Takeda Pharmaceutical Co Ltd (TAK) 2018 Q1 法說會逐字稿

Please note that this telephone conference contains certain forward-looking statements and other projected results which involve known and unknown risks, delays, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievement of the company to be materially different from that result, performance or other expectations implied by these projections.

Such factors include economic and market conditions; political events and investor sentiment; liquidity of the secondary market; level and volatility of interest rates; currency exchange rates; security valuations; competitive condition; and size, number and timing of transactions.

(Operator Instructions) This conference call is being broadcasted through Internet live but only for listening mode.

Now we start the conference.

Mr. Higuchi, please go ahead.

Thank you very much for joining our consolidated financial results conference for fiscal 2017 Q1.

I am the moderator for this meeting.

My name is Higuchi, the IR Head of the company.

First, we'd like to have CFO James Kehoe to present consolidated financial results for fiscal 2017 Q1 and then followed by Q&A including Christophe Weber, CEO; and CMSO, Andy Plump, together with James Kehoe

Now James, please, you have the floor.

Thank you Noriko, and hello, everyone.

Thanks for joining Takeda's first quarter conference call.

We're off to a really strong start in 2017.

Firstly, we are making strong progress against our 3 key priorities: grow portfolio, rebuild pipeline and boost profitability.

And as you can see from our results, we're off to a strong start on both the revenue growth and profitability.

Underlying revenue was up 6.6% and underlying core earnings growth was 29%.

We delivered double-digit growth -- EPS growth on both underlying and reported basis, with reported EPS increasing 45% versus prior year.

These strong first quarter results give us quiet confidence in the outlook for the full year.

Turning now to Slide 4. Let's review our progress against our key priorities, first, on grow portfolio.

Underlying revenue growth grew nicely at 6.6% and the growth was broad-based.

We saw revenue growth in every region and our growth drivers of GI, oncology, CNS and emerging markets increased revenues by 14.7% which is a continuation of the pace of growth we saw in full year 2016.

Importantly, our largest product, Entyvio, continues its strong momentum with year-on-year growth of 45%.

We also made strong progress on rebuild pipeline.

In June, the Phase III ADCETRIS ECHELON-1 study met its primary end point.

The R&D transformation continues on track with our spin-off venture SCOHIA PHARMA becoming operational in April and Takeda-PRA Development Center being established in June.

Additionally, we recently announced the establishment of AXCELEAD, a new drug discovery subsidiary which will be based at our Shonan Research Center.

Since April, we've signed 10 new deals with biotech and academia partners, including collaborations with GammaDelta and TESARO in oncology and BioSurfaces in GI.

Finally, boost profitability is very much on track.

Our core earnings margin improved by an impressive 350 basis points to an absolute CE margin of 19.8%, and this came from a balanced improvement of both gross margin expansion and operating expense efficiency.

Please turn now to Slide #5.

On a reported basis, we delivered favorable results across the board.

Revenue growth was 3.3% despite the negative impacts of currency and divestitures.

Reported operating profit advanced 27% to JPY 195 billion, led by strong underlying growth.

The JPY 106 billion pretax gain from the sale of Wako was similar in size to the Teva one-off gain we recognized in the same period last year; and therefore, the gain has a minimal impact on the overall growth rate.

Reported EPS increased 45%, reflecting the strong growth in operating profit and smaller contributions from a lower tax rate and the sale of securities.

Underlying performance was equally strong.

Revenue grew 6.6%.

Underlying core earnings grew -- growth of 29% reflected a very healthy balance between revenue growth and improved profit margin.

As I mentioned, the underlying core earnings margin rose 350 basis points to 19.8%, reflecting both gross margin efficiency and OpEx efficiency.

We did see some slight benefit from the phasing of expenses in the period.

Underlying core EPS grew 35%, and this included some benefit from the timing of tax rate.

Operating free cash flow increased 50% to JPY 55 billion, and we generated an additional JPY 128 billion of cash from the disposal of non-core assets.

As a result, our net debt to EBITDA ratio has dropped to 2.1x.

Turning now to the reported income statement on Page 6. Revenue growth was a solid 3.3% despite the negative impact of divestitures 2.9 percentage points negative and currency 0.4 percentage points.

The divestitures included the sale of Wako Pure Chemical and an additional 7 long-life products that were sold to the Takeda-Teva joint venture.

