Takeda Pharmaceutical Co Ltd (TAK) 2016 Q2 法說會逐字稿

(interpreted) Welcome to the conference call of Takeda Pharmaceutical Company Limited. The conference 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, the success or failure of product development programs, decisions of regulatory authorities and the timing thereof, changes in exchange rates, claims or concerns regarding the safety or efficacy of marketed products or product candidates and integration activities with acquired companies.

(Operator Instructions).

Please be aware that this presentation and Q&A session will be broadcast on the Internet. After the presentation, you can take part in the Q&A session.

(Operator Instructions).

(interpreted) Thank you very much for joining us for the earnings meeting for the second quarter of 2015 despite a very busy schedule. I'm the master of the ceremony, Head of IR. My name is Higuchi.

(Operator Instructions).

Let me introduce today's presenters. President and CEO, Christophe Weber; Director and Chief Medical and Scientific Officer, Andrew Plump; Acting CFO, Rudolf van Houten.

First, the presenter will give the overview followed by R&D update, and last but not least, the details of the financial status. You should have material both in Japanese and English in front of you and questions will be accepted after all the presentations are completed.

Mr. Weber, please start.

So good afternoon, everyone. Thank you for attending this session. I know that it has been a busy week with many corporate announcements.

So what you will see today then in a nutshell is how we are on the way to execute our strategy, and I can immediately disclose to you that we are satisfied with our progress and you will see that the first semester put us in strong position to execute and to finish the year as we have planned. So that's for us very satisfactory, and we are very pleased with this performance.

So you know our strategy; there is no change in our strategy. Our strategic roadmap has been clearly identified and clearly defined. And again, we are in the process of executing the strategy. We want to be a value-based company. We want to be a company focused on the patient and the customer. We want to have a global company but an agile company which develops talent.

We are an innovation-based company and we are also a focused company on specific therapeutic areas, and we have already disclosed these therapeutic areas; GI, oncology especially; also CNS and CVM.

We have identified in our strategy very clear growth drivers for the midterm, GI, oncology and emerging market. And we know that we have to improve our profitability and we have identified 2015 as a critical year of turnaround in which we will be able to grow our sales as well as our profit, which is important because for many years, we have had our profit declining.

So you will see again that during this first semester, we can clearly say that we are on the way to deliver this 2015 year. And that's important, because it's a critical year to deliver sales and profit growth in a sustainable way.

So today, I will focus essentially on our business performance for the first semester, and again, focusing on our GI, oncology and emerging market growth drivers. And what we are doing here for the first time is that we are giving you our performance in growth across these growth drivers. So I'm insisting on that.

Rudolf will also share with you our growth by region, but we felt that it was also important to measure moving forwards our performance on our key growth drivers, because we know that they will drive our sustainable growth in the future.

You can see that first, these three growth drivers represent roughly one-half of our total business, so it's a substantial part of our business, and we can see that combined, the three together in the first semester of the year, they grow by 10%.

GI, very significant growth at 28%, mainly driven by ENTYVIO; our oncology business growing by almost 2%; and our emerging market division growing by 7% in the first semester.

So overall, these growth drivers are, of course, the main contribution to our overall Company growth, and overall, these growth drivers, which represent almost 50% of our business, grew by 10%. That means that the impact of these growth drivers on our total growth is about 5 points, so one-half basically of 10%, so very significant. And moving forwards, we will share regularly with you how we are performing on these three growth drivers.

So GI you can see here is very significant growth. It's mainly driven by ENTYVIO. Really, ENTYVIO is continuing to progress. We are registering ENTYVIO in many new countries, not only in US, Europe, but also in emerging market. But you can see that the trend is very satisfactory, which again confirms to us that our vision to have ENTYVIO go beyond $2 billion peak sales is very possible and achievable. So we are very satisfied with the performance of ENTYVIO.

Regarding emerging market, I'm sure I will have a lot of question on emerging market considering the economic environment. We have a growth, you have seen, of 7% in the first semester. We remain fully committed to the emerging market in the long term; this is part of our long-term strategy. And we know that the growth in emerging market will come from both our value brands, from the generic and OTC, as well as our ability to launch our new product, our innovative products, in the coming years.

And you can see that we are also making good progress here. In Brazil, for example, ENTYVIO was approved during the first semester. NESINA was launched. ADCETRIS was launched. So we are very much in the process of launching our new innovative product in emerging market, and that's, of course, very important for our growth in the future in emerging market.

Now another element of our business performance is our cost discipline. We will do an update on Project Summit, but overall, we have a tight grip on our cost. It's very important

We have also very focused investment. And the fact that in our overall strategy we identify these therapy areas, the fact that we've identified some clear growth drivers, oncology, GI, is also helping us to guide our investment moving forwards. In emerging market, it's the same. We've identified some core countries for us to invest. So strategically, we know where to invest, and that allows us to have a very much targeted investment for the future.

So we are confident that we are able to manage well our costs. Project Summit is continuing to deliver strong savings. One thing I want to mention here, because we might have some questions about the phasing of our business, traditionally, our expenses in the second semester are higher than our expenses in the first semester.

There is a phasing of expenses in our business which means that, for example, if you take the R&D investment, we are still growing our R&D investment in the first semester. We are planning still to grow our R&D investment, if you compare the second semester with our first semester, but compared to last year our R&D investment this year will be lower than last year. So that's what you see here on this graph. It is important to understand our phasing in order to link our performance during the first semester and our overall guidance for the full year.

So that's what I wanted to share with you here with this slide.

Now overall, this performance during the first semester allows us to confirm with confidence that we'll deliver our annual management guidance of low single-digit growth rate for our sales, for our underlying core earnings higher than underlying revenue growth, our underlying core EPS growing also faster; and we are also confirming our annual dividend per share of JPY180.

So that's really in a nutshell what I wanted to share with you. And now, Andy, I guess will present our R&D evolution.

Thank you very much.

