Good day, and welcome to the conference call of Takeda Pharmaceutical Company Limited. . Now we'll start the conference. Mr. O'Reilly, please go ahead..

Thank you very much for your participation in this conference call for the financial results for the third quarter of fiscal year 2020. My name is Christopher O'Reilly, Global Head of Investor Relations. .

Thank you for spending this time with us today. Well, in Q3, we are delivering on our goal and commitment in spite of the pandemic situation, which I think is demonstrating the grit of Takeda's people. If you look at our revenue, we have been accelerating our growth in Q3.

And once again, I think it's a remarkable performance considering the coronavirus pandemic evolution in Q3 in many countries. This revenue growth and revenue performance is positively impacting our profitability, and you will have seen that we have a very strong profitability and very strong core operating profit margin.

Another goal that we have is that -- is to progress our pipeline, and we have seen great development. As we all know, 2021 will be a very special year when it comes to our pipeline progression. Andy Plump will come back on that, but we did share already with you very strong result with maribavir, for example, or also mobocertinib.

And we filed already TAK-721 as well in the United States. So we are starting to really see momentum in our pipeline progression on our Wave 1 progression. I will mention -- before having and the developing our pipeline progression, I will mention that -- a few points.

In 2020, we achieved carbon neutrality for the first time in our history, and that was a key commitment we had regarding our carbon emissions. So we're really, really pleased with this performance. We have been named Global Top Employer for the fourth consecutive year.

We want to be an organization which provides the best people environment for our employees. .

Thank you very much, Christophe. And Chris, if we can please go to Slide 8. So good morning, and good evening, everybody. It's a pleasure to have the opportunity to give you a brief update on what's been going on in our pipeline. And we have great palpable progress with our pipeline. We have waves of innovation.

We have a Wave 1 pipeline that is constituted, as Christophe said, of 12 innovative new molecular entities that we expect approval decisions by FY 2024. We have a sustainable pipeline with a deep research engine and a dynamic Wave 2 pipeline that we'll deliver after FY '24 that today has approximately 30 new molecular entities in it.

And something that you may have seen in Christophe's slide, very committed to developing these medicines globally, including China. And we expect by the end of our Wave 1 period to have over 15 approvals of our current global brands and new molecular entities in China. Today, a lot of what we do in China is catch-up.

But our intent, our aspiration is for -- to globally register all of our NMEs across the globe at the same time, U.S., Japan, Europe and China, and we're making great headway in that regard. 2021 will be an inflection year for us. It's going to be a very exciting year with data readouts, with approvals, with submissions.

By the end of 2021, we expect that for all 12 of our Wave 1 new molecular entities, they will either have an approval decision by a major regulatory body that will be submitted for consideration or they will be in pivotal studies. .

Thank you, Andy, and hello, everyone. This is Costa Saroukos speaking. Let me start with a summary of the key financial highlights on Slide 16. Overall, I'm very delighted to report an acceleration of growth in quarter three, once again demonstrating the resilience of our portfolio and our disciplined OpEx control.

Underlying revenue growth was 1.1% year-to-date, driven by our 14 global brands. In particular, I want to highlight that growth in the third quarter, that is October to December, accelerated to 2.1%, our strongest quarter of the year so far. .

Thank you, Costa. As you can hopefully see, we are really demonstrating steady progress towards our goal to grow in a sustainable way in the long term and in a profitable way as well.

So -- and again, 2021, in spite of this pandemic situation, will be an exciting year for Takeda because of our business progress and also because of our pipeline inflection. So this start of the calendar year is exciting for us, and we are looking forward to the rest of the year. Thank you very much..

Now we'd like to questions. Operator, please..

. The first question is from Citigroup, Mr. Yamaguchi..

This is Yamaguchi from Citi.

May I ask all three questions at 1 time?.

Yes..

My first question is about the financial improvement progress. And the investors' return share buyback or dividend increase, I think the timing may be coming across. What is your comment? Second is Mobocertinib filing is approaching. And at the same time, Johnson & Johnson have amivantamab, and very competitive data was announced.

