Takeda Pharmaceutical Co Ltd (TAK) 2014 Q4 法說會逐字稿

(interpreted) Thank you very much for your introduction. I am Hasegawa thank you very much for your attendance. And taking this opportunity I'd like to give you some short report of the status quo of our mid-range growth strategy.

Our mid-range growth strategy 2013 and 2017 is right on track, with solid performance in the initial year 2013, which will be explained in detail by our CFO later.

Progress on it is moving forward ahead of our plan. We achieved JPY34 billion in recurring cost saving. And again significant business process reengineering in FY 2013, we are targeting to achieve saving of over JPY120 billion in 2017, JPY20 billion higher than there is now planned, while continuing to promote diversity.

The appointment of our COO, as we've introduced to you, Dr. Christophe Weber, has [arrived] out of our recent [total] in hiring, which has included our CFO, Chief Procurement Officer, Chief Information Officer, and the Global Human Resource Officer.

This spread of diversity will invigorate our global organization. We hope especially our Japanese employees working in Japan would learn as much as possible what a true global talent can achieve directly. And we expect as many will strive to be such global talent, and we are ready to fully support them.

As COO, Christophe is responsible for all operational activities, and reports directly to me. My role will be to continue to take responsibility for mid to long-term global strategy and important global management policies.

Swift uptake of new products sales is one of the priority challenge critical for the successful execution of mid-range growth strategy. Launch plans, as well as the steady progress of our late-stage pipeline, with improved R&D productivity, will be explained by our Chief Medical & Scientific Officer later.

Geographically, the emerging markets will contribute to over 40% of our growth in top-line sales and operating profit growth through to 2017, while the US will contribute to around one-third of our growth in the same period.

I also reiterate our commitment to pay JPY180 per share dividend through to 2015. Our improving financial position means that this amount will be covered within our each year's free cash flow.

And regarding CASE-J, to both prevent similar instants in the future and to further enforce our preventive measures, Takeda is continuing to fully cooperate with the ongoing third-party investigation into all of Takeda's promotional activities, and also identify areas requiring improvement.

Next, regarding the multidistrict litigation of Actos in the US, although we face the verdict at the Western District of Louisiana with solemnity, Takeda respectively disagree verdict at the same time, and we intend to vigorously challenge this outcome through all available legal means, including post-trial motions and an appeal.

Lastly, the huge storm of restructuring is raging in the western world. Though we never exclude any possible choices, we forecast for the time being to maximize synergy with project Summit and successful launch of new products. By doing so, we sustainably achieve growth exceeding the individual regional industrial average, construct effective and resilient operating model, strengthen financial basis, and force down human resources to realize Global One Takeda and [researched] in the vision 2020.

Thank you very much for your attention.

(interpreted) Thank you. Next COO Weber makes you a remark. (Operator Instructions).

Good afternoon. Well, in fact, I will be very brief today, because as you know, I have been only a few weeks with the Company.

When I first met some of you at the beginning of April, I did share my vision and aspiration for Takeda, and that's to become a global leader perceived as best in class by our customers, by our employees and by our stakeholders, including shareholders.

And that's very much what I'm focusing on at the moment; I am in a listening and engaging phase, a learning phase with the organization. In the last five weeks I spend a lot of time with the different parts of the business; in Japan, of course; in the United States; in emerging markets; in Europe; with the R&D organization, really understanding what are the strengths and weaknesses of Takeda.

And what I can already share with you is that I am at the moment very confident about the future. I have seen first great values shown by everybody. Takeda-ism is something which is resonating not only in Japan, but everywhere in the world. And that's very important in my mind to start with very strong values for the Company.

The capability and the talent that we have is very strong, so that's something very important. We have very good people in the organization, very dedicated people. And we have a very promising pipeline for the future. And we have growth drivers in every part of the world. So that's something which makes me very confident.

Now, of course, the challenge for us, and I will not give you a detailed plan today, time will come when I will be able to do that, but the challenge for Takeda is to be performant everywhere, wherever we operate, whether we are in emerging markets, whether we are in Europe, whether we are in Japan. So are we performant everywhere? And at the same times, are we performant in all therapy areas where we are present?

And that's really the challenge to us. We are present in many therapy areas, and we need to be competitive and performant in every therapy area.

And that's really what now I am working with my team is how can we really at the Company -- how can we have the agility as an organization to be performant wherever and whatever the therapy areas.

And as you know, as I mentioned, a lot of moves in the pharmaceutical industry at the moment. In fact, everybody is searching the way to be performant. We will find our own way. We have so much potential in the organization, and I will be able to update you in the near future. Not today, because I'm still in this learning phase, but in the near future, I will be able to update you on how we will be this best in class company and global leader.

So far, it has been an amazing start for me. And again, I'm very confident about what we can do and grow. And you will see from also our CFO that our financial robustness is getting greater and greater.

So I have nothing more to say at the moment and I thank you very much. Thank you.

(interpreted) Now Tadataka Yamada, Chief Medical & Financial Officer, will be giving you a presentation on R&D activities.

Good afternoon, ladies and gentlemen, I am delighted to speak to you about R&D's initiatives and progress during the last year.

First, let me indicate that our mission is to lead the pharmaceutical industry in providing meaningful solutions to patients with unmet medical needs.

If we look back at FY 2013, it was a very, very productive year for us. We had many, many assets that went from filing to approval, and we have also submitted many other exciting compounds for registration. The assets boxed in red indicate those assets which progressed in the last quarter since we had our last meeting.

There are some very important assets in this. As you know, we have Brintellix, which we have already launched in the US; Entyvio and Contrave, which we anticipate receiving registration and approval for in this quarter.

We do measure R&D productivity a number of ways. One way is how we meet our internal targets. And what we have presented here is actually the internal targets for NDA/MAA approvals, proof of concept and competitors' mis-achievements, phase II stage-ups, total number of phase II assets, and IND filings. In each of the areas, we have exceeded our targets.

