Takeda Pharmaceutical Co Ltd (TAK) 2014 Q3 法說會逐字稿

Please note that this telephone conference 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 events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuation, competitive conditions and size, number and timing 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 live but only for listening mode.

Now we start the conference. Mr. Hohman, please go ahead.

(Interpreted). Thank you very much for your participation in the conference call of the third-quarter financial results for fiscal year 2013 of Takeda Pharmaceutical Company Ltd. My name is Christopher Hohman, Senior Vice President of Investor Relations and Corporate Communications Department.

Now please let me introduce today's presenters and panel. Mr. Francois Roger, CFO, and Mr. Tsudoi Miyoshi, Senior Vice President, Head of CMSO Office.

First, we would like to start with the presentation on the topics of R&D activities followed by the third-quarter financial results for fiscal year 2013. After that we will have a question-and-answer session.

Now we start the presentations. Please have the presentation materials to hand. First of all, we'd like to start with the presentation from Mr. Miyoshi.

(Interpreted). I am Miyoshi, Head of CMSO Office. Today I am going to discuss updates related to R&D activities. The topics I will cover today are recent pipeline stage-ups since the second-quarter announcement; data from MLN9708 and Adcetris presented at ASH and Natura-alpha, a treatment for ulcerative colitis, for which we entered into an exclusive license and option agreement with Natrogen in December last year. Next slide please.

Last month we obtained approval in Japan for Adcetris for the treatment of relapsed or refractory CD30 positive Hodgkin lymphoma and relapsed or refractory CD30 positive anaplastic large-cell lymphoma. Adcetris has been approved in over 35 countries.

Regarding Contrave, the interim results of the cardiovascular outcome study, the Light study, was submitted by Orexigen to the FDA in December 2013. The PDUFA action date has been assigned as June 10, 2014.

As for MLN9708, we have begun the Japanese Phase III study in patients with relapsed or refractory multiple myeloma, which will be a part of the global Phase III program which is already underway in the US and Europe.

MLN0002, we have begun Phase III studies in Japan. It has already been filed in the US and Europe for ulcerative colitis and Crohn's disease.

Amitiza is already marketed in the US. And now we have commenced a Phase III program for the indication of pediatric functional constipation.

TAK-659 we are disclosing for the first time today. It has entered Phase I. This is a tyrosine kinase inhibitor for solid tumors and hematological malignancies.

As we have previously announced, at the end of December 2013 development of TAK-875, which was in Phase III, was terminated due to concerns about liver safety. Patient safety is Takeda's highest priority. We had plans to file in Japan in FY14 and the US and Europe in FY15. So this was unfortunate.

But we still have a deep and rich pipeline, including high-potential later-stage assets, such as MLN9708 and MLN0002, as well as many assets in earlier stages which are progressing steadily. We will continue to invest in R&D to deliver innovative medicines to patients.

On the next slide, the slide shows the data presented at the 55th Annual Meeting of the American Hematological Society from a Phase I/II trial of oral proteasome inhibitor, MLN9708, in combination therapy with lenalidomide and dexamethasone in patients with previously untreated multiple myeloma. With the all-oral regimen of MLN9708, lenalidomide and dexamethasone, one cycle being 21 days, treatment continued up to 16 cycles.

In case [of all] cycles, complete response and very good response totaled to 61%, which increased to 75% in the end. The increase in response over the course of treatment suggests the possibility and utility of this treatment. This product has also demonstrated efficacy in monotherapy with less peripheral neuropathy. And being an oral agent we expect the profile will be optimal for the maintenance therapy.

A global Phase III trial is already underway in relapsed or refractory multiple myeloma patients and we plan to obtain interim analysis results in the latter half of 2014.

As I told you earlier, Japan joined this trial in November last year. In addition, we are also conducting Phase III trials in untreated multiple myeloma patients and relapsed or refractory primary AL amyloidosis patients, each of which is progressing smoothly in terms of enrollment. Next slide, please.

Now I will introduce data for Adcetris, which was also presented at ASH. The graph on the left shows the three-year follow-up data and long-term remission from the now ongoing Phase II trial in patients with relapsed or refractory Hodgkin lymphoma. As you can see in this patient population, the median survivor from the first dosing of Adcetris was 40.5 months.

