Takeda Pharmaceutical Company Limited

Thank you very much for your participation in the conference call for the financial results for fiscal year 2023 of Takeda Pharmaceutical Company Limited. My name is O'Reilly, head of investor relations. First, I'd like to explain about the language settings. There are language selection button at the bottom of the Zoom window. If we wish to listen in Japanese, please select Japanese. If we wish to listen in English, please select English. Or if we wish to listen to the role, Original audio, please select off. Before starting, I'd like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in our most recent Form 20F and in our other SEC filings. Please also refer to the important notice on page 2 of the presentation regarding forward-looking statements and our non-IFAS financial measures, which will also be discussed during this call. Definitions of our non-IFAS measures and reconciliations with comparable IFAS financial measures are included in the appendix to the presentation. I would like to move on to the presentation. Christophe Weber, President and CEO, Andy Plump, President of R&D, and Milano Furuta, Chief Financial Officer, will make a presentation. After that, we will have a question and answer session. And I would like to begin.

Thank you, Chris. Thank you all for joining our fiscal year 2023 running call. It's really a pleasure to be with you all today. In Fiscal Year 2023, we continue to demonstrate our ability to discover and deliver life-transforming treatments. This vision, along with our values, is central to our strategy and daily execution. I will now review our full year performance and our priorities ahead. First, Fiscal Year 2023. To summarize fiscal year 23, it was a well-managed but tough year. Despite significant generic headwinds, our top-line performance exceeded management guidance. We score revenue growth of plus 1.5% at constant exchange rate. This growth was driven primarily by the performance of our growth on launch products, which increased 12.8% year over year, and now represent 43% of our total revenues. Our corporating profit declined 13.3%, which was in line with management guidance and reflect the loss of exclusivity for high margin products, including vitamins, and our continued investment in R&D and data, digital, and technology. Core EPS declined 15.7%, which was above our projected low 20s percentage decline. We made significant progress in our pipeline in fiscal year 23, with three new therapies approval in the US, Fresacla for metastatic colorectal cancer, Adzyma for congenital thrombocytopenic papilla, and Eoilia for eosinophilic esophagitis. We also expanded our existing portfolio with several important life cycle management approvals. Takeda received US FDA approval for Ontivupen in ulcerative colitis in September and in Crohn last month. We also received approval in the US for PDT therapies, IQVIA and GammaGal liquid in chronic inflammatory demyelinating polyradicular neuropathy or CIDP. And our dengue vaccine, Scudenga, is now approved in more than 20 countries, including where the disease is endemic. In addition, we progress two important potential clinical therapies, TAC279 and TAC861 into advanced stage of development. TAC279 now also known as Zazocitinib has moved into phase three for psoriasis and phase two for ulcerative colitis and Crohn's disease. We expect to initiate a phase three trial in psoriatic arthritis soon. TAC861, the lead molecule in our OXIN franchise, met primary and secondary endpoint in a phase 2B trial in narcolepsy type 1, and we plan to present the trial data at a sleep conference in June this year. We are in discussion with the FDA to advance to phase 3 in the first half of fiscal year 24. Including Zazocitinib and TAG861, we expect to have up to six programs with high revenue potential in phase three development in fiscal year 24. But amid this strong progress, we had some setback too. We made a tough decision based on the fruitful analysis of the data, and we discontinued development of three phase two pipeline program in oncology, Morecafus-Palfa, Subasumstat, and TAG007. We also initiated the voluntary withdrawal of XQVT globally and took the decision to pursue regulatory filing for Alofizel in the US. These decisions are not easy, but they are part of the journey of innovative drug discovery. They are also a reminder of the importance of financial resilience, agile data-driven decision-making, and rigorous prioritization. Turning to the next slide, I will discuss how we return to sustainable revenue and profit growth beginning in fiscal year 2025 and the path to delivering on our margin expansion target. We expect fiscal year 2024 to be the final year of significant headwinds from Biden's loss of exclusivity in the US. This is reflected in our management guidance for the year, where