Takeda Pharmaceutical Co Ltd (TAK) 2015 Q2 法說會逐字稿

(interpreted) Good afternoon, ladies and gentlemen. Thank you very much for joining our financial results meeting for the second quarter FY 2014. This is the first IR meeting for Christophe Weber to be present as President; in the previous meeting he was not the President then at that time, but he is now approved as the President.

Christophe Weber joined us as Takeda COO on April and I can see that looking back over seven months, since he has joined the Company, I have witnessed him demonstrate his experience, knowledge and agility at every turn, even the among Japanese people, his modest and considerate manner is remarkable; and seen his style of managing through close communications that deepens his understanding, I'm even more convinced that we have the best leader for our Company.

He titled his first three months as COO as listening and learning phase, and visited Takeda sites around the world with great energy, holding both widely-attended town hall meetings and smaller roundtable meetings. He had several face-to-face discussions in order to discern the strength and challenges of the Company.

He also sought to further deepen his understanding of Takeda-ism by these kinds of direct communications and exchange of opinion as getting deeper understanding. And, for three months, starting in July, he titled creating and validating phase, based on his findings.

Until then, he devoted himself to designing the optimal organization structure and leadership appointments to [ability,] our strengths and address our challenges, based upon the information that he absorbed during his listening phase.

In conjunction with discussions held with the senior management team members, who comprise his direct reports, and communication with the second layer of management team members, specifics regarding his organizational and governance structure announced on September 16.

More than ever before this new structure places a focus on a customer-centric mindset and this definition includes customers, that means out-patients, healthcare professionals, and all those people who are waiting eagerly for our medicine.

By clarifying the roles and responsibilities of each organization, this transformation makes possible agile, efficient and competitive business operations.

In the period until March next year, it's been titled as a transformation phase. We will sort out the final details of the announced reorganization and to be fully operational by April 1 of next year. That will create an agile, best-in-class pharmaceutical company, which is both highly profitable and sustainable in its growth.

For details, Christophe himself will talk in his own presentation.

Appointment of Christophe Weber as my successor on November 30 last year attracted a great attention, and it was announced in the middle of the night. However, as I mentioned before, the transfer of leadership is progressing smoothly and I'm very pleased to be able to report that to you today.

I'm quite pleased about it and with the launch of this new organizational and governance structure, we should utilize this as an opportunity to further improve corporate performance and meet expectations of all our stakeholders. I'm determined to fully support this effort, every aspect.

Performance for this first half of the year, as well as overall forecasts for the full year, and that will be explained later by our CFO. However, let me just get a few words.

Despite some variation in some regions and some products, our performance, in terms of both revenue and operating profit in the first half of the year, was higher than the forecast that we announced, along with financial results in May.

Under the prevailing exchange-rate basis, we expect to meet both revenue and operating profit guidelines for the full year with underlying revenue growth.

We will do our best and we are making steady progress to achieve our goals.

Lastly, regarding the issue of product liability over Actos, on 28th, there were announces that the US District Court for the Western District of Louisiana has decided upon a punitive damage award that amounts to $27.65 million.

We view that substantially reduced punitive damage award, down from $6 billion, as a step in the right direction. But, Takeda respectfully disagrees with the ruling and plans to defend the Company, because there's no credible scientific evidence that establishes a causal link between Actos and this bladder cancer. So we will take any possible legal means to protect our Company and we will appeal the ruling.

Thank you very much.

(interpreted) Next, Chief Financial Officer, Roger, will give you a presentation on consolidated financial results for the second quarter of FY 2014. Please use the translational receiver if you need it.

Francois Roger, Takeda CFO. Today, I will discuss our financial results for the second quarter of fiscal year 2014. I will also give an update of Project Summit and how our Q2 result fits into our full-year guidance.

Please read our disclaimer on the forward-looking statement.

This slide, these are the items that I will cover today. First, I will touch upon some key highlights for the quarter.

Q2 was satisfactory, with a 3.6% underlying revenue growth, which is fully in line with our yearly guidance.

We are pleased to that we are enjoying double-digit growth in the United States and in emerging market, and strong growth in Europe. Total underlying revenue growth in the first half of the year was a 1.7%.

Focused on profit items, I will refer mainly to H1 data, as it is more meaningful than the three months' period. All data regarding Q2 have been included in the appendix for full transparency.

The first half of the year showed a slight decline of underlying core earnings at minus 1.4%, which is in line with our annual guidance and which is actually above our first-half guidance.

We are pleased to see that G&A costs continued to decline in H1 by 5%, which allows us to invest in sales and marketing in order to support our new products this year as we have a heavy launch program, mainly in the US.

We are very pleased with the early results of our new products launched so far in 2014. Christophe will speak more about Entyvio, but we have achieved cumulative sales in the first four months of JPY6.3 trillion, which is the evidence of a very strong start.

Also, Brintellix is experiencing the fastest initial TRx growth of anti-depressants launched in the US since 2011, nine months after the launch.

Additionally, Contrave was launched in the US last week and Azilva is doing very well in Japan, having reached more than JPY20 billion of sales in six months, which has more than compensated for the erosion of Blopress sales.

Finally, we continue to see a good momentum with Summit, with savings of JPY11.5 billion in H1.

This positive news on growth, innovation and efficiency leads us to reiterate with confidence our full-year guidance, which I will elaborate upon more later.

Slide 5 shows our reported sales growth of 5.4% in Q2, partly supported by favorable ForEx. But what is interesting is that our underlying growth is at 3.6%, which is fully in line with what we have achieved in the second half of 2013. This means that we have been able to sustain this level of growth for some time.

On slide 6, you can see the quality of the sales growth that we enjoyed in Q2, with a strong support from new products, especially Entyvio and Brintellix, which lifted sales by 6.2% in the quarter.

A positive development is that growth from new products is more than compensating the headwinds that we are facing, which are mainly coming from pricing pressure and generic substitution in Japan. We expect that the trend of new products' growth overtaking negative business factors will continue in the future, as Christophe will explain later.

Here you can see that Adcetris in Europe, and now in Japan, continues to grow at a very strong pace.

Brintellix also continues to have a strong momentum. It is the fastest growing antidepressant launched in the US over the last three years when looking at TRx growth quarter over quarter through the first nine months post-launch.

