Takeda Pharmaceutical Co Ltd (TAK) 2015 Q4 法說會逐字稿

Good day, everyone, and welcome to the conference call of Takeda Pharmaceutical Company Limited. The conference call today is held based on presentation materials available at the Company's website. Please note that this conference contains forward-looking statements regarding the Company's plans, outlook, strategies, and results for the future. All forward-looking statements are based on judgments derived from the information available to the Company at this time and certain risks and uncertainties could cause the Company's actual results to differ materially from any forward-looking statements contained in this conference.

These risks and uncertainties include, but are not limited to, the economic circumstances surrounding the Company's business including general economic conditions, competitive pressures, applicable laws and regulations to success or failure of products development programs, decisions of regulatory authorities and the timing thereof, changes in exchange rates, claims or concerns regarding the safety or efficiency of marketed products or product candidates, and integration activities with acquired companies. During the presentation, all telephone lines are placed on listening mode only. Please be aware that this presentation and Q&A session will be broadcasted on the Internet. After the presentation, you can take part in the Q&A session. (Operator Instructions) (technical difficulty).

(interpreted) I'd like to introduce today's presenters. Representative, President, and CEO, Christophe Weber; Board Director, CMS Officer, Tadataka Yamada; Board Director, JPBU Head, Masato Iwasaki; Board Director, CFO, Francois Roger. First of all, Christophe will talk about the overall and then followed by our R&D progress and then Japan business status and the detail of financial situation by using slides respectively. You can find both Japanese and English presentation slides at your hand for your reference. We'd like to take your questions after we finish all of the four presentations.

Now, Christophe will start.

Good afternoon, everyone. A real pleasure to have you this afternoon for discussing our 2014 result, but also discussing about the future outlook of Takeda. The first thing I will point out in 2014 and I'm very satisfied about that is that in 2014 we have been able at the same time to progressively transform the Company and we had a big agenda of transformation. Some of this transformation we shared with you in the past especially last October, I will come back to that. And at the same time we are doing that, we have been able to deliver on our commitments in term of sales and core earning and of course this is always not easy for a corporation to have a huge change program and at the same time deliver your business commitment. But we were able to do that, I'm very satisfied about that. If I take a few examples. We have redesigned our global organization, which is now fully operational and that's not a small move and I will come back to that.

In term of R&D, it has been a great year and we'll focus more on that. But of course this R&D advancement and our ability to launch new product is absolutely critical for our future. And so, that's a few examples. At the same time, again being able to deliver our sales and core earning target is very important. Now, I want to immediately talk about Actos settlement. Of course the Actos settlement was not in our book last year, it has a huge impact on our net profit in 2014 and we'll come back to that with Francois presentation. On the other hand, for us this settlement allow us to reduce our financial uncertainty in the future so we believe that for our long-term outlook, it's a better position and therefore we were keen to do this settlement agreement. I want to immediately point out that this settlement does not change our dividend policy neither in 2014, but it will show a dividend commitment that we are proposing in 2015.

So, I think it's also very important to straightaway say that at the beginning. Now if I focus on our new product and these products are critical for our success in 2015 and beyond. This has been an incredible year frankly. We had four new product approved in 2014. Entyvio is especially important and we discussed a lot about Entyvio because this is our key growth driver in our GI franchise. Contrave in the US. And in Japan, Takecab and Zafatek, these are extremely important because these products along with Azilva will allow us to offset the headwinds that we are having in Japan on long leased product, product like Blopress, and it takes a lot of positive growth from new products to offset the decline of old products currently in the Japanese market. But Masato Iwasaki later will explain our Japanese situation. So, I'm very glad that we are able to launch this new product in Japan.

And of course we had good progress with ixazomib. You have seen that we have announced that the interim Phase III results have been positive so we'll be able to file very soon ixazomib and so therefore we'll prepare the launch of ixazomib for the near future. Now in term of new products, we are demonstrating that we are able to successfully launch new product, both primary care product like Azilva or Brintellix as well as specialty drugs like Entyvio and Adcetris. And as you know, these are the strong capabilities being successful with the product that contribute does not require the same capability than being successful. With a product like Brintellix and Azilva, we are able to do that, it is important. This is part also of our transformation, but this is of course very significant for us. More specifically on Entyvio, we generated JPY28 billion sales in the first 10 months.

We are already on a run rate of $0.5 billion and therefore we feel very confident that we can confirm our $2 billion target with this product. You will see later that we are also very significant lifecycle plan with Entyvio in order to continuously support this product. Now, I will talk about our organization. You have seen that this is an organization which will help us to deliver growth in the future. This is focusing on our key therapy area, core therapy area. This is also focusing on our key growth drivers for the midterm, GI and oncology and emerging market. This is also an organization which will allow us to improve and optimize our cost base. Obviously when you have a global manufacturing organization, you are able to rationalize your network and this is what we have started to do in 2014 with some site closure and that's important because we want progressively of course to leverage better our P&L and you will see this is part of our 2015 guidance.

We want our core earning and earning per share to grow faster than our sales growth in the future. This organization is fully operational since April 2015 and in fact my team is now complete, especially I will mention two new leader. Andy Plump will succeed Tachi and here I want to recognize the incredible work that Tachi did in the last four years. He will talk more about our R&D pipeline, but I think he is leaving a very strong legacy to Andy Plump. And Ramona Sequeira will join us on June 1 to become our Head of our US business, which is absolutely critical for our future. So we have a very experienced, very diverse team again to drive our growth in the future. Now, looking at 2015. It's basically to continue to deliver our strategic roadmap, to continue to transform our organization to be a best-in-class global pharmaceutical company, and at the same time of course delivering our business.

We have some key priorities in term of business to deliver in 2015. So, I will develop point by point. In term of values, we are the very best company, we want to also reinforce and ensure compliance against these values. We are present in more than 70 countries, we want to make sure that the values are well understood and everybody complies with these values everywhere where we operate. In term of people, very interestingly we have always said that we want to be a patient and customer centric organization is how we design our organization. In 2014 we developed Customer Satisfaction Index that we piloted in a few countries and in a few therapy area, which gave us extremely strong insight about how our customers especially physicians are valuing Takeda against our competitors. We will roll out this Customer Satisfaction Index in 2015.