On the right is a graph showing the three-year survival data in patients with relapsed or refractory systemic anaplastic large-cell lymphoma. The three-year survivor from the first dosing of Adcetris was 63%. The data provides further evidence of already demonstrated benefit of Adcetris in patients with relapsed Hodgkin lymphoma and relapsed systemic anaplastic large-cell lymphoma.

There are other ongoing Phase III studies of Adcetris to target earlier [line settings], including a trial in Hodgkin lymphoma patients with high risk of relapse after stem cell transplantation, a frontline study in advanced Hodgkin lymphoma and a frontline study in mature T-cell lymphoma. Our efforts include broad lifecycle management to expand the indications of Adcetris. Next slide, please.

Now I will touch upon Natura-alpha, which we in-licensed from Natrogen in December. Natura-alpha is a small molecule that is believed to suppress inflammation of digestive system by inhibiting expression of pro-inflammatory cytokines, such as Interleukin-1, Interleukin-6 and tumor necrosis factor, which can promote inflammation and make diseases worse.

Currently we are conducting a Phase II study for the treatment of ulcerative colitis. It is a strategic fit with our gastrointestinal portfolio, which also includes MLN0002, a monoclonal antibody for the treatment of moderate to severe ulcerative colitis and Crohn's disease. Next slide, please.

Finally I would like to show you our expected approval timeline for the next few years. In the fourth quarter we expect in Japan approval of an influenza vaccine and a fixed-dose combination of azilsartan and calcium channel blocker, and in Europe we anticipate an approval of lurasidone for treatment of schizophrenia.

We also expect several approvals in FY2014, including MLN0002 for ulcerative colitis and Crohn's disease, which we received a positive opinion from the FDA advisory committee in December, and Contrave for treating obesity.

Regarding TAK -- we have 472 and TAK-700. And regarding TAK-700, as we announced in July last year, we are currently conducting a Phase III trial in chemotherapy-naive prostate cancer patients. We will wait for the results of the study before we finalize our filing strategy and announce the timeline.

Brintellix or Lu AA21004 was approved in the US and was launched in January. In Japan we have the Brintellix Phase III study and we have decided to conduct additional studies. We are discussing the timeline now. We will make announcements when our final schedule gets clear.

We have a strong vaccine pipeline and development is being accelerated, including the norovirus vaccine obtained through the LigoCyte acquisition two years ago and the dengue vaccine obtained with the acquisition of Inviragen. We now expect the norovirus vaccine approval around FY16 to 2017, which we added in the table here.

This is the end of my presentation. Thank you very much.

(Interpreted). Next is the presentation from Mr. Roger, CFO.

Good afternoon. I'm Francois Roger, Chief Financial Officer of Takeda. Thank you for joining our earnings conference call today. I'm happy to give a brief description of our earnings performance and forecast.

And at first I would like to open by saying that we are pleased with our Q3 and year-to-date results, which we believe mark important early steps in achieving our strategic targets relating to growth, innovation and efficiency.

Please move to slide two of our earnings presentation, where you can find the highlights of our quarterly announcement. First of all, we are pleased to achieve underlying sales growth in Q3 at 5% on a like-for-like basis, which is in line with our mid-range guidance.

On the product side, we saw a good start of new products, such as Adcetris in Europe or Nesina in Japan and the US. And we are happy to say that we have launched Brintellix in the US in January 2014.

Also you are aware we announced in December the termination of Fasiglifam, TAK-875. And I confirm once again that this has no material impact on our mid-range guidance, which we are therefore fully reiterating.

On the other hand, we are pleased with the positive recommendation of the FDA's advisory committee for Entyvio, MLN002, for both ulcerative colitis and Crohn's disease indication.

In terms of capturing efficiencies, I can report a strong start to our Project Summit, with over JPY30b of expected savings in fiscal year 2013. We feel that these results represent the beginning of a sustainable improvement of our cost base and demonstrate as well our ability to execute such transformational projects.

