Takeda Pharmaceutical Company Limited

Thank you for joining us today, despite a very busy schedule, for FY24 Q3 earnings call by Takeda. I'm the master of the ceremony today, head of IR. My name is O'Reilly. Thank you for this opportunity. I would like to explain about the language setting first. Please find the button for the language selection at the bottom of the Zoom window. If you wish to listen to Japanese, please select Japanese. If you wish to listen to English, please select English. Or if you want to listen to the original language, please keep it off.

Please select English in the Zoom language select button.

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 actual results to differ materially are discussed in our most recent Form 20F and our other SEC filings. Please also refer to the important notice on page 2 of the presentation regarding forward-looking statements and our non-IFRS financial measures, which we will also be discussing during this call. Definitions of our non-IFRS measures and reconciliations with comparable IFRS financial measures are included in the appendix of the presentation. Please refer to page 2 as well for important notices. We will begin the call. First of all, we would like to invite our CEO, Christopher Weber, to comment.

Thank you, Chris. Hello, everyone, and thank you for joining us. As you might have seen from our press release, today marks an important announcement regarding our Q3 results. Milano will speak to that, and my retirement from Takeda in succession. After 12 fulfilling years with Takeda, The Board and I have agreed on June 2026 as the date of my retirement from Takeda. I will no longer be on the Board of Takeda after June 2026. I'm very pleased to announce that the Board has selected Julie Kim, President of our U.S. Business Unit, as my successor. Julie will be proposed as a new candidate for the Board at the Ordinary General Meeting of Shareholders in June 2026 and will then be nominated as President and CEO. The unanimous decision to select Julie was made after a very robust, multi-year process assessing both internal and external candidates. To ensure a smooth transition, we are sharing this decision now, a timing aligned with our exciting growth outlook on potential drug launches, which may start as early as the second half of 2026. It will allow us to select and nominate Julie's successor, obviously a key role as the US represents 50% of our revenue. This timeframe also aligns with anticipated retirement of several external independent directors, allowing both Julie and me to be actively involved in the board member selection process. Now I wanted to share some words about Julie. Julie joined the Takeda executive team in 2019. She has been the president of the U.S. business unit and U.S. country head for the past three years. Prior to that, Julie led our plasma-derived therapy business unit. With over 30 years of healthcare experience, Julie is uniquely qualified for this role. The board and I have absolute confidence in Julie's capabilities and leadership qualities. She embodies our corporate values, ensuring decisions are patient-first, inclusive, and thoughtful. Importantly, her commitment to Takeda's purpose is unwavering. I have witnessed firsthand that she also has the right character and grit to lead a complex global company like Takeda. For now, nothing changed. We are focused on advancing our promising next-stage pipeline and preparing for future launches. I couldn't be more excited about what lies ahead for Takeda. Back to you, Chris.

Now we'd like to start the presentation from our CFO, Milano Furuta.

And this will be followed by a Q&A session. Furuta-san, the floor is yours.

