Takeda Pharmaceutical Co Ltd (TAK) 2015 Q3 法說會逐字稿

Good afternoon. I'm Francois Roger, Chief Financial Officer. Today, I will discuss our financial results for the third quarter of fiscal 2014. And I will also give updates on important topics affecting our business and our full-year guidance.

Please read our forward-looking statements on page 1.

Slide 2 gives a definition of some of the terms I will be using in this presentation and that we have been using for time already.

Slide 3 lists the items that I will cover today.

First, I will touch upon some key highlights for the quarter on slide 4.

Underlying revenue growth in Q3 was at 3.7%, in line with our guidance. We are pleased to see a strong performance in the US and Europe in Q3. That is more than covering some headwinds in Japan, linked to the traditional price decreases, combined with increased pressure from generic substitution. Underlying core earnings growth for the quarter was 5%.

New products have continued to perform well. ENTYVIO has now achieved JPY16 billion in global sales after only seven months, reflecting its potential.

In the US, BRINTELLIX has demonstrated faster growth than other brands in the MDD market, and CONTRAVE has got off to a good start, supported by patient programs.

In Japan, AZILVA continues to do very well with Q3 year-on-year growth of 60%, and JPY33 billion of sales year to date. We also obtained approval in December for TAKECAB, which we aim to launch by March.

Regarding efficiency, Project Summit continues to progress on track towards achieving over JPY26 billion annual savings in 2014.

I would like to briefly introduce here some exceptional items recognized in Q3. I will discuss details later in my presentation, but operating income has increased due to a one-off impact related to the COLCRYS case; and net profit has decreased due to a write-off of DTA related to R&D tax credits in Japan.

Our full-year guidance has been amended accordingly, but the important point to note is that we reconfirm our revenue and core earnings guidance.

Slide 6 shows a reported growth sales growth of 6.5% in Q3, partly supported by favorable foreign exchange. We are pleased to show that our underlying revenue growth is at 3.7%, confirming the level we have experienced on average over this year and last year.

Slide 7 shows how the strong growth of new products such as ENTYVIO has boosted sales by 6.1%. This momentum is stronger than the pressure we are facing in our base business, mainly coming from pricing pressure and generic substitution in Japan.

On slide 8, you can see that ENTYVIO has been long awaited by patients and gastroenterologists, and we can see that the real unmet need when looking at the global sales of [Tak]. We have achieved JPY16 billion of sales in the first seven months, which means that ENTYVIO is now within the top 10 products for Takeda in terms of revenues.

ENTYVIO was the first ever global launch for Takeda, and it is currently available in 14 countries. We are actively pursuing approval in additional countries.

On slide 9 , you can see the sales performance of two other important new products, namely ADCETRIS and BRINTELLIX. ADCETRIS is still confirming an attractive growth trend, while BRINTELLIX also continues to perform well and remains the fastest growing anti-depressant launched in the US over the last three years when looking at the TRx growth quarter over quarter. We have had very positive feedback from psychiatrists, and we see the real benefit of peer-to-peer discussions between psychiatrists and GPs.

Let me introduce TAKECAB on page 10, a new medicine for treating acid-related diseases approved in Japan in December last year.

TAKECAB, discovered by Takeda, is a gastric acid secretion inhibitor with a novel mechanism of action called potassium-competitive acid blockers, or P-CABs, with fast-acting, strong and sustained effects.

As illustrated in this slide, TAKECAB is accumulated in secretory canaliculi of the gastric parietal cell, and is long retained there because this is a basic compound unstable under acidic conditions and it inhibits proton-pump activities.

The approval granted for TAKECAB in Japan is based on the result of phase 3 trials for indications including gastric ulcers, duodenal ulcers, reflux esophagitis and H. pylori eradication. In these trials, TAKECAB demonstrated efficacy and has a favorable profile for both safety and tolerability.

In order to maximize TAKECAB's sales as quickly as possible, we have teamed up with Otsuka for co-promotion in Japan. We are very excited by the profile of TAKECAB, as well as by its market potential, and we believe that it has the potential to be one of our top three products in Japan over time.

