Takeda Pharmaceutical Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2023

There are 10 speakers on the call.

Operator

Thank you very much for joining us today despite a very busy schedule for this FY 'twenty three Q1 Earnings Announcement. My name is Arai. I am the Head of IR. I'll be the master of the ceremony for today's meeting. Allow me to explain about the language setting.

Operator

Please find the language button at the bottom of Zoom window. If you wish to listen in Japanese, please Before starting, I'd like to remind everyone that we will be discussing forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause Our actual results to differ materially are discussed in our most recent Form 20 F and in our other SEC filings. Please also refer to the important notice on the Page 2 of the presentation regarding forward looking statements and our non IFRS financial measures, which will also be discussed during this call definitions of our non IFRS measures And reconciliations with our comparables comparable IFRS financial measures are included in the appendix in the presentation.

Operator

Also, most important note, this is a qualitative representation material. Now we would like to start the presentation. Today, we have President and CEO, Christoph Weber R and D President, Andy Plump Chief Financial Officer, Costa Saroukos, presenting to you. This will be followed by Q and A session. Now we would like to begin.

Speaker 1

Thank you, Chris. Thank you, everyone, for joining us today. It's a pleasure to Our performance in the Q1 of this fiscal year again underscores the strength of our business And our ability to continue to deliver life transforming treatments to patients and communities over the long term. Looking at our financial results. In the 1st 3 months of fiscal year 2023, revenue was 1,060,000,000,000 yen Year over year growth at a constant exchange rate was plus 3.7%, driven by momentum in our growth and launch products, which represents 40% of total revenue and grew in this first quarter at 16.2%.

Speaker 1

At actual exchange rate, our top line growth was 8.9%. Our top line performance contributed to core operating profit of 126,300,000,000 yen The year over year decline at constant exchange rate reflect the impact of loss of exclusivity And lower coronavirus vaccines demand as well as our strategic investment in R and D and data and technology to ensure Takeda long term competitiveness. Core EPS for the period was JPY 150 flat versus prior year at a constant exchange rate. On a reported basis, EPS declined due to the impact of one time financial income gains in the Q1 of last year. Our results at constant exchange rate are tracking well against our full year management guidance for fiscal year 'twenty three, And there is no change to our guidance at this time.

Speaker 1

Moving to the right of the slide. We are advancing our innovative pipeline to reach new patient population, Address unmet needs and provide new treatment options to improve patient outcome and quality of life. Our dengue vaccine, spudengue, was We are pleased with the momentum we are seeing in both pandemic and travel market. I will discuss Cutenga further on the next slide. In all the regulatory development, we have filed gamma gal liquid in the U.

Speaker 1

S. For the treatment of chronic inflammatory Demielinating polyneuropathy or CIDP. This follows on from the submission of IQVIA for CIDP in Q4 of last year, Representing near term indication expansion opportunities for 2 of the growth on Roche product in our PDT immunology portfolio. We have also filed fructitinib in the U. S.

Speaker 1

And Europe for previously treated metastatic colorectal cancer, Receiving priority review designation in the U. S, metastatic colorectal cancer remain an area of high unmet needs With poor outcomes and limited treatment options, and we are pleased to take a step further toward advancing treatment for patients. Priority review in the U. S. Has also been granted for TAK-seven fifty five for congenital thrombocytopenic purpura or CTTP and ultra rare bleeding disorder, also with limited treatment options.

Speaker 1

In neuroscience, our ongoing Phase IIb study of oral oaxin agonist TAK-eight sixty one For both narcolepsy type 1 and narcolepsy type 2 is progressing well on track. We believe in the transformative efficacy potential of our And this is supported by data published today in the New England Journal of Medicine from our discontinued study of TAK-nine ninety four. Andy will explain the details in a few minutes. We are proud of all this progress, which represents the potential of our portfolio to make a meaningful difference in the patients and to serve communities around the world. Turning to updates on our dengue vaccines, Qudenga.

Speaker 1

We are very early in the launch phase for Qudenga, but we are encouraged by the positive momentum we are seeing in markets where it is now available. And we are already seeing early signs of higher than expected demand. We made significant progress in the last quarter with approval in Thailand and Argentina on Our first launches in endemic countries, including Brazil and Indonesia. The vaccine's significant progress in endemic countries underscore its strong clinical data And the urgent need for safe and effective vaccines to prevent dengue fever, which is why we remain laser focused on endemic market, which make up roughly 80% to 85% of our projected peak sales of $1,600,000,000 to $2,000,000,000 At the global level 2, dengue prevalence has continued to grow. The World Health Organization reported just last week that there have been close to 3,000,000 cases of dengue reported so far this year, already surpassing the 2,800,000 cases registered for the entire year of 2022.

Speaker 1

In travel markets, we have continued to see country level approval and launch across the EU following the EMEA broad approval late last year. In the U. S, we made a difficult decision to voluntarily withdraw our Biologics license application filing Due to FDA requests for additional data, including data that was not part of the previously agreed upon protocol and which could not be addressed Within the current review cycle. This decision will not affect our overall approach for TAC003 for Kudenga, Which we believe can be extremely effective to limit the public health impact of dengue in endemic countries. Looking ahead, we are continuing to work closely with the WHO and look forward to the release of the recommendation from SAIF, The WHO Advisory Group, which is anticipated later this year.