As I have mentioned before, Takeda has a strong balance sheet and low net debt and I will come back to that later on. And finally, we are pleased to upgrade our sales and operating income guidance for fiscal year 2013.

Slide three reminds everyone of our guidance for sustainable growth first announced in May of last year. In light of our Q3 results we are confident to reiterate these top-line objectives, which are mid single-digit sales growth CAGR as well as a profit target which is over 20% operating profit CAGR and 25% core earnings to be reached by 2017. As you know, we value shareholder return. And as such we have committed to maintaining the JPY180-per-share level of our dividend till 2015.

Slide five shows reported growth of 14% in Q3, supported partly by foreign exchange. But more importantly we can now say that for the third quarter in a row our underlying sales growth was around 5%, showing the sustainability of our organic growth. This growth is also fully consistent with our mid single-digit medium-term guidance.

Slide six looks more closely at our 5% like-for-like top-line growth, benefiting from both our new products and our base business. We are happy to see resilience in our base business and our solid growth is mainly coming from innovation as more than 85% of our growth comes from new products.

Slide seven shows more details about our top-selling products, providing the changes in yen basis as well as like-for-like percentages. We are pleased to see the growth of products particularly in our general medicine category, where Pantoprazole and Dexilant both grew above 21% year on year.

Further, it is great to see that Velcade, even 10 years after launch, still continues to grow. Of course Actos sales continue to fall as a result of the LOE. However, in the long term the comparative negative impact is getting smaller and smaller and Actos is likely not to be a top-10 product next year.

Slide eight. In particular I want to point out the growth of our new two products, namely Nesina and Adcetris. Not only are these products growth drivers in terms of sales, but their contribution to profit is meaningful. These successes are important as we have high expectations for our coming launches in calendar year 2014, particularly in the US, with Brintellix, Entyvio and Contrave.

Turning to the sales growth by geography on slide nine, we are pleased to report that all regions achieved positive growth, underlying growth in Q3 again. Most notably is our achievement of 15% growth in emerging markets. Japan had the benefit from wholesalers restocking our products in the last quarter.

Slide 10 shows the details of our emerging market sales. Please note that some deceleration in growth has been experienced in emerging markets and that the fourth quarter will be impacted further. It should also be noted that this slowdown is more a reflection of market drivers and not linked at all to Takeda's specific performance as we continue to gain market share in these markets.

Let's now move to a discussion on our P&L on slide 12. This slide shows our Q3 profitability as reported in J-GAAP as well as on a like-for-like basis. Here you can see comparable evolution of gross margin, SG&A and R&D, all showing positive momentum compared to the same quarter of last year.

We recorded an impressive 7.7 percentage points of improvement of our operating income margin driven by sales growth, cost management and OpEx discipline, supported by some favorable phasing of costs, especially in R&D. Our costs are under control and the Summit Project, which I will describe more in a moment, has begun to deliver attractive results.

Again, please be aware that R&D benefited in Q3 from some favorable phasing, which will lead to higher cost in Q4.

Slide 13 shows that, supported by underlying profitability improvements and boosted by some extraordinary income, EPS more than doubled in J-GAAP and increased by 88% on a comparable basis.

Slide 14 shows SG&A and R&D progress in Q3 and year to date, further supporting sustainable improvement in our cost base which is mainly the result of Project Summit. At the same time, I will reiterate that the timing of expenses, particularly in R&D, played a role in this improvement and that these costs will be higher in Q4. However, both SG&A and R&D will decrease in absolute value on a like-for-like basis in the full year 2013.

Slide 15 shows how our strong profit improvement was driven mostly by a combination of better product mix and Summit cost savings.

Moving to slide 16, it describes our achievement in Project Summit, our Company-wide efficiency initiatives. This project has progressed very well and we are happy to disclose that we expect to reach over JPY30b in annual and recurring cost savings in full year 2013, which is the first year of the project.

These savings are described on this chart. They are diverse across the Company and around geographies. We will provide more details of the breakdown by activity in Q4 on the occasion of our full-year earnings in May.