And regarding our own employees, which are critical for our future, we are launching global talent development programs next month in fact in order to progressively improve our global talent pool in Takeda. Regarding R&D, of course a key focus is ixazomib. We will file ixazomib very soon. We are very optimistic that we will gain registration. We will prepare the launch of ixazomib because the launch will happen in the full year 2016 so of course this is absolutely critical. Oncology is one of our key growth driver, ixazomib is one of our growth driver for our oncology franchise and absolutely critical that we would develop that a little bit more. In R&D also we want to continue to do internal research, but we are focusing a lot on external innovation as well. And one good example is the agreement, the partnership that we just signed with CiRA in the Kyoto University.

It's a good example of external partnership, but also innovative external partnership, which hopefully will continue to improve our R&D productivity and we will do more of those in the future because we believe that we have to be good both in internal R&D as well as external. Of course regarding business, a lot of key points in 2015. GI will remain our main growth drivers with Entyvio especially, but also Takecab in Japan. Regarding oncology, ixazomibin is in preparation for launch in 2016 so it's happening really today and will be ready. And of course emerging markets will continue to be our third key growth drivers in emerging markets not only through our value brands, but also by progressively launching new products more rapidly in emerging markets and here I can give you one example. Ixazomibin will be filed in Brazil at the same time as we file ixazomibin in US.

And that's something completely new and ixazomibin will be the fastest global launch in the history of Takeda and I think this is important for our future. We will really be very stringent in the way we use our capital allocation. It will be really very much in the reinforcement of our strategic driver and we know that we need to improve that dimension, Francois will talk more about that. And of course we'll continue to focus on leveraging our P&L, be very much focused on our cost efficiency. Project Summit is very important, we'll continue to focus on that. We want to deliver our core earning and EPS growth above sales growth in the future, it's very important and you will see that our 2015 guidance reflects that. So this 2015 year is for us absolutely critical because it's a turnaround year, it's a year where we are back to profitable growth.

So not only sales growth because 2014 was a year of growth, but in 2015 it's a year of back to profitable growth. We'll be able to grow our sales as well as grow our core earning and core EPS so for us, it's extremely important. We anticipate this growth to accelerate in the future. There is no doubt 2015 is still a growth where the revenue will be low-single digit especially driven by Japan. As I said earlier, we need to progressively offset the decline that we are facing on some products in Japan by the new product that we are launching now. The good news is that these product are there, we are launching them so this will happen. But our growth will accelerate when we will be able to offset our decline in Japan so we are very confident about that. So, we will see in our outlook an acceleration of our growth in the future.

We are committed to our dividend policy so of course, I said earlier that the Actos settlement is not impacting our dividend policy in 2014. In 2015 we are confirming JPY180 dividend and after 2015 we will at least maintain JPY180 meaning that the dividend cannot go lower than JPY80 and potentially it could grow if we see that we should do that based on our results. So, that's really how I will introduce this session. We'll see much more numbers with the presentation which follow. But for me, the key is that we definitely in 2014 even excluding ACTOS have hit the bottom and we are back to profitable growth in 2015 and I'm very satisfied that we can confirm that in spite of some headwinds that we have. So, this is the beginning of an acceleration of our growth in the future. Thank you very much.

(interpreted) Next, Tachi Yamada will give you an update on Takeda's R&D.

(interpreted) Good afternoon. It's delightful to be here to describe the progress of our portfolio. I want to convince you that we have been increasingly focused innovative in global portfolio. In the 2008 to 2012 time frame, as you see, we had a number of products; most of them in-licensed and most of them regional products and only one of the products was really a global product and that was Nesina. In the 2013 to 2017 time frame, we have focused a lot to try to build our internal discovery and development capabilities to be able to have a good mix of both internal and external products and 2014 has been really a year in which we've harvested some of the fruits of our investment and increased productivity with the launches of Contrave, Entyvio, Zafatek, and Takecab following upon a late FY15 launch of Brintellix.

As you can see, four of the products that were dedicated for the 2013 to 2017 time frame were intended to be global products. As you move forward and into 2018 to 2022 time frame, all of the products we envision to be global products and we have begun to have a sustainable productivity of late stage products moving forward. Now with any pipeline, we've had some revisions to the pipeline in the last six months. The first is that we've had three dropouts; Latuda, Motesanib, and TAK-375SL. TAK-375SL and Motesanib had failed in their Phase III trials, Latuda we have recently returned to Dainippon Sumitomo. We have also had some delays in our programs and so Alisertib and TAK-214, our norovirus vaccine, have moved from the 2013 to 2017 time frame to the 2018 to 2022 time frame. Alisertib because of a failure in a primary T-cell lymphoma Phase III study.

But we still have a small cell carcinoma [alone] trial with Alisertib, which will read out and allow us to file in the 2008 to 2022 time frame. Our norovirus vaccine has been delayed in part because we want to give a very careful analysis to the results of the Phase II study which is looking at immunogenicity and the impact of an adjuvant for our Phase III trials. We have had in addition some additions to our pipeline. To support our neuro franchise in Japan, we've in-licensed two assets, Copaxone and Azilect; we have had a new entry in the pipeline with TAK-272, a direct renin inhibitor for chronic kidney disease; we have a new vaccine TAK-850 for influenza moving into the 2013 to 2017 time frame; and a monoclonal antibody, Namilumab, GM-CSF monoclonal antibody for the treatment of rheumatoid arthritis. This is a pipeline that shows significant progression.

We are focused on the four therapeutic areas plus our vaccines, but what is really interesting about it is the real growth of our internal assets and the payoff from the important acquisitions we've made as a company. First with Millennium, which now constitutes a very large proportion of our pipeline and which currently we have invested 40% of our R&D budget to in the oncology therapeutic area. We've also had a critical in-licensing to support our vaccine franchise with the norovirus and dengue vaccines, which are about to enter Phase III trials in the FY15 to FY16 time frame. I would like to focus the discussion on two critical assets for the future of Takeda. The first is Entyvio. Entyvio is a product, which I am particularly pleased about because I'm a gastroenterologist and I know the unmet medical need in patients with inflammatory bowel disease.