What is your evaluation of amivantamab? Number three is IgG, globally, has been performing well, but the plasma collection, what is the most recent negative situation of the progress of the plasma collection.

Is it improving?.

For the question, so Costa for the first question, I'll propose Andy second, and Julie for the third..

Yes, thank you, Yamaguchi-san. So firstly, we're really impressed to see our progress on deleveraging and debt reduction. We remain committed to our capital allocation policy, that is deleveraging rapidly, invest in our growth business, in particular, investing in China for growth.

We're investing in our pipeline in R&D, and we're investing in PDT, our plasma business and we're maintaining the dividend. But you're right. However, we have seen and we've discuss possible options for shareholder returns on an ongoing basis, both at executive and Board level. And we do see our shares as undervalued, and we continue to monitor this.

So in principle, we are keeping a very close eye on the share price, but we do also want to remind you that we do believe that 2021 is an inflection year for the pipeline. And we'd like to see how our share price responds to these developments; and again, remind you all that our second Wave 1 pipeline event is on April 6, and please join those calls.

Thank you for your question..

Yes, Yamaguchi-san, it's Andy. Thank you very much for your question. So rather than comment on J&J's product, I'll just say that this EGF receptor Exon20 lung cancer is a brutal disease with very short life expectancy and very limited benefits in existing standards of care. You now have 2 agents that are quite distinct mechanistically.

They work entirely different mechanisms that have benefits for patients. I would look at the entire profile that we've taken. They each have their own tolerability and safety profiles. I would look carefully at duration of response.

But I think in general, what you're seeing is you're seeing a real step function in terms of our ability to meet the needs of this very dire patient population..

And then I'll take the third question around plasma collections. This is Julie Kim. Thank you for the question, Yamaguchi-san. I'm happy to report that we are continuing to see good recovery in our plasma collection. So for Q3, we have seen improvements over Q2, which was an improvement over Q1.

So everything is moving in the right direction and in terms of the plasma collection supply..

This is Muraoka from Morgan Stanley MUFG..

Yes. We can hear you..

TAK-994 is my question. First of all, the POC data that is coming up is on criticaltrial.com, it's announced on that website. Phase I, 120 patients are targets, and this is a data that is going to be announced soon.

Is that correct? And the second question, criticaltrial.com has another announcement, 202 people, Phase II study, NT1 and NT2, they have also included. And it says that it will be ending in May. The top line data, when will it be available? Will it be available in May or later? And my last question, also on TAK-994, Slide 12.

You talked about, in the second half of '21, pivotal study will be starting. The design of that study, is that for Phase II 202 patients? Would it be the similar design that will be adopted with the increases in the number of sites? Is that the correct interpretation? Thank you..

Christophe, would you like me to step in, Christophe?.

Yes, of course..

Yes, so Muraoka-san, I invite you to come to our April R&D Day. All of your questions will be answered then, so rather than dive deeply into a lot of detail that you're asking, which I can't answer right now. Let me just say that we continue to advance this program with the highest priority.

We actually are still using our TAK-925 IV molecule to build out indications. You'll see additional data from TAK-925 in April. We're very pleased with the progress of TAK-925. It's in a Phase II study that you'll learn more about. It's a complex study.

It's a proof-of-concept study for NT1, for NT2 and will be a dose-ranging study that will support our filing and lead into a Phase III study that we hope to start at the end of this year. And in addition, we have a third molecule, TAK-861, which we hope to enter the clinic soon. So we're making great progress. And we're very excited about the program.

And you'll get more detail in April during the R&D Day..

Next is Credit Suisse Securities, Mr. Sakai. Sakai-san, please..

This is Sakai, Credit Suisse. I'd like to ask you rather detailed question of 3 questions. Albumin, in China, I think there was some batch release program. And in 2019, you had a similar program. And I think China is quite strong at albumin, but I think you suffer a lot of opportunity loss due to this.

So what's your share currently? I'd like to ask Julie to give us an update regarding the situation of albumin in China. And the second question is about a domestic matter. So maybe this is a question to Iwasaki-san.

