CorVel Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
January 30, 2025

There are 12 speakers on the call.

Operator

you for joining us today despite a very busy schedule for FY 'twenty four Q3 Earnings Call by Takeda. I'm the master of the ceremony today, Head of IR. My name is Oraibi. Thank you for this opportunity. I would like to explain about the language setting first.

Operator

Please find the button for the language section at the bottom of the Zoom window. If you wish to listen Japanese, please select Japanese. If you wish to listen to English, please select English. Or if you want to listen to the original language, please keep it off.

Speaker 1

Please select English in the Zoom language select button.

Operator

Actual results may differ materially from those discussed today. The factors that could cause actual results to differ materially are discussed in our most recent Form 20 F and our other SEC filings. Please also refer to the important notice on Page 2 of the presentation regarding forward looking statements and our non IFRS financial measures, which we will also be discussing during this call. Definitions of our non IFRS measures and reconciliations with comparable IFRS financial measures are included in the appendix of the presentation. Please refer to Page 2 as well for important notices.

Operator

We will begin the call. First of all, we would like to invite our CEO, Chris Weyber, to comment.

Speaker 2

Thank you, Chris. Hello, everyone, and thank you for joining us. As you might have seen from our press release, today marks an important announcement regarding our Q3 results. Milano will speak to that, and my retirement from Takeda and succession. After 12 fulfilling years with Takeda, the Board and I have agreed on June 2026 as the date of my retirement from Takeda.

Speaker 2

Will no longer be on the Board of Takeda after June 2026. I'm very pleased to announce that the Board has selected Julie Kim, President of our U. S. Business unit as my successor. Julie will be proposed as a new candidate for the Board at the Ordinary General Meeting of shareholder in June 26 and will then be nominated as President and CEO.

Speaker 2

The unanimous decision to select Julie was made after a very robust multiyear process assessing both internal and external candidates. To ensure a smooth transition, we are sharing this decision now, the timing align with our exciting growth outlook on potential drug launches, which may start as early as the second half of twenty twenty six. It will allow us to select and nominate Julie's successor, obviously a key role as a U. S. Represent 50% of our revenue.

Speaker 2

This time frame also align with anticipated retirement of several external independent directors, allowing both Julie and me to be actively involved in the bond member selection process. Now I wanted to share some words about Julie. Julie joined the Takeda executive team in 2019. She has been the President of the U. S.

Speaker 2

Business Unit and U. S. Country Head for the past 3 years. Prior to that, Julie led our plasma derived therapy business unit. With over 30 years of health care experience, Julie is uniquely qualified for this role.

Speaker 2

The Board and I have absolute confidence in Julie's capabilities and leadership qualities. She embodies our corporate values, ensuring decisions are patient first, inclusive and thoughtful. Importantly, our commitment to Takeda's purpose is unwavering. I have witnessed firsthand that she also has the right character and grit to lead a complex global company like Takeda. For now, nothing changed.

Speaker 2

We are focused on advancing our promising next stage pipeline and preparing for future launches. I couldn't be more excited about what lies ahead for Takeda. Back to you, Chris.

Speaker 3

Thank you, Chris. Hello, everyone. This is Milano Fruta speaking. It's my pleasure to give an update on Takeda's Q3 results for FY 2024. The positive momentum of our portfolio has continued into quarter 3 with year to date revenue growth of 4.5% at constant exchange rate or CER, driven by our gross and launch products, which grew by 14.6% at CER.

Speaker 3

In addition to top line growth, we also delivered margin improvements with 28.5 percent cooperatingprofit margin, an increase of 1.6 percentage points. This reflects the strength of our growth on launch products, slower than anticipated buybackenerate erosion and OpEx savings from the efficiency program we initiated in May 2024. We are also very excited about our late stage pipeline. This month, we completed the licensing agreement for AtelCept a late stage potential best in class oncology program. And as we introduced at our R and D day in December, 2025 will be an important year for our pipeline with 3 Phase 3 data readouts expected this calendar year.

Speaker 3

Risperotide in polycythemia vera, ovabrextone in neurogrepcip type 1 and dasocitinib in psoriasis. Based on our positive business momentum, we are raising our full year management guidance again this quarter and now expect revenue, corporate profit and the core margin growth this year. And with the extra cash flow generated from this upside, we also plan to initiate a share buyback of up to JPY 100,000,000,000. Slide 4 summarizes our financial results for the 1st 9 months of FY 2024. Revenue was over JPY 3,500,000,000,000 an increase of 9.8 percent versus prior year or 4.5% growth at CER.

