we would like to start this new approach from new project.

Thank you very much for your answer.

Thank you very much for the question.

Next question please?

Mr. Urushihara from Nomura Securities.

Hello. Do you hear me? Okay. I have three questions. Regarding TAK-875, in Japan you have Phase 3 -- four studies running in Phase 3 and one is completed last year, and I wonder if the second and the third studies are also completed. Regarding the first study for safety, when I asked the question in December, you said no problem. Any concerns, adverse reactions in the first Phase 3 study?

My name is Miyoshi. One study in Phase 3 is completed, but data is not disclosed yet. For the other studies, they are still running. And when all the data became available, we hope to make a submission in 2014.

So in Japan you will file in 2014, that plan remains unchanged?

That's right.

Next, about R&D expenses, yen is depreciating much cheaper and I wonder whether R&D expenses for the next year, JPY310b, would that be possible or would that exceed your plan of JPY310b in R&D expenses?

This is Takahara speaking. For the next fiscal year, as we are really in the middle of generating the plans for the next term, so I can't say anything definitive here. But one thing I can say here is, as we have always told you, that level of operating income regarding FX, things are neutral, that means we have dollar-based sales and dollar-based expenses, mainly R&D, and that is very well-balanced against non-yen assets. Therefore, in operating income, there's no impact of FX. So we don't have to be too much concerned about fluctuation in the FX market to generate a plan for the midterm.

That yen number may go up, but at the level of operating income it would be neutral. That's the basis for the planning. Considering the current currency level, yes, at the operating income level it's neutral.

Regarding balance sheet to be reduced, I have a question. You're talking about reduction of working capital and [the phase] will be advanced and in the first and the second quarters, you mentioned that. And regarding sales of marketable securities and also fixed asset sales revenue, there's nothing, and are you going to show that in the following quarters? Considering the current situation of the equity market, maybe you sell all the assets in an accelerated basis so that you can reduce your balance sheet. So, could you comment on that? That's the third question, my last question.

This is Takahara speaking. To reduce the balance sheet, as you said, in the second quarter we thought JPY18.8b both for the sales of stocks and we had some -- we recognized some profits. And in the third quarter there was no sales, but in the fourth quarter we further have some transaction according to the plan, so we would have some sales. But I can't tell you any more details, nothing that's really decided. We need to -- we don't have fixed plan for the timing. Compared to the past stock market, it's getting better. And on the dollar-based stocks, there is a factor of yen depreciation. So in the fourth quarter we hope to execute a plan.

But we have some plans for FY 2013 and we are not thinking of doing some other planned transactions in the current fiscal year, and slimming of our balance sheet both from real estate properties and some equities and will be processed, and also for the working capital reduction and cash at hand be reduced, all those issues are being discussed now.

Cash at hand of JPY350b, that is our standard, but we would like to reduce that to JPY290b. And then working capital, last year it was about -- equivalent to 3.3 months worth, and then we would like to gradually reduce that level to a bit over two months, less than three months. And that is in line with the western multinational level of working capital, so that is our target.

So that means in the third quarter there's no -- the project of further sales of some asset is not really advanced yet in the third quarter. By the end of March, we will reduce by 0.1 month's worth level.

Thank you very much.

Next question please?

Next question comes from Mr. Seki on Barclays. Yes, please. Mr. Seki, please.

Good afternoon.

Hello to you.

And on the presentation material page number five of Mr. Takahara, you have explained about the growth in the -- profit margin change of the emerging countries. A half-year ago, you have mentioned that the rate will be 30%; that was your goal. And can you please update the situation since then?

Let me respond to you. In the future, currently we would like to raise the current 30% to 40% in the future. That was what we have stated half a year ago. And in the third quarter, the operating profit ratio in the developing country was 29%. This is the quotation in euro and it is very close to a target of 30%, and we would like to further raise ratio next year and onward.

And let me further elaborate on this. I think your major concern is profitability in China. We have achieved about 14% right now. So, compared to some time ago, we have greatly improved or enhanced the profitability and the profit ratio. Thank you.

Thank you very much for the answer. The second question is about the Nesina in the United States which have approved the -- approval in the United States. And what about price with the cardiovascular data available, so this drug seems to have a higher value than other drugs. So, can I believe that that drug can get higher pricing in the United States?

Inoue speaking. Well, quite unfortunately, at this moment we haven't decided anything and it is a little bit too premature to respond to that.

Thank you very much for the answer. The third question is about the TAK-700 and post-chemo study result of prostate cancer and do you think that result will be pretty soon available?

That's not available yet.

But I think last patient out was already achieved, right?

Just a moment please.

And C21004 and 005 are going on, and 005 study.

I think you are referring to docetaxel-based chemotherapy, right? And can you please repeat the question?

Docetaxel-based chemotherapy and the patient who had [exacerbation] during that regimen.

Unidentified Company Representative So that's 21005 study, and that will be -- the answer will be presented at ASCO [SMO] in 2013, so I'd like to ask you to wait for the result by that time.

And last question, norovirus vaccine, and I think this had really the high unmet medical need, and I believe the Phase 1 is now going on. And may I understand that after the Phase 1, that you are -- are you going to Phase 3 directly? And you have to have a very large-scale study and can you use a surrogate marker for the study?

Currently, Phase 1 and 2 study is going on. This is now Phase 2, may -- should be carried out, and then after that Phase 3 will be initiated. And Phase 1/2 will be completed in -- sometime in 2013, as I have announced.