Operating profit increased 27% to JPY 195 billion, and this included 2 onetime gains: the JPY 106 billion from the Wako Pure Chemical sale, and we additionally recognized the JPY 16 billion pretax gain from the sale of an office building in Central Tokyo.

Reported EPS advanced 45% to JPY 186 per share, benefiting also from an JPY 8 billion gain on the sale of securities and a tax rate that was 6 percentage points lower than the same period of prior year.

Please note that the reported tax rate in Q1 of this year was around 27%, and we expect the full year rate to be at the same level.

Finally, and importantly, our return on equity increased 2.1 percentage points to 7.4%.

Slide 7 has the underlying P&L.

Importantly, gross profit growth was 9.4% and it outpaced our revenue growth, leading to 180 basis point improvement in the gross margin.

The main driver here is the favorable product mix which we explained back in May.

Much of our growth is driven by higher-margin products such as Entyvio and NINLARO, and at the same time, we returned a portfolio of low-margin distribution products in Japan to Pfizer.

OpEx increased 3.3% year-on-year, and this was primarily due to the higher cost of share-based compensation and higher co-promotion fees as a result of higher revenue.

In total, these 2 items accounted for 2.5 percentage points of expense growth.

In addition, we added expenses due to the ARIAD acquisition.

As such, OpEx growth was less than half the rate of revenue growth, leading to 170 basis points of improvement in the OpEx ratio.

Core earnings growth of 29% led to the margin improvement of 350 basis points.

This is a great result, and it gives us full confidence for the full year that we will deliver at the high end of our long-term 100 to 200 basis points core earnings margin target.

Core EPS increased 35% to JPY 85 per share, and this included a tax rate phasing benefit of approximately 10 percentage points.

The underlying tax rate in Q1 was 21%, whereas we expect full year rate to be around 27%.

And this full year rate of 27% is unchanged since the guidance we provided in May.

So turning to our growth drivers on Slide 8, and the story is remarkably similar to last year.

GI growth remains very strong at 23% primarily driven by Entyvio and TAKECAB.

Oncology growth was 12% with ALUNBRIG and ICLUSIG adding 6 points of growth.

NINLARO and ADCETRIS also continued to grow nicely.

In CNS, the growth of 30% was spearheaded by continued strong Trintellix performance.

Emerging markets growth was 6%, which is an improvement on the 4.5% growth we saw last year.

Interestingly, most of the growth in emerging markets is now being generated by our GI and oncology portfolios, with Entyvio and ADCETRIS both growing 85% in emerging markets.

Overall, our growth drivers were up 14.7% and now generate 61% of total Takeda revenue.

In the same period last year, the percentage was 53%.

Slide 9 shows the performance of some of our key growth products.

Entyvio continues to power ahead, with JPY 45 billion of revenue in the quarter and 45% growth, benefiting from continued expansion in earlier lines of IBD treatment as well as an increase in the number of countries where it is marketed.

TAKECAB with JPY 12.5 billion of revenue almost doubled in size with prescriptions expanding rapidly.

NINLARO grew 67% demonstrating a strong uptake in the U.S. and other countries, supported by its profile of efficacy, safety and convenience.

We launched NINLARO in Japan in May of this year.

ADCETRIS growth was up 22% driven by Japan and emerging markets.

ALUNBRIG was launched in the U.S. in May, and the launch is going very much as expected.

We have received positive feedback from health care providers on the product profile, and we have had success in coverage with no major hurdles from payers.

Trintellix advanced almost 75% year-on-year to JPY 11.1 billion, driven by very successful marketing activities and new specialist sales force and enhanced patient access and support programs.

On Slide 10, you can see that we've delivered revenue growth across all regions of the company.

The U.S. grew 13.5%, driven by Entyvio, Trintellix, NINLARO and the addition of the ARIAD portfolio.

EUCAN was up 4.6% with Entyvio as the driving force but also with a growing contribution from NINLARO.

Japan was up 1.6%, and this includes the negative impact of the return of the PREVENAR and BENEFIX products to Pfizer.

If you exclude the impact of this return portfolio, Japan's growth rate was 9%.

Emerging markets was at 6% with double-digit performance in Russia which was up 19% and Brazil up 12%.

