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.

Thank you, Andy. Hello, everyone. It's my pleasure to present FY23 results and financial outlook of FY24 and onwards. FY23 revenue was over 4.2 trillion yen, an increase of 5.9% on an actual FX basis, or 1.5% at constant exchange rates, or CER. This result exceeded our management guidance of low single-digit decline at CER, mainly due to milder generic penetration of vitamins on top of continued momentum of our growth and launch products. Corporate in profit, Coop, was 1,054.9 billion yen, a year-on-year decline of 13.3% at CER, in line with management guidance for low 10% decline. This decline mainly reflects the LOE of high gross margin products, transactional effects impacting COGS, and increased investment in R&D and data digital technology. Let me call it D&T. Reported operating profit was 214.1 billion yen, a decline of 56.4%, including higher impairment losses, based on study readouts of unofficial and exclusivity, as well as higher resourcing and litigation related expenses. Core EPS was 484 Yen, a 15.7% decline at CR. It landed better than our management guidance, below 20% decline due to more favorable core tax rate. Reported EPS was 92 Yen, a 54.9% decline with a lower financial income than prior year, offset by a reduction in tax expense. Operating cash flow and free cash flow was 716.3 billion yen and 283.4 billion yen, respectively, which I will explain later. Let's look at the year-on-year revenue dynamics in slide 21. our growth and launch products grew by 12.8% at CER, representing now 43% of total revenue in FY23, which was almost entirely offset by the impact of LOEs. Growth of other products more than compensated for lower COVID-19 vaccine sales and total revenue landed with 1.5% growth at CER. The depreciation of the yen versus major currencies increased the revenue, resulting in total growth of 5.9% on actual FX basis. Slide 22 shows EONIA cooperating profit dynamics. You can see how LOEs and the lower COVID-19 vaccines revenue are having a larger impact on profit due to their higher gross margins. On investment side, We continue to allocate resources to DT&T and R&D. On a CR basis, R&D spans increased by over 8%, slightly ahead of our forecast due to wind down costs associated with program terminations. I want to spend a moment to elaborate major factors behind the 4.8 percentage points core operating profit margin drop. The biggest factor was gross margin decline. This was caused by a combination of two elements. One, product mix between growth and launch products and LOE impacted products. And second, transactional FX impacts on COGS. These two components almost equally affected the gross margin decline. Then the next factor is the extra spend in R&D and DDT as I already mentioned. The last factor is translational FX impact. The depreciation of YAM increased the revenue and the core OP by 176.9 billion YAM and 24 point billion YAM respectively, which pushed farther down our core OP margin. Next slide, 23. shows reported operating profit bridge versus prior year. In addition to the core OP decline, we booked impairments of intangible assets in FY23, totaling 130.6 billion yen, mainly around aloficel and excivity. An impairment reversal in Q4 for Eohelia was offset by several additional impairments related to the discontinuations of the Model Crafts for Alpha, Tax 007, and others. Other operating expenses increased due to litigation provisions and the restructuring costs and the revaluation of contingent considerations. Translation FX was further headwind to a reported operating profit because many of our non-core expenses, such as amortization, impairments and legal provisions are booked in foreign currency. All these items combined led to the reported operating profit decline of 56.4%. Next is our cash flow analysis on slide 24. Operating cash flow for FY23 was 716.3 billion yen, lower than prior year, mainly due to the decline in cooperative profit and a one-time cash payment related to litigation. Free cash flow was 283.4 billion Yen, reflecting total capex of 480 billion Yen. This was below our full year forecast of 400 to 500 billion Yen, mainly because of litigation related payments and higher working capital. Moving to our outlook for FY24. Let me start with our management guidance on the right-hand side of the slide. As explained earlier, the impact of generics on violence is shifting to FY24. However, we still anticipate strong momentum of our growth and launch products, in particular, NTVO and immunoglobulin, which will largely alleviate this headwind to result in flat to