Speaker 1

We are also in active discussion with a number of Supranational procurement bodies, such as the Pan American Health Organization, relating to large scale procurement following the WHO recommendation. To meet the vaccine's anticipated global demand, we have been expanding our manufacturing capabilities. We recently, in fact, last week celebrated the opening of a state of the art building dedicated to drug substance manufacturing For our dengue vaccines in Syngen, Germany. This was an important step in achieving our goal of end to end in house production capability for kudenga By 2025 and achieving an annual supply capacity of around 100,000,000 doors by the end of the decade. While we ramp up our manufacturing capabilities, we are exploring partnership with vaccines manufacturers, especially in endemic countries To secure additional capacity to meet current and future supply needs.

Speaker 1

We look forward to continued momentum of these programs in 2023 and beyond. Now I'd like to turn to our high level outlook for the near, medium and long term. Based on our current assumption for fiscal year 'twenty three, we expect to return to revenue, profit and margin growth in the near term, driven largely By the continued expansion of our growth on Roche product, we also see significant potential in our late stage pipeline assets And anticipate significant data and regulatory milestone this year. Following the generic completion for Vyvanse, Which will impact revenue and profit growth in fiscal year 'twenty three, we will have limited loss of exclusivity exposure until the launch of ONTIVIO biosimilars, which could occur as late as 2,032. The momentum for our growth on launch product combined with our continued investment in R and D We'll drive progress in the medium and long term.

Speaker 1

Looking ahead, we remain committed to returning to core operating profit margin in the low to mid-30s, Supported by value creation enabled by data and technology, including AI. We will also continue to evaluate asset specific business development opportunities To further enhance our pipeline and reinforce our growth profile. Finally, our progressive dividend policy of increasing or maintaining the dividend each year Will allow us to continue to return value to shareholders. In closing, this quarter demonstrated that our growth strategy remains on track. We continue to deliver on our financial commitment to progress our pipeline and to create long term value for our stakeholders, While we fulfill our purpose of bringing better health for people and a brighter future for the world.

Speaker 1

With that, I will turn the call over to Andy to update you on our

Speaker 2

Thank you very much, Christophe, and a big hello to everyone on today's call. If we go to the next slide, please. Our pipeline continues to advance, including considerable progress with the TAK-two seventy nine and Orexin franchises, which we will describe later in this presentation. This quarter, the rest of our pipeline featured a number of incremental but important Program milestones and a few small headwinds. As Christophe just mentioned, important regulatory milestones include filing fruquintinib In both the U.

Speaker 2

S. And EU for metastatic colorectal cancer, filing TACT755 in again the U. S. And EU For congenital thrombotic thrombocytopenic purpura or TTP and finally, gammaGuard liquid in the U. S.

Speaker 2

For chronic inflammatory demyelinating polyneuropathy or CIDP. Frequentitiv and TAK-seven fifty five are granted prior to reviews by the reflecting their potential for increased effectiveness and or better safety in areas of high unmet medical need. If approved, TAK-seven fifty five would be the 1st available therapy for routine prophylaxis in congenital TTP. Supporting these and other programs were a number of key publications and presentations. These include: IQVIA's Phase 3 ADVANCE 1 study results Demonstrating an approximate 10% relapse rate with IQVIA, this is the lowest relapse rate observed In CIDP maintenance studies across mechanisms.

Speaker 2

Fruquintinib data from PRESCO-two was published in The Lancet and showed a greater than 30% increase in overall survival versus the control arm in patients with metastatic colorectal cancer. In June, TAK-seven fifty five data were presented. These data demonstrate a reduction in the incidence of thrombocytopenia by 60% versus the standard of care, and no acute TTP events were observed. And also in June, Updated data from the Phase 2 SEQUOIA study of fazisiran was presented at the European Association For the Study of Liver Congress or EASL. Fasisiran continued to demonstrate a dose dependent reduction in the pathological alpha-one antitrypsin ZAAT protein in both serum And liver, leading to directional decreases in liver inflammation and fibrosis.

Speaker 2

We started our Phase 3 REDWOOD study earlier this year. Now headwinds this quarter include PAC-six eleven for metachromatic leukodystrophy, or MLD, which missed its primary and secondary endpoints in our Phase II study. We are disappointed And wish to express our gratitude to the MLD children, parents and caregivers. We're currently evaluating options, But given these outcomes, the program unfortunately is likely to be discontinued. Following a planned interim analysis, the Phase 3 CLEAN-two trial was stopped for futility.

