Takeda Pharmaceutical Company Limited

Good day, everyone, and welcome to the conference call of Takeda Pharmaceutical Company Limited. During the presentation from the company, all the telephone lines are placed for listening mode only, and the question and answer session will be held after the presentation. Now we start the conference. Mr. Okubo, please go ahead.

Thank you very much for coming to join in FY 2020 Q1 earnings announcement. I would like to serve as the facilitator today of Global IR Health. In this conference call, 1995 U.S. Declaration of Reform Act The forward-looking statements and related information will be discussed. And the results of the discussions may differ substantially from the actual results. And the latest Form 28 and other ECC-submitted documents describe all those potential factors. And in page 2 of today's presentations, there are important notice describes And it also refers to that page. And we have the presenters and the responders to your questions. So we have Christoph Weber, President and CEO, Chief Financial Officer, Costa Salvos, Avanti President, Country Plant, and Japan Farmer Business Unit President, Masato Iwasaki, and PDT Business Unit President Jui Kim. They are participating on this earnings call. First, CEO Christoph will discuss the overview of the results, and then Andrew will cover R&D situations, followed by Costa, CFO, covering the financial aspects. After those presentations, we will have questions and answers. Please be prepared with the presentation materials. Christophe.

Hello, Takeshi. Thank you, Takeshi. Hello, everyone. Great pleasure to be with you today. I will go to slide number four. which summarizes the situation. I would say that considering the COVID-19 circumstances, the first quarter of our fiscal year of 2020 has been positive. You will see that our revenue growth has been strong, especially our core business growing 6%. Our key 14 global brands growing 20%. So I think it demonstrates that our overall portfolio is resilient to the coronavirus situation. Very strong growth also of our FDT business, growing plus 19%. On a record basis, we are declining, but that's totally explained by the divestment on one side and also the foreign exchange. So on the revenue side, for us it's positive. The only product which has been impacted by the coronavirus crisis has been Dijon, so we can come back to that later. On the R&D and pipeline development, we are progressing. We don't want to slow down our momentum, and we are planning to file seven NDA this year, which is quite remarkable. And you might have seen that we just got a breakthrough designation for Pevenegistat this week. And the last element, which I think is very satisfying, is that our margin for the quarter, our core passing profit margin has been 34.7. That translates into cash flow, and we are able to further the leverage in spite of the ITR dividend payment. So, you know, very positive Q1 as far as we can see. We, at integration, We're continuing to progress. I mean, as you know, by December 2019, we are operating as one Takeda, so in terms of the people in the organization, we are operating as one company, which also allows us to demonstrate and to show that performance during Q1. But we are continuing to be an even better company. One example is that we are introducing an employee stock purchase plan First in the United States, Singapore, and Switzerland. There is one existing in Japan, and that would be something that we will extend in as many countries in the world as possible. On slide five, we are continuing to focus on three areas regarding the coronavirus situation, keeping our employees safe, and we have been extremely successful at that, maintaining our business continuity, and we didn't see any supply disruption because of the coronavirus, which is great. Our clinical trials are resuming as well for those who were on the slowdown path. So I think we are starting to see a return to normal in many areas. And we are committed to develop the potential therapies with our at-home in Dublin development. but also at looking at the potential product in our pipeline which could have some efficacy against the coronavirus. I will finish the introduction with the next slide to update you on the e-carry situation. First, I will insist on the fact that quality has always been a priority for Atacada, so we have a very strong expertise and background in quality. And so we know how to resolve the situation. We have a very clear path to resolve and to remediate the situation in Ikari. So we have submitted our reply to the FDA and we are working very intensively to remediate the situation as quickly as possible. At the same time, we really are aiming to limit reduce the potential impact and the potential shortage for patients. We were able to resume, to restart production of Leprolin for the Japanese market and also other countries on July 20. So that's very important because it will very much limit the potential shortage and we'll be able to resupply the product in September. At the same time, we gave some guidance to the doctors in Japan to manage as well as possible their patients. So I apologize to the doctor, to the patient, about the inconvenience, but I think we are doing really our best to limit that impact. We don't believe that there will be a global shortage of cloprolilin. There might be a periodic shortage in Japan, potentially in the U.S., but we don't believe that it will have, financially, it won't have a material impact on the company as a whole. So I think that it's more good news in terms of managing the situation and the capability of resupplying the . Thank you, and I will pass now to Andy for the R&D presentation.