We have also taken a measure of our performance against other companies in the competitive environment. This is an analytical approach first introduced to us by BCG, which looks at the net present value of our pipeline judged against the denominator, which is the total R&D investment.

And for this information, we have taken data from the Evaluate Pharma database. And as you can see, Takeda -- and this is a rolling three-year analysis -- over the past three years, we have increased our productivity against our competitors in a consistent and meaningful way.

Now, of course, we have some very important mid-range growth strategy initiatives. To begin with, our strategies for enhanced productivity are based upon a fundamental focus on the patients. And towards the patients' needs, we want to work with a sense of urgency, commit to true innovation. We are looking at game-changers rather than small incremental improvements in existing therapies.

We certainly are very focused on establishing excellent partnerships, both in industry and in academia, and we are measuring our performance on a regular basis. On top of that, of course, we want to have very, very much focus on quality of thought, and operational excellence.

Now on quality of thought, we think there are critical elements that are important. We believe we have to make the right decisions. What differentiates successful companies from those that are not successful are not necessarily the science, but the decisions that are made around the assets.

We have to have the right people in the right positions to make those decisions. We have to empower them. And then we have to trust their decisions and assume accountability for them. This is the principle by which R&D is moving forward.

Now in the short term, we have some really important key deliverables. We have to make certain that our files move steadily forward to approval. In this regard, Entyvio and Contrave are two very important assets; Entyvio for inflammatory bowel disease, and Contrave for appetite and obesity.

We have in addition two files in registration in Japan; one for the P-CAB inhibitor, the potassium comparative acid blocker. That's Vonoprazan. And then we have Trelagliptin SYR-472, which is our once-weekly DPP-4.

We also some late-stage assets that are moving forward very quickly. These are in phase III. That's ixazomib, or 9708, which is -- as you know is the oral proteasome inhibitor. We have a norovirus vaccine. We have a sublingual formulation of ramelteon which we are progressing for bipolar disorder. And we have a biomarker-driven study in Alzheimer's disease, in this case from normal subjects to rapid progression to mild cognitive impairment using a biomarker, TOMM40.

We have some very important mid-stage assets that we are hoping to progress as quickly as possible. 8237, which is our Aurora A kinase inhibitor, which is progressing for T-cell lymphomas; and with those, we are also looking at that asset for ovarian cancer.

Dengue vaccine is moving forward quickly. We hope to be able to progress that a stage up to phase III some time in FY14 or early FY15. MLN0264 is our guanylyl cyclase C antibody-drug conjugate, which we are progressing forward in two very difficult-to-treat cancers, pancreatic cancer and gastric cancer.

And then 4924, our NEDD activating enzyme inhibitor, which we are looking at in a number of cancers, but particularly in acute myeloid genus leukemia.

We have some very important lifecycle management activities. Entyvio; we're looking at a subcutaneous formulation. Adcetris; we're looking at a number of different cancers, most importantly in frontline Hodgkin's lymphoma. A new formulation of Uloric; and Velcade for front line mantle cell lymphoma.

In the midterm, we have some exciting assets which promise to have ground-breaking and hopefully game-changing potential in a number of areas. I won't dwell on any of these specifically. I'm happy to answer questions on a few of the key assets. I do want to just point out TAK-137 is an AMPA receptor potentiator. This is a target that many have tried to work on, but all have failed because of their seizure potential. But our pharmacologists, working closely with our chemists, have constructed a molecule which thus far has no seizure potential whatsoever, and is going forward in a number of different CNS indications.

We of course are focusing a lot of activities in business development, and here, we have put a lot of focus on assets which are just priority POC&C, which with an appropriate investment, for example with the investment that we made to acquire our norovirus vaccine, LigoCyte, with a relatively modest investment we were able to obtain an asset that went from pre-proof of concept to phase III within a two-year timeframe.

We have other activities that are focused on repositioning, or what we call the Mono-oki program, assets which we knew existed which have potential in indications that we had not thought of and where we already had a lot of clinical information.

Long term, of course, we have to continue to invigorate our discovery research engine. We're investing in cutting-edge science and technology. Here, I would just say that we have entered in some very exciting collaborations. Perhaps one of the most interesting is the collaboration that we have with three universities: Cornell University, Rockefeller University and the Memorial Sloan Kettering hospital.

This is a large constellation of the leading scientists in the world, and it's a collaboration in which we have put almost no money but we have put in partners, partners that are primarily chemists, and also people who understand formulations and regulatory affairs, and so on, so that we can really collaborate on projects of potential interest.

We have already 18 programs proposed to us, and some of them are from the leading scientists in the world. So we are very excited about the potential.

We certainly want to maximize our drug discovery potential through collaborations, through having competition internally for programs for working in external research opportunities, and so forth. And we have most recently put a lot of emphasis on advancing our experimental and translational medicine capabilities.

In 2014, we can expect approvals of some key assets, Entyvio and Contrave; both Entyvio and Contrave in the US, Entyvio in Europe. We have in addition in Japan Trelagliptin, Vonoprazan; and then we have a haemophilus influenza B vaccine amongst other assets. In 2014, we also anticipate importantly filings for 9708 as a pillar around which our oncology franchise will revolve.

There is a steady pipeline of approvals anticipated in FY 2014, FY 2015, FY 2016, FY 2017 and FY 2018. We think we have a rich and full pipeline that will drive the growth of this Company in the future.

Thank you very much.

(Interpreted) Thank you. Next, CFO Roger gives you an explanation regarding the consolidated financial results for the fiscal year 2013 and guidance for sustainable growth.

Good afternoon. Today, I will present to you the fourth quarter and full-year financial result for the financial year 2013. And I will also give you an update on our guidance for sustainable growth, as well as an update on the progress of project Summit.

We are pleased with the results for both the quarter and the year, which we believe mark important steps in the delivery of our specific targets relating to growth, innovation and efficiency. These results provide clear signs of a turnaround for Takeda.

Let's move directly to the key highlights of the quarter on page 2.