Thank you, Chris. Hello, everyone. This is Milano Furuta speaking. It's my pleasure to give an update on Takeda's Q3 results for FY2024. The positive momentum of our portfolio has continued into quarter three with year-to-date revenue growth of 4.5% at constant exchange rate, or CER, driven by our growth and launch products, which grew by 14.6% at CER. In addition to top-line growth, we also delivered margin improvements with 28.5% cooperating profit margin, an increase of 1.6 percentage points. This reflects the strength of our growth on launch products, slower than anticipated by-event generic erosion, and OPEX savings from the efficiency program we initiated in May, 2024. We are also very excited about our late stage pipeline. This month, we completed the licensing agreement for Ethelcept, a late-stage potential best-in-class oncology program. And as we introduced at our R&D day in December, 2025 will be an important year for our pipeline, with three phase three data readouts expected this calendar year. Resveratide in polycythemia vera, Obaprexten in narcolepsy type 1, and dasocitinib in psoriasis. Based on our positive business momentum, we are raising our full year management guidance again this quarter, and now expect revenue cooperating profit and the copy margin growth this year. And with the extra cashflow generated from this upside, we also plan to initiate a share buyback of up to 100 billion yen. Slide four summarizes our financial results for the first nine months of FY24. Revenue was over 3.5 trillion yen, an increase of 9.8% versus prior year, or 4.5% growth at CER. Cooperating profit reached 1 trillion yen, a year-on-year increase of 16.3% or 10.1% at CER. Reported operating profit was 417.5 billion yen, growing at 86%. Core EPS and reported EPS were 443 yen and 134 yen, respectively. Operating cash flow was 835 billion yen, an increase of 90.8% year-on-year, reflecting profit growth, lower cash taxes, and smaller increase of working capital. Adjusted free cash flow was 568.3 billion yen. Slide five shows a breakdown of our key business areas and the growth and launch products which are driving our performance. These products represent 47% of total revenue and grew by 14.6% at CER year to date. Within GI, NTVR growth was 6.6% at CER. Although underlying demand remains strong and in line with our plan, the growth rate was impacted by two specific factors. First, there was a higher baseline for Q3 growth due to shipment timing last year. On top of that, we booked a growth to net adjustment in Q3 this year of approximately 50 million US dollars. This adjustment was correction of our past statutory government price calculations that had accumulated over 10 quarters since mid-2022. If we exclude the impact of shipment timing and this gross-to-net adjustment, year-to-date interior growth would have been 9.4% at CER. Next, rare disease, where Taxairo continues to lead the HAE prophylaxis market, delivering 16.4% growth at CER. Levitensity and Azima also continue their strong launch momentum. Within plasma-derived therapies, iminoglobulin and alibumine grew by 11.9% and 2.2% respectively. For alibumine, on top of our planned and temporary shutdown of production lines, we also observed the cost of containment measures in China, which is influencing the growth rate. In oncology, Frisacla is expanding very well, Most of the revenue is currently from the US, but we recently launched in Japan, and we are making progress with approvals and reimbursement in Europe. In vaccines, Qdenga is now available in 27 countries, and we see strong global demand in both endemic and non-endemic markets. We have sold over 10 million doses since launch in 2022, and we remain focused on further expanding access to these important vaccines. From slide six, I'll explain more about the year-on-year growth dynamics. First, revenue growth. Our growth and launch products more than offset loss of exclusivity impact mainly Vyvanse and Adrolexal in the U.S. and Aziliva in Japan. In addition, net positive growth in other brands such as Gatex, Shintelix, Acetris, and iClusive contributed to 4.5% revenue growth at CER. The depreciation of the yen versus major currencies contributed 171.9 billion yen, resulting in 9.8% growth on actual FX basis. Slide seven shows the year-on-year bridge for cooperating profit. There was a positive gross profit contribution from revenue dynamics, partially offset by a 29.9 billion yen adjustment due to implementation of an accounting process to recognize accumulated FX impact of inventories. Moving to OPEX, we had a year-on-year reduction in spend at CER with the lower R&D expenses, primarily due to the termination of several programs during our pipeline prioritization at the end of FY23. We are also starting to see the benefits of our efficiency program on OPEX. Overall, cooperating profit grew by 10.1% at CER or 16.3%, including the benefit from FX. Next, reported operating profit. In addition to co-op growth, The main driver of the 86% increase was a lower impairment cost compared to the last year. Restructuring costs primarily related to the efficiency program were 107.4 billion yen on track with our plan. Next, our updated outlook for FY24. We are upgrading management guidance revenue and corporate in profit are both expected to increase at low single digit presentation. This is a remarkable change from our initial outlook for revenue and the CoOP decline this year. CoEPS guidance has also improved to flat to slightly declining at CER. Updated forecast is now 4.59 trillion yen of revenue, 1.15 trillion yen of core operating profit and 507 yen of core EPS. It means our core OP margin is now expected to be 25.1%, an increase over last year. This also reflects our updated currency assumptions for the year. Now with 153 yen to the US dollar, our assumption for the Euro is unchanged. On a reported basis, we forecast operating profit to be 344 billion yen and reported EPS to be 75 yen. We're also raising our free cash flow forecast range to 550 to 650 billion yen. This is due to the uplift in CoOP and expected proceeds as a part of the upcoming sale of Takeda Teba, our joint venture in Japan. With this performance and cash flow, we have decided to implement a share buyback of up to 100 billion yen. Slide 10 shows the moving parts in our updated forecast. We are upgrading revenue by 110 billion yen, mainly reflecting year-to-date performance versus the previous forecast. Based on year-to-date trends, we expect buy events upside of around 40 billion yen versus our prior forecast. We also expect a net positive impact from the rest of the portfolio. FX is also a benefit to our revised revenue forecast. For CoOP, the majority of the 100 billion yen increase is driven by product performance and R&D savings, partially offset by the accounting change impact to cost of goods that was not included in our prior forecast. Of the reduction in R&D expense forecast, approximately half is due to post-trial access costs for tax 611 and tax 609 previously expected as R&D expense, but now in other operating expenses. The remaining benefit is due to FCNC savings. This brings our Q3 earnings presentation to an end, and we would like to welcome your questions. Thank you.

