Takeda Pharmaceutical Co Ltd (TAK) 2018 Q3 法說會逐字稿

The discussion during this call will include forward-looking statements that are subject to the risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements.

The voluntary takeover bid regarding TiGenix referred to on this call has not yet commenced, and this call does not constitute an offer to purchase securities of TiGenix nor a solicitation by anyone in any jurisdiction in respect of such securities, any votes or approval.

If Takeda decides to proceed with an offer to purchase TiGenix securities through a public tender offer, such offer will and can only be made on the basis of an approved offer document by the FSMA and tender offer documents filed with the U.S. Securities and Exchange Commission, which holders of TiGenix securities should read as they will contain important information.

(Operator Instructions)

This conference call is also being broadcasted live through the Internet but only for listening mode. Now we'll start the conference. Mr. Okubo, please go ahead.

Thank you very much for joining our consolidated financial results announcement for FY 2017 Q3 despite your busy schedule.

Let me introduce today's participants from our end: President and CEO, Christophe Weber; Chief Financial Officer, James Kehoe; and R&D Pipeline Strategy Head, Christopher Morabito. Those are 3 people joining from us.

First, we will have the presentation from James Kehoe, CFO of Takeda, regarding the overview of consolidated financial results for Q3. We will take questions after his presentation. Please refer to the presentation materials at your hand while you are listening to his presentation.

Okay. Thank you, Takashi, and hello, everyone. I'm pleased to report that our strong performance has continued into the third quarter. Firstly, we've continued to make solid progress against our 3 key priorities: Grow portfolio, rebuild pipeline and boost profitability.

And this progress is clearly visible in the results. Both profit and revenue growth was strong with year-to-date underlying revenue up 6.7% and underlying core earnings growth of 32%. We delivered double-digit EPS growth on both an underlying and a reported basis with underlying EPS advancing 25% versus prior year.

Importantly, cash flow continues to do well, also up 25% compared to the previous year. We are raising our full year guidance, and we now project core earnings margin expansion of approximately 300 basis points, an increase of 100 basis points versus our prior guidance.

Turning now to Slide 5. Let's review progress against our key objectives. First, grow portfolio. Year-to-date operating revenue grew nicely at 6.7%, exactly the same as the first half growth rate. Our growth drivers continued to power ahead at 14.5% growth with strong performance from our key growth products. We recently announced our intention to acquire TiGenix. And this deal would expand our leadership in GI and strengthen our presence in the U.S. specialty care market.

We also made solid progress on rebuild pipeline, progressing 13 stage-ups so far in fiscal 2017. You can see these stage-ups in the appendix on Slide 22. And we have also entered into 33 new collaborations. And this is indicative of our model for creating an innovative network with external partners.

Boost profitability is very much on track. Our core earnings margin improved by an impressive 390 basis points versus prior year to 19.9%, thanks to both gross margin expansion and OpEx efficiency. And as I mentioned, we are raising our full year reported and underlying guidance to reflect higher VELCADE sales and select other noncash items relating to the Teva joint venture and recent U.S. tax changes.

On Page 6, you can see our reported income statement. Revenue increased 4%. And that's made up of 6.7% underlying growth, a favorable currency impact of 3.4 points. And these were slightly -- partly offset by 5.9 percentage point negative impact from divestitures. The major impact on divestitures was the divestiture of Wako, which impacted sales negatively by 4.8 points.

Operating profit was up 48% to JPY 322 billion, mainly driven by core earnings growth of 28% but also benefiting from lower impairment costs and higher other income compared to the same period last year. Amortization and impairment expense was JPY 15.8 billion lower than last year.

On one side, amortization was, in fact, JPY 19 billion higher compared to last year. And this was entirely due to the acquisition of ARIAD. But it was completely offset by lower year-on-year impairment charges of JPY 35 billion due to a favorable reevaluation of our COLCRYS business in the U.S.

Other income expense was JPY 25 billion favorable compared to prior year. There are multiple factors that play here. And it includes the recent recognition of a JPY 21.7 billion gain relating to the acceleration of a deferred gain on the transfer of long-life products to the Teva JV. This favorability was triggered by an offsetting entry in equity earnings. And I'll cover this later.

EPS growth advanced 45% to JPY 309 per share with the growth broadly tracking in line with the growth in operating profit. But here again, there are a number of puts and takes. As I mentioned, equity earnings are lower as we booked JPY 35.7 billion as our share of an impairment loss at the Teva JV.