Here I want to remind all that our savings curve over the period to full year 2017 is not completely linear. We expect more savings to be captured in the beginning of the period, mainly in 2013, with what we can define as low-hanging fruits, and again in 2015 to 2017 when savings from more complicated programs, such as industrial and IT-related projects, can be achieved. We will provide a guidance for the savings for the year 2014 at the occasion of our full-year results for 2013 in next May.

Now I would like to quickly review our balance sheet and cash flow from slide 18.

Slide 18 describes what we believe is a strong balance sheet. If we move to slide 17 -- 19 it shows our low net debt, which is standing at just JPY59b as of December 31, 2013, which is equivalent to a net-debt-to-EBITDA ratio of 0.1 times.

Slide 20 shows our strong cash flow generation. I should point out here that our working capital levels require some improvement, which we plan to accomplish in 2014 as we are actively working on working capital as we speak.

Next, on slide 22, we have raised our guidance for the full year fiscal 2013, reflecting a positive impact of ForEx on sales and better cost management in operating income. The revised forecast also includes Q4 sales growth in line with the up-to-date trends, even including a slowdown in Japan and emerging markets, but that will be offset by higher growth expected in the US.

Higher R&D and commercial investment is expected in Q4 to support our product launches, and especially Brintellix in the US, as well as our strong pipeline, which means that we expect a loss at operating level mainly as a consequence of the phasing of expenses.

There is some kind of seasonal impact as well as traditionally we incur more operating expenses in Q4, especially in R&D, as we recruit more patients in Q4 than in Q3, because in Q3 there is a break with the New Year and Christmas. Once again, our launch program, and especially Brintellix in the US, is also contributing to the fact that we have more SG&A in Q4 this year.

As a conclusion, I will reiterate that we view Q3 as another good quarter, which is fully in line with our expectations. We are pleased to see good execution of cost savings resulting from Summit. We are achieving growth in operating income above both prior year and prior plan. And our revised guidance for operating profit at JPY1,500 oku means a 23% increase in terms of operating profit over last year, which means a level which is even above what we have provided as a guidance in terms of -- for the medium term at 20%.

With that I conclude my formal remarks to make time to answer your questions.

(Interpreted). Now we'd like to field your questions. We will be taking questions from listeners in both Japanese and English. And please limit your questions to two. In addition, please state both questions in the beginning.

(Interpreted). (Operator Instructions). Mr. Yamaguchi, Citi Securities.

(Interpreted). Can you hear me?

(Interpreted). Yes we can.

(Interpreted). My first question is on Project Summit, its progress status. This time JPY30b was disclosed. And percentage-wise, 4% down, that's also disclosed. Out of JPY30b, by Q3, how much savings have you already achieved? And 4%, does all of 4% come from the Summit Project? That's my first question.

My second question is TAK-875. I understand it's terminated and there was a liver safety concern and warning sign. Have you ever seen any warning signs in Phase II because I think that is quite unnatural to terminate it at the very end? So haven't you seen any warning signs of this liver safety concern during the course of Phase II? That's my second question.

Thank you, Yamaguchi. Thanks for your question regarding Summit. We don't disclose the amount that we have achieved in Q3. So we just provide the guidance for the full year as we have already -- we're already almost 10 months out of 12 in the year, we are very well advanced out of this total amount. And we will come back with the final number which will be above JPY30b in May on the occasion of our full-year results.

Regarding the 4% that you are mentioning, which is the cost reduction, most of it is coming from Summit as we're already focusing the entire organization on that project. There are always a little bit of additional savings here and there. But you can consider that the bulk of it is coming from Summit.

As you can see, the reduction that we have achieved year to date is significant. We may end up with a reduction of costs on a like-for-like basis in absolute value that will be a little bit lower than what we have achieved year to date. But it will be obviously in negative territory. So taking into consideration the fact that we grow at a constant rate of about 5% on the top line, so we will have an absolute reduction in our cost base, both in SG&A and R&D. This means that we are obviously improving significantly our operating profits.

I will let now Tsudoi answer the second question.

(Interpreted). Regarding TAK-875 during the course of the development, the side-effect levels were comparable to the other anti-diabetic agents. But coming into December, highs and lows for the first time was seen and we discussed with the independent modeling level. And highs and low actually was observed. And there may be some possibility of such liver concern in diabetic patients in the future. That's why we terminated this development project. Thank you very much.