Now we would like to entertain questions from you. Christophe Milano and R&D President Andy Pram will be joining in this session. If you want to ask a question, please let us know with the raised hand. If you're listening on the English channel, ask in English, and if you're on Japanese, please ask in Japanese. If you're listening to the original Iida language, it's okay. You please ask up to two questions, and please address your questions, two questions up front. The first is from Jeffrey Spark, Mr. Barker, please.

Unmute and ask your question.

Yes, Steve Barker from Jefferies. Thanks very much. So my question is around some of the accounting issues. So you have a negative impact on your forecasts because you, I just want to understand that a little bit more. So you're devaluating the yen denominated value of inventories. So that's going to boost your COGs. And then I also, there was the R&D question. Is that going to be, is that a one-off where you, is it related to specific clinical trials and we won't expect to see that increase in other expenses going forward? Yeah, so two accounting questions, please. Thank you.

Okay, thank you, Steve. Milano, would you like to answer those questions?

Yes. Hi, Steve. Thank you for the questions. So the first one is COGS1. So it's a little bit technical, so bear with me. So as you know, in the inter-company transactions, we're going to have some internal markups. And then within that, in the consolidation accounting process, you know, there is a process of eliminating these markups. Sometimes, you know, due to the different functional currencies and high volume transactions, you know, this kind of adjusting accounting, like account, will be used to appropriately reflect our inventories. And then this account has been accumulated with, we believe this is largely due to the FX impact in the past movement. And then this time we decided to implement kind of accounting process to recognize this accumulated foreign currency impact of the inventories. And then as a kind of one-time recognition of the about 26 billion yen for the past ones, And then for this physical quota three, like about 39 or 3.9 billion yen of the recognition. That's a kind of combination of the recognition of the FX impact in the inventories.

Right, so really a one-off.

Yes. But we are now introducing this, you know, the process of the recognizing this effects impact kind of automatically or like systematically through the cost, like amortization. So it's gonna be the, it would not be that this big amount, actually we are recognizing like a two years equivalent amount. So this will be much smaller amount will be recognized kind of regularly throughout in the quarters.

Right. It won't build up anymore.

No. Thank you. And for the 611, 609, this is the, these programs were a, we had to decide it to, to a contaminate or stop the development, the programs based on the clinical trial results, but based on the, a, a patient's request, we decided to offer access to these molecules to the patients who wants to have, as kind of post-trial access. So, and then we, with these decisions, we made a accrual for this post-trial access cost, which booked in Q3, which is, almost like a hundred, so 16 billion yen, which we booked in other operating expense. So it's kind of one of the one time for this program.

Understood. And a related question, could you help me understand the NTVO issue? So gross to net true up adjustment. I don't understand what that is.

Yes. Um, so, um, the, you know, the, there is a gross net adjustment, the, um, in, uh, in the U S market, right. And then the, that's going to be the referred to this, especially the government pricing. And there is a, some, uh, we identified some miscalculation, uh, in the, in the past 10, 10 quarters. And, All these things, it's not material. The accumulated number is about 50 million US dollar over more than the two years. But we identified this kind of miscalculation. So we are now addressing or correcting this kind of variances. And then we are booking as a kind of negative to the revenue.

Understood. Thanks very much.

Thank you, Steve.

Moving on to the next question. Siti Yamaguchi-san, please ask your question.

Can you hear me? Yes, we can hear you. Thank you. Thank you. So two questions for you from Yamaguchi City. The first question is regarding the management change. And my sense was, Christoph, for me, at least, it sounds like you're trying to do the management up until the NTBO cliff, which is around the 2030s. But you decided to change the management next year. Is there any kind of trigger from the fundamentals of the company is concerned? So can you tell me why now? I mean, next year, but can you tell me the kind of trigger point you think about this time? Is that the first question? The second question is that this year's earnings is getting stronger and stronger because of the rigidity of the buybacks and also currency. But at the same time, it does mean that next fiscal year hurdle is getting a little bit higher. Can you give me some... I know you don't have any guidance at the moment, but can you give me what's the pros and cons for next fiscal year starting from next April? And is that... OPI, is it a flat issue, or is it a slight decline, or it depends on a lot of factors, but can you give me what do you see at the moment for the next fiscal year's trend as far as sales and operating profits are concerned? Thanks.