slightly declining revenue on the CER basis. Core OP is expected to decline by approximately 10% at CER because of high profitability of guidance and modest increase in R&D and DG&T. Core EPS is expected to decline by mid-10th percentage with a normalization of our core tax rate to around 20%. Our forecast on actual FX basis assumes 150 yen to the US dollar and 160 yen to the Euro. We expect revenue to be 4.35 trillion yen, which is a 2% increase versus prior year at actual FX. Core OP forecast is 1 trillion yen. Reported operating profit forecast is 225 billion yen, including 140 billion yen of restructuring costs. Core EPS and reported EPS are expected to be 431 yen and 37 yen, respectively. Our adjusted free cash flow forecast is 350 to 450 billion yen. This reflects the reduction in cash flow from Binance, higher cash restructuring expenses, as well as a continued envelope for targeted in-licensing opportunities. Finally, according to the capital allocation policy we updated last year, we are announcing a dividend increase for the second successive year by a further 80 yen to 196 yen per share. Slide 26 picturizes the dynamics impacting our revenue outlook for FY24, which actually I explained mostly. Slide 27 shows a similar waterfall for FY24 cooperating profit. The dynamics look similar to FY23, but there are two differences I want to point out. First, gross margin deterioration is expected to be less in FY24. Second, we expect savings in other OPEX to start offsetting our incremental strategic investments in R&D and DG&T. The net impact is a co-op decline of about 10% at CER. Although we are guiding for FY24 to be another year of profit decline, we expect to bottom out this year. We implement enterprise-wide program to drive efficiencies across the value chain. With 140 billion yen of restructuring costs in FY24, as well as some additional lower costs in the next couple of years. Through this program, we generate significant gross cost savings. While much of this will be reinvested for growth, we are committed to make concrete steps on improving core OP margin toward the low to mid 30s. On this slide, I would like to give a bit more color on how we see the P&L evolving from FY25 onwards. Firstly, it is very important to emphasize our return to sustainable revenue growth after the Vyvanse LOE is behind us. This will be enabled by the current growth and launch products, new launches from our pipeline, and with limited further generic exposure this decade. We expect our gross margins to bottom out with the Vyvanse LOE with a gradual improvement due to expansion of NTDO and other high margin products, as well as efficiencies in manufacturing and supply chain, and continued margin improvement in PDT. For SG&A, we plan to hold expenses flat to slightly declining on absolute basis, offsetting investments and inflation. By managing SG&A spend, we should see the ratio of SG&A as a percentage of revenue decline as the top line grows, resulting in a majority of QOP margin improvements. In R&D, we are rigorously prioritizing our pipeline to fund late-stage programs. Through disciplined cost management, we intend to progress a pipeline with broadly neutral impact on margins. In other words, we will manage R&D incremental investments broadly in line with revenue growth from FY25. As a result of all these dynamics, we plan to deliver 100 to 250 basis points, copy margin improvements each year. We are very confident in our execution of the efficiency program and cost management. But to be transparent, there are also some important assumptions behind this outlook. such as Binance erosion timing and FX rate. For example, slower erosion would set the highest starting point in FY24, or as we experienced in FY23, significant currency volatility might cause a headwind to our margin improvements. Before handing back to Christophe for closing remarks, I just want to reiterate our capital allocation policy that we updated last year. We continue to prioritize investment for growth in our pipeline, new product launches, and expanding our PDT business while delivering attractive returns to our shareholders. I also emphasize that we remain committed to maintaining solid investment grade ratings. With this year's ADN increase, we believe our dividend payout ratio in core EPS becomes more in line with our industry peers. Going forward, under our progressive dividend policy, we will decide the dividend according to long-term profit growth outlook and a financial capacity in cash flow and balance sheet. Thank you for your attention, and I'll hand back to Christophe to close the presentation.