As a result of strong performances from innovative new launches including Entyvio and ADCETRIS, China did decline in the quarter by 5% due to a temporary headwind linked to governmental health care reform which caused temporary price reductions in pharmaceuticals.

However, Takeda has every confidence in the long-term potential of the Chinese pharmaceutical market, and we expect to return to growth in China later this year.

As mentioned earlier, most of the growth in emerging markets is now being generated by our innovative GI and oncology portfolios.

We look forward to swiftly rolling out other new products such as NINLARO and ALUNBRIG in emerging markets, fully leveraging our existing sales infrastructure.

Turning now to our important R&D milestones for this year.

This is on Slide 11.

The new news includes the successful submission of rasagiline in Japan plus a Phase II rollout from pevonedistat -- excuse my pronunciation, that supports initiation of Phase III study later this year.

And this is a product that we've previously highlighted back in May, and we're very pleased with the results of the Phase II.

Also, we obtained top line data readout from the Phase III ECHELON study of ADCETRIS.

We are currently reviewing all of the data and plan to share more information at ASH in December.

For Trintellix, we did receive a complete response letter from the FDA regarding cognition.

Takeda and Lundbeck will determine next steps following the end-of-review meeting with the FDA.

However, as you have seen, we had a great quarter on Trintellix, and the CRL has had absolutely no impact on current performance and has no impact on 2017 guidance.

Let me now cover the global OpEx initiative on Page 12.

We are now deep in the implementation phase.

We launched the new global procurement policy, and that greatly increases the penetration of the procurement team.

The first quarter performance was very strong with savings of JPY 5 billion, and this is an increase of 30% over last year.

And as we said in the May call, last year's performance was already a record high.

We are also working hard on reducing consumption.

We have set targets for each cost package, and we are very focused on the high-spend areas with the most opportunity.

We are rolling out global best practices for travel, events, consultants and contractors, and together these packages make up 44% of the in-scope spend.

We are mobilizing implementation teams in each of the business units, and they will be at the forefront of leading the required change.

And finally, we on-boarded the new Global Head of Takeda Business Services who brings strong expertise and external perspective, and she will quickly develop our strategy and plans for making Takeda world class in this area.

Turning to cash flow on Slide 13.

Overall, we unlocked significant cash in the quarter.

Operating free cash flow was up 50% to JPY 55 billion primarily driven by higher net profit.

The sale of non-core assets generated an additional JPY 128 billion of cash, and this included JPY 84 billion from the sale of Wako, JPY 32 billion from real estate proceeds and JPY 11 billion from the sale of securities.

As a consequence, the net debt to EBITDA ratio has fallen from 2.7x at the end of fiscal 2016 to 2.1x at the end of the first quarter.

Turning to Slide 14.

We are also making tangible progress against some of the additional goals that we set at the start of the year.

I remind you of our commitment of increasing underlying core earnings margin by 100 to 200 basis points each year over the foreseeable future, and we also said that would be trending to the high end of that range in the near term.

Our Q1 margin performance was strong, up 350 basis points, and this gives us great confidence that we will come in at the high end of the 100-200 basis point range.

We also set goals for real estate disposals and sale of shareholdings, and we are well advanced against these 2. We are also very pleased with the July 17 appeal decision from the Federal Circuit Court of Appeals for the Velcade '446 Patent.

While there will be some opportunity on Velcade this year, it is far too early to call a number as there is still a lot of uncertainty around the future landscape.

For example, the 505(b)(2) filers are not impacted by the recent appeal decision.

We will cover this topic in more detail when we review our first half results later this year.

We completed the JPY 3.5 billion permanent financing for the ARIAD acquisition with a weighted average term of 8.8 years and an interest -- all-in interest rate of 80 basis points.

Encouragingly, the ARIAD integration continues fully on track, and in fact, we're seeing financial upside versus our business case.

Turning to our guidance on Page 15.

We reaffirm our management guidance for fiscal year 2017.

Specifically, we expect underlying revenue growth of low single digit, underlying core earnings to be mid-to-high teen and underlying core EPS to be low to mid-teen.

Our Q1 results trended above this full year guidance, and this did reflect some phasing benefits.

For example, the underlying tax rate of 21% compares to a full year projection of 27%, and this created a benefit of approximately 10 percentage points for EPS.

That being said, the strong start we have seen in Q1 gives us a lot of confidence in the outlook for the full year.