I'm pleased to announce that our underlying sales growth went up to 4.8% for the fourth quarter, and at 5.1% for the full year on a like-for-like basis, which is fully in line with the guidance that we have provided in the medium term.

New products, including Adcetris in Europe, Nesina in several markets, and Brintellix in the United States, contributed about 85% of our growth in Q4.

With regards to improving operating efficiency, I'm happy to announce that the strong take-off of project Summit enabled us to realize JPY34 billion of cost reduction in the year 2013, and I will elaborate more on our achievement with Summit later in my presentation.

I'm happy to report as well that we have a strong balance sheet and a positive net cash balance.

Looking towards the year 2014, we see it as being a year of investment, mainly in the United States, with the launch of several new products, including Entyvio and Contrave, which follow the recent launches of Nesina and Brintellix. I will discuss our 2014 guidance later in my presentation.

I will start the detailed review of our performance with revenue growth in Q4 on page 4.

As you can see, reported sales growth reached 10%, supported partly by foreign exchange; but more importantly, underlying like-for-like sales growth was at 4.8% in the quarter, which shows the sustainability of our organic growth, since we reached a similar level for four quarters in a row.

Slide 5 details the 4.8% like-for-like top-line growth in Q4. And as you can see, our sustainable growth over the last 12 months has been mostly driven by innovation, as more than 85% of our growth comes from new products.

The table on slide 6 shows the sales of our top-selling products in the fourth quarter, providing the change in yen basis as well as like-for-like growth. We are pleased to see the development of our gastrointestinal franchise, with Dexilant, Lansoprazole and Pantoprazole growing respectively by 32%, 7% and 8%.

Our gout franchise performed nicely as well, with Colcrys growing at close to 11%.

Nesina shows a negative growth in Q4, as there was some significant stock-piling by wholesales in Japan a year ago, just after the launch. Nesina is not growing as much as expect though as the DPP for inhibitor class is becoming increasingly commoditized, mainly in the United States.

Looking at the sales growth by geography on slide 7, we are pleased to report that the US and emerging markets are growing strongly, supported by innovative products. European sales are flat, as European markets in general are facing pressure.

Our Japanese sales growth in Q4 has been affected by movements in wholesaler inventories who increased their stock last year, while they reduced their inventories in 2013 in anticipation of price decreases of long-listed products.

Slide 8. We keep on seeing a strong momentum in all regions in emerging markets. EMEA declined due to some one-off items, including a change of distributor in one Middle East country.

Slide 9 refers to sales performance again, but this time for the full fiscal year 2013. On a like-for-like basis, total sales growth was 5.1%, which is fully in line with the sales guidance of mid single-digit growth that we provided a year ago.

Such a sales growth is about twice as high as the global pharmaceutical market growth worldwide. More than 75% of the growth was driven by new products. We have sustained this 5% level over the last four quarters, and we expect to achieve a similar growth on average until 2017.

In particular, I want to point out the growth of some of our new products on slide 10. Adcetris has achieved excellent result in Europe and was launched in Japan last month.

This slide also provides details of another of our important new products, Brintellix, an antidepressant which we launched in the US in January. We are only a few months into the promotion of the product, and it is clearly too early to draw any conclusion at this stage. But so far, sales have been in line with our projection. We believe that this product has a potential of being a blockbuster in all territories, which means Japan and the US.

Approvals of Entyvio are anticipated in both the US and Europe very soon, as Tadataka Yamada said a few minutes ago. Clearly, we have a high expectation for this treatment of Entyvio, and look forward to launching a drug where there is a significant unmet patient need.

Let's now review our profit and loss statement on page 12.

This slide shows our Q4 result as reported and on a like-for-like basis, as per J-GAAP. Our gross margin has improved significantly as our product mix is more favorable, combined with selective price increases in some markets.

Q4 is traditionally a quarter where we incur operating losses due to the phasing of expenses. Our loss in 2013 was less than the loss than a year ago. Our costs are now under control and project Summit, which I will describe a bit later, has begun to deliver attractive results.

Slide 13 shows SG&A and R&D cost evolution in Q4, as well as for the full year 2013, indicating a like-for-like decrease in expenses of respectively minus 8.1% and minus 4.2% in 2013, which is mainly the result of project Summit. We are very satisfied to share that our cost base is declining, while our sales our increasing.

Slide 14 shows our full-year income statement. While our operating profit increased, our net profit has been negatively impacted by exceptional items, as we disposed of non-strategic assets in 2012. In addition, the tax refund of JPY67 billion related to transfer pricing adjustments between Japan and the US has been booked in 2012.

Core earnings grew by 10% in 2013, which we see as very positive, as we still suffered from the Actos LOE in the first half of 2013 which we managed to mitigate.

Slide 16 describes what we believe to be a strong balance sheet.

Moving to slide 17, we see a positive net cash position at just above JPY15 billion at the end of March 2014, which is equivalent to a net debt to EBITDA ratio of zero. The profile of our debt illustrates the satisfactory level of liquidity that we benefit from.

Slide 18 shows our strong cash flow generation. I should point out here that our working capital level requires improvement, which we plan to accomplish in the year 2014, as we are actively working on this as we speak.

Part of the increase in working capital is coming from Summit and is temporary. We have, for example, to transfer some production from one side to the other. We had to re-label some products to Takeda which resulted in some additional inventory for a temporary period.

Moving to page 20. For project Summit, I would like to go into more details about [project Summit], and also update you on some of the targets for Summit for the future.

I think you are already familiar with project Summit. We have an ambition to raise global competitiveness and efficiency in every single aspect of our business.

The project is strongly associated with a combination of the original building-blocks of Takeda, and with the creation of the Global One Takeda organization.

In fiscal year 2013, we achieved JPY34 billion in cost savings through project Summit, delivering in the first year already more than one-third of our initial five-year target of over JPY100 billion. We are very satisfied to see the positive start of the project, whose execution is actually faster and smoother than originally planned.