Entyvio has been long awaited by patients and gastroenterologists as we can see, the real and met need when looking at sales. The month of September is showing a running rate of [JPY30 billion] annually already, only four months after the launch. It is important to note as well that Entyvio is the first global launch ever for Takeda, and it is already marketed in 12 countries.

This slide shows the sales by geography. We enjoyed double-digit growth in emerging markets and in North America in Q2, and high-single-digit growth in Europe. All regions, but Japan, saw their sales' growth accelerating in Q2 over Q1.

Japan pharma declined by 4% with heavier than expected pricing pressure and generic substitution that has not been fully compensated by new products, in spite of the very positive performance of Azilva, which is more than compensating the loss of Blopress sales.

This slide shows our emerging market business performance in Q2, which is back to double-digit growth after one-off events linked to inventory adjustment in Q1. Eastern Europe is back to double-digit growth as expected, with Russia delivering a 16% revenue growth.

China is delivering a strong revenue growth as well, at 35% year on year.

Latin America has been impacted by shipment timing in Venezuela, and a market slowdown in Brazil. We are growing at the same pace as the market in Brazil.

Moving to our operating expenses. G&A was impacted negatively in Q2 by new accounting and tax rules in the US for the ACA, or the Affordable Care Act, which now requires industry to accrue for these fees in the current year, and not only one year after, which means that we had to book two years of expenses. This quarter we had to book an additional JPY5 billion for this Affordable Care Act fees.

Excluding this one-off item, we are pleased to see that our G&A are structurally declining for the second year in a row, specifically by 5% this first half.

As we have previously explained, we are heavily investing in sales and marketing in 2014 to support our new products' launch, in the US mainly. But some of these expenses have been even delayed to H2. For example, Contrave, which was supposed originally to be launched in June is now -- has been launched last week in the United States. Therefore, the majority of the cost associated with the launch of Contrave will be pushed to H2.

Moving to Summit. Efficiency savings coming from Summit continue to deliver attractive results with more than JPY11 billion delivered in the first six months of the year.

Takeda is on track to achieve half of the five-year Summit target at the end of this fiscal year, with JPY60 billion of yearly savings in 2014, compared to our 2012 cost base.

We spent about JPY9 billion in restructuring costs in the last six months, which explains why you do not see a large benefit of this efficiency project into our EPS.

All savings that we generate from Summit are, by nature, recurring items, which means that they will flow to the bottom line and to the EPS going forward.

Summit in the first half of 2014 is contributing to a 1.5 percentage point margin improvement which is, exceptionally this year in 2014, reinvested in sales and marketing.

Many projects are actually moving faster than planned for Summit and you have some that are indicated there. We have already reduced a number of ERPs that we have from four ERPs to three ERPs last quarter.

We have already started the consolidation of our four original IT infrastructure into one global network. This project will deliver, when completed in about 18 months, about JPY6 billion of permanent savings on a yearly basis.

We have made as well significant progress to consolidate our shared services units in Europe. We have created one single shared-service unit in the United States to service our various businesses over there.

The perfect and timely execution of Summit provides a clear indication and a clear focus of the management on cost efficiency, and which is really important for the entire organization.

Moving to our income statement. During the first half of 2014, operating profit has increased by 6.2% on a reported basis. One reason for the improvement of operating profit in H1 2014 is the fact that we have disposed of a higher value of real-estate assets this year compared to last year, more specifically JPY25 billion.

These items are not taken into consideration in core earnings, which provides the better indication of underlying operational performance.

Underlying core earnings, excluding foreign exchange and exceptional items, has declined in the last six months by 1.4% versus last year. This is fully in line with our expectations and our guidance, because we are investing, exceptionally in 2014, more in sales and marketing.

Our gross margin slightly eroded by 0.3 percentage points mainly because of the price pressure in Japan.

Reported operating profit was up 6.2%, as we said.

EPS was down by 22% year on year. We had a lot of extraordinary items impacting net profit over the last six months, such as real-estate disposal, marketable securities, exceptional tax items as well, which happened, by the way, both this year and last year.

However, all of these items offset each other in terms of pluses and minuses. So, therefore, they have actually -- these exceptional items have zero impact on both net profit and EPS.

The main factor which is driving the decline of net profit, which is JPY17 billion, as well as the decline of EPS, is exceptionally this year our high investment in sales and marketing, as we invest ahead of the curve, before getting the benefit of the sales of new products.

It is important as well to note that we did not get the benefits of the productivity improvement that we reached in G&A, as this has been offset by one-off restructuring costs this period.

Moving below core earnings, our core EPS was impacted by a higher tax rate in 2014. We had some exceptional items in tax to revalue our R&D tax credits and NOLs. We have all the details in the appendix, so I won't go through the details.

This slide provides a detailed bridge between operating profit to core earnings, I understand that many analysts and investors are interested in this reconciliation, with a specific focus on the impact of non-core assets disposal, as well as the restructuring costs for H1.

As you can see the real difference between operating profit and core earnings is essentially driven by the amortization of intangible assets, as all other items are actually offsetting each other this period.

Transparency in our financials is important. So we provide this slide to show the reconciliation of the main P&L items from reported to core values and then to underlying growth. Underlying growth excludes the impact of foreign exchange, exceptional items, as well as disposals and acquisitions.

As far as the revenue line on the top is concerned, there is no difference between reported and core. You can see that excluding the positive impact of foreign exchange of 2 percentage points in H1, and the negative impact of divestments of 0.9 points, we reached 1.7% growth of underlying sales' growth.

Moving from, at the bottom of the page, from reported operating profit to core earnings. As explained, and as we just saw a few minutes ago, we need to add back the amortization of intangibles, adding 3.4 percentage points.

We add back as well restructuring cost. We deduct the impact of the sale of real-estate assets, which means that we deducted 16.5 percentage points, and we arrive at this core earning growth year on year of minus 7%.

Moving from core earning to underlying growth, we need to deduct ForEx, foreign exchange; add back one of the impact of the Affordable Care Act, what I mentioned earlier; neutralize the impact of divestments; and we arrive at an underlying core earning growth of 1.4%, once again, in line with our guidance.

We have a similar analysis, which is provided in the appendix for Q2.

In H1, we are pleased to report that we have exceeded our guidance for all KPIs, from revenues to operating profit; net profit; core earnings; EPS; core EPS.

We got a little bit of support from foreign exchange, and timing of expenses has marginally helped as well. But we are happy to have exceeded all our KPIs for guidance.