I will now go into more details about the breakdown of revenue by geography on slide 11. It demonstrates our high double-digit growth in the US and also our strong performance in Europe.

Emerging markets' growth in Q3 was a little bit slower than in Q2 due to weaker performance in specific countries, which I will explain later. Japan pharma continues to feel pressure, which I will cover in more details on the next slide.

On slide 12, we show that the growth of new products in Japan, such as AZILVA, NESINA and ADCETRIS, did not offset the combined impact of pricing pressure on generic substitution that affects our base business. As an illustration, more than 30 generic versions of Blopress entered the market in December 2014. So far, AZILVA had been able to compensate for most of the erosion of Blopress, but we may not be able to sustain that going forward.

We expect to experience negative growth in Japan for most of 2015, but with the launch of TAKECAB and the approval of trelagliptin, the once-weekly DPP-4, expected within this fiscal year, we should be back to growth early in 2016.

Slide 13 shows our emerging market performance in Q3. Our underlying revenue growth of 9.1% is slightly lower than in Q2, impacted by political and economic factors in Venezuela and Ukraine. However, I want to highlight the fact that our underlying growth in the key countries of Russia, Brazil and China were all in double digits.

I understand that some investors might be concerned about the recent depreciation of the ruble, but strong in-market demand has mostly mitigated the exchange rate impact, resulting in only a mildly negative performance in yen on a reported basis.

In Russia, we also have had the opportunity to increase prices, at least on non-essential drugs; and I would also like to remind you that Russia only accounts for 3% of our global sales.

Let's move to slide 15.

While all sales analysis that was presented so far was done on a quarterly basis, all profit and loss and cash flow analysis that we will present from now on will be done on a year-to-date basis, as we feel that it is more meaningful. For transparency, all P&L data for the quarter is included in the supplementary information on our website.

This slide 15 shows our operational expenses.

As I have previously communicated, we are increasing investments in sales and marketing this year to support mainly BRINTELLIX, ENTYVIO and CONTRAVE, and this trend has continued in the third quarter.

Regarding G&A, the positive impact of Project Summit means that we have managed to continue to control costs and maintain lower underlying G&A expenses compared to last year. R&D expenses also remain under control.

Next, allow me to talk a little bit about achievements in Project Summit on slide 17.

Efficiency savings coming from Summit continue to deliver attractive results, with more than JPY19 billion delivered year to date. Takeda remains 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. To get there, we have spent about JPY12.5 billion in restructuring costs year to date, which explains why we do not see a large benefit of this efficiency project to our EPS yet. All Summit savings are by nature recurring items, and then, therefore, they will flow to the bottom line going forward.

Let's move to the income statement on page 19.

Operating profit has been impacted by one-off factors, including the disposal of unused real estates, which we have reported previously; and more recently, factors related to COLCRYS. These one-offs are not taken into consideration in core earnings, which provides a better indication of underlying operational performance.

Core earnings, excluding foreign exchange on exceptional items, was roughly flat year to date, which is fully in line with our expectation and our guidance.

Page 20, looking at the one-off items that have impacted our net profit for the period to date.

One significant factor is fewer gains on sales of securities compared to the same period of last year. We have recorded in 2014 JPY27.7 billion less in disposal of securities than in the same period of last year.

The other significant factor is an increase in income tax expenses due to the write-off of our deferred tax assets for R&D credits.

I will explain the major extraordinary items in Q3 on the next slides.

Next on page 21, moving below core earnings, our core EPS has been impacted by a higher effective tax rate in 2014 compared to last year, related to the revaluation of net operating losses carried forward.

Our core tax rate has increased from a year ago, but we see it more as a consequence of specific timing of events, and we confirm that our underlying effective tax rate is in the low 30s, and that it has been at that level, the low 30s, for some time, with obviously some volatility by quarter.

We are confident that we should be able to maintain this low 30s rate as an effective core tax rate in the medium term, bar any structural change in tax laws.