we expect revenue to be flat to slightly declining, core operating profit to decline approximately 10%, and core EPS to decline in the mid-tenths percent at constant exchange rate. Milano will speak in more detail about our full year outlook in his presentation. After 5 months, we expect no significant generic exposure until the early 2030s. In fact, the total generic exposure we expect over the coming 7 years is less significant than the impact from Vivant's decline in the two years of fiscal year 23 and 24. That is important because we also project that our growth and launch product will continue to deliver double-digit percent growth at constant exchange rate in fiscal year 24. So we are very confident that we can return to sustainable revenue growth from fiscal year 2025. This will support stabilization and a slight improvement in our gross margin, which has been impacted by generic erosion of high margin therapies. This is a welcome progress following two very tough years of generic headwinds in fiscal year 23 and 24. However, we have to do more to ensure that Takeda is future ready and can deliver long-term growth. As I mentioned, in Fiscal Year 2024, we expect to have up to six programs in Phase 3 development with significant revenue potential. And while we will increase our R&D budget moderately this year, a rigorous prioritization will allow us to both contain our R&D budget increase while developing these late-stage programs. Furthermore, we are implementing a significant multi-year efficiency program to support our target of delivering 100 to 250 basis points margin improvement each year, beginning fiscally at 2025, to build towards our low to mid 30% co-operating profit margin target. I will provide more detail on the program on the following slide. But first, I will say that we are confident in our ability to execute because we have been preparing our data and technology foundation over the past five years. So our long-term outlook is bright and our cash flow generation is strong. In line with our capital allocation policy, we are committed to grow an attractive shareholder return. In Fiscal Year 2024, we are proposing an increase to our annual dividend to 196 yen per share, consistent with our progressive dividend policy of increasing or maintaining the dividend each year. Moving to the next slide. As I previewed on the prior slide, Takeda has initiated an enterprise-wide program to drive efficiencies and deliver 100 to 250 basis points, cooperating profit margin improvement each year, beginning fiscal year 2025. This program focuses on three key areas. First, organizational agility. Two, procurement saving. Three, leveraging data, digital and technology. First, we are simplifying our business by removing layers, broadening roles and refining operating models to improve our agility across the enterprise. Second, we are initiating procurement-led savings to optimize our external spend and materially reduce our costs. And third, we are continuing our investment in data, digital and technology to be better faster and increase productivity. I will provide more information on our progress in data, digital and technology in the next slide. In fiscal year 24, we are estimating restructuring expenses of 140 billion yen, primarily for the implementation of the efficiency program. This is a significant investment and it underscores the significance of this program for Takeda and the impact it will have on the company. We believe that efficiencies gained from the program will enable us to allocate resource towards our late-stage pipeline and new product launches and offset inflation headwinds. So we will continue to integrate data, digital and technology throughout our operation and value chain to help us develop and deliver medicines to patients more efficiently. We are talking We are taking very bold steps to execute this once in a lifetime opportunity. For example, we have now migrated 100% of our applications and 96% of all our data to the cloud, allowing us to leverage this data fully. We are creating innovation capability centers, which are in fact Takeda tech centers, which will develop data on technology solutions. We have three centers in Bratislava, Mexico, and Bangalore in India, each with eventually hundreds of computer engineers. We are leveraging artificial intelligence, real-world evidence, and digital tools to speed clinical trial recruitment and regulatory filing. For example, the US FDA approval of GammaGuard Liquid for the treatment of CIDP in January 2024 was based in part on a real-world evidence study using data based license by Takeda. This approach, taken in place of a randomized controlled trial, amounted to considerable cost savings and several years of production and development timeline. In manufacturing and quality control, we are using sensor and digital