Moving to the cash flow, you can see that operating free cash flow in the first half has been impacted by a higher amount of milestone payment, which are payment that we do for R&D assets that we have acquired some time ago, as well as a higher amount of CapEx. This is more timing than anything else. I think it's difficult to look at it over a six months' period.

Working capital has increased as well. It is mainly impacted by the new products that we have launched, because we need to build additional inventory; and we need to build additional receivables after launching these new products. We expect the impact of working capital to normalize in the future.

Moving to our guidance; we have decided to maintain our full-year guidance, in spite of the fact that we have exceeded our guidance in H1. First, we take a cautious, but not negative, view on H2, mainly for Japan, in case the impact of generic substitution turns out to be stronger than originally contemplated.

Second, we also want to be cautious with the impact of foreign exchange, and especially the rate of the yen against the dollar, as we know that a further depreciation of the yen would negatively impact our bottom line.

Third, as I mentioned earlier, Contrave has been launched later than originally expected; three months later. As a consequence the launch cost will, therefore, weight a little bit more in H2 than originally contemplated.

It is also very important to note that at this stage, we believe that the Colcrys patent case in the US does not warrant any change in our guidance. We have provided in the appendix the detail of the case, in case you have some interest with it.

In terms of IR communication, finally I would like to say that Takeda values shareholder return. We value shareholder expectation as well, including communication requirements.

As a consequence, we have decided to introduce a more active and progressive shareholder communication plan. This includes the delivery of regular, more focused and comprehensive presentations on therapeutic areas, on products, and on geographical regions.

We also intend to increase management exposure to both shareholders and analysts; not only to see the CEO, CFO, CMSO, or CFO, but go beyond that and expose the management.

In addition to the traditional quarterly announcement that we will maintain obviously, we will organize two investors' relation events in the near future. To start with, we will hold a half a day event on March 9, 2015 in New York, showcasing our GI franchise, that Christophe will introduce today, with a specific focus on Entyvio.

We also hold a more comprehensive full-day investor relation event in Q1 2015 -- in H1, sorry, 2015, in Tokyo. The precise date of this specific event will be confirmed shortly.

That's it for me. I will now let Christophe introduce his strategic update. I thank you very much for your attention.

(interpreted) Now, President, Christophe Weber, will be providing strategic update. Please use the receiver if you need one.

Good afternoon. Thank you for being here today. As promised last May, when I said that I will share with you my view about Takeda before the end of the calendar year, I will give my first strategic update, about six month after I joined the Company. And of course, we will have further session in the future.

I want to share with you our long-term outlook and our plan to become a global leader in the pharmaceutical industry; and, more importantly, a leader that will achieve a profitable and sustainable growth into the future.

Same forward-looking statement.

My agenda, my remarks today are the following. First, I will share with you our strategic roadmap and the organizational change that we have made recently.

After discussing our new global organization, I would like to describe our sales growth outlook, including the clear and strong growth driver that we have identified to propel our growth, to sustain our growth. These drivers of growth are innovative products in four therapy areas and value brands in emerging market.

I will then make a specific focus on our leadership position in oncology and gastroenterology franchise. Here I will provide more specific information about Entyvio and our global launch of this important product.

First, strategic roadmap and our global organization. So, what are the critical item for us in order to deliver sustainable growth and success in the future?

First of all, our foundation are the values of Takeda-ism. We'll follow the principle of these values, as we focus on patients, building trust with the society, enhancing our reputation, and strengthening our business. We are also aiming to be absolutely patient and customer-centric in everything we do, and I will explain that a bit later.

In today's rapidly changing environment, we need to be global yet agile as an organization. Here, again, I will detail further this point.

Further, our organization must foster talent. Talent development is a critical strategy for us.

Another priority is to ensure that our R&D is focused and operating as a world-class innovation engine. Takeda will continue to invest in R&D, with the aim to introduce truly innovative products.

Sustainable sales growth is critical. We have two growth engine for the mid-term. Innovation across four therapy areas, with especially two areas where have a very strong position: GI and oncology.

The second growth engine is, what we call, value brand in emerging market. Values brands are branded generic and OTC products in emerging market. I will today focus more on the GI and Entyvio, as it is a product that we are launching right now.

Equally critical is our financial discipline. Francois has described such discipline in his presentation for this beginning of the year. This discipline will help us to generate steadily improving earnings.

This is how we will generate sustainable growth, creation of shareholder value and, of course, EPS growth.

The organization that we have designed has a very clear aspiration, which is to be an agile organization, best-in-class global pharmaceutical company, with a very strong patient and customer centricity. This is what has driven our organizational change. We have designed an organization to be able to be agile.

What does mean agile? It is the ability to anticipate and to adapt quickly to changing environment. This is also because we believe that the pharmaceutical market characteristics are very much local, for example, product reimbursement. How a product is reimbursed and prescribed, is a very local conditions.

We also insist that our new organization is as simple as possible, and that accountabilities are very clear. And, I will always repeat it today, we have designed the organization to be, above all, patient and customer-centric.

Finally, and this is very critical for us, we aspire to be a talent-development and diversity champion.

I talked about Takeda-ism as a critical element of our strategy. This is key to our reputation and our business. Takeda-ism and its values will help us to put the patient at the center of everything. Then we can build trust with the society, reinforce our reputation and develop our business in the future.

It is on this foundation that we believe we'll be successful in the future and, if done well, we can create value for all stakeholders.

I will not go through all the strengths and areas of improvement that we have identified in the last seven months. I will emphasize the fact that our leading position in Japan is very important and we are very much committed to keep this leading position, which is very strategic for Takeda in the future.

So how did we design our new organization, which will support our growth in the future? We are focusing our R&D, especially on the late stage, on four therapeutic areas: gastroenterology, where we have a strong portfolio and pipeline; oncology, where we have a strong portfolio and pipeline; CNS, central nervous system, where we have a strong pipeline and an emerging portfolio; and cardiovascular/metabolic, where we have a very strong portfolio and an emerging pipeline, which is more in the early stage.

We have also identified five regional business units, which will drive their own business and growth. Two business units are based in Japan: the pharmaceutical business unit on one side, and the consumer healthcare business unit.

We have created an emerging market business unit. And, as before, we have a United States business unit and a Europe and Canada business unit. So this is our five regional business units.