Thank you, Yamaguchi-san. So the first question on the rationale behind the management change, and second on outlook for 2025. So Christophe, would you like to take those questions?

Yes, thank you very much, Yamaguchi-san. On the management change, we feel that this is a good timing. In 2026, that will have been 12 years, which is quite a long period. So 2032 would not have been impossible, but it would have been very, very long. But it's also a good window now because we are at the end of 2020. the violence impact, actually. I'll come back to that in your second questions. And we are before the wave of new product launch. You don't want to make management change during a new product launch. You want to do that before. And that's why we are also announcing now is this transition period that will give us time to find and select the successor of Julie, who will be in place and with more stable leadership before we launch this product in the US. It also coincides with some change that will happen with our board. We do have a 10-year limit for our external director, so there will be some rotation. happening in 2026, and we feel it's good to have the future board and the future CEO in a way synchronized. So that's also another consideration that we discussed, and that's why we decided for June 2026. On the second question, Yamaguchi-san, 40% of the upside is Vyvanse, but 60% is non-Vyvanse. So we shouldn't forget that we have a good dynamic with our growth and launch product. Obviously, Vyvanse is a big upside this year. The residual impact of Vyvanse in next year will be more limited. If you look at the generic penetration today, it's 65% of the molecule. So even though we had some upside, the generic penetration has happened and today we are at 65%. So we have not reached the bottom, but we are getting close to it. So that's why we feel confident that next year will be a growth year in revenue and bottom line. Why? Because You know, yet we will see some violence impact, but it will be a residual impact, and we expect our growth and launch product to continue to grow in the future. Thank you.

Thank you very much.

Thank you. Okay, we'd like to take the next question from TD Cowan, Mike Nedeljkovic. Mike, please unmute and ask your question.

Hi, everybody. Thank you for the question. I have two, both on the topic of Zazocitinib's phase three psoriasis program. So first, when we see the first readout, what would you define as success? Or put another way, what result would make you feel more confident in your head-to-head Ducravacitinib trial? And what result might make you feel a little more concerned? Just as an example, should we focus on PASI-75, the primary endpoint, or would you urge us to scrutinize PASI-100? That's my first question. And then my second question is on timing. One of zazocitinib's phase three psoriasis trials, latitude 3002, is actually a couple months past its primary completion date on clinicaltrials.gov. Should we take this to mean that the 16-week primary endpoint has been recorded? And if so, do you have data in-house, or do you remain blinded until the longer-term endpoints read out?

Thank you. Thank you, Mike. Andy, would you like to take those two questions, please?

Sure, Chris. And hi, Mike. And actually, maybe Christoph can also, when I'm done, provide some thoughts in terms of the overall profile of Zazocitinib and what we would consider differentiated. So, Mike, let me start with your second question first, which is timing. So as we've mentioned, as of November of Last year, we've completed enrollment of the two primary phase three studies. These are the pivotal and registration-enabling studies with Premilast as a comparator. As you've mentioned, the primary endpoint is a 16-week endpoint, but the studies are completely blinded until week 52 for one of the studies and week 60 for the second study. And so that's ensured that we maintain the full integrity of these studies and that we have a one-year safety database so the the direct answer to your question is that we don't have data in-house and we're not planning an interim analysis and um quite excited about the speed at which we've enrolled these studies and we're looking forward to seeing data at the end of the year before i hand it over to christoph i'll mention that the primary endpoint for the study is is passy 75 and there are historical reasons why we've used passy 75 as the primary endpoint But the study is very well-powered to see benefits on most of the key secondary endpoints. And the one that we're most enthusiastic about will be PASI 100. There's been a trend in psoriasis, particularly driven by some of the efficacious parenteral agents, the sub-Q and IV agents, where patients are now really focused on clear skin. And that's where we really see our clear advantage. Christophe, I'll hand it back to you if you have additional comments.