(Interpreted). Next question, please.

(Interpreted). Mr. Seki, Barclays.

(Interpreted). Hello. I have two questions. One, it's mentioned in [Kenzen] royalty income and service revenue in the quarter overseas JPY28.6b is mentioned. Do you have any breakdown of this? There seems a one-off event related to this. So can you disclose details?

And the second question is TAK-875. In the presentation you mentioned no major changes in the strategies. And the guidance includes all the impact of termination of 875. And why there is no major impact, for example, in R&D organization maybe you reorganized some things. You won't have anything like that? Thank you.

I will take the first question on the royalties. We don't disclose the detail of the royalties by product. One of the reasons why the -- there was a significant increase in Q3 is linked, to a certain extent, to the fact that there has been a tender for Velcade in Russia and that it contributed to increase the value of royalties in the quarter.

Regarding TAK-875, I would let Tsudoi answer.

(Interpreted). It is true that for the huge revenue or sales we expect some decline. But, as you know, we have Vedolizumab or Entyvio and also lurasidone, 9708, Contrave, Brintellix, we have those major assets, as you know. All those candidates are associated with probability of success. We make sure that those products will successfully deliver to the market and then can offset the impact of 875.

And regarding R&D team, our organization reshuffling, well we have Nesina in this diabetic area. And this is a very important area and we have a very strong presence globally. And in this therapeutic area we will continue to invest. And as of now, although it is still in early stage, we have some promising assets and there are some unmet needs in this area and we will continue to research and development. Thank you.

(Interpreted). Next question, please.

(Interpreted). Tim Race, Deutsche Bank.

Hi there, gentlemen. This is Tim Race here from Deutsche Bank. Just a couple of questions, please. First of all, I suppose just talking about your US primary care sales force, we've seen now six months of prescription data from Nesina and the various combination products. And according to IMS data, the launch looks pretty weak so far. Could you perhaps talk to me about how you're incentivizing your sales force and how you can get the Nesina launch going better outside of Japan?

And then just perhaps a second question, just on the Brintellix. Could you talk about how the launch is going so far in the US and what we should expect in the early stages, and just maybe a little comment on why the delay to Brintellix in Japan? Thank you.

Regarding Brintellix, I think it's too early to comment at this stage because we have just launched in January. So it's not even a month, I think, since we launched.

Regarding Nesina in the US, so far we are in line with our plans, so there is no significant disappointment. I think that the data that are publicly available might not be fully accurate, I think, at this stage. The only thing I can comment as well regarding Nesina in the US is that we saw that actually the development of the combination was greater than what we expected. So this is the only change, I would say, versus what our original expectation. But in terms of sales, there is no deviation against our original plans at this stage.

(Interpreted). Miyoshi talking. Regarding Brintellix Japan, as I told you earlier, an additional study is planned and we are now reviewing the timeline of the studies. Therefore it will be delayed from the timeline shown in the table in these materials, but we'd like to disclose the timing soon after we revised our plan.

(Interpreted). Would you please go to the next question?

(Interpreted). Mr. Urushihara, Nomura Securities.

(Interpreted). Hello. Do you hear me all right?

(Interpreted). Yes. Go ahead.

(Interpreted). Two questions to Mr. Miyoshi. The first question, TAK-875 development is terminated. Regarding GPR40, is that a class effect or did it impact the liver? Is that your view? So I suppose you have back-up compounds. But regarding GPR40 development, is it completely terminated as a project? That's my first question.

And the second question is about Actos. KPNC 10-year study, I suppose you have modest data available. And what's the progress so far? Thank you.

(Interpreted). Regarding TAK-875, whether the side effect is class effect or not, well until December the development has been smooth and we have now the liver effect. And we need to investigate exactly why that was the case. We can't really say whether it is a class effect or not. And in that sense this therapeutic area, including the compounds that we have as back up, we will continue to discuss with you.