This is a unique product. It's a unique product because it has been specifically engineered to treat inflammatory bowel disease and the target of its action, alpha4beta7 integrin, is only expressed in lymphocytes which are hone into the gastrointestinal tract. Therefore it is a very safe product, it only acts on the agent that causes the disease in that specific organ in which the disease takes place. And no wonder it is a very safe product as evidenced by the fact that there is no box warning with this product as there is with many other products in this space. It is the only inflammatory bowel disease product that has been launched with a full list of indications as any that's ever been launched in this field. It is approved for anti-TNF naive patients and TNF alpha failure patients. It's approved for both acute and maintenance treatment in both ulcerative colitis and Crohn's disease.

A full compendium of indications, which we only dreamed we might have, that we were able to convince the reviewers at the FDA that this product deserved that full list of indications. And most importantly, this is a product which represents our ability to go from having regional products to having global products. This is really our first global product simultaneously launched in Europe and in the US and Japan soon to follow. As with any important product such as this, we are investing very heavily in an ambitious lifecycle management program. As I mentioned, we are developing this product for Japan, both ulcerative colitis and Crohn's disease. We have a very important study looking at mucosal healing. Why is this important? Well, the product is approved on the basis of the Disease Activity Index, but clinicians want to see the healing of the tissue through the endoscope.

And so we are conducting this important mucosal healing study really as a means of convincing the physicians of the true impact of this treatment on disease. We've invested in a subcutaneous formulation. Why? Because we want this product to be used in an outpatient setting at home by patients administering the product to themselves. We are recognizing that there is a product, which is a dominant product in this field, and that is Adalimumab or Humira and Humira equivalents. We believe because of the unique biology of our product Entyvio that we are superior to this product and to prove it, we are undergoing a head-to-head study directly against Adalimumab. Because of the biologic action of alpha4beta7 integrins, which act not only on the gut but also on cells that line the biliary tree which are really extensions of gut mucosa, we believe this product will work in primary and also in secondary sclerosing cholangitis, a severe liver disease for which there is no adequate treatment today.

We have an ongoing study in primary sclerosing cholangitis. And of course with any product of this importance, we have a full program of investigator initiated sponsored research, which is directed at finding alternative treatment paradigms for patients with ulcerative colitis and Crohn's disease. Another critically important product, which has not been launched yet, is ixazomib. Ixazomib is an oral proteasome inhibitor. Now, many people think this is just an oral form of Velcade. It is not. It is fundamentally different from Velcade in different ways and I will show you in a minute why we think it's very different. It is an oral product and that's very important. But first we have developed the product in the traditional way in the sickest possible patients, those patients with relapsed and refractory multiple myeloma. And that first study TOURMALINE 1 study read out earlier this year and the results of this study have been sufficiently robust that it will permit us to file for registration.

We anticipate filing that registration in the first half of FY15. But multiple myeloma is a disease that's changing. The opportunity in multiple myeloma is not in the second and third line space. It is a disease which used to be a severe disease in which you salvaged patients with induction therapy and then you only had a little bit of time to live after that. Now, there is a huge opportunity. The largest opportunity in multiple myeloma it is in the maintenance space. We believe we have the ideal drug for it because it is oral and it is a drug that seems to get better as you treat patients for a longer period of time. So we have directed our Phase III program in this very important space, a space that will allow us to convert a disease from a life threatening severe acute illness from which you must be salvaged to a disease which can be managed with once a week one pill a day as an outpatient allowing one to live a normal and near healthy life.

Our focus in the Phase III program is first to go into the frontline setting in patients who do not have an autologous stem cell transplant and then to follow those patients into the maintenance arena with a so-called TOURMALINE 2 study. But we are also looking at monotherapy studies in the maintenance arena in patients who have been treated with any drug not just ixazomib, but any other drug and you know there are many in the multiple myeloma space, but that they would then be converted to a maintenance program with single dose weekly therapy with ixazomib. Now, why do we think it is particularly well suited for maintenance therapy? Well, as I told you, this is an oral medication. But beyond it being an oral medication, the results that we have obtained show a very, very unusual pattern of responses to continuous treatment in cancer.

What you can see is that this is the results of the Phase II study, which examined 50 patients and after the initial treatment, 21 were put into a maintenance program. But what you can see is in the induction phase, the combination of ixazomib and lenalidomide (Revlimid) and dexamethasone showed that the vast majority of patients were responders, most in the very good partial response phase. But with maintenance that is with an average of 19 additional cycles of treatment with single agent, no other drug other than ixazomib, that the vast majority of patients then became either complete responders or stringent complete responders, essentially patients who were cured.

I think this represents the highest aspirations of those of us who work in the industry to be able to convert a severe acute illness into a chronic disease that you live with with daily or weekly oral therapy and to have a near cure in a disease which was virtually 100% lethal just a few years ago. I think it shows the promise of the Takedo pipeline and it shows the commitment that we have to oncology in addition to the other three therapeutic areas in which we have a significant program; neuroscience, cardiovascular metabolic, and GI. Thank you very much.

(interpreted) Next, Iwasaki talks about Japanese business situation.

(interpreted) This is Iwasaki of the Japan Pharma Business Unit. I'd like to talk to you about the status of Japan pharma business. Let me now discuss the status of our business in Japan in 2014, which has just ended. FY 2014 sales from our Japanese business excluding exceptional items totaled JPY548.1 billion. In comparing with the previous year, we find that new products such as Nesina, Azilva, Alisertib, and Takecab grew contributing to increased revenue of JPY35.6 billion from the year before. However, revenue dropped by JPY58.8 billion because of generic expansion and NHI price cut. So, our total revenue fell 4.1% year-on-year. With the price cut and rapid spread of generic use and the growth of the domestic market leveling off, all pharmaceutical companies are faced with the challenges of overcoming these difficulties and achieving sustained growth.