camera generating big data, which is then analyzed by artificial intelligence to improve our efficiency. For example, in predictive maintenance, road cause analysis, deviation analysis. And I could carry on with many other examples across our value chain. Moving to slide eight on our growth and launch products. We expect revenue from this portfolio to grow at double digits at constant exchange rate and account for approximately half of total company revenue in fiscal year 2024. Some updates to highlight since we presented this slide in February are the addition of EoElia and the removal of Xquiviti and Alofizel. While we do not currently have a growth and launch product in neuroscience, we have an exciting pipeline. most notably with TAC861 and Soticlestat in late-stage development. From fiscal year 2024, we will present vaccines as a standalone business area, reflecting the strong demand for our dengue vaccine, Scudengia, and present PDT holistically instead of separating out PDT immunology. Turning to the next slide, I will provide an update on Antivio, our number one product by revenue. Antiviu continues to outperform the IBD market with strong double-digit volume growth, partially offsetted by price erosion, resulting in revenue growth of plus 6.6% in fiscal year 23. Importantly, Antiviu has been able to maintain the number one market position in the US for IBD bio-naive new starts, with competitor launch primarily competing in later lines of treatment or impacting alternative mechanism of actions. Anti-view subcutaneous or anti-view pen formulation have now launched in more than 50 markets globally, including the recent launch in the US, and are driving incremental growth. A key point I want to highlight is that 30% of anti-view pen prescribers in the US are either new to anti-view or had not prescribed Antivio for more than one year before prescribing the pen. This is a strong signal that this formulation is encouraging prescribers back to Antivio and attracting new prescribers. And this is very significant because subcutaneous therapies are estimated to represent approximately 35 to 40% of the total US IBD market. Our recent US FDA approval in Crohn's provide further opportunity to reach this patient population with greater flexibility on shots. Turning now briefly to slide 11, our PDT business continues to achieve double digit growth driven by strong global demand for immunoglobulin products and expansion of subcutaneous therapies. We'll focus on maintaining this growth trend through targeted incremental investment in capacity expansion across our collection and manufacturing network, as well as in PDT R&D and DDT transformation. The PDT business has been steadily improving its co-operating profit margin since the first half of fiscal year 23, which will continue to drive expansion of Takeda's overall co-operating profit margin as PDT accounts for a growing share of total company revenue. In closing, we are confident about the path we are on. We continue to deliver on our financial commitment to progress our pipeline and to create long-term value for our stakeholders. With that, I will now turn the call over to Andy to update you on our pipeline. Thank you.

Thank you very much, Christophe, and hello to everyone on today's call. If we can go to the next slide, please. As Krzysztof mentioned, we've had a very successful year with significant maturation of our pipeline, while delivering three new molecular entity approvals in the US, Vrzakhla, Edzinma, and Eohylia, in addition to important indication expansions of key products, the EntivioPEN, a convenient at-home administration option for patients, was approved in the U.S. for maintenance therapy in both ulcerative colitis and Crohn's disease, as Christoph mentioned. Qdanga, our dengue vaccine, continues a steady cascade of approvals across the globe. Hycuvia, our facilitated subcutaneous immunoglobulin treatment, received a key approval as maintenance therapy for CIDP in both the U.S. and Europe. Hycuvia offers the potential for once-monthly infusion, which can positively impact patient lives and elevate the standard of care. In addition, as you heard from Christoph, a series of positive Phase IIb readouts and partnering activity continue to enhance the strong momentum across our new molecular entity pipeline, fueling our growing late-stage portfolio. A few examples. Our potential best-in-class TIK2 inhibitors, zazocitinibs, Phase III latitude psoriasis trials are enrolling beyond our forecasts. They're doing this by leveraging novel digital approaches. Zazocitinib's positive phase 2B data in psoriatic arthritis was presented at the American College of Rheumatology, and the phase 3 latitude psoriatic arthritis studies are expected to begin in the second half of this fiscal year. Our lead oral orexin agonist, TAC861, read out positive Phase