On Page 16, we also reaffirm our full year reported forecast, and this is shown at the bottom of Slide 16.

Our Q1 reported operating profit exceeded the JPY 180 billion full year forecast, but there are a number of factors at play here.

Firstly, almost all of the full year onetime income that we projected in May was booked in Q1.

This includes the sale of Wako for JPY 106 billion and the sale of an office building for JPY 16 billion.

And generally, however, that's very good news as it significantly de-risks our full year outlook.

The second factor is that the majority of our projected onetime expenses will actually occur in the remaining 9 months of the year.

This includes restructuring spending related to the R&D transformation and the start of spending related to the global OpEx initiative.

Additionally, we did not book any impairment cost in Q1 while we do have a forecast placeholder for the remainder of the year of JPY 32 billion.

So in closing, Takeda is off to a great start in 2017, and this is driven by a great balance between strong revenue growth and sizable margin expansion.

We are very confident in our full year outlook of delivering double-digit EPS growth on both an underlying and a reported basis.

Thank you for your attention.

Now we would like to take questions.

(Operator Instructions) We have a question-and-answer session now.

(foreign language) The first questioner is Mr. Yamaguchi from Citigroup.

I am Yamaguchi from Citigroup.

Do you hear me?

Yes, I do.

I have 2 questions.

All at once?

Yes.

The first question is about, at the very end, as you commented, the full year forecast and Q1 achievement level, you made explanation about these 2 items and there are some factors favorably affected in Q1 performance.

The Q1, your forecast, I am just wondering if you -- your actual performance was in line with your original forecast in Q1.

Second question is about the Velcade '446 Patent.

Based on your current projection, you don't have any specific number for the Velcade forecast, but your original forecast was based on without this rulings.

So there should be some potential risks, but are you going to revisit your forecast for the Velcade going forward?

Thank you.

It's Christophe.

I'll answer the second question, and then James will go to the first one.

On the Velcade, yes, initially our forecast was including generic launch in November 2017.

Of course, the judgment that happened is modifying its assumptions.

It does not mean that some generic could decide still to launch because not all generics at play were part of the judgment that happened.

So that's one element.

There are also some product which are NDA product.

They have different formulations, some containing mannitol, some will not contain mannitol.

The stages of this product we'll have to see what is final stages if they enter the market 1 day.

So eventually, the way I would say it is that certainly this judgment is creating a potential upside for Takeda, but it's too early for us to make a judgment on how big it could be.

And that's why James was saying that we will make a full guide when we know more about these different categories of product when we do our Q2 announcement earlier if we can but, of course, at the future announcement for sure.

And then on the how do we do versus expectations, let me take that reported and underlying are slightly different.

So we actually did project Wako on the sale of the property exactly as they were in Q1.

So the big moving pieces we expect in one.

I would say, though, the sale of securities, we came in at probably double the level of what we had originally planned.

We just decided to take advantage of market opportunities, so a very minor change, like JPY 5 billion.

On underlying, I'd actually look at it in a slightly different way.

I think we were very, very pleased with revenue continued at the same pace.

And even though there's a 1 percentage point benefit coming from acquisitions, there is a 2 percentage point hit from the Pfizer products we're giving back.

So actually, the 6% is really a 7% plus.

So we were surprised by the -- a little bit by the resilience, so it's slightly better than we expected on revenue.

And I think we had fairly ambitious margin goals in Q1, and we came in and slightly -- it wasn't an enormous amount, but every variable came in slightly better.

So we were very, very pleased with how the underlying results came in.

And I think the way we think about it on the underlying is, this means we are very, very, very confident in the full year forecast.

So it's been a great test, and I think the best way to look at this is it's a continuation of what you've seen in the last couple of quarters as well.

And I think we're getting far more data points behind us that we're delivering against transformation both on the top line and the bottom line.

And the thing I like about it most, and I'll finish with this, is it's a balanced result.

It's not coming from cost or revenue.

It's coming from both together, and that's really important and it bodes well for the rest of the year.

The next question is from Joseph Cairnes from Deutsche Bank.

Joseph Cairnes, Deutsche Bank.

I have a couple of questions actually.

Just first quickly again on the Velcade ruling, I was wondering -- I guess we'll hear more once you come up with your review results for the first half.

