Takeda Pharmaceutical Co Ltd (TAK) 2017 Q1 法說會逐字稿

Good afternoon. Thank you very much for attending this first quarter results. In fact, we have two topics to cover today. One is the Q1 results, financial results, and you will see that we are very satisfied with this result; we believe that we are off to a very strong start of the year. We'll share that.

Rudolf van Houten will make the presentation, but before we do any presentation, I would like to introduce you James Kehoe, our CFO, who is here today. James is still in a learning phase, so he will not do the presentation this quarter, but he will do it in the subsequent quarter. That's the first element.

But before we present this Q1 we would like to share with you how Takeda will become the leading research and development company in GI, oncology, and CNS. What is our strategy and what is the transformation that we are planning to do, in order to be this leading research and development company in the therapy area we have selected? Andy Plump, our head of R&D, will make this short presentation. This presentation about our R&D transformation will be followed by the Q1 presentation. Andy?

Good evening, everybody. It's a privilege to have an opportunity today to share with you where the R&D organization is headed.

We had the pleasure of spending six hours together, many of us, on June 9. At that point we talked to you about our R&D strategy. We talked to you about the recent launches that we've had. I mean success that in many ways is unparalleled, certainly for Takeda, with these handful of launches, and in many ways unparalleled for the industry.

We talked about our focus on ensuring the lifecycle management of these products. We talked about the fact that in development 50% of our resources is focused on ensuring that we recognize the full potential of these truly remarkable medicines for patients: Ninlaro, Entyvio, Trintellix, Adcetris, Takecab, and others.

We also shared with you the state of our pipeline. It's not a pipeline that, as it exists today, is going to deliver at the level that we need.

We then rolled out our strategy, and I'll share again elements of that with you today.

I think what we didn't get into, and mostly because of timing, was the organizational change, the transformational organization change, that will be necessary to prosecute that strategy. If you may I will spend a few minutes this afternoon telling you about the changes that we anticipate over the coming months and years.

As I've stood up here in the past and spoken with you, I always come back to fundamentally what makes this Company great. That is our value system. We are unwavering around this value system: the Takeda-ism principals, and most importantly a focus that begins and ends with the patient.

We talked about the cornerstone of our strategy for R&D. It's therapeutic area focus. For us that means CNS, oncology, GI, plus vaccines. We've made the decision over the past several months that specialty cardiovascular, which was an area that we indicated would be area of concentrated strategic interest for us, will no longer be so. We felt that we didn't have the pipeline, and we didn't have the resources to disperse over another therapeutic area.

This is our contract; this is our pipeline. Whenever I speak with you I will share this with you, and this will be how you will measure the success of our strategy and of our transformation.

I'll make a few comments, because even since June 9, but certainly since the 4Q discussion, the pipeline has evolved. As you can see, the pipeline is becoming more and more aligned with our therapeutic area strategy.

The second point that I'll make, and I won't go through the elements that we discussed extensively on June 9, but the second point I'll make is that in just the last quarter we've brought three new programs into our GI pipeline.

A program that actually has been filed in Europe, together with a company called TiGenix, this is a mesenchymal stem cell cell-based therapy for anal fistulas in patients who have Crohn Disease.

We're very impressed with the data that has read out from their Phase III trial, and we're confident that this medicine will become a meaningful medicine for patients with this horrible condition.

We also have brought in two pre-proof of concept studies, both that affect gastrointestinal motility. One with a company Theravance, a program that will start phase II in early calendar year 2017. Then, a second program with a company called Althos.

I think what's particularly interesting about this model is that it speaks again to one of the core components of our strategy, which is external innovation.

It also speaks to different models of working externally. Our intent is not just to buy in license and control everything, because in some ways that defeats the purpose of what you get from external innovation, the diversity and mindset, and the diversity and thought.

A great example of this is this Phase I program that we have with Althos in gastroparesis or GI motility. It's a program that we now have an option to purchase, but that Althos will bring to the next key decision point.