Thank you, Andy, and thank you, Milano. As I said at the beginning, I would describe fiscal year 23 as a well-managed, tough year. In a very challenging environment, we met or exceeded our management guidance and made significant progress in our pipeline and marketed therapies. Looking ahead, we believe that we have one final year in 2024 of significant headwinds from Vivant's loss of exclusivity before a long period with minimal loss of exclusivity exposure a period during which we will fully benefit from the growth generated by our growth and launch products. In our last stage pipeline in fiscal year 24, we expect to have up to six promising programs with high revenue potential, and we are committed to the rigorous prioritization needed to maximize their potential for success. Our return to revenue growth, combined with a significant efficiency program we introduced today, give us a clear path to delivering 100 to 250 basis points cooperating profit margin improvement each year from fiscal year 25 towards our low to mid 30s percentage target. Finally, we remain committed to delivering attractive return to our shareholders and feel confident in proposing an increase to our annual dividend again this year. We look forward to the opportunities that lie ahead. Thank you for your continued support and confidence in Takeda. I will now hand it back to Chris.

Thank you.

Now I would like to entertain questions from you. In addition to Christophe, Andy, and Furuta, we have Ramona Sequeira, President of the Global Portfolio Division, Julie Kim, President of the U.S. Business Unit, Giles Bradford, President, PDT Business Unit, Teresa Bitetti, President, Global Oncology Business Unit, joining in Q&A. If you want to ask a question, please raise a hand using the button of the Zoom platform. If you are listening in Japanese line, please ask a question in Japanese. If you are in English line, please ask a question in English. And if you are listening to live audio, you may be able to ask a question in either one of the languages. And you are kindly requested to ask questions up to two and state all questions at once.

So we'd like to move on to the first question.

Jeffries, Steve Barker.

Yes, it's Steve. Hi, Steve. Thanks for taking my questions. So my first question is about your restructuring. You plan to book a charge of 140 billion yen this year. I'd be interested if you could share any details about the... what this is going to entail and the scope of any planned redundancies and which divisions that's going to focus on. And then my second question regarding the vaccine business, Christoph's comments, I think seems to indicate a more enthusiastic commitment to the vaccines business based upon the success of Cudenga, but you only have one global product. Should we understand that you're, new plan could involve adding vaccines to your portfolio, potentially through acquisitions.

Thanks very much. Thank you, Steve. So the first question on restructuring and more details on the programme, and then the second question on our strategy in the vaccines business. I'd like to ask Christophe to answer both those questions.

Thank you, Steve. So the first question, the efficiency programmes does include some redundancy in many different areas of the company. It will impact differently, different departments, but we are looking at more agile organization, streamlining organization, gaining more efficiency with data technology and AI. The pipeline prioritization also will create some reorganization. So there is an element of relevancy in this provision. It's not 100% that, but it's a significant part. Regarding the vaccines development, we are very excited about Q dengue for sure. I mean, first, it's a great vaccine. It's very efficacious. And unfortunately, dengue prevalence is increasing very significantly in endemic countries. On the other hand, for future vaccines development, we are looking for a strategic partner. We don't want to do it alone by ourselves. We are missing many strategic components and vaccines. So we want to, ideally, we would like to find a vaccine strategic partner to potentially develop other vaccines, if you like, after Kuttengerbe.

How would that sort of strategic partnership work? What role would Decatur play in such a partnership?

But I will not give you detail at this stage because I cannot disclose the type of discussion that we are having. So there are many different types of potential model of strategic partnership. But basically, we think that if we could find a good partner, it will strengthen our capability in vaccines development. It will also... reduce our financial exposure developing new vaccines is is very expensive very very long which is fine but we are also missing some some core capabilities so so there are many different models if we of course at one stage if we are able to to do a strategic partnership like that we will share with you the details understood thanks very much

Next question from Yamaguchi-san, Citi, please.

Yes, we can hear you. Great, thank you. Thank you. So this is Yamaguchi from Citi. The first one is regarding a PDT business. And the PDT business is growing faster than the industry, and you seem to have a good condition of course as well. And the operating margin is now improving. Can you give us the guidance with what kind of gross margin you're looking for for this fiscal year compared to last fiscal year? That's the first question. The second question is regarding an algorithmic project on the abstract of a sleep at the TAC 861. And congratulations for the BTD. But the placebo-adjusted time is around 26 minutes. I think it's between 3 to 5 milligrams, if I remember correctly, which is great. But it's a little bit weaker than 994. And also, this is only for NT1. So can you give us any impressions of why it is a little bit less efficacious compared to 994 because of dosage things? And also, why did you do only for the NT1 and giving up NT2 and IH for that? Thank you.

Okay, thank you, Yamaguchi-san. So the first question on our PDT business, I'd like to ask Giles to comment. And then the second question on TAC861 for Andy to answer that one. Thank you.

Thank you, Chris, and Yamaguchi-san, thank you for the question. We do expect the PDT business to continue growing high single digits in fiscal 24 with the immunoglobulin portfolio growing 5% to 15% and single-digit growth from our albumin portfolio. We don't give guidance around gross margin or COP by division. But what I can assure you is that we continue to see positive momentum in in margin expansion for the PDT business, driven by better value recognition, better portfolio mix, particularly uptake of our innovative subcutaneous IG portfolio, supported also by the recent approval for high QV in the US and Europe for treatment of CID patients, but also supported by continued investment in DD&T transformation across the value chain, which is helping to drive efficiency and productivity. Thank you.

