Takeda Pharmaceutical Company Limited

Thank you very much for joining our Fiscal Year 2021 Third Quarter Earnings Announcement. I am the moderator. I'm Chris Olairelli, the head of the global IR. And we have the interpretation button at the bottom of the Zoom. And if you'd like to listen to Japanese, please select the Japanese language. And if you'd like to listen to English, please select the English channel. And if you'd like to listen to the original audio, please turn the interpretation function off. Before starting, I'd like to remind everyone that we will be discussing forward-looking statements within the meeting 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 20F and in our other SEC filings. Please also refer to the important notice on page 2 of the presentation material for today. Today, our presenters, as well as the people to answer the questions, we have Christophe Weber, President and CEO, and Andy Plump, R&D President, and Costa Sarucos, Chief Financial Officer, and Masato Iwasaki, Representative Director of Japan General Affairs, and Ramona Sequera, President, U.S. Business Unit and Global Portfolio Commercialization, and Julie Kim, President of Plasma Derived Therapies Business Unit. And first, we will have the presentation from Christophe, Andy, and Costa, and we'll have some time to taking questions from all of you. Let's get started.

Thank you, Chris, and thank you everyone on the phone for joining us today. If you could look at the slide four, At Takeda, our vision is to discover and deliver life-transforming treatments guided by our commitment to patients, our people, and the planet. And our growth strategy reflects that vision. And I am pleased to discuss with you another quarter of growth and progress. In the context of Omicron, I am so proud of the dedicated and patient-focused colleagues that live our values and work tirelessly to support our mission. This is an incredibly exciting time at Takeda. We are growing faster than ever with competitive scale and a diverse pipeline with approximately 40 molecules in clinical development. Our portfolio is growing as demonstrated by two new products approved in the past six months. As you will see today, our performance in the third quarter of fiscal year 2021 reinforced that we remain well positioned for long-term business growth. We are in a position of strength. We have solid margins. strong cash generation, and top-line growth driven by our 14 global brands. We have consistently delivered on the fundamentals, and this quarter is no exception, with year-to-date underlying revenue growth at plus 7.1% and reported revenue growth at 11%. This growth continues to be driven by Takeda's 14 global brands with underlying growth of 12% year-to-date and which we expect to rise to the mid-teens for full year results. Our diverse portfolio of 14 global brands represent an impressive 42% of our core revenue and should continue to grow. We expect significant revenue growth from our global brands over the near to medium term, particularly as we expand into new markets. Based on the strong third quarter result, we are upgrading our full fiscal year 2021 forecast for revenue, reported on core patent profit, reported on core EPS, and free cash flow. Our strong margins will continue to drive important cash flow, which allow us to invest in our growth drivers, while also paying down debt towards our target of low-tooth net debt to adjusted EBITDA by the end of fiscal year 2023. We are confident in our global R&D strategy. We continue to advance highly innovative, life-transforming medicines in oncology, rare genetic and hematology disease, neuroscience and gastroenterology, with strategic R&D investments in plasma-derived therapies and vaccines. And we are delivering with the recent approvals of LiftenCity and Excivity. And we just got the new indication approval just last week for Vervendi. Bovandi is the first and only routine prophylaxis to reduce the frequency of bleeding episodes in patients with severe type 3 von Willebrand disease receiving on-demand therapy. This approval is a significant advancement for those living with this serious disease. And just this week, we also received approval from the European Commission for a new indication for Antiviu. Antiviu is now approved for intravenous treatment of appropriate adult patients with moderately to severely active chronic prokaryotes. ANTIVIEW is the first treatment indicated for active chronic prokaryotes across the European Union. We continue to invest in developing cutting edge cell and gene therapies that have the potential to redefine how we treat serious and life-threatening disease. And we continue to actively enrich the pipeline through partnership and targeted acquisition that align with our core therapeutic areas. The planned acquisition of ADAPT biotherapeutics is a good example of this strategy in action. This is a valuable and strategic play for us, adding a novel antibody-based gamma-delta T-cell engager platform to Takeda's immuno-oncology portfolio. Following gamma-delta therapeutics and maverick therapeutics, ADAPTATE is the third immuno-oncology built-to-buy acquisition we announced in less than a year. We go where the science is. You can expect to see Takeda continue to establish strategic collaboration with innovative partners, complementing our world-class laboratories and capabilities. We truly believe that the strength of our portfolio and pipeline set Takeda apart and will fuel sustainable growth. On the next slide, I'd also like to share a few updates on our executive leadership team. This change will help Takeda continue to advance our commitment to transform the life of patients and grow our business at a global scale. First, we are in the midst of a digital evolution that will fundamentally shift how we develop and deliver medicines to patients. Unleashing the power of data