I'll remind you again, and the last slide on strategy and then I'll get into the chances, that our strategy is fundamentally based on four pillars. The first as we've discussed extensively is this therapeutic area focus.

The second, and ultimately what will define our success, is ensuring that we optimize a pipeline of meaningful and innovative products. We're not going to advance me too's; we're not going to advance programs that offer only incremental innovation. Our bar within these three therapeutic areas plus vaccines is very high.

Thirdly, we've talked extensively about our need to build capabilities to support our therapeutic areas: new modalities beyond small molecules; translational medicine; data sciences; and then both the culture and the capabilities to operationalize our externalization strategy.

We also talked on June 9 about the importance of culture. We talked about the culture of leadership, of agility, and of an externally facing mindset. I said that if we didn't get that right, nothing else that we're talking about will work.

Today, there's the last piece of this, and that's the transformation of our organization.

Let me give you some perspective on what that transformation will look like. Of course, in the short time that we have here I can't get into all of the details.

Suffice it to say that the transformational changes that we are making are significant. These are not small changes. These are very significant, very meaningful changes that will position us to be competitive, and within these three areas the best R&D organization in the industry.

I'll also say that the intent of these changes is transformational. The intent of these changes is to help us rebuild the pipeline. The intent of these changes is to drive our pipeline to a level of innovation that will be necessary to be effective for patients and for Takeda in the future.

The changes that I am going to present to you are not cost-cutting. We are in a great position right now. As we project out over the next five and perhaps even 10 years, based on conservative projections of growth of these recently launched products, we organically grow our top line year-on-year. You'll see our Q1 results are great, and very consistent with what we've been telling you.

The intent is not cost-cutting. The intent is to position ourselves, so that three, five, seven years from now, we have that next generation of new medicines to deliver.

Let me give you some perspective of what these changes are thinking functionally across research, across development, and across pharmaceutical sciences.

But, first, if I dial up what will the Takeda R&D organization be? The Takeda R&D organization will be a dual-centered R&D structure in Japan and Boston.

In addition, as I'll show you in just a second, we will have lean regional centers that will be dedicated predominantly to regional development and regional medical activities.

One of the challenges that we face today, as I've shared with you, is that our R&D organization is greatly fragmented. It's very hard for our project teams to work effectively, because we have key strategic leadership that's dispersed across the globe. Part of what we're doing here is to greatly simplify the organization.

Another part of this change is to rebuild the skillsets and the capabilities, and to free up resources so that we can do more work with partners externally.

Research. Today, we have four research sites and we have research scientists that are located at many of our sites. The transformation will bring our research organization together into three sites: a key site at Shonan, at our Shonan research center; a key site in Boston; and then a smaller biotech-like site in San Diego. Each of these sites will have a rationalized and highly strategic responsibility for the Company.

In Shonan our focus will be in CNS and regenerative medicine. We also will be building something that is incredibly exciting for us and for the officials in Japan that we've spoken with. We intend to, over time, convert Shonan into a research park; an open innovation research park that houses not just Takeda and Takeda sciences, but a vast array of scientists from institutions, from other companies, from other healthcare sectors, from biotech, etc.

I'm not going to get into the changes in Boston and San Diego in detail, you can see them in the slides. The last point though that I'll make about -- here on this slide is that in addition to the changes in research we're making substantive changes in our pharmaceutical sciences organization.

Pharmaceutical sciences, or what we previously called CMCC, is a group of scientists that bridge between research, development and then, ultimately, to commercial manufacturing.

Today, these individuals exist across nine sites on our network and they're not adequately integrated with their key counterparts in research. Tomorrow, our intent is to co-localize these pharmaceutical scientists with our research scientists in Shonan, Boston and San Diego.

Development. Our development organization in the future will be a greatly simplified, highly flexible and outwardly facing development organization. We all know that a pipeline flexes; the pipelines are never constant in terms of their needs. Yet we have a capacity that's built to manage a pipeline of a certain level: if that pipeline dips, we have excess capacity.