I should make it clear though that these attractive results in 2013 came partly from addressing some low-hanging fruits, while some of the more complicated initiatives will take a little bit longer to deliver tangible benefits, mainly in manufacturing and G&A.

R&D and European commercial operation were the two largest contributors of savings in 2013. This slide gives the breakdown of the cost saving by function. And on the next slide, I will talk more about specific achievements.

All data that you see on this slide are referring to real savings versus our 2012 cost base. Therefore, we will enjoy this cost reduction each and every single year in the future. In 2013, implementation costs related to Summit were JPY17 billion.

On slide 22 and 23, you see more details and specific examples on initiative that have been taken in each of the areas of the organization as part of project Summit. I will not go into the detail of it, but as examples, in R&D, we have integrated the oncology unit into Takeda's global R&D; we have consolidated development in both Japan and Europe; and we have reduced the number of CROs that we use, leveraging on scale and getting significant benefits.

In commercial, we have realigned sales and marketing organizations in Europe, we have taken the first steps towards consolidation in Brazil following the acquisition of the Multilab company, we have established a global marketing approach for top brands to eliminate duplication of activities, and we have consolidating advertising agencies to reduce marketing spend.

In G&A, we have [transferred] global procurement to better leverage our scale, and we have unified global functions in finance, IT and HR.

In cost of goods, we have consolidated production sites in both Denmark and Norway, and we have optimize European distribution warehouses and transportation.

Manufacturing and G&A are functions where benefits, as I said earlier, will come later in 2016 and 2017, as most projects require heavy restructuring such as, for example, IT combination, transfer of production between site, which requires some new registration of products as well as shared services.

Over the coming years, we are going to continue the implementation of existing projects, and we will also generate new initiatives for greater effectiveness and greater efficiency.

Meanwhile, we are also launching a new multi-year program in order to redesign our core business processes as global, unified and best-in-class processes; for example, in the functions listed on this slide.

I would like now to share our increased forecast for project Summit, the cost savings on slide 25.

Previously, we had announced a target of at least JPY100 billion of cumulative recurring savings in 2017. Today, I'm pleased to announce that we have revised that outlook upwards to over JPY120 billion.

To reach this target, we expect to generate at least an additional JPY20 billion on average in each and every single year, and in terms of new recurring savings, for each year between 2014 and 2017.

We also updated our Summit implementation cost to JPY100 billion, slightly above our original guidance of between JPY80 billion to JPY90 billion.

And the former guidance that we provided of JPY100 billion of savings that we had originally for 2017, we will achieve it one year earlier in 2016.

Let's move now to slide 27 for the guidance.

Regarding fiscal year 2014, we anticipate top-line growth to be between 3% and 5% growth on a like-for-like basis, which means excluding foreign exchange impact and exceptional items. We will increase commercial investments exceptionally in 2014 to support the growth of Brintellix in the US and the launches of Contrave and Entyvio. And we expect R&D spending to be flat in 2014 versus 2013.

Project Summit, as I mentioned earlier, will deliver additional savings of more than JPY20 billion, but absolute core earning in value will be flat to slightly declining. And the savings that we will generate from Summit will not fully offset our additional commercial investment in 2014.

We expect to see our core earnings in absolute value to grow again from 2015 onwards as we get the benefit of the commercial investments we are making in 2014.

Slide 28 summarizes our guidance for growth and efficiency towards 2017.

Regarding our midterm guidance, we fully reiterate our targets of mid single-digit sales growth CAGRs 'til 2017. We reiterate the guidance of a JPY200 billion increase in core earnings from 2013 to 2017, and a core earnings ratio of 25% in 2017.

We also reiterate, as Hasegawa-san said earlier, our commitment for shareholder return through a stable dividend, with a commitment JPY180 per share dividend in fiscal year 2014 and fiscal year 2015.

Please note that the previous guidance of 20% CAGR increase in operating profit is embedded into the 25% core earning, and that as such, it has not been removed from the guidance; it has been included in the 25% core earning guidance.

That concludes my presentation. Thank you very much.

(interpreted) Now we would like to entertain your questions. Those who are participating in Japanese and English, you can ask questions. Because of the time limitation, we would like to limit the number of questions to two per person. You can state both of your questions in the -- yes, go ahead.

(interpreted) Yamaguchi, Citi. I have two questions. My first question, well, this is a basic question. According to J-GAAP, operating income is JPY155.7 billion, which looks like beyond your expectation; but on an IFRS basis it was 139.3 billion, which is below your expectation. The reason why for IFRS-based numbers is below your expectation; and also J-GAAP basis, the actual number was better than your expectation. Why is that?

And the global pharma players are narrowing down therapeutic areas and they have partial M&A activities. I suppose there will be less number of players in one therapeutic area. I think that's the reason behind consolidation in your case. At Takeda, you don't need that kind of reshuffling or consolidation.

(interpreted) The first question will be answered by Francois, CFO; and the second question will be answered by myself. And Christophe will also follow.

Okay. Regarding the first question, it is true that indeed we reached an operating profit in J-GAAP of JPY1,557 million, while we have provided a guidance of more than JPY1,500 million. Actually, we did about 3% better than what we expected.

I would say that it's because the business grew in line with what we expected, maybe a little bit more. But as you could see as well, we delivered better savings with project Summit than we expected.

I don't think the difference is really marginal, but we were pleased to see that project Summit delivered more savings than expected.

(interpreted) Regarding the number of therapeutic areas, we have six therapeutic areas, including vaccines. We may have more therapeutic areas that we cover compared to others, but there is an ongoing review process all the time.

In the future, how that will change, well, we of course consider this as a moving target. I hope you understand that.

And Christophe will bring different knowhow and perspectives, and based on his judgment, some review may be resulted.

Thank you. This is very much our focus; how are we competitive in every therapy area. You need to take into consideration how we are organized, both at the local level as well as the global team supporting this therapy area. So we are very much looking at that. It's very important to be very fit for purpose in every therapy area because these are different markets.