On top of this, we have two global specialty units: oncology and vaccines; and oncology, the new creation of business unit. Oncology will be a very significant growth driver in the future. Right now, in the short-term, in the mid-term and the long-term, vaccines will become, in the mid and long-term, a very significant growth driver for us.

We have created also a very important global manufacturing and quality organization, as well as business partner organization, which are supporting the business units that I have just described. The business partner organization is our legal, finance, HR, IT, these type of business functions which are classical.

In order to be very focused on accountability, ownership and agility, we have organized the specialty business unit vis-a-vis the regions, and all the support functions, the business partner vis-a-vis the business, in a very unique way. I will not detail that today but we believe that we have the right organization to support our growth in the future.

So, this is the Takeda Executive team. We have truly a global executive team. This is a team with a very high level of pharmaceutical experience. This is a team made up of one-third of Japanese nationals, one-third American and one-third other nationalities, so it's very diverse from this perspective.

The one area however, where are clearly lacking diversity is gender diversity, and this is something I am very much committed to improve in the future.

This is the global team that will drive Takeda's strategy going forward. I look forward to introduce various of these members to you over time in the future.

Now let's talk about our sales growth trajectory and our exciting business outlook.

As I mentioned before, we have two powerful engines of growth for the future. One is innovative products. We will continue to invest in R&D in four therapeutic areas and vaccines, and that will support growth in all regions.

Then we have the value brands, which are the branded generics and OTC in emerging markets. We call them value brands, because they are brands that are extremely valued by the patient and customers in emerging markets.

These are two main engines -- key engines, of growth.

If I focus now on value brands, the outlook for growth in emerging markets for Takeda is very strong, because we can rely on the value brand, which will continue to grow, as well as the innovative products that we will progressively register and launch in emerging markets.

With these two growth factors combined, we expect to grow at around 10% every year in the future.

We now have the market knowledge in emerging markets that allow this to be a powerful engine of growth for Takeda going forward. I also want to stress [now] that our margin will progressively increase in emerging markets and will contribute progressively to the profitability of the Company.

Innovation is the second engine of growth and here what you have is, by therapy area, the product approval date by five years. What is striking, first of all, is that we are launching more new products in the current five years and in the future years.

And what is very striking is that many more of these launches are global. If you look at the period 2008/2012, we launched one global product. The other products were either regional or country-specific.

On the other hand, if you look at the period 2013/2017, we are launching four new products globally, especially Entyvio and ixazomib, which I will mention again later.

We will not discuss further today CNS and CVM, but let me stress [now] that these two therapy areas are very strategic for Takeda.

In CVM we have currently a strong portfolio in diabetes and cardiovascular, especially in Japan where we will also launch trelagliptin next year as the new DDP-4.

CNS is a newer area with the launch of Brintellix and Latuda. This is also an area where we have interesting assets in our R&D pipeline.

We have even more global launches in our [therapy] areas and vaccines in the year 2018/2022. So this is a very strong evolution which will drive the growth of Takeda, more innovative products, and these products being more global that we can leverage in all markets across the world.

Now, what I would like to do now is to give you an outlook about what we believe will be our sales growth. What we have done is that we have looked at some sales evolution by different categories of products by a five years' period.

So here first, these are the sales that we are losing by five years' period, because of patent expiry. If I take the period 2008/2012, we lost JPY500 billion during this period, because of patent expiry.

The first thing which is important to notice is that this patent expiry exposure is reducing in the future, so 2013/2017, or 2018/2022, we are losing less sales compared to the period 2008/2012.

Against this sales loss we have the value brand growth; so the value brands are, as I showed earlier, are growing consistently and they are generating some sales growth. We believe that we will continue to grow organically our value brands.

On top of the value brands, we have the new product launches. Here you can see that the impact of the products, and these incremental sales are risk-adjusted. The impact of the new product is increasing very significantly. Also, the product launch during the period 2013 and 2017, as well as the product before, are the most important to drive our growth until 2022.

So if you look at the column 2018, 2020, 2022, you can see that the value creation by new product launch are mainly product launch in the period 2008/2012, but very much, in fact, in the period 2013/2017. In fact, these product are very much either already launched, like Entyvio, or in a very late stage as ixazomib.

So overall, net/net, we believe that we have a very positive trend with new sales generated by new products, offsetting very much the generic impact on our portfolio.

So that's how we see a very positive outlook for Takeda in the future.

Now, furthermore, we'll grow our sales in a way that is more balanced geographically over time. We expect that in 2017 our sales from Japan, the US and emerging market will be roughly the same size and EUCAN will be slightly smaller.

I believe this is a good position to be in, in order to leverage all geographic areas and, in fact, to reduce our risk.

It's not to say that Japan will decline. Japan will not decline, but Japan will grow slower than the US or emerging market, but it will continue to be the biggest region for Takeda.

Now I would like to discuss our leadership in oncology and gastroenterology. On oncology I will be quick; we'll have more focus on oncology next year.

Gastroenterology, I will spend a bit more time, because we have this product, Entyvio, that we are launching now, which we believe is a very interesting product.

So, Takeda oncology is a key growth driver. This is why we have created a specialty oncology -- global oncology business unit.

We are a significant oncology company today with products, like Velcade, Lupron, Vectibix, Adcetris. These products have generated almost JPY300 billion last year.

We are leader in multiple myeloma treatment. We invest significantly in R&D in oncology, and have a key product with ixazomib in Phase 3 that we expect to launch in the next two years. Ixazomib will be a global product, as I discussed earlier.

Again, I will not spend more time today as we will have a special event as Francois mentioned, next year.

I would like to talk about gastroenterology. First, I would like to say this is the market with high unmet medical need. This is one of the fastest, if not the fastest in the space of specialty GI, market in the world. So that's a very important market in term of growth.

Takeda today is a global GI leader with products, such as Pantoprazole, Dexilant, Tecta, Prevacid, Amitiza; and, of course, we are launching Entyvio now.

On top of this in our pipeline we have a very interesting product called Vonoprazan, which is an anti-acid product that we are planning to launch first in Japan next year.

And we have TAK-114 for ulcerative colitis which is Phase 2. We also have a life-cycle program for Entyvio.

So in both oncology and GI we have products as well as early late-stage pipeline assets, so we are in a very strong position, we believe, in this two therapy areas.