Speaker 3

Core operating profit reached JPY 1,000,000,000,000 yen year on year increase of 16.3 percent or 10.1 percent at CER. Reported operating profit was €417,500,000,000 growing at 86%. Core EPS and reported EPS were JPY 443 and JPY 134 respectively. Operating cash flow was €835,000,000,000 an increase of 90.8 percent year on year reflecting profited growth, lower cash taxes and smaller increase of working capital. Adjusted free cash flow was JPY 568,300,000,000 Slide 5 shows a breakdown of our key business areas and the gross and launch products which are driving our performance.

Speaker 3

These products represent 47 percent of total revenue and grew by 14.6% at CER year to date. Within GI, NTVR growth was 6.6% at CER. Although underlying demand remains strong and in line with our plan, the growth rate was impacted by 2 specific factors. First, there was a higher baseline for Q3 growth due to shipment timing last year. On top of that, we booked a gross to net adjustment in Q3 this year of approximately US50 $1,000,000 This adjustment was correction of our past statutory government price calculations that had accumulated over 10 quarters since mid-twenty 22.

Speaker 3

If we exclude the impact of shipment timing and this gross to net adjustment, year to date interior growth would have been 9.4% at CER. Next rare disease where TEXYRO continues to lead the HAE prophylaxis market delivering 16.4% growth at CER. Evotensky and AZIMA also continue their strong launch momentum. Within plasma derived therapies, immunoglobulin and albumin grew by 11.9% and 2.2% respectively. For albumin on top of our planned and temporary shutdown of production lines we also observed the cost of containment measures in China which is influencing the growth rate.

Speaker 3

In oncology, Trizacla is expanding very well. Most of the revenue is currently from the US but we recently launched in Japan and we are making progress with approvals and reimbursement in Europe. In vaccines, Qudenga is now available in 27 countries and we see strong global demand in both endemic and non endemic markets. We have sold over 10,000,000 doses since launch in 2022 and we remain focused on further expanding access to these important vaccines. From slide 6, I will explain more about Yaonia growth dynamics.

Speaker 3

1st, a revenue growth. Our growth and launch products more than offset loss of exclusivity impact mainly Binance and Adderall XL in the U. S. And Aziliva in Japan. In addition, net positive growth in other brands such as GATEX, Printerlix, Acetris and Iclusig contributed to 4.5 percent revenue growth at CER.

Speaker 3

The depreciation of the yen versus major currencies contributed 171,900,000,000 yen resulting in 9.8% growth on actual FX basis. Slide 7 shows a year on year bridge for cooperating profit. There was a positive gross profit contribution from revenue dynamics, partially offset by a 29,900,000,000 yen adjustment due to implementation of an accounting process to recognize accumulated FX impact of inventories. Moving to OpEx, we had a year on year reduction in spend at CEL with lower R and D expenses primarily due to the termination of several programs during our pipeline prioritization at the end of FY23. We are also starting to see the benefits of our efficiency program on OpEx.

Speaker 3

Overall, co operating profit grew by 10.1 percent at CER or 16.3% including the benefit from FX. Next reported operating profit. In addition to co op growth the main driver of the 86% increase was a lower impairment cost compared to the last year. Restructuring costs primarily related to the efficiency program were €107,400,000,000 on track with our plan Next, our updated outlook for FY24 we are upgrading management guidance revenue and core operating profit are both expected to increase at low single digit percentage.

Speaker 2

This is

Speaker 3

a remarkable change from our initial outlook for revenue and core PE decline this year. Core EPS guidance has also improved to flat to slightly declining at CER. Our updated forecast is now JPY 4,590,000,000,000 of revenue, JPY 1,150,000,000,000 of core operating profit and yen507,000,000 of core EPS. It means our core OP margin is now expected to be 25.1 percent an increase over last year. This also reflects our updated currency assumptions for the year now with JPY 153 to the US dollar our assumption for the euro is unchanged.

Speaker 3

On a reported basis we forecast operating profit to be JPY344,000,000,000 and the reported EPS to be JPY 75,000,000 We're also raising our free cash flow forecast range to JPY 550,000,000,000 to JPY 650,000,000,000 This is due to the uplift in Core B and expected proceeds as a part of the upcoming sale of Takeda Teva, our joint venture in Japan. With this performance and cash flow, we have decided to implement a share buyback of up to JPY 100,000,000,000 Slide 10 shows the moving parts in our updated forecast We are upgrading revenue by JPY 110,000,000,000 mainly reflecting year to date performance versus the previous forecast Based on year to date trends we expect the buyback's upside of around €40,000,000,000 versus our prior forecast We also expect a net positive impact from the rest of the portfolio. FX is also a benefit to our revised revenue forecast. For Co OP, the majority of the JPY 100,000,000,000 increase is driven by product performance and R and D savings, partially offset by the accounting change impact to cost of goods that was not included in our prior forecast. Of the reduction in R and D expense forecast, approximately half is due to post trial access costs for tax 611 and tax 609 previously expected as R and D expense but now in other operating expenses.