And also, it depends on how innovative your products are. So if you have a very, very innovative product, you don't need to be so big. There is a medical need and you can be very performant as well.

But that's very much our focus. My attention personally to be very competitive in every therapy area where we are in.

(interpreted) (inaudible). I have two questions for Japanese market.

The first question: In the diabetes area, where you have a very strong position and presence, you are now launching a new drug that is once-a-week formulation; and in the future in this diabetes area, do you have any plan to develop a new drug with a new concept like Actos? And what kind of policy do you have in the future for the diabetes? That's my first question.

And my second question is about the sales structure, and that's by the specialties. And what expectation do you have? And for Azilva, you are going to focus, and that is expected. And by having these specialty sales and this may be rather detrimental for the focus to the Azilva. So this is my second question.

(interpreted) And to this matter, for the first question, well, I'd like to answer partially, and also [Tachi] will follow up. And for the second question, Mr. Iwasaki will cover from the Japanese sales point of view.

And whether we are exiting from diabetes area or not, we have considered that many times in the past. Yes, it's true. In the developed countries' market, it's already a mature market. But on the other hand, in the developing and also emerging markets, diabetes is really increasing in a very rapid rate. The market is expanding. And really, the market for the newly innovative drugs or the generics, we have to know that to start with.

And the second point should be covered by Tachi more in later, but in research pipeline in the diabetes area, [epic-making] type of the project is now going on, and I don't know to what extent Tachi can explain at this moment. But before that, I'd like to ask Iwasaki-san.

(interpreted) I'd like to start by describing the diabetes market in Japan. We still have very high unmet medical needs in the diabetes, but having said that, lowering the blood pressure -- excuse me, blood sugar, is not really sufficient, and that is quite insufficient to satisfy unmet medical needs.

But quite interestingly, 472 has been covered, but for those milder cases and -- but potentially with a high CV risk, there are many such patients, so how the 472 can contribute to such a patient with the milder cases, with a higher CV risk.

And for Nesina, talking about the patent protection, we believe we can still make lots of contributions for both the Japanese medical therapy and also to the Company, therefore the new innovation and waiting for the new innovation to come out. And we still believe that there is a lot of potential in the Japanese diabetes market in Japan still.

And in relation to diabetes, we have general -- the [MR]. That is no longer true with us, and we have switched to the specialties system rather than generalist system. And our specialization, specialist MRs compared to the non-Japanese based companies, we have CVM and RS rising stars. That's how we make a distinction. And CVM, the CV and metabolic diseases are oftentimes co-existing, and the same physician are oftentimes treating the patient. And that's how the defined area and Azilva and Lotriga, that is the hyperlipidemia treatment, and promotion of that drug will be done at the same time. Therefore, even though we call it a specialty with specialized MRs, they actually cover a very wide range of diseases.

And for the RS area, those are the growing therapeutic areas, and no sufficient detailing is done before. And currently, the target is for the CVM and CNS immunology, and those patients may not be in the same place. Therefore the distinction is made based on the best efficiency of the call. But having said that, each and every MR will be educated for all the diseases. Maybe you have heard.

To the information requested by the physician, well, since we are not really in charge of that kind of disease, so we cannot answer. We will never say that. All MR can cope with the situation, no matter what question is asked, but sometimes the physicians request very specialized information. Therefore, for those request that a high level of specialty, then we will send our MRs who are highly specializing in that area to provide information to those specialists.

So with this kind of organizational structure and in terms of Azilva, more specialized information will be available to the physicians who are requesting that.

So in addition to [FOV] and the raising impact so that we can distribute the resources of the information provision where it is most requested.

Let me respond to your question from a global standpoint, not just from a Japanese market standpoint.

Of course, we evaluate each of our franchises on a regular basis and we will certainly look at making certain that we have co-capabilities in the franchises in which we decide to pursue our programs.

In diabetes, we believe that the market is very saturated with products which are good at controlling blood sugar, but we believe the market is going to move to a requirement that the molecules not only address diabetes, but more broadly a metabolic syndrome, and specifically weight loss. So the focus of our pipeline has been on diabetes products which can induce weight loss in addition to controlling blood sugar.

In this regard, we have one asset which we are looking at carefully to assess whether we should progress that towards a diabetes indication, and potentially combinations with existing products that we have in our portfolio and that is Contrave. Contrave induces a significant weight loss.

So far in the interim analysis of the long-term outcome study, so-called light study, there is evidence that there is cardiovascular safety. And on that basis, Contrave is moving towards registration with a PDUFA date of June 10.

Earlier in our portfolio, we had three assets which either in the clinic or about to enter the clinic very soon. These three assets, including TAK-648, we have a GLP-1, a GIP co-agonist, and we have an enteropeptidase inhibitor. All of these assets, at least in animal models, demonstrate a very profound ability to cause weight loss, in addition to having major effects on controlling blood sugar.

So we're looking towards the future and saying what do we need to compete; and in this area, we believe the new products will have to address not just diabetes, but also metabolic syndromes specifically as related to weight loss.

Thank you very much.

(interpreted) Fumiyoshi Sakai, Credit Suisse. Coming back to Mr. Yamaguchi's question, I think Roger didn't answer to the question. I think the question was J-GAAP and IFRS, and why IFRS profit is smaller or reduced compared to J-GAAP, because the goodwill is no longer the factor here. And looking at the like-for-like basis, it's IFRS is smaller. And you mentioned about the marginal difference, but it's larger in value as it's called by a -- as marginal gap.

Sorry. So it's not my own question, but if it is alright, I'd like to ask two additional questions for myself. Would that be okay?

I think that some of the analysis that we do, that we call like for like, we exclude some exceptional --

No between IFRS and J-GAAP. At IFRS, you don't have to amortize the goodwill.

No. Exactly. Yes.

Right. Then that automatically IFRS earnings should be above J-GAAP. Why you are having this result, the IFRS operating profit is below J-GAAP. So what's the real difference between IFRS and J-GAAP earnings?