Our intent in the future is to always have internally less capacity than what we need and to use external sources to drive those fluctuations.

In development, we will have three types of sites. Firstly, Boston. Boston will be our development center. Our therapeutic area units, our core operational pieces, our translational research and early clinical group will be primarily housed in Boston.

Secondly, we will have, as I mentioned earlier, lean regional centers across the globe to help to manage local studies and also regional aspects of our global studies.

And then thirdly, we'll have an intermediate group of sites at Osaka, Deerfield and Zurich. These sites will be greatly focused and concentrated on both regional activities, as well as assuming one key capability.

For example, in Osaka, we are bringing in a new capability to enhance the development group there and to create a group that's not just regionally focused, as it is today, but to grow that capability to understand and become excellent at global development. So we will be building a group there that manages the development of our mature marketed products.

Now, the changes that we're proposing have significant impact on our employees. Significant. We've been extremely meticulous, fully embracing the value system that we've talked about many times and have been very fair and thoughtful to our employees.

Our intent is, as much as possible, to ensure that our employees have opportunities and jobs after this transformation. For many of those employees, those jobs will be still here at Takeda. For many of those employees, they will be jobs that will be relocated to other sites.

But for those employees that don't stay within Takeda, we have good -- really good, options for those employees and I list some here. I've mentioned our intent to build Shonan out into a research park. That will offer great opportunities to our employees.

We actually have one example of an open innovation center that will become paradigmatic at Shonan and that's the center T-CiRA with Professor Yamanaka.

We will be building joint ventures. We will be forming spin-off biotechnology companies that are focused on specific disease areas. There are two that I'll mention.

One is a company that will be spun out in our UK, Cambridge, site that I didn't mention when I went through the research footprint that we propose to close as part of our future operating model. To help preserve jobs of our scientists there, we intend to spin-off some of our discovery programs into a biotechnology company, and there's great interest from the venture community in this.

Likewise, in Shonan, we're in advanced negotiations for a cardiovascular company with a top entrepreneur. Again, with our programs and our scientists.

We also are going to fund an entrepreneurial venture program, such that if scientists in Shonan have an interest in taking their program out into their own company, we will support that courageous move.

Then lastly and then I'll mention a big one, is an international mobility program. So we intend to create a highly structured mobility program for employees that are willing to move, in particular, but not exclusively, out of Japan to R&D positions that are available as part of this transformation in the US or to other functions within the Takeda global network.

Now, one big piece that I haven't mentioned is how we intend to operate our development organization. We are in advanced discussions with a strategic development partner to take on the vast majority of our development work.

It's actually a partnership that I won't have a chance to get into much detail today and probably can't, because we're still working the details, but it's a partnership that will be unlike any partnership that's been formed between contract research organizations and pharma companies.

But through this partnership, we'll have the opportunity to transition hundreds of our employees to this new organization, thereby preserving both jobs and also the opportunity of those employees to continue to work on Takeda projects.

So let me just end with a comment around the financial implications of this transformation. The way I would suggest that you look at it is that Takeda is making a very significant investment in its R&D organization for the future.

The one-time implementation costs will be JPY75 billion. JPY250 billion (sic - see slide 11, "JPY25 billion") of that, we anticipate, will be booked in 2016. The savings from this we anticipate will be JPY18 billion per year. The intent is to reinvest that savings fully into our pipeline.

So again, this is not a cost-cutting measure. This is an attempt to rebuild our organization so that we can become the best in the industry.

With that said, I'll now hand it over to Rudolf to talk about the Q1 financials. Thank you.

Good evening. As usual, it's a pleasure for me to be here today and to present the first quarter 2016 financial results. Let's turn to slide number 4 and start.

On a reported basis, revenue was down 2.8%, and this was really driven almost exclusively by the impact of FX and divestitures. That was partially offset by strong growth in our growth drivers, as I'll show you a little bit later.

Reported EPS was up from JPY31 to JPY127 per share and that reflects the one-off gain on the transfer of the fast-declining, long-listed products business to Teva.