Good evening. It's a pleasure to have the opportunity to speak with you tonight. It's also an absolute privilege for me to have the opportunity to serve as the Chief Medical and Scientific Officer of Takeda.

I'm often asked the following question. Why did you come to Takeda? There are three reasons. The first, the value system: a set of virtues that you've heard about previously under the term Takedaism; fairness, honesty, perseverance and others. But at the center, one that is extremely important to me, and that is integrity. Integrity means do the right thing. In our business, this is imperative.

Christophe also frames a value system in the following way. When we think about our business, we start with the patient. We put the patient at the center. As a physician, that's how I have always approached this business. The second is to establish trust; trust with yourselves, with the outside world in general. The third is build reputation. And then the fourth, once you've done those first three, is to think about the business. And you know if you do those first three, the business will follow.

The second reason that I came to Takeda was because of Christophe. We met for the first time in August/September of last year and we immediately hit it off. I could tell right away that Christophe was a true leader; and in addition, we shared not just a value system, but a vision for how to do R&D in this industry.

And then the third reason is the opportunity. The opportunity to take what Takeda's doing today, which I'll share with you briefly in terms of our pipeline, and to deliver those medicines to patients. That's the first part. And the second part, because we are committed to remaining an innovation-based, research-driven pharmaceutical company, is to drive a future of innovative products for this Company.

So I've been here for eight months. They've been hiding me from you; eight months. The first five months, I had the immense privilege of working together with my predecessor, Yachi Yamada. The privilege was that I didn't have to take on the burdens of the role and the operational responsibilities. I had the opportunity to go around the organization, meet people, learn about the programs, and do something that is so important for leaders to do but we often forget because we're so busy, and that's just listen.

And I listened, and I heard who this organization was. And what I discovered was profound; was profound. We have an amazingly committed and engaged group of scientists and employees in R&D. Now we have work to do, no doubt. But the starting point, the foundation, is profound.

The last three months I've been working. I've been building a vision together with Christophe and with my leadership team for who we're going to be in the future. We're not going to have a chance to get into that today in great detail, but we will be talking with you about that in the near future. But the vision builds off of what you've heard already from Christophe. There are really two major elements to it.

The first, focus, lazer-like focus, and that starts with our therapeutic areas. Related to that is prioritization. I am a firm believer that you choose your bets, you go after the programs that you think are the most compelling, and you do everything you can to make those successful. So focus and prioritization is the first part of the vision.

The second part of the vision is to raise the bar on innovation. So if we really want to be successful in those few disease areas, in those few programs, we have to make sure that we have the expertise and the capabilities that will enable those disease areas and those programs.

So let me just walk you through a couple of the slides. I'm not going to spend much time on this today, but let me tell you about where I and my team are in R&D in terms of our priorities today.

The first, laser-like focus in executing on two of our most important programs, ENTYVIO and ixazomib. I'll spend a bit of time telling you about the ixazomib development program and where it is in just a second, but let me just tell you briefly about ENTYVIO right here.

ENTYVIO, as you know, is a monoclonal antibody that blocks the alpha4beta7 integrin. We've demonstrated that this medicine is highly effective in patients with ulcerative colitis and Crohn's disease.

I'll tell you a vignette. The year before I came here, Takeda published on the two seminal studies, the two seminal Phase 3 studies in Crohn's and UC. This was the GEMINI I and GEMINI II studies. I was sitting at my desk in Paris working for another organization, and I remember opening up the New England Journal of Medicine and reading about these two programs. And I read these two articles and I sat back and I said, wow! That's an amazing medicine! And now I have the chance to help to bring it to patients throughout the world.

So we're doing a couple of things with ENTYVIO that are worth mentioning. The first is that we're expanding the reach of this important medicine globally. The second is we have a very extensive lifecycle management strategy in place. This includes a number of development programs that you've seen here before to extend the label and extend indications. But in addition, we're doing some very novel work with real-world data and through our medical organization to increase our understanding and to allow physicians to become more comfortable with this important medicine.

And the last thing I will mention about ENTYVIO is that recently, we've restructured this project team to really reinforce it and to give it the muscle that it needs. And in fact, the project leader from the R&D side is, in fact, one of my direct reports sitting on my leadership team.

The second core priority for us is to really focus on those products that we've recently launched, as I'm showing here. These are great medicines, but in many cases they need significantly more development, and in some cases, research support. Again, two pieces to this. One is regional expansion; and then the second is lifecycle management.

I won't go through this in much depth, but let me make a couple of brief comments. The first, ADCETRIS.

ADCETRIS is one of two antibody drug conjugates that's been registered and that cancer patients can use. ADCETRIS was discovered by our collaborators, Seattle Genetics, and it's an ADC, an anti-body conjugate, that recognizes a cell surface ligand called CD30. This cell surface ligand is expressed on Hodgkin's lymphoma cells, and we've demonstrated that patients that have refractory Hodgkin's lymphoma are quite sensitive to this mechanism.

We're now in the process, together with our partner, of extending the indications to a frontline Hodgkin's lymphoma setting. And, in fact, we've just completed enrollment in the ECHELON-1 trial to study it in that frontline setting, and we're very excited about that based on data that we've seen in Phase 2; but also, looking beyond Hodgkin's lymphoma at other cancers where CD30 is expressed on their cell surface, it's a very interesting molecule.

Azilsartan. Angiotensin receptor blockers have been around for decades, but this is the best one; this is the best one. We're committing significant development resources to expand opportunity around azilsartan, particularly with respect to fixed-dose combinations.

And then the last program in this bucket that I'll mention is BRINTELLIX. BRINTELLIX is an antidepressant. It's been approved for major depressive disorder, as you know. It's another partnered program with our collaborator, Lundbeck, and it's a very interesting molecule.