Takeda is no exception now that generics have progressed and the Takepron are marketed, business is by no means easy. Under these circumstances, today I'd like to discuss some of our thoughts on how Takeda hold on to its position as the Number 1 pharmaceutical company in the Japanese market. This slide shows MR rankings by the doctors in 2014 and 2015, two consecutive years. In both rankings, Takeda was evaluated as Number 1 in the industry. However, with the environment surrounding our industry undergoing dramatic changes, what's expected of a pharmaceutical company including MRs has been substantially changing and will continue to change. In getting ahead of these changes and to lead the industry as a whole, we have begun to redefine alternative sales rep of the future like our Japan Pharma Business Unit.

I think that we have come to a point where we must look ahead to the future market environment and we think nice and hard who the customer is and of course this reconciliation shall be made with the patient first in mind. From now on, our customers will include not only physicians; but also pharmacists, nurses, nursing care providers, hospital owners and managers, and the stakeholders who hold the key to the community healthcare. To realize good partnership with these stakeholders, we reinforced our compliance function and as an independent function from sales, medical affairs function is also reinforced. In this medical affairs function, we do have medical [scientists] who plays very important roles. About 30% of our members have doctor degrees and about 40% master degrees. I believe they will be able to provide high quality medical and scientific information from the standing point of key opinion leaders.

We work to become a company that our stakeholders rate as being the best-in-class so that at any time Takeda as a company and our MRs are always appreciated and chosen by them. I would like to introduce you how our activities are evaluated by healthcare professionals. First in the primary care market where we are strong as ever has attained approximately 80% sales growth in FY 2014 year-on-year. And also we will see increasing number of new products to be launched for the pipeline in specialty space. Adcetris for the treatment of malignant lymphoma is showing strong growth as the drug fulfills unmet medical needs. We estimate about 70% of the total patients who can be treated with Adcetris has been treated with Adcetris. This is a graph showing the cumulative patient number and in only six months after the launch, more than 40% of the patients were on the product.

We experienced the same when we launched Vectibix. I think you can understand our strong commercial capabilities in the specialty sector. Takecab is a new product for treating acid related disease released in February 2015. Number of accounts, that is the number of medical institutions using Takecab, has reached to 80% of that of Takepron. As you can see in the primary care area with Azilva and Takecab and also in specialty area this Adcetris, we are presently rated highly by healthcare professionals. I think you can understand we have strong commercial capabilities to enable market penetration immediately after the launch. The third key to making our business in Japan return to a passive growth is our robust pipeline. In the pipeline we have very attractive products who have been already released overseas whose efficacy and safety having already established or many clinical data accumulated including Entyvio, Brintellix, Azilect for Parkinson's disease, and Copaxone for multiple sclerosis treatment.

Moreover also it's not shown here, we have many lifecycle management products such as (inaudible) preparation to benefit the patients. So, we can start selling them based on substantial data immediately after the launch. At the same time, we have forthcoming ixazomib for multiple myeloma and Zafatek world first once weekly drug for Type 2 diabetes. By providing our pipeline to patients through MOs who are highly rated by stakeholders, we believe that we'll be able to contribute to our customers; namely physicians, pharmacists, and nurses as well as patients. This is a summary. This graph shows the revenue of the past, present, and the future in every five years. This shows the cumulative sales of five years.

You may not be familiar with this way of revenues, but the blue portion shows an increase in cumulative sales of new products and the gray shows a decrease in the cumulative sales of long listed products. From this year to the next, we will switch the business model from the one centering around long-term listed products to the model focusing on new products. So, we believe that we can offset the decrease in long listed product sales by an increase in revenue of new products and see our business in Japan return on to [corporate] growth. I believe the future of Japan business is bright. I sincerely ask for your continued support and candid opinions this year too. Thank you.

(interpreted) And now we'd like to hear from Francois Roger, CFO, about the details of the financial results.

Good afternoon. I'm very happy to be with you this afternoon to discuss the results 2014 for the full year and start just with a short reminder of what we will be talking about. We'll be talking mainly of core earnings, which excludes purchase accounting, amortization, impairment loss of intangible assets, restructuring cost and litigation cost. What we'll talk about underlying revenues and underlying core earnings. As far as the core earning is concerned, it excludes some items as what I just mentioned as well as product divestments and foreign exchange. Starting with the year 2014, so we had for the full year an underlying sales growth of 2.8%, which is fully in line with our guidance which was 2% to 4%. If we look more specifically at the fourth quarter we had growth of 3.8%, which is very much in line with what we experienced in Q2 and Q3, so we have been for about three quarters at the same level.

You have also data regarding Q4 as an appendix in the presentation, but the data on that is significantly different from the full year. In terms of core earnings we grew by 2.1%, which is also fully in line with our guidance, which was flat to slightly declining. Our innovative products have really driven our growth. Entyvio has achieved over the last 10 months JPY28 billion of global sales in the market, which is really a good indication of the unmet medical need in the IBD space and it fully supports the ambition that we have to exceed $2 billion of sales as we discussed in our recent IR Day in New York. In the US, Brintellix has continued its strong uptake on Contrave as it got off to a promising start. In Japan, Azilva has achieved very good results [three] years after its launch, still growing 80% and reaching JPY45 billion in total sales.

We have launched Takecab just in February and we have obtained regulatory approval for Zafatek in March as well. And as Masato explained these products, Azilva and Takecab as well as Zafatek, will be critical to maintain our leading position in Japan. Talking about efficiencies, we are very happy with what we have achieved so far with Summit. After two years, we have achieved half of our five-year target of savings of JPY120 billion and I will detail it a little bit later. As you know in 2014, we have also recognized some exceptional items that impacted our bottom line starting with the Actos settlement agreement, which means a charge of $2.7 billion in 2014 which puts most of the litigation behind us. In the fourth quarter we also recorded some one-off impairment, the bulk of which were related to the decision to return Latuda to its licensor as Tachi mentioned as well as the termination of Motesanib development.

Obviously the Actos settlement means that we are recording a significant net loss for the year 2014. You can see the breakdown of our 2.8% underlying sales growth in 2014. You can see that new products have been really a critical factor to drive our sales momentum. You see with; I just mentioned; Entyvio, Brintellix, Azilva more than compensating the headwinds that we had in our base business. The headwinds are mainly coming from price pressure and generic development in Japan. Once again I'm just showing the slide for the full year and you have the same analysis for the fourth quarter in the appendix. Talking more specifically about Entyvio. So, Entyvio has experienced a truly stellar launch with cumulative sales of JPY28 billion in the first 10 months in the market and we are truly entering the year 2015 with already run rate in terms of sales of $0.5 billion 10 months after the launch, which is really very exciting.