Please be also aware that we have not reflected in our Q3 accounts, and we have not reflected in our guidance, either any potential impact of future changes in Japanese tax reforms, as they have not been enacted yet.

Slide 32 shows the major exceptional items recorded in Q3.

For COLCRYS, the impairment loss of intangible and the reversal of the contingent consideration has been recognized, and lead to a positive net effect to profits. The write-off of a DTA following changes in tax treatment of R&D expenses in Japan has a negative impact on our net profit.

As you can see in the column on the right, the total impact is positive to operating profit, but negative to net profit; but the impact on core earning is really minimal. We do not expect any significant exceptional items in Q4 2014.

Let's move to page 23. Allow me to elaborate on the COLCRYS case. Recently, another colchicine product has been launched in the US market as a direct competitor to Takeda's COLCRYS. Soon after, Takeda has launched its own authorized generic of COLCRYS.

As a result, we anticipate some negative impact on sales in Q4 leading to some volume loss on pricing adjustments for inventory in the trade. However, Takeda's guidance to revenue on core earnings for 2014 is unchanged, as we believe that the impact of COLCRYS can be absorbed by the overall performance of other products.

In 2015, COLCRYS sales and margins could be reduced between 30% to 60% as a combination of price decrease and volume loss, and we are currently reviewing mitigation plans to offset part of this impact. It is important to note though at this stage that the core earning is still expected to grow in absolute value in 2015 for Takeda globally in spite of the COLCRYS event.

We have not yet finalized our budget for 2015 though, and will provide our guidance, including the net impact of COLCRYS, at the occasion of our Q4 earnings announcement on May 15. At this point, I would like to stress as well that the COLCRYS competitive situation does not impact the trend of the medium term, nor our medium-term guidance.

Let's move to page 24.

Historically, Takeda capitalized its R&D expenses and tax credits in Japan through the recognition of a DTA, or deferred tax assets. R&D expenses and tax credits were recognized up front in the P&L, while the cash tax benefit was realized upon completion of the clinical trial.

From now on, Takeda will no longer capitalize R&D expenses and credits in Japan, but will recognize them in the year incurred. We will, therefore, have the same treatment from an accounting and from a tax point of view. This will also align our tax methodology with practices commonly used in the industry.

Due to this change in tax method, Takeda revalued future utilization of R&D tax credits, and determined that the entire balance of the R&D credits DTA should be written off in Q3. This had no impact on operating profits, but it has decreased our net profit for the period by JPY42.7 billion.

We anticipate that this change will improve our cash flow over time by around JPY30 billion. This impact obviously is excluded from the core EPS analysis.

Slide 25 provides a detailed bridge between operating profit to core earnings. You can see on the bottom axis the categories of item that are adjusted to arrive at core earnings, the largest of these being the amortization of intangible assets.

In order to maintain transparency, we provide slide 26 to show the reconciliation of the main P&L items from reported to core values, and then to underlying growth that excludes the impacts of foreign exchange, exceptional items, acquisitions, disposals, as well as restructuring. This analysis provides a better view of the real performance of the Company.

Next I will discuss our cash flow on page 28.

You can see that our operating free cash flow year to date has been impacted by a higher amount of milestone payments for acquired R&D assets, as well as a higher amount of CapEx.

Operating free cash flow is an item that will be a priority area of focus for Takeda in 2015, as we believe that we have margin for improvement.

Finally, allow me to discuss our guidance for the year on page 30.

As you can see, our guidance to business performance, I mean revenue and core earnings, remains unchanged. We recognize that our guidance for both revenues and core earnings looks slightly conservative, and we expect some upside, even considering some downside in COLCRYS in Q4.

We have raised our forecast for operating profit as a result of the extraordinary factors relating to the COLCRYS case, and we have lowered our outlook for net profit for the year due to the change in recognition of R&D tax credits in Japan.

As we have previously communicated, this year, [2014], is a year of investment for Takeda, and we plan to continue investing in Q4. Phasing of expenses, mainly in R&D, means that we expect to book a loss at net profit level in Q4, as it has been the case in the previous two years.