Yamaguchi-san, this is Andy. Good evening. Good evening. Firstly, with respect to H1 and type 1 narcolepsy, the good news is that in three weeks, you'll have an opportunity to see the full data set as it's presented at sleep. And as I mentioned, we'll host an IR event, so we can go deeper into your questions and share more of the data. So at this point, just a few brief comments. Just a general comment, which is I think it will be hard to... to create a profile that will be more, that will be better than TAC 861 and type 1 narcolepsy. it will be hard to create a profile that's gonna be better. And I wouldn't look at small number numeric differences in a highly artificial endpoint like MWT as relevant. What will be very important for you to see is the efficacy across the multiple different aspects of hyponarcolepsy, excessive daytime sleepiness, cataplexy, night-time sleep architecture, and then measures of patient function of quality of life. We've looked extensively across all of these. And I can tell you that the profile for 861 is quite transformative. And for many of these patients, we're functionally curing their type 1 narcolepsy. In addition, there's a therapeutic index that's important to thread the needle. So dose becomes quite important in managing efficacy with therapeutic index, and we think that we have threaded that needle with pac861, and you'll see the data in a few weeks. With respect to type 2 narcolepsy and idiopathic hypersomnia, there's clearly a dose response element, and we made the calculated decision that we wanted to focus type 1 narcolepsy with 861, and part of that decision was the data that we had seen in our phase 2b studies Part of that decision was, as you know, our intent to really go forward with the lowest efficacious dose possible for 861, given the history with TAC-994. And then perhaps most importantly was the momentum that we were generating with TAC-360, which is now in the clinic. Our intent for TAC-360 is to move forward very rapidly in type 2 narcolepsy and other sleep-wake cycle disorders.

Thank you. Thank you, Yamaguchi-san. So for the next question, I'd like to call on Cowen. Mike Nadelkovich, please unmute and ask your questions.

All right, thank you for the questions. I have two. The first is on Intivio. You note that newly launched Intivio competitors appear to be gaining share from other drug classes, but AbbVie's IL-23 is approved in Crohn's while only filed for UC. And Lilly's IL-23 was approved in UC only six months ago with Crohn's approval pending. So I'm curious how confident are you that this dynamic will persist in Intivio's favor? And then my second question is on TAC-007. You kindly outlined the differentiated features of TAC007 relative to competitors pursuing cell therapy for autoimmune disease. But why is this approach superior to, for example, CD19 or CD20 directed T cell engaging antibodies? And where might TAC007 have limitations relative to other modalities? Thank you.

Thank you, Mike. So the first question on NTVO market share performance, particularly in later lines of therapy, I'd like to ask Julie to comment on that. And then on TAC007 in immune disorders, Andy can comment on that.

Thanks, Chris, and thanks for the question, Mike. When it comes to Intivio's performance in the U.S., I think being 10 years on the market and able to grow demand faster than the market and maintain our market share leader position in first line, both in IBD overall and bio-naive starts, demonstrates the strong track record that Antivio has being a gut selective option for HCPs to use with their patients in both UC and CD. So we do believe that in first line, we'll be able to hold our market share position given the track record that I just mentioned and where we see the new entrants gaining share is in second line and beyond. So we expect as new entrants products continue to gain the different indications, whether it's CD or UC, that that's where we will see them take hold when they launch.