Speaker 2

The trial compared excitvity monotherapy to chemotherapy in first line non small cell lung cancer With ESON-twenty insertion mutation, we will be engaging with regulators regarding these data and determining next steps for the program. As a reminder, Excavity demonstrated a median duration of response of 17.5 months and a median overall Survival of 24 months in patients being treated in the second line who had progressed after chemotherapy. And lastly, as Christophe discussed, we had some positive and negative developments for Qdenga this quarter. Very important to recognize that the unmet need for a dengue vaccine is not equally distributed around the world. We remain confident In the overall benefits of Tienga, however, timing of approval may vary depending on local needs and experience.

Speaker 2

Finally, yesterday, as Christophe again mentioned, Phase IIb data from the first ever oral orexin receptor 2 agonist, TAK-nine ninety four, was published in the New England Journal of Medicine. Next slide, please. We conducted a Phase 2b dose ranging trial that tested 3 doses of TAK-nine ninety four In an 8 week study, with the option for patients to continue into an 8 week extension, the trial was stopped early due to liver toxicity. Even with a truncated study, the impressive efficacy data indicate orexin receptor 2 is a promising novel biologic target for patients With narcolepsy type 1, the mean wakefulness test scores range from 26 to 35 minutes on a placebo adjusted basis. For benchmarking, currently marketed agents have shown a placebo adjusted benefit of 8 minutes or less.

Speaker 2

Similar effects were observed with the Epworth Sleepiness Scale, a subjective task used to measure daytime sleepiness in which patients We're normalized to equivalent levels as those seen in healthy subjects at all doses, and weekly cataplexy rates were reduced Or abolished, again, at all doses tested. We believe orexin-two receptor agonists may be the first agents to address The underlying cause of narcolepsy type 1 offering the potential for functional cures. We are applying our learnings from TAK-nine ninety four and our deep understanding of orexin biology as we advance the research and development for multiple Oraxin assets. For example, TAK-eight sixty one has been enrolling ahead of schedule in 2 Phase 2b trials that started in January of this year, 1 for narcolepsy type 1 and a second for narcolepsy type 2. TAK-eight sixty one is a more potent agent than TAK-nine ninety four and thus provides efficacy at a much lower dose, therefore significantly reducing the potential for adverse effects, Including liver toxicity.

Speaker 2

We are very pleased to report that a recently conducted external review by the Data Safety Monitoring Committee confirmed No liver toxicity signals to date. In addition, nearly all of the patients that completed the trial to date Have enrolled in the long term extension study and will be followed for up to 102 weeks. We are expecting a gono go decision to advance to Phase 3 in the next fiscal year. TAK-nine twenty five, our IV orexin receptor 2 agonist, showed exciting data earlier this year. In sedated healthy volunteers, TAK-nine twenty five reversed opioid induced respiratory depression and sedation without impacting pain control.

Speaker 2

The Phase 2 trial has started and is on track to have proof of concept in fiscal year 2024, which will inform the registrational studies. Later this year, we plan to file an IND for our next generation oral orexin receptor 2 agonist. Our goal is to expand into additional indications by developing orexin agonists that are tailored to meet unmet patient needs and ultimately make a meaningful impact on patients' lives. Next slide, please. Evicted here are exciting late stage development programs.

Speaker 2

TAK-two seventy nine, our highest priority, is on track to start a Phase 3 program in psoriasis later this fiscal year. We continue to believe we have a best in class oral therapy for psoriasis. We will have a Phase 2b readout for psoriatic arthritis this fall and are preparing at risk to start a pivotal development program for these patients in fiscal year 2024, We are accelerating development of TAK279 additionally in Crohn's disease, ulcerative colitis and systemic lupus erythematosus As well as exploring a range of other indications, these expansion opportunities are being developed in parallel with psoriasis. Finally, we want to remind everyone that we have important life cycle management approvals and data readouts later this year. These include potential approval of ENTYVIO subcutaneous in the U.

Speaker 2

S. For ulcerative colitis and alofisel Phase 3 data for perianal fistulas. Lifecycle Management Program milestones can be found in the appendix. And now at this point, thank you very much. I'll turn it over to Costa.

Speaker 3

Thank you, Andy, and hello, everyone. This is Costa Saroukos speaking. Today, I'll walk you through the financial highlights Of our fiscal 2023 Q1 results, starting with the top line. Revenue was 1,060,000,000,000 yen Or $7,300,000,000 delivering strong growth of 3.7% versus prior year at a constant exchange rate Or 8.9% on an actual basis, reflecting foreign exchange upside from the depreciation of the yen. Our top line performance was driven by our growth in launch products, which represents approximately 40% of total revenue And grew at 16.2 percent at constant exchange rate.

Speaker 3

Core operating profit was 326,300,000,000 yen Or US2.3 billion dollars with a core operating profit margin of 30.8%. Reported operating profit was Generation from the business with operating cash flow up 9.7 percent to 92,400,000,000 yen Free cash flow is negative at minus $207,500,000,000 reflecting $223,000,000,000 cash out for acquisitions and in licensing, including TAC279 and fucritinib, which occurred in Q1 as expected. Importantly, I want to note that There is no change to our full year free cash flow forecast of 400,000,000,000 to 500,000,000,000 yen as these deals were already included in the forecast, which we gave in May. I'm also happy to announce that Moody's recently upgraded our credit rating From Baa2 positive to Baa1 stable. This is an important This is important to highlight because it's a reflection on the strong financial foundation of the business.