Our core EPS, which excludes the impact of amortization and impairment and one-off items, such as the LLP transfer gain, was up almost 9%.

If we look at underlying basis right now, our growth was up quite nicely, up 9% versus last year. Core earnings were up 40% and core EPS was up an impressive 54%. Growth came primarily from our growth drivers, GI, oncology, CNS and emerging markets.

Operating expenses were under control, ending the quarter below the level that we had last year.

Project Summit also continued to perform very well and delivered JPY4 billion of cost savings in the first quarter. We are well on track to deliver our full-year savings target.

We are reaffirming our guidance for the full year, and that's both management guidance and our reported forecast.

We also remain strongly committed to shareholder return with the dividend being a key component.

Let's turn to the reported income statement. Reported sales, as I said before, were down 2.8%. That was really driven 100% by the impact of divestitures and FX, offset by growth of our growth drivers.

Gross profit was down 8%, leading to a reduction in our gross profit margin. Again, the margin was down largely due to FX and due to the impact of divestitures. In addition, there was an adverse impact due to the NHI price reduction in Japan, coupled with some unfavorable product mix.

Operating profit was up JPY103 billion. That was mainly reflecting the one-off gain on the transfer of the LLP business to the JV with Teva.

EPS was up from JPY31 to JPY127, as I've said before. Our core EPS which excludes one-off items in addition to amortization and impairment was up almost 9%. That was helped by a more favorable effective tax rate and lower impairment charges in Q1 this year versus the prior year.

So if we turn now to slide number 6. This slide you're familiar with, it shows the performance of our growth drivers. For the first quarter we were up an impressive 15%. If you remember maybe from the Q4 presentation we did a few months ago, the growth rate in 2015 was 9.5%, so our growth in our core -- in our growth drivers has accelerated very significantly.

GI was up 35%, and that's largely reflecting the continued very strong performance of Entyvio. During Q1 Entyvio more than doubled sales versus the same period last year. On an MAT basis, it now achieved JPY96 billion of sales at the end of June.

Over 55,000 patients have been treated with Entyvio and the product is now registered in almost 50 countries around the world.

Our GI performance was also boosted by an acceleration in the sales of the anti-acid treatment Takecab in Japan.

Oncology also performed quite nicely, up 6.6%. Our multiple myeloma treatment Ninlaro is off to a very promising start with sales just under JPY6 billion in the first quarter.

CNS was up almost 32% and that's really driven by the antidepressant sales of Trintellix in the US, which were up 38% for the quarter.

Emerging markets were up 3.9%. A quite strong start to the year in both China and Russia was offset by slower sales in the rest of Asia and in Brazil.

If I turn to slide number 7, that's a new slide, so I'm going to spend a couple minutes on this slide. It's a slide that shows you a bridge between reported revenue, the green bars on the ends of the slide. It also shows you a bridge between underlying revenues, which are the blue bars in the middle of the slide. You can also see the bridge between reported and underlying. It shows you on one slide all the different bridges that I think would be useful for you.

Let me walk you through the chart. If we start on the left-hand side with the green bar. Those are the reported revenues in Q1 of last year, JPY446 billion. Then if you move towards the right, the first bar shows the impact of FX on revenues, and you can see that impact was JPY29 billion negative. That reflects the fact that in Q1 of last year, the dollar/yen rate was JPY121, and the rate that we're using for our underlying revenues is only JPY110, dollar/yen. That results in that negative impact of JPY29 billion.

If you continue to move to the right, you see the next pink bar and that reflects the impact of divestitures on our revenues. That represents the impact of the transfer of our declining long-listed products in Japan to the joint venture with Teva.

It also includes the divestment of the respiratory business to AstraZeneca, which happened in April of this year. And then it also reflects the return of the rights to Contrave, the US anti-obesity drug, back to Orexigen. The impact for all three of those items was JPY29.4 billion.

So maybe let me just pause and say a few words about the Teva deal. This is a very good deal for us and we're very happy with the performance during the first quarter. Let's just review again why that is.