IIb data in narcolepsy type 1 and just received FDA breakthrough therapy designation. These very exciting data will be presented at the SLEEP conference in June, and we will hold an analyst call after the presentation to review the data for those who cannot attend live. TAC861 will begin Phase III development in the first half of this fiscal year. In March, we announced positive Phase IIb data for mezogidemab in immune thrombocytopenia, or ITP. The Phase III start is planned for the second half of this fiscal year. And today, we are happy to announce that mezogidemab has also demonstrated positive proof of concept in immunoglobulin A nephropathy, commonly known as IGAN. We will preview these exciting data later in this presentation. Resveratide is a first-in-class synthetic hepcidin mimetic being developed in collaboration with Protagonist Therapeutics for the treatment of polycythemia vera, a chronic blood disorder characterized by excessive production of red blood cells, leading to an increased risk for thrombotic events. In February, compelling Phase II data were published in the New England Journal of Medicine. The ongoing verified Phase III trial has almost completed enrollment with a potential filing in fiscal year 2025. And finally, our partner, Neurocrin, recently announced positive Phase IIb data for TAC653 in patients with an inadequate response to major depressive disorder. We are looking forward to discussions with regulatory authorities and outlining the next steps. Now, building on the success of these pipeline achievements, let's now turn our attention to how these developments are shaping the future of patient care and driving value for our stakeholders. Next slide, please. In addition to the approvals of Adzinma and Fusakla that continue to progress through important lifecycle management activities, our late-stage pipeline now has six programs that are in or about to begin Phase III development. These six programs could significantly impact patient care and drive value for Takeda. We will have an R&D event later this year where we will discuss and contextualize the promising clinical data for zazocitinib, vizirceram, mezagidimab, resveratide, sotiklistat, and TAC861. During this meeting, we will also outline the significant value these medicines can bring to millions of patients. Now, while our rare genetics and hematology therapeutic area unit was discontinued last year following our decision to leave AAV gene therapy, we continue to maintain an operationally efficient rare disease development team within our R&D gastrointestinal inflammation therapeutic area in order to support our rare diseases business in a streamlined manner. This focused team is realizing the full potential of Adzinma by continuing development in immune-mediated thrombotic thrombocytopenic purpura, or ITTP. Adzinma will have proof-of-concept data later this fiscal year in ITTP, which would greatly expand the number of patients who could benefit from this therapy. This small dedicated team also coordinates Takeda's responsibility for Resveratide, where the majority of development today is managed by our partner, Protagonist. With this exciting late stage momentum in mind, let's explore how we have significantly restructured and prioritized our pipeline over the last year through data-driven and strategic decisions to sharpen our focus on the most promising programs. Next slide, please. To fund our maturing and exciting phase three pipeline, 25 data-driven and strategic decisions were made across the portfolio this past year to refocus efforts on the expanding late stage portfolio. We had two key negative phase three data sets in the year, as Christoph has mentioned, a low facility in the US and the confirmatory frontline data for XCIVITY. As I have highlighted, though, our overall pipeline momentum was positive, especially for our highest value programs. If we can click for the bill, please. I would like to now take a moment to review our efforts in oncology. While of course we're disappointed by recent setbacks, let me assure you that Takeda is fully committed to oncology as a key component of our strategy and long-term growth and remains a core therapeutic area of our business. We have a long history of institutional knowledge, development expertise, and strong relationships in the oncology ecosystem. We fully intend to leverage our internal capabilities to accelerate and augment our oncology pipeline. Going forward, we will explore a broad range of modalities and mechanisms as we seek to advance the most promising science and ultimately address the highest areas of patient need. We have a new R&D head of oncology, PK Moro, who was a practicing oncologist at MD Anderson Cancer Center before taking on leadership roles at two large biotechnology companies. She brings strong development capability and will