and technology will be crucial to our next phase of growth. We are investing in this area, and I am pleased to announce that Gabriele Ricci has taken on a newly created role of Chief Data and Technology Officer. Gabriele previously led our data and technology effort within our PDT business unit, and he has a vision that will put Takeda at the forefront of this exciting new area. Next, we are increasing our focus on launching our new life transforming therapies. To do this, we are creating a new global portfolio division, bringing together critical global organizations to power our launch capability, such as global medical and global product launch strategy. The vaccines business unit, which we anticipate has important approvals ahead, will also be part of the global portfolio organization, together with the regional business units, including Europe and Canada, our China business unit, as well as emerging markets. The Global Portfolio Division will be led by Ramona Sequeira. Rajiv Vankaya, who has led the vaccines business, will leave Takeda to become the CEO of a venture-backed company focused on pandemic threats. Gary Dubin, currently head of our Vaccines Global Medical Office, has been promoted to lead this Global Vaccines Business Unit. And with that, Julie Kim will transition from her role of leading our global PDT business unit and will become the new president of our US business unit. Julie will focus on building momentum for our business in the US, obviously a very key market for our success. Giles Platt Ford will be named president of our PDT business unit, which will remain one of the growth drivers for Takeda over the coming years. His experience with Europe, Canada and emerging markets will be critical as we continue to expand our PDT business globally. Finally, I am pleased to share that Takako Oyabu will expand our leadership role as our Chief Global Corporate Affair and Sustainability Officer with the goal of accelerating our leadership in purpose-led sustainability. As our first Chief Sustainability Officer, I am confident that Takako will make a big impact in this important area. I am personally very energized by the path ahead and totally confident that this group of dynamic and visionary leaders will help take us to the next level. On the next slide, I would like to update you on our effort to mitigate the COVID-19 pandemic. And we are proud of the role we are playing to help bring vaccines to the people of Japan and are accelerating our efforts to meet the growing demand. We are partnering with Novavax in Japan for the development, manufacturing, and commercialization of TAG019, which is a COVID-19 vaccines candidate. We have also entered into an agreement with the government of Japan for the purchase of 150 million doses of TAG019. We are planning to distribute the first doses in Japan in early 2022, subject to regulatory approval. We also continue to deliver on our three-way agreement with Moderna and the government of Japan to import and distribute Moderna COVID-19 vaccines. To date, 50 million doses of Moderna vaccines have been imported to Japan, and we began importation of an additional 93 million booster doses from the beginning of 2022, making it a planned total of 143 million doses. On the next slide, I would like to talk about our recent pipeline wins, which deliver near-term momentum to our growth strategy, using Lifton City as an example. I'm very pleased to note once again that the FDA approved Lifton City in November 2021, right on the hill of the approval of XQVT in September. These approvals have demonstrated that we are successfully building a portfolio of new therapies, that are well positioned to not only drive Takeda future growth, but most importantly, make true impact in patient lives. Transplant organs provide patients a second chance at life, but are in limited supply. Imagine the loss of hope when a transplant fails. It is devastating to patients and their loved ones. LiftenCity is redefining the way C2 megalovirus infection is treated. It is the first and only treatment indicated for transplant recipients that are 12 and older with refractory cytomegalovirus infection and disease with or without resistance. Patients now have access to the only approved therapy that can enable sustained and effective treatment against post-transplant CMV infection, which could save an organ or a life that might otherwise be lost. We are seeing promising momentum. More than 150 patients have been treated already with Lift&City in the weeks following the launch, and demand is continuing to grow. This speaks to the unmet need and the unique value of Lift&City. Patient by patient, we are seeing the impact we are making. In fact, the team has shared inspiring stories of patients who are able to be home with their families for their holidays. Patients who would otherwise be vulnerable to CMV and unable to leave the hospitals now have hope on a better quality of life. This focus on the patient needs is what fuels our innovation strategy. We strive to transform lives. We do that by addressing what really matters to patients, caregivers, and care providers. In closing, we are confident about the path we are on. Our diverse portfolio will position us to continue to generate steady, organic top-line performance while also drive competitive margin and strong cash flow to fuel future innovation for patients. With the approval and launch of two new therapies in 2021, we are even more confident today that the strength of our commercial execution combined with the potential of our pipeline will help to fuel our long-term growth. And this brings us back to the vision that drives us to discover and deliver life-transforming treatments guided by our commitment to patients, our people, and the planet. With that, I would like to provide Andy with an opportunity to focus on our exciting R&D strategy. Andy?