First of all, we monetized highly declining products in Japan. These are products, which are declining up to 50% per year. If we had kept these products and we had not divested them to Teva, we would have seen that 50% decline in our results in this year anyway. So people have to keep that in mind.

Second, we received a 49% ownership share in the new joint venture with Teva. We think that this is going to become a very successful and growing business going forward.

And finally, we get income from this JV in the form of distribution fees, in the form of supply fees. We also get equity income in our P&L. And, in addition to that, we are entitled to cash dividends. So there's a lot of business coming back into Takeda because of this JV.

Then, if we continue on this chart, in the middle the red box, that shows the bridge in our underlying revenues. You can see that underlying revenues were up by 9.1% for the quarter. That really reflects the impact of our growth drivers; our growth drivers, as I said before, were up 15% versus last year.

Then, in addition, you can see that in the purple box that our other products also performed quite well during the quarter. Most of that performance was in Japan, which did very nicely for the quarter.

Then, if you continue to the right-hand side of this graph, you see the green bar on the right shows the reported revenues for Q1 2016. Again, you can bridge going left back to underlying revenues by, first, looking at the impact of FX. Here the impact is smaller in that the dollar/yen rate in Q1 was JPY112 versus our planned rate of JPY110, so that's a relatively small impact.

Then the next bar again reflects the impact of the divestitures on our business, and that those divestitures are, again, three things in there. It reflects the supply and distribution fees that we get from the JV with Teva.

It also reflects the impact of one month of respiratory sales. We divested the business at the end of April, so we got one month of sales.

And it also includes three months of contract sales, which will not be returned back to Orexigen until the second quarter of the year.

The next slide shows our growth by region and it shows both underlying and reported growth. I will not spend a lot of time on the US emerging markets or [EUCAN], because I've already touched on the performances of Entyvio and Trintellix and Ninlaro.

I'll just spend a couple of minutes on Japan. Japan is the red box at the top left and although our reported revenues in Japan were down, because of the divestiture impact, our underlying revenues showed a very nice performance growing almost 10% versus last year.

That reflects very good growth in Takecab, which now reaches more than JPY6 billion after the expiration of the prescription limitation. It also shows strong performances and Azilva and Lotriga.

This next slide again it's similar to the bridge I showed you before, but it bridges from our operating profit -- the reported operating profit to our underlying core earnings. I'll just concentrate on the box in the middle of the chart, the red box, that bridges our core earnings.

Our underlying core earnings were up 40%, and that really reflects the impact of the higher sales that we had, so that's in the gross profit bar that you see there of JPY17.9 billion.

In addition, you can see that our SG&A expenses were down versus last year, in the first quarter by JPY4.1 billion. Part of that reflects a phasing impact.

Finally, R&D expenses were virtually flat, up about JPY1 billion versus last year.

Then, the last thing I want to point out here is the big difference between our underlying core earnings and our reported operating profit. You can see that pink bar on the right-hand side of the screen. That's really the impact of the one-off gain on the transfer of our long-list of products to Teva.

This next slide shows the bridge from a reported net income to underlying core net income. Again, it follows the same methodology, and I'll concentrate again on the red box in the middle.

Our underlying core net income was up 54% versus last year. That really reflects the 40% increase in our underlying core earnings -- our core earnings, as I showed you on the prior slide.

In addition, the tax impact was only very small, due to a lower effective tax rate for the quarter. We had a lower effective tax rate for a number of reasons. First of all, due to Japan tax reform, that gave us a benefit and then we also had a more beneficial statutory earnings mix across our legal entities around the world, particularly with our Swiss entity.

Again, you can see on the right-hand side of this graph the big bar, the JPY43.9 billion, which reflects mainly the after-tax impact of the -- a gain on the transfer of the LLP business.

So maybe just to reiterate what Andy just showed you. The R&D transformation is expected to have one-time implementation costs of about JPY75 billion. This amount will be split over two years with approximately JPY25 billion coming in FY16 and the remainder in mostly in 2017, with a very small amount likely in 2018.