Thank you very much, and everybody. If you could please advance to the next slide. As many of you know, we had a chance at the end of 2019 during our R&D day to roll out the core R&D strategy in our pipeline. It's a very diverse pipeline. It's one of the most exciting new molecular entity pipelines in the industry. And we defined it based on two waves. Wave one, which has 12 new molecular entities that we hope to submit and have approved over the next three to four years, and then wave two, which are a group of enemies and platforms that we see sustaining us well into the future. As you can see in this slide, over the next 12 months, we have very significant milestones in wave one. And as Christoph mentioned, we have the potential over the next year to submit up to seven of these new molecular entities, really unprecedented. In addition to seeing key pivotal study data readouts from several of those seven programs, we also expect proof of concept, important proof of concept data to read out from several of our Wave 1 programs, and I'll call out two of them. The first is CITICLSAT or TAC935, which is our partner program with OBID. We're a 50-50 partner in that program, and we have three proof-of-concept studies reading out in the second quarter. And then, importantly, our first oral lexin agonist, TAC994, has started its Phase II proof-of-concept study in type 1 narcoleptic patients, and we'll put some data from that study as well. We're not forgetting about our global brands. We still have a very active set of interest in indication and global expansions in these brands, as you can see in the lower panel, including our continued investment in China. I'll just mention that when I arrived several years ago, overwhelmingly our investment was skewed towards indication expansion, global expansion, and lifecycle management. We've now flipped. Based on merit, we're now emphasizing our pipeline more and more, and the majority of our development is focused on this exciting pipeline. So you can go to the next slide, please. So as we introduced in late 2019, it was a very dynamic visual for our pipeline. We're not static by phase. We're trying to demonstrate when we anticipate to deliberate to these exciting therapies. This is the dynamic view that buckets our programs in Wave 1 and Wave 2. In just a minute, I will provide a shallow dive into four of the upcoming Wave 1 programs, all with basic designation. And then I'll talk in depth about two of the programs that we'll deliver in the latter half of And then a third program that I won't go into detail with, but I'll just mention, TAC-981, that has the potential to be accelerated into Wave 1. Just on this slide, I'll comment. If you just – if you zoom your eyes to the right-hand side of the slide, we're very excited to have announced a very significant partnership with Neuroclin, a really outstanding neuroscience organization with seven of our psychiatry medicines, three in development, and four preclinical. For the three programs in development, which are all quite exciting, we have optionality for 50-50 development, and we're really looking forward to working with NeuroCringe. Next slide, please. So let's start just briefly going through several of the programs. I'll start with pevinitastat. As Christoph mentioned, it's a program where this week we were informed by the FDA that we've received a breakthrough therapy designation. Pevinitastat is a first and only in class agent. It's a novel mechanism of action that's being tested in a spectrum of hematologic malignancies, high-risk myelodysplastic syndrome, and AML. Both in a particular high-risk myelodysplastic syndrome are conditions with Very high medical need, very high morbidity and mortality. Our oncology team had a chance to present data and speak with some of our investors and analysts in June of this year. We rolled out our phase two study data that was in high-risk myelodysplastic syndrome And we were very excited about those data, the effects on event-free survival, the trends in overall survival, and in particular the tolerability and safety profile of the agent. You can see those data on the upper right. We'll mention that while we were hopeful that that data might serve as a pivotal data set, the bar was quite high because the study was started as a very small, open-label proof-of-concept study. And it was only when we started to see these exciting results did we close the study down We do have an ongoing Phase III study that we'll weed out later this year in high-risk myelodysplastic syndrome. I'll mention as an aside, if you look at the lower right, what had originally excited us about this program was actually ecotexin full-blown AML. Those results, as you can see in the lower right, that we presented several years ago, plus the data that we saw in our Phase III study in low-blast AML patients, got us very excited about the potential of this agent in AML as well. And we also have a trial, the PEVLAM trial, as well as additional combination studies in Phase II in AML. Go to the next slide, please. PAK721 is a reformulated version of budesonide, a steroid, a business formulation that's being developed for eosinophilic esophagitis. Eosinophilic esophagitis is a brutal disease with no approved therapies. Patients use dietary manipulation, food elimination, and off-label use of several different agents. And this will be the first new molecular entity to be approved in this condition. I'll remind you the data were so compelling even before we saw the phase three data that you can see at the right that we were awarded a breakthrough therapy designation. Interestingly, it's a disease where we have morphine drug status, but it's a fairly common disease with over 150,000 patients in the United