In Q3, we also booked a onetime favorable tax impact of JPY 25.1 billion as a result of the remeasurement of our deferred tax liabilities to reflect the new lower U.S. tax rate. So there are a lot of complex moving pieces. However, the key message is that core earnings are increasing 28% and the underlying business performance continues to perform very strongly. Finally, we are especially pleased to see a 3.6 percentage point increase in the return on equity compared to prior year.

Let me now walk you through the underlying P&L on Slide 7. Underlying revenue growth was up 6.7% with gross profit advancing 10%. Favorable product mix led to gross margin expansion of 2.3 percentage points, driven by our higher-margin growth driver products and the end of distribution of some low-margin third-party products in Japan.

Operating expenses increased 3.5% versus prior year, still tracking well below the revenue growth rate. Cost discipline and savings from our global OpEx initiatives were key contributors.

Furthermore, included in this number is the impact of higher share-based incentive plans that have increased, thanks to the higher share price, and co-promotion expenses that move in line with increased revenue.

Excluding these 2 items, our OpEx growth was only 1.4% versus prior year. Additionally, included in the 2017 result are incremental overheads relating to the ARIAD acquisition. Excluding ARIAD, our total company overheads declined by approximately 0.7% versus prior year.

In summary, underlying core earnings growth of 32% was driven by a combination of strong revenue growth, favorable product mix, and disciplined OpEx management. This led to a 390 basis points improvement in core earnings margin. Underlying EPS growth was 25%, slightly slower than our core earnings growth due to a higher tax rate compared to the prior year period.

Slide 8 provides an update on our growth drivers, which continued to post growth in the mid-teens. GI advanced 23%, primarily driven by 38% growth of ENTYVIO and 70% growth in TAKECAB.

Oncology growth was 13.8% with ALUNBRIG and ICLUSIG adding 7 points of growth. NINLARO and ADCETRIS are growing nicely.

In neuroscience, growth of 26% was spearheaded by TRINTELLIX in the U.S.

Emerging markets growth was 1.9% with a strong performance in Russia and Brazil being offset by recent headwinds in China and a onetime adjustment in the Middle East.

While we are not happy with emerging markets' performance, the majority of the impacts are temporary in nature. And we expect improved trends in the coming quarters.

With regards to China in particular, we are fully supportive of the government's healthcare reforms. And we believe that over time they will accelerate and reward innovation. In fact, Takeda aims to launch 7 innovative products in China over the next 5 years.

Slide 9 shows our 6 key growth products. As mentioned, ENTYVIO continues to power ahead with JPY 146 billion of sales in the 9-month period and growing 38%. We still see a strong overall market share dynamic with ENTYVIO capturing approximately 25% of new biologic starts in UC patients in the U.S. The global rollout of ENTYVIO also continues on track with the UC submission filed in Japan and a Phase III study underway in China.

TAKECAB is growing rapidly in Japan. But as you may be aware, TAKECAB will be subject to a special price cut in April due to the market expansion of a competitor. The exact amount of the price reduction has not yet been announced.

NINLARO continues to display solid market uptake, growing 58%. We look forward to several important data readouts on this product over the next 12 to 18 months.

ADCETRIS maintained its attractive growth profile. And in Europe, we were recently approved in a new indication. And we have also filed in Europe for frontline Hodgkin lymphoma.

The ALUNBRIG launch is ongoing and TRINTELLIX continued to grow strongly on the back of successful marketing initiatives.

Turning now to our key geographies on Slide 10. The U.S., which is our biggest market, grew 17% with the performance led by ENTYVIO, TRINTELLIX and NINLARO.

The addition of the ARIAD portfolio contributed 4 percentage points to the growth rate. EUCAN growth was 4.9% with ENTYVIO growing 41% and ADCETRIS up 10%. NINLARO is now reimbursed in 9 European markets. Japan was up 1.3%. However, this includes the negative impact of the return of the PREVENAR and BENEFIX products to Pfizer. If you exclude the impact of this returned portfolio, the Japan growth was 8.4%.

Turning now to Slide #11. Last time around, we presented some insights on consultants and contractors, which was 1 of the 11 cost packages being addressed as part of the global OpEx initiative.

Today, I will briefly cover travel and internal events, which accounts for around 15% of the total in-scope spend. The benchmarking exercise revealed that we ranked in the bottom quartile compared to the peer set. We discovered that roughly 50% of business trips were booked less than 2 weeks in advance and that 15% of the stays were not at preferred hotels.