The exact amounts of course and the timings are still subject to negotiations and any options taken by employees.

Annual cost savings are expected to amount to approximately JPY18 billion. As Andy has stated, over time, Takeda intends to reinvest the savings into an innovative pipeline.

The transformation will have no impact on our dividend for 2016. Also, it will have no impact on the guidance which we have given you for 2016.

Then turning to our guidance, first, the management guidance. As I've said before, we will maintain our management guidance for this year: underlying revenue growth in the mid-single digits; and underlying core earnings and underlying EPS growing more than twice as fast as the top line; and, we maintain our dividend at JPY180 per share.

I would like to take this opportunity just to say a few words about our dividend. Considering our expected growth acceleration, as you have already seen in the first quarter of this year, and considering the various cash-optimization opportunities we have available, which again you saw during 2015, we believe that our dividend is sustainable.

In the case of M&A, our ideal targets are target that are either accretive or neutral to EPS. Therefore, they would not impact our ability to pay dividends.

From time to time, we may undertake pipeline acquisition deals that are not accretive in the short term, but these are not likely to be very large in size and we would partially reallocate internal resources to cover any impact.

Let's turn now to our reported forecast. At this point, we are also maintaining our full-year reported forecast. We are very pleased with our performance in the first quarter of this year. The quarter was quite strong and that gives us confidence that we will achieve our full-year forecast.

Please note that during the remaining quarters of the year, we are expected to incur some significant one off expenses. As I've previously mentioned, the expenses relate to the R&D transformation that we just covered. These expenses are included in our forecast.

In addition, our forecast also includes the assumption of JPY30 billion in potential impairments. That's the same number that we announced on May 10, when we had our Q4 results. Again, that JPY30 billion assumption is included in our forecast.

And finally, as you all are probably aware, FX rates remain volatile. We will carefully monitor any potential impact on our results for the full year. There's a slide in the appendix, which shows you the sensitivity of FX. Approximately for the next nine months of the year, a 10% move in the yen would give approximately a JPY4 billion impact on net income.

That is the final slide for today. Thank you very much.

(interpreted) Now I'd like to start with the question and answer sessions. We will have time until 6:15 and since the time given and available today it's shorter than usual, we'd like to entertain just one question from one person. We will also be available for online, the questions asked by phone. Please introduce yourself when you ask a question.

(interpreted) Yamaguchi, Citigroup; just one question. I would like to ask about a question regarding the progress of your performance.

Aside from onetime factors I think that you were outperforming than the projection. However, you wouldn't revise the full-year forecast. Why? Could you explain the reasons?

You are right, we are very pleased with the dynamic that we are seeing, especially on the sales. We are especially pleased that this is driven by our growth driver, so the strategy is working. We are focusing. Entyvio is doing well. So all our growth drivers, we are pleased.

Actually, emerging markets starts slightly on a low tone, but we still believe that we could hit the high single digit in emerging market.

On the expense side, there will be some phasing, so we might have more expense in the remainder of the year than in Q1; it's always a pattern that we see in Takeda.

On the reported side, there will be some one-offs. So we just feel that it's too early in the year to update our guidance. It's a good signal. A good Q1; only three months in the year yet, so I think that's how we see it.

[Generally], You can say that you're in a good shape in the three months. If anything is the same for next remaining nine months, you will be ending up a lot of upside potential looking at those numbers.

One can say that, yes.

Thank you.

(interpreted) Hashiguchi, Daiwa Securities. I'm asking R&D transformation as of June 9th event what you presented is in line with what you explained. That means regarding what we heard in June there's no revision. Is that right?

Also, regarding R&D transformation, as your own structure, you are going to have downsizing and, by that, your ability to innovate will be strengthened. Is that understanding correct?

And when you have this strategy regarding expected positive return you mentioned, but there are some risk factors, I suppose, and what are cautions that you are aware of possibly risks? And what are possible actions to mitigate the risks as you implement the plan?