But at this stage, can you see yourselves adjusting the marketing strategy for NINLARO, maybe scaling that back if there's more of an opportunity for Velcade?

And then the second question for James on the global OpEx initiative, where are you seeing pushback internally on the initiative?

Have you seen the response so far?

And have you seen any change to the degree of pushback?

Because in a sense, this is a kind of cultural change in changing attitudes towards costs.

So your comments on where you are with that would be much appreciated.

Thank you.

I'll -- it's Christophe Weber.

I'll take the Velcade, and James will take the global OpEx questions.

I mean, in our mind, our long term lies on NINLARO, so this is where our strategy focus is.

And we think that NINLARO is a great product for -- with a sustained efficacy and could offer a lot to patients, especially patients who really have long-term treatment for multiple myeloma.

On the other hand, it's true if there are 2 postponement of generic entry of Velcade, it will impact somehow the market dynamic, which is actually not easy to [modelize] and forecast because generic entry will have negative combination with Velcade and as a product cheaper.

Now Velcade will be more expensive if there is no generic, and that has -- and of course, Velcade and NINLARO to some extent compete against each other.

So I think this is always back of dimension that we need to take into consideration with different potential scenario, and that's why it's quite complex because we might still have some generic entry.

We might still have some product which are copied, not really generics.

It's very difficult actually to anticipate what type of [status] and J-code that will have this product, so that's why we need a few months to analyze it more properly what is -- what the potential upside that exist with this court judgment.

Yes, and then on the global OpEx, I think I'll take it in pieces.

Let's say on procurement, you can see by the results, 30% increase in savings.

Procurement is well behind us, and there is no resistance and actually nor was there in the past, but we have taken down -- procurement is now going much deeper in the organization.

But we've seen no form of resistance whatsoever.

I think on -- then you get the GBS.

It's relatively new.

We've hired somebody from the outside, breath of fresh air to see somebody who has done this before, and her job is to enable the functions to do the right thinking around this.

And I see that as working quite well, and I see the functions engaging quite heavily with her.

I would say on consumption, this is very new to the company.

It's very new to the industry, so I think to say there's no resistance wouldn't be truthful.

There's always resistance in every company, and people resist whether they realize they're resisting or not.

But the only thing we have seen is it's just developing and rolling out some of the policies or -- are they a week or 2 later than I would have liked they are, but I think we're doing better policies than I've done in a prior life and we're thinking about it more carefully.

And I think what we're doing really well is nothing is getting done without the executive leadership being behind it.

And that's really important and I'd rather spend the time upfront getting that done right because the execution follows much, much quicker.

So my firm belief is more time spent on the development pays off in terms of excellence in execution.

So we're at that tipping point right now, so we're going to see pretty soon, but data points, we could point to the procurement savings.

And then the second one is our overheads are tracking better than planned.

So I think people subconsciously have started thinking different about cost because there's so much focus within the company.

So I'm actually quite pleased, but I won't kid around, it's a lot of hard work and it's a lot of hard work for the leadership team as well, but there's a lot of focus behind it.

Thank you very much.

We'd like to take next question.

Next questioner is Mr. Hashiguchi from Daiwa Securities.

I'm Hashiguchi from Daiwa.

I have two questions.

First question is about the Adcetris ECHELON-1 study readout.

Based on this result, Adcetris performance, what impact do you think you would get on the Adcetris performance?

Progression-free survival as a primary endpoint a 2-year improvement is 5 percentage point improvement against the standard of care and there are some views saying that it may not be sufficient.

So I'd like to have your view on this level of improvement.

The second question is that Alunbrig first-line development status.

ALTA-L1 (sic) [ALTA-1L] study, current enrollment status, based on the current enrollment, the timing of the readout at this point in time, when do you expect readout timing?

Of course it should be event-driven, but I'd like to understand the current your assumption about the readout.

Andy will cover the ADCETRIS ECHELON-1 result and then also the ALUNBRIG first-line clinical development and I might add a little bit after on the respective commercial perspective on ADCETRIS.

Thank you, Christophe, and thank you, Hashiguchi-san for the question.

This is Andy Plump.

So on ALUNBRIG, the first-line study for ALUNBRIG ALTA-1L has enrolled at a rate that far exceeded expectations.

Initially we had speculated full enrollment and last patient in at some point early in calendar year 2018.