Thank you very much, Christophe. If we can please move to the next slide, nine. We have had a number of significant pipeline events since October, starting with the U.S. approval for Liftensity, in resistant or refractory post-transplant CMV infection, as Christoph has mentioned. This is our second FDA approval this fiscal year, and notably the most FDA approvals Takeda has had since 2014. Additionally, we are proactively submitting our final four-and-a-half-year dengue vaccine data to the CHMP, as part of the EU medicines for all procedure designed to enable approval of high priority medicines in markets across the globe. These four and a half year data continue to support the overall benefit risk profile and reinforce our regulatory package. Now this will lead to a short pause in our review as we gather and submit in the coming months. We are very confident in the profile and public health benefits of our vaccine and continue to believe we will see an approval in fiscal year 2022. As previously disclosed, we receive a CRL from the FDA for eohelia in eosinophilic esophagitis, or EOE. Now, we had judged the overall benefit-risk profile for eohelia to be positive, and we were very keen to bring this therapeutic option to patients. After an extended set of interactions and analyses, FDA ultimately did not agree that our pivotal data supported registration. We have thus decided to discontinue Takeda's development of Eohylia. Now, please, let me provide a brief summary of events that have led to this decision in full transparency. In 2016, FDA granted a breakthrough designation for this program. In 2019, Eohelia completed and met the phase three induction study co-primary endpoint with statistical significance. In October 2020, we completed our rolling submission of the new drug application. And in December 2020, FDA granted a priority review. During the new drug application evaluation, we engaged in a series of data exchanges to that resulted in an extended review cycle, and importantly, a delayed action date. Following over a year, a year of active NDA review, which involved in-depth data requests and responses containing additional analyses, approximately six weeks ago in December, we received the CRL, which notified Decata that the NDA could not be approved based on the current data package. As part of the CRL, it was communicated that data from an additional clinical trial would be required to support an approval. After a deep and careful assessment of the evolving treatment landscape in EOE, as well as considerations including operational challenges required for an additional clinical study, we could not justify further Eohylia development. We do, however, remain fully committed to our R&D focus in GI diseases. Now, continuing on this slide, our geographic and label expansion efforts for our global and regional brands continue to progress well. As Christoph mentioned, we received an approval of VonVendi in the U.S. for von Willebrand disease prophylaxis. In Japan, we continue to advance the fight against the COVID-19 pandemic with approval for the 50-microgram booster of Spikevax the mRNA vaccine against COVID-19, and we submitted an NDA to the MHLW for our Novavax-partnered PAC-019. Additionally, again, as Christoph has alluded to, we received an EU approval for Antivio in acute inactive chronic pouchitis significantly earlier than had been expected. And finally, in business development, As Christoph mentioned earlier, we intend to acquire Adaptate Biotherapeutics, a Gamma Delta T-cell engager platform targeting solid tumors in oncology. Along with Maverick and Gamma Delta Therapeutics, Adaptate is our third build-to-buy acquisition this year, further enhancing our oncology ambitions. We believe build-to-buys are good deals because we work closely with the partner company throughout the build process. we know exactly what we are getting, the price we are paying, and the steps remaining to fully develop the technology platform. If we can go to the next slide, 10, please. As just mentioned, we received approval of von Wende as the first recombinant treatment for prophylaxis of adults with severe forms of von Willebrand disease. This label expansion to prophylaxis will greatly benefit patients with this disorder. As you can see on this slide from our phase three trial, where we compared bleeding rates in severe von Willebrand's disease patients on prophylactic von Vendi to on-demand treatment, we saw overall the median reduction for all bleeds was about 55%, for spontaneous bleeds about 76%, and for the particularly crippling joint bleeds, 100%. So if we can go to the next slide, 11, please. Our R&D strategy is working, and it's beginning to deliver on our ambitious aspirations. As another example of our strong Takeda laboratories, we have added a promising new targeted sting agonist, TAC500, to our early stage oncology pipeline. As we've noted, 90% of our pipeline did not exist six years ago. Decatur's R&D engine is advancing an ambitious stream of next-generation therapies, as you will continue to see in the coming months and years. If we can go to the next slide, 12, please. Okay, let's focus now on our late-stage pipeline. This view highlights 10 of our late-stage approval and expansion opportunities for the coming years. We start at the bottom with the recent FDA approvals of Excivity, and liftensity in the U.S. Moving up the chart, we have filed TAC-019 in Japan. Next, our dengue vaccine, TAC-003, as mentioned, is currently under review with various dengue-endemic countries and with the European authorities. We anticipate a decision in fiscal year 2022. Next, with TAC-755, Sotiklostat, and TAC-611, we expect near-term Pivotal readouts, potentially providing transformative treatments for targeted patient populations with high unmet needs. And finally, again, moving up on this chart, three of our wave two programs are starting pivotal trials this or next year. We recently presented exciting early data at ASH from Odaka Fusp Alpha in extensively pretreated multiple myeloma patients. TAC 999, our collaboration with Arrowhead, in alpha-1 antitrypsin-associated liver disease, will be starting phase three development in the coming year. And Pabinifusp Alpha, our collaboration with JCR Pharmaceuticals to address neuronopathic and somatic symptoms in Hunter syndrome patients has already begun enrolling in its global phase three study. We can expect potential approvals for these new stage ups to our late development pipeline between 2025 and 2027. Going forward, we see great potential to further enrich our pipeline and are excited by our robust partnership network. We will continue to access and nurture innovation by integrating collaborations in emerging areas of science with our own world-class laboratories to deliver sustainable innovation. We will also complement our exciting and maturing pipeline with selective late stage in licensing, as we have done with JCR and Arrowhead. If we can go to the next slide, 13, please. And as you can see here, there is more to come as we continue to de-risk our early development programs. I'd like to highlight five high potential molecules that will have important proof of concept readouts in the coming two years, including our longer lasting oral orexin agonist, TAC861, and first in class cancer therapy, Subasumstat. These are just the first of many wave two molecules of a rich and transformative early stage pipeline being continuously filled through partnerships and our own powerful research engine. I want to underscore the importance of having built an innovative R&D engine that will continue to generate new opportunities going forward. Our pipeline is dynamic in nature. We follow the science. Some of our programs have faced unexpected challenges, but we are encouraged by the emergence of strong proof-of-concept data in programs like Modaka for Spalfa. And we expect to further fortify our pivotal pipeline with more and more positive data inflections. I can say with a high level of confidence that as we continue to advance our development programs and generate new data, the value of our pivotal stage pipeline will continue to increase. I'll now hand it over to you, Costa.

