Takeda Pharmaceutical Company Limited

Hey everyone and welcome to the conference call of Takeda Pharmaceutical Company Limited. During the opening remarks from the company, all the telephone lines are placed for listening mode only. We will then hold a question and answer session. Now we start the conference. Mr. Okubo, please go ahead.

Thank you. Thank you very much for your participating in the conference call today. Before starting, I would 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 page 2 of today's presentation. Now, let me introduce today's presenters and the panel. Mr. Kostas Savokas, Chief Financial Officer, and Dr. Andrew Plump, President of R&D. First, we would like to start with some opening remarks from Costa. And after that, we will have a question and answer session. Today, we also take questions via email. Please send your questions to Takeda's IR contact email or your IR contact person during this session. So, Costa, please go ahead.

Thank you, Takashi. Hello, everyone. Thank you for joining this Q&A call with Takeda. Before we open up for questions, let me briefly explain some highlights of our solid year-to-date financial performance. Revenue was 2.519 trillion yen, growing 82.6% versus prior year with the addition of revenue from Shire. Compared to a pro forma baseline of Takeda plus Shire, Underlying revenue growth was minus 1.2%. We saw continued strong performance from our 14 global brands, which grew at 20% year-to-date. In particular, Intivio, Taxaro, Ninlaro, Gatex, and our subcutaneous IG products all performed very well. Although revenue growth was negative for the first nine months, this included the impact of stocking in the prior year. and I want to remind you that Takeda conducted an extensive inventory harmonization in quarter four of fiscal year 2018. This aligns Shire inventories with Takeda's lower days on hand policy. Therefore, we expect revenue growth to recover in quarter four of fiscal year 2019 and we remain committed to flat to slightly increasing revenue for the full year. Co-operating profit was 792.2 billion yen, growing at 129.9% year on year, and the co-operating profit margin increased by 6.5 percentage points to 31.4%. This was driven by cost synergies and OPEX efficiencies. The integration of Shire continues to be a great success, with talent selection now complete for 98% of employees and many large multifunction sites moved were completed at the end of 2019. We also remain focused on our target of annual recurring cost synergies of US$2 billion by the end of fiscal year 2021 and the current speed of synergy capture is moving ahead of initial plans. Previously, we indicated that we would reach a run rate of 70% by the end of next fiscal year, but now we are tracking towards achieving 80%. These synergies will contribute to further driving us towards top-tier margins in the medium term. Year-to-date reported EPS was 27 yen, impacted by large one-time and non-cash items including purchase accounting, and integration costs. And core EPS was 360 yen, an increase of 24 yen versus the prior year. Finally, free cash flow was 745.7 billion yen or approximately 6.8 billion US dollars. With strong operating cash flows supplemented by their vestiture income. As of December, our net debt to adjusted EBITDA ratio is now 4.1 times which is slightly higher than the previous quarter as expected and this is because we paid for the full year dividend and tax on proceeds from the divestment of Zydra. Moving forward, we may continue to see quarter to quarter fluctuations but we remain absolutely committed to achieving our target of two times within the fiscal years ending March 22 to March 2024. As a result of our strong business momentum, as well as faster than expected realisation of synergies, we confirm our full year underlying revenue guidance of flat to slightly increasing. We raise our guidance for core operating profit from 930 to 950 billion yen and we increase our guidance for underlying core EPS to 385 to 405 yen. Furthermore, we now expect positive reported operating profit for the year, having completed the purchase price allocation for Shire. In closing, we are very pleased with the year-to-date results. It reflects our strong performance across our 14 global brands, as well as synergies and OPEX improvements, allowing us to raise guidance again for the full year. Going forward, we remain committed to our financial targets, focusing on revenue growth, synergies and margins, divestitures, rapidly leveraging, and shareholder returns. That concludes my opening remarks, and we will now open up the lines for Q&A.