Yeah, thank you, Andy. Thank you, Mike. You know, our goal with the Zocitinib is to redefine what an oral product can do against psoriasis in terms of efficacy and safety. So we will look at significant efficacy, whether it is PASI 100 or 75 compared to what oral have been able to deliver in the past and being much closer to a biological efficacy. And that's what we believe will redefine the oral segment and the role of oral product in the treatment of psoriasis. So I think that's really our mindset and that's what we are looking for when we look at the result of the study.

Thank you and congratulations on your upcoming retirement.

Thank you.

Moving on to the next question. No more securities. Matsubara-san, please ask your question. Yes, this is Matsubara, Nomura Securities. Can you hear me? Yes, we can hear you. Thank you. I have two questions. First question is about Entivio. Compared to the previous quarter, growth of Entivio is not very clear. I don't think it's growing. Is this because of the holidays pushing down the shipment, or is it due to the competitive environment changing? That's my question. And the second question, sorry, is about the CEO. I understand you have thought about the timing of switching to the new CEO. Now, under the new CEO, what do you expect to happen? I understand that Julie has experience in business in the United States and in the globally, so those aspects of the company may grow. But what is the growth strategy under her? What do you expect her to do for Takeda?

Thank you, Matsubara-san, for the questions. So the first one was on NTVO quarter-on-quarter growth. Is there anything of note here in terms of competitive dynamics changes? And then the second question on expectations for Julie as the incoming CEO. So I'd like to ask Christoph to answer those questions, please.

Thank you for the question. For an interview, I think you need to take out the one-off effect that Milano mentioned. phasing up shipment. So Q3 last year was very strong for phasing issue or phasing pattern. And then the one-off adjustment that we mentioned on the growth to net price ESP. If you take that out, our year-to-date growth is 9.2 and our quarter growth is much higher. A bit lower than Q2, and we do believe that indeed that there has been some effect with year end, which was especially long this year as a break between Christmas and New Year's Eve. But I think it's really important to look at the year to date. If you take out these two one-offs, we are at a bit more than 9%. So a bit short of our 11% new guidance and forecast, but we'll see how things are evolving. We are quite pleased with the response that we are seeing on the pen launch. Quarter to quarter, we have seen a 30% increase of prescribers, number of prescribers prescribing the drug, the pen. And also, our access has improved significantly, but it's not at the maximum yet. We have a bit more than 70% access at the moment, and we want to reach 90% plus. So I think there is still some work to do there. So overall, the pattern has not changed. Antivio is keeping its leading position, especially in the first line of biological treatment. We have lost some market share in second and third line, but we are growing faster than the market. So we are pleased with the performance. And obviously, as we discussed in the past, the launch of the pen is very much important in the lifecycle of Antiview. For your second question, I would just want to emphasize that Julie will lead our U.S. business until we have a successor joining us, a successor of Julie. That will take some time. We will look internally and externally. So no distraction, very much focused on that business. And then once we have a successor for Julie, she will be able to focus on the transition and progressively um you know take takes a lead so i think uh she has been part of the tt for since 2019 so she has been extremely involved in our overall strategy direction uh she is leading our us business today which is really which is 50 of our total revenue so directionally she has been very much in favor and supportive of our strategy um so you know don't expect major change of direction But she will respond herself to a question like that from 2026 onward. I think that's the way to see the timing. Thank you.

Thank you very much, Matsubara-san. So for the next question, I'd like to call on Tony Ren from Macquarie. Tony, please unmute and ask your question.

Thank you for the opportunity to post my questions. My first question is again on Intivio, the growth to net true-up adjustment. I think I heard Murano saying that it was due to selling Intivio to the U.S. government over the last 10 quarters. I just want to confirm that I heard it correctly. With that, would you say that the 11% CER growth rate you initially guided would not be possible? So that is on Intivio. The other question is on the U.S. IRA price negotiation. So Amgen's old Tesla is now officially included in the 15 drugs up for the 2020-25 price negotiation. So how does that affect your clinical development or commercialization plans for Azacel-Citinib? Thank you.

Thank you, Tony. So the first question on some more detail on the gross to net for Antivio and any impact on the 11% full year that we previously disclosed for Antivio. So Milano, if you'd like to follow up on that one. And then the second question on the IRA, any impact on Zazo because of Tesla's inclusion? I'd like to ask Christoph to comment on that one, please.