Mike, it's Andy. With respect to TACO7, we, of course, don't want to get ahead of ourselves here. This is just an extraordinarily exciting and competitive landscape right now. And we're really learning as we're moving forward. The profile for TACO7 fits very well with autoimmune diseases. It's an off-the-shelf agent. Manufacturing is quite simple. We have a cryopreserved formulation that we can ship anywhere in the world. The cost of goods are a fraction of what it costs to make an autologous cell therapy. Our experience in oncology is that the safety profile is better than what we've seen with autologous cell therapies, and it's quite potent. So it lends itself very nicely, as you can imagine, to patients with autoimmune diseases relative to patients with cancer. Of course, there's a lot for us to understand. We feel quite confident based on the activity of TACO7 that we'll see efficacy similar to what's been seen with the other cell therapy agents in these diseases, but that's something that we still need to sort through. We also need to sort through what conditioning regimens will look like, what dose will look like. So there's still a lot to learn. Your question, though, around how it compares to non-cell therapies, I think the answer to that question is we just don't have proof of principle for any other type of agent having the kind of truly remarkable transformative efficacy, perhaps curing these diseases. And actually, the experience to date with depleting antibodies like CD19 naked antibodies or CD20 naked antibodies suggests that you can significantly eradicate circulating B-cell populations see modest to significant benefits over short term, but then rebound of disease. And for reasons that I don't think the field fully understands, the cell therapies have been much more active and not driving significant initial responses, but sustained responses over years. So I think the jury is still at us to whether other agents are going to be as effective, let's say, as the cell therapies. And then lastly, you're asking about the liabilities of TEC-07 It looks quite good. I guess the one kind of challenged a bit right now is that you still require conditioning. We don't know if you can just purely give a cell therapy without actually conditioning the bone marrow to allow for reconstitution with the cell therapy, but it's certainly something, an area that we'll be exploring, which will be less severe conditioning regimens.

Okay, thank you. So moving on to the next question, I'd like to call on Muraoka-san from Morgan Stanley. Please unmute and ask your question.

Hello, this is Muraoka Morgan Stanley.

My first question is about the core OP margin recovery. You mentioned 100 to 250 basis point improvement a year is expected. And if it is actually following the plan, then I think probably in 2030, the target will be attained from the current 29.7%. And then I think that it may be reaching to sort of high-level ones, but they may be declining after that. Is that the right understanding? And also, this improvement will come from the improvement of the gross margin. That's my first question. Second question is about PDT. There are other competitors, compounds, and they seem to be in trouble now. And Takeda, in terms of the collection centers, ZEP, be any chances that you will have more business opportunities, for instance, to more relatively easily get a collection center?

So I'd like to ask the second question on PDT to be answered by Giles around whether there are any opportunities to acquire more centers. And then the first question on margin, I'd like to ask Milano to comment, and then if Christophe has anything to add. Thank you.

Thank you very much for your question.

As you said, the starting point is about 23%, and then annually, 100 to 250 basis point improvement is expected. And then, in order to reach 30%, it takes time, and that time period that you mentioned is more or less correct. And that may be overlapping with the interview timing. However, there will be a new pipeline coming out and making contributions to the profit. Therefore, I think the profit profile will be different. So after NTVO LOE, what will be our profit rate? It is difficult at this stage to estimate, but we also have to expect the contribution from new products as well. Thank you.

Maroka-san, thank you very much for the question on PDT. We are always looking at both organic and inorganic opportunities to continue to expand our capacity, both in our collections network that you referred to as well across our manufacturing network. We have committed to expand our capacity by 50% over the next five years up to fiscal 28. We have opened over 100 new collection centers over the past four years, so doubling the size of our collections network. We're very excited about the ramp up that we're now seeing over the coming years that will help to gain in efficiency and productivity, particularly with data and digital. We've made reference in the slide deck to the commencement of the rollout of our personalized nomogram program, which will be effective in 35 centers across the US by the end of fiscal 24. And we will continue rollout across our entire network in fiscal 25, along with other data, digital and technology investments, which will support further capacity expansion. Thank you.

Thank you very much. Okay, moving on.

I'd like to call upon Wakao-san from JP Morgan. Wakao-san, please unmute and ask your question.

Wakao from JP Morgan.

Two questions. One, NTBO FY24, ¥964 billion. Can you elaborate on that? FY23 CER base was 6.6% growth, but you now expect 16% for FY24. That's a big growth. Do you see some trend and that serves you to say that you can have that improvement? And then IGAM POC data, can you explain and add some colors? As you mentioned, development is a rather competitive TAC079 POC compared to other competitors' products. Do you have competitive data available already? Can you explain that, please?

Thank you, Wakao-san. So the first question on Entivio performance and outlook for 2024, I'd like to ask Julie to answer this. And then the second question on mezagitamab and the data that we have in IGAN Anything that Andy can comment on its competitiveness at this stage?