The employee supporting system, including early retirement, what is the impact? As much as you can, if you can share with us some details, please. Number 3 is about TAKHZYRO.

What is the progress update of development for COVID treatment?.

So Christophe, would you like me to start with the first one?.

Yes..

So thank you for the question, Sakai-san. In terms of the albumin situation, let me separate the 2 challenges that you've identified. In terms of the FY 2019, where we saw lumpiness in our growth, that was due to the reregistration, the blackout period that follows reregistration which happens on an every 5-year basis for products in China.

The current situation is something different. And this is a temporary supply batch release interruption. This is something that's not a quality issue. It is due to product appearance. And we are working very closely with the relevant authorities in China to resolve the issue, and we hope to have that done very soon.

So two different issues, not the same challenge. I don't think that this speaks to an overall difficulty with capitalizing on opportunities in China. We continue to see very strong growth, for example, for our FLEXBUMIN albumin product, very strong double-digit growth in China.

And so we will continue to support the patient demand for our albumin portfolio. And as I said, we hope to have this batch release issue resolved very soon..

Sakai-san, Iwasaki speaking, thank you for your question. I think you are talking about our future career program. And as we discussed last time, this program is -- if there are employees who want to develop their careers not in Takeda organizations but outside, we would like to support them.

And any expenses of this program, that's already included in FY 2020, although we don't disclose specific numbers. And highly unmet medical needs, 5 business areas are our key focuses, and we'd like to focus on those specialties and we have to be a highly innovative pharma company. And that way, we'd like to achieve transformation.

We have been making steady progress and would like to obtain 31 approvals in coming 5 years so that we'll be able to meet those highly unmet medical needs..

COVID study..

Yes, and then Sakai-san on the COVID study, we're testing two molecules that are modulators of the same path, the metallic and the timing system. And just to be clear, we're using a novel drug product of lanadelumab that's in an IV formulation, not TAKHZYRO in the 1 study. We're also using FIRAZYR. Both are in platform trials.

Those are trials have been multiple in single comparator on a single control arm. That FIRAZYR actually just passed its first interim analysis, a 10 of 50 interim analysis that's being tested in critically ill patients. These are patients that are hospitalized and in the ICU, often on ventilatory support.

And we expect final results from that study in the first half of FY '21. And then for IV lanadelumab, that's in a study called COMMUNITY, which is a platform study that's quite unique with very strong industry partnership; AbbVie, UCD also in that study. That study is enrolling and we expect first interim analysis also in the first half of FY '21..

I have two questions. The first question about the results performance for next fiscal year, would you be looking for increases in profit? You'll be selling off the assets and the plasma business top line? And what is your thought on the margin going forward for next fiscal year? And the second question about ENTYVIO, about the biosimilars.

At the R&D explanation session, 2032, the patent will be protected. I think that was as message given at that explanation session.

So what is your thought on that?.

Thank you, Arai-san for the questions. So we believe that we will see growth acceleration. Of course, we'll not give our guidance for next year now. We'll have to wait for May to see this guidance.

But what we believe is that we are in a phase of growth acceleration because of the momentum that we see with our global brands and also the headwinds that we have faced regarding generics, for example, being lower. So that's really what we have in mind. And this is already what we are starting to see in the Q3. So more to come.

And Costa could comment further regarding the margin and the margin improvement. But I can just say that we are committed to our midterm goal to be in the mid-30s range. Regarding ENTYVIO, what we said is that the scenario of biosimilar entry in May 24 in Europe, on May 26 in the U.S. is the earliest date. So it's a conservative scenario.

Why? Because this is the expiration of our data exclusivity at this date, but we have some patterns which are expiring later up to 2032. So we are not saying that no biosimilar will enter.

Until then, what we are seeing is that it's a complex situation and the scenario of biosimilar entry in '24 and '26 is worst case, if you like, the most conservative scenario. This is the one we prefer to use for modelization..

So Christophe, just reinforcing your comment, nothing's changed with our direction on margin. So we've committed to mid-30 margin by fiscal year '21 to '23. One thing to remember is the synergy deliverables, majority, most of it, would have been completed by fiscal year '21.