Now let's share some information about inflammatory bowel disease and Entyvio. Inflammatory bowel disease is a lifelong chronic condition affecting about four million people globally. What is very clear is that there is a need for better options for patients. Current treatment have their limitation, such as non-responder or patients who lose their response over time, even with the best on healthcare.

There also some safety concern for the current available treatment in some cases. So, Entyvio is providing a new alternative which is, we believe, awaited by the patient and the physicians.

And, why a new alternative? Because it is a completely new way to treat this disease. Entyvio has been specifically engineered to be gut-specific. It's a bit technical, but it bind to the alpha4beta7 integrin to prevent this integrin to bind with the MAdCAM-1, and this is how we stop the inflammation in the gut. So, this is a very specific gut-specific mode of action.

Entyvio has demonstrated its efficacy in both biologic naive and with patient who have not responded to anti-TNF alpha treatment before.

Furthermore, Entyvio has no black-box warning regarding safety. So we believe this is a very promising product for both ulcerative colitis and Crohn's disease.

We have very strong data supporting Entyvio in both ulcerative colitis and Crohn's disease. This is why we got the registration in both disease at the same time.

We have launched in the US and in some European countries, in 12 countries in total. In the US, and this is some market research data that we conducted in the US, roughly 80% of physicians are stating that they will increase prescription of Entyvio over the next six months for both ulcerative colitis and Crohn's disease.

This is the launch data that Francois has already shared. This is very promising. We already achieved cumulative sales of JPY6.3 billion so far in the United States.

So, based on this unique characteristic, we believe the Entyvio has a very strong potential to reach more than $2 billion sales globally. In March, when we will do a special focus on GI, we'll be able to share more information with you, if you wish, regarding our GI franchise and Entyvio.

So, in summary, I will remind that our roadmap is very clear. We'll be a value-based organization, who is relying on the Takeda-ism, which have been the value of Takeda for many, many years.

We'll be a patient-centric, global organization. We have a global commercial reach and launch capability, which is very critical, because we have global assets in our pipeline, more and more.

We have two growth drivers: innovation on one side; four therapy areas, especially two GI and oncology, which are key mid-term growth drivers; and we have the value brands in emerging market, which will continue to grow in a sustainable manner in the future.

Then we will combine that with the right financial discipline. We look for efficiency driven by the globalization of Takeda. We are very committed to Project Summit and to continue Project Summit.

So we'll have some more cost efficiency and operating leverage. We will reinforce our balance sheet and we'll focus on shareholder return.

So we believe that are in a very strong position to grow and increase our profitability in an organic manner in the future. Thank you very much.

(interpreted). Now we are moving to Q&A session. Today, in addition to this Tokyo office we will accept questions over the telephone.

First, I would like to entertain some questions from Tokyo site. When you have the microphone, please mention your name and organization. Please raise your hand if you would like to ask a question.

(interpreted) [Iko, Nikkei BP]. I have just one question. Project Summit, you were talking about a workforce cut before, but according to the presentation material, more people -- you have an increase in workforce. Has the policy changed regarding the number of headcounts?

That aims at -- significantly reduces the number of headcount. It's a project that aims essentially at dealing with efficiency and removing duplication from the fact that we had a different organization in the past.

So we -- the number of accounts that we have is so largely influenced by the amount of our sales force. And we have increased in some countries the sales force as well. But once again, Summit has a limited impact in terms of headcount.

(interpreted) Thank you. Next question, please.

(interpreted) Citi, Yamaguchi. I would like to ask my first question to Mr. Weber.

Regarding Takeda's strategy, I think I could understand it well. You mentioned many focuses; the areas that you will be focusing.

But at the same time, how to say it, we do think the focuses is the location, regions or areas. I think you need to be selective; I mean that you need to put more focuses in some areas, but you may need to reduce the focuses in some other areas too. So regarding the reduction of the focuses, are you going to work from now on, or you already have some as an idea in your mind?

Thank you for the question. Yes, the way I will say it is that, by definition, the areas where we don't focus are less strategy. So we have to be very clear about what we do with areas, or whether it is a country or product which are not within the therapy areas, for example I just discussed.

Also, if -- so it's very important to -- when, for example, we focus -- we say we focus on four therapy areas, especially GI and oncology, it means that you can expect investment in these areas. You can eventually even expect some acquisition or some [bigger] transaction to reinforce our acquisition, things that you will expect much less in other areas, which -- where we don't have a focus.

In emerging markets, we are not going neither in emerging markets everywhere. We are very selective in the countries where we want to invest. So -- and perhaps, one day, we will do a specific focus on the emerging market business unit, to share that with you.

(interpreted) And you mentioned the four therapeutic areas, and I think it's not changed from the traditional previous ones. So is it the right understanding is that you haven't changed those focus therapeutic areas -- four areas remain the same?

We did -- we had six therapy areas before. We moved to four; so that's an important change. So we are focusing more on these four therapy areas.

And this is something which will continue to evolve in the future. We believe that when we are in the therapy area, we need to be in a strong position and in a leading position, based either on your portfolio or your pipeline and, ideally, on both.

(interpreted) Another question regarding Entyvio. I think I have good understanding. But now about Brintellix, I would like to ask you a question.

I understand that this product has been growing, but it is less than what you planned. So in order to grow it more, what specific strategy do you have for Brintellix?

Yes, what we believe is that the Brintellix launch is a success, but we believe it could be even a better success. That's how I will qualify Brintellix.

Brintellix is a very strong molecule; it's a very strong product. We are investing more now on Brintellix, because, again, we believe that it has a stronger potential.

Brintellix has also demonstrated an effect on the cognitive functions, and we are working to leverage more this data, which could be a key differentiating point in the future.

(interpreted) Thank you.

(interpreted) Thank you very much. Next question, please. I would like to limit the number of questions to two per person, and please be brief.

(interpreted) Sakai, Credit Suisse. I have two questions about the Brintellix cognition level.

Labelling has not been approved. I think this has a lot of impact. Do you have any policy or strategy going forward to get this cognition labelling, because doctors understand that there is a benefit on cognition. So I think from the perspective -- marketing perspective, there is no negative impact, but it's better to have cognition labelling. What do you think?

As you may know, we have done three randomized, double blind clinical trials, showing that there is an improvement in cognition.

Now, there are two elements and improvement in cognition. One is memory, and the other is executive functioning. What we have shown is that, like other anti-depressants, we improve memory. But very importantly, we also, unlike other anti-depressants, improve executive functioning.