Hi, Tony. Thank you. So this, again, this adjustment is related to our gross to net calculation, such as government pricing calculations. And then we are sharing this information with an SMS in the US. But this impact is, unfortunately, we didn't, of course, we didn't forecast it, or we had not anticipated it. when we develop this guidance of 11%. So by this amount, maybe it might be a little bit challenging to reach 11%. But basically, if we take out this impact, overall, we are in line with the internal plan.

And for the IRA, yes, Tesla is among the product selected in this second wave. It's reinforced, you know, it doesn't change our clinical development plan. It just reinforced the fact that we believe that we will have a very different profile in terms of efficacy And therefore, we'll be able to really differentiate ourselves from previous oral product. The fact that it is in the IRA doesn't change our strategy. It just reinforces the fact that we need to be differentiated, and we believe we will be in terms of efficacy and safety, not only, by the way, against a product like Otesla, but also, as you mentioned earlier, against Ducra, because we are doing this head-to-head study against Ducra later on. Thank you.

Thank you very much. Thank you very much.

Moving on to the next question. Morgan Stanley, Muraoka-san. Please unmute and ask your question. Good evening. This is Muraoka Morgan Stanley. I hope you can hear me. Yes, we can hear you. Thank you. My first question is about next fiscal year, which is coming in three months. How do you see the next fiscal year? 100 to 250 basis point OP margin improvement that you have always talked about. Do you think you can sustain that for next fiscal year? Can we expect that to happen? And another question is, what about dividend? This year, you made upward revision twice, but the dividend was the same. It stayed the same. But if the open margin improves in the next fiscal year based on your progressive policy, do you think the dividend could increase? Or can we be confident that the dividend will increase? That's my first question. And the second question is about NTVO. Biosimilar. Alvotec Teva. started the Phase 3 program recently, and it is becoming more crowded, it seems. Timing-wise, well, you always maintained that you'll be okay up until 2030. Maybe that is still true, but if you really focus on the timing, Are you going to be okay up until 2030 or 2032 in terms of biosimilar entry timing? Can we please, can you help me organize my thoughts around this?

On outlook for margin improvement in 2025, I'd like to, and also thoughts around the dividend for next year, I'd like to ask Milano to comment on that. And then the second question on biosimilar assumptions for Antivio, if there's any change around entrant timing, I'd like to ask Christoph to comment on that.

Good evening, Muraoka-san.

Thank you for your question. First of all, with regard to OP margin, 100 to 250 basis points improvement. And this is the basic thinking. And the 23% is the base number that we were thinking about for this fiscal year. However, based on the latest outlook, 25.1% landing for OP margin is expected, which means that we're now putting together the budget for next fiscal year. So we will take a close look at that and we would like to make an official announcement in May. Core OP margin is something that we always want to improve. This is always the policy of the management. So we will be finalizing numbers in order to help improve that. With regard to dividend, Dividend payment is different from the share buyback that we have announced recently. We want to do something that is stable for long term and also progressive, sustaining the level or increasing if possible. It is very difficult to comment at this point in time, but I don't think you have to worry about reducing of the dividend at the very least. Thank you. Could you please respond to the question about NTVO?

Sure, sure. Thank you very much, Moriko-san. It's Christophe. Regarding NTVO, we do see more activity of development of biosimilar, for sure. But as far as we see for the US market, we still believe that biosimilar entry will be between 2013 and 2032. We have... quite a strong set of patents expiring in 2032. So we'll see what happens when there is a litigation around this patent. But just doing the development plus the litigation process, takes a lot of time. So if you are optimistic about our strength of our patent, you take an assumption of 2032. If you are not optimistic, you take an assumption of 2030 plus between the two. I think that's always has been how we describe the situation. We believe that it's 2032 because we believe into our patent set, but others might not. So for now, no change in our assumption regarding a similar entry, especially in the US. In Europe, it's a slightly different legal system depending on the country. But for US, our position is very clear. Thank you.

Thank you very much. Thank you very much.

Thank you. Next question from JP Morgan. Wakao-san, please go ahead. Wakao from JP Morgan.

This is Wakao from JP Morgan. I have two questions. First about ShabaiBak. So could you explain the background behind the decision to implement the ShabaiBak this time? Is it simply because the share price was very low? What is the message of this decision? And could you elaborate on that? Could you tell me the timing of Phase 3 data readout for TAC861 and TAC279?