This achievement is obviously very indicative of the unmet medical need in the IBD space and it fully validates our ambition to exceed $2 billion of sales. Entyvio is now marketed in 18 countries including regions outside of the US and outside of Europe, which really makes it the first ever global launch for Takeda. It may appear when looking at the slide that growth of Entyvio sales in the US might appear a little bit slower, but the quarter was impacted by improved inventory management to efficiently meet demand and as well by delays due to annual benefit registration by patients in January and February. But no concern whatsoever, Entyvio continues to grow very strongly in the US month after month. There we have some discussion as well as the performance of Brintellix and Adcetris during the year. As you can see, they are performing very well.

Brintellix has been outperforming the two most recent branded antidepressant launches in gross sales one year after launch in the US by 13% and 72%. More than 150,000 patients have already used Brintellix and more than 0.5 million prescriptions have been written so far. So we continue to be very encouraged by the positive feedback that we got from psychiatrists, from GPs, as well as from patients. Adcetris continues to do well as well with sales contribution from Europe, from Japan, from emerging markets. And as you know, we are conducting additional studies now for expanding the indication of Adcetris as well as we continue to steadily launch in new geographies around the world. I could have added Azilva on the chart as well as a good growth driver, we talked about it already. As you know, we grew still by 80% in 2014 and we have been able to compensate most of the decline of low price.

A short update on Colcrys. You remember that in January 2015 another colchicine has been launched in the US as a direct competitor of Takeda's Colcrys. Just after this launch, we launched our own authorized generic as well. If we look at the situation to date, Takeda managed to retain above 95% of total volume market share of colchicine with the combination of our branded Colcrys and our authorized generic. So, volume wise we are on the safe side. The sales decline at 6% in Q4 also at the end of Q4 and beginning of the year, we are moving closer up to 25% actually. The sales decline is essentially driven by lower net pricing as market share has obviously shifted from the original brand to the authorized generic. In 2015 we expect that price could move a little bit further, which is what I indicated a 76% decline in Q4, but it's a little bit more at the end of the quarter. We don't expect any significant disruptive market events, but there is a possibility that we could lose some additional volume gain.

Moving to the distribution of our sales by geography. Once again you have the same analysis in the appendix for Q4. We can see that we have a strong performance in the US and in Europe essentially linked to our innovative growth drivers, I mentioned them before, Entyvio and Brintellix in the US and Entyvio and Adcetris in Europe. Emerging markets experienced growth of 8.1% during the year. As you remember, we had some inventory adjustments in Q1 and if we adjust for that, our growth in emerging market was actually at 10%, which is fully in line with our expectations. Key countries like China and Russia have both achieved double-digit growth during the year 2014. But it's important as well to take into consideration the fact that overall our performance in emerging markets has been hit somewhat by volatile economic environment and more specifically in countries such as Ukraine and Latin America.

We remain fully committed to achieving around 10% growth on average in emerging markets for the medium term and the long term as a combination of the growth of our value brands as well as over time the contribution of our innovative drugs. As we saw earlier, Japan Pharma is under some pressure which is what Masato talked about earlier. We are actually happy to see that we are able to grow by 2.8% during the year while our largest country Japan declined by 4%, which means that outside of Japan our growth was actually at 7.2% in 2014. Moving down into the P&L, you can see through that slide that we have clearly generated some profit through our sales growth in 2014, but we have reinvested entirely these gains in sales and marketing exactly as we planned and as we announced at the beginning of the year.

This investment was important to support a large number of new products that we had during the year including Brintellix, Entyvio, Contrave, just to name a few. We do not expect this full reinvestment of our gains in terms of sales and gross margin to happen again in 2015. We still need to have moderate growth of commercial cost to support the launch of Entyvio in some additional countries in Europe as well as to support the launch of Takecab in Japan and the launch of Zafatek in Japan later in the year as well as to support our ambition to grow around 10% in emerging markets for the medium to long term. You can see on this graph as well the positive impact of Project Summit. We have continued to control well our G&A costs, which have actually reduced by 1.1% compared to the previous year.

The decline in G&A is actually a little bit lower than what we anticipated given that we have decided to invest in the short term to build some global capabilities in IT and procurement for example with very good returns, which is the reason why we have decided to do it, as well as in compliance and internal return. We remain fully committed to leverage our P&L with lower growth of G&A than sales in the coming year and it will happen again in 2015. The growth of R&D expenses was in line with our guidance with a similar level of investment to the previous year 2013. Moving to core EPS. First you can see that our core earning ratio to sales declined by 0.9%, which is a full reflection of the fact that we have invested in sales and marketing during 2014 and we expect clearly that trend to start to reverse from 2015 onwards, which you saw in the guidance that Christophe elaborated earlier.

Our underlying core tax rate, by the way you have the detailing of the tax calculation in our appendix. Our underlying core tax rate in 2014 is slightly above our level of 2013 so in 2014 it was 31.9%. It remains within the previously communicated range that we have provided of around 30%. The fact it varies a little bit from 2013 to 2014 is largely as a consequence of our business mix, there is nothing specific to read there. We expect our effective core tax rate in 2015 to increase to around 35% as we will not be able to recognize tax credits in Japan following the Actos settlement. That being said, if we look at the medium term, we have started already over the last two years to work actively on tax planning and we expect as a consequence to see our core effective tax rate to go on a sustainable basis below 30% from 2017 onwards.

Let's move now to reported income statement. So, just to clarify what we mean by reported. Reported means all data; include foreign exchange impacts, it includes disposal and acquisition, it also includes intangible impairments. So, these are our reported figures. Foreign exchange, as you know, was positive for Takeda during the year because of the yen depreciation. It is positive for the topline, but it is negative for our profitability. You can see that the reported sales increased by 5.1% benefiting by about 2 percentage point of favorable foreign exchange rates. Other income has increased significantly as a consequence of the sale of real estate assets as well as the profit that we recorded in Q3 and that we discussed before for the reduced liability for Colcrys. Other expenses have increased primarily due to the Actos settlement, I'll come back to that in a second, and also due to some impairments that I will discuss shortly also we have already shared that with you.