Speaker 3

The remaining benefit is due to FC and C savings. This brings our Q3 earnings presentation to an end and we would like to welcome your questions. Thank you.

Speaker 4

We would like to entertain questions from you. Christophe Milano and R and D President, Antti Pran will be joining in this session. If you want to ask a question, please let us know with the right hand. If you're listening on the English Channel, ask in English. And if you're on Japanese, please ask in Japanese.

Speaker 4

If you're listening to the original either language, it's okay. You please ask up to 2 questions, and please address your questions. Two questions upfront. The first is from Mr. Barker, please.

Speaker 1

Yes,

Speaker 5

Steve Barker from Jefferies. Thanks very much. So, my question is around some of the accounting issues. So, you have a negative impact on your forecasts because you I just want to understand that a little bit more. So you're devaluating the yen denominated value of inventories, so that's going to boost your COGS?

Speaker 5

And then I also there was the R and D question. Is that going to be is that a one off where you is it related to specific clinical trials and we won't expect to see that increase in other expenses going forward? Yes, so 2 accounting questions, please. Thank you.

Speaker 1

Okay. Thank you, Steve. Milano, would you like to answer those questions?

Speaker 3

Yes. Hi, Steve. Thank you for the questions. So the first one is COGS 1. So it's a little bit technical.

Speaker 3

So bear with me. So as you know, there is in intercompany transactions, we're going to have some internal markups and then within in the consolidation accounting process there is a process of eliminated markups. Sometimes due to the different functional currencies and high volume of transactions, this kind of adjusting accounting like account will be used to appropriately reflect our inventories. And then these accounts has been accumulated with we believe this is largely due to the FX impact in the past movement and then this time we decided to implement an accounting process to recognize this accumulated foreign currency impact of the inventories and then as a kind of one time recognition of the about 26,000,000,000 yen for the past ones and then for this fiscal quarter 3 like about JPY39 sorry JPY 3,900,000,000 of the recognition. That's a kind of combination of the recognition of the FX impact for the in the inventories.

Speaker 5

Right. So it's really a one off?

Speaker 3

Yes. But we are now introducing this the process of the recognizing this FX impact kind of automatically or like systematically through the costs like amortization. So it's going to be the it would not be this big amount. Actually, we are recognizing like a 2 years equivalent amount. So this would be much smaller amount will be recognized kind of regularly throughout the quarters.

Speaker 5

Right. It won't build up anymore.

Speaker 2

No.

Speaker 5

Thank you.

Speaker 3

And for the 611-609, this is the these programs were we had decided to contaminate or stop the development, the programs based on the clinical trial results. But based on a patient's request, we decided to offer access to these molecules to the patients who wants to have as kind of post trial access. So and then we with these decisions, we made accrual for this post trial access cost which booked in Q3, which is almost like JPY 100,000,000,000, which we booked in other operating expense. So it's kind of one off the one time for this program.

Speaker 5

Understood. And a related question, could you help me understand the Entyvio

Speaker 3

in the U. S. Market, right?

Speaker 2

Yes.

Speaker 3

And then that's going to be referred to the especially government pricing. And there is some we identified some miscalculation in the past 10 quarters. And all these things is it's not material. The accumulated number is about $50,000,000 over the more than the 2 years. But we identified this kind of miscalculation so that we are now addressing or correcting this kind of variances.

Speaker 3

And then we are booking as a kind of negative to the revenue.

Speaker 5

Understood. Thanks very much.

Speaker 3

Thank you, Steve.

Operator

Moving on to next question. Citi, Yamaguchi san, please ask your question.

Speaker 6

Can you hear me?

Speaker 1

Yes, we can hear you.

Speaker 6

Thank you. Thank you. So two questions, Priy, from Yamaguchi for Citi. The first question is regarding the management change. And my sense was, Christophe, you for me at least, you sound like you're trying to do the management up until the NTVO cliff, which is around the 2030s.

Speaker 6

And but you decided to change the management next year. Is there any kind of trigger from the fundamental of the company is concerned? So can you tell me why now? I mean, next year, but can you tell me the kind of trigger point you think about this time? That's the first question.

Speaker 6

The second question is that this year's earnings is getting stronger and stronger because of the digital, the buybacks and also currency. But at the same time, it does mean that next fiscal year how those are getting a little bit higher. Can you give me some I know you don't have any guidance at the moment, but can you give me what's the pros and cons for next fiscal year starting from starting for next April? And is that OP wise, is it flattish or is the price decline? Or it depends on a lot of factors, but can you give me what do you see at the moment for the next fiscal year's trend as far as sales and operating profit is concerned?