Thank you, Andy. And hello, everyone. This is Costa Sarucos speaking. I'm pleased to report that in the first three quarters of fiscal 2021, we have continued to make excellent progress in terms of top-line growth, margins, and cash flow. Our top-line growth continues to accelerate with underlying revenue growth of 7.1%, driven by our 14 global brands, which grew at 12%. This truly demonstrates the resilience of our portfolio and through the COVID-19 pandemic, including the recent wave of Omicron. We remain focused on maintaining competitive margins and delivered an underlying core operating profit margin of 29.4% in quarter three year to date, with underlying core operating profit growth of 5.4%. We also continue to generate robust free cash flow with 671.3 billion yen year-to-date. And opportunities in unlocking working capital have enabled us to raise our full-year target to 700 to 800 billion yen. We saw steady progress with deleveraging, reaching 3.0 times net debt to adjusted EBITDA, and our abundant cash has allowed us to recently call an additional 1.5 billion US dollars of fiscal 2023 debt for prepayment. With regards to the full year outlook, we are upgrading our forecasts across the reported and core P&Ls, reflecting business momentum, OPEX discipline, and also some foreign exchange favorability. We are also well on track towards our management guidance and trending towards the high end of mid single digit growth for underlying revenue underlying cooperating profit, and underlying core EPS. Let me go into more detail on the year-to-date performance in slide 16. Q3 year-to-date reported revenue was almost 2.7 trillion yen, up 11% versus the prior year, benefiting from 133 billion yen booked as revenue from the sale of our Japan diabetes portfolio in quarter one. Core revenue... which adjusts out this one-time impact, grew at plus 5.6% as business momentum and favourable foreign exchange more than offset the impact of divestitures. Underlying revenue, which further adjusts for foreign exchange and divestitures, delivered strong growth of plus 7.1%. Reported operating profit was 462.5 billion yen, with significant growth of 28.9% versus prior year. This was partially driven by the gain on the sale of the diabetes portfolio in Japan, as well as lower purchase price accounting and integration costs compared to the prior year. Core operating profit, which adjusts for purchase accounting and non-recurring items, was 757.9 billion yen. This was a decline of 2.9% versus prior year, mainly due to the impact of divestitures and also reflecting an increase in R&D investment. If we adjust for foreign exchange and divestitures, underlying core operating profit increased by 5.4%. Our core and underlying cooperating profit margins are both above 29%, even with the increase in R&D investments we've made this year. This also reflects the impact of a lower gross margin due to product mix largely driven by temporary cost of goods dynamics within the plasma-derived therapies. Reported EPS was 154 yen, with growth of 34.5%, and core EPS was 333 yen. Underlying core EPS growth was 9.9%. Operating cash flow was 747 yen, up 22.6% versus prior year, while free cash flow was 671.3 billion yen, a reduction of 6.4% due to higher non-core asset sales in the previous year. Slide 17 gives more insight into our top-line growth dynamics. Reported revenue for Q3 year-to-date grew at 11%, to almost 2.7 trillion yen, including 133 billion yen, or 5.5 percentage point benefits, from the sale of the Japan diabetes portfolio. Adjusting that out, core revenue grew at 5.6% to 2.56 trillion yen. This reflected 7.1 percentage points of underlying growth driven by business momentum, plus 4.8 percentage points from favorable FX. This was partially offset by 6.3 percentage point headwinds from divestitures of non-core assets we have completed over the past year. Turning to slide 18, our underlying revenue growth of 7.1% is supported by an innovative and balanced portfolio across five key business areas. GI, which represents approximately a quarter of total core revenue, delivered 8% growth, spearheaded by Intivio. Rare diseases declined by 1%, impacted by the continued decline of rare hematology, as expected. And PDT immunology grew at 10% as we continue to deliver improvements across the value chain and remain on track towards our full-year revenue and plasma volume targets. Oncology grew at 8%. Neuroscience was up 10%, with Vyvanse and Trintelix both posting double-digit growth as market dynamics returned towards pre-COVID levels. For more details on each of the five key business areas, please refer to the slides in the appendix. And finally, on the other column, products grew at 11%, reflecting the completed divestitures of several declining portfolios and also including distribution revenue for the Moderna COVID-19 vaccine in Japan. Slide 19 shows the revenue of our 14 companies. global brands, which are driving Takeda's top-line growth. In total, these products generated over 1 trillion yen or 9.3 billion US dollars of revenue year-to-date, with growth of 12% on an underlying basis. To highlight a couple of brands in particular, Intivio Performance remains strong as our number one product. with 395 billion yen in sales year to date and underlying growth of 17%. Now this is despite a slowdown in biological new starts due to the pandemic, with a reduction in colonoscopies and diagnosis impacting the initiation and switching of therapies. IG growth of 7.3% is on track towards full year guidance, fueled by continued expansion of our subcutaneous portfolio. Albumen is also strong at approximately 30% growth driven by growing demand for Flexbermen in China. Slide 20 emphasizes the momentum of these 14 global brands as they delivered 12% underlying growth year to date and remain on track towards full year guidance of mid-teen growth. As we look towards fiscal 2022 and beyond, we expect the momentum to continue as we expand market penetration in launch countries, increase disease awareness, expand access and continue global rollout of products, including in Japan, in China and other emerging markets. Also, as we recently announced, we no