States. And this is a program that's focused in the U.S. population. And we are on track for this to be the first of our Wave 1 submissions. We hope to start a rolling submission sometime in the next month. Next slide, please. This is such an interesting program for us because we're not a virology company and actually when we first looked at HACC 620 at the acquisition of Shire on River Pier, we thought that this would be part of our divestiture program. But when we started to look at the data and we started to look at the relative simplicity of the market, there are relatively few transplant centers in the world. And we started to look at the transformative benefits potentially for patients. We actually made the decision to keep this as part of the data portfolio. Post-transplant CMV infection is a very significant challenge and it's a major medical need. There's been no approved therapies in over a decade. In fact, the FDA released a guidance in May of this year encouraging sponsors to develop new medicines in this indication. Narithavir is a novel and first-in-class antiviral. As you can see on the right, we had data from two different settings, proof of concept data, and these two that prompted us to initiate the program that will start to be out this year and next year. We're very excited about the potential of this agent in terms of its efficacy profile, particularly in refractory disease. There are no agents that are affected, including refractory CMB, but also its tolerability profile, as you can see in the right, particularly with respect to the effects of myelosuppression, which is a huge issue in patients who are receiving bone marrow transplants. So next slide, please. I think you're quite familiar with mobiliskeratinib. This is our EGF receptor exon 20 inhibitor. EGF receptor exon 20-driven non-small cell lung cancer is a highly virulent, highly deadly cancer for which the existing standard of care is poor on that test. We presented last year data from our Phase 1-2 study at ASCO, as you can see on the right, and we have now two ongoing studies that we believe to be registration enabling. The first is our Phase 2 study, our non-comparative study, which will be now this year, and then we have ongoing a frontline Phase 3 study as well. We're very excited to see data from those programs. Next slide. So just switching gears briefly, I'll talk about three programs, two on this slide and then the third, 981, very briefly. While all of the programs in our Wave 1 pipeline, including the four that I just mentioned, are very significant for patients and for Takeda, we believe that we have three programs that are a bit earlier that have the potential not only for transformative benefits to patients, but to truly be defining Takeda's future. Those are PAC-994, PAC-007 and our CAR-NK platform more broadly, and then PAC-981. So basically, as many of you will know, our erection program began with PAC-925, which is an IV-only erection agonist. We've seen really unprecedented efficacy in type 1 narcolepsy patients as well as in several other patient populations. In fact, we describe these data as functional cure, functional cure. We now have several programs that are moving forward behind PAC 925 that have very good oral bioavailability. The first of these programs that's in an accelerated development mode is PAC 994. We started our Phase 2 study with PAC 994 in June, and we're hopeful of seeing data from that study over the course of this year. On the right, PAC 007, many of you know we've signed a very extensive partnership with MD Anderson Cancer Center in Houston, Texas, and the lead molecule in that program is TACO-07. TACO-07 is an armored CD19 PAR lethal killer or NK cell program. As many of you have seen in the publication in the New England Journal earlier this year, really profound efficacy surprisingly good safety profile and the chance to really change the practice of cell therapy and oncology with off-the-shelf potential. We're making progress with this program. We're working hard and making good progress in developing a cryopreservation formulation It will then serve the basis of our program, which we hope to start next year. And in addition, of course, we have a platform behind this for which we intend to advance multiple additional therapies. Just briefly, PAP-981, our simulation inhibitor, was mentioned briefly at the last interaction with all of you at 4Q. We've made a decision based on the early data to really expand our Phase I-II program And we're now going to be pursuing double-digit indications in parallel. We have an adaptive Bayesian design that will allow us to do it rapidly. But we're so excited about the novelty and the robustness of the immune data and some of the early responses that we're really going to go for with this knowledge tool. So before I finish, next slide, please. We have, as I mentioned at the beginning, a diverse and very exciting pipeline. Our Wave 1 milestones are all on track, and we expect important readouts over the next quarter for CAP 935, as I mentioned earlier. We expect our CAP 721 submission, and we're very excited about the COVID-19 hyperimmune program that we'll start posting shortly. We're also quite excited about our Wave 2 pipeline, which we don't talk very much about. I'll just mention that the first three programs that you see on this list are Sting Agonist, our Oncolytic Virus, and then our GPC3 CAR-T all have approved INDs, and we expect to be dosing patients shortly. Next slide, please. So before I hand it over to Pastel, I'll just end by mentioning that in addition to the progress that we're making with our pipeline, we're also making progress on our support for our global brands. With that said, Pastel, I'll hand it over to you.