So that's also going to help drive the acceleration to propel our margin furthermore..

Next is Wakao-san, JPMorgan Asset Management..

I am Wakao from JPMorgan. I have two questions. First is the gross margin of Q3, more than I expected. It's high. You enjoy very high margins, and I think it's due to FX. But ENTYVIO performed very well.

So this -- the profit, how did you see this actual result compared to your plan? If it's higher, down core operating profit, the ¥984 billion, would it be expected to be even higher? Next is about PDT business. Plasma collection center situations were described.

And up to today, given the collection status so far, what is the expectation of this business in the next year. And if it's on recovery trend, I think maybe it's too difficult to achieve 10% to 2% -- 20%. However, if you have some forecast for the next year, PDT business, please, let us know..

Thank you very much, Wakao-san, some for your question. I take it when you talked about the margin, you're referencing the gross margin for quarter three, we have improved, yes, indeed, and that was mainly because of the product mix. So we're seeing the drivers of our 14 global brands, they continue to grow.

And then most of those assets, in the 14 global brands, have higher margin as well. So we're seeing that's helping deliver the improvement in the margin..

And in regards to the plasma business, for -- there were a few questions, so let me try to cover them. In terms of our growth this year, we are -- we continue to reaffirm our IG overall growth to be in the 10% to 20% range.

However, as you've heard from both Costa and myself in regard to the albumin challenge that we faced this quarter, we're no longer going to have albumin growth for the year in the 10% to 20% range. It will be negative. And therefore, for overall PDT, the year will not be in the 10% to 20%, but in the 0 to 10%. So that's as reflected in the materials.

In terms of the expectations for next year, as Christophe responded to an earlier question about expectations for next year, I invite you to join us in May when we can share that information..

The next question is from Mr. Stephen Barker from Jefferies..

Steve Barker from Jefferies Securities. I have two questions. One is about TAK-007 and the other is about the TAKHZYRO. Regarding 007, I mean this is a very hot area. The incredible stock performance of Fate Therapeutics has drawn a lot of attention to NK cells. So I understand that the start of the trial was being delayed until next year.

I was wondering if you could perhaps give us a little bit more detail about why that is. Is it something to do with the manufacturing, being able to create a viable cryogenic product? I understand, it's a major challenge. And then Regarding TAKHZYRO, just looking at the sales trends in the U.S., it just looks like it's -- the growth is flattening out.

If you can give us some comments about your -- how you view prospects for TAKHZYRO in the U.S. and overseas markets over the next several years. Thank you..

Thank you, Steve. Andy, followed by Ramona..

Steve, thank you very much for the question. So just with respect to the profile of TAK-007, it still has, by far and away, the greatest experience in patients and the most compelling overall profile of any of the NK therapies that are out there. With respect to timing, we're starting a Takeda-initiated IND.

That's the nature of the study, which will be proof of concept for the new cryo-formulation, and also we hope a registration-enabling study. It was aspirational when we signed the deal with MD Anderson to have that kicked off in fiscal year '20, and we missed that by a couple of months. And so we'll push that out into FY '21.

I think I'm quite pleased with the progress that we made. We have a very strong cryo-formulation. And we have a product that will enable the study that we're going to be running. I think that, going back again, it's a partnership with MD Anderson and I think COVID had effects on this program and on this program's timelines.

But there's nothing technical that is holding us back. We're really on target, and I'm quite excited about next steps..

It's Ramona here, Steve. Thank you for the question on TAKHZYRO. So let me speak a little bit to the U.S. and Rest Of World as well. We're really pleased with the continuing growth in the U.S. So as you know, as this product was launched, it penetrated very quickly into the prophylactic segment in the U.S.

And what we're seeing now is a much even larger group of prescribers prescribing TAKHZYRO and having numerous patients. So we kind of went from a small group of prescribers to a larger group with maybe just 1 patient, many of them. And now we're seeing more prescribers having multiple patients.

So you really see the dynamic in the prophy market starting to change with people seeing TAKHZYRO as a way to help their patients deal with TAK-003 and really the best option to do that. We're also seeing the prophylactic market growing in the U.S. So we're penetrating more and more into new to Takeda and new to prophy patients as they come on board.