Speaker 3

With our robust cash flow outlook And manageable debt profile with 100 percent of debt at approximately 2% fixed rates. With regards to the outlook for full year 2023, there is no change from the guidance we presented in May. As we flagged since the start of the year, starting from Q2, we expect to see more significant loss of exclusivity impact With generic versions of ZILVA having launched in Japan in June and more importantly, generics of Vyvanse in the U. S. Finally, while we are not changing our reported and core forecast at this time, We do see potential, some potential upside if the current FX rates continue.

Speaker 3

We'll provide an update on this at our Q2 earnings in October. Slide 13 shows our Q1 results in more detail. On the left hand side, you can see our reported results, with reported operating profit up 12%, reflecting revenue growth, Completion of inventory step up related to the Shire acquisition and lower impairment charges compared to the prior year. Meanwhile, reported net profit and reported EPS declined as a result of substantial onetime financial income booked In Q1 of last year, our core results are on the right hand side. And as mentioned, we saw strong revenue growth of 8.9% or 3.7% at a constant exchange rate driven by our growth and launch products.

Speaker 3

Core operating profit grew at 2.3% on an actual foreign exchange basis with a slight decline of minus 2% at constant exchange rate. This decline reflects product mix due to generic entry And lower COVID-nineteen vaccine revenues and also continued investment in R and D and data and technology to secure Long term success of the business. Even with this incremental investment, margins for Q1 remained above 30%. Core net profit and core EPS benefited from a lower core tax rate with core EPS for the quarter Of JPY 150, up plus 0.3% versus prior year at the constant exchange rate. And as mentioned on the prior slide, free cash flow reflected the expected cash payments for TAC279 and for Quickinib, And there is no change to our full year forecast of JPY 400,000,000,000 to JPY 500,000,000,000.

Speaker 3

Slide 14. On Slide 14, we highlight our portfolio of growth and launch products, which are the key drivers of top line growth. These products generated JPY424,100,000,000 or 40% of total revenue in Q1 with 16.2% growth at constant exchange rate. Within our 5 key business areas, GI grew at 3% on a constant exchange rate, a slight slowdown versus last year, mainly due to generic entry Of Dexilant in January this year. Our largest product, Entibio, continues to perform well with growth of 7%.

Speaker 3

This is a little behind our expectations for the full year, reflecting single digit market growth, Timing of U. S. Inventory shipments in the prior year and pricing headwinds in Europe. ENTYVIO maintains the leading U. S.

Speaker 3

Market share, both in overall IBD prescriptions and in IBD BioNeve new patient starts. And with an approval decision in the U. S. On the subcutaneous device expected in the coming months, We remain fully confident in the continued growth outlook for the product. In rare diseases, TAPZYRO continues its strong momentum With growth of 15%, having successfully launched now in 56 countries and we sustained demand in the U.

Speaker 3

S. We also recently launched in the pediatric indication in the U. S, making it the first HAE product indicated for use in children over 2 years old. We also see continued launch successful intensity, up 71% with strong market penetration in the U. S.

Speaker 3

And rapid geographic expansion within Europe. PDT immunology continues to deliver Standing growth of 24%, including 23% growth of immunoglobulin and 36% growth of albumin. Both our IG and albumin products continue to see strong demand with albumin also benefiting in Q1 from recovery in China following the lockdowns in prior year. We have continued to expand our plasma donation center network, adding 3 more centers in Q1, With the intent to increase by more than 20 new centers by the end of the fiscal year, and we have seen donor compensation continuing on a downward trend since fiscal year 2022 after significant increases during the pandemic. Next is oncology, which continues to decline as a result of Velcade generics.

Speaker 3

However, the timing of loss of exclusivity In May 2022 does mean that the impact should wash out in the coming quarters. Excluding VELCADE, The rest of the portfolio grew 5%, driven by products such as ALUNDRIQ, Excivity, ADCETRIS and Iclusig. Finally, neuroscience had a very strong performance in Q1 with growth of 17%, with Vyvanse benefiting from the expanding ADHD The adult population as well as lower supply of other ADHD medicines in the U. S. However, as a reminder, we are expecting multiple Vyvanse generics to enter the U.

Speaker 3

S. Market in August this year. Finally, the other segment is declining in Q1, mainly due to the lower revenue from COVID-nineteen vaccines in However, this other segment now includes our dengue vaccine, Hudenga, our newest growth and launch product, which is seeing strong initial demand in both endemic and travel markets. On Slide 15, You can see that versus prior year, the growth in launch products were the main driver of the 3.7% growth At constant exchange rate, more than offsetting the headwinds from loss of exclusivity and lower coronavirus vaccine revenue. On top of this, we had on top of this solid growth, we had a constant exchange rate upside On the foreign exchange tailwind due to the depreciation of the yen, taking our top line growth on an actual FX basis to 8.9%.