We're in the process of looking to extend indications. We have an ongoing Phase 2 study in patients with attention deficit disorder. And then earlier this year, we submitted a supplemental new drug application to the FDA for a very interesting and novel indication, which is cognitive impairment in patients with depression. It ends up that patients who have depression also have a number of associated symptoms, one of which is cognitive impairment. We've demonstrated through two prospective trials that BRINTELLIX improves cognition in these patients.

We're having an active dialog with the FDA around this claim, so it's a claim that we've submitted for, because not only is this new to us, but it's new to the FDA as well. So in the history of antidepressants, there's never been an antidepressant that has sought a label indication for cognitive enhancement.

And then, of course, front and center in my mind is in bucket 3, which is: How do we develop a long-term portfolio to support Takeda into the future? I break this bucket down into three parts.

The first is our vaccine programs. We're not going to talk much about them today, but our dengue program is targeted to move into Phase 3 in 2016.

The second bucket is our pre-proof of concept pipeline. I'm very excited about this. These are early mechanisms. They all have substantive risk. We're going to be building an organization that has excellence in translational medicine and early development to ensure that we give these innovative therapies every chance of being successful. And the concept that I mentioned earlier of focus and prioritization applies here as well.

And then the last piece is external. We will be building a strategy that allows us to partner, not just in-license or acquire, but to truly partner with the outside world to drive a portion of our innovation going forward.

Now I'll tell you something, which is that I am very impatient. I have an immense sense of urgency to do things and to do things well. But I can also tell you that to make great medicines, you have to have a patience for greatness; a sense of urgency, but a patience for greatness.

So let me spend a couple of minutes telling you and updating you on ixazomib.

Ixazomib is our oral proteasome inhibitor. It is the only oral proteasome inhibitor, either approved or in development that is oral. We have a very extensive Phase 3 program built around ixazomib. And as many of you know, we submitted dossiers to the FDA and the EMA this summer, and in both cases, we've been granted priority review. We are in active dialog with both and hope to have this medicine approved in the not too distant future.

We have not disclosed data from the study that we submitted on. Mind you, with everything we've gotten here, the amount of data that we've put into this submission relative to the amount of data that's going to come, is tiny. We are going to be generating a lot of data on ixazomib.

You will have the chance to see this data early December at the American Society of Hematology meeting in Orlando, Florida. This is not a late-breaking session. This was an abstract that we submitted based on the first interim analysis that we did earlier in the year. So that abstract will be published, with other abstracts from that session, in the next couple of weeks.

In addition to this first study, which is in patients who have relapsed or refractory multiple myeloma, we have four additional Phase 3 studies ongoing. They're all very significant studies. Three of them extend indications within multiple myeloma. One is in newly diagnosed patients as a frontline therapy; and in two cases, MM3 and MM4, we're looking at ixazomib for use in a maintenance setting. Data from these studies we expect will be emerging in the 2017 to 2019 timeframe.

And then finally, we have an ongoing study in a rare disease, lichen amyloidosis, which is a disease that's related to multiple myeloma in many ways.

This is a snapshot of our development portfolio from Phase 2 onward. I'm not going to go through this in much detail. I'll just mention a couple of highlights.

The first, and as I've been telling you and speaking to you about our priorities, I'll emphasize that again here as you look at the portfolio. Our Phase 3 portfolio is dominated by programs that have recently come to market. And I'll emphasize again that there is a tremendous amount that we still need to do to fully understand all of these all mechanisms, to bring them to patients throughout the world, and to extend indications. We spend the vast majority of our development budget on this activity. The return is going to be substantial.

The second element, and again this gets to a sense of urgency but patience for greatness, is we need to focus on making sure that we do everything we can for these marketed products. Okay? That's going to take us a great way.

We also need to make sure that we're looking on the left side of this chart, and I can tell you that's an area that I get very excited about, and ensure that we're doing everything we can to advance these early mechanisms to proof of concept and then into Phase 3.

So at this point, I'll hand it over to Rudolf. Thank you very much.

So good afternoon, or almost evening, unfortunately, on a Friday evening. It's a great privilege for me to be here today and to have the opportunity to share our first semester results with you all.

So for people on the telephone, we'll go straight into slide number 4 which represents a summary of our performance for the first semester.

I'm very pleased to say that given our current performance in the first half, we're on the road towards achieving our management guidance for the second consecutive year. Our underlying revenue growth in the first half was up 3.8%. Our underlying core earnings grew by 3.7%, roughly in line with the revenue growth. And our core EPS, underlying core EPS was up 7.9%.

As Christophe has shown you all in his presentation, our key growth drivers, GI, oncology and emerging markets, grew at a 10% clip during the first half of this year.

We continue to have a very tight focus on our operating expenses, and we expect that in the second half of this year, our operating expenses will be lower than the same period last year.

Project Summit continues to be a priority for us, and we are fully committed to achieving the communicated savings of JPY120 billion over the five-year period.

And as you also see that we made quite a good improvement in our free cash flow, or free operating cash flow for the half year, but we still have a lot of work that needs to be done in this area.

That's just a quick snapshot of our performance for the half year.

So then we will start off going into the details by looking at the reported income statement, and before we get into the numbers, I would just like to point out that the reported results are not a good indicator of the actual underlying performance of the business.

Of course, the reported results contain variations in foreign exchange rates. They are not adjusted for things like acquisitions or divestments. They're not adjusted for large one-off items. So it's a little bit difficult to get a good view of the underlying performance of the business when looking purely at the reported numbers. Therefore, we will spend a lot of time in the presentation to look at the underlying numbers as well a little bit later on.

When we start at the top, our revenue was up 6.2%, or about JPY53 billion, versus the prior year. If we combine that -- if we dissect that into ethical sales versus non-ethical sales, our ethical sales grew by 7.2% during the first half of the year, and that was really driven by the newly-launched ENTYVIO and continued growth of VELCADE and AZILVA.

If we look at our sales on a geographic basis, our overseas ethical sales were very strong, up about 14% versus last year, with double-digit increases in the US, again helped by the newly-launched ENTYVIO and also CONTRAVE, and also continued robust growth of VELCADE and DEXILANT.