And moving to the last slide on page 31, I would like to introduce an update about our plans for future IR events as part of our initiative to introduce more active and progressive shareholder communication and engagement.

On March 9, we will be holding a half-day event in New York City to showcase our GI franchise, with a specific focus on ENTYVIO. We will also hold a more comprehensive full-day investor relation event on June 18 in Tokyo, and we look forward to providing more information about that in the coming months.

That concludes my presentation. Thank you very much for your attention, and we are now moving to Q&A.

(interpreted) We would like now to field your questions. We will be taking questions from listeners in both Japanese and English, and we'd like to take two questions at maximum from one person.

(interpreted) (Operator Instructions). Hidemaru Yamaguchi, Citigroup.

(interpreted) The first question is about ENTYVIO sales. As you've shown, I think the sales is very good, but depending on how you look at it, maybe it looks a little bit slowing down starting from Q3. But including first quarter -- excuse me, from January to March, what is the factor do you believe that this growth would be again increased?

You're right. You can see on the slide that there seems to be a little bit of a slowdown in the growth. Actually, the curve is better than what we expected initially because we expected what we call the warehousing impact, because at the beginning, we knew that there were a lot of patient that were waiting for the product. So there was an accumulation of patient that were waiting for the product, which mean that you usually go for a stronger takeoff and then you have a little bit of a slowdown.

We actually did not see, contrary to what we expected, any decrease in sales after some time. We saw it very, very marginal in Europe but not globally and not in the US, so which confirmed that the product is actually reacting even better than what we initially expected. So no concern whatsoever as far as we are concerned.

(interpreted) Understood. Can I ask you a question about R&D?

(interpreted) Yes, please.

(interpreted) About the ixazomib interim result, interim analysis result, would be available this year, according to your guidance. So I'd like to confirm if there is any change in that schedule.

And I think there are some studies which have completed in December last year according to your database. So do you consider that interim result would be available much faster than you expected?

(interpreted) Thank you very much, Mr. Yamaguchi. This is Miyoshi speaking, CMSO Office Head. As we mentioned previously, we still have ongoing studies and we will do the interim analysis as soon as possible. And we expect filings in 2015 and approval in 2016. There is no change from previously we announced.

(interpreted) Thank you.

(interpreted) Next question, please.

(interpreted) Mr. Seki, Barclays Securities.

(interpreted) I have two questions; Project Summit and cost reduction. This is my first question.

It seems it's going very smoothly. In five years, you hit the target of JPY120 billion. Do you think you could exceed this -- you said your anticipation? That's my first question.

Okay. Indeed, Project Summit is working well. As I explained, we expect to have delivered half of the JPY120 billion of savings after two years once the program is a five-year program. We have always said that at the beginning, you have or who has the easy peaks and low-hanging fruits which may make it a little bit easier. For the time being, we are still working on the JPY120 billion.

That being said, we are convinced of one thing as well, is that Summit should not stay just as a 2012 initiative that we roll out over five years. It has to be a permanent search for efficiency, which mean that we have launched, for example, a new initiative which we call [10x10], where we aim at finding 10 new initiatives of more than $10 million a year of savings each year. It's not always easy, but as we progress in our business, we keep on finding new ideas.

That could potentially indicate that we could exceed the JPY120 billion, but for the time being, we have not provided any further guidance than this figure. I think it is important for us that we deliver that figure, and then we'll see what we can do beyond that level.

You had a second question, I think.

(interpreted) My second question is regarding R&D, MLN8237 alisertib. And I suppose the study is almost completed, and what about the results of phase 3? Do you have the results already about alisertib?

(interpreted) We have the interim results for PGCL, and based on that, we are discussing strategy. And the study itself is ongoing.

(interpreted) Did you meet the primary endpoint?

(interpreted) That is also a part of analysis.

(interpreted) Thank you.

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

(interpreted) Ryoichi Urushihara, Nomura Securities.