Speaker 3

Moving to the year on year core operating profit bridge on Slide 16. Here you can see how loss of exclusivity and coronavirus vaccines are having a larger impact on profit compared to revenue due to the higher margins impacting our product mix. On the investment side, we continue to allocate resources To R and D to support high potential programs such as TAK-two seventy nine and our Orexin franchise, while also making substantial investment in data and technology, including AI across the value chain. We believe these investments will have a transformational impact on Takeda's long term competitiveness. And therefore, we continue to allocate capital in these areas as they will play a major role in our return to growth in the near and long term.

Speaker 3

At the same time, we are applying strict cost Discipline to hold other OpEx flat year on year. All these factors combined Result in a Q1 core operating profit decline of minus 2% on a constant exchange rate basis, but when including foreign exchange benefit, we realized growth of 2.3%. Finally, moving to Slide 17 and our outlook for full year fiscal 2023. Based on the Q1 results, we do not see any need to make changes to our management guidance or our reported and core forecast at this time. We are still expecting a significant loss of exclusivity impact in the remainder of the year due to Vyvanse and Azilva, And therefore, we are keeping our management guidance unchanged.

Speaker 3

Low single digit percentage decline in revenue, Low-10s percentage decline in core operating profit and low-20s percentage decline in core EPS, All on a constant exchange rate basis. With regards to the reported and core forecast on an actual FX basis, There is some potential upside if current FX rates continue. We'll continue to monitor foreign exchange as well as the underlying business, And we'll revisit our full year outlook at the Q2 earnings announcement in October. Thank you for your attention. And I would like to now open it up for Q and A.

Speaker 1

Thank you.

Operator

Thank you. Now we'd like to take questions from the participants. And in the Q and A session, Christophe Andy Costa and Ramona Sequera, Global Portfolio Division President Julie Kim, U. S. Business Unit President, Jial's Platform, PDT Business Unit President are also joining.

Operator

If you want to ask a question, please click the hand raising button of the Zoom. And if you selected Japanese, So please ask your question in Japanese. And if you selected English, please ask your question in English. And if you turn off the People, therefore, please limit the number of questions per person to 2. And I'd like to ask for your kind cooperation.

Operator

Please raise your hand. The first question from Yamanuichi san, Citigroup, please.

Speaker 4

This is Yamauchi from Citi. So I have two questions. The first question regarding your comment on Entaiyo. You talked about the market is a little bit slow and there's a price In Europe as well, and also there is some kind of a yellowing eye effect of inventory building up. Can you elaborate a little bit, especially in the United States, It's the core market of this product is weak.

Speaker 4

Why is the case? Is it coming from the HUMIRA or other Biosimilars coming to the market or just needs related to the COVID? So that's the first question. On Entybeo market Weakness sorry, entire weakness comments. That's the first one.

Speaker 4

The second one is regarding 994. On the New England Journal of Medicine, it is really efficacious, which is really unfortunate situation out there Because it did show the results, but at the same time, you have a more 86 month and also you talk about some next generation product. Can you give me the sense that you are kind of Fiscus level of which you are sort of gaining so far as far the 865 is concerned, is the same range of 984? Is it better than 984 about the efficacy level? And also the 2nd generation products as well.

Speaker 5

Thank you, Yamaguchi san, for your question. So the first Question on ENTYVIO and the market performance. So first, I'd like to ask Julie to comment on the situation in the U. S. And then Perhaps if Ramona has anything to add on the situation in Europe or other regions?

Speaker 5

And then on 994, the New England Journal posting, What implications does this have on 861? And if more particularly, what are the efficacy levels that we've seen so far For 861 and what are our expectations for the next generation oralorexant agonist? I'd like to ask Andy to comment on that one.

Speaker 6

Hi, this is Julie. So thank you for the question, Yamaguchi san. In terms of Entyvio I'm sorry, can you hear me?

Speaker 4

Yes, sorry. Okay.

Speaker 6

Sorry about that. So in terms of ENTYVIO in the U. S, a few comments in regards to your questions, as you had multiple Components in your question there. First, in terms of the impact of biosimilars to HUMIRA, it's a little bit too early to say The impact of those biosimilars, we are monitoring that closely. But so far, as anticipated, The biosimilars are really within class versus having an effect across different products within IBD.

Speaker 6

When we look at ANTHIDIO performance, in particular, We're pleased with the very strong market share of ENTYVIO, and we continue to be the leader when it comes to IBD share and particularly in terms of BIO naive share. For the market growth, as you mentioned, their Market growth is still in the single digits, so it hasn't returned to double digit growth as we've seen in the past. So those are the different parameters of the impact on ENTYVIO in the U. S. Ramona, do you want to add anything for Europe?

Speaker 7

Thank you, Julie. Yes, I can comment a little bit outside the U. S. So in general, the market is growing double digits and actually volume is also growing double digits OUS, really, the impact OUS is due to rebates and price cuts in Europe specifically. The underlying fundamentals, though, are looking good.

Speaker 7

So share is increasing. The market is growing. We do continue to lead in new starts Globally, both in the U. S. And outside the U.