Of course, our reported results were impacted by FX which had a generally positive impact on revenues for the first half of this year, with the strong US dollar offsetting a weakness in emerging market currencies, particularly the Russian ruble and the Brazilian real.

If we turn our attention to Japan then, Japan was down by about 4% for the first half, which was really almost exclusively due to generic pressure on BLOPRESS. And if you exclude the impact of BLOPRESS, our business in Japan grew during the first semester.

Our consumer health business posted a very strong performance as well, up 9% versus last year, with robust sales of vitamin-based tablets, while the other segment, which includes everything else, was down by 14%. That was really the result of the divestment of one of our businesses, the Mizusawa Group, in April of this year.

So if we go down now to operating profit, our operating profit was down by 5.4% during the first half. There were really two contributing factors. Number 1: Our sales and marketing expenses were higher than last year, and that was really to support the new product launches that we had, including of course ENTYVIO and CONTRAVE in the US, and TAKECAB and ZAFATEK in Japan.

The other large driver in operating profit is that 2014 included a one-off JPY25.4 billion gain on the sale of real estate in Japan. And of course, this was a one-off event which was not repeated during 2015. And if you adjust for this event, our operating profit would have been up for the first half of this year.

Continuing down the P&L, our net profit and earnings per share were both down by about 11% to 12%, and that was really the result of the lower operating profit. And then in addition to that, we had some foreign exchange losses, particularly related to Kazakhstan. As many of you will know, in August of this year, Kazakhstan had a very large 30% -- I believe it's 30%, or 26% or so devaluation of their currency, and that had almost a negative [JPY4 billion] impact on our financial expenses.

And then our effective tax rate in the reported P&L was also a little bit higher than last year, and that was due to R&D tax credits. Some of them were ACTOS related.

So now let's turn to slide number 8 which includes the bridge between our reported revenue and our underlying revenue.

And there are two main adjustments that we make. The first one is for foreign exchange, and we are effectively restating both 2014 and 2015 using constant -- for constant exchange rates.

In addition to FX, we have also excluded the impact of acquisitions and divestitures. So we had the divestiture of the Mizusawa Group in 2014, so they were included in the reported results in 2014 and not included in the 2015 results, so we excluded them from 2014 to make the results comparable.

We did the same with a small acquisition we made in Turkey this year. We excluded it from our results this year to make our results comparable to last year.

So when adjusting for these items, our underlying revenue growth was 3.8% for the first six months of the year.

Turning now to slide number 9, this is effectively a repeat of the slide that Christophe showed you earlier, but it's a very important slide for us.

As Christophe mentioned, our key growth drives are GI, oncology, and emerging markets, and they grew by 10% versus last year. And as he also mentioned, our growth drivers represent approximately 50%, or 49% to be exact, of our total sales.

So then turning to slide number 10, it shows a graphical representation of our revenue bridge, our underlying revenue bridge last year versus this year. And you can see that growth drivers contributed JPY40 billion of additional sales, which represents a 4.6% revenue increase on our total sales base.

Then unfortunately, this was offset by the remaining business, and the remaining business really had one large reduction, which was BLOPRESS, which reduced by [JPY29 billion] versus the prior year.

And then we had a number of other products. You can see there, AZILVA, LOTRIGA, BRINTELLIX and others which showed nice growth versus last year.

And so when you look at the total, our sales were up 3.8% versus the last year on a like-for-like basis.

Turning to slide number 11, this slide gives a breakdown of underlying sales growth by region. The largest contributor to growth in the first half of this year was the US, which was up by 12% versus last year, primarily driven by good growth of ENTYVIO and BRINTELLIX.

Emerging markets also continued to growth well with a 7.1% increase, with Russia and China being particularly strong.

Europe and Canada were up 1.5%, which was driven by growth of specialty products, ENTYVIO and ADCETRIS.

The Japan ethical sales business decreased by 3.4% versus last year, really as a result of generic pressure, again, mainly a result of BLOPRESS.

And then Japan other business, which includes our consumer health business, was up almost 5% for the first half.

So the following slide gives a breakdown of our emerging markets.

First, on the left, you can see that we're fairly balanced in terms of sales, with approximately one-third or so coming from Japan, another one-third coming from the US, and then one-third coming from the Rest of the World.

So there's been a lot of uncertainty lately in the financial presses about emerging markets, and a lot of industries are experiencing slowdowns or even declines in emerging markets. There's been a lot of information in the press about China slowing down and nobody knowing exactly how fast China is growing.

However, in Takeda's case, we have seen some slowdown in our business, but this effectively means that we're moving from low double-digit growth in emerging markets to mid to high single-digit growth in emerging markets. So if you think about the global healthcare industry maybe growing 3% to 4% per year, a 7% increase for us in emerging markets is still a very nice incremental growth to our total business.

So emerging markets up 7.1%, as I said, with most of our sub-regions showing good growth. Russia/CIS was up 12%, with Russia by itself growing by almost 20%. Asia was up about 8.5%, with the important China region growing almost 9%.

And I think if you look at emerging markets from first quarter to second quarter, and I know we don't like to look at our business on a quarterly basis, but we do take some comfort from the fact that there was no material slowdown in emerging markets between the first quarter and second quarter. So things are progressing fairly well for us in this large region.

The following slide shows ENTYVIO, and again, Christophe has presented this slide already so I'm not going to spend a lot of time on it, but as of September of 2015, we've achieved a moving annual total, which basically means sales for the last 12 months, of close to JPY60 billion. And this is a very good performance given that ENTYVIO was only launched in June of last year, and it positions us very well towards achieving our peak sales target of $2 billion or more.

The following slide shows our, again, moving annual totals for both BRINTELLIX and ADCETRIS. As you can see, both products continue to show good growth momentum and a good growth curve. And regarding BRINTELLIX, as Andy has already stated, last May, we filed for cognition, and we should receive the outcome some time in the first calendar quarter of next year.