Now, we have discussed this with the FDA extensively. The FDA is very interested in this, but they aren't sure the criteria and basis of approval. So they have asked us to organize the specialist in psychiatry to have a consensus meeting, in which they will participate, to define the entity and to define the basis of approval.

We are in the process of doing this. Within the next six months, we hope that we will have a consensus among the psychiatry community, and with an understanding by the FDA of how our studies meet those criteria.

(interpreted) You said the next six months there will be some conclusion out of this consensus meeting, is my understanding correct?

[Consensus] meeting. Whether that will be the basis of an approval by the FDA, I can't say for certain yet.

(interpreted) Thank you very much. Another question is about GI. I think you put a lot of focus on GI in your presentation today. However, you only have Entyvio in the portfolio. In the United States, if you were to reinforce GI franchise, I think you also need to consider the option of acquiring another company.

Also, within GI, as there are different areas. Are you going to go for lower GI as well? And do you have a clear strategy for that?

Clearly, we want to be a GI leader; we are already. We want to continue to be a GI leader and understood as a GI leader.

GI, we have a broad definition of GI, upper or low. Why? Because we have a level of intimacy with gastroenterologists and with the customer which is very high.

Now, you mentioned we are launching only Entyvio at the moment. Of course, I would be delighted to have a second product to launch as well, but Entyvio is very much unique. I hope that you've got the potential of this project, which is very much significant.

But we will take any potential -- we'll look at any opportunity to reinforce our GI franchise, of course. Now, we have a pipeline as well, so we believe that we are in a very strong position.

What we also like with the franchise that we have identified is that four -- two franchise: cardiovascular and metabolic, for example, are very -- and oncology, are very competitive intensive. So there is a lot of competition in this franchise, so you need to be really strong in order to compete. We believe we are in this position.

GI and CNS are a little bit less competitive intensive, so we believe it's the right diversity as well in terms of franchise. But GI, we have a very strong intent to reinforce our position in the future.

Regarding our GI pipeline, you intimated that the only asset we have is Entyvio. And I would like to point out several other key initiatives that we have ongoing.

First, we have TAK-438 Vonoprazan, which has been filed for registration. We anticipate approval late this year, or the first few months of next year. This is a unique P-CAB inhibitor, potassium-competitive acid blocker, which is going to be, I think, a very, very large product in Japan.

As you know, we have a partner with Otsuka on this product. We are looking at this point for studying the product for application in a global market. It's a little bit complicated in a global market, given the way managed care formula isn't managed, but we're looking at exactly the opportunity to do that.

We also have TAK-114, which is an oral STAT3 inhibitor which we acquired. It was a product called Natura-alpha and this is a product which has shown in Phase 2a studies that it is as effective as any other product tested for treatment of ulcerative colitis and we are progressing this asset as rapidly as possible.

We are looking at other conditions. Specifically in liver disease, we think there is a big opportunity. We have two assets that we're looking at which we haven't placed in our portfolio yet for NASH, nonalcoholic steatohepatitis. And we are looking at the potential application of Entyvio and another asset that we have, a Hedgehog inhibitor, TAK-441, for primary sclerosing cholangitis.

So we have, I believe, a very substantive portfolio of GI assets and GI assets that are about to enter into clinical development. And so in addition to the launch of Entyvio and the existing franchise we have with Dexilant, Lansoprazole, Pantoprazole, Amitiza, we think we will be the leading GI Company within the next several years.

(interpreted) Next question please. Please [just] ask two of your questions upfront please.

(interpreted) Muraoka, Morgan Stanley. My first question is to Weber-san. You have the mid-term plan that is running and when I calculate the numbers, in FY 2017, JPY2 trillion and core earnings, JPY500 billion, that's what we calculate. Those numbers, in your views, can be achieved do you think? Are you confident? That's the first question.

Second question. This is regarding Entyvio business aspect, so if Weber can answer to this question, can answer.

The patent period was relatively short I thought. In the US, how do you extend exclusivity; [SC] was mentioned, but is that enough? Thank you.

For the first question, after seven months in the Company, after I have seen what I just described to you, now we have a very clear strategy, clear organization. We have the good fundamentals as well. I'm very committed to the guidance, which has been expressed previously, with the type of profitability that we are aiming in 2017; the first point.

Regarding Entyvio, in a way, it's -- yes, our patent protection is not huge. Why; because, in fact, this development has been very complicated. The R&D of this product was filed in 2000, so it took 13 years after R&D filing to bring this product to the market, but we have [strengthened] that protection.

We believe that also in specialty markets, with the type of unmet medical need there is, the big -- coming closer to the peak sales will be faster than a typical general practice market.

So in specialty markets, you reach your potential much faster usually than in markets where you have to convince thousands of general practitioners. So I think that we will see a very strong and fast utilization of prescription of Entyvio in the future, and we can rely on that protection to protect the product beyond [2014] or 2016 in some regions.

Also, it's a biologics, so, of course, you don't have the traditional generics on the market, but probably at this time, by 2025, there will be, potentially, some biosimilars, but it's not so easy.

(interpreted) Thank you.

(interpreted) [Idaka, Yakukasi, Editor]. I have two questions. About two weeks ago, the market value of your share prices, Astellas actually became number one in Japan and you're now fall into the second position. For this, I'd like to have the comments from the Chairman and also the President. Do you think it's just a transitory position?

And second is about the Blopress CASE-J and you have published the third-party's investigation results, but not yet about the Kyoto University's results. Well, Kyoto University haven't issued their report results yet.

I have heard the Kyoto University is not satisfactory about your positions, so for this I'd like to also have comments from the Chairman and also the President.

(interpreted) First, let me talk about CASE-J. When we had a press release in June, I told you that there was some involvement, although we had said that it was done in March and reviewing that, including the Compliance Committee, including lawyers, the participants, we told you that we would draw conclusion soon. It took a little more time, but we actually carried it out.

So regarding the position or views of Kyoto University and when Kyoto University, I think their third-party investigation is now underway. So when it will be finished and the Kyoto University will be releasing such results, we don't know and it's not affecting to our conclusion.

Sorry, what was your -- another question?

(interpreted) That's about the market cap?

(interpreted) Well, I may be quite businesslike that you should ask this to the market. But having said so, the growth potential of Astellas right now is considered maybe by more shareholders that there is more promising.