Speaker 7

S, as you know, we've got the subcu expecting to launch in the U. S. Later this year, and we're continuing our Evidence generation, Phase IV trials, looking at ENTYVIO in different lines of therapy. So we feel the fundamentals are looking good and continue to keep an eye on ENTYVIO as we go through

Speaker 2

the year. Chris, Yamaguchi san, thank you very much. So we're just so Excited to have now the 994 data out there in the New England Journal publication, both us and the principal investigators with whom we've been working for many years. And It's terrific that you now have a chance to see these data and understand why we're so enthusiastic about this mechanism. The question with respect to 861, 861 has every possibility to be As strong as 994 in terms of its efficacy profile.

Speaker 2

We don't have enough data now to know whether it will The equivalent to 994 across the multiple different parameters. And as you saw with 994, we're essentially able to take a type 1 narcolepsy patient and Make them look like a healthy individual. The issue with 861 is going to be dose. So we're very thoughtful in terms of what our dose selection will be. And as we've said, Because we want to be careful around the potential for liver toxicity, we'll cap our daily dose at somewhere around 10 milligrams.

Speaker 2

And so the question that we'll be Asking with the Phase IIb study is with the dose cap, what does that efficacy profile look like? And those are data that We'll have in house at some point over the course of this year and we'll share next year and will be the basis of a go, no go decision to Phase 3. With respect to our backup programs, our first next generation molecule will be coming into the clinic later this year And they're really too intense behind the backup program. The first, if 861 doesn't have what I would say is a maximally efficacious Profile in type 1 narcolepsy, then there's the potential for a next in class, best in class. If 861 is the ultimate molecule for type 1 Narcolepsy with maximal benefits, then our intent would be to develop these molecules in across a range of other indications.

Speaker 2

And then just I'll just add that we've only presented in this New England Journal paper a subset of the overall data that we have From our oral orexin and there's data that point us in many different directions for this particular pathway. And so that's one of the reasons we've been so Really proactive in bringing you suite of molecules forward.

Speaker 5

Thank you very much. Moving to the next question, we'd like to call on Seiji Wakao from JPMorgan.

Operator

This is Wakaou, JPMorgan. I have two questions. In this Q1, the gross margin is lower now. Why is this? Is this according to plan?

Operator

And PTT margin, I was expecting to see some improvement there. But What is your view on this? And I just want to understand whether the margin is improving for PDG business. And continuing on what Yamaguchi san asked, 994, 861. I read New England Journal and the factors for liver toxicity for 994 was reactive metabolites, Impact of reactive metabolites.

Operator

What about 861? Is it a different type of a metabolite? Or are you going to do dosing correctly so that the metabolites will be lower or smaller? Can Please explain again why you expect a lower liver toxicity with 861? Thank you.

Speaker 5

So the first question was on reasons For the lower gross margin in Q1 versus prior year, also related to that, the margins in the PTG business, How are they improving? So I'd like to ask Costa to take that question. And then the next question was on 994 and 861 And the reactive metabolites being the cause of liver injury for TAK-nine ninety four, what's our thinking on that around the 861 program? I'd like to ask Andy To comment on

Speaker 3

that. Thank you very much, Wakao san, for your question. Regarding the Core gross profit margin, as you rightfully highlighted, there is a softening versus Q1 of last year. And the main drivers for that are 3. The first one being the impact of loss of exclusivity products such as Velcade, loss of exclusivity happened In May of 2022, so we're seeing the bulk of the impact of Q1 this year versus last year.

Speaker 3

So that's BELCADE, loss of exclusivity headwinds as well as Azilva, which we experienced loss of exclusivity in Japan in June. And furthermore, Dexilant in the U. S, loss of exclusivity in Q1. So those three products alone have very high margins. So having that Loss of exclusivity had an impact on the overall product mix there.

Speaker 3

The second one is the European Callbacks that we experienced in Q1 versus last year, there was the impact on callbacks in Europe It was not impactful in Q1 of last year versus this year. So that's another key contributor to the erosion of the gross profit. And then the 3rd component is really the strengthening of the euro versus the yen, given that we have More of our manufacturing plants and a lot of the OpEx is in euros. For cost of goods, we are experiencing some of those headwinds there. Having to your second part of the question on PDT, we are seeing in Q1 an improvement overall in PDT business, not only on Top line, but also on the gross profit margin as well.

Speaker 3

Given that the Reduction in donor fees from last year, we did start to see a reduction in donor fees of anywhere between 10% to 15%, that's helping the improvement in the gross profit overall start to filter through the P and L This fiscal year, but not enough to offset the other components that I mentioned, mainly being the loss of exclusivity and the callbacks. And overall, very pleased with the PDT performance. You saw in the it's a key driver for growth and launch, growing at 24% at a constant exchange rate, and we're seeing really positive momentum on the gross profit and corporate profit lines. Thank you.

Speaker 1

Well, Kaoussan, it's Christophe here. I will add that we are pleased with this start. You asked whether it was How do we see this Q1? For us, it's a good start of the year. It's a line or above our Expectations.