You have a reconciliation in one of the appendix, so I think that [basically] we invite you to look at it in order to [see] that reconciliation.

What page?

39.

(interpreted) Okay. I will review this page.

(interpreted) I have three products that I am concerned. First is 472. Regarding Japan, even if [you] have already answered, but I think the issue is in the US. It is DPP-1, DPP inhibitor once-weekly administration. How it is positioned in the US market? And currently, it's in phase II and you are conducting phase III, but is it really a valuable asset that you make investments? That's my question.

And also, another one is Brintellix. And Lundbeck conference call was held yesterday, and I think it was a unit of DKK8. So it's only less than JPY200 million sales from January to March. And one-third I think that it's about American sales and one-third is booked that's mentioned. How do you share the profit between your Company and Lundbeck? Could you explain that once again?

And another one is 438. This is Japanese product, right? And in Japan, it is a proton pump inhibitor [Nexium] has been strongly growing. And regarding this product, regarding this [recent total], what is really the point that you'd like to attack with this product.

TAK-472 is not being developed for the US market.

Phase II, isn't it?

No, it's not being developed in phase III. We are -- at this time, we are not planning to proceed with TAK-472 in the US. We will explore the possibility. It depends on regulatory views as to whether we will have to do outcome studies with 472.

(interpreted) Regarding this, we have had deep discussions in-house and different from Japan overseas. Our conclusion is that this is not such attractive. Therefore, at the moment we hold this program. But as you know, on the other hand, [mark] I think has entered into phase III for once-weekly demonstration. So having that information whether or not we should review this, once again we'd like to consider. But as Tachi mentioned, as a result of our in-house discussion, we think that the market opportunity is not so great. Therefore, we put a hold on this product.

(interpreted) So as we look at page 19 of this data book material on 472, I think this is discussing the same product. The phase II in the US and Europe, that's not ongoing, but its pending. Is that right?

472 in the United States and Europe?

We have not initiated a phase II trial of 472 in the US and Europe.

It shouldn't be phase II then.

I'm not certain about how it was listed in the pipeline, but I can tell you that at this point, we are considering our options on 472, and unless we have some indication that we will not have to do outcome studies, which as you know are very expensive and time consuming, and given the patent position of 472, it's not clear that we will be able to complete an outcome study and a full registration trial to obtain a sufficient return on investment given the patent situation with 472.

It should be amended then.

(interpreted) So excuse me. The unit which prepared the material and the R&D couldn't check the matching of the information thoroughly. So I'm sorry. we would like to recheck this particular point.

And, well, in combination with 472 actually in Japan, we have had [felt such] in Japan, not just specialist doctors but also general physicians. Regarding the once-weekly demonstration potential, we confirmed that there is such a potential. And having that information, we are now waiting for the launch.

And for one thing, DPP-4 inhibitor potential is now considered to be greater than the originally expected potential for the Japanese patients. It is quite efficacious and it is good for hypoglycemia, and also -- and so we can expect the market for 472 which is really existing potential market.

Regarding 438, we have also conducted the sufficient market research, and as a result, we believe that there is still unmet medical needs, and 438 can satisfy such unmet medical needs. That's our conclusion.

And not only specialists, but also with the existing PPI, although it's once-daily administration, there are patients on double dosing, or morning and evening dosings as well. And usually after taking PPI, it takes time to the onset of efficacy. However, in the case of 438 the onset of efficacy is quite fast.

(interpreted) Therefore, how it's going to be used in clinical practice?

(interpreted) It is still a part of our sales and marketing strategy. Therefore I cannot give you details today. But we believe that there is enough marketability.

And regarding your Brintellix question, as you know, as Francois told you, it was launched in January. And because of the American practice, we cannot make a booking until the reorder coming in. Therefore, for the last fiscal year it was single-digit sales. As for this year's plan, it will be going beyond 100 million.

And our relations with Lundbeck you asked, in order for us to construct the business basis, we would like to have an organization with 200 MRs, and we have two units. One of them is [OpEx], and there we have about 900 people. They cover primary care and a specific CNS, and they will be engaged in sales and marketing activities.

And regarding the last part of your question, Mr. [Sakai], [co-promotion] it is optional. Therefore, we book the total sales. And as for the part given to the co-promotional activities, we will make a payment later. But I'm sorry. I am not familiar with the details so I'd like to check and come back to you later.

Thank you.

(interpreted) [Ita], Nikkei newspaper. I have two questions. For the year ending March 2015, sales will be up by 2%. The growth might not be very significant, but when you look at the domestic and overseas with the breakdown for the domestic market, maybe you expect the sales to decrease because of the NHI revision of pricing. And also, for your outlook of March 2015, operating income will be higher, but the income before tax and net profit will be lower. And what are the drivers for these?

In 2014, we expect our sales to increase by between 3% and 5% on a like-for-like basis, which means excluding the impact of any exceptional items, as well as excluding foreign exchange, which is a fully comparable number.

That being said, we have to provide a number for the Tokyo Stock Exchange that includes an assumption in terms of foreign exchange. For the assumption, we retain a figure of JPY100 to $1, and JPY140 to EUR1, which implies a little bit of a depreciation, which is the reason why you can see that the number that we have provided gives an increase in sales of only 2%. The difference between the 3% to 5% and the 2% is coming from foreign exchange. The same applies for operating profit.

You were talking about the growth between domestic and international. As you can see, in Q4, we were in negative territories in terms of growth in Japan. This was a little bit exceptional due to the fact that, as I explained earlier, we have some inventory movements from one year to the other.

That being said, for 2014, although we don't provide the guidance, we expect moderate to no growth in Japan, especially because we suffer from price decreases on non-listed products. So no expectation in terms of growth in the domestic market in Japan. That being said, we expect to invest in Japan because obviously this is our first market and we are fully committed to the market.

Regarding the Japanese market, for the next year, the sales will be slightly lower. The major driver here is in 2012, Pfizer's product, JPY18 billion transfer, and that goes to impact for the full year. That's the biggest driver for the change, the difference.