So thank you for the question, Wakao-san. In terms of the Antivio outlook of 16% growth year over year, we appreciate that this is an ambitious target, but we do believe that it is achievable. A number of things contribute to the thinking behind this. First, when you look at the growth of AntivioPen, the subcutaneous formulation for Antivio, we continue to see good signs from the launch in the US. You heard Christoph mention some of those statistics in terms of access to new HCPs, new patients, as well as the uptake that we've seen in general in UC. And we're very excited about the CD approval that we received last month. In addition, When you look at what's happening from a revenue perspective, we did experience significant callbacks and rebates in Europe last year in FY23 that we don't anticipate will be as strong in FY24. In addition, when you look at the advanced therapy market and the number of patients that still remain on conventional therapy, that there is still an opportunity for us to gain additional patients, particularly with our first-line position in the U.S. So all of these combined give us reason to believe that we can achieve the 16% growth in FY24.

And on mezaginamab or TACO7-9, there's something quite unique about the depleting activity of this agent that goes far beyond the reductions that we're seeing in immunoglobulin. And the best demonstration of that has been in ITP, where, as I mentioned, we do see reductions in immunoglobulins and but those are actually less than what's seen with the anti-FCRNs. And yet in ITP, our data set, which we'll present this year, and you'll have a chance to see that, is quite different than what's been seen with FCRNs, both in terms of the magnitude of response in refractory patients, as well as the rapidity of response. So there's no way to explain the rapid rebound in patients' platelet counts based solely on reductions of circulating pathological immunoglobulins. And I'm not sure that we fully understand what's driving that rapid and profound benefit, something that we're investigating. And in refractory ITP, third-line and some second-line patients, there really isn't a competitive agent. I think this is a real chance for us to offer significant benefits in a market that's much less competitive. The profile of mezogatamab is further supported by what we've seen in IGAN, and there's not much I can share at this point more than what we've said based on the 1B data that we've shown. I can say that It is a very competitive landscape, and the data that we've seen with MEZA is on par or better than essentially anything that's been presented. We're all still looking at relatively early data sets that are focused predominantly on a proxy measure of benefit in IGAM, which is proteinuria. I don't think we fully understand whether proteinuria will translate to preservation of renal function, which is going to be the clinical endpoint that will be most relevant in this patient population. And there are many different mechanisms of action, but we're the only CD38-depleting antibody that's progressing right now in IGAN. So I think that we have a chance to be quite competitive in this space, despite the large number of different agents that are being tested. It's also a relatively large market with very limited medical needs. So there's the potential for multiple different agents. Thank you.

Thank you. Moving to the next question, I'd like to call upon Tony Ren from Macquarie. Please unmute and ask your question.

Can you guys hear me?

Hi, Tony. Yes, we can hear you.

Okay, perfect. Yeah. So a couple of questions. First of all, on your pipeline attack, 279 has no signet. It looks like the head-to-head surveillance trial against Sotectu is now delayed by about two to four quarters. I wanted to get some understanding on what's the thinking behind that. In addition, this is a question on the effort to extend its loss of exclusivity. We've been seeing In the U.S., we've seen that they've been pretty getting increasingly tough on drug pricing and patent evergreening. We see FTC taking some pretty tough actions. So how confident are you guys about extending the NTVO loss of exclusivity into the 2030s? So that's the truth for me.

Okay, thank you. Thank you, Tony. So the question on Zazocitinab, I'd like to ask Andy to comment on that. And then perhaps Ramona could add some color on the market opportunity for this program as well. And then the next question on NTVO and loss of exclusivity assumptions, particularly in the US, I'd like to ask Julie to comment on that. So first, Andy, please.

Thanks, Chris. Thanks, Tony. So we're not, it's the head-to-head study, the timing of the head-to-head study is not delayed per se, where the head-to-head study will not be necessary for filing. The filing in psoriasis would be based on the two latitude phase three studies. And what we're doing is we're still working the design of the head-to-head study to make it most relevant to physicians and patients to understand the differences between Zazo and Ducra. And we're just timing that study to have the data at the appropriate time point to support the launch of Zazo. And then I'll hand it over to Ramona or Julie to comment on the competitiveness.