Hello, everyone. This is Kost Surakos speaking. Could you please turn to slide 18 of the presentation? As Christophe highlighted in his first slide, we're off to a strong start, confirming the resilience of our portfolio. Our strong quarter one and cash flow reinforce our confidence in our ability to meet our fiscal 2020 and medium-term financial targets. Underlying revenue growth in quarter one was approximately 1%, consistent with our four-year guidance of low single-digit growth. This growth was driven by our 14 global brands, which more than offset headwinds such as Euloric, Loss of Exclusivity, and Natpara Recall. Underlying cooperating profit margin was very strong at 34.7%, benefiting from opposite efficiencies and synergies, as well as some lower spending due to COVID-19. As with prior years, quarter one tends to be our strongest quarter for margins, and this great start puts us well on track towards a full year target of low 30s. Free cash flow for quarter one was also robust at 146.3 billion yen, including proceeds from the sale of marketable securities. We're progressing well with unlocking incremental cash from the balance sheet, and I'll discuss this later in the presentation. We also continue to make excellent progress with our messages. And since quarter four earnings, we have announced an additional bill to select non-core and OTC products in Asia Pacific region. This takes the total of our announced messages up to $8 billion. With our robust cash flow and earnings growth, we continue to make steady progress with the leveraging. As of June 2020, our net debt to just EBITDA ratio was 3.7 times, improved 3.8 times in March. This is even after paying a half-year dividend of 133.1 billion yen, equivalent to approximately 1.2 billion US dollars. In summary, I'm very pleased with our performance in the first quarter, as we continue to execute towards our financial targets. We remain committed to driving revenue growth that will accelerate in the medium term, achieving top key margins, in completing our divestiture program of $10 billion U.S. as we target two times their debt to adjusted EBITDA within the fiscal year 2021 to 2023. On slide 19, this is a summary of our fiscal year quarter one results. You'll see that the reported revenue was 201.9 million yen, down 5.6% versus the prior year, mainly due to foreign exchange impact. and also the effect of divestitures. Overlying revenue growth which is just for foreign exchange and divestitures was increasing by 0.9% even by our 14 global brands. This growth is despite headwinds in quarter one from the loss of exclusivity of Ularek and the Natara recall which occurred in July and September of last year respectively. Reported operating profit was 167.3 billion yen, a significant improvement of 270% versus prior year. This was due to lower purchase accounting and integration expenses related to the Shire acquisition and also reflects a one-time gain related to SHP 647. As a result, our reported operating profit margin reached 20.9%, over 15 percentage points higher than last year. Core operating profit, which is just for purchase accounting and non-recurring items, was 280.9 billion yen. This was a slight decline from prior year due to foreign exchange impact and divestitures. If we adjust for foreign exchange and divestitures, underlying core operating profit grew at an impressive 11.3%. Our core and underlying core operating profit margins were also very strong, both approximately 85%. Reported EPS was 53 yen and core EPS was 122 yen. Underlying core EPS growth was 8.7%. And finally, cash flow for the quarter was very strong, with operating cash flow and free cash flow both around 145 billion yen in growing world versus prior year. Slide 20 gives you more insight into the magnitude of the foreign exchange and diversity impact on our quarter one results and cooperating profits. As you can see, appreciation of the yen had a negative impact of 4.4 percentage points on revenue. The impact of divestitures was 2.1 percentage points, mainly due to Zybra, which was divested at the start of quarter two last year. On slide 21, let me discuss the revenue drivers for the quarter. Our five key business areas continue to grow steadily at 6% on an underlying basis, and they now represent 83% of total revenue. GI, which represents approximately a quarter of total revenue, is growing exceptionally well at 14%, spearheaded by Intivio, which grew at 26%. Rare Diseases is down slightly by 2%, impacted by the Natpara recall, and declined as explicit in Haemophilia. But our HAE franchise is expanding very well with growth of 25% given by continued strong performance of Taxairo growing at 66%. PDT Immunology had a strong quarter with growth of 19% and we are continuing to invest in expanding our plasma collection center network with four new centers open in quarter one. This brings the total to 36 new sensors since closing the Shire bill 18 months ago. Oncology grew steadily at 5%, thanks to double-digit growth of brands such as Nimlaro, Alimbric, and Eptex, and neuroscience was negative 1%, with momentum impacted by COVID-19 stay-at-home restrictions. Finally, Ava. Non-core products decline minus 21%, including the loss of exclusivity impact of products such as Euloric. We'll continue to assess opportunities to invest assets within this non-core segment. I'll skip over the next few slides, but please refer to them more in the coming presentation. Please turn to slide 28. So on slide 28, this shows the reported revenue of our main products within our key business areas. In particular, we focus on maximizing our 14 global brands, indicated here by the red globe signal. In total, these products generated 308 billion yen in quarter one revenue and grew 20% on an underlying revenue basis year on year. In particular, Intivio, TaxZyro, Immunoglobulin, Minlaro, and Asetris performed well in quarter one. Moving now to slide 29, which shows the bridge from reported to core operating profit. Reported operating profit was 167.3 billion yen. From this, we adjust out the non-cash items related to the purchase accounting. This includes a 26.6 billion yen cost of goods impact, mainly from the unwinding of inventory step-up and 104.2 billion yen in total of amortization and impairment costs. We also adjusted about 20.7 billion yen of one-time Shire integration related costs, which are enabling us to realize our synergy targets. In quarter one this year, we also recorded a one-time non-cash gain of 60.2 billion yen related