(interpreted) As of March 2015, operating income will increase. However, the net income will decrease. Please tell me the reason why.

There might be deviation in terms of net income that are coming from the fact that it is influenced by tax matters such as, for example, we had to take into consideration the fact that income tax, the corporate income tax is reducing in Japan, which had implication on our deferred tax assets; as well as the net profit is impacted by the assumption that we make in terms of disposal of non-strategic assets which can be either equity stock that we have in --- minority equity stock that we have realized the disposal. That's what we call non-strategic assets. That may influence the growth or decline of net profit from one year to the other outside of operating profit growth.

(interpreted) And I also would like to add more comment. Yes, there is some decline. As you have just pointed out, it is also coming from the impact of the drug price reduction. And in addition, there are some products which will expect larger impact by the generic, the erosion, such as [Eruprine], and also the [Bropress] is expected to genericized. So these factors are all included in this number.

Thank you.

(inaudible) So I have two questions for Mr. Roger. So first is the guidance in 2014 fiscal year. I'm afraid I have to say it's missing the earnings consensus. So I'm just wondering your implementation cost and also the new product [contribute]. So do you have to provide specific numbers for the [two cost]?

And number 2 is the tax strategy. So we've discussed before, but the recent [views] is the [query driven] by the tax strategy. So do you think the current Takeda structure is enough to reduce your tax rate in line with the margin of your Company?

Thank you.

Regarding the guidance for 2014, so first of all, it is fully in line with the medium-term expectation that we had. I want to mention as well something. Although we don't provide our budget externally, but actually in 2013, we achieved in terms of operating profit what we expected to achieve in 2014. So we are one year ahead, which is the same thing for Summit as well. So we consider that we are ahead of our original plan.

2014, we see that year, as I said earlier, as a year of investment. We are investing heavily, especially in the US with the launch of Contrave, as well as Entyvio, following the recent launch of Brintellix. This is kind of a unique case, I would say, and we believe that it is our duty to support this product, especially in the first year where we don't -- we will not book significant sales in the first year. So we will harvest in 2015 and 2016 the investment that we are doing.

You were asking if the amount of investment that we are doing. I cannot give you the details because we don't provide the detail. That being said, as I said, we expect to increase our Summit savings by another JPY20 billion 2014, and so the additional investment that we will do in sales and marketing in 2014 will be more than what we will save with Summit, which is the reason why we expect a slightly declining core earning as a consequence with more than JPY20 billion.

Regarding tax, our effective tax rate, if you look at the figure, may vary quite a lot from one year to the other because there are some exceptional items. If we exclude the exceptional items, such as some tax reimbursement or payment, especially linked to some transactions that we did with the tax authorities between the US and Japan, if we look at our effective tax rates, it was about 34% two years ago, 32% I think this year, and we expect it to be around that level for the future.

I exclude there as well the impact of some subsidies that we get from some governments that are translated in terms of tax reduction and tax credits that are impacting our effective tax rate.

So our effective tax rate is slightly above 30%, which is on the high side. We are working in order to reduce it. This will take a little bit of time and this is not an easy task. But this is on the top of our agenda, because we are aware of the fact that we have an effective tax rate which is higher than some of our competitors.

Great. Thanks so much.

On tax, I forgot to mention as well that in the next quarter, we will provide more transparency about our effective tax rate, excluding exceptional items, because I'm aware of the fact that this is difficult for the financial markets to understand exactly what is our effective tax rate. So we will disclose more information from next quarter in order to itemize the exceptional items and show what is the underlying effective tax rate.

(interpreted) Muraoka, Morgan Stanley. In the mid-range plan, you said things are in line. And the numbers in the midterm plan and core earnings margin, you mentioned that mid single digit and JPY2 trillion by FY 2017 and JPY500 billion in core earnings. I think it was mentioned, JPY500 billion in core earnings. Towards that goal, JPY280 billion in core earnings this year. I don't think you are very close to your target, but you say that things are in line with your expectations. Why do you feel that way?

Then also in the JPY300 billion in R&DE, that's the mid-range plan, and this time around JPY350 billion, that's a bit different from your target. Do you have [capacity] to achieve JPY300 billion within the mid-range plan?

Thank you.

Start with the second question. The amount that we have in R&D is indeed increasing where we had said that it would be flat. The increase is only due to foreign exchange impacts. So if you look at the value in dollar terms or in euro terms it is the same, and it has been constant over the year 2012 and 2013. So this is something that we do not control, foreign exchange.

Regarding the medium-term expectation, we confirm the guidance. We are in line with our guidance. As I said, we are even almost one year ahead of the plan. So it's working as per the plan.

As you can see, we have said that we expect to reach sales growth on average of mid single digit, and we were at 5.1% in 2013. We expect to be a little bit lower in 2014 because we have some impact of LOEs that are coming and which may -- this is the other, basically the last one that we have, candesartan and lansoprazole, which is contributing to the fact that we lose about 1 percentage point of growth, which is exceptional in 2014. But given the amount of investment that we are putting in our new products, we expect our growth to accelerate at a later stage.

Don't forget as well that we will get in the future the benefit of the Summit as well. As you can see, it's working well. It's working better than what we anticipate.

So the combination of increasing sales, increasing margin, declining costs; gives us a lot of optimism on the fact that we can reach our medium-term target.

(interpreted) Regarding core earnings, the target is calculated as JPY500 billion, and you are comfortable that you can achieve this number of JPY500 billion?

Yes. The fact that we reiterate the guidance gives us full confidence in the fact that we can achieve it.

(interpreted) Ryoichi Urushihara, Nomura Securities. With the advancement of the yen depreciation, so please tell me the detail of the impact of yen depreciation. And Actos lawsuit, and to avoid the risk of a huge amount of the punitive payment, is there any possibility that you might go through the settlement?