So now let's look at our underlying core earnings, which for people on the phone, slide number 16.

So as I presented before, our underlying revenues were up about JPY33 billion, or about 3.8%. Our key growth drivers accounted for JPY40 billion of revenue increases, and then there was an offset in Japan, as I mentioned before particularly resulting from generic pressure.

Our gross profit was up about JPY19 billion, which represents a 2.9% increase, and it really follows largely, the sales increase. The fact that the gross profit grew a little bit slower than sales has meant that there was a slight reduction in the gross profit margin, and that was mainly due to product mix and mainly related to Japan. And if you strip the Japan effect out, our gross margin would have been slightly up for the first semester.

Sales and marketing expenses were up to support new product launches, as I mentioned before. We were very happy to see that G&A expenses are flat, or actually slightly down versus last year; and this is an area where we're really trying to control our expenses. And then R&D expenses were up about 2.9% for the first six months of the year.

The net of other income and other expenses had a positive impact for us, unlike 2014 when we had higher expenses related to the termination of a pipeline asset. And this resulted in an underlying core earnings increase of 3.7%.

Underlying core earnings per share were up by 7.9%, really due to a lower effective tax rate. So if you look at our core effective tax rate, it decreased for the first semester, largely driven by the fact that taxes in Japan, of course, the tax rate has gone down. And we also had a financial gain on an investment disposal included in financial income as well.

Turning to the next slide, slide number 17, this slide is a graphical representation of our P&L, of what I showed you on the prior page. So you can see again that our growth in underlying core earnings was the result of growth in sales. And this slide shows the gross margin impact of sales partially offset by additional investments in sales and marketing expenses to support our new product launches.

G&A was relatively flat, R&D was up slightly; and then other income and expenses, as I spoke about before, had a slightly positive impact versus last year as well. And that resulted in a 3.7% increase in core earnings growth.

So I wanted to spend some time now on Project Summit, and Project Summit remains an absolute priority for our business, particularly since cost control is really a critical element of managing our margins.

Originally, we made a commitment to reduce our expenses by JPY120 billion over a five-year period, and we remain fully committed to this goal. During 2013 and 2014, we made cumulative savings of about JPY62 billion, which is roughly half of the Project Summit savings goal. And such savings came from a number of different areas, including the consolidation of production facilities, the closure of certain sites around the world, and the establishment of shared service centers.

Now going forward, we currently have very good line of sight where the remaining JPY60 billion of savings will come from over the next three years, and the majority of those savings are going to come from procurement initiatives. So in this past year, we have established a central procurement function that now manages our $7 billion of total spend annually. And because we have a central procurement function, we can now start to negotiate contracts on a global basis and secure cost reductions.

If we look at the implementation costs, we had originally communicated that they would total roughly JPY100 billion in one-time costs, and we still remain committed to this amount.

So now I'm going to turn my attention more to the balance sheet, and if you turn to slide number 20, this slide shows our net debt bridge. So our net debt started at JPY11.5 billion at the end of 2014.

During the first half of 2015, our free operating cash flow, which is defined as our operating cash flow less CapEx and intangible milestone payments, that grew and was better by JPY30 billion versus last year; so we had a JPY30 billion improvement in our free operating cash flow. And that was really related to working capital outflows which were less than last year, and lower purchases of intangible assets.

So what did we use our free operating cash flow for? We used our free operating cash flow to pay for our dividend and then also to pay for incremental cash needs, and that resulted in a closing net debt at the end of September of JPY58.5 billion.

So although our cash flow improved during the first half of this year versus last year, we still have a long way to go, and cash flow will remain a focus area for us going forward.

So if we turn to slide number 21, this shows our debt maturity profile, and you can see we have JPY100 billion of debt coming due in 2015 and an additional JPY180 billion coming due in 2016, and we are currently contemplating to refinance this debt with a longer maturity date. So though we haven't made any final decisions yet, we could potentially raise somewhere around the JPY300 billion to JPY350 billion in long-term debt, long-term debt somewhere five to 10 years. But again, we're contemplating at this point, but we haven't made any final decision.

So then let me turn to slide number 23 which shows our reported results forecast for year. And given our performance in the first half of this year, we have decided to maintain our reported forecast for the full year.

Now I'm sure the question will come: Why are we not increasing our reported forecast? Because on some measures, such as operating profit, we have already exceeded the forecast for the full year.

So I'd like to go back to the statements that Christophe made, and as he said, during the second half of the year, normally, our profitability is lower than during the first half of the year. And that's really driven by the fact that our operating expenses in the second half of the year, they tend to be higher than our operating expenses in the first half of the year.

In addition, we have had some deterioration in FX rates, particularly again in emerging market currencies, and that will play out, that will be fully reflected in the second part of the year, whereas it is not fully reflected in the first part of the year.

So those are the reasons why we are maintaining our forecast. And again I want to stress, we don't foresee any large material adverse event in the second half of the year, but we are just being a little bit cautious given that normally in the second half of the year, our earnings are a little bit softer than in the first half of the year.

So then let me turn to slide number 24 which is our annual management guidance. And as you know, we have committed to low single-digit underlying revenue growth for the full year. We have committed to underlying core earnings growing slightly faster than our underlying revenue. And we have committed to underlying core EPS growing faster than our underlying core earnings. And given the results that we had in the first half of the year, we remain committed to this guidance for the full year. And we also will have the JPY180 per share dividend for this year.

So then let me turn to my last slide which is effectively a repeat of my first slide. And again, I want to emphasize that this will be the second consecutive year of meeting our management guidance; during the first half, revenue up 3.8%, core earnings up 3.7% and core EPS up 7.9%. And all of those are on an underlying basis.

Our growth drivers, which we have defined and which we will continue to present going forward, growing very nicely at 10%. We will continue to keep our operating expenses under control and Project Summit will remain a management priority.