I apologize, but my translator was off for the first question can you please repeat the first question?

Your explanation in June.

100%. What we presented today is not a new strategy. The strategy is exactly as we presented in June: therapeutic area focus; rebuilding key capabilities; externalization. What we presented today was operationalization of that strategy and how we are going to transform our organization, so that we can execute on that strategy.

The second question was around risk, as we project out over the next several years, and I guess you can consider risk in many contexts. But you're only asked to one question, well, I've started to answer.

You can talk a bit about risk as well. I would say that, from an R&D standpoint, all of the recently launched products have very extensive lifecycle management programs ongoing. So, whenever, there's R&D activity there's always risk.

I'll tell you that in our projections, and we've talked here about our MRP projections, but in our long-range forecasts, we consider very conservative conditions, in terms of studies working and studies not working.

There's always risk when running development studies. But I think the risk in terms of our recently launched products is relatively small.

I think the question was about the risk linked with the R&D transformation. There is always an execution risk when we do such a transformation. But I'm very pleased with the preparation and the thinking about behind this transformation. You can see that we are very consistent with our strategy as well. So we are moving step by step on the implementation of our strategy.

I think also one way to look at risk mitigation is that by -- we will reinvest the savings, as a result of the focus that we want to do into pipelines, both internal and through external collaboration. One can see that as a way to mitigate risk as well. So we are creating more option, if you like, in the future.

Now, as Andy mentioned, in pipeline there is always risk. Basically, we need more products, we need more pipeline options in order to eventually end up with the late-stage pipeline and more products to be launched.

(interpreted) So as your organization, you are going to downsize then try to strengthen. Is that understanding correct?

It's not a downsizing intent. The intent is to rebuild the reorganization and to transform the organization so it's more productive and more effective. A part of that includes a reduction of our internal workforce. But it's very important the way we look at it is not downsizing. It's really, truly rebuilding the organization so that it can align with the strategy.

(interpreted) Next question, please.

(interpreted) UBS, Seki. About the R&D restructuring, I have a question. Net-net, the research scientists and the development people, the number of the headcount, net-net, it is not going to be reduced. Is my understanding correct?

For the transformation, there will be ultimately a reduction of internal FTEs.

(interpreted) If it's the case, what is the number of the employees to be impacted? Also, what are the regions to be impacted? Is it possible to provide that information to us?

So I'll say that the transformation is significant. There are a lot of people that will be affected and it's a global -- it's a transformation that includes our sites globally. It includes, as I've mentioned, research, development and pharmaceutical sciences.

But we're not, at this point, ready to talk about a number. There are ongoing discussions with our employees. There are ongoing discussions with various bodies, works councils in Europe, the unions here in Japan.

As I mentioned, our intent is to work to find employment for the vast majority of our employees, whether that's within Takeda or whether that's within spin-off opportunities, joint ventures, NewCos, etc. As you can imagine, we're at varying stages of defining what each of those various opportunities might be.

(interpreted) Thank you very much.

(interpreted) Muraoka, Morgan Stanley. We understand now very well your R&D reorganization. Now, talking about commercialization restructuring or reorganization, and I have been always asking the same question. Japanese sales reps, what is your view towards their future? And American sales reps, how much downsizing do you consider or have a plan?

Currently, we don't have in mind a transformation in our commercial organization like we are doing in the R&D transformation. Every country is in a different situation. For example, in Europe we are really focusing on Entyvio oncology, so specialty care.

But in the United States, we are very much focusing on Entyvio. But we have also Trintellix and in Trintellix, for example, requires a large salesforce. In Japan, the same, when we are supporting Takecab, for example, Takecab is a primary care product, as well as specialty care.

So depending on the product portfolio, we require a different type of organization to support this product portfolio; a very different stage depending on the countries.

We do not plan, we are always looking at efficiency, but we do not plan large reorganization or downsizing, for example, our salesforce. But we are adapting our organization with our portfolio.