In addition, it is important to understand as well that the yen depreciation increased the amortization cost of the Nycomed and Millennium acquisition because the intangibles for these requisitions are denominated in euro and in dollar respectively. As you can see, we recorded a significant net loss for the year mainly as a consequence of the Actos settlement and its associated cost. If we look at what the situation is excluding Actos, which provides a better view of the real performance of the Company, you can see that our operating profit has increased by 3.9% in 2014 while our net profit went down by almost 70% due to some exceptional items that I'm going to describe now which are on the next slide. This exceptional items we had, you remember in Q3 we recorded some specific accounting treatment for R&D credits and Colcrys and the fact that we had new competitor.

We discussed them already in Q3 so I will not cover them further today, but you can research through our Q3 presentation. In Q4 we recorded some impairments as shared earlier for the termination of the development of Motesanib as well as for the return of Latuda to its original licensor. The Japanese tax reform that had been confirmed last month will mean a favorable tax rate in the future obviously, which is good news, but as a one-off it has resulted in a reduction of our deferred tax assets in 2014. The next slides provides you, in order to provide full transparency on the way we built our accounts, the bridge between reported data to underlying both in sales and operating profit and core earnings as well as the bridge from operating profit to core earnings that shows you all the adjustment that we have for the full year.

Moving to our guidance. We have actually exceeded our guidance both in revenues and core earnings by 3%. We are short of our guidance for all items from operating profit to EPS mainly as a consequence of the Actos settlement. If we look at the core EPS target, we are actually very close, down by 1.4%. R&D, it looks there that we have exceeded our guidance, but it's mainly linked to foreign exchange and even more than foreign exchange to the impairment of Motesanib that we had to record as an R&D expense. Moving to Summit, some quick updates. We have reached JPY28 million of savings in the fiscal year 2014, which exceeded actually our target. You can see there on that slide some initiatives that we have implemented during the year from the ERP consolidation of our property because there is still some parts left. We have leveraged quite a lot on scale for procurement. We have closed a few plants.

We have established some shared services in Japan, in Europe, in the US. To get there, we spent about JPY28 billion in restructuring costs which explain why in 2014 at least we don't see fully the benefit of these savings in our earnings. But since these savings are permanent savings and recurring by nature, we will start seeing them from 2015 onwards. This slide shows you the breakdown of the savings by function and by region over the last two years, it's for cumulative of 2013 and 2014, so we have delivered JPY62 billion of cumulative savings. You can see clearly that all functions and all geographies have contributed to the higher efficiency that we have reached in our operations. You can see that so far the bulk of the savings are coming from commercial and R&D while in the next three years we expect that the majority of the savings will come from G&A and manufacturing and supply chain given that it takes a little bit more time to achieve some of these savings.

The key priorities for the future, we still have a lot to do. We have done half of what we have to do. We are fully committed to reach this JPY120 billion of savings. To get there, we will spend about JPY100 billion as well in terms of implementation cost. It is important to note that we are actually working towards the possibility of achieving our originally announced 2017 target of JPY120 billion of savings. We might achieve it one year earlier, which means in 2016 or we are trying to at least. Few words on cash flow and balance sheet. Our operating free cash flow has been impacted by first of all a slight decline in core earnings which we covered earlier, which is largely linked to the investment that we did in commercial spending. And in addition to that, as far as cash is concerned, we had significant amount of milestone payment in 2014, more than in 2013 and probably more than what we will have as well in 2015, which put a little bit of pressure on our operating free cash flow.

We have started to marginally improve our working capital, but we still believe that we can do much better and this will be clearly an area of focus, our working capital management for the year 2015. From a cash point of view, we have started to repay part of our debt in 2014 which resulted obviously in the decrease of debt, but as well as the decrease of cash. Our net debt remained very close to where we were a year ago. Obviously this position does not reflect the Actos settlement, which just for your information, the expected net cash cost of the Actos settlement will be below $1.5 billion; but it's obviously not in the figure 2014. Talking about Actos, just a short summary. So, we have reached a settlement as you know for a consideration of $2.37 billion. This settlement is conditional to getting above 95% of the plaintiffs to opt in.

We have taken a large charge actually $2.7 billion in 2014 to cover both the settlement as well as the cost associated with defending any remaining case with the 5% and other related litigation. We believe that it provides for all future Actos product liability cost that we are aware of as we speak. We have also booked product liability insurance coverage for about $400 million as an asset. And it is important to note that Takeda's decision to settle does not change the Company's continued commitment to Actos and it's important as well to be aware of the fact that Actos continues to be available as a treatment option in the US and in other countries. Moving to guidance. We anticipate low single-digits underlying revenue growth in 2015. We will be impacted by the Colcrys sales decline, which I detailed earlier, and we expect growth of new product and of emerging market to more than offset Colcrys and to more than offset the generic pressure in Japan that we detailed earlier.

We really see 2015 as a year marking the beginning of a profitable growth phase with the realization of organic sales growth, which we had already before, and a significant increase of our margin in the medium term. As a consequence in 2015, we expect underlying core earnings growth to be higher on revenue growth and underlying core EPS to grow even faster. So the more we go down into the P&L, the more efficient we expect to be. In alignment with other major global pharmaceutical companies, we are now focusing on guidance on the coming year. Our commitment to mid-single digit sales growth and 25% core earning margin in the medium term is confirmed and maintained as a direction and as an ambition. The profitability targets will be reached later than originally planned as we need some flexibility to accommodate specific business needs such as R&D investment and product launches.

Just as an example, we plan to spend less R&D in 2015, but more than previously anticipated in 2017 for example because of the needs and the timing of our two main vaccine development programs. That example shows the limit of setting a precise objective in terms of margin for a given year. You have on that slide the reported guidance. This reported guidance is made with a certain set of assumptions which are beyond our control, mainly fluctuation of foreign exchange. So, we made for the sake of this exercise assumption of JPY120 to the dollar and JPY130 to the euro respectively. On a reported basis, we anticipate revenues to grow at 2.4%. You can see there that R&D will decline if you compare it against 2014 actual. The real decline is about 5%, which is more linked to the timing of our Phase III study so the real decline is 5%. There is a little bit of decline linked to foreign exchange as well.