Operating free cash flow also showed a nice improvement versus last year, but again, we still have to do a lot of work in this area.

So this has been always characterized as a turnaround year for Takeda, and I think we're well on the way towards achieving that goal. So thank you very much for your attention today.

We have a Q&A session now. (Operator Instructions). Hidemaru Yamaguchi, Citigroup.

(interpreted) My first question. Rudolf, you explained this several times, and as far as I can tell from the cover sheet, $50 billion to $60 billion of open profit in one quarter can be achievable. And for full year, you have already exceeded the profit level of the full year, so $50 billion to $60 billion of profit for full year then maybe $200 billion, can we achieve that? That's what it looks like, at least from looking from the outside.

So is that a correct way of looking at this? I know that there are costs involved as well but --

It's really like I explained up on the podium, because I knew this question was going to come, of course. So we are maintaining our guidance, and if you look at our progress, we're progressing in accordance with our plans, and that's why we're not increasing our guidance for the full year.

And again, there's two main driving factors, one is higher expenses in the second part of the year. If you look at last year, I think maybe you have to double check, but maybe we had a loss in the second half of the year.

And of course, also FX. So FX, emerging market currencies have taken a hit, everybody knows that. The ruble is way down; the Brazilian real is way down in Kazakhstan; even in China had a small devaluation.

And so that impact is not fully included in the first-half results, so we would expect that that impact of course is a little bit more pronounced in the second part of the results. So that's why at this point we decided not to change our guidance.

(interpreted) Okay. You talk about the pipeline overview, and you're in a position responsible to design the overall structure. I understand LCM is important, but for GI and CNS, it seems that you have very thin pipeline, especially in the late stage. So do you intend to do organic pipeline development or are you going to be more aggressive in the next several years; in other words, buying products from outside so that you can strengthen the GI and CNS part of the pipeline?

So in terms of overall design, it seems that there is a gap, so how do you intend to fill this gap?

Thank you for the question. I would say that if you just look objectively at our Phase 3 pipeline, there's nothing -- there's very little there. That's the reality of what we've presented in terms of NMEs.

I want to stress -- I know we'll be talking about the innovative pipeline that's going to be coming in the future, but I want to stress the importance of the lifecycle management for these new products. It's critical to the growth of the Company. It's also an immense opportunity for patients.

Specifically though to the question of how we're going to fill the pipeline, clearly, it's going to come from multiple sources. The first -- and particularly in CNS, I don't show you what we have in Phase 1, but we have a number of very novel and innovative mechanisms.

What we're doing is we're going through an exercise right now where we're prioritizing these mechanisms and looking for ways of accelerating programs that we think have greater innovative potential and a higher [priority] of success. That's one.

You can only go so fast in development though. There is a limit to how fast you can go. In oncology, there are opportunities to accelerate greatly. It gets less and less as you move outside of oncology. So clearly, we're going to have to use a combination of approaches. It's not just going to be organic. We're clearly going to have to work through partnerships.

Now I think the good news is that because of the extensive lifecycle management efforts and the opportunity that we have around that portfolio, I don't think we feel rushed to do anything. So we can be very [metered] and balanced in terms of how we approach any type of inorganic growth.

(interpreted) Seki, Barclays Securities. My first question is regarding ixazomib. [At ASHE] presentation, I look forward to the presentation. Peak sales, what is your estimation for the peak sales?

So the data first which will be presented at ASHE is the first interim analysis of the first Phase 3 trial that we have on ixazomib. So I think it's very important to have in mind that we'll generate that on ixazomib for the next three to five years, or even more, in a very intensive way. And the profile of the product will continue to evolve because the different clinical trials address different patients and phase of the disease as well.

And that's my link to the second part of the question which are the peak sales. We don't have a prediction about our peak sales. Why? Because the -- but we have an aspiration for ixazomib. And our aspiration for ixazomib is that it will be one of the backbone of the treatment of multiple myeloma.

But the multiple myeloma treatment will evolve greatly in the coming years. There are many new products, as you know. Ixazomib data will be generated as the future as well.

So it's pretty clear that the treatment of multiple myeloma will evolve greatly in the coming years. I don't think anybody today can predict what will be the winning combination by stage of disease and, therefore, we don't want to go there. But we believe that the ixazomib will be one of the backbone treatments of multiple myeloma.

(interpreted) Thank you very much. My second question is to Dr. Plump. You have been with Takeda for eight months and you mentioned that you explained your motivation and aspiration regarding R&D productivity of Takeda. Dr. Yamada mentioned that before you are going to raise the bar furthermore, and what do you need to achieve that in your view?

And POC, pre [POC] project, and you mentioned there are some exciting assets and what are -- what excites you? If you have anything specific can you share with us?

So to the first question: How are we going to increase productivity? So the first thing I'd mention is that if you actually go back over the last 10 years, Takeda has brought to market 21 products, and 15 over the last five years. So I agree that we have to continue to evolve productivity, but when you look at this portfolio that we keep talking about that we're focusing on right now in development, this comes from Takeda.

Now I think it's very important that we move away from what we call an NIH syndrome, which is called the not invented here syndrome. We absolutely can't do that. If we want to be successful -- this is the answer to your question -- if we want to be successful in the world we live in today in this industry and we want to drive innovation forward, it has to be through a model that involves extensive partnership.

To do that effectively, you have to have an outstanding research organization, because you cannot partner and find great innovation unless you have great scientists. So that's a huge part of what will get us there in the future.

There are other elements, some of which I've mentioned around focus and prioritization and building the necessary enablers. We will go into that in much more detail in the future. We're in the process of mapping that out and building a plan right now.

Your second question is -- I mentioned that there are some really exciting programs in the early space, and I am reluctant to give an answer, because it's like asking me which of my kids I like best. Right? I'm not quite attached to these programs; I'm willing to make kill decisions and I'm not willing to kill my kids.