(interpreted) Thank you very much for your explanation. I have two questions. The first one is about -- may be overlapping question, but MNL9708, the submission timings based on the [interview] so far, you said that it is around the summer or autumn but do you see any difference from that earlier statement? Is there any delay to the second half of the year?

And amyloidosis indication, you said that you are going to make the submission based on the phase 3 interim analysis, and so I'd like to confirm if there is any timing difference.

(interpreted) Well, about this, as I mentioned before, everything is driven by events so the timing cannot be clarified here. But as I said before, we are expecting filings within 2015 fiscal year and approval fiscal 2016.

And about amyloidosis indication, the [Break] Therapy designation was granted by FDA, so basically, this study itself including phase 1, phase 2 -- excuse me, phase 1 and phase 3, so we're skipping phase 2, based on the accelerated protocol. And so timing itself won't be changed due to the fact that we are granted by the Breakthrough Therapy.

I heard that the timing of the filing is around September. So in US, we expect the filing in fiscal 2015. And the study is still continuing, and it depends on the events. So I cannot mention the exact timing of the filings, but we do expect that filing within fiscal 2015.

(interpreted) The second question is about commercialization in Japan. So you are going to launch TAKECAB and also once-weekly DPP-4. And about this weekly DPP-4, are you going to tie up with Sanofi for co-promotion?

And if it's so, the productivity of the sales reps; now you have JPY300 million as the indicator per capita, and do you think it's going to be changed?

(interpreted) Weekly DPP-4, we don't have any plan to do the co-promotion with Sanofi. Our relationship with Sanofi is limiting to the joint -- the scientific meetings and promotion that the scientific congress information provisions to the patients with diabetes. It's not about the product promotions.

(interpreted) Do you think that there is the productivity improvement due to the partnership with Sanofi?

(interpreted) No. As total productivity improvement in US sales reps in Japan, we don't have any respective target linked to this product in terms of the productivity target.

Starting from April 2014, we have set up a specialized team in diabetes areas, which was a shift from the general [Imara] system. And due to this change, we have more specialized education to do the detail to the physicians. In that sense, we will be able to do the better information provisions in the conversations with physicians. But if you ask that to be [embodied] into the productivity indicator, there is no data to show you.

(interpreted) And about the TAKECAB, you're going to have the co-promotion agreement with Otsuka Pharmaceuticals?

(interpreted) Well, we are aiming for the blockbuster potential, and that is a common B share, the goal. And as a blockbuster, the target is JPY100 billion of sales. But there is one year before the longer list -- the prohibitions of the long prescriptions in Japan for one year, so we can expect significant sales growth one year after the launch.

(interpreted) Thank you.

(interpreted) Next question, please.

(interpreted) Mr. Hashiguchi, Daiwa Securities.

(interpreted) My first question is for this fiscal year, you mentioned this is a year of investment, and you emphasized that, just like before. Until [when] you are going to increase investment for the new products? You had significant investment, and for the next fiscal year, it's probably an extension of that.

And for R&D expenses, what is your outlook? Especially what's the size of R&D expenses for the next year?

And so for 2014, we have indicated a [fund] before the beginning of the year, and this was part of our guidance that we believed it would be appropriate to invest more in sales and marketing due to the heavy launch program that we have in the United States with BRINTELLIX and ENTYVIO and CONTRAVE. And ENTYVIO, in addition to that, we launched it as well in 13 countries in Europe already.

So we have -- as you can see, year to date after nine months, we have increased our promotional spending in sales and marketing by something like JPY18 million more than last year, so which is a real reflection of that.

We have indicated as well that this was something specific for 2014. We've no intention to pursue a stronger increase of sales and marketing spending above our set level of sales growth beyond 2014. So it will not happen again in 2014. We're actually working on our -- in 2015, sorry. We're actually working on our budget for next year, but clearly, we don't plan any strong additional investment in sales and marketing in 2015 as we experience this year.

Regarding R&D, we had indicated already more than two years ago that we would expect to maintain our R&D spending flat, around $3 billion, which is more or less where we are today, where we have been last year as well. And so you can expect for the time being that we would spend about the same amount. So the idea is to keep the spending flat.