So what have we done? Last October, we rolled out a new global policy for travel and events. And we are already seeing a sizable cost reduction impact with a notable improvement in compliance. We have also consolidated the majority of our global travel agencies. And we've seen a big increase in virtual meetings. We recently completed our 2018 budgeting process for this cost package. And we have identified initiatives that will reduce the overall spend by more than 30% versus 2016 baseline. We expect to capture the majority of the savings by the end of the 2018 fiscal year.

Moving now to cash flow performance on Slide 12. Operating free cash flow grew 25% to JPY 152 billion despite higher cash flows for the acquisition of assets. For example, the acquisition of assets includes an JPY 11 billion upfront licensing payment to TESARO as we build portfolio for the future in Japan. We have also seen good performance in trade working capital with the cash conversion cycle improving by 4 days versus last year.

The sale of noncore assets has generated an additional JPY 143 billion of cash so far this year. You will recall that this number was JPY 131 billion at Q2. And since then, we have generated an additional JPY 7 billion from the disposal of cost shareholdings and JPY 5 billion from the further sale of real estate. The details can be found on Page 36 of the appendix. As a result, our net leverage has improved steadily with our net debt-to-EBITDA ratio now at 1.9x compared to 2.7x at the end of last year's fiscal year-end.

Turning now to Slide 13. We have updated our full year guidance for material items only. Firstly, we are increasing our VELCADE sales forecast by JPY 25 billion to JPY 131 billion. Although a competing product has been launched by Fresenius, it has been classified by the FDA as not therapeutically equivalent to VELCADE. In addition to Fresenius, we are aware of 2 other applicants with products that do not contain mannitol. To our knowledge, they have not received approval and we cannot speculate as to when the FDA may make a decision. As such, we are unable to comment on the potential fiscal year 2018 upside.

In addition, our fiscal 2017 is impacted by 2 noncash items. Firstly, the standalone Teva/Takeda JV recorded of onetime noncash impairment charge in Q3. And this resulted in a JPY 35.7 billion negative impact in Takeda's equity earnings. However, this was mostly offset by the realization or acceleration, if you like, of a JPY 21.7 billion deferred gain from the long list of products that we transferred to the venture. This was booked in other income in Q3.

In Q3, we also booked a onetime favorable tax impact of JPY 25 billion as a result of the remeasurement of our deferred tax liabilities to reflect the new lower tax rate in the U.S. However, the U.S. tax changes necessitate some adjustments in how we operate. And we do expect to recognize a cumulative foreign currency translation adjustment in Q4 as we adjust our sources of financing. We currently expect a onetime noncash negative CTA impact of around JPY 25 billion. But obviously, the final impact will depend on the spot currency rate on the date we implement the changes. But as such, in total, the impact of the U.S. tax legislation is effectively 0.

Turning to Slide 14. This shows now the implications of these 3 items on our underlying guidance, which we have revised upwards to reflect only the VELCADE forecast. Underlying revenue increased to some low single digit to mid-single digit. Underlying core earnings increased to some high-teen, high 20s. And our underlying core EPS growth increases from mid-teens to mid-20s. We now expect full year underlying core earnings margin expansion of approximately 300 basis points compared to our prior guidance of around 200 basis points.

Moving now to our reported forecast on Slide 15. This chart shows the changes between our previous forecast on November 1 and our current forecast. We now expect full year core earnings of JPY 289.5 billion. And the increase is entirely due to VELCADE. Within other income/expense, our forecast includes the items we mentioned before, namely JPY 21.7 billion favorable from the realization of a deferred gain from the Teva LLPs and the assumption of a negative JPY 25 billion currency translation adjustment.

As a result of these factors, our forecasted operating profit is now at JPY 218.7 billion, an increase of 9% compared to our previous forecast. Obviously, our net income is also impacted by the 2 additional factors we mentioned earlier: firstly, lower equity earnings as a result of the impairment within the Teva JV; and secondly, the positive impact from the remeasurement of our deferred tax liabilities. This leads to a revised EPS forecast of JPY 201, which is 3.5% higher than our previous forecast.

Slide 16 shows how this plays true in the growth profile versus prior year. We now expect year-on-year revenue growth on a reported basis of 0.7% and a strong 18% increase in core earnings. This result is achieved despite the sizable negative impact of divestitures. Divested businesses, which is principally Wako, have negatively impacted the revenue growth by 6.3 percentage points and our core earnings growth by 14 percentage points.