longer expect Intivio biosimilars to launch upon anticipated end of data exclusivity timing. which gives us the potential for significant upside in the second half of this decade. Moving to slide 21, which shows the factors impacting the 2.9% decline of our Q3 year to date core operating profit versus prior year. Starting from the left hand side of the chart, you can see the first dark grey bar indicating a strong profit improvement from our underlying business. primarily driven by our 14 global brands and also reflecting SG&A discipline. This underlying business momentum was partially offset by a step up in R&D investment, which we have called out in the red bar next to it. Next to that is a larger decline, which indicates the profit loss as a result of divesting. This is having a significant impact on growth rates this fiscal year as a result of multiple non-core asset divestitures that were closed in fiscal year 2020 or early 2021. While this is a major headwind for fiscal year 2021, the impact should be much smaller from fiscal year 2022 and our cooperating profit growth rates should more closely correlate to our underlying profit performance. As a result of these factors, as well as some benefits from FX, our core operating profit landed at 757.9 billion yen, giving us the confidence to raise our full-year forecast, as I will explain shortly. Moving now to the cash flow, please refer to slide 22, which shows the evolution of our cash balance over the first nine months of the year. Operating cash flow was 747.5 billion yen. This includes cash from the sale of the Japan diabetes portfolio and proceeds from working capital optimisation initiatives, partially offset by a litigation settlement in quarter one. The free cash flow was 671.3 billion yen, comfortably covering the full year dividend payment, interest costs and initial progress of our share buyback. Furthermore, we made significant debt prepayments in the first nine months of the year. In total, we prepaid 635 billion yen or approximately 5.5 billion US dollars of debt maturing in fiscal year 2021, fiscal year 2022 and fiscal year 2025. A part of this prepayment was refinanced with the 10-year, 250 billion yen bond issued in quarter three. In spite of this substantial debt prepayment, we still ended December with healthy levels of liquidity. Slide 23 shows the net debt balance over the first three quarters. We continue to make steady progress with deleveraging. And as of December 31st, our net debt to adjusted EBITDA ratio had come down to 3.0 times, even after the full year dividend payment has been reflected. Slide 24 is the latest snapshot of our debt maturity ladder. As shown on the previous slides, we paid off approximately $5.5 billion of debt in the first nine months of the year. including all remaining debt due in fiscal year 2021, as well as prepayments for fiscal year 22 and fiscal year 25 maturities. Furthermore, our abundant cash flow enables us to call additional $1.5 billion of debt maturing in fiscal year 2023, which we expect to pay in March. I'm very pleased with how we have structured our debt profile. With weighted average interest rate of approximately 2%, And importantly, 98% of our total debt at fixed interest rates, giving us protection from any potential rate hikes. In terms of the maturity profile, we are also very comfortable with an average of approximately 200 billion yen per annum out to fiscal year 2025. As a reminder, our free cash flow forecast for this year is 700 to 800 billion yen, Going forward, we are very comfortable with our ability to continue servicing this debt while maintaining the dividend and also making the right investments in the business. Moving now to slide 25 and our revised outlook for the full fiscal year. We are raising our forecast for reported revenue to 3.51 trillion yen, an increase of 140 billion yen versus previous forecast, reflecting the strong performance across the portfolio, additional revenue from Moderna vaccine in Japan, and also FX benefits. Reported operating profit is now expected to be 515 billion yen, and we are raising our forecast for core operating profit to 970 billion yen, an increase of 40 billion yen. These upgrades largely reflect the increase in revenue, with OPEX discipline offsetting a slight increase in cost of goods versus our initial plan. Reported EPS is now expected to be 155 yen, with a revised reported tax rate assumption of 37% for the full year. While we expect the tax rate to increase in Q4 due to timing of some tax costs of legal entity restructuring, the total of these costs is now expected to be lower than in our previous forecast. Core EPS is expected to be 416 yen with a core tax rate of 24%. Free cash flow, as explained earlier, is now expected to be 700 to 800 billion yen. On the right-hand side of the slide, we show our management guidance. on an underlying basis, which excludes the impact of foreign exchange and divestitures. While we are maintaining our previous guidance of mid single digit growth, for underlying revenue, underlying cooperating profit and underlying core EPS, we now expect to deliver at the high end of the range. So finally on slide 26, I'd like to close by once again emphasising our focus on top line, on margins, and on cash flow. Underlying revenue growth for Q3 year-to-date was 7.1%, putting us well on track to land at the high end of our full-year guidance of mid-single-digit growth. On margins and profitability, our year-to-date cooperating profit was 757.9 billion yen, and we're raising full-year forecast to 970 billion yen. Our year-to-date underlying cooperating profit margin is 29.4% in line with our projections for the full year. Finally, on free cash flow, we have delivered a strong year-to-date result of 671.3 billion yen, and we are raising our forecast to 700 to 800 billion yen. We continue to maintain a focus on deleveraging towards low two times net debt to adjust an EBITDA target by fiscal year 2023. And with our leverage at 3.0 times at the end of Q3, we are well on track to potentially breaking the three times threshold within this fiscal year. Thank you for your attention. And we'll now open it up for Q&A.