to Kikero being released from the obligation to divest SHP 647. We also recorded a one-time non-cash loss of 18.6 billion yen related to the contingent consideration for future Zybra milestone payments. Please note, these are both non-cash items. Adjusting for all of these, we arrive at a core operating profit for quarter one of 280.9 billion yen. Slide 32. This slide provides an update on how we are driving cost synergies and object efficiencies across the organization. In fact, just a few weeks ago, our procurement organization hosted Takeda's second annual Partner Value Summit where we held workshops and negotiations with over 150 of our suppliers. As a result, we estimate savings of approximately 100 million US dollars incremental to the $200 million we achieved as a result of last year's event, these savings are captured in the $2.3 billion of cost synergy targets that we expect to realize. We also took the opportunity to engage with our suppliers on ESG topics, including reduction in carbon emissions. Another critical enabler of improving cost efficiencies is competitive business solutions, or TBS. a fully functional global team that supports numerous functions to leverage scale and drive optimization. One core focus of TBS is increasing the use of robotics, and we have rapidly scaled up from five to 70 robots, transforming the way we work and boosting productivity. Please turn to slide 31. This slide shows our underlying core operating profit margin evolution. As you can see, we continue to make great progress toward our medium-term target of top-tier margins in the mid-30s. Quarter one of fiscal year 2020 was very strong at 34.7%. And in prior years, quarter one did benefit from some cost raising, and our excellent start to the year reinforces our confidence in reaching the full-year target of low 30s. Switching now to cash flow, please turn to slide 32. It shows the evolution of our cash balance over the quarter. Operating cash flow was 145.9 billion yen, growing 21% versus prior year, reflecting lower integration costs. Free cash flow, which also takes into consideration income from asset sales and capex, was 146.3 billion yen. This includes a 40.9 billion yen net gain from the acquisition and sale of marketable securities. This robust free cash flow comfortably covers a half year dividend that was paid in June and we ended the quarter with strong liquidity of approximately 12 billion US dollars. Moving to slide 33. Takeda remains fully committed to our target of two times net net to adjusted EBITDA in the medium term. In quarter one, we were able to further re-leverage to 3.7 times, down from 3.8 times in March, and this is even faster paying a half year dividend. The ratio also benefited from stronger adjusted EBITDA over the past 12 months. On slide 34, to provide a summary of our divestment progress toward our $10 billion target. Since April 2019, we've announced six deals with total proceeds of up to $8 billion. Three have closed to date. I'd like to clarify that the Zybra potential milestones, none are attached to the EU approval. Therefore, although we recognize a decrease in the fair value of the continued consideration, there is a possibility to receive up to the full $1.9 billion in cash for Zybra milestones. On this slide, I also want to emphasize that we are unlocking cash from the balance sheet through the sale of real estate and marketable securities. Already in quarter one, we sold approximately $410 million of securities. and announced our plans to sell and lease back the iPark facility in Shonan, Japan. Slide 35. Earlier this month, the Council took the opportunity to deduct $11 billion of leverage-neutral refinancing with record low coupons in order to extend debt maturities. After the completion of refinancing, our average interest expense now stands at 2% versus 2.1% at the end of the prior quarter. Comparing the new debt ladder on the right to the previous ladder from March 2020 on the left, you can see that we have lowered the debt towers in the next few years, most significantly in fiscal year 2023. As a result, Our weighted average maturity extends from approximately 10 years to 14 years, which includes 60-year hybrid bonds, callable in fiscal year 2024. Again, this refinancing is leveraged neutral and does not in any way change our commitment to deleveraging to our target of two times within fiscal years 2021 to 2023. Moving now to slide 36. During quarter one, we recorded some large one-time non-cash items that were not in our original forecast. As a result, we are raising our reported operating profit forecast to reflect the net impact of this FHP 647 gain and the loss on the Zydra contingent consideration. As a result, our full-year reported operating profit forecast increases by 40 billion yen to 395 billion yen. Slide 37 shows our updated full year forecast. As described on the previous slide, we have raised the reported operating profit forecast by 40 billion yen to 395 billion yen. We are also raising our reported ETS forecast by 20 yen to reflect certain non-cash items that we booked in quarter one and their associated tax implications. Core and underlying guidance for the full year remains unchanged. So in closing, I would like you to turn to slide 38. And I would like to emphasize our excellent start to the year and our focus on delivering against our financial commitments. Firstly, we are delivering results with underlying revenue growth in quarter one of 0.9%, driven by our 14 global brands growing at 20%. We are also focusing relentlessly on improving margins, and our quarter one underlying cooperating profit margin was very strong at 34.7%. We are making significant progress on divestitures as we look to accelerate deleveraging and focus on our key business areas. We are financially resilient, and our recent debt refinancing allows us to speed the debt maturities while remaining on track, towards the leveraging target. We ended quarter one with net debt to adjusted EBITDA of 3.7 times, and we remain confident to reach two times within the fiscal year's 2021 to 2023 timeframe. Before we start to the Q&A session, I'd like to draw your attention to slide 39, where we list some upcoming investor events. In particular, we are planning an event for the second half of fiscal year where we will provide further details on the market potential of our Wave 1 pipeline and why we believe in its potential to deliver over $10 billion in peak revenue. Thank you for your attention, and now we'll move to Q&A.

