Takeda Pharmaceutical Co Ltd (TAK) 2020 Q2 法說會逐字稿

Good day, everyone, and welcome to the conference call of Takeda Pharmaceutical Company Limited.

This conference call may contain forward-looking statements, beliefs or opinions regarding Takeda's future business; future position; and the results of operations, including estimates, forecasts, targets and plans of Takeda.

Any forward-looking statements in this conference call are based on the current assumptions and beliefs of Takeda in light of the information currently available to it.

Such forward-looking statements do not represent any guarantee by Takeda or its management of future performance and involve known and unknown risks, uncertainties and other factors.

(Operator Instructions)

Now we start the conference.

Mr. Okubo, please go ahead.

Good morning, good afternoon, good evening.

Thank you very much for your participating in the conference call of Takeda's second quarter financial results for fiscal 2019.

Now I would like to introduce today's presenter and panel.

Mr. Christophe Weber, President and CEO; Dr. Andy Plump, President of R&D; Mr. Costa Saroukos, Chief Financial Officer.

We would like to start with the opening remarks by Christophe.

Christophe, please.

Thank you.

Good morning, everyone.

Great pleasure to have this conference.

You might have seen our presentation earlier, but I will still say a few words, and I think Costa will also describe the situation with more details.

Overall, we are very pleased with our progress.

Our -- the integration is on track, not finished.

Of course, it's working in -- it's in progress, but we are very pleased with the way the integration is doing.

To give you a sense, 94% of our employees have been notified about their positioning the new Takeda.

So I think this is moving at the right speed.

We have not lost any business momentum.

Quite the contrary, in fact, we are starting to see some product benefiting from the combination of products at Gattex, for example, products like Vivance are example of that.

So -- and -- so the fact is the integration is progressing well, allow us also to deliver the synergies, and you will see in our financial results that we have a very strong margin results, which is also linked to this integration.

We are pleased with our first semester performance.

It's driven by our 14 global brands, which are growing at a rate of 21% and driven by good control of OpEx and our synergies.

Costa will develop that.

That will allow us 2 things.

One is to deleverage, and we've been helped, of course, by the disposal.

We are very pleased by our net debt-to-EBITDA ratio, which is at 3.9, and we are able to raise our full year profit and margin guidance, in spite of NATPARA, because, as you know, we had to recall NATPARA in the U.S. In spite of that, we are able to raise our full year profit and margin guidance.

We are very pleased with this performance and this outlook.

Long term, we want and we will be a growth company.

It will be supported by our global brands that you see today, but the pipeline will be very critical.

And as you know, we are doing an R&D Day in November.

Our goal during this R&D Day is to demonstrate that we have a pipeline, a very innovative pipeline, and a pipeline strong enough in order to allow us to growth in the long -- to grow in the long term.

So I think that will be my introduction comments, and I will let Costa develop further.

Thank you.

Thanks, Christophe, and hello, everyone, and thank you for joining Takeda's follow-up call on the fiscal 2019 quarter 2 results.

Before we open up for Q&A, let me just touch upon a few highlights of our solid performance in the first half.

Revenue was JPY 1.66 trillion or approximately USD 15.2 billion, up 88.5% due to the consolidation of Shire.

On a pro forma basis, revenue was at 0.2% minus, improving from minus 0.8% in quarter 1. While growth continues to be impacted by competition in hemophilia and stocking of HAE in the prior year, we are seeing robust performance from our 14 global brands, in particular ENTYVIO, NINLARO, TAKHZYRO and immunoglobulin franchise that returned to growth in quarter 2.

Core operating profit was JPY 541.6 billion or approximately USD 5 billion, and the core operating profit margin increased by 8.6 percentage points to 32.6%, driven by cost synergies and OpEx discipline.

Reported EPS was JPY 21, impacted by large onetime and noncash items, and core EPS was JPY 244, an increase of JPY 33 versus the prior year.

Free cash flow for the first half was a significant JPY 676.9 billion, or approximately USD 6.2 billion, with strong operating cash flow supplemented by divestiture income from Xiidra and the sale of marketable securities.

This abundant cash flow enabled us to pay down JPY 584.5 billion or USD 5.5 billion of debt in quarter 2. We have made excellent progress with deleveraging towards our medium-term target of 2x net debt-to-adjusted EBITDA.

And as of the end of September, we are at 3.9x, a significant reduction from 4.7x at the end of March.

Finally, I'm pleased to report that as a result of the strong performance of our 14 global brands, accelerated synergies and continued OpEx discipline, we're confident to upgrade our margin and profit guidance for the full year.

Pro forma underlying revenue guidance remains unchanged at flat to slightly increasing, as top line momentum is expected to offset the impact of the recall of NATPARA in the U.S. We are closely monitoring or working with the FDA to resume supply as soon as possible, but our financial assumption is for no further U.S. revenue for NATPARA in the remainder of fiscal year 2019.

Underlying core operating profit margin is now projected to be in the high 20s, an upgrade from mid- to high 20s, driven by synergies and OpEx.

Also, we are increasing our core operating profit forecast for the year from JPY 910 billion to JPY 930 billion.

Finally, under core EPS guidance is also upgraded to JPY 370 to JPY 390.