We now either have recently had our last patient screened in or we'll have that last patient screened in within the coming days.

So it's been a really terrific enrollment and a lot of excitement around that trial.

As you mentioned, it's an event-driven study, so it's hard to predict exactly when the trial results will be posted.

But we're projecting sometime in the first half of 2018 to have top line flash results.

So we're very excited about that study.

With respect to the ADCETRIS front-line ECHELON-1 study, as you saw in the press release that we released with Seattle Genetics a couple of weeks ago.

The study was successful.

The study hit its primary endpoint with respect to modified progression-free survival with a very significant P-value, 0.3.

The ADCETRIS arm in that study performed in line with what we had expected.

Somewhat surprisingly the comparator arm of the chemo with bleomycin, from an efficacy standpoint, it's slightly better than what we had expected.

And so the result -- a 5 point -- a 5 percentage point difference was a little bit less than what we had projected in that trial.

With that said, the result is a significant result that promises great value for patients.

And there's a second piece that will come out during the presentation that will be made in ASH in December and that will be around a relative safety profiles between the Adcetris arm and the comparator arm.

In general, the overall AE profile by magnitude was similar between the two arms.

But we believe with appropriate maintenance of the main safety issue that was seen with Adcetris which was febrile neutropenia that on balance the safety profile for the Adcetris arm will prove to be better than the safety profile for the chemo arm.

So positive result.

Not exactly what we were expecting, but still something that we think will make -- provide significant value for patients.

So I think we are convinced that this combination is very valuable for the clinician and the patients and the next step for us, especially since we are commercializing ADCETRIS in Europe and other countries is to of course file, get the approval for this indication and then negotiate access and reimbursement and this is what we will focus on in the future.

And of course real-world data, continuous generation of data will continue to demonstrate the value of this combination in the future.

Next question please.

Next question is from the Mr. Seki, UBS Securities.

This is Seki.

I have 2 questions.

The first question is about Velcade.

Citizens' petition was filed to FDA.

Regarding the response from the FDA was -- you submitted and FDA said it's too early for your first filing, but this time around do you think the response will come from FDA and by November the 3rd, if there's no response from FDA regarding citizens' petition are you going to sue FDA, is that the flow?

That's my first question.

The second question about NINLARO first-line trial TOURMALINE-MM2 study, I have a -- some investors are concerned about this, so I have a question about statistical assumptions, statistic analysis 0.9 both side Alpha 5%, then PFS has a ratio assumption is what level 0.7 or 0.8, which is closer to your assumption?

I'll take the Velcade question, so to give a bit of time to answer to what kind of numbers for the second question, no, so on Velcade, yes, we have this citizen petition.

We hope that there will be a position expressed by the FDA.

We have not made any more decision on that.

So again there are many different dimension at play here including that dimension about some product -- NDA product which contain different compounds than Velcade, hence the debate about the safety of these products.

So we'll see how it plays out in the coming month.

So Seki San, it's Andy.

So we're going to have to get back to you with the details of exactly what hazard ratio we were [powered] for in the study.

The -- but I will say that -- and I haven't heard the concerns that you're suggesting from investigators with respect to the study.

In fact from an operational standpoint the study has proceeded above what we had planned.

So enrollment actually was completed 4 months ahead of our target date.

The issue right now is in terms of the readout because again it's an event-driven trial and so the readout date is pushed out a bit just based on the accumulation of events which of course we can interpret in many different ways.

But in terms of how the study is powered, we'll have to get back to you.

Next question please.

Next question is from Morgan Stanley, Mr. Muraoka.

I'm Muraoka from Morgan Stanley.

The first question is about NINLARO.

At the same time of NINLARO, DARZALEX and EMPLICITI were approved, and both of the drugs are growing very well, especially EMPLICITI, growing very strongly.

But everything can be used in the second line and later lines at the moment, and this good performance in the second line treatment means that there are some paradigm shift in the treatment in the multiple myeloma.

Do you have any information about this market change, if any?

And the second question is about the ALUNBRIG, so this time sales is just $2 million, but by when are you going to see the big jump of this drug, like reimbursement or other program can drive the sales growth?

So from which quarter ahead down the line can you have this growth from this product?

Thank you very much for the question.

Regarding NINLARO, yes, you are right, the market is really redefining itself with so many product launch.