Now we would like to open the floor for taking questions. Please use the raise hand button If you are listening to Japanese, please ask questions in Japanese. If you are selecting the English channel, please speak in English. And if you are listening to the original audio, you can ask questions in either of the languages. And please limit the number of your questions to two.

First question is from Yamaguchi-san from SITI.

Do you hear me? Yes.

Thank you. So this is Yamaguchi from SITI. Congratulations on the good numbers. Two questions, please. The first one is that you changed the full year guidance and you gave me some numbers. Just give me the reason why the sales up by 140 billion yen. And with the cost control, operating profit, core earnings, core OP goes up by 40 billion yen, which sounds like a cost is higher than expected, which you mentioned. Can you elaborate what kind of the reason behind it, including PDT and other things? That's the first question. The second question is that the full year number chart shows that you raised globally sales range from 5 to 10 to 10 to 20. Can you give me the reason behind it? And also, can you give me the pricing and the collection, which is the usual kind of questions on the PDT front? Thank you.

Gustave first and then Julie.

Thank you, Yamaguchi-san. What I understood from your first part of the question was, the reason for the upgrade in revenue of 140 billion yen. So what we're seeing is strong business momentum overall. And in particular, the 14 global brands are driving that momentum. In addition to the 14 global brands, we're also adding additional doses of spikebacks in Japan. So we're seeing, as we mentioned, we're including approximately anywhere between 40 to 50% of the incremental 93 million doses of the spike vaccine. And then we also have some proportion of favorability in FX. So I didn't get the other question that you had. Was it OPEC? What was the other question you had?

Given the sales was up by 140 billion yen as a delta, but OP delta is 40 billion yen, which sounds like a little bit low. So you hinted cost is higher than expected. On a COX range, can you give me the reason why COX is higher on your new guidance compared to old guidance?

So we have seen some cost of goods headwinds, as we alluded to in the first half of the fiscal year, driven by the donor fee and the dynamics in the US for PDT. We have also seen on the cost of goods headwinds an increase due to FX, mainly because a lot of our operations in Europe on the manufacturing, and it's in euros. So that's really the key message. And remember, in Q4, we typically have more phasing on acceleration of expenses, and we do expect an uptick in R&D investment to accelerate in Q4.

So caucus basically is more Bantona fee and FX. That's the two big reasons, rather than That's correct. Okay. It should be good, right? That's correct. Okay. Thank you. Thank you.

Maybe I'll jump in. This is Chris O'Reilly speaking. On your second question around the PDT guidance, So, yes, we have upgraded the reported forecasts for immunoglobulin, but this essentially reflects effects. You'll see the underlying growth forecast is unchanged at 5% to 10% growth.

Okay.

It's currency? It's currency, yes. Okay.

Can you elaborate quickly on the pricing environment currently and the collection trend in the U.S., if you have any words?

Julie, are you? on the line and able to answer that one?

Yes, this is Julie Kim. Thank you for the question. In terms of the pricing dynamics in the U.S., the continued impact of the pandemic is prolonging the ability to return to more normal levels. So at this point, what we do see is continued fluctuation in the pricing in terms of donor fees. We continue to moderate and push towards normal levels. leveraging our transformation efforts throughout the BioLife organization, which is our plasma infrastructure. So as you've heard from both Costa and Chris, we continue to try to mitigate the impact of that, but the prolongation of the pandemic does make it a bit harder to completely offset those costs.

Okay. Got it.

Thank you. Thank you. We would like to move on to the next.

Next is Stacy Koo from Cowen.

Hi. Hi. Stacey from Cowan, thanks for taking our questions and congratulations on the progress. My two questions. First, given your updated commentary on Intivio LOE, can you remind us your thoughts on the Intivio market share in Crohn's disease As we approach the loss of exclusivities for Humira and Stelara in 2023, do you expect differentiation to be protective in Crohn's disease as we expect it to be in ulcerative colitis? That's the first question. And then the second question is, could you narrow the timing for when we would expect investor disclosure of the phase one data for orexin 861 program in the healthy volunteers and type one narcolepsy patients? Thanks so much.

Thank you, Stacey. Perhaps Ramona, first question and Andy, second one.

Yes, absolutely. Hi Stacey, thanks for your question. So yes, if you look at first of all what we see in the biosimilar market in the US right now, we don't see an impact outside of molecule. for the biosimilars. So we're not seeing an impact on Antivio either on our payer access or on our uptake or prescribing as a result of biosimilars. As you start looking at the Crohn's situation, we would expect much the same to continue. So what's happening with Crohn's now is that as physicians start to treat earlier, Antivio actually becomes a better and better choice. So people might prefer some of those other products when they've got a crisis patient with Crohn's, But as we're starting to see more earlier use of biologics in Crohn's, people actually are preferring Antivio because it's safe and it's effective and it's got really, really good long-term data available. And so we don't expect any impact outside of molecule to Antivio from the other biosimilars. Thank you.

And Stacey, this is Andy. So we'll spend some time at 4Q today. mapping out timelines for the orexin program. But I'll remind you, there are four ongoing relevant activities. The first is our evaluation of the 994 Phase IIb dataset, and there's some very important information in that dataset, including chronic dosing and the effects of an orexin agonist and chronic dosing. The second, as you mentioned, we are accelerating our TAC861 next-generation molecule So we'll have data from our phase one studies and plans to move forward into later development. Thirdly, we're bringing back TAC925, our oral TAC925 program. And then lastly, as we've mentioned, we'll have next generation molecules that will be coming into the clinic. And so we'll have at least a timeline for each of those four events to share in 4Q.

Thank you.

Now, let's move on to the next question from Jeffrey Samura-san.