I'm mentioning a figure in US dollar because a large part of what we spend in R&D is actually spent in US dollar and euro. So if we deliver an amount in yen, it is -- it would be obviously inflated by the depreciation of the yen.

(interpreted) So may I move on to the second question?

(interpreted) Yes.

(interpreted) Regarding GI franchise, lansoprazole and pantoprazole, against the plan it seems those two products are going very well. And do you expect any drastic decline in sales? Are there any factors like that? Or do you think the current level of sales can be maintained for some time?

If you look at our sales of lansoprazole, excluding exchange rate, they have been declining this year by 17%, and pantoprazole by 5% globally. These are the global figures. So these products have reached the stage where they are attacked by generics in developed markets, which is the reason why we are declining.

Why do we have a totally different momentum? Obviously, in emerging markets, where we have still strong momentum -- in countries like China, for example, we have a very strong momentum for a product like pantoprazole.

So very different momentums between developed markets with decline of sales with genericization, and emerging market where we see an increase. The net impact in 2014 has actually been negative. So this has been to the lifecycle of these products.

(interpreted) Against your plan, what is the progress so far against your budget?

We don't disclose any information on our budget, but we knew that this trend that we see in the markets would happen. We knew that -- we expected to have some decline in developed markets. Maybe the decline might be a little bit stronger than what we anticipated, but nothing really material.

And we knew that there would be a strong potential as well in some emerging market. I mentioned one. So it is happening as we planned; no real deviation.

(interpreted) Thank you very much.

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

(interpreted) Mr. Muraoka, Morgan Stanley MUFG Securities.

(interpreted) About the COLCRYS impact for the next year, that is the first question from me. In your presentation, you said that you are going to consider the mitigation strategy for this. So do you have any idea to licensing new product to mitigate it? Or you are going to reduce [Imara] cost in US significantly?

And as a result of that, next year, the 2016 fiscal year, the core earnings year on year would be positive, even if you absorb the COLCRYS impact. Is my understanding correct?

This is the first question.

Well, for COLCRYS, as we have indicated, we expect that we can absorb the impact as far as 2014 is concerned. Even if there will be some impact in terms of pricing adjustment essentially for whatever is in the trade in that wholesalers and pharmacies, so we need to adjust the price. But we expect to be able to absorb that impact that will happen in Q4. And as a consequence, we have not revised our guidance because of COLCRYS in 2014.

For 2015, we expect significant impact for COLCRYS. We have indicated a figure of -- decline of sales and margin for COLCRYS between 30% to 60%. We are a little bit in unknown territory there because a new colchicine has been launched. There will not be any other generics beyond the generic that we have launched and the generic that the other colchicine has launched as well.

So we have made this open set of assumptions. We have started as well to take a few steps, both on the commercial side and linked more specifically to COLCRYS. We look at different options. You mentioned one of them which is to review our promotional spending that is supporting COLCRYS. The idea is not necessarily to cut it. The idea might be as well to redeploy it on other products, so which is the reason why we are reviewing a certain number of options.

I can confirm though that we will not be able to mitigate the entire impact, negative impact of COLCRYS in 2015. That being said, I have said during my presentation that we still expect for some growth in absolute value in Takeda core earning in 2015 above 2014, so which mean that some pressure for sure. But we expect to be still in positive territory in terms of bottom-line growth in absolute value.

We have not -- we are not detailing at this stage any measures. Well, first of all, we don't want to pass on any information to the competition either. And we need to see a little bit how the market evolves after the entry of another colchicine and after two new generics which are generics of these two colchicines to see how the market evolves in the next two months really to finalize our strategy. And we'll come back, obviously, with a final view at the occasion of our full-year results and where we will disclose as well the guidance that will include -- for 2015, that will include the full impact of COLCRYS, or at least the assumption that we will make.

(interpreted) Understood. Thank you very much. My second question is about -- may I ask a second question?

(interpreted) Please.