Thank you, Wakao-san. So the first question on thinking behind the buyback, I'd like to ask Milano to comment on that. And then the second question, Andy, Any further detail you can provide on timing of phase three for Tech 861 and Tech 279?

Thank you, Akao-san. So we updated, if you remember, we updated the capital allocation policy two years ago. And we set the framework that, you know, but within, you know, given that we keep the investment grade credit rating, Basically, the two primary pillars for our capital allocation is investment for growth and then shareholder return. So with the current performance this year, we are generating more cash flow than we originally had planned. And we have been allocating this cash. And then as you have seen, we have done a few the business development deals very selectively. And then we are kind of adding in a pipeline and we are now focusing on developing these in a late stage pipeline. And then it comes to the shareholder return. And with this upside, we thought this is the good timing or the appropriate to do this share buybacks, allocate almost half of the incremental cashflow in terms of the upgrade of the guidance. So we think it's appropriate to do that according to the capital allocation policy.

Well, Kauston, this is Andy on timing of each of the studies. So as you know, from the R&D day, we have three major phase three readouts coming this year for resveratide, oviprextone, and zazocitinib. We haven't disclosed specific timing for those studies. For oviprextone, for resveratide, we're expecting top-line data this quarter. So we're very excited about that. For oviprextone, we have two ongoing studies. phase three studies in type one narcolepsy and enrollment for each of those studies has exceeded our forecasts. And while we haven't given exact dates, we're hoping to have data mid 2025. And then for Zazacitinib, we have two primary Registration-enabling studies, as I mentioned earlier, those have completed screening and enrollment as of November of last year. We have a third study that's ongoing that's a study to garner additional safety. That study continues to enroll. So you can kind of do the math on what we would expect data from the first two pivotal studies. And then, as Christoph alluded to earlier, we'll be starting a head-to-head study against Ducravacitinib sometime mid-year. That study won't be part of our original filing. Our hope is to have data from that study available to support the launch.

Okay, very clear. Thank you. Thank you very much. Thank you.

Moving on to the next question. SMBC Nikko. Wada-san, please unmute and ask your question. Yes, this is Wada, SMBC Nikko. Can you hear me? Yes. Thank you. Just one question. IRA and price negotiation, 2028. I think Entivio might be included. What is your read on the situation? Do you think Entivio will be included?

The possibility of Entivio inclusion in IRA in 2028? Christophe, would you like to comment on that?

It's a possibility. That's why actually we kept our peak range between 7.5 and 9. Initially, we had this range because we were not sure that... We will launch a pen. You know that we had a CRL, etc. But we launched a pen. But then we kept that range to include the possibility of an IRA inclusion in the future. So it's a possibility that we have in mind. Yes. Thank you.

Thank you.

That's clear. That's all for me.

Thank you. Next question.

Next, Hashiguchi-san from Daiwa Securities. Go ahead. Hashiguchi speaking. Thank you for taking my question. In the US, and the business environment changes, and how that impacts your business, I would like to have your idea, not limited to pharma industry, but in various industries. It seems some new policies recently shown from various players and by that kind of change how that could impact your business including opportunities and risks for example pbm may be redesigned and that could impact your pricing what about that thank you thank you

Christophe, would you like to answer that question on the potential impact of changes in the US environment?

Yes, there will be some changes in the US environment. Healthcare is one of the topics that any administration will focus on. The Trump administration just announced that they are committed to carry on with IRA. That's one point. And therefore, this pricing system will carry on for now. It might be adjusted in the future. We will see. That's something to take into consideration. On the other hand, Keep in mind that as part of the IRA, there was also for Medicare patients an out-of-pocket cap, which is a positive for many diseases, but especially oncology. So there are plus and minus, if you like. We believe that the U.S. country will remain absolutely vital for innovative company and R&D driven company like Takeda. This is the country where new innovative medicine have the fastest launch. And this is where we have the highest level of innovation recognition and reward for innovation. It's very important, especially as we are contemplating the launch of our new product. But yes, the environment is changing, like in other countries. Another element that we are also watching are more geopolitics. Will there be tariffs, for example, impacting pharmaceutical medicines? It could be. And obviously, at Takeda, we have a manufacturing network focused on the US, Europe, Singapore, and Japan. It's a global network which was built on the premise of free trade. If there are more forces against free trade, we'll have to adapt over time. Thank you.