Please unmute. Hello. Thanks for taking my question. I'd like to ask about TAG003, your dengue vaccine candidate. You're pushing back guidance for a possible CHMP vaccine. advisory decision from the second half of the current fiscal year to sometime next fiscal year. And at the same time, the head of your vaccine business is leaving the company. What's going on there? You know, I can think of a couple of different reasons. Either the European authorities have a problem with the data. or is it something else? You did say that you're in discussions with the governments of the countries where you actually hope to sell the vaccine. Are there some reservations coming from that side? Any color would be appreciated.

Thank you for the question. First, we have submitted the data, and the data is complex. That's why... Remember that we had a fast track process first, but then when the EMEA saw the data, they do that in many cases, they decided that they would go back to the normal review because of the complexity of the data. We are submitting more long-term data as well. So we shouldn't see this new timeline as a sign that there is a problem with the data. It's just the complexity of the data. the fact that we are submitting long-term data. As Andy mentioned, we are fully convinced of the value and the public health impact that these vaccines will have in the countries where the dengue is endemic. Don't read anything between that and the departure of Rajiv. Rajiv has been leading the Vaccines Business Unit for 10 years. He's going for a new step in his career. We have we have a very strong leader with Gary to lead the vaccines business unit. We are very committed to it. So there is really no connection between the two. And regarding the other countries, at the same time as we file in Europe, we file in endemic countries. And the process is that they're actually reviewing the dossier. And in parallel, they can use the expertise of the EMEA if they want. So that's the current regulatory process. So again, we are We are very excited about the vaccines. It's complex, Dengue, you know, because you have four serotypes. You have seropositive, seronegative. Of course, there is increased scrutiny because of what happened with the previous vaccines. So that's also probably why there is also a lot of debate. But we are very convinced about the value of the vaccines.

Understood. Thanks very much.

Next is JP Morgan Wakao-san, please. Thank you. This is Wakao, JP Morgan. I have two questions. The first is about SG&A cost. And as a percentage of sales, I think your management is now at a lower level than the previous year. But at an absolute level, I think it exceeded the previous year. Do you think in the absolute term, It will be further increasing. Core OP margin 30% is the target of your management. We understand that. But how do you view the absolute amount of SG&A? And the second is Velcade. Last time, generic launch was expected to be in the middle of FY 2021, but now it is expected to be at the end of FY 2021. If you have any information and if you can disclose what is the And is there any possibility that it won't come within 2021, if it's called?

Can you take the first question? I'll take the second one.

Thank you very much for your question. In the appendix slide 39, you can see the SG&A expenses on a reported basis for Q3 year to date. They have gone up versus last year by 3.4%. However, excluding FX impact, we're flat. So I think the organization is a laser focus on cost optimization and management. In particular, in SG&A, we're leveraging a lot more data, digital, and technology here. Our TBS organization is ramping up. So SG&A, very well managed. The only incremental here is FX driven. Thank you for your question.

Thank you. And regarding Velcade, we still believe that Velcade there will be a 505B2 sub-Q launch in Q4 fiscal year 21. So that's our current estimate, and that's our guidance. Now, when it comes to Velcade and actually Nenarro, their growth rate does not necessarily reflect the long-term dynamic of the product because there has been some pandemic effect last year especially. So Velcade and both in Laro were impacted depending on the cycle of the pandemic, if you like. So one needs to be careful when reading the growth rate of the product.

Thank you very much. Next question.

From Credit Suisse.

Haruta-san or Sakai-san? Sakai speaking. Yes, please go ahead.

Two questions. I have a follow-up question for Juri-san. Congratulations for your new role at Takeda. Really good. We've been hearing about the shortage of blood supply in the U.S., because of the Omicron situation. Now, can you just give us the overall observation, how the business is running? And this situation persists, assuming. Is it going to be upside or downside, not anymore your business, but together business for FY2022? So that's my first question. The second question is for Costa-san, as always. Your cash flow, I'm not going to ask the hard guidance for FY 2022, but given that you're having more flexibility and maneuverability in your cash management, are you expecting the same level of the cash flow generation for FY 2022? If so, you could say just yes, but if not, Can you just give me some variables that you are thinking about going forward? Thank you.

Hi, Sakai-san. This is Julie. So in regards to your first question around the dynamics in the U.S. market, clearly because of the impact of Omicron and the ongoing pandemic, it is still challenging for the entire industry to collect at levels that are equivalent to or better than pre-pandemic. For Takeda, as we've shared previously, we did surpass our pre-pandemic levels back in April of 2021, and we continue to be able to grow our collection. So while we can't give specifics going into FY22 at this point, what I can confirm is that we are going to be in that 15% to 25% range for growth of our plasma collections this year, which is where we wanted to land, and that will support our ongoing growth of our IG portfolio and albumin across the globe. So while I cannot comment specifically on what is happening from the competitor standpoint, we are monitoring the situation quite closely, and we will continue to do what we can to make sure that patients will have continued access to therapies.

And Sakei-san, thank you for your question. You know, we're not giving guidance on cash flow now in Q3, but in principle, we're seeing acceleration of our revenue. We're also seeing acceleration on our cooperating profit margins as we move forward. And as a result, that will reflect in our overall cash flow as well. So, you know, there's no reason why we will be going, you know, we'll defer from that strategy.

Okay. I mean, just a brief follow-up question. I mean, it's nice to hear that 98% of your debt is fixed rate. What about currencies? I could, you know, see US dollars dominated, euro dominated. What about Japan? I mean, Japanese yen dominated. How much your exposure to foreign currencies out of your total 4 trillion yen debt?