(Interpreted). Regarding the second question, Actos pioglitazone, KPNC 10-year study, eight-year study is already available but I suppose data is more or less available for the 10-year study. What's the situation? Regarding KPNC 10-year will be published within FY2014. And I thought it was in the beginning of the fiscal year but we still have to wait.

(Interpreted). Regarding the timeline, we can't really say for sure. We expect the data will be available within FY2014.

(Interpreted). So you don't know whether it's going to be the first half or the second half?

(Interpreted). No. Thank you.

(Interpreted). Thank you. Next question, please.

(Interpreted). Mr. Muraoka, Morgan Stanley MUFG.

Muraoka speaking. My first question is regarding cost forecast for Q4. As you continue, you say that you will be spending R&D, but are you going to be really spending that much? And are there any possibilities -- I think that it's very likely that you won't spend up all the forecasted numbers for R&D.

And other SG&A expenses, other than R&D, as I expect probably in Q4 it will be greater than the last year's same time period by more than JPY10b. But is it really that high level of spending in Q4? I couldn't really understand the reason behind.

Second question is regarding termination of TAK-875. You mentioned that it doesn't have impact on the mid-term forecast, but R&D, I think that from next fiscal it will be reduced in terms of investment. And also in the US, [MO] 1,700 people, I believe that you will be able to achieve major savings in terms of numbers of [MOs]. Could you comment on that?

(Interpreted). Regarding the R&D expenses, from R&D perspective I'd like to answer to your questions and others will be answered by Francois.

Concerning R&D expenses, last fiscal, in this timing, if you look at Q3/Q4 of the last year, the same sort of growth or progress were experienced. Due to the impact of patient recruitment, [CRO] expenses are always generated in Q4. And Japanese invoice growth also will take place at this timing every year. We need to conserve balance, but some will be finalized. Therefore we believe that we'll be able to go in line with the forecast.

I confirm that we expect to spend the amount that we have indicated in our guidance, both in terms of R&D and once again the recent phasing which has happened last year, which is essentially linked to the enrollment of patients, which is not something that we fully control ourselves. But, as I said in December, there is hardly any enrollment of patients and then there is a catch-up in January where we enroll more patients.

Regarding SG&A, as I mentioned earlier, there is a specific case this year because we will spend significantly more than last year as a consequence of the launch of Brintellix in the US, so -- which is something that didn't happen last year. So the comparison has to be adjusted for the specific case of the launch of Brintellix.

Just one other word on TAK-875, because we had the question as well earlier, so I want to make sure that we clarify the issue. TAK-875 did not impact our medium-term guidance. Why? Because there was -- there were obviously some sales in the later part of the planning period, but there were a lot of costs as well. So even the sales were not material enough, even in 2016 and 2017, to make us revise our guidance to start with.

And in terms of operating profit, the impact over the planning period was fairly negligible because we had some positive impact with margin that we were expecting and that we will lose as a consequence. But we are going to save a couple of hundreds of millions of dollars as well in terms of planned R&D and commercial costs as well for the launch. So net there is no impact.

The issue is really for us, are we going to save these amounts? This is not the main topic today because we believe that it is likely that we will reinvest whatever we have saved in terms of development and commercial cost on TAK-875. It is our intention to reinvest these savings of a few hundreds of millions of dollars, as I said earlier, for growth. So we have a little bit of a gap in terms of growth coming from the termination of 875.

But we believe that we have opportunities, could be on the commercial side, could be on the business development side, could be on R&D, to reinvest for growth in order to fill the gap. We are currently looking at different options between these three categories, essentially business development, commercial and R&D.

(Interpreted). Thank you very much.

(Interpreted). Next question, please.

(Interpreted). Miss Falcetti, Cantor Fitzgerald.

Hi. Good afternoon. This is Emilia Falcetti from Cantor Fitzgerald. I have two questions, one on Contrave. You mentioned this drug is one of the contributing drivers. And even the other obesity treatments launched in the US in the last few years have disappointed significantly. I was just wondering if you could give me your thoughts on the market and how this product will maybe (inaudible) itself or something to differentiate from the others.

And secondly, on emerging markets, given that you're going to experience a little bit of a slowdown in Q4, what impact is that going to have on the margins, i.e. what level of profitability have we reached in emerging markets overall?