We expect R&D expenses to increase again in 2016 and in 2017. Our forecast for operating profit is JPY105 billion. Operating profit excluding the impact of Actos was JPY145 billion in 2014. So, it now appears that we have a decline of 28%. But if we exclude exceptional items in 2014; more specifically Colcrys impairment, real estate disposals, and so forth; our operating profit actually increases next year by about 9%. EPS in 2014 was at JPY41. So since we expect to reach JPY87, it means that we expect to more than double our EPS in 2015. Dividend policy, Christophe shared it already, I'm just confirming it once again. First of all, once again the Actos settlement will not affect Takeda's dividend in 2015 or in 2016. We confirm our dividend per share for the coming year at JPY180 and we set a policy to at least maintain the dividend at that level in the future. This shows that Takeda values shareholder return.

Finally, as we always do it, just an update in terms of IR communication. We announced last quarter that we are planning to hold an IR Day in Tokyo in June. However, after discussion with investors and analysts about their main interest, we understand that oncology and more specifically our oral proteasome inhibitor ixazomib is a key area of focus, which we understand. We are, as you know, on track to file ixazomib within the first half of fiscal 2015 and we will be able to disclose the full details of the Phase III trial result in the near future. We would prefer and I'm sure that you will agree to give an IR Day when we can talk in more details about the ixazomib results and therefore we have decided to reschedule the event at a later date. We appreciate your understanding about this change.

That concludes my presentation. If you need more details, check our website. We are now including a spreadsheet with more details and lot of tables reconciling data so do not hesitate to go and have a look on our website. Thank you very much for your attention and I think we are now moving to a Q&A session.

(interpreted) We have a Q&A session now. (Operator instructions)

(interpreted) From Citigroup, my name is Yamaguchi. Thank you very much for having these two separate meetings and that's a good idea, I hope this continues. My first question is about guidance, how the core earnings is going to increase? And for the full base number for the full year, I thought Roger mentioned that the number is actually positive, but different from core is expanding and what's the reason for the wider gap between them? And the second question is about Contrave. Prescription number is increasing and regarding sales, it's not still very big because of insurance and so forth. Regarding this Contrave, how much resource are you going to input? So, those are two questions. Thank you.

Regarding the first one, the difference between core earnings and operating profit, the main items which represent I think more than 80% of the adjustment is actually the amortization of intangibles. The reason why it increases is largely linked to what I mentioned during my presentation, which is the fact that these intangibles are denominated for the vast majority in US dollar and in euro because they are linked to the acquisition of Millennium and Nycomed. So obviously it again went down by about 10% last year, obviously we have to revalue this amount by 10%. So, this is the main factor driving it.

So if you see Contrave's exchange rate, both moving in the same way, I mean core ARPU?

The guidance that we have provided. At constant exchange rate, there should be a fairly [balanced] curve basically.

On Contrave, the initial response from the market has been positive so when you look at the number of prescription and also the recruitment in our program to support patients, it has been positive so far. Having said that, I am always cautious with this class of product because we have seen this is a product that there is sometimes a very strong ramp up and then things [doesn't play] like you plan. So, I think I want to be very cautious with this product because of its class and they are difficult patient to treat as well. But so far, we cannot be more pleased by the first signal that we have seen and the take-up of Contrave. You have seen a lot of the noise I'm sure about the live studies and the situation with our partner, I just want to say here that we are doing our best to resolve the dispute and of course we remain very much committed to Contrave.

(interpreted) I'm Urushihara from Nomura Securities. My first question is about TAK-114 for bowel disease. I think there aren't much information available on this product. The timing after finishing the Phase II or the timing entering into Phase III, when are those timings, could you tell us that? Second question is about Zafatek in Japan. As I heard earlier, it's going to a big product and [Yasuchika] told us that it's going to be quite promising in sales. But now coming closer to the launch and you have been engaged in marketing activities and how much is the level, as you say, big sales? I'd like to ask this question.

(interpreted) First on TAK-114, we have very strong Phase IIa studies with TAK-114. We are going to undertake a Phase IIb study and we're right now exploring exactly the right protocol for the Phase IIb studies. The Phase III program will depend completely upon the timing of the Phase IIb studies, I can't tell you exactly when the timing will be for the start of those studies yet.

(interpreted) Regarding Zafatek, earlier on when we talked about this, there were very positive doctors and not so much doctors; it's bipolarized in terms of the views of doctors. That was the market research results we obtained and based upon that, we considered launch strategies and long-term plan. As of this point in time what is the amount or number of active results because we have just obtained NHI price listing, therefore we have to be prepared for the launch so we cannot disclose the specific numbers. But who originally said negative as physicians, which points do they think negative. If it is on the results, I have been searching on those because the responses from the patients may be better than the physicians estimate.

So therefore although I cannot you numbers today, still I think we have positive feelings. So osteoporosis and other diabetic patients, there are some long-acting agents available and if they are selling quite well. So is it because physicians look at those expenses? No, not only that, but the diabetic patients. I mean the number of drugs that the patient forgets to take, that proportion is very highest in terms of diabetes and that we have proven among the medical professionals. Therefore different from osteoporosis, there is some medical needs here, that's our observation. Thank you.

(interpreted) Seki from Barclays. The first question is about Actos settlement. For Japanese people, we are not really used to this, maybe your employees were very much shaken by this and how many people applied for that program, do you have the number? That's the first question. And ixazomib, how TOURMALINE-MM2 is successful and when are you going to have this product? I like to see the result as soon as possible either in success as already mentioned in ASCO regarding (inaudible) study, so I'd like to know the timing of your publication?

So, I will develop Actos and then will let Tachi develop the TOURMALINE. On the Actos and the settlement of this type, we are not used to it either so this is of course not the type of event that you want to see too many times in your career or in your life. Having said that, I think for us it's an important step because it's removed uncertainty for the future. And also in United States when you have this type of mass product litigation, the vast majority of them always end up in settlement because even both financially but also technically, it will be very difficult to go through 9,000 trials so eventually it ends up in a settlement of this type. And this is what I think is very well understood in United States, it's much more difficult to apprehend especially that we don't admit our liability.