So it's a great question. And the way we financed our debt was really to match our currencies of our business. So very much equal to the currencies that we receive on US euros and also Japanese yen. So it's very well matched. Therefore, we don't have that much exposure there.

All right. So that's a neutral, you're saying?

That's correct.

Okay. Thank you.

Thank you. Next is Murgaon Stanley.

Murgaon Stanley, please.

Hello. This is Murgaon Stanley. Thank you for this opportunity.

Novavax vaccine.

I have a question. The 140 billion yen revenue was up, but Novavax vaccine sales was not included. Is that right? And according to Japanese media report, PMDA's review pointed out lab-to-virus impact and which may delay the program. Is it true, the fact? And if that's the case, what is the progress going forward? That's about Novavax vaccine-related question. Another question I'd like to ask you is page 58 of your slide. Entivio, needleless syringe. The injector, I think, is discussed. And however, there are some technical issues. And as a result, Pivotal study is delayed to be in FY 2023. Could you elaborate what is this technical issue? How it will be solved? That's my second question.

Thank you, Moragasan. Masato, if you can take the first question on Novavax and then Ramona on the needle-free.

This is Iwasaki. Thank you for your question. Concerning the lab-dor virus, I'd like to answer. And regarding the financial aspect, I think Costa can supplement. Concerning lab-dor virus, in the manufacturing process, Well, because of our contract with Novavax, I cannot disclose the details of the manufacturing process. However, the lab virus issue, we exchanged information with PMDA, and we are discussing it. And of course, properly, we will address this issue. And the EU authority, the EMA, there is an assessment report And a full clearance of the virus is proven. Therefore, it is not a concern. That's the conclusion the report says. That's all from me. Thank you. Iwasaki-san, sorry. So there is no risk of a delay? At the moment, we don't see any delay due to that particular reason. Understood. Thank you.

And it's Costa here. Thanks, Muraka-san, for your question. Just to confirm, In our guidance, our updated guidance, there's no revenue factored in for Novavax for this fiscal year 2021.

Okay, great. Thank you.

And Christophe, I can step in and take the question around Antivio and the device strategy. So maybe I'll just comment on both devices that are part of our LCM program. We've got our SubQ that we've been talking about, and I will mention that that has been launched in Europe and the launch uptake is going really well. So we're very pleased with what we're seeing, particularly in markets like the UK and Germany, which are some of our early launch markets and we're definitely seeing the sub-Q driving incremental growth for Antivio. In the US, based on our discussions with the FDA, we have now more clarity on the actual path forward for the sub-Q in the US. And so we've disclosed that we expect to be able to launch that in FY23 in the U.S. And then the other program we have for Entivio is the needle-free device, and that's one that's a little bit earlier in the process through development, but we're continuing to look at that. There's a great opportunity there for patients who don't like needles or are needle-phobic to be able to bring that needle-free device forward into the future. Thank you.

Thank you.

The next question is going to be the last question. The last question is from Nikkei newspaper, Akama-san. Thank you, Akama, from Nikkei newspaper. I have two questions. First, about Novavax. Around the beginning of 2022, you will start the supply, but then we are already into February. So when you talk about early 2022, what is exactly the timing? Are you talking about January to March or up to June, maybe? And a booster vaccination has started in Japan and another vaccine is Could it be also used for booster vaccination? So that's my first question. The second question, and this is to Mr. Weber, and this is a very broad question. For instance, in France or in Europe, I think economic activities have been returning, even with the spread of the Omicron variant. No more restrictions on economic activities or lifting of those restrictions. But here in Japan, we are still continuing to see. It's not so much as an emergency declaration, but then the government has not really relaxed those restrictions. And in terms of vaccination and the Omicron variant spread, there are kind of a differing responses among different countries. How do you see that, Mr. Webber? First, Iwasaki will answer your first question. As announced already, we have already submitted a letter which is under review right now, so we can't really mention a particular month for the launch of Novavax. But regardless of the timing of the launch, we have had tech transfer and manufacturing. So as early as possible during this calendar year 2022, we would like to get an approval and right after the approval, we would like to launch the product. That is the schedule. As for the booster of Novavax, the data package submitted for application, a part of that data includes the booster vaccination As this is under review right now, it is really up to the Japanese authorities to determine. Thank you very much.

Thank you very much for your question. First, I would say that the Omicron pandemic wave is not synchronized. In Europe, this pandemic wave of Omicron started before the wave in Japan, right? So in many European countries, they are seeing a declining number of Omicron case, which is, and we're not in this phase in Japan. So of course, countries, every country is, is managing that situation while at the same time managing the economic impact. One thing I can say on the other end is that the, it's pretty clear that the Omicron wave is unstoppable because the Omicron is very transmissible. And therefore, I don't believe into a zero COVID strategy, which is not the strategy of Japan. So I think that When there will be sign of declining number, it will be time to, you know, re-stimulate the economy because, you know, the Omicron will be with us for a long time. And so this is, I think, the new reality that many governments are facing is that the pandemic is still with us, might still be with us for a long time. And therefore, we need to find a way to manage that while keeping the economy going. because we cannot stop the economy forever. I think this is really a new reality that governments are facing. Thank you for your question.

Thank you very much.

Thank you. With this, we conclude the webinar. Thank you for your attendance out of your very busy schedule. Thank you all, and I look forward to working with you. Thank you.