Yeah, I can do, I can make some quick comments, Tony, on 279 and the plans that we have. And first of all, let me say that that head-to-head trial remains an important part of our evidence package. So it's not registration enabling. So we're You know, there's no compromising to our timelines. But at the same time, we know we have a very, very strong product. We know the profile of 279 is 1.3 million fold greater binding for TIK2 versus JAK. And so we know that we can dose for efficacy, achieving favorable side effects while decreasing the risk of non-selective JAK inhibition. You know, we saw from our phase three trials that a third of patients had clear skin in our phase 2B. So we're pretty excited about moving ahead with our full package, psoriasis, psoriatic arthritis, doing our work in UC and CD, and the head-to-head versus Ducra in psoriasis is a big part of that evidence package. So our timelines are not compromised. We're staging the trials to complete them quickly, and we're moving ahead with that. Thank you.

Hi, Tony. In terms of the question on the Antivio-LOE Our assumptions here have not changed in terms of when we expect that to occur. And part of this is driven by the patents that we have on Intivio, but part of it is also driven by timing of the clinical trials needed by other companies in order to challenge Intivio with the generic. And so given those combined data points, we believe that the LOE or the challenge from a generic would not occur until 2030 at the earliest in 2032 is what we've been communicating.

Okay, very good. Yeah, thank you very much.

Thank you, Tony. Okay, moving to the next question. I'd like to call upon Nomura Securities. I see a hand raised by Maeda-san. Or Matsubara-san, please unmute and ask your question.

Matsubara, Nomura Securities.

Can you hear me okay? Yes, thank you. First question is about NTBO. In your previous answer, we understand that NTBO will grow. However, so far, during the COVID-19 pandemic or even after pandemic, the patients are not coming back. And what is the current situation? Second question is about violence. Genetics supply shortage, I think, is still going on. And looking at the FDA list, in April, May, or maybe up to August, some genetics may be shipped out, but still others are in shortage. So this genetics impact, how much do you think that it is expected in this new year?

First question on Entivio and whether patients are returning after coronavirus. And then the second question on Vyvanse generics and what our expectations are for generic supply in 2024. So I'd like to ask Julie to answer both these questions.

Thank you, Matsubarasan, for the questions. First, in terms of Entivio, Let me distinguish between antiviral performance versus what the market performance has been. I think that is at the heart of your question. So as we've shared before, when you look at certain factors like diagnosis rates, we do see that diagnosis rates, whether it's for UC, but particularly for CD, are much lower than what they were pre-pandemic. So the market growth overall has been slower than pre-pandemic. We estimate that the market growth for this past fiscal year was roughly just over 4% in terms of demand growth. And so we do expect that the market will continue to grow, albeit at a slower rate than it has historically. In terms of Antivio's position within that, as mentioned before, we are holding on to our position in first line in IBD overall as market share leader, as well as bio-naive starts. In terms of your second question around ByBant's generic supply, let me start by saying we now have 10 generics that are on the market in the US. Initially, it started with seven, but now we have 10 generics on the market. The generics companies have experienced some supply challenges, as noted on the FDA shortage website, but we do anticipate that going forward, the generics companies should be able to better supply the market. So from a branded Vyvanse perspective, we are not experiencing any supply challenges, and we are able to provide Vyvanse branded Vyvanse to meet the demand that still exists in this market.

Thank you. Okay, moving to the next question from UBS Haruta-san. Please unmute and ask your question.

Hi, this is Kasumi Haruta from UBS. Can you hear me?

Yes, we can hear you. Please go ahead.

Yes, I have two questions. First one is about the margin improvement program. I guess this program will start for March 26. How should we think about the improvement progress? Earlier timing after this start timing could be drastically changed or latter timing could be better margin improvement, how we should think about the improvement progress going forward. And second one is on tag 861. If I'm correct, I think Andy mentioned that those will be the most slowest dose for the phase three. So is that correct? And I assume from the abstract, from the sleep, there was no dose dependency results from the MWT endpoint, and I would like to know the reason or background of those dependency results. Thank you.

Thank you, Haruta-san. So the first question around the margin improvement, I'd like to ask Milano to comment on that, and then Andy on 861 dosing. Milano?

Thank you, Haruta-san. So let me clarify it again. So the baseline or starting point for the margin improvement will be FY24. And then from there, and 25 onwards, we tend to improve 100 to 250 basis points each year. So 25, a copy margin will be better than 24, and then onwards. So you can count like that. It's not starting from 26 onwards, from baseline from 324 and improving from FY25. Is that clear?