And then you'll see a number of TAKHZYRO launches, including China, outside the U.S. happening over the next few months. It has been happening over the last few months. So I think roughly 20 launches for TAKHZYRO in FY '20 alone. And that will continue into FY '21 as well. So you'll see the global sales of this brand start to grow as well.

We had shared, at our R&D Day, a peak sales trajectory of TAKHZYRO of within $1.8 billion to $2.2 billion. We're still very confident in that. We see the momentum continuing towards that and are very pleased with the uptick..

Due to time constraint, we would like to take the final question..

The next question is from Ms. Stacy Ku from Cowen..

Hi, Stacy Ku from Cowen. I have a few. First, given argenx's recent positive FcRn interim results in CIDP, wondering if you guys have any updated thoughts in terms of the long-term immunoglobulin position there. Second is another question on TAKHZYRO. I know it's still early days, but now with BioCryst's ORLADEYO on the U.S.

market, any very early commentary on what you're seeing? Our clinicians do tell us that TAKHZYRO's efficacy is unparalleled, but how should we be thinking about this competition? And maybe any nuances on the new to prophylactic patient space? And then last question is a follow-up on TAK-007.

Would you be willing to provide any guidance on when we could see any initial results from the Takeda driven trial?.

Thank you, Stacy.

Perhaps, Julie, Ramona on NDA?.

Thanks for the question, Stacy. And if you look at the information that argenx has released they didn't release very much, but they did share that they had just met their predetermined analysis to continue their study. They needed 14 out of 30 subjects to be able to move forward and they achieved that 14 based on what they shared.

So from our perspective, again, innovation for patients is something that we welcome. The information that was released does not cause us to change our expectations in terms of the potential impact. We will continue to monitor and see what they release as they have more data that becomes available.

I would continue to reiterate the fact that there's still significant needs on the primary immune deficiency and secondary immune deficiency side. And that while -- if something like argenx's anti-FcRn does prove to be successful, we would expect it to have an impact. It would not mean end of growth for IGs overall. Ramona, over to you..

Yes, Stacy, thanks for the question. So yes, ORLADEYO has just been recently launched in the U.S.. If you look at the market in the U.S., first of all, as you mentioned, TAKHZYRO really has a very unique profile with the patients living 8 out of 10 day attack-free, 87% reduction in attacks.

Very, very strong data, really doesn't compare -- ORLADEYO really doesn't compare. The data is very different. However, there is -- in the U.S. and globally, there's -- as you look at the market, there's kind of more mild patients, moderate and severe.

In general, it's the more moderate and severe one that tend to go for prophylactic treatments, and those are the ones that we're picking up as they come off of acute treatment and go into prophylactic treatment.

There are mild patients that may prefer an oral agent because they don't have many attacks to begin with and use very little acute rescue therapy as well. It remains to be seen.

I think once the patient decides to go on prophylactic therapy, the question is will they prefer something that they know is going to work because they want to become less dependent on rescue therapy. So it just remains to be seen.

We're keeping a close eye, and I'd say it's really too early days now to know where the uptake might be coming from in the future..

And Stacy, thanks for your question, it's Andy. I can't share, right now, exact timelines with you. Perhaps we'll have more data to share at the April R&D Day for TAK-007 or in the 4Q discussion. I will say, though, that it's one of the highest priority programs. We have what we call an accelerated prioritization behind it.

And then it works through a very unique operating model given that it's in cell therapy. We have a very substantive internal infrastructure that's been built around this program, and we expect that this will be a multi-site trial that will be accelerated. And we can provide more guidance as we get closer to starting that study.

And then if I may add, just unrelatedly, I made an error in my presentation in terms of time line. I sometimes get confused between calendar year and fiscal year, and I mentioned that near-term milestones for pevonedistat data readout and maribavir filing would be first half of FY '22, and that was incorrect. It's FY '21..

With that, I would like to end this conference call for today. Thank you very much for your participation despite your busy schedule. We ask for your continued support. Thank you..

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