Speaker 1

So let's see how things evolve for the remaining of the year, but a good start for sure.

Speaker 2

Look, Hauston, it's Andy. With respect to your question on the similarities and differences of 861 and 994, The 861 and 994 are distinct molecules. They have overlapping metabolic pathways. And so it's hard for us to know Exactly whether 861 at a high enough dose would contain would have the same liver toxicity liabilities as 994. And so that's One of the reasons why we're proceeding with caution and limiting our dose to an empirical level where below which across the industry we just don't see Liver toxicity.

Speaker 2

And as I think we all know, toxicity is always a function of dose, and this is particularly true for liver toxicity. Just to put this in context, the liver toxicity for 994 was seen at the 90 milligram BID dose. So that's 180 milligrams Per day of exposure. At the 30 milligram BID dose, 60 milligrams per day of exposure, we didn't see the liver toxicity. And if we were to make Simplistic assumptions that there's a one to one equivalence, which I don't think is fair, we're targeting a less than 10 milligram Per day dose for 861.

Speaker 2

So we're looking at a 6 to 18 fold margin to where that Potential toxicity is with 994. With respect to the backup programs, our next generation programs, we've developed a very distinct Pharmaco for a very distinct chemistry, so the series looks quite differently. They're entirely novel metabolic pathways And XRE and Pathways for Illumination. So the issue is so we've dialed out fully any potential issues, I would say, with the next Generation programs and that's why we spend so much time trying to rework some of the novelty in the space.

Operator

Thank you very much. That's very clear.

Speaker 5

Thank Thank you for your question. I'd like to take the next question from Hashiguchi san from Daiwa.

Operator

My question is on orexin agonist. Other than narcolepsy type 1, Other sleep disorders, what about the potential of orexin franchise in indications other than In our group, step 1, looking at the New York Journal paper, regarding the dose demonstrating Efficacy, it is low dose for narcolepsy type 1. But In other indication, sleep disorders may require higher dose, that's discussed. And regarding symptoms other than an epilepsy Type 1 patients, there may be safety concern. That view was also described.

Operator

And what is Takeda's view on this? And going forward, narcolepsy type 1 and others, what is your strategy going forward to develop for those different indications.

Speaker 5

Okay. So Andy, if you got that, if you'd like to provide an answer on that one, please?

Speaker 2

Sure, Chris. Thank you, Hasaguchi san. So we're actively developing TAK-eight sixty one in both narcolepsy type 1 and narcolepsy type 2. We'll be looking at the data from those studies later this year and making a decision as to whether we move forward in type 1 narcolepsy, type 1 plus type 2 Plus additional indications or whether we limit our future development in type 1 narcolepsy. So we're interested in a range of disorders And the data that emerged from the Phase 2b study on 861 will inform on how broadly we intend to bring that molecule.

Speaker 2

And Again, we're bringing additional molecules. We have TAK-nine twenty five for postoperative indications and then we have our next generation molecules, which We'll intend to develop more broadly as well.

Operator

Thank you very much.

Speaker 5

Thank you very much for the question. So next question, we'd like to invite Mike Nedelkovic from Cowen. Please unmute and ask your question.

Speaker 8

Thank you for the question. So my first question is from is on TAC-nine ninety four. I was curious, The urinary urgency and urinary frequency AE was relatively prevalent. Are you seeing something similar with the next generation agents? And is the dose reduction that's intended to address the active metabolite, is that also addressing to some extent the urinary urgency?

Speaker 8

That's my first question. And then my second question is on ENTYVIO. Do you anticipate a return to double digit growth in the U. S? And if so, do you have a general time frame over which you expect that to happen?

Speaker 8

And to what extent might this subcutaneous formulation contribute to that growth if you expect it?

Speaker 2

Thank you.

Speaker 5

Thank you, Mike. So the first question on 994, the year in our urgency and whether we're seeing that with 861, I'd like to ask Andy to answer. And then the question on ENTYVIO potential return to double digit growth, I'd like to ask Julie to comment on that.

Speaker 2

Good morning, Mike. The urinary urgency appears to be an on target tolerability issue with the orexin 2 receptor agonist, not related, we think, To the any of the metabolites, even though it's prevalent in a large percentage of patients, it seems to be Fairly mild. And one of the indicators that makes us feel quite confident that this is going to be something that won't be a problem for these patients is that We see almost no dropouts in our studies, both for 994 and for the ongoing 861 study, and we see almost 100% conversion From the main trial to our open label extensions.

Speaker 6

Mike, and in terms of ENTYVIO growth, I would say there are a few factors that we're looking at to have double digit growth for ENTYVIO. First, as you heard Ramona say, we are anticipating approval and launch of ENTYVIO subcu in the U. S, and we do expect that to bring a lift to our growth. And then there are 2 other factors that we are working on. 1 is in terms of Further evidence generation to support ENTYVIO, we have 3 planned studies in the U.