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The first question is from Mr. Yamaguchi City Group. Mr. Yamaguchi, please. The first question is from Mr. Yamaguchi, Citigroup. Mr. Yamaguchi, please go ahead. Can you hear? This is Yamaguchi speaking. Yes, I can hear you, Mr. Yamaguchi. Let me ask you questions, and let me put all the questions I have. My first question is about PDT business. What is the reason for driving this PDT business, which is quite strong? And the second is about PDT collection. And many people are now saying that, or many other companies are saying that they have some impact in the U.S. regarding PDT collection. What about you? And number three, warning data. We heard many different comments. And in the normal operation, in order to solve these inspection-related issues, probably several quarters or more than that may be taken. So I'd like you to tell how long it will take to solve the issues relating to the inspection. That's my third question.

Thank you Yamaguchi-san. It's Christophe here. I will answer the question regarding the Hikari situation. And Julie, who is online, I believe will answer the question regarding the PDT business and the collection situation. So regarding the HITARI situation, the FDA audit happened last November, and so we were aware of the issues and the situation, and we immediately started working on the remediation We typically, if you look at the industry, it takes 12 to 18 months to be ready and what we call inspection ready. So that means that you have remediated the issues. And that's what we are seeing right now. So we believe that closer to 12 months, we believe that within 12 months we will be ready for inspection, if you like, and we have remediated the issues, which means that that will bring us at the end of the calendar year. Julie?