Speaker 6

Thanks.

Speaker 1

Thank you, Yamaguchi san. So the first question on the rationale behind the management change and second on outlook for 2025. So Christophe, would you like to take those questions?

Speaker 2

Yes. Thank you very much, Emmanuel Gucci san. On the management change, we feel that this is a good timing in 2026 that will have been 12 years, which is quite a long period. So 2,032 will not have been impossible, but it will have been very, very long. But it's also a good window now because we are at the end of the violence impact actually.

Speaker 2

I'll come back to that in your second questions. And we are before the wave of new product launch, you don't want to make management change during a new product launch. You want to do that before. And that's why we are also announcing now with this transition period that will give us time to find and select the successor of Julie, who will be in place and with more stable leadership before we launch this product in the U. S.

Speaker 2

It's also coincident with some change that will happen with our Board, at our Board. We do have 10 years, 10 year limit for our external director. So there will be some rotation happening in 2026. And we feel it's good to have the future Board and the future CEO in a way of synchronized. So that's also another consideration that we discussed and that's why we decided for June 2026.

Speaker 2

On the second question, Yamaguchi san, of course the upside, 40% of the upside is Vyvanse, but 60% is non Vyvanse. So we shouldn't forget that we have a good dynamic with our growth on launch product. Obviously, Vyvanse is a big upside this year. The residual impact of Vyvanse in next year will be more limited. If you look at the generic penetration today, it's 65% of the molecule.

Speaker 2

So even though we had some upside, we the generic penetration has happened and today we are at 65%. So we have not reached the bottom, but we are getting close to it. So that's why we feel confident that next year will be a growth year in revenue and bottom line. Why? Because once yet we will see some violence impact, but it's a really it would be a residual impact and we expect our growth on launch product to continue to grow in the future.

Speaker 2

Thank you.

Speaker 6

Thank you very much.

Speaker 1

Thank you. Okay. We'd like to take the next question from TD Cowan, Mike Nadelkovich. Mike, please unmute and ask your question.

Speaker 7

Hi, everybody. Thank you for the question. I have 2, both on the topic of zacitinib's Phase 3 psoriasis program. So first, when we see the first readout, what would you define as success? Or put another way, what result would make you feel more confident in your head to head to grab a sitinib trial?

Speaker 7

And what result might make you feel a little more concerned? Just as an example, should we focus on PASI 75 the primary endpoint or would you urge us to scrutinize PASI 100? That's my first question. And then my second question is on timing. One of zazocitinib's phase 3 psoriasis trials latitude 3,002 is actually a couple months past its primary completion date on clinicaltrials.gov.

Speaker 7

Should we take this to mean that the 16 week primary endpoint has been recorded And if so, do you have data in house or do you remain blinded until the longer term endpoints readout? Thank you.

Speaker 1

Thank you, Mike. Andy, would you like to take those two questions, please?

Speaker 8

Sure, Chris. And hi, Mike. And I'll actually maybe Christophe can also, when I'm done, provide some thoughts in terms of the overall profile of zazacitinib and what we would consider, differentiated. So Mike, let me start with your second question first, which is timing. So as we mentioned, as of November of last year, we've completed enrollment of the 2 primary Phase III studies.

Speaker 8

These are the pivotal and registration enabling studies with the as a comparator. As you've mentioned, the primary endpoint is a 16 week endpoint, but the studies are completely blinded until week 52 for 1 of the studies and week 60 for the 2nd study. And so that's ensured that we maintain the full integrity of these studies and that we have a 1 year safety database. So the direct answer to your question is that we don't have data in house and we're not planning an interim analysis and quite excited about the speed at which we've enrolled these studies and we're looking forward to seeing data at the end of the year. Before I hand it over to Christophe, I'll mention that the primary endpoint for this study is PASI75 and there are historical reasons why we've used PASI 75 as the primary endpoint.

Speaker 8

But the study is very well powered to see benefits on most of the key secondary endpoints. And the one that we're most enthusiastic about will be PASI 100. There's been a trend in psoriasis, particularly driven by some of the efficacious parenteral agents, the subcu and IV agents, where patients are now really focused on clear skin and that's where we really see our clear advantage. Christophe, I'll hand it back to you if you have additional comments.

Speaker 2

Yes. Thank you indeed. Thank you, Mike. Our goal with dasitinib is to redefine what an oral product can do, again, psoriasis in terms of efficacy and safety. So we will look at significant efficacy whether it is PASI-one hundred or 75 compared to what overall have been able to deliver in the past and being much closer to a biological efficacy.