Operating profit will now increase 40% versus prior year. And EPS will increase 37% to JPY 201 per share. The operating profit growth, as I mentioned, reflects strong growth in core earnings, lower impairment charges and higher onetime income. For your reference, we have once again included our assumptions for all the key items. Please note that with the exception of the items mentioned on the previous slide, we have not changed any other items.

We showed Slide 17 last time around. And some of you may have found it useful to help you understand why the full year operating profit is lower than the operating profit delivered in the first 9 months of the year. The first key driver is that all of the onetime gains on asset disposals have been booked in the first 9 months of the year. And we do not expect any material items in the fourth quarter. Secondly, as mentioned earlier, we booked a JPY 21.7 billion deferred gain on Teva LLP. And finally, our onetime expenses are distinctly skewed to Q4.

For example, our impairment year-to-date due to COLCRYS is actually favorable, JPY 15 billion. And we still project negative impairment in Q4 because we still haven't completed our annual impairment testing. Additionally, in Q4, we will be negatively impacted by the currency translation adjustment of JPY 25 billion. So there are a lot of moving pieces, and I do realize this is a lot to absorb. But hopefully, this chart is helpful as you try to understand the reported results.

Slide 18 provides an update on some of the other key goals that we laid out at the beginning of the year. Firstly, we now project core earnings margin expansion of approximately 300 basis points. With regards to real estate disposals, we initially stated an objective of unlocking JPY 60 billion of cash over an 18-month period. But with the announcement last December that we will sell our Tokyo headquarter building for JPY 49.5 billion, we now expect total proceeds to be at least JPY 81.4 billion. The sale of the Tokyo headquarters will be completed in Q4 of fiscal 2018.

With regards to the disposal of securities, we had previously announced a target to unlock JPY 70 billion of cash over 18 months. Year-to-date, we have sold JPY 21.5 billion. And we are now revising the objective upwards to JPY 80 billion, again over the same 18-month period. The P&L impact of the disposals of securities will be a JPY 30 billion gain in fiscal 2017. However, as I mentioned on the last call, there will be no P&L gain reported in fiscal year 2018 due to a revision of IFRS accounting rules.

In summary, on Page 19, we are very pleased with our performance in the first 9 months of the year. And we are making very good progress against our 3 key priorities of grow portfolio, rebuild pipeline and boost profitability.

We delivered strong revenue and profit growth in the first 9 months of the year with underlying core earnings up 32% and underlying core EPS up 25%.

Our cash position also continued to improve, benefiting from both improved operating free cash flow and the sale of noncore assets. Finally, we are raising our guidance for the full year on both an underlying and a reported basis.

Thank you for your attention. And we look forward to taking your questions.

Now we'd like to take questions. We would like to take questions from both Japanese and English lines simultaneously. Please go ahead.

(Operator Instructions) The first questioner is from Mr. Seki, UBS Securities.

I'm Seki from UBS. I have 2 questions. The first one is about the tax strategy of your company. It consists of 2 parts, one of which is this year's impact. You said that it is almost 0 impact this year. But in the mid-term, what is the tax rate guidance? Is it going to be changed based on this tax reform? And another one is CTA, currency translation adjustment, realization of CTA. Is that because you made a decision to divest U.S. subsidiary? What is the cause of this? And the second question is about reported base operating income. Underlying, of course, is important that what I understand greatly that if it goes as it is, there are many special factors this year and the next year's reported base operating income would be lower than JPY 1,000 oku or JPY 100 billion. So to what extent as CFO you have an intention to take care of reported base operating income next year?