In our case, this week, as I mentioned in my opening remarks, on Tuesday, in Japan time, Regina Lafayette case, [well, after] 6,000 times nobody have heard about this punitive damage for the compensatory damage the jury verdict was drawn.

The judge didn't make a decision within the usual limited time, but it's now [thought] to be 25 times and maybe the -- rate-wise, it is a reduction of 96%. But again, this is a kind of shocking impact to the market that might cause the concern in the market.

But regarding this, thinking about the safety on the part of the patients, we don't think that there are any such claimed scientific foundation as the plaintiff claims. So we'd like to go to the senior higher-level court and then it will be not a jury verdict types of examination and decisions.

So I think that we have to go more and we have to wait for the ultimate conclusion. So I think those are probably the factors affecting to our share prices.

Regarding growth potential, Christophe already told. Also in March, product-specific investor relations meeting will be held; there, we will give you more details. So having those programs and events steadily, we like to gain your trust onto our future outlook.

(interpreted) Well, if it is all possible, I'd like to have just a few words for two questions from Weber-san please.

For sure. On the market cap, well, I'm quite a competitive guy, so I wouldn't say that I like that situation. But competition is good, so we will improve.

Having said that, I think being the leading company in the pharmaceutical industry in Japan is more than the market cap. Market cap, of course, is one element, but it's also in how many therapy areas you are.

In our mind, it's also how our customer are seeing Takeda. And when we ask physicians they rate Takeda very, very high, if not the number one position in term of product and service.

Being number one is a type of R&D investment we conduct in Japan. For us, it's a multi factor dimension to be the leading company in Japan. But again, having said that, I am competitive and I don't like, of course, Astellas to have a higher market cap than Takeda.

I think on [KG], I think Hasegawa-san has given all the information needed. I have nothing more to add.

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

Urushihara, Nomura. I have a very simple question about MLN9708 ixazomib. The time of the filing is next year, and then the launch was in two years according to the previous announcement. Has it been changed or not changed? You said it's to be launched within two years, but the timing of their filing, has it not changed? That's the first question.

The second question is that you are focusing on ethical pharmaceutical products, but what about regenerative medicine for the future? What about the medical devices? As a business model, is there such an option for you? That's the second question.

The anticipated filing of ixazomib 9708 is in FY15, we announced that. We anticipate, therefore, an approval in FY16.

One thing that's important is that we can say why is it delayed? The delay is simply because we're depending upon the enrolment rate of patient -- not the enrolment, but the event rate seen in the clinical trials. This is a trial in which we are looking to see a response to treatment and then looking at how long it takes for somebody's response to disappear. That is actually taking longer than we anticipated which is quite good on the one hand.

On the other hand, it does delay our filings. I don't anticipate this represents a bad situation for ixazomib. Clearly, our desire is to have this product launched before the potential patent expiry of Velcade.

Regarding the first question, so medical device. We are not a medical device company, it's a very different, in fact, business model. So at the moment, we have no plan at all to enter the medical device business.

Regenerative therapy. This is something much closer to, in fact, the pharmaceutical how can we treat better patient? And that's something that has been looked by the research group.

Again, when we say for therapy areas, it doesn't mean that in early, early research discovery we are not looking at other type of therapy or medicine, which could bring substantial benefit to patients; we are a bit broader in our research.

But in time, of course, we want to be very much focused in the mid-stage or late-stage type of pipeline. But regenerative therapy, it's interesting; it's exciting. I think the science is exciting and the team is looking at it.

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

(interpreted) [Kubota], Nikkei Biotech. Regarding research I have a question in relation to the previous question. Particularly in oncology there are many topics, including immuno-oncology and cancer cell therapy, stem cell therapy. What is your view on this regarding these areas and topics in oncology?

In oncology we have had three primary focuses of research. One is in antibody drug conjugates.

As you know, Adcetris has been launched, it's been a very successful product for us. We have a very important ADC in our portfolio, MLN0264, which is focused on gastro-intestinal malignancies. We have a number of other assets that are in the earlier stages and we're moving forward aggressively.

We have also had very strong capabilities in the area of protein quality control. That is, of course, proteasome inhibitors being the first, but we have UAE inhibitors; NEDD8-activating inhibitors. We have autophagy-based program. So that's an area in which we have considerable expertise and are moving forward.

The third area that we have designated for oncology is in the area of cancer metabolism. We've always had a very strong metabolic research group in [Jiaonang]. A substantial group of that metabolic study cohort has now moved over to inner oncology looking at cancer metabolism.

We are, of course, aware of the important area of cancer immune oncology. We don't have a primary program in it, but we're looking very carefully at three aspects of the program.

First, we have some assets which can be applied directly in the way that PD1 antibodies have been applied in immune oncology.

Secondly, we believe the best application of immuno-oncology is in combination with other drugs, which can reduce tumor burden, and then allow the immune response to kill the rest of the cancer. So we are looking, and substantial discussions with a number of potential opportunities for partner with companies whose primary focus has been in immuno-oncology.

And thirdly, we're looking at potential new technologies, which can leapfrog the existing immuno-oncology franchise.

So we're very committed to cancer. We can't do everything in cancer, but what we're trying to do is leverage our core capabilities and then partner in areas in which we think our core capabilities can be very complementary to other emerging technologies.

In a way this is also a good illustration of our philosophy. When we are in a therapy area, or even in a region, we want to make sure that there are some areas where we are the best in the world.

So in oncology the three areas that (inaudible) mentioned earlier, like antibody drug conjugate, we know in these three areas we are in a leading position. So we are able to win; we are confident about that.

It doesn't mean that we are not looking at the periphery, but we believe that when you are in an area like oncology or GI, there are some areas where nobody can play better than you. Then after that, you can have the luxury if you like to look at the periphery and look for opportunity and reinforce your position.

(interpreted) Next question please.

(interpreted) [Ito], Nikkei newspaper. I'd like to ask you one question regarding your healthcare business. In April to June there was some negative impact, because of the consumption on tax increase, and yet I think that your result is very high. In your strategy how and where do you position this particular business and what is the future strategy?

So we have in consumer, in over -- OTC our consumer business, we have a strong business very well identified in Japan; we call it Japan Consumer Healthcare Business Unit. We are very strong brand, very well recognized.

You are right, we have been impacted as well by the market evolution which is has a very slow growth; so that's one business that we have.