Yes, it has a range for 100 to 25, 250 bps. So I wanted to know more about how skewed that margin improvement is. progress or drastically change from the beginning or that the timing will be more uptick for the improvement?

Thank you. So we start the program from this physical year and we expect the sort of benefit of this program will gradually increase toward 25, 26 years. So the reason why we gave a bit the range from 100 basis points to 250 basis points is we expect at this moment, the margin improvement will be bigger in FY26 than FY25.

Okay, great. Thank you.

And Aratheson on 861, I didn't mean to suggest that there isn't dose responsiveness in our 861 data. So the good news is that in three weeks, you'll have a chance to dive deep into all of the data. So I'm not gonna really try to unpack that here today. But I will say that, and I'm not going to comment on, I can't comment on our phase three dose at this point. We're still working through the design and having discussions with regulatory authorities. And it's also something that we'll look at as quite competitive. But I will say that our phase two B study was designed, and we never use the word perfect, but almost perfectly to really help us understand how to move forward into phase three with a dose that we think will thread the needle in terms of maximal efficacy in type 1 narcolepsy and the best safety and tolerability.

Okay, thank you.

OK, I think we have time for one final question, so I'd like to ask SMBC Nico Wada-san, please unmute and ask your question.

SMBC Nico Shoken Wada from SMBC Nico Securities. Can you hear me? Yes. Well, there are two questions I'd like to ask. As for research and development pipeline, you have been selective in prioritization. So impairment losses has been completed in fiscal 2023. Is that correct? And how would you plan to have R&D played out for the next five years? Are you going to expect this to be flat? That's my first question. Second question. 861 successor, 360 positioning. You are aiming for NT2, but 861 is for NT1. So there is a differentiation and you are aiming for NT2 for 360. But in terms of advantage of the agent, Is there any evidence that you see that this will be effective in NT2? But NT2, orexin is not that much of a living role. So orexin agonist, is that really effective in addressing NT2? That's my question.

And our R&D expense outlook going forward, I'd like to ask Milano to answer that question. And then the second question on positioning of TAC360. I'd like to ask Andy to comment. What have we seen that suggests that it could work in NT2? And what is the hypothesis behind orexin agonists working in NT2 when these patients already have orexin circulating in their brains? So I'd like Milano first question, Andy second question, please.

Thank you, Mr. Wada. Thank you very much for your question, Mr. Wada.

For the first question, we have done the implemented program to prioritize the programs and impairment losses were booked and winding down costs were booked in FY23. Almost all were booked in FY23. and going forward for the budget of r d in terms of a prospect gradually there will be increasing trend in line with the increase in revenue so we are mostly in line with the increase in revenue that's how we are going to manage r d investment so in terms of percentage of our revenue or OP margin, it is going to be neutral. So does that mean that going forward, you are going to see improvement in OP margin? So that means that you are going to reduce COGS and SG&A? Yes, that's correct. Thank you.

This is Andy. Over the past several years with multiple molecules, we've demonstrated that orexin agonism can be effective in NT1 as well as a range of sleep-wake cycle disorders that are characterized by normal orexin levels. So you know NT1 is orexin deficient. And all of the other indications that we talked about, including type 2 narcolepsy and idiopathic hypersomnia have normal erection levels. So there's a very different disease etiology and the pharmacology is quite different. We have the most experience with type 1 narcolepsy. And I'll add something I haven't mentioned, which is that we have now an ongoing open-label extension study with 861 and type 1 narcolepsy. And we've now seen data for most patients up to six months and now some patients up to a year. And those data will be presented later in the year, but we continue to see sustained, durable, robust efficacy. There's still a lot for us to learn in type 2 narcolepsy and idiopathic hypersomnia. We've seen benefits in short-term therapy. The sustainability of those benefits over time is something that we'll have to demonstrate in our clinical trials. And so we've made the decision for 861 to really focus on type 1 narcolepsy. 360 was developed purposefully and is differentiated from 861, and we believe based on our understanding of its profile preclinically and our translational understanding of this mechanism, that it will be effective in type 2 narcolepsy and idiopathic hypersomnia. And that's what we're focused on is moving as fast as possible to get those data and to accelerate it to patients.

Thank you. With that, we've now reached the end. Paul, thank you everyone for attending. And if you have any follow-up questions, please reach out to the Investor Relations team. Thank you very much and good night, good day.