Especially the question of some visibility to China and trying to understand what the profitability of that market is and whether it has suffered anything from the repercussions of the Glaxo bribery scandal. That's it.

(Interpreted). This is Miyoshi speaking. In US in obesity patients, 70% of those who receive prescription medicine are female. Recently there are other obesity drugs, but [estrogenicity] is a concern with those competitive products. But Contrave has not that concern. For females it is very female-friendly.

And regarding other new products, two products from competitors, they are scheduled drugs. That means that they tend to have addiction. But Contrave has no addiction so it is very safe and it is easy to use. And also Contrave has the only and the first obesity, anti-obesity drug with neurological data. So we are competitive enough against those two agents in the market.

I mentioned earlier, we have seen already a significant slowdown in our growth between Q2, where we had a growth of 28%, to Q3 where we were at about [15%]. I indicated that there is a possibility even that this growth will even slow down even further in Q4. Also the further slowdown in Q4 could be linked to some exceptional items. This slowdown in emerging market is obviously something that we are looking with a lot of attention.

We are absolutely convinced as of today that this is not linked to any specific issues with Takeda. This is more linked to momentums in emerging market. And most of our peers have actually provided similar information regarding emerging market growth in terms of slowdown. We don't see that as a significant issue and it doesn't impact our guidance, neither for Q4. I said earlier that we expect in Q4 to have a top-line growth which will be in line with what we experienced in both Q2 and Q3. So no impact in terms of slowdown.

You were mentioning about margin. We don't expect an impact in terms of margin. Either -- why? Because even if there is a slowdown in emerging market we expect that things are actually doing better in Europe than what we originally expected. And potentially in the US as well we expect that things could perform better than what we originally expected. So this is a little bit, I would say, part of the normal course of business, with some regions doing better, some doing worse.

You were asking the question about margins in emerging markets. They are overall satisfactory. If we look at the margin, to simplify, we have a margin which is lower than in developed market, namely Japan, the US and Europe. But since most of our portfolio is still, as of today, it will change over time, linked to branded generics, which mean that the need for R&D is lesser. As a consequence, if we were comparing apples with apples, which means margin after R&D on the one hand in developed market and before R&D because there is [little] in emerging market, we have a level of margin which is more or less equivalent, so which means that the return that we get is good and satisfactory.

You mentioned more specifically China. We have a profitable business in China. And I think that we managed to strike the right balance between growing very strongly in China and -- but growing profitably as well, so which, in my opinion, has been very satisfactory as far as we are concerned.

Finally, just one word. Even if our growth is slowing down, it is clear as well that we have to draw the necessary conclusion of what it means in terms of resources that we need to invest on the commercial side in emerging market, which mean that obviously, if we grow by half of what we were growing a few months ago, we may have or we will probably adjust our commercial investments accordingly.

Great. Thank you.

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

(Interpreted). Mr. Sakai, Credit Suisse.

(Interpreted). Thank you. Sakai speaking. I'd like to ask you a question regarding products. TAK-700. So your conclusion will be coming around summer this year? I might have misheard you. Regarding this compound, at some stage in time, well I think it will not be disclosed, but do you have any back-ups? That's my first question.

Second question is on Adcetris. Compared with your forecast, I think sales has been progressing better. It's not clearly disclosed, but especially in Europe, in the first half, about JPY4.5b I think was the number. So what's the sales up to Q3 and what is the further forecast of Adcetris sales, not necessarily about Japan, but in Europe and other countries?

(Interpreted). Regarding the TAK-700, as I told you, pre-chemo study, currently Phase III study is underway. We expected that this study will be ending earlier, but around summer I believe that we will be able to disclose some information. But we cannot make any promise at this moment. After having the results of this pre-chemo study, then, together with the results of [21005], we will decide the strategy and then we will disclose.

(Interpreted). How about your back-up project? Do you have any back-up compounds that you can disclose to us?

(Interpreted). In the same series of TAK-700, I don't have any to disclose.