Again the profile of NINLARO make it an ideal product for getting sustained efficacy in the long term with -- to their ability and the convenience which will allow patient to be treated in the long term.

Remember that the average duration of treatment is Velcade has been only at 6 months level.

So we never reach the ability to have long-term treatment with Velcade.

We believe that this is the promise of NINLARO to have much stronger treatment on already as a regulation of treatment with NINLARO is 9 month.

So on the other hand, you are right, there are other products which have strong efficacy especially second line and third line.

So we take a long term view in NINLARO because we would have this first line indication, we have maintenance data as well.

So in fact the data which we will provide in the future provided of course that the results are good will reinforce much better the real offer on positioning of NINLARO.

So right now we are also in second line, third line.

We are seeing a good duration of treatment, we are pleased with this 9 month in fact especially in this patient segment, but of course our product which also changing the dynamic here.

And our market share uptake has been impacted by this product, but we are still pleased by overall dynamic of NINLARO.

Regarding Alunbrig, it's also early days, but we are also very pleased by the uptake in term of reimbursement on coverage, and we will track the number of patient as well that's in the US benefiting from the product.

Again here the question earlier on the frontline, first line is very important because this is where eventually there is a very strong potential and I think this is why this trial is so important.

Next question please.

From Credit Suisse Securities, Mr. Sakai.

This is Sakai.

Do you hear me?

Yes, we hear you.

I have 2 questions.

One is yesterday you released the press release that said on PARP inhibitor license agreement; ZEJULA is the name.

It is said that this is a very good deal, but in Japan what's the development program -- in what stage are you in terms of development for cancer attack?

Maybe you can mention where you are in developments if possible.

That's my first question.

And then related to that Merck and AstraZeneca are collaborating in I-O combo or combination therapy is in progress.

If IO combination in Japan is possible, do you have the right to use this product in Japan for IO combination?

That's the first question.

And then the second is Takeda Teva situation.

We know on these industry journals and release, 100 items discontinued after April.

Teva price are getting difficult.

We often hear those reasons, and where you establish Takeda Teva joint, you did due diligence in stable supply is okay, that was document from Mr. Iwasaki.

What's happening?

Can you explain the situation from -- Christophe, can you explain Takeda Teva joint venture situation?

The way it is going maybe you would have to post impairment loss?

Yes, Sakai San, thank you very much for the question.

This is Andy Plump again.

So we're very excited about the partnership with TESARO.

Niraparib is we believe the best-in-class PARP inhibitor and we think it has tremendous opportunity for patients in Japan and then for emerging market regions that we also have rights for the product.

And your question was around stage of development, so it's at stage 1. So we're going to be starting in the near future Phase I studies in Japanese oncology patients for dose-ranging and then rapidly progressing to what we expect to be pivotal studies.

The first indication that we'll pursue will be ovarian cancer and based on the global dataset with niraparib, we're optimistic that we'll see response not only in patients who have defects in homologous recombination repair such as patients with germline BRCA mutations or with biomarker identified defects in homologous recombination repair, but also in patients who have wild-type BRCA and don't have evidence of homologous recombination repair.

So we believe that the potential for efficacy across all comers with ovarian cancer, this will be platinum-sensitive patients, is quite high.

We're also interested and we'll in all likelihood pursue indications beyond ovarian cancer, including prostate cancer, castrate-resistance prostate cancer and also in breast cancer.

Your question around combination therapy with checkpoint inhibitors, so of course we have the ability to run those studies and in the TESARO pipeline are their proprietary PD-1 inhibitors.

Now whether the biology and the science is strong enough to suggest that that combination will be efficacious, we'll have to wait and see and we'll make decisions together with our partner TESARO as to whether or not that would make sense.

As 2 asides, there are over 1,000 combination studies going on with PD-1 inhibitors right now and from my perspective I think a lot of these studies are just empirical in terms of their mechanistic rationale.

So of course, we'll see what happens.

The second is a bit of irony, which is that it's very interesting how things work in our business.

The same day that Merck and AstraZeneca announced their collaboration and we announced our partnership with TESARO, ironically the TESARO PARP inhibitor niraparib was in-licensed from Merck several years ago.

So it's just so difficult to predict in our business what's going to work and what's not going to work.