Okay. So thank you, Seki-san. I think that was actually 3 questions. So I'll take them one by one. So tax strategy of the company, so this year's impacts are entirely onetime in nature and are noncash. So you reflect your deferred tax liabilities at a different rate. And we have the CTA, which I'll come back to. Previously, if you recall, we said that our medium- to long-term guidance for reported and underlying tax rate is mid-20s, so call it somewhere between 24% and 26%. As we assess the implications of the U.S. changes, if we didn't make any changes to the way we operate, the overall impact of the U.S. rates would actually be negative. So despite an improvement in the U.S. rate, the U.S. has put in provisions called BEAT provisions, which actually tax -- put on an incremental tax on related party transactions. However, with the adjustments we plan on making in the next 3 months, we expect the long-term impact of the changes to be slightly positive to the tax rate. And I do caution you though, we will give proper guidance in May. We see it right now as maybe 1% or 2% improvement, so instead of 24% to 26%, take it down 1 to 2 points but the legislation in the U.S. hasn't been fully qualified and codified into law yet, so there might be some adjustments. So the general trend is if we take the right actions, it's slightly positive. If we haven't taken the right actions, it would have been slightly negative. So let's call it the strategy. The CTA is -- theoretically, it's not the divestment of any subsidiary. We have intracompany loans between various affiliates. And we're capitalizing one of the loans. And as we capitalize the loans, we need to eliminate the intracompany financing. Now when the financing was put in place, it was put in place when the exchange rate was JPY 117. Now the exchange rate is JPY 112. And all of the currency adjustments that were in retained earnings are reflected in your net income. It's a onetime noncash, it doesn't affect economic value, and it's just complicated accounting. And so it's onetime, doesn't repeat, and it's basically restructuring where we fund our entities from. Your last question was a more complex one because we're not providing guidance for next year. That happens in May when we get the same questions every time. You asked more about the role of the CFO. I actually would go one step further and say the role of the CFO is not to focus on underlying or reported or cash, it's to focus on all 3 at the same time. So we're very diligent in ensuring that there's consistent focus on -- and I would say, actually the primary role of the CFO is cash-based. So how do you translate all profit, whether it's reported or underlying, into realizable cash and value for investors? So that's the role. There are a number of large onetime items in 2017. There are also items that are going in a different direction. So we saw today that there are some impacts from Teva that are negative. So I think you don't -- you shouldn't look at this too narrowly as only the positives. And then what I would say is we do have -- we did announce already that, for example, we're selling the building -- the headquarter building in Tokyo for JPY 49.5 billion. That's one example of actions that will improve the profile next year. But we're not giving guidance for next year. I think your question is a good one, though. I would say the group finances, I would say, at least equally focused on the reported result as it is on the underlying result. But I would caution people on the phone as reported results can be full of items that we just talked about. Noncash CTA adjustments, they have no economic value and they're not sustainable long term. That's why underlying results are a valuable indicator of the long-term earnings potential of a company. And if you look at our results this year, to be growing your underlying earnings by 30%, it's a pretty spectacular achievement compared to all of the peer set. So I would actually draw your attention to maybe compare reported -- you could compare our reported results or our underlying to the peer set. And our job as a company is we want to -- and I will finish on this, we have committed as a leadership team to sustainable margin improvement over a long period of time, and think 5 to 7 years. And that's what we commit to and that's our job as leaders to find solutions. But we won't get fixated on selling stuff just to hit a number. That's not our job. We need sustainable improvement in the operations of the company and sustainable profitability. So I hope that answered it sufficiently.

Next question is from Citigroup, Mr. Yamaguchi.

This is Yamaguchi. I should mention my questions upfront. The first question is global cost initiative -- global OpEx initiative. You explained the content and activities. After Q2, JPY 10 billion was the cost-saving amount. You had specific numbers. And up to Q3, what's the improvement? How much more can you add as savings? Can you explain that? That's my first question. The second question is for emerging markets. You mentioned China. For the short-term revenue, it has been declining. In terms of the timeline, when would that hit the bottom? Do you have a focus regarding the bottom hitting? That's my second question. The third question is related to M&A, maybe a bit complicated. This is about TiGenix, the product manufacturing, and the U.S. filing. Do you have a good plan or ideas? In the beginning of January, there was a conference, and manufacturing may be an issue. I think Andrew Plump mentioned that. So those 3 questions, please.