Speaker 6

S, one of which has already Begun initiation in terms of work with our HCPs and clinical sites. And the second is in terms of leveraging data, digital and technology to further enhance our marketing capabilities Excuse me, to have more targeted and precise segments and marketing for ENTYVIO. So those are the three aspects that we are looking at to help drive ENTYVIO to double digit growth this year.

Speaker 9

Thank you.

Speaker 5

Okay. Thank you, Mike. So next question, I would like to call upon Muraka san from Morgan Stanley. Muraka san, please go ahead.

Operator

Can you hear me? This is Muroka speaking. Yes, we can. Thank you. Maybe I think it's Too early to talk about next fiscal year.

Operator

But so far, in this fiscal year, I think you are on track. And there may be some upside in your performance. That's my understanding. And the next fiscal year, no longer Vyvanse and the entire view may take a little longer time to recover. Then In the next fiscal year, core operating profit, do you think it achieves positive growth?

Operator

Or it may be flat or negative growth in 2 years running. Do we have to consider that Possibly, did that risk?

Speaker 5

2024, depending on Vyvanse and Entyvio, how they play out? Is it potential that 2024 could be a year of decline? So I'd like to ask Christophe perhaps to comment on this question.

Speaker 1

Thank you, Morakka san. Well, it's way too early to give a guidance for the next fiscal year. I think the one key factor here will be the Vyvanse generic impact. Today, we plan for a generic entry in August, but you can imagine that if it will be Delayed, for example, or if the number of generic would be lower or higher than what we have in our plan that will have an impact on the erosion curve. At the present time, our assumption is that we will rebound in 'twenty four, 'twenty five because we think that there will be Much more limited impact of generic in 'twenty four, 'twenty five, but it's really important that we look at what happen this fiscal year in order to predict better our rebound.

Speaker 1

And if we will rebound as planned, it will be a rebound on both The corporate profit and the revenue. But let's see during the fiscal year 'twenty three how things are evolving with both Viovant and Aziva actually In order to predict better how we can see 2024, 2025 Rebounds. Thank you.

Speaker 5

Next question, I'd like to call upon Steve Barker of

Speaker 9

Steve Barker from Jefferies. Thanks very much. Two questions. One About 861, I'd like to ask Andy about the choice of the 10 milligram dose. I understand the logic Regarding wanting to reduce the risk of side effects, but given if you could explain What you're seeing in terms of the potency and therefore what you might theoretically expect to see in terms of the efficacy, some comments around that would be Actually appreciate it.

Speaker 9

And then my second question is perhaps for Christophe, maybe Costa. Christophe, you mentioned in your comments that you would expect to see the core OPM get back up to Low 30s low to mid 30s. And you mentioned that application of AI Might be able to help efficiency. I'd actually be very interested to see to hear what how you think AI Can be applied to the Pharmaceutical business? Thank you.

Speaker 5

Okay. Thank you, Steve. So I guess, First question, Andy, and then maybe Christophe to start on that second question. Thank you.

Speaker 2

Steven, thank you very much. So Firstly, 861 is a significantly more potent molecule when we look at the in vitro pharmacology relative to 994. It's also a molecule that has a more Extended exposure and a longer half life. So it has very different properties in TAK-nine ninety four. So it's going to be important for us to look The data that come out of our Phase 2b study to understand whether with our dose limit our dose cap, we can achieve the same level of efficacy as TAK-nine ninety four, But intrinsically, the molecule has the potential to do that even at lower doses.

Speaker 2

And I'll add that we plan to begin Sharing data from the 861 program in type 1 narcolepsy patients later this year. So some of the healthy volunteers, sleep deprived data, Some of the PKPD modeling that we've used, those data will start to be out there in the coming months.

Speaker 1

Thank you, Steve, for the question. We see a very high potential for the utilization of AI in our business, but I would emphasize that it's data, technology and AI. Without the data, you cannot train the AI. And without Technology like image recognition, you don't have you don't generate data in many parts of our business. So we have been focusing on Having data lake and data domain well structured in order to train the AI algorithm, and we are seeing application across our value chain.

Speaker 1

For example, In manufacturing, we are using image recognition on our manufacturing line in order to improve The efficiency of the line, for example, we are using AI as well-to-do some visual recognition that we have done manually in the past. So in the manufacturing side, we see a lot of productivity implication. On the research side, we are using AI for molecule design or for Toxicity modernization, for example, we'll use also that AI to accelerate clinical trials, test protocol, As higher patient activation. On the commercial side, we are looking at Optimizing our interaction with doctors in a digital way, and we are using algorithm as we speak already. On the data on the PDT side, for example, we are using some algorithm to have a better relationship with our donors.

Speaker 1

So it's really across the board. And I didn't talk about back office, but we are also using this type of technology In our back office. In fact, we think that all our employees eventually will have some application of AI for their jobs. So this is really a very high priority for us. Thank you.

Speaker 9

Thanks very much.

Speaker 5

Thank you, Steve. And with that question, it brings us to the end of our time today. So thank you everybody for joining us on this conference call, and we look forward to talking with you again at a later date. Thank you, and

Speaker 2

good night.

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Earnings Conference Call
Takeda Pharmaceutical Q1 2024
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