We have also strong consumer health brands in some emerging markets but non-global way, if you like.

At the moment, we don't have greater strategic intent than managing well this situation. So as you have seen today, I didn't show an intent to become a global OTC player, for example. We don't have this intent and we will have to continue to look at how we can optimize our situation in the consumer healthcare business. At the moment this is what we are.

But we don't have the claim, neither the intent to become a global OTC company. This is not a strategic global focus area for us, but we have a very strong business in Japan. We have some strong brands in the some emerging markets.

(interpreted) Thank you. Next question please.

You had a question, no? Okay, next question please. Over there.

(interpreted) Hitokoto, Yomiuri Newspaper. At the onset there was this question asked already about reduction of the headcount by 2017. There was a target to reduce in the first half of the year attempt. This target, has it been already removed? Please clarify that.

The second question is about the ForEx. The yen depreciation, this trend may continue. How is it going to affect? Is this just a positive on the yen, the equivalent, is it working positively for you? Please comment on the ForEx.

On the impact of Summit, once again, Summit is not programmed attempts at reducing the staff, but at improving our efficiency.

It may have some impact in some units because we may have to relocate some activities, for example from one country to another, or we may have to combine operations that were in different countries, so obviously some people will be affected.

But we had indicated it was not a target. We had indicated that there will be marginal reduction of headcount from 2012 to 2017, which is something that we are monitoring. But once again, it was not something very large compared to some programs that other player in the pharmaceutical industry might have been engaging to.

Now regarding the foreign exchange, depreciation of the yen against the US dollar has a positive impact on ourselves, obviously because our sales in the US, or in some countries with currencies, are linked to the US dollar are revalued, as a consequence when being translated in yen.

However, we have a fairly large part of our costs which are denominated in dollars, including in research and development, which mean that a depreciation of the yen against the US dollar has a slightly negative impact in terms of margin rate.

I think a 10% -- to give you an indication, a 10% depreciation of the yen against the dollar is meaning a 0.2 percentage point reduction of our core earning margin as a consequence.

There was a headcount question.

I answered.

I think we should, when we have -- when we communicate saving programs, like Summit, or saving targets, we'll always communicate these savings in yen.

Headcount is much more complicated, because in some areas it can increase; in some areas it can decrease. I think it's very difficult to communicate the headcount.

On top of that, personally I'm not in favor of communicating headcount, because again, it's very complex and it put also -- frankly, it creates antinomy between employees and the shareholders that I don't want to create. So we'll communicate savings targets, profitability targets with you, but not headcount target.

(interpreted) Next question please?

(interpreted) Atsushi Seki, Barclays. Two questions. First, ixazomib 9708, this is an oral drug that is convenient, but you have some antibody competitors coming into the market; for example, Anti-CS1, CD38 antibodies, especially in terms of recurrent and the refractory multiple myeloma, you have strong competitors.

Your number one position may not be undermined, but what's your situation, what's your strategy regarding those competitive products?

The next is Actos study. You have your 10-year study regarding bladder cancer. I'm not worried, but in terms of a disposal of papers, documents, what's your view on this point regarding the litigation from Louisiana?

First let me respond to your question on ixazomib.

Ixazomib is an oral therapy, once-weekly oral therapy. There are many drugs that will be effective in induction of remission in multiple myeloma, and ours will be one of them; it will be an oral product.

On the other hand, the biggest opportunity in multiple myeloma is maintenance. In maintenance there is no drug that's currently approved.

As you know, in maintenance oral drugs have a very special advantage. The fact that you can live with your disease, never have to go to the doctor's office, take a half-day off from work to get an IV infusion, that is not going to be a viable maintenance approach.

So our -- and in our estimation the largest opportunity commercially is that maintenance market. We are focusing very much on that market. Towards that end, our Phase 2 studies indicate that with increasing cycles of treatment we actually get deeper and better responses to ixazomib. And this is rarely seen with antibodies or other parenteral therapies, so we're very pleased.

We think that this is an oral therapy that has very few severe side effects and it has increasing efficacy with increasing cycles of use. It's an ideal drug for maintenance.

(interpreted) Regarding your second question of Actos litigation, elimination of evidence or disposal of papers, that's your question.

Our position is clear. In a very isolated case an employee left and we eliminate the data of this personnel's computer, but the access-related information contained in this PC-based data, it could all cover by forensic information. We have submitted more than 30 million pages and we have covered all that. That is our position regarding this. Thank you.

(interpreted) Thank you. In the interest of time, I now would like to entertain the last question, the final question, please.

(interpreted) Tanaka, [Monthly Mix]. I'd like to ask two questions regarding the Japanese market.

(Inaudible) those generics were launched this year and there are some movements in the market. And what will be the impact, if any, to Azilva's future growth from those generics? There are combos also available in the market, so in order to grow it more in the future, what is your strategy?

Another question is about Entyvio. Outside of Japan I understand it's been responding to the unmet needs and I think in Japan filing timing was in and after FY19 or so, but do you have any plan to accelerate it?

Japanese market, we have seen, like others, that generic penetration is accelerating in Japan and that, combined with a price reduction, is very much slowing down the pharmaceutical market in Japan, so we are impacted as others.

Azilva has had a very strong launch. The market penetration, market share, is growing very well.

I think Takeda's position in the cardiovascular metabolic market is very, very strong as well. So we have an ability as a Company to launch new products which is unique in Japan, so we believe that we'll be able to continue the progression with Azilva, and also be successful with the coming launch in Japan.

We have especially in the near future two very important launches, trelagliptin, a weekly DDP-4, and Vonoprazan in the anti-acid market. We believe that this launch will allow us to offset more the loss that we will see because of generic penetration in the future.

Regarding Entyvio, we are looking at accelerating registration of Entyvio everywhere in the world, not only in Japan. In some countries, like China, we also have to conduct some clinical development work and we'll do our best to accelerate.

At the moment we have not identified a way to accelerate further the launch in Japan. There is also unmet medical need in Japan: the epidemiology is slightly different but there are patients with ulcerative colitis and Crohn's disease in Japan, so we are very much keen to progress and to register, as soon as possible, Entyvio in Japan.

(interpreted) With this, I would like to conclude today's meeting. Thank you very much and please to fill in the questionnaire and leave it on the table.

Thank you very much in joining in this meeting. I would like to ask for your continued support.

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.