I'm not quite sure on the global cost initiative because we haven't reported any specific savings associated with it. I don't understand. We haven't reported any cost savings associated with the global initiative. What we've committed to is the reason we're spotlighting contractors and consulting and travel and events is we want to give you confidence that our margin goals are founded in real programs that deliver real results. And the proof is in the pudding. So our margins are up 390 basis points. We said at the beginning of the year, it will come from improved product mix. And you can see it. It's probably slightly ahead of our expectations. At the same time, the OpEx as a percentage of revenue is significantly down. And don't underestimate the challenge, I brought you through numbers, where I said, the face of the P&L has 3.5% increase in overheads. You strip out 3 items that are driven by acquisition, revenue growth or the share price. And our actual overhead is 0 or near, down 0.7%. That's spectacular, given the 6.7% top line growth. And that's what's driving the leverage. So I think one of the things I did say at the beginning of the year is I'm actually not willing to start a large episodic program that we put out a big, bold objective and say, "We're saving $1 billion." Our commitment is to show you that the money flows in the P&L. So I think -- and I think you can clearly see it in the quarter. Emerging markets, it's a good question on China. I hate to say it, but I think the bottom is actually this quarter. But I think it's going to be a slow improvement. We're expecting it to return to flat probably next quarter or the one after and probably end up with growth next year. And this was a combination of factors. There's lots of change in the Chinese market. Some of it is negative in the short term, but we believe the long-term outlook is very positive. So the negative is they eliminated 2-tier invoicing system that takes a lot inventory out of the system. It hit us very, very hard. And then there's promotional changes and new focus on generics. There's bidding at a regional level. And that's challenged some specific products. Now the future is a lot brighter because one is we have a new general manager in the business. He's taken a hard look at the operations. Two is we have an extremely -- we have a very exciting innovation pipeline in China. And one of the big changes they have made in China is the speed at which they will approve new and innovative drugs. And for a company that has a lot of products ready to launch, this is really, really positive. So I'm inclined to think, Yamaguchi-san, that the bottom is in and around now or in the next quarter. And then thereafter, we see an improved trend. And then we have, over a 5-year period, 7 product launches. But we will get this business back on a very fast growth track. We're very convinced that you have to be successful in China to be successful overall as a pharmaceutical company. And then on TiGenix, I think the comment Andy made was more about, if I recall correctly, that one of the advantages of the TiGenix was it was bringing a new type of manufacturing into Takeda that we've never done before. But at the same time, as a company, TiGenix didn't necessarily have all the capabilities to get it up by themselves. So this is a little bit us bringing value to them, but them bringing new manufacturing technologies to us. I don't think we find it risky or daunting. It's just that it's new. And like anything with new, there will be a bit of a learning curve. I would say that the 2 of us -- the 2 companies, if the deal is consummated, the 2 companies working together will deliver a much better result than working separately. So we're not particularly concerned on this at all. And we're actually very excited by the acquisition. And I don't know, does anyone want to add anything?

The next question is Mr. Joseph Cairnes from Deutsche Bank.

I just have one question. I was looking at the ENTYVIO sales in the U.S. And the number was flat Q-on-Q there despite a slight FX tailwind and a 4% price rise pushed through in October. And I'd just like to get your view on what's happening in the market there? And then I guess, the outlook for ENTYVIO, should we be relying on prices rises for sales growth going forward until the subcutaneous option becomes available? Or how should we think about that?

I'll take a shot, and then maybe I'll ask Christophe to weigh in if I get something wrong. So I would give you a couple of things is one is we're, first of all, committed to single-digit pricing. So our answer on, is we're going to rely on pricing for ENTYVIO growth? The answer is no. Well, I did draw attention to it, maybe it wasn't clear earlier in the presentation. Our share of naïve patients is growing and we captured 25% of new entrants. So actually, I would say that the growth you're seeing now is all coming from market share. We're not pricing heavily. I have a hypothesis. I'm not sure of the exact numbers you're looking at. I have a hypothesis on why the quarter looks like it didn't advance. We actually had some inventory build in the first half and some of it is still in the system. So my inclination to understand is actually Q2 year-to-date probably had some benefit from favorable inventory. And we're actually working some of that higher inventory out of the system. And it will be out of the system by the end of the year. And it's just a couple of days, it's nothing significant. But I think that's what might be driving some of the numbers. We're actually very encouraged by the market share trends, especially in the U.S. So we're not at all concerned. I don't know, Christophe, if you have...

No, it's a correct answer. All our market share by segment are increasing actually. If you look at bio-naïve, bio-switch, the overall market share, we track it quarter-by-quarter and it's increasing. So I think the dynamic is very strong in the U.S. I think there has been some stuff movement, that's what happened. And we don't rely on price increase. We do -- we are on a low single digit on the net base actually. So that has been our policy for a couple of years now. So I think it's all volume-driven.

And actually, we're very pleased. I think if you saw the numbers, we're extremely pleased with the overall performance of the U.S. business, which was up mid-teens. And it's not just ENTYVIO, it's TRINTELLIX, NINLARO in the U.S. So it's across the board. Even our general medicine portfolio is stronger. And it's just a great story right now in the U.S. And we think it will continue.

From Daiwa Securities, Mr. Hashiguchi.

Hashiguchi from Daiwa Securities. My question is Teva JV and accounting treatment. You have impairment and also profit, so positive and negative impact. What happened and what contributed to those plus and minus, especially for transfer gain -- deferred gain? It was not expected, but you have this number. Why is that so? And going forward, do you expect similar impact from the Teva joint venture? Can you explain?