On the Teva Takeda joint venture, we did the due diligence at the time and we knew of the challenges, some quality issues especially linked to historical portfolio that Teva required at the time in Japan.

So here one should ask directly the head of the joint venture, but it's better if there are some products which are -- some features that will put sustainability of supply always in question.

It's probably better if there are other product available on the market to make a decision because I think it's very important that the joint venture progressively established a reputation of reliability of supply and that's really what is behind this withdrawal of product.

The supply was probably not reliable enough because of quality issues, especially stability and it's much better to not -- to anticipate that instead of all the time having some release issue which will jeopardize the stability of supply.

There is no potential impairment at all risk, I think for us it's there -- and again it's not something that we didn't potentially anticipate at the time.

If there is an impact it will be on the equity income -- at the equity income level.

Next question please.

Next questioner from Mizuho Securities, Mr. Tanaka San.

I'm Tanaka from Mizuho Securities.

Do you hear me?

Yes.

This is very simple question.

Only 1 question.

According to the data book, Page 3, you showed the Japanese ethical product sales and 10% growth year-on-year.

But underlining it is 1.6% growth and according to your presentation, excluding Pfizer returned product, it will be 9% growth.

This 10% in data book was impacted by the IP increase and is my understanding correct and is it that transient impact from IP?

You are referring Page 3 of the data book.

Let me try that.

It's -- there's a gain on -- yeah, we were taking out many impacts from divestitures.

So there's divestitures impacts impacting the Japanese business on a reported basis.

On a like-for-like taking divestiture impacts out of both tiers it reduces to 1.6%.

Now, included in the 1.6% is approximately 7 percentage point impact -- negative impact because of return of portfolio to Pfizer.

But the reason why the divestiture impact has a positive impact is, when we sold the 7 LLP products to Teva, we booked 50% of the gain on the revenue line, that's the accounting treatment because it's a joint venture.

So you have this strange impact in Q1 in Japan.

There's a positive impact coming from divestitures because it's 50% of the sales price.

Then we take that out because you can't take credit for that on an underlying basis to get to the 1.6%.

But bear in mind the 1.6% is not reflective of the strength of the growth in the marketed products in Japan and those products are actually growing double-digit.

So we're actually very happy with the Japanese performance.

The next question will be the last one because of the time limitation.

From [Kanagawa Newspaper], Mr. [Nakao] please.

[Nakao] from [Kanagawa Newspaper] . I have one question.

In the first quarter, SCOHIA PHARMA carve out and AXCELEAD was established ensuring the research area there are development regarding reorganization.

And as of now, can you explain the status and progress of Shonan Research Center and what's going to be the mission for that organization and what's your outlook going forward?

So yes, [Nakao-san], it's Andy Plump.

So as we've been communicating during the R&D transformation that we've been undergoing for the past year-plus, our R&D organization will have 2 main centers, 1 in the U.S. and 1 in Japan.

In Japan, we will have a development center that will be based in Osaka where it's currently based and a research group that will be based in Shonan Research Center.

As we said, Shonan Research Center is a truly remarkable state of the art research facility.

From my perspective, it's as impressive as any research facility in the world.

It's never achieved its full capacity.

In fact, its peak been only 40% to 50% full, and with this transformation, slightly less.

As we thought about how to firstly derive the most value from this incredible institution, and secondly, as we thought about the opportunity that we had to really drive innovation.

In Japan, we conceptualize a model that included building the Shonan Research Center out into an innovation park and we are now fully committed to doing this.

We named it SHIP, Shonan Health Innovation Park, and we're at the very early stages of now building out that concept that will take several years to materialize.

We're in the process of building a management team to lead that.

We're in the process of with outside partners putting together a venture fund to support innovation that would be based in Shonan.

And we're in the process of building entities such as [Kohea], such as AXCELEAD.

In the very near future, we'll be announcing another entrepreneurial spin-off and then others in the future that would become ultimately tenants of what we expect will be a very vibrant open innovation center.

Now there's risk in doing this.

Today, Shonan is not a thriving biotechnology ecosystem.

But we believe with the building that exists there, the opportunities in that building, the infrastructure that we currently have and the thirst in Japan to really drive innovation in healthcare that that will be successful.

Thank you.

With this, we are closing the conference call.

Thank you very much for your participation.

Thank you for taking time.

And that concludes today's conference call.

You may now disconnect your line.