(interpreted) Well, Investors Day on June 18 in Tokyo, at this event, you are targeting 2017, for example. You are going to review and revise the target, to show the new target. Is there any plan for that?

We have not finalized the agenda for this meeting. It's a meeting that will take place in June. That could be part of the agenda, but we have not finalized it.

The idea is to give you a better understanding and a better insight on our full R&D pipeline. The event that we are organizing next month in New York is purely focused on GI, and more specifically on ENTYVIO, but we'll talk about Takeda as well. But it is entirely focused on GI.

The event that we will organize in June in Tokyo has a wider scope. We will so detail more R&D capability; the topics on which we work upon in R&D as well. But the other idea for this meeting is also to expose investors and analysts and shareholders in total to our management. Very often, investors and analysts, they have an easy opportunity to meet with the CEO and CFO, but we have more depth obviously in the management team than these individuals. So it is a good opportunity for us as well to showcase and to put on stage some of our other managers for to present maybe other topics like manufacturing; like other functions as well, marketing, or some heads of countries and so forth. So it goes beyond, certainly beyond the medium-term plan.

(interpreted) Understood. Thank you very much. That's all from me.

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

(interpreted) Mr. Sakai, Credit Suisse.

(interpreted) I have two questions. My first question is on page 14 of (inaudible). Actos litigation is the topic here. In detail, there is statement. And at the bottom of the page, there would be more [jury] hearings that Takeda is going to face. As far as you know, what's the scale, what's the number of further hearings? Can you answer to that question, please?

Yes, I can. Let me give you little bit the picture of where we are with Actos today.

First, patient safety is a critical priority for Takeda, and we believe that we have acted responsibly with regard to Actos. And we believe that Actos is itself an effective product for the treatment of type 2 diabetes, which the evidence of it is the fact that this product is still marketed in the US and in many other products in the world.

There is clearly no credible scientific evidence that establishes a causal link between Actos and bladder cancer. And some studies and regulatory agents and all regulatory agencies, including the FDA, have confirmed Actos as a safe and effective product for the treatment of type 2 diabetes.

On the legal side, in spite of what I just said, we have nearly 9,000 plaintiffs making claims against Takeda. We can't comment on the individual pending cases except to say that we are vigorously defending the Company against these lawsuits, and we are once again confident in the therapeutic benefits of Actos.

In terms of litigation, Takeda has won so far five out of the eight trials. We have a large number of lawsuits and trials. So we are aware as well of the fact that all mass drug litigation in the US eventually is resolved through settlement.

However, at present, Takeda is really defending against and strongly defending again all the cases, and we will continue to do so unless an attractive financial outcome for a settlement becomes possible. But for the time being, we are continuing to defend our sworn position. So we have about -- close to 9,000 plaintiffs today.

(interpreted) Thank you very much. So it's a large number, but I understand.

And another question is about ENTYVIO. NICE -- and this is regarding the European situation. NICE and German -- [like the legal], the regulator, the authority, and NICE does not recognize benefit for Crohn's disease. And in Germany, Crohn's disease and for UC, ulcerative colitis, both were not accepted. So that's the first response from those organizations. So sales in Europe is excluding UK and Germany. Is that correct understanding?

(interpreted) In, well, UK and Germany, they are always very strict regarding H2A assessment.

(interpreted) I understand that, but what are your actions and take on this? Thank you. Have you discussed each country has different criteria for ENTYVIO understanding an assessment? The sales so far is in line with your indications as you mentioned, and ENTYVIO is approved in the US for both indications, and we have sufficient data.

(interpreted) Well, by country, there are difference in the development team, and regulatory [officers], regulators continue to discuss, to have them understand the potential value of ENTYVIO, and we continue to negotiate.

Mr. Miyoshi, I have another question. Patients that use ENTYVIO, are they naive patients, or TNF-alpha failure?

(interpreted) That's TNF-alpha failure patients, so that's the indication. And along with the indication, we think the patients are TNF-alpha failure cases.

Before launch, we had many patients waiting for this who are TNF failures, so those are the patients that are using ENTYVIO.