Yes, it's actually a good question. It's quite complex actually. So first of all, we have 49% of the venture. We have 2 seats on the board, but the operational decisions are taken by the joint venture. During the course of Q3, they looked at their future projections and have taken an impairment at their decision. We don't make these decisions. And the JPY 35 billion negative impact that's in our equity earnings as a negative impact, that's our portion of the total impairment that they took. And I can't give you their number because that's their confidential information. But it was substantially larger. So we have to take 49% of the impairment because effectively what we report in equity earnings is 49% of the after-tax income of the venture. So that's the first piece of the accounting. Now when we set up the venture originally back in 2016, you'll recall that we reported a gain on the creation of the venture of approximately JPY 1,000 oku. The actual gain was JPY 2,000 oku and the accounting treatment is 51% -- no, 49% of the gain gets reflected in the current results. So we reported a gain of JPY 1,000 oku. And the other JPY 1,000 oku is deferred over a 15-year period in our income statement. So each year, that JPY 1,000 oku is divided by 15 and it's reflected in the income statement of our company. But because Teva generated an impairment charge, you actually then need to match up the impairment charge with the deferred income. So effectively, the deferred income follows the same flow as the impairment. And I'm oversimplifying this. So what this effectively means is that we've now reset -- we've reset our future deferred gains to be aligned with the current value of the JV. So my assumption on all of this actually is that -- my impression, but it's not fact-based, is that they've taken quite a conservative position. And I would not expect similar impacts in the future. And I do say they're noncash impacts. We're actually very committed to the venture. As I said, we have 2 seats on the board. But that doesn't make us uncommitted, we're very committed. They're the #3 generics player in the market, so their strategy is working. And we're quite happy with their leadership and management of this. And we don't see particular negative surprises. But let's face it, the Japanese pricing environment is a lot tougher than it was 1 year ago. So it is -- it shouldn't be a surprise to anybody on the phone that many Japanese companies have got to look at the future and say, "What's the realizable pricing in the market?" So I guess that's the scenario that the Teva JV went through in Q3. So we're not concerned about it because the net impact on our income statement was reasonably marginal. It's a well-managed company. It's got a #3 position. We think they will be successful long term. So we're not uncomfortable on this. But it's a good question. But it's -- we have put a chart on Page 33 in the backup. And we do realize that the Teva JV accounting is extremely complex, difficult to understand. We've put in a chart with all of the pieces in Page 34. So maybe you can take a look at that.

The next question is from Mr. Kohtani from Nomura.

This is Kohtani, Nomura Tokyo. So the first question is on VELCADE. I think you guys are now projecting JPY 131 billion. And I'm assuming that this contains obviously the non-U.S. portion. So as you strip that out, I think this comes out to be something like JPY 105 billion in the U.S. And I think James mentioned that there is some unclarity in terms of the generic entrants. We already know that Fresenius Kabi has entered with a 505(b)(2) generic. But I think you mentioned that there are 2 nonmannitol-based products. And what we want to understand is that, first of all, if you don't use mannitol, doesn't that mean that it's going to be a 505(b)(2)? That's number one. And number two, I don't really know of any 505(b)(2) application aside from Fresenius. Is it wrong? And number three, the generics that doesn't use mannitol, is it intravenous or subcutaneous? That's the first -- sorry, it's a three-part question. And the second question -- second last question is I'm trying to understand the future of pevonedistat. Obviously, you guys have started a Phase III trial. And we're trying to figure out whether it has -- if you're doing it in high-risk MDS, high-risk AML? Is there an opportunity for -- to expand this label? Or is this pretty much it for pevonedistat? And finally, I guess, one last thing, MEDI1341 is an alpha-synuclein antibody. It's already entered Phase I. And I think you have a collaboration with AstraZeneca. I don't see this in the pipeline. Is it simply because AstraZeneca is still conducting Phase I? Those are the 3 questions.