We don't provide the details of sales. So we provided some indication. So you have a chart in my presentation that gives you the level of sales so you can draw conclusion from that. You are certainly right in saying that Adcetris is doing better than expected. It's doing actually significantly better than expected, which we are very pleased with. So we are satisfied with that.

(Interpreted). You are satisfied. That's fine. But can't you explain the situation in more details? You, Takeda, have been marketing in Europe, so I think you know the situation over there.

(Interpreted). Miyoshi speaking. Well, rather than marketing, the data that we have shown to you indicates that, whether it's Hodgkin lymphoma or the anaplastic large cell lymphoma, for both indications a very high efficacy, which couldn't be seen in any other precedents, were shown and that's [now] widely accepted, therefore it will be widely used. And we'd like to also get additional indications for this. With that we expect greatly for this compound.

(Interpreted). I'm sorry to ask you follow-up questions, and I think that you said profitability is really high. And it is an in-licensed product, but still, as of today, is it true that you have been making profit, substantial level of profit from Adcetris sales?

It's a third party product, so we have a good margin. But we need to remunerate the company that developed the product originally. So the margin is obviously lower than a product that would come from Takeda originally. But the margin is very satisfactory to us.

There is one additional thing that I can say, that in some markets we have very high market share for the indication that we have got, which means that even in some markets the potential for further growth might be limited today, because we are close to having, I would say, most of the patients that we could address for this specific product. But we are still developing the product in some new countries as well, so there will be some additional growth coming from that product.

(Interpreted). Thank you very much.

(Interpreted). Well the next question will be the last question because of the time limitation.

(Interpreted). Mr. Nakazawa, SMBC Nikko Securities.

(Interpreted). Hello. My name is Nakazawa from SMBC Nikko Securities. I have two questions regarding pipeline. TAK-875, it was mentioned already before. But in GPR40, with the same mechanism you will re-challenge. Is that your policy? According to some news reports, [a real carbonic] derivative, because of the structure of this kind of compound, it is likely to impact liver. And so if you are to continue development, are you going to challenge different structure of compounds? That's the first question.

(Interpreted). As I said before, it's not exactly the same type of product. We will consider every option and we will continue our investment in this area, including back-ups. Whether the structure itself is a problem or not, we don't have a definite answer yet and we do not comment on this as of now.

(Interpreted). Thank you. For example, SGLT2 inhibitors or DDP-4 inhibitor to be combined, that could be a golden standard for pharma companies to promote. And SGLT2 inhibitor may be in-licensed?

(Interpreted). Well, diabetic area is a very important area for Takeda and we will consider every option. But to have fixed those combinations with specific SGLT2, no, we can't comment on that.

(Interpreted). Thank you. And my last question regarding SG&A. I suppose you have some room, and I'm not fully convinced that you will use up all the budget. According to what I heard, in the third quarter and the fourth quarter JPY30b increase in SG&A, that is your plan. But you mentioned Brintellix sales cost and also impact of FX. All that could explain this much increase? May I ask that question once again?

I confirm that we expect to spend that amount in Q4, which is the reason why we provided that revised guidance. I confirm that the main driver is indeed the investment in Brintellix. There are other factors, but -- there is a collection of different other factors, none of them being significant in itself. But we do confirm the fact that we expect that increase, which is mainly driven by the investment in Brintellix in the US.

There is a minor impact in terms of LTIP, but it's not significant. It's part of this additional item that I was mentioning, none of them being very significant in itself, but all of them combined may contribute to the increase in Q4 versus Q3. Regarding LTIP, we have made an assumption of the share price at closing at JPY5,000, which -- and our guidance at -- with a revised working profit at JPY1,500 oku is based on this assumption of JPY5,000. So there is a little bit of the cost increase coming from LTIP as a consequence because our share price, when we closed at the end of December, was at a lower level.

Thank you very much. With this --.

(Interpreted). Hello. Just one more clarification. In Europe, lurasidone was approved, and you paid -- you will pay JPY8b to Dainippon. Is that an R&D item?

(Interpreted). No, it's not in R&D cost.

(Interpreted). So other SG&A?

(Interpreted). Yes.

(Interpreted). Thank you. Thank you very much.

With this we conclude today's conference call. Thank you very much for your participation.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.