And as to the second thing, that how many patients, a large number of patients may be necessary or not. To this, for the overall size of the study, we haven't confirmed yet. Therefore, in other opportunities, I'd like to touch upon that.

Thank you very much for your answer.

Next question please?

From Credit Suisse, Mr. Sakai.

Thank you very much. Some minor points to ask regarding Actos, for this fiscal year the sales is not declining so much as you expected after the third quarter. But for the next year, generic will be coming into the market more aggressively. And I would like to ask about Russian situation, if the sales will go down, Actos, and also Russia, if good sales can be maintained. And also impact on the currency, in terms of your profit, maybe euro is neutral but for the dollar-based sales, I think the US operation is down. I think you have a negative impact by the dollar basis. Is it going to be better for the next fiscal year?

Regarding the first two questions, Mr. Inoue will answer.

First, about Actos, as you mentioned, for FY '12 it was, unexpectedly, this is not going down as we thought. How long that can be maintained we are not very optimistic. In January, the decline would be much greater possibly, and for FY 2013, it's going to be a residual item in the market.

But for Russia, well, it's one of the emerging countries, and emerging countries in general how they are going to be going forward. And in the market, the market situation or economy of Russia where the growth is outperforming the other market segments in Russia, that will continue. And we have a new plant in Russia now. Takeda Russia has a long history and I'm sure we can outperform the market. We have a new plant in Yaroslavl.

I see.

So the current growth is an extension of legacy Nycomed and it's not based on the synergy of Takeda. Regarding Russia, Takeda's product will make contribution in the latter part of the next midterm plan because of the approval issues.

JPY200.9b, of which, what's the proportion of Russian sales? Hello?

Just give us a moment.

You can give me the numbers later.

This is Takahara. Regarding the FX currency situation, so let me answer to that question first. This may not directly answer to your question, but in the fourth quarter, regarding the currency sensitivity, let me give you some data. FX fluctuation JPY1 in sales -- of JPY1 in sales in the dollar, JPY1.1b and JPY100m in operating profit. For the euro, JPY1 fluctuation in sales makes a difference in sales of JPY1b and neutral for the operating profit. So that's the level of sensitivity for Takeda.

And my point is, as mentioned before, we are generating the midterm plan for FY 2013, and beyond what is going to happen, I cannot give you any specific numbers. But for the next year and beyond, new products will grow in sales and we will have more revenue and the impact on the operating income will be much more neutral compared to the numbers I mentioned in the fourth quarter. Therefore, the yen depreciation will not negatively impact, we hope so. Thank you.

For the -- excuse me? Takahara speaking. The sale in Russia, the answer, the JPY33.2b in third quarter.

It is a cumulative basis?

Yes, it's cumulative basis up to three -- third quarter.

Well, I think now I stop questioning and I would like to contact with the IR people later.

For the interest of time, we would like to have the last question this afternoon. Last question please.

This question comes from Tokai Tokyo Research, Akahane-san.

Thank you. For the interest of time, I would like to limit my question to two questions. The first question, about emerging countries, and 13% and it's -- 30% and the result is quite nice. And it is what's in -- is it as expected?

Takahara speaking. Yes, it is as per our expectation.

And 16% is a number we have received at MRP, so it's in line with that, right?

Yes. So I should say that it's within our expectation.

And China's profitability is improving, but what is the reason?

The reason could include on one hand we have increased the number of MRs and we are quite aggressive in such policies, but on the other hand, we are also reviewing the organization so that we can make our business more efficient. So now we are carrying out those improvements. And in addition, quite needless to say, the sale in China is now expanding.

For your -- the difference in euro basis compared to the previous year, the growth is about 45%, as far as sales are concerned. And in a local currency basis, 29% was the growth of the sales. So that is the largest contributor for the improvement of the operating profit ratio improvement.

And about the fourth quarter, this is my next question, and the sale will be JPY360b and profitability is JPY9.4b, so it should be negative. And looking into second quarter and third quarter, so the cost-wise, and there is increase of cost due to the exchange rate, and SG&A has improved in the fourth quarter, and there was no sensitivity to the ForEx, but in the fourth quarter maybe we have to expect the negative number for the current profit, income?

In the fourth quarter, the current profit was about JPY1.3b negative, according to the calculation, but non-operating profit in the fourth quarter, we have some extraordinary things happening and those will contribute the negative impact. That's how we achieve this. Most specifically speaking, in line with M&A, we are going to make some loyalty payment which was deferred, and that is booked as asset -- excuse me, the liability, and we use a discount cash flow to calculate this. So the amount of liability gets larger after one year, so this gives some negative impact. So this gives some impact in the fourth quarter. So in operating income-wise, it's positive, but overall that there may be some negative impact.

And how much do you expect at this moment? How much amount do you expect at this moment?

We are making announcement in the final account [scheduled], and I think that will be in the range of JPY2b to JPY3b.

So it's not really going into, in the fourth quarter, the operating profit does not go red?

Red, you mean the deficit? I do not have to expect the loss. I don't expect a loss at all. But it really depends upon the operating income. So I don't think you have to worry about that too much.

Thank you very much.

With this, we would like to conclude today's conference call.

Thank you very much for joining this afternoon. I'd like to ask for your continued support.

Thank you for your time, and 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.