Can I add something? In the UK, NICE has accepted one of the two indication, and we are providing them additional information for the second indication. And in Germany, we are already marketing -- or some patients are already using ENTYVIO. So we are -- there have been a certain number of questions as well, but some patients are already using ENTYVIO in Germany.

(interpreted) Regarding TNF, and also -- not only TNF failures, and even the modulator steroid prescribed to some patients and no responders to them, they can be categorized as naive patients and they can use ENTYVIO.

In the beginning, TNF-alpha failure patients are waiting, and so they were the first ones to use. And once that has prevailed, biologics-naive patients is the target patients that we want, and that will give us another peak of sales.

(interpreted) When do you think that would happen? That means labeling change?

(interpreted) No. Even with the current labeling, not limited to TNF alpha, but the steroid, an amino modulator tried, and they can use those patients.

(interpreted) Oh, I see.

(interpreted) So that is already labeled.

(interpreted) Thank you.

(interpreted) Thank you very much. According to our original schedule, thank you very much. I think we are running out of time so we'd like to conclude today's Q&A session.

With this -- excuse me, one more question we'd like to take. Sorry. We have time to take one more question.

(interpreted) (inaudible), [Berenberg]. This is not directly related to the financial results, but according to the interviews so far, Mr. Weber once mentioned about that the active M&A to be taken as a measure for Takeda. But after the Nycomed, as you said previously, a very conservative approach to the M&A activities. And it seems like you are going to change your directions based on the statement made by Mr. Weber. So could you explain your direction about M&A? And what is the available cash for your M&A in the future?

We don't feel the absolute necessity to go for M&A. Why? Because first, we have a strong momentum in terms of organic growth. We have grown last quarter by 3.7% on an underlying basis, which means excluding exchange rate and exceptional items. We have been at that level for some time, which is good in itself.

We have lot of new products. We have launched ENTYVIO, BRINTELLIX, CONTRAVE. We have a lot to do still and to complete with our integration program between the original components of Takeda, Nycomed, Millennium, and so forth, so which is a lot of what we do with Project Summit, which is working well, as we discussed earlier. So no absolute necessity to go for M&A.

That being said, we have first what we consider as a strong balance sheet, even when we compare against our peers in the pharmaceutical industry, because we have no net debt. So we have some cash even. We have about -- close to JPY800 billion of cash. That being said, we have some debt as well, but net, we have no net debt.

So we have some resources if we wanted to go for external growth. Once again, we don't feel the necessity or the pressure to do it.

What Christophe Weber mentioned is that as part of the strategy that he has defined to refocus on four therapeutic areas, it could make sense to strengthen opposition in some of these therapeutic areas. And we mentioned more specifically two, GI and oncology, which mean that should we see attractive options to grow externally so as to strengthen our therapeutic areas, we would do so.

Once again, no pressure; no specific need. It's just it is more an opportunity than a need. And it happened that we have some financial resources to do it.

After that, I don't want to comment on numbers and figures on what we can do, but this is what I wanted to say.

(interpreted) Understood. Thank you very much.

And my second question is about -- related to this topic about corporate bond. There are some bonds will be repaid by this March. And in your basic directions, you are still going to make the repayments as soon as possible. Is there any change in your direction about the repayment policy?

We have indeed one maturity that is expiring in March, next month, so obviously, we will repay it. Takeda is going to meet its financial commitment. That's of use. And we have some further repayments scheduled in 2015, in 2016 and 2017, and even in 2019 and 2020.

So obviously, we will meet all of these obligations, and we have the cash to do it because we have about the same amount of cash as the amount of debt that we have.

So there is absolutely no issue. We have no specific plan either to renew these facilities and to use -- to raise new debt at this stage given that there is no need as we speak -- things could change in the future, but there is no financial need as we speak.

(interpreted) Understood. Thank you very much.

(interpreted) With this, we'd like to conclude today's conference call. Thank you very much for joining our conference call despite your busy schedule. Thank you very much for your support as always.

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.