I want to mention that we did benefit from some phasing in the first half, which explains why we are already at a high achievement rate versus the full year guidance.

This includes NATPARA recall impact and the loss of exclusivity timing of ULORIC and FIRAZYR, which both went generic in July.

It also reflects the phasing of OpEx, which for Takeda, usually, it tends to be higher in the second half.

Therefore, the slowdown in the second half is not indicative of our profitability going forward.

In closing, we are very pleased with the first half results, which reflects strong performance across our 14 global brands as well as synergies and OpEx improvements, allowing us to raise guidance for the full year.

We will now open up for the lines for any Q&A.

Thank you, Christophe.

Thank you, Costa.

We would like to take questions from audience.

(Operator Instructions) The first question is from [Malena Lametra] from Paulson & Company.

It's Josh Brown.

Could you quickly talk about TAKHZYRO and the outlook there?

It looks like it's growing nicely.

Haven't heard you mention it.

We're aware that FIRAZYR went generic, but could you talk about just the longer-term outlook for that product, if you would?

Thank you.

It's Christophe here.

Yes, actually, in the presentation earlier, I developed quite a bit because we are very pleased with the uptake of TAKHZYRO.

We are launching it globally, but it's more advanced in the U.S. Globally, we have now more than 1,700 patients treated by TAKHZYRO.

This is by far the best launch in the HAE -- to treat HAE than for -- in the treatment of the HAE.

So we are extremely pleased.

What is interesting is that 1/3 -- roughly 1/3 of the patients are new to Takeda.

So I think it demonstrates also how innovative the product is.

So at the moment, we don't see a growth of the overall franchise because CINRYZE is declining.

It's also linked to some phasing and inventory movement in the past year and this year.

FIRAZYR has -- is facing some generics, but it's very clear that, in the midterm, it will be a very successful franchise because of TAKHZYRO.

So overall, we are very pleased with that.

Interestingly also in that it demonstrates the innovation -- how innovative the product is.

We are seeing good signal of reimbursement in Europe.

The next question is from Mr. Kyle Roland of Wells Fargo.

Just a quick question on the debt side.

So you guys have done a pretty impressive job deleveraging and making progress on that -- the $10 billion in divestments, which I think is reflected in your current credit spread.

So I'm just curious, have you kind of explored the potential to refinance in the U.S. or otherwise to potentially reduce interest expense?

Yes.

Great question.

Thanks, Kyle, for that.

Yes, we're currently looking into that.

And we're looking at opportunities, especially for the U.S. and euro bonds.

So that's something that we're continuing to investigate.

Year-to-date, first half of the year, I mean, what's impressive is with the cash flow -- the abundant cash flow we had, we also paid down approximately $1.5 billion of debt from -- for future debt.

And so as a result, for the first half of the year, our blended interest rate on the total debt was 2.2%.

So with the refinancing opportunities that we have, that -- to consider, I think there's even further opportunity moving forward.

(Operator Instructions)

We have no further questions, so I would like to end the conference call -- hold on.

The next question comes from Ms. Anh Do of Indus Capital.

I want to ask a little bit about the synergies.

So in the first half, I think you still have a net negative in synergies because of the cost upfront and yet your margin already improved significantly to 32%.

So if you guide for $2 billion net positive synergies by 2021, why are you still guiding for mid-30% margin?

Are you being conservative there?

Yes.

Thanks for the question.

At this stage, we're still committed to the $2 billion synergies in -- by fiscal year 2021.

What we are encouraged by is -- in the first half of the year, we're encouraged by the fact that we are seeing more synergy capture than expected.

So we've always communicated that, in the past, out of the $2 billion synergies, approximately 70% will be delivered in the first 2 years.

And what we're seeing now is potentially an acceleration of the synergy capture more in this fiscal year.

And hence, the reason why we're also seeing an upgrade to our corporate profit margin.

So I will add one thing, is that in the midterm, I think if we end up with a mid-30s margin, we'll be extremely competitive.

And we want to also keep our flexibility to invest in R&D because you will see that we have built over time what we believe will be a very productive R&D engine.

And we have enough investment on this R&D right now.

But who knows?

In the future, we might need to invest much more.

We'll see depending on the pipeline.

So I think mid-30s, we are very comfortable with this guidance at this stage.

We think it would be really in the top performer in terms of margin in the -- among the big pharmas.

I see.

And the dengue program, you're not going to present at the R&D Day because we don't get to see data until November?

Anh, it's Andy Plump.

That's correct.

So in the near future, there will be a publication coming out for Part 1 of the dengue data.

And then at the end of November, there'll be a conference presentation for the whole dataset that we've seen that will include some of the secondary analyses looking at strain-specific efficacy, looking at efficacy in seropositive as well as seronegative subjects at baseline, looking at severity of infection.

So you'll get to see the whole dataset at the end of the month.

(Operator Instructions)

Okay.

Thank you, everyone.

We would like to end the conference call, and we would like to express our sincere appreciation for you taking the time early in the morning today.

I thank you for all of you to continue paying attention to Takeda.

Thank you very much.

Thank you.

Thank you for your taking time, and that concludes today's conference call.

You may now disconnect your lines.