This is not because you settle that you admit your liability, you settle because you can settle and you can find an agreement with the plaintiff. It is very much a US concept, which is not so well understood outside of United States especially in this case when the product is still used and registered, which is making it even more unique compared to other settlements or litigation in the pharmaceutical industry. Having said that, we still believe this is the right step to make because it clarifies our future if you like, we don't have this pending huge issue. Regarding the plaintiff opt-in, it's too early to say that we will have some deadlines in order to opt-in in order to reach the 95% level of opt-in, which is part of the settlement agreement.

(interpreted) Regarding the feeling of Japanese employees on this issue, what is most important is it should cause no concern to the patients. That's the most important. So immediately after the announcement, we explained very well to our employees because employees' understanding is important first of all otherwise the patient may feel very much concerned. It was in the middle of the long (inaudible) that many employees worked and they visited many sites and the employees of course did not understand any of that of course. There is a question, but they are not shaken or they are not concerned about it.

(interpreted) The question on TOURMALINE-MM1, which is the study in relapsed/refractory multiple myeloma. The IDMC have given us their interim analysis results and in giving us the results, they also gave us a very strong request that we continue to study to at least the next end point. And as long as we have an active study, it's very difficult for us to release the results because it would influence the enrollment of the patients and potentially compromise the study. So, we've taken the position that we will not report the results of the study until a, we reach the second interim analysis point or b, we have filed for registration and the registration is approved. So we will not be presenting this at ASCO, but it's possible that we'll present it downstream depending upon the timing of the second interim analysis endpoint or what happens to our file for registration.

(interpreted) Hashiguchi from Daiwa Securities. My first question is about R&D expenses, I would like to know your outlook of midterm. JPY380 billion and JPY330 billion in the last year and this year, there is a substantial gap between these two years and you gave us that tentatively in this year it's smaller, but in FY17 it will be increasing. How much increase do you anticipate and what is the healthy level of R&D expenses for your Company? That's my first question. Second question is about IR meeting. I understand that it's rescheduled, but I don't understand why it is rescheduled. Regarding this, I think for the past three years also you haven't taken so much time giving us full details about R&D and not just ixazomib, but for other products; we are interested and would like to hear from you in more details. However, maybe you don't have many positive information so that's why rescheduled. That's probably my biased impression, but could you explain that?

I'll start with the latest. I think there was a feedback we got in term of IR event is that considering the importance of oncology, it's difficult to do an event without oncology and in fact oncology, ixazomib is critical and we have nothing to say on ixazomib yet because given as we are blinded to the data and as Tachi mentioned the news that we'll be able to show the data much later. So, that's the key element which pushed us to reschedule the IR event. Regarding R&D, don't see any hidden agenda into this rescheduling. There is one element I can share with you is that we have our new Head of CMSO, a new head of R&D joining and I want to give him time. So the next IR event if we focus on R&D, it will not be Tachi; it will be Andy Plump, the new head of R&D and I want to give him a few months to understand our pipeline and our portfolio before doing an R&D event. So timing wise, it was not good an idea to do it in June with a focus ex-oncology on R&D because we have this change of leadership.

Now we did a GI IR event last February so we are very committed to do specific detailed, deep dive IR events. We are very, very committed so we'll do it. On the R&D investment, we will continue to invest heavily in R&D. Don't see this drop in 2015 as a signal that our R&D investment will decline. Also bear in mind that R&D investment is highly linked to Phase III investment and when we will initiate our Phase III investment on norovirus and dengue, there will be significant cost associated with that. So, we might see an increase and that's what we are seeing. Having said that, personally I don't like the ratio R&D as percentage of sales, I think it means nothing. We need to have the right investment in order to generate enough pipeline in order to generate organic growth for Takeda. So, it means that I am not fixed on the percentage of sales. But we are committed to R&D and don't see this decline this year as a signal that it will continue to decline after all.

(interpreted) Now, we'd like to take questions from the telephone.

Mr. Race, Deutsche Bank.

Its Tim Race here from Deutsche Bank. I've only got one question left actually. And just looking at Brintellix and we've seen on scripts in the last couple of months there's been an uptake of the script trends from what was flat from the start of the year. I just wanted to understand what the cognition data that you've now shown is actually having any impact on that before you've got the label. Could you just give me an explanation of the timelines of your hopefully filing to get the cognition data on to the label and what you think that could do for sales figure actually once it's potentially on the label?

I think I understood everything, but I'm not so sure. But I think Brintellix, we are pleased with the results of Brintellix. We believe really this is a great molecule. We are piloting a DTC company as well to understand the impact that it could have. And also very importantly, we are in dialog with the FDA with the aim to have label on the community with a positive cognitive impact of Brintellix . This is a complex scientific debate, but we are having this debate of course. This is important to the franchise of the product. So, today we can't talk about that decision. We cannot promote the cognitive positive impact in the US because our partner (inaudible). My feeling is that the physician progressively will recognize that with the patient, but of course if we could have a label recognizing this benefit, it could have a significant impact on the product.

(interpreted) Back to Tokyo site, we can take one more question.

(interpreted) Sato from Schroeder. In the your section explanation, you mentioned you redefine client, audience or clients are going to be broadened. If that's the case, how is Takeda to change for example in terms of activity, website, order tools, training programs, in-house? Can you explain more regarding the definition of clients and associated activities?

(interpreted) When I had (inaudible) with other media people, I'm telling. But in the summer or beyond we will be able to tell you better. In going forward, the medical system will change and further generate [cash] possibly and because of HTA implementation, there will be some changes associated with the environment in the healthcare and maybe more community based approach. So, we need to review our activities. So, that's better explained. After summer, we will able to explain to you more specifically.

(interpreted) Is this Japan specific?

(interpreted) Yes, that's true.

(interpreted) Thank you very much. We could not take all the questions today within this time, but we would like to follow your questions individually by IR team members. I hope you will help us with questionnaire and that will help us to improve. Thank you very much for your participation. This concludes today's meeting. Thank you.

Thank you for your time. And that concludes today's conference call. You may now disconnect your lines.

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.