Yes, hello. Thank you for the question, Yamaguchi-san. In terms of the drivers of the growth, first I do need to point out that part of the exceptionally high growth is driven by the fact that we had timing issues in Q1 of 2019, and Q1 2019 was particularly low in terms of IG. But there is strong underlying demand growth, particularly for our subcutaneous portfolio. And as you have seen, since the close of the transaction, we have continued to grow our collections and our capacity, so we've been able to provide more medicine to meet the demand for our IP portfolio. So there is strong underlying growth, but part of the exceptional growth is due to a comparison of a low Q1 of 2019. In terms of the impact that we see on our collections, so we did see a decrease in our collections as the various different quarantine and shelter in place orders went into effect across Europe and in the U.S. At this point, our European collections have recovered, and in the U.S., we do still see some impact as the pandemic is not under control yet in the U.S. However, I think a key difference is that we continue to build out our collection centers and grow our overall network. Our locations are not necessarily in areas that were heavily impacted in the spring timeframe, but we do have to remain diligent to watch what happens as the U.S. continues to combat the pandemic across the total geography. And we are seeing variances across the different locations.

Thank you very much.

Next question, please. From Daiwa Security, we have Hashiguchi-san. Please ask your question. Yes, this is Hashiguchi. Thank you for the opportunity. I have a question about TAC-994. In phase one, What was the data that you obtained? For ID phase one, even healthy volunteers showed strong signs of efficacy. What about the 994 phase one? How did it work? And when it comes to TK profile, I have the data that you have obtained. Oral formulation versus IV formulation. Would it be IV for stronger efficacy and oral formulation for convenience? Is that how you see that for different usage? Or do you think oral will cover everything? And the phase two, how many administration? What is the frequency of administration per day? Those are the questions. And I have another set of questions. Employment rate is increasing in the U.S. Payer mix is changing. How did that impact during the first quarter? And what is the future potential for impact? And which other products most likely affect this change? That's all. Thank you.

Thank you, Shibushi-san. I will answer the second part of the question regarding the U.S. and Andy will cover the question regarding TAG994 So in the United States, yes, there is a very increased level of unemployment. At the moment, with our portfolio, we have not seen a significant shift in our channel. So we have not seen that so far. And of course, we need to monitor our situation, but we have not seen a significant shift. At the same time, we have... upgrade our patient assistance programs. For example, we do help patients to be able to pay for the medicine if they have lost their job because of the coronavirus crisis, for example. So we are very conscious that we need to support this patient. But regarding channel shift, we have not seen significant channel shift today.

Andy? Thanks, Christophe, and thank you. I should be able to answer the question. Just to be clear, PAK925 as an IV agent does not have a path forward to treat really any of the conditions that we're most interested in. We are looking at some in-hospital applications for an intravenous agent. We're also continuing to advance novel formulations of PAK925 that can move us away from the IV space. But really, our focus is on our oral molecules. And the lead one is TAC994. As I mentioned, we have additional molecules that will enter the clinic later this year. In terms of the Phase I studies, we only ran our Phase I in healthy volunteers. We did not do any formal assessments of efficacy. So that's what we're going to get now from our Phase II study. In the Phase I study, we were really pleased with the oral bioavailability The PK profile, we sampled CSF on patients, and we see appreciable levels of TAC994 in the CSF, significant enough levels at 8 that are modeling. We should see efficacy not different from TAC925. It's, of course, a very complex biology that we're dealing with, and there's a lot that we don't know in terms of exposure profile. Obviously, there's a concern that if exposure levels are too high in the evening, it could disrupt sleep. And in fact, one of the most frequent adverse effects that we saw in our phase one healthy volunteer studies was indeed insomnia. In terms of the dosing for the phase two study, it's a dose-ranging study. So we believe that this will set us up then for our pivotal study. So we're looking at both one salinity and twice daily doses.

Thank you.

Next question is from Mr. Sakai, please. Thank you. My first question is that you operated on 924 MediSat, and what are the details of the mechanisms? I'd like to ask you about its profitability. High-risk patient population, that's your first target. I understand that a number of patients are described here. But in last year's R&D conference, we've won 30th project. The total revenue, at least 1 trillion yen, I think that's what you said. And back then, or as of today, we need to start to question how much does it represent out of the total 1 trillion yen. either the amount or what is the potential of this particular company, because we see in our view that there are some gaps. 924 Yard Markets could be a very good narrowly selected success model, and therefore I'd like to see more about its potential. And another question goes to Iwasaki-san. In the past several weeks in Japan, are we returning the support programs that we introduced for the people who want to switch their jobs? And Takeda Teba GenX transferred to Nicheco. That's announced today. And resource development, how, Iwasaki-san, are you going to handle business in Japan? Are you going more for efficiency? And how these two projects or plans are meaningful in your Japan business?

So I will cover the first question regarding . So if you look at the prevalence of the disease, if you look at MDS, for example, we are talking about 20,000 patients, 20,000 patients in the G7 countries, and about 60% of this patient could be a patient treated by Pebenodistat. And AML in the G7 countries, it's about 45,000 patients, and we believe that around 50% of these 45 could be treated by Pebenodistat. So, you know, if you look at market opportunity, it's a market opportunity which could be in the billion U.S. dollar range. Now, you know, this type is not alone in this market, but there is a significant opportunity and there is a very high medical need.