guide the building and replenishment of our oncology pipeline through internal and external innovation. Now, early green shoots of progress include the successful approval and launch of Fusacla, early stage-ups of internal programs like Dazostinag, TAC-676, our first sting agonist to enter the clinic, and TAC-012, our first gamma-delta T-cell therapy, as well as our recent licensure from Kumquat Therapeutics, which brought a promising immuno-oncology asset into our preclinical pipeline. We look forward to sharing our progress in the months ahead. Next slide, please. Now here, I'd like to highlight the strength and potential of our early to mid-stage pipeline, which is poised to address unmet patient needs and contribute in the near term to our growing late-stage portfolio. In our emerging celiac disease franchise, we will have an important readout for TAC227 over the next 12 months. TAC227, a transglutaminase 2 inhibitor, has already demonstrated reductions in gluten-induced intestinal pathology as published in the June 2021 New England Journal of Medicine. As Krzysztof mentioned, we are pivoting development of TAC007, our CD19 CAR-NK cell therapy from oncology to autoimmune diseases, where there is exciting autologous cell therapy data emerging with long lasting effects in refractory autoimmune diseases. Relative to CAR-T therapy, our CAR-NK platform has a favorable safety profile and an off-the-shelf manufacturing process that will deliver therapy on demand at a significantly lower cost of goods. And while a very competitive area for autologous cell therapies, there are few allogeneic programs in the mix. In addition, our expanded orexin franchise continues to progress well. We expect a proof of concept readout for denovorexcon in post-anesthesia recovery later this year. TAP360, our next generation oral orexin agonist, has started recruiting in phase one. we will advance TAP360 quickly using our deep understanding of orexin biology and industry-leading expertise with orexin agonists to accelerate development in narcolepsy type 2 and idiopathic hypersomnia. TAP360 has already been awarded a fast track designation by FDA. Next slide, please. Let us now focus on upcoming milestones that are expected to make a significant impact in the near future. We eagerly await the ceticlostat phase 3 readout in Dravet syndrome and Lennox-Gastaut syndrome, or LGS, both due in the first half of this fiscal year. Ceticlostat has a novel mechanism of action and has been well-tolerated in clinical studies. We believe approval of ceticlostat could lead to a reimagining of care for patients with these pediatric epilepsies. Other upcoming milestones included the start of phase 3 development for TAC861 and narcolepsy type 1, and the completion of enrollment for zazocitinib's phase 3 latitude psoriasis trials in the second half of fiscal year 2024. Given the strong momentum of our mid- to late-stage pipeline, we plan to host an R&D event later this year to provide an update on our strategy, present deep dives into our potentially transformative late-stage programs, and share more about our data, digital, and technology efforts. Specific details of the event will be shared soon. With these milestones on the horizon, I'm particularly excited to share more about mezogidemab. Let's dive into the details of this promising therapy and its potential for use across a range of immune-mediated disorders. Next slide, please. Mezogidemab is an anti-CD38 antibody that has a lower affinity for platelets and red blood cells than the leading marketed CD38 antibody. Our data on file shows robust immunoglobulin reductions across multiple antibody subtypes. In addition to depleting antibody-producing plasma cells, mezoginamab has shown an ability to substantially reduce a range of other cells involved in inflammatory processes, leading to a rapid onset of response and a long-lasting immunomodulating effect. The lowering of immunoglobulin G is on par or less than that seen with anti-FCRNs. And yet, we have seen more robust, rapid, and sustained platelet responses in ITP relative to these agents. This suggests that mezagidimab's mechanism of action goes beyond the effects of lowering immunoglobulin. We look forward to sharing our ITP data at an upcoming major hematology conference later this year. In IGAN, mezoginamab's host of immunomodulating effects, including reductions in galactose deficient IgA by 62%, leads to robust benefits on proteinuria. Mezoginamab thus has the potential to modify the disease path for these patients. Our proof of concept data suggests a very competitive profile in IGAN despite a crowded development landscape. We look forward to discussions with health authorities on our phase three program. We will share the IGAN data at a medical conference later this year. Thank you. At this point, I'll turn it over to Milano.