I think that we have one analysis in the appendix, with the impact of the yen depreciation. What is important regarding the yen depreciation is the fact that it puts a little bit of pressure on our profitability given that we have a higher share of costs which is in dollar and in euro. So roughly speaking, a 10% depreciation of the yen is implying 0.2 point of decline of our operating margin.

So that being said, we have seen that the yen has been relatively stable over the last couple of months, so I think that we don't expect to suffer too much from it. But we had to make an assumption, which is what we reflected in our guidance. I think that this is what is important to understand regarding the yen depreciation; the slight negative impact on our margin.

(interpreted) In terms of the Actos lawsuit, yes, it's true that in the lawsuit in the United States, the settlement is always one of the choices. But at this moment, as to how to solve the issue, well, actually, we cannot answer to that question at this moment.

And we will take a measure regarding the situation at that moment, and the [Arins] case decision was that for the $1.475 million, and actually, the jurisdiction is the state of New York, and this amount actually includes the damage payment for the future. Therefore, in the case of the State of New York, that will be reduced to the present value. That's how we see it right now.

And for the punitive damage payment, we were JPY600 billion, and the JPY300 billion for Eli Lilly; was $6 billion to us and $3 billion to Eli Lilly, and that was jury verdict.

But to this, we might have said that in our statement. And the case law in the United States, there is some proportionate rule for all the punitive amount. The general guideline is that within the 10 times of the compensatory damage. So what the judges might decide is quite unknown yet, but we do not expect that will be the final amount we have to pay.

Thank you.

(interpreted) Onozuka, JPMorgan. I would like to ask you one question. This comes back to the first question by Mr. Yamaguchi. Your original plan was that the J-GAAP operating profit be around JPY150 billion and IFRS JPY160 billion. And this time, on a J-GAAP basis, you exceeded your company plan. However, on IFRS basis, you fell short greatly by 13% from your plan. And there aren't any signs providing the results of your reanalysis, but what is the really the factor behind?

I understand about the project Summit, but maybe a temporary licensing fees, and so on, as I estimate. But could you compare your results with the original plans?

So as you said, in terms of J-GAAP, we exceeded the guidance in IFRS. There are a certain number of other items that are accounted for, such as, for example, milestone payments that we have to do in terms of R&D that are booked under IFRS and not under J-GAAP. So this is one of them, this one of the items.

We did as well some limited impairment on some products. After the acquisition of Nycomed, we had to allocate the goodwill by products, and it's not something that we did in an arbitrary way, but we had to allocate it to some products.

Some products are doing better than what we expected, but we can't revalue the goodwill in that case. Some products are doing a little bit less than what we expected, and in that case, we have to do an impairment. And this has to be taken into consideration under IFRS, which is the reason why, as I said earlier, you have part of the detail, but we can provide more details if needed on slide 39. But there are different ways to account of [usually] between J-GAAP and IFRS. So the two main items are milestone payments and some limited impairments.

Thank you very much.

(interpreted) (inaudible), Tokyo Marine Asset Management. I have a question about the project Summit. You've changed the cost savings from JPY100 billion to JPY120 billion. JPY100 billion, that was original plan; that is against the company plan which we don't know details at this time. I wonder how the JPY20 billion in cost savings against the numbers, actual numbers of FY 2012, the increase of JPY20 billion is not based on the definition, but based on the actual numbers. Is that correct?

Absolutely, yes. We initially provided a guidance of JPY100 billion which is against our 2012 cost base. So these are actual savings because this is something that measure against expenses, recurring expenses that we booked in our P&L in 2012.

So we have raised this amount from JPY100 billion to JPY120 billion. The fact that we increased the guidance has nothing to do with the fact that we would have a different methodology to measure it. Both numbers, the JPY100 billion initial guidance and the JPY120 billion new guidance, revised guidance, are comparing all these expenses against 2012, actual expenses. And we are talking of recurring savings, which means that these are savings that we will benefit from each year for ever in the future.

(interpreted) Ryoichi Urushihara, Nomura Securities. In relation to the last question, Nycomed impairment loss, you have just commented, and you have impairment loss. In what business have you got that impairment loss? For example, is it a lack of sales, for example, or is it due to the business in a country like Russia? And actually, the bidding price was lower than you have expected so you have incurred that as a loss. So what is the cost? If the unit price is lower, then this will also lead to the future impairment loss also. So I would like to know this.

You mentioned first of all that globally for Nycomed, the price that we paid doesn't lead to any impairment. The only thing that we had to allocate the value per product. Some products, as I said, are doing better than planned; some products are doing worse than planned.

When products do better, we don't revalue the goodwill. When products are doing less, a little bit less than what we expected, we have to revalue and do an impairment. What is important is that globally, we are -- when we do an impairment test, the value that we have in our books for Nycomed is fully in line with what we value the business for today.

So globally, there is no impairment. It's more of a technical matter because we had to allocate the impairment, the value by product. This is how really I think that it was going to happen that some products would do better, some products would do less well. But globally, there is no concern.

And it's not linked to any specific geography. It's linked to some specific products. But there is no -- it's not something major.

(interpreted) But having said that, when I look into the impairment it's about JPY10 billion. And you said some small products, that you have a product mix. And with the declining price you measure the impairment.

It's a different thing. Price can be one item. Volume can be another item. So it can be impacted by different factors. But once again, globally, if we measure the value in our books against the value that we put for Nycomed today, the value that we -- the way that we value Nycomed today is superior to the initial price that we paid and the initial consideration that we paid.

(interpreted) So can you please tell me the specific name of the product which after you use to measure the impairment loss?

For each product that has been valued, but we don't disclose the name of the products for which we did an impairment.

(interpreted) Thank you very much.

(interpreted) In the interests of time, I'd like to entertain the last question now. Do we have any questions? If not, thank you very much. We would like to now close the Q&A.

And with this, we'd like to close the meeting. Please fill in the questionnaire and please leave it on the table.

Thank you very much for joining us in this meeting. I'd like to ask for your continuous support and cooperation.

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.