But the answer is that I think there will be -- since we actually didn't talk about our Phase 1 portfolio, I'm not going to go into it in much detail. We have some oncology programs that are actually starting to show signals that are very exciting that we could potentially ramp up very quickly.

In Phase 2, in the portfolio that I showed in Phase 2, we have dengue. Our dengue virus, we just finished a Phase 2 study to understand the immunogenicity data of our dengue virus, and I can tell you the immunogenicity of the virus is outstanding.

Whether -- I'm sorry. The vaccine; I'm sorry. Thank you. The immunogenicity of the vaccine is outstanding. Whether that will translate into outcomes at the level that we expect, we'll see. That's the hypothesis that we'll test in Phase 3. But that's a very exciting program as well.

Next year, we'll have an R&D and oncology day with you. So I think because we'll have more data on oncology, and I think we'll be also ready to share more information about R&D pipeline and our strategy.

(interpreted) Hashiguchi, Daiwa Securities. I have a question for you, Andrew. Earlier you talked about therapeutic areas and you will be applying laser-sharp focus. About one year ago, Mr. Weber talked about oncology and GI focus, but there were maybe four or five additional important areas to focus on; for example, CNS and CVM.

So oncology and GI focus I assume will continue, but will you continue to focus on the other [key areas], or are you going to reduce the focus on those other therapeutic areas?

Thank you for the questions. So absolutely we will continue to focus and to build in oncology and GI.

You mentioned two of our other core areas, CNS and CVM. We are in an active dialog right now to understand how best to approach these two therapeutic areas, and it's a dialog that includes multiple perspectives.

One is the unmet medical need. Critically, the emerging science is the science at a place right now in these two therapeutic areas sufficient to match that unmet medical need, And then the third, our internal capabilities; do we believe that we have the strengths to be competitive in these two areas? This is an active discussion right now and we will be over the next several months working this out internally and then speaking with you about it.

I will mention one other area that's very important which is immunology. And when I talk about immunology, I'm not talking about autoimmune diseases. I'm talking about immunology as it applies to a broad range of diseases.

In some ways, we are an immunology company. ENTYVIO is an anti-inflammatory agent. It is an immunology product. In some ways ixazomib, which is a drug that affects plasma cells, which are immune cells, is an immunomodulator agent. So how we progress will also include a very deep set of expertise in immunomodulation that will cut across our therapeutic areas.

If I may make just one comment It's that this is no change in the strategy that we have shared with you in the past and expressed. We always say that we are focusing on four therapy areas in R&D: GI, oncology, CNS, CVM; but we need to be more focused on CNS/CVM and this is the work we are doing. And out of these four two are our growth drivers today for us in emerging markets.

I hope I could qualify very soon the others as growth drivers too, but that's really how we have organized our strategy in our business.

(interpreted) Thank you.

(interpreted). Muraoka, Morgan Stanley. Regarding Japanese sales activities, I have a question. [Our] sales in Japan compared to the first quarter, the second quarter is lower. And going forward, the domestic market may be rather challenging. And the second-quarter earnings report from other companies, they say that the number of MRs or sales reps will be reduced. What's your view on this? What about Takeda? Are you going to decrease the number of sales reps?

We are declining in sales in Japan today. This is driven by BLOPRESS, so the generator of BLOPRESS. So BLOPRESS has a huge impact on Takeda, actually not only in Japan but globally, because it is a very significant product.

Now the generic penetration on BLOPRESS is 60% today. So that means that the impact is more behind us than in front of us. So moving forwards in the coming months and quarters and years, BLOPRESS impact will decrease.

After BLOPRESS, we don't have so much generic exposure, if you like. And on the other side, we are launching many new products in Japan, so it's just a matter of time before these new products are offsetting the loss, if you like, of BLOPRESS.

So

So that's a dynamic. That's why we believe that we'll be able to regain some positive growth in Japan sooner or later.

And regarding the number of MRs, we are not in this situation, because every single MR in Japan today is promoting a new product, and that's -- we have this -- we are fortunate to be in this position. But having said that, at the current time, this is tough and the market in Japan is tough.

(interpreted). So you're not thinking of a significant reduction of sales reps in Japan?

At this stage, no, because we are launching these new products. Every single MR is promoting new products, and the success of this new product is critical for our long-term future.

(interpreted). Regarding R&D, I have another question; NTB or new CCD areas. In those therapeutic S1P1s and other oral agents are being developed, and in a few years they can be a strong competitor for you against ENTYVIO.

And also, if you strengthen GI area in Takeda, with this kind of mechanism an oral agent may be acquired from outside. Are you thinking about it very proactively?

Which one are you thinking about? Obviously (inaudible).

I'm sorry. Thanks for the question. Of course, it would be a tremendous strategic fit for us to have another agent to use in IBD, oral or parenteral. I think the issue is that there are just not a lot of opportunities out there. But we have a team that is in place. In fact, our GI group is a group that is heavily facing externally and we're evaluating all the different options.

Now I will say that all of the oral agents that are out there have some uncertainty around them. The S1P1s, I think, are extremely interesting. But as you know from one of the compounds that's registered in MS, [fingolimod], there are potential safety issues also that we need to be thinking about.

So the answer to your question is we're very -- we would be very interested in bringing forward [imero] or another parenteral agent for IBD, and we're actively looking, both in our internal portfolio and externally for an opportunity.

(interpreted). Thank you.

(interpreted). Sakai, Credit Suisse. You have a great expectation on ixazomib. That's what I can understand. But you are going to see the ROE of VELCADE soon, then you're going to enter into the patent [creep soon] again, and you said that you'd like to differentiate ixazomib from VELCADE.

So once again, could you elaborate on that? What is the differentiation point? I understand one which is injection. The other is oral. But in terms of the sales implication, how much do you think VELCADE can offset -- can ixazomib offset VELCADE at patent level? If you have any guidance about that, could you elaborate on that?