(interpreted) Takecab, Trintellix, we understand that you need a salesforce. But probably next year or so, well, I think almost you have had enough activities -- resource-taking activities, because it's been some time already since their launches. Therefore, I think you don't need any extra.

We don't need -- you're right in the sense that we don't need to increase any more. Remember, in 2014, we increased our salesforce, especially in the United States, to launch Trintellix.

In Japan, we reallocate resource. So we didn't increase our organization, but we have reallocated resource on our new product launches.

But Takecab is a new product still. There is no way we can stop promotion now. We just launched; just get the new long-term prescription, so it's really a new product. The same with Zafatek, we have a very new product to support in Japan. So that means that for many years to come, we need to support these new products in Japan.

The only area where we actually optimize our resource and reduce our cost has been by selling back Contrave we could reduce significantly, actually, our salesforce support. We optimized quite a bit our margin in the United States through that.

(interpreted) Sakai, Credit Suisse. Dr. Plump mentioned at the end of your presentation, during the transformation you want to improve efficiency and you should not disturb our development in the various ongoing activities and you are considering various collaborations. That's the type of collaboration where we do not have experience.

Does that mean that unless you have that kind of collaboration, then you cannot really execute this transformation? But what is the type of collaboration exactly you are thinking in mind? And when will that be completed?

You have partners, so you may not be fully aware of the timeline. But what's the timeline and what's the type of collaboration? Especially, you don't want to disturb the current ongoing R&D activities. Can you explain that?

So you're speaking specifically to the development partnership that I mentioned?

Yes, in the last part of your presentation.

We've been in a process over the last six months, speaking with many potential partners. I'll tell you, what we were offering was incredibly attractive, both for us and for the partner.

This isn't a simple rebadging of employees. This is really creating a deep, structured, strategic partnership. The extent of the partnership goes beyond what's been done typically in the industry. We're providing capabilities to the potential partner that allow for really end-to-end trial management, so capabilities that include medical functions, like pharmacovigilance and regulatory.

We will still keep those critical strategic individuals that will be our interface with regulatory agencies. But a lot of the activities that are done in both groups will be transitioned to the partner. We chose the partner -- we can't provide today the name of the partner. because we don't have a final agreement in place.

We chose the partner based on the fact that the partner a) had a value system and a respect for people that was very consistent with ours. It was also a partner that was willing to work with us to create a model that was fit for purpose for Takeda.

Then, another key piece of this, ultimately, would be the potential to form a relationship in Japan as well, so this would be a truly global partnership.

Now to your question on timing, we hope to put this in place very soon, within the next couple of months, because we're pretty close to finalizing terms.

There is risk, to your point and question earlier. This is perhaps the one thing that we're most concerned about, because of the complexity of the relationship that we're putting together. We have multiple partners right now for -- and the way that this partnership with this new organization will work is that we'll have flexibility. We're not going to be committed to this organization.

Now, our intent is to have a very tight relationship and to do most of our work with them, but we won't be contractually limited. We can continue our current studies with our existing partners where we have the potential to transfer those studies to this particular partner. We're going to look at individual study on a case-by-case basis before we make that decision.

(interpreted) One more question we'd like to entertain.

Hidemaru, Citi. One quick question on the R&D side. Ninlaro got rejected by the European authorities. Do you have an update on that?

So we are in the appeal process, and that will take (laughter) -- that's basically what we can say this stage. I think --

Sorry, there's something going on?

Yes, the appeal process is progressing as planned and on time. We are in dialog with the CHMP. Through this appeal process, we'll see the outcome.

So the guidance, which -- I think you are talking about approval this year, something like that. But that's --

Yes, we know the result of the appeal process latest by the end of December latest, but I hope earlier.

Yes, but that's not changing?

That's not changing, no.

Okay, thank you.

(interpreted) With this, we'd like to conclude this session. I believe you have more to ask, but we'd like to conclude this. We would like to accept the remainder of the questions through some other media, to the IR department. (Conference Instructions). Thank you for your cooperation. Thank you again.

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.