Thank you very much. Thank you very much. The next question is from Sogi from Bernstein.

Next is Sogi from Bernstein. Please go ahead.

Can you hear me? This is Miki from Bernstein.

Yes, we can hear you.

Great. Thank you very much. I have two questions. First of all, NTVO, we recently saw a report saying that the NTVO's listing price was increased by 8%. So could you tell me that listing price increase, what is the impact to the actual net price that is more relevant to your actual net sales? And also, Does it have any consequence in terms of the rebate for the government? Because it's significantly higher than the inflation rate. So that's the first question. And the second question is the R&D spending. We understand that R&D spending, despite the post-trial drug, the cost removed to the other expense. It's still, you know, the spending is seem to be slower than we had expected. But is it still the plan that you will be spending more on the fourth quarter so that, you know, you reach the budget that you have shared with us?

Thank you, Miki. So the first question on NTVO price increase, I'd like to ask Christoph to comment. And then the second question on the R&D budget and progress towards the full year forecast. Milano, if you could please comment on that.

Thank you, Mickey. Yeah, this price increase is more a reflection of the rebate mechanism that is happening in the U.S. market. In order to be competitive, you need to give rebate. And that's really the mechanic. So you don't see this increase on the net price. And government price is calculated on the net price. So I think that's really, you know, the effect of the rebate mechanism. And by the way, this is something we think should be fixed. And there is a lot of discussion right now about PBM and rebate. We are advocating for this rebate to be replaced by the mechanism. Thank you.

Hi, Sokhi-san. So thank you for the question about R&D spending. So just to be clear, we are not seeing any slowness in the operation. Actually, we are accelerating. We are gearing up around the operations development. We are driving the development with a very operational efficiency mindset since we have had the efficiency program since the beginning of this fiscal year. In the fourth quarter, we always have that a little bit seasonality in the increase in R&D spending in the fourth quarter. But on top of that, we are expecting, actually, we are starting the two phase three programs for the ZASO, the PSA, and the Mezagitava for the ITP. So actually, with these two new programs or clinical trials, we also anticipate gearing up at our own expense.

Great. Thank you very much. Very clear. Thank you.

Because of the time constraint, next question would be the last.

From UBS, Sakai-san, please go ahead and ask your question. Thank you very much.

Two questions. This is more like a general question for Dr. Plump. IRA has started impacting the industry and likely to remain for some time. And the industry is screaming about the squeezing the raw molecule development. Do you think that that is going to impact your pipeline strategy going forward? Especially I'm interested in the That's all, that's all today. Life cycle management, extra indication strategy. Can you comment anything interesting on this topic? That's my first question. The second question is, Weber-san, thanks for your service, I must say, but Julie Kim, is she going to be stationed in Tokyo? Is that going to be a must condition for her to be appointed as CEO? That's my second question.

Thank you, Sakai-san. So the first question to Andy on IRA impact on pipeline strategy, specifically on Zazacitinib. And then second question to Christoph on Julie, where she'll be located.

Thank you very much, Sakai-san. It's a great question to end the call on. I can't say that IRA won't affect the R&D strategies across the industry. Of course, it has an effect on R&D strategies. I would say that the strategy that we've adopted for our organization at Takeda withstands the IRA in the sense that we've always focused on innovation and high unmet medical need in everything that we do. In order to be competitive in the world of IRA, those are two features that every company will need to focus on innovation and high unmet medical need. With respect to zazocitinib, I would say that yes, IRA has effects in how we strategically approach zazocitinib. This is a molecule with the potential for many indications. Historically, companies might have approached a program like this strategically in a more sequential way. We're approaching it in a parallel way. As you know, we have four ongoing indications today, psoriasis, psoriatic arthritis, ulcerative colitis, and Crohn's disease. And we're in the process of looking at additional indications. And over the course of the coming months, you'll hear more of our strategy to expand for zazacitinib.

Thank you, Dr. Gassan, for your questions. First, I would like to say that I started a few years ago to be based in Tokyo, the majority of the time, and in Boston. So I am between these two locations because our global hub in Boston is so important. So I want to stress that out. So my location today is Tokyo and Boston. And Julie is very much committed to also have this Tokyo-Boston location. That's part of the agreement, if you like.

Thank you.

Thank you. Thank you very much.