Thank you very much for your question. But I kind of see What we are trying to achieve in Japan is as follows. We have been focusing on five business areas, and we would like to strengthen our focuses even more in five business areas. And in the ethical pharmaceutical businesses, we would like to be more oriented. And in the forthcoming five years, including the new combinations, 31 approvals. That's our target number. And that transformation will be supported by human talents. Therefore, each one of the employees should be able to construct meaningful, satisfactory careers. And to do so, to support them, We have several programs and the future career programs that Sakai-san mentioned, that's not a part of the new programs. I mean that there are some employees who want to go for their careers under different environment and would like to support them too. Therefore, it is not for the sake of headcount or cost reduction. And regarding Takeda Timber deal, This time, the TIVA strategy change is the reason behind. And providing the products handled, we will continue to handle those products because we need to implement appropriate supply, continue to supply those products. Therefore, the launch of those products which are transferred to Nichigo, we will continue to support. Therefore, in that sense, there will be no change. For us to support Tiva as a shareholder, we will continue to provide appropriate support to them.

Thank you very much.

Next question, please. We have Wakao-san. Please speak. This is Wakao speaking. I know that you're running out of time. Just one question about cost. I understand cost control is actually successful, and there was a big impact of that in the first quarter. So because COVID-19 is lowering activity levels, I think that's what you mentioned. What about the four-year impact? You don't have an SG&A plan or forecast for the four-year, but do you think the four-year SGA will go down because of lower activity levels due to COVID-19?

I'll take that. Thanks, Wakawa-san, for your question. You can see in quarter one, our underlying cooperating profit margin improved from 28.9% fiscal year 2019 to 34.7%. This is predominantly driven by integration, execution of synergies. And so, you know, the deliverable of the 10 cost packages, synergy packages, we're cutting towards executing on those. given the fact that we, as of December last year, 99.6% of the organization and talent had already been announced. We've consolidated over 50 sites where our business is operated. We're leveraging the business services, including automation, so it's significantly increasing productivity, and that will definitely improve the SG&A profile. Having said that, we are also cognizant that there has been underspend in certain areas due to COVID-19. And that's mainly in the travel, both local and international, as well as meetings and events. But I can tell you as of quarter one, that represents just over about 1.5% of that margin improvement. So fundamentally, the key driver has been the execution and the speed of integration, we are seeing some of the COVID impact also provide some extra improvement of the margin.

Thank you.

Now, in the interest of time, we'd like to take a final question. I would like to take a question. Hello. I am from newspaper. Can you hear me well? Yes, we can. Please go ahead. I have several questions. First about the COVID-19 treatment or clinical trials and approval target timelines. Are there any changes from the time at the beginning of this fiscal year? If there are any changes, please explain. And the next question is, what is your topics plan this fiscal year? How much is it? And is it going to increase or decrease from the last year? And if there are any, yes and minus, please explain the reasons. are there any impact of COVID-19 or not? So, these are my questions.

Thank you. Thank you, Dr. Giffen. So, I thought Andy will answer the clinical prior questions, and first, I think I've explained. Andy?

Sure, I'll start, and then maybe I'll hand it over to Julie to comment on the hyperimmune program. So, Dr. Giffen, we have four molecules outside of COVID-19 that we're studying in COVID patients through our pipeline molecules. So TAP-981 is taking advantage of the immune activation mechanisms that we think will be beneficial in cancer. We're in an early study, signal-seeking study with that molecule, TACC671, which is a molecule that we think will have activities both on immune effects and also on viral replication. We've started a Phase 1 study, and we're hopeful of moving in the next couple of months into a larger-scale efficacy study. And then two molecules that we'll be studying in larger Phase 2, Phase 3 settings, that tests the calicentrionine system, Terezyre, and PaxIro. Both of those programs should be starting their studies sometime between August and October. So we're still on the timeline that we originally hoped to have data towards the end of this year. Julie?

Thanks, Andy. And in terms of the hyperimmune that is being developed by the COVID-19 COSMA Alliance, We are still on track. The alliance has produced the clinical supplies. NIH, which is the study sponsor, has filed the ING. So, at this point, we are waiting for clearance from the FDA, in which case the clinical supplies will be shipped and the patients can start being entered into the study. And so, we still expect to see top line data. and potentially emergency use optimization before the end of the year in the US.

Your question is Costa Sirico speaking. You can refer to slide 56 of the earnings announcement presentation and there you'll see our capex forecast for the year and it's a range between 180 to 250 million yen. And the first quarter, we spent 40.5 billion yen. So there's no change to our revised forecast. It's still within that range. Thank you.

Thank you very much. I would like to close the earnings conference call. Thank you very much for joining in this call. We would like to ask for your continued support. Thank you.

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