Okay. I'd just give you some quick perspective on VELCADE. You'll recall at the last call, we said we were trying to assess the opportunity on VELCADE. And last time around, our assumption was that we would have 2 505(b)(2) competitors in the market during the course of November. That was our assumption. And what's happened is Fresenius, which is one of those, entered the market, but didn't get equivalence. So that's a favorability versus our prior assumption. Our prior assumption was equivalence. There are 2 other companies: One is InnoPharma, part of Pfizer; and the other one is Dr. Reddy. And they're both 505(b)(2). And we have no knowledge as to their replication process. And we have no knowledge as to when the FDA might take a decision. However, given how far we are in the quarter, of the JPY 30 billion opportunity we identified on the last call, we have pretty good line of sight to JPY 25 billion of opportunity. So there are -- to my knowledge, there's no nonmannitol that aren't 505(b)(2). That's my assumption here. So you should assume that anybody -- we spoke about those 3 competitors. They're all 505(b)(2). So they're the only ones you really need to be concerned with as you're doing a forecast. So the big question for us is when -- if and when the other 2 505(b)(2) enter the market and whether they're equivalent to VELCADE or not and the impact that will have on the business. Now given the fact we have no information on those 2, we're unable able to give an estimate for 2018.

This is Chris Morabito, and I'll take your questions on pevonedistat and on the alpha-synuclein. So pevonedistat has, in fact, entered Phase III. It's a Phase III program to evaluate pevonedistat in patients with high-risk MDS and low-blast AML. That study is very much in its infancy. And it will take a while to fully enroll and for us to start seeing data. At this point, we haven't decided the complete lifecycle management plan for this. And you should expect to see more information as this study matures and our thinking about pevonedistat matures as well. Regarding the collaboration with AstraZeneca, regarding the alpha-synuclein, you're correct that AstraZeneca is managing early development. We haven't started Phase I yet with this program, so we don't show it in our pipeline. But as soon as that Phase I study gets up and running, we'll include that. The collaboration is going well, and we're quite pleased to be working with AstraZeneca on this project.

If I were -- one more thing, how is MEDI1341 differentiated from Biogen's product?

I can't comment on the specifics of Biogen's project. What we're mostly excited about is the opportunity for this particular alpha-synuclein antibody to cross into the blood-brain barrier. That's why we're collaborating with AZ on this. The status against Biogen's product will have to be determined in clinical trials.

From Crédit Suisse, Mr. Sakai.

I have two questions. One is about Teva. Naturally, your accounting treatment, including impairment, it's not your judgment, but Teva headquarters is involved. Teva headquarters under the new CEO is advancing a very drastic restructuring program going to 2018. That announcement already made? You may want to ask Teva. But Teva has 51% and you have the rest. It's a joint venture. If they withdraw from Japan, your company is also impacted. Regarding those risks, we should be aware of those risks. As CEO, Christophe Weber, what do you think about the risk? Those things are going to be even more tough. When you think of Teva parent company, they really need to have a very drastic change in Japan. Any comment from the CEO of Takeda, please? And another question is to James Kehoe regarding the U.S. tax reform. Deferred tax was mentioned. So deferred tax liability is returned, and then that is recognized. Therefore, you have positive effect. But in the future, when you have a gain, for example, from M&A or from product under development and considering the amount, you have some provisions. And as of now, you have the deferred tax liability. How much do you have left for deferred treatment? Maybe I don't think you can mention, possibly for specific M&A or any specific event that brought you to handle this recognition this time around.

Thank you, Sakai-san. It's Christophe here. So I think -- I mean, I cannot comment too much about Teva strategy. I think you should ask them. But I will make a few points. One is that, first, we know very well the CEO because he came from Lundbeck and we have a long-term partnership with Lundbeck in the United States. So that's always good to know the new leader of the company. The other thing that I am observing, and again I have not discussed it directly with him, is that they are not moving away from the generic business. And so they have not indicated in any way that they are moving away from the generic business. And therefore, the assumption, which was the origin of the creation of the joint venture, remain true, which is that the Japanese market will be one of the fastest-growing generic markets in the future. And so -- now again, I'm not in the Teva's shoes, so I don't know what they will do. So far, until now, we have no indication that they are changing their strategy in Japan. And so that's the only thing I can say at this stage.

And then Sakai-san, you asked a very tough question because I don't know all the details on -- I don't know the content of the deferred tax liabilities. But essentially, the accounting, how does it work? You have all your liabilities that you assess on a regular basis, and you update them for any known changes. And the only thing we've done in the quarter is to change the tax rate in the U.S. So it's just a true-up to the new rate. So I honestly just don't know the content of it, it's too detailed for me. I'll try and figure out for the next call. So I'll write this question down to answer it next time around. But it's -- I restate, it's onetime noncash. And it just reflects the U.S. rates. We're not making any new assumptions on anything else. We're not making any assumptions on new acquisitions, old acquisitions, it's just tax rate.

With this, we would like to close this conference call. Thank you very much for your participation.

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