Thank you for the question. You are right. VELCADE will lose its patent in November 2017, so we are facing that patent cliff. The two products will be certainly used differently. More than -- around 60% to 65% of the patients with VELCADE are used in front line, in the treatment of multiple myeloma combination; and we also know that VELCADE is a great product, but we also know that VELCADE cannot be used for a very long period of time because of [neural] toxicity.

At the contrary, ixazomib's hope is that it has the efficacy but also the safety for long-term treatment. So the treatment pattern could be very different with a product like ixazomib which could be used for a longer-time period than VELCADE.

Also, there are many new products coming in the market, so the combination, the induction combination as well as different stage combination might be very different. We are also doing some clinical trials with ixazomib in monotherapy for maintenance treatment as well.

So that's where the difference will be is that the -- hopefully, and again we need to generate the data, the efficacy and the safety profile of ixazomib will allow for longer treatment which is something that VELCADE cannot offer today.

May I just add to what you've --? So just -- the way I think about this also, just from the science point of view, is that this isn't like a -- the proteasome is not a simple drug target. It's a very complex set of machinery that deals with all proteins in a cell that don't fold properly.

So when you think of it that way, you can imagine that an inhibitor of the proteasome can have any one of a number of different pharmacologies, and the likelihood that two molecules that look as different as ixazomib and VELCADE would have a similar clinical profile is very unlikely.

So as Christophe has said, we're going to be generating a lot of data, but there's no reason to think that the efficacy and safety profile will be equivalent.

(interpreted). One more additional question. Lifecycle management of VELCADE, do you have any idea about that? Is it possible? Or do you think it's going to be genericized and you are going to replace VELCADE with ixazomib? Is that your strategy? Which means we have to take out VELCADE from the model in our calculation.

Well, we don't have per se a lifecycle management strategy on VELCADE. VELCADE will [fall] generics and that's it. Our lifecycle strategy on ixazomib, that's the way to see it, clearly.

I think it's very hard today, and you guys must have a very hard time to [modulize] a multiple myeloma market, because there are so many new competitors, there is not much data known, and that's a challenge for us.

(interpreted). Now we can accept questions via the telephone.

Tim Race, Deutsche Bank.

So in terms of -- just following up on the ixazomib questions to Andy. Just a few, if I could.

First of all, coming up with the abstract that we'll see probably late next week, what should we be looking for in terms of signals from that abstract? Obviously, we'll be looking at the efficacy and the absolute safety, but to get a better understanding of the potential of this drug, is there anything we should be looking at? Should we be looking at peripheral neuropathy, cardiovascular events? Can you give us a hint of what really is a key factor from this product that we need to be looking so that we can read through into the larger indications as such?

A second question maybe for Christophe, just in terms of the market size of the relapsed refractory setting alone. Obviously, there is various different scenarios in multiple myeloma, but what do you see as a market size potential; not necessarily the exact [sum], I gather, but what is market size for relapsed refractory?

The third, maybe back to Andy, a question on CD -- do you have any studies planned for combinations with CD38 antibodies (inaudible) available probably next year?

And then lastly just on BRINTELLIX, the cognition study, could you just talk about the size of opportunity that the cognition element may give you for that product?

Thank you.

We wrote down all your questions so we would remember.

Wonderful.

So the first question that you asked was, what to look for in the abstract that is going to be published by the American Society of Hematology. So if I were you, what I would look at is the primary endpoint that was designed into the trial. So remember that the trial is an ongoing trial; it will continue until 2019. There are a series of built-in interim analyses, one of which we've just had and we're in the process of analyzing the data from. And then, there will be a series of event-driven and interim analyses that will occur in the future to follow pre-specified endpoints of overall survival. Okay?

The first interim with which we based the filing on was predicated on the primary endpoint, which was progression-free survival in the overall population. So that's what I would look at because that's the primary endpoint in the trial. And I think, from my perspective in terms of good trial methodology, that's the key. Of course, safety is also -- will also be included, and if I were you, I would look at that too.

and let me just take CD38 quickly. Good. So at this point, and as Christophe has said many times, the multiple myeloma market is now a very interesting market. It's great for patients. It's going to take an immense amount of time to sort out the complexity of all the potential combinations.

So thinking through a strategy for a combination with CD38 is something that we're actively doing. Obviously, right now, we don't have anything planned in terms of -- in the near future in terms of putting any clinical trials together.

For the two other questions, for the relapsed refractory market setting, size alone, we know exactly the size of the current market, but I don't have it in top of my mind. So if we can put you in contact with our global oncology team, we don't have a problem for that.

Now in terms of the prediction of this market, that's where it's more difficult, frankly, because it will depend on how the combination will evolve, what will be the type of combination, which product, which price, etc. So I think there again, the projection is not so easy to do.

On the BRINTELLIX question, as Andy mentioned, we are in active dialog with the FDA to understand what will be -- how this submission will end up in terms of labeling and where in the label. It's very difficult to predict that because this is new for the FDA, and we have an active dialog, as you mentioned, to understand what will be the final decision from the FDA from this data.

And that has a huge impact potentially on the potential of BRINTELLIX. Can we promote or not? Is it a new indication or not? Or is it just a clinical information. So it has a huge impact. And of course, potentially the impact can be very significant if you can promote that this antidepressant improve cognition among patients.

So I think we need to wait for the final label in order to have a good prediction about the impact on the product.

Thank you. Could I perhaps follow up and have a question just on profitability of ixazomib? Am I right in thinking that it's going to be a lot more profitable to you to sell this outside the US than in the current royalty you receive from VELCADE outside the US?

Yes. You can assume that our gross profit outside of the US would be higher than the royalties here. I think it's -- that's what you can assume, yes.

Great. Thank you.

(interpreted) Now we would like to take the last question from the Tokyo floor.

It seems that there are no more questions, so with this we are closing today's meeting. I hope you help us filling in the questionnaire on the table and leave it on the table as you leave.

Thank you very much for joining our earnings meeting. Thank you very much.

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.