Speaker 2

And that's what we believe will redefine the overall segment and the role of oral product in the treatment of psoriasis. So I think that's really our mindset and that's what we are looking for when we look at the result of the study.

Speaker 7

Thank you. And congratulations on your upcoming retirement.

Speaker 2

Thank you.

Operator

Moving on to the next question, Nomura Securities. Matsubara san, please ask your question. Yes, this is Matsubara, Nomura Securities. Can you hear me? Yes, we can hear you.

Operator

Thank you. I have two questions. First question is about Entyvio. Compared to the previous quarter, growth of Entyvio is not very clear. I don't think it's growing.

Operator

Is this because of the holidays pushing down the shipment? Or is it due to the competitive environment changing? That's my

Speaker 3

question. The

Operator

second question, sorry, is about the CEO. I understand you have thought about the timing of switching to the new CEO. Now under the new CEO, what do you expect to happen? I understand that Julie has experience in business in the United States and in gluobrine, so those aspects of the company may grow. But what is the growth strategy under her?

Operator

What do you expect her to do for Takeda?

Speaker 1

Thank you, Matsubara san for the questions. So the first one was on Entybeo quarter on quarter growth. Is there anything of note here in terms of competitive dynamics changes? And then the second question on expectations for Julie as the incoming CEO. So I'd like to ask Christophe to answer those questions, please.

Speaker 2

Thank you for the question. For Antivio, I think you need to take out one off effect that Milano mentioned, phasing of shipment. So Q3 last year was very strong for phasing issue or phasing pattern. And then the one off adjustment that we mentioned on the gross to net price ASP. If you take that out, our year to date growth is 9.2 and our quarter growth is much higher.

Speaker 2

A bit lower than Q2 and we do believe that indeed that there has been some effect with year end, which was especially long this year as a break between Christmas and New Year's Eve. But I think it's really important to look at the year to date. If you take out these two one offs, we are at a bit more than 9%. So a bit short of our 11% new guidance and forecast, but we'll see how things are evolving. We are quite pleased with the response that we are seeing on the PEN launch.

Speaker 2

Quarter to quarter, we have seen a 30% increase of prescribers, number of prescribers prescribing the drug, the pen. And also our access has improved significantly, but it's not at the maximum yet. We have a bit more than 70% access at the moment and we want to reach 90% plus. So I think there is still some work to do there. So overall, the pattern has not changed.

Speaker 2

ONCEVIO is keeping its leading position, especially in the first line of biological treatment. We have lost some market share in the second and third line, but we are growing faster than the market. So we are pleased with the performance. And obviously, as we discussed in Japan in the past, the launch of the pen is very much important in the life cycle of Ontevio. For your 2nd question, I would just want to reemphasize that, Julie will lead our U.

Speaker 2

S. Business until we have a successor joining us, a successor of Julie that will take sometimes we will look internally and externally. So no distraction, very much focused on that business. And then once we have a successor for Julie, she will be able to focus on the transition and progressively take the lead. So I think she has been part of the TET for since 2019.

Speaker 2

So she has been extremely involved in our overall strategy direction. She is leading our U. S. Business today, which is 50% of our total revenue. So directionally, she has been very much in favor and supportive of our strategy.

Speaker 2

So don't expect major change of direction, but she will respond herself to a question like that from 2026 onward. I think that's the way to see the timing. Thank you.

Speaker 1

Thank you very much, Matubal Asan. So for the next question, I'd like to call on Tony Wren from Macquarie. Tony, please unmute and ask your question.

Speaker 9

Great. Thank you for the opportunity to post my questions. My first question is again on Entyvio, the gross to net true up adjustment. I think I heard Murano saying that it was due to selling Entyvio to the U. S.

Speaker 9

Government over the last 10 quarters. I just want to confirm that I heard it correctly. With that, would you say that the 11% CER growth rate you initially guided would not be possible? So that is on ENTYVIO. The other question is on the U.

Speaker 9

S. IRA price negotiation. So Amgen's Otezla is now officially included in the 15 drugs for the 2025 pricing negotiation. So how does that affect your clinical development or commercialization plans for Azarsocitinib? Thank you.

Speaker 1

Thank you, Tony. So the first question on some more detail on the gross to net for ENTYVIO and any impact on the 11% full year that we previously disclosed for ENTYVIO. So Milano, if you'd like to follow-up on that one. And then the second question on the IRA, any impact on Zazow because of Otezla's inclusion? I'd like to ask Christophe to comment on that one, please.

Speaker 3

Hi, Tony. Thank you. So this again, this adjustment is related to the our like a gross to net a calculation like in a statutory government pricing calculations. And then we are sharing this information with an SMS in the U. S.

Speaker 3

But this impact is unfortunately, we didn't of course, we didn't forecast it or we didn't we had not anticipated when we developed this guidance of 11%. So if the by this amount, maybe it might be a little bit challenging to reach 11%. But basically, if we take out this impact, overall, we are in line with our internal like a plan.

Speaker 2

And for the IRA, yes, Otisla is among the product selected in this 2nd wave. It's reinforced it doesn't change our clinical development plan. It just reinforces the fact that we believe that we will have a very different profile in terms of efficacy. And therefore, we'll be able to really differentiate ourselves from previous oral product. The fact that it is in the IR rate doesn't change our strategy.

Speaker 2

It just reinforce the fact that we need to be differentiated and we believe we will be in term of efficacy and safety. Not only by the way against a product like Otezla, but also as you mentioned earlier, we against DUKRA because we are doing this head to head study against DUKRA later on. Thank you.

Speaker 9

Thank you very much.

Operator

Moving on to the next question. Morgan Stanley, Muraoka san. Please unmute and ask your question. Good evening. This is Muraoka, Morgan Stanley.

Operator

I hope you can hear me. Yes, we can hear you. Thank you. My first question is about next fiscal year, which is coming in 3 months. How do you see the next fiscal year?

Operator

100 to 2 50 basis point OP margin improvement that you have always talked about. Do you think you can sustain that for next fiscal year? Can we expect that to happen? And another question is what about dividend? This year, you made upward revision twice, but the dividend was the same.

Operator

It stayed the same. But if the OP margin improves in the next fiscal year based on your progressive policy, do you think the dividend could increase? Or can we be confident that the dividend will increase? That's my first question. And the second question is about Entyvio biosimilar.

Operator

Alvotech Teva started their Phase III program recently and it is becoming more crowded, it seems. Timing wise, well, you always maintained that you'll be okay up until 2,030. Maybe that is still true. But if you really focus on the timing, are you going to be okay up until 2030 or 2,032 in terms of biosimilar entry timing? Can we please help me organize my thoughts around this?

Speaker 1

On outlook for margin improvement in 2025. I'd like to and also thoughts around the dividend for next year. I'd like to ask Milano to comment on that. And then the second question on biosimilar assumptions for Entyvio, if there's any change around entrance timing, I'd like to ask Christophe to comment on that.

Speaker 2

Good

Operator

evening, Mr. Nakasan. Thank you for your question. First of all, with regard to OP margin, 100 to 250 basis points improvement and this is the basic thinking. And the 23% is the base number that we're thinking about for this fiscal year.

Operator

However, based on the latest outlook, 25.1% landing for OP margin is expected, which means that we're now putting together the budget for next fiscal year. So we will take a close look at that, we would like to make an official announcement in May. Core OP margin is something that we always want to improve. This is always the policy of the management. So we will be finalizing the numbers in order to help improve that.

Operator

With regard to dividend, dividend payment is different from the share buyback that we have announced recently. We want to do something that is stable for long term and also progressive, sustaining the level or increasing if possible. It is very difficult to comment at this point in time, but I don't think you have to worry about reducing of the dividend at the very least. Thank you. Could you please respond to the question about Entyvio?

Speaker 2

Sure, sure. Thank you very much, Morakosan. It's Christophe. Regarding Entyvio, there is more we do see more activity of development of biosimilar for sure. But as far as we see for the U.

Speaker 2

S. Market, we still believe that it's that biosimilar entry will be between 2013,232. We have quite a strong set of patent expiring in 2,032. So we'll see what happened when there is a litigation around this patent. But just doing the development plus the litigation process takes a lot of time.

Speaker 2

So if you are optimistic about our strength of our patent, you take an assumption of 2,032. If you are not optimistic, you take an assumption of 2,030 plus between the 2. I think that's always has been how we describe the situation. We believe that it's 2,032 because we believe into our patent set, but also might not. So for now, no change in our assumption regarding biosimilar entry, especially in the U.

Speaker 2

S. In Europe, it's a slightly different legal system depending on the country. But for U. S, it's our position is very clear. Thank you.

Speaker 4

Thank you very much. Thank you. Next question from JPMorgan, Wakao san. Wakao from JPMorgan.

Speaker 3

I have two questions. First about Shabay Bak. So could you explain the background behind the decision to implement Shabay Bak this time? Is it simply because the share price was very low? What is the message of this decision?

Speaker 3

And could you elaborate on the could you tell me the timing of Phase 3 data readout for TAK-eight sixty one and TAK-two seventy nine, Q3 or Q4 or so could you please?

Speaker 1

Thank you, Wakao san. So the first question on thinking behind the buyback, I'd like to ask Milano to comment on that. And then the second question, Andy, any further detail you can provide on timing of Phase 3 for TEC 861 and TEC 279?

Speaker 3

Thank you, Akko san. So we updated if you remember, we updated the capital allocation policy 2 years ago. And we set the framework that but within the given that we keep the investment grade credit rating, basically the 2 primary pillars for the capital allocation is investment for growth and then show the return. So with the current performance this year that we are regenerating more cash flow than we originally had planned. And we have been allocating this cash.

Speaker 3

And then as you have seen, we have done a few business development deals very selectively. And then we are kind of adding in a pipeline and we are now focusing on developing this in a late stage pipeline. And then the then we cut it comes to the shareholder return. And with this the upside, we thought this is the good timing or the appropriate to do this share buybacks, allocate almost half of the incremental cash flow in terms of the upgrade of the guidance. So we think it's appropriate to do that according to the capital allocation policy.

Speaker 8

Well, Gausson, this is Andy. On timing of each of the studies, so as you know from the R and D Day, we have 3 major Phase 3 readouts coming this year for risveratide, ovapraxitan and zazositinib. We haven't disclosed specific timing for those studies. For ovapraxitan or for risveratide, we're expecting top line data this quarter. So we're very excited about that.

Speaker 8

For ovaprakstine, we have 2 ongoing Phase 3 studies in type 1 narcolepsy and enrollment for each of those studies has exceeded our forecasts. And while we haven't given exact dates, we're hoping to have data mid-twenty 25. And then for zazacitinib, we have 2 primary registration enabling studies. As I mentioned earlier, those have completed screening enrollment as of November of last year. We have a 3rd study that's ongoing that's a study to garner additional safety.

Speaker 8

That study continues to enroll. So you can kind of do the math on when we would expect data from the first two pivotal studies. And then as Christophe alluded to earlier, we'll be starting a head to head study against ducravasitinib sometime mid year. That study won't be part of our original filing. Our hope is to have data from that study available to support the launch.

Speaker 3

Okay. Very clear. Thank you.

Operator

Moving on to the next question. SMBC Nikko, Watasan, please unmute and ask your question. Yes, this is Watasan, SMBC Nikko. Can you hear me? Yes.

Operator

Thank you. Just one question. Ira and price negotiation, 2028, I think Entyvio might be included. What is your read on the situation? Do you think Entyvio will be included?

Speaker 1

Possibility of Entyvio included in Ira in 2028. Christophe, would you like to comment on that?

Speaker 2

Well, it's a possibility. That's why actually we kept our peak range between 7.5 and 9. Initially, we had this range because it was we're not sure that we will launch a PEN, you know that we had a CRL, etcetera, but we launched a PEN. But then we kept that range to include the possibility of an IRA inclusion in the future. So it's a possibility that we have in mind, yes.

Speaker 2

Thank you.

Operator

Thank you. That's clear. That's all for me.

Speaker 4

Next, Hashiguchi san from Daiwa Securities. Go ahead. Hashiguchi speaking. Thank you for taking my question. In the U.

Speaker 4

S. And the business environment changes and how that impact your business, I would like to have your idea not limited to pharma industry, but in various industry, it seems some new policies recently shown from various players. And by that kind of change, how that could impact your business, including opportunities and risks? For example, PBM may be redesigned and that could impact your pricing. What about that?

Speaker 4

Thank you.

Speaker 1

Thank you. Richard. So Christophe, if you'd like to answer that question on potential impact of changes in the U. S. Environment?

Speaker 2

Yes, thank you, Richard. Richard, yes, I mean, there will be some changes in the U. S. Environment. Healthcare is one of the topic that for any administration will focus on.

Speaker 2

The Trump administration just announced that they are committed to carry on with IRA. That's one point. And therefore, this pricing system will carry on for now. It might be adjusted in the future. We will see that that's something to take into consideration.

Speaker 2

On the other hand, keep in mind that as part of the IRAs, it was also for Medicare patient and out of pocket cap, which is a positive for many diseases, but especially oncology. So they are plus and minus, if you like. We believe that the U. S. Country will remain absolutely vital for innovative company and R and D driven company like Takeda.

Speaker 2

This is the country where new innovative medicine have the fastest launch and this is where we have the highest level of innovation recognition and reward for innovation. It's very important, especially as we are contemplating new launch of our new product. But yes, the environment is changing like in other countries. Another element that we are also watching are more geopolitics. Will there be tariff, for example, impacting pharmaceutical medicines?

Speaker 2

It could be. And obviously, at Takeda, we have a manufacturing network focused on U. S, Europe, Singapore and Japan. So it has been it's a global network, which was built on the premise of free trade. If there are more forces against free trade, we have to adapt over time.

Speaker 2

Thank you.

Operator

This is Sogisan from Bernstein. Please go ahead.

Speaker 10

Can you hear me? This is Miki from Bernstein.

Speaker 1

Yes. We can hear you.

Speaker 10

Great. Thank you very much. I have two questions. First of all, Entyvio. We recently saw a report saying that the Entyvio's listing price was increased by 8 percent.

Speaker 10

So could you tell me the, you know, the that listing price increase, what is the impact to the actual net price, you know, to that is more relevant to your actual net sales? And also, does it have any consequence in terms of the rebate for the government because it's higher than the significantly higher than the inflation rate? So that's the first question. And the second question is, the R and D spending. We understand that R and D spending, despite this, you know, the post trial drug, the cost removed to the other expense, the it's still, you know, they seem the spending is seem to, the a slower than we had expected.

Speaker 10

But is it still the plan that you will be spending more on the Q4 so that you reach the budget that you have shared with us?

Speaker 1

Thank you, Mickey. So the first question on Entyvio price increase, I'd like to ask Christophe to comment. And then the second question on the R and D budget and progress towards the full year forecast. Milano, if you could please comment on that?

Speaker 2

Thank you, Mickey. Yes, this price increase is more a reflection of the rebate mechanism that is happening in the U. S. Market. In order to be competitive, you need to give rebate and that's really the mechanics.

Speaker 2

So you don't see this increase on the net price. And government price is calculated on the net price. So I think that's really the effect of the rebate mechanism. And by the way, this is something we think should be fixed and there is a lot of discussion right now about PBM and rebate. We are advocating for this rebate to be replaced by the mechanism.

Speaker 2

Thank you.

Speaker 3

Hi, Suhikisan. So thank you for the question about R and D spending. So just to be clear, we are not seeing any slowness in operation. Actually we accelerating. We are gearing up around the operations development.

Speaker 3

We are driving these the developments with a very like operational efficiency mindset since we have had the efficiency program since the beginning of this fiscal year. And in the Q4, we always have that a little bit seasonality in increase in R and D spending in the Q4. But on top of that, we are expecting actually we are starting the 2 Phase 3 programs for the Dassault, the PSA and the mesagitabab for the ITP. So actually these with these 2 new programs or clinical trials, we also anticipate gearing up that run dispense.

Speaker 10

Great. Thank you very much. Very clear. Thank you.

Speaker 4

Because of the time cost, next question would be the last from UBS. Please go ahead and ask your question. Thank you very much.

Speaker 11

Two questions. This is more like a general question for, Doctor. Pramp. IRA has started impacting the industry and likely to remain for some time. And the industry is screaming about the squeezing the raw molecule development.

Speaker 11

Do you think that is going to impact your pipeline strategy going forward? Especially I'm interested in the JASL JASL today, life cycle management, what extra indication strategy. Can you comment anything anything, anything interesting on this, topic? That's my first question. The second question is, Weba san, thanks for your service, I must say.

Speaker 11

But, Julie Kim, is she going to stay is she is she going to be stationed in Tokyo? Is that going to be must condition for her to be appointed as CEO? That's my second question.

Speaker 1

Thank you, Sakai san. So the first question to Andy on IRA impact on pipeline strategy, specifically on zazacitinib. And then second question to Christophe on, Julie, where she'll be located?

Speaker 8

Thank you very much, Sakai san. It's a great question to end the call on. So I mean, I can't say that IRA won't affect the R and D strategies across the industry. Of course, it has an effect on R and D strategies. I would say that the strategy that we've adopted for our organization at Takeda withstands the IRA in the sense that we've always focused on innovation and high unmet medical need in everything that we do.

Speaker 8

I think that, in order to be competitive in the world of IRA, those are two features that every company will need to focus on innovation and high unmet medical need. With respect to zazocitinib, I would say that, yes, IRA has effects in how we strategically approach zazocitinib. This is a molecule with the potential for many indications. Historically, companies might have approached a program like this strategically in a more sequential way. We're approaching it in a parallel way.

Speaker 8

As you know, we have 4 ongoing indications today, psoriasis, psoriatic arthritis, ulcerative colitis, and Crohn's disease. And we're in the process of looking at additional indications. And over the course of the coming months, you'll hear more of our strategy to expand for zacocitinib.

Speaker 2

Thank you, Seguin, for your questions. First, I would like to say that I started a few years ago to be based in Tokyo the majority of the time and in Boston. So I am between these two locations because our global hub in Boston is so important. So I want to stress that out. So my location today is Tokyo and Boston and Julie is very much committed to also have this Tokyo Boston location.

Speaker 2

That's part of the agreement, if you like